grewal levy www.mhhe.com/grewal4e fourth edition ISBN 978-0-07-802900-4 MHID 0-07-802900-7 EAN TM www.mhhe.com Md Dalim #1216255 11/16/12 Cyan Mag Yelo Black fourth edition gre29007_fm_i-xlviii.indd Page i 11/28/12 9:20 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 Marketing Marketing is the activity, set of institutions, and processes for creating, capturing, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large The definition of marketing, established by the American Marketing Association, October 2007 mhhe.com/grewal4e gre29007_fm_i-xlviii.indd Page ii 11/28/12 9:20 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 gre29007_fm_i-xlviii.indd Page iii 11/28/12 9:20 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 Marketing Fourth Edition Dhruv Grewal, Ph.D Babson College Michael Levy, Ph.D Babson College gre29007_fm_i-xlviii.indd Page iv 29/11/12 10:39 AM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 MARKETING, FOURTH EDITION Published by McGraw-Hill/Irwin, a business unit of The McGraw-Hill Companies, Inc., 1221 Avenue of the Americas, New York, NY, 10020 Copyright © 2014 by The McGraw-Hill Companies, Inc All rights reserved Printed in the United States of America Previous editions © 2012, 2010, and 2008 No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of The McGraw-Hill Companies, Inc., including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning Some ancillaries, including electronic and print components, may not be available to customers outside the United States This book is printed on acid-free paper DOW/DOW ISBN 978-0-07-802900-4 MHID 0-07-802900-7 Senior Vice President, Products & Markets: Kurt L Strand Vice President, General Manager, Products & Markets: Brent Gordon Vice President, Content Production & Technology Services: Kimberly Meriwether David Managing Director: Paul Ducham Executive Brand Manager: Sankha Basu Executive Director of Development: Ann Torbert Senior Development Editor: Kelly L Delso Marketing Manager: Donielle Xu Lead Project Manager: Christine A Vaughan Senior Buyer: Carol A Bielski Senior Designer: Matt Diamond Interior Designer: Cara Hawthorne Cover Designer: Pam Verros Lead Content Licensing Specialist: Keri Johnson Photo Researcher: Mike Hruby Senior Media Project Manager: Susan Lombardi Media Project Manager: Joyce J Chappetto Typeface: 10/12 Palatino Compositor: Aptara, Inc Printer: R R Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Grewal, Dhruv Marketing / Dhruv Grewal, Ph.D., Babson College, Michael Levy, Ph.D., Babson College.—Fourth Edition pages cm Includes index ISBN-13: 978-0-07-802900-4 (alk paper) ISBN-10: 0-07-802900-7 (alk paper) Marketing I Levy, Michael, 1950- II Title HF5415.G6753 2014 658.8—dc23 2012044583 The Internet addresses listed in the text were accurate at the time of publication The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill, and McGraw-Hill does not guarantee the accuracy of the information presented at these sites www.mhhe.com gre29007_fm_i-xlviii.indd Page v 11/28/12 9:20 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 To our families for their never-ending support To my wife Diana and my children, Lauren and Alex –Dhruv Grewal To my wife Marcia and daughter Eva –Michael Levy gre29007_fm_i-xlviii.indd Page vi 11/28/12 9:20 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 gre29007_fm_i-xlviii.indd Page vii 11/28/12 9:36 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 about the authors and Virginia Tech Certificate of Recognition for Outstanding Teaching (1989) He has taught executive seminars and courses and worked on research projects with numerous firms, such as ExxonMobil, Dell, IRI, TJX, Radio Shack, Telcordia, Khimetriks, Profit-Logic, Monsanto, McKinsey, Ericsson, Council of Insurance Agents & Brokers (CIAB), Met-Life, AT&T, Motorola, Nextel, FP&L, Lucent, Sabre, Goodyear Tire & Rubber Company, Sherwin Williams, Esso International, Asahi, and numerous law firms He has taught seminars in the United States, Europe, and Asia Michael Levy Authors Michael Levy (left) and Dhruv Grewal (right) Dhruv Grewal Dhruv Grewal Ph.D (Virginia Tech) is the Toyota Chair in Commerce and Electronic Business and a professor of marketing at Babson College He was awarded the 2012 Lifetime Achievement Award in Pricing (AMA Retailing & Pricing SIG), the 2010 AMS Cutco/Vector Distinguished Educator Award, the 2010 Lifetime Achievement Award in Retailing (AMA Retailing SIG), and in 2005 the Lifetime Achievement in Behavioral Pricing Award (Fordham University, November 2005) He is a Distinguished Fellow of the Academy of Marketing Science He was ranked first in the marketing field in terms of publications in the top-six marketing journals during the 1991–1998 period and again for the 2000–2007 period He has served as VP, research and conferences, American Marketing Association Academic Council (1999–2001), and as VP, development for the Academy of Marketing Science (2000–2002) He was co-editor of Journal of Retailing from 2001 to 2007 He co-chaired the 1993 Academy of Marketing Science Conference, the 1998 Winter American Marketing Association Conference, the 2001 AMA doctoral consortium, and the American Marketing Association 2006 Summer Educators Conference He has published over 100 articles in journals such as the Journal of Retailing, Journal of Marketing, Journal of Consumer Research, Journal of Marketing Research, and Journal of the Academy of Marketing Science, as well as other journals He currently serves on numerous editorial review boards, such as the Journal of Retailing, Journal of Marketing, Journal of the Academy of Marketing Science, Journal of Interactive Marketing, Journal of Business Research, and Journal of Public Policy & Marketing He has won a number of awards for his teaching: 2005 Sherwin-Williams Distinguished Teaching Award, Society for Marketing Advances; 2003 American Marketing Association Award for Innovative Excellence in Marketing Education; 1999 Academy of Marketing Science Great Teachers in Marketing Award; Executive MBA Teaching Excellence Award (1998); School of Business Teaching Excellence Awards (1993, 1999); Michael Levy Ph.D (Ohio State University) is the Charles Clarke Reynolds Professor of Marketing and director of the Retail Supply Chain Institute at Babson College He received his Ph.D in business administration from The Ohio State University and his undergraduate and M.S degrees in business administration from the University of Colorado at Boulder He taught at Southern Methodist University before joining the faculty as professor and chair of the marketing department at the University of Miami Professor Levy was recognized for 25 years of dedicated service to the editorial review board of the Journal of Retailing in 2011, He won the McGraw-Hill Corporate Achievement Award for Grewal-Levy Marketing 2e with Connect in the category of excellence in content and analytics (2010), Revision of the Year for Marketing 2e (Grewal/Levy) from McGraw-Hill/Irwin (2010), the Babson Faculty Scholarship Award (2009), and the Distinguished Service Award, Journal of Retailing (2009) (at winter AMA) He was rated as one of the best researchers in marketing in a survey published in Marketing Educator (Summer 1997.) He has developed a strong stream of research in retailing, business logistics, financial retailing strategy, pricing, and sales management He has published over 50 articles in leading marketing and logistics journals, including the Journal of Retailing, Journal of Marketing, Journal of the Academy of Marketing Science, and Journal of Marketing Research He currently serves on the editorial review boards of the Journal of Retailing, International Journal of Logistics Management, International Journal of Logistics and Materials Management, and European Business Review He is co-author of Retailing Management, 8e (2012), the best-selling college-level retailing text in the world Professor Levy was co-editor of the Journal of Retailing from 2001 to 2007 He co-chaired the 1993 Academy of Marketing Science conference and the 2006 summer AMA conference Professor Levy has worked in retailing and related disciplines throughout his professional life Prior to his academic career, he worked for several retailers and a housewares distributor in Colorado He has performed research projects with many retailers and retail technology firms, including Accenture, Federated Department Stores, Khimetrics (SAP), Mervyn’s, Neiman Marcus, ProfitLogic (Oracle), Zale Corporation, and numerous law firms vii gre29007_fm_i-xlviii.indd Page viii 11/28/12 9:20 PM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 gre29007_fm_i-xlviii.indd Page ix 29/11/12 10:40 AM user-t044 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 Building From Experience Marketing, Fourth Edition, builds from Dhruv Grewal’s and Michael Levy’s experiences in the classroom and in the marketplace and interacting with marketing instructors and students Six essential features that the Fourth Edition is built upon are highlighted below: Learning Orientation: Each chapter features Learning Objectives at the outset (icons that relate the learning objectives to the chapter content); Check Yourself questions at the end of each section; and a Summing Up review of the learning objectives, Marketing Application questions, and Quiz Yourself questions at the end of the chapter Student Focused: The text content is engaging and provides illustrations that are highly relevant to students The content is presented in a visual fashion to facilitate learning State-of-the-Art Instructor’s Resources: The monthly newsletter continues to gain rave reviews Each newsletter highlights 10–12 current marketing applications and provides appropriate discussion questions and answers and links to interesting ads and videos Additionally, it provides PowerPoint slides on this content and have also organized the newsletter by chapter for ease of use and archiving purposes This will enable instructors to deliver state-of-the-art marketing content on a daily basis Applying Concepts: Comprehensive frameworks that organize key concepts are presented in each chapter These frameworks integrate essential marketing concepts and content with emerging concepts and content Interactive Technology: Interactive Toolkits, Interactive Presentations, Applications, and LearnSmart, all based in Connect make Marketing, Fourth Edition the most comprehensive and usable marketing book (augmented by its ancillaries) in the marketplace Assessment: To aid in self-assessment of how they are doing, students can use Check Yourself questions at the end of each section, Quiz Yourself questions at chapter end, Practice Quizzes on the book’s student Web site, instructor-created quizzes on Connect, or the continuous learning and assessment provided by LearnSmart ix gre29007_ch02_028-059.indd Page 37 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two 37 objectives? These fundamental business questions must be answered at the highest corporate levels before marketing executives can get involved Most firms want to maximize stockholders’ wealth by increasing the value of the firms’ stock and paying dividends.23 Let’s look at Nike and adidas • • Nike’s Mission Statement: “To bring inspiration and innovation to every athlete* in the world,” and then with its asterisk, defines an athlete by quoting one of its founders: “If you have a body, you are an athlete.”24 adidas’s Mission Statement: “The adidas group strives to be the global leader in the sporting goods industry with brands built on a passion for sport and a sporting lifestyle.”25 For both of these firms, marketing is primarily responsible for enhancing the value of the company’s offering for its customers and other constituents, whether in pursuit of a profit or not Another key goal or objective often embedded in a mission statement relates to how the firm is building its sustainable competitive advantage However, owners of small, privately held firms frequently have other objectives, such as achieving a specific level of income and avoiding risks Nonprofit organizations instead have nonmonetary objectives like Teach for America: • Teach for America’s mission is to build the movement to eliminate educational inequity by enlisting our nation’s most promising future leaders in the effort.26 LO3 Analyze a marketing Step 2: Conduct a Situation Analysis After developing its mission, a firm should perform a situation analysis, using a SWOT analysis that assesses both the internal environment with regard to its Strengths and Weaknesses and the external environment in terms of its Opportunities and Threats In addition, it should assess the opportunities and uncertainties of the marketplace due to changes in Cultural, Demographic, Social, Technological, Economic, and Political forces (CDSTEP) These factors are situation using SWOT analysis Teach for America helps provide education to all kids It’s possible to provide a great education to all kids, despite the challenges of poverty It begins with committed individuals teaching and leading their students to success What role will you play? Scan to learn more Apply now: www.teachforamerica.org Two year commitment Full salary and benefits All majors and career backgrounds gre29007_ch02_028-059.indd Page 38 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com 38 Section One Assessing the Marketplace EXHIBIT Nike adidas Keke Palmer is wearing her Nikes at a Nickelodeon event 2.3 Examples of Elements in a SWOT Analysis Environment Evaluation Positive Negative Internal Strengths Strong brand Strong celebrity endorsers Innovative products Weakness Overreliance on footwear External Opportunity Emerging countries Other fashion segments Threats Cheaper imports Imitation products Retail becoming price competitive Internal Strengths Strong brand Portfolio of brands Strong global presence Weakness Management of numerous brands External Opportunity Emerging countries Threats Cheaper imports Imitation products Recessionary forces discussed in more detail in Chapter With this information, firms can anticipate and interpret change, so they can allocate appropriate resources Consider how Nike might conduct a SWOT analysis, as outlined in Exhibit 2.3 We focus on Nike here, but we also recognize that its marketing managers might find it helpful to perform parallel analyses for competitors, such as adidas Because a company’s strengths (Exhibit 2.3, upper left) refer to the positive internal attributes of the firm, in this example we might include Nike’s great brand recognition and the visibility of the celebrities who wear its products Furthermore, its introduction of the Nike iPod was the first of its kind, continuing the innovative tradition that has marked Nike since it first came up with wafflesoled running shoes Its name recognition makes consumers more likely to try out these innovations when they appear on the market—especially when they see their favorite athlete wearing similar apparel on the court or in the field Yet every firm has its weaknesses, and Nike is no exception Weaknesses (Exhibit 2.3, upper right) are negative attributes of the firm Nike relies heavily— perhaps even too heavily—on its athletic shoe lines, especially for running and basketball The NBA lockout for the 2012 season put undue stress on its sales in this segment Not only would players and teams stop buying, but as the old saying goes, “Out of sight, out of mind.” If the players are not on the court, their fans aren’t thinking about them, and then sales will suffer.27 In response to the popular emergence of other options, such as “toning” and “barefoot” models, Nike has largely suggested they are fads that will not last, stressing instead its traditional athletic shoe models.28 gre29007_ch02_028-059.indd Page 39 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two 39 Opportunities (Exhibit 2.3, lower left) pertain to positive aspects of the external environment Among Nike’s opportunities, it appears determined to pursue dominance in other, sometime niche, sports markets For the Olympic Games, it introduced footwear for less familiar sports, including fencing, wrestling, and equestrian events.29 This goal also aligns with another notable opportunity for Nike, that is, growth in global markets It sells products in 170 countries worldwide, through independent distributors, Nike stores, the website, and licenses.30 It aims to expand further, and it has devoted significant resources to improving its prominence among European football players and fans.31 Finally, threats (Exhibit 2.3, lower right) represent the negative aspects of the com- Nike’s strengths include its innovative product tradition It was the first to pany’s external environment For example, introduce the Nike+ iPod, a sensor that when inserted into shoes gives the its widespread market dominance makes runner instant feedback on factors such as running time, distance, pace, Nike the primary target for all its competi- and calories burned tors,32 from adidas to New Balance to Li Ning, China’s largest shoe maker All of these firms want to take market share from Nike, which means it must constantly be a little bit on the defensive Furthermore, a perpetual threat for any apparel company is staying fashionable, as Nike itself acknowledges: “We must respond to trends and shifts in consumer preferences by adjusting the mix of existing product offerings, developing new products, styles and categories, and influencing sports and fitness preferences through aggressive marketing Failure to respond in a timely and adequate manner could have a material adverse effect on our sales and profitability This is a continuing risk.”33 Step 3: Identifying and Evaluating Opportunities Using STP (Segmentation, Targeting, and Positioning) After completing the situation audit, the next step is to identify and evaluate opportunities for increasing sales and profits using STP (segmentation, targeting, and positioning) With STP, the firm first divides the marketplace into subgroups or segments, determines which of those segments it should pursue or target, and finally decides how it should position its products and services to best meet the needs of those chosen targets (more details on the STP process can be found in Chapter 8) Segmentation Many types of customers appear in any market, and most firms cannot satisfy everyone’s needs For instance, among Internet users, some research online, some shop, some look for entertainment, and many all three Each of these groups might be a market segment consisting of consumers who respond similarly to a firm’s marketing efforts The process of dividing the market into groups of customers with different needs, wants, or characteristics—who therefore might appreciate products or services geared especially for them—is called market segmentation Let’s look at Hertz, the car rental company The example in Exhibit 2.4 reveals that some of the segments that Hertz targets includes its Fun Collection, including the Corvette ZHZ and Chevrolet Camaro, to single people and couples wanting to have a bit of fun Its Prestige Collection, which features the Cadillac Escalade and Infiniti QX56, targets business customers and families LO4 Describe how a firm chooses which consumer group(s) to pursue with its marketing efforts gre29007_ch02_028-059.indd Page 40 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com 40 Section One Assessing the Marketplace EXHIBIT Segments Cars Offered Hertz targets several markets Its “Fun Collection” (left) appeals to single people and couples wanting to have fun; while its “Prestige Collection” (right) appeals to its business customers and families who prefer a luxurious ride 2.4 Hertz Market Segmentation Segment Segment Segment Segment Segment Single people and couples wanting to have a bit of fun Business customers and families who prefer a luxurious ride Environmentally conscious customers Families Commercial customers Fun Collection Prestige Collection Green Collection SUV/Minivan & crossover Commercial Van/Truck Corvette ZHZ Infiniti QX56 Toyota Prius Toyota Rav Chevrolet Camaro Cadillac Escalade Ford Fusion Ford Explorer Ford Cargo Van who prefer a luxurious ride With its Green collection of cars such as the Toyota Prius and Ford Fusion, Hertz appeals to environmentally conscious customers, and with its SUV/Minivan collection, it brings in families It also offers commercial vans for service customers.34 Thus, Hertz uses a variety of demographics— gender, age, income, interests—to identify customers who might want the Fun, Prestige, Green, and SUV/Minivan collections, but it also applies psychological or behavioral factors, such as a preference for style or a need to move possessions across town, to identify likely consumers of the Fun Collection and its commercial vans gre29007_ch02_028-059.indd Page 41 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two Nike targets different segments, such as women’s fitness, golf, and running Going back to our Nike example, let’s look at how they segment their customers based on how the products are used and gender Nike focuses on the following segments: running, basketball, football (soccer), men’s training, women’s training, action sports, sportswear, and golf Targeting After a firm has identified the various market segments it might pursue, it evaluates each segment’s attractiveness and decides which to pursue using a process known as target marketing or targeting For example, Hertz realizes that its primary appeal for the SUV/Minivan collection centers on young families, so the bulk of its marketing efforts for this business is directed toward that group Soft drink manufacturers also divide their massive markets into submarkets or segments Coca-Cola, for instance, makes several different types of Coke, including regular, Coke II, and Cherry Coke Among its diet colas, it targets Coke Zero to men and Diet Coke to women, because men prefer not to be associated with diets It also markets Sprite to those who don’t like dark colas, Fruitopia and Minute Maid for more health-conscious consumers, and Dasani bottled water for purists Positioning Finally, when the firm decides which segments to pursue, it must de- termine how it wants to be positioned within those segments Market positioning involves the process of defining the marketing mix variables so that target customers have a clear, distinctive, desirable understanding of what the product does or represents in comparison with competing products Hertz positions itself as a quality car (and truck) rental company that is the first choice for each of its target segments In its marketing communications, it stresses that customers will get peace of mind when they rent from Hertz, the market leader in the car rental business, and be able to enjoy their journey (e.g., leisure consumers) and reduce travel time (e.g., business consumers).35 To segment the coffee drinker market, Starbucks uses a variety of methods, including geography (e.g., college campuses versus shopping/business districts) and benefits (e.g., drinkers of caffeinated versus decaffeinated products) After determining which of those segments represent effective targets, Starbucks positions itself as a firm that develops a variety of products that match the wants and needs of the different market segments—espresso drinks, coffees, teas, bottled drinks, pastries, and cooler foods 41 gre29007_ch02_028-059.indd Page 42 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Section One Assessing the Marketplace 42 Social and Mobile Marketing 2.1 The pizza delivery business has always been mobile in one sense, but Pizza Hut is making sure that it spreads into mobile commerce as well This first-mover introduced its mobile website in 2007, an iPhone application in 2009, and apps for the iPad, Android, and Windows Mobile in 2010 The decision to go mobile was based on a few insights that Pizza Hut gleaned from its market research In particular, if it did not offer mobile access quickly, its competitors might be first to so in the competitive pizza delivery market The Pizza Hut app lets customers order food through a userfriendly experience, but it also makes sure to identify the closest store locations for delivery or pick-up service Truly Mobile Pizza36 Without much information about who the consumers who would use the app were, Pizza Hut anticipated more orders from college-aged men, who not like to cook and want their food on demand, but also are not willing to stop a video game to take the time to order food through more traditional channels The assumption seemed reasonable—but it also was dead wrong Further market research, based on the introduction of the app, has shown that there are just as many pizza connoisseurs with iPhones who are older than 55 as there are 13–24-year-olds ordering the pies Pizza Hut’s mobile app makes ordering pizza a piece of cake After identifying its target segments, a firm must evaluate each of its strategic opportunities A method of examining which segments to pursue is described in the Growth Strategies section later in the chapter Firms typically are most successful when they focus on opportunities that build on their strengths relative to those of their competition In Step of the marketing plan, the firm implements its marketing mix and allocates resources to different products and services For example, Pizza Hut decided to jump on changing consumer desires for rapid access to its offering by constantly expanding its mobile applications, but it also found its positioning as a convenient option appealing to more markets than it even expected, as Social and Mobile Media 2.1 reveals LO5 Outline the implementation of the marketing mix as a means to increase customer value Step 4: Implement Marketing Mix and Allocate Resources When the firm has identified and evaluated different growth opportunities by performing an STP analysis, the real action begins It has decided what to do, how to it, and how many resources should be allocated to it In the fourth step of the gre29007_ch02_028-059.indd Page 43 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two Adding Value 2.1 Innovation at 3M When a company pours billions of dollars into research and development, a struggling economy is a serious problem If profits fall, who has money for innovation, right? Not for 3M This longtime innovator cites a multipronged mission that includes satisfying customers with “innovative technology and superior quality, value, and service,” as well as earning “the admiration of all those associated with 3M worldwide” (among other goals).37 Its product offering spans an incredible range of categories, from health care to highway safety to office and pet care products to fly fishing equipment to solar film.38 Because it remains constantly committed to providing useful, new solutions to its customers, 3M continues to reinvest a significant percentage of its revenues to research.39 Furthermore, in line with 3M’s commitment to “value and develop our employees’ diverse talents, initiative, and leadership,” it allows its researchers to spend time pursuing their own interests—some of science’s most important discoveries occur during unrelated research, after all Thus when industrial architects asked 3M for some ideas for lighting their studios, it put one of its creative designers on the project The result, the nine-foot Hoop Light, won 3M design awards at interior design international competitions, rather than just industrial contracts.40 But these creative researchers cannot it all on their own An obvious but still rather uncommon approach to matching product development with customer needs is to involve customers in the process of innovation.41 Corporate clients in particular are experts in their businesses; they know their customers’ demands better than anyone By interacting with these expert customers and combining their needs with its own broad range of technical expertise and infrastructure, 3M produces novel solutions to difficult challenges Many of these interactions take place at the company’s customer innovation centers, where visitors outline their business goals for 3M experts and tour the manufacturer’s core technologies Exposure to these technologies, 3M has learned, helps stimulate creative ideas about ways to combine or adapt existing science in one sector to provide solutions in another A new technology in aerospace, for example, could lead to a breakthrough in healthcare These innovation centers are so successful that 3M has opened nearly two dozen, and companies like Hershey and Pitney Bowes are following suit planning process, marketers implement the actual marketing mix—product, price, promotion, and place—for each product and service on the basis of what they believe their target markets will value At the same time, marketers make important decisions about how they will allocate their scarce resources to their various products and services Product and Value Creation Products, which include services, constitute the first of the four Ps Because the key to the success of any marketing program is the creation of value, firms attempt to develop products and services that customers perceive as valuable enough to buy Dyson fans and fan heaters draw in and redirect surrounding air without potentially dangerous or fast spinning blades or visible heating elements Although more expensive than conventional fans and space heaters, these sculpturally beautiful appliances are perceived by consumers to be a valuable alternative to products that haven’t significantly changed since the early 1900s Remember the example of 3M and its research and development efforts? Adding Value 2.1 further details how 3M creates value for its customers Price and Value Capture Recall that the second element of the marketing mix is price As part of the exchange process, a firm provides a product or a service, or some combination thereof, and in return, it gets Dyson creates value with its innovative products 43 gre29007_ch02_028-059.indd Page 44 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com 44 Section One Assessing the Marketplace The Home Plus Virtual Stores have created a whole new way of providing the third P, place, and value delivery money Value-based marketing requires that firms charge a price that customers perceive as giving them a good value for the product they receive Clearly, it is important for a firm to have a clear focus in terms of what products to sell, where to buy them, and what methods to use in selling them But pricing is the only activity that actually brings in money and therefore influences revenues If a price is set too high, it will not generate much volume If a price is set too low, it may result in lower-than-optimal margins and profits Therefore, price should be based on the value that the customer perceives Dyson fans can retail for $150 or more while conventional fans retail for around $25 Customers thus can decide just what they want from their fan and choose the one at the price they prefer Place and Value Delivery For the third P, place, the firm must be able, after it has created value through a product and/or service, to make the product or service readily accessible when and where the customer wants it Recently, Tesco took an innovative step along these lines when it opened HomePlus virtual stores in several South Korean subway stations Busy urban consumers were struggling to find the time to get to a grocery store, so HomePlus reinvented the placement of grocery stores The virtual stores in subway stations look like grocery stores—except that they are just LCD screens! The virtual markets allow customers to shop with just their smartphones and their items will be delivered to their doorstep.42 Promotion and Value Communication The fourth and last P of the marketing mix is promotion Marketers communicate the value of their offering, or the value proposition, to their customers through a variety of media including television, radio, magazines, sales forces, and the Internet A relatively new promotion channel relies on daily deal websites such as Groupon or LivingSocial to get the word out Many smaller companies find that these sites give them greater name recognition than they ever could have achieved on their own But when a well-known company uses the sites, the effect is even more remarkable For example, Whole Foods offered a certificate for $20 worth of goods at a cost of only $10 on LivingSocial.com Consumers snatched up the deal at a rate of 115,000 per hour.43 Whole Foods capped the offer at million deals, so it exposed itself to costs of around $10–15 million (if we include the fees it had to pay to LivingSocial to post the deal) in this attempt to get more grocery shoppers to visit its stores gre29007_ch02_028-059.indd Page 45 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two Step 5: Evaluate Performance Using Marketing Metrics The final step in the planning process includes evaluating the results of the strategy and implementation program using marketing metrics A metric is a measuring system that quantifies a trend, dynamic, or characteristic Metrics are used to explain why things happened and also to project the future They make it possible to compare results across regions, strategic business units (SBUs), product lines, and time periods The firm can determine why it achieved or did not achieve its performance goals with the help of these metrics Understanding the causes of the performance, regardless of whether that performance exceeded, met, or fell below the firm’s goals, enables firms to make appropriate adjustments Typically, managers begin by reviewing the implementation programs, and their analysis may indicate that the strategy (or even the mission statement) needs to be reconsidered Problems can arise both when firms successfully implement poor strategies and when they poorly implement good strategies Who Is Accountable for Performance? At each level of an organization, the business unit and its manager should be held accountable only for the revenues, expenses, and profits that they can control Thus, expenses that affect several levels of the organization (such as the labor and capital expenses associated with operating a corporate headquarters) shouldn’t be arbitrarily assigned to lower levels In the case of a store, for example, it may be appropriate to evaluate performance objectives based on sales, sales associate productivity, and energy costs If the corporate office lowers prices to get rid of merchandise and therefore profits suffer, then it’s not fair to assess a store manager’s performance based on the resulting decline in store profit Performance evaluations are used to pinpoint problem areas Reasons performance may be above or below planned levels must be examined If a manager’s performance is below planned levels, was it because the sales force didn’t an adequate job, because the economy took a downward turn, because competition successfully implemented a new strategy, or because the managers involved in setting the objectives aren’t very good at making estimates? The manager should only be held accountable in the case of the inadequate sales force job or setting inappropriate forecasts When it appears that actual performance is going to be below the plan because of circumstances beyond the manager’s control, the firm can still take action to minimize the harm For our chapter exemplar Nike, two situations have arisen recently over which the firm had little control—a global recession and a scandal involving a spokesperson Many consumers cut their spending on things like apparel in the modern recession And the Tiger Woods infidelity scandal left Nike in an awkward position According to researchers at Carnegie Mellon University, for the 10 years prior to the scandal, Woods’s endorsement had earned Nike’s golf ball division approximately $60 million in additional profits In the year following widespread media reports of his infidelity, Nike lost approximately 105,000 customers and $1.3 million in profit.44 In remarkable cases such as this, marketing managers must ask themselves several relevant questions: How quickly were Tiger Woods is back 45 gre29007_ch02_028-059.indd Page 46 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com 46 Section One Assessing the Marketplace plans adjusted? How rapidly and appropriately were pricing and promotional policies modified? In short, did I react to salvage an adverse situation, or did my reactions worsen the situation? For the Woods scandal, it appears that marketing managers made the right decision by keeping him as an endorser, despite their short-term losses The same researchers estimate that “even in the midst of the scandal, the overall profit was greater by $1.6 million for Nike with Tiger Woods than without him.”45 Performance Objectives and Metrics Many factors contribute to a firm’s overall performance, which makes it hard to find a single metric to evaluate performance One approach is to compare a firm’s performance over time or to competing firms, using common financial metrics such as sales and profits Another method of assessing performance is to view the firm’s products or services as a portfolio Depending on the firm’s relative performance, the profits from some products or services are used to fuel growth for others Financial Performance Metrics Some commonly used metrics to assess performance include revenues, or sales, and profits For instance, sales are a global measure of a firm’s activity level However, a manager could easily increase sales by lowering prices, but the profit realized on that merchandise (gross margin) would suffer as a result An attempt to maximize one metric may lower another Managers must therefore understand how their actions affect multiple performance metrics It’s usually unwise to use only one metric because it rarely tells the whole story In addition to assessing the absolute level of sales and profits, a firm may wish to measure the relative level of sales and profits For example, a relative metric of sales or profits is its increase or decrease over the prior year In addition, a firm may compare its growth in sales or profits relative to other benchmark companies (e.g., Coke may compare itself to Pepsi) The metrics used to evaluate a firm vary depending on (1) the level of the organization at which the decision is made and (2) the resources the manager controls For example, while the top executives of a firm have control over all of the firm’s resources and resulting expenses, a regional sales manager only has control over the sales and expenses generated by his or her salespeople Let’s look at Nike’s sales revenue and profits (after taxes) and compare them with those of adidas (Exhibit 2.5) Furthermore, as the corporate consciousness of the importance of social responsibility grows, firms are starting to report corporate social responsibility metrics in major areas, such as their impact on the environment, their ability to diversify their workforce, energy conservation initiatives, and their policies on protecting the human rights of their employees and the employees of their suppliers Ethical and Societal Dilemma 2.1 examines how Starbucks is working to tackle important societal issues EXHIBIT 2.5 Performance Metrics: Nike vs adidas 2010 2011 % Change Nike Net Sales Net Profit Net Profit/Net Sales $19.0B $ 1.9B 10% $20.9B $ 2.1B 10% 9.5% 10% 0% Adidas Net Sales Net Profit Net Profit/Net Sales € 12.0B €894M 7.4% €13.3B € 1.01B 7.6% 10.1% 13% 0.2% gre29007_ch02_028-059.indd Page 47 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two Ethical and Societal Dilemma 2.146 47 Starbucks Working to Make the Earth a Better Place To ensure it adds value to the broader society that makes up its macroenvironment, Starbucks rates its own corporate social responsibility performance in five categories: ethical sourcing, environment, community, wellness, and diversity Its brand equity improves in response to its proactive efforts along these socially responsible dimensions; customers feel good about their buying experience; and Starbucks develops stronger relationships with suppliers, both locally and globally With regard to its focus on ethical sourcing and sustainable coffee production, Starbucks maintains its C.A.F.E (Coffee and Farmer Equity) program The C.A.F.E guidelines include a scorecard that rates coffee farmers according to their product quality, economic accountability, social responsibility, and environmental leadership Third parties evaluate whether suppliers meet Starbucks’ standards under the C.A.F.E On World Water Day, Starbucks sponsored walks to symbolize and program In just a few years, suppliers from 13 raise awareness about the average length that women and children different countries had gained C.A.F.E approval walk to get drinking water each day In turn, Starbucks continues to increase the amount of coffee that it purchases from verified suppliers, from 77 percent in the early 2000s to 81 percent Bangladesh, Ethiopia, and Kenya Thus far, it has contributed in 2009 to 84 percent by 2010—on its way to its goal of more than $6 million to help solve the world’s water crisis, having “100% of our coffee certified or verified by an inde- thereby aiding approximately 420,000 people who lack consistent access.47 pendent third party.” On a more local level, Starbucks sometimes experiences Lack of water is not the only health worry facing people opposition from local communities that believe its stores across the world By posting nutrition information in its stores, will ruin the historical ambiance of an area To take the Starbucks attempts to aid in the effort to reduce the prevaneeds of local communities into consideration, Starbucks lence of obesity and diabetes among its consumers According attempts to address historic preservation, environmental, to one report, communicating this information has prompted infrastructure, job, and urban revitalization concerns Starbucks customers to lower their calorie intake, but not For example, in La Mesa, California, Starbucks overcame their purchase amounts opposition by supporting local events and businesses In To address the health and welfare of its own employees addition, it formed a joint venture with Johnson Develop- (whom the company calls “partners”), Starbucks not only ofment Corporation (JDC) to develop urban coffee opportuni- fers generous health benefits to both full- and part-time ties By opening in diverse urban areas, Starbucks helps workers but also has undertaken a Thrive Wellness Initiative stimulate economic growth in the areas by creating jobs, (TWI).48 The stated purpose of TWI is to care for the wellusing local suppliers, and attracting other retailers to being of employees For example, the newest portion of the the area TWI is Kinetix, a program that offers classes on nutrition Starbucks has also launched a program that focuses on and exercise, as well as eight weeks of sessions with a perthe needs of the more than billion people globally who lack sonal trainer access to safe drinking water On World Water Day, Starbucks Finally, just as it expects its coffee producers to engage in sponsors three-mile walks in many cities, as well as a virtual environmentally friendly practices, Starbucks itself attempts to online walk, to symbolize and raise awareness about the aver- use renewable energy and reduce its negative impact on the age length that women and children walk to get drinking water environment Furniture and fixtures in stores are made of suseach day Starbucks’ Ethos Water brand contributes cents tainable building materials As a member of the Sustainable for each bottle of water sold in Starbucks stores to humanitar- Packaging Coalition, Starbucks also works to replace convenian water programs around the world, in countries such as tional packaging with green alternatives gre29007_ch02_028-059.indd Page 48 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Section One Assessing the Marketplace LO6 Summarize portfolio analysis and its use to evaluate marketing performance Portfolio Analysis In portfolio analysis, management evaluates the firm’s various products and businesses—its “portfolio”—and allocates resources according to which products are expected to be the most profitable for the firm in the future Portfolio analysis is typically performed at the strategic business unit (SBU) or product line level of the firm, though managers also can use it to analyze brands or even individual items An SBU is a division of the firm itself that can be managed and operated somewhat independently from other divisions and may have a different mission or objectives For example, Goodyear is one of the largest tire firms in the world, selling its products on six continents in over 180 countries and with sales of approximately $18 billion Its four SBUs are organized by geography: North America, Europe, Middle East, Africa, Latin America, and Asia/Pacific.49 A product line, in contrast, is a group of products that consumers may use together or perceive as similar in some way One line of product for Goodyear could be car, van, SUV, and light truck while another line could be racing tires or aviation tires One of the most popular portfolio analysis methods, developed by the Boston Consulting Group (BCG), requires that firms classify all their products or services into a two-by-two matrix, as depicted in Exhibit 2.6.50 The circles represent brands, and their sizes are in direct proportion to the brands’ annual sales The horizontal axis represents the relative market share In general, market share is the percentage of a market accounted for by a specific entity,51 and is used to establish the product’s strength in a particular market It is usually discussed in units, revenue, or sales A special type of market share metric, relative market share, is used in this application because it provides managers with a product’s relative strength, compared with that of the largest firm in the industry.52 The vertical axis is the market growth rate, or the annual rate of growth of the specific market in which the product competes Market growth rate thus measures how attractive a particular market is Each quadrant in the matrix has been named on the basis of the amount of resources it generates for and requires from the firm Stars Stars (upper left quadrant) occur in high-growth markets and are high market share products That is, stars often require a heavy resource investment in such EXHIBIT 2.6 HIGH HIGH Boston Consulting Group Matrix Relative market share Stars LOW Question marks A Market growth rate 48 A B C LOW Cash cows Dogs gre29007_ch02_028-059.indd Page 49 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two 49 things as promotions and new production facilities to fuel their rapid growth As their market growth slows, stars will migrate from heavy users of resources to heavy generators of resources and become cash cows Cash Cows Cash cows (lower left quadrant) are in lowgrowth markets but are high market share products Because these products have already received heavy investments to develop their high market share, they have excess resources that can be spun off to those products that need it For example, the firm may decide to use the excess resources generated by Brand C to fund products in the question mark quadrant Question Marks Question marks (upper right quadrant) appear in high-growth markets but have relatively low market shares; thus, they are often the most managerially intensive products in that they require significant resources to maintain and potentially increase their market share Managers must decide whether to infuse question marks with resources generated by the cash cows, so that they can become stars, or withdraw resources and eventually phase out the products Brand A, for instance, is currently a question mark, but by infusing it with resources, the firm hopes to turn it into a star Dogs Dogs (lower right quadrant) are in low-growth markets and have relatively low market shares Although they may generate enough resources to sus- Goodyear, one of the largest tire firms in the world, organizes tain themselves, dogs are not destined for “stardom” its strategic business units by geography and should be phased out unless they are needed to complement or boost the sales of another product or for competitive purposes In the case depicted in Exhibit 2.6, the company has decided to stop making Brand B Now let’s look at Apple and some of its products.53 The four that we will focus our attention on are: • • • • iPhone iPod iMac Desktop iPad In which Boston Consulting quadrant these two products fit? gre29007_ch02_028-059.indd Page 50 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com 50 Section One Assessing the Marketplace Let’s consider each of these products and place them into the BCG matrix based on these data The iPhone is clearly a star—a high growth rate (87 percent) In fact, by the end of 2011, Apple returned to its position as the top selling smartphone in the industry, with 16.2 million units sold in their fourth quarter alone, making its relative market share 100 percent.54 Apple’s iPod is a different story With a staggering absolute market share consistently above 75 percent, its relative market share is also 100 percent, and with more than 300 million iPods sold in a little over 10 years, it is definitely an important product for Apple Unfortunately, the MP3 market is contracting (the market shrank by 10 percent from 2010 to 2011) Combine the lack of growth with a large relative market share, and it is likely that the iPod is a cash cow for Apple.55 Although popular with graphic designers, the growth rate of the Mac Desktop has slowed to a pitiful percent Given that it also has a small relative market share in the desktop market, the iMac can be tentatively classified as a dog Should Apple get rid of the iMac? For at least two reasons, this is probably a bad idea First, it risks alienating graphic designers and other Apple loyalists who depend on the iMac Since these customers may also enjoy other Apple products, their dissatisfaction might adversely affect sales of these other products Second, discontinuing the iMac would leave a gaping hole in its portfolio, and would therefore hurt its brand image as a computer company Then we have the iPad with an incredible sales growth rate from 2010 to 2011 of 333 percent, and sales of approximately 55 million units as of early 2012 In 2010, its absolute market share was 95.5 percent, making it the market leader with a relative market share of 100 percent However, it is also experiencing increasing competition from Android tablets and the Kindle Fire Looking at 2011 as a whole, the iPad captured 66.6 percent of the tablet market (2 out of every tablets sold was an iPad) But by the end of 2011 its absolute market share had dropped to 57 percent.56 Where on the BCG matrix would you classify the iPad? Would you argue that a 57 percent absolute market share places it in the star category, or would you be more conservative and put it as a question mark, citing the steady erosion of absolute market share? Will Apple be able to continue to grow and maintain its market share leader position by releasing a new version of the iPad? Although quite useful for conceptualizing the relative performance of products or services and using this information to allocate resources, the BCG approach and others like it are often difficult to implement in practice In particular, it is difficult to measure both relative market share and industry growth Furthermore, other measures easily could serve as substitutes to represent a product’s competitive position and the market’s relative attractiveness Another issue for marketers is the potential self-fulfilling prophecy of placing a product or service into a quadrant As we have shown in our Apple iPad example, whether it is classified as a star or a question mark has profound implications on how it is treated and supported within the firm Question marks require more marketing and production support Because of these limitations, many firms have tempered their use of matrix approaches to achieve a more balanced approach to evaluating products and services and allocating their resources Instead of assigning allocation decisions to the top levels of the organization, many firms start at lower management levels and employ checks and balances to force managers at each level of the organizational hierarchy to negotiate with those above and below them to reach their final decisions Strategic Planning Is Not Sequential The planning process in Exhibit 2.2 suggests that managers follow a set sequence when they make strategic decisions Namely, after they’ve defined the gre29007_ch02_028-059.indd Page 51 10/9/12 2:23 PM user-f526 /Volumes/202/MH01856/gre29007/disk1of1/0078029007 www.freebookslides.com Developing Marketing Strategies and a Marketing Plan Chapter Two 51 business mission, they perform the situation analysis, identify strategic opportunities, evaluate alternatives, set objectives, allocate resources, develop the implementation plan, and, finally, evaluate their performance and make adjustments But actual planning processes can move back and forth among these steps For example, a situation analysis may uncover a logical alternative, even though this alternative might not be included in the mission statement, which would mean that the mission statement would need to be revised The development of the implementation plan also might reveal that insufficient resources have been allocated to a particular product for it to achieve its objective In that case, the firm would need to either change the objective or increase the resources; alternatively, the marketer might consider not investing in the product at all Now that we have gone through the steps of the marketing plan, let’s look at some growth strategies that have been responsible for making many marketing firms successful CHECK YOURSELF What are the five steps in creating a marketing plan? What tool helps a marketer conduct a situation analysis? What is STP? What the four quadrants of the portfolio analysis represent? LO7 Describe how firms grow GROWTH STRATEGIES their business Firms consider pursuing various market segments as part of their overall growth strategies, which may include the four major strategies in Exhibit 2.7.57 The rows distinguish those opportunities a firm possesses in its current markets from EXHIBIT 2.7 Market/Product and Services Strategies New Current Market penetration Product development Market development Diversification MARKETS Current New PRODUCTS AND SERVICES ... 29 /11 /12 11 :02 AM user-t044 :56 PM user-t044 /Volumes/202/MH 018 56/gre29007/disk1of1/0078029007 gre29007_ch09_262-295.indd Page 284 11 /10 /12 11 :14 AM user-t044 /Volumes/202/MH 018 56/gre29007/disk1of1/0078029007... Page xvi 11 /28 /12 9: 21 PM user-t044 /Volumes/202/MH 018 56/gre29007/disk1of1/0078029007 Student-Focused Features gre29007_ch13_394-4 21. indd Page 394 11 /10 /12 2:29 PM user-t044 /Volumes/202/MH 018 56/gre29007/disk1of1/0078029007... user-t044 /Volumes/202/MH 018 56/gre29007/disk1of1/0078029007 gre29007_ch13_394-4 21. indd Page 415 11 /14 /12 9 :11 AM user-t044 ● /Volumes/202/MH 018 56/gre29007/disk1of1/0078029007 Superior Service – highlight