Principles of Marketing PDF Textbook

Principles of Marketing SENIOR CONTRIBUTING AUTHORS DR. MARIA GOMEZ ALBRECHT, UNIVERSITY OF TEXAS AT DALLAS DR. MARK GREEN, SIMPSON COLLEGE LINDA HOFFMAN, IVY TECH COMMUNITY COLLEGE OpenStax Rice University 6100 Main Street MS-375 Houston, Texas 77005 To learn more about OpenStax, visit https://openstax.org. Individual print copies and bulk orders can be purchased through our website. ©2023 Rice University. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution 4.0 International License (CC BY 4.0). 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The future of education. openstax.org CONTENTS Preface 1 UNIT 1 SETTING THE STAGE Unit Introduction 10 1 Marketing and Customer Value 11 In the Spotlight 11 1.1 Marketing and the Marketing Process 12 1.2 The Marketing Mix and the 4Ps of Marketing 18 1.3 Factors Comprising and Affecting the Marketing Environment 22 1.4 Evolution of the Marketing Concept 27 1.5 Determining Consumer Needs and Wants 30 1.6 Customer Relationship Management (CRM) 33 1.7 Ethical Marketing 35 Chapter Summary 38 Key Terms 38 Applied Marketing Knowledge: Discussion Questions 40 Critical Thinking Exercises 40 Building Your Personal Brand 41 What Do Marketers Do? 41 Marketing Plan Exercise 42 Closing Company Case 42 References 44 2 Strategic Planning in Marketing 47 In the Spotlight 47 2.1 Developing a Strategic Plan 48 2.2 The Role of Marketing in the Strategic Planning Process 55 2.3 Purpose and Structure of the Marketing Plan 64 2.4 Marketing Plan Progress Using Metrics 72 2.5 Ethical Issues in Developing a Marketing Strategy 81 Chapter Summary 84 Key Terms 84 Applied Marketing Knowledge: Discussion Questions 85 Critical Thinking Exercises 85 Building Your Personal Brand 86 What Do Marketers Do? 86 Marketing Plan Exercise 86 Closing Company Case 86 References 88 UNIT 2 UNDERSTANDING THE MARKETPLACE Unit Introduction 92 3 Consumer Markets and Purchasing Behavior 93 In the Spotlight 93 3.1 Understanding Consumer Markets and Buying Behavior 94 3.2 Factors That Influence Consumer Buying Behavior 97 3.3 The Consumer Purchasing Decision Process 111 3.4 Ethical Issues in Consumer Buying Behavior 116 Chapter Summary 120 Key Terms 120 Applied Marketing Knowledge: Discussion Questions 121 Critical Thinking Exercises 121 Building Your Personal Brand 122 What Do Marketers Do? 122 Closing Company Case 123 References 125 4 Business Markets and Purchasing Behavior 127 In the Spotlight 127 4.1 The Business-to-Business (B2B) Market 128 4.2 Buyers and Buying Situations in a B2B Market 131 4.3 Major Influences on B2B Buyer Behavior 138 4.4 Stages in the B2B Buying Process 141 4.5 Ethical Issues in B2B Marketing 144 Chapter Summary 148 Key Terms 148 Applied Marketing Knowledge: Discussion Questions 149 Critical Thinking Exercises 149 Building Your Personal Brand 150 What Do Marketers Do? 150 Closing Company Case 151 References 153 5 Market Segmentation, Targeting, and Positioning 155 In the Spotlight 155 5.1 Market Segmentation and Consumer Markets 156 5.2 Segmentation of B2B Markets 165 5.3 Segmentation of International Markets 169 5.4 Essential Factors in Effective Market Segmentation 174 5.5 Selecting Target Markets 175 5.6 Product Positioning 181 5.7 Ethical Concerns and Target Marketing 186 Chapter Summary 190 Key Terms 190 Applied Marketing Knowledge: Discussion Questions 191 Critical Thinking Exercises 191 Building Your Personal Brand 191 What Do Marketers Do? 192 Access for free at openstax.org Marketing Plan Exercise 192 Closing Company Case 192 References 193 6 Marketing Research and Market Intelligence 197 In the Spotlight 197 6.1 Marketing Research and Big Data 198 6.2 Sources of Marketing Information 201 6.3 Steps in a Successful Marketing Research Plan 203 6.4 Ethical Issues in Marketing Research 216 Chapter Summary 219 Key Terms 219 Applied Marketing Knowledge: Discussion Questions 221 Critical Thinking Exercises 221 Building Your Personal Brand 222 What Do Marketers Do? 222 Marketing Plan Exercise 223 Closing Company Case 223 References 224 7 Marketing in a Global Environment 227 In the Spotlight 227 7.1 The Global Market and Advantages of International Trade 228 7.2 Assessment of Global Markets for Opportunities 232 7.3 Entering the Global Arena 241 7.4 Marketing in a Global Environment 243 7.5 Ethical Issues in the Global Marketplace 247 Chapter Summary 250 Key Terms 250 Applied Marketing Knowledge: Discussion Questions 251 Critical Thinking Exercises 251 Building Your Personal Brand 251 What Do Marketers Do? 252 Closing Company Case 252 References 254 8 Marketing in a Diverse Marketplace 259 In the Spotlight 259 8.1 Strategic Marketing: Standardization versus Adaptation 260 8.2 Diversity and Inclusion Marketing 263 8.3 Multicultural Marketing 271 8.4 Marketing to Hispanic, Black, and Asian Consumers 278 8.5 Marketing to Sociodemographic Groups 287 8.6 Ethical Issues in Diversity Marketing 294 Chapter Summary 298 Key Terms 298 Applied Marketing Knowledge: Discussion Questions 299 Critical Thinking Exercises 300 Building Your Personal Brand 300 What Do Marketers Do? 300 Closing Company Case 301 References 302 UNIT 3 PRODUCT, PROMOTION, PRICE, AND PLACE Unit Introduction 306 9 Products: Consumer Offerings 307 In the Spotlight 307 9.1 Products, Services, and Experiences 308 9.2 Product Items, Product Lines, and Product Mixes 313 9.3 The Product Life Cycle 316 9.4 Marketing Strategies at Each Stage of the Product Life Cycle 318 9.5 Branding and Brand Development 320 9.6 Forms of Brand Development, Brand Loyalty, and Brand Metrics 325 9.7 Creating Value through Packaging and Labeling 329 9.8 Environmental Concerns Regarding Packaging 332 9.9 Ethical Issues in Packaging 335 Chapter Summary 337 Key Terms 337 Applied Marketing Knowledge: Discussion Questions 338 Critical Thinking Exercises 339 Building Your Personal Brand 339 What Do Marketers Do? 339 Marketing Plan Exercise 340 Closing Company Case 340 References 342 10 Maintaining a Competitive Edge with New Offerings 343 In the Spotlight 343 10.1 New Products from a Customer’s Perspective 344 10.2 Stages of the New Product Development Process 349 10.3 The Use of Metrics in Evaluating New Products 353 10.4 Factors Contributing to the Success or Failure of New Products 356 10.5 Stages in the Consumer Adoption Process for New Products 361 10.6 Ethical Considerations in New Product Development 364 Chapter Summary 366 Key Terms 366 Applied Marketing Knowledge: Discussion Questions 368 Critical Thinking Exercises 368 Building Your Personal Brand 368 Access for free at openstax.org What Do Marketers Do? 368 Closing Company Case 369 References 370 11 Services: The Intangible Product 375 In the Spotlight 375 11.1 Classification of Services 376 11.2 The Service-Profit Chain Model and the Service Marketing Triangle 383 11.3 The Gap Model of Service Quality 390 11.4 Ethical Considerations in Providing Services 395 Chapter Summary 398 Key Terms 398 Applied Marketing Knowledge: Discussion Questions 399 Critical Thinking Exercises 400 Building Your Personal Brand 400 What Do Marketers Do? 400 Closing Company Case 401 References 402 12 Pricing Products and Services 405 In the Spotlight 405 12.1 Pricing and Its Role in the Marketing Mix 406 12.2 The Five Critical Cs of Pricing 411 12.3 The Five-Step Procedure for Establishing Pricing Policy 415 12.4 Pricing Strategies for New Products 423 12.5 Pricing Strategies and Tactics for Existing Products 425 12.6 Ethical Considerations in Pricing 427 Chapter Summary 430 Key Terms 430 Applied Marketing Knowledge: Discussion Questions 431 Critical Thinking Exercises 431 Building Your Personal Brand 432 What Do Marketers Do? 432 Marketing Plan Exercise 432 Closing Company Case 432 References 433 13 Integrated Marketing Communications 437 In the Spotlight 437 13.1 The Promotion Mix and Its Elements 438 13.2 The Communication Process 446 13.3 Integrated Marketing Communications 450 13.4 Steps in the IMC Planning Process 453 13.5 Ethical Issues in Marketing Communication 464 Chapter Summary 467 Key Terms 467 Applied Marketing Knowledge: Discussion Questions 468 Critical Thinking Exercises 468 Building Your Personal Brand 469 What Do Marketers Do? 469 Marketing Plan Exercise 469 Closing Company Case 470 References 470 14 The Promotion Mix: Advertising and Public Relations 473 In the Spotlight 473 14.1 Advertising in the Promotion Mix 474 14.2 Major Decisions in Developing an Advertising Plan 477 14.3 The Use of Metrics to Measure Advertising Campaign Effectiveness 485 14.4 Public Relations and Its Role in the Promotion Mix 488 14.5 The Advantages and Disadvantages of Public Relations 492 14.6 Ethical Concerns in Advertising and Public Relations 494 Chapter Summary 498 Key Terms 498 Applied Marketing Knowledge: Discussion Questions 499 Critical Thinking Exercises 499 Building Your Personal Brand 499 What Do Marketers Do? 500 Closing Company Case 500 References 502 15 The Promotion Mix: Personal Selling and Sales Promotion 505 In the Spotlight 505 15.1 Personal Selling and Its Role in the Promotion Mix 506 15.2 Classifications of Salespeople Involved in Personal Selling 508 15.3 Steps in the Personal Selling Process 511 15.4 Management of the Sales Force 516 15.5 Sales Promotion and Its Role in the Promotion Mix 521 15.6 Main Types of Sales Promotion 525 15.7 Ethical Issues in Personal Selling and Sales Promotion 529 Chapter Summary 533 Key Terms 533 Applied Marketing Knowledge: Discussion Questions 535 Critical Thinking Exercises 535 Building Your Personal Brand 536 What Do Marketers Do? 536 Closing Company Case 536 References 538 Access for free at openstax.org 16 Direct, Online, Social Media, and Mobile Marketing 539 In the Spotlight 539 16.1 Traditional Direct Marketing 540 16.2 Social Media and Mobile Marketing 550 16.3 Metrics Used to Evaluate the Success of Online Marketing 560 16.4 Ethical Issues in Digital Marketing and Social Media 566 Chapter Summary 569 Key Terms 569 Applied Marketing Knowledge: Discussion Questions 570 Critical Thinking Exercises 571 Building Your Personal Brand 571 What Do Marketers Do? 571 Closing Company Case 571 References 572 17 Distribution: Delivering Customer Value 575 In the Spotlight 575 17.1 The Use and Value of Marketing Channels 576 17.2 Types of Marketing Channels 582 17.3 Factors Influencing Channel Choice 587 17.4 Managing the Distribution Channel 593 17.5 The Supply Chain and Its Functions 597 17.6 Logistics and Its Functions 599 17.7 Ethical Issues in Supply Chain Management 603 Chapter Summary 605 Key Terms 605 Applied Marketing Knowledge: Discussion Questions 607 Critical Thinking Exercises 607 Building Your Personal Brand 608 What Do Marketers Do? 608 Marketing Plan Exercise 608 Closing Company Case 609 References 610 18 Retailing and Wholesaling 611 In the Spotlight 611 18.1 Retailing and the Role of Retailers in the Distribution Channel 612 18.2 Major Types of Retailers 617 18.3 Retailing Strategy Decisions 626 18.4 Recent Trends in Retailing 632 18.5 Wholesaling 635 18.6 Recent Trends in Wholesaling 638 18.7 Ethical Issues in Retailing and Wholesaling 641 Chapter Summary 643 Key Terms 643 Applied Marketing Knowledge: Discussion Questions 644 Critical Thinking Exercises 645 Building Your Personal Brand 645 What Do Marketers Do? 645 Marketing Plan Exercise 646 Closing Company Case 646 References 647 19 Sustainable Marketing: The New Paradigm 651 In the Spotlight 651 19.1 Sustainable Marketing 652 19.2 Traditional Marketing versus Sustainable Marketing 655 19.3 The Benefits of Sustainable Marketing 656 19.4 Sustainable Marketing Principles 660 19.5 Purpose-Driven Marketing 662 Chapter Summary 665 Key Terms 665 Applied Marketing Knowledge: Discussion Questions 665 Critical Thinking Exercises 666 Building Your Personal Brand 666 References 666 Answer Key 669 Index 689 Access for free at openstax.org Preface 1 Preface About OpenStax OpenStax is part of Rice University, which is a 501(c)(3) nonprofit charitable corporation. As an educational initiative, it’ s our mission to transform learning so that education works for every student. Through our partnerships with philanthropic foundations and our alliance with other educational resource companies, we’re breaking down the most common barriers to learning. Because we believe that everyone should and can have access to knowledge. About OpenStax Resources Customization Principles of Marketing is licensed under a Creative Commons Attribution 4.0 International (CC BY) license, which means that you can distribute, remix, and build upon the content, as long as you provide attribution to OpenStax and its content contributors. Because our books are openly licensed, you are free to use the entire book or select only the sections that are most relevant to the needs of your course. Feel free to remix the content by assigning your students certain chapters and sections in your syllabus, in the order that you prefer. You can even provide a direct link in your syllabus to the sections in the web view of your book. Instructors also have the option of creating a customized version of their OpenStax book. Visit the Instructor Resources section of your book page on OpenStax.org for more information. Art Attribution In Principles of Marketing, art contains attribution to its title, creator or rights holder, host platform, and license within the caption. Because the art is openly licensed, anyone may reuse the art as long as they provide the same attribution to its original source. Errata All OpenStax textbooks undergo a rigorous review process. However, like any professional-grade textbook, errors sometimes occur. Writing style guides and other contextual frameworks also change frequently. Since our books are web-based, we can make updates periodically when deemed pedagogically necessary. If you have a correction to suggest, submit it through the link on your book page on openstax.org. Subject matter experts review all errata suggestions. OpenStax is committed to remaining transparent about all updates, so you will also find a list of past errata changes on your book page on openstax.org. Format You can access this textbook for free in web view or PDF through OpenStax.org, and for a low cost in print. About Principles of Marketing Summary Principles of Marketing is targeted at the core marketing course for undergraduate business majors and minors. The book is designed for conceptual accessibility to students who are relatively early in their business curriculum (such as second-year students), yet it is also suitable for more advanced students. Due to the wide range of audiences and course approaches, the book is designed to be as flexible as possible. It provides a solid grounding in the core concepts and frameworks of marketing theory and analysis so that business students interested in a major or minor in marketing will also be prepared for more rigorous upper-level courses. Concepts are reinforced through detailed and realistic company and organization scenarios and examples from various industries and geographical locations. Principles of Marketing also includes a diverse array of organizations so that students can see themselves and relate to the key concepts discussed. 2 Preface Pedagogical Foundation Principles of Marketing emphasizes marketing concepts relevant to people working in a variety of business functions. To illuminate the meaningful applications and implications of marketing ideas, the book incorporates a modern approach, providing connections between topics, solutions, and real-world problems. This multifaceted framework drives the integration of concepts while maintaining a modular chapter structure. Theoretical and practical aspects are presented in a balanced manner. Principles of Marketing exposes students to a diverse range of for-profit and nonprofit organizations, industries, products, brands, and services. Table of Contents Employability, companies demonstrating ethical awareness, and marketing metrics are strong themes incorporated throughout most chapters. While chapters are written to be independent, they do generally build on the understanding gained in the previous chapters. Please bear this in mind when considering alternate sequence coverage. The table of contents (TOC) presents 19 chapter topics in the following sequence: Unit 1 Setting the Stage 1 Marketing and Customer Value 2 Strategic Planning in Marketing Unit 2 Understanding the Marketplace 3 Consumer Markets and Purchasing Behavior 4 Business Markets and Purchasing Behavior 5 Market Segmentation, Targeting, and Positioning 6 Marketing Research and Market Intelligence 7 Marketing in a Global Environment 8 Marketing in a Diverse Marketplace Unit 3 Product, Promotion, Price, and Place 9 Products: Consumer Offerings 10 Maintaining a Competitive Edge with New Offerings 11 Services: The Intangible Product 12 Pricing Products and Services 13 Integrated Marketing Communications Table 1 Access for free at openstax.org Preface 3 14 The Promotion Mix: Advertising and Public Relations 15 The Promotion Mix: Personal Selling and Sales Promotion 16 Direct, Online, Social Media, and Mobile Marketing 17 Distribution: Delivering Customer Value 18 Retailing and Wholesaling 19 Sustainable Marketing: The New Paradigm Table 1 Coverage and Scope The book is organized in a three-part structure. Unit 1 (Setting the Stage) provides students with an overview of value as a driving concept and examines the strategic process that organizations should undergo to realize this for their customers. Chapter 1 introduces students to the “basics” of marketing—what marketing is, the marketing mix and the 4P framework of marketing, customer relationship management, and how marketers go about determining consumer needs and wants. Featured company examples include Gatorade, Volkswagen, Zappos, TOMS, and Gexpro. Chapter 1 starts the ethical coverage found in every chapter and specifically examines the importance—and the dos and don’ts—of ethical marketing. Chapter 2 explores marketing strategy, the purpose and structure of the marketing plan, and how results of the marketing strategy can be measured through marketing metrics. Featured company examples include Frito-Lay, Procter & Gamble, Emerson Electric, Apple, Everlane, and Starbucks. Unit 2 (Understanding the Marketplace) provides students with analytical tools and frameworks to understand a broad range of customers (whether consumers or businesses), categorize them into target segments, and then gather data to make solid product decisions. The last two chapters in Unit 2 emphasize the challenges of expanding to international markets and reaching culturally and demographically diverse segments in domestic markets. (These nuances are properly explored more in-depth in elective, advanced courses.) Chapter 3 focuses on consumer markets and buying behavior. Students glean an understanding of the types of consumer buying behavior, factors that influence that behavior, and the consumer purchasing decision process. Featured company examples include McDonald’s, Zappos, PepsiCo, Patagonia, Birchbox, Abercrombie & Fitch, and Chipotle. Chapter 4 focuses on the business-to-business (B2B) market. While there are similarities between consumer markets and B2B markets, there are also significant differences, including types of buyers and buying situations. Featured company examples include RingCentral, Office Depot, Barnes & Noble, Airbus, and Alibaba.com. Chapter 5 explores how companies segment markets and select the target markets—those groups upon which companies will focus their marketing efforts. Featured company examples include Mattel Inc., McDonald’s, Mercedes-Benz, and IKEA. Chapter 6 focuses on the practice and process of marketing research and intelligence and their importance to an organization’s success. In this chapter, students learn about how research is used as a tool to gather 4 Preface insights from customers and the industry. Featured company examples include LEGO, DuckDuckGo, and the Gallup Organization. Chapter 7 introduces students to the global arena of marketing: the advantages and nuances of international trade, global trade, and marketing abroad. Featured global economic examples include the war between Russia and Ukraine, the global COVID-19 pandemic, increased prices of oil and other consumer goods, and the disruption of global supply chains. Chapter 8 explores concepts that students must understand and apply correctly to successfully reach an ever- growing, diverse marketplace. Students will learn about diversity and inclusion marketing, multicultural and sociodemographic populations, cultural insights based on race and ethnicity, generational differences, and characteristics of specific communities that speak to their needs and preferences as consumers. Featured company examples include Procter & Gamble, PepsiCo, McDonald’s, Target, Nike, and IKEA. Unit 3 (Product, Promotion, Price, and Place) presents the standard 4P framework to organize, prioritize, and sequence marketing activities through the value chain. Chapter 9 reviews the types of products, the product life cycle, branding a product, packaging a product, and the entire product experience. Students will learn how the product experience is developed and rolled out to the market. Featured company examples include Peloton, Netflix, Domino’s Pizza, Starbucks, and Chipotle. Chapter 10 introduces students to the manner in which companies acquire or maintain a competitive edge through offering new products. It explores the stages of the new product development process, factors that contribute to the success or failure of new products, and the stages in the consumer adoption process. Featured company examples include Swarovski, Taco Bell, Gillette, and Kentucky Fried Chicken. Chapter 11 explores services—what’s sometimes known as the “intangible product.” It discusses how services are classified, their characteristics, and several related models, including the service profit chain model and the Gap Model of Service Quality. Featured company examples include Delta Air Lines, Zappos, Taco Bell, and the Ritz-Carlton. Chapter 12 covers the pricing “P” of the marketing mix. It introduces students to the critical Cs of pricing and the five-step procedure for establishing pricing. Featured company examples include Amazon, GetUpside, Toyota, and IKEA. Chapter 13 describes how companies utilize Integrated Marketing Communications (IMC) to fulfill their marketing goals and objectives. Students will learn about various IMC strategies through examples of companies like Peloton and the ups and downs of the fitness industry. Other featured company examples include TOMS and snack cake maker Little Debbie. Chapter 14 introduces students to the promotion mix and its various elements. The focus of this chapter includes both successful and failed attempts at reaching the primary target markets. Communication, diversity, and social media are integral parts of this chapter. Featured company examples include Leo Burnett, GameStop, PepsiCo, and SeaWorld. Chapter 15 delves into various sales strategies, as well as the steps in the selling process, while also reviewing the various methods of sales promotion used to create consumer demand. Featured company examples include Hilton, HelloFresh, and Cutco. Chapter 16 explores the various digital and direct channels that marketers use to engage with customers, drive traffic to company websites, and turn shoppers into buyers. As consumers continue to spend more, marketers must embrace digital technologies to meet consumers where they are, whether it’s on TikTok, Amazon, Instagram, or Gmail. Chapter 17 explores the different types of distribution decisions that companies make when determining the best way to get products and services to customers. Consumer demand for the speedy delivery of everything Access for free at openstax.org Preface 5 from Nike sneakers to shave kits continues to increase. Featured company examples include Whole Foods, Netflix, Wayfair, and AstraZeneca. Chapter 18 outlines the ever-changing importance of retailing and wholesaling. While retailing has seen a dramatic decrease in recent decades due to online shopping, students are introduced to up-and-coming retailers that may change this trend. Featured company examples include Walmart, AutoZone, QVC, and Costco. Chapter 19 explores sustainable marketing and how it addresses the positive impact that companies can have on people and the environment. In addition, Chapter 19 explores how brands tackle sustainability and start from a place of purpose in their marketing. Featured company examples include Patagonia, Ben & Jerry’s, and PepsiCo. (Designed as a supplemental chapter, Chapter 19 contains fewer review questions and features than do the other chapters in this title.) Key In-Text Features to Drive Understanding Marketing in Practice. This feature box presents examples of challenges, managerial decisions, and the range of accepted marketing practices in real companies and industries. It may include a reference or link to an online resource (YouTube video, article, etc.). Ethical Considerations. Each chapter concludes with a section about common ethical issues pertaining to the chapter content, including an explanation of the importance of ethics in that particular context, common pitfalls, and a company-specific illustrative example. Link to Learning. Included multiple times in every chapter, this feature provides online resources and videos that are pertinent to students’ deeper exploration of the topics. Link to Learning boxes allow students to connect easily to some of the most important thought leaders and concepts in the field. Companies with a Conscience. This feature box highlights a real company that is demonstrating the ethical practices introduced in the Ethical Marketing section. Marketing Dashboard. This feature box, included in six chapters, guides students through the process of applying the concepts in the chapter to analyzing and interpreting data (marketing metrics). The example solutions are visible to student within the feature for instant feedback. Careers in Marketing. This feature box, included in every chapter, has links to websites and videos that promote employability awareness, job exploration, and career opportunities in the marketing field. Knowledge Checks. Five multiple-choice questions are included at the end of all main chapter sections for student self-review at the point of learning. A student answer key is available at the end of the book. Organizational and Reinforcement Materials to Support Learning Learning Outcomes. Every chapter section begins with a set of clear and concise student learning outcomes (LOs). These outcomes are designed to help the instructor decide what content to include or assign and can guide students on what they can expect to learn and be assessed on. In the Spotlight. Chapter openers include real-world marketing examples that explain the relevance of the topic for students. Applied Marketing Knowledge. This end-of-chapter feature includes five discussion questions that you can assign for students to apply their learned knowledge. Critical Thinking Exercises. This end-of-chapter feature presents four or five short-answer questions that challenge students’ analytical thinking. Building Your Personal Brand. This end-of-chapter exercise guides students on how to build their personal brand in order to capture their professional identity, talents, and methods to differentiate themselves from others. This integrative feature will include activities such as building a LinkedIn profile, performing a personal SWOT analysis, etc. What Do Marketers Do? This end-of-chapter exercise asks students to interview an individual marketing practitioner as a method for investigating and understanding the various marketing jobs and careers. Suggested job titles and questions are provided. 6 Preface Closing Company Case. This is an in-depth case study of a real company that illustrates the chapter concepts and includes several discussion questions. It can be used as an in-class discussion prompt or as a written homework assignment. A sample answer or rubric is included in the Instructor’s Manual. Marketing Plan Exercise. This running, end-of-chapter project, introduced in Chapter 1 and included in nine chapters, provides students with a downloadable template that they will use to fill out different sections as they move through the book. It is intended to be a multipart, semester-long exercise for which they will select a real company and product (service) to research and analyze. Chapter Summary. Designed to support both students and instructors, chapter summaries distill the information in the chapter down to key, concise points. Company Names are visually emphasized in red type in the text. Key Terms. Key terms are presented in bold text and are followed by an explanation in context. Definitions of key terms are also listed in the end-of-chapter glossary. Answers to Questions in the Book Sample solutions are provided for students and instructors at the end of each Marketing Dashboard feature. Answers to the Knowledge Checks are provided in the student answer key at the end of the book. The end-of- chapter Applied Marketing Knowledge discussion questions, Critical Thinking Exercises, and Closing Company Case review questions are intended for homework assignments or classroom discussion; thus, student-facing answers or solutions are not provided. Sample answers are provided in the Instructor Manual for instructors to share with students at their discretion, as is standard for such resources. Building Your Personal Brand, What Do Marketers Do?, and the Marketing Plan Exercise are integrative, open-ended assignments to which standard solutions are not available; students are expected to focus on their own business interests. Additional Resources Student and Instructor Resources We’ve compiled additional resources for both students and instructors, including Getting Started Guides, an instructor’s manual, a test bank, and image slides. Instructor resources require a verified instructor account, which you can apply for when you log in or create your account on OpenStax.org. Take advantage of these resources to supplement your OpenStax book. Instructor’s Manual. For each chapter, the Instructor’s Manual includes a chapter overview, ideas for classroom activities, links to supplemental resources and examples, and discussion questions. The Instructor’s Manual also contains sample answers to the end-of-chapter Applied Marketing Knowledge, Critical Thinking, and Closing Company Case discussion questions. Authored by Jaciel Keltgen, Minnesota State University, and Lauren Donovan, Delaware County Community College. Lecture Slides. Using images, key terms, and examples, the lecture slides (in PowerPoint format) outline the main points of each chapter, providing a starting place for instructors to build their lectures. Authored by Debra Ellerbrook, Concordia University, Wisconsin. Test Bank. The multiple-choice and short-answer questions in the test bank platform are correlated to learning outcomes (LOs) in the textbook, allowing instructors to customize tests to support a variety of course objectives. The test bank is available in Word format. Authored by Jaciel Keltgen, Minnesota State University, and Lauren M. Donovan, Delaware County Community College. About the Authors Senior Contributing Authors Senior contributing authors: Maria Gomez Albrecht (left), Mark Green (center), Linda Hoffman (right). Access for free at openstax.org Preface 7 Dr. Maria Gomez Albrecht, University of Texas at Dallas. Dr. Gomez Albrecht is an adjunct professor of marketing for executive education graduate programs at The University of Texas at Dallas. She is also a fractional chief marketing officer at Alonos Consulting, as well as the director of communications and project management for an international restaurant chain. She has a rich career background in academics and business practice, spanning over 20 countries and five different languages. Her specialties include strategic marketing and planning, brand management, multicultural marketing, loyalty and growth programs, project management, and product launches in domestic and international markets. She holds a PhD from Universidad Central de Nicaragua, a DBA from SMC University, and an MBA from Oral Roberts University. She is also a board officer and member of several academic and professional organizations such as Prospanica and the American Marketing Association. Dr. Mark Green, Simpson College. Dr. Green is a professor of management at Simpson College. He teaches courses in management, marketing, digital marketing, international marketing, and entrepreneurship and innovation. He is coauthor of Global Marketing (10th Edition, Pearson, 2019). During the 2011–2012 academic year, he taught international marketing for the Consortium of Universities for International Studies (CUIS) in Paderno del Grappa, Italy. He directed Simpson’s Semester in London program in 1997 and again in 2017. He holds a PhD in Russian linguistics from Cornell University, an MBA in marketing management from Syracuse University, and a BA in Russian literature from Lawrence University. Linda Hoffman, Ivy Tech Community College. Linda Hoffman has over 20 years’ experience teaching Principles of Marketing and other business management courses at Indiana Institute of Technology, Ivy Tech, and Concordia University. She has developed several online business courses for Ivy Tech Community College and Indiana Tech. She has authored and reviewed a variety of textbook chapters, supplements, and digital content. She holds a BS in business administration from Indiana Institute of Technology and an MS in adult education from Indiana University. The authors wish to express their deep gratitude to Developmental Editor Stephanie Wall for her skillful editing and gracious shepherding of this manuscript. Contributing Authors Jacqueline Babb, Northwestern University Lauren M. Donovan, Delaware County Community College Debra Ellerbrook, Concordia University Wisconsin Lisa S. Goolsby, Southern New Hampshire University Jaciel Keltgen, Minnesota State University 8 Preface Sarah M. Shepler, Ivy Tech Community College Deborah Toomey, Northwest Missouri State University Reviewers Jacqueline Babb, Northwestern University Diane Badame, University of Southern California Dana Bailey, East Tennessee State University Bryan Berndt, Rockland Community College Lisa Cherivtch, Oakton Community College Carol A. Decker, Johnson University Beibei Dong, Lehigh University Francis Dong, Catholic University (retired) Debra Ellerbrook, Concordia University Wisconsin Kevin Feldt, The University of Akron Ignacio Godinez Puebla, The University of Texas at Tyler Jaciel Keltgen, Minnesota State University Keyah Levy, Simpson College Ira Lovitch, Mount Saint Mary’s University Rajiv Mehta, New Jersey Institute of Technology Monique Reece, University of Denver Muhammed Saadiq, College of DuPage Susan Schanne, Eastern Michigan University (retired) Jere Smith, Southern New Hampshire University Deborah Toomey, Northwest Missouri State University Violet Zlatar-Christopher, California State University Academic Integrity Academic integrity builds trust, understanding, equity, and genuine learning. While students may encounter significant challenges in their courses and their lives, doing their own work and maintaining a high degree of authenticity will result in meaningful outcomes that will extend far beyond their college career. Faculty, administrators, resource providers, and students should work together to maintain a fair and positive experience. We realize that students benefit when academic integrity ground rules are established early in the course. To that end, OpenStax has created an interactive to aid with academic integrity discussions in your course. attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license Access for free at openstax.org Preface 9 Visit our academic integrity slider (https://openstax.org/r/interactive-image-defining). Click and drag icons along the continuum to align these practices with your institution and course policies. You may then include the graphic on your syllabus, present it in your first course meeting, or create a handout for students. At OpenStax we are also developing resources supporting authentic learning experiences and assessment. Please visit this book’s page for updates. For an in-depth review of academic integrity strategies, we highly recommend visiting the International Center of Academic Integrity (ICAI) website at https://academicintegrity.org/ (https://openstax.org/r/academicintegrity). Community Hubs OpenStax partners with the Institute for the Study of Knowledge Management in Education (ISKME) to offer Community Hubs on OER Commons—a platform for instructors to share community-created resources that support OpenStax books, free of charge. Through our Community Hubs, instructors can upload their own materials or download resources to use in their own courses, including additional ancillaries, teaching material, multimedia, and relevant course content. We encourage instructors to join the hubs for the subjects most relevant to your teaching and research as an opportunity both to enrich your courses and to engage with other faculty. To reach the Community Hubs, visit https://www.oercommons.org/hubs/openstax (https://openstax.org/r/oercommonsorghubs). Technology Partners As allies in making high-quality learning materials accessible, our technology partners offer optional low-cost tools that are integrated with OpenStax books. To access the technology options for your text, visit your book page on openstax.org. 10 Unit 1 Setting the Stage Unit Introduction Welcome to Principles of Marketing! Some people may mistakenly believe that marketing skills can only be applied to marketing tasks, but the fact is that marketing isn’t only for marketers. Studying marketing is essential in almost any career field, because it teaches you the basic principles that connect people, brands, and businesses. This textbook is divided into three units: Unit 1: Setting the Stage Unit 2: Understanding the Marketplace Unit 3: Product, Promotion, Price, and Place In this first section, we’re going to set the stage for the remainder of this textbook, by first exploring marketing as a discipline and understanding the concept of customer value. Then we’ll analyze the role of strategic planning in marketing, because strategy defines how you communicate that customer value to others. Access for free at openstax.org 1 In the Spotlight 11 1 Marketing and Customer Value Figure 1.1 Gatorade remains a market-leading product due to parent company Pepsi’s success with the marketing mix—product, price, place, and promotion. (credit: modification of work “Gatorade” by JeepersMedia/flickr, CC BY 2.0) Chapter Outline 1.1 Marketing and the Marketing Process 1.2 The Marketing Mix and the 4Ps of Marketing 1.3 Factors Comprising and Affecting the Marketing Environment 1.4 Evolution of the Marketing Concept 1.5 Determining Consumer Needs and Wants 1.6 Customer Relationship Management (CRM) 1.7 Ethical Marketing In the Spotlight Since its launch in 1967, Gatorade has been a power player in the sports drink beverage category. Gatorade dominates the US sports drink market, garnering 67.7 percent of the market, followed distantly by the Coca- Cola Company’s Powerade and BodyArmor brands at 13.7 percent and 9.3 percent, respectively.1 The fact that Gatorade has maintained such a large market share demonstrates parent company PepsiCo’s understanding of the marketing mix (i.e., product, price, place, and promotion), how to integrate these elements for its target market, and how to continually adapt its marketing mix to meet changing consumer demands. First, let’s consider its approach to the product itself. Gatorade managers saw the exercise boom coming as baby boomers began to age and wanted to be the performance and thirst quencher for everyone from kids to pros. The product, which was intended to replace electrolytes lost in sweat, was scientifically formulated first at the University of Florida and later at the Gatorade Sports Science Institute. But Gatorade didn’t rest on its laurels when it comes to product innovation. For example, in order to lure back “lapsed” consumers with concerns over sugar, it launched Gatorade Zero, a thirst quencher without sugar. It also launched its G Series Performance, a new line of food and beverage products designed to provide fuel, fluid, and nutrients before, during, and after activity.2 In terms of pricing, Gatorade originally priced its product using a premium strategy because the product was 12 1 Marketing and Customer Value unique. However, in order to retain its lead, the company subsequently adopted competitive pricing policies when competitors entered the market.3 Gatorade has continued to pump marketing dollars into advertising campaigns. For example, in 2020 it launched an iconic advertising campaign that featured some of the world’s “greatest of all time (GOAT) athletes”— the NBA’s Michael Jordan, tennis star Serena Williams, soccer legend Lionel Messi, and track star Usain Bolt. In the commercial, the sports stars appear at a mythical setting called “GOAT Camp,” where student athletes (considered “future GOATS”) can train with these stars.4 Check out the GOAT camp commercial here. Click to view content (https://openstax.org/books/principles-marketing/pages/1-in-the-spotlight) In 2020 Gatorade launched an impactful digital strategy. When NBA games were canceled due to the pandemic, ESPN aired a 10-part documentary, “The Last Dance,” about Michael Jordan’s last year with the Chicago Bulls. Because Gatorade wasn’t an official sponsor, it partnered with the NBA to stream 1998’s Game 6 featuring the Jazz versus the Bulls in what would be superstar Jordan’s last game with the Bulls. Gatorade sponsored a “watch party” keyed to the hashtag #Game6Live.5 Review Gatorade’s strategy on Twitter’s Marketing website (https://openstax.org/r/gatoradegame6live), which outlines campaign results, opportunity, and steps taken. Gatorade is an example of how one company built market dominance by creating the optimal integration of its marketing mix—product, price, place, and promotion—throughout a product’s life cycle. 1.1 Marketing and the Marketing Process Learning Outcomes By the end of this section, you will be able to: 1 Define and describe marketing. 2 Describe the benefits of marketing to the organization, its interested parties, and society. 3 Explain the marketing process. Marketing Defined When you ask a group of people, “What’s marketing?” most people will answer “advertising” or “selling.” It’s true that both of these functions are part of marketing, but marketing is also so much more. The American Marketing Association (AMA) defines marketing as “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.”6 That’s kind of a mouthful, so let’s see if we can simplify it a bit. At its most basic level, marketing is made up of every process involved in moving a product or service from the organization to the consumer. It includes discerning the needs of customers, developing products or services to meet those needs, identifying who is likely to purchase the products or services, promoting them, and moving them through the appropriate distribution channels to reach those customers. Marketing, quite simply, is about understanding what your customers want and using that understanding to drive the business. Marketing can also be defined as the set of activities involved in identifying and anticipating customer needs and then attempting to satisfy those needs profitably.7 But what does that really mean? Let’s break down that definition: Identifying customer needs. This is typically where marketing research comes in. Methods of marketing research will be covered in a later chapter, but market research helps a company develop a detailed picture of its customers, including a clear understanding of their wants and needs. Anticipating customer needs. After analyzing the data collected, marketers can predict how products might be changed, adapted, or updated. Satisfying customer needs. If marketers have done their homework correctly and clearly understand their customers’ needs, consumers will be pleased with their product purchase and will be more likely to make Access for free at openstax.org 1.1 Marketing and the Marketing Process 13 additional purchases. Profitably. Profitability is a relatively simple term; it’s when a company’s revenue is greater than its expenses. In terms of marketing, the road to profitability means adding value to a product so that the price customers pay is greater than the cost of making the product.8 MARKETING IN PRACTICE Reconciling Segmentation and Diversity We live in a multicultural world where diversity, equity, inclusion, and belonging (DEIB) is no longer the “right” thing to do; rather, it’s imperative. This is particularly true in marketing, because as the consumer population diversifies, brands have to authentically reflect a wide range of backgrounds and life experiences in order to effectively connect with consumers. Therefore, marketers must increasingly respect individual preferences, celebrate differences, and promote customization of products and services to meet customers’ needs, wants, and preferences. At the same time, to profitably produce and sell a viable product or service, marketers must identify potential customer groups and types with certain characteristics in common—i.e., market segmentation. Segmentation requires assigning individuals to predefined categories with predictable behaviors, based on standardized assumptions. How does segmentation differ from stereotyping? How can segmentation support diversity? Read the following articles to further explore these nuances: Chron: “Difference Between Stereotyping & Market Segmentation (https://openstax.org/r/ stereotypingmarket)” Retail Dive: “Segmentation is dead (https://openstax.org/r/segmentationisdead)!” Spectrem Group Blog: “Why Segmentation Is OK in Market Research Not Life (https://openstax.org/r/ whysegmentationok)” Keep these questions in mind as you explore Unit 2 of this book, where you will learn more about Market Segmentation, Targeting, and Positioning before exploring the considerations of Marketing in a Diverse Marketplace. How Marketing Benefits the Organization, Its Interested Parties, and Society Before we go on, let’s consider all the people and groups that an organization needs to consider and serve. Interested parties are those persons or entities that have an interest in the success or failure of a company. These parties can be categorized into two types: internal and external, as shown in Figure 1.2. You may see these people and groups referred to as “stakeholders” in business writing and other media. 14 1 Marketing and Customer Value Figure 1.2 Types of Interested Parties (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) Internal interested parties are entities that reside within the organization and that affect—or are affected by—the actions of the company. These entities include employees, owners, managers, and investors (shareholders). When we think about marketing, marketers often tend to look outward. They build strategies to engage customers and show them what the company has to offer. You might think that marketing would be primarily directed toward those outside the company, like customers, but marketing is also directed toward internal groups. Internal marketing involves promoting the objectives, products, and services of a company to its internal constituents—particularly employees.9 Think about a recent interaction you have had with a business employee. It could be the server who took your order at lunch or the sales associate at a big box store who showed you the features of the new laptop you were looking to purchase. Which interactions left you with a positive experience? Chances are that your evaluation of the experience is based on the interaction you had with the server or sales associate. That’s a function and benefit of good internal marketing, employees who are motivated and empowered to deliver a satisfying customer experience. External interested parties include those outside the company, such as customers, creditors, suppliers, distributors, and even society at large. External groups don’t have a direct say in the company’s decision- making process. However they are vital to the success of the company because companies can only succeed with the support of others. How does marketing benefit external parties? First, consider what marketing does for consumers. It draws out their needs, creates new demand, locates untapped opportunities, and determines the possibilities of selling new products. Second, marketing creates form, time, place, and possession utilities for the company’s goods and services. Utility refers to a product’s usefulness to customers so that they are convinced enough to make a purchase. In other words, when you hear “utility” in marketing, think “usefulness to customers.” Marketing creates several different types of utility: Form utility. Form utility refers to how well an organization can increase the value of its product in the customer’s eyes by making changes and altering its physical appearance.10 For example, when you want a donut or a pastry, you don’t want to buy the ingredients to make it; you want a donut in its final form so you can eat it. That’s where the bakery and form utility come into play. The bakery combines flour, sugar, eggs, and other ingredients to make the cakes, donuts, and pastries that you purchase. Time utility. Marketing creates time utility when it makes products and services available to customers so that they can buy it when it is most convenient for them. Consider how many stores are open evenings, weekends, or even 24/7 to make it convenient for customers to shop there! Access for free at openstax.org 1.1 Marketing and the Marketing Process 15 Place utility. Marketing creates place utility when it makes goods or services physically available, convenient, and accessible to customers. Consider the ease a company like Uber Eats adds to your life when you’re craving tacos in the middle of the night and you don’t feel like getting dressed and driving to go get them. You can have your food delivered to you! Possession utility. Marketers facilitate possession utility by ensuring that a product is relatively easy to acquire. For example, many automobile manufacturers offer low (or sometimes no) interest rates on car loans to make it easy for you to walk out the door with a new set of car keys. Possession utility also encompasses the pride or satisfaction you get from owning a new product, such as a great-fitting pair of running shoes or a smartphone with all of the features you’ve been wanting. Marketing’s primary benefit to society is that it drives the consumer economy. Marketing leads to increased sales and revenue for a business which enables them to expand operations, create more internal jobs and external jobs for partners like suppliers. Marketing also contributes tax revenue to local, state, and federal governments, ultimately leading to overall economic growth. The Marketing Process Defined The marketing process refers to the series of steps that assist businesses in planning, analyzing, implementing, and adjusting their marketing strategy. Do an internet search for “steps in the marketing process,” and you’ll immediately see that some websites outline a 10-step process, whereas others propose a 4-step or 6-step process. For our purposes, we’re going to use a 5-step process. Steps in the Marketing Process The 5-step process (see Figure 1.3) involves understanding the marketplace and customers, developing a marketing strategy, delivering value, growing customer relations, and capturing value from customers.11 Figure 1.3 Steps in the Marketing Process (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) Step 1: Understand Both the Marketplace and Customers Before you can start the marketing process, you need to have a good idea of what your marketplace looks like. This means answering some basic questions about your customers, like who they are, their income and purchasing power, and how much they’re likely to spend (particularly on your products or services). If you decide to sell at lower prices in order to attain higher unit sales volume, your marketing strategy would look very different than if you decided to sell fewer products at a higher price. Another way to approach this is to create separate brands and compete in both arenas. Consider Volkswagen. You might immediately think of the VW Beetle or the Jetta, but the company’s brand portfolio extends beyond 16 1 Marketing and Customer Value VW passenger cars and SUVs. It’s also the parent company for Audi, Bentley, Lamborghini, Porsche, and others, and these vehicles sell at very different price points than VW passenger cars.12 Step 2: Develop a Customer-Driven Marketing Strategy Marketing strategy refers to a business’s overall “game plan” to focus its limited resources in order to reach prospective customers and turn them into paying customers, hopefully for the long run. It’s said that there are two basic types of marketing strategy: a product-driven, “build-it-and-they-will-come” strategy and a customer-driven strategy, in which you analyze prospective consumers and then—and only then—create something that they want or need. We’re going to focus on the latter strategy. What happens in a customer-driven marketing strategy is that the company shifts the focus from the product or service itself to its users. Customers’ needs are the central focus and the point of beginning, not an afterthought. Your primary goal in a customer-driven marketing strategy is to determine what users want and/or need and then satisfy those users. Instead of being product-centric, it’s about being customer-centric and developing a mutually beneficial relationship with customers.13 In a nutshell, it’s about establishing a connection and a relationship. It’s about understanding who your customers are, what their needs and wants are, and how you can best meet those needs and wants. It’s about knowing your target market better than your competitors do and creating a strong value proposition for those users—a promise of value that communicates the benefits of your company’s products or services. In short, it’s what makes your product or service desirable to potential customers, helps them understand why they should buy it, how your company’s product or service differs from those of its competitors, and how your offerings are superior to similar offerings from your competitors. 14 Step 3: Deliver High Customer Value Customers have myriad buying options and alternatives today. Given that, how can a company attract and—even more importantly—retain its customers? The answer is relatively simple: you give them value for their money. By definition, customer value is the ratio between the perceived benefits and costs incurred by the customer in acquiring your products or services. The mathematical formula is simple: But “value” from the customer’s perspective is a complex term, because we’re really considering four different values types: Functional value: what the product “does” for the customer in terms of solving a particular want or need Monetary value: what the product actually costs relative to its perceived worth Social value: how much owning the product allows the customer to connect with others Psychological value: how much that product allows the customer to “feel better”15 Value is increased by boosting the benefits (in the form of product, place, or promotion) or minimizing the price. Step 4: Grow Profitable Customer Relations The bottom line is that profitable customer relationships are the “secret sauce” of any business. This step in the marketing process is where marketers acquire, keep, and grow customer relationships. Successful marketers know that acquiring customers is one of the hardest (not to mention one of the most expensive) elements of marketing. However, when you know clearly who those potential customers are, you can more effectively determine how to reach them, thus maximizing your marketing dollars. Access for free at openstax.org 1.1 Marketing and the Marketing Process 17 It isn’t enough to have a one-and-done sale. You want repeat buyers, so marketers need to remind customers about the company’s products and/or services and how those products and services have met their needs and improved their lives so they make repeat purchases. Marketers need to consider how to reach customers about their offerings and make it easy and convenient for those customers to make continued purchases. When customers have a positive relationship with a company or its products or services, they’re more likely to become repeat buyers. Satisfied customers are also more likely to be interested in buying additional products or services from your company, and they tend to recommend products to others, further reducing the company’s costs of getting new customers.16 Step 5: Capture Customer Value in the Form of Profits The goal of successful customer relationship management (CRM) is creating high customer equity—the potential profits a company earns from its current and potential customers. It’s a relatively simple concept: increasing customer loyalty results in higher customer equity. Increasing customer equity is the goal of marketers because it’s a bellwether for financial success. Think about it in simple terms: the higher a company’s customer equity, the more profit the company generates, and the more valuable that company (and its products or services) becomes on the market.17 CAREERS IN MARKETING Marketing Jobs In every chapter of this book, you’ll find this Careers in Marketing section. It’s meant to outline various jobs so you can be well informed of all the things marketers do. These sections will outline various job roles, what you do day-to-day, qualifications needed, and sometimes even salary information. If you’ve decided you want a job in marketing, it’s important to know what kinds of jobs exist and what’s expected in each role. Google and YouTube searches will bring you all kinds of information. It’s recommended that you check out the insights from people in these roles and maybe even connect with them to ask them questions. Please do your homework, and determine what you like to do with your day, what you’re good at, and how to build a network to find the right job for you. Here are a handful of resources to get your thinking started: HubSpot: “How to Start Your Marketing Career When You Know Nothing About Marketing (https://openstax.org/r/careersblogstartyour)” Setup: “The Marketing Career Path: From Entry-Level to Chief Marketing Officer (https://openstax.org/r/ themarketingcareerpath)” Coursera: “Your Guide to Landing an Entry-Level Marketing Job (https://openstax.org/r/ articlesentrylevel)” Skillshare: “12 Entry-Level Marketing Jobs You Can Pursue Right Now (https://openstax.org/r/ 12entrylevel)” Indeed: “Entry Level Marketing Salary in the United States (https://openstax.org/r/marketingsalaries)” Whatever job role you choose, marketing is a creative, interesting, and at times exciting role where you can make a real impact on people’s lives. Enjoy! Knowledge Check It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback. 18 1 Marketing and Customer Value 1. Coca-Cola’s mission is to refresh the world, and to that end, it has ensured that you can buy a Coke product at numerous locations—vending machines, convenience stores, restaurant fountains, stadiums, etc. What type of utility has marketing created through this process? a. Form utility b. Time utility c. Place utility d. Possession utility 2. Which of the following provides the most complete definition of marketing? a. Marketing creates value. b. Marketing is made up of every process involved in moving a product or service from your organization to the consumer. c. Marketing includes distribution decisions. d. Marketing is about building relationships. 3. Which of the following is not an external interested party? a. Employees b. Customers c. Suppliers d. Society 4. The total potential profits a company earns from its current and potential customers is known as ________. a. customer equity b. the value proposition c. customer value d. the marketing process 5. At which step in the marketing process would the lifetime values to a company’s customers be considered? a. Developing a customer-driven marketing strategy b. Delivering high customer value c. Growing profitable customer relations d. Capturing value from customers 1.2 The Marketing Mix and the 4Ps of Marketing Learning Outcomes By the end of this section, you will be able to: 1 Define and describe the marketing mix. 2 List and explain the 4Ps of marketing. Marketing Mix Defined Having a great product or service is just the first step in establishing a successful business or building a successful brand. The best product or service in the world won’t translate to profits unless people know about it. How do you reach customers and help them connect with your product? That’s the role of the marketing mix. The marketing mix is commonly referred to as the tactics a company can use to promote its products or services in the market in order to influence consumers to buy. The marketing mix is also known as the 4Ps: product, price, place, and promotion (see Figure 1.4). Let’s look more closely. Access for free at openstax.org 1.2 The Marketing Mix and the 4Ps of Marketing 19 The product is the good or service that the company provides. The price is what the consumer pays in exchange for the product. The place is where the product is purchased. Promotion is comprised of advertising, sales, and other communication efforts the company utilizes to attract the customer. Figure 1.4 The Marketing Mix and the 4Ps of Marketing (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) The 4Ps of Marketing To this point, we’ve been talking marketing in somewhat of an abstract manner. Instead of continuing with a theoretical discussion of the marketing mix and the 4Ps of marketing, we’re going to approach these topics using an example of a product you probably already own—a backpack. Let’s get started. Product Remember: product refers to a good or service that a company offers to its customers. Let’s consider a product that many of you likely own as a college student: a backpack (see Figure 1.5). Figure 1.5 Marketing analyzes customer product needs to determine new product models or features that customers would value, 20 1 Marketing and Customer Value such as a padded computer sleeve in a backpack for students. (credit: “Incase Backpacks” by albertoziveri/flickr, CC BY 2.0) In terms of the first of the 4Ps, marketing analyzes the needs of consumers who buy backpacks and decides if they want more and/or different bags. For example, marketing will analyze what features consumers want in the bag. Do they want a water bottle pocket, padded shoulder straps, reflective tape, a padded laptop sleeve, or organizer pockets? Think about your own bag for a moment: Why did you buy this particular product? What features did it have that made it appealing to you? Armed with market research knowledge, marketing then attempts to predict what types of backpacks different consumers will want and which of these consumers they will try to satisfy. For example, are you selling bags to adults for their children’s use? Are you selling them to young adults who might want more (or different) graphics on the bag? Are you selling to adults who will use these bags for work or for school? Marketing will then estimate how many of these consumers will purchase backpacks over the next several years and how many bags they’ll likely purchase. Marketing will also estimate how many competitors will be producing backpacks, how many they’ll produce, and what types. Price Price is the amount consumers pay for a product or service. There’s a delicate balance here. On one hand, marketers must link the price to the product’s real or perceived benefits while at the same time taking into consideration factors like production costs, seasonal and distributor discounts, and pricing product lines and different models within the line. Marketers attempt to estimate how much consumers are willing to pay for the backpack and—perhaps more importantly—if the company can make a profit selling at that price. Pricing products or services can be both an art and a science. In the case of our backpack example, the company wants to determine two things: What’s the minimum price that the company can charge for the backpack and still make a profit? What’s the maximum price that the company can charge for the backpack without losing customers? The “correct” answer usually lies somewhere in between those points on the price continuum. Promotion Promotion includes advertising, public relations, and many other promotional strategies, including television and print advertisements, internet and social media advertising, and trade shows. A company’s promotional efforts must increase awareness of the product and articulate the reasons why customers should purchase their product. Remember: the goal of any promotional activity is to reach the “right” consumers at the right time and the right place. In terms of our backpack example, marketing now needs to decide which kinds of promotional strategies should be used to tell potential customers about the company’s backpacks. For instance, should you use TV advertisements to make customers aware of the backpack? If so, you’ll want to run your commercials during programs that your target audience watches. For example, if you’re selling backpacks to children (or trying to entice them to badger their parents to purchase them), children’s cartoons may be the most cost-effective avenue to reach your target market. If your backpacks are designed for work or school, you’ll likely decide to advertise on television programs that target younger adults. LINK TO LEARNING Netflix, JanSport, and Stranger Things A real-world promotional example is the recent brand partnership between Netflix and JanSport, the backpack company. These two companies collaborated on a Stranger Things–branded backpack with the Access for free at openstax.org 1.2 The Marketing Mix and the 4Ps of Marketing 21 launch of the fourth season of Stranger Things in 2022. This collaboration created five Hawkins-inspired backpacks centered on various Stranger Things themes. Read more about this promotion and see the backpacks here (https://openstax.org/r/jansportxstranger). Perhaps you’ll decide to run magazine print ads. If so, you’ll need to decide in which magazines you’ll place the ads. Most magazines have a very specific readership demographic consisting of factors such as age, gender, and interests. If you’re going to advertise those backpacks with print ads, you’ll want to leverage readership demographics to ensure that your message is being seen by the right consumers—those who are most likely to buy your backpacks.18 What about internet advertising? Internet advertising (sometimes known as online advertising or digital advertising) is a promotional strategy in which the company utilizes the internet as a medium to deliver its marketing messages. If you’re going to go the digital route, what types of internet advertising will you use? Search engine marketing? Email marketing? Social media ads? TikTok videos? Place Place considerations focus on how and where to deliver the product to the consumer most likely to buy it. Where did you buy your backpack? Did you buy it in a big box store, online, in an office products store, or perhaps even the school bookstore? Once again, through market research, marketers determine where potential customers will be and how to get the company’s backpacks to them. One important factor to note about the importance of place in the marketing mix is that it doesn’t refer to the location of the company itself but rather to the location of the customers or potential customers. Place deals with strategies the marketer can employ to get those backpacks from their present location—a warehouse, for example—to the location of the customers. Knowledge Check It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback. 1. Which of the following is NOT one of the 4Ps of marketing? a. Product b. Price c. Place d. Positioning 2. Which of the 4Ps focuses on determining how much consumers would be willing to pay for a product or service? a. Product b. Price c. Place d. Promotion 3. Which of the 4Ps of marketing focuses on how and where to deliver the product to the consumer most likely to buy it? a. Product b. Price c. Place d. Promotion 22 1 Marketing and Customer Value 4. DiJuan, a marketer for a soft drink company, ensures that his company’s products are available in numerous locations—vending machines, convenience stores, restaurants, and supermarkets. Which element of the 4Ps is DiJuan addressing? a. Product b. Price c. Promotion d. Place 5. You’re a marketer trying to determine which trade shows you might want to include in your marketing mix. Which element of the marketing mix would address this concern? a. Product b. Price c. Place d. Promotion 1.3 Factors Comprising and Affecting the Marketing Environment Learning Outcomes By the end of this section, you will be able to: 1 Define and describe the marketing environment. 2 Explain the components of the marketing environment. 3 Identify and describe the internal factors of the marketing environment. 4 List and describe the components of the micro- and macroenvironments. The Marketing Environment Defined Organizations don’t operate in a vacuum. They’re not self-contained, self-sufficient machines; rather, they are complex systems that require interaction with facets of both their internal and external environments in order to survive and prosper. In this section, we’re going to explore the internal and external factors that drive an organization’s marketing activities. The marketing environment is comprised of both the external and internal factors and forces that influence an organization’s decision regarding its marketing activities. Some of these factors—internal factors— are within the control of the organization. Other factors—external factors—are outside the control of the organization. We’ll explore these in more depth below. To illustrate this concept of internal and external factors and forces, think about your body as an organization. Your body is composed of several internal organs and systems, like your heart, lungs, and digestive system. These organs and systems function both independently and yet interdependently to keep your body going. The same is true with a business. The systems of the business are the people and departments that make up the internal organization (such as marketing, accounting, human resources, etc.). And just like the human body, these systems function independently and interdependently. At the same time, your body is exposed to external influences, like expectations from your family and friends, cultural or gender stereotypes, and family responsibilities, that influence decision-making in either a positive or negative way. The same is true of the marketing activities of a business. They’re influenced by factors both from the macroenvironment and the microenvironment. Let’s take a closer look at these factors. The Components of the Marketing Environment As we’ll explore below, the internal environment is company-specific and includes the 5M framework and organizational culture. The external environment is subdivided into two components: the microenvironment (or task environment) and the macroenvironment (or broad environment), as illustrated in Figure 1.6 Access for free at openstax.org 1.3 Factors Comprising and Affecting the Marketing Environment 23 Figure 1.6 The Components of the Marketing Environment (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) Components of the Internal Environment The internal environment in marketing refers to those elements within the organization that define the atmosphere within the company’s structure. These factors include what’s known as the 5Ms of marketing and organizational culture. The 5Ms of marketing (sometimes also called the 5M framework) is a marketing/management model that defines the elements of a marketing strategy that must be addressed in order to be successful. The five elements (sometimes known as the organization’s assets) include minds, minutes, machinery, materials, and money.19 Let’s take a closer look at each of these factors: Minds (Staffing): This “M” might well be considered the most important factor because it’s people who make sure the rest of the 5Ms are utilized in a productive manner to achieve the goals of the organization.20 Minutes (Time): Time is another valuable asset. We’ve all heard the saying that time is money, and this is true within the marketing arena. For example, in formulating and implementing a new strategy, marketing needs to assess factors such as whether existing production processes are as efficient and effective as they can be, the length of time it takes the organization to introduce a new product to the market, and how responsive the organization is to competitive pressures.21 Machinery (Equipment): Machinery consists of the equipment and/or physical assets used to process materials into finished or semifinished products. Materials (Production): Materials consist of the inputs needed to produce goods and services. Money (Finance): Perhaps second only to staffing, money is a very critical resource because it’s used to acquire and/or hire other resources. Organizational culture is comprised of the shared values, attitudes, expectations, norms, and practices that guide the actions of all within the company. Think about organizational culture as “the way we do things around here,” and the culture can help or hinder an organization. For example, a good culture embodies positive traits that lead to improved performance and profit. On the other hand, a dysfunctional culture that’s toxic and/or inefficient can hinder even the most successful organization.22 For an example of a positive organizational culture, consider Zappos, where happiness is at the core. Founder Tony Hsieh wrote a book on the topic and has said, “We’re willing to give up short-term profits or revenue growth to make sure we have the best culture.”23 Hsieh was not afraid to put his money where his mouth was, either. In support of maintaining an outstanding company culture and a productive workforce, he instituted a policy that would pay new, unhappy employees $2,000 to quit following their four-week training period.24 By contrast, consider what a dysfunctional culture can do to an organization. During the summer of 2020, The 24 1 Marketing and Customer Value Ellen DeGeneres Show was called out for having a toxic work environment. Eleven employees spoke out publicly about the negative organizational culture. There were allegations of sexual misconduct, intimidation, and racism.25 Ratings faltered as a result of the allegations, and DeGeneres ultimately decided to end her daytime talk show. But how does organizational culture impact marketing? Here are three very tangible ways that your company’s culture can make a positive impact on marketing: Branding and marketing efforts emanate from the organization’s core values and culture and guide the organization’s marketing message. Therefore, if your marketing message doesn’t match the reality of the business, it’s akin to that old adage of “putting lipstick on a pig.”26 You’re talking the talk but not walking the walk. A strong culture strengthens your marketing message because it gives prospective customers a better idea of the values of your business, and customers who know what you believe and value are much more likely to do business with you. For example, research has demonstrated that 86 percent of buyers are willing to pay more for a positive customer service experience.27 Once again, think about the culture at Zappos. One of the ways in which the company has developed a strong following of loyal customers is through its policy that call-center employees are empowered to do “whatever it takes” to make the customer happy. Call-center employees don’t use scripts for calls, and there are literally no time limits on calls.28 A strong organizational culture is also key in attracting and retaining employees. In his quest for a happier, more positive work environment, Hsieh implemented several policies at Zappos that he felt contributed to this environment, including a relaxed dress code, discounted food and drink, relaxation areas, and more.29 TOMS (featured in Companies with a Conscience later in this chapter) is another excellent example of this. Components of the External Environment There are two elements within the external marketing environment: the microenvironment and the macroenvironment. Although the factors within these environments are not directly within the marketer’s control, they still influence the decisions made by marketers. We’ll first examine the factors in the microenvironment, as shown in Figure 1.7. Figure 1.7 Components of the Microenvironment (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) The microenvironment consists of five predominant factors. Access for free at openstax.org 1.3 Factors Comprising and Affecting the Marketing Environment 25 Suppliers. Suppliers (sometimes also called vendors) are those partners from whom we receive the parts and products necessary for our business. Let’s assume that your company produces microwave ovens. Some of your suppliers may be providers of transformers, the turntable, control panels, magnetrons, etc. As long as you have options in terms of the component suppliers, the bargaining power of each supplier is relatively weak. However, if two suppliers merge and decide to raise the price of the component the new entity supplies, that vendor now wields increased power. Market Intermediaries. Often, products are distributed by third-party sellers such as retailers, wholesalers, and others in the distribution channel. The reputation of these market intermediaries plays an important role in the marketing of the product or service, both positive and negative, so companies need to select and monitor market intermediaries on an ongoing basis. We’ll learn more about the roles of these intermediaries in Distribution: Delivering Customer Value, but let’s provide a couple of definitions and examples to help you better understand some of the parties in the distribution channel. Retailers (like Walmart or Target) purchase large quantities of goods from producers and then sell smaller quantities to end customers for personal use or consumption. Wholesalers purchase large quantities of products from producers and then sell to smaller businesses such as retail stores. A good example of a wholesaler is Gexpro, which sells electrical supplies for the construction industry. Customers. Understanding who your customers are will enable you to effectively reach them, whether online, locally in retail stores, or internationally. Competitors. Successful marketing strategies must be implemented after consideration of your competition. Knowing who your competition is and what they are and are not offering allows you to find the gap in the market. You want to be where the competition is not, at least in the sense of offering something unique to a targeted market. General Public. Because companies provide their offerings in communities that support them, they have an obligation to satisfy those communities. There’s an old saying that “perception is reality,” so marketers’ actions must be evaluated through the perceptual lens of those communities, because the public’s perception of you—your reputation—is essential to your success.30 Components of the Macroenvironment Obviously, marketers can’t ignore what’s going on in the external environment. One of the tools used by companies to assess the environment in which they are operating is a PESTLE analysis. PESTLE is an acronym for political, economic, social, technological, legal, and environmental factors that provide marketers with a comprehensive view of the whole environment from multiple angles.31 These macroenvironment factors can be used to understand current external influences so that marketers can more easily identify what might change in the future, mitigate the identified risks, and take advantage of competitive opportunities (see Figure 1.8). Figure 1.8 PESTLE Factors (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) Let’s look at these factors more closely: Political Factors. These factors include environmental and trade restrictions, political stability, and business policy. For example, Tesla announced in late 2021 that it is moving its headquarters out of 26 1 Marketing and Customer Value California to Texas, following similar announcements by Hewlett Packard Enterprise (HPE) and Oracle, citing such things as lower housing costs and tax rates and fewer regulations, making it easier for companies to operate in Texas. Economic Factors. Economic factors play a huge role in terms of a company’s prospects in a market. For example, economic factors affect pricing and can even influence the supply/demand curve for a product or service. For example, high inflation causes consumers to have less spending power, which translates into lower sales and revenue. In 2022, consumers experienced both product shortages and higher prices, blamed largely on COVID-19, Russia’s war on Ukraine, and the availability of certain commodities, such as corn, sunflower oil, and wheat.32 Social Factors. Social factors take in a wide swath of elements, such as cultural norms and expectations, health consciousness, population growth/decline, the age distribution of a population, and even career attitudes. Let’s take one of these factors—age distribution—and examine how it impacts marketing. Baby boomers (born between 1946 and 1964) comprise approximately a quarter of the US population. It’s largely as a result of this group’s aging and retirement that active adult communities such as Del Webb and others have sprung up across the nation.33 Technological Factors. These factors encompass the innovations and developments in technology that impact an organization’s operations, as well as the rate of technological change. For example, look at one simple technological change with which we’ve all become comfortable in the public arena over the past decade or so: free WiFi. Starbucks was able to take advantage of this change and reposition its coffeehouses and differentiate itself from competitors by offering free WiFi.34 Legal Factors. These factors include changes to legislation impacting employment, industry regulation, licenses and permits, and intellectual property. Environmental Factors. In the context of a PESTLE analysis, environmental factors refer to variables affecting the physical environment, like climate change, pollution, the scarcity of raw materials, and the growing concern over companies’ carbon footprints. Knowledge Check It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback. 1. The extent to which the supply chain adds value to our marketing strategy is best addressed by our evaluation of which of the 5Ms? a. Materials b. Money c. Machinery d. Minutes 2. ________ consist of third-party sellers such as retailers, wholesalers, and other resellers in the distribution channel. a. Suppliers b. Market intermediaries c. Partners d. Customers 3. If you wanted to fill a gap in the marketplace, you would have to carefully consider ________ to see what is already available on the market. a. the competition b. the customers c. the public d. the resellers Access for free at openstax.org 1.4 Evolution of the Marketing Concept 27 4. Which of the domains of the macroenvironment are most likely to be responsible for cutting-edge innovations? a. Economic b. Technological c. Political and legal d. Social and cultural 5. You want to target a market more narrowly than simply using demographic data. You are also considering segmenting on people’s attitudes and interests. Which domain of the macroenvironment is most likely to be a relevant data source for your decision-making? a. Economic factors b. Natural factors c. Political and legal factors d. Social factors 1.4 Evolution of the Marketing Concept Learning Outcomes By the end of this section, you will be able to: 1 Describe the production concept. 2 Define the product concept. 3 Discuss the selling concept. 4 Explain the marketing concept. 5 Summarize the societal marketing concept and its features. The Evolution of Marketing So now you’ve gotten the bird’s-eye view of marketing as a practice, and you now know what marketing is. However, let’s take a trip back through time to look at the evolution of marketing practices and how many of today’s marketing strategies came to be. As you can see from Figure 1.9, and to use an old TV commercial tagline, you’ve come a long way, baby! Figure 1.9 Evolution of Marketing (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license) 28 1 Marketing and Customer Value The Production Concept In order to understand the production concept, it’s important first to understand the history of technology and mass production. Spurred on by the use of steam power, th

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