Principles of Marketing-Kotler 14E PDF

 5 Specialized Features to Enhance Your Learning 1 New coverage in every chapter of the fourteenth edition shows how companies and consumers are dealing with marketing and the uncertain econ...

 5 Specialized Features to Enhance Your Learning 1 New coverage in every chapter of the fourteenth edition shows how companies and consumers are dealing with marketing and the uncertain economy in the aftermath of the recent Great Recession. 2 Throughout the fourteenth edition, you will find revised coverage of the rapidly changing nature of customer relationships and new material on such topics as customer-managed relationships, crowdsourcing, social networking, and consumer-generated marketing.  3 From beginning to end, a fully integrated customer value framework captures the essence of today’s marketing. 4 The enhanced-learning design of the book features annotated, illustrated chapter- opening vignettes to introduce key chapter concepts. For each chapter, the Objectives Outline shows what students will need to know and where to find it. The end-of- chapter Reviewing Objectives and Key Terms summary tie back to the chapter objectives. 5 Updated annotated figures and author comments throughout each chapter provide the authors’ insights on key points.  Learn to think like a marketer using: Study Plan. The Study Plan helps ensure that you have a basic understanding of course material before coming to class by guiding you directly to the pages you need to review. Mini-Simulations. Move beyond the basics with interactive simulations that place you in a realistic marketing situation and require you to make decisions based on marketing concepts. Applied Theories. Get involved with detailed videos, interactive cases, and critical-thinking exercises. Critical Thinking. Experience real marketing situations that might not always have a right answer but will have a best answer. This allows for great discussion and debate with your classmates. And More: Self-Assessments Videos Pearson eText Flash Cards Go to www.mypearsonmarketinglab.com This page intentionally left blank Principles of Marketing This page intentionally left blank Principles of Marketing 14|E PHILIP Kotler Northwestern University GARY Armstrong University of North Carolina Pearson Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editorial Director: Sally Yagan Director of Development: Stephen Deitmer Editor in Chief: Eric Svendsen Acquisitions Editor: Melissa Sabella Editorial Project Manager: Meeta Pendharkar Editorial Assistant: Elisabeth Scarpa Director of Marketing: Patrice Jones Senior Marketing Manager: Anne Fahlgren Senior Marketing Assistant: Melinda Jensen Senior Managing Editor: Judy Leale Senior Production Project Manager: Karalyn Holland Senior Operations Supervisor: Arnold Vila Creative Director: Christy Mahon Senior Art Director/Design Supervisor: Janet Slowik Interior and Cover Designer: Karen Quigley Cover Images: Matka Wariatka/Dreamstime, Imagebroker.net/SuperStock Manager, Rights and Permissions: Hessa Albader Acquisitions Editor, Digital Learning & Assessment: Josh Keefe Multimedia Product Manager: Cathi Profitko Editorial Media Project Manager: Joan Waxman Media Project Manager: Lisa Rinaldi Full-Service Project Management: S4Carlisle Publishing Services Composition: S4Carlisle Publishing Services Printer/Binder: Courier Kendallville Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 9/12.5 Palatino Lt Standard Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on page C1. Microsoft® and Windows® are registered trademarks of the Microsoft Corporation in the U.S.A. and other countries. Screen shots and icons reprinted with permission from the Microsoft Corporation. This book is not sponsored or endorsed by or affiliated with the Microsoft Corporation. Copyright © 2012, 2010, 2008, and 2006 by Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey 07458. Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data Kotler, Philip. Principles of marketing / Philip Kotler, Gary Armstrong. -- 14th ed. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-13-216712-3 ISBN-10: 0-13-216712-3 1. Marketing. I. Armstrong, Gary (Gary M.) II. Title. HF5415.K636 2011 658.8--dc22 2010052017 10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-216712-3 ISBN 13: 978-0-13-216712-3 DEDICATION To Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben; and Nancy, Amy, Melissa, and Jessica This page intentionally left blank ABOUT The Authors As a team, Philip Kotler and Gary Armstrong provide a blend of skills uniquely suited to writing an introductory marketing text. Professor Kotler is one of the world’s leading au- thorities on marketing. Professor Armstrong is an award-winning teacher of undergraduate business students. Together they make the complex world of marketing practical, approach- able, and enjoyable. PHILIP KOTLER is S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He received his master’s degree at the University of Chicago and his Ph.D. at M.I.T., both in econom- ics. Dr. Kotler is author of Marketing Management (Pearson Prentice Hall), now in its four- teenth edition and the world’s most widely used marketing textbook in graduate schools of business worldwide. He has authored dozens of other successful books and has written more than 100 articles in leading journals. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article in the Journal of Marketing. Professor Kotler was named the first recipient of two major awards: the Distinguished Marketing Educator of the Year Award given by the American Marketing Association and the Philip Kotler Award for Excellence in Health Care Marketing presented by the Academy for Health Care Services Marketing. His numerous other major honors include the Sales and Marketing Executives International Marketing Educator of the Year Award; The European Association of Marketing Consultants and Trainers Marketing Excellence Award; the Charles Coolidge Parlin Marketing Research Award; and the Paul D. Converse Award, given by the American Marketing Association to honor “outstanding contributions to sci- ence in marketing.” A recent Forbes survey ranks Professor Kotler in the top 10 of the world’s most influential business thinkers. And in a recent Financial Times poll of 1,000 senior exec- utives across the world, Professor Kotler was ranked as the fourth “most influential busi- ness writer/guru” of the twenty-first century. Dr. Kotler has served as chairman of the College on Marketing of the Institute of Manage- ment Sciences, a director of the American Marketing Association, and a trustee of the Market- ing Science Institute. He has consulted with many major U.S. and international companies in the areas of marketing strategy and planning, marketing organization, and international mar- keting. He has traveled and lectured extensively throughout Europe, Asia, and South America, advising companies and governments about global marketing practices and opportunities. GARY ARMSTRONG is Crist W. Blackwell Distinguished Professor Emeritus of Undergraduate Education in the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. He holds undergraduate and masters degrees in business from Wayne State University in Detroit, and he received his Ph.D. in marketing from North- western University. Dr. Armstrong has contributed numerous articles to leading business journals. As a consultant and researcher, he has worked with many companies on market- ing research, sales management, and marketing strategy. But Professor Armstrong’s first love has always been teaching. His long-held Blackwell Distinguished Professorship is the only permanent endowed professorship for distin- guished undergraduate teaching at the University of North Carolina at Chapel Hill. He has been very active in the teaching and administration of Kenan-Flagler’s undergraduate pro- gram. His administrative posts have included Chair of Marketing, Associate Director of the Undergraduate Business Program, Director of the Business Honors Program, and many oth- ers. Through the years, he has worked closely with business student groups and has re- ceived several campuswide and Business School teaching awards. He is the only repeat recipient of school’s highly regarded Award for Excellence in Undergraduate Teaching, which he received three times. Most recently, Professor Armstrong received the UNC Board of Governors Award for Excellence in Teaching, the highest teaching honor bestowed by the sixteen-campus University of North Carolina system. vii This page intentionally left blank BRIEF Contents Preface xvi Part 1: Defining Marketing and the Marketing Process 2 1 Marketing: Creating and Capturing Customer Value 2 2 Company and Marketing Strategy: Partnering to Build Customer Relationships 36 Part 2: Understanding the Marketplace and Consumers 64 3 Analyzing the Marketing Environment 64 4 Managing Marketing Information to Gain Customer Insights 96 5 Consumer Markets and Consumer Buyer Behavior 132 6 Business Markets and Business Buyer Behavior 164 Part 3: Designing a Customer-Driven Strategy and Mix 188 7 Customer-Driven Marketing Strategy: Creating Value for Target Customers 188 8 Products, Services, and Brands: Building Customer Value 222 9 New Product Development and Product Life-Cycle Strategies 258 10 Pricing: Understanding and Capturing Customer Value 288 11 Pricing Strategies 312 12 Marketing Channels: Delivering Customer Value 338 13 Retailing and Wholesaling 372 14 Communicating Customer Value: Integrated Marketing Communications Strategy 406 15 Advertising and Public Relations 434 16 Personal Selling and Sales Promotion 462 17 Direct and Online Marketing: Building Direct Customer Relationships 494 Part 4: Extending Marketing 526 18 Creating Competitive Advantage 526 19 The Global Marketplace 550 20 Sustainable Marketing: Social Responsibility and Ethics 580 Appendix 1 Marketing Plan A1 Appendix 2 Marketing by the Numbers A11 References R1 Glossary G1 Credits C1 Index I1 ix This page intentionally left blank  Part 1: Defining Marketing and the Marketing Process (Chapters 1–2) Part 2: Understanding the Marketplace and Consumers (Chapters 3–6) Contents Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17) Part 4: Extending Marketing (Chapters 18–20) Preface xvi Planning Marketing: Partnering to Build Customer Relationships 45 Partnering with Other Company Departments 46 | Partnering Part 1: Defining Marketing and the Marketing Process 2 with Others in the Marketing System 47 Marketing Strategy and the Marketing Mix 48 1 Customer-Driven Marketing Strategy 48 | Developing an Marketing: Creating and Capturing Integrated Marketing Mix 51 Customer Value 2 Managing the Marketing Effort 53 Marketing Analysis 53 | Marketing Planning 54 | Marketing What Is Marketing? 4 Implementation 54 | Marketing Department Organization 55 | Marketing Defined 5 | The Marketing Process 5 Marketing Control 56 Understanding the Marketplace and Customer Needs 6 Measuring and Managing Return on Marketing Investment 57 Customer Needs, Wants, and Demands 6 | Market Offerings— Reviewing Objectives and Key Terms 59 | Key Terms 60 | Products, Services, and Experiences 6 | Customer Value and Discussing & Applying the Concepts 60 | Focus on Satisfaction 7 | Exchanges and Relationships 7 | Markets 7 Technology 60 | Focus on Ethics 61 | Marketing & the Designing a Customer-Driven Marketing Strategy 8 Economy 61 | Marketing by the Numbers 61 Selecting Customers to Serve 8 | Choosing a Value Proposition 9 Video Case: Live Nation 62 | Marketing Management Orientations 9 Company Case: Trap-Ease America: The Big Cheese Preparing an Integrated Marketing Plan and Program 12 of Mousetraps 62 Building Customer Relationships 12 Customer Relationship Management 12 | The Changing Nature of Customer Relationships 16 | Partner Relationship Part 2: Understanding the Marketplace and Consumers 64 Management 19 3 Capturing Value from Customers 20 Creating Customer Loyalty and Retention 20 | Growing Share Analyzing the Marketing of Customer 21 | Building Customer Equity 21 Environment 64 The Changing Marketing Landscape 22 The Uncertain Economic Environment 23 | The Digital Age 26 | The Microenvironment 66 Rapid Globalization 27 | Sustainable Marketing—The Call for The Company 67 | Suppliers 67 | Marketing Intermediaries 68 More Social Responsibility 27 | The Growth of Not-for-Profit | Competitors 68 | Publics 69 | Customers 69 Marketing 28 The Macroenvironment 70 So, What Is Marketing? Pulling It All Together 29 The Demographic Environment 70 | The Economic Reviewing Objectives and Key Terms 30 | Key Terms 31 | Environment 77 | The Natural Environment 78 | The Discussing & Applying the Concepts 32 | Focus on Technological Environment 80 | The Political and Social Technology 32 | Focus on Ethics 33 | Marketing & the Environment 81 | The Cultural Environment 86 Economy 33 | Marketing by the Numbers 33 Responding to the Marketing Environment 89 Video Case: Stew Leonard’s 34 Reviewing Objectives and Key Terms 91 | Key Terms 92 | Company Case: JetBlue: Delighting Customers Through Discussing & Applying the Concepts 92 | Focus on Happy Jetting 34 Technology 93 | Focus on Ethics 93 | Marketing & the Economy 93 | Marketing by the Numbers 93 Video Case: TOMS Shoes 94 2 Company and Marketing Strategy: Company Case: Target: From “Expect More” to “Pay Less” 94 Partnering to Build Customer Relationships 36 Company-Wide Strategic Planning: Defining Marketing’s Role 38 Defining a Market-Oriented Mission 39 | Setting Company 4 Managing Marketing Information to Gain Customer Insights 96 Marketing Information and Customer Insights 98 Objectives and Goals 40 | Designing the Business Portfolio 40 Assessing Marketing Information Needs 100 xi xii Contents Developing Marketing Information 100 Business Buyer Behavior 170 Internal Data 100 | Competitive Marketing Intelligence 101 Major Type of Buying Situations 171 | Participants in the Marketing Research 103 Business Buying Process 172 | Major Influences on Business Defining the Problem and Research Objectives 103 | Developing Buyers 173 | The Business Buying Process 176 | E-Procurement: the Research Plan 104 | Gathering Secondary Data 104 | Buying on the Internet 178 Primary Data Collection 106 | Implementing the Research Institutional and Government Markets 180 Plan 118 | Interpreting and Reporting the Findings 118 Institutional Markets 180 | Government Markets 181 Analyzing and Using Marketing Information 119 Reviewing Objectives and Key Terms 183 | Key Terms 183 | Customer Relationship Management 119 | Distributing and Discussing & Applying the Concepts 184 | Focus on Using Marketing Information 120 Technology 184 | Focus on Ethics 185 | Marketing & the Other Marketing Information Considerations 121 Economy 185 | Marketing by the Numbers 185 Marketing Research in Small Businesses and Nonprofit Video Case: Eaton 185 Organizations 121 | International Marketing Research 123 | Company Case: Cisco Systems: Solving Business Problems Public Policy and Ethics in Marketing Research 124 Through Collaboration 186 Reviewing Objectives and Key Terms 126 | Key Terms 127 | Discussing & Applying the Concepts 127 | Focus on Technology 128 | Focus on Ethics 128 | Marketing & the Economy 128 | Marketing by the Numbers 129 Part 3: Designing a Customer-Driven Strategy and Mix 188 Video Case: Radian6 129 7 Company Case: Harrah’s Entertainment: Hitting the CRM Jackpot 129 Customer-Driven Marketing Strategy: Creating Value for Target Customers 188 5 Consumer Markets and Consumer Buyer Behavior 132 Model of Consumer Behavior 134 Market Segmentation 190 Segmenting Consumer Markets 191 | Segmenting Business Markets 198 | Segmenting International Markets 199 | Characteristics Affecting Consumer Behavior 135 Requirements for Effective Segmentation 200 Cultural Factors 135 | Social Factors 139 | Personal Market Targeting 200 Factors 144 | Psychological Factors 147 Evaluating Market Segments 201 | Selecting Target Market Types of Buying Decision Behavior 150 Segments 201 Complex Buying Behavior 150 | Dissonance-Reducing Buying Differentiation and Positioning 207 Behavior 151 | Habitual Buying Behavior 151 | Variety-Seeking Positioning Maps 208 | Choosing a Differentiation and Buying Behavior 152 Positioning Strategy 208 | Communicating and Delivering the The Buyer Decision Process 152 Chosen Position 215 Need Recognition 152 | Information Search 152 | Evaluation Reviewing Objectives and Key Terms 216 | Key Terms 217 | of Alternatives 153 | Purchase Decision 154 | Postpurchase Discussing & Applying the Concepts 217 | Focus on Behavior 154 Technology 218 | Focus on Ethics 218 | Marketing & the The Buyer Decision Process for New Products 156 Economy 218 | Marketing by the Numbers 218 Stages in the Adoption Process 156 | Individual Differences Video Case: Meredith 219 in Innovativeness 157 | Influence of Product Characteristics Company Case: Starbucks: Just Who Is the Starbucks on Rate of Adoption 157 Customer? 219 Reviewing Objectives and Key Terms 158 | Key Terms 159 | Discussing & Applying the Concepts 159 | Focus on Technology 160 | Focus on Ethics 160 | Marketing & the Economy 161 | Marketing by the Numbers 161 Video Case: Radian6 161 Company Case: Porsche: Guarding the Old While Bringing in the New 162 8 Products, Services, and Brands: Building Customer Value 222 What Is a Product? 224 Products, Services, and Experiences 224 | Levels of Product and Services 225 | Product and Service Classifications 226 6 Business Markets and Business Buyer Behavior 164 Business Markets 166 Product and Service Decisions 229 Individual Product and Service Decisions 229 | Product Line Decisions 234 | Product Mix Decisions 235 Services Marketing 236 Market Structure and Demand 167 | Nature of the Buying The Nature and Characteristics of a Service 236 | Marketing Unit 168 | Types of Decisions and the Decision Process 168 Strategies for Service Firms 238  Contents xiii Branding Strategy: Building Strong Brands 243 Video Case: IKEA 309 Brand Equity 243 | Building Strong Brands 244 | Managing Company Case: Southwest Airlines: Balancing the Price-Value Brands 251 Equation 310 Reviewing Objectives and Key Terms 252 | Key Terms 253 | Discussing & Applying the Concepts 253 | Focus on Technology 254 | Focus on Ethics 254 | Marketing & the Economy 254 | Marketing by the Numbers 255 Video Case: General Mills—GoGurt 255 Company Case: Las Vegas: What’s Not Happening 11 Pricing Strategies 312 New-Product Pricing Strategies 314 Market-Skimming Pricing 314 | Market-Penetration Pricing 314 in Vegas 255 Product Mix Pricing Strategies 315 Product Line Pricing 315 | Optional Product Pricing 316 | 9 Captive Product Pricing 316 | By-Product Pricing 316 | Product New Product Development and Bundle Pricing 318 Product Life-Cycle Strategies 258 Price Adjustment Strategies 319 Discount and Allowance Pricing 319 | Segmented Pricing 319 | New-Product Development Strategy 260 Psychological Pricing 320 | Promotional Pricing 321 | The New-Product Development Process 261 Geographical Pricing 322 | Dynamic Pricing 323 | International Idea Generation 261 | Idea Screening 264 | Concept Fricing 324 Development and Testing 264 | Marketing Strategy Price Changes 325 Development 265 | Business Analysis 266 | Product Initiating Price Changes 325 | Responding to Price Changes 327 Development 266 | Test Marketing 267 | Commercialization 268 Public Policy and Marketing 328 Managing New-Product Development 269 Pricing within Channel Levels 328 | Pricing Across Channel Levels 331 Customer-Centered New-Product Development 269 | Team- Based New-Product Development 270 | Systematic New-Product Reviewing Objectives and Key Terms 332 | Key Terms 333 | Development 270 | New-Product Development in Turbulent Discussing & Applying the Concepts 333 | Focus on Times 272 Technology 334 | Focus on Ethics 334 | Marketing & the Product Life-Cycle Strategies 273 Economy 334 | Marketing by the Numbers 334 Introduction Stage 275 | Growth Stage 275 | Maturity Video Case: Smashburger 335 Stage 277 | Decline Stage 278 Company Case: Payless ShoeSource: Paying Less for Fashion 335 Additional Product and Service Considerations 280 Product Decisions and Social Responsibility 280 | International 12 Product and Services Marketing 280 Reviewing Objectives and Key Terms 282 | Key Terms 283 | Marketing Channels: Delivering Discussing & Applying the Concepts 283 | Focus on Customer Value 338 Technology 284 | Focus on Ethics 284 | Marketing & the Economy 284 | Marketing by the Numbers 285 Supply Chains and the Value Delivery Network 340 The Nature and Importance of Marketing Channels 341 Video Case: General Mills—FiberOne 285 Company Case: Samsung: From Gallop to Run 285 How Channel Members Add Value 342 | Number of Channel Levels 343 Channel Behavior and Organization 344 10 Pricing: Understanding and Capturing Customer Value 288 What Is a Price? 290 Channel Behavior 344 | Vertical Marketing Systems 345 | Horizontal Marketing Systems 348 | Multichannel Distribution Systems 349 | Changing Channel Organization 350 Channel Design Decisions 351 Major Pricing Strategies 291 Analyzing Consumer Needs 351 | Setting Channel Customer Value-Based Pricing 291 | Cost-Based Pricing 295 | Objectives 352 | Identifying Major Alternatives 352 | Evaluating Competition-Based Pricing 299 the Major Alternatives 353 | Designing International Distribution Other Internal and External Considerations Affecting Price Channels 354 Decisions 300 Channel Management Decisions 354 Overall Marketing Strategy, Objectives, and Mix 300 | Selecting Channel Members 355 | Managing and Motivating Organizational Considerations 301 | The Market and Channel Members 355 | Evaluating Channel Members 356 Demand 301 | The Economy 303 | Other External Factors 304 Public Policy and Distribution Decisions 356 Reviewing Objectives and Key Terms 306 | Key Terms 307 | Marketing Logistics and Supply Chain Management 357 Discussing & Applying the Concepts 308 | Focus on Nature and Importance of Marketing Logistics 357 | Goals of the Technology 308 | Focus on Ethics 308 | Marketing & the Logistics System 358 | Major Logistics Functions 360 | Economy 309 | Marketing by the Numbers 309 Integrated Logistics Management 363 xiv Contents Reviewing Objectives and Key Terms 366 | Key Terms 367 | Advertising Effectiveness and the Return on Advertising Discussing & Applying the Concepts 368 | Focus on Investment 449 | Other Advertising Considerations 450 Technology 368 | Focus on Ethics 368 | Marketing & the Public Relations 454 Economy 369 | Marketing by the Numbers 369 The Role and Impact of PR 455 | Major Public Relations Video Case: Progressive 369 Tools 456 Company Case: Netflix: Disintermediator or Reviewing Objectives and Key Terms 457 | Key Terms 458 | Disintermediated? 369 Discussing & Applying the Concepts 458 | Focus on 13 Technology 459 | Focus on Ethics 459 | Marketing & the Economy 459 | Marketing by the Numbers 460 Retailing and Wholesaling 372 Video Case: E*TRADE 460 Company Case: OgilvyOne: It’s Not Creative Unless It Retailing 374 Sells 460 Types of Retailers 375 | Retailer Marketing Decisions 382 | Retailing Trends and Developments 389 Wholesaling 394 Types of Wholesalers 396 | Wholesaler Marketing Decisions 396 | Trends in Wholesaling 399 Reviewing Objectives and Key Terms 400 | Key Terms 401 | 16 Personal Selling and Sales Promotion 462 Personal Selling 464 Discussing & Applying the Concepts 401 | Focus on The Nature of Personal Selling 464 | The Role of the Sales Technology 402 | Focus on Ethics 402 | Marketing & the Force 465 Economy 402 | Marketing by the Numbers 403 Managing the Sales Force 468 Video Case: Zappos.com 403 Designing the Sales Force Strategy and Structure 468 | Company Case: Tesco Fresh & Easy: Another British Recruiting and Selecting Salespeople 472 | Training Invasion 403 Salespeople 473 | Compensating Salespeople 474 | Supervising and Motivating Salespeople 474 | Evaluating Salespeople and 14 Communicating Customer Value: Integrated Marketing Communications Strategy 406 Sales Force Performance 477 The Personal Selling Process 478 Steps in the Selling Process 478 | Personal Selling and Managing Customer Relationships 480 Sales Promotion 481 The Promotion Mix 408 The Rapid Growth of Sales Promotion 482 | Sales Promotion Integrated Marketing Communications 409 Objectives 482 | Major Sales Promotion Tools 483 | Developing The New Marketing Communications Model 409 | The Need for the Sales Promotion Program 487 Integrated Marketing Communications 410 Reviewing Objectives and Key Terms 488 | Key Terms 489 | A View of the Communication Process 414 Discussing & Applying the Concepts 489 | Focus on Steps in Developing Effective Marketing Communication 415 Technology 490 | Focus on Ethics 490 | Marketing & the Identifying the Target Audience 415 | Determining the Economy 490 | Marketing by the Numbers 490 Communication Objectives 416 | Designing a Message 417 | Video Case: Nestlé Waters 491 Choosing Media 418 | Selecting the Message Source 420 | Company Case: HP: Overhauling a Vast Corporate Sales Collecting Feedback 420 Force 491 Setting the Total Promotion Budget and Mix 422 17 Setting the Total Promotion Budget 422 | Shaping the Overall Promotion Mix 424 | Integrating the Promotion Mix 426 Direct and Online Marketing: Socially Responsible Marketing Communication 427 Building Direct Customer Advertising and Sales Promotion 427 | Personal Selling 428 Relationships 494 Reviewing Objectives and Key Terms 428 | Key Terms 429 | Discussing & Applying the Concepts 429 | Focus on The New Direct Marketing Model 496 Technology 430 | Focus on Ethics 430 | Marketing & the Growth and Benefits of Direct Marketing 497 Economy 431 | Marketing by the Numbers 431 Benefits to Buyers 497 | Benefits to Sellers 498 Video Case: CPB 431 Customer Databases and Direct Marketing 499 Company Case: Pepsi: Can a Soda Really Make the World Forms of Direct Marketing 500 a Better Place? 432 Direct-Mail Marketing 501 | Catalog Marketing 502 | Telephone Marketing 502 | Direct-Response Television 15 Advertising 436 Advertising and Public Relations 434 Marketing 503 | Kiosk Marketing 504 | New Digital Direct Marketing Technologies 505 Online Marketing 508 Marketing and the Internet 508 | Online Marketing Setting Advertising Objectives 437 | Setting the Advertising Domains 509 | Setting Up an Online Marketing Presence 513 Budget 438 | Developing Advertising Strategy 439 | Evaluating  Contents xv Public Policy Issues in Direct Marketing 518 Deciding on the Global Marketing Program 565 Irritation, Unfairness, Deception, and Fraud 518 | Invasion of Product 566 | Promotion 569 | Price 571 | Distribution Privacy 519 | A Need for Action 520 Channels 572 Reviewing Objectives and Key Terms 521 | Key Terms 522 | Deciding on the Global Marketing Organization 573 Discussing & Applying the Concepts 522 | Focus on Reviewing Objectives and Key Terms 574 | Key Terms 575 | Technology 522 | Focus on Ethics 523 | Marketing & the Discussing & Applying the Concepts 575 | Focus on Economy 523 | Marketing by the Numbers 523 Technology 576 | Focus on Ethics 576 | Marketing & the Video Case: Zappos.com 524 Economy 576 | Marketing by the Numbers 577 Company Case: EBay: Fixing an Online Marketing Pioneer 524 Video Case: Monster 577 Company Case: Nokia: Envisioning a Connected World 577 Part 4: Extending Marketing 526 20 Sustainable Marketing: Social Responsibility and Ethics 580 18 Creating Competitive Advantage 526 Competitor Analysis 528 Sustainable Marketing 582 Social Criticisms of Marketing 584 Marketing’s Impact on Individual Consumers 584 | Marketing’s Identifying Competitors 528 | Assessing Competitors 529 | Impact on Society as a Whole 589 | Marketing’s Impact on Other Selecting Competitors to Attack and Avoid 531 | Designing a Businesses 591 Competitive Intelligence System 533 Consumer Actions to Promote Sustainable Marketing 592 Competitive Strategies 535 Consumerism 592 | Environmentalism 593 | Public Actions to Approaches to Marketing Strategy 535 | Basic Competitive Regulate Marketing 599 Strategies 536 | Competitive Positions 538 | Market Leader Business Actions Toward Sustainable Marketing 599 Strategies 538 | Market Challenger Strategies 541 | Market Sustainable Marketing Principles 599 | Marketing Ethics 604 | Follower Strategies 542 | Market Nicher Strategies 543 The Sustainable Company 608 Balancing Customer and Competitor Orientations 544 Reviewing Objectives and Key Terms 608 | Key Terms 609 | Reviewing Objectives and Key Terms 545 | Key Terms 546 | Discussing & Applying the Concepts 609 | Focus on Discussing & Applying the Concepts 546 | Focus on Technology 610 | Focus on Ethics 610 | Marketing & the Technology 546 | Focus on Ethics 546 | Marketing & the Economy 610 | Marketing by the Numbers 611 Economy 547 | Marketing by the Numbers 547 Video Case: Land Rover 611 Video Case: Umpqua Bank 547 Company Case: International Paper: Combining Industry and Company Case: Ford: Resurrecting an Iconic Company 548 Social Responsibility 611 19 The Global Marketplace 550 Global Marketing Today 552 Looking at the Global Marketing Environment 554 Appendix 1: Marketing Plan A1 Appendix 2: Marketing by the Numbers A11 References R1 The International Trade System 554 | Economic Glossary G1 Environment 556 | Political-Legal Environment 557 | Cultural Credits C1 Environment 557 Index I1 Deciding Whether to Go Global 560 Deciding Which Markets to Enter 561 Deciding How to Enter the Market 562 Exporting 563 | Joint Venturing 563 | Direct Investment 565 Preface The Fourteenth Edition of Principles of Marketing! Still Creating More Value for You! The goal of every marketer is to create more value for customers. So it makes sense that our goal for the fourteenth edition is to continue creating more value for you—our customer. Our goal is to introduce new marketing students to the fascinating world of modern mar- keting in an innovative and comprehensive yet practical and enjoyable way. We’ve poured over every page, table, figure, fact, and example in an effort to make this the best text from which to learn about and teach marketing. Enhanced by mymarketinglab, our online home- work and personalized study tool, the fourteenth edition creates exceptional value for both students and professors. Marketing: Creating Customer Value and Relationships Top marketers at outstanding companies share a common goal: putting the consumer at the heart of marketing. Today’s marketing is all about creating customer value and building profitable customer relationships. It starts with understanding consumer needs and wants, determining which target markets the organization can serve best, and developing a com- pelling value proposition by which the organization can attract and grow valued con- sumers. If the organization does these things well, it will reap the rewards in terms of mar- ket share, profits, and customer equity. Five Major Value Themes From beginning to end, the fourteenth edition of Principles of Marketing develops an innova- tive customer-value and customer-relationships framework that captures the essence of to- day’s marketing. It builds on five major value themes: 1. Creating value for customers in order to capture value from customers in return. To- day’s marketers must be good at creating customer value and managing customer relation- ships. Outstanding marketing companies understand the marketplace and customer needs, design value-creating marketing strategies, develop integrated marketing pro- grams that deliver customer value and delight, and build strong customer relation- ships. In return, they capture value from customers in the form of sales, profits, and customer loyalty. Marketing: Creating and Capturing Customer Value Create value for customers and Capture value from build customer relationships customers in return Construct an Understand the Design a Build profitable Capture value integrated marketplace and customer-driven relationships and from customers to marketing program customer needs marketing that delivers create customer create profits and and wants strategy superior value delight customer equity FIGURE | 1.1 A Simple Model of the Marketing Process xvi  Preface xvii This innovative customer-value framework is introduced at the start of Chapter 1 in a five-step marketing process model, which details how marketing creates customer value and captures value in return. The framework is carefully developed in the first two chapters and then fully integrated throughout the remainder of the text. 2. Building and managing strong, value-creating brands. Well-positioned brands with strong brand equity provide the basis upon which to build customer value and prof- itable customer relationships. Today’s marketers must position their brands powerfully and manage them well. They must build close brand relationships and experiences with customers. 3. Measuring and managing return on marketing. Marketing managers must ensure that their marketing dollars are being well spent. In the past, many marketers spent freely on big, expensive marketing programs, often without thinking carefully about the financial returns on their spending. But all that has changed rapidly. “Marketing accountability”—measuring and managing return on marketing investments—has now become an important part of strategic marketing decision making. This emphasis on marketing accountability is addressed throughout the fourteenth edition. 4. Harnessing new marketing technologies. New digital and other high-tech marketing developments are dramatically changing how consumers and marketers relate to one another. The fourteenth edition thoroughly explores the new technologies impacting marketing, from “Web 3.0” in Chapter 1 to new digital marketing and online technolo- gies in Chapters 15 and 17 to the exploding use of online social networks and customer- generated marketing in Chapters 1, 5, 14, 15, 17, and elsewhere. 5. Sustainable marketing around the globe. As technological developments make the world an increasingly smaller and more fragile place, marketers must be good at mar- keting their brands globally and in sustainable ways. New material throughout the fourteenth edition emphasizes the concept of sustainable marketing—meeting the pres- ent needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. New in the Fourteenth Edition We’ve thoroughly revised the fourteenth edition of Principles of Marketing to reflect the ma- jor trends and forces impacting marketing in this era of customer value and relationships. Here are just some of the major and continuing changes you’ll find in this edition. New coverage in every chapter of the fourteenth edition shows how companies and consumers are dealing with marketing and the uncertain economy in the aftermath of the recent Great Recession. Starting with a major new section in Chapter 1 and continuing with new sections, discussions, and examples integrated throughout the text, the fourteenth edition shows how, now more than ever, marketers must focus on creating customer value and sharpening their value propositions to serve the needs of today’s more frugal consumers. At the end of each chapter, a new feature—Marketing and the Economy—provides real examples for discussion and learning. Throughout the fourteenth edition, you will find revised coverage of the rapidly changing nature of customer relationships with companies and brands. Today’s mar- keters aim to create deep consumer involvement and a sense of community surround- ing a brand—to make the brand a meaningful part of consumers’ conversations and their lives. Today’s new relationship-building tools include everything from Web sites, blogs, in-person events, and video sharing to online communities and social networks such as Facebook, YouTube, Twitter, or a company’s own social networking sites. The fourteenth edition contains new material on the continuing trend toward two-way interactions between customers and brands, including such topics as customer- managed relationships, crowdsourcing, and consumer-generated marketing. Today’s customers are giving as much as they get in the form of two-way relationships (Chap- ter 1), a more active role in providing customer insights (Chapter 4), crowdsourcing and shaping new products (Chapter 9), consumer-generated marketing content (Chapters 1, 14, and 15), developing or passing along brand messages (Chapters 1 and 15), inter- acting in customer communities (Chapters 5, 15, and 17), and other developments. xviii Preface This edition provides revised and expanded discussions of new marketing technologies, from “Web 3.0” in Chapter 1 to “Webnography” research tools in Chap- ter 4 to neuromarketing in Chapter 5 and the dazzling new digital marketing and on- line technologies in Chapters 1, 15, and 17. New material throughout the fourteenth edition highlights the increasing importance of sustainable marketing. The discussion begins in Chapter 1 and ends in Chapter 20, which pulls marketing together under a sustainable marketing framework. In between, frequent discussions and examples show how sustainable marketing calls for socially and environmentally responsible actions that meet both the immediate and the future needs of customers, companies, and society as a whole. The fourteenth edition continues its emphasis on measuring and managing return on marketing, including many new end-of-chapter financial and quantitative marketing exercises that let students apply analytical thinking to relevant concepts in each chap- ter and link chapter concepts to the text’s innovative and comprehensive Appendix 2: Marketing by the Numbers. The fourteenth edition provides revised and expanded coverage of the developments in the fast-changing areas of integrated marketing communications and direct and on- line marketing. It tells how marketers are blending the new digital and direct technolo- gies with traditional media to create more targeted, personal, and interactive customer relationships. No other text provides more current or encompassing coverage of these exciting developments. Restructured pricing chapters (Chapters 10 and 11) provide improved coverage of pric- ing strategies and tactics in an uncertain economy. And a reorganized products, ser- vices, and brands chapter (Chapter 8) helps to promote the text’s coverage of services marketing and better applies the branding strategy discussions that follow to both products and services. The fourteenth edition continues to improve on its innovative learning design. The text’s active and integrative presentation includes learning enhancements such as an- notated chapter-opening stories, a chapter-opening objective outline, and explanatory author comments on major chapter sections and figures. The chapter-opening layout helps to preview and position the chapter and its key concepts. Figures annotated with author comments help students to simplify and organize chapter material. End-of- chapter features help to summarize important chapter concepts and highlight impor- tant themes, such as marketing and the economy, marketing technology, ethics, and financial marketing analysis. In all, the innovative learning design facilitates student understanding and eases learning. An Emphasis on Real Marketing Principles of Marketing features in-depth, real-world examples and stories that show con- cepts in action and reveal the drama of modern marketing. In the fourteenth edition, every chapter opening vignette and Real Marketing highlight has been updated or replaced to provide fresh and relevant insights into real marketing practices. Learn how: Web seller Zappos.com’s obsession with creating the very best customer experience has resulted in avidly loyal customers and astronomical growth. Nike’s customer-focused mission and deep sense of customer brand community have the company sprinting ahead while competitors are gasping for breath. Trader Joe’s unique “cheap gourmet” price-value strategy has earned it an almost cult- like following of devoted customers who love what they get for the prices they pay. ESPN has built a global brand empire as much recognized and revered as megabrands such as Coca-Cola, Nike, or Google. Dunkin’ Donuts successfully targets the “Dunkin’ Tribe”—not the Starbucks snob but the average Joe. When it comes to sustainability, no company in the world is doing more good these days than Walmart. That’s right—big, bad, Walmart.  Preface xix Four Seasons hotels has perfected the art of high-touch, carefully crafted service, prompting one customer to reflect: “If there’s a heaven, I hope it’s run by Four Seasons.” The “Häagen-Dazs loves honey bees” integrated marketing campaign has helped make Häagen-Dazs more than just another premium ice cream brand—it’s now “a brand with a heart and a soul.” Hyundai hit the accelerator on marketing when the slow economy caused rivals to throttle down, making it the world’s fastest growing major car company. McDonald’s, the quintessentially all-American company, now sells more burgers and fries outside the United States than within. Google’s odyssey into mainland China—and back out again—vividly illustrates the prospects and perils of going global. Beyond these features, each chapter is packed with countless real, relevant, and timely examples that reinforce key concepts. No other text brings marketing to life like the four- teenth edition of Principles of Marketing. Valuable Learning Aids A wealth of chapter-opening, within-chapter, and end-of-chapter learning devices help stu- dents to learn, link, and apply major concepts: Chapter Preview. As part of the active and integrative chapter-opening design, a brief section at the beginning of each chapter previews chapter concepts, links them with previous chapter concepts, and introduces the chapter-opening story. Chapter-opening marketing stories. Each chapter begins with an engaging, deeply devel- oped, illustrated, and annotated marketing story that introduces the chapter material and sparks student interest. Objective outline. This chapter-opening feature provides a helpful preview outline of chapter contents and learning objectives, complete with page numbers. Author comments and figure annotations. Throughout the chapter, author comments ease and enhance student learning by introducing and explaining major chapter sections and organizing figures. Real Marketing highlights. Each chapter contains two highlight features that provide an in-depth look at real marketing practices of large and small companies. Reviewing the Objectives and Key Terms. A summary at the end of each chapter reviews major chapter concepts, chapter objectives, and key terms. Discussing and Applying the Concepts. Each chapter contains a set of discussion questions and application exercises covering major chapter concepts. Marketing and the Economy. End-of-chapter situation descriptions provide for discussion of the impact of recent economic trends on consumer and marketer decisions. Focus on Technology. Application exercises at the end of each chapter provide discussion of important and emerging marketing technologies in this digital age. Focus on Ethics. Situation descriptions and questions at the end of each chapter highlight important issues in marketing ethics. Marketing by the Numbers. An exercise at the end of each chapter lets students apply an- alytical and financial thinking to relevant chapter concepts and links the chapter to Ap- pendix 2, Marketing by the Numbers. Company Cases. All new or revised company cases for class or written discussion are provided at the end of each chapter. These cases challenge students to apply marketing principles to real companies in real situations. Video Shorts. Short vignettes and discussion questions appear at the end of every chap- ter, to be used with the set of mostly new 4- to 7-minute videos that accompany this edition. Marketing Plan appendix. Appendix 1 contains a sample marketing plan that helps stu- dents to apply important marketing planning concepts. xx Preface Marketing by the Numbers appendix. And innovative Appendix 2 provides students with a comprehensive introduction to the marketing financial analysis that helps to guide, assess, and support marketing decisions. More than ever before, the fourteenth edition of Principles of Marketing creates value for you—it gives you all you need to know about marketing in an effective and enjoyable total learning package! A Valuable Total Teaching and Learning Package A successful marketing course requires more than a well-written book. A total package of resources extends this edition’s emphasis on creating value for you. The following aids sup- port Principles of Marketing, 14e: Videos The video library features 20 exciting segments for this edition. All segments are on the DVD (ISBN: 0-13-216723-9) and in mymarketinglab. Here are just a few of the videos that are of- fered: Stew Leonard’s Customer Relationships Eaton’s Dependable Customer Service GoGurt’s Winning Brand Management FiberOne’s Exponential Growth Nestlé Waters’ Personal Selling mymarketinglab (www.mypearsonmarketinglab.com) gives you the opportunity to test yourself on key concepts and skills, track your own progress through the course, and use the personalized study plan activities—all to help you achieve success in the classroom. The MyLab that accompanies Principles of Marketing includes: Study Plan: The Study Plan helps ensure that you have a basic understanding of course material before coming to class by guiding you directly to the pages you need to review. Mini-Simulations: Move beyond the basics with interactive simulations that place you in a realistic marketing situation and require you to make decisions based on market- ing concepts. Applied Theories: Get involved with detailed videos, interactive cases, and critical- thinking exercises. Critical Thinking: Get involved with real marketing situations that might not always have a right answer but will have a best answer. This allows for great discussion and debate with your classmates. Plus: Interactive Elements: A wealth of hands-on activities and exercises let you experience and learn firsthand. Whether it is with the online e-book where you can search for spe- cific keywords or page numbers, highlight specific sections, enter notes right on the e-book page, and print reading assignments with notes for later review or with other materials. Find out more at www.mypearsonmarketinglab.com  Preface xxi More Valuable Resources CourseSmart is an exciting new choice for students looking to save money. As an alternative to purchasing the print textbook, students can purchase an electronic version of the same content and save up to 50 percent off the suggested list price of the print text. With a CourseSmart eTextbook, students can search the text, make notes online, print out reading assignments that incorporate lecture notes, and bookmark important passages for later review. For more information, or to purchase access to the CourseSmart eTextbook, visit www.coursesmart.com. Acknowledgments No book is the work only of its authors. We greatly appreciate the valuable contributions of several people who helped make this new edition possible. As always, we owe very special thanks to Keri Jean Miksza for her dedicated and valuable help in all phases of the project, and to her husband Pete and little daughter Lucy for all the support they provide Keri dur- ing this often-hectic project. We thank Andy Norman of Drake University for his skillful development of company and video cases and help with preparing selected marketing stories; and Lew Brown of the University of North Carolina at Greensboro for his able assistance in helping prepare se- lected marketing stories and highlights. We also thank Laurie Babin of the University of Louisiana at Monroe for her dedicated efforts in preparing end-of-chapter materials and keeping our Marketing by the Numbers appendix fresh; and to Michelle Rai of Pacific Union College for her able updates to the Marketing Plan appendix. Additional thanks also go to Andy Lingwall at Clarion University of Pennsylvania, for his work on the Instructor’s Man- ual; Peter Bloch at University of Missouri and ANS Source for developing the Power Points; and Bonnie Flaherty for creating the Test Item File & Study Plan. Many reviewers at other colleges and universities provided valuable comments and suggestions for this and previous editions. We are indebted to the following colleagues for their thoughtful inputs: Fourteenth Edition Reviewers Alan Dick, University of Buffalo Esther Page-Wood, Western Michigan Rod Carveth, Naugatuck Valley University Community College Tim Reisenwitz, Valdosta State University Anindja Chatterjee, Slippery Rock Mary Ellen Rosetti, Hudson Valley University of Pennsylvania Community College Mary Conran, Temple University William Ryan, University of Connecticut Eloise Coupey, Virginia Tech Roberta Schultz, Western Michigan Karen Gore, Ivy Tech Community College, University Evansville Campus J. Alexander Smith, Oklahoma City Charles Lee, Chestnut Hill College University Samuel McNeely, Murray State University Deb Utter, Boston University Chip Miller, Drake University Donna Waldron, Manchester Community College David Murphy, Madisonville Community College Wendel Weaver, Oklahoma Wesleyan University Previous Reviewers Praveen Aggarwal, University of Mark Anderson, Eastern Kentucky Minnesota, Duluth University Ron Adams, University of North Florida Lydia E. Anderson, Fresno City College Sana Akili, Iowa State University Allan L. Appell, San Francisco State Mary Albrecht, Maryville University University Mark Alpert, University of Texas at Austin xxii  Preface xxiii Laurie Babin, University of Louisiana at Bruce Lammers, California State Monroe University at North Ridge Michael Ballif, University of Utah J. Ford Laumer, Auburn University Pat Bernson, County College of Morris Debra Laverie, Texas Tech University Roger Berry, California State University, Kenneth Lawrence, New Jersey Institute of Dominguez Hills Technology Amit Bhatnagar, University of Wisconsin Richard Leventhal, Metropolitan State Donald L. Brady, Millersville University College, Denver Thomas Brashear, University of Charles Lee, Chestnut Hill College Massachusetts, Amherst Marilyn Liebrenz-Himes, George Fred Brunel, Boston University Washington University Jeff Bryden, Bowling Green University Dolly D. Loyd, University of Southern Mississippi David J. Burns, Youngstown State University Kerri Lum, Kapiolani Community College Kirsten Cardenas, University of Miami Larry Maes, Davenport University Rod Carveth, Naugatuck Valley Tamara Mangleburg, Florida Atlantic Community College University Glenn Chappell, Coker College Patricia M. Manninen, North Shore Community College Hongsik John Cheon, Frostburg State University Wendy Martin, Judson College, Illinois Sang T. Choe, University of Southern Patrick H. McCaskey, Millersville Indiana University Glenn L. Christensen, Brigham Young June McDowell-Davis, Catawba University College/High Point University Kathleen Conklin, St. John Fisher College Samuel McNeely, Murray State University Mary Conran, Temple University H. Lee Meadow, Indiana University East Michael Coolsen, Shippensburg University H. Lee Meadow, Northern Illinois University Alicia Cooper, Morgan State University John Mellon, College Misericordia Douglas A. Cords, California State University, Fresno Mohan K. Menon, University of Southern Alabama Preyas Desai, Purdue University Martin Meyers, University of Wisconsin, Philip Gelman, College of DuPage Stevens Point James L. Giordano, La Guardia Chip Miller, Drake University Community College William Mindak, Tulane University Karen Gore, Ivy Tech Community College, Evansville Campus Ted Mitchell, University of Nevada, Reno Hugh Guffey, Auburn University David Murphy, Madisonville Community College Kenny Herbst, Saint Joseph’s University David M. Nemi, Niagra County Terry Holmes, Murray State University Community College David Houghton, Charleston Southern Carl Obermiller, Seattle University University Howard Olsen, University of Nevada at Pat Jacoby, Purdue University Reno Carol Johanek, Washington University Betty Parker, Western Michigan University Eileen Kearney, Montgomery County Vanessa Perry, George Washington Community College University Thomas R. Keen, Caldwell College Susan Peterson, Scottsdale Community Tina Kiesler, California State University at College North Ridge Abe Qastin, Lakeland College Dmitri Kuksov, Washington University in Paul Redig, Milwaukee Area Technical St. Louis College xxiv Preface William Renforth, Angelo State University Ruth Taylor, Texas State University Gregory A. Rich, Bowling Green State Donna Tillman, California State University Polytechnic University William Ryan, University of Connecticut Janice Trafflet, Bucknell University Melinda Schmitz, Pamlico Community Rafael Valiente, University of Miami College Simon Walls, University of Tennessee Roberta Schultz, Western Michigan Donna Waldron, Manchester Community University College Alan T. Shao, University of North Mark Wasserman, University of Texas Carolina, Charlotte Alvin Williams, University of Southern Lynne Smith, Carroll Community College Mississippi Martin St. John, Westmoreland County Douglas E. Witt, Brigham Young Community College University Randy Stewart, Kennesaw State University Andrew Yap, Florida International Karen Stone, Southern New Hampshire University University Irvin A. Zaenglein, Northern Michigan John Stovall, University of Illinois, University Chicago Larry Zigler, Highland Community Jeff Streiter, SUNY Brockport College We also owe a great deal to the people at Pearson Prentice Hall who helped develop this book. Executive Editor Melissa Sabella provided fresh ideas and support throughout to re- vision. Project Manager Meeta Pendharkar provided valuable assistance in managing the many facets of this complex revision project. Janet Slowik developed the fourteenth edi- tion’s exciting design, and Senior Production Project Manager Karalyn Holland helped guide the book through the complex production process. We’d also like to thank Elisabeth Scarpa, Anne Fahlgren, and Judy Leale. We are proud to be associated with the fine profes- sionals at Pearson Prentice Hall. We also owe a mighty debt of gratitude to Project Editor Lynn Steines and the fine team at S4Carlisle Publishing Services. Finally, we owe many thanks to our families for all of their support and encouragement —Kathy, Betty, Mandy, Matt, KC, Keri, Delaney, Molly, Macy, and Ben from the Armstrong clan and Nancy, Amy, Melissa, and Jessica from the Kotler family. To them, we dedicate this book. Gary Armstrong Philip Kotler Principles of Marketing Part 1: Defining Marketing and the Marketing Process (Chapters 1–2) Part 2: Understanding the Marketplace and Consumers (Chapters 3–6) Part 3: Designing a Customer-Driven Strategy and Mix (Chapters 7–17) Part 4: Extending Marketing (Chapters 18–20) Chapter Preview 1 Marketing Creating and Capturing Customer Value This chapter introduces you to the basic concepts of market- ing. We start with the question, What is marketing? Simply put, mar- keting is managing profitable customer relationships. The aim of marketing is to create value for customers and capture value from cus- and forming your own ideas about what they really mean to you will give you a solid foundation for all that follows. Let’s start with a good story about marketing in action at Zappos.com, one of the world’s fastest-growing Web retailers. The se- cret to Zappos’ success? It’s really no secret at all. Zappos is flat-out cus- tomers in return. Next we discuss the five steps in the marketing tomer obsessed. It has a passion for creating customer value and process—from understanding customer needs, to designing customer- relationships. In return, customers reward Zappos with their brand loy- driven marketing strategies and integrated marketing programs, to alty and buying dollars. You’ll see this theme of creating customer building customer relationships and capturing value for the firm. Fi- value in order to capture value in return repeated throughout this first nally, we discuss the major trends and forces affecting marketing in this chapter and the remainder of the text. age of customer relationships. Understanding these basic concepts Zappos: A Passion for Creating Customer Value and Relationships I magine a retailer with service so good its customers wish 75 percent of Zappos.com’s sales come from repeat customers. it would take over the Internal Revenue Service or start up “We actually take a lot of the money that we would have normally an airline. It might sound like a marketing fantasy, but this spent on paid advertising and put it back into the customer expe- scenario is reality for 12-year-old Zappos.com. At Zappos, rience,” says Hsieh. “We’ve always stuck with customer service, the customer experience really does come first—it’s a daily ob- even when it was not a sexy thing to do.” Adds Aaron Magness, session. Says Zappos understated CEO, Tony Hsieh (pro- Zappos’ director of business development and brand marketing, nounced shay), “Our whole goal at Zappos is for the Zappos “We decided if we can put all the money possible into our cus- brand to be about the very best customer service and customer tomer service, word of mouth will work in our favor.” experience.” When it comes to creating customer value and re- What little advertising the company does do focuses on— lationships, few companies can match Zappos’ passion. you guessed it—customer service. The most recent Zappos TV Launched in 1999 as a Web site that offered the absolute best ads feature “Zappets,” puppetlike characters styled after actual selection in shoes—in terms of brands, styles, colors, sizes, and Zappos employees, highlighting interactions between Zappos widths—the online retailer now carries many other categories of customer service reps and customers. goods, such as clothing, handbags, and accessories. From the Free delivery, free returns, and a 365-day return policy start, the scrappy Web retailer made customer service a corner- have been the cornerstone of Zappos’ customer-centric ap- stone of its marketing. As a result, Zappos has grown astronomi- proach. To wow customers, it even quietly upgrades the ex- cally. It now serves more than 10 million customers annually, and perience, from four-to-five-day shipping to second-day or gross merchandise sales top $1 billion, up from only $1.6 million next-day shipping. Its customer service center is staffed 24/7 in 2000. Three percent of the U.S. population now shops at with 500 highly motivated employees—about one-third of the Zappos.com. And despite the harsh economy, Zappos sales have company’s payroll—answering 5,000 calls a day. “Those things continued to soar in recent years. are all pretty expensive, but we view that as our marketing dol- Interestingly, Zappos doesn’t spend a lot of money on media lars,” says Hsieh. “It’s just a lot cheaper to get existing cus- advertising. Instead, it relies on customer service so good that cus- tomers to buy from you again than it is to try to convince tomers not only come back but also tell their friends. More than someone [new].”  Chapter 1 | Marketing: Creating and Capturing Customer Value 3 Zappos has been steadfast in its focus on customer service even as it’s grown. In a sluggish economy, retailers especially should be focusing on customer service. But as Hsieh points out, it’s often the first thing to go. “The payoff for great customer service might be a year or two down the line. And the payoff for having a great company culture might be three or four years down the line.” At Zappos, customer intimacy starts with a deep-down, customer-focused culture. “We have a saying,” proclaims the company at its Web site. “We are a service company that hap- pens to sell [shoes (or handbags, or clothing, or eventually, any- thing and everything)].” The Zappos culture is built around its 10 Core Values, ranging from “Build open and honest relation- ships with communication” to “Create fun and a little weird- ness.” Value number one: “Deliver WOW through service!” Zappos’ online success and passion for customers made it an ideal match for another highly successful, customer-obsessed online retailer, Amazon.com, which purchased Zappos in late 2009. Amazon.com appears to be letting Hsieh and Zappos con- tinue to pursue independently the strategy that has made them so successful in the past. To make sure Zappos’ customer obsession permeates the en- tire organization, each new hire—everyone from the chief execu- tive officer and chief financial officer to the children’s footwear buyer—is required to go through four weeks of customer-loyalty training. In fact, in an effort to weed out the half-hearted, Zappos actually bribes people to quit. During the four weeks of customer service training, it offers employees $2,000 cash, plus payment for the time worked, if they leave the company. The theory goes that those willing to take the money and run aren’t right for Zappos’ culture anyway. Hsieh says that originally the incentive was $100, but the amount keeps rising because not enough people take it. On av- need to worry if you have some- At Zappos, taking care erage, only 1 percent takes the offer, and Hsieh believes that’s thing to hide,” and Zappos seems of customers starts with too low. Zappos argues that each employee needs to be a great to take even criticism as a free gift a deep-down, customer- point of contact with customers. “Getting customers excited of information. focused culture. Zappos about the service they had at Zappos has to come naturally,” Zappos has set new standards is “happy to help, 24/7.” says Magness. “You can’t teach it; you have to hire for it.” in the industry, leading the way for When dealing with customers, Zappos employees must a new type of consumer-focused company. “There’s something check their egos and competitiveness at the door. Customer about these young Internet companies,” says a retailing expert. service reps are trained to look on at least three rival Web sites “I’m not sure exactly why—if it was because they were born in if a shopper asks for specific shoes that Zappos doesn’t have a different era, the leadership has a different worldview, or if in stock and refer customers accordingly. “My guess is that they just have amazing access to customer data and see first- other companies don’t do that,” Hsieh says. “For us, we’re hand what customers are thinking,” he says. “It seems that Zap- willing to lose that sale, that transaction in the short term. pos is really the poster child for this new age of consumer We’re focused on building the lifelong loyalty and relation- companies that truly are customer focused. A lot of companies ship with the customer.” like to say they are, but none of them is as serious as Zappos.” Relationships mean everything at Zappos. Hsieh and many It’s that intense customer focus that has set the stage for Zap- other employees stay in direct touch with customers, with each pos’ growth, as the company branches out into new categories, other, and with just about anyone else interested in the company. such as electronics and home goods. “Hopefully, 10 years from They use social-networking tools, such as Facebook, Twitter, and now, people won’t even realize we started out selling shoes online. blogs, to share information— We’ve actually had cus- both good and bad. And the tomers ask us if we would company invites customers Web seller Zappos is obsessed with creating the very please start an airline or run to submit frank online re- best customer service and customer experience. In the IRS,” Hsieh says, views. Such openness might return, customers reward the company with their adding, “30 years from now worry some retailers, but brand loyalty and buying dollars. The result: Zappos’ I wouldn’t rule out a Zap- Zappos embraces it. As Mag- sales have grown astronomically. pos airline that’s all about ness points out, “You only the very best service.”1  Objective OUTLINE Define marketing and outline the steps in the marketing process. What Is Marketing? (4–5) Explain the importance of understanding customers and the marketplace and identify the five core marketplace concepts. Understanding the Marketplace and Customer Needs (6–8) Identify the key elements of a customer-driven marketing strategy and discuss the marketing management orientations that guide marketing strategy. Designing a Customer-Driven Marketing Strategy (8–12) Preparing an Integrated Marketing Plan and Program (12) Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return. Building Customer Relationships (12–19) Capturing Value from Customers (20–22) Describe the major trends and forces that are changing the marketing landscape in this age of relationships. The Changing Marketing Landscape (22–30) Today’s successful companies have one thing in common: Like Zappos, they are strongly customer focused and heavily committed to marketing. These companies share a passion for understanding and satisfying customer needs in well-defined target mar- kets. They motivate everyone in the organization to help build lasting customer relationships based on creating value. Customer relationships and value are especially important today. As the nation’s economy has recovered following the worst downturn since the Great Depression, more frugal consumers are spending more carefully and reassessing their relationships with brands. In turn, it’s more important than ever to build strong customer relationships based on real and enduring value. Author Stop here for a second Comment and think about how What Is Marketing? (pp 4–5) you’d answer this question before Marketing, more than any other business function, deals with customers. Although we will studying marketing. Then see how soon explore more-detailed definitions of marketing, perhaps the simplest definition is this your answer changes as you read the chapter. one: Marketing is managing profitable customer relationships. The twofold goal of marketing is to attract new customers by promising superior value and keep and grow current customers by delivering satisfaction. For example, Walmart has become the world’s largest retailer—and the world’s largest company—by delivering on its promise, “Save money. Live better.” Nintendo surged ahead in the video-games market behind the pledge that “Wii would like to play,” backed by its wildly popular Wii console and a growing list of popular games and accessories for all ages. And McDonald’s fulfills its “i’m lovin’ it” motto by being “our customers’ favorite place and way to eat” the world over, giving it a market share greater than that of its nearest three com- petitors combined.2 Sound marketing is critical to the success of every organization. Large for-profit firms, such as Procter & Gamble, Google, Target, Toyota, and Marriott use marketing. But so do not-for-profit 4 organizations, such as colleges, hospitals, museums, symphony orchestras, and even churches.  Chapter 1 | Marketing: Creating and Capturing Customer Value 5 You already know a lot about marketing—it’s all around you. Marketing comes to you in the good old traditional forms: You see it in the abundance of products at your nearby shopping mall and the ads that fill your TV screen, spice up your magazines, or stuff your mailbox. But in recent years, marketers have assembled a host of new marketing ap- proaches, everything from imaginative Web sites and online social networks to your cell phone. These new approaches do more than just blast out messages to the masses. They reach you directly and personally. Today’s marketers want to become a part of your life and enrich your experiences with their brands—to help you live their brands. At home, at school, where you work, and where you play, you see marketing in almost everything you do. Yet, there is much more to marketing than meets the consumer’s casual eye. Behind it all is a massive network of people and activities competing for your attention and purchases. This book will give you a complete introduction to the basic concepts and practices of today’s marketing. In this chapter, we begin by defining marketing and the mar- keting process. Marketing Defined What is marketing? Many people think of marketing as only selling and advertising. We are bombarded every day with TV commercials, catalogs, sales calls, and e-mail pitches. How- ever, selling and advertising are only the tip of the marketing iceberg. Today, marketing must be understood not in the old sense of making a sale—“telling and selling”—but in the new sense of satisfying customer needs. If the marketer understands consumer needs; develops products that provide superior customer value; and prices, dis- tributes, and promotes them effectively, these products will sell easily. In fact, according to management guru Peter Drucker, “The aim of marketing is to make selling unnecessary.”3 Selling and advertising are only part of a larger “marketing mix”—a set of marketing tools that work together to satisfy customer needs and build customer relationships. Broadly defined, marketing is a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging value with others. In a narrower business context, marketing involves building profitable, value- Marketing laden exchange relationships with customers. Hence, we define marketing as the process The process by which companies create by which companies create value for customers and build strong customer relationships in value for customers and build strong order to capture value from customers in return.4 customer relationships in order to capture value from customers in return. The Marketing Process Figure 1.1 presents a simple, five-step model of the marketing process. In the first four steps, companies work to understand consumers, create customer value, and build strong customer relationships. In the final step, companies reap the rewards of creating superior customer value. By creating value for consumers, they in turn capture value from consumers in the form of sales, profits, and long-term customer equity. In this chapter and the next, we will examine the steps of this simple model of market- This important figure shows marketing in ing. In this chapter, we review each step but focus more on the customer relationship steps— a nutshell! By creating value for customers, understanding customers, building customer relationships, and capturing value from marketers capture value from customers in customers. In Chapter 2, we look more deeply into the second and third steps—designing return. This five-step process forms the marketing framework for the rest of marketing strategies and constructing marketing programs. the chapter and the remainder of the text. Create value for customers and Capture value from build customer relationships customers in return Construct an Understand the Design a Build profitable Capture value integrated marketplace and customer-driven marketing program relationships and from customers to customer needs marketing that delivers create customer create profits and and wants strategy delight customer equity superior value FIGURE | 1.1 A Simple Model of the Marketing Process 6 Part One | Defining Marketing and the Marketin