Introduction to Marketing I 2e (MKTG 1010) PDF

Introduction to Marketing I 2e (MKTG 1010) Introduction to Marketing I 2e (MKTG 1010) 2nd EDITION NSCC FACULTY AND LUMEN LEARNING NSCC HALIFAX, NOVA SCOTIA Introduction to Marketing I 2e (MKTG 1010) by NSCC & Lumen Learning is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted. The open textbook NSCC Introduction to Marketing I 2e(MKTG 1010) is an open textbook adapted from Lumen Learning’s openly licenced online course Principles of Marketing. See connected open textbook NSCC Introduction to Marketing II 2e (MKTG 1010) Contents Dedication x Acknowledgements xi Chapter 1: What Is Marketing? 1.1 Why It Matters: What Is Marketing? 2 1.2 Marketing Defined 7 Reading: Marketing Defined 9 1.3 Marketing in Action 12 Reading: Marketing in Action 13 1.4 The Marketing Concept 17 Reading: The Marketing Concept 18 1.5 Marketing and Customer Relationships 20 Reading: Marketing and Customer Relationships 21 1.6 How Organizations Use Marketing 26 Reading: How Organizations Use Marketing 27 1.7 Value of Marketing 30 Reading: The Value of Marketing 32 Practice Quiz Chapter 1 34 Chapter 2: Marketing Function 2.1 Why It Matters: Marketing Function 36 2.2 Importance of Customer 38 Reading: Why Customers Matter 39 2.3 Segmentation and Targeting Introduction 42 Reading: Defining Your Target Market 43 2.4 Communicating the Value Proposition 46 Reading: Value for the Customer 47 Reading: Communicating the Value Proposition 50 2.5 Evaluating Value Proposition Examples 52 Reading: Value Proposition Examples 53 Video: Coffee Shop Marketing 57 2.6 Marketing Mix 58 Reading: Defining the Marketing Mix 59 Reading: Components of the Marketing Mix 63 Reading: Introduction to the Product Life Cycle 67 2.7 Using the Marketing Mix 70 Reading: Finding the Right Marketing Mix 71 Case Study: Chobani 72 2.8 Role of Marketing Plan 76 Reading: The Role of the Marketing Plan 77 Simulation: Ice Cream Magnate 81 2.9 Putting It Together: Marketing Function 82 Practice Quiz Chapter 2 84 Chapter 3: Segmentation and Targeting 3.1 Why It Matters: Segmentation and Targeting 86 3.2 Segmentation and Targeting Rationale 87 Reading: The Purpose of Market Segmentation and Targeting 88 3.3 Common Segmentation Approaches 91 Reading: Segmentation Criteria and Approaches 92 3.4 Segmentation Decisions 100 Reading: Choosing a Segmentation Approach and Target Segments 101 Case Study: Bumble Targets Women and Breaks Norms 105 3.5 Targeting and Marketing Mix 107 Reading: Targeting Strategies and the Marketing Mix 109 Case Study: Red Bull Wins the “Extreme” Niche 117 Simulation: Segmenting the Ice Cream Market 119 3.6 Putting It Together: Segmentation and Targeting 120 Practice Quiz Chapter 3 123 Chapter 4: Marketing Strategy 4.1 Why It Matters: Marketing Strategy 125 4.2 Evaluate Alignment of Marketing Strategies 128 Video: What Is Strategy? 129 Reading: Strategy and Tactics 130 Reading: The Mission Statement 133 Reading: Strategy and Objectives 138 4.3 Marketing Strategy Mechanics 140 Reading: Creating the Marketing Strategy 141 Reading: Optimizing the Marketing Mix 143 Reading: Implementation and Budget 145 Reading: Evaluating Marketing Results 147 4.4 Strategic Planning Tools 150 Reading: SWOT Analysis 151 Reading: BCG Matrix 156 Reading: Strategic Opportunity Matrix 159 4.5 Examples of Corporate Strategies 161 Reading: Market Penetration Example 162 Reading: Market Development Example 165 Reading: Product Development Example 166 Reading: Diversification Example 167 4.6 Customer Relationships 169 Reading: Customer-Relationship Strategies 170 Video: Harley Davidson Customer Relationships 172 4.7 Putting It Together: Marketing Strategy 174 Practice Quiz Chapter 4 179 Chapter 5: Ethics and Social Responsibility 5.1 Why It Matters: Ethics and Social Responsibility 181 5.2 Ethical Marketing Issues 185 Reading: Defining Ethics 187 Reading: Common Ethical Issues in Marketing 189 Reading: New Challenges in Marketing Ethics 192 Reading: Corporate Social Responsibility 196 5.3 Regulatory Laws 200 Reading: 5.3 Society Protection Laws and Standards 203 Reading: 5.3 Business Protections Laws and Standards 204 Reading: 5.3 Consumer Protection Laws and Standards 205 Reading: Product Liability 206 Reading: Privacy Laws 209 Reading: Fraud in Marketing 216 5.4 B2B and B2C Marketer Ethical Dilemmas 218 Reading: Ethics in B2B Marketing 222 Reading: Gifts and Bribes 225 5.5 Ensuring Ethical Marketing and Sales 229 Reading: A Culture of Accountability 230 Reading: Ethics for Marketing Employees 234 Reading: Executive Role in Ethics 237 Simulation: Ethics 242 5.6 Social Responsibility Marketing Impact 243 Reading: Social Responsibility in the Marketing Strategy 244 Reading: Social Responsibility Initiatives 246 5.7 Putting It Together: Ethics and Social Responsibility 248 Practice Quiz Chapter 5 254 Chapter 6: Marketing Information and Research 6.1 Why It Matters: Marketing Information and Research 256 6.2 Importance of Marketing Information 257 Reading: The Importance of Marketing Information and Research 258 Case Study: Juicy Fruit Gum 261 6.3 Types of Marketing Information 262 Reading: Types of Marketing Information 263 6.4 The Marketing Research Process 267 Reading: The Marketing Research Process 268 6.5 Marketing Research Techniques 276 Reading: Secondary Marketing Research 277 Reading: Primary Marketing Research Methods 284 6.6 Marketing Data Sources 298 Reading: Marketing Data Sources 299 6.7 Customer Relationship Management (CRM) Systems 302 Reading: Customer Relationship Management Systems 303 6.8 Using Marketing Information 305 Reading: Using Marketing Information 306 6.9 Putting It Together: Marketing Information and Research 310 Practice Quiz Chapter 6 313 Chapter 7: Consumer Behavior 7.1 Why It Matters: Consumer Behaviour 315 7.2 Buying-Process Stages 317 Reading: The “Black Box” of Consumer Behavior 318 Reading: Buying-Process Stages 322 7.3 Low-Involvement vs. High-Involvement Decisions 327 Reading: Low-Involvement vs. High-Involvement Decisions 328 7.4 Factors Influencing Consumer Decisions 330 Reading: Influences on Consumer Decisions 332 Reading: Situational Factors 334 Reading: Personal Factors 336 Reading: Psychological Factors 344 Video: Consumer Beliefs and Febreze 349 Reading: Social Factors 350 7.5 B2B Purchasing Decisions 363 Reading: Organizational Buyer Behavior 364 Video: Complexities of a B2B Solution Sale 369 Reading: The Organizational Buying Process 370 7.6 Putting It Together: Consumer Behavior 374 Practice Quiz Chapter 7 378 Chapter 8: Positioning 8.1 Why It Matters: Positioning 380 8.2 Defining Positioning and Differentiation 382 Reading: Defining Positioning and Differentiation 383 8.3 The Positioning Process 387 Reading: The Positioning Process 388 Video: Starbucks Delivers Community and Connection 395 8.4 Developing Positioning Statements 396 Reading: Developing Positioning Statements 397 8.5 Repositioning 405 Reading: Repositioning 406 8.6 Implementing Positioning Strategy 411 Reading: Implementing Positioning Strategy 412 8.7 Putting It Together: Positioning 418 Practice Quiz Chapter 8 422 Credits & References 423 Version History 451 Dedication Nova Scotia Community College faculty join with all the contributors in dedicating this book to reducing the cost of education in business. This book is also dedicated to the students who use it to advance their learning and to improve the quality of life in their communities. Open textbooks by Giulia Forsythe CC0 | flickr x | Dedication Acknowledgements Nova Scotia Community College (2021 edition) This text, and the related Introduction to Marketing II are adapted remixed versions of Lumen Learning’s Principles of Marketing. They were first adopted at Nova Scotia Community College (NSCC) in 2020 and were subsequently enhanced and improved in 2021 with support from the NSCC School of Business and Creative Industries faculty along with NSCC students funded through grants from AtlanticOER (Council of Atlantic University Libraries) and the NSCC Foundation. The content was modified to suit the emerging needs of teachers and learners. Canadian examples and Canadian regulatory requirements was added to make the text relevant to Canadian students. The text was also integrated into a Learning Management System with customized PowerPoints and Quizzes – a Brightspace shell. Faculty team members for the 2021 revision project included: Di Best, Deirdre Evans, Jules Fauteux, Helen Graham, Teri Green, Melanie Grant, Tara Laceby, Phyllis LeBlanc, Harold Lowe, Shari Mallory, Bonnie O’Toole, Barbara Powers, Rankin MacMaster, Terry Sulis, and Wendy Tarrel. Student team members for the 2021 revision project included: Hadley Brooks-Joiner, and Kimia Ghasemi. Support team members for the 2021 revision project included: Michelle Chalupa and Lynn MacGregor. Team members from the 2020 adoption included: Di Best, Deidre Evans, Jules Fauteux, Rankin MacMaster, Barbara Powers, and George Swaniker. Special thanks to Lynn MacGregor for her dedication and support as a foundational OER champion at NSCC. About Lumen Learning and the original edition of this work Acknowledgements | xi Lumen Learning’s mission is to make great learning opportunities available to all students, regardless of socioeconomic background. The Lumen online course Principles of Marketing was developed by Lumen Learning. Primary sources for the course include Introducing Marketing by John Burnett, Boundless Marketing, and videos provided by the BBC. Contributors to the Lumen Learning Course The work benefited from the contributions of many people, including Ryan Seiler, Hailey Williams, Georgia Kleinwolterink, Christian David, Michael Kovens, Nate Cottrell, Breanne Miller, Colby Dutton, Leanne Marchand, John Panou, Sean Cullen, Sharon Weis, Hernadi Budisantoso, and Erik Robinson. 12 | CHAPTER 1: WHAT IS MARKETING? Learning Objectives What is marketing? Define marketing Identify evidence of marketing in everyday life Demonstrate a clear understanding of the marketing concept Describe the role of marketing in building and managing customer relationships Describe how different types of organizations, such as non-profits, consumer product (B2C) firms and business-to-business (B2B) organizations, use marketing Explain how marketing creates value for the consumer, the company, and society Chapter 1: What Is Marketing? | 1 1.1 Why It Matters: What Is Marketing? Learning Objectives Explain what marketing is and how it’s used When you hear the term “marketing,” what comes to mind? Based on what you know about marketing right now, what one word would you use to describe it? Take a moment to write it down. We’ll come back to it shortly. Marketing is a tool used by companies, organizations, and people to shape our perceptions and persuade us to change our behaviour. The most effective marketing uses a well-designed strategy and a variety of techniques to alter how people think about and interact with the product or service in question. Less-effective marketing causes people to turn off, tune out, or not even notice. Why should you care about marketing? Marketing is an ever-present force in modern society, and it can work amazingly well to influence what we do and why we do it. Consider these points: Marketing sells products. Marketing informs organizations about what people want, and it informs people about products and services available to feed our wants and needs. From overt advertising to covert “recommendations” about things you might like based on other things you’ve purchased, marketing shows us different choices and tries to influence our buying behavior. As you view its site, Amazon.com gleans information about you and what you’re shopping for. Then it suggests other products that might interest you: items similar to what you viewed, special deals, and items other people bought who were shopping for the same things as you. The genius of this technique is that it’s marketing masquerading as helpful information sharing. 2 | 1.1 Why It Matters: What Is Marketing? Screenshot of Amazon recommendation engine Marketing changes how you think about things. Effective marketing shapes people’s perceptions of the world around them, for better or for worse. Marketing can cause you to think differently about an issue, product, candidate, organization, or idea. When you are attuned to marketing forces and practices, you can exercise better judgment about the information you receive. The ad below lets you speculate about what the checkboxes might be about before revealing the truth at the very end. They shift expectations and showcase that presumptions about looks are irrelevant when it comes down to the important things in life. 1.1 Why It Matters: What Is Marketing? | 3 A YouTube element has been excluded from this version of the text. You can view it online here: https://pressbooks.nscc.ca/ nsccprinciplesofmarketing2e/?p=36 Marketing creates memorable experiences. Some of the most imaginative marketing is not a message or an image. Instead it’s an entire experience that gives people a deepened understanding, enjoyment, or loyalty to whomever is providing the experience. This IKEA event created a slumber party atmosphere for avid fans of the home furnishing store, inviting them to stay in the store overnight and live temporarily in the store display. It’s a great way to encourage people to interact more deeply with your product. 4 | 1.1 Why It Matters: What Is Marketing? A YouTube element has been excluded from this version of the text. You can view it online here: https://pressbooks.nscc.ca/ nsccprinciplesofmarketing2e/?p=36 You can view the transcript for “IKEA BIG Sleepover”. (opens in new window) Marketing alters history. Marketing has been known to unleash attitudes and forces that alter the course of history. Today, marketing plays a pronounced role in political campaigns, policy debates, and mobilizing citizen support for public affairs initiatives. The Barack Obama “Hope” poster became globally recognizable and represented his 2008 presidential campaign. The image was created by Shepard Fairey, who took historical inspiration from the well-known JFK portrait where he is 1 posed similarly. Having a political campaign that stands out not only helps with engagement from potential voters, but can also serve as a memorable example for the ones to come in the future as they go down in history for being outstanding and different. The image today still stands strong as most people have a positive association with it and 2 because of the message behind it that resonated strongly with them. 1. Fisher III, William; Cost, Frank; Fairley, Shepard; Feder, Meir; Fountain, Edwin; Steward, Geoffrey; Sturken, Martina, "Reflections on the Hope Poster Case", Harvard Journal of Law and Technology. http://jolt.law.harvard.edu/articles/ pdf/v25/25HarvJLTech243.pdf 2. 3. Paragraph adapted from: Barack Obama "Hope" poster. (2021, May 6). In Wikipedia. https://en.wikipedia.org/wiki/ Barack_Obama_%22Hope%22_poster. Barack Obama "Hope" poster, originally by Shepard Fairey. 1.1 Why It Matters: What Is Marketing? | 5 The most widely distributed version of Shepard Fairey’s Obama poster, featuring the word “hope”. Marketing can use a variety of elements to shape perceptions and behaviour: words, images, design, experiences, emotions, stories, relationships, humor, sex appeal, etc. And it can use a wide variety of tactics, from advertising and events to social media and search-engine optimization. Often the purpose is to sell products, but as you can see from the examples above, the goal of any specific marketing effort may have little to do with money and much more to do with what you think and do. Go back to that word you jotted down to describe marketing at the top of the page. Now that you’ve had a little more exposure to the concept, what word comes to mind to describe “marketing”? Is it the same word you chose earlier, or are you starting to think differently? By the time you finish this course, you will have a broader understanding of marketing beyond TV commercials and billboards and those annoying pop-up ads on the websites you visit. You’ll learn how to see marketing for what it is. You’ll learn how to be a smart consumer and a smart user of marketing techniques when the need for them arises in your life. 6 | 1.1 Why It Matters: What Is Marketing? 1.2 Marketing Defined Learning Objectives Explain how the marketplace addresses customer wants and needs by creating opportunities for the exchange of products, services, and experiences Describe the role marketing plays in facilitating the exchange of value Define marketing Marketing is more than just banner ads, television commercials, and people standing on roadsides dressed up like the Statue of Liberty during tax time. It’s a complex set of activities and strategies that influences where we live, what we wear, how we conduct business, and how we spend our time and money. Marketing activities are conducted in an environment that changes quickly both in terms of customer demand and the methods by which consumers obtain information and make purchases. However, before you learn about these complex variables, you will need a good working definition of marketing. The following video has one (actually two). A YouTube element has been excluded from this version of the text. You can view it online here: https://pressbooks.nscc.ca/ nsccprinciplesofmarketing2e/?p=38 1.2 Marketing Defined | 7 You can view the transcript for “What Is Marketing? Two Answers To This One Question”. (opens in new window) Let’s move ahead so that you can gain a richer definition and understanding of marketing. Learning Activities Reading: Marketing Defined 8 | 1.2 Marketing Defined Reading: Marketing Defined Hong Kong umbrella revolution. Peaceful street protest in 2014. What Is Marketing? Marketing is a set of activities related to creating, communicating, delivering, and exchanging offerings that have value for others. In business, the function of marketing is to bring value to customers, whom the business seeks to identify, satisfy, and retain. This course will emphasize the role of marketing in business, but many of the concepts will apply to non-profit organizations, advocacy campaigns, and other activities aimed at influencing perceptions and behaviour. The Art of the Exchange In marketing, the act of obtaining a desired object from someone by offering something of value in return is called the exchange process. The exchange involves: the customer (or buyer): a person or organization with a want or need who is willing to give money or some other personal resource to address this need the product: a physical good, a service, experience, or idea designed to fill the customer’s want or need the provider (or seller): the company or organization that is offering a product (a good, service, experience, or idea) to satisfy a need the transaction: the terms around which both parties agree to trade value-for-value (most often, money for product) Individuals on both sides try to maximize rewards and minimize costs in their transactions, in order to gain the most profitable outcomes. Ideally, everyone achieves a satisfactory level of reward. Marketing creates the goods and services that the company offers at a price to its customers. The entire bundle consists of a tangible good, an intangible service, and the price is the company’s offering. When you compare one car to another, for example, you can evaluate each of these dimensions—the tangible, the intangible, and the price—separately. However, you can’t buy one manufacturer’s car, another manufacturer’s service, and a third manufacturer’s price when you actually make a choice. Together, the three make up a single firm’s offer. Marketing is also responsible for the entire environment in which this exchange of value takes place. Marketing Reading: Marketing Defined | 9 identifies customers, their needs, and how much value they place on getting those needs addressed. Marketing informs the design of the product to ensure it meets customer needs and provides value proportional to what it costs. Marketing is responsible for communicating with customers about products, explaining who is offering them and why they are desirable. Marketing is also responsible for listening to customers and communicating back to the provider about how well they are satisfying customer needs and opportunities for improvement. Marketing shapes the location and terms of the transaction, as well as the experience customers have after the product is delivered. Marketing Creates Value for Customers According to the influential economist and Harvard Business School professor Theodore Levitt, the purpose of all business is to “find and keep customers.” Marketing is instrumental in helping businesses achieve this purpose. It’s a way of thinking about business, rather than just a collection of techniques. It’s much more than just advertising and selling stuff and collecting money. Marketing generates value by creating connections between people and products, customers and companies. This happens by identifying, satisfying, and retaining customers, which are also the main roles of marketing. Before you can create anything of value, first you must identify a want or need that you can address, as well as the prospective customers who possess this want or need. Next, you work to satisfy these customers by delivering a product or service that addresses these needs at the time customers want it. The key to customer satisfaction is making sure everyone feels they benefit from the exchange. Your customer is happy with the value they get for what they pay. You are happy with the payment you receive in exchange for what you provide. Effective marketing doesn’t stop there. It also needs to retain customers by creating new opportunities to win customer loyalty and business. 10 | Reading: Marketing Defined As you will learn in this course, marketing encompasses a variety of activities focused on accomplishing these objectives. How companies approach and conduct day-to-day marketing activities vary widely. For many large, highly visible companies, such as Disney-ABC, Proctor & Gamble, Sony, Toyota, and Bell Canada marketing represents a major expenditure. Such companies rely on effective marketing for business success, and this dependence is reflected in their organizational strategies, budget, and operations. Conversely, for other organizations, particularly those in highly regulated or less competitive industries such as utilities, social services, medical care, or businesses providing one-of-a- kind products, marketing may be much less visible. It could even be as simple as a website or an informational brochure. There is no one model that guarantees marketing success. Effective marketing may be very expensive, or it may cost next to nothing. What marketing must do in all cases is to help the organization identify, satisfy, and retain customers. Regardless of size or complexity, a marketing program is worth the costs only if it facilitates the organization’s ability to reach its goals. Reading: Marketing Defined | 11 1.3 Marketing in Action Learning Objectives Recognize marketing activities in daily life Explain the differences between marketing, advertising, branding, and sales Identify evidence of marketing in everyday life In this section, you’ll get a chance to explore the concept of marketing further and see how it’s at work in the world around you. It may surprise you to discover how much the term encompasses. Learning Activities Reading: Marketing in Action 12 | 1.3 Marketing in Action Reading: Marketing in Action Marketing is all around you. Enter a store, walk down the street, browse the Internet, or glance through your closet. Whether you realize it or not, some aspect of marketing is likely at work in each of these activities. In the following scenarios, consider the lengths to which marketers go to identify, satisfy, and retain you as a customer. See if you can draw examples from your own experience that demonstrate marketing in action. Scenario #1: Life on the Streets You’re walking down an urban street and, on impulse, you head into a trendy-looking clothing store. Right away, you pick out the obvious signs of marketing: shop signs, posters, window displays, sale notices, product displays, and brand names. Then come the less obvious, “environmental” things: the interior design, colours, aromas, the background music, announcer messages, the pricing structure, the way store clerks approach you–or leave you alone. All these details are part of a coordinated marketing strategy aimed at creating an ideal environment to separate you from your money. You may or may not be aware of how this is happening, but rest assured it is at work. Scenario #2: Virtual Reality Suppose you’re taking a short break from studying and doing a little online browsing—there’s news to read and Facebook to check. And you need to find a birthday present for your aunt... What kinds of marketing are ready to intrude? What jumps out at you immediately are the ads on the Web sites you visit: Facebook, Instagram, email, even your Google results. Annoyingly, you have trouble finding the X to close a pop-up banner ad that has taken over your screen. But that’s not all. Before you’re allowed to navigate to an article you want to read, you’re invited to take a “very short” user feedback survey. Back to your aunt: you head to Amazon.com to read a couple of customer reviews of the book you have in mind for her. Amazon recommends several other books, and one looks ideal. You compare prices at other booksellers, but Amazon beats them, so you place your order. In the end, you find exactly what you want, and it will be shipped that day. Thank you, marketing! Reading: Marketing in Action | 13 Screenshot of Amazon page for the book on Mini Farming Scenario #3: In My Room Now imagine you’re back at home, hanging out in your room. How is “marketing” invading your personal space? Miller Hall residence room In the privacy of your own home, the presence of marketing might seem less obvious, but it’s definitely there. Pouring yourself a bowl of cereal, you see the back of the cereal box is inviting you to enter a sweepstakes contest. When you switch on the TV, a few ads slip by, even though you’re watching shows recorded on your DVR. Between programs, logos, and messages from broadcasting networks tell you about other shows you don’t want to miss. As you’re becoming more 14 | Reading: Marketing in Action attuned to the presence of advertising, you start to notice how all the characters in your favourite sitcom are drinking Pepsi products. Is that just a coincidence? Probably not. You look at the clock and realize it’s time to change for work. Opening your closet, you notice the logos on your favorite shirts. Not only do you love how those clothes fit, but you recognize an emotional connection: those clothes–and brands–make you feel confident and attractive. How’s that for invasive marketing? Marketing Is Everywhere The purpose of this course is not to start making you suspicious or even paranoid about the influence of marketing in your everyday life. In fact, marketing can play an important and beneficial role by connecting you to information, people, and things. It can make you aware of things you care about but wouldn’t otherwise encounter. When marketing is working well, the new information it brings to you also aligns with what you’re already interested in doing or exploring. At times, marketing might feel more like an assault than an assist. Visual images on posters or billboards scream for your attention. Sponsor announcements persistently remind you which organizations are making your entertainment possible. Sleek product designs beckon you to try on clothing or try out gadgets. Sales promotions create a sense of urgency to spend now or lose out. The right balance between “helpful” and “annoying” varies, depending on who you are and what type of relationship you have with the entity doing the marketing. When the balance starts to get off-kilter, it’s a clue that something isn’t working as well as it should in the marketing strategy and execution. Marketing Activities Marketing encompasses all the activities described above. It covers an entire spectrum of techniques focused on identifying, satisfying, and retaining customers. For people new to the concept of marketing, it can be easy to confuse marketing with some of the powerful and visible tools that marketers use. Marketing vs. Advertising Advertising uses paid notices in different forms of media to draw public attention to a company, product, or message, 1 usually for the purpose of selling products or services. While advertising is a common and useful tool for marketing, it’s just one of many tactics marketers may use to achieve their goals. 1. "Advertising." The Free Dictionary. Accessed September 10, 2019. http://www.thefreedictionary.com/advertising Reading: Marketing in Action | 15 Marketing vs. Branding Branding is the practice of “creating a name, symbol or design that identifies and differentiates a product from other 2 products.” Brand is a powerful tool for shaping perceptions about a company or product in order to attract and retain loyal customers by standing out. Marketing processes and activities build brands, and branding is an important strategic consideration in any marketing effort. At the same time, marketing refers to a broader scope of activity than just branding. Marketing vs. Sales Sales refer to the process of actually selling products or services, leading up to the point where the exchange of value takes place. Effective marketing aligns well with the sales process and leads to increased sales. While marketing and sales are intertwined, the scope of marketing is generally considered broader than just supporting sales. Marketing helps identify prospective customers and prepares them to enter the sales process as informed, receptive, qualified sales leads. This course will explore all these marketing activities in much more detail to give you a clear picture of how these tools can be employed to support an organization’s broader marketing goals. 2. "Branding". Entrepreneur. Accessed May 11, 2021. https://www.entrepreneur.com/encyclopedia/branding 16 | Reading: Marketing in Action 1.4 The Marketing Concept Learning Objectives Demonstrate a clear understanding of the marketing concept You’re probably very skilled at recognizing the signs of marketing. We’ve all had the experience of being on the receiving or customer end of marketing efforts—whether through advertising or sales tactics. In this section you’ll get to understand the marketing orientation, or marketing concept, from the standpoint of setting priorities and doing business. You’ll learn that the marketing orientation is a mindset grounded in one thing: knowing and satisfying the customer. Not all businesses follow a marketing orientation, however—some are focused on other priorities, such as product and production. In this section you’ll see what sets the marketing concept apart. Learning Activities Reading: The Marketing Concept 1.4 The Marketing Concept | 17 Reading: The Marketing Concept Company Orientation and the Marketing Concept In every transaction between a buyer and seller, there is an underlying dynamic that governs the parties’ perception of the exchange. Sometimes the exchange is very one-sided, with one party exercising most of the power and the other only in a position to react. In some cases, deception and lying permeate the exchange. Other exchanges are more equitable, with each party receiving about the same value as the other. The customer’s need is satisfied, and the business makes a reasonable profit. With the emergence of the Internet and e-commerce, the nature of the exchange has changed dramatically for many businesses and customers. Today, people have access to far more and far better information than they did previously. They also have many more choices. To remain competitive, businesses must match or exceed the practices of competitors that are quick, smart, and open twenty-four hours a day. A central aim of marketing is to help organizations understand and respond to customer needs and expectations, while keeping the customer informed about how the organization can address those needs. When you employ marketing correctly, you know that this process is easier if you keep in constant contact with the customer. It doesn’t necessarily mean that you must write and call regularly (although it could), but that you must take steps to know a great deal about the characteristics, values, interests, and behaviours of its customers. It means that you monitor these factors and how they change over time. Although this process is not an exact science, there is evidence that marketers who do this well tend to succeed. The Marketing Concept An organization adopts the marketing concept when it takes steps to know as much about the consumer as possible, coupled with a decision to base marketing, product, and even strategy decisions on this information. These organizations start with the customers’ needs and work backward from there to create value, rather than starting with some other factor like production capacity or an innovative invention. They operate on the assumption that success depends on doing better than competitors at understanding, creating, delivering, and communicating value to their target customers. The Product Concept Both historically and currently, many businesses do not follow the marketing concept. For many years, companies such as Texas Instruments and Otis Elevator have followed a product orientation, in which the primary organizational focus is technology and innovation. All parts of these organizations invest heavily in building and showcasing impressive features and product advances, which are the areas in which these companies prefer to compete. This approach is also known as the product concept. Rather than focusing on a deep understanding of customer needs, these companies assume that a technically superior or less expensive product will sell itself. While this approach can be very profitable, there is a high risk of losing touch with what customers actually want. This leaves product-oriented companies vulnerable to more customer-oriented competitors. 18 | Reading: The Marketing Concept The Sales Concept Other companies follow a sales orientation. These businesses emphasize the sales process and try to make it as effective as possible. While companies in any industry may adopt the sales concept, multilevel-marketing companies such as Herbalife and Amway generally fall into this category. Many business-to-business companies with dedicated sales teams also fit this profile. These organizations assume that a good salesperson with the right tools and incentives is capable of selling almost anything. Sales and marketing techniques include aggressive sales methods, promotions, and other activities that support the sale. Often, this focus on the selling process may ignore the customer or view the customer as someone to be manipulated. These companies sell what they make, which isn’t necessarily what customers want. The Production Concept The production concept is followed by organizations that are striving for low-production costs, highly efficient processes, and mass distribution (which enables them to deliver low-cost goods at the best price). This approach came into popularity during the Industrial Revolution of the late 1800s when businesses were beginning to exploit opportunities associated with automation and mass production. Production-oriented companies assume that customers care most about low-cost products being readily available and less about specific product features. Henry Ford’s success with the groundbreaking assembly-line–built Model T is a classic example of the production concept in action. Today this approach is still widely successful in developing countries seeking economic gains in the manufacturing sector. Ford first moving assembly line 1913, Highland Park, Michigan Seeing the Whole Picture Savvy businesses acknowledge the importance of product features, production, and sales, but they also realize that the broader focus of the three-step process described below will help them be most effective: 1. Continuously collect information about customers’ needs and competitors’ capabilities; 2. Share the information across departments; and 3. Use the information to create a competitive advantage by increasing value for customers. This is a true marketing orientation. Reading: The Marketing Concept | 19 1.5 Marketing and Customer Relationships Learning Objectives Define the concept of customer lifetime value Explain why customer relationship building is a central purpose of marketing Explain engagement marketing and how it alters a customer’s relationship with a brand. Describe the role of marketing in building and managing customer relationships The marketing concept provides exactly the right mindset for what we ultimately want to achieve: building strong relationships with customers. Next we’ll explore how marketing plays a central role in each stage of building and managing customer relationships. Learning Activities Reading: Marketing and Customer Relationships 20 | 1.5 Marketing and Customer Relationships Reading: Marketing and Customer Relationships Customer Relationship Management: A Strategic Imperative We have stated that the central purpose of marketing is to help organizations identify, satisfy, and retain their customers. These three activities lay the groundwork for what has become a strategic imperative in modern marketing: customer relationship management. Building relationships between customers and companies is a natural outgrowth of the marketing concept, which orients entire organizations around understanding and addressing customer needs. But only in recent decades has technology made it possible for companies to capture and utilize information about their customers to such a great extent and in such meaningful ways. The Internet and digital social media have created new platforms for customers and product providers to find and communicate with one another. As a result, there are more tools now than ever before to help companies create, maintain, and manage customer relationships. Maximizing Customer Lifetime Value Central to these developments is the concept of customer lifetime value. Customer lifetime value predicts how much 1 profit is associated with a customer during the course of their lifetime relationship with a company. One-time customers usually have a relatively low customer lifetime value, while frequent, loyal, repeat-customers typically have a high customer lifetime value. Companies develop strong, ongoing relationships with customers who are likely to have a high customer lifetime value through marketing. Marketing applies a customer-oriented mindset and, through particular marketing activities, tries to make initial contact with customers and move them through various stages of the relationship—all with the goal of increasing lifetime customer value. These activities are summarized below. Typical Marketing Activities during each Stage of the Customer Relationship Stage 1: Meeting and Getting Acquainted Find desirable target customers, including those likely to deliver a high customer lifetime value Understand what these customers want 1. "Customer Lifetime Value." Cambridge Dictionary. Accessed September 10, 2019. http://dictionary.cambridge.org/us/ dictionary/english/customer-lifetime-value Reading: Marketing and Customer Relationships | 21 Build awareness and demand for what you offer Capture new business Stage 2: Providing a Satisfying Experience Measure and improve customer satisfaction Track how customers’ needs and wants evolve Develop customer confidence, trust, and goodwill Demonstrate and communicate competitive advantage Monitor and counter competitive forces Stage 3: Sustain a Committed Relationship Convert contacts into loyal repeat customers, rather than one-time customers Anticipate and respond to evolving needs Deepen relationships, expand reach of and reliance on what you offer Another benefit of effective customer relationship management is that it reduces the cost of business and increases profitability. As a rule, winning a new customer’s business takes significantly more time, effort, and marketing resources than it does to renew or expand business with an existing customer. 22 | Reading: Marketing and Customer Relationships Customer Relationship As Competitive Advantage As the global marketplace provides more and more choices for consumers, relationships can become a primary driver of why a customer chooses one company over others (or chooses none at all). When customers feel satisfaction with and affinity for a specific company or product, it simplifies their buying choices. For example, why might a woman shopping for a cocktail dress choose to go to Hudson’s Bay (The Bay) rather than Walmart, or pick from an army of online stores? Possibly because she prefers the selection of dresses at The Bay and the store’s atmosphere. It’s much more likely, though, that thanks to The Bay’s practices, this shopper has a relationship with an attentive sales associate who has helped her find great outfits and accessories in the past. She also knows about the store’s customer-friendly return policy, which might come in handy if she needs to return something. A company like The Bay delivers such satisfactory experiences that its customers return again and again. A consistently positive customer experience matures into a relationship in which the customer becomes increasingly receptive to the company and its products. Over time, the customer relationship gives The Bay a competitive advantage over other traditional department stores and online retailers. When Customers Become Your Best Marketing Tool Customer testimonials and recommendations have always been powerful marketing tools. They often work to persuade new customers to give something a try. In today’s digital media landscape there is an unprecedented opportunity for companies to engage customers as credible advocates. When organizations invest in building strong customer relationships, these activities become particularly fruitful. For example, service providers like restauranteurs, physical therapists, and dentists frequently ask regular patrons and patients to write reviews about their real-life experiences on popular recommendation sites like Yelp and Google+. Product providers do the same on sites like Amazon and CNET.com. Although companies risk getting a bad review, they usually gain more by harnessing the credible voices and authentic experiences of customers they have served. In this process they also gain invaluable feedback about what’s working or not working for their customers. Using this input, they can retool their products or approach to better match what customers want and improve business over time. Reading: Marketing and Customer Relationships | 23 Additionally, smart marketers know that when people take a public stance on a product or issue, they tend to become more committed to that position. Thus, customer relationship management can become a virtuous cycle. As customers have more exposure and positive interaction with a company and its products, they want to become more deeply engaged, and they are more likely to become vocal evangelists who share their opinions publicly. Customers become an active part of a marketing engine that generates new business and retains loyal customers for repeat business and increased customer lifetime value. Engagement Marketing: Making Customers Part of the Brand A further step beyond customer evangelism is engagement marketing, the practice of reaching out to customers and encouraging them to become full participants in marketing activity and the growth of a brand. Sometimes called “live marketing,” this approach is becoming more common as media and technology provide more interactive, visible, and sharable ways for consumers to connect with brands and companies. A mind shift is underway, away from one-way, company-to-consumer communication toward marketing activities that invite consumers to shape and become part of the value a brand provides. In an increasingly crowded marketplace, many organizations find that they can distinguish themselves and their products by creating “tribes” of fans who not only advocate for the brand but also actively make it part of their daily activities and lifestyle. Customers might even become involved in developing marketing programs, producing content that can be used for marketing purposes, and cultivating one-on-one relationships with a company or brand. 24 | Reading: Marketing and Customer Relationships Creative marketers have invented many ways to foster engagement marketing. The self-promotional mindset and proliferating tools of social media are a natural fit for making customers part of a brand. People “check-in” at their favorite restaurants and post photos to communicate with friends when they are having fun. Bloggers routinely name- check favorite products, review them, and carry on conversations about them in their posts. The phenomenon of engagement marketing helps explain the meteoric rise in the popularity of GoPro cameras. When company leaders realized that their customers had an unquenchable appetite for sharing videos of amazing outdoor adventures (shot with GoPro cameras, of course), they built the company brand and marketing strategy around engaging customers in viral sharing. The following video, produced by YouTube, explains this engagement marketing success story. A YouTube element has been excluded from this version of the text. You can view it online here: https://pressbooks.nscc.ca/ nsccprinciplesofmarketing2e/?p=58 You can view the transcript for “GoPro YouTube Case Study | YouTube Advertisers”. (opens in new window) Reading: Marketing and Customer Relationships | 25 1.6 How Organizations Use Marketing Learning Objectives Explain the difference between a customer and a consumer Define different types of organizations including B2C, B2B, and nonprofit organizations Provide examples of how each type of organization uses marketing Describe how different types of organizations, such as nonprofits, consumer product (B2C) firms, and business-to-business (B2B) organizations, use marketing Although marketing activities come in many different forms, the fundamental principles of marketing apply, regardless of what you’re trying to sell, advocate, or promote. Grounding your marketing efforts in a customer-oriented mindset and staying focused on the relationships you build with those customers will always steer you in the right direction. At the same time, different organizations use marketing in different ways to achieve their goals. The next reading will give you more insight into how marketing supports the success of several common types of organizations. Learning Activities Reading: How Organizations Use Marketing 26 | 1.6 How Organizations Use Marketing Reading: How Organizations Use Marketing Although we often think of marketing in the context of for-profit businesses and product sales, a wide variety of organizations use marketing to achieve their goals. For-Profit Marketing Versus Nonprofit Marketing For-profit organizations are typically privately owned or publicly traded companies with a primary purpose of earning money for their owners. Nonprofit organizations also earn money, but their primary purpose is to use these funds for a specific charitable purpose. Types of nonprofit organizations that may engage in marketing include schools and colleges, hospitals, museums, charitable organizations, and churches, among others. As the terms denote, the difference between for-profit and nonprofit marketing is in the organization’s primary objective. For-profit marketers measure success in terms of profitability and their ability to pay dividends or pay back loans. Continued existence depends on the level of profits they can generate. The primary focus of marketing is usually to sell products, services, experiences or ideas to target customers and to make these customer relationships as profitable as possible. Left: Global Race for the Cure opening ceremony, Washington, DC. Right: Red Bull Flugtag competition, London. Nonprofit institutions exist to benefit a stated mission or purpose, regardless of whether profits are achieved. Owing to their socially beneficial purpose, nonprofit organizations are subject to an entirely different set of laws—notably tax laws. While they are allowed to generate profits, they must use these funds in specific, philanthropic ways in order to maintain their nonprofit status. Marketing efforts focus on activities that promote the organization’s mission. A school, college, or university might use marketing to attract students, improve academic reputation, and solicit donations from alumni. A museum or nonprofit theater company uses marketing to attract visitors, ticket sales, event sponsors, and philanthropic donations. Marketing for nonprofit hospitals usually focuses on attracting patients and strengthening reputation as a high quality health care provider. Reading: How Organizations Use Marketing | 27 Business-to-Consumer and Business-to-Business Marketing An important distinction in how organizations use marketing is whether their efforts target business-to- consumer (B2C) transactions or business-to-business (B2B) transactions. In business and marketing, the consumer is the individual who actually uses the product. The customer is the individual who buys the product from a business. In some transactions, these are the same person, but in other transactions they are different entities. Suppose you take a break from studying and walk to a corner store to buy a snack bar that’s made by a local health-food company. From the perspective of the corner store owner, you are both the customer and the consumer in this transaction. However, from the Chimpanzee natural energy bar perspective of the health-food company that made the bar, you are only the consumer, because although you consumed the product, you didn’t buy it from them. The health- food company’s customer is the corner store owner who decides whether or not to stock their snack bars in her store. In marketing, this distinction is important because it helps marketers better understand where to focus their attention. Business-to-business (B2B) marketers sell to other businesses or institutions that consume the product as part of operating the business, or use the product in the assembly of the final product they sell to consumers. Business-to- consumer (B2C) marketers focus their efforts on consumers, the individuals who consume a finished product. A B2B Emphasis The tools of marketing are available to both B2B and B2C organizations, but some tactics tend to be more effective than others in each type of marketing. Business-to-business marketers use more personal selling, in which a sales force builds personal relationships with individuals in decision-making roles to facilitate sales within the organizations they target. Professional conferences and trade shows provide opportunities for meeting and networking with a B2B marketer’s target customers. Company Web sites are a primary way for B2B organizations to share information and promote their offerings. Since they usually target a narrow, specialized sliver of the population, B2B marketers have little need for mass advertising. Because B2B sales tend to be higher-priced, larger-ticket items, marketing tactics often include extensive adjustments in factors such as the selling price, product features, terms of delivery, and so forth. A B2C Emphasis For B2C marketers, such as consumer goods manufacturers, there is a dual focus. B2C marketers typically invest a lot in generating demand for their products among the general population. Mass marketing tactics designed to reach a large audience nearly always have a B2C focus: think Superbowl ads, Hockey Night in Canada, and anything hailing the return of McRib at McDonalds. At the same time, B2C marketers face a constant battle getting their products into retail outlets anywhere they don’t sell directly to consumers. 28 | Reading: How Organizations Use Marketing IKEA Store, Beijing A Dual Emphasis: B2B and B2C Organizations may conduct both B2B and B2C marketing, targeting different types of customers. The Swedish home- furnishing company IKEA, for example, markets its ready-to-assemble, eco-friendly furniture and furnishings all over the world. IKEA’s B2C marketing targets families, young professionals, and penny-pinching college students. Meanwhile, its B2B marketing focuses on small-business owners and start-up companies. Whether to have a B2B or a B2C focus depends on whose perceptions you want shape, what behaviours you want to influence, and where the most promising opportunities are for making the impact your organization wants to achieve. Reading: How Organizations Use Marketing | 29 1.7 Value of Marketing Learning Objectives Explain the benefits consumers derive from marketing activity Explain the benefits companies and organizations derive from marketing activity Explain the benefits society derives from marketing activity Describe how an understanding of marketing makes people more informed as both consumers and participants in society Explain how marketing creates value for the consumer, the company, and society For some people, marketing has a reputation as being fluffy, superficial, and light. Certainly, a lot of marketing activities have earned that reputation over the years. One goal of this course is to help you understand the important role marketing plays in business and everyday life in today’s globally connected world. Are we arguing that marketing is an inherently good thing? No, we’re arguing that it is an inherently useful and potentially powerful thing. Is marketing a matter of life-and-death importance? Generally, no. 1 Does marketing save lives? Actually, sometimes it does. 1. Bourne, K. (2021, March 25). Alberta has spent more than $15M on Covid-19 awareness campaigns. Global News. https://globalnews.ca/news/7720170/alberta-government-covid-19-advertising-cost/ 30 | 1.7 Value of Marketing Screenshot of a Global News story posted March 25, 2021 to Globalnews.ca Learning Activities Reading: The Value of Marketing 1.7 Value of Marketing | 31 Reading: The Value of Marketing Marketing can mobilize attitudes and behaviour around a common vision. It is a powerful medium for expression, creativity, and sharing across an increasingly global society. Marketing can be an agent of change in the diffusion of ideas and innovation. It can also be self-serving and manipulative, playing on human fears and insecurities to separate people from their money and from one another. With all this in mind, what value does marketing provide? Left: Lucky Strike ad, LIFE Magazine, 1936. Right: Ad promoting Product Red, a licensed brand that partners with companies like Nike, Apple Inc., Converse, and others to raise funds to eliminate HIV/AIDS in Africa. Fifty percent of the profits generated by Red products are donated to the Global Fund to Fight AIDS. Marketing remains an active, dynamic field because it serves useful purposes for organizations, individuals, and society. Marketing Can Benefit Organizations As explained earlier in this module, organizations use marketing to identify, satisfy, and retain customers. Marketing helps businesses know which problems to solve and which products, services, and experiences to offer. Effective marketing drives product improvements and determines the terms of profitable transactions. Marketing efforts help organizations build and sustain productive relationships with the people and groups they serve. Without effective 32 | Reading: The Value of Marketing marketing, companies become islands that retain no meaningful connection to their customers. When an organization loses its audience, eventually it ceases to exist. Marketing Can Benefit People Individuals are not just targets of marketing; they can also be beneficiaries. Marketing helps people navigate the world around them to find the things that address their wants and needs. Marketing is responsible for the creation of products that delight people, improve their productivity, and alter their quality of life. In recent years, marketing has contributed to the pervasive information now available to help people make advantageous consumer choices. Marketing reduces the friction and hassle around transactions. Imagine, without marketing you would never know that many of the products you need exist, let alone how to find them. Marketing and Society Because marketing is grounded in commercial, profit-seeking behaviours, some would argue that society is a net loser rather than a net winner when it comes to marketing influence. However, effective marketing helps create the conditions for healthy competition and market efficiency, where companies and consumers communicate and exchange mutual value. Like virtually any tool, marketing can be used for noble purposes or nefarious ones. Regardless, it has a pervasive presence in the modern world. As you learn about marketing and begin to practice its principles, you will see more clearly how it influences your daily life. You will identify opportunities where marketing skills can help you become more effective at achieving your personal and professional goals. With a foundation in marketing, you will become a more informed consumer of the products, services, experiences and ideas you encounter throughout your life. Reading: The Value of Marketing | 33 Practice Quiz Chapter 1 Check Your Understanding Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times. Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section. An interactive H5P element has been excluded from this version of the text. You can view it online here: https://pressbooks.nscc.ca/nsccprinciplesofmarketing2e/?p=968#h5p-4 34 | Practice Quiz Chapter 1 CHAPTER 2: MARKETING FUNCTION Learning Objectives Why It Matters: Marketing Function Explain why the customer is the cornerstone of marketing Briefly explain the concepts of segmentation and targeting Describe the marketing mix Explain how organizations use the marketing mix (often called the four Ps) to market to their target customers Explain the role of a marketing plan as a guiding document for marketing activities Chapter 2: Marketing Function | 35 2.1 Why It Matters: Marketing Function Learning Objective Identify the primary marketing activities of an organization It’s springtime. You’ve just graduated from college, and the Instagram photos of you wearing your cap, gown, and huge smile are still fresh. But your mind has quickly turned to other things, or rather, to one major thing: a job. You have a newly minted degree and a new skill set you’re fired up to use (and possibly a few unpaid loans on your back). Now you just need to get an employer to notice you, pick you out of the crowd, and invite you onto the team. In other words, you need to market yourself. What does that mean? You Are the Product What is the unique combination of skills and capabilities you provide to prospective employers? What can you offer that’s different and better than other candidates? It might be a language you speak, a depth of prior experience you bring, a course of training you completed, a familiarity with the industry, great communication skills, or some combination of characteristics that make you an attractive employee. Who Is Your Customer? Who do you want to work for? What type of work do you want to do? Prospective employers are the customers you want to appeal to. Get to know them by researching who they are, who’s hiring, what hiring process they use and what they look for, how they get information about job candidates, and what makes them take a closer look. How Do You Reach These Customers? How can you connect with employers? Reaching prospective employers usually involves packaging and promoting yourself through a common set of job-search tools and activities—like job fairs, résumés, cover letters, LinkedIn profiles, networking lunches, meet-ups, and other ways to get an “in.” As you find pathways to an employer, how do you make a 36 | 2.1 Why It Matters: Marketing Function strong positive impression? Packaging and presentation are essential. You show you’re a good fit by dressing for success, sharing sample work products, showcasing your expertise, and demonstrating interpersonal skills. What’s Your Price? When it comes to salary and benefits, what is your negotiating strategy? When discussions get serious—when you get a job offer, say—you’ll want to get as much compensation as you can without pricing yourself out of the opportunity. After all, you’re probably not the only candidate they are considering. Marketing: A Life Skill Marketing happens virtually everywhere. Job candidates like yourself have to figure out how to market themselves to employers. Companies market their products and services to customers. Nonprofit organizations market their altruistic missions and impacts to donors. Government agencies market their policies and programs to the general public. Candidates market their ideas to voters. Parents market vegetables to their finicky youngsters. As you gain a greater understanding of marketing and its primary activities, you will see it at work all around you. You will become more adept at knowing how marketing works, and why. You will learn about marketing tools and techniques you can apply to your advantage personally and professionally. You’ll appreciate the value of good marketing principles in helping you get ahead. Of course you want to develop a skill that’s so important in modern life! 2.1 Why It Matters: Marketing Function | 37 2.2 Importance of Customer Learning Objective Explain why the customer is the cornerstone of marketing As we dive into the mechanics of marketing, we begin by locking our focus on the customer. “Customers” are the people or organizations with needs or wants that a business aspires to address. The act of obtaining a desired object from someone by offering something of value in return is called the exchange process. Businesses live, thrive, or die based on their ability to offer value to customers through the exchange process. In other words, the customer is the primary reason for a business to exist. All marketing centres on creating, delivering, and communicating value to the customer. Learning Activities Reading: Why Customers Matter 38 | 2.2 Importance of Customer Reading: Why Customers Matter Who Are Customers, and Why Do They Matter? Marketing exists to help organizations understand, reach, and deliver value to their customers. For this reason, the customer is considered the cornerstone of marketing. With this in mind, what is likely to happen when an organization doesn’t understand or pay attention to what its customers want? What if an organization doesn’t even really understand who its customers are? One of the world’s best-known brands, Coca-Cola, provides a high-profile example of misunderstanding customer “wants.” In the following video, Roberto Goizueta—in his only on-camera interview on this topic—recounts the disastrous launch of New Coke in 1985 and describes the lessons the company learned. Goizueta was chairman, director, and chief executive officer of the Coca-Cola Company from August 1980 until his death in October 1997. A YouTube element has been excluded from this version of the text. You can view it online here: https://pressbooks.nscc.ca/ nsccprinciplesofmarketing2e/?p=85 You can view the transcript for “All About New Coke” (opens in new window) Reading: Why Customers Matter | 39 Focus on Customers: The “Marketing Orientation” The purpose of marketing is to gain a balance between creating more value for customers against making profits for the organization. To achieve this, many firms have adopted a marketing philosophy or what is generally termed a “marketing orientation.” A marketing orientation can be defined as focusing the organization on identifying and understanding the customers’ preferences in terms of needs and wants and delivering them more effectively and efficiently than their competitors. Prior to the adoption of a marketing orientation, many organizations followed what was referred to as the “production philosophy.” This approach focused on improving the efficiency of production and distribution in order to reduce costs and deliver more affordable products—both were considered the source of competitive advantage. Another philosophy that has been followed historically is the “selling concept.” This approach required organizations to aggressively focus on selling and promotion efforts as a way to stimulate demand and drive sales. A marketing-driven approach, or marketing orientation, has consistently delivered superior results over these other philosophies. Adopting a marketing orientation is now widely accepted as delivering greater levels of customer satisfaction, profitability, and sustainability. As an example, Toyota, with its strategy of manufacturing cars for different segments of populations around the world, maintains a balance between customer value and profitability. With the marketing philosophy in mind, it has replaced its original goal of 10% of the world’s market share with being “Number one in customer satisfaction,” as it believes its 1 market share will follow the satisfaction it delivers to its customers. The Problem of Misplaced Focus Both historically and currently, many businesses do not follow the marketing orientation. In the past, manufacturing companies such as Texas Instruments and Otis Elevator followed a production orientation, maintaining a primary focus on technology, innovation, and low production and distribution costs. Such companies assume that a technically superior or less expensive product sells itself. While this may be true in some cases, over time this approach leaves businesses particularly vulnerable to competitors who outpace them technologically or undercut their pricing. Without a sufficient focus on the customer’s needs and preferences, businesses can lose sight of what matters most in the exchange process. Other companies, such as Amway, a multi-level marketing company that sells health, beauty, and home care products, treat sales and marketing as essentially the same thing. This sales orientation assumes that a good salesperson has the capability to generate demand and sell anything regardless of the customer’s needs and the value provided in the exchange process. Often, this focus on selling and the promotion process effectively ignores the customer or views the customer as someone to be manipulated. Organizations with this orientation become vulnerable to competitors that do a better job of understanding and catering to what customers actually want. 1. Kotler, P., Brown, L., Adam, S., Burton, S., Armstrong, G. (2008). Marketing. Pearson, Australia. 40 | Reading: Why Customers Matter Staying Close to the Customer Insightful businesses acknowledge the importance of production and sales but realize that the following three-step process is most effective: 1. Continuously collect information about customers’ needs and competitors’ capabilities 2. Share the information across departments, including production and sales 3. Use the information to create a competitive advantage by increasing value for customers Thanks to the Internet and other technological advances, today’s consumers have access to far more and far better information than ever before. They also have many more choices. To succeed in this environment, businesses must provide comparable levels of information to competitors, and they must deal with new competitors that are quicker, smarter, and open 24-7-365. Organizations that employ marketing correctly know that keeping customers informed is easier if they maintain constant contact with the customer. This does not necessarily mean that they write or call regularly, although it could. Rather, it means a marketing organization knows a great deal about the characteristics, values, interests, and behaviours of its customers. It monitors how these factors change over time. It provides channels of information and communication to meet customers where they are and be accessible at any moment. Although the customer-oriented marketing process is not an exact science, there is sufficient evidence that marketers who do this well tend to succeed. A prime guideline for marketing success is to establish customer satisfaction as a company’s number-one priority. This forces an organization to measure and pay attention to customers’ experiences purchasing and using its products. The drive to improve customer satisfaction typically results in improvements to products, processes, and relationship building. This approach helps organizations develop a marketing mentality that facilitates information gathering and maintains effective communication with the customers who are critical to growth, profitability, and success. Reading: Why Customers Matter | 41 2.3 Segmentation and Targeting Introduction Learning Objectives Explain the concepts of segmentation and targeting We have established that the customer is at the center of marketing and arguably of business, as well. How do businesses find and communicate with customers? Let’s think about a couple of realities in the business world. First, every organization has limited resources. Organizations simply cannot do everything and be all things to all people. They have to prioritize and choose. Second, marketing is always most effective when it’s relevant to the potential customer. How can an organization create the right products, services, messages and experiences for a potential customer? Answer: through segmentation and targeting. The starting point for understanding your potential customer is figuring out exactly whom you want to reach. That process is called segmentation. The next step is focusing on those customer segments that are most promising customers. That’s where targeting comes in. Targeting helps organizations use their resources wisely and customize what they do much more specifically for those who will see the greatest value from their offering. Learning Activities Reading: Defining Your Target Market 42 | 2.3 Segmentation and Targeting Introduction Reading: Defining Your Target Market Whom Are You Trying to Reach? Suppose you are selling automotive detailing products. Is your target “anyone with money to pay for your product?” Or are you focusing your efforts on a tightly defined market niche of people with an identified need for what you are selling? “Anyone with money” is such a broad audience that it’s difficult to make any impact at all with your marketing efforts or convince very many people that they need your product. If you narrow and carefully define your target market, though, your efforts will be more fruitful because they’re focused on people with a preexisting need or interest in what you offer. Step 1: Identify the Business Need You Address To define your total market, start by stating the needs you will fulfill: who are your products or services intended for? Who do you want to do business with? What is unique about your product? If you’re selling products used in automotive detailing, your total market consists of vehicle owners—that is, all the people who could potentially buy your product. Your business will help them keep their vehicles clean and shiny. Step 2: Segment Your Total Market Next, break down this large market into smaller sections, using a process known as segmentation. You can use a variety of approaches to segment your total market into groups with common wants or needs. In this case, we can segment by vehicle ownership and related behaviour. Specific segments might include the following: People who restore classic automobiles People who drive old clunkers and run them through the car wash occasionally People who own “status” cars Truck drivers Motorcycle owners Reading: Defining Your Target Market | 43 Which of these subgroups are likely to be your most productive market niche(s)? You recognize that auto owners who don’t care about keeping their cars clean and shiny probably won’t be very interested in your products. Then there are those who care, but they lack the time and interest to do the work themselves; they take their vehicle to a shop. Others only worry about auto detailing only when it’s time for a trade-in. You reject these segments as unsuitable for your niche market because they probably don’t care enough about what you offer. After further consideration and research, you decide that your market segment will be automobile owners who have both the time and the interest to do their own detailing work—people who enjoy puttering with their vehicles and who take pride in their vehicle’s appearance. You need to conduct research to confirm that there are enough potential customers in that group to support your business. You should also do a competitive analysis to confirm that what you are offering is not readily available to your potential customers elsewhere. With this validation, you move to step three. Step 3: Profile Your Target Customer Segment(s) Next, develop profiles of your target customer(s) to get a true picture of the people you’re trying to serve. Describe these potential customers as fully as you can: Who will actually buy your product? What do you know about them? Where are they situated geographically? How much do they spend on car detailing? What are they likely to spend on your products? Where do they shop? What is their annual income? What languages do they speak? What kinds of automobiles do they drive? If you are selling online, what methods do they prefer for online payment? What type of websites do they visit? How do they want their product delivered? Identify your customer profile before you conduct market planning so that your planning is a good fit for your customers’ behaviour, interests, and needs. 44 | Reading: Defining Your Target Market Step 4: Research and Validate Your Market Opportunity Now that you have fully identified your target market, conduct research to verify that there will be enough business in this group to support your company in its growth. This process confirms that the need actually exists and that it’s not just wishful thinking on your part. Use both primary and secondary sources in your research. You might consult business directories, obtain statistics regarding automobile owners and their car-care practices, or locate newspaper articles and magazine stories written on the subject. You can also conduct your own market research using techniques such as surveys, focus groups, interviews, and so forth. Your research should also determine the size of the market opportunity in terms of revenue as well as your potential market share. You can use primary and secondary sources to find out how many potential customers there are in the geographic area you have defined and how many businesses are directly or indirectly competing with you. Your market share will be the number of customers likely to buy from you rather than from your competition. Having defined and validated your target market, you are now better positioned to develop a marketing plan that will reach your potential customers. Perhaps your sales will take off right away—a great problem to have! Reading: Defining Your Target Market | 45 2.4 Communicating the Value Proposition Learning Objectives Define and communicate an organization’s value proposition in a competitive marketplace Once you know your target market, you must have a compelling way to communicate your value proposition. This requires the marketer to answer a number of questions: What is value? Each customer will weigh the benefits and the costs of an offering differently and determine whether it is providing value. It is important to understand how customers perceive value. What is the value this offering provides to the target customer? You hope that you have selected target customers that view the value that you provide favorably, but the marketer has to test and refine the assumption that the offering is actually providing value to the target customer. How is the value provided different from the value that competitors provide? Each time a competitor shifts its offering(s), that change will have an impact on the perceived value of your offering. In a competitive marketplace, it becomes important to understand and react to changes, but also to identify the value that you provide that is most difficult for others to copy. How are you communicating the promise of value to target customers? With so many marketing channels and messages all around, customers have a very short attention span. The marketer has to grab that attention and communicate value to customers in only a few seconds. Learning Activities Reading: Value for the Customer Reading: Communicating the Value Proposition 46 | 2.4 Communicating the Value Proposition Reading: Value for the Customer What Is Value? Earlier in this module, we discussed that marketing exists to help organizations understand, reach, and deliver value to their customers. In its simplest form, value is the measure of the benefit gained from a product or service relative to the full cost of the item. Value = benefit – cost In the process of the marketing exchange, value must be created. Let’s look at the simplest example: if you and I decide to give each other a $5 bill at the same moment, is value created? I hand my $5 bill to you, and you hand yours to me. It is hard to say that either of us receives a benefit greater than the $5 bill we just received. There is no value in the exchange. Now, imagine that you are passing by a machine that dispenses bus tickets. The machine is malfunctioning and will only accept $1 bills. The bus is about to arrive and a man in front of the machine asks if you would be willing to give him four $1 bills in exchange for a $5 bill. You could, of course, decide to make change for him (and give him five $1 bills), but let’s say you agree to his proposal. At that moment a $1 bill is worth $1.25 to him; how does that make sense in the value equation? From his perspective, the ability to use the bus ticket dispenser at that moment adds value to the transaction. This is where value becomes tricky for marketers. Value is not simply a question of the financial costs and financial benefits. It includes perceptions of benefit(s) that are different for every person. The marketer has to understand what is of greatest value to the target customer, and then use that information to develop a total offering that creates value. Value Is More Than Price You will notice that we did not express value as value = benefit – price. Price plays an important role in defining value, but it’s not the only consideration. Let’s look at a few typical examples: Example One: Two products have exactly the same ingredients, but a customer selects the higher-priced product because of the name brand. For the marketer, this means that the brand is adding value to the transaction. Example Two: A customer shopping online selects a product but abandons the order before paying because there are too many steps in the purchase process. The inconvenience of filling in many forms, or concerns about providing personal information, can add cost (which will subtract from the value the customer perceives). Example Three: An individual who is interested in a political cause commits to attending a meeting, but cancels when he realizes that he doesn’t know anyone attending and that the meeting is on the other side of town. For this person, the benefit of attending and participating is lower because of costs related to personal connection and convenience. Reading: Value for the Customer | 47 As you can begin to imagine, the process of determining the value of an offering and then aligning it with the wants and needs of a target customer is challenging, indeed. Throughout this course, though, you will gain a deeper understanding of the tools and processes that marketers use to do it effectively. Value in a Competitive Marketplace As if understanding individual perceptions of value wasn’t difficult enough, the presence of competitors further complicates perceptions of value. Customers instinctively make choices between competitive offerings based on perceived value. Imagine that you are traveling to Toronto, Ontario, with a group of six friends for a school event. You have the option to stay at a Marriott Courtyard Hotel that is located next to the event venue for $95 per night. If you pay the “additional person fee,” you could share the room with one friend for a cost of $50 per night. However, one of your friends finds an AirBnB listing for an entire apartment that sleeps six people at the cost of $280 per night. That takes the price down to $40 per night, but the apartment is five miles away from the venue and, since there are seven of you, you would likely be sleeping on a couch or fighting for a bed. It would have a more personal feel and a Toronto, Ontario Skyline kitchen, but you would be staying in someone else’s place. It’s an interesting dilemma. Regardless of which option you would really choose, consider the differences in the value of each and how the presence of both options generates unavoidable comparisons: the introduction of the Airbnb alternative has the effect of highlighting new shortcomings and benefits of the Marriott Courtyard hotel room. Alternatives generally fall into two categories: competitors and substitutes. A competitor is providing the same offering but is accentuating different features and benefits. If, say, you are evaluating a Marriott Courtyard hotel room vs. a Hilton Hampton Inn hotel room, then you are looking at competitive offerings. Both offerings are hotel rooms provided by different companies. The service includes different features, and the price and location vary, the sum of which creates different perceptions of value for customers. Airbnb is a service that allows individuals to rent out their homes, apartments, or a single room. Airbnb does not offer hotel rooms; it offers an alternative to, or substitute for, a hotel room. Substitute offerings are viewed by the user as alternatives. The substitution is not a perfect replication of the offering, which means that it will provide different value to customers. Competitors and substitutes force the marketer to identify the aspects of the offering that provide unique value vis- à-vis the alternatives. Marketers refer to this as differentiation. Differentiation is simply the process of identifying and optimizing the elements of an offering that provide unique value to customers. Sometimes organizations refer to this process as competitive differentiation, since it is very focused on optimizing value in the context of the competitive landscape. Finally, organizations seek to create an advantage in the marketplace whereby an organization’s offerings provide greater value because of a unique strategy, asset, or approach that the firm uses that others cannot easily copy. This is a competitive advantage. The American equivalent to the Canadian Marketing Association defines competitive advantage as “as total offer, vis-à-vis relevant competition, that is more attractive to customers. It exists when the competencies 48 | Reading: Value for the Customer of a firm permit the firm to outperform its competitors.” When a company can create greater value for customers than its competitors, it has a competitive advantage. Reading: Value for the Customer | 49 Reading: Communicating the Value Proposition What Is a Value Proposition? We have discussed the complexity of understanding customer perceptions of value. As the company seeks to understand and optimize the value of its offering, it also must communicate the core elements of value to potential customers. Marketers do this through a value proposition, defined as follows: A business or marketing statement that summarizes why a consumer should buy a product or use a service. This statement should convince a potential consumer that one particular product or service will add more value or 1 better solve a problem than other similar offerings. It is difficult to create an effective value proposition because it requires the marketer to distill many different elements of value and differentiation into one simple statement that can be easily read and understood. Despite the challenge, it is very important to create an effective value proposition. The value proposition focuses marketing efforts on the unique benefit to customers. This helps focus the offering on the customer and, more specifically, on the unique value to the customer. A value proposition needs to very simply answer the question: Why should someone buy what you are offering? If you look closely at this question it contains three components: Who? The value proposition does not name the target buyer, but it must show clear value to the target buyer. What? The offering needs to be defined in the context of that buyer. Why? It must show that the offering is uniquely valuable to the buyer. How Do You Create an Effective Value Proposition? When creating or evaluating a value proposition, it is helpful to step away from the long lists of features and benefits and deep competitive analysis. Stick to the simple, and strive for focus and clarity. A value proposition should be clear, compelling, and differentiating: Clear: short and direct; immediately identifies both the offering and the value or benefit Compelling: conveys the benefit in a way that motivates the buyer to act Differentiating: sets the offering apart or differentiates it from other offerings 1. Twin, A. (2020, July 5). Value Proposition. Investopedia. http://www.investopedia.com/terms/v/valueproposition.asp 50 | Reading: Communicating the Value Proposition The value proposition is a message, and the audience is the target customer. You want your value proposition to communicate, very succinctly, the promise of unique value in your offering. Learn More Visit the link below to read a nice description of the value proposition from a marketing consultant’s perspective:“How to Write a Great Value Proposition” on Quick Sprout. Reading: Communicating the Value Proposition | 51 2.5 Evaluating Value Proposition Examples Learning Objectives Evaluate examples of value propositions If you were asked to evaluate the solution to an easy math problem, such as 24 + 17 = 45, you could definitely say whether it’s right or wrong. If, on the other hand, you were asked to evaluate a painting by a modern artist and judge it “good” or “bad,” you would have to make a judgment based on your own preferences and, perhaps, after reading some reviews by experts or others (who probably wouldn’t agree). Evaluating art is akin to evaluating a value proposition—it’s definitely a subjective process, and others may disagree with you. That said, below are a few pointers that can help you. It is easy to recognize when a value proposition is bad: If it is so general or universal that it doesn’t articulate unique value.. (For years Tony the Tiger promoted Kellog’s frosted flakes saying, “They’re grrrrreat!” It’s a cute catchphrase for a tiger, but it’s not a value proposition.) If a value proposition has so many words that you need to read it twice—or worse, you stop reading and move on. As noted in the Quick Sprout infographic from the previous reading, it should take five seconds or less to read a value proposition. If the value proposition does not provide clarity about the offering to the target market. The target customer should understand exactly what is promised. If the value proposition for an offering mimics the value proposition of a competitive offering. In the technology industry, many critics have poked fun at Microsoft for imitating Apple’s simple marketing language and presentation style. No matter how compelling the value proposition for an offering is, copying it for a competitive offering doesn’t make sense or work. An offering can’t be unique if it’s exactly like something else. In this section, you’ll get to review some value propositions that are quite good (in our view). As you read them think about what they are doing right and how they could be improved. Learning Activities Reading: Value Proposition Examples Video: Coffee Shop Marketing 52 | 2.5 Evaluating Value Proposition Examples Reading: Value Proposition Examples The Value Proposition in Action Let’s take a look at some real examples and evaluate them. Are they clear, compelling, and differentiating? Keep in mind that you may not be the target market for all of these examples. Your role as a marketer is to evaluate them from the perspective of the target customer. Pinterest Pinterest website screenshot. https://www.pinterest.com/ This value proposition doesn’t offer a lengthy description of what Pinterest is and how it works. It simply states the benefits Pinterest provides to its users. Notice the use of the phrase “people like you.” The value proposition connects you to the site’s other users through your own interests. It implies that a friendly community of “people like you” awaits you and is interested in helping you. Reading: Value Proposition Examples | 53 Is the value proposition sufficiently clear to you? Does it give you enough information to know whether the offering is of interest to you? The greatest challenge in creating an effective value proposition is striking a balance between being clear and communicating enough value. Skype Skype website screenshot The value proposition first highlights Skype’s broad use, which is an important feature for its network-based approach. Next, it describes the offering. Skype provides more information than Pinterest does about what its offering is—and it highlights the fact that it’s free. Pinterest is also free but doesn’t disclose this in its value propos

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