Ebook Contemporary marketing: Part 2

(BQ) Part 2 book Contemporary marketing has contents: Relationship marketing and customer relationship management, product and service strategies, developing and managing brand and product categories, marketing channels and supply chain management; integrated marketing communications, advertising and public relations,...and other contents.

341 PART Product Decisions Chapter 11 Product and Service Strategies © Getty Images/PhotoDisc Chapter 12 Developing and Managing Brand and Product Categories 342 11 TER Strategies © Terri Miller/E-Visual Communications, Inc CHAP Product and Service Green reen Works: C Clorox Aims to Clean Up the Environment When you laundry, you want your clothes to come out clean Add dd a little ble bleach, and those athletic socks emerge a crisp white Clorox been whitening socks, T-shirts, towels, and sheets— lorox has be anything g needing a d dose of bleach—for centu While consumers are more than a century and until now no one would loyal to the brand, have pointed to Clorox products as good for the environment In fact, detergents in general, along with household cleaners, have come under fire from environmental groups for the chemicals they contain and for the residues they leave in groundwater and the soil So why are people suddenly using Clorox and green in the same sentence? The Clorox Co has developed a line of natural, biodegradable household cleaners—including an all-purpose cleaner, 343 PRODUCT AND SERVICE STRATEGIES window cleaner, bathroom cleaner, and others—called Green Works The new products are available at traditional supermarkets like Safeway and Wal-Mart, so people don’t have to travel to specialty stores to find them They are also priced competitively Best of all, they work In the past, Clorox has been reluctant to join the league of green products because of the products’ negative reputation among mainstream consumers “There are four reasons this [green] category has been held back,” explains Matt Kohler, brand manager for Green Works “There’s a perception that natural products don’t work They’ve been very expensive People often have to go to special stores to get them And there’s not a brand that consumers know and trust.” But the only growing niche of the $2.7 billion market for household cleaners that is the green one So Clorox decided to take the plunge with a new group of products—its first new branded line in 20 years Company scientists came up with a line of cleaners that are at least 99 percent natural, biodegradable, nontoxic, and made from plant- or mineral-based ingredients instead of petroleum In addition, they are not tested on animals Although getting these products on supermarket shelves wasn’t easy, the company has another hurdle—to get skeptical consumers to buy them Some might continue to believe the products won’t work Others might dismiss the line as an opportunistic attempt to cash in on an eco-friendly trend Clorox, which had built a solid reputation for traditional cleaning products, didn’t have expertise when it came to environmental issues So the firm’s marketers made a bold move: they approached the Sierra Club for help If people were wary that Clorox could produce an environmentally friendly cleaner, maybe the Sierra Club could provide some credibility “The only way to [be successful with this] is to combine a very well-known cleaning brand with a very green brand And we are the green brand,” explains Carl Pope, executive director of the Sierra Club After extensive testing, the Sierra Club agreed to endorse the Green Works line, which would ultimately bear the Sierra Club logo on its packaging In return, the Sierra Club would receive a portion of the profits Both organizations realized the partnership would raise some eyebrows at first But both pointed to the positive outcome for consumers, the environment, and the Clorox Co., the first major cleaning products company to launch an entire green line “We’ll definitely have some folks who are surprised by this decision,” concedes Orli Cotel of the Sierra Club “[But] we are supporting Green Works in hopes that more people will have access to these kinds of products.”1 Define product and distinguish between goods and services and how they relate to the goods– services continuum Outline the importance of the service sector in today’s marketplace List the classifications of consumer goods and services and briefly describe each category Identify each of the types of business goods and services Objectives chapter 11 Discuss how quality is used by marketers as a product strategy Explain why firms develop lines of related products Describe the way marketers typically measure product mixes and make product mix decisions Explain the concept of the product lifecycle Discuss how a firm can extend a product’s lifecycle, and explain why certain products may be deleted Clorox is a well-established brand, but not one traditionally associated with an environmental focus So launching a line of green products required a boost from another wellknown brand—the Sierra Club While to some observers this may seem like an odd pairing, representatives from both organizations tout the arrangement as a win–win for both brands evolution of a brand • Green Works is the first line of products ever endorsed by the Sierra Club, which is more than 115 years old Why is this endorsement important to the development of the Green Works brand? • In addition to the Sierra Club logo, the packaging for Green Works bears a fresh flower in bloom These two images set Green Works items apart from other Clorox products Is this distinction important in the minds of consumers? Why or why not? 344 part PRODUCT DECISIONS goods and intangible services Any such strat- chapter overview egy begins with investigation, analysis, and marketing mix Blending of the four strategy elements—product, distribution, promotion, and price—to fit the needs and preferences of a specific target market We’ve discussed how marketers conduct selection of a particular target market, and it research to determine unfilled needs in their continues with the creation of a marketing markets, how customers behave during the mix designed to satisfy that segment Tangible purchasing process, and how firms expand goods and intangible services both intend to their horizons overseas Now our atten- satisfy consumer wants and needs, but the mar- tion shifts to a company’s marketing mix, keting efforts supporting them may be vastly the blend of four elements of a marketing different Many firms sell both types of prod- strategy—product, distribution, promotion, ucts, offering innovative goods and ongoing and price—to satisfy the target market This service to attract and retain customers for the chapter focuses on how firms long term Doing so can be profit- like Clorox Co select and able, as you’ll see in this chapter develop the goods and services they offer, starting with planning which products to offer The other variables of the marketing mix—distribution channels, promotional plans, and pricing decisions—must brs peaking iefly “Brand awareness is built by a thousand different interactions over time, where each one slightly builds or weakens [the customer’s] impressions.” accommodate the product strategy selected —Shelly Lazarus (b 1947) CEO OF OGILVY & MATHER ADVERTISING Marketers develop strategies to promote both tangible Define product and distinguish between goods and services and how they relate to the goods–services continuum AGENCY This chapter examines the similarities and differences in marketing goods and services It then presents basic concepts—product classifications, development of product lines, and the product lifecycle—marketers apply in developing successful products Finally, the chapter discusses product deletion and product mix decisions What Is a Product? At first, you might think of a product as an object you hold in your hand, such as a baseball or a toothbrush You might also think of the car you drive as a product But this doesn’t take into account the idea of a service as a product Nor does it consider the idea of what the product is used for So a television is more than a box with a screen and a remote control It’s really a means of providing entertainment—your favorite movies, news programs, or reality shows Marketers acknowledge this broader conception of product; they realize that people buy want satisfaction rather than objects You might feel a need for a television to satisfy a want for entertainment You might not know a lot about how the device itself works, but you underassessment check stand the results If you are entertained by watching Define product TV, then your wants are satisfied If, however, the television is working just Why is the understanding of want satisfaction fine but you don’t like the programming so important to marketers? offered, you may need to satisfy your desire chapter 11 345 PRODUCT AND SERVICE STRATEGIES for entertainment by changing your service package to include premium channels The service— and its offerings—is a product Marketers think in terms of a product as a compilation of package design and labeling, brand name, price, availability, warranty, reputation, image, and customer-service activities that add value for the customer Consequently, a product is a bundle of physical, service, and symbolic attributes designed to satisfy a customer’s wants and needs What Are Goods and Services? Services are intangible products A general definition identifies services as intangible tasks that satisfy the needs of consumer and business users But you can’t hold a service in your hand the way you can goods—tangible products customers can see, hear, smell, taste, or touch Most service providers cannot transport or store their products; customers simultaneously buy and consume these products such as haircuts, car repairs, and visits to the dentist One way to distinguish services from goods is the goods–services continuum, as shown in Figure 11.1 This spectrum helps marketers visualize the differences and similarities between goods and services A car is a pure good, but the dealer may also offer repair and maintenance services, or include the services in the price of a lease The car falls at the pure good extreme of the continuum because the repair or maintenance services are an adjunct to the purchase A dinner at an exclusive restaurant is a mix of goods and services It combines the physical goods of gourmet food with the intangible services of an attentive wait staff, elegant surroundings, and perhaps a visit to your table by the chef or restaurant owner to make sure your meal is perfect At the other extreme, a dentist provides pure service—cleaning teeth, filling cavities, taking X-rays The dentist’s office may also sell items such as night guards, but it’s the service that is primary in patients’ minds You can begin to see the diversity of services Services can be distinguished from goods in several ways: product Bundle of physical, service, and symbolic attributes designed to satisfy a customer’s wants and needs services Intangible tasks that satisfy the needs of consumer and business users goods Tangible products customers can see, hear, smell, taste, or touch Services are intangible Services not have physical features buyers can see, hear, smell, taste, or touch prior to purchase Service firms essentially ask their customers to buy a promise—the haircut will be stylish, the insurance will cover injuries, the lawn will be mowed, and so on Services are inseparable from the service providers Consumer perceptions of a service provider become their perceptions of the service itself The name of a doctor, lawyer, or hair stylist is synonymous with the service they provide A bad haircut can deter customers, while a good one will attract more to the salon A house-cleaning service such as Merry Maids depends on its workers to leave each house spotless, because its reputation is built on this service Services are perishable Providers cannot maintain inventories of their services A day spa can’t stockpile facials or pedicures A travel agent can’t keep quantities of vacations on a shelf For this reason, some service providers such as airlines and hotels may raise their prices during times of peak demand—such as during spring break from school—and reduce them when demand declines Pure Good Pure Service figure 11.1 The Goods–Services Continuum Clothes Cell Phone and Service Air Travel 346 part PRODUCT DECISIONS © AP Images/Charlie Neibergall A product often blurs the distinction between services and goods For example, U-Haul is a service that rents trucks and moving vans, which are goods Companies cannot easily standardize services However, many firms are trying to change this Most fast-food chains promise you’ll get your meal within a certain number of minutes and it will taste the way you expect it to A hotel chain may have the same amenities at each location— a pool, fitness room, free breakfast, or HBO movies Buyers often play important roles in the creation and distribution of services Service transactions frequently require interaction between buyer and seller at the production and distribution stages When a traveler arrives at the airport to pick up a rental car, he or she may have a choice of vehicle and additional amenities such as a GPS unit or car seat for a child If the car is ready to go immediately, the customer will likely be satisfied If the desired car is not available or is not clean or doesn’t have a full tank of gas, the customer may not book with this company again Service standards show wide variations New York City’s posh Le Cirque and your local Pizza Hut are both restaurants Depending on your expectations, both can be considered good restaurants But the service standards at each vary greatly At LeCirque, you’ll experience finely prepared cuisine served by a highly trained wait staff At Pizza Hut, you may serve yourself fresh pizza from the buffet If you receive your dinner from attentive wait staff at LeCirque, you will be satisfied by the service standards If the pizza at Pizza Hut is hot and fresh, and the buffet is replenished frequently, you will be satisfied by those standards as well Keep in mind that a product often blurs the distinction between services and goods U-Haul is a service that rents trucks and moving vans, which are goods LensCrafters provides eye examinations— services from optometrists—while also selling eyeglasses and contact lenses, which are goods Outline the importance of the service sector in today’s marketplace Importance of the Service Sector You would live a very different life without service firms to fill many needs You could not place a phone call, log on to the Internet, flip a switch for electricity, or even take a college course if organizations did not provide such services During an average day, you probably use many services without much thought, but these products play an integral role in your life 347 PRODUCT AND SERVICE STRATEGIES The service sector makes a crucial contribution to the U.S economy in terms of products and jobs Three of Fortune’s top ten most admired U.S companies are pure service firms— Google, FedEx, and Goldman Sachs Group But the other seven firms, all listed in Figure 11.2, provide highly regarded services in conjunction with the goods they sell.2 The U.S service sector now makes up more than two-thirds of the economy, as the shift from a goods-producing economy to a service-producing economy continues According to the U.S Department of Labor, service industries are expected to account for 15.7 million new jobs by the year 2016.3 Apple Services also play a crucial role in the international com2 Berkshire Hathaway General Electric petitiveness of U.S firms While the United States runs a Google continuing trade deficit in goods, it has maintained a trade Toyota Motor surplus in services every year since 1992.4 However, although Starbucks FedEx some economists believe more precise measurements of service Procter & Gamble exports would reveal an even larger surplus, others worry about Johnson & Johnson the effect of offshoring service jobs such as customer-service 10 Goldman Sachs Group call centers to nations such as India While some firms have found success with offshoring their call centers, others such as Dell and U.S Airways Group have decided to return much of their call center work to this country after receiving complaints from customers that they could not understand foreign employees’ accents and did not get the quality of support or service they needed.5 Termed backshoring, this trend is growing and actually becoming a marketing tool for firms “Foreign call centers feed into the perception that companies aren’t interested in their customers,” notes one marketing researcher Companies such as Royal Bank of Scotland and British energy supplier Powergen are advertising that their call centers are local, counting on the fact that the higher cost of operating local centers will be offset by the number of customers attracted and retained.6 In another emerging trend, firms are beginning to engage in homeshoring, essentially hiring contract workers to jobs from their homes Not only firms save on office space, furnishings, and supplies, most also save on healthcare and other benefits JetBlue is one well-known firm to practice homeshoring, with 900 home-based reservations agents based near Salt Lake City Similarly, Miramar, Florida–based Arise Virtual Solutions supplies home-based employees to other companies, much the way an employment agency does The practice is becoming so popular that some estimates expect the number of home-based call agents to reach 300,000 by the year 2010.7 Firms that practice homeshoring are experiencing another benefit: a reduction in the use of energy and other natural resources, which decreases these firms’ impact on the environment Because employees are not commuting to work every day, and because an office does not have to be heated, cooled, and supplied with electricity and water every day, firms not only experience reduced costs but also a drop in emissions These companies can highlight their green practices in marketing messages to customers.8 figure 11.2 America’s Most Admired Companies Source: “America’s Most Admired Companies 2008,” Fortune, accessed June 6, 2008, money.cnn.com homeshoring Hiring workers to jobs from their homes Homeshoring entails hiring contract workers to jobs from their homes Firms this to save on office space, furnishings, and supplies, as well as healthcare and other benefits © BananaStock /Jupiterimages chapter 11 348 part PRODUCT DECISIONS Observers cite several reasons for the growing importance of services, including consumer desire for speed and convenience and technological advances that allow firms to fulfill this demand Services involving wireless communications, data backup and storage, and even meal preparation for busy families are on the rise Grocery chain Trader Joe’s is benefitting from this need for quick meals by offering partially cooked, fully cooked, and flash-frozen entrées that can be picked up and prepared in less time than meals made from scratch Many traditional supermarkets offer prepared entrées and side dishes shoppers can buy at the store and heat quickly in the microwave at home Consumers are also looking to advisors to help plan for a financially secure future and insurance to protect their homes and families Most service firms emphasize marketing as a significant activity for two reasons First, the growth potential of service transactions represents a vast marketing opportunity Second, the environment for services is changing For instance, increased competition is forcing traditional service assessment check industries to differentiate themselves from their Describe the goods–services continuum competitors Providing superior service is one way to develop long-term customer relation2 List the six characteristics that distinguish ships and compete more effectively As we disservices from goods cussed earlier, relationship marketing is just Identify two reasons why services are important one of the ways service firms can to the U.S economy and business environment develop and solidify their customer relationships Why service firms emphasize marketing? Classifying Goods and Services for Consumer and Business Markets consumer (B2C) product Product destined for use by ultimate consumers business-to-business (B2B) product Product that contributes directly or indirectly to the output of other products for resale; also called industrial or organizational product A firm’s choices for marketing a good or service depend largely on the offering itself and on the nature of the target market Product strategies differ for consumer and business markets Consumer (B2C) products are those destined for use by ultimate consumers, while business (B2B) products (also called industrial or organizational products) contribute directly or indirectly to the output of other products for resale Marketers further subdivide these two major categories into more specific categories, as discussed in this section Some products fall into both categories A case in point is prescription drugs Traditionally, pharmaceutical companies marketed prescription drugs to doctors, who then made the purchase decision for their patients by writing the prescription These medications would be classified as a business product However, many drug companies now advertise their products in consumeroriented media, including magazines, television, and the Internet This direct-to-consumer advertising tops $4.8 billion each year.9 TYPES OF CONSUMER PRODUCTS The most widely used product classification system focuses on the buyer’s perception of a need for the product and his or her buying behavior However, unsought products are marketed to consumers who may not yet recognize any need for them Examples of unsought products are long-term-care insurance and funeral services However, relatively few products fall into the unsought category Most consumers recognize their own needs for various types of consumer purchases and actively seek them, so the customer buying-behavior variations are key in distinguishing the various categories The most common classification scheme for sought products divides consumer goods and services into three groups based on customers’ buying behavior: convenience, shopping, and specialty Figure 11.3 illustrates samples of these categories, together with the unsought classification chapter 11 349 PRODUCT AND SERVICE STRATEGIES figure 11.3 Classification of Consumer Products Specialty Products Lexus and Infiniti luxury cars, tax attorney, Dolce & Gabbana designer clothes, Botox injections Unsought Products Pre-need funeral plans, long-term health care (nursing home) insurance, remedial math programs Consumer Products Convenience Products Impulse Items: Magazines, disposable camera, snack foods Staples: Gasoline, dry cleaning, milk Emergency Items: Emergency room visit, plumbing repair kit, asthma inhalers Shopping Products Homogeneous: Airplane flights, computers Heterogeneous: Child care, furniture, Pilates or yoga instructors, Caribbean cruise Convenience Products Convenience products refer to goods and services consumers want to purchase frequently, immediately, and with minimal effort Milk, bread, and toothpaste are convenience products Convenience services include 24-hour quick-stop stores, walk-in hair or nail salons, copy shops, and dry cleaners Marketers further subdivide the convenience category into impulse items, staples, or emergency items Impulse goods and services are purchased on the spur of the moment—for example, a visit to a car wash or a pack of gum picked up at the register Some marketers have even come up with ways to make impulse shopping on the Internet attractive Last-minute shoppers can use GiftBaskets.com’s Gift Basket Emergency Service to choose and ship gifts quickly They can select such items as the Simple & Elegant Spa Gift Basket for a new mom or someone in need of pampering or Mrs Field’s Basket of Nibblers & Brownie Bites for anyone with a sweet tooth by p.m Monday through Friday and be assured their gift will be delivered the same day Emergency gifts don’t come cheap—they range in price from about $40 to $125—but they fulfill an immediate need for goods and services Shoppers can also sign up for the firm’s reminder service, which sends them e-mail reminders of loved ones’ birthdays, anniversaries, and any other occasion that might require a gift.10 Staples are convenience goods and services consumers constantly replenish to maintain a ready inventory: gasoline, shampoo, and dry cleaning are good examples Marketers spend many hours and dollars creating messages for consumers about these products, partly because there are so many competitors Emergency goods and services are bought in response to unexpected and urgent needs A snow blower purchased during a snowstorm and a visit to a hospital emergency room to treat a broken ankle are examples Depending on your viewpoint, the products offered by GiftBaskets’ Emergency Service could also fall into this category Because consumers devote little effort to convenience product purchase decisions, marketers must strive to make these exchanges as simple as possible Store location can boost a convenience product’s visibility Marketers compete vigorously for prime locations, which can make all the difference between a consumer choosing one gas station, vending machine, or dry cleaner over another convenience products Goods and services consumers want to purchase frequently, immediately, and with minimal effort 350 part © Image courtesy of The Advertising Archives Staples are convenience goods and services that consumers constantly replenish to maintain a ready inventory Marketers spend a significant amount of money creating messages for consumers about these products PRODUCT DECISIONS In addition, location within a store can make the difference between success and failure of a product, which is why manufacturers fight so hard for the right spot on supermarket shelves Typically, the larger and more powerful grocery manufacturers such as Sara Lee, Kellogg, and General Mills get the most visible spots But visibility to consumers sometimes comes at a price, often through a practice called slotting allowances, or slotting fees—money paid by producers to retailers to guarantee display of their merchandise According to retailers, the purpose of slotting allowances is to cover their losses if products don’t sell But the Federal Trade Commission (FTC) investigated the practice of slotting allowances and found these fees vary greatly across product categories In addition, a new trend regarding slotting allowances is emerging: growth in the private-label goods category has been so great over the last few years that retailers are willing to forfeit allowances they might receive so they can get into the manufacturing end themselves This is particularly true of private-label organic and ethnic foods Shopping Products shopping products Products consumers purchase after comparing competing offerings In contrast to the purchase of convenience items, consumers buy shopping products only after comparing competing offerings on such characteristics as price, quality, style, and color Shopping products typically cost more than convenience purchases This category includes tangible items such as clothing, furniture, electronics, and appliances as well as services such as child care, auto repairs, insurance, and hotel stays The purchaser of a shopping product lacks complete information prior to the buying trip and gathers information during the buying process Several important features distinguish shopping products: physical attributes, service attributes such as warranties and after-sale service terms, prices, styling, and places of purchase A store’s name and reputation have considerable influence on people’s buying behavior The personal selling efforts of salespeople also provide important promotional support Buyers and marketers treat some shopping products, such as refrigerators and washing machines, as relatively homogeneous products To the consumer, one brand seems largely the same as another Marketers may try to differentiate homogeneous products from competing products in several ways They may emphasize price and value, or they may attempt to educate buyers about less obvious features that contribute to a product’s quality, appeal, and uniqueness Other shopping products seem heterogeneous because of basic differences among them Examples include furniture, physical-fitness training, vacations, and clothing Differences in features often separate competing heterogeneous shopping products in the minds of consumers Perceptions of style, color, and fit can all affect consumer choices chapter 11 351 PRODUCT AND SERVICE STRATEGIES Specialty Products CLASSIFYING CONSUMER SERVICES Like tangible goods, services are also classified based on the convenience, shopping, and specialty products categories But added insights can be gained by examining several factors unique to classifying services Service firms may serve consumer markets, business markets, or both A firm offering architectural services may design either residential or commercial buildings or both A cleaning service may clean houses, offices, or both In addition, services can be classified as equipment based or people based A car wash is an equipment-based service, whereas a law office is people based Marketers may ask themselves any of these five questions to help classify certain services: What is the nature of the service? What type of relationship does the service organization have with its customers? Shopping products include tangible items such as appliances Consumers buy these products after comparing competing offerings on characteristics such as price, quality, style, and color © Image courtesy of The Advertising Archives Specialty products offer unique characteristics that cause buyers to prize those particular brands They typically carry high prices, and many represent well-known brands Examples of specialty goods include Hermès scarves, Kate Spade handbags, RitzCarlton resorts, Tiffany jewelry, and Lexus automobiles Specialty services include professional services such as financial advice, legal counsel, and cosmetic surgery Purchasers of specialty goods and services know exactly what they want—and they are willing to pay accordingly These buyers begin shopping with complete information, and they refuse to accept substitutes Because consumers are willing to exert considerable effort to obtain specialty products, producers can promote them through relatively few retail locations In fact, some firms intentionally limit the range of retailers carrying their products to add to their cachet Both highly personalized service by sales associates and image advertising help marketers promote specialty items Because these products are available in so few retail outlets, advertisements frequently list their locations or give toll-free telephone numbers that provide customers with this information In recent years, makers of some specialty products, such as Coach handbags and Donna Karan clothing, have broadened their market by selling some of their goods through company-owned discount outlets The stores attract consumers who want to own specialty items but who cannot or not wish to pay their regular prices The goods offered, however, usually are last season’s styles Tiffany has taken a different approach—broadening its base within its own store Shoppers who visit the store on Fifth Avenue in New York City can take the elevator to the second floor, where they may purchase a variety of items in sterling silver at prices significantly lower than those for gold and gemstone jewelry A number of these items are also available in Tiffany’s mail-order catalog specialty products Products with unique characteristics that cause buyers to prize those particular brands List the classifications of consumer goods and services and briefly describe each category 352 part PRODUCT DECISIONS How much flexibility is there for customization and judgment on the part of the service provider? Do demand and supply for the service fluctuate? How is the service delivered?11 A person attempting to classify the activities of a boarding kennel would answer these questions in one way; a person evaluating a lawn care service would come up with different answers For example, customers would bring their pets to the kennel to receive service, while the lawn care staff would travel to customers’ homes to provide service Workers at the kennel are likely to have closer interpersonal relationships with pet owners—and their pets—than lawn care workers, who might not meet their customers at all Someone assessing demand for the services of a ski resort or a food concession at the beach is likely to find fluctuations by season And a dentist has flexibility in making decisions about a patient’s care, whereas a delivery service must arrive with a package at the correct destination, on time APPLYING THE CONSUMER PRODUCTS CLASSIFICATION SYSTEM The three-way classification system of convenience, shopping, and specialty goods and services helps guide marketers in developing a successful marketing strategy Buyer behavior patterns differ for the three types of purchases For example, classifying a new food item as a convenience product leads to insights about marketing needs in branding, promotion, pricing, and distribution decisions Table 11.1 summarizes the impact of this classification system on the development of an effective marketing mix The classification system, however, also poses a few problems The major obstacle to implementing this system results from the suggestion that all goods and services must fit within one of the three categories Some fit neatly into one category, but others share characteristics of more than one category How would you classify the purchase of a new automobile? Before classifying the expensive good, which is handled by a few exclusive dealers in the area as a specialty product, consider other characteristics New-car buyers often shop extensively among competing models and dealers before deciding on the best deal And there is a wide range of models, features, and prices t a bl e 1 Marketing Impact of the Consumer Products Classification System Convenience Products Shopping Products Specialty Products Planning time involved in purchase Very little Considerable Extensive Purchase frequency Frequent Less frequent Infrequent Importance of convenient location Critical Important Unimportant Comparison of price and quality Very little Considerable Very little Price Low Relatively high High Importance of seller’s image Unimportant Very important Important Distribution channel length Long Relatively short Very short Number of sales outlets Many Few Very few; often one per market area Promotion Advertising and promotion by producer Personal selling and advertising by producer and retailer Personal selling and advertising by producer and retailer Consumer Factors Marketing Mix Factors chapter 11 353 PRODUCT AND SERVICE STRATEGIES to consider At one end of the spectrum is a basic Kia or Ford that could be purchased for less than $20,000 At the other end is what people are calling European supercars such as the Porsche Carrera GT, at more than $500,000, or the Ferrari Enzo, which sells for around $1 million These cars are fast, powerful, and hard to find—which boosts their value.12 So it’s a good idea to think of the categorization process in terms of a continuum representing degrees of effort expended by consumers At one end of the continuum, they casually pick up convenience items; at the other end, they search extensively for specialty products Shopping products fall between these extremes In addition, car dealers may offer services, both during and after the sale, which play a big role in the purchase decision On this continuum, the new car purchase might appear between the categories of shopping and specialty products but closer to specialty products A second problem with the classification system emerges because consumers differ in their buying patterns One person may assessment check walk into a hair salon and request a haircut without an appointment, while another may check references and compare prices What are the three major classifications of consumer before selecting a stylist But the first consumer’s products? impulse purchase of a haircut does not make hair Identify five factors marketers should consider in classifying styling services a convenience item Marketers classify goods and services by considering the purconsumer services chase patterns of the majority of buyers TYPES OF BUSINESS PRODUCTS Business buyers are professional customers Their job duties require rational, cost-effective purchase decisions For instance, General Mills applies much of the same purchase decision process to buying flour that Kellogg’s does The classification system for business products emphasizes product uses rather than customer buying behavior B2B products generally fall into one of six categories for product uses: installations, accessory equipment, component parts and materials, raw materials, supplies, and business services Figure 11.4 illustrates the six types of business products Components Intel chips, Cummins diesel engines, Spandex fabric Accessory Equipment Dell computers, Motorola cell phones, Herman Miller office chairs, BlackBerry PDAs figure 11.4 Installations Boeing 787, Toyota truck plant, Starwood Hotels, natural gas pipeline Classification of Business Products Business Services CSX (railroad), ABM (janitorial services), Ryder (trucking), Pinkerton (security services) Business Products Raw Materials sugar, crude oil, silk, titanium, iron ore Identify each of the types of business goods and services MRO Supplies Bosch staplers, Weyerhaeuser paper, Duct tape, Memorex DVDs 354 part PRODUCT DECISIONS Installations The specialty products of the business market are called installations This classification includes major capital investments for new factories and heavy machinery and for telecommunications systems Purchases of new Boeing 787 Dreamliner airplanes by Qantas and Kenya Airways are considered installations for those airlines Because installations last for long periods of time and their purchases involve large sums of money, they represent major decisions for organizations Negotiations often extend over several months and involve numerous decision makers Vendors often provide technical expertise along with tangible goods Representatives who sell custom-made equipment work closely with buying firms’ engineers and production personnel to design the most satisfactory products possible Price typically does not dominate purchase decisions for installations, although aircraft manufacturer Boeing recently landed an order from Bahrain’s Gulf Air for 24 for of its 787 model passenger jets, which will be worth $6 billion The 787 model has been extremely popular, with Boeing receiving orders for more than 800 of the aircraft.13 A purchasing firm buys such a product for its efficiency and performance over its useful life The firm also wants to minimize breakdowns Downtime is expensive because the firm must pay employees while they wait for repairs on the machine In addition, customers may be lost during downtime; in this case, travelers might choose to fly with another airline Installations are major investments often designed specifically for the purchasers Training of the buyer’s workforce to operate the equipment correctly, along with significant after-sale service, usually is also involved As a result, marketers of these systems typically focus their promotional efforts on employing highly trained sales representatives, often with technical backgrounds Advertising, if the firm uses it at all, emphasizes company reputation and directs potential buyers to contact local sales representatives Most installations are marketed directly from manufacturers to users Even a one-time sale may require continuing contacts for regular product servicing Some manufacturers prefer to lease extremely expensive installations to customers rather than sell the items outright, and they assign personnel directly to the lessees’ sites to operate or maintain the equipment Advertising is an important component in the marketing mix for accessory equipment, such as computers and other office electronics © Image courtesy of The Advertising Archives Accessory Equipment Only a few decision makers may participate in a purchase of accessory equipment—capital items that typically cost less and last for shorter periods than installations Although quality and service exert important influences on purchases of accessory equipment, price may significantly affect these decisions Accessory equipment includes products such as power tools, computers, smart phones, and cell phones Although these products are considered capital investments and buyers depreciate their costs over several years, their useful lives generally are much shorter than those of installations chapter 11 PRODUCT AND SERVICE STRATEGIES Marketing these products requires continuous representation and dealing with the widespread geographic dispersion of purchasers To cope with these market characteristics, a wholesaler— often called an industrial distributor—might be used to contact potential customers in its own geographic area Customers usually not require technical assistance, and a manufacturer of accessory equipment often can distribute its products effectively through wholesalers Advertising is an important component in the marketing mix for accessory equipment Component Parts and Materials Whereas business buyers use installations and accessory equipment in the process of producing their own final products, component parts and materials represent finished business products of one producer that become part of the final products of another producer Some materials—for example, flour—undergo further processing before becoming part of finished products Textiles, paper pulp, and chemicals are also examples of component parts and materials Bose supplies its luxury sound systems to auto manufacturers such as Audi, Infiniti, Cadillac, and Ferrari Marketers for the auto manufacturers believe that Bose systems are a good match between premium sound and their top-line vehicles, comparing the high performance of the Bose sound systems to the high performance of their cars.14 Purchasers of component parts and materials need regular, continuous supplies of uniformquality products They generally contract to purchase these items for set periods of time Marketers commonly emphasize direct sales, and satisfied customers often become regular buyers Wholesalers sometimes supply fill-in purchases and handle sales to smaller purchasers Raw Materials Farm products such as beef, cotton, eggs, milk, poultry, and soybeans, and natural resources such as coal, copper, iron ore, and lumber constitute raw materials These products resemble component parts and materials in that they become part of the buyers’ final products Cargill supplies many of the raw materials for finished food products—dry corn ingredients, flour, food starch, oils and shortenings, soy protein and sweeteners, and beef and pork Food manufacturers then take and turn these materials into finished products, including cake and barbecued ribs.15 Most raw materials carry grades determined according to set criteria, assuring purchasers of the receipt of standardized products of uniform quality As with component parts and materials, vendors commonly market raw materials directly to buying organizations Wholesalers are increasingly involved in purchasing raw materials from foreign suppliers Price is seldom a deciding factor in a raw materials purchase since the costs often are set at central markets, determining virtually identical transactions among competing sellers Purchasers buy raw materials from the firms they consider best able to deliver the required quantities and qualities Supplies If installations represent the specialty products of the business market, operating supplies are its convenience products Supplies constitute the regular expenses a firm incurs in its daily operations These expenses not become part of the buyer’s final products Supplies are also called MRO items because they fall into three categories: (1) maintenance items, such as brooms, filters, and lightbulbs; (2) repair items, such as nuts and bolts used in repairing equipment; and (3) operating supplies, such as printer paper and cartridges, mouse batteries, and pens Office Max sells all kinds of supplies to small, medium, and large businesses Companies can purchase everything from paper and labels to filing cabinets, lighting, computers, and copiers The firm also offers print services, downloadable forms, and the production of custom artwork.16 A purchasing manager regularly buys operating supplies as a routine job duty Wholesalers often facilitate sales of supplies because of the low unit prices, the small order size, and the large number of potential buyers Because supplies are relatively standardized, heavy price competition frequently keeps costs under control However, a business buyer spends little time making decisions about these products Exchanges of products frequently demand simple telephone, Web, or EDI orders or regular purchases from a sales representative of a local wholesaler 355 356 part PRODUCT DECISIONS Business Services business services Intangible products firms buy to facilitate their production and operating processes t a bl e 1 Factor The business services category includes the intangible products firms buy to facilitate their production and operating processes Examples of business services are financial services, leasing and rental services that supply equipment and vehicles, insurance, security, legal advice, and consulting As mentioned earlier, many service providers sell the same services to both consumers and organizational buyers—telephone, gas, and electricity, for example—although service firms may maintain separate marketing groups for the two customer segments Organizations also purchase many adjunct services that assist their operations but are not essentially a part of the final product Cisco Systems offers its TelePresence Meeting service to businesses seeking to link people in a single interactive conference The service combines voice, data, and video on the same network, providing an interactive and collaborative experience for participants.17 Price may strongly influence purchase decisions for business services The buying firm must decide whether to purchase a service or provide that service internally This decision may depend on how frequently the firm needs the service and the specialized knowledge required to provide it In the case of TelePresence, firms may decide the cost of the service is offset by savings in travel expenses for meeting participants In addition, the service offers convenience Purchase decision processes vary considerably for different types of business services A firm may purchase window-cleaning services through a routine and straightforward process similar to buying operating supplies By contrast, a purchase decision for highly specialized environmental engineering advice requires complex analysis and perhaps lengthy negotiations similar to purchases of installations This variability of the marketing mix for business services and other business products is outlined in Table 11.2 The purchase of the right business services can make a difference in a firm’s competitiveness The Regus Group provides businesses with facilities for meetings and conferences in 400 cities across 70 countries The 950 facilities are fully furnished and equipped with every electronic medium and amenity a business could possibly need and are staffed by trained support personnel Regus assessment check serves large and small companies, including those relying on mobile and home-based workers The What are the six main classifications of firm’s services allow businesses to cusbusiness products? tomize their office and meeting needs while saving money during periods when What are the three categories of supplies? office space is not necessary.18 Marketing Impact of the Business Products Classification System Installations Accessory Equipment Component Parts and Materials Raw Materials Supplies Business Services Organizational Factors Planning time Extensive Less extensive Less extensive Varies Very little Varies Purchase frequency Infrequent More frequent Frequent Infrequent Frequent Varies Comparison of price and quality Quality very important Quality and price important Quality important Quality important Price important Varies Marketing Mix Factors Price High Relatively high Low to high Low to high Low Varies Distribution channel length Very short Relatively short Short Short Long Varies Promotion method Personal selling by producer Advertising Personal selling Personal selling Advertising by producer Varies chapter 11 PRODUCT AND SERVICE STRATEGIES Quality as a Product Strategy No matter how a product is classified, nothing is more frustrating to a customer than having a new item break after just a few uses or having it not live up to expectations The cell phone that hisses static at you unless you stand still or the seam that rips out of your new jacket aren’t life-altering experiences, but they leave an impression of poor quality that likely will lead you to make different purchases in the future Then there’s the issue of service quality—the department store that seems to have no salespeople or the computer help line that leaves you on hold for 20 minutes Quality is a key component to a firm’s success in a competitive marketplace The efforts to create and market high-quality goods and services have been referred to as total quality management (TQM) TQM expects all of a firm’s employees to continually improve products and work processes with the goal of achieving customer satisfaction and world-class performance This means engineers design products that work, marketers develop products people want, and salespeople deliver on their promises Managers are responsible for communicating the goals of total quality management to all staff members and for encouraging workers to improve themselves and take pride in their work Of course, achieving maximum quality is easier said than done, and the process is never complete Many companies solicit reviews or feedback from customers to improve their goods and services As a customer, you can provide valuable insight to marketers by providing honest feedback, as described in the “Etiquette Tips for Marketing Professionals” feature 357 Discuss how quality is used by marketers as a product strategy total quality management (TQM) Continuous effort to improve products and work processes with the goal of achieving customer satisfaction and world-class performance WORLDWIDE QUALITY PROGRAMS Although the movement began in the United States in the 1920s as an attempt to improve product quality by improving the manufacturing process, it was during the 1980s when the quality revolution picked up speed in U.S corporations The campaign to improve quality found leadership in large manufacturing firms—such as Ford, Xerox, and Motorola—had lost market share to Japanese competitors Smaller companies that supplied parts to large firms then began to recognize quality as a requirement for success Today, commitment to quality has spread to service industries, not-for-profit organizations, government agencies, and educational institutions Congress established the Malcolm Baldrige National Quality Award to recognize excellence in quality management Named after the late secretary of commerce Malcolm Baldrige, the award is the highest national recognition for quality a U.S company can receive The award works toward promoting quality awareness, recognizing quality achievements of U.S companies, and publicizing successful quality strategies The quality movement is also strong in European countries The European Union’s ISO 9001:2000 standards define international, generic criteria for quality management and quality assurance Originally developed by the International Organization for Standardization in Switzerland to ensure consistent quality among products manufactured and sold throughout the European Union (EU), the standards now include criteria for systems of management as well Although most other ISO standards are specific to particular products or processes, ISO 9001 applies to any organization, regardless of the goods or services it produces Many European companies require suppliers to complete ISO certification, a rigorous 14-month process, as a condition of doing business with them The U.S member body of ISO is the National Institute of Standards and Technology (NIST).19 BENCHMARKING Firms often rely on an important tool called benchmarking to set performance standards The purpose of benchmarking is to achieve superior performance that results in a competitive advantage in the marketplace A typical benchmarking process involves three main activities: identifying manufacturing or business processes that need improvement, comparing internal processes to those of industry leaders, and implementing changes for quality improvement The practice of benchmarking has been around for a long time Henry Ford is known to have developed his own version of the assembly line—an improvement to gain competitive advantage—by observing the way the Armour and Swift meat-packing plants processed their meat-products.20 bri efly speaking “Fast is fine, but accuracy is everything.” —Wyatt Earp (1848–1929) AMERICAN LAWMAN, GAMBLER, AND GUNFIGHTER 358 part PRODUCT DECISIONS Giving Helpful Feedback a s a consumer, you have positive and negative experiences with the goods and services you have purchased When companies ask for feedback, they are looking for information that will help them improve the products they offer either by improving the items themselves or the services supporting them You can use your training as a marketer to provide valuable feedback to companies When doing so, keep in mind the following tips • Be honest Describe clearly and accurately your experience with the company and its products, including salespeople, tech support, and anyone else with whom you have contact This doesn’t mean you should engage in an angry tirade if you are dissatisfied; instead, calmly outline the events • Be brief and to the point Include the most important details relevant to the product’s performance Then the company can concentrate on exactly what needs improvement Don’t go into a long description unless you are asked for more information • Be polite Avoid rude language or comments The point is to • Be positive Don’t forget to tell the firm what does work and what you like about its products Positive feedback lets a company know what it is doing right Try to give specific examples—features of the products, results you’ve had, and so on • Offer suggestions You might not be able to give a design engineer the specs to improve your car’s interior, but you could say, “It would be great if I had a place to store my iPod,” or “I wish the cup holder was easier to reach.” • Thank the company for listening Even if you are taking an online survey, offer a thank-you to the firm if there is space for additional comments The company’s marketers will know you appreciate the opportunity to give feedback, and they might contact you for further insights Sources: “Feedback Etiquette,” eBay, reviews.ebay.com, accessed July 16, 2008; “Forum Use and Etiquette,” IBM, www.ibm.com, accessed July 16, 2008; “More than 650,000 Members Use Angie’s List,” Angie’s List, www.angieslist com, accessed May 20, 2008; Laurie Wilhelm, “Five Steps to Giving Constructive Feedback,” ArticlesBase, March 17, 2008, www.articlesbase.com find a solution to a problem, if one exists, not to offend those asking for your views Benchmarking requires two types of analyses: internal and external Before a company can compare itself with another, it must first analyze its own activities to determine strengths and weaknesses This assessment establishes a baseline for comparison External analysis involves gathering information about the benchmark partner to find out why the partner is perceived as the industry’s best A comparison of the results of the analysis provides an objective basis for making improvements Large firms engaged in benchmarking include 3M, Bank of America, DuPont, General Mills, Kraft Foods, and Sun Microsystems These firms conduct formal, complex programs, but smaller firms may decide to use benchmarking as well.21 QUALITY OF SERVICES Everyone has a story about bad and good service—the waiter who forgot a dinner order, a car mechanic who offered a ride to and from the repair shop As a consumer, your perception of the quality of the service you have purchased usually is determined during the service encounter—the point at which the customer and service provider interact Employees such as bank tellers, cashiers, and customer service representatives have a powerful impact on their customers’ decision to return or not You might pass the word to your friends about the friendly staff at your local breakfast eatery, the slow cashiers at a local supermarket, or the huge scoops of ice cream you got at the nearby ice cream stand Those words form powerful marketing messages about the services you received Service quality refers to the expected and perceived quality of a service offering, and it has a huge effect on the competitiveness of a company Toyota is so committed to service that it 359 PRODUCT AND SERVICE STRATEGIES recently opened a National Customer Center (NCC) at its lift-truck manufacturing facility in Indiana The NCC was designed specifically to serve its lift-truck customers and dealers, and it features a 360degree showroom, a facility for live product demonstrations, a presentation theater, and a national training center.22 Unfortunately, poor service can cut into a firm’s competitiveness When Amazon.com Web Service’s hosted storage service went dark one recent business day, its customers— companies who pay Amazon for the storage of data and other content—were frustrated and angry Although service was restored within a few hours, Web entrepreneurs complained they had lost valuable business hours and might have to search for an alternative.23 When customers receive this level of service, they often switch to a competitor Service quality is determined by five variables: © AP Images/Rick Bowmer chapter 11 As a consumer, your perception of the quality of the service you have purchased is usually determined during the service encounter, the point at which the customer and service provider interact WalMart’s “How may I help you?” vests encourage customer encounters bri efly speaking Tangibles, or physical evidence A tidy office and clean uniforms are examples Reliability, or consistency of performance and dependability “The right technology Right away,” asserts software solutions provider CDW “If you can’t smile, don’t open a store.” —Chinese proverb Responsiveness, or the readiness to serve “Citi never sleeps,” say the ads for banking giant Assurances, or the confidence communicated by the service provider “Let your worries go,” reassures Northwestern Mutual, an investment and insurance firm Empathy, which shows the service provider understands customers’ needs and is ready to fulfill them “Clear your mind Relax your soul,” says Hotel Nikko San Francisco If a gap exists between the level of service customers expect and the level they think they received, it can be favorable or unfavorable If you get a larger steak than you expected or your plane arrives ahead of schedule, the gap is favorable, and you are likely to try that service again But if your steak is tiny, overcooked, and cold or your plane is two hours late, the gap is unfavorable, and you may seek out another restaurant or decide to assessment check drive the next time The “Solving an Ethical What is TQM? Controversy” feature describes how the quality of service consumers expect on their cell phones What are the five variables of service quality? can be affected by spam Development of Product Lines Few firms today market only one product A typical firm offers its customers a product line—that is, a series of related products The motivations for marketing complete product lines rather than concentrating on a single product include the desire to grow, enhancing the company’s position in the market, optimal use of company resources, and exploiting the product lifecycle The following subsections examine each of the first three reasons The final reason, exploiting the stages of the product lifecycle, is discussed in the section that focuses on strategic implications of the product lifecycle concept Explain why firms develop lines of related products product line Series of related products offered by one company 360 part PRODUCT DECISIONS Spam on Cell Phones: Who Pays? s pam is irritating enough to receive on your computer But what about your cell phone—especially when you pay for each text message you send or receive? U.S consumers are receiving more than 1.5 billion unsolicited text messages—spam—each year While that number is tiny compared with the overall number of messages sent, about 48 billion per month, consumer advocates and others expect that number to jump significantly as marketers look for new ways to reach potential customers Should consumers be forced to pay for unsolicited messages received on their cell phones? PRO Consumers who want to receive targeted marketing messages should be able to so through their cell phone plans Many companies, such as Verizon and AT&T, offer unlimited messaging plans, which would eliminate any personal cost Consumers have the option to disable incoming and outgoing text messages through most cell phone service providers, including Verizon Wireless, Sprint, T-Mobile, and AT&T So they only pay for marketing messages if they want to receive them CON Cell phone users are protected from spam by law—the CanSpam Act—which prohibits firms from sending commercial messages to cell phones without “express prior authorization.” Consumers who receive these illegal messages should not then be forced to pay for them by their cell phone companies Spam can attach itself to downloads—ringtones, games, and the like—opening a user’s phone to unwanted messages without the user knowing it The unwanted message arrives without authorization, and should not be charged to the consumer Summary Many people agree that cell phone spam is worse than computer spam because users are stuck with the bill “The reason this really burns people up is because they have to pay for messages they don’t want, and they shouldn’t have to,” points out a spokesperson for Consumers Union Fees users pay for messages represent a significant source of income for the cell phone companies, which are reluctant to absorb the cost of spam Consumer advocates recommend that people register their cell phone numbers with the Do Not Call Registry, just as they would their home phone numbers Sources: Dave Cherry, “Cell Phone Spam on the Rise,” The Arizona Republic, July 7, 2008, www.azcentral.com; Marshall Loeb, “Three Ways to Stop Cell Phone Spam,” MarketWatch, July 7, 2008, www.foxbusiness.com; Laura M Holson, “Spam Moves to Cellphones and Gets More Invasive,” The New York Times, May 10, 2008, www.nytimes.com; Phuong Cat Le, “Consumer Smarts: How to Block Cell Phone Spam and Texts,” Seattle Post-Intelligencer, June 16, 2008, seattlepi.nwsource.com; Mike Elgan, “Why You’ll Hate Cell Phone Spam,” SmartPhone Today, April 18, 2008, www.smartphonetoday.com DESIRE TO GROW A company limits its growth potential when it concentrates on a single product, even though the company may have started that way, as retailer L.L.Bean did with its single style of boots called Maine Hunting Shoes Now the company sells boots for men, women, and children, along with apparel, outdoor and travel gear, home furnishings, and even products for pets The company, which has grown into a large mail-order and online retailer with a flagship store in Freeport, Maine, is nearly a century old It is unlikely the company would have grown to its current size if the successors of Leon Leonwood Bean had stuck to manufacturing and selling a single style of his original Maine Hunting Shoes.24 ENHANCING THE COMPANY’S MARKET POSITION A company with a line of products often makes itself more important to both consumers and marketing intermediaries than a firm with only one product A shopper who purchases a 361 PRODUCT AND SERVICE STRATEGIES tent often buys related camping items For instance, L.L.Bean now offers a wide range of products with which consumers can completely outfit themselves for outdoor activities or travel They can purchase hiking boots, sleeping bags and tents, fishing gear, duffel bags, kayaks and canoes, bicycles, snowshoes and skis, as well as clothing for their adventures In addition, the firm offers Outdoor Discovery Schools programs that teach customers the basics of kayaking, fly fishing, and other sports directly related to the products they purchase from the retailer L.L.Bean also offers many of its products sized to fit children—from fleece vests to school backpacks 25 If children grow up wearing L.L.Bean clothes and skiing on L.L.Bean skis, they are more likely to continue as customers when they become adults Servicing the variety of products a company sells can also enhance its position in the market Bean’s Outdoor Discovery Schools programs are a form of service, as are its policy to accept returns—no matter what Schoolchildren who purchase the firm’s backpacks can return them anytime for a new one—even if the child has simply outgrown the pack Policies like this make consumers feel comfortable about purchasing many different products from L.L.Bean L.L.Bean, a company that started with a single style of boots, now sells boots for men, women, and children, along with apparel, outdoor and travel gears, and even products for pets They have grown into a large mail-order and online retailer © Susan Van Etten/Photo Edit chapter 11 OPTIMAL USE OF COMPANY RESOURCES By spreading the costs of its operations over a series of products, a firm may reduce the average production and marketing costs of each product Hospitals have taken advantage of idle facilities by adding a variety of outreach services Many now assessment check operate health and fitness centers that, besides generating profits themselves, also feed customers into other List the four reasons for developing a product line hospital services For example, a blood pressure check at the fitness center might result in a referral Give an example of a product line with which you are familiar to a staff physician The Product Mix A company’s product mix is its assortment of product lines and individual product offerings The right blend of product lines and individual products allows a firm to maximize sales opportunities within the limitations of its resources Marketers typically measure product mixes according to width, length, and depth Describe the way marketers typically measure product mixes and make product mix decisions 362 part PRODUCT DECISIONS PRODUCT MIX WIDTH The width of a product mix refers to the number of product lines the firm offers As Table 11.3 shows, Johnson & Johnson offers a broad line of retail consumer products in the U.S market as well as business-to-business products to the medical community Consumers can purchase overthe-counter medications, nutritional products, dental care products, and first-aid products, among others Healthcare professionals can obtain prescription drugs, medical and diagnostic devices, and wound treatments LifeScan, one of the firm’s subsidiaries, offers an entire suite of products designed to help diabetes patients manage their condition DePuy, another subsidiary, manufactures orthopedic implants and joint replacement products At the drugstore, consumers can pick up some of J&J’s classic products, such as Motrin and Visine.26 PRODUCT MIX LENGTH The length of a product mix refers to the number of different products a firm sells Table 11.3 also identifies some of the hundreds of healthcare products offered by Johnson & Johnson Some of J&J’s most recognizable brands are Band-Aid, Tylenol, and Listerine PRODUCT MIX DEPTH Depth refers to variations in each product the firm markets in its mix Johnson & Johnson’s BandAid brand bandages come in a variety of shapes and sizes, including Finger-Care Tough Strips, Comfort-Flex and Activ-Flex for elbows and knees, and Advance Healing Blister bandages PRODUCT MIX DECISIONS Establishing and managing the product mix have become increasingly important marketing tasks Adding depth, length, and width to the product mix requires careful thinking and planning; otherwise, a firm can end up with too many products, including some that don’t sell well To evaluate a firm’s product mix, marketers look at the effectiveness of its depth, length, and width Has the firm ignored a viable consumer segment? It may improve performance by increasing product line depth to offer a product variation that will attract the new segment Can the firm achieve economies in its sales and distribution efforts by adding complementary product lines to the mix? If so, a wider product mix may seem appropriate Does the firm gain equal contributions from all products in its portfolio? If not, it may decide to lengthen or shorten the product mix to increase revenues Geox is an Italian shoe manufacturer known for its patented breathable fabric that keeps feet cool and comfortable With sales of $1.2 billion, Geox is expanding both ways—in width and t a bl e 1 Johnson & Johnson’s Mix of Healthcare Products Over-the-Counter Medicines Nutritionals Skin and Hair Care Oral Care Motrin pain reliever Lactaid digestive aid Aveeno lotions Listerine oral rinse Ethicon surgical instruments & systems Tylenol pain reliever Splenda artificial sweetener Clean & Clear facial cleansers and toners REACH dental floss Lifescan diabetes management products Benadryl antihistamine Viactiv calcium supplement Johnson’s Baby Shampoo Rembrandt whitening toothpaste Orthopedic joint replacement products Mylanta antacid Sun Crystals Neutrogena soaps and shampoos Efferdent Veridex diagnostic tests Source: Company Web site, www.jnj.com, accessed July 15, 2008 Medical Devices and Diagnostics chapter 11 363 PRODUCT AND SERVICE STRATEGIES length The firm has added trendy new shoe styles, including strappy sandals and retro-inspired bowling shoes In addition, Geox has launched an apparel line, including men’s suits, made of similar breathable fabrics that help keep consumers cool and dry.27 speaking Another way to add to the mix is to purchase product lines from other companies Or a “Competition brings out the firm can acquire entire companies through mergers or acquisitions Hershey acquired the organic chocolate company Dagoba to enter the premium organic chocolate market “This business combest in products and the worst plements our premium chocolate growth platform and clearly positions Hershey as a key player in people.” within the high growth … organic market,” announced Hershey president Richard H Lenny The —David Sarnoff purchase brings such premium products as Cacao Nibs to Hershey’s cupboard.28 (1891–1971) A firm should assess its current product mix for another important reason: to determine FOUNDER AND PRESIDENT, RCA the feasibility of a line extension A line extension adds individual offerings that appeal to different market segments while remaining closely related to the existing product line In an effort to capture the interest of consumers who like to spend time outdoors, Boisset Family Estates, a French winery, began offering some of its wines in Tetra Pak bottles, which are made of recyclable cardboard Tetra Paks are lightweight and easy to transport for picnics In addition, marketers for the company note that the new packaging creates a carbon footprint ten times smaller than a glass wine bottle.29 The marketing environment also plays a role in a marketer’s evaluation of a firm’s product mix In the case of Boisset, the social-cultural environment had shifted so that consumers were looking for ways to enjoy their wine outdoors, and they also wanted to purchase a product that had a reduced impact on the natural environment Careful evaluation of a firm’s current product mix can assessment check also help marketers make decisions about brand management and new-product introductions Chapter 12 Define product mix examines the importance of branding, brand management, and the development and introduc2 How marketers typically measure product mixes? tion of new products bri e f l y The Product Lifecycle Products, like people, pass through stages as they age Successful products progress through four basic stages: introduction, growth, maturity, and decline This progression, known as the product lifecycle, is shown in Figure 11.5 The product lifecycle concept applies to products or product categories within an industry, not to individual brands For instance, camera cell phones are moving rapidly from the introductory stage to the growth stage Digital cameras are still in the growth stage, but moving toward Introduction Growth Maturity Explain the concept of the product lifecycle product lifecycle Progression of a product through introduction, growth, maturity, and decline stages Decline figure 11.5 Stages in the Product Lifecycle W SW NW N S Sales and Profits SE Smart cars NE E Wi-Fi, HDTV, GPS system, Video conferencing MP3 players, Laptop computers, Cell phones INDUSTRY SALES INDUSTRY PROFITS Time Pay phones, Desktop computers 364 part PRODUCT DECISIONS maturity Film cameras have declined so much that it is difficult for consumers to purchase film for their old cameras There is no set schedule or time frame for a particular stage of the lifecycle CDs have been around for more than a quarter of a century but are declining due to the increase in digital music downloads.30 INTRODUCTORY STAGE During the introductory stage of the product lifecycle, a firm works to stimulate demand for the new market entry Products in this stage might bring new technology to a product category Because the product is unknown to the public, promotional campaigns stress information about its features Additional promotions try to induce distribution channel members to carry the product In this phase, the public becomes acquainted with the item’s merits and begins to accept it A product whose introductory stage has been successful is the GPS mapping device Although global positioning systems have been around for a number of years, their introduction to the consumer market was recent By promoting its practical applications and making the devices easy to use, marketers have seen GPS sales increase rapidly, moving the products quickly toward the growth stage Garmin now holds 56 percent of the U.S consumer market for GPS devices, followed by Magellan and TomTom.31 Technical problems and financial losses are common during the introductory stage as companies fine-tune product design and spend money on advertising Many users remember early problems with the Internet—jammed portals, order fulfilling glitches, dot-coms that went bust But DVD players and camera phones experienced few of these setbacks Users of GPS devices reported some glitches but also conceded that some problems stem from learning how to operate the devices correctly © Michael Fein/Bloomberg News/Landov The GPS mapping device has had a successful introductory stage By promoting its practical applications and making the devices easy to use, marketers have seen GPS sales increase rapidly, moving the product toward the growth stage chapter 11 365 PRODUCT AND SERVICE STRATEGIES Sales volume rises rapidly during the growth stage as new customers make initial purchases and early buyers repurchase the product, such as camera phones and GPS devices The growth stage usually begins when a firm starts to realize substantial profits from its investment Word-of-mouth reports, mass advertising, and lowered prices all encourage hesitant buyers to make trial purchases of new products In the case of bigscreen TVs, both the plasma and LCD versions, low prices have not been a factor—many cost several thousand dollars Big-screen now refers to a TV that is about 60 inches As sales volume rises, competitors enter the marketplace, creating new challenges for marketers As companies with competing technologies vied for dominance over the last few years, the TVs themselves grew larger and larger Shoppers can purchase a 63-inch Samsung Plasma HDTV or a 65-inch Panasonic Plasma HDTV for around $5,000, or opt for the less-expensive 42-inch Toshiba at about $1,000.32 MATURITY STAGE Sales of a product category continue to grow during the early part of the maturity stage but eventually reach a plateau as the backlog of potential customers dwindles By this time, many competitors have entered the market, and the firm’s profits begin to decline as competition intensifies At this stage in the product lifecycle, differences between competing products diminish as competitors discover the product and promotional characteristics most desired by customers Available supplies exceed industry demand for the first time Companies can increase their sales and market shares only at the expense of competitors, so the competitive environment becomes increasingly important In the maturity stage, heavy promotional outlays emphasize any differences still separating competing products, and brand competition intensifies Some firms try to differentiate their products by focusing on attributes such as quality, reliability, and service Others focus on redesign or other ways of extending the product lifecycle Nike running shoes could be said to be in the maturity stage With hundreds of running shoes on the market, it is difficult to differentiate competing products But with new technology combining materials that are both lightweight and strong, Nike has unveiled the next generation of running shoes: the Flywire Each shoe weighs only one ounce and can take the pounding of an Olympic runner The shoes are so simple and inexpensive to manufacture that Nike could be looking at a whole new lifecycle for its time-honored shoes.33 DECLINE STAGE In the decline stage of a product’s life, innovations or shifts in consumer preferences bring about an absolute decline in industry sales Dial telephones became touch-tone phones, which evolved to portable phones, which are now being replaced with conventional cell phones, which in turn are being replaced with camera phones Thirty-five-millimeter home-movie film was replaced with videotape, which is now being replaced with DVD technology Some manufacturers refuse to give up in the decline stage Young consumers, accustomed to CDs and digital downloads, are beginning to turn their attention to vinyl records They have discovered their parents’ and grandparents’ collections of LPs, and hauled old record turntables out © Jonathan Ferrey/Getty Images for Nike GROWTH STAGE Nike running shoes could be classified in the maturity stage, but the company has unveiled the next generation of running shoes—the Flywire Nike could be looking at a new life cycle for its shoes bri efly speaking “In business, you get what you want by giving other people what they want.” —Alice Foote MacDougall (1867–1945) PIONEERING U.S BUSINESSWOMAN 366 part PRODUCT DECISIONS of the attic If curiosity led them to the discovery, the sound of a record seems to be holding their interest One teen explains that the poor or stark quality of many downloaded songs pushed him toward his parents’ records, which emit a warmer sound Another describes the discovery of the artistic graphics on old album covers Marketers in the music industry have taken notice, and some bands have begun to issue limited numbers of albums along with CDs and MP3 formats They don’t expect vinyl to become the primary medium for music—but are happy to resurrect a classic product for a new generation of listeners.34 The next section of this chapter discusses more specific strategies for extending the lifecycle of a product It is important to remember that the traditional product lifecycle differs from fad cycles Fashions and fads profoundly influence marketing strategies Fashions are currently popular products that tend to follow recurring lifecycles For example, bell-bottom pants popular in the 1960s and 1970s have returned as flares or boot-cut assessment check pants In contrast, fads are products with abbreviated lifecycles Most fads experience short1 Identify the four stages of the product lifecycle lived popularity and then quickly During which stage or stages are products likely fade, although some maintain residual markets among certain segments to attract the most new customers? Webkinz are an example of a fad Discuss how a firm can extend a product’s lifecycle, and explain why certain products may be deleted Extending the Product Lifecycle Marketers usually try to extend each stage of the lifecycles for their products as long as possible Product lifecycles can stretch indefinitely as a result of decisions designed to increase the frequency of use by current customers, increase the number of users for the product, find new uses, or change package sizes, labels, or product quality INCREASING FREQUENCY OF USE During the maturity stage, the sales curve for a product category reaches a maximum point if the competitors exhaust the supply of potential customers who previously had not made purchases However, if current customers buy more frequently than they formerly did, total sales will rise even though no new buyers enter the market For instance, consumers buy some products during certain seasons of the year Marketers can boost purchase frequency by persuading these people to try the product year round For decades, most people used sunscreen only during warm and sunny seasons of the year With greater warnings about the risks of sun damage and skin cancer, however, companies now advertise the benefits of using sunscreen year round In another change, Hershey now offers its famous Hershey’s Kisses with personalized messages such as “Congratulations,” “It’s a Boy,” and “Happy Birthday” to celebrate personal events INCREASING THE NUMBER OF USERS A second strategy for extending the product lifecycle seeks to increase the overall market size by attracting new customers who previously have not used the product Marketers may find their products in different stages of the lifecycle in different countries This difference can help firms extend product growth Items that have reached the maturity stage in the United States may still be in the introductory stage somewhere else NBC Universal recently announced plans to start a 24-hour local news channel in New York The network will rebuild the newsroom of its flagship station, WNBC Channel 4, integrating its content with the new channel, the local Web site, and on-location video displayed at gas pumps and in taxicabs With the change, NBC hopes to gain additional viewers.35 chapter 11 367 PRODUCT AND SERVICE STRATEGIES FINDING NEW USES Finding new uses for a product is an excellent strategy for extending a product’s lifecycle New applications for mature products include oatmeal as a cholesterol reducer, antacids as a calcium supplement, and aspirin for promoting heart health Marketers sometimes conduct contests or surveys to identify new uses for their products They may post the results or their own new ideas on their Web sites On its Web site, Arm & Hammer cites a variety of alternative uses throughout the house for its baking soda Consumers can use baking soda to clean crayon off walls, as an antacid to settle an upset stomach, and as an agent to balance the pH in swimming pool water The firm has even developed a new product—a waterproof resealable pouch—that consumers can use for poolside storage of their Arm & Hammer baking soda.36 Many firms try to extend their product lifecycles by introducing physical changes in their offerings Alternatively, new packaging and labels with updated images and slogans can help revitalize a product Procter & Gamble rejuvenated its Herbal Essences shampoo line by aiming at a younger generation of consumers with new packaging and language Instead of referring to dandruff control, marketing messages point to “no flaking away.” Different hair style products were given updated names such as “totally twisted” and “drama clean.” The shampoo and conditioner bottles are curved so that they fit together on the store shelf or bathroom counter.37 Changes in product size can lengthen a product’s lifecycle Food marketers have brought out small packages designed to appeal to one-person households and extra-large containers for customers who want to buy in bulk Other firms offer their products in convenient packages for use away from home or for use at the office Intelligentsia Coffee has stopped selling its espresso and coffee in 20-ounce sizes, opting instead for the 12-ounce cup Company marketers reason that 20 ounces dilutes the flavor of the beverages and reduces the time the coffee and espresso remain hot They also say that the 20-ounce size isn’t as popular among its customers anyway and that eliminating it from the menu was not a difficult choice.38 Product Deletion Decisions To avoid wasting resources promoting unpromising products, marketers must sometimes prune product lines and eliminate marginal products Marketers typically face this decision during the late maturity and early decline stages of the product lifecycle Periodic reviews of weak products should justify either eliminating or retaining them After battling it out with Sony in the DVD player arena, Toshiba finally conceded defeat and announced it would stop making its HD DVD player That left Sony the winner in the marketplace with its Blu-ray format, as described in the “Marketing Success” feature © Terri Miller/E-Visual Communications, Inc CHANGING PACKAGE SIZES, LABELS, OR PRODUCT QUALITY Procter & Gamble rejuvenated its Herbal Essences shampoo line by aiming at a younger generation of consumers with new packaging and language Different hair style products were given updated names such as “totally twisted.” 368 part PRODUCT DECISIONS A firm may continue to carry an unprofitable item to provide a complete line for its customers For example, while most grocery stores lose money on bulky, low-unit-value items such as salt, they continue to carry these items to meet shopper demand Shortages of raw materials sometimes prompt companies to discontinue production and marketing of previously profitable items A firm may even drop a profitable item that fails to fit into its existing product line, or fails to fit the direction in which the firm wants to grow Some of these products return to the market courtesy of other firms that purchase these “orphan brands” from the original manufacturers Eagle Snacks is one such brand Reserve Brands obtained an exclusive license to market the formerly defunct Eagle Snacks brand, hoping to attract consumers nostalgic for the many flavors of potato chips once produced by Anheuser-Busch When surveyed, assessment check many consumers never even realized that Eagle Snacks were gone, so brand awareness was still Describe the four strategies for extending intact In addition to the traditional a product’s lifecycle Eagle favorites, Reserve Brands is Under what circumstances firms decide to launching new snacks under the delete a product from their line? Eagle name, including Poppers and Eagle Bursts.39 m arketers who want their businesses to succeed continue to develop new goods and services to attract and satisfy customers They engage in continuous improvement activities, focusing on quality and customer service And they continually evaluate their company’s mix of products tions are one area in which new products quickly replace old ones Marketers are sometimes faced with the dilemma of lagging sales for formerly popular products They must come up with ways to extend the lives of certain products to extend their firms’ profitability and sometimes must recognize and delete those that no longer meet expectations Marketers everywhere are constantly developing new and better products that fit their firm’s overall strategy Technological innova- And the Winner Is Blu-ray Background As consumers demand sharper quality images when watching movies on their home screens, two high-definition players competed fiercely for attention: Toshiba’s HD DVD player and the Blu-ray, developed by Sony and now manufactured by several companies The Challenge The challenge for both companies was to get consumers to choose their products With both available, salespeople at retail outlets were reluctant to recommend one format over the other Consumers didn’t want to be stuck with obsolete technology and often were confused about the differences between the two chapter 11 369 PRODUCT AND SERVICE STRATEGIES Review of Chapter Objectives Define product and distinguish between goods and services and how they relate to the goods–services continuum Marketers define a product as the bundle of physical, service, and symbolic attributes designed to satisfy customers’ wants and needs Goods are tangible products customers can see, hear, smell, Outline the importance of the service sector in today’s marketplace The service sector makes a crucial contribution to the U.S economy in terms of products and jobs The U.S service sector now makes up more final products of another producer), raw materials (natural resources such as lumber, beef, or cotton), supplies (regular expenses a firm incurs in daily operations), and business services (the intangible products firms buy to facilitate their production and operating processes) Discuss how quality is used by marketers as a product strategy Many companies use total quality management (TQM) in an effort to encourage all employees to participate in producing the best goods and services possible Companies may also participate in ISO 9001:2000 certification or benchmarking to evaluate and (products purchased after comparison), and specialty products (those offering unique characteristics that consumers prize) Identify each of the types of business goods and services Business products are classified as installations (major capital investments), accessory equipment (capital items that cost less and last for shorter periods than installations), component parts and materials (finished business products of one producer that become part of the than two-thirds of the economy Services have grown because of consumers’ desire for speed, convenience, and technological advances List the classifications of consumer goods and services and briefly describe each category Consumer products—goods and services—are classified as convenience products (frequently purchased items), shopping products taste, or touch Services are intangible tasks that satisfy the needs of customers Goods represent one end of a continuum, and services represent the other improve quality Consumers often evaluate service quality on the basis of tangibles, reliability, responsiveness, assurance, and empathy, so marketers of service firms strive to excel in all of these areas Explain why firms develop lines of related products Companies usually produce several related products rather than individual ones to achieve the objectives of growth, optimal use The Strategy Wal-Mart announced it would carry only the Bluray devices, discontinuing Toshiba’s player on its shelves In addition to Sony’s Blu-ray player, Wal-Mart is carrying Blu-ray players made by Magnavox, Samsung, and Panasonic The retailer also added a “hi-def Blu-ray experience” corner to 1,200 of its stores, where consumers can try the $300 players before purchasing one Warner Bros has also committed to putting its movies on Blu-ray, and Netflix will carry only Blu-ray in the near future of company resources, and increased company importance in the market, and to make optimal use of the product lifecycle The Outcome Toshiba decided to stop making its HD DVD players While Blu-ray has been declared the winner in this competition, industry watchers observe that, in general, the DVD market has been declining, with more consumers opting for digital downloads Sources: Laura Sydell, “Blu-ray Wins High-Def Battle for Now,” National Public Radio, July 14, 2008, www.npr.org, Danny King, “Wal-Mart Looks to Lure the Undecided to Blu-ray,” TV Week, June 5, 2008, www.tvweek.com; “Wal-Mart Pushing Sales of Blu-ray Players,” Reuters, June 3, 2008, www.reuters.com; “Wal-Mart Chooses Blu-ray,” The New York Times, February 15, 2008, www.nytimes.com 370 part Describe how marketers typically measure product mixes and make product mix decisions Marketers must decide the right width, length, and depth of product lines Width is the number of product lines Length is the number of products a company sells Depth refers to the number of variations of a product available in a product line Marketers evaluate repurchases of the product in the growth stage Sales continue to grow during the maturity stage, but eventually level off In the decline stage, sales are reduced due to innovations or a shift in consumer preferences Describe how a firm can extend a product’s lifecycle, and explain why certain products may be deleted Marketers can extend the product lifecycle by increasing frequency of use or number of users; finding new uses for the product; or changing package size, label, or quality If none of these is success- assessment check: 1.1 the effectiveness of all three elements of the product mix They may purchase product lines from other companies or extend the product line, if necessary Firms may also acquire entire companies and their product lines through mergers and acquisitions Explain the concept of the product lifecycle The product lifecycle outlines the stages a product goes through, including introduction, growth, maturity, and decline During the introductory stage, marketers work to stimulate demand for the new product New customers make initial purchases and PRODUCT DECISIONS ful, or if the product no longer fits a firm’s line, the firm may decide to delete it from its line answers Define the term product A product is a bundle of physical, service, and symbolic attributes designed to satisfy a customer’s wants and needs 1.2 Why is the understanding of want satisfaction so important to marketers? The understanding of want satisfaction is important to marketers because it helps them understand why people purchase certain goods and services 1.3 Describe the goods–services continuum The goods–services continuum is a spectrum that helps marketers visualize the differences and similarities between goods and services 1.4 List the six characteristics distinguishing services from goods The six characteristics distinguishing services from goods are the following: (1) services are intangible; (2) services are inseparable from the service providers; (3) services are perishable; (4) companies cannot easily standardize services; (5) buyers often play important roles in the creations and distribution of services; (6) and service standards show wide variations 2.1 Identify two reasons why services are important to the U.S economy and business environment The service sector makes an important contribution to the economy in terms of products and jobs Services also play a vital role in the international competitiveness of U.S firms 2.2 Why service firms emphasize marketing? The growth of potential service transactions represents a vast marketing opportunity, and the environment for services is changing—so marketers need to find new ways to reach customers 3.1 What are the three major classifications of consumer products? The three major classifications are convenience products, shopping products, and specialty products chapter 11 3.2 PRODUCT AND SERVICE STRATEGIES Identify five factors marketers should consider in classifying consumer services Five factors are the following: (1) the nature of the service, (2) the relationship between the service organization and its customers, (3) flexibility for customization, (4) fluctuation of supply and demand, and (5) the way the service is delivered 4.1 What are the six main classifications of business products? The six main classifications of business products are the following: (1) installations, (2) accessory equipment, (3) component parts and materials, (4) raw materials, (5) supplies, and (6) business services 4.2 What are the three categories of supplies? The three categories of supplies are maintenance items, repair items, and operating supplies 5.1 What is TQM? TQM stands for total quality management, a process that expects all of a firm’s employees to continually improve its products and work processes 5.2 What are the five variables of service quality? The five variables of service quality are tangibles, reliability, responsiveness, assurances, and empathy 6.1 List the four reasons for developing a product line The four reasons why firms want to develop product lines are the following: (1) a desire to grow, (2) enhancing the company’s position in the market, (3) optimal use of company resources, and (4) exploiting the stages of the product lifecycle 6.2 Give an example of a product line with which you are familiar Product lines could include salad dressings, hybrid automobiles, sporting equipment hotel chains, and so on 7.1 Define product mix The product mix is a company’s assortment of product lines and individual product offerings 7.2 How marketers typically measure product mixes? The product mix is measured by width, length, and depth 8.1 Identify the four stages of the product lifecycle The four stages of the product lifecycle are introduction, growth, maturity, and decline 8.2 During which stage or stages are products likely to attract the most new customers? Products usually attract the most new customers during the introductory and growth stages 9.1 Describe the four strategies for extending a product’s lifecycle The four strategies are increasing frequency of use, increasing the number of users, finding new users, and changing packaging or quality 9.2 Under what circumstances firms decide to delete a product from their line? Firms may decide to delete a product if none of their strategies work, if raw materials become unavailable, or if the product no longer fits the existing or future product line 371 372 part PRODUCT DECISIONS Marketing Terms You Need to Know marketing mix 344 product 345 services 345 goods 345 homeshoring 347 consumer (B2C) product 348 business-to-business (B2B) product 348 convenience products 349 shopping products 350 specialty products 351 business services 356 total quality management (TQM) 357 product line 359 product lifecycle 363 Other Important Marketing Terms goods–services continuum 345 unsought products 348 impulse goods and services 349 staples 349 emergency goods and services 349 installations 354 accessory equipment 354 component parts and materials 355 raw materials 355 supplies 355 MRO items 355 ISO 9001:2000 357 benchmarking 357 service encounter 358 service quality 358 product mix 361 line extension 363 introductory stage 364 growth stage 365 maturity stage 365 decline stage 365 Assurance of Learning Review Choose one of the following products and explain how it blurs the distinction between goods and services a hip replacement surgery b breakfast at a popular restaurant c purchase and installation of new carpet d live concert e custom-made suit What are the differences between consumer products and B2B products? Describe a product that could be used as both What are unsought products? Give an example of an unsought product, and explain how it might be marketed What important features distinguish shopping products from one another? How does marketing for installations and accessory equipment differ? How firms use benchmarking? Describe briefly how L.L.Bean achieved each of the objectives for developing a product line Why you think the firm has been successful? What is a line extension? Describe how one of the following might create a line extension: a Bounty paper towels b Post Shredded Wheat c Celestial Seasonings tea d Tide laundry detergent What steps marketers take to make the introductory stage of the product lifecycle successful enough to reach the growth stage? What are some of the challenges they face? 10 Arm & Hammer extended the lifecycle of its baking soda by coming up with new uses for the product Think of a product whose lifecycle you believe could be extended by finding new uses Describe the product and your ideas for new uses Projects and Teamwork Exercises On your own or with a classmate, choose one of the following goods (or choose one of your own) Visit the company’s Web site to learn as much as you can about your product and the way it is marketed Then create a marketing strategy for developing the services to support your product and make it stand out from others a Lucky Brand Jeans b c d e BlackBerry smart phone Sephora makeup HP laptop Mini Cooper car On your own or with a classmate, create an advertisement for an unsought product such as flood insurance, a remedial chapter 11 373 PRODUCT AND SERVICE STRATEGIES reading or math course, a warranty for a large-screen TV, a first-aid kit, or the like How can your ad turn an unsought product into one actually desired by consumers? Consider a customer service experience you have had in the last month or so Was it positive or negative? Describe your experience to the class and then discuss how the firm might improve the quality of its customer service—even if it is already positive Johnson in Table 11.3 (on page 362), identifying the company’s major product lines, along with a few specific examples a Champion athletic clothing b Condé Nast magazines c Hilton Hotels d Sony e Volkswagen With the same classmate, create a plan for further extending one of the firm’s product lines Describe the strategy you would recommend for extending the line as well as new products that might be included Why is it important for even a small firm to develop a line of products? Choose one of the following goods and services, and describe your strategy for taking it to the next stage in its product lifecycle For products in the maturity or decline stage, describe a strategy for extending their lifecycle a Satellite radio (growth) b MP3 players (maturity) c Text messaging (growth) d Doctors’ house calls (decline) e Duct tape (maturity) Describe a fad that has come and gone during your lifetime, such as Beanie Babies or Pokemon Did you take part in the fad? Why or why not? How long did it last? Why you think it faded? With a classmate, choose one of the following firms or another that interests you Visit the firm’s Web site and measure its product mix Then create a chart like the one for Johnson & Critical-Thinking Exercises Draw a line representing the goods–services continuum Then place each of the following along the continuum Briefly explain your decision a Skype b Snapfish.com c Dillard’s department stores d Honda dealership e Aura Day Spa Make a list of all the convenience products you buy in a week Does the list change from week to week based on need or your budget? What would it take to make you switch from one product to another? Imagine your favorite restaurant List as many installations, raw materials, and supplies as you can that you think the restaurant owner or manager must be responsible for purchasing Ethics Exercise The airline industry has suffered recent setbacks such as the high cost of fuel that have forced the major carriers to cut back on many of their services Some firms, such as American Airlines, have started charging passengers fees for checked baggage Others charge for in-flight snacks or don’t serve any at all Airlines have reduced the number of flights they operate to certain destinations, packing planes full to overflowing, and made restrictions on the use of frequent-flyer miles so tight that it is difficult to cash them in Then there are the record-setting delays and lost luggage claims All of these factors add up to less-than-enjoyable flying experiences for most travelers, many of whom are opting to find other modes of transportation or just staying home.40 Suppose you are a marketer for one of the major airlines Your company is facing difficulty providing acceptable service to the passengers on its flights, but you need to find a way to emphasize the positive features of your airline’s service Using the five variables of service quality as your guideline, what steps would you take—within your realm of control—to close the gap between the level of service passengers expect and the level they have been receiving? How might you attract business customers? Would you give them a level of service that is different from families and other consumers who are flying for pleasure? 374 part PRODUCT DECISIONS Internet Exercises Extending the product lifecycle Dozens of products have been around for years The organizations behind these products are adept at managing and extending their product lifecycles One example is products made from soy Visit the United Soybean Board’s Web site (www.soynewuses.org) and prepare a report on how this organization has successfully extended the life cycle of soy products Classifying products Sony offers a wide variety of products Go to Sony.com and review the firm’s product offerings Choose five different products and classify each as a convenience, shopping, or specialty product Product deletion decisions As the text notes, companies occasionally decide to delete products Use a major search engine, such as Google, to identify two recent examples of product deletions Investigate the reasons why the firms involved made the decisions and prepare a brief report Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google Case 11.1 Under Armour Takes a Run at the Shoe Market Under Armour is known for its comfortable, moisture-wicking athletic clothing Originally made for college football players, the tops, shorts, and other items now sell across the board to professional sports teams as well as amateur tennis players and runners Recently the company took a big step: launching a new product line of running shoes, intended to compete directly with such entrenched giants as Nike, Reebok, and Adidas The new line features six different styles: two for trail running and four for road running There is also a new cross-trainer, available in three models: the Proto Speed, designed for maximum performance in straight ahead running; the Proto Evade, made for side-to-side movement; and the Proto Power, a high-top sneaker Additional styles will include models for runners with specific issues, such as pronating—those who place more weight on the inside of the foot and ankles The shoes cost between $90 and $100, which is comparable to average running shoes made by other manufacturers Under Armour CEO Kevin A Plank says adding shoes to the product mix is an important part of its strategy to grow into as fierce a contender as some of its larger rivals He explains that his company plans to target serious recreational runners who don’t have an allegiance to a specific brand, in addition to athletes who simply use running as part of their overall training Running apparel—tanks, shorts, and other items—already is a proven winner for Under Armour, as runners appreciate the technology of the fabrics used by the firm Plank says that Under Armour’s plan is to promote the technology of the new shoes just as the company has done for its clothing “Our goal is not for people to trade one shoe for another,” he notes “We believe we have a better shoe.” Under Armour plans to support the new shoes with customer service Consumers who visit the company’s Web site can click on a special link, type in their height and weight and a description of their typical workout routines, and be guided to the best shoe for their needs Since many of the stores that carry Under Armour products don’t provide a lot of sales support, Under Armour decided to make the shopping experience easier for consumers The UA running shoes will be packaged in transparent boxes so shoppers can easily identify colors and styles When a customer removes a pair of shoes from the box, more product information and assistance is visible on the inside bottom of the box chapter 11 375 PRODUCT AND SERVICE STRATEGIES The entire athletic footwear market represents more than $18 billion, and it is extremely competitive Yet Under Armour believes it has the product line—and the marketing strategy—to compete effectively for customers who want a running shoe that could actually improve their performance “We believe this signifies a tremendous opportunity for growth in the footwear category,” says Raphael Peck, senior vice president of footwear and licensing for Under Armour “Footwear will be a major growth driver for Under Armour.” Describe steps Under Armour can take to ensure the success of its new shoes during the introductory stage of the product lifecycle What should marketers plan to during the growth stage? Sources: Company Web site, www.uabiz.com, accessed July 14, 2008; Andrea K Walker, “Under Armour Enters Running Shoe Market,” Baltimore Sun, May 30, 2008, www.topix.com; Ryan Sharrow, “Under Armour to Unveil a Running Shoe in 2009,” Baltimore Business Journal, May 29, 2008, baltimore.bizjournals.com; Sean Gregory, “Under Armour’s Big Step Up,” Time, May 15, 2008, www.time.com; Darren Rovell, “Under Armour: Putting Thoughts Back ‘into the Box,’ ” CNBC.com, May 2, 2008, www.cnbc.com; David Kiley, “A First Run in Under Armour Prototype,” BusinessWeek, January 30, 2008, www.businessweek.com Questions for Critical Thinking Do you think Under Armour’s development of a new product line—running shoes—is a good move for the company? Why or why not? Video Case 11.2 Product and Service Strategy at Recycline The written case on Recycline appears on page VC-11 The Recycline video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 376 12 CHAP TER Developing and Managing Brand and Product © AP Images/PRNewsFoto/Schwinn Categories Schwinn chwinn e-Bike e-Bikes Provide Pedal Power Consumer bud budgets are being squeezed by the price of oil, which hich hikes th the cost of gasoline Fed up with their “fuel habit,” Americans mericans are doing a slow burn each time they reach for the pump But, ut, with public publ transportation nly in certain c available only U.S metropolitan ed other viable alternatives areas, they need to driving a car Thanks to leading bicycle makers like U.S.–based Schwinn, a green answer may be on the way: the electric bicycle At first glance, an electric bicycle looks no different from a traditional bike, except for a four-pound lithium-ion battery pack perched atop the rear wheel The batteries power a small motor that engages when you begin to pedal the bike As you pedal—no matter how slowly—the motor continues to run on the battery power The 377 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES motor stops when you tap the brakes The bicycle rider must keep pedaling to keep the motor running—an important distinction between e-bikes and scooters or mopeds, which operate without any physical input from the rider And while scooters and mopeds are significantly more fuel-efficient than automobiles, they still require gas to power them Another important difference: e-bikes can legally travel in the bike lane; scooters and mopeds cannot Are electric bicycles a new innovation? Hardly Schwinn and other bike makers have been marketing them for nearly a decade in Europe and Asia, where the costs of fuel and car ownership have long been financially prohibitive But it was the convergence of several events—an upward trend in world oil prices, a surge in Americans’ interest in healthy living, a growing awareness of the need to protect the environment, and the aging of the baby boom generation—that helped Schwinn realize the time was right to enter the U.S market Since the introduction of several e-bike models in America, demand for the bikes has been so great that retailers are struggling to keep them in stock Fully charged, a batterypowered bike can go 40 to 60 miles, depending on riding conditions In addition, the bike has a top cruising speed of 18 miles per hour And it’s easy to recharge the battery: simply detach it from the bike and plug it into a wall outlet It’s fully charged within three hours Bike makers say the batteries last about three years Compared with a conventional bike, electric bicycles are far from inexpensive, ranging in price from $1,900 to $2,500 Scooters, on the other hand, are even more costly, priced from $2,000 to $8,000, and they still require gas Given the cost of fill-ups, many car owners claim the e-bike’s price tag is no longer out of line for what it delivers And although fitness enthusiasts may point out that riding a battery-assisted bicycle doesn’t qualify as a true workout, the bike is attracting the attention of a broad consumer demographic, from college students to retirees The e-bike offers freedom to users of all shapes and sizes—particularly those baby boomers whose svelte days may be behind them.1 Identify the different types of brands Explain the strategic value of brand equity Explain the benefits of category and brand management Discuss how companies develop strong identities for their products and brands Identify and briefly describe each of the newproduct development strategies Describe the consumer adoption process List the stages in the new-product development process Explain the relationship between product safety and product liability Schwinn ranks as one of the leading brands in the history of U.S business Founded in Chicago in 1895 by bicycle makers Ignaz Schwinn and Adolph Arnold, over time the company became the foremost name in bicycling, building some of the bestknown models in cycling history for riders of all ages In addition to its comprehensive lines of bicycles and bicycle accessories, the company’s products today include jogging strollers, scooters, and skateboards evolution of a brand Objectives chapter 12 • When the company was founded, bicycling was a new craze sweeping the nation and Schwinn was one of nearly 100 bicycle makers in Chicago alone During the late 1980s, however, mountain biking became popular, and the company dismissed it, thinking it was merely a fad As a result, Schwinn entered the market late but ultimately rallied by hiring some of the industry’s best talent and updating its product line What should a company like Schwinn to stay ahead of trends? 378 part PRODUCT DECISIONS evolution of a brand continued • For most of the 20th century, the Schwinn name was synonymous with the finest quality in bicycles Yet, a series of events— including making the wrong call on mountain bikes— combined to force the company into bankruptcy in 1993 and again in 2001 What role did the Schwinn brand play in helping the company emerge from bankruptcy? What should Schwinn to capitalize on its brand in the future? To protect its investment and maximize the chapter overview return on it, a specialized marketer called a Brands play a huge role in our lives We try category manager, who is responsible for an certain brands for all kinds of reasons: on entire product line, must carefully nurture recommendations from friends, because both existing and new products we want to associate ourselves with the This chapter focuses on two critical ele- images certain brands possess, or because ments of product planning and strategy First, we remember colorful adver- it looks at how firms build and tisements We develop loyalty maintain identity and competi- to certain brands and prod- tive advantage for their prod- uct lines for varying reasons as well—quality of a product, price, and habit are a few examples This chapter examines the way companies make decisions about developing and managing the products and product lines they hope will become consumer necessities Developing and market- bsripeaking efly ucts through branding Second, “The man who uses Calloway golf clubs, drives a Jaguar, and wears Ralph Lauren apparel makes a statement about his identity He is a man separate and apart from the man who uses a Penn fishing reel, drives a Dodge Durango, and wears Levi’s.” planning and development it focuses on the new-product process Effective new-product planning and meeting the profit responsibility a category manager has for a product line require careful preparation The needs and desires of consumers change constantly, and success- ing a product and product line —Laurence Vincent ful marketers manage to keep and building a desired brand AMERICAN AUTHOR AND BRAND CONSULTANT up with—or stay just ahead image are costly propositions of—those changes chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES 379 Managing Brands for Competitive Advantage Think of the last time you went shopping for groceries As you moved through the store, chances are your recognition of various brand names influenced many of your purchasing decisions Perhaps you chose Colgate toothpaste over competitive offerings or loaded Heinz ketchup into your cart instead of the store brand Walking through the snack food aisle, you might have reached for Orville Redenbacher popcorn or Lay’s potato chips without much thought Marketers recognize the powerful influence products and product lines have on customer behavior, and they work to create strong identities for their products and protect them Branding is the process of creating that identity A brand is a name, term, sign, symbol, design, or some combination that identifies the products of one firm while differentiating these products from competitors’ offerings The tradition of excellence created by the Gucci Group is carried through in all the brands in its lineup—Gucci, Yves Saint Laurent, Boucheron, Stella McCartney, and Balenciaga, to name a few As you read this chapter, consider how many brands you are aware of, both those you are loyal to and those you have never tried or have tried and abandoned Table 12.1 shows some selected brands, brand names, and brand marks Satisfied buyers respond to branding by making repeat purchases of the same product because they identify the item with the name of its producer One buyer might derive satisfaction from an ice cream bar with the brand name Dove; another might derive the same satisfaction from one with the name Ben & Jerry’s brand Name, term, sign, symbol, design, or some combination that identifies the products of one firm while differentiating them from that of the competition BRAND LOYALTY Brands achieve widely varying consumer familiarity and acceptance A snowboarder might insist on a Burton snowboard, but the same consumer might show little loyalty to particular brands in another product category such as bath soap Marketers measure brand loyalty in three stages: brand recognition, brand preference, and brand insistence Brand recognition is a company’s first objective for newly introduced products Marketers begin the promotion of new items by trying to make them familiar to the public Advertising offers one effective way for increasing consumer awareness of a brand Glad is a familiar brand in U.S kitchens, and it drew on customers’ recognition of its popular sandwich bags and plastic wraps when it introduced a new plastic food wrap that seals around items with just the press of a finger Other tactics for creating brand recognition include offering free samples or discount coupons for purchases Once consumers have used a product, seen it advertised, or noticed it in stores, t a b l e 12 Selected Brands, Brand Names, and Brand Marks Brand type Dr Pepper or A&W root beer Private brand Craftsman tools (Sears) or Trader Jacques French soap (Trader Joe’s) Family brand RAID insect sprays or Progresso soups Individual brand Purex or Clorox Brand name Kleenex and Cheetos Brand mark Colonel Sanders for KFC or the gecko for Geico insurance brand recognition Consumer awareness and identification of a brand 380 part PRODUCT DECISIONS © Terri Miller/E-Visual Communications, Inc Glad, a familiar brand, drew on customers’ recognition of its popular sandwich bags and plastic wraps when it introduced a new plastic food wrap that seals with the press of a finger brand preference Consumer reliance on previous experiences with a product to choose that item again brand insistence Consumer refusal of alternatives and extensive search for desired merchandise it moves from the unknown to the known category, increasing the probability that some of those consumers will purchase it At the second level of brand loyalty, brand preference, buyers rely on previous experiences with the product when choosing it, if available, over competitors’ products You may prefer Steve Madden shoes or Juicy Couture clothes to other brands and buy their new lines as soon as they are offered If so, those products have established brand preference Brand insistence, the ultimate stage in brand loyalty, leads consumers to refuse alternatives and to search extensively for the desired merchandise A product at this stage has achieved a monopoly position with its consumers Although many firms try to establish brand insistence with all conassessment check sumers, few achieve this ambitious goal Companies that offer specialty or luxury goods and services, What is a brand? such as Rolex watches or Lexus auto2 Differentiate between brand recognition, brand mobiles, are more likely to achieve this status than those offering mass-marketed preference, and brand insistence goods and services Identify the TYPES OF BRANDS different types of brands Companies that practice branding classify brands in many ways: private, manufacturer’s or national, family, and individual brands In making branding decisions, firms weigh the benefits and drawbacks of each type of brand Some firms, however, sell their goods without any efforts at branding These items are called generic products They are characterized by plain labels, little or no advertising, and no brand names Common categories of generic products include food and household staples These no-name products were first sold in Europe at prices as much as 30 percent below those of branded products This product strategy was introduced in the U.S three decades ago The market shares for generic products increase during economic downturns generic products Products characterized by plain labels, no advertising, and the absence of brand names chapter 12 381 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES but subside when the economy improves However, many consumers request generic substitutions for certain brand-name prescriptions at the pharmacy whenever they are available Manufacturers’ Brands versus Private Brands Manufacturers’ brands, also called national brands, define the image most people form when they think of a brand A manufacturer’s brand refers to a brand name owned by a manufacturer or other producer Well-known manufacturers’ brands include Hewlett-Packard, Sony, Pepsi-Cola, Dell, and French’s In contrast, many large wholesalers and retailers place their own brands on the merchandise they market The brands offered by wholesalers and retailers usually are called private brands (or private labels) Although some manufacturers refuse to produce private-label goods, most regard such production as a way to reach additional market segments Supervalu offers many private-label products in its retail grocery stores, including Equaline over-the-counter pharmaceuticals, Homelife household goods, and President’s Choice foods The growth of private brands has paralleled chain stores in the United States Manufacturers not only sell their well-known brands to stores but also put the store’s own label on similar products Such leading manufacturers as Westinghouse, Armstrong Rubber, and Heinz generate everincreasing percentages of their total incomes by producing goods for sale under retailers’ private labels In U.S grocery stores, one of every five items sold is a private brand Worldwide, private brands account for nearly $1 trillion in retail sales and are especially popular in western European countries such as Germany and the United Kingdom.2 Consistent with its corporate goal to buy and sell green products, office supply retailer Office Depot recently launched Office Depot Green, a private-label line of environmentally sound products Over time, the line will include recycled paper and paper products, ink and toner cartridges, compact fluorescent light bulbs, and other items that create minimal impact on the environment.3 manufacturer’s brand Brand name owned by a manufacturer or other producer family brand Single brand name that identifies several related products Captive Brands Family and Individual Brands A family brand is a single brand name that identifies several related products For A family brand is a single brand name that identifies several related products KitchenAid markets a complete line of appliances under its name © Jeff Haynes/AFP/Getty Images The nation’s major discounters—such as Wal-Mart, Target, and Kmart—have come up with a spinoff of the privatelabel idea So-called captive brands are national brands sold exclusively by a retail chain Captive brands typically provide better profit margins than private labels Target’s captive brands include housewares and apparel by Michael Graves and Mossimo Giannulli; paper collections, including party supplies such as napkins, tablecloths, and paper plates by Belgian designer Isabelle de Borchgrave; Liz Lange maternity wear; furniture collections by Sean Conway; and moderately priced clothing by Isaac Mizrahi.4 382 part brs peaking iefl y “The right name is an advertisement in itself.” —Claude C Hopkins (1866–1932) AMERICAN ADVERTISING PIONEER Explain the strategic value of brand equity brand equity Added value that a respected, well-known brand name gives to a product in the marketplace PRODUCT DECISIONS example, KitchenAid markets a complete line of appliances under the KitchenAid name, and Johnson & Johnson offers a line of baby powder, lotions, plastic pants, and baby shampoo under its name All Pepperidge Farm products, including bread, rolls, and cookies, carry the Pepperidge Farm brand Frito-Lay markets both chips and salsa under its Tostitos family brand Alternatively, a manufacturer may choose to market a product as an individual brand, which uniquely identifies the item itself, rather than promoting it under the name of the company or under an umbrella name covering similar items Unilever, for example, markets Knorr, Bertolli, Lipton, and SlimFast food products; Pond’s and Sunsilk beauty products; and Lifebuoy, Lux, and Dove soaps PepsiCo’s Quaker Oats unit markets Aunt Jemima breakfast products, Life and Cap’n Crunch cereals, and Ricea-Roni side dishes along with Quaker oatmeal Its Frito-Lay division makes Lays, Ruffles, and Doritos chips and Smartfood popcorn, while the Pepsi-Cola brands include Mountain Dew, Sierra Mist, Sobe juices and teas, and Aquafina water Individual brands cost more than family brands to market because the firm must develop a new promotional campaign to introduce each new product Distinctive brands are extremely effective aids in implementing market segmentation strategies, however On the other hand, a promotional outlay for a family brand can benefit all items in the line Family brands also help marketers introduce new products to both customers and retailers Because supermarkets stock thousands of items, they hesitate to add new products unless they are confident they will be in demand Family brands should identify products of similar quality, or the firm risks harming its overall product image If Rolls-Royce marketers were to place the Rolls name on a low-end car or a line of discounted clothing, they would severely tarnish the image of the luxury car line Conversely, Lexus, Infiniti, and Porsche put their names on luxury sport-utility vehicles to capitalize on their reputations and to enhance the acceptance of the new models in a competitive market Individual brand names should, however, distinguish dissimilar products Kimberly-Clark markets two differassessment check ent types of diapers for infants under its Huggies and Pull-Ups names Procter & Gamble offers shaving Identify the different types of brands products under its Gillette name; laun2 How are generic products different from dry detergent under Cheer, Tide, and branded products? other brands; and dishwasher detergent under Cascade BRAND EQUITY As individuals, we often like to say our strongest asset is our reputation The same is true of organizations A brand can go a long way toward making or breaking a company’s reputation A strong brand identity backed by superior quality offers important strategic advantages for a firm First, it increases the likelihood that consumers will recognize the firm’s product or product line when they make purchase decisions Second, a strong brand identity can contribute to buyers’ perceptions of product quality Branding can also reinforce customer loyalty and repeat purchases A consumer who tries a brand and likes it will probably look for that brand on future store visits All of these benefits contribute to a valuable form of competitive advantage called brand equity Brand equity refers to the added value a certain brand name gives to a product in the marketplace Brands with high equity confer financial advantages on a firm because they often command comparatively large market shares and consumers may pay little attention to differences in prices Studies have also linked brand equity to high profits and stock returns Service companies are also aware of the value of brand equity In global operations, high brand equity often facilitates expansion into new markets Currently, Google is the most valuable—and most recognized—brand in the world.5 Similarly, Disney’s brand equity allows it to market its goods and services in Europe and Japan—and now China What makes a global brand powerful? According to Interbrand, which measures brand equity in dollar values, a strong brand has the power to increase a company’s sales and earnings A global brand generally is defined as one that sells at least 20 percent outside its home country chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES Global advertising agency Young & Rubicam developed another brand equity system called the BrandAsset Valuator Y&R’s database of consumers’ brand perceptions contains more than 350,000 consumer interviews and information on 19,500 brands According to Y&R, a firm builds brand equity sequentially on four dimensions of brand personality These four dimensions are differentiation, relevance, esteem, and knowledge: ୴ Differentiation refers to a brand’s ability to stand apart from competitors Brands such as Porsche and Victoria’s Secret stand out in consumers’ minds as symbols of unique product characteristics ୴ Relevance refers to the real and perceived appropriateness of the brand to a big consumer segment A large number of consumers must feel a need for the benefits offered by the brand Brands with high relevance include Microsoft and Hallmark 383 bri efly speaking “The Internet is all about branding It’s more important here than it is offline People have to remember your name and type it in There are no Golden Arches or Coke cans to remind them.” —Mark Brier AMAZON.COM EXECUTIVE ୴ Esteem is a combination of perceived quality and consumer perceptions about a brand’s growing or declining popularity A rise in perceived quality or in public opinion about a brand enhances a brand’s esteem But negative impressions reduce esteem Brands with high esteem include General Mills and Honda ୴ Knowledge refers to the extent of customers’ awareness of the brand and understanding of what a good or service stands for Knowledge implies that customers feel an intimate relationship with a brand Examples include Jell-O and Band-Aid.6 THE ROLE OF CATEGORY AND BRAND MANAGEMENT Explain the benefits of category and brand Because of the tangible and intangible value associated with strong brand equity, marketing management organizations invest considerable resources and effort in developing and maintaining these dimensions of brand personality Traditionally, companies assigned the task of managing a brand’s marketing strategies to a brand manager Today, because they sell about 80 percent of their products to national retail chains, major consumer goods companies have adopted a strategy called category management In this strategy, a manufacturer’s category manager category management Product management maximizes sales for the retailer by overseeing an entire product line, often tracking sales system in which a category history with data from the retail checkout point and aggregating it with sales data for the manager—with profit and entire category (obtained from third-party vendors) and qualitative data such as customer loss responsibility—oversees surveys a product line Unlike traditional product managers, category managers have profit responsibility for their product group and help the retailer’s category buyer maximize sales for the whole category, not just the particular manufacturer’s product These managers are assisted by associates usually called analysts Part of the shift to category management was initiated by large retailers, who realized they could benefit from the marketing muscle of large grocery and household goods producers such as Kraft and Procter & Gamble As a result, producers began to focus their attention on in-store merchandising instead of mass-market advertising Some manufacturers that are too small to dedicate a category manager to each retail chain assign a category manager to each major channel such as convenience stores, drugstores, grocery stores, and so on.8 Some of the steps companies follow in the category management process include defining the category based on the target market’s needs; scoping out a consumer’s decision process when shopping the category; identifying consumer groups and the store clusters with the greatest sales potential; creating a marketing strategy and performance goal for each cluster and using a scorecard to assessment check measure progress; and defining and executing the tactics, tracking progress Hershey’s vending division offers cat1 What is brand equity? egory management services to its institutional What are the four dimensions of brand personality? customers, providing reduced inventory costs, improved warehouse efficiency, and increased How does category management help retailers? sales.10 384 part PRODUCT DECISIONS © Image courtesy of The Advertising Archives Organizations identify their products in the marketplace with brand names, symbols, and distinctive packaging Iams stamps a paw print on all of its pet food packages Discuss how companies develop strong identities for their products and brands Product Identification Organizations identify their products in the marketplace with brand names, symbols, and distinctive packaging Almost every product distinguishable from another gives buyers some means of identifying it Sunkist Growers, for instance, stamps its oranges with the name Sunkist Iams stamps a paw print on all of its pet food packages For more than 120 years, Prudential Financial has used the Rock of Gibraltar as its symbol Choosing how to identify a firm’s output represents a major strategic decision for marketers Produce growers have another option besides gummed paper stickers for identifying fruits and vegetables: laser coding This new technology marks fruits and vegetables with their name, identification number, and country of origin The food tattoo is visible but also edible—good news for consumers who tire of peeling tiny stickers from their apples and tomatoes While the stickers provide important information in the form of four- or five-digit price look-up (PLU) codes that a supermarket cashier enters into the computer system to retrieve pricing information, the stickers must also be removed from chapter 12 385 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES the produce before it can be eaten The laser codes include the PLU code and eliminate sticky labels 11 BRAND NAMES AND BRAND MARKS brand name Part of a brand, consisting of letters, numbers, or words, that can be spoken and that identifies and distinguishes a firm’s offerings from those of its competitors A brand mark is a symbol or pictorial design that distinguishes a product, such as the Jolly Green Giant for Gree n Giant Vegetables © Image courtesy of The Advertising Archives A name plays a central role in establishing brand and product identity The American Marketing Association defines a brand name as the part of a brand that can be spoken It can consist of letters, numbers, or words and forms a name that identifies and distinguishes the firm’s offerings from those of its competitors Firms can also identify their brands by brand marks A brand mark is a symbol or pictorial design that distinguishes a product such as the Jolly Green Giant for Green Giant Vegetables Effective brand names are easy to pronounce, recognize, and remember Short names, such as Nike, Ford, and Bounty, meet these requirements Marketers try to overcome problems with easily mispronounced brand names by teaching consumers the correct pronunciations For example, early advertisements for the Korean carmaker Hyundai explained that the name rhymes with Sunday Sensitivity to clear communication doesn’t end with the choice of brand name; marketers should also be aware of how well they get their point across in interpersonal communications The “Etiquette Tips for Marketing Professionals” feature provides some tips for avoiding jargon in marketing communications A brand name should also give buyers the correct connotation of the product’s image Nissan’s X-Terra connotes youth and extreme sports to promote the off-road SUV, while Kodak’s EasyShare tells consumers how simple printing digital pictures can be ConAgra’s Healthy Choice food line presents an alternative to fast foods that may be high in sodium or fat, and the iPod Nano uses a name that aptly suggests its tiny size A brand name must also qualify for legal protection The Lanham Act of 1946 states that registered trademarks must not contain words or phrases in general use, such as automobile or suntan lotion These generic words actually describe particular types of products, and no company can claim exclusive rights to them Marketers feel increasingly hard-pressed to coin effective brand names, as multitudes of competitors rush to stake out names for their own products Some companies register names before they have products to fit them to prevent competitors from using them Few, however, have found as memorable a name for their product as Louisiana pharmacist George Boudreaux, whose highly successful diaper rash cream is called Boudreaux’s Butt Paste The Butt Paste line has been extended with products for chapped lips, razor burn, bedsores, and other conditions, but nothing keeps the Butt Paste name in front of the public like its NASCAR sponsorships.12 When a class of products becomes generally known by the original brand name of a specific offering, the brand name may become a descriptive generic name If this occurs, the 386 part PRODUCT DECISIONS IMHO Don’t Use Jargon! Seriously, I’m Not JK w ireless technology has supercharged the pace of everyday life, and with it comes the temptation to use the shorthand common to text messaging in other everyday communications But consider these facts: • When you use abbreviations like “btw” and “p&c” in your com- munication, you’re using jargon And by its very definition, jargon can be confusing and misleading For example, while it might be obvious to you that “btw” stands for “by the way,” to another person it may mean “between.” You may interpret “p&c” to mean “private and confidential,” but to people in the insurance industry, it stands for “property and casualty.” And think of the potential danger in using “jk” when you mean “just kidding”: your reader may skip right past those two letters or mistake them for someone’s initials brs peaking iefl y “The brand is the amusement park The product is the souvenir.” —Nicholas Graham FOUNDER AND CUO CHIEF UNDERPANTS OFFICER, JOE BOXER, INC • Jargon excludes When you use jargon and people don’t understand your message, they may peg you as someone who’s not open or friendly In fact, recent studies reveal that jargon users are perceived as less likable • Using jargon in business communication could be a deal breaker Although the jargon of text-messaging has become increasingly common, it’s too casual for business communiqués and creates a poor impression as you search for—or try to succeed at—that new job And if your manager is older than you—say, a member of the baby boom generation—he or she is unlikely to be impressed by how cool you are Sources: Tim Burress, “Abbreviations Used in E-Mail,” Videojug.com, www.videojug com, accessed July 7, 2008; Heidi LaFleche, “Beat Business Jargon: A Veteran Bullfighter’s Tips,” Monster Career Advice, career-advice.monster.com, accessed July 7, 2008; Janienne Jennrich, “Business Text Messaging Shorthand,” Suite 101, April 2, 2008, cell-phones.suite101.com original owner loses exclusive claim to the brand name The generic names nylon, aspirin, escalator, kerosene, and zipper started as brand names Other generic names that were once brand names include cola, yo-yo, linoleum, and shredded wheat Marketers must distinguish between brand names that have become legally generic terms and those that seem generic only in many consumers’ eyes Consumers often adopt legal brand names as descriptive names Jell-O, for instance, is a brand name owned exclusively by Kraft Foods, but many consumers casually apply it as a descriptive name for gelatin desserts Similarly, many people use the term Kleenex to refer to facial tissues English and Australian consumers use the brand name Hoover as a verb for vacuuming One popular way to look something up on the Internet is now to “Google it.” Xerox is such a well-known brand name that people frequently—though incorrectly—use it as a verb to mean photocopying To protect its valuable trademark, Xerox Corporation has created advertisements explaining that Xerox is a brand name and registered trademark and should not be used as a verb TRADEMARKS trademark Brand for which the owner claims exclusive legal protection Businesses invest considerable resources in developing and promoting brands and brand identities The high value of brand equity encourages firms to take steps in protecting the expenditures they invest in their brands A trademark is a brand for which the owner claims exclusive legal protection A trademark should not be confused with a trade name, which identifies a company The Coca-Cola Company is a trade name, but Coke is a trademark of the company’s product Some trade names duplicate companies’ brand names Protecting Trademarks Trademark protection confers the exclusive legal right to use a brand name, brand mark, and any slogan or product name abbreviation It designates the origin or source of a good or service chapter 12 387 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES Frequently, trademark protection is applied to words or phrases, such as Bud for Budweiser or the Met for the New York Metropolitan Opera Robert Burck, a New York street performer who gained fame as the Naked Cowboy, sued candy maker Mars for trademark infringement Burke, who plays guitar in Times Square wearing nothing but white cowboy boots, cowboy hat, and underpants, registered his likeness and the words “Naked Cowboy” as a trademark Mars, the makers of M&Ms, recently erected a video billboard showing a blue M&M playing the guitar and clad only in white boots, hat, and underpants.13 Firms can also receive trademark protection for packaging elements and product features such as shape, design, and typeface U.S law has fortified trademark protection in recent years The Federal Trademark Dilution Act of 1995 gives a trademark holder the right to sue for trademark infringement even if other products using its brand are not particularly similar or easily confused in the minds of consumers The infringing company does not even have to know it is diluting another’s trademark The act also gives a trademark holder the right to sue if another party imitates its trademark The Internet is the next battlefield for trademark infringement cases Some companies are attempting to protect their trademarks by filing infringement cases against companies using similar Internet addresses or using unauthorized versions of traditional games Such was the case when two brothers from India posted Scrabulous, their unauthorized version of Scrabble, on Facebook Hasbro, who owns the U.S rights to Scrabble, moved to protect its brand by suing the brothers for copyright and trademark violations.14 As a result, Facebook removed the game from its site Trade Dress Visual cues used in branding an overall look, such as McDonald’s “golden arches,” are sometimes referred to as trade dress © AP Photo/George Widman Visual cues used in branding create an overall look sometimes referred to as trade dress These visual components may be related to color selections, sizes, package and label shapes, and similar factors For example, the McDonald’s “golden arches,” Merrill Lynch’s bull, and the yellow of Shell’s seashell are all part of these products’ trade dress Owens Corning has registered the color pink to distinguish its insulation from the competition A combination of visual cues may also constitute trade dress Consider a Mexican food product that uses the colors of the Mexican flag: green, white, and red Trade dress disputes have led to numerous courtroom battles but no apparent consensus from the Supreme Court In a recent dispute, Procter & Gamble sued Blue Cross Laboratories, a privatelabel manufacturer, charging trade dress infringement related to its Herbal Essences brand According to the suit, 388 part PRODUCT DECISIONS Blue Cross markets its “Herbal Passion” line of shampoos and conditioners, in bottles bearing the unique Herbal Essence shape, to dollar stores.15 DEVELOPING GLOBAL BRAND NAMES AND TRADEMARKS Cultural and language variations make brand-name selection a difficult undertaking for international marketers; an excellent brand name or symbol in one country may prove disastrous in another An advertising campaign for E-Z washing machines failed in the UK because the British pronounce z as “zed.” A firm marketing a product in multiple countries must also decide whether to use a single brand name for universal promotions or tailor names to individual countries Most languages contain o and k sounds, so okay has become an international word Most languages also have a short a, so Coca-Cola, Kodak, and Texaco work as effective brands abroad A court recently awarded Adidas $65 million in a trademark and trade dress infringement suit brought against Payless ShoeSource The suit claimed that Payless bought pairs of Adidas footwear with their distinctive three stripes, then sent the shoes to China to be copied and manufactured with two or four stripes.16 PACKAGING © AP Images/Paul Sakuma Through marketing research, Heinz created their Picnic Pack, a packaging innovation that makes Heinz products easily portable for picnics and cookouts A firm’s product strategy must also address questions about packaging Like its brand name, a product’s package can powerfully influence buyers’ purchase decisions Marketers apply increasingly scientific methods to their packaging decisions Rather than experimenting with physical models or drawings, more and more package designers work on special computer graphics programs that create three-dimensional images of packages in thousands of colors, shapes, and typefaces Another software program helps marketers design effective packaging by simulating the displays shoppers see when they walk down supermarket aisles Companies conduct marketing research to evaluate current packages and to test alternative package designs Through such research, Heinz created a packaging innovation linked to usage occasions Its Heinz Picnic Pack bundles ketchup, mustard, and pickle relish in a paperboard carrier box to make it easily portable for picnics and cookouts.17 A package serves three major objectives: (1) protection against damage, spoilage, and pilferage; (2) assistance in marketing the product; and (3) cost effectiveness Let’s briefly consider each of these objectives chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES Protection against Damage, Spoilage, and Pilferage The original objective of packaging was to offer physical protection for the merchandise Products typically pass through several stages of handling between manufacturing and customer purchases, and a package must protect its contents from damage Furthermore, packages of perishable products must protect the contents against spoilage in transit and in storage until purchased by the consumer Fears of product tampering have forced many firms to improve package designs Over-thecounter medicines are sold in tamper-resistant packages covered with warnings informing consumers not to purchase merchandise without protective seals intact Many grocery items and light-sensitive products are packaged in tamper-resistant containers as well Products in glass jars, such as spaghetti sauce and jams, often come with vacuum-depressed buttons in the lids that pop up the first time the lids are opened Even prescription medicine packaging can be revolutionized for the consumer’s benefit, as Target found Its ClearRx prescription dispensing system offers bottles with easy-to-read labels, in a shape designed to fit in the palm of the hand An information card tucked into a sleeve on the back of the bottle provides a brief summary of the medication’s uses and side effects For households where several people are taking medication, color-coded rings on the neck of the bottle help family members identify their medication at a glance.18 Many packages offer important safeguards against pilferage for retailers Shoplifting and employee theft cost retailers several billion dollars each year To limit this activity, many packages feature oversized cardboard backings too large to fit into a shoplifter’s pocket or purse Efficient packaging that protects against damage, spoilage, and theft is especially important for international marketers who must contend with varying climatic conditions and the added time and stress involved in overseas shipping Assistance in Marketing the Product The proliferation of new products, changes in consumer lifestyles and buying habits, and marketers’ emphasis on targeting smaller market segments have increased the importance of packaging as a promotional tool Many firms address consumer concerns about protecting the environment by designing packages made of biodegradable and recyclable materials To demonstrate serious concern regarding environmental protection, Procter & Gamble, Coors, McDonald’s, BP Chemical, and other firms created ads that describe their efforts in developing environmentally sound packaging In a grocery store where thousands of different items compete for notice, a product must capture the shopper’s attention Marketers combine colors, sizes, shapes, graphics, and typefaces to establish distinctive trade dress that sets their products apart from the products of competitors Packaging can help establish a common identity for a group of items sold under the same brand name Like the brand name, a package should evoke the product’s image and communicate its value The design features of Folgers’ AromaSeal container include a flexible cap, special handle, and concave bottom to improve freshness and make the canister easier to use The makers of Folgers recently sued Kraft Foods, who markets Maxwell House coffee, over a Maxwell House container they claim infringes on their patented design.19 Other packages also enhance convenience Pump dispensers, for example, facilitate the use of products ranging from mustard to insect repellent Squeezable bottles of honey and ketchup make the products easier to use and store Packaging provides key benefits for convenience foods such as meals and soups packaged in microwavable containers, juice drinks in aseptic packages, and frozen entrées and vegetables packaged in single-serving portions Some firms increase consumer utility with packages designed for reuse Empty jelly jars have long doubled as drinking glasses Parents can buy bubble bath in animal-shaped plastic bottles suitable for bathtub play Packaging is a major component in Avon’s overall marketing strategy The firm’s decorative, reusable bottles have even become collectibles Cost-Effective Packaging Although packaging must perform a number of functions for the producer, marketers, and consumers, it must so at a reasonable cost Sometimes changes in the packaging can make packages 389 390 part PRODUCT DECISIONS both cheaper and better for the environment A recent redesign of the standard gallon milk jug has cut shipping costs and lessened its environmental impact The new squarish containers can be stacked on top of each other, eliminating the need for milk crates, and their boxy design is easier to distribute and store.20 Labeling Labels were once a separate element applied to a package; today, they are an integral part of a typical package Labels perform both promotional and informational functions A label carries an item’s brand name or symbol, the name and address of the manufacturer or distributor, information about the product’s composition and size, and recommended uses The right label can play an important role in attracting consumer attention and encouraging purchases Consumer confusion and dissatisfaction over such descriptions as giant economy size, king size, and family size led to the passage of the Fair Packaging and Labeling Act in 1966 The act requires that a label offer adequate information concerning the package contents and that a package design facilitate value comparisons among competing products The Nutrition Labeling and Education Act of 1990 imposes a uniform format in which food manufacturers must disclose nutritional information about their products In addition, the Food and Drug Administration (FDA) has mandated design standards for nutritional labels that provide clear guidelines to consumers about food products The FDA has also tightened definitions for loosely used terms such as light, fat free, lean, and extra lean, and it mandates that labels list the amounts of fat, sodium, dietary fiber, calcium, vitamins, and other components in typical servings The latest ruling requires food manufacturers to include on nutritional labels the total amount of trans fats—hydrogenated oils that improve texture and freshness but contribute to high levels of cholesterol—in each product The new Food Allergen Labeling and Consumer Protection Act requires that food labeling disclose all major food allergens in terms the average consumer can understand According to the Food and Drug Administration, eight allergens account for 90 percent of documented allergic reactions to food, and all must be identified They are milk, eggs, peanuts, tree nuts (almonds, cashews, walnuts), fish (such as bass, cod, and flounder), shellfish (crab, lobster, shrimp), soy, and wheat.21 Labeling requirements differ elsewhere in the world In Canada, for example, labels must provide information in both English and French The type and amount of information required on labels also vary among nations International marketers must carefully design labels to conform to the regulations of each country in which they market their merchandise The Universal Product Code (UPC) designation is another important aspect of a label or package Introduced in 1974 as a method for cutting expenses in the supermarket industry, Nintendo Extends Its Line and Stretches Consumers’ Bodies with Wii Fit Background Videogame manufacturer Nintendo hit the The Challenge Nintendo has a large user audience that U.S market in 1985 with its Nintendo Entertainment System and games like “Donkey Kong,” “Legends of Zelda,” and the “Super Mario” series Since then, it’s been “nothing but net” for the company, whose wildly popular products—like Nintendo 64, Game Boy, and Wii—became almost instant hits worldwide consists chiefly of children, teens, and young adults It wanted to extend its reach beyond this audience and find a way to attract a broader population that doesn’t currently play videogames The Strategy Noting growing worldwide concern for physical fitness and healthier living, Nintendo saw an opportunity chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES 391 UPCs are numerical bar codes printed on packages Optical scanner systems read these codes, and computer systems recognize items and print their prices on cash register receipts Although UPC scanners are costly, they permit both considerable labor savings over manual pricing and improved inventory control The Universal Product Code is also a major asset for marketing research However, many consumers feel frustrated when only a UPC is placed on a package without an additional price tag, because they not always know how much an item costs if the price labels are missing from the shelf Radio-frequency identification (RFID) tags—electronic chips that carry encoded product identification—may replace some of the functions of UPC codes, such as price identification and inventory tracking But consumer privacy concerns about the amount of information RFID tracking can accumulate may limit their use to aggregate packaging such as pallets, rather than units sized for individual sale When the FDA decided to require drug makers and marketers to place a scannable code on all drugs sold to U.S hospitals at the level of patient unit doses, it chose UPC codes BRAND EXTENSIONS Some brands become so popular that marketers may decide to use them on unrelated products in pursuit of instant recognition for the new offerings The strategy of attaching a popular brand name to a new product in an unrelated product category is known as brand extension This practice should not be confused with line extensions, which refers to new sizes, styles, or related products A brand extension, in contrast, carries over from one product nothing but the brand name In establishing brand extensions, marketers hope to gain access to new customers and markets by building on the equity already established in their existing brands This is the strategy behind Nautica’s brand extension from fashion to furniture and bedding Nintendo extended its participative Wii videogame line with the Wii Fit, as the “Marketing Success” feature discusses Targeting the 7- to 12-year-old age group, Mattel extended its Barbie fashion doll brand in an effort to sustain older children’s interest It launched the “Barbie Girls” experience, which includes a free interactive Web site and a subscription-based “VIP” version, both with opportunities for children to create a virtual world where they can design their own room, cruise a cybermall, and more A Barbie-inspired handheld MP3 device interacts with the sites Mattel also offers a free Web site for parents, with tools and resources for cyberspace safety In South America, Barbie Stores offer a “fashion-tainment” experience complete with a playroom also available for parties, a kid-sized salon, and a café Visitors to the Barbie Store can also buy Barbie-branded apparel— mostly in shades of pink.22 By creating a game that addressed those issues, it could attract new audience segments and help them get fit through exercise in a fun, engaging way The company developed Wii Fit, an “exer-game” for the Wii console Wii Fit offers four game categories: aerobics, balance games, strength training, and yoga Users stand on Wii Fit’s wireless balance board to weigh themselves, create their personal health profile, play the games, and monitor their progress Based on the standard Body Mass Index (BMI) measure, the balance board provides verbal and visual feedback and serves as a kind of virtual personal trainer The Outcome Early sales of Wii Fit show that it reaches a broad age range, from children to octogenarians And although brand extension Strategy of attaching a popular brand name to a new product in an unrelated product category Nintendo hasn’t marketed it in this way, Wii Fit is showing value as a physical therapy tool A bestseller in Japan only three months after its launch, Wii Fit is also expected to get more than a few Americans off the couch Sources: Company Web site, www.nintendo.com, accessed July 30, 2008; Ryan Kim, “Wii Fit More Than Just a Game,” San Francisco Chronicle, June 2, 2008, www sfchronicle.us; David Ho, “ ‘Wii Fit’ Exercise Game Released in U.S.,” The Atlanta JournalConstitution, May 19, 2008, www.ajc.com; Anita Hamilton, “Weighing Wii Fit: Serious Fun,” Time, May 14, 2008, www.time.com; Wes Nihei and Curt Feldman, “Americans, Time to Warm Up for Nintendo’s Wii Fit,” CNN, April 16, 2008, www.cnn.com; Lindsey Tanner, “Doctors Use Wii Games for Rehab Therapy,” Associated Press, February 8, 2008, news.yahoo.com 392 part PRODUCT DECISIONS © AP Images/Natacha Pisarenko Mattel has extended its Barbie fashion doll brand to include a Web site as well as a Barbie Store, where visitors can buy Barbie-branded apparel, mostly in shades of pink BRAND LICENSING A growing number of firms authorize other companies to use their brand names Even colleges license their logos and trademarks Known as brand licensing, this practice expands a firm’s exposure in the marketplace, much as a brand extension does The brand name’s owner also receives an extra source of income in the form of royalties from licensees, typically to percent of wholesale revenues Brand experts note several potential problems with licensing, however Brand names not transfer well to all products The PetSmart PetsHotel was a winner, as was American Idol camp, but recent losers were Precious Moments coffins, Donald Trump steaks, and Girls Gone Wild apparel If a licensee produces a poor-quality product or an item ethically incompatible with the original brand, the arrangement could damage the reputation of the brand Consider the failure of two recent Disney brand extensions: Disney cologne for children and the Disney wine collection.23 Overextension is another problem In recent years, Starbucks has attempted to extend its coffee assessment check brand to a “lifestyle” brand with the sale of coffee beans in supermarkets and CDs, books, and a Distinguish between a brand name and broad food menu in its retail outlets By moving a trademark away from the qualities that helped What are the three purposes of packaging? make it successful, the brand suffered Describe brand extension and brand licensing and market share declined Starbucks has since closed hundreds of its stores.24 New-Product Planning As its offerings enter the maturity and decline stages of the product lifecycle, a firm must add new items to continue to prosper Regular additions of new products to the firm’s line help protect it from product obsolescence chapter 12 393 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES New products are the lifeblood of any business, and survival depends on a steady flow of new entries Some new products may implement major technological breakthroughs Other new products simply extend existing product lines In other words, a new product is one that either the company or the customer has not handled before Only about 10 percent of new-product introductions bring truly new capabilities to consumers Old Product New Product Old Market Market Penetration Product Development New Market Market Development Product Diversification figure 12.1 Alternative Product Development Strategies PRODUCT DEVELOPMENT STRATEGIES Identify and A firm’s strategy for new-product development varies according to its existing product mix and the match between current offerings and the firm’s overall marketing objectives The current market positions of products also affect product development strategy Figure 12.1 identifies four alternative development strategies as market penetration, market development, product development, and product diversification A market penetration strategy seeks to increase sales of existing products in existing markets Firms can attempt to extend their penetration of markets in several ways They may modify products, improve product quality, or promote new and different ways to use products Packagedgoods marketers often pursue this strategy to boost market share for mature products in mature markets Product positioning often plays a major role in such a strategy Product positioning refers to consumers’ perceptions of a product’s attributes, uses, quality, and advantages and disadvantages relative to competing brands Marketers often conduct marketing research studies to analyze consumer preferences and to construct product positioning maps that plot their products’ positions in relation to those of competitors’ offerings Hyundai Motors is attempting to reposition its Hyundai and Kia brands in the United States Although both Hyundais and Kias entered the U.S market as economical alternatives to other cars, the company now is ratcheting up the look and feel of its sedans to take on upscale brands like Cadillac and BMW.25 A market development strategy concentrates on finding new markets for existing products Market segmentation, discussed in Chapter 9, provides useful support for such an effort Bank of America has succeeded in developing a new market by targeting Asian residents in San Francisco with special television commercials aimed at Chinese, Korean, and Vietnamese consumers Tyson Foods has reached out to the Hispanic market with specially flavored versions of its chicken products that enable consumers to prepare traditional Latin dishes at home.26 briefly describe each of the newproduct development strategies © Image courtesy of The Advertising Archives In addition to the classic Stetson scent, customers can choose flanker brands like Lady Stetson and Stetson Black Flanker brands are used often in the fragrance industry 394 part PRODUCT DECISIONS The strategy of product development refers to the introduction of new products into identifiable or established markets Hitachi entered the explosive high-definition TV market with its “1.5” brand, a line of LCD monitors only one and one-half inches thick Thin enough to be on a wall, the sleek monitors are designed to appeal to consumers who can afford to pay more for style.27 Firms may also choose to introduce new products into markets in which they have already established positions to try to increase overall market share These new offerings are called flanker brands The fragrance industry uses this strategy extensively when it develops scents related to their most popular products The flanker scents are related in both their smell and their names Coty has built a family of flanker brands around its popular Stetson fragrance The flanker brands include Lady Stetson, Stetson Sierra, Stetson Untamed, Stetson Black, and the latest in the line, Stetson Fresh.28 Finally, a product diversification strategy focuses on developing entirely new products for new markets Some firms look for new target markets that complement their existing markets; others look in completely new directions Cisco Systems, the networking company, expanded its presence in the consumer electronics market with Cisco-branded cable set-tops, radios, telephones, home teleconferencing systems, and home theater equipment These products tap into its expertise in developing computer routers and mine its relationship with Internet portals such as Yahoo! and Google.29 In selecting a new-product strategy, marketers should keep in mind an additional potential problem: cannibalization Any firm wants to avoid investing resources in a new-product introduction that will adversely affect sales of existing products A product that takes sales from another assessment check offering in the same product line is said to cannibalize that line A company can accept some loss Distinguish between market penetration of sales from existing products if the and market development strategies new offering will generate sufficient What is product development? additional sales to warrant its invest3 What is product diversification? ment in its development and market introduction Describe the consumer adoption process adoption process Stages consumers go through in learning about a new product, trying it, and deciding whether to purchase it again THE CONSUMER ADOPTION PROCESS In the adoption process, consumers go through a series of stages from first learning about the new product to trying it and deciding whether to purchase it regularly or reject it These stages in the consumer adoption process can be classified as follows: Awareness Individuals first learn of the new product, but they lack full information about it Interest Potential buyers begin to seek information about it Evaluation They consider the likely benefits of the product Trial They make trial purchases to determine its usefulness Adoption/Rejection If the trial purchase produces satisfactory results, they decide to use the product regularly Marketers must understand the adoption process to move potential consumers to the adoption stage Once marketers recognize a large number of consumers at the interest stage, they can take steps to stimulate sales by moving these buyers through the evaluation and trial stages To introduce Berry Berry, a new flavor in its iced-coffee line, Dunkin’ Donuts hosted a massive icedcoffee giveaway promotion Customers who visited a Dunkin’ Donuts retail outlet received a free 16-ounce iced coffee in the flavor of their choice The company served nearly million free cups of iced coffee during the promotion.30 consumer innovators People who purchase new products almost as soon as the products reach the market ADOPTER CATEGORIES First buyers of new products, the so-called consumer innovators, are people who purchase new products almost as soon as these products reach the market Later adopters wait for additional chapter 12 395 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES information and rely on the experiences of initial buyers before making trial purchases Consumer innovators welcome innovations in each product area Some computer users, for instance, rush to install new software immediately after each update becomes available A number of studies about the adoption of new products have identified five categories of purchasers based on relative times of adoption These categories, shown in Figure 12.2, are consumer innovators, early adopters, early majority, late majority, and laggards While the adoption process focuses on individuals and the steps they go through in making the ultimate decision of whether to become repeat purchasers of the new product or reject it as a failure to satisfy their needs, the diffusion process focuses on all members of a community or social system The focus here is on the speed at which an innovative product is accepted or rejected by all members of the community Figure 12.2 shows the diffusion process as following a normal distribution from a small group of early purchasers (innovators) to the final group of consumers (laggards) to make trial purchases of the new product A few people adopt at first and then the number of adopters increases rapidly as the value of the product becomes apparent The adoption rate finally diminishes as the number of potential consumers who have not adopted, or purchased, the product diminishes Typically, innovators make up the first 2.5 percent of buyers who adopt the new product; laggards are the last 16 percent to so Figure 12.2 excludes those who never adopt the product diffusion process Process by which new goods or services are accepted in the marketplace IDENTIFYING EARLY ADOPTERS It’s no surprise that identifying consumers or organizations most likely to try a new product can be vital to a product’s success By reaching these buyers early in the product’s development or introduction, marketers can treat these adopters as a test market, evaluating the product and discovering suggestions for modifications Because early purchasers often act as opinion leaders from whom others seek advice, their attitudes toward new products quickly spread to others Acceptance or rejection of the innovation by these purchasers can help forecast its expected success New-car models are multiplying, for instance, and many are sporting a dizzying variety of options such as ports to accommodate—and integrate—the driver’s iPod, wireless phone, and laptop Improved stability controls, collision warnings, and “smart engines” that save fuel are also available A large number of studies have established the general characteristics of first adopters These pioneers tend to be younger, are better educated, and enjoy higher incomes than other consumers They are more mobile than later adopters and change both their jobs and addresses more often They also rely more heavily than later adopters on impersonal information sources; more hesitant buyers depend primarily on company-generated promotional information and word-of-mouth communications Time of Adoption of New Product figure 12.2 Categories of Adopters Based on Relative Times of Adoption Consumer Innovators 2.5% Early Adopters 13.5% Early Majority 34% Late Majority 34% Laggards 16% 396 part PRODUCT DECISIONS Rate of Adoption Determinants Frisbees progressed from the product introduction stage to the market maturity stage in a period of six months By contrast, the U.S Department of Agriculture tried for 13 years to persuade corn farmers to use hybrid seed corn, an innovation capable of doubling crop yields Five characteristics of a product innovation influence its adoption rate: Relative advantage An innovation that appears far superior to previous ideas offers a greater relative advantage—reflected in terms of lower price, physical improvements, or ease of use— and increases the product’s adoption rate Compatibility An innovation consistent with the values and experiences of potential adopters attracts new buyers at a relatively rapid rate Consumers already comfortable with the miniaturization of communications technology are likely to be attracted to smart phones, for instance, and the iPhone’s 2- by 3-inch screen Complexity The relative difficulty of understanding the innovation influences the speed of acceptance In most cases, consumers move slowly in adopting new products they find difficult to understand or use Farmers’ cautious acceptance of hybrid seed corn illustrates how long an adoption can take Possibility of trial use An initial free or discounted trial of a good or service means adopters can reduce their risk of financial loss when they try the product A coupon for a free item or a free night’s stay at a hotel can accelerate the rate of adoption Observability If potential buyers can observe an innovation’s superiority in a tangible form, the adoption rate increases In-store demonstrations or even advertisements that focus on the superiority of a product can encourage buyers to adopt a product Marketers who want to accelerate the rate of adoption can manipulate these five characteristics at least to some extent An informative promotional message about a new allergy drug could help consumers overcome their hesitation in adopting this complex product Effective product design can emphasize an item’s advantages over the competition Everyone likes to receive something for free, so giving away small samples of a new product lets consumers try it at little or no risk In-home demonstrations or trial home placements of items such as furniture or rugs can achieve similar results Marketers must also make positive attempts to ensure the innovation’s compatibility with adopters’ value systems ORGANIZING FOR NEW-PRODUCT DEVELOPMENT A firm needs to be organized in such a way that its personnel can stimulate and coordinate newproduct development Some companies contract with independent design firms to develop new products Many assign product-innovation functions to one or more of the following entities: new-product committees, new-product departments, product managers, and venture teams New-Product Committees The most common organizational arrangement for activities in developing a new product is to center these functions in a new-product committee This group typically brings together experts in such areas as marketing, finance, manufacturing, engineering, research, and accounting Committee members spend less time conceiving and developing their own new-product ideas than reviewing and approving new-product plans that arise elsewhere in the organization The committee might review ideas from the engineering and design staff or perhaps from marketers and salespeople who are in constant contact with customers Because members of a new-product committee hold important jobs in the firm’s functional areas, their support for any new-product plan likely foreshadows approval for further development However, new-product committees in large companies tend to reach decisions slowly and maintain conservative views Sometimes members compromise so they can return to their regular responsibilities chapter 12 397 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES New-Product Departments Many companies establish separate, formally organized departments to generate and refine newproduct ideas The departmental structure overcomes the limitations of the new-product committee system and encourages innovation as a permanent full-time activity The new-product department is responsible for all phases of a development project within the firm, including screening decisions, developing product specifications, and coordinating product testing The head of the department wields substantial authority and typically reports to the chief executive officer, chief operating officer, or a top marketing executive Product Managers A product manager is another term for a brand manager, a function mentioned earlier in the chapter This marketer supports the marketing strategies of an individual product or product line Procter & Gamble, for instance, assigned its first product manager in 1927, when it made one person responsible for Camay soap Product managers set prices, develop advertising and sales promotion programs, and work with sales representatives in the field In a company that markets multiple products, product managers fulfill key functions in the marketing department They provide individual attention for each product and support and coordinate efforts of the firm’s sales force, marketing research department, and advertising department Product managers often lead new-product development programs, including creation of new-product ideas and recommendations for improving existing products However, most consumer-goods companies such as Procter & Gamble and General Mills have either modified the product manager structure or done away with it altogether in favor of a category management structure Category managers have profit and loss responsibility, which is not characteristic of the product management system This change has largely come about because of customer preference, but it can also benefit a manufacturer by avoiding duplication of some jobs and competition among the company’s own brands and its managers Venture Teams A venture team gathers a group of specialists from different areas of an organization to work together in developing new products The venture team must meet criteria for return on investment, uniqueness of product, serving a well-defined need, compatibility of the product with existing technology, and strength of patent protection Although the organization sets up the venture team as a temporary entity, its flexible lifespan may extend over a number of years When purchases confirm the commercial potential of a new product, an existing division may take responsibility for that product, or it may serve as the nucleus of a new business unit or of an entirely new company Some marketing organizations differentiate between venture teams and task forces A newproduct task force assembles an interdisciplinary group working on temporary assignment through their functional departments Its basic activities center on coordinating and integrating the work of the firm’s functional departments on a specific project Unlike a new-product committee, a venture team does not assessment check disband after every meeting Team members accept project assignments as major responsibilities, and the team exercises the Who are consumer innovators? authority it needs to both plan and implement a What characteristics of a product innovation can influence its course of action To stimulate product innovaadoption rate? tion, the venture team typically communicates What is the role of a venture team in new-product development? directly with top management but functions as an entity separate from the basic organization THE NEW-PRODUCT DEVELOPMENT PROCESS Once a firm is organized for new-product development, it can establish procedures for moving new-product ideas to the marketplace Developing a new product often is time-consuming, risky, List the stages in the new-product development process 398 part PRODUCT DECISIONS and expensive Usually, firms must generate dozens of new-product ideas to produce even one successful product In fact, the failure rate of new products averages 80 percent Products fail for a number of reasons, including inadequate market assessments, lack of market orientation, poor screening and project evaluation, product defects, and inadequate launch efforts And these blunders cost a bundle: firms invest nearly half of the total resources devoted to product innovation on products that become commercial failures A new product is more likely to become successful if the firm follows the six-step development process shown in Figure 12.3: (1) idea generation, (2) screening, (3) business analysis, (4) development, (5) test marketing, and (6) commercialization Of course, each step requires decisions about whether to proceed further or abandon the project And each step involves a greater financial investment Traditionally, most companies developed new products through phased development, which follows the six steps in an orderly sequence Responsibility for each phase passes first from product planners to designers and engineers, then to manufacturers, and finally to marketers The phased development method can work well for firms that dominate mature markets and can develop variations on existing products But with rapid changes in technology and markets, many companies feel pressured to speed up the development process This time pressure has encouraged many firms to implement accelerated product development programs These programs generally consist of teams with design, manufacturing, marketing, and sales personnel who carry out development projects from idea generation to commercialization This method can reduce the time needed to develop products because team members work on the six steps concurrently rather than in sequence Whether a firm pursues phased development or parallel product development, all phases can benefit from planning tools and scheduling methods such as the program evaluation and review technique (PERT) and the critical path method (CPM) These techniques, originally developed by the U.S Navy in connection with construction of the Polaris missile and submarine, map out the sequence of each step in a process and show the time allotments for each activity Detailed PERT and CPM flowcharts help marketers coordinate all activities in the development and introduction of new products IDEA GENERATION New-product development begins with ideas from many sources: suggestions from customers, the sales force, research and development specialists, competing products, suppliers, retailers, and independent inventors BOSE Corporation has built its brand by staying at the forefront of technology Spending an estimated $100 million a year on research, the company leads the market for products using advanced technology: sound systems for businesses, cars, and consumer home use and the award-winning Wave radio and Wave and Acoustic wave music systems.31 The CocaCola Company engaged industrial designer Yves Béhar to help transform itself to a culture in which design plays a central role throughout all operations, including new-product development, merchandising strategy, the use of technology, and processes to ensure the firm is environmentally responsible.32 Similarly, ongoing research at lawn-care industry leader ScottsMiracle-Gro helps the company fine-tune its understanding of consumer needs as it develops products and incorporates environmentally responsible behavior throughout its operations.33 figure 12.3 Steps in the New-Product Development Process SCREENING Screening separates ideas with commercial potential from those that cannot meet company objectives Some organizations maintain checklists of development standards in determining whether Step Step Step Step Step Step Idea Generation Screening Business Analysis Development Test Marketing Commercialization chapter 12 399 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES a project should be abandoned or considered further These checklists typically include factors such as product uniqueness, availability of raw materials, and the proposed product’s compatibility with current product offerings, existing facilities, and present capabilities The screening stage may also allow for open discussions of newproduct ideas among different parts of the organization BOSE Corporation has built its brand by staying at the forefront of technology Spending an estimated $100 million a year on research, the company leads the market for products that use advanced technology, such as Wave music systems A product idea that survives the initial screening must then pass a thorough business analysis This stage consists of assessing the new product’s potential market, growth rate, and likely competitive strengths Marketers must evaluate the compatibility of the proposed product with organizational resources Concept testing subjects the product idea to additional study prior to its actual development This important aspect of a new product’s business analysis represents a marketing research project that attempts to measure consumer attitudes and perceptions about the new-product idea Focus groups and in-store polling can contribute effectively to concept testing The Eclipse 500 Very Light Jet, a six-passenger airplane about the size of an SUV, weighs under 10,000 pounds and can fly faster and higher than other aircraft in its class Before manufacturing the plane, Eclipse Aviation spent years testing its concept During its research phase, the company sought input from small- and large-plane pilots as well as experts from both inside and outside the aviation industry.34 The screening and business analysis stages generate extremely important information for newproduct development because they (1) define the proposed product’s target market and customers’ needs and wants and (2) determine the product’s financial and technical requirements Firms willing to invest money and time during these stages tend to be more successful at generating viable ideas and creating successful products DEVELOPMENT Financial outlays increase substantially as a firm converts an idea into a visible product The conversion process is the joint responsibility of the firm’s development engineers, who turn the original concept into a product, and its marketers, who provide feedback on consumer reactions to the product design, package, color, and other physical features Many firms implement computer-aided design and manufacturing (CAD/CAM) systems to streamline the development stage, and prototypes may go through numerous changes before the original mock-up becomes a final © Image courtesy of The Advertising Archives BUSINESS ANALYSIS bri efly speaking “Product testing should not be the basis for introducing a new product because 90 percent of the failures have had successful product test results.” —Richard H Buskirk (1927–1994) AMERICAN MARKETING EDUCATOR 400 part PRODUCT DECISIONS © Chip East/Bloomberg News/Landov Sports eyeware marketer Oakley uses a design approach called sculptural physics, which it views as the discipline of wrapping science with art product Southern California–based sports eyewear and apparel marketer Oakley uses a design approach called sculptural physics, which it views as the discipline of wrapping science with art The company’s ideas are born using CAD/CAM engineering and are given form as three-dimensional prototypes New products are evaluated and field-tested by the world’s top athletes Once finalized, they are released to the general public TEST MARKETING As discussed in Chapter 8, many firms test market their new-product offerings to gauge consumer reaction After a company develops a prototype, it may decide to test market it to measure consumer reactions under normal competitive conditions Test marketing’s purpose is to verify that the product will perform well in a real-life environment If the product does well, the company can proceed to commercialization If it flops, the company can fine-tune certain features and reintroduce it or pull the plug on the project altogether Industries that rely heavily on test marketing are snack foods, automobiles, and movies Of course, even if a product tests well and reaches the commercialization stage, it may still take a while to catch on with the general public COMMERCIALIZATION When a new-product idea reaches the commercialization stage, it is ready for full-scale marketing assessment check Commercialization of a major new product can expose the firm to substantial expenses It must Where ideas for new products come establish marketing strategies, fund outlays for from? production facilities, and acquaint What is concept testing? the sales force, marketing intermediaries, and potential customers with the What happens in the commercialization stage? new product Explain the relationship between product safety and product liability Product Safety and Liability A product can fulfill its mission of satisfying consumer needs only if it ensures safe operation Manufacturers must design their products to protect users from harm Products that lead to injuries, either directly or indirectly, can have disastrous consequences for their makers Product liability chapter 12 401 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES refers to the responsibility of manufacturers and marketers for injuries and damages caused by their products Chapter discussed some of the major consumer protection laws that affect product safety These laws include the Flammable Fabrics Act of 1953, the Fair Packaging and Labeling Act of 1966, the Poison Prevention Packaging Act of 1970, and the Consumer Product Safety Act of 1972 Federal and state legislation play a major role in regulating product safety The Poison Prevention Packaging Act requires drug manufacturers to place their products in packaging that is child resistant yet accessible to all adults, even ones who have trouble opening containers The Consumer Product Safety Act created a powerful regulatory agency—the Consumer Product Safety Commission (CPSC) This agency has assumed jurisdiction over every consumer product category except food, automobiles, and a few other products already regulated by other agencies The CPSC has the authority to ban products without court hearings, order recalls or redesigns of products, and inspect production facilities It can charge managers of negligent companies with criminal offenses The CPSC is especially watchful of products aimed at babies and young children The federal Food and Drug Administration (FDA) must approve food, medications, and health-related devices such as wheelchairs The Food Allergen Labeling and Consumer Protection Act mentioned earlier increased the requirements for food labeling The FDA can also take products off the market if concerns arise about the safety of these products It recently investigated the safety of a certain type of plastic, as discussed in the “Solving an Ethical Controversy” feature The number of product liability lawsuits filed against manufacturers skyrocketed in recent years Marketers’ exposure to potential liability and litigation is also on the rise in many overseas markets Many of these claims reach settlements out of court For example, pharmaceuticals manufacturer Eli Lilly recently agreed to pay $1.2 billion to 28,500 people who claimed they were injured by Zyprexa, its drug for schizophrenia and bipolar disorder.35 However, juries settle many other suits, often awarding multimillion-dollar settlements to individuals or their families This threat has led most companies to step up efforts to ensure product safety Safety warnings appear prominently on the labels of such potentially hazardous products as cleaning fluids and drain cleaners to inform users of the dangers of these products, particularly to children Changes in product design have reduced the hazards posed by such products as lawn mowers, hedge trimmers, and toys Product liability insurance has become an essential element for any new or existing product strategy Premiums for this insurance have risen alarmingly, however, and insurers have almost entirely abandoned some kinds of coverage © Bob Strong/Reuters/ Landov Volvo is well known for the safety features it designs into its automobiles, and consumers recognize that fact when they decide to purchase a Volvo 402 part PRODUCT DECISIONS Are BPA Plastics Safe? b isphenol A, or BPA, is a chemical compound widely used in the production of polycarbonate plastic products, including water bottles and baby bottles BPA is also used to line most food cans to protect the food from the metal of the can and to harden other plastics such as that found in sunglasses and CDs The problem is that small amounts of BPA leach into the food or water inside the containers, and the chemical is similar to the hormone estrogen The U.S Food and Drug Administration tested BPA and found it safe Lately, however, some scientists are having second thoughts Should BPA plastics be banned? PRO Animal studies suggest that exposure to BPA could have neurological and behavioral impact on children Recent studies reveal a link between BPA and breast cancer, prostate cancer, behavioral changes, and early puberty in females Since the animal studies can’t be performed on humans, it would be better to curtail the use of BPA in food or beverage containers and not run the risk of endangering people CON When the FDA and the infant formula industry said BPA is safe, experts also said humans would have to ingest thousands of times more BPA than they’re currently exposed to on a daily basis before they were in danger BPA is used in many other industries, so people would still be exposed to it even if it were eliminated from plastic food containers and as a coating for food and beverage cans Recycled paper, for example, is high in BPA Summary The safety of BPA is the subject of continuing debate among scientists, but the FDA ruled the small amounts that leach out of containers are not a threat to infants or adults Worldwide, more than billion pounds of BPA are produced each year Experts believe BPA is in the air and in our water supply, and 93 percent of Americans have traces of BPA in their urine Only a few costeffective alternatives to BPA have been identified Yet, Canada has taken steps to restrict the use of BPA, and several U.S states are considering similar measures, citing other government reports that conflict with the FDA’s findings Clearly, the issue deserves more study Sources: “FDA: Chemical Found in Plastic Bottles Is Safe,” MSNBC, August 15, 2008, msnbc.msn.com; “Concerns About BPA Plastic,” The New York Times, May 20, 2008, www.nytimes.com; Jeffrey Weiss, “BPA Q&A: Plastic Chemical Is Difficult to Avoid,” Dallas Morning News, May 18, 2008, www.dallasnews.com; Lyndsey Layton, “U.S Cites Fears on Chemical in Plastics,” The Washington Post, April 16, 2008, www washingtonpost.com; Amy Burkholder, “Group Sounds Alarm on Infant Formula Cans,” CNN, December 4, 2007, www.cnn.com Regulatory activities and the increased number of liability claims have prompted companies to sponsor voluntary improvements in safety standards Many companies, including Wal-Mart and Mattel, have worked with the Consumer Product Safety Commission to improve their safety protocols Wal-Mart uses its Retailer Reporting Model to provide CPSC with detailed weekly reports about customer product safety complaints and concerns Safety planning is now a vital element of product strategy, and many companies now publicize the safety planning and testing that go into the development of their products Volvo, for example, is well known for the safety features it designs into its automobiles, and consumers recognize that fact when they decide to purchase a Volvo Due in part to companies’ voluntary policing efforts, however, the tide may be turning on liability lawsuits assessment check In a huge decision for the medical device industry, the U.S Supreme Court recently ruled that patients What is the role of the Consumer Product injured by medical devices could not Safety Commission (CPSC)? sue the manufacturer And with some drug makers also appealing What safety issues come under the jurisdiction multimillion-dollar judgments to the of the Food and Drug Administration (FDA)? high court, legal observers suggest the same protection may soon be applied to the pharmaceutical industry.36 chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES m arketers who want to see their products reach the marketplace successfully have a number of options for developing them, branding them, and developing a strong brand identity among consumers and business customers The key is to integrate all of the options so they are compatible with a firm’s overall business and marketing strategy and ultimately the firm’s mission As marketers consider ideas for new products, they need to be careful not to send their companies in so many different directions as to dilute the identities of their brands, making it nearly impossible to keep track of what their companies well Category management can help companies develop a consistent product mix with strong branding, while at the same time meeting the needs of customers Looking for ways to extend a brand without diluting it or compromising brand equity is also an important marketing strategy Finally, marketers must continue to work to produce high-quality products that are safe for all users Review of Chapter Objectives Explain the benefits of category and brand management Category management is beneficial to a business because it gives direct responsibility for creating profitable product lines to category managers and their product group Consumers respond to branding by making repeat purchases of favored goods and services Therefore, managing brands and categories Identify the different types of brands A generic product is an item characterized by a plain label, no advertising, and no brand name A manufacturer’s brand is a brand name owned by a manufacturer or other producer Private brands are brand names placed on products marketed by a wholesaler well-known brand name Brand equity also smoothes the path for global expansion Discuss how companies develop strong identities for their products and brands Effective brands communicate to a buyer an idea of the product’s image Trademarks, brand names, slogans, and brand icons create or retailer A family brand is a brand name that identifies several related products An individual brand is a unique brand name that identifies a specific offering within a firm’s product line to avoid grouping it under a family brand Explain the strategic value of brand equity Brand equity provides a competitive advantage for a firm because consumers are more likely to buy a product that carries a respected, of brands or product lines well can result in a direct response from consumers, increasing profits and revenues for companies and creating consumer satisfaction Brand and category managers can also enhance relationships with business customers such as retailers an association that satisfies the customer’s expectation of the benefits that using or having the product will yield Identify and briefly describe each of the new-product development strategies The success of a new product can result from four product development strategies: (1) market penetration, in which a company seeks to increase sales of an existing product in an existing market; (2) market development, which concentrates on finding new markets for existing products; (3) product development, the introduction of new products into identifiable or established markets; and (4) product diversification, which focuses on developing entirely new products for new markets 403 404 part Describe the consumer adoption process In the adoption process, consumers go through a series of stages from learning about the new product to trying it and deciding (6) commercialization These steps may be performed sequentially or, in some cases, concurrently Explain the relationship between product safety and product liability Product safety refers to the goal of manufacturers to create products that can be operated safely and will protect consumers from harm Product liability is the responsibility of marketers and manu- assessment check: 1.1 whether to purchase it again The stages are called awareness, interest, evaluation, trial, and adoption/rejection List the stages in the new-product development process The stages in the six-step process are (1) idea generation, (2) screening, (3) business analysis, (4) development, (5) test marketing, and PRODUCT DECISIONS facturers for injuries and damages caused by their products Major consumer protection laws are in place to protect consumers from faulty products answers What is a brand? A brand is a name, term, sign, symbol, design, or some combination that identifies the products of one firm while differentiating these products from competitors’ offerings 1.2 Differentiate between brand recognition, brand preference, and brand insistence Brand recognition is a company’s first objective for newly introduced products and aims to make these items familiar to the public Brand preference means buyers rely on previous experiences with the product when choosing it over competitors’ products Brand insistence leads consumers to refuse alternatives and to search extensively for the desired merchandise 2.1 Identify the different types of brands The different types of brands are manufacturer’s (or national) brands, private brands, captive brands, family brands, and individual brands 2.2 How are generic products different from branded products? Generic products are characterized by plain labels, little or no advertising, and no brand names 3.1 What is brand equity? Brand equity refers to the added value a certain brand name gives to a product in the marketplace 3.2 What are the four dimensions of brand personality? The four dimensions of brand personality are differentiation, relevance, esteem, and knowledge 3.3 How does category management help retailers? Category management helps retailers by providing a person—a category manager—to oversee an entire product line and maximize sales for that retailer It teams the consumer goods producer’s marketing expertise with the retailer’s in-store merchandising efforts to track and identify new opportunities for growth chapter 12 4.1 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES Distinguish between a brand name and a trademark A brand name is the part of the brand consisting of letters, numbers, or words that can be spoken and that forms a name distinguishing a firm’s offerings from competitors A trademark is a brand for which the owner claims exclusive legal protection 4.2 What are the three purposes of packaging? A package serves three major objectives: (1) protection against damage, spoilage, and pilferage; (2) assistance in marketing the product; and (3) cost effectiveness 4.3 Describe brand extension and brand licensing Brand extension is the strategy of attaching a popular brand name to a new product in an unrelated product category Brand licensing is the strategy of authorizing other companies to use a brand name 5.1 Distinguish between market penetration and market development strategies In a market penetration strategy, a company seeks to increase sales of an existing product in an existing market In a market development strategy, the company concentrates on finding new markets for existing products 5.2 What is product development? Product development refers to the introduction of new products into identifiable or established markets 5.3 What is product diversification? A product diversification strategy focuses on developing entirely new products for new markets 6.1 Who are consumer innovators? Consumer innovators are the first buyers of new products—people who purchase new products almost as soon as these products reach the market 6.2 What characteristics of a product innovation can influence its adoption rate? Five characteristics of a product innovation influence its adoption rate: relative advantage, compatibility, complexity, possibility of trial use, and observability 6.3 What is the role of a venture team in new-product development? A venture team gathers a group of specialists from different areas of an organization to work together in developing new products 7.1 Where ideas for new products come from? New-product development begins with ideas from many sources: suggestions from customers, the sales force, research-and-development specialists, assessments of competing products, suppliers, retailers, and independent inventors 7.2 What is concept testing? Concept testing subjects the product idea to additional study prior to its actual development 7.3 What happens in the commercialization stage? When a new-product idea reaches the commercialization stage, it is ready for full-scale marketing 405 406 part 8.1 PRODUCT DECISIONS What is the role of the Consumer Product Safety Commission (CPSC)? The Consumer Product Safety Commission is a powerful regulatory agency with jurisdiction over every consumer product category except food, automobiles, and a few other products already regulated by other agencies 8.2 What safety issues come under the jurisdiction of the Food and Drug Administration (FDA)? The Food and Drug Administration must approve food, medications, and health-related devices such as wheelchairs Marketing Terms You Need to Know brand 379 brand recognition 379 brand preference 380 brand insistence 380 generic products 380 trademark 386 brand extension 391 adoption process 394 consumer innovator 394 diffusion process 395 manufacturer’s brand 381 family brand 381 brand equity 382 category management 383 brand name 385 Other Important Marketing Terms private brand 381 captive brand 381 individual brand 382 brand manager 383 brand mark 385 trade dress 387 label 390 Universal Product Code (UPC) 390 line extension 391 brand licensing 392 market penetration strategy 393 product positioning 393 market development strategy 393 product development 394 product diversification strategy 394 cannibalization 394 product manager 397 venture team 397 concept testing 399 product liability 400 Assurance of Learning Review What are the three stages marketers use to measure brand loyalty? What is category management and what role does it play in the success of a product line? Identify and briefly describe the different types of brands Describe the different product development strategies Why is brand equity so important to companies? What are the five stages of the consumer adoption process? What are the characteristics of an effective brand name? What role does packaging play in helping create brand loyalty and brand equity? Describe the different ways companies can organize to develop new products 10 List the six steps in the new-product development process chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES Projects and Teamwork Exercises Locate an advertisement for a product that illustrates an especially effective brand name, brand mark, packaging, and overall trade dress Explain to the class why you think this product has a strong brand identity With a classmate, go shopping in a grocery store for a product you think could benefit from updated or new package design Then sketch out a new package design for the product, identifying and explaining your changes as well as your reasons for the changes Bring the old package and your new package design to class to share with your classmates What category of consumer adopter best describes you? Do you follow the same adoption pattern for all products, or are you an early adopter for some and a laggard for others? Create a graph or chart showing your own consumer adoption patterns for different products With a classmate, choose a firm that interests you and together generate some ideas for new products that might be appropriate for the company Test your ideas out on each other and then on your classmates Which ideas make it past this review? Which don’t? Why? Consider the steps in the new-product development process Do you think this process accounts for products that come into being by chance or accident? Why or why not? Defend your answer With a classmate, visit a couple of grocery stores and look for generic products How many did you find and in what product categories? Are there any products you think could be successfully marketed as generics that are not now? Why you think they would be successful? Which product labels you read? Over the next several days, keep a brief record of the labels you check while shopping Do you read nutritional information when buying food products? Do you check care labels on clothes before you buy them? Do you read the directions or warnings on a product you haven’t used before? Make notes about what influenced your decision to read or not read the product labels Did you think they provided enough information, too little, or too much? Some brands achieve customer loyalty by retaining an air of exclusivity and privilege, even though that often comes with high pricetags Louis Vuitton, the maker of luxury leather goods, is one such firm “You buy into the dream of Louis Vuitton,” says one loyal customer “We’re part of a sect, and the more they put their prices up, the more we come back They pull the wool over our eyes, but we love it.” What kind of brand loyalty is this, and how does Vuitton achieve it? Visit a grocery store, look at print ads, or view television advertising to develop a list of all the different brands of bottled water How the producers of bottled water turn this commodity item into a branded product? How does each differentiate its brand from all the others? 10 After its ReNu MoistureLoc contact lens solution was linked with cases of severe fungal eye infections, Bausch & Lomb pulled the product from shelves throughout the world With a partner, research the steps the company went through to investigate the problem Why was the product discontinued? What was the FDA’s involvement in the case? How did the company handle the recall and how did it make the public aware of the problem? Critical-Thinking Exercises In this chapter, you learned that Mattel has launched a “Barbie Girls” experience in an attempt to sustain the interest of older girls in the Barbie brand Do you think this strategy will work for Mattel? Why or why not? Identify another well-known product that appeals to a specific age group Do you think a similar strategy would be successful? Why or why not? General Mills and several other major food makers have begun producing organic foods But they have deliberately kept their brand names off the packaging of these new products, thinking that the kind of customer who goes out of his or her way to buy organic products is unlikely to trust multinational brands Other companies, however, such as Heinz, PepsiCo, and Tyson Foods, are betting that their brand names will prove to be persuasive in the $11 billion organic foods market Which strategy you think is more likely to be successful? Why? After the terrorist attacks of 9/11, an ad hoc task force of DDB Worldwide advertising professionals in seventeen countries set out to discover what people abroad thought of the United States In the course of their research, they developed the concept of “America as a Brand,” urged U.S corporations with overseas operations to help “restore” positive impressions of Brand America around the world, and urged the United States to launch Al Hurra as an alternative to the popular Al Jazeera network Do you think foreigners’ perception of a country and its culture can be viewed in marketing terms? Why or why not? Brand names contribute enormously to consumers’ perception of a brand One writer has argued that alphanumeric brand names, such as the Toyota RAV4, Jaguar’s X-Type sedan, the Xbox game console, and the GTI from Volkswagen, can translate more easily overseas than “real” names like Golf, Jetta, Escalade, and Eclipse What other advantages and disadvantages can you think of for each type of brand name? Do you think one type is preferable to the other? Why? 407 408 part PRODUCT DECISIONS Ethics Exercise As mentioned in the chapter, some analysts predict bar codes may soon be replaced by a wireless technology called radio-frequency identification (RFID) RFID is a system of installing tags containing tiny computer chips on, say, supermarket items These chips automatically radio the location of the item to a computer network where inventory data are stored, letting store managers know not only where the item is at all times but also when and where it was made and its color and size Proponents of the idea believe RFID will cut costs and simplify inventory tracking and reordering It may also allow marketers to respond quickly to shifts in demand, avoid underand overstocking, and reduce spoilage by automatically removing outdated perishables from the shelves Privacy advocates, however, think the chips provide too much product-preference information that might be identified with individual consumers In the meantime, Wal-Mart is requiring its top suppliers to begin using the new technology on products stocked by the giant retailer Do you think RFID poses a threat to consumer privacy? Why or why not? Do you think the technology’s possible benefits to marketers outweigh the potential privacy concerns? Are there also potential benefits to consumers, and if so, what are they? How can marketers reassure consumers about privacy concerns if RFID comes into widespread use? Internet Exercises Packaging Visit the Web site of a major food company such as ConAgra or Kraft Foods (www.kraft.com, www.conagrafoods com) Write a report on how the firm has used packaging as part of its brand management strategy Product diversification strategies Computer company Hewlett-Packard recently embarked on a product diversification strategy Go to the firm’s Web site (www.hp.com) Click on “Company Information” and then “Newsroom” to obtain details about the firm’s product diversification strategy What are its key elements? What is the rationale for it? Trademarks In the United States, the Patent and Trademark Office is responsible for the registration of trademarks Visit the USPTO Web site (www.uspto.gov) Click on “Trademarks” and answer the following questions: a Do trademarks, copyrights, and patents protect the same things? b What is a “standard character” drawing? c What is the so-called Madrid Protocol concerning the international registration of marks? Does the Madrid Protocol make it easier for U.S firms to resolve international trademark disputes? Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google Case 12.1 Ferrari Runs on Brand Power Who wouldn’t want to own a Ferrari? Since its founding in 1947, Ferrari has worked to build a tradition of uncompromising quality Its ultraelegant motorcars, with their sleek lines, highperformance engines, and hand-tooled leather interiors, are almost unbelievably deluxe The Ferrari tradition is also built on exclusivity: the company limits its annual production And with a robust menu of customizable features, literally every car it makes is unique Discriminating buyers can select the Bose radio-navigator, which includes radio, audio and video DVD, Bluetooth, and satellite radio systems Another optional feature is a satellite antitheft system integrated with the car alarm and approved by all the major international insurance companies The backlog on some models is up to two years chapter 12 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES Despite this demand, with a starting price of just under $200,000, a Ferrari is out of reach for most of us Even so, the Ferrari Company has managed to capture the attention of wistful car owners the world over by carefully nurturing its brand and offering an array of extensions like die-cast model kits, pocket-sized Hot Wheels cars, branded apparel, wristwatches, audio systems—even a $10,000 Segway transporter The company’s ongoing sponsorship of Formula One Grand Prix racing has helped generate worldwide awareness of the brand So, while owning one of these legendary vehicles or driving a Formula One racecar through the European countryside may not be possible for most people, they can still experience the Ferrari lifestyle by buying a piece of branded paraphernalia: a hat, jacket, T-shirt, key ring, or other collectible emblazoned with the distinctive Ferrari rearing stallion logo The Ferrari Store, a retail chain, has outlets in select major cities across Asia, Europe, and the United States The stores have been a smash hit During a recent Formula One racing event in Shanghai, the local Ferrari store sold over $100,000 in merchandise in a single day Ferrari also licenses its name to dozens of partner companies who put the Ferrari name on a wide variety of products, from handheld games to fitness equipment to perfumes to teddy bears In a recent year, revenues from licensing royalties and the sale of Ferrari merchandise alone totaled $725 million Want more entertainment? The Ferrari theme park near Abu Dhabi in the United Arab Emirates offers an assortment of family Video Case 12.2 rides, virtual simulations, and a racing school for wannabe speedsters, plus the usual array of Ferrari-branded merchandise Questions for Critical Thinking Through the years, Ferrari has been very successful at brand extension Do these extensions hurt the brand? Why or why not? What else can the company to extend the brand? Even though most of the world’s consumers can’t afford its product, Ferrari has managed to build a strong brand with loyal followers who aspire to the Ferrari lifestyle By opening a Ferrari theme park in Abu Dhabi, the company hopes to further extend its brand But not all concepts are seamlessly transferable, as the Walt Disney Company discovered when it opened its Euro Disney themepark outside Paris It was three years before Euro Disney had a profitable quarter In your opinion, what should Ferrari to ensure success at its theme park? Sources: David Menzies, “You Too Can Own a Ferrari,” National Post, July 7, 2008, autos.canada.com; “Gameloft Licenses Ferrari; Fast Mobile Games Coming Soon!” Intomobile, March 20, 2008, www.intomobile.com; Robert Frank, “Gentlemen, Start Your Dishwashers,” The Wall Street Journal, February 15, 2008, blogs.wsj com; “Ferrari Revs into Retail, Announcing Plans for 40 Store Openings,” Edmunds, October 22, 2007, www.edmunds.com; Tim Urquhart, “Leveraging the Legend,” World Motor Sport Marketplace, October 2007, pp, 60–63; Noah B Joseph, “At Park Opening in ’09, It’s All Ferrari, All the Time,” The New York Times, June 10, 2007, www.nytimes.com; Frank Filipponio, “Ferrari Store–Los Angeles Opens in the Beverly Center,” Autoblog, March 27, 2007, www.autoblog.com; “Ferrari at the Geneva Auto Show,” Easier Motoring, March 7, 2007, www.easier.com Devoloping and Managing Brand and Product Categories at Maine Media Workshops The written video case on Maine Media appears on page VC-11 The Maine Media video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 409 410 part voice of experience Talking about Marketing Careers with Mark A Mercurio Heading up the marketing team for such a recognized brand as Mr Clean is a great career opportunity Tell us a little about yourself—what academic and work experiences led you to your current position at Mr Clean Marketing? Q: I took a roundabout track into brand management I studied civil engineering at the University of Cincinnati for my undergraduate degree I realized early in my school years that I didn’t want to be an engineer but completed the degree and searched for a job in business I found my engineering degree really helped with the quantitative nature of my future jobs After UC, I took a job with Accenture—then Andersen Consulting— doing IT management consulting I really enjoyed the project management nature of that job, and it gave me a chance to experience a number of different industries After three years, I decided to go back to school to study marketing, as I wanted to get out of the back-office work of IT and more in the front end of the business, driving business strategies and planning So I went to the Darden Graduate School of Business at the University of Virginia to get my MBA Between my first and second years of MBA school, I took an internship in marketing research at P&G I really loved the aspect of using research techniques to determine the best course for the business—it was a great mix of qualitative and quantitative work After a couple years, though, I moved into marketing at P&G because it had more strategy setting and overall profit-and-loss business responsibility And that’s where I am today Definitely the long road there, but I am absolutely certain this is the place for me Students will be curious about what is involved in marketing consumer products such as those under the Mr Clean family brand How many people are on the Mr Clean team? Would you outline the different functions of the members and their roles in marketing the brand? What is your role in the overall effort of bringing Mr Clean products to consumers? Q: MARK A MERCURIO Assistant Brand Manager, Mr Clean Marketing Procter & Gamble Brand management is all about leveraging your team’s strengths to get the most out of your team Within marketing, there are five of us—four assistant brand managers and the brand manager Marketing’s role is to set the strategy for the brand— both in how we communicate and in what we communicate to consumers We oversee marketing planning and work with our agencies to develop world-class marketing We also typically lead the new product initiatives for the brand—keeping the team on track, navigating the project through management reviews, etc Marketing interacts with quite a few functions, including R&D, sales, product supply, marketing research, finance, and increasingly directly with sales teams to coordinate more closely with our retailers We often talk about product lines in marketing Procter & Gamble is a giant in its industry, offering several product lines for consumers How does Mr Clean fit into the mix of lines that P&G offers? How does it support the company’s overall strategy? Q: Generally, different brands play different roles in the company Mr Clean’s role in the overall company strategy is to drive discontinuous growth With innovations like Magic Eraser, AutoDry, and Mr Clean Magic Reach, we have been successful in that role Mr Clean as a brand name and brand mark has been Q: Photo: Courtesy of Mark A Mercurio Innovation and growth are two key words that best express Procter & Gamble’s approach to the consumer goods market The company is a global powerhouse, with nearly 98,000 employees working in 80 countries and product lines that include 22 billion-dollar brands P&G focuses its product development and marketing efforts in four major segments: beauty, family health, household care, and its newest shaving products division, Gillette If you walk down a supermarket or drugstore aisle, you’ll see dozens of P&G brands—such as Cover Girl, Ivory, Pampers, ThermaCare, Tide, Folgers, and Dawn, to name just a few—all created to help simplify your daily life One of the tried-and-true brands in P&G’s family is Mr Clean With a history stretching back nearly 50 years, consumers have come to depend on Mr Clean products to help maintain their homes and autos The feeling is mutual—the company relies on and values the trust that consumers place in the brand and want to build on that relationship To so, P&G has a dedicated marketing team to oversee its Mr Clean product line We were fortunate to be able to have a one-on-one exchange with one of those team members: Mark Mercurio, Assistant Brand Manager for Mr Clean Marketing He was kind enough to spend some time to help us understand what is involved in the day-to-day activities in brand management chapter 12 411 DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES around nearly 50 years now How you and your team keep the brand fresh and relevant in such a competitive marketplace as consumer household goods? How you decide when and how to add a new product to the line? Do consumers have any input in the process? Can you give us an example? Consumers are at the forefront of our decisions on what to bring to market and how In fact, we have a mantra at P&G— Consumer Is Boss—representing that exact thought Awhile back, P&G brought in business in new markets by first discovering a new technology and then figuring out how to make it work for consumers Now, we’re much better at letting the consumer drive the innovation Our product researchers, marketing researchers, marketers, and agencies are constantly engaging in conversations with consumers through our research to understand what they need to make their lives easier A perfect example of this is our Multi-Surface spray We observed consumers cleaning their homes and found they have a different cleaner for every surface in their house So we developed a spray that was suitable for every hard surface—it cleans glass, cuts grease, and kills germs all in one Once we determine a direction for a new product, we involve the consumers in every aspect of bringing it to market, including how we name it, what benefit we talk about with consumers, what the packaging looks like, how to price it, etc In textbooks and in the daily news, we hear about the importance of ensuring the quality of a product That must be critical to consumer goods such as those you market What goes into the formulation, testing, and production of a new product? Q: R&D staff have consumers with them the entire way as they formulate the product Typically, they will have an “expert panel” of consumers who try iteration after iteration of formula design to help us optimize the formula We also typically one or two very large quantitative research tests to make sure the product meets all of our standards before releasing it to market have distinct rules on how to use and not use the icon so that we can maintain the integrity of that asset We have design and advertising development managers who help keep us marketing folks in line with how we want to leverage the icon, and they are constantly reviewing our work to make sure it fits with our objectives We also track our brand’s equity consistently to look for movement in how consumers view our brand Q: Many marketers get their start in the industry through work experience and internships Did that help you on your career path? What advice can you give to students who are interested in getting started in a marketing career? I don’t think I could put a value on Mr Clean, the icon In these days of fragmented marketing media, consumers are being drowned with messages—it’s hard to stand out and be remembered But with Mr Clean, consumers are so accustomed to hearing about new ways to clean your home from Mr Clean that our commercials are instantly recognized and easily remembered It is a great asset we leverage in all of our marketing At the same time, we There are a number of ways to get into marketing—some more traditional than others I took a pretty typical route— through an MBA program after having a few years’ work experience My advice would be to think about the kind of marketing you would like to and focus on that industry Then build a network Try joining the marketing club at school or working on research projects with a professor—anything to help you understand the industry better and increase your chances of meeting a hiring manager And when you get a chance to interview for a job, make sure you prepare yourself and be confident Mr Clean is a true celebrity in the marketing world Nearly everyone would instantly recognize his smiling face and bulging muscles Could you talk a little about his value to Procter & Gamble? How you protect his image and name? Interview from “Mr Clean Marketing,” Procter & Gamble Used with permission Q: 412 part product decisions Honda has always enjoyed a reputation as being a fuel-efficient economical brand As early as 1974, Honda has been changing the way we look at cars with the low emission/fuel-efficient Civic CVCC In the years since, Honda’s commitment to the environment has spawned a line of Good, Better, Best, and Ultimate vehicles Regular gas cars are Good, with about 30 mpg; hybrids are Better at about 45 mpg; and their Best solution is a natural gas-powered Civic GX that gets about 220 miles to a tank Honda has Ultimate solutions in the works, including the new Honda FCX Clarity, a hydrogen fuel cell car in which hydrogen reacts with oxygen, both renewable resources, to create electricity The only emissions you get are a little steam You can buy the natural gas Civic GX and Clarity today, but neither vehicle is practical for the average driver as the fueling stations are hard to come by Roger Schofield of Schofield Honda in Wichita, Kansas, has been promoting Honda as a good and good-for-you vehicle for years Gas mileage, safety, and brand loyalty are all important parts of Schofield’s marketing Unfortunately, despite the increasing interest in the environment, alternative fuel vehicles make up a very small part of his business Even the Civic hybrid, a car with a lot of buzz, only makes up about percent of his annual sales Sales figures on alternative fuel cars as they were, Roger wanted to reposition the Schofield brand in the green marketplace, rather than focus on particular products When the dealership did some renovations to their buildings, they created the Honda Green Zone, a rental space for organizations to hold meetings about green projects Internally, Roger holds weekly meetings with his Green Team to brainstorm new projects, marketing, and products They were at work on several other project ideas when an F5 tornado hit Greensburg on May 4, 2007 At that moment, the idea of going green at Schofield Honda took on a whole new life The news of the green rebuilding initiative in Greensburg really drove home the need to become a leader in promoting more environmentally friendly technology With any new technology, it takes a few early adopters to help lay the infrastructure for the rest of us Well aware of the media attention surrounding Greensburg, Schofield decided to donate a natural gas Honda Civic GX to the town and a fueling station to go with it The car would be made available to the residents to check out and try for themselves The world would get to see the car in use by average people, and the town would have its own natural gas fueling station He admits questioning his decision even as he was driving into Greensburg on the day of the presentation, but when all was © Steven J Eliopoulos Green: It’s Not Just for Earth Day Anymore said and done, it was the right thing to When customers come into the dealership, they are more interested in alternative fuel and high efficiency vehicles and recognize Schofield Honda’s commitment to the people of Greensburg and the green movement as a whole Visit Schofield Honda today, and you’re going green— regardless of which type of vehicle you purchase Employees will be drinking from ceramic coffee mugs “sponsored” by other local businesses When you clean out your trade-in, you can use the recycling bins and take your important stuff with you in a Schofield Honda reusable shopping bag If you’re just there for an oil change, your old oil will be recycled to heat the shop Despite the media coverage on Greensburg and Schofield’s green marketing efforts, sales are still slow on the alternative fuel vehicles, but Roger is okay with that Making the products available to those on the cutting edge will earn him a reputation as cutting edge himself When Wichita is ready for a change, Schofield Honda will be there and waiting Questions Do you think repositioning the dealership as a green business will have a positive impact on their products’ lifecycles? What impact, if any, will going green have on brand loyalty? Discuss the Honda brand as well as the Schofield Honda brand Would you consider “green” to be a line extension at Schofield Honda? Why or why not? Write a memo (3 to pages) about which “businesses” on your campus (i.e., the food court, the bookstore, athletic center) could incorporate some of the initiatives that Schofield has taken with his dealership 413 PART Distribution Decisions Chapter 13 Marketing Channels and Supply Chain Management Chapter 14 © Getty Images Retailers, Wholesalers, and Direct Marketers 414 13 CHAP TER Marketing Channels and Supply Chain © AP Images/Donna McWilliam Management Burlington Northern Santa Fe Rides Green Rails Railroads helped build the United States, and they are chugging into the nation’s future In an era in which fuel economy and reduced impact on the natural environment are major concerns for businesses, consumers, and communities, rail transport is getting a new look Why? Railroad travel is cleaner and more efficient than most other modes of transportation A train can transport one ton of freight more than 420 miles on a single gallon of fuel—a more economic, greener way of moving goods than trucking “Rail has long been the most efficient means humankind has ever created for moving freight over land,” observes John Lanigan, executive vice president and chief marketing officer of Burlington Northern Santa Fe (BNSF) Railway Many firms depend on BNSF and other railroads to transport their goods, ranging 415 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT from lumber to new automobiles, from one destination to another BNSF, which operates over 32,000 miles of track across the western two-thirds of the United States, has taken its environmental role a step farther by implementing green processes and better equipment Recently, the company announced plans to build a $300 million railyard closer to the California ports of Los Angeles and Long Beach, where cargo containers coming in on ships could be loaded directly onto trains instead of trucked up the highway to another yard The plan should dramatically reduce the amount of air pollution and traffic congestion on the nearby Long Beach Freeway The new facility not only reduces the impact of transporting goods on the environment, it also allows BNSF to grow larger to handle the surge of Asian goods arriving in these two ports “We need to grow, but grow green,” observes Matthew K Rose, CEO of BNSF, about his firm’s commitment to the environment Locomotives, trucks, and other vehicles at the new facility will be powered by natural gas, which burns cleaner than other fuels The natural gas “hostling” trucks or tractors reduce nitrous oxide and particulate matter emissions by 90 percent, compared with diesel railroad-yard transport trucks In addition, new idle-reduction technology and hybrid switch engines reduce even more the amount of emissions produced by the railroad yard equipment With the new technology, locomotives no longer need to idle for hours while they sit in the railroad yard And the hybrid switcher—called the Green Goat—combines a microturbine and batteries for better fuel efficiency BNSF already operates two locomotives powered by liquefied natural gas (LNG) and plans to increase the number BNSF combined the announcement of its plan for the green facility with BNSF Goes Green, a promotional event that invited public officials and community leaders to view the new equipment BNSF executives pointed out a sound wall being built around the yard so that nearby neighbors—including a school—would not be disturbed by noise In addition, trees will be planted between the facility and the surrounding neighborhood to provide an additional sound barrier and landscaping BNSF also distributed an English- and Spanish-language DVD to nearby residents and community officials that provides details about the project, including potential new jobs for local workers The project received a positive response “I commend the BNSF Railway,” notes one Los Angeles city council member, “for stepping up to the challenge of developing a green intermodal facility that efficiently moves cargo while working to protect the quality of life for communities and neighborhoods.”1 Describe the types of marketing channels and the roles they play in marketing strategy Outline the major channel strategy decisions Describe the concepts of channel management, conflict, and cooperation Identify and describe the different vertical marketing systems Explain the roles of logistics and supply chain management in an overall distribution strategy Identify the major components of a physical distribution system Compare the major modes of transportation Discuss the role of transportation intermediaries, combined transportation modes, and warehousing in improving physical distribution BNSF Railway is well known as a transportation giant; the firm transports more than 10 million shipments each year Although engaged in increasingly green practices, such as operating the two LNG locomotives in the United States, the firm has accelerated its push toward eco-friendly operations and become more public about it evolution of a brand • BNSF makes an effort to have as little impact as possible on wilderness areas and national parks through which its tracks and trains pass Because Glacier National Park in Montana receives an average of 64 trains per day, BNSF has founded the Great Northern Environmental Stewardship Area (GNESA), an organization committed to preserving the beauty and habitat of Glacier National Park The organization provides a forum for communication and collaboration among industries, agencies, and the park Do you think this type of action is necessary for BNSF? How does it help develop the future of the brand? • Within its facilities, BNSF promotes as much recycling as possible—paper and cardboard, batteries, used oil, used filters, scrap metals, fluorescent bulbs, Objectives chapter 13 416 part DISTRIBUTION DECISIONS evolution of a brand continued circuitboards, and the like Over the years, the firm’s employees have recycled tens of millions of pounds of these items In what ways might BNSF use this practice as a marketing tool? purchasing, processing, and delivery through chapter overview which raw materials are transformed into proddistribution Movement of goods and services from producers to customers marketing (distribution) channel System of marketing institutions that enhances the physical flow of goods and services, along with ownership title, from producer to consumer or business user logistics Process of coordinating the flow of information, goods, and services among members of the distribution channel Distribution—moving goods and services ucts and made available to final consumers from producers to customers—is the second Efficient logistical systems support customer marketing mix variable and an important mar- service, enhancing customer relationships—an keting concern Firms depend on companies important goal of any marketing strategy like BNSF to move their goods from one desti- A key aspect of logistics is physical distri- nation to another A distribution strategy has bution, which covers a broad range of activi- two critical components: (1) marketing chan- ties aimed at efficient movement of finished nels and (2) logistics and supply-chain man- goods from the end of the production line to agement the consumer Although some marketers use A marketing channel—also the terms transportation and called a distribution channel—is physical distribution interchange- an organized system of marketing ably, these terms not carry institutions and their interrelationships that enhances the physical flow and ownership of goods supply chain management Control of the activities of purchasing, processing, and delivery through which raw materials are transformed into products and made available to final consumers physical distribution Broad range of activities aimed at efficient movement of finished goods from the end of the production line to the consumer and services from producer to consumer or business user The bsripeaking efly “How tomorrow moves” —CSX Corporation motto the same meaning Physical distribution extends beyond transportation to include such important decision areas as customer service, inventory control, choice of marketing channels materials handling, protective should support the firm’s overall packaging, order processing, marketing strategy By contrast, and warehousing logistics refers to the process of Well-planned marketing coordinating the flow of informa- channels and effective logistics tion, goods, and services among and supply-chain management members of the marketing chan- provide ultimate users with nel Supply chain management convenient ways for obtain- is the control of activities of ing the goods and services chapter 13 417 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT they desire This chapter discusses the activi- logistics Chapter 14 looks at other players in ties, decisions, and marketing intermediaries the marketing channel: retailers, direct market- involved in managing marketing channels and ers, and wholesalers Describe the types The Role of Marketing Channels in Marketing Strategy If you are interested in learning more about the Nintendo Wii, you may want to see the game console in person by visiting a local dealer © AP Images/Paul Sakuma A firm’s distribution channels play a key role in its overall marketing strategy because these channels provide the means by which the firm makes the goods and services available to ultimate users Channels perform four important functions First, they facilitate the exchange process by reducing the number of marketplace contacts necessary to make a sale Suppose you’ve had a Nintendo DS handheld game player in the past and been satisfied with it, so when you see an ad for the Nintendo Wii, you are interested You visit the Nintendo Web site where you learn more about the Wii and its unique features You are particularly drawn to the games “NCAA Football All-Play” and “Rock Band.” But you want to see the game console in person, so you locate a dealer near enough for you to visit.2 The dealer forms part of the channel that brings you—a potential buyer—and Nintendo—the seller—together to complete the exchange process It’s important to keep in mind that all channel members benefit when they work together; when they begin to disagree or—worse yet—compete directly with each other, everyone loses Distributors adjust for discrepancies in the market’s assortment of goods and services via a process known as sorting, the second channel function A single producer tends to maximize the quantity it makes of a limited line of goods, while a single buyer needs a limited quantity of a wide selection of merchandise Sorting alleviates such discrepancies by channeling products to suit both the buyer’s and the producer’s needs The third function of marketing channels involves standardizing exchange transactions by setting expectations for products, and it involves the transfer process itself Channel members tend to standardize payment terms, delivery schedules, prices, and purchase lots, among other conditions Standardization helps make transactions efficient and fair The final marketing channel function is to facilitate searches by both buyers and sellers Buyers search for specific goods and services to fill their needs, while sellers attempt to learn what buyers want Channels bring buyers and sellers together to complete the exchange process Hundreds of distribution channels exist today, and no single channel best serves the needs of every company Instead of searching for the best channel for all products, a marketing manager must analyze alternative channels in light of consumer needs to determine the most appropriate channel or channels for the firm’s goods and services of marketing channels and the roles they play in marketing strategy 418 part © AP Images/Ric Francis Marketers must remain flexible because channels change over time Dell products, originally available only through direct-to-customer selling, are now sold at Best Buy DISTRIBUTION DECISIONS Marketers must remain flexible because channels may change over time Today’s ideal channel may prove inappropriate in a few years, or the way a company uses that channel may have to change Two decades ago, Michael Dell came up with a revolutionary way to sell computers: by telephone, directly to consumers Later, Dell added Internet sales to its operations Now the firm has a new channel through which its computers can reach consumers: retailer Best Buy Selected models of Dell’s PCs are now available at 900 Best Buy stores around the United States The agreement with Best Buy represents a huge shift in Dell’s method for getting its goods to consumers But many industry experts praise the move because Dell recognized that it needed greater distribution to grow, and Best Buy is one of the biggest U.S electronics retailers.3 The following sections examine the diverse types of channels available to marketers and the decisions marketers must make to develop an effective distribution strategy that supports their firm’s marketing objectives Types of Marketing Channels The first step in selecting a marketing channel is determining which type of channel will best meet both the seller’s objectives and the distribution needs of customers Figure 13.1 depicts the major channels available to marketers of consumer and business goods and services Most channel options involve at least one marketing intermediary A marketing intermediary (or middleman) is an organization that operates between producers and consumers or business users Retailers and wholesalers are both marketing intermediaries A retail store owned and operated by someone other than the manufacturer of the products it sells is one type of marketing intermediary A wholesaler is an intermediary that takes title to the goods it handles and then distributes these goods to retailers, other distributors, or sometimes end consumers Although some analysts believed that the Internet would ultimately render many intermediaries obsolete, that hasn’t happened Instead, it has enabled many such businesses to enhance customer service Bikeworld, a firm that makes high-end bicycles and components, embraced e-business early on, but the company’s founder initially viewed the Internet as a tool for attracting customers away from the larger, more established mail-order companies This strategy proved successful, but Bikeworld faced a related problem: how to fulfill the increasing number of orders it was receiving So the company enlisted the help of FedEx Integrating the shipper’s PowerShip system with its own Web server, Bikeworld was able to achieve a seamless transmission of information from online orders to fulfillment and delivery.4 A short marketing channel involves few intermediaries By contrast, a long marketing channel involves several intermediaries working in succession to move goods from producers to consumers Business products usually move through short channels due to geographic concentrations and comparatively fewer business purchasers Service firms market primarily through short channels because they sell intangible products and need to maintain personal relationships within their channels Haircuts, manicures, and dental cleanings all operate through short channels Not-for-profit organizations also tend to work with short, simple, and direct channels Any marketing intermediaries in such channels usually act as agents, such as independent ticket agencies or fund-raising specialists chapter 13 419 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Consumer Goods figure 13.1 Alternative Marketing Channels Retailer Wholesaler Retailer Consumer Producer Business Goods Agent/ Broker Wholesaler Retailer Agent/ Broker Wholesaler Producer Services Service Provider Agent/ Broker Agent/ Broker Business User Wholesaler Consumer or Business User DIRECT SELLING The simplest and shortest marketing channel is a direct channel A direct channel carries goods directly from a producer to the business purchaser or ultimate user This channel forms part of direct selling, a marketing strategy in which a producer establishes direct sales contact with its product’s final users Direct selling is an important option for goods requiring extensive demonstrations in persuading customers to buy The “Etiquette Tips for Marketing Professionals” feature contains suggestions for making successful sales calls Direct selling plays a significant role in business-to-business marketing Most major installations, accessory equipment, and even component parts and raw materials are sold through direct contacts between producing firms and final buyers Many people in business enjoy successful sales careers According to the Occupational Outlook Handbook published by the U.S Department of Labor, about million people are employed as sales representatives in manufacturing and wholesaling industries.5 Direct selling is also important in consumer-goods markets Direct sellers such as Avon, Pampered Chef, and Tastefully Simple sidestep competition in store aisles by developing networks of independent representatives who sell their products directly to consumers Many of these companies practice a direct selling strategy called the party plan, originally popularized by Tupperware Beijo Bags is one such business Launched by entrepreneur Susan Handley, the bags are sold at home-based parties, called Beijo Collection Showcase Parties, by independent sales representatives who are mostly stay-at-home moms—and customers themselves The bags, which appeal to women of all ages, are made from synthetic materials—no leather—and can be recycled by returning them to the manufacturer Beijo Bags has topped $10 million in sales.6 420 part DISTRIBUTION DECISIONS Anatomy of a Successful Sales Call w hen you make a sales call to a potential or existing customer, you are the face and voice of your firm The way you are perceived is the way the customer perceives your company So you want to make a good first impression as well as a positive lasting impression Most likely you will be trained by your supervisor or someone else at the company in the fine art of a successful sales call Here are a few additional tips to help you on your way • Do your homework Be sure you know the correct spelling and pronunciation of the company you are visiting—and the person you are scheduled to meet Familiarize yourself with the company’s goods or services and past history with your company • Assess the company’s potential needs Don’t launch into a presentation of your products before learning what the customer needs If you have made yourself familiar with the customer’s goods and services, you should be able to ask questions and produce answers about what types of products could provide the best solutions for the customer • Dress appropriately and arrive on time Wear the proper business attire for your industry, whether it’s a business suit or business casual clothing Cover any tattoos or body piercings and wear conservative jewelry In short, play it safe Always arrive a few minutes before the scheduled time Doing so shows respect for your customer’s time and indicates you are serious about doing business • Be conservative in your behavior Always stand to greet your customer Smile, shake hands, and follow the customer to wherever the meeting will take place Address him or her with the title “Mr.” or “Ms.,” and not assume the person wishes to be called by first name until you are asked to so • Turn off your cell phone If possible, turn off your cell phone before entering the building for your meeting At least turn it off when you enter the meeting Never take a call during the meeting, and only make one if it will help the progress of the meeting For example, a customer might have a question only your supervisor can answer A successful sales call requires your total attention on the customer • Follow up the meeting with a thank-you After the sales call, be sure to follow up with a phone call, e-mail, or note to thank the person—regardless of the outcome Even if the call did not produce a sale or other immediate results, it could possibly have laid the groundwork for a future relationship Sources: “Telephone Manners,” Salary.com, www.salary.com, accessed July 28, 2008; Dan Seidman, “Your Sales Technique,” Monster Career Advice, career-advice monster.com, accessed July 28, 2008; Dan Seidman, “Practice What You Preach in Sales,” Monster Career Advice, career-advice.monster.com, accessed July 28, 2008; “Training Sales Force in Business Etiquette,” Reaction Search International, December 1, 2007, www.executivesearchfirmnews.com The Internet provides another direct selling channel for both B2B and B2C purchases Consumers who want to sport designer handbags, but don’t want to pay full price for them, can rent them from Bagborroworsteal.com For those who like to change bags often but can’t or won’t pay the hundreds or thousands of dollars for Chanel’s, Prada’s, or Gucci’s latest, the site may be a real bargain Customers become members at $9.95 for the first month, with a reduced membership fee for subsequent months In addition to designer handbags, members can find sunglasses and jewelry to complete their look.7 Direct mail can also be an important part of direct selling—or it can encourage a potential customer to contact an intermediary such as a retailer Either way, it is a vital communication piece for many marketers CHANNELS USING MARKETING INTERMEDIARIES Although direct channels allow simple and straightforward marketing, they are not practical in every case Some products serve markets in different areas of the country or world or have large numbers of potential end users Other categories of goods rely heavily on repeat purchases The producers of these goods may find more efficient, less expensive, and less time-consuming alternatives to direct channels by using marketing intermediaries This section considers five channels that involve marketing intermediaries chapter 13 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Producer to Wholesaler to Retailer to Consumer The traditional channel for consumer goods proceeds from producer to wholesaler to retailer to user This method carries goods between thousands of small producers with limited lines and local retailers A firm with limited financial resources will rely on the services of a wholesaler that serves as an immediate source of funds and then markets to hundreds of retailers On the other hand, a small retailer can draw on a wholesaler’s specialized distribution skills In addition, many manufacturers hire their own field representatives to service retail accounts with marketing information Wholesalers may then handle the actual sales transactions Producer to Wholesaler to Business User Similar characteristics in the organizational market often attract marketing intermediaries to operate between producers and business purchasers The term industrial distributor commonly refers to intermediaries in the business market that take title to the goods Producer to Agent to Wholesaler to Retailer to Consumer In markets served by many small companies, a unique intermediary—the agent—performs the basic function of bringing buyer and seller together An agent may or may not take possession of the goods but never takes title The agent merely represents a producer by seeking a market for its products or a wholesaler, which does take title to the goods, by locating a supply source Producer to Agent to Wholesaler to Business User Like agents, brokers are independent intermediaries who may or may not take possession of goods but never take title to these goods Agents and brokers also serve the business market when small producers attempt to market their offerings through large wholesalers Such an intermediary, often called a manufacturers’ representative, provides an independent sales force to contact wholesale buyers A kitchen equipment manufacturer may have its own manufacturer’s representatives to market its goods, for example Producer to Agent to Business User For products sold in small units, only merchant wholesalers can economically cover the markets A merchant wholesaler is an independently owned wholesaler that takes title to the goods By maintaining regional inventories, this wholesaler achieves transportation economies, stockpiling goods and making small shipments over short distances For a product with large unit sales, however, and for which transportation accounts for a small percentage of the total cost, the producer-agent-business user channel is usually employed The agent in effect becomes the producer’s sales force, but bulk shipments of the product reduce the intermediary’s inventory management function DUAL DISTRIBUTION Dual distribution refers to movement of products through more than one channel to reach the firm’s target market Nordstrom, for instance, has a three-pronged distribution system, selling through stores, catalogs, and the Internet Marketers usually adopt a dual distribution strategy either to maximize their firm’s coverage in the marketplace or to increase the cost-effectiveness of the firm’s marketing effort Microsoft and Netflix recently partnered to offer entertainment through more than one channel Traditionally, customers could order their favorite movies online and have the DVDs delivered to their mailboxes Under the new agreement, Netflix subscribers who also have Microsoft’s Xbox Live Gold membership can download movies and TV programs and view them on their game system at no extra cost.8 REVERSE CHANNELS While the traditional concept of marketing channels involves the movement of goods and services from producer to consumer or business user, marketers should not ignore reverse channels— channels designed to return goods to their producers Reverse channels have gained increased 421 422 part © Tim Boyle/Getty Images Staples utilizes reverse channels by collecting empty printer cartridges in its stores Outline the major channel strategy decisions DISTRIBUTION DECISIONS importance with rising prices for raw materials, increasing availability of recycling facilities, and passage of additional antipollution and conservation laws Purchase a new set of tires, and you’ll find a recycling charge for disposing of the old tires The intent is to halt the growing litter problem of illegal tire dumps Automotive batteries contain potentially toxic materials, including 25 pounds of lead, plastic, and sulfuric acid Despite this, 99 percent of the elements in a spent battery can be reclaimed, recycled, and reused in new batteries Thirty-eight states have now passed laws requiring consumers to turn in their old batteries at the time they purchase new ones To help in this effort, the American Automobile Association (AAA) holds an annual AAA Great Battery Roundup in the United States and Canada, during which consumers can drop off their dead batteries.9 Some reverse channels move through the facilities of traditional marketing intermediaries In states that require bottle deposits, retailers and local bottlers perform these functions in the softdrink industry For other products, manufacturers establish redemption centers, develop systems for rechanneling products for recycling, and create specialized organizations to handle disposal and recycling Staples collects empty printer cartridges at its stores, and some Nike retail outlets collect worn-out sneakers for recycling Home Depot has begun collecting used compact fluorescent lightbulbs (CFLs) for recycling This program greatly increases the convenience for consumers who want to recycle their old bulbs but until now had to take them to municipal hazardous waste collection sites because of the mercury they contain The Home Depot recycling effort is likely to help build loyalty among customers.10 Reverse channels also handle product recalls assessment check and repairs An appliance manufacturer might send recall notices to the buyers of a washing Distinguish between a marketing channel and machine An auto manufacturer logistics might send notices to car owners What are the different types of marketing channels? advising them of a potential prob3 What four functions marketing channels perform? lem and offering to repair it at no cost through local dealerships Channel Strategy Decisions Marketers face several strategic decisions in choosing channels and marketing intermediaries for their products Selecting a specific channel is the most basic of these decisions Marketers must also resolve questions about the level of distribution intensity, assess the desirability of vertical marketing systems, and evaluate the performance of current intermediaries SELECTION OF A MARKETING CHANNEL Consider the following questions: What characteristics of a franchised dealer network make it the best channel option for a company? Why operating supplies often go through both agents and merchant wholesalers before reaching their actual users? Why would a firm market a single product through multiple channels? Marketers must answer many such questions in choosing marketing channels chapter 13 423 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT A variety of factors affect the selection of a marketing channel Some channel decisions are dictated by the marketplace in which the company operates In other cases, the product itself may be a key variable in picking a marketing channel Finally, the marketing organization may base its selection of channels on its size and competitive factors Individual firms in a single industry may choose different channels as part of their overall strategy to gain a competitive edge Book publishers, for instance, may sell through bookstores, directly to consumers on their own Web sites, or through nontraditional outlets including specialty retailers such as craft stores or home improvement stores Market Factors Channel structure reflects a product’s intended markets, for either consumers or business users Business purchasers usually prefer to deal directly with manufacturers (except for routine supplies or small accessory items), but most consumers make their purchases from retailers Marketers often sell products that serve both business users and consumers through more than one channel Other market factors also affect channel choice, including the market’s needs, its geographic location, and its average order size To serve a concentrated market with a small number of buyers, a direct channel offers a feasible alternative But in serving a geographically dispersed potential trade area in which customers purchase small amounts in individual transactions—the conditions that characterize the consumer-goods market—distribution through marketing intermediaries makes sense Product Factors Organizational and Competitive Factors Companies with strong financial, management, and marketing resources feel less need for help from intermediaries A large, financially strong manufacturer can hire its own sales force, warehouse its own goods, and extend Instead of selling directly to customers, entrepreneur Sara Blakely relies on big retail partners to get her product, Spanx, into consumers’ hands © Lee Celano/WireImage for Silver Spoon/Getty Images Product characteristics also guide the choice of an optimal marketing channel strategy Perishable goods, such as fresh fruit and vegetables, milk, and fruit juice, move through short channels Trendy or seasonal fashions, such as swimsuits and skiwear, are also examples Vending machines represent another short channel Typically, you can buy Skittles, Sun Chips, or a bottle of Dasani water from a vending machine But how about bike parts? Trek Bicycle recently installed its first Trek Stop, a vending machine that dispenses basic bike parts Items include tire patch kits, spare tubes, and air pumps Riders can also purchase water bottles and energy bars from the machines The kiosk is located outside a bike shop not far from Trek’s headquarters.11 Complex products, such as custom-made installations and computer equipment, often are sold directly to ultimate buyers In general, relatively standardized items that are also nonperishable pass through comparatively long channels Products with low unit costs, such as cans of dog food, bars of soap, and packages of gum, typically travel through long channels Perishable items—fresh flowers, meat, and produce—require much shorter channels 424 part DISTRIBUTION DECISIONS credit to retailers or consumers But a small firm with fewer resources may better with the aid of intermediaries Entrepreneur Sara Blakely knew she had a unique idea when she cut the feet off her pantyhose and created the first pair of Spanx underwear Blakely says she wants her power shapers to empower women, and scores of women—including celebrities such as Gwyneth Paltrow and Tyra Banks—are loyal customers Consumers write to Spanx thanking the company for giving them the confidence to wear the form-fitting clothes they always wanted to wear But Blakely doesn’t sell her shapers directly to customers Instead, she relies on big retail partners such as Neiman Marcus, Nordstrom, and Target to get her product into consumers’ hands.12 A firm with a broad product line can usually market its products directly to retailers or business users because its own sales force can offer a variety of products High sales volume spreads selling costs over a large number of items, generating adequate returns from direct sales Singleproduct firms often view direct selling as unaffordable The manufacturer’s desire for control over marketing its products also influences channel selection Some manufacturers sell their products only at their own stores Manufacturers of specialty or luxury goods, such as scarves from Hermès and watches from Rolex, limit the number of retailers that can carry their products Businesses that explore new marketing channels must be careful to avoid upsetting their channel intermediaries In the past decade, conflicts frequently arose as companies began to establish an Internet presence in addition to traditional outlets Today, firms look for new ways to handle both without damaging relationships NBC and Apple struck a deal in which NBC would sell its television programs through the iTunes store, but the agreement turned sour over issues of price and piracy However, the two resumed their alliance after figuring out a way to add antipiracy features and reworking the price agreement for NBC’s programming.13 Table 13.1 summarizes the factors that affect the selection of a marketing channel and examines the effect of each factor on the channel’s overall length DETERMINING DISTRIBUTION INTENSITY Another key channel strategy decision is the intensity of distribution Distribution intensity refers to the number of intermediaries through which a manufacturer distributes its goods in a particular market Optimal distribution intensity should ensure adequate market coverage for a product Adequate market coverage varies depending on the goals of the individual firm, the type of product, and the consumer segments in its target market In general, however, distribution intensity ta b l e 13 Factors Influencing Marketing Channel Strategies Characteristics of Short Channels Market Factors Product Factors Organizational Factors Competitive Factors Characteristics of Long Channels Business users Consumers Geographically concentrated Geographically dispersed Extensive technical knowledge and regular servicing required Little technical knowledge and regular servicing not required Large orders Small orders Perishable Durable Complex Standardized Expensive Inexpensive Manufacturer has adequate resources to perform channel functions Manufacturer lacks adequate resources to perform channel functions Broad product line Limited product line Channel control important Channel control not important Manufacturer feels satisfied with marketing intermediaries’ performance in promoting products Manufacturer feels dissatisfied with marketing intermediaries’ performance in promoting products chapter 13 425 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT varies along a continuum with three general categories: intensive distribution, selective distribution, and exclusive distribution Gucci practices selective distribution, selling its merchandise only through a limited number of boutiques worldwide Intensive Distribution Selective Distribution In another market coverage strategy, selective distribution, a firm chooses only a limited number of retailers in a market area to handle its line Italian design firm Gucci sells its merchandise only through a limited number of select boutiques worldwide By limiting the number of retailers, marketers can reduce total marketing costs while establishing strong working relationships within the channel Moreover, selected retailers often agree to comply with the company’s strict rules for advertising, pricing, and displaying its products Cooperative advertising—in which the manufacturer pays a percentage of the retailer’s advertising expenditures and the retailer prominently displays the firm’s products—can be used for mutual benefit, and marginal retailers can be avoided Where service is important, the manufacturer usually provides training and assistance to the dealers it chooses Exclusive Distribution When a producer grants exclusive rights to a wholesaler or retailer to sell its products in a specific geographic region, it practices exclusive distribution The automobile industry provides a good example of exclusive distribution A city with a population of 40,000 probably has a single Ford dealer Exclusive distribution agreements also govern marketing for some major appliance and apparel brands Marketers may sacrifice some market coverage by implementing a policy of exclusive distribution However, they often develop and maintain an image of quality and prestige for the product If it’s harder to find a Free People silk dress, the item seems more valuable In addition, exclusive distribution limits marketing costs because the firm deals with a smaller number of accounts In exclusive distribution, producers and retailers cooperate closely in decisions concerning advertising and promotion, inventory carried by the retailers, and prices Legal Problems of Exclusive Distribution Exclusive distribution presents potential legal problems in three main areas: exclusive dealing agreements, closed sales territories, and tying agreements Although none of these practices is illegal per se, all may break the law if they reduce competition or tend to create monopolies © Image courtesy of The Advertising Archives An intensive distribution strategy seeks to distribute a product through all available channels in a trade area Because Campbell Soup practices intensive distribution for many of its products, you can pick up a can from its microwavable line just about anywhere—the supermarket, the drugstore, and even Staples Usually, an intensive distribution strategy suits items with wide appeal across broad groups of consumers intensive distribution Distribution of a product through all available channels selective distribution Distribution of a product through a limited number of channels exclusive distribution Distribution of a product through a single wholesaler or retailer in a specific geographic region 426 part brs peaking iefl y “You can away with middlemen, but you can’t away with the functions they perform.” —American business saying DISTRIBUTION DECISIONS As part of an exclusive distribution strategy, marketers may try to enforce an exclusive dealing agreement, which prohibits a marketing intermediary (a wholesaler or, more typically, a retailer) from handling competing products Producers of high-priced shopping goods, specialty goods, and accessory equipment often require such agreements to ensure total concentration on their own product lines Such contracts violate the Clayton Act only if the producer’s or dealer’s sales volumes represent a substantial percentage of total sales in the market area While exclusive distribution is legal for companies first entering a market, such agreements violate the Clayton Act if used by firms with a sizable market share seeking to bar competitors from the market Producers may also try to set up closed sales territories to restrict their distributors to certain geographic regions, reasoning that the distributors gain protection from rival dealers in their exclusive territories Some beverage distributors have closed territories, as distributors of plumbing fixtures.14 But the downside of this practice is that the distributors sacrifice opportunities to open new facilities or market the manufacturers’ products outside their assigned territories The legality of a system of closed sales territories depends on whether the restriction decreases competition If so, it violates the Federal Trade Commission Act and provisions of the Sherman and Clayton Acts The legality of closed sales territories also depends on whether the system imposes horizontal or vertical restrictions Horizontal territorial restrictions result from agreements between retailers or wholesalers to avoid competition among sellers of products from the same producer Such agreements consistently have been declared illegal However, the U.S Supreme Court has ruled that vertical territorial restrictions—those between producers and wholesalers or retailers—may meet legal criteria The ruling gives no clear-cut answer, but such agreements likely satisfy the law in cases in which manufacturers occupy relatively small parts of their markets In such instances, the restrictions may actually increase competition among competing brands; the wholesaler or retailer faces no competition from other dealers carrying the manufacturer’s brand, so it can concentrate on effectively competing with other brands The third legal question of exclusive distribution involves tying agreements, which allow channel members to become exclusive dealers only if they also carry products other than those they want to sell In the apparel industry, for example, an agreement might require a dealer to carry a comparatively unpopular line of clothing to get desirable, fast-moving items Tying agreements violate the Sherman Act and the Clayton Act when they reduce competition or create monopolies that keep competitors out of major markets WHO SHOULD PERFORM CHANNEL FUNCTIONS? A fundamental marketing principle governs channel decisions A member of the channel must perform certain central marketing functions Responsibilities of the different members may vary, however Although independent wholesalers perform many functions for manufacturers, retailers, and other wholesaler clients, other channel members could fulfill these roles instead A manufacturer might bypass its wholesalers by establishing regional warehouses, maintaining field sales forces, serving as sources of information for retail customers, or arranging details of financing For years, auto manufacturers have operated credit units that offer new car financing; some have even established their own banks An independent intermediary earns a profit in exchange for providing services to manufacturers and retailers This profit margin is low, however, ranging from percent for food wholesalers to percent for durable goods wholesalers Manufacturers and retailers could retain these costs, or they could market directly and reduce retail prices—but only if they could perform the channel functions and match the efficiency of the independent intermediaries assessment check To grow profitably in a competitive environment, an intermediary must provide better service Identify four major factors in selecting a at lower costs than manufacturers or marketing channel retailers can provide for themselves Describe the three general categories of In this case, consolidation of chandistribution intensity nel functions can represent a strategic opportunity for a company chapter 13 427 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Channel Management and Leadership Distribution strategy does not end with the choice of a channel Manufacturers must also focus on channel management by developing and maintaining relationships with the intermediaries in their marketing channels Positive channel relationships encourage channel members to remember their partners’ goods and market them Manufacturers also must carefully manage the incentives offered to induce channel members to promote their products This effort includes weighing decisions about pricing, promotion, and other support efforts the manufacturer performs Increasingly, marketers are managing channels in partnership with other channel members Effective cooperation allows all channel members to achieve goals they could not achieve on their own Keys to successful management of channel relationships include the development of high levels of coordination, commitment, and trust between channel members Not all channel members wield equal power in the distribution chain, however The dominant member of a marketing channel is called the channel captain This firm’s power to control a channel may result from its control over some type of reward or punishment to other channel members such as granting an exclusive sales territory or taking away a dealership Power might also result from contractual arrangements, specialized expert knowledge, or agreement among channel members about their mutual best interests In the grocery industry, food producers once were considered channel captains Today, however, the power has shifted to the retail giants Kroger, Supervalu, and Safeway operate about 6,500 supermarkets nationwide To survive in the competitive grocery industry, supermarket owners are diversifying their retail formats from traditional stores to include natural and organic and upscale specialty stores to satisfy a wider variety of customers Supervalu now operates its Sunflower Market, while Kroger has Fresh Fare and Safeway has Safeway Lifestyle.15 But the pressure on traditional chains is coming from another strategy: supercenters like Wal-Mart and Target Wal-Mart is continuing its expansion in the grocery market; in fact, its grocery receipts now account for a whopping 31 percent of its total sales.16 CHANNEL CONFLICT Marketing channels work smoothly only when members cooperate in well-organized efforts to achieve maximum operating efficiencies Yet channel members often perform as separate, independent, and even competing forces Two types of conflict—horizontal and vertical—may hinder the normal functioning of a marketing channel Horizontal Conflict Horizontal conflict sometimes results from disagreements among channel members at the same level, such as two or more wholesalers or two or more retailers, or among marketing intermediaries of the same type, such as two competing discount stores or several retail florists More often, horizontal conflict causes problems between different types of marketing intermediaries that handle similar products In an effort to resolve such a situation, Australia and the United States recently announced an “open skies” agreement, abolishing restrictions on U.S and Australian air carriers and clearing the path for increased competition Airlines from both countries will be allowed to choose routes based on demand within government limitations and will be able to set prices and capacity without interference Airlines such as Qantas, United Airlines, and Virgin Blue will be affected Negotiators on both sides predict more cooperative marketing arrangements among the carriers.17 Vertical Conflict Vertical relationships may result in frequent and severe conflict Channel members at different levels find many reasons for disputes, as when retailers develop private brands to compete with producers’ brands or when producers establish their own retail stores or create mail-order operations that compete with retailers Producers may annoy wholesalers and retailers when they attempt to bypass these intermediaries and sell directly to consumers After years of conflict, cable companies have reached an agreement with the electronics industry so that manufacturers can produce TVs and other electronic devices that will work—regardless of the cable provider Comcast and Time Warner are participating in Describe the concepts of channel management, conflict, and cooperation channel captain Dominant and controlling member of a marketing channel bri efly speaking “All things being equal, people will business with a friend All things being unequal, people will still business with a friend.” —Mark McCormack (1930–2003) AMERICAN SPORTS AGENT AND FOUNDER, IMG SPORTS MANAGEMENT 428 DISTRIBUTION DECISIONS the initiative, called “tru2way,” which will allow devices to receive and send digital information The new standardization across the cable networks should foster the development of two-way communication from TVs to set-top boxes to PCs and other devices.18 © AP Images/PRNewsFoto/Panasonic The resolution of vertical conflict between cable companies and electronics manufacturers paved the way for “tru2way,” an initiative that will allow devices not only to receive but to send digital information part The Gray Market Another type of channel conflict results from activities in the so-called gray market As U.S manufacturers license their technology and brands abroad, they sometimes find themselves in competition in the U.S market against versions of their own brands produced by overseas affiliates These gray goods, goods produced for overseas markets often at reduced prices, enter U.S channels through the actions of unauthorized foreign distributors While licensing agreements usually prohibit foreign licensees from selling in the United States, no such rules inhibit their distributors Kraft Foods lost a bid in the Canadian courts to stop a competing importer, Euro Excellence, from selling chocolates in packaging that looks exactly like Kraft’s Toblerone and Cote D’Or brands—designs that Kraft’s European units copyrighted So both Kraft’s chocolates and those of Euro Excellence, which are imported from an undisclosed European country, will appear in Canadian markets in identical packaging The court ruled that Euro Excellence had obtained the rights to the packaging legally, although it did not have permission to use it in Canada, an issue of licensing versus copyright Kraft may seek to obtain the copyright from the European units so that it can enforce it in Canada.19 ACHIEVING CHANNEL COOPERATION Identify and describe the different vertical marketing systems vertical marketing system (VMS) Planned channel system designed to improve distribution efficiency and costeffectiveness by integrating various functions throughout the distribution chain The basic antidote to channel conflict is effective cooperation among channel members Cooperation is best achieved when all channel members regard themselves as equal components of the same organization The channel captain is primarily responsible for providing the leadership necessary to achieve this kind of cooperation The NFL Network and sports marketer ESPN are forming a joint venture that will allow the NFL Network access assessment check to more cable systems—through the clout of ESPN Although the NFL Network has been available in more What is a channel captain? What is its role in than 40 million homes via DirecTV and channel cooperation? Verizon FiOs, it has not been accessible on Time Warner Cable, Cablevision, or Identify and describe the three types of channel many other cable providers So the assoconflict ciation with ESPN should give the smaller network’s distribution a significant boost.20 Vertical Marketing Systems Efforts to reduce channel conflict and improve the effectiveness of distribution have led to the development of vertical marketing systems A vertical marketing system (VMS) is a planned channel system designed to improve distribution efficiency and cost effectiveness by integrating various functions throughout the distribution chain chapter 13 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT A vertical marketing system can achieve this goal through either forward or backward integration In forward integration, a firm attempts to control downstream distribution For example, a manufacturer might set up a retail chain to sell its products Backward integration occurs when a manufacturer attempts to gain greater control over inputs in its production process A manufacturer might acquire the supplier of a raw material the manufacturer uses in the production of its products Backward integration can also extend the control of retailers and wholesalers over producers that supply them A VMS offers several benefits First, it improves chances for controlling and coordinating the steps in the distribution or production process It may lead to the development of economies of scale that ultimately saves money A VMS may also let a manufacturer expand into profitable new businesses However, a VMS also involves some costs A manufacturer assumes increased risk when it takes control of an entire distribution chain Manufacturers may also discover they lose some flexibility in responding to market changes Marketers have developed three categories of VMSs: corporate systems, administered systems, and contractual systems These categories are outlined in the following sections CORPORATE AND ADMINISTERED SYSTEMS When a single owner runs an organization at each stage of the marketing channel, it operates a corporate marketing system Phillips auctioneers runs a corporate marketing system An administered marketing system achieves channel coordination when a dominant channel member exercises its power Even though Goodyear sells its tires through independently owned and operated dealerships, it controls the stock these dealerships carry Other examples of channel captains leading administered channels include McKesson and Costco CONTRACTUAL SYSTEMS Instead of common ownership of intermediaries within a corporate VMS or the exercising of power within an administered system, a contractual marketing system coordinates distribution through formal agreements among channel members In practice, three types of agreements set up these systems: wholesaler-sponsored voluntary chains, retail cooperatives, and franchises Wholesaler-Sponsored Voluntary Chain Sometimes an independent wholesaler tries to preserve a market by strengthening its retail customers through a wholesaler-sponsored voluntary chain The wholesaler adopts a formal agreement with its retailers to use a common name and standardized facilities and to purchase the wholesaler’s goods The wholesaler may even develop a line of private brands to be stocked by the retailers This practice often helps smaller retailers compete with rival chains—and strengthens the wholesaler’s position as well IGA (Independent Grocers Alliance) Food Stores, described in the “Marketing Success” feature, is a good example of a voluntary chain Other wholesaler-sponsored chains include Associated Druggists, Sentry Hardware, and Western Auto Because a single advertisement promotes all the retailers in the trading area, a common store name and similar inventories allow the retailers to save on advertising costs Retail Cooperative In a second type of contractual VMS, a group of retailers establishes a shared wholesaling operation to help them compete with chains This is known as a retail cooperative The retailers purchase ownership shares in the wholesaling operation and agree to buy a minimum percentage of their inventories from this operation The members typically adopt a common store name and develop common private brands Franchise A third type of contractual vertical marketing system is the franchise, in which a wholesaler or dealer (the franchisee) agrees to meet the operating requirements of a manufacturer or other franchiser Franchising 429 430 part DISTRIBUTION DECISIONS is a huge and growing industry—more than 1,500 U.S assessment check companies distribute goods and services through systems of franchised dealers, and numerous firms also What are vertical marketing systems offer franchises in international mar(VMSs)? Identify the major types kets Nationwide, about 750,000 21 Identify the three types of contractual retail outlets represent franchises Table 13.2 shows the 20 fastest-growing marketing systems t ab le 13 The Top 20 Fastest-Growing Franchises Rank Company and Product Jan-Pro Franchising International: commercial cleaning 7-Eleven: convenience stores Subway: submarine sandwiches and salads Jani-King: commercial cleaning Dunkin’ Donuts: coffee and doughnuts Jackson Hewitt Tax Service: tax preparation services Bonus Building Care: commercial cleaning Instant Tax Service: retail tax preparation and electronic filing Liberty Tax Service: income tax preparation 10 RE/MAX International Inc.: real estate 11 Vanguard Cleaning Systems: commercial cleaning 12 Edible Arrangements International: floral-like designs made from sculpted fresh fruit 13 Anytime Fitness: fitness center 14 Jazzercise Inc.: dance/exercise classes 15 Choice Hotels International: hotels, inns, suites, and resorts 16 Blimpie: submarine sandwiches and salads 17 Kumon Math & Reading Centers: supplemental education services 18 Express Tax: tax preparation and electronic filing 19 System4: commercial cleaning 20 Quiznos Sub: submarine sandwiches, soups, and salads Source: “2008 Fastest-Growing Franchises Rankings” Entrepreneur, www.entrepreneur.com, accessed July 30, 2008 IGA Cooperative Strengthens Supply Chain Background The idea of pooling resources and work- ing together has long been part of many business strategies This is true in the grocery industry where large supermarket chains command a hefty share of the marketplace But the IGA—Independent Grocers Alliance—gains its strength in numbers Chicago-based IGA is the largest voluntary supermarket network in the world, with more than $21 billion in retail sales per year, operating in 44 states and more than 40 countries The Challenge In recent years, people began referring to IGA with nostalgia—as a thing remembered in the past But CEO Mark Batenic insists that IGA is as vital as ever He believes the future of the alliance lies with its distribution capabilities chapter 13 431 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT franchises in the United States, with Jan-Pro, 7-Eleven, and Subway topping the list Franchise owners pay anywhere from several thousand to more than a million dollars to purchase and set up a franchise Typically, they also pay a royalty on sales to the franchising company In exchange for these initial and ongoing fees, the franchise owner receives the right to use the company’s brand name as well as services such as training, marketing, advertising, and volume discounts Major franchise chains justify the steep price of entry because it allows new businesses to sell winning brands But if the brand enters a slump or the corporation behind the franchise makes poor strategic decisions, franchisees often are hurt © Tim Boyle/Getty Images Subway is one of the 20 fastest-growing franchises in the United States Logistics and Supply Chain Management Pier imports its eclectic mix of items from 600 vendors in more than 50 countries, most representing small companies If high-demand items or seasonal products are late into its warehouses or are shipped in insufficient quantities, the company may miss opportunities to deliver popular shopping choices to its 1,100 retail stores and could lose ground to competitors such as Pottery Barn and Crate & Barrel The situation facing Pier Imports illustrates the importance of logistics Careful coordination of Pier 1’s supplier network, shipping processes, and inventory control is the key to its continuing success In addition, the store’s buyers develop relationships with suppliers in all participating countries.22 Effective logistics requires proper supply chain management, control of the activities of purchasing, processing, and delivery through which raw materials are transformed into products and made available to final consumers The supply chain, also known as the value chain, is the complete sequence of suppliers and activities that contribute to the creation and delivery of goods and services The supply chain begins with the raw material inputs for the manufacturing process of a product and then proceeds to the actual production activities The final link in the supply chain is the movement of finished products through the marketing channel to customers Each link of the chain benefits the consumers as raw materials move through manufacturing to distribution The chain encompasses all activities that enhance the value of the finished goods, including design, quality manufacturing, customer service, and delivery Customer satisfaction results directly from the perceived value of a purchase to its buyer Explain the roles of logistics and supply chain management in an overall distribution strategy supply chain Complete sequence of suppliers and activities that contribute to the creation and delivery of merchandise “The alliance is a unique organization in the grocery industry,” says Batenic, “and IGA Chicago plays a great role in bringing the IGA distributors and retailers together—but the key is the distribution center.” designed to educate its independent retail managers on consumer and market trends The Strategy The IGA management team recently formulated two of the IGA group is growing more attractive to independents outside the alliance, and distributors are taking note of the growth within IGA A strengthened distribution chain has resulted in net store growth for most members two years in a row “We’re on the right path,” asserts Batenic “And more independents are going to come knocking at our door.” major goals One is to rejuvenate both the retail brand and the private label goods sold under the brand This involves “getting the retailers energized and behind the IGA program,” notes Batenic The other is to broaden and deepen the distribution coverage, finding distributors that can fill existing gaps IGA began building relationships with Unified Grocers on the West Coast and with Associated Wholesale Grocers in Texas and Oklahoma In addition, IGA has been holding conferences The Outcome IGA’s future continues to unfold But becoming part Sources: Company Web site, www.iga.com, accessed July 28, 2008; “Home Movers,” Progressive Grocer, February 2008, www.progressivegrocer.com; “IGA Conference Educates Independent Retail Managers,” Gourmet News, February 8, 2008, www.gourmetnews.com Pier imports its eclectic mix of items from 600 vendors in more than 50 countries, most representing small companies To run the operation successfully, logistics are very important radio frequency identification (RFID) Technology that uses a tiny chip with identification information that can be read by a scanner using radio waves from a distance part © Emile Wamsteker/Bloomberg News/Landov 432 To manage the supply chain, businesses must look for ways to maximize customer value in each activity they perform Supply chain management takes place in two directions: upstream and downstream, as illustrated in Figure 13.2 Upstream management involves managing raw materials, inbound logistics, and warehouse and storage facilities Downstream management involves managing finished product storage, outbound logistics, marketing and sales, and customer service Companies choose a variety of methods for managing the supply chain They can include high-tech systems such as radio frequency identification (discussed in the next section) and regular person-to-person meetings Summit Logistics International helps other businesses track and manage their global supply chains Using software developed by LOG-NET, Summit assists its customers in supporting customer service and improving inventory management.23 Logistics plays a major role in giving customers what they need when they need it, and thus is central in the supply chain Another important component of this chain, value-added service, adds some improved or supplemental service that customers not normally receive or expect The following sections examine methods for streamlining and managing logistics and the supply chain as part of an overall distribution strategy RADIO FREQUENCY IDENTIFICATION (RFID) One tool marketers use to help manage logistics is radio frequency identification (RFID) technology With RFID, a tiny chip with identification information that can be read by a radio frequency scanner from a distance is placed on an item These chips are already widely used in Upstream Management figure 13.2 The Supply Chain of a Manufacturing Company Source: Adapted from Figure 2.2, Ralph M Stair and George W Reynolds, Principles of Information Systems: A Managerial Approach, 8th Edition, Boston: Course Technology © 2008 South-Western, a part of Cengage Learning, Inc Reproduced by permission www.cengage.com/ permissions DISTRIBUTION DECISIONS Raw Materials Inbound Logistics Warehouse and Storage Production Downstream Management Finished Product Storage Outbound Logistics Marketing and Sales Customer Service chapter 13 433 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT tollway pass transmitters, allowing drivers to zip through tollbooths without stopping or rolling down their windows to toss change into baskets They are also embedded in employee ID cards workers use to open office doors without keys But businesses such as retail giant Wal-Mart, manufacturer Procter & Gamble, credit card firms MasterCard and American Express, and German retailer Metro AG are eagerly putting the technology to wider use; they say it will speed deliveries, make consumer bar codes obsolete, and provide marketers with valuable information about consumer preferences Wal-Mart requires its biggest suppliers to attach RFID tags to pallets and cases of products such as Coca-Cola and Dove soap, saying the technology vastly improves its ability to track inventory and keep the right amount of products in stock Boeing is implementing RFID tags and wireless Internet (Wi-Fi) technology to track and locate aircraft parts at its huge manufacturing plants Each aircraft is made up of to million individual parts Boeing’s manufacturing site in Everett, Washington, is actually the largest building in the world—it covers 100 acres—so the RFID tags are vital to keeping track of components The technology uses Wi-Fi access points to pick up signals from an RFID tag and pinpoint the precise location of a part.24 bri efly speaking “Be prepared for all possible instances of demand, whenever and wherever they may occur.” —Michael Dell (b 1965) ENTERPRISE RESOURCE PLANNING Software is an important aspect of logistics management and the supply chain An enterprise resource planning (ERP) system is an integrated software system that consolidates data from among the firm’s units Roughly two-thirds of ERP system users are manufacturers concerned with production issues such as sequencing and scheduling German software giant SAP offers systems that allow businesses to manage their customer relations eBay uses an SAP system to interact with its top customers in Europe.25 As valuable as it is, ERP and its related software aren’t always perfect For example, ERP failures were blamed for Hershey’s inability to fulfill all of its candy orders during one Halloween period when a fall-off in sales was blamed on a combination of shipping delays, inability to fill orders, and partial shipments while candy accumulated in warehouses The nation’s major retailers were forced to shift their purchases to other candy vendors LOGISTICAL COST CONTROL In addition to enhancing their products by providing value-added services to customers, many firms focus on logistics for another important reason: to cut costs Distribution functions currently represent almost half of a typical firm’s total marketing costs To reduce logistical costs, businesses are re-examining each link of their supply chains to identify activities that not add value for customers By eliminating, reducing, or redesigning these activities, they can often cut costs and boost efficiency As just described, new technologies such as RFID can save businesses millions—or even billions—of dollars Because of increased security requirements in recent years, businesses involved in importing and exporting have faced a major rise in logistical costs By law, 50 percent of all cargo on passenger planes must now be screened, increasing the cost of transporting goods even more.26 Third-Party Logistics Some companies try to cut costs and offer value-added services by outsourcing some or all of their logistics functions to specialist firms Third-party (contract) logistics firms (3PL firms) specialize in handling logistical activities for their clients Third-party logistics is a huge industry, estimated at $390 billion worldwide, $113.6 billion of which takes place in the United States alone.27 Penske Logistics, UPS, and European-based Schenker are three of the largest 3PL firms worldwide, with major operations in China and Russia Through such outsourcing alliances, producers and logistical assessment check service suppliers cooperate in developing innovative, customized systems that speed goods through carefully constructed manu1 What is upstream management? What is facturing and distribution pipelines Although many downstream management? companies have long outsourced transportation and warehousing functions, today’s alliance partners use Identify three methods for managing logistics similar methods to combine their operations FOUNDER, DELL INC 434 Identify the major components of a physical distribution system part DISTRIBUTION DECISIONS Physical Distribution A firm’s physical distribution system is an organized group of components linked according to a plan for achieving specific distribution objectives It contains the following elements: customer service—level of customer service the distribution activities support; transportation—how the firm ships its products; inventory control—quantity of inventory the firm maintains at each location; protective packaging and materials handling—how the firm packages and efficiently handles goods in the factory, warehouse, and transport terminals; order processing—how the firm handles orders; and warehousing—the distribution system’s location of stock and the number of warehouses the firm maintains All of these components function in interrelated ways Decisions made in one area affect efficiency in others The physical distribution manager must balance each component so the system avoids stressing any single aspect to the detriment of overall functioning A firm might decide to reduce transportation costs by shipping its products by less costly—but slow—water transportation But slow deliveries would likely force the firm to maintain higher inventory levels, raising those costs This mismatch between system elements often leads to increased production costs So balancing the components is crucial The general shift from a manufacturing economy to a service economy in the United States has affected physical distribution in two key ways First, customers require more flexible—yet reliable—transportation service Second, the number of smaller shipments is growing much faster than the number of large shipments Although traditional, high-volume shipments will continue to grow, they will represent a lower percentage of the transportation industry’s revenues and volume THE PROBLEM OF SUBOPTIMIZATION Logistics managers seek to establish a specified level of customer service while minimizing the costs of physically moving and storing goods Marketers must first decide on their priorities for customer service and then figure out how to fulfill those goals by moving goods at the least cost Meshing together all the physical distribution elements is a huge challenge that firms don’t always meet Suboptimization results when the managers of individual physical distribution functions attempt to minimize costs, but the impact of one task leads to less than optimal results on the others Imagine a hockey team composed of star players Unfortunately, despite the individual talents of the players, the team fails to win a game This is an example of suboptimization The same thing can happen at a company when each logistics activity is judged by its own accomplishments instead of the way it contributes to the overall goals of the firm Suboptimization often happens when a firm introduces a new product that may not fit easily into its current physical distribution system Effective management of the physical distribution function requires some cost trade-offs By accepting relassessment check atively high costs in some functional areas to cut costs in others, managers can minimize their firm’s total What are the six major elements of physical physical distribution costs Of course, distribution? any reduction in logistical costs should support progress toward the goal of main2 What is suboptimization? taining customer-service standards CUSTOMER SERVICE STANDARDS Customer service standards state the goals and define acceptable performance for the quality of service a firm expects to deliver to its customers Internet retailers such as Zappos.com and Giftbaskets.com thrive because of their ability to ship within hours of receiving an order 1-800-FLOWERS.com offers chapter 13 435 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT same-day delivery, every day of the week, nationwide, with a 100 percent guarantee of satisfaction The firm’s fulfillment system includes a network of about 9,000 florists—one reason why the company can guarantee its deliveries.28 A pizza parlor might set a standard to deliver customers’ pizzas hot and fresh within 30 minutes An auto repair shop might set a standard to complete all oil changes in a half hour Designers of a physical distribution system begin by establishing acceptable levels of customer service These designers then assemble physical distribution components in a way that will achieve this standard at the lowest possible total cost This overall cost breaks down into five components: (1) transportation, (2) warehousing, (3) inventory control, (4) customer service/order processing, and (5) administrative costs 1-800-FLOWERS.com strives for high customerservice standards, offering same-day delivery, every day of the week, nationwide, with a 100 percent guarantee of satisfaction The transportation industry was largely deregulated a number of years ago Deregulation has been particularly important for motor carriers, railroads, and air carriers Today, an estimated 15.5 million trucks are transporting goods throughout the United States; 1.9 million of these are tractor-trailers An estimated 360,000 trucking companies and more than million truck drivers operate in the country.29 Railroads are enjoying a new boom: once hauling mostly commodities like corn and grain, they now transport cross-country the huge loads of goods coming from China through West Coast ports Railroads can move a greater amount of freight for less fuel than trucks In a recent year, the railroad industry spent nearly $10 billion on new track and other projects, and the U.S Department of Transportation estimates that freight tonnage will increase about 90 percent by 2035.30 Typically adding about 10 percent to the cost of a product, transportation and delivery expenses represent the largest category of logistics-related costs for most firms Also, for many items—particularly perishable ones such as fresh fish or produce—transportation makes a central contribution to satisfactory customer service Many logistics managers have found that the key to controlling their shipping costs is careful management of relationships with shipping firms Freight carriers use two basic rates: class and commodity rates A class rate is a standard rate for a specific commodity moving between any pair of destinations A carrier may charge a lower commodity rate, sometimes called a special rate, to a favored shipper as a reward for either regular business or a large-quantity shipment Railroads and inland water carriers frequently reward customers in this way In addition, the railroad and motor carrier industries sometimes supplement this rate structure with negotiated, or contract, rates In other words, the two parties finalize terms of rates, services, and other variables in a contract Classes of Carriers Freight carriers are classified as common, contract, and private carriers Common carriers, often considered the backbone of the transportation industry, provide transportation services as for-hire © Getty Images TRANSPORTATION bri efly speaking “Timely service, like timely gifts, is doubled in value.” —George MacDonald (1824–1905) SCOTTISH NOVELIST, POET, AND CLERGYMAN 436 part DISTRIBUTION DECISIONS carriers to the general public The government still regulates their rates and services, and they cannot conduct their operations without permission from the appropriate regulatory authority Common carriers move freight via all modes of transport FedEx is a major common carrier serving businesses and consumers One way the firm remains competitive is by developing new methods for enhancing customer service FedEx has a service called InSight, a free online service that essentially reverses the package-tracking process—instead of following a package from shipment to delivery, customers can go online to find out what will be delivered to them that day One FedEx customer that has benefited greatly from this new service is Mexican printing company Grupo de Integración Digital, which ships more than 20 tons of instruction manuals, CD-ROMS, and software publications every month With InSight, the firm obtained comprehensive information about the status of its supply and distribution shipments.31 Contract carriers are for-hire transporters that not offer their services to the general public Instead, they establish contracts with individual customers and operate exclusively for particular industries, such as the motor freight industry These carriers operate under much looser regulations than common carriers Private carriers not offer services for hire These carriers provide transportation services solely for internally generated freight As a result, they observe no rate or service regulations The Interstate Commerce Commission (ICC), a federal regulatory agency, permits private carriers to operate as common or contract carriers as well Many private carriers have taken advantage of this rule by operating their trucks fully loaded at all times Compare the major modes of transportation MAJOR TRANSPORTATION MODES Logistics managers choose among five major transportation alternatives: railroads, motor carriers, water carriers, pipelines, and air freight Each mode has its own unique characteristics Logistics managers select the best options by matching the situation features to their specific transportation needs Railroads intermodal operations Combination of transport modes, such as rail and highway carriers (piggyback), air and highway carriers (birdyback), and water and air carriers (fishyback), to improve customer service and achieve cost advantages Railroads continue to control the largest share of the freight business as measured by ton-miles The term ton-mile indicates shipping activity required to move one ton of freight one mile Rail shipments quickly rack up ton-miles because this mode provides the most efficient way for moving bulky commodities over long distances Rail carriers generally transport huge quantities of coal, chemicals, grain, nonmetallic minerals, lumber and wood products, and automobiles The railroads have improved their service standards through a number of innovative concepts such as unit trains, run-through trains, intermodal operations, and double-stack container trains Unit trains carry much of the coal, grain, and other high-volume commodities shipped They run back and forth between single loading points (such as a mine) and single destinations (such as a power plant) to deliver a commodity Run-through trains bypass intermediate terminals to speed up schedules They work similarly to unit trains, but a run-through train may carry a variety of commodities In piggyback operations, one of the intermodal operations, highway trailers and containers ride on railroad flatcars, thus combining the long-haul capacity of the train with the door-to-door flexibility of the truck A double-stack container train pulls special rail cars equipped with bathtubshaped wells so they can carry two containers stacked on top of one another By nearly doubling train capacity and slashing costs, this system offers enormous advantages to rail customers As mentioned earlier, the railroad industry is enjoying a resurgence—this also means it must build a better infrastructure to handle the increase in demand Cities such as Chicago are making large investments in track and switching improvements, while the Norfolk Southern Railway is undertaking projects such as raising the roof of one of its railroad tunnels in southwestern Virginia to make room for the new double-stacked container cars.32 Motor Carriers The trucking industry is still an important factor in the freight industry—the American Trucking Association (ATA) reports that trucks haul about 10.7 billion tons of freight each year Although more costly than rail delivery, trucks can make deliveries to areas railroads simply can’t reach “Trucking is the driving force behind our great economy,” insists ATA president and CEO Bill Graves.33 chapter 13 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Trucking offers some important advantages over the other transportation modes, including relatively fast shipments and consistent service for both large and small shipments Motor carriers concentrate on shipping manufactured products while railroads typically haul bulk shipments of raw materials Motor carriers therefore receive greater revenue per ton shipped, because the cost for shipping raw materials is higher than shipping manufactured products Technology has also improved the efficiency of trucking Many trucking firms now track their fleets via satellite communications systems In-truck computer systems allow drivers and dispatchers to make last-minute changes in scheduling and delivery The Internet is also adding new features to motor carrier services Even so, the trucking industry must adjust to changes in the marketing environment Trucking firms report a shortage of long-haul drivers, causing delays in some deliveries and higher costs, along with the rising cost of fuel, to customers Large firms such as Swift Transportation and Knight Transportation are offering drivers regional runs and dedicated routes for more predictable work hours, as well as better pay They also recruit husband-wife teams for the long-haul routes, which is becoming a more popular practice.34 Water Carriers Two basic types of transport methods move products over water: inland or barge lines and oceangoing, deepwater ships Barge lines efficiently transport bulky, low-unit-value commodities such as grain, gravel, lumber, sand, and steel A typical lower Mississippi River barge line may stretch more than a quarter mile across Large ships also operate on the Great Lakes, transporting materials such as iron ore from Minnesota and harvested grain for market These lake carrier ships range in size from roughly 400 feet to more than 1,000 feet in length Oceangoing supertankers from global companies such as Maersk Line are the size of three football fields, almost doubling the capacity of other vessels At full capacity, the ships can cut the cost by a fifth of shipping a container across the Pacific Ocean Shippers that transport goods via water carriers incur very low costs compared with the rates for other transportation modes Standardized modular shipping containers maximize savings by limiting loading, unloading, and other handling Ships often carry large refrigerated containers called “reefers” for transporting everything from fresh produce to medical supplies These containers, along with their nonrefrigerated counterparts, improve shipping efficiency because they can easily be removed from a ship and attached to trucks or trains Although shipping by water has traditionally been less expensive than other modes of transportation, as explained earlier, costs for this mode have increased dramatically because of tightened security measures Freight rates are based on the size of the vessel, the cost of fuel, and security measures Industry experts predict these costs will continue to climb over the next several years.35 FedEx is now offering an alternative shipping method that allows customers to move their cargo from Asia to varying U.S destinations via one integrated process The FedEx Trade Networks Ocean-Ground Distribution system combines its ocean freight forwarding and customs brokerage services with its U.S transportation and delivery services: FedEx Freight, FedEx Ground, and FedEx Express Customers can initiate and track the entire process through one FedEx point of contact, reducing costs and the chance for error.36 Pipelines Although the pipeline industry ranks third after railroads and motor carriers in ton-miles transported, many people scarcely recognize its existence More than million miles of pipelines crisscross the United States in an extremely efficient network for transporting energy products—enough to circle the planet 83 times The pipelines are operated by more than 3,000 large and small firms.37 Oil pipelines carry two types of commodities: crude (unprocessed) oil and refined products such as gasoline, jet fuel, and kerosene In addition, one so-called slurry pipeline carries coal in suspension after it has been ground up into a powder and mixed with water The Black Mesa Pipeline, owned by Union Pacific, moves the coal mined by Peabody Coal from northern Arizona 290 miles south into southern Nevada Although pipelines offer low maintenance and dependable methods of transportation, a number of characteristics limit their applications They have fewer locations than water carriers, and they can accommodate shipments of only a small number of products Finally, pipelines represent a relatively slow method of transportation; liquids travel through this method at an average speed of only three to four miles per hour The “Solving an Ethical Controversy” feature discusses another issue related to pipelines—bringing water to thirsty communities 437 438 part DISTRIBUTION DECISIONS The Battle over “Blue Gold” t he discovery of gold in the mid-1800s in the United States prompted a rush of prospectors who furiously mined and panned for wealth When oil was discovered, a handful of smart entrepreneurs sunk their savings into drilling for “liquid gold” or “black gold,” as it was called Now a new gold standard is emerging: blue gold Blue gold is water, which in some areas of the country is decreasing in supply Droughts in widespread areas from the Southwest to the Southeast have caused concern about water shortages among private users and municipal officials alike Pipelines have been developed and others are being considered to divert water to needy areas The cost of water is rising, and the issue of who owns water, who controls it, and who should pay for it is coming to a boil CON Should water rights be under the control of one governing body? With so many local and regional water projects underway concurrently, water officials and other experts worry that coherent, costeffective, environmentally friendly standards will not be developed In addition, many people don’t want to think water can be bought and sold just like land “The idea that water can be sold for private gain is still considered unconscionable by many,” notes James M Olson, an attorney who specializes in water and land-use law “But the scarcity of water and the extraordinary profits that can be made may overwhelm ordinary public sensibilities.” T Boone Pickens sees the situation as a business opportunity “There are people who will buy the water when they need it And the people who have the water want to sell it That’s the blood, guts, and feathers of the thing,” he observes PRO Businesses could charge communities whatever price they want for access to water if they have the single source in an area T Boone Pickens, an oil entrepreneur, bought the rights to a huge underground aquifer, about 200,000 acres of water, in Texas He wants to sell the water—about 65 billion gallons a year—to the city of Dallas, where it is needed States and cities are fighting for access to the same water in their areas Alabama, Florida, and Georgia have been locked in a conflict over millions of gallons of water used for drinking, hydropower, recreation, and agriculture Members of all sides continue to point fingers of blame at each other, arguing that each has a greater need for the water “While we are all suffering from this drought, relief for metro Atlanta cannot come at the expense of the people of Alabama,” insists one Alabama official Control wielded by a single agency can result in too much power for that agency The U.S Army Corps of Engineers has long been criticized for its unilateral decisions involving water use In the case of the three southern states currently enduring a drought, all three believe the power held by the corps—to release or not release millions of gallons of water from river basins—is too great If bills are passed at the federal level to resolve local water problems, mandatory spending might be increased, driving the cost of accessing water even higher This issue has been raised in New Mexico, where water pipeline construction has been proposed to serve rural families Summary Sources: Jerd Smith, “Water Expansion Builds Worries for Some,” Rocky Mountain News, July 18, 2008, www.rockymountainnews.com; Susan Berfield, “There Will Be Water,” BusinessWeek, June 23, 2008, pp 40–46; Mark Clayton, “Is Water Becoming ‘the New Oil’?” Christian Science Monitor, May 29, 2008, features.csmonitor com; Frank Byrt, “Water Emerging as a Precious Commodity,” Financial Week, December 17, 2007, www.financialweek.com; Halimah Abdullah, “Southeast Drought Fuels Battle over Water Rights,” McClatchy Washington Bureau, October 19, 2007, www.mcclatchydc.com Air Freight Although the air freight industry grew steadily for many years, recently that growth has leveled off—at least in certain market sectors such as overnight delivery service But firms are adapting UPS recently revamped its services, now offering an expanded international express service called UPS Express Freight The service provides guaranteed time-definite, overnight to threeday door-to-door delivery, including customs clearance, to large global metropolitan areas UPS chapter 13 439 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Comparing the Five Modes of Transport Table 13.3 compares the five transportation modes on several operating characteristics Although all shippers judge reliability, speed, and cost in choosing the most appropriate transportation methods, they assign varying importance to specific criteria when shipping different goods For example, while motor carriers rank highest in availability in different locations, shippers of petroleum products frequently choose the lowest-ranked alternative, pipelines, for their low cost Examples of types of goods most often handled by the different transports include: © John Summers II/Reuters/Landov is also offering two lessexpensive, nonguaranteed services: UPS Air Freight Direct and UPS Air Freight Consolidated Both are available worldwide and provide package pickup, delivery, and customs clearance.38 Firms are adapting to the recent leveling off of the air freight industry UPS recently revamped its services, now offering an expanded international express service called UPS Express Freight ୴ Railroads—lumber, iron, steel, coal, automobiles, grain, and chemicals; ୴ Motor carriers—clothing, furniture, fixtures, lumber, plastic, food, leather, and machinery; ୴ Water carriers—fuel, oil, coal, chemicals, minerals, and petroleum products; automobiles and electronics from foreign manufacturers; and low-value products from foreign manufacturers; ୴ Pipelines—oil, diesel fuel, jet fuel, kerosene, and natural gas; and ୴ Air freight—flowers, medical testing kits, and gourmet food products sent directly to consumers assessment check Identify the five major modes of transport Which mode of transport is currently experiencing a resurgence, and why? FREIGHT FORWARDERS AND SUPPLEMENTAL CARRIERS Freight forwarders act as transportation intermediaries, consolidating shipments to gain lower rates for their customers The transport rates on less-than-truckload (LTL) and less-than-carload (LCL) shipments often double the per-unit rates on truckload (TL) and carload (CL) shipments t a b l e 3 Discuss the role of transportation intermediaries, combined transportation modes, and warehousing in improving physical distribution Comparison of Transport Modes Mode Speed Dependability in Meeting Schedules Frequency of Shipments Availability in Different Locations Flexibility in Handling Cost Rail Average Average Low Low High Average Water Very slow Average Very low Limited Very high Very low Truck Fast High High Very extensive Average High Pipeline Slow High High Very limited Very low Low Air Very fast High Average Average Low Very high 440 part DISTRIBUTION DECISIONS Freight forwarders charge less than the highest rates but more than the lowest rates They profit by consolidating shipments from multiple customers until they can ship at TL and CL rates The customers gain two advantages from these services: lower costs on small shipments and faster delivery service than they could achieve with their own LTL and LCL shipments In addition to the transportation options reviewed so far, a logistics manager can ship products via a number of auxiliary, or supplemental, carriers that specialize in small shipments These carriers include UPS, FedEx, DHL Express, and the U.S Postal Service INTERMODAL COORDINATION Transportation companies emphasize specific modes and serve certain kinds of customers, but they sometimes combine their services to give shippers the service and cost advantages of each Piggyback service, mentioned in the section on rail transport, is the most widely used form of intermodal coordination Birdyback service, another form of intermodal coordination, sends motor carriers to pick up a shipment locally and deliver that shipment to local destinations; an air carrier takes it between airports near those locations Fishyback service sets up a similar intermodal coordination system between motor carriers and water carriers Intermodal transportation generally gives shippers faster service and lower rates than either mode could match individually because each method carries freight in its most efficient way However, intermodal arrangements require close coordination between all transportation providers Recognizing this need, multimodal transportation companies have formed to offer combined activities within single operations Piggyback service generally joins two separate companies: a railroad and a trucking company A multimodal firm provides intermodal service through its own internal transportation resources Shippers benefit because the single service assumes responsibility from origin to destination This unification prevents disputes over which carrier delayed or damaged a shipment WAREHOUSING Products flow through two types of warehouses: storage and distribution warehouses A storage warehouse holds goods for moderate to long periods in an attempt to balance supply and demand for producers and purchasers For example, controlled-atmosphere—also called cold storage— warehouses in Yakima and Wenatchee, Washington, serve nearby apple orchards By contrast, a distribution warehouse assembles and redistributes goods, keeping them moving as much as possible Many distribution warehouses or centers physically store goods for less than 24 hours before shipping them to customers Logistics managers have attempted to save on transportation costs by developing central distribution centers A manufacturer might send a single, large, consolidated shipment to a break-bulk center—a central distribution center that breaks down large shipments into several smaller ones and delivers them to individual customers in the area Many Internet retailers use break-bulk distribution centers Caterpillar Logistics Services recently opened a huge parts distribution center in Texas The new facility covers 500,000 square feet, employs more than 140 people, and provides repair or replacement parts to six Caterpillar dealers in North America that sell construction and mining equipment, engines, and machinery The new warehousing facility replaces several smaller, regional distribution centers in Texas and Missouri The center can process dealer stock and emergency orders, in addition to incoming parts directly from suppliers.39 Automated Warehouse Technology Logistics managers can cut distribution costs and improve customer service dramatically by automating their warehouse systems Although automation technology represents an expensive investment, it can provide major labor savings for high-volume distributors such as grocery chains A computerized system might store orders, choose the correct number of cases, and move those cases in the desired sequence to loading docks This kind of warehouse system reduces labor costs, worker injuries, pilferage, fires, and breakage chapter 13 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Warehouse Locations Every company must make a major logistics decision when it determines the number and locations of its storage facilities Two categories of costs influence this choice: (1) warehousing and materials handling costs and (2) delivery costs from warehouses to customers Large facilities offer economies of scale in facilities and materials handling systems; per-unit costs for these systems decrease as volume increases Delivery costs, on the other hand, rise as the distance from warehouse to customer increases Warehouse location also affects customer service Businesses must place their storage and distribution facilities in locations from which they can meet customer demands for product availability and delivery times They must also consider population and employment trends For example, the rapid growth of metropolitan areas in the southern and western United States has caused some firms to open more distribution centers in these areas Nike is building a new distribution center on 125 acres in Memphis The million-square-foot facility is adding nearly 600 jobs, bringing the firm’s total number of workers in Memphis to 1,800 Nike estimates the distribution center will account for more than $200 million in savings in reduced shipping times and increased service capabilities.40 INVENTORY CONTROL SYSTEMS Inventory control captures a large share of a logistics manager’s attention because companies need to maintain enough inventory to meet customer demand without incurring unneeded costs for carrying excess inventory Some firms attempt to keep inventory levels under control by implementing just-in-time (JIT) production Others are beginning to use RFID technology, discussed earlier in this chapter Retailers often shift the responsibility—and costs—for inventory from themselves back to individual manufacturers Vendor-managed inventory (VMI) systems like this are based on the assumption that suppliers are in the best position to spot understocks or surpluses, cutting costs along the supply chain that can be translated into lower prices at the checkout Procter & Gamble has practiced VMI, and recently began using an inventory optimization system, which uses software that allows planners simultaneous views of inventory across several stages of the supply chain Mathematical models that rely on probability give P&G logistics staff a more realistic and complex view of the inventory situation, offering an opportunity for more sophisticated planning.41 ORDER PROCESSING Like inventory control, order processing directly affects the firm’s ability to meet its customer service standards A company may have to compensate for inefficiencies in its order-processing system by shipping products via costly transportation modes or by maintaining large inventories at many expensive field warehouses Order processing typically consists of four major activities: (1) conducting a credit check; (2) keeping a record of the sale, which involves tasks such as crediting a sales representative’s commission account; (3) making appropriate accounting entries; and (4) locating orders, shipping them, and adjusting inventory records A stockout occurs when an order for an item is not available for shipment A firm’s order-processing system must advise affected customers of a stockout and offer a choice of alternative actions As in other areas of physical distribution, technological innovations improve efficiency in order processing Many firms are streamlining their order-processing procedures by using e-mail and the Internet Outdoor-gear retailer REI, for example, pushes customers toward Web ordering—its least costly fulfillment channel—in its catalogs, store receipts, signs, mailers, and membership letters PROTECTIVE PACKAGING AND MATERIALS HANDLING Logistics managers arrange and control activities for moving products within plants, warehouses, and transportation terminals, which together compose the materials handling system Two important concepts influence many materials handling choices: unitizing and containerization 441 442 part © Jay Laprete/Bloomberg News/Landov Unitizing combines as many packages as possible into each load that moves within or outside a facility Unitizing systems often lash materials in place with steel bands or shrink packaging DISTRIBUTION DECISIONS Unitizing combines as many packages as possible into each load that moves within or outside a facility Logistics managers prefer to handle materials on pallets (platforms, generally made of wood, on which goods are transported) Unitizing systems often lash materials in place with steel bands or shrink packaging A shrink package surrounds a batch of materials with a sheet of plastic that shrinks after heating, securely holding individual pieces together Unitizing promotes efficient materials handling because each package requires minimal labor to move Securing the materials together also minimizes damage and pilferage Pompeian, the century-old importer, bottler, and distributor of olive oil and wine vinegars, is implementing a new process for packing cases of its products Using robots to fill and stack cases onto pallets, then wrap them, Pompeian reduces labor costs and downtime while increasing the efficiency of its production Pallets can be stacked in different configurations, at a greater rate of speed Prior to the change, all the work was done by hand Switching to robotics doesn’t mean losing workers, however: the company was able to switch them to another line, increasing capacity “This system has provided flexibility in ways we didn’t completely see when we began the project,” says Kevin Lydon, vice president of operations “Our operators are able to reduce the stress and strain on their bodies, and we are able to utilize their intelligence instead of their brawn.”42 Logistics managers extend the same concept through containerization—combining several unitized loads A container of oil rig parts, for example, can be loaded in Tulsa and trucked to Kansas City, where rail facilities place the shipment on a high-speed run-through train to New York City There, the parts are loaded on a ship headed to Saudi Arabia assessment check In addition to the benefits outlined for unitizing, containerization also markedly reduces the What are the benefits of intermodal time required to load and unload transportation? ships Containers limit in-transit Identify the two types of warehouses and explain damage to freight because individual packages pass through few handling their function systems en route to purchasers chapter 13 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT s everal factors, including the e-business environment, security issues, and the cost of fuel, are driving changes in channel development, logistics, and supply chain management As the Internet continues to revolutionize the ways manufacturers deliver goods to ultimate consumers, marketers must find ways to promote cooperation between existing dealer, retailer, and distributor networks while harnessing the power of the Web as a channel This system demands not only delivery of goods and services faster and more efficiently than ever before, it also provides superior service to Web-based customers In addition, increased product proliferation—grocery stores typically stock almost 50,000 different items—demands logistics systems that can manage multiple brands delivered through multiple channels worldwide Those channels must be finely tuned to identify and rapidly rectify problems such as retail shortfalls or costly overstocks The trend toward leaner retailing, in which the burden of merchandise tracking and inventory control is switching from retailers to manufacturers, means that to be effective, logistics and supply chain systems must result in cost savings Review of Chapter Objectives Describe the types of marketing channels and the roles they play in marketing strategy Marketing (distribution) channels are the systems of marketing institutions that enhance the physical flow of goods and services, along with ownership title, from producer to consumer or business user In other words, they help bridge the gap between producer or manufacturer and business customer or consumer Outline the major channel strategy decisions Decisions include selecting a marketing channel and determining distribution intensity Selection of a marketing channel may be based disagreement exists among channel members Cooperation is best achieved when all channel members regard themselves as equal components of the same organization Identify and describe the different vertical marketing systems A vertical marketing system (VMS) is a planned channel system designed to improve distribution efficiency and cost-effectiveness by integrating various functions throughout the distribution chain This coordination may be achieved by forward integration or on market factors, product factors, organizational factors, or competitive factors Distribution may be intensive, selective, or exclusive Describe the concepts of channel management, conflict, and cooperation Manufacturers must practice channel management by developing and maintaining relationships with the intermediaries in their marketing channels The channel captain is the dominant member of the channel Horizontal and vertical conflict can arise when Types of channels include direct selling, selling through intermediaries, dual distribution, and reverse channels Channels perform four functions: facilitating the exchange process, sorting, standardizing exchange processes, and facilitating searches by buyers and sellers backward integration Options include a corporate marketing system, operated by a single owner; an administered marketing system, run by a dominant channel member; and contractual marketing systems, based on formal agreements among channel members Explain the roles of logistics and supply chain management in an overall distribution strategy Effective logistics requires proper supply chain management The supply chain begins with raw materials, proceeds through actual production, and then continues with the movement of finished products through the marketing channel to customers Supply chain management takes place in two directions: upstream and downstream Tools that marketers use to streamline and manage logistics include radio-frequency identification (RFID), enterprise resource planning (ERP), and logistical cost control 443 444 part Identify the major components of a physical distribution system Physical distribution involves a broad range of activities concerned with efficient movement of finished goods from the end of the production line to the consumer As a system, physical distribution consists of six elements: (1) customer service, (2) transportation, DISTRIBUTION DECISIONS (3) inventory control, (4) materials handling and protective packaging, (5) order processing, and (6) warehousing These elements are interrelated and must be balanced to create a smoothly functioning distribution system and to avoid suboptimization Compare the major modes of transportation The five major modes of transport are railroads, motor carriers, water freight, pipelines, and air freight Railroads, enjoying a recent surge in use, rank high on flexibility in handling products; average on speed, dependability in meeting schedules, and cost; and lower on frequency of shipments Motor carriers are relatively high in cost but rank high on speed, dependability, shipment frequency, and availability in different locations Water carriers balance their slow speed, low shipment frequency, and limited availability with lower costs The special nature of pipelines makes them rank relatively low on availability, flexibility, and speed, but they are also lower in cost Air transportation is high in cost but offers very fast and dependable delivery schedules Discuss the role of transportation intermediaries, combined transportation modes, and warehousing in improving physical distribution Transportation intermediaries facilitate movement of goods in a variety of ways, including piggyback, birdyback, and fishyback assessment check: 1.1 services—all forms of intermodal coordination Methods such as unitization and containerization facilitate intermodal transfers answers Distinguish between a marketing channel and logistics A marketing channel is an organized system of marketing institutions and their interrelationships designed to enhance the flow and ownership of goods and services from producer to user Logistics is the actual process of coordinating the flow of information, goods, and services among members of the marketing channel 1.2 What are the different types of marketing channels? The different types of marketing channels are direct selling, selling through intermediaries, dual distribution, and reverse channels 1.3 What four functions marketing channels perform? The four functions of marketing channels are (1) facilitating the exchange process by reducing the number of marketplace contacts necessary for a sale; (2) sorting; (3) standardizing exchange transactions; and (4) facilitating searches by buyers and sellers 2.1 Identify four major factors in selecting a marketing channel The four major factors in selecting a marketing channel are market, product, organizational, and competitive 2.2 Describe the three general categories of distribution intensity Intensive distribution seeks to distribute a product through all available channels in a trade area Selective distribution chooses a limited number of retailers in a market area Exclusive distribution grants exclusive rights to a wholesaler or retailer to sell a manufacturer’s products 3.1 What is a channel captain? What is its role in channel cooperation? A channel captain is the dominant member of the marketing channel Its role in channel cooperation is to provide the necessary leadership chapter 13 3.2 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Identify and describe the three types of channel conflict Horizontal conflict results from disagreements among channel members at the same level Vertical conflict occurs when channel members at different levels disagree The gray market causes conflict because it involves competition in the U.S market of brands produced by overseas affiliates—often lower priced than the same U.S manufactured goods 4.1 What are vertical marketing systems (VMSs)? Identify the major types Vertical marketing systems are planned channel systems designed to improve the effectiveness of distribution, including efficiency and cost The three major types are corporate, administered, and contractual 4.2 Identify the three types of contractual marketing systems The three types of contractual systems are wholesale-sponsored voluntary chains, retail cooperatives, and franchises 5.1 What is upstream management? What is downstream management? Upstream management involves managing raw materials, inbound logistics, and warehouse and storage facilities Downstream management involves managing finished product storage, outbound logistics, marketing and sales, and customer service 5.2 Identify three methods for managing logistics Methods for managing logistics include RFID technology, enterprise resource planning (ERP) systems, and logistical cost control 6.1 What are the six major elements of physical distribution? The major elements of physical distribution are customer service, transportation, inventory control, materials handling and protective packaging, order processing, and warehousing 6.2 What is suboptimization? Suboptimization occurs when managers of individual functions try to reduce costs but create less than optimal results 7.1 Identify the five major modes of transport The five major modes of transport are railroads, motor carriers, water carriers, pipelines, and air freight 7.2 Which mode of transport is currently experiencing a resurgence, and why? Railroad transport is currently experiencing a resurgence because of the cost of fuel and its efficiency in transporting large amounts of freight for less fuel 8.1 What are the benefits of intermodal transportation? Intermodal transportation usually provides shippers faster service and lower rates than a single mode could offer 8.2 Identify the two types of warehouses and explain their function The two types of warehouses are storage and distribution Storage warehouses hold goods for moderate to long periods of time to balance supply and demand Distribution warehouses assemble and redistribute goods as quickly as possible 445 446 part DISTRIBUTION DECISIONS Marketing Terms You Need to Know distribution 416 marketing (distribution) channel 416 logistics 416 supply-chain management 416 physical distribution 416 intensive distribution 425 selective distribution 425 exclusive distribution 425 channel captain 427 vertical marketing system (VMS) 428 supply chain 431 radio frequency identification (RFID) 432 intermodal operations 436 Other Important Marketing Terms marketing intermediary (middleman) 418 wholesaler 418 direct channel 419 direct selling 419 manufacturers’ representative 421 dual distribution 421 reverse channel 421 exclusive dealing agreement 426 closed sales territory 426 tying agreement 426 gray goods 428 forward integration 429 backward integration 429 corporate marketing system 429 administered marketing system 429 contractual marketing system 429 retail cooperative 429 franchise 429 upstream management 432 downstream management 432 enterprise resource planning (ERP) system 433 third-party (contract) logistics firm 433 suboptimization 434 common carriers 435 contract carriers 436 private carriers 436 vendor-managed inventory (VMI) 441 materials handling system 441 containerization 442 Assurance of Learning Review What is a marketing intermediary? What is the intermediary’s role? Explain why the following firms might choose a dual distribution strategy: a Netflix b Home Shopping Network c Target Describe the three levels of distribution intensity Give an example of a product in each level Compare and contrast the two types of channel conflict Why is channel conflict damaging to all parties? What are the benefits of owning a franchise? What are the drawbacks? Why firms choose to streamline their supply chains? Describe two or three ways a firm might achieve this What are the five components associated with the cost of achieving customer service standards in a physical distribution system? Which mode of transport would probably be selected for the following goods? a clean diesel fuel b lumber c local fresh produce d automobiles made in Germany e T-shirts manufactured in India f grain grown in the U.S Midwest Which two categories of costs influence the choice of how many storage facilities a firm might have and where they are located? 10 Describe the two concepts that influence materials handling choices Give an example of a product that would be appropriate for each chapter 13 447 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT Projects and Teamwork Exercises The traditional channel for consumer goods runs from producer to wholesaler to retailer to user With a classmate, select a product from the following list (or choose one of your own) and create a chart that traces its distribution system You may go online to the firm’s Web site for additional information a kayak from the L.L.Bean catalog or Web site b tickets to a Major League baseball game c DVD recorder/player from Circuit City On your own or with a classmate, identify, draw, and explain a reverse channel with which you are familiar What purpose does this reverse channel serve to businesses? To the community? To consumers? With a classmate, choose a product you think would sell best through a direct channel Then create a brief sales presentation for your product and present it to class Ask for feedback With a classmate, choose one of the franchises listed in Table 13.2 (on page 430) or another franchise that interests you Visit the Web site of the company to learn more about how its goods and services are distributed Create a chart outlining the firm’s physical distribution system It takes a lot to move an elaborate stage performance like Cirque du Soleil, Big Apple Circus, or a rock band from one location to another while it is on tour With a classmate, choose a touring performance that interests you—a music group, a circus, a theater performance, a NASCAR race, or the like—and imagine you are in charge of logistics Create a chart showing what modes of transportation you would select to move the performance, how you would warehouse certain items during downtime, and what methods you would use to control costs Critical-Thinking Exercises Imagine a vending machine that would charge more for hot drinks—coffee, tea, and cocoa—during cold weather What is your opinion of a temperature-sensitive vending machine? Consumers who live in colder climates might pay more over a longer time period each year than consumers who live in warmer climates Would your opinion change if alternatives were nearby, say, a convenience store or a vending machine that is not temperature sensitive? Do you think such a machine would be successful? Why or why not? Auto dealerships often have exclusive distribution rights in their local markets How might this affect the purchase choices consumers make? What problems might a dealership encounter with this type of distribution? Choose one of the following firms and identify which marketing channel or channels you think would be best for its goods or services Then explain the market factors, product factors, and organizational and competitive factors contributing to your selection a b c d e Barnes & Noble Outback Steakhouse Wired magazine Sea World Banana Republic In their most basic form, RFID tags track the progress of products from warehouse to retail shelf to checkout counter But they have great potential to provide marketers with more information about consumers’ purchase patterns In what ways might RFID technology be used to serve customers better? What problems might arise? After a trip to India, where you were inspired by the craftsmanship of artisans who make jewelry and decorative artifacts, you decided to establish an import business focusing on their work How would you determine distribution intensity for your business? What mode or modes of transportation would you use to get the goods to the United States? How and where would you warehouse the goods? Explain your answers 448 part DISTRIBUTION DECISIONS Ethics Exercise As more and more firms business globally, transporting goods from one part of the world to another, there has been a surge in piracy—criminals making off with cargo shipments filled with everything from component parts to finished goods A tractortrailer loaded with electronics might be stolen from a truck stop; a warehouse stacked with pallets of new clothing, TVs, or just about anything else might be susceptible to theft Large, sophisticated cargo theft gangs have been identified by law enforcement authorities in California, New Jersey, New York, and Texas and in cities such as Atlanta, Chicago, and Miami However, members of the supply chain can work together to close the net around would-be thieves, developing stronger relationships with each other.43 What steps might manufacturers take to achieve the kind of channel cooperation that could reduce or prevent cargo theft? How might transportation firms use security measures to build trust with customers and strengthen their position in the marketplace? Internet Exercises Marketing channels Visit the Web site of footwear company Merrell (www.merrell.com) What channels does Merrell use to distribute its products? How does it avoid channel conflict? RFID Go the Web site of the RFID Journal (www.rfidjournal com) and click on “News.” Review two or three recent articles pertaining to RFID Write a report summarizing the articles and bring it to class so you can participate in a discussion on the topic Rail statistics The Statistical Abstract of the United States contains summary data on railroads and other transportation modes Visit the following Web site (census.gov/compendia/ statab/) and click on “Transportation.” Access the tables related to railroads and answer the following questions: a What is a class railroad? How many so-called “class 1” railroads are in operation in the United States? Has this number increased or decreased in recent years? b Has freight revenue increased or decreased over the past few years? How much revenue is collected per ton mile? Has this increased or decreased over the past few years? c Which products are transported most frequently by rail? Are there any noticeable trends in the types of products distributed by rail? Note: Internet Web addresses change frequently If you can’t find the exact site listed, you may need to access the organization’s home page and search from there, or use a search engine such as Google Case 13.1 XM and Sirius Merge: A New Channel for Radio Listeners With the merger of XM and Sirius—the only two U.S satellite radio companies—18 million subscribers are learning to live with each other’s listening preferences Despite a delay largely caused by objections from the land-based radio industry, consumer groups, lawmakers, and broadcasters, the Federal Communications Commission (FCC) approved the merger nearly one and a half years after the two companies announced they wanted to join The most important result of the merger is what it means to the two companies’ customers The FCC approved the deal, adding several conditions First, the new company must cap its prices for three years, allowing customers to choose the channels they want and pay less for bundled channels Second, existing radios must chapter 13 449 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT still function, and the company must begin offering radios that receive the channels broadcast by both stations In addition, both companies will begin offering radios that allow la carte channel choices, considered an area of growth by marketers Finally, the newly formed company is offering more educational and minority programming and allowing any manufacturer of radio devices to build and sell transmitters, giving consumers greater choice Beyond the conditions laid out by the FCC, Sirius and XM have to make additional changes in order for the merger to work The two services have different types of programming XM offers Major League Baseball games, while Sirius has NFL games XM touts Bob Dylan, while Sirius broadcasts shock jock Howard Stern Some subscribers hope the merger will give them the best of both services, while others fear they will lose access to their favorite channels Many wonder if they’ll have to buy new radios to get the channels they want Sirius and XM announced they would work together to create new programming options for their subscribers Both companies note it will take awhile to adjust, as they experiment with adding and dropping channels They intend to compress the bandwidth of their channels to get more into their assigned broadcast spectrum The new company plans to focus on Video Case 13.2 service packages for new car radios, believing that consumers who obtain a satellite radio unit with the purchase of a car are likely to become subscribers And while critics contend the merger essentially eliminates competition in the satellite radio industry, supporters say consumers benefit from more choices in programming—in the car and at home Questions for Critical Thinking Why would XM and Sirius decide to merge considering the obstacles they face in dovetailing their devices and services? Do you think consumers will benefit from the merger? Why or why not? Do you believe the land-based radio industry can continue to compete with satellite radio in its ability to deliver service? Why or why not? Sources: Kim Hart, “Satellite Radio Merger Approved,” The Washington Post, July 26, 2008, www.washingtonpost.com; Frank Ahrens, “Subscribers’ Options to Change with Merger,” The Washington Post, July 26, 2008, www.washingtonpost.com; David Lieberman, “Sirius, XM Radios Will Still Be OK after Merger,” USA Today, July 26, 2008, www.usatoday.com; “FCC Approves Sirius, XM Satellite Radio Merger,” USA Today, July 26, 2008, www.usatoday.com Marketing Channels and Supply Chain Management at Recycline The written video case on Recycline appears on page VC-12 The Recycline video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 450 14 CHAP TER Retailers, Wholesalers, and Direct © Terri Miller/E-Visual Communications, Inc Marketers DirectBuy’s Model for Home Improvement When the economy takes a downturn, new-home construction typically falters Real estate sales decline because money is tight So instead of moving to a larger or better-equipped home, many consumers try their hand at do-it-yourself home renovation and repair As homeowners hunt for ways to wring more value out of their dollars, many are finding steep discounts at home improvement wholesaler DirectBuy Founded in 1971 in Merrillville, Indiana, DirectBuy offers a comprehensive array of home furnishings and home improvement products from more than 700 brand-name manufacturers and authorized suppliers Customers pay a membership fee to shop the company’s more than 150 outlets in the United States and Canada, purchasing appliances, cabinetry, flooring, furniture, lighting, windows, and much more at 451 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS wholesale prices directly from the manufacturer In many cases, DirectBuy features the same goods regularly on display in major retail appliance, department, and furniture stores Because of its broad product offerings, DirectBuy faces off against competitors in a wide variety of categories, including department stores JCPenney, Macy’s, and Sears; discounters Kmart, Target, Value City, and Wal-Mart; electronics retailer Best Buy; home improvement stores Home Depot, Lowe’s, and Menards; home furnishing specialty stores Crate and Barrel, Pier 1, and Pottery Barn; and even warehouse club stores Costco and Sam’s Club Since DirectBuy also offers a full line of custom-order furniture and cabinets as well as delivery and installation, it counts cabinet manufacturers like Merillat among its competitors Prospective DirectBuy members first attend a 90-minute “open house” at which they tour the showroom and design center and receive information about the company and the way membership works And although details regarding membership fees are closely guarded outside its open houses, DirectBuy offers several membership options at different price points Many DirectBuy members say their DirectBuy membership enabled them to save thousands of dollars on their home improvement projects DirectBuy operates as a franchise, with more than 140 showrooms throughout North America Important differentiators in the company’s marketing strategy are its knowledgeable, customer-focused employees and convenient, one-stop shop approach Some members say shopping at DirectBuy is like having their own personal shopper who provides customized design advice Also, for those who spend their weekends working on their home, buying most of what they need for a remodeling project under one roof becomes an important timesaver Another value-added service is DirectBuy’s Web site, which offers consumers a host of useful ideas, decorating tips, and information about the complicated and often baffling world of home improvement DirectBuy’s two-pronged strategy—targeting the highend, do-it-yourself homeowner segment and working to keep its merchandise prices lower than those of the competition—seems to be working According to company management, more than three of four DirectBuy members renewed their memberships last year Recent additional investments in advertising—including banner ads on the Web—have resulted in an increase in new members The company also plans to open more stores in the future.1 Explain the wheel of retailing Discuss how retailers select target markets Show how the elements of the marketing mix apply to retailing strategy Explain the concepts of retail convergence and scrambled merchandising Identify the functions performed by wholesaling intermediaries Outline the major types of independent wholesaling intermediaries and the appropriate situations for using each Compare the basic types of direct marketing and nonstore retailing Describe how much the Internet has altered the wholesaling, retailing, and direct marketing environments The DirectBuy store concept grew out of the realization that home remodeling is expensive Riding the current do-it-yourself wave, the company recognized that many homeowners take on home improvement projects themselves primarily to save money By offering customers an opportunity to buy direct from the manufacturer or its authorized supplier, DirectBuy helps them save even more Charging a membership fee and limiting access to members only enables DirectBuy to make a profit evolution of a brand Objectives chapter 14 • Prospects have a single opportunity to join DirectBuy: at the open house The company claims requiring the purchase decision at that time prevents consumers from comparison shopping and, possibly, attempting to pressure retail competitors into matching DirectBuy’s low prices What other reasons can you think of for such a practice? • Reports vary on how much DirectBuy members actually save by buying direct Some report minimal savings, and certain members have even questioned the company’s pricing strategies Under what circumstances you think a DirectBuy membership would be a good deal for a homeowner? 452 part chapter overview DISTRIBUTION DECISIONS Finally, the chapter looks at nonstore retailing Direct marketing, a channel consisting In exploring how today’s retailing sector oper- of direct communication to consumers or ates, this chapter introduces many examples business users, is a major form of nonstore that explain the combination of activities retailing It includes not just direct mail and involved in selling goods to ultimate con- telemarketing but also direct-response adver- sumers Then the chapter discusses the role tising, infomercials, and Internet marketing of wholesalers and other intermediaries who The chapter concludes by looking at a less deliver goods from the manufacturers into pervasive but growing aspect of nonstore the hands of retailers or other intermediaries retailing—automatic merchandising Retailing Retailers are the marketing intermediaries in direct contact with ultimate consumers Retailing describes the activities involved in selling merchandise to these consumers Retail outlets serve as contact points between channel members and ultimate consumers In a very real sense, retailers represent the distribution channel to most consumers because a typical shopper has little contact with manufacturers and virtually no contact with wholesaling intermediaries Retailers determine locations, store hours, number of sales personnel, store layouts, merchandise selections, and return policies—factors that often influence the consumers’ images of the offerings more strongly than consumers’ images of the products themselves Both large and small retailers perform the major channel activities: creating time, place, and ownership utilities Retailers act as both customers and marketers in their channels They sell products to ultimate consumers, and at the same time, they buy from wholesalers and manufacturers Because of their critical location in the marketing channel, retailers often perform a vital feedback role They obtain information from customers and transmit that information to manufacturers and other channel members retailing Activities involved in selling merchandise to ultimate consumers Explain the wheel of retailing EVOLUTION OF RETAILING © AP Images/Chitose Suzuki Retail outlets such as Saks Fifth Avenue serve as contact points between channel members and ultimate consumers The development of retailing illustrates the marketing concept in operation Early retailing in North America can be traced to the establishment of trading posts, such as the Hudson Bay Company, and to pack peddlers who carried their wares to outlying settlements The first type of retail institution, the general store, stocked a wide range of merchandise that met the needs of an isolated community or rural area chapter 14 453 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS Supermarkets appeared in the early 1930s in response to consumers’ desire for lower prices In the 1950s, discount stores delivered lower prices in exchange for reduced services The emergence of speaking convenience food stores in the 1960s satisfied consumer demand for fast service, convenient loca“When I walk into a grocery tions, and expanded hours of operation The development of off-price retailers in the 1980s and 1990s reflected consumer demand for brand-name merchandise at prices considerably lower than store and look at all the those of traditional retailers In recent years, Internet-enabled retailing has increased in influence products you can choose, and importance I say, ‘My God! No king ever A key concept, known as the wheel of retailing, attempts to explain the patterns of change had anything like I have in my in retailing According to the wheel of retailing, a new type of retailer gains a competitive foothold grocery store today.’” by offering customers lower prices than current outlets charge and maintains profits by reducing or eliminating services Once established, however, the innovator begins to add more services, —Bill Gates (b 1955) COFOUNDER, MICROSOFT and its prices gradually rise It then becomes vulnerable to new low-price retailers that enter with minimum services—and so the wheel turns The retail graveyard is littered with the likes of Ben Franklin, E.J Korvette, Montgomery Ward, Wieboldt’s, Woolworth’s, W.T Grant, and Zayre Many major developments in the history of retailing appear to fit the wheel’s pattern Early department stores, chain stores, supermarkets, discount stores, hypermarkets, and catalog retailers all emphasized limited service and low prices Most of these retailers gradually increased prices as they added services wheel of retailing Some exceptions disrupt this pattern, however Suburban shopping centers, convenience food Hypothesis that each new stores, and vending machines never built their appeals around low prices Still, the wheel pattern type of retailer gains a has been a good indicator enough times in the past to make it an accurate indicator of future retailcompetitive foothold by ing developments offering lower prices than In an interesting twist, the wheel of retailing may be turning at Wal-Mart as well From current suppliers charge; the company’s beginnings in the 1960s, founder Sam Walton held mandatory weekly Saturday the result of reducing or morning meetings for Wal-Mart executives It was at these legendary assemblies that managers eliminating services planned strategy, debated business philosophy, and built competitive advantage—in short, where the company culture was formed Recently, however, Wal-Mart reduced the meetassessment check ings to one a month Why the change? Some observers speculate the meetings no longer served their What is retailing? purpose Whatever the reason, Wal-Mart’s change Explain the wheel-of-retailing concept from weekly to monthly Saturday morning meetings signals the end of an era.2 bri e f l y Retailing Strategy Like manufacturers and wholesalers, a retailer develops a marketing strategy based on the firm’s goals and strategic plans The organization monitors environmental influences and assesses its own strengths and weaknesses in identifying marketing opportunities and constraints A retailer bases its key decisions on two fundamental steps in the marketing strategy process: Merchandising (1) selecting a target market and (2) developing a retailing mix to satisfy the chosen market The retailing mix Customer specifies merchandise strategy, customer service stanPromotion Service dards, pricing guidelines, target market analysis, promotion goals, location/distribution decisions, and Target store atmosphere choices The combination of these Market elements projects a desired retail image Retail image Location/ Pricing communicates the store’s identity to consumers Distribution Kohl’s, for instance, counts on its trendy, contemporary image to attract consumers As Figure 14.1 points Store out, components of retailing strategy must work Atmospherics together to create a consistent image that appeals to the store’s target market figure 14.1 Components of Retail Strategy 454 part DISTRIBUTION DECISIONS Offering high-quality local produce at low prices is the strategy of Sunflower Farmers Market, a growing chain of supermarkets in five states in the West and Southwest Launched a few years ago under the slogan “Serious food, silly prices,” Sunflower targets consumers who look for quality but can’t afford to pay boutique prices In the face of rising food prices worldwide, Sunflower emphasizes affordable organic produce In fact, it is trying to take on Wal-Mart in its own game Currently, about 80 percent of Sunflower’s merchandise undercuts Wal-Mart’s prices Same-store year-over-year revenues show double-digit increases.3 Kohl’s counts on its trendy, contemporary image to attract consumers, aligning with celebrities such as Avril Lavigne © Michael Tran/FilmMagic/Getty Images SELECTING A TARGET MARKET Discuss how retailers select target markets A retailer starts to define its strategy by selecting a target market Factors that influence the retailer’s selection are the size and profit potential of the market and the level of competition for its business Retailers pore over demographic, geographic, and psychographic profiles to segment markets In the end, most retailers identify their target markets in terms of certain demographics The importance of identifying and targeting the right market is dramatically illustrated by the erosion of department store retailing While mall anchor stores struggle to attract customers, stand-alone store Target makes a memorable splash with edgy advertising that incorporates its signature red doughnut-shaped logo in imaginative ways And although Target can be categorized as a discount retailer, it has successfully differentiated itself from competitors like Wal-Mart and Kmart by offering trendy, quality merchandise at low prices In addition, Target enjoys a reputation for having a clean, orderly store environment that appeals to shoppers.4 Deep-discount chains like Deal$, Dollar General, Dollar Tree, Family Dollar Stores, and 99¢ Only, with their less glamorous locations and low-price merchandise crammed into narrow aisles, target lower-income bargain hunters Attracted by cents-off basics such as shampoo, cereal, and laundry detergent, customers typically pick up higher-margin goods—toys or chocolates—on their way to the checkout By creating stores with wide aisles and clean presentation and offering friendly service and highend product lines like Laura Ashley paints, home improvement chain Lowe’s competes with archrival Home Depot Lowe’s ambiance helps make the store more appealing to female shoppers, who account for half of all home improvement store customers.5 assessment check After identifying a target market, a retailer must then develop marketing strategies to attract How does a retailer develop a marketing these chosen customers to its stores strategy? or Web site The following sections discuss tactics for implementing differ2 How retailers select target markets? ent strategies chapter 14 455 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS MERCHANDISING STRATEGY Show how the A retailer’s merchandising strategy guides decisions regarding the items it will offer A retailer must decide on general merchandise categories, product lines, specific items within lines, and the depth and width of its assortments Shoe retailer DSW characterizes its product assortment as “very broad and shallow,” with high-fashion, high-quality footwear.6 Big box electronics retailer Best Buy recently expanded its product offerings to include a full line of musical instruments.7 To develop a successful merchandise mix, a retailer must weigh several priorities First, it must consider the preferences and needs of its previously defined target market, keeping in mind that the competitive environment influences these choices The retailer must also consider the overall profitability of each product line and product category elements of the marketing mix apply to retailing strategy Category Management As mentioned in Chapter 12, a popular merchandising strategy is category management, in which a category manager oversees an entire product line for both vendors and retailers and is responsible for the profitability of the product group Category management seeks to improve the retailer’s product category performance through more coordinated buying, merchandising, and pricing Rather than focusing on the performance of individual brands, such as Flex shampoo or Kleenex tissue, category management evaluates performance according to each product category Laundry detergent, skin-care products, and paper goods, for example, are each viewed as individual profit centers, and different category managers supervise each group Those that underperform are at risk of being dropped from inventory, regardless of the strength of individual brands To improve their profitability, for example, some department stores have narrowed their traditionally broad product categories to eliminate high-overhead, low-profit lines such as toys, appliances, and furniture The Battle for Shelf Space As discussed in Chapter 13, large-scale retailers are increasingly taking on the role of channel captain within many distribution networks Some have assumed traditional wholesaling functions, while others dictate product design and specifications to manufacturers The result is a shift in power from the manufacturers of top-selling brands to the retailer who makes them available to customers © Jeff Greenberg/Alamy A retailer must decide on the depth and width of its merchandise assortments Shoe retailer DSW characterizes its product assortment as “very broad and shallow,” with highfashion, high-quality footwear 456 part DISTRIBUTION DECISIONS Adding to the pressure is the increase in the number of new products and variations on existing products To identify the varying items within a product line, retailers refer to a specific product offering as a stock-keeping unit (SKU) Within the skin-care category, for example, each facial cream, body moisturizer, and sunscreen in a variety of sizes and formulations is a separate SKU The proliferation of new SKUs has resulted in a fierce battle for space on store shelves Increasingly, major retailers such as JCPenney make demands in return for providing shelf space They may, for example, seek pricing and promotional concessions from manufacturers as conditions for selling their products Retailers, such as Wal-Mart, also require that manufacturers participate in their electronic data interchange (EDI) and quick-response systems Manufacturers unable to comply may find themselves unable to penetrate this marketplace Slotting allowances are just one of the range of nonrefundable fees grocery retailers receive from manufacturers to secure shelf space for new products Manufacturers may pay a national retailer thousands of dollars to get their new product displayed on store shelves.8 Other fees include failure fees that are imposed if a new product does not meet sales projections; annual renewal fees, a “pay to stay” inducement for retailers to continue carrying brands; trade allowances; discounts on highvolume purchases; survey fees for research done by the retailers; and even fees to allow salespeople to present new items stock-keeping unit (SKU) Offering within a product line such as a specific size of liquid detergent CUSTOMER SERVICE STRATEGY brs peaking iefl y “Price leadership is the core of everything we do.” —Eduardo Castro-Wright (b 1954) CHIEF OPERATING OFFICER, WALMART STORES © Jerry S Mendoza/Detroit Free Press/KRT/Newscom Target’s gift registry system is a customer-service strategy Some stores build their retailing strategy around heightened customer services for shoppers Gift wrapping, alterations, return privileges, bridal registries, consultants, interior design services, delivery and installation, and perhaps even electronic shopping via store Web sites are all examples of services that add value to the shopping experience A retailer’s customer service strategy must specify which services the firm will offer and whether it will charge customers for these services Those decisions depend on several conditions: store size, type, and location; merchandise assortment; services offered by competitors; customer expectations; and financial resources The “Solving an Ethical Controversy” feature discusses the implications of using part-time employees to provide customer services The basic objective of all customer services focuses on attracting and retaining target customers, thus increasing sales and profits Some services—such as convenient restrooms, lounges, and complimentary coffee—enhance shoppers’ comfort Other services are intended to attract customers by making shopping easier and faster than it would be without the services Some retailers, for example, offer child-care services for customers Consumers can also get “virtual assistance” from companies like Virtuosity and CallWave, which manage phone calls by allowing users to switch between voice mail, e-mail, and real-time cell and landline calls using voice commands Virtuosity’s Virtual Assistant software can answer, screen, and route calls much like a living, breathing administrative assistant CallWave’s Vtxt automated transcription service converts voicemail to text and e-mails or textmessages the content to the user.9 A customer service strategy can also support efforts in building demand for a line of merchandise Despite the trend toward renovation, redecorating, and do-it-yourself home projects, Home chapter 14 457 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS Who Benefits with a Part-time Workforce? w hen retailers struggle to make a profit, they scramble to trim operating costs One strategy is to increase the number of part-time workers, either by hiring more part-timers or reducing the hours of full-time employees Such maneuvers can cut costs because part-timers typically are ineligible for insurance and other benefits accorded to full-time workers faith in their employer and are motivated to look for a new job Hiring part-time workers for positions that were originally full time sends the wrong message and creates poor morale because existing employees perceive—rightly—that their own jobs may be in danger Summary Is it right to hire part-time workers? PRO When a retailer finds its margins trimmed to the bone, hiring part-time workers or reducing employees’ hours may be the only way to stay in business While few employees enjoy having their hours cut, most would prefer receiving a smaller paycheck to getting laid off Some people actually prefer working part-time: experienced workers nearing retirement, mothers with kids in school, and college students Careful screening and hiring practices can help identify the employees who fit the organization best CON Cutting full-time employees’ hours to part time only hurts employees both financially and psychologically They lose Hiring part-time workers for formerly full-time positions or reducing full-time employees’ hours to part time are risky strategies Workplace studies suggest that part-time employees, on average, are less committed to an organization and don’t stay as long as the average full timer Lack of commitment has a direct impact on company culture, signalling that an organization is a less attractive place to work Whether accurate or not, perceptions are hard to dispel, and the company may be saddled with this reputation long after its finances improve, making it difficult to attract and retain high performers Sources: Mike Hall, “Winning Full-Time Rights for Part-Time Workers,” America@ work, www.aflcio.org, accessed August 4, 2008; Shari Roan, “Sick at Work,” Los Angeles Times, July 29, 2008, www.latimes.com; Peter S Goodman, “A Hidden Toll on Employees: Cut to Part Time,” The New York Times, July 31, 2008, www nytimes.com; Allan Beckmann, “Comparing Employer-Provided Medical Care Benefits for Lower and Higher Wage Full-Time Workers,” Bureau of Labor Statistics, U.S Department of Labor, December 19, 2007, www.bls.gov Depot was experiencing slowing sales until it decided to revamp its stores, improve customer service, offer a decorating service, and upgrade its marketing efforts Home Depot experienced solid growth with the strategy, assuring its customers with its familiar slogan, “You can it; we can help.” When they started experiencing slowing sales, Home Depot decided to revamp its stores, improve customer service, offer a decorating service, and upgrade its marketing efforts It has seen solid growth using the slogan, “You can it; we can help.” Prices reflect a retailer’s marketing objectives and policies They also play a major role in consumer perceptions of a retailer Consumers realize, for example, that when they enter a Gucci boutique in Milan, New York, or Tokyo, they will find such expensive merchandise as $275 belts and $2,000 handbags Customers of the retail chain Dollar Discount Store expect a totally different type of merchandise; true to the name, every product in the store bears the same low price © The Home Depot PRICING STRATEGY 458 part DISTRIBUTION DECISIONS Markups and Markdowns The amount a retailer adds to a product’s cost to set the final selling price is the markup The amount of the markup typically results from two marketing decisions: markup Amount a retailer adds to the cost of a product to determine its selling price Services performed by the retailer Other things being equal, stores that offer more services charge larger markups to cover their costs Inventory turnover rate Other things being equal, stores with a higher turnover rate can cover their costs and earn a profit while charging a smaller markup A retailer’s markup exerts an important influence on its image among present and potential customers In addition, the markup affects the retailer’s ability to attract shoppers An excessive markup may drive away customers; an inadequate markup may not generate sufficient revenue to cover costs and return a profit Retailers typically state markups as percentages of either the selling prices or the costs of the products Marketers determine markups based partly on their judgments of the amounts that consumers will pay for a given product When buyers refuse to pay a product’s stated price, however, or when improvements in other items or fashion changes reduce the appeal of current merchandise, a retailer must take a markdown The amount by which a retailer reduces the original selling price—the discount typically advertised for a sale item—is the markdown Markdowns are sometimes used to evaluate merchandisers For example, a department store might base its evaluations of buyers partly on the average markdown percentages for the product lines for which they are responsible The formulas for calculating markups and markdowns are provided in the “Financial Analysis in Marketing” appendix at the end of the text markdown Amount by which a retailer reduces the original selling price of a product LOCATION/DISTRIBUTION STRATEGY Retail experts often cite location as a potential determining factor in the success or failure of a retail business A retailer may locate at an isolated site, in a central business district, or in a planned shopping center The location decision depends on many factors, including the type of merchandise, the retailer’s financial resources, characteristics of the target market, and site availability In recent years, many localities have become saturated with stores As a result, some retailers have re-evaluated their location strategies A chain may close individual stores that not meet sales and profit goals Other retailers have experimented with nontraditional location strategies Starbucks cafés are now found in grocery stores, Barnes & Noble, and Target planned shopping center Group of retail stores planned, coordinated, and marketed as a unit © Terri Miller/E-Visual Communications, Inc Some retailers have experimented with nontraditional location strategies Starbucks cafés are now found in grocery stores and book stores Locations in Planned Shopping Centers Over the past several decades, retail trade has shifted away from traditional downtown retailing districts and toward suburban shopping centers A planned shopping center is a group of retail stores designed, coordinated, and marketed to shoppers in a geographic trade area Together, the stores provide a single convenient location for shoppers as well as free parking They facilitate shopping by maintaining uniform hours of operation, including evening and weekend hours There are five main types of planned shopping centers The smallest, the neighborhood shopping center, is likely to consist of a group of smaller stores such as a drugstore, a dry cleaner, a card and gift shop, and perhaps a hair chapter 14 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS salon This kind of center provides convenient shopping for 5,000 to 50,000 shoppers who live within a few minutes’ commute It contains five to 15 stores, and the product mix usually is confined to convenience items and some limited shopping goods A community shopping center serves 20,000 to 100,000 people in a trade area extending a few miles from its location It contains anywhere from 10 to 30 retail stores, with a branch of a local department store or some other large store as the primary tenant In addition to the stores found in a neighborhood center, a community center probably encompasses more stores featuring shopping goods, some professional offices, a branch bank, and perhaps a movie theater or supermarket Community shopping centers typically offer ample parking, and tenants often share some promotion costs With the advent of stand-alone, big-box retailers, some community shopping centers have declined in popularity Some department stores are also moving away from the strategy of locating in shopping centers and opting for freestanding stores A regional shopping center is a large facility with at least 300,000 square feet of shopping space Its marketing appeal usually emphasizes major department stores with the power to draw customers, supplemented by as many as 200 smaller stores A successful regional center needs a location within 30 minutes’ driving time of at least 250,000 people A regional center—or a superregional center such as Minnesota’s Mall of America—provides a wide assortment of convenience, shopping, and specialty goods, plus many professional and personal service facilities Some shopping centers are going green, working to reduce their carbon footprint with mandatory recycling programs, maximizing the use of natural light, and installing heat-reflecting roofing that reduces the need for air conditioning.10 A power center, usually located near a regional or superregional mall, brings together several huge specialty stores, such as Sports Authority, Home Depot, and Bed Bath & Beyond, as stand-alone stores in a single trading area Rising in popularity during the 1990s, power centers offered value because they underpriced department stores while providing a huge selection of specialty merchandise Heated competition from cost-cutter Wal-Mart and inroads from more upscale discounters such as Target and Kohl’s are currently hurting the drawing power of these centers Recently, a fifth type of planned center has emerged, known as a lifestyle center This retailing format seeks to offer a combination of shopping, movie theaters, stages for concerts and live entertainment, decorative fountains and park benches in greenways, and restaurants and bistros in an attractive outdoor environment At around 300,000 to million square feet, the centers are large, but they seek to offer the intimacy and easy access of neighborhood village retailing with a fashionable cachet Convenience, safety, and pleasant ambiance are also part of the appeal Here, shoppers find a mix of just the right upscale tenants—Williams-Sonoma, Eddie Bauer, Banana Republic, Ann Taylor, Pottery Barn, and Restoration Hardware, for instance Some lifestyle centers include office parks, townhouses, and condominiums Well-heeled customers currently flock to such lifestyle centers as Santana Row in San Jose, California; Kierland Commons in Scottsdale, Arizona; Oak Brook Promenade in Oak Brook, Illinois; Ridge Hill Village Center, in Yonkers, New York; and St John’s Town Center in Jacksonville, Florida.11 Retail analysts say the decline of shopping malls and the rising market for luxury goods is fueling the rapid growth of lifestyle centers Others, however, see the entertainment aspect of the lifestyle center as the biggest drawing card Rayzor Ranch Town Center in Denton, Texas, includes shops, a cinema, hotels, and open-air amenities like an amphitheater, fountains, and parkland that attract prospective residents of its apartments, townhomes, senior housing, and single-family homes.12 PROMOTIONAL STRATEGY To establish store images that entice more shoppers, retailers use a variety of promotional techniques Through its promotional strategy, a retailer seeks to communicate to consumers information about its stores—locations, merchandise selections, hours of operation, and prices If merchandise selection changes frequently to follow fashion trends, advertising typically is used to promote current styles effectively In addition, promotions help retailers attract shoppers and build customer loyalty 459 bri efly speaking “The universe is really big It’s even bigger than Wal-Mart.” —Richard Belzer (b 1944) AMERICAN COMEDIAN 460 part DISTRIBUTION DECISIONS Innovative promotions can pay off, as retailer JCPenney can testify Launching its own spin on the 1985 cult movie The Breakfast Club, the retailer’s back-to-school ad campaign introduced five new brands over the tagline “Get that look” and one of the film’s classic tunes, “Don’t You Forget About Me,” performed by New Found Glory.13 National retail chains often purchase advertising space in newspapers, on radio, and on television Other retailers promote their goods over the Internet or use wireless technology to send marketing messages to customers’ cell phones Consumers are increasingly using their smart phones to surf the Web To promote its bands, Warner Music Group launched a Wireless Application Protocol (WAP)–based site designed specifically for mobile browsing Special analysis software enables Warner to analyze the browsing data by the user’s device, origin of the session, and other criteria.14 Retailers also try to combine advertising with in-store merchandising techniques that influence buyer behavior at the point of purchase Spain-based Zara stores offer fast fashion—inexpensive but trendy apparel that changes frequently Merchandise arrives directly from the factory on plastic shipping hangers and already tagged Clerks move items immediately to the selling floor, later switching out the plastic hangers for Zara’s traditional wooden ones Items typically sell out before they need to be marked down, creating a sense of exclusivity Zara shoppers tend to visit often, sometimes even daily, to check out the new arrivals on the plastic hangers Meanwhile, store managers wielding handheld computers identify the best-sellers and can reorder them in minutes instead of the hours it once required.15 A friendly, well-trained, and knowledgeable salesperson plays a vital role in conveying the store’s image to consumers and in persuading shoppers to buy To serve as a source of information, a salesperson must possess extensive knowledge regarding credit policies, discounts, special sales, delivery terms, layaways, and returns To increase store sales, the salesperson must persuade customers that the store sells what those customers need To this end, salespeople should receive training in selling up and suggestion selling By selling up, salespeople try to persuade customers to buy higher-priced items than originally intended For example, an automobile salesperson might persuade a customer to buy a more expensive model than the car the buyer had initially considered Of course, the practice of selling up must always respect the constraints of a customer’s real needs If a salesperson sells customers something they really not need, the potential for repeat sales dramatically diminishes Another technique, suggestion selling, seeks to broaden a customer’s original purchase by adding related items, special promotional products, or holiday or seasonal merchandise Here, too, the salesperson tries to help a customer recognize true needs rather than unwanted merchandise Beauty advisors in upscale department stores are masters of suggestion selling Beauty retail chain Sephora creates a spa mood by treating customers like royalty Sephora employees, called “cast members,” receive special training before they hit the sales floor Customers are encouraged to take their time, sample the wares, and indulge their senses in a stress-free environment.16 For some retailers, the pampering strategy reaches a higher level of customer service, as seen in the “Etiquette Tips for Marketing Professionals” feature Just as knowledgeable and helpful sales personnel can both boost sales and set retailers apart from competitors, poor service influences customers’ attitudes toward a retailer Increasing customer complaints about unfriendly, inattentive, and uninformed salespeople have prompted many retailers to intensify their attention to training and motivating salespeople Older training methods are giving way to online learning in many firms STORE ATMOSPHERICS atmospherics Combination of physical characteristics and amenities that contribute to a store’s image While store location, merchandise selection, customer service, pricing, and promotional activities all contribute to a store’s consumer awareness, stores also project their personalities through atmospherics—physical characteristics and amenities that attract customers and satisfy their shopping needs Atmospherics include both a store’s exterior and interior décor A store’s exterior appearance, including architectural design, window displays, signs, and entryways, helps identify the retailer and attract its target market shoppers The Saks Fifth Avenue script logo on a storefront and McDonald’s golden arches are exterior elements that readily identify chapter 14 461 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS Getting Personal with Your Customers s eattle-based Nordstrom is famous for providing the highest level of customer service Legend has it that in Alaska, the local Nordstrom once processed the return of a set of auto tires from a dissatisfied customer, this despite the fact that the fashion retailer did not sell—and has never sold—tires At a time when most marketing tactics can be quickly replicated by competitors, customer service seems to be the last dimension on which businesses can differentiate themselves And yet, while many retailers preach good service, few actually deliver it in a way that sets them apart and builds customer loyalty What can you to be more like the few? you” as they make a purchase Ask yourself: What can I to help my customers find what they’re looking for or at least enjoy their shopping experience while they’re here? If you’re stumped, a good rule of thumb is to treat each customer as you’d want your mother or grandmother to be treated • Make yourself useful In the good old days, shoppers could rely on store clerks to know something about the merchandise they sold Take time to learn about the products you’re selling so that you can answer customers’ questions and help them make an informed buying decision If you don’t know the answer to a question, find someone who does That’s the essence of providing excellent customer service • Commit yourself to the idea of customer satisfaction The mer- chandise may be flawless and operate exactly as it’s supposed to, but if your customer isn’t happy, it’s irrelevant Do what it takes to satisfy the customer; your effort will reap dividends • Take a genuine interest in your customers This goes beyond greeting visitors at the door and offering a perfunctory “thank Sources: “Do What You Love to Do: Personal Shopper,” CareerBuilder, www careerbuilder.com, accessed August 4, 2008; “Get Paid to Shop as a Personal Shopper,” Fabjob.com, www.fabjob.com, accessed August 4, 2008; Randall Frost, “Welcome to the Pacific Northwest,” BrandHome, October 22, 2007, www brandchannel.com; Maria Palma, “Eight Reasons Why Nordstrom Is a Customer Service Legend,” Customersarealways Web site, February 22, 2007, www customersarealways.com these retailers Other retailers design eye-catching exterior elements aimed at getting customers’ attention Colorful, lifelike recreations of jungle animals flank the theatrically lit entrances of the popular Rainforest Cafés, and the tropical motif carries over to the interiors, decorated with wallsized aquariums The interior décor of a store should also complement the retailer’s image, respond to customers’ interests, and most important, induce shoppers to buy Interior atmospheric elements include store layout, merchandise presentation, lighting, color, sounds, scents, and cleanliness After more than three decades providing essentially the same menu offerings on dark wood tables, the Shakey’s Pizza chain recently sought to capitalize on Americans’ penchant for snacking by introducing its Triplets concept The food items, all presented in groups of three, include Pizzatrios mini-pizzas; Striplets, breaded chicken strips; and Muncheese, cheese-stuffed breadsticks But the chain also remodeled its stores to update their look and is considering other formats, such as food courts and walk-up service, to dovetail with its Triplets menu.17 When designing the interior and exterior of a store, marketers must remember that many people shop for reasons other than just purchasing needed products Other common reasons for shopping include escaping the routine of daily life, avoiding weather extremes, fulfilling fantasies, and socializing with family and friends Retailers expand beyond interior design to create welcoming and entertaining environments that draw shoppers In a unique alliance, Apple offers “store within a store” boutiques in 500 assessment check Best Buy stores Apple’s freestanding stores have long been known for their innovative design Shoppers What is an SKU? who visit Best Buy to purchase a Mac or other What are the two components of a markup? Apple product can enjoy the intimacy and userfriendliness of the Apple display in a prime loca3 What are store atmospherics? tion within the big-box store.18 462 part DISTRIBUTION DECISIONS © George Frey/Bloomberg News/Landov Apple’s freestanding stores have long been known for their innovative design Types of Retailers Because new types of retailers continue to evolve in response to changes in consumer demand, a universal classification system for retailers has yet to be devised Certain differences do, however, define several categories of retailers: (1) forms of ownership, (2) shopping effort expended by customers, (3) services provided to customers, (4) product lines, and (5) location of retail transactions As Figure 14.2 points out, most retailing operations fit in different categories A 7-Eleven outlet may be classified as a convenience store (category 2) with self-service (category 3) and a relatively broad product line (category 4) It is both a store-type retailer (category 5) and a member of a chain (category 1) figure 14.2 Bases for Categorizing Retailers Shopping Effort Expended by Customers Convenience Retailers Shopping Stores Specialty Outlets Form of Ownership Corporate Chain Independent Retailer Location of Retail Transactions Retail Stores Nonstore and Internet Retailing CLASSIFICATION OF RETAILERS BY FORM OF OWNERSHIP Services Provided for Customers Self-Service Self-Selection Limited Service Full-Service Product Lines Specialty Retailer Limited-Line Retailer General Merchandise Retailer Perhaps the easiest method for categorizing retailers is by ownership structure, distinguishing between chain stores and independent retailers In addition, independent retailers may join wholesaler-sponsored voluntary chains, band together to form retail cooperatives, or enter into franchise agreements with manufacturers, wholesalers, or service provider organizations Each type of ownership has its own unique advantages and strategies Chain Stores Chain stores are groups of retail outlets that operate under central ownership and management and handle the same product lines Chains have an advantage over independent retailers in economies of scale Volume purchases allow chains to pay lower prices than their independent rivals must pay Because a chain may have hundreds chapter 14 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS of retail stores, it can afford extensive advertising, sales training, and computerized systems for merchandise ordering, inventory management, forecasting, and accounting Also, the large sales volume and wide geographic reach of a chain may enable it to advertise in a variety of media Independent Retailers The second-largest industry in the United States by number of establishments as well as number of employees, the retailing structure supports a large number of small stores, many medium-size stores, and a small number of large stores It generates about $3.8 trillion in retail sales every year and accounts for more than 12 percent of all business establishments in the United States.19 Independent retailers compete with chains in a number of ways The traditional advantage of independent stores is friendly, personalized service Cooperatives offer another strategy for independents For instance, cooperatives like Best Western Hotels and Valu-Rite Pharmacies help independents compete with chains by providing volume buying power as well as advertising and marketing programs CLASSIFICATION BY SHOPPING EFFORT Another classification system is based on the reasons consumers shop at particular retail outlets This approach categorizes stores as convenience, shopping, or specialty retailers Convenience retailers focus their marketing appeals on accessible locations, extended store hours, rapid checkout service, and adequate parking facilities Local food stores, gasoline stations, and dry cleaners fit this category GreenStop, Canada’s chain of alternative-fuel stations, features convenience stores that sell solar-roasted coffee and organic veggie wraps instead of candy and cigarettes Shopping stores typically include furniture stores, appliance retailers, clothing outlets, and sporting goods stores Consumers usually compare prices, assortments, and quality levels at competing outlets before making purchase decisions Consequently, managers of shopping stores attempt to differentiate their outlets through advertising, in-store displays, well-trained and knowledgeable salespeople, and appropriate merchandise assortments Specialty retailers combine carefully defined product lines, services, and reputations in attempts to persuade consumers to expend considerable effort to shop at their stores Examples include Bergdorf Goodman, Neiman Marcus, Nordstrom, and Von Maur CLASSIFICATION BY SERVICES PROVIDED Another category differentiates retailers by the services they provide to customers This classification system consists of three retail types: self-service, self-selection, or full-service retailers The AM PM Mini-Mart is classified as a self-service store, while Safeway grocery stores and A&P Future Stores are examples of self-selection stores Both categories sell convenience products people can purchase frequently with little assistance In the clothing industry, catalog retailer Lands’ End is a self-selection store Full-service retailers such as Neiman Marcus focus on fashionoriented merchandise, backed by a complete array of customer services A new type of retailing that includes social networking is described in the “Marketing Success” feature CLASSIFICATION BY PRODUCT LINES Product lines also define a set of retail categories and the marketing strategies appropriate for firms within those categories Grouping retailers by product lines produces three major categories: specialty stores, limited-line retailers, and general-merchandise retailers Specialty Stores A specialty store typically handles only part of a single product line However, it stocks this portion in considerable depth or variety Specialty stores include a wide range of retail outlets, including fish markets, grocery stores, men’s and women’s shoe stores, and bakeries Although some specialty stores are chain outlets, most are independent, small-scale operations They represent perhaps the 463 464 part brs peaking iefl y DISTRIBUTION DECISIONS greatest concentration of independent retailers who develop expertise in one product area and provide narrow lines of products for their local markets Specialty stores should not be confused with specialty products Specialty stores typically carry convenience and shopping goods The label specialty reflects the practice of handling a specific, narrow line of merchandise For example, Lady Foot Locker is a specialty store that offers a wide selection of name-brand athletic footwear, apparel, and accessories made specifically for women Gloria Jean’s Coffees sells whole-bean coffees, beverages, and gift baskets.20 “Make yourself necessary to somebody.” —Ralph Waldo Emerson (1803–1882) AMERICAN ESSAYIST AND POET Limited-Line Retailers Customers find a large assortment of products within one product line or a few related lines in a limited-line store This type of retail operation typically develops in areas with a large enough population to sufficiently support it Examples of limited-line stores are IKEA (home furnishings and housewares) and Rubenstein’s of New Orleans (clothing) These retailers cater to the needs of people who want to select from complete lines in purchasing particular products A unique type of limited-line retailer is known as a category killer These stores offer huge selections and low prices in single product lines Stores within this category—such as Best Buy, Barnes & Noble, Bed Bath & Beyond, and Home Depot—are among the most successful retailers in the nation Category killers at first took business away from general merchandise discounters, which were not able to compete in selection or price Recently, however, expanded merchandise and aggressive cost cutting by warehouse clubs and Wal-Mart have turned the tables Competition from Internet companies that can offer unlimited selection and speedy delivery has also taken customers away While they still remain a powerful force in retailing, especially for local businesses, category killers are not invulnerable General Merchandise Retailers © Pat Goh Seng/Bloomberg News/Landov IKEA is a limited-line store, selling only home furnishings and housewares General merchandise retailers, carrying a wide variety of product lines stocked in some depth, distinguish themselves from limited-line and specialty retailers by the large number of product lines they carry The general Threadless Fits Web Shoppers to a “T” Background The year was 2000, and the Internet was exploding When he wasn’t clerking at CompUSA or taking graphic design courses, 20-year-old Jake Nickell sat hunched over his computer in his tiny Chicago apartment, playing with Web design It had become an all-consuming hobby, and Nickell was discovering more about the design work he could online Chatting on Dreamless.org, a community for designers, Nickell began designing T-shirts online for fun But one day it struck him that he could probably sell T-shirts to other Dreamless members The Challenge Nickell and his friend Jacob DeHart each kicked in $500 to fund their new venture, which they called Threadless They began by sponsoring an online design contest, promising two free shirts as the prize Contestants submitted designs and members of the virtual community voted chapter 14 465 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS store described earlier in this chapter was a primitive form of a general merchandise retailer This category includes variety stores, department stores, and mass merchandisers such as discount houses, off-price retailers, and hypermarkets Variety Stores A retail outlet that offers an extensive range and assortment of low-price merchandise is called a variety store Less popular today than they once were, many of these stores have evolved into or given way to other types of retailers such as discount stores In recent years, many pharmacies have become drugstore–variety store combinations Walgreens, for example, has more than 6,800 stores nationwide and fills more than 580 million prescriptions a year.21 The nation’s variety stores now account for less than percent of all retail sales However, variety stores remain popular in other parts of the world Many retail outlets in Spain and Mexico are family-owned variety stores Department Stores In essence, a department store is a series of limited-line and specialty stores under one roof By definition, this large retailer handles a variety of merchandise, including men’s, women’s, and children’s clothing and accessories; household linens and dry goods; home furnishings; and furniture It serves as a one-stop shopping destination for almost all personal and household products Department stores such as Bloomingdale’s built their reputations by offering wide varieties of services such as charge accounts, delivery, gift wrapping, and liberal return privileges As a result, they incur relatively high operating costs, averaging about 45 to 60 percent of sales Department stores have faced intense competition over the past several years Relatively high operating costs have left them vulnerable to retailing innovations such as discount stores, Internet retailers, and hypermarkets In addition, department stores’ traditional locations in downtown business districts have suffered from problems associated with limited parking, traffic congestion, and population migration to the suburbs Department stores have fought back in a variety of ways Many have closed certain sections, such as electronics, in which high costs kept them from competing with discount houses and category killers They have added bargain outlets, expanded parking facilities, and opened major branches in regional shopping centers Marketers have attempted to revitalize downtown retailing in many cities by modernizing their stores, expanding store hours, making special efforts to attract the tourist and convention trade, and serving the needs of urban residents Over the years, U.S department stores have undergone massive consolidation, with only a handful of companies owning many department-store chains that were once freestanding Such acquisitions don’t always sit well with shoppers For example, Federated’s acquisition of May for their favorites, which Nickell and DeHart commercially printed and sold online for $12 each The Strategy Fueled by this revenue stream, the design contests continued, always with customers directing which merchandise would be offered In a couple of years, Threadless.com had attracted more than 10,000 visitors and sold over $100,000 in T-shirts All of its merchandise is created—and vetted—by its audience The Outcome In what seems like pure common sense to its founders, Threadless grew through user innovation—that is, the company develops its inventory by asking its customers what they’d like to buy And Threadless continues to grow: sales in a recent year topped $18 million, with $6 million in profits The company has never advertised and employs no professional designers to create the merchandise There’s no field sales force or distribution network The Web, it seems, has done most of the heavy lifting Sources: Max Chafkin, “The Customer Is the Company,” Inc., June 2008, www.inc.com; “Threadless—The Full Story: Inc Magazine Feature on Threadless,” Mass Customization & Open Innovation News, May 24, 2008, mass-customization.blogs.com; Emily Maltby, “Startup Skills for a T-Shirt Company,” Fortune Small Business, January 31, 2008, money cnn.com; Rebecca Little, “Threadless, Now in Store,” Chicago, September 11, 2007, www.chicagomag.com; Alan Sipress, “T-Shirt Maker’s Style, Drawn from Web Users,” The Washington Post, June 18, 2007, www.washingtonpost.com 466 part DISTRIBUTION DECISIONS Department Stores several years ago included the 64-store Marshall Field chain In an attempt to create a national brand, Federated changed its name to Macy’s and announced the iconic Marshall Field stores would be renamed Macy’s as well The renaming caused a furor in Chicago, home of the first Marshall Field stores Macy’s recently announced it would attempt to localize more of its stores across the nation, so that buying activities would no longer be consolidated in New York Instead, merchandise would reflect local needs and tastes.22 brs peaking iefl y Mass Merchandisers “Our attitude is that if you hire good people and pay them a fair wage, then good things will happen for the company.” Mass merchandising has made major inroads into department store sales by emphasizing lower prices for well-known brand-name products, high product turnover, and limited services A mass merchandiser often stocks a wider line of items than a department store but usually without the same depth of assortment within each line Discount houses, off-price retailers, hypermarkets, and catalog retailers are all examples of mass merchandisers —Jim Sinegal (b 1936) CEO, COSTCO Discount Houses A discount house charges low prices and offers fewer services Early discount stores sold mostly appliances Today, they offer soft goods, drugs, food, gasoline, and furniture By eliminating many of the “free” services provided by traditional retailers, these operations can keep their markups 10 to 25 percent below those of their competitors Some of the early discounters have since added services, stocked well-known name brands, and boosted their prices In fact, many now resemble department stores A discount format gaining strength is the warehouse club Costco, BJ’s, and Wal-Mart’s Sam’s Club are the largest warehouse clubs in the United States These no-frills, cash-and-carry outlets offer consumers access to name-brand products at deeply discounted prices Selection at warehouse clubs includes gourmet popcorn, fax machines, peanut butter, luggage, and sunglasses sold in vast warehouselike settings Attracting business away from almost every retailing segment, warehouse clubs now even offer fresh food and gasoline Customers must be members to shop at warehouse clubs Off-Price Retailers Another version of a discount house is an off-price retailer This kind of store stocks only designer labels or well-known brand-name clothing at prices equal to © Jay Laprete/Bloomberg News/Landov Warehouse clubs are a type of discount house that sell name-brand products at deeply discounted prices Merchandise at the clubs is sold in vast warehouselike settings chapter 14 467 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS or below regular wholesale prices and then passes the cost savings along to buyers While many off-price retailers are located in outlets in downtown areas or in freestanding buildings, a growing number are concentrating in outlet malls—shopping centers that house only off-price retailers Inventory at off-price stores changes frequently as buyers take advantage of special price offers from manufacturers selling excess merchandise Off-price retailers such as Loehmann’s, Marshalls, Ross, Stein Mart, and T.J Maxx also keep their prices below those of traditional retailers by offering fewer services Off-price retailing has been well received by today’s shoppers Francebased retailer Vente-privée.com sells high-fashion overstock merchandise through invitation-only clearance sales conducted solely on the Web.23 Hypermarkets and Supercenters Another innovation in discount retailing is the creation of hypermarkets—giant, one-stop shopping facilities that offer wide selections of grocery and general merchandise products at discount prices Store size determines the major difference between hypermarkets and supercenters Hypermarkets typically fill up 200,000 or more square feet of selling space, about a third larger than most supercenters Ohio-based Bigg’s Hypermarket Shoppes offer a vast array of items in dozens of departments, including housewares, groceries, apparel, drugs, hardware, electronics, and photo finishing in stores that average 165,000 square feet Customer service is enhanced by wireless phones carried by key employees at each store.24 The newest type of hypermarket now being tested in New Mexico is AutoCart, a 24-hour drive-through superstore of about 130,000 square feet that can serve up to 12,000 cars a day Although critics say it lacks the entertainment value of a store like Wal-Mart, AutoCart allows shoppers to phone in their orders ahead of time and offers such diverse services as dry cleaning, DVD rentals, event tickets, groceries, office supplies, and prescription drugs.25 Showroom and Warehouse Retailers These retailers send direct mail to their customers and sell the advertised goods from showrooms that display samples Backroom warehouses fill orders for the displayed products Low prices are important to catalog store customers To keep prices low, these retailers offer few services, store most inventory in inexpensive warehouse space, limit shoplifting losses, and handle long-lived products such as luggage, small appliances, gift items, sporting equipment, toys, and jewelry CLASSIFICATION OF RETAIL TRANSACTIONS BY LOCATION Although most retail transactions occur in stores, nonstore retailing serves as an important marketing channel for many products In addition, both consumer and business-to-business marketers rely on nonstore retailing to generate orders or requests for more information that may result in future orders Direct marketing is a broad concept that includes direct mail, direct selling, direct-response retailing, telemarketing, Internet retailing, and automatic merchandising The last sections of this chapter consider each type of nonstore retailing RETAIL CONVERGENCE AND SCRAMBLED MERCHANDISING Many traditional differences no longer distinguish familiar types of retailers, rendering any set of classifications less useful Retail convergence, whereby similar merchandise is available from multiple retail outlets distinguished by price more than any other factor, is blurring distinctions between types of retailers and the merchandise mix they offer A few years ago, a customer looking for a fashionable coffeepot might have headed straight for Williams-Sonoma or Starbucks Today, she’s just as likely to pick one up at Target or her neighborhood Sam’s Club, where she can check Explain the concepts of retail convergence and scrambled merchandising retail convergence Situation in which similar merchandise is available from multiple retail outlets, resulting in the blurring of distinctions between types of retailers and merchandise offered 468 scrambled merchandising Retailing practice of combining dissimilar product lines to boost sales volume part DISTRIBUTION DECISIONS out new spring fashions and stock up on paper goods The Gap is no longer pitted only against Eddie Bauer or American Eagle Outfitters but against designer-label brands at department stores and Kohl’s, too Grocery stores compete with Super Wal-Mart, Sam’s Club, and Costco In turn, Wal-Mart broadened its product mix to include more electronics and a line of fine jewelry, and introduced a prepaid debit card intended to serve low-income shoppers.26 Scrambled merchandising—in which a retailer combines dissimilar product lines in an attempt to boost sales volume—has also muddied the waters assessment check Drugstores not only fill prescriptions but sell cameras, cards, housewares, magazines, and even How we classify retailers by form of small appliances In addition, Walgreens, CVS, ownership? Wal-Mart, and other stores have discovered Categorize retailers by shopping effort and by another consumer need: in-store services provided health clinics that diagnose and List several ways to classify retailers by product line treat minor illnesses and injuries quickly and affordably.27 Wholesaling Intermediaries wholesaler Channel intermediary that takes title to goods it handles and then distributes these goods to retailers, other distributors, or B2B customers wholesaling intermediary Comprehensive term that describes wholesalers as well as agents and brokers Identify the functions performed by wholesaling intermediaries Recall from Chapter 13 that several distribution channels involve marketing intermediaries called wholesalers These firms take title to the goods they handle and sell those products primarily to retailers or to other wholesalers or business users They sell to ultimate consumers only in insignificant quantities, if at all Wholesaling intermediaries, a broader category, include not only wholesalers but also agents and brokers who perform important wholesaling activities without taking title to the goods FUNCTIONS OF WHOLESALING INTERMEDIARIES As specialists in certain marketing functions, as opposed to production or manufacturing functions, wholesaling intermediaries can perform these functions more efficiently than producers or consumers The importance of these activities results from the utility they create, the services they provide, and the cost reductions they allow Creating Utility Wholesaling intermediaries create three types of utility for consumers They enhance time utility by making products available for sale when consumers want to purchase them They create place utility by helping deliver goods and services for purchase at convenient locations They create ownership (or possession) utility when a smooth exchange of title to the products from producers or intermediaries to final purchasers is complete Possession utility can also result from transactions in which actual title does not pass to purchasers, as in rental car services Providing Services Table 14.1 lists a number of services provided by wholesaling intermediaries The list clearly indicates the marketing utilities—time, place, and possession utility—that wholesaling intermediaries create or enhance These services also reflect the basic marketing functions of buying, selling, storing, transporting, providing marketing information, financing, and risk taking Of course, many types of wholesaling intermediaries provide varying services, and not all of them perform every service listed in the table Producer-suppliers rely on wholesaling intermediaries for distribution and selection of firms that offer the desired combinations of services In general, however, the critical marketing functions listed in the table form the basis for any evaluation of a marketing intermediary’s efficiency The risk-taking function affects each service of the intermediary Ingram Micro is a leading technology distributor with business clients in more than 150 countries and vendors all over the world Ranking number 69 in the Fortune 100, it offers a wide range of information technology services for order management and fulfillment, contract chapter 14 469 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS ta b l e 14 Wholesaling Services for Customers and Producer-Suppliers Beneficiaries of Service Service Customers Producer-Suppliers Buying Anticipates customer demands and applies knowledge of alternative sources of supply; acts as purchasing agent for customers Yes No Selling Provides a sales force to call on customers, creating a low-cost method for servicing smaller retailers and business users No Yes Storing Maintains warehouse facilities at lower costs than most individual producers or retailers could achieve Reduces risk and cost of maintaining inventory for producers Yes Yes Transporting Customers receive prompt delivery in response to their demands, reducing their inventory investments Wholesalers also break bulk by purchasing in economical carload or truckload lots, then reselling in smaller quantities, thereby reducing overall transportation costs Yes Yes Providing Marketing Information Offers important marketing research input for producers through regular contacts with retail and business buyers Provides customers with information about new products, technical information about product lines, reports on competitors’ activities and industry trends, and advisory information concerning pricing changes, legal changes, and so forth Yes Yes Financing Grants credit that might be unavailable for purchases directly from manufacturers Provides financing assistance to producers by purchasing products in advance of sale by promptly paying bills Yes Yes Risk Taking Evaluates credit risks of numerous, distant retail customers and small-business users Extends credit to customers that qualify By transporting and stocking products in inventory, the wholesaler assumes risk of spoilage, theft, or obsolescence Yes Yes manufacturing and warehousing, transportation management, and credit and collection management, as well as distributing and marketing information technology products to businesses worldwide.28 Lowering Costs by Limiting Contacts When an intermediary represents numerous producers, it often cuts the costs of buying and selling The transaction economies are illustrated in Figure 14.3, which shows five manufacturers marketing their outputs to four different retail outlets Without an intermediary, these exchanges create a total of 20 transactions Adding a wholesaling intermediary reduces the number of transactions to nine United Stationers is a wholesale distributor of business products ranging from paper clips to technology equipassessment check ment and office furniture It serves discount chains, independent stores, and Internet resellers While big-box What is a wholesaler? How does it differ from a wholesaling retailers buy in bulk directly from manufacintermediary? turers, they can order low-volume specialty goods faster and more efficiently from United How wholesaling intermediaries help sellers lower costs? Stationers By ordering online, mom-and-pop 470 figure 14.3 Transaction Economies through Wholesaling Intermediaries part stores have access to more than 100,000 items from about 1,000 manufacturers, delivered either to the store or directly to customers overnight A onestop warehousing, logistics, and distribution network, United Stationers’ product mix even includes industrial products and janitorial and breakroom supplies.29 Manufacturer Customer Manufacturer Customer Manufacturer Customer Manufacturer Customer Manufacturer 20 Contacts TYPES OF WHOLESALING INTERMEDIARIES Manufacturer Customer Manufacturer Customer Wholesaling Intermediary Various types of wholesaling intermediaries operate in different distribution channels Manufacturer Customer Some provide wide ranges of services or handle broad lines Manufacturer of goods, while others special9 Contacts ize in individual services, goods, or industries Figure 14.4 classifies wholesaling intermediaries by two characteristics: ownership and title flows—whether title passes from manufacturer or wholesaling intermediary The three basic ownership structures are as follows: (1) manufacturer-owned facilities, (2) independent wholesaling intermediaries, and (3) retailer-owned cooperatives and buying offices The two types of independent wholesaling intermediaries are merchant wholesalers, which take title of the goods, and agents and brokers, which not Manufacturer Outline the major types of independent wholesaling intermediaries and the appropriate situations for using each DISTRIBUTION DECISIONS Customer figure 14.4 Wholesaling Intermediaries Major Types of Wholesaling Intermediaries Classification Based on Ownership ManufacturerOwned Facilities Classification Based on Title Flows Merchant Wholesalers (take title) Full Function Independent Wholesaling Intermediaries Retailer-Owned Cooperatives and Buying Offices Agents and Brokers (do not take title) Limited Function Brokers Selling Agents Manufacturers’ Agents Commission Merchants Auction House chapter 14 471 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS Manufacturer-Owned Facilities Several reasons lead manufacturers to distribute their goods directly through company-owned facilities Some perishable goods need rigid control of distribution to avoid spoilage; other goods require complex installation or servicing Some goods need aggressive promotion Goods with high unit values allow profitable sales by manufacturers directly to ultimate purchasers Manufacturer-owned facilities include sales branches, sales offices, trade fairs, and merchandise marts A sales branch carries inventory and processes orders for customers from available stock Branches provide a storage function like independent wholesalers and serve as offices for sales representatives in their territories They are prevalent in marketing channels for chemicals, commercial machinery and equipment, and petroleum products A sales office, in contrast, does not carry inventory, but it does serve as a regional office for a manufacturer’s sales personnel Locations close to the firm’s customers help limit selling costs and support effective customer service For example, numerous sales offices in the Detroit suburbs serve the area’s automobile industry A trade fair (or trade exhibition) is a periodic show at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers The world’s largest consumer technology trade show and the largest trade show of any kind in America, the annual International Consumer Electronics Show (CES), takes place in January in Las Vegas CES typically attracts more than 140,000 attendees and features 2,700 exhibitors in 30 product categories.30 A merchandise mart provides space for permanent showrooms and exhibits, which manufacturers rent to market their goods One of the world’s largest merchandise marts is Chicago’s Merchandise Mart Center, a 7-million-square-foot complex with its own zip code that hosts more than 30 seasonal buying markets each year Independent Wholesaling Intermediaries Many wholesaling intermediaries are independently owned These firms fall into two major categories: merchant wholesalers and agents and brokers © Robyn Beck/AFP/Getty Images A trade fair is a periodic show at which manufacturers in a particular industry display their wares for visiting retail and wholesale buyers, such as the annual International Consumer Electronics Show (CES) 472 part DISTRIBUTION DECISIONS Merchant Wholesalers A merchant wholesaler takes title to the goods it handles Merchant wholesalers account for roughly 60 percent of all sales at the wholesale level Further classifications divide these wholesalers into full-function or limited-function wholesalers, as indicated in Figure 14.4 A full-function merchant wholesaler provides a complete array of services for retailers and business purchasers Such a wholesaler stores merchandise in a convenient location, allowing customers to make purchases on short notice and minimizing inventory requirements The firm typically maintains a sales force that calls on retailers, makes deliveries, and extends credit to qualified buyers Full-function wholesalers are common in the drug, grocery, and hardware industries In the business-goods market, full-function merchant wholesalers—often called industrial distributors— sell machinery, inexpensive accessory equipment, and supplies A rack jobber is a full-function merchant wholesaler that markets specialized lines of merchandise to retailers A rack jobber supplies the racks, stocks the merchandise, prices the goods, and makes regular visits to refill shelves Sometimes rack jobbers also work the sales floor—as in the case of Wal-Mart, which partners with Anderson Merchandisers, a rack jobber in the entertainment sector—for sales help in its electronics department Product specialists from Anderson Merchandisers lend their expertise on high-definition TVs and other consumer electronics in about 100 Wal-Mart supercenters, answering customer questions and helping to close the sale.31 Limited-function merchant wholesalers fit into four categories: cash-and-carry wholesalers, truck wholesalers, drop shippers, and mail-order wholesalers Limited-function wholesalers serve the food, coal, lumber, cosmetics, jewelry, sporting goods, and general merchandise industries A cash-and-carry wholesaler performs most wholesaling functions except for financing and delivery Although feasible for small stores, this kind of wholesaling generally is unworkable for large-scale grocery stores Today, cash-and-carry operations typically function as departments within regular full-service wholesale operations Cash-and-carry wholesalers are commonplace outside the United States, such as in the United Kingdom A truck wholesaler, or truck jobber, markets perishable food items such as bread, tobacco, potato chips, candy, and dairy products Truck wholesalers make regular deliveries to retailers, perform sales and collection functions, and promote product lines Regional wholesale distributor S Abraham & Sons delivers brand-name groceries, health and beauty aids, and other merchandise to convenience, drug, and grocery stores in the Midwest.32 A drop shipper such as ONE, Inc., of Tampa, Florida, accepts orders from customers and forwards these orders to producers, which then ship the desired products directly to customers Although drop shippers take title to goods, they never physically handle or even see the merchandise These intermediaries often operate in industries selling bulky goods, such as coal and lumber, that customers buy in large lots A mail-order wholesaler is a limited-function merchant wholesaler that distributes physical or online catalogs as opposed to sending sales representatives to contact retail, business, and institutional customers Customers then make purchases by mail, by phone, or online Such a wholesaler often serves relatively small customers in outlying areas Mail-order operations mainly exist in the hardware, cosmetics, jewelry, sporting goods, and specialty food lines as well as in general merchandise Some popular mail-order products are pharmaceuticals, roasted bean coffee, Christmas trees and wreaths, and popcorn Table 14.2 compares the various types of merchant wholesalers and the services they provide Full-function merchant wholesalers and truck wholesalers rank as relatively high-cost intermediaries because of the number of services they perform, while cash-and-carry wholesalers, drop shippers, and mail-order wholesalers provide fewer services and set lower prices because they incur lower operating costs Agents and Brokers A second group of independent wholesaling intermediaries, agents and brokers, may or may not take possession of the goods they handle, but they never take title They normally perform fewer services than merchant wholesalers, working mainly to bring together buyers and sellers Agents and brokers fall into five categories: commission merchants, auction houses, brokers, selling agents, and manufacturers’ representatives (reps) chapter 14 473 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS t a bl e Comparison of the Types of Merchant Wholesalers and Their Services Limited-Function Wholesaler Service Full-Function Cash-and-Carry Truck Drop Shipper Mail-Order Anticipates customer needs Yes Yes Yes No Yes Carries inventory Yes Yes Yes No Yes Delivers Yes No Yes No No Provides marketing information Yes Rarely Yes Yes No Provides credit Yes No No Yes Sometimes Assumes ownership risk by taking title Yes Yes Yes Yes Yes broker Agent wholesaling intermediary that does not take title to or possession of goods in the course of its primary function, which is to bring together buyers and sellers The Internet has led to a new type of auction house that connects customers and sellers in the online world A well-known example is eBay © Image courtesy of The Advertising Archives Commission merchants, which predominate in the markets for agricultural products, take possession when producers ship goods such as grain, produce, and livestock to central markets for sale Commission merchants act as producers’ agents and receive agreed-upon fees when they make sales Because customers inspect the products and prices fluctuate, commission merchants receive considerable latitude in marketing decisions The owners of the goods may specify minimum prices, but the commission merchants sell these goods at the best possible prices The commission merchants then deduct their fees from the sales’ proceeds An auction house gathers buyers and sellers in one location and allows potential buyers to inspect merchandise before submitting competing purchase offers Auction house commissions typically reflect specified percentages of the sales prices of the auctioned items Auctions are common in the distribution of tobacco, used cars, artwork, livestock, furs, and fruit The Internet has led to a new type of auction house that connects customers and sellers in the online world A well-known example is eBay, which auctions a wide variety of products in all price ranges Brokers work mainly to bring together buyers and sellers A broker represents either the buyer or the seller—but not both—in a given transaction, and the broker receives a fee from the client when the transaction is completed Intermediaries that specialize in arranging buying and selling transactions between domestic 474 part DISTRIBUTION DECISIONS producers and foreign buyers are called export brokers Brokers operate in industries characterized by large numbers of small suppliers and purchasers such as real estate, frozen foods, and used machinery Because they provide onetime services for sellers or buyers, they cannot serve as effective channels for manufacturers seeking regular, continuing service A firm that seeks to develop a more permanent channel might choose instead to use a selling agent or manufacturer’s agent A selling agent typically exerts full authority over pricing decisions and promotional outlays, and it often provides financial assistance for the manufacturer Selling agents act as independent marketing departments because they can assume responsibility for the total marketing programs of client firms’ product lines Selling agents mainly operate in the coal, lumber, and textiles industries For a small, weakly financed, production-oriented firm, such an intermediary might prove the ideal marketing channel While a manufacturer may deal with only one selling agent, a firm that hires manufacturers’ representatives often delegates marketing tasks to many of these agents Such an independent salesperson may work for a number of firms that produce related, noncompeting products Manufacturers’ reps are paid on a commission basis, such as percent of sales Unlike selling agents, who may contract for exclusive rights to market a product, manufacturers’ agents operate in specific territories They may develop new sales territories or represent relatively small firms and those firms with unrelated lines Standard Plumbing Supply of Salt Lake City is a manufacturer’s representative serving the plumbing industry in eight western states Recently named Wholesaler of the Year by Supply House Times, the company pioneered the concept of self-service in plumbing supply distribution Standard Plumbing Supply carries about 20,000 SKUs, and its self-serve warehouses more closely resemble retail stores than supply houses.33 The importance of selling agents in many markets has declined because manufacturers want better control of their marketing programs than these intermediaries allow In contrast, the volume of sales by manufacturers’ agents has more assessment check than doubled and now accounts for 37 percent of all sales by agents and brokers Table 14.3 com1 What is the difference between a merchant pares the major types of agents and wholesaler and a rack jobber? brokers on the basis of the services they perform Differentiate between agents and brokers manufacturers’ representative Agent wholesaling intermediary that represents manufacturers of related but noncompeting products and receives a commission on each sale RETAILER-OWNED COOPERATIVES AND BUYING OFFICES Retailers may assume numerous wholesaling functions in an attempt to reduce costs or provide special services Independent retailers sometimes band together to form buying groups that can achieve cost savings through quantity purchases Other groups of retailers establish retailer-owned t a bl e Services Provided by Agents and Brokers Commission Merchant Auction House Broker Manufacturers’ Agent Selling Agent Anticipates customer needs Yes Sometimes Sometimes Yes Yes Carries inventory Yes Yes No No No Delivers Yes No No Sometimes No Provides marketing information Yes Yes Yes Yes Yes Provides credit Sometimes No No No Sometimes Assumes ownership risk by taking title No No No No No Service chapter 14 475 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS wholesale facilities by forming cooperative chains Large chain retailers often establish centralized buying offices to negotiate large-scale purchases directly with manufacturers Direct Marketing and Other Nonstore Retailing Although most retail transactions occur in stores, nonstore retailing is an important marketing channel for many products Both consumer and business-to-business marketers rely on nonstore retailing to generate leads or requests for more information that may result in future orders Direct marketing is a broad concept that includes direct mail, direct selling, direct-response retailing, telemarketing, Internet retailing, and automatic merchandising Direct and interactive marketing expenditures amount to hundreds of billions of dollars in yearly purchases The last sections of this chapter consider each type of nonstore retailing DIRECT MAIL Direct mail is a major component of direct marketing It comes in many forms: sales letters, postcards, brochures, booklets, catalogs, house organs (periodicals published by organizations to cover internal issues), and DVDs and CDs Both not-for-profit and profit-seeking organizations make extensive use of this distribution channel Direct mail offers several advantages such as the ability to select a narrow target market, achieve intensive coverage, send messages quickly, choose from various formats, provide complete information, and personalize each mailing piece Response rates are measurable and higher than other types of advertising In addition, direct mailings stand alone and not compete for attention with magazine articles and television programs On the other hand, the per-reader cost of direct mail is high, effectiveness depends on the quality of the mailing list, and some consumers object to direct mail, considering it “junk mail.” Direct-mail marketing relies heavily on database technology in managing lists of names and in segmenting these lists according to the objectives of the campaign Recipients get targeted materials, often personalized with their names within the ad’s content Catalogs are a popular form of direct mail, with more than 10,000 different consumer specialty mail-order catalogs—and thousands more for business-to-business sales—finding their way to almost every mailbox in the United States In a typical year, about 20 billion mail-order catalogs are mailed, generating more than $400 billion in sales Catalog marketing continues to grow at a faster rate than brick-and-mortar retailers.34 Catalogs can be a company’s only or primary sales method Spiegel, Herrington, Charles Keath, and Boston Proper are well-known examples Brickand-mortar retailers such as L.L.Bean, Coldwater Creek, Nordstrom, and Macy’s also distribute catalogs Environmental concerns and new technologies are changing catalog marketing More than 400,000 American consumers have registered with Catalog Choice, a nonprofit organization, to have their names removed from catalog mailing lists Most cite a desire to save natural resources for their decision to stop receiving a blizzard of paper catalogs by mail.35 By moving a catalog online, a merchant can update content easily and quickly, providing consumers with the latest information and prices Online technology also allows marketers to use video and other techniques to display their merchandise For example, Nordstrom’s online shoe store catalog allows browsers to zoom in and out and view a shoe from different angles and in different colors DIRECT SELLING Through direct selling, manufacturers completely bypass retailers and wholesalers Instead, they set up their own channels to sell their products directly to consumers Avon, Pampered Chef, Dell, and Tupperware are all direct sellers This channel was discussed in detail in Chapter 13 Compare the basic types of direct marketing and nonstore retailing direct marketing Direct communications, other than personal sales contacts, between buyer and seller, designed to generate sales, information requests, or store or Web site visits 476 part DISTRIBUTION DECISIONS DIRECT-RESPONSE RETAILING brs peaking iefl y “If you’re not doing Internet business, then you’re in the Dark Ages, and you’re going to be left behind.” —John Chambers (b 1949) CEO, CISCO SYSTEMS Customers of a direct-response retailer can order merchandise by mail or telephone, by visiting a mail-order desk in a retail store, or by computer or fax machine The retailer then ships the merchandise to the customer’s home or to a local retail store for pickup Many direct-response retailers rely on direct mail, such as catalogs, to create telephone and mail-order sales and to promote in-store purchases of products featured in the catalogs Some firms, such as Lillian Vernon, make almost all their sales through catalog orders Mail-order sales have grown at about twice the rate of retail store sales in recent years Direct-response retailers are increasingly reaching buyers through the Internet and through unique catalogs that serve special market niches Many catalogs sell specialty products, such as kitchenware for the professional cook, art supplies, or supplies for the home renovator Direct-response retailing also includes home shopping, which runs promotions on cable television networks to sell merchandise through telephone orders One form of home shopping, the infomercial, has existed for years Infomercials can be short—one to two minutes—or run up to 30 minutes Both have demonstrated success at generating revenues Recent infomercials tout a wide variety of products from Johnny Carson DVDs to Drill Doctor tools to the Contour Core Belt, an exercise product.36 TV networks such as Home Shopping Network and QVC have successfully focused exclusively on providing shopping opportunities Programming ranges from assessment check extended commercials to call-in shows to game show formats Shoppers call a toll1 What is direct marketing? free number to buy featured products, What is direct mail? and the retailer ships orders directly to their homes TELEMARKETING Telemarketing refers to direct marketing conducted entirely by telephone It is the most frequently used form of direct marketing It provides marketers with a high return on their expenditures, an immediate response, and the opportunity for personalized two-way conversations Telemarketing is discussed in further detail in Chapter 17 Describe how INTERNET RETAILING much the Internet has altered the wholesaling, retailing, and direct marketing environments Internet-based retailers sell directly to customers via virtual storefronts on the Web They usually maintain little or no inventory, ordering directly from vendors to fill customer orders received via their Web sites In recent years, conventional retailers have anxiously watched the rise—and then the demise—of many poorly planned, financed, and marketed Internet-based retailers During the dot-com bust, 130 e-tailers failed Even early successes such as Ezshop, an online home furnishings retailer, eventually ran aground Traditional retailers, using the Web to support brick-and-mortar stores—the so-called brick-and-click retailers—have had much better staying power The Gap, Best Buy, and Lands’ End, for example, succeeded in extending their expertise to the Web Office Max offers thousands of office supply products on its Web site, which also offers e-mail alerts, favoriteitem lists, and a customer loyalty program Chapter discussed Internet retailing and other forms of e-business in more detail AUTOMATIC MERCHANDISING The world’s first vending machines dispensed holy water for five-drachma coins in Egyptian temples around 215 b.c This retailing method has grown rapidly ever since; today, nearly 6,000 vending assessment check Describe Internet-based retailers Explain how the Internet has enhanced retailers’ functions 477 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS machine operators sell more than $7 billion in convenience goods annually to Americans.37 Although U.S vending machines primarily sell items like snacks, soft drinks, or lottery tickets, Japanese consumers use automatic merchandising for everything including fresh sushi and new underwear Recently, U.S marketers have begun to realize the potential of this underused marketing tool Organic yogurt and smoothie marketer Stonyfield Farms is helping schools convert their traditional vending machines to ones that offer healthy alternatives for children.38 The three major soft-drink companies recently agreed to remove sweetened drinks such as soda and iced tea from vending machines in elementary and high schools nationwide The calorie-laden drinks will be replaced by bottled water, low-fat milk, and 100 percent fruit juice or sports drinks Technological advances and the ability to accept credit cards have made it possible for vending machines to sell even higher-cost items like iPods, headphones, and Sony PlayStation games The high-end vending machines can be found in some shopping malls and in U.S airports from coast to coast.39 a s the Internet revolution steadily becomes a way of life—both for consumers and for the businesses marketing goods and services to them—technology will continue to transform the ways in which retailers, wholesalers, and direct marketers connect with customers In the retail sector, the unstoppable march toward lower prices has forced retailers from Neiman Marcus to dollar stores to re-evaluate everything, including their logistics and supply networks and their profit margins Many have used the power of the Internet to strengthen such factors as store image, the merchandising mix, customer service, and the development of long-term relationships with customers Recently, U.S marketers have begun to realize the potential of vending machines Stonyfield Farm is helping schools convert their traditional vending machines to ones that offer healthy alternatives for children © PRNewsFoto/Newscom chapter 14 Although manufacturers first anticipated that Internet technology would enable them to bypass such intermediaries as wholesalers and agents, bringing them closer to the customer, the reality is quite different Successful wholesalers have established themselves as essential links in the supply, distribution, and customer service network By leveraging technology, they have carved out new roles, providing such expert services as warehousing and fulfillment to multiple retail clients The Internet has empowered direct marketers by facilitating ever more sophisticated database segmentation Traditional catalog and direct-mail marketers have integrated Internet sites, Web advertising, and e-mailing programs into a cohesive targeting, distribution, and repeat-buying strategy 478 part DISTRIBUTION DECISIONS Review of Chapter Objectives Explain the wheel of retailing The wheel of retailing is the hypothesis that each new type of retailer gains a competitive foothold by offering lower prices than current suppliers and maintains profits by reducing or eliminating Discuss how retailers select target markets A retailer starts to define its strategy by selecting a target market The target market dictates, among other things, the product mix, pricing strategy, and location strategy Retailers deal with consumer behavior at the most complicated level, and markdowns Location is often the determining factor in a retailer’s success or failure A retailer’s promotional strategy and store atmosphere play important roles in establishing a store’s image Explain the concepts of retail convergence and scrambled merchandising Retail convergence is the coming together of shoppers, goods, and prices, resulting in the blurring of distinctions between types of retailers and the merchandise mix they offer Similar selections are available from multiple sources and are differentiated mainly by a clear understanding of the target market is critical Strategies for selecting target markets include merchandising, customer services, pricing, location/distribution, and promotional strategies Show how the elements of the marketing mix apply to retailing strategy A retailer must first identify a target market and then develop a product strategy Next, it must establish a customer-service strategy Retail pricing strategy involves decisions on markups and services Once established, the innovator begins to add more services, and its prices gradually rise, making it vulnerable to new lowprice retailers This turns the wheel again price Scrambled merchandising refers to retailers’ practice of carrying dissimilar product lines in an attempt to generate additional sales volume Retail convergence and scrambled merchandising have made it increasingly difficult to classify retailers Identify the functions performed by wholesaling intermediaries The functions of wholesaling intermediaries include creating utility, providing services, and lowering costs by limiting contacts Outline the major types of independent wholesaling intermediaries and the appropriate situations for using each Independent wholesaling intermediaries can be divided into two categories: merchant wholesalers and agents and brokers The two major types of merchant wholesalers are full-function merchant wholesalers, such as rack jobbers, and limited-function merchant wholesalers, including cash-and-carry wholesalers, truck wholesalers, drop shippers, and mail-order wholesalers Full-function wholesalers are common in the drug, grocery, and hardware industries Limited-function wholesalers are sometimes used in the food, coal, lumber, cosmetics, jewelry, sporting goods, and general-merchandise industries Agents and brokers not take title to the products they sell; this category includes commission merchants, auction houses, brokers, selling agents, and manufacturers’ reps Companies seeking to develop new sales territories, firms with unrelated lines, and smaller firms use manufacturers’ reps Commission merchants are common in the marketing of agricultural products Auction houses are used to sell tobacco, used cars, livestock, furs, and fruit Brokers are prevalent in the real estate, frozen foods, and used machinery industries Compare the basic types of direct marketing and nonstore retailing Direct marketing is a distribution channel consisting of direct communication to a consumer or business recipient It generates orders and sales leads that may result in future orders Because direct marketing responds to fragmented media markets and audiences, growth of customized products, and shrinking network broadcast audiences, marketers consider it an important part of their planning efforts While most U.S retail sales take place in stores, such nonstore retailing activities as direct mail, direct selling, direct-response retailing, telemarketing, Internet retailing, and automatic merchandising are important in marketing many types of goods and services chapter 14 Describe how much the Internet has altered the wholesaling, retailing, and direct marketing environments The Internet has affected everything, including how supply networks operate and how relationships are formed with customers Successful wholesalers have carved out a niche as a source of expertise offering faster, more efficient, Web-enabled distribution and fulfillment The Internet has allowed retailers to enhance their assessment check: 1.1 479 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS merchandising mix and their customer service by, among other things, giving them access to much broader selections of goods Direct marketers have merged their traditional catalog or directmail programs with an Internet interface that allows for faster, more efficient, and more frequent contact with customers and prospects answers What is retailing? Retailing refers to the activities involved in selling merchandise to ultimate consumers 1.2 Explain the wheel-of-retailing concept The wheel of retailing is the hypothesis that each new type of retailer gains a competitive foothold by offering lower prices than current suppliers and maintains profits by reducing or eliminating services 2.1 How does a retailer develop a marketing strategy? A retailer develops a marketing strategy based on its goals and strategic plans 2.2 How retailers select target markets? Strategies for selecting target markets include merchandising, customer services, pricing, location/distribution, and promotional strategies 3.1 What is an SKU? An SKU, or stock-keeping unit, is a specific product offering within a product line 3.2 What are the two components of a markup? A markup consists of the product’s cost and an amount added by the retailer to determine its selling price 3.3 What are store atmospherics? Store atmospherics are physical characteristics and amenities that attract customers and satisfy their shopping needs 4.1 How we classify retailers by form of ownership? There are two types of retailers by form of ownership: chain stores and independent retailers 4.2 Categorize retailers by shopping effort and by services provided Convenience retailers and specialty retailers are classified by shopping effort; self-service, self-selection, and full-service describe retailers in terms of services provided 4.3 List several ways to classify retailers by product line Retailers classified by product line include specialty stores, limited-line retailers, and general merchandise retailers General merchandise retailers include variety stores, department stores, and mass merchandisers 480 part 5.1 DISTRIBUTION DECISIONS What is a wholesaler? How does it differ from a wholesaling intermediary? A wholesaler is a channel intermediary that takes title to goods it handles and then distributes these goods to retailers, other distributors, or B2B customers A wholesaling intermediary can be a wholesaler, an agent, or a broker and perform wholesaling activities without taking title to the goods 5.2 How wholesaling intermediaries help sellers lower costs? Wholesaling intermediaries lower the number of transactions between manufacturers and retail outlets, thus lowering distribution costs 6.1 What is the difference between a merchant wholesaler and a rack jobber? A merchant wholesaler takes title to the goods it handles A rack jobber is a full-function merchant wholesaler that markets specialized lines of merchandise to retailers 6.2 Differentiate between agents and brokers Agents and brokers may or may not take possession of the goods they handle, but they never take title Brokers work mainly to bring together buyers and sellers A selling agent typically exerts full authority over pricing decisions and promotional outlays and often provides financial assistance for the manufacturer 7.1 What is direct marketing? Direct marketing is a distribution channel consisting of direct communication to a consumer or business recipient It generates orders and sales leads that may result in future orders 7.2 What is direct mail? Direct mail is a form of direct marketing that includes sales letters, postcards, brochures, booklets, catalogs, house organs, and DVDs and CDs 8.1 Describe Internet-based retailers Internet-based retailers sell directly to customers via virtual storefronts on the Web They usually maintain little or no inventory, ordering directly from vendors to fill customers’ orders 8.2 Explain how the Internet has enhanced retailers’ functions The Internet has allowed retailers to enhance their merchandising mix and their customer service by, among other things, giving them access to much broader selections of goods Direct marketers have merged their traditional catalog or direct-mail programs with an Internet interface that allows for faster, more efficient, and more frequent contact with customers and prospects Marketing Terms You Need to Know retailing 452 wheel of retailing 453 stock-keeping unit (SKU) 456 markup 458 markdown 458 planned shopping center 458 atmospherics 460 retail convergence 467 scrambled merchandising 468 wholesaler 468 wholesaling intermediary 468 broker 473 manufacturers’ representative 474 direct marketing 475 chapter 14 481 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS Other Important Marketing Terms convenience retailer 463 specialty retailer 463 limited-line store 464 category killer 464 general merchandise retailer 464 department store 465 truck wholesaler (truck jobber) 472 drop shipper 472 mail-order wholesaler 472 commission merchant 473 selling agent 474 mass merchandiser 466 discount house 466 hypermarket 467 supercenter 467 merchant wholesaler 472 rack jobber 472 Assurance of Learning Review Find some examples of retailers that demonstrate the concept of the wheel of retailing Explain the stages they went through and are in currently What is a wholesaling intermediary? Describe the activities it performs How retailers identify target markets? Explain the major strategies by which retailers reach their target markets Distinguish among the different types of manufacturer-owned wholesaling intermediaries What conditions might suit each one? Explain the importance of a retailer’s location to its strategy Differentiate between direct selling and direct-response retailing Cite examples of both What is retail convergence? In what ways has the Internet changed direct-response retailing? Define scrambled merchandising Why has this practice become so common in retailing? 10 Define automatic merchandising and explain its role in U.S retailing today and in the future Projects and Teamwork Exercises Research and then classify each of the following retailers: a Circuit City b Petite Sophisticate c Limited d Ethan Allen Galleries e Dillard’s Visit a local Wal-Mart store and observe product placement, shelf placement, inventory levels on shelves, traffic patterns, customer service, and checkout efficiency Discuss what makes Wal-Mart the world’s most successful retailer Target has become known for trendy clothes and stylish housewares, all readily available in spacious stores at reasonable prices Visit a local Target store or the company’s Web site and compare its product selection to that of your local hardware store or a department store Make a list of each store’s advantages and disadvantages, including convenience, location, selection, service, and general prices Do any of their product lines overlap? How are they different from each other? Match each industry with the most appropriate type of wholesaling intermediary _hardware a drop shipper _perishable foods b truck wholesaler _lumber c auction house _wheat d full-function merchant wholesaler _used cars e commission merchant In teams, develop a retailing strategy for an Internet retailer Identify a target market and then suggest a mix of merchandise, promotion, service, and pricing strategies that would help a retailer reach that market via the Internet What issues must Internet retailers address that not affect traditional store retailers? With a classmate, visit two or three retail stores that compete with one another in your area and compare their customer service strategies (You might wish to visit each store more than once to avoid making a snap judgment.) Select at least five criteria and use them to assess each store How you think each store sees its customer service strategy as fitting into its overall retailing strategy? Present your findings in detail to the class Visit a department store and compare at least two departments’ pricing strategies based on the number of markdowns you find and the size of the discount What, if anything, can you conclude about the success of each department’s retailing strategy? Think of a large purchase you make on a nonroutine basis, such as a new winter coat or expensive clothing for a special occasion Where will you shop for such items? Will you travel out of your way? Will you go to the nearest shopping center? Will you look on the Internet? Once you have made your decision, describe any strategies used by the retailer that led you to this decision What might make you change your mind about where to shop for this item? Outlet malls are a growing segment of the retail market Visit a local outlet mall or research one on the Internet What types of stores are located there? How the product selection and price compare with typical stores? 10 Torrid is a national chain of about 50 stores that feature clothing for plus-size women Recommend an appropriate retailing strategy for this type of retailer 482 part DISTRIBUTION DECISIONS Critical-Thinking Exercises Talbots made its name as a retailer of classic sportswear for women, but it has recently expanded its target market to include men and children Men, however, typically don’t enjoy shopping for clothes, and children shop with their parents Visit www.talbots.com and assess how well Talbots is reaching men through its Web site Do you think Talbots’ target market is still women who shop for the men in their lives? Why or why not? How can Talbots widen its appeal on the Internet? Several major retailers have begun to test the extreme markdown strategy that lies behind popular dollar stores such as Dollar General and Family Dollar Stores Kroger, A&P, WalMart, and others have opened sections in selected stores that feature items from snacks to beauty supplies priced at $1 Is this experiment simply a test of pricing strategy? What else might motivate these retailers to offer such deep discounts? When Tower Records filed for bankruptcy, it was only one symptom of the general decline of the retail music store Industry watchers blame everything including music downloading programs and changes in consumers’ tastes Most, however, feel that music stores will somehow remain viable What are some changes these retailers could make in their merchandising, customer service, pricing, location, and other strategies to try to reinvent their business? McDonald’s has traditionally relied on a cookie-cutter approach to its restaurant design One store looked essentially like every other—until recently The chain has decided to loosen its corporate design mandate to fit within special markets and to update its image with customers Research McDonald’s makeover efforts What types of changes has the company made and where? How have changes in atmospherics helped the chain with customers? Have the changes you researched modified your perception of McDonald’s at all? If so, how? Some economists fear what might happen to the U.S economy if Wal-Mart has a bad year (so far it has had more than four decades of nonstop growth) Should retailers have that much influence on the economy? Why or why not? Wal-Mart is selective about what it sells—refusing, for instance, to carry music or computer games with mature ratings, magazines with content it considers too adult, or, in some of its stores, handguns Because of its sheer size, these decisions can become influential on the culture Do you think this is a positive or negative effect of the growth of this retailer? Why? Retailing statistics The U.S Census Bureau reports regularly on the state of retailing Visit the Bureau’s Web site (www.census.gov), a search for “retail sales,” and answer the following questions: a What is the current level of retail sales in the United States? By how much have retail sales increased during the past year? b Which categories of retail sales are growing the fastest? Which categories are growing the slowest? c Given projected demographic trends, which categories of retail sales would you expect to grow the fastest in the coming years? Ethics Exercise As the largest company in the world, with more than a million employees worldwide and more than $379 billion in sales in a recent year, Wal-Mart has become big and powerful enough to influence the U.S economy It is responsible for 10 percent of total U.S imports from China and for about 12 percent of U.S productivity gains since the late 1990s Some observers believe Wal-Mart is also responsible for the low U.S inflation rates of recent years However, its unbeatable buying power and efficiency have forced many local stores to close when Wal-Mart opens a new store in their area Internet Exercises Lifestyle centers Using a search engine, find the Web sites of at least three lifestyle centers Visit each Web site In what ways lifestyle centers differ from more traditional shopping malls? Do the differences appeal to you? Why or why not? Retailing strategy Go the Web site of kitchen and cooking retailer Williams-Sonoma (www.williams-sonoma.com) This site is classified as a shopping site, or online store Review the material in the chapter on retailing strategy and store atmospherics, and answer the following questions: a How does the design and layout of the Williams-Sonoma Web store appeal to the company’s target market? b How would you describe the atmospherics created by the online store? If you can visit a brick-and-mortar store, compare the store’s atmospherics to the Web site’s Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google chapter 14 483 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS Case 14.1 Green Packaging: Is the Price Right? Environ Environmentalists and others have long pointed out the waste caused by the excess use of paper and plastic in packaging cause U.S goods oo In recent years, some companies have worked to reduce the amount of excess packaging and, in fact, most major food and beverage companies have rallied to the cause McDonald’s responded to the complaints about waste by discontinuing plastic foam or cardboard boxes for many of its food items and by designing packaging that can be recycled or composted Many Micky D’s sandwiches are now wrapped, simply, in paper Although it has cut back substantially on unnecessary packaging, the company plans to more in the future The Coca-Cola Company, many of whose products are sold in plastic bottles, spent $60 million to build the world’s largest plastic-bottle recycling plant The company’s goal is to recycle or reuse 100 percent of the plastic bottles it uses in the United States The firm has also redesigned its emblematic glass contour bottle to make it lighter, less expensive, and more impact-resistant Introduced in 2000, the “Ultra Glass” bottle has already saved 52,000 metric tons of glass and reduced carbon dioxide in the atmosphere by 26,000 tons Wal-Mart has worked to promote sustainable packaging in both its Wal-Mart and Sam’s Club outlets Pledging to “remove, reduce, and reuse,” the company has adopted a multipoint approach to sustainable packaging and aims to be “packaging neutral by 2025.” In other words, it plans to boost the amount of packaging Wal-Mart and Sam’s Club stores recover or recycle to equal the amount used by the products on its shelves But in the continuing debate over green packaging, some critics assert that sustainable packaging is more expensive—due Video Case 14.2 to higher freight or transit costs, higher manufacturing costs, and the like And because green packaging is more costly, they argue, it shouldn’t be pursued as an alternative Others point to the tried-and-true fact of supply and demand People’s demand for green packaging, they say, will lead to greater supply and, ultimately, lower costs Throughout modern history, businesses have sought ways to produce their goods more efficiently and more cost-effectively to enhance profits And while the costs of green packaging may not have bottomed out just yet, they claim, the more people understand and embrace the concept, the sooner it will become the norm Questions for Critical Thinking With most food and beverage companies now developing sustainable packaging, is it possible for them to use this concept as a competitive advantage? Into what aspects of its retailing strategy could a marketer incorporate the notion of green packaging? Sources: Company Web sites, www.mcdonalds.com, www.thecoca-colacompany com, and www.walmartstores.com, accessed August 4, 2008; John Kalkowski, “Opening the Package: An Overview of Trends in Packaging Claims,” Packaging Digest, accessed at the Federal Trade Commission Web site, www.ftc.gov, August 4, 2008; Dennis Salazar, “Sustainable Packaging: Cost vs Price,” GreenBizSite, June 16, 2008, www.greenbiz.com; Brian Reilly, “Transportation: Driving Sustainable Results,” Packaging World, November 14, 2007, www.packworld.com; Kevin T Higgins, “Packaging Trends Survey: The Year of Living Sustainably,” Food Engineering, September 5, 2007, www.foodengineeringmag.com Retailing at Flight 001 The written video case on Flight 001 appears on page VC-13 The Flight 001 video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 484 part voice of experience Talking about Marketing Careers with Richard Yoo Richard, McDonald’s is a true global corporation with worldwide reach Working for such a visible firm must be both challenging and satisfying What milestones in your education and career led you to your current position with one of the world’s top brands? Q: It truly is a privilege to work on a brand that has global reach and touches the hearts, minds, (and appetites!) of so many people everyday My overall approach to problem solving has been shaped by both my liberal arts training at the University of Michigan (BA in English) and my formal business school training at the University of Notre Dame (MBA) I like to think of my education as a powerful combination of rightbrain and left-brain development From a career perspective, my path has taken a similar path in that I started as a brand management generalist and now specialize in product innovation My marketing experiences in the toy industry (at LEGO) and in retail food (Kraft Foods, Keebler Company) have built a solid foundation of general management skills and also led to my interest in and passion for new product development/product innovation From my point of view, the on-the-job influence, a creative approach to problem solving, collaboration with other functional areas, and value-based leadership have been important career drivers for me Overseeing global menu choices is a huge undertaking for such a large restaurant chain What is involved in planning and adapting menus for different countries? What types of team members at the corporate and local level help suggest and select menu choices? How does the process work? Q: The process is a collaborative effort, and generally speaking, our development process consists of three stages: discovery, development, and deployment During the discovery stage, we develop consumer insights; monitor culinary, technology, and cultural trends; collect competitive intelligence; and brainstorm These ideas are made more powerful by involving crossfunctional teams at our home office and collaborating with our Menu Centers of Excellence and our suppliers These centers are THE development hubs in Latin America, Europe, Asia, and North America that the heavy lifting of taking Menu Strategies and ideas and bringing them to life for consumers It is at this stage that broader food platforms are made locally relevant by developing and testing products that have components that sing at the country level, and that can be executed well in our restaurants to delight our guests RICHARD YOO Senior Director, Global Menu Management McDonald’s Corporation Students read in this text about the importance of selecting the right target markets What proportion of your corporation’s sales come from global operations? How does your firm decide which markets to enter? Is it still expanding into new countries? Q: At this time, roughly half of our sales are generated outside the U.S As you might expect, the decision to enter a market is driven by a number of factors Since 2003, our focus has shifted from growth via new restaurants to growth by serving more customers in our existing restaurants Local partners—people who can help bring a firm’s marketing vision to life—are critical to a global business such as yours Because nearly 85 percent of McDonald’s restaurants are locally owned and operated, your firm relies heavily on its owner/operators to “localize” the brand How their efforts contribute to the success of the firm? What contribution employees make? Q: Our franchisees are clearly a key pillar of our business Their energy and passion are critical to our growth and brand sustainability We engage them in almost every facet of our business The local store marketing plans that they create and execute bring the corporate vision to life in their respective communities Our managers and crew are our brand ambassadors and are the key element in delivering our Photo: Courtesy of Richard Yoo The Golden Arches are one of the most recognized brand marks in the world McDonald’s Corporation holds a unique— and enviable—place in the quick-service food retailing industry The firm is a global leader, with more than 32,000 local restaurants serving nearly 50 million people daily in 118 countries around the world But McDonald’s built its reputation by serving one customer at a time, and it still focuses on the local aspect of its business through strong relationships with its owner/operators, suppliers, and employees Key to the chain’s success is its emphasis on adapting to local tastes and customs—to serve the needs of its many markets Here today to talk with us about McDonald’s retail strategy and its global supply chain is Richard Yoo, Senior Director, Global Menu Management chapter 14 485 RETAILERS, WHOLESALERS, AND DIRECT MARKETERS brand promise of uncompromised QSC and V (quality, service, cleanliness and value) to every customer QSC and V was the foundational operating philosophy of Ray Kroc and still is today Suppliers of food and other restaurant products must be critical to the quality of McDonald’s menu items Are your suppliers local or global—or a mix? What efficiencies can your firm achieve by having global operations? Q: We’ve developed a coordinated supply chain “engine” that provides the ability to leverage global trade dynamics and drive efficiencies at the local level From food and paper products to media buys, this engine, complemented by our scale and our commitment to social responsibility, is one of our competitive advantages Wherever possible, we purchase locally in the countries where we business In the past few years, McDonald’s has shifted its marketing strategy to fit the needs of Q: Interview used by permission of McDonald’s Corporation today’s health- and quality-conscious but time-pressed consumer Can you tell us a little bit about the changes featured in the “i’m lovin’ it” campaign and the firm’s Plan to Win strategy? How you get the message out to the public? Does this effort extend to global operations, too? “i’m lovin’ it”™ is our brand attitude and spirit It celebrates real people, real passions, and real stories around the globe The campaign will shift focus from the “i” (consumer-centric stories) to the “it” (the reasons why consumers love their McDonald’s experiences) Our customers have told us what “it” is—it is our food It is the moments they share at our restaurants and the feelings they get before, during, and after they visit McDonald’s We are putting the “it” in “i’m lovin’ it.” We are also deepening our relationships by connecting customers with the facts about our brand— our food, our people, and our values Our Plan to Win Strategy is all about delivering a delightful experience to our customers by creating strategies for and executing the key pillars of our business: People, Product, Promotion, Place, and Price Since the Plan to Win was implemented in 2003, our business results have been robust Many students today are interested in running their own businesses One of their career paths might involve running a franchise, such as a McDonald’s restaurant What types of educational experiences, training, or internships might help students get a foothold in your industry or advance their marketing career? Q: I often coach students to seek out their career sweet spot, where passion meets capability, and to not necessarily chase a career for the money, prestige, or perks but because you LOVE the content, the people, and the brand Everything else has a way of falling into place along the way I’m also a big fan of broad-based curricula, complemented by specialized “trade content” because a balanced thinker who knows how to connect and collaborate is an effective one 486 part distribution John Miggins was 12 when Neil Armstrong took his first steps on the moon It was on that day John knew he wanted to be an astronaut He spent all his free time reading and researching his future career He thought one of the coolest things, aside from walking on the moon, was how they got electricity all the way up in space As early as 1905, Einstein discussed harnessing the sun’s energy in a paper on the photoelectric effect; and, by 1964, NASA’s Nimbus spacecraft launch was powered by a solar array The astronaut thing didn’t quite work out for John, but all that research didn’t go to waste Flash forward about 25 years Miggins was at a turning point in his life Recently laid off and with a family to support, John decided to go off the grid and start his own business He purchased a small 800-square-foot bungalow on a busy Tulsa street—for a song—and opened Harvest Solar & Wind Power Unfortunately, passion wasn’t enough to keep Harvest Solar energized Even though plenty of people were aware of solar and wind power, for many it was little more than a solution to heat your pool or a back-up battery for rural homeowners Miggins and his partner took plenty of calls, but few jobs panned out On the jobs that did, they were always under the gun—scrambling to get what they needed when they needed it, hiring extra hands and subcontractors, keeping just enough money in the bank to make it all happen while putting in 80-hour weeks If a customer was late on payment, or didn’t pay at all, it could be catastrophic for the business In January 2008, Miggins received a call from Studio 804, a design group made up of students from the University of Kansas School of Architecture and Urban Planning The students were on a semester-long project to build an art and community center in Greensburg, Kansas The 547 Art Center, aptly named for the date of the devastating tornado that struck the town on May 4, 2007, would be the town’s first completed building As with most projects in Greensburg, they were looking for donations Lots of them They were hoping John, who was still operating as Harvest Solar at the time, would be able to the solar and wind power systems for the building John was in no position to donate the $50,000 it would cost, but submitted a bid and worked with the students on some plans, “just ’cause it was cool.” The frustrations were mounting Miggins was doing his taxes one day and thought, “I show my income, but I don’t know where it all goes.” Around that same time, an old friend from his hometown of Houston called with an offer John couldn’t refuse A new company called Standard Renewable Energy was looking to expand and needed experienced regional sales managers to cover the Oklahoma and Kansas territories Miggins knew the area and definitely knew his stuff, so it was a perfect fit Standard Renewable could provide the corporate infrastructure, financial backing, logistics, and purchasing power Miggins lacked while allowing him some of the freedoms he enjoyed while running his own show Although Miggins was confident in his decision to join Standard Renewable Energy, some of his customers didn’t understand the need for him to be part of a larger organization Solar homeowner Emily © Steven J Eliopoulos A Little Hope for the Little Guy Priddy purchased her system from Harvest Solar in early 2007 and was very happy with the level of service received from John on his own Shortly after Priddy’s system was installed, John joined Standard An ardent supporter of independent local businesses, Priddy has mixed feelings about the market share large companies have nowadays “When the big guys catch on, at least it makes the technology more widely available,” says Priddy Miggins still provides customer support for Priddy’s system, but now as Standard Renewable Energy On April 1, 2008, Studio 804 called again They were ready to go and hoped John was still interested in their project The thing was, he had less than a month to engineer, take delivery of the necessary components, and install the system May 4, 2008 was to be the grand opening and everything had to be perfect President George W Bush was to be the guest of honor Oh, and they still needed at least some of the installation for free The next call was to Standard Renewable Energy in Houston They agreed that the Studio 804 project was a worthy cause and gave Miggins the green light to make it happen A normal installation takes at least 60 days to turn around They had half of that The building, the first of its kind in Kansas, needed to be special, so last-minute changes and upgrades had them down to the wire The three wind turbines were so new that they had to be special ordered from Australia and shipped via air to the rural Kansas town None of it could have been done without the backing of the larger and more well-heeled Standard Renewable Energy Their participation in the project has paid off John has projects pending with several of the architecture firms he met while working in Greensburg He’s hopeful the referrals will keep coming—and isn’t looking back to the old days at Harvest Solar Questions Compare the logistics and supply chain systems of Harvest Solar with that of Standard Renewable Energy What kind of marketing channel is Standard Renewable Energy? Do you prefer to shop at big box stores, like Best Buy and Wal-Mart, or local independent merchants? What are the pros and cons of each? Visit a local big box store, ask for a meeting with a store manager, and write a report (3 to pages) on the green initiatives they are involved in 487 PART Promotional Decisions ons Chapter 15 Integrated Marketing Communications Chapter 16 Advertising and Public Relations Chapter 17 Personal Selling and © Getty Images Sales Promotion 488 15 TER Communications © Joe Robbins/Getty Images CHAP Integrated Marketing Major ajor League B Baseball Joins the Green Team America’s pasti pastime appeals to fans who enjoy sitting in the fresh air, cheering their team Whether the players are sporting their home heering for th jerseys rseys or trav traveling grays, they all have a new team color: green Major League eague Baseba Baseball is getting into the environmental game Take the Cincinnati ntal ga Reds On opening in day, the team purchased carbon credits to offset its energy usage The grounds crew recycles grass clippings to fertilize landscaping outside the ballpark When energy demand is high, generators save electricity by powering the lights during night games; solar cells power the scoreboard Computers monitor the stadium’s energy use and automatically shut off air conditioning in nonessential office areas “We like to say, ‘It’s not just the grass that’s green,’” says the team’s vice president for ballpark operations “Even down to the programs and yearbooks—we’re recycling it all.” Cincinnati is not alone Teams are adding solar panels to their stadiums, encouraging patrons to recycle food and beverage containers, adding energy-saving light bulbs and 489 INTEGRATED MARKETING COMMUNICATIONS water-saving restrooms, building bicycle parking lots to encourage alternative transportation, recycling steam from incinerators for heating and cooling systems, and considering the ecological impact of their travel plans and the environmental track records of the hotels they use The red carpet that graced New York’s Avenue of the Americas for the 2008 Hall of Fame parade was a mile-long stretch of 100 percent recycled fibers, manufactured with wind and solar power that saved 6,300 pounds of petroleum-based fiber and almost 200,000 gallons of water In fact, MLB has partnered with nonprofit group the Natural Resources Defense Council to implement an online tool—the Team Greening Program—making it easier for every team in the league to run greener operations MLB games draw about 80 million spectators every year According to the president of GreenMark, an environmental marketing company that also works with MLB, sports teams can use their high visibility to bring green issues to the public consciousness “in a way that is far more efficient than most other industries.” The resulting positive publicity is a bonus evolution of a brand that also helps teams win sponsorships and strengthen their bottom lines Those are just some of the ways MLB gets the word out about its green operations It also uses a mix of written, media, and event promotions such as press releases to announce the unrolling of New York’s “green” red carpet In-person NRDC “Green Teams” promoted recycling at All-Star events, which also included the use of hybrid buses to transport fans between events and distribution of free reusable tote bags The All-Star planning team sponsored a playground made from recycled materials Free MLB-NRDC literature throughout ballparks promotes ecofriendly steps fans can take at home and at work Each team’s Web site also includes NRDC’s Team Greening Advisor—a guide with ideas, suggestions, and proposed policies for all Major League clubs Television coverage and articles in the news media and wire services touted such achievements as the opening of the Washington Nationals’ new stadium, a $611 million structure that is the first major league ballpark to meet the U.S Green Building Council’s Leadership in Energy and Environmental Design (LEED) standards by being built with 95 percent recycled steel and using high-efficiency lighting and plumbing, water-absorbing planted “green” roof, preferred parking for high-mileage cars— not to mention its convenient location near public transit systems MLB has made sure reporters also know Nationals Park may soon be eclipsed by such new green achievements as the New York Mets’ new park, approved by the EPA, the Minnesota Twins’ new field, which hopes to top Nationals Park in its LEED certification rating, and the Florida Marlins’ future ecofriendly home in Miami MLB has plenty to communicate “This is signaling a cultural shift that I think is unprecedented,” said NRDC’s senior scientist of MLB’s green partnership “It’s apple pie, it’s motherhood, it’s baseball, it’s environmentalism.”1 1Explain how integrated marketing communications relates to the development of an optimal promotional mix Describe the communication process and how it relates to the AIDA concept Explain how the promotional mix relates to the objectives of promotion Identify the different elements of the promotional mix and explain how marketers develop an optimal promotional mix Objectives chapter 15 Describe the role of sponsorships and direct marketing in integrated marketing communications Discuss the factors that influence the effectiveness of a promotional mix Contrast pushing and pulling strategies Explain how marketers budget for and measure the effectiveness of promotion Discuss the value of marketing communications Baseball commissioner Bud Selig recently told the league, “Just as baseball took a leading role in the development of relations between the races in the United States, with the appearance of Jackie Robinson for the Brooklyn Dodgers in 1947, so must it turn its attention, efforts and influence to the environment.” • Do you think an organization like MLB is a good channel for promoting a social cause like environmental awareness to the general public? Why or why not? What else could MLB say and to get the word out to baseball fans? • A spokeswoman for NRDC says environmentally aware sports teams “ask for changes from their vendors that trickle through the supply chain.” Can this trickle effect among its suppliers also help MLB publicize its green efforts? How? 490 part PROMOTIONAL DECISIONS relationships—from a variety of media, includ- chapter overview ing television, radio, magazines, direct mail, promotion Communication link between buyers and sellers; the function of informing, persuading, and influencing a consumer’s purchase decision Two of the four components of the marketing the Internet, and cell phones Marketers can mix—product and distribution strategies— broadcast an ad on the Web to mass markets were discussed in previous chapters The three or design a customized appeal targeted to a chapters in Part analyze the third marketing small market segment Each message the cus- mix variable—promotion Promotion is the tomer receives from any source represents the function of informing, persuading, and influ- brand, company, or organization A company encing the consumer’s purchase decision needs to coordinate all these messages for This chapter introduces the concept of maximum total impact and to reduce the like- integrated marketing communications, briefly lihood that the consumer will completely tune describes the elements of a firm’s promotional them out mix—personal and nonpersonal selling—and To prevent this loss of attention, mar- explains the characteristics that determine keters are turning to integrated marketing the success of the mix Next, we identify the communications (IMC), which coordinates objectives of promotion and describe the all promotional activities—media advertising, importance of developing promotional bud- direct mail, personal selling, sales promotion, gets and measuring the effectiveness of pro- public relations, and sponsorships—to pro- motion Finally, we discuss the importance of duce a unified, customer-focused promotional the business, economic, and social aspects message As you saw earlier, Major League of promotion Chapter 16 covers advertising, Baseball uses IMC to get the message out public relations, and other nonpersonal sell- about its increasing focus on environmentally ing elements of the promotional mix, includ- friendly operations IMC is a broader concept ing sponsorships and guerrilla advertising than marketing communications and promo- Chapter 17 completes this part of the book by tional strategy It uses database technology focusing on personal selling and to refine the marketer’s under- sales promotion standing of the target audience, Throughout Contemporary Marketing, special emphasis has been given to new information marketing communications Messages that deal with buyer–seller relationships that shows how technology integrated marketing communications (IMC) Coordination of all promotional activities to produce a unified, customer-focused promotional message the transmission of a message is changing the way marketers approach communication, from a sender to a receiver Consumers receive marketing bsripeaking efly “You can say the right thing about a product and nobody will listen You’ve got to say it in a way that people will feel it in their gut Because if they don’t feel it, nothing will happen.” communications—messages —William Bernbach (1911–1982) that deal with buyer–seller COFOUNDER OF DDB ADVERTISING AGENCY segment this audience, and select the best type of media for each segment This chapter shows that IMC involves not only the marketer but all other organizational units that interact with the consumer Marketing managers set the goals and objectives of the firm’s promotional strategy in accordance chapter 15 491 INTEGRATED MARKETING COMMUNICATIONS with overall organizational objectives and becomes a central part of the firm’s total marketing goals Based on these objectives, marketing strategy to reach its selected the various elements of the promotional market segments The feedback mecha- strategy—personal selling, advertising, sales nism, including marketing research and field promotion, direct marketing, publicity, and reports, completes the system by identifying public relations—are formulated into an any deviations from the plan and suggesting integrated communications plan This plan improvements Explain how Integrated Marketing Communications integrated marketing communications relates to the development of an optimal promotional mix © AP Images/PRNewsFoto/Checkers Drive-In Restaurants, Inc Stop and think for a moment about all the marketing messages you receive in a single day You click on the television for the morning news, and you see plenty of commercials Listen to the car radio on the way to work or school, and you can sing along with the jingles You get catalogs, coupons, and flyers in the mail People even leave promotional flyers under your car’s windshield wiper while it sits in the parking lot When you go online, you’re deluged with banner and pop-up ads and even marketing-related e-mail Marketers know you receive many types of communication They know they need to compete for your attention, so they look for ways to reach you in a coordinated manner through integrated marketing communications Successful marketers use the marketing concept and relationship marketing to develop customer-oriented marketing programs The customer is at the heart of integrated marketing communications An IMC strategy begins not with the organization’s goods and services but with consumer wants or needs and then works in reverse to the product, brand, or organization It sends receiver-focused rather than product-focused messages Rather than separating the parts of the promotional mix and viewing them as isolated components, IMC looks at these elements from the consumer’s viewpoint: as information about the brand, company, or organization Even though the messages come from different sources—sales presentations, word of mouth, TV, radio, newspapers, billboards, direct mail, coupons, public relations, and online services—consumers may perceive them as “advertising” or a “sales pitch.” IMC broadens promotion to include all the ways a customer has contact with an organization, adding to traditional media and direct mail such sources as package design, store displays, sales literature, and online and interactive media Unless the organization takes an integrated approach to present a unified, consistent message, it may send conflicting information that confuses consumers With accurate, current information about existing and potential customers, marketers can send the right messages and form the right partnernships, such as this one between Nascar and Checkers/Rally’s 492 part briefl y spe akin g “Make it simple Make it memorable Make it inviting to look at Make it fun to read.” —Leo Burnett (1891–1971) FOUNDER, LEO BURNETT ADVERTISING AGENCY PROMOTIONAL DECISIONS Today’s business environment is characterized by many diverse markets and media, creating both opportunities and challenges The success of any IMC program depends on identifying the members of an audience and understanding what they want Without accurate, current information about existing and potential customers and their purchase histories, needs, and wants, marketers may send the wrong message But they cannot succeed simply by improving the quality of the messages or by sending more of them IMC must not only deliver messages to intended audiences but also gather responses from them Databases and interactive marketing are important IMC tools that help marketers collect information from customers and then segment markets according to demographics and preferences Marketers can then design specialized communications programs to meet the needs of each segment Young male consumers can be hard to pin down That’s why Totino’s Pizza Rolls sponsors the ESPN Winter X Games, a favorite of extreme sports fans—usually boys 13 to 17 years of age In its first year of sponsorship, Totino’s, a General Mills brand, relied on television and print ads to direct viewers to an online Jeep sweepstakes, favorite-event poll, and blog by premier snowboarder Danny Kass “One of the biggest things we learned after the first campaign was the importance of being relevant to our target audience,” says Totino’s associate marketing manager While a Jeep makes an attractive prize, it wasn’t targeted enough to young male teens too young to drive The following year, Totino’s gave away an all-expense-paid trip for four to the next year’s Winter X Games.2 The increase in media options provides more ways to give consumers product information; however, it can also create information overload Marketers have to spread available dollars across fragmented media markets and a wider range of promotional activities to achieve their communication goals Mass media such as TV ads, while still useful, are no longer the mainstays of marketing campaigns In 1960, a marketer could reach about 90 percent of U.S consumers by advertising on the three major TV networks—CBS, NBC, and ABC Today, even though overall TV viewing is at an all-time high, consumers spend less than 20 percent of their viewing hours watching these stations Basic cable, with channels such as ESPN, CNN, and the Food Network, now accounts for about 50 percent of viewing time, with additional networks such as Fox, the CW, and PBS (public broadcasting) eating up hours as well.3 So to reach targeted groups of consumers, organizations must turn to niche marketing—advertising in special-interest magazines, purchasing time on cable TV channels, reaching out through telecommunications media such as cell phones and the Internet, and sponsoring events and activities Without an IMC program, marketers frequently encounter problems within their own organizations because separate departments have authority and responsibility for planning and implementing specific promotional mix elements The coordination of an IMC program often produces a competitive advantage based on synergy and interdependence among the various elements of the promotional mix With an IMC strategy, marketers can create a unified personality for the product or brand by choosing the right elements from the promotional mix to send the message At the same time, they can develop more narrowly focused plans to reach specific market segments and choose the best form of communication to send a particular message to a specific target audience IMC provides a more effective way to reach and serve target markets than less coordinated strategies Establishing an effective IMC program requires teamwork IMPORTANCE OF TEAMWORK IMC requires a big-picture view of promotion planning, a total strategy that includes all marketing activities, not just promotion Successful implementation of IMC requires that everyone involved in every aspect of promotion—public relations, advertising, personal selling, and sales promotion—function as a team They must present a consistent, coordinated promotional effort at every point of customer contact with the organization This way, they save time, money, and effort They avoid duplication of efforts, increasing marketing effectiveness and reducing costs Ultimately, it means that the result—the IMC program—is greater than the sum of its parts Teamwork involves both in-house resources and outside vendors It involves marketing personnel; members of the sales force who deal with wholesalers, retailers, and organizational buyers; and customer service representatives A firm gains nothing from a terrific advertisement featuring a great product, an informational Web site, and a toll-free number if unhelpful salespeople frustrate chapter 15 493 INTEGRATED MARKETING COMMUNICATIONS customers when they answer the phones The company must train its representatives to send a single positive message to consumers and to solicit information for the firm’s customer database IMC also challenges the traditional role of the outside advertising agency A single agency may no longer fulfill all of a client’s communications requirements, including traditional advertising and sales promotions, interactive marketing, database development, direct marketing, and public relations To best serve client needs, an agency must often assemble a team with members from other companies bri efly speaking “Teamwork is essential It gives them someone else to shoot at.” ROLE OF DATABASES IN EFFECTIVE IMC PROGRAMS —Anonymous With the explosive growth of the Internet, marketers have the power to gather more information faster and to organize it more easily than ever before By sharing this detailed knowledge appropriately among all relevant parties, a company can lay the foundation for a successful IMC program The move from mass marketing to a customer-specific marketing strategy—a characteristic of online marketing—requires not only a means of identifying and communicating with the firm’s target market but also information regarding important characteristics of each prospective customer As discussed in Chapter 10, organizations can compile different kinds of data into complete databases with customer information, including names and addresses, demographic data, lifestyle considerations, brand preferences, and buying behavior This information provides critical guidance in designing an effective IMC strategy that achieves organizational goals and finds new opportunities for increased sales and profits This increased ability to acquire huge amounts of data poses a new challenge: how to sift through it efficiently so it becomes useful information Newer technology allows researchers to exactly that—work with millions of sets of data to make very specific analyses assessment check Direct sampling is another method frequently used to quickly obtain customer opinions regarding a particular Define promotion firm’s goods and services If you’ve ever received What is the difference between marketing a free sample of laundry detergent, air freshcommunications and integrated marketing ener, breakfast cereal, or even a new magazine communications (IMC)? in your mailbox, you’ve been the recipient of direct sampling The Communication Process When you have a conversation with someone, you wonder whether the person understood your message? Do you worry that you might not have heard the person correctly? Marketers have the same concerns: when they send a message to an intended audience or market, they want to make sure it gets through clearly and persuasively That is why the communication process is so important to marketing The top portion of Table 15.1 shows a general model of the communication process and its application to promotional strategy The sender acts as the source in the communication system as he or she seeks to convey a message (a communication of information, advice, or a request) to a receiver An effective message accomplishes three tasks: Describe the communication process and how it relates to the AIDA concept It gains the receiver’s attention It achieves understanding by both receiver and sender It stimulates the receiver’s needs and suggests an appropriate method of satisfying them Table 15.1 also provides several examples of promotional messages Although the types of promotion may vary from a highly personalized sales presentation to such nonpersonal promotions as television advertising and dollar-off coupons, each goes through every stage in the communications process The three tasks just listed are related to the AIDA concept (attention, interest, desire, action), the steps consumers take in reaching a purchase decision First, the promotional message must gain the potential consumer’s attention It then seeks to arouse interest in the good or service AIDA concept Steps through which an individual reaches a purchase decision: attention, interest, desire, and action 494 part t a b le Relating Promotion to the Communication Process Transmits messages such as sales presentations, ads, displays, direct mail, publicity releases Marketing Manager Delivers message via salesperson, print and electronic advertising media, public relations Receiver or customer interprets message NOISE Type of Promotion PROMOTIONAL DECISIONS Encoding by Sender Sender Receiver or customer makes decision Customer responses, market research, market share changes, field sales reports NOISE Channel Decoding by Receiver Response Feedback Personal selling SAP ERP system Sales presentation on SAP sales new applications of representative system Office manager and employees discuss sales presentation and those of competing suppliers Order is placed for SAP system Customer asks about a second system for subsidiary company Dollar-off coupon (sales promotion) S C Johnson Wax Coupon for Pledge Duster Plus Coupon insert in Sunday newspaper Newspaper reader sees coupon for Pledge Duster Plus Product is purchased by consumer using coupon S C Johnson Wax researchers see increase in market share Television advertising Capital One Advertisement featuring “What’s in Your Wallet” slogan Network television Adults 20–40 see an ads during program ad and decide to try with high percent- out the card ages of viewers 20–40 years old Capital One cards are applied for Customers make purchases with Capital One cards brs peaking iefl y “History repeats itself because no one listens the first time.” —Anonymous At the next stage, it stimulates desire by convincing the would-be buyer of the product’s ability to satisfy his or her needs Finally, the sales presentation, advertisement, or sales promotion technique attempts to produce action in the form of a purchase or a more favorable attitude that may lead to future purchases The message must be encoded, or translated into understandable terms, and transmitted through a communications channel Decoding is the receiver’s interpretation of the message The receiver’s response, known as feedback, completes the system Throughout the process, noise (in such forms as ineffective promotional appeals, inappropriate advertising media, or poor radio or television reception) can interfere with the transmission of the message and reduce its effectiveness The marketer is the message sender in Table 15.1 He or she encodes the message in the form of sales presentations, advertising, displays, or publicity releases The channel for delivering the message may be a salesperson, a public relations outlet, a Web site, or one of the numerous advertising media Decoding is often the most troublesome step in marketing communications because consumers not always interpret promotional messages in the same way that senders Because receivers usually decode messages according to their own frames of reference or experiences, a sender must carefully encode a message in a way that matches the frame of reference of the target audience Consumers today are bombarded daily by hundreds of sales messages through many media channels This communications traffic can create confusion as noise in the channel increases Because the typical shopper will choose to process only a few messages, ignored messages are wasted communications expenditures The AIDA concept is also vital to online marketers It is not enough to say a Web site has effective content or high response rates Marketers must know just how many “eyeballs” are looking at the site, how often they come to view a message, and what they are examining Most important, they must find out what consumers besides just look The bottom line is that if nobody is responding to a Web site, it might as well not exist Experts advise attracting users’ attention by including people in advertisements and other communications in addition to new content and 495 INTEGRATED MARKETING COMMUNICATIONS formats The 2008 Summer Olympics held in Beijing gave NBC what its research chief called “an extraordinary research opportunity” to find out how consumers watched the games The network broadcast about 3,600 hours of coverage on its main network and 2,200 hours of streaming video on its Web site, as well as live blogging and video on demand via computers and cell phones “The whole idea,” said the research chief, “is to get the same person and to touch them across all different sorts of platforms,” and then to find out what they did NBC ran focus groups and surveyed 500 consumers online every day throughout the 17 days of events to find out what media they used and how Network executives hoped the results would help them create a Total Audience Measurement Index, or TAMI, that gauges television, Internet, ondemand, and cell phone viewing and that can be applied to future programming of all kinds.4 Feedback, the receiver’s response to the message, provides a way for marketers to evaluate the effectiveness of the message and tailor their responses accordingly Feedback may take the form of attitude changes, purchases, or nonpurchases In some instances, organizations use promotion to create favorable attitudes toward their goods or services in the hope of future purchases Other promotional communications have the objective of directly stimulating consumer purchases Marketers using infomercials that urge the viewer to call a toll-free number to place orders for music collections, the latest fitness fad, or other products can easily measure their success by counting the number of calls they receive that result in orders Even nonpurchases may serve as feedback to the sender Failure to purchase may result from ineffective communication in which the receivers not believe the message, don’t remember it, or even associate it with another firm’s products Or receivers may remember it correctly, but the message may have failed to persuade them that the firm’s products are better than those of the competition So marketers need to be keenly aware of why messages fail Interpersonal messages can fail, too, from lack of listening skills, as the “Etiquette for Marketing Professionals” feature discusses Noise represents interference at some stage in the communication process It may result from disruptions such as transmissions of competing promotional messages over the same communications channel, misinterpretation of a sales presentation or advertising message, receipt of the promotional message by the wrong person, or random events such as people conversing or leaving the room during a television commercial Noise can also result from distractions within an advertising message itself Buzzwords and jargon can create a linguistic jungle for consumers who are just trying to find out more about a product AARP, for instance, surveyed about 1,200 adults and found more than half were confused by the language of the investment industry, often saving too little or making costly mistakes because they didn’t understand terms like basis point and expense ratio “What we have here,” said the organization’s chief investment officer, “is a failure to communicate Investors need quality, not quantity, of information.”5 An effective message gains the reader’s attention, achieves understanding, and stimulates the receiver’s needs, suggesting an appropriate method of satisfaction © AP Images/PRNewsFoto/Marriott International, Inc chapter 15 496 part PROMOTIONAL DECISIONS © Jon Arnold Images Ltd/Alamy Consumers today are bombarded daily by hundreds of sales messages through multiple media channels brie fl y s peaking “England and America are two countries separated by a common language.” —George Bernard Shaw (1856–1950) IRISH PLAYWRIGHT Noise can be especially problematic in international communications One problem is that there may be too many competing messages Italian television channels broadcast all advertisements during a single half-hour slot each night Or technology may be poor, and language translations inaccurate Nonverbal cues, such as body language and tone of voice, are important parts of the communication process, and cultural differences may lead to noise and misunderstandings For example, in the United States, the round O sign made with the thumb and first finger means “okay.” But in Mediterranean countries, the same gesture means “zero” or “the worst.” A Tunisian interprets this sign as “I’ll kill you,” and to a Japanese consumer, it means “money.” It’s easy to see how misunderstandings could arise from this single gesture Perhaps the most misunderstood language for U.S marketers is English With 74 English-speaking nations, local terms can confuse anyone trying to communicate globally The following examples illustrate how easy it can be for marketers to make mistakes in English-language promotional messages: ୴ Police: bobby (Britain), garda (Ireland), Mountie (Canada), police wallah (South Africa) ୴ Porch: stoep (South Africa), gallery (Caribbean) ୴ Bar: pub (Britain), hotel (Australia), boozer (Australia, Britain, New Zealand) ୴ Bathroom: loo (Britain), dunny (Australia) ୴ Ghost or monster: wendigo (Canada), duppy (Caribbean), taniwha (New Zealand) ୴ Barbecue: braai (South Africa), barbie (Australia) ୴ Truck: lorry (Britain and Australia) ୴ Festival: feis (Ireland) ୴ Sweater: jumper (England) ୴ French fries: chips (Britain) ୴ Soccer: football (the rest of the world) ୴ Soccer field: pitch (England) chapter 15 497 INTEGRATED MARKETING COMMUNICATIONS Listen Up! c ommunicating isn’t just speaking; it’s listening Studies show we remember only a quarter to half of what we hear, a remarkably small percentage We don’t often practice “active listening,” going beyond just hearing the message to paying conscious attention and understanding the total content Here are some tips to help you improve your active listening skills • Mentally repeat the words the speaker is saying to focus your • If you’re attending a presentation, arrive on time, make sure • In conversation, remember that you can’t listen if you’re talk- attention and improve retention of the message • Suspend judgment Whether you agree or disagree, it’s harder to take in the speaker’s words if you’re mentally preparing your response instead of listening • Practice empathy Try to understand the speaker’s ideas from the speaker’s point of view instead of your own you’re comfortable (eat lightly, visit the restroom beforehand), and sit near the front ing Listen more than you speak, and restate what the other person has said to test the accuracy of your understanding • Whether it’s a presentation or a conversation, pay attention • Resist the temptation to finish the other person’s statements Train your eyes on the speaker and put distracting thoughts aside • Ignore external distractions, such as noisy neighbors or a room that’s too hot or too cold Turn off your pager and cell phone • Give the speaker feedback Use body language like nods and smiles to indicate you’re paying attention • When it’s your turn to speak, be brief and open but also respectful of others’ opinions and delivery Sources: “Active Listening,” Mind Tools, www.mindtools.com, accessed August 8, 2008; Dalmar Fisher, “Active Listening,” from Communication in Organizations, www.analytictech.com, accessed August 8, 2008; Susie Michelle Cortright, “10 Tips to Effective & Active Listening Skills,” Jamnext, www.jamnext.com, accessed August 8, 2008; Vadim Kotelnkiov, “12 Active Listening Tips,” 1000 Advices, www.1000advices.com, accessed August 8, 2008 Faulty communications can be especially risky on a global level, where noise can lead to some interesting misinterpretations Here are three international examples: ୴ On a sign in a Bucharest hotel lobby—The lift is being fixed for the next day During that time, we regret that you will be unbearable ୴ From a Japanese information booklet about using a hotel air conditioner—Cooles and Heates: If you want just condition of warm in your room, please control yourself ୴ In an Acapulco hotel—The manager has personally passed all the water served here assessment check What are the three tasks accomplished by an effective message? Identify the four steps of the AIDA concept What is noise? Objectives of Promotion What specific tasks should promotion accomplish? The answers to this question seem to vary as much as the sources consulted Generally, however, marketers identify the following objectives of promotion: Provide information to consumers and others Increase demand Differentiate a product Explain how the promotional mix relates to the objectives of promotion 498 part PROMOTIONAL DECISIONS Accentuate a product’s value An advertisement for a concert or event typically provides information about the performer(s), time, and place Stabilize sales © AP Images/PRNewsFoto/The Johnny Cash Flower Pickin’ Festival PROVIDE INFORMATION The traditional function of promotion was to inform the market about the availability of a particular good or service In fact, marketers still direct much of their current promotional efforts at providing product information to potential customers An advertisement for a concert typically provides information about the performer, time, and place A commercial for a theme park offers information about rides, location, and admission price Information can also help differentiate a product from its competitors by focusing on its features or benefits In addition to traditional print and broadcast advertising, marketers often distribute a number of high-tech, low-cost tools to give consumers product information DVDs and online video clips are currently used for products such as cosmetics, automobiles, and exercise equipment, providing virtual demonstrations of the products Political candidates even distribute them, packed with scenes from speeches, rallies, and the candidate on the job Consumers still regard these media as a novelty, so they are less likely to throw them out or click elsewhere Blogs are another channel for information The “Solving an Ethical Controversy” feature discusses who controls bloggers’ access to promotional information INCREASE DEMAND Most promotions pursue the objective of increasing demand for a product Some promotions are aimed at increasing primary demand, the desire for a general product category such as HDTVs or DVD players Funding for the advertisement of agricultural commodities such as milk, sorghum, and cotton comes from mandatory fees called checkoffs charged to farmers on the sale of their products—in order to stimulate primary demand for the entire category of products, not just one brand.6 The fees, totaling $750 million a year, have generated some controversy Supporters say it’s good for everyone in the industry but critics say the program is unfair, pointing out that small farmers contribute to the advertising budgets of major firms such as Hormel and Smithfield Still, these funds have generated such memorable slogans as these: ୴ “Beef It’s what’s for dinner.” ୴ “Pork The other white meat.” ୴ “The incredible edible egg.” ୴ “Cotton The fabric of our lives.” Primary-demand promotions are also typical for firms holding exclusive patents on significant product improvements and for marketers who decide to expand overseas, creating new markets for their products in other parts of the world When Procter & Gamble first introduced its Pampers disposable diapers in Hungary, most parents were using overpants with paper inserts to diaper their babies So early Pampers television ads focused on generating interest in the novel product More promotions, however, are aimed at increasing selective demand, the desire for a specific brand Movie studios have been looking for ways to get consumers to watch their films chapter 15 499 INTEGRATED MARKETING COMMUNICATIONS Sports Blogs: Who Controls the Marketing Message? w hen Mark Cuban, the wealthy owner of the Dallas Mavericks basketball team, recently tried to ban bloggers from the team’s locker room, the National Basketball Association overruled him, saying teams could not bar bloggers from established news organizations That was just one incident in a growing conflict between professional sports teams and the news media, centered on the question of who “owns” the news The problem springs from the explosion of new media—in theory, anyone who sets up a blog could call him- or herself a journalist with all the rights and privileges that implies Another provocative issue is the amount of game video media Web sites post online Should sports leagues be allowed to limit access to team news? PRO Leagues and teams should be able to limit news coverage like online game clips because their own Web sites bring them revenue Major League Baseball’s site is growing fast and already generates $400 million a year Some sports officials think the First Amendment right to free speech does not apply to private events like ball games, even if they are held in publicly financed stadiums CON Media executives argue that events in publicly financed stadiums fall under First Amendment protection, which would allow news media unlimited coverage Sports events are part of daily news and so belong to everyone Says the editor of the Sports Illustrated Group, “S.I does not own the sports history, but neither does Major League Baseball That history belongs to everyone who loves the game.” Summary The debate rolls on over the control of the sports marketing message The head of media relations for the New York Yankees says, “The biggest danger now is that with some of these blog sites there is no structure There is no one that [blogger] John Smith reports to.” On the other hand, the executive director of the Media Law Resource Center says of sports franchises’ objections to coverage, “What I see is a strident effort by a powerful monopoly to control information They have a monopoly on the game Now they want to have a monopoly on the information.” Sources: Beth Krietsch, “Continued Controversy between Bloggers and the Professional Sports Community,” PR Week, April 23, 2008, www.prweekus.com; Tim Arango, “Tension over Sports Blogging,” The New York Times, April 21, 2008, www.nytimes.com; Barry Horn, “NBA Tells Dallas Mavericks to Allow Locker Room Access to Bloggers,” Dallas Morning News, March 28, 2008, www.dallasnews.com; “Sports Blogging Controversy Looms,” The Editor’s Blog/The Oregonian, June 14, 2007, blog.oregonlive.com So they’ve launched integrated campaigns that include Internet, video podcast, and cell phone marketing efforts Online trailers, such as the moody teasers for Warner Brothers’ second Batman film, The Dark Knight, and MGM’s James Bond installment Quantum of Solace, attract wide attention Such popular promotions have even inspired their own series of Golden Trailer Awards.7 DIFFERENTIATE THE PRODUCT A frequent objective of the firm’s promotional efforts is product differentiation Homogeneous demand for many products results when consumers regard the firm’s output as virtually identical to its competitors’ products In these cases, the individual firm has almost no control over marketing variables such as price A differentiated demand schedule, in contrast, permits more flexibility in marketing strategy, such as price changes As more companies try to reposition themselves as high-quality service providers, they are leaning heavily on the use of design—not only of the product but also of the consumer experience—to create emotional connections and make themselves unique and memorable Procter & Gamble CEO Alan Lafley says, “We want to design the purchasing experience We want to design every component of the product; and we want to design the communication experience and the user experience I mean, it’s all design.”8 500 part PROMOTIONAL DECISIONS ACCENTUATE THE PRODUCT’S VALUE Promotion can explain the greater ownership utility of a product to buyers, thereby accentuating its value and justifying a higher price in the marketplace This objective benefits both consumer and business products A firm’s promotional messages must build brand image and equity and at the same time deliver a “call to action.” Advertising typically offers reasons why a product fits into the consumer’s lifestyle Today, consumers everywhere value their time; the challenge for marketers is to demonstrate how their merchandise will make their lives better Marketers must choose their words wisely when creating messages that accentuate their product’s value One expert advises staying away from five words: quality, value, service, caring, and integrity These overused words are vague and tend to fall on deaf ears.9 STABILIZE SALES Sales of most goods and services fluctuate throughout the year These fluctuations may result from cyclical, seasonal, or irregular demand Ice cream, ski trips, and swimming pools have obvious fluctuations, as snow shovels and lawn mowers Sales of bottled water and flashlights might spike just before a forecasted storm, while vacation rentals might be canceled in the path of the same oncoming hurricane Stabilizing these variations often is an objective of promotional strategy Although it may seem less obvious than ice cream, coffee sales follow a seasonal pattern, rising during colder months and dropping when the weather turns warm Instead of turning up the temperature on its advertising for hot coffee in the summer, Dunkin’ Donuts focuses on assessment check its iced coffee drinks Recent promotions included Iced Coffee Day giveaways of 161 What are the objectives of promotion? ounce drinks and an online instant2 Why is product differentiation important to win game licensed by Major League marketers? Baseball played with peel-off stickers on all cold beverages.10 Identify the different elements of the promotional mix and explain how marketers develop an optimal promotional mix promotional mix Subset of the marketing mix in which marketers attempt to achieve the optimal blending of the elements of personal and nonpersonal selling to achieve promotional objectives Elements of the Promotional Mix Like the marketing mix, the promotional mix requires a carefully designed blend of variables to satisfy the needs of a company’s customers and achieve organizational objectives The promotional mix works like a subset of the marketing mix, with its product, distribution, promotion, and pricing elements With the promotional mix, the marketers attempt to create an optimal blend of various elements to achieve promotional objectives The components of the promotional mix are personal selling and nonpersonal selling, including advertising, sales promotion, direct marketing, public relations, and guerrilla marketing Personal selling, advertising, and sales promotion usually account for the bulk of a firm’s promotional expenditures However, direct marketing, guerrilla marketing, sponsorships, and public relations also contribute to integrated marketing communications Later sections of this chapter examine the use of guerrilla marketing, sponsorships, and direct marketing, and Chapters 16 and 17 present detailed discussions of the other elements This section defines the elements and reviews their advantages and disadvantages PERSONAL SELLING Personal selling is the oldest form of promotion, dating back as far as the beginning of trading and commerce Traders vastly expanded both market sizes and product varieties as they led horses and camels along the Silk Road from China to Europe roughly between 300 b.c.e and a.d 1600, conducting personal selling at both ends Personal selling may be defined as a seller’s promotional presentation conducted on a person-to-person basis with the buyer This direct form of promotion may be conducted face-to-face, over the telephone, through videoconferencing, or through interactive computer links between the buyer and seller chapter 15 501 INTEGRATED MARKETING COMMUNICATIONS Today, almost 16 million people in the United States have careers in sales and related occupations They may sell real estate, insurance, and financial investments, or tractors, automobiles, and vacuum cleaners; they may work in retail or wholesaling; they may be regional managers or in the field In other words, the range of jobs, as well as the products they represent, is huge.11 bri efly speaking “You have only 30 seconds [in a TV commercial] If you grab attention in the first frame with a visual surprise, you stand a better chance of holding the viewer People screen out a lot of commercials because they open with something dull When you advertise fire extinguishers, open with the fire.” NONPERSONAL SELLING Nonpersonal selling includes advertising, product placement, sales promotion, direct marketing, public relations, and guerrilla marketing Advertising and sales promotion usually are regarded as the most important forms of nonpersonal selling About one-third of marketing dollars spent on nonpersonal selling activities are allocated for media advertising; the other two-thirds fund trade and consumer sales promotions Advertising Advertising is any paid, nonpersonal communication through various media about a business firm, not-for-profit organization, product, or idea by a sponsor identified in a message intended to inform, persuade, or remind members of a particular audience It is a major promotional mix component for thousands of organizations—total ad spending in the United States topped $149 billion during a recent year Online ad spending surpassed $11 billion.12 Mass consumption and geographically dispersed markets make advertising particularly appropriate for marketing goods and services aimed at large audiences likely to respond to the same promotional messages Advertising primarily involves the mass media, such as newspapers, television, radio, magazines, movie screens, and billboards, but also includes electronic and computerized forms of promotion such as Web commercials, CDs and DVDs, and TV monitors at supermarkets The rich potential of the Internet as an advertising channel to reach millions of people—one at a time—has attracted the attention of companies large and small, local and international As consumers become increasingly savvy—and tune out messages that don’t interest them—marketers are finding new ways to grab their attention Ads on Web sites are commonplace, but now they also appear on cell phones Consumers see them on fuel pump displays when buying gas or on their bank’s ATM screens and hear audio ads embedded in vending machines and store displays.13 —David Ogilvy (1911–1999) ADVERTISING EXECUTIVE Advertising is a major promotional mix component for thousands of organizations, including Burt’s Bees Product placement is a form of nonpersonal selling in which the marketer pays a motion picture or television program owner a fee to display his or her product prominently in the film or show The practice gained attention more than two decades ago in the movie E.T.: The Extra-Terrestrial when Elliott, the boy who befriends E.T., lays out a trail of © AP Images/PRNewsFoto/Burt’s Bees Product Placement 502 part PROMOTIONAL DECISIONS Reese’s Pieces for the extraterrestrial to follow, to draw the alien from his hiding place Product sales for Reese’s Pieces candies went through the roof (Interestingly, this was not the moviemaker’s first choice of candy; Mars turned down the opportunity to have its M&Ms appear in the film.) Today, hundreds of products, even B2B products such as Cisco System’s TelePresence videoconferencing system, mentioned in a “CSI: NY” season finale, appear in movies and on television shows, and the fees charged for these placements have soared A coalition of 23 advocacy and consumer groups asked the Federal Communications Commission to regulate product placement, calling the lack of adequate disclosure an “unfair and deceptive” practice, even as product placements and branded content on shows like “American Idol” grow to an average of 14 minutes per episode “We’re not saying they can’t it,” says an FCC commissioner “We’re just saying they have to let the audience know what they’re doing.”14 Some firms have moved to the next generation of product placement, seeking new places for their merchandise One popular venue for product placement is video games Not only these placements generate recognition and awareness, but they can also result in an immediate sale Marketers need to be sure, however, that their product fits in the game environment, or at least doesn’t interrupt the game experience Discovery Channel successfully promoted a new show called “FutureWeapons” by giving away two levels of Microsoft’s blockbuster “Gears of War” game.15 Sales Promotion sales promotion Marketing activities other than personal selling, advertising, guerrilla marketing, and public relations that stimulate consumer purchasing and dealer effectiveness direct marketing Direct communications, other than personal sales contacts, between buyer and seller, designed to generate sales, information requests, or store or Web site visits Sales promotion consists of marketing activities other than personal selling, advertising, guerrilla marketing, and public relations that stimulate consumer purchasing and dealer effectiveness This broad category includes displays, trade shows, coupons, contests, samples, premiums, product demonstrations, and various nonrecurring, irregular selling efforts Sales promotion provides a short-term incentive, usually in combination with other forms of promotion, to emphasize, assist, supplement, or otherwise support the objectives of the promotional program Restaurants, including those serving fast food, often place certain items on the menu at a lower price “for a limited time only.” Advertisements may contain coupons for free or discounted items for a specified period of time Or companies may conduct sweepstakes for prizes such as new cars or vacations, which may even be completely unrelated to the products the companies are selling Movie promotional tie-ins are a classic example Although this is still a popular—and profitable—type of promotion, some companies are discovering they aren’t getting the return on their investment they had hoped for If the movie flops, it may be bad news for the product as well And some fast-food and snack companies are growing wary of tie-ins with films bearing G and PG ratings, due to past criticism that such deals help promote junk food to children Creative control and quick results keep television advertising attractive to marketers, while the rising cost of airing spots on such high-profile broadcasts as the Super Bowl and the Olympics grabs an ever-larger share of their advertising budgets “It’s not that it’s impossible to get companies on board” with tie-ins, said one movie executive “They all want their products on the screen Getting them to open their wallets and promote those appearances is the hard part.”16 Film studios, meanwhile, are getting more creative One tie-in for Spider-Man paired Columbia Pictures and New York City’s tourism marketing organization to create “SpiderMan Week in NYC,” which held over two dozen events all over the city, including a live spider exhibit at the American Museum of Natural History.17 Sales promotion geared to marketing intermediaries is called trade promotion Companies spend about as much on trade promotion as on advertising and consumer-oriented sales promotion combined Trade promotion strategies include offering free merchandise, buyback allowances, and merchandise allowances along with sponsorship of sales contests to encourage wholesalers and retailers to sell more of certain items or product lines Direct Marketing Another element in a firm’s integrated promotional mix is direct marketing, the use of direct communication to a consumer or business recipient designed to generate a response in the form of an order, a request for further information (lead generation), or a visit to a place of business chapter 15 503 INTEGRATED MARKETING COMMUNICATIONS to purchase specific goods or services (traffic generation) While many people equate direct marketing with direct mail, this promotional category also includes telemarketing, direct-response advertising and infomercials on television, direct-response print advertising, and electronic media Direct marketing is an important element of the promotional mix, and it is discussed in depth later in this chapter Public Relations and Publicity Public relations refer to a firm’s communications and relationships with its various publics These publics include customers, suppliers, stockholders, employees, the government, and the general public Public relations programs can conduct either formal or informal contacts The critical point is that every organization, whether or not it has a formally organized program, must be concerned about its public relations Publicity is the marketing-oriented aspect of public relations It can be defined as nonpersonal stimulation of demand for a good, service, person, cause, or organization through unpaid placement of significant news about it in a published medium or through a favorable presentation of it on the radio or television Compared with personal selling, advertising, and even sales promotion, expenditures for public relations usually are low in most firms Because companies not pay for publicity, they have less control over the publication by the press or electronic media of good or bad company news But this often means consumers find this type of news source more believable than if the information were disseminated directly by the company Of course, bad publicity can damage a company’s reputation and diminish brand equity Organizations that enjoy good publicity generally try to make the most of it Those who have suffered from bad publicity try to turn the situation around public relations Firm’s communications and relationships with its various publics Guerrilla Marketing guerrilla marketing Unconventional, innovative, and low-cost marketing techniques designed to get consumers’ attention in unusual ways © AP Images/PRNewsFoto/Cadbury Adams USA LLC Guerrilla marketing uses unconventional, innovative, and low-cost techniques to attract consumers’ attention It is a relatively new approach used by marketers whose firms are underfunded for a full marketing program Many of these firms can’t afford the huge costs involved in the orthodox media of print and broadcasting, so they need to find an innovative, low-cost way to reach their market But some large companies, such as PepsiCo and Toyota, engage in guerrilla marketing as well As mentioned in Chapter 10, buzz marketing can be part of guerrilla marketing This type of marketing works well to reach college students and other young adults Marketing firms may hire students to mingle among their own classmates and friends, creating buzz about a product Often called campus ambassadors, they may wear logo-bearing T-shirts or caps, leave Post-it Notes with marketing messages around campus, and chat about the good or service with friends during class breaks or over meals Time Out Chicago relies on its Campus Ambassadors to help it promote advertisers like Macy’s and the Chicago Blackhawks hockey team with parties, free event tickets, gift bags, and other giveaways.18 Viral marketing, also mentioned in Chapter 10, is another form of guerrilla marketing that has rapidly caught on with large and small firms An online viral video called Jumpin’ In surprised marketer Levi Strauss & Co with its unexpected popularity, racking up 3.5 million hits in 10 days and attracting the attention of “Good Morning America” and The Wall Street Journal Trident sponsored a “Sweet and Sour” election in New York City to determine the flavor of the Big Apple Hundreds of New Yorkers participated in this unconventional marketing campaign 504 part brs peaking iefl y “Propaganda, to be effective, must be believed To be believed, it must be credible To be credible, it must be true.” —Hubert Humphrey (1911–1978) FORMER U.S VICE PRESIDENT PROMOTIONAL DECISIONS The success of the viral video led Levi Strauss to develop a follow-up campaign promoting the free-spirited nature of its jeans, including additional online videos, print ads, TV spots, giant three-dimensional jeans billboards, and online interactive features.19 The results of guerrilla marketing can be funny and outrageous—even offensive to some people But they almost always get consumers’ attention Some guerrilla marketers stencil their company and product names anywhere graffiti might appear Street artists are hired to plaster company and product logos on blank walls or billboards ADVANTAGES AND DISADVANTAGES OF TYPES OF PROMOTION As Table 15.2 indicates, each type of promotion has both advantages and shortcomings Although personal selling entails a relatively high per-contact cost, it involves less wasted effort than nonpersonal forms of promotion such as advertising Personal selling often provides more flexible promotion than the other forms because the salesperson can tailor the sales message to meet the unique needs—or objections—of each potential customer The major advantages of advertising come from its ability to create instant awareness of a good, service, or idea; build brand equity; and deliver the marketer’s message to mass audiences for a relatively low cost per contact Major disadvantages include the difficulty in measuring advertising effectiveness and high media costs Sales promotions, by contrast, can be more accurately monitored and measured than advertising, produce immediate consumer responses, and provide short-term sales increases Direct marketing gives potential customers an actionoriented choice, permits narrow audience segmentation and customization of communications, and produces measurable results Public relations efforts such as publicity frequently offer substantially higher credibility than other promotional techniques Guerrilla marketing efforts can be innovative and highly effective at a low cost to marketers with limited funds, as long as the t a bl e Comparison of the Six Promotional Mix Elements Personal Selling Advantages Permits measurement of effectiveness Elicits an immediate response Tailors the message to fit the customer Advertising Sales Promotion Public Direct Marketing Relations Produces an imme- Generates an immediate consumer diate response response Covers a wide audiAttracts attention ence with targeted and creates prodadvertising Allows strict control uct awareness Allows complete, over the final Allows easy meacustomized, personal message surement of results message Reaches a large group of potential consumers for a relatively low price per exposure Guerrilla Marketing Is low cost Creates a positive attitude toward a Attracts attention product or company because it is Enhances credibil- innovative ity of a product or Is less cluttered company with competitors trying the same thing Can be adapted to Provides short-term Produces measurable either mass audisales increases results ences or specific audience segments Disadvantages Relies almost exclusively on the ability of the salesperson Involves high cost per contact Does not permit totally accurate measurement of results Usually cannot close sales Is nonpersonal in nature Suffers from image problem Is difficult to difInvolves a high cost ferentiate from per reader competitors’ efforts Depends on quality and accuracy of mailing lists May not permit accurate measurement of effect on sales Involves much effort directed toward nonmarketing-oriented May annoy consumers goals May not reach as many people If the tactics are too outrageous, they may offend some people chapter 15 505 INTEGRATED MARKETING COMMUNICATIONS tactics are not too outrageous, but it is more difficult to reach assessment check people The marketer must determine the appropriate blend of these promotional mix elements to effectively market Differentiate between personal and the firm’s goods and services nonpersonal selling Sponsorships What are the six major categories of nonpersonal selling? One of the most significant trends in promotion offers marketers the ability to integrate several elements of the promotional mix Commercial sponsorships of an event or activity involve personal selling, advertising, sales promotion, and public relations in achieving specific promotional goals These sponsorships, which link events with sponsors and media ranging from TV and radio to print and the Internet, have become nearly a $44 billion business Sponsorship spending is growing more rapidly than spending for advertising.20 Sponsorship occurs when an organization provides money or in-kind resources to an event or activity in exchange for a direct association with that event or activity The sponsor purchases two things: (1) access to the activity’s audience and (2) the image associated with the activity Sponsorships typically involve advertising, direct mail and sales promotion, publicity in the form of media coverage of the event, and personal selling at the event itself They also involve relationship marketing, bringing together the event, its participants, the sponsoring firms, and their channel members and major customers Marketers underwrite varying levels of sponsorships depending on the amount their companies wish to spend and the types of events Commercial sponsorship is not a new phenomenon Aristocrats in ancient Rome sponsored gladiator competitions and chariot races featuring teams that often were supported financially by competing businesses More than 2,000 years ago, wealthy Athenians underwrote drama, musical, and sporting festivals Craft guilds in 14th-century England sponsored plays, occasionally insisting that the playwrights insert “plugs” for their lines of work in the scripts During the 1880s, some local baseball teams in the United States were sponsored by streetcar companies Although they include both commercial and not-for-profit events, today’s sponsorships are most prevalent in sports—the Olympics, the Super Bowl, the NCAA basketball championships, the Tour de France bicycle race, LPGA and PGA golf, NASCAR races, Major League Soccer, baseball farm teams, and thousands of smaller events as well Local firms may sponsor soccer and baseball teams Companies may also sponsor reading and child-care programs, concerts or art exhibits, programs that support small businesses and create new jobs, and humanitarian programs such as Ducks Unlimited, the Special Olympics, and the American Cancer Society’s Relay for Life HOW SPONSORSHIP DIFFERS FROM ADVERTISING Even though sponsorship spending and traditional advertising spending represent forms of nonpersonal selling, they differ in a number of ways These differences include potential cost-effectiveness, the sponsor’s degree of control versus that of advertising, the nature of the message, and audience reaction Escalating costs of traditional advertising media have made commercial sponsorships a costeffective alternative Except for the really large events, which often have multiple sponsors, most are less expensive than an advertising campaign that relies on television, print, and other advertising In addition, sponsors often gain the benefit of media coverage anyway, as associated events are covered by the news And in the case of naming rights of such venues as sports arenas, the name serves as a perpetual advertisement Examples include the Safeco Field (Seattle), HP Pavilion (San Jose), and the United Center (Chicago) Case 15.1 at the end of this chapter describes Dubai’s leasing of the naming rights to its metro stations Marketers have considerable control over the quantity and quality of market coverage when they advertise But sponsors have little control of sponsored events beyond matching the audiences Describe the role of sponsorships and direct marketing in integrated marketing communications sponsorship Relationship in which an organization provides funds or in-kind resources to an event or activity in exchange for a direct association with that event or activity 506 part © Kevin Mazur/WireImage/Getty Images Rising costs of traditional advertising have made commercial sponsorships a cost-effective alternative The Avon Walk for Breast Cancer has several sponsors, including Reebok brie fl y spe ak ing “TV exposure is so important to our program and so important to this university that we will schedule ourselves to fit the medium I’ll play at midnight, if that’s what TV wants.” —Paul W “Bear” Bryant (1913–1983) AMERICAN COLLEGE FOOTBALL COACH PROMOTIONAL DECISIONS to profiles of their own target markets Instead, event organizers control the coverage, which typically focuses on the event—not the sponsor By contrast, a traditional advertisement allows the marketer to create an individual message containing an introduction, a theme, and a conclusion Audiences react differently to sponsorship as a communications medium than to other media The sponsor’s investment provides a recognizable benefit to the sponsored activity that the audience can appreciate As a result, sponsorship often is viewed more positively than traditional advertising Some marketers have tried to take advantage of this fact by practicing ambush marketing, in which a firm that is not an official sponsor tries to link itself to a major international event, such as the Olympics or a concert tour by a musical group Heineken recently gave green hats to Dutch customers hoping they would wear them to the Euro 2008 soccer tournament But Carlsberg, a rival brewer, paid $21 million to be an official sponsor of the event and stopped anyone trying to enter the stadium in the hats, asking them to remove the headgear.21 While a vague advertisement such as hats is not illegal, some ambush practices clearly are If a nonsponsor used the Olympic rings in an advertisement, the ad would be an illegal use of a trademark To assess the results of sponsorships, marketers use some of the same techniques by which they measure advertising effectiveness However, the differences between the two promotional alternatives often necessitate some unique research techniques as well A few corporate sponsors attempt to link expenditures to sales Other sponsors measure improved brand awareness and image as effectiveness indicators; they conduct traditional surveys before and after the events to secure this information Still other sponsors measure the impact of their event marketing in public relations terms Direct Marketing Few promotional mix elements are growing as fast as direct marketing Direct marketing advertising expenditures in the United States were expected to top $183 billion in a recent year Despite the economic slowdown, direct marketers saw sales increase over percent.22 Both business-to-consumer and business-to-business marketers rely on this promotional mix element to generate orders or sales leads—requests for more information that may result in future orders Direct marketing also helps increase store traffic, improving the chances that consumers will evaluate and perhaps purchase the advertised goods or services Direct marketing opens new international markets of unprecedented size Electronic marketing channels have become the focus of direct marketers, and Web marketing is international marketing Even direct mail and telemarketing will grow outside the United States as commerce becomes more global Consumers in Europe and Japan are responsive to direct marketing but most global marketing systems remain undeveloped, and many are almost dormant The growth of international direct marketing is spurred by marketing operations born in the United States Direct marketing communications pursue goals beyond creating product awareness Marketers want direct marketing to persuade people to place an order, request more information, visit a store, call a toll-free number, or respond to an e-mail message In other words, successful direct marketing should prompt consumers to take action Because direct marketing is interactive, chapter 15 INTEGRATED MARKETING COMMUNICATIONS marketers can tailor individual responses to meet consumers’ needs They can also measure the effectiveness of their efforts more easily than with advertising and other forms of promotion Direct marketing is a very powerful tool that helps organizations win new customers and enhance relationships with existing ones The growth of direct marketing parallels the move toward integrated marketing communications in many ways Both respond to fragmented media markets and audiences, growth in customized products, shrinking network broadcast audiences, and the increasing use of databases to target specific markets Lifestyles also play a role because today’s busy consumers want convenience and shopping options that save them time Databases are an important part of direct marketing Using the latest technology to create sophisticated databases, a company can select a narrow market segment and find good prospects within that segment based on desired characteristics Marketers can cut costs and improve returns on dollars spent by identifying customers most likely to respond to messages and by eliminating others from their lists who are not likely to respond In fact, mining information about customers is a trend boosted by the growth of e-marketing DIRECT MARKETING COMMUNICATIONS CHANNELS Direct marketing uses many different media forms: direct mailings such as brochures and catalogs; telecommunications initiated by companies or customers; television and radio through special offers, infomercials, or shopping channels; the Internet via e-mail and electronic messaging; print media such as newspapers and magazines; and specialized channels such as electronic kiosks Each works best for certain purposes, although marketers often combine two or more media in one direct marketing program As long as it complies with current “do not call” regulations, a company might start with telemarketing to screen potential customers and then follow up by sending more material by direct mail to those who are interested DIRECT MAIL As the amount of information about consumer lifestyles, buying habits, and wants continues to mount, direct mail has become a viable channel for identifying a firm’s best prospects Marketers gather information from internal and external databases, surveys, personalized coupons, and rebates that require responses Direct mail is a critical tool in creating effective direct-marketing campaigns It comes in many forms, including sales letters, postcards, brochures, booklets, catalogs, house organs (periodicals issued by organizations), DVDs and CDs Direct mail offers advantages such as the ability to select a narrow target market, achieve intensive coverage, send messages quickly, choose from various formats, provide complete information, and personalize each mailing piece Response rates are measurable and higher than other types of advertising In addition, direct mailings stand alone and not compete for attention with magazine ads and radio and TV commercials On the other hand, the per-reader cost of direct mail is high, effectiveness depends on the quality of the mailing list, and some consumers object strongly to what they consider “junk mail.” Recently, some firms have been trying a direct-mail tactic that has sparked some debate— sending marketing messages that appear to be from the government, banks, or even a personal friend One envelope might bear a logo that looks like a government seal; inside is a solicitation for refinancing a loan Another might have what looks like a handwritten note from a friend— but actually contains an ad for a fitness center Some envelopes look like bank statements All are intended to cut through the clutter that appears in consumers’ mailboxes CATALOGS Catalogs have been a popular form of direct mail in the United States since the late 1800s During the early 1900s, consumers could even order a house from the famous Sears, Roebuck catalog More than 10,000 different catalogs fill mailboxes every year Catalogs fill so many segments that you could probably order just about anything you need for any facet of your life from a catalog But 507 508 part © Terri Miller/E-Visual Communications, Inc Catalogs have been a popular form of direct mail in the United States since the late 1800s Many companies well-known for their catalogs, including J Jill, are now creating online catalogs as well PROMOTIONAL DECISIONS many catalog marketers are finding their business is changing For instance, the Direct Marketing Association found in a recent survey that 44 percent of total sales are completed online or over the telephone, and about a third of the survey respondents believed their Web sites brought “incremental” sales they would not have gotten otherwise Nearly half named their Web site as their primary marketing channel, compared with a third who listed their paper catalog in that spot Over 80 percent planned to use e-mail promotions in the coming year, even though 60 percent reported increasing their catalog circulation.23 Pottery Barn, L.L.Bean, and WilliamsSonoma are well known for their catalogs But these and other retailers have also added online catalogs to their direct marketing lineup Upscale women’s clothing retailer J Jill created an online catalog that replicated each page of its print catalog so that consumers could flip through both and find items on the same “page.” Nordstrom has begun a “buy online, pick up in-store” program for shoes, apparel, and cosmetics and is expanding to all categories.24 The 21st-century consumer is time-pressed and overloaded with information To help consumers escape the barrage of mail stuffed into their boxes, the Direct Marketing Association established its Mail Preference Service This consumer service sends name-removal forms to people who not wish to receive direct-mail advertising TELEMARKETING Although its use has been limited by a number of “do not call” restrictions enacted by the Federal Trade Commission, telemarketing remains the most frequently used form of direct marketing It provides marketers with a high return on their expenditures, an immediate response, and the opportunity for personalized two-way conversations In addition to business-to-consumer direct marketing, business-to-business telemarketing is another form of direct customer contact Telemarketing refers to direct marketing conducted entirely by telephone, and it can be classified as either outbound or inbound contacts Outbound telemarketing involves a sales force that uses only the telephone to contact customers, reducing the cost of making personal visits The customer initiates inbound telemarketing, typically by dialing a toll-free number firms provide for customers to use at their convenience to obtain information or make purchases New predictive dialer devices improve telemarketing’s efficiency and reduce costs by automating the dialing process to skip busy signals and answering machines When the dialer reaches a human voice, it instantaneously puts the call through to a salesperson This technology often is combined with a print advertising campaign that features a toll-free number for inbound telemarketing Because recipients of both consumer and business-to-business telemarketing calls often find them annoying, the Federal Trade Commission passed a Telemarketing Sales Rule in 1996 The rule curtailed abusive telemarketing practices by establishing allowed calling hours (between a.m and p.m.) and regulating call content Companies must clearly disclose details of any exchange policies, maintain lists of people who not want to receive calls, and keep records of telemarketing scripts, prize winners, customers, and employees for two years This regulation was recently strengthened by the passage of amendments, creating the national Do Not Call Registry These rules prohibit telemarketing calls to anyone who has registered his or her phone chapter 15 INTEGRATED MARKETING COMMUNICATIONS number, restrict the number and duration of telemarketing calls generating dead air space with use of automatic dialers, crack down on unauthorized billing, and require telemarketers to transmit their Caller ID information Violators can be fined as much as $11,000 per occurrence Exempt from these rules, however, are current customers, charities, opinion pollsters, and political candidates The Federal Trade Commission (FTC) recently levied penalties amounting to $7.7 million against several companies for violating the provisions of the Do Not Call Registry One firm whose case is still pending, Global Mortgage Funding, is charged with making hundreds of thousands of calls to consumers whose names are on the registry, as well as failing to give out required caller ID information and to pay registry fees “Consumers have made it clear that they greatly value the Do Not Call Registry,” said the FTC’s chair, “and they must be able to depend on its privacy protection.”25 In further restrictions to telemarketing, after receiving many complaints about recorded sales messages left on consumers’ answering machines, the FTC recently required those calls to have an “opt out” selection for recipients to stop getting those calls After September 1, 2009, telemarketers will also be able to send recorded messages only to consumers who have provided signed written agreements to receive them The messages exclude informational messages, such as appointment reminders or cancellations, because they are not attempting to sell products.26 DIRECT MARKETING VIA BROADCAST CHANNELS Broadcast direct marketing can take three basic forms: brief direct-response ads on television or radio, home shopping channels, and infomercials Direct-response spots typically run 30, 60, or 90 seconds and include product descriptions and toll-free telephone numbers for ordering Often shown on cable television and independent stations and tied to special-interest programs, broadcast direct marketing usually encourages viewers to respond immediately by offering them a special price or a gift if they call within a few minutes of an ad’s airing Radio direct-response ads also provide product descriptions and addresses or phone numbers to contact the sellers However, radio often proves expensive compared with other direct marketing media, and listeners may not pay close enough attention to catch the number or may not be able to write it down because they are driving a car, which accounts for a major portion of radio listening time Home shopping channels, such as Quality Value Convenience (QVC), Home Shopping Network (HSN), and ShopNBC, represent another type of television direct marketing Broadcasting around the clock, these channels offer consumers a variety of products, including jewelry, clothing, skin-care products, home furnishings, computers, cameras, kitchen appliances, and toys In essence, home shopping channels function as on-air catalogs The channels also have Web sites that consumers can browse through to make purchases In both cases, customers place orders via toll-free telephone numbers and pay for their purchases by credit card Infomercials are 30-minute or longer product commercials that resemble regular television programs Because of their length, infomercials not get lost as easily as 30-second commercials can, and they permit marketers to present their products in more detail But they usually are shown at odd hours, and people often watch only portions of them Nevertheless, Kodak had great success with an infomercial campaign for its EasyShare printer “Direct response TV gave us the control we needed in telling our story, and the long-form option allowed us to roll out the right information so that consumers could absorb and process it,” says the company’s worldwide director for advertising and branding in the consumer digital group “DRTV gave us the flexibility to control our message.” In fact, the printers sold out during the campaign, with about half the callers closing on the purchase over the phone and another 30 percent of sales coming from the Web site promoted during the show.27 Infomercials provide toll-free telephone numbers so that viewers can order products or request more information Although infomercials may incur higher production costs than prime-time 30-second ads on national network TV, they generally air on less expensive cable channels and in late-night time slots on broadcast stations 509 510 part PROMOTIONAL DECISIONS ELECTRONIC DIRECT MARKETING CHANNELS Anyone who has ever visited the Web is abundantly aware of the growing number of commercial advertisements that now clutter their computer screen Web advertising is a recurring theme throughout this text, corresponding to its importance as a component of the promotional mix In fact, Chapter explained the vital role e-business now plays in contemporary marketing practices U.S spending on online advertising now represents almost percent of total advertising spending.28 Companies that were once skeptical—or at least slow to adopt online advertising— now embrace it Web advertising, however, is only one component of electronic direct marketing E-mail direct marketers have found that traditional practices used in print and broadcast media are easily adapted to electronic messaging You might receive e-mail notices from retailers from whom you’ve made past purchases, telling you about special promotions or new products Banner ads on your cell phone might offer “click to call” options for responding You might see a billboard or commercial promoting a code you can text to enter a sweepstakes or get a discount coupon.29 Experts agree that the basic rules for online direct marketing mirror those of traditional practices Any successful offline direct marketing campaign can be applied to e-mail promotions Electronic media deliver data instantly to direct marketers and help them track customer buying cycles quickly As a result, they can place customer acquisition programs online for less than the cost of traditional programs OTHER DIRECT MARKETING CHANNELS © AP Images/Microsoft Corp The North Face has added in-store kiosks to boost its product selection This kiosk screen display shows information a customer can gather Print media such as newspapers and magazines not support direct marketing as effectively as Web marketing and telemarketing However, print media and other traditional direct marketing channels are still critical to the success of all electronic media channels Magazine ads with toll-free telephone numbers enhance inbound telemarketing campaigns Companies can place ads in magazines or newspapers, include reader-response cards, or place special inserts targeted for certain market segments within the publications Newspapers are savvy about the Internet, producing online versions of their content that naturally include online, interactive ads Kiosks provide another outlet for electronic sales In its drive to transform its business, Blockbuster adapted in-store kiosks so customers can download movies for digital delivery Prototypes are fine-tuned to get the download time to 30 seconds, but special features like previews and recommendations are already in place.30 Popular sports clothing company The chapter 15 511 INTEGRATED MARKETING COMMUNICATIONS North Face has added in-store kiosks to boost its product assessment check selection “You can’t put a 15,000-square-foot assortment in a 3,300-square-foot box,” said the company’s vice Define sponsorship president of retail But on the kiosk, now available in How is sponsorship different from advertising? all North Face U.S stores, customers can not only see a full range of products but Define direct mail also watch videos of expeditions and famous What are the benefits of electronic direct marketing? athletes.31 Developing an Optimal Promotional Mix Discuss the factors that influence the effectiveness of a promotional mix By blending advertising, personal selling, sales promotion, and public relations to achieve marketing objectives, marketers create a promotional mix Because quantitative measures are not available to determine the effectiveness of each mix component in a given market segment, the choice of an effective mix of promotional elements presents one of the marketer’s most difficult tasks Several factors influence the effectiveness of a promotional mix: (1) the nature of the market, (2) the nature of the product, (3) the stage in the product lifecycle, (4) the price, and (5) the funds available for promotion NATURE OF THE MARKET The marketer’s target audience has a major impact on the choice of a promotion method When a market includes a limited number of buyers, personal selling may prove a highly effective technique However, markets characterized by large numbers of potential customers scattered over sizable geographic areas may make the cost of contact by personal salespeople prohibitive In such instances, extensive use of advertising often makes sense The type of customer also affects the promotional mix Personal selling works better in high-priced, high-involvement purchases—for instance, a target market made up of industrial purchasers or retail and wholesale buyers—than in a target market consisting of ultimate consumers Similarly, pharmaceuticals firms use large sales © AP Images/PRNewsFoto/SUBWAY Subway used direct marketing in the form of its popular spokesperson, Jared Fogle, who lost 245 pounds eating Subway sandwiches 512 part PROMOTIONAL DECISIONS forces to sell prescription drugs directly to physicians and hospitals, but they also advertise to promote over-the-counter and prescription drugs for the consumer market So the drug firm must switch its promotional strategy from personal selling to consumer advertising based on the market it is targeting Subway used direct marketing in the form of its popular spokesperson, Jared Fogle, who lost 245 pounds eating its sandwiches The company had Fogle record inspirational messages on its Web site, where consumers could sign up for a time to receive them Subway has faith that other ordinary people can also adopt healthier eating habits; it is one of the sponsors of the popular reality show “The Biggest Loser.” Contestants and their trainers visit Subway during TV segments to learn healthful food selection, which consumers can view at the show’s Web site, and the company also sponsors contests to win free trips to the filming of the show’s season finale.32 NATURE OF THE PRODUCT A second important factor in determining an effective promotional mix is the product itself Highly standardized products with minimal servicing requirements usually depend less on personal selling than custom products with technically complex features or requirements for frequent maintenance Marketers of consumer products are more likely to rely heavily on advertising than business products For example, soft drinks lend themselves more readily to advertising than large pieces of business machinery The “Marketing Success” feature describes a novel promotional strategy for a product that has to be seen to be believed Promotional mixes vary within each product category In the B2B market, for example, installations typically rely more heavily on personal selling than marketing of operating supplies In contrast, the promotional mix for a convenience product is likely to involve more emphasis on manufacturer advertising and less on personal selling On the other hand, personal selling plays an important role in the promotion of shopping products, and both personal and nonpersonal selling are important in the promotion of specialty items A personal-selling emphasis is also likely to prove more effective than other alternatives in promotions for products involving trade-ins STAGE IN THE PRODUCT LIFECYCLE The promotional mix must also be tailored to the product’s stage in the product lifecycle In the introductory stage, both nonpersonal and personal selling are used to acquaint marketing intermediaries and final consumers with the merits of the new product Heavy emphasis on personal selling helps inform the marketplace of the merits of the new good or service Salespeople contact marketing intermediaries to secure interest in and commitment to handling the newly introduced item Trade shows frequently are used to inform and educate prospective dealers and Spin Master Toys on Tour Background Sales in the $22 billion toy industry have declined, and the market is increasingly dominated by a few items that capitalize on familiar characters Those toys have expensive promotional campaigns to generate huge, if sometimes short-lived, success The Challenge Spin Master, an entrepreneurial Canadian company, wanted to promote its new Bakugan Battle Brawlers, a game in which players roll small plastic balls across magnetic cards that make the balls snap open and form into monster action figures It had no movie tie-ins, and children had to see it to understand its appeal Spin Master’s CEO says, “We look at each product and figure out, how are we going to create demand? Who is the target customer, and what is the most cost-effective way to reach them?” chapter 15 513 INTEGRATED MARKETING COMMUNICATIONS ultimate consumers about its merits over current competitive offerings Advertising and sales promotion are also used during this stage to create awareness, answer questions, and stimulate initial purchases As the product moves into the growth and maturity stages, advertising gains relative importance in persuading consumers to make purchases Marketers continue to direct personal-selling efforts at marketing intermediaries in an attempt to expand distribution As more competitors enter the marketplace, advertising begins to stress product differences to persuade consumers to purchase the firm’s brand In the maturity and early decline stages, firms frequently reduce advertising and sales promotion expenditures as market saturation is reached and newer items with their own competitive strengths begin to enter the market PRICE FUNDS AVAILABLE FOR PROMOTION A real barrier in implementing any promotional strategy is the size of the promotional budget A single 30-second television commercial during the Super Bowl telecast costs an advertiser $2.7 million While The Strategy The answer was to get some brightly colored vans, staff them with college interns, and send them out across Canada to promote the game at summer camps, discount stores, and fairgrounds, where children could see the toys in action Even though the Battle Brawlers were not yet available in stores, the idea was to get kids talking and encourage word-of-mouth excitement The Outcome Once the game appeared on store shelves, it quickly sold out and still periodically goes out of stock “They sell out the minute they hit the store shelves,” said a Toys ‘R’ Us spokesperson, who called Battle Brawlers “one of the genuine hits of the Athletes like Olympic swimming sensation Michael Phelps can earn millions of dollars in endorsements © Image courtesy of The Advertising Archives The price of an item is the fourth factor that affects the choice of a promotional mix Advertising dominates the promotional mixes for low-unit-value products due to the high per-contact costs in personal selling These costs make the sales call an unprofitable tool in promoting most lower-value goods and services Advertising, in contrast, permits a low promotional expenditure per sales unit because it reaches mass audiences For low-value consumer goods, such as chewing gum, soft drinks, and snack foods, advertising is the most feasible means of promotion Even shopping products can be sold at least partly on the basis of price On the other hand, consumers of high-priced items such as luxury cars expect lots of well-presented information from qualified salespeople High-tech direct marketing promotions such as video presentations on a laptop PC or via cell phone, fancy brochures, and personal selling by informed, professional salespeople appeal to these potential customers spring toy season.” Spin Master, which also marketed the famous remote-controlled Air Hog helicopters, has seen its sales grow more than 60 percent Spin Master’s CEO says, “We have a great pipeline of potential properties to work on Being able to think like a 5-yearold helps.” Sources: “Why Develop Concepts for the Specialty Market,” Discovery Channel, www discovergames.com, accessed August 5, 2008; “Spin Master Ltd.,” Hoover’s company profile, www.hoovers.com, accessed August 5, 2008; Douglas Quenqua, “To Create Its Hits, a Company Takes Its Toys on Tour,” The New York Times, June 9, 2008, www nytimes.com; Terry Poulton, “Spin Master Blitzing Kids with Bakugan,” Media in Canada, August 28, 2007, www.mediaincanada.com 514 t a bl e part PROMOTIONAL DECISIONS Factors Influencing Choice of Promotional Mix Emphasis Personal Selling Advertising Number of buyers Limited number Large number Geographic concentration Concentrated Dispersed Type of customer Business purchaser Ultimate consumer Complexity Custom-made, complex Standardized Service requirements Considerable Minimal Type of good or service Business Consumer Use of trade-ins Trade-ins common Trade-ins uncommon Nature of the market Nature of the product Stage in the product life cycle Often emphasized at every stage; heavy emphasis in the introductory and early growth stages in acquainting marketing intermediaries and potential consumers with the new good or service Often emphasized at every stage; heavy emphasis in the latter part of the growth stage, as well as the maturity and early decline stages, to persuade consumers to select specific brands Price Low unit value High unit value millions of viewers may see the commercial, making the cost per contact relatively low, such an expenditure exceeds the entire promotional budgets of thousands of firms, a dilemma that at least partially explains how guerrilla marketing got its start And if a company wants to hire a celebrity to advertise its goods and services, the fee can run into millions of dollars a year Athletes like Olympic swimming sensation Michael Phelps, LeBron James of the NBA’s Cleveland Cavaliers, and tennis star Maria Sharapova earn millions of dollars in endorsements each year Marketers estimate that Phelps’s eight gold medals could earn him $30 to assessment check $40 million in product endorsements Sharapova’s game winnings amounted to only $3.8 million of her $23 What are the five factors that affect the million earnings in a recent year James’s endorsements choice of a promotional mix? brought him about half his $27 million 33 Why is the choice of a mix a difficult task for for the same period Table 15.3 summamarketers? rizes the factors that influence the determination of an appropriate promotional mix Contrast pushing and pulling strategies pulling strategy Promotional effort by the seller to stimulate final-user demand, which then exerts pressure on the distribution channel pushing strategy Promotional effort by the seller directed to members of the marketing channel rather than final users Pulling and Pushing Promotional Strategies Marketers may implement essentially two promotional alternatives: a pulling strategy or a pushing strategy A pulling strategy is a promotional effort by the seller to stimulate final-user demand, which then exerts pressure on the distribution channel When marketing intermediaries stock a large number of competing products and exhibit little interest in any one of them, a firm may have to implement a pulling strategy to motivate them to handle its product In such instances, this strategy is implemented with the objective of building demand so consumers will request the product from retail stores Advertising and sales promotion often contribute to a company’s pulling strategy In contrast, a pushing strategy relies more heavily on personal selling Here the objective is promoting the product to the members of the marketing channel rather than to final users To achieve this goal, marketers employ cooperative-advertising allowances to channel members, chapter 15 515 INTEGRATED MARKETING COMMUNICATIONS trade discounts, personal-selling efforts by salespeople, and other dealer supports Such a strategy is designed to gain marketing success for the firm’s merchandise by motivating representatives of wholesalers and retailers to spend extra time and effort promoting the products to customers About half of manufacturers’ promotional budgets are allocated for cash incentives used to encourage retailers to stock their products Timing also affects the choice of promotional strategies The relative importance of advertising and selling changes during the various phases of the purchase process Prior to the actual sale, advertising usually is more important than personal selling However, one of the primary advantages of a successful advertising program is the support it gives the salesperson who approaches the prospective buyer for the first time Selling activities are more important than advertising at the time of purchase Personal selling provides the actual mechanism for closing most sales In the postpurchase period, advertising regains primacy in the promotional effort It affirms the customer’s decision to buy a particular good or service and, as pointed out in Chapter 5, reminds him or her of the product’s favorable qualities by reducing any cognitive dissonance that might occur The promotional strategies used by auto marketers illustrate this timing factor Car, truck, and SUV makers spend heavily on consumer advertising to create awareness before consumers begin the purchase process At the time of their purchase decisions, however, the personal-selling skills of dealer salespeople provide the most assessment check important tools for closing sales Finally, advertising is used frequently to maintain postpurchase satisfaction by What is a pulling strategy? citing awards such as Motor Trend ’s Car of the Year and results of J D Power’s customer satisfaction sur2 What is a pushing strategy? veys to affirm buyer decisions Budgeting for Promotional Strategy Promotional budgets may differ not only in amount but also in composition Business-to-business marketers generally invest larger proportions of their budgets in personal selling than in advertising, while the reverse usually is true of most producers of consumer goods Figure 15.1 shows estimated allocations of promotional budgets by consumer packaged-goods manufacturers Evidence suggests that sales initially lag behind promotional expenses for structural reasons— funds spent filling up retail shelves, boosting low initial production, and supplying buyer information This fact produces a threshold effect in which few sales may result from substantial initial investments in promotion A second phase might produce sales proportionate to promotional expenditures—the most predictable range Finally, promotion reaches the area of diminishing returns, in which an increase in promotional spending fails to produce a corresponding increase in sales For example, an initial expenditure of $40,000 may result in sales of 100,000 units for a consumer-goods manufacturer An additional $10,000 expenditure during the second phase may generate sales of 40,000 more units, and another $10,000 may produce sales of an additional 30,000 units The cumulative effect of the expenditures and repeat sales will have generated increasing returns from the promotional outlays However, as the advertising budget moves from $60,000 to $70,000, the marginal productivity of the Media additional expenditure may fall to 25,000 units At some Advertising later point, the return may actually become zero or negative Trade 20% as competition intensifies, markets become saturated, and Promotion marketers employ less expensive advertising media 60% The ideal method of allocating promotional funds Consumer would increase the budget until the cost of each addiPromotion tional increment equals the additional incremental revenue 20% received In other words, the most effective allocation procedure increases promotional expenditures until each dollar of promotional expense is matched by an additional dollar of Explain how marketers budget for and measure the effectiveness of promotion figure 15.1 Manufacturers’ Promotional Budgets for Consumer Packaged Goods Source: Data from Tom Pirovano, “Money Well Spent?: Trade Promotions in the U.S.,” Nielsen Consumer Insight Magazine, Issue 6, January 2008, www.nielsen.com 516 part PROMOTIONAL DECISIONS profit This procedure, referred to as marginal analysis, maximizes the input’s productivity The difficulty arises in identifying the optimal point, which requires a precise balance between marginal expenses for promotion and the resulting marginal receipts In addition, as marketing communications become more integrated, it becomes harder to identify exact amounts that companies spend on individual elements of promotion Traditional methods used for creating a promotional budget include the percentage-of-sales and fixed-sum-per-unit methods, along with techniques for meeting the competition and achieving task objectives Each method is briefly examined in Table 15.4 The percentage-of-sales method is perhaps the most common way of establishing promotional budgets The percentage can be based on sales either from some past period (such as the previous year) or forecasted for a future period (the current year) While this plan is appealingly simple, it does not effectively support the achievement of basic promotional objectives Arbitrary percentage allocations can’t provide needed flexibility In addition, sales should depend on promotional allocation rather than vice versa The fixed-sum-per-unit method allocates a predetermined amount to each sales or production unit This amount can also reflect either historical or forecasted figures Producers of high-value consumer durable goods, such as automobiles, often use this budgeting method Another traditional budgeting approach, the meeting competition method, simply matches competitors’ outlays, either in absolute amounts or relative to the firms’ market shares But this method doesn’t help a company gain a competitive edge A budget appropriate for one company may not be appropriate for another The task-objective method develops a promotional budget based on a sound evaluation of the firm’s promotional objectives The method has two steps: The firm’s marketers must define realistic communication goals that they want the promotional mix to achieve Say that a firm wants to achieve a 25 percent increase in brand awareness This step quantifies the objectives that promotion should attain These objectives in turn become integral parts of the promotional plan Then the company’s marketers determine the amount and type of promotional activity required for each objective they have set Combined, these units become the firm’s promotional budget A crucial assumption underlies the task-objective approach: marketers can measure the productivity of each promotional dollar That assumption explains why the objectives must be carefully chosen, quantified, and accomplished through promotional efforts Generally, budgeters should avoid general marketing objectives such as, “We want to achieve a percent increase in sales.” A sale is a culmination of the effects of all elements of the marketing mix A more t a bl e Promotional Budget Determination Method Description Example Percentage-of-sales method Promotional budget is set as a specified percentage of either past or forecasted sales “Last year we spent $1 million on promotion and had sales of $20 million Next year we expect sales to grow to $30 million, so we are keeping our promotion allocation to percent of expected sales, upping it to $1.5 million.” Fixed-sum-per-unit method Promotional budget is set as a predetermined dollar amount for each unit sold or produced “Our forecast calls for sales of 14,000 units, and we allocate promotion at the rate of $65 per unit.” Meeting competition method Promotional budget is set to match competitor’s pro“Promotional outlays average percent of sales in our motional outlays on either an absolute or relative basis industry We will match this percentage.” Task-objective method Once marketers determine their specific promotional objectives, the amount (and type) of promotional spending needed to achieve them is determined “By the end of next year, we want 75 percent of the area high school students to be aware of our new, highly automated fast-food prototype outlet How many promotional dollars will it take, and how should they be spent?” chapter 15 517 INTEGRATED MARKETING COMMUNICATIONS appropriate promotional objective might be, “We want to achieve an percent response rate from a targeted direct-mail advertisement.” Promotional budgeting always requires difficult decisions Still, recent research studies and the spread of computer-based models have made it a more manageable problem than it used to be Measuring the Effectiveness of Promotion Marketers know that part of a firm’s promotional effort is ineffective Evaluating the effectiveness of a promotion today is a far different exercise in marketing research than it was even a few decades ago For years, marketers depended on store audits conducted by large organizations such as ACNielsen Other research groups conducted warehouse withdrawal surveys of shipments to retail customers These studies were designed to determine whether sales had risen as a direct result of a particular promotional campaign During the 1980s, the introduction of scanners and automated checkout lanes completely changed marketing research For the first time, retailers and manufacturers had a tool to obtain sales data quickly and efficiently The problem was that the collected data was used for little else other than determining how much of which product was bought at what price and at what time By the 1990s, marketing research entered another evolutionary period with the advent of the Internet Now marketing researchers can delve into each customer’s purchase behavior, lifestyle, preferences, opinions, and buying habits All this information can also be obtained in a matter of seconds Consulting firm Accenture relies on computer modeling to perform “what if ” analysis, helping its clients use trade promotion management to find out how best to spend their promotional budgets The analysis breaks results down by customer segment, customer type, product brand, and type of promotion In one product category, Heinz saved nearly $1 million while still growing sales by reducing inefficient spending, which the analysis revealed.34 The next section explains the impact of electronic technologies on measuring promotional effectiveness However, marketers today still depend on two basic measurement tools: direct sales results tests and indirect evaluations Most marketers would prefer to use a direct sales results test to measure the effectiveness of promotion Such an approach would reveal the specific impact on sales revenues for each dollar of promotional spending This type of technique has always eluded marketers, however, because of their inability to control other variables operating in the marketplace A firm may receive $20 million in additional sales orders following a new $1.5 million advertising campaign, but the market success may really have resulted from the products’ benefiting from more intensive distribution as more stores decide to carry them or price increases for competing products rather than from the advertising outlays Marketers often encounter difficulty isolating the effects of promotion from those of other market elements and outside environmental variables Indirect evaluation helps researchers concentrate on quantifiable indicators of effectiveness, such as recall—how much members of the target market remember about specific products or advertisements—and readership—size and composition of a message’s audience The basic problem with indirect measurement is the difficulty in relating these variables to sales Will the fact that many people read an ad lead directly to increased sales? Marketers need to ask the right questions and understand what they are measuring Promotion to build sales volume produces measurable results in the form of short-term returns, but brandbuilding programs and efforts to generate or enhance consumers’ perceptions of value in a product, brand, or organization cannot be measured over the short term MEASURING ONLINE PROMOTIONS The latest challenge facing marketers is how to measure the effectiveness of electronic media Early attempts at measuring online promotional effectiveness involved counting hits, user requests for a file, and visits, pages downloaded or read in one session But as Chapter explained, it takes more than counting “eyeballs” to measure online promotional success What matters is not how many times a Web site is visited but how many people actually buy something Traditional numbers that work for other media forms are not necessarily relevant indicators of effectiveness for a Web site For one thing, the Web combines both advertising and direct marketing Web pages effectively bri efly speaking “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” —John Wanamaker (1838–1922) U.S RETAILER 518 part PROMOTIONAL DECISIONS integrate advertising and other content, such as product information, that may often prove to be the page’s main—and most effective—feature For another consideration, consumers generally choose the advertisements they want to see on the Internet, whereas traditional broadcast or print media automatically expose consumers to ads One way marketers measure performance is by incorporating some form of direct response into their promotions This technique also helps them compare different promotions for effectiveness and rely on facts rather than opinions Consumers may say they will try a product when responding to a survey question yet not actually buy it A firm may send out three different direct-mail offers in the same promotion and compare response rates from the groups of recipients receiving each alternative An offer to send for a sample may generate a 75 percent response rate, coupons might show a 50 percent redemption rate, and rebates might appeal to only 10 percent of the targeted group The two major techniques for setting Internet advertising rates are cost per impression and cost per response Cost per impression is a measurement technique that relates the cost of an ad to every thousand people who view it In other words, anyone who sees the page containing the banner or other form of ad creates one impression This measure assumes the site’s principal purpose is to display the advertising message Cost per response, or click-throughs, is a direct marketing technique that relates the cost of an ad to the number of people who click it However, not everyone who clicks on an ad makes a purchase So the converassessment check sion rate measurement was developed—the percentage What is the most common way of establishing of Web site visitors who actually make a purchase All a promotional budget? three rating techniques have merit Site publishers point out that click-through rates are influenced What is the task-objective budgeting method? by the creativity of the ad’s mesDescribe its two steps sage Advertisers, on the other What is the direct sales results test? hand, point out that the Web ad has value to those who click it for What is indirect evaluation?v additional information Discuss the value of marketing communications brs peaking iefl y “Let advertisers spend the same amount of money improving their product that they on advertising and they wouldn’t have to advertise it.” —Will Rogers (1879–1935) AMERICAN HUMORIST AND SOCIAL COMMENTATOR The Value of Marketing Communications The nature of marketing communications is changing as new formats transform the traditional idea of an advertisement or sales promotion Sales messages are now placed subtly, or not so subtly, in movies and television shows, blurring the lines between promotion and entertainment and changing the traditional definition of advertising Messages show up at the beach in the form of skywriting, in restrooms, on stadium turnstiles, on buses, and even on police cars Despite new tactics by advertisers, promotion often has been the target of criticism Some people complain that it offers nothing of value to society and simply wastes resources Others criticize promotion’s role in encouraging consumers to buy unnecessary items they cannot afford Many ads seem to insult people’s intelligence or offend their sensibilities, and they criticize the ethics—or lack thereof—displayed by advertisers and salespeople New forms of promotion are considered even more insidious because marketers are designing promotions that bear little resemblance to paid advertisements Many of these complaints cite issues that constitute real problems Some salespeople use unethical sales tactics Some product advertising hides its promotional nature or targets consumer groups that can least afford the advertised goods or services Many television commercials contribute to the growing problem of cultural pollution One area that has sparked both criticism and debate is promotion aimed at children While promotion can certainly be criticized on many counts, it also plays a crucial role in modern society This point is best understood by examining the social, business, and economic importance of promotion SOCIAL IMPORTANCE We live in a diverse society characterized by consumer segments with differing needs, wants, and aspirations What one group finds tasteless may be quite appealing to another But diversity is one of the benefits of living in our society because it offers us many choices and opportunities 519 INTEGRATED MARKETING COMMUNICATIONS Promotional strategy faces an averaging problem that escapes many of its critics The one generally accepted standard in a market society is freedom of choice for the consumer Consumer buying decisions eventually determine acceptable practices in the marketplace Promotion has also become an important factor in campaigns aimed at achieving social objectives Advertising agencies donate their expertise in creating public service announcements (PSAs) aimed at promoting such important causes as stopping drug abuse or supporting national parks The Ad Council coordinates a program to raise awareness of the health of the earth’s oceans that includes the National Marine Sanctuary Foundation, the National Oceanic and Atmospheric Administration, and the U.S Department of the Interior Public service announcements feature characters from Disney’s classic film The Little Mermaid—Disney is a volunteer participant in the campaign—and refer viewers to the related Web site, www.keepoceansclean.org.35 Promotion performs an informative and educational task crucial to the functioning of modern society As with everything else in life, what is important is how promotion is used rather than whether it is used © AP Images/PRNewsFoto/Templin Brink Design chapter 15 Advertising agencies donate their expertise in creating public service announcements aimed at promoting such important causes as stopping drug abuse BUSINESS IMPORTANCE Promotional strategy has become increasingly important to both large and small business enterprises The well-documented, long-term increase in funds spent on promotion certainly attests to management’s faith in the ability of promotional efforts to encourage attitude changes, brand loyalty, and additional sales It is difficult to conceive of an enterprise that would not attempt to promote its offerings in some manner Most modern institutions simply cannot survive in the long run without promotion Business must communicate with its publics Nonbusiness enterprises also recognize the importance of promotional efforts The Government Accountability Office (GAO) reports that federal ad spending tops $1 billion, much of it spent for recruiting purposes by five agencies—the Departments of Defense, Health and Human Services, and the Interior; the Treasury; and the National Aeronautics and Space Administration (NASA).36 bri efly speaking “Early to bed, early to rise, work like hell, and advertise.” ECONOMIC IMPORTANCE Promotion has assumed a degree of economic importance because it provides employment for millions of people More important, however, effective promotion has allowed society to derive benefits not otherwise available For example, the criticism that promotion costs too much isolates an individual expense item and fails to consider its possible beneficial effects on other categories of expenditures Promotional strategies increase the number of units sold and permit economies of scale in the production process, thereby lowering the production costs for each unit of output Lower unit costs allow lower consumer prices, which in turn make products available to more people Similarly, advertising subsidizes the information content of newspapers and assessment check the broadcast media In short, promotion pays Identify the three areas in which promotion for many of the enjoyable entertainment and eduexerts influence cational opportunities in contemporary life as it lowers product costs —Laurence J Peter (1919–1990) AMERICAN AUTHOR 520 part w ith the incredible proliferation of promotional messages in the media, today’s marketers—consumers themselves—must find new ways to reach customers without overloading them with unnecessary or unwanted communications Guerrilla marketing has emerged as an effective strategy for large and small companies, but ambush marketing has raised ethical concerns Product placement has gained popularity in movies, television shows, and video games In addition, it is difficult to overstate the impact of the Internet on the promotional mix of 21st-century marketers—for small and large companies alike Even individual entrepreneurs find the Internet to be a lucrative launchpad for their enterprises PROMOTIONAL DECISIONS But even though cyberspace marketing has been effective in business-to-business transactions and, to a lesser extent, for some types of consumer purchases, a major source of Internet revenues is advertising Integrating marketing communications into an overall consumer-focused strategy that meets a company’s promotional and business objectives has become more and more critical in the busy global marketplace Chapter 16 will examine specific ways marketers can use advertising and public relations to convey their messages; then Chapter 17 will discuss personal selling, sales force management, and sales promotion in the same manner Review of Chapter Objectives Explain how integrated marketing communications relates to the development of an optimal promotional mix Integrated marketing communications (IMC) refers to the coordination of all promotional activities to produce a unified, customerfocused promotional message Developing an optimal promotional Describe the communication process and how it relates to the AIDA concept In the communication process, a message is encoded and transmitted through a communications channel; then it is decoded, or interpreted by the receiver; finally, the receiver provides feedback, which completes the system The AIDA concept (attention, interest, desire, action) explains the steps through which a person reaches a purchase decision after being exposed to a promotional message The marketer sends the promotional message, and the consumer receives and responds to it via the communication process Explain how the promotional mix relates to the objectives of promotion The objectives of promotion are to provide information, stimulate demand, differentiate a product, accentuate the value of a product, and stabilize sales The promotional mix, which is the blend mix involves selecting the personal and nonpersonal selling strategies that will work best to deliver the overall marketing message as defined by IMC of numerous variables intended to satisfy the target market, must fulfill the overall objectives of promotion Identify the different elements of the promotional mix and explain how marketers develop an optimal promotional mix The different elements of the promotional mix are personal selling and nonpersonal selling (advertising, product placement, sales promotion, direct marketing, and public relations) Guerrilla marketing is frequently used by marketers with limited funds and firms attempting to attract attention for new-product offerings with innovative promotional approaches Marketers develop the optimal mix by considering the nature of the market, the nature of the product, the stage in the product lifecycle, price, and funds available for promotion chapter 15 Describe the role of sponsorships and direct marketing in integrated marketing communications Sponsorship, which occurs when an organization provides money or in-kind resources to an event or activity in exchange for a direct association with the event or activity, has become a hot trend in promotion The sponsor purchases access to an activity’s audience and the image associated with the activity, both of which contribute to the overall promotional message delivered by a firm Direct either direct sales results tests or indirect evaluation to measure effectiveness Both methods have their benefits and drawbacks because of the difficulty of controlling variables Discuss the value of marketing communications Despite a number of valid criticisms, marketing communications provide socially important messages, are important to businesses, and have economic importance As with every communication in assessment check: 1.1 to channel members rather than final users To this, they rely heavily on personal selling Explain how marketers budget for and measure the effectiveness of promotion Marketers may choose among several methods for determining promotional budgets, including percentage-of-sales, fixed-sumper-unit, meeting competition, or task-objective, which is considered the most flexible and most effective Today, marketers use nature of the market, (2) the nature of the product, (3) the stage in the product lifecycle, (4) price, and (5) the funds available for promotion Contrast pushing and pulling strategies In a pulling strategy, marketers attempt to stimulate final-user demand, which then exerts pressure on the distribution channel In a pushing strategy, marketers attempt to promote the product marketing involves direct communication between a seller and a B2B or final customer It includes such promotional methods as telemarketing, direct mail, direct-response advertising and infomercials on TV and radio, direct-response print advertising, and electronic media Discuss the factors that influence the effectiveness of a promotional mix Marketers face the challenge of determining the best mix of components for an overall promotional strategy Several factors influence the effectiveness of the promotional mix: (1) the 521 INTEGRATED MARKETING COMMUNICATIONS society, it is important to consider how promotion is used rather than whether it is used at all answers Define promotion Promotion is the function of informing, persuading, and influencing the consumer’s purchase decision 1.2 What is the difference between marketing communications and integrated marketing communications (IMC)? Marketing communications are messages that deal with buyer–seller relationships, from a variety of media IMC coordinates all promotional activities to produce a unified, customer-focused promotional message 2.1 What are the three tasks accomplished by an effective message? An effective message gains the receiver’s attention; it achieves understanding by both receiver and sender; and it stimulates the receiver’s needs and suggests an appropriate method of satisfying them 2.2 Identify the four steps of the AIDA concept The four steps of the AIDA concept are attention, interest, desire, and action 522 part 2.3 PROMOTIONAL DECISIONS What is noise? Noise represents interference at some stage in the communication process 3.1 What are the objectives of promotion? The objectives of promotion are to provide information to consumers and others, to increase demand, to differentiate a product, to accentuate a product’s value, and to stabilize sales 3.2 Why is product differentiation important to marketers? Product differentiation, distinguishing a good or service from its competitors, is important to marketers because they need to create a distinct image in consumers’ minds If they can so, they can then exert more control over variables such as price 4.1 Differentiate between personal selling and nonpersonal selling Personal selling involves a promotional presentation conducted on a person-to-person basis with a buyer Nonpersonal selling involves communication with a buyer in any way other than on a person-to-person basis 4.2 What are the six major categories of nonpersonal selling? The six major categories of nonpersonal selling are advertising, product placement, sales promotion, direct marketing, public relations, and guerrilla marketing 5.1 Define sponsorship Sponsorship occurs when an organization pays money or in-kind resources to an event or activity in exchange for a direct association with that event or activity 5.2 How is sponsorship different from advertising? Although sponsorship generates brand awareness, the sponsor has little control over the message or even the coverage, unlike advertising 5.3 Define direct mail Direct mail is communications in the form of letters, postcards, brochures, and catalogs containing marketing messages and sent directly to a customer or potential customer 5.4 What are the benefits of electronic direct marketing? Electronic media deliver data instantly to direct marketers and help them track customer buying cycles quickly 6.1 What are the five factors that affect the choice of a promotional mix? The five factors affecting the choice of a promotional mix are the nature of the market, the nature of the product, the stage in the product lifecycle, price, and the funds available for promotion 6.2 Why is the choice of a mix a difficult task for marketers? The choice of a mix is difficult because no quantitative measures are available to determine the effectiveness of each component in a given market segment 7.1 What is a pulling strategy? A pulling strategy is a promotional effort by the seller to stimulate final-user demand chapter 15 7.2 523 INTEGRATED MARKETING COMMUNICATIONS What is a pushing strategy? A pushing strategy is an effort to promote a product to the members of the marketing channel 8.1 What is the most common way of establishing a promotional budget? The most common method of establishing a promotional budget is the percentage-of-sales method 8.2 What is the task-objective budgeting method? Describe its two steps The task-objective method develops a promotional budget based on an evaluation of the firm’s promotional objectives Its two steps are defining realistic communication goals and determining the amount and type of promotional activity required for each objective 8.3 What is the direct sales results test? The direct sales results test reveals the specific impact on sales revenues for each dollar of promotional spending 8.4 What is indirect evaluation? Indirect evaluation helps researchers concentrate on quantifiable indicators of effectiveness 9.1 Identify the three areas in which promotion exerts influence The three areas in which promotion exerts influence are society, business, and the economy Marketing Terms You Need to Know promotion 490 marketing communications 490 integrated marketing communications (IMC) 490 AIDA concept 493 promotional mix 500 sales promotion 502 direct marketing 502 public relations 503 guerrilla marketing 503 sponsorship 505 pulling strategy 514 pushing strategy 514 Other Important Marketing Terms sender 493 message 493 encoding 494 decoding 494 feedback 494 noise 494 channel 494 primary demand 498 selective demand 498 product differentiation 499 personal selling 500 nonpersonal selling 501 advertising 501 product placement 501 trade promotion 502 publicity 503 ambush marketing 506 direct mail 507 telemarketing 508 home shopping channel 509 infomercial 509 percentage-of-sales method 516 fixed-sum-per-unit method 516 meeting competition method 516 task-objective method 516 direct sales results test 517 indirect evaluation 517 cost per impression 518 cost per response (click-throughs) 518 conversion rate 518 public service announcements (PSAs) 519 524 part PROMOTIONAL DECISIONS Assurance of Learning Review a b c d e What is the role of integrated marketing communications (IMC) in a firm’s overall marketing strategy? When executed well, what are its benefits? Describe the five stages of communication What is the difference between primary demand and selective demand? How does the nature of the market for a firm’s goods or services affect the choice of a promotion method? Differentiate between advertising and product placement Which you think is more effective, and why? What is the difference between a pushing strategy and a pulling strategy? What are the benefits and drawbacks of publicity? Why is sponsorship such an important part of a firm’s IMC? vacation time share denim jacket custom-made bracelet lawn care service magazine subscription 10 What are two major ways of setting Internet advertising rates, and how they work? For each of the following goods and services, indicate which direct marketing channel or channels you think would be best: Projects and Teamwork Exercises Not-for-profit organizations rely on IMC just as much as forprofit firms The Egyptian government, which owns the remains and artifacts of boy pharaoh King Tutankhamun, has sent the King Tut collection on a worldwide tour of selected nations and museums Many organizers—including National Geographic and museums such as the Los Angeles County Museum of Art—were involved in a multimillion-dollar marketing campaign promoting the exhibit, titled Tutankhamun and the Golden Age of the Pharaohs On your own or with a classmate, conduct online research to learn how museums and other organizers have used IMC to promote this or other tours Present your findings to the class make you desire the product, and spur you toward a purchase Present your findings to the class Watch a television show and see how many products you can find placed within the show Present your findings to the class With a classmate, choose a good or service you think could benefit from guerrilla marketing Imagine you have a limited promotional budget, and come up with a plan for a guerrilla approach Outline several ideas and explain how you plan to carry them out Present your plan to the class Evaluate two or three pieces of direct mail you received recently Which items caught your attention and perhaps made you save the mailing? Which items did you toss in the trash without even opening or considering beyond an initial glance? Why? Identify a corporate sponsorship for a cause or program in your area, or find a local company that sponsors a local charity or other organization What you think the sponsor is gaining from its actions? Be specific What does the sponsored organization receive? Do you think this sponsorship is good for your community? Explain On your own or with a classmate, select a print advertisement that catches your attention and analyze it according to the AIDA concept (attention, interest, desire, action) Identify features of the ad that catch your attention, pique your interest, Critical-Thinking Exercises Choose one of the following products and discuss what you think the objective(s) of promotion should be for the product: a b c d beef Kraft Macaroni & Cheese Toyota Prius Verizon cell phone service chapter 15 525 INTEGRATED MARKETING COMMUNICATIONS What are some of the advantages and disadvantages of using a celebrity spokesperson to promote a good or service? How might this affect a firm’s public relations efforts? Take a careful look at a direct-mail catalog you have received recently Who is the audience for the products? Did the firm target you correctly or not? Describe a public service announcement you have seen recently Do you believe the announcement will help the organization achieve its goals? Why or why not? Do you think that because they are unsolicited, pop-up ads are also intrusive? Are they an invasion of privacy? Explain your reasoning Do you consider the use of pop-up ads to be unethical? Why or why not? AIDA Visit the Web sites of at least three different retailers How does each apply the AIDA (attention, interest, desire, action) concept discussed in the chapter? Has one, in your opinion, been more successful than the others? If so, why? Ethics Exercise Pop-up ads, those unsolicited messages that sometimes pop onto your computer screen and block the site or information you’re looking for until you close or respond to them, are inexpensive to produce and cost nearly nothing to send But they are so annoying to some computer users that dozens of special programs have been written to block them from appearing on the screen during Internet use Internet Exercises Guerrilla marketing Visit the Web site of Guerrilla Marketing International (www.gmarketing.com) Research at least two examples of how guerrilla marketing can fit into a firm’s overall integrated marketing communication strategy Print and bring relevant material to class so you can participate in a group discussion on the subject Sponsorships Many companies use sponsorships as an important component of their integrated marketing communication strategy One such company is Bank of America Go to the Web site listed here (bankofamerica.com/sponsorships/ ) and prepare a report on how Bank of America uses sponsorships as part of its IMC strategy Note: Internet Web addresses change frequently If you don’t find the exact sites listed, you may need to access the organization’s or company’s home page and search from there or use a search engine such as Google 526 part PROMOTIONAL DECISIONS Case 15.1 Dubai Metro: Naming Rights Take a New Turn The use of naming rights as a marketing communications tool goes back over half a century, when Anheuser-Busch proposed renaming Sportsman’s Park Budweiser Stadium The resident St Louis Cardinals rejected the idea but approved the name Busch Stadium, which Anheuser-Busch followed up with a new product called Busch Bavarian Beer FedEx Field in Washington, D.C., Minute Maid Park in Houston, The American Airlines Theater in New York, Coca-Cola Stadium in Xi’an, China, and the Sony Center for the Performing Arts in Toronto are just a few of the many recent multimillion-dollar naming deals, and plenty more are on the way Perhaps none has attracted as much attention, however, as the Dubai Metro Project in the Middle East In full-page magazine ads in the United States and Europe, the Dubai Roads and Transport Authority (RTA) announced its lease offer of naming rights to the two lines and about half the 47 stations in its new metro system, a flagship project under construction The rights, which the RTA calls “the ultimate branding and marketing opportunity” with “unmatched impact and visibility,” will be available for at least 10 years, beginning with the 2009–2010 opening of the Metro, and the fees will help pay for the construction of the named stations The remaining stations will be named for historic areas and landmarks in the rapidly growing city on the Persian Gulf “Within two weeks of launching the Dubai Metro Naming Rights project, more than 250 companies have expressed interest in getting the branding of metro stations in their name,” says the RTA’s chief executive Another 120 submitted Request for Information forms “These companies range from larger property and business firms and local and international banks, through to large multinational blue-chip corporations.” The companies are headquartered in Japan, Greece, Spain, the United Kingdom, and India, among others With bids starting at over $1.6 million a year, naming rights for at least eight stations have already been leased The Metro, an automatic, driverless rail system, will have stations both above ground and underground and is expected to carry about 600,000 passengers a day, with a maximum capacity of twice that number Some Dubai residents oppose the leasing of naming rights on the grounds that the United Arab Emirates (UAE), of which Dubai is the main city, should instead name stations after prominent citizens and nearby landmarks But a professor at UAE University says, “We are in a stage of globalization and all that it entails, including the mixing of cultures, civilizations, and nationalities As long as the names don’t contradict the values of the nation, there’s nothing wrong with the idea.” Questions for Critical Thinking What kind of companies you think will be interested in leasing naming rights to the Dubai Metro stations? What benefits will they gain? Are there any drawbacks to the plan from the companies’ point of view? Following the RTA’s announcement, the Toronto Transit Commission floated the idea of offering naming rights to some of the stations in Toronto’s Metro system Do you think the idea would work as well in an established system where familiar station names would be changed, as in a new system such as Dubai’s? Why or why not? Sources: Metro Naming Rights Web site, www.metronamingrights.com, accessed August 5, 2008; “Dubai Branding a Model for Others,” Business24/7, August 5, 2008, www.business24-7.ae; Abbas Al Lawati, “To Name or Not to Name?” Gulf News, July 2, 2008, www.gulfnews.com; “Naming Rights: The Good, the Bad and the Ugly,” Kipp Report, April 16, 2008, www.kippreport.com; “Dubai Metro Gets Huge Response to Branding Offer,” Gulf News, April 15, 2008, archive.gulfnews.com; “Indian Firms Keen on Dubai Metro Naming Rights,” The Economic Times, April 15, 2008, economictimes.indiatimes.com; “Dubai Metro Construction Still on Track for New Year,” Gulf News, January 8, 2008, archive.gulfnews.com chapter 15 INTEGRATED MARKETING COMMUNICATIONS Video Case 15.2 Integrated Marketing Communications at Ogden Publications The written video case on Ogden Publications appears on page VC-14 The Ogden Publications video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 527 528 16 TER Public Relations Permission from Aflac to use ad CHAP Advertising and Aflac Takes a Quack at the Business Market Who could miss the ads? If you watch TV at all, you have seen the spots with the wacky duck quacking at uninformed consumers about the benefits of Aflac’s insurance—including accident, short-term disability, hospital intensive care, and long-term care In fact, Aflac, which stands for American Family Life Assurance Company, is probably better known for its TV commercials than for its products It’s hard to generate excitement about insurance, let alone make it funny, creative, and endearing But the Aflac duck has managed to quack and waddle its way into the hearts and minds of millions of viewers Aflac has expanded its reach by creating alliances with other businesses Recently, the duck and NASCAR driver Carl Edwards teamed up in a sponsorship deal and a series of commercials that debuted 529 ADVERTISING AND PUBLIC RELATIONS during Fox Network’s broadcast of the Sprint Cup race in Atlanta, then later aired on ABC, CBS, NBC, A&E, CNBC, and Discovery Called “Feathers,” the series is actually the 34th advertising spot featuring the duck At the end of the commercial, the duck mimics Edwards’s traditional flip after winning a race, and the feathers fly In addition, the multiyear sponsorship agreement between Edwards and Aflac features a car with a new color scheme— mostly black—designed to grab the attention of fans at the racetrack Aflac president Paul Amos II noted, “Obviously, this is all about selling more insurance We’re hitting three key groups here First, we’re hitting all the consumers who are coming to the races and watching the races Second, we’re having an opportunity to entertain and work with business clients that are not associated with NASCAR and last, we’ll get an opportunity with the largest businesses in America that associate themselves with NASCAR.” Aflac is also targeting businesses with an advertising campaign called “Aflac for Business.” The new business-to-business series is meant for business owners and benefits coordinators for larger companies The campaign includes TV commercials and print ads, as well as online and radio spots informing businesses about the ways Aflac can provide benefits for companies of all sizes The ads feature the Aflac duck in a variety of business settings, including a hospital nursery, the garage of a car mechanic, and an ice cream shop The duck advises business owners about the ways Aflac insurance can help attract and retain the best employees and its policies can be used as add-ons to existing insurance plans at no direct cost to the company “The objective [of these ads] is to communicate to business decision makers that Aflac offers insurance products and services they will find of value to attract and retain employees, add benefits to their current package and possibly save them dollars,” notes the vice president of marketing services at Aflac If previous successes are any indication, the latest installment of duck ads should create a noisy flap in the business market.1 Identify the three major advertising objectives and the two basic categories of advertising List the major advertising strategies Describe the process of creating an advertisement Identify the major types of advertising appeals and discuss their uses List and compare the major advertising media Outline the organization of the advertising function and the role of an advertising agency Explain the roles of cross-promotion, public relations, publicity, and ethics in an organization’s promotional strategy Explain how marketers assess promotional effectiveness Aflac was founded in 1955 by brothers John, Paul, and Bill Amos But it wasn’t until decades later—when ad agency The Kaplan Thaler Group came up with the Aflac duck to speak for the company—that the firm became a household name The duck is now synonymous with the company, and vice versa Aflac uses the brand strength of the duck in a variety of ways, in addition to the popular TV commercials evolution of a brand • The paint scheme for NASCAR driver Carl Edwards’s car is a flashy black, green, and blue with a feather design that should grab spectators’ attention “The new paint scheme exudes tremendous energy, speed, and stealth, and showcases the Aflac duck and signature feather design,” notes Paul Amos II, president and CEO of the company “We anticipate the new design to be a fan favorite.” Paul Amos II and other company executives routinely travel with stuffed ducks—to give away—and wear neckties with ducks on them, even to serious meetings and interviews In what other ways you think Aflac could use the duck to strengthen its brand? Could any other industry or company benefit from use of a similar symbol? If so, which? Objectives chapter 16 530 part PROMOTIONAL DECISIONS evolution of a brand continued • The Aflac duck is also an important factor in fund-raising for charitable causes such as fighting pediatric cancer Through an agreement with Macy’s, the “Aflac Holiday Duck” program sells specially designed stuffed ducks in Macy’s retail stores and on the firm’s Web site (www.aflac.com) One hundred percent of the proceeds go to hospitals specializing in cancer treatment across the country, and nearly $2 million has been raised for childhood cancer research and treatment How effective you think the Aflac duck is as a symbol for the company’s charitable efforts? Does the company risk anything in using the duck so often in its communications with the public? Why or why not? chapter overview the airline’s seatback trays because consumers can’t go to a store to purchase OnStar, so From the last chapter, you already know the GM needs to go where they are to deliver its nonpersonal elements of promotion include message.2 advertising and public relations Thousands Other firms are banking on reaching of organizations rely on nonpersonal selling consumers by beaming ads directly to their to develop their promotional mixes and inte- Bluetooth-enabled cell phones Marketers grated marketing communications strategies hope the popularity of cell phones will help Advertising is the most visible form of nonper- them reach younger consumers, who are sonal promotion, as witnessed by the success spending less time with traditional advertising of the Aflac duck, and marketers often use it media such as television, newspapers, and together with sales promotion (discussed magazines Even not-for-profit organiza- in the next chapter) to create effective pro- tions like the Smithsonian Institution are motional campaigns Television is probably experimenting with this medium Two of the the most obvious medium for nonpersonal Smithsonian’s art galleries now send mes- selling dollars But marketers are becoming sages to consumers’ cell phone screens, pro- increasingly creative in identifying new or moting visiting exhibitions that run for specific unusual media through which to deliver their periods of time.3 messages General Motors has advertised its Marketers seeking excitement for new- Turn-by-Turn OnStar navigation service on product launches—and the rejuvenation the seatback trays of U.S Airways flights The of older products—pay millions for celebri- ad compares OnStar to an airplane copilot ties to promote their products Glow by Jlo OnStar’s marketing director says his firm chose spawned a wave of new celebrity fragrances, chapter 16 531 ADVERTISING AND PUBLIC RELATIONS while Nicole Kidman became the new face objectives It then considers alternative adver- of the classic Chanel No perfume Teenage tising strategies and the process of creating singer Rihanna signed on to promote Totes an advertisement Next, we provide a detailed umbrellas by singing a tune called “Umbrella” look at various advertising media channels: that actually became a Grammy-winning hit television, radio, print advertising, direct Rihanna insisted that Totes create a special mail, and outdoor and interactive media The line of umbrellas in her honor, with sparkly chapter then focuses on the importance of fabrics and glittering charms hanging from public relations, publicity, and cross-promo- the handles Sales of the umbrellas, like the tions Alternative methods of measuring the song, went through the roof effectiveness of both online and offline non- This chapter begins with a discus- personal selling are examined We conclude sion of the types of advertising and explains the chapter by exploring current ethical issues how advertising is used to achieve a firm’s relating to nonpersonal selling Identify the three Advertising TYPES OF ADVERTISING Advertisements fall into two broad categories: product advertising and institutional advertising major advertising objectives and the two basic categories of advertising Procter & Gamble, which produces Oral-B toothbrushes, is one of the world’s leading advertisers © Image courtesy of The Advertising Archives Advertising in the 21st-century is closely related to integrated marketing communications (IMC) in many respects While IMC involves a message dealing with buyer–seller relationships, advertising consists of paid nonpersonal communication through various media with the purpose of informing or persuading members of a particular audience Advertising is used by marketers to reach target markets with messages designed to appeal to business firms, not-for-profit organizations, or ultimate consumers The United States is home to many of the world’s leading advertisers Procter & Gamble, AT&T, and Verizon Communications top the list, each spending more than $3 billion annually on advertising.5 Advertising spending varies among industries as well as companies Retail, automotive, and telecommunications—including Internet services and their providers—make up the top three industries, spending $10 billion to $18 billion each year.6 As discussed in previous chapters, the emergence of the marketing concept, with its emphasis on a companywide consumer orientation, boosted the importance of integrated marketing communications This change in turn expanded the role of advertising Today, a typical consumer is exposed to hundreds of advertising messages each day Advertising provides an efficient, inexpensive, and fast method of reaching the ever-elusive, increasingly segmented consumer market 532 part PROMOTIONAL DECISIONS © AP Images/PRNewsFoto/The Dannon Company, Inc Product advertising is nonpersonal selling of a particular Activia yogurt ads feature good or service This is the type Jamie Lee Curtis persuadof advertising the average pering customers to buy son usually thinks of when talking about most promotional activities Institutional advertising, in contrast, promotes a concept, an idea, a philosophy, or the goodwill of an industry, company, organization, person, geographic location, or government agency This term has a broader meaning than corporate advertising that typically is limited to nonproduct advertising sponsored by a specific profit-seeking advertising Paid, nonpersonal communication firm Institutional advertising often is closely related to the public relations function of an through various media about enterprise a business firm, not-for-profit organization, product, or idea by a sponsor identified in a message intended to inform or persuade members of a particular audience product advertising Nonpersonal selling of a particular good or service institutional advertising Promotion of a concept, an idea, a philosophy, or the goodwill of an industry, company, organization, person, geographic location, or government agency informative advertising Promotion that seeks to develop initial demand for a good, service, organization, person, place, idea, or cause figure 16.1 Advertising Objectives persuasive in Relation to Stage in advertising the ProductPromotion Lifecycle that attempts to increase demand for an existing good, service, organization, person, place, idea, or cause OBJECTIVES OF ADVERTISING Marketers use advertising messages to accomplish three primary objectives: to inform, to persuade, and to remind These objectives may be used individually or, more typically, in conjunction with each other For example, an ad for a not-for-profit agency may inform the public of the existence of the organization and at the same time persuade the audience to make a donation, join the organization, or attend a function Informative advertising seeks to develop initial demand for a good, service, organization, person, place, idea, or cause The promotion of any new market entry tends to pursue this objective because marketing success at this stage often depends simply on announcing availability Therefore, informative advertising is common in the introductory stage of the product lifecycle, for Volkswagen’s Jetta TDI clean diesel auto or for the next generation of Apple’s iPhone, the 3G Persuasive advertising attempts to increase demand for an existing good, service, organization, person, place, idea, or cause Persuasive advertising is a competitive type of promotion suited to the growth stage and the early part of the maturity stage of the product lifecycle Recently, Dannon launched a campaign for its Activia yogurt designed to inform consumers about digestive health and persuade them of the importance—and ease—of maintaining it by eating Activia yogurt The ads featured actress Jamie Lee Curtis in the role of the persuader.7 Reminder advertising strives to reinforce previous promotional activity by keeping the name of a good, service, organization, person, place, idea, or cause before the public It is common in the latter part of the maturity stage and throughout the decline stage of the product lifecycle Procter & Gamble, for instance, seeks to remind consumers of the energy savings gained by washing their laundry in cold water with Tide Coldwater formula.8 Figure 16.1 illustrates the relationship between advertising objectives and the stages Maturity of the product lifecycle Informative adverGrowth Decline tising tends to work best during the early stages, while reminder advertising is effective Introductory later on Persuasive advertising, if done well, can be effective through the entire lifecycle Informative Traditionally, marketers stated their Persuasive advertising objectives as direct sales goals A more current and realistic standard, Reminder however, views advertising as a way to chapter 16 533 ADVERTISING AND PUBLIC RELATIONS reminder advertising achieve communications objectives—including informing, persuading, and reminding Advertising that reinforces potential customers of the product Advertising attempts to condition consumers to adopt previous promotional activity favorable viewpoints toward a promotional message The goal of an ad is to improve the by keeping the name of a likelihood that a customer will buy a particular good or service In this sense, advertisgood, service, organization, ing illustrates the close relationship between marketing communications and promotional person, place, idea, or cause strategy before the public To get the best value for a firm’s advertising investment, marketers must first determine a firm’s advertising assessment check objectives Effective advertising can enhance consumer perceptions of quality in a good or service, leading to What are the goals of institutional advertising? increased customer loyalty, repeat purchases, At what stage in the product lifecycle are and protection against price wars In addiinformative ads used? Why? tion, perceptions of superiority pay off in the firm’s ability to raise prices without losing What is reminder advertising? market share Advertising Strategies List the major advertising strategies If the primary function of marketing is to bring buyers and sellers together, then advertising is the means to an end Effective advertising strategies accomplish at least one of three tasks: informing, persuading, or reminding consumers The secret to choosing the best strategy is developing a message that best positions a firm’s product in the audience’s mind Among the advertising strategies available for use by 21st-century marketers are comparative advertising and celebrity advertising as well as decisions about global and interactive ads Channel-oriented decisions, such as retail and cooperative advertising, can also be devised Marketers often combine several of these advertising strategies to ensure the advertisement accomplishes set objectives As markets become more segmented, the need for personalized advertising increases The next sections describe strategies that contemporary marketers may use to reach their target markets COMPARATIVE ADVERTISING Firms whose products are not the leaders in their markets often favor comparative advertising, a promotional strategy that emphasizes advertising messages with direct or indirect comparisons to dominant brands in the industry By contrast, advertising by market leaders seldom acknowledges that competing products even exist, and when they do, they usually not point out any benefits of the competing brands Wireless telecommunications carriers have been battling it out in media advertising, promoting their calling plans and inviting comparison to competitors Some offer “in” calling, free text messaging, no roaming charges, or extended hours at reduced rates to compete against similar offers from other companies A generation ago, comparative advertising was not the norm; in fact, it was frowned on But the Federal Trade Commission now encourages comparative advertising Regulators believe such ads keep marketers competitive and consumers better informed about their choices Generally speaking, when competition through advertising exists, prices tend to go down because people can shop around This benefit has proved increasingly true for online consumers, who now use shopping bots to help find the best prices on goods and services CELEBRITY TESTIMONIALS A popular technique for increasing advertising readership in a cluttered promotional environment and improving overall effectiveness of a marketing message involves the use of celebrity spokespeople, such as New York Giants quarterback Eli Manning About one of every five U.S ads comparative advertising Advertising strategy that emphasizes messages with direct or indirect promotional comparisons between competing brands bri efly speaking “As a profession advertising is young; as a force it is as old as the world The first four words ever uttered, ‘Let there be light,’ constitute its charter All nature is vibrant with its impulse.” —Bruce Barton (1886–1967) AMERICAN AUTHOR AND ADVERTISING EXECUTIVE 534 part © AP Images/PRNewsFoto/Nike, Inc NBA star LeBron James is among the highest-paid product endorsers brs peaking iefl y “We measure everyone against Michael Jordan at Nike.” —Lynn Merritt SENIOR DIRECTOR OF BASKETBALL DEVELOPMENT, NIKE PROMOTIONAL DECISIONS currently includes celebrities This type of advertising is also popular in foreign countries In Japan, a majority of ads use celebrities, both local and international stars While U.S celebrities are popular, Asian sports stars—such as basketball player Yao Ming—have risen to prominence However, it is important for companies to be sure their brand’s tie to a celebrity makes sense and is genuine.9 Both the number of celebrity ads and the dollars spent on those ads have increased in recent years Professional athletes such as NBA Cleveland Cavalier’s star LeBron James are among the highest-paid product endorsers, raking in millions each year James currently claims about $170 million total in endorsement deals, including $90 million from Nike, $15 million from The Coca-Cola Company, and several-million-dollar deals with outdoor power equipment maker Cub Cadet, trading-card company Upper Deck, and Bubblicious bubble gum Note that some of the firms, such as Nike and Upper Deck, are related to sports; others, such as Coke, Cub Cadet, and Bubblicious, have nothing to with basketball at all.10 The top five endorsement superstars—in recent annual earnings—are golfer Tiger Woods, $100 million; golfer Phil Mickelson, $47 million; LeBron James, $25 million; NASCAR driver Dale Earnhardt, Jr., $25 million; and golfer Michelle Wie, $19.5 million.11 One advantage of associations with big-name personalities is improved product recognition in a promotional environment filled with hundreds of competing 15- and 30-second commercials Advertisers use the term clutter to describe this situation As e-marketing continues to soar, one inevitable result has been the increase in advertising clutter as companies rush to market their goods and services online But marketers need to remember that an effective online site must have meaningful content and helpful service Another advantage to using celebrities occurs when marketers try to reach consumers of various ethnic groups Blockbuster Video and McDonald’s have hired Hispanic stars to attract Hispanic consumers to their stores Actress Daisy Fuentes appeared in ads for McDonald’s, while John Leguizamo and Hector Elizondo advertised for Blockbuster A celebrity testimonial generally succeeds when the celebrity is a credible source of information for the promoted product The most effective ads of this type establish relevant links between the celebrities and the advertised goods or services A recent ad for Vitaminwater featured several prominent NBA players, including Kobe Bryant and LeBron James Several studies of consumer responses show that celebrities improve the product’s believability, recall of the product, and brand recognition Celebrity endorsements also create positive attitudes, leading to greater brand equity Although he already had about $5 million a year in endorsements—including deals with credit card firm Visa and swimming apparel maker Speedo—swimmer Michael Phelps received a rush of offers after winning eight gold medals in a single Olympics Reasoning that people wanted to be associated with anything that Phelps represented, companies that wanted to enhance their brand recognition made all kinds of offers to him The head of global sports management at Visa observed that Phelps “came out of [the Olympic] games a global sports icon.”12 However, a celebrity who endorses too many products may create marketplace confusion Customers may remember the celebrity but not the product or brand; worse, they might connect the celebrity to a competing brand Another problem arises if a celebrity is linked with scandal or encounters legal problems When NFL player Michael Vick was hit with charges related to dogfighting, Nike, one of Vick’s most important endorsers, suspended its contract and stopped selling merchandise endorsed by the football star in its retail stores.13 Some advertisers try to avoid problems with celebrity endorsers by using cartoon characters as endorsers Snoopy, a character in the popular “Peanuts” comic strip and long-running TV animated programs, has appeared in MetLife ads for years Some advertisers may actually prefer cartoon 535 ADVERTISING AND PUBLIC RELATIONS characters because the characters can never say anything negative about the product, they exactly what the marketers want them to do, and they cannot get involved in scandals The only drawback is high licensing fees; popular animated characters often cost more than live celebrities Companies may create their own cartoon characters or talking animals, which eventually become celebrities in their own right as a result of many appearances in advertisements, as is the case with the Geico gecko and Duke the dog who appears in ads for Bush’s Baked Beans In recent years, marketers have begun to consider celebrities as marketing partners rather than pretty or famous faces who can sell goods and services Tiger Woods has been active in developing Nike’s golf gear and apparel Former supermodel Claudia Schiffer not only agreed to endorse a signature line of Palm Pilots but also helped position the handheld computers in the electronics market by selecting fashionable colors and her own favorite software programs MetLife avoids possible problems with celebrity endorsers by using Snoopy cartoon characters in advertising © Mike Simons/Getty Images chapter 16 RETAIL ADVERTISING Most consumers are confronted daily with retail advertising, which includes all advertising by retail stores that sell goods or services directly to the consuming public While this activity accounts for a sizable portion of total annual advertising expenditures, retail advertising varies widely in its effectiveness One study showed that consumers often respond with suspicion to retail price advertisements Source, message, and shopping experience seem to affect consumer attitudes toward these advertisements An advertiser once quipped that the two most powerful words to use in an ad are “New” and “Free”—and these terms often are capitalized on in retail ads Although “Free” may be featured only in discussions of customer services, the next best term—“Sale”—often is the centerpiece of retail promotions And “New” typically describes new product lines However, many retail stores continue to view advertising as a secondary activity, although that is changing Local independent retailers rarely use advertising agencies, probably because of the expense involved Instead, store managers may accept responsibility for advertising in addition to their other duties Management can begin to correct this problem by assigning one individual the sole responsibility and authority for developing an effective retail advertising program A retailer often shares advertising costs with a manufacturer or wholesaler in a technique called cooperative advertising For example, an apparel marketer may pay a percentage of the cost of a retail store’s newspaper advertisement featuring its product lines Cooperative advertising campaigns originated to take advantage of the media’s practice of offering lower rates to local advertisers than to national ones Later, cooperative advertising became part of programs to improve dealer relations The retailer likes the chance to secure advertising that it might not be able to afford otherwise Cooperative advertising can strengthen vertical links in the marketing channel, as when a manufacturer and retailer coordinate their resources It can also involve firms at the same level of the supply chain In a horizontal arrangement, a group of retailers—for example, all the Ford dealers in a state—might pool their resources INTERACTIVE ADVERTISING Millions of advertising messages float across idle—and active—computer screens in homes and offices around the country every day Net surfers play games embedded with ads from the site sponsors Companies offer free e-mail service to people willing to receive ads with their personal cooperative advertising Strategy in which a retailer shares advertising costs with a manufacturer or wholesaler 536 part PROMOTIONAL DECISIONS messages Video screens on grocery carts display ads for shoppers to see as they wheel down the aisles of grocery stores Because marketers realize that two-way communications provide more effective methods for achieving promotional objectives, they are interested in interactive media Interactive advertising involves two-way promotional messages transmitted through communication channels that induce message recipients to participate actively in the promotional effort Achieving this involvement is the difficult task facing contemporary marketers Although interactive advertising has become nearly synonymous with e-marketing and the Web, it also includes other formats such as kiosks in shopping malls and text messages on cell phones Multimedia technology, the Internet, and commercial online services are changing the nature of advertising from a oneway, passive communication technique to more effective, two-way marketing communications Interactive advertising creates dialogue between marketers and individual shoppers, providing more materials at the user’s request The advertiser’s challenge is to gain and hold consumer interest in an environment where these individuals control what they want to see Interactive advertising changes the balance between marketers and consumers Unlike the traditional role of advertising—providing brief, entertaining, attention-catching messages— interactive media provide information to help consumers throughout the purchase and consumption processes In a sense, it becomes closer to personal selling as consumers receive immediate responses to questions or requests for more information about goods and services Interactive advertising provides consumers with more information in less time to help them make necessary comparisons between available products Successful interactive advertising adds value by offering the viewer more than just product-related information A Web site can more than display an ad to promote a brand; it can create a company store, provide customer service, and offer additional content And many marketers, at companies both large and small, hope such ads will soon be so finely targeted that they can cut through increasing advertising clutter and reach only consumers ready to hear their messages In one survey, marketers learned that 80 percent of viewers who watched videos on broadcaster ABC’s Web site could recall who the advertiser was, while very few could remember the names of advertisers they saw during a network TV broadcast.14 assessment check Most firms deliver their interactive advertising messages through proprietary online What is comparative advertising? services and through the Web And What makes a successful celebrity testimonial? online ad spending is climbing—it What is cooperative advertising? increased 26 percent during a recent year, to more than $26 billion.15 Describe the process of creating an advertisement Creating an Advertisement Marketers spend about $280 billion a year on advertising campaigns in the United States alone.16 With so much money at stake, they must create effective, memorable ads that increase sales and enhance their organizations’ images They cannot afford to waste resources on mediocre messages that fail to capture consumers’ attention, communicate their sales message effectively, or lead to a purchase, donation, or other positive action for the organization Research helps marketers create better ads by pinpointing goals an ad needs to accomplish, such as educating consumers about product features, enhancing brand loyalty, or improving consumer perception of the brand These objectives should guide the design of the ad Marketers can also discover what appeals to consumers and can test ads with potential buyers before committing funds for a campaign Marketers sometimes face specific challenges as they develop advertising objectives for services They must find a creative way to fill out the intangible images of most services and successfully convey the benefits consumers receive The “You’re in Good Hands” message of Allstate Insurance is a classic example of how advertising can make the intangible nature of services tangible chapter 16 537 ADVERTISING AND PUBLIC RELATIONS TRANSLATING ADVERTISING OBJECTIVES INTO ADVERTISING PLANS Consideration of constraints and uncontrollable factors Once a company defines its objectives for an advertising campaign, it can develop its advertising plan Marketing research helps managers make strategic decisions that guide choices in technical areas such as budgeting, copywriting, scheduling, and media selection Posttests, discussed in greater detail later in the chapter, measure the effectiveness of advertising and form the basis for feedback concerning possible adjustments The elements of advertising planning are shown in Figure 16.2 Experienced marketers know the importance of following even the most basic steps in the process, such as market analysis As Chapter explained, positioning involves developing a marketing strategy that aims to achieve a desired position in a prospective buyer’s mind Marketers use a positioning strategy that distinguishes their good or service from those of competitors Effective advertising then communicates the desired position by emphasizing certain product characteristics, such as performance attributes, price/quality, competitors’ shortcomings, applications, user needs, and product classes Research Inputs Consumer research Product research Market analysis Competitive analysis figure 16.2 Elements of the Advertising Planning Process Strategic Decisions Setting objectives Identifying and selecting target markets Selecting message and media strategy Coordinating with other marketing mix elements Tactical Execution Establish advertising budget Establish controls Write and produce ads and commercials Select and schedule media choices Pretest advertising alternatives Advertising Messages Feedback Measuring Advertising Effectiveness The strategy for creating a message starts with the benefits Use posttests to a product offers to potential customers and moves to the determine the creative concept phase, in which marketers strive to bring an effectiveness of appropriate message to consumers using both visual and veradvertising bal components Marketers work to create an ad with meaningful, believable, and distinctive appeals—one that stands out from the clutter and is more likely to escape “zapping” Advertising Evaluation by the television remote control or clicking by a mouse Evaluate results of Ads usually are created not individually, but as part advertising of specific campaigns An advertising campaign is a series Make necessary of different but related ads that use a single theme and adjustments appear in different media within a specified time period Retail chain Target’s “Hello Good Buy” ads featuring the Beatles’ music is one example Different products flash across the screen in the spots, but all have the catchy song playing in the background while the familiar red bull’s-eye logo appears In developing a creative strategy, advertisers must decide how to communicate their marketing message They must balance assessment check message characteristics—such as the tone of the appeal, the extent of information provided, and the conclu1 What is an advertising campaign? sion to which it leads the consumer—the side of the What are an advertisement’s three main goals? story the ad tells, and its emphasis on verbal or visual primary elements ADVERTISING APPEALS Should the tone of the advertisement focus on a practical appeal such as price or gas mileage, or should it evoke an emotional response by appealing to, say, fear, humor, sex, guilt, or fantasy? This advertising campaign Series of different but related ads that use a single theme and appear in different media within a specified time period 538 part PROMOTIONAL DECISIONS is another critical decision in the creation of memorable ads that possess the strengths needed to accomplish promotional objectives Identify the major types of advertising appeals and discuss their uses Fear Appeals In recent years, marketers have relied increasingly on fear appeals Ads for insurance, autos, healthcare products, and even certain foods imply that incorrect buying decisions could lead to illness, injury, or other bad consequences Even ads for business services imply that if a company doesn’t purchase the advertised services, its competitors will move ahead or valuable information may be lost Pharmaceutical companies spend several billion dollars a year on advertising, much of which is directed toward consumer fears—whether it’s a fear of hair loss, allergic attacks, or heart attacks and other potentially serious illnesses These drug advertisements have flourished in both print and broadcast media after the Food and Drug Administration lifted a ban on prescription drug advertising on television While drug firms insist these advertisements are informative to consumers, critics charge that a high percentage use fear appeals and very few provide enough details about causes and risk factors for medical conditions or lifestyle changes that might bring about the same results as the drug.17 Fear appeals can backfire, however Viewers are likely to practice selective perception and tune out statements they perceive as too strong or not credible Some consumer researchers believe viewer or reader backlash will eventually occur due to the amount of prescription drug advertising based on fear appeals Humor in Advertising Messages © Image courtesy of The Advertising Archives Humorous ads seek to be memorable and to create a positive mood related to a firm’s goods A humorous ad seeks to create a positive mood related to a firm’s goods or services In an effort to show how innovative and cool its Macs are compared with PCs, Apple recently ran a series of ads featuring a cool dude, the Mac, upstaging a geeky PC The ads are funny—and memorable But advertising professionals differ in their opinions of the effectiveness of humorous ads Some believe humor distracts attention from brand and product features; consumers remember the humor but not the product Humorous ads, because they are so memorable, may lose their effectiveness sooner than ads with other kinds of appeals In addition, humor can be tricky because what one group of consumers finds funny may not be funny at all to another group Men and women sometimes have a different sense of humor, as people of different ages This distinction may become even greater across cultures Ads Based on Sex Ads with sex-based appeals immediately attract the consumer’s attention Advertisements for Victoria’s Secret lingerie and clothing are designed this way While many people accept these and other ads, they not appeal to everyone And marketers using sexbased appeals know they walk a fine line between what is acceptable to the consumers they want to reach—and what is not Sometimes a firm’s image can be hurt by its advertising approach Clothing firm American Apparel is well known for its provocative advertising, and company head Dov Charney has received criticism for his firm’s sex-based ads But Charney insists his ads are effective with his targeted audience “We make sexy T-shirts for young people,” he argues “Young people like honesty.”18 DEVELOPING AND PREPARING ADS The final step in the advertising process—the development and preparation of an advertisement— should flow logically from the promotional theme selected This process should create an ad that chapter 16 539 ADVERTISING AND PUBLIC RELATIONS becomes a complementary part of the marketing mix with a carefully determined role in the total marketing strategy Preparation of an advertisement should emphasize features such as its creativity, its continuity with past advertisements, and possibly its association with other company products What immediate tasks should an advertisement accomplish? Regardless of the chosen target, an advertisement should (1) gain attention and interest, (2) inform or persuade, and (3) eventually lead to a purchase or other desired action It should gain attention in a productive way; that is, it should instill some recall of the good or service Otherwise, it will not lead to buying action Gaining attention and generating interest—cutting through the clutter—can be formidable tasks Stimulating buying action often is difficult because an advertisement cannot actually close a sale Nevertheless, if an ad gains attention and informs or persuades, it probably represents a worthwhile investment of marketing resources Too many advertisers fail to suggest how audience members can purchase their products if they desire to so Creative design should eliminate this shortcoming The Head & Shoulders ad in Figure 16.3 shows the four major elements of this print advertisement: headline, illustration, body copy, and signature Headlines and illustrations (photographs, drawings, or other artwork) should work together to generate interest and attention Body copy informs, persuades, and stimulates buying action The signature, which may include the company name, address, phone number, Web address, slogan, trademark, or simply a product photo, names the sponsoring organization An ad may also have one or more headings subordinate to the main headline that either link the main headline to the body copy or subdivide sections of the body copy After advertisers conceive an idea for an ad that gains attention, informs and persuades, and stimulates purchases, their next step involves refining the thought sketch into a rough layout Continued refinements of the rough layout eventually produce the final version of the advertisement design ready to be executed, printed, or recorded The creation of each advertisement in a campaign requires an evolutionary process that begins with an idea and ultimately results in a finished ad ready for distribution through print or electronic media The idea itself must first be converted into a thought sketch—a tangible summary of the intended message Advances in technology allow advertisers to create novel, eyecatching advertisements Innovative computer software packages allow artists to merge multiple images to create a single image with a natural, seamless appearance Headline Elements of a Typical Ad CREATING INTERACTIVE ADS Web surfers want engaging, lively content that takes advantage of the medium’s capabilities and goes beyond what they find elsewhere The Web’s major advantages make it possible for advertisers to provide that, offering speed, information, two-way communications, self-directed entertainment, and personal choice Web ads are also vibrant in their visual appeal, and some believe they will not experience the swings in spending that traditional ad media do.19 Web ads have grown from information-based home pages to innovative, interactive channels for transmitting messages to cyberaudiences, including banners, pop-ups, keyword ads, advertorials, and interstitials Advergames are either online games created by marketers to promote their products to figure 16.3 © Image courtesy of The Advertising Archives Illustration Body Copy Signature 540 part brs peaking iefl y “The headline is the most important element of an ad It must offer a promise to the reader of a believable benefit And it must be placed in a way to make it memorable.” —Morris Hite (1910–1983) AMERICAN ADVERTISING PIONEER List and compare the major advertising media PROMOTIONAL DECISIONS targeted audiences in an interactive way or ads or product placements inserted into online video games Automakers use these product placements to reach younger audiences—those who may not watch their TV commercials as often JCPenney created an advergame called “Dork Dodge” to support its new Dorm Life brand of clothing and furniture Targeted for incoming college women, the game—and the brand—hits on life situations freshmen are likely to encounter Game players make choices in a pop-up menu, which uses humor to help freshmen women avoid guys they don’t want to date “Dork Dodge” was launched during the summer, as college students were getting ready for the upcoming school year and purchasing clothes and furnishings for their dorm rooms.20 Banners, advertisements on a Web page that link to an advertiser’s site, are the most common type of advertising on the Web They can be free of charge or cost thousands of dollars per month, depending on the amount of hits the site receives Online advertisers often describe their Internet ads in terms of “richness,” referring to the degree to which new technologies—such as streaming video, 3-D animation, JavaScript, and interactive capabilities—are implemented in the banners One recent technological development is the banner with a video layer When a user scrolls over the banner, a floating layer is displayed When the user scrolls off the banner, the layered ad disappears.21 Banners have evolved into a more target-specific technique for Internet advertising with the advent of missiles: messages that appear on the screen at exactly the right moment When a customer visits the site of Company A’s competitor, a missile can be programmed to appear on the customer’s monitor, allowing the customer to click a direct link to Company A’s site However, many people feel the use of such missiles is a questionable practice Keyword ads are an outcropping of banner ads Used in search engines, keyword ads appear on the results page of a search and are specific to the searched term Advertisers pay search engines to target their ads and display the banners only when users search for relevant keywords, allowing marketers to target specific audiences For example, if a user searched for the term “digital camera,” keyword ads might appear for electronic boutiques or camera shops that sell digital cameras and film Banner designs that have also evolved into larger advertising squares that closely resemble advertisements in the telephone book’s Yellow Pages are called advertorials Advertisers quickly expanded on these advertorials with interstitials—ads that appear between Web pages of related content Interstitials appear in a separate browser window while the user waits for a Web page to download Then there are pop-ups—little advertising windows appearing in front of the top window of a user’s computer screen—and “pop-unders” that appear under the top window Many users complain that interstitials, like pop-ups and missiles, are intrusive and unwanted Interstitials are more likely to contain large graphics and streaming presentations than banner ads and therefore are more difficult to ignore than typical banner ads But despite complaints, some studies show that users are more likely to click interstitials than banners Perhaps the most intrusive form of online advertising is adware, which allows ads to be shown on users’ screens via software downloaded to their computers without their consent or through trickery Such software can be difficult to remove, and some industry experts believe that marketers should avoid dealing with Internet marketing firms that promote the use of adware Social network advertising on sites such as FaceBook and MySpace is a new form of online advertising receiving attention Although firms spend an estimated $3 billion a year on this type of advertising, it is difficult to evaluate and measure its effectiveness For example, if a virtual bottle of assessment check Coca-Cola appears on FaceBook or in an online What are some common emotional game, how likely is it that consumappeals used in advertising? ers will actually purchase the bottle of Coke the next time they want something What are the main types of interactive ads? to drink?22 Media Selection One of the most important decisions in developing an advertising strategy is the selection of appropriate media to carry a firm’s message to its audience The media selected must be capable of accomplishing the communications objectives of informing, persuading, and reminding potential customers of the good, service, person, or idea advertised chapter 16 541 ADVERTISING AND PUBLIC RELATIONS Research identifies the ad’s target market to determine its size and characteristics Advertisers then match the target characteristics with the media best able to reach that particular audience The objective of media selection is to achieve adequate media coverage without advertising beyond the identifiable limits of the potential market Finally, cost comparisons between alternatives should determine the best possible media purchase Table 16.1 compares the major advertising media by noting their shares of overall advertising expenditures It also compares the advantages and disadvantages of each media alternative Broadcast media include television (network and cable) and radio Newspapers, magazines, outdoor advertising, and direct mail represent the major types of print media Electronic media include the Internet and kiosks A recent study projected that many firms will shift away from traditional advertising and more toward direct marketing—especially Internet and mobile media—in the next few years.23 TELEVISION Television—network and cable combined—still accounts for almost one of every three advertising dollars spent in the United States.24 The attractiveness of television advertising is that marketers can reach local and national markets Whereas most newspaper advertising revenues come from local advertisers, the greatest share of television advertising revenues comes from organizations that advertise nationally A newer trend in television advertising is virtual ads—banner-type logos and brief messages superimposed t ab l e Media Outlet Comparison of Advertising Media Alternatives Percentage of Total Spending* Advantages Disadvantages Broadcast Broadcast television networks 17.1 Extensive coverage; repetition; flexibility; prestige High cost; brief message; limited segmentation Cable television networks 12.1 Same strengths as network TV; less market coverage because not every viewer is a cable subscriber Same disadvantages as network TV, although cable TV ads are targeted to more-specific viewer segments 7.2 Immediacy; low cost; flexibility; segmented audience; mobility Brief message; highly fragmented audience Newspapers 18.9 Tailored to individual communities; ability to refer back to ads Limited life Direct mail NA Selectivity; intense coverage; speed; flexibility; opportunity to convey complete information; personalization High cost; consumer resistance; dependence on effective mailing list Magazines (consumer and business) 20.4 Selectivity; quality image reproduction; long life; prestige Flexibility is limited 2.7 Quick, visual communication of simple ideas; link to local goods and services; repetition Brief exposure; environmental concerns 7.6 Two-way communications; flexibility; link to self-directed entertainment Poor image reproduction; limited scheduling options; difficult to measure effectiveness Radio Print Outdoor (out of home) Electronic Internet * Direct mail was not included in the data In addition to broadcast network and cable TV advertising, syndicated TV totaled 2.8 percent and spot TV 11.3 percent of ad spending Source: Data from “Ad Spending Totals by Medium,” Advertising Age’s Data Center, June 30, 2008, www.adage.com Reprinted with permission from the February 27, 2006, issue of Advertising Age Copyright © Crain Communications, Inc., 2006 542 part PROMOTIONAL DECISIONS onto television coverage of sporting events so they seem to be a part of the arena’s signage but cannot be seen by anyone attending the game Then there are streaming headlines run by some news stations and paid for by corporate sponsors whose names and logos appear within the news stream Other trends in television advertising include the abbreviated spot—a 15- or 30-second ad that costs less to make and buy and is too quick for most viewers to zap with their remote control—and single-advertiser shows These advertisements work well when viewers are watching live, but as more consumers record programs with DVRs, as many as 85 percent fast-forward through even the briefest commercials.25 Web site Hulu has become one of the top video destinations on the Internet, where viewers can watch complete, high-resolution episodes of current TV programs on their computers The site is free and does not require any additional wires or boxes for access Instead, viewers see brief ads they seem to tolerate in order to watch their favorite shows In the first three months of activity, Hulu amassed more than 700 shows that fans could watch.26 In the past decade, cable television’s share of ad spending and revenues has grown tremendously Satellite television has contributed to increased cable penetration; almost three-fourths of all Americans now have cable installed in their homes In response to declining ratings and soaring costs, network television companies such as NBC, CBS, ABC, Fox, and the CW (a network formed by the merger of the WB and UPN) are refocusing their advertising strategies with a heavy emphasis on moving onto the Internet to capture younger audiences Because cable audiences have grown, programming has improved, and ratings risen, advertisers have earmarked more of their advertising budgets for this medium Cable advertising offers marketers access to more narrowly defined target audiences than other broadcast media can provide—a characteristic referred to as narrowcasting The great variety of special-interest channels devoted to subjects such as cooking, golf, history, home and garden, health, fitness, and various shopping channels attract specialized audiences and permit niche marketing Television advertising offers the advantages of mass coverage, powerful impact on viewers, repetition of messages, flexibility, and prestige Its disadvantages include loss of control of the promotional message to the telecaster, which can influence its impact; high costs; and some public distrust Compared with other media, television can suffer from lack of selectivity because specific TV programs may not reach consumers in a precisely defined target market without a significant degree of wasted coverage However, the growing specialization of cable TV channels can help resolve the problem Finally, some types of products are banned from television advertising Tobacco goods, such as cigarettes, cigars, and smokeless tobacco, fall into this category Television commercials can promote more than a firm’s products; they can highlight the organization’s efforts to improve the environment, the communities in which the firm does business, and other causes important to the company S.C Johnson, manufacturer of a wide range of well-known household products, recently ran commercials showcasing the firm’s commitment to the environment, as described in the “Marketing Success” feature S.C Johnson’s Commitment to Clean Power Background S.C Johnson has been in business since The Challenge Recently, company marketers decided 1886, when its founder first offered Johnson’s Paste Wax to the marketplace Today, the company makes hundreds of household products, including Windex and Glade The firm has made a significant investment in developing and adopting processes that reduce waste and pollution, rely on renewable energy resources, and reuse and recycle materials that informing the public not just about its products but also about its green production processes would be a positive marketing message Developing a television commercial for its products that could also showcase these efforts in just a few seconds was the objective chapter 16 543 ADVERTISING AND PUBLIC RELATIONS © Courtesy of Hulu.com Hulu.com viewers can watch complete, highresolution episodes of current TV programs The only cost is time—to get to the show, they must watch brief ads The Strategy The resulting commercial alluded to one of The Outcome Consumers have reacted positively to the mes- Johnson’s ambitious projects—converting its Waxdale plant in Racine, Wisconsin, to power produced from garbage The facility is now run by two turbines that get their power from methane— produced by decaying organic matter—retrieved from a local landfill The methane gas is piped to the nearby plant, where it runs through the turbines to create power The advertisement illustrated Johnson’s commitment to both high-quality products and green processes sage and are better informed about Johnson’s household products and its environmental commitment Although the ultimate goal was to create messages about products like Off! and Pledge, the advertising sent a powerful message to consumers about the company itself Sources: Company Web site, scjohnson.com/environment, accessed August 15, 2008; Joy LePree, “Save the Planet and Turn a Profit,” Chem.info, www.chem.info, accessed August 12, 2008; “SC Johnson’s Products and Production You Can Feel Good about It,” PR Newswire, June 30, 2008, www.prnewswire.com 544 part PROMOTIONAL DECISIONS RADIO Radio advertising has always been a popular media choice for up-to-the-minute newscasts and for targeting advertising messages to local audiences But in recent years, radio has become one of the fastest-growing media alternatives As more and more people find they have less and less time, radio provides immediate information and entertainment at work, at play, and in the car In addition, as e-business continues to grow globally, more people are traveling abroad to seek out new markets For these travelers, radio stations, including those aired over the Internet, are a means of staying in touch with home—wherever that may be Marketers frequently use radio advertising to reach local audiences But in recent years, it plays an increasingly important role as a national— and even global—listening favorite Thousands of online listeners use the Internet to tune in to radio stations from almost every city—an easy-listening station in London, a top 40 Hong Kong broadcaster, or a chat show from Toronto Other listeners equip their vehicles with satellite radio to maintain contact with hometown or destination stations during long trips Satellite radio offers much higher-quality digital signals than regular radio stations, with many more channels mostly free of Federal Communications Commission oversight and generally commercial free XM Radio, the first such service to be licensed, began airing commercials on a few of its nearly 200 music, sports, and talk channels XM and its competitor, Sirius, both charged an annual subscription fee When the two merged, they agreed initially to offer la carte pricing, under which subscribers could select the programming they preferred Fans of Howard Stern, Opie & Anthony, and other popular radio personalities could still get the shows they wanted.27 Advertisers like radio for its ability to reach people while they drive because they are a captive audience Stations can adapt to local preferences by changing format, such as going from country and western to an all-news or sports station The variety of stations allows advertisers to easily target audiences and tailor their messages to those listeners Other benefits include low cost, flexibility, and mobility Even established Internet firms see the benefit of radio advertising: Yahoo! ran radio ads in the San Francisco Bay Area touting its new features, including search assist, short cuts, and multimedia results; the company also wanted to convince consumers that it is a better alternative than Google.28 Disadvantages to radio advertising include highly segmented audiences (reaching most people in a market may require ads placed on multiple stations), the temporary nature of messages (unlike print ads, radio and TV ads are instantaneous and must be broadcast again to reach consumers a second time), and a minimum of research information compared with television While most radio listening is often done in cars or with headset-equipped portables, technology has given birth to Internet radio Webcast radio allows customers to widen their listening times and choices through their computers The potential for selling on this new channel is great Recently, Clear Channel Radio, CBS Radio, Citadel Broadcasting’s ABC Radio, and seven other firms formed the HD Digital Radio Alliance to launch a mobile marketing campaign “Mobile marketing is the area that everyone wants to move to, so we came up with a mobile component to their marketing campaign to engage potential consumers,” explains a spokesman for the company that created the campaign.29 NEWSPAPERS Newspaper advertising continues to dominate local markets, accounting for nearly 19 percent, or slightly more than $28 billion, of annual advertising expenditures.30 In addition to retail advertisements, classified advertising is an important part of newspaper revenues Although some have predicted the decline of newspaper audiences, if online readers are counted in, newspapers are more popular than ever Several thousand newspapers have their own Web sites, which attracted more than 66 million visitors, or 40 percent of all Internet users, in one quarter during a recent year Although newspaper advertising as a whole has decreased, activity on newspaper Web sites has increased dramatically, creating new opportunities for marketers.31 Newspapers’ primary advantages start with flexibility because advertising can vary from one locality to the next Newspapers also allow intensive coverage for ads Readers sometimes keep the printed advertising message, unlike television or radio advertising messages, and can refer back to newspaper ads Newspaper advertising does have some disadvantages: hasty reading and relatively poor reproduction quality, although that is changing as technology improves The high quality of ads in USA Today is an example of the recent strides in newspaper ad quality made possible by new technologies chapter 16 545 ADVERTISING AND PUBLIC RELATIONS Newspapers have also begun to struggle to “get through the noise” of other advertisers To retain big advertisers such as trendy designers and national retailers, some have launched their own annual or semiannual fashion magazines, taking advantage of their finely tuned distribution capabilities Magazines are a prime place for advertisement This Sony Bravia ad appeared in business technology magazines Advertisers divide magazines into two broad categories: consumer magazines and business magazines These categories are also subdivided into monthly and weekly publications The top five magazines in terms of circulation are AARP The Magazine, AARP Bulletin, Reader’s Digest, Better Homes and Gardens, and National Geographic.32 The primary advantages of magazine advertising include the ability to reach precise target markets, quality reproduction, long life, and the prestige associated with some magazines, such as National Geographic The primary disadvantage is that magazines lack the flexibility of newspapers, radio, and television Media buyers study circulation numbers and demographic information for various publications before choosing optimal placement opportunities and negotiating rates The same advertising categories have claimed the title for big spenders for several years running Automotive, retail, and movies and media advertising have held their first, second, and third places, respectively, each year and have continued to show strong growth percentages Advertisers seeking to promote their products to target markets can reach them by advertising in the appropriate magazines DIRECT MAIL As discussed in Chapter 14, direct-mail advertising includes sales letters, postcards, leaflets, folders, booklets, catalogs, and house organs—periodicals published by organizations to cover internal issues Its advantages come from direct mail’s ability to segment large numbers of prospective customers into narrow market niches, speed, flexibility, detailed information, and personalization Disadvantages of direct mail include high cost per reader, reliance on the quality of mailing lists, and some consumers’ resistance to it The advantages of direct mail explain its widespread use Data are available on previous purchase patterns and preferred payment methods as well as household characteristics such as number of children or seniors Direct mail accounts for nearly $62 billion of advertising spending annually.33 The downside to direct mail is clutter, otherwise known as junk mail So much advertising material is stuffed into people’s mailboxes every day that the task of grabbing consumers’ attention and evoking some interest is daunting to direct mail advertisers Also, many consumers find direct mail annoying OUTDOOR ADVERTISING Outdoor advertising, sometimes called out-of-home advertising, is perhaps the oldest and simplest media business around It represents 2.7 percent of total advertising spending.34 Traditional outdoor advertising takes the form of billboards, painted displays such as those that appear on the walls of buildings, and electronic displays Transit advertising includes ads placed both inside and outside buses, subway trains and stations, and commuter trains Some firms place ads on the roofs of taxicabs, on bus stop shelters and benches, on entertainment and sporting event turnstiles, in public restrooms, and even on © Image courtesy of The Advertising Archives MAGAZINES 546 part PROMOTIONAL DECISIONS parking meters A section of highway might be cleaned up by a local real estate company or restaurant, with a nearby sign indicating the firm’s contribution All these are forms of outdoor advertising Outdoor advertising quickly communicates simple ideas It also offers repeated exposure to a message and strong promotion for locally available products Outdoor advertising is particularly effective along metropolitan streets and in other high-traffic areas But outdoor advertising, just like every other type, is subject to clutter It also suffers from the brevity of exposure to its messages by passing motorists Driver concerns about rush-hour safety and limited time also combine to limit the length of exposure to outdoor messages As a result, most of these ads use striking, simple illustrations, short selling points, and humor to attract people interested in products such as beverages, vacations, local entertainment, and lodging A third problem relates to public concerns over aesthetics The Highway Beautification Act of 1965, for example, regulates the placement of outdoor advertising near interstate highways In addition, many cities have local ordinances that set regulations on the size and placement of outdoor advertising messages, and Hawaii prohibits them altogether New technologies are helping revive outdoor advertising Technology livens up the billboards themselves with animation, large sculptures, and laser images Digital message signboards can display winning lottery numbers or other timely messages such as weather and traffic reports Recently, Google used outdoor advertising to promote its Google Maps feature—the ads have appeared in buses and trains in San Francisco and Chicago, and an ad was placed in San Francisco’s AT&T Park Maps are now considered an important factor in grabbing a significant portion of online and mobile ad dollars, meaning that the maps themselves need to be advertised “This is a popular consumer product, and Google is promoting it as part of its long-term strategy to win, grow, and maintain usage,” observes one marketing researcher for a firm that specializes in online advertising Traffic at Google Maps has increased more than 300 percent.35 INTERACTIVE MEDIA Interactive media—especially the Internet—are growing up Keyword ads dominate online advertising, accounting for more than 30 percent of annual online ad spending around the world.36 Not surprisingly, interactive advertising budgets are beefing up at a growing number of companies Ads have already come to cell phones, as video and broadcast capabilities explode CBS Mobile and CBS Mobile Sports have joined forces with the social networking service Loopt, through which subscribers can track participating friends and family on their cell phones Using Loopt’s GPS-based technology, CBS Mobile offers opportunities for advertisers to target promotions at consumers as they walk by certain stores and restaurants.37 OTHER ADVERTISING MEDIA © AP Images/PRNewsFoto/Signs By Tomorrow Company logos and messages can be placed on cars for mobile advertising As consumers filter out appeals from traditional and Internet ads, marketers need new ways to catch their attention In addition to the major media, firms use a vast number of other vehicles to communicate their messages One such device is Total Immersion’s D’Fusion system, consisting of a kiosk, Web cameras, and software that can recognize, track, and render images on the screen At the kiosk, customers can see themselves on a screen through the Webcam while holding up a two-dimensional brochure of an advertiser’s product The system transforms the picture into a three-dimensional image of the consumer with the chapter 16 547 ADVERTISING AND PUBLIC RELATIONS product Marketers believe this type of system increases an advertiser’s engagement with the consumer in a new way.38 Ads also appear on T-shirts, inlaid in store flooring, in printed programs of live theater productions, and as previews on movie DVDs Directory advertising includes the familiar Yellow Pages in telephone books, along with thousands of business directories Some firms pay to have their advertising messages placed on hot-air balloons, blimps, banners behind airplanes, and scoreboards at sporting events Individuals sometimes agree to paint their own vehicles with advertising messages or tattoo them onto their bodies—for a fee Johnson & Johnson, Yahoo!, and Dreyer’s Ice Cream, among others, pay to have their logos and company messages placed on autos via Autowrapped (www.autowrapped.com) The drivers are chosen based on their driving habits, routes, occupations, and living and working locations and are paid a monthly fee for the use of the outside of their vehicles as advertising space Media Scheduling The airline industry often boosts its advertising during low-travel months © AP Images/PRNewsFoto/Virgin Atlantic Airways Once advertisers have selected the media that best match their advertising objectives and promotional budget, attention shifts to media scheduling—setting the timing and sequence for a series of advertisements A variety of factors influence this decision—sales patterns, repurchase cycles, and competitors’ activities are the most important variables Seasonal sales patterns are common in many industries An airline might reduce advertising during peak travel periods and boost its media schedule during low travel months Repurchase cycles may also play a role in media scheduling—products with shorter repurchase cycles will more likely require consistent media schedules throughout the year Competitors’ activities are still other influences on media scheduling A small firm may avoid advertising during periods of heavy advertising by its rivals Advertisers use the concepts of reach, frequency, and gross rating points to measure the effectiveness of media scheduling plans Reach refers to the number of different people or households exposed to an advertisement at least once during a certain time period, typically four weeks Frequency refers to the number of times an individual is exposed to an advertisement during a certain time period By multiplying reach times frequency, advertisers quantitatively describe the total weight of a media effort, which is called the campaign’s gross rating point (GRP) Recently, marketers have questioned the effectiveness of reach and frequency to measure ad success online The theory behind frequency is that the average advertising viewer needs a minimum of three exposures to a message to understand it and connect it to a specific brand For Web surfers, the “wear-out” is much quicker—hence, the greater importance of building customer relationships through advertisements A media schedule is typically created in the following way Say an auto manufacturer wants to advertise a new model designed primarily to appeal to professional consumers in their 30s The model would be introduced in November with a direct mail piece offering test drives Outdoor, newspaper, and magazine advertising would support the direct mail campaign but also follow through the winter and into the spring and summer 548 part PROMOTIONAL DECISIONS Early television commercials might air during a holiday television special in mid-December, and then one assessment check or more expensively produced, highly creative spots would be first aired during the Super Bowl in late What types of products are banned from January Another television commercial—along advertising on television? with new print ads—might be scheduled for fall What are some advantages radio offers to clearance sales as the manufacturer advertisers? What about newspapers? gets ready to introduce next year’s Define media scheduling and identify the most models This example illustrates how marketers might plan their advertising important factors influencing the scheduling decision year for just one product Outline the organization of the advertising function and the role of an advertising agency Organization of the Advertising Function Although the ultimate responsibility for advertising decision making often rests with top marketing management, organizational arrangements for the advertising function vary among companies A producer of a technical industrial product may operate with a one-person department within the company who primarily writes copy for submission to trade publications A consumer-goods company, on the other hand, may staff a large department with advertising specialists The advertising function is usually organized as a staff department reporting to the vice president (or director) of marketing The director of advertising is an executive position with the responsibility for the functional activity of advertising This position requires not only a skilled and experienced advertiser but also an individual who communicates effectively within the organization The success of a firm’s promotional strategy depends on the advertising director’s willingness and ability to communicate both vertically and horizontally The major tasks typically organized under advertising include advertising research, design, copywriting, media analysis, and in some cases, sales and trade promotion ADVERTISING AGENCIES advertising agency Firm whose marketing specialists help advertisers plan and prepare advertisements Most large companies in industries characterized by sizable advertising expenditures hire an independent advertising agency, a firm whose marketing specialists help businesses plan and prepare advertisements Advertising is a huge, global industry Ranked by worldwide revenue, the top five ad agencies worldwide are Tokyo-based Dentsu, followed by four New York–based agencies: BBDO, McCann Erickson Worldwide, DDB Worldwide, and TBWA Worldwide.39 Most large advertisers cite several reasons for relying on agencies for at least some aspects of their advertising Agencies typically employ highly qualified specialists who provide a degree of creativity and objectivity difficult to sustain in a corporate advertising department Smaller firms find they can benefit from the knowledge and experience of specialists as well In the extremely competitive advertising industry, the firm Crispin Porter + Bogusky has emerged as one of the hottest agencies of this decade Partner Alex Bogusky is known in the industry for creating ads that had car buyers flocking to the Mini Cooper Recently, he revived Burger King’s 1960s-era “King” character, making it an icon for a new generation He even brought back the deceased Orville Redenbacher, using old footage of the popcorn tycoon in new ads Now he faces one of his biggest assignments: to make Microsoft seem cooler than rival Apple Crispin Porter + Bogusky is headquartered in Boulder, Colorado—far from the center of advertising action in New York But the firm has grown to 12 times its size in the past six years and will likely continue to expand as it attracts more and more large clients.40 Figure 16.4 shows a hypothetical organization chart for a large advertising agency Although job titles may vary among agencies, the major functions may be classified as creative services; account services; marketing services, including media services, marketing research, and chapter 16 549 ADVERTISING AND PUBLIC RELATIONS Board of Directors figure 16.4 Advertising Agency Organizational Chart Chief Executive Officer Creative Services Writers Artists Production Print Media TV, Radio Marketing Services Finance and Management Account Services Marketing and Advertising Research Sales Promotions Account Supervisors Account Executives sales promotion; and finance and management Whatever assessment check organization structure it selects, an agency often stands or falls on its relationships with its clients The fast pace What is the role of an advertising agency? and pressure of ad agencies are legendary, but good What are some advantages of using an agency? communication remains paramount to maintaining that relationship Public Relations In Chapter 15, we defined public relations as the firm’s communications and relationships with its various publics, including customers, employees, stockholders, suppliers, government agencies, and the society in which it operates Organizational public relations efforts date back to 1889, when George Westinghouse hired two people to publicize the advantages of alternating-current electricity and to refute arguments originally championed by Thomas Edison for direct-current systems Public relations is an efficient, indirect communications channel through which a firm can promote products, although it serves broader objectives than those of other components of promotional strategy It is concerned with the prestige and image of all parts of the organization Today, public relations plays a larger role than ever within the promotional mix, and it may emphasize more marketing-oriented information In addition to its traditional activities, such as surveying public attitudes and creating a good corporate image, PR also supports advertising in promoting the organization’s goods and services Although there are about 50,000 public relations managers in the United States, nearly 200,000 people actually work in the public relations field for both profit-centered and not-for-profit organizations.41 Public relations is in a period of major growth as a result of increased public pressure on industries regarding corporate ethical conduct and environmental and international issues International expenditures on public relations are growing more rapidly than those for advertising and sales promotion Many top executives are becoming more involved in public relations as well The public expects top managers to take greater responsibility for company actions than they have accepted in the past Those who refuse are widely criticized The PR department is the link between the firm and the media It provides press releases and holds news conferences to announce new products, the formation of strategic alliances, management changes, financial results, or similar developments The PR department may also issue its Explain the roles of cross-promotion, public relations, publicity, and ethics in an organization’s promotional strategy 550 part PROMOTIONAL DECISIONS own publications, including newsletters, brochures, and reports When a barge accident caused an oil spill on the lower Mississippi River, the City of New Orleans issued a press release informing the public of corrective actions that would be taken.42 A PR plan begins much like an advertising plan, with research to define the role and scope of the firm’s overall public relations and current challenges Next come strategic decisions on short-term and long-term goals and markets, analysis of product features, and choices of messages and media channels—or other PR strategies such as speaking engagements or contests—for each market Plan execution involves developing messages highlighting the benefits the firm brings to each market The final step is to measure results The Internet has changed some PR planning, as PR representatives now have more direct access to the public instead of having their messages filtered through journalists and the news media This direct access gives them greater control over their messages To win its effort to merge with South Korean truck manufacturer Daewoo, Indian automaker Tata Motors launched a full-scale public relations effort Tata executives took Korean language classes, company communications were translated into Korean, and Tata executives made in-person presentations to local Korean officials as well as the Korean prime minister Tata, India’s largest industrial group, wanted to be viewed in a positive light by the Korean firm and general public, so it used the same public relations strategy it had in its successful quest to acquire the Tetley Tea company in England Tata’s main message was respect for each firm’s workers, which was a key factor in its success with both.43 MARKETING AND NONMARKETING PUBLIC RELATIONS Nonmarketing public relations refers to a company’s messages about general management issues When a company makes a decision that affects any of its publics, input from public relations specialists can help smooth its dealings with those publics A company that decides to close a plant would need advice on how to deal with the local community, while a firm dealing with a long strike might try to achieve a favorable attitude from the public Either of these situations might be considered a crisis, as would a massive product recall Companies that have a plan of action and can effectively handle a crisis by generating positive public relations generally can survive these types of crises, as discussed in the “Etiquette Tips for Marketing Professionals” feature Although companies typically organize their public relations departments separately from their marketing divisions, PR activities invariably affect promotional strategies In contrast, marketing public relations (MPR) refers to narrowly focused public relations activities that directly support marketing goals MPR involves an organization’s relationships with consumers or other groups about marketing concerns and can be either proactive or reactive With proactive MPR, the marketer takes the initiative and seeks out opportunities for promoting the firm’s products, often including distribution of press releases and feature articles For example, companies send press releases about new products to newspapers, television stations, and relevant consumer, business, and trade publications It is a powerful marketing tool because it adds news coverage that reinforces direct promotion activities Reactive MPR responds to an external situation that has potential negative consequences for an organization As China’s reputation began to slip due to recalls of toxic pet food and children’s toys containing lead paint, the U.S public relations firm Ogilvy PR got involved in helping turn the country’s image around The firm provided the Chinese government with guidance in communicating to the American public about the actions being taken to correct the situation.44 PUBLICITY publicity Nonpersonal stimulation of demand for a good, service, place, idea, person, or organization by unpaid placement of significant news regarding the product in a print or broadcast medium The aspect of public relations most directly related to promoting a firm’s products is publicity: nonpersonal stimulation of demand for a good, service, place, idea, person, or organization by unpaid placement of significant news regarding the product in a print or broadcast medium It has been said that if advertising is the hammer, publicity is the nail It creates credibility for the advertising to follow Firms generate publicity by creating special events, holding press conferences, and preparing news releases and media kits Many firms, such as Starbucks and Wal-Mart’s Sam’s Club, built their brands with virtually no advertising Carl’s Jr and the Drycleaning & Laundry Institute chapter 16 551 ADVERTISING AND PUBLIC RELATIONS How to Handle a Business Crisis e very business faces crises during its lifetime While most crises are relatively small—a lost order, a missed meeting with a client—some are genuinely massive in scale Recalls such as the one for hundreds of thousands of toys manufactured overseas because they contained lead paint, warnings about the safety of such foods as tomatoes and lemons, and revelations about unethical mortgage practices create real public relations crises for individual firms as well as entire industries But crises can be managed effectively Here are a few tips for handling a business crisis: concise Provide necessary information and show concern and empathy for those affected Do not speculate or offer untested theories Reassure listeners that communication will continue • Apologize if appropriate If you or your firm has made a mis- take, acknowledge it Apologize and then focus on solutions • Find solutions to the problem Work with colleagues, cus- tomers, or others in the industry, if necessary, to correct the problem causing the crisis This may mean finding both an immediate and a long-term solution • Have a plan in place Establish a plan for dealing with crises • Follow through If you make a promise to resolve the situ- before one ever arises Appoint key people to communicate and lead ation, be sure to follow through If your firm promises to replace all defective products with new ones, so • Pay attention If a bad situation seems to be unfolding, don’t ignore it Get the facts Put your plan into action A lack of action and communication usually makes the situation worse • Communicate You will probably have to communicate several times during the crisis and afterward Be direct and Sources: “How to Maintain Control During a Crisis,” Seegert Marketing.com, www seegertmktg.com, accessed August 13, 2008; “How to Communicate in a Business Crisis,” eHow, www.ehow.com, accessed August 13, 2008; Aileen Pincus, “How to Handle a Crisis,” BusinessWeek, September 24, 2007, www.businessweek.com; Adelia Cellini Linecker, “How to Handle a Crisis,” Investor’s Business Daily, April 12, 2007, www.investorsdaily.com (DLI) recently generated some humorous publicity when the two launched a joint campaign telling consumers not to worry about the “messiest menu items” on Carl’s menus—any stains could be removed by their local drycleaners DLI sent “Chili Cheese Burger & Fries—A Celebration of Messy Goodness” to its drycleaning members, authorizing them to give away coupons for free Chili Cheese Burgers & Fries at Carl’s restaurants Customers ate up the challenge.45 While publicity generates minimal costs compared with other forms of promotion, it does not deliver its message entirely for free Publicity-related expenses include the costs of employing marketing personnel assigned to create and submit publicity releases, printing and mailing costs, and related expenses Firms often pursue publicity to promote their images or viewpoints Other publicity efforts involve organizational activities such as plant expansions, mergers and acquisitions, management changes, and research breakthroughs A significant amount of publicity, however, provides information about goods and services, particularly new products Because many consumers consider news stories to be more credible than advertisements as sources of information, publicity releases often are sent to media editors for possible inclusion in news stories The media audiences perceive the news as coming from the communications media, not the sponsors The information in a publicity release about a new good or service can provide valuable assistance for a television, newspaper, or magazine writer, leading to eventual broadcast or publication Publicity releases sometimes fill voids in publications, and at other times, they become part of regular features In either case, they offer firms valuable supplements to paid advertising messages Unfortunately, not every item of publicity is positive for a firm Because a company cannot control the news that surrounds its decisions and actions, sometimes negative publicity creates poor images in consumers’ minds Airline travel, once regarded as an exciting adventure, has now become more of a chore And as the airline industry struggles to survive increased costs, many 552 part PROMOTIONAL DECISIONS Should Airline Passengers Have to Pay for a Soft Drink? b attling a high cost structure, the airline industry has done everything from slashing the number of flights between cities to cutting routes altogether Now many are charging fees for checking baggage including curbside check-in, a premium for window seats, even a surcharge on pillows, blankets, snacks, and nonalcoholic beverages Adding insult to injury—in the minds of consumer advocates as well as passengers—airlines now charge a fee for booking a flight using frequent flier miles All of this adds up to bad publicity for the airline industry, no matter how much executives say their companies are suffering Should passengers foot the bill for airline services that were once free of charge? PRO As costs increase or decrease, firms must pass along cost increases or decreases to customers Fuel costs have tripled in less than a decade, and the airlines must find ways to combat these cost increases Adopting la carte pricing—charging a small fee for specific services—allows passengers the freedom to pick and choose which services they want and pay for those, without having to pay for those they not want CON The $2 that US Airways now charges for nonalcoholic drinks and the $7 that JetBlue charges for a pillow and blanket annoy customers Similarly, the $15 that American and others charge for the first checked bag doesn’t sit well with flyers Many consumers would rather just pay a higher ticket price Implementing a cluster of new fees all at once only aggravates customers If the industry had adopted these fees over a period of time—say, several years—they would likely be more palatable to passengers and might not generate such bad publicity Summary There appears to be no end in sight for the additional service fees, and the image of the airline industry is taking a beating in the press Rumors circulated that airlines were even considering a surcharge for passengers who weigh significantly more than the average for their height and age Whether this actually happens, the publicity generated around the speculation is not good for the airlines Meanwhile, some airlines are using the publicity to their advantage Southwest Airlines, which has so far not adopted la carte pricing for its services, is poking fun at its competitors The airline has launched a new series of advertisements with the tag line, “Fees don’t fly with us.” Sources: Michael Janofsky, “Airlines May Start Treating Passengers Like Freight,” Bloomberg.com, August 11, 2008, www.bloomberg.com; Kelli B Grant, “7 Nasty Airline Fees and How to Avoid Them,” SmartMoney, August 11, 2008, www smartmoney.com; Christopher Elliott, “Four New Airline Fees and How You Can Avoid Them,” San Francisco Chronicle, August 3, 2008, www.sfgate.com; “Overweight Passengers Cost the Airlines Fuel,” Newsweek, August 1, 2008, current.newsweek.com carriers have cut flights, raised fares, and added all sorts of fees The result has been much bad publicity, as discussed in the “Solving an Ethical Controversy” feature Cross-Promotion cross-promotion Promotional technique in which marketing partners share the cost of a promotional campaign that meets their mutual needs In recent years, marketers have begun to combine their promotional efforts for related products using a technique called cross-promotion, in which marketing partners share the cost of a promotional campaign that meets their mutual needs—an important benefit in an environment of rising media costs Relationship marketing strategies such as comarketing and cobranding, discussed in Chapter 10, are forms of cross-promotion Marketers realize these joint efforts chapter 16 553 ADVERTISING AND PUBLIC RELATIONS between established brands provide greater benefits in return for assessment check both organizations; investments of time and money on such promotions will become increasingly important to many Distinguish between marketing public partners’ growth prospects Recently Coldplay’s “Viva relations and nonmarketing public relations la Vida” album was cross-promoted with What is publicity? Apple’s iTunes Web site What are the advantages of cross-promotion? Measuring Promotional Effectiveness Each element of the promotional mix represents a major expenditure for a firm Although promotional prices vary widely, advertisers typically pay a fee based on the cost to deliver the message to viewers, listeners, or readers—the so-called cost per thousand (CPM) Billboards are the cheapest way to spend advertising dollars, with television and some newspapers the most expensive But while price is an important factor in media selection, it is by no means the only one—or all ads would appear on billboards! Because promotion represents such a major expenditure for many firms, they need to determine whether their campaigns accomplish appropriate promotional objectives Companies want their advertising agencies and in-house marketing personnel to demonstrate how promotional programs contribute to increased sales and profits Marketers are well aware of the number of advertising messages and sales promotions consumers encounter daily, and they know these people practice selective perception and simply screen out many messages By measuring promotional effectiveness, organizations can evaluate different strategies, prevent mistakes before spending money on specific programs, and improve their promotional programs As the earlier discussion of promotional planning explained, any evaluation program starts with objectives and goals; otherwise, marketers have no yardstick against which to measure effectiveness However, determining whether an advertising message has achieved its intended objective is one of the most difficult undertakings in marketing Sales promotions and direct marketing are somewhat easier to evaluate because they evoke measurable consumer responses Like advertising, public relations is also difficult to assess on purely objective terms Explain how marketers assess promotional effectiveness MEASURING ADVERTISING EFFECTIVENESS Measures to evaluate the effectiveness of advertising, although difficult and costly, are essential parts of any marketing plan Without an assessment strategy, marketers will not know whether their advertising achieves the objectives of the marketing plan or whether the dollars in the advertising budget are well spent To answer these questions, marketers can conduct two types of research Media research assesses how well a particular medium delivers the advertiser’s message, where and when to place the advertisement, and the size of the audience Buyers of broadcast time base their purchases on estimated Nielsen rating points, and the networks have to make good if ratings not reach promised levels Buyers of print advertising space pay fees based on circulation Circulation figures are independently certified by specialized research firms The other major category, message research, tests consumer reactions to an advertisement’s creative message Pretesting and posttesting, the two methods for performing message research, are discussed in the following sections As the role of marketing expands in many organizations, marketers are employing increasingly sophisticated techniques to measure marketing effectiveness not only throughout the company but through the entire marketing channel As more firms also conduct multichannel promotional efforts, keeping track of the data is a challenge However, when they so, they can better track which channels are most effective.46 Pretesting To assess an advertisement’s likely effectiveness before it actually appears in the chosen medium, marketers often conduct pretesting The obvious advantage of this technique is the opportunity to bri efly speaking “If you think advertising doesn’t pay—we understand there are 25 mountains in Colorado higher than Pikes Peak Can you name one?” —Anonymous 554 part brs peaking iefl y “The most important word in the vocabulary of advertising is TEST If you pretest your product with consumers, and pretest your advertising, you will well in the marketplace.” —David Ogilvy (1911–1999) FOUNDER, OGILVY & MATHER ADVERTISING AGENCY PROMOTIONAL DECISIONS evaluate ads when they are being developed Marketers can conduct a number of different pretests, beginning during the concept phase in the campaign’s earliest stages, when they have only rough copy of the ad, and continuing until the ad layout and design are almost completed Pretesting employs a variety of evaluation methods For example, focus groups can discuss their reactions to mock-ups of ads using different themes, headlines, or illustrations To screen potential radio and television advertisements, marketers often recruit consumers to sit in a studio and indicate their preferences by pressing two buttons, one for a positive reaction to the commercial and the other for a negative reaction Sometimes proposed ad copy is printed on a postcard that also offers a free product; the number of cards returned represents an indication of the copy’s effectiveness Blind product tests are also frequently used In these tests, people are asked to select unidentified products on the basis of available advertising copy Mechanical and electronic devices offer yet another method of assessing how people read advertising copy One mechanical test uses a hidden camera to photograph eye movements of readers The results help advertisers determine headline placement and copy length Another mechanical approach measures the galvanic skin response—changes in the electrical resistance of the skin produced by emotional reactions Audiobrain creates unique sounds that helps advertisers brand their products; when consumers hear the sound—whether it’s a tune, a voice, a bird call, a drop of rain, or another sound—they automatically think of the brand McDonald’s tests some of Audiobrain’s created sounds in different restaurants to evoke different moods, then evaluates how those sound-created moods affect customers If they are successful, the sounds become a part of in-store advertising.47 Posttesting figure 16.5 Magazine Advertisement with Starch Scores © General Motors Corp Used with permission, GM Media Archives Posttesting assesses advertising copy after it has appeared in the appropriate medium Pretesting generally is a more desirable measurement method than posttesting because it can save the cost of placing ineffective ads However, posttesting can help in planning future advertisements and in adjusting current advertising programs In one of the most popular posttests, the Starch Readership Report interviews people who have read selected magazines to determine whether they observed various ads in them A copy of the magazine is used as an interviewing aid, and each interviewer starts at a different point in the magazine For larger ads, respondents are also asked about specifics, such as headlines and copy Figure 16.5 shows a magazine advertisement with its Starch scores All such readership tests, also called recognition tests, assume that future sales are related to advertising readership Unaided recall tests are another method of posttesting the effectiveness of advertisements Respondents not see copies of the magazine after their initial reading but are asked to recall the ads from memory Podcasts are fast "Associated %" indicates the "Noted %" indicates the percentage of percentage of readers interviewed readers interviewed who saw any part becoming a popular who saw any part of the ad that of the advertisement 64% noted this ad medium for advertisers indicates the brand because posttests reveal or advertiser 62% that unaided recall associated this ad with Chevrolet among respondents can be as high as 68 percent Podtrac conducts such posttests, "Read Most %" indicates the and observes that this is percentage of a much higher unaided readers interviewed recall rate than those who read more than for other offline and half of the body copy 22% read most of online media.48 this ad Inquiry tests are another popular form "Read Some %" indicates the percentage of posttest Advertiseof readers interviewed who read any amount ments sometimes offer of the body copy 61% read some of this ad gifts—generally product chapter 16 ADVERTISING AND PUBLIC RELATIONS samples—to people who respond to them The number of inquiries relative to the advertisement’s cost forms a measure of its effectiveness Split runs allow advertisers to test two or more ads at the same time Although advertisers traditionally place different versions in newspapers and magazines, split runs on cable television systems frequently test the effectiveness of TV ads With this method, advertisers divide the cable TV audience or a publication’s subscribers in two; half view advertisement A and the other half view advertisement B The relative effectiveness of the alternatives is then determined through inquiries or recall and recognition tests Regardless of the exact method they choose, marketers must realize that pretesting and posttesting are expensive efforts As a result, they must plan to use these techniques as effectively as possible MEASURING PUBLIC RELATIONS EFFECTIVENESS As with other forms of marketing communications, organizations must measure PR results based on their objectives both for the PR program as a whole and for specific activities In the next step, marketers must decide what they want to measure This choice includes determining whether the message was heard by the target audience and whether it had the desired influence on public opinion The simplest and least costly level of assessment measures outputs of the PR program: whether the target audience received, paid attention to, understood, and retained the messages directed to them To make this judgment, the staff could count the number of media placements and gauge the extent of media coverage They could count attendees at any press conference, evaluate the quality of brochures and other materials, and pursue similar activities Formal techniques include tracking publicity placements, analyzing how favorably their contents portrayed the company, and conducting public-opinion polls To analyze PR effectiveness more deeply, a firm could conduct focus groups, interviews with opinion leaders, and more detailed and extensive opinion polls The highest level of effectiveness measurement looks at outcomes: Did the PR program change people’s opinions, attitudes, and behavior? PR professionals measure these outcomes through before-and-after polls (similar to pretesting and posttesting) and more advanced techniques such as psychographic analysis (discussed in Chapter 5) EVALUATING INTERACTIVE MEDIA Marketers employ several methods to measure how many users view Web advertisements: hits (user requests for a file), impressions (the number of times a viewer sees an ad), and click-throughs (when the user clicks the ad to get more information) View-through rates measure responses over time However, some of these measures can be misleading Because each page, graphic, or multimedia file equals one hit, simple interactions can easily inflate the hit count, making it less accurate To increase effectiveness, advertisers must give viewers who click through their site something good to see Successful Web campaigns use demonstrations, promotions, coupons, and interactive features Internet marketers price ad banners based on cost assessment check per thousand (CPM) Web sites that sell advertising typically guarantee a certain number of impres1 What is CPM and how is it measured? sions—the number of times an ad ban2 Distinguish between media research and message ner is downloaded and presumably research seen by visitors Marketers then set a rate based on that guarantee times the Describe several research techniques used in posttesting CPM rate Ethics in Nonpersonal Selling Chapter introduced the topic of marketing ethics and noted that promotion is the element in the marketing mix that raises the most ethical questions People actively debate the question of whether marketing communications contribute to better lives The final section of this chapter takes a closer look at ethical concerns in advertising and public relations 555 556 part brs peaking iefl y “The very first law in advertising is to avoid the concrete promise and cultivate the delightfully vague.” —Bill Cosby (b 1937) COMEDIAN, WRITER, AND TELEVISION PRODUCER PROMOTIONAL DECISIONS ADVERTISING ETHICS Even though ads geared to children, ads promoting alcohol, and ads touting prescription drugs are technically legal, these types of promotions raise ethical issues In the case of advertising aimed at children, when it comes to influencing parents’ purchase decisions, nothing beats influencing kids By promoting goods and services directly to children, firms can sell not only to them but to the rest of the household, too But many parents and consumer advocates question the ethics of promoting directly to children Their argument: at a time when kids need to learn how to consume thoughtfully, they are inundated with promotional messages teaching the opposite Another issue is the insertion of product messages in media programs without full disclosure of the marketing relationship to audiences To woo younger consumers, especially teens and those in their 20s, advertisers attempt to make these messages appear as different from advertisements as possible; they design ads that seem more like entertainment Amid accusations that its ads were misleading, drug manufacturer Pfizer—maker of the cholesterol-lowering drug Lipitor—canceled ads featuring Robert Jarvik, one of the people who pioneered the invention of artificial hearts Critics contended the ads created the impression he was a heart specialist However, although Jarvik does have a medical degree, he is not a cardiologist and does not have a license to practice medicine.49 In cyberspace ads, it is often difficult to separate advertising from editorial content because many sites resemble magazine and newspaper ads or television infomercials Another ethical issue surrounding advertising online is the use of cookies, small text files automatically downloaded to a user’s computer whenever a site is visited Each time the user returns to that site, the site’s server accesses the cookie and gathers information: What site was visited last? How long did the user stay? What was the next site visited? Marketers claim this device helps them determine consumer preferences and argue that cookies are stored in the user’s PC, not the company’s Web site The problem is that cookies can and collect personal information without the user’s knowledge Puffery and Deception Puffery refers to exaggerated claims of a product’s superiority or the use of subjective or vague statements that may not be literally true A company might advertise the “most advanced system” or claim that its product is “most effective” in accomplishing its purpose Exaggeration in ads is not new Consumers seem to accept advertisers’ tendencies to stretch the truth in their efforts to distinguish their products and get consumers to buy This inclination may provide one reason that advertising does not encourage purchase behavior as successfully as sales promotions A tendency toward puffery does raise some ethical questions, though: Where is the line between claims that attract attention and those that provide implied guarantees? To what degree advertisers deliberately make misleading statements? The Uniform Commercial Code standardizes sales and business practices throughout the United States It makes a distinction between puffery and any specific or quantifiable statement about product quality or performance that constitutes an “express warranty,” which obligates the company to stand behind its claim General boasts of product superiority and vague claims are puffery, not warranties They are considered so self-praising or exaggerated that the average consumer would not rely on them to make a buying decision A quantifiable statement, on the other hand, implies a certain level of performance For example, tests can establish the validity of a claim that a brand of long-life light bulbs outlasts three regular light bulbs ETHICS IN PUBLIC RELATIONS Several public relations issues open organizations to criticism Various PR firms perform services for the tobacco industry; publicity campaigns defend unsafe products Also, marketers must weigh ethics before they respond to negative publicity For example, firms admit to problems or product deficiencies, or they try to cover them up? It should be noted that PR practitioners violate the Public Relations Society of America’s Code of Professional Standards if they promote products or causes widely known to be harmful to others chapter 16 557 ADVERTISING AND PUBLIC RELATIONS g reater portions of corporate ad budgets will migrate to the Web in the near future This trend means marketers must be increasingly aware of the benefits and pitfalls of Internet advertising But they should not forget the benefits of other types of advertising as well Promotion industry experts agree that e-business broadens marketers’ job tasks, though many promotional objectives still remain the same Today, advertisers need 75 different ways to market their products in 75 countries in the world and innumerable market segments In years to come, advertisers also agree that channels will become more homogeneous while markets become more fragmented Review of Chapter Objectives Identify the three major advertising objectives and the two basic categories of advertising The three major objectives of advertising are to inform, to persuade, and to remind The two major categories of advertising are product advertising and institutional advertising Product advertising List the major advertising strategies The major strategies are comparative advertising, which makes extensive use of messages with direct comparisons between competing brands; celebrity, which uses famous spokespeople to boost a plan, developing a message, developing and preparing the ad, and selecting the appropriate medium (or media) Advertisements often appeal to consumers’ emotions such as fear or humor Identify the major types of advertising appeals and discuss their uses Advertisers often focus on making emotional appeals to fear, humor, sex, guilt, or fantasy While they can be effective, marketers need to recognize that fear appeals can backfire; people’s sense of an advertising message; retail, which includes all advertising by retail stores selling products directly to consumers; and interactive, which encourages two-way communication either via the Internet or kiosks Describe the process of creating an advertisement An advertisement evolves from pinpointing goals, such as educating consumers, enhancing brand loyalty, or improving a product’s image From those goals, marketers move to the next stages: creating involves the nonpersonal selling of a good or service Institutional advertising is the nonpersonal promotion of a concept, idea, or philosophy of a company or organization humor can differ according to sex, age, and other factors; and use of sexual imagery must not overstep the bounds of taste List and compare the major advertising media The major media include broadcast (television and radio), newspapers and magazines, direct mail, outdoor, and interactive Each medium has benefits and drawbacks Newspapers are flexible and dominate local markets Magazines can target niche markets Interactive media encourage two-way communication Outdoor advertising in a high-traffic location reaches many people every day; television and radio reach even more Direct mail allows effective segmentation 558 part 6 Outline the organization of the advertising function and the role of an advertising agency Within a firm, the advertising department is usually a group that reports to a marketing executive Advertising departments generally include research, art and design, copywriting, and media frequently used in new-product introductions Although publicity is welcomed by firms, negative publicity is easily created when a company enters a gray ethical area with the use of its promotional efforts Therefore, marketers should be careful to construct ethically sound promotional campaigns, avoiding such practices as puffery and deceit In addition, negative publicity may occur as a result of some action taken—or failed to be taken—by a firm, such as a product recall Explain how marketers assess promotional effectiveness The effectiveness of advertising can be measured by both pretesting and posttesting Pretesting is the assessment of an ad’s effectiveness before it is actually used It includes such methods as sales conviction tests and blind product tests Posttesting assessment check: 1.1 analysis Outside advertising agencies assist and support the advertising efforts of firms These specialists are usually organized by creative services, account services, marketing services, and finance Explain the roles of cross-promotion, public relations, publicity, and ethics in an organization’s promotional strategy Cross-promotion, illustrated by tie-ins between popular movies and fast-food restaurants, permits the marketing partners to share the cost of a promotional campaign that meets their mutual needs Public relations consists of the firm’s communications and relationships with its various publics, including customers, employees, stockholders, suppliers, government, and the society in which it operates Publicity is the dissemination of newsworthy information about a product or organization This information activity is PROMOTIONAL DECISIONS is the assessment of the ad’s effectiveness after it has been used Commonly used posttests include readership tests, unaided recall tests, inquiry tests, and split runs answers What are the goals of institutional advertising? Institutional advertising promotes a concept, an idea, a philosophy, or the goodwill of an industry, company, organization, person, geographic location, or government agency 1.2 At what stage in the product lifecycle are informative ads used? Why? Informative ads are common in the introductory stage of the product lifecycle 1.3 What is reminder advertising? Reminder advertising strives to reinforce previous promotional activity by keeping the name of a good, service, organization, person, place, idea, or cause before the public 2.1 What is comparative advertising? Comparative advertising makes extensive use of messages with direct comparisons between competing brands 2.2 What makes a successful celebrity testimonial? Successful celebrity ads feature figures who are credible sources of information for the promoted product 2.3 What is cooperative advertising? In cooperative advertising, a manufacturer or wholesaler shares advertising costs with a retailer chapter 16 3.1 ADVERTISING AND PUBLIC RELATIONS What is an advertising campaign? An advertising campaign is a series of different but related ads that use a single theme and appear in different media within a specified time period 3.2 What are an advertisement’s three main goals? Advertising’s three main goals are to educate consumers about product features, enhance brand loyalty, and improve consumer perception of the brand 4.1 What are some common emotional appeals used in advertising? Advertisers often focus on making emotional appeals to fear, humor, sex, guilt, or fantasy 4.2 What are the main types of interactive ads? Interactive ads include Internet banners, pop-ups, keyword ads, advertorials, advergames, and interstitials 5.1 What types of products are banned from advertising on television? Tobacco goods such as cigarettes, cigars, and smokeless tobacco are banned from television advertising 5.2 What are some advantages radio offers to advertisers? What about newspapers? Radio ads allow marketers to target a captive audience and offer low cost, flexibility, and mobility Newspaper ads are flexible and provide nearly complete coverage of the market Readers can also refer back to newspaper ads 5.3 Define media scheduling and identify the most important factors influencing the scheduling decision Media scheduling sets the timing and sequence for a series of advertisements Sales patterns, repurchase cycles, and competitors’ activities are the most important variables in the scheduling decision 6.1 What is the role of an advertising agency? An advertising agency’s role is to help businesses plan and prepare advertisements 6.2 What are some advantages of using an agency? Advantages of using an ad agency are the availability of highly qualified specialists who provide creativity and objectivity and sometimes cost savings 7.1 Distinguish between marketing public relations and nonmarketing public relations Marketing public relations refers to narrowly focused public relations activities that directly support marketing goals Nonmarketing public relations refers to a company’s messages about general issues 7.2 What is publicity? Publicity is nonpersonal stimulation of demand for a good, service, place, idea, person, or organization by unpaid placement of significant news regarding the product in a print or broadcast medium 7.3 What are the advantages of cross-promotion? Cross-promotion divides the cost of a promotional campaign that meets the mutual needs of marketing partners and provides greater benefits for both in return 559 560 part 8.1 PROMOTIONAL DECISIONS What is CPM and how is it measured? CPM is cost per thousand, a fee based on cost to deliver the advertisers’ message to viewers, listeners, or readers 8.2 Distinguish between media research and message research Media research assesses how well a particular medium delivers the advertiser’s message, where and when to place the ad, and the size of the audience Message research tests consumer reactions to an advertisement’s creative message 8.3 Describe several research techniques used in posttesting Commonly used posttests include readership tests, unaided recall tests, inquiry tests, and split runs Marketing Terms You Need to Know advertising 531 product advertising 532 institutional advertising 532 informative advertising 532 advertising campaign 537 advertising agency 548 publicity 550 cross-promotion 552 persuasive advertising 532 reminder advertising 532 comparative advertising 533 cooperative advertising 535 Other Important Marketing Terms retail advertising 535 interactive advertising 536 banners 540 media scheduling 547 nonmarketing public relations 550 marketing public relations (MPR) 550 media research 553 message research 553 pretesting 553 posttesting 554 split runs 555 cookies 556 puffery 556 Assurance of Learning Review Identify and define the two broad categories of advertising Give an example of each Identify and describe the different advertising media Which are on the rise? Which are facing possible decline? What are the three primary objectives of advertising? Give an example of when each one might be used What is the role of an advertising agency? Describe each of the four major advertising strategies How can firms use marketing public relations (MPR) to their advantage? Identify the different types of emotional appeals in advertising What are the benefits and pitfalls of each? Describe the ways in which marketers assess promotional effectiveness How are interactive ads different from traditional ads? How are they similar? 10 What is puffery? Where does it cross the line from ethical to unethical? chapter 16 561 ADVERTISING AND PUBLIC RELATIONS Projects and Teamwork Exercises Choose a print ad to cut out and place on a poster board With a marker, identify all the elements of the ad Then identify what you believe is the objective of the ad—to inform, persuade, or remind Finally, identify the strategy used—comparative, celebrity, or retail If there is an interactive component offered, note that, too According to Advertising Age, some of the top advertising campaigns of all time include Nike’s “Just it” (1988), McDonald’s “You deserve a break today” (1971), and Burger King’s “Have it your way” (1973).50 With a classmate, choose an ad campaign you think is effective—based on its slogan, images, storyline, or whatever strikes you Present the ad and your evaluation of it to the class With a classmate, create your own plan for cross-promoting two products you think would be good candidates for crosspromotion Access the Internet and surf around to some sites that interest you How many banner ads or pop-ups you see? Do you like to view these ads, or you find them intrusive? Which are most appealing? Which are least? With a classmate, choose a product you have purchased in the past and come up with a plan for using a nontraditional advertising medium—such as balloons, T-shirts, water bottles, anything you imagine will grab people’s attention and promote the product effectively If possible, create a prototype for your ad If not, create a sketch of your ad Present your new ad to the class Do outdoor ads and pop-up ads have any characteristics in common? What are they? Think back to any good or bad publicity you have heard about a company or its products recently If it was good publicity, how was it generated and what media were used? If it was bad publicity, where did you find out about it and how did the firm try to control or eliminate the situation? One writer says that children exposed to puffery in ads grow into teens who are healthily skeptical of advertising claims Find several print ads aimed at children, and identify what you think might be puffery in these ads Select one ad you think children would be influenced by and rewrite the ad without the puffery Critical-Thinking Exercises What are some of the benefits and drawbacks of using celebrity testimonials in advertising? Identify an ad you believe makes effective use of a celebrity’s endorsement, and explain why Choose one of the following products and outline a possible media schedule for advertising a toy b line of bathing suits c line of candles Select two different advertisers’ television or print ads for the same product category (cars or soft drinks, for instance) and decide what emotion each appeals to Which ad is more effective and why? Ethics Exercise In an effort to target the youngest of consumers, some firms have begun to advertise tiny mobile phones sized to fit the hands of children The MO1, developed by toy firm Imaginarium and the Spanish communications firm Telefonica, is designed specifically for the younger set—it’s a real cell phone, not a toy In Europe, where the phone is marketed, some parents and consumer groups are objecting to the marketing of the product, noting that longterm health effects of cell phone use are unknown, and young children are quickly impressed by advertising “The mobile telephone industry is acting like the tobacco industry by designing products that addict the very young,” argues one environmental advocacy group for children.51 Do you believe that Imaginarium and Telefonica are acting in an ethical manner? Why or why not? Be sure to use concepts from this chapter to build your argument What steps might Imaginarium and Telefonica take to develop good public relations and generate positive publicity surrounding their product? 562 part PROMOTIONAL DECISIONS Internet Exercise Preroll video ads Visit the Web sites listed here to learn more about preroll video ads After reviewing the material, answer the following questions: a What is a preroll video ad? b How many consumers react to preroll video ads? c How effective are preroll video ads compared with more traditional forms of advertising? advertising.com/publishers-video.php internetadsales.com/modules/news/article php?storyid=4360 alleyinsider.com/2008/01/preroll-video-ads-effectiveconsumers-hatethem.html btobonline.com/apps/pbcs.dll/article?aid=/20070509/ free/70509003/1078 beet.tv/2006/10/online_video_ad.html Newspaper advertising Go the Web site of Newspaper Advertising.com (newspaperadvertising.com/articles html) Read two articles on the effective use of newspaper advertising Summarize what you learned and bring it to class in order to participate in a class discussion on the topic Advertising history Visit the Advertising Age Web site to access information on advertising during the 20th century (adage.com/century) Answer the following questions: a Who were the top ten advertisers? b What were the top five advertising campaigns? What were the top three advertising jingles? What were the top two advertising slogans? What was the top five advertising icons? c Are any of the top campaigns, slogans, jingles, or icons still in use today? d Which current campaigns, slogans, jingles, and icons might make the list for the 21st century? Explain your answers Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google Case 16.1 Great Political Ads: Which Do You Remember? Some people make a career of creating political campaign ads; others make a career of evaluating or studying them As a consumer, if you live in one of the states where presidential primaries are hotly contested, you get your fill of ads before the official nominations and general campaign really get rolling The fact that there are so many political ads says something about the way presidential candidates are marketed in the United States During the most recent presidential election, more than $800 million was estimated to be spent on TV ads alone, shattering the record of $500 million in the previous race TV networks benefited from the dramatic increase, as auto manufacturers, real estate firms, and financial service advertisers cut back on their advertising budgets “Every month, every quarter we’re setting records,” reported CBS chief financial officer Fred Reynolds in regard to political advertising Of course, some presidential campaign ads are memorable, and others are not Some are memorable for their creativity, wit, or ability to persuade voters in the candidate’s favor Others are memorable for their lack of taste or their inability to convey a positive message Some are humorous, while others are unintentionally funny The most recent crop is no exception Several candidates tried to portray their physical fitness by jogging for the camera, while others focused on what they supposed were their own unique qualifications But certain words and images linked all of the ads for the recent election Barack Obama is said to have used the word change in 37 percent of his ads Flags were a popular symbol in TV ads John McCain’s ads included the American flag 77 percent of the time TV ads have not always been the cornerstone of U.S presidential elections In fact, they didn’t become prominent until the early 1950s, when Dwight D Eisenhower’s campaign hired the marketer who wrote the M&M line, “Melts in your mouth, not in your hands,” to create advertisements for their candidate Since then, independent organizations have compiled lists of the best and worst ads—understanding that a good or bad TV ad could turn a campaign around The Independent Film Channel cites an ad by President Lyndon Johnson’s campaign that depicted his opponent, Barry Goldwater, as an extremist ready to use nuclear bombs at a whim as the most effective political ad in history The ad was chapter 16 563 ADVERTISING AND PUBLIC RELATIONS actually pulled from the air by Johnson, but it was aired so many times by news broadcasts because of its controversial nature that voters remembered the ad when they went to the voting booth Another ad on the IFC’s top ten list is John Kennedy’s ad asking, “Is Nixon Experienced?” The tagline certainly resonates with viewers who watched commercials through the most recent election, as John McCain repeatedly questioned his opponent Barack Obama’s experience and readiness to lead In a new trend, more and more political ads appear online Interest groups, not-for-profit organizations, and candidates’ campaigns have all jumped into the Internet advertising arena Reviewers cite the online ads as funnier, sharper, and more intelligent than those made for television While they may not yet reach enough voters to decide an entire election, they are entertaining— and the Internet quite likely represents the campaign advertising medium of the future Video Case 16.2 Questions for Critical Thinking Which advertisements you remember from the most recent presidential election? Which were most effective? Which were the least effective? Why? How political advertisements compare with advertisements for goods and services? How are they similar? In what ways are they different? Sources: Alexander Barnes Dryer, “Not for Broadcast,” Slate, www.slate.com, accessed August 11, 2008; Sarah Scully and William Rabbe, “IFC List Month: Top 10 Presidential Campaign Ads,” Independent Film Channel, July 9, 2008, ifc com/politics; “TV Ad Spending to Set Record in Presidential Race,” Reuters, July 2, 2008, www.reuters.com; “Presidential Campaign Ads Top $100 Million,” U.S News & World Report, February 4, 2008, www.usnews.com; Rick Klein, “The Year’s Best Political Ads,” ABC News, December 11, 2007, abcnews.go.com; “Top of the Ticket,” Los Angeles Times, October 2007, www.latimesblogs.latimes.com Advertising and Public Relations at Ogden Publications The written video case on Ogden Publications appears on page VC–15 The Ogden Publications video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 564 17 TER Sales Promotion © Handout/KRT/Newscom CHAP Personal Selling and Zappos.com’s Representatives and Customers: The Perfect Fit Need a great pair of shoes for your upcoming interview? You could go to the mall and dodge the crowds as you trawl the footwear aisles.Or you could simply go online to Zappos.com and spend a relatively painless few minutes perusing the hundreds of styles on display When you order your shoes, you get free, next-day delivery Not a perfect fit? No worries— you’ve got a year to return them Zappos.com is the brainchild of 34-yearold Tony Hsieh, a Harvard grad and self-made millionaire who sold his first business, at age 24, to Microsoft In 1999, he invested $500,000 in a struggling dot-com that he remade into Zappos Hsieh has molded Zappos into a customer-service giant known for its free shipping, 365-day return policy, and friendly, outgoing customer-service representatives who will almost anything to help a customer 565 PERSONAL SELLING AND SALES PROMOTION Hsieh regards customer service as the most important investment a business owner can make—so important that, when he saw how his Las Vegas customer-service center was growing, he moved the firm’s corporate headquarters there from San Francisco Like Las Vegas, the Zappos.com customer-service center is a 24/7 operation Its 350 phone reps ride herd on an inventory of million shoes in 200,000 styles from 1,200 shoe manufacturers, including some of the world’s most upscale brands Hsieh says providing excellent customer service is an extension of a company’s brand For this reason, Zappos’s customer-service representatives are carefully selected and trained—and then encouraged to be themselves For example, they don’t work from a script They are hired for their sociable personalities and empowered to what they think is needed to ensure a customer’s satisfaction If Zappos doesn’t have evolution of a brand a style in the right size or color, the rep is likely to check competitors’ sites or supply the phone number of a competitor—all in the name of customer service Unlike most customer-service centers, where representatives are evaluated on how many calls they can resolve in an hour, Zappos reps are encouraged to chat with their callers and build relationships Says Hsieh, “For us, every interaction is a branding opportunity.” It appears to be working: at last count, the company had more than 7.7 million customers in its database Zappos service representatives are salaried and receive no monetary incentives to sell more What’s more, the higher you look in the organization, the more likely the job is compensated below market rates So what is it about Zappos that prompts such employee loyalty? It’s the wacky culture, say industry observers Employees are encouraged to have fun on the job The company provides free lunch, snacks, and beverages daily, and it hosts weekly costume parties Zappos job fairs feature a speed-interviewing process that resembles speed-dating, in which candidates meet with several “Zapponians” and are encouraged to let their true self shine through Candidates may also undergo a “cultural fit interview,” which includes such questions as “On a scale of to 10, how weird are you?” Hsieh says 1s are a little too buttoned down, but he concedes that 10s are probably “too psychotic for us.” For the most part, he says, the company hires 7s or 8s Before a new hire handles customers, he or she receives four weeks of training to become immersed in the unique Zappos culture Anyone who decides not to stick around can bail out and receive three weeks’ severance pay Clearly, Hsieh’s system is working; the company recently netted $10 million in profit Not a bad return on a $500,000 investment.1 Describe the role of today’s salesperson Describe the four sales channels Describe the major trends in personal selling Identify and briefly describe the three basic sales tasks Outline the seven steps in the sales process Identify the seven basic functions of a sales manager Explain the role of ethical behavior in personal selling Describe the role of sales promotion in the promotional mix, and identify the different types of sales promotions Zappos.com differentiates itself from most of its retailing competitors, and dot-coms in general, by emphasizing unparalleled customer service But success didn’t come overnight First, management had to analyze the obstacles inherent in shoe shopping in general and online Then, the company worked to remove each obstacle to offer an experience that customers would find superior to shopping in a brick-and-mortar shoe store or shopping at another online site For example, customers can shop Zappos.com or talk to a customer-service representative 24 hours a day, seven days a week; most orders arrive the next day; shipping is always free; and customers have one year to return merchandise for a full refund Zappos has grown without advertising Instead, the company relies on word of mouth to build its customer base In fact, three of four sales come from repeat customers • CEO Tony Hsieh says customer loyalty is a key element in his company’s culture How you think customer loyalty affects an organization’s culture? Objectives chapter 17 566 part PROMOTIONAL DECISIONS evolution of a brand continued • Zappos doesn’t offer coupons, twofor-one promotions, or specials to build revenues because the company has said it doesn’t want customers to buy solely on price Do you think this is a good strategy? Why? of several well-defined factors are present: chapter overview (1) customers are geographically concentrated; personal selling Interpersonal influence process involving a seller’s promotional presentation conducted on a person-toperson basis with the buyer The Zappos story illustrates how essential it is (2) individual orders account for large amounts for salespeople and other company represen- of revenue; (3) the firm markets goods and ser- tatives to connect with customers, not merely vices that are expensive, are technically com- sell products In exploring personal selling plex, or require special handling; (4) trade-ins strategies, this chapter gives special attention are involved; (5) products move through short to the relationship-building opportunities that channels; or (6) the firm markets to relatively the selling situation presents few potential customers For example, personal Personal selling is the process of a sell- selling is an important component of the pro- er’s person-to-person promotional presenta- motional mix for a car dealer, although both tion to a buyer The sales process essentially is dealers and manufacturers also rely heavily on interpersonal, and it is basic to any enterprise advertising Because cars and trucks are expen- Accounting, engineering, human resource sive, customers usually like to go to a dealer- management, production, and other organi- ship to compare models, discuss a purchase, or zational activities produce no benefits unless a obtain service, and trade-ins often are involved seller matches the needs of a client or customer So a dealer’s salespeople provide valuable The nearly 16 million people employed in sales assistance to the customer Table 17.1 summa- occupations in the United States testify to the rizes the factors that influence the importance importance of selling Personal selling is much of personal selling in the overall promotional more costly and time-consuming than other mix based on four variables: consumer, prod- types of promotion because of its direct contact uct, price, and marketing channels This with customers This makes personal selling the chapter also explores sales promotion, which single largest marketing expense in many firms includes all marketing activities—other than Personal selling is a primary component personal selling, advertising, and publicity— of a firm’s promotional mix when one or more that enhance promotional effectiveness chapter 17 567 PERSONAL SELLING AND SALES PROMOTION t a b l e 17 Factors Affecting the Importance of Personal Selling in the Promotional Mix Variable Conditions That Favor Personal Selling Conditions That Favor Advertising Consumer Geographically concentrated Geographically dispersed Relatively low numbers Relatively high numbers Expensive Inexpensive Technically complex Simple to understand Custom made Standardized Special handling requirements No special handling requirements Transactions frequently involve trade-ins Transactions seldom involve trade-ins Price Relatively high Relatively low Channels Relatively short Relatively long Product The Evolution of Personal Selling Selling has been a standard business activity for thousands of years As long ago as 2000 b.c., the Code of Hammurabi protected the rights of the Babylonian salesman, who was referred to as a peddler Throughout U.S history, selling has been a major factor in economic growth Even during the 1700s, Yankee peddlers pulled their carts full of goods from village to village and farm to farm, helping expand trade among the colonies Today, professional salespeople are problem solvers who focus on satisfying the needs of customers before, during, and after sales are made Armed with knowledge about their firm’s goods or services, those of competitors, and their customers’ business needs, salespeople pursue a common goal of creating mutually beneficial long-term relationships with customers Personal selling is a vital, vibrant, dynamic process As domestic and foreign competition increases the emphasis on productivity, personal selling is taking on a more prominent role in the marketing mix Salespeople must communicate the advantages of their firms’ goods and services over those of competitors They must be able to the following: ୴ Focus on a customer’s situation and needs and create solutions that meet those needs ୴ Follow through and stay in touch before, during, and after a sale ୴ Know the industry and have a firm grasp, not only of their own firm’s capabilities but also of their competitors’ abilities ୴ Work hard to exceed their customers’ expectations, even if it means going above and beyond the call of duty Relationship marketing affects all aspects of an organization’s marketing function, including personal selling This means marketers in both internal and external relationships must develop different sales skills Instead of working alone, many salespeople now unite their efforts in sales teams The customer-focused firm wants its salespeople to form long-lasting relationships with buyers by providing high levels of customer service rather than going for quick sales Even the way salespeople perform their jobs is constantly changing Growing numbers of companies have integrated communications and computer technologies into the sales routine These trends are covered in more detail later in the chapter Describe the role of today’s salesperson 568 part PROMOTIONAL DECISIONS Personal selling is an attractive career choice for today’s college students According to the Bureau of Labor Statistics, jobs in sales and related fields are expected to grow by about percent over the next decade Company executives usually recognize a good salesperson assessment check as a hard worker who can solve problems, communicate clearly, and be consistent What is personal selling? In fact, many corporations are headed What is the main focus of today’s salespeople? by executives who began their careers in sales The Four Sales Channels Describe the four sales channels Personal selling occurs through several types of communication channels: over-the-counter selling, including online selling; field selling; telemarketing; and inside selling Each of these channels includes business-to-business and direct-to-customer selling Although telemarketing and online selling are lower-cost alternatives, their lack of personal interaction with existing or prospective customers often makes them less effective than personalized, one-to-one field selling and over-thecounter channels In fact, many organizations use a number of different channels OVER-THE-COUNTER SELLING over-the-counter selling Personal selling conducted in retail and some wholesale locations in which customers come to the seller’s place of business © AP Images/Brian Branch-Price Retail locations typically practice over-the-counter selling The most frequently used sales channel, over-the-counter selling, typically describes selling in retail and some wholesale locations Most over-the-counter sales are direct-to-customer, although business customers are frequently served by wholesalers with over-the-counter sales reps Customers typically visit the seller’s location on their own initiative to purchase desired items Some visit their favorite stores because they enjoy shopping Others respond to many kinds of appeals including direct mail; personal letters of invitation from store personnel; and advertisements for sales, special events, and new-product introductions Marketers are getting increasingly creative in their approach to over-the-counter selling When hardware retailing cooperative True Value discovered that, increasingly, women were making home-improvement buying decisions, it hired branding experts to help it rework store layouts and design and aspects of merchandising to become more female-friendly For example, it expanded its mix of outdoor living merchandise beyond grills and patio furniture and emphasized new styles of lighting and plumbing fixtures that appeal to women shoppers.4 Electronics giant Best Buy continues to outsell its competitors; with 923 stores, the firm’s sales total nearly $49 billion.5 Perhaps Best Buy’s success comes from the training its salespeople receive Training focuses on the firm’s mantra: CARE Plus C stands for contact with the customer A means asking questions to learn what the customer needs R represents making recommendations to the customer E stands for encouragement, praising the customer for a wise purchase Clothing retailers have begun to enhance the shopping experience by expanding the capabilities of the fitting room chapter 17 PERSONAL SELLING AND SALES PROMOTION Some Gap and Banana Republic stores added call buttons and delivery doors to their fitting rooms so that salespeople can offer more service Bloomingdale’s has piloted an interactive mirror and Webcam system in fitting rooms that enables shoppers to e-mail or text-message their friends with information on items they are trying on By logging on to a special Web site, the friends can view the items and offer comments What’s more, shoppers can use the system to learn about other merchandise in the store, click on an item, and have it superimposed on their image, in short, trying on a garment virtually.6 Regardless of a retailer’s innovation, a few things remain the same in selling For example, customers never like hearing salespeople say the following: 569 bri efly speaking “Sometimes the better part of innovation is responsiveness, listening to your customers.” —Steve Ballmer (b 1956) CEO, MICROSOFT ୴ “That’s not my department.” ୴ “If it’s not out (on the rack or shelf), we don’t have it.” ୴ “I don’t know/I’m new.” ୴ “I’m closing” or “I’m on a break.” ୴ “The computer is down.” While these quotes may seem humorous, they also ring true You’ve probably heard them, and you may have said them yourself if you’ve worked in a retail environment But each statement conveys the message that the salesperson is not willing or able to serve the customer—exactly the opposite of what every retailer wants to convey FIELD SELLING Field selling involves making sales calls on prospective and existing customers at their businesses or homes Some situations involve considerable creative effort, such as the sale of major computer installations Often the salesperson must convince customers first that they need the good or service and then that they need the particular brand the salesperson is selling Field sales of large industrial installations such as Boeing’s 787 Dreamliner jet also often require considerable technical expertise Largely because it involves travel, field selling is considerably more expensive than other selling options The rising cost of fuel, air fares, car rentals, and hotel rates has forced up the average cost of a domestic business trip to more than $1,100 and an international trip to over $3,200.7 Needing to find ways to trim costs while increasing productivity, some firms have replaced certain travel with conference calls, while others require salespeople to stay in less expensive hotels and spend less on meals Some firms have simply shortened the time allowed for trips In fairly routine field selling situations, such as calling on established customers in industries such as food, textiles, or wholesaling, the salesperson basically acts as an order taker who processes regular customers’ orders But more complex situations may involve weeks of preparation, formal presentations, and many hours of postsales call work Field selling is a lifestyle that many people enjoy; they also cite some of the negatives, such as travel delays, impact on family life, and high costs of fuel Some firms view field selling as a market in itself, and have developed goods and services designed to help salespeople their jobs Ford and Microsoft have partnered to produce the Stargate Mobile—a tablet computer loaded with Microsoft Office software, a wireless broadband card from Sprint, and a connection to Slingbox, which uses the Internet to access live television programming In short, the two firms have created a mobile office The computer is wrapped in a rubber case and mounted on a swiveling floor mount—but can be unlocked and carried like a laptop.8 Taking their cue from the successes of businesses such as Avon, Pampered Chef, and Tupperware, thousands of smaller businesses now rely on field selling in customers’ homes Often called network marketing, this type of personal selling relies on lists of family members and friends of the salesperson or “party host,” who organizes a gathering of potential customers for an in-home demonstration of products The Girl Scouts organization has been selling cookies for decades field selling Sales presentations made at prospective customers’ locations on a face-to-face basis 570 part PROMOTIONAL DECISIONS Despite being a largely inexperienced sales team that offers its product seasonally, annual revenues typically total over $700 million.9 Mary Kay Cosmetics, with more than 33,000 sales consultants, enjoyed global sales of over $2.4 billion in a recent year.10 The Girl Scouts have been successfully field selling their cookies for decades, despite an inexperienced sales force and short selling season © Jeff Greenberg/PhotoEdit TELEMARKETING telemarketing Promotional presentation involving the use of the telephone on an outbound basis by salespeople or on an inbound basis by customers who initiate calls to obtain information and place orders Telemarketing, a channel in which the selling process is conducted by phone, serves two general purposes— sales and service—and two general markets—business-to-business and direct-to-customer Both inbound and outbound telemarketing are forms of direct marketing Outbound telemarketing involves sales personnel who rely on the telephone to contact potential buyers, reducing the substantial costs of personal visits to customers’ homes or businesses Technologies such as predictive dialers, autodialing, and random-digit dialing increase chances that telemarketers will reach people at home Predictive dialers weed out busy signals and answering machines, nearly doubling the number of calls made per hour Autodialing allows telemarketers to dial numbers continually; when a customer answers the phone, the call is automatically routed to a sales representative However, the Telephone Consumer Protection Act of 1991 prohibits the use of autodialers to contact (or leave messages) on telephone devices such as answering machines.11 Random-digit dialing allows telemarketers to reach unlisted numbers and block Caller ID A major drawback of telemarketing is that most consumers dislike the practice, and nearly 160 million have signed up for the national Do Not Call Registry.12 If an unauthorized telemarketer does call any of these numbers, the marketer is subject to an $11,000 fine Organizations exempt from the fine include not-for-profits, political candidates, companies that have obtained the customer’s permission, marketing researchers, and firms that have an existing business relationship with the customer Why some firms still use telemarketing? The average call still costs only about $3, and companies still point to a significant rate of success According to the Direct Marketing Association, about million people are employed in telemarketing jobs.13 Inbound telemarketing typically involves a toll-free number that customers can call to obtain information, make reservations, and purchase goods and services When a customer calls a toll-free number, the caller can be identified and routed to the representatives with whom he or she has done business before, creating a human touch not possible before This form of selling provides maximum convenience for customers who initiate the sales process Many large catalog merchants, such as Pottery Barn, L.L Bean, Lands’ End, and Performance Bike, keep their inbound telemarketing lines open 24 hours a day, seven days a week Some firms are taking dramatic steps to incorporate inbound telemarketing into their overall marketing strategy JetBlue Airlines, for example, keeps operating costs low by having its reservation agents work from home.14 chapter 17 571 PERSONAL SELLING AND SALES PROMOTION INSIDE SELLING The role of many of today’s telemarketers is a combination of field selling techniques applied through inbound and outbound telemarketing channels with a strong customer orientation, called inside selling Inside sales reps perform two primary jobs: they turn opportunities into actual sales, and they support technicians and purchasers with current solutions Inside sales reps far more than read a canned script to unwilling prospects Their role goes beyond taking orders to solving problems, providing customer service, and selling A successful inside sales force relies on close working relationships with field representatives to solidify customer relationships The seven-member inside sales force of the NBA’s Detroit Pistons supports the team’s marketing efforts, such as special events for season ticket holders, including backstage tours, scavenger hunts, and privileges such as getting into games 30 minutes early Pistons sales reps use online chat, telephone, and e-mail to stay connected.15 inside selling Selling by phone, mail, and electronic commerce INTEGRATING THE VARIOUS SELLING CHANNELS Figure 17.1 illustrates how firms are likely to blend alternative sales channels, from over-the-counter selling and field selling to telemarketing and inside selling, to create a successful cost-effective sales organization Existing customers whose business problems require complex solutions are likely best served by the traditional field sales force Other current customers who need answers but not the same attention as the first group assessment check can be served by inside sales reps who contact them as needed Over-the-counter sales reps serve existing customers by sup1 What is over-the-counter selling? plying information and advice and completing What is field selling? sales transactions Telemarketers may be used Distinguish between outbound and inbound to strengthen communication with customers or to reestablish relationships with customers that telemarketing may have lapsed over a few months Describe the major Trends in Personal Selling In today’s complex marketing environment, effective personal selling requires different strategies from those used by salespeople in the past As pointed out in the discussion of buying centers in Chapter 6, rather than selling one-on-one, in B2B settings it is now customary to sell to teams of corporate representatives who participate in the client firm’s decisionmaking process In businessto-business sales situations involving technical products, customers expect salespeople to answer technical questions—or bring along someone who can They also want representatives who understand technical jargon and can communicate using sophisticated technological tools Patience is also a trends in personal selling figure 17.1 $ 65.98 Alternative Sales Channels for Serving Customers Over-the-Counter Selling Field Selling Customers in retail settings with typical, routine needs Customers who need solutions to complex problems Telemarketing Customers Outbound: Existing customers; businesses that have been contacted in the last three months; people or companies that have granted you permission to call Inbound: New and existing customers and customers of competitors; previous purchasers and service personnel seeking product-related information Inside Selling Customers who need answers to frequently asked questions 572 part PROMOTIONAL DECISIONS requirement because the B2B sales cycle, from initial contact to closing, may take months or even years To address all of these concerns, companies rely on three major personal selling approaches: relationship selling, consultative selling, and team selling Regardless of the approach, however, experts agree on a few basic guidelines for conducting successful personal selling RELATIONSHIP SELLING relationship selling Regular contacts between sales representatives and customers over an extended period to establish a sustained buyer–seller relationship Most firms now emphasize relationship selling, a technique for building a mutually beneficial partnership with a customer through regular contacts over an extended period Such buyer–seller bonds become increasingly important as companies cut back on the number of suppliers and look for companies that provide high levels of customer service and satisfaction Salespeople must also find ways to distinguish themselves and their products from competitors To create strong, longlasting relationships with customers, salespeople must meet buyers’ expectations Table 17.2 summarizes the results of several surveys that indicate what buyers expect of professional salespeople The success of tomorrow’s marketers depends on the relationships they build today in both the business-to-consumer and business-to-business markets Cabela’s, a leading retailer of hunting, fishing, and camping equipment, takes its customers’ comments seriously Each morning, Cabela vice chairman James W Cabela reviews feedback from shoppers Then, he personally delivers the messages needing follow-up to the appropriate manager Cabela’s also uses computer technology to chat online with its customers.16 Relationship selling is equally important in business-to-business sales, if not more so Firms may invest millions of dollars in goods and services from a single firm, so creating relationships is vital Barnett, a leading national distributor of plumbing, heating and air conditioning, electrical, and hardware products, uses barcode technology to keep its contractors’ trucks well stocked with all sorts of supplies—just in case they are needed on a job After a contractor finishes at a site, he or she uses a scanner to record the parts used in the job The parts are automatically reordered at the end of the day, and Barnett replenishes the inventory.17 CONSULTATIVE SELLING consultative selling Meeting customer needs by listening to them, understanding their problems, paying attention to details, and following through after the sale Field representatives and inside sales reps require sales methods that satisfy today’s cost-conscious, knowledgeable buyers One such method, consultative selling, involves meeting customer needs by listening to customers, understanding—and caring about—their problems, paying attention to details, and following through after the sale It works hand in hand with relationship selling in building customer loyalty IBM Global Services trained sales staff at a European division of Sony in consultative selling techniques Sony wanted its sales force to be more than simply product suppliers Its sales team practiced mock phone calls, meetings, and presentations to develop their skills As a result, the Sony salespeople were able to help customers more effectively and won new ta b l e What Buyers Expect from Salespeople Buyers prefer to business with salespeople who: brs peaking iefl y “First, always ask for the order, and second, when the customer says yes, stop talking.” —Michael Bloomberg (b 1942) MAYOR OF NEW YORK CITY, FOUNDER OF BLOOMBERG LP • Orchestrate events and bring to bear whatever resources are necessary to satisfy the customer • Provide counseling to the customer based on in-depth knowledge of the product, the market, and the customer’s needs • Solve problems proficiently to ensure satisfactory customer service over extended time periods • Demonstrate high ethical standards and communicate honestly at all times • Willingly advocate the customer’s cause within the selling organization • Create imaginative arrangements to meet buyers’ needs • Arrive well prepared for sales calls chapter 17 573 PERSONAL SELLING AND SALES PROMOTION Dressing Like a Sales Pro Unfortunately, some employers don’t give workers much guidance on dressing for sales calls But the prospective customer will notice your appearance and form an impression about you Although great latitude exists in industries like entertainment, education, and the arts, here’s what’s safe to wear in most other settings: • Men: Two-piece suit and dress shirt, with starched collar and cuffs Shirt and tie can be plain or patterned, as long as they complement each other Shoes may be oxfords or loafers, and remember to shine them Always wear socks • Women: Skirt suit or pantsuit, with a shirt or shell under the jacket, or a dress with a jacket Low- to medium-heeled shoes with stockings In some settings, women can wear contrasting jacket-skirt or jacket-pants combinations, and during the summer in some industries, sandals are okay • For both genders: A blazer or sport coat and dress pants, or even a golf shirt and khakis, are acceptable in some industries Just make sure everything is clean and pressed • What’s not appropriate on a sales call: Denim, T-shirts, bare feet, athletic shoes, or flip-flops Anything tight fitting, low cut, or midriff baring Avoid visible piercings, other than a couple in the earlobe, and visible tattoos • One final rule of thumb: It’s better to be a bit overdressed than underdressed; it shows respect for your customer Sources: Lillian D Bjorseth, “Dress for Success: Creating a Professional Image,” The Sideroad, www.sideroad.com, accessed August 18, 2008; “All about Dressing for Sales Success,” Personal Improvement, www personalimprovementguide.com, accessed August 18 2008; “Dressing Professionally for Sales Success,” Superior Sales Training, www superiorsalestraining.com, accessed August 18, 2008 business.18 One important aspect of consultative selling is being prepared for a sales call, including dressing professionally The “Etiquette Tips for Marketing Professionals” feature provides tips on dressing for a successful call As rapid technological changes drive business at an unprecedented pace, selling has become more complex, often changing the role of salespeople The commonwealth of Massachusetts issued a request for proposals for a massive new information technology system that would allow all of its health care providers to exchange clinical data Software provider eClinicalWorks spent more than a year preparing its proposal, then traveled throughout Massachusetts demonstrating its software to the public health officials and physicians who would use it The effort proved worthwhile: eClinicalWorks was one of four vendors selected for the multimillion-dollar contract.19 Online companies have instituted consultative selling models to create long-term customers Particularly for complicated, high-priced products that Cabela’s understands the importance of customer feedback in relationship selling Each day, James W Cabela personally delivers shopper feedback to managers © AP Images/Dale Sparks a lthough we often hear that you can’t tell a book by its cover, it is human nature to form impressions about others from their appearance If you pursue a career with sales responsibilities, pay attention to your appearance Successful salespeople know the first hurdle is dressing in a way that makes others feel comfortable In industries where it is important that customers feel confident about the service rendered, such as airlines and hotels, employees often wear uniforms Other employers may specify a general dress code so their employees are easily distinguishable— think Best Buy’s blue golf shirts or Target’s red shirt and khaki pants 574 part © Terri Miller/E-Visual Communications, Inc Chase cross-sells home loans to existing banking customers team selling Selling situation in which several sales associates or other members of the organization are employed to help the lead sales representative reach all those who influence the purchase decision PROMOTIONAL DECISIONS require installation or specialized service, Web sellers must quickly communicate the benefits and features of their products They accomplish this through consultative selling Cross-selling— o f f e r i n g multiple goods or services to the same customer—is another technique that capitalizes on a firm’s strengths It costs a bank five times as much to acquire a new customer as to cross-sell to an existing one Moreover, research shows that, the more a customer buys from an institution, the less likely that person is to leave So a customer who opens a checking account at a local bank may follow with a safe-deposit box, retirement savings account, and a mortgage loan TEAM SELLING Another development in the evolution of personal selling is team selling, in which a salesperson joins with specialists from other functional areas of the firm to complete the selling process Teams can be formal and ongoing or created for a specific, short-term selling situation Although some salespeople have hesitated to embrace the idea of team selling, preferring to work alone, a growing number believe team selling brings better results Customers often prefer the team approach, which makes them feel well served Consider a restaurant meal If the host, servers, wine steward, chef, and kitchen crew are all working well together as a team, your experience at the restaurant is likely to be positive But if the service stops and starts, your order is recorded wrong, the food is cold, the silverware is dirty, and the staff seems grouchy, you probably won’t eat at that restaurant again In fact, you may not even finish the meal Another advantage of team selling is the formation of relationships between companies rather than between individuals In sales situations that call for detailed knowledge of new, complex, and ever-changing technologies, team selling offers a distinct competitive edge in meeting customers’ needs In most computer software B2B departments, a third of the sales force is made up of technically trained, nonmarketing experts such as engineers or programmers A salesperson continues to play the lead role in most sales situations, but technical experts bring added value to the sales process Some companies establish permanent sales-and-tech teams that conduct all sales presentations together; others have a pool of engineers or other professionals who are on call for different client visits Some resourceful entrepreneurs have begun building a virtual sales team—a network of strategic partners, suppliers, and others qualified and willing to recommend a firm’s goods or services Merrimack, New Hampshire–based McMahon WorldWide is a small but powerful sales and management company founded a decade ago by Tim McMahon The firm’s clients include Canon USA, IBM, and The Guardian Insurance McMahon WorldWide offers its customers strategies and software for creating their own virtual sales forces, including products such as SalesConference.Net, a fully collaborative training and consulting chapter 17 575 PERSONAL SELLING AND SALES PROMOTION program McMahon and his partners practice their own advice by conducting many virtual sessions with clients.20 assessment check Identify the three major personal selling approaches Distinguish between relationship selling and consultative selling Sales Tasks Today’s salesperson is more concerned with establishing long-term buyer–seller relationships and helping customers select the correct products for meeting their needs than with simply selling whatever is available Where repeat purchases are common, the salesperson must be certain that the buyer’s purchases are in his or her best interest; otherwise, no future relationship will be possible The seller’s interests are tied to the buyer’s in a mutually beneficial relationship While all sales activities help the customer in some manner, they are not all alike Three basic sales tasks can be identified: (1) order processing, (2) creative selling, and (3) missionary sales Most of today’s salespeople are not limited to performing tasks in a single category Instead, they often perform all three tasks to some extent A sales engineer for a computer firm may 50 percent missionary sales, 45 percent creative selling, and percent order processing Most sales positions are classified on the basis of the primary selling task performed Then there’s the philosophy that everyone in the organization, regardless of what his or her job description is, should be engaged in selling Southwest Airlines believes delivering great customer service is paramount for every employee, from the reservations agent to the baggage handler to the flight attendant All Southwest employees are trained to put the customer’s needs first, and the airline relies heavily on technology to coordinate the effort.21 Identify and briefly describe the three basic sales tasks ORDER PROCESSING Order processing, which can involve both field selling and telemarketing, most often is typified by selling at the wholesale and retail levels For instance, a Pepsi-Cola route salesperson who performs this task must take the following steps: Identify customer needs The route salesperson determines that a store has only seven cases left in stock when it normally carries an inventory of 40 cases Point out the need to the customer The route salesperson informs the store manager of the inventory situation Complete (write up) the order The store manager acknowledges the need for more of the product The driver unloads 33 cases, and the manager signs the delivery slip Order processing is part of most selling positions It becomes the primary task in situations in which needs can be readily identified and are acknowledged by the customer Even in such instances, however, salespeople whose primary responsibility involves order processing will devote some time persuading their wholesale or retail customers to carry more complete inventories of their firms’ merchandise or to handle additional product lines They also are likely to try to motivate purchasers to feature some of their firms’ products, increase the amount of shelf space devoted to these items, and improve product location in the stores Technology now streamlines order-processing tasks In the past, salespeople wrote up an order on the customer’s premises but spent much time later, after the sales visit, completing the order and transmitting it to headquarters Today, many companies have automated order processing With portable computers and state-of-the-art software, the salesperson can place an order on the spot, directly to headquarters, and thus free up valuable time and energy Computers have even eliminated the need for some of the traditional face-to-face contacts for routine reorders JCPenney has placed kiosks in its stores that allow salespeople to select, create, and transmit accurate orders in 30 minutes or less The kiosks are particularly useful for such transactions as orders for custom order processing Selling, mostly at the wholesale and retail levels, that involves identifying customer needs, pointing them out to customers, and completing orders 576 part PROMOTIONAL DECISIONS window blinds The complete order is automatically transmitted electronically to a manufacturer, and a confirmation receipt is returned immediately to the salesperson JCPenney’s percentage of accurate orders has increased significantly, and the lead time required by manufacturers to fulfill custom orders has dropped by one week.22 CREATIVE SELLING creative selling Personal selling in which a considerable degree of analytical decision making on the buyer’s part results in the need for skillful proposals of solutions for the customer’s needs When a considerable amount of decision making is involved in purchasing a good or service, an effective salesperson uses creative selling techniques to solicit an order In contrast to the orderprocessing task, which deals mainly with maintaining existing business, creative selling generally is used to develop new business either by adding new customers or by introducing new goods and services New products or upgrades to more expensive items often require creative selling The salesperson must first identify the customer’s problems and needs and then propose a solution in the form of the item offered When attempting to expand an existing business relationship, creative selling techniques are used in over-the-counter selling, field selling, inside selling, and telemarketing Sometimes creative selling can rejuvenate an old product Newell Rubbermaid’s Phoenix program is designed to train young, entry-level salespeople to whatever it takes to sell Rubbermaid products They may be found stocking shelves, demonstrating new products, or organizing in-store scavenger hunts Phoenix program trainees are energetic and enthusiastic, and they have helped turn the company around As employees progress in their careers, they take part in additional training seminars that teach advanced selling skills, product and channel marketing, negotiating skills, and leadership skills.23 MISSIONARY SELLING missionary selling Indirect selling method in which salespeople promote goodwill for the firm by educating customers and providing technical or operational assistance Missionary selling is an indirect approach to sales Salespeople sell the firm’s goodwill and educate their customers, often providing technical or operational assistance A cosmetics company salesperson may call on retailers to demonstrate how a new product is used or to check on special promotions and overall product movement, while a wholesaler takes orders and delivers merchandise For years, large pharmaceutical companies operated the most aggressive missionary selling, courting doctors (the indirect customer) by providing lavish restaurant meals; educational seminars; and other incentives in the hope of persuading them to prescribe a particular brand to patients While the doctor is clearly the decision maker, the transaction is not complete until the patient hands the prescription over to a pharmacist But recent changes in the industry code of conduct now prohibit missionary salespeople from offering any incentives of value to their customers Instead, the Pharmaceutical Research and Manufacturers of America decreed that meetings with doctors must focus exclusively on education, not freebies.24 Some missionary sales may offer sales incentives such as trips, gas cards, free product upgrades, and other inducements Missionary sales may involve both field selling and telemarketing Many aspects of team selling can also be seen as missionary sales, as when technical supassessment check port salespeople help design, install, and maintain equipment; when they train cus1 What are the three major tasks performed by tomers’ employees; and when they salespeople? provide information or operational What are the three steps of order processing? assistance The Sales Process Outline the seven steps in the sales process If you have worked in a retail store, or if you’ve sold magazine subscriptions or candy to raise money for your school or sports team, you will recognize many of the activities involved in the following list of steps in the sales process Personal selling encompasses the following chapter 17 577 PERSONAL SELLING AND SALES PROMOTION sequence of activities: (1) prosACTION pecting and qualifying, ACTION Step Follow-Up (2) approach, (3) presentation, (4) demonstration, (5) hanStep Closing DESIRE dling objections, (6) closing, DESIRE Step Handling Objections and (7) follow-up INTEREST INTEREST Step Demonstration As Figure 17.2 indicates, these steps follow the AIDA Step Presentation concept (attention, interest, ATTENTION ATTENTION Step Approach desire, action) Once a sales prospect has been qualified, an Step Prospecting and Qualifying attempt is made to secure his or her attention The presentation and demonstration steps are designed to generate interest and desire Successful handling of buyer objections should arouse further desire Action occurs at the close of the sale Salespeople modify the steps in this process to match their customers’ buying processes A neighbor who eagerly looks forward to the local symphony orchestra’s new concert season each year needs no presentation except for details about scheduled performances and perhaps whether any famous musicians will be on the bill But the same neighbor would expect a demonstration from an auto dealer when looking for a new car or might appreciate a presentation of dinner specials by the server prior to ordering a meal at a restaurant PROSPECTING AND QUALIFYING Prospecting—the process of identifying potential customers—may involve hours, days, or weeks of effort, but it is a necessary step Leads about prospects come from many sources: the Internet, computerized databases, trade show exhibits, previous customers, friends and neighbors, other vendors, nonsales employees in the firm, suppliers, and social and professional contacts Although a firm may emphasize personal selling as the primary component of its overall promotional strategy, direct mail and advertising campaigns are also effective in identifying prospective customers Before salespeople begin their prospecting effort, they must be clear about what their firm is selling and create a “brand story,” that is, define their product in terms of what it can for a customer Since customers generally are looking for solutions to problems or ways to make their lives better or businesses more successful, this focus on the customer is critical Once they develop a brand story, the sales team must be consistent about telling it at every possible point of contact, whether in a face-to-face conversation with a prospect, in advertising, or in promoting the product to the media.25 In addition, salespeople must be well informed about the goods and services of the industry in general They need to find out how other goods are marketed and packaged They can try out a service themselves to understand how the industry operates In these ways, they will understand what prospective customers need and want—and how they can serve them Qualifying—determining that the prospect really is a potential customer—is another important sales task Not all prospects are qualified to make purchase decisions Even though an employee in a firm might like your products, he or she might not be authorized to make the purchase A consumer who test-drives a Porsche might fall in love with it, but not be able to afford the purchase price Qualifying can be a two-way street As a sales representative, you might determine that a certain prospect is qualified to make a purchase But the prospect must agree in order for the process to go forward If either you or the prospect determine at the outset that there’s no chance for a purchase, then it’s best to move on APPROACH Once you have identified a qualified prospect, you need to collect all relevant information and plan an approach—your initial contact with the prospective customer If your firm already has a figure 17.2 The AIDA Concept and the Personal Selling Process bri efly speaking “Believing in your product 100 percent will make you a great salesperson, because you will be real People can sense fakes, even if it’s only percent fake You must be a solid 100 percent or you will not be successful for very long.” —Donald J Trump (b 1946) CHAIRMAN AND PRESIDENT, THE TRUMP ORGANIZATION 578 part brs peaking iefl y ”Pretend that every single person you meet has a sign around his or her neck that says, ‘Make me feel important.’ Not only will you succeed in sales, you will succeed in life.” —Mary Kay Ash (1918–2001) FOUNDER, MARY KAY COSMETICS PROMOTIONAL DECISIONS relationship with the customer or has permission to contact the person, you may use telemarketing But before you so, gather as much information as you can Information gathering makes precall planning possible As mentioned earlier, educate yourself about the industry in general, as well as goods and services offered by competitors Read any marketing research available Go to trade shows—you can learn a lot about many companies and their products at one location, usually in one day Learn as much as you can about the firm you plan to approach: browse the company’s Web site, find online news articles and press releases about the company, talk with other people in the industry Know its product offerings well If possible, buy at least one of the firm’s products and use it yourself Identify ways you can help the firm better Without invading an individual customer’s privacy, see if you have anything in common—perhaps you grew up in the same state, or you both like to play tennis All of this planning will help you make an effective approach As you plan your approach, try to answer the following questions: ୴ Who am I approaching and what are their jobs within the company? ୴ What is their level of knowledge? Are they already informed about the idea I am going to present? ୴ What they want or need? Should I speak in technical terms or provide general information? ୴ What they need to hear? Do they need to know more about specific products or how those products can serve them? Do they need to know how the product works? Do they need to know about cost and availability? If you are a retail salesperson, you can ask a shopper questions to learn more about his or her needs and preferences Say you work at a large sporting goods store You might ask a young male shopper whether he works out at home, what equipment he already has, what his fitness goals are The answers to these questions should lead you in the direction of a sale PRESENTATION In a presentation, you convey your marketing message to the potential customer You describe the product’s major features, point out its strengths, and cite other customers’ successes with the product One popular form of presentation is a “features-benefits” framework wherein you talk about the good or service in terms meaningful to the buyer If you work for a car dealership, you might point out safety features such as side airbags and built-in car seats to a young couple Your presentation should be well organized, clear, and concise If appropriate, use visual sales support materials such as a chart, a brochure, a DVD, or even streaming video from your laptop If this is your first presentation to a potential customer, it will likely be more detailed than a routine call to give an existing customer some updates Regardless of the situation, though, be attuned to your audience’s response so you can modify your presentation—even on the spur of the moment—to meet their needs Many presentations now use computer-based multimedia, which can offer everything from interactivity to current pricing information CNN Headline News salespeople previously used ordinary PowerPoint presentations to sell ads to cable operators But when the Atlanta-based company decided to change the look and feel of its 24-hour cable news network, the sales presentation material changed as well to include audio, video, and high-tech graphics However, technology must be used efficiently to be effective For example, a company’s Web site can be an excellent selling tool if it is easy for salespeople to present and buyers to use A salesperson can actually use the site during a presentation by showing a potential customer how to use it to learn about and purchase products In a cold calling situation, the approach and presentation often take place at the same time Cold calling means phoning or visiting the customer without a prior appointment and making a sales pitch on the spot Cold calling requires nerve, skill, and creativity, but salespeople who are successful at it still point to the importance of preparation “We link up with the best of the best,” says Scott Vincent Borba, CEO and founder of Beverly Hills–based BORBA, a firm that makes chapter 17 579 PERSONAL SELLING AND SALES PROMOTION © AP Images/Steve Helber Visual sales support materials may be used in a sales presentation vitamin-infused beauty products Borba researches and selects the best companies to which he should make his pitches and admits that only about 10 percent bear fruit But that doesn’t stop him from trying “I pick up the phone and call the president of a company There’s a lot of ego involved You have to separate it and pull together to focus on the best end-product for the consumer.”26 DEMONSTRATION One of the most important advantages of personal selling is the opportunity to demonstrate a product During a demonstration, the buyer gets a chance to try the product or at least see how it works A demonstration might involve a test-drive of the latest hybrid car or an in-store cooking class using pots and pans that are for sale Many firms use new technologies to make their demonstrations more outstanding than those of their competitors Multimedia interactive demonstrations are now common Visitors to the Black & Decker Web site can click on video demonstrations of such products as the Alligator Lopper (an electric branch clipper) and the Scumbuster Extreme power floor scrubber.27 The key to an outstanding demonstration—one that gains the customer’s attention, keeps his or her interest, is convincing, and stays in the customer’s memory—is planning But planning should also include time and space for free exchanges of information During your demonstration, you should be prepared to stop and answer questions, redemonstrate a certain feature, or even let the customer try the product firsthand HANDLING OBJECTIONS Potential customers often have legitimate questions and concerns about a good or service they are considering Objections are expressions of resistance by the prospect, and it is reasonable to expect them Objections might appear in the form of stalling or indecisiveness “Let me call you back,” your prospect might say, or “I just don’t know about this.” Or your buyer might focus on something negative such as high price bri efly speaking “Deliver good numbers and you earn the right for people to listen to you.” —Mark Hurd (b 1956) CHAIRMAN AND CEO, HEWLETTPACKARD 580 part brs peaking iefl y “Just what you best.” —Red Auerbach (1917–2006) COACH AND PRESIDENT, NBA’S BOSTON CELTICS PROMOTIONAL DECISIONS You can answer objections without being aggressive or rude Use an objection as an opportunity to reassure your buyer about price, features, durability, availability, and the like If the objection involves price, you might be able to suggest a less-expensive model or a payment plan If the objection involves a comparison to competitive products, point out the obvious—and not so obvious—benefits of your own If the objection involves a question about availability, a few clicks on your laptop should show how many items are in stock and when they can be shipped CLOSING The moment of truth in selling is the closing—the point at which the salesperson asks the prospect for an order If your presentation has been effective and you have handled all objections, a closing would be the natural conclusion to the meeting But you may still find it difficult to close the sale Closing does not have to be thought of in terms of a “hard sell.” Instead, you can ask your customer, “Would you like to give this a try?” or, “Do I have your approval to proceed?” Other methods of closing include the following: Addressing the prospect’s major concern about a purchase and then offering a convincing argument “If I can show you how the new heating system will reduce your energy costs by 25 percent, would you be willing to let us install it?” Posing choices for the prospect in which either alternative represents a sale “Would you prefer the pink sweater or the green one?” Advising the buyer that a product is about to be discontinued or will go up in price soon (But be completely honest about this—you don’t want a customer to learn later that this was not true.) Remaining silent so the buyer can make a decision on his or her own Offering an extra inducement designed to motivate a favorable buyer response, such as a quantity discount, an extended service contract, or a low-interest payment plan Even if the meeting or phone call ends without a sale, the effort is not over You can use a written note or an e-mail to keep communication open, letting the buyer know you are ready and waiting to be of service FOLLOW-UP The word close can be misleading because the point at which the prospect accepts the seller’s offer is where much of the real work of selling begins In today’s competitive environment, the most successful salespeople make sure that today’s customers will also be tomorrow’s It is not enough to close the sale and move on Relationship selling involves reinforcing the purchase decision and ensuring the company delivers the highest-quality merchandise As a salesperson, you must also ensure that customer service needs are met and that satisfaction results from all of a customer’s dealings with your company Otherwise, some other company may get the next order These postsale activities, which often determine whether a person will become a repeat customer, constitute the sales follow-up Sales experts believe in a wide array of follow-up techniques, ranging from expensive information folders to holiday cards to online greetings Some suggest phone calls at regular intervals Others prefer automatic e-mail reminders when it is time to renew or reorder At the very least, however, you should contact customers to find out if they are satisfied with their purchases This step allows you to psychologically reinforce the customer’s original decision to buy It also gives you an opportunity to correct any problems and ensure the next sale Follow-up helps strengthen the bond you are trying to build with customers in relationship selling You have assessment check probably experienced follow-up as a customer—if your auto dealership called to see if you Identify the seven steps of the sales process were satisfied with recent service, or if Why is follow-up important to the sales effort? your doctor’s office phoned to find out if you were feeling better chapter 17 581 PERSONAL SELLING AND SALES PROMOTION Managing the Sales Effort The overall direction and control of the personal selling effort are in the hands of a firm’s sales managers In a typical geographic sales structure, a district or divisional sales manager might report to a regional or zone manager This manager in turn reports to a national sales manager or vice president of sales Currently, there are about 318,000 sales managers in the United States.28 The sales manager’s job requires a unique blend of administrative and sales skills, depending on the specific level in the sales hierarchy Sales skills are particularly important for first-level sales managers because they are involved daily in the continuing process of training and directly leading the sales force But as people rise in the sales management hierarchy, they require more managerial skills and fewer sales skills to perform well Ann Livermore, executive vice president of Hewlett-Packard, is passionate about her job While her company has traditionally maintained an engineering focus, she steers it toward a sales focus by hiring upper-level managers and executives with sales backgrounds She also talks to two or three of the company’s big customers every day to identify industry trends and problems From those conversations came HP’s new automated data center products.29 Sales force management links individual salespeople to general management The sales manager performs seven basic managerial functions: (1) recruitment and selection, (2) training, (3) organization, (4) supervision, (5) motivation, (6) compensation, and (7) evaluation and control Sales managers perform these tasks in a demanding and complex environment They must manage an increasingly diverse sales force that includes more women and minorities Women account for nearly half of U.S professional salespeople, and their numbers are growing at a faster rate than that for men As the workforce composition continues to change, an even more diverse blend of people will be needed to fill a growing number of sales positions Employment opportunities for sales and related fields are expected to increase faster than the average for all occupations through the next decade.30 RECRUITMENT AND SELECTION Recruiting and selecting successful salespeople are among the sales manager’s greatest challenges After all, these workers will collectively determine just how successful the sales manager is New salespeople—like you—might come from colleges and universities, trade and business schools, other companies, and even the firm’s current nonsales staff A successful sales career offers satisfaction in all of the following five areas a person generally considers when deciding on a profession: Opportunity for advancement Studies have shown that successful sales representatives advance rapidly in most companies Potential for high earnings Salespeople have the opportunity to earn a very comfortable living Personal satisfaction A salesperson derives satisfaction from achieving success in a competitive environment and from helping customers satisfy their wants and needs Job security Selling provides a high degree of job security because there is always a need for good salespeople Independence and variety Salespeople often work independently, calling on customers in their territory They have the freedom to make important decisions about meeting their customers’ needs and frequently report that no two workdays are the same Careful selection of salespeople is important for two reasons First, a company invests a substantial amount of time and money in the selection process Second, hiring mistakes can damage relationships with customers and overall performance, and are costly to correct Most large firms use a specific seven-step process in selecting sales personnel: application screening, initial interview, in-depth interview, testing, reference checks, physical examination, and hiring decision An application screening typically is followed by an initial interview If the applicant looks promising, an in-depth interview takes place During the interview, a sales manager looks for the person’s enthusiasm, organizational skills, ambition, persuasiveness, ability to follow instructions, and sociability Identify the seven basic functions of a sales manager 582 part PROMOTIONAL DECISIONS Next, the company may administer aptitude, interest, and knowledge tests One popular testing approach is the assessment center This technique uses situational exercises, group discussions, and various job simulations, allowing the sales manager to measure a candidate’s skills, knowledge, and ability Assessment centers enable managers to see what potential salespeople can rather than what they say they can Before hiring a candidate, the firm checks references, reviews company policies, and may request a physical examination TRAINING To shape new sales recruits into an efficient sales organization, managers must conduct an effective training program The principal methods used in sales training are on-the-job training, individual instruction, in-house classes, and external seminars Popular training techniques include instructional videos or DVDs, lectures, role-playing exercises, and interactive computer programs Simulations can help salespeople improve their selling techniques Many firms supplement their training by enrolling salespeople in executive development programs at local colleges and by hiring specialists to teach customized training programs In other instances, sales reps attend courses and workshops developed by outside companies While sales meetings often are packed with a hodgepodge of topics, they can be an excellent vehicle for sales training Georgia-based Integra Logistics, a freight-shipping enterprise, uses its annual sales meeting as a platform for training Recently, in one 90-minute presentation, two of Integra’s top sellers outlined how they close a deal The practical advice and give-and-take in such sessions motivates colleagues to reassess their own skills and try new techniques One new rep applied the techniques and doubled sales for his account.31 Ongoing sales training is important for all salespeople, even veterans Sales managers often conduct this type of training informally, traveling with field reps and then offering constructive criticism or suggestions Like sales meetings, classes and workshops are other ways to reinforce training Mentoring is also a key tool in training salespeople ORGANIZATION Sales managers are responsible for the organization of the field sales force General organizational alignments—usually made by top marketing management—may be based on geography, products, types of customers, or some combination of these factors Figure 17.3 presents a streamlined organizational chart illustrating each of these alignments Company: Winners Sporting Goods figure 17.3 Basic Approaches to Organizing the Sales Force National Sales Manager Product Organization Geographic Organization Customer Organization Apparel Sports Equipment Eastern Region Central Region Western Region Schools Teams Individuals chapter 17 PERSONAL SELLING AND SALES PROMOTION A product sales organization is likely to have a specialized sales force for each major category of the firm’s products This approach is common among B2B companies that market large numbers of highly technical, complex products sold through different marketing channels Firms that market similar products throughout large territories often use geographic specialization Multinational corporations may have different sales divisions on different continents and in different countries A geographic organization may also be combined with one of the other organizational methods However, many companies are moving away from using territorial sales reps as they adopt customer-focused sales forces For example, a single territory that contains two major customers might be redefined so that the same sales rep covers both customers Customer-oriented organizations use different sales force strategies for each major type of customer served Some firms assign separate sales forces for their consumer and organizational customers Others have sales forces for specific industries, such as financial services, educational, and automotive Sales forces can also be organized by customer size, with a separate sales force assigned to large, medium, and small accounts Many firms using a customer-oriented structure adopt a national accounts organization This format strengthens a firm’s relationship with its largest customers by assigning senior sales personnel or sales teams to major accounts in each market Organizing by national accounts helps sales representatives develop cooperation among departments to meet special needs of the firm’s most important customers An example of national account selling is the relationship between Wal-Mart and its major vendors S C Johnson, Unilever, H J Heinz, Johnson & Johnson, Kimberly-Clark, Kraft, Nestlé, Hormel, and Colgate Palmolive are just some of the companies that have sales offices near Wal-Mart’s headquarters in Bentonville, Arkansas As companies expand their market coverage across national borders, they may use a variant of national account sales teams These global account teams may be staffed by local sales representatives in the countries in which a company is operating In other instances, the firm selects highly trained sales executives from its domestic operations In either case, specialized training is critical to the success of a company’s global sales force The individual sales manager also must organize the sales territories within his or her area of responsibility Factors such as sales potential, strengths and weaknesses of available personnel, and workloads are considered in territory allocation decisions SUPERVISION Sales managers have differing opinions about the supervision of a sales force Individuals and situations vary, so it is impossible to write a recipe for the exact amount of supervision needed in all cases However, a concept known as span of control helps provide some general guidelines Span of control refers to the number of sales representatives who report to first-level sales managers The optimal span of control is affected by such factors as complexity of work activities, ability of the individual sales manager, degree of interdependence among individual salespeople, and the extent of training each salesperson receives A 6-to-1 ratio has been suggested as the optimal span of control for first-level sales managers supervising technical or industrial salespeople In contrast, a 10-to-1 ratio is recommended if sales representatives are calling on wholesale and retail accounts MOTIVATION What motivates salespeople to perform their best? The sales manager is responsible for finding the answer to this question The sales process involves problem solving, which sometimes includes frustration—particularly when a sale is delayed or falls through Information sharing, recognition, bonuses, incentives, and benefits can all be used to help defray frustration and motivate a sales staff Developing an enthusiastic sales staff who are happy at their jobs is the goal of the sales manager Motivation is an important part of a company’s success Creating a positive, motivating environment doesn’t necessarily mean instituting complex or expensive incentive programs Monetary rewards—cash—often is considered king But sometimes simple recognition—a thank-you, a dinner, a year-end award—can go a long way It is important 583 584 part PROMOTIONAL DECISIONS for the sales manager to figure out what types of incentives will be most effective with his or her particular group of employees Some firms go all out, dangling luxury items such as computers, digital cameras, or trips in front of the sales force as rewards A Caribbean cruise, a trip to Disney World, or a long weekend in Las Vegas could be the carrot that works, particularly if family members are included Some firms purchase gift cards from retailers such as L.L.Bean or Lowe’s to distribute to sales staff who perform well But not all incentive programs are effective at motivating employees A program with targets set too high, that isn’t publicized, or that allows only certain sales personnel to participate can actually backfire So it is important for sales management to plan carefully for an incentive program to succeed Sales managers can also gain insight into the subject of motivation by studying the various theories of motivation developed over the years One theory that has been applied effectively to sales force motivation is expectancy theory, which states that motivation depends on the expectations an individual has of his or her ability to perform the job and on how performance relates to attaining rewards the individual values Sales managers can apply the expectancy theory of motivation by following a five-step process: Let each salesperson know in detail what is expected in terms of selling goals, service standards, and other areas of performance Rather than setting goals just once a year, many firms so on a semiannual, quarterly, or even monthly basis Make the work valuable by assessing the needs, values, and abilities of each salesperson and then assigning appropriate tasks Make the work achievable As leaders, sales managers must inspire self-confidence in their salespeople and offer training and coaching to reassure them Provide immediate and specific feedback, guiding those who need improvement and giving positive feedback to those who well Offer rewards each salesperson values, whether it is an incentive as described previously, opportunity for advancement, or a bonus COMPENSATION Money is an important part of any person’s job, and the salesperson is no exception So deciding how best to compensate the sales force can be a critical factor in motivation Sales compensation can be based on a commission, a straight salary, or a combination of both Bonuses based on end-of-year results are another popular form of compensation The increasing popularity of team selling has also forced companies to set up reward programs to recognize performance of business units and teams Today, about 25 percent of firms rewards business-unit performance A commission is a payment tied directly to the sales or profits a salesperson achieves A salesperson might receive a percent commission on all sales up to a specified quota, and a percent commission on sales beyond that point This approach to sales compensation is increasingly popular But while commissions reinforce selling incentives, they may cause some sales force members to overlook nonselling activities such as completing sales reports, delivering promotion materials, and servicing existing accounts In addition, salespeople who operate entirely on commission may become too aggressive in their approach to potential customers, which could backfire A salary is a fixed payment made periodically to an employee A firm that bases compensation on salaries rather than commissions might pay a salesperson a set amount every week, twice a month, or once a month A company must balance benefits and disadvantages in paying predetermined salaries to compensate managers and sales personnel A straight salary plan gives management more control over how sales personnel allocate their efforts, but it may reduce the incentive to find new markets and land new accounts Many firms find it’s best to develop compensation programs that combine features of both salary and commission plans A new salesperson often receives a base salary while in training, even if he or she moves to full commission later on If the salesperson does a lot of driving as part of chapter 17 585 PERSONAL SELLING AND SALES PROMOTION the job, he or she may receive a vehicle If the person works from home, there might be an allowance toward setting up an office there Total compensation packages vary according to industry, with the finance, insurance, and real estate industries coming out on top, followed closely by general services They also vary according to years of experience in sales Figure 17.4 reflects the findings of a recent pay survey of account managers—another name for a salesperson responsible for one or more customers, or accounts The data show how account managers’ median base pay, bonus, and commissions vary by years of experience Experience Level figure 17.4 Commission 7.5 < year Bonus 36.2 4.8 1–4 years Base Salary 14.7 Source: Data from “Salary Survey Report,” PayScale.com, http:// www.payscale.com, August 7, 2008 41.1 22.6 5–9 years 50.7 25.4 7.4 10–19 years 58.6 28.2 7.2 > 20 years 62.6 20 Median Pay for Account Managers by Years of Experience 40 60 Dollar Amount (thousands) 80 EVALUATION AND CONTROL Perhaps the most difficult tasks required of sales managers are evaluation and control Sales managers are responsible for setting standards and choosing the best methods for measuring sales performance Sales volume, profitability, and changes in market share are the usual means of evaluating sales effectiveness They typically involve the use of sales quotas—specified sales or profit targets that the firm expects salespeople to achieve A particular sales representative might be expected to generate sales of $2.25 million in his or her territory during a given year In many cases, the quota is tied to the compensation system Technology has greatly improved the ability of sales managers to monitor the effectiveness of their sales staffs Databases help sales managers to quickly divide revenues by salesperson, by account, and by geographic area In today’s marketing environment, other measures such as customer satisfaction, profit contribution, share of product-category sales, and customer retention also come into play This is the result of three factors: A long-term orientation that results from emphasis on building customer relationships The fact that evaluations based on sales volume alone may lead to overselling and inventory problems that may damage customer relationships The need to encourage sales representatives to develop new accounts, provide customer service, and emphasize new products Sales quotas tend to put focus on short-term selling goals rather than long-term relationships The sales manager must follow a formal system that includes a consistent series of decisions This way, the manager can make fair and accurate evaluations The system helps the sales manager answer three general questions: Where does each salesperson’s performance rank relative to predetermined standards? This comparison takes into consideration any uncontrollable variables on sales performance, such as a natural disaster or unforeseen change in the industry Each adjusted rank is stated as a percentage of the standard What are the salesperson’s strong points? The manager might list areas of the salesperson’s performance in which he or she has performed above the standard Or strong points could be placed in such categories as technical ability, processes, and end results 586 part PROMOTIONAL DECISIONS What are the salesperson’s weak points? No one likes to hear criticism, but when it is offered constructively, it can be motivation to improve performance The manager and employee should establish specific objectives for improvement and set a timetable for judging the employee’s improvement In completing the evaluation summary, the sales manager follows a set procedure so all employees are treated equally: ୴ Each aspect of sales performance for which a standard exists should be measured separately This helps prevent the so-called halo effect, in which the rating given on one factor influences those on other performance variables ୴ Each salesperson should be judged on the basis of actual sales performance rather than potential ability This is why rankings are important in the evaluation ୴ Sales managers must judge each salesperson on the basis of sales performance for the entire period under consideration, rather than for a few particular incidents ୴ The evaluation should be reviewed by a third party, such as the manager’s boss or a human resources manager, for completeness and objectivity assessment check Once the evaluation is complete, both man1 What are the seven basic functions ager and salesperson should focus on posiperformed by a sales manager? tive action—whether it is a drive Define span of control toward new goals or correcting a What are the three main questions a sales manager negative situation An evaluation must address as part of a salesperson’s evaluation? should be motivation for improved performance Explain the role of ethical behavior in personal selling Ethical Issues in Sales Promotional activities can raise ethical questions, and personal selling is no exception A difficult economy or highly competitive environment may tempt some salespeople—particularly those new to the business—to behave in ways they might later regret They might use the company car for a family trip or pad an expense report They might give personal or expensive gifts to customers They might try to sell a product they know is not right for a particular customer’s needs But today’s experienced, highly professional salespeople know long-term success requires a strong code of ethics They also know a single breach of ethics could have a devastating effect on their careers Some people believe ethical problems are inevitable because of the very nature of the sales function And in the wake of corporate scandals in which top executives have benefited at the expense of customers, employees, and shareholders, ethical managers are working harder than ever to dispel the notion that many salespeople cannot be trusted Sales managers and top executives can a lot to foster a corporate culture that encourages honesty and ethical behavior Here are some characteristics of such a culture: ୴ Employees understand what is expected of them A written code of ethics—which should be reviewed by all employees—in addition to ethics training helps educate employees in how to conduct ethical business ୴ Open communication Employees who feel comfortable talking with their supervisors are more apt to ask questions if they are uncertain about situations or decisions and to report any violations they come across ୴ Managers lead by example Workers naturally emulate the ethical behavior of managers A sales manager who is honest with customers, doesn’t accept inappropriate gifts, and leaves the company car at home during vacation is likely to be imitated by his or her sales staff chapter 17 587 PERSONAL SELLING AND SALES PROMOTION © Michael Newman/PhotoEdit Open communication is an important component in a corporate culture that encourages honesty and ethical behavior Regardless of corporate culture, every salesperson is responsible for his or her own behavior and relationship with customers If, as a new salesperson, you find yourself uncertain about a decision, ask yourself these questions The answers should help you make the ethical choice Does my decision affect anyone other than myself and the bottom line? Is my success based on making the sale or creating a loyal customer? Is my service of a customer in their best interest and not exploiting their trust? assessment check Why is it important for salespeople to maintain ethical behavior? What are the characteristics of companies that foster corporate cultures that encourage ethical behavior? What price will I pay for this decision? Sales Promotion Sales promotion includes marketing activities other than personal selling, advertising, and publicity designed to enhance consumer purchasing and dealer effectiveness Sales promotion can be traced back as far as the ruins of Pompeii and Ephesus In the United States, companies have been giving away trinkets and premiums for more than 100 years Sales promotion techniques were originally intended as short-term incentives aimed at producing an immediate response: a purchase Today, however, marketers recognize sales promotion as an integral part of the overall marketing plan, and the focus has shifted from short-term goals to long-term objectives of building brand equity and maintaining continuing purchases A frequentflyer program enables a new airline to build a base of loyal customers A frequent-stay program allows a hotel chain to attract regular guests Both retailers and manufacturers use sales promotions to offer consumers extra incentives to buy These promotions are likely to stress price advantages, giveaways, or special offerings The general objectives of sales promotion are to speed up the sales process and increase sales volume Promotions can also help build loyalty Through a consumer promotion, a marketer encourages consumers to try the product, use more of it, and buy it again The firm also hopes to foster sales of related Describe the role of sales promotion in the promotional mix, and identify the different types of sales promotions sales promotion Marketing activities other than personal selling, advertising, and publicity that enhance consumer purchasing and dealer effectiveness 588 part © AP Images/Stew Milne Retailers use sales promotions to offer consumers extra incentives to buy PROMOTIONAL DECISIONS items and increase impulse purchases Back-to-school sales are one type of sales promotion Retailers run them each fall to attract shoppers who need clothing and supplies for the new academic year In a recent campaign, Staples sold a different school item, like pencils or pocket folders, for a penny each week, as well as offering 50 percent off big-ticket items such as electronics and furniture.32 Today, consumers have many more choices among products than in the past, and for this reason many marketers create special programs to build loyalty among their customers However, with loyalty programs no longer unique, other marketers work to build loyalty among their customers by ensuring every aspect of their business is customer focused.33 Because sales promotion is so important to a marketing effort, an entire promotion industry exists to offer expert assistance in its use and to design unique promotions, just as the entire advertising industry offers similar services for advertisers These companies, like advertising agencies, provide other firms with assistance in promoting their goods and services Figure 17.5 shows current spending by companies for different types of sales promotions, many of which are conducted by these firms Sales promotions often produce their best results when combined with other marketing activities Ads create awareness, while sales promotions lead to trial or purchase After a presentation, a salesperson may offer a potential customer a discount coupon for the good or service Promotions encourage immediate action because they impose limited time frames Discount coupons and rebates usually have expiration dates In addition, sales promotions produce measurable results, making it relatively easy for marketers to evaluate their effectiveness If more people buy shoes during a buy-one-get-one-free promotion at a shoe store, its owners know the promotion was successful $200 figure 17.5 $0 Games, Contests, Sweepstakes $7.2 $6.1 Product Sampling $12.1 Interactive/Online $19.3 Specialty Printing $47.9 Coupons $50 Sponsorship $49.8 $100 Retail Premiums and Incentives Event Marketing $150 Direct Mail Source: Data from Kathleen M Joyce, “Higher Gear,” Promo, www.promomagazine.com, accessed August 18, 2008 $171.8 Promotion Spending Current Spending by Companies for Different Sales Promotions (in billions) $2.4 $1.8 $1.8 chapter 17 589 PERSONAL SELLING AND SALES PROMOTION It is important to understand what sales promotions can and cannot They can encourage interest in both new and mature products, help introduce new products, encourage trial and repeat purchases, increase usage rates, neutralize competition, and reinforce advertising and personal selling efforts On the other hand, sales promotions cannot overcome poor brand images, product deficiencies, or poor training for salespeople While sales promotions increase volume in the short term, they may not lead to sales and profit growth in the long run Sales promotion techniques may serve all members of a marketing channel In addition, manufacturers may use trade promotion methods to promote their products to resellers Promotions are usually employed selectively Sales promotion techniques include the following consumeroriented promotions: coupons, refunds, samples, bonus packs, premiums, contests, sweepstakes, and specialty advertising Trade-oriented promotions include trade allowances, point-of-purchase advertising, trade shows, dealer incentives, contests, and training programs CONSUMER-ORIENTED SALES PROMOTIONS In the promotion industry, marketers use all types of sales promotions, including games, contests, sweepstakes, and coupons to persuade new and existing customers to try their products Consumer-oriented sales promotions encourage repurchases by rewarding current users, boosting sales of complementary products, and increasing impulse purchases These promotions also attract consumer attention in the midst of advertising clutter It’s important for marketers to use sales promotions selectively; if they are overused, consumers begin to expect price discounts at all times, which ultimately diminishes brand equity The following sections describe the various forms of consumer-oriented sales promotions Coupons and Refunds Coupons, which offer discounts on goods and services, can be redeemed at retail outlets © Susan Van Etten/PhotoEdit Coupons, the most widely used form of sales promotion, offer discounts on the purchase price of goods and services Consumers can redeem the coupons at retail outlets, which receive the face value of the coupon plus a handling fee from the manufacturer The $5 billion coupon industry has been somewhat “clipped” in recent years due to more complex accounting rules that make couponing less attractive to some marketers, as well as the growing clout of retailers In addition, consumers receive so many coupons that they cannot possibly redeem them all In a recent year, an estimated 302 billion coupons were offered in the United States, and only 2.6 billion were redeemed.34 Mail, magazines, newspapers, package inserts and, increasingly, the Internet are the standard methods of distributing coupons But another distribution channel for coupons has emerged: cell phones Ecrio, a developer of mobile marketing technology, has pioneered a green solution to couponing with its MoBeam Barcode Service, which permits retailers to distribute coupons digitally to cell phone users, who can also redeem the coupons digitally when they shop.35 Refunds, or rebates, offer cash back to consumers who send in proof of purchasing one or more products Refunds help packaged-goods companies increase purchase rates, promote multiple purchases, and reward product users Although many consumers find the refund forms too bothersome to complete, plenty still 590 part PROMOTIONAL DECISIONS Samples, Bonus Packs, and Premiums Marketers are increasingly adopting the “try it, you’ll like it” approach as an effective means of getting consumers to try and then purchase their goods and services Sampling refers to the free distribution of a product in an attempt to obtain future sales Samples may be distributed door-todoor, by mail, online, via demonstrations in stores or at events, or by including them in packages with other products Sampling produces a higher response rate than most other promotions About three-quarters of the consumers who receive samples try them, particularly if they have requested the samples, and total annual spending on this sales promotion technique has topped $1 billion According to a recent survey, 92 percent of consumers reported they would buy a new product after trying a free sample, assuming the price is right.36 With sampling, marketers can target potential customers and be certain the product reaches them Sampling provides an especially useful way to promote new or unusual products because it gives the consumer a direct product experience It also has a “Wow!” factor After Georgia-Pacific spent over $200 million reformulating its best-selling Brawny paper towels, the company inserted samples into Sunday newspapers so consumers nationwide could feel the new product for themselves Georgia-Pacific followed up during the spring and summer months with live distributions of Bounty samples at festivals throughout the country.37 A major disadvantage of sampling is the high cost involved Not only must the marketer give away small quantities of a product that might otherwise have generated revenues through regular sales, but the market is also in effect closed for the time it takes consumers to use up the samples In addition, the marketer may encounter problems in distributing the samples Hellman’s marketers once annoyed consumers instead of pleasing them when the firm distributed sample packets of Italian and French salad dressing in home-delivered copies of the New York Times Many of the packets burst when the papers hit the driveways A bonus pack is a specially packaged item that gives the purchaser a larger quantity at the regular price For instance, Camay soap recently offered three bars for the price of two, and Salon Selectives is known to increase the size of its shampoos and conditioners for the same price as regular sizes Premiums are items given free or at reduced cost with purchases of other products For example, Pantene frequently attaches a purse-size bottle of hairspray to the sides of its other hair-care products Premiums have proven effective in motivating consumers to try new products or different brands A premium should have some relationship with the product or brand it accompanies, though For example, a home improvement center might offer free measuring tapes to its customers Contests and Sweepstakes Firms often sponsor contests and sweepstakes to introduce new goods and services and to attract additional customers Contests require entrants to complete a task such as solving a puzzle or answering questions in a trivia quiz, and they may also require proofs of purchase Sweepstakes, on the other hand, choose winners by chance, so no product purchase is necessary They are more popular with consumers than contests because they not take as much effort for consumers to enter Marketers like them, too, because they are inexpensive to run and the number of winners is predetermined With some contests, the sponsors cannot predict the number of people who will correctly complete the puzzles or gather the right number of symbols from scratch-off cards But sweepstakes have generated some backlash, as the “Solving an Ethical Controversy” feature describes Marketers increasingly are turning to the Internet for contests and sweepstakes because of its relatively low cost and ability to provide data immediately Interactivity is also a key part of the online experience: as consumers become more engaged in the contest or sweepstakes event, they also build a relationship with the firm’s products To promote its Delivery Intercept service, which enables anyone in the supply chain—including the customer—to redirect a package, UPS sponsored the “Delivery Intercept Challenge” video contest The company invited contestants to submit video clips of amateur football interceptions, with viewers voting online for their favorite UPS awarded prizes to eight finalists, with the grand-prize winner receiving $25,000 cash and a $10,000 donation to the amateur football team of his or her choice.38 With the recent rash of chapter 17 591 PERSONAL SELLING AND SALES PROMOTION Limiting Sweepstakes Fraud t he U.S government has cracked down on telemarketers with the Do Not Call Registry and levies stiff penalties against mail fraud Still, bogus sweepstakes flourish Scam artists tend to prey on the elderly, and some unsuspecting seniors have been duped out of their life savings through realisticlooking but phony claims that come by regular mail, e-mail, and phone As the Internet grows and the baby boom generation ages, criminals will have even more “fertile territory” to exploit Should the government ban sweepstakes to prevent fraud? PRO According to the FBI, sweepstakes fraud is increasing nationwide and globally because it is lucrative and difficult to eliminate Furthermore, it is underreported because victims typically are ashamed of having been tricked Because the fraud is so pervasive and some perpetrators too slick to track, law-enforcement authorities estimate that illegal sweepstakes may outnumber the lawful ones CON Sweepstakes are legitimate vehicles for marketers to use in promoting their brand Companies should be free to use the promotions that help them creatively engage customers and build sales Prohibiting the use of sweepstakes would only punish lawabiding businesses, not track down the criminals Summary The rise of the Internet has shown us how easy it is to be tricked by false claims, and fraud can now be perpetrated on a global basis All consumers are responsible for learning what they must to safeguard their personal information and protect their finances, whether they are online, on the phone, or responding to their mail And if consumers want to participate in sweepstakes, they need to know the basics In a legal sweepstakes, you never have to pay anything Before you jump in, read the fine print Never call a 900 number to claim a prize, and never give any personal information When in doubt about a company’s or organization’s legitimacy, check with the Better Business Bureau And remember, it’s safer to be skeptical Sources: Federal Trade Commission Web site, “Sweepstakes & Lotteries Scams,” www.ftc.gov, accessed August 18, 2008; “How to Avoid Sweepstakes Fraud,” eHow, www.ehow.com, accessed August 18, 2008; United States Postal Service Web site, www.usps.com, accessed August 18, 2008; Tom Jackman, “Families Urged to Fight Elder Mail Fraud,” Chicago Tribune, August 17, 2008, p court rulings and legal restrictions, the use of contests requires careful administration A firm contemplating this promotional technique might consider the services of online promotion specialists such as WebStakes or NetStakes Specialty Advertising The origin of specialty advertising has been traced to the Middle Ages, when artisans gave wooden pegs bearing their names to prospects, who drove them into the walls at home to serve as convenient hangers for armor Corporations began putting their names on a variety of products in the late 1800s, as newspapers and print shops explored new methods to earn additional revenues from their expensive printing presses Today, just about everyone owns a cap or T-shirt with the name or logo of a company, organization, or product displayed on it Specialty advertising is a sales promotion technique that places the advertiser’s name, address, and advertising message on useful articles that are then distributed to target consumers Wearable products are the most popular, accounting for nearly a third of specialty advertising sales Pens, mugs, glassware, and calendars are other popular forms Advertising specialties help reinforce previous or future advertising and sales messages Consumers like these giveaways, which generate stronger responses to direct mail, resulting in 592 part PROMOTIONAL DECISIONS three times the dollar volume of sales compared with direct mail alone Companies use this form of promotion to highlight store openings and new products, motivate salespeople, increase visits to trade show booths, and remind customers about their products TRADE-ORIENTED PROMOTIONS Sales promotion techniques can also contribute effectively to campaigns aimed at retailers and wholesalers Trade promotion is sales promotion that appeals to marketing intermediaries rather than to final consumers Marketers use trade promotions in push strategies by encouraging resellers to stock new products, continue to carry existing ones, and promote both effectively to consumers The typical firm spends about half of its promotional budget on trade promotion—as much money as it spends on advertising and consumer-oriented sales promotions combined Successful trade promotions offer financial incentives They require careful timing and attention to costs and are easy to implement by retailers These promotions should bring quick results and improve retail sales Trade Allowances Among the most common trade promotion methods are trade allowances—special financial incentives offered to wholesalers and retailers that purchase or promote specific products These offers take various forms A buying allowance gives retailers a discount on goods They include offinvoice allowances through which retailers deduct specified amounts from their invoices or receive free goods, such as one free case for every ten ordered When a manufacturer offers a promotional allowance, it agrees to pay the reseller a certain amount to cover the costs of special promotional displays or extensive advertising that features the manufacturer’s product The goal is to increase sales to consumers by encouraging resellers to promote their products effectively As mentioned in previous chapters, some retailers require vendors to pay a special slotting allowance before they agree to take on new products These fees guarantee slots, or shelf space, for newly introduced items in the stores This practice is common in large supermarket chains Retailers defend these fees as essential to cover the added costs of carrying the products, such as redesigning display space and shelves, setting up and administering control systems, managing inventory, and taking the risks inherent in stocking new products The fees can be sizable, from several hundred dollars per store to many thousands of dollars for a retail chain and millions of dollars for nationally distributed products Point-of-Purchase Advertising A display or other promotion located near the site of the actual buying decision is known as point-of-purchase (POP) advertising This method of sales promotion capitalizes on the fact Coast to Coast, It’s the Eco Trade Show Background Growing concerns about climate change, rising energy costs, and new government energy mandates: these are just some of the factors contributing to the fast growth of the green products industry Today, businesses of all kinds seek ways to reduce their use of natural resources And consumers from all walks of life are interested in leading a greener life and reducing their personal impact on the environment The Challenge For entrepreneurs, the green products industry represents a huge opportunity, estimated to be a $250 billion market But while the number of interested buyers continues to mount, finding the right vendors in such an emerging market isn’t always easy The Strategy Green West, a three-day convention in Los Angeles, promotes eco-friendly business and healthy living 593 PERSONAL SELLING AND SALES PROMOTION that buyers make many purchase decisions within the store, so it encourages retailers to improve on-site merchandising Product suppliers assist the retailer by creating special displays designed to stimulate sales of the promoted item Although it is difficult to obtain concrete measures of spending on POP advertising, one estimate suggests it will hit about $27 billion a year in spending by 2010.39 Freestanding POP promotions often appear at the ends of shopping aisles On a typical trip to the supermarket, you might see a POP display for Disney videos, Coppertone sunscreen, or Diet Pepsi Max soda Warehouse-style retailers such as Home Depot and Sam’s Club, along with Staples and Kmart, all use POP advertising displays frequently Electronic kiosks, which allow consumers to place orders for items not available in the store, have begun to transform the POP display industry, as creators of these displays look for ways to involve consumers more actively as well as entertain them © AP Images/PRNewsFoto/Disney Consumer Products chapter 17 In point-of-purchase advertising, product suppliers assist the retailer by creating special displays designed to stimulate sales, such as this special Disney display Trade Shows To influence resellers and other members of the distribution channel, many marketers participate in trade shows These shows often are organized by industry trade associations; frequently, they are part of these associations’ annual meetings or conventions Vendors who serve the industries display and demonstrate their products for attendees Industries that hold trade shows include manufacturers of sporting goods, medical equipment, electronics, automobiles, clothing, and home furnishings Service industries include hair styling, health care, travel, and restaurant franchises The “Marketing Success” feature discusses another popular trend in trade shows: environmentally friendly products Because of the expense involved in trade shows, a company must assess the value of these shows on several criteria such as direct sales, any increase in product awareness, image building, and any contribution to the firm’s marketing communications efforts Trade shows give especially effective opportunities to introduce new products and to generate sales leads Some types of shows reach ultimate consumers as well as channel members Home, recreation, and automobile shows, for instance, allow businesses to display and demonstrate home improvement, recreation, and other consumer products to entire communities The world’s first trade show devoted exclusively to environmentally sustainable products, Green West is the inspiration of conference developer Green Media Enterprises, a company whose motto is “Where Green Business Is Good Business.” The show features keynote speakers from business and government; educational sessions; and an expo hall with a full spectrum of exhibitors including architects, electronics firms, interior designers, technology companies, landscapers, paint manufacturers, plumbing suppliers, solar panel companies, space planners, and other green vendors In addition, the show featured a demonstration kitchen where chefs prepared tasty dishes made without meat or dairy products The Outcome In its inaugural show, Green West attracted more than 3,000 people Attendees took advantage of the show’s free “Adopt a Tree” program and networked between sessions at the Green Careers Center sponsored by staffing experts Manpower Inc At the Sustainable Living Spaces pavilion, visitors toured a model home constructed entirely from recycled materials, less-toxic water-based paint, and fast-growing bamboo Green West’s companion expo, known as Green East, followed only months later Plans are underway for future years’ shows Sources: Green East Expo Web site, www.sustainablefacility.com, accessed August 13, 2008; Green West Web site, www.greenwestexpo.com, accessed July 10, 2008; Andrea Chang, “An Eco-friendly Expo in L.A.: Green West Provides a Showcase for Products That Promote Recycling and Saving Energy,” Los Angeles Times, May 21, 2008, articles.latimes.com; “Eco-advantage Salon to Run Concurrently with Green West Expo,” Reuters, January 8, 2008, www.reuters.com 594 part PROMOTIONAL DECISIONS Dealer Incentives, Contests, and Training Programs Manufacturers run dealer incentive programs and contests to reward retailers and their salespeople who increase sales and, more generally, to promote specific products These channel members receive incentives for performing promotion-related tasks and can win contests by reaching sales goals Manufacturers may offer major prizes to resellers such as trips to exotic places Push money—which retailers commonly refer to as spiffs—is another incentive that gives retail salespeople cash rewards for every unit of a product they sell This benefit increases the likelihood that the salesperson will try to persuade a customer to buy the product rather than a competing brand For more expensive and highly complex products, manufacturers often provide specialized training for assessment check retail salespeople This background helps sales personnel explain features, competitive advantages, Define sales promotion and other information to consumers Training Identify at least four types of consumercan be provided in several ways: a manufacoriented sales promotions turer’s sales representative can Identify at least three types of trade-oriented conduct training sessions during regular sales calls, or the firm can dissales promotions tribute sales literature and DVDs t oday’s salespeople are a new breed Richly nourished in a tradition of sales, their roles are strengthened even further through technology However, as many companies are discovering, nothing can replace the power of personal selling in generating sales and in building strong, loyal customer relationships Recognizing the long-term impact of keeping satisfied buyers— those who make repeat and cross-purchases and provide referrals— versus dissatisfied buyers, organizations are increasingly training their sales forces to provide superior customer service and rewarding them for increasing satisfaction levels Salespeople today are a critical link in developing relationships between the customer and the company They communicate customer needs and wants to coworkers in various units within an organization, enabling a cooperative, companywide effort in improving product offerings and in better satisfying individuals within the target market For salespeople, the greatest benefit of electronic technologies is the ability to share knowledge when it is needed with those who need to know, including customers, suppliers, and employees The traditional skills of a salesperson included persuasion, selling ability, and product knowledge But today’s sales professionals are also likely to possess strong communication and problem-solving skills Earlier generations of sales personnel tended to be selfdriven; today’s sales professional is more likely to be a team player as well as a customer advocate who serves his or her buyers by solving problems Because buyers are now more sophisticated, demanding more rapid and lower-cost transactions, salespeople must be quick and creative as they find solutions to their customers’ problems Product lifecycles are accelerating, and customers who demand more are likely to switch from one product to another The modern professional salesperson is greatly assisted by the judicious use of both consumer- and trade-oriented sales promotions Sales promotion often is overlooked in discussions of highprofile advertising; the typical firm allocates more promotional dollars for sales promotion than for advertising The proven effectiveness of sales promotion makes it a widely used promotional mix component for most marketers chapter 17 595 PERSONAL SELLING AND SALES PROMOTION Review of Chapter Objectives Describe the role of today’s salesperson Today’s salesperson seeks to form long-lasting relationships with customers by providing high levels of customer service rather than going for the quick sale Firms have begun to integrate their Describe the four sales channels Over-the-counter (retail) selling takes place in a retail location and usually involves providing product information and completing a sale Field selling involves making personal sales calls on customers Under certain circumstances, telemarketing is used to pro- and caring about their problems, paying attention to the details, and following through after the sale Team selling occurs when the salesperson joins with specialists from other functional areas of the firm to complete the selling process Identify and briefly describe the three basic sales tasks Order processing is the routine handling of an order It characterizes a sales setting in which the need is made known and is acknowledged by the customer Creative selling is persuasion aimed at vide product information and answer questions from customers who call Inside selling relies on phone, mail, and e-marketing to provide sales and product services for customers on a continuing basis Describe the major trends in personal selling Companies are turning to relationship selling, consultative selling, and team selling Relationship selling occurs when a salesperson builds a mutually beneficial relationship with a customer on a regular basis over an extended period Consultative selling involves meeting customer needs by listening to customers, understanding computer and communications technologies into the sales function, so people involved in personal selling have an expanded role making the prospect see the value of the good or service presented Missionary selling is indirect selling, such as making goodwill calls and providing technical or operational assistance Outline the seven steps in the sales process The basic steps in the sales process are prospecting and qualifying, approach, presentation, demonstration, handling objections, closing, and follow-up Identify the seven basic functions of a sales manager A sales manager links the sales force to other aspects of the internal and external environments The manager’s functions are recruitment and selection, training, organization, supervision, motivation, compensation, and evaluation and control 596 part Explain the role of ethical behavior in personal selling Ethical behavior is vital to building positive, long-term relationships with customers Although some people believe ethical problems are inevitable, employers can much to foster a corporate culture that encourages honesty and ethical behavior In addition, each salesperson is responsible for his or her own behavior and relationship with customers Describe the role of sales promotion in the promotional mix, and identify the different types of sales promotions Sales promotion includes activities other than personal selling, advertising, and publicity designed to enhance consumer purchasing and dealer effectiveness Sales promotion is an integral part of the overall marketing plan, intended to increase sales and build brand equity Promotions often produce their best results when combined with other marketing activities assessment check: 1.1 PROMOTIONAL DECISIONS Consumer-oriented sales promotions include coupons, refunds, samples, bonus packs, premiums, contests and sweepstakes, and specialty advertising Trade-oriented promotions include trade allowances, point-of-purchase (POP) advertising, trade shows, dealer incentives, contests, and training programs answers What is personal selling? Personal selling is the process of a seller’s person-to-person promotional presentation to a buyer 1.2 What is the main focus of today’s salespeople? The main focus of today’s salespeople is to build long-lasting relationships with customers 2.1 What is over-the-counter selling? Over-the-counter selling describes selling in retail and some wholesale locations Most of these transactions take place directly with customers 2.2 What is field selling? Field selling involves making sales calls on prospective and existing customers at their businesses or homes 2.3 Distinguish between outbound and inbound telemarketing Outbound telemarketing takes place when a salesperson phones customers; inbound telemarketing takes place when customers call the firm 3.1 Identify the three major personal selling approaches The three major personal selling approaches are relationship selling, consultative selling, and team selling 3.2 Distinguish between relationship selling and consultative selling Relationship selling is a technique for building a mutually beneficial partnership with a customer Consultative selling involves meeting customer needs by listening to, understanding, and paying attention to their problems, then following up after a sale 4.1 What are the three major tasks performed by salespeople? The three major tasks are order processing, creative selling, and team selling chapter 17 4.2 PERSONAL SELLING AND SALES PROMOTION What are the three steps of order processing? The three steps of order processing are identifying customer needs, pointing out the need to the customer, and completing the order 5.1 Identify the seven steps of the sales process The seven steps of the sales process are prospecting and qualifying, approach, presentation, demonstration, handling objections, closing, and follow-up 5.2 Why is follow-up important to the sales effort? Follow-up allows the salesperson to reinforce the customer’s purchase decision, strengthen the bond, and correct any problems 6.1 What are the seven basic functions performed by a sales manager? The seven basic functions of a sales manager are recruitment and selection, training, organization, supervision, motivation, compensation, and evaluation and control 6.2 Define span of control Span of control refers to the number of sales representatives who report to first-level sales managers 6.3 What are the three main questions a sales manager must address as part of a salesperson’s evaluation? The three main questions a sales manager must address are the following: Where does each salesperson’s performance rank relative to predetermined standards? What are the salesperson’s strong points? What are the salesperson’s weak points? 7.1 Why is it important for salespeople to maintain ethical behavior? Salespeople need to maintain ethical behavior because it is vital to their firm’s relationships with customers and because they are representing their company A breach of ethics could also be detrimental to an individual’s career 7.2 What are the characteristics of companies that foster corporate cultures that encourage ethical behavior? Characteristics of corporations fostering ethical behavior include the following: employees who understand what is expected of them, open communication, and managers who lead by example 8.1 Define sales promotion Sales promotion includes marketing activities other than personal selling, advertising, and publicity designed to enhance consumer purchasing and dealer effectiveness 8.2 Identify at least four types of consumer-oriented sales promotions Consumer-oriented sales promotions include coupons, refunds, samples, bonus packs, premiums, contests, sweepstakes, and specialty advertising 8.3 Identify at least three types of trade-oriented sales promotions Trade-oriented sales promotions include trade allowances, POP advertising, trade shows, dealer incentives, contests, and training programs 597 598 part PROMOTIONAL DECISIONS Marketing Terms You Need to Know personal selling 566 over-the-counter selling 568 field selling 569 telemarketing 570 order processing 575 creative selling 576 missionary selling 576 sales promotion 587 inside selling 571 relationship selling 572 consultative selling 572 team selling 574 Other Important Marketing Terms network marketing 569 outbound telemarketing 570 inbound telemarketing 570 cross-selling 574 virtual sales team 574 sales incentives 576 prospecting 577 qualifying 577 approach 577 precall planning 578 presentation 578 cold calling 578 demonstration 579 objection 579 closing 580 follow-up 580 national accounts organization 583 span of control 583 expectancy theory 584 commission 584 salary 584 sales quota 585 coupon 589 refund 589 sampling 590 bonus pack 590 premium 590 contest 590 sweepstakes 590 specialty advertising 591 trade promotion 592 trade allowance 592 point-of-purchase (POP) advertising 592 trade show 593 push money 594 Assurance of Learning Review How does each of the following factors affect the decision to emphasize personal selling or nonpersonal advertising and sales promotion? a geographic market concentration b length of marketing channels c degree of product technical complexity Which of the four sales channels is each of the following salespeople most likely to use? a salesperson in an American Eagle Outfitters store b Coldwell Banker real estate agent c route driver for Keebler snack foods (sells and delivers to local food retailers) d technical support for Dell Why is it important for a salesperson to understand order processing—regardless of the type of selling he or she is engaged in? What is the role of a sales incentive? Suppose you are hired as a salesperson for a firm that offers prep courses for standardized tests Where might you find some leads? What is expectancy theory? How sales managers use it? What is the role of sales promotion in the marketing effort? What are the benefits of sampling? What are the drawbacks? 10 What is trade promotion? What are its objectives? What is team selling? Describe a situation in which you think it would be effective Projects and Teamwork Exercises Cross-selling can be an effective way for a firm to expand On your own or with a classmate, locate an advertisement for a firm you believe could benefit from cross-selling List ways it could offer multiple goods or services to the same customer Then create a new ad illustrating the multiple offerings chapter 17 599 PERSONAL SELLING AND SALES PROMOTION With a partner, choose one of the following sales situations Then take turns coming up with creative ways to close the deal—one of you plays the customer and the other plays the salesperson Present your closing scenarios to the class a You are a sales associate at a car dealership, and a potential customer has just test-driven one of your newest models You have handled all the customer’s objections and settled on a price You don’t want the customer to leave without agreeing to purchase the car b You operate a lawn-care business and have visited several homeowners in a new development Three of them have already agreed to give your service a try You are meeting with the fourth and want to close that sale, too you wish to relate and then role-play the sales presentation On your own or with a classmate, go online and research a firm such as Kraft, General Mills, Ford, or Burger King to find out what kinds of consumer-oriented promotions the company is conducting for its various brands or individual products Which promotions seem the most appealing to you as a consumer? Why? Present your findings to the class With a classmate, design a specialty advertising item for one of the following companies or its products, or choose one of your own Present your design sketches to the class a Sea World or Busch Gardens b Dunkin’ Donuts c Porsche d Verizon Wireless e Equal Exchange coffee f Apple iPod Imagine you want to sell your parents on the idea of your taking a trip, buying a car, attending graduate school—something important to you Outline your approach and presentation as a salesperson would Why is the recruitment and selection stage of the hiring process one of a sales manager’s greatest challenges? Food manufacturers often set up tables in supermarkets and offer free samples to shoppers, along with coupons for the promoted items Sometimes restaurants offer free coffee or drink refills What other products might lend themselves to sampling? Make a list Pick one of the items and come up with a sampling plan for it Where and when would you sample? To whom would you offer samples? As sales representatives for a cooperative of organic farmers, you and a classmate are about to make a sales presentation to a national supermarket chain List the most important messages Critical-Thinking Exercises Since the implementation of the national Do Not Call Registry, some Americans have noticed an increase in door-to-door selling as well as e-mails containing sales messages As a marketer, you think this type of selling is effective? Why or why not? Green Mountain Coffee Roasters is well known for its specialty coffees, available in many retail outlets such as supermarkets and convenience stores But visit a medical office or a car dealership, and you might find it there as well—in one-cup dispensers, ready for individuals to brew while waiting This requires personal selling to office managers, doctors, and the like What role does relationship selling play in this situation? What kind of training might Green Mountain sales reps receive? Ethics Exercise You have been hired by a discount sporting-goods retailer in an over-the-counter sales position You have completed a training course that includes learning about the products, assisting customers, and cross-selling You have made several good friends in the training course and sometimes get together after work to go running, play golf, or have dinner You’ve noticed that one of your friends has really taken the training course to heart and has adopted a very aggressive attitude toward customers in the store, pushing them to buy just about anything, whether they need it or not Your friend even boasted about selling a boogie board to the father of a boy who didn’t know how to swim Do you agree with your friend’s actions? Why or why not? Should you discuss the situation with your friend? Should you discuss it with your supervisor? Explain your response 600 part PROMOTIONAL DECISIONS Internet Exercises Sales careers Go to the Web site of the Occupational Outlook Handbook (bls.gov/oco) In the left column, click on the “Sales” link and answer the following questions: a How many people are currently employed in sales-related occupations? b How fast is employment in sales-related occupations expected to grow over the next few years? Is this faster or slower than overall employment growth? c What is the average compensation? Does it vary from industry to industry? d After reviewing the material on sales occupations, are you more or less interested in a sales career? Explain your answer Online couponing Visit the Web site of ValPak (www.valpak com), a leading source of online coupons Write a brief report summarizing what you learned, including your overall impression of online coupons Trade shows Interbike is the largest bicycle industry trade show in North America Go to its Web site (www.interbike com) When and where is Interbike held? How many people attend? Who attends? Review the material in the chapter on trade shows If you were a manufacturer or distributor of bicycle-related products, give three reasons why your firm should attend Interbike Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google Case 17.1 Chrysler Pins Its Hopes on Sales Star After a home, a car is likely the biggest purchase most consumers ever make And arguably, no other big-ticket item is as dependent on the quality of personal selling to close the deal For decades, U.S automakers clearly dominated the auto industry, but that picture began to change in the 1970s, when the Japanese began exporting cars to the United States Gradually, by paying close attention to consumers’ changing preferences, Japanese imports gained a foothold in America, and in 2007 Toyota overtook General Motors in worldwide sales Surprisingly, that same year, with Toyota cruising along in the United States, the president of Toyota Motor North America left his employer of 37 years to become vice chairman and president of Chrysler Observers described the move as a huge coup by Chrysler, to have lured Jim Press away from Toyota Press, widely regarded as one of the industry’s leading sales and marketing professionals, is credited with masterminding the sales strategy that made Toyota king of the hill in the United States What would have motivated Press, an executive at the top of his game, to take a leadership position with a struggling competitor? Industry insiders say Press had held many top sales jobs at Toyota He had worked closely with dealers known to be among the industry’s most profitable In a period of only a few years, Press helped move Toyota’s U.S market share from 10 to 16 percent But some say once Press rose to the presidency of Toyota’s North American operations and became its public face, he eventually began to miss tackling the daily challenges associated with making a company more competitive At Chrysler, Press assumed responsibility for sales and marketing as well as its brands and dealers And certainly, with conflict among its dealerships and flagging sales, Chrysler hopes Press can work a miracle Before Press came aboard, Chrysler caused a deep rift among its dealer network; dealers claim the company attempted to force them to accept delivery of many more vehicles than they could sell As a result, an estimated 100,000 cars ended up parked in lots in the Detroit area and elsewhere—Chrysler products their dealers couldn’t sell To add to the problems, industry observers claim Chrysler is unprofitable because it has too many dealerships and needs to consolidate It appears Jim Press has his work cut out for him Chrysler hopes the sales veteran can work magic twice in his career chapter 17 Questions for Critical Thinking 601 PERSONAL SELLING AND SALES PROMOTION Jim Press spent most of his career at Toyota, where leadership follows a set of principles it calls the Toyota Way Chrysler, on the other hand, has had a series of executives with very different styles and a history that includes a brush with bankruptcy and an ill-fated merger with German automaker Daimler Benz Do you think the cultural differences between Toyota and Chrysler will be an advantage or a disadvantage for Press in his new role? Which Toyota experiences might be helpful to Chrysler? Skilled sales leadership is essential in the auto industry, particularly when an organization has profitability problems How should Jim Press approach the issue of too many dealerships? Video Case 17.2 What attributes of a successful sales manager will be useful in solving this problem? Sources: Poornima Gupta, “Chrysler to Introduce Major Models in 2010: Executive,” Reuters, September 10, 2008, news.yahoo.com; Jim Henry, “What, Me Worry? Says Chrysler’s Jim Press,” BNET Industries, July 2, 2008, industry.bnet.com; David Kiley, “Chrysler’s Jim Press and Toyota Differ on Prius Narrative,” BusinessWeek, April 2, 2008, www.businessweek.com; David Kiley, “The Road to a Stronger CAFÉ Standard,” BusinessWeek, March 24, 2008, www.businessweek.com; “Chrysler’s Jim Press Says Every Car Will Be Offered as a Hybrid,” eGMCarTech, February 29, 2008, www.egmcartech.com; Jeff Yastine, “Chrysler President Jim Press Explains His Company’s Shrinkage,” Nightly Business Report, February 8, 2008, www.pbs.org; Jean Jennings, “Jim Press,” Automobile, January 2008, www.automobilemag.com; “Jim Press Defection Shows Chrysler’s Aggression (and Fear),” Wired, September 7, 2007, blog.wired.com; Nick Bunkley and Micheline Maynard, “Chrysler Hires a Top Toyota Executive,” The New York Times, September 6, 2007, www.nytimes.com Personal Selling and Sales Promotion at Scholfield Honda The written video case on Scholfield Honda appears on page VC-16 The Scholfield Honda video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 602 part TARGET MARKET SELECTION part PROMOTIONAL DECISIONS part voice of experience Talking about Marketing Careers with Andrew Swinand Having a career in a creative field such as media communications is a job many marketing students dream of having one day How did your educational experience prepare you to work in this field? What jobs have you held along the way, and how did they help you reach your current position? Q: Prior to working at Starcom, I was in the U.S Army, worked in account management at BBDO Worldwide [advertising agency], and was in brand management at Procter & Gamble I also majored in economics and marketing in school All contributed to my knowledge and success That said, I believe the two most important qualities for success in any marketing job are curiosity and discipline You must have a curious mind to succeed A mind that causes you to constantly ask why—Why consumers prefer this versus that? Why is this important to them? etc Second, you must have the discipline to follow through on those questions with rigor Marketing is becoming more analytical, and clients are demanding a greater degree of accountability Successful marketers must be able to both conceptualize the ideas, and actualize the results What are your duties and responsibilities as President and Chief Client Officer at Starcom? What strengths and skills you draw on in your daily work? How are your work teams organized—are they specialized into different functions or units, based on the client or industry, or some other criteria? Q: Our agency is split into two job functions One group works directly with the clients to manage their media strategy, media planning, consumer understanding, and accountability The second group works directly with media vendors to activate these plans through strategic media investment by stewarding the media buys, negotiating rates, and negotiating added value such as accountability programs My job is to ensure our client teams are delivering the best ideas, strategy, and service to our clients The one thing I can say about my job is that no two days are ever alike As Chief Client Officer, I work with teams that support clients in marketing everything from technology and databases to selling cereal or dog food Every client has different marketing challenges and a different relationship with consumers Part of our challenge is to be flexible enough to adjust our approach to each situation yet still have enough discipline and uniformity to our process to ensure a successful result We know that Starcom works with some very prominent clients, such as Disney, Kellogg’s, Oracle, and Procter & Gamble How you help your clients create a cohesive marketing message? What types of promotions you arrange— Q: ANDREW SWINAND President, Chief Client Officer Starcom Worldwide sponsorships, event marketing, direct marketing messages? I think the key to any effective strategy is to start with solid consumer understanding Many people think the goal of integrated communications is to a little of everything and ensure it looks similar We are finding that as consumers become more and more bombarded with messages, understanding their relationship with both the brand and the media is critically important In what context are they watching TV, searching for information on the Internet, or seeking streaming content? Then, how we strategically place the right content into that environment to ensure consumers are captivated by our clients’ messaging? The goal is not breadth of exposure but depth of experience resulting in engagement Today’s media outlets are so numerous—network and cable TV, traditional and subscriber radio, print and online newspapers, magazines and e-zines, new interactive media, to name just a few—that companies have many different avenues through which to reach their target audiences How you create a strategy for your clients? What relationship does your team have with the various media outlets to be able to offer expertise on media selections? Q: It has been said that more has changed in media in the last 36 months than the previous 36 years I believe this to be true and find it one of the most exciting parts of the job I think a big change is that it is not long enough for us to research on how consumers feel about Photo: Courtesy of Andrew Swinand Starcom Worldwide is a major player in the media marketing communications industry; in fact, it is one of the largest full-service media divisions in the world As part of the Starcom MediaVest Group, which has global operations in 89 markets worldwide and nearly 3,500 employees, the Chicago division specializes in media selection and buying to help leading companies position and build their brands Starcom’s media experts develop integrated marketing communications programs, providing marketing research and promotional services for their clients Staying on top of the fragmented media market can be challenging these days because of the spread of digital and online communications We were able to take a few minutes to discuss the changes in the advertising and media industry with Andrew Swinand of Starcom Worldwide, and he explained his role in helping clients take advantage of those new developments chapter 10 603 PR E RL AS O T INOANL S SHEI PL L M I NAGR KAENTDI NSGA LAENS DP RC O UM S TOOTM I OE N R RELATIONSHIP MANAGEMENT (CRM) brands We now must constantly research how consumers are interacting with media to understand both the context of the interaction and the value they are looking to get out of the experience At Starcom, we have created a new role called Consumer Context Planning that is dedicated to researching and discovering the links between consumers’ experiences with brands, media, and advertising What objectives your clients have in their media campaigns? Can you give us an example? How you gauge the effectiveness of an individual media buy—or its part in a larger campaign? Q: Accountability in advertising has become increasingly important Clients now expect agencies to be able to provide proof of performance for the dollars they are given In the past, agencies provided this proof in the form of input-based accountabilities (i.e., a certain reach and frequency, or TRPs [television rating points]) Today, clients want outputbased accountability in addition They want Interview used by permission of Starcom Worldwide to know if the ads achieved the desired goals of increasing awareness, driving purchase intent, capturing consumer information, or directly driving sales To support this need, Starcom has invested in tools that allow us to better track and report what actions consumers have taken after viewing our clients’ advertising I not believe Starcom, or the industry, has completely solved the accountability puzzle yet, and I feel that this is an exciting area of focus for the industry Being so involved with media communications, you must have some great advice for students on developing contacts and relationships to get started in their marketing careers What can students now to get a good start? What types of skills would you look for in a student interested in your field? won’t be able to successfully sell soap I would encourage students to define what is their unique selling proposition and what makes them different from or better than the competition If candidates can effectively articulate this, it goes a long way Recognize that you are a consumer: Marketers spend millions of dollars each year to talk to consumers When you go on an interview, go with an opinion on the products the company sells or advertises One, they will be interested in your feedback Two, it demonstrates that you are engaged in their business (see my comments about “curiosity” at the beginning of the interview) Do your homework: It is always amazing to me how many people come into an interview unprepared If you want to be successful in the communications industry, you must be a great communicator Great communications come from preparation (see #1 and #2 here) Q: I think there are three things that everyone starting a career in marketing should do: Define your brand: I always tell people if you can’t market yourself, you probably 604 part PROMOTIONAL DECISIONS part promotional decisions The January 2008 press release from Greensburg GreenTown read as follows: TOWN REBOUNDING FROM TORNADO TO BECOME ECO-TOURISM DESTINATION Greensburg, Kansas—Greensburg is the small Kansas town that was decimated by a powerful EF-5 tornado last May, the result of which 12 residents died and the community experienced the loss of 95% of its structures It is rebuilding as a model green community, focusing on energy self-sufficiency and other principles of sustainability, with the aim to become the greenest community in America As a component of this Green Initiative, the nonprofit organization Greensburg GreenTown launched a project to oversee the building of a dozen demonstration homes in the community Each home will showcase different designs, technologies, and products and will serve as a “living science museum” both for residents and visitors In addition to the educational aspects of this project, these models of sustainable living will also provide bed-and-breakfast type lodging to give people the opportunity to experience green living first-hand, in true eco-tourism fashion Homes will be constructed of a variety of wall systems including straw bale, insulated concrete forms, structural insulated panels, and traditional wood built with “advanced framing” techniques Each home will be equipped with monitoring devices to measure the performance of green design under real-world conditions There are plans for homes incorporating passive solar elements, photovoltaic cells, wind generated power, and myriad other technologies of sustainable design Cool idea, sure, but the twelve high-tech, low-impact homes were not going to build themselves At an estimated cost of $50,000–$300,000 per structure, GreenTown’s Catherine Hart and Daniel Wallach have had to hit the pavement and the phones in search of outside help AT&T, Caroma USA, which manufactures low-flow, dual-flush toilets, Harvest Solar Energy, university architecture departments and green building experts have committed time, expertise, product, and generous cash infusions to the project Eco-building guru and educator Dan Chiras of EverGreen DesignBuild Partnership plans to build two, 1,200-square-foot wind and solar “eco lodges.” He and his team of green architects, designers, and builders alone have donated approximately $50,000 “Businesses are showing an outpouring of generosity,” Chiras said in a press release dated March 17, 2008 He has received donations of wind and solar systems, to discount energy rating and LEED certification for his project Despite all the generous donations of product and labor the project has received, the folks at GreenTown must work hard to keep this and other Greensburg projects moving forward Executive Director Dan Wallach is always on the lookout for like-minded organizations to help him keep Greensburg on the map Ogden Publications of Topeka, Kansas has been working in the greenspace for decades Their most popular magazine, Mother Earth News, was started in 1970 around the time of the very first Earth Day and features projects you can to reduce your impact on the environment They also publish Natural Home, a popular decorating and lifestyle magazine for those interested in greening up their homes One day, not long after the tornado hit, publisher and editorial director Bryan Welch received a call from Daniel Wallach at GreenTown Wallach was looking for a partner on the model homes project Natural Home had recently begun work on a model green home in Brooklyn, New York, and © Steven J Eliopoulos A Town Rebounds Ogden had experience working on similar projects in the past offering advertisers priority product placement in exchange for donations and sponsorship “We got involved because we thought it was cool,” says Welch of the Greensburg project “If it hadn’t attracted all this attention, it would still be cool, so it was a safe bet.” It may have been safe, but it hasn’t been easy Ogden Publications and Mother Earth News in particular enjoy a reputation for being an authority on sustainable living This gives them a lot of credibility with their readers, but to potential advertisers, it’s pretty scary Welch admits it has been a challenge explaining to advertisers and partners that we’re not “a bunch of holier than thou old hippies” ready to rip their product’s greenness to shreds For the Greensburg project, he is up against another hurdle The whole point of the demonstration homes is for them to become a destination for visitors, a resource for builders and consumers, and potentially a home for residents If an advertiser is placing a donated product for the purposes of advertising, in six months, that product is outdated and they’ve moved on to another promotion If the buildings are going to be living examples of a sustainable lifestyle, it’s pretty impractical to replace the toilets or bamboo flooring every few months Brian recognizes this is a tricky proposition and one that will take some time to work out completely In the meantime, Mother Earth News and Natural Home will continue to reach out to their million-plus Web visitors urging them to help keep the greenest town in America moving forward Questions What are the challenges in soliciting product placements and donations for the Model Homes Project? To which sales channels does Greensburg GreenTown market the Model Homes Project? Why is personal selling an important aspect of Ogden Publications’ approach to advertisers? Why is advertising more advantageous for Ogden’s ad clients? Put yourself in the role of a product manager for a company (that is, lowflush toilets, solar panels) interested in donating some of their products to the Greenburg project Your manager has asked you to comment on whether they should concentrate on the promotion opportunities this initiative provides on the consumer, business-to-business customers, or a combination of both Write a memo (3 to pages) on the approach you suggest, along with some creative ideas 605 PART Pricing Decisions ecisions ns Chapter 18 Pricing Concepts Chapter 19 © Getty Images/Digital Vision Pricing Strategies 606 18 TER Concepts © David McNew/Getty Images CHAP Pricing Dollar Tree Branches Out Stretching a dollar to see how far it will go has become necessary for some and fashionable for others these days Luckily, several marketers are waiting in the wings to help on both counts Discount stores are among the businesses that prosper during tough economic times As U.S consumers juggle rising costs for fuel, food, and other items, many are turning to the cheapest discounters, collectively known as dollar stores, to make their budgets go a little farther Dollar General, Family Dollar, and Dollar Tree are the three biggest U.S dollar store chains, all with thousands of no-frills locations in dozens of states that sell everything from candy, household products, and school supplies to inexpensive clothing, bottled drinks, and canned food Each chain offers shoppers a slightly different set of 607 PRICING CONCEPTS advantages At Family Dollar, for instance, convenience has been the main draw at its 6,400 stores nationwide—despite its name, not everything costs a dollar Virginia-based Dollar Tree, on the other hand, sticks pretty closely to the $1 pricing formula Its 3,500 stores, operating in 48 states, offer a wide selection of national and regional brand names as well as imports, which now make up about 40 percent of its food products Like other dollar chains, Dollar Tree has been expanding its food and grocery offerings The firm has even added refrigerator units for fresh items, as consumers look harder for bargains and show they are willing to experiment to save money One recent Dollar Tree shopper found sun-dried tomatoes and roasted red peppers in its aisles, and another confessed, “I cut my grocery bill in half by coming here first.” Dollar Tree is on sound financial footing, with solid revenues and little debt, according to one finance expert And lately, the company has been faring even better than expected It reported a 12 percent increase in total sales for a recent quarter, surpassing $1 billion, despite selling low-margin items How does Dollar Tree it? Efficiency, convenience—and fun Buying in bulk and improving its inventory methods confer a big advantage that enables the company to pass savings on to customers “Our buying power is not to be taken lightly,” says a spokesperson for the chain Another advantage is that more customers are shopping there, thanks to rising food and other merchandise prices elsewhere, and they are spending more during each visit But the chain is about more than just rock-bottom pricing Dollar Tree also aggressively seeks out middle- and upper-income shoppers, whose budgets tend to be higher To attract those shoppers, the chain locates some of its stores in upscale neighborhoods, such as Scottsdale, Arizona, and appeals to consumers who enjoy hunting for and finding good bargains when they shop “The stores are set up in a treasurehunt format,” says one industry observer That ensures return visits by bargain seekers who not place as much emphasis on a brand as they value for their dollar This allows the chain to save by switching to low-cost suppliers without fear of upsetting brand-loyal customers To ease the purchase process and encourage more spending, the chain now also accepts credit cards at all locations Dollar Tree is spreading out, planning to add up to 250 stores in the short term, eventually expanding to 5,000 to 7,000 stores across the United States It also plans to add more locations for Deal$ Stores, a subsidiary it purchased a few years ago, which sells items priced all the way up to $5.1 Outline the legal constraints on pricing Identify the major categories of pricing objectives Explain price elasticity and its determinants List the practical problems involved in applying price theory concepts to actual pricing decisions Explain the major costplus approaches to price setting List the chief advantages and shortcomings of using breakeven analysis in pricing decisions Explain the use of yield management in pricing decisions Identify the major pricing challenges facing online and international marketers Dollar Tree, whose motto is “Everything’s $1,” describes itself as a place where the “thrill of the hunt”—amid a wide selection of brand names and seasonal products like holiday decorations—makes shopping fun for the whole family • How much you think the idea of shopping as fun contributes to Dollar Tree’s success? Is it more or less of a factor in retaining customers than consistently low prices? Why? evolution of a brand • As prices rise along their supply chains, many dollar stores are reducing the sizes of their products to stay at or near their $1-per-item price point Customers still pay a dollar, but they may get less for it What long-term impact you think this change will have on the success of dollar retailers? Objectives chapter 18 608 part chapter overview PRICING DECISIONS Prices are both difficult to set and dynamic; they shift in response to a number of variables price Exchange value of a good or service Outline the legal constraints on pricing One of the first questions shoppers ask is, “How A higher-than-average price can convey an much does it cost?” Marketers understand the image of prestige, while a lower-than-average critical role price plays in the consumer’s deci- price may connote good value In other sion-making process For products as varied as instances, though, a price much lower than lipstick and perfume, automobiles and gaso- average may be interpreted as an indicator of line, and doughnuts and coffee, marketers inferior quality, and a higher price—like the must develop strategies that price products to increasing price of gasoline—may reflect both achieve their firms’ objectives high demand and scarce supply And pricing As a starting point for examining pric- can also be used to modify consumer behav- ing strategies, consider the meaning of the ior, such as dollar stores attempt to when term price A price is the exchange value of a they lure new shoppers in for good deals good or service; in other words, it represents This chapter discusses the process of whatever that product can be exchanged for determining a profitable but justifiable (fair) in the marketplace Price does not necessar- price The focus is on management of the ily denote money In earlier times, the price of pricing function, including pricing strate- an acre of land might have been 20 bushels of gies, price–quality relationships, and pricing wheat, three head of cattle, or one boat Even in various sectors of the economy The chap- though the barter process continues to be ter also looks at the effects of environmental used in some transactions, in the 21st century, conditions on price determination, including price typically refers to the amount of funds legal constraints, competitive pressures, and required to purchase a product changes in global and online markets Pricing and the Law Pricing decisions are influenced by a variety of legal constraints imposed by federal, state, and local governments Included in the price of products are not only the cost of the raw materials, processing and packaging, and profit for the business but also the various taxes governments require providers to charge For instance, excise taxes are levied on a variety of products, including real estate transfers, alcoholic beverages, and motor fuels Sales taxes are charged on food, clothing, furniture, and many other purchases In the global marketplace, prices are directly affected by special types of taxes called tariffs These taxes—levied on the sale of imported goods and services—often make it possible for firms to protect their local markets while still setting prices on domestically produced goods well above world market levels The average tariff on fruits and vegetables around the world is more than 50 percent, although it varies considerably from country to country The United States levies tariffs of less than percent on more than half its fruit and vegetable imports, and in transactions with its largest trading partners in the produce market—Mexico and Canada—tariffs for both imports and exports are minimal or zero.2 In other instances, tariffs are levied to prevent foreign producers from engaging in a practice described in Chapter 7: dumping foreign-produced 609 PRICING CONCEPTS products in international markets at prices lower than those set in their domestic market The United States is not the only country to use tariffs to protect domestic suppliers For example, China, which now surpasses Canada as the leading source of U.S imports, recently agreed to repeal tariffs on energy services and technologies that sometimes ran as high as 16 percent Yet the United States and other countries still contend that Chinese trade policies put them at a disadvantage For instance, China, rapidly becoming the world’s largest market for cars, taxes imported auto parts at 10 percent But beyond a certain quantity, those same parts are taxed at the 25 percent rate that normally applies only to completed vehicles.3 These tariffs raise the prices overseas consumers must pay to purchase U.S goods Not every “regulatory” price increase is a tax, however Rate increases to cover costly government regulations imposed on the telecommunications industry have been appearing on Internet and cell phone bills as “regulatory cost recovery fees” or similarly named costs But these charges are not taxes, because the companies keep all the income from the fees and apply only some of it to complying with the regulations In essence, such “recovery fees” are a source of additional revenues in an industry so price-sensitive that any announced price increase is likely to send some customers fleeing to competitors Almost every person looking for a ticket to a high-demand sporting or concert event has encountered an expensive, often illegal, form of pricing called ticket scalping Scalpers camp out in ticket lines—or hire someone else to stand in line—to purchase tickets they expect to resell at a higher price Although some cities and states have enacted laws prohibiting the practice, it continues to occur in many locations But the ticket reselling market is both highly fragmented and susceptible to fraud and distorted pricing In response, buyers and sellers are finding that the Internet is helping create a market in which both buyers and sellers can compare prices and seat locations Web firms such as StubHub.com and TicketsNow.com, the latter owned by Ticketmaster, act as ticket clearinghouses for this secondary market These firms have signed deals with several professional sports teams that allow season ticket holders to sell unwanted tickets and buyers to purchase them with a guarantee Its partnership with StubHub has been a success for the University of Southern California, among others.4 Pricing is also regulated by the general constraints of U.S antitrust legislation, as outlined in Chapter The following sections review some of the most important pricing laws for contemporary marketers Some cities and states have enacted laws prohibiting ticket scalping, a form of ticket pricing © Robin Nelson/PhotoEdit chapter 18 ROBINSON-PATMAN ACT The Robinson-Patman Act (1936) typifies Depression-era legislation Known as the Anti-A&P Act, it was inspired by price competition triggered by the rise of grocery store chains; it is said that the original draft was prepared by the U.S Wholesale Grocers Association Enacted in the midst of the Great Depression, when legislators viewed chain stores as a threat to employment in the traditional retail sector, the Act was intended primarily to save jobs The Robinson-Patman Act was an amendment to the Clayton Act, enacted 22 years earlier, which had applied only to price discrimination between geographic areas, injuring local sellers Broader in scope, Robinson-Patman prohibits price discrimination in sales to wholesalers, retailers, and other producers It rules that differences in price must reflect cost differentials and prohibits Robinson-Patman Act Federal legislation prohibiting price discrimination not based on a cost differential; also prohibits selling at an unreasonably low price to eliminate competition 610 part PRICING DECISIONS selling at unreasonably low prices to drive competitors out of business Supporters justified the amendment by arguing that the rapidly expanding chain stores of that era might be able to attract substantial discounts from suppliers anxious to secure their business, while small, independent stores would continue to pay regular prices Price discrimination, in which some customers pay more than others for the same product, dates back to the very beginnings of trade and commerce Today, however, technology has added to the frequency and complexity of price discrimination as well as the strategies marketers adopt to get around it For example, marketers may encourage repeat business by inviting purchasers to become “preferred customers,” entitling them to average discounts of 10 percent As long as companies can demonstrate that their price discounts and promotional allowances not restrict competition, they avoid penalties under the Robinson-Patman Act Direct-mail marketers frequently send out catalogs of identical goods but with differing prices for different catalogs Zip code areas that traditionally consist of high spenders get the higher-price catalogs, while price-sensitive zip code customers receive catalogs with lower prices Firms accused of price discrimination often argue that they set price differentials to meet competitors’ prices and that cost differences justify variations in prices When a firm asserts it maintains price differentials as good-faith methods of competing with rivals, a logical question arises: What constitutes good-faith pricing behavior? The answer depends on the particular situation A defense based on cost differentials works only if the price differences not exceed the cost differences resulting from selling to various classes of buyers Marketers must then be prepared to justify the cost differences Many authorities consider this provision one of the most confusing areas in the Robinson-Patman Act Courts handle most charges brought under the act as individual cases Therefore, domestic marketers must continually evaluate their pricing actions to avoid potential Robinson-Patman violations UNFAIR-TRADE LAWS unfair-trade laws State laws requiring sellers to maintain minimum prices for comparable merchandise Most states supplement federal legislation with their own unfair-trade laws, which require sellers to maintain minimum prices for comparable merchandise Enacted in the 1930s, these laws were intended to protect small specialty shops, such as dairy stores, from so-called loss-leader pricing tactics in which chain stores might sell certain products below cost to attract customers Typical state laws set retail price floors at cost plus some modest markup Although most unfair-trade laws have remained on the books for decades, marketers had all but forgotten them until recently, when several lawsuits were brought against different warehouse clubs over their practice of loss-leader gasoline pricing Most were found to violate no laws FAIR-TRADE LAWS fair-trade laws Statutes enacted in most states that once permitted manufacturers to stipulate a minimum retail price for their product The concept of fair trade has affected pricing decisions for decades Fair-trade laws allow manufacturers to stipulate minimum retail prices for their products and to require dealers to sign contracts agreeing to abide by these prices Fair-trade laws assert that a product’s image, determined in part by its price, is a property right of the manufacturer Therefore, the manufacturer should have the authority to protect its asset by requiring retailers to maintain a minimum price Exclusivity is one method manufacturers use to achieve this By severely restricting the number of retail outlets that carry their upscale clothing and accessories, designers can exert more control over their prices and avoid discounting, which might adversely affect their image Like the Robinson-Patman Act, fair-trade legislation has its roots in the Depression era In 1931, California became the first state to enact fair-trade legislation Most other states soon followed; only Missouri, the District of Columbia, Vermont, and Texas failed to adopt such laws A U.S Supreme Court decision invalidated fair-trade contracts in interstate commerce, and Congress responded by passing the Miller-Tydings Resale Price Maintenance Act (1937) This law exempted interstate fair-trade contracts from compliance with antitrust requirements, thus freeing states to keep these laws on their books if they so desired chapter 18 611 PRICING CONCEPTS © Mario Tama/Getty Images Over the years, fair-trade laws declined in importance as Some retailers are chargdiscounters emerged and price ing higher prices for “fair competition gained strength as a trade” items including marketing strategy component coffee, bananas, and These laws became invalid with chocolate the passage of the Consumer Goods Pricing Act (1975), which halted all interstate enforcement of resale price maintenance provisions, an objective long sought by consumer groups In a new use of the term fair trade, some retailers are charging higher-than-market prices for commodities such as coffee, bananas, and chocolate as part of an international campaign to help farmers earn a living wage in poor countries where such products are grown Although thousands of farmers have already benefited from the funds, which pay for education, healthcare, and training projects, it remains to be seen whether experience with the practice in U.S stores will be similar to that in Europe, where some retailers have simply used higher markups so they can benefit as well It’s often difficult for consumers to know how much of the added price is going to help those in need Another potential problem raised by some critics is that paying artificially higher prices for coffee could incorrectly signal more small farmers to move into the already crowded coffee market, depressing prices for all Meanwhile, assessment check some U.S coffee companies, such as Conscious Coffees in Colorado, see free-trade coffee not as just another “flavor” What was the purpose of the Robinson-Patman Act? to offer but as a means to leverage social and environ2 What laws require sellers to maintain minimum mental change “Fair trade is not just about paying a prices for comparable merchandise? fair price to the farmers, it’s about taking What laws allow manufacturers to set minimum retail care of our planet,” says co-owner Mark Evans-Glenn “We should have a sustainable prices for their products? way of roasting it, as well.”5 Pricing Objectives and the Marketing Mix The extent to which any or all of the factors of production—natural resources, capital, human resources, and entrepreneurship—are employed depends on the prices those factors command A firm’s prices and the resulting purchases by its customers determine the company’s revenue, influencing the profits it earns Overall organizational objectives and more specific marketing objectives guide the development of pricing objectives, which in turn lead to the development and implementation of more specific pricing policies and procedures A firm might, for instance, set a major overall goal of becoming the dominant producer in its domestic market It might then develop a marketing objective of achieving maximum sales penetration in each region, followed by a related pricing objective of setting prices at levels that maximize sales These objectives might lead to the adoption of a low-price policy implemented by offering substantial price discounts to channel members Price affects and is affected by the other elements of the marketing mix Product decisions, promotional plans, and distribution choices all impact the price of a good or service For example, products distributed through complex channels involving several intermediaries must be priced high enough to cover the markups needed to compensate wholesalers and retailers for services they provide Basic so-called fighting brands are intended to capture market share from higher-priced, options-laden competitors by offering relatively low prices Those cheaper products are intended to entice customers to give up some options in return for a cost savings Identify the major categories of pricing objectives 612 part t a bl e PRICING DECISIONS Pricing Objectives Objective Purpose Example Profitability objectives Profit maximization Target return Sony’s initially high price for the Blu-ray Disc Player Volume objectives Sales maximization Market share Southwest Airlines’ low fares in new markets Meeting competition objectives Value pricing SuperValu’s lower prices on private house brands Prestige objectives Lifestyle Image High-priced luxury autos such as BMW and stereo equipment by Bose Not-for-profit objectives Profit maximization Cost recovery Market incentives Market suppression Reduced or zero tolls for high-occupancy vehicles to encourage carpooling Pricing objectives vary from firm to firm, and they can be classified into four major groups: (1) profitability objectives, (2) volume objectives, (3) meeting competition objectives, and (4) prestige objectives Not-for-profit organizations as well as for-profit companies must consider objectives of one kind or another when developing pricing strategies Table 18.1 outlines the pricing objectives marketers rely on to meet their overall goals PROFITABILITY OBJECTIVES brie fl y s peaking “At a time when all the other builders were selling homes with basements but without carports, we would sell homes without basements and with carports This allowed us to provide a more appealing product at a lower price In other words, we felt we would be giving customers greater value.” —Eli Broad (b 1933) REAL ESTATE AND INSURANCE MARKETER Marketers at for-profit firms must set prices with profits in mind Even not-for-profit organizations realize the importance of setting prices high enough to cover expenses and provide a financial cushion to cover unforeseen needs and expenses As the Russian proverb says, “There are two fools in every market: One asks too little, one asks too much.” For consumers to pay prices either above or below what they consider the going rate, they must be convinced they are receiving fair value for their money Economic theory is based on two major assumptions It assumes, first, that firms will behave rationally and, second, that this rational behavior will result in an effort to maximize gains and minimize losses Some marketers estimate profits by looking at historical sales data; others use elaborate calculations based on predicted future sales It has been said that setting prices is an art, not a science The talent lies in a marketer’s ability to strike a balance between desired profits and the customer’s perception of a product’s value Marketers should evaluate and adjust prices continually to accommodate changes in the environment The technological environment, for example, forces Internet marketers to respond quickly to competitors’ pricing strategies Search capabilities performed by shopping bots (described in Chapter 4) allow customers to compare prices locally, nationally, and globally in a matter of seconds Intense price competition, sometimes conducted even when it means forgoing profits altogether or reducing services, often results when rivals battle for leadership positions For some years, passenger airlines cut costs to compete on pricing Computer technology allowed them to automate many services and put passengers in charge of others, such as making reservations online and checking in at electronic kiosks Now, thanks to increased industry concentration and the rising price of jet fuel, which climbed 71 percent in a recent year, airlines are struggling to cover their costs As a result, passengers now pay sharply higher fares and find amenities, like in-flight meals, have all but disappeared JetBlue and United charge between $10 and $20 extra for seats with legroom JetBlue is charging for pillows and blankets, and US Airways passengers pay for coffee, tea, soft drinks, and even bottled water Nearly all airlines now charge for checking bags, and fees for overweight luggage have gone up Delta charges extra for pets and for booking seats over the phone, and many carriers now charge a fee for using frequent flier miles.6 Profits are a function of revenue and expenses: Profits = Revenue − Expenses chapter 18 PRICING CONCEPTS 613 Revenue is determined by the product’s selling price and number of units sold: Total Revenue = Price × Quantity Sold Therefore, a profit-maximizing price rises to the point at which further increases will cause disproportionate decreases in the number of units sold A 10 percent price increase that results in only an percent cut in volume will add to the firm’s revenue However, a 10 percent price hike that results in an 11 percent sales decline will reduce revenue Economists refer to this approach as marginal analysis They identify profit maximization as the point at which the addition to total revenue is just balanced by the increase in total cost Marketers must resolve a basic problem of how to achieve this delicate balance when they set prices Relatively few firms actually hit this elusive target A significantly larger number prefer to direct their effort toward more realistic goals Consequently, marketers commonly set target-return objectives—short-run or long-run goals usually stated as percentages of sales or investment The practice has become particularly popular among large firms in which other pressures interfere with profit-maximization objectives In addition to resolving pricing questions, target-return objectives offer several benefits for marketers For example, these objectives serve as tools for evaluating performance; they also satisfy desires to generate “fair” profits as judged by management, stockholders, and the public profit maximization Point at which the additional revenue gained by increasing the price of a product equals the increase in total costs target-return objective Short-run or long-run pricing objectives of achieving a specified return on either sales or investment VOLUME OBJECTIVES Some economists and business executives argue that pricing behavior actually seeks to maximize sales within a given profit constraint In other words, they set a minimum acceptable profit level and then seek to maximize sales (subject to this profit constraint) in the belief that the increased sales are more important in the long-run competitive picture than immediate high profits As a result, companies should continue to expand sales as long as their total profits not drop below the minimum return acceptable to management Sales maximization can also result from nonprice factors such as service and quality Marketers succeeded in increasing sales for Dr Scholl’s new shoe insert, Dynastep, by advertising heavily in magazines The ads explained how the Dynastep insert would help relieve leg and back pain Priced around $14 for two inserts—twice as much as comparable offerings—Dynastep ran over its competitors to become number one in its category Another volume-related pricing objective is the market-share objective—the goal of controlling a specified minimum share of the market for a firm’s good or service Apple applied this strategy to its recent iPhone price reduction With million phones sold in less than two years, the company set a new goal to sell 10 million in a single year and dropped the price to $199 for the cheapest, 8-gigabyte model, acknowledging that the initial price of $399 had been the biggest hurdle in the product’s introduction.7 The PIMS Studies Market-share objectives may prove critical to the achievement of other organizational objectives High sales, for example, often mean more profits The Profit Impact of Market Strategies (PIMS) project, an extensive study conducted by the Marketing Science Institute, analyzed more than 2,000 firms and revealed that two of the most important factors influencing profitability were product quality and market share Companies such as outdoor gear maker REI and Best Buy, the electronics giant, introduced their loyalty programs as a means of retaining customers and protecting their market share Faced with a slowing economy, other retailers are joining them, hoping to boost sluggish sales Among them are Starbucks and Red Lion Hotels Subway and Tully’s Coffee plan to link loyalty programs to customers’ credit cards so that membership is automatically recognized at checkout Kroger, the supermarket giant, will let consumers add online coupons to their store loyalty cards.8 The relationship between market share and profitability is evident in PIMS data that reveal an average 32 percent return on investment (ROI) for firms with market shares above 40 percent In contrast, average ROI decreases to 24 percent for firms whose market shares are between 20 and 40 percent Firms with a minor market share (less than 10 percent) generate average pretax investment returns of approximately 13 percent.9 Profit Impact of Market Strategies (PIMS) project Research that discovered a strong positive relationship between a firm’s market share and product quality and its return on investment 614 part PRICING DECISIONS The relationship also applies to a firm’s individual brands PIMS researchers compared the top four brands in each market segment they studied Their data revealed the leading brand typically generates after-tax ROI of 18 percent, considerably higher than the second-ranked brand Weaker brands, on average, fail to earn adequate returns Marketers have developed an underlying explanation of the positive relationship between profitability and market share Firms with large shares accumulate greater operating experience and lower overall costs relative to competitors with smaller market shares Accordingly, effective segmentation strategies might focus on obtaining larger shares of smaller markets and on avoiding smaller shares of larger ones A firm might achieve higher financial returns by becoming a major competitor in several smaller market segments than by remaining a relatively minor player in a larger market briefl y spe akin g “Price is what you pay Value is what you get.” —Warren Buffett (b 1930) U.S INVESTOR Skype allows unlimited calls to overseas land-line phones in 34 other countries for $9.95 a month Price is important in the competitive long-distance communications market © Adam Berry/Bloomberg News/Landov Meeting Competition Objectives A third set of pricing objectives seeks simply to meet competitors’ prices In many lines of business, firms set their own prices to match those of established industry price leaders Price is a pivotal factor in the ongoing competition between long-distance telephone services and wireless carriers In addition to unlimited calls to the United States and Canada for $3 a month, Skype, the Internet calling company owned by eBay, allows unlimited calls to overseas land-line phones in 34 other countries for $9.95 a month The countries include most of Europe as well as Australia, New Zealand, China, Japan, Korea, and Malaysia.10 Pricing objectives tied directly to meeting prices charged by major competitors deemphasize the price element of the marketing mix and focus more strongly on nonprice variables Pricing is a highly visible component of a firm’s marketing mix and an easy and effective tool for obtaining a differential advantage over competitors It is, however, a tool other firms can easily duplicate through price reductions of their own Because price changes directly affect overall profitability in an industry, many firms attempt to promote stable prices by meeting competitors’ prices and competing for market share by focusing on product strategies, promotional decisions, and distribution—the nonprice elements of the marketing mix Starbucks built its success on Starbucks Takes a Shot at New Pricing and Promotions Background Whether it was a backlash against designer coffees or a reaction to a slowing economy, suddenly Starbucks customers were buying their cups of java elsewhere Competition from lower-priced McDonald’s and Dunkin’ Donuts was cutting into sales, and Starbucks’ 15,000 stores logged a surprisingly disappointing performance in 2007 The Challenge With ambitious plans to reinvent the Starbucks experience, chairman and former CEO Howard Schultz took back the reins to head a broad reorganization that included slowing the chain’s historically rapid growth, closing underperforming stores, and refocusing product and marketing efforts on the customer’s experience That chapter 18 615 PRICING CONCEPTS nonprice elements but has recently experimented with beating the competition with a dollar-a-cup offer and free refills, as the “Marketing Success” feature explains Value Pricing included an experiment in reducing the chain’s famously high coffee prices The Strategy Taking the unusual step of undercutting its competitors, the chain is testing a $1 price for an 8-ounce cup at selected stores around Seattle where it is headquartered and offering free refills to boot In fact, some stores that were not slated to participate decided to offer the discount as well, stretching the company’s “Just say yes” policy to win back local customers After all, as Schultz says, “We have to everything we can to demonstrate to our customers that Starbucks is an affordable luxury We have to surprise and delight them.” value pricing Pricing strategy emphasizing benefits derived from a product in comparison to the price and quality levels of competing offerings Trader Joe’s uses value pricing to sell upscale food products © Michael Nagle/Getty Images When discounts become normal elements of a competitive marketplace, other marketing mix elements gain importance in purchase decisions In such instances, overall product value—not just price—determines product choice In recent years, a new strategy, value pricing, has emerged that emphasizes the benefits a product provides in comparison to the price and quality levels of competing offerings This strategy typically works best for relatively low-priced goods and services The quirky Smart Fortwo microcar is a technologically advanced vehicle manufactured by Daimler AG that gets 41 miles per gallon with ultra-low emissions Already available in 36 other countries, the Fortwo sold 10,000 units in less than six months following its U.S debut Priced below $17,000, the car is maneuverable in traffic at less than feet long but includes the functional and safety features of many luxury cars The president of Smart USA calls it “a powerful combination of fun-to-drive aspects, safety innovations, and functionality—all with great fuel economy.” The company hopes it appeals to today’s value-conscious and environmentally concerned drivers, as the VW Bug did during the 1960s and 1970s.11 Value-priced products generally cost less than premium brands, but marketers point out that value does not necessarily mean inexpensive The challenge for those who compete on value is to convince customers that low-priced brands offer quality comparable to that of a higher-priced product An increasing number of alternative products and private-label brands has resulted in a more competitive marketplace in recent years Trader Joe’s—a rapidly growing grocery chain that began in the Los Angeles area and has since expanded throughout the West, Midwest, and midAtlantic states—stands out from other specialty food stores with its cedar plank walls, nautical décor, and a captain (the store manager), first mate (the assistant manager), and the other employees (known as crew members) all attired in colorful Hawaiian shirts The chain uses value pricing for the more than 2,000 upscale food products it develops or imports The Outcome While industry analysts warn that discounting a luxury brand can be risky and perhaps even “dilute their gross margins,” customer reaction has so far been positive Starbucks defends the experiment by saying “testing is a way of life for us.” “It sounds good to me,” says one customer, “because I think Starbucks is too expensive.” Sources: Alex McCarthy, “Starbucks Hopes to Reheat Sales,” Denver Post, August 13, 2008, www.denverpost.com; Maria Bartiromo, “Howard Schultz on Reinventing Starbucks,” BusinessWeek, April 9, 2008, www.businessweek.com; Craig Harris, “Starbucks—For a Buck,” Seattle Post-Intelligencer, January 24, 2008, seattlepi nwsource.com; Jennifer Ordoñez, “Starbucks Stirs Things Up,” Newsweek, January 24, 2008, www.newsweek.com 616 part © Image courtesy of The Advertising Archives Prestige objectives help market exclusive products, like Tag Heuer watches PRICING DECISIONS It sells wines, cheeses, meats, fish, and other unique gourmet items at everyday closeout prices, mostly under its own brand names If the high quality doesn’t persuade customers at its 280 stores to buy, they can also take comfort from the fact that Trader Joe’s tuna are caught without environmentally dangerous nets, its dried apricots contain no sulfur preservatives, and its peanut butter is organic.12 Value pricing is perhaps best seen in the personal computer industry In the past few years, PC prices have collapsed, reducing the effectiveness of traditional pricing strategies intended to meet competition Falling prices have helped sales grow as much as 15 percent worldwide in a recent quarter, and about percent in the United States A recent sharp decline in the price of NAND flash memory chips, which store photos and music, is expected to further reduce prices in PCs and other devices as well as increase storage capability.13 PRESTIGE OBJECTIVES The final category of pricing objectives, unrelated to either profitability or sales volume, is prestige objectives Prestige pricing establishes a relatively high price to develop and maintain an image of quality and exclusiveness that appeals to status-conscious consumers Such objectives reflect marketers’ recognition of the role of price in creating an overall image of the firm and its product offerings Prestige objectives affect the price tags of such products as David Yurman jewelry, Tag Heuer watches, Baccarat crystal, and Lenox china When a perfume marketer sets a price of $400 or more per ounce, this choice reflects an emphasis on image far more than the cost of ingredients Analyses have shown that ingredients account for less than percent of a perfume’s cost Thus, advertisements for Joy that promote the fragrance as the “costliest perfume in the world” use price to promote product prestige Diamond jewelry also uses prestige pricing to convey an image of quality and timelessness In the business world, private jet ownership imparts an image of prestige, power, and high price tags—too high for most business travelers to consider Most owners are worth $10 million or more, according to one industry researcher, and include those who see private ownership enabling them to visit three cities in a day as a business need, not a luxury Recognizing that cost is the primary factor that makes jet ownership prohibitive, companies such as NetJets have created an assessment check alternative: fractional ownership Corporate boards of directors pressed to cut costs in a weak economy What are target-return objectives? are much more willing to pay for What is value pricing? a share in a jet than to purchase a whole new aircraft, and NetJets has How prestige objectives affect a seller’s seen its customer base rise percent in pricing strategy? a recent year.14 brie fl y s peaking “What is a cynic? A man who knows the price of everything and the value of nothing.” —Oscar Wilde (1854–1900) BRITISH PLAYWRIGHT Pricing Objectives of Not-for-Profit Organizations Pricing is also a key element of the marketing mix for not-for-profit organizations Pricing strategy can help these groups achieve a variety of organizational goals: Profit maximization While not-for-profit organizations by definition not cite profitability as a primary goal, numerous instances exist in which they try to maximize their returns on chapter 18 617 PRICING CONCEPTS Congestion Pricing: Who Really Bears the Burden? f ollowing the example of London, Rome, and Stockholm, many U.S city governments, including Los Angeles, Washington, D.C., and San Francisco, are considering congestion pricing, which charges extra tolls to drive into the city center during peak hours Technology makes the price plan easy to administer, and, as in London, drivers can pay online, by mail, in person, or via cell phone Proponents say by encouraging commuters to use public transit, variable pricing reduces traffic snarls, improves air quality, and helps raise funds for mass-transit improvements A recent congestion pricing proposal for New York City was defeated, although rejecting it cost the city $350 million in federal assistance funds Is congestion pricing really fair to those who must bear the cost? PRO Everyone benefits from reduced traffic and less pollution, as observed in London and Stockholm Traffic jams reappeared in Stockholm the first day after a trial run of congestion pricing ended Variable pricing can generate substantial revenues for improving mass transit, which further reduces congestion and pollution and benefits everyone who lives or works in a city CON Congestion pricing adds another layer of tax on workingclass commuters Because it is a flat rate per car, the less you make, the bigger a percentage of your income it represents Few people benefit from the policy Also, because congestion pricing is so costly to operate, the British government abandoned plans to implement London’s system nationwide Summary Although defeated, New York City’s variable pricing proposal may not be dead In other cities like Los Angeles, geography and traffic conditions—and therefore congestion pricing proposals—will be very different It seems certain that variable pricing will continue to generate much discussion in city halls around the country and possibly even become law Sources: “Congestion Pricing,” Popular Science, August 4, 2008, www.popsci.com; Peter Gordon and Bart Reed, “High Traffic, High Toll,” Los Angeles Times, April 30, 2008, www.latimes.com; Joseph Berger, “Congestion Pricing: Just Another Regressive Tax?” The New York Times, April 20, 2008, www.nytimes.com; Steve Hymon, “Tolls on Freeway a Tough Sell,” Los Angeles Times, April 14, 2008, www latimes.com; Rachel Gordon, “S.F Studying Congestion Pricing to Ease Traffic, Promote Transit,” The San Francisco Chronicle, September 19, 2007, www.sfgate.com single events or a series of events A $1,000-a-plate political fund-raiser is a classic example The “Solving and Ethical Controversy” feature discusses congestion pricing, a profitmaximizing strategy for major cities Cost recovery Some not-for-profit organizations attempt to recover only the actual cost of operating the unit Mass transit, toll roads and bridges, and most private colleges and universities are common examples The amount of recovered costs often is dictated by tradition, competition, or public opinion A more original solution is Indiana’s decision to lease its 157-mile toll road to a team of Australian and Spanish companies for the next 75 years, creating a source of almost $4 billion in revenue to fund needed transportation projects in the state Similar projects are underway or under consideration in other states and are common throughout the world; however, one concern among citizens of Pennsylvania, for instance, is that leaseholders of its roads will be able to raise tolls whenever they want to.15 Market incentives Other not-for-profit groups follow a lower-than-average pricing policy or offer a free service to encourage increased usage of the good or service Seattle’s bus system offers free service in the downtown area in an attempt to reduce traffic congestion and pollution, encourage retail sales, and minimize the effort required to access downtown public services.16 bri efly speaking “A thing is worth whatever the buyer will pay for it.” —Publilius Syrus (first century B.C.E.) LATIN WRITER OF MIMES 618 part PRICING DECISIONS Market suppression Price can also discourage consumption High prices help accomplish social objectives independent of the costs of providing goods or services Illustrations include tobacco and alcohol taxes—the so-called sin taxes—parking fines, tolls, and gasoline excise taxes The New York State legislature recently approved an increase in the state’s cigarette tax, making it the highest in the country at $2.75 a pack Some of the increased revenue is earmarked for financing children’s health insurance.17 Methods for Determining Prices customary prices Traditional prices that customers expect to pay for certain goods and services © Justin Sullivan/Getty Images Package size for certain Edy’s ice cream products has shrunk so pricing can be held constant Marketers determine prices in two basic ways: by applying the theoretical concepts of supply and demand and by completing cost-oriented analyses During the first part of the 20th century, most discussions of price determination emphasized the classical concepts of supply and demand During the last half of the century, however, the emphasis began to shift to a cost-oriented approach Hindsight reveals certain flaws in both concepts Treatments of this subject often overlook another concept of price determination—one based on the impact of custom and tradition Customary prices are retail prices consumers expect as a result of tradition and social habit Candy makers have attempted to maintain traditional price levels by greatly reducing overall product size Similar practices have prevailed in the marketing of soft drinks, chips, mayonnaise, soap, and ice cream as manufacturers attempt to balance consumer expectations of customary prices with the realities of rising costs Hellman’s mayonnaise is now sold in 30-ounce bottles rather than the old 32-ounce size, and Edy’s Slow Churned ice cream, made by Dreyer’s, has shrunk, along with its major competitors, from 1.75 quarts to 1.5 quarts for the same price Ice cream makers had already reduced the traditional half-gallon container by half a quart a few years ago and held the price constant Although some Edy’s customers were angry enough to complain about the most recent shrinkage, “We felt it was better to openly reduce the package size than to take the price of the package up and make ice cream unaffordable,” says Dreyer’s CEO Not everyone agrees “Downsizing is nothing but a sneaky price increase,” according to a former Massachusetts assistant attorney general who now edits a consumer Web site “I’m waiting to open a carton of eggs and see only eleven.”18 In some cases, customers can haggle with firms to lower prices or provide extras, as the “Etiquette Tips for Marketing Professionals” feature explains The changing price of U.S gasoline presents another example of supply and demand When average prices for a gallon of gas near the $4-a-gallon mark, frustrated drivers begin demanding to know who, if anyone, is cashing in on the price spike Even though the United States is the world’s largest refiner of gasoline, strong demand leads to an increase in oil imports Higher gas prices have effects on other consumer costs as well The U.S Department of Energy counts 57 different major uses of petroleum in addition to gasoline, in products ranging from cosmetics to chewing gum Consumer product companies, such as Procter & Gamble and Colgate-Palmolive, anticipate raising product prices, along with Dow Chemical, which recently announced price hikes for all its products, from antifreeze to pharmaceuticals Grocery chain Wegmans also raised prices on many items “We’re talking increased raw materials, packaging, transportation, the whole ball of wax,” says a company spokesperson Even the price of asphalt rose 65 percent in a recent year, which may mean cutbacks in roadwork and repairs in many communities.19 chapter 18 619 PRICING CONCEPTS How to Negotiate a Price m ost consumers are used to paying the posted price for everything But you might be surprised to learn that even doctors will sometimes take to 10 percent off their fees if the patient pays up front Big-ticket items like appliances and even contractors’ services often can be negotiated downward Negotiating price takes practice Here are some tips • Remember, you’re entitled to a good deal • Establish your walk-away point—the price above which you won’t go—and be prepared to leave empty-handed if you can’t motivate the seller to work with you • Find out beforehand everything you can about the item you want, including exact specifications, manufacturer’s price, warranty terms, common customer complaints, and other details Know what the item is really worth • Help the salesperson sell the discount to his or her man- ager—bring evidence of a lower price or better terms offered elsewhere or online • Be flexible If the seller can’t lower the price, will he or she extend • Phrase your negotiation as a friendly request One writer sug- gests saying, “What can you for me to make it easier to buy this from you?” • Take your time; resist the temptation to take any offer because it’s lower than the asking price If you don’t immediately respond, the seller may come back with a better proposal • Repeat the seller’s offer aloud to make sure you both are clear what the terms are • If a seller disappoints you by providing goods or services late, don’t hesitate to ask for some kind of compensation in return • Remember, something that sounds too good to be true usually is Sources: Donna L Montaldo, “Top 10 Tips on Learning How to Haggle,” About.com, couponing.about.com, accessed August 22, 2008; “How to Negotiate Like a Pro,” Essortment, www.essortment.com, accessed August 22, 2008; Kelly Housen, “11 Tips toward Happy Haggling,” Delaware Online, May 6, 2008, www.delawareonline com; “How to Negotiate Anything,” CNN, February 13, 2008, www.cnn.com; “The Art of Negotiating the Lowest Price,” ProBargainHunter.com, March 24, 2007, www.probargainhunter.com the warranty at no cost or deliver and install the item free? With fuel at record highs, hybrid cars are in greater demand than ever before, and some dealers have months-long waiting lists even at premium prices Retail businesses that use trucks and cars to deliver their products, such as pizza restaurants and florists—and even not-for-profits like Meals on Wheels—feel the pinch at the pump Meals on Wheels also copes with increases in the price of food and paper goods such as plates and napkins “Where we would normally have a to percent increase in food costs,” assessment check says the nutrition director of Meals on Wheels in Sioux City, Iowa, “we’ve been hit with anywhere from 15 to 30 percent,” What goals does pricing strategy help a not-for-profit the largest increase in 35 years In the meanorganization achieve? time, high fuel prices have sent many motor2 What are the two basic ways in which marketers determine ists to the bus stop, as such cities as San Diego, Boston, and Quebec City record increases in prices? public transportation ridership.20 Price Determination in Economic Theory Microeconomics suggests a way of determining prices that assumes a profit-maximization objective This technique attempts to derive correct equilibrium prices in the marketplace by comparing supply and demand It also requires more complete analysis than actual business firms typically conduct Demand refers to a schedule of the amounts of a firm’s product that consumers will purchase at different prices during a specified time period Supply refers to a schedule of the amounts of 620 part © Image courtesy of The Advertising Archives In the name of product differentiation, many U.S ranchers have switched their beef herds to an allgrass diet PRICING DECISIONS a good or service that will be offered for sale at different prices during a specified period These schedules may vary for different types of market structures Businesses operate and set prices in four types of market structures: pure competition, monopolistic competition, oligopoly, and monopoly Pure competition is a market structure with so many buyers and sellers that no single participant can significantly influence price Pure competition presupposes other market conditions as well: homogeneous products and ease of entry for sellers due to low startup costs The agricultural sector exhibits many characteristics of a purely competitive market, making it the closest actual example But many U.S ranchers have switched their beef herds to an all-grass diet in an attempt to differentiate their product from those raised in feedlots Monopolistic competition typifies most retailing and features large numbers of buyers and sellers These diverse parties exchange heterogeneous, relatively welldifferentiated products, giving marketers some control over prices Relatively few sellers compete in an oligopoly Pricing decisions by each seller are likely to affect the market, but no single seller controls it High start-up costs form significant barriers to entry for new competitors Each firm’s demand curve in an oligopolistic market displays a unique kink at the current market price Because of the impact of a single competitor on total industry sales, competitors usually quickly match any attempt by one firm to generate additional sales by reducing prices Price cutting in such industry structures is likely to reduce total industry revenues Oligopolies operate in the petroleum refining, automobile, tobacco, and airline industries Despite strong demand from air travelers, rising fuel prices have led the leading U.S airlines not only to raise prices but also to cut capacity, which means American, United, Delta, Continental, and US Airways will limit flights to major cities and eliminate service to some lessprofitable or heavily discounted locations, particularly Florida Southwest, which hedged its fuel costs and is operating profitably, will make up for some of its competitors’ service cuts.21 A monopoly is a market structure in which only one seller of a product exists and for which there are no close substitutes Antitrust legislation has nearly eliminated all but temporary monopolies such as those created through patent protection Regulated industries constitute another form of monopoly The government allows regulated monopolies in markets in which competition would lead to an uneconomical duplication of services In return for such a license, government reserves the right to regulate the monopoly’s rate of return The four types of market structures are compared in Table 18.2 on the following bases: number of competitors, ease of entry into the industry by new firms, similarity of competing products, degree of control over price by individual firms, and the elasticity or inelasticity of the demand curve facing the individual firm Elasticity—the degree of consumer responsiveness to changes in price—is discussed in more detail in a later section COST AND REVENUE CURVES Marketers must set a price for a product that generates sufficient revenue to cover the costs of producing and marketing it A product’s total cost is composed of total variable costs and total fixed costs Variable costs, such as raw materials and labor costs, change with the level of production, chapter 18 621 PRICING CONCEPTS t a b l e 18 Distinguishing Features of the Four Market Structures Type of Market Structure Characteristics Pure Competition Monopolistic Competition Oligopoly Monopoly Number of competitors Many Few to many Few No direct competitors Ease of entry into industry by new firms Easy Somewhat difficult Difficult Regulated by government Similarity of goods or services offered by competing firms Similar Different Can be either similar or different No directly competing goods or services Control over prices by individual firms None Some Some Considerable Demand curves facing individual firms Totally elastic Can be either elastic or inelastic Kinked; inelastic below kink; more elastic above Can be either elastic or inelastic Examples Indiana soybean farm Best Buy stores Verizon Wireless Waste Management and fixed costs, such as lease payments or insurance costs, remain stable at any production level within a certain range Average total costs are calculated by dividing the sum of the variable and fixed costs by the number of units produced Finally, marginal cost is the change in total cost that results from producing an additional unit of output The demand side of the pricing equation focuses on revenue curves Average revenue is calculated by dividing total revenue by the quantity associated with these revenues Average revenue is actually the demand curve facing the firm Marginal revenue is the change in total revenue that results from selling an additional unit of output Figure 18.1 shows the relationships of various cost and revenue measures; the firm maximizes its profits when marginal costs equal marginal revenues Table 18.3 illustrates why the intersection of the marginal cost and marginal revenue curves is the logical point at which to maximize revenue for the organization Although the firm can earn a profit at several different prices, the price at which it earns maximum profits is $22 At a price of Dollars figure 18.1 Marginal cost Determining Price by Relating Marginal Revenue to Marginal Cost Average total cost P Average revenue (demand) Maximized profits Marginal revenue Q Quantity 622 part ta b l e Price PRICING DECISIONS Price Determination Using Marginal Analysis Number Sold Total Revenue Marginal Revenue Total Costs Marginal Costs Profits (Total Revenue Minus Total Costs) – – – – – – ($50) $34 $34 $34 57 $7 (23) 32 64 30 62 30 90 26 66 24 28 112 22 69 43 26 130 18 73 57 24 144 14 78 66 22 154 10 84 70 20 160 91 69 18 162 100 62 16 10 160 (2) 101 11 50 $24, $66 in profits is earned—$4 less than the $70 profit at the $22 price If a price of $20 is set to attract additional sales, the marginal costs of the extra sales ($7) are greater than the marginal revenues received ($6), and total profits decline Explain price THE CONCEPT OF ELASTICITY IN PRICING STRATEGY elasticity and its determinants Although the intersection of the marginal cost and marginal revenue curves determines the level of output, the impact of changes in price on sales varies greatly To understand why it fluctuates, one must understand the concept of elasticity Elasticity is the measure of the responsiveness of purchasers and suppliers to price changes The price elasticity of demand (or elasticity of demand) is the percentage change in the quantity of a good or service demanded divided by the percentage change in its price A 10 percent increase in the price of eggs that results in a percent decrease in the quantity of eggs demanded yields a price elasticity of demand for eggs of 0.5 The price elasticity of supply of a product is the percentage change in the quantity of a good or service supplied divided by the percentage change in its price A 10 percent increase in the price of shampoo that results in a 25 percent increase in the quantity supplied yields a price elasticity of supply for shampoo of 2.5 Consider a case in which a percent change in price causes more than a percent change in the quantity supplied or demanded Numerically, that means an elasticity measurement greater than 1.0 When the elasticity of demand or supply is greater than 1.0, that demand or supply is said to be elastic If a percent change in price results in less than a percent change in quantity, a product’s elasticity of demand or supply will be less than 1.0 In that case, the demand or supply is called inelastic For example, the demand for cigarettes is relatively inelastic; research studies have shown that a 10 percent increase in cigarette prices results in only a percent sales decline In some countries whose economies are in shambles, price levels bear little resemblance to the laws of elasticity or supply and demand Prices in Zimbabwe are rising at unheard-of rates, the result of hyperinflation that rose to more 7,600 percent in a recent month—estimated to be as high 12.5 million percent a year What consumers would spend for a dozen new cars 10 years ago now buys a single loaf of bread Banks and stores are unable to handle transactions in which prices come with 15 zeroes attached—a new laptop costs 1.2 quadrillion Zimbabwe dollars—and manufacturing is 30 percent below capacity because workers cannot afford bus fare to get to work Shortages of food, elasticity Measure of responsiveness of purchasers and suppliers to a change in price chapter 18 PRICING CONCEPTS fuel, and medicine are rampant, and international observers believe the economy is at the brink of collapse Although it is against the law, those who can so are conducting more and more transactions in U.S dollars.22 Determinants of Elasticity Why is the elasticity of supply or demand high for some products and low for others? What determines demand elasticity? One major factor influencing the elasticity of demand is the availability of substitutes or complements If consumers can easily find close substitutes for a good or service, the product’s demand tends to be elastic A product’s role as a complement to the use of another product also affects its degree of price elasticity For example, the relatively inelastic demand for motor oil reflects its role as a complement to a more important product, gasoline High prices for gasoline, in turn, are fueling a search for alternative fuels Consumers are even turning away from bottled water as price hikes have them reconsidering the nearly free stuff that comes from the tap.23 As increasing numbers of buyers and sellers complete their business transactions online, the elasticity of a product’s demand is drastically affected Take major discounters and other pricecompetitive stores, for example Small businesses and individual do-it-yourselfers shop Lowe’s for tools, such as wheelbarrows; parents look for birthday gifts at Wal-Mart; and homeowners go to Home Depot for new refrigerators or stoves Today, however, the Internet lets consumers contact many more providers directly, often giving them better selections and prices for their efforts with service sites such as Shopzilla.com for consumer goods and electronics, Net-a-Porter.com for high fashion clothing, Kayak.com for travel bargains, and Shoebuy.com for shoes from dozens of different manufacturers The increased options available to shoppers combine to create a market characterized by demand elasticity Elasticity of demand also depends on whether a product is perceived as a necessity or a luxury The Four Seasons chain of luxury hotels and resorts enjoys a strong reputation for service, comfort, and exclusiveness and is a favorite among affluent individual travelers and business professionals Most people regard high-fashion clothes, such as a $2,800 Escada embroidered dress at Neiman Marcus, as luxuries If prices for designer outfits increase dramatically, people can respond by purchasing lower-priced substitutes instead In contrast, medical and dental care are considered necessities, so price changes have little effect on the frequency of visits to the doctor or dentist Elasticity also depends on the portion of a person’s budget spent on a good or service For example, people no longer really need matches; they can easily find good substitutes Nonetheless, the demand for matches remains very inelastic because people spend so little on them that they hardly notice a price change In contrast, the demand for housing or transportation is not totally inelastic, even though they are necessities, because both consume large parts of a consumer’s budget Elasticity of demand also responds to consumers’ time perspectives Demand often shows less elasticity in the short run than in the long run Consider the demand for home air conditioning In the short run, people pay rising energy prices because they find it difficult to cut back on the quantities they use Accustomed to living with specific temperature settings and dressing in certain ways, they prefer to pay more during a few months of the year than to explore other possibilities Over the long term, though, they may consider insulating their homes and planting shade trees to reduce cooling costs Elasticity and Revenue The elasticity of demand exerts an important influence on variations in total revenue as a result of changes in the price of a good or service Assume, for example, that San Francisco’s Bay Area Rapid Transit (BART) officials are considering alternative methods of raising more money for their budget One possible method for increasing revenues would be to change rail pass fares for commuters But should BART raise or lower the price of a pass? The correct answer depends on the elasticity of demand for subway rides A 10 percent decrease in fares should attract more riders, but unless it stimulates more than a 10 percent increase in riders, total revenue will fall A 10 percent increase in fares will bring in more money per rider, but if more than 10 percent of the riders stop using the subway, total revenue will fall A price cut will increase revenue only for a product 623 bri efly speaking “And so, we’re strongly committed to corn-based ethanol produced in America Yet you’ve got to recognize there are limits to how much corn can be used for ethanol I mean, after all, we got to eat some.” —George W Bush (b 1946) 43RD PRESIDENT OF THE UNITED STATES 624 part PRICING DECISIONS with elastic demand, and a price increase will assessment check raise revenue only for a product with inelastic demand BART officials seem to believe the What are the determinants of elasticity? demand for rapid rail transit What is the usual relationship between elasticity and is inelastic; they raise fares revenue? when they need more money List the practical PRACTICAL PROBLEMS OF PRICE THEORY problems involved in applying price theory concepts to actual pricing decisions Marketers may thoroughly understand price theory concepts but still encounter difficulty applying them in practice What practical limitations interfere with setting prices? First, many firms not attempt to maximize profits Economic analysis is subject to the same limitations as the assumptions on which it is based—for example, the proposition that all firms attempt to maximize profits Second, it is difficult to estimate demand curves Modern accounting procedures provide managers with a clear understanding of cost structures, so managers can readily comprehend the supply side of the pricing equation But they find it difficult to estimate demand at various price levels Demand curves must be based on marketing assessment check research estimates that may be less exact List the three reasons why it is difficult to than cost figures Although the demand element can be identified, it is often difficult put price theory into practice to measure in real-world settings Price Determination in Practice Explain the major cost-plus approaches to price setting The practical limitations inherent in price theory have forced practitioners to turn to other techniques Cost-plus pricing, the most popular method, uses a base-cost figure per unit and adds a markup to cover unassigned costs and to provide a profit The only real difference among the multitude of cost-plus techniques is the relative sophistication of the costing procedures employed For example, a local apparel shop may set prices by adding a 45 percent markup to the invoice price charged by the supplier The markup is expected to cover all other expenses and permit the owner to earn a reasonable return on the sale of clothes In contrast to this rather simple pricing mechanism, a large manufacturer may employ a complex pricing formula requiring computer calculations However, this method merely adds a more complicated procedure to the simpler, traditional method for calculating costs In the end, someone still must make a decision about the markup The apparel shop and the large manufacturer may figure costs differently, but they are remarkably similar in completing the markup side of the equation Cost-plus pricing often works well for a business that keeps its costs low, allowing it to set its prices lower than those of competitors and still make a profit Wal-Mart keeps costs low by buying most of its inventory directly from manufacturers, using a supply chain that slashes inventory costs by quickly replenishing inventory as items are sold and relying on other intermediaries only in special instances such as localized items This strategy has played a major role in the discounter’s becoming the world’s largest retailer ALTERNATIVE PRICING PROCEDURES The two most common cost-oriented pricing procedures are the full-cost method and the incremental-cost method Full-cost pricing uses all relevant variable costs in setting a product’s price In addition, it allocates fixed costs that cannot be directly attributed to the production of the specific priced item Under the full-cost method, if job order 515 in a printing plant amounts to 0.000127 percent of the plant’s total output, then 0.000127 percent of the firm’s overhead expenses are charged to that job This approach allows the marketer to recover all costs plus the amount added as a profit margin chapter 18 625 PRICING CONCEPTS The full-cost approach has two basic deficiencies First, no consideration of competition or demand exists for the item; perhaps no one wants to pay the price the firm has calculated Second, any method for allocating overhead (fixed expenses) is arbitrary and may be unrealistic—in manufacturing, overhead allocations often are tied to direct labor hours; in retailing, the square footage of each profit center is sometimes the factor used in computations Regardless of the technique employed, it is difficult to show a cause–effect relationship between the allocated cost and most products One way to overcome the arbitrary allocation of fixed expenses is with incremental-cost pricing, which attempts to use only costs directly attributable to a specific output in setting prices Consider a very small-scale manufacturer with the following income statement: Sales (10,000 units at $10) bri efly speaking “One person’s price is another person’s income.” —Walter Heller (1915–1987) AMERICAN ECONOMIST $ 100,000 Expenses: Variable Fixed $50,000 40,000 90,000 Net Profit $ 10,000 Suppose the firm is offered a contract for an additional 5,000 units Because the peak season is over, these items can be produced at the same average variable cost Assume the labor force would otherwise be working on maintenance projects How low should the firm price its product to get the contract? Under the full-cost approach, the lowest price would be $9 per unit This figure is obtained by dividing the $90,000 in expenses by an output of 10,000 units The incremental approach, on the other hand, could permit any price above $5, which would significantly increase the possibility of securing the additional contract This price would be composed of the $5 variable cost associated with each unit of production plus a $0.10-per-unit contribution to fixed expenses and overhead With a $5.10 proposed price, the income statement now looks like this: Sales (10,000 at $10; 5,000 at $5.10) $ 125,500 Expenses: Variable Fixed Net Profit $75,000 40,000 115,000 $ 10,500 Profits thus increase under the incremental approach Admittedly, the illustration is based on two assumptions: (1) the ability to isolate markets such that selling at the lower assessment check price will not affect the price received in other markets and (2) the absence of legal restrictions on the What is full-cost pricing? firm The example, however, does illustrate that What is incremental-cost pricing? profits can sometimes be enhanced by using the incremental approach BREAKEVEN ANALYSIS Breakeven analysis is a means of determining the number of goods or services that must be sold at a given price to generate sufficient revenue to cover total costs Figure 18.2 graphically depicts this process The total cost curve includes both fixed and variable segments, and total fixed cost is represented by a horizontal line Average variable cost is assumed to be constant per unit as it was in the example for incremental pricing The breakeven point is the point at which total revenue equals total cost In the example in Figure 18.2, a selling price of $10 and an average variable cost of $5 result in a per-unit contribution to fixed cost of $5 The breakeven point in terms of units is found by using the following formula, in which the per-unit contribution equals the product’s price less the variable cost per unit: List the chief advantages and shortcomings of using breakeven analysis in pricing decisions breakeven analysis Pricing technique used to determine the number of products that must be sold at a specified price to generate enough revenue to cover total cost 626 part PRICING DECISIONS Total Fixed Cost Breakeven Point (in units) = Per-Unit Contribution to Fixed Cost $40,000 Breakeven Point (in units) = _ = 8,000 units $5 The breakeven point in dollars is found with the following formula: Total Fixed Cost Breakeven Point (in dollars) = _ 1−Variable Cost per Unit Price $40,000 $40,000 Breakeven Point (in dollars) = _ = _ = $80,000 0.5 – ($5/$10) Sometimes breakeven is reached by reducing costs Faced with declining sales and revenues, Ford Motor Co recently met a 15 percent cost-reduction goal by reducing its North American workforce using both normal attrition and some layoffs.24 Once the breakeven point has been reached, sufficient revenues will have been obtained from sales to cover all fixed costs Any additional sales will generate per-unit profits equal to the difference between the product’s selling price and the variable cost of each unit As Figure 18.2 reveals, sales of 8,001 units (1 unit above the breakeven point) will produce net profits of $5 ($10 sales price less per-unit variable cost of $5) Once all fixed costs have been covered, the per-unit contribution will become the per-unit profit Target Returns Although breakeven analysis indicates the sales level at which the firm will incur neither profits nor losses, most firms’ managers include a targeted profit in their analyses In some instances, management sets a desired dollar return when considering a proposed new product or other marketing strategy A retailer may set a desired profit of $250,000 in considering whether to expand to a second location In other instances, the target return may be expressed in percentages, such as a 15 percent return on sales These target returns can be calculated as follows: Total Fixed Cost + Profit Objective Breakeven Point (including specific dollar target return) = _ Per-Unit Contribution Breakeven Chart re ve nu e 120,000 To ta l Revenue and Costs ($ 10 $160,000 pe ru nit ) figure 18.2 $40,000 + $15,000 Breakeven Point (in units) = = 11,000 units $5 If the target return is expressed as a percentage of sales, it can be included in the breakeven formula as a variable cost Suppose the marketer in the t preceding example seeks a 10 percent s co tal return on sales The desired return is o T $1 for each product sold (the $10 perits unit selling price multiplied by the of r P 10 percent return on sales) In this case, the basic breakeven formula will Breakeven point remain unchanged, although the variable cost per unit will be increased to Total variable cost ($5 per unit) s reflect the target return, and the pere ss Lo unit contribution to fixed cost will be reduced to $4 As a result, the breakTotal fixed cost ($40,000) even point will increase from 8,000 to 10,000 units: 80,000 40,000 4,000 8,000 12,000 16,000 20,000 Quantity (Units) $40,000 Breakeven Point = _ = 10,000 units $4 chapter 18 627 PRICING CONCEPTS Evaluation of Breakeven Analysis assessment check Breakeven analysis is an effective tool for marketers in assessing the sales required for covering costs and achieving speci1 Give the formula for finding the breakeven fied profit levels It is easily understood by point in units and in dollars both marketing and nonmarketing executives What adjustments to the basic breakeven and may help them decide whether required calculation must be made to include target returns? sales levels for a certain price are realistic goals However, it has its shortcomings First, the model assumes costs can be divided into fixed and variable categories Some costs, such as salaries and advertising outlays, may be either fixed or variable depending on the particular situation In addition, the model assumes per-unit variable costs not change at different levels of operation However, these may vary because of quantity discounts, more efficient use of the workforce, or other economies resulting from increased levels of production and sales Finally, the basic breakeven model does not consider demand It is a cost-based model and does not directly address the crucial question of whether consumers will purchase the product at assessment check the specified price and in the quantities required for breaking even or generating profits The marketer’s challenge is to What are the advantages of breakeven modify the breakeven analysis and the other analysis? cost-oriented pricing approaches to incorpo2 What are the disadvantages of breakeven rate demand analysis Pricing must be examanalysis? ined from the buyer’s perspective Such decisions cannot be made by considering only cost factors The Modified Breakeven Concept Traditional economic theory considers both costs and demand in determining an equilibrium price The dual elements of supply and demand are balanced at the point of equilibrium In actual practice, however, most pricing approaches are largely cost oriented Because purely cost-oriented approaches to pricing violate the marketing concept, modifications that add demand analysis to the pricing decision are required Consumer research on such issues as degree of price elasticity, consumer price expectations, existence and size of specific market segments, and buyer perceptions of strengths and weaknesses of substitute products is necessary for developing sales estimates at different prices Because much of the resulting data involves perceptions, attitudes, and future expectations of present and potential customers, such estimates are likely to be less precise than cost estimates The breakeven analysis method illustrated in Figure 18.2 assumes a constant $10 retail price, regardless of quantity But what happens at different retail prices? As Figure 18.3 shows, a more sophisticated approach, modified breakeven analysis, combines the traditional breakeven analysis model with an evaluation of consumer demand Table 18.4 summarizes both the cost and revenue aspects of a number of alternative retail prices The $5 per-unit variable cost and the $40,000 total fixed cost are based on the costs used in the basic breakeven model The expected unit sales for each specified retail price are obtained from marketing research The table contains the information necessary for calculating the breakeven point for each of the five retail price alternatives These points are shown in Figure 18.3(a) The data shown in the first two columns of Table 18.4 represent a demand schedule that indicates the number of units consumers are expected to purchase at each of a series of retail prices As Figure 18.3(b) shows, these data can be superimposed onto a breakeven chart to identify the range of feasible prices for the marketer to charge Figure 18.3 reveals that the range of profitable prices exists from a low of approximately $8 (TR4) to a high of $10 (TR2), with a price of $9 (TR3) generating the greatest projected profits Changing the retail price produces a new breakeven point At a relatively high $15 (TR1) retail price, the breakeven point is 4,000 units; at a $10 retail price, it is 8,000 units; and at the lowest price considered, $7 (TR5), it is 20,000 units 628 part (a) Five Breakeven Points for Five Different Prices PRICING DECISIONS (b) Superimposing a Demand Curve on the Breakeven Chart TR1 ($15) Revenue at $15 per unit Breakeven points TR2 ($10) TR3 ($9) TR4 ($8) TR5 ($7) Revenue and Costs Revenue and Costs Revenue at $10 per unit Revenue at $9 per unit Revenue at $8 per unit Revenue at $7 per unit Total cost Total cost Demand curve Total variable cost $5 per unit Total fixed cost $40,000 Total fixed cost Quantity Quantity figure 18.3 Modified Breakeven Chart: Parts A and B Explain the use of yield management in pricing decisions yield management Pricing strategy that allows marketers to vary prices based on such factors as demand, even though the cost of providing those goods or services remains the same t a b le The contribution of modified breakeven analysis is that it forces the marketer to consider whether the consumer is likely to purchase the number of units required for achieving breakeven at a given price It demonstrates that a large number of units sold does not necessarily produce added profits, because— other things equal—lower prices are necessary for stimulating additional sales Consequently, it is important to consider both costs and consumer demand in determining the most appropriate price Yield Management When most of a fim’s costs are fixed over a wide range of outputs, the primary determinant of profitability will be the amount of revenue generated by sales Yield management strategies allow marketers to vary prices based on such factors as demand, even though the cost of providing those goods or services remains the same Hotels use software to track customer patterns and help determine attractive Revenue and Cost Data for Modified Breakeven Analysis Costs Price $15 Revenues Quantity Total Demanded Revenue Total Fixed Cost Total Variable Cost Total Cost $40,000 $12,500 $52,000 Breakeven Point (Number of Sales Required to Break Even) 4,000 Total Profit (or Loss) 2,500 $37,500 $(15,000) 10 10,000 100,000 40,000 50,000 90,000 8,000 10,000 13,000 117,000 40,000 65,000 105,000 10,000 12,000 14,000 112,000 40,000 70,000 110,000 13,334 2,000 15,000 105,000 40,000 75,000 115,000 20,000 (10,000) chapter 18 629 PRICING CONCEPTS discounts that fill their spas during off-peak hours such as weekdays and lunchtime The lowered prices also reduce unprofitable downtime for specialized spa employees New to the spa business, many hotels in the past “weren’t able to maximize their revenues because they weren’t doing any yield management,” says one industry observer “They’d just book their staff without looking at customer flow during the week Now more hotel operators have gotten involved and are being driven to push more revenues.”25 Similar yield management strategies typify the marketing of such goods and services as the following: ୴ Sports teams—the San Francisco Giants charge more for weekend games, and the Colorado Rockies raise ticket prices based on the crowd-pleasing power of visiting teams ୴ Lodging—lower prices in the off-season and higher prices during peak-season periods; lowpriced weekend rates (except in locations such as Las Vegas, New Orleans, and Charleston, with high weekend tourist visits) ୴ Auto rental—lower prices on weekends when business demand is low and higher prices during the week when business demand is higher ୴ Airfares—lower prices on nonrefundable tickets with travel restrictions such as advancepurchase and Saturday-night stay requirements and penalties for flight changes and higher prices on refundable tickets that can be changed without penalty The following example from the airline industry demonstrates how yield management maximizes revenues in situations in which costs are fixed.26 Airlines constantly monitor reservations on every flight Beginning approximately 330 days before the flight, space is allocated between full-fare, discount-fare, and free tickets for frequent flyers who qualify for complimentary tickets This allocation is monitored and adjusted at regular intervals until the flight departs Assume, for example, that American Airlines has scheduled a 136-seat plane as Flight 2332 with a 9:15 a.m departure from Dallas–Fort Worth to Chicago’s O’Hare Airport on October 23 When Flight 2332 leaves its gate, all costs associated with the flight (fuel, crew, and other operating expenses) are fixed The pricing that maximizes revenues on this flight will also maximize profits An examination of past sales indicates that American could sell 30 to 40 round-trip, fullfare tickets at $500 per passenger and 100 to 110 round-trip restricted-fare tickets at $200 per passenger Demand for frequent-flyer space should be at least 10 seats If American reserves 40 seats for full-fare passengers and accepts reservations for 86 restricted-fare tickets but sells only 30 full-fare tickets (leaving 20 vacant seats), total revenues will be as follows: Revenues = (30 × $500) + (86 × $200) = $32,200 On the other hand, if American’s pricing decision makers want to reduce vacancies, they might decide to reduce the number of full-fare tickets to 15 and increase the restricted-fare tickets to 111 If the plane leaves the gate at full capacity, the flight will generate the following total revenues: Revenues = (15 × $500) + (111 × $200) = $29,700 Instead of rigidly maintaining the allocations established nearly a year before the flight, though, American will use yield management to maximize the revenue per flight In this example, the airline initially holds 40 full-fare seats and accepts reservations for up to 86 restricted-fare seats Thirty days before the October 23 departure, updated computer projections indicate that 27 fullfare seats are likely to be sold The allocation is now revised to 27 full-fare and 99 restricted-fare tickets A full flight leaves the gate and revenues are as follows: Revenues = (27 × $500) + (99 × $200) = $33,300 Applying yield management for the Dallas– Chicago flight increases revenues by at least $1,100 over the inflexible approach of making advance allocations and failing to adjust them based on passenger reservations and other data assessment check What is modified breakeven analysis? Explain the goal of yield management 630 part PRICING DECISIONS Global Issues in Price Determination Identify the major pricing challenges facing online and international marketers It is equally important for a firm engaging in global marketing to use a pricing strategy that reflects its overall marketing strategy Prices must support the company’s broader goals, including product development, advertising and sales, customer support, competitive plans, and financial objectives In general, firms can use five pricing objectives to set prices in global marketing Four of them are the same pricing objectives we discussed earlier in the chapter: profitability, volume, meeting competition, and prestige In addition, international marketers work to achieve a fifth objective: price stability In the global arena, marketers may choose profitability objectives if their company is a price leader that tends to establish international prices Profitability objectives also make sense if a firm is a low-cost supplier that can make a good profit on sales Volume objectives become especially important when nations lower their trade barriers, exposing domestic markets to foreign competition During the Beijing Olympics, Nike and Adidas faced off in a multibillion-dollar battle for the huge Chinese audience In sportswear, as in many other industries, China is the fastest-growing market in the world Adidas sponsored the games and the Chinese Olympic committee, while Nike sponsored 22 of 28 Chinese teams in the competition China’s own sportswear brand, Li Ning, meanwhile, used the events to woo worldwide viewers with sponsorships from countries including Sweden and the United States “We don’t have as strong a brand” as Nike or Adidas, says the head of the company’s footwear division “We need to have an international image.”27 Increased competition in Europe has spurred firms to work toward the third pricing objective of meeting competitors’ prices The widespread adoption of the euro, the currency of the European Union, has become a driving force in price convergence When Slovakia prepared to adopt the euro, the transition was expected to be smooth based on past experience, with only slight effects and with price increases in just a few industries, such as tourism and recreation Consumer prices would rise by only about percent in the short term, according to the Organization for Economic Cooperation and Development (OECD) “Slovakia’s view corresponds with the results of the OECD study and confirms the thesis that the euro does not directly equal price increases,” says the country’s finance secretary.28 Prestige is a valid pricing objective in international marketing when products are associated with intangible benefits, such as high quality, exclusiveness, or attractive design The greater a product’s perceived benefits, the higher its price can be Marketers must be aware, however, that cultural perceptions of quality can differ from one country to the next Sometimes items that command prestige prices in the United States are considered run-of-the-mill in other nations; © Feng Li/Getty Images Adidas and Nike faced off in a multi-billion-dollar battle for the huge Chinese audience during the Beijing Olympics chapter 18 631 PRICING CONCEPTS sometimes products that are anything but prestigious in America seem exotic to overseas consumers American patrons, for instance, view McDonald’s restaurants as affordable fast-food eateries, but in China, they are seen as fashionable and relatively expensive The fifth pricing objective, price stability, is desirable in international markets, although it is difficult to achieve Wars, terrorism, economic downturns, changing governments and political parties, and shifting trade policies can alter prices A retailer can even be the victim of its own success British international supermarket giant Tesco faces fierce competition at home and abroad, as well as a backlash among UK consumers against its growing dominance in so-called Tesco towns One of every seven British pounds spent in shops in Great Britain is spent in a Tesco’s store The chain argues that, thanks to the Internet and the emergence of farmers’ markets, the grocery market is now a national, not a local, one and that “we and all the other major grocery multiples have national strategies on pricing, branding, advertising, quality, range and service.” Tesco’s defense against accusations that it is growing into a monopoly says, in part, that the market should be defined in terms of consumers’ willingness to switch retailers in response to price hikes.29 Price stability can be especially important for producers of commodities—goods and services that have easily accessible substitutes that other nations can supply quickly Countries that export international commodities, such as wood, chemicals, and agricultural crops, suffer economically when their prices fluctuate A nation such as Nicaragua, which exports sugarcane, can find that its balance of payments changes drastically when the international price for sugar shifts This makes it vulnerable to assessment check stiff price competition from other sugarcane producers In contrast, countries that export value-oriented prod1 What are five pricing objectives in global and online marketing? ucts, rather than commodities, tend to enjoy Why is price stability difficult to achieve in online and global more stable prices Prices of electronic equipment and automobiles tend to fluctuate far less than marketing? prices of crops such as sugarcane and bananas t his chapter has focused on traditional pricing concepts and methods—principles critical to all marketing strategies, especially in e-business Consumers can now compare prices quickly, heightening the already intense competitive pricing environment The Web allows for prices to be negotiated on the spot, and nearly anything can be auctioned For products as varied as sports tickets and automobiles, the Web allows consumers to name their price While Internet shopping has not resulted in massive price cutting, it has increased the options available for consumers Online price comparison engines, known as shopping bots, promise to help consumers find the lowest price for any good or service Reverse auctions offered by sites such as Priceline.com, which allow customers to submit the highest price they are willing to pay for airline tickets, could conceivably be extended to other types of goods and are already gaining in popularity in business-to-business purchasing Electronic delivery of music, books, and other goods and services will only lead to further price reductions E-business has smoothed out the friction of time, which kept pricing relatively static The current obsession with time and the ability to measure it will change the perceptions and pricing of tangible goods A growing number of products are not made until they are ordered, and increasingly, their prices are no longer fixed; instead, prices can shift up and down in response to changing market conditions 632 part PRICING DECISIONS Review of Chapter Objectives Outline the legal constraints on pricing A variety of laws affect pricing decisions Antitrust legislation provides a general set of constraints The Robinson-Patman Act amended the Clayton Act to prohibit price discrimination in sales to other producers, wholesalers, or retailers not based on a cost differential This law does not cover export markets or sales to the ultimate consumer At the state level, unfair-trade laws require sellers to maintain minimum prices for comparable merchandise Identify the major categories of pricing objectives Pricing objectives are the natural consequence of overall organizational goals and more specific marketing goals They can be classified into four major groups: (1) profitability objectives, including mate demand curves Finally, inadequate training of managers and poor communication between economists and managers make it difficult to apply price theory in the real world Explain the major cost-plus approaches to price setting Cost-plus pricing uses a base-cost figure per unit and adds a markup to cover unassigned costs and to provide a profit It is the most commonly used method of setting prices today There are two primary cost-oriented pricing procedures Full-cost pricing uses all relevant variable costs in setting a product’s price and allocates those fixed goods, (2) the classification of a good or service as a luxury or a necessity, (3) the portion of a person’s budget spent on an item, and (4) the time perspective List the practical problems involved in applying price theory concepts to actual pricing decisions Three problems are present in using price theory in actual practice First, many firms not attempt to maximize profits, a basic assumption of price theory Second, it is difficult to accurately esti- profit maximization and target returns; (2) volume objectives, including sales maximization and market share; (3) meeting competition objectives; and (4) prestige objectives Explain price elasticity and its determinants Elasticity is an important element in price determination The degree of consumer responsiveness to price changes is affected by such factors as (1) availability of substitute or complementary These laws have become less frequently enforced in recent years Fair-trade laws represented one legal barrier to competition that was removed in the face of growing price competition These laws permitted manufacturers to set minimum retail prices for products and to require their dealers to sign contracts agreeing to abide by such prices The Consumer Goods Pricing Act banned interstate use of fair-trade laws costs that cannot be directly attributed to the production of the priced item Incremental-cost pricing attempts to use only those costs directly attributable to a specific output in setting prices to overcome the arbitrary allocation of fixed expenses The basic limitation of cost-oriented pricing is that it does not adequately account for product demand List the chief advantages and shortcomings of using breakeven analysis in pricing decisions Breakeven analysis is a means of determining the number of goods or services that must be sold at a given price to generate revenue sufficient for covering total costs It is easily understood by managers and may help them decide whether required sales levels for a certain price are realistic goals Its shortcomings are as follows First, the model assumes cost can be divided into fixed and variable categories and ignores the problems of arbitrarily making some allocations Second, it assumes that per-unit variable costs not change at different levels of operation, ignoring the possibility of quantity discounts, more efficient use of the workforce, and other possible economies Third, the basic breakeven model does not consider demand It is a cost-based model and fails to directly address the crucial question of whether consumers will actually purchase the product at the specified price and in the quantities required for breaking even or generating profits chapter 18 633 PRICING CONCEPTS Explain the use of yield management in pricing decisions Breakeven analysis is a means of determining the number of products that must be sold at a given price to generate sufficient revenue to cover total costs The modified breakeven concept combines traditional breakeven analysis with an evaluation of consumer demand It directly addresses the key question of Identify the major pricing challenges facing online and international marketers In general, firms can choose from among five pricing objectives to set prices in global marketing Four of these objectives are the same pricing objectives discussed earlier: profitability, volume, meeting competition, and prestige The fifth objective is price assessment check: 1.1 whether consumers will actually purchase the product at different prices and in what quantities Yield management pricing strategies are designed to maximize revenues in situations in which costs are fixed such as airfares, auto rentals, and theater tickets stability, which is difficult to achieve because wars, border conflicts, terrorism, economic trends, changing governments and political parties, and shifting trade policies can alter prices The same types of changes can alter pricing in online marketing answers What was the purpose of the Robinson-Patman Act? The Robinson-Patman Act amended the Clayton Act to prohibit price discrimination in sales to other producers, wholesalers, or retailers that are not based on a cost differential 1.2 What laws require sellers to maintain minimum prices for comparable merchandise? At the state level, unfair-trade laws require sellers to maintain minimum prices for comparable merchandise 1.3 What laws allow manufacturers to set minimum retail prices for their products? Fair-trade laws permitted manufacturers to set minimum retail prices for products and to require their dealers to sign contracts agreeing to abide by such prices 2.1 What are target-return objectives? Target-return objectives are short-run or long-run goals usually stated as percentages of sales or investment 2.2 What is value pricing? Value pricing emphasizes the benefits a product provides in comparison to the price and quality levels of competing offerings 2.3 How prestige objectives affect a seller’s pricing strategy? Prestige pricing establishes a relatively high price to develop and maintain an image of quality that appeals to status-conscious customers The seller uses price to create an overall image of the firm 2.4 What goals does pricing strategy help a not-for-profit organization achieve? Pricing strategy helps not-for-profit organizations achieve a variety of goals: profit maximization, cost recovery, market incentives, and market suppression 634 part 2.5 PRICING DECISIONS What are the two basic ways in which marketers determine prices? Marketers determine prices by applying the theoretical concepts of supply and demand and by completing cost-oriented analysis 3.1 What are the determinants of elasticity? The degree of consumer responsiveness to price changes—elasticity—is affected by such factors as (1) availability of substitute or complementary goods, (2) the classification of a good or service as a luxury or a necessity, (3) the portion of a person’s budget spent on an item, and (4) the time perspective 3.2 What is the usual relationship between elasticity and revenue? A price cut increases revenue only for a product with elastic demand, and a price increase raises revenue only for a product with inelastic demand 4.1 List the three reasons why it is difficult to put price theory into practice A basic assumption of price theory is all firms attempt to maximize profits This does not always happen in practice A second reason is demand curves can be extremely difficult to estimate Finally, managers can be inadequately trained, causing poor communication between economists and managers, making it difficult to apply price theory in the real world 5.1 What is full-cost pricing? Full-cost pricing uses all relevant variable costs in setting a product’s price 5.2 What is incremental-cost pricing? Incremental-cost pricing attempts to use only costs directly attributable to a specific output in setting prices to overcome the arbitrary allocation of fixed expenses 5.3 Give the formula for finding the breakeven point, in units and in dollars Breakeven point in units = Total fixed cost/Per-unit contribution to fixed cost Breakeven point in dollars = Total fixed cost/(1 − Variable cost per unit price) 5.4 What adjustments to the basic breakeven calculation must be made to include target returns? Breakeven point (including specific dollar target return) = (Total fixed cost + Profit objective)/Per-unit contribution 6.1 What are the advantages of breakeven analysis? Breakeven analysis is easily understood by managers and may help them decide whether required sales levels for a certain price are realistic goals 6.2 What are the disadvantages of breakeven analysis? First, the model assumes cost can be divided into fixed and variable categories and ignores the problems of arbitrarily making some allocations Second, it assumes per-unit variable costs not change at different levels of operation, ignoring the possibility of quantity discounts, more efficient use of the workforce, and other possible economies Third, the basic breakeven model does not consider demand 7.1 What is modified breakeven analysis? The modified breakeven concept combines traditional breakeven analysis with an evaluation of consumer demand It directly addresses the key question of whether consumers will actually purchase the product at different prices and in what quantities chapter 18 7.2 635 PRICING CONCEPTS Explain the goal of yield management Yield management pricing strategies are designed to maximize revenues in situations in which costs are fixed such as airfares, auto rentals, and theater tickets 8.1 What are five pricing objectives in global and online marketing? Five pricing objectives in global and online marketing are profitability, volume, meeting competition, prestige, and price stability 8.2 Why is price stability difficult to achieve in online and global marketing? Price stability is difficult to achieve because wars, border conflicts, terrorism, economic trends, changing governments and political parties, and shifting trade policies can alter prices Marketing Terms You Need to Know price 608 Robinson-Patman Act 609 unfair-trade laws 610 fair-trade laws 610 profit maximization 613 target-return objective 613 Profit Impact of Market Strategies (PIMS) project 613 value pricing 615 customary prices 618 elasticity 622 breakeven analysis 625 modified breakeven analysis 627 yield management 628 Other Important Marketing Terms marginal analysis 613 market-share objective 613 demand 619 supply 619 pure competition 620 monopolistic competition 620 oligopoly 620 monopoly 620 variable costs 620 fixed costs 621 average total costs 621 marginal cost 621 cost-plus pricing 624 full-cost pricing 624 incremental-cost pricing 625 Assurance of Learning Review Distinguish between fair-trade and unfair-trade laws As a consumer, would you support either fair-trade or unfair-trade laws? Would your answer change if you were the owner of a small store? Explain the advantages and drawbacks of using incrementalcost pricing rather than full-cost pricing Give an example of each of the major categories of pricing objectives How can locating the breakeven point assist in price determination? What are the major price implications of the PIMS studies? Suggest possible explanations for the relationships the PIMS studies reveal Explain the advantage of modified breakeven analysis over the basic breakeven formula Identify each factor influencing elasticity and give a specific example of how it affects the degree of elasticity in a good or service What are the practical problems in applying price theory concepts to actual pricing decisions? Explain how the use of yield management can result in greater revenue than other pricing strategies 10 How pricing objectives for a global firm differ from those used generally? 636 part PRICING DECISIONS Projects and Teamwork Exercises In small teams, categorize each of the following as a specific type of pricing objective Suggest a company or product likely to use each pricing objective Compare your findings a percent increase in profits over the previous year b prices no more than percent higher than prices quoted by independent dealers c percent increase in market share d 25 percent return on investment (before taxes) e setting the highest prices in the product category to maintain favorable brand image In pairs, discuss the market situations that exist for the following products Defend your answers and present them to the class a MP3 players b golf clubs c soybeans d remote control car alarms e razors How are the following prices determined and what they have in common? a ticket to a local museum b your college tuition c local sales tax rate d printing of business cards e lawn mowers WebTech Development of Nashville, Tennessee, is considering the possible introduction of a new product proposed by its research and development staff The firm’s marketing director estimates the product can be marketed at a price of $70 Total fixed cost is $278,000, and average variable cost is calculated at $48 a What is the breakeven point in units for the proposed product? b The firm’s CEO has suggested a target profit return of $214,000 for the proposed product How many units must be sold to both break even and achieve this target return? The marketing research staff at Cleveland-based Cyber Novelties has developed the following sales estimates for a proposed new item the firm plans to market through direct mail sales: Proposed Selling Price Sales Estimate (units) $8 55,000 10 22,000 15 14,000 20 5,000 24 2,800 The new product has a total fixed cost of $60,000 and a $7 variable cost per unit a Which of the proposed selling prices would generate a profit for Cyber Novelties? b Cyber Novelties’ director of marketing also estimates an additional $0.50 per-unit allocation for extra promotion will produce the following sales increases: 60,000 units at an $8 unit selling price; 28,000 units at $10; 17,000 units at $15; 6,000 units at $20; and 3,500 units at $24 Indicate the feasible range of prices if this proposal is implemented and results in the predicted sales increases c Indicate the feasible price or prices if the $0.50 per-unit additional promotion proposal is not implemented but management insists on a $25,000 target return Research the price schedule at your local movie theater multiplex What pricing strategy accounts for any price differentials you discover? Why don’t matinee prices constitute price discrimination against those who don’t qualify for the discounts? Why is it more expensive to buy beer and a hot dog at a Major League Baseball game than at local retail stores? Public funding of national parks has been declining for many years What would you expect to happen to entry and use fees in this case? Research fees at parks in your state or region to verify your answer and report to the class How cell phone companies make money by charging a flat rate per month for a set number of minutes, such as $35 for 300 minutes? Can you think of a more profitable plan? Would it appeal to consumers? 10 Some sports marketers believe simpler pricing for tickets will earn goodwill from customers and send a clear marketing message that they are ready to attract fans But few teams are embracing a new pricing system, frequently opting to place premium tickets online and charging seat licenses for season ticket holders, who then own the rights to those seats Why you think the teams are reluctant to change? chapter 18 637 PRICING CONCEPTS Critical-Thinking Exercises Prices at amusement parks are expected to rise because operators such as Disney and Universal Studios are adding new rides and coping with the rising cost of fuel List as many things as you can think of that parks like these offer patrons in return for their money Which of these you think are directly reflected in the price of admission? Musical artists earn only about percent in royalties per CD, using a royalty base of retail price less 25 percent for packaging costs The rest goes to the producer and to cover recording costs, promotion, copies given away to radio stations and reviewers, and other costs such as videos What you think happens to the artist’s royalties when a CD is marked down to sell faster? Consider two cases: (1) the marked-down CD sells more copies, and (2) it sells the same number of copies as before Some finance experts advise consumers not to worry about rising gasoline prices, the cost of which can easily be covered by forgoing one takeout meal a month, but to worry about how high energy prices will affect the rest of the economy For example, each dollar-a-barrel price increase is equivalent to a $20 million-a-day “tax” on the economy Explain what this means Ajax Motor Company recently announced that it will rely less on high-volume strategies such as discounts and rebates to improve its profitability Another strategy it will employ is to sell fewer cars to rental fleets, which eventually return the cars to Ajax for sale at low auction prices How these types of sales affect Ajax’s profitability? You know the restaurant advertises the quality of its ingredients widely in the local media But the menu changes are not advertised, and it bothers you What course of action would you take? A customer mentions the beef in the dish he ordered is “tough and dry” and the order seems smaller than before What would you do? Ethics Exercise You work for a major restaurant in your town The manager is facing cost pressures from rising food prices and says she needs to raise revenues She decides to reduce the size of the meal portions and use cheaper cuts of meat and fish in some entrées while holding the menu prices constant She tells you and other staff members not to mention the changes to customers and to deflect any questions or complaints you hear The descriptions in the menu will not be changed, she says, “because the printing costs would be too high.” Internet Exercises Real estate commissions and the Internet Critics have long contended that the flat percent commission that real estate agents charge sellers is a form of price fixing In response, entrepreneurs have started online real estate brokerage services, which charge sellers lower commissions One of the largest online real estate brokerage firms is Zip Realty (www ziprealty.com/) Visit the company’s Web site In comparison with a traditional real estate brokerage firm, how does Zip Realty work? What impact you think online real estate brokers will have on real estate commissions? How have the real estate industry and government regulars responded to online brokers? Yield management Airlines, hotels, and rental car companies all practice yield management Visit at least two airline Web sites Pick a roundtrip flight between two cities served by the airline and price the fares By how much fares vary? Do they vary by the day of the week, time of the day, or both? Summarize your findings and relate your experience to the discussion of yield management found in the chapter Dumping Many trade disputes between nations involve a practice called dumping—selling a product globally for less than the cost of production Visit the Web sites of the World Trade Organization (wto.org/english) and the Office of the U.S Trade Representative (www.ustr.gov) to learn more about dumping, including several recent cases Summarize your findings in a one-page report Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google 638 part PRICING DECISIONS Case 18.1 Impact Fees: Who Pays, Who Profits? Commercial and residential developments are signs of progress that bring new residents or new jobs, or both, to a city or county and increase tax revenues for the local government Such developments also tax the area’s existing resources in several ways: they lead to increased demands on area roads, parks, schools, libraries, waste and water systems, and police and fire departments To help pay for expanded services to avoid these potential strains, local governments charge developers one-time impact fees that can run into hundreds of thousands of dollars per project In some areas, for instance, the impact fee charged to a developer for building one new 2,500-square-foot home could be as much as $5,000 While developers lobby to keep such fees as low as possible, some government agencies think they are not nearly high enough when it can cost close to $16,500 to make the required improvements in a city’s or county’s infrastructure Most local governments charge impact fees that are only a fraction of the cost they estimate new developments will have on their community One reason for keeping the fees low is fear that the cost will be passed directly to the consumer, in this case the homebuyer “Everyone views this [impact fees] as the cost of development,” said one city councilman “It’s not It’s really put onto the end consumer.” Another homeowners’ advocate said even a small passed-on cost could raise home prices beyond the reach of many A further consideration is that high impact fees could stifle development in an area by making it too expensive for developers to build there The ripple effects are many “The building industry drives a significant number of ancillary business in the county,” says one observer “It affects real estate, it affects construction, surveyors, bankers, insurance agencies The ripple effect of a high impact fee is that it depresses the entire real estate industry.” Many developers of commercial properties like offices and shopping malls believe they cannot pass high impact fees on to their customers “The fact is that we’re having to eat those costs—you can’t get the market to accept those costs,” says one developer And local government officials are constrained in setting impact fees Commercial developments bring needed jobs and business tax revenues, relieving the real estate tax burden on residents, and some can also raise surrounding land values No mayor or county executive wants to be the one who turns such opportunity away “Impact fees are integral to our quality of life,” explains one county council chairperson “If my roads are bad and my schools are bad, then we’re not keeping up with the expectations citizens had when they bought their homes When impact fees aren’t properly set, the taxpayers bear the brunt.” Questions for Critical Thinking Who really pays the final cost of impact fees? Why? What other ways can you think of to distribute these costs? If impact fees on a residential development were set too low, how might the local government make up the revenue needed to expand and maintain its infrastructure? What effect would your solution have on the average price of homes in the area? Why? Sources: Company Web site of Duncan Associates, www.impactfees.com, accessed August 22, 2008; Christopher Curry, “Builders Want in on Impact Fee Reduction,” Star-Banner, August 20, 2008, www.ocala.com; Jason Flanagan, “High Impact Fees Could Hurt Anne Arundel’s Economy, Developers Say,” The Examiner, August 20, 2008, www.baltimoreexaminer.com; Michael D Bates, “Impact Fee Debate Heats Up,” Hernando Today, August 2, 2008, www.impactfees.com; Erin Cos, “Why Should You Care about Impact Fees?” The Capital Online, April 27, 2008, www.hometownannapolis.com chapter 18 639 PRICING CONCEPTS Video Case 18.2 Pricing Concepts at Evogear.com The written video case on Evogear appears on page VC-16 The Evogear video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 640 19 TER Strategies © AP Images/Charles Krupa CHAP Pricing IMAX Focuses on a Digital Future IMAX theaters have always thrust viewers into the middle of the action Whether you want to see documentaries such as Everest or The Living Sea, or perhaps Space Station or Bugs, you see the events up close and personal—as though they are happening live But to get that experience, you usually have to travel to science museums and theme parks That is all changing IMAX is entering a new age of technology and business: the Canadian firm now produces screenings of feature films such as Polar Express and rock concerts by groups such as U2 and the Rolling Stones It also creates three-dimensional animation sequences in such Hollywood blockbusters as the Batman sequel The Dark Knight Recently, IMAX announced the biggest change in company history: it is moving from a film-based system to a 641 PRICING STRATEGIES digital format In the past, the cost of producing a single IMAX film, complete with gorillasized projection cameras and accompanying reels of 70 mm film, was prohibitive for most movie marketers—whether not-for-profit or commercial Converting a standard Hollywood movie to IMAX format also meant higher costs for theaters and equally high ticket prices for consumers But the switch to digital is changing all that In a partnership with Texas Instruments, which produces nearly all the digital projectors in the United States, IMAX is improving quality and cutting expenses Whereas IMAX theaters once had to maneuver films delivered in 600-pound canisters by forklift, now theater owners will receive films on a digital hard drive In addition, eliminating film will save movie producers from having to create print after print of the same film, which can cost up to $2 million for each movie, or $22,000 to $45,000 per print A digital file delivered on a hard drive costs about $800 per copy This savings can be passed along to not-for-profit organizations such as museums as well as Hollywood movie studios, rapidly increasing the number of screenings possible for each movie As IMAX completes the switch, the market for 70 mm film will likely decline significantly As it makes the change to digital, IMAX is also changing its marketing strategy Previously, theater owners had to shell out $1.4 million to equip an IMAX theater and pay IMAX a percentage of the profits each year Today, IMAX is entering into joint ventures with theaters With the new pricing structure, theater owners invest $150,000 to $175,000 to retrofit their theaters to accommodate the IMAX system IMAX pays for the system itself, which can run as much as $500,000 installed Then the two firms share the box-office profits, and IMAX receives a portion of profits from the movie studios With this type of venture, costs are spread among several firms and profits are shared “Before, a lot of exhibitors were turned off by IMAX’s high upfront costs, but now they can get in for less money and share more backend profits,” notes one industry observer Although the new strategy requires a greater investment by IMAX, most experts think it is a good long-term investment that also builds a better relationship with studios and theaters “Rather than just selling something, they’ll be generating profits on a long-term basis and participating in revenues for many, many years,” notes another expert Although IMAX tickets will still cost more than regular movie tickets, viewers will enjoy a topquality movie experience they cannot get in another venue Compare the alternative pricing strategies and explain when each strategy is most appropriate Describe how prices are quoted Identify the various pricing policy decisions marketers must make Relate price to consumer perceptions of quality Contrast competitive bidding and negotiated prices Explain the importance of transfer pricing Compare the three alternative global pricing strategies Relate the concepts of cannibalization, bundle pricing, and bots to online pricing strategies IMAX once operated in the realm of dinosaurs—literally Many students may recall trips to science museums to see IMAX films depicting dinosaurs and other sciencerelated themes But IMAX has entered a new age, and the brand is evolving along with new digital technology that will deliver the IMAX experience to moviegoers evolution of a brand • In joint ventures with such firms as AMC Entertainment, IMAX is expanding its reach significantly AMC has signed an agreement with IMAX for 100 systems, and Regal Cinemas has ordered 31 systems A deal with DreamWorks Animation covers IMAX distribution of several 3-D titles, including How to Train Your Dragon and Shrek Goes Fourth Ventures like this will completely change what viewers expect to see at the movie theater How you think this will affect the IMAX brand? • After years of worry over whether movie theaters would eventually become obsolete—as more and more consumers opt to stay home and receive Objectives chapter 19 642 part And movie tickets will still cost less than other entertainment: live theevolution of a brand ater, a rock concert, or continued a Major League Baseball entertainment through their own tele- PRICING DECISIONS game As IMAX focuses on its digital future, more moviegoers will have an opportunity to view their favorite flicks on a giant, dazzling screen—and still be able to afford their bag of popcorn.1 visions, computers, and entertainment centers—IMAX sees a glimmer of hope Because IMAX installations still require consumers to go to a theater to view a film, IMAX believes its investment spells profits for the future “Consumers are willing to pay a premium for this experience,” says Rich Gelfond, co-CEO of IMAX “It’s about the choice to leave your home and get something not remotely like you get at home.” If consumers are willing to pay more to see the new IMAX movies, how you think this affects their view of the price of a movie ticket as it relates to the quality of the experience—and the IMAX brand? chapter overview members, quantity purchases, and geographic and promotional considerations • Setting prices is neither a one-time decision nor a standard routine The decision to make price adjustments is directly related to demand Most businesses slowly change the amounts they charge customers, even when they clearly recognize As illustrated by the changes IMAX has under- strong demand Instead of raising prices, taken, pricing is just one aspect of the overall they may scale down customer service or marketing effort Pricing is a dynamic func- add fees to cover rising costs They may also tion of the marketing mix While about half wait to raise prices until they see what their of all companies change prices once a year competitors or less frequently, one in ten does so every Significant price changes in the retail gaso- month Online companies, facing enormous line and airline industries occur in the form of price pressures, may adjust prices more often a step out, in which one firm raises prices and depending on what they are selling Some then waits to see if others follow suit If competi- firms negotiate prices on the spot, as in the tors fail to respond by increasing their prices, the case of a car dealership or an antique shop company making the step out usually reduces Companies translate pricing objectives prices to the original level Fuel is one of the into pricing decisions in two major steps First, biggest expenses for most airlines, accounting someone takes responsibility for making pric- for approximately 40 percent of their operat- ing decisions and administering the result- ing costs As they try to juggle the rising costs, ing pricing structure Second, someone sets most have been forced to offset their expenses the overall pricing structure—that is, basic with increased fares and fuel surcharges, along prices and appropriate discounts for channel with additional fees for checked baggage and chapter 19 643 PRICING STRATEGIES bottled drinking water “Fuel is eating [the air- tionships with customers, they are reluctant to lines] alive, right now,” notes one expert “It’s raise prices even when strong demand prob- not surprising to see air fares double.” However, ably justifies the change as demand for flights begins to soften, carriers Chapter 18 introduced the concept of are rolling back some increases to remain com- price and its role in the economic system and petitive Although airlines are prohibited by law marketing strategy This chapter examines from collectively setting prices, they can follow various pricing strategies and price struc- each other’s example tures, such as reductions from list prices, and Few businesses want the distinction of geographic considerations It then looks at being the first to charge higher prices Because the primary pricing policies, including psy- many firms base their prices on manufactur- chological pricing, price flexibility, product- ing costs rather than consumer demand, line pricing, and promotional pricing, as well they may wait for increases in their own costs as price–quality relationships Competitive before responding with price changes These and negotiated prices are discussed, and one increases generally emerge more slowly section focuses entirely on transfer pricing than changes in consumer demand Finally, Finally, the chapter concludes by describing because many business executives believe important factors in pricing goods and ser- steady prices help preserve long-term rela- vices for online and global markets Pricing Strategies The specific strategies firms use to price goods and services grow out of the marketing strategies they formulate to accomplish overall organizational objectives One firm’s marketers may price their products to attract customers across a wide range; another group of marketers may set prices to appeal to a small segment of a larger market; still another group may simply try to match competitors’ price tags In general, firms can choose from three pricing strategies: skimming, penetration, and competitive pricing The following sections look at these choices in more detail Compare the alternative pricing strategies and explain when each strategy is most appropriate SKIMMING PRICING STRATEGY Derived from the expression “skimming the cream,” skimming pricing strategies are also known as market-plus pricing They involve intentionally setting a relatively high price compared with the prices of competing products Although some firms continue to use a skimming strategy throughout most stages of the product lifecycle, it is more commonly used as a market entry price for distinctive goods or services with little or no initial competition When the supply begins to exceed demand, or when competition catches up, the initial high price is dropped Such was the case with high-definition televisions (HDTVs), whose average price was $19,000, including installation, when they were first introduced The resulting sticker shock kept them out of the range of most household budgets But nearly a decade later, price cuts have brought both LCD and plasma models into the reach of mainstream consumers At Best Buy, shoppers can pick up a Sharp 20-inch, flat-panel LCD model for $499.99 On the higher end, they can purchase a Sharp 52-inch, flat-panel LCD model for $1,899.99.3 A company may practice a skimming strategy in setting a market-entry price when it introduces a distinctive good or service with little or no competition Or it may use this strategy to market higher-end goods British vacuum cleaner manufacturer Dyson has used this practice Offering an entirely new design and engineering, Dyson sells several of its vacuum cleaner models skimming pricing strategy Pricing strategy involving the use of a high price relative to competitive offerings 644 part © AP Images/Paul Sakuma When first introduced, high-definition televisions were so expensive that most households could not afford them Now that they’ve been on the market for several years, prices have dropped PRICING DECISIONS for between $400 and $550, significantly more than the average vacuum Even iRobot’s Roomba vacuum sells for around $200, and the company claims it does all the work for you.4 In some cases, a firm may maintain a skimming strategy throughout most stages of a product’s lifecycle The jewelry category is a good example Although discounters such as Costco and Home Shopping Network (HSN) offer heavier gold pieces for a few hundred dollars, firms such as Tiffany and Cartier command prices ten times that amount just for the brand name Exclusivity justifies the pricing—and the price, once set, rarely falls Sometimes maintaining a high price through the product’s lifecycle works, but sometimes it does not High prices can drive away otherwise loyal customers Baseball fans may shift from attending major league games to minor league games because of ticket, parking, and food prices Amusement park visitors may shy away from high admission prices and head to the beach instead If an industry or firm has been known to cut prices at certain points in the past, consumers—and retailers—will expect it If the price cut doesn’t come, consumers must decide whether to pay the higher tab or try a competitor’s products This has been the case with General Motors, which recently returned to its employee pricing strategy: offering consumers the same discounts employees receive on most of its cars and trucks Although the discount is real, GM actually is offering the lower price to divert customers from expectations of rock-bottom sale prices around holidays like Labor Day.5 Despite the risk of backlash, a skimming strategy does offer benefits It allows a manufacturer to quickly recover its research and development (R&D) costs Pharmaceuticals companies, fiercely protective of their patents on new drugs, justify high prices because of astronomical R&D costs: an average of 16 cents of every sales dollar, compared with cents for computer makers and cents in the aerospace industry To protect their brand names from competition from lower-cost generics, drug makers frequently make small changes to their products—such as combining the original product with a complementary prescription drug that treats different aspects of the ailment A skimming strategy also permits marketers to control demand in the introductory stages of a product’s lifecycle and then adjust productive capacity to match changing demand A low initial price for a new product could lead to fulfillment problems and loss of shopper goodwill if demand outstrips the firm’s production capacity The result will likely be consumer and retailer complaints and possibly permanent damage to the product’s image Excess demand occasionally leads to quality issues, as the firm strives to satisfy consumer desires for the product with inadequate production facilities During the late growth and early maturity stages of its lifecycle, a product’s price typically falls for two reasons: (1) the pressure of competition and (2) the desire to expand its market Figure 19.1 shows that 10 percent of the market may buy Product X at $10.00, and another 20 percent could be added to its customer base at a price of $8.75 Successive price declines may expand the firm’s market size and meet challenges posed by new competitors A skimming strategy has one inherent chief disadvantage: It attracts competition Potential competitors see innovative firms reaping large financial returns and decide to enter the market This new supply may force the price of the original product even lower than its eventual level under a sequential skimming procedure However, if patent protection or some other unique proprietary ability allows a firm to exclude competitors from its market, it may extend a skimming strategy chapter 19 645 PRICING STRATEGIES figure 19.1 Price Reductions to Increase Market Share Market Share 10% 20% 30% 40% Price Level $10.00 $8.75 $7.00 $5.00 PENETRATION PRICING STRATEGY penetration pricing strategy Pricing strategy involving the use of a relatively low entry price compared with competitive offerings, based on the theory that this initial low price will help secure market acceptance © Jeff Greenberg/Alamy A penetration pricing strategy sets a low price as a major marketing weapon Marketers often price products noticeably lower than competing offerings when they enter new industries characterized by dozens of competing brands Once the product achieves some market recognition through consumer trial purchases stimulated by its low price, marketers may increase the price to the level of competing products Marketers of consumer products such as detergents often use this strategy A penetration pricing strategy may also extend over several stages of the product lifecycle as the firm seeks to maintain a reputation as a low-price competitor A penetration pricing strategy is sometimes called market-minus pricing when it implements the premise that a lower-than-market price will attract buyers and move a brand from an unknown newcomer to at least the brand-recognition stage or even to the brand-preference stage Because many firms begin penetration pricing with the intention of increasing prices in the future, success depends on generating many trial purchases Penetration pricing is common among credit card firms, which typically offer low or zero interest rates for a specified introductory period, then raise the rates If competitors view the new product as a threat, marketers attempting to use a penetration strategy often discover that rivals will simply match their prices When plasma TVs were retailing for around $8,000, William Wang decided he could better By outsourcing every process from tech support to research and development, Wang trimmed his own costs as far as possible and offered a comparable TV for about $4,000 He began with the help of Gateway but quickly went out on his own, introducing his unknown brand to the public via Costco Now, Sony has taken notice “I would never imagine four or five years ago that Sony would look at us as a competitor,” observes Wang.6 Retailers may use penetration pricing to lure shoppers to new stores Strategies might take such forms as zero interest charges for credit purchases at a new furniture store, two-for-one offers for dinner at a new restaurant, or an extremely low price on a single product purchase for first-time customers to get them to come in and shop Penetration pricing works best for goods or services characterized by highly elastic demand Large numbers of highly price-sensitive consumers pay close attention to this type of appeal The strategy also suits situations in which large-scale Because the market already contains so many competing brands, detergent marketers often use a penetration pricing strategy when they enter the market, pricing products noticeably lower than the competition 646 part PRICING DECISIONS operations and long production runs result in low production and marketing costs Finally, penetration pricing may be appropriate in market situations in which introduction of a new product will likely attract strong competitors Such a strategy may allow a new product to reach the mass market quickly and capture a large share prior to entry by competitors Research shows that about 25 percent of companies use penetration pricing strategies on a regular basis Some auto manufacturers have been using penetration pricing for some new models to attract customers who might not otherwise consider purchasing a vehicle during a given year or who might be looking at a more expensive competitor India’s Tata Motors launched the world’s cheapest car: the Nano, which carries a price tag of about $2,500 Although the firm has yet to announce plans to sell the Nano in the United States, it is still half the price of the next-cheapest vehicle in the world, the Maruti 800 The Nano doesn’t have any frills: no radio and no passenger-side mirror or other add-ons And if you want air conditioning, you have to buy the deluxe model at a higher price.7 brs peaking iefl y “There is scarcely anything in this world that some man cannot make a little worse and sell a little cheaper, and the buyers who consider price only are this man’s lawful prey.” —John Ruskin (1819–1900) ENGLISH ART AND SOCIAL CRITIC Everyday Low Pricing Closely related to penetration pricing is everyday low pricing (EDLP), a strategy devoted to continuous low prices as opposed to relying on short-term, price-cutting tactics such as cents-off coupons, rebates, and special sales EDLP can take two forms In the first, retailers such as Wal-Mart and Lowe’s compete by consistently offering consumers low prices on a broad range of items Through its EDLP policy, Lowe’s pledges not only to match any price the consumer sees elsewhere but also to take off an additional percentage in some cases Wal-Mart states that it achieves EDLP by negotiating better prices from suppliers and by cutting its own costs Wal-Mart recently launched an online guide designed to help consumers save and stretch their hard-earned dollars a little farther The company’s advertising tagline—“Save More Live Better”—embraces its EDLP policy.8 The second form of the EDLP pricing strategy involves its use by the manufacturer in dealing with channel members Manufacturers may seek to set stable wholesale prices that undercut offers competitors make to retailers, offers that typically rise and fall with the latest trade promotion deals Many marketers reduce list prices on a number of products while simultaneously reducing promotion allowances to retailers While reductions in allowances mean retailers may not fund such in-store promotions as shelf merchandising and end-aisle displays, the manufacturers hope stable low prices will stimulate sales instead Some retailers oppose EDLP strategies Many grocery stores, for instance, operate on “high– low” strategies that set profitable regular prices to offset losses of frequent specials and promotions Other retailers believe EDLP will ultimately benefit both sellers and buyers Supporters of EDLP in the grocery industry point out that it already succeeds at two of the biggest competitors: Wal-Mart and warehouse clubs such as Costco One popular pricing myth is that a low price is a sure sell Low prices are an easy means of distinguishing the offerings of one marketer from other sellers, but such moves are easy to counter by competitors Unless overall demand is price elastic, overall price cuts will mean less revenue for all firms in the industry In addition, low prices may generate an image of questionable quality competitive pricing strategy Pricing strategy designed to deemphasize price as a competitive variable by pricing a good or service at the general level of comparable offerings COMPETITIVE PRICING STRATEGY © Tim Boyle/Getty Images Wal-Mart employs everyday low pricing, a strategy devoted to continuous low prices instead of special sales and other short-term pricing tactics Although many organizations rely heavily on price as a competitive weapon, even more implement competitive pricing strategies These organizations try to reduce the emphasis on price competition by matching other firms’ prices and concentrating their own marketing efforts on the product, distribution, and promotion elements of the marketing mix As chapter 19 647 PRICING STRATEGIES bri e f l y pointed out earlier, while price offers a dramatic means of achieving competitive advantage, it is speaking also the easiest marketing variable for competitors to match In fact, in industries with relatively homogeneous products, competitors must match each other’s price reductions to maintain market “Cutting prices is usually insanshare and remain competitive ity if the competition can go as Retailers such as The Home Depot and Lowe’s both use price-matching strategies, assuring low as you can.” consumers that they will meet—and beat—competitors’ prices Grocery chains such as Kroger’s and —Michael E Porter Stop & Shop may compete with seasonal items: soft drinks and hot dogs in the summer, hot choco(b 1947) late and turkeys in the winter As soon as one store lowers the price of an item, the rest follow suit AMERICAN EDUCATOR Another form of competitive pricing is setting an opening price point within a category Retailers often achieve this by pricing a quality private-label product below the competition Grocery giants Publix and Kroger have begun actively advertising their private-label goods, most of which are priced below those of manufacturers’ brands However, Kroger also has a Private Selection brand for more upscale shoppers, including gourmet brownies and caramel swirl ice cream.9 Prices can really drop when companies continually match each other’s prices, as evident in the airline and computer industries But competitive pricing can be tricky; a price reduction affects not only the first company but also the entire industry as other firms match the reduction Unless lower prices can attract new customers and expand the overall market enough to offset the loss of per-unit revenue, the price cut will leave all competitors with less revenue Research shows that nearly two-thirds of all firms set prices using competitive pricing as their primary pricing strategy Firms forced to the edge by competitive pricing strategies may decide to declare Chapter 11 bankruptcy to become more competitive in their markets What happens when one discounter undercuts another? Although many retailers fear competition from Wal-Mart, one type of store seems well positioned against the powerful chain: the so-called dollar stores Today’s equivalent of the five-and-dime variety stores of the 20th century, dollar stores sell inexpensive items such as cleaning supplies, paper plates, toothpaste, greeting cards, and other household products—and compete on price and convenience, especially parking and easy access to the goods Although these stores have yet to threaten Wal-Mart’s position, the retail giant is paying attention As these dollar store chains expand, adding more brand-name products and attracting more price-conscious customers, Wal-Mart is likely to take some competitive action Once competitors are routinely matching each other on price, marketers must turn away from price as a marketing strategy, assessment check emphasizing other variables to develop areas of distinctive competence and to attract customers That might mean What are the three major pricing strategies? offering personalized service such as gift wrapping What is EDLP? or a customer service associate who knows the type of clothing or books you like Price Quotations The choice of the best method for quoting prices depends on many industry conditions, including competitive trends, cost structures, and traditional practices, along with the policies of individual firms This section examines the reasoning and methodology behind price quotation practices Most price structures are built around list prices—the rates normally quoted to potential buyers Marketers usually determine list prices by one or a combination of the methods discussed in Chapter 18 The sticker price on a new automobile is a good example: it shows the list price for the basic model and then adds the prices of options The sticker price for a new Toyota Prius Touring Edition sedan is $23,770 But you can add such features as a navigation system, satellite radio, and child seat anchors—all at additional cost Most car manufacturers bundle features into packages for one price So if you order package number on the Prius, you’ll automatically get a backup camera and Bluetooth wireless capability, among other add-ons.10 The price of oil is equally important to consumers—particularly those who drive cars— because it directly affects the list price of gasoline Disruptions such as hurricanes and wars affect the price of oil, and ultimately the price that drivers pay at the pump Prices may also Describe how prices are quoted list price Established price normally quoted to potential buyers 648 part Who gets the money from retail gas sales? figure 19.2 Components of Retail Gasoline Prices Oil Wholesaler (includes crude oil price and refinery costs) 79% Source: Data from Energy Information Administration, “Gasoline and Diesel Fuel Update,” July 2008, tonto.eia doe.gov, accessed August 25, 2008 PRICING DECISIONS fluctuate seasonally, as demand for gasoline rises and falls Figure 19.2 illustrates where the money from a gallon of gas goes on its journey from the oil field to your gas tank Gasoline Distributor and Marketer 11% Taxes 10% REDUCTIONS FROM LIST PRICE The amount a consumer pays for a product—its market price—may or may not equal the list price Discounts and allowances sometimes reduce list prices A list price often defines a starting point from which discounts set a lower market price Marketers offer discounts in several classifications: cash, trade, and quantity discounts Cash Discounts Consumers, industrial purchasers, or channel members sometimes receive reductions in price in exchange for prompt payment of bills; these price cuts are known as cash discounts Discount terms usually specify exact time periods, such as 2/10, net 30 This notation means the customer must pay within 30 days, but payment within 10 days entitles the customer to subtract percent from the amount due Consumers may receive a cash discount for immediate payment, say, paying with cash instead of a credit card at the gas pump or paying the full cash amount up front for elective healthcare services such as orthodontia Cash discounts represent a traditional pricing practice in many industries They fulfill legal requirements provided that all customers can take the same reductions on the same terms In recent years, sellers have increasingly attempted to improve their own liquidity positions, reduce their bad-debt losses, and cut collection expenses by moving to a form of negative cash discount Confronted with purchasers who may defer paying their bills as long as possible, another notice has begun to appear on customer statements: Note: Percentages are rounded to nearest percent market price Price a consumer or marketing intermediary actually pays for a product after subtracting any discounts, allowances, or rebates from the list price Due on Receipt A FINANCE CHARGE of 1.5% per month (18% A.P.R.) is computed on and added to the unpaid balance as of the statement date brs peaking iefl y “Don’t let your mouth write no check that your tail can’t cash.” —Bo Diddley (1928–2008) BLUES MUSICIAN Past-due accounts may be turned over to collection agencies Trade Discounts Payments to channel members for performing marketing functions are known as trade discounts, or functional discounts Services performed by various channel members and the related costs were discussed in Chapters 13 and 14 A manufacturer’s list price must incorporate the costs incurred by channel members in performing required marketing functions and expected profit margins for each member Trade discounts initially reflected the operating expenses of each category, but they have become more or less customary practices in some industries The Robinson-Patman Act allows trade discounts as long as all buyers in the same category, such as all wholesalers or all retailers, receive the same discount privileges chapter 19 649 PRICING STRATEGIES Figure 19.3 shows how a “40 PERCENT, 10 PERCENT OFF” TRADE DISCOUNT chain of trade discounts works Wholesale In the first instance, the trade List Retail Trade Manufacturer Trade – – = discount is “40 percent, 10 perPrice Discount Proceeds Discount cent off list price” for whole$2.40 $16 $21.60 salers In other words, the 40 $40 – – = ($24 x 10%) ($40 x 40%) ($40 – $16 – $2.40) percent discount on the $40 product is the trade discount “45 PERCENT” TRADE DISCOUNT the retailer receives to cover operating expenses and earn a List Retail Trade Manufacturer – = profit The wholesaler receives Price Discount Proceeds 10 percent of the $24 price to $18 $22 retailers to cover expenses and $40 – = ($40 x 45%) ($40 – $18) earn a profit The manufacturer receives $21.60 from the wholesaler for each order In the second example, the manufacturer and retailer decide to bypass the wholesaler The producer offers a trade discount of 45 percent to the retailer In this instance, the retailer receives $18 for each product sold at its list price, and the manufacturer receives the remaining $22 Either the retailer or the manufacturer must assume responsibility for the services previously performed by the wholesaler, or they can share these duties between them figure 19.3 Chain of Trade Discounts Quantity Discounts Price reductions granted for large-volume purchases are known as quantity discounts Sellers justify these discounts on the grounds that large orders reduce selling expenses and may shift some costs for storage, transportation, and financing to buyers The law allows quantity discounts provided they are applied on the same basis to all customers Quantity discounts may specify either cumulative or noncumulative terms Cumulative quantity discounts reduce prices in amounts determined by purchases over stated time periods Annual purchases of at least $25,000 might entitle a buyer to a percent rebate, and purchases exceeding $50,000 would increase the refund to percent These reductions are really patronage discounts because they tend to bind customers to a single supply source Noncumulative quantity discounts provide onetime reductions in the list price For example, a firm might offer the following discount schedule for a product priced at $1,000 per unit: unit List: $1,000 2–5 units List less 10 percent 6–10 units List less 20 percent More than 10 units List less 25 percent Many businesses have come to expect quantity discounts from suppliers Online photo supply retailer Shutterfly offers volume discounts for photo books and discounts of 25 to 30 percent on prepaid orders.11 Marketers typically favor combinations of cash, trade, and quantity discounts See’s Candies offers a quantity discount for a minimum purchase of $547.50, plus continued savings throughout the year.12 Allowances Allowances resemble discounts by specifying deductions from list price The major categories of allowances are trade-ins and promotional allowances Trade-ins often are used in sales of durable goods such as automobiles The new product’s basic list price remains unchanged, but the seller accepts less money from the customer along with a used product—usually the same kind of product as the buyer purchases Promotional allowances reduce prices as part of attempts to integrate promotional strategies within distribution channels Manufacturers often return part of the prices buyers pay in the form allowance Specified deduction from list price, including a trade-in or promotional allowance 650 part © Handout/MCT/Newscom Shutterfly, an online photo supply retailer, offers quantity discounts on photo books and additional discounts on prepaid orders PRICING DECISIONS of advertising and salessupport allowances for channel members Automobile manufacturers frequently offer allowances to retail dealers to induce them to lower prices and stimulate sales In an effort to alert consumers to the difference between a car’s sticker price and the price the dealer actually pays to the manufacturer, Consumer Reports sells car and truck buyers a breakdown on dealers’ wholesale costs The information reveals undisclosed dealer profits such as manufacturers’ incentives, rebates from the dealer-invoice price, and “holdbacks”— amounts refunded to the dealer after sales are completed.13 Dealers dislike the move to reveal their markups, arguing that no other retail sector is forced to give consumers details of their promotional allowances Minimum advertised pricing (MAP) occurs when a manufacturer pays a retailer not to advertise a product below a certain price Recently, the U.S Supreme Court ruled that retailers are required to stick to their MAPs on items However, some retailers invite shoppers to call or e-mail for lower—unpublished—prices on items ranging from espresso machines to desktop computers.14 Rebates In still another way to reduce prices, marketers may offer a rebate—a refund of a portion of the purchase price Rebates appear everywhere—on appliances, electronics, and auto promotions—by manufacturers eager to get consumers to try their products or to move products during periods of slow sales Mattress manufacturer Sealy has successfully used rebates to move consumers up to more expensive models in its product line, offering the biggest rebates for its top-priced mattresses Rebates can have their problems Many consumers complain about the paperwork they have to fill out to get a rebate, particularly on larger items such as computers and kitchen appliances Some say they fill out the paperwork only to be denied the claim on a technicality Others report never receiving the rebate—or even a response—at all The Better Business Bureau notes that the number of complaints filed relating to rebates has grown significantly in the past few years Some state legislators have moved to require companies to fulfill rebate requests within a certain period of time while also requiring consumers to file their request promptly Yet companies argue that many consumers never even apply for their legitimate rebates.15 GEOGRAPHIC CONSIDERATIONS In industries dominated by catalog and online marketers, geographic considerations weigh heavily on the firm’s ability to deliver orders in a cost-effective manner at the right time and place In other 651 PRICING STRATEGIES instances, geographic factors affect the marketer’s ability to receive additional inventory quickly in response to demand fluctuations And although geographic considerations strongly influence prices when costs include shipping heavy, bulky, low-unit-value products, they can also affect lightweight, lower-cost products Buyers and sellers can handle transportation expenses in several ways: (1) the buyer pays all transportation charges, (2) the seller pays all transportation charges, or (3) the buyer and the seller share the charges This decision has major effects on a firm’s efforts to expand its geographic coverage to distant markets How can marketers compete with local suppliers in distant markets who are able to avoid the considerable shipping costs that their firms must pay? Sellers can implement several alternatives for handling transportation costs in their pricing policies FOB Pricing FOB (free on board) plant, or FOB origin, prices include no shipping charges The buyer must pay all freight charges to transport the product from the manufacturer’s loading dock The seller pays only to load the merchandise aboard the carrier selected by the buyer Legal title and responsibility pass to the buyer after the seller’s employees load the purchase and get a receipt from the representative of the common carrier Firms such as Wal-Mart often handle freight charges over the entire supply chain Because Wal-Mart sources so many products from China, “FOB China” is now becoming common Many marketing intermediaries sell only on FOB plant terms to downstream channel members These distributors believe their customers have more clout than they in negotiating with carriers They prefer to assign transportation costs to the channel members in the best positions to secure the most cost-effective shipping terms Sellers may also quote prices as FOB origin-freight allowed, or freight absorbed These terms permit buyers to subtract transportation expenses from their bills The amount such a seller receives for its product varies with the freight charged against the invoice This alternative is popular among firms with high fixed costs because it helps them expand their markets considerably by quoting the same prices regardless of shipping expenses Uniform-Delivered Pricing When a firm quotes the same price, including transportation expenses, to all buyers, it adopts a uniform-delivered pricing policy This method of handling transportation expenses is the exact opposite of FOB origin pricing The uniform-delivered system resembles the pricing structure for mail service, so it is sometimes called postage-stamp pricing The price quote includes a transportation charge averaged over all of the firm’s customers, meaning that distant customers actually pay a smaller share of shipping costs while nearby customers pay what is known as phantom freight— the amount by which the average transportation charge exceeds the actual cost of shipping Zone Pricing Zone pricing modifies a uniform-delivered pricing system by dividing the overall market into different zones and establishing a single price within each zone This pricing structure incorporates average transportation costs for shipments within each zone as part of the delivered price of goods sold there; by narrowing distances, it greatly reduces but does not completely eliminate phantom freight The primary advantage of zone pricing comes from its simplified administration that helps a seller compete in distant markets The U.S Postal Service’s parcel rates depend on zone pricing Rebates refund a portion of the purchase price for items such as automobiles Marketers offer rebates as a way to reduce the price paid by customers © Justin Sullivan/Getty Images chapter 19 652 part PRICING DECISIONS Zone pricing helps explain why gasoline can cost more in one suburb than in a neighborhood just two or three miles down the road One way in which gasoline marketers boost profits is by mapping out areas based on formulas that factor in location, affluence, or simply what the local market will bear Dealers are then charged different wholesale prices, which are reflected in the prices paid at the pump by customers Some dealers argue that zone pricing should be prohibited When drivers shop around for cheaper gas in other zones, stations in high-price zones are unable to compete Basing-Point Pricing In basing-point pricing, the price of a product includes the list price at the factory plus freight charges from the basing-point city nearest the buyer The basing point specifies a location from which freight charges are calculated—not necessarily the point from which the goods are actually shipped In either case, the actual shipping point does not affect the price quotation Such a system seeks to equalize competition between distant marketers because all competitors quote identical transportation rates Few buyers would accept a basing-point system today, however For many years, the best-known basing-point system was the Pittsburgh-plus pricing structure common in the steel industry Steel buyers paid freight charges from Pittsburgh regardless of where the steel was produced As the industry matured, manufacturing centers emerged in Chicago; assessment check Gary, Indiana; Cleveland; and Birmingham Still, Pittsburgh remained the basing point What are the three major types of discounts? for steel pricing, forcing a buyer in Identify the four alternatives for handling Atlanta who purchased steel from a Birmingham mill to pay phantom freight transportation costs in pricing policies from Pittsburgh Identify the various pricing policy decisions marketers must make Pricing Policies Pricing policies contribute important information to buyers as they assess the firm’s total image A coherent policy provides an overall framework and consistency that guide day-to-day pricing decisions Formally, a pricing policy is a general guideline that reflects marketing objectives and influences specific pricing decisions Decisions concerning price structure generally tend to focus on technical, detailed questions, but decisions concerning pricing policies cover broader issues Price-structure decisions take the firm’s pricing policy as a given, from which they specify applicable discounts Pricing policies have important strategic effects, particularly in guiding competitive efforts They form the basis for more practical price-structure decisions Firms implement variations of four basic types of pricing policies: psychological pricing, price flexibility, product-line pricing, and promotional pricing Specific policies deal effectively with various competitive situations; the final choice depends on the environment within which marketers must make their pricing decisions Regardless of the strategy selected, however, marketers sometimes must raise prices Although it is never easy to deliver this news to customers, if it is accomplished with honesty and tact, customers are likely to remain loyal The “Etiquette Tips for Marketing Professionals” feature provides some pointers on communicating price increases PSYCHOLOGICAL PRICING psychological pricing Pricing policy based on the belief that certain prices or price ranges make a good or service more appealing than others to buyers Psychological pricing applies the belief that certain prices or price ranges make products more appealing than others to buyers No research offers a consistent foundation for such thinking, however, and studies often report mixed findings Nevertheless, marketers practice several forms of psychological pricing Prestige pricing, discussed in Chapter 18, sets a relatively high price to convey an image of quality and exclusiveness Two more psychological pricing techniques are odd pricing and unit pricing In odd pricing, marketers set prices at odd numbers just under round numbers Many people assume that a price of $4.95 appeals more strongly to consumers than $5.00, supposedly because chapter 19 653 PRICING STRATEGIES How to Handle a Price Increase n o marketer likes to hand bad news to customers, but sometimes it is necessary, as in the case of a price increase If your firm has exhausted every alternative to a price increase, then it’s time to face the challenge If you find yourself in this situation, use these tips to soften the blow: • Know your customers Understand who your customers are, why they purchase your firm’s products, and what they need If you approach them with understanding, they will be more willing to listen and accept what you have to say • Explain what the price increase is and why Be honest Tell them which products—if only a few—will increase in price and why Without revealing every detail of your business, explain which of your costs has increased; perhaps it’s the price of lumber or the cost of shipping • Give customers fair warning If possible, notify customers well before the increase takes place so they can make adjustments in their budgets If a product is being phased out and replaced by a new product at a higher price, notify customers of this as well • Work with customers to find alternatives Perhaps your firm has similar products comparable to the ones a particular customer has been using and will not be increasing in price • Create new pricing packages, bundles, or groupings of products By regrouping certain products—or separating products if they were previously grouped—you might be able to give your customers a better price despite the increase • Emphasize value The price might have increased, but your firm may provide a better value overall A product might be more concentrated to last longer, or packages might contain more items • Use promotions Offer a promotional price, discount coupon, or rebate for a short period of time prior to the increase Sources: Andrea Cooper, “Think Fast,” Entrepreneur, September 2008, pp 19–20; “A Precarious Road: How Retailers Can Navigate Inflation’s Hazards,” Knowledge@ Wharton, August 6, 2008, knowledge.wharton.upenn.edu; John Quelch, “Seven Tips for Managing Price Increases,” Working Knowledge, June 16, 2008, Harvard Business School, hbswk.hbs.edu buyers interpret it as $4.00 plus change Odd pricing originated as a way to force clerks to make change, thus serving as a cash-control device, and it remains a common feature of contemporary price quotations Some producers and retailers practice odd pricing but avoid prices ending in 5, 9, or These marketers believe customers view price tags of $5.95, $5.99, or $6.00 as regular retail prices, but they think of an amount such as $5.97 as a discount price Others, such as Wal-Mart, avoid using 9s as ending prices for their items Unit pricing states prices in terms of some recognized unit of measurement (such as grams and liters) or a standard numerical count Unit pricing began to be widely used during the late 1960s to make price comparisons more convenient following complaints by consumer advocates about the difficulty of comparing the true prices of products packaged in different sizes These advocates thought posting prices in terms of standard units would help shoppers make betterinformed purchases However, unit pricing has not improved consumers’ shopping habits as much as supporters originally envisioned Instead, research shows standard price quotes most often affect purchases only by relatively well-educated consumers with high earnings PRICE FLEXIBILITY Marketing executives must also set company policies that determine whether their firm will permit price flexibility—that is, whether or not to set one price that applies to every buyer or to permit variable prices for different customers Generally, one-price policies suit mass-marketing programs, whereas variable pricing is more likely to be applied in marketing programs based on individual bargaining In a large department store, customers not expect to haggle over prices with retail salespeople Instead, they expect to pay the amounts shown on the price tags Usually, customers pay less only when the retailer replaces regular prices with sale prices or offers discounts on damaged merchandise Variable pricing usually applies to larger purchases such as automobiles, real estate, and hotel room rates While variable pricing adds some flexibility to selling situations, it may conflict 654 part PRICING DECISIONS with provisions of the Robinson-Patman Act It may also lead to retaliatory pricing by competitors, and it may stir complaints among customers who find they paid higher prices than necessary Recently, some Internet service providers began setting usage caps on their customers and requiring the subscribers who download the most content to pay the most Frontier Communications says it plans to set a cap at gigabytes per month, or the equivalent of about three DVD-quality movies Not surprisingly, its subscribers are upset about the policy, which was not in effect when they signed up for service “We go through that in a week,” says one customer “If they start enforcing the caps, we’re going to have to change service.” Meanwhile, Time Warner Cable—a competitor of Frontier’s in certain markets—is trying out metered Internet access in select markets Under that plan, customers receive metered bills much like those they receive for electricity or long-distance phone calls Time Warner argues that this is the fairest way to distribute the company’s rising costs.16 PRODUCT-LINE PRICING Because most firms market multiple product lines, an effective pricing strategy must consider the relationships among all of these items instead of viewing each in isolation Product-line pricing is the practice of setting a limited number of prices for a selection of merchandise For example, one well-known clothier might offer three lines of men’s suits: one priced at $450, a second at $695, and the most expensive at $1,295 These price points help the retailer define important product characteristics that differentiate the three product lines and help the customer decide on whether to trade up or down Retailers practice extensive product-line pricing In earlier days, five-and-dime variety stores exemplified this technique It remains popular, however, because it offers advantages to both retailers and customers Shoppers can choose desired price ranges and then concentrate on other product variables such as colors, styles, and materials Retailers can purchase and offer specific lines in limited price categories instead of more general assortments with dozens of different prices Sunglasses have become a hot fashion item in recent years, and prices for designer glasses have jumped from an average of $250 per pair to as much as $750 for Ray-Ban Wayfarers at Bergdorf Goodman in New York While sales of other luxury goods have softened, sunglass sales are getting long looks from retailers Younger consumers—teens and young women—seem to be snapping up designer shades most often “The youth of America has discovered sunglasses to be the aspirational and prestige item of the moment,” notes one fashion expert Karl Lagerfeld, Giorgio Armani, Stella McCartney, Proenza Schouler, and Thakoon all offer high-end glasses carried by luxury retailers And for those who want their shades studded with diamonds, they can grab a pair of Gold & Wood sunglasses for $1,395.17 A potential problem with product-line pricing is that once marketers decide on a limited number of prices to use as their price lines, they may have difficulty making price changes on individual items Rising costs, therefore, force sellers to either change the entire price-line structure, which results in confusion, or cut costs through production adjustments The second option opens the firm to customer complaints that its merchandise is not what it used to be product-line pricing Practice of setting a limited number of prices for a selection of merchandise and marketing different product lines at each of these price levels promotional pricing Pricing policy in which a lower-than-normal price is used as a temporary ingredient in a firm’s marketing strategy © Image courtesy of The Advertising Archives The price for designer sunglasses has jumped in recent years as consumer demand has increased PROMOTIONAL PRICING In promotional pricing, a lower-than-normal price is used as a temporary ingredient in a firm’s marketing strategy Some promotional pricing arrangements form part of recurrent marketing initiatives, such as a shoe store’s annual “buy one pair, get the second pair for one cent” sale Another example would be “7 CDs for cent.” This artificially low price attracts customers who must then agree to purchase a set number of CDs at regular prices within a specified time limit 655 PRICING STRATEGIES Another firm may introduce a promotional model or brand with a special price to begin competing in a new market Managing promotional pricing efforts requires marketing skill Customers may get hooked on sales and other promotional pricing events If they know their favorite department store has a oneday sale every month, they will likely wait to make their purchases on that day Car shoppers have been offered so many price incentives that it is becoming harder and harder for manufacturers and dealers to take them away—or to come up with new ones As gas prices soared during a recent period, Chrysler decided to launch a campaign called “Let’s Refuel America,” in which people who bought or leased new vehicles also got a deal that capped gas at $2.99 a gallon for three years.18 A later drop in prices illustrates the need for flexibility in promotional pricing During a recent period of high gas prices, Chrysler launched a promotion pricing campaign called “Let’s Refuel America.” © Craig Ruttle/Bloomberg News/Landov chapter 19 Loss Leaders and Leader Pricing Retailers rely most heavily on promotional pricing In one type of technique, stores offer loss leaders: goods priced below cost to attract customers who, the retailer hopes, will also buy regularly priced merchandise Loss leaders can form part of an effective marketing program, but states with unfair-trade laws limit the practice The fruit in season at your grocery store is likely a loss leader Corn on the cob might be priced at 10 for $5 Cantaloupe might be offered at 10 for $10 Pint containers of blueberries, strawberries, and raspberries could be sold in “two for the price of one” pricing.19 Retailers frequently use a variant of loss-leader pricing called leader pricing To avoid violating minimum-markup regulations and to earn some return on promotional sales, they offer so-called leader merchandise at prices slightly above cost Among the most frequent practitioners of this combination pricing/promotion strategy are supermarkets and mass merchandisers such as Wal-Mart, Target, and Kmart Retailers sometimes treat private-label products, such as Sam’s Choice colas at Wal-Mart stores, as leader merchandise because prices of the store brands average to 60 percent less than those of comparable national brands While store brand items generate lower per-unit revenues than national brands, higher sales volume will probably offset some of the difference as will related sales of high-margin products such as toiletries and cosmetics Digital camcorders are a good example Once priced at an average of more than $1,000, they are now on shelves for a few hundred dollars Canon, Sony, and Panasonic have slashed prices on a wide range of models, sometimes by several hundred dollars Shoppers can pick up a Samsung SC-D382 mini-DVD camcorder at Best Buy for just under $170 Although this is one of the simpler models in the firm’s line, it still illustrates how prices have dropped.20 But marketers should anticipate two potential pitfalls when making a promotional pricing decision: Some buyers are not attracted by promotional pricing loss leader Product offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices leader pricing Variant of loss-leader pricing in which marketers offer prices slightly above cost to avoid violating minimummarkup regulations and earn a minimal return on promotional sales assessment check By maintaining an artificially low price for a period of Define pricing policy time, marketers may lead customers to expect it as Describe the two types of psychological pricing other than a customary feature of the product That prestige pricing is the situation currently faced by U.S car manufacturers: sales of their models lag What is promotional pricing? when they not offer price incentives 656 part PRICING DECISIONS Relate price to PRICE–QUALITY RELATIONSHIPS consumer perceptions of quality One of the most thoroughly researched aspects of pricing is its relationship to consumer perceptions of product quality In the absence of other cues, price serves as an important indicator of a product’s quality to prospective purchasers Many buyers interpret high prices as signals of highquality products Prestige is also often associated with high prices In an effort to test the reliability of this relationship, researchers conducted a study in which participants were placed in an MRI machine and given tastes of red wine The participants all responded that they preferred the wine labeled with a higher price, even though in some cases the same wine was presented with two different price tags The MRI showed a change in brain activity when the participants thought they were drinking the expensive wine.21 A new type of prestige surrounds ecofriendly products Many consumers are willing to pay more for green goods and services—those made with environmentally friendly materials and processes, as described in the “Marketing Success” feature These purchases make consumers feel good about themselves and convey status among others Despite the appeal of prestige, nearly every consumer loves a good deal Marketers work hard to convince consumers they are offering high-quality products at the lowest possible price Whereas motels used to be considered both cheap and seedy, a new crop of boutique motels has sprung up around the country where guests can find comfortable accommodations, individual service, and reasonable prices Some are steeped in retro-style decorating, others are nestled amid lush gardens, and a few offer amenities such as complimentary cocktails to their guests They have trendy names like Orbit in Oasis, Casa Morada, and El Morocco, reflecting their décor Although these motels aren’t cheap, they offer a customized experience at much lower prices than most hotels.22 Probably the best statement of the price– quality connection is the idea of price limits Consumers define certain limits within which their product-quality perceptions vary directly © Image courtesy of The Advertising Archives Goods made with environmentally friendly materials and processes have a new prestige Many consumers are willing to pay more for these eco-friendly products Pricing of Green Products Equals Prestige Background Only a few years ago, ecofriendly products were confined to a shelf or two at the grocery or hardware store and perhaps a single rack of clothes at the department store Generally, they cost more than traditional goods, and a lot of times they did not sell as well The Challenge Marketers of green goods and services had to find a way to make their products competitive with traditional ones The household cleaners had to clean better The clothing had to keep up with fashion trends In addition, they had to compensate somehow for the greater cost—and attract consumers to the higher price of green goods The Strategy Marketers of such diverse products as locally grown produce, hybrid cars, and building supplies have launched campaigns in the last few years designed to educate consumers about the benefits of ecofriendly goods Celebrities endorse many of these products, giving them prestige chapter 19 657 PRICING STRATEGIES with price A potential buyer regards a price below the lower assessment check limit as too cheap, and a price above the higher limit seems too expensive This perception holds Describe the price–quality connection true for both national brands and private-label What are price limits? products Competitive Bidding and Negotiated Prices Many government and organizational procurement departments not pay set prices for their purchases, particularly for large purchases Instead, they determine the lowest prices available for items that meet specifications through competitive bidding This process consists of inviting potential suppliers to quote prices on proposed purchases or contracts Detailed specifications describe the good or service the government agency or business organization wishes to acquire One of the most important procurement tasks is to develop accurate descriptions of products the organization seeks to buy This process generally requires the assistance of the firm’s technical personnel such as engineers, designers, and chemists Colleges and universities routinely invite competitive bids for their food-service suppliers and negotiate prices for meal packages, service, and so forth With the cost of everything related to academic life soaring, schools are looking for ways to save money on food service, as described in the “Solving an Ethical Controversy” feature A select group of state troopers test potential police cars every year to determine the best model—and price—for their organization While Ford’s Crown Victoria Police Interceptor has come out on top for many years, recently the Dodge Charger and Magnum models have grown in popularity In addition, some police forces have selected the Dodge Durango and Jeep models.23 In some cases, business and government purchasers negotiate contracts with favored suppliers instead of inviting competitive bids from all interested parties The terms of such a contract emerge through offers and counteroffers between the buyer and the seller When only one supplier offers a desired product or when projects require extensive research and development, buyers and sellers often set purchase terms through negotiated contracts In addition, some state and local governments permit their agencies to skip the formal bid process and negotiate purchases under certain dollar limits—say, $500 or $1,000 This policy seeks to eliminate economic waste that would result from obtaining and processing bids for relatively minor purchases New York state law requires the New York State Fair to get bids for any contract worth more than $50,000 Since the State Fair includes everything from live concerts by major acts to food vendors, contracts can run much higher than that.24 Publicity generated about environmental concerns, as well as consumers’ genuine wish to something concrete to better the environment, contributed to a change in attitude toward green products In addition, firms have taken steps to develop the highest-quality green products to compete with more traditional items Hybrid cars are now more reliable, and bamboo flooring is both durable and fashionable The Outcome Across many industries, consumers are will- Contrast competitive bidding and negotiated prices bri efly speaking “I have discovered in 20 years of moving around a ballpark that the knowledge of the game is usually in inverse proportion to the price of the seats.” —Bill Veeck (1914–1986) AMERICAN BASEBALL TEAM OWNER green products as the wave of the future.” One survey revealed that homeowners would pay more for home improvement products if the products were made from renewable resources or other ecofriendly materials Other research showed that U.S consumers would pay a assessment check premium for locally produced foods, giving a boost to smaller farms As a result, the business of making and marketing green products is good What are the major challenges to growth in for everyone—companies, consumers, and the environment e-business and e-marketing? “Americans Willing to Pay More for Eco-Friendly Products,” CSRwire, July 29, 2008, ingly paying more for green goods, regardless of their income level 2.Sources: Describe phishing and vishing www.csrwire.com; “Survey Shows Homeowners Willing to Invest More in Green Home “Many American consumers, even in the face of economic uncertainty, Explain Improvement Reuters, can June create 25, 2008, channel www.reuters.com; Martin LaMonica, “Most howProducts,” e-marketing conflicts Consumers Willing to Pay for Hybrid Cars,” CNet News, June 24, 2008, news.cnet.com; express a willingness to pay more for environmentally friendly prodand copyright disputes “Average Shoppers Are Willing to Pay a Premium for Locally Produced Food,” Science Daily, ucts,” observes one professor “Toyota can’t make the Prius fast enough June 8, 2008, www.sciencedaily.com; “65% of Consumers Will Pay More for Renewably to meet consumer demand, to cite just one example, and many see Sourced Products,” Environmental Leader, April 16, 2008, www.environmentalleader.com 658 part PRICING DECISIONS Ditching Cafeteria Trays—Does It Really Save Dough? t he cafeteria tray has been the mainstay of college dining rooms for decades Hungry students grab those plastic trays and file through the serving line, piling their plates and trays higher and higher with everything from turkey and mashed potatoes to ice cream and brownies Recently, a number of colleges and universities decided to away with the trays for two reasons: to save energy and money Regarding energy savings, food-service experts argue that the dining room is a great source of waste, including the water and detergent required to wash hundreds of trays every day “Dining facilities on campuses take up five times more water, five times more energy, five times more waste per square foot than the dorm,” notes Monica Zimmer of Sodexo, a company that serves meals at about 600 campuses nationwide As for money savings, college administrators claim that without trays, students eat less—and less food is wasted Should colleges ban the use of cafeteria trays as a cost-cutting measure? PRO Without trays—using dinner plates only—students are less apt to wander around the dining hall loading up on food They will make better choices and waste less food if they have to make several trips, thus reducing the amount of food the school pays for in the meal plan Less food means the dining hall needs less storage and cleanup, another reduction in cost “If we create less waste, we don’t even have to consider a need for back-end technologies,” notes one food-service provider Refrigeration, hot water for washing, and hauling away or treating garbage are all reduced, representing a drop in cost CON Students claim that if they are hungry enough, they’ll eat just as much “I’ll just keep coming back for seconds,” says one student So the cost for food may remain the same Also, one college has already experienced an increase in the breakage of plates and glasses because students have loaded them up and been unable to juggle them successfully This represents an added cost Colleges could come up with other ways to address food waste and cost, such as reducing the size of serving dishes and portions Carrying smaller plates—with smaller amounts of food—could cut down on collisions and spillage and the amount of food lost Summary Although colleges and universities should examine every means to reduce waste and cut costs, the jury is still out on whether eliminating cafeteria trays will actually create savings Meanwhile, college students will adapt And those who live in colder climates will have to find something else to sit on while sledding down a snowy hill Sources: Maya Curry, “The War on College Cafeteria Trays,” Time, August 25, 2008, www.time.com; John Raby, “U.S Colleges Moving to Retire Cafeteria Trays,” Associated Press, August 25, 2008, news.yahoo.com; Bruce Horovitz, “More College Cafeterias Dump Food Trays,” USA Today, July 25, 2008, www.usatoday.com NEGOTIATING PRICES ONLINE Many people see the Internet as one big auction site Whether it’s toys, furniture, or automobiles, an online auction site seems to be waiting to serve every person’s needs—buyer and seller alike Auctions are the purest form of negotiated pricing Ticket sales are an online auction favorite Consumers can bid on tickets for all sorts of events: a Broadway show, a baseball playoff game, or a major rock concert Ticketmaster and StubHub are two online ticket sellers, offering tickets to events such as NFL games, Disney On Ice shows, Mamma Mia! stage productions, and Dave Matthews Band concerts Ticketmaster has a link devoted to online auctions StubHub focuses on offering consumers the opportunity to buy and resell tickets, setting their own prices Ticketmaster entered the resale market by purchasing TicketsNow.25 Online auctions also take place at sites such as eBay and uBid.com, where consumers can snap up items as varied as Italian gold cufflinks and a home in upstate New York Recently, eBay reported that many of its transactions now take place at fixed prices through the “Buy It Now” option, signaling that perhaps consumers prefer to secure an item by paying a set price for it or that chapter 19 659 PRICING STRATEGIES they not want to wait up to a week for an auction to close assessment check Regardless of how it is purchased, merchandise on eBay continues to move at astonish1 What is competitive bidding? ing speed: a pair of women’s jeans sells every Describe the benefits of an auction—to the buyer and the seller 40 seconds, while a cell phone sells every seven seconds 26 The Transfer Pricing Dilemma Explain the A pricing problem peculiar to large-scale enterprises is the determination of an internal transfer price—the importance of transfer price for moving goods between profit centers, which are any part of the organization to which revenue pricing and controllable costs can be assigned, such as a department As companies expand, they tend to decentralize management and set up profit centers as a control device in the newly decentralized operation In a large company, profit centers might secure many needed resources from sellers within their own organization The pricing problem thus poses several questions: What rate should profit center A (maintenance department) charge profit center B (production department) for the cleaning compound used on B’s floors? Should the price be the same as it would be if A did the work for an outside party? Should B receive a discount? The answers to these questions depend on the philosophy of the firm involved Transfer pricing can be complicated, especially for multinational organizations The government closely monitors transfer pricing practices because these exchanges offer easy ways for companies to avoid paying taxes on profits For example, Congress passed a bill outlawing federal contractors from hiring workers through offshore “shell”—nonexistent—companies and thus avoiding having to pay Social Security and Medicare taxes Figure 19.4 shows how this type of pricing manipulation might work Suppose a South Korean manufacturer of DVD players sells its machines to its U.S subsidiary for distribution to dealers Although each unit costs $25 to build, the manufacturer charges the distributor $75 In turn, the distributor sells the DVD players to retailers for $125 each This arrangement gives the South Korean manufacturer a $50 profit assessment check on each machine, on which it pays taxes only in Define transfer price South Korea Meanwhile, the American distributor writes off $50 for advertising and shipping costs, What is a profit center? leaving it with no profits—and no tax liability Global Considerations and Online Pricing Throughout this course, we have seen the impact of the Internet on every component of the marketing mix This chapter has touched on the outer edges of the Internet’s influence on pricing practices Remember: every online marketer is inherently a global marketer that must understand the wide variety of internal and external conditions affecting global pricing strategies Internal influences include the Compare the three alternative global pricing strategies figure 19.4 Transfer Pricing to Escape Taxation Cost of unit $75 Advertising/shipping $50 Cost of unit $25 Foreign Manufacturer Sale price $75 Profit $50 Foreign-Owned Distributor Sale price $125 Profit $0 Retailer 660 part PRICING DECISIONS firm’s goals and marketing strategies; the costs of developing, producing, and marketing its output; the nature of the products; and the firm’s competitive strengths External influences include general conditions in international markets, especially those in the firm’s target markets; regulatory limitations; trade restrictions; competitors’ actions; economic events; and the global status of the industry TRADITIONAL GLOBAL PRICING STRATEGIES In general, a company can implement one of three export pricing strategies: a standard worldwide price, dual pricing, or market-differentiated pricing Exporters often set standard worldwide prices, regardless of their target markets This strategy can succeed if foreign marketing costs remain low enough that they not affect overall costs or if their prices reflect average unit costs A company that implements a standard pricing program must monitor the international marketplace carefully, however, to make sure domestic competitors not undercut its prices The dual pricing strategy distinguishes prices for domestic and export sales Some exporters practice cost-plus pricing to establish dual prices that fully allocate their true domestic and foreign costs to product sales in those markets These prices ensure an exporter makes a profit on any product it sells, but final prices may exceed those of competitors Other companies opt for flexible cost-plus pricing schemes that allow marketers to grant discounts or change prices according to shifts in the competitive environment or fluctuations in the international exchange rate The third strategy, market-differentiated pricing, makes even more flexible arrangements to set prices assessment check according to local marketplace conditions The dynamic global marketplace often requires fre1 What are the three traditional global quent price changes by exporters who pricing strategies? choose this approach Effective marketdifferentiated pricing depends on access Which is the most flexible global pricing strategy? to quick, accurate market information Relate the concepts of cannibalization, bundle pricing, and bots to online pricing strategies CHARACTERISTICS OF ONLINE PRICING To deal with the influences of the Internet on pricing policies and practices, marketers are applying old strategies in new ways and companies are updating operations to compete with electronic technologies Some firms offer online specials that not appear in their stores or mail-order catalogs These may take such forms as limited-time discounts, free shipping offers, or coupons that are good only online The Cannibalization Dilemma cannibalization Loss of sales of an existing product due to competition from a new product in the same line By pricing the same products differently online, companies run the risk of cannibalization The new twist on an old tactic is companies self-inflicting price cuts by creating competition among their own products During the first decade of e-business, marketers debated whether it was worth taking the risk of alienating customers and channel members by offering lower prices for their products online—then an unproven retail outlet But today, marketers are more savvy about integrating marketing channels, including online sites and affiliated stores—different stores owned by the same company The trend is moving toward standardizing pricing across channels Wal-Mart recently introduced such features as “Ship to Store” and “Find It in a Store” to its Web site so shoppers can choose how and where they want to make purchases, all at the same price Sears has increased its investment in online and multichannel operations with similar goals Experts agree this is a good strategy because consumers like to shop the retailers they prefer both online and off, and they expect the retailer to recognize them as regular shoppers—no matter what channel they choose In addition, research indicates that multichannel shoppers are more profitable than those who stick to one channel.27 Use of Shopbots A second characteristic of online pricing is the use of search programs called bots or shopbots— derived from the word robots—that act as comparison shopping agents Bots search the Web for chapter 19 661 PRICING STRATEGIES a specific product and print a list of sites offering the best prices In online selling, bots force marketers to keep prices low However, marketing researchers report that the majority of online shoppers check out several sites before buying, and price is not the only variable they consider when making a purchase decision Service quality and support information are powerful motivators in the decision process Also, while price is an important factor with products such as books and DVDs, it is not as important with complex or highly differentiated products such as real estate or investment banking Brand image and customer service may outweigh price in these purchase decisions BUNDLE PRICING As marketers have watched e-business weaken their control over prices, they have modified their use of the price variable in the marketing mix Whenever possible, they have moved to an approach called bundle pricing, in which customers acquire a host of goods and services in addition to the bundle pricing Offering two or more complementary tangible products they purchase products and selling them for Nowhere is bundle pricing more prevalent than in the telecommunications industry a single price Consumers are bombarded daily by advertisements for all kinds of Internet, cell phone, and cable TV packages AT&T recently offered a package called AT&T Net Reach, a bundle that provides both home and away high-speed Internet service A package like this appeals to residential consumers, owners of small businesses, or sales representatives who are on the road.28 But sometimes consumers resist the practice of bundling, claiming they are forced to pay for services they don’t want to receive the ones they This is particularly the case with cable television Cable companies insist they have spent billions of dollars to expand their networks and technology and would be left with unused capacity if they sold only a few channels at a time to each customer Consumer advocates argue that customers are not only forced to pay for unwanted services but also wind up paying inflated prices The solution seems to be la carte pricing—allowing consumers to pick and choose the shows or channels they want But some industry experts warn that bunassessment check dling actually keeps prices low, in effect leveling the What is cannibalization? playing field for all network players “Unmoored from the cable bundle, individual networks would What is bundle pricing? have to charge vastly more money per subscriber,” explains one writer.29 p around the globe Similarly, the cost of shipping an overnight FedEx package from New York to California is no more than shipping it to a nearby city Technology has forever changed the marketplace, which affects the pricing function Traditional geographic boundaries that allowed some businesses to operate have been broken by the Internet as well as mass merchandisers who offer a larger selection and lower prices A customer in Wyoming might want to purchase a hand-carved walking cane from Kenya or an ornamental fan from Kyoto Not a problem—the Web connects buyers and sellers Not only is it possible to escape the boundaries of time and space on the Internet, but price is no longer a constant in the marketing process With the increasing number of auction sites and search technologies such as bots, customers now have more power to control the prices of goods and services Consumers can find the lowest prices on the market, and they can also negotiate prices for many of the products they buy To succeed, marketers will continue to offer value—fair prices for quality goods and services—and superior customer service Those traditions will always be in style rice has historically been the marketing variable least likely to be used as a source of competitive advantage However, using price as part of a marketing program designed to meet a firm’s overall organizational objectives can be a powerful strategy 662 part PRICING DECISIONS Review of Chapter Objectives Compare the alternative pricing strategies and explain when each strategy is most appropriate The alternative pricing strategies are skimming pricing strategy, penetration pricing strategy, and competitive pricing strategy Skimming pricing is commonly used as a market-entry price for distinctive products with little or no initial competition Penetration pricing is used when a wide array of competing brands exists Everyday low Describe how prices are quoted Methods for quoting prices depend on such factors as cost structures, traditional practices in the particular industry, and policies of individual firms Price quotes can involve list prices, market prices, cash discounts, trade discounts, quantity discounts, and allowances such as trade-ins, promotional allowances, and rebates Shipping costs often figure heavily into the pricing of goods A number of alternatives or good Buyer specifications describe the item the government or B2B firm wishes to acquire Negotiated contracts are another possibility in many procurement situations The terms of the contract are set through negotiations between buyer and seller Explain the importance of transfer pricing A phenomenon in large corporations is transfer pricing, in which a company sets prices for transferring goods or services from one company profit center to another The term profit center refers to any part of the organization to which revenue and controllable is that of price limits—limits within which the perception of product quality varies directly with price The concept of price limits suggests that extremely low prices may be considered too cheap, thus indicating inferior quality Contrast competitive bidding and negotiated prices Competitive bidding and negotiated prices are pricing techniques used primarily in the B2B sector and in government and organizational markets Sometimes prices are negotiated through competitive bidding, in which several buyers quote prices on the same service include psychological pricing, unit pricing, price flexibility, productline pricing, and promotional pricing Relate price to consumer perceptions of quality The relationship between price and consumer perceptions of quality has been the subject of considerable research In the absence of other cues, price is an important influence on how the consumer perceives the product’s quality A well-known and accepted concept for dealing with these costs exist: FOB plant pricing, in which the price includes no shipping charges; FOB origin-freight allowed, or freight absorbed, which allows the buyer to deduct transportation expenses from the bill; uniform-delivered price, in which the same price, including shipping expenses, is charged to all buyers; and zone pricing, in which a set price exists within each region Identify the various pricing policy decisions marketers must make A pricing policy is a general guideline based on pricing objectives and is intended for use in specific pricing decisions Pricing policies pricing (EDLP), a variant of penetration pricing, is used by discounters attempting to hold the line on prices without having to rely heavily on short-term coupons, rebates, and other price concessions Competitive pricing is employed when marketers wish to concentrate their competitive efforts on marketing variables other than price costs can be assigned In large companies whose profit centers acquire resources from other parts of the firm, the prices charged by one profit center to another will directly affect both the cost and profitability of the output of both profit centers Compare the three alternative global pricing strategies Companies can choose from three export pricing strategies: a standard worldwide price, dual pricing, or market-differentiated pricing A standard worldwide price may be possible if foreign marketing costs are so low that they not affect overall costs or if the price is based on an average unit cost The dual pricing approach establishes separate price strategies for domestic and exported products Some exporters use cost-plus pricing methods to establish dual prices that fully allocate their true domestic and foreign costs to their product; others choose flexible cost-plus pricing Market-differentiated pricing is the most flexible export pricing strategy because it allows firms to price their products according to marketplace conditions It requires easy access to quick, accurate market information chapter 19 663 PRICING STRATEGIES Relate the concepts of cannibalization, bundle pricing, and bots to online pricing strategies To deal with the influences of the Internet on pricing policies and practices, marketers are applying old strategies in new ways, and companies are updating operations to compete with electronic technologies Cannibalization secures additional sales through assessment check: 1.1 lower prices that take sales away from the marketer’s other products Bots, also known as shopbots, act as comparison-shopping agents Bundle pricing is offering two or more complementary products and selling them for a single price answers What are the three major pricing strategies? The three major pricing strategies are skimming, penetration, and competitive 1.2 What is EDLP? EDLP stands for everyday low pricing It is a variation of penetration pricing often used by discounters 2.1 What are the three major types of discounts? The three major types of discounts are cash discounts, trade discounts, and quantity discounts 2.2 Identify the four alternatives for handling transportation costs in pricing policies The four alternatives for handling transportation costs are FOB pricing, uniform-delivered pricing, zone pricing, and basing-point pricing 3.1 Define pricing policy A pricing policy is a general guideline that reflects marketing objectives and influences specific pricing decisions 3.2 Describe the two types of psychological pricing other than prestige pricing The two additional types of psychological pricing are odd pricing, in which marketers set prices at odd numbers just under round numbers; and unit pricing, which states prices in terms of a recognized unit of measurement 3.3 What is promotional pricing? Promotional pricing is a lower-than-normal price for a set period of time 4.1 Describe the price–quality connection Price serves as an important indicator of a product’s quality However, many marketers now work hard to convince consumers they are offering high-quality products at the lowest possible price 4.2 What are price limits? Price limits indicate certain boundaries within which consumers’ product-quality perceptions vary directly with price A price set lower than expected seems too cheap, and one set above the expected limit is seen as too expensive 5.1 What is competitive bidding? Competitive bidding consists of inviting potential suppliers to quote prices on proposed purchases or contracts 664 part 5.2 PRICING DECISIONS Describe the benefits of an auction—to the buyer and the seller An auction can provide buyers with opportunities to buy goods and services at very low prices It can also offer the seller an opportunity to sell to a wider audience (online) perhaps at a higher price than otherwise would be possible, if the item is particularly popular 6.1 Define transfer price A transfer price is the price for moving goods between profit centers 6.2 What is a profit center? A profit center is any part of the organization to which revenue and controllable costs can be assigned 7.1 What are the three traditional global pricing strategies? The three global pricing strategies are standard worldwide pricing, dual pricing, and market-differentiated pricing 7.2 Which is the most flexible global pricing strategy? The most flexible global pricing strategy is market-differentiated pricing, which allows firms to set prices according to actual conditions 8.1 What is cannibalization? Cannibalization involves cutting prices in one selling channel, which creates direct competition with a firm’s own products 8.2 What is bundle pricing? Bundle pricing involves combining a number of goods or services together and offering them at a set price Marketing Terms You Need to Know skimming pricing strategy 643 penetration pricing strategy 645 competitive pricing strategy 646 list price 647 market price 648 allowance 649 psychological pricing 652 product-line pricing 654 promotional pricing 654 loss leader 655 leader pricing 655 cannibalization 660 bundle pricing 661 Other Important Marketing Terms step out 642 market-plus pricing 643 everyday low pricing (EDLP) 646 opening price point 647 cash discount 648 trade discount 648 quantity discount 649 cumulative quantity discount 649 noncumulative quantity discount 649 trade-in 649 promotional allowance 649 minimum advertised pricing (MAP) 650 rebate 650 FOB (free on board) plant (FOB origin) 651 FOB origin-freight allowed (freight absorbed) 651 uniform-delivered pricing 651 postage-stamp pricing 651 zone pricing 651 basing-point pricing 652 pricing policy 652 odd pricing 652 unit pricing 653 price flexibility 653 competitive bidding 657 transfer price 659 profit center 659 bots (shopbots) 660 chapter 19 665 PRICING STRATEGIES Assurance of Learning Review What is the difference between a skimming price strategy and a penetration pricing strategy? Under which circumstances is each most likely to be used? Why is competitive pricing risky for marketers? What is the difference between a list price and a market price? What are allowances? How they work? Describe the three ways buyers and sellers handle transportation expenses How is product-line pricing helpful to both retailers and their customers? What is the difference between loss-leader and leader pricing? When retailers use each? What is the difference between a competitive bid and a negotiated price? Describe briefly the three traditional global pricing strategies Give an example of a firm or product that would be likely to adopt one of the three approaches, and explain why 10 Although cannibalization generally forces price cuts, in what ways can it actually benefit a firm? Projects and Teamwork Exercises With a classmate, create two advertisements for the same product One advertisement should feature a high price, the other advertisement should feature a low price Present your advertisements to students in your class Record students’ perceptions of the price/quality relationship Figure out how much it will cost to buy and own one of the following new cars from a dealership, or select another model What is the list price? What price could you negotiate? a Ford Escape hybrid b Mercedes E350 c Hyundai Santa Fe d Scion tC Assume a product sells for $100 per ton and Pittsburgh is the basing-point city for calculating transportation charges Shipping from Pittsburgh to a potential customer in Cincinnati costs $10 per ton The actual shipping costs of suppliers in three other cities are $8 per ton for Supplier A, $11 per ton for Supplier B, and $10 per ton for Supplier C Using this information, answer the following questions: a What delivered price would a salesperson for Supplier A quote to the Cincinnati customer? b What delivered price would a salesperson for Supplier B quote to the Cincinnati customer? c What delivered price would a salesperson for Supplier C quote to the Cincinnati customer? d How much would each supplier net (after subtracting actual shipping costs) per ton on the sale? On your own or with a classmate, visit a local supermarket to find examples of promotional pricing and loss leaders Note instances of both Does the promotional pricing make you more apt to purchase a product? Does knowing the store uses loss leader pricing of bananas or apples make you more inclined to by them? Present your findings and opinions to the class Decide on a trip you’d really like to take Then go online to several of the travel sites—Orbitz, Travelocity, Priceline.com, or others—and compare prices for your trip, including airfares, hotels, car rental, and so forth Does bundling the different components give a price break? Note any coupons or promotions for restaurants and attractions as well Decide which trip is the best deal, and explain why As a consumer, would you rather shop at a store that features a sale once a month or a store that practices everyday low pricing (EDLP)? Why? Staples recently established its Easy Rebates program in which customers can submit most of their rebate applications online for products purchased over the Internet, through the catalog, and in Staples stores Customers may also submit several rebates at once and receive e-mails about the status of their Critical-Thinking Exercises Dell launched four new computer models aimed at the Chinese and Indian consumer markets to create loyal customers as these markets emerge Using a penetrating pricing strategy, Dell priced the new computers under $500, significantly less than its computers sell for in the United States.30 Do you think this will be a successful pricing strategy? Why or why not? What steps you predict Dell will take as it sets prices for products in these markets in the future? 666 part rebates at every stage In addition, Staples claims the rebates are processed much faster than those of other companies.31 Do you think the Easy Rebates program will increase the number of rebates customers actually submit? Why or why not? Do you think other firms will follow with similar programs? PRICING DECISIONS chological pricing? Product line pricing? Note any pricing strategies you can identify Do any of these strategies make you prefer the site over a competitor’s site? Go online to a shopping site you use regularly and note the prices for different types of products Does the firm use psy- Why is competitive bidding an important factor in major purchase decisions like vehicles for a police force, the construction of a bridge, or the manufacture of military uniforms? Ethics Exercise The law allows companies in a variety of industries to add what many refer to as “hidden” charges to customers’ bills Phone bills, airline tickets, and hotel receipts often contain charges that are difficult to identify A visitor who stays in a hotel might be hit with a “hospitality fee,” a “resort fee,” and an “automatic gratuity” to name just a few These charges are not taxes, and although they are itemized, it is difficult for the average traveler to make sense of them Most people either don’t check their bills thoroughly or are in a hurry to check out and don’t bother to dispute the charges, which may be only a few dollars But these charges add up over the course of hundreds or thousands of visitors each year, and hotels are pocketing them—legitimately.32 Do you think adding hidden charges to hotel visitors’ bills is a smart marketing strategy? Why or why not? Visit the Web site of a hotel chain with which you are familiar to learn if it gives any information about additional surcharges If consumers were informed about the charges ahead of time, would you feel differently about them? Why or why not? Internet Exercises Private label pricing Visit the following Web site: us.acnielsen.com/pubs/2005_q4_ci_privatelabel.shtml It contains a recent report on private label pricing Review the report and answer the following questions: a Which region of the world has the highest concentration of private labels? b In which region of the world are private label sales growing the fastest? c Which product category has the highest percentage of private label sales? d Which type of consumer is the most likely to purchase private labels? Which type of store relies most heavily on private label sales? e What is the typical price difference between a private label and a manufacturer’s label? How much does this discount vary from product to product? Price markups Visit Edmunds.com (www.edmunds.com) to obtain invoice and retail price information on new and used vehicles Choose three different makes and models of new vehicles and research their prices a Does the difference between the invoice and suggested retail price vary from model to model? What, in your opinion, explains the differences? b Are certain options subject to higher markups than other options? Again, in your opinion, what explains any differences you find? Transfer pricing Visit the following Web site: www.ey.com/ global/content.nsf/International/2007-2008_Transfer_ Pricing_Global_Survey It contains a link to a recent report on transfer pricing prepared by the accounting firm of Ernst & Young Download the report and prepare a brief summary on the pertinent issues relating to transfer pricing affecting global business (Note: The report is a pdf document and requires Adobe Acrobat or Acrobat Reader.) Note: Internet Web addresses change frequently If you don’t find the exact site listed, you may need to access the organization’s home page and search from there or use a search engine such as Google chapter 19 667 PRICING STRATEGIES Case 19.1 Restaurants Try to Serve Appetizing Deals When the economy falters, consumers naturally tighten their belts They drive fewer miles, make smaller purchases, and eat out less often None of this is good news for the restaurant industry, which serves more than 70 billion meals each year and employs more than 13 million workers But restaurant owners and marketers are familiar with the concept of making lemonade when handed lemons So, when times are tough, many come up with ways to attract diners to their tables Food costs might be high, but instead of raising prices, some restaurant owners adjust their menus Filet mignon is replaced by less expensive cuts of meat—and the savings can then be passed along to consumers At the 200 East in Chicago, house specials on pork and chicken—instead of veal and beef—have become the new norm Offering promotions such as a three-course meal for $29, free beverages, or early-bird specials has become more popular for many restaurants “I see how people are these days,” says Carmine Marzano, owner of Luigino in Washington, D.C “They are saving pennies everywhere they can I try to be good to them, and hopefully they will be good to me and come back again.” Another strategy is reducing waste as much as possible When it comes to chicken, that means being creative enough to find ways to economize “You just have to know how to use the whole bird,” says Equinox restaurateur Ellen Kassoff-Gray “We told our staff, ‘save money.’” At Equinox, located in Washington, D.C., the chef not only uses the white breast meat of the chicken but also makes a chicken salad The legs are roasted for staff meals The bones go into chicken stock for soups and gravy In addition, restaurants make a bigger effort to make sure perishable items are used quickly and not thrown in the trash “We’re very focused on rotating our product through the facility quickly—not letting things sit on the shelves,” says Paul Baldasaro, owner of the Buckhead Life Restaurant Group in Atlanta “Ultimately, it ends up being better for our guests.” Most restaurant owners are sensitive to the wallets of their customers, but it is also a good marketing strategy At Equinox, waiters routinely suggest that customers order a few side items or appetizers as a meal instead of splurging on an expensive entrée Video Case 19.2 Restaurants that can afford to serve moderately priced meals still have an opportunity to reel in the customers Pepe’s Mexican Grill in Arizona is one such eatery “It [is] upscale Mexican food at lower prices,” says owner Oscar Lee “It [isn’t] fast food, but it is good food fast.” Pepe’s serves fresh food, mostly on a takeout basis, thereby saving on the expense of a waitstaff and a large space for seating The savings are passed along to customers But some restaurants are sticking to their original marketing strategy, intending to distinguish themselves from the competition in other ways There’s no reason to cut portions, argues Paul Baldasaro of Buckhead Life “There’s no reason to cut quality if you want to stay in business The customer is very savvy Our guests would know if they came in one of our restaurants and we changed something.” Instead, Buckhead Life offers promotions like the threecourse prix fixe dinner for those patrons who are interested, and it has stuck to its regular menu pricing in general In fact, every restaurant owner knows that temporary cost- and price-cutting measures only work for the short term; over the long term, it is creativity— with menu choices, recipes, food quality, and service—that counts Questions for Critical Thinking In addition to those described, discuss other pricing promotions restaurants might offer to attract customers How you think the price–quality relationship affects the restaurant industry? Sources: “Restaurant Industry—Facts at a Glance,” National Restaurant Association, www.restaurant.org, accessed August 22, 2008; Aaron Smith, “Weak Economy Takes Bite Out of Casual Dining,” CNN Money, July 29, 2008, money.cnn.com; Luci Scott, “2 New Restaurants Buck Economic Downturn,” The Arizona Republic, August 21, 2008, www.azcentral.com; Cheryl V Jackson, “Weak Economy Biting Restaurants,” Chicago Sun-Times, August 19, 2008, www.suntimes.com; Michael S Rosenwald, “Economy Raises the Heat in the Kitchen,” The Washington Post, June 16, 2008, www.washingtonpost.com; Joe Guy Collier, “Restaurants Feel Squeeze from Both Ends of Economy,” The Atlanta Journal-Constitution, June 9, 2008, www.ajc.com Pricing Strategy at Standard Renewable Energy The written video case on Standard Renewable Energy appears on page VC-17 The Standard Renewable Energy video is designed to expand and highlight the concepts in this chapter and the concepts and questions covered in the written video case 668 part voice of experience Talking about Marketing Careers with Paul Williams wouldn’t work, it indicated that I needed to find a challenge elsewhere I graduated in ’91 with a bachelor of science degree with a double major in public relations (speech communication program) and business marketing/management I also had a minor in art with emphasis in commercial and graphic design Like many students, I didn’t really know what I wanted to when I graduated, so I built my program around subjects that I had enthusiasm for and saw a practical potential for Public relations helped me be a better problem solver Business courses helped me think more strategically Art course work allowed me to communicate with creative people and understand visual composition One of my most valuable experiences was doing an internship my final year in college I worked in the PR department of a medical center, which gave me real experience that could be reflected in my résumé I recommend that you as much work related to your potential field as possible It doesn’t matter if it’s volunteer or unpaid—you’ll get paid with experience You’ve worked for some pretty high-profile companies in your career How did your education and professional experiences lead you to form Idea Sandbox? Did you always want to be an entrepreneur? Students read about different pricing strategies for companies—reaching or maintaining profitability, meeting the competition, and establishing prestige for a product How did you set a strategy for your company? Q: I’ve always considered myself in business for myself Even when I was working at corporations, in the back of my mind I was working for myself—just at that company Yes, I was totally loyal, but it allowed me to manage my own brand Having this mindset allowed me to manage my career growth I’ve always paid attention to my professional growth If I hadn’t grown in responsibility, maturity, or skills, I would work with my boss to put a plan together If my growth was stagnant, I would first try to fix it within the company If that Q: At Idea Sandbox, I use two different pricing strategies Occasionally, when working with a smaller client, I may charge a per-day fee or perhaps a flat fee based on how many days’ work a project will take But the key pricing strategy I use is called value-based fees Hourly rates and even day rates force your work based on the cost of time and materials Value-based fees are based on the value of the outcome to the client, not the cost of your tasks PAUL WILLIAMS Founder Idea Sandbox Who are Idea Sandbox clients? What range of services they obtain? How are your fees set? Q: Idea Sandbox specializes in innovative/ creative problem solving for medium to large English-speaking companies in the U.S and Europe that lack internal expertise or resources or want an external perspective for innovative ideas essential to business success We offer problem solving/strategy sessions—a forum where you bring the challenge—and after sessions ranging from several hours to several weeks, we emerge with an effective and meaningful strategy I also assist companies in improving their innovation process Finally, other services range from creativity and innovation courses to designing space conducive for brainstorming My fees are primarily based on the anticipated value of implementing the programs or ideas I’m assisting to build—value-based fees While I use key tools and pull from a proven process, every client situation is different So, each proposal is unique In this text, students have seen examples of companies that are shifting their strategies to better serve customers and remain competitive How common is it for companies to switch marketing strategies? Q: The best-run companies have created a mission statement that guides their choices I’m not talking about some words on paper or posted in the company lunchroom, rather a living mission that everyone in the company believes—its reason for being When a company faces change, its staff may alter their Photo: Courtesy of Idea-Sandbox.com Inspiration is found in some unexpected places—a garage where entrepreneurs tinker with new technology that revolutionizes business, an accidental meeting of the best and brightest minds that sparks an idea But we need a garage or face-to-face meetings? Finding creative solutions to marketing problems is the essence of a Web site called Idea Sandbox The site combines the free flow of ideas of a brainstorming session with the ease of communicating in the virtual world It also offers resources—lists of other Web sites, publications, and a blog—to which marketers can turn for inspiration and creative problem solving The purpose, as the site says, is to help businesses create wicked good ideas, which are “innovative, support [a company’s] key strategy, and are truly remarkable.” Idea Sandbox is the brainchild of Paul Williams, a marketing professional who has brought a fresh perspective and new strategies to such giants as Disney and Starbucks He is here to give us some background on his activities chapter 19 669 PRICING STRATEGIES short-term plans to better meet customer needs, to keep up with technology, to outdo their competitor, etc But they should stay true to their reason for being The mission statement serves as a compass to keep the company on the right path Today’s marketers are using some innovative methods to reach their customers—enlisting consumers in buzz marketing campaigns to serve as brand champions, sending text messages to cell phones—and get the word out cost-effectively What is the most creative idea you’ve seen companies use in a marketing campaign? Q: The most creative ideas brands execute are ideas that entertain, make a point, are memorable, are genuine, and connect with me as a customer It is extremely difficult to all these things and easy to take a shortcut and go for the quick blast of attention But ultimately the brand will suffer Truly understanding your customers and communicating through an appropriate channel is a lot of work—but extremely rewarding both financially and for the brand’s reputation A company that does a great job of this is Apple Computer Everything they from the design of the computer to the design of their shipping boxes and shopping bags clearly says “Apple” and “think different.” You may be tempted to a media stunt to gain attention But think about the brand of the company as if it were a person with a reputation to uphold Is the tactic you are considering going to help or hurt that reputation? There are a million cheap and easy ideas out there, but they’re just that—cheap and easy Because you help marketers generate creative ideas, you must have some unique insight to Q: Interview used by permission of Idea Sandbox pass along What can students to gain skills and make themselves stand out from the crowd? Gain experience! On your first marketing job interview, they’re going to ask you if you have ever managed a budget, created a marketing plan, led an event, led people, managed multiple priorities, taken care of details, increased sales, increased attendance (the same stuff written into an entry-level job description) Now you won’t be surprised, and you have plenty of time between now and graduation to work on these skills Be the treasurer for an organization, write the plan to help the volunteer group gain awareness, be in charge of student elections, raise your hand and be team captain, learn to prioritize and effectively juggle tasks, pay attention to the details, come up with ways to drive sales, get more student participation in an event than in the past Finally, keep notes of all these activities It doesn’t matter where or for what cause you did these things It matters that you can say, “Yes, I have,” during your first interview Read I know, you’re probably sick of reading I was by the time I finished school But the more you read, the faster you can read and the more you can process You may not have to read something because it’s on a syllabus but rather because your boss says you could use more organization skills or should be better at managing projects You’ll want to quickly and effectively learn these skills, and reading is your best ally I recommend reading everything that interests you and is related to your job (or potential job) It’s also great to read stuff you would never normally pick up Add value Your boss asks you to enter some figures in a spreadsheet and you only need to return to her with a completed spreadsheet But what if you found a way to graph the data so it reads easier than a column of numbers or reformatted the spreadsheet so it fits better in her planner? Or what if you corrected some inconsistencies in the formulas? Bottom line: Always look for a way to add value—to add the brand called YOU to the projects you work on Leave them better than when you found them Arrive with the solution One of the first mistakes I made early in my career was alerting my boss to a problem with one of our marketing programs I thought I was being smart in discovering the issue What I hadn’t done was to think through the steps to fix it Yes, I raised the issue, but I simply became part of the problem From that point on, I learned to arrive with the solution to any problem I discovered If I could, I’d fix the problem and report that “Hey, the tracking sheets weren’t calculating properly, but I reworked the formulas, reran the numbers, and it’s all better now.” If I couldn’t fix it, I’d recommend an approach It taught me to think through issues and align myself with my boss as a problem solver Be passionate I’ve always followed the philosophy, “It’s not enough to be good when you dream of being great.” Being passionate about what you’re doing helps you to get great Sometimes in your professional career you can skate by—going through the motions gets you where you need to go But I argue that if you don’t have passion for what you are doing, it isn’t worth doing If you aren’t challenged, you aren’t growing and getting better—you’re becoming stagnant Perhaps it’s time to try a new project, take on more work, or find a different role I know statistics indicate only a small percentage of workers enjoy their jobs But that’s something totally within your control If you’re not passionate about your job, either find a way to make it exciting or something different It’s up to you 670 part pricing decisions Pricing on most items isn’t all that mysterious Fast food lunch: $5.37 Hamburger: $2.49; fries: $1.89; drink: $.99 Those prices pretty much break down into operating expenses, food cost, and profit It is what it is When it comes to pricing an alternative energy system for your home, it’s a different story The first thing you have to understand is what you’re buying First, you pay for the materials and labor, and you can count on a 20 percent mark-up for the company’s profit and operations Next comes the idea of watts, the electric company’s unit of measure for how much electricity you use Then there are the intangibles When pricing an energy-saving system like wind or solar, you have to look at your initial investment and what you can expect to save when the electric bill comes If you are really good about limiting your energy use, you may be able to sell some of your extra power back to the “grid.” But what if it takes 10 years to pay off the home improvement loan you took out to finance the system? What will the interest be? Is that adjusted for inflation? Is the cost of electricity always going to go up, or will it stabilize or even go down in two years? What are the maintenance and repair costs? Get through all these questions and you’re still faced with the choice of wind or solar Wind is cheaper to start, but less predictable on the return on investment—solar is the opposite That’s just for residential Add an Inc after your name and there’s a whole bunch of other considerations What is the depreciation on the equipment? Can it be accelerated? Are there state, local, or federal tax credits? John Miggins of Standard Renewable Energy in Tulsa, Oklahoma, can these calculations in his sleep, but is quick to admit they are complicated “The people call me and say, ‘I have a 2,000-square-foot house What I need?’” There’s no way to answer that, but what he does tell them is what the average customer might want From there, all bets are off until he can a custom quote designed for the customer’s home—the location, type of construction, exposure, zoning, energy needs, what the customer realistically expects to get out of a wind or solar system and, most importantly, what the customer is willing to give up to get the most out of the system he or she wants When the students at the KU School of Architecture and Urban Planning’s Studio 804 called Miggins looking for a solar and wind system for their 547 Art Center design-build in Greensburg, Kansas, the needs versus wants equation really came into play The building, a community and art museum in the heart of Greensburg, was a unique project 547 Art Center was the first building to be completed in the devastated town and is definitely one of, if not the greenest, buildings in Kansas Like all projects in Greensburg, money was an issue, but building a truly sustainable, green LEED Platinum building was just as important Add to that the fact that the building was going to be a showpiece for the town, so aesthetics couldn’t suffer either John quoted the project at about $50,000 Although he would have loved to give it all away for free, the studio needed to cover his costs As they were completing © Steven J Eliopoulos Watt’s the Deal? the plans for the project, the design team threw him a curveball They wanted three smaller wind turbines to power the building rather than the one larger one John recommended “It was a ten thousand dollar difference, easily,” recalls Miggins A frugal guy himself, he couldn’t understand why they would spend the extra money on an already strapped project “A friend of mine told me architects like threes,” said John “And you gotta admit, it looks really cool!” In the end, he got what they were going for and donated some of the extra labor involved in installing the three turbines so they could achieve their vision “We can’t treat everybody like that,” says Miggins As a sales rep for the Oklahoma/Kansas region, John has some wiggle room in pricing jobs Every project is carefully reviewed and he knows he’ll get a talking to if he gives too much away The return on investment in cool projects like Greensburg isn’t lost on the finance department at Standard Renewable John was recently called by Make it Right, Brad Pitt’s foundation dedicated to the sustainable rebuilding of the 9th Ward of New Orleans, the area hardest hit by Hurricane Katrina He is now involved in designing a solar system for a neighborhood playground Standard knows they won’t make a killing on the project, but the exposure will more than make up for it Questions Why is it important for Standard Renewable Energy to allow John Miggins flexibility in pricing? Why is return on investment such an important factor for the consumer choosing an alternative energy system? While one can probably find a better price for the components online, what is the value of choosing John Miggins for your solar or wind system? Which pricing objective best fits Standard Renewable Energy? Perform a breakeven analysis for the owner of an average 2000-squarefoot home Prepare a presentation using a spreadsheet, powerpoint slides, and handouts that John Miggins could use when discussing solar with potential customers VC-1 VIDEO CASE CONTENTS Video Case 1.2 Marketing: Satisfying Customers at Flight 001 VC-2 Video Case 2.2 Strategic Planning and the Marketing Process at Recycline VC-3 Video Case 3.2 The Marketing Environment, Ethics, and Social Responsibility at Scholfield Honda VC-4 Video Case 4.2 E-business at Evo Video Case 5.2 Consumer Behavior at Scholfield Honda Video Case 6.2 Business-to-Business Marketing at Flight 001 VC-6 Video Case 7.2 Global Marketing at Evo Video Case 8.2 Marketing Research and Sales Forecasting at Ogden Publications Video Case 9.2 Targeting and Positioning at Numi Tea Video Case 10.2 Relationship Marketing and CRM at Numi Tea Video Case 11.2 Product and Service Strategy at Recycline Video Case 12.2 Developing and Managing Brand and Product Categories at Maine Media Workshops VC-11 Video Case 13.2 Marketing Channels and Supply Chain Management at Recycline VC-12 Video Case 14.2 Retailing at Flight 001 Video Case 15.2 Integrated Marketing Communications at Ogden Publications Video Case 16.2 Advertising and Public Relations at Ogden Publications VC-15 Video Case 17.2 Personal Selling and Sales Promotion at Scholfield Honda VC-16 Video Case 18.2 Pricing Concepts at Evogear.com Video Case 19.2 Pricing Strategy at Standard Renewable Energy VC-5 VC-6 VC-7 VC-8 VC-9 VC-10 VC-11 VC-13 VC-16 VC-17 VC-14 VC-2 MARKETING: SATISFYING CUSTOMERS AT FLIGHT 001 Video Case 1.2 Marketing: Satisfying Customers at Flight 001 “We came up with this concept out of need,” says Brad John, co-founder of Flight 001 Brad and fellow co-founder John Sencion had, until the late 90s, worked in different aspects of the fashion industry in New York John was a menswear designer and Brad worked behind the scenes Both did an enormous amount of travel between the United States, Europe, and Japan No matter how many times they set out on a trip, the days and hours before hopping a cab for JFK were spent running from office supply store to bookstore to drugstore to boutique in a mad rush for the latest laptop bag By the time they got to the airport, they were sweaty, stressed, and miserable—not exactly the glamorous existence they envisioned when they got into the fashion industry On May 5, 1998, somewhere high in the sky between New York and Paris, they came up with an idea for a one-stop travel shop targeted at fashion-forward globetrotters like themselves Not everyone got it “Everyone would say, ‘Well, there’s luggage stores, Brad, what’s the difference? You’re gonna sell luggage.’ ” Brad recalls “We were going to sell guidebooks, cosmetics, bags, passport covers There’s really no place in the world where you can buy all these items in one place.” “You can’t just open another Mexican restaurant and think you’re an entrepreneur,” says Sencion “Without innovation, there’s no entrepreneurship.” When it came to the design and concept, it was very important that Flight 001 not be just another luggage store John lent his design experience and Brad brought his talent for selecting product and merchandising to create a truly unique shopping experience The stores, shaped like airplane fuselages, are chock full of fun mid-century modern design, harkening back to a time when leg room didn’t cost extra and when people dressed up to travel and actually looked forward to hanging out at the airport lounge It’s not all in the look, of course Customer service at Flight 001 is key to the experience Friendly and helpful staff members whatever they can to start your trip on the right foot Unfortunately, whatever happens once your reach the airport is out of their hands Brad and John both know that a cool shop and nice people will only get you so far, so they put an enormous amount of thought into selecting and designing the products they sell Looking back at the original inspiration for the store, Flight 001 created its own line of innovative space-saving packing bags called Space Pack Each Space Pack is designed for a specific garment and, once filled, can double the amount of space in your suitcase with the added bonus of keeping everything neat, clean, and organized Future plans include an exclusive luggage line; ultimately, Brad would like for every product in his store to be a Flight 001 branded product Another important part of Flight 001’s plan is careful marketing While Brad and John are not going to turn away business, it is important to the brand that they maintain the feeling of a small boutique, so they’ve never done any traditional paid advertising Instead, they rely on partnerships with airlines such as Northwest and Song, editorial spreads in magazines from Lucky to Business Week, and exclusive product deals and tie-ins with high fashion designers such as Yves Behar and automaker Mini Cooper Unlike traditional paid advertising, they are in front of only those consumers most likely to purchase their products Plus, it’s free! As Flight 001 celebrates its 10-year anniversary, it is clear that its success is based on more than a flashy design With retail stores in Los Angeles, San Francisco, New York and Chicago, it is clear that they aren’t targeting your average big-box shopper At the same time, they appeal to anyone who wants to make a statement at the baggage carousel Stop by the Greenwich Village store on any given day and you may find yourself comparing guidebooks with celebs such as Rachael Ray, meeting a retired couple shopping for lightweight ergonomic carry-on approved luggage, or seeing a preteen in search of the cutest iPod protector and a vial of anti-bacterial “Cootie Spray”—just in case As John says, “We’re trying to bring a little fun and glamour back in to travel.” Questions How important are Flight 001’s strategic alliances to their marketing? What other companies or industries would be a good fit with Flight 001? What role does the design of the store play in marketing Flight 001? VC-3 STRATEGIC PLANNING AND THE MARKETING PROCESS AT RECYCLINE Video Case 2.2 Strategic Planning and the Marketing Process at Recycline* When Eric Hudson started the Massachusetts-based consumer products company, Recycline, in 1996, he wasn’t necessarily trying to make a “green” company Armed with an MBA, a love of the outdoors, and a desire to be his own boss, he came up with a product and set out to find a way to make it That product was the Preserve toothbrush Made from recycled plastic, the brush was not only environmentally friendly, but featured a unique 45 degree angled head designed by his dad, an industrial designer specializing in automobiles and boats, with help from several dentists It is hard to believe today, with the popularity of green products and our increased environmental awareness, but in the late 1990s, green products were considered “fringe” and could be found mostly around college towns on both coasts Most of the products were considered less effective and low quality Many actually were That’s why, from the beginning, Eric felt strongly that Recycline’s mission would be to make it easy to be green by offering environmentally friendly products for the mass market—without sacrificing quality or performance For the first few years, the Preserve toothbrush was mostly available locally in natural food stores Soon they sold in to Whole Foods, a national natural foods chain, and Trader Joe’s, which specializes in unique and gourmet grocery items Recycline was doing a lot of grassroots marketing They were sampling products at an Earth Day celebration in Boston when an employee from Stonyfield Yogurt approached them with an idea Stonyfield had a lot of scrap waste from the manufacture of their yogurt containers that was difficult for them to recycle Recycline needed a reliable source of recycled plastic It was a match made in heaven Stonyfield had a great piece of PR to enhance their environmentally friendly reputation, and Recycline could benefit from an association with such a mainstream, well-respected product The yogurt container toothbrushes hit the shelves in 2001 and have been doing well for both companies ever since Stonyfield even encourages consumers to send Recycline used yogurt containers “We’re a pretty scrappy, upstart company going up against some very big brands,” says C.A Webb, director of marketing at Recycline Large retailers are unwilling or unable to devote large chunks of shelf space to an unknown brand, so Recycline put a lot of effort into refining its packaging and marketing to have more of a presence and appeal to a more sophisticated consumer “Our marketing budget pales in comparison to our competitors,” s-says Webb Even though they’ve been around for over a decade, Recycline still relies heavily on sampling and grassroots marketing Finally, in 2008, Webb persuaded the marketing department to their first real advertising campaign She and her small staff work closely with a PR firm and smaller marketing agencies to keep the wheels turning With so little money and so few resources, Recycline relies heavily on publicity to market their brand A magazine article or television appearance can reach an incredible number of unique consumers—plus, it’s free Because the green movement is hot right now, Recycline has received great press in The New York Times Magazine, Gourmet, and Everyday with Rachael Ray as well as on “Good Morning America,” “The Today Show,” and on Sundance Channel’s “The Green.” “One thing you can be assured of is that some part of it won’t work the way you’d hoped!” says Webb of her strategic marketing plans She attributes many of the misses to the complexities of working with outside agencies on campaigns Sometimes it’s a failure to communicate or a firm’s inability to deliver on the plan No matter the reason, “sometimes you have to figure out a way to save that investment and then other times it just becomes a learning moment when you say, ‘Okay, let’s the post mortem, let’s understand what went wrong and let’s just be sure we don’t that again.’ ” Webb admits she hasn’t performed a SWOT analysis, on paper at least, since business school But when it comes to thinking about new channels, design decisions, bringing a product to market, or just looking at the marketplace in general, “I absolutely use that thinking on a daily basis always,” she says When Eric started the company in 1998, he could have only dreamed that America’s desire for green products would be as strong as it is today Of course, all good trends eventually come to an end “The interest in green products has just been incredible The biggest thing I’m concerned about is whether it’s going to kinda have a negative backlash.” He is hoping that, like the dot com trend that put a laptop on every desk and a BlackBerry in every palm, “We will all realize that we’ve incorporated these green activities in our lives.” Questions Do you consider Recycline’s strategy for the Preserve brand a first mover or second mover strategy? Explain Perform a SWOT analysis on Recycline Identify their core competency and their weaknesses in the marketplace * Recycline has recently been rebranded “Preserve,” with the “Recycline” name stepping into the background as the parent company For the purposes of this case, however, because the change is occurring as we go to press, the name Recycline is retained VC-4 THE MARKETING ENVIRONMENT, ETHICS, AND SOCIAL RESPONSIBILITY AT SCHOLFIELD HONDA Video Case 3.2 The Marketing Environment, Ethics, and Social Responsibility at Scholfield Honda When Al Gore won Best Documentary at the 2007 Academy Awards for his 2006 film, An Inconvenient Truth, the environment was still seen as an issue only for activists Jokes were made “Saturday Night Live” had a field day Then, Gore won a Nobel Peace Prize Things started to change By 2008, grocery stores around the country started filling up with organic and environmentally friendly products Reusable bags showed up at checkout counters everywhere More and more communities were providing curbside recycling pickup The Discovery Channel even created a new cable network, Planet Green Today, nearly every corporation from Frito-Lay to Ford has jumped on the green bandwagon Of course, there have always been companies ahead of the curve Since the early 1970s, Honda had been producing the low-emission, fuel-efficient Civic With so many auto manufacturers producing a dizzying line of makes and models, Honda is conscious about keeping up with the competition while staying true to their roots The entire Honda line consists of four classes of vehicles: Good, Better, Best, and Ultimate Their regular gas cars are Good, with about 30 mpg; hybrids are Better at about 45 mpg; and their Best solution is a natural, gas-powered Civic GX, which gets about 220 miles to a tank Honda has Ultimate solutions in the works, including the new Honda FCX Clarity, a hydrogen fuel cell car in which hydrogen reacts with oxygen—both renewable resources—to create electricity You can buy the natural gas Civic GX and Clarity today, but neither vehicle is practical for the average driver as the fueling stations are hard to come by Lee Lindquist, alternative fuels specialist at Scholfield Honda in Wichita, Kansas, had been researching alternative fuel vehicles for a presentation at a local Sierra Club meeting when he learned that, since 1998, the natural gas-powered Civic GX had been in use by municipalities and fleet customers in New York and California as a way to address air-quality issues Lee was aware that the Wichita market wasn’t exactly teeming with green consumers, but realized that everyone these days is looking for ways to combat rising fuel prices Lee also saw the GX as a way to promote the use of local natural resources; Kansas produces much of the natural gas available in the United States today Lee’s boss, owner Roger Scholfield, was skeptical about the Civic GX While he was in search of a clever way to promote the dealership as more environmentally friendly, he didn’t want to muddy the waters with this new, somewhat impractical, vehicle He agreed to offer the car to his fleet and corporate customers and went back to work on a plan for the dealership They made a few small changes around the dealership— recycling the oil from oil changes to heat the shop, adding biodegradable and reusable cups at the coffee machine, and placing recycling bins everywhere When the dealership made some renovations to their buildings, they created the Honda Green Zone—a rental space for organizations to hold meetings about green projects in the community The space features a high-tech A/V system and contains local and environmentally friendly furnishings Internally, Roger holds weekly meetings with his Green Team to brainstorm new environmentally friendly community projects, marketing, and products They were at work on several other project ideas when a massive tornado hit the small town of Greensburg, Kansas on May 4, 2007 Roger and his family have always contributed to various causes, including a generous cash donation toward the rebuilding efforts in Greensburg Once again, Lee Lindquist approached Scholfield about the Honda Civic GX He wanted to donate a GX to the town and a fueling station to go with it; Roger was skeptical but soon realized that the press the donation would receive could not only benefit his business, but would raise awareness in the area about alternative fuels The car would be made available to Greensburg residents to check out and try for themselves The world would get to see the car in use by average people, and the town would have its own natural gas fueling station Scholfield is upfront about the decision to donate the car It was a costly investment, and if he had done it solely for the PR, there are many more cost-effective ways of reaching his potential customers When customers come into the dealership, they are more interested in alternative fuel and high-efficiency vehicles and recognize Scholfield Honda’s commitment to the people of Greensburg and the green movement as a whole Questions How does Scholfield Honda rate on the social responsibility pyramid? Do they meet all the criteria for a socially responsible company? What social and cultural changes have impacted the way car manufacturers design and market their products? Should governmental regulations be placed on companies’ claims that their products are green? Should official classifications for environmental friendliness be defined? VC-5 E-BUSINESS AT EVO Video Case 4.2 E-business at Evo When professional skier Bryce Phillips began selling closeout ski equipment out of his garage in 2001, he was hoping to make a little extra money to fund his ski vacations Things went well with the first garage sale, and soon he had a few employees and started selling snowboard, skateboard, and wakeboarding gear Almost by accident, at age 20, Phillips had a company on his hands He pulled some equity out of his house—and online retailer Evo was born The company grew to 40 employees, then 60 Revenues came to nearly $6 million Evogear.com became known worldwide by pros and amateurs alike looking for good deals on great stuff They now offer all the top brands, closeouts, and used gear for every level and budget All this success is quite surprising when you consider that buying skis or snowboards isn’t the kind of thing generally done online or through a catalog To get fully outfitted can cost $500 to $1,000, and most people need some expert help with their purchase Through the design of the site and Bryce’s desire to create a community for like-minded people, rather than simply another online discounter, Evogear.com is shredding the competition “Well, we want it to be functional, number one,“ says Molly Hawkins, affiliate program manager at Evo “If you go to some of our competitors’ sites, some of them look really cool” but, she says, “you try and navigate around their sites, they’re not as intuitive.” Evogear.com is easy to use and does look cool, but adding value for the shopper is key to their business The site offers product reviews, user accounts with all your past and current orders and preferences, tons of links to affiliate sites, events, blogs—pretty much everything you would want in a Web site, or a brick-and-mortar shop “Aside from that,” Molly says, “the About Us page has played a huge role.” Evo has, from the beginning, wanted to create a community for lovers of water and snow sports, and the About Us page really offers the customer an “in” to the company; their mission, values, personal pages and video clips by each employee Customers love the idea that they can virtually “meet” their customer service person or buyer or Bryce himself Hawkins believes this helped to legitimize the company in the beginning “People would get excited to find that the person that they’re talking to or the people that they’re buying from are actual users of this gear that we’re selling,” she says Being seen as legit and trustworthy is paramount in the land of e-commerce You spend weeks searching for the best price on that new digital camera or gaming system and when it arrives, if it arrives, it was not what you thought you were buying Often, there is little you can The people at Evo know where you’re coming from and want to make sure every purchase is stress-free They have an easy return policy: just let them know what the problem is, from buyer’s remorse to a box of splintered skis, and they’ll make the switch Once an order is placed, Evo’s distribution center jumps to attention Most orders are shipped fast, within a day or two of the order If you’re not in a hurry, they’ll ship it ground for free, or overnight via a partnership with FedEx Trust, value, and personal service are the key elements in Evo’s success, but word of mouth only gets you so far Advertising is difficult for an e-business such as Evo, where keeping it simple with low overhead and a no-frills annual budget is what makes them able to pass the discounts on to their customers Like many Web sites, they offer an affiliate program that places ads or links on other Web sites to drive traffic back to Evo An affiliate program or pay-per-click program pays owners of other sites every time a user clicks on an ad In addition to paying for each click, Evo sends a “thank you” gift of 12 percent of each completed sale at evogear.com originating from the affiliate site To protect their brand, remain authentic to their consumers, and remain in good standing with their suppliers, Molly Hawkins and her team lay out some ground rules for each potential affiliate Their site must be well designed, easy to navigate, and, most importantly, must not contain any references to gambling, sexually explicit material, hate speech or racist content or any other inappropriate material Sounds obvious, but being inadvertently connected with the most obscure, unseemly Web site could mean the end of their business Questions Aside from offering good prices, how does evogear.com offer value to the consumer? Evo has opened a large brick-and-mortar store/community art space in Seattle, Washington Go to culture.evogear.com/ category/seattle/ to learn more about what the store offers Do you think this store will distract or enhance the Web site? Consider potential channel conflicts, pricing strategy, convenience, and consumer behavior in your answer VC-6 BUSINESS-TO-BUSINESS MARKETING AT FLIGHT 001 Video Case 5.2 Consumer Behavior at Scholfield Honda If you want to study consumer behavior, probably the best place to start would be a car dealership Cars are a big investment Most people spend upwards of $20,000 on a new car and $6,000 or more on a pre-owned vehicle In the United States, where we drive pretty much everywhere, your car is your first contact with the world One look at someone’s car and you might get an idea of their politics, bank account, occupation, education, musical tastes, and favorite weekend activities It’s the ultimate fashion accessory Does it have a lot of cup holders and a DVD player in the headrest? Family car Cute little convertible? Twenty-five-year old with her first real job That Italian sports car? Retail therapy for the mid-life crisis That person in the 2009 Honda Fit hybrid who just stole your parking space? Likely some smug, twentysomething activist But looks can be deceiving When the Honda Insight, Honda’s first consumer hybrid car, hit the market in 2000, Roger Scholfield, owner of Scholfield Honda in Wichita, Kansas, thought he had it all figured out For one thing, Wichita isn’t exactly known as the epicenter of eco-consumerism He’d probably sell a handful of the hybrid cars to a couple of single, twentysomethings The car only had two seats and seemed pretty flimsy with its lightweight aluminum body And with a sticker price of $20,000, it was pretty pricey The first Insight he sold went to a 63-year-old The second person to buy one was 65 As it turns out, Roger’s experience was consistent with Honda’s market research They determined that the typical Insight customer was older, highly educated, probably with an engineering or science background—a person who tended to be very research-driven Vinnie Koc, a sales consultant at Scholfield Honda, relies more on his experience than the data to sell cars “The vehicle pretty much Video Case 6.2 sells itself,” says Vinnie “Most of my customers are previous owners or someone in their family owns a Honda that wants them to buy a Honda.” Vinnie’s customers don’t just show up and hop in the first car they see Most of them have spent time on the Scholfield and Honda Web sites, researching and comparing models before they come in They know what they want, are unlikely to be upsold on additional bells and whistles, and are clear on how much they are willing to pay “Our job is to present the vehicle,” says Vinnie It usually takes a few test drives to complete the sale, but he is patient It is all part of Scholfield Honda’s low-pressure environment “I love my Scholfield Honda” is the tagline on many of the dealership’s television and radio ads “The Scholfield reputation is 100 percent why the customers are here,” says Koc In a market where the anonymous experience of shopping online is the norm for so many consumers, providing opportunities for customers to feel special and paid attention to can really make a difference, especially in car sales, an industry where trust so often is lacking Owner and general manager Roger Scholfield takes the time to meet with customers, and consultants like Vinnie take the time to follow up on every meeting—from test drive to final sale “If they see that you are able to provide the information they need, they feel comfortable with you and that makes them happy.” It is not unusual for Vinnie’s customers to drop by on their lunch hour just to say “thanks” and gush about how much they are enjoying their new Honda Questions Name the top influence(s) impacting a consumer’s decision to buy a car from Scholfield Honda Go to www.honda.com and view the different Hondas to select the car you would be most likely to purchase Carefully consider all the determinants discussed in the chapter and their impact on your decision Business-to-Business Marketing at Flight 001 By the time each of us retires, we will probably have acquired thousands of useless gifts from our employers, clients, and vendors Teeny staplers, space pens, solar desk clocks, binders, cheap calculators, and, of course, the ubiquitous tote bag emblazoned with logos and slogans for products you don’t want and will never own The folks at Flight 001 appreciate the work we and want our employers to reward us with some better swag, so they offer a corporate gifting program to help big business say thank you with a little more style “Everything is for travel, everything is useful,” says Brad John of his travel boutique, Flight 001 “At all these big companies, everyone travels and we’re useful, so we’re really the perfect item for a corporate gift.” To guard against re-gifting, Flight 001’s consultant works one on one with corporate clients to find just the right gift VC-7 GLOBAL MARKETING AT EVO It’s nice that Flight 001 is looking out for the workers of America, but they get a return as well from the corporate gifting program While Flight 001 has been very successful in its first ten years in business and has plans to open at least 20 new shops in the next few years, it is important to the brand that it maintain its local, independent boutique feel Part of that is resisting the lure of splashy paid advertising With that off the table, the company uses programs like corporate gifting to get their products in the hands of their ultimate retail customer, the business traveler The online travel search engine, Orbitz, recently placed a huge order for Flight 001’s passport and document folder Flight 001 agreed to print the Orbitz name on it and Orbitz gave the folder away to its best customers The program was a huge success and Flight 001 saw an increase in requests for similar sales In the wholesale market, Flight 001 has been successful in identifying like-minded customers such as Northwest and Song airlines One of their more successful partnerships has been with Jet Blue, an airline known for serving a younger, hipper traveler Flight 001 offers some of their travel gear branded with both the Jet Blue and Flight 001 name via the airline’s store Video Case 7.2 Flight 001 hopes to start selling its products wholesale to boutique and luxury hotel chains While they have sold to hotels in the past, they haven’t had much success An emerging trend in boutique hotels is an expanded mini-bar offering high-end cosmetics and other travel products for that late-night impulse buy Brad is hoping to see Flight 001 products next to the macadamia nuts and Toblerone bars soon In comparing Flight 001’s consumer retail market with its business-to-business market, Brad says, “Is it the most exciting part? No But it’s a very easy business.” Questions How does marketing Flight 001’s products to companies such as Orbitz to give as gifts affect sales at Flight 001’s retail stores? What potential conflicts might arise between Flight 001’s wholesale business to Jet Blue and Northwest and Flight 001 retail business? Do you think their wholesale/retail strategy is sound? Why or why not? Global Marketing at Evo The ski and snowboard community is relatively small, so Evo— the Seattle-based snowboard, ski, skateboard, and wakeboard store—is always looking to maximize their exposure, and that means crossing borders and going global The company started as an online outlet, selling closeouts and used gear to bargain hunters Over the years, they have expanded their offerings to include first-quality new stuff, trips to exotic locales, and a retail store in Seattle “There’s a ton of really exciting things that happen here at a regional level that have an impact on the global community,” says Molly Hawkins, marketing and PR at Evo One of the most effective ways they reach their consumers is through advertisements and editorial pieces in the top snow sports magazines Publications such as Freeskier Magazine, Powder, and The Ski Journal all have international circulations International exposure is nice, but selling the gear keeps the lights on Their expertise in e-commerce makes for a fairly easy transition into the global marketplace Canada, not surprisingly, is one of Evo’s largest international markets “Our daily unique [visitors] for example, from July 2008, we have like, 64,000 from Canada,” notes Molly The United Kingdom, Germany, Australia, and Korea are also quite big for Evo with daily visitors to their Web sites in the 20,000 range—and that’s in July! But, here’s the rub: all of the products Evo sells are name brand items that are for sale in local shops overseas These brands often restrict the sales of their products to licensed resellers within a particular geographical zone With the Internet, these rules become quite complicated Evo can’t stop someone in Japan from placing an order They are working with their resellers to come up with a way to honor the contracts, but still be able to serve customers everywhere The world of business is becoming increasingly borderless, but there are still cultural issues to grapple with Marketing and advertising is a particularly difficult thing to globally If language were the only hurdle, it would be fairly simple to translate Unfortunately, even among English-speaking nations, cultural subtleties and colloquialisms can turn an innocent euphemism into a deeply offensive word “I work with a lot of our vendors in marketing, looking for ways to co-promote their products through Evo,” says Molly “Like Rossignol, they’re based out of Europe Their business style and their designs and branding and marketing ideas are definitely, ah, different.” Molly and her staff tend to leave the marketing of the company pretty generic Their main propositions: best brands, best prices, and a top-notch knowledge base really know no boundaries Evo has extended its commitment to a boundaryless world by offering extreme skiing and boarding expeditions to some of the world’s most incredible destinations “EvoTrip is such a natural extension of the Evo brand,” says Bryce Phillips, Evo’s founder, “and we’re doing it with great activities—skiing, snowboarding, surfing.” “EvoTrip is definitely unique,” says Molly “There are other companies that are doing something similar, but our product is a little different in that we really take people on these extreme trips that people like Bryce and people here at Evo would actually go on They know the intricacies of getting around these areas and so VC-8 MARKETING RESEARCH AND SALES FORECASTING AT OGDEN PUBLICATIONS I think without them, for someone who just wanted to go down there on their own, they wouldn’t have the same kind of experience These guys have that insider info, that connection.” “The reason why I get so excited about this concept is that it is near and dear to what all of us value,” says Phillips “It’s just like, getting out there, learning more about different cultures, doing the activities in different parts of the world and seeing beautiful locations you might never have seen before.” Through a partnership with online travel site JustFares.com—and local guides and professional athletes in each country—they will offer trips to South America, Japan, Indonesia, Switzerland, and many more locations It’s not all about the adventure, of course; sound business is behind Video Case 8.2 it all Every trip allows Evo’s “ambassadors” to get in front of their actual potential customers in each of the countries they visit No translations No miscommunications No boundaries Questions Why doesn’t Evo need to tailor its marketing to different countries? Do you agree with their decision to present one marketing message? Why or why not? What challenges U.S e-commerce companies face when selling their products overseas? Do you believe brands have the right to limit a company’s right to sell internationally? Marketing Research and Sales Forecasting at Ogden Publications “One thing we differently here than people in most businesses is we don’t budget, we forecast,” claims Bryan Welch, publisher and editorial director of Ogden Publications Ogden Publications is a small publishing house based in Tulsa, Oklahoma They publish 13 magazines, including Mother Earth News, Natural Home, and Utne Reader A few years ago, these titles and others from their catalog were only available in specialty bookstores, often those with a more eco-conscious clientele The green movement has done wonders for Ogden in the past few years Now, many of their titles are sold at the local Barnes and Noble bookstore or at hardware stores “I will tell you, without a shadow of a doubt, that the five-year forecast is accurate six months out Beyond that, it is wildly inaccurate,” says Bryan So why bother? “The reason you it is because it is a strategic tool It makes everyone think about ‘what will we need to to be successful in five years?’ ” Welch is a big proponent of being open and flexible enough to make what he calls “wise course corrections.” He always reminds his staff that just because they assigned money to a project doesn’t mean they have to the project “Because the world is changing so rapidly, we need to be able to not make an investment we planned nine months ago,” says Welch, so they can “make an investment we never thought of nine months ago.” “We work together with advertising sales and editorial,” explains Cherilyn Olmsted, circulation and marketing director at Ogden Publications One of their most valuable tools is an online survey system called Survey Monkey that collects and stores all the data from the many online surveys they present to their readers “We like to try to find out various things from an editorial perspective and an advertising sales perspective that will help improve the content we are providing to our readers and to make sure we are reaching the audience that our advertisers would like to reach.” Much of the information is what one might expect—demographics, age, income, and psychographic information Of course, without a good magazine, there are no readers to count, so they also perform surveys asking for more subjective feedback on covers, style, and content This information is reported back to the editorial staff of each magazine Cherilyn and her team use information from past sales and the reception from various new marketing projects to forecast future sales, both at the subscription and newsstand level and with advertisers Like most, if not all magazines, revenue is almost exclusively from ad sales, so they have to continually track reader and advertiser responses in everything they While surveys have been invaluable to Ogden’s marketing research, one of the best and most valuable tools has been the Web companions to their magazines This passive form of market research asks nothing of the reader except that she visits the site Every visit, mouse click, advertising link, and download is tracked With a few simple clicks, Cherilyn can even see how many minutes a user spent on each page With a traditional magazine, they would have to wait six months or more to get all the sales returns and reader and advertiser feedback and to compile new subscription rates Now, with the companion sites, they can instantly see if they need to include more political articles or home improvement projects, or recipes or technical articles about geo-thermal heating systems They can make adjustments to the next editions of the print and Web products Ask anyone working in marketing today, and they will agree that a good portion of their lives is spent spotting trends The editors and marketers at Ogden are no exception Welch cautions, however, that “a lot of trends are short-lived and have no real impact in the economy.” His skepticism extends to a particularly hot trend in the magazine industry today: the digital magazine “There hasn’t been good evidence, in spite of the fact that it is a cool idea, that a lot of people will pay for it.” But, Bryan adds, “if someone suddenly came up with a formula that allowed us to make money doing it, it would only take us a couple of months to gear up and it.” VC-9 TARGETING AND POSITIONING AT NUMI TEA groups, response cards, and analyzing sales data will become obsolete? Why or why not? Questions Now so many companies have Web companions and/or e-commerce components to their business, you think that more traditional methods such as telephone surveys, focus Video Case 9.2 What are some of the limitations to forecasting at Ogden Publications? Targeting and Positioning at Numi Tea Numi Tea founders, siblings Ahmed and Reem Rahim, immigrated to the United States when they were young children and grew up in Cleveland, Ohio Reem became a biomedical engineer Ahmed traveled the world as a photographer and settled for a time in Prague where he opened two tea shops Reem eventually left her career to pursue life as an artist In 1999, the two reconnected in Oakland, California, and started Numi Tea in Reem’s apartment “I think in the positioning of our brand, we wanted to target a certain type of customer base, from the natural health food stores, to fine dining and hotels, to universities and coffee shops, gourmet stores,” says Ahmed “What I’ve been most surprised about in our growth is the mass market consumer.” In recent years, demand by the average American consumer for organic and ethically produced products has exploded At the same time, economic influences have driven the more affluent and natural foods consumers to large discounters such as Target, super-size grocery chains, warehouse clubs and online shopping Today, explains Jennifer Mullin, vice president of marketing for Numi Tea, the average Numi consumer is female, college educated, and buys two to three boxes of tea per month, usually green tea She also buys organic products whenever possible All of these details, while not surprising, are fairly new Until Mullin joined the team and formalized their marketing department, Numi assumed their customers fit the same profile as the staff—young, cool, and urban While many of Numi tea drinkers are all these things, Mullin’s findings proved that the company needed to put some additional energy toward targeting the younger, college market They launched an initiative to raise awareness of the product on campuses where people are more inclined to be interested in issues of sustainability, fair-trade, and organics Because Numi teas are considered a premium product, they have an affordable, but still higher price point than conventionally produced teas College students in general have less money to spend, so Numi approached the food service departments of universities such as Stanford to serve the tea as part of their prepaid meal plans Not only does the food service contract represent a giant account, it encourages trial Sampling is Numi’s most successful marketing activity for attracting new users Students can learn to love the product, essentially for free The most compelling reason for drinking Numi tea is its health benefits The company found that they don’t need to spend much time talking up the organic aspect of their product In the premium and natural foods space where Numi operates, organic is expected There is the threat that as the terms “organic” and “natural” invade the mainstream marketplace, a lack of trust or cynicism may arise as some products will inevitably fail to live up to their labels’ claims This is why Numi relies heavily on educating its consumers about the product When targeting women, their most valued consumer, says Jennifer, “we have an in-house PR team that works a lot with editors [of women’s magazines] to educate them on tea and make sure they understand the healthy properties of tea.” They follow up with sampling at Whole Foods or events targeted toward environmentally conscious moms Numi rounds out the education efforts on its Web site with more health information as well as in-depth articles on the benefits of specific teas Although still young, the Numi brand is expanding rapidly and has enjoyed success overseas as well Whatever the marketing and PR teams do—store sampling, environmental events, or partnerships with like-minded companies such as Clif Bar—they continue to survey and assess the demographic and psychographic profiles of their consumer Questions Which of the four basic targeting strategies does Numi Tea employ when reaching their markets? Would you classify Numi Tea’s marketing strategy as “concentrated”? If so, what are the plusses and minuses of using such a strategy in today’s market? VC-10 RELATIONSHIP MARKETING AND CRM AT NUMI TEA Video Case 10.2 Relationship Marketing and CRM at Numi Tea Chances are, if you’ve heard of Numi Tea, you heard about it from someone else Jennifer Mullin, vice president of marketing for the company, explains that this is by design “That person really believes in the tea and is sharing the tea,” she says “It’s far more credible than us saying, ‘Hey, try our tea,’ because, obviously, we’re Numi Tea.” Numi Tea was started in 1999 by brother and sister team Ahmed and Reem Rahim Keeping it in the family is big at Numi Reem’s artwork adorns every box of tea Their childhood friend, Hammad Atassi, is their director of food service Every member of the Tea’ m, as they call it, is committed to the company’s core values of sustainability, creativity, and quality organics This extends to their corporate customers and their producers, as well Like their teas, every relationship is carefully cultivated and maintained “We focus on sampling versus the traditional marketing methods such as print or TV advertising because, for us, the conversion happens when people taste Numi Tea,” explains Mullin Numi has found that few remember their print ads, but they remember the taste of the tea and Reem’s artwork on the package Sampling has become a very popular marketing tactic It is big business, too An entire industry has popped up to place products in gift bags for events ranging from local events to the Oscars Aware that most of their best marketing is done friend to friend, Numi started a Tea Champions program Numi sends thank-you packages to fans and provides them with free tea and educational literature on their fairtrade producers and the health benefits of natural and organic teas they can share with their friends Maintaining a close relationship with their end-users has been relatively easy Free stuff goes a long way toward winning over the average consumer “The food service customer tends to really just have one provider that they want to partner with,” says Hammad “You’re either in or you’re out So marketing to the food service customer is unique You’ve gotta really make it a program that’s easy for them to execute and you have to have the support to drive sales—whether it’s signage, customized menu cards, a big poster.” Numi has been fortunate to be the tea of choice in high-end restaurants, hotel chains, and cruise lines The food service industry in total makes up about 40 percent of their business Along with that comes added pressure to deliver on price, quality, and customer service While they clearly lead in quality, it is hard for any small company to compete with the giant food service companies on price An important part of Numi Tea is their story To tell that story, they need to forge very hands-on, personal relationships with restaurant food and beverage managers, giving them a natural competitive advantage A regular teabag may be cheaper, but there’s not much else to say about it When Hammad can conduct a private cupping (tea tasting) for the kitchen staff and explain all the different exotic teas, talk about the farms and farmers, their commitment to sustainability, organic farming and events in their local community, it’s pretty much a slam dunk before the tea is even steeped Turnover is notoriously high in the food service industry, so there’s always a chance that a new chef or buyer will go another direction Luckily for Numi, this hasn’t been the case Due in part to their excellent customer relationships, it is more common for them to keep the old client and follow the chef or buyer to his new restaurant Their success in the food service industry has driven retail business The testimonials section of Numi’s Web site contains hundreds of entries in which people share their “Numi Transformations.” They talk about where and when they discovered the tea and how they have become true believers While there are countless stories about experiencing the tea at a friend’s house, a surprising number of Numi converts come from restaurants As the requests from consumers wanting to know where to get Numi in their area have rolled in, Numi has needed to expand to their retail customers Once available only at natural food stores and cafés, Numi has begun to sell teas in stores, including Target, large grocery chains, and even some warehouse club stores While good for the consumer, this poses a tricky proposition to the Hammads’ carefully maintained fine dining customer relationships It could present a problem if the same premium tea served at a restaurant is also available at a local Target Luckily, so far the two channels have co-existed peacefully As the company grows, one of the biggest challenges to its marketing model will be maintaining the family feel on a global scale Jennifer Mullin and her team have begun tailoring email communications to newsletter subscribers to inform them about local events and are hoping to add some regional sales and marketing teams in the near future They’ve also added Numi fan sites on Facebook and MySpace The sites are monitored by a staffer to address any questions or concerns about the products Most importantly, no matter how busy they may get, founders Ahmed and Reem will always be there, lending their personal touch through their art, personal stories, and experiences Questions How marketing activities such as gift with purchase, samples by mail, and product community blogs impact your purchasing decisions and loyalty? What was the last product you purchased because of sampling? Do you consider Numi’s relationships with its producers as important to their marketing as the relationships with its customers? DEVELOPING AND MANAGING BRAND AND PRODUCT CATEGORIES AT MAINE MEDIA WORKSHOPS Video Case 11.2 Product and Service Strategy at Recycline* When Eric Hudson graduated from business school with his MBA, he did what most people He went out and got a real job After about six years, the daily grind in corporate America had gotten old “My family was a bit crunchy and had been known to actually hug trees,” recalls Hudson, “but it wasn’t until the early 90s that I decided I wanted to marry my professional career with my love of nature.” As a teenager, he remembered his dentist reminding him to hold his toothbrush at a 45-degree angle, but he was always surprised that few toothbrushes were actually shaped for that angle When it came time to start his own business, he enlisted his father—an industrial designer specializing in automobiles and boats—to help him design a better-shaped toothbrush Once they came up with a design they liked, they sought the approval of several dentists At the same time, Eric became aware of how few environmentally friendly products there were in the marketplace The products available may have been made of recycled or recyclable materials, but they were more expensive and usually didn’t work as well He also noticed that while more communities in his native Massachusetts were starting recycling programs, much of what people were throwing in the bins was food containers made from #5 plastic At the time, few companies reused that type of plastic, and it often ended up in the landfill Eric knew there had to be a clever way to reuse that plastic for his toothbrush He brought the idea to a plastics lab at the University of Massachusetts and, after a lot of experimenting, finally figured out a way to turn all that plastic into a material suitable for the toothbrush The Preserve toothbrush hit the market in 1998 Sales in the beginning were slow, but the product was well received Green products had yet to hit the shelves of stores like Target and Wal-Mart, but Hudson definitely was on top of the emerging trend As sales improved and consumers started asking for more environmentally friendly products, he developed a recyclable razor, a children’s toothbrush, and a tongue cleaner—all made from recycled plastic Not wanting their products to end up Video Case 12.2 VC-11 in the trash, Recycline takes back used toothbrushes and razors to be melted down and used again In late 2007, Recycline announced an exclusive deal with the Austin-based Whole Foods natural and gourmet grocery chain to partner on a new product line for the kitchen The Preserve Kitchen line includes a Preserve Colander, Preserve Cutting Board, Preserve Mixing Bowls, and Preserve Food Storage Containers—all made from #5 plastic They also added a Preserve 100% Post-Consumer Recycled Paper Cutting Board Priced competitively, but slightly higher than similar conventionally produced products, Recycline knew that if they were to compete against the likes of Tupperware and Rubbermaid, they would need more than a good story Until then, they were able to get by designing their products in-house with little help from the outside It was time to call for backup Industrial design firm Evo Design was the perfect solution Their offices were nearby in Connecticut, so Eric and his team could just hop in his “grease car”—a Volkswagen Hudson modified to run on French fry grease collected from a local Wendy’s Evo’s team of designers, engineers, and business experts have earned a reputation for making really cool looking (and functioning) stuff for the competition: Crate & Barrel, Cuisinart, Kimberly Clark, Schick, and Waring For Recycline to make its mark in the CPG (Consumer Packaged Goods) arena, they will need to continue to come up with new products in new categories Demand by new parents for environmentally friendly toys and products present a perfect opportunity for Recycline The company has plans to launch their first toy line in the near future Questions Why is the development of an entire product line critical to Recycline’s growth and success? At which stage are most “green” products in the product lifecycle? As these products mature, what can be done to extend their product lifecycles? * Recycline has recently been rebranded “Preserve,” with the “Recycline” name stepping into the background as the parent company For the purposes of this case, however, because the change is occurring as we go to press, the name Recycline is retained Developing and Managing Brand and Product Categories at Maine Media Workshops Since 1973, Maine Media Workshops has seen some of the most talented filmmakers, photographers, and writers pass through its doors The program started as a summer camp of sorts for amateurs and professionals wanting to hone their creative arts skills while enjoying a week along the beautiful coast of Rockport, Maine Over the years, students have had the opportunity to work with and learn from Hollywood’s heavy hitters: Vilmos Zsigmond, cinematographer on “Close Encounters,” “The Black VC-12 MARKETING CHANNELS AND SUPPLY CHAIN MANAGEMENT AT RECYCLINE Dahlia,” and “The Deer Hunter,” Alan Myerson, Emmy-winning director of everything from “The Love Boat” to “The Larry Saunders Show” to “Boston Public,” and actor Gene Wilder The names are impressive, but what has always set the program apart is its intensity and quality The family style lobster dinner at the end doesn’t hurt, either Sadly, in recent years, the workshops had lost their way and the school was in danger of closing “When it fell on hard times, and there was the possibility of it not surviving, it was hard to imagine being here anymore,” says Charles Altschul, Rockport resident and current executive director of the school Something had to be done to revitalize this gem along the rocky Maine coast In 2007, the family-owned school became a non-profit educational institution The school underwent all of the infrastructure and management changes one might expect from this kind of transition, but the biggest challenges lay ahead While the school had always enjoyed an excellent reputation within the industry, it was losing ground More and more universities were providing excellent opportunities for students in the creative arts These schools had deep pockets, were able to attract top-notch faculty, and more importantly, could afford superior facilities and equipment No longer operating as a for-profit business, the Maine Workshops could now reach out to private and corporate donors to keep things afloat This was especially critical when it came to equipment There would be little gained by students working in outdated facilities The reputation of the school was at stake Companies like Canon, Sony, and Apple could now partner with the school by donating equipment and getting a break on their taxes The workshops could attach these sponsors’ cutting-edge products and technologies to their marketing materials to attract students, and the equipment manufacturers could advertise their association with the school to attract customers One of their most valuable relationships is with Canon As the Maine Workshops brands itself as a leader in digital arts, Canon desires the same thing There isn’t one product, from still film camera to HD video camera to office printer to professional printing press, in Canon’s product line that isn’t relevant to the Workshop’s offerings The partnership with Canon is a great first step toward repositioning the school as a leader in digital media and arts, but it Video Case 13.2 has been a challenge to rally the troops and get a unified message together Traditionally, the departments worked independently, marketing photography to photographers, writing to writers and filmmaking to the film students “We felt it was important, after the transition, to publish a catalog that contains all of the programs we offer,” says Altschul “It’s 162 pages, we printed 165,000 copies of it, it cost most of our marketing budget to do.” Moving forward, they’ll much less of the paper catalogs, which is an obvious cash-sucker More importantly, Altschul believes that to present themselves as a leader in digital media, they need to walk the walk in everything they The school’s Web site recently underwent a major overhaul to better communicate that, “we’re back and better than before.” The site contains all the standard information one might need along with a complete course catalog and school blog, as well as a place to pay tuition, take a placement test, register for classes, or donate to the school Links to technology partners also serve as a showcase for student work This new interdisciplinary approach has served the school well Enrollment is up from past years and the phone is ringing off the hook with professionals wanting to teach a workshop The school has also added a degree program The full-time, 1–5 year program at Maine Media College is fully accredited to offer an MFA in Maine and is expected to receive national accreditation in the next few years Questions What are the main elements of the Maine Media Workshops brand equity? Analyze the workshop’s brand equity using the Young & Rubicam “dimensions of brand personality.” Would you consider the Maine Media College an extension of the Maine Media Workshops brand or a new product development strategy—or both? Explain How can the Maine Media Workshops benefit from consumers’ brand recognition, preference, and insistence with companies such as Canon? Can Canon benefit from the association with the Workshops? Marketing Channels and Supply Chain Management at Recycline* “Our company was born in the natural channel—natural grocery stores, Whole Foods Market, Wild Oats, and Trader Joe’s,” says C.A Webb, director of marketing for Recycline It’s a channel the company knows well For over a decade, Recycline has been selling its Preserve line of toothbrushes and razors to eco-friendly consumers across the country “Whole Foods is our number one customer,” says Webb “Not only they an amazing job of telling our story in-store, they are the ultimate retail partner for us because they are so trusted.” Customers have a sense that when they enter a Whole Foods market, every product has been carefully hand selected in accordance with Whole Food’s mission to sell organic and locally produced food and to present responsibly sourced and manufactured products One unique opportunity that came out of the relationship between Whole Foods and Recycline was the development of the Preserve line of kitchenware Recycline was looking for a way to expand its recycled and recyclable product line, and Whole Foods was looking for an exclusive housewares line “Together, we did the competitive research, we speced out the products, we developed the pricing strategy, designs,” says Webb The line of colanders, cutting boards, mixing bowls, and storage containers hit the shelves in 2007 “It created less risk on both sides, “ remarks Webb VC-13 RETAILING AT FLIGHT 001 The relatively tiny Recycline was able to take an untested product and put it in the nation’s largest and most respected natural foods store, which in turn used its experience and resources in the channel to all the legwork to ensure the product sold well “We gave Whole Foods a 12-month exclusive on the line,” says Webb, “which in turn gave them a great story to tell.” That story was told everywhere The “Today Show,” The New York Times Magazine, “Everyday with Rachael Ray,” Gourmet magazine, and many other natural and mainstream lifestyle publications covered the product Today, in addition to Whole Foods, you can find the entire Preserve product line at thousands of retailers around the United States and Canada, including Target, Crate and Barrel, Trader Joe’s, Wild Oats, and large regional grocery chains such as Shaws, Hannaford’s, and Stop and Shop With the recent increase in demand for green products by the average U.S consumer, mainstream grocery and drug stores have been knocking on the doors of companies like Recycline to stock their shelves It is a difficult space to work in, admits Webb It’s hard to make an impact on a shelf with one or two items when companies like Gillette or Rubbermaid offer 15 or 20 products in the same category One of the great benefits of working with Whole Foods in the beginning was that even though they are the largest chain in the natural foods channel, in the grocery and discount chain area, they are really quite small “The quantities that we were needing to provide them were manageable for a small company like ours and it just gave us time together to assess demand, to keep inventory levels steady,” says Webb “It was much more of a ‘bump-free’ launch than we would have seen if we launched in other channels.” Video Case 14.2 “Heading up the sales department, I think that every single day what we are working with here is supply chain management,” notes Jon Turcotte, vice president of sales at Recycline Large supermarkets and stores like Target have entire Plano-gram departments that schedule and stock the shelves on a very tight schedule If the plans include a turnover to a 4th of July holiday special, Recycline needs to be able to supply them with exact quantities and selection of Preserve Picnic Ware to fit the Plan-o-gram for the aisle “There aren’t a lot of people in the process Everything is controlled by computers,” laments Turcotte Just-in-time inventory systems have saved retailers millions of dollars, but as a result, there is little room for exceptions and do-overs Failure to deliver could result in losing a tremendous opportunity to present products to literally hundreds of thousands of shoppers “The old adage that time is money holds very true in today’s world,” Turcotte says For a company like Recycline, with limited resources and very tight marketing budgets, this missed chance could spell disaster for the line Questions As Recycline makes more headway into the larger retail chains, what challenges will it face? What type of marketing channel would be best to support Recycline’s growth over the next five years? * Recycline has recently been rebranded “Preserve,” with the “Recycline” name stepping into the background as the parent company For the purposes of this case, however, because the change is occurring as we go to press, the name Recycline is retained Retailing at Flight 001 There’s nothing like a lazy afternoon spent browsing Main Street or the mall, latte in hand, taking in the sights, sounds, and intoxicating smell of Cinnabon You just can’t get that online at iTunes, Amazon, or eBay That’s why Flight 001 founders John Sencion and Brad John take every detail in their retail stores very seriously Flight 001 is all about the experience They care deeply about the experience you have in the store and carefully select every product, whether it be a $6.00 lime green luggage tag or a $600 designer carryon, to ensure you feel just as great once you arrive at your destination The company gets its name from the famous Pan Am Flight 001 The flight originated in San Francisco and continued for 46 hours, stopping in Hawaii, Tokyo, Hong Kong, Bangkok, Calcutta, Delhi, Beirut, Istanbul, Frankfurt, London, and finally landing in New York From the late 1940s through the 1980s, Flight 001 was the flight for the sophisticated world traveler Founders John and Sencion set out to create a retail experience worthy of the name Every store features a curved interior, mimicking the walls of an airplane fuselage The sales desk looks like the ticket counter at an airport It was important to Sencion that every aspect of the store design suggested First Class, from the walnut panels on the walls to the time zone clocks and top-notch customer service When the first store opened, one of the most unique features that came out of all of that attention to detail was a sense of intimacy, something you don’t get in a large department store or discount retailer The founders began to notice that people were exploring the store, rather than just running in and picking up what they came in for This type of grazing is great for sales When customers come in for a travel clock, they very often leave with something they didn’t realize they needed—perhaps unique space-saving packing supplies, an interesting guide book, or a stylish document organizer Now in its tenth year, Flight 001 is rapidly opening new locations in selected cities in the United States You definitely won’t see them in a strip mall off the highway; that’s something John feels very strongly about While there’s something for everyone in the store, their customers tend to be young, trendy, and affluent These people prefer to shop on secondary streets with clusters VC-14 INTEGRATED MARKETING COMMUNICATIONS AT OGDEN PUBLICATIONS of boutiques and coffee shops “Our stores that the best seem to be in the most hip, cool places,” remarks John “It’s been a bit difficult because these kind of streets don’t exist in every city in America.” John acknowledges that if they want to continue to grow the company, they will eventually need to be open to other types of locations, even upscale malls, but as a relatively young brand, staying consistent in design and venue is important While Flight 001 has made their products available on several airline Web sites, they have yet to set up shop at the airport With airport layovers, delays, and early arrival times getting longer, airports are rethinking the way they look at retail and are asking retailers to consider opening in their “air malls.” In recent years, many larger airports have added celebrity chef restaurants, Aveda spas, wine bars, and upscale Video Case 15.2 clothing retailers “I think people are spending a lot more money in airports and not just picking up little items,” says Brad John “We want to open up in airports, but we want to open up in cool airports.” Questions What are the key components to Flight 001’s retailing strategy? Flight 001 was started in the late 1990s because the founders couldn’t find all their travel needs in one place Do you think they face any impending threat from so-called “category killers’ as these stores continue to raise the bar in terms of products offered and style? Explain Integrated Marketing Communications at Ogden Publications Integrated marketing communications is all about consistency For some companies, that’s pretty simple—slap your logo on the press kit and you’re good to go For Ogden Publications of Tulsa, Oklahoma, it’s a little more complicated The small publishing house has 13 titles, ranging from Mother Earth News and Natural Home to Cappers, a magazine about traditional American values and rural lifestyles, and everything from Motorcycle Classics to Utne Reader, a collection of articles about art, politics, and everything in between In addition to its magazines, the company also offers merchandise and electronic companions to its titles It has been difficult to present an Ogden Publications “look,” although brand manager Brandy Ernzen and Cherilyn Olmsted, Ogden’s circulation and marketing director, consider this one of their many priorities as they take marketing at the company to the next level “Each of the titles is so unique that they have their own brand identity,” says Ernzen, but the common thread throughout all of Ogden’s offerings is that “we tell people how to really cool things.” For Ernzen and Olmsted, the focus is on raising the bar on promotions, events, and ad sales as well as driving traffic to their Web properties and increasing circulation and awareness for each magazine As brand manager, Ernzen leads the charge to help maintain the integrity of all the public relations and marketing efforts at Ogden It has actually become a pretty big job in recent years The do-it-yourself trend started about ten years ago and has been energized by the increasing interest in environmentally and socially conscious consumerism and green living These trends have sparked tons of interest with the company’s core audiences as well as a new, more mainstream, demographic, but Ernzen is cautious “I work really closely with all the different editorial staffs as well as advertising and the media,” she says “You’re making sure everyone on the different [marketing] teams is aware of what’s going on.” She is constantly running between the circulation department at Herb Companion and to the book warehouse to ask about a new cookbook or gardening guide to identify opportunities for tie-ins She might then look for a green event or seminar on exotic heirloom tomatoes to raise awareness for their magazines, books, and products That triggers a press release and, before you know it, “you can really maximize what you’re doing to get the most results,” says Ernzen “There are higher newsstand sales and people are buying that product because it is a full campaign.” Communicating with consumers is really only one part of Ernzen’s job “Internal communications is also a big part that a lot of people don’t think about,” she says The company recently developed an electronic newsletter to let people know what’s going on in the company “That way, everybody’s on the same page.” Ogden is not publicly traded, yet, like publicly traded companies listed on the stock market, it must extend the same consistency in communications and messaging to investors and the regulatory agencies watching over the market As Ogden continues to develop each magazine’s Web site, a whole new series of challenges await The Web sites are really another product rather than a Web version of the print counterpart, and finding an appropriate mix of content, editorial voice, and design style consistent with the branding of the print magazine can be challenging “We’re trying to have fairly loose standards, right now,” says Ernzen “Start small and evolve.” The first plan of attack is to nail down the design standards, including colors, fonts, and use of buttons, icons, and layout A larger Ogden style manual and training session is in the works for the ad sales department, production, the rest of the marketing, and PR team so everyone will be working from the same standard “Right now, I’m that person,” says Ernzen, “who takes care of everything and makes sure everything is lined up like it should be in terms of what logos we’re using and colors and the whole nine yards.” VC-15 ADVERTISING AND PUBLIC RELATIONS AT OGDEN PUBLICATIONS Questions Come up with a single marketing and PR campaign to promote three or four of Ogden’s magazines Visit www ogdenpubs.com to learn more about each title Video Case 16.2 What are the challenges of maintaining a consistent look and feel across different media? What are the editorial and design differences between a Web magazine and a print one? Advertising and Public Relations at Ogden Publications Ogden Publications of Topeka, Kansas has been working in the green space for decades Its most popular magazine, Mother Earth News, reaches about 1.85 million readers annually It was started in 1970 around the time of the very first Earth Day and features projects you can to reduce your impact on the environment The company’s second most popular magazine, Natural Home, debuted in 1999 Natural Home is for those interested in “greening up” their suburban home The key difference between the two magazines is that Natural Home is more focused on things one might buy—heating systems, cleaning products, appliances, and décor Mother Earth’s readers tend to be a bit more hands-on with their projects Ogden also publishes nine other magazines, including Motorcycle Classics for collectors and Utne Reader, for alternative media junkies On Ogden’s Web site, a quotation by publisher Bryan Welch makes the following claim: As the world’s largest publisher of magazines in the conscientious consumer category, Ogden Publications is deeply committed to the environment Everything we do, from our editorial coverage to the ads we carry, offers readers the tools to live a healthy and sustainable lifestyle Ogden Publications and Mother Earth News enjoy a reputation as an authority on sustainable living This gives them a lot of street cred with their readers, but to potential advertisers, it’s pretty scary Welch admits it has been a challenge explaining to advertisers and partners that we’re not “a bunch of holier than thou old hippies” ready to rip their product’s greenness to shreds On the upside, according to a 2006 study by leading advertising and marketing research firm, Signet Research, Inc., Mother Earth readers are on average 80–90 percent more likely to pay more money or go out of their way to purchase organic and earth-friendly products Few publications, even mainstream magazines, could offer such a great advertising proposition Natural Home is an easier sell to more mainstream advertisers breaking into the green marketplace On their pages you are likely to see Toyota Prius and Home Depot ads alongside a beautiful gourmet kitchen photo spread A solid 95 percent of readers are willing to pay more for green products They are almost exclusively female with a median age of 45 Many of them are married with children and own their own homes Add to that a $90,000 average household income, and an advertiser can feel pretty good about presenting their bamboo flooring and European high-efficiency washer/dryer unit According to Welch, Ogden’s main types of advertisers are either endemic or consumer An endemic advertiser sells a product directly related to the editorial content of the magazine or Web site Because the demographic for each of Ogden’s magazines is pretty specific, the bulk of its ads are endemic Endemic ads are fairly easy to sell, usually featuring a specific product—a low-flow showerhead, for instance Advertisers know that 75 percent of the magazine’s readership consists of building contractors who will likely purchase this product in the next six months There is little gamble on the part of the showerhead manufacturer Consumer advertising is more for products that know no specific demographic You can sell soft drinks to pretty much anyone around the world, so it doesn’t matter where you place the ad Or does it? Do health-conscious readers with organic gardens and compost heaps in their backyards drink soft drinks? Not likely If they do, they probably don’t want to talk about it too much The very sight of a soft drink ad in their favorite publication may cause them to stop purchasing the magazine This puts publishers like Bryan Welch in a difficult position Magazines are funded by ad sales and companies like Pepsi, Ford, or GE can afford big ad buys All of these companies are looking to magazines like Natural Home for an “in” to their very desirable readers And some of these large companies may be able to make inroads “A lot of big consumer advertisers have a great authentic message [They] have new products that are genuinely more enlightened,” says Welch He names Honda, Toyota, and Owens Corning as companies that have demonstrated a true commitment to improving the sustainability of their products “Those are the folks we are trying to connect with,” he says, “and our readers want to know about those products and bring them into their lives and the lives of their friends That’s the perfect formula.” Questions Given that most of a magazine’s revenue comes from ads, would you be willing to turn down a large consumer advertiser because your readers may disagree with their product or business practices? Discuss the ethical, PR, and financial implications of your decision What challenges specialized magazines such as Mother Earth News face when trying to entice advertisers? Create a pitch to a potential green-product advertiser stating the benefits of advertising in Mother Earth News VC-16 PRICING CONCEPTS AT EVOGEAR.COM Video Case 17.2 Personal Selling and Sales Promotion at Scholfield Honda “We want our customer to have a long-term relationship with us,” explains Vinnie Koc, a sales consultant with Scholfield Honda, “by providing them the service that Scholfield Honda has always provided.” Scholfield Honda of Wichita, Kansas, is the largest Honda dealer in the state, and for good reason The Wichita Business Journal voted them one of 2007’s Best Places to Work Roger Scholfield, owner and general manager of the dealership, attributes their company’s success, both internally and with its customers, to the simple fact that “we can train anybody to anything, but we can’t train you to be a happy person.” To ensure that those on the front line of every sale are the best in the business, Scholfield takes the new hire process very seriously Every interview is vetted by at least three senior people, and Scholfield meets each potential hire before a final decision is made The result is a staff of sales and service people who actually want to come to work every day and who believe in the product they are selling In sales, where trust and attitude is everything, that’s a pretty big deal Scholfield’s policy of “hiring good attitudes” is simple Lose your good attitude, and the door is just a few feet away “I love my job,” says Koc “I love Hondas, and my whole family drives a Honda I love the product, and I love to help people.” He also loves his generous commissions and bonuses from Scholfield and extra incentives provided by Honda As anyone who has bought a car knows, bargaining is just part of the game, and at Scholfield, they try to make it less of a contest and more of a conversation Koc estimates that about 75 percent of his customers know what they want and know what they want to pay They’ve done research, checked Blue Book values, and looked at prices in different parts of the country They don’t want to mess around Koc understands this Video Case 18.2 and treats each customer with the same respect he would want The dealership gives its sales consultants a reasonable amount of freedom to work with customers on price Koc keeps a spreadsheet of prices of the different models and features for customers to compare and make a reasonable offer He takes every offer to his managers and negotiates with them to find a price each party can live with Sometimes, that may mean less commission for him, but he’s making an investment in repeat customers and referrals A close second to the personal sales experience customers receive at Scholfield Honda is advertising If you’ve ever been in the Wichita area, you’ve probably seen or heard a Scholfield Honda advertisement in print, on the radio, on television, or on a billboard The company has its own on-site advertising agency, Scholfield Creative, dedicated to keeping every man, woman, and child abreast of sales, rebates, and incentives available at the dealership As soon as he sits with a client, Koc reviews all the sales A large part of his business is driven by ads, but for those who may not be up on the latest deals, taking the time can make all the difference because “it might trigger something in their mind and we can go ahead and the deal that day,” he says While most walk into Scholfield Honda because of its reputation, they come back because of the experience From test drive to trade in, every customer is treated like family, and Scholfield wouldn’t have it any other way Questions How important is sales force management in Scholfield Honda’s overall success? Why? Which step in the sales process is most important in a consumer’s decision to purchase a car? Pricing Concepts at Evogear.com In 2007, Evo, the Seattle-based snow and water sports equipment e-tailer, made Inc magazine’s list of the 500 fastest-growing private companies Founder Bryce Phillips started the company in 2001 out of his garage as a way to support his expensive ski habit He rounded up and sold closeout and used skis in hopes that other enthusiasts would be looking for a good deal on good stuff By 2005, Bryce had added snowboards, skateboards, wakeboards, and all the apparel and accessories one could need He amped up the Web site and opened an 8,000-square-foot retail store in the funky Freemont neighborhood for those who want to try before they buy The giant Seattle store also offered all the fashions you would need to look awesome in the lodge or bar after a long day on the slopes His original three employees now numbered around 40 and, in addition to the bargains, he added top-of-the-line new stuff, too The success of Evo and Evogear.com has been incredible, but Phillips isn’t going back on what got him there in the first place: good stuff at a great price, hassle-free The online shopper is a different kind of shopper, and the online retailer is different as well The low overhead enjoyed by VC-17 PRICING STRATEGY AT STANDARD RENEWABLE ENERGY online retailers allows them to stock more inventory in the lowerrent warehouse Larger orders translate into better discounts from the manufacturer or wholesaler Evo is able to pass these savings on to the consumer While the hard-core rider or skier is more likely to want the latest and greatest models every year, most are happy with replacing their equipment every few years with a gently used or last year’s model at an average savings of 30–75 percent off the original price Evo maintains buying relationships with all the best brands— Burton, K2, Quicksilver, Rossignol, Powell, and many more—but also looks to resorts and pro shops for used rental and demo gear They even hit up their own brick-and-mortar store to scoop last year’s unsold merchandise The big brands see Evo as a preferred customer and often give them first crack at their closeout and “sale” merchandise as well This buying strategy puts Evo and Evogear com right in front of both the pro and weekend warrior, while maintaining credibility with both One of the reasons why Evo enjoys such great relationships with its customers is its famous price match policy Shop around—if you find a lower price anywhere, Evo will beat it by percent Just send customer service an email and as soon as they can verify the competitor’s price, they’ll lock in that lower price Five percent might not sound like a lot, but as explained on Evo’s Web site, if you see a product that lists on evogear.com for $400 offered elsewhere for $350, Evo will sell it to you for $332.50 That $67.50 could pay for your lift ticket Video Case 19.2 What sets Evo’s policy apart from many competitors is that the company will match any lower price (except eBay auctions), including promotions, rebates, and end-of-season blowout sales The price guarantee doesn’t stop with the competition If Evo offers a lower price within 20 days of your purchase, they’ll give you a store credit for the difference If something goes on sale at a competitor within a week of your purchase, you get the difference, too The way they see it, if you’re that committed to finding a bargain, you deserve the break It takes a little more effort on Evo’s side, but “it’s a small price to pay for a lifetime customer,” says Molly Hawkins, affiliate program manager at Evo “Maybe we’ll sacrifice a little bit of margin, but in the end, hopefully, they’ll be coming back for the rest of their life to buy their gear from us.” Questions Do you believe Evo’s pricing strategy for evogear.com meets the five pricing objectives outlined in the text? Provide examples for each objective Do you think the opening of the 8,000-square-foot brickand-mortar store in Seattle distracts from their pricing strategy or enhances it? Why? To learn more about the brick-and-mortar store, visit culture.evogear.com/category/ seattle/ Pricing Strategy at Standard Renewable Energy Green is hot, there’s no doubt about it Visit any large retailer from Albertson’s to Wal-Mart, and you can fill your reusable shopping bag with hormone-free dairy products, organic cotton t-shirts, and environmentally friendly bathroom cleaner Demand is so high that some chains have leveraged their purchasing power to offer store-brand organics and earth-friendly products at prices just a few cents higher than conventional products When the average consumer makes the decision to pay more for organic or earth-friendly products, several things should be considered Will you get more enjoyment out of the free-range chicken or the frozen chicken nuggets? Would it be better for your health to use the bleach-free detergent? Speaking of towels, could you skip the Brawny and invest in real dishtowels to save a tree or two? “Return on investment, that’s one of our main points,” says John Miggins, a Tulsa-based regional sales rep for Standard Renewable Energy (SRE) “It’s on the front page of our proposal.” For some customers, the return comes in the form of actual cash savings on electric bills For others, it’s more about doing good Headquartered in Houston, Texas, SRE specializes in providing alternative energy systems for residential, corporate, and government architects and builders In addition to solar panels and inverters, the company designs geothermal and wind systems and performs energy audits at each customer site The energy audit not only surveys the site and takes measurements, it also shows customers other areas in which they can improve their energy usage SRE often asks its customers to consider new foam insulation and to update lighting and inefficient heating and air conditioning units By providing customers with the big picture, SRE can help justify the initial expense of a new system and show how it can pay off in the long run “The people call me and say, ‘I have a 2,000-square-foot house What I need?’ ” laments Miggins It’s just not that simple, unfortunately Many factors must be considered—location and weather as well as expectations and energy needs, to name a few Pricing on solar or wind systems is based on a per-watt number— use 900 kilowatts per month, and a solar system will probably cost about $40,000 Miggins understands that number can hit most consumers pretty hard, so he often helps soften the blow by offering a wind generator for about $17,500 The initial investment on wind is lower, but it can only provide about half the power The decision then becomes pay now or pay later VC-18 Emily Priddy and her husband own a modest, 900-squarefoot home in Tulsa, Oklahoma A teacher, writer, beekeeper, and self-described hippie child, protecting the environment has always been important to Emily When she and her husband purchased their home, they knew they wanted to look for ways to reduce their impact on the earth, but solar seemed financially out of reach “The last figure I had heard quoted fifteen years earlier was that a solar panel would cost you about eight hundred bucks,” says Priddy “And I knew we were going to need quite a few solar panels!” Concerned about the cost and what they could expect back in the form or lower energy bills, the couple figured they’d have to go at it one panel at a time Working with Miggins at SRE, they learned that they could take a home improvement loan to get started and still come out on budget at the end of the month Sure, it will take them 15 years to pay off the loan, but after that, they will be free of an electric bill The biggest selling point for Emily is that she is well insulated from rising energy costs; her loan is fixed at $150 each month, and her PRICING STRATEGY AT STANDARD RENEWABLE ENERGY electric bill went down by almost 90 percent in the first month “It’s a lot less whim-based and a lot more predictable,” she says For customers like Emily who are in it for the long haul, return on investment is a definite selling point “If that’s the only reason they [homeowners] are talking to me, I usually pack up and go, because solar is 15, 17, even 20 years away, but on commercial, solar is very lucrative,” says Miggins For corporate customers, longterm financial planning is key, so a 15-year payback is really tempting Because they can afford more elaborate systems to begin with, they can actually start profiting off their own energy generation earlier Other incentives, like tax credits and bragging rights, only sweeten the deal Questions How does John Miggins quote prices for SRE’s solar systems? How does SRE engage in psychological pricing? A-1 APPENDIX A Your Career in Marketing One Marketer’s Career Imagine being in charge of marketing for a company that is a giant in the global consumer products market and the world’s largest advertiser That’s the job Marc Pritchard developed a new ad campaign with the tagline “Easy, breezy, beautiful” to give Cover Girl a new look © Image courtesy of The Advertising Archives of Marc Pritchard, the global marketing officer for Procter& Gamble Think of all the major brands produced by P&G—from Cheer to Clairol, from Ivory to Olay, from Duracell to Gillette P&G products are used by hundreds of millions of consumers in the United States and around the world Pritchard—former president of strategy, productivity, and growth for the firm—now gets to test his marketing expertise in the largest arena Pritchard is not new to marketing at P&G A decade ago, he spearheaded the firm’s efforts to rejuvenate the Cover Girl brand, which P&G had purchased from Noxell Although Cover Girl had previously been a hit with teens and young women in the late 1970s in part thanks to an advertising campaign featuring supermodel Christie Brinkley, the brand had languished for a number of years Pritchard recognized that Cover Girl had solid brand equity, but it needed a facelift He spearheaded development of a new campaign that carried the tagline “Easy, breezy, beautiful,” and consumers rediscovered the brand Pritchard is also credited with launching a marketing strategy that later became known as the “consumer-driven supply network.” This initiative is still in place at Procter & Gamble, and it involves identifying and removing redundant or unnecessary steps and procedures along the supply chain for more efficiency “The idea, quite frankly, was that the consumer could care less about the value of a long, expensive supply chain,” explains Phil Sheehey, P&G’s global supply chain director for color cosmetics The changes have now been incorporated into the rest of the company A-2 Appendix A YOUR CAREER IN MARKETING In his new duties, Pritchard follows in the footsteps of James R Stengel, credited with taking P&G to the next level, strengthening its brands worldwide To ease the transition, Pritchard and Stengel worked together for several years before Stengel retired and Pritchard stepped into the position The company’s top executives are enthusiastic about Pritchard’s expertise and abilities “His deep knowledge and experience in branding, innovation, and go-to-market capability will enable [Pritchard] to drive ongoing brand-building excellence,” says chairman and CEO A.G Lafley Pritchard faces many challenges in piloting the marketing function at P&G, which spent more than $7.9 billion on its advertising services worldwide in a recent year P&G products touch the lives of an estimated billion people in some way each day Whether you drink a cup of Folger’s coffee or a load of laundry washed in Tide, it is likely you also will have contact with a P&G product sometime today Marc Pritchard knows this, and he intends to use every resource and strategy he can possibly muster to ensure that you continue to rely on P&G products in the future.1 overview understand the impact they have As you have seen through- • Congratulations on your decision to take this course As a consumer, you already know marketing is a pervasive element in our lives In one form or another, it reaches every person This course informed you about the different types of marketing messages, showed you how they are created, and helped you out this course, marketing bspe ri aking efly activities are interwoven in daily “People are definitely a company’s greatest asset It doesn’t make any difference whether the product is cars or cosmetics A company is only as good as the people it keeps.” develop useful products con- business processes, helping —Mary Kay Ash (1915–2001) FOUNDER, MARY KAY COSMETICS sumers need, pricing them for a fair profit, promoting them so consumers are aware of their availability, and bringing them to market But marketing also has a huge impact on society and the economy in general MARKETING COSTS ARE A BIG COMPONENT OF A PRODUCT’S TOTAL BUDGET © Robyn Beck/AFP/Getty Images Half of the total cost consumers pay for Wii gaming consoles goes to marketing costs Approximately 50 percent of the total costs of products you buy are marketing costs Half of the $250 you pay for a Wii gaming console goes to marketing costs—making sure you are aware of Wii’s existence and its capabilities and persuading you to buy it Yes, the cost of the high-tech features is an important Appendix A YOUR CAREER IN MARKETING component, as is the plastic console, the remote, and interactive games But marketing expenses also figure into the total cost of the product The same is true of that Mini Cooper you have your eye on But costs alone not indicate the value of marketing to the success of a product Marketing sends important messages to consumers and businesses, usually expanding overall sales and spreading production costs over more items sold, reducing the total cost to bring the product to market MARKETERS CONTRIBUTE TO SOCIETY AS WELL AS TO INDIVIDUAL EMPLOYERS Marketing decisions affect everyone’s welfare How much quality should be built into a product? Will people buy a safer product if it costs twice as much as the current version? Should every community adopt recycling programs? Because ethics and social responsibility are critical factors in creating long-term relationships with consumers, business customers, and the community, marketers must strive to exceed customer and government expectations of ethical behavior The “Solving an Ethical Controversy” features included in every chapter of this book got you thinking about ethical issues in marketing and increased your awareness of the importance of maintaining high ethical standards in every dimension of marketing These features allowed you to examine such current issues as online property rights, greenwashing (false marketing claims), fair trade, marketing to seniors, spam on cell phones, the safety of plastic packaging, control of marketing messages, and airline surcharges, to name a few The topics also made good springboards for discussion between you and your classmates Not only does marketing influence numerous facets of our daily lives, but decisions regarding marketing activities also affect everyone’s welfare Opportunities to advance to more responsible decisionmaking positions often come sooner in marketing than in most occupations This combination of challenges and opportunities has made marketing one of the most popular fields of academic study Although many paths can lead to the top of the corporate ladder, marketing remains one of the strongest and most popular The growing global economy depends on proven market leaders in winning the fight to increase a firm’s worldwide market shares Marketing provides a solid background for developing the long-term, loyal relationships with customers that are necessary for success in the global marketplace YOU MAY CHOOSE A CAREER IN MARKETING Even if you aren’t sure about a career now, this course could have helped you decide on a path in marketing In fact, of the many career paths chosen by business graduates, marketing is the largest employment category in the U.S labor force, and job growth in the field is expected to accelerate All firms must somehow get their goods and services into the hands of customers profitably, and doing so is becoming increasingly challenging So marketing plays a significant role in the survival and growth of all companies—which means that, as a field, it will continue to grow The U.S Bureau of Labor Statistics anticipates stiff competition for desirable jobs College graduates having “related experience, a high level of creativity, strong communication skills, and computer skills” stand the best chance of landing these jobs These job candidates can expect high earnings along with travel and long working hours, including evenings and weekends.2 Your Quest for a Successful, Rewarding Career Selecting a career is an important life decision—your career will determine such things as where you live, how much money you make, and for what kind of company you work That’s why Contemporary Marketing discusses the best ways to approach career decisions and to prepare for an entry-level position—your first permanent employment after leaving school We also look at a range of marketing careers and describe employment opportunities in fields related to each major part of the text The good news is that the job market is healthy The average starting salary for marketing graduates is about $42,000.3 As mentioned earlier, the field of marketing is the largest area of employment in the United States—and employers are continuing to hire This positive outlook does not mean competition isn’t tough or you can be casual in your approach to your first job A-3 bri efly speaking “Knowing others is wisdom, knowing yourself is enlightenment.” —Lao Tzu (600 B.C.–531 B.C.) FOUNDER OF TAOISM, AUTHOR OF TAO TE CHING A-4 Appendix A YOUR CAREER IN MARKETING You are not guaranteed anything But if you are creative, hardworking, and determined—and if you learn everything you can about business and marketing before you begin your search—you are likely to land a good entry-level position at a company that suits you In your coursework, speakin g you have been introduced to all the key functional areas of marketing Armed with this knowledge, “If I had my life to live over you should be able to identify areas of employment you may wish to pursue Education improves your prospects of finding and keeping the right job Recent college graduagain, I would be a trader of ates can earn nearly twice what workers with high school diplomas earn Better-educated graduates goods rather than a student of also find jobs more quickly than others, and they have much lower unemployment rates.4 Applying science I think barter is a noble yourself in class and expanding your experiences through career-directed volunteer efforts, part-time thing.” and summer jobs, and high-quality internships—and selecting the right major—are significant steps —Albert Einstein on your way toward improving these salary statistics when you launch your career (1879–1955) In addition to taking classes, try to gain related experience either through a job or by participatAMERICAN PHYSICIST ing in campus organizations Internships, summer and part-time jobs, and volunteer activities on campus and in your community can also give you valuable hands-on experience while you pursue your education Work-related experience, whether paid or volunteer, lets a potential employer know you are serious about pursuing your career It also helps you decide on your own path This guide to planning your career provides you with a brief look at the trends and opportunities available for future marketers in an increasingly diversified, professional field It describes essential elements of an effective résumé and discusses the latest trends in electronic job searches Finally, it includes a listing of primary marketing information sources that contain answers to many of the questions typically asked by applicants This information will provide valuable careerplanning assistance in this and other future courses, whether your career plans involve marketing or you decide to major in another field Many of the marketing positions you read about throughout this text are described here Specifically, the job summaries describe the responsibilities and duties typically required as well as the usual career path for each of these marketing-related positions You might follow a traditional career path, or you might wind up in one of the new types of marketing jobs emerging such as blogging for a particular company or organization Richard Brewer-Hay spent years working for a media company and in public relations before eBay recruited him to write an unedited blog to help improve the company’s image among buyers and sellers He immediately noted the most important feature of the blog would be its direct link to eBay users When asked about the topics he would cover, he responded, “You name it, we’re going to blog it I really want it to be a conversation between eBay and the outside world—an open conversation.”5 Marketing your skills to a prospective employer is much the same as marketing a product to a consumer Increasingly, job seekers are selling their skills online, bypassing intermediaries such as employment agencies and leveling the playing field between applicant and potential employer The greatest challenge for online job seekers is learning how to market themselves Despite the vast databases and fancy tools of the giant career sites Huge career sites, including such as Monster.com, Yahoo!HotJobs, receive Yahoo!HotJobs, and hundreds of thousands of CareerBuilder.com, which visits each day may receive hundreds of thousands of visits each day, savvy job seekers also zero in on niche boards offering more focused listings You can find sites that focus specifically on sales, such as SalesJobs.com, and those that emphasize positions for female professionals, such as WomenSportsJobs com.6 Regardless of which type of online job board © Richard B Levine/Newscom br iefl y Appendix A YOUR CAREER IN MARKETING you use—general or specific—be aware that this medium is the most often used recruiting tool among employers for hiring managers at smaller and mid-sized companies.7 In many instances, students seeking interviews with specific employers or in certain geographic locations go directly to the employer’s or region’s Web site to learn of available positions Most employers include an employment site as part of their home page Some offer virtual tours of what it is like to work for the firm For example, the Enterprise Rent-a-Car Web site features profiles of young assistant managers as they perform daily work activities The employees answer several questions about their jobs and the abilities candidates need to be a successful employee at Enterprise The site also outlines the skills employees gain while working there, the friendships formed among workers, opportunities for involvement in the community, the management training program, and available internships.8 The key to finding the job you want is letting the market know who you are and what you can While few college graduates are hired directly based on their response to an online listing, this approach often is an important first step in zeroing in on specific employers of interest and then soliciting interviews that may lead to job offers So you should familiarize yourself with the way online job sites work, including those of specific companies As you begin your career, you will apply many of the principles and concepts discussed in this text, including how to target a market, capitalize on brand equity, position a product, and use marketing research techniques Even in jobs that seem remote from the marketing discipline, this knowledge will help you stay focused on the most important aspect of business: the consumer Standing Out from the Crowd of Job Seekers Because high-quality employees provide companies the edge they need in competitive markets, employers need to be choosy in deciding which applicants will make the cut, be interviewed, and possibly be offered a position And often the applicant’s accumulated job and leadership experiences will be key criteria in determining whether he or she is given serious consideration as a potential employee Some students continue their studies following graduation and pursue an MBA degree or enter a master’s program specially suited to their career goals But many enter the job market right away, perhaps pursuing an advanced degree later Experience is one factor in a prospective employee’s favor, and some activities that enhance a candidate’s profile are internships and volunteering INTERNSHIPS PROVIDE VALUABLE WORK EXPERIENCE Internships have been described as a critical link in bridging the theory–practice educational gap They help carry students between the academic present and the professional future They provide students with an opportunity for learning how classroom theory is applied in real-world business environments Internships are gaining popularity for both employers and students or recent grads In fact, interning is now the number one recruiting technique among employers, and 60 percent of students are hired for full-time jobs from their internships Some internships include a salary, which may be as high as $15 to $25 per hour, depending on the industry and the level of education reached by the student Other internships are unpaid, which means students must find other ways of earning money But the majority of students who participate in unpaid internships still believe the experience gained is much more important than a salary would have been They cite the actual work experience, along with references and contacts in the industry, as more valuable than pay Employers note the importance of their relationship with interns “Employers see their internship programs as an effective way of identifying and connecting with talent,” observes Marilyn Mackes, executive director of the National Association of Colleges and Employers (NACE) “These programs are a way for the employer and the intern to test each other to see if there is a good match.” Mackes also notes that employers “prize relevant work experience even if the student served an internship with another organization.”9 Start your search for an internship at your college placement office or library Some college Web sites have catalogs of internships available through organizations such as the American Association of Advertising Agencies, the Inroads Minority Internship Program, and the Washington Center for Internships and Academic Seminars.10 Also check with the alumni office, which may have a listing of alumni willing to talk with seniors or recent grads about their fields You can talk with A-5 bri efly speaking “Anyone who keeps learning stays young.” —Henry Ford (1863–1947) AMERICAN AUTOMOBILE MANUFACTURER A-6 Appendix A YOUR CAREER IN MARKETING Résumé Blunders The following is a list of errors that have appeared in résumés, job applications, and cover letters received by Monster.com and Yahoo!Hot Jobs: • “Suspected to graduate early next year.” • “I will accept nothing less than $18 annually.” • “Qualifications: No education or experience.” • “Fired because I fought for lower pay.” • “I am a rabid typist.” • “I am relatively intelligent, obedient, and loyal as a puppy.” • “Finished 8th in my high school graduating class of 10.” • “Please disregard the enclosed resume—it is terribly out of date.” • “If U hire me, U will not have any regrets!” Sources: “Resume Faux Pas,” Monster Career Center, resume.monster.com, accessed September 3, 2008; Kim Isaacs, “Common Resume Blunders,” Monster Career Advice, career-advice.monster.com, accessed September 3, 2008; Robert Half International, “Real-Life Resume Blunders to Avoid,” Yahoo!Hot Jobs, hotjobs.yahoo.com, accessed September 3, 2008 your instructors, visit the Web sites of companies that interest you, and check your local bookstore for career and internship reference guides YOUR RÉSUMÉ brs peaking iefl y “Ambition is the path to success Persistence is the vehicle you arrive in.” —Bill Bradley (b 1943) FORMER U.S SENATOR, NBA PLAYER, AND U.S OLYMPIAN Writing a résumé is a vital task, but it doesn’t need to be daunting Your résumé is like a verbal snapshot of you It tells a potential employer about you, your credentials, and your goals It provides an all-important first impression of you and may be the only written record available with which an employer can make a decision about you Your résumé is a concise summary of your academic, professional, and personal accomplishments; it makes focused statements about you as a student and potential employee Three basic formats are used in preparing a résumé A chronological résumé arranges information in reverse chronological order, emphasizing job titles and organizations and describing responsibilities held and duties performed This format highlights continuity and career growth A functional résumé accents accomplishments and strengths, placing less emphasis on job titles and work history, and often omits job descriptions A functional résumé prepared by a recent graduate is shown in Figure Some applicants use a combined résumé format, which emphasizes skills first, followed by employment history This format highlights a candidate’s potential and suits students who often have little experience directly related to their desired positions Regardless of which format you choose, all résumés contain certain information And they all have the same goal: to interest an employer enough to invite you to apply formally for a job and conduct an interview A résumé should be concise—no more than a single page Before writing your résumé, take the time to outline your goals, skills, abilities, education, and work experience and list any relevant volunteer or extracurricular activities You can pare these down later, but having them in front of you will make it easier to build your final résumé Your contact information should appear at the top of the page: full name, address, phone number, and e-mail address If your e-mail username is “MachoDude” or “SnowboardDoll,” replace it with one related to your real name or location to persuade employers to take you seriously Likewise, avoid using a nickname Even if all of your friends call you Smitty, cite your name as John A Smith A statement of goals usually follows Try to be somewhat specific with it You can say, “My goal is to obtain an entry-level marketing position where I can apply my analytical and organizational skills.” Don’t state that your goal is to become CEO of the company—that’s a long way off, and it doesn’t apply to the job at hand Appendix A A-7 YOUR CAREER IN MARKETING figure Roberto Chavez Two Seaside Drive, Apt 3A Los Angeles, CA 90026 215-555-7092 RCHAVEZ@hotmail.com Functional Résumé Objective Joining a growth-oriented company that values highly productive employees Seeking an opportunity that leads to senior merchandising position Professional Experience Administration Management responsibilities in a major retail buying office included coordinating vendor relation efforts Supervised assistant buyers Category Management Experience in buying home improvement and sport, recreation, and fitness categories Planning Leader of a team charged with reviewing the company’s annual vendor evaluation program Problem Solving Successfully developed a program to improve margins in the tennis, golf, and fishing product categories Work Experience Senior Buyer Southern California Department Stores 2010–Present Merchandiser Pacific Discount Stores, a division of Southern California Department Stores 2008–2010 Education Bachelor of Science degree in business Double major in marketing and retailing California State University–San Bernardino 2006–2010 Computer Skills Proficient with IBM-compatible computers and related software, including spreadsheets, graphics, desktop publishing, and word processing Packages: Microsoft Word, Excel, PowerPoint, Adobe PageMaker, CorelDRAW Familiar with Adobe Photoshop and the Macintosh Language Skills Fluent in speaking and writing Spanish Your education information generally comes next State your most recent level of education first There is no need to list high school unless you attended a specialized school or received particular honors Include your degree, academic honors, and grade point average if it is above 3.0 State your work history, including employment, internships, and related volunteer work Include the name of the organization, the dates you worked there, your job title, and your responsibilities on the job Provide a statement of your skills such as leadership, managing others, computer software knowledge, and the like At the end of your résumé, add a note that you will furnish references on request—do not include your references’ names and contact information on your résumé Whether yours is a traditional résumé on paper or posted on an Internet résumé listing, the important point to remember in creating an effective résumé is to present the most relevant information in a clear, concise manner that emphasizes your best attributes bri efly speaking “A résumé is a balance sheet without any liabilities.” —Robert Half (1918–2001) AMERICAN PERSONNEL AGENCY EXECUTIVE A-8 Appendix A YOUR CAREER IN MARKETING COVER LETTER Your potential employer typically is first introduced to you through a cover letter Like gift wrapping on a present, a cover letter should attract attention and interest about what is inside Your letter should be addressed to a specific person, not “to whom it may concern.” It should include information about the job for which you are applying, why you are interested in it, a brief summary of your top accomplishments or skills, and a note that you are available for an interview Close your letter by thanking the person for his or her time and consideration Here are a few additional tips to guide you Do ୴ Keep your letter to a single page ୴ Customize the letter to the company or person for whom it is intended, even though you may be writing 20 such letters Send an original letter, not a photocopy ୴ Proofread it several times, making sure there are no typos ୴ Remember to sign your letter ୴ Include your contact information, including cell phone number and e-mail address Don’t ୴ Use slang or rude language ୴ Rehash your résumé ୴ Address the letter “Gentlemen” or “Dear Sirs.” The person reading the letter might be a woman Instead, take the time to find out exactly to whom you should send your materials ୴ Challenge the reader to hire you; nor should you appear desperate Instead, briefly state what you can contribute to the workplace.11 LETTERS OF RECOMMENDATION Letters of recommendation serve as testimonials to your performance in academic and work settings The best references provide information relevant to the desired industry or marketing specialty as well as opinions of your skills, abilities, and character You can obtain references from former or current employers, supervisors from volunteer experiences, instructors, and others who can attest to your academic and professional competencies An effective letter of recommendation typically contains the following elements: Statement of the length and nature of the relationship between the writer and the job candidate Description of the candidate’s academic and career growth potential Review of important achievements Evaluation of personal characteristics (what kind of colleague the candidate will make) Summary of the candidate’s outstanding strengths and abilities Because letters of recommendation take time and effort, it helps to provide a résumé and any other information relevant to the recommendation, along with a stamped, addressed (typed) envelope When requesting letters of recommendation, allow ample time for your references to compose them—as long as a month is not unusual In addition to including a cover letter, résumé, and letters of recommendation, you should include photocopies of transcripts, writing samples, or other examples of work completed For instance, if you are applying for a position in public relations, advertising, or sports marketing, you may want to include examples of professional writing, graphics, and audiovisual media to support written evidence of your credentials Research and service projects that resulted in published or unpublished articles may also enhance your portfolio Appendix A A-9 YOUR CAREER IN MARKETING USING PAPERLESS SYSTEMS Most large firms have moved toward electronic (paperless) résumé processing and applicanttracking systems In fact, some human resource experts say outright that the fastest way to get Text not available due to copyright restrictions your résumé to the correct person is to use the firm’s own online application system So it’s best to prepare a résumé compatible with these systems Figure contains a number of tips for preparing an effective, readable, technologycompatible résumé In addition, keep in mind a few overall rules First, read the directions for completing and transmitting your résumé or application carefully—and follow them to the letter If you try to stand out by doing something different, your application will probably be lost or ignored or you may be viewed as someone who might not follow instructions on the job Second, complete all possible fields, even those not required Third, if the firm offers an optional online assessment test, take it An employer will appreciate your initiative and can evaluate some of your skills immediately Finally, choose effective keywords for your résumé Employers who review electronic résumés posted on their sites and on big boards save time by using computers to search for keywords in job titles, job descriptions, or résumés to narrow the search In fact, manager is the number one word for which companies search Regardless of the position you seek, one key to an effective electronic résumé is to use exact words and phrases, emphasizing nouns rather than the action verbs you are likely to use in a print-only résumé For example, a company looking for a marketing account manager with experience in Microsoft Office applications such as Word and Excel may conduct computer searches only for résumés that include the job title and the three software programs Learning More about Job Opportunities As you continue with your application and selection process, study the various employment opportunities you have identified Obviously, you will like some more than others, but keep an open mind; remember, this is the beginning of a long career Examine a number of factors when assessing each job possibility: Actual job responsibilities Industry characteristics Nature of the company Geographic location Salary and opportunities for advancement The contribution the job is likely to make to your long-range career opportunities Many job applicants consider only the most striking features of a job, perhaps its location, or the salary offered However, a comprehensive review of job openings will give you a more balanced perspective of the overall employment opportunity, including both long- and shortrun factors bri efly speaking “Put it to them briefly so they will read it; picturesquely, so they will remember it—and, above all, accurately, so they will be guided by its light.” —Joseph Pulitzer (1847–1911) AMERICAN JOURNALIST A-10 Appendix A YOUR CAREER IN MARKETING JOB INTERVIEWS brs peaking iefl y Your first goal in your job search is to land an interview with a prospective employer If the experience is new to you and you feel uncertain or nervous, you can a lot to turn those feelings into confidence “The future belongs to those who believe in the beauty of their dreams.” Preparing for the Interview Do your homework Learn as much as you can about the company, the industry in which it operates, the goods or services it offers, the working environment, and the like If you are well prepared for the questions you are asked—and prepared to ask educated questions—you are much more likely to have a positive interview experience You can prepare by researching the following basic information about the firm: —Eleanor Roosevelt (1884–1962) FORMER FIRST LADY OF THE UNITED STATES ୴ How long has the firm been in business? ୴ In what industry does the firm operate? What is its role within the industry? ୴ Who are the firm’s customers? Who are its competitors? ୴ How is the firm organized? How many people work there? Where are its headquarters? Does it have other offices and production facilities located around the nation or around the world? ୴ What is the company’s mission? Does the company have a written code of ethics? This information is useful in several ways Not only will it increase your confidence about the interview, but it may also help you weed out any firms that might not be a good fit for you You’ve also shown the interviewer you are motivated enough to come to the discussion prepared You can find this information in many of the same places you looked initially for information about companies at the beginning of your job search Your school’s career center, library, and, most important, the company’s own Web site will have much of the information you need In addition, you can find brief company profiles on business sites such as Hoovers.com, and don’t forget to check the various business magazines What to Expect in an Interview You’ve made the interview appointment, done your research on the company, and chosen the right attire for the occasion according to suggestions provided in the “Etiquette Tips for Marketing Professionals” feature What’s next? Prepare yourself for the questions you will likely be asked As you gain experience in interviewing, you will recognize variations of similar questions and be able to answer them comfortably An interviewer needs to get to know you in a short period of time, so he or she will ask questions that deal with your personality, your life and work experience, and decisionmaking or problem-solving style Here are a few examples: When you prepare for an interview, think about questions you will likely be asked © Chabruken/Taxi/Getty Images ୴ Why did you apply for this job? Why you want this job? ୴ What are the requirements of the job as you understand them? ୴ What are your key strengths? What are your weaknesses? ୴ Are you an organized person? How you manage your time? Appendix A A-11 YOUR CAREER IN MARKETING How to Dress for Your Job Interview i anding a job interview is a big step on the road to starting your chosen career You can make the most of the opportunity to create a good impression by presenting yourself in a professional way You need to be prepared with knowledge about the company, project confidence and a willingness to learn, and convey that you will be a reliable employee You also need to look the part After all, you will be representing your company even if you not deal directly with its customers Unless you are applying for a job that requires certain clothing— say, a uniform or outdoor work clothes—on most days you will be wearing business attire So you should arrive at your interview in the clothing you would likely wear to work The following suggestions will serve you well • Dress conservatively A conservative suit is best for both men and women, with a long-sleeved shirt or blouse Men should choose a traditional tie with a simple pattern and muted colors Keep conventional jewelry and makeup to an unnoticeable minimum Cover any tattoos and limit pierced jewelry to earrings • Your clothes should be clean and pressed Be sure you have no runs in stockings or threadbare socks Shoes should be clean and polished Avoid open-toed shoes, sandals, or wild colors • Be sure your hair is trimmed, washed, and well groomed Wear your hair in a neat, professional style—a sleek, simple cut or combed into place Men should be clean shaven or at least have trimmed mustaches or beards • Make sure your overall appearance is clean and classic Be sure your fingernails are clean and short If you wear polish, use a conservative color or clear Any makeup should be understated, not attract attention • Avoid cologne or perfume Some people are allergic to scents, particularly in closed areas such as offices and conference rooms • Empty your pockets Don’t jingle coins, keys, or a cell phone In addition, turn off any cell phones or pagers • Carry a lightweight portfolio, briefcase, or tote You’ll want to be able to supply an extra copy of your résumé, a sample of your writing, or copies of ads you’ve created Overall, you want to present a neat, clean, professional, and appealing appearance Looking professional is one of the first steps to conducting a successful interview and landing a job So think about how professionals conduct themselves—and dress accordingly No one expects you to splurge on an expensive suit or briefcase as you start your career But you can convey yourself as the professional you know you’re going to be Sources: Jane Harvey, “Dressing for the Job Interview,” AllBusiness.com, www allbusiness.com, accessed September 3, 2008; “Dressing for a Job Interview,” College Grad.com, www.collegegrad.com, accessed September 3, 2008; Randall S Hansen, Ph.D., “When Job-Hunting: Dress for Success,” Quintessential Careers, www.quintcareers.com, accessed September 3, 2008; Alison Doyle, “How to Dress for a Job Interview,” About.com, jobsearch.about.com, accessed September 3, 2008 ୴ What were your responsibilities on your last job or internship? How would they apply here? ୴ What were your biggest successes or failures—in school or work? ୴ How you make important decisions? How you function under pressure? ୴ What you know about this company? ୴ What are your most important long-term goals?12 To prepare effective answers, ask a friend or family member to role-play the interview with you, asking questions so you have an opportunity to hear yourself respond out loud before the actual interview When you arrive for your interview, be sure to confirm the name of the person (or people) who will conduct the interview If this person is with the human resource department and your interview goes well, he or she will probably recommend you to a manager or supervisor for further interviewing Some hiring decisions are made by a single supervisor, while others result from joint A-12 brs peaking iefl y “The best way to get what you want is to help other people get what they want.” —Zig Ziglar (b 1927) AMERICAN MOTIVATIONAL SPEAKER Appendix A YOUR CAREER IN MARKETING interviews conducted by both human resource personnel and the immediate supervisor of the prospective employee During a typical interview, the interviewer usually talks little This approach, referred to as an open-ended interview, forces you to talk about yourself and your career goals This is a major reason why it is important to arrive prepared If you appear uncertain or disorganized in your thinking, the interviewer may surmise that you have not prepared or aren’t serious about the job Keep the conversation on target; don’t ramble on and on You may also ask questions of the interviewer, so be sure to listen carefully to the responses Appropriate questions include those about job responsibilities, training, and long-range opportunities for advancement Don’t ask when you will get a raise or promotion or how many vacation days you will receive In the end, a successful interview represents a mutual exchange of information A successful first interview may result in an invitation to return to take a skills test, tour the building, or even meet other managers and coworkers All of these experiences point toward getting the right fit between a company and its potential employees On the other hand, even after a good interview, you may not be asked back Do not consider this a personal rejection—the job market is competitive, and companies must make their selections carefully to achieve the best match It might not have been the right firm or job for you in the long run, and the interviewer realized this Treat each job application and interview as a chance to build confidence and experience—and eventually, the right job will be yours EMPLOYMENT DECISIONS By now, a firm that is still considering you as a strong candidate knows quite a bit about you You should also know a lot about the company and whether you want to work there When the interview process is complete, you may be offered a position with the firm Your decision to accept the offer should depend on a variety of factors, including the following: ୴ Do you want to work in this industry? ୴ Do you want to be part of the company’s mission? Would you be proud to work for this company? ୴ Could this particular job lead to other opportunities within the company? ୴ Will you be able to work well with your coworkers and supervisors? ୴ Can you already see ways you can learn and contribute your best efforts to the company? If you are offered the job and decide to accept it, congratulations! Approach your new job with professionalism, creativity, and a willingness to learn You are on your way to a successful career in marketing Marketing Positions To survive and grow, an organization must market its goods or services Marketing responsibilities vary among organizations and industries In a small firm, the owner or president may assume many of the company’s marketing responsibilities A large firm needs experienced sales, marketing, and advertising managers, as well as staff, to coordinate these activities The “Career Path” features that follow outline major marketing positions, providing job descriptions and projected career paths for each Each position is also cross-referenced to the chapter in this text that discusses the marketing area in detail Appendix A YOUR CAREER IN MARKETING Career Path 1: Marketing, Advertising, Product, and Public Relations Managers Related Chapters: Chapters and (marketing); Chapters 11 and 12 (product); Chapters 15 and 16 (advertising and public relations) Marketing management spans a range of positions, including vice president of marketing, marketing manager, sales manager, product manager, advertising manager, promotion manager, and public relations manager The vice president directs the firm’s overall marketing policy, and all other managers report through channels to this person Sales managers direct the efforts of sales professionals by assigning territories, establishing goals, developing training programs, and supervising local sales managers and their personnel Advertising managers oversee account services, creative services, and media services departments Promotion managers direct promotional programs that combine advertising with purchase incentives designed to increase the sales of the firm’s goods or services Public relations managers communicate with the firm’s various publics, conduct publicity programs, and supervise the specialists who implement these programs Job Description As with senior management positions in production, finance, and other areas, top marketing management positions often involve long hours and regular travel Work under pressure is also common to solve problems and meet deadlines For sales managers, job transfers between headquarters and regional offices may disrupt one’s personal life Nearly 600,000 marketing, advertising, promotions, public relations, and sales managers are currently employed in the United States The Bureau of Labor Statistics estimates the number of these jobs will increase faster than average through the year 2016.13 Career Path A degree in business administration, preferably with a concentration in marketing, usually is preferred for these positions, but for advertising positions, some employers want a bachelor’s degree in advertising or journalism Those looking for jobs in public relations should have a bachelor’s degree in public relations or journalism In highly technical industries, such as computers, chemicals, and electronics, employers may look for bachelor’s degrees in science or engineering combined with business courses or a master’s degree in business administration Liberal arts students can also find many opportunities, especially if they have business minors Most managers are promoted from positions such as sales representatives, product or brand specialists, and advertising specialists within their organizations Skills or traits most desirable for these jobs include high motivation levels, maturity, creativity, resistance to stress, flexibility, and the ability to communicate persuasively In addition, these candidates must be willing to work long hours, manage their time well, and handle meetings with clients and media representatives when necessary.14 Career Path 2: Sales Representatives and Sales Managers Related Chapter: Chapter 17 Millions of items are bought and sold every day The people in the firm who carry out this activity may have a variety of titles—sales representative, account manager, manufacturer’s representative, sales engineer, sales agent, A-13 A-14 Appendix A YOUR CAREER IN MARKETING retail salesperson, wholesale sales representative, and service sales representative Sales managers typically are selected from people in the current sales force who have demonstrated they possess the managerial skills needed to lead teams of sales representatives In addition, many organizations require all marketing professionals to spend some time in the field to experience the market firsthand and to understand the challenges faced by front-line personnel Job Description Salespeople usually develop prospective client lists, meet with current and prospective customers to discuss the firm’s products, and then follow up to answer questions and supply additional information By knowing the business needs of each customer, the sales representative can identify products that best satisfy these needs After a customer purchase, they are likely to revisit their customers to ensure the products are meeting the customers’ needs and to explore further business opportunities or referrals provided by satisfied buyers Some sales of technical products involve lengthy interactions In these cases, a salesperson may work with several clients simultaneously over a large geographic area Those responsible for large territories may spend most of their workdays on the phone, receiving and sending e-mail messages or traveling to customers’ locations Sales managers direct a firm’s sales program They manage the sales force by assigning territories, setting goals, and implementing training programs for sales staff Managers also review the performance of sales representatives and guide them toward improvement The Bureau of Labor Statistics projects average job growth in this category, with keen competition for top jobs through the year 2016 Currently, there are more than 318,000 sales managers in the United States.15 Work as a sales representative or sales manager can be rewarding for those who enjoy interacting with people, are invigorated by competition, and feel energized by the challenge of expanding sales in their territories Successful sales professionals—both individual sales reps and sales managers—should be goal oriented, persuasive, self-motivated, and independent In addition, patience and perseverance are important qualities Career Path The background needed for a position in sales varies according to the product line and market Most professional sales jobs require a college degree, preferably with a major in business administration or marketing Creativity and strong communications skills are a plus Many companies run their own formal training programs that can last up to two years for sales representatives in technical industries This training may take place in a classroom, in the field with a mentor, or most often using a combination of both methods Sales managers usually are promoted from the field; they are likely to include successful sales representatives who exhibit managerial skills and promise Sales management positions begin at a local or district level, then advance to positions of increased authority and responsibility such as area, regional, national, and international sales manager.16 Career Path 3: Advertising Specialists Related Chapters: Chapters 15 and 16 Most companies, especially firms serving consumer markets, maintain small groups of advertising specialists who serve as liaisons between the marketer and its outside advertising agencies The leader of this liaison function is sometimes called a marketing communications manager Advertising agencies also employ specialists in account services, creative services, and media services Account services functions are performed by account executives, who work directly with clients An agency’s creative services department develops the themes and presentations of the advertisements This department is supervised by a creative director, who oversees the copy chief, the art director, and their staff members The media services department is managed Appendix A YOUR CAREER IN MARKETING by a media director, who oversees the planning group that selects media outlets for ads Currently, more than 47,000 advertising and promotions managers are employed in the United States.17 Job Description Advertising can be one of the most glamorous and creative fields in marketing Because the field combines the best of both worlds—that is, the tangible and scientific aspects of marketing along with creative artistry— advertising attracts people with a broad array of abilities As exciting as it may seem, advertising is also stressful Those in the creative field often have to come up with innovative plans on a tight schedule Long hours are also common Advertising professionals must be able to manage their time wisely, be willing to travel, and deal with a wide range of clients Typical tasks in the advertising field include writing copy, preparing artwork and graphics, and placing ads in the media.18 Career Path Most new hires begin as assistants or associates for the position they hope to acquire, such as copywriter, art director, and media buyer Often, a newly hired employee must receive two to four promotions before becoming manager of these functions A bachelor’s degree with a broad education in courses such as graphic arts, communications, psychology, and marketing usually is required for an entry-level position in advertising Superior communications skills, creativity, and a willingness to work long hours to complete the job are important traits for advertising candidates.19 Career Path 4: Public Relations Specialists Related Chapters: Chapters 15 and 16 Specialists in public relations strive to build and maintain positive relationships with various publics They may assist management in drafting speeches, arranging interviews, overseeing company archives, responding to information requests, and handling special events, such as sponsorships and trade shows, that generate promotional benefits for the firm Job Description Public relations specialists may work hectic schedules to help a firm respond to and manage a crisis or to meet the deadline for a special event Although public relations positions tend to be concentrated in large cities near major press services and communications facilities, this is changing as communications technologies allow more freedom of movement Most public relations consulting firms are concentrated in New York, Los Angeles, Chicago, and Washington, D.C., and they range in size from hundreds of employees to just a handful More than 50,000 professionals serve as public relations managers in the United States.20 Essential characteristics for a public relations specialist include creativity, initiative, good judgment, and the ability to express thoughts clearly and simply—both verbally and in writing An outgoing personality, selfconfidence, and enthusiasm are also recommended traits.21 Career Path A college degree combined with public relations experience, usually gained through one or more internships, is considered excellent preparation for public relations Many entry-level public relations specialists hold A-15 A-16 Appendix A YOUR CAREER IN MARKETING degrees with majors in public relations, advertising, marketing, or communications New employees in larger organizations are likely to participate in formal training programs; those who begin their careers at smaller firms typically work under the guidance of experienced staff members Entry-level positions carry such titles as research assistant or account assistant A potential career path includes a promotion to account executive, account supervisor, vice president, and eventually senior vice president Career Path 5: Purchasing Agents and Managers Related Chapter: Chapter In today’s competitive business environment, the two key marketing functions of buying and selling are performed by trained specialists Just as every organization is involved in selling its output to meet the needs of customers, so too must all companies purchase goods and services to operate their businesses and turn out items for sale Purchasing agents and managers represent a vital component of a company’s supply chain Job Description About 350,000 people work as purchasing agents and buyers for firms in the United States (excluding farms), and the Bureau of Labor Statistics projects employment to remain steady in this field over the next several years.22 Modern technology has transformed the role of the purchasing agent The transfer of routine tasks to computers now allows contract specialists, or procurement officers, to focus on products, suppliers, and contract negotiations The primary function of this position is to purchase the goods, materials, component parts, supplies, and services required by the organization These buyers ensure that suppliers deliver quality and quantity levels that match the firm’s needs; they also secure these inputs at reasonable prices and make them available when needed Purchasing agents must develop good working relationships both with colleagues in their own organizations and with suppliers As the popularity of outsourcing has increased, the selection and management of suppliers have become critical functions of the purchasing department In the government sector, this role is dominated by laws and regulations that change frequently Most purchasing agents and their managers work in comfortable environments, but they work more than the standard 40-hour week to meet production deadlines or to be ready for special sales, conferences, or other events Depending on the industry, these specialists may have to work extra hours prior to holidays or certain seasons, such as back-to-school, in order to have enough merchandise to meet demand Many buyers at least some travel Those who work for firms with manufacturing or sources overseas—such as clothing manufacturers—may travel outside the United States.23 Career Path Organizations prefer college-educated candidates for entry-level jobs in purchasing Strong analytical and communication skills are required for these positions New hires often begin their careers in extensive company training programs in which they learn procedures and operations Training may include assignments dealing with production planning Professional certification is becoming an essential criterion for advancement in both the private and the public sectors A variety of associations serving the different categories of purchasing confer certifications on agents, including Certified Professional in Supply Management, Certified Professional Public Buyer, Certified Public Purchasing Officer, Certified Purchasing Professional, and Certified Professional Purchasing Manager Appendix A YOUR CAREER IN MARKETING Career Path 6: Retail and Wholesale Buyers and Merchandise Managers Related Chapter: Chapter 14 Buyers working for retailers and wholesale businesses purchase goods for resale Their goal is to find the best possible merchandise at the lowest prices They also influence the distribution and marketing of this merchandise Successful buyers must understand what appeals to consumers and what their establishments can sell Product bar codes and point-of-purchase terminals allow organizations to accurately track goods that are selling and those that are not; buyers frequently analyze this data to improve their understanding of consumer demand Buyers also check competitors’ prices and sales activities and watch general economic conditions to anticipate consumer buying patterns Job Description Approximately 157,000 people are currently employed in the United States as retail and wholesale buyers, excluding those who work in the farming industry.24 These jobs often require substantial travel, as many orders are placed during buying trips to shows and exhibitions Effective planning and decision-making skills are strong assets in this career In addition, the job involves anticipating consumer preferences and ensuring the firm keeps needed goods in stock Consequently, the people filling these positions must possess such qualities as resourcefulness, good judgment, and self-confidence.25 Career Path Most retail and wholesale buyers begin their careers as assistant buyers or trainees Larger retailers seek college-educated candidates, and extensive training includes job experience in a variety of positions Advancement often comes when buyers move to departments or new locations with larger volumes—or become merchandise managers who coordinate or oversee the work of several buyers Career Path 7: Marketing Research Analysts Related Chapter: Chapter These marketing specialists provide information that helps marketers identify and define opportunities They generate, refine, and evaluate marketing actions and monitor marketing performance Marketing research analysts devise methods and procedures for obtaining needed decision-oriented data Once they compile data, analysts evaluate it and then make recommendations to management Job Description Firms that specialize in marketing research and management consulting employ most of the nation’s marketing research analysts Those who pursue careers in marketing research must be able to work accurately with detail, display patience and persistence, work effectively both independently and with others, and operate objectively and systematically Significant computer and analytical skills are essential for success in this field Deadlines are typical in this field, but these specialists tend to have fairly regular work hours compared with other marketing professionals Marketing and survey researchers hold about 261,000 jobs in the United States, and employment opportunities are expected to grow faster than average through 2016.26 A-17 A-18 Appendix A YOUR CAREER IN MARKETING Marketing research analysts create methods and procedures for gathering the necessary data to serve their clients They develop ways to find out what consumers are thinking and buying, as well as who they are and how they live Marketing researchers may design telephone, mail, or Internet surveys to evaluate consumer preferences They may also conduct in-person interviews or lead focus group discussions Once they have compiled data, they evaluate information to make recommendations based on their research.27 Career Path A bachelor’s degree with an emphasis in marketing provides sufficient qualifications for many entry-level jobs in marketing research Because of the importance of quantitative skills and the need for competence in using analytical software packages, this professional’s education should include courses in computer science and information systems Students should try to gain experience in conducting interviews or surveys while still in college A master’s degree in business administration or a related discipline is helpful for improving advancement opportunities.28 Career Path 8: Logistics: Materials Receiving, Scheduling, Dispatching, and Distributing Occupations Related Chapter: Chapter 13 Logistics offers a myriad of career positions Job titles under this broad heading include materials receiving, scheduling, dispatching, materials management executive, distribution operations coordinator, distribution center manager, and transportation manager The logistics function includes responsibilities for production and inventory planning and control, distribution, and transportation Job Description About 86,000 people are employed as cargo and freight agents in the United States, along with more than 760,000 shipping, receiving, and traffic clerks In addition, U.S firms employ thousands of production and planning specialists, dispatchers, stock clerks, and order fillers These positions demand good communication skills and the ability to work effectively under pressure Depending on the job, these workers are involved in planning, directing, and coordinating storage or distribution activities according to laws and regulations A logistician analyzes and coordinates the logistical functions of a firm or organization.29 Career Path Computer skills are highly valued in these jobs Employers look for candidates with degrees in logistics and transportation However, graduates in marketing and other business disciplines may succeed in this field A-19 Developing APPENDIX B an Effective Marketing Plan overview anticipating events and market conditions and deciding how a firm can best achieve • “What are our mission and goals?” bspeaki ri e flng y • “Who are our customers?” • “What types of products we offer?” “Knowing your destination is half the journey.” —Anonymous • “How can we provide superior customer service?” marketing plan Detailed description of the resources and actions needed to achieve stated marketing objectives These are some of the strategic planning Process of anticipating events and market conditions and deciding how a firm can best achieve its organizational objectives actions needed to achieve stated mar- questions addressed by a marketing plan —a detailed description of the resources and keting objectives Chapter discussed strategic planning—the process of its organizational objectives Marketing planning encompasses all the activities devoted to achieving marketing objectives, establishing a basis for designing a marketing strategy This appendix deals in depth with the formal marketing plan, which is part of an organization’s overall business plan At the end of this appen- dix, you’ll see what an actual marketing plan looks like Each plan component for a hypothetical firm called Blue Sky Clothing is presented Components of a Business Plan A company’s business plan is one of its most important documents The business plan puts in writing what all of the company’s objectives are, how they will be met, how the business will obtain financing, and how much money the company expects to earn over a specified time period Although business plans vary in length and format, most contain at least some form of the following components: business plan Formal document that outlines what a company’s objectives are, how they will be met, how the business will obtain financing, and how much money the company expects to earn A-20 Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN ୴ An executive summary briefly answers the who, what, when, where, how, and why questions for the plan Although the summary appears early in the plan, it typically is written last, after the firm’s executives have worked out the details of all the other sections ୴ A competitive analysis section focuses on the environment in which the marketing plan is to be implemented Although this section is more closely associated with the comprehensive business plan, factors specifically influencing marketing are likely to be included here ୴ The mission statement summarizes the organization’s purpose, vision, and overall goals This statement provides the foundation on which further planning is based ୴ The overall business plan includes a series of component plans that present goals and strategies for each functional area of the enterprise They typically include the following: brs peaking iefl y “You don’t win on emotion You win on execution.” —Tony Dungy (b 1954) PROFESSIONAL FOOTBALL COACH – The marketing plan, which describes strategies for informing potential customers about the goods and services offered by the firm as well as strategies for developing long-term relationships At the end of this appendix, a sample marketing plan for Blue Sky Clothing is presented – The financing plan, which presents a realistic approach for securing needed funds and managing debt and cash flows – The production plan, which describes how the organization will develop its products in the most efficient, cost-effective manner possible – The facilities plan, which describes the physical environment and equipment required to implement the production plan – The human resources plan, which estimates the firm’s employment needs and the skills necessary to achieve organizational goals, including a comparison of current employees with the needs of the firm, and which establishes processes for securing adequately trained personnel if a gap exists between current employee skills and future needs This basic format encompasses the planning process used by nearly every successful organization Whether a company operates in the manufacturing, wholesaling, retailing, or service sector—or a combination—the components described here are likely to appear in its overall business plan Regardless of the size or longevity of a company, a business plan is an essential tool for a firm’s owners because it helps them focus on the key elements of their business Even small firms just starting out need a business plan to obtain financing Figure shows the outline of a business plan for Blue Sky Clothing Creating a Marketing Plan Keep in mind that a marketing plan should be created in conjunction with the other elements of a firm’s business plan In addition, a marketing plan often draws from the business plan, restating the executive summary, competitive analysis, and mission statement to give its readers an overall view of the firm The marketing plan is needed for a variety of reasons: ୴ to obtain financing, because banks and most private investors require a detailed business plan—including a marketing plan component—before they will even consider a loan application or a venture capital investment ୴ to provide direction for the firm’s overall business and marketing strategies ୴ to support the development of long- and short-term organizational objectives ୴ to guide employees in achieving these objectives ୴ to serve as a standard against which the firm’s progress can be measured and evaluated In addition, the marketing plan is where a firm puts into writing its commitment to its customers and to building long-lasting relationships After creating and implementing the plan, marketers must reevaluate it periodically to gauge its success in moving the organization toward its goals If changes are needed, they should be made as soon as possible Appendix B A-21 DEVELOPING AN EFFECTIVE MARKETING PLAN figure Outline of a Business Plan The Blue Sky Clothing Business Plan I Executive Summary • Who, What, When, Where, How, and Why II Table of Contents III Introduction • Mission Statement • Concept and Company • Management Team • Product IV Marketing Strategy • Demographics • Trends • Market Penetration • Potential Sales Revenue V Financing the Business • Cash Flow Analysis • Pro Forma Balance Sheet • Income Statement VI Facilities Plan • Physical Environment • Equipment VII Human Resources Plan • Employment Needs and Skills • Current Employees VIII Résumés of Principals FORMULATING AN OVERALL MARKETING STRATEGY Before writing a marketing plan, a firm’s marketers formulate an overall marketing strategy A firm may use a number of tools in marketing planning, including business portfolio analysis and the BCG matrix Its executives may conduct a SWOT analysis, take advantage of a strategic window, study Porter’s Five Forces model as it relates to their business, or consider adopting a first or second mover strategy, all of which are described in Chapter In addition to the planning strategies discussed in Chapter 2, marketers are likely to use spreadsheet analysis, which lays out a grid of columns and rows that organize numerical information in a standardized, easily understood format Spreadsheet analysis helps planners answer various “what if” questions related to the firm’s financing and operations The most popular spreadsheet software is Microsoft Excel A spreadsheet analysis helps planners spreadsheet analysis Grid that organizes numerical information in a standardized, easily understood format A-22 Appendix B brs peaking iefl y “Dogs have no money Isn’t that amazing? They’re broke their entire lives But they get through You know why dogs have no money? No pockets.” —Jerry Seinfeld (b 1954) AMERICAN COMEDIAN (Source: Max Alexander and Josh Hyatt, “They Got Older Too,” Money, March 2007, p 88.) DEVELOPING AN EFFECTIVE MARKETING PLAN anticipate marketing performance given specified sets of circumstances For example, a spreadsheet might project the outcomes of different pricing decisions for a new product, as shown in Figure Once general planning strategies are determined, marketers begin to flesh out the details of the marketing strategy The elements of a marketing strategy include identifying the target market, studying the marketing environment, and creating a marketing mix When marketers have identified the target market, they can develop the optimal marketing mix to reach their potential customers: ୴ Product strategy Which goods and services should the company offer to meet its customers’ needs? ୴ Distribution strategy Through which channel(s) and physical facilities will the firm distribute its products? ୴ Promotional strategy What mix of advertising, sales promotion, and personal selling activities will the firm use to reach its customers initially and then develop long-term relationships? ୴ Pricing strategy At what level should the company set its prices? THE EXECUTIVE SUMMARY, COMPETITIVE ANALYSIS, AND MISSION STATEMENT Because these three elements of the business plan often reappear in the marketing plan, it is useful to describe them here Recall that the executive summary answers the who, what, when, where, how, and why questions for the business The executive summary for Google includes references to its current strategic planning process for its search services, which involves “pushing the limits of technology to provide a fast, accurate and easy-to-use search service that can be accessed from anywhere.”1 It goes on to answer such questions as who is involved (key people and organizations), what length of time the plan represents, and how the goals will be met The competitive analysis focuses on the environment in which the marketing plan is to be implemented Trenton, New Jersey–based TerraCycle manufactures a wide variety of products, all made from recycled materials Believing the green movement will eventually hold sway in consumer products, TerraCycle’s business goal is to become the leading ecofriendly organic brand in figure How Spreadsheet Analysis Works Manufacturing Marketing R&D Total Per-Unit Variable Sales Break-Even Price Point Cost $100,000 $120,000 $90,000 $310,000 $5 $10 $62,000 $100,000 $230,000 $90,000 $420,000 $5 $10 $84,000 $100,000 $120,000 $90,000 $310,000 $4 $9 $62,000 Fixed Costs Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN each of the product categories in which it competes It doesn’t attempt to overpower the category leader; instead, it aims to beat other ecofriendly competitors For example, TerraCycle wants its window cleaner to outsell green competitors Mrs Meyers and Seventh Generation, but it is less concerned about beating Windex—the category leader.2 The mission statement puts into words an organization’s overall purpose and reason for being According to Nintendo’s corporate mission, the company is “strongly committed to producing and marketing the best products and support services available.” Not only does Nintendo strive to manufacture the highest-quality video products, but it also attempts “to treat every customer with attention, consideration and respect.” Nintendo is similarly committed to its employees and believes in treating them “with the same consideration and respect that we, as a company, show our customers.”3 A-23 bri efly speaking “Marketing is merely a civilized form of warfare in which most battles are won with words, ideas, and disciplined thinking.” —Albert W Emery (b 1923) AMERICAN ADVERTISING AGENCY EXECUTIVE DESCRIPTION OF THE COMPANY Near the beginning of the marketing plan—typically following the executive summary and before the mission statement—a description of the company is included The company description may include a brief history or background of the firm, the types of products it offers or plans to introduce, recent successes or achievements—in short, it consists of a few paragraphs containing the kind of information often found on the home page of a company’s Web site STATEMENT OF GOALS AND CORE COMPETENCIES The plan then includes a statement of the firm’s goals and its core competencies—the things it does extremely well or better than anyone else The goals should be specific and measurable and may be divided into financial and nonfinancial aims A financial goal might be to add 75 new franchises in the next 12 months or to reach $10 million in revenues A nonfinancial goal might be to enter the European market or to add a new product line every other year An energy bill recently passed by the U.S Congress mandates growth in the use of ethanol in the United States: by 2022, ethanol consumption must triple So ethanol producers are setting specific goals to ramp up production to meet that requirement.4 Core competencies make a firm stand out from everyone else in the marketplace Costco’s core competency is offering a wide variety of goods at low prices, including unexpected bargains such as luxury-brand watches and Dom Perignon champagne Costco CEO and cofounder Jim Sinegal believes his workforce is a significant differentiator in the company’s success, and for that reason, Costco pays above-market wages The average Costco hourly wage is $18.15—68 percent more than the average hourly wage at its biggest competitor, Wal-Mart.5 Small businesses often begin with a single core competency and build their business and reputation on it It is important for a new firm to identify its core competency in the marketing plan so investors or banks understand why they should lend the firm money to get started or to grow to the next stage As a college student, David Kim found he enjoyed tutoring children When he discovered a real demand for skilled tutoring, he decided to launch a tutoring business, which he named C2 Education Because C2’s core competency is helping children to excel, employees are hired and trained according to rigorous standards Today, C2 Education operates in 110 U.S locations, with annual revenues estimated at $48 million.6 OUTLINE OF THE MARKETING ENVIRONMENT (SITUATION ANALYSIS) Every successful marketing plan considers the marketing environment—the competitive, economic, political-legal, technological, and social-cultural factors that affect the way a firm formulates and implements its marketing strategy Marketing plans may address these issues in different ways, but A-24 Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN the goal is to present information that describes the company’s position or situation within the marketing environment J Crew, for instance, has a well-known brand name and a CEO with an impressive track record, Mickey Drexler, who previously headed The Gap The retail environment for stores like J Crew is highly competitive Merchandise that doesn’t appeal to enough customers ends up on a clearance rack and hurts the bottom line So Drexler advises his merchandisers, “Don’t buy out of emotion Buy less if you love something but feel it’s a risky item We don’t want overstock No profit, no fun!”7 A marketing plan for J Crew would include an evaluation of competing stores such as The Gap and Urban Outfitters; any technological advances that would affect such factors as merchandise distribution or inventory; social-cultural issues such as fashion preferences and spending habits of customers; and economic issues affecting a pricing strategy One such method for outlining the marketing environment in the marketing plan is to include a SWOT analysis, described in Chapter SWOT analysis identifies the firm’s strengths, weaknesses, opportunities, and threats within the marketing environment A SWOT analysis for J Crew might include strengths such as its corporate leadership, brand name, and upscale target market Weaknesses might include the risks inherent in the business of correctly spotting fashion trends A major opportunity lies in the fact that J Crew can expand almost anywhere In fact, the company recently launched a new chain, Madewell, with stores in ten U.S cities Madewell sells hip, casual clothes to an upscale clientele Threats include competition from other trendy stores, sudden changes in customer preferences, and financial crises that affect spending.8 A SWOT analysis can be presented in chart format so that it is easy to read as part of the marketing plan The sample marketing plan in this appendix includes a SWOT analysis for Blue Sky Clothing THE TARGET MARKET AND MARKETING MIX The marketing plan identifies the target market for the firm’s products In marketing its new Tide detergent and Downy fabric softener, Procter & Gamble targeted viewers of the high-fashion reality TV series “Project Runway.” The reason? Innovations in their formulations brought about product improvements that help clothes keep their shape and color longer, even after repeated laundering So those interested in purchasing upscale clothing would no doubt want to keep it looking new.9 In another example of targeting, the Cute Overload Web site (www cuteoverload.com) contains photos and videos of animals that visitors can share and about which they can post comments But the site also offers a page-a-day desk calendar of the same name featuring images of puppies, kittens, birds, and chipmunks with humorous captions Cute Overload targets women ages 18 to 34 who need a laugh and a brief escape from the real world The calendars are also offered for sale on Amazon.com, and the retailer’s inventory sold out in one day, which astonished the developer.10 The marketing plan also discusses the marketing mix the firm has selected for its products Nokia is well known for product innovation and involving its customer base in its quest for technological advancement in its cell phones But the company is looking to increase its products’ ties to entertainment and social networking on the Internet When the company recently incorporated customers and the Internet in its product-development efforts, the results were surprising One product, Sports Tracker, is a program tied to global positioning satellites, and it allows runners and cyclists to use their Nokia phone to enter data from their workout to track speed and distance and even map out new routes With Sports Tracker still in its early development stages, Nokia posted the application on a company Web site accessible to the public Over million people downloaded the application, using it in activities the creators never considered, such as paragliding and motorcycle riding What’s more, users provided insightful feedback that enabled Nokia to make further improvements to the program Other upcoming products include an Internet service and online music store as well as devices that allow photo and video sharing.11 BUDGET, SCHEDULE, AND MONITORING Every marketing plan requires a budget, a time schedule for implementation, and a system for monitoring the plan’s success or failure At age 21, entrepreneur Joe Cirulli of Gainesville, Florida, Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN made a to-do list of ten life goals, which included “Own a health club” and “Make it respected in the community.” By age 33, Cirulli had achieved all ten of his life goals, including the opening of his Gainesville Health & Fitness Center As Cirulli’s business grew, however, he discovered a larger mission: to make Gainesville the healthiest community in America Today, Gainesville is the first and only city to win the Gold Well City award from the Wellness Councils of America, and Cirulli’s fitness center is widely regarded as one of the best in the industry Whether or not he realized it at the time, Cirulli’s life and business plan at age 21 had the makings of a marketing plan, with goals and budgets, setting a timeline, and measuring progress—a formula for business success.12 Most long-range marketing plans encompass a two- to five-year period, although companies that business in industries such as auto manufacturing, pharmaceuticals, or lumber may extend their marketing plans further into the future because it typically takes longer to develop these products However, marketers in most industries will have difficulty making estimates and predictions beyond five years because of the many uncertainties in the marketplace Firms also may opt to develop short-term plans to cover marketing activities for a single year The marketing plan, whether it is long term or short term, predicts how long it will take to achieve the goals set out by the plan A goal may be opening a certain number of new stores, increasing market share, or achieving an expansion of the product line Finally, the marketing program is monitored and evaluated for its performance Monthly, quarterly, and annual sales targets are usually tracked; the efficiency with which certain tasks are completed is determined; customer satisfaction is measured; and so forth All of these factors contribute to the overall review of the program At some point, a firm may implement an exit strategy, a plan for the firm to leave the market A common way for a large company to this is to sell off a business unit A number of these strategies have been implemented recently Television and newspaper media company Landmark Communications of Norfolk, Virginia, sold the Weather Channel for nearly $3.5 billion to NBC Universal and two private-equity firms The popular cable channel attracts an estimated 85 million viewers per month.13 Another example of an exit strategy is General Electric’s sale of several of its business units to help cut costs and bolster its share price GE sold its plastics business to Saudi firm Sabic for $11.6 billion In another transaction, it sold its warranty management group to Assurant, an insurance company that sells warranties for consumer electronics and major appliances Assurant paid $25 million for GE’s business Sales of other GE business units are under consideration to simplify the conglomerate’s structure and concentrate on core areas.14 Sample Marketing Plan The following pages contain an annotated sample marketing plan for Blue Sky Clothing At some point in your career, you will likely be involved in writing—or at least contributing to—a marketing plan And you’ll certainly read many marketing plans throughout your business career Keep in mind that the plan for Blue Sky is a single example; no one format is used by all companies Also, the Blue Sky plan has been somewhat condensed to make it easier to annotate and illustrate the most vital features The important point to remember is that the marketing plan is a document designed to present concise, cohesive information about a company’s marketing objectives to managers, lending institutions, and others involved in creating and carrying out the firm’s overall business strategy A-25 bri efly speaking “You have to be fast on your feet and adaptive or else a strategy is useless.” —Lou Gerstner (b 1942) FORMER CHAIRMAN, IBM A-26 Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN Five-Year Marketing Plan Blue Sky Clothing, Inc The executive summary outlines the who, what, where, when, how, and why of the marketing plan Blue Sky is only three years old and is successful enough that it now needs a formal marketing plan to obtain additional financing from a bank or private investors for expansion and the launch of new products The company description summarizes the history of Blue Sky— how it was founded and by whom, what its products are, and why they are unique It begins to “sell” the reader on the growth possibilities for Blue Sky Table of Contents EXECUTIVE SUMMARY This five-year marketing plan for Blue Sky Clothing has been created by its two founders to secure additional funding for growth and to inform employees of the company’s current status and direction Although Blue Sky was launched only three years ago, the firm has experienced greater-than-anticipated demand for its products, and research has shown that the target market of sports-minded consumers and sports retailers would like to buy more casual clothing than Blue Sky currently offers As a result, Blue Sky wants to extend its current product line as well as add new product lines In addition, the firm plans to explore opportunities for online sales The marketing environment has been very receptive to the firm’s high-quality goods—casual clothing in trendy colors with logos and slogans that reflect the interests of outdoor enthusiasts around the country Over the next five years, Blue Sky can increase its distribution, offer new products, and win new customers COMPANY DESCRIPTION Blue Sky Clothing was founded three years ago by entrepreneurs Lucy Neuman and Nick Russell Neuman has an undergraduate degree in marketing and worked for several years in the retail clothing industry Russell operated an adventure business called Go West!, which arranges group trips to locations in Wyoming, Montana, and Idaho, before selling the enterprise to a partner Neuman and Russell, who have been friends since college, decided to develop and market a line of clothing with a unique—yet universal—appeal to outdoor enthusiasts Blue Sky Clothing reflects Neuman’s and Russell’s passion for the outdoors The company’s original cotton T-shirts, baseball caps, and fleece jackets and vests bear logos of different sports such as kayaking, mountain climbing, bicycling, skating, surfing, and horseback riding But every item shows off the company’s slogan: “Go Play Outside.” Blue Sky sells clothing for both men and women, in the hottest colors with the coolest names—sunrise pink, sunset red, twilight purple, desert rose, cactus green, ocean blue, mountaintop white, and river rock gray Blue Sky attire is currently carried by small retail stores that specialize in outdoor clothing and gear Most of these stores are concentrated in northern New England, California, the Northwest, and a few states in the South The high quality, trendy colors, and unique message of the clothing have gained Blue Sky a following among consumers between ages 25 and 45 Sales have tripled in the last year alone, and Blue Sky is currently working to expand its manufacturing capabilities Blue Sky is also committed to giving back to the community by contributing to local conservation programs Ultimately, the company would like to develop and fund its own environmental programs This plan will outline how Blue Sky intends to introduce new products, expand its distribution, enter new markets, and give back to the community Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN BLUE SKY’S MISSION AND GOALS Blue Sky’s mission is to be a leading producer and marketer of personalized, casual clothing for consumers who love the outdoors Blue Sky wants to inspire people to get outdoors more often and enjoy family and friends while doing so In addition, Blue Sky strives to design programs for preserving the natural environment During the next five years, Blue Sky seeks to achieve the following financial and nonfinancial goals: Financial goals Obtain financing to expand manufacturing capabilities, increase distribution, and introduce two new product lines A-27 It is important to state a firm’s mission and goals, including financial and nonfinancial goals Blue Sky’s goals include growth and profits for the company as well as the ability to contribute to society through conservation programs Increase revenues by at least 50 percent each year Donate at least $25,000 a year to conservation organizations Nonfinancial goals Introduce two new product lines—customized logo clothing and lightweight luggage Enter new geographic markets, including southwestern and mid-Atlantic states Develop a successful Internet site, while maintaining strong relationships with retailers Develop its own conservation program aimed at helping communities raise money to purchase open space CORE COMPETENCIES Blue Sky seeks to use its core competencies to achieve a sustainable competitive advantage, in which competitors cannot provide the same value to consumers that Blue Sky does Already Blue Sky has developed core competencies in (1) offering a high-quality, branded product whose image is recognizable among consumers; (2) creating a sense of community among consumers who purchase the products; and (3) developing a reputation among retailers as a reliable manufacturer, delivering their orders on schedule The firm intends to build on these competencies through marketing efforts that increase the number of products offered as well as distribution outlets By forming strong relationships with consumers, retailers, and suppliers of fabric and other goods and services, Blue Sky believes it can create a sustainable competitive advantage over its rivals No other clothing company can say to its customers with as much conviction, “Go Play Outside”! SITUATION ANALYSIS The marketing environment for Blue Sky represents overwhelming opportunities It also contains some challenges the firm believes it can meet successfully Table A illustrates a SWOT analysis of the company conducted by its marketers to highlight Blue Sky’s strengths, weaknesses, opportunities, and threats The SWOT analysis presents a thumbnail sketch of the company’s position in the marketplace In just three years, Blue Sky has built some impressive strengths while looking forward to new opportunities Its dedicated founders, the growing number of brand-loyal customers, and sound financial management place the company in a good position to grow However, as Blue Sky considers expansion of its product line and entry into new markets, the firm will have to guard against marketing myopia (the failure to recognize the scope of This section reminds employees and those outside the company (such as potential lenders) exactly what Blue Sky does so well and how it plans to achieve a sustainable competitive advantage over rivals Note here and throughout the plan: Blue Sky focuses on relationships The situation analysis provides an outline of the marketing environment A SWOT analysis helps marketers and others identify clearly a firm’s strengths, weaknesses, opportunities, and threats Again, relationships are a focus Blue Sky has also conducted research on the outdoor clothing market, competitors, and consumers to determine how best to attract and keep customers A-28 Appendix B t abl e A DEVELOPING AN EFFECTIVE MARKETING PLAN SWOT Analysis for Blue Sky Clothing, Inc Strengths Weaknesses Blue Sky's dedicated founders understand the target market and product Blue Sky's founders may lose sight of the potential scope of their business Blue Sky has achieved distribution in several markets with quick acceptance A limited number of consumers around the country are aware of the Blue Sky brand The firm has very little debt, with great potential for growth The firm has limited cash flow Blue Sky works with a single manufacturer, ensuring maximum quality control Opportunities VU LN ER AB IL IT IE S S NT AI R T NS CO Blue Sky relies on a single manufacturer, which limits production capacity if the firm wants to expand Threats Blue Sky's loyal consumers are likely to buy new products Consumers may tire of the concept; the firm needs to keep it fresh Gaps exist in the market that can be filled with new products, such as customized clothing items and luggage Large competitors such as REI, Timberland, and Patagonia may soak up consumer dollars or launch a similar product line Blue Sky has a chance to expand across the United States into new markets Clothing sales nationwide have generally been flat the past few years The firm can reach more consumers via its Web site Relationships with retailers might deteriorate if they believe they face internal competition in the form of Internet sales Leverage Problems its business) and quality slippages As the company finalizes plans for new products and expanded Internet sales, its management will also have to guard against competitors who attempt to duplicate the products However, building strong relationships with consumers, retailers, and suppliers should help thwart competitors COMPETITORS IN THE OUTDOOR CLOTHING MARKET The outdoor retail sales industry sells about $5 billion worth of goods annually, ranging from clothing to equipment The outdoor apparel market has many entries L.L Bean, Dick’s Sporting Goods, REI, Timberland, Bass Pro Shops, Cabela’s, The North Face, and Patagonia are among the most recognizable companies offering these products Smaller competitors such as Title IX, which offers athletic clothing for women, and Ragged Mountain, which sells fleece clothing for skiers and hikers, also capture some of the market The outlook for the industry in general—and Blue Sky in particular—is positive for several reasons First, consumers are participating in and investing in recreational activities near their homes Second, consumers Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN A-29 are looking for ways to enjoy their leisure time with friends and family without overspending Third, consumers tend to be advancing in their careers and able to spend more While all of the companies listed earlier can be considered competitors, none offers the kind of trendy, yet practical products provided by Blue Sky—and none carries the customized logos and slogans that Blue Sky plans to offer in the near future In addition, most of these competitors sell performance apparel in high-tech manufactured fabrics With the exception of the fleece vests and jackets, Blue Sky’s clothing is made of strictly the highestquality cotton, so it may be worn both on the hiking trail and around town Finally, Blue Sky products are offered at moderate prices, making them affordable in multiple quantities For instance, a Blue Sky T-shirt sells for $15.99, compared with a competing high-performance T-shirt that sells for $29.99 Consumers can easily replace a set of shirts from one season to the next, picking up the newest colors, without agonizing over the purchase A survey conducted by Blue Sky revealed that 67 percent of responding consumers prefer to replace their casual and active wear more often than other clothing, so they are attracted by the moderate pricing of Blue Sky products In addition, as the trend toward health-conscious activities and concerns about the natural environment continue, consumers increasingly relate to the Blue Sky philosophy as well as the firm’s future contributions to socially responsible programs THE TARGET MARKET The target market for Blue Sky products is active consumers between ages 25 and 45—people who like to hike, rock climb, bicycle, surf, figure skate, in-line skate, ride horses, snowboard or ski, kayak, and other such activities In short, they like to “Go Play Outside.” They might not be experts at the sports they engage in, but they enjoy themselves outdoors These active consumers represent a demographic group of well-educated and successful individuals; they are single or married and raising families Household incomes generally range between $60,000 and $120,000 annually Despite their comfortable incomes, these consumers are price conscious and consistently seek value in their purchases Regardless of their age (whether they fall at the upper or lower end of the target range), they lead active lifestyles They are somewhat status oriented but not overly so They like to be associated with high-quality products but are not willing to pay a premium price for a certain brand Current Blue Sky customers tend to live in northern New England, the South, California, and the Northwest However, one future goal is to target consumers in the Mid-Atlantic states and Southwest as well THE MARKETING MIX The following discussion outlines some of the details of the proposed marketing mix for Blue Sky products Product Strategy Blue Sky currently offers a line of high-quality outdoor apparel items including cotton T-shirts, baseball caps, and fleece vests and jackets All bear the company logo and slogan, “Go Play Outside.” The firm has researched the most popular colors for its items and given them names that consumers enjoy—sunset red, sunrise pink, cactus green, desert rose, and river rock gray, among others Over the next five years, Blue Sky plans to expand the product line to include customized clothing items Customers may select a logo that represents their sport, say, rock climbing Then they can add a slogan to match the logo, such as “Get Over Blue Sky has identified its customers as active people between ages 25 and 45 However, that doesn’t mean someone who is older or prefers to read about the outdoors isn’t a potential customer as well By pinpointing where existing customers live, Blue Sky can plan for growth into new outlets The strongest part of the marketing mix for Blue Sky involves sales promotions, public relations, and nontraditional marketing strategies such as attending outdoor events and organizing activities such as day hikes and bike rides A-30 Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN It.” A baseball cap with a bicyclist might bear the slogan, “Take a Spin.” At the beginning, there would be ten new logos and five new slogans; more would be added later Eventually, some slogans and logos would be retired, and new ones introduced This strategy will keep the concept fresh and prevent it from becoming diluted with too many variations The second way in which Blue Sky plans to expand its product line is to offer items of lightweight luggage—two sizes of duffel bags, two sizes of tote bags, and a daypack These items would also come in trendy and basic colors, with a choice of logos and slogans In addition, every product would bear the Blue Sky logo Distribution Strategy Currently, Blue Sky is marketed through regional and local specialty shops scattered along the California coast, into the Northwest, across the South, and in northern New England So far, Blue Sky has not been distributed through national sporting goods and apparel chains Climate and season tend to dictate the sales at specialty shops, which sell more T-shirts and baseball caps during warm weather and more fleece vests and jackets during colder months Blue Sky obtains much of its information about overall industry trends in different geographic areas and at different types of retail outlets from its trade organization, Outdoor Industry Association Over the next three years, Blue Sky seeks to expand distribution to retail specialty shops throughout the nation, focusing next on the southwest and mid-Atlantic regions The firm has not yet determined whether it would be beneficial to sell through a major national chain, as these outlets could be considered competitors In addition, Blue Sky plans to expand online sales by offering the customized product line via Internet only, thus distinguishing between Internet offerings and specialty shop offerings Eventually, we may be able to place Internet kiosks at some of the more profitable store outlets so consumers could order customized products from the stores Regardless of its expansion plans, Blue Sky fully intends to monitor and maintain strong relationships with distribution channel members Promotion Strategy Blue Sky communicates with consumers and retailers about its products in a variety of ways Information about Blue Sky—the company as well as its products—is available via the Internet, through direct mailings, and in person The firm’s promotional efforts also seek to differentiate its products from those of its competitors The company relies on personal contact with retailers to establish the products in their stores This contact, whether in person or by phone, helps convey the Blue Sky message, demonstrate the products’ unique qualities, and build relationships Blue Sky sales representatives visit each store two or three times a year and offer in-store training on the features of the products for new retailers or for those who want a refresher session As distribution expands, Blue Sky will adjust to meet greater demand by increasing sales staff to make sure its stores are visited more frequently Sales promotions and public relations currently make up the bulk of Blue Sky’s promotional strategy Blue Sky staff works with retailers to offer short-term sales promotions tied to events and contests In addition, Nick Russell is currently working with several trip outfitters to offer Blue Sky items on a promotional basis Because Blue Sky also engages in cause marketing through its contribution to environmental programs, good public relations have followed Nontraditional marketing methods that require little cash and a lot of creativity also lend themselves perfectly to Blue Sky Because Blue Sky is a small, flexible organization, the firm can easily implement ideas such as distributing free water, stickers, and discount coupons at outdoor sporting events During the next year, the company plans to engage in the following marketing efforts: Appendix B A-31 DEVELOPING AN EFFECTIVE MARKETING PLAN ୴ Create a Blue Sky Tour, in which several employees take turns driving around the country to campgrounds to distribute promotional items such as Blue Sky stickers and discount coupons ୴ Attend canoe and kayak races, bicycling events, and rock climbing competitions with our Blue Sky truck to distribute free water, stickers, and discount coupons for Blue Sky shirts or hats ୴ Organize Blue Sky hikes departing from participating retailers ୴ Hold a Blue Sky design contest, selecting a winning slogan and logo to be added to the customized line Pricing Strategy As discussed earlier in this plan, Blue Sky products are priced with the competition in mind The firm is not concerned with setting high prices to signal luxury or prestige, nor is it attempting to achieve the goals of offsetting low prices by selling large quantities of products Instead, value pricing is practiced so customers feel comfortable purchasing new clothing to replace the old, even if it is just because they like the new colors The pricing strategy also makes Blue Sky products good gifts—for birthdays, graduations, or “just because.” The customized clothing will sell for $2 to $4 more than the regular Blue Sky logo clothing The luggage will be priced competitively, offering a good value against its competition BUDGET, SCHEDULE, AND MONITORING Though its history is short, Blue Sky has enjoyed a steady increase in sales since its introduction three years ago Figure A shows these three years, plus projected sales for the next three years, including the introduction of the two new product lines Additional financial data are included in the overall business plan for the company $3,500,000 $3.2 million $3,000,000 $2,500,000 $2.0 million $2,000,000 $1,500,000 $1.2 million $1,000,000 $750,000 $500,000 $140,000 2010 $250,000 2011 2012 2013* *Projected sales figure A Annual Sales for Blue Sky Clothing: 2010–2015 2014* 2015* An actual plan will include more specific financial details, which will be folded into the overall business plan For more information, see the “Financial Analysis in Marketing” appendix at the end of this book In addition, Blue Sky states that at this stage, it does not have plans to exit the market by merging with another firm or making a public stock offering A-32 Appendix B DEVELOPING AN EFFECTIVE MARKETING PLAN The timeline for expansion of outlets and introduction of the two new product lines is shown in Figure B The implementation of each of these tasks will be monitored closely and evaluated for its performance Blue Sky anticipates continuing operations into the foreseeable future, with no plans to exit this market Instead, as discussed throughout this plan, the firm plans to increase its presence in the market At present, there are no plans to merge with another company or to make a public stock offering figure B Timeline for First Three Years of Marketing Plan YEAR New outlets added: 20 Customized items: slogans/10 logos Luggage items: YEAR New outlets added: 50 Customized items: 10 slogans/10 logos Luggage items: (duffels and totes) YEAR New outlets added: 100 Customized items: slogans/5 logos Luggage items: (backpack) A-33 APPENDIX C Financial Analysis in Marketing A number of basic concepts from accounting and finance offer invaluable tools to marketers Understanding the contributions made by these concepts can improve the quality of marketing decisions In addition, marketers often must be able to explain and defend their decisions in financial terms These accounting and financial tools can be used to supply quantitative data to justify decisions made by marketing managers In this appendix, we describe the major accounting and finance concepts that have marketing implications and explain how they help managers make informed marketing decisions Financial Statements All companies prepare a set of financial statements on a regular basis Two of the most important financial statements are the income statement and balance sheet The analogy of a motion picture often is used to describe an income statement because it presents a financial record of a company’s revenues, expenses, and profits over a period of time such as a month, quarter, or year By contrast, the balance sheet is a snapshot of what a company owns (called assets) and what it owes (called liabilities) at a point in time, such as at the end of the month, quarter, or year The difference between assets and liabilities is referred to as owner’s, partners’, or shareholders’ equity—the amount of funds the firm’s owners have invested in its formation and continued operations Of the two financial statements, the income statement contains more marketing-related information A sample income statement for Composite Technology is shown in Figure Headquartered in a Boston suburb, Composite Technology is a B2B producer and marketer The firm designs and manufactures a variety of composite components for manufacturers of consumer, industrial, and government products Total sales revenues for 2010 amounted to $675.0 million Total expenses, including taxes, for the year were $583.1 million The year 2010 proved profitable for Composite Technology—the firm reported a profit, referred to as net income, of $91.9 million While total revenue is a fairly straightforward number, several of the expenses shown on the income statement require additional explanation For any company that makes its own products (a manufacturer) or simply markets one or more items produced by others (an importer, retailer, or wholesaler), the largest single expense usually is a category called cost of goods sold This reflects the cost, to the firm, of the goods it markets to its customers In the case of Composite Technology, the cost of goods sold represents the cost of components and raw materials as well as the cost of designing and manufacturing the composite panels the firm produces and markets to its business customers The income statement illustrates how cost of goods sold is calculated The calculation begins with the value of the firm’s inventory at the beginning of 2010 Inventory is the value of raw A-34 figure Composite Technology 2010 Income Statement Appendix C FINANCIAL ANALYSIS IN MARKETING materials, partially completed products, and finished products Composite Technology, Inc held by the firm at the end of 2893 Fitzgerald Parkway some time period, say the end Southampton, MA 02349 of the year The cost of materiINCOME STATEMENT als Composite Technology purFor the Year Ended December 31, 2010 chased during the year and the (in $ millions) direct cost of manufacturing the finished products are then added to the beginning inventory Sales 675.0 figure The result is cost of goods Cost of Goods Sold 405.0 the firm has available for sale Gross Income 270.0 during the year Once the firm’s Selling, Administrative, and General Expenses 82.1 Research and Development Expenses 25.4 accountants subtract the value of Operating Income 162.5 inventory held by the firm at the Depreciation 18.6 end of 2010, they know the cost Net Interest Expense 2.5 of goods sold By simply subtractBefore-tax Income 141.4 ing cost of goods sold from total Provision for Income Taxes 49.5 sales revenues generated during Net Income 91.9 the year, they determine that Composite achieved gross profits of $270.0 million in 2010 Cost of Goods Sold Calculation Operating expenses are Beginning Inventory 158.0 another significant cost for plus Raw Materials Purchased 200.7 plus Direct Manufacturing Expenses 226.3 most firms This broad category includes such marketing outTotal Cost of Goods 585.0 (180.0) minus Ending Inventory lays as sales compensation and Cost of Goods Sold 405.0 expenses, advertising and other promotions, and the expenses involved in implementing marketing plans Accountants typically combine these financial outlays into a single category with the label Selling, Administrative, and General Expenses Other expense items included in the operating expenses section of the income statement are administrative salaries, utilities, and insurance Another significant expense for Composite Technology is research and development (R&D) This category includes the cost of developing new products and modifying existing ones Firms such as pharmaceuticals, biotechnology, and computer companies spend significant amounts of money each year on R&D Subtracting selling, administrative, and general expenses and R&D expenses from the gross profit equals the firm’s operating income For 2010, Composite had operating income of $162.5 million Depreciation represents the systematic reduction over time in the value of certain company assets, such as production machinery, office furniture, or laptops provided for the firm’s sales representatives Depreciation is an unusual expense because it does not involve an actual cash expense However, it does reflect the reality that equipment owned by the company is physically wearing out over time from use and/or from technological obsolescence Also, charging a portion of the total cost of these long-lived items to each of the years in which they are used results in a more accurate determination of the total costs involved in the firm’s operation each year Net interest expense is the difference between what a firm paid in interest on various loans and what it collected in interest on investments it might have made during the time period involved Subtracting depreciation and net interest expense from the firm’s operating profit reveals the firm’s taxable income Composite had depreciation of $18.6 million and a net interest expense of $2.5 million for the year, so its 2010 taxable income was $141.4 million Appendix C A-35 FINANCIAL ANALYSIS IN MARKETING Profit-seeking firms pay taxes calculated as a percentage of their taxable income to the federal government as well as state income taxes in most states Composite paid $49.5 million in taxes in 2010 Subtracting taxes from taxable income gives us the firm’s net income, $91.9 million PERFORMANCE RATIOS Managers often compute a variety of financial ratios to assess the performance of their firm These ratios are calculated using data found on both the income statement and the balance sheet Ratios are then compared with industry standards and with data from previous years Several ratios are of particular interest to marketers A number of commonly used financial ratios focus on profitability measures They are used to assess the firm’s ability to generate revenues in excess of expenses and earn an adequate rate of return Profitability measures include gross profit margin, net profit margin, and return on investment (or sales) Gross Profit Margin The gross profit margin equals the firm’s gross profit divided by its sales revenues In 2010, Composite had a gross profit margin of $270.0 million Gross Profit = = 40% Sales $675.0 million The gross profit margin is the percentage of each sales dollar that can be used to pay other expenses and meet the firm’s profit objectives Ideally, businesses would like to see gross profit margins equal to or higher than those of other firms in their industry A declining gross profit margin may indicate the firm is under some competitive price pressure Net Profit Margin The net profit margin equals net income divided by sales For 2010, Composite had a net profit margin of $91.9 million Net Income = = 13.6% Sales $675.0 million The net profit margin is the percentage of each sales dollar the firm earns in profit or keeps after all expenses have been paid Companies generally want to see rising, or at least stable, net profit margins Return on Assets (ROA) A third profitability ratio, return on assets, measures the firm’s efficiency in generating sales and profits from the total amount invested in the company For 2010, Composite’s ROA is calculated as follows: Net Income = _ Net Income Sales _ x Average Assets Sales Average Assets $675.0 million $91.9 million x = 1.13 x 13.6% = 15.4% $595.0 million $675.0 million The ROA ratio actually consists of two components The first component, asset turnover, is the amount of sales generated for each dollar invested The second component is net profit margin Data for total assets are found on the firm’s balance sheet Assume Composite began 2010 with $560 million in assets and ended the year with $630 million in assets Its average assets for the year would be $595 million As in the other profitability ratios, Composite’s ROI should be compared with other firms in the industry and with its own previous performance to be meaningful A-36 Appendix C FINANCIAL ANALYSIS IN MARKETING Inventory Turnover Inventory turnover typically is categorized as an activity ratio because it evaluates the effectiveness of the firm’s resource use Specifically, it measures the number of times a firm “turns” its inventory each year The ratio can help answer the question of whether the firm has the appropriate level of inventory Inventory turnover equals sales divided by average inventory From the income statement, we see Composite Technology began 2010 with $158 million in inventory and ended the year with $180 million in inventory Therefore, the firm’s average inventory was $169 million The firm’s inventory turnover ratio equals: $675.0 million Sales = = 3.99 Average Inventory $169.0 million For 2010, Composite Technology turned its inventory almost four times a year While a faster inventory turn usually is a sign of greater efficiency, to be really meaningful the inventory turnover ratio must be compared with historical data and appropriate peer firm averages Different organizations can have very different inventory turnover ratios, depending on the types of products they sell For instance, a supermarket might turn its inventory every three weeks for an annual rate of roughly 16 times per year By contrast, a large furniture retailer is likely to average only about two turns per year Again, the determination of a “good” or “inadequate” inventory turnover rate depends on typical rates in the industry and the firm’s performance in previous years Accounts Receivable Turnover Another activity ratio that may be of interest to marketers is accounts receivable turnover This ratio measures the number of times per year a company “turns” its receivables Dividing accounts receivable turnover into 365 gives us the average age of the company’s receivables Companies make sales on the basis of either cash or credit Credit sales allow the buyer to obtain a product now and pay for it at a specified later date In essence, the seller is providing credit to the buyer Credit sales are common in B2B transactions It should be noted that sales to buyers using credit cards such as MasterCard and Visa are counted as cash sales because the issuer of the credit card, rather than the seller, is providing credit to the buyer Consequently, most B2C sales are counted as cash sales Receivables are uncollected credit sales Measuring accounts receivable turnover and the average age of receivables are important for firms in which credit sales make up a high proportion of total sales Accounts receivable turnover is defined as follows: Credit Sales Accounts Receivable Turnover = _ Average Accounts Receivable Assume all of Composite Technology’s sales are credit sales Also assume the firm began 2010 with $50 million in receivables and ended the year with $60 million in receivables (both numbers can be found on the balance sheet) Therefore, it had an average of $55 million in receivables The firm’s receivables turnover and average age equal: $675.0 million = 12.3 times $55.0 million 365 = 29.7 days 12.3 Composite turned its receivables slightly more than 12 times per year The average age of its receivables was slightly less than 30 days Because Composite expects its customers to pay outstanding invoices within 30 days, these numbers appear appropriate As with other ratios, however, receivables turnover and average age of receivables should also be compared with peer firms and historical data Appendix C FINANCIAL ANALYSIS IN MARKETING MARKUPS AND MARKDOWNS In earlier chapters, we discussed the importance of pricing decisions for firms This section expands on our prior discussion by introducing two important pricing concepts: markups and markdowns They can help establish selling prices and evaluate various pricing strategies, and they are closely tied to a firm’s income statement Markups The amount a marketer adds to a product’s cost to set the final selling price is the markup The amount of the markup typically results from two marketing decisions: The services performed by the marketer Other things being equal, retailers who offer more services charge larger markups to cover their costs The inventory turnover rate Other things being equal, retailers with a higher turnover rate can cover their costs and earn a profit while charging a smaller markup A marketer’s markup exerts an important influence on its image among present and potential customers In addition, the markup affects the retailer’s ability to attract shoppers An excessive markup may drive away customers; an inadequate markup may fail to generate sufficient income to cover costs and return a profit Markups typically are stated as percentages of either the selling prices or the costs of the products The formulas for calculating markups are as follows: Amount Added to Cost (Markup) Markup Percentage of Selling Price = Selling Price Amount Added to Cost (Markup) Markup Percentage on Cost = Cost Consider a product with an invoice of 60 cents and a selling price of $1 The total markup (selling price less cost) is 40 cents The two markup percentages are calculated as follows: $0.40 Markup Percentage on Selling Price = _ = 40% $1.00 $0.40 Markup Percentage on Cost = _ = 66.7% $0.60 To determine the selling price knowing only the cost and markup percentage on selling price, a marketer applies the following formula: Cost in Dollars Price = (100% – Markup Percentage on Selling Price) In the previous example, to determine the correct selling price of $1, the marketer would calculate as follows: $0.60 Price = = $1.00 (100% – 40%) Similarly, you can convert the markup percentage from a specific item based on the selling price to one based on cost and the reverse using the following formulas: Markup Percentage on Cost Markup Percentage on Selling Price = _ (100% + Markup Percentage on Cost) Markup Percentage on Selling Price Markup Percentage on Cost = (100% – Markup Percentage on Selling Price) A-37 A-38 Appendix C FINANCIAL ANALYSIS IN MARKETING Again, data from the previous example give the following conversions: 66.7% = 40% Markup Percentage on Selling Price = (100% + 66.7%) 40% = 66.7% Markup Percentage on Cost = (100% – 40%) Marketers determine markups based partly on their judgments of the amounts consumers will pay for a given product When buyers refuse to pay a product’s stated price, however, or when improvements in other products or fashion changes reduce the appeal of the current merchandise, a producer or retailer must take a markdown Markdowns A markdown is a price reduction a firm makes on an item Reasons for markdowns include sales promotions featuring price reductions or a decision that the initial price was too high Unlike markups, markdowns cannot be determined from the income statement because the price reduction takes place before the sale occurs The markdown percentage equals dollar markdowns divided by sales For example, a retailer may decide to reduce the price of an item by $10, from $50 to $40, and sells 1,000 units The markdown percentage equals: (1,000 x $10) _ $10,000 = = 25% (1,000 x $40) $40,000 N-1 NOTES Chapter 1 Company Web site, www.xerox.com, 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Comcast Hears and Talks Back,” The New York Times, July 25, 2008, www.nytimes.com 11 Jonathan Farrington, “Customer Complaints: The Income Multiplier Effect,” CRM Daily, March 10, 2008, www.crmadvocate.com 12 Jack Ewing, “How Nokia Users Drive Innovation,” BusinessWeek, April 30, 2008, www.businessweek.com 13 “The Cost of Customer Churn,” a Financial Publishing Services White Paper, www fpsc.com, accessed July 10, 2008 N-8 NOTES 14 Accenture, “Holistic Approach Helps Cut Churn,” www.accenture.com, accessed July 10, 2008 15 Company Web site, www.marriott.com, accessed July 10, 2008; “Pack It and Ship It,” Hotels Magazine, June 23, 2008, www.hotelsmag.com 16 “Are Gas-Rebate Credit Cards a Good Deal?” MSN Money, December 21, 2007, articles.moneycentral.msn.com; Kimberly Palmer, “Putting a Price on Rewards,” U.S News & World Report, July 2–9, 2007, pp 57–58 17 Oscar Corral and Jennifer Lebovish, “Urns May Await Die-Hard Gators,” Chicago Tribune, December 31, 2007, Section 1, p 18 Company Web site, www.bankofamerica.com, accessed July 10, 2008 19 T L Stanley, “Celebs Extending Their Brand Names to Credit Cards,” BrandWeek, November 12, 2007, www.brandweek.com 20 Organization Web site, support.thirteen.org, accessed July 22, 2008 21 Arthur Middleton Hughes, “The 24 Essential Database Marketing Techniques,” Database Marketing Institute, July 10, 2008, www.dbmarketing.com 22 Brian Quinton, “Google Gets Personal: Should You Care?” Direct Magazine, February 21, 2007, www.directmag.com 23 David Bauder, “NBC to Use Olympics to See How People Use Media,” Associated Press, July 7, 2008, news.yahoo.com 24 “Gartner Says Saturation of U.S Pay-TV Market to Create Challenges for Emerging IPTV Services,” October 1, 2007, www.gartner.com 25 Leigh Buchanan, Max Chafkin, and Ryan McCarthy, “The New Basics of Marketing,” Inc Magazine, February 2008, www.inc.com 26 Company Web site, www.convio.com, accessed July 10, 2008 27 David H Freedman, “A Digital Makeover for the Modeling Business,” Inc Magazine, February 2008, www.inc.com; 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Dan Reed, “JetBlue Tries to Make Up with Fliers,” USA Today, February 20, 2007, www.usatoday.com 36 Company Web site, www.campero.com, accessed July 11, 2008; Jon Gambrell, “Pollo Campero Opens Stores in U.S Wal-Mart Locations,” The Morning News, May 13, 2008, p 3D 37 John Fortt, “Apple and Intel: Best Buddies,” Fortune, June 13, 2008, bigtech.blogs.fortune.cnn.com 38 Fortt, “Apple and Intel: Best Buddies.” 39 “Shaner Hotels Continues Restaurant Co-Branding Initiatives with Bonefish Grill Opening,” Reuters, June 18, 2008, www.reuters.com 40 Allison Linn, “Thick, Buttery Insurance?” MSNBC Ads of the Weird, April 8, 2008, adblog.msnbc.msn.com 41 Company Web site, www.bluecsushi.com, accessed July 11, 2008; Robert Malone, “Tracking Sushi,” Forbes, May 23, 2007, www.forbes.com 42 “Valentine’s Day Deliveries: Vendor Managed Inventory Prevents Broken Hearts,” Manufacturing Business Technology, February 13, 2008, www.mbtmag.com 43 “$2 Billion Truserv Reduces Inventory 41% and Improves Service Level to Above 97% with JDA Portfolio®,” JDA Software Group, Inc www.jda.com, accessed July 11, 2008 44 “Kentucky Derby TV Coverage,” kentucky-derby.blogspot.com, April 9, 2008 45 Arthur Middleton Hughes, “The Loyalty Effect: A New Look at Lifetime Value,” Database Marketing Institute, July 11, 2008, www.dbmarketing.com Chapter 11 Company Web site, www.greenworkscleaners.com, accessed July 28, 2008; Elaine Korry, “Clorox Enters Booming Market for ‘Green’ Cleaners,” National Public Radio, July 14, 2008, www.npr.org; Felicity Barringer, “Clorox Courts Sierra Club, and a Product Is Endorsed,” The New York Times, March 26, 2008, www.nytimes.com; Siel, “Emerald City,” Los Angeles Times, January 15, 2008, latimesblogs.latimes.com; Ilana DeBare, “Clorox Introduces Green Line of Cleaning Products,” San Francisco 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Chronicle, January 14, 2008, www.sfgate.com; “Clorox to Launch Green Cleaning Line Across U.S.,” Reuters, September 6, 2007, www.reuters.com “America’s Most Admired Companies,” Fortune, March 17, 2008, www.fortune.com “Tomorrow’s Jobs,” Occupational Outlook Handbook, 2008–2009 Edition, U.S Department of Labor, Bureau of Labor Statistics, p “U.S International Trade in Goods and Services,” International Economic Account, Bureau of Economic Analysis, July 11, 2008, www.bea.gov Mark Scott, “Luring Customers with Local Call Centers,” BusinessWeek, July 24, 2007, www.businessweek.com Toni Bowers, “More Companies Realizing the Downside of Outsourcing,” TechRepublic.com, January 23, 2008, www.techrepublic.com; 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“ARCA: Tom Hessert Ready for Irish Hills Debut,” PaddockTalk, June 11, 2008, www.topix.com 13 Ekin Middleton, “ ‘Naked Cowboy’ Can Sue Makers of M&Ms,” CNN, June 24, 2008, www.cnn.com 14 Anick Jesdanun, “Creators of Popular Scrabulous Knockoff Suspended Game on Facebook after Federal Lawsuit,” Chicago Tribune, July 29, 2008, www.newser.com; Caroline McCarthy, “ ‘Scrabble’ on Facebook: Too Little, Too Late,” CNet News, July 7, 2008, news.cnet.com 15 “Procter & Gamble Files Infringement Lawsuit against Blue Cross Labs,” Reuters, January 7, 2008, www.reuters.com 16 Michael Hooper, “Payless Copycat Tactic at Risk,” Topeka Capital-Journal, May 11, 2008, www.findarticles.com 17 Scott Young, “Using Research to Guide and Support Packaging Innovation,” Brand Packaging, January 2007, www.brandpackaging.com 18 Company Web site, pressroom.target.com, accessed July 8, 2008 19 Mike Hughlett, “ ‘Coffee Cans’ No More: Patent Battle Percolates,” Chicago Tribune, August 23, 2007, section 3, pp 1, 20 Stephanie Rosenbloom, “Users Can’t Get Handle on Jug,” San Diego Union-Tribune, June 30, 2008, www.signonsandiego.com 21 U.S Food and Drug Administration, “Information for Consumers: Food Allergen Labeling and Consumer Protection Act of 2004, Questions and Answers,” Center for Food Safety and Applied Nutrition, cfsan.fda.gov, accessed July 8, 2008 22 “ ‘Fastest Growing Virtual World,’ BarbieGirls.com, Launches Subscription ‘V.I.P.’ Service,” Business Wire, June 9, 2008, www.businesswire.com; 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Jeffrey L Rabin, “Rail Chief Thinks Green at Ports,” Los Angeles Times, February 26, 2008, www.tluc.net; “Local Leaders Praise BNSF for Its Green Technology Commitment,” Diesel Technology Forum, September 13, 2007, www.dieselforum.org; “BNSF Debuts Natural Gas Hostler Trucks,” Market Wire, May 2007, www findarticles.com Company Web site, www.nintendo.com, accessed July 30, 2008 Company Web site, www.dell.com, accessed July 30, 2008; “Dell: Not the PC Company You Used to Know,” CNet News, December 6, 2007, www.news.com “Bikeworld Goes Global Using FedEx Technologies and Shipping,” FedEx Web site, images.fedex.com, accessed July 30, 2008 “Sales Representatives, Wholesale and Manufacturing,” Occupational Outlook Handbook 2008–2009, Bureau of Labor Statistics, U.S Department of Labor, www bls.gov, accessed July 30, 2008 Company Web site, www.beijobags.com, accessed July 30, 2008; Yvette N Coleman, “Beijo Handbags,” Fashion Edge, June 2008, www.fashionedge.com Company Web site, www.bagborroworsteal.com, accessed July 30, 2008 Mark Long, “Netflix to Stream Videos to Microsoft’s Xbox 360,” Newsfactor Network, July 16, 2008, www.newsfactor.com “Battery Recycling Benefits Environment, Education,” The Times-Standard, April 10, 2008, www.times-standard.com; “AAA Arizona Launches Car Battery Recycling Program,” Phoenix Business Journal, April 18, 2008, www.bizjournals.com 10 Stephanie Rosenbloom, “Home Depot Offers Recycling for Compact Fluorescent Bulbs,” The New York Times, June 24, 2008, www.nytimes.com 11 Jeremy Korzeniewski, “Trek Stop: The Vending Machine for Bike Parts,” AutoblogGreen, July 10, 2008, www.autobloggreen.com 12 “For Spanx, the Trifecta of Culture, Creativity and Quality Is a Winning Combination,” Knowledge@Emory, February 14, 2008, knowledge.emory.edu 13 Katie Marsal, “NBC’s iTunes Return May Hinge on Offline Piracy Filtering,” Appleinsider, April 17, 2008, www.appleinsider.com 14 “The Changing World of Industrial Distribution,”B2B International, www b2binternational.com, accessed July 30, 2008 15 Katia Watson, “Retail Perspectives: Food Landscape in Transition,” TNS Retail Forward, April 2007, www.retailforward.com 16 Lauren Coleman-Lochner, “Wal-Mart Profit Climbs in Grocery, Electronics Sales,” Bloomberg News, February 19, 2008, www.bloomberg.com 17 “U.S., Australia Reach Open Skies Deal,” Associated Press, February 15, 2008, news.yahoo.com 18 Deborah Yao, “Comcast: Cable to Standardize Technology,” Associated Press, January 7, 2008, news.yahoo.com 19 Joe Schneider, “Kraft Loses Canada High Court Ruling on Candy Wrapper,” Bloomberg News, July 26, 2007, www.bloomberg.com 20 Brian Garrity and Peter Lauria, “NFL Network, ESPN Huddle on Cable TV Joint Venture,” New York Post, June 21, 2008, www.nypost.com 21 “Quick Franchise Facts, Franchising Industry Statistics,” A-Z Franchises.com, www azfranchises.com, accessed July 30, 2008 22 Company Web site, www.pier1.com, accessed July 30, 2008 23 “Summit Logistics International, Inc and LOG-NET Renew Supply Chain Partnership,” Reuters Business & Finance, June 30, 2008, www.reuters.com 24 Company Web site, www.boeing.com, accessed July 30, 2008; Andy McCue, “Boeing Pilots RFID to Track Aircraft Parts,” ZDNet News, March 14, 2007, www zdnet.com.au 25 “SAP Customers Worldwide Tout Early Success with Latest CRM Offering,” Fox Business, July 30, 2008, www.foxbusiness.com 26 John M Doyle, “TSA Targest 50% Cargo Screening Goal,” Aviation Week, July 16, 2008, www.aviationweek.com 27 David R Butcher, “Global 3PL Industry Swells,” ThomasNet, June 18, 2007, news.thomasnet.com 28 Company Web site, ww21.1800flowers.com, accessed July 30, 2008 29 “Trucking Statistics,” Truckinfo.net www.truckinfo.net, accessed July 30, 2008 30 Frank Ahrens, “A Switch on the Tracks: Railroads Roar Ahead,” The Washington Post, April 21, 2008, www.washingtonpost.com 31 Company Web site, www.fedex.com, accessed July 30, 2008; “FedEx InSight Case Study,” FedEx Web site, www.fedex.com, accessed July 30, 2008 32 Ahrens, “A Switch on the Tracks: Railroads Roar Ahead.” 33 “U.S Trucking Industry Reaches Major Freight Transportation Milestone,” Reuters, January 25, 2008, www.reuters.com 34 Glen Creno and Dennis Wagner, “Trucking Industry Faces Rough Road,” USA Today, January 24, 2008, www.usatoday.com N-10 NOTES 35 “Higher Freight Rates May Dog Shipping Industry until 2012,” JCTrans.net, June 23, 2008, info.jctrans.net 36 “FedEx Trade Networks Opens New West Coast Gateways to Support Ocean-Ground Distribution Service,” MarketWatch, June 25, 2008, www.marketwatch.com 37 “Pipeline Basics,” PHMSA Stakeholder Communications, primis.phmsa.dot.gov, accessed July 30, 2008 38 “UPS Launches New Global Air Freight Portfolio,” Import Industry News, January 10, 2008, blogs.customhouseguide.com 39 “Caterpillar to Create New Distribution Center in Texas,” SecurityinfoWatch.com, July 8, 2008, www.securityinfowatch.com 40 Company Web site, www.nike.com, accessed July 30, 2008; Trista Winnie, “Nike to Open New Distribution Center in Memphis,” NuWire Investor, April 10, 2007, www.nuwireinvestor.com 41 John Kerr, “Procter & Gamble Takes Inventory up a Notch,” Logistics Management, February 1, 2008, www.logisticsmgmt.com 42 Lauren R Hartman, “Pompeian’s Palletizing Goes Robotic,” Packaging Digest, July 1, 2008, www.packagingdigest.com 43 Jonathan Katz, “The Great Supply Chain Robbery,” IndustryWeek, November 1, 2007, www.industryweek.com 23 24 25 26 27 28 29 30 31 Chapter 14 Company Web site, www.directbuyarticles.com, accessed August 4, 2008; “Bargain-Hunters Boost Firm’s Membership Rolls,” Crain’s Chicago Business, www chicagobusiness.com, accessed August 4, 2008; “The ‘Summit’ of On-the-Job Performance DirectBuy of Greater Vancouver Recognizes Churcher and Powell,” dBusiness News, July 1, 2008, www.1888pressrelease.com; “DirectBuy Members, Spring and 17 Years of Success,” PR.com, June 3, 2008, www.pr.com; Suzanne C Riley, “Secrets of a Bargain Hunter,” Boston Globe, May 8, 2008, www.boston.com Kimberly Morrison, “Wal-Mart Alters Meetings,” Morning News, January 15, 2008, pp 1D, 6D Jessie Scanlon, “Sunflower Sprouts Fresh Stores and Consumers,” BusinessWeek, July 25, 2008, www.businessweek.com Allison Linn, “Target Thrives in Wal-Mart’s Long Shadow,” MSNBC, June 20, 2007, www.msnbc.com Company Web site, www.lowes.com, accessed July 31, 2008 “DSW Goes Smaller to Improve In-Store Experience,” BusinessWeek, July 8, 2008, www.businessweek.com “Best Buy Stores Expanding to Musical Instruments,” Billboard, July 28, 2008, www billboard.com Food Marketing Institute, “Slotting Allowances in the Supermarket Industry,” FMI Backgrounder, www.fmi.org, accessed July 31, 2008 Company Web site, www.virtuosity.com, accessed July 31, 2008; Rafe Needleman, “Highly Useful: CallWave Transcribes Your Voicemail,” CNet News, June 25, 2007, news.cnet.com 10 Joan Verdon, “Malls Lauded for Going Green,” The Record, February 23, 2008, www.northjersey.com 11 “Lifestyle Centers Mix Best Elements of Strip Centers, Malls,” Business Ledger, July 31, 2008, www.thebusinessledger.com 12 Dawn Cobb, “Retail Trend Gains Ground,” Dallas Morning News, June 17, 2007, www.dallasnews.com 13 Kenneth Hein, “JCPenney Joins ‘The Breakfast Club,’” BrandWeek, July 7, 2008, www.brandweek.com 14 Barney Beal, “Smartphones Changing the Face of Web Analytics,” CRM News, July 31, 2008, searchcrm.techtarget.com 15 Cecilie Rohwedder and Keith Johnson, “Pace-Setting Zara Seeks More Speed to Fight Its Rising Cheap-Chic Rivals,” Fashion Spot, February 20, 2008, online.wsj.com 16 Jenn Gidman, “Sephora: Flawless,” BrandChannel, May 26, 2008, www brandchannel.com 17 Marc S Botts, “Shaking Things Up,” Pizza Today, August 2008, www pizzatoday.com 18 Kasper Jade, “Challenges Ahead as Apple and Best Buy Expand Mac Program,” AppleInsider, July 3, 2008, www.appleinsider.com; “Best Buy Deal May Feature Apple Boutiques,” Mac News Network, April 5, 2008, www.macnn.com 19 Melody Vargas, “Retail Industry Profile,” About.com, retailindustry.about.com, accessed July 2, 2008 20 Company Web site, www.gloriajeans.com, accessed August 1, 2008 21 Company Web site, news.walgreens.com, accessed August 7, 2008 22 Cathryn Creno, “Macy’s Hopes to Build Customer Loyalty with a New Focus to Tailor Stores to Reflect Their Communities,” The Arizona Republic, June 28, 2008, www.azcentral.com; Lisa Biank Fasig, “Macy’s CFO: Retailer Must Ready Itself for Turnaround,” St Louis Business Journal, June 9, 2008, www.bizjournals.com; 32 33 34 35 36 37 38 39 Martin Moylan, “Macy’s Makeover of Marshall Field’s Continued,” Minnesota Public Radio, September 6, 2007, minnesota.publicradio.org Jennifer L Schenker, “Vente-privee.com Refashions Closeouts,” BusinessWeek, January 11, 2008, www.businessweek.com Company Web site, www.biggshyper.com, accessed August, 1, 2008 Company Web site, www.autocart.biz, accessed August 1, 2008 Nicole Maestri, “New Wal-Mart Jewelry Can Be Traced from Mine to Store,” Reuters, July 15, 2008, www.reuters.com; Michael Barbaro and Eric Dash, “Wal-Mart to Expand Banking Services,” The NewYork Times, June 21, 2007, www.nytimes.com; Jayne O’Donnell, “Wal-Mart Pumps Up the Volume on Electronics,” USA Today, May 14, 2007, www.usatoday.com “Americans Looking Near, Far to Save on Health Care,” CNN Money, July 29, 2008, money.cnn.com; Jo Ciavaglia, “Drug Store Clinics Gaining Popularity,” Bucks County Courier Times, July 27, 2008, www.phillyburbs.com; Marcus Kabel, “Wal-Mart Expands In-Store Health Clinics,” USA Today, February 7, 2008, www.usatoday com Company Web site, “Ingram Micro Fact Sheet,” www.ingrammicro.com, accessed August 8, 2008 Company Web site, www.unitedstationers.com, accessed August 1, 2008 Organization Web site, www.cesweb.org, accessed August 1, 2008 “Wal-Mart’s Electronics Service Ambitions,” The Deal, June 26, 2008, www.thedeal com; Brent Felgner, “Wal-Mart Testing Various New CE Initiatives,” This Week in Consumer Electronics, June 18, 2007, www.twice.com Company Web site, www.sasinc.com, accessed August 1, 2008 Jim Olsztynski, “Wholesaler of the Year 2007: Standard Plumbing Supply,” Supply House Times, December 1, 2007, www.supplyht.com Organization Web site, National Mail Order Association, www.nmca.org, accessed August 1, 2008 Carol Krol, “Swelling Ranks of Consumer ‘Do Not Mail’ Lists Prompt DMA Response,” BtoB, January 21, 2008, www.btobonline.com Company Web site, www.infoworx.com, accessed August 1, 2008; Bridget McCrea, “Take the Long View,” Response, July 1, 2008, www.responsemagazine.com; Nicole Smith, “Johnny Carson Sees Success on Air Again,” DM News, March 21, 2007, www.dmnews.com U.S Census Bureau Web site, “Industry Statistics Sampler: Vending Machine Operators,” www.census.gov, accessed August 1, 2008 Company Web site, www.stonyfield.com, accessed August 1, 2008 “iPod Vending Machine,” UMPC Portal, July 26, 2008, www.umpcportal.com; Roger Yu, “iPod? Vending Machines Diversify,” USA Today, September 4, 2007, www.usatoday.com Chapter 15 Keith B Richburg, “Green Becomes Official Color of Baseball,” The Washington Post, July 20, 2008, www.washingtonpost.com; Mike Lee, “Sports Teams Increasingly Eco-Conscious,” The San Diego Union-Tribune, July 15, 2008, www signonsandiego.com; “MLB to Roll Out ‘Green’ Carpet for 2008 All-Star Game,” Reuters, July 14, 2008, findarticles.com; Matthew Philips, “Not Just Greener Grass,” Newsweek, April 14, 2008, pp 66–67; Marc Gunther, “Major League Baseball Changes Its Colors,” Fortune, March 28, 2008, money.cnn.com; Ben Platt, “Baseball Makes Pitch to Go Green,” Major League Baseball press release, March 11, 2008, www.mlb.com; “Major League Baseball Goes Green in Collaboration with the National Resources Defense Council,” Major League Baseball press release, March 11, 2008, www.mlb.com Brian Quinton, “The Joys of X, and Pizza Rolls Too,” Promo Interactive, February 5, 2008, www.promointeractive.net Bill Gorman, “Where Did the Primetime Broadcast Audience Go?” TV by the Numbers, April 16, 2008, www.tvbythenumbers.com David Bauder, “NBC Uses Olympics to Measure Viewer Interest in Programming,” The San Diego Union-Tribune, July 16, 2008, www.signonsandiego.com “When It Comes to Financial Jargon, Americans Are Befuddled,” AARP, April 2008, www.aarp.org “Assessments Begin Under the Sorghum Checkoff Program,” USDA Agricultural Marketing Service news release, July 3, 2008, ams.usda.gov Jake Coyle, “Movie Trailers Find Big Audiences Online,” Times Herald-Record, July 3, 2008, www.msnbc.msn.com Ted Mininni, “Newest Corporate Marketing Strategy: Leveraging the Power of Design,” BrandChannel, www.brandchannel.com, accessed June 3, 2008 Steve McKee, “Five Words to Never Use in an Ad,” Ecommerce.Matrix-E.com, ecommerce.matrix-e.com, accessed August 5, 2008 10 “Dunkin’ Donuts Swings for the Fences with New ‘Bases Loaded’ Summer Iced Beverage ” Reuters, June 26, 2008, www.reuters.com; “Dunkin’ Donuts Offers Second Iced Coffee Giveaway,” Promo, May 15, 2008, www.promomagazine.com N-11 NOTES 11 U.S Department of Labor, “Economic News Release, Table 4, Employment by Major Occupational Group, 2006 and projected 2016,” Bureau of Labor Statistics, www.bls.gov, accessed August 5, 2008 12 “100 Leading National Advertisers,” Advertising Age, June 23, 2008, adage.com 13 Brent Schlender, “Advertising Everywhere,” Fortune, January 28, 2008, money.cnn.com 14 Stephanie Clifford, “Product Placements Acquire a Life of Their Own on Shows,” The New York Times, July 14, 2008, www.nytimes.com; Laurie Sullivan, “23 Groups Ask FCC to Regulate Product Placement,” MediaPost Publications, June 23, 2008, www mediapost.com; Stuart Elliott, “Product Placement on Reality TV Seems Somehow More Realistic,” The New York Times, January 23, 2008, www.nytimes.com 15 Matt Story, “Video-Game Advertising: More than Just Product Placement,” ClickZ Network, February 11, 2008, www.clickz.com 16 Marc Graser, “Film Biz Losing Brand Wagon,” Variety, January 25, 2008, www.variety.com 17 “Your Friendly Neighborhood Movie Promotion,” PR Week, April 5, 2007, thecycle.prweekblogs.com 18 “Student Guide,” Time Out Chicago, www.timeout.com, accessed August 6, 2008 19 “ ‘Live Unbuttoned’ with Global Launch of New, Innovative Levi’s 501 Marketing Campaign,” Levi Strauss & Co press release, July 21, 2008, www.levistrauss.com; Gregory Solman, “Viral Video Success Changes Levi’s Plans,” AdWeek, May 19, 2008, www.adweek.com 20 “North American Sponsorship Spending Seen Up in ’08,” Reuters, January 22, 2008, www.reuters.com 21 “Ambush Marketing: Playing the Game,” The Economist, July 3, 2008, www economist.com 22 “Direct Marketing Expenditures Account for 50% of Total Ad Expenditures,” Direct Marketing Association, October 16, 2007, www.the-dma.org 23 “DMA Releases 15th Annual ‘Multichannel Marketing in the Catalog Industry’ Report,” Direct Marketing Association, September 11, 2007, www.the-dma.org 24 Andrea James, “Nordstrom Lets You Buy Online, Pick Up at the Store,” Seattle Post-Ingelligencer, May 21, 2008, seattlepi.nwsource.com 25 “National Do-Not-Call Registry,” Federal Communications Commission, www fcc.gov, accessed August 6, 2008; Jacqui Cheng, “FTC Dials Up $7.7 Million in Penalties for Do Not Call Registry Offenders,” Ars Technica, November 8, 2007, www.arstechnica.com 26 Christine Simmons, “FTC to Ban Prerecorded Sales Messages,” San Francisco Chronicle, August 20, 2008, www.sfgate.com 27 Thomas Haire, “Kodak Inks a New DRTV Blockbuster,” Response, May 1, 2008, www.responsemagazine.com 28 “100 Leading National Advertisers,” Advertising Age, June 23, 2008, www.adage.com 29 Wailin Wong, “Your Ad,” Chicago Tribune, April 14, 2008, Section 3, pp and 30 Kristen A Lee, “Blockbuster Kicks Tires on In-Store Kiosk Strategy,” Ecommerce Times, May 29, 2008, www.ecommercetimes.com 31 Company Web site, www.thenorthface.com, accessed August 27, 2008; Chantal Todé, “North Face Kiosk Improves In-Store Inventory,” DM News, March 23, 2007, www.dmnews.com 32 NBC Web site, “The Biggest Loser,” www.nbc.com, accessed August 8, 2008; Sally Squires, “Subway’s Biggest Loser,” The Washington Post, April 1, 2008, www washingtonpost.com 33 David Louie, “Calculating the Price of Eight Golds,” ABC News, August 18, 2008, abclocal.go.com; “20 Under 25: The Top-Earning Young Superstars,” Forbes, December 4, 2007, www.forbes.com 34 “Accenture Trade Promotion Management Solution,” www.accenture.com, accessed August 8, 2008 35 “Ocean Awareness,” www.adcouncil.org, accessed August 8, 2008 36 Government Web site, www.gao.gov, accessed August 10, 2008; “Which Federal Agency Is Worst for Supplier Diversity?” Diversity Inc., August 20, 2007, www diversityinc.com Chapter 16 Company Web site, www.aflac.com, accessed August 11, 2008; “Aflac Racing Gears Up for 2009 NASCAR Season with New Paint Scheme,” PR Newswire, July 25, 2008, www.prnewswire.com; “Just Ducky: Aflac’s CEO on Japan Sales,” MSN Money, April 3, 2008, www.boston.com; “New Aflac for Business Ads Set for Spring,” Atlanta Business Chronicle, April 3, 2008, www.bizjournals.com; “Feeling Ducky: Aflac Teams with Carl Edwards for New Ad,” Sports Business Daily, March 7, 2008, www sportsbusinessdaily.com Karl Greenberg, “GM Markets OnStar, Malibu via U.S Airways Seatback Trays,” MediaPost Publications, May 21, 2008, publications.mediapost.com “Smithsonian Tries Cell Phone Ads to Draw Tourists,” CNNMoney, August 11, 2008, www.ibtimes.com Julie Creswell, “Nothing Sells Like Celebrity,” The New York Times, June 22, 2008, www.nytimes.com “100 Leading National Advertisers,” Advertising Age, June 23, 2008, adage.com/ datacenter “U.S Ad Spending by Category,” Advertising Age, June 23, 2008, adage.com/ datacenter “Dannon Activia Launches Thought-Provoking Advertising Campaign Featuring Jamie Lee Curtis,” Reuters, March 3, 2008, www.reuters.com “Tide Coldwater Laundry Detergent,” Green Home, greenhome.huddler.com, accessed August 11, 2008 Martin Roll, “Sports and Celebrity Marketing in Asia,” Asian Brand Strategy, December 18, 2007, www.asianbrandstrategy.com 10 Tim Arango, “LeBron Inc.,” Fortune, November 28, 2007, money.cnn.com 11 “Top Ten Endorsement Superstars,” Fortune, November 28, 2007, money.cnn.com 12 John Vause, “Endorsements Pure Gold for Phelps,” CNN.com/US, August 18, 2008, edition.cnn.com 13 Apryl Duncan, “Companies Distance Themselves from Michael Vick,” About.com Advertising, advertising.about.com, accessed August 12, 2008 14 Michael Kanellos, “Are Internet Ads Better Than TV Ads?” CNet News, March 19, 2008, www.news.com 15 Elinor Mills, “Online Ad Sales Rise 26 Percent in 2007,” CNet News, May 15, 2008, www.news.com 16 Robert Coen of Universal McCann, “Total of U.S Ad Spending,” Advertising Age, June 23, 2008, www.adage.com 17 “Direct-to-Consumer Advertising Relies on Emotional Appeal,” Medical News Today, February 1, 2007, www.medicalnewstoday.com 18 Rob Walker, “Sex vs Ethics,” Fast Company, June 2008, pp 74–78 19 Stephen Shankland, “Will Online Ads Come Out Ahead after Recession?” CNet News, April 16, 2008, www.news.com 20 David Radd, “JCPenney Targets Girls with Games,” BusinessWeek, August 6, 2008, www.businessweek.com 21 “Ad + Magic,” e-planning, www.e-planning.com, accessed August 11, 2008 22 Eric Eldon, “Social Network Ad Spending Projections Take a Dip,” Venture Beat, May 14, 2008, www.venturebeat.com 23 David Lieberman, “Ad Spending Forecast to Shift More to Direct Marketing,” USA Today, August 6, 2008, www.usatoday.com 24 “100 Leading National Advertisers,” Advertising Age, June 23, 2008, www.adage.com 25 Stuart Larkins, “Turn Up Your TV Ad Volume: Get More from Sponsorships Online,” Chief Marketer, www.chiefmarketer.com, accessed August 12, 2008 26 Scott Collins, “Where TV and the Web Converge, There Is Hulu,” Los Angeles Times, June 16, 2008, www.latimes.com 27 David Goldman, “XM-Sirius Merger Approved by DOJ,” CNN Money, March 24, 2008, money.cnn.com 28 “Yahoo Turns to Radio Ads to Lure Google Web Searchers,” CNet News, March 19, 2008, www.news.com 29 Dan Butcher, “Clear Channel, CBS Radio Promote HD Radio Via Mobile,” Mobile Marketer, July 2, 2008, www.mobilemarketer.com 30 “100 Leading National Advertisers,” Advertising Age, June 23, 2008, www.adage.com 31 “Newspaper Web Sites Attract Record Audiences in First Quarter,” Newspaper Association of America, April 14, 2008, www.naa.org 32 “Average Total Paid & Verified Circulation for Top 100 ABC Magazines,” Magazine Publishers of America, www.magazine.org, accessed July 9, 2008 33 John Consoli, “Magna’s Coen Downgrades U.S Ad Spending Forecast,” Media Week, July 8, 2008, www.mediaweek.com 34 “100 Leading National Advertisers,” Advertising Age, June 23, 2008, www.adage.com 35 Abbey Klaassen, “Google Maps Out Strategy for Outdoor Advertising,” BtoB, June 9, 2008, www.btobonline.com 36 “Worldwide Internet Advertising Spending to Surpass $106 Billion in 2011,” Marketing Charts, June 25, 2008, www.marketingcharts.com 37 Laura M Holson, “CBS Mobile to Test Location-based Cellphone Ads,” International Herald Tribune, February 6, 2008, www.iht.com 38 Hanna “Sistek, “Want to See That Ad in 3D?” CNet News, April 24, 2008, www.news.com 39 “Top 10 Worldwide Ad Agencies,” Advertising Age, May 5, 2008, www.adage.com 40 Danielle Sacks, “Believe It or Not, He’s a PC,” Fast Company, June 2008, pp 64–73 41 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov 42 “Mississippi Oil Spill Information Updates,” City of New Orleans Web site, www cityofno.com, accessed August 2008 43 Manjeet Kripalani, “Tata: Master of the Gentle Approach,” BusinessWeek, February 25, 2008, p 64 N-12 NOTES 44 Saabira Chaudhuri, “Can PR Save China?” Fast Company, December 19, 2007, www.fastcompany.com 45 Ian P Murphy, “Carl’s Jr Tie-in Garners Good Publicity,” American Drycleaner, April 28, 2008, www.americandrycleaner.com 46 Beth Negus Viveiros, “Paying Off,” Direct, January 1, 2008, www.directmag.com 47 Lucas Conley, “Strike Up the Band,” Fast Company, June 2008, pp 50–53 48 Helen Leggatt, “Podcast Recall Rates Impressive,” BizReport, April 23, 2008, www.bizreport.com 49 Stephanie Saul, “Pfizer to End Lipitor Campaign by Jarvik,” The New York Times, February 25, 2008, www.nytimes.com 50 “Top 100 Advertising Campaigns,” Advertising Age, www.adage.com, accessed August 11, 2008 51 Doreen Carvajal, “Concern in Europe on Cellphone Ads for Children,” The New York Times, March 8, 2008, www.nytimes.com Chapter 17 Helen Coster, “A Step Ahead,” Forbes, June 2, 2008, pp 78, 80; Margaret Kane, “New Zappos: Shoes—and Gadgets to Boot,” CNet News, April 18, 2008, news.cnet.com; Ken Magill, “Worker’s Paradise,” Direct, October 1, 2007, www.directmag.com; Sidra Durst, “Shoe In,” Business 2.0, March 15, 2007, money.cnn.com Bureau of Labor Statistics, Occupational Outlook Handbook, 2008–2009 Edition, www.bls.gov Bureau of Labor Statistics, Occupational Outlook Handbook “Hardware’s Softer Side,” Chain Store Age, March 1, 2008, www.chainstoreage.com Company Web site, www.bestbuyinc.com, accessed August 15, 2008 Jeanine Poggi, “Dressing Rooms of the Future,” Forbes, July 22, 2008, www.forbes com Andrea Coombes, “Companies Crack Down on Business-Travel Policies,” The Wall Street Journal, October 25, 2007, www.careerjournal.com Ford Motor Company Web site, media.ford.com, accessed August 15, 2008 Darrell Zahorsky, “Sales Lessons from the World’s Greatest Sales Force,” About.com, sbinformation.about.com, accessed August 15, 2008 10 Company Web site, www.marykay.com, accessed August 21, 2008; Pedro Morales, “Sales Star Driven to Succeed,” News-Press, June 19, 2008, www.news-press.com 11 Federal Communications Commission, “FCC Consumer Facts: Unwanted Telephone Marketing Calls,” www.fcc.gov, accessed August 15, 2008 12 Federal Trade Commission, “Do Not Call Registrations Permanent and Fees Telemarketers Pay to Access Registry Set,” April 10, 2008, www.ftc.gov; Brian Burnsed, “Skirting the Do Not Call Registry,” BusinessWeek, August 16, 2007, www businessweek.com 13 Direct Marketing Association, “Teleservices Fact Sheet,” www.the-dma.org, accessed August 15, 2008 14 JetBlue Airways overview, Portfolio.com, www.portfolio.com, accessed August 15, 2008 15 Company Web site, www.nba.com, accessed August 15, 2008 16 “RightNow Helps Cabela’s Deliver Exceptional Customer Experiences and Support Renowned Service-Centric Brand,” Rightnow.com, February 12, 2008, www rightnow.com; “Customer Service Champs,” BusinessWeek, March 5, 2007, www businessweek.com 17 Adam J Fein, “Demand-Driven Customer Relationships,” company Web site, www ibm.com, accessed August 15, 2008 18 Company Web site, “IBM Provides Consultative Sales Training for Sony Broadcast & Professional Europe,” www-05.ibm.com, accessed August 15, 2008 19 Amy Feldman, “My First Million: The Sale That Changed It All,” Inc., May 2008, pp 33–34, 36 20 Company Web site, www.smsap.com, accessed August 15, 2008 21 Company Web site, www.southwest.com, accessed August 28, 2008; “Customer Service Champs,” BusinessWeek, March 5, 2007, www.businessweek.com 22 “Store Customers Like Having Access to JCP.com at J.C Penney Stores,” Internet Retailer, July 1, 2008, www.internetretailer.com 23 Company Web site, www.newellrubbermaid.com, accessed August 15, 2008 24 Marley Seaman, “New Pharma Ethics Rules Eliminate Gifts and Meals,” Associated Press, July 11, 2008, news.yahoo.com; Shaili Jain, “The Relationship between Doctors, Drug Companies,” Milwaukee Journal Sentinel, January 11, 2008, www jsonline.com 25 Mark Sneider, “A Better Way to Generate Leads,” Sales & Marketing Management, July 14, 2008, www.salesandmarketing.com 26 Leslie Benson, “Innovation through Collaboration,” Global Cosmetic Industry, May 2008, www.gcimagazine.com 27 Company Web site, www.blackanddecker.com, accessed August 15, 2008 28 Bureau of Labor Statistics, Occupational Outlook Handbook, 2008–2009 Edition, www.bls.gov 29 Carol Hymowitz, “HP’s Ann Livermore Keeps Eye on ‘Team,’” ComputerWorld, June 3, 2008, www.computerworld.com 30 U.S Department of Labor, Women’s Bureau, “Quick Stats 2007,” www.dol.gov, accessed August 18, 2008 31 Susan Greco, “Let’s Start with an Icebreaker: A Look at Summer Sales Meetings,” Inc., June 2008, pp 47–48, 50 32 Erin Geismar, “Retailers Back Big Back-to-School Sales,” SmartMoney.com, July 16, 2008, www.smartmoney.com 33 Jill Dyche, “CRM Success Drives Its Demise, and Other Aha! Moments,” CRM Today, www.crm2day.com, accessed August 15, 2008 34 “2008 CMS Trends Study,” CouponInfoNow.com, www.couponinfonow.com, accessed August 26, 2008 35 Company Web site press release, “Ecrio Announces Mobeam Digital Barcode Redemption Service Availability,” May 5, 2008, www.ecrio.com 36 “Secret Weapon?” Promo, December 1, 2007, www.promomagazine.com 37 Giannina Smith, “Product Giveaways Heat Up,” Atlanta Business Chronicle, June 6, 2008, www.atlanta.bizjournals.com 38 “Winners Named in Search for Greatest Interception,” MSN Money, January 14, 2008, news.moneycentral.com 39 Thomas Franklin, “Make It POP,” Digital Output, January 2007, www digitaloutput.net Chapter 18 Company Web site, www.dollartree.com, accessed August 20, 2008; Dollar Tree 2007 Annual Report, accessed August 20, 2008; “Dollar Tree: 2Q Sales Grew More than 12 Pct.,” Forbes, August 8, 2008, www.forbes.com; Michael Lucies, “Recession Shopping: The Dollar Tree Where Everything’s a Dollar!” Associated Content, July 31, 2008, www.associatedcontent.com; Cathryn Creno, “Dollar Stores Gain Favor in Slumping Economy,” The Arizona Republic, July 6, 2008, www.azcentral.com; Thomas M Anderson, “Dollar Tree Stretches a Buck,” Kiplinger’s, July 1, 2008, www kiplinger.com; Saul Sterman, “Dollar Tree et al.: Four Retailers,” Seeking Alpha, May 30, 2008, www.seekingalpha.com; “Update 1—Dollar Tree Quarterly Sales Beat Forecast,” Reuters, May 8, 2008, www.reuters.com; Sherry Slater, “Times Stretch Dollar Stores,” The Journal Gazette, April 19, 2008, www.journalgazette.net; Joe Stumpe, “Dining Dollar-Store Gourment,” McClatchy Newspapers, April 16, 2008, www.mcclatchy.com; Rich Duprey, “A Dollar and a Dream at Dollar Tree,” The Motley Fool, February 28, 2008, www.fool.com Economic Research Service, “Outlook for U.S Agricultural Trade,” August 28, 2008, United States Department Agriculture, www ers.usda.gov; Barry Krissoff and John Wainio, “U.S Fruit and Vegetable Imports Outpace Exports,” Amber Waves, May 2007 special issue, www.ers.usda.gov Mark Drajem, “WTO Challenges China on Tariffs,” The Washington Post, July 19, 2008, www.washingtonpost.com; Ariana Eunjung Cha, “China May End Some Key Import Tariffs,” The Washington Post, May 22, 2007, www.washingtonpost.com Company Web site, www.stubhub.com, accessed August 20, 2008; “Ticketmaster Completes Acquisition of TicketsNow,” PR Newswire, February 26, 2008, www ticketnews.com Gene Callahan, “Fair-Trade Coffee: Not Worth a Hill of Beans,” The Christian Science Monitor, August 8, 2008, www.csmonitor.com; Grace Hood, “‘Fair’ to the Last Bean,” Entrepreneur, March 2008, www.entrepreneur.com Micheline Maynard, “JetBlue Starts Selling Blankets and Pillows,” The New York Times, August 5, 2008, www.nytimes.com; “Flying la Carte,” Kiplinger’s Personal Finance, June 2008, p 14; Julie Johnsson, “Is This the End for Cheap Airline Fares?” The Chicago Tribune, April 20, 2008, Section 1, pp 1, 23; Harry R Weber, “Delta Raising Fees for Phone Bookings,” Associated Press, April 1, 2008, news.yahoo.com John Markoff, “Apple Aims for the Masses with a Cheaper iPhone,” The New York Times, June 10, 2008, www.nytimes.com Kelli B Grant, “Retailers Expand Customer-Loyalty Programs,” Smart Money, March 31, 2008, www.smartmoney.com Robert D Buzzell and Frederick D Wiersema, “Successful Share Building Strategies,” Harvard Business Review, January-February 1981, pp 135–144 10 Peter Svensson, “Skype to Sell Unlimited International Calls for $9.95/Month,” USA Today, April 21, 2008, www.usatoday.com 11 “Smart USA Delivers 10,000th Smart for Two in the United States,” Business Wire, June 24, 2008, www.reuters.com; Tangi Quemener, “Tiny Smart Cars Aiming to Make It Big in USA,” Agence France Presse, November 13, 2007, news.yahoo.com 12 Company Web site, www.traderjoes.com, accessed August 20, 2008 13 “PC Sales on the Rise Across the Globe,” Yahoo! Tech, July 30, 2008, tech.yahoo.com; Agam Shah, “Intel Revenues Survive Falling Laptop Prices,” PC Advisor, July 16, 2008, pcadvisor.co.uk; “Flash Price Drop Spurs Innovation,” The Washington Post, February 1, 2008, www.pcworld.com N-13 NOTES 14 Audie Lagorce, “Fractional Jet Ownership Gains Traction in Lean Times,” MarketWatch, July 15, 2008, www.marketwatch.com; Ken Sweet, “Private Jet Ownership Remains Strong Despite Weak Economy,” FoxBusiness, April 4, 2008, www.foxbusiness.com 15 Jenny Anderson, “Willing to Lease Your Bridge,” The New York Times, August 27, 2008, pp C1, C8; Santiago Pérez, “Public Wary of Increasing Efforts to Lease Roads,” The Wall Street Journal, May 9, 2008, corridornews.blogspot.com 16 Victor Zak, “Going Greener and Leaner in Seattle,” Asbury Park Press, April 23, 2008, www.app.com 17 Kevin Sack, “States Look to Tobacco Tax for Budget Holes,” The New York Times, April 21, 2008, www.nytimes.com 18 Bruce Horovitz, “Products Shrink but Prices Don’t,” USA Today, June 12, 2008, Section B, pp 1, 19 Ron Scherer, “Beyond Gasoline: Prices Surge for Oil-Based Goods,” The Christian Science Monitor, June 5, 2008, www.csmonitor.com 20 Dolly A Butz, “Gas Prices Hurting Meal Delivery Program, Other Charities,” Sioux City Journal, August 20, 2008, www.siouxcityjournal.com; Eric Collins, “San Diegans Abandon Their Cars for Public Transportation,” Fox6 San Diego, May 9, 2008, www.SanDiego6.com; “Mass Transit Gains New Appreciation,” The Republican, May 8, 2008, www.masslive.com; Allison Lampert, “Gas Prices a Boon for Public Transit,” Canada.com, April 22, 2008, www.canada.com 21 Aaron Smith, “Fewer Flights, Higher Fares,” CNNMoney, June 27, 2008, money cnn.com; Barbara De Lollis and Barbara Hansen, “Airlines Cut Back on U.S Flights,”ABCNews, abcnews.go.com, December 4, 2007 22 Macdonald Dzirutwe and Nelson Banya, “Zimbabwe Inflation Hits Record as Mugabe Tightens Grip,” Reuters, August 22, 2008, news.yahoo.com; “Cash Crisis, Inflation Worsen in Zimbabwe,” Associated Press, July 27, 2008, www.msnbc.com; Angus Shaw, “Zimbabwe Inflation Now Over Million Percent,” Boston Globe, May 21, 2008, www.boston.com 23 Tali Arbel, “Taps Gushing as Bottled Water Prices Get Harder to Swallow,” Los Angeles Times, June 18, 2008, articles.latimes.com 24 “Ford Meets Cost-Cutting Goal,” Courier-Journal, August 6, 2008, www allvoices.com 25 Suzanne Marta, “Touchy Subject: Hotel Spas Slow to Implementing Yield Management Strategies,” Hotel Online, April 2007, www.hotel-online.com 26 James L McKenney, Stouffer Yield Management System, Harvard Business School Case 9-190-193, Boston: Harvard Business School, 1994; Anirudh Dhebar and Adam Brandenburger, American Airlines, Inc.: Revenue Management, Harvard Business School Case 9-190-029, Boston: Harvard Business School, 1992 27 Tania Branigan, “The Real Olympics Competition: Nike and Adidas Claim China’s Heroes,” The Guardian, August 18, 2008, www.guardian.co.uk; Frederik Balfour, “Acting Globally but Selling Locally,” BusinessWeek, May 12, 2008, pp 51–52 28 “The Cost of Euro Adoption: One Good Meal,” The Slovak Spectator, August 4, 2008, www.spectator.sk 29 “Tesco Nears Complete Conquest of UK,” The Guardian, March 28, 2008, guardian co.uk; Teena Lyons, “Ten Years of Supermarket Sweeps,” The Guardian, October 31, 2007, guardian.co.uk; Susie Mesure, “Critics Attack Tesco’s New ‘Monopoly Test,’” The Independent, April 3, 2007, independent.co.uk; “Tesco Fights Monopoly Claim,” The Daily Mail, April 2, 2007, dailymail.co.uk Chapter 19 Carolyn Giardina and Paul Bond, “Big-Screen Giant IMAX Eyes Digital Future,” Reuters, June 20, 2008, www.reuters.com; “IMAX Finally Goes Digital, and Your Big-Big Screen Flick Could Be Next,” Popular Mechanics, March 10, 2008, www.popularmechanics.com; Katy Marquardt, “Out of the Museum and Right Into Your Lap,” U.S News & World Report, February 18, 2008, pp 50–54; “AMC Adds Dimension through Joint Venture with IMAX,” Kansas City Business Journal, December 14, 2007, www.bizjournals.com; “AMC, IMAX Join for Digital Systems in AMC Theaters,” Kansas City Business Journal, December 7, 2007, www.bizjournals.com Liz Fedor, “Airfares Unlikely to Match Oil-Price Descent,” Star Tribune, July 31, 2008, www.startribune.com; “Major Airlines Roll Back Fare Hikes,” Associated Press, June 10, 2008, www.cbsnews.com; “Northwest Airlines Matches Fuel Charge Increase Implemented by Other Network Carriers,” Reuters, May 9, 2008, www reuters.com Company Web site, www.bestbuy.com, accessed August 25, 2008 Company Web site, www.bestbuy.com, accessed August 25, 2008 Soyoung Kim and Kevin Krolicki, “GM Returns to Employee Pricing to Lift Sales,” Reuters, August 18, 2008, news.yahoo.com Sara Wilson, “Picture It,” Entrepreneur, July 2008, p 43 Gavin Rabinowitz, “Tata Unveils the World’s Cheapest Car,” Associated Press, January 10, 2008, news.yahoo.com Company Web site, “Wal-Mart Launches Online Resource Guide to Save More, Even Beyond the Store,” www.reuters.com, accessed November 2008 Rachel Tobin Ramos, “Grocery Store Brands Feed on Bargain Hunter,” The Atlanta Journal-Constitution, August 22, 2008, www.ajc.com 10 Edmunds Web site, “Toyota Prius Styles,” www.edmunds.com/toyota/prius, accessed August 25, 2008 11 Company Web site, www.shutterfly.com, accessed August 25, 2008 12 Company Web site, qd.sees.com, accessed August 25, 2008 13 “The Consumer Reports Bottom Line Price,” Consumer Reports, www consumerreports.org, accessed August 25, 2008 14 Chris Coffee Service Web site, www.chriscoffee.com, accessed August 25, 2008; “Epsom Minimum Advertised Pricing,” InketArt.com, www.inkjetart.com, accessed August 25, 2008; Joseph Pereira, “Price-fixing Comes Back after Supreme Court Ruling,” TheDay.com, August 19, 2008, www.theday.com 15 Kimberly Palmer, “Admit It, You’ll Never Send for That Rebate,” U.S News & World Report, March 3, 2008, p 61 16 Peter Svensson, “Internet Provider’s Usage Cap Raises Questions,” Associated Press, August 22, 2008, news.yahoo.com; Peter Svensson, “Time Warner Cable Tries Metering Internet Use,” Associated Press, June 2, 2008, www.physorg.com 17 Ruth La Ferla, “Love Your Sunglasses (Should I Know You?),” The New York Times, July 10, 2008, www.nytimes.com 18 Roland Jones, “Automakers’ Gas Gimmicks May Backfire,” MSNBC, May 29, 2008, www.msnbc.com 19 Margi Shrum, “Sauce: Taming the Wild Loss-Leader Cantaloupe,” Pittsburgh PostGazette, August 14, 2008, www.post-gazette.com 20 Rick Broida, “Get a DVD Camcorder for $170 Shipped,” CNet News, August 25, 2008, news.cnet.com; “Price Drops,” CNet News, news.cnet.com, accessed August 25, 2008; Best Buy Web site, http://www.bestbuy.com, accessed November 2008 21 Deborah Stead, “Your Taste Buds Are in Your Wallet,” BusinessWeek, April 28, 2008, p 21 22 Charles Gandee and Christine Ajuda, “Chic and Cheap: The New American Motel,” MSNBC, February 8, 2008, www.msnbc.com 23 Sam Abuelsamid, “Michigan State Police Hit the Test Track with Latest Cop Cars,” Autoblog, www.autoblog.com, accessed August 27, 2008 24 “NY to Bid State Fair Concert Contracts in ’09,” MSN Money, August 14, 2008, www.ibtimes.com 25 Ticketmaster Web site, www.ticketmaster.com, accessed August 27, 2008; StubHub Web site, www.stubhub.com, accessed August 27, 2008; “Ticketmaster Branches Out,” Rock & Roll Daily, January 15, 2009, www.rollingstone.com 26 EBay Web site, www.ebay.com, accessed August 27, 2008; uBid Web site, www ubid.com, accessed August 27, 2008 27 “Krillion Adds 96 Product Categories to Its Local Shopping Search Index,” Internet Retailer, August 19, 2008, www.internetretailer.com; Don Davis, “One Big Store,” Internet Retailer, August 2008, www.internetretailer.com; Paul Demery, “The Big Chains Weigh In,” Internet Retailer, August 2008, www.internetretailer.com 28 “New ‘AT&T Net Reach’ Bundle Delivers High Speed Internet Solution for Customers at Home and on the Go,” AOL Money & Finance, June 4, 2008, findarticles.com 29 Bob Sullivan, “Cable TV: King of Misleading Come-ons,” MSNBC, January 28, 2008, www.msnbc.com; Brian Stelter, “In Defense of Cable Bundling,” The New York Times, November 26, 2007, tvdecoder.blogs.nytimes.com; Anne Broache, “Cable Subscribers Sue for ‘à la Carte’ TV Options,” CNet.news, September 21, 2007, www.news.com 30 Joe McDonald, “Dell Unveils New PCs Targeting Emerging Markets,” Associated Press, August 27, 2008, news.yahoo.com 31 Staples Web site, www.staples.com, accessed May 11, 2008 32 Peter Greenberg, “You Charged Me for What?” AARP, May & June 2008, p 22 Appendix A Procter & Gamble Web site, www.pg.com, accessed September 16, 2008; Elaine Wong, “All About P&G’s New Global Marketing Officer,” AdWeek, July 17, 2008, www.adweek.com; “Procter & Gamble Announces Organizational Changes,” PR Newswire, July 15, 2008, money.aol.com; Andrew McMains and Todd Wasserman, “P&G’s Stengel Preps Exit; Pritchard to Lead Marketing,” AdWeek, July 15, 2008, www.adweek.com; “P&G’s New Marketing Man,” Fashion Week Daily, July 15, 2008, www.fashionweekdaily.com “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov, accessed September 3, 2008 “New Grads, Get 7.1 Percent Starting Salary Increase,” SmartPros, July 18, 2008, accounting.smartpros.com N-14 NOTES “Employment Projections,” Bureau of Labor Statistics, U.S Department of Labor, www.bls.gov, accessed September 3, 2008 Brandi Stewart, “EBay’s New In-House Blogger Sounds Off,” Fortune Small Business, March 6, 2008, money.cnn.com SalesJobs.com, www.salesjobs.com, and WomenSportsJobs.com, www.womensportsjobs.com, both accessed September 3, 2008 “Online Job Boards Lead Recruiting Tools in Utilization,” Reuters Business & Finance, August 18, 2008, findarticles.com Enterprise Rent-a-Car Web site, www.erac.com, accessed September 3, 2008 Rosemary Lane, “Unpaid Interns Value Experience,” Marquette Tribune, April 29, 2008, www.marquettetribune.org; Edwin Koc, “Paid Internships Pay Well,” National Association of Colleges and Employers, April 7, 2008, www.naceweb.org 10 American Association of Advertising Agencies, www.aaaa.org, accessed September 3, 2008; Inroads, www.inroads.org, accessed September 3, 2008; The Washington Center, www.twc.edu, accessed September 3, 2008 11 Kim Isaacs, “Ten Cover Letter Don’ts,” Monster Career Advice, career-advice monster.com, accessed September 3, 2008; Tag and Catherine Goulet, “Seven Cover Letter Don’ts,” CareerBuilder.com, www.careerbuilder.com, accessed September 3, 2008; Randall S Hansen and Katharine Hansen, “Cover Letter Do’s and Don’ts,” Quintessential Careers, www.quintcareers.com, accessed September 3, 2008 12 “Interviewing Tips,” Sam M Walton College of Business, waltoncollege.uark.edu, accessed September 5, 2008 13 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov, accessed September 5, 2008 14 “Advertising and Public Relations Services,” Career Guide to Industries, Occupational Outlook Handbook, 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov, accessed September 5, 2008 15 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition 16 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition 17 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition; “Advertising and Public Relations Services,” Occupational Outlook Handbook, 2008–2009 Edition 18 “Advertising and Public Relations Services,” Occupational Outlook Handbook, 2008–2009 Edition 19 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition 20 “Advertising, Marketing, Promotions, Public Relations, and Sales Managers,” Occupational Outlook Handbook, 2008–2009 Edition 21 “Advertising and Public Relations Services,” Occupational Outlook Handbook, 2008–2009 Edition 22 “Purchasing Managers, Buyers, and Purchasing Agents,” Occupational Outlook Handbook 2008–2009, Bureau of Labor Statistics, www.bls.gov, accessed September 5, 2008 23 “Purchasing Managers, Buyers, and Purchasing Agents,” Occupational Outlook Handbook, 2008–2009 Edition 24 “Purchasing Managers, Buyers, and Purchasing Agents,” Occupational Outlook Handbook, 2008–2009 Edition 25 “Purchasing Managers, Buyers, and Purchasing Agents,” Occupational Outlook Handbook, 2008–2009 Edition 26 “Market and Survey Researchers,” Occupational Outlook Handbook, 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov, accessed September 5, 2008 27 “Market and Survey Researchers,” Occupational Outlook Handbook, 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov, accessed September 5, 2008 28 “Market and Survey Researchers,” Occupational Outlook Handbook, 2008–2009 Edition 29 “Cargo and Freight Agents,” “Shipping, Receiving, and Traffic Clerks,” “Stock Clerks and Order Fillers,” “Production, Planning and Expediting Clerks,” and “Dispatchers,” Occupational Outlook Handbook, 2008–2009 Edition, Bureau of Labor Statistics, www.bls.gov, accessed September 5, 2008 Appendix B Google Corporate Web site, www.google.com, accessed August 29, 2008 Kermit Pattison, “How TerraCycle Plans to Take over the Garbage Industry,” Fast Company, August 11, 2008, www.fastcompany.com Nintendo Company Web site, www.nintendo.com, accessed August 29, 2008 Justin Moresco, “Ethanol’s Unsexy Dilemma,” Red Herring, April 4, 2008, www.redherring.com Dyan Machan, “CEO Interview: Costco’s James Sinegal,” SmartMoney, March 27, 2008, www.smartmoney.com Amanda C Kooser, Lindsay Holloway, Nichole L Torres, and Sara Wilson, “Young Millionaires,” Entrepreneur, September 2008, p 66 John Brodie, “Retailing Icon Mickey Drexler Doubles Down,” Fortune, August 20, 2008, money.cnn.com Joe Nocera, “Retail Suits J Crew’s Chief Just Fines,” International Herald Tribune, March 1, 2008, www.iht.com Dan Sewell, “Procter & Gamble Ties Laundry to Fashion,” Associated Press, August 25, 2008, www.news.yahoo.com 10 Dan Mitchell, “A Small Empire Built on Cuddly and Fuzzy Branches Out from the Web,” The New York Times, August 19, 2008, www.nytimes.com 11 Laura M Holson, “An Unlikely Promoter Drives Nokia’s Push in Hollywood,” The New York Times, June 23, 2008, www.nytimes.com; Jack Ewing, “How Nokia Users Drive Innovation,” BusinessWeek, April 30, 2008, www.businessweek.com 12 Bo Burlingham, “The Believer,” Inc Magazine, August 2008, pp 86–93 13 Frank Ahrens, “Weather Channel Sold to NBCU,” The Washington Post, July 7, 2008, www.washingtonpost.com 14 “Analysts Say Assurant’s GE Deal ‘a Natural Fit,’” CNNMoney, September 5, 2008, money.cnn.com; Michael J De La Merced, “GE May Spin Off Its Consumer and Industrial Unit,” International Herald Tribune, July 11, 2008, www.iht.com G-1 GLOSSARY 80/20 principle Generally accepted rule that 80 percent of a product’s revenues come from 20 percent of its total customers A accessory equipment Capital items such as desktop computers and printers that typically cost less and last for shorter periods than installations acculturation Process of learning a new culture foreign to one’s own administered marketing system VMS that achieves channel coordination when a dominant channel member exercises its power adoption process Stages consumers go through in learning about a new product, trying it, and deciding whether to purchase it again advertising Paid, nonpersonal communication through various media about a business firm, not-for-profit organization, product, or idea by a sponsor identified in a message intended to inform or persuade members of a particular audience ambush marketing Attempt by a firm that is not an official sponsor of an event or activity to link itself to the event or activity benchmarking antitrust Laws designed to prevent restraints on trade such as business monopolies blog application service providers (ASPs) Outside companies that specialize bonus pack in providing both the computers and the application support for managing information systems of business clients approach Salesperson’s initial contact with a prospective customer Asch phenomenon Impact of groups and group norms on individual behavior, as described by S E Asch People often conform to majority rule, even when it goes against their beliefs atmospherics Combination of physical characteristics and amenities that contribute to a store’s image attitudes Person’s enduring favorable or unfavorable evaluations, emotions, or action tendencies toward some object or idea advertising agency average total costs Costs calculated by dividing the sum of the variable and fixed costs by the number of units produced advertising campaign B Firm whose marketing specialists help advertisers plan and prepare advertisements Series of different but related ads that use a single theme and appear in different media within a specified time period affinity marketing Marketing effort sponsored by an organization that solicits responses from individuals who share common interests and activities AIDA concept Steps through which an individual reaches a purchase decision: attention, interest, desire, and action AIO statements Items on lifestyle surveys that describe various activities, interests, and respondents’ opinions allowance Specified deduction from list price, including a trade-in or promotional allowance baby boomers Method of measuring quality by comparing performance against industry leaders Short for Web log—an online journal for an individual or organization Specially packaged item that gives the purchaser a larger quantity at the regular price bot (shopbot) Software program that allows online shoppers to compare the price of a particular product offered by several online retailers bottom line Business jargon referring to the overall profitability of an organization brand Name, term, sign, symbol, design, or some combination that identifies the products of one firm while differentiating them from that of the competition brand equity Added value that a respected, well-known brand name gives to a product in the marketplace brand extension Strategy of attaching a popular brand name to a new product in an unrelated product category brand insistence Consumer refusal of alternatives and extensive search for desired merchandise brand manager Marketer responsible for a single brand People born between 1946 and 1965 backward integration Process through which a manufacturer attempts to gain greater control over inputs in its production process, such as raw materials banner ad Strip message placed in high-visibility areas of frequently visited Web sites banners Advertisements on a Web page that link to an advertiser’s site basing-point pricing System used in some industries during the early 20th century in which the buyer paid the factory price plus freight charges from the basing-point city nearest the buyer brand mark Symbol or pictorial design that distinguishes a product brand name Part of a brand, consisting of letters, numbers, or words, that can be spoken and that identifies and distinguishes a firm’s offerings from those of its competitors brand preference Consumer reliance on previous experiences with a product to choose that item again brand recognition Consumer awareness and identification of a brand breakeven analysis Pricing technique used to determine the number of products that must be sold at a specified price to generate enough revenue to cover total cost G-2 GLOSSARY broker Agent wholesaling intermediary that does not take title to or possession of goods in the course of its primary function, which is to bring together buyers and sellers buzz marketing Marketing that gathers volunteers to try products and then relies on them to talk about their experiences with their friends and colleagues bundle pricing Offering two or more complementary products and selling them for a single price C business cycle cannibalization business plan captive brand National brands sold exclusively by a retail chain Pattern of stages in the level of economic activity: prosperity, recession, depression, and recovery Formal document that outlines what a company’s objectives are, how they will be met, how the business will obtain financing, and how much money the company expects to earn business products Goods and services purchased for use either directly or indirectly in the production of other goods and services for resale business services Intangible products firms buy to facilitate their production and operating processes business-to-business (B2B) e-marketing Use of the Internet for business transactions between organizations business-to-business (B2B) marketing Organizational sales and Loss of sales of an existing product due to competition from a new product in the same line cash discount Price reduction offered to a consumer, business user, or marketing intermediary in return for prompt payment of a bill category Key business unit within diversified firms; also called a strategic business unit (SBU) category advisor (category captain) Trade industry vendor who develops a comprehensive procurement plan for a retail buyer category killer Store offering huge selections and low prices in single product lines cobranding Cooperative arrangement in which two or more businesses team up to closely link their names on a single product cognitive dissonance Imbalance among knowledge, beliefs, and attitudes that occurs after an action or decision, such as a purchase cohort effect Tendency of members of a generation to be influenced and bound together by events occurring during their key formative years—roughly ages 17 to 22 cold calling Contacting a prospect without a prior appointment collaborative planning, forecasting, and replenishment (CPFaR) Inventory management technique involving collaborative efforts by both purchasers and vendors comarketing Cooperative arrangement in which two businesses jointly market each other’s products category management commercial market Individuals and firms that acquire products to support, directly or indirectly, production of other goods and services Product management system in which a category manager—with profit and loss responsibility— oversees a product line purchases of goods and services to support production of other products, to facilitate daily company operations, or for resale cause marketing Identification and marketing of a social issue, cause, or idea to selected target markets commission Incentive compensation directly related to the sales or profits achieved by a salesperson business-to-business (B2B) marketing Organizational sales and Central American Free Trade Agreement-DR (CAFTA-DR) commission merchant Agent wholesaling intermediary who takes possession of goods shipped to a central market for sale, acts as the producer’s agent, and collects an agreed-upon fee at the time of the sale purchases of goods and services to support production of other products, for daily company operations, or for resale business-to-business (B2B) product Product that contributes directly or indirectly to the output of other products for resale; also called industrial or organizational product Trade agreement among the United States, Central American nations, and the Dominican Republic channel Medium through which a message is delivered channel captain Dominant and controlling member of a marketing channel business-to-consumer (B2C) e-marketing Selling directly to consumers channel conflicts over the Internet click-through rate buyer Person who has the formal authority to select a supplier and to implement the procedures for securing a good or service closed sales territory Exclusive geographic selling region of a distributor buyer partnership closing Relationship in which a firm purchases goods or services from one or more providers buyer’s market Market in which there are more goods and services than people willing to buy them buying center Participants in an organizational buying action Conflicts between manufacturers, wholesalers, and retailers Percentage of people presented with a banner ad who click on it Stage of the personal selling process in which the salesperson asks the customer to make a purchase decision cluster sample Probability sample in which researchers select a sample of subgroups (or clusters) from which they draw respondents; each cluster reflects the diversity of the whole population sampled common carriers Businesses that provide transportation services as for-hire carriers to the general public common market Extension of a customs union by seeking to reconcile all government regulations affecting trade comparative advertising Advertising strategy that emphasizes messages with direct or indirect promotional comparisons between competing brands competitive bidding Inviting potential suppliers to quote prices on proposed purchases or contracts competitive environment Interactive process that occurs in the marketplace among marketers of directly competitive products, marketers of products that can be substituted for one another, and marketers competing for the consumer’s purchasing power G-3 GLOSSARY competitive pricing strategy Pricing strategy designed to deemphasize price as a competitive variable by pricing a good or service at the general level of comparable offerings contract carriers For-hire transporters that not offer their services to the general public cost-plus pricing Practice of adding a percentage of specified dollar amount—or markup—to the base cost of a product to cover unassigned costs and to provide a profit solving a puzzle or answering questions on a quiz, for the chance to win a prize competitive strategy Methods through which a firm deals with its competitive environment contractual marketing system VMS that coordinates channel activities through formal agreements among participants countertrade component parts and materials controlled experiment coupon Finished business products of one producer that become part of the final products of another producer concentrated marketing Focusing marketing efforts on satisfying a single market segment; also called niche marketing concept testing Method for subjecting a product idea to additional study before actual development by involving consumers through focus groups, surveys, in-store polling, and the like consolidated metropolitan statistical area (CMSA) Urban area that includes two or more PMSAs consultative selling Meeting customer needs by listening to them, understanding their problems, paying attention to details, and following through after the sale Scientific investigation in which a researcher manipulates a test group (or groups) and compares the results with those of a control group that did not receive the experimental controls or manipulations convenience products Goods and services consumers want to purchase frequently, immediately, and with minimal effort Form of exporting whereby goods and services are bartered rather than sold for cash Sales promotion technique that offers a discount on the purchase price of goods or services creative selling Personal selling in which a considerable degree of analytical decision making on the buyer’s part results in the need for skillful proposals of solutions for the customer’s needs convenience retailer Store that appeals to customers on accessible location, long hours, rapid checkout, and adequate parking cross-promotion Promotional technique in which marketing partners share the cost of a promotional campaign that meets their mutual needs convenience sample Nonprobability sample selected from among readily available respondents cross-selling conversion rate Percentage of visitors to a Web site who make a purchase cue Any object in the environment that determines the nature of a consumer’s response to a drive cookies Selling multiple, often unrelated, goods and services to the same customer based on knowledge of that customer’s needs Process through which buyers make purchase decisions Controversial techniques for collecting information about online Web site visitors in which small text files are automatically downloaded to a user’s computer to gather such data as length of visit and the site visited next consumer (B2C) product cooperative advertising cumulative quantity discount Price discount determined by amounts of purchases over stated time periods core based statistical area (CBSA) customary prices Traditional prices that customers expect to pay for certain goods and services consumer behavior Product destined for use by ultimate consumers consumer innovators People who purchase new products almost as soon as the products reach the market consumer orientation Business philosophy incorporating the marketing concept that emphasizes first determining unmet consumer needs and then designing a system for satisfying them Strategy in which a retailer shares advertising costs with a manufacturer or wholesaler Collective term for metropolitan and micropolitan statistical areas core competencies Activities that a company performs well and that customers value and competitors find difficult to duplicate culture Values, beliefs, preferences, and tastes handed down from one generation to the next customer churn Turnover in a company’s customer base customer relationship management (CRM) Combination of strategies and tools consumer products core region Region from which most major brands get 40 to 80 percent of their sales consumer rights corporate marketing system VMS in which a single owner operates the entire marketing channel consumerism corporate Web site Site designed to increase a firm’s visibility, promote its offerings, and provide information to interested parties customer winback cost per impression customer-based segmentation Products bought by ultimate consumers for personal use List of legitimate consumer expectations suggested by President John F Kennedy Social force within the environment that aids and protects the consumer by exerting legal, moral, and economic pressures on business and government containerization Process of combining several unitized loads into a single, wellprotected load for shipment contest Sales promotion technique that requires entrants to complete a task, such as Measurement technique that relates the cost of an ad to every thousand people who view it cost per response (also called clickthroughs) Direct marketing technique that relates the cost of an ad to the number of people who click it that drives relationship programs, reorienting the entire organization to a concentrated focus on satisfying customers customer satisfaction Extent to which customers are satisfied with their purchases Process of rejuvenating lost relationships with customers Dividing a business-to-business market into homogeneous groups based on buyers’ product specifications customs union Establishment of a freetrade area plus a uniform tariff for trade with nonmember unions G-4 GLOSSARY D direct channel data mining Process of searching through customer databases to detect patterns that guide marketing decision making direct mail database marketing Use of software to analyze marketing information, identifying and targeting messages toward specific groups of potential customers decider Person who chooses a good or service, although another person may have the formal authority to complete the sale decline stage Final stage of the product lifecycle, in which a decline in total industry sales occurs decoding Receiver’s interpretation of a message Delphi technique Qualitative sales forecasting method that gathers and redistributes several rounds of anonymous forecasts until the participants reach a consensus demand Schedule of the amounts of a firm’s product that consumers will purchase at different prices during a specified time period demarketing Process of reducing consumer demand for a good or service to a level that the firm can supply demographic segmentation Division of an overall market into homogeneous groups based on variables such as gender, age, income, occupation, education, sexual orientation, household size, and stage in the family life cycle; also called socioeconomic segmentation demonstration Stage in the personal selling process in which the customer has the opportunity to try out or otherwise see how a good or service works before purchase department store Large store that handles a variety of merchandise, including clothing, household goods, appliances, and furniture Marketing channel that moves goods directly from a producer to the business purchaser or ultimate user Communications in the form of sales letters, postcards, brochures, catalogs, and the like conveying messages directly from the marketer to the customer direct marketing Direct communications, other than personal sales contacts, between buyer and seller, designed to generate sales, information requests, or store or Web site visits direct sales results test Method for measuring promotional effectiveness based on the specific impact on sales revenues for each dollar of promotional spending direct selling Strategy designed to establish direct sales contact between producer and final user discount house Store that charges low prices but may not offer services such as credit discretionary income Money available to spend after buying necessities such as food, clothing, and housing distribution Movement of goods and services from producers to customers distribution strategy Planning that ensures consumers find a firm’s products in the proper quantities at the right times and places downstream management Controlling part of the supply chain that involves finished product storage, outbound logistics, marketing and sales, and customer service drive Any strong stimulus that impels a person to act drop shipper Limited-function merchant wholesaler that accepts orders from customers and forwards these orders to producers, which then ship directly to the customers who placed the orders deregulation movement dual distribution Network that moves products to a firm’s target market through more than one marketing channel derived demand dumping Controversial practice of selling a product in a foreign market at a price lower than what it receives in the producer’s domestic market Opening of markets previously subject to government control Demand for a resource that results from demand for the goods and services produced by that resource differentiated marketing Strategy that focuses on producing several products and pricing, promoting, and distributing them with different marketing mixes designed to satisfy smaller segments diffusion process Process by which new goods or services are accepted in the marketplace E e-business Conducting online transactions with customers by collecting and analyzing business information, carrying out the exchanges, and maintaining online relationships with customers ecology Relationship between organisms and their natural environment economic environment Factors that influence consumer buying power and marketing strategies, including stage of the business cycle, inflation and deflation, unemployment, income, and resource availability elasticity Measure of responsiveness of purchasers and suppliers to a change in price electronic bulletin board Internet forum that allows users to post and read messages on a specific topic electronic data interchange (EDI) Computer-to-computer exchanges of invoices, orders, and other business documents electronic exchange Online marketplace that caters to a specific industry’s needs electronic shopping cart File that holds items the online shopper has chosen to buy electronic signatures Electronic identification that allows legal contracts such as home mortgages and insurance policies to be executed online electronic storefront Company Web site that sells products to customers e-marketing Strategic process of creating, distributing, promoting, and pricing goods and services to a target market over the Internet or through digital tools embargo Complete ban on the import of specified products emergency goods and services Products bought in response to unexpected and urgent needs employee satisfaction Employee’s level of satisfaction in his or her company and the extent to which that loyalty—or lack thereof— is communicated to external customers encoding Translating a message into understandable terms encryption The process of encoding data for security purposes end-use application segmentation Segmenting a business-to-business market based on how industrial purchasers will use the product engagement Amount of time users spend on sites Engel’s laws Three general statements about the impact of household income on G-5 GLOSSARY consumer spending behavior: as household income increases, a smaller percentage of expenditures goes for food; the percentage spent on housing, household operations, and clothing remains constant; and the percentage spent on other items (such as recreation and education) increases exchange rate Price of one nation’s currency in terms of another country’s currency a marketplace will be the long-term market winner exclusive dealing agreement fixed costs enterprise resource planning (ERP) system Software system that consolidates exclusive distribution fixed-sum-per-unit method Method of promotional budgeting in which a predetermined amount is allocated to each sales or production unit expectancy theory FOB (free on board) plant (FOB origin) Price quotation that does not include data from among a firm’s various business units environmental management Attainment of organizational objectives by predicting and influencing the competitive, political-legal, economic, technological, and social-cultural environments environmental scanning Process of collecting information about the external marketing environment to identify and interpret potential trends e-procurement Use of the Internet by organizations to solicit bids and purchase goods and services from suppliers ethics Moral standards of behavior expected by a society European Union (EU) Customs union that is moving in the direction of an economic union by adopting a common currency, removing trade restrictions, and permitting free flow of goods and workers throughout the member nations Arrangement between a manufacturer and a marketing intermediary that prohibits the intermediary from handling competing product lines Distribution of a product through a single wholesaler or retailer in a specific geographic region Theory that motivation depends on an individual’s expectations of his or her ability to perform a job and how that performance relates to attaining a desired reward exploratory research Process of discussing a marketing problem with informed sources both within and outside the firm and examining information from secondary sources exponential smoothing Quantitative forecasting technique that assigns weights to historical sales data, giving the greatest weight to the most recent data external customer People or organizations that buy or use a firm’s goods or services forward integration F franchise Contractual arrangement in which a wholesaler or retailer agrees to meet the operating requirements of a manufacturer or other franchiser fair-trade laws Statutes enacted in most states that once permitted manufacturers to stipulate a minimum retail price for their product family brand Region in which participating nations agree to the free trade of goods among themselves, abolishing tariffs and trade restrictions the length of the entire Western hemisphere and designed to extend free trade benefits to additional nations in North, Central, and South America Process of family formation and dissolution feedback Receiver’s response to a message firewall Activity in which two or more parties give something of value to each other to satisfy perceived needs free-trade area family life cycle exchange functions exchange process Process through which a firm attempts to control downstream distribution Free Trade Area of the Americas (FTAA) Proposed free-trade area stretching field selling Sales presentations made at prospective customers’ locations on a face-toface basis Buying and selling Agreement that grants foreign marketers the right to distribute a firm’s merchandise or to use its trademark, patent, or process in a specified geographic area Single brand name that identifies several related products Method used to regulate the privilege of international trade among importing organizations by controlling access to foreign currencies functions of marketing follow-up foreign licensing everyday low pricing (EDLP) exchange control focus group Simultaneous personal interview of a small group of individuals that relies on group discussion about a certain topic Situation that involves lengthy external searches and long deliberation; results when brands are difficult to categorize or evaluate facilitating functions Functions that assist the marketer in performing the exchange and physical distribution functions Number of alternatives a consumer actually considers in making a purchase decision allows the buyer to deduct shipping expenses from the cost of purchases extended problem solving Marketing of sporting, cultural, and charitable activities to selected target markets evoked set FOB origin-freight allowed (freight absorbed) Price quotation system that Marketing domestically produced goods and services in foreign countries exporting event marketing Pricing strategy of continuously offering low prices rather than relying on such short-term price cuts as cents-off coupons, rebates, and special sales shipping charges Post-sale activities that often determine whether an individual who has made a recent purchase will become a repeat customer evaluative criteria Features a consumer considers in choosing among alternatives Costs that remain stable at any production level within a certain range (such as lease payments or insurance costs) Electronic barrier between a company’s internal network and the Internet that limits access into and out of the network first mover strategy Theory advocating that the company first to offer a product in frequency marketing Frequent-buyer or -user marketing programs that reward customers with cash, rebates, merchandise, or other premiums friendship, commerce, and navigation (FCN) treaties International agreements that deal with many aspects of commercial relations among nations G-6 GLOSSARY full-cost pricing green marketing full-service research supplier gross domestic product (GDP) Sum of all goods and services produced by a nation in a year Pricing method that uses all relevant variable costs in setting a product’s price and allocates those fixed costs not directly attributed to the production of the priced item Marketing research organization that offers all aspects of the marketing research process G gatekeeper Person who controls the information that all buying center members will review Production, promotion, and reclamation of environmentally sensitive products growth stage Second stage of the product lifecycle that begins when a firm starts to realize substantial profits from its investment in a product guerrilla marketing Unconventional, innovative, and low-cost marketing techniques designed to get consumers’ attention in unusual ways General Agreement on Tariffs and Trade (GATT) International trade accord that has helped reduce world tariffs H general merchandise retailer high-involvement purchase decision Buying decision that evokes Store that carries a wide variety of product lines, stocking all of them in some depth 9/11 Generation People in their formative years at the time of the September 11, 2001, terrorist attacks generic products Products characterized by plain labels, no advertising, and the absence of brand names geographic information system (GIS) Software package that assembles, stores, manipulates, and displays data by their location geographic segmentation Division of an overall market into homogeneous groups based on their locations global marketing strategy Standardized marketing mix with minimal modifications that a firm uses in all of its domestic and foreign markets global sourcing Purchasing goods and services from suppliers worldwide goods Tangible products customers can see, hear, smell, taste, or touch goods–services continuum Spectrum along which goods and services fall according to their attributes, from pure good to pure service high levels of potential economic or social consequence home shopping channel Television direct marketing in which a variety of products are offered and consumers can order them directly by phone or online homeshoring Hiring workers to jobs from their homes hypermarket Giant one-stop shopping facility offering wide selections of grocery items and general merchandise at discount prices, typically filling up 200,000 or more square feet of selling space hypothesis Tentative explanation for a I import quotas Trade restrictions limiting the number of units of certain goods that can enter a country for resale Purchasing foreign goods and services impulse goods and services Products purchased on the spur of the moment inbound telemarketing Efforts that connect directly with existing and potential customers through nonmainstream channels Sales method in which prospects call a seller to obtain information, make reservations, and purchase goods and services gray goods incremental-cost pricing grassroots marketing Products manufactured abroad under license from a U.S firm and then sold in the U.S market in competition with that firm’s own domestic output individual brand Single brand that uniquely identifies a product inelastic demand Demand that, throughout an industry, will not change significantly due to a price change inflation Rising prices caused by some combination of excess consumer demand and increases in the costs of one or more factors of production influencer Typically, technical staff such as engineers who affect the buying decision by supplying information to guide evaluation of alternatives or by setting buying specifications infomercial Paid 30-minute or longer product commercial that resembles a regular television program informative advertising Promotion that seeks to develop initial demand for a good, service, organization, person, place, idea, or cause infrastructure A nation’s basic system of transportation networks, communications systems, and energy facilities inside selling Selling by phone, mail, and electronic commerce installations Business products such as factories, assembly lines, and large machinery that are major capital investments institutional advertising Promotion of a concept, an idea, a philosophy, or the goodwill of an industry, company, organization, person, geographic location, or government agency specific event importing indirect evaluation Method for measuring promotional effectiveness by concentrating on quantifiable indicators of effectiveness such as recall and readership Pricing method that attempts to use only costs directly attributable to a specific output in setting prices integrated marketing communications (IMC) Coordination of all promotional activities to produce a unified, customer-focused promotional message intensive distribution Distribution of a product through all available channels interactive advertising Two-way promotional messages transmitted through communication channels that induce message recipients to participate actively in the promotional effort interactive marketing Buyer–seller communications in which the customer controls the amount and type of information received from a marketer through such channels as the Internet and virtual reality kiosks G-7 GLOSSARY interactive television Television service package that includes a return path for viewers to interact with programs or commercials by clicking their remote controls to boost efficiency by cutting inventories to absolute minimum levels With JIT II, suppliers’ representatives work at the customer’s facility intermodal operations Combination of transport modes, such as rail and highway carriers (piggyback), air and highway carriers (birdyback), and water and air carriers (fishyback), to improve customer service and achieve cost advantages internal customer Employees or departments within an organization that depend on the work of another employee or department to perform tasks internal marketing Managerial actions that help all members of the organization understand, accept, and fulfill their respective roles in implementing a marketing strategy internal partnership Relationship involving customers within an organization interpretative research Observational research method developed by social anthropologists in which customers are observed in their natural setting and their behavior is interpreted based on an understanding of social and cultural characteristics; also known as ethnography, or “going native.” introductory stage First stage of the product lifecycle, in which a firm works to stimulate sales of a new market entry ISO (International Organization for Standardization) certification Internationally recognized standards that ensure a company’s goods, services, and operations meet established quality levels and its operations minimize harm to the environment ISO 9001:2000 Standards developed by the International Organization for Standardization in Switzerland to ensure consistent quality management and quality assurance for goods and services throughout the European Union (EU) J joint demand Demand for a product that depends on the demand for another product used in combination with it jury of executive opinion Qualitative sales forecasting method that assesses the sales expectations of various executives just-in-time (JIT)/just-in-time II (JIT II) Inventory practices that seek L label Branding component that carries an item’s brand name or symbol, the name and address of the manufacturer or distributor, information about the product, and recommended uses lateral partnership low-involvement purchase decision Routine purchase that poses little risk to the consumer, either economically or socially M mail-order wholesaler Limited-function merchant wholesaler that distributes catalogs instead of sending sales personnel to contact customers mall intercept Interviews conducted inside retail shopping centers Strategic relationship that extends to external entities but involves no direct buyer–seller interactions manufacturer’s brand leader pricing Variant of loss-leader pricing in which marketers offer prices slightly above cost to avoid violating minimum-markup regulations and earn a minimal return on promotional sales manufacturers’ representative learning Knowledge or skill acquired as a result of experience, which changes consumer behavior marginal analysis lifetime value of a customer marginal cost Change in total cost that results from producing an additional unit of output Revenues and intangible benefits such as referrals and customer feedback a customer brings to the seller over an average lifetime, less the amount the company must spend to acquire, market to, and service the customer limited problem solving Situation in which the consumer invests a small amount of time and energy in searching for and evaluating alternatives limited-line store Retailer that offers a large assortment within a single product line or within a few related product lines limited-service research supplier Marketing research firm that specializes in a limited number of research activities such as conducting field interviews or performing data processing Brand name owned by a manufacturer or other producer Agent wholesaling intermediary that represents manufacturers of related but noncompeting products and receives a commission on each sale Method of analyzing the relationship between costs, sales price, and increased sales volume markdown Amount by which a retailer reduces the original selling price of a product market Group of people with sufficient purchasing power, authority, and willingness to buy market development strategy Strategy that concentrates on finding new markets for existing products market penetration strategy Strategy that seeks to increase sales of existing products in existing markets market price Price a consumer or marketing intermediary actually pays for a product after subtracting any discounts, allowances, or rebates from the list price line extension Development of individual offerings that appeal to different market segments while remaining closely related to the existing product line market segmentation Division of the total market into smaller, relatively homogeneous groups list price Established price normally quoted to potential buyers market share The percentage of a market that a firm currently controls (or company sales divided by total market sales) logistics Process of coordinating the flow of information, goods, and services among members of the distribution channel loss leader Product offered to consumers at less than cost to attract them to stores in the hope that they will buy other merchandise at regular prices market share/market growth matrix Framework that places SBUs on a chart that plots market share against market growth potential marketing Organizational function and a set of processes for creating, G-8 GLOSSARY communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders market-plus pricing Intentionally setting a relatively high price compared with the prices of competing products; also known as skimming pricing micropolitan statistical area Area with at least one town of 10,000 to 49,999 people with proportionally few of its residents commuting to outside the area marketing (distribution) channel System of marketing institutions market-share objective Volume-related pricing objective in which the goal is to achieve control of a portion of the market for a firm’s good or service minimum advertised pricing (MAP) Fees paid to retailers who agree not that enhances the physical flow of goods and services, along with ownership title, from producer to consumer or business user marketing communications Messages that deal with buyer–seller relationships marketing concept Companywide consumer orientation with the objective of achieving long-run success marketing decision support system (MDSS) Marketing information system component that links a decision maker with relevant databases and analysis tools marketing ethics Marketers’ standards of conduct and moral values marketing information system (MIS) Planned, computer-based system designed to provide managers with a continuous flow of information relevant to their specific decisions and areas of responsibility marketing intermediary (middleman) Wholesaler or retailer that operates between producers and consumers or business users marketing mix Blending of the four strategy elements—product, distribution, promotion, and price—to fit the needs and preferences of a specific target market marketing myopia Management’s failure to recognize the scope of its business marketing plan Detailed description of the resources and actions needed to achieve stated marketing objectives markup Amount a retailer adds to the cost of a product to determine its selling price mass merchandiser Store that stocks a wider line of goods than a department store, usually without the same depth of assortment within each line materials handling system Set of activities that move production inputs and other goods within plants, warehouses, and transportation terminals maturity stage Third stage of the product lifecycle, in which industry sales level out media research Advertising research that assesses how well a particular medium delivers an advertiser’s message, where and when to place the advertisement, and the size of the audience media scheduling Setting the timing and sequence for a series of advertisements meeting competition method Method of promotional budgeting that simply matches competitors’ outlays merchandisers Trade sector buyers who secure needed products at the best possible prices merchant wholesaler Independentlyowned wholesaling intermediary that takes title to the goods it handles; also known as an industrial distributor in the business goods market message marketing public relations (MPR) Communication of information, advice, or a request by the sender to the receiver Narrowly focused public relations activities that directly support marketing goals message research marketing research Process of collecting and using information for marketing decision making marketing strategy Overall, companywide program for selecting a particular target market and then satisfying consumers in that market through the marketing mix marketing Web site Site whose main purpose is to increase purchases by visitors Advertising research that tests consumer reactions to an advertisement’s creative message metropolitan statistical area (MSA) Freestanding urban area with a population in the urban center of at least 50,000 and a total MSA population of 100,000 or more micromarketing Targeting potential customers at very narrow, basic levels such as by zip code, specific occupation, or lifestyle— possibly even individuals themselves to advertise products below set prices mission Essential purpose that differentiates one company from others missionary selling Indirect selling method in which salespeople promote goodwill for the firm by educating customers and providing technical or operational assistance mobile marketing Marketing messages transmitted via wireless technology modified breakeven analysis Pricing technique used to evaluate consumer demand by comparing the number of products that must be sold at a variety of prices to cover total cost with estimates of expected sales at the various prices modified rebuy Situation in which a purchaser is willing to reevaluate available options for repurchasing a good or service monopolistic competition Market structure involving a heterogeneous product and product differentiation among competing suppliers, allowing the marketer some degree of control over prices monopoly Market structure in which a single seller dominates trade in a good or service for which buyers can find no close substitutes motive Inner state that directs a person toward the goal of satisfying a need MRO items Business supplies that include maintenance items, repair items, and operating supplies multidomestic marketing strategy Application of market segmentation to foreign markets by tailoring the firm’s marketing mix to match specific target markets in each nation multinational corporation Firm with significant operations and marketing activities outside its home country multiple sourcing Purchasing from several vendors N national account selling Promotional effort in which a dedicated sales team is G-9 GLOSSARY assigned to a firm’s major customers to provide sales and service objectives national accounts organization odd pricing Goals that support a firm’s overall mission Promotional effort in which a dedicated sales team is assigned to a firm’s major customers to provide sales and service needs Pricing policy based on the belief that a price ending with an odd number just under a round number is more appealing, for instance, $9.97 rather than $10 nearshoring Moving jobs to vendors in countries close to the business’s home country offshoring Movement of high-wage jobs from one country to lower-cost overseas locations need Imbalance between a consumer’s actual and desired states oligopoly network marketing Personal selling that relies on lists of family members and friends of the salesperson, who organizes a gathering of potential customers for a demonstration of products Market structure in which relatively few sellers compete and where high start-up costs form barriers to keep out new competitors opening price point Setting an opening price below that of the competition, usually on a high-quality private-label item new-task buying First-time or unique purchase situation that requires considerable effort by decision makers opinion leaders niche marketing Marketing strategy that focuses on profitably satisfying a single market segment; also called concentrated marketing order processing noise Any stimulus that distracts a receiver from receiving a message noncumulative quantity discount Price reduction granted on a one-time-only basis nonmarketing public relations Organizational messages about general management issues nonpersonal selling Promotion that includes advertising, product placement, sales promotion, direct marketing, public relations, and guerilla marketing—all conducted without being face-to-face with the buyer nonprobability sample Sample that involves personal judgment somewhere in the selection process Trendsetters who purchase new products before others in a group and then influence others in their purchases Selling, mostly at the wholesale and retail levels, that involves identifying customer needs, pointing them out to customers, and completing orders organization marketing Marketing by mutual-benefit organizations, service organizations, and government organizations intended to persuade others to accept their goals, receive their services, or contribute to them in some way objection the prospect Expression of sales resistance by Marketing efforts designed to cultivate the attention, interest, and preferences of a target market toward a person (perhaps a political candidate or celebrity) personal selling Interpersonal influence process involving a seller’s promotional presentation conducted on a person-to-person basis with the buyer persuasive advertising Promotion that attempts to increase demand for an existing good, service, organization, person, place, idea, or cause phishing High-tech scam that uses authentic-looking e-mail or pop-up messages to get unsuspecting victims to reveal personal information physical distribution (functions) Broad range of activities aimed at efficient movement of finished goods from the end of the production line to the consumer place marketing Marketing efforts to attract people and organizations to a particular geographic area planned shopping center Group of retail stores planned, coordinated, and marketed as a unit over-the-counter selling planning Using outside vendors to provide goods and services formerly produced in-house P O person marketing outsourcing North American Free Trade Agreement (NAFTA) Accord removing countries to categorize the business marketplace into detailed market segments Mental filter or block through which all inputs must pass to be noticed planned obsolescence norms Values, attitudes, and behaviors a group deems appropriate for its members North American Industry Classification System (NAICS) Classification used by NAFTA perceptual screen outbound telemarketing Sales method in which sales personnel place phone calls to prospects and try to conclude the sale over the phone Personal selling conducted in retail and some wholesale locations in which customers come to the seller’s place of business trade barriers between Canada, Mexico, and the United States perception Meaning that a person attributes to incoming stimuli gathered through the five senses Intentional design, manufacture, and marketing of products with limited durability Process of anticipating future events and conditions and of determining the best way to achieve organizational objectives podcast Online audio or video file that can be downloaded to other digital devices partnership point-of-purchase (POP) advertising Display or other promotion penetration pricing strategy Pricing strategy involving the use of a relatively low entry price compared with competitive offerings, based on the theory that this initial low price will help secure market acceptance political risk assessment (PRA) percentage-of-sales method Component of the marketing environment consisting of laws and their interpretations that require firms to operate under competitive conditions and to protect consumer rights Affiliation of two or more companies that help each other achieve common goals Method of promotional budgeting in which a dollar amount is based on a percentage of past or projected sales placed near the site of the actual buying decision Units within a firm that evaluate the political risks of the marketplaces in which they operate as well as proposed new marketplaces political-legal environment G-10 GLOSSARY population (universe) Total group that researchers want to study pop-up ad Separate window that pops up with an advertising message Porter’s Five Forces primary data Information collected for a specific investigation primary demand Desire for a general product category product Bundle of physical, service, and symbolic attributes designed to satisfy a customer’s wants and needs production orientation Business philosophy stressing efficiency in producing a quality product, with the attitude toward marketing that “a good product will sell itself.” Model developed by strategy expert Michael Porter that identifies five competitive forces that influence planning strategies: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products, and rivalry among competitors primary metropolitan statistical area (PMSA) Urbanized county or set of private brand Practice of setting a limited number of prices for a selection of merchandise and marketing different product lines at each of these price levels portfolio analysis private carriers product-related segmentation probability sample Division of a population into homogeneous groups based on their relationships to a product Evaluation of a company’s products and divisions to determine the strongest and weakest positioning Placing a product at a certain point or location within a market in the minds of prospective buyers positioning map Tool that helps marketers place products in a market by graphically illustrating consumers’ perceptions of competing products within an industry postage-stamp pricing System for handling transportation costs under which all buyers are quoted the same price, including transportation expenses; also known as uniform-delivered price counties with social and economic ties to nearby areas Brand offered by a wholesaler or retailer Transporters that provide service solely for internally generated freight Sample that gives every member of the population a chance of being selected product advertising Nonpersonal selling of a particular good or service product development Introduction of new products into identifiable or established markets product differentiation Occurs when consumers regard a firm’s products as different in some way from those of competitors product diversification strategy posttesting Developing entirely new products for new markets precall planning product liability Responsibility of manufacturers and marketers for injuries and damages caused by their products Research that assesses advertising effectiveness after it has appeared in a print or broadcast medium Use of information collected during the prospecting and qualifying stages of the sales process and during previous contacts with the prospect to tailor the approach and presentation to match the customer’s needs premium Item given free or at a reduced cost with purchases of other products product lifecycle Progression of a product through introduction, growth, maturity, and decline stages product line Series of related products offered by one company preroll video ad Brief marketing message that appears before expected video content product manager Marketer responsible for an individual product or product line; also called a brand manager presentation product mix pretesting product placement Form of promotion in which a marketer pays a motion picture or television program owner a fee to display a product prominently in the film or show Personal selling function of describing a product’s major features and relating them to a customer’s problems or needs Research that evaluates an ad during its development stage price Exchange value of a good or service price flexibility Pricing policy permitting variable prices for goods and services pricing policy General guideline that reflects marketing objectives and influences specific pricing decisions pricing strategy Methods of setting profitable and justifiable prices Assortment of product lines and individual product offerings a company sells product positioning Consumers’ perceptions of a product’s attributes, uses, quality, and advantages and disadvantages relative to competing brands product strategy Decisions about what goods or services a firm will offer its customers; also includes decisions about customer service, packaging, brand names, and the like product-line pricing profit center Any part of an organization to which revenue and controllable costs can be assigned Profit Impact of Market Strategies (PIMS) project Research that discovered a strong positive relationship between a firm’s market share and product quality and its return on investment profit maximization Point at which the additional revenue gained by increasing the price of a product equals the increase in total costs promotion Communication link between buyers and sellers; the function of informing, persuading, and influencing a consumer’s purchase decision promotional allowance Promotional incentive in which the manufacturer agrees to pay the reseller a certain amount to cover the costs of special promotional displays or extensive advertising promotional mix Subset of the marketing mix in which marketers attempt to achieve the optimal blending of the elements of personal and nonpersonal selling to achieve promotional objectives promotional pricing Pricing policy in which a lower-than-normal price is used as a temporary ingredient in a firm’s marketing strategy prospecting Personal selling function of identifying potential customers protective tariff Taxes designed to raise the retail price of an imported product to match or exceed that of a similar domestic product psychographic segmentation Division of a population into groups having similar attitudes, values, and lifestyles psychological pricing Pricing policy based on the belief that certain prices or price G-11 GLOSSARY ranges make a good or service more appealing than others to buyers R public relations Firm’s communications and relationships with its various publics rack jobber Full-function merchant wholesaler that markets specialized lines of merchandise to retail stores public service announcements (PSAs) Advertisements aimed at achieving radio frequency identification (RFID) Technology that uses a tiny chip socially oriented objectives by focusing on causes and charitable organizations that are included in print and electronic media without charge with identification information that can be read by a scanner using radio waves from a distance publicity Nonpersonal stimulation of demand for a good, service, place, idea, person, or organization by unpaid placement of significant news regarding the product in a print or broadcast medium puffery Exaggerated claims of a product’s superiority, or the use of subjective or vague statements that may not be literally true pulling strategy Promotional effort by the seller to stimulate final-user demand, which then exerts pressure on the distribution channel pure competition Market structure characterized by homogeneous products in which there are so many buyers and sellers that none has a significant influence on price push money Cash reward paid to retail salespeople for every unit of a product they sell raw materials Natural resources such as farm products, coal, copper, or lumber that become part of a final product rebate Refund of a portion of the purchase price, usually granted by the product’s manufacturer reciprocity Buying from suppliers who are also customers reference groups People or institutions whose opinions are valued and to whom a person looks for guidance in his or her own behavior, values, and conduct, such as spouse, family, friends, or celebrities refund Cash given back to consumers who send in proof of purchase for one or more products reinforcement Reduction in drive that results from a proper response related party trade pushing strategy Trade by U.S companies with their subsidiaries overseas as well as trade by U.S subsidiaries of foreignowned firms with their parent companies Q relationship marketing Development and maintenance of long-term, cost-effective relationships with individual customers, suppliers, employees, and other partners for mutual benefit Promotional effort by the seller directed to members of the marketing channel rather than final users qualifying Determining a prospect’s needs, income, and purchase authority as a potential customer qualitative forecasting Use of subjective techniques to forecast sales, such as the jury of executive opinion, Delphi technique, sales force composite, and surveys of buyer intentions quantitative forecasting Use of statistical forecasting techniques such as trend analysis and exponential smoothing quantity discount Price reduction granted for a large-volume purchase quick-response merchandising Justin-time strategy that reduces the time a retailer must hold merchandise in inventory, resulting in substantial cost savings quota sample Nonprobability sample divided to maintain the proportion of certain characteristics among different segments or groups as the population as a whole relationship selling response Individual’s reaction to a set of cues and drives retail advertising Advertising by stores that sell goods or services directly to the consuming public retail convergence Situation in which similar merchandise is available from multiple retail outlets, resulting in the blurring of distinctions between types of retailers and merchandise offered retail cooperative Group of retailers that establish a shared wholesaling operation to help them compete with chains retailing Activities involved in selling merchandise to ultimate consumers revenue tariff Taxes designed to raise funds for the importing government reverse channel Channel designed to return goods to their producers Robinson-Patman Act Federal legislation prohibiting price discrimination not based on a cost differential; also prohibits selling at an unreasonably low price to eliminate competition roles Behavior that members of a group expect of individuals who hold specific positions within that group routinized response behavior Rapid consumer problem solving in which no new information is considered; the consumer has already set evaluative criteria and identified available options rule of three Three dominant companies in an industry that will capture 70 to 90 percent of the market Regular contacts between sales representatives and customers over an extended period to establish a sustained buyer–seller relationship S remanufacturing salary Fixed compensation payment made periodically to an employee reminder advertising firm’s sales Efforts to restore older products to like-new condition Advertising that reinforces previous promotional activity by keeping the name of a good, service, organization, person, place, idea, or cause before the public sales analysis In-depth evaluation of a sales force composite Qualitative sales forecasting method based on the combined sales estimates of the firm’s salespeople repositioning sales forecast research design sales incentives Programs that reward salespeople for superior performance Changing the position of a product within the minds of prospective buyers relative to the positions of competing products Master plan for conducting marketing research reseller Marketing intermediaries that operate in the trade sector Estimate of a firm’s revenue for a specified future period sales orientation Business assumption that consumers will resist purchasing nonessential goods and services, with the attitude toward G-12 GLOSSARY marketing that only creative advertising and personal selling can overcome consumers’ resistance and persuade them to buy sales promotion Marketing activities other than personal selling, advertising, guerrilla marketing, and public relations that stimulate consumer purchasing and dealer effectiveness service quality Expected and perceived quality of a service offering services spreadsheet analysis Grid that organizes numerical information in a standardized, easily understood format Intangible tasks that satisfy the needs of consumer and business users staples shaping Process of applying a series of rewards and reinforcements to permit more complex behavior to evolve status Convenience goods and services consumers constantly replenish to maintain a ready inventory Relative positioin of any individual member in a group sales quota Level of expected sales for a territory, product, customer, or salesperson against which actual results are compared shopping products sampling Free distribution of a product in an attempt to obtain future sales; process of selecting survey respondents or research participants simple random sample Basic type of probability sample in which every individual in the relevant universe has an equal opportunity of being selected stock-keeping unit (SKU) Offering within a product line such as a specific size of liquid detergent scrambled merchandising Retailing practice of combining dissimilar product lines to boost sales volume skimming pricing strategy straight rebuy search marketing Paying search engines, such as Google, a fee to make sure the company’s listing appears toward the top of the search results social responsibility Marketing philosophies, policies, procedures, and actions that have the enhancement of society’s welfare as a primary objective strategic alliance second mover strategy Theory that advocates observing closely the innovations of first movers and then improving on them to gain advantage in the marketplace social-cultural environment strategic planning Process of anticipating events and market conditions and deciding how a firm can best achieve its organizational objectives secondary data sole sourcing information Purchasing a firm’s entire stock of an item from just one vendor strategic window Limited periods when key requirements of a market and a firm’s particular competencies best fit together Secure Sockets Layer (SSL) spam Technology that secures a Web site by encrypting information and providing authentication stratified sample span of control Previously published Products consumers purchase after comparing competing offerings Pricing strategy involving the use of a high price relative to competitive offerings Component of the marketing environment consisting of the relationship between the marketer, society, and culture Popular name for junk e-mail Number of representatives who report to first-level sales managers Distribution of a product through a limited number of channels specialty advertising Sales promotion technique that places the advertiser’s name, address, and advertising message on useful articles that are then distributed to target consumers self-concept specialty products selective demand Desire for a specific brand within a product category selective distribution Person’s multifaceted picture of himself or herself seller partnership Relationship involving long-term exchanges of goods or services in return for cash or other valuable consideration seller’s market Market in which there are more buyers for fewer goods and services selling agent Agent wholesaling intermediary responsible for the entire marketing program of a firm’s product line sender Source of the message communicated to the receiver service encounter Point at which the customer and service provider interact Products with unique characteristics that cause buyers to prize those particular brands specialty retailer Store that combines carefully defined product lines, services, and reputation to persuade shoppers to spend considerable shopping effort there split runs Methods of testing alternate ads by dividing a cable TV audience or a publication’s subscribers in two, using two different ads, and then evaluating the relative effectiveness of each sponsorship Relationship in which an organization provides funds or in-kind resources to an event or activity in exchange for a direct association with that event or activity step out Pricing practice in which one firm raises prices and then waits to see if others follow suit Recurring purchase decision in which a customer repurchases a good or service that has performed satisfactorily in the past Partnership in which two or more companies combine resources and capital to create competitive advantages in a new market Probability sample constructed to represent randomly selected subsamples of different groups within the total sample; each subgroup is relatively homogeneous for a certain characteristic subcontracting Contractual agreements that assign the production of goods or services to local or smaller firms subcultures Smaller groups within a society that have their own distinct characteristics and modes of behavior, defined by ethnicity, race, region, age, religion, gender, social class, or profession subliminal perception Subconscious receipt of incoming information suboptimization Condition that results when individual operations achieve their objectives but interfere with progress toward broader organizational goals subsidy Government financial support of a private industry supercenter Large store, usually smaller than a hypermarket, that combines groceries with discount store merchandise G-13 GLOSSARY supplies Regular expenses a firm incurs in its daily operations representative reach all those who influence the purchase decision supply Schedule of the amounts of a good or service that firms will offer for sale at different prices during a specified time period technological environment supply chain Complete sequence of suppliers and activities that contribute to the creation and delivery of merchandise supply chain management Control of the activities of purchasing, processing, and delivery through which raw materials are transformed into products and made available to final consumers survey of buyer intentions Qualitative sales forecasting method that samples opinions among groups of present and potential customers concerning their purchase intentions sustainable competitive advantage Superior market position that trend analysis Quantitative sales forecasting method that estimates future sales through statistical analyses of historical sales patterns Application to marketing of knowledge based on discoveries in science, inventions, and innovations truck wholesaler Limited-function merchant wholesaler that markets perishable food items; also called a truck jobber telemarketing tying agreement Arrangement that requires a marketing intermediary to carry items other than those they want to sell Promotional presentation involving the use of the telephone on an outbound basis by salespeople or on an inbound basis by customers who initiate calls to obtain information and place orders test marketing Marketing research technique that involves introducing a new product in a specific area and then measuring its degree of success third-party (contract) logistics firm Company that specializes in handling logistics activities for other firms U undifferentiated marketing Strategy that focuses on producing a single product and marketing it to all customers; also called mass marketing unemployment Proportion of people in the economy actively seeking work that not have jobs time-based competition Strategy of developing and distributing goods and services more quickly than competitors unfair-trade laws a firm possesses and can maintain for an extended period of time sweepstakes total quality management (TQM) uniform-delivered pricing SWOT analysis Review that helps planners compare internal organizational strengths and weaknesses with external opportunities and threats trade allowance Sales promotion technique in which prize winners are selected by chance syndicated service Organization that provides standardized data on a periodic basis to its subscribers systems integration Centralization of the procurement function within an internal division or as a service of an external supplier Continuous effort to improve products and work processes with the goal of achieving customer satisfaction and world-class performance Financial incentive offered to wholesalers and retailers that purchase or promote specific products trade discount Payment to a channel member or buyer for performing marketing functions; also known as a functional discount trade dress Visual components that contribute to the overall look of a brand trade industries Retailers or wholesalers that purchase products for resale to others T tactical planning Planning that guides the implementation of activities specified in the strategic plan target market Segment or group of people to whom a firm decides to direct its marketing efforts and ultimately its goods and services target-return objective Short-run or long-run pricing objectives of achieving a specified return on either sales or investment tariff Tax levied against imported goods task-objective method Development of a promotional budget based on evaluation of the firm’s promotional objectives team selling Selling situation in which several sales associates or other members of the organization are employed to help the lead sales trade promotion Sales promotion that appeals to marketing intermediaries rather than to consumers trade show Product exhibition organized by industry trade associations to showcase goods and services State laws requiring sellers to maintain minimum prices for comparable merchandise Pricing system for handling transportation costs under which all buyers are quoted the same price, including transportation expenses Sometimes known as postage-stamp pricing unit pricing Pricing policy in which prices are stated in terms of a recognized unit of measurement or a standard numerical count Universal Product Code (UPC) Numerical bar code system used to record product and price information unsought products Products marketed to consumers who may not yet recognize a need for them upstream management Controlling part of the supply chain that involves raw materials, inbound logistics, and warehouse and storage facilities user Individual or group that actually uses a business good or service trade-in utility trademark Brand for which the owner claims exclusive legal protection V Credit allowance given for a used item when a customer purchases a new item Want-satisfying power of a good or service transaction-based marketing Buyer and seller exchanges characterized by limited communications and little or no ongoing relationships between the parties VALS Segmentation system that divides consumers into eight psychographic categories: innovators, thinkers, achievers, experiencers, believers, strivers, makers, and survivors transfer price value analysis Systematic study of the components of a purchase to determine the most cost-effective approach Cost assessed when a product is moved from one profit center in a firm to another G-14 GLOSSARY value pricing Pricing strategy emphasizing benefits derived from a product in comparison to the price and quality levels of competing offerings Network of strategic partners, suppliers, and others who recommend a firm’s goods or services wholesaling intermediary variable costs vishing Scam that collects personal information through voice response systems, stands for voice phishing widget vendor analysis VoIP (Voice over Internet protocol) A phone connection through a wiki Costs that change with the level of production (such as labor and raw materials costs) virtual sales team Assessment of supplier performance in areas such as price, back orders, timely delivery, and attention to special requests personal computer with any type of broadband Internet connection vendor-managed inventory (VMI) W Inventory management system in which the seller—based on an existing agreement with a buyer—determines how much of a product is needed Web services Platform-independent information exchange systems that use the Internet to allow interaction between the firms venture team Associates from different areas of an organization who work together in developing new products vertical marketing system (VMS) Planned channel system designed to improve distribution efficiency and cost-effectiveness by integrating various functions throughout the distribution chain viral marketing Efforts that allow satisfied customers to spread the word about products to other consumers Web-to-store shoppers Consumers who use the Internet as a tool to aid them at brick-and-mortar retailers wheel of retailing Hypothesis that each new type of retailer gains a competitive foothold by offering lower prices than current suppliers charge; the result of reducing or eliminating services wholesaler Channel intermediary that takes title to goods it handles and then distributes these goods to retailers, other distributors, or business or B2B customers Comprehensive term that describes wholesalers as well as agents and brokers Tiny interactive applications that Internet users can copy and add to their own pages to play music, video, or slide shows Web page anyone can edit World Trade Organization (WTO) Organization that replaces GATT, overseeing GATT agreements, making binding decisions in mediating disputes, and reducing trade barriers Y yield management Pricing strategy that allows marketers to vary prices based on such factors as demand, even though the cost of providing those goods or services remains the same Z zone pricing Pricing system for handling transportation costs under which the market is divided into geographic regions and a different price is set in each region I-1 NAME & COMPANY INDEX A AAA, 287 AARP Bulletin, 545 AARP Magazine, 545 ABC Radio, 544 ABC Television Network, 492, 529, 542 Abdullah, Halimah, 438 Abell, Derek, 43 Abeyta, Brian, 186 ACNielsen, 243, 249 – 250, 338 – 339, 517 Activision, 133 Ad Council, 519 Adams, Scott, 263 Adelson, Jay, 113 Adidas, 17, 218, 322, 374, 388, 630 A&E, 135 Aerosmith, 133 Aetna, 145 AFLAC, 186, 528 – 530 Ahrens, Frank, 449 Airbus, 63, 174, 189 Airline Quality Rating, 244 Al Lawati, Abbas, 526 Alaska travel bureau, 145 Aleve, 15 Allen, Robert G., 172 Allison, Farrell, 236 Allstate Insurance, 205, 536 Alltell Corporation, 64 AM PM Mini-Mart, 463 amazon.com, 46, 94 – 95, 99, 104, 108, 316, 359 AMC, 641 Amen, Suehaila, 273 America Online (AOL), 115, 119, 255, 316, 320 American Airlines, 7, 44, 60, 174, 289, 629 American Apparel, 538 American Association of Retired Persons (AARP), 69 American Automobile Association (AAA), 422 American Cancer Society, 505 American Chamber of Commerce, 179 American Council for an Energy Efficient Economy (ACEEE), 73 American Customer Satisfaction Index (ACSI), 316 American Diabetes Association, 321 American Eagle Outfitters, 4, 103, 468 American Express, 13, 15, 142, 146, 178, 205, 433 American Heart Association, 13 American Humane Association, 69 “American Idol,” 99 – 100, 118, 392, 502 American Kennel Club, 13 American Medical Association (AMA), 140 American Museum of Natural History, 502 American Trucking Association (ATA), 436 Amos, Bill, 529 Amos, John, 529 Amos, Paul, 529 Anderson Merchandisers, 472 Anderson, Rebecca, 71 Anheuser-Busch, 221, 368, 526 Anholt, Simon, 293 Ann Taylor, 459 Anytime Fitness, 430 Apple Inc., 4, 7, 42, 46, 50, 60, 95, 144, 296, 325, 347, 395, 424, 461 – 462, 532, 538, 548, 553, 613 Aquafina, 382 Arango, Tim, 499 Arbitron, 243 Arby’s, 36 – 37 Arise Virtual Solutions, 347 Arm & Hammer, 294, 367 Armour Meat Packing, 357 Armstrong, Lance, 14 Armstrong, Neil, 486 Arnold, Adolph, 377 Asay, Matt, 337 Asch, S E., 141 Ash, Mary Kay, 578 AsianAvenue.com, 113 Ask.com, 50, 117 AskPatty.com, 276 Associated Druggists, 429 Atlanta Braves, 318 AT&T, 63 – 64, 135, 167, 205, 360, 531, 661 Audi, 355 Auerbach, Red, 580 Aunt Jemima, 382 Authors Guild, 111 AutoCart, 467 Autowrapped, 547 Avis Rental Cars, 13 Avon, 38, 419, 475, 506, 569 Ayer, N W., 240 B Baby Bells, 69 Baccarat, 616 Bagborrowsteal.com, 420 Baker, Stephen, 31 Baldasaro, Paul, 667 Baldrige, Malcolm, 357 Balenciaga, 379 Ballmer, Steve, 325, 569 Banana Republic, 459, 569 Band-Aid, 383 Bank of America, 49, 171, 318, 358 Banks, Tyra, 424 Barber, Tiki, 16 Barbie Girls, 6, 391 Barbie Store, 391 – 392 Barnes & Noble, 458, 464 Barnes-Jewish Hospital, 18 Barnett, 572 Barney’s New York, 293 Bartell, Bill, 273 Bartiormo, Maria, 615 Barton, Bruce, 533 Baskin Robbins, 326 Batenic, Mark, 430 – 431 Bates, Michael D., 638 Bay Area Rapid Transit (BART), 623 – 624 Baylor College of Medicine, 18 Bazaarvoice, 244 BBDO, 548 Beckham, David, 218 Beckham, Victoria (“Posh Spice”), 142 Beckmann, Allan, 457 Becks, 221 Bed, Bath & Beyond, 459, 464 Béhar, Yves, 398 Beijo Bags, 418 Belzer, Richard, 459 Ben & Jerry’s, 379 Ben Franklin, 453 Berfield, Susan, 438 Bergdorf Goodman, 463, 654 Berkshire Hathaway, 347 Bernback, William, 490 Berra, Yogi, 262 Bertolli, 382 Best Buy, 86, 110, 175, 286, 298, 418, 451, 461, 464, 476, 568, 613, 655 Best Western, 151, 463 Better Business Bureau, 650 Better Homes and Gardens, 545 Bezos, Jeff, 95 B.F Goodrich, 275 Bharti Enterprises, 221 Bid Contract, 103 Bidz.com, 204 Bigg’s Hypermarket Shoppes, 467 Bikeworld, 418 Bill Me Later, 108 I-2 NAME & COMPANY INDEX Biz Rate, 154 Bjorseth, Lillian D., 573 BJ’s, 466 Black & Decker, 579 Black, Clint, 15 Black Mesa Pipeline, 437 BlackBerry, 133, 135, 276 Blackplanet.com, 113 Blakely, Sara, 423 – 424 Blimpie, 430 Blockbuster Video, 510, 534 Bloom, Barry M., 173 Bloomberg, Michael, 15, 572 Bloomingdale’s, 142, 465, 569 Blue C Sushi, 327 Blue Cross, 387 – 388 Bluetooth, 408, 647 Blu-ray, 368 – 369 BMW, 13, 226, 289, 299, 330 Boak, Joshua, 76 Bock, Fred, 198 Bodley, Hal, 173 Boeing, 38, 44, 63, 174, 189, 204, 354, 569 Bogusky, Alex, 548 Boisset Family Estates, 363 Bonus Building Care, 430 Borba, 578 – 579 Borba, Scott Vincent, 578 – 579 Bose, 398 – 399, 408 Boston Consulting Group, 49, 290 Boston Proper, 475 Boucheron, 379 Boudreaux Butt Paste, 385 Boudreaux, George, 385 Bowser, Paul, 165 Boyle, Matthew, 209, 233 Boyles, Mike, 236 BP Chemical, 389 Brain Research Group, 243 Brandeis University, 256 Bratz, Bravo, 135 Brier, Mark, 383 Bristol-Myers Squibb, 48 British Airways, 174 British Petroleum (BP), 204 Broad, Eli, 612 Brooklyn Dodgers, 489 Brooks Brothers, 13 Brown, Erika, 93 Bryant, Kobe, 534 Bryant, Paul W., 506 Buckhead Life Restaurant Group, 667 Budweiser, 387 Buffett, Warren, 614 Bunkley, Nick, 601 Burck, Robert, 387 Bureau of Economic Analysis, 73 Bureau of Labor Statistics, 289, 568 Burger King, 37, 100 Burlington Industries, 275 Burlington Northern Santa Fe Railway (BNSF), 414 – 416 Burnett, Leo, 141 Burns, George, 295 Burress, Tim, 386 Burt’s Bees, 501 Bush, George W., 486 Bush’s Baked Beans, 535 Buskirk, Richard H., 399 Byrt, Frank, 438 C Cabela, James W., 572 Cabela’s, 572 – 573 Cablevision, 78, 428 Cadbury Schweppes, 45, 64 Cadillac, 143, 330, 355 Calderon, Felipe, 48 California Milk Processing Board, 147 Calloway, 378 CallWave, 456 Calmarc Construction, 236 Calvin Klein, 293 Camay Soap, 397, 590 Campbell Soup Company, 224, 240 – 241, 282, 316, 425 Cannondale Associates, 19 Canon, 15, 101, 575, 655 Capgeminin, 322 Capital One, 494 Cap’n Crunch cereal, 382 Capri-Sun, 83 Carat Americas, 250 Caribou Coffee, 47, 134 Carl Jr.’s, 550 – 551 Carlsberg, 506 Carnival Cruise Lines, – Carrefour, 175 Carsey Institute, 139 Carson, Johnny, 476 Carter, Jimmy, 289 Cartier, 225, 644 Casa Morada, 656 Casten, Sean, 309 Casten, Thomas, 309 Castro, Fidel, 214 Castro-Wright, Eduardo, 456 Catalog Choice, 475 Caterpillar, 168, 204, 440 CBS Mobile, 546 CBS Radio, 544 CBS Television Network, 147, 492, 529, 542 CDW, 359 Center for Digital Democracy, 315 Center for Resource Solutions, 163 Center-Shabazz, Lois, 285 Chafkin, Max, 465 Chambers, John, 476 Chanel, 420 Charles Keath, 475 Charles Schwab, 103, 316 Charney, Dov, 538 Chase, 151, 574 Checkers, 491 Checkout, 108 Chef’s Catalog, 110, 112 Cherry, Dave, 360 Chevrolet, 58 – 59, 147, 275 Chevron, 204 Chicago Blackhawks, 503 Chicago Merchandise Mart Center, 471 Children’s Miracle Network, 175 Chipotle Grill, 64 – 65 Chiras, Dan, 604 Chivas Regal, 140 Choice Hotels International, 430 Chrysler, 56 – 57, 600 – 601, 655 Chua, Jasmin Malik, 293 Cincinnati Reds, 488 Circuit City, 110, 175 Cisco Systems, 184, 210, 356, 394, 502 Citadel Broadcasting, 544 Citibank, 84, 336, 359 CitiGroup, 205 Citizen Watch, 15 – 16, 222 Classmates Online, 113, 255 Clayton, Mark, 438 Clearspace, 336 – 337 Cleveland Cavaliers, 514, 534 Clinton Presidential Library, 18 Clorox, 327, 342 – 344 CNN, 19, 492, 578 Coach, 142, 351 Coalition for Fire-Safe Cigarettes, 69 Coca-Cola Company, 4, 15, 83, 148, 224, 286, 316, 386, 388, 398, 433, 483, 540 Coldplay, 553 Coldwater Creek, 475 Colgate, 379, 583, 618 Collier, Joe Guy, 667 Columbia Pictures, 255, 502 Comcast, 48, 78, 316, 427 Commercial Aircraft Company, 63 Community Connect, 113 CompUSA, 464 Computer Recyclers of America, 93 ComScore, 255 ConAgra Foods, 385 Condé Nast, 255 Conner Prairie, 13 Conoco Phillips, 48 Conscious Coffees, 611 Consorte Media, 286 Consumer Product Safety Commission (CPSC), 61, 68, 79, 401 – 402 Consumer Reports, 650 Consumers Union, 360 Continental Airways, 65, 147, 318 Contour Core Belt, 476 I-3 NAME & COMPANY INDEX Convio, 320 Cooper, Andrea, 653 Coors, 389 Cornell University, 165 Corporate Angel Network, 14 Cosby, Bill, 556 Coskata, 75 Costa, Dan, 321 Costco, 38, 40, 63, 232, 429, 451, 466, 468, 644 – 646 Cott Beverages, 14 Coty, 394 Council of Better Business Bureaus, 69 Coutt’s Bank, 142 Craftmatic Industries, 66 Crane’s, 299 Crate & Barrel, 431, 451 Crispin Porter + Bogusky, 548 Cub Cadet, 534 Cuban, Mark, 149, 184, 499 Curry, Christopher, 638 Curtis, Jaime Lee, 532 Curves, 294 CVC Caremark, 45 CVS, 468 CW Television, 492, 542 D Daewoo, 550 Dagoba Organic Chocolate, 35, 363 DaimlerChrysler, 225, 615 Daley, Janet, 216 Dallas Cowboys, 318 Dallas Mavericks, 499 Dannon Company, 14, 64, 532 Dasani, 423 Datamonitor, 250 David Yurman jewelry, 616 Davidson, Paul, 209 DDB Worldwide, 548 de la Vega, Ralph, 135 Deal$, 454, 607 Defense Logistics Agency (DLA), 188 DeHart, Jacob, 464 – 465 Dell Computers, 4, 168, 178, 223, 336, 347, 381, 418, 475 Dell, Michael, 418, 433 Delta Airlines, 35, 60, 612 Democratic Party, 18 DeNiro, Robert, 16 Dentsu, 548 DePaul University, 18 DePuy, 362 Design Basics, 276 Detroit Lions, Detroit Pistons, 571 DHL, 174, 206, 440 Didley, Bo, 648 Digg, 113 Dillard’s, 145, 327 Diller, Barry, 50 Direct Marketing Association, 70, 508, 570 DirectBuy, 450 – 451 DirecTV, 66, 69, 78, 428 Discount Auto Parts, 322 Discovery Channel, 502, 529 Discovery Health Network, 143 Dish Network, 69, 78 Disney, 205, 382, 392, 519, 593, 658 Disney World, 63, 274, 277, 584 Disneyland, 13 Do Not Call Registry, 82, 253, 360, 508 – 509, 570, 591 Dodge, 378, 657 Dollar Discount Store, 457 Dollar General, 300, 454, 606 – 607 Dollar Tree, 454, 606 – 607 Domino’s Pizza, 220, 280 Donahue, John, 49 Donald Trump steaks, 392 Donna Karan, 351 Doritos, 382 Dorland Healthcare Information, 252 DoubleClick, 115 Douglas, Dean, 198 – 199 Dove (ice cream), 379 Dove (soap), 145, 382, 433 Dow Chemical, 7, 75 Downy, 239 Dr Pepper, 64 Dr Scholls, 613 DragonForce, 133 Dreamless.org, 464 DreamWorks Animation, 641 Dreyer’s Ice Cream, 547, 618 Drill Doctor, 476 Drucker, Peter, 6, 37 – 38, 113 Drycleaning & Laundry Institute (DLI), 550 – 551 Dryer, Alexander Barnes, 563 DSW, 455 Ducks Unlimited, 505 Duke the dog, 535 Dun & Bradstreet, 174, 261 Dunkin’ Donuts, 19, 101, 295, 430, 500, 614 DuPont, 168, 358 Durant, William C., 59 Durbin, Dee-Ann, 57 Durocher, Leo, 20 Dylan, Bob, 449 Dyson, 643 Easter Seals, 321 Eastern Michigan University, 318 eBay, 20, 48 – 49, 101, 170, 433, 473, 614 eBillme, 108 eClinical Works, 573 Ecrio, 589 Eddie Bauer, 110, 459 Edible Arrangements International, 430 Edison, Thomas A., 39 Education and Institutional Purchasing Cooperative, 191 Edwards, Carl, 528 – 529 Edy’s ice cream, 618 Egozy, Eran, 133 Einstein, Albert, 240, 486 Eisenhower, Dwight D., 35, 562 Eisner, Michael, 111 El Morocco, 656 Elcipse Aviation, 399 Electronic Recyclers International (ERI), 93 Elgan, Mike, 360 Eli Lilly, 401 Elizabeth (Queen), 142 Elliott, Christopher, 552 Elliott, Stuart, 137 Ellis, Madeline, 307 eMarketer, 250 EMC, 336 Emerson Electric, 245 – 246 Emerson, Ralph Waldo, 464 Emirates Airlines, 174 Engel, Ernst, 289 Enron, 22 Environmental Protection Agency (EPA), 68, 93, 188, 309, 489 Equifax, 69 – 70 Equinox, 667 Ericsson, 185 Ernst & Young, 24 Escada, 623 ESPN, 20, 116, 428, 492 Ethos Water, 84 EU Data Protection Directive, 320 – 321 European Biodiesel Board, 214 European Marine Energy Centre, 209 Evans-Glen, Mark, 611 EverGreen Design-Build Partnership, 604 Expedia.com, 71, 98 – 99, 126 – 127 Experian, 69 Express Tax, 430 Exxon Mobil, 204, 224 E-Z Washing Machines, 388 E F E J Korvette, 453 Eagle Snacks, 368 Earnhardt, Dale, Jr., 534 Earp, Wyatt, 357 Earth Pledge, 293 EarthLink, 222 Fabling, Barb, 141 Facebook, 14, 48, 107, 113 – 114, 144, 147, 250, 255, 314 – 315, 320, 336, 387, 540 Faludi, Jeremy, 163 Family Communications, Inc., 24 Family Dollar Stores, 300, 454, 606 – 607 I-4 NAME & COMPANY INDEX Farnum, Kevin, 306 FAW Group Corp., 48 Federal Bureau of Investigation (FBI), 109, 591 Federal Communications Commission (FCC), 448 – 449, 502, 544 Federal Power Commission, 68 Federal Trade Commission (FTC), 66, 68 – 70, 82, 185, 296, 350, 508, 533 Federated, 465 – 466 FedEx, 149, 174, 224, 347, 436 – 437, 440 Feeding America, 14, 321 Ferrari, 353, 355, 408 – 409 Ferrell, Linda, 80 Ferrell, O C., 80 Fertik, Michael, 321 Fiat, 44 Fila USA, 48 Filipponio, Frank, 409 Fisher, Dalmar, 497 Flex shampoo, 455 Florida Marlins, 489 Fogle, Jared, 511 – 512 Folger’s, 389 Food and Drug Administration (FDA), 62, 66, 68, 79, 165, 390 – 391, 401 Food Network, 492 Foot Locker, 206 Ford, Henry, 9, 265 Ford Motor Company, 177, 182, 287, 321, 353, 357, 569, 626, 657 Ford, William Clay, Jr., 86 Four Seasons Hotel, 313, 623 Fox Interactive, 315 Fox Network, 118, 135, 206, 529, 542 Fraedrich, John, 80 Frank, Robert, 409 Frankel, Alex, 105 Free People, 283, 425 French’s, 381 Frick, Lisa, 42 Frisbees, 396 Frito-Lay, 135 – 137, 336, 382 Frontier Communications, 654 Frontline, 150 Frost, David, 209 Fuentes, Daisy, 534 FutureFashion, 293 G Gap, 206, 468, 476, 569 Garber, Kent, 93 Garmin, 364 Gates, Bill, 99, 242, 453 Gates, Dominic, 189 Gateway, 645 Geico Insurance, 326, 534 Gelfond, Rich, 642 General Electric (GE), 49, 174, 178, 204, 336, 347 General Mills, 48, 83, 224, 306–307, 353, 358, 383, 397, 492 General Motors, 44, 46, 58 – 59, 143, 177, 204 – 205, 275, 286 – 287, 530, 554, 644 General Services Administration (GSA), 188 George, Mike, Georgetown University, 83 Georgia-Pacific, 590 Geox, 362 – 363 GfK NOP, 292 – 293 Gibson, William, 118 Giftbaskets.com, 349, 434 Gillette, 350, 382 Gingrich, Newt, 75 Giorgio Armani, 654 Girl Scouts, 306, 569 – 570 Girls Gone Wild, 392 Glacier National Park, 415 Glad, 379 – 380 GlobalEnglish, 250 Globe Specialty Metals, 309 Gloria Jean’s Coffees, 464 Godiva, 147 Gogoi, Pallavi, 23, 45 Goldman Sachs Group, 347 Goldwater, Barry, 562 Goodman, Peter S., 457 Goodyear, 429 Google, 10, 19, 31, 38, 48, 108, 111 – 112, 115 – 117, 119, 255, 257, 319, 347, 382, 386, 394 Google Earth, 280, 309 Google Maps, 546 Gordon, March, 285 Gordon, Peter, 617 Gordon, Rachel, 617 Government Accountability Office (GAO), 189, 519 Goya, 145 Grand Circle Travel Company, 285 Grant, Amy, 13 Graves, Bill, 436 Gray, Richard, 216 Great Depression, 10, 71 – 72, 282, 609 – 610 Great Northern Environmental Stewardship Area (BNESA), 415 Green Acres Bed & Breakfast, 236 Green Giant, 385 Green Media Enterprises, 593 Green West, 592 – 593 Green Works, 342 – 343 Greenberg, Andy, 321 Green-e, 163 GreenMark, 489 GreenStop, 463 GreenTown, 130 Gregory, Sean, 375 Griffith, Scott, 104 – 105 Grove, Andrew, 102 Grow Up Great, 24 Grupo de Integración Digital, 436 Grupo Salinas, 48 GSA Advantage, 189 Guardian Insurance, 575 Gucci Group, 379, 420, 425, 457 “Guitar Hero,” 132 – 133 “Guitar Hero III Mobile,” 133 Gulf Air, 354 Gupta, Poornima, 601 H Habitat for Humanity, Hahn, Scott, 293 Haines, Lester, 209 Hall, Mike, 457 Hallmark, 318, 326, 383 Hamilton, Anita, 391 Hamilton, Scott, 13 Handley, Susan, 419 Hands-On Mobile, 133 Haney, Janice, 236 Haney, John, 236 Harley Owners Group (HOG), 140 Harley-Davidson, 102, 184, 277 Harmonix, 132 – 133 Harper, Kate, 36 Harrah’s Casino, 16 Hart, Catherine, 130, 604 Hart, Kim, 449 Harvard, 111 Harvest Solar & Wind Power, 486 Hasbro, 387 HBO, 256, 346 HCA Healthcare, 191 HD Digital Radio Alliance, 544 H-D.Net, 102 Head & Shoulders, 539 Heinken, 506 Heinz, 14, 379, 388, 583 Heller, Walter, 625 Hellmann’s, 590, 618 Hellmich, Nanci, 271 Hello, 222 Henry, Jim, 601 Herbal Essences, 282, 367, 387 – 388 Herbst, Moira, 23 Herman Miller, 168 – 169 Hermès, 351, 424 Herrington, 475 Hersh, David, 336 – 337 Hershey Foods, 35, 147, 363, 366, 383, 433 Hertz, 318 Hewitt, Steve, 130 Hewlett-Packard (HP), 43, 86, 185, 223, 261, 354, 381, 581 Hey! Nielsen, 255 Higgins, Kevin T., 483 Hill, Jason, 76 Hilton, Robert, 37 Hindustan Lever, 225 I-5 NAME & COMPANY INDEX Hinton, Christopher, 189 Hirsch, Jerry, 40 Hite, Morris, 540 Hoffman, Thomas, 257 Holland America, 63 Holson, Laura M., 360 Home Depot, 422, 451, 454, 456 – 457, 459, 464, 593, 623, 647 Home Shopping Network, 476, 509, 644 Honda, 44, 63, 73, 87, 226, 340, 383, 412 Honeywell, 184 Hong, Richard, 140 Hopkins, Claude C., 382 Hormel, 498, 583 Horn, Barry, 499 Horovitz, Bruce, 233 Hot Wheels, 409 Housen, Kelly, 619 Howard Hughes Medical Institute, 75 HP Pavilion, 505 HSBC Group, 82 Hsieh, Tony, 564 – 565 Hudson Bay Company, 452 Hulu, 542 – 543 Humphrey, Hubert, 504 Hurd, Mark, 43, 579 Hutzel, Michael L., 128 – 129 Huxley, Thomas H., 247 Hyde, Marina, 210 Hyundai, 4, 44, 226, 385, 393 I Iams, 384 IBM, 30 – 31, 43, 50, 182, 336, 572, 575 Idea Sandbox, 668 – 669 IKEA, 219, 464 IMAX, 640 – 642 InBev, 221 Independent Film Channel (IFC), 562 – 563 Independent Grocery Alliance (IGA), 429 – 431 Infinity, 355 Infosys Technologies, 211 ING Group, 204 Ingram Micro, 468 INOV8 International, 12 Instant Tax Service, 430 Integra Logistics, 582 Intel, 86, 168, 204, 325 Intelius, 320 Intelligentsia Coffee, 367 Interactive Advertising Bureau, 255 InterActive Corp., 50 Interbrand, 382 InterContinental Hotels Group, 183 International Consumer Electronics Show (CES), 471 International Council of Beverages, 83 Internet Crime Complaint Center (IC3), 109 Interstate Commerce Commission (ICC), 436 iRobot, 644 Isaac Mizrahi, 32, 381 Isabelle de Borchgrave, 381 iVillage, 321 J J D Power and Associates, 184, 243 Jackson, Cheryl V., 667 Jackson Hewitt Tax Service, 430 Jaguar, 330, 378 James, LeBron, 15, 514, 534 Jani-King, 430 Janofsky, Michael, 552 Jan-Pro, 430, 431 Jarvick, Robert, 556 Jazzercise Inc., 430 JCPenney, 300, 451, 456, 460, 540, 575 – 576 Jell-O, 383, 386 Jennrich, Janienne, 386 Jensen, Andrew, 23 Jesdanun, Anick, 315 JetBlue Airways, 323, 347, 552, 570, 612 Jewish National Fund, 321 JFK International Airport, 16 Jie Zhang, 141 Jive Software, 336 J.Jill, 508 Jlo, 530 – 531 Johnny Cash Flower Pickin’ Festival, 498 Johnson & Johnson, 347, 362, 382, 547, 583 Johnson, Jack, 274, 283 Johnson, Keith, 155 Johnson, Kelly, 233 Johnson, Kenneth, 138 Johnson, Lyndon, 562 – 563 Jones, Gannon, 136 Jones, LeRoi, 135 Jones soda, 134 Jordan, Michael, 286 Joseph, Noah B., 409 Joy perfume, 616 Judkis, Maura, 155 Juicy Couture, 380 K Kabel, Marcus, 40 Kanellos, Michael, 93 Karl Lagerfeld, 654 Kassoff-Gray, 667 Kate Spade, 351 Kayak.com, 623 Keds, 145 Kellogg Company, 14, 48, 83, 287, 353 Kennedy, John F., 34, 78 Kentucky Derby, 329 Kenya Airways, 354 Kerry, John F., 216 Keurig, 183, 185 KFC, 206 Kia, 13, 226, 353, 393 Kidman, Nicole, 531 Kierland Commons, 459 Kiley, David, 375, 601 Kim, Ryan, 391 Kimberley-Clark, 382, 583 King, Danny, 369 Kinko’s, 149 KitchenAid, 382 Kleenex, 386, 455 Klein, Rick, 563 Kmart, 245, 451, 593, 655 Knight Transportation, 437 Knorr, 382 The Knot, 297 Kodak, 385, 388, 509 Kohler, Matt, 343 Kohl’s, 44, 300, 453 – 454, 459, 468 Kraft Foods, 44 – 45, 49, 83, 246, 299, 316, 358, 383, 386, 389, 428, 583 Krietsch, Beth, 499 Kroc, Ray, 200 Kroger, 48, 427, 613, 647 Kryptonite Lock, 257 Krzyzewski, Mike, 312 Kuchment, Anna, 65, 293 Kumon Math & Reading Centers, 430 Kupcinet, Irv, 87 L L.L.Bean, 104, 360 – 361, 475, 508, 570 Lady Foot Locker, 464 LaFleche, Heidi, 386 Lafley, Alan, 499 Lake, Laura, 281 LaMonica, Martin, 657 Lance Armstrong Foundation, 14 Land’s End, 149, 476, 570 Lanigan, John, 414 LaPree, Joy, 543 Las Vegas Convention and Visitors Authority, 135 Laura Ashley, 454 Lavigne, Avril, 454 Lay’s, 379, 382 Layton, Lyndsey, 402 Lazarus, Shelly, 344 Le Cirque, 346 Leadership in Energy and Environmental Design (LEED), 489 Lear Corporation, 176 – 177 Lee, Oscar, 667 Lego, LeisureLogix, 126 Lenny, Richard H., 363 Lenovo Group, 50, 223 Lenox, 616 LensCrafters, 346 Levi’s, 316, 503 – 504 Levitt, Theodore, 10, 12 I-6 NAME & COMPANY INDEX Lewin, Kurt, 134 Lexus, 145, 330, 351, 380, 382 LG Electronics, 226 Li, Herman, 133 Liberty Media, 50 Liberty Tax Service, 430 Lieberman, David, 449 Liebmann, Wendy, 141 Life cereal, 382 Lifebuoy, 382 LifeMatrix, 292 Lillian Vernon, 476 Linder, Melanie, 57 Lindquist, Lee, 340 Linecker, Adelia Cellini, 551 LinkedIn, 113 Lipscomb, Steve, 221 Lipton, 382 Little, Rebecca, 465 Liu, Lucy, 286 Livermore, Ann, 581 Liz Lang, 381 Loeb, Marshall, 360 Loehmann’s, 467 Loews Hotels, 183 LOG-NET, 432 Lohr, Steve, 31 Lojeski, Karen Sobel, 36 Los Angeles Times, 116 Lowe’s, 175, 327, 451, 454, 647 LPGA, 505 Luigino, 667 Lundburg Family Farms, 163 LXR Hotels, 183 Lydon, Kevin, 442 M MacDonald, George, 435 MACTEC, 188 Macy’s, 145, 300, 451, 466, 475, 503, 530 Mad River Glen, 145 Madden shoes, 380 Magellan, 364 Magnavox, 369 Major League Baseball (MBL), 20, 172 – 173, 449, 488 – 490, 499 – 500, 642 Major League Soccer, 505 Make it Right, 670 Malcom Baldrige National Quality Award, 357 Mall of America, 459 Maltby, Emily, 465 Manning, Eli, 15 – 16, 533 Manpower, Inc., 593 Marcus, Stanley, 278 Markels, Alex, 65 Marquardt, Katy, 105 Marriott, 274, 316, 318, 326, 495 Mars Inc., 43 – 45, 224, 387, 502 Marshall Field’s, 466 Marshall’s, 82, 467 Mary Kay Cosmetics, 570 Marzano, Carmine, 667 Maslow, Abraham H., 145 – 146 MasterCard, 142, 146, 318 – 319, 433 Mattel, 6, 61, 110, 168, 391 – 392, 402 Matthiessen, Alex, 23 Maxwell House, 389 May Department Stores, 466 May, Rob, 12 Maynard, Micheline, 601 Mays, Lowry, 14 Mays, Peggy, 14 MCA, McCain, John, 562 – 563 McCann-Erickson Worldwide, 548 McCarthy, Alex, 615 McCormack, Mark, 427 McDonald, Dick, 200 McDonald, Mac, 200 McDonald’s, 4, 13, 37, 41 – 42, 83, 136 – 137, 200 – 202, 206, 220, 223, 282, 286, 297, 387, 389, 460, 483 – 485, 534, 554, 614, 631 McDougall, Alice Foote, 365 McKesson, 429 McLuhan Marshall, 253 McMahon, Tim, 574 McMahon Worldwide, 574 – 576 M.D Anderson Cancer Center, 14, 38 Meals on Wheels, 619 Media Law Resource Center, 499 Mediamark Research, 292 Medicare Insurance, 285 Mega Toys, 178 Menards, 451 Menzies, David, 409 Mercedes-Benz, 4, 225 – 226, 290, 330 Merck, 48, 62, 68 Mercurio, Mark A., 410 – 411 Merrill Lynch, 387 Merritt, Lynn, 534 Merry Maids, 299 MetaCrawler, 321 MetLife, 534 – 535 Metro AG, 433 Meyer, Deborah Wahl, 56 MGM, 499 MGM Mirage, 16 Michael Graves, 381 Michaels, Paul S., 45 Michelin, 13, 145 Mickelson, Phil, 534 Microsoft, 50, 66, 107, 115, 119, 171, 223, 255, 257, 336, 383, 421, 502, 548, 569 Middlebrook, Caroline, 281 Miggins, John, 486, 670 Miller, Claire Cain, 337 Miller, Steve, 93 Millicom International, Minnesota Twins, 489 Mitchell, T T., 324 M&Ms, 502, 562 Monsanto, 22 Monster.com, 286 Montaldo, Donna L., 619 Montgomery Ward, 453 Montuori, Don, 144 Moore, Julianne, 16 Morenao, Arturo, 287 Morga, Alicia, 286 Morgan Stanley, 336 Morrison, Kimberly, 216 Mortgage Bankers Association, 61 Mossimo Giannulli, 381 Mother Earth News, 604 Motor Trend, 515 Motorola, 204, 259, 357 Mountain Dew, 382 Mozilla Firefox, 145 MP3, 99 Mr Clean, 410 – 411 Mrs Butterworth, 326 Mrs Field’s, 349 MTN, Mude, Randy, 236 Mulcahy, Anne, 3, 317 Multiple Listing Service, 62 Murdoch, Rupert, 96 Murphy, Peter, 324 My Privacy, 320 – 321 My Virtual Model, 106 MyMap, Inc., 180 MySpace.com, 14, 37, 107, 113, 117, 147, 255 – 256, 314 – 315, 320 – 321, 336, 540 N Nabisco, 15 NAND, 616 Nantucket Nectars, 299 Narayanan, Lakshmi, 222 NASA, 486 NASCAR, 20, 59, 151, 385, 491, 505, 528 – 529, 534 National Advertising Division (NAD), 69 National Advertising Review Board, 70 National Aeronautics and Space Administration (NASA), 519 National Association of Realtors, 62 National Business Aviation Association, 14 National Customer Center (NCC), 359 National Football League (NFL), 15, 167, 318, 428, 449, 534, 658 National Geographic, 545 National Geographic Society, 20 National Marine Sanctuary Fund, 519 National Oceanic and Atmospheric Administration, 519 National White Crime Center, 109 Native American Business Alliance Fund, 287 Natural Home, 604 I-7 NAME & COMPANY INDEX Natural Resources Defense Council, 489 Nautica, 391 NBA, 20, 571 NBC Television Network, 17, 115, 319 – 320, 329, 366, 424, 492, 495, 529, 542 NCAA basketball, 505 NCAA football, 416 Neiman Marcus, 463, 623 Nestle, 102, 152, 178, 583 The Nest, 297 Net-a-Porter.com, 623 Netflix, 46, 369, 421 NetJets, 616 NetStakes, 591 Neutrogena Wave, 145 New York Giants, 533 New York Metropolitan Opera, 387 New York Mets, 489 New York Museum of Modern Art, 32 New York State Fair, 657 New York Stock Exchange, 205 New York University, 256 Newark Police Department, 18 Newell Rubbermaid, 576 The New York Times, 48, 255, 590 Nickell, Jake, 464 – 465 Nielsen Company, 255, 553 Nielsen Customized Research, 252 Nielsen Media Research, 243 Nielsen/Net Ratings, 119, 255 Nielson Mobile, 104 Nieman Marcus, 424 Nike, 15, 17, 48, 218, 221, 336, 365, 374, 441, 630 Nikko Hotel, 359 Nikon, Nimoy, Leonard, 15 99¢ Only, 454 Ning, 320 Nintendo, 390 – 391, 416 Nissan, 8, 44, 226, 316, 385 Nivea, 281 Nokia, 185, 317 Nordstrom, 110, 147, 182, 424, 461, 463, 475, 508 Norfolk Southern Railway, 436 North Face, 510 – 511 Northrop, 189 Northwest Airlines, 35, 65 Novak, Kim, 148 NPD Group, 271 O Oak Brook Promenade, 459 Oakley, 400 Obama, Barack, 562 Odgen Publications, 563 Office Depot, 169, 206, 381 Office Live, 171 OfficeMax, 355, 476 Ogden Publications, 604 Ogilvy, David, 501, 554 Ogilvy PR, 550 Olive Garden, 246 Olivio, Miguel, 173 Olsen, Stefanie, 315 Olympics, 13, 17, 209 – 210, 218, 319 – 320, 365, 495, 505 – 506, 630 Omega watches, 299, 513 ONE, Inc., 472 1-800-FLOWERS, 316, 434–435 OneNet Service, 167 OpenSocial, 115 Opie & Anthony, 544 Oracle, 322 Oral-B, 531 Orascom Telecom Holding, Orbit in Oasis, 656 Orbitz.com, 127 Ordonez, Jennifer, 615 Organization for Economic Cooperation and Development (OECD), 630 Oriental Weavers, 20 Orman, Suze, 15 Orville Redenbacher, 379 Outback Steakhouse, 316, 326 Overseas Adventure Travel (OAT), 285 Overstock.com, 110, 316 Owens Corning, 387 OWN Network, 143 Oxford, 111 P Palm, Palm Pilot, 535 Palma, Maria, 461 Paltrow, Gwyneth, 424 Pampered Chef, 418, 475, 569 Pampers, 498 Panasonic, 5, 365, 369, 655 Pantene, 590 Papa John’s, 134, 206 – 207 Parkway Imaging and Graphics, 178 Parlin, Charles C., 240 – 241 Paul, Libbey, 338 – 339 Payless ShoeSource, 388 PayPal, 108 PB Teen, 283 PBS, 492 Peabody Coal, 437 Peanut Butter & Company, 297 – 298 Peanuts, 534 – 535 Pear, Robert, 285 Peck, Raphael, 375 Peerless Pump Co., 198 – 199 Pelamis Wave Power, 209 Penn, 378 Penske Logistics, 433 Pepe’s Mexican Grill, 667 Pepperidge Farm, 382 PepsiCo, 83, 148, 226, 282, 381 – 382, 575, 593 Perfect Escapes, 282 Performance Bike, 570 Perry, Joe, 133 Petco, 311 PetSmart, 17, 311, 392 Pew Internet survey, 100 Pfizer, 48, 62, 185 PGA, 505 Pharmaceutical Research and Manufacturers of America, 576 Phelps, Michael, 513 – 514, 534 Philips, 175, 429 Phoenix Opportunity System, 189 – 190 Phuong Cat Le, 360 Piaggio, 284 Pickens, T Boone, 438 Pier 1, 431 – 432, 451 Pilibosian, Liz, 143 Pillsbury, Pincus, Aileen, 551 Pinnacle Entertainment, 16 Pioneer, 154 – 155 Pitt, Brad, 670 Pizza Hut, 206, 220, 346 Plank, Kevin A., 374 PNC Financial Services Group, 24, 103 Podtrac, 554 Pollo Campero, 325 Pompeian, 442 Pond’s, 382 Pope, Carl, 343 Porsche, 382, 383, 577 Porter, Michael E., 40–41, 43, 647 Post Cereal, 48 Pottery Barn, 283, 431, 451, 459, 508, 570 Power, J D., 515 Prada, 5, 420 Prance, Louise, 307 Praxair, 172 Precious Moments, 392 President’s Choice, 381 Press, Jim, 600 – 601 PriceGrabber.com, 104 Priddy, Emily, 486 Pro, 168 Proctor & Gamble (P&G), 35, 102, 116, 139, 178, 185, 205, 223, 238 – 239, 286, 321, 327, 336, 347, 367, 382 – 383, 387, 389, 397, 410 – 411, 433, 441, 498 – 499, 531 – 532, 618 Proenza Schouler, 654 ProQuest Direct, 99, 249 Prudential Financial, 384 Publilius Syrus, 617 Publix, 647 Pudding Media, 252 Pur, 145 I-8 NAME & COMPANY INDEX Q Quaker Oats, 83, 316, 382 Quality Value Convenience (QVC), 509 Quantas Airways, 354, 427 Queensland Seafood Industry Association, 165 Quelch, John, 653 Quizno’s, 150, 430 QVC, 476 Qwest7, 75 R Rabbe, William, 563 Raby, John, 658 Rally’s, 491 Ralph Lauren, 293, 378 Randall, Loeffler, 32 Ray-Ban, 654 Rayzor Ranch Town Center, 459 RDI Marketing Services, Inc., 128 – 129 Reader’s Digest, 545 Recycled Energy Development (RED), 309 Red Cross, Red Lion Hotels, 613 Redbox Automated Retail, Reebok, 15, 48, 218, 295, 374 Reed, Bart, 617 Reese’s Pieces, 502 Regus Group, 356 REI, 110, 441, 613 Reilly, Brian, 483 Reilly, Richard R., 36 Re/Max International Inc., 430 Republican Party, 18 ReputationDefender, 321 Reserve Brands, 368 Restoration Hardware, 459 Rez-Biz, 287 Rice-a-Roni, 382 Rich, Sarah, 155 Rickenbacker, Edward, V., 174 Ridge Hill Village Center, 459 Rihanna, 531 Ritz-Carlton, 351 Roan, Shari, 457 Robinson, Jackie, 489 Robinson, Nancy, 144 “Rock Band,” 133 Rodgers, Zachary, 315 Rogers, Will, 518 Rolaids, 13 Rolex, 223, 380, 424 Rolls-Royce, 174, 382 Romano’s Macaroni Grill, 245 RoperASW, 249, 292 – 293 Rose, Matthew K., 415 Rosenberg, Irene, 44 – 45 Ross, 467 Rovell, Darren, 375 Royal Bank of Scotland, 347 Royal Dutch/Shell Group, 204 Rubenstein’s of New Orleans, 464 Ruf Strategic Solutions, 260 – 261 Ruffles, 382 Ruiz Foods, 178 Ruskin, John, 646 Russell Stover, 328 S SABMiller, 221 Sacramento Fire Department, 18 Safeco Field, 505 Safeway, 307, 343, 427, 463 Saks Fifth Avenue, 300, 452, 460 Salazar, Dennis, 483 Salerno, Christina, 137 Salesforce.com, 322 Sam’s Club, 14, 40, 114, 216, 271, 273, 451, 466 – 468, 483, 550, 593 Samsung, 365, 369, 655 Santana Row, 459 SAP America, 168, 322 SAP ERP system, 494 Sara Lee, 168 Sarnoff, David, 363 Saturn, 300 Sauers, Len, 238 Saunders, Anne, 234 – 235 Save the Children, Saving Paws Animal Rescue, 17 S.C Johnson, 494, 542 – 543, 583 Scelfo, Julie, 23 Schenker, 433 Schiffer, Claudia, 535 Schilling, Frederick, 35 Schofield, Roger, 340, 412 Schultz, Howard, 614 – 615 Schwarzenegger, Arnold, 142 Schwinn, 376 – 378 Science Diet, 294 Scott, Lee, 10 ScottsMiracle-Gro, 398 Scrabble, 387 Sealy, 650 The Seam, 170 Sean Conway, 381 Sears, 175, 245, 451 Securities and Exchange Commission, 285 Segway, 409 Seiko, 222 Selig, Bud, 489 Sentry Hardware, 429 Sephora, 460 Service Employees International Union, 18 Sesame Workshop, 24 - Eleven, 224, 430, 431 7UP, 64 Shakey’s Pizza, 461 Shalkin, Bill, 173 Shaner Hotels, 326 Sharapova, Maria, 15, 514 Sharp, Isadore, 313 Sharrow, Ryan, 375 Shaw, George Bernard, 496 Shaw’s Supermarket, 47 Shegerian, John S., 93 Shell, 63, 336 ShopNBC, 509 Shopzilla.com, 99 Siemens, 63 Sierra Club, 297, 340, 343 Sierra Mist, 382 Silk Soymilk, 163 Sinegal, James, 40, 466 Singapore Airlines, 174 Sirius Satellite Radio, 448 – 449 Six Flags, 63 Skittles, 423 Skype, 252, 282, 614 Sladek, John, 71 Slim-Fast, 382 Smart USA, 615 Smartfood popcorn, 382 SmartOrg, 261 Smith, Aaron, 667 Smith, Jerd, 438 Smith, John, 499 Smithfield, 498 Smithsonian Institution, 530 Smucker’s, 288 Snapple, 64 Sobe juices, 382 Social TV, 259 Sony, 8, 154 – 155, 367 – 369, 381, 477, 572, 645, 655 Sorabol Korean BBQ & Asian Noodles, 140 Sorkin, Andrew Ross, 45 Southwest Airlines, 38, 47, 110, 145, 575 Spaceport America, 16 Spalding, Tom, 199 Spanx, 423 – 424 Special Olympics, 505 Speedo, 534 Spiegel, 475 Spin Master, 512 – 513 Sports Authority, 459 Sports Tracker, 317 Sprint, 114, 360, 529 SRI Consulting Business Intelligence (SRIC-BI), 291, 293 SRI International, 291 St Helena’s Residence, 24 St John’s Town Center, 459 St Joseph’s baby aspirin, 282 St Jude Children’s Research Hospital, 13 St Louis Cardinals, 526 Standard Plumbing Supply, 474 Standard Renewable Energy, 486, 670 Staples, 421, 425, 593 I-9 NAME & COMPANY INDEX Starbucks, 41–42, 46, 118, 234–235, 284, 295, 326, 347, 392, 458, 467, 550, 613–615 Starcom Worldwide, 602 – 603 Starwood Hotels, 87 Stein Mart, 467 Steinhafel, Gregg, 33 Stella Artois, 221 Stella McCartney, 379, 654 Stern, Howard, 449, 544 Stetson, 393 – 394 Stevenson High School, 24 Stolichnaya, 226 Stone, W Clement, 82 Stonyfield Farms, 64, 306, 477 Strategic Vision, 260 StubHub.com, 20, 609, 658 Subway, 20, 430, 431, 511 – 512, 613 Summit Logistics International, 432 Sun Chips, 423 Sun Life of Canada, Sun Microsystems, 31, 204, 358 Sunflower Farmers Market, 454 Sunkist Growers, 384 Sunsilk, 382 Super Bowl, 15, 17, 505, 513 – 514 Supervalu, 48, 427 Sweet, Robert W., 83 Swiffer, 238 – 239 Swift meat packing, 357 Swift Transportation, 437 Swinand, Andrew, 602 – 603 Switchboard.com, 321 Sydell, Laura, 369 Synovate, 246 – 247 System4, 430 T Tacoda Inc., 116 Tag Heuer, 15, 616 Tan, Zona Marie, 115 Tanner, Lindsey, 391 Target, 13, 32 – 33, 42, 110 – 111, 144, 147, 300, 327, 389, 424, 427, 451, 456, 458 – 459, 467, 537 Tastefully Simple, 418 Tata Motors, 550, 646 Tauck Bridge, 297 TBWA Worldwide, 548 Team Greening Program, 489 Tedeschi, Bob, 127 Teenage Research Unlimited (TRU), 252 Temkin, Michael, 133 Tempur-Pedic, 145 Tesco, 232 – 233, 631 Tetra Tech, 171, 188 Texaco, 388 Texas Instruments, 64 Thakoon, 654 Thaler, Linda Kaplan, 147 Threadless.com, 464 – 465 3M, 358 Ticketmaster, 50 TicketsNow.com, 609, 658 Tierney, Christine, 57 Tiffany, 142, 145, 351 TIGER system, 248 Tilman, David, 76 Timberland, 24 Timberline Four Seasons Ski Resort, 16 Time Out Chicago, 503 Time Warner, 78, 111, 427 – 428, 654 Timeless Secret, 140 Timex, 222 TiVo, 314 T.J Maxx, 82, 467 T-Mobile, 4, 63, 276, 360 Togo’s, 326 TomTom, 364 Toronto Transit Commission, 526 Tortino’s Pizza Rolls, 492 Toshiba, 367 – 369 Tostitos, 382 Total, 204 Total Immersion, 546 Totes, 531 Tour de France, 505 Toyota, 4, 19, 20, 47, 56, 58, 70, 87, 118, 204, 226, 347, 358, 600 – 601, 647, 657 Toys “R” Us, 110, 167 – 168 Tozzi, John, 257 Trader Joe’s, 232, 348, 615 – 616 Transportation Security Administration, 65 TransUnion, 69 Travelocity, 71 – 72, 126 Trek, 71 Trek Bicycle, 423 Triarc Companies, 36 – 37 Trident, 503 Tropicana Products, 14 tru2way, 428 True Value, 328, 568 Trump, Donald J., 577 TRUSTe, 109 Tully’s Coffee, 613 Tupperware, 475, 569 Turn-by-Turn OnStar navigation service, 530 Turner Networks, 336 Twain, Mark, 150, 297 Tyco, 22 Tyler, Steven, 133 Tyson Foods, 393 U U-Haul, 346 Ulrich, Robert, 32, 249 Under Armour, 374 – 375 Unilever, 185, 225 United Airlines, 7, 60, 427, 612 United Center, 505 United Stationers, 469 – 470 United Technology, 174 United Way, 15 Universal Music Group, 111 Universal Studios Amusement Park, 63 University of Florida, 318 University of Kansas, 486 University of Maryland, 141 University of Nebraska, 244 University of Southern California, 20 University of Texas, 18 Upper Deck, 15, 534 UPS, 174, 184, 206, 433, 438 – 440, 590 – 591 U.S Air Force, 75, 189 U.S Airways Group, 347, 530, 552, 612 U.S Army Corp of Engineers, 438 U.S Census Bureau, 45, 96, 101, 103, 138, 143, 174, 248 – 249, 281, 286 – 287 U.S Coast Guard, 18 U.S Congress, 84, 108, 659 U.S Department of Agriculture (USDA), 87, 396 U.S Department of Commerce, 73, 189 – 190, 203, 258 U.S Department of Defense, 75, 166, 172, 188, 519 U.S Department of Energy (DOE), 188, 618 U.S Department of Health and Human Services, 519 U.S Department of Justice, 62, 66, 69, 185 U.S Department of Labor, 347, 419 U.S Department of the Interior, 519 U.S Department of Transportation, 435 U.S Environmental Protection Agency (EPA), 48 U.S Food and Drug Administration, 402, 538 U.S Postal Service, 7, 18, 188, 206, 440, 651 U.S Sentencing Commission, 79 U.S Supreme Court, 387, 402, 426, 610, 650 U.S Treasury Department, 86 U.S Wholesale Grocers Association, 609 USA Today, 116 – 117, 544 V Value City, 451 Valu-Rite Pharmacies, 463 Vanguard Cleaning Systems, 430 VantageScore, 69 Veeck, Bill, 657 Vente-privée.com, 467 Veoh Networks, 111 VeriSign, 108 Verizon, 39, 63, 64, 109, 172, 314, 360, 428, 531 Versace, 293 Vespa, 284 Viacom, 111 – 112 I-10 NAME & COMPANY INDEX Vick, Michael, 534 Victoria’s Secret, 383, 538 Vincent, Laurence, 378 Virgin Atlantic, 547 Virgin Blue, 427 Virgin Galactic, 16 Virgin Holidays, 118 Virtuosity, 456 Visa, 318 Vitaminwater, 534 Vizio, 154 Vocalpoint, 321 Vodafone, 144 Volkswagen, 4, 532, 615 Volvo, 401 – 402 Von Maur, 463 Vonage, 76, 117 W W T Grant, 453 Wachovia, 574 Wagoner, Rick, 46 Walgreens, 6, 465, 468 Walker, Andrea K., 375 Wallace, James, 189 Wallach, Daniel, 130, 340, 604 The Wall Street Journal, 503 Wal-Mart, 15, 22 – 23, 42, 48, 102, 110, 114, 175, 178, 204 – 206, 216, 221, 250, 271 – 274, 286, 300, 325, 327, 343, 359, 369, 402, 427, 433, 451, 453 – 454, 456, 459, 464, 466 – 468, 472, 483, 550, 583, 623 – 624, 646 – 647, 651, 653, 655, 660 Walsh, Bryan, 76 Walt Disney, 48, 255, 409 Walton, Sam, 273, 453 Wanamaker, John, 517 Wang, William, 645 Warner Brothers, 369, 499 Warner Music, 460 Warner, W Lloyd, 142 Washington Nationals, 489 Webkinz, 366 WebStakes, 591 Wegmans, 618 Weiss, Jeffrey, 402 Welch, John F., Jr., 7, 38 Wendy’s, 36 – 37 Western Auto, 429 Westinghouse, 155 Westinghouse, George, 549 Weston Solutions, 188 Whirlpool, 351 Whiting, Susan, 60 Whole Foods Market, 38, 78 Wieboldt’s, 453 Wi-Fi, 63, 76, 224, 299, 433 Wii, 132 Wikipedia, 95 Wilde, Oscar, 616 Williams, Paul, 668 – 669 Williams-Sonoma, 117, 459, 467, 508 WiMax, 63 Winfrey, Oprah, 15, 143 WNBC, 366 WNET, 318 Wong, May, 140 Wong, Michelle, 140 Woodbury Fisheries, 166 Woods, Tiger, 13, 15, 287, 534 – 535 Woolworth’s, 453 Word of Mouth Marketing Association, 321 World Cultures Fund, 20 World Energy Council, 208 World Poker Tour, 220 – 221 World Savings Bank, 574 World Series, 17 World Trade Organization (WTO), 75, 212 – 213, 215 World War II, 10, 214, 278 Wrigley’s, 43 – 45 WSL Strategic Retail, 141 X Xbox, 132 Xerox, – 3, 178, 289, 357, 386 XM Satellite Radio, 448 – 449 Y Yahoo!, 13, 48, 115 – 118, 255, 281, 320 – 321, 394 Yakubik, David, 150 Yao Ming, 218, 534 Yellow Pages, 547 Yeo Valley Organic, 65 Yoo, Richard, 484 – 485 Yoplait, 64 Young & Rubicam (Y&R), 383 YourCause.com, 14 YouTube, 19, 99, 111 – 112, 115, 250, 314 Yum! Brands, 206 Yves Saint Laurent, 379 Z Zappos.com, 7, 434, 564 – 566 Zara stores, 460 Zayere, 453 Ziglar, Zig, 18 Zipcar, 104 – 105 Zolli, Andrew, 49 I-11 SUBJECT INDEX A AARP See American Association of Retired Persons accessory equipment, 354 – 355 accidental sample, 251 account managers, 585 acculturation, 138 administered system, 429 adopter categories, 394 – 395 adoption process, 394 advergames, 539 – 540 advertising, 167, 500, 501, 531 See also banner ads; marketing; pop-up ads; preroll video ads ad development, 538 – 539 advantages, 504 appeals, 537 – 538 celebrity testimonials, 533 – 535 cigarettes, 80 – 81 comparative, 533 cooperative, 425, 535 corporate, 532 creating ads, 536 – 537 direct-to-customer, 348 ethics, 556 health benefits, 83 humor, 538 informative, 532 institutional, 532 interactive, 535 – 536, 539 – 540 keyword ads, 540 magazine, 510 in marketing mix, 354 measuring effectiveness, 553 – 555 media selection, 540 – 547 messages, 537 – 540 new/free in, 535 in nonpersonal selling, 501, 504 objectives, 532 – 533 organization of function, 548 – 549 outdoor, 545 – 546 persuasive, 532 plans, 537 political, 562 POP, 592 – 593 product, 532 reminder, 532 – 533 retail, 535 sex in, 538 social networking, 540 specialty, 591 – 592 sponsorships vs., 505 – 506 strategies, 533 – 536 subliminal, 148 truth in, 83 types of, 531 – 532 Web sites, 119, 501, 510, 536, 539–540, 555 advertising agencies, 548 – 549 advertising campaign, 537 advertorials, 540 adware, 540 affinity marketing, 318 African Americans, 286 acculturation of, 138 college students, 139 consumers, 139 cultural influences, 139 population, 137 preferences of, 260 – 261 shopping trips of, 139 as target market, 45 age baby boomers, 77, 283 – 284, 377, 591 cohort effect, 282 demographic segmentation by, 282 – 286 Generation X, 283 Generation Y, 283 9/11 Generation, 282 school-age children, 282 seniors, 284 – 285 tweens/teens, 282 – 283 agents selling, 474 services, 474 as wholesale intermediaries, 472 – 473 agriculture, 620 AIDA See attention, interest, desire, action AIDA concept, 493, 577 AIO statements, 290 air freight, 438 – 439 Airline Deregulation Act, 68 allowances, 649 price quotation, 649 – 650 promotional, 649 – 650 slotting, 350, 456 trade, 592 altruists, 292 AMA See American Medical Association ambush marketing, 506 Amendments to the Telemarketing Sales Rule, 68 American Association of Retired Persons (AARP), 69, 495 American Chamber of Commerce, American Medical Association (AMA), 140 analysis See also breakeven analysis business, 399 marginal, 516, 613 marketing cost, 246 modified breakeven, 627 – 628 portfolio, 49 ratio, 246 sales, 245 – 246 SWOT, 42 – 43 tools, 185 – 186 trade promotion, 517 trend, 264 value, 185 – 186 vendor, 186 Anticybersquatting Consumer Protection Act, 67 antimonopoly, 66 antitrust, 62 application service providers (ASPs), 320 approach, 577 – 578 “stick-and-carrot,” 79 Arab Americans, 272 – 274 Asch phenomenon, 141 Asian Americans acculturation of, 138 consumers, 140 cultural influences, 286 – 287 population, 137 preferences of, 260 – 261 aspirin, 386 ASPs See application service providers assurances, 359 atmospherics, 460 – 461 attention, interest, desire, action (AIDA), 493 attitudes, 148 affective, 149 behavioral, 149 changing, 149 cognitive, 149 components, 149 in consumer behavior, 148 – 150 defined, 148 – 149 modifying components, 149 auction house, 473 autodialing, 570 automatic merchandising, 476 – 478 automobiles, 106 – 107 autonomic role, 143 average total costs, 621 awareness, 394 B B2B See business-to-business B2B e-marketing, 97, 101 e-procurement on open exchanges, 102 – 103 I-12 SUBJECT INDEX B2B e-marketing (continued ) transactions, 101 – 102 variety, 102 B2B marketing, 166 – 167, 324 alliances, 329 buyer size/numbers, 174 buyer–seller relationships, 175, 324 – 327 buyer–seller relationships improved in, 327 – 328 buying process, 182 characteristics, 173 – 174 components, 168 – 170 consumer marketing compared to, 167 customer-based segmentation, 171 databases, 327 demographics characteristics segmentation, 171 direct selling, 420 diversity in, 168 end-use application segmentation, 172 environmental factors and, 169 in foreign markets, 170 geographic market concentration, 174 global marketplace and, 175 government in, 170 influences on, 168 Internet and, 170 nature of, 167 – 168 purchase categories segmentation, 172–173 purchase decision process, 174 B2B marketing strategies, 187 challenges of government markets, 187 – 188 government online, 188 – 190 government purchasing procedures, 188 – 189 institutional markets, 190 – 191 international markets, 191 B2B products, 348 See also business products classification system; industrial products; organizational products accessory equipment, 354 – 355 business services, 356 classification of, 353 component parts/materials, 355 installations, 354 raw materials, 355, 422 supplies, 355 types of, 353 – 357 B2C See business-to-consumer B2C e-marketing, 97, 103 See also e-tailing access/convenience of, 105 benefits, 104 – 106 competitive pricing in, 104 electronic storefronts, 103 – 104 online buyers/sellers, 106 – 107 personalized service, 105 – 106 B2C products, 348 See also consumer product classification system classifications, 349 convenience products, 349 – 350 direct selling, 420 shopping products, 350 specialty products, 351 types, 348 – 351 baby boomers, 77, 283 – 284, 377, 591 backlash, 538, 590, 644 backshoring, 447 backward integration, 429 band story, 577 banner ads, 114 banners, 96, 540 basing-point pricing, 652 basis point, 495 BCG matrix cash cows in, 50 dogs in, 50 marketing planning, 49 – 50 question marks in, 50 stars in, 50 behavioral targeting, 108 benchmarking, 357 – 358 biofuels, 75 ethanol, 75, 208 hydrogen gas, 87 birdyback, 440 bisphenol A (BPA), 402 blind product tests, 554 bloggers, 113 – 114, 319 blogs, 77, 98, 113, 170, 283, 316, 495, 498 employee, 114 ethics in sports, 499 etiquette, 115 product information on, 96 shopping blog, 96 as Web communication, 113 – 114 board of directors, 37 body language, 496 bonus packs, 590 boomerangs, 288 bots, 104, 660 – 661 bottom line, 14 BPA See bisphenol A brand(s), 379 See also product identification captive, 381 cobranding, 326 – 327 competing, 645 evolution of, 60, 133, 165 – 166, 201 – 202, 273 – 274, 309, 343, 377 – 378, 415 – 416, 489, 565 – 566, 607, 641 – 642 family, 381 – 382 fighting, 611 flanker, 394 image, 3, 33 individual, 381 – 382 “lifestyle,” 392 loyalty, 379 – 380 managing for competitive advantage, 379 – 384 manufacturer’s, 381 orphan, 368 private, 381 product-related segmentation, 295 role of, 378 types, 380 – 382 brand equity, 382 – 383 brand extensions, 391 brand insistence, 380 brand licensing, 392 brand manager, 383 brand mark, 385 – 386 brand name, 385 – 386, 388 brand preference, 380 brand recognition, 379 break-bulk distribution centers, 440 breakeven analysis, 625 See also modified breakeven analysis evaluation of, 627 target returns, 626 – 627 The Breakfast Club, 460 brick-and-click retailers, 476 broadcast channels, 509 broadcast media, 541 brochureware, 117 – 118 brokers, 473 See also agents export, 474 services, 474 as wholesaling intermediaries, 473 – 474 browser, 96 bundle pricing, 661 business analysis, 399 business buying process, 180 analysis tools, 185 – 186 classifying situations, 184 – 185 modified rebuy, 185 new-task buying, 185 organizational buying process model, 182 – 184 purchase decision influences, 180 – 184 reciprocity, 185 straight rebuy, 184 – 185 business crisis, 551 business cycle, 71 business ethics, 80 business intelligence, 261 business market demand, 176 derived demand, 176 – 177 inelastic demand, 177, 622 inventory adjustments, 177 – 178 joint demand, 177 volatile demand, 177 business plan components, A-19 – A-20 See also marketing planning business products, 275 business products classification system, 356 business services, 356 business-to-business (B2B), 101 business-to-consumer (B2C), 103 buyer(s), 187 in B2B marketing, 175, 324 – 328 expectations of salespeople, 572 online, in B2C e-marketing, 106 – 107 I-13 SUBJECT INDEX partnership, 325 professional, 182 in purchase decision influences, 182 size, in B2B marketing, 174 survey of buyer intentions, 263 buyer partnership, 325 buyer’s market, 10 buyer–seller relationships, 175, 317 in B2B marketing, 175, 324 – 327 choosing business partners, 325 cobranding, 326 – 327 comarketing, 326 – 327 customers as advocates, 321 database marketing, 319 – 321 forms of, 311 – 312 improving in B2B marketing, 327 – 328 keeping customers in, 317 – 318 partnership types, 325 – 326 buying center, 186 international, 187 roles, 186 – 187 buying offices, 474 – 475 Buzz Manager, 20 buzz marketing, 20, 321, 503 Buzz Rating, 20 buzzwords, 495 C CAD/CAM See computer-aided design and manufacturing cafeteria trays, 658 CAFTA-DR See Central American Free Trade Agreement and Dominican Republic call centers, 347 Caller ID systems, 253, 570 campus ambassadors, 503 cannibalization, 394, 660 Can-Spam Act, 360 captive brands, 381 carbon dioxide emissions, 59 carbon footprint, 363 caring, 500 carload (CL), 439 – 440 cash cows, 50 cash discounts, 648 cash-and-carry wholesaler, 472 Catalog of U.S Government Publications (CGP), 248 catalogs, 248, 475 – 476, 507 – 508 categories, 49 category advisor, 182 category captain, 182 category killer, 464 category management, 383, 455 category manager, 378, 383 cause marketing, 17 caveat emptor, 250 CBA See core based statistical area CECP See Committee Encouraging Corporate Philanthropy celebrity endorsements, 15, 533 – 535 cell phones, 96, 226, 282, 324, 420 research, 104 spam on, 360 Central American Free Trade Agreement and Dominican Republic (CAFTA-DR), 212 – 213, 217 CEOs See chief executive officers CFLs See compact fluorescent light bulbs chain of trade discounts, 649 chain stores, 462 – 463 change, 60 channel, 494 channel captain, 427 channel conflict, 110 – 111, 427 gray market, 428 horizontal, 427 vertical, 427 – 428 checkoffs, 498 chief executive officers (CEOs), 37, 85, 105, 177, 322 chief marketing officers, 37 chief operating officers (COOs), 37 child protection government regulation and, 66 privacy and, 66 – 67, 109 children, 67 See also child protection; tweens/teens COOPA, 67, 109 in family purchases, 144 school-age, 282 Children’s Online Privacy Protection Act (COPPA), 67, 109 cigarettes, 67, 69 advertising, 80 – 81 CL See carload Clayton Act, 66 – 67, 426, 609 click-through behavior monitoring, 330 click-through rates, 118, 518 closed sales territories, 426 closing, 580 clothing/footwear, 106 – 107 See also fashion cluster sample, 251 clutter, 534 CMSA See consolidated metropolitan statistical area cobranding, 326 – 327 Code of Hammurabi, 567 Code of Professional Standards, 556 cognitive dissonance, 156 cohort effect, 282 cold calling, 578 cold storage, 440 Cold War, 282 collaborative planning, forecasting, and replenishment (CPFaR), 328 colleges African American students, 139 competitive bidding and, 657 on Internet, 96, 99 promotion and, 83 comarketing, 326 – 327 commercial market, 168 commercialization, 400 commission, 584 commission merchants, 473 Committee Encouraging Corporate Philanthropy (CECP), 24 common carriers, 435 – 436 common market, 215 communication See also integrated marketing communications; telecommunications; Web communication direct marketing channels, 507 global marketing, 496 IMC, 47 in interactive marketing, 19 communication process, 493 – 497 promotion and, 494 community shopping center, 459 Community Trademark (CTM), 218 compact fluorescent light bulbs (CFLs), 422 company resources, 299 comparative advertising, 533 compatibility, 396 compensation, 584 – 585 competition direct, 63 indirect, 63 in marketing environment, 48 meeting competition method, 516 monopolistic, 620 pure, 620 time-based, 65 types in competitive environment, 63 – 64 competitive advantage, 40 competitive bidding, 657 – 659 competitive environment, 62 – 63 competition types in, 63 – 64 developing competitive strategy, 64 time-based competition in, 65 competitive intelligence, 261 competitive pricing strategies, 646 – 647 competitive strategy, 64, 299 competitor protection, 66 complaint monitoring, 330 complexity, 396 component parts/materials, 355 computer technology business intelligence, 261 CAD/CAM, 399 – 400 competitive intelligence, 261 CRM software, 312 data mining, 260 – 261 hardware/software, 106 – 107 in marketing research, 259 – 261 MDSSs, 260 MISs, 259 – 260 computer-aided design and manufacturing (CAD/CAM), 399 – 400 concentrated marketing, 297 – 298 concept testing, 399 I-14 SUBJECT INDEX congestion pricing, 617 consolidated metropolitan statistical area (CMSA), 279 consultative selling, 572 – 574 consumer(s), 67 – 68, 390, 401, 570, 611 See also buyers; customers African American, 139 Asian American, 140 assurances, 109 buying, 71 consumer innovators, 394 – 395 “elastic,” 141 green choices for, 163 groups, 70 – 71 Hispanic American, 138 – 139 laggards, 395 marketing, 167 middle-class, 142 needs, 11 – 12, 145 – 146 requirements, 105 surveys, 100 young men, 492 consumer behavior, 134 attitudes in, 148 – 150 cultural influences, 135 – 140 family influences, 143 – 144 interpersonal determinants, 135 – 144 learning in, 150 – 151 Lewin’s proposition, 134 motives in, 145 – 146 needs in, 11 – 12, 145 – 146 perceptions in, 146 – 148 personal determinants, 144 – 152 self-concept and, 152 social influences, 140 – 143 consumer decisions, 153 classifying consumer problem-solving processes step, 156 – 157 evaluation of alternatives step, 154 – 155 high-involvement purchase decisions, 152 low-involvement purchase decisions, 152 postpurchase evaluation step, 156 problem/opportunity recognition step, 153 – 154 purchase decision/purchase act step, 155 – 156 search step, 154 Consumer Goods Pricing Act, 611 consumer innovators, 394 – 395 consumer orientation, 10 consumer product classification system applying, 352 – 353 marketing impact of, 352 Consumer Product Safety Act, 67, 401 consumer products, 275 women and, 276 consumer protection, 66, 67 on Web sites, 109 consumer rights, 78 – 79 Consumer Telephone Records Act, 68 consumerism, 78 expansion, 79 in social-cultural environment, 78 – 79 consumer-oriented sales promotion, 589 bonus packs, 590 contests, 590 coupons, 589 premiums, 590 refunds, 589 sampling, 590 specialty advertising, 591 – 592 sweepstakes, 590 containerization, 442 contests, 590, 594 contract carriers, 436 contractual agreements foreign licensing, 220 – 221 franchise, 220 subcontracting, 221 contractual marketing system, 429 franchise, 429 – 431 retail cooperative, 429 wholesaler-sponsored voluntary chain, 429 controlled experiment, 256 convenience products, 349 – 350 convenience retailers, 463 convenience sample, 251 conversion rate, 119, 518 cookies, 108, 255, 556 cooperative advertising, 425, 535 cooperatives, 463 retailer-owned, 474 – 475 COOs See chief operating officers COPPA See Children’s Online Privacy Protection Act copyright disputes, 110 – 112 core based statistical area (CBA), 278 core competencies, 42 – 43 core regions, 279 corporate advertising, 532 corporate marketing system, 429 corporate Web sites, 100 cosmetics, 106 cost per impression, 518 cost per response, 518 cost per thousand (CPM), 553, 555 cost recovery, 617 cost-plus pricing, 624 cost/revenue curves, 620 – 621 Counter Spy Act, 108 countertrade, 226 County and City Data Book, 249 coupons, 589 cover letters, A-8 CPFaR See collaborative planning, forecasting, and replenishment CPM See cost per thousand; critical path method creative selling, 576 creatives, 293 credit-cards payment fraud, 109 – 110 pricing strategy, 83 critical path method (CPM), 398 CRM See customer relationship management cross-promotion, 552 – 553 cross-selling, 574 CTM See Community Trademark cue, 150 cultural influences, 135 on African American consumers, 139 on Asian American consumers, 140 core values, 135 – 136 on Hispanic American consumers, 138 – 139 international perspectives, 136 – 140 subcultures, 136 – 140 culture, 135 See also subcultures cumulative quantity discounts, 649 customary prices, 618 customer(s), 359 See also buyers; consumers as advocates, 19, 321 creation, – customer winback, 323 defection rates, 323 defined, 18, 326 direct-to-customer advertising, 348 etiquette, 461 external, 312, 326 feedback, 316 – 317 internal, 312 keeping, in buyer–seller relationships, 317 – 318 lifetime value of, 18 loyalty, 4, 24 per-customer profit, 330 professional, 353 in relationship marketing, 18 – 19 retrieving lost, 323 – 324 understanding needs of, 316 customer churn, 318 customer relationship management (CRM), 172 – 173, 322 benefits, 322 – 323 problems, 323 qualities, 322 – 323 retrieving lost customers, 323 – 324 software, 312 customer relationship programs, 329 – 330 customer satisfaction, 105, 316 enhancing, 316 – 317 ensuring, 316 – 317 measurement programs, 243 – 244, 316 customer service, 565 in e-business, 110 in e-marketing, 110 in physical distribution, 434 – 435 in retailing strategy, 456 – 457 standards, 434 – 435 customer winback, 323 customer-based segmentation, 171 customization, 150 – 151 I-15 SUBJECT INDEX customs union, 215 cyberspace, 66–67 See also Internet; Web services; Web sites safety, 391 shoppers in, 105 D data collection, 246 – 247 data interpretation/presentation, 247 – 248 data mining, 260 – 261 data warehouse, 260 database marketing, 319 – 321 databases See also database marketing B2B marketing, 327 in direct marketing, 507 in IMC, 493 dealer incentives, 594 dealer-invoice price, 650 deception, 556 decider, 186 decline stage, product lifecycle, 365 – 366 decoding, 494 deflation, 72 – 73 Delphi technique, 263 demand, 619 – 620 See also business market demand derived, 176 – 177 primary, 498 promotion, 498 – 499 promotion increasing, 498 – 499 selective, 498 volatile, 177 demarketing, 73 demographic segmentation, 280 by age, 282 – 286 by gender, 281 – 282 demographics characteristics segmentation, 171 demonstration, 579 department stores, 465 – 466 depreciation, 177 deregulation movement, 62, 66, 69 derived demand, 176 – 177 devouts, 292 differentiated marketing, 297 differentiation, 383 diffusion process, 395 Digital Millennium Copyright Act, 67 digital world, 97 – 98 See also Internet direct channel, 419 direct competition, 63 direct mail, 507 as direct marketing, 420, 475, 507 as media, 545 direct marketing, 475, 502 See also nonpersonal selling automatic merchandising, 476 – 478 catalogs, 507 – 508 communication channels, 507 databases in, 507 direct mail as, 420, 475, 507 direct selling, 475 – 476 direct-response retailing, 476 growth of, 506 – 507 Internet retailing, 476 kiosks, 510 – 511 magazine ads, 510 nonpersonal selling and, 502 – 504 telemarketing, 476, 508 – 509 via broadcast channels, 509 via electronic channels, 510 direct response TV, 509 direct sales results test, 517 direct sampling, 493 direct selling, 419 – 420, 475 – 476 direct-response retailing, 476 discount houses, 466 discretionary income, 73 distribution, 416 See also physical distribution; physical distribution functions break-bulk distribution centers, 440 dual, 421, 421 exclusive, 425 – 426 intensity, 424 – 426 intensive, 425 selective, 425 worldwide, 277 – 278 distribution channel, 82, 416 distribution strategies, 46, 82, 458 – 459 in global marketing, 225 Do Not Call Improvement Act, 68 Do Not Call Registry, 82, 253, 360, 508 – 509, 570, 591 domain names, 117 double-cycle billing, 84 downstream management, 432 drive, 150 drop shipper, 472 droughts, 438 drug abuse, 519 dual distribution, 421 dumping, 214, 608 E EBI See effective buying income e-business, 96, 102 See also B2B e-marketing; B2C e-marketing; Internet capitalizing on, 98 categories, 98 challenges in, 107 – 112 channel conflicts, 110 – 111 copyright disputes, 110 – 112 customer service in, 110 defined, 96, 98 early years, 105 e-marketing and, 98 – 101 fraud/scams, 109 – 110 online payments, 107 – 108 privacy and, 108 – 109 scope of, 96 Web business models, 100 – 101 Web site design in, 110 ecology, 86, 214 See also biofuels; compact fluorescent light bulbs; environment; recycling carbon dioxide emissions, 59 carbon footprint, 363 eco-friendly fashion, 292 – 293 eco-friendly products, 656 social responsibility in, 86 – 87 economic environment, 71 business cycle in, 71 deflation, 72 – 73 in global marketing, 207 – 208 income, 73 inflation, 72 – 73 international, 73 – 74 resource availability, 73 unemployment, 72 economic slowdown, 71 See also recession EDI See electronic data interchanges EDLP See everyday low pricing effective buying income (EBI), 249 80/20 principle, 294 elasticity, 622 See also inelastic demand determinants, 623 “elastic consumers,” 141 in pricing strategy, 622 – 624 revenue and, 623 – 624 electricity industry, 69 electronic bulletin boards, 113, 255 electronic business, electronic data interchanges (EDI), 98, 102, 177, 327, 355, 456 electronic exchanges, 102 electronic shopping cart, 104 Electronic Signature Act, 68 electronic signatures, 108 electronic storefronts, 103 – 104 e-mail, 98, 105, 109, 170 spam, 112 volume, 112 e-marketing, 98, 536 See also B2B e-marketing; B2C e-marketing activities, 98 – 99 capabilities, 99 – 100 challenges in, 107 – 112 channel conflicts, 110 – 111 copyright disputes, 110 – 112 customer service in, 110 defined, 98 – 99 e-business and, 98 – 101 fraud/scams, 109 – 110 global reach, 98 – 99 integrated marketing, 99 – 101 interactive marketing, 98 – 99 online payments, 107 – 108 opportunities, 99 – 100 personalization, 98 – 99 privacy and, 108 – 109 right-time marketing, 99 – 100 Web site design in, 110 embargoes, 213, 214 I-16 SUBJECT INDEX emergency goods and services, 349 empathy, 359 employee satisfaction, 313 employee volunteer programs, 74 empty nesters, 288 encoding, 494 encryption, 107 end-use application segmentation, 172 engagement, 119 Engel’s laws, 289 – 290 English language, 496 enterprise resource planning (ERP), 433 environment, 67 See also competitive environment; ecology; economic environment; green marketing; greenwashing; marketing environment; political-legal environment; social-cultural environment; technological environment in B2B marketing, 169 concerns over, 78 green improvements, 103 green packaging, 483 green products, 60, 656 – 657 green score, 73 LEED, 130 marketing mix framework, 61 natural, 77 in purchase decision influences, 180 – 181 risks in marketing planning, 39 target market framework, 61 environmental management, 61 environmental scanning, 61 e-procurement, 103 evolution of, 103 on open exchanges, 102 – 103 ERP See enterprise resource planning escalator, 386 esteem, 383 e-tailing, 98, 103, 107, 476 ETC See export-trading company ethanol, 75, 208 ethics, 22 See also business ethics; marketing ethics advertising, 556 airline soft drinks, 552 BPA plastics, 402 cafeteria trays, 658 congestion pricing, 617 copyright disputes, 112 corn for food vs food, 76 defined, 22 fair trade, 216 fluorescent light bulbs, 23 greenwashing, 155 in nonpersonal selling, 555 – 556 online reputation management, 257 part-time workforce, 457 public relations, 556 – 557 rice rationing, 40 in sales, 586 – 587 social interactions, 315 social responsibility and, 22 – 24, 85 spam on cell phones, 360 sports blogs, 499 sweepstakes, 591 targeting seniors, 285 water, 438 ethnic groups See also African Americans; Arab Americans; Asian Americans; Hispanic Americans; Native Americans market segmentation by, 286 – 287 mixed race, 287 ethnographic studies, 259 etiquette Beijing Olympics, 210 blogging, 115 business crisis, 551 customers, 461 employee volunteer programs, 74 feedback, 358 jargon, 386 job interview, A-11 listening, 497 networking, 12 online surveys, 256 price increases, 653 price negotiation, 619 product returns, 150 rudeness, 324 sales attire, 573 sales calls, 420 target market, 281 trade shows, 176 virtual conferences, 36 EU See European Union euro, 7, 209, 217 European Biodiesel Board, 214 European Union (EU), 7, 209, 213, 217 – 218, 357 evaluation, 394 of breakeven analysis, 627 in consumer decisions, 154 – 155, 156 indirect, 517 PERT, 398 sales force, 585 – 586 evaluative criteria, 154 event marketing, 17 everyday low pricing (EDLP), 646 evoked set, 154 e-waste, 93 exchange control, 214 exchange functions, 21 exchange process, exchange rate, 209 exclusive dealing agreement, 426 exclusive distribution, 425 – 426 expectancy theory, 584 expense ratio, 495 exploratory research, 245 with internal data, 245 – 246 marketing cost analysis, 246 ratio analysis, 246 sales analysis, 245 – 246 exponential smoothing, 264 Export America, 258 Export Trading Company Act (1982), 212 exporting, 202, 204 – 206, 212, 258 brokers, 474 ETC, 219 as foreign markets strategy, 219 OPEC, 226 service/retail, 204 – 206 export-trading company (ETC), 219 extended problem-solving, 157 Extensible Markup Language (XML), 96, 102 external customers, 312, 326 extranets, 102 F face-to-face transactions, 166 facilitating functions, 21 Fair Packaging and Labeling Act, 390, 401 fair-trade, 216, 611 fair-trade laws, 610 – 611 family brands, 381 – 382 family influences, 143 – 144 family lifecycle, 287 – 288 fashion eco-friendly, 292 – 293 product lifecycle, 366 fast-food chains, 78 – 79, 314 fax surveys, 254 FCN See friendship, commerce, and navigation treaties features benefits, 578 Federal Food and Drug Act, 67 Federal Junk Fax Law, 254 Federal Trade Commission Act, 67, 426 Federal Trademark Dilution Act, 387 feedback, 255, 494, 495 customer, 316 – 317 etiquette, 358 in organizational buying process model, 184 “fee-harvesting,” 84 field selling, 569 – 570 fighting brands, 611 file sharing, 109 FindEx: The Directory of Market Research Reports, Studies, and Surveys, 249 firewall, 109 First Amendment, 499 first mover strategy, 42 fishing industry, 164 – 165 fishyback, 440 fixed costs, 621 fixed-price purchase, 48 – 49 fixed-sum-per-unit method, 516 Flammable Fabrics Act, 401 flanker brands, 394 floating markets, 208 fluorescent light bulbs, 23 FOB See free on board I-17 SUBJECT INDEX FOB origin pricing, 651 FOB origin-freight allowed, 651 FOB plant pricing, 651 focus groups, 253 – 254, 399 follow-up, 580 Food Allergen Labeling and Consumer Protection Act, 390, 401 food allergies, 306 – 307, 390, 401 food costs, 677 Foreign Corrupt Practices Act, 212 foreign licensing, 220 – 221 foreign markets strategies contractual agreements, 220 – 221 exporting, 219 importing, 219 international direct investment, 221 – 222 form utility, for-profit organizations, 175 forward integration, 429 franchise, 220, 429 – 431 Free Extension Act, 68 free on board (FOB), 651 Free Trade Area of the Americas (FTAA), 216 – 217 free-from labeling, 306 free-trade area, 214 – 215 freight absorbed, 651 frequency, 547 frequency marketing, 318 friendship, commerce, and navigation treaties (FCN), 212 ftc.gov/privacy, 82 full-cost pricing, 624 – 625 full-service research suppliers, 243 fun seekers, 292 functional vice presidents, 37 G gatekeepers, 186 GATT See General Agreement on Tariffs and Trade GDP See gross domestic product gender, 281 – 282 See also men; women General Agreement on Tariffs and Trade (GATT), 212, 215 general merchandise retailers, 464 – 465 Generation X, 283 Generation Y, 283 generic products, 380 genetically modified organisms (GMOs), 211 geographic information systems (GISs), 280 geographic market concentration, 174 geographic segmentation, 277 – 279 GISs, 280 role of, 279 – 280 gift cards, 106 GISs See geographic information systems global marketing, – B2B marketing and, 175 B2B marketing strategies, 191 brand name, 388 communication, 496 conducting research, 258 economic environment, 207 – 208 in e-marketing, 98 – 99 fishing industry, 164 – 165 foreign markets strategies, 218 – 222 globalization and, 218 international buying centers, 187 on Internet, 204 language, 209 – 210 levels of involvement, 219 market segmentation, 290 multinational corporations, 222 multinational economic integration, 214 – 218 as necessity, 203 – 204 networks, online pricing, 659 – 662 political-legal environment, 211 – 212 pricing, 630 – 631 psychographic segmentation, 292 – 293 quality programs, 357 service/retail exports, 204 – 206 social-cultural environment, 209 – 210 technological environment, 211 trade barriers, 212 – 214 trademarks, 388 U.S as target, 226 global marketing strategies, 222 countertrade, 226 distribution strategies, 225 pricing strategy, 225 – 226 product strategy, 224 – 225 promotion, 224 – 225 global positioning system (GPS), 167, 180 – 181, 346, 364 global sourcing, 175 GMOs See genetically modified organisms goods, 345 – 346 classifying, 348 – 356 emergency, 349 impulse, 349 goods-services continuum, 345 government, 248 in B2B marketing, 170 challenges of markets, 187 – 188 data, 248 – 249 online, 188 – 190 purchasing procedures, 188 – 189 secondary data, 248 – 249 government regulation antimonolpoly period, 66 competitor protection, 66 consumer protection period, 66 in cyberspace, 66 identity theft, 66 industry deregulation, 66 marketing laws, 66 – 68 privacy and, 66 regulatory agencies, 68 – 69 seafood inspection, 165 GPS See global positioning system grassroots marketing, 321 gray goods, 428 gray market, 428 Great Depression, 10, 71 – 72, 282, 609 – 610 Green Book, 73 green improvements, 103 green marketing, 87, 412 green packaging, 483 green products, 60, 656 – 657 green score, 73 greenwashing, 155, 238 – 239 gross domestic product (GDP), 71, 74 China, 207 India, 207 U.S., 202, 205, 207 gross rating point (GRP), 547 growth stage, product lifecycle, 365 GRP See gross rating point guerilla marketing, 503 – 504 Guide to International Periodicals (Ulrich), 249 H halo effect, 586 HDTVs See high-definition televisions headlines, 539 Helms-Burton Act (1996), 212 high-definition televisions (HDTVs), 643 – 644 high-involvement purchase decisions, 152 Highway Beautification Act, 546 Hispanic Americans, 286, 534 acculturation of, 138 consumers, 138 – 139 cultural influences, 138 – 139 families, 139 income, 139 population, 137 preferences, 260 – 261 Spanish-language programming, 78 as target market, 45 holdbacks, 650 home furnishings, 106 – 107 home shopping, 476 home shopping channels, 509 homeshoring, 347 horizontal conflict, 427 house organs, 507 household types, 288 – 289 human resources, 179 Hurricane Katrina, 278 husband-dominant role, 143 hydrogen gas, 87 hypermarkets, 467 hypermilers, 141 hypothesis, 246 I idea generation, 398 ideal self, 152 identity theft, 66, 109 I-18 SUBJECT INDEX Identity Theft and Assumption Deterrence Act, 67 Identity Theft Enforcement and Restitution Act, 66 illustrations, 539 IMC See integrated marketing communications impact fees, 638 import quotas, 213 importing, 202 as foreign market strategy, 219 quotas, 213 impressions, 555 impulse goods and services, 349 IMS See Internet Protocol Multimedia Subsystem inbound telemarketing, 570 income, 73 discretionary, 73 EBI, 249 economic environment, 73 of Hispanic Americans, 139 income/expenditure patterns Engel’s laws, 289 – 290 market segmentation by, 289 – 290 incremental-cost pricing, 625 independent retailers, 463 indirect competition, 63 indirect evaluation, 517 individual brands, 381 – 382 industrial distributor, 355, 421, 472 industrial products, 348 Industrial Revolution, 310 inelastic demand, 177, 622 inflation, 72 – 73 influencers, 186, 321 infomercials, 476, 509 informal investigation, 245 information technology (IT), 4, 179 informative advertising, 532 infrastructure, 207 – 208 inquiry tests, 554 – 555 inside selling, 571 installations, 354 instant messaging, 98 institutional advertising, 532 institutional markets, 170, 190 – 191 integrated marketing, 99 – 101 integrated marketing communications (IMC), 47, 490, 491 – 492, 531 coordination of, 492 databases in, 493 teamwork in, 492 – 493 integrity, 500 intensive distribution, 425 interactive advertising, 535 – 536, 539 – 540 interactive marketing, 19, 99 – 100 communication in, 19 for relationship building, 19 – 20 interactive television, 320 interdependent partnership, 315 intermediaries, 420–421 See also agents; brokers marketing, 418 marketing channel, 420 – 421 wholesaling, 472 – 473 intermodal coordination, 440 intermodal operations, 436 internal customers, 312 internal marketing, 312 – 313 internal partnership, 326 international direct investment, 221 – 222 International Monetary Fund, 212 International Organization for Standardization (ISO), 212, 357 International Trade Commission (ITC), 214 Internet, 8, 19, 142, 167, 418 See also cyberspace; digital world; e-business; e-mail; e-marketing; search engines; virtual conferences; voice over Internet protocol; Web communication; Web services; Web sites auction houses and, 473 B2B marketing and, 170 blogs, 77 browsers, 108 buyers/sellers, 106 – 107 Chinese censorship, 212 colleges on, 96, 99 direct selling, 420 functions of, 112 global marketing, 204 holiday shopping, 100 market entry and, 41 marketing, 96 – 97 penetration rate, 97 population using, 97 – 98 products/services, 106 – 107 real estate purchases and, 100 research, 106, 108 retailing, 476 scanning, 250 services, 106 – 107 shopping, 103 sponsored links on, 115 surveys, 255 – 256 terms, 96 trademark infringement and, 387 user characteristics, 106 – 107 world growth, 97 Internet Protocol Multimedia Subsystem (IMS), 77 Internet Service Provider (ISP), 115, 117 interpretative research, 252, 258 – 259 interstitials, 540 intimates, 292 introductory stage, product lifecycle, 364 inventory adjustments, 177 – 178 inventory control systems, 441 inventory optimization system, 441 inventory turnover rate, 458 iPhone, 613 iPods, 477 ISO See International Organization for Standardization ISO 9001:200, 357 ISP See Internet Service Provider IT See information technology ITC See International Trade Commission J jargon, 386, 495 Jews, 137 JIT See just-in-time JIT II, 178 job interviews, A-10 – A-12 joint demand, 177 junk mail, 475, 507, 545 jury of executive opinion, 262 – 263 just-in-time (JIT), 177, 441 K kerosene, 386 ketchup, 139 keyword ads, 540 kiosks, 510 – 511, 546, 593 knowledge, 383 Korean War, 282 L labels, 390 – 391 language body language, 496 English language, 496 in global marketing, 209 – 210 Spanish-language programming, 78 XML, 102 Lanham Act, 385 lateral partnerships, 326 Latinos See Hispanic Americans LCL See less-than-carload leader merchandise, 655 leader pricing, 655 Leadership in Energy and Environmental Design (LEED), 130 learning, 150 in consumer behavior, 150 – 151 defined, 150 learning theory in marketing, 151 LEED See Leadership in Energy and Environmental Design less-than-carload (LCL), 439 – 440 less-than-truckload (LTL), 439 – 440 letters of recommendation, A-8 – A-9 leverage, 43 Lewin’s proposition, 134 “lifestyle” brands, 392 lifestyle center, 459 lifetime value of a customer, 18, 329 limited problem-solving, 157 limited-line retailers, 464 limited-line store, 464 limited-service research suppliers, 243 line extension, 363, 391 linoleum, 386 liquefied natural gas (LNG), 415 I-19 SUBJECT INDEX list prices, 647 – 648 listening, 497 LNG See liquefied natural gas lobbying groups, 71 location, 350 retailers classified by, 467 strategy, 458 – 459 warehousing, 441 logistical cost control, 433 logistics, 416 logistics and supply chain management, 431–432 ERP, 433 logistical cost control, 433 RFID in, 432 – 433 logos, 3, 32 – 33, 546 looking-glass self, 152 loss leaders, 655 loss-leader pricing, 610 low-involvement purchase decisions, 152 LTL See less-than-truckload M magnetic resonance imaging (MRI), 148 Mail Preference Service, 508 mail surveys, 254 mail-order wholesaler, 472 make/buy/lease decision, 178 offshoring and, 178 – 179 outsourcing and, 178 – 179 mall intercepts, 253 manufacturer’s brands, 381 manufacturers’ representative, 421, 474 MAP See minimum advertised pricing marginal analysis, 516, 613 marginal cost, 621 – 622 markdowns, 458 market(s), 274 entry, 41 incentives, 617 – 618 nature of, 511 – 512 structures, 621 suppression, 618 types, 275 market development strategy, 393 market penetration strategy, 393 market price, 648 market segmentation, 82, 275 – 276 criteria for effective, 276 – 277 demographic segmentation, 280 – 290 by ethnic group, 286 – 287 by family lifecycle, 287 – 288 forecasting potential, 296 forecasting probable market share, 296 geographic segmentation, 277 – 280 global, 290 by household type, 288 – 289 by income/expenditure patterns, 289 – 290 process, 295 – 296 product-related, 294 – 295 profiles, 295 – 296 psychographic, 290 – 294 selecting specific segments, 296 market share, 50, 59, 645 market share/market growth matrix, 49 – 50 marketing, See also advertising; B2B marketing; B2C e-marketing; direct marketing; e-marketing; global marketing; green marketing; guerilla marketing; integrated marketing communications; interactive marketing; micromarketing; nontraditional marketing; relationship marketing; strategic marketing; transaction-based marketing affinity, 318 ambush, 506 buzz, 20, 321, 503 comarketing, 326 – 327 concentrated, 297 – 298 costs, 20 – 22 defined, – differentiated, 297 extending boundaries of, 13 – 15 frequency, 318 grassroots, 321 green, 87 integrated, 99 – 101 laws, 66 – 68 learning theory in, 151 long-term effects of, 86 mobile marketing, 19 network, 569 neuromarketing, 148 niche, 297 in not-for-profit organizations, 13 – 14 packaging and, 389 responsibilities of, 85 – 86 right-time, 99 – 100 search, 115 social responsibility in, 84 – 85 undifferentiated, 296 – 297 viral, 321, 503 Web communication and, 112 – 116 wooden baseball bats, 173 word-of-mouth, 147, 321 marketing careers, 128 – 129, 234 – 235, A-1 – A-19 marketing channels, 416 alternative, 419 channel conflict, 427 – 428 direct selling, 419 – 420 distribution intensity, 424 – 426 dual distribution, 421 functions, 426 intermediaries, 420 – 421 management/leadership, 427 – 428 market factors, 423 in marketing strategies, 417 – 418 organizational/competitive factors, 423 – 424 product factors, 423 reverse channels, 421 – 422 selection of, 422 – 424 short/long, 418 strategy decisions, 422 – 426 types, 418 – 422 marketing communications, 490 See also integrated marketing communications economic importance, 519 social importance, 518 – 519 marketing concept, 10 marketing cost analysis, 246 marketing decision support systems (MDSSs), 260 marketing environment competition in, 48 fixed-price purchase in, 48 – 49 in marketing strategies, 47 – 49 natural environment concerns in, 47 technology in, 48 marketing ethics, 79 See also business ethics behavior in, 80 – 81 in distribution strategy, 82 issues in, 80 in marketing research, 81 – 82 in pricing strategy, 83 – 84 in product strategy, 82 in promotion, 83 in workplace, 81 marketing functions See also exchange functions; facilitating functions; physical distribution functions; wholesalers buying, 21 financing, 21 risk taking, 21 securing information, 21 – 22 selling, 21 standardizing/grading, 21 storing, 21 transporting, 21 marketing history converting needs to wants, 11 – 12 emergence of marketing concept, 10 eras in, – 12 marketing information systems (MISs), 259 – 260 marketing intermediary, 418 marketing internships, A-5 – A-6 marketing job opportunities, A-9 – A-12 marketing mix, 45, 344 advertising in, 354 distribution strategies, 46 elements within environmental framework, 61 in marketing strategies, 45 – 47 pricing objectives in, 611 – 616 pricing strategy, 47 product strategy, 46 promotion, 46 – 47 marketing myopia, 12 – 13, 24 marketing planning, 35 See also planning; strategic planning; tactical planning as basis for strategy/tactics, 34 – 36 I-20 SUBJECT INDEX marketing planning (continued ) BCG matrix, 49 – 50 creating a marketing plan, A-20 – A-25 marketing plan sample, A-25 – A-32 marketing strategy in, 39 methods for, 49 – 50 organizational resources/environmental risks in, 39 portfolio analysis, 49 relationship building in, 35 steps in process of, 38 – 39 virtual conferences in, 35 marketing positions, A-12 – A-18 See also marketing careers marketing public relations (MPR), 550 marketing research, 108, 240 See also exploratory research; secondary data computer technology in, 259 – 261 customer satisfaction measurement programs, 243 – 244 data collection, 246 – 247 data interpretation/presentation, 247 – 248 design, 246 development, 240 – 242 ethnographic studies, 259 exploratory, 245 – 246 hypothesis, 246 international, 258 interpretive, 258 – 259 marketing ethics in, 81 – 82 methods, 248 – 258 outsourcing, 242 – 243 polls, 243 primary research methods, 251 – 252 privacy in, 82 problem definition, 244 – 245 process of, 244 – 248 sampling techniques, 250 – 251 surveys, 243, 252 – 257 who conducts, 242 – 243 marketing strategies, 5, 39 See also B2B marketing strategies; competitive strategy; distribution strategies; global marketing strategies; multidomestic marketing strategy; strategic marketing elements of, 44 – 49 first mover strategy, 42 marketing channels in, 417 – 418 marketing environment in, 47 – 49 marketing mix, 45 – 47 in marketing planning, 39 Porter’s Five Forces, 40 – 42 second mover strategy, 42 selecting/executing, 299 – 300 strategic window, 43 – 44 SWOT analysis, 42 – 43 target market, 44 – 45 tools/techniques, 39 – 40 marketing Web sites, 101 See also Web sites market-minus pricing, 645 market-plus pricing, 643 market-share objective, 613 markups, 458 Maslow’s hierarchy of needs esteem needs, 146 psychological needs, 145 safety needs, 145 – 146 self-actualization needs, 146 social/belongingness needs, 146 mass consumption, 501 mass media, 142, 501 mass merchandisers, 466 discount houses, 466 hypermarkets, 467 off-price retailers, 466 – 467 supercenters, 467 materials handling system, 441 maturity stage, product lifecycle, 365 MDSSs See marketing decision support systems meals ready to eat (MRE), 167 media advertising selection, 540 – 547 broadcast, 541 comparing, 541 direct mail as, 545 interactive, 546 – 547 newspapers, 544 – 545 outdoor advertising, 545 – 546 radio, 544 television, 541 – 543 media research, 553 media scheduling, 547 meeting competition method, 516 men husband-dominant role, 143 young consumers, 492 merchandise mart, 471 merchandisers, 182 See also mass merchandisers merchandising strategy battle for shelf space, 455 – 456 category management, 455 in retailing strategy, 455 – 456 merchant wholesalers, 472 message, 493 message boards, 316 message research, 553 metropolitan statistical area (MSA), 279 microeconomics, 619 micromarketing, 298 – 299 micropolitan statistical area, 279 middleman, 418 military, 75 Millenials, 282 Miller-Tydings Resale Price Maintenance Act, 610 minimum advertised pricing (MAP), 650 missiles, 540 mission, 38 – 39 missionary selling, 576 mobile marketing, 19 modified breakeven analysis, 627 – 628 modified rebuy, 185 monopolistic competition, 620 monopoly, 62, 620 anti-, 66 temporary, 62 Monthly Catalog of United States Government Publications, 248 Mormons, 137 mortgage crisis, 61 motivation, 583 – 584 motives, 145 – 146 Motor Carrier Act and Staggers Rail Act, 68 motor carriers, 436 – 437 mottos, 13 MPR See marketing public relations MRE See meals ready to eat MRI See magnetic resonance imaging MRO items, 355 MSA See metropolitan statistical area multidomestic marketing strategy, 223 – 224 multinational corporations, 222 multiple media channels, 496 multiple sourcing, 181 N NAFTA See North American Free Trade Agreement NAICS See North American Industry Classification System naming rights, 526 narrowcasting, 542 national account selling, 327 national accounts organization, 583 National Environmental Policy Act, 67 National Institute of Standards and Technology (NIST), 357 Native American Business Alliance Fund, 287 Native Americans, 287 natural gas utilities, 69 nearshoring, 179 needs, 145 See also Maslow’s hierarchy of needs consumer, 11 – 12 in consumer behavior, 145–146 converting to wants, in marketing history, 11 – 12 of customers, 316 Maslow’s hierarchy of, 145 – 156 quantity, in organizational buying process model, 183 negative cash discount, 648 neighborhood shopping center, 458 – 459 network marketing, 569 networking etiquette, 12 See also social networking neuromarketing, 148 New Oxford American Dictionary, 95 news feed, 315 newspapers, 544 – 545 online presence, new-task buying, 185 niche marketing, 297 I-21 SUBJECT INDEX 9/11 Generation, 282 NIST See National Institute of Standards and Technology noise, 494 – 496, 545 noncumulative quantity discounts, 649 nonmarketing public relations, 550 nonpersonal selling, 501 See also direct marketing advertising, 501, 504 direct marketing and, 502 – 504 ethics in, 555 – 556 guerilla marketing, 503 – 504 product placement, 501 – 502 public relations, 503 – 504, 549 – 550 publicity, 503 sales promotion, 502, 504 nonprobability sample, 251 nontraditional marketing categories, 15 cause marketing, 17 event marketing, 17 organization marketing, 18 person marketing, 15 place marketing, 16 norms, 140 North American Free Trade Agreement (NAFTA), 7, 67, 172, 175, 215 – 216 North American Industry Classification System (NAICS), 171 – 172 not-for-profit organizations, 171, 175, 326, 418 characteristics, 14 – 15 commercial organizations vs., 14 marketing in, 13 – 14 pricing objectives of, 616 – 618 strategic alliances in, 20, 24 technology in, 75 Nutrition Labeling and Education Act, 390 nylon, 386 O objections, 579 – 580 objectives, 38 – 39 observation, 252, 396 Occupational Outlook Handbook, 418 odd pricing, 652 – 653 offline, 96 off-price retailers, 466 – 467 offshoring, 179 make/buy/lease decision and, 178 – 179 problems, 179 – 180 oil industry in consumer production, 618 gas prices, 34, 46, 47, 71, 314, 648, 655 gasoline consumption, 73, 376 oil prices, – oligopoly, 63, 620 Omnibus Trade and Competitiveness Act, 213 online communities, 113 online coupons, 116 online marketing, 99 See also e-marketing online payments, 107 – 108 online pricing characteristics, 660 – 661 in global, 659 – 662 negotiation, 658 – 659 online reputation management, 257 online travel, 106 – 107, 126 – 127 OPEC See Organization of the Petroleum Exporting Countries open skies agreement, 427 opening price point, 647 operational planning, 37 opinion leaders, 142 – 143 order processing, 441, 575 – 576 organic foods, 64 – 65, 87 organization marketing, 18 Organization of the Petroleum Exporting Countries (OPEC), 226 organizational buying process model 1: anticipate problem/need/opportunity/ solution, 182 – 183 2: determine characteristics/quantity of good/service, 183 3: describe characteristics/quantity of need/ service, 183 4: search/qualify potential sources, 183 5: acquire/analyze proposals, 183 – 184 6: evaluate proposals/select suppliers, 184 7: select order routine, 184 8: obtain feedback/evaluate performance, 184 organizational products, 348 orphan brands, 368 outbound telemarketing, 570 outdoor advertising, 545 – 546 outlet malls, 467 out-of-home advertising See outdoor advertising outsourcing, 179 make/buy/lease decision and, 178 – 179 marketing research, 242 – 243 problems, 179 – 180 Overseas Business Reports, 258 over-the-counter selling, 568 – 569 ownership retailers classified by, 462 – 463 utility, – P packaging, 390, 401 changing, in product lifecycle, 367 cost-effective, 389 – 390 green, 483 marketing and, 389 in physical distribution, 441 – 442 in product identification, 388 – 391 protection and, 389 partnership, 325 alliance, 329 buyer, 325 choosing business partners, 325 interdependent, 315 internal, 326 lateral, 326 seller, 326 types, 325 – 326 part-time workforce, 457 party plan, 419 payback, 330 peddlers, 567 penetration pricing strategy, 645 – 646 percent return on investment (ROI), 613– 614 percentage-of-sales method, 516 perceptions, 146 in consumer behavior, 146 – 148 individual factors, 147 perceptual screens, 147 – 148 stimulus factors, 147 subliminal perceptions, 148 perceptual screens, 147 – 148 per-customer profit, 330 person marketing, 15, 105 personal interviews, 253 personal selling, 500 – 501, 504, 511, 566 consultative selling, 572 – 574 cross-selling, 574 evolution of, 567 – 568 factors affecting, 566 – 567 in promotional mix, 566 – 567 relationship selling, 572 team selling, 574 – 575 trends in, 571 – 573 persuasive advertising, 532 PERT See program evaluation and review technique pet supplies, 106 phantom freight, 651 philanthropy, 24 phishing, 109 physical distribution, 416 customer service, 434 – 435 elements of, 434 intermodal coordination, 440 inventory control systems, 441 order processing, 441 packaging/handling, 441 – 442 suboptimization, 434 transportation in, 433 – 439 warehousing, 440 – 441 physical distribution functions, 21 Picnic, 148 piggyback, 436, 440 PIMS See Profit Impact of Market Strategies pipelines, 437 place marketing, 16 place utility, – planned obsolescence, 86 planned shopping center, 458 planning, 34 See also marketing planning; strategic planning; tactical planning at managerial levels, 37 I-22 SUBJECT INDEX planning (continued ) objectives, 35 operational, 37 precall, 578 virtual conferences, 36 plasma televisions, 645 plastic bag industry, 78 PLU codes, 384 – 385 plugs, 505 PMSA See primary metropolitan statistical area podcasts, 98, 113, 170, 554 as Web communication, 113 – 114 point-of-purchase (POP) advertising, 592 – 593 Poison Prevention Packaging Act, 401 political advertising, 562 political risk assessment (PRA), 211 political-legal environment, 65 – 66 controlling, 70 – 71 in global marketing, 211 – 212 government regulation in, 66 – 68 government regulatory agencies, 68 – 69 regulatory forces, 69 – 70 POP advertising See point-of-purchase advertising population, 45, 60, 250, 286 African American, 137 Asian American, 137 China, 208 Hispanic American, 137 India, 208 minorities, 138 subcultures, 77, 137 using Internet, 97 – 98 worldwide distribution, 277 – 278 pop-up ads, 114 – 115, 540 Porter’s Five Forces, 40 – 42 portfolio analysis, 49 positioning, 299 – 300 positioning map, 300 postage-stamp pricing, 651 posttesting, 554 – 555 power center, 459 PRA See political risk assessment Prado’s law, 294 precall planning, 578 predictive dialer devices, 508, 570 premiums, 590 preroll video ads, 115 prescription drugs, 348 presentation, 578 – 579 prestige objectives, 616 pretesting, 553 – 554 price, 608, 618 See also pricing breakeven analysis, 625 – 627 customary, 618 dealer-invoice, 650 determination in practice, 624 – 627 determination in price theory, 619 – 624 discrimination, 610 gas prices, 34, 46, 47, 71, 314, 648, 655 increase etiquette, 653 increases etiquette, 653 list prices, 647 market price, 648 negotiation etiquette, 619 negotiation online, 658 – 659 oil prices, – opening price point, 647 reduction, 645 regulatory, 609 in relationship marketing, 314 transfer, 659 price flexibility, 653 – 654 price quotations, 647 – 648 allowances, 649 – 650 basing-point pricing, 652 cash discounts, 648 FOB pricing, 651 geographic considerations, 650 – 652 quantity discounts, 649 rebates, 650 – 651 reductions from list price, 648 trade discounts, 648 – 649 uniform-delivered pricing, 651 zone pricing, 651 – 652 price theory, 612 cost/revenue curves, 620 – 621 practical problems in, 624 price determination in, 619 – 624 price–quality relationships, 656 – 657 pricing See also online pricing; price alternative procedures, 624 – 625 basing-point, 652 bundle, 661 congestion, 617 cost-plus, 624 FOB origin, 651 FOB plant, 651 full-cost, 624 – 625 global issues, 630 – 631 global online, 659 – 662 green products, 656 – 657 incremental-cost, 625 law and, 608 – 611 leader pricing, 655 loss-leader, 610 market-minus, 645 meeting objectives, 614 – 615 minimum advertised, 650 objectives in marketing mix, 611 – 616 objectives of not-for-profit organizations, 616 – 618 odd, 652 – 653 PIMS studies, 613 – 614 postage-stamp, 651 prestige objectives, 616 product-line, 654 profitability objectives, 612 – 613 promotional pricing, 654 – 655 psychological, 652 – 653 at restaurants, 677 ticket, 609 uniform-delivered, 651 unit, 653 value, 615 – 616 volume objectives, 613 zone, 651 – 652 pricing policies, 652 leader pricing, 655 loss leaders, 655 price flexibility, 653 – 654 price–quality relationships, 656 – 657 product-line pricing, 654 promotional pricing, 654 – 655 psychological pricing, 652 – 653 pricing strategy, 47, 513, 643 competitive in B2C e-marketing, 104 competitive pricing strategies, 646 – 647 of credit-card companies, 83 EDLP, 646 elasticity in, 622 – 624 in global marketing, 225 – 226 in installations, 354 markdowns, 458 in marketing ethics, 83 – 84 market-plus pricing, 643 markups, 458 penetration pricing strategy, 645 – 646 in raw materials, 355 in relationship marketing, 314 in retailing strategy, 457 – 458 skimming pricing strategies, 643 – 644 primary data, 246 – 247 primary demand, 498 primary metropolitan statistical area (PMSA), 279 primary research methods interpretive research, 252 observation, 252 types of, 251 privacy child protection and, 66 – 67 COOPA, 67, 109 e-business and, 108 – 109 e-marketing and, 108 – 109 ftc.gov/privacy, 82 government regulation and, 66 in marketing research, 82 private brands, 381 See also private labels private carriers, 436 private exchange, 102 private labels, 381 probability sample, 251 problem-defining process, 244 – 245 product(s), 345 See also B2B products; B2C products; consumer product classification system; gross domestic product advertising, 532 blind product tests, 554 on blogs, 96 business, 275 convenience, 349 – 350 I-23 SUBJECT INDEX defined, 344 – 345 deletion, 367 – 368 eco-friendly, 656 generic, 380 green, 60, 656 – 657 homogeneity, 299 industrial, 348 Internet, 106 – 107 market segmentation, 294–295 in marketing channels, 423 nature of, 512 in nonpersonal selling, 501 – 502 organizational, 348 positioning, 393 product life cycle, 299 returns, 150 safety, 400 – 402 segmentation, 295 shopping, 350 specialty, 351, 351 substitute, 63 unsought, 348 value, 500 women and, 276 product advertising, 532 product development, 392 – 393, 394 adopter categories, 394 – 395 adoption process, 394 business analysis, 399 commercialization, 400 development in, 399 – 400 development strategies, 393 – 394 idea generation, 398 identifying early adopters, 395 – 396 new-product committees, 396 new-product departments, 397 organizing for new, 396 – 397 process of, 397 – 398 product managers, 397 screening, 398 – 399 test marketing, 400 venture teams, 397 product differentiation, 499 product diversification strategy, 394 product identification, 384 – 385 brand extensions, 391 brand licensing, 392 brand name/brand mark, 385 – 386 labels, 390 – 391 packaging, 388 – 391 trade dress, 387 – 388 trademarks, 386 – 388 product liability, 400 – 402 variety stores, 465 product lifecycle, 363 – 364, 644 changing packaging/quality, 367 decline stage, 365 – 366 extending, 366 – 367 fads, 366 fashion, 366 frequency of use, 366 growth stage, 365 introductory stage, 364 maturity stage, 365 new uses, 367 number of users, 366 stages in, 512 – 513 product lines, 359 company resources and, 361 department stores, 465 – 466 development, 359 – 361 enhancing market position, 360 – 361 general merchandise retailers, 464 – 465 growing, 360 limited-line retailers, 464 mass merchandisers, 466 – 467 showroom/warehouse retailers, 467 specialty stores, 463 – 464 product manager, 397 product mix, 361 decisions, 362 – 363 depth, 362 length, 362 width, 362 product placement, 501 – 502 product positioning, 393 product strategy, 46 in global marketing, 224 – 225 marketing ethics in, 82 quality as, 357 – 358 production orientation, product-line pricing, 654 product-related segmentation, 294 by benefits sought, 294 by brand loyalty, 295 multiple bases, 295 by usage rates, 294 – 295 professional buyers, 182 See also category advisor; category captain profit centers, 659 Profit Impact of Market Strategies (PIMS), 613 – 614 profit maximization, 613, 616 – 617 profitability objectives, 612 – 613 profits, 612 – 613 program evaluation and review technique (PERT), 398 promotion, 46, 490 See also consumer-oriented sales promotion; cross-promotion; pulling strategy; pushing strategy; sales promotion; trade-oriented sales promotion accentuating product value, 500 colleges and, 83 communication process and, 494 demand and, 498 – 499 in global marketing strategies, 224 – 225 increasing demand, 498 – 499 marketing ethics in, 83 marketing mix, 46 – 47 measuring effectiveness, 517 – 518, 553 – 555 measuring online, 517 – 518 objectives, 497 – 498 product differentiation, 499 promotional allowances, 649 – 650 promotional pricing, 654 – 655 providing information, 498 stabilizing sales, 500 timing, 515 as Web communication, 114 – 115 promotional allowances, 649 – 650 promotional mix, 500 advantages/disadvantages, 504 – 505 comparison of elements, 504 – 505 developing optimal, 511 – 514 elements of, 500 funding, 513 – 514 influencing factors, 514 nonpersonal selling, 501 – 504 personal selling, 500 – 501, 504, 511 personal selling in, 566 – 567 promotional pricing, 654 – 655 promotional strategy, 459 – 460 budgeting determination, 516 budgeting for, 515 – 517 prospecting, 577 protective tariffs, 213 PSAs See public service announcements psychographic segmentation, 290 defined, 290 – 291 global, 292 – 293 VALS, 291 – 292 psychological pricing, 652 – 653 Public Health Cigarette Smoking Act, 67 public relations, 503 See also marketing public relations; nonmarketing public relations ethics, 556 – 557 measuring effectiveness, 555 as nonpersonal selling, 503–504, 549–550 publicity in, 550 – 552 public service announcements (PSAs), 519 publicity, 503, 550 See also advertising; promotion as nonpersonal selling, 503 in public relations, 550 – 552 puffery, 556 pulling strategy, 514 – 515 purchase categories segmentation, 172 – 173 purchase decision influences, 174 in business buying process, 180 – 184 environmental factors, 180 – 181 interpersonal, 181 – 182 organizational factors, 181 professional buyer’s role, 182 pure competition, 620 “pure play” dot-com retailers, 110 push money, 594 pushing strategy, 514 – 515 Q qualifying, 577 qualitative forecasting, 262 – 263 quality, 500 I-24 SUBJECT INDEX quality (continued ) benchmarking, 357 – 358 changing, in product lifecycle, 367 global programs, 357 price–quality relationships, 656 – 657 as product strategy, 357 – 358 service, 358 – 359 TQM, 357 quantitative forecasting, 262 – 264 quantity discounts, 649 See also cumulative quantity discounts; noncumulative quantity discounts quick-response merchandising, 327 quota sample, 251 R rack jobber, 472 radio, 142, 544 radio-frequency identification (RFID), 75, 105, 250, 320, 327, 391, 432, 441 in logistics and supply chain management, 432 – 433 railroads, 414 – 415, 436 random-digit dialing, 570 ratio analysis, 246 raw materials, 355, 422 R&D See research and development reach, 547 global, in e-marketing, 98 – 99 reaching strategies, 296 – 299 readership tests, 554 Real ID Act, 68 real self, 152 Really Simple Syndication (RSS), 96, 113 rebates, 650 price quotations, 650 – 651 requests tracking, 330 recession, 71 reciprocity, 185 recycling, 86 – 87, 292, 415 auto batteries, 422 electronic, 93 energy, 308 – 309 reference groups, 141 refunds, 589 regional shopping center, 459 regulatory forces, 69 – 70 reinforcement, 150 – 151 rejection, 394 related party trade, 203 relationship building, 35 relationship marketing, 11, 310, 567 buzz marketing in, 20 continuum, 313 – 316 converting from transaction-based marketing, 18 – 20 customers in, 18 – 19 customers to advocates, 19 elements of, 312 first level: focus on price, 314 focus of, 311 – 312 interactive marketing for, 19 – 20 second level: social interactions, 314 – 315 shift from transaction-based marketing, 310 – 313 strategic alliances in, 20 third level” interdependent partnership, 315 relationship selling, 572 relative advantage, 396 relevance, 383 reliability, 359 remanufacturing, 191 reminder advertising, 532 – 533 reply cards review, 330 reposition, 300 requests for proposals (RFPs), 103 research See also exploratory research; interpretative research; marketing research; primary research methods aggregators, 250 cell phone, 104 full-service research suppliers, 243 global marketing, 258 Internet, 106, 108 limited-service research suppliers, 243 media, 553 message, 553 Web site, 118 research and development (R&D), 644 research design, 246 resellers, 169 resource availability, 73 response, 150 responsiveness, 359 résumés, A-6 – A-7 retail advertising, 535 retail convergence, 467 – 468 retail cooperative, 429 retail link, 102 retailers brick-and-click, 476 categorizing, 462 chain stores, 462 – 463 classification by form of ownership, 462 – 463 classification by form product lines, 463 – 467 classification by location, 467 classification by services provided, 463 classification by shopping effort, 463 convenience, 463 general merchandise, 464 – 465 independent, 463 limited-line, 464 “pure play” dot-com retailers, 110 retail convergence, 467 – 468 scrambled merchandising, 468 services, 458 showroom/warehouse, 467 specialty, 463 retailing, 452 direct-response, 476 evolution of, 452 – 453 Internet, 476 wheel of retailing, 453 retailing strategy components, 453 – 454 customer service strategy, 456 – 457 distribution strategy, 458 – 459 location strategy, 458 – 459 merchandising strategy in, 455 – 456 pricing strategy, 457 – 458 promotional strategy, 459 – 460 selecting target market, 454 store atmospherics, 460 – 461 revenue, 613 cost/revenue curves, 620 – 621 elasticity and, 623 – 624 tariffs, 213 revenue tariffs, 213 reverse channels, 421 – 422 reverse logistics, 110 RFID See radio-frequency identification RFPs See requests for proposals rice rationing, 40 right-time marketing, 99 – 100 Robinson-Patman Act, 66, 67, 609 – 610, 654 robotics, 442 robots, 660 ROI See percent return on investment roles, 140 routinized response behavior, 157 RSS See Really Simple Syndication RSS software, 113 rudeness, 324 rule of three, 48 S salary, 584 Sales & Marketing Management, 249 sales analysis, 245 – 246 sales attire, 573 sales branch, 471 sales calls, 420 sales channels, 568 alternative, 571 field selling, 569 – 570 inside selling, 571 integrating, 571 over-the-counter selling, 568 – 569 telemarketing, 570 sales force compensation, 584 – 585 evaluation/control, 585 – 586 managing, 581 – 587 motivation, 583 – 584 organization, 582 – 583 recruitment/selection, 581 – 582 supervision, 583 training, 582 sales force composite, 263 sales forecasting, 262 I-25 SUBJECT INDEX qualitative forecasting, 262 – 263 quantitative forecasting, 262 – 264 sales incentives, 576 sales managers, 581, 582 sales office, 471 sales orientation, 10 sales process, 576 – 577 approach, 577 – 578 closing, 580 demonstration, 579 follow-up, 580 objections, 579 – 580 presentation, 578 – 579 prospecting, 577 qualifying, 577 sales promotion, 502, 504, 566, 587 – 589 back-to-school sales, 588 consumer-oriented, 589 – 592 results, 588 spending for, 588 trade-oriented, 592 – 594 sales quotas, 585 sales tasks creative selling, 576 missionary selling, 576 order processing, 575 – 576 salespeople, 567 See also sales force buyers’ expectations of, 572 women, 581 salsa, 139 sampling, 250 – 251, 590 The Saturday Evening Post, 240 – 241 SBUs See strategic business units scrambled merchandising, 468 screening, 398 – 399 sculptured physics, 400 search engines, 115 optimization, 257 search marketing, 115 second mover strategy, 42 secondary data, 246 – 247 collection, 248 – 250 government data, 248 – 249 online sources, 250 private data, 249 – 250 Secure Sockets Layer (SSL), 108 Securities and Exchange Commission, 285 Seidman, Dan, 420 selective demand, 498 selective distribution, 425 self-concept, 152 self-image, 152 seller partnership, 326 seller’s market, 10 selling agent, 474 selling up, 460 sender, 493 seniors, 284 – 285 September 11, 2001 terrorist attacks, 71, 282 See also 9/11 Generation service encounter, 358 service quality, 358 – 359 services, 345 – 346, 500 See also customer service; goods-services continuum agents’, 474 brokers’, 474 business, 356 classifying, 348 – 356 emergency, 349 exporting, 204 – 206 firms, full-service research suppliers, 243 goods-services continuum, 345 impulse, 349 Internet, 106 – 107 limited-service research suppliers, 243 Mail Preference Service, 508 in organizational buying process model, 183 personalized, 105 – 106 quality, 358 – 359 retailer, 458 retailers classified by, 463 sector, 346 – 348 service encounter, 358 syndicated, 243 value-added service, 432 Web services, 328 on Web sites, 106 – 107 white-collar service jobs, 179 wholesaling intermediaries providing, 468 – 469 sex, 538 shaping, 151 shelf space, 455 – 456 Sherman Antitrust Act, 66, 67, 426 shopbots, 660 – 661 shopping blog, 96 shopping effort, 463 shopping products, 350 showroom/warehouse retailers, 467 shredded wheat, 386 SIC See Standard Industrial Classification signature, 539 simple random sample, 251 skimming pricing strategies, 643 – 644 “skimming the cream,” 643 SKU See stock-keeping unit slotting allowances, 350, 456 slotting fees, 350 slurry pipeline, 437 smart phones, 98, 133 social classes, 142 social importance, 518 – 519 social influences, 140 – 141 Asch phenomenon, 141 on opinion groups, 142 – 143 on reference groups, 141 on social classes, 142 social interactions ethics, 315 in relationship marketing, 314 – 315 social networking, 109 advertising, 540 as Web communication, 113 – 114 Web sites, 316 social responsibility, 22, 84 in ecology, 86 – 87 economic, 85 ethics and, 22 – 24, 85 forms of, 24 four-step pyramid, 85 legal, 85 in marketing, 84 – 85 marketing’s responsibilities, 85 – 86 objectives, 22 philanthropic, 85 Social Security, 288 social-cultural environment, 77 abroad, 78 consumerism in, 78 – 79 cultural diversity in, 77 – 78 in global marketing, 209 – 210 socioeconomic segmentation, 281 soft currencies, 209 sole sourcing, 177 sorting, 417 spam, 112, 360 span of control, 583 special rate, 435 specialty advertising, 591 – 592 specialty products, 351 specialty retailers, 463 specialty stores, 463 – 464 spiffs, 594 split runs, 555 sponsorships, 505 advertising vs., 505 – 506 as cost-effective, 506 spyware, 108 SSL See Secure Sockets Layer Standard Industrial Classification (SIC), 171 – 172 staples, 349 – 350 Starch Readership Report, 554 Starch scores, 554 Statistical Abstract of the United States, 248 status, 140 step out, 642 “stick-and-carrot approach,” 79 “stickiness,” 255 stock-keeping unit (SKU), 456, 474 straight rebuy, 184 – 185 strategic alliances, 20, 62, 329 members of, 62 in not-for-profit organizations, 20, 24 in relationship marketing, 20 strategic business units (SBUs), 49 – 50 strategic marketing, 24, 51, 87, 119, 135, 157, 192, 227, 264, 300, 331, 368, 403, 443, 477, 520, 557, 594, 631, 661 I-26 SUBJECT INDEX strategic planning, 36 defined, 36 at managerial levels, 37 tactical planning vs., 36 – 37 strategic window, 43 – 44 strategy, 36 stratified sample, 251 strengths, weaknesses, opportunities, threats (SWOT), 42 strivers, 292 subcontracting, 221 subcultures, 136 cultural influences, 136 – 140 population, 77, 137 subliminal perceptions, 148 suboptimization, 434 “subprime,” 84 subsidies, 214 suggestion selling, 460 supercenters, 467 supplies, 355 supply, 619 – 620 supply chain, 328 – 329, 431 – 432 See also value chain supply chain management, 416 Supply House Times, 474 surfer, 96 survey of buyer intentions, 263 Survey of Current Business, 249 Survey of Media Markets, 249 surveys consumer, 100 experimental method, 256 – 257 fax, 254 focus groups, 253 – 254 Internet, 255 – 256 mail, 254 marketing research, 243, 252 – 257 online, 255 – 256 online etiquette, 256 personal interviews, 253 telephone interviews, 253 sustainable competitive advantage, 39 – 40 sweepstakes, 590, 591 SWOT See strengths, weaknesses, opportunities, threats SWOT analysis, 42 – 43 syncratic role, 143 syndicated services, 243 systems integration, 182 T tactical planning, 36 defined, 37 at managerial levels, 37 short-term actions and, 36 – 37 strategic planning vs., 36 – 37 TAMI See Total Audience Measurement Index tangibles, 359 target market, 44, 240, 275 African Americans, 45 diversity in, 45 within environmental framework, 61 etiquette, 281 Hispanic Americans, 45 in marketing strategies, 44 – 45 reaching strategies, 296 – 299 selecting, in retailing strategy, 454 U.S., in global marketing, 226 women as, 45 target returns, 626 – 627 target-return objectives, 613 tariffs, 187, 212, 608 GATT, 212, 215 protective, 213 revenue, 213 task-objective method, 516 team selling, 327, 574 – 575 See also venture team; virtual sales team in IMC, 492 – 493 technological environment, 75 applying technology in, 75 – 77 in global marketing, 211 military in, 75 social concerns in, 75 technology, 240, 575, 585 See also computer technology; information technology applying, 75 – 77 digital voice, 167 in marketing environment, 48 in not-for-profit organizations, 75 revolution, substitute products and, 63 in trucking, 437 wireless, 19 telecommunications, 8, 68, 69, 661 Telecommunications Act, 68 – 69 telemarketing, 476, 508 – 509, 570 inbound, 570 outbound, 570 sales channel, 570 Telemarketing Sales Rule, 508 Telephone Consumer Protection Act, 570 telephone interviews, 253 television, 142, 541 – 543 temporary monopoly, 62 test marketing, 256 – 257, 263 – 264, 400 See also concept testing; focus groups text messaging, 10, 282 third party contract logistics firms (3PL firms), 433 3PL firms See third party contract logistics firms ticket scalping, 609 tickets, 106 time utility, – time-based competition, 65 TL See truckload ton-mile, 436 Total Audience Measurement Index (TAMI), 495 total quality management (TQM), 357 TQM See total quality management Trade Act (1988), 212 trade allowances, 592 trade associations, 249 trade barriers, 212 – 214 trade discounts, 648 – 649 See also chain of trade discounts trade dress, 387 – 388 trade fairs, 471 trade gap, 74 trade industries, 169 trade promotion, 502, 592 analysis, 517 trade shows, 176, 512 – 513, 593 trade-ins, 649 trademarks, 386 Federal Trademark Dilution Act, 387 global, 388 infringement on Internet, 387 product identification, 386 – 388 protecting, 386 – 387 trade dress, 387 – 388 trade-oriented sales promotion, 592 contests, 594 dealer incentives, 594 POP advertising, 592 – 593 trade allowances, 592 trade shows, 593 training programs, 594 training programs, 594 transaction economies, 470 transaction-based marketing, 18, 310 converting to relationship marketing, 18 – 20 shift to relationship marketing, 310 – 313 transfer price, 659 transportation air freight, 438 – 439 classes of carriers, 435 – 437 comparing modes, 439 deregulation, 435 major modes, 436 – 439 motor carriers, 436 – 437 in physical distribution, 433–439 pipelines, 437 railroads, 436 water carriers, 437 travel industry, 297 trend analysis, 264 trial, 394 trial use, 396 truck jobber, 472 truck wholesaler, 472 truckload (TL), 439 – 440 t-shirts, 547 tweens/teens, 282 – 283 tying agreements, 426 U unaided recall tests, 554 undifferentiated marketing, 296 – 297 I-27 SUBJECT INDEX unemployment, 72 unfair trade laws, 610 Uniform Commercial Code, 556 uniform-delivered pricing, 651 unit pricing, 653 unitizing, 442 universal default, 84 Universal Product Code (UPC), 249, 390 – 391 universe, 250 unsought products, 348 UPC See Universal Product Code upstream management, 432 users, 186 utility, – creating, in wholesaling intermediaries, 468 form utility, ownership, – place, – time, – V VALS, 291 – 292 value, 500 value analysis, 185 – 186 value chain, 328, 431 value pricing, 615 – 616 value-added service, 432 variable costs, 620 – 621 variety stores, 465 vending machines, 476 – 478 vendor analysis, 186 vendor-managed inventory (VMI), 328, 441 B2B alliances, 329 supply chain management, 328 – 329 venture team, 397 vertical conflict, 427 vertical marketing system (VMS), 428 administered system, 429 contractual marketing system, 429 – 431 corporate marketing system, 429 videoconferencing, 500 Vietnam War, 282, 283 view-through rates, 555 viral marketing, 321, 503 virtual assistance, 456 virtual conferences, 36 etiquette tips, 36 in marketing planning, 35 planning, 36 virtual reality, 148 virtual sales team, 574 vishing, 109 visual clues, 387 VMI See vendor-managed inventory VMS See vertical marketing system voice over Internet protocol (VoIP), 75 – 76, 96, 109 VoIP See voice over Internet protocol volatile demand, 177 volume objectives, 613 W WAP See Wireless Application Protocol warehouse club, 466 warehousing automated, 440 break-bulk distribution centers, 440 cold storage, 440 locations, 441 water, 438 water carriers, 437 wave energy, 208 – 209 wear-out, 547 Web communication See also e-mail blogs, 113 – 114 marketing and, 112 – 116 online communities, 113 podcasts, 113 – 114 promotion, 114 – 115 social networking, 113 – 114 Web services, 328 Web sites, 96, 100, 103, 104, 366 advertising, 119, 501, 510, 536, 539 – 540, 555 assessing effectiveness of, 118 – 119 building effective presence, 116 – 118 business models, 100 – 101 business types, 97 click to call, 510 consumer protection on, 109 corporate vs marketing, 100 – 101 costs of, 118 customized, 105 cyberspace safety, 391 design in e-business, 110 design in e-marketing, 110 establishing goals, 117 evaluating, 243 – 244 frequently-visited, 115 implementation, 117 interest in, 117 maintenance, 118 measuring effectiveness, 517 – 518 naming, 117 new product information on, 96 online shopping, 154, 182 products/services, 106 – 107 with product-use demonstrations, 106 profitability, 118 protecting, 107 – 108 researching, 118 services, 102 shoppers, 464 – 465 social networking, 316 “stickiness,” 255 storefronts, 476 successful site development, 116 Web-to-store shoppers, 118 wheel of retailing, 453 Wheeler-Lea Act, 67 white-collar service jobs, 179 wholesalers, 21, 418, 468 cash-and-carry, 472 comparison of, 473 mail-order, 472 truck, 472 wholesaler-sponsored voluntary chain, 429 wholesaling intermediaries, 468 agents, 472 – 473 brokers, 473 – 474 buying offices, 474 – 475 commission merchants, 473 creating utility, 468 functions of, 468 – 470 independent, 471 – 475 lowering costs, 469 – 470 manufacturer-owned, 471 merchant wholesalers, 472 providing services, 468 – 469 retailer-owned cooperatives, 474 – 475 transaction economies through, 470 types, 470 – 474 Wicked, 274 widgets, 115 wife-dominant role, 143 wikis, 113 wind energy, 63, 670 Wireless Application Protocol (WAP), 460 wireless technology, 19 women, 288 consumer products and, 276 electronic purchases of, 143 salespeople, 581 as target market, 45 word-of-mouth marketing, 147, 321 World Trade Organization (WTO), 75, 212 – 213, 215 World War II, 10, 214, 278 wow factor, 590 www.donotcall.gov, 82 www.onguardonline.gov, 66 www.Recalls.gov, 79 X XML See Extensible Markup Language Y yield management, 628 – 629 yo-yo, 386 Z zipper, 386 zone pricing, 651 – 652 I-28 INTERNATIONAL INDEX A Africa, 7, 292 Argentina, 74, 217 Asia, 7, 75, 93, 97, 179, 198, 203, 221, 247, 393 car ownership, 477 devouts, 292 fun seekers, 292 intimates, 292 strivers, 292 Australia, 165, 170, 202, 215, 354, 386 language, 496 long-distance phoning, 614 Austria, 217 B backshoring, 347 Bahrain, 354 Barbados, 16 Belgium, 217, 381 Belize, 283 Brazil, 175, 217 Bulgaria, 217 C Canada, 8, 105, 168, 172, 179, 202, 204, 215–216, 221, 290, 428, 450, 463, 619 labeling, 390 language, 496 long-distance phoning, 614 promotion, 512 – 513 tariffs and, 608 – 609 Caribbean, 496 Central America, 179, 204, 216 Central American Free Trade Agreement and Dominican Republic (CAFTA-DR), 212 – 213, 217 Chile, 217 China, 4, 16 – 17, 44, 50, 62, 93, 175, 204, 209, 215, 221, 290, 388, 393, 500 air travel, 63 automobiles, 48 brand equity, 382 child labor, 85 – 86 empty nesters, 288 exports to U.S., 8, 74, 202, 609 fishing industry, 165 FOB, 651 GDP, 207 geographic segmentation, 277 – 278 imports from U.S., 203 Internet censorship, 212 Internet users, 97 – 98 labor conditions, 212 long-distance phoning, 614 market growth, 638 offshoring, 179 population, 208 quotas, 213 – 214 tastes, 206 as tourist destination, 205 toxic products from, 550 toys from, 61 as world market, – Colombia, 217 common market, 215 Costa Rica, 20, 212 countertrade, 226 Croatia, 217 Cuba, 212 customs union, 215 Cyprus, 217 Czech Republic, 217 D Denmark, 217 Dominican Republic, 213, 216 Dubai, 505, 526 dumping, 214 E Ecuador, 217 Egypt, El Salvador, 212 embargoes, 213, 214 Estonia, 217 euro, 7, 209, 217 Europe, 7, 63, 75, 179, 198, 202, 211, 213, 221, 226, 247, 320, 428, 500, 611 brand equity, 382 car ownership, 477 competition in, 638 consumers, 506 customer churn, 318 Euro Disney, 409 intimates, 292 long-distance phoning, 614 production, recession, 73 European Biodiesel Board, 214 European Court of Justice, 211 European Union (EU), 7, 187, 209, 213, 217 – 218, 357 exchange control, 214 exchange rate, 109 Export America, 258 exporting, 202, 212, 258, 609 China to U.S., 8, 74, 202, 609 as foreign markets strategy, 219 Japanese cars, 600 – 601 OPEC, 226 service/retail, 204 – 206 F Finland, 217 Flanagan, Jason, 638 floating markets, 208 France, 201 – 202, 217, 221, 290, 467 Free Trade Area of the Americas (FTAA), 216 – 217 free-trade area, 214 – 215 friendship, commerce, and navigation treaties (FCN), 212 G General Agreement on Tariffs and Trade (GATT), 212, 215 Germany, 45, 136, 202, 206, 208, 217, 221 – 222, 290 GfK NOP, 292 private brands, 381 global marketing, – B2B marketing strategies, 191 brand name, 388 communication, 496 conducting research, 258 economic environment, 207 – 209 fishing industry, 164 – 165 foreign markets strategies, 218 – 222 global marketing strategies, 222 – 226 global networks, global reach in e-marketing, 98 – 99 globalization and, 218 international buying centers, 187 Internet, 204 language, 209 – 210 levels of involvement, 219 market segmentation, 290 multinational corporations, 222 multinational economic integration, 214 – 218 as necessity, 203 – 204 online pricing, 659 – 661 I-29 INTERNATIONAL INDEX political-legal environment, 211 – 212 pricing, 630 – 631 psychographic segmentation, 292 – 293 quality programs, 357 service/retail exports, 204 – 206 social-cultural environment, 209 technological environment, 211 trade barriers, 212 – 214 trademarks, 388 U.S as target for, 226 global marketing strategies, 222 – 226 Greece, 217, 526 Guatemala, 212, 217, 325 H homeshoring, 347 Honduras, 212 Hong Kong, 205, 222 Hungary, 217, 498 I Iceland, 208 import quotas, 213 importing, 202 – 203, 213, 219, 609 India, 8, 44, 93, 175, 178, 201, 204, 297, 550, 646 call centers, 209 – 210 fashion, 283 foreign direct investments, 221 GDP, 207 geographic segmentation, 278 Internet users, 97 population, 208 pricing strategy, 225 wireless services, 210 Indonesia, 277 – 278 infrastructure, 207 – 208 International Monetary Fund, 212 International Organization for Standardization (ISO), 212, 357 International Trade Commission (ITC), 214 Ireland, 217, 496 ISO 9001:2000, 357 Italy, 217, 221, 290, 362, 457 J Jamaica, 217 Japan, 16, 59, 75, 170, 202, 204, 206, 215, 222, 290, 457, 477, 496, 526, 548 brand equity, 382 car exports, 600 – 601 celebrity advertising, 534 consumers, 506 electricity, 308 fishing industry, 164 geographic segmentation, 277 – 278 Internet users, 97 long-distance phoning, 614 recession, 73 VAL, 291 K Kenya, 354 Kuwait, 201 L Latin America, 202, 258, 290 Latvia, 217 Liechtenstein, 215 Lithuania, 217 Luxembourg, 8, 217 M Macedonia, 217 Malaysia, 175, 614 Malta, 217 Mexico, 4, 48, 172, 175, 179, 202, 215 – 216, 218, 239, 436, 465 fashion, 283 marketing research, 243 tariffs and, 608 Middle East, 7, 206, 211, 247, 273, 292 multidomestic marketing strategy, 223 – 224 multinational corporations, 222 N nearshoring, 179 Nepal, 283 Netherlands, 187, 202, 217, 221 New Zealand, 496, 614 Nicaragua, 212, 631 North American Free Trade Agreement (NAFTA), 7, 67, 172, 175, 215 – 216 North Korea, 282 O offshoring, 178 – 179 Organization of the Petroleum Exporting Countries (OPEC), 226 Overseas Business Reports, 258 P Pacific Rim, 39, 203 Peru, 217 Poland, 217 political risk assessment (PRA), 211 Portugal, 217 protective tariffs, 213 Puerto Rico, 248 R related party trade, 203 revenue tariffs, 213 Romania, 217 Russia, 16, 45, 74, 164, 206, 209, 226, 292 S Saudi Arabia, 442 Scotland, 166, 208 – 209 Slovak Republic, 217 Slovenia, 217 soft currencies, 209 South Africa, 8, 211, 496 South America, 204 South Korea, 4, 16, 164, 202, 206, 222, 226, 282, 385, 393, 550 long-distance phoning, 614 taxes, 659 Spain, 211, 217, 290, 460, 465, 526 subcontracting, 221 subsidies, 214 Sweden, 201, 217, 290, 630 Switzerland, 290, 357 T Taiwan, 201, 202 tariffs, 187, 212, 608 – 609 protective, 213 revenue, 213 Thailand, 208 Tobago, 217 Trinidad, 217 Turkey, 217 U United Arab Emirates, 290, 526 United Kingdom, 170, 202, 204 – 206, 208, 217, 221 – 222, 232 – 233, 290, 386, 472, 526, 550, 631 brand names, 388 language, 496 private brands, 381 United Nations, 290 United States, 6, 12, 22, 24, 34, 46, 63 – 64, 105, 168, 172, 198, 201, 215 – 217, 222, 362, 440 – 441, 450 – 451, 463, 505, 600, 630 advertising, 531, 541 Arab Americans, 272 – 273 auto emissions in, 68 celebrity advertising, 533 – 534 China exports to, 8, 74, 202 – 203, 609 customer churn, 318 defense programs, 191 department stores, 465 direct mail, 507 direct marketing, 506 economy, 221 English language and, 496 ethanol, 208 fair-trade items, 611 fishing industry, 164 – 165 foreign ownership in, GDP, 202, 205, 207 geographic segmentation, 277 – 278 I-30 INTERNATIONAL INDEX United States (continued ) as global marketing target, 226 GMO foods in, 211 goods/services production, 204 households, 288 – 289 Internet users, 19, 97 – 98 intimates, 292 kitchens, 379 long-distance phoning, 614 market concentration, 174 Middle America, 298 minorities, 138 not-for-profit organizations, 13 oil dependence of, 60 political ads, 562 population, 45, 77, 137, 286 production, quotas, 213 – 214 recession, 73 sales careers, 501 service exports, 205 tariffs, 212 – 213, 608 – 609 ten top companies, 347 toys, 61 trade partners, 202 UPC codes, 391 vacationing, 63 as world market, – Uruguay, 217 V Venezuela, 74, 217 Vietnam, 8, 179, 215, 393 W World Trade Organization (WTO), 7, 212 – 213, 215 Z Zimbabwe, 622 ... July 16, 20 08; “Forum Use and Etiquette,” IBM, www.ibm.com, accessed July 16, 20 08; “More than 650,000 Members Use Angie’s List,” Angie’s List, www.angieslist com, accessed May 20 , 20 08; Laurie... marketing messages to customers.8 figure 11 .2 America’s Most Admired Companies Source: “America’s Most Admired Companies 20 08,” Fortune, accessed June 6, 20 08, money.cnn.com homeshoring Hiring workers... characteristics that cause buyers to prize those particular brands List the classifications of consumer goods and services and briefly describe each category 3 52 part PRODUCT DECISIONS How much flexibility