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© 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. © 2018 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 1 10 Channels of Distribution © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 2 Marketing Framework © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 3 Discussion Questions #1 • Apple introduced the Apple retail store in 2001 when it had less than 3% of the computer market—prior to its introduction of the iPod. Previously, Apple computers were sold through local computer retailers. 1. What do you think prompted the idea for Apple’s new retail strategy? 2. What were the risks associated with this strategy? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 4 Place • The market realigns discrepancies between buyers and sellers • Sellers have large quantities; Buyers want a few • Breaking bulk • Making goods available in smaller batches © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 5 Distribution Channels • Distribution channel • A network of firms that are interconnected in their quest to provide sellers a means of infusing the marketplace with their goods, and buyers a means of purchasing those goods • The goal is to do this efficiently and profitably • Channel members include • Manufacturers, wholesalers, retailers, consumers, etc. © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 6 Functions of a Channel • Activities that are • Customer-oriented (e.g., ordering) • Product-oriented (e.g., storage) • Marketing-centric (e.g., promotion) • Logistics • Coordinating flow of goods, services, and information throughout channel © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 7 Channel Tension • All channel functions must be done by someone, the question is … • What is the most effective and efficient way to distribute the product? • Tension in channels can be created by each channel member • Does member provide more benefit than cost? • The make-or-buy decision © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 8 Channel Questions #1 • Which of these is more efficient? Why? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 9 Channels and Supply Chains • Supply chain • Upstream partners • Channel members • Downstream partners © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 10 Channel Questions #2 1. Who is in Amazon’s supply chain? 2. Who is in Pixar’s channel? 3. How is Dell’s distribution different from the others? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 11 The What, Why, #038; How of Channels • The “what” of channels • Network of suppliers and providers • The “why” of channels • Effectiveness and efficiency • The “how” of channels • Designing effective and efficient channels © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 12 How to Design Channels (slide 1 of 4) • Intensive distribution: widely distributed • Drugstores, supermarkets, discount stores, convenience stores, etc. • Usually for simple, inexpensive, easily transported products • e.g., Snack food, shoo, newspapers • Pull strategy: promote directly to end consumers to pull through channel © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 13 How to Design Channels (slide 2 of 4) • Selective distribution: limited distribution • Usually for complex and/or expensive products that require assistance • e.g., Most cars, computers, appliances • Push strategy: promote to distribution partners to push goods to consumer • Manufacturer has more control due to fewer relationships to manage © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 14 How to Design Channels (slide 3 of 4) • Exclusive distribution: extremely selective • e.g., Ferrari and Rolex • Manufacturers have the most control • May become monopolistic © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 15 How to Design Channels (slide 4 of 4) • How much distribution? • Design needs to be consistent with other marketing elements • Wide distribution – Usually goes with heavy promotion, lower prices, and average or lower-quality products • Exclusive distribution – Usually goes with less promotion, higher prices, and higher-quality products © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 16 Push vs. Pull Strategies (slide 1 of 2) • Push strategy • Incentives are offered to distribution partners to push products through the channel • Pull strategy • Incentives are offered to consumers to pull products through the channel © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 17 Push vs. Pull Strategies (slide 2 of 2) © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 18 Power and Conflict in Channels • Conflict arises in distribution channels • Some conflict can be healthy • Some conflict can end a partnership • Power • Power is usually defined by size • Power can be used to win conflict • Exerting power over distribution partners can lead to resentment and lack of cooperation © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 19 Transaction Cost Analysis (TCA) • Model that considers channel members’ production costs #038; governance costs • Goal is to minimize both costs • Production cost • Cost of producing/bringing product to market • Governance cost • Cost involved with relational issues incurred by coordinating enterprise and controlling one’s partners © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 20 Transaction Value Analysis • Perspective that emphasizes the benefits a company brings to its partners • Goes beyond cost reductions • Uses human relationship terms • Communication enhances trust • Trust is the willingness and ability to deliver on promises © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 21 Ways to Resolve Conflict • • • • Communicate Exchange personnel Sponsor joint research projects Mediation • Negotiate through a third party that determines the two parties’ utility functions • Arbitration • The third party makes a binding decision for the two parties © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 22 Revenue Sharing (slide 1 of 2) • Double marginalization: the problem • The manufacturer wants a markup • The retailer wants a second markup © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 23 Revenue Sharing (slide 2 of 2) • Double marginalization: solutions © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 24 Discussion Question #2 • Why wouldn’t the manufacturer just avoid the double marginalization problem entirely and go directly to the consumer? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 25 Integration (slide 1 of 3) • All functions within a channel need to be completed • Revisit make-or-buy decision • Make: complete a function yourself • Buy: outsource a function © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 26 Integration (slide 2 of 3) • Vertical integration • Moving backward or forward in a channel • Forward integration • Moving forward in a distribution channel • e.g., Manufacturer opens its own retail stores • Backward integration • Moving backward in a distribution channel • e.g., Manufacturer controls raw materials or retailer sets up private label © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 27 Integration (slide 3 of 3) • Private label • Type of backward integration • Advantages • Gives retailer negotiating power with manufacturers • Offers significant margins • Helps differentiate retailer from other retailers – e.g., Great Value oatmeal is only at Walmart © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 28 Global Channels • Channels can be complicated © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 29 Discussion Questions #3 1. How might Anheuser-Busch engage in forward integration? 2. How might Google engage in backward integration? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 30 Retailing #038; Retail Classifications • Retailers have been gaining power and momentum over the past 10–20 years • Retailers are classified by ownership, level of service, and product assortment • Management’s level of ownership • Independent retailers • Branded store chains • Franchises © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 31 Retailing Classifications • Level of service provided • Usually related to price points • Product assortment carried • Specialty: carry depth not much breadth – e.g., Toy stores • General merchandise: carry breadth but not much depth – e.g., Department stores © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 32 Retailing Employees • Retail employees are important • Connect the retailer and its customers • Retailers should hire selectively, train well, and pay fairly • Dissatisfied employees can lead to dissatisfied customers and employee turnover • Employee turnover leads to new associates who cause further customer dissatisfaction © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 33 Retailing Operations • Retailing is a service • Retailers should flowchart operations • Front-stage: elements customers see • Backstage: elements customers do not see • Must be run efficiently to support front-stage • The goal is to create effective and efficient processes • Self-service is a way to streamline © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 34 Retailing Location • Location is important • Determine appropriate success factors for your specific business; analyze locations to pick ideal sites • e.g., Population densities, income and social class distributions, median ages, household composition © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 35 Retailing Growth Strategies • • • • Provide additional services Target additional segments Open multiple stores Expand internationally • e.g., Exporting, joint ventures, direct foreign investment, and license agreements • Global outsourcing • e.g., India #038; technology, China #038; manufacturing © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 36 Franchising • Unique format of multisite expansion • Company can retain some control without complete ownership or capital expenditure • Benefits • Franchisor: receives capital, scales of economy, committed people, less risk, can focus on core functions • Franchisee: well-known brand and some market awareness, supplier relationships, templates for training, central support © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 37 Types of Franchising • Product franchising • Supplier authorizes a distributor in a territory to carry its products, use its brand name, benefit from its advertising, etc. • e.g., Ford dealers, Coca-Cola bottlers • Business format franchising • Company offers a proven system to conduct business, marketing support, brand name, advertising, etc., to the franchisee • e.g., McDonald’s, Holiday Inn © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 38 E-Commerce • The Internet is an important channel • Online retail sales are about $180 billion, growing about 10% a year • Still only 11% of total retail sales • Customers are younger and more affluent • Customer characteristics are changing to match customers in general markets • United States dominates but not by much © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 39 Asian Internet Penetration Percentages © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 40 Discussion Question #4 • How do you see the future for the distribution of entertainment programs? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 41 Catalog Sales • Top 10 catalogers are B2B companies • e.g., Dell, Staples, etc. • 80 of the top 100 catalogers continue to see sales growth • Internet is well-suited for a search while catalogs still dominate browsing • Catalogs often complement not compete with Internet © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 42 Sales Force (slide 1 of 3) • Utilized extensively with a push strategy • Important with undifferentiated products • Issues • How many? • How to compensate them? • Usually salary plus bonuses • Tie compensation to performance evaluation • Sales force evaluation factors • e.g., Sales, time with clients, expertise © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 43 Sales Force (slide 2 of 3) • Sales force size • Estimate workload • 100,000 stores • 12 visits each per year for 30 minutes • 50 weeks per year × 40 hours a week = 2,000 hours • 500 of these hours will be spent on travel and administrative duties • (100,000 accounts × 12 visits per year × 0.5 hour)/1,500 hours = 400 salespeople © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 44 Sales Force (slide 3 of 3) • B2B customers’ biggest complaints about salespeople • The salesperson isn’t following my company’s buying process • They don’t listen to my needs • They didn’t bother to follow up © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 45 Discussion Questions #5 1. What criteria would you utilize to evaluate a car salesperson? 2. How would you tie compensation to this evaluation? © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 46 Integrated Marketing Channels • As the number of channels proliferates, increasing care must be taken to coordinate and integrate across them • Companies must understand customer behavior in order to design effective distribution channels and to allocate resources across channel options • Know your customer! © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 47 Managerial Recap (slide 1 of 2) • Distribution channels are the link from the manufacturer to the customer • Numerous thoughtful decisions must be made in designing channels © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 48 Managerial Recap (slide 2 of 2) • Channel entities are independent yet interdependent organizations; thus, conflicts may arise • Conflicts are best addressed by employing good communication and trust, revenue sharing, or greater vertical integration © 2018 Cengage Learning.® May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10. 49 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN, author, title, or keyword for materials in your areas of interest. Important notice: Media content referenced within the product description or the product text may not be available in the eBook version. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Marketing Management, Fifth Edition Dawn Iacobucci Senior Vice President, General Manager, Social Sciences, Humanities #038; Business: Erin Joyner Product Director: Jason Fremder Product Manager: Heather Mooney Content Developer: John Sarantakis Marketing Director: Kristen Hurd Marketing Manager: Katie Jergens © 2018, 2015 Cengage Learning® ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may be reproduced or distributed in any form or by any means, except as permitted by U.S. copyright law, without the prior written permission of the copyright owner. For product information and technology assistance, contact us at Cengage Learning Customer #038; Sales Support, 1-800-354-9706 For permission to use material from this text or product, submit all requests online at www.cengage.com/permissions Further permissions questions can be emailed to [email protected] Marketing Coordinator: Casey Binder Product Assistant: Allie Janneck Art and Cover Direction, Production Management, and Composition: Cenveo Publisher Services Intellectual Property Analyst: Diane Garrity Project Manager: Sarah Shainwald Manufacturing Planner: Ron Montgomery Library of Congress Control Number: 2016943749 ISBN-13: 978-1-337-27112-7 Except where otherwise noted, all content is © Cengage Learning. Cengage Learning 20 Channel Center Street Boston, MA 02210 USA Cover Image(s): Santiago Cornejo/ Shutterstock, Mukhina Viktoriia/Shutterstock, Nomad_Soul/Shutterstock, Redchanka/ Shutterstock, Bespaliy/ Shutterstock, hxdbzxy/Shutterstock, Quayside/Shutterstock, Cyrustr/ Shutterstock, Subbotina Anna/ Cengage Learning is a leading provider of customized learning solutions with employees residing in nearly 40 different countries and sales in more than 125 countries around the world. Find your local representative at: www.cengage.com Cengage Learning products are represented in Canada by Nelson Education, Ltd. Shutterstock, elen_studio/Shutterstock To learn more about Cengage Learning Solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in Canada Print Number: 01 Print Year: 2016 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 BRIEF CONTENTS Preface x About the author xii Part 1 Part 2 Part 3 Marketing Strategy 1 Why is Marketing Management Important? 1 2 Customer Behavior 3 Segmentation 32 4 Targeting 51 5 Positioning 63 13 Product Positioning 6 Products: Goods and Services 79 7 Brands 91 8 New Products and Innovation 109 Positioning via Price, Place, and Promotion 9 Pricing 131 10 Channels of Distribution 161 11 Advertising Messages and Marketing Communications 185 12 Integrated Marketing Communications and Media Choices 205 13 Social Media 224 Part 4 Positioning: Assessment Through the Customer Lens 14 Customer Satisfaction and Customer Relationships 239 15 Marketing Research Tools 256 Part 5 Capstone 16 Marketing Strategy 275 17 Marketing Plans 293 Endnotes 312 Index 316 iii Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 CONTENTS Preface x About the author xii Part 1 Marketing Strategy 1 Why Is Marketing Management Important? 1 1-1 Defining Marketing 1 1-2 Marketing Is an Exchange Relationship 1 1-2a Marketing is Everywhere 2 1-3 Why Is Marketing Management Important? 2 1-3a Marketing and Customer Satisfaction is Everyone’s Responsibility 4 1-4 The “Marketing Framework”: 5Cs, STP, and the 4Ps 5 1-4a Book Layout 7 1-4b Learning from the Marketing Framework 8 1-4c The Flow in Each Chapter: What? Why? How? 9 2 Customer Behavior 13 2-1 Three Phases of the Purchase Process 13 2-2 Different Kinds of Purchases 15 2-3 The Marketing Science of Customer Behavior 18 2-3a Sensation and Perception 18 2-3b Learning, Memory, and Emotions 20 2-3c Motivation 22 2-3d Attitudes and Decision Making 25 2-3e How Do Cultural Differences Affect Consumers’ Behavior? 27 3 Segmentation 32 3-1 Why Segment? 32 3-2 What Are Market Segments? 33 3-3 What Information Serves as Bases for Segmentation? 35 3-3a Demographic 35 3-3b Geographic 36 3-3c Psychological 37 3-3d Behavioral 39 3-3e B2B 40 3-3f Concept in Action: Segmentation Variables 41 iv Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 3-4 How Do Marketers Segment the Market? 42 3-4a How to Evaluate the Segmentation Scheme 42 4 Targeting 51 4-1 What Is Targeting and Why Do Marketers Do It? 51 4-2 How Do We Choose a Segment to Target? 52 4-2a Profitability and Strategic Fit 52 4-2b Competitive Comparisons 54 4-3 Sizing Markets 56 4-3a Concept in Action: How Much of My Consultative Advice Can I Sell? 58 5 Positioning 63 5-1 What Is Positioning and Why Is It Probably the Most Important Aspect of Marketing? 63 5-1a Positioning via Perceptual Maps 64 5-1b The Positioning Matrix 66 5-2 Writing a Positioning Statement 74 Part 2 Product Positioning 6 Products: Goods and Services 79 6-1 What Do We mean by Product? 79 6-1a The Product in the Marketing Exchange 80 6-2 How Are Goods Different from Services? 81 6-2a Intangibility 81 6-2b Search, Experience, Credence 82 6-2c Perishability 83 6-2d Variability 83 6-2e To Infinity and Beyond Goods and Services 84 6-3 What Is the Firm’s Core Market Offering? 84 6-3a Dynamic Strategies 86 6-3b Product Lines: Breadth and Depth 87 7 Brands 91 7-1 What Is a Brand? 91 7-1a Brand Name 92 7-1b Logos and Color 92 7-2 Why Brand? 93 7-3 What Are Brand Associations? 95 7-3a Brand Personalities 97 7-3b Brand Communities 98 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 v vi Contents 7-4 What Are Branding Strategies? 98 7-4a Umbrella Brands vs. House of Brands 99 7-4b Brand-Extensions and Co-Branding 100 7-4c How are Brands Best Rolled Out Globally? 103 7-4d Store Brands 103 7-5 How Is Brand Equity Determined? 104 8 New Products and Innovation 109 8-1 Why Are New Products Important? 109 8-2 How Does Marketing Develop New Products for Their Customers? 110 8-2a Philosophies of Product Development 110 8-2b Marketing 111 8-2c Idea Creation and Market Potential 112 8-2d Concept Testing and Design #038; Development 113 8-2e Beta-Testing 115 8-2f Launch 116 8-3 What Is the Product Life Cycle? 118 8-3a Diffusion of Innovation 120 8-4 How Do New Products and Brand Extensions Fit in Marketing Strategy? 124 8-4a Strategic Thinking about Growth 125 8-5 What Trends Should I Watch? 126 Part 3 Positioning via Price, Place, and Promotion 9 Pricing 131 9-1 Why Is Pricing so Important? 131 9-2 Background: Supply and Demand 131 9-3 Low Prices 136 9-3a Concept in Action: Break-Even for a Good 137 9-3b Concept in Action: Break-Even for a Service 139 9-4 High Prices 142 9-4a Using Scanner Data 142 9-4b Using Survey Data 144 9-4c Conjoint Analysis 144 9-5 Units or Revenue; Volume or Profits 145 9-6 Customers and the Psychology of Pricing 147 9-6a Price Discrimination, a.k.a. Segmentation Pricing 150 9-6b Quantity Discounts 151 9-6c Yield or Demand Management 152 9-7 Non-Linear Pricing 152 9-8 Changes in Cha-Ching 154 9-8a Pricing and the Product Life Cycle 154 9-8b Price Fluctuations 155 9-8c Coupons 155 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents 9-8d Competitive Strategy and Game Theory 155 9-8e Auctions 156 10 Channels of Distribution 161 10-1 What Are Distribution Channels, Supply Chain Logistics, and Why Do We Use Them? 162 10-2 How to Design Smart Distribution Systems: Intensive or Selective? 165 10-2a Push and Pull 167 10-3 Power and Conflict in Channel Relationships 168 10-3a Revenue Sharing 170 10-3b Integration 173 10-3c Retailing 175 10-3d Franchising 178 10-3e E-Commerce 179 10-3f Catalog Sales 180 10-3g Sales Force 181 10-3h Integrated Marketing Channels 182 11 12 Advertising Messages and Marketing Communications 185 11-1 What Is Advertising? 187 11-2 Why Is Advertising Important? 187 11-3 What Marketing Goals Are sought from Advertising Caigns? 188 11-4 Designing Advertising Messages to Meet Marketing and Corporate Goals 190 11-4a Cognitive Ads 191 11-4b Emotional Ads 193 11-4c Image Ads 195 11-4d Endorsements 196 11-5 How Is Advertising Evaluated? 198 11-5a Aad and Abrand 201 Integrated Marketing Communications and Media Choices 205 12-1 What Media Decisions Are Made in Advertising Promotional Caigns? 205 12-1a Reach and Frequency and GRPs 207 12-1b Media Planning and Scheduling 209 12-2 Integrated Marketing Communications Across Media 210 12-2a Media Comparisons 212 12-2b Beyond Advertising 214 12-2c Choice Between Advertising and a Sales Force 215 12-2d The IMC Choices Depend on the Marketing Goals 218 12-3 How Is the Effectiveness of Advertising Media Measured? 220 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 vii viii Contents 13 Social Media 224 13-1 What Are Social Media? 224 13-1a Types of Social Media 225 13-1b Word-of-mouth 226 13-2 What Are Social Networks? 227 13-2a Identifying Influentials 227 13-2b Recommendation Systems 228 13-2c Social Media ROI, KPIs, and Web Analytics 230 13-2d Pre-purchase: Awareness 230 13-2e Pre-purchase: Brand Consideration 231 13-2f Purchase or Behavioral Engagement 232 13-2g Post-purchase 233 13-2h How to Proceed? 234 Part 4 Positioning: Assessment Through the Customer Lens 14 Customer Satisfaction and Customer Relationships 239 14-1 What Are Customer Evaluations, and Why Do We Care? 239 14-2 How Do Consumers Evaluate Products? 240 14-2a Sources of Expectations 241 14-2b Expectation and Experience 243 14-3 How Do Marketers Measure Quality and Customer Satisfaction? 245 14-4 Loyalty and Customer Relationship Management (CRM) 248 14-4a Recency, Frequency, and Monetary Value (RFM) 249 14-4b Customer Lifetime Value (CLV) 251 15 Marketing Research Tools 256 15-1 Why Is Marketing Research so Important? 256 15-2 Cluster Analysis for Segmentation 258 15-3 Perceptual Mapping for Positioning 260 15-3a Attribute-Based 260 15-4 Focus Groups for Concept Testing 264 15-5 Conjoint for Testing Attributes 265 15-6 Scanner Data for Pricing and Coupon Experiments and Brand Switching 268 15-7 Surveys for Assessing Customer Satisfaction 270 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Contents Part 4 Capstone 16 MARKETING STRATEGY 275 16-1 Types of Business and Marketing Goals 275 16-2 Marketing Strategy 278 16-2a Ansoff’s Product-Market Growth Matrix 278 16-2b The BCG Matrix 279 16-2c The General Electric Model 280 16-2d Porter and Strategies 281 16-2e Treacy and Wiersema Strategies 282 16-3 How to “Do” Strategy 283 16-3a SWOT’s S#038;W 284 16-3b SWOT’s O#038;T 285 16-4 Key Marketing Metrics to Facilitate Marketing Strategy 17 Marketing Plans 17-1 17-2 17-3 17-4 17-5 287 293 How Do We Put it All Together? 293 Situation Analysis: The 5Cs 294 STP 298 The 4Ps 300 Spending Time and Money 304 Endnotes Index 312 316 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 ix PREFACE There are several really good marketing management texts, yet this text was created because the Cengage sales force recognized an opportunity. Existing texts present numerous lists of factors to consider in a marketing decision but offer little guidance on how the factors, lists and multiple decisions all fit together. In this book, an overarching Marketing Framework, used in every chapter, shows how all the pieces fit together. So, for exle, when facing a decision about pricing, readers must consider how pricing will impact a strategic element like positioning or a customer reaction like loyalty and word of mouth. This book is practical, no-nonsense, and relatively short, to further heighten its utility. Everyone is busy these days, so it’s refreshing when a writer gets to the point. After this relatively quick read, MBAs and EMBAs should be able to speak sensibly about marketing issues and contribute to their organizations. Chapter Organization The form of each chapter is very straightforward: The chapter’s concept is introduced by describing what it is and why marketers do it, and the rest of the chapter shows how to do it well. This what-why-and-how structure is intended to be extremely useful to MBA and EMBA students, who will quickly understand the basic concepts, e.g., what is segmentation and why is it useful in marketing and business? The details are in the execution, so the how is the focus of the body of the chapter. Key Features Each chapter opens with a managerial checklist of questions that MBA and EMBA students will be able to answer after reading the chapter. Throughout each chapter, boxes present brief illustrations of concepts in action in the real world or elaborations on concepts raised in the text, also drawing exles from the real business world. Chapters close with a Managerial Recap that highlights the main points of the chapter and reviews the opening checklist of questions. Chapters are also summarized in outline form, including the key terms introduced throughout the chapter. There are discussion questions to ponder, as well as video resources to serve as points for still further discussion. Each chapter contains a Mini-Case that succinctly illustrates key concepts. MindTap The 5th edition of Marketing Management offers two exciting alternative teaching formats. Instructors can choose between either a hybrid print and digital offering or a version that provides completely integrated online delivery through a platform called MindTap. MindTap is a fully online, highly personalized learning experience built upon authoritative x Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Preface content. By combining readings, multimedia, activities, and assessments into a singular Learning Path, MindTap guides students through their course with ease while promoting engagement. Instructors personalize the Learning Path by customizing Cengage Learning resources and adding their own content via apps that integrate into the MindTap framework seamlessly. Instructors are also able to incorporate the online component of Consumer Behavior into a traditional Learning Management System (e.g. Blackboard, Canvas, D2L, etc.) providing a way to manage assignments, quizzes and tests throughout the semester Instructor Resources Web resources for the book at www.cengagebrain.com provide the latest information in marketing management. The Instructor’s Manual, Test Bank authored in Cognero, and PowerPoint slides can be found there. Acknowledgments Cengage Learning’s people are the best! Special thanks to John Sarantakis (Content Developer), Mike Roche (Senior Product Manager), Heather Mooney (Product Manager) Jenny Ziegler (Senior Content Project Manager), Diane Garrity (Intellectual Property Analyst), Sarah Shainwald (Intellectual Property Project Manager) Laura Cheu (Copyeditor), Ezhilsolai Periasamy (Project Manager), Manjula Devi Subramanian (Text Researcher), Abdul Khader (Image Reasearcher), and Pushpa V. Giri (Proofreader). As always, special thanks to the Cengage sales force. I will forever be grateful for your notes of encouragement as we began this project. I hope you like Marketing Management 5. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 xi ABOUT THE AUTHOR DAWN IACOBUCCI is the Ingram Professor of Marketing at the Owen Graduate School of Management, Vanderbilt University (since 2007). She has been Senior Associate Dean at Vanderbilt (2008-2010), and a professor of marketing at Kellogg (Northwestern University, 1987-2004), Arizona (2001-2002), and Wharton (Pennsylvania, 2004 to 2007). She received her M.S. in Statistics, and M.A. and Ph.D. in Quantitative Psychology from the University of Illinois at Urbana-Chaign. Her research focuses on modeling social networks and geeky high-dimensional analyses. She has published in Journal of Marketing, Journal of Marketing Research, Harvard Business Review, Journal of Consumer Psychology, International Journal of Research in Marketing, Marketing Science, Journal of Service Research, Psychometrika, Psychological Bulletin, and Social Networks. Iacobucci teaches Marketing Management and Marketing Models to Executives, MBA and undergraduate students and multivariate statistics and methodological topics to Ph.D. students. She has been editor of both Journal of Consumer Research and Journal of Consumer Psychology. She edited Kellogg on Marketing, she is author of Mediation Analysis, and co-author on Gilbert Churchill’s leading text, Marketing Research. xii Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 WHY IS MARKETING MANAGEMENT IMPORTANT? STP 5Cs Customer Company Context Collaborators 4Ps Segmentation Product Targeting Price Positioning Place Competitors 1 Promotion Managerial Checklist What are the three phases of the buying process? What kinds of purchases are there? How do consumers make purchase decisions—and how can marketers use this information? 1-1 DEFINING MARKETING Ask the average person, “What is marketing?” and they might say: • “Marketing is sales and advertising.” • “Marketers make people buy stuff they don’t need and can’t afford.” • “Marketers are the people who call you while you’re trying to eat dinner.” Unfortunately those comments are probably all deserved. The marketing profession, like any other, has its issues. But in this book we’ll take a more enlightened view. This chapter begins with an overview of marketing concepts and terms. We’ll see the importance of marketing in today’s corporation. We’ll then present the Marketing Framework that structures the book and gives you a systematic way to think about marketing, and we’ll define all the terms in the framework: 5Cs, STP, and 4Ps. 1-2 MARKETING IS AN EXCHANGE RELATIONSHIP Marketing is defined as an exchange between a firm and its customers.1 Figure 1.1 shows the customer wants something from the firm, and the firm wants something from the customer. Marketers try to figure out what customers want and how to provide it profitably. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 1 2 Part 1 Marketing Strategy Ideally, this can be a nice, symbiotic relationship. Customers don’t mind paying for their purchases—and sometimes they pay a lot—if they really want what they’re about to buy. Companies like taking in profits, of course, but great companies really do care about their customers. If we’re lucky, the exchange depicted in Figure 1.1 is an ongoing exchange between the customer and the company, strengthening the tie between them. As a lifelong customer, you are already somewhat familiar with marketing from the consumer side. But on the job, you’ll need to understand marketing from the firm’s point of view. Throughout this book, you’ll see both perspectives. In particular, you’ll see all the issues that marketers deal with as they try to deliver something of value to their customers, while trying to derive value from them. Marketing oversees the customer-brand exchange. Figure 1.1 Marketing is an Exchange C U S T O M E R seeks benefits seeks profits expects to pay offers benefits C O M P A N Y 1-2a Marketing is Everywhere Figure 1.2 illustrates that you can market just about anything. Marketing managers sell simple, tangible goods such as soap or shoo, as well as high-end luxury goods such as Chanel handbags. Other marketing managers work in services, such as haircuts, airlines, hotels, or department stores. Marketers oversee experiences like theme parks or events like theater and concerts. Marketers help entertainers, athletes, politicians, and other celebrities with their images in their respective “marketplaces” (fans, agents, intelligentsia, opinion). Tourist bureaus have marketers who advertise the selling points of their city’s or country’s unique features. Information providers use marketing because they want customers to think they’re the best (and thereby maximize their ad revenue). Marketers at nonprofits and government agencies work on “causes” (e.g., encouraging organ donation or drinking responsibly). Industries market themselves (think of the beef or milk ads). Naturally, companies use marketing for their brands and themselves. And you can market yourself, e.g., to a job interviewer or potential amour. These goals may look different, but marketing can be used beneficially in all these situations. 1-3 WHY IS MARKETING MANAGEMENT IMPORTANT? Marketers have evolved beyond being merely product or production focused, where the company mind-set is, “Let’s build a better mouse trap.” We know that approach doesn’t work. There’s no point in just cranking out better gadgets unless the customers want them Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Companies Events Information Jason Lee/Alamy Stock Photo Justin Sullivan/Getty Images Craig Melville/Shutterstock. com Shots Studio/Shutterstock.com Services Credit: Source: National Pork Board Places iStockPhoto.com/Günay Mutlu Kohlhuber Media Art/ Shutterstock.com Yaromir/Shutterstock.com Goods Tanuha2001/Shutterstock.com ventdusud /Shutterstock.com Chapter 1 Why is Marketing Management Important? Experiences 3 What Can We “Market”? Figure 1.2 People Ideas Industries Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 4 Part 1 Marketing Strategy because the gadgets won’t sell. However, there are still pockets of marketing naïveté in a number of industries. For exle, some museums believe they don’t need marketing. They think people should appreciate their exhibits, and, if they don’t, it’s because the public is ignorant. Perhaps the general public is inMarketing can seem intuitive deed relatively unsophisticated culturally, but marketing can be used to educate because we’re all consumers. the public. But we’re not always the target We’re also more advanced than the old sales-oriented days when the action customer for the brands we’re in the marketplace was, “Let’s make a deal.” This mentality still exists in placbuilding. As a Brand Manager or es like drug companies, which push their sales forces to impress physicians. But CEO, don’t forget to put yourself in the shoes of your customers usually sales dynamics occur where the product is perceived to be a commodity. every once in a while, to see In contrast, marketers should be good at communicating product distinctions. your brand from their As much as direct-to-consumer pharma ads annoy physicians, they attest to the perspective. When you do, you’ll power of marketing. The ads result in patients asking their doctors for particular understand their wants and brand names. needs better. That alone will These days we live in a truly customer-oriented and customer-empowered give you an advantage over your marketing world. Marketing is even said to be evidence of evolved markets—that competitors! an industry or country has moved beyond production and sales and seeks true relationships with its customers. Marketers seek to identify their customers’ needs and wants, and they try to formulate attractive solutions. Marketing can make customers happier, thereby making companies more profitable. Throughout the book, you’ll see how. CUSTOMERS’ PERSPECTIVE 1-3a Marketing and Customer Satisfaction is Everyone’s Responsibility Many management gurus believe that marketing has succeeded so well that it isn’t just a “function” in an organization anymore. Marketing is more of a philosophy—a way to think about business. The marketing orientation should permeate the organization. • Accounting and finance need to acknowledge the importance of marketing. Why? Because their CEOs do. Thinking about customers is unimportant only if you’re a monopoly, and even then, you won’t be one for long. • Salespeople understand marketing immediately. They’re the front line, interfacing with the customer. They want to push their firm’s stuff, but they’re thrilled when their company actually makes stuff that customers want. Then their jobs are so much easier. • R#038;D people tend to understand the marketing spirit, too. They’re hired because they’re technically sophisticated, but they get jazzed when their inventions become popular. It doesn’t take much marketing research to test concepts or prototypes and to veer an R#038;D path one way or another. One of the factors stressing marketers these days is the pressure to show results. It’s fair to hold any part of the corporation accountable, and results may be measured for a number of marketing activities. The Chief Financial Officer (CFO) who wants to see that a recent coupon promotion lifted sales can get reasonably good estimates from the Chief Marketing Officer (CMO) about effectiveness, e.g., the percentage sales increase attributable to the coupon introduction. The Chief Operating Officer (COO) can also get good estimates of whether a recent direct mail caign to target customers has been effective in encouraging frequent buyers to go directly to the Web for purchasing. However, it’s important not to go overboard in the effort to quantify. For exle, how does one assess the value of a good segmentation study? If segments are poorly defined, any Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 5 Chapter 1 Why is Marketing Management Important? TENGKU BAHAR/Staff/AFP/Getty Images Marketing speaks to customers wherever they are. subsequent marketing efforts would be completely off, so a good segmentation scheme is invaluable. Advertising is also a little tricky. Non-marketers have the misconception that advertising is supposed to bump up sales. It can, and that bump is easily measured. But really great advertising isn’t intended for a short-term effect on sales. Great advertising is intended to enhance brand image, a goal that is relatively longer term and thus more difficult to measure. In addition to quantifying the effectiveness of marketing programs, marketers are motivated to translate their efforts into dollars for another reason: to have a “seat at the table.” Marketers want to make sure that the CMO carries as much weight in the firm as the CEO or CFO or COO. They all speak finance, so the marketer is frequently motivated to translate progress into financial terms. Fortunately, technology and data are increasingly enabling more opportunities for the marketer to make such assessments. For exle, a good customer relationship management (CRM) program allows marketers to run a field study to assess the impact of a new promotion, and tracking Web data allows marketers to determine the product combinations that are most attractive to customers. 1-4 THE “MARKETING FRAMEWORK”: 5CS, STP, AND THE 4PS Figure 1.3 provides the marketing management framework. Marketing is captured by the 5Cs, STP, and the 4Ps. The 5Cs are customer, company, context, collaborators, and competitors. The 5Cs force a businessperson to systematically frame the general analysis of the entire business situation. Figure 1.1 shows that the customer and company are the central players in the marketing exchange. The context includes the backdrop of macroenvironmental factors: How is our economy and that of our suppliers doing? What legal constraints do we face, and are these changing? What cultural differences do our global segments manifest? The collaborators and competitors are the companies and people we work with vs. those we compete against (though drawing the line is sometimes difficult in today’s interconnected world). Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 6 Part 1 Marketing Strategy Figure 1.3 Marketing Management Framework: 5Cs, STP, 4Ps 5Cs Customer Company Context Collaborators Competitors STP 4Ps Segmentation Product Targeting Price Positioning Place Promotion STP stands for segmentation, targeting, and positioning. A company or a brand may want to be all things to all people, but most are not. It’s best to identify groups, or segments, of customers who share similar needs and wants. Once we understand the different segments’ preferences, we’re in a position to identify the segment we should target with our marketing efforts. We then begin to develop a relationship with that target segment by positioning our product to them in the marketplace, via the 4Ps. The 4Ps are product, price, promotion, and place. A marketer is responsible for creating a product (goods or services) that customers need or want, for setting the appropriate price for the product, for promoting the product via advertising and sales promotions to help customers understand the product’s benefits and value, and finally for making the product available for purchase in easily accessed places.2 Marketing management oversees the 5Cs, STP, and 4Ps with the goal of enhancing the marketing exchange (of goods, services, payment, ideas and information, etc.) between a customer base and a firm. It all sounds easy! Group your customers, and figure out which group to target. Then create a position in the marketplace by means of the features of the product, its price, communications and promotions, and distribution choices. Ah, but don’t dismiss marketing as only common sense; after all, consider how few companies do it well! If marketing is an exchange, then, just like an interaction between two people, a company has its best chance at keeping its customers happy if it is in close communication with them. The company that does its marketing research and really listens to its customers will be able to deliver goods and services that delight those customers. The best marketers put themselves in the place of their customers: What are they like? What do they want? How can we play a role in their lives? In this book, we’ll elaborate on these themes. If you get overloaded while reading this book, you can step back and remember this: You’ll always be a step ahead of your competition if you simply think about your customers! All marketing strategy derives from that. To elaborate on marketing strategy and develop a particular marketing plan, start with a situation analysis, and sketch answers to the following questions: • Customers: Who are they? What are they like? Do we want to draw different customers? • Company: What are our strengths and weaknesses? What customer benefits can we provide? • Context: What is happening in our industry that might reshape our future business? • Collaborators: Can we address our customers’ needs while strengthening our business-to-business (B2B) partnerships? • Competitors: Who are the competitors we must consider? What are their likely actions and reactions? Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Chapter 1 Why is Marketing Management Important? With that background analysis, proceed to strategic marketing planning via STP: • Segmentation: Customers aren’t all the same; find out their various preferences, needs, and resources. • Targeting: Pursue the group of customers that makes the most sense for our company. • Positioning: Communicate our product’s benefits clearly to the intended target customers. Similarly, marketing tactics to execute the intended positioning derive from a customer focus: • Product: Will customers want what our company is prepared to produce? • Price: Will customers pay what we’d like to charge? • Place: Where and how will customers purchase our market offering? • Promotion: What can we tell our customers or do for them to entice them to purchase? That doesn’t sound too difficult, right? But customers’ preferences change. And the competition is also dynamic; who they are changes as well as what they offer your customers. Factors that are out of your control change as well. For exle, as marketing manager or CMO, you won’t have control over whether your company is merged with another whose image seems inconsistent with your brand, but you’ll have to deal with it. Further, the legal environment in this country is different from that in another’s, and each is always in flux. Many such contingencies call for modifying marketing plans. So the inputs keep changing. (But if marketing weren’t challenging, it wouldn’t be as fun!) As Figure 1.3 indicates, if we keep an ongoing read on the 5Cs, it will make us better informed as we approach the STP task. These background indicators will apprise us of which qualities of a customer base are likely to be relevant as we identify segments. The P of positioning in STP is done via all 4Ps. Thus the 5Cs, STP, and 4Ps operate interdependently. Optimal business solutions (in real life or in class case discussions) should reflect a working knowledge of all of these elements, and their connections; as a contextual factor changes, what is the predicted impact on distribution channels? As a collaborator shifts its demands, what will that do to our pricing structure? As our company sells off a nonperforming function, what impact might that have on our positioning and customer satisfaction? The plot thickens! Good marketing makes any company better! 1-4a Book Layout Marketing is involved in designing products that customers will enjoy, pricing them appropriately, making them available for purchase at easy points of access in the marketplace, and advertising the products’ benefits to customers. Throughout this book, we’ll assume that we’re talking about customers all over the world. This internationalism is already true for most big firms, and it will be true even for small entrepreneurs via the Internet or once they succeed and grow. We’ll also assume the omnipresence of the Internet and always consider it a factor in data intake or in customer channels of interactions with the company. In addition to aiming for global citizenship and recognizing the Internet as essential as air, we will offer fresh, fun exles throughout the book, such as Vegas and Ferrari, instead of laundry detergent. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 7 8 Part 1 Marketing Strategy Ethics: Have a Heart It is a good thought exercise to consider any dilemma from 2 perspectives: 1) Outcomes a) An outcome orientation is called consequentialism or teleological ethics (fancy words to impress an interviewer). b) This perspective believes that “the end justifies the means.” c) As a manager, you’d ask, “What should I do to produce the most good (or the least harm)?” 2) Processes a) An orientation toward fair process is called deontological ethics. b) The idea is that the process must be fair, regardless of the outcome that might results. c) Managers suggest an action as the right one to take according to a principle, such as human rights (e.g., fair pay) or environmental sustenance (e.g., green packaging). Throughout the book, we’ll encounter several classes of ethical issues: don’t price discriminate, don’t target uninformed groups, don’t advertise deceptively, etc. If you want an additional challenge, assess a scenario from multiple viewpoints. For exle, deontologically, we might say, “We never price discriminate!”Teleologically, we might say, “To maximize value to our shareholders, we should charge different prices to different customer segments.” See? The plot thickens! This book will train you to think like a marketer. You’ll see that great marketing is not a soft discipline, it’s not an art, nor is it simply intuitive. Great marketing is based on sound, logical—economic and psychological—laws of human and organizational behavior. You will learn the scientific and rigorous way to think about marketing issues, so that, in the future, when your situation looks nothing like the ones you’ve talked about in school, you’ll know how to proceed in finding your optimal solution. (Hint: Keep the framework close at hand!) 1-4b Learning from the Marketing Framework There are two key features to how the material is organized in this book. First, MBA and executive students learning marketing management typically want to see a framework depicting how all the marketing pieces come together to form the whole picture. To give you the big picture as well as to provide you with the in-depth details, Figure 1.3 kicks off every chapter with a Managerial Checklist of questions and issues that the reader can expect to understand better at the close of the chapter. Those questions are revisited at the end of the chapter in a list format called Managerial Recap. The chapters are mapped onto the framework as depicted in Figure 1.4. You’ll become very familiar with this marketing management framework. You will see the 5Cs, STP, and 4Ps over and over again, so you’ll pick them up nearly by osmosis. We want to make great marketing part of your DNA. You’ll know that any marketing strategy and planning must begin with the 5Cs assessment and then a strategic look at STP, before turning to the strategies and tactics of the 4Ps. When you’re . . . • Working on a case for class, • Or trying to answer an interviewer intelligently, • Or trying to impress your boss at work, • Or trying to launch your own business. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 9 Chapter 1 Why is Marketing Management Important? Ch. 3 Chs.1, 2,14 STP 5Cs Customer Chs.16,17 Company Context Chs.15,16 Chs.10,16 Collaborators Segmentation Product Targeting Price Positioning Place Ch. 9 Promotion Competitors Chs.15, 16 Chs. 6,7,8 4Ps Ch. 4 Ch. 5 You’ll see the framework in your head. It will remind you of everything that needs to be addressed and how all the pieces fit together. The framework will make you process these marketing questions very thoughtfully and systematically. Ch.10 Chs.11,12,13 Figure 1.4 Chapters Mapped to Marketing Framework 1-4c The Flow in Each Chapter: What? Why? How? The presentation scheme we’ve adopted in this book is that each chapter covers the What, Why, and How. Specifically, • What is the topic in this chapter? • Why does it matter? • How do I do this? Show me what to do so that I can be successful! Between the marketing framework and the practical flow of the chapters, you’ll gain a strong, clear knowledge of marketing both at the strategic, conceptual level and at the tactical, hands-on level. Both levels of insight will help ensure your success throughout your career, whether you’re a marketer, a brand manager, an advertising exec, a CMO, or a well-informed financial analyst, CEO, or world guru. MANAGERIAL RECAP Marketing can make customers happier and therefore companies more profitable. Marketing will enhance your career, and marketing can make the world a better place. Honest! • Marketing is about trying to find out what customers would like, providing it to them, and doing so profitably. • Ideally, marketing facilitates a relationship between customers and a company. • Just about anything can be marketed. • The overarching marketing management framework—5Cs, STP, 4Ps—will structure the book and help you to think methodically about the big picture of marketing. • Don’t forget! Stay focused on your customer! If you can remain customer-centric, you’ll be five steps ahead of the competition. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 10 Part 1 Marketing Strategy Chapter Outline in Key Terms and Concepts 1. Defining marketing 2. Marketing is an exchange relationship a. Marketing is everywhere 3. Why is marketing management important? a. Marketing and customer satisfaction is everyone’s responsibility 4. The marketing framework: 5Cs, STP, and the 4Ps a. Book layout b. Learning from the marketing framework c. The flow in each chapter: What? Why? How? 5. Managerial recap Chapter Discussion Questions 1. Before reading this chapter or beginning class, what did you expect marketing to be? Ask a family member, classmate, or coworker what they think marketing is. See whether you can persuade them that marketing enhances a mutually beneficial exchange between a customer and a company. 2. What are exles of brands and companies you like? Why do you think you like them? What is a brand you can’t stand? Why not? 3. Think about a recent time when you bought something or tried to do so and you were treated poorly as a customer. What was the essential problem? If you ran the company, what would you do to ensure happier and more loyal customers? 4. List three brands you’re loyal to. List three things you tend to buy on sale. How are the product categories represented on these two lists different for you? 5. What social problem do you think is the world’s biggest? Wars? Global warming? Resource imbalances? How could you start to solve a big social problem through marketing? Video Exercise: Southwest Airlines (13:55) The Southwest Airlines brand is that of a low-fare carrier with the highest level of customer service—and with fun added into the flying experience. Southwest Airlines strives to provide its customers with a total product experience that includes check-in, boarding, flying, and baggage claim experiences. In providing this total product experience, the airline strives to fully meet the needs, wants, and desires of its customers. Southwest regularly surveys its customers regarding all components of the product experience in order to foster continuous improvement. Southwest also conducts extensive quantitative and qualitative research to better understand customers’ needs, as well as to explore possible product experiences that the company might offer in the future. Southwest operates on the premise that having new products is what makes a company successful over time. Thus, while maintaining its commitment to low fares, excellent customer service, and fun, Southwest seeks to identify product experiences that different market segments would like to have. The company then builds those experiences into the ticket price structure rather than charging customers with numerous add-ons. Taking this approach enables Southwest Airlines to better tailor its total product experience to the wants, needs, and desires of its different market segments. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Chapter 1 Why is Marketing Management Important? 11 Video Discussion Questions 1. Describe the marketing exchange relationship between Southwest Airlines and its customers. 2. Describe the 5Cs of the marketing framework as they pertain to Southwest Airlines. 3. How does Southwest Airlines’ approach to providing a total product experience capture the marketing framework elements of STP (segmentation, targeting, and positioning) and the 4Ps (product, price, place, and promotion)? MINI-CASE How to Design an Attractive Wearable A large electronics manufacturer wishes to issue a new “wearable.” The company wants to design it such that it will make money with the purchase of the unit, of course, but that it will also make money as its customers use it. In addition, the company would like to capture data about the customers’ profiles, in terms of their activities, spending patterns, etc. Wearables vary in many ways, and initially, the brand management team proposed to issue a design that looked like a small smartphone, to be worn on the user’s wrist. Given the still relative novelty of such units, they thought they’d charge on the high end, about $100, maybe even instituting a small annual fee. To get supplementary data, they thought they’d issue periodic surveys, about once a quarter, via the unit or via e-mail. The youngest marketer, newest to the team asked, “Well, that’s good for us, but how is it attractive to our customers? Why would they want this unit—when there are plenty of others out there?” One old manager shot out a withering look. Well, that’ll teach the young person to speak up in the meeting. But the senior-most manager spoke up and said, “Well, you’re right, we’re only looking at it from our point of view. What would this wearable look like that our customers would want—and that can be profitable to us?” What would help these marketers? What steps could they take to design a wearable that would be both optimally appealing to its customers (and perhaps attract new customers), as well as optimally profitable? A wearable could vary on many parameters, such as whether it would be worn on the wrist like a watch, or as an earbud like music headphones or smartphone speakers, or as an add-on unit to glasses. Early prototypes suggested that while earbuds or eyeglass designs were good at capturing GPS, they weren’t as versatile in supporting multiple apps, and they weren’t as precise as exercise (step) counters (for exle, the head didn’t move as distinctly as the user’s wrist while walking). That is what led the brand managers to ask the designers to create a wrist-wearable. Even so, there were many possibilities: Should the unit look like a small smartphone or like a nice classic wristwatch in design? Should the apps be accessed by touch only or should the apps also be voice-activated? Should there be an annual licensing fee? Should they allow co-branding with affiliations (e.g., a professional sports team or one’s college alma mater)? Which features should be recommended as the unit is designed? This electronics firm has little experience in marketing research as well, so the older managers were uncertain as to how to proceed. One mentioned a focus group, another suggested an ethnography, and a third mentioned surveys. The information that is sought, as well as the method by which the information would be obtained, are both to be determined. Naturally, the company wants to roll out the new wearable as soon as possible, so while the research project could be well-funded, they would face time pressure and would have to be judicious in their choice of research avenues. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 12 Part 1 Marketing Strategy Case Discussion Questions 1. Are the old managers right? A lot of other wearables focus on counting steps or enabling apps. Is that what this group should design, so as to be seen as a legitimate competitor and not confuse customers, or should they design something different to be seen as innovative? 2. Are the people in the room a good proxy for their customers? Are the young managers a better proxy than the older managers? 3. What additional information would be helpful to strengthen a recommendation? 4. How would that information best be obtained? Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 CUSTOMER BEHAVIOR 5Cs Customer Company Context Collaborators STP 4Ps Segmentation Product Targeting Price Positioning Place Competitors 2 Promotion Managerial Checklist What are the three phases of the buying process? What kinds of purchases are there? How do consumers make purchase decisions—and how can marketers use this information? There is some subjectivity in marketing (and in business generally), but there are also many known, reliable patterns that comprise the science of consumer behavior. Most of this chapter talks about these effects and how managers can use this knowledge wisely. To prepare, we first consider the three major phases that consumers go through when making any purchase. Next, we’ll see the different kinds of purchases that consumers make. Then we’ll drill down and see what makes consumers tick. 2-1 THREE PHASES OF THE PURCHASE PROCESS Customers go through predictable stages in making a purchase. In the pre-purchase phase, the customer identifies that something is lacking—there is a need or a desire to be satisfied. Critics sometimes say that marketers create desires in people that they didn’t already have. There is some truth in that (e.g., “Is your breath fresh?” “Do you own the coolest running shoes?”), but even without marketers, people really do need and want all kinds of things. Then the hunt begins. Buyers search for information about products and brands that may be suitable. For exle, a newly minted MBA student has multiple wants: new clothes, a car, a condo and furnishings, a list of restaurants in a new city to take clients or visiting friends, a new dentist, a drycleaner, etc. Such consumers might search for alternative solutions by going online or asking friends. They might evaluate alternatives by reading Consumer Reports or going to BizRate.com. By comparison, a newly promoted business executive might want a corporate jet. Possible vendors would need to be investigated, and alternatives 13 Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 14 Part 1 Marketing Strategy could be evaluated by soliciting and entertaining bids. While the objects and details of these two purchases may look different, they both entail a variety of pre-purchase activities. During the purchase phase itself, the consumer is creating a consideration set that includes all the brands that are deemed potential candidates for purchase and that excludes the brands that have been rejected.1 The MBA student may limit the car search to include only hybrids. The condos considered would be only those within a certain price range. The restaurants selected might be only those with menus that can be previewed online. Analogous considerations factor into the executive’s jet quandary: What attributes are important? What attributes must I have or not have? What attributes don’t I care about and therefore will not pay high prices for? The final stage is the customer evaluation post-purchase. Buyers assess their purchase and the purchase process, posing such questions as: Am I satisfied as a customer? Will I buy this brand again? Will I tell my friends what a great brand I’ve found? Figure 2.1 shows the complete process, from seeing that there is a need, to choosing and buying something expected to be a solution to the need, and finally, to assessing one’s satisfaction with that purchase. For exle, imagine running to an interview and the strap on your messenger bag breaks. You’re able to grasp the bag before it hits the ground and possibly shakes up your tablet. However, obviously you realize you need a new messenger bag. You go online and order a new bag. When it arrives, you like the looks, the protective inner sleeve for your tablet, it has a few new features you like, and you had thought the price was pretty reasonable. You’re pleased that the bag achieved its mission. Figure 2.1 The Purchase Process Pre-purchase Identify need or want Search possible solutions Build consideration set Purchase Narrow “consideration set” Decide on retail channel Post-purchase Customer satisfaction Likelihood to repeat Generate word of mouth B2B Buying Center Roles In B2B, big, expensive, purchases can be complicated because it’s not just one person making the decision. Each purchase involves a half dozen or so roles in a buying center: The Initiator: An administrative assistant who notices that one of the printers in the office is frequently breaking down. The User: Every staff member who tries to use that printer. The Influencer: The IT guy who says, “Well, Brand X is cheaper, but Brand Y is cooler.” The Buyer: The head administrative person whose responsibilities are to facilitate supplies but also to answer to . . . The Gatekeeper: A conservative accountant type whose job it is to tighten purse strings. A decision to buy a new printer is complicated by the fact that each of these roles seeks slightly different attributes. Some care only about price, others want great features, and still others may appreciate wiggle room in negotiating delivery dates or follow-up customer service. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 15 Chapter 2 Customer Behavior The buying process is consistent whether the buyer is a consumer or a business. Consumer buying is easy to relate to. It involves people buying something for themselves or their households, and we are those people. A business customer is an agent buying something on behalf of an organization. The agent can be an administrative assistant deciding to use UPS or FedEx, or the agent can be a group of people, representing different aspects of the organization (accounting, operations, etc.), comprising a collective buying center. All purchases, business-to-consumer (B2C) or business-to-business (B2B), go through the three stages, but the amount of time spent in any stage depends in part on what is being bought. For exle, sometimes the pre-purchase phase is extensive, and sometimes it is very quick. So let’s consider some classes of purchases.2 2-2 DIFFERENT KINDS OF PURCHASES Marketers distinguish between types of purchases. For consumers, a convenience item is a fairly mindless purchase of “staples” (standard, frequently-consumed goods, such as bread or gas) or an impulse purchase (such as candy or magazines that are available near grocery checkouts). There are also shopping purchases, which require some thought or planning, as when using OpenTable to find a restaurant before heading out of town. Finally, there are specialty purchases such as a car or new laptop. These purchases are occasional, they are often more expensive than other types of purchases, and as a result they require more thought. For B2B customers, the terms are different from consumer buying, but the ideas are analogous. A purchase can be a straight rebuy, such as when the office copier needs toner and the office manager buys the usual brand. Another purchase may be a modified rebuy, such as when the copier lease comes up and there is a desire to consider a different vendor. Last, there is the new buy. For exle, perhaps the company is considering buying teleconferencing equipment for the first time, and it is not yet well-understood what attributes to consider. As Figure 2.2 indicates, what differentiates these purchases is not the product itself. The distinction is more in the minds of the customers and in their involvement with the brand and product category. For exle, the purchase of the same product—an energy drink— can be convenience when shoppers mindlessly put their usual brand in their grocery cart; it can be a shopping purchase when customers see a new offering that they consider trying; and it can be a specialty purchase when customers see an expensive brand that promises antioxidants, which they choose to read up on before making a purchase. Customer Involvement Figure 2.2 Low Medium B2C Convenience Shopping Specialty B2B Straight rebuy Modified rebuy New buy Needs some thought Needs research and serious thought Action “Add to Cart” or “Click to buy” High Types of Purchases in B2C #038; B2B Is a Matter of Customer Involvement Consumers purchase convenience items—or business customers a straight rebuy—in a fairly mindless manner. It’s the proverbial no-brainer. Buyers won’t spend much time Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 16 Part 1 Marketing Strategy thinking about brands or attributes because they just don’t care enough to do so. The challenge for marketers is to break that thought pattern (not that it’s very thoughtful!)—to shake up the consumer with news of their brand and break through that white noise clutter. For items that customers care more about, they’ll expend some time and effort prior to the purchase, seeking out more information to be a smart shopper and to obtain good value. For even higher customer involvement, as in specialty purchases or new buys, the customers are more engaged. A great deal of effort is put into researching the best brands, quality, and price. The marketer’s challenge is to convince the buyer that their brand is the best choice. Types of B2B Customers B2B customers are often classified according to what they sell: Installations (e.g., equipment for new factories) Accessories (e.g., computers to help run the office) Raw materials (e.g., lumber, plastics) Components (processed items that are components in a later finished product) Business services (e.g., insurance, legal, consulting) Ultimately, the most important classification is how much the buying business cares about the purchase. Then we’ll know whether they care primarily about quality or price. The category that a brand and target segment is in will suggest the appropriate marketing activities that we’ll select from in the chapters that follow. For exle, for lower-involvement purchases, we can expect customers to be somewhat more price sensitive. They’ll pay more when they buy things they really like or want (e.g., a cool laptop) or that they expect to be of high quality (e.g., a great restaurant) or that is important to them (e.g., health care for their parents). Consider the implications for loyalty programs. The marketer can create such programs regardless of the level of customer engagement, but they’d take different forms, e.g., price discounts for low-involvement purchases vs. brand communities and events for high-involvement products and brands. Customer satisfaction can be fine for low-involvement purchases, but customers won’t generate word of mouth; they don’t care enough. In contrast, for high-involvement purchases, strong followers and satisfied customers can be zealots and brand ambassadors. Consider the implications for channels of distribution. Low-involvement products need to be widely available so that the customer can pick them up without thinking. Highinvolvement products will be sought out by more customer activity. Finally, consider the implications for promotions. For low-involvement products, the marketer just hopes to cut through the noise and clutter—getting customers’ attention only long enough to register the brand name in the mind of the customer for sheer familiarity. With high-involvement purchases, customers are hungry for information, and marketers can provide much more. Marketing satisfies (and creates) consumers’ needs and wants. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 ucts C t litter/Pet pprod Pet ffood//Ca Fabric softener Air fresheners © Richard B. Levine/Newscom Cold beverages Cold wine Coffee y Kids’ toys Laundryy soapp prod p ucts g s Cleaningg p nge p ucts Spo Plastic baggs Baby prod p Aluminum foil / ups p es/C Papper plat g tbulbs School per towels Ligh Toilet ppapper Pap mpo Bathroom pproducts p o Hand soapp Sha p ste Toothpa Medications Bandagges g paper C s #038; Wrappin Card Ph AT M Magazines Soup #038; Salad bar Vegetables Fruit Vegetables Fruit Juices Condiments C Vineggar Soft drinks Tea In grocery stores, consumers form consideration sets (and then choose brands) as a function of brand recognition (brand recall helps when searching online). Retailers also place specific brands where they can be seen by specific customers, such as brands aimed at children shelved at eye level to toddlers seated in shopping carts. Beer Boxed meals g tables Canned vege Canned fruit Dressinggs Vegetables Ethnic foods Instant ppotatoes Frozen juice Seasonal SSeasonall Checkout stands fluid Rock salt Extra large dog food Housewares oto Customer service Cigarettes Complementary items are close (chips and dip). g 2013 © Cengage Learnin Layout is designed to facilitate the shopper. Upon entering, the shopper has a choice of selecting a traditional shopping cart, a smaller basket, or shopping carts designed for shoppers with children. For physically challenged shoppers, motorized shopping carts are often provided. © Karlheinz Schindler/dpa/ Landov Media Charcoal/Lighter Sundries © David R. Frazier/DanitaDelimont. com ”Danita Delimont Photography”/ Newscom Packaged salads Rice Powered drinks Frozen food Soup Pasta Crackers Oils Sauces Bread g nuts Rolls/Dough Snacks #038; Chipps Canned nuts Wine O eal Oatm p es Spic Cereals C Cookies Frozen food Deli Suggar g ake mixes Pie fillings/C y upp Puddingg/Jell-o Pancake mix//Syr Fruit snacks PB #038; J Candyy Frozen food Canned fish Canned meats Flour Choc chipps/Nuts Jerky Bakingg Fresh seafood Cut flowers Frozen fish Cold beer Specialty cheeses Baked goods Ice cream Frozen meat Fresh Bakery Bottled water Pac ervice meat g d meat #038; fish kage Eggs Milk//Dairyy The dairy section contains milk, which is the most commonly purchased item. Because of this, it is located in an area of the store that requires the customer to travel through the store, increasing the likelihood of impulse purchases. © Jeff Greenberg / Alamy Limited © Ron Buskirk/Alamy Limited In the produce section similar items are close together (for exle, fruits and vegetables). Bulk cheese Prepared meat © Richard B. Levine/Newscom Anatomy of a Grocery Store Checkout counters provide the store the opportunity to capture customer information through the use of loyalty cards, and bar codes can provide a wealth of data that can be mined to provide insights into customer purchasing decisions. The end of each aisle and the area at the checkout lanes are likely to hold high-profit items or grouped items (such as marshmallows, chocolate bars, and graham crackers for s’mores) designed to inspire impulse buys. Sometimes those aisle-ends are used to promote sale items. “People are 30% more likely to buy items on the end of the aisle versus in the middle of the aisle—often because we think what’s at the end is a better deal,” says Brian Wansink of Cornell University and author of Mindless Eating. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 18 Part 1 Marketing Strategy So how do customers learn about brands and make choices? In the rest of the chapter, we’ll look at how customers think and how marketing can have an impact on their decisions and choices. 2-3 THE MARKETING SCIENCE OF CUSTOMER BEHAVIOR Consumers are human beings and, as such, are sometimes simple and predictable, but often rather complex. In this section, we’ll delve into consumer psychology, examining sensation and perception, learning and memory, motivation, attitudes, and decision making. 2-3a Sensation and Perception When marketers formulate positioning statements or produce perceptual maps, they presuppose a complicated system through which consumers sense and perceive their environment. An enormous wave of sensory stimulation washes over and through us every day. We are selective in our attention, choosing to consider certain stimuli and effectively screening out others. For exle, if we are in the market for a car, we’ll watch TV ads for cars. If we’re not in the market for a car, we barely “see” the TV ads for cars. We know that consumer involvement creates a state of heightened motivation to learn more about a purchase or to pay attention to advertisement. The human organism is very efficient at adapting to the multitude of stimuli, helping us focus and block out what we deem to be irrelevant. Let’s consider how marketers can use information through each of the senses. Visual stimuli are obviously important to marketers. Ads show products, product design, print information, imagery visualization to facilitate desirable lifestyles, etc. Even simple colors imbue brand associations and can be integral to some brand identities: • Toothpaste packaging is dominated by whites and blues, implying freshness, cleanliness, water, etc. • Tiffany’s aqua blue boxes have saved many a marriage. • Dell’s blue is deeper and darker than Tiffany’s, and also trademarked. Marketers frequently use color to convey information. There are color wheels to guide the brand manager considering a new logo or packaging. For exle, blue seems to connote dependability and is used widely (American Express, Ford, Intel). Red tends to imply passion, as in the excitement of breaking news (CNN) or sporting events (ESPN). Green often implies environmental sustainability (although judge for yourself whether that applies to the green in BP, or whether it’s relevant to H#038;R Block). The symbolism of colors also varies across cultures, so it is important for a brand manager responsible for a global multinational brand to test the color’s meaning in its major markets. In the U.S., brides wear white because it symbolizes purity (like newly fallen snow). In India, red conveys purity. In the U.S., red conveys danger and passion; a bride in red would be . . . unusual. In Western civilizations, purple has traditionally denoted royalty; but in Thailand, it’s the color of mourning. Mourners in Egypt wear yellow, yet yellow implies courage in Japan and the opposite, cowardice, in the U.S. There are a zillion colors and many cultures. Imagine the challenge for a brand manager in selecting packaging or logo designs for global multinational brands. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 Chapter 2 Customer Behavior Brand Colors White Yellow Orange Red Purple Blue Green Brown Black Apple, Wikipedia, Honda Hertz, Shell, National Geographic Crush, Fanta, Harley-Davidson Coca-Cola, CNN, Kellogg’s, Target Hallmark, Yahoo AT#038;T, Dell, HP, IBM, Tiffany’s BP, John Deere, Starbucks M#038;M’s, UPS Channel, Gucci, Prada Hearing is also important to marketers. Research shows that when retailers play background music that is energetic, with a quick tempo, customers spend more. There are other aural brand associations: • iPhone vs. Samsung vs. T-Mobile vs. AT#038;T ringtones • United Airlines’ frequent use of Gershwin’s Rhapsody in Blue in their ads • Fancy Feast television commercials feature a high-pitched “ding, ding” (a fork clinking against fine crystal) implying that the food is special, and therefore worth its higher price. Car and motorcycle enthusiasts know that manufacturers are meticulous in delivering distinctive sounds, and, as a result, consumers have come to learn the sounds, expect them, and pay for them. A high-end Honda motorcycle runs about mid-$20k, whereas a Harley-Davidson runs in the high $30k. Obviously, the sound is not the only difference between the two bikes, but if the Harley didn’t sound like a Harley, a biker won’t fork over the extra $15k. Similarly, a Porsche 911 turbo at $150k is no clunker, but Ferrari’s engineers create a symphony of car sounds and charge $250k. Again, even acknowledging other differences, sound is nevertheless a part of the purchase decision. A third sense is smell. Think of how many times you’ve walked through a shopping mall and felt carried away on the wafting scent of a Cinnabon store or an Auntie Anne’s pretzel store in the food court. Strong perfume scents are a large part of the Bath #038; Body Works or The Body Shop stores’ ambience. Scent can also be alluded to, drawing on the consumer’s memory, as when Folger’s coffee commercials depict a person being awakened by the aroma of brewing coffee. A fourth sense is taste. A classic marketing exercise is to run blind taste tests in order to declare that one’s own product is superior to the market leader, or that a “me-too” brand is liked as well as a market leader. These tests can be dramatic and compelling. They are also interesting to marketers because they clearly distinguish the power of the brand from the product itself. For exle, most people swear they can identify a Pepsi vs. a Coke, and yet many people actually cannot. Try it on your friends. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 19 20 Part 1 Marketing Strategy Figure 2.3 Staff/MCT/Newscom Subliminal Ad A fifth sense is touch. The predominant means of conveying brand imagery through touch is when marketers create well designed products, compared to products intended to be positioned for value. For exle, design can mean good ergonomics, as in good kitchen knives, wrist-friendly mice or keyboards, good office chairs, etc. Design can also mean clean lines, simplicity, and beauty, such as the products that Apple creates. Finally, design can also certainly mean a sensual experience, like leather interior options in cars, compared to their less expensive, less touchable alternatives. Finally, a discussion about sensation and perception wouldn’t be complete without mention of so-called subliminal advertising. The idea is that an ad can be shown very quickly, on TV, online, or in the movies, so that it doesn’t quite meet the threshold of liminal recognition and consciousness, and therefore it is said to be subliminal. Yet somehow the vision is captured subconsciously, and marketers hope the message will compel action (e.g., buy more popcorn). Print ads depend not on brief time exposure but on ambiguity. If you think companies don’t do this anymore, take a look at the logo for the Chicago White Sox baseball team (at whitesox.com) in Figure 2.3. What does it spell? While marketers have debunked the notion that subliminal advertising works, they nevertheless conduct a great deal of research in areas called “mere exposure” and “perceptual fluency.” Neither of these effects is subliminal, per se, but they share a certain subtlety. For exle, mere exposure, as its name suggests, says that, though you might not think the billboard you drive past every day is having a persuasive effect on you, it is. Marketers know that repeated exposures to a brand name brings familiarity, and with familiarity comes a comfortable, positive feeling. Thus, brands advertised on billboards or that keep appearing in sidebar ads online are familiar and would probably rate fairly positively. Perceptual fluency is also a subtle phenomenon. When consumers thumb through a magazine or click through websites, they are probably paying most of their attention to the content of the message. However, other information is being expressed. Colors and fonts can make a message seem more professional, more emotional, more contemporary, more gothic. Those cues make an impression as well. The cues are liminal but subtle, and they are part of the brand. 2-3b Learning, Memory, and Emotions All those sensory and perceptual impressions can become brand associations. To say that consumers have brand associations means that, in their memory, they have stored certain attributes attached to the brand. When the brand is mentioned, those associations are brought to mind. Learning is the process by which associations get past the sensory and perception stages into short-term memory and then, with repetition and elaboration, into long-term memory. There are several theories about learning, but two are so fundamental and pervasive that every marketer should know them. Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 21 Chapter 2 Customer Behavior The first way that people learn is through classical conditioning. This type of learning is so well known and integrated into our culture that most people have heard of the demonstrations by Ivan Pavlov of his salivating dogs. The learning goes through stages: • Stage 1: A food bowl placed in front of a dog naturally elicits its drool. • Stage 2: A bell rung in front of the dog initially elicits no response. • Stage 3: A bell rung while a food bowl is simultaneously placed in front of the dog elicits drool. • Stage 4: With time, bell rung in front of the dog elicits drool. The dog has come to learn that the bell is associated with food. Perhaps you’re thinking, “But that’s just a dog.” Indeed. However, consider Figure 2.4. It’s common to hear that “sex sells,” but why or how does it work? The process is this: • Stage 1: A babe (male or female) elicits drool. • Stage 2: Some brand or product initially elicits no response. • Stage 3: That brand or product in a picture with aforementioned babe elicits drool. • Stage 4: With time, the brand itself elicits drool. That might sound a little far-fetched, but that’s the learning process. Consider more neutral stimuli, such as the logos in Figure 2.5. At their introduction, these abstract symbols convey no information and function much like the bell in Pavlov’s lab. With time, while logos might not elicit drool, consumers come to learn and associate these fairly similar looking symbols with their unique brands. It’s also worth noting, in this ever changing world, that sometimes companies want to shed negative associations, and they change their names and logos to do so. For exle, in recent years, Blackwater became Xe, Philip Morris became Altria, ValuJet became AirTran, and Andersen Consulting became Accenture. The hope is that the slate has been wiped clean, so that fresh associations might become attached to the new company names and logos. Figure 2.4 ©Leonard Zhukovsky/ Shutterstock.com Michael Dechev/ Shutterstock.com 360b/Shutterstock. com Source: SKYY Vodka Sex Sells Due to Classical Conditioning Figure 2.5 Logos Gain Meaning Through Classical Conditioning Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 22 Part 1 Marketing Strategy A fun use of classical conditioning is jingles. It takes only a few exposures before people learn the catchy lyrics. Consider these jingles; it’s hard to resist finishing them, and it’s hard to stop thinking about them: • M’mm m’mm good . . . • Gimme a break, gimme a break, break me off a piece of that . . . • Plop, plop, fizz, fizz . . . • Oh, I wish I were an Oscar . . . • I’d like to buy the world a . . . • Sometimes you feel like a nut; . . . And the master of all jingles: • Two all-beef patties . . . The second way that people learn is through operant conditioning. This type of learning is also so well known that most people have heard of Skinner boxes. B. F. Skinner studied pigeons pecking at a target, or rats pressing a bar, to receive food pellets. The pigeon learns the desired behavior by being rewarded. The behavior is said to be positively reinforced. Skinner boxes are programmed to reward the pigeon every time it pecks, or only after every fourth peck, or only at 20 after the hour, etc. When the bird is rewarded every time or every fourth time, the reinforcement schedule is said to be on a fixed ratio reinforcement schedule. When the bird is rewarded on average every fourth time (so perhaps after two pecks, then after six pecks, then after four, etc.), the reinforcement schedule is said to be on a variable ratio. This difference matters because the unpredictability of the variability drives the birds (and humans) a little nuts. In the same amount of time, say 30 minutes, the bird will peck a lot more on the variable, rather than on the fixed, ratio schedule. So what? Well, consider loyalty programs. Marketers reward consumers who carry their loyalty cards by giving them every 10th coffee free, for exle. If marketers want their consumers to purchase even more frequently and ring up more sales, they would design a variable ratio reinforcement program. Each coffee card could have a scratch-off number indicating that the customer would receive a free coffee after, say, seven coffees. The next card might say five or 15, etc. With current programs, the customer’s behavior is very predictable. With a variable program, the customer would be excited about the seven because it means a free coffee is coming much faster than after 10. Even when they scratch off and get a higher number, like 15, they’ll still recall that they have had smaller numbers in the past. So the sooner they get to 15 and redeem this card, the sooner they’ll get another card, perhaps with a smaller number. There are also reinforcement schedules based on duration lapses, but these are not implemented in marketing as frequently. One famous exception, however, is the policy by Southwest Airlines that allows passengers to obtain their boarding pass classification 24 hours prior to the flight, but no sooner. Passengers who wait too long get less desirable status, so many fliers find themselves poised over their keyboard to press the right letters at just the right time. Keyboard pressing is not that different from pigeons pecking. As any student knows, a big factor in learning and memory is motivation. Thus, we consider it next. 2-3c Motivation Figure 2.6 depicts psychologist Abraham Maslow’s hierarchy of needs. We have to meet basic needs—have food on the table and a roof overhead—before we think about buying Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203 23 Chapter 2 Customer Behavior Figure 2.6 SelfActualization Maslow’s Hierarchy of Needs Self-Esteem, Respect Friendship, Love, Belonging Safety, Security Food, Water, Sleep, Sex nice clothes. Once we have met our basic needs, we are driven by more abstract motivations, such as love and esteem, qualities that begin to define humanity. At the peak of this pyramid is the phrase, self-actualization, an achievement of our ideal self, with no needs, no excessive wants, no jealousies, etc. One way that marketers use this hierarchy is by identifying their product with a certain level of needs. They use imagery to appeal to those motivations. For exle, the VW crash ads appeal to our need for safety. Similarly, the entire Volvo brand is positioned for safety. Beyond cars, other exles involve different kinds of security. For exle, in B2B, they used to say, “You won’t get fired for buying IBM.” Even though IBM was often the most expensive choice, buyers knew that the quality would be good, so any risk-averse buyer would feel security in havi…
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