A Framework for Marketing Management PDF

A Framework for Marketing Management This page intentionally left blank A Framework for Marketing Management Sixth Edition Global Edition Philip Kotler Northwestern University Kevin Lane Keller Dartmouth College Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai Lond...

A Framework for Marketing Management This page intentionally left blank A Framework for Marketing Management Sixth Edition Global Edition Philip Kotler Northwestern University Kevin Lane Keller Dartmouth College Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Vice President, Business Publishing: Donna Battista Operations Specialist: Carol Melville Editor-in-Chief: Stephanie Wall Creative Director: Blair Brown Acquisitions Editor: Mark Gaffney Senior Art Director: Janet Slowik Senior Acquisitions Editor, Global Editions: Interior and Cover Designer: Integra Software Steven Jackson Services Pvt Ltd. 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Project Manager: Becca Groves Senior Manufacturing Controller, Global Editions: Trudy Kimber Acknowledgements of third party content appear on the appropriate page within the text, which constitutes an extension of this copyright page. Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2016 The rights of Philip Kotler and Kevin Lane Keller to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled A Framework for Marketing Management, 6th Edition, ISBN 978-0-13-387131-9 by Philip Kotler and Kevin Lane Keller, published by Pearson Education © 2016. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-09314-5 ISBN 13: 978-1-292-09314-7 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 Typeset in 10/12 Minion Pro Regular by Integra Software Services Pvt. Ltd. Printed and bound by Courier Westford in The United States of America Brief Contents Preface  19 Part 1 Introduction to Marketing Management   25 1 Scope of Marketing for New Realities   25 2 Marketing Strategies and Plans   42 3 Marketing Research and Analysis   58 Part 2 Connecting with Customers   78 4 Building Long-Term Customer Relationships   78 5 Buying Dynamics of Consumers and Businesses   92 Part 3 Strategic Brand Management   116 6 Target Marketing  116 7 Competitive and Effective Brand Positioning   130 8 Branding and Core Business Growth   145 Part 4 Value Creation  162 9 Product Mix and New Offerings   162 10 Analyzing and Marketing Services   183 11 Concepts and Tools for Strategic Pricing   197 Part 5 Value Delivery  215 12 Developing and Managing Strategic and Integrated Marketing Channels   215 13 Managing Retailing, Wholesaling, and Logistics   232 Part 6 Value Communication  245 14 Designing and Managing Integrated Marketing Communications   245 15 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations   259 16 Managing Digital Communications: Online, Social Media, and Mobile   274 17 Managing Personal Communications: Direct and Database Marketing and Personal Selling  285 Part 7 Managing the Marketing Organization for Long-Term Success  299 18 Responsible Marketing in a Global Environment   299 Glossary 314 Brand, Company, and Name Index 324 Subject Index 333 5 This page intentionally left blank Contents Preface  19 Part 1 Introduction to Marketing Management   25 1 Scope of Marketing for New Realities   25 Marketing Management at Unilever   25 The Value of Marketing   26 The Scope of Marketing   26 What Is Marketing?   26 What Is Marketed?   27 Who Markets?  28 What Is a Market?   28 Core Marketing Concepts   29 Needs, Wants, and Demands   29 Target Markets, Positioning, and Segmentation   29 Offerings and Brands   29 Marketing Channels  30 Paid, Owned, and Earned Media   30 Impressions and Engagement   30 Value and Satisfaction   30 Supply Chain  30 Competition  31 Marketing Environment  31 The New Marketing Realities   31 Technology  31 Globalization  32 Social Responsibility  32 A Dramatically Changed Marketplace   32 Company Orientation Toward the Marketplace   34 The Production Concept   34 The Product Concept   34 The Selling Concept   34 The Marketing Concept   34 The Holistic Marketing Concept   35 7 8 Contents Updating The Four Ps   36 Marketing Management Tasks   38 Executive Summary  39 Notes  40 2 Marketing Strategies and Plans   42 Marketing Management at Hewlett-Packard   42 Marketing and Customer Value   43 The Value Delivery Process   43 The Value Chain   43 Core Competencies  44 The Central Role of Strategic Planning   44 Corporate and Division Strategic Planning   45 Defining the Corporate Mission   45 Establishing Strategic Business Units   45 Assigning Resources to Each SBU   46 Assessing Growth Opportunities   46 Organization and Organizational Culture   47 Business Unit Strategic Planning   47 The Business Mission   47 SWOT Analysis  47 Goal Formulation  49 Strategy Formulation  49 Strategy and Implementation   50 The Marketing Plan   50 Contents of a Marketing Plan   50 From Marketing Plan to Marketing Action   51 Marketing Implementation, Control, and Performance   52 Marketing Metrics  52 Marketing-Mix Modeling  52 Marketing Dashboards  53 Marketing Control  54 Executive Summary  55 Notes  56 3 Marketing Research and Analysis   58 Marketing Management at Campbell Soup Company   58 The Marketing Information System and Marketing Intelligence  59 Internal Records and Database Systems   59 Marketing Intelligence  60  Contents 9 The Marketing Research System   60 Defining Marketing Research   61 The Marketing Research Process   62 Step 1: Define the Problem, Decision Alternatives, and Research Objectives   62 Step 2: Develop the Research Plan   63 Step 3: Collect the Data   65 Step 4: Analyze the Information   65 Step 5: Present the Findings   65 Step 6: Make the Decision   65 Forecasting and Demand Measurement   66 The Measures of Market Demand   66 The Market Demand Function   66 Estimating Current Demand   68 Estimating Future Demand   69 Analyzing the Macroenvironment   69 Identifying the Major Forces   70 The Demographic Environment   70 The Economic Environment   72 The Sociocultural Environment   72 The Natural Environment   73 The Technological Environment   74 The Political-Legal Environment   74 Executive Summary  75 Notes  76 Part 2 Connecting with Customers   78 4 Building Long-Term Customer Relationships   78 Marketing Management at Pandora   78 Building Customer Value, Satisfaction, and Loyalty   79 Customer-Perceived Value  79 Total Customer Satisfaction   80 Monitoring Satisfaction  81 Product and Service Quality   82 Maximizing Customer Lifetime Value   83 Customer Profitability  83 Measuring Customer Lifetime Value   84 Cultivating Customer Relationships   84 Attracting and Retaining Customers   85 Building Loyalty  87 Win-Backs  88 10 Contents Executive Summary  88 Notes  89 5 Buying Dynamics of Consumers and Businesses   92 Marketing Management at Cisco   92 What Influences Consumer Behavior?   93 Cultural Factors  93 Social Factors  93 Personal Factors  94 Key Psychological Processes   96 Motivation  96 Perception  97 Learning  98 Emotions  98 Memory  98 The Consumer Buying Decision Process   99 Problem Recognition  99 Information Search  100 Evaluation of Alternatives   101 Purchase Decision  102 Postpurchase Behavior  102 Behavioral Decision Theory and Behavioral Economics   103 What is Organizational Buying?   104 The Business Market versus the Consumer Market   104 Institutional and Government Markets   105 Business Buying Situations   105 Participants in the Business Buying Process   106 The Buying Center   106 Buying Center Influences   106 Targeting Firms and Buying Centers   107 Stages in the Business Buying Process   108 Problem Recognition  108 General Need Description and Product Specification   109 Supplier Search  109 Proposal Solicitation  110 Supplier Selection  110 Order-Routine Specification  110 Performance Review  110 Managing Business-to-Business Customer Relationships   110 The Benefits of Vertical Coordination   110 Risks and Opportunism in Business Relationships   111  Contents 11 Executive Summary  111 Notes  112 Part 3 Strategic Brand Management   116 6 Target Marketing  116 Marketing Management at LinkedIn   116 Bases for Segmenting Consumer Markets   117 Geographic Segmentation  117 Demographic Segmentation  117 Psychographic Segmentation  120 Behavioral Segmentation  120 Bases for Segmenting Business Markets   123 Market Targeting  124 Effective Segmentation Criteria   124 Evaluating and Selecting Market Segments   125 Executive Summary  128 Notes  128 7 Competitive and Effective Brand Positioning   130 Marketing Management at Burberry   130 Developing and Establishing a Brand Positioning   131 Understanding Positioning and Value Propositions   131 Choosing a Competitive Frame of Reference   131 Identifying Potential Points-of-Difference and Points-of-Parity  132 Choosing Specific POPs and PODs   133 Emotional Branding  135 Brand Mantras  135 Establishing a Brand Positioning   135 Alternative Approaches to Positioning   136 Competitive Strategies for Market Leaders   136 Expanding Total Market Demand   138 Protecting Market Share   138 Increasing Market Share   140 Other Competitive Strategies   140 Market-Challenger Strategies  140 Market-Follower Strategies  141 Market-Nicher Strategies  142 Executive Summary  142 Notes  143 12 Contents 8 Branding and Core Business Growth   145 Marketing Management at Gatorade   145 How Does Branding Work?   146 The Role of Brands   146 The Scope of Branding   146 Defining Brand Equity   147 Customer-Based Brand Equity   147 Brand Equity Models   148 Building Brand Equity   149 Choosing Brand Elements   150 Designing Holistic Marketing Activities   150 Leveraging Secondary Associations   151 Internal Branding  152 Measuring and Managing Brand Equity   152 Brand Audits and Brand Tracking   152 Brand Valuation  152 Managing Brand Equity   153 Devising a Branding Strategy   153 Branding Decisions  153 Brand Portfolios  154 Brand Extensions  155 Customer Equity  156 Driving Growth  156 Growth Strategies  156 Growing the Core   157 Executive Summary  158 Notes  158 Part 4 Value Creation  162 9 Product Mix and New Offerings   162 Marketing Management at Lexus   162 Product Characteristics and Classifications   163 Product Levels: The Customer-Value Hierarchy   163 Product Classifications  164 Differentiation  164 Product Differentiation  164 Services Differentiation  165 Design Differentiation  165 Product and Brand Relationships   166 The Product Hierarchy   166 Product Line Analysis   167  Contents 13 Product Line Length   167 Line Modernization, Featuring, and Pruning   168 Product Mix Pricing   168 Co-Branding and Ingredient Branding   169 Packaging, Labeling, Warranties, and Guarantees   169 Packaging  169 Labeling  170 Warranties and Guarantees   170 Managing New Products   170 The Innovation Imperative and New Product Success  171 New Product Development   171 The Consumer-Adoption Process   175 Stages in the Adoption Process   175 Factors Influencing the Adoption Process   175 Product Life-Cycle Marketing Strategies   176 Product Life Cycles   177 Marketing Strategies: Introduction Stage and the Pioneer Advantage   177 Marketing Strategies: Growth Stage   178 Marketing Strategies: Maturity Stage   178 Marketing Strategies: Decline Stage   178 Critique of the Product Life-Cycle Concept   178 Executive Summary  179 Notes  180 10 Analyzing and Marketing Services   183 Marketing Management at Emirates Airline   183 The Nature of Services   184 Categories of Service Mix   184 Distinctive Characteristics of Services   184 The New Services Realities   186 A Shifting Customer Relationship   187 Achieving Excellence in Services Marketing   187 Differentiating Services  189 Managing Service Quality   190 Managing Customer Expectations   190 Incorporating Self-Service Technologies   192 Managing Product-Support Services   193 Identifying and Satisfying Customer Needs   193 Postsale Service Strategy   193 14 Contents Executive Summary  194 Notes  194 11 Concepts and Tools for Strategic Pricing   197 Marketing Management at Ryanair   197 Understanding Pricing  198 Pricing in a Digital World   198 A Changing Pricing Environment   198 How Companies Price   198 Consumer Psychology and Pricing   199 Setting the Price   200 Step 1: Selecting the Pricing Objective   200 Step 2: Determining Demand   201 Step 3: Estimating Costs   202 Step 4: Analyzing Competitors’ Costs, Prices, and Offers   204 Step 5: Selecting a Pricing Method   204 Step 6: Selecting the Final Price   207 Adapting the Price   208 Geographical Pricing (Cash, Countertrade, Barter)   208 Price Discounts and Allowances   209 Promotional Pricing  209 Differentiated Pricing  210 Initiating and Responding to Price Changes   211 Initiating Price Cuts   211 Initiating Price Increases   211 Anticipating Competitive Responses   211 Responding to Competitors’ Price Changes   211 Executive Summary  212 Notes  212 Part 5 Value Delivery  215 12 Developing and Managing Strategic and Integrated Marketing Channels   215 Marketing Management at IKEA   215 Marketing Channels and Value Networks   216 The Importance of Channels   216 Multichannel Marketing  216 Integrating Multichannel Marketing Systems   217 Value Networks  217 The Digital Channels Revolution   217 The Role of Marketing Channels   218 Channel Functions and Flows   218  Contents 15 Channel Levels  219 Service Sector Channels   220 Channel-Design Decisions  220 Analyzing Customer Needs and Wants   220 Establishing Objectives and Constraints   221 Identifying Major Channel Alternatives   222 Evaluating Major Channel Alternatives   222 Channel-Management Decisions  223 Selecting Channel Members   223 Training and Motivating Channel Members   224 Evaluating Channel Members   224 Modifying Channel Design and Arrangements   224 Global Channel Considerations   224 Channel Integration and Systems   224 Vertical Marketing Systems   225 Horizontal Marketing Systems   225 E-Commerce and M-Commerce Marketing Practices   226 E-Commerce and Pure-Click Companies   226 E-Commerce and Brick-and-Click Companies   226 M-Commerce Marketing  226 Channel Conflict, Cooperation, and Competition   227 Types of Conflict and Competition   227 Causes of Channel Conflict   228 Managing Channel Conflict   228 Dilution and Cannibalization   228 Legal and Ethical Issues in Channel Relations   228 Executive Summary  229 Notes  229 13 Managing Retailing, Wholesaling, and Logistics   232 Marketing Management at Warby Parker   232 Retailing  233 Types of Retailers   233 The Modern Retail Marketing Environment   234 Retailer Marketing Decisions   235 Private Labels  237 Role of Private Labels   238 Private-Label Success Factors   238 Wholesaling  238 Wholesaling Functions  239 Trends in Wholesaling   240 16 Contents Market Logistics  240 Integrated Logistics Systems   240 Market-Logistics Objectives  241 Market-Logistics Decisions  241 Executive Summary  243 Notes  244 Part 6 Value Communication  245 14 Designing and Managing Integrated Marketing Communications  245 Marketing Management at Volkswagen   245 The Role of Marketing Communications   246 The Marketing Communications Mix   246 Communications Process Models   248 Developing Effective Communications   248 Identify the Target Audience   248 Set the Communications Objectives   249 Design the Communications   250 Select the Communications Channels   252 Establish the Total Marketing Communications Budget   253 Selecting the Marketing Communications Mix   253 Characteristics of the Marketing Communications Mix   254 Factors in Setting the Marketing Communications Mix   255 Measuring Communication Results   256 Managing the Integrated Marketing Communications Process   256 Coordinating Media  256 Implementing IMC  256 Executive Summary  257 Notes  257 15 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations   259 Marketing Management at Procter & Gamble   259 Developing and Managing an Advertising Program   260 Setting the Advertising Objectives   260 Deciding on the Advertising Budget   261 Developing the Advertising Campaign   261 Choosing Media  262 Evaluating Advertising Effectiveness   264 Sales Promotion  265 Advertising versus Promotion   265 Major Decisions  266  Contents 17 Events and Experiences   268 Events Objectives  268 Major Sponsorship Decisions   269 Creating Experiences  269 Public Relations  270 Marketing Public Relations   270 Major Decisions in Marketing PR   271 Executive Summary  271 Notes  272 16 Managing Digital Communications: Online, Social Media, and Mobile  274 Marketing Management at PepsiCo   274 Online Marketing  275 Advantages and Disadvantages of Online Marketing Communications  275 Online Marketing Communication Options   275 Social Media  277 Social Media Platforms   277 Using Social Media   278 Word of Mouth   278 Forms of Word of Mouth   278 Creating Word-of-Mouth Buzz   279 Measuring the Effects of Word of Mouth   280 Mobile Marketing  280 The Scope of Mobile Marketing   281 Developing Effective Mobile Marketing Programs   281 Mobile Marketing across Markets   281 Executive Summary  281 Notes  282 17 Managing Personal Communications: Direct and Database Marketing and Personal Selling   285 Marketing Management at StarHub   285 Direct Marketing  286 The Benefits of Direct Marketing   286 Direct Mail  286 Catalog Marketing  287 Telemarketing  287 Other Media for Direct-Response Marketing   287 Customer Databases and Database Marketing   288 Public and Ethical Issues in Direct Marketing   289 18 Contents Personal Selling and the Sales Force   289 Types of Sales Representatives   289 Personal Selling and Relationship Marketing   290 Designing the Sales Force   291 Managing the Sales Force   293 Recruiting and Selecting Representatives   293 Training and Supervising Sales Representatives   295 Sales Rep Productivity   295 Motivating Sales Representatives   295 Evaluating Sales Representatives   296 Executive Summary  296 Notes  297 Part 7 Managing the Marketing Organization for Long-Term Success  299 18 Responsible Marketing in a Global Environment   299 Marketing Management at Patagonia   299 Competing On a Global Basis   300 Deciding Whether to Go Abroad   301 Deciding Which Markets to Enter   301 Deciding How to Enter the Market   301 Deciding on the Marketing Program   303 Internal Marketing  306 Organizing the Marketing Department   306 Relationships with Other Departments   307 Building a Creative Marketing Organization   307 Socially Responsible Marketing   307 Corporate Social Responsibility   307 Sustainability  309 Cause-Related Marketing  309 Social Marketing  310 Executive Summary  310 Notes  311 Glossary 314 Brand, Company, and Name Index 324 Subject Index 333 Preface T he sixth edition of A Framework for Marketing Management is a concise paperback adapted from Philip Kotler and Kevin Lane Keller’s fifteenth edition of Marketing Management. Its streamlined approach will appeal to those who want an authoritative account of current market- ing management practices and theory plus a text that is short enough to allow the incorporation of outside cases, simulations, and projects. Like previous editions, the sixth edition of A Framework for Marketing Management is dedicated to helping companies, groups, and individuals adapt their marketing strategies and management to the marketplace of the twenty-first century. What’s New In The Edition A new chapter (Chapter 16, Managing Digital Communications: Online, Social Media, and Mobile) highlights expanded coverage of the latest digital trends and their marketing implications. New combined coverage of consumer and business markets in a single chapter (Chapter 5, Analyzing Consumer and Business Markets) explores the similarities and differences in market- ing to individual consumers, businesses, government agencies, and institutions. The positioning chapter (Chapter 7) now follows the segmentation and targeting chapter (Chapter 6) to align with the conventional STP sequencing of topics. The marketing strategy and planning chapter (Chapter 2) now includes all material on market- ing implementation, metrics, and control, emphasizing the importance of advance planning for measuring and managing marketing performance. New opening vignettes for each chapter show marketing management in action at real-world companies and provide effective discussion starters for chapter concepts. Companies featured include LinkedIn, PepsiCo, Emirates Airline, Gatorade, Pandora, Cisco, and Patagonia. New “Marketing Insights” boxes discuss a wide range of cutting-edge topics and marketing situations, including Marketing 3.0, marketing double jeopardy, showrooming, playing tricks to build a brand, and other subjects. New coverage throughout the text of contemporary marketing developments and issues, includ- ing omnichannel marketing, mobile apps, geofencing and mobile commerce, privacy concerns, shopper marketing, and the sharing economy. Features of The Edition Major Themes This new edition explores how the powerful forces of globalization, technology, and social re- sponsibility—individually and in combination—can affect the success of modern marketing programs. Incorporating the latest concepts with recent examples and current academic research, this edition examines the complexities and possibilities of holistic marketing today, encompassing relationship marketing, integrated marketing, internal marketing, and performance marketing. 19 20 Preface Instructor Resources At the Instructor Resource Center, www.pearsonglobaleditions.com/Kotler, instructors can eas- ily register to gain access to a variety of instructor resources available with this text in download- able format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: Instructor’s Resource Manual Test Bank TestGen® Computerized Test Bank PowerPoint Presentation Acknowledgments This edition of A Framework for Marketing Management bears the imprint of many people who have contributed to the previous edition of this text and to the fifteenth edition of Marketing Management. We reserve special thanks to Marian Burk Wood for her extensive development and editorial work on this edition. Many thanks also to the professional editorial and production teams at Pearson. We gratefully acknowledge the many reviewers who helped shape this book over the years. John H. Antil, University of Delaware Bill Archer, Northern Arizona University Timothy W. Aurand, Northern Illinois University Ruth Clottey, Barry University Jeff Conant, Texas A&M University Mike Dailey, University of Texas, Arlington Brian Engelland, Mississippi State University Brian Gibbs, Vanderbilt University Thomas Gruca, University of Iowa Mark Houston, University of Missouri, Columbia Nicole Howatt, University of Central Florida Gopal Iyer, Florida Atlantic University Jack Kasulis, University of Oklahoma Susan Keaveney, University of Colorado, Denver Bob Kent, University of Delaware Robert Kuchta, Lehigh University Jack K. H. Lee, City University of New York Baruch College Ning Li, University of Delaware Steven Lysonski, Marquette University Naomi Mandel, Arizona State University Ajay K. Manrai, University of Delaware Denny McCorkle, Southwest Missouri State University James McCullough, Washington State University  Preface 21 Ron Michaels, University of Central Florida George R. Milne, University of Massachusetts, Amherst Marian Chapman Moore, Duke University Steve Nowlis, Arizona State University Louis Nzegwu, University of Wisconsin, Platteville K. Padmanabhan, University of Michigan, Dearborn Mary Anne Raymond, Clemson University William Robinson, Purdue University Carol A. Scott, University of California at Los Angeles Stanley F. Slater, Colorado State University Robert Spekman, University of Virginia Edwin Stafford, Utah State University Vernon Stauble, California State Polytechnic Mike Swenson, Brigham Young University Kimberly A. Taylor, Florida International University Bronis J. Verhage, Georgia State University Philip Kotler S. C. Johnson & Son Distinguished Professor of International Marketing Kellogg School of Management Northwestern University Evanston, Illinois Kevin Lane Keller E.B. Osborn Professor of Marketing Tuck School of Business Dartmouth College Hanover, New Hampshire Pearson would like to thank Marian Burk Wood for developing content for this Global Edition and would also like to thank and acknowledge the following reviewers for their feedback and suggestions that helped improve the global content Michael A. Grund, HWZ University of Applied Sciences in Business Administration Yoosuf A. Cader, Zayed University Frances Ekwulugo, University of Westminster This page intentionally left blank A Framework for Marketing Management This page intentionally left blank Part 1: Introduction to Marketing Management Chapter 1 Scope of Marketing for New Realities In this chapter, we will address the following questions: 1. Why is marketing important? (Page 26) 2. What is the scope of marketing? (Page 26) 3. What are some core marketing concepts? (Page 29) 4. What forces are defining the new marketing realities? (Page 31) 5. What tasks are necessary for successful marketing management? (Page 34) Marketing Management at Unilever Under the leadership of ex-P&G marketing executive Paul Polman and marketing whiz Keith Weed, Unilever is steering in an aggressive new direction. Its “Crafting Brands for Life” model es- tablishes social, economic, and product missions for each brand, including Dove, Ben & Jerry’s, and Knorr. One part of the mission, for instance, is sustainability—specifically, to halve its ecological footprint while doubling revenues. To improve marketing communications, it aims to strike a bal- ance between “magic” and “logic,” doubling marketing training expenditures and emphasizing ad research. Unilever has set its sights on developing and emerging markets, hoping to draw 70 percent to 75 percent of revenues from these markets by 2020. The company has also adopted “reverse in- novation” by applying marketing innovations from developing markets to recession-hit developed markets. In Spain, it now sells Surf detergent in five-wash packs. In Greece, it offers mayonnaise in small packages.1 G ood marketing is no accident. It is both an art and a science, and it results from careful plan- ning and execution using state-of-the-art tools and techniques. In this book, we describe how skillful marketers are updating classic practices and inventing new ones to find creative, 25 26 Part 1   Introduction to Marketing Management practical solutions to new marketing realities. In the first chapter, we lay our foundation by re- viewing important marketing concepts, tools, frameworks, and issues. The Value of Marketing Finance, operations, accounting, and other business functions won’t really matter without suffi- cient demand for products and services so the firm can make a profit. In other words, there must be a top line for there to be a bottom line. Thus, financial success often depends on marketing ability. Marketing’s value extends to society as a whole. It has helped introduce new or enhanced products that ease or enrich people’s lives. Successful marketing builds demand for products and services, which, in turn, creates jobs. By contributing to the bottom line, successful marketing also allows firms to more fully engage in socially responsible activities.2 Many firms, even service and nonprofit, now have a chief marketing officer (CMO) to put marketing on a more equal footing with other C-level executives such as the chief financial officer (CFO) or chief information officer (CIO).3 In an Internet-fueled environment where consumers, competition, technology, and economic forces change rapidly and consequences quickly multiply, marketers in every organization must choose features, prices, and markets and decide how much to spend on advertising, sales, and online and mobile marketing—while under intense pressure to make every marketing dollar count. At greatest risk are those that fail to carefully monitor their customers and competitors, continuously improve their value offerings and marketing strategies, or satisfy their employees, stockholders, suppliers, and channel partners in the process. Thus, skillful marketing is a never- ending pursuit. Despite these challenges, some businesses are adapting and thriving in these changing times. The Scope of Marketing To be a marketer, you need to understand what marketing is, how it works, who does it, and what is marketed. What Is Marketing? Marketing is about identifying and meeting human and social needs. One of the shortest good definitions of marketing is “meeting needs profitably.” When Google recognized that people needed to more effectively and efficiently access information on the Internet, it created a power- ful search engine that organized and prioritized queries. When IKEA noticed that people wanted good furnishings at substantially lower prices, it created knockdown furniture. These two firms demonstrated marketing savvy and turned a private or social need into a profitable business opportunity. The American Marketing Association offers the following formal definition: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.4 We see marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior cus- tomer value. Cocreation of value among consumers and with businesses and the importance of value creation and sharing have become important themes in the development of modern marketing thought.5 Note that selling is not the most important part of marketing. Peter Drucker, famed manage- ment theorist, says that “the aim of marketing is to know and understand the customer so well  Chapter 1   Scope of Marketing for New Realities 27 that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available.”6 When Apple launched its iPad tablet computer and when Toyota introduced its Prius hybrid automobile, these manufacturers were swamped with orders because they designed the right product, based on careful marketing homework. What Is Marketed? Marketers market 10 main types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas. Goods  Physical goods constitute the bulk of most countries’ production and marketing ef- forts. Each year, U.S. companies market billions of fresh, canned, bagged, and frozen food prod- ucts and other tangible items. Services  As economies advance, a growing proportion of their activities focuses on the production of services. The U.S. economy today produces a services-to-goods mix of roughly two-thirds to one-third.7 Services include the work of airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers, engineers, doctors, software programmers, and management consultants. Many market offerings mix goods and services, such as a fast-food meal. Events  Marketers promote time-based events, such as major trade shows, artistic perfor- mances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to companies and fans. Experiences  By orchestrating several services and goods, a firm can create, stage, and market experiences. Walt Disney World’s Magic Kingdom lets customers visit a fairy kingdom, a pirate ship, or a haunted house. Customized experiences include a week at a baseball camp with retired baseball greats, as one example.8 Persons  Artists, musicians, CEOs, physicians, high-profile financiers, and other professionals often get help from marketers.9 Management consultant Tom Peters, himself a master at self- branding, has advised each person to become a “brand.” Places  Cities, states, regions, and whole nations compete to attract tourists, residents, facto- ries, and company headquarters.10 Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public rela- tions agencies. Properties  Properties are intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). They can be bought and sold and therefore require marketing through the efforts of real estate agents, investment companies, and banks. Organizations  Museums, performing arts organizations, corporations, and nonprofits all use marketing to boost their public images and compete for audiences and funds. Some uni- versities have created chief marketing officer (CMO) positions to better manage their school identity and image, via everything from admission brochures and Twitter feeds to brand strategy.11 28 Part 1   Introduction to Marketing Management Information  Information is essentially what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. Ideas  Every market offering includes a basic idea. Charles Revson of Revlon once observed: “In the factory we make cosmetics; in the drugstore we sell hope.” Products and services are plat- forms for delivering some idea or benefit. Social marketers promote such ideas as “Friends Don’t Let Friends Drive Drunk” and “A Mind Is a Terrible Thing to Waste.” Who Markets? A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party, called the prospect. If two parties are seeking to sell something to each other, we call them both marketers. Increasingly, marketing is not done only by the marketing department. Marketers now must properly manage all possible touch points (where a customer directly or indirectly interacts with the company), including store layouts, package designs, product functions, employee training, and shipping and logistics. To create a strong marketing organization, marketers must think like executives in other departments, and executives in other departments must think more like mar- keters. Interdepartmental teamwork that includes marketers is needed to manage key processes like production innovation, new-business development, customer acquisition and retention, and order fulfillment. What Is a Market? Traditionally, a “market” was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing market or the grain market). Marketers use the term market to describe customer groups. They talk about need markets (the diet- seeking market), product markets (the shoe market), demographic markets (the “millennium” youth market), geographic markets (the Chinese market), or voter markets, labor markets, and donor markets. Four key customer markets are consumer, business, global, and nonprofit. Figure 1.1 shows how sellers and buyers are connected by four flows. Sellers send goods and services and communications such as ads and direct mail to the market; in return they re- ceive money and information such as customer attitudes and sales data. The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information. Figure 1.1 A Simple Marketing System Communication Goods/services Industry Market (a collection of sellers) (a collection of buyers) Money Information  Chapter 1   Scope of Marketing for New Realities 29 Core Marketing Concepts To understand the marketing function, we need to understand the following core set of concepts. Needs, Wants, and Demands Needs are the basic human requirements such as for air, food, water, clothing, and shelter. Humans also have strong needs for recreation, education, and entertainment. These needs be- come wants when directed to specific objects that might satisfy the need. A U.S. consumer needs food but may want a Chicago-style “deep-dish” pizza and a craft beer. A person in Afghanistan needs food but may want rice, lamb, and carrots. Our wants are shaped by our society. Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few can buy one. Companies must measure not only how many people want their product, but also how many are willing and able to buy it. These distinctions shed light on the criticism that “marketers get people to buy things they don’t want.” Marketers do not create needs: Needs pre-exist marketers. Marketers might promote the idea that a Mercedes satisfies a person’s need for social status. They do not, however, create the need for social status. Some customers have needs of which they are not fully conscious or that they cannot articu- late. What does the customer mean in asking for a “powerful” lawn mower or a “peaceful” hotel? We can distinguish five types of needs: 1. Stated needs (The customer wants an inexpensive car.) 2. Real needs (The customer wants a car whose operating cost, not initial price, is low.) 3. Unstated needs (The customer expects good service from the dealer.) 4. Delight needs (The customer would like the dealer to include an onboard GPS system.) 5. Secret needs (The customer wants friends to see him or her as a savvy consumer.) Responding only to the stated need may shortchange the customer.12 Consumers did not know much about tablet computers when they were first introduced, but Apple worked hard to shape consumer perceptions of them. To gain an edge, companies must help customers learn what they want. Target Markets, Positioning, and Segmentation Not everyone likes the same cereal, restaurant, university, or movie. Marketers therefore identify distinct segments of buyers by identifying demographic, psychographic, and behavioral differences between them. They then decide which segment(s) present the greatest opportunities. For each of these target markets, the firm develops a market offering that it positions in target buyers’ minds as delivering some key benefit(s). Porsche targets buyers who seek pleasure and excitement in driving and want to make a statement about their wheels. Offerings and Brands Companies address customer needs by putting forth a value proposition, a set of benefits that satisfy those needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences. A brand is an offering from a known source. A brand name such as Apple carries many different kinds of associations in people’s minds that make up its image: creative, innovative, easy-to-use, fun, cool, iPhone, and iPad to name just a few. All companies strive to build a brand image with strong, favorable, and unique brand associations. 30 Part 1   Introduction to Marketing Management Marketing Channels To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers, magazines, radio, television, mail, telephone, smart phone, billboards, posters, and the Internet. Firms also communi- cate through the look of their retail stores and Web sites and other media, adding dialogue channels such as e-mail, blogs, text messages, and URLs to familiar monologue channels such as ads. Distribution channels help display, sell, or deliver the physical product or service(s) to the buyer or user. These channels may be direct via the Internet, mail, or mobile phone or telephone or indirect with distributors, wholesalers, retailers, and agents as intermediaries. To carry out transactions with potential buyers, the marketer also uses service channels that include ware- houses, transportation companies, banks, and insurance companies. Marketers clearly face a design challenge in choosing the best mix of communication, distribution, and service channels. Paid, Owned, and Earned Media We can group communication options for interacting with customers into three categories.13 Paid media include TV, magazine and display ads, paid search, and sponsorships, all of which allow marketers to show their ad or brand for a fee. Owned media are communication channels marketers actually own, like a company or brand brochure, Web site, blog, Facebook page, or Twitter account. Earned media are streams in which consumers, the press, or other outsiders voluntarily communicate something about the brand via word of mouth, buzz, or viral market- ing methods. The emergence of earned media has allowed some companies, such as Chipotle, to reduce paid media expenditures.14 Impressions and Engagement Marketers now think of three “screens” or means to reach consumers: TV, Internet, and mobile. Impressions, which occur when consumers view a communication, are a useful metric for track- ing the scope or breadth of a communication’s reach that can also be compared across all com- munication types. The downside is that impressions don’t provide any insight into the results of viewing the communication. Engagement is the extent of a customer’s attention and active in- volvement with a communication, which is more likely to create value for the firm. Some online measures of engagements are Facebook “likes,” Twitter tweets, comments on a blog or Web site, and sharing of video or other content. Value and Satisfaction The buyer chooses the offerings he or she perceives to deliver the most value, the sum of the tan- gible and intangible benefits and costs. Value, a central marketing concept, is primarily a combi- nation of quality, service, and price, called the customer value triad. Value perceptions increase with quality and service but decrease with price. Satisfaction reflects a person’s judgment of a product’s perceived performance in relation- ship to expectations. If performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted. Supply Chain The supply chain is a longer channel stretching from raw materials to components to finished products carried to final buyers. The supply chain for coffee may start with farmers who plant, tend, and pick the coffee beans and sell their harvest. After farmers sell their harvest to  Chapter 1   Scope of Marketing for New Realities 31 wholesalers or perhaps a Fair Trade cooperative, the beans are prepared and then transported to the developed world for sale through wholesale or retail channels. Each company in the chain captures only a certain percentage of the total value generated by the supply chain’s value deliv- ery system. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value. Competition Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. An automobile manufacturer can buy steel from U.S. Steel, from a firm in Japan or Korea, or from a mini-mill. Alternatively, it can buy aluminum parts from Alcoa to reduce the car’s weight or engineered plastics instead of steel. Clearly, U.S. Steel is more likely to be hurt by substitute products than by other integrated steel companies and would be defining its competi- tion too narrowly if it didn’t recognize this. Marketing Environment The marketing environment consists of the task environment and the broad environment. The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, dealers, and target customers. In the supplier group are material suppliers and service suppliers, such as marketing research agen- cies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers. The broad environment consists of six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political-legal environment. Marketers must pay close attention to the trends and develop- ments in these and adjust their marketing strategies as needed. The New Marketing Realities The marketplace is dramatically different from even 10 years ago, with new marketing behaviors, opportunities, and challenges emerging. In this book we focus on three transformative forces: technology, globalization, and social responsibility. Technology The pace of change and the scale of technological achievement can be staggering. With the rapid rise of e-commerce, the mobile Internet, and Web penetration in emerging markets, the Boston Consulting Group believes brand marketers must enhance their “digital balance sheets.”15 Massive amounts of information and data about almost everything are now avail- able to consumers and marketers. In fact, the technology research firm Gartner predicts that by 2017, chief marketing officers will spend more time on information technology than chief information officers. The old credo “information is power” is giving way to the new idea that “sharing information is power.”16 Even traditional marketing activities are profoundly affected by technology. As just one example, drug maker Roche decided to issue iPads to its entire sales team to improve sales force effectiveness. Now sales personnel can do real-time data entry, improving the quality of the data entered while freeing up time for other tasks.17 32 Part 1   Introduction to Marketing Management Globalization The world has become a smaller place. New transportation, shipping, and communication tech- nologies have made it easier for us to know the rest of the world, to travel, to buy and sell any- where. By 2025, annual consumption in emerging markets will total $30 trillion and contribute more than 70 percent of global GDP growth.18 A staggering 56 percent of global financial ­services consumption is forecast to come from emerging markets by 2050, up from 18 percent in 2010. Globalization has made countries increasingly multicultural. U.S. minorities have much eco- nomic clout, and their buying power is growing faster than that of the general population. As a result, one survey found that 87 percent of companies planned to increase or maintain multicul- tural media budgets.19 Companies can now take marketing ideas and lessons from one country and apply them to another. After years of little success with premium ultrasound scanners in the Chinese market, GE successfully developed a portable, ultra-low-cost version that addressed the country’s unique market needs. Later, it began to successfully sell the product throughout the developed world for use in ambulances and operating rooms where existing units were too big.20 Social Responsibility Poverty, pollution, water shortages, climate change, wars, and wealth concentration demand our attention. The private sector is taking some responsibility for improving living conditions, and firms all over the world have elevated the role of corporate social responsibility. Because market- ing’s effects extend to society as a whole, marketers must consider the ethical, environmental, legal, and social context of their activities.21 “Marketing Insight: Getting to Marketing 3.0” de- scribes how companies need to change to do that. A Dramatically Changed Marketplace These three forces—technology, globalization, and social responsibility—have dramatically changed the marketplace and provided both consumers and companies with new capabilities, as shown in Table 1.1. One of the reasons consumers have more choices is that channels of distribution have changed. Store-based retailers face competition from catalog houses; direct-mail firms; news- paper, magazine, and TV direct-to-customer ads; home shopping TV; and e-commerce. In Table 1.1 New Capabilities in the Changed Marketplace New Consumer Capabilities: Can use the Internet as a powerful information and purchasing aid Can search, communicate, and purchase on the move Can tap into social media to share opinions and express loyalty Can actively interact with companies Can reject marketing they find inappropriate New Company Capabilities: Can use the Internet as a powerful information and sales channel, including for individually differentiated goods Can collect fuller and richer information about markets, customers, prospects, and competitors Can reach customers quickly and efficiently via social media and mobile marketing, sending targeted ads, coupons, and information Can improve purchasing, recruiting, training, and internal and external communications Can improve cost efficiency  Chapter 1   Scope of Marketing for New Realities 33 marketing insight Getting to Marketing 3.0 P hilip Kotler, Hermawan Kartajaya, and Iwan Setiawan believe today’s customers want mar- keters to treat them as whole human beings and position itself as a national or local alterna- tive to a global brand with poor environ- mental standards, for instance. acknowledge that their needs extend beyond pure Creative people are increasingly the back- consumerism. Successful marketing is thus dis- bone of developed economies. Marketing can tinguished by its human or emotional element. A now help companies tap into creativity and third wave of thinking, values-driven and heralded spirituality by instilling marketing values in as “Marketing 3.0,” has moved us beyond the corporate culture, vision, and mission. product-centric and consumer-centric models of the past, these authors say. Its three central trends These authors believe the future of marketing are increased consumer participation and collab- will be consumer-to-consumer. They say the recent orative marketing, globalization, and the rise of a economic downturn has not fostered trust in the creative society. marketplace and customers are increasingly turning to one another for credible advice and information We live with sustained technological when selecting products. ­development—low-cost Internet, cheap computers and mobile phones, open source Sources: Philip Kotler, Hermawan Kartajaya, and Iwan Setiawan, Marketing 3.0: From Products to Customers to the Human Spirit services and systems. Expressive and collab- (Hoboken, NJ: Wiley, 2010); Michael Krauss, “Evolution of an Academic: orative social media, such as Facebook and Kotler on Marketing 3.0,” Marketing News, January 30, 2011; Vivek Wikipedia, have changed the way marketers Kaul, “Beyond Advertising: Philip Kotler Remains One of the Most operate and interact with consumers. Influential Marketing Thinkers,” The Economic Times, February 29, 2012. Culturally relevant brands can have far- For related ideas, see also Jim Stengel, Grow: How Ideals Power Growth reaching effects. A cultural brand might and Profit at the World’s Greatest Companies (New York: Crown, 2011). response, entrepreneurial retailers are building entertainment into their stores with coffee bars, demonstrations, and performances, marketing an “experience” rather than a product assortment. Early dot-coms such as Amazon.com successfully created disintermediation in the delivery of products and services by intervening in the traditional flow of goods. Now traditional companies are engaging in reintermediation and becoming “brick-and-click” retailers, adding online ser- vices to their offerings. While globalization has created intense competition among domestic and foreign brands, the rise of private labels (marketed by powerful retailers) and mega-brands (and brands extended into related product categories) plus a trend toward deregulation and privatization have also increased competition. Many countries have deregulated industries to create greater competition and growth opportunities. In the United States, laws restricting financial services, telecommunications, and electric utilities have all been loosened in the spirit of greater competition. Meanwhile, many coun- tries have converted public companies to private ownership and management to increase efficiency, which also adds to the competitive pressure. Marketers are increasingly asked to justify their investments in financial and profitability terms as well as in terms of building the brand and growing the customer base. Organizations recognize that much of their market value comes from intangible assets, particularly brands, 34 Part 1   Introduction to Marketing Management customer base, employees, distributor and supplier relations, and intellectual capital. They are thus applying more metrics—brand equity, customer lifetime value, return on marketing ­investment— to understand and measure their marketing and business performance and a broader variety of financial measures to assess the direct and indirect value their marketing efforts create. Company Orientation Toward the Marketplace Given these new marketing realities, what philosophy should guide a company’s marketing efforts? Let’s first review the evolution of marketing philosophies. The Production Concept The production concept is one of the oldest concepts in business. It holds that consumers prefer products that are widely available and inexpensive. Managers of production-oriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This orien- tation has made sense in developing countries such as China, where the largest PC manufacturer, Lenovo, has taken advantage of the country’s huge, inexpensive labor pool to dominate the market. Marketers also use the production concept when they want to expand the market. The Product Concept The product concept proposes that consumers favor products offering the most quality, perfor- mance, or innovative features. However, managers are sometimes caught in a love affair with their products. They might commit the “better-mousetrap” fallacy, believing a better product will by itself lead people to beat a path to their door. As many start-ups have learned the hard way, a new or improved product will not necessarily be successful unless it’s priced, distributed, advertised, and sold properly. The Selling Concept The selling concept holds that consumers and businesses, if left alone, won’t buy enough of the organization’s products. It is practiced most aggressively with unsought goods—goods buyers don’t normally think of buying, such as insurance and cemetery plots—and when firms with overcapacity aim to sell what they make rather than make what the market wants. Marketing based on hard selling is risky. It assumes customers coaxed into buying a product not only won’t return or bad-mouth it or complain to consumer organizations but might even buy it again. The Marketing Concept The marketing concept emerged in the mid-1950s as a customer-centered, sense-and-respond philosophy. The job is to find not the right customers for your products, but the right products for your customers. The marketing concept holds that the key to achieving organizational goals is being more effective than competitors in creating, delivering, and communicating superior customer value to your target markets. Harvard’s Theodore Levitt drew a perceptive contrast between the selling and marketing concepts:22 Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is pre- occupied with the seller’s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering, and finally consuming it.  Chapter 1   Scope of Marketing for New Realities 35 The Holistic Marketing Concept The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognize their breadth and interdependencies. Holistic marketing acknowledges that everything matters in marketing—and that a broad, integrated perspective is often necessary. Holistic marketing thus recognizes and reconciles the scope and com- plexities of marketing activities. Figure 1.2 provides a schematic overview of four broad components characterizing holistic marketing: relationship marketing, integrated marketing, internal marketing, and performance marketing. We’ll examine these major themes throughout this book. Relationship Marketing  Relationship marketing aims to build mutually satisfying long- term relationships with key constituents in order to earn and retain their business.23 Four key constituents for relationship marketing are customers, employees, marketing partners (channels, suppliers, distributors, dealers, agencies), and members of the financial community (shareholders, investors, analysts). Marketers must create prosperity among all these constituents and balance the returns to all key stakeholders. The ultimate outcome of relationship marketing is a unique company asset called a market- ing network, consisting of the company and its supporting stakeholders—customers, employees, suppliers, distributors, retailers, and others—with whom it has built mutually profitable business relationships. The operating principle is simple: build an effective network of relationships with key stakeholders, and profits will follow.24 Thus, more companies are choosing to own brands rather than physical assets, and they are subcontracting activities to firms that can do them better and more cheaply while retaining core activities at home. Companies are also shaping separate offers, services, and messages to individual customers, based on information about their past transactions, demographics, psychographics, and media Figure 1.2 Holistic Marketing Dimensions Senior Products & Marketing management Other services Channels department departments Communications Price Internal Integrated marketing marketing Holistic marketing Sales revenue Performance Relationship marketing marketing Brand & customer equity Ethics Social Customers Financial community Environment Legal Employees Partners 36 Part 1   Introduction to Marketing Management and distribution preferences. By focusing on their most profitable customers, products, and channels, these firms hope to achieve profitable growth, capturing a larger share of each custom- er’s expenditures by building high customer loyalty. They estimate individual customer lifetime value and design their market offerings and prices to make a profit over the customer’s lifetime. Marketing must skillfully conduct not only customer relationship management but partner re- lationship management as well. Companies are deepening their partnering arrangements with suppliers and distributors, seeing them as partners in delivering value to final customers so ev- erybody benefits. Integrated Marketing  Integrated marketing occurs when the marketer devises activities and programs to create, communicate, and deliver value for consumer such that “the whole is greater than the sum of its parts.” Two key themes are that (1) many different marketing activities can cre- ate, communicate, and deliver value; and (2) marketers should design and implement each market- ing activity with all other activities in mind. When a hospital buys an MRI machine from General Electric, for instance, it expects good installation, maintenance, and training services to go with the purchase. All company communications also must be integrated so they reinforce and complement each other. A marketer might selectively employ television, radio, and print advertising, public rela- tions and events, and PR and Web site communications so each contributes on its own and improves the effectiveness of the others while delivering a consistent brand message at every contact. Internal Marketing   Internal marketing, an element of holistic marketing, is the task of hir- ing, training, and motivating able employees who want to serve customers well. Smart marketers recognize that marketing activities within the firm can be as important as, or even more impor- tant than, those directed outside the company. Performance Marketing  Performance marketing requires understanding the financial and nonfinancial returns to business and society from marketing activities and programs. As noted previously, top marketers are increasingly going beyond sales revenue to interpret what is happening to market share, customer loss rate, customer satisfaction, product quality, and other measures. They are also considering the legal, ethical, social, and environmental effects of mar- keting activities and programs. When they founded Ben & Jerry’s, Ben Cohen and Jerry Greenfield embraced the perfor- mance marketing concept by dividing the traditional financial bottom line into a “double bot- tom line” that also measured the environmental impact of their products and processes. That later expanded into a “triple bottom line” to represent the positive and negative social impacts of the firm’s entire range of business activities. Some firms have failed to live up to their legal and ethical responsibilities, and consumers are demanding more responsible behavior. One research study reported that at least one-third of consumers around the world believed that banks, insur- ance providers, and packaged-food companies should be subject to stricter regulation.25 Updating The Four Ps Many years ago, McCarthy classified various marketing activities into marketing-mix tools of four broad kinds, which he called the four Ps of marketing: product, price, place, and promotion.26 The marketing variables under each P are shown in Figure 1.3. Given the breadth, complexity, and richness of marketing, however—as exemplified by holistic marketing—clearly these four Ps are not the whole story anymore. Updating them to reflect the holistic marketing concept results in a more representative set that encompasses modern marketing realities: people, processes, programs, and performance, as in Table 1.2.  Chapter 1   Scope of Marketing for New Realities 37 Figure 1.3 The Four P Components of the Marketing Mix Marketing mix PRODUCT PLACE Product variety Channels Quality Coverage Design Assortments Features Locations Brand name Inventory Packaging Transport Sizes PRICE PROMOTION Services Warranties List price Sales promotion Returns Discounts Advertising Allowances Sales force Payment period Public relations Credit terms Direct marketing Table 1.2 The Evolution of Marketing Management Marketing Mix Four Ps Modern Marketing Management Four Ps Product People Place Processes Promotion Programs Price Performance People reflects, in part, internal marketing and the fact that employees are critical to market- ing success. Marketing will only be as good as the people inside the organization. It also reflects the fact that marketers must view consumers as people to understand their lives more broadly and not just as shoppers who consume products and services. Processes are all the creativity, discipline, and structure brought to marketing management. Marketers must ensure that state-of-the-art marketing ideas and concepts play an appropriate role in all they do, including creating mutually beneficial long-term relationships and imagina- tively generating insights and breakthrough products, services, and marketing activities. Programs are all the firm’s consumer-directed activities, encompassing the old four Ps as well as a range of other marketing activities that might not fit as neatly into the old view of marketing. Regardless of whether they are online or offline, traditional or nontraditional, these activities must be integrated such that their whole is greater than the sum of their parts and they accomplish mul- tiple objectives for the firm. 38 Part 1   Introduction to Marketing Management Performance reflects, as in holistic marketing, the range of possible outcome measures that have financial and nonfinancial implications (profitability as well as brand and customer equity) and implications beyond the company itself (social responsibility, legal, ethical, and community related). Marketing Management Tasks Figure 1.4 summarizes the three major market forces, two key market outcomes, and four funda- mental pillars of holistic marketing that help to capture the new marketing realities. With these concepts in place, we can identify a specific set of tasks that make up successful marketing man- agement and marketing leadership. Developing and implementing marketing strategies and plans. The first task is to identify and plan for the organization’s potential long-run opportunities, given its market experience and core competencies. See Chapter 2 for more detail. Capturing marketing insights. Each organization should closely monitor its ­marketing ­environment, continually assess market potential, and forecast demand. Chapter 3 looks at marketing information and research, market demand, and the marketing environment. Connecting with customers. Management must decide how to best create value for the firm’s chosen target markets and how to develop strong, profitable, long-term relationships with customers, as discussed in Chapters 4 and 5. Building strong brands. The organization must divide the market into major market ­segments, evaluate each one, and target those it can best serve, as explained in Chapter 6. Figure 1.4 The New Marketing Realities The New Marketing Realities Four Three Major Two Key Fundamental Pillars of Market Forces Market Outcomes Holistic Marketing Technology Relationship Marketing New Consumer Capabilities Integrated Marketing Globalization Internal Marketing Social New Responsibility Company Performance Capabilities Marketing  Chapter 1   Scope of Marketing for New Realities 39 Next, it needs to craft a brand positioning and plan to compete effectively, as shown in Chapter 7. Also, it should understand how customers perceive its brands and plan for growth, topics covered in Chapter 8. Creating value. At the heart of the marketing program is the product—the firm’s ­tangible offering to the market—which includes the product quality, design, features, and packaging, all explored in Chapter 9. Chapter 10 looks at how firms can design and market services, and Chapter 11 examines critical marketing decisions related to pricing. Delivering value. Based on its products and services, how can the firm deliver value to its target market? Chapter 12 discusses channel activities needed to make the product ­accessible and available to customers. Chapter 13 explores the marketing decisions made by retailers, wholesalers, and physical-distribution firms. Communicating value. Each marketer needs to communicate to the target market the value embodied by its offerings. This requires an integrated marketing program that maximizes the individual and collective contribution of all communication ­activities, as shown in Chapter 14. Chapter 15 examines mass communications such as advertising, sales promotion, events, and public relations, while Chapter 16 dis- cusses online, social media, and mobile options for reaching consumers. Chapter 17 looks at personal communications such as direct and database marketing as well as personal selling. Managing the marketing organization for long term success. The marketing strategy should take into account changing global opportunities and challenges as well as social responsibility and ethics. Management must also establish an appropriate marketing ­organization. See Chapter 18 for more detail. Executive Summary Marketing is the activity, set of institutions, and processes for creating, communicating, deliv- ering, and exchanging offerings that have value for customers, clients, partners, and society at large. Marketing management is the art and science of choosing target markets and getting, keep- ing, and growing customers through creating, delivering, and communicating superior customer value. Marketers can market goods, services, events, experiences, persons, places, properties, organizations, information, and ideas in four different marketplaces: consumer, business, global, and nonprofit. Today’s marketplace is fundamentally different than in the past, resulting in many new consumer and company capabilities. Technology, globalization, and social responsibility are creating new opportunities and challenges and significantly changing the management of mar- keting. Organizations can conduct business under the production concept, the product concept, the selling concept, the marketing concept, or the holistic marketing concept. The holistic mar- keting concept (including relationship marketing, integrated marketing, internal marketing, and performance marketing) is based on the development, design, and implementation of market- ing programs, processes, and activities that recognize their breadth and interdependencies. Successful marketing management includes developing and implementing marketing strategies and plans, capturing marketing insights, connecting with customers, building strong brands, creating, delivering, and communicating value, and managing the marketing organization within the global economy.  40 Part 1   Introduction to Marketing Management Notes 1. “‘Captain Planet,’ The HBR Interview: Unilever 8. B. Joseph Pine II and James Gilmore, The Experience CEO Paul Polman,” Harvard Business Review, Economy (Boston: Harvard Business School Press, June 2012; “Unilever Reframes Marketing,” 1999); Bernd Schmitt, Experience Marketing (New York: February 8, 2012, www.warc.com; “Unilever Gets Free Press, 1999); Philip Kotler, “Dream Vacations: Back to Basics,” www.warc.com, September 11, 2012; The Booming Market for Designed Experiences,” The “Unilever Confident on China,” www.warc.com, Futurist, October 1984, pp. 7–13. September 17, 2012; Geoffrey Precourt, “Engaging 9. Irving J. Rein, Philip Kotler, Michael Hamlin, and with Media and Markets: Unilever’s Prowl for Martin Stoller, High Visibility, 3rd ed. (New York: Experiential Improvement,” WARC Events Report: McGraw-Hill, 2006). 4A’s Transformation, March 2011; “Unilever Targets 10. Philip Kotler, Christer Asplund, Irving Rein, and Russia,” www.warc.com, October 4, 2012; “Unilever Donald H. Haider, Marketing Places in Europe: Adopts ‘Reverse Engineering,’” www.warc.com, Attracting Investments, Industries, Residents, and October 1, 2012; “Unilever Seeks New Way Forward,” Visitors to European Cities, Communities, Regions, www.warc.com, October 23, 2012; “Unilever Prioritises and Nations (London: Financial Times Prentice Hall, Emerging Markets,” www.warc.com, October 31, 2012; 1999); Philip Kotler, Irving J. Rein, and Donald Haider, Peter Evans, “Unilever Flags Further Emerging-Market Marketing Places: Attracting Investment, Industry, and Slowdown,” Wall Street Journal, July 24, 2014. Tourism to Cities, States, and Nations (New York: Free 2. Philip Kotler, “Marketing: The Underappreciated Press, 1993). Workhorse,” Market Leader Quarter 2 (2009), pp. 8–10. 11. Emily Glazer and Melissa Korn, “Marketing Pros: Big 3. Peter C. Verhoef and Peter S. H. Leeflang, Brands on Campus,” Wall Street Journal, August 5, 2012. “Understanding the Marketing Department’s Influence 12. Nikolaus Franke, Peter Keinz, and Christoph J. Steger, within the Firm,” Journal of Marketing 73 (March “Testing the Value of Customization: When Do 2009), pp. 14–37; Pravin Nath and Vijay Mahajan, Customers Really Prefer Products Tailored to Their “Marketing in the C-Suite: A Study of Chief Marketing Preferences?” Journal of Marketing 73 (September Officer Power in Firms’ Top Management Teams,” 2009), pp. 103–21. Journal of Marketing 75 (January 2012), pp. 60–77; 13. Sean Corcoran, “Defining Earned, Owned and Paid Christian Schulze, Bernd Skiera, and Thorsten Media,” Forrester Blogs, December 16, 2009. For an Weisel, “Linking Customer and Financial Metrics to empirical examination, see Andrew T. Stephen and Shareholder Value: The Leverage Effect in Customer- Jeff Galak, “The Effects of Traditional and Social Based Valuation,” Journal of Marketing 76 (March Earned Media on Sales: A Study of a Microlending 2012), pp. 17–32. Marketplace,” Journal of Marketing Research 49 4. American Marketing Association, “Definition of (October 2012), pp. 624–39. Marketing,” www.marketingpower.com/AboutAMA​ 14. Jim Edwards, “How Chipotle’s Business Model Depends /Pages/DefinitionofMarketing.aspx; Lisa Keefe, on NEVER Running TV Ads,” Business Insider, “Marketing Defined,” Marketing News, January 15, March 16, 2012; Dan Klamm, “How Chipotle Uses 2008, pp. 28–29. Social Media to Cultivate a Better World,” Spredfast, 5. Robert F. Lusch and Frederick E. Webster Jr., March 21, 2012; Danielle Sacks, “For Exploding All “A Stakeholder-Unifying, Cocreation Philosophy for the Rules; Chipotle: The World’s 50 Most Innovative Marketing,” Journal of Macromarketing 31, no. 2 (2011), Companies in 2012,” Fast Company, October 2012. pp. 129–34. See also Robert F. Lusch and Frederick 15. “Digital Focus Vital for