NTRODUCTI DUCTI ON T O I NTRO
MARKETING C O
M P E T I N G I N N T H E 21 S T C E N T U R Y
ST U D E N T GU I D E ™
Introduction to Marketing
Competing in the 21st Century
S t u d e n t
G u i d e
TM
University Access 6255 Sunset Sunset Boulevard, Boulevard, Suite 801 Los Angeles, Angeles, California California 90028 888.960.1700 www.universityaccess.com Copyright (c) (c) 1999 University University Access, Access, Inc. Printed Printed in the United United States States of America America ISBN 1-58313-100-0
FROM THE PROFESSOR Consider the billions of products and services traded every every day in sales transactions all over over the globe, globe, in supermarkets supermarkets and other other stores, stores, over over the telephone telephone and over over the Internet, Internet, and in factories factories and corporate offices everywhere. How do businesses decide what to produce? How do they get their products products and and services to to the consumer? consumer? Consider Consider,, too, the billions billions of advertising advertising and promotional promotional messages messages sent out out each day on television, television, on the radio, radio, in newspapers, newspapers, and in magazines about these goods and services. How do businesses decide what markets to target and what to say to them? How do businesses decide what products and services to sell and how to price them? The answer answer to all of these complicated complicated questions questions is deceptively deceptively simple: simple: marketing. marketing. Most people people think of marketing marketing as just adv advertising ertising or selling, selling, but, as this course course will illustrate illustrate,, marketing is much more. Introduction Introduction to Marketing: Marketing: Competing in the 21st 21st Century will examine the many facets of marketing as the engine behind the exchanges exchanges that make our economy work and, therefor therefore, e, as a powerful powerful force force in our lives. lives. It will take take you you behind behind the scenes scenes of real businesses businesses at work and show how marketing marketing affects affects every every one of us every every day. day. It is designed to combine the the strengths strengths of new and traditional traditional media: media: television, television, printed printed textbooks textbooks and study study guides, guides, and the Internet (including (including a variety of online work such as interactiv interactive e exercises, exercises, independent independent and collaborativ collaborative e exercises, exercises, case studies, studies, net-based net-based research research projects, projects, and discussion discussion starters). Introduction Introduction to Marketing: Marketing: Competing in the 21st 21st Century is a comprehensive and contemporary introduction introduction to the essential essential principles principles of marketing. marketing. It’s intended intended to be a springboard springboard for further discussion and analysis. Your instructor will put his or her personal stamp on this material by leading discussions discussions,, providing providing immediate learning learning direction, and challenging challenging you to appreciate marketing in your own life.
Professor Professor John A. Quelch, D.B.A. .B.A. Dean of of the London London Business Business School and former former Professor Professor of of Marketing Marketing at Harvard Business School
Table
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Course Components Video Programs, Online Courseware, Student Guide, and Recommended Textbook . . . . . 6 Course Goals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Lesson Summaries and Expected Learning Outcomes Lesson One
— The Marketing Process: Creating Value . . . . . . . . . . . . . . . . . . . . . . . . 10
Lesson Two
— The Marketing Environment: Technology, Competition, Ethics, Government, Society, and Economics . 25
Lesson Three — Consumer and Organizational Buying Behavior: Researching, Understanding, and Analyzing the Customer . . . . . . . . . 38 Lesson Four
— Market Segmentation, Targeting, and Positioning: Developing a Focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Project One
— Market Research . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Lesson Five
— Product Strategy: Planning and Development Throughout the Product Life Cycle. . . . . . . 69
Lesson Six
— Brand Management: Building an Image, Building Customer Loyalty . . . . . . . . . . . . . . . . . . . 84
Lesson Seven — Strategies for Services: Marketing the Intangible. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Project Two
— Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Lesson Eight — Distribution: Retailing and Wholesaling Strategies . . . . . . . . . . . . . . . . . . . . . . . . . 114 Lesson Nine
— Marketing Communications Personal Selling, Sales Promotion, Advertising, and Public Relations . 131
Lesson Ten
— A Closer Look at Advertising: When, Where, Why, and How to Advertise . . . . . . . . . . . . . . . . . . . . . 146
Lesson Eleven — Pricing Strategy: Defining Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Project Three — Marketing Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 Lesson Twelve — International Marketing: Competing in a Global Marketplace . . . . . . . . . . . . . . . . . . . . . . . . . . 176 Participating Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 Participating Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196 Advisory Board .. . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 About the Professor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201 Course Development Team . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 202 Course Materials Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205 About University Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 206 Other University Access Courses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208 Introduction
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Course
Components
Video Programs
Introduction to Marketing: Competing in the 21st Century consists of twelve one-hour broadcast/video lectures presented by Professor John A. Quelch, D.B.A., Dean of the London Business School and former Professor of Marketing at Harvard Business School. Professor Quelch’s lectures include interviews with experts and real-world case studies that illustrate the important role marketing plays in businesses small and large, in nonprofit organizations, and in our everyday lives. The course’s carefully selected examples from world-renowned companies educate students not only how to identify marketing principles in action, but also how to apply these principles on their own. Each program’s content is guided by academically crafted learning objectives that have been approved by Professor Quelch and a University Access Advisory Board of academicians. Each program is outlined in the accompanying Student Guide.
Online Courseware
The teleweb version of Introduction to Marketing: Competing in the 21st Century features online courseware that applies the information in the video in innovative ways. Through challenging multimedia activities and resources delivered via the Internet, students achieve the highest levels of Bloom’s Taxonomy of the Cognitive Domain, a standard in the classification of learning objectives. University Access instructional designers, experts in the area of marketing and wellversed in adult learning theory, have created a rich, interactive academic experience. The thirty-plus hours of online courseware offer elements such as case studies, collaborative exercises, Internet research projects, interactive exercises, and topical discussion starters. Along with streaming audio and video, the courseware includes cutting-edge features. Students in the teleweb version of the course also get access to the videos through an arrangement with Broadcast.com. In addition, faculty members have access to an online test bank, making it possible to conduct testing via the Internet. Customizable discussion questions and supplementary materials are also included. Students are never more than one click away from the syllabus that the instructor has customized. To preview the online courseware, visit www.universityaccess.com/courses/undergrad.
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The Student Guide
This guide is designed to lead students through each lesson of the course, in order to maximize learning potential. All lessons contain the following components: Expected Learning Outcomes — A description of what the student can expect to learn and achieve in the lesson. Completing the Lesson — Step-by-step instructions for students indicating the order in which activities should be completed. Lesson Outline — An outline of the video lectures to illustrate the relationships of the concepts and principles presented in the video. Lesson Summary — A comprehensive summary of the video lectures. Key Points — The major points explained by the professor, expert guests, and case studies. Case Studies — An in-depth analysis of real-world case studies dealing with contemporary issues, which have been introduced in the video portion. Assignments — Practical projects and written exercises designed to help students achieve a richer understanding of the learned concepts. Bibliography and Recommended Reading — A list of books and magazines that focus on marketing. Additional Resources — A compilation of Web sites and organizations of interest to marketing students. For an updated, expanded list, go to the University Access Library (www.universityaccess.com) and check the Resources area for Introduction to Marketing: Competing in the 21st Century.
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The Textbook
This course is designed for use with William D. Perreault, Jr., and E. Jerome McCarthy’s text, Basic Marketing: A Global-Managerial Approach, Thirteenth Edition, New York: Irwin:McGraw-Hlll. The text focuses not only on marketing but also on marketing strategy planning, which is essentially about how to do a superior job of satisfying customers. The unifying theme of the ideas presented in this text is how managers should make the marketing decisions that best satisfy customer needs. Each video program is paired with a corresponding reading assignment. In addition, online content related to the textbook can be found at www.mhhe.com/fourps. You can request a textbook desk copy by sending your request on institutional letterhead to: The McGraw-Hill Companies College Division P. O. Box 445 148 Princeton Road S-1 Hightstown, NJ 08520-1450 Phone: 800.338.3987, prompt 3 Fax: 609.426.5625
Getting Started
You will receive a class syllabus from your instructor that will contain a complete overview of the course requirements. If you have not received the syllabus by the first day of class, be sure to contact your instructor.
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C o u r s e
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After viewing the programs and completing the case studies, exercises, assignments, and quizzes in the Student Guide and/or the Online Courseware, students should be able to: • explain the concept of marketing and its function in society. • define “value” and explain marketing’s role in creating value for customers. • cite the effects that society, economics, government, technology, and competition have on marketing. • state ways in which ethics can be integrated into the marketing process. • explain qualitative and quantitative market research methods. • describe the consumer decision-making process and the major factors influencing consumer buying behavior. • define the purpose and benefits of segmentation and targeting and describe the major approaches to doing so. • explain the concept of positioning and assess various positioning strategies. • describe the new product development process. • evaluate product line planning strategies. • explain the stages of the product life cycle. • describe the process of developing brand loyalty. • compare and contrast the marketing of services and the marketing of goods. • evaluate methods of delivering customer service and measuring customer satisfaction. • describe the role of distribution and explain the importance of supply chain management. • list examples of major issues that marketers must consider when managing and developing international distribution channels. • explain the importance of integrated marketing communications. • assess the roles of the five methods of communication. • list the different types of advertising and describe which method is best, given certain situations. • illustrate the relationship between price, value, and quality. • differentiate the factors that affect pricing policy. • evaluate key trends in the global environment. • assess the marketing issues in multinational corporations. Introduction
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Lesson One
The Marketing Process Creating value
Expected Learning Outcomes
Lesson One introduces the topics to be covered in Introduction to Marketing: Competing in the 21st Century, establishing the terminology and principles used throughout the rest of the course. Professor Quelch encourages students to appreciate marketing as far more than advertising and selling — to recognize it as a process that plays a vital role in modern life. Examples from established companies such as Hilton Hotels Corporation and from nonprofit organizations such as the California Science Center are examined. By the end of the lesson, you should be able to: • explain the concept of marketing and explain its importance. • describe the marketing process. • define “value” and explain marketing’s role in creating value for customers. • identify marketing’s function in both corporations and nonprofit organizations. • state key marketing challenges in the 21st century.
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Completing Lesson One
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In order to obtain obtain the most out out of this course, course, the following following steps steps should be taken taken in the sequence listed below. below. As with each lesson, please check the syllabus for additional or altered altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson One in the Student Guide .
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2. Read the text text assignment assignment for Lesson Lesson One, as indicated in the syllabus. syllabus. 3. Watch Watch the video program program for Lesson Lesson One (The Marketing Marketing Process: Process: Creating Creating Value). Value). Use the Lesson One outline in the Student Guide to help you you follow the the flow of the lecture lecture.. 4. In the the Student Guide , read read:: • The program summary for Lesson One. One. • The key key points for Lesson One. • The case study study for Lesson One. 5a. If you are a Teleco Telecourse urse student student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are are a Telewe Teleweb b student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, Instead, complete complete the online online exerc exercises ises for for Lesson One and submit them to your instructor according to his or her instructions. instructions. In addition, post any questions you have to the the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz quiz for for Lesson Lesson One, if assigned assigned by by your your instruct instructor or.. If you are a Teleweb eleweb student, student, you will find the quiz online online.. If you are a Telecou Telecourse rse student, student, your instructo instructorr will deliver deliver the quiz to you, along with directions on how to submit your your answers. answers.
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Lesson One Outline
I. OVERV OVERVIEW IEW II. WHAT WHAT IS MARKETING MARKETING A. Market Market Defined Defined People with latent needs and the ability to purchase a product B. Marketing Marketing Defined Defined The process process of planning planning and and execu executing ting the conception, conception, pricing, pricing, promotion, promotion, and distributio distribution n of ideas, ideas, goods, goods, and services services to satisfy satisfy the objecti objectives ves of both the buyer buyer and the seller C. Hist History ory of Mark Marketing eting D. Four Factors Factors Needed Before Marketing 1. Unsatisfied Unsatisfied Needs 2. Desire to Satisfy Satisfy Needs Needs 3. Communicate Communicate Needs 4. Product Product to Fulfill Fulfill Needs E. Influences Influences on the Marketing Marketing Process Process 1. Controllable Controllable Factor Factors s – The 4 Ps a. Produc Productt – a good good,, service service,, or idea idea b. Price – the cost cost of something something either either in money money or exchange exchange c. Promotion Promotion – the communication communication of information information between between seller and and potential potential buyer buyer d. Placement Placement – means of getting getting product products s into the consume consumers’ rs’ hands 2. Uncontrollable Factors – The external external influences that marketers can’t do anything about – those found in the broader environment a. social trends/ trends/social social issues issues b. technological technological changes changes c. compet competitio ition n d. economic economic fluctuat fluctuations ions e. regulatory regulatory mandates mandates III. THE MARKETING MARKETING PROCESS PROCESS A. Analyze Analyze the Immediate Immediate Situation – The 3 Cs 1. Company Company Analysis Analysis – assess your your firm in terms of of its financial financial capacities capacities,, its human resource capabilities, and its managerial capabilities 2. Competition Analysis – assess your competition competition 3. Customer Customer Analysis Analysis – determine the needs needs and wants wants of your potenti potential al customers customers B. Assessing Assessing the Environment Environment 1. Econ Econom omy y 2. Regulat Regulation ions s 3. Technology echnology 4. Ecological Ecological Concerns 5. Soci Societ ety y
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C. Marketing Marketing Strateg Strategy y 1. Identifies the Target Market Market The customers customers or group of customers customers it aims to serve serve 2. States the the Marketing Marketing Mix – The The 4 Ps a. What the the product product is is b. Where the the product will will be sold c. How it will be promoted promoted d. At what price price it will will be sold sold
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D. The Marketing Marketing Mix Mix 1. Product Product Policy Policy a. Produc Productt Line How many different different kinds kinds of products products are offered offered b. Produc Productt Line Line Depth Depth How many varieties varieties of one particular particular product product are offered offered 2. Pricing Pricing Policy Policy a. Customer Customer percept perception ion b. Level Level of Competi Competitio tion n c. Cost Cost Base Base 3. Placement Placement Policy Policy a. Intens Intensiv ive e b. Exclusiv Exclusive e 4. Promotion Promotion Policy Policy E. Marketi Marketing ng Plan F. Marketing Implementation IV. IV. CREATING CREATING VALUE VALUE A. Value Defined Defined The perceived perceived benefits of a product outweighing the cost V. THE ROLE OF MARKETING MARKETING A. In Profit and Nonprofit Nonprofit Organizati Organizations ons B. In Politics Politics C. In Economic Economic Developme Development nt VI. ETHICS ETHICS IN MARKETING MARKETING VII. MARKETING IN THE 21ST CENTUR CENTURY Y A. Globali Globalizat zation ion B. Technology echnology VIII. VIII. SUMMAR SUMMARY Y
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Program Summary
Introduction Introduction to Marketing: Marketing: Competing Competing in the 21st Century
Lesson One
The Mark Marketing eting Process: Process: Creating Value What Is Marketing? Before discussing marketing, we must understand a few few basic concepts: concepts: What is a “market”? A market market is a group of customers customers 1) with a set set of needs that that are waiting waiting to be satisfied satisfied and and 2) with the ability to buy a product that will satisfy those needs. needs. “Ability” in this case means the authority authority,, time, time, and money to acquire acquire a good or service. service. This brings brings us closer to a working working definition definition of this all-encompas all-encompassing sing phenomenon phenomenon called marketing marketing.. Marketing Marketing is the total total process process of planning planning and executin executing g the product, product, pricing, pricing, promotion, promotion, and distributio distribution n of ideas, ideas, goods, goods, and services — all all to to satisfy satisfy the objective objectives s of of both the buyer and the seller. That's a big-picture big-picture explanation. Looking more closely, closely, you can see that four four essential factors must exist in order for marketing to occur: First, marketer marketers s must identi identify fy a pool pool of people people with unsatis unsatisfied fied or or latent latent needs. needs. If Need. Need. First, someone wants wants to develop develop a product, product, question one must must be, is there a need for it? Question two two is, who might need it? it? In many cases, cases, consumers aren't aren't even even aware aware they need need or want the the benefits benefits of a product. product. That's That's a latent, or hidden, hidden, need. Ability to Satisfy a Need. Second, someone must come come along who has the the desire and ability to satisfy those needs. needs. The company that can create create a product that addresses unmet needs is in a position to succeed. Ability to Communicate. Both the buyers and the sellers must be able to communicate with each other. The potential customer customer must know know the product product exists. exists. That means the marketer must get the word out — talk to the customer and learn the best way to develop that product so that it truly satisfies the customer and creates benefits that the customer seeks. Finally,, don't forget forget that the the idea, idea, good, good, or service service itsel itselff must be Actual Product Needed. Finally not only conceptualized conceptualized but actually realized. realized. It can be anything from in-line skates to investment investment services, and a seller who cultivates demand must be ready to deliver on the promise.
What Influences the Marketing Process? Two sets of factors factors influence the marketing marketing process: process: controllable controllable factors factors and uncontrollable uncontrollable factors. factors. The controllable controllable factors factors are commonly referred referred to as the 4 Ps, or as the marketing marketing mix, and they are the foundation of the marketing process. We'll see them again and again in this lesson and throughout the course. Product. Product. A servi service ce,, good good,, or ide idea. a. either money or exchange. exchange. Price. The cost of something in either 14
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Placement. The channels through which products get into consumer’s hands. Promotion. The communication of information between the seller and the potential buyer. The uncontrollable factors are equally important and, while they are often far beyond a company's influence, they must nevertheless be taken into consideration when developing a marketing strategy. These include social issues, technological advances, economic fluctuations, regulatory mandates, competition, and so on.
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THE MARKETING PROCESS Step One: The 3 Cs With these influences in mind, and remembering the 4 Ps, let's examine the marketing process in more detail. The starting point, known as the 3 Cs, is a three-part analysis of the marketer's immediate situation: Company Analysis. Marketers must have a firm grasp of their own company's strengths and weaknesses, financial and human resources, and managerial capabilities. Competitive Analysis. How strong, sound, talented, and entrenched is the competition? Are competitors serving the whole market or are they leaving someone out? Customer Analysis. Who are the marketer’s customers and what do they need? How can the marketer fulfill those needs?
Step Two: Assessing the Broader Environment — Beyond the 3 Cs Next, the process calls for applying the results of these analyses to the broader environment. Social Trends. People are more health conscious than ever. Has this affected marketing? Consider the ever-growing number of low-fat, low-salt products in fast-food restaurants and on supermarket shelves. What about the increasing ethnic diversity of Americans? It has provided countless opportunities and challenges for companies as they have addressed latent needs by creating and selling products targeted to specific ethnic groups. While social trends might be out of your control, they all affect a company's health and its marketing strategy for better or worse. Economic Environment. Is the economy healthy? What is the current state of such forces as inflation, unemployment, resource availability, business cycles, and so forth? What’s in store for the future? Legal and Regulatory Environment. What about the legal and regulatory climate? What agencies oversee a company or a business sector? What laws must a company know and obey? What opportunities are created when regulatory agencies promote new competition? Technological Environment. How does changing technology affect a company? How does it affect a company's marketing and all the ways it reaches out to customers? How does technological change affect how the firm orders and manages its supplies?
Step Three: Marketing Strategy After the immediate situation has been analyzed (the 3 Cs) and after the uncontrollable environment has been assessed, a company can move toward developing a marketing strategy. Introduction
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This statement of purpose specifies the target market and states policies on the related marketing mix. Simply put, a marketing strategy first identifies the target market, then states the product specifics, where it will be sold, how it will be promoted, and at what price, so as to satisfy the target market. This leads back to the 4 Ps and the implementation of the marketing mix. Each of these requires specific strategic policy decisions. Product policy concerns which goods and/or services a marketer sells to the target market, including different versions of the product, packaging, service, warranties, etc. Pricing policy takes at least three key pricing influences into account: customer perception of the value of the product, how the competition prices its products, and the cost of making the product. Placement policy is the strategic approach to distributing a good or service. An intensive approach would make it available as widely as possible. Coca-Cola, for example, is available almost anywhere on earth. Exclusive distribution, however, places the product only in a few, select places. Designer handbags or expensive perfumes are less ubiquitous and usually sold one-to-one, with a high level of customer attention, in prestigious locations. Promotion policy covers all the ways a company communicates with the market it wants to reach: personal selling, public relations, sales promotion, and advertising.
Step Four: Creating the Written Marketing Plan With the basic strategy in place, the next step is to expand each of the 4 Ps into a written marketing plan. Customarily, the plan includes details about the planned product line, product development plans for the coming year, pricing strategy, an in-depth plan for placement, and the promotion strategy, including a budget.
CREATING VALUE Marketing starts — and ends — with the customer. Understanding what customers’ value is the essence of effective marketing. Customer value is created when the perceived benefits of a product match or outweigh the cost. In order for a company to provide value to its customers, it must first thoroughly understand them. Low price is one criterion that some consumer segments might place a lot of value on. Another consumer segment might value quality service above all else, another convenience, and another prestige. It’s important to know which benefits your target customers value in particular — and to provide them with value based on the criteria that are important to them. If a company understands what creates value for its target market, it can use the 4 Ps to ensure the product is designed, priced, placed, and promoted so that it finds its market.
THE ROLE OF MARKETING So far this lesson has covered the basics of how effective marketing is planned and executed. But what makes marketing the “pervasive and powerful force” it is in this society? What's the larger role marketing plays in all aspects of day-to-day life? If a company is a for-profit enterprise, the success of marketing is easy to measure: It leads to increased sales, market share, and profit. For a nonprofit organization, marketing plays a different but equally important role. A museum, for example, relies on effective marketing to 16
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increase the number of its visitors, cover costs, and support its endowment. Marketing isn't just about profit. In some cases, it can be measured by an institution's continuing survival. Is marketing just for businesses and organizations? No. Political campaigns involve marketing, whether for an idea such as a referendum, Constitutional amendment, or for individual candidates for public office. Each requires the same careful planning and the same regard for creating value as a corporate marketing plan. And the marketing of individuals isn't just for celebrities or politicians. A job interview is a case study in marketing. An applicant’s appearance, demeanor, prior research, and punctuality all affect his or her success or failure in obtaining a job.
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Another important role of marketing is the facilitation of economic development of entire communities, from towns to villages to nations. Remember that marketing brings buyers and sellers together and facilitates transactions.
MARKETING ETHICS Of all the forces that affect marketing, ethics is perhaps the force over which individuals have the most control. Because the role of marketing in modern society is so vital, so pervasive, and so powerful, everyone involved must consider marketing's inherent ethical issues. The subject will be revisited throughout this series.
MARKETING IN THE 21ST CENTURY Enormous forces are changing the nature of marketing. The globalization of markets requires marketers to apply proven Western marketing ideas in emerging markets. It also translates into increased competition for all companies throughout the world. In addition, advances in technology offer new means for buyers and sellers to communicate and new opportunities for companies and organizations to reach target markets more efficiently than ever.
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Key Points
1. Marketing is the process of planning and executing the pricing, promotion, and distribution of goods to create exchanges that satisfy both organizational and individual objectives. 2. The primary goal of marketing is to create value by: • Assessing the needs of a market. • Satisfying those needs. 3. For marketing to occur, the following four factors must exist: • There must be a pool of people with unmet needs. • The marketer must have a desire and an ability to satisfy those needs. • There must be communication between the parties. • There must be something to exchange. 4. Marketing is influenced by both controllable and uncontrollable factors. • Controllable Factors — a.k.a. the 4 Ps — a.k.a. the marketing mix – include: • Product • Price • Placement • Promotion • Uncontrollable Factors include • Social and cultural trends • Technological trends • Economic conditions • Government and regulatory agencies • Competition 5. In order to develop a comprehensive marketing plan, marketers must conduct a thorough analysis of: • The immediate situation — a.k.a. the 3 Cs • Company analysis — Assess your own company's resources. • Competitor analysis — Assess your competitors. • Customer analysis — What do your customers want and need? • The external environment — the uncontrollable factors, which are largely beyond the organization's control. 6. After conducting a thorough analysis of the immediate and external environments, the next step in the marketing process is to develop a marketing strategy. A marketing strategy is a statement of purpose that: • States who your target market is, and • States the marketing mix you will implement to appeal to that target audience. 7. Customer value is perhaps the most essential marketing issue. Marketing begins and ends 18
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with the customer. Customer value comes when the perceived benefits of a good outweigh the cost of obtaining that good. 8. What one person values is very different from what the next person values. As marketers, we must not try to be all things to all people — rather, we must determine which value we can best deliver to our target market. 9. Marketing activities are performed by for-profit companies and also by nonprofit organizations — for political candidates, for cultural institutions, for charities and causes, and for individuals. Whether the marketing is for services, goods, or ideas, the objective of marketing is to create value. 10. Marketing plays an important role in the economic development of a society. 11. Many challenges face marketers in the 21st century. Marketers will need to continue to adapt the principles we've learned and apply them in creative ways. We'll have to look beyond our local competitors when we analyze our marketplace. And we'll have to keep up with and find ways to utilize the fast-paced evolution of technology.
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Case Study
Hilton Hotels Corporation is the world's leading lodging company. Among its 450 hotels are some of the most well-known properties to be found anywhere, including the Waldorf-Astoria. The hotels offer guests accommodations and amenities for business or leisure. For more than seventy-five years, the Hilton brand name has been synonymous with excellence in the hospitality industry. This is largely due to Hilton’s valiant marketing efforts. HISTORICAL BACKGROUND Most U.S. businesses that have been in operation since the early years of the United States have undergone distinct stages. Production Era: In the early 1900s, goods were scarce in the United States, and consumers were willing to buy virtually any products that were available. Thus, businesses focused on production rather than marketing. Sales Era: Around the 1920s, many businesses discovered that they were able to produce more goods than could be consumed by their regular consumers. The typical solution most businesses implemented was to increase their sales force in order to find new markets. Marketing Era: In the early 1960s, a school of thought emerged that it was possible to both satisfy the organization’s goals and satisfy the needs of customers. It recognized that sales is only an element of the overall marketing process, and that marketing should be brought into the production cycle before a good is even conceived, not after the production of that good. HILTON INTRODUCES MARKETING TO THE HOTEL INDUSTRY James Collins, former senior vice president of marketing for Hilton Hotel Corporation, began his forty-three-year career at Hilton in 1944 in the midst of the Sales Era. With the end of the war, the ban on travel was lifted, businesses resumed holding conventions, and business travel increased dramatically. In addition, due to the relative affluence of the families of the 1950s, people began travelling for pleasure more than ever before. In the late 1950s and early 1960s, in response to these social changes, Collins determined that Hilton had to become a marketing company instead of a sales company. Before this, the marketing concept had never been applied to the hotel industry. Collins closely examined the many different kinds of hotel guests, evaluated each group’s needs, and began the process of adjusting Hilton’s product line accordingly. This is what Hilton’s product line looks like today: HILTON PRODUCT LINE Airport Hotels Airport Hiltons are located just minutes from the runway and offer Zip-In Check-In®, 24-hour food service, and courtesy shuttle service. Commercial Hotels Both business and leisure travelers select Hilton's commercial hotels due to their ideal locations, the quality of the hospitality services available, and entertainment and recreational options available. 20
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Conrad International Hotels The Conrad International Hotels is a network of first-class luxury resorts situated in the world's key business markets, tourist, and resort destinations.
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Convention Hotels Hilton's convention hotels are large, full-service properties, dedicated to hosting large and small meetings, exhibitions, conventions, and large and small conferences.
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Hilton Garden Inn® Hilton Garden Inn® is a mid-priced product line targeted to today's growing segment of middle-market travelers, with a strong business orientation. It is positioned as “fourstar lodging at a three-star price.” Hilton Suites This is Hilton's product for the value-minded, extended-stay guest. For the business traveler, the properties provide a business center free of charge. Resort Hotels Hilton resorts provide vacationers with top-notch accommodations, outstanding meeting facilities, and food and beverage alternatives reflective of the local area and culture. INNOVATIONS Hilton has been on the forefront of hotel innovation since its inception. Hilton pioneered the concept of airport hotels, was the first chain to offer amenities such as air conditioning and direct-dial telephones as standard features, was the first hotel company to list on the New York Stock Exchange, and was an industry pioneer when it launched its Web site in 1995. BUSINESS TRAVEL PROGRAMS Since 1919, Hilton Hotels has led the way with innovations for executives on the road. They offer in-room fax machines, TeleSuite Networks ® with teleconferencing capabilities, and fully staffed business centers that provide assistance with graphic presentations, word processing, and copying. QUALITY Hilton Hotels has taken an aggressive stand to ensure its hotels consistently deliver on the Hilton promise. They continue to renovate and upgrade the appearance of their hotels. Their managers are educated at the Hilton Quality Service Institute on Hilton’s service philosophy, in order to ensure consistency and quality among individual properties. In addition, their franchises undergo a vigorous review process, eliminating those hotels that do not meet the company's standards. MARKETING PROGRAMS This drive for quality has worked hand-in-hand with a series of national marketing programs that appeal to Hilton's key target audiences. These programs include a “frequent guest program,” a “family vacation program,” and a program aimed at mature travelers. Hilton's marketing programs, renovations, and aggressive expansion all underscore a continued commitment to those principles that have made the Hilton name synonymous with first-class hospitality. Answer the following questions. Each question has been derived from information contained in the video and/or the case study listed above. Introduction
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If you are a Telecourse student (with no online component to your course), complete the assignment and submit it to your instructor according to his or her directions. If you are a Teleweb student (with an online component to your course), ignore the following assignment. Instead, complete the online exercises for Lesson One and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 1. How did the transition from the Sales Era to the Marketing Era redefine marketing? 2. How did the transition affect the way in which Hilton conducted its business? 3. A company’s marketing process is ruled by two sets of influences: controllable factors and uncontrollable factors. The controllable factors are a company’s marketing mix, also known as the 4 Ps. The marketing mix can be manipulated to reach a company’s target market(s). a. Product What is the product Hilton offers its customers? b. Placement How would you describe Hilton’s placement/distribution? c. Pricing What is Hilton’s pricing policy? d. Promotion What is the purpose of Hilton’s advertising? What other forms of promotion does Hilton utilize? 4. How does Hilton manipulate its marketing mix to create value for its customers?
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Glossary
Customer Value
Value created when the perceived benefits of a product match or outweigh the cost of obtaining that product.
Exclusive Distribution
The most restrictive form of distribution in which a product is available through only one or a few dealers within a given area.
Intensive Distribution
The distribution of goods that aims at maximum market coverage.
Market
A group of customers with a set of needs and the ability to buy a product that will satisfy those ideas.
Marketing
The process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to satisfy the objectives of both the buyer and seller.
Marketing Environment
The uncontrollable variables that a company must consider when determining an overall marketing strategy. These include: • societal concerns • technological advances • competition
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• economic fluctuations • regulatory agencies
Marketing Mix
A unique blend of the 4 Ps (Product, Placement, Promotion, and Price) designed to produce mutually satisfying exchanges with a target market.
Marketing Plan
Written statement detailing the specific marketing strategy (the marketing mix and the target market), budgets related to each of the four elements of the marketing mix, and the time-related details for carrying out that strategy.
Marketing Strategy
A statement of purpose that specifies the target market and the related marketing mix (the 4 Ps) that a company will implement to reach that target market.
Product
Good, service, or idea which is the need-satisfying offering of a firm.
The 3 Cs
A three-part analysis of the marketer's immediate situation, including: • Company Analysis: Having a firm grasp of your own company's strengths and weaknesses. • Competitor Analysis: Understanding the effectiveness of your competitors, how entrenched they are, how good their management is, how well they satisfy customers' needs, etc. • Customer Analysis: Truly understanding what the customers need and want.
The 4 Ps
The controllable variables that a company manipulates in order to satisfy a target market. They are: • Product: Good, service or idea that is the need-satisfying offering of a firm. • Price: Cost of something either in money or exchange. • Placement: Channels through which products get into the consumer's hands. • Promotion: Communication of information between seller and potential buyer.
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Assignments
Assignment One: Supermarket Survey In an intensely competitive, low-margin industry, supermarkets must strive to gain a competitive advantage by maximizing the value of the goods and services that they provide in relation to their cost. Step 1: Begin thinking about the characteristics you value as a consumer in a supermarket. Make a list of what matters to you, in order of priority: selection, convenience, price, location, short lines, friendly staff, etc. Step 2: On your next trip to the supermarket, observe the ways in which the store tries to create value for you as a consumer. For example, do the managers of the store have all of the checkout lanes open to speed the lines along? Do they have a wide selection of the products you buy? Do they make their own bakery products and prepared foods? Is the meat department clean, with a good selection of products? Are prices clearly marked on the shelves or on the individual items? Do the grocery baggers offer to take your bags to the car for you? Write down your observations. Step 3: Based on your observations, determine whether the store attempts to appeal to the qualities you value as listed in Step 1. Step 4: List recommendations for further ways that the store could provide added value to you to earn your repeat business and loyalty.
Assignment Two: One House, Two Buyers Apply your knowledge of the 4 Ps of marketing, as well as your knowledge of the importance of customer value, by creating a strategy for selling an identical product to two different people. Based on the following scenario, outline a written plan designed to make the product appealing to each of the potential customers. Situation: You are a real-estate agent attempting to sell a house to a married couple. The couple has asked you to show them the house, but they can't come at the same time. Therefore, you will show the house to the husband in the morning and to the wife in the evening. Step 1: Think of a couple you know well and compile two lists based on your knowledge of them. One list should contain the values the wife might feel are important; the other list should reflect the husband’s values. For example, which of the two might be more interested in a large laundry room? Kitchen? Garage? Backyard? Appliances? Which of the two might be more price sensitive? Which might be more interested in the school district that the house belongs to? Which might be more interested in the general location of the house? Is being close to work important? Or would they prefer to be close to friends and family? Is shopping nearby? In what areas would their opinions be widely apart? In which areas would they agree completely? Step 2: Using the information you recorded in Step 1, customize the different approaches you might use in presenting the 4 Ps in trying to sell the house to the couple. For example, how would you present the Product (the house) to the wife versus the husband? What aspects of Price, Product, and Placement would your plan take into consideration? Develop two separate written plans, one for each buyer's distinct needs.
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Lesson Two
The Marketing Environment
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Technology, Competition, Ethics, Government, Society, and Economics
Marketing doesn’t happen in a vacuum, so it is important to understand all the external factors that can affect a company’s marketing strategies. Lesson Two explores the continually evolving marketing environment — including cultural and economic conditions, regulatory agencies, technological advances, and the competitive milieu. It also examines the ethical situations that govern how marketers interface with the external environment.
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The case studies include how a small company like HotHotHot responds to changing tastes and cultural trends, how an up-and-coming athletic wear company competes with giant companies like Nike and Adidas, and the history of Coca-Cola’s farsighted marketing strategies.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Analyze the effect of the competitive environment on an organization’s marketing strategy. • Demonstrate how sociocultural trends impact a firm’s marketing activities. • Describe how technological advances have affected companies, their products, and their services. • Summarize how the government and other groups regulate marketing. • Cite the effects of economic forces on marketing decisions. • List examples of how ethics can be integrated in the marketing planning process.
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Completing Lesson Two
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Two in the Student Guide. 2. Read the text assignment for Lesson Two, as indicated in the syllabus. 3. Watch the video program for Lesson Two (The Marketing Environment: Technology, Competition, Ethics, Government, Society, and Economics). Use the Lesson Two outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide, read: • The program summary for Lesson Two. • The key points for Lesson Two. • The case study for Lesson Two. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide. Instead, complete the online exercises for Lesson Two and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Two, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Two Outline
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I. OVERVIEW II. WHAT IS THE MARKETING ENVIRONMENT? A. Marketing strategies are developed in response to and in harmony with what is currently happening in the external environment. The external environment is shaped by the following factors: 1. Cultural Environment 2. Economic Environment 3. Regulatory Agencies 4. Technological Change 5. Competitive Environment 6. Ethical Considerations
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III. CULTURAL ENVIRONMENT A. Demographics – a description of the population according to selected characteristics. Shifting demographics create opportunities for marketers. 1. Age — the age distribution of Americans is shifting a. Baby Boomers i. born between 1946 – 1965 ii. account for more than 75 percent of the nation’s wealth iii. account for 50 percent of purchases made in consumer products and services b. Gen Xers i. born between 1966 – 1976 ii. dramatically different purchasing behavior than Baby Boomers c. Baby Boomlets i. born after 1977 2. Sex 3. Income 4. Occupation 5. Geographic Location B. Changing Roles of Men and Women C. Societal Ethics/Concerns D. Ethnic Diversity IV. ECONOMIC ENVIRONMENT A. The state of the economy is significant to marketers because consumer spending is deeply affected by expectations about the future, and consumer spending accounts for two-thirds of U.S. economic activity. B. Macroeconomic and Microeconomic Trends V. REGULATORY AGENCIES A. Guidelines imposed by federal and state laws, as well as self-governing regulatory agencies. Introduction
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B. Purpose is to ensure fair business practices and protect consumers C. Focus primarily in three areas 1. Industry Structure 2. Health and Safety a. FDA b. Tobacco and Alcohol 3. Consumer Protection VI. TECHNOLOGICAL CHANGE A. Significant environmental force that is very difficult to predict owing to the speed at which new technologies are being developed. B. Has had a crucial effect on marketing, from the products that are now available, to how they’re produced, distributed, and promoted. VII. COMPETITIVE ENVIRONMENT A. Analyze the competitive environment. 1. Know the business you’re in. 2. Determine your present competitors and potential competitors. 3. Be aware of customer inertia. 4. If competing globally, know your customers. VIII. ETHICAL CONSIDERATIONS A. Potential ethical pitfalls may occur in the following areas: 1. Market Research 2. Product Strategy 3. Distribution 4. Promotion 5. Pricing 6. Ecological Concerns IX. SUMMARY
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Program Summary
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Introduction to Marketing: Competing in the 21st Century
Lesson Two
The Marketing Environment Technology, Competition, Ethics, Government, Society, and Economics
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In Lecture Two of Introduction to Marketing , Professor Quelch explains that a company cannot work in a vacuum in developing a marketing strategy. It must pay close attention to many factors in the external environment, and, as much as possible, it must anticipate future trends and events that may change or confirm its marketing plans. A good marketer, says the Professor, is “something of a sage or seer,” relying on a comprehensive view of today’s market and tomorrow’s changes to create a successful marketing strategy.
WHAT IS THE MARKETING ENVIRONMENT? Simply put, the marketing environment is the context in which a business works. Within a company, one may exert nearly complete control over every aspect of how a product is made: what materials to use, controlling quality, how many units to make, and so on. But once that product leaves the factory, it faces external and uncontrollable forces. The company must respond to each of them appropriately for the product to succeed. These external factors will greatly affect, and perhaps even drive, the way a company creates a marketing strategy. They include: • Cultural Environment • Economic Environment • Regulatory Agencies • Technological Change • Competitive Environment • Ethical Considerations Each of these factors may be beyond a company’s capacity to control or even affect, but each can have a profound impact on its operations.
CULTURAL ENVIRONMENT “Know the customer” is a marketer’s first law. That means, knowing who the customer is, where he or she lives, how old he is, gender, income, occupation, likes and dislikes, etc., and moreover, know how all those factors are changing every day. This is the cultural environment: a big-picture understanding of the population as it is right now, and as it is evolving.
Demographics One key tool for understanding the cultural environment is demographics. Demographics are variables that divide the population according to selected characteristics such as age, gender, income, and occupation. Demographic shifts are a constant of life. People age; the gender mix changes; income shifts up or down according to the overall economy. These Introduction
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changes create latent needs, and so become opportunities for marketers. For example, the age distribution of Americans is changing. The population is aging: In the next few years, improvements in health care and the “graying” of the enormous Baby Boom generation born between 1946 and 1965 will increase the number of Americans over age fifty-five to its highest ever percentage. These Americans make up the fastest growing demographic segment in the nation, and they control about 75 percent of the nation’s wealth. Do companies know about this trend? They certainly do. The size and spending capacity of this demographic sector have created a need for a new wave of products and services for the mature household. They’re everywhere: from nutritional supplements, skin creams and lotions to luxury cars and condominium communities, about half the purchases made in most consumer service and product categories are made by the Baby Boomers. Baby Boomers. It’s even possible to track back over the last ten to twenty years to see how the Boomers have affected the marketplace. When they were a little younger they made the 1980s the Me Decade, characterized by expensive personal products and high-priced city living. Now they’re driving a more value- and family-oriented economy, stimulating new growth in the outlying suburbs and “edge” cities, spending big on their children’s schooling, driving sport utility vehicles for family activities, and swelling investment funds in preparation for their retirements. Gen Xers. Are Baby Boomers the whole marketplace? Do their rules apply to every segment? No, and no: witness the following segment, Generation X. A much smaller group, Gen Xers were born between 1966 and 1976, and their experience reflects a different America than that of the Boomers. Having grown up in an era characterized by a high divorce rate, two working parents, and day-care, not to mention an unprecedented level of mass communications, they’re more cynical and less accepting of marketing messages than any previous segment of the population. Baby Boom marketing doesn’t necessarily sway Gen Xers. They want different activities, different products, and even different media. The Internet has influence for them. They’re computer-savvy and they want a new kind of marketing, the so-called “permission marketing,” which is less “in your face” and more interactive than television or print marketing. Baby Boomlets. And right behind the Gen Xers are the “Echo Boomers” or “Baby Boomlets.” This is an enormous population segment, the children of the Boomers. Their consumer choices are everywhere: look at any Top 100selling music list or blockbuster motion picture, and you’ll see the effect the Boomlets are already having on the American economy. These are today’s demographics; tomorrow’s will be slightly different, and marketers must know what’s changing and how to adjust for it. As people age, their needs change. Their families, interests, and lifestyles change. Consider the rapid growth of the Western and Sunbelt states as more families move there, or consider that women make 50 percent of new car purchases. Look at the number of second marriages one sees today, and how many families are made up of children from prior marriages. Consider the new buying power of Hispanics in the United States, and the new opportunities they represent for marketers. Each of these represents a major shift in the needs and values of the population, and a way for companies to succeed or fail depending on how effectively they respond. For example: think about how many women have become corporate managers putting in sixty-hour work weeks, and how many men have become the primary grocery shoppers for their households. The average time for preparing a family meal used to be an hour. Now it’s ten minutes. What does that mean for a marketer? It’s an opportunity to sell 30
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convenience in the form of delivered meals, quick-preparation foods, or meals that can be eaten on the run.
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ECONOMIC ENVIRONMENT Consumer spending represents two-thirds of all economic activity in the United States, so the strength of the overall economy and the level of consumer confidence in the country are critical for marketers. In prosperous times, people feel confident in their ability to get and keep a good-paying job, so they make more ambitious decisions about buying expensive items such as cars and homes, and they take on debt more willingly.
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These decisions all are vital to marketers, and they’re all reflected in hard data on such measurements as gross income, disposable income, and discretionary income from a variety of government and private sources that marketers watch with great care.
REGULATORY AGENCIES Marketers must appreciate the various rules and regulations overseen by federal, state, and local regulatory agencies. The way a company runs itself, the products and services it sells, and how it markets its products may be governed under regulations designed to serve two key functions: first, to ensure fair business practices and competition; and second, to protect consumers and their health and safety. Companies are responsible for knowing the regulatory climate in which they work and for observing the law. In the United States and developed countries, government regulators typically focus on four areas: Industrial, to promote fair competition among businesses and fairness to consumers Health and Safety, to ensure the quality, safety, and efficacy of products Tobacco and Alcohol, to restrict marketing of such products to young people Consumer Protection, to protect consumers from harmful products and misleading marketing
TECHNOLOGICAL CHANGES Technological advancement moves today at such a dizzying speed it’s nearly impossible to predict the effects it will have and the opportunities it will create. Nevertheless, marketers must stay abreast, and even ahead, of technological changes. Opportunities await companies that can get ahead of trends and spot an opportunity early. In the last decade alone the Internet has affected marketing in a way that no one would have predicted, creating whole new businesses while making others nearly obsolete. And this is just the beginning of such changes.
COMPETITIVE ENVIRONMENT Companies must pay close attention to the competitive climate in which they work. The time and money spent bringing a “new” product to market can be wasted if a competitive product is already available. And whole industries have been supplanted by new ones as consumer preferences changed before the old industries could respond. Know Your Business. A company must know what business it’s in. It sounds simple, Introduction
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but many companies fail to recognize this truth and characterize themselves incorrectly, addressing the wrong customers or sending the wrong messages — until they either figure it out or go out of business. Know Your Competitors. Along with knowing a company’s real business comes knowing the competition. Every market poses challenges such as barriers to entry, the costs of starting up, access to distribution, potential risks, etc., that can make it difficult for a company to enter the marketplace. Consumer Inertia. Consumers themselves may present challenges to companies, just by sticking with their usual buying behavior out of habit. This inertia can be frustrating for a company that makes a better product but can’t get consumers to try it. Unless a company can convince consumers that their company’s product is clearly superior, customers may keep buying their usual brand or product out of loyalty, ignorance, or lack of motivation. Each of these competitive factors is true locally, nationally, and now, globally. Understanding local complexities and intricacies is vital when a company enters a new and unfamiliar market. Demographics, regulatory climate, economic climate, and so on, all will help determine success of failure for the new player.
ETHICAL CONSIDERATIONS Some of the most notorious case studies in marketing come from companies that behaved with intense competitiveness in all these areas, but neglected one vital one: ethics. Unethical actions taken in a climate where consumers, competition, and regulatory agencies are paying attention — and they all are — usually come back to haunt the offending companies. Good ethics are essential in several areas: Market Research. In a technological climate where data is gathered on the Internet, from telephone polls, credit card usage, supermarket scanners, and dozens of other sources, customers are understandably concerned about privacy. Consumer groups demand data-protection laws. Product Strategy. “Planned Obsolescence” used to be a hallmark of American products, and it was one of the doctrines that nearly killed the American car companies in the mid-twentieth century. No product lasts forever, and few should, but companies can’t create products that are planned to break down and hope that the same customer will return for more. Quality matters. Distribution. It sounds unfair, but it’s often true: Stores in impoverished neighborhoods and areas often sell at higher prices than stores in affluent communities, because customers in the poorer places have fewer options. Lack of competition seems a fair reason for charging more, but is that marketing, or is it taking advantage? Promotions. A promotion that makes a promise needs backing from a product or service that keeps the promise. It’s unlikely a company will get repeat business from a customer who feels betrayed. Moreover, that customer is likely to tell friends and family about a bad experience, and bad word-of-mouth can undermine any marketing budget.
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Pricing. Pricing is regulated, but some companies still use deceptive pricing practices, misleading ads, hidden costs, and bait-and-switch promotions, to take advantage of unwary consumers.
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Key Points
1. The external environment consists of five uncontrollable factors. These forces will test your marketing strategies to make sure they are resilient, successful, and sustainable. It is therefore, extremely important to understand these factors and how they can affect your particular market. These factors are: • Competitive Environment • Technological Environment • Governmental and Regulatory Environment • Economic Environment • Sociocultural Environment 2. Understanding the competitive environment is paramount in developing marketing strategy. Understanding competition starts with knowing what business you are in. Then you must understand who your present and potential competitors are. 3. Technology has had a profound effect on marketing. The telephone, television, the personal computer, and the Internet — all have had a tremendous effect on the way people do things. These advances have resulted in the emergence of entirely new industries. It is critical that marketers stay abreast of technological changes because not only do they create entire industries, but they also change the way business is conducted. 4. Government and regulatory agencies have a strong effect on marketing through legislative action and regulatory controls. They enact laws, ensure that fair business practices are in effect, and protect consumers and ensure their health and safety. Marketers need to be aware of these laws and regulatory agencies so they can develop a marketing strategy that encompasses existing or proposed legislation or regulations. 5. Sociocultural forces in the external environment include demographic shifts and cultural changes. Some examples included the differences in the characteristics and buying patterns of different age groups such as Baby Boomers vs Gen Xers. These forces also include cultural issues such as the changing roles of men and women. Marketing strategy must be shaped with these forces in mind. 6. Microeconomic forces (such as income trends and other forces affecting consumer buying power) and macroeconomic trends (such as the state of the economy, interest rates, and inflation) affect consumer spending, which accounts for two-thirds of the U.S. economic activity. Marketers need to develop marketing strategies that account for economic factors. 7. Ethics can be integrated into the marketing process in numerous ways. It is important to observe in which areas of marketing and in which situations unethical behavior occurs most often: • Market Research — Drawing the line between collecting data for more effective marketing and invading privacy. • Product Strategy — Balancing the useful life of the product with the increased revenue from replacements. • Distribution — Weighing the factors of distributing in impoverished areas. • Promotions — Determining when a promotion is “misleading.” • Pricing — Communicating clear pricing claims. • Ecological Issues — Integrating meaningful environmental policies into the marketing mix.
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Case Study
Can a bottle of Rigormortis be the perfect gift for Valentine’s Day? HotHotHot, a Californiabased hot sauce company, is proving that it can. HotHotHot exemplifies how savvy marketers can leverage trends in the marketing environment into a remarkable business success. Raveen and Govind Arora, the father-and-son team behind the HotHotHot name, founded their company in 1983, and in 1994 they took over a retail operation in Pasadena, California. Their business expanded steadily as they took advantage of some key national trends. Demographically, the Hispanic population of the United States was growing. Economically, that population’s spending power was growing as well. Those two developments helped create a new market for spicy food, a trend that exploded as nonHispanics fell in love with cuisine from Mexico, the Caribbean, Spain, and Southeast Asia. HotHotHot was already serving its local market with a broad line of products when, in 1994, it became the first hot sauce maker to take advantage of another growing trend: marketing via the Internet. Today HotHotHot sells Blair’s Sudden Death, Mad Dog Inferno, Bad Girls In Heat, and other dangerously tasty sauces at heat levels from mild to meltdown to buyers throughout the United States and around the world, using credit card ordering via a secure server twenty-four hours a day. Germany, France, and Canada are especially big markets. Switzerland and Denmark have delivered plenty of repeat business. The retail store is long since closed — Marketing Executive Govind Arora says the Web is “65 percent of our marketing strategy, and it’s growing every day.” The company also sells through its network of Hot Partners, individuals whose own websites (now numbering over a thousand) that feature links back to HotHotHot’s home page, where sauces are listed by name, country of origin, ingredients, and firepower. The website does more than sell the company’s products. It helps the Aroras plan new products and improve current ones. They use Web-based questionnaires in addition to traditional means, such as professional tasters and sample booths in food stores, to test new recipes and get customer ideas. Is the sauce too sweet, too salty, too watery? Is the label eye-catching and the bottle attractive? Does the whole product convey an attitude of fun? HotHotHot’s customers (the ones with asbestos tongues are known as “chiliheads”) help monitor quality and point the company in new directions. Now HotHotHot makes sauces flavored with mangos and apricots, salad dressings, seafood and barbecue marinades, cooking seasonings and rubs, and pickles – about seventy items in all. Executive Vice President Raveen Arora reports that, in response to requests for ever-hotter sauces, HotHotHot is developing a line called “Skull and Bones,” which, he says ominously, is “off the scale.” “Quality, price, consistency, and visibility” are the foundations of HotHotHot’s marketing strategy, says Raveen. The Aroras use traditional marketing methods such as seasonal and holiday gift promotions, ads in food magazines and The Wall Street Journal , and distribution to retailers, but the Internet is their doorway to the expanding global market. And to keep winning worldwide, they now must face a new environmental trend: competition. Roughly four hundred large and small companies have followed HotHotHot into the market and onto the Web. The Aroras intend to stay independent and in the lead, a quintessential marketing challenge they’ll win, says Raveen Arora, by “being more Introduction
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versatile, being more aware, and keeping our relationships intact.” So even on Valentine’s Day, they’ll be turning up the heat. DIRECTIONS Answer the question below and send your completed case study to your professor according to his or her directions. What macro-environmental trends have affected HotHotHot’s marketing strategy and how?
Glossary
Competitive Environment
Such factors as barriers to entry, the costs of starting up, access to distribution, etc., which can make it easy for a company to dominate a market and difficult for another company to enter the marketplace.
Consumer Inertia
Habituated consumer buying behavior.
Cultural Environment
The market population as it is right now, and as it is evolving.
Demographics
Descriptions of the population according to selected characteristics such as age, gender, income, and occupation.
Distribution
The placement of goods within a market.
Economic Environment
The state of the national, regional, or local economy, and the level of consumer confidence.
Marketing Environment
The real world, the context in which a business works.
Market Research
Data gathering that educates a company about consumer needs, preferences, motivations, and buying decisions.
Regulatory Agencies
In the United States and developed countries, government agencies typically focus on four areas: • Industrial, to promote fair competition among businesses and fairness to consumers • Health and Safety, to ensure the quality, safety, and efficacy of products • Tobacco and Alcohol, to restrict marketing of such products to young people • Consumer Protection, to protect consumers from harmful products and misleading marketing
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Assignments
Assignment One: Save the Family Fortune Wherever Wal-Mart goes, customers follow. With nearly $100 billion in annual sales and more than 3,600 stores, Wal-Mart is the No.1 retailer in the world. Its powerful and efficient distribution system, customer service, and sales and marketing strategies allow Wal-Mart to offer a vast array of products, from prescription drugs to garden supplies. Customers flock to Wal-Mart because they believe they can get almost everything they want at a highly competitive price. But for many small businesses, Wal-Mart’s arrival in a new town has spelled doom. • Imagine that you own a small retail shop in one of the following industries: hardware, grocery, bakery, sporting goods, clothing, or gardening. The local Chamber of Commerce has just announced that construction will begin on a new Wal-Mart across the street from your business, placing you in direct competition with the discounters. You must develop strategies to compete profitably. Since Wal-Mart has the resources to meet or beat any price you set, cutting prices is not a legitimate option. • Send your answers to the following questions to your instructor, according to his or her instructions. What marketing strategies can your small business use to compete against Wal-Mart? How can you add value to your offerings? What things can you do well that will be difficult for a large retailer to copy successfully?
Assignment Two: Environmental Trends The marketing environment is ever-changing, and therefore marketers must continually adjust their marketing strategies. • You, as the marketer, have the burden of responding to the outside world. You must take all external factors into consideration to avoid being a cork on the ocean. If you don’t want to be bounced around, it’s very important to have thought through the manner in which you are going to address and respond to the evolving marketing environment. For instance, in response to changing customer tastes and the increasing ethnic diversity of Americans, Campbell’s altered the recipe for its nacho cheese sauce. The company made a spicier version to appeal to tastes of the West and Southwest, and a milder version for the less spicy tastes of Midwesterners. • Find a product or product line that was developed in response to a shift in one of the environmental factors. • Send your paper addressing the following items to your instructor, according to his or her directions. Describe the product or product line that was adapted owing to a shift in one or more environmental trends. Explain how the shift in environmental factors specifically affected the marketing of this product and how. Describe how other environmental trends could possibly affect the marketing of this product in the future. Introduction
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Lesson Three
Consumer and Organizational Buying Behavior Researching, Understanding, and Analyzing the Customer
Marketing begins with the customer, so understanding the motivations and influences behind buyer behavior is crucial. Lesson Three examines customer-oriented marketing, outlining the steps in the purchase decision process, then discussing the types of purchases, the social and cultural influences on consumer behavior, and the dynamics of the Decision Making Unit. It then explores the similarities and differences between consumer and organizational buying behavior across the globe, ending with a discussion on the research methods marketers use in order to better understand their customers’ wants and needs. The case studies include how Left Bank, a market research firm specializing in the music industry, gathers its quantitative and qualitative data; the importance of talking directly to one’s customers; the challenges of organizational buying; and the purchasing dynamics of a family.
Expected Learning Outcomes
By the end this lesson, the students should be able to: • State methods of qualitative and quantitative market research. • Describe the major factors influencing buyer behavior. • State the steps involved in consumer buying decisions and arrange them in order. • Describe how organizational buying behavior differs from consumer buying behavior. • Compare the differences in buying behavior across the globe.
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Completing Lesson Three
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In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Three in the Student Guide .
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2. Read the text assignment for Lesson Three, as indicated in the syllabus. 3. Watch the video program for Lesson Three (Consumer & Organizational Buying Behavior: Researching, Understanding & Analyzing the Customer). Use the Lesson Three outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Three. • The key points for Lesson Three. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, complete the online exercises for Lesson Three and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least Three times a week. 6. Take the quiz for Lesson Three if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Three Outline
I. OVERVIEW II. CONSUMER BUYING BEHAVIOR A. To be a successful marketer, you must understand what motivates consumers to buy products. B. The Purchase-Decision Process 1. Depending on the type of purchase being made, the consumer might intensely engage in each step, or only mildly engage in some of the steps a. Problem Recognition b. Information Search c. Evaluation of Alternatives d. Purchase Decision e. Post-Purchase Behavior • Cognitive Dissonance – The feeling of post-purchase psychological tension a consumer often experiences C. Types of Purchases 1. Impulse 2. Planned 3. Emergencies D. Marketer’s Role in the Decision-Making Process E. Sociocultural Influences on the Decision-Making Process 1. Personal Influence a. Word of Mouth b. Opinion Leaders 2. Reference Groups 3. Family a. Children are socialized as consumers by their families b. A family’s purchases rely significantly on what stage of the family life cycle they are in F. Decision-Making Unit All of the individuals who are involved in making or influencing the buying decision III. ORGANIZATIONAL BUYING BEHAVIOR A. Organizational buying behavior differs from consumer buying behavior. Organizational buying behavior: 1. involves higher dollar amount 2. deals with a smaller number of buyers 3. places more emphasis on a. delivery b. financing c. post-sales service d. quantity discounts often offered 4. involves more complex buying behavior
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B. How Organizational and Consumer Buying Behavior Are Similar: 1. Routine Purchases 2. Issues of Rationality 3. Purchase Risk
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IV. GLOBAL ISSUES
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A. Organizational buying behavior is less culture bound than individual buying behavior B. The fundamentals of consumer psychology and consumer buying behavior are similar worldwide. However, individual buying behavior will be affected to a certain extent by the following: 1. the manner in which negotiations are conducted and decisions are made 2. local culture 3. local climate 4. local customs V. MARKET RESEARCH A. Market research must be conducted because only by truly understanding consumer wants, needs, and motivations can marketers create products that respond to those needs. B. Caveats of Market Research 1. The data that comes out of market research is only as good as the questions that are being asked 2. Sometimes the data doesn’t provide you with a deep understanding of your customer C. Kinds of Market Research 1. Qualitative a. Open-ended responses, not yes or no answers – “soft” data b. Often involves focus groups 2. Quantitative a. structured research that can be presented in numerical format – “hard data” VI. SUMMARY
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Program Summary
Introduction to Marketing: Competing in the 21st Century
Lesson Three
Consumer and Organizational Buying Behavior Researching, Understanding and Analyzing the Customer Why do people buy what they do? Why do they choose one product from among the many beside it on the supermarket shelf, or select one service out of a dozen similar services? Marketers always ask these questions, because the answers tell them how to sell their product — if the answers are available and interpreted correctly. Consumer choices are as full of quirks and habits as animal behavior in the wild. Understanding them will never be an exact science, but there are tools and methods to help marketers try. In Lesson Three, Professor Quelch looks at the buying behavior of individual consumers and of organizations. They differ widely, but they also share certain patterns. From there, he discusses some of the new challenges now being faced by marketers in the global economy. Finally, he asks, how do we obtain information to help us understand differences in purchasing behavior? The answer is market research.
CONSUMER BUYING BEHAVIOR A marketer must be passionate about knowing the consumer’s needs and desires. Understanding why someone wants or needs a product or service clarifies the way a marketer reaches out to the customer. Some marketing messages strike home so effectively, they help create a feeling of loyalty that binds the customer to the company for a lifetime. Great marketers have what almost seems a sixth sense for consumer behavior. They’re deeply intrigued by it. They never group their customers into homogenous (and misleading) collections. Instead, they recognize that buyers are real people who behave differently in different situations. The differences among customers fascinate marketers, and for the best ones, these differences always create new opportunities. Such attentive marketers are customer oriented. They ask questions. They visit customers at work and at home, in the real settings where the products are used. They seek feedback on everything from packaging to personalities so that they can continually adjust their products and messages, not just for one sale, but for continued repeat purchases and long-term customer satisfaction.
The Purchase-Decision Process All great marketers know how to think like a consumer, how to put themselves into the consumer’s purchase-decision process. The purchase-decision process can be elaborate or simple. Depending on the type of purchase being made, the consumer might engage intensely in each step, or engage only mildly in some of the steps. Problem Recognition. The first step in the consumer’s purchase decision process is simple: The consumer recognizes a need. There’s a difference between the way things are and they way the consumer wants them, and that difference can be addressed by a purchase. The consumer wants a sandwich and needs bread, the consumer’s watch breaks and he or she needs a replacement, and so on, in countless variations. Every purchase 42
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begins with recognizing a need. The consumer may recognize it on his own, or a company may use marketing to stimulate the recognition consumers haven’t yet realized. Information Search. Once the need is recognized, consumers look for ways to fulfill it, and they look internally and externally for information on how. Internally they check their memories: What did I buy last time? Where did I buy it? Was I satisfied or should I try an alternative? For simple purchases, this may be all the information they need. For more complicated products, an external search is necessary. What’s the best model car this year within a certain price range, as rated by Consumer Reports? Do any of my co-workers drive a car they’d recommend to me? What do the car companies say about their products? Information media, personal sources, and marketer sources all can offer helpful input for making an important buying decision. Evaluation of Alternatives. Once the information is gathered, consumers weigh the alternatives. Marketers call these alternatives the “evoked set.” For consumers looking at cars, the evoked set might be the half-dozen models that fit the desired parameters such as price range or model. The evoked set is then narrowed by specific criteria such as gas mileage, seating capacity, engine performance, style and prestige, long-term service, and how well the specific dealer treated them. Purchase Decision. After evaluating the alternatives, making the comparisons and tradeoffs that narrow the field, the consumer decides on one product. Now the questions are, from whom to buy, and when? Companies and consumers both recognize that the sale doesn’t end with the purchase. Customers often secondguess themselves, especially after a big purchase such as a car or an appliance. The feeling of tension a consumer may experience is called cognitive dissonance, and it’s important for a marketer to alleviate it and reassure the customer that the purchase was a good one. Follow-up calls, feedback forms, and an ongoing relationship are ways marketers stay close to customers after big purchasing decisions. Effective marketers recognize that a satisfied customer will make repeat purchases and spread favorable word-of-mouth that will bring in other customers. Are all purchases this involved? No, because, obviously, not all products are alike. However, some buying decisions are major in a personal, social, and economic sense, or all three. The more this is true, the more a consumer is likely to be deeply involved in all these stages. If a purchase is minor, chances are some of the steps will be shortened or skipped.
Types of Purchases Marketers classify purchases into three types: Impulse purchases are spur-of-the-moment decisions: buying something that’s not on the shopping list. Planned purchases tend to be bigger and more complicated. A house, a car, any major investments that require careful thinking and research. Emergencies are unplanned: the water heater breaks, a computer hard drive collapses, the car’s transmission makes noises it shouldn’t. The events aren’t planned, but having the cash to pay for them should be.
Sociocultural Influences on the Decision-Making Process What’s the marketer’s role in all of this? How and when does an effective marketer try to Introduction
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influence these decisions? By understanding the many factors that influence the process. Some influences are sociocultural: the influence of one’s own groups, family, role models, leaders, etc. Personal influences include Word of Mouth from trusted and valued personal associations, and Opinion Leaders, whom one may not know personally but whom one believes and trusts. Opinion Leaders may be athletes and celebrities, or trusted experts and institutions such as doctors or consumer organizations. Reference groups are people to whom consumers look for information on something specific. A voter who feels strongly about a certain issue, gun control for example, might want to know where the National Rifle Association stands on a certain candidate in an upcoming election. The consumer’s family is another obvious source of influence, and perhaps the most important one. The family is a consumer’s first source of education on developing preferences and trust in products and companies. Children are socialized as consumers by their families. They develop brand preferences as early as age two based on what they see and use in the household. And a family’s purchases rely significantly on the stage of the family life cycle it is in. Marketers aim messages at consumers based in part on this: messages about prescription drugs and vacation packages to older couples; messages about toys and furniture to young couples with children; messages about clothes and entertainment to singles, and so on.
The Decision-Making Unit The number and influence of decision-makers vary from one family to another. Also, influences from outside the family may come to bear on the process. The total is called the DecisionMaking Unit, or DMU — all of the individuals involved in making or influencing the buying decision. It’s important for marketers to know who makes up a Decision-Making Unit, and what roles they play for consumers. Do they start the buying process? Do they provide research or information? Do they have good or bad things to say about a product or company? How do they help finalize the decision? Here’s an example: Volvo emphasizes safety over other common car features such as style, luxury, or price. In the Decision-Making Unit, it’s likely to be women who place safety above the other considerations. Not surprisingly, Volvo targets women with their messages about safety, knowing that in many Decision-Making Units, a woman’s influence is the key.
ORGANIZATIONAL BUYING BEHAVIOR Organizations don’t purchase the same ways individuals do, and their reasons for buying often are very different. Organizational transactions, also called business-to-business or industrial marketing purchases, generally involve a smaller number of buyers, a higher dollar amount, and more complex buying behavior than individual consumer purchases. Smaller Number of Buyers. A company that makes nylon stockings for retail sale may have more customers than it can keep track of. A company that makes specialized permeable nylon fabrics for medical application is likely to know all its customers in the medical supply business. That company won’t need the mass-marketing methods that consumer-oriented companies use. They’ll target their market with different media and sales messages in different ways. Higher Dollar Amount. Consumers usually buy what they need in small amounts. Businesses buy in quantity: office supplies, equipment, consulting services; big 44
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amounts for big outlays of funds. This changes the character of the vendorcustomer relationship. Typically, it’s closer than the relationship between businesses and individual consumers. It’s more like a partnership, with close mutual interdependency, and heavy emphasis on on-time delivery, financing, and post-sale service. Incentives such as bulk discounts may be offered. Custom-designed products and services are common between businesses. And the level of post-sales service is high, to help ensure long-term repeat business and mutual satisfaction. More Complex Buying Behavior. A company buying a very expensive, very specialized product or service will often spend great effort planning its purchase, deciding as precisely as possible what it needs. Its Problem Recognition stage is generally more complex than that of a consumer, involving a group of qualified managers, experts, and users. Next, the company will send its specific requirements out to selected vendors with a call for bids. The company’s price range will likely be kept secret. When the vendor proposals come back, each vendor’s proposed price is factored in to the total. However, for less important purchases, the decision may be very simple. Routine repurchases might be simply a matter of scheduling: a regular pickup by Federal Express or a regular delivery of paper by an office supply company, each made without reopening the decisionmaking process. Such decisions might be reviewed annually, but no company reviews such decisions for the sake it of every time it needs something. It’s often said that companies generally make buying decisions more rationally than individual consumers do. Companies employ whole fields of specialists, purchasing managers, and acquisitions experts, so that buying decisions are made with the optimal balance of price and benefit. Still, people are people, and it’s important for marketers not to patronize or to let their own prejudices about what to buy influence their judgment about whether someone is buying in an emotional (and therefore unreasonable) fashion.
Similarity of Business and Consumer Buying Behavior Despite the differences in making buying decisions, individuals and organizations do have some key considerations in common. One of the most interesting is their common aversion to risk. Whether it’s a company or an individual, no buyer wants a product he or she isn’t sure will be satisfying. In cases where the outcome is risky, both will do extra work in searching for information and evaluating alternatives, and both will minimize risk by purchasing from vendors they know and trust. How can marketers minimize this perceived risk? For both individuals and companies, free samples, reliable warranties, money-back guarantees, seals of approval from consumer organizations, and endorsements from opinion leaders all can prove valuable.
GLOBAL ISSUES In the global marketplace, marketers must be keenly aware of local cultures and preferences as they impact individual buying behavior. But organizational buying behavior is less culture-bound than that of individuals in the global market. Business practices and decision-making criteria tend to be relatively standardized even across national boundaries. However — and this is crucial for marketers to know — there may be significant cultural differences in the way negotiations are conducted and decisions are made. Assuming that business is conducted the same way in Japan or Chile as it is in the United States has been the downfall of many major U. S. companies that sought overseas business without a deep understanding of the cultural nuances of their potential market. Local climate, culture, and customs are just three of the many factors that influence buying Introduction
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decisions around the world. They can all offer special challenges to marketers. Consider for example the different cuisines worldwide, not just between countries, but between regions within them. Companies that try to sell a standard food product in every market will witness very different sales results and feedback from customers. Something else to consider is the makeup of the Decision-Making Unit. In many countries, men make all the important buying decisions, and women have relatively little influence. Local economies, seasonal changes, holidays and giftgiving customs, all will affect a marketer’s approach.
MARKET RESEARCH Despite all the differences, there are some fundamentals of consumer psychology and buying behavior that are more or less standard worldwide. People will always have certain needs and seek certain benefits. Decision-Making Units may vary from culture to culture, but each culture has its version of the family. The best way for marketers to understand their customers is by doing thorough market research. Only by truly understanding the consumer’s wants, needs, and motivations can a company create products that respond to those needs. Marketers, be warned: Market research can do more to throw a company off track than help it, if it’s not done well. Market research data is only as good as the questions being asked, and sometimes the data fails to provide a deep understanding of the customer. Statistics and analyses may do more to obscure an opportunity than they do to reveal it. It’s important for marketers to get out into the field, see the customers, watch their behaviors, ask them questions, and hear their comments. Inspiration comes more often from hard work in the field than it does from reports in the corporate headquarters. There are two kinds of market research: Qualitative. Qualitative market research is “soft” — it comes from open-ended discussions that yield opinions, attitudes, and emotional responses rather than yes or no answers. A common way to gather qualitative market research data is through focus groups, small gatherings of six to eight selected consumers moderated by a skilled leader (usually not a company employee). Focus groups sit and talk for ninety minutes to two hours and explore issues about a company in depth. They’re a good way for marketers to learn to think as the customer thinks, and to hear exactly how consumers express their interests or opinions about what they like, want, dislike, and don’t want. The problem with focus groups is that they’re too small. Obviously, eight people don’t represent an entire market, so companies can’t extrapolate off the group and say, 50 percent of the focus group likes this feature, so 50 percent of the market will like it. Quantitative. Quantitative market research is structured research that can be presented in numerical format — “hard data.” Quantitative research complements qualitative research by dealing with much larger groups, and it renders their feedback into percentages, averages, and other statistics that can be readily compared and measured. Neither quantitative nor qualitative research has all the answers, and combining the two can still be misleading. Market research is a tripod with three legs. To stand, it needs that third leg: personal experience and insight on the part of a good marketer. Some vital questions don’t get asked in focus groups, and some things can’t be measured statistically. A good marketer makes the tripod stand by adding his or her own intuitions and questions, based on — and this takes us back to the beginning — that passionate interest in consumer behavior. Good marketing takes the courage of a marketer’s convictions. Sometimes the best products get created after everyone has already confirmed they’d fail. 46
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Key Points
1. Marketers must invest time in understanding the customer through market research. 2. There are two ways research can be categorized, quantitative and qualitative. • Qualitative refers to “soft” data gathering of consumer’s opinions, attitudes, and emotional responses seeking in-depth, open-ended responses, not yes or no answers. Some examples of qualitative data collection methods are: • Focus Groups • Open-ended Questionnaires or Interviews • Observation • Quantitative data gathering seeks structured responses that can be summarize in numbers, averages, or other statistics. Some examples of quantitative research are: • Surveys or interviews with definitive answers such as yes, no, or maybe in which the answers can be tallied and quantified • Surveys or interviews with numeric answers • Analysis of existing data such as past financial performance and quantifiable buyer preferences 3. The type of purchase plays a strong role in how a consumer buys. Consider the difference in buying the following: • Impulse Purchase • Planned Purchase • Emergency Purchase 4. Sociocultural factors are key influences in consumer behavior. • Personal Influences • Word of Mouth • Opinion Leaders • Reference Group Influences • Family 5. The role of each player in the decision-making unit is key information to a marketer. The marketer needs to understand who is typically involved in the decision-making process and attempt to communicate to each player. 6. A marketer must understand the purchase decision process and how it applies to his or her product. The marketer must then consider how he or she can intervene in this process to ensure his or her product is among the set of options considered. The five steps of the purchase decision process are as follows. • • • • •
Problem Recognition Information Search Evaluation of Alternatives Purchase Decision Post Purchase Behavior Introduction
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7. Organizational buying behavior differs from consumer buying behavior in the following ways: • Smaller number of buyers • Sales involve higher dollar amounts • More complex buying behavior 8. In organizational buying, global buying behavior differs in the manner in which negotiations are conducted and in the way decisions are made. However, organizational buying behavior is less culture-bound than individual buying behavior since business practices and decision-making criteria are pretty standardized across national boundaries. 9. Consumer global buying behavior differs depending on local culture, climate, and customs.
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Glossary
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Cognitive Dissonance
The feeling of tension a consumer may experience after a purchase.
Decision-Making Unit
All of the individuals involved in making or influencing the buying decision.
Emergencies
Unplanned but necessary purchases.
Focus Groups
Small consumer gatherings convened by marketers to explore issues about a company in depth.
Impulse Purchases
Spur-of-the-moment decisions: buying something that’s not on the shopping list.
Organizational Transactions
Business-to-business or industrial marketing purchases, generally involve a smaller number of buyers, a higher dollar amount, and more complex buying behavior than individual consumer purchases.
Planned Purchases
Larger, possibly complicated purchases such as a house, a car, any major investments that require careful thinking and research.
Purchase-Decision Process
Problem Recognition > Information Search > Evaluation of Alternatives > Purchase Decision > Post-Purchase Behavior
Qualitative Market Research
Research designed to yield “soft” or anecdotal data such as opinions, attitudes, and emotional responses, instead of yes or no answers.
Quantitative Market Research
Structured research dealing with large consumer groups that can be presented in numerical format — “hard data.”
Reference Groups
People to whom consumers look for information on something specific.
Sociocultural Influences
The influence of one’s own groups, family, role models, leaders, etc., on a consumer’s buying decisions.
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Assignments
Assignment One: The Buying-Decision Process What kind of buyer are you? How do you make your purchase decisions? When it comes to buying a large ticket item, do you research it thoroughly? Do you ask the opinions of your family and friends? Are you influenced by advertising? Understanding the consumer is essential to being an effective marketer. An important part of this understanding is knowing the steps people go through when they make their buying decisions. And what better place to start than with your own buying behavior? Consider your decision to enroll in this class – a high purchase item. Address the following: • • • • • • • • • • • •
Problem recognition Information search Evaluations of alternatives Purchase decision Post-purchase behavior Which steps did you go through when deciding to purchase this item? Where did you obtain information about this item? Who and what influenced your purchase decision? What were your alternatives? How did you evaluate your alternatives? Which step or steps did you focus on the most? The least? How did you decide where to buy the product? What kind of post-purchase behavior did you exhibit?
Next, think of a low purchase item you’ve recently bought. Address the items listed above. • What have you learned about yourself as a consumer? When you’ve completed the assignment, send your one-page paper to your instructor, according to his or her instructions.
Assignment Two: Marketers and Privacy In the course of doing business, banks acquire a consumer’s name, social security number, address, phone number, details of credit card purchases, and bank account balances. You may consider such data private and confidential, but many banks don’t. They have begun selling the information to third-party marketers eager to pay for it. Store club cards, touted to give members added benefits, are a new way of compiling mailing lists and buyer profiles, which the store may use for its own purposes or sell to other marketers. Gathering information and doing research is an important part of marketing. New technologies make it even easier to do. Many marketers say that this practice is necessary and allows them to target their specific market more effectively, claiming that it benefits the consumer. But others claim that it is an invasion of privacy. Consider the following: • Do you think marketers are obliged to tell you when personal information about you is being gathered? • Do you think they should tell you how it is being used and to whom it is being sold? Why or why not? 50
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• Gathering data for marketing purposes is necessary, but at what point does it become an invasion of privacy? • How far should marketers go to get their market research? How far would you go? • How does this proliferation of data benefit you as a consumer?
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• Go back and answer these same questions from a businessperson’s point of view. How are your responses different than when answered from a consumer’s point of view? Submit your responses to the questions raised by this dilemma to your instructor, according to his or her instructions.
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Lesson Four
Market Segmentation, Targeting, and Positioning Developing a Focus
It isn’t necessary to convince the whole world to buy your product, but it is necessary for marketers to focus their marketing resources on the people who are most likely to buy it. Lesson Four discusses the various segmentation criteria marketers use, examines the mistakes that marketers can make, then outlines the steps involved in the segmentation process. It then discusses how marketers target specific segments of the market and ends with an analysis of positioning. The case studies include how Toyota developed a new line of cars targeted at Generation X, an ad agency whose offerings are targeted at the emerging Hispanic market, and the psychographic segmentation strategies behind the Absolut Vodka campaign.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Explain the role of segmentation and targeting in the marketplace. • Describe the major approaches to segmenting consumer markets. • Evaluate different strategies for reaching target markets. • Explain the concept of positioning and why it is useful. • State positioning strategies that can strengthen competitive advantage.
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Completing Lesson Four
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In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Four in the Student Guide.
F o u r
2. Read the text assignment for Lesson Four, as indicated in the syllabus. 3. Watch the video program for Lesson Four (Market Segmentation, Targeting & Positioning: Developing a Focus). Use the Lesson Four outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide, read: • The program summary for Lesson Four. • The key points for Lesson Four. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, complete the online exercises for Lesson Four and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least Four times a week. 6. Take the quiz for Lesson Four, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Four Outline
I. OVERVIEW II. MARKET SEGMENTATION A. Market Segment Defined Consumers can be separated into different groups, known as “market segments.” These segments represent a fairly homogeneous group of customers who will respond to a marketing mix in a similar fashion. B. The Segmentation Spectrum 1. Mass Marketing At one end of the spectrum is mass marketing, where the entire market is seen as one segment; all consumers are viewed as being alike. 2. Segment of One At the other end of the spectrum is a “segment of one,” where products are custom tailored for each individual. 3. Segmentation Segmented marketing lies between these two extremes. For instance, airlines cater not only to the business traveler segment, but also to the pleasure traveler segment. 4. Mass Customization Mass customization is a way in which a company can customize its products to suit particular segments, economically, at a price point that consumers will buy. This allows them to enjoy the benefits of the economies of scale in their production process, but with the ability to tailor their product to different segments of the market. C. Segmentation Strategies 1. Demographic a. Gender b. Age c. Ethnicity d. Family Life Cycle 2. Geographic 3. Usage Patterns 4. Psychographic 5. Benefits Valued D. The Art of Segmentation E. Segmentation Pitfalls 1. Segmentation by Product, Not Customer 2. Segmentation by Demographics 3. Targeting the Largest Segment 4. Failing to Identify Emerging Segments F. Steps of Segmentation 1. Start With the Customer 2. Develop Segmentation Structure 3. Differentiate Your Product
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III. TARGETING YOUR MARKET
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A. After determining how to segment a particular market, the next step is to determine which segments of the market you want to target. B. Determining Your Target Segment 1. Determine Market Potential of Segment a. Sizable Segment b. Easily Identifiable c. Accessible d. Sustainable e. Loyal 2. Determine Probable Market Share Within That Segment 3. Determine Economic Factors
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IV. POSITIONING A. Positioning Defined 1. The unique place a product occupies in the mind of the consumer, with regard to important attributes, as compared to other similar products; how customers think about brands in a market. 2. Positioning = Segmentation + Differentiation B. Positioning With Clarity 1. Specify Your Target Market 2. State How Your Product Is Superior 3. State the Evidence of Your Superiority C. Six Approaches to Positioning 1. Benefits 2. Price 3. Usage and Application 4. Particular User Group 5. Product Class 6. Competitive Comparison Advertising V. SUMMARY
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Program Summary
Introduction to Marketing: Competing in the 21st Century
Lesson 4
Marketing Segmentation, Targeting, and Positioning Developing a Focus It may seem like common sense to pursue the biggest possible market for a product or service — but often it makes better sense for a company to focus its efforts, and seek to win and keep a core group of loyal customers that will help it stay profitable. In Lesson Four, Professor Quelch explains how companies can succeed by narrowing their target and developing a focus: selecting a specific segment of the marketplace and aiming to satisfy the specific needs and desires of that group. This lesson describes the idea of market segmentation, the method marketers use to divide prospective customers into groups of people with similar characteristics, attitudes, and needs. He discusses target marketing, the ways marketers single out and focus on the customers they want to pursue. And he defines positioning, the strategies marketers use to set their brands apart from other similar products.
MARKET SEGMENTATION Market segmentation is the process of taking a unit, a mass market, and separating the segments according to the qualities that make them unique. Each segment is part of the larger whole, but each one has characteristics that make it different from the rest. Every segment is characterized by two characteristics: • The people in the segment have common needs and desires. • The people in the segment will respond to a particular marketing program in a similar fashion. Professor Quelch calls the marketplace a “spectrum.” At one end, he says, is the mass market. At the other is the “segment of one,” meaning the individual customer. The marketer’s challenge is to find that spot on the spectrum where the best success can be achieved. Mass Marketing. Sometimes the best approach is to treat the market as a single massive unit, assuming no divisions that would make people buy one product as opposed to another. If a company sells commodities, such as grain by the ton, this makes sense. Segment of One. At the other end of the spectrum are unique, very expensive products from buildings to airports to couture clothes. These are one-of-a-kind items, custom-designed for the buyer to unique specifications. Mass Customization is a way for a company to serve a mass market with customized products at prices buyers will pay. For instance, Whirlpool and other manufacturers can make a basic machine and give the customer choices on specific features, add-ons, and extras in order for them to have exactly what they need. Of course, not every product made this way is completely unique. A 56
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customer’s choices must be limited within reason, and the motors, casings, monitors, etc., may be more or less alike. The cost of making completely unique custom-made dishwashers would be so high that no one would buy. But mass customization strikes a successful balance between generic and one-of-a-kind. Segmented Marketing aims between mass customization and segment of one. This entails researching, selecting, reaching to, and satisfying a specific part of the mass market, based on careful planning and a company’s certain understanding of the business it’s in. Sometimes companies pursue several segments with different products or messages, but for segmentation to work, there’s no room for confusion — the targeting and selection process must be accurate. Why Segment the Market? Segmenting the market is challenging and complicated — why bother? Because buyers aren’t all alike any more than products are. And if a company is small, it needs to find that place in the market where it can compete against the established companies. Segmenting helps them find that spot where they can break through — where they can effectively find and serve a group of customers big enough to keep the company profitable.
Segmentation Strategies Segmenting the market isn’t arbitrary. There are many specific ways to separate segments within the mass. Demographic. Demographic segmenting separates the market into categories: age groups, gender groups, ethnic groups, occupations, educational levels, to name just a few. Obviously some products are suited for some groups and not others. Knowing the market means targeting products and marketing messages effectively toward the group most likely to need and want the product. • Gender — Countless products aim for men, and countless more for women. These lessons have mentioned Volvo and Saturn as companies that do extensive marketing toward women based on the knowledge that over half the car purchases made in the U.S. are made by women, and women want messages and car features that are different from the ones men want. • Age — Tastes change as a person ages, and a certain age group can often be characterized by the products it buys. The Baby Boomers have needs and wants different from those of the Gen Xers who came after them. • Ethnic Groups — Different ethnic groups want different products, or different versions of the same product, and different messages. Gillette, for instance, alters its messages for various ethnic groups about shaving products to reflect the fact that the physical characteristics of beards vary among the races. • Family Life Cycle — Families and individuals have different buying styles. Families buy in bulk to save time and money. Individuals may spend more on convenience foods and single portion meals. A family is more likely to get a station wagon or a minivan as its primary car than a convertible, which would appeal to a single Gen Xer. Geographic. Segmenting on the basis of geography is very common among marketers. It’s just common sense, for example, that convertibles would sell better in warm places such as California and Florida than they would in Minnesota and Maine. It’s Introduction
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probably more surprising — and it takes research to find out facts like this — that regional tastes can make or break a product. Campbell’s Soup made a nacho cheese sauce and tried to mass-market it to the whole Uniteds States. In the Northeast, customers found it too spicy. In the Southwest, they found it too mild. Campbell’s listened, and now they sell two different recipes, one for each region. Usage Patterns. How much, how often, or how a customer uses a product is called a usage pattern. The banking industry designs products and sets fees according to three general usage patterns. A low-usage customer wants only a checking account and an ATM card. Medium-usage customers may have several investment accounts, checking, and savings with that bank, and they require more service and more effort on the bank’s part. The bank’s profit from them is higher, however, so they pursue such customers. A high-usage customer might be a local business that keeps its deposits with that bank, has loans, makes foreign exchange transfers, and uses other high-end services. These customers can be the most work of all to serve, but again, the profit on their business is high, and the bank wants more of them. These high-usage customers help provide revenues that enable the bank to serve the low-margin, low-usage customers and thus serve the whole community. Psychographics. Segmentation by values, attitudes, and lifestyle is another useful way to segment a market. Companies do exhaustive research identifying mixes of products and services for lifestyles that individuals live or want to live, and then they associate their product with that lifestyle’s attitudes and values. Soft drinks, for example, often aim for young markets by showing television commercials and print ads featuring extreme sports and young people drinking the product, thereby linking them in the audience’s mind. Benefits Valued. Knowing what benefits a market segment values is an important way to sell to them. In the case of cars, for example — do they put safety over styling? Long-term value over price? How do they feel about gas mileage, or about the prestige of the brand name?
The Art of Segmentation Segmentation is something of an art, combining a scientific approach to gathering facts with an intuitive feeling for how the customer thinks and acts. A good marketer has to be careful about using too many facts. It’s possible to segment a market any number of ways, but overusing the facts invites “analysis paralysis” and may just create confusion. The art of marketing is to understand which two or three driving forces best segment the market, and then to carve out a niche in the marketplace that is unique and offers a strong competitive position.
Segmentation Pitfalls There are plenty of ways to misunderstand the process of segmentation and to end up making a serious mistake. Segmentation by Product, Not Customer. The first way to fail is to think that a segment describes a group of products instead of a group of people. The American car companies almost drove themselves out of business by offering fleets of cars divided into compacts, subcompacts, mid-sizes, etc., without asking any people if they actually wanted cars like that. This take-it-or-leave-it marketing worked until someone else — the Japanese car companies — offered alternatives based on consumers’ wants and needs. It took years for Detroit to figure out the problem and address the real desires of the American car buyer. 58
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Segmentation by Demographics. The sheer volume of available demographic data often invites companies to spend too little time researching their customers. Who is buying the product is often easy to learn, but why they’re buying it is a whole different issue, and demographic data won’t answer the question. Targeting the Largest Segment. The largest segment of the market is a tempting prize for any company, but if that market is already being served by half a dozen competitors, it’s often impossible to reach it. The better opportunity might lie in finding one specific niche of customers who don’t want to be treated as part of the mass. Consumers don’t have a lot of choice when it comes to buying laundry detergents, for example. Most companies go after the heavy users, the large households with lots of dirty clothes. But single-person households have to wash clothes too, and the light to moderate users might represent an opportunity for the company that markets detergent just for them. Failing to Identify Emerging Segments. Knowing today’s markets doesn’t mean you know tomorrow’s. The world is changing very rapidly, and new markets are emerging to offer new opportunities to marketers. The Hispanic market, for example, has new and unprecedented buying power in the United States. Smart companies have taken notice and geared marketing messages specifically toward them.
Steps of Segmentation Good marketers keep three rules in mind when formulating a plan for market segmentation. Start With the Customer. It sounds obvious, but it’s forgotten routinely even by experienced companies. Know the customer. Determining segments before the customer is understood leads to mistakes. Develop Segmentation Structure. Create a segmentation plan that really captures the diversity of the market, but isn’t too complicated to change quickly if better information emerges. Differentiate the Product. There’s no point in copycatting ten other products already on the shelves. Make sure the customer understands the differences between those other ones and a new one.
TARGETING THE MARKET Determine Market Potential of Segment. After deciding how to segment a market, step two is to determine which particular segments to target. There are several criteria for deciding. • Sizable Segment — Is the segment big enough to sustain profits? • Easily Identifiable — Can the segment be readily identified? • Accessible — Can the segment be reached with products and marketing messages? • Sustainable — Will the segment be there tomorrow, next week, next year, and still willing to purchase your product? • Loyal — Can the people in the segment be counted on for loyalty and repeat business? Introduction
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Determine Probable Market Share Within That Segment. Is this segment already being served by established, entrenched companies with similar products? Are the customers in this segment loyal to a certain brand or product? How difficult is it going to be to enter this marketplace, and how much success can really be expected? The ideal segment to target includes people who will see a high level of differentiation or value in buying the new product. They should feel a low level of risk in making the change, and their need for additional information about the new product should be minimal. Determine Economic Factors. Competing is tough and costly. It’s important for a company to find a market segment in which it can communicate its messages and sell its products with the highest possible return. Getting the best profit-per-dollar might mean avoiding the biggest market segment and zeroing in on a smaller, more specific one that wants the new product. This is niche marketing: focusing on a very specific segment and developing products and messages that appeal to it.
POSITIONING Positioning is the unique place a product occupies in the mind of the consumer, with regard to important attributes, as compared to other similar products. It’s how customers think about brands in a market. There’s a simple formula for it: P = S + D: Positioning = Segmentation + Differentiation. To develop a position in a market, the marketer must first come up with a product that’s superior — and perceived to be superior — based on the benefits which that particular target segment values as being especially important. Second, the marketer must gather data and listen to prospective customers to learn how they feel about existing products in the market. And third, the marketer must decide how the proposed new product would be perceived, and how effectively it would compete, against the existing products. The goal is to find a segment where the new product would be embraced for superiority in the values the segment holds most important: the “jugular benefits,” the features or benefits that address the values the segment wants above all others.
Positioning With Clarity How does a marketer position with clarity? By using these three steps: Specify the Target Market Segment. State How the Product Is Superior. That is, make a definite claim, explaining what features of this product are better than those already on the shelves. State the Evidence of the Superiority. Say why it’s better. Give customers as much information as they need, and convince them that there are sound reasons, not just claims, for this product’s superiority. Positioning is essential, and if a company doesn’t do it, the competition will position it and its products as second-rate. A marketing program must always keep positioning at the top of its mission. There are many possible positions to take, and each is a powerful argument to the customer about why a product is better than its competition. Here are Six Approaches to Positioning: Benefits. Superior performance, durability, quality of ingredients, etc. 60
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Price. A bargain, the best “bang for the buck.”
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Usage and Application. Best reliability in real-world situations. Particular User Group. Best appeal to the values of a target market segment. Product Class. The gold standard of its product class: a Xerox machine, a Kleenex tissue, in which the name is synonymous with the product itself.
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Competitive Comparison Advertising. Head-to-head competition based on features, benefits, and/or price.
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Key Points
1. Market segmentation means dividing up the market into groups of customers with similar characteristics, attitudes, and needs who are more likely to respond to a tailored marketing program adapted to their unique characteristics. 2. Targeting refers to choosing the segment or segments of customers the marketer wants to pursue. 3. There are five typical segmentation approaches in the consumer markets. These approaches can be combined to achieve a more defined market: • Geographic — Segmenting by location. • Demographic — Segmenting by such characteristics as age, gender, ethnicity, income, education level, or family life cycle. • Usage patterns — Segmenting based on how much or how often a consumer uses a product. • Psychographic — Segmenting by lifestyle. • Benefits valued — Segmenting based on the benefits that a group of consumers consider most important. 4. There are four pitfalls that companies fall into when segmenting: • Segmenting by product, not customer. • Segmenting by demographics because the data is the most readily available and it is the easiest. • Targeting the largest segment. • Not identifying emerging segments. 5. There are three main points that marketers should keep in mind when segmenting: • Understand the customer before you start the segmentation process. • Develop a segmentation structure that captures the diversity of the market without being too complex. • Differentiate your product or service in the customer’s mind. 6. After deciding how to segment a particular market, the next step is to determine which segments of the market to target. The following steps are helpful: • Determine market potential of each segment: • • • • 62
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Is it sizable? Is it easily identifiable? Is it easily accessible? Will it be sustainable?
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• Can you generate some degree of loyalty? • Determine probable market share. • Determine economic factors involved in reaching this segment. 7. Once the segment or segments are chosen, the marketer needs to choose a targeting strategy:
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• Mass marketing — Approaching the entire market as a homogenous segment. • Segmented marketing — Creating a different marketing strategy for each segment they are going after. • Niche marketing — Choosing one segment of the market, and creating a product or service exclusively for that segment. • Segment of one — Customizing the product for each individual customer. 8. The marketer must create a position for this product in each target market. Positioning refers to the unique place a product occupies in the mind of the consumer. This is the way a marketer differentiates his product from the others in the marketplace. 9. The positioning of the product must be clear. The target market must be specific, the superiority claims of the product must be communicated to that target market clearly and there must be a specific reason why a customer in that target market should believe the claim of superiority. 10. There are six different approaches to positioning : • Benefits superiority • Price • Usage and application • Particular user group • Product class • Competitive comparison advertising
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Glossary
Demographic Segmenting
Separating a mass market into categories such as age groups, gender groups, ethnic groups, occupational groups, geographic groups, etc.
80/20 Rule
Pattern in which 20 percent of a firm's customers make up 80 percent of its sales.
Family Life Cycle
The stages of a family’s development that will influence its buying decisions.
Jugular Benefits
The features or benefits that address the values, above all others, that the targeted market segment wants.
Market Segmentation
The process of taking a unit, a mass market, and separating the segments according to the characteristics that make them unique.
Market Segment
A subset of a market in which the people have common needs and desires, and will respond to a particular marketing program in a similar fashion.
Mass Customization
Serving a mass market with customized products at prices buyers will pay.
Mass Marketing
Treating the market as a single massive unit, assuming no divisions exist that would make people buy one product versus another. Useful for marketing commodities.
Positioning
The unique place a product occupies in the mind of the consumer, with regard to important attributes, as compared to other similar products. P = S + D: Positioning = Segmentation + Differentiation.
Psychographics
Market segmentation by lifestyle, attitudes, and values.
Segmentation Strategies
Specific, strategic ways to separate segments within the mass market.
Segmented Marketing
Serving a mass market with a few options but not with as many options as would be the case with mass customization.
Segment of One Marketing
Marketing unique, custom-designed products to a specific buyer.
Usage Patterns
How much or how often a customer uses a product.
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Assignments
Assignment One: Real-World Segmentation, Targeting, and Positioning The real world is a giant marketing laboratory, and marketers are conducting experiments all the time. Fortunately, their efforts to perfect segmentation, targeting, and positioning strategies are available for public viewing and evaluation.
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This assignment will capitalize on the opportunity. You will choose a brand-name product and analyze its relationship to other goods in the same category, analyze the product’s intended target market, and then assess the product’s positioning by studying its marketing mix in different stores. • Choose a brand-name product from one of these categories: dry breakfast cereal, toothpaste, laundry detergent, or small appliances. The brand need not be a market leader. It is just as useful to observe a lesser-known brand. • Go to different stores and observe how much shelf space your product is allotted compared to other brands in this category. • Did you find different product placement in different stores? What conclusions are suggested by your findings? • To whom is this product targeted? • How is the message communicated to the target market? • How does the packaging of the product address the target market? • Why do you think the manufacturer chose that target market? • What other brands does this company produce in this category? • How narrowly have the marketing managers segmented the market? • Is their segmentation based on geographic factors, demographic factors, psychographic factors, usage patterns, benefits sought, or a combination thereof? • How is this brand positioned among the competition? Send your one- to two-page paper answering these questions to your instructor, according to his or her directions.
Assignment Two: Susceptible Markets Webster’s Dictionary defines susceptible as “easily influenced, moved, or affected.” Its synonyms include words like “vulnerable,” “at risk,” and “liable." Those with a desire to get rich quickly or those who are easily confused by alluring marketing promotions might be defined as susceptible markets. Introduction
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During the 1990s, a sweepstakes promotions company made millions by enticing consumers to buy magazines with the promise of bettering their chances to win. The mailing promotions were personalized, telling recipients that they were among a handful of winners who were eligible to win the grand prize. All they had to do was mail in the form by a certain date. And if they bought a magazine, their entry would have priority. • What are the ethical implications of targeting products to more susceptible markets? Defend your answer. • Are marketers who engage in these types of promotions bad marketers? • All products are aimed at target markets – market segments that are more likely to respond to a product. At what point does targeting become immoral, if at all? Send your one-page response to your instructor, according to his or her directions.
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Project One
Market Research
This is the first of three projects designed to integrate many components of marketing. With the completion of the three projects, the students will have developed a comprehensive marketing plan. Project One is focused on researching and analyzing the characteristics and buying habits of a target market of your choice. In Project Two you will use that data, combined with the analysis of the external environment, to develop a product to fulfill the needs of your chosen target market. In Project Three you will use the data collected in Projects One and Two to create a marketing strategy appropriate for that product and target market. By the end of Project One, you should be able to: • Locate sources of marketing data, both in print and on the Internet. • Explain the role of segmentation and targeting in the marketplace. • Describe the major approaches to segmenting consumer markets. • State methods of qualitative and quantitative market research. • Summarize and present marketing information in a coherent fashion.
The Project Companies often analyze different markets to determine if there are any trends, special needs, or particular buying habits they can service. In doing this, they may look at various segments in the marketplace. These segments can be categorized by: • Geographic criteria • Demographic criteria • Psychographic criteria • Benefits the user values • Usage patterns Select a target marketplace to begin this project. Choose a target market that you have some interest in or preliminary knowledge of. This will create more relevance for you in doing this project. Some examples are: • Children between the ages of eight and thirteen • African-Americans • Californians • Heath-conscious adults • People who buy products in bulk Introduction
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P r o j e c t O n e
Once you choose your target market, you will need to gather data to address the following characteristics of the target market. Your paper should address: What is the size of the market in terms of numbers and purchasing power? What are the growth trends projected for this market? What are the demographic characteristics of this market? Be sure to address age, income, gender, ethnicity, household type, and educational level, if appropriate. Determine other common characteristics and further define these groups into subgroups. Be sure to evaluate geographic, psychographic characteristics, or special usage needs or benefits valued. Identify the needs of these subgroups. Identify the buying habits of the subgroups. Determine which subgroup has the most potential to target. Evaluate size of and growth of the market and unique buying characteristics that a targeted marketing strategy could address.
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Lesson Five
Product Strategy
Planning and Development Throughout the Product Life Cycle
Once the marketer has researched the external marketing environment and the needs and wants of the target customer, it is time to consider the marketing mix. Lesson Five examines the first of the 4 Ps that make up the marketing mix – product. Beginning with a definition, it then goes on to delineate the different product categories. The lesson outlines the stages in the new product development process, continues with the pitfalls of product development, product line management, the different stages in the product life cycle, and ends with a discussion of global product development. The case studies include how Baskin-Robbins develops and tests its ice-cream products, how a small entrepreneur manages her clothing product line, and how a music management company is repositioning and reviving one of its more mature products — the 70s rock band, Blondie.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Define the true meaning of “product.” • Outline the steps in the new product development process. • Evaluate product line planning strategies. • Describe the stages in the product life cycle. • Summarize the key issues in developing products for the global marketplace.
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Completing Lesson Five
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Five in the Student Guide. 2. Read the text assignment for Lesson Five, as indicated in the syllabus. 3. Watch the video program for Lesson Five (Product Strategy: Planning and Development throughout the Product Life Cycle). Use the Lesson Five outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide, read: • The program summary for Lesson Five . • The key points for Lesson Five. • The case study for Lesson Five. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide. Instead, complete the online exercises for Lesson Five and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Five, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Five Outline
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I. OVERVIEW II. WHAT IS A PRODUCT? A. Definition – A product is a good, service, or idea that possesses both tangible and intangible attributes, that satisfies customers’ needs and is part of a marketing exchange. 1. Augmented Product – The tangible product itself and the services and satisfactions that come along with that product.
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B. Types of Products 1. Convenience Products a. Staples b. Impulse Items c. Emergency Products 2. Shopping Products 3. Specialty Products 4. Unsought Products III. NEW PRODUCT DEVELOPMENT A. Two Categories of New Products 1. Entirely New Products 2. Product Extensions B. Reasons for the Development of New Products 1. Responds to Latent Customer Needs 2. Reinforces Customer Loyalty 3. Motivates Employees 4. Reduces Risks C. Stages of Product Development 1. Idea Generation 2. Screening 3. Concept Development 4. Business Analysis 5. Product Testing 6. Market Testing 7. Commercialization D. Possible Pitfalls of New Product Development 1. Not generating enough ideas or having enough new ideas in development. 2. Not having objective screening system in place. 3. Underestimating how much new product will cannibalize existing products. 4. Overstating the speed of adoption. IV. PRODUCT LINE MANAGEMENT A. Product policy is more than simply bringing out a new product periodically. It is a matter of ensuring that the products in your overall product line fit together in a coherent and sensible fashion. Introduction
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V. PRODUCT LIFE CYCLE A. Product life cycle describes the phases a new product goes through during the course of its life. 1. Introduction Phase 2. Growth Phase 3. Maturity Phase 4. Decline Phase VI. GLOBAL PRODUCT DEVELOPMENT A. Issues to Consider 1. To what degree does the product need to be adapted from country to country? 2. Can the same product be sold all over the world? 3. Should the same brand name be used worldwide? VII. SUMMARY
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Program Summary
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Introduction to Marketing: Competing in the 21st Century
Lesson Five
Product Strategy Planning and Development Throughout the Product Life Cycle Product, Pricing, Placement, and Promotion are the “4 Ps” that make up a marketing mix. In Lesson Five, Professor Quelch focuses on the first of these, the product, and the product policies a company makes that help bring the product into being. In this section of Introduction to Marketing , he defines what a product is and what the differences are between its tangible and intangible qualities. He examines the steps involved in new product development, and tells why developing new products is necessary both for established and new companies. He looks at product line management and the logical reasoning behind product lines. Product life cycle is defined and discussed. Last, Professor Quelch considers issues involved in global product development, delineating some of the factors the marketer must bear in mind when taking a product into the international marketplace.
WHAT IS A PRODUCT? Generally speaking, a product is defined as a good, service, or idea that possesses both tangible and intangible attributes, that satisfies customers' needs, and is obtained as part of a marketing exchange. Let's look more closely at the idea of tangible attributes. They're what can be sensed literally: color, texture, taste. Intangible attributes can't be sensed or touched. Efficiency, comfort, prestige … these are emotional, abstract qualities. Happiness is an intangible attribute of great products. Packaging design, brand name, customer service, and assurance all can lend an aura to a product as simple as a soft drink that increases its value and sets it apart from others like it. It helps to think of such a product as an augmented product. Visualize two concentric circles. The inner circle is the product itself: a cola drink, a car, etc., with its tangible attributes. The outer circle is those additional intangibles, all the pre-purchase and postpurchase services and satisfactions that aren't the product, but come with the product. Say for example the product is a personal computer. In the inner circle are the tangibles, the monitor, CPU, keyboard, memory, and bundled software. In the outer circles are the intangibles, the new efficiency that comes with using the machine, the increased productivity, the potential business success that can result from having it. Also present in the outer circle might be the manufacturer's good name, the warranty for on-site service, and the help hotline a new owner can use toll-free. The customer isn't buying just the PC. He or she is buying all those additional intangibles too, all Introduction
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with the goal of buying satisfaction. The literal product may indeed perform exactly as advertised, but if it somehow doesn't deliver the intangibles, its value is debatable. This is called product meaning. Product meaning is the tangible and psychological improvements a product makes in the life of the user. A product that delivers a feeling of reliability, security, and assurance may have value far greater than its actual price. A good marketer recognizes this, and the marketing communications about the product reflect this.
Types of Products Products can be classified into categories. This categorization helps marketers determine the best ways of marketing them. Convenience Products are the ones consumers buy often, and without a lot of thought, such as toilet paper, milk, and sliced bread. Generally, they're low-cost products. They can be classified even more specifically into three types: • Staples are products that people buy habitually. Brand name and widespread distribution are important for staples because people who like a brand such as Maxwell House or Pepsi stick with it and want it wherever they are. • Impulse Items are spur-of-the-moment purchases, such as candy at the supermarket checkout counter. Impulse Items need to be widely distributed and displayed in eye-catching ways right at the point of purchase. • Emergency Products are things one buys only when one needs them, such as an umbrella from a street vendor. If it's an emergency, price isn't as important as immediate relief. Shopping Products are those about which consumers give more thought. Shoppers looking for furniture, clothes, auto repair services, or day care for the children will look at multiple vendors, comparing and contrasting the various features, benefits, and prices before making a decision to buy. A marketer for shopping products should concentrate on selling intangibles: quality assurance, a knowledgeable selling staff, warranties, and the company reputation. Convenience products and shopping products are generally those that consumers buy frequently. The next two are those bought much less often. Specialty Products are unique products that consumers spend more effort finding and getting. Hard-to-find health food items, exclusive brand names, and designer labels all are specialty products. Consumers will do the legwork to hunt them down, and they'll pay a premium price. To sell specialty products, marketers focus on image advertising and personalized service from the sales people. Unsought Products are the ones consumers don't yet realize they want. People see ads for life insurance and cemetery plots every day but don't often run out to buy them. Marketers of unsought products need to emphasize the benefits of buying such products, and focus their efforts on personal selling. Not all consumers see products the same way. Marketers need to keep in mind that these categories work based on how the consumer feels about a product, not how the marketer feels about it. Something that's a staple for one customer might be a shopping product or a specialty product for another, and some people buy anything on impulse. 74
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NEW PRODUCT DEVELOPMENT Staying competitive today means a company must work continually to come up with new products. New can mean entirely new, new, or it can mean a new variation on an existing product, called a product extension. Good companies have a new product portfolio under constant development. Such a portfolio might combine entirely new products with extensions extensions and variations on existing products.
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Why should companies that are already successful take new risks and make new products? First, they need to address latent customer needs. Often the technology for a product has been in existence for years before a company applies it in a new product that addresses a latent need. People People who weren't weren't aware of the technology technology or their need for it suddenly suddenly find they can’t can’t do without it. it. The fax machine is just one example. Fax technology technology has been available for decades, but only recently was it used used in a product that was readily available available at a low price. Keeping customers loyal is the second reason why companies continually develop new products. People who have high brand loyalty loyalty are more likely likely to stay with the brand if the company keeps keeps improving it with new variations. Take cars, for example: example: A loyal loyal Ford Ford buyer buyer wants new designs and new accessories, accessories, and will keep buying Fords Fords as long as the company delivers. In many cases, new variations stimulate the consumer to buy earlier and more often. Motivating employees is a third argument for introducing new products. It excites a job force to stay competitive competitive and try new things. Companies that have a great reputation for innovation and creative leadership can attract and keep employees employees who want to be part of the excitement. Fourth, Fourth, new products products actually actually reduce reduce the risk risk of losses for for companies, companies, because because the real real risk to businesses isn't moving ahead, it's standing still. still. The competition never never stops looking for for ways ways to get ahead. New products products may may entail some some limited limited risk, risk, but the the risk to to a company company of not moving forward is almost unlimited in today's competitive environment.
Stages of Product Product Develop Development ment The product development process has seven key stages. stages. 1. Idea Generation. Good companies work continually to generate ideas from every possible possible source. source. Employees, Employees, customer customer research, research, feedback feedback from customers customers,, news about the competition, competition, management management retreats, retreats, even even outside “creativity “creativity stimulation” stimulation” firms. Getting a lot of ideas can be easy easy, but they they must be sifted sifted like dirt to find 2. Screening. Getting those golden golden nuggets. nuggets. Screening Screening evaluates evaluates ideas ideas against a number number of criteria criteria to sift out the useless ones and find the ones that companies will want to carry to the next step. 3. Concept Development. Development. A select few ideas get carried into concept development, development, the stage where companies may build prototypes or talk with customers about how well they might like like this proposed new product. Formal market research might be used here to evaluate the idea before it moves on to the next stage. 4. Business Analysis. How well would this new product fit with the company's other products, products, prices, prices, promotions, promotions, and placement placement strategies? strategies? 5. Product Testing. If the product product makes makes it to this stage stage,, it's actually actually built built or created created and then activel actively y tested. It may undergo undergo vigorous, vigorous, lengthy lengthy,, and costly testing testing by agencies such as the Food and Drug Administration or the Underwriters Introduction
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Laboratory to determine safety and efficacy. efficacy. A company may also place it among select consumers and focus groups to see how well they like it, and where it needs to be improved. 6. Market Testing. Before the product is widely available the company will test whether consumers will buy it by placing it in limited venues and taking trial runs at promotional strategies and marketing messages. through these 7. Commercialization. If the idea has survived and gotten stronger through evolutionary stages, it's positioned and ready ready for the the full-scale launch. Ideally, Ideally, this process is conducted with optimal speed and efficiency through all seven stages. However, However, there are some classic pitfalls that can slow or halt the product development process and kill a product long before the market ever sees it.
Possible Possible Pitfalls Pitfalls of New Product Product Developme Development nt 1. Not generating enough ideas or having enough new ideas in development. Companies that don't continually generate new ideas stop good new products before they start. They're vulnerable to to competitors who keep keep the idea flow moving. flip side side of not havin having g 2. Not having an objective screening system in place. The flip enough good ideas is having having too many bad ones, ones, with no method for screening screening them out. 3. Underestimating how much a new product could cannibalize existing products. This is especially risky when extending a product line. line. When a company competes against itself, itself, it may make a product product that takes existing existing customers away from its old products. 4. Overstating the speed of adoption. Assuming that the world will love a product as fast as the company company loves loves it is a serious serious mistake. mistake. A premature launch, the manufacture manufacture of too many many units too too soon, or overes overestimati timating ng the custome customer's r's percept perception ion of the benefits of the new product often often lead to it being left on the shelf. shelf. One final point regarding regarding product product developmen development: t: many of the best innovations innovations related related to a product product aren't actually actually innovations innovations on the product. product. A terrific new ad campaign, campaign, a new pricing position, position, new packaging packaging or a new benefit benefit (selling (selling develo development pment service service with every every roll of film, for example), or distribution to new markets — all can re-energize a product, giving it new life. Name-brand cosmetics used to be sold only in department stores. Selling them in discount drugstores changed the business.
PRODUCT LINE MANAGEMENT More than just bringing out a new product periodically, periodically, a company's Product Policy ensures that the products in the total product product line fit together in a coherent and sensible fashion. A company needs to know the logical reasoning behind its product line. line. Consumers need to know it too. too. They want to look look at a line of of cars, for example, example, and see see the the logic in the the pricing pricing of of various various models and the additional options options and features that go with them. Higher priced models would logically offer more features and benefits than economy models. Sometimes, companies overcomplicate overcomplicate their product product line by bringing bringing out too many products. products. Addon after add-on to the product line can confuse the customer, customer, cost manufacturing and distribution distribution money that that could be better better applied applied elsewhere, elsewhere, and diminish the strength strength of a brand name. 76
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Managing Managing the product product line requires requires continual continual evaluation. evaluation. If a product line line takes takes too long to explain to a customer (or to to a company's own sales people, for that matter), it might need to be trimmed. Sometimes it's a good idea to delete a product from from the product line rather than continue to invite these problems.
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PRODUCT LIFE CYCLE Product life cycle describes the stages a product goes through after it's commercialized. product is launched. launched. Typically Typically,, this stage stage is a First is the Introduction Phase, when the product struggle struggle of slow growth and low profit profits, s, if any, any, as the the product product earns its place place.. During this stage the company is working to generate consumer awareness and stimulate demand. Next comes the Growth Phase. If a product product catches catches on with the the consumer consumer,, sales rise rise sharply, sharply, profits peak, and both new and repeat buyers buyers seek seek more of the product. product. Competitors notice notice the new product too, so the company may introduce introduce a new version and work to keep its market edge. In the Maturity Phase sales even even out. Marketing messages and costs are geared geared toward keeping market share. In the Decline Phase sales and profits slip. The product may be outmoded technologically, technologically, or the competition may have have introduced something people simply like better. better. The company must decide whether to delete the product or to harvest it. Harvesting means keeping keeping the product but eliminating further marketing and promotional investments. investments.
GLOBAL PRODUCT DEVELOPMENT These lessons have have emphasized the enormous potential of selling to other countries countries and cultures, cultures, but also the the important important cultur cultural, al, economic, economic, climatic, climatic, and other other differen differences ces that that differentiate them from the United States. To sell successfully in a new marketplace, marketplace, a company must, as always, always, first get get to know the customer customer.. To what degree does a product need to be adapted from country to country? People don't all like the same same things. Water conditions aren't the same from place to place. place. Income levels differ widely. widely. How will a product change under different conditions? Will the bouillon soup mix that that sells well in Michigan taste the same using the water in Mexico City? Food products are a particular example of how a product requires adaptation from from place to place. Can the same product product be sold all over over the world? world? In some cases, cases, yes. yes. Software Software programs, programs, for example, must account for different languages, but their basic operations are are likely to be the the same worldwide. That's important because software companies need to make make worldwide launches quickly in their rapidly changing market. Should the same brand name be used worldwide? Some companies assume that a successful product product should keep keep its name regardless regardless of where it sells. sells. Others sell sell the same products under under multiple names in multiple markets. A carefully selected name can add value to a product product in any market, market, and a poorly selected selected one can damage the product. product. General General Motors assumed assumed some years ago that their popular midsize Nova Nova would be a hit in Latin America. They didn’t find out ahead of of time that that “Nova” “Nova” in Spanish Spanish sounds sounds like like “no va” va” — “doesn't “doesn't go.” go.” That's not a very helpful name to give a car when a company is trying to show consumers how good it is.
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Key Points
1. A product product is a good, good, service, service, or idea that that possesses possesses both both tangible tangible and and intangible intangible attribu attributes tes.. • Tangible attributes can be touched, seen or tasted. • Intangible attributes are the abstract abstract satisfactions that a product can give. give. 2. Marketers Marketers classify products products into certain categories so we can best determine how to market them. them. • Convenience products • Staples • Impulse • Emergency • Shopping products • Specialty products • Unsought products 3. In today’s highly competitive environment, it is essential for for companies to develop develop new products to compete effectively. effectively. New products can be new to the company or product extensions. 4. There are seven seven key key stages stages to the process process of new product product developmen development: t: • Idea Generation • Screening • Concept Development • Business Analysis • Product Produc t Testing • Market Testing • Commercialization 5) There are a number number of pitfalls to avoid in the new product develop development ment process. process. Primarily, Primarily, not having enough ideas, ideas, secondly is failing to have have an objective objective screening screening system in place, thirdly is underestimating the degree to which a new product you launch will end up cannibalizing existing products in your your line, and fourth is overstating overstating the likely likely speed of adoption. 6) Product line management is important in ensuring that all the products in the line fit together in a coherent fashion. Some companies end up with product lines that are too complex complex because because new products products are just added and and nothing is deleted. deleted. A good rule of thumb is that the the salesperson should be able to articulate in twenty words or less the rationale for each item in the product line. 7) The product life cycle describes the phases a new product goes through during the course of its life. The product and the marketplace marketplace have different characteristics characteristics during each phase. Marketing strategy will differ from phase to phase. 78
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• Introductory phase. The product is first launched during this stage. Sales are slow and profits are minimal. Creating consumer awareness and stimulating trial is the focus during this period.
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• Growth Phase. Typically sales increase, competitors emerge, and profits peak. Brand differentiation is key in this stage. • Maturity Phase. Sales even out and less entrenched competitors leave. Maintaining market share and adding product features are the focus in this phase. • Decline Phase. Sales and profits are declining often due to changes in environmental factors. The company must decide whether to delete or harvest the product. 8) A key issue in global product development is determing to what degree the product formula needs to be adapted from one market to another. Another issue has to do with keeping the same brand name worldwide, even though the formula is different or, conversely, having a different brand name in each country for an identical product.
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Case Study
Chocolate, vanilla, and strawberry were the average ice-cream shop’s choices, more or less, when Burt Baskin and Irv Robbins reinvented the industry in 1954 with a new concept: thirty-one flavors, one for every day of the month. Fifty years, fifty countries, and 4,400 stores later, BaskinRobbins has reinvented itself almost that many times, to the continuing delight of its customers. Trends have enormous influence in the food marketplace. Baskin-Robbins’ evolving product line reflects the company’s ability to lead, adapt, and capitalize on changing tastes and fashions in its industry. Today’s Baskin-Robbins offers not only thirty-one flavors, but also such treats as frozen yogurt, specialty coffee and juice drinks, custom-made ice-cream cakes and pies, vitaminenriched fruit smoothies, and sugar-free and fatfree desserts. Each new offering reflects trends observed by Baskin-Robbins’ marketers in society at large, such as the growing market for low-fat foods or the increasing demand for designer coffee drinks. Ice-cream is a fun food, but Baskin-Robbins takes every decision about its products seriously. The more the offerings change, the more the company’s primary goal remains the same: Baskin-Robbins motto is “Happiness Served Daily.” It’s no small task serving the market happiness every day when the market’s tastes change almost that often. Baskin-Robbins develops and tests new products regularly, always keeping in mind that it’s essential to have an integrated product line and a consistently high level of quality. The product line is tested, changed, and tested again. Different stores sell different flavors according to regional tastes or the immediate competitive environment. The thirty-one flavors are adjusted again and again: if sales figures show that “Pink Bubblegum” is one of the least popular flavors, the company will replace it with something more likely to please: “Cappuccino and Espresso Concerto.” Even delivery methods are changing: Baskin-Robbins now sells from mobile units that can visit parties, schools, and fund-raisers. Entrepreneur magazine rates Baskin-Robbins one of the top franchises in the United States, and the company is twelve-time winner as “America’s Favorite Sweets Chain” in a survey by Restaurants and Institutions magazine. Nevertheless, the company is preparing to change its image with a new “Store of the Future” design, featuring a new color scheme and shop layout. Baskin-Robbins wants customers to think of the whole experience of buying ice-cream at BaskinRobbins as a celebration, a “one-hour vacation” from a hectic day.
Directions Watch the video clip. Answer the questions below, placing your work in a word-processing document. Send to your instructor, according to his or her directions. What has contributed to the evolution of Baskin-Robbins’ product line? How does Baskin-Robbins manage its product line in order to increase customer loyalty? What can the company do in the future? 80
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Glossary
Augmented Product
The tangible and intangible attributes of a product taken together.
Convenience Products
The ones consumers buy often and without a lot of thought, such as toilet paper, milk, and sliced bread.
Emergency Products
Things one buys only when one needs them, such an umbrella from a street vendor.
4 Ps / Marketing Mix
Product, Pricing, Placement, and Promotion.
Harvesting
Keeping a product active but eliminating further marketing and promotional investments.
Impulse Items
Spur-of-the-moment purchases, such as candy at the supermarket checkout counter.
Intangible Attributes
Emotional, abstract qualities of a product, such as efficiency or prestige, which can’t be touched or sensed literally.
Product
A good, service, or idea that possesses both tangible and intangible attributes, that satisfies customers' needs, and is obtained as part of a marketing exchange.
Product Extension
A new variation on an existing product; a new flavor, a new size or package, etc.
Product Life Cycle
Introduction Phase > Growth Phase > Maturity Phase > Decline Phase
Product Meaning
The tangible and psychological improvements a product makes in the life of the user.
Product Policy
A company’s plan to ensure that the products in the total product line fit together in a coherent and sensible fashion.
Shopping Products
Products to which consumers give some pre-purchase evaluation.
Specialty Products
Unique products that consumers spend effort finding and getting.
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Stages of Product Development Idea Generation > Screening > Concept Development > Business Analysis > Product Testing > Market Testing > Commercialization Staples
Products that people buy habitually.
Tangible Attributes
Product attributes that can be sensed literally, such as color, texture, taste.
Unsought Products
Products that consumers don't yet realize they need.
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Assignments
Assignment One: New Product Development This hands-on assignment relies on your creativity and it will help you better understand the connection between market research and the development of a new product. A fictitious product is described below. You are responsible for marketing it. Preparation The initial preparation includes arranging interviews with two people in the target market age group. The Product: Kid Control You are part of the marketing team for the Kid Control Company. The management team has created the first remote control that controls children. These remote controls are effective only on the buyers’ children, not other children. The management team thinks that this product will appeal to parents with children between the ages of one to eighteen. Your management team wants to offer two remote controls. Your responsibility is to develop a remote control that offers standard features and one that offers optional features. Before doing so, you need to interview at least two people who have children between the ages of one to eighteen. • From these interviews and your own creative ideas, develop a list of standard and optional features that can be offered to customers. • You should spend about twenty-five minutes developing questions to be asked during your interview. • You should spend about fifteen minutes interviewing each person. • You should spend about thirty minutes developing the features available on your models for your final proposal to be presented to the CEO (your instructor in this case). Send your two-page paper to your instructor, according to his or her directions.
Assignment Two: Guaranteed Failure Now that you understand marketing concepts and have analyzed several case studies, this exercise will require you to approach marketing backwards. There are no real textbook answers to this assignment. Thinking beyond the textbook might be a challenge to you. But the world of marketing is multifaceted and presents unending challenges that require creative, unconventional thinking. Your challenge is to design a product, good, or service idea that will fail in the marketplace. This project should drive the message home that building a better mousetrap won't always guarantee success. You will see that failure is a valuable learning tool and that many great ideas are born from failure. This assignment makes it okay to fail, since you must truly understand the subject of marketing to succeed at this assignment to fail. 82
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Write a two-page paper that addresses the following:
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• Describe the good, service, or idea. • Describe how you would market it. • Discuss why it would fail. Send your assignment to your instructor, according to his or her directions.
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Lesson Six
Brand Management Building an image, Building Customer Loyalty
A brand is a method of identification, and in the ever-competitive marketplace, having a strong, recognizable brand will set a product apart from others in its field. Lesson Six focuses on the challenging issue of brand management, beginning with a discussion of the benefits of branding. It then explores the various branding strategies marketers employ to develop customer loyalty and ends with a look at issues of global branding. The case studies include the challenges that NBC faces in developing its brand and keeping its customers loyal, the branding strategy of the surf and dive company, Body Glove, and the history of one of the strongest brands in the world – Coca-Cola. Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Interpret what branding is. • Compile a list of the benefits of branding. • Analyze and critique various branding strategies. • Describe the process of developing brand loyalty. • Contrast the differences in global and local branding.
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Completing Lesson Six
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In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Six in the Student Guide. 2. Read the text assignment for Lesson Six, as indicated in the syllabus. 3. Watch the video program for Lesson Six (Brand Management: Building an Image, Building Customer Loyalty). Use the Lesson Six Outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Six. • The key points for Lesson Six. • The case study for Lesson Six. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, complete the online exercises for Lesson Six and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Six, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Six Outline
I. OVERVIEW II. WHAT IS A BRAND? A. Branding is the use of a name, term, symbol, or design – or a combination of these – to identify a product. B. Brand Equity 1. Brand equity is the added value a brand name provides a product beyond the practical benefits of the product. III. THE BENEFITS OF BRANDING A. Consumer Benefits 1. Lowers Economic Risk 2. Becomes a Symbol of Quality 3. Is a Virtual Contract 4. Increases Customer Satisfaction B. Benefits to Producers 1. Price Premium 2. Differentiation 3. Distribution Power and Presence C. Benefits to Distributors and Retailers 1. Strong Pull Demand 2. Brands Build Store Traffic IV. BRANDING STRATEGIES A. Family Branding. A company uses one name for all its products. B. Individual Branding. Each product has its own individual name. C. Private Branding. A company manufactures products but sells them under the brand name of a wholesaler or retailer. D. Mixed Branding. A firm markets products under its own name and that of a reseller because the segment attracted to the reseller is different from the firm’s own market. E. Generic Branding. A no-brand product. V. BRAND LOYALTY A. Genesis of Brand Loyalty 1. Liking 2. Respect 3. Friendship 4. Trust 86
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B. Two Aspects of Brand Loyalty 1. Intensity 2. Durability
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C. Degrees of Loyalty 1. Completely Loyal 2. Totally Disloyal 3. Sale Buyers 4. Rotators
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D. Brand Loyalty by Category VI. GLOBAL BRANDING A. Common Features of Global Brands 1. Strength in Home Market 2. Geographical Sales Balance 3. Consistent Positioning 4. Addresses Similar Customer Needs 5. Country of Origin Valued 6. Product Category Focus 7. Corporate Name VII. SUMMARY
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Introduction to Marketing: Competing in the 21st Century
Lesson Six
Brand Management Building Customer Loyalty Big Mac, Tide, Coca-Cola, Lexus, Ivory, Xerox … everyone has favorite brands, products, and names they trust and identify immediately with quality and satisfaction. But how much does the average person really understand about how such a brand is built, and the real purposes it serves both for the company that makes it and the consumer who buys it? In Lesson Six of Introduction to Marketing, Professor Quelch examines branding. What is a brand? What benefits does successful branding bring to a product line? What different branding strategies do companies use? Most important, how do companies build brand loyalty? And finally, how does global branding work in the complex international marketplace? Lesson Six answers all these questions, and helps illuminate one of the most important concepts in marketing.
WHAT IS A BRAND? A brand is a way of marking property. The practice has been used for millennia to set one person's place or belongings apart from someone else's. A brand on cattle in the Old West was an identification tag, marking these animals as the property of a certain owner. In marketing, branding is the use of a name, term, symbol, or design – or a combination of these – to identify a product. It's a word, a logo, some combination of colors (which canned soup comes with a red and white label?) that sets a product apart from the others near it, promotes recognition and remembering among customers, and even makes a promise about the product to consumers.
Brand Equity Branding is critical to almost any product's success, and companies pay a great deal of attention to building brand equity, the added value a brand name provides a product beyond its practical benefits. Added value? Say a customer wants to buy oranges. The store stocks two kinds side by side. One kind has the Sunkist label. The other kind has no label. Chances are that customer does what millions of others do: pick the Sunkist. The price for the Sunkist may be slightly higher, but the promise of that well-known and respected name gives the customer added assurance that the orange will be exactly what he or she wants. Brand equity means trust, loyalty, and repeat business based on that assurance. Customers choose a recognized, trusted brand over an unknown because they want value for the price, and even if the price is higher than the unknown product, it's worth it because the brand adds value to the product. It's a promise that the product is what the customer expects and wants, and that they'll be satisfied. Here's another example: a family driving cross-country wants to stop for lunch. They see two hamburger restaurants side by side: McDonald's and Joe's Burgers. They're not locals, so they don't know that Joe's Burgers could serve the best burgers for miles around. But like most Americans, they've been to McDonald’s and like the food. Moreover, McDonald's has promised them “what you want is what you get” in countless marketing messages, and they're confident that any McDonald's will keep the promise. So, they make the safe choice and stop at McDonald's. That's brand equity at work. 88
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THE BENEFITS OF BRANDING Benefits to Consumers What are the benefits of branding? Who stands to gain when a brand is strong and respected? The obvious answer is the manufacturer or seller, but in fact, the consumer is probably the principal beneficiary of branding. Good branding offers several instant benefits to shoppers: Convenience. Branding makes it easy to pick a product among many others. Once the brand is familiar and trusted, people stick with it again and again. Lowered Economic Risk. Branding reduces the chance that a shopper will waste money on an inferior product or an uninformed purchase. A Symbol of Quality. Time after time, a McDonald's sandwich, a Pirelli tire, or a pair of Levi's symbolizes the best efforts of the companies that make and stand behind them. A Virtual Contract. A brand is a promise the company makes to its customers, saying, no matter where or when a customer buys this product, that customer will be pleased. Increased Customer Satisfaction. All these benefits add up to increased customer satisfaction. Many people take real pleasure in buying a favorite brand, or trying a new one that promises some new benefit, over a product they don't know. This is especially true for luxury items or premium brands, even for low-cost items such as ice cream. It's enjoyable to buy something one feels is “the best,” whether it's a Cadillac or a pint of Häagen-Dazs, no matter what a shopper's income level is.
Benefits to Producers Of course, effective branding offers important benefits also to companies and manufacturers. Price Premium. The key benefit branding offers a producer is a competitive advantage. In the orange example earlier, customer awareness of Sunkist and trust in that name helped Sunkist get chosen over its competitor, even at a higher price. That price premium is proof of Sunkist's strong competitive advantage. Differentiation. Every company wants its products and services to stand out in the mind of the consumer. If customers perceive that a product is worth more than its competitors, that brand is different, better, more valuable, and more desired by the consumer. Distribution Power and Presence. Companies that have very strong brands (such as Procter & Gamble and Coca-Cola) can gain a measure of strength in driving their products through the available distribution channels. Coca-Cola is available just about anywhere — supermarkets, gas stations, convenience stores, Wal-Mart, even office buildings and hospitals, not to mention restaurants. No retailer refuses to stock Coca-Cola because it's such a powerful brand with a devoted following almost everywhere. Moreover, CocaCola can leverage the distribution strength of its flagship product to the advantage of its other products and brands, making the other brands easier to buy for customers everywhere. Introduction
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Benefits to Distributors and Retailers Branding Creates Pull Demand. Let's stay with the example of Coca-Cola for a moment. How does that strong branding help distributors and retailers? Because Coca-Cola is so widely known and preferred, distributors don't have to introduce it to retailers and convince them that it's a good product, and retailers in turn don't need to convince buyers about it. That's called pull demand. People already want Coca-Cola. They demand it. Distributors and retailers hardly need to market it. They just keep the shelves stocked and the machines full. Branding Builds Store Traffic. Customers who want a certain brand come to the store to buy it, and make additional purchases too. If a store doesn't stock their favorite ketchup or soup, chances are they'll go to a store that does. If the store sells the branded item at a sale price this week, it drives even more business to the store and helps move the items that aren't on sale. That's a loss leader, a proven way for a retailer to make an overall profit: increase traffic by taking a loss on a favorite brand, and make up for the loss by selling more of everything else.
BRANDING STRATEGIES There are many strategies for creating and building successful brands.
Family Branding This occurs when a company uses one name for all its products. Campbell's Soup is one example. All their soup products emphasize that trusted Campbell's name: Campbell's Chunky, Campbell's Home Cooking, Campbell's Healthy Request, and so on. The Campbell's name is so widely known and trusted, it's an instant mark of quality and acceptance on almost any new product the company creates. Family branding can be a great money-saver, cutting the cost of introducing a new offering. It's also a risk: if a new offering fails, or if some problem occurs, the whole family of products and even the company itself may experience negative publicity and a resulting dip in sales.
Individual Branding This means giving each product its own individual name. It costs more than family branding, and sometimes it's necessary when a company makes a range of unrelated products. Procter & Gamble, for example, makes Safeguard antibacterial soap and Camay skin-softening soap, two different products with two different benefits and markets. Individual branding means that the company must treat each product as unique and create unique marketing for each. Only the very largest marketers can afford this strategy, because establishing a new consumer brand in the United States carries a price tag of $50 million or more. Still, that's a good investment, because individually branded products don't get lost in the shuffle. Consumers remember them and have a distinct impression of their individual characteristics.
Private Branding This system is used by many smaller companies. It's the practice of selling a product with the retailer’s name on it — not the manufacturer's. Many supermarkets use private branding to feature items that compete against brand-name products. Private branding gives the manufacturer cost-savings by moving the advertising costs over to the seller, and sellers sign big contracts with such manufacturers that keep their factories busy. However, the profit per unit on private-branded products is lower than it would be if the manufacturers marketed the product under their own labels. 90
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Mixed Branding In mixed branding, a firm markets products under its own name and that of a reseller, because the segment attracted to the reseller is different from its own market. Some manufacturers do this in order to reach market segments who wouldn't necessarily buy the product under the manufacturer's own name. Toshiba, for example, sells televisions under the Toshiba name, but also under the Sears name, to appeal to people who might be more price-sensitive than the Toshiba-brand buyers. The Toshiba and Sears televisions aren't identical. Manufacturers using mixed branding are careful to make the different brands of their products different versions as well.
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Generic Branding This term applies to no-brand products. The appeal of generics is low price.
BRAND LOYALTY Despite the differences among branding strategies, they all have one goal: maximizing profit. Creating products entails enormous investment from manufacturers. One of the ways they secure those investments is by building brand loyalty, winning the customers' trust and getting them to buy that product again and again. Brand loyalty is an attitude, a state of mind, and it's a prime objective of marketing.
Genesis of Brand Loyalty How does brand loyalty happen? In some ways it's a mystery — what makes consumers deeply loyal to Pepsi vs. Coca-Cola or vice versa, may not be just a question of taste, but of deeper feelings, memories, and emotions. However, some of the reasons behind brand loyalty are both common sense and good business practice. Liking. Obviously, if a consumer likes a brand and uses it repeatedly with consistent satisfaction, they'll probably be loyal to the brand. Respect. If consumers respect the product and brand name and believe that the brand represents quality and other intangible benefits, the consumer will keep buying. Friendship. If customers make an emotional association between the brand and feelings of friendliness, comfort, supportiveness, etc., they'll treat that product almost as a friend, and buy it over and over. Trust. Trust happens naturally if repeated purchases have given the customer repeated satisfaction.
Two Aspects of Brand Loyalty A company might assume that brand loyalty exists where it really doesn't — and the company that does so is vulnerable. Sometimes brand loyalty disappears, leaving marketers wondering what happened. Intensity. The strength of customers' brand loyalty is called intensity. Intensity can be very strong but very short-lived, as in the case of fads and fashions. This week's hot designer jeans are next week's clearance sale items. Marketers have to be careful not to mistake shor t-term intensity for loyalty. Durability. This is sustained, intense, long-term acceptance from a target market. It’s the ideal every marketer wants. Introduction
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Is the customer truly loyal? Marketers need to understand the difference between durability and sheer customer inertia. Habituated customers don't know they're looking for an alternative to their usual product choice until one day they try it. Banks, for example, might assume all their customers are deeply loyal, but the truth might be that half their customers want to leave, but don't want to face the red tape and paperwork of moving their accounts to another bank. Another example of apparent loyalty that isn't real: when a customer buys a certain brand of products only when it's on sale. Their loyalty isn't to the product. It's to the savings. Misunderstanding loyalty works the other way, too. A customer who buys Miller beer to drink at home and Heineken in restaurants might seem disloyal to both, but in fact, is loyal to both.
Degrees of Loyalty Brand loyalty isn't always total. It comes in degrees. The objective, of course, is for marketers to increase the degree of loyalty wherever possible, by improving the product, changing the marketing messages, price adjustments, etc. Completely Loyal is total, no-substitutions allowed devotion. Totally Disloyal applies to customers who feel that toothpaste is toothpaste, regardless of the brand, and buy based on price, availability, or some other criterion. Sale Buyers purchase a brand only when the price is acceptable, then stock up. Rotators like three or four brands of a product, and buy whichever one happens to be on sale.
Brand Loyalty by Category Some categories of products attract a particularly strong brand loyalty. Within that product category, people are especially loyal to one brand. Cigarettes are a good example. Surprisingly, so is mayonnaise, partly because there are few selections. It's important to understand the differences between these examples. Smokers might have a lifelong and powerfully emotional attachment to a brand of cigarette. Mayonnaise users might be simply indifferent to trying something new.
GLOBAL BRANDING Every year, Financial World magazine publishes a list of the top ten global brands. Some brands — some of the most powerful, recognizable, and financially valuable ones on earth, such as Coca-Cola — make the list year after year. Regardless of their product categories, these brands have several common features.
Common Features of Global Brands 1. Strength in Home Market. Each of these global powerhouses is strong at home. Their domestic strength gives them the momentum and money to win in the global market. 2. Geographical Sales Balance. Global strength doesn't mean regional strength. It means a brand is strong worldwide. 3. Consistent Positioning that Addresses Similar Customer Needs. Refreshment, good taste, and convenience are desirable in any language. Coca-Cola can sell its product based on these features in any market on earth. 92
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4. Country of Origin Valued. If the country of origin is an enemy nation, a product won't succeed in a new market. American products do well in most countries worldwide because the American lifestyle is associated with entertainment, fun, and comfort. 5. Product Category Focus. For now, the global success stories are those companies with a strong focus in their businesses. McDonald's makes fast food, not designer suits. Coca-Cola makes soft drinks, not software. Nike, IBM, Kodak, Intel, and Gillette don't put their names on wide, diverse ranges of products. They sell their strengths. 6. Corporate Name. Focus and strength help companies, such as those listed above, to make their own best sales arguments. Buying a Sony home electronics product is a good investment anywhere, whether it's Montreal, Morocco, or Malaysia.
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Key Points
1. Branding is the use of a name, term, symbol, design, or combination of these to identify a product. 2. Branding offers consumers such benefits as: • a reduced chance of wasted money on an inferior product or uninformed purchase. • reassurance that they are buying the same quality product each time. • a near-contract, since the consumer comes to expect a certain level of quality and delivery every time. 3. Branding offers producers such benefits as: • the ability to charge a price premium as a result of the perceived differentiation. • easier access to distribution channels. 4. Branding offers distributors and retailers such benefits as: • the existence of a strong pull demand. • the ability of brands to build store traffic. 5. Five main branding strategies be can employed by markets: • Family branding. A company uses a single name for all its products. • Individual branding. A company uses distinct names for each product. • Private branding. A manufacturers’ products that are sold to a retailer or wholesaler with the retailer or wholesalers name on the package. • Mixed branding. A company markets products under their own name and that of a reseller. • Generic branding. A no-brand product. 6. Brand loyalty is an attitude or state of mind that results in consumers constantly purchasing the same brand. It is a prime objective of marketing. Although the full set of relationships resulting in brand loyalties not yet fully understood, we know that if a consumer uses a brand frequently and experiences consistent quality that will help develop an affinity to that brand. Four ingredients help create brand loyalty: • Consumers’ liking • Consumers’ respect • The brand as a friend • Creating trust in the brand 7. The common characteristics of global brands are that: 94
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• they are strong in their domestic markets. • they have a certain geographical balance.
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• they have consistent positioning. • they address similar needs worldwide. • they are often valued because of the country of origin.
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• they are often focused on one product category.
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Case Study
The National Broadcasting Company, better known as NBC, has been a powerhouse from the era of radio to the cable-and-digital age. Technology has multiplied entertainment options, giving NBC not just new competition from other large networks, but new kinds of competition — smaller, more specialized broadcasters who can create entertainment brands. CNN’s brand means news, ESPN means sports, MTV is music. As more such companies enter the arena and audience viewing habits change, it’s difficult for a broad programmer like NBC to brand itself and win blanket loyalty. The test facing NBC is to develop an overall brand identity while appealing to people from all segments of the population with diverse products including news, sports, prime time and daytime programs, specials, and online programming. Of the major networks, NBC attracts the most upscale, educated audience—the people advertisers want to reach—by broadcasting memorable and entertaining shows. Cable channels can’t match television’s broad reach, so television is more efficient than ever for advertisers. With its desirable audience, NBC can charge premium rates. NBC is a globally recognized company, but is it a brand? People watch shows, not networks; they’ll watch “Friends” because they like the show, not because they’re loyal to NBC. The fact that it appears on NBC probably doesn’t make a show more entertaining in people’s minds. Indeed, many shows over the years have changed networks and taken their audiences along. NBC does have certain branding advantages. Its perennial trademarks, the famous three-tone chimes and the NBC peacock, are widely recognized, and NBC uses them as repeating elements between shows and in promotions. Its “Must-See TV” strategy placed hits such as “Cheers,” “Mad About You,” “Wings,” “Seinfeld,” and “LA Law” back to back and enabled NBC to brand a whole evening of programming. However, winning every evening is the goal, and building a brand identity for itself as the Thursday night network doesn’t fulfill NBC’s need to create must-see entertainment seven days a week. The network’s creative strategy, making shows that are “fun, quality, and smart” is another attempt at branding, but ultimately it is the viewers, not the network, who decide whether that’s working or not. With the usual branding strategies generally off limits, NBC attempts to cultivate viewer loyalty by creating original programs and continually reminding viewers that whether it’s “Providence” or “Dateline NBC” or “Saturday Night Live,” they’re watching NBC. It’s a strategy that the new competition will continue to challenge. Directions Watch the video and answer the question below. Send your completed case study to your professor, according to his or her instructions. Critique NBC’s branding strategy. Do you find it effective or ineffective? Why? What changes, if any, would you suggest?
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Glossary
Brand Equity
The added value a brand name provides a product beyond its practical benefits. A promise that the product is what the customer expects and wants, and that they'll be satisfied.
Branding
The use of a name, term, symbol, or design – or a combination of these – to identify a product.
Brand Loyalty
A customer attitude of dedicated preference and trust for a brand, based on liking, respect, friendship, and/or trust, that stimulates repeat buying. There are degrees of brand loyalty from Complete Loyalty, total, no-substitutions allowed devotion, to Sale Buying, purchasing a brand only when the price is acceptable, then stocking up, to Rotating, liking three or four brands of a product, and buying whichever one happens to be on sale, to Total Disloyalty, in which customers who feel that toothpaste is toothpaste regardless of the brand, and buy based on price, availability, or some other criterion.
Differentiation
The factors about a product that support the customer’s perception of it as being worth more than its competitors — different, better, more valuable, or more desirable.
Durability
Sustained, intense, long-term acceptance from a target market.
Family Branding
Using a single name or variations on a single name for a family of products.
Generic Branding
The practice of not using a brand name.
Individual Branding
Giving individual products individual names and individual brand identities.
Intensity
The strength of customers' brand loyalty.
Loss Leader
A product sold at a loss to stimulate customer interest and traffic and make up the loss by increasing sales of other items.
Mixed Branding
Marketing products under both the manufacturer’s name and the reseller’s name.
Price Premium
The competitive advantage offered by branding that enables a company to charge a higher price than a competitor.
Private Branding
The practice of selling a product to the retailer or wholesaler with that retailer’s or wholesaler’s name on it — not the manufacturer's.
Pull Demand
Strong demand for a product by the market.
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Assignments
Assignment One: Marketing to Children Children between the ages of two and twelve watch about three-and-a-half hours of television every day. In the United States alone, these young viewers have $6 billion in allowance money to spend, and they influence their parents’ buying decisions to the tune of $50 billion a year. Experts say that one of the most popular methods for targeting kids – using cartoon characters – can increase brand identity and customer retention among children and adults. Increasingly, the use of cartoon characters to market adult products – like the now-defunct Joe Camel cigarette ads – has generated press and widespread criticism. • Do you believe it is ethical for marketers to target children? Why or why not? • As a marketer, what do you feel are the pros and cons of using this approach? • As a consumer, perhaps with children, what do you feel are the pros and cons of marketers using this approach? • Should marketing to children be regulated and restricted? If so, what should be the limits? • Do you remember wanting as a child certain products specifically because of the use of cartoon characters in that product’s branding? Which products? • As an adult, do you purchase any products that use cartoon characters in their branding? Which ones? Do you think branding has anything to do with your purchases? Send your one-page response to your instructor, according to his or her directions.
Assignment Two: Private-Label Brand Imagine that you are a retailer running a grocery store, a hardware store, a clothing store, or any other type of retail store of your own choice. As head of marketing for this store, you’ve been asked to design a line of products with a private-label brand. This product line will compete with well-known manufacturers’ brands that your store stocks. • Go to a store that is similar to the one you’ve chosen for this exercise. • Note which brands are sold there. • Choose a product line that you’d like to develop. (For example, if you choose a grocery store, you might propose a line of private-label, low-fat frozen dinners that will compete with Lean Cuisine, Healthy Choice, and Smart Ones.) • Determine how your private-label products would create more value for consumers than the current offerings. • Note any distinguishing features of your product that could be capitalized on. • Discuss the type of buyers that would be most interested in your product. • Determine a brand name and brand mark (the part of a brand that cannot be spoken – for instance, symbols, logos, the style the brand name is written in, the color, the packaging, etc.). • Your paper should be one to two pages in length, with the graphic of your brand mark on a separate page. Send your completed assignment to your instructor, according to his or her directions. 98
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Lesson Seven
Strategies for Services Marketing the Intangible
How do you you market something intangible, something you can’t touch or hold? With the growth of the service economy economy,, marketers marketers are facing facing that challenge challenge now more more than ever ever before. before. Lesson Lesson Seven Seven focuses focuses on the the marketing marketing of services, services, beginning beginning with a definition definition and and a brief history of the growth growth of the service service economy economy. The lesson lesson then describes describes the the differences differences betwee between n service and goods marketing, marketing, discusses discusses the service marketing marketing mix, and then examines examines successful successful service strategies that develop customer satisfaction. The case studies include Saturn Corporation and the strategies behind its customer service, Subway Sandwiches on franchising, and Hilton Hotels and Louise’s Trattoria Trattoria on employee training. Expected Learning Outcomes
By the end of this lesson, lesson, the student students s should should be able able to: • List the key features features of services. services. • Describe the growth of the service economy and its impact on marketing marketing strategy. strategy. • Compare Compare and contr contrast ast the the marketing marketing of services and the the marketing marketing of goods. goods. • Identify the marketing mix for services. • Apply strategies to increase the perceived perceived value of a service firm’s offering. • Evaluate methods of delivering customer service and measuring customer customer satisfaction.
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Completing Lesson Seven
In order to obtain obtain the most out of this course, course, the following following steps steps should be taken taken in the sequence listed below. below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. professor. 1. Review the Expected Expected Learning Outcomes for Lesson Seven Seven in the Student Guide. 2. Read the text text assignment assignment for Lesson Lesson Seven, Seven, as indicated in the syllabus. syllabus. 3. Watch Watch the video program for Lesson Seven Seven (Strategies (Strategies for Services: Marketing Marketing the Intangible). Use the Lesson Lesson Seven Seven Outline in the Student Guide to help you follow the flow of the lecture. 4. In the the Student Guide, read: • The program summary for Lesson Seven. Seven. • The key points for Lesson Seven. 5a. If you are are a Telecour Telecourse se student student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are are a Telew Teleweb eb student student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, Instead, complete complete the online online exercise exercises s for Lesson Seven and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Lesson Seven Seven,, if assigned assigned by your instruct instructor or.. If you are are a Teleweb Teleweb student, student, you will find the the quiz online. online. If you are a Telecou Telecourse rse student, student, your instructo instructorr will deliver deliver the quiz to you, along with directions on how to submit your your answers. answers.
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I. OVERV OVERVIEW IEW II. WHAT WHAT IS A SERVICE? SERVICE? A. The distinction between a tangible good and an intangible service is not always always crystal clear. clear. Many goods goods and services services are a combination combination of the two. two.
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III. GROWTH OF OF THE SERVICE SERVICE ECONOMY ECONOMY A. The service economy economy has been been increasing increasing 1. Over 50 percent percent of of the U.S. U.S. GDP comes comes from from service industries industries.. 2. Over 90 percent percent of new jobs created created each year are are in the service industry industry.. IV. IV. SERVICE SERVICE VS. GOODS GOODS MARKETING MARKETING A. Four Four unique unique elements elements of services called the 4 Is 1. Intang Intangibil ibility ity a. You can’t can’t touch or smell smell a service. service. 2. Incons Inconsist istenc ency y a. Services tend tend to be inconsistent, inconsistent, because because a service provider provider is a person and people are not consistent on a day-to-day basis. 3. Inve Invento ntory ry a. Services are perishable and cannot be inventoried as goods can. 4. Inseparabili Inseparability ty a. Services tend tend to simultaneously simultaneously be produced produced and consumed. consumed. The consumer consumer can’t separate the deliverer deliverer of the service from the actual actual service itself. V. SERVICE SERVICE MARKETING MIX A. The traditional marketing mix we use for tangible products can also be applied to services, services, though with slight slight variations. variations. 1. Prod Produc uctt a. Because most services are intangible and don’t have have an associated product component, component, they are more more difficult difficult to to describe describe,, so the brand brand or image image of the service company becomes exceptionally important in consumer decisions. 2. Pric Price e a. In service service industries industries,, price is referred referred to in many ways, ways, such as fees, fees, rates, rates, fares, fares, tuitio tuition, n, premium premiums, s, commis commission sions, s, rents rents,, charge charges, s, tolls, tolls, etc. etc. b. When the consumer consumer has little little knowledge knowledge by which which to judge a service, service, the price often indicates the the quality of the service to the consumer. consumer. 3. Placeme Placement nt a. Service providers traditionally traditionally distribute their their offering through through simpler channels than products do, do, because storage shipping and inventory inventory are not issues with services. The user usually obtains the service directly from the provider provider.. b. Recent Recent Changes in Distribution Distribution i. Technology echnology ii. Franchisi Franchising ng 4. Promot Promotion ion a. Challenging Challenging aspect aspect of service market marketing. ing. Since services services are are purchased purchased based on trust, marketers have have to portray a strong overall overall company image. Introduction
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VI. SUCCESSFUL SUCCESSFUL SERVICE STRATEGIES STRATEGIES A. Creating a brand brand reputation reputation and image image is one of of the most important strategies strategies for the the marketer of services. One way to build a favorable favorable impression impression is to ensure that that consistently high quality service is always always provided. provided. Methods of encouraging this include: 1. Training raining Employees Employees 2. Motivating Motivating Employ Employees ees 3. Empowering Empowering Employ Employees ees 4. Providing Employee Incentives a. Stock ownership ownership b. EmployeeEmployee-owned owned companies c. Bonuses Bonuses based on on sales VII. CUSTOMER SERVICE SERVICE & SATISFA SATISFACTION CTION A. How Customers Customers Evaluate Evaluate Service Service 1. Reliabi Reliabilit lity y 2. Responsiv Responsiveness eness 3. Assura Assurance nce 4. Empath Empathy y 5. Tangible angibles s B. Measuring Measuring Customer Satisfaction Satisfaction 1. It’s how how the customer customer perceiv perceives es the quality quality of service that’s that’s vital. vital. 2. Companies Companies should have have a permanent, permanent, ongoing ongoing program in place. place. 3. It should should define what what the customer customer wants wants in terms of attributes attributes and levels levels of of quality. 4. It should include both empirical and qualitative input. C. Service Recovery Recovery 1. Consumers who complain are are often your best customers. 2. It’s important to have have an easily accessible customer satisfaction measurement process in place. D. Being In Touch Touch With The Customer E. Questi Question on of of Standa Standardi rdizat zation ion VIII. VIII. SUMMAR SUMMARY Y
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Program Summary
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Introduction to Marketing: Competing in the 21st Century
Lesson Seven
Strategies for Services Marketing the Intangible In Lesson Seven of Introduction to Marketing , Professor Quelch examines the intangible products that make up an increasing part of the marketing universe: services. Marketing products that the consumer can't see or feel requires some different strategies than the selling of tangible products. This lesson surveys what a service is. It takes a look back and a look ahead at the growth of the service sector, and where it's going in America and the world. It looks at the similarities and differences between service marketing and the marketing of tangible goods, with a look at how the 4 Ps (Product, Pricing, Placement, Promotion) work within a service strategy, comprised of the 4 Is (Intangibility, Inconsistency, Inventory, Inseparability). Some successful service marketers are examined. And Professor Quelch asks, how does customer service affect customer satisfaction?
WHAT IS A SERVICE? A product is a good, service, or idea with tangible or intangible qualities. Dinner in a fine restaurant or a clothing purchase in a custom-tailor shop involve a tangible product with intangible services added. The combination equals a high-end value for the customer. Some purchases, however, are 100 percent service, such as management consulting, financial advice, and medical care.
GROWTH OF THE SERVICE ECONOMY The service sector is, and has been for years, the fastest-growing sector of the U.S. economy. America is evolving from a goods-producer to a producer of information-based, intangible services. Of the three million jobs created in the United States annually, 90 percent are in the service sector. Half the gross domestic product comes from service industries. People can drive only so many cars or wear so many shoes, but they can't have enough entertainment or medical care or information. Also, the service aspects of the changing products being offered are more important than ever. For example, nearly half the food purchases in the United States are made and consumed outside the home, where before most food purchases were made in stores and consumed at home.
SERVICE VERSUS GOODS MARKETING Marketing services presents special challenges. While the fundamentals of service marketing are much like those of marketing products, a few essentials are different, and marketers must understand them. As earlier lectures said, marketing products involves a marketing mix called the 4 Ps. Marketing services has the 4 Is: Intangibility is the first I. Because services are intangible, they don't invite easy comparison — one can't examine two services side by side like two oranges. How does a company distinguish its services from others? Branding is how. Branding is an essential source of reassurance about the quality of a service and the credibility of the company offering it. And because a service is Introduction
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intangible, any tangible aspects of it must be emphasized. The company's address, offices, furnishings, even the letterhead, must carry a message that reassures the customer. Consider the offices and appearances of law firms, banks, doctors, or financial advisors. Do their clean, well-furnished offices make a statement about the professionalism of the people there and about the value of the services they offer? Wouldn't it be out of place for them to work in offices full of cheap furniture? Inconsistency is the second I. Consistency is expected for tangible goods, whether it's Jeeps or Cokes. But services can be inconsistent. A bad haircut, a mixed-up order in a restaurant, an error by an accountant all are examples of very common service inconsistencies. Companies offering services must try to stop inconsistency before it star ts by creating internal standards of conduct and quality control. They need to train employees extensively, not only in the tasks they do, but also in their interactions with the customer. Effective branding for a service means delivering consistent quality and satisfaction, and a consistently good experience for the customer. McDonald's is a great example of this. They deliver more than food. They use uniform procedures and standards to give the customer spotless premises, a familiar menu, and friendly, fast service that's nearly 100 percent consistent from restaurant to restaurant. McDonald's invests heavily in training employees, and the results help them keep a high level of acceptance and trust among their customers. Inventory is the third I. Services are perishable. They're useful only at the time they're offered. Manufacturers of hairbrushes can store those products for future sale, but an airline that flies with empty seats on Tuesday can't sell those seats on Wednesday. Demand fluctuates, and service offerers must keep that in mind. Timing is crucial. The seasons, even the time of day, affect demand. Service offerers need to pay close attention not only to what they're offering, but when. Inseparability is the fourth I. Most services tend to be produced and consumed simultaneously. The consumer can’t separate the deliverer of the service from the actual service itself. A customer buying Campbell's Tomato Soup at the market is several steps removed from the Campbell company, but at McDonald's, the customer is talking directly with a McDonald's employee when making the purchase. In general, customers are more involved in service transactions than they are in buying products, and that affects the total service experience — and whether the customer would buy that service again. So again, training is critically important.
SERVICE MARKETING MIX Notwithstanding the differences between marketing products and marketing services, the 4 Ps of product marketing still apply to services. For both, knowing the customer is rule No. 1. Knowing what customers need, want, and value is the key to success. Most of the product marketing principles discussed in earlier lectures apply as well, with some variations.
HOW DO THE 4 Ps APPLY TO SERVICE MARKETING? Product. As mentioned, branding is vitally important. Because most services are intangible and don’t have an associated product component, they are more 1 04
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difficult to describe, so the brand or image of the service company becomes exceptionally important in consumer decisions. Price. In service industries, price is referred to in many ways: fees, rates, fares, tuition, premiums, commissions, rents, charges, tolls, etc. Consumers don't often know how to judge a service, as opposed to products, where it's obvious that a price stamp of “$59.95” or “$.002” on a can of soup is a mistake. Many consumers judge a service by how much it costs, and assume that an expensive version of a service is worth more than an inexpensive version of it. A dentist who charges a premium price would probably have more credibility in the local market than one who advertises “Discount Root Canals, $39.95.” Placement. For services, placement is generally less complicated than it is for products. Storage, shipping, and inventory control aren't issues for services. Most service users simply get the service right from the provider. The exceptions are franchises and intermediaries such as agents or brokers. Service distribution is changing rapidly. Technology is driving the evolving placement of many information-based services. Online banking and ATMs are making it possible for a banking customer to get full banking services without ever visiting the actual bank. Franchising is an increasingly popular distribution system for services. It's a system in which a parent company owns a brand name and may set uniform quality standards, but licenses other companies or individuals to own and operate the outlet that sells the service, such as an auto-maintenance and muffler repair franchise, or a fast-food restaurant. Franchises can give an especially high level of service if the owner combines the training and standards of the parent company with his or her own extra level of motivated service. Promotion is a challenge for service marketers. They have to communicate the intangible image and benefits of the service, set the company apart from the competition, and inspire trust. Also, promotion of many services may be regulated, so the provider has to keep the regulatory environment in mind. And remember, image counts. A firm's sign, letterhead, offices, and people all are visual promotions for the firm. If they present an image that feels credible and trustworthy, it helps the firm's overall relationship with the market it wants to win. If a firm's sales and service people interact well with people, are prompt, courteous, thorough, and credible, they're doing an effective job promoting the firm. And, most of all, if the service is good, it's the best advertisement a firm can use. Good service builds repeat business and new business from word-of-mouth referrals.
SUCCESSFUL SERVICE STRATEGIES What steps can a company take to deliver consistently good service that builds a strong brand reputation and image? Training Employees. Good service providers focus extensively on training employees on how to interact with customers. If the practice is taken too far, the employees seem impersonal and robotic, but optimal training emphasizes friendliness, listening and speaking skills, and responsiveness that make for a good customer experience. Motivating Employees. Unmotivated, indifferent employees give unmotivated, indifferent service, no matter whether it's for a law firm or a shoe repair shop. Treating employees well means respecting and valuing them, and getting them to pass that respect along to the customer. Motivation can come in the form of salaries, bonuses, educational opportunities, incentive prizes, etc. The cost of keeping good employees through motivations such as these is less than that of Introduction
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continually finding and training new people. Motivated employees help the customer build a relationship with the company. The following companies have created ways to encourage good performance through incentives: • Starbucks, Microsoft, Kinko's, and many other companies motivate employees by stock ownership. Chances are, someone who owns shares in the company that are more or less valuable depending on the company's performance will be more motivated to perform well than someone who is just an employee. • Avis and United Airlines are employee-owned companies. All the employees have a strong personal interest in providing good service for the sake of the company's competitive survival. • Au Bon Pain offers large bonuses based on sales to store managers who increase sales volume. The better a store does, the more the manager makes. Empowering Employees. Good employees want to use a measure of personal responsibility for their relations with the customer, instead of being robotic or impersonal. Sometimes it's a good idea to let them use their own judgment in solving problems or resolving conflicts. If a customer isn't happy with a situation, that customer doesn’t want to wait while a service person makes three phone calls to discuss the solution with a superior. Giving employees a measure of discretionary authority to make things right saves time, makes the employee feel trusted, and ultimately improves service.
CUSTOMER SERVICE AND SATISFACTION What constitutes good customer service? Companies can easily keep track of their revenues and expenses, but understanding what really satisfies customers is one of the biggest challenges a service business faces. What is customer satisfaction? How does a company exceed expectations and really delight a customer? What do customers expect?
How Customers Evaluate Service Research shows that regardless of the kind of service, customers consistently look for five factors from a service company: Reliability is the most important component of service quality for customers. A service that's dependable, accurate, and consistent — done right the first time and every time — keeps customers happy and faithful. Responsiveness is next. Is the service delivered promptly, on time, every time? Does a customer who needs help have to wait on hold for fifteen minutes? Assurance is important. Customers need to feel assured about a company's honesty and integrity, particularly if they don't understand the service being bought. Car repair, legal services, medical care, all require a company to provide a high level of assurance. Customers who feel uneasy or mistrustful don't come back, and they spread bad word-of-mouth. Empathy is important. Is the service friendly, caring, and personal, or is the customer treated like a number? A customer who feels valued personally will probably value the service provider in return, and keep coming back. 106
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Clear, readable bank statements and Tangibles Tangibles help suppor t intangible services. Clear, well-prepa well-prepared red tax forms are are essential essential for clients clients of financial financial services. services. Clean, comfortable, professional-looking premises speak volumes volumes for doctors and dentists. Some car dealers provide provide free coffee and donuts to customers waiting for service service.. It's an expense, expense, but it pays pays off in good feeling feeling and and repeat repeat business business..
Measuring Customer Satisfaction Customer satisfaction is a feeling. How can a feeling feeling be measured? Many companies have have permanent, ongoing programs to assess how well they're satisfying their customers. Measuring the feeling starts with defining defining it. It's essential to know the the attributes that convey convey value to the customers. What do they want? What can a company do to make them happy? It’s how the customer perceives the quality of service that’s most important. Good companies don't try to get all the answers answers from within. They ask the the most important people in the service equation, equation, the customers customers themselve themselves. s. The information information they get is both quantitative and qualitative. qualitative. The numbers tell one story, story, while the verbal verbal information gleaned from interviews, interviews, phone surveys, surveys, focus focus groups, groups, etc., etc., add vital detail. detail.
Complaints Help Companies that get no complaints may congratulate themselves themselves for top quality service, but they may have a serious problem — they just don't know it yet. It's not that the customers aren't complaining. It's that they're they're complaining complaining to other customers, customers, friends, friends, and family. That's very very damaging. Some say that customers who complain to a company are that company’s best customers.
Service Recovery Many customers don't complain because they don't understand what their rights are or don't have tangible evidence evidence to support a claim, especially when it involves involves an employee who has been rude or provided provided poor poor service. service. They might might not know to whom to complain, complain, or where to go. go. They might even fear retaliation. It's essential to have have a customer customer complaint mechanism in place. Feedback forms, toll-free numbers, random surveys, surveys, all tell the customers that their their thoughts and feelings are valued. Customers who aren't happy, happy, and who explain why they they aren't, do the company a great favor favor.. Most unhappy customers simply don't come back and never say why, why, but complainers offer specific advice — and free free of charge, too — that that can improve improve performance and literally save save a company. company. Having a good complaint management system in place is inviting inviting free consultation from the best experts in the field.
Being in Touch With the Customer In the best companies, top management understands the customers because they they work hard to know what customers are thinking. These leaders don't get trapped in their offices. offices. They get out in the field and meet customers, or even take take on low-level work in their companies so they can see first-hand what it's like to be a customer and whether the company's standardized service rules help or hinder good service ser vice delivery. delivery. Too much standardization sometimes prevents a willing employee from doing the right thing. thing. The best rules are flexible and unconditionally put the customer first.
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Perceived Service Federal Express understands service and communicates that understanding inside and outside the company with a simple statement: “Federal “Federal Express has redefined service as all actions and reactions that customers perceive perceive they have have purchased.” Note the emphasis on perception. Marketers must always influence how customers perceive perceive things. Saying we did or didn't actually actually do this or that to an unhappy customer isn't enough. If the customer didn't perceive perceive the benefit, it's no help. help. That's what what marketing marketing is: perception. perception.
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Key Points
1. A service is an intangible offering. offering. However However, the distinction distinction between between tangible tangible and intangible intangible offerings offerings is not crystal clear. clear. Most products products are a combination combination of tangible tangible and intangible, intangible, goods and services. 2. Understandin Understanding g service marketing marketing is important important since the service service sector has become become one of the most vital vital component components s of the U.S U.S.. economy economy. Ninety percen percentt of the roughly roughly three three million million new jobs created each year are in the service sector. 3. There are four four factors that make make services unique and differentiat differentiate e them from goods. goods. They are referred referred to as the 4 Is of of service. service. • Intangibility. Intangibility. You can not touch a service. Branding and tangible aspects are important to emphasize. • Inconsistency. Inconsistency. Services are not always consistent. Creating a standard code of conduct and providing employee training help with this aspect. • Inventory. Inventory. Services are perishable and must be used at the time they are offered. Understanding demand for for the services and instituting peak and off peak pricing is helpful. • Inseparability. Inseparability. It is difficult to separate services from from the provider. provider. Providing a mechanism for consistency is important. 4. The same same marketing marketing mix that that applies applies to to goods, goods, applies to services services.. However However, keep in mind the following. • Product. Product. Branding Branding is is vitally vitally important. important. • Price. Price. Often the quality quality of a service service is judged by its its price. price. • Promotion. Need to communicate a strong image and service benefits and differentiate the service from the competition. • Distribution. Typically done through through simpler channels than goods. 5. Successful strategies used in service marketing are like like the tactics used in product marketing. The following are strategies strategies a firm can use to increase the perceived value value of a service firm’s offering: • Emphasize branding branding to assure customers of consistent quality. • Develop detailed service guidelines regarding how the employees should interact with customers. • Motivate front-line employees. • Empower employees. 6. In order to offer services that exceed exceed expectations, a company must constantly measure customer satisfaction. Customer satisfaction occurs when performance exceeds expectations.
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7. Customers Customers base their evaluation evaluations s of customer customer satisfaction satisfaction on five five factors: • Reliability — Is the service reliable? • Responsiveness — Is the service responsive? • Assurance — Can customers trust the service? • Empathy — Do they they get individualized, caring service? • Tangible aspects — What do the physical aspects of the service communicate? 8. Measuring Measuring customer customer satisfact satisfaction ion is important. important. A marketer marketer should should consider consider the following: following: • The quality of service can be measured by combining the customer’s evaluations of the five five factors mentioned mentioned above. above. • Identify Identify what the custome customerr wants wants in terms terms of service. service. • Determine how the compan company y perceiv perceives es the quality quality of of service. service. • Give the customers an easy way to complain. complain.
Glossary
Customer Criteria for Service Quality
Reliability Reliability,, Responsiv Responsiveness eness,, Assurance Assurance,, Empathy Empathy, and Tangibles that support intangible services.
Employee Incentives
Company measures and policies that inspire good performance performance,, including including stock ownership ownership,, employee employee ownership, and/or bonuses based on sales.
4 Is of Marketing Marketing Services Services
Intangibility, Intangibility, Inconsistency, Inconsistency, Inventory Inventory,, Inseparability. Inseparability.
Franchising
An increasingly popular distribution system for services; services; a system in which a parent parent company company owns a brand name and may set uniform quality standards, but licenses other companies or individuals to own and operate the outlet which sells the service, such as an auto-maintenance and muffler repair franchise, or a fast-food restaurant.
Service
An intangible product such as management consulting, consulting, financial financial advice, advice, and medical medical care. care.
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Assignment One: The Bad Haircut We’ve all been victims of poor service at one time or another. Think about a poor service situation you’ve recently suffered through. Perhaps you received poor service in a restaurant, had an experience with an unhelpful or rude salesperson, or received a bad haircut. Did you complain to management and have the situation rectified? Or did you just complain to friends and family about your bad experience? Word of mouth is possibly the most powerful source of information for consumers because people, generally, listen to those they trust. Word of mouth can be either positive or negative. It is extremely difficult and costly for businesses to overcome or neutralize bad word of mouth. Research indicates that customers dissatisfied with a product spread negative word of mouth to eleven acquaintances, while satisfied customers tell six. Consider a bad service experience you’ve recently had. Write a two-page paper that addresses the following: • Write a full description of your experience. • What action, if any, did you take to protest the poor service? What were the results of that action? • How many people did you tell about your negative experience? • How would you have handled this situation differently had you been the person providing the service? • What steps would you take, as owner of the company, to prevent this problem from recurring? • How did this experience make you feel about that place of business? Send your completed assignment to your instructor, according to his or her directions.
Assignment Two: The Caterer Needs Help Michel Rochette is a gourmet chef with credentials from one of the best culinary schools in the world. His skills have earned him an excellent reputation both in local social circles and in the culinary world. Rochette has grown tired of working in a restaurant and preparing the same dishes night after night. He has decided to start his own catering business. He currently has solid financial backing and five people working for him. Despite Rochette’s financial situation and reputation, his catering business is struggling. He can’t seem to cater as many engagements as he’d like. He has hired you as a marketing consultant. Address the following issues facing Rochette in a two-page paper: • What “intangibility” issues does Rochette face? What can he do to overcome this marketing challenge? • What “inconsistency” issues does Rochette face? What steps can he take to address this services marketing challenge?
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• What “inventory” issues does Rochette face? What steps can he take to minimize the effects of this services marketing challenge? • What “inseparability” issues does Rochette face? What steps can he take to overcome this services marketing challenge? • What can he do to distinguish his catering service from the competition? • What segments of the market should Rochette target? Why? • What qualities might this market value? How can this be incorporated into his marketing mix? • What features of his service should Rochette emphasize and communicate to his target market? • What is the most effective way to communicate the value of his services to his target market? Send your assignment to your instructor, according to his or her directions.
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Project Two
Feasibility
Project Two builds on the work and skills developed in Project One. In this phase, you will research and develop a product that is well suited to a particular subgroup’s needs identified in Project One. By the end of the lesson, you should be able to: • Analyze the effect of the external environment on an organization’s marketing strategy. • Define “value” and explain marketing’s role in creating value for customers. • Outline the steps in the new product development process. • Evaluate product line planning strategies. • Explain the relationship between segmentation, targeting, positioning, and product development.
The Project You have chosen and researched a particular target market and have probably observed some unmet needs or trends within this market. The next step is to develop a product that can fulfill an unmet need. This product can either be: 1. A new-to-the-world product. 2. A new product line. 3. An addition to an existing product line. 4. An improvement of, or revision to, an existing product. 5. A repositioned product. Once your product is chosen, research the external environment to determine which uncontrollable factors will affect the marketing of that product to your target market and whether or not it is feasible to launch the product. Adjust your product until you come up with a feasible product. Your paper should: 1. Describe the product in detail. 2. Explain how it uniquely meets that particular subgroup’s need. 3. Explain how it creates value for the target market. 4. Describe how you will position it. 5. Discuss how technological trends affect the marketing of this product. 6. Examine how social and cultural trends affect the marketing of this product. 7. Express how political and legal trends affect the marketing of this product. 8. Depict how economic trends affect the marketing of this product. 9. Describe how competition affects this market. Who are the competitors that fill the same need?
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Lesson Eight
Distribution Retailing and Wholesaling Strategies
The Second P of the marketing mix, placement, is one of the most complicated, yet most vital aspects of the marketing process. Lesson Eight begins with a discussion of the crucial role distribution plays in marketing, then examines the various distribution channels and how they are managed. It explores distribution, retailing, and wholesaling strategies; distribution trends; and the issues that marketers face in managing global distribution channels. The case studies include how Food From the ’Hood picked the best distribution strategy for its product, the retailing strategies of Giorgio’s of Beverly Hills, the role of the intermediary in business-to-business selling, and how a small company distributes its product over the Internet.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Describe the role of distribution in marketing strategy. • Depict and analyze the types of distribution channels. • Identify distribution strategies. • Describe the importance of supply chain management. • List examples of major issues marketers must consider when managing and developing international distribution channels.
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Completing Lesson Eight
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Eight in the Student Guide. 2. Read the text assignment for Lesson Eight, as indicated in the syllabus. 3. Watch the video program for Lesson Eight (Distribution: Retailing & Wholesaling Strategies). Use the Lesson Eight Outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Eight. • The key points for Lesson Eight. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, complete the online exercises for Lesson Eight and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Eight, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Eight Outline
I. OVERVIEW A. Distribution is also called Placement. Placement is the third of the 4 Ps. Correct placement, that is, placing a product in the right venue at the right time, can determine a product’s success or failure. II. ROLE OF DISTRIBUTION A. Distribution plays a central role in the marketing of any product or service. B. Distribution is defined as the movement of goods from one point to another. III. DISTRIBUTION CHANNELS A. Distribution channels consist of firms and people that allow marketers to get their products to the customer as efficiently and cost effectively as possible. B. Typical Distribution Channel 1. Manufacturer, Wholesaler, Retailer, Consumer C. Functions of Distribution Channels 1. Transactional a. buying transactions b. selling transactions 2. Logistical a. moving products from place to place b. combining products in ways that make it easier to buy them c. sorting and breaking down quantities into amounts that an end consumer wants to buy 3. Facilitative a. make both buying and selling easier i. financing transactions ii. grading products iii. creating sales forecasts iv. gathering market information D. Why Do We Need Distribution? 1. It makes the flow of goods from the manufacturer to the consumer much more efficient by reducing the number of transactions required. E. The Role of Intermediaries 1. Hold a considerable amount of inventory and bear the capital costs associated with that. 2. Facilitate the efficient flow of goods. 3. Keep costs as low as possible. F. Types of Distribution Channels 1. For Consumer Goods a. Direct Channel has no intermediaries. i. Producer sells directly to consumer. b. Indirect Channels have intermediaries. 116
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i. Producer to Retailer to Consumer. ii. Producer to Wholesaler to Retailer to Consumer. iii. Producer to Agent to Wholesaler to Retailer to Consumer. 2. For Organizational Goods a. Direct Channel has no intermediaries. i. Producer sells directly to Organizational Buyer. c. Indirect Channels have intermediaries. i. Producer to Distributor to Organizational Buyer. ii. Agent brings together a Producer and Distributor. From the Distributor, products then go to the Organizational Buyer. 3. For Services a. Usually Direct without any intermediaries, since services are usually produced and consumed at the same time. b. Sometimes Indirect. If a service firm uses an intermediary, it generally uses agents, such as travel agents or ticket agents. 4. Vertical Marketing Systems a. Often, in channels of distribution, many firms align themselves with one another to increase efficiency and marketing impact. b. Three Kinds of Vertical Marketing Systems i. Administered. Separate firms develop a single program for the distribution of a line of products. ii. Corporate. One company owns all aspects of a channel. iii. Contractual. Channels are united by contracts that specify each member’s responsibilities. a. Wholesaler Sponsored Co-op b. Retailer Sponsored Co-op c. Franchise IV. SELECTION OF CHANNELS AND STRATEGIES A. Channel management begins with the selection of the most appropriate channels and intermediaries to distribute a particular product. The right or wrong choice of distribution channels can lead to the ultimate success or failure of a product. B. Factors to Be Considered in the Selection of a Distribution Channel 1. Customer Characteristics a. Where and how do the target customers want to buy your product? 2. Product Characteristics a. Is the product perishable? b. Is the product complex? Does it require a trained sales force to install it? 3. Intermediary Characteristics a. Some channels of distribution have become standard industry practice. b. Is the intermediary willing to carry your product? c. What is the intermediary’s sales and profit history? d. What is the intermediary’s reputation? e. What is the intermediary’s target clientele? 4. Competitor Characteristics a. Number and Size b. Distribution Strategies c. Size of Product Lines d. Strengths and Weaknesses C. Distribution Strategies 1. Exclusive Distribution a. Manufacturer sells product through only one wholesaler or retailer in a given area. Introduction
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2. Selective Distribution a. Manufacturer sells product through only a few outlets. 3. Intensive Distribution a. Manufacturer sells product through as many outlets as possible. V. DISTRIBUTION TRENDS A. Marketers are changing their methods of distribution to best satisfy consumers’ wants and needs. 1. Warehouse Stores 2. Club Stores 3. Outlet Malls 4. “One Stop Shops” such as Super Kmart 5. Gas Stations Teaming Up With Fast Food Chains 6. Internet (allows consumers to order directly from the manufacturer) VI. SUPPLY CHAIN MANAGEMENT A. The entire process that contributes to the creation and delivery of goods and services. 1. Effectively managing the supply chain can lead to increased innovation, reduced costs, and improved conflict resolution. B. Use of Technology in Supply Chain Management 1. Has led to decreased inventory carrying costs, making the distribution process more cost efficient. The savings can be passed along to the consumer. VII. GLOBAL DISTRIBUTION A. Challenges of Global Distribution 1. Transportation Distances 2. Legal Restrictions 3. Cultural Differences 4. Whether to arrange for foreign intermediaries to handle some or all aspects of distribution, or try to do it all yourself. VIII. SUMMARY
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Introduction to Marketing: Competing in the 21st Century
Lesson Eight
Distribution Retailing and Wholesaling Strategies In Lesson Eight of Introduction to Marketing, Professor Quelch examines the third P in the marketing mix: Placement, also known as Distribution. Placement is a vital part of a successful marketing strategy, and often the one requiring the most imagination. A seasoned marketer, says Professor Quelch, knows that placing a product in the right location at the right time can make all the difference in increasing a product's sales and profitability. Lesson Eight discusses placement and the crucial role it plays in the overall marketing process. The term “distribution channels” is defined, and Professor Quelch examines the different channels available to take a product from the factory to the user. How does a marketer select the optimal one? Channel selection and strategy are covered, and so are distribution trends. Supply chain management is examined, and the lecture closes with the distribution challenges inherent in the global marketplace.
ROLE OF DISTRIBUTION Distribution simply means the movement of goods from one point to another. Distribution plays a central role in the marketing of any good or service. An amazing new product doesn't help the company or the consumer unless the company can answer some key questions: • • • • • • • • •
Should this be sold directly to the consumer, or through wholesalers and retailers? Should this product be sold? In what cities? In what type of store? Will it be sold nationwide? In foreign countries? How will it get to the stores? Who will transport it? Is the transportation infrastructure capable of handling the movement?
DISTRIBUTION CHANNELS Distribution channels are firms and people that allow manufacturers to get their products to the customer as efficiently and cost-effectively as possible. A typical distribution channel starts with a manufacturer shipping goods in bulk via, for example, truck or rail, to a series of wholesalers. The wholesalers break the bulk shipments into smaller lots for delivery to warehouses or individual retail stores. The retailers then stock the products in their shelves for the customer. The channel, then, starts with the producer at one end and ends with the customer at the other end, and encompasses all the intermediaries, and all the transactions among them.
Functions of Distribution Channels In order to make the exchanges between manufacturer and customers more efficient and costeffective, distribution channels perform three vital functions. Introduction
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The transactional functions include all the buying and selling transactions that occur among the members of the distribution channel. These transactions include policies to account for returns of damaged or out-of-date merchandise. Logistics are the functions that move products from place to place and combine them in ways that make them easier to buy. Food wholesalers, for example, stock products from many manufacturers and can combine them in response to orders from supermarket chains that might carry as many as 20,000 items in a single store. Logistics also includes making sure that the right products end up in the right stores. It also covers sorting and breaking down quantities into amounts that a consumer wants to buy. The manufacturer might offer an item in enormous bulk only. Logistics includes breaking such bulk down into smaller and smaller units step by step along the distribution channel, from the manufacturer to the wholesaler to the retailer. Facilitating functions include such things as financing transactions, grading products, creating sales forecasts, gathering market information, and so on. Take a typical purchase today: a customer sees a coat in a magazine. The ad has an 800 number to call for information on what stores sell it. The store that sells the coat lets the customer charge it instead of paying cash, and furnishes information on the customer back to the manufacturer, which puts that customer on its catalog mailing list. All these are facilitating functions.
Why Do We Need Distribution? Distribution makes the flow of goods from the manufacturer to the consumer as efficient as possible by minimizing the number of transactions required.
Without intermediary, nine transactions
With intermediary, six transactions
Imagine three manufacturers and three end consumers in a hypothetical marketplace. Each manufacturer makes a single product. If each consumer wanted to buy each manufacturer’s product and each manufacturer had to sell to each consumer, it would take nine transactions. Can this be simplified? Yes, with an intermediary. If this intermediary stocks all three products from the three manufacturers, we have three transactions going into the intermediary, and then three transactions going out to each of the three consumers. That reduces the number of transactions from nine to six. Thus, by collecting goods and creating new assortments of them for the end customer, the intermediary adds efficiency to the flow of goods. 120
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The Role of Intermediaries But don't intermediaries mark up the prices on goods? Wouldn't eliminating the intermediaries of the world eliminate the extra expenses they create? Products are physical things, and they have to be somewhere. If the intermediaries didn't exist, the products would have to be held at some other point in the distribution channel, at manufacturers’ warehouses or in customers’ homes. The availability of goods would change; items would be overstocked or out of stock more frequently. Intermediaries help regulate the flow of goods, storing and releasing them in a timely way, ensuring they're in the right places in the appropriate quantities when the customer is ready to make a purchase. Intermediaries hold a considerable amount of inventory and bear the associated capital costs, and take a reasonable markup for the job. In an efficient channel, the markups don't push the price for a good up over the cost a customer is willing to pay.
Distribution Channels for Consumer Goods Distribution channels for consumer goods can be classified into direct and indirect channels. Direct Channels involve no intermediaries. • A direct distribution channel has no intermediaries. A store that’s attached to a factory, such as a glassware shop that’s part of a glass factory, or a direct-to-consumer Internet sales connection such as the one offered by Dell Computer, is a direct channel in which the producer sells directly to the consumer. Indirect Channels include one of more intermediaries. • Producer to Retailer to Consumer. Some large retailers such as J. C. Penney and Wal-Mart buy directly from manufacturers and sell to consumers. • Producer to Wholesaler to Retailer to Consumer. For smaller retailers, it's more common to buy from wholesalers. Vineyards, for example, sell their products to wine wholesalers, who sell it in turn to retailers (liquor stores, wine shops, restaurants, and bars) who then sell it to customers. • Producer to Agent to Wholesaler to Retailer to Consumer. The most complicated variation includes an agent, an independent negotiator who buys from the manufacturer and then sells to wholesalers. Agents are also called manufacturers' representatives or brokers. Small manufacturers that sell to large wholesalers often use agents instead of hiring a sales force. Agents and brokers don't take physical possession of the products.
Distribution Channels for Organizational Goods Distribution channels for organizational goods can also be classified into direct and indirect channels. Direct Channels involve no intermediaries. • Direct Channel. As with consumer goods, a direct distribution channel for organizational goods has no intermediaries. Buyers buy direct from the Introduction
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manufacturer — airplanes, for example. The high level of after-sales service is kept up by local wholesalers and suppliers who stock readily available parts. Indirect Channels for Organizational Buyers have one or more inter mediaries: • Producer to Distributor to Organizational Buyer. The distributor/wholesaler in this channel stocks inventory and provides promotional support for the product line. • Agent Brings Together a Producer and Distributor. An agent seeks out markets for a producer's product, and may also locate sources of supply for distributors. An import-export company, for example, brings together buyers and sellers who might not otherwise find each other in the industrial marketplace. Many new agents are appearing almost daily in the Internet.
Distribution Channels for Services Do services require distribution channels? Yes, and they're generally direct, or else much shorter than those for products, since services are produced and consumed at the same time. If a service firm uses intermediaries, it's generally in the form of agents such as travel agents, ticket agents, etc. Such agents are disappearing because the Internet is being used more and more by customers buying directly from service firms. Such electronic agents don't have the real estate costs associated with chains of retail stores.
Vertical Marketing Systems Typically, each firm in a distribution system is an independent company. However, more and more firms are aligning themselves into Vertical Marketing Systems, centrally managed distribution systems that increase efficiency and marketing impact. There are three kinds of VMS: Administered. Some powerful producers such as Procter & Gamble or Campbell's use their power to set standardized systems for billing, electronic reordering, etc., or use certain promotional materials or software that all their distributing partners must also use. This makes the channel more efficient and keeps costs down. Corporate. One company owns all aspects of a corporate channel: production facilities, warehouses, and retail stores. Sherwin-Williams Paint Company is an example. Contractual. A contractual channel enables companies to increase their control over a channel without owning it. The members are under contract to each other, and their responsibilities specifically delineated. Contractual VMS are the most common kind. There are three types: • Wholesaler Sponsored Co-Op: A wholesaler establishes a contractual relationship with retailers, to standardize purchasing procedures, inventory management, and product promotion. • Retailer Sponsored Co-Op. Independent retailers ally to increase purchasing 122
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power in dealing with suppliers. They may own their own warehouses and run consumer ads collectively. • Franchise. A parent company gives franchisees rights to operate a business according to the franchiser's marketing plan and with the franchiser's trademark. Franchisees pay a fee and contribute royalties based on sales to chain-wide advertising costs. Many franchisees are required to buy from the franchiser and sell only the franchiser's products.
SELECTION OF CHANNELS AND STRATEGIES Channel management begins with the selection of the most appropriate channels and intermediaries to distribute a particular product. The right or wrong distribution channel can make or break a product. There are several important factors to keep in mind when selecting and designing a distribution channel. Customer Characteristics. Where and how do the target customers want to buy your product? Knowing the customers includes knowing how they want to shop. If a product appears in Kmart, it will be perceived differently from a similar product that appears only in beauty salons or jewelry stores. Selective distribution may not reach as many people, but it may reach the ones a company really wants. Product Characteristics. Is the product perishable? Is the product complex? Does it require a trained sales force to install it? If the answers are yes, the distribution channel must be made to serve the product; generally, that means shortening it for the sake of speed. Fresh vegetables or flowers can't be left on pallets in a railyard for two weeks. Intermediary Characteristics. Tradition can dictate some channels of distribution, whether or not they're the best possible business practice. If customers are used to seeing Timex watches or L'eggs pantyhose in drugstores instead of jewelry or clothing stores, respectively, then Timex and L'eggs can keep selling to drugstores. However, a company should never stop evaluating its distribution options. Just because a product has been distributed a certain way for years does not necessarily mean that there aren’t better methods of distribution. It's also important for a manufacturer to know the intermediaries: Are they willing to carry the product, or are they giving preference to a competitor? Will they carry a whole line of products, or just a few? What's their sales and profit history? Who are their customers? What kind of reputation do they have? Do they demand to know exactly how your product will improve their bottom line? Competitor Characteristics. Several factors about the competition should be taken into account in designing an effective distribution channel. How many of competitors are there, and how big are they? What distribution strategies do they use? How broad, deep, and complete are their product lines? What are their strengths and weaknesses? A company entering a new market or promoting a new product must know how the new offering will stand out. If the competition is just too strong in one distribution channel, maybe another channel would be more effective. Take Dell, for example: This company created new distribution channels to compete against such established computer sellers as IBM and Compaq. Dell sold through mail order, catalogs, and the Internet, and became one of the great success stories of the 1990s. Introduction
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DISTRIBUTION STRATEGIES Marketers can select from three different distribution strategies: Exclusive Distribution. The manufacturer sells products through only one wholesaler or retailer in a given area. It requires high investment in showrooms and inventory and a specialized sales effort. Selective Distribution. The manufacturer sells product through only a few retail outlets, and gets a special commitment from the retailers to push the product, say, by training the sales people to explain the product at the point of sale and to answer technical questions. High-end stereo equipment is an example. So are Nike products. The latest Nike styles are available only through specialty outlets such as Footlocker and some Niketown stores. Intensive Distribution. This means selling through as many outlets as possible. CocaCola is a prime example.
DISTRIBUTION TRENDS Distribution channels aren't fixed in stone. They must be adapted as the marketplace changes. Distribution channels today are changing to satisfy consumers’ changing wants and needs. Here are six examples: Warehouse Stores, also called hypermarts and club stores, are popular for customers seeking good value from brand-name manufacturers. They sell bulk goods at low prices, and often let a shopper buy everything for the household, car, etc., all under one roof. Some are members-only stores that a shopper joins for an annual fee. One-Stop Shops such as Super Kmart sell everything, including groceries, in one store. They're open to the general public. Outlet Malls are popular, full-size shopping malls that specialize in obsolete, excess, or second-quality inventory from name-brand makers at low prices. Gas Stations Teaming Up With Fast Food Chains. Again, one-stop convenience is increasingly important to many time-pressed shoppers, and killing two birds with one stone is an idea driving new combinations of product offerings. Internet. The Net is allowing consumers to buy from manufacturers regardless of location, and gives consumers access to product and pricing information that used to be hard to get.
SUPPLY CHAIN MANAGEMENT The aim of supply chain management is to make the flow of goods along the channel more efficient and to reduce the amount of working capital that's tied up in inventories and safety stocks at each stage of the channel. Effective supply chain management can be a competitive edge and lead to increased innovation, reduced costs, and improved conflict resolution. Procter & Gamble and Wal-Mart collaborate closely in managing their supply chain. Needless to say, they move huge volumes together and share extensive data electronically to manage inventory and ordering. Every time a customer buys Crest at a Wal-Mart, the purchase is catalogued in the company database. When a certain number of units is reached, an automatic 124
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order for delivery is sent to a P&G plant, which in turn triggers a production order. The payoffs are decreased inventory carrying costs and a more cost-efficient distribution process, and the savings can be passed along to the consumer.
GLOBAL DISTRIBUTION Distribution in the global marketplace means making use of a number of methods and channels for moving goods. Some special challenges face the international marketer. Since knowing the territory is essential, a typical manufacturer will need a local distributor who knows the market. Selecting the right local distributor is critically important, so the manufacturer must check the distributor's references and find out just what the distributor will do to push the manufacturer’s product. Will the distributor give it a place or lose it among the competition? Will the distributor train sales people and help promote the product? What is the local transportation system? Are the roads good (are there roads at all)? What legal restrictions apply? What cultural differences must be taken into account on matters like store hours, shopping habits, and product choices? Eventually, a manufacturer may want to establish part or all of its own system in a foreign country, but starting out offers challenges that must be conquered first.
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Key Points
1. Distribution includes all aspects of moving products from one point to another, from raw material acquisition to manufacturing to end-user. 2. Distribution channels are the firms and people that assist the movement of goods and services from producer to consumer. 3. Distribution channels form three basic functions to make the flow of goods from the manufacturer to the consumer much more efficient: • Transactional — Expediting the buying and selling transactions. • Logistical — Moving product from place to place and combining them in ways that make them easier to buy. • Facilitative — Making buying and selling easier. 4. There are numerous ways of getting goods and services from one point to another. The following are examples of distribution channels: • A direct consumer channel has no intermediaries. A consumer buys directly from the factory. • An Indirect consumer distribution channel includes one or more intermediaries. Some examples include: • Producer to wholesaler to retailer • Producer to agent to wholesaler to retailer • A direct organizational channel is a direct line from producer to consumer. It is most efficient when the product requires extensive customization. • An indirect organizational channel is when goods flow from producer to wholesaler to buyer. • Services are typically distributed through much shorter channels. 5. Vertical Marketing Systems (VMS) are becoming a more prevalent way of distributing products. There are three types of VMS: • Administered. A single program for the distribution of its line of products. • Corporate. One company owns all aspects of a channel. • Contractual. Members are united by contracts specifying each member’s responsibility. • Wholesaler sponsored co-op — Wholesalers establish a contractual relationship with retailers that standardizes procedure, inventory management and promotion of products. • Retailer sponsored co-op – Retailers join together to increase their market power. • Franchise — A parent company sells the right to operate a business according to the franchiser’s marketing plan and to use the franchiser’s trademark. 126
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6. The marketer needs to evaluate the following factors when determining distribution strategy.
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• Customer characteristics • Product characteristics • Intermediary characteristics
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• Competitor characteristics 7) The way in which a product is sold varies in terms of the number of outlets required to successfully market it. Marketers can choose from the following: • Exclusive — Selling product through only one wholesaler or retailer in the industry. • Selective — Selling product in a few outlets. • Intensive — Selling product through as many outlets as possible. 8) Distribution trends lead to interesting changes in the marketing process: • Warehouse stores • One-stop shopping stores • Outlet stores • Technology enhancements 9) Supply chain management is an important aspect of distribution strategy since it aims to make the process of moving goods through the supply chain more efficient. This efficiency can benefit the manufacturer by resulting in a reduction of inventory that reduces the amount of working capital needed, thus reducing expenses. It can also reduce stock-outs, which leads to more satisfied customers. 10) Distribution structures differ greatly from one country to another. A company going into the international market should typically find a local distributor who knows the foreign market. Over time, the company may decide that it is selling enough to warrant setting up its own foreign subsidiary and handling distribution locally. Keep in mind, in many emerging markets, distribution may be highly fragmented.
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Glossary
Administered VMS
A VMS controlled by a powerful producer in which the producer sets procedural rules for billing, electronic reordering, etc., or for using certain promotional materials or software that all their distributing partners must also use. This makes the channel more efficient and keeps costs down.
Contractual VMS
The most common type of VMS in which the channel members are under contract to each other, and their responsibilities specifically delineated. This kind of system enables companies to increase their control over a channel without owning all facets of the distribution channel. There are three types: 1. Wholesaler Sponsored Co-Op: A wholesaler establishes a contractual relationship with retailers to standardize purchasing procedures, manage inventory, and manage how products are promoted. 2. Retailer Sponsored Co-Op: Independent retailers ally to increase purchasing power in dealing with suppliers. They may own their own warehouses and run consumer ads collectively. 3. Franchise: A parent company gives franchisees rights to operate a business according to the franchiser's marketing plan and to use the franchiser's trademark. Franchisees pay a fee and contribute royalties based on sales to help pay for chain-wide advertising costs. Many franchisees are required to buy from the franchiser and can sell only the franchiser's products.
Corporate VMS
A VMS in which one company owns all aspects of a corporate channel: production facilities, warehouses, and retail stores.
Direct Channels
Distribution channels that have no intermediaries.
Distribution
The movement of goods from one point to another.
Distribution Channels
Firms and people that allow manufacturers to get their products to the customer as efficiently and cost-effectively as possible.
Exclusive Distribution
A distribution strategy in which the manufacturer sells products through only one wholesaler or retailer in a given area.
Facilitating Functions
Such things as financing transactions, grading products, creating sales forecasts, gathering market information, and so on, which assist the movement of goods in a distribution channel.
Intensive Distribution
Selling through as many outlets as possible.
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A participant in a distribution channel that adds efficiency to the flow of goods by collecting goods and creating new assortments of them for the end customer.
Intermediary
Logistics
The functions that move products from place to place and combine them in ways that make them easier to buy.
Selective Distribution
A distribution strategy in which the manufacturer sells products through only a few outlets and gets a special commitment from the outlets to push the product, say, by training the sales people to explain the product at the point of sale and to answer technical questions.
Transactional Functions
All the buying and selling transactions that occur among the members of the distribution channel.
Vertical Marketing Systems (VMS)
Centrally managed distribution systems that increase efficiency and marketing impact.
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Assignments
Assignment One: Cutting Out a Wholesaler Imagine that you work for “Tile Time,” a tile supply store that sells to wholesalers, who in turn sell to tile, department, and furniture stores. The president of the company has instructed you to investigate the possibility of cutting out the wholesalers and selling directly to the retailers, in order to save money. Address the following items in a one-page paper. • What words of caution might you voice regarding this matter? • What kind of information would you research and analyze before giving your final recommendation? Send your assignment to your instructor, according to his or her directions.
Assignment Two: The Distribution of Services The selection of proper distribution channels is crucial, whether marketing services or goods. Traditional distribution channels are always being rethought. For instance, it wasn’t so long ago that if you needed to go to the bank, you had to go to the bank’s brick-and-mortar location during business hours. However, with the proliferation of ATMs and online banking, banking can be done almost anywhere, day or night. In addition, bank branches are now appearing in such nontraditional locations as grocery stores and college campuses. In this exercise, you will rethink an existing distribution channel for a service of your choice. • Select a service that is well suited for expansion within existing markets. • Design a new channel of distribution for that service. • Give an overview of the market offering. • Give a rationale for expansion. • List possible limitations of the new channel. • List the factors you considered in creating this new distribution system. Mail your two-page response to your instructor according to his or her directions.
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Lesson Nine
Marketing Communications Personal Selling, Sales Promotion, Advertising, and Public Relations
The Third P of the marketing mix is the public face of marketing. But when people hear the term ”promotions,” many tend to think only of advertising. Lesson Nine explores the full range of promotion methods available to the marketer. It outlines the five steps involved in developing a promotion plan and details how to evaluate the effectiveness of promotions. It ends with a look at how these methods can be combined to produce an integrated marketing communications plan. The case studies include the successful integrated marketing plan of the California Milk Advisory Board, event sponsorship, a day in the life of a salesman, and the ways a Subway franchisee promotes his store.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Explain the importance of integrated marketing communications. • Assess the roles of four methods of communication. • Develop a marketing communications plan. • Critique the effectiveness of a marketing communications program.
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Completing Lesson Nine
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Nine in the Student Guide. 2. Read the text assignment for Lesson Nine, as indicated in the syllabus. 3. Watch the video program for Lesson Nine (Marketing Communications: Personal Selling, Sales Promotion, Advertising & Public Relations). Use the Lesson Nine Outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Nine. • The key points for Lesson Nine. • The case study for Lesson Nine. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, complete the online exercises for Lesson Nine and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Nine, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Nine Outline
I. OVERVIEW A. Promotion: the Fourth P in the marketing mix (Product, Pricing, Placement, Promotion) B. A successful promotion plan can cover a variety of promotional methods and be evaluated for its ef fectiveness.
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. C. Companies must integrate their promotions plans. II. PROMOTION METHODS A. Promotion is the most visible element of the marketing mix. B. Definition of Promotion: The communication of information between the seller and the potential buyer, or others in the channel, to influence attitudes and behavior. C. The four methods of promotions: 1. Advertising a. Definition: any paid form or non-personal presentation of ideas, goods, or services by an identified sponsor. b. Used to make customers aware of a product, influence them to try it, and to remind them after the purchase that they enjoyed it and want to buy it again. c. Benefits of Advertising i. Gets attention. ii. Conveys product information and benefits to potential customers. iii. Advertiser has control over what it wants to say, to whom, when, and how often. 2. Personal Selling a. Definition: presentations to individuals or small groups. b. Reaches a much narrower audience. c. Benefits of personal selling: i. Identify prospective customers. ii. Develop tailored solutions. iii. Reassurance to buyers. iv. Gather feedback and handle customer problems. d. When should a marketer use personal selling? i. When a customized solution is needed. ii. When the customer wants to see the product. iii. When training is involved. e. When should a marketer NOT use personal selling? i. When the message needs to be 100 percent consistent. ii. When the expense is inappropriate. iii. When the product is inappropriate. 3. Public Relations a. Definition: the information that a company communicates to its various publics; a form of communication management. b. Used to disseminate information, shape opinions, and influence beliefs. c. Forms of PR include documents such as annual reports and press releases; special events; lobbying efforts. d. Main form of PR is publicity: any unpaid form of communication; trying to get Introduction
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a magazine or a news program or some other medium to say favorable things at no cost to the company. e. Event Marketing: Special events or sponsorship activities can help promote a product or a brand by associating it with a charity, cause, or activity. f. Benefits of PR: i. Less expensive than personal selling. ii. Gives the company the advantage of credibility. iii. Can boost sales. g. Hazards of PR i. Can't be controlled. ii. Negative coverage can be damaging. 4. Sales Promotion a. Definition: A short-term incentive targeted to someone along the distribution channel or to the end customer. b. Rebates, samples, coupons, displays, sweepstakes, etc., designed to generate an immediate demand or volume increase at the point of sale. c. Designed to get customers to try something new or buy earlier than planned, or to buy a greater amount of something than they usually do. d. Benefits of Sales Promotion: i. Short term increase in sales. ii. Quick consumer response. e. Sales Promotions are an increasing part of the marketing budget due to declining brand loyalty and greater competition for the consumer dollar. D. Sales Promotions: Problems, Tactics, Benefits 1. Problems: a. Too many promotions and too little advertising can make it harder to build a solid brand reputation. b. Sales increases followed by sharp declines. c. Makes the sales pattern volatile. d. Invites logistical problems in the distribution channel. e. Some companies can schedule promotions to anticipate and plan for demand spikes. 2. Tactics — Three Types of Promotion: a. Immediate value: a price-pack or reduced price label on a package. b. Delayed value: a coupon, rebate, etc. that requires work from the customer. c. Bonus pack: A bonus size package at the same price; a free gift redeemable by coupon. 3. Benefits of Sales Promotions: a. Stimulates trial purchase of new products. b. Motivates customers to buy bigger quantities or make earlier purchases. c. Motivates players in a distribution channel. d. Saves money. III. DEVELOPING A PROMOTION PLAN A. Set Communications Objectives (AIDA: Attention, Interest, Desire, and Action). B. Set Target Markets. C. Develop the Message. 1 34
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D. Select the Appropriate Media. E. Set Budget. IV. EVALUATING MARKETING PROMOTIONS A. Measure the results of the marketing plan by holding them up against the plan's objectives IF the objectives are clear at the outset. V. SUMMARY
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Program Summary
Introduction to Marketing: Competing in the 21st Century
Lesson Nine
Marketing Promotions Personal Selling, Sales Promotion, Advertising & Public Relations In Lesson Nine of Introduction to Marketing, Professor Quelch examines the fourth P of the marketing mix: Promotions. Lesson Nine covers the various promotion methods used by marketers and shows how such methods are incorporated into an overall promotion plan. How does a marketer know when the plan is working and when it needs to be changed or scrapped? Finally, Professor Quelch discusses how companies can integrate all the various forms of marketing communications. Promotions, especially advertising, are probably the most visible element of the marketing mix. Advertising, however, is just one aspect of the whole promotions story. Marketers use a variety of tools for communicating value to the customer. What is promotion? Promotion is the communication of information between the seller and the potential buyer, or others in the channel, to influence attitude and behavior. Advertising is a prominent part, but not the only part, of communications.
THE FOUR ELEMENTS OF THE PROMOTIONAL MIX Four main methods make up the promotional mix: Advertising, Personal Selling, Public Relations, and Sales Promotion. Used in various combinations, these elements attempt to make customers aware of a product, influence them to try it, and remind them after the purchase that they enjoyed it and want to buy it again. These four methods work in a spectrum, from advertising, which delivers the broadest message to the widest possible audience, to personal selling, which can be one-on-one and highly specific.
Advertising Advertising is the most visible component of the promotional mix: a billboard, a magazine ad, a television commercial. It may target a specific market segment, but chances are, it's visible to many segments. A simple definition of advertising is any paid form or non-personal presentation of ideas, goods, or services by an identified sponsor. The word paid is an important part of this definition, because, with the exception of public service announcements, advertising is always purchased. Effective ads get attention. They convey product information and benefits to potential customers. The advertiser can control what it wants to say, to whom, when, where, and how often. For example, a company selling financial services would likely choose The Wall Street Journal to reach customers, not Field & Stream . Coca-Cola advertises through the mass media to reach a global audience, while a local bakery might advertise on a local cable station to reach its target audience.
Personal Selling At the other end of the spectrum is Personal Selling. It reaches a much narrower audience, but it has advantages over advertising. Sales people making small presentations can choose their audience, get instant customer feedback, and customize or adjust their message accordingly. Personal selling is a very effective way to identify prospective customers, to really get to know 1 36
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them, and to develop tailored solutions for their individual needs. It's excellent for giving personal reassurance to buyers when they have particular issues or questions. When a customized solution is needed, or when the customer wants to see the product, or when training is involved, there's more information than a thirty-second TV commercial can handle. Customers buying an expensive car, tailor-made fashions, or a special forklift won't be satisfied with just a little information. They need personal attention from a salesperson, and an ongoing dialogue in those cases when training and after-sales service are important. Are there times when personal selling isn't appropriate? When the message needs to be 100 percent consistent, personal selling may not be the way to go. Salespeople need some flexibility in their presentations, and sometimes that results in inconsistencies between the messages delivered to customers. Also, and more obvious, personal selling costs a lot. Some products shouldn't be promoted this way. Telephone marketing offers a way to sell on a personal basis without much of the costs of faceto-face personal selling. A whole industry of telemarketing, with large call centers, offers a company a way to stay in touch with customers, get feedback, offer new information, etc.
Public Relations The third component of the promotional mix is Public Relations. It's less expensive than personal selling, and can be aimed at a wide or a narrow audience. PR is the information that a company communicates to its various publics. It's a form of communication management. Companies use PR to disseminate information, shape opinions, and influence beliefs. It comes in many forms: documents such as annual reports and press releases; special events; and lobbying efforts. Publicity is the main form of PR. It's any unpaid form of communication. With publicity, a company isn't paying directly for advertising space. Instead, it's trying to get a magazine, a news program, or some other medium to say favorable things at no cost to the company. Good publicity gives the company the advantage of credibility. For example, a good review from an impartial writer helps a new restaurant. A demonstration of a new toy on the evening news around Christmastime will increase sales. Coverage such as this is like free advertising for the company. However, publicity can't be controlled, and negative coverage can be damaging. That's why publicity is rarely the cornerstone of any effective promotional campaign. Special events or sponsorship activities can help promote a product or a brand by associating it with a charity, cause, or activity. Supporting public broadcasting has helped Mobil polish its image and reach an affluent audience for years. Many tobacco companies and liquor companies, who are prohibited from most other forms of promotions, sponsor sports or music events as a way to reach their target audience and even get their logos and products on television.
Sales Promotion A fourth component of the promotional mix is Sales Promotion. In the last fifteen years, it has grown considerably in importance. Sales promotion is a short-term incentive targeted to someone along the distribution channel or to the end customer. It has one purpose: increase sales. Rebates, samples, coupons, displays, sweepstakes, all are designed to generate an immediate demand or volume increase at the point of sale. Sales promotions are short-lived, and so too can be the increase in sales they create. Often they're designed to get customers to try something new, or to buy earlier than planned, or to buy a greater amount of something than they usually do. Introduction
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WHY ARE SALES PROMOTIONS AN INCREASING PART OF THE MARKETING BUDGET? Twenty years ago sales promotions were relatively modest compared to advertising, but today they're increasingly prominent. Why? Declining Brand Loyalty. First, people aren't as loyal to brands as they used to be. They're also more likely to buy on impulse and less likely to plan their purchases in shops or supermarkets. New Power Inside the Distribution Channel. More promotions than ever are targeted to work inside the distribution channel, because players in the channel have more power than ever to extract concessions from manufacturers. Manufacturers often have excess capacity, that is, more manufacturing capability than they use. To maximize their capacity and increase their profits, manufacturers often create a promotion inside the channel, say, offering the product at a sale price to wholesalers. Short Term Financial Results. Sales promotions can generate a quick upward spike in sales and profits, so many companies use them instead of advertising when they're under pressure to show immediate results. Greater Competition for the Consumer Dollar. Manufacturers in developed countries must contend with flat demand and slow population growth, and sales promotions are an effective way to augment sales and keep a manufacturer competitive.
SALES PROMOTIONS: PROBLEMS AND TACTICS Many manufacturers, in weighing sales promotions against advertising in their budgets, fear that too many promotions and too little advertising make it harder to build a solid brand reputation. Also, the sharp sales increases are usually followed by sharp declines, and the sales pattern becomes volatile, inviting logistical problems into the distribution channel. Some companies schedule promotions in order to anticipate such demand spikes, and the planning extends all the way through their distribution channels from manufacturer to the point of sale.
Tactics Sales promotions can be sorted into two categories, based on the objective. Some are designed to offer immediate value. Others are designed to offer delayed value. Immediate Value. An example of an immediate value promotion is a price-pack or price special. It's just a label stuck on the package that says, “Only 99 cents.” Delayed Value. An example of a delayedvalue promotion is a coupon. It requires a little work from the customer: cut it out, take it to the store, and redeem it at the checkout counter. Such a promotion, coupled with advertising, can be very effective. Redeeming rebates can be even more delayed and more work: buy the product, send in the rebate coupon, and wait for the rebate. However, the value is real for those 1 38
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who take advantage of it, and there's a hidden benefit for the manufacturer: Many people who buy the product because of the rebate don't do the work to get the rebate. Bonus Packs. Another example of immediate value is a bonus pack. A bonus pack is a little extra something, such as “25 percent more free!” in a detergent box or soda bottle. Sales promotions are versatile and give companies several advantages. They stimulate trial purchase of new products and get people to buy bigger quantities or make earlier purchases. They can motivate everyone in a distribution channel. They're also good for conserving money: Companies pay up front for advertising but promotional costs come simultaneously with the actual sale. That's one more reason why many smaller companies use promotions often.
Developing a Promotion Plan Developing a Promotion Plan takes five steps. There's no formula, though, for the decisions that need to be made in each step. Good promotions often are the result of good marketing instincts and experience. Set Communications Objectives. Decide what the plan should accomplish. There's an acronym for this: AIDA. AIDA means Attention, Interest, Desire, and Action. Any good promotion either captures the customer's attention, stimulates their interest, provokes their desire, or makes them take the action the marketer wants them to take. Set Target Markets. Decide whom the plan should address, and where they should be addressed. If the market includes different targets, the promotion plan should be adaptable to them all, or a different promotion plan should be tailored for each target market. Develop the Message. Caution should be taken not to pack the message too full. Promotions work quickly, so keep the message simple. Select the Appropriate Media. Choose among the media the ones that will convey the promotion most effectively. Set a Budget. Decide how to allocate assets among the various promotion methods so as to accomplish the objectives. Companies measure the results of the marketing plan by holding results up against the plan's objectives. Not all companies are clear on their objectives at the outset, however; measuring sales volume increase after executing a plan designed to build awareness is uninformative, and may be unfair to the people responsible.
INTEGRATED MARKETING PROMOTIONS Consider the factors that influence a promotional plan: the characteristics of the product, the stage of the product's life cycle, the intended audience, etc. Each one will influence the choice of how best to communicate a promotional message, and each may be the responsibility of different people or departments in a company. It's essential that the communications plan be integrated: for example, if Toyota is running a national ad offering a sales incentive, every Toyota dealer needs to be aware and prepared. Keeping everyone in the loop helps ensure the success of a promotion plan.
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Key Points
1. Promotion is the communication of information between seller and potential buyer or others in the channel to influence attitudes and behavior. 2. It is important to coordinate all marketing communications to ensure that a consistent message is delivered across all audiences. This is referred to as integrated marketing communications. 3. The following are four methods of marketing communication: • Advertising • Personal Selling • Public Relations • Sales Promotions 4. Advertising is any paid form of nonpersonal presentation of ideas, goods, or services by an identified sponsor. It involves various types of media such as TV, radio, and magazines. It has several advantages: • It is attention grabbing. • One can easily convey product benefits. • One can control what to say, who to say it to, when to say it and how often to say it. 5. Personal selling is face-to-face selling or one-on-one selling. It reaches a much narrower audience than advertising. Because of the face-to-face contact, personal selling gives the marketer the ability to: • Identify prospective customers. • Develop tailored solutions. • Give personal reassurance to buyers. • Gather customer feedback. • Handle customer problems as they arise. 6. Personal selling is appropriate when a customized solution is needed, when training is involved, when the product is fairly complex, or when the target market is not served by mass media. But personal selling has its drawbacks: • It can be very costly. • It can also be subject to inconsistencies since the message is delivered personally and can be modified. 7. Telemarketing is a component of personal selling. Speaking to prospects and customers by phone is much more cost-efficient than meeting face-to-face and it offers some of the same benefits. 140
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8. Public Relations is information that a company communicates to its various publics, including customers, stockholders, employees, government, or general public. • Publicity, any unpaid form of communications, is the most visible form of public relations. In essence, the company tries to get the media to run a complimentary story about them. This type of communication tends to be more credible than a paid form of advertisement; however, the company has little control over what is said, when it is said, and to whom it is said.
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• Event marketing is also a form of public relations. Companies can promote their product or sponsor sports, concert, art-related, or any event where their target audience may attend. 9. Sales Promotion is a short-term incentive that can be targeted at either the end consumer or anyone along the distribution channel with the sole purpose to create an increase in sales. This type of promotion has seen a surge in popularity over the past couple of decades. However, a sales promotion has several disadvantages: • It can detract from the long-term ability to build a brand reputation. • It can lead to logistical distribution problems by creating sharp sales increases and decreases. 10. The benefits of Sales Promotion are: • It is versatile. • It can stimulate trial purchases. • It can increase the quantity purchased. • It can induce earlier buying. • It can provide simultaneous incentives to everyone in the distribution channel and to the end consumer. • It is incurred on more of a “pay as you go” basis. 11. A promotions plan is an important component of the communications program. There are five steps involved: • Determine what the objective of the promotion is. • Determine and prioritize the target market. • Develop the message. • Select the media. • Set the promotion budget. 12. Once the promotion plan is set, the marketer must be able to critique the effectiveness of the campaign. The marketer must always measure the results against objectives. A common mistake is not setting clear objectives against which outcomes can be measured. This means step one in the promotions plan is vitally important in determining the effectiveness of the promotion. Introduction
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Glossary
Advertising
Any paid, non-personal presentation of ideas, goods, or services by an identified sponsor. The most visible component of the promotional mix.
Bonus Pack
A larger than normal package of a product offered at the normal price (immediate value).
Delayed Value Promotion
A promotion that requires the customer to perform some task such as clipping a coupon or returning a rebate coupon to receive value.
Event Marketing
Special event sponsorships that promote a company, product, or brand by associating it with a charity, cause, or activity.
Immediate Value Promotion
A special designed to stimulate sales by offering immediate value to the consumer.
Personal Selling
Direct, spoken, individual, or small group presentations in person or by telephone in which a salesperson can identify prospective customers, develop tailored solutions for customer’s individual needs, give reassurance to buyers, gather feedback, and handle customer problems.
Publicity
Any unpaid form of communication such as press coverage, reviews, etc., which, if favorable, can give a company credibility.
Public Relations
The information that a company communicates to build a favorable reputation — a good “corporate image” — disseminate information, shape opinions, and influence beliefs, with agencies, consumers, and shareholder groups.
Promotion
The communication of information between the seller and the potential buyer or others in the channel to influence attitudes and behavior.
Promotional Plan
A company’s program for creating and executing effective communications with a market or markets. Includes five steps: 1. Set Communications Objectives 2. Set Target Markets 3. Develop Message 4. Select Appropriate Media 5. Set Budget
Sales Promotion
Short-term incentives targeted to someone along the distribution channel or to the end customer, designed to increase sales, motivate customers to try something new, buy earlier than planned, or buy a greater amount of something than they usually do.
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Case Study
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Why do California redwoods refuse to grow anywhere else? What were the Mamas and the Papas dreaming about? Why did the term “awesome” originate in California? “It’s the Cheese.” So says the California Milk Advisory Board, which not long ago was in a quandary. California’s $4 billion-per-year dairy industry is the biggest in the United States, but when people thought of cheese, they thought of Wisconsin. To change that perception, the board took a commodity product made by multiple manufacturers and gave it a single, memorable brand identity using an integrated marketing campaign. The theme of the campaign runs across all media from billboards to television spots, in-store promotions, shelf displays, airplane banners, and a Cheesemobile. “It’s the Cheese” was the punch line to seemingly endless funny, attention-getting questions. The promotions feature appetizing shots of the products and a logo with a sunrise and the words “Real California Cheese” on all cheese products made by state-certified manufacturers. On a typical day, a Californian might see the slogan and the logo several times on TV, from the car, and in the stores, each time with a different funny spin. The objective: cement the impression that the only real cheese is Real California Cheese. Behind the media campaign was a coordinated integrated marketing effort to get the word out about the quality and variety of California cheese. The board used in-store tasting booths next to the dairy case, discount coupons on related dairy items such as eggs, and shelf displays to show shoppers the how cheese could improve their home cooking. Different market segments got different messages: Hispanics, who consume a significant amount of dairy products, were shown that California cheese meets a high standard for quality, while Asians, whose traditional cuisine is low in dairy products, were shown how cheese could supplement a healthy diet. Businesses heard about cheese as well: Pizza makers were shown how using Real California Cheese would add perceived value to their products. The so-called “influentials” such as cookbook authors, gourmet retailers, food writers, and restaurant reviewers were educated at seminars and tastings to promote good publicity. And the Cheesemobile, shaped like a giant wheel of cheese, appeared statewide at fairs and public events to make a unique visual statement. The campaign created attention, interest, and desire, but did it produce action? The Milk Advisory Board emphatically says yes. Seven of ten California pizza makers now use Real California Cheese. Production has risen 75 percent since the campaign was launched. The industry sells 1.2 billion pounds of cheese a year and has nearly doubled the variety of cheeses it produces in response to the new interest. Why? It’s the marketing. DIRECTIONS Watch the video and answer questions below. Send the completed case study to your professor, according to his or her own instructions. How does the California Milk Advisory Board’s campaign illustrate the principles behind successful integrated marketing communications? What challenges might the board face in the future? What can the board do to ensure its success in the future? Introduction
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Assignment One: Second-Hand Clothing Your family owns and operates a successful, high-end, second-hand clothing business. You only accept clothing made by well-known designers, and the items must be in excellent condition. Your customers are label-conscious as well as budget-conscious. Your business currently has two locations; however, you’ve pinpointed an ideal location for a new store, based on population trends in that area. Your new location will open in six months. Outline a promotion plan you would implement to communicate your message to your target audience and meet your objectives. In outlining your plan, consider the following: • What should be the objective of the campaign in relation to the AIDA model and why? • What kinds of promotion elements should the campaign emphasize and why? • How would you implement and control the plan? • How would you prevent the promotion from reducing sales at your existing stores? • What steps would you take to ensure that you implement an integrated marketing communications plan? Address these issues in a two-page paper. Send your responses to your instructor, according to his or her directions.
Assignment Two: Call 1-800 Many of the companies we’ve examined in this course are packaged goods companies that you’ve probably had little, if any, direct interaction with. However, these are the companies that you are most likely to purchase items from on a regular basis throughout your life. Many of these companies have “1-800” customer comment phone numbers. This offers a unique way for you to interact with the companies and evaluate for yourself evidence of the companies’ marketing orientations. 1. Find three consumer products you purchase regularly that have a “1-800” consumer information telephone number on the label. 2. Think about a few questions you’d like to ask each company. 3. Address the following items in a written report: • List the number called, time and date called, brand name of the product, and company that makes the product. • Was the call answered by a “live” person or a voice-mail system? • What difference would this make to a consumer caller? • What kind of information was available? • From a marketing perspective, why is this type of information offered? 144
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• If the call was answered by a “live” person, what questions did you ask? What were the responses? • Did the firm request information about you? If so, what kind of information was requested and why do you think the firm wanted it? • Review pages 35-38 of your textbook on what it means for a firm to use a “marketing orientation” as a business management philosophy.
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• Based on your telephone contact, comment on the firm's “marketing orientation.” Send your one-page assignment to your instructor, according to his or her directions.
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Lesson Ten
A closer Look at Advertising When, Where, Why, and How to Advertise
When most people think of marketing, they think advertising. Even though advertising is only a small portion of the marketing process, it is certainly the most visible and the most glamorous. Lesson Ten examines the role advertising plays in society, when to use advertising, what types of advertising media are available, and how to measure the effectiveness of an advertising campaign. In addition, it presents students with a behind-the-scenes exploration of the advertising industry. The case studies include the methods and theories behind the billboards developed by Outdoor Systems, the strategies behind the Legoland advertising campaign, and the making of a television promotional spot.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Explain the purpose of advertising. • List and compare different types of advertising. • Describe when to use advertising. • Explain how to determine the effectiveness of advertising.
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Completing Lesson Ten
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Ten in the Student Guide . 2. Read the text assignment for Lesson Ten, as indicated in the syllabus. 3. Watch the video program for Lesson Ten (A Closer Look at Advertising: When, Where, Why & How to Advertise). Use the Lesson Ten Outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Ten. • The key points for Lesson Ten. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide . Instead, complete the online exercises for Lesson Ten and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Ten, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Ten Outline
I. OVERVIEW A. Advertising is “the public face of marketing.” Despite its high visibility, most people don't know how advertising works. It can be both highly scientific and highly creative. II. THE PROMOTION MIX A. Promotional mix includes advertising, personal selling, sales promotion, and public relations, combined in various ways to communicate with the target market. B. Advertising, the most glamorous and best-known element of marketing, is the fourth main method of communication between a company and the markets. III. ADVERTISING’S ROLE A. Provides product awareness — conveys or enhances knowledge about the good or service. B. Introduces the product to a customer, or augments what they already know about it. C. Creates a favorable image of a particular brand, to separate or differentiate it from competitors' brands. D. Provides reassurance to customers. E. Shows customers how to prepare and use the product. F. Tells how much the item costs and where it's available. G. Shows what the product looks like, so shoppers can pick it out easily. H. Builds morale in the distribution channel and develops retailer interest. I. Annual advertising expenditures in the U.S. exceed $160 billion — about $615 for every man, woman and child in the nation. IV. WHEN TO ADVERTISE A. Neil Borden's The Economic Effects of Advertising outlines five criteria for when to advertise: 1. When demand is on the rise. 2. When there's an opportunity for product differentiation. 3. When a product has “hidden qualities.” 4. When the product can be promoted using emotional appeals. 5. When the sales volume supports advertising costs. V. ADVERTISING MEDIA A. Advertising Terminology: Reach, Rating, Frequency, GRP, and CPM 1. Reach: number of people exposed to an advertisement. In TV and radio, referred to as rating, the percentage of people or households in a given market who are tuned in to a particular show. 148
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2. Frequency is the average number of times a person is exposed to an ad during a particular planning period. 3. Reach multiplied by frequency yields gross rating points: R x F = GRP. 4. CPM, or cost per thousand, the cost of reaching 1,000 of the targeted individuals or households. B. Television — Standard Commercials 1. Powerful advertising medium because of its reach, but expensive. 2. Many advertisers use 15 second commercials, called splitting 30s, due to high cost. 3. Long, complicated messages aren't appropriate for standard commercials. C. Television — Infomercials 1. Program-length ads that combine education, promotion, and entertainment. 2. 25 percent of U.S. households have bought products advertised on infomercials. 3. Infomercials have a full half-hour to inform and inspire a viewer to act. D. Radio 1. There are seven times more radio stations in the U.S. than television stations. 2. Radio more segmented than TV, so wasted coverage is much less than on TV. 3. Far cheaper than making an ad for television. 4. Radio can still convey powerful drama and illusion. 5. Inappropriate for products that must be seen to be appreciated. 6. Typically it competes for attention with other activities the listener is doing. E. Print 1. Wide range of options: newspapers, magazines and trade journals, national and local, general and specialized. 2. Print helps consumers understand features and benefits of complicated products. 3. Reader can linger and reread something interesting and valuable. 4. Helps marketers target very specific markets. 5. Over 400 new magazines introduced every year in the United States, many for niche audiences. 6. Number of readers of a magazine might far exceed its number of subscribers. F. Outdoor 1. Includes billboards, posters, bus banners, bench ads, neon signs, etc. 2. Effective if a viewer passes them repeatedly on a regular route. 3. Reach only the people on that route. 4. Visual impact has to be instantaneous. G. Nontraditional Media 1. Visible trademarks and logos. 2. Promotional video to promote, explain, and sell. H. Internet 1. Rapidly growing global medium. 2. Options includes company sites, banners on other sites, and paid hyperlinks. I. Other Media 1. Marketer's own product is a form of advertising (Campbell's Soup). VI. EFFECTIVENESS OF ADVERTISING A. Testing is done before, during, and after an ad campaign to measure if, and how well, it accomplishes the company's objectives. Introduction
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B. Pre-Testing: before the campaign 1. Portfolio 2. Jury 3. Theater C. Aided Recall D. Unaided Recall Post-Test E. Attitude Test VII. LEGAL AND ETHICAL ISSUES A. Marketers have an ethical responsibility to advertise in appropriate ways. B. Advertisers can be subject to legal liability for ads that break the law. C. Good ads don't make up for bad products. D. The U.S. Federal Trade Commission. VIII. SUMMARY
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Program Summary
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Introduction to Marketing: Competing in the 21st Century
Lesson Ten
A Closer Look at Advertising When, Where, Why, and How to Advertise
T e n
Advertising is “the public face of marketing.” Despite its high visibility, most people don't know how advertising works. What to say, how to say it, and how much to spend all fall under the definition of advertising, and it can be both highly scientific and highly creative. In Lesson Ten of Introduction to Marketing , Professor Quelch examines the need for companies to communicate with their markets. He looks at the promotional mix and all the communications methods available to today's companies, and at advertising's role in marketing — why and why not, and when to use it. He describes the various types of advertising and discusses how to measure its effectiveness. Last, Professor Quelch discusses some of the legal and ethical issues involved in advertising.
THE PROMOTIONAL MIX A company's marketing communications program is known as its promotional mix. It's made up of a variety of tools already examined in these lectures, including advertising, personal selling, sales promotion, and public relations, combined in various ways to communicate with the target market. Public relations is used to build a favorable reputation — a good “corporate image” — with agencies, consumers, and other shareholder groups, by seeking good free publicity. Personal selling is direct spoken communications between sellers and potential customers, usually in person, but increasingly via telephone or over the Internet. Sales promotions are short-term incentives to consumers or to people inside the distribution channel — rebates, samples, coupons, markdown specials, etc. Advertising, the most glamorous and best-known element of marketing, is the fourth main method of communication between a company and the markets. What's its role?
THE ROLE OF ADVERTISING What does advertising do? Companies need to communicate a variety of ideas, facts, directions and questions to their markets, so the first role advertising plays is to provide information. Advertising provides product awareness — it conveys or enhances knowledge about the good or service. Advertising also helps create a favorable image of a particular brand, to separate or differentiate it from competitors' brands. It helps provide reassurance to customers, saying that this particular product and brand is exactly what they're looking for, and that they'll be pleased with the purchase. Next, advertising can show customers how to prepare and use the product. Many companies give away recipes, for example, showing how their food item can be used. These free recipes can stimulate sales, particularly among people who might not otherwise try the product. Ads offer simple messages about how much the product costs and where it's available. It shows what the product looks like, so shoppers can pick it out easily. Introduction
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Finally, ads help build morale in the distribution channel and develop retailer interest. If a retailer and wholesaler see that a manufacturer is investing in advertising to develop consumer demand, they're more willing to give it shelf space and take less of a margin before reselling the product. Advertising's many functions make it a very important medium. That's why annual advertising expenditures in the U.S. exceed $160 billion — about $615 for every man, woman, and child in the nation.
WHEN TO ADVERTISE Advertising is flexible. It offers a company the potential to reach many customers at once, or it can be timed and targeted to reach a specific group. There are many forms to choose from: radio, television, magazines, newspapers, billboards, the Internet — and the cost per viewer is relatively low — much lower than the cost of reaching a customer through a sales call. Should a company ever decide not to advertise? Certainly. The cost of advertising can be high, and much of it can be wasted if it fails to communicate with the desired target audience. An ad for women's dietary supplements during a college football game would cost a small fortune but would reach a largely indifferent audience. When is it appropriate to advertise?
Neil Borden's List A book written in 1920 remains a classic today. Neil Borden's The Economic Effects of Advertising outlines five criteria for when to advertise: 1. When demand is on the rise, advertise. Ads can stimulate and accelerate demand at that time. 2. When there's an opportunity for product differentiation, advertise. If a company has a new way to set a product apart, that's the time to say it. 3. When a product has “hidden qualities,” qualities that make a product brandable, advertise. Sunkist advertises that its oranges are juicier and sweeter than other oranges because a customer can't always tell that from looking at the orange. 4. If the product can be promoted by using emotional appeals, advertise. Advertising can emphasize the product’s value over and above its basic functions. 5. When the sales volume of a product can support advertising, advertise. Companies shouldn't advertise at times and in ways they can't afford.
REQUISITES FOR EFFECTIVE ADVERTISING Before a company spends its first advertising dollar, it needs to know what makes an ad effective. Two questions must be answered: Who is the customer? What is the objective of the ad? When these key questions have been answered, the marketer can go on to decide what to say and how, where, when, and how often to say it.
Who Is the Customer? Answering the question “Who is the customer?” begins the process of tackling several other key questions: Who's the target audience? Is it potential buyers, or current users? Is it the people who make the buying decision, or is it people who influence the decision-makers? What do they want to hear? What will get their attention? Where do they get their information? What's the best way to reach them? 152
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What response is the ad intended to elicit? To motivate people to become new customers, or to reach people at some other stage in the decision-making process? To familiarize people with the company name? To build anticipation for a forthcoming product? Or is it to spur people into action right away?
What to Say A marketer can take several approaches in determining what to say: Rational appeals speak to the audience's self-interest and say that the product will give them the benefits they want. If it's clean laundry they want, a rational appeal tells them that the product will remove stains and brighten colors, perhaps explaining how it works and comparing it favorably against a competitor's product. Emotional appeals are good for stirring up feelings that motivate a purchase. Soft drink ads, for example, emphasize fun and camaraderie. Toothpaste ads inspire the fear of dentists and cavities. Michelin tire ads show children and say that buying Michelins is an investment in their safety. Moral appeals target the audience's sense of what's “right.” Social causes, aid to the needy, environmental cleanliness, and political candidates are often advertised by the use of moral appeals. Humorous appeals can be very effective and memorable. Volkswagen, Prudential Insurance, and countless other advertisers have overcome marketing challenges by making unforgettably funny advertisements.
How to Say It Once what to say has been decided, marketers must decide how it should be said. How should the message be structured? Will it draw conclusions for the audience or not? Will it emphasize strengths or admit weaknesses? Will the strongest argument be given first or last? What's the tone of the ad — serious or light? Consider one of the rules strictly followed by the ad agencies for Heineken: never show Heineken being drunk from the bottle. Showing it being poured into a glass emphasizes the premium positioning of the beer.
Where to Say It When the kind of appeal has been determined, and how to say it seems clear, the marketer must decide on a symbolic or stylistic format — where to say it. Choosing a print medium means creating copy, choosing fonts, making illustrations, etc. Choosing radio means creating sounds, copy scripting, and voice casting. Is television best? Will an on-camera spokesman be needed? A cast of actors? What should they say, wear, and do?
TYPES OF ADVERTISING MEDIA All these questions require an enormous investment of time, because an ad has so little time to do what it must do: grab the audience's attention. Consumers are bombarded with thousands of ad messages every day. It's crucial that the marketer chooses the media that will communicate most effectively. There are plenty of alternatives, and within each one, many additional choices. A thorough knowledge of the target market is essential to picking the right medium, or combination of media, for an ad. Keep the goal in mind here: the maximum effective exposures for the minimal cost. Introduction
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Advertising Terminology: Reach, Rating, Frequency, GRP, and CPM Reach is the advertising term for the number of people exposed to an advertisement. In TV and radio, it's called rating, the percentage of people or households in a given market who are tuned in to a particular show. Frequency is the average number of times a person is exposed to an ad during a particular planning period. Gross Rating Points. Reach multiplied by frequency yields a figure called Gross Rating Points. Reaching 50 percent of the target audience with six ad exposures during a fixed period equals 300 GRP. Marketers set specific GRP objectives to judge the effectiveness of their ads. Cost Per Thousand. Another important figure measures effectiveness: CPM, or cost per thousand. That's the cost of reaching 1,000 of the targeted individuals or households. Marketers use GRP and CPM to help them decide which media can help them reach their target market, and where to spend their advertising dollars most effectively. Each medium offers advantages and disadvantages the marketer must weigh to get the best bang for the buck.
Television — Standard Commercials Television is a powerful advertising medium because of its sheer ubiquity. But it's also an expensive medium on which to advertise. A thirty-second commercial for national exhibition can cost hundreds of thousands of dollars. Many advertisers make fifteen-second commercials to save money, a practice called splitting thirties that cuts costs but makes it difficult to get a message across in such a short time. Longer, more complicated messages aren't appropriate for such short commercials. Also, fifteen seconds may be fourteen seconds more than viewers want to see, and the remote control makes it very easy for them to change the channel or mute the audio. Finally, TV reaches millions of people to whom a message may be just irrelevant. It's called wasted coverage when an ad is watched by people who will never do anything about it, such as lawn care product commercials viewed by children. Specialized channels such as Discovery and MTV are helpful for advertisers seeking to target specific viewers.
Television — Infomercials Increasingly popular, infomercials are program-length ads that combine education, promotion, and entertainment. They're very popular — 25 percent of U.S. households have bought products such as appliances and cosmetics that are advertised on infomercials. Infomercials have a full half-hour to inform and inspire a viewer to act.
Radio The United States has seven times more radio stations than television stations, so despite its age, radio remains a powerful advertising medium. It's also much more segmented than TV, so the wasted coverage is much less than on TV. Producing a radio ad is far cheaper than making an ad for television, but a good radio ad can still convey powerful drama and illusion. However, radio isn't appropriate for products that really must be seen to be appreciated, and typically it competes for attention with other activities the listener is doing.
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Print Print offers a very wide range of options, newspapers and magazines, national and local, general and specialized. Print ads give the marketer room to help consumers understand the features and benefits of complicated products. A reader can linger and reread something interesting and valuable. Also, print helps marketers target very specific markets. More than 400 new magazines are introduced every year in the United States, many for niche audiences. And an unexpected advantage to print advertising lies in the number of readers who look at a magazine over and above the subscriber (how many people have looked at Newsweek in a doctor's waiting room?), so the number of readers of a magazine might far exceed its number of subscribers.
Outdoor Billboards, posters, bus banners, bench ads, neon signs — they're all effective, especially if a viewer passes them repeatedly on a regular route. However, they generally reach only the people on that route, and the visual impact has to be instantaneous.
Nontraditional Media Nike's trademark “swoosh” is displayed on clothes, caps, uniforms, and equipment worn by athletes on and off the playing field. Every time a batter stands at home plate it can be a subtle ad for Nike. Another type of nontraditional ad is the promotional video. Pharmaceutical companies and real estate interests use these to promote, explain, and sell.
Internet Internet advertising is a rapidly growing medium that potentially can reach a worldwide audience. The Net offers marketers options including their own sites, banners on other sites, and paid hyperlinks.
Other Media The marketer's own product is a form of advertising. A Campbell's Soup can is an American icon and an object of Pop Art. The product name, its package design, the logo, the price, and the characteristics of the product itself all communicate messages to the customer.
EFFECTIVENESS OF ADVERTISING How does a marketer know if its advertising works? Extensive testing is done before, during, and after an ad campaign to measure if, and how well, it accomplishes the company's objectives.
Pre-Testing Advertisers often pre-test a selection of ads before launching the actual campaign to learn how consumers will react to them. An unfavorable reaction in the pre-tests can save the marketer from spending huge amounts on broadcasting a miscalculated message. There are three types of pre-tests: Portfolio. Participants read the text ad along with other ads without knowing which ad is being tested. The researcher then asks questions about the ads — were they memorable? Informative? Did one stand out? Jury. Participants view a single ad and rate it against various criteria determined by the researcher. Introduction
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Theater. Participants view previews of movies or TV shows that include advertisements, then indicate their reactions to the ads using recording devices or questionnaires.
Aided Recall In an aided recall test, markets show consumers an ad, then ask if and where they've seen it before, and what they remember about it — what brand it promotes, etc.
Unaided Recall Post-Test Researchers ask participants, what ads do you remember seeing or hearing today? What's the best ad you've seen this month? In these tests the researchers don't suggest any brand names.
Attitude Test In this test researchers ask participants how they feel about a campaign, and if their feelings changed after seeing it, to determine whether the ad led to more favorable opinions. A splitcable sales test uses modern cable technology to feed two different versions of an ad campaign into two sets of volunteer homes. Purchases made by the viewers in these homes are recorded and measured to see if the two campaigns resulted in significantly different sales.
SCHEDULING ADS When and how often should a marketer run an ad? It's known that advertising is most effective when seen by a prospect several times. But there's a budget to think about too, so a marketer needs to achieve the objective without overspending. For products where demand doesn't vary much through the year, a continuous pattern is commonly used. A flighting pattern is on-and-off, with some ads scheduled in bunches according to the time of year. Toys may be advertised this way. Pulsing is a variation of flighting, with higher spending at certain times.
LEGAL AND ETHICAL ISSUES IN ADVERTISING Ads can be powerfully influential, so marketers have an ethical responsibility to use them in appropriate ways. Moreover, many advertisements are regulated, and advertisers can be subject to legal liability for ads that break regulations, mislead or damage, violate copyright, or use intellectual property without authorization. Good ads don't make up for a bad or dangerous products. The short-term gain realized from a successful one-shot ad campaign that raises expectations and sales quickly becomes ill will if the customers aren't happy after the sale. That said, it's also important for advertisers to give the audience due credit. American consumers have been saturated with ads, messages, promotions, gimmicks, and hustles for decades, and they're perfectly capable of making judgments that truly are in their own best interest. The U.S. Federal Trade Commission regulates advertising in the United States. It guards against unfair, unethical, or deceptive advertising. If the FTC finds an ad to be misleading, it may require the company to run corrective advertising.
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Key Points
1. The purpose of advertising is to provide information. Advertising can: • Raise awareness of a product. • Create a favorable image of a particular brand. • Reassure consumers that the product and brand is exactly what they are looking for. • Show consumers how to prepare and use the product. • Communicate pricing. • Communicate distribution locations. • Show the packaging so it can be readily identified in a store. • Build employee morale. • Show retailer and wholesaler the marketer is committed to invest money in building consumer demand. 2. There are different types of advertising vehicles to use. Some are as follows: • Traditional television is a particularly powerful medium. The images are realistic and TV reaches 95 percent of homes in the United States. But it is costly, the remote control can flash right over a commercial, and you may be reaching those not in your target market. • Infomercials are program-length advertisements that are part entertainment, part educational and part promotion. More than 25 percent of all U.S. households have purchased a product advertised on an infomercial. They are especially useful for products retailing over $20.00 that can be demonstrated. • Radio is much more segmented than television and is lower in cost. However, there is a lack of visual component and is of limited value to products that need to be seen to be appreciated. • Print is a flexible media in that provide very wide or very focused coverage. Print ads can explain the features of a complicated product and a customer can linger over a print ad. Conversely, a print ad is also easy to flip over and ignore. • Outdoor includes billboards, signage, banners, and posters on transportation vehicles. A poster or billboard is a good “reminder” ad since it can reach many people and reach them repeatedly. • Internet advertising allows marketers to reach people all over the world through Web sites. The Internet offers great opportunities for targeted marketing and even one-onone marketing at a relatively low cost. The downside of Internet advertising is that the Web is an increasingly cluttered medium. 3. A marketer named Neil Borden wrote a book called The Economic Effects of Advertising . It outlines five criteria for when advertising makes sense:
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• When the overall demand trend in the product category is favorable. • When there is an opportunity for product differentiation. • When the product has hidden qualities that make the product brandable. • When the product lends itself to emotional appeals. • When sales volume supports advertising costs. 4. To make an ad effective, the marketer must answer the following questions: • Who is the customer? • What is the objective of the ad? • How do you communicate it effectively? • The message should follow the AIDA model. It should get the audiences attention, hold their interest, arouse their desire and motivate them to action. • What, how, how often, and where do you say it? • Will the appeal be: • Rational? • Emotional? • Moral? • Humorous? 5. Marketers evaluate media to determine which media is the most appropriate to use. The following measurements are used: • Reach measures the number of people exposed to your advertisement in print media. • Rating measures the number of people exposed to your advertisement in television and radio. • Frequency measures the average number of times a person is exposed to an ad during a particular planning period. • Gross rating points is reach multiplied by frequency. • CPM (cost per thousand) describes the cost required to reach 1,000 individuals or households. 6. Marketers test the effectiveness of ads through: • Pretests —To determine which ad is effective through: • Portfolio tests • Jury tests • Theater tests • Post-tests —To determine if an ad was indeed effective through: • Aided recall • Unaided recall • Attitude test • Split-cable test 1 58
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Glossary
Aided Recall
Marketers show consumers an ad, then ask if and where they've seen it before, and what they remember about it — what brand it promotes, etc.
Attitude Test
Researchers ask participants how they feel about a campaign, and if their feelings change after seeing it, to determine whether the ad led to more favorable opinions.
Continuous Pattern
Steady advertising for products the demand for which does not vary much through the year.
Cost Per Thousand (CPM)
The cost of reaching 1,000 of the targeted individuals or households with an advertisement; another measurement of advertising effectiveness.
Emotional Appeal
Advertising which provokes feelings, positive or negative.
Federal Trade Commission The U.S. government agency charged with enforcing federal (FTC) antitrust and consumer protection laws. The FTC seeks to ensure that the nation's markets function competitively and are vigorous, efficient, and free of undue restrictions, and also works to enhance the smooth operation of the marketplace by eliminating acts or practices that are unfair or deceptive. Flighting Pattern
On-and-off advertising for products affected by seasonal or irregular demand.
Frequency
The average number of times a person is exposed to an advertisement during a particular period.
Gross Rating Points (GRP) Reach multiplied by Frequency. (R x F = GRP; reaching 50 percent of the target audience with six ad exposures during a fixed period equals 300 GRP). A specific GRP objective is used to judge the effectiveness of advertisements. Humorous Appeal
Advertising designed to entertain and be memorable.
Infomercials
Program-length advertisements that combine education, promotion, and entertainment.
Jury
Participants view a single ad and rate it against various criteria determined by the researcher.
Moral Appeal
Advertising which targets the viewer’s sense of correctness or propriety.
Portfolio
Participants read the text ad along with other ads without knowing which ad is being tested. The researcher then asks questions about the ads: Were they memorable? Informative? Did one stand out?
Pre-Testing
Evaluating an advertisement or campaign before the launch, to learn how customers will react and then make necessary changes. Introduction
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Product Awareness
Knowledge of the existence of the good or service.
Promotional Mix
A company’s advertising, personal selling, sales promotion, and public relations, combined in various ways to communicate with the target market.
Pulsing Pattern
A variation of flighting with higher spending at certain times of year.
Rational Appeal
Advertising that speaks to the audience's self-interest and says that the product will give them the benefits they want.
Reach
The number of people exposed to an advertisement, also known as “ratings” in television and radio.
Split-Cable Sales Test
Use of cable technology to feed two different versions of an ad campaign into two sets of volunteer homes. Purchases made by the viewers in these homes are recorded and measured to see if the two campaigns resulted in significantly different sales.
Splitting 30s
The cost-saving practice of advertising in 30 seconds of television air time with two 15-second commercials.
Theater
Participants view previews of movies or TV shows that include advertisements, then indicate their reactions to the ads using recording devices or questionnaires.
Unaided Recall Post-Test
Researchers ask participants what ads do you remember seeing or hearing today? What's the best ad you've seen this month? In these tests the researchers don't suggest any brand names.
Wasted Coverage
Reaching an audience to whom the message of an advertisement is irrelevant.
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Assignments
Assignment One: Creating an Advertisement This exercise requires you to select and analyze six print advertisements, culminating with your improving on one of the advertisements and then creating an entirely new ad for a different advertising medium. • Find a total of six print ads from either newspapers or magazines. • Three of these ads you should feel are “good” ads in terms of copy and layout; the other three “bad.” • Analyze each advertisement. Why do you perceive each ad to be “good” or “bad?” • Select one of your “bad” ads, revise the layout and copy, and explain why you now believe it is a “good” ad. • Create another advertisement for that same product using a different advertising medium. (This could be in the form of writing radio copy, designing a storyboard for a television commercial, designing a billboard, designing signage for a sporting event, etc.) • Explain your reasoning in using this particular supplemental medium. • Your written responses to the above items should be a maximum of two pages. Send the ads you collected, the two ads you created, and your one- or two-page written response to your instructor, according to his or her directions.
Assignment Two: Advertising Principles This assignment requires you to identify eight advertising campaigns. Each campaign you select should use one of the advertising principles listed below. You need to illustrate each of the principles. 1. Appeals a. Humorous b. Rational c. Emotional d. Moral 2. AIDA Model a. Attention b. Interest c. Desire d. Action You can use any kind of advertisement. Print might be easiest, but if you’ve recently heard a radio commercial or seen a television commercial that uses one of these principles, write a brief description of the commercial. Clearly mark each ad (or your written summary of a commercial) with the advertising principle Introduction
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that it demonstrates, saying whether or not you feel this is the most appropriate method to use and why. Send the ads and your list of principles being applied and your assessment of the effectiveness of those principles to your instructor, according to his or her directions.
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Lesson eleven
Pricing Strategy Defining value
Pricing, the Fourth P of the marketing mix, establishes much more than the cost of a product. It sets the value of the product in the eyes of the consumer and places it among the competition. Lesson Eleven examines all of the factors that contribute to a company’s pricing policy, starting with an in-depth look at pricing’s role in the marketing mix and the various factors affecting it. The lesson then details how to determine true costs, discusses perceived value, then analyzes various pricing strategies. It concludes with a discussion of pricing issues in the global marketplace. The case studies include Hilton Hotels’ pricing strategies, the approach one entrepreneur uses to price her clothing line, and how one small business cut its prices to stay competitive.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Differentiate the factors that influence pricing policy. • Illustrate the relationships between price, value, and quality. • Define true costs and describe the role they play in setting prices. • Assess various pricing strategies. • State global issues in pricing.
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Completing Lesson Eleven
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Eleven in the Student Guide. 2. Read the text assignment for Lesson Eleven, as indicated in the syllabus. 3. Watch the video program for Lesson Eleven (Pricing Strategy: Defining Value). Use the Lesson Eleven Outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Eleven • The key points for Lesson Eleven 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide. Instead, complete the online exercises for Lesson Eleven and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Eleven, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Eleven Outline
I. OVERVIEW A. Pricing: One of the most crucial decisions a marketer must make is how much to charge for a product. B. Pricing establishes more than simply what it costs to buy the product. 1. Gives the customer a means by which to appraise the value of the product. 2. Sets the product among the competition. II. PRICING POLICY A. Product, Promotion, and Placement create and add value for the customer; pricing extracts value in return. B. Definition of Price: what the customer is being asked to pay in return for the value of goods or services delivered. Price is often — but not always — denominated in money. One exception: barter. C. Price in the Marketing Mix 1. Revenue = Unit Price Times Quantity Sold 2. Profit = Revenue Minus Total Cost D. Factors Affecting Price and Value 1. Competition or Substitutes 2. Product Life Cycle 3. Objectives and Resources 4. Demand 5. Cost of Making the Product III. DETERMINING TRUE COSTS A. Cost Structure (Resource Outlay) 1. Fixed Costs 2. Variable Costs B. Breakeven: The dollar amount of goods or services a firm must sell to generate enough revenue to cover its costs. C. Cost structure: high fixed costs and low variable costs; low fixed costs and high variable costs. IV. PRICING AND PERCEIVED VALUE A. Perceived value: The highest price a company can charge is the perceived value customers have for the product, subject to the competitive environment. B. Lowest price a company can charge is the variable cost. V. PRICING STRATEGIES A. Promotional Pricing
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B. Psychological Pricing C. Odd-Even Pricing D. Price Skimming E. Penetration Pricing VI. GLOBAL PRICING A. Foreign countries are at different stages of development. B. Skimming strategy may work in one place, but penetration strategy may be sensible in another. C. Modern traders can make quantity buys in places where a company is using a penetration strategy with low prices, then resell the products at much higher prices elsewhere. D. Formation of the European Union and the removal of tariffs there have reduced the flexibility that multinational companies once had to set different prices in Europe. VII. SUMMARY
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Program Summary
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Introduction to Marketing: Competing in the 21st Century
Lesson Eleven
Pricing Strategy Defining Value One of the most crucial decisions a marketer must make is how much to charge for a product. Pricing establishes more than simply what it costs to buy the product. It gives customers a means by which to appraise the value of the product, and also sets the product among the competition. In Lesson Eleven of Introduction to Marketing , Professor Quelch looks at the role of Pricing, the last of the 4 Ps of the Marketing Mix, and shows how a sound pricing strategy can help make a marketing program successful. Pricing involves the cost of production, but setting a price must take other considerations into account. Lecture Eleven discusses pricing policy, perceived value, and other factors. Finally, Professor Quelch looks at pricing in the global marketplace.
PRICING POLICY Pricing is the fourth of the 4 Ps in the Marketing Mix. However, it's different. Product, Promotion, and Placement are about creating and adding value for the customer. Pricing is about extracting value in return. A firm's pricing policy encompasses a number of important factors. What is price? Price is what the customer is being asked to pay in return for the value of goods or services delivered. Often — but not always — it's money. Sometimes it's value given, as in the case of barter.
PRICE IN THE MARKETING MIX Let's examine monetary pricing. It's critical to a firm's success, because it directly affects a firm's revenues and profits, as two key equations demonstrate: Revenue = Unit Price Times Quantity Sold Profit = Revenue Minus Total Cost Pricing is of absolute importance to a firm because it directly affects both total revenue and total profits. And, keep in mind, more revenue doesn't necessarily mean more profits.
CUSTOMER VALUE It's important for the marketer to price a product with customer value in mind. Once again, a marketer's first rule is know the customer, and in the matter of pricing, it means knowing the features and benefits of a product that the customer values and will pay for. Different market segments value different things, so pricing must be done with an understanding of the target market in mind. Also, competition is a factor in setting price. Customers will weigh costs versus benefits of several comparable products before deciding to buy, particularly with expensive items. Pricing is a competitive weapon. A competitor may cut prices to build market share. How should Introduction
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a marketer respond? A matching price cut might seem like common sense, but it could diminish the image of the company and its product, and damage revenues and profits in the long run.
FACTORS AFFECTING PRICE AND VALUE Several factors should affect a marketer's determination of price. Competition or Substitutes. What competition will a product face, and how many competitors? Are they entrenched? Within what price range do these competitors sell? Are there cheaper substitutes for premium brands? Is this a product that will be urgently needed, or can the purchase be put off indefinitely? Product Life Cycle. Is this a new product, or a new version of an old and accepted one? The newer the product, in general, the higher it can be priced. Technology products, for example, debut at high prices, then the prices fall as the technology becomes more common. Objectives and Resources. Besides the external pricing factors, consider the internal ones: What are the company's objectives? What does it want to achieve in profit, sales, and market share? Survival is, of course, the first objective. Attempting to maximize sales and market share isn't necessarily a sound strategy. Winning in a targeted niche might mean smaller sales but higher profit. Or, it might actually be a company's objective to suffer short-term losses by introducing a product into a new market at an artificially low price, thereby building market share with a subsequent price hike in mind. This is possible only if the company has the resources to absorb the losses in such a price war. Demand. How will the market respond to a price hike? Is demand strong enough to warrant the increase? If the company lowers the price, will demand increase? Demand that's closely pegged to price is called elastic. Inelastic demand won't be affected by price. Costs. Obviously, pricing must take into account the costs of making and marketing the product.
DETERMINING TRUE COSTS Costs are too important in the pricing decision to skip over quickly. Marketers need to be fully aware of what it costs to make and sell the good or service their firm is offering. Cost structure contains two elements: fixed costs, that is, costs a company will incur whether or not it sells a single unit of the product. Fixed costs include rent, utilities, maintenance, and so on. A company doesn't have to make any products to incur these costs. Variable costs are the costs associated with the manufacture of a single unit of the product: materials, labor costs, costs for transportation, packaging, warehousing, sales commissions, etc. To establish effective pricing, the company must know what revenues it needs to meet resource outlay. When revenue intake equals resource outlay, the company breaks even. Breakeven is the dollar amount of goods or services a firm must sell to generate enough revenue to cover its costs. The marketer must know the breakeven for each good or service produced. That means demand must be estimated, and then a price estimated based on that. 168
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A firm's cost structure will likely be an important factor in setting prices. An airline, for example, has a structure of high fixed costs and low variable costs. The expense of the planes, ground facilities, staff, and personnel are high regardless of whether the airline's flights are full or empty, and the cost of serving an extra passenger is low, so it's crucial for the airline to fill those seats. Maximizing volume is the goal: After the breakeven point, the profit on each seat sold is typically 90 percent over and above the variable cost of carrying the extra passenger. A mushroom grower is an example of a company with a low fixed, high variable structure. Its fixed costs include rent on growing spaces — typically, dark caves, not exactly high-rent business premises. But the variable costs of labor, processing, and distribution can be high. Increasing sales volume doesn't necessarily help a mushroom company raise revenues, but raising prices a little can make an enormous difference.
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PRICING AND PERCEIVED VALUE The highest price a company can charge is the perceived value customers have for the product. Perceived value is subject to the competitive environment. The lowest price a company can charge is the variable costs. That's why, in the airline industry, for example, there can be wide variations in ticket prices. Some customers get bargain-fare tickets that run just slightly over the variable costs, and the airline still can make a profit. Other customers, such as business flyers or late purchasers, pay high ticket prices. For the airline, both are desirable, since the key objective is to fly with a full aircraft. Another example: a T-shirt from a famous boutique might sell for $29.95. The same garment might sell for $10.00 in a discount store two miles away. The fixed cost for making the shirts is the same, but the perceived value of the shirts depends on the venue where the shopper finds them.
PRICING STRATEGIES Having seen many of the variables that must be factored into pricing policies, a company can consider some different pricing strategies. Promotional Pricing. In situations where pricing can stimulate demand, such as a seasonal offer or an introductory offer, promotional pricing in the form of price cuts, coupons, or rebates can increase market share. Psychological Pricing. Sometimes a price just seems right to a consumer. If market research shows a consistently “reasonable” price for a product among the consumers surveyed, that's the target price range to set. Demand will not be greatly affected by changes within that range. Odd-Even Pricing. Odd-Even pricing is the practice of setting a price one cent below a dollar level: $14.99, $25.99, and so on. It may result from an old retail habit of making the sales clerk make change at the time of the sale (which makes it harder for the clerk to pocket the money and not ring it up). However, with today's computerized cash registers, that's much less an issue that it used to be. For some consumers, $14.99 seems significantly less than $15.00, and that's enough to make the sale. Skimming and Penetration. A skimming strategy means pricing high and aiming for low volume. Gucci handbags, for example, are well-made, high-margin items distributed selectively to expensive boutiques. Gucci and other high-end fashion makers have no interest in winning a broad market, so skimming works for them. It also makes sense for companies introducing a new product that doesn't Introduction
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have competition. Many new products are introduced at a top price because companies know it's easy to lower a price, but very hard to raise one. A penetration strategy aims to win high sales volume, perhaps even at a loss. So the price it sets will be low, and the sales venues will be just about anyplace that will sell the item. Penetration is a way to beat the competition into a territory, establish customer loyalty, and set a price that will determine what the competition can charge. A final note on pricing: The objective of a pricing policy is not to drive the competition out of business. In fact, changing prices as a competitive maneuver is one of the least imaginative moves a business can make. A new or better product, a new message, some improvement in the distribution channel, all are better for the company than reducing a mediocre product’s price in an attempt to rescue it.
GLOBAL PRICING The issues described here all apply to pricing in the global marketplace. Not surprisingly, unique global pricing issues apply as well. Foreign countries are at different stages of development. So a skimming strategy may work in one place, but a penetration strategy may be sensible in another. However, modern traders can find out that information, and make quantity buys in places where a company is using a penetration strategy with low prices. For example: say that Gillette is pricing shaving equipment low to penetrate a market in Vietnam. An independent trader who learns that Gillette products can be had for bargain prices there may buy in bulk, then resell the products at much higher prices in Japan and Singapore. Another example: The formation of the European Union and the removal of tariffs there has reduced the flexibility that multinational companies once had to set different prices throughout Europe.
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Key Points
1. Pricing is what the customer is being asked to pay in return for the value of goods or services delivered. It has a direct effect on both total revenue and total profits. 2. There are numerous factors that marketers must address when setting price. They are:
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• Competition in the marketplace. • Substitute products. • Stage in the company’s life cycle. • The company’s objectives and resources. • Elasticity of demand. • True costs involved in making and selling the product. • Perceived value that the customer has for the product. 3. True costs are the fixed and variable costs associated with manufacturing and selling of a product. Marketers need to fully understand these to determine what it would take for the resource intake-revenues to exceed, or at least to meet, resource outlay. True costs include: • Fixed costs — The costs marketers incur regardless of whether or not they sell their product. • Variable costs — The costs associated with the manufacture of a single unit of product. 4) Once the costs are determined, there are a number of pricing strategies a marketer can employ. They are as follows: • Promotional Initiative — Using pricing as a way to prime the pump of demand. • Psychological Pricing — Setting price that just seems right to the consumer. • Odd-Even Pricing — Pricing an item just below the next dollar level, $14.99 vs. $15.00. • Skimming — Pricing high and expecting low volume. • Penetration — Pricing low and expecting high volume. 5) Different issues arise when setting pricing in a global environment such as skimming in one market and penetrating in another. The problem lies with technology being able to track the difference and enterprising traders identifying those markets.
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Glossary
The expense or resource outlay of making and marketing a product.
Costs • Breakeven
The dollar amount of goods or services a firm must sell to generate enough revenue to cover its costs.
• Cost Structure
Fixed Costs combined with Variable Costs (high fixed/low variable, low fixed/high variable).
• Fixed Costs
Costs such as rent, utilities, maintenance, and so on, that a company will incur whether or not it sells a single unit of the product.
• Variable Costs
Costs associated with the manufacture of a single unit of the product: materials, labor costs, costs for transportation, packaging, warehousing, sales commissions, etc. Variable costs equal the lowest price a company can charge for a product.
Customer Value
The features and benefits of a product that the customer values and will pay for.
Elastic Demand
Consumer demand that is closely linked to the price of a product.
Inelastic Demand
Consumer demand for a product that is relatively fixed and unaffected by changes in the product’s price.
Odd-Even Pricing
The practice of setting a price one cent below a dollar level: $14.99, $99.99, and so on.
Perceived Value
The value placed by a customer on a product; also the highest price a company can charge for a product, subject to the competitive market and the venue in which the customer finds the product.
Price
What the customer is being asked to pay (in cash or value given) in return for the value of goods or services delivered; a means by which to appraise the value of the product, and also to set the product among the competition.
Pricing Policy
A company’s strategic thinking for establishing prices for its products. For monetary pricing, the pricing policy should include the understanding that Revenue = Unit Price Times Quantity Sold, and Profit = Revenue Minus Total Cost.
Pricing Strategies • Promotional Pricing
Short-term pricing discounts to stimulate demand and increase market share, such as a seasonal offer or an introductory offer.
• Psychological Pricing Pricing which seems “right” or “reasonable” to a consumer; demand will not be greatly affected by changes within that range. 172
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Penetration
A pricing strategy that aims to win high sales volume, perhaps even at a loss; the price is set low, and the distribution as intensive as possible. A way to beat the competition into a territory, establish customer loyalty, and set a price that will determine what the competition can charge.
Product Life Cycle
The stage in the product’s existence and development after introduction; a new product is early in its life cycle, and a new version of an old and accepted one may be late in its life cycle. In general, the earlier a product is in its life cycle, the higher it can be priced.
Skimming
Pricing high and aiming for low sales volume; usually used for prestige or high-end items and not to win a broad market; also useful in situations in which a company is introducing a new product that doesn't have competition.
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Assignments
Assignment One: Bob & Betty Bob and Betty Boudreaux combined his knowledge of tools and her knowledge of home improvement to create Bob & Betty’s Hardware and How-To. Their goal was not to only sell hardware supplies but also to serve as a resource to their small community. The store held 100 free “How-To” seminars per year, where experts volunteered to put on demonstrations of various home improvement projects. Their sales peaked at about $1,500,000 per year and they carried more than 20,000 items. They employed a knowledgeable and personable staff. However, a Super Wal-Mart and a Super Kmart opened within five miles of their store, each with a hardware supply section. Within one year, Bob and Betty could no longer sustain their business. Questions: • Were Bob and Betty selling products with elastic or inelastic demand? • Why do you think the “How-To” seminars did not sustain their business? • What determinants of price possibly affected their business? Write a one-page paper that addresses the above items. Send your assignment to your instructor according to his or her directions.
Assignment Two: The Cost of Salty Snacks In the past, your company, Salty Snack Foods, has always based its pricing solely on cost. You have just been given a promotion; you are now the marketing manager. You don’t feel that your company’s pricing policy should be based strictly on cost. Write a memo to the president of your company explaining the reasons you feel strongly that your company’s pricing policy should not be based on this factor alone. In addition, make a recommendation for a pricing policy that is sounder. Once you have completed this one-page assignment, send it to your instructor, according to his or her directions.
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Project Three
Marketing Plan
Project Three is the culmination of the previous two projects. Having researched the marketing environment, analyzed the target market, and designed a product to satisfy that segment’s needs, you now must evaluate the material you have collected and design a marketing plan based on your research. The marketing plan will identify appropriate pricing, promotion, and placement policies for your chosen product. By the end of this lesson, you should be able to: • Evaluate different strategies for reaching target markets. • Develop a marketing communications plan. • Describe the role of distribution in marketing strategy. • Illustrate the relationships between price, value, and quality
The Project By this time in the course, you have developed a strong set of tools for market analysis and marketing strategy development. You have researched and evaluated the uncontrollable factors that typically affect marketers. You have segmented the market and determined an appropriate target among the various segments. You have determined needs of your target audience and developed a product or service to serve those needs and create value. Your last task is to develop a marketing plan by addressing pricing, promotion, and distribution strategies that are appropriate based on the target market. Your paper should address the following: 1. What factors will affect the product's distribution? 2. How will the product be distributed? 3. Why do you think that distribution strategy is the most effective? 4. What methods of promotion will you use? 5. What message or messages will you be communicating about your product? 6. How often will you promote using each different method? 7. What will your promotion budget be? 8. How will you price the product? 9. Explain how the price you chose incorporated the value added for your target market.
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Lesson Twelve
International Marketing Competing in a Global Marketplace
The world is shrinking and the marketplace is growing. Because more countries now participate in the free market economy, more and more companies are going global. Lesson Twelve begins with a look at the international marketplace, then explains why and when a business should go global. It then investigates how companies can gain market entry in other countries and evaluates the particular needs and characteristics of emerging markets. Finally, it examines the role of multinational corporations and the issues confronting them in the global marketplace. The case studies include Da Da’s plan to go global with its sportswear line, how a foreign company must shape its marketing strategies to fit into the U.S. market, and how technology helps a small company go global.
Expected Learning Outcomes
By the end of this lesson, the students should be able to: • Evaluate the key trends in the global environment. • Convey the importance of global marketing. • Cite reasons why a company should consider going global. • Assess the marketing issues in multinational corporations. • State challenges of marketing to emerging markets.
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Completing Lesson Twelve
In order to obtain the most out of this course, the following steps should be taken in the sequence listed below. As with each lesson, please check the syllabus for additional or altered instructions from your professor. 1. Review the Expected Learning Outcomes for Lesson Twelve in the Student Guide . 2. Read the text assignment for Lesson Twelve, as indicated in the syllabus. 3. Watch the video program for Lesson Twelve (International Marketing: Competing in a Global Marketplace). Use the Lesson Twelve outline in the Student Guide to help you follow the flow of the lecture. 4. In the Student Guide , read: • The program summary for Lesson Twelve • The key points for Lesson Twelve. • The case study for Lesson Twelve. 5a. If you are a Telecourse student (with no online component to your course), complete the assignments in the Student Guide and submit them to your instructor according to his or her directions. 5b. If you are a Teleweb student (with an online component to your course), ignore the assignments that are listed in the Student Guide. Instead, complete the online exercises for Lesson Twelve and submit them to your instructor according to his or her instructions. In addition, post any questions you have to the Discussion Boards, and be sure to check the Boards at least three times a week. 6. Take the quiz for Lesson Twelve, if assigned by your instructor. If you are a Teleweb student, you will find the quiz online. If you are a Telecourse student, your instructor will deliver the quiz to you, along with directions on how to submit your answers.
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Lesson Twelve Outline
I. OVERVIEW A. The global marketplace: unprecedented opportunities and new hazards for marketers II. THE INTERNATIONAL MARKETPLACE A. Companies that once were national now look to the global marketplace for new customers and new sources of products, supply, and knowledge. B. Four Factors Driving the New Global Economy 1. Expanding Free Markets 2. Expanding Population 3. Modern Telecommunications 4. Increasing Global Competition III. WHY GO GLOBAL? A. Globalization is the wave of the future, but it's not appropriate for all companies. B. Reasons to enter the global marketplace 1. Build Sales Volume 2. Develop New Product 3. Gain Insight 4. Hedge Against Domestic Market 5. Best Defense 6. Ego of CEO C. Global Marketing as Segmentation Problem 1. Global Marketing: use of a standard marketing program or marketing mix to apply to customers throughout the world 2. Multinational Marketing: adjustment and alteration of marketing mix to fit unique profile of different national target markets IV. MARKET ENTRY A. Principal problem in entering new market isn't expense; it's market penetration. B. Going global overnight: speed C. Risks of rapid expansion 1. Cultural insensitivity 2. Expanding too rapidly to handle growth and volume of sales and distribution in the new market D. Risk of waiting for 100 percent domestic success: piracy/duplication of the business model V. EMERGING MARKETS A. Emerging market: a strong enough economy to be viable for goods from developed countries, rather than just a source of cheap goods and raw materials B. Leading market: economy evolving into a strong new market 178
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C. Trailing market: an economy with low per-capita income, not yet viable markets for most American companies
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D. How Much to Invest? E. Key Points of Difference 1. Three tiers of products a. high priced premium imports b. joint-venture products c. local products
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F. Pricing Points of Difference 1. Tradition of bartering 2. Resistance to delayed or added value G. Distribution Points of Difference 1. Transportation infrastructure 2. Inefficient wholesaling 3. Outdated retailing practices 4. Poor facilities 5. Customer immobility H. Selling Points of Difference 1. Inexpensive labor makes it economical to create a sales organization 2. Innovative marketing practices I. Market Selection Criteria 1. Political stability 2. Economic volatility 3. Government receptivity to foreign investment 4. Government protectionism of indigenous companies and products J. Potential vs. Vulnerability K. Criteria for Market Entry 1. Market size 2. Growth trend 3. Dominance of local competitors 4. Awareness of Western products 5. Best joint venture partner 6. No competition 7. Low advertising rates 8. Gain distribution stronghold L. Launching a Product Balance speed with learning and adjusting to new environments M. Market Entry Determinants 1. Mode of entry 2. Establishing good government relations 3. Multinational companies 4. Development of category VI. MULTINATIONAL CORPORATIONS VII. SUMMARY Introduction
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Program Summary
Introduction to Marketing: Competing in the 21st Century
Lesson Twelve
International Marketing Competing in a Global Marketplace In the final lesson of Introduction to Marketing, Professor Quelch examines in detail an issue that has been touched upon in several previous lectures: the global marketplace. The twenty-first century will witness unprecedented opportunities for marketers as more and more products, practices, and companies cross international boundaries. However, these opportunities can easily be lost by companies that act in haste and fail to plan for the complexity and hazards of the selling worldwide. In this lesson, Professor Quelch examines the international marketplace, and asks why a business should go global. He looks at emerging markets, the most dynamic segment of the global marketplace, and finally, he discusses multinational corporations.
THE INTERNATIONAL MARKETPLACE The world used to be divisible into “developed,” “developing,” and “undeveloped” countries, or the first, second, and third worlds. No longer: Today's international marketplace is becoming too dynamic to fit those static labels. In a world where other lands and culture are readily accessible and the new business opportunities are immense, every economy is changing rapidly, and companies that once were strictly national are looking to the global marketplace for new customers and new sources of products, supply, and knowledge.
Four Factors Driving the New Global Economy Expanding Free Markets. Geopolitical changes since the end of the Cold War are allowing formerly closed economies to evolve into free markets. Eastern Europe and China are just two examples of profound change and new economic energy. Expanding Population. The rate of population growth in these emerging economies is higher than that of the developed world. The birth rate in much of the world is expanding, while it's stable or actually falling in some Western countries. As these economies improve, the population is enjoying more affluent lifestyles and more disposable income. Modern Telecommunications. Reason three is the ever-growing volume of information moving across national and regional borders. Consumers who once were isolated from the rest of the world now see how people in the developed world live, and this stimulates demand for the same products and comforts. Increasing Global Competition. In this era of mergers and acquisitions, investment capital moves at the speed of light, and great companies are joining forces as never before. Competition crosses borders, and companies must respond by developing new internal efficiencies and economies. 1 80
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WHY GO GLOBAL? Globalization is the irreversible wave of the future, but it's not appropriate for all companies, and those that achieve it do it carefully. Most of the valid reasons for going global are purely rational, and all of them should be weighed before a company ventures into the world marketplace. Build Sales Volume. One reason to globalize is to sell more product. Higher sales volume helps a company manufacture more efficiently and sell excess inventory. Develop New Product. Companies can recover research and development costs and possibly create a new profit center by opening new markets. Gain Insight. The global market sometimes teaches lessons that can be applied not only abroad, but at home as well. Established companies may suffer from the complacency that too much success can foster. Entering a new country where its name and the product are unfamiliar can remind a company how to roll up its sleeves and fight for market share. Hedge Against Domestic Market. A downturn in the domestic market can be offset by strength in the global market. Playing in the world game is a good hedge against uncontrollable negative factors at home. Best Defense. Companies around the world are globalizing, so an American company might find itself fighting to keep market share against foreign competitors on its own home turf. Sometimes the best defense is a strong offense. Competing abroad can strengthen a company in the battle to retain its customers at home. Ego of CEO. This is an irrational reason to globalize, but it's nonetheless a powerful one: Many business leaders want to globalize as a matter of personal pride and competitiveness. If the rest of the reasons to do so are compelling and make good business sense, an energetic CEO with a personal drive to compete abroad can be a real asset to a company.
Global Marketing as Segmentation Problem A company can have the capital, the people, and the distribution muscle to compete abroad, but if it lacks marketing know-how, its products won't succeed in new markets. Different territories might require different marketing strategies. A one-size-fits-all approach can work for a company. Or, differences in the regulatory environment, the competitive mix, consumer tastes and needs, all may compel a company to create separate segment-by-segment plans for each new nation. These approaches can be called global marketing and multinational marketing. Global Marketing is the use of a standard marketing program or marketing mix to apply to customers throughout the world. Multinational Marketing is the adjustment and alteration of the marketing mix to fit the unique profile of different national target markets.
MARKET ENTRY The problem in entering a new market isn't expense; it's market penetration. The cost of entry may be a sound investment if the company succeeds in penetrating the new market and appealing to the new potential buyers. Some markets may be similar to the company's home market, so the basic marketing tactics that succeed at home might work abroad. Other markets will require the company to rethink itself and its marketing messages. The question is, how best for a company to achieve successful market entry? Introduction
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Going Global Overnight: Speed Familiarity helps when a country is trying to sell in a new country. Many U.S. companies have started globalizing by moving first into the United Kingdom, taking advantage of the relative familiarity of the language, customs, business practices, and media to move quickly and gain a foothold abroad. Achieving speed successfully requires planning. A company aiming to move fast needs to do more than just dump its products in the new market. It must prepare its distribution channels to deliver after-sale service and customer satisfaction, particularly if the product is an expensive or complicated one such as farm equipment or computers. Low-maintenance products such as books are much easier to sell in new territories, particularly now that the Internet supports international ordering and processing, and international delivery services work about as fast as domestic ones.
Risks of Rapid Expansion Rapid international expansion comes with two key risks, and many ambitious plans have failed because one or both was ignored until it was too late. Cultural Insensitivity. Risk one is the possibility of cultural insensitivity on the part of the company — put more simply, failure to know the customer. The nuances and unique qualities of the people in a new market must be appreciated before a company can sell successfully in that place. The risk here is of spending time and capital to place a product that is already doomed to fail because the marketers didn't do their homework: for example, a food company introduced a domestic success, a baby cereal, in Africa. It had done research on diet and taste preferences in the area, but it neglected to look into packaging design before shipping the product. The cereal box showed a smiling baby and described the product in the text on the box — standard packaging for a literate Western market. A little research might have showed them that most of the people in the African market couldn't read. Many African consumers buy based on a picture of the product on the box, and African products are packaged accordingly. The picture of the baby on the box would have moved product in the U.S., but in Africa a picture of the cereal was needed. The picture of the baby was only confusing to shoppers. Insupportability. A second and more quantifiable risk is that a company may expand too rapidly and be unable to support itself with systems for handling the growth and volume of sales and distribution in the new market. If the distribution and support channels for a product aren't ready, a company may end up stranding a product without follow-up service in a new territory and making a lot of customers very unhappy. That said, often it's equally risky to wait for 100 percent domestic success before going global, particularly for technology companies that risk piracy. If a company makes software, for example, it's essential to sell globally immediately before the product gets stolen and duplicated. It's not just technology companies that must worry about piracy. Starbucks Coffee was a domestic hit, but the formula for its comfortable neighborhood coffee shops was easy for a competitor to duplicate in the United Kingdom. To expand there, Starbucks had to buy out this competitor that had beat them to the market. It turned out to be a good move, all in all, because they were buying an infrastructure that already had a following, and thus preserved capital and avoided the kind of expense that might have spread their resources too thin during their ongoing American expansion. 1 82
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EMERGING MARKETS An emerging market is one with a strong enough economy to be viable for goods from developed countries, rather than just a source of cheap goods and raw materials. The term “emerging markets” may be too broad to be truly useful, so some marketers break such markets into leading and trailing markets. A leading market is a country that is evolving into a strong new market. A trailing market is a country that still has a low per-capita income, such as Cambodia or the poorest of the Latin American countries. They're not yet viable markets for most American companies.
How Much to Invest? How much should a company commit when entering the global market? With so many options, the question is more complicated than it was even ten or twenty years ago. Companies can choose to invest in a trailing market, for example, to take advantage of low labor and capital costs, plus probable cooperation from government; or in a fully developed country where the quality of the labor market is high. Emerging markets can compete as effectively as developed one for expansion capital, but they offer some special challenges for marketers making a strategic investment. There are some key points of difference between marketing in a developed market and in an emerging one. Typically an emerging market will have three tiers of products. First are the high-priced premium imports, such as perfume or other luxury products. Second are joint-venture products, items created in joint ventures between local companies and Western multinationals. Third, at the bottom of the three tiers, are local products made by indigenous companies. The high-end items may be so new and exciting for customers in an emerging market that demand is extremely high. Typically such excitement tapers off as time passes, and also, as investment by multinationals helps improve the quality of the locally produced goods. Consumers generally revert to their old product preferences after a time. Being first in a new market can be a huge advantage for a company — that “honeymoon” period can help cement loyalty to the company, if not to the products, and enable the company to strengthen its distribution channels, take advantage of cheap advertising, and build a long-term presence.
Pricing Points of Difference Emerging economies typically have a much stronger tradition of bartering than developed ones, so price in the United States and price in Somalia are two different concepts. Value is different too: In developed countries, it's possible for a product to sell at a higher price with a valueadded service packaged in a long-term warranty, for example. In trailing economies, paying for something usually means getting it now, not getting it in a year. Western companies trying to sell high-priced items with high service backup face these challenges.
Distribution Points of Difference Probably the biggest challenge to marketing in emerging economies is distribution. In many emerging economies, vast segments of the population live in areas that are inaccessible to bulk transports. Rural India is heavily populated, but it's underserved by highways and rail. Some firms deliver to areas like this via van, or even bicycle. That limits the kind of products that can be sold there. Fragmented distribution channels go hand in hand with other challenges: inefficient wholesaling, backwards retailing practices, and stores that are a far cry from the Western model. Also customer mobility is limited too, so customers’ inability to get to where the product is for sale may require them simply to go without or to buy irregularly. Introduction
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Selling Points of Difference Labor in the emerging markets is very inexpensive compared with labor in the developed West. Creating a sales organization, particularly for direct selling, can be a bargain. The challenge of access to the customer can be turned to advantage for companies that sell portable items. Some sellers use vans as mobile shops and drive the store to the customer. The transition from communism to capitalism has awakened a talent for innovative marketing in some entrepreneurs. Many Russian sellers keep warehouses in Finland, rather than tie up inventory in Russia, and have goods delivered weekly. In Poland the post office system adapted to stay in business by selling romance novels, magazines, and other things not typically sold where one gets stamps.
Market Selection Criteria When assessing a market for possible entry, a company needs to ask itself some important questions. Is it politically stable? Is the economy settled or volatile? Is the government open to foreign investment, or do officials periodically resist it and nationalize foreign investments? Is the government protectionist in favor of local products, even when the local ones are inferior?
Potential vs. Vulnerability A company preparing to enter an emerging market weighs the potential it represents versus the vulnerability of the economy, using the following criteria.
Criteria for Market Entry Market Size. China's billion-plus population makes a powerful argument for a company deciding whether or not to enter that market. Even a small percentage of that figure would make a colossal market for any company, and probably outweigh any considerations about the vulnerability of China's economy. Growth Trend. If the market is growing in population and economic strength, chances are it's an attractive target for entry. Dominance of Local Competitors. Are local competitors too entrenched for a new company to fight? If not, where are they weak? In product quality? In advertising? Distribution? Awareness of Western Products. Are the local people aware of Western products? Are they attracted to the aura of the American lifestyle? If so, they're waiting for Western products of all kinds. There are additional criteria to consider when planning the timing and logistics of entering a new market. Being first in an emerging market means moving swiftly to take advantage of several opportunities: Best Joint Venture Partner. Being first is likely to mean access to the best business partners, including government, which typically reward the entrepreneurs who take the risk of being first. No Competition. Being first in a new territory means limited or no competition, for a time. 1 84
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Low Advertising Rates. Ad rates in emerging markets are very low. A new player with experience can help create the local ad industry and develop valuable business relationships. Gain Distribution Stronghold. The first player in the arena can dominate the distribution channels and create a barrier to competitive entry.
LAUNCHING A PRODUCT Citibank successfully launched its credit cards in the Pacific Rim by starting in Singapore, then moving every three months into new countries: Indonesia, Malaysia, Taiwan. Citibank achieved optimal speed, balancing a fast rollout schedule with its ability to learn on the job and adjust to new situations, and was a great success. Other companies need to strike that balance. Launching too fast means spending heavily on a risky, complicated effort that can do more to expose mistakes than win customer loyalty. A company moving into new territory needs to determine the optimal balance with its product in mind.
MARKET ENTRY DETERMINANTS A company has committed to selling abroad. It knows where it wants to work, when, and in what sequence. The next question is how to enter those markets. Several things must be determined: Mode of Entry. How will the company enter, by acquisition of a local subsidiary? By developing its own new arm? By joint venture? If it chooses a local partner, how will the partnership work? And how quickly will the new entry be executed? Establishing Good Government Relations. A common mistake when entering a new market is failing to develop good relationships with the local government. Central, state and provincial authorities can be an invaluable help or an insurmountable barrier for a company seeking to sell, develop facilities, or execute partnerships in a new market. Multinational Companies. Multinationals are relatively new players on the world business stage, but they're already experienced at involving themselves in local politics, cultures, and commerce. They face the challenge of standardizing their products and procedures, and motivating new hires in cultures still learning how to conduct twenty-first century business. How does a multinational achieve consistent quality without taking away from their employees and partners the right to adapt the brand, product formula, advertising, pricing, distribution, and customer service? Coca-Cola balances these needs by standardizing the product formula and the trademark appearance while letting the local managers and bottlers take initiative in shaping the local marketing. Development of Category. Marketers must be prepared to adjust product, pricing, promotion, and placement based on the development stage of the new market. The Pacific Rim offers very diverse challenges within a single region. The economies of Burma, Taiwan, Hong Kong, and Japan all have very different political considerations, to name just one example, and each must be treated as unique.
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Key Points
1. Global marketing is becoming more pervasive in the business environment for the following reasons: • Starting in the 1990s, we have seen a huge expansion of the marketing as more of the world’s population enters the free market economy. • The rate of population growth is expanding faster in many of these emerging economies. The birth rate in developed countries are falling. • Telecommunications and increased travel enables consumers in one country to easily learn about consumers in another country. • Competition is now at an industry level as opposed to a national level. 2. There are numerous reasons why companies should go global. • They can build up more volume of sales and therefore generate more efficient manufacturing. • They may have developed a new product that they believe will be of great value and interest to people in foreign markets and may be able to recover some research and development costs by expanding the market. • They may actually gain insight that will enable them to do a better job domestically. • It can give a company a hedge against the volatility of the domestic market. • It can send a strong message to the competition that your organization will be a tough competitor in the domestic and global market. • It is also fashionable for the CEO to proclaim that they are doing business in a number of countries versus only domestically. 3. There are two types of global strategies a marketer should understand. They are: • Global marketing strategy, which is the use of a standard marketing program or marketing mix to apply to customers throughout the world. • Multi-nation approach adjusts the marketing mix to fit the unique profile of different national target markets. 4. When deciding what markets to enter there are several issues to consider. • Going global overnight is becoming easier to do with today’s technology. However, it is not without risks. Primarily, your management may not be culturally sensitive enough to recognize the nuances in other cultures, which may require adaptation. In addition, the company infrastructure may not be able to handle the demand. • Entering the global marketplace too slowly may also have risks associated with it. If you are in the computer software industry, you have to get your product out all over the world immediately to block piracy. Second, emerging nations no longer want to wait a few years to get new products. If you don’t supply them, someone else will. 186
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5. Expanding global markets has given rise to a fairly new and expanding class of players, multinational corporations. One of the most important issues they face is how they can achieve worldwide standards for marketing in diverse markets. How can they motivate everyone involved in the organization while still exerting control? 6. Emerging markets are those that have strong enough economies to be viable markets for goods from developed countries, rather than just cheap sources for goods and raw materials. There are several ways marketing differs in emerging markets: • There are typically three tiers of products — high-priced imports, joint-venture products, and local products. • Pricing points of difference. Bartering and resistance to added value. • Distribution point of difference. Transportation infrastructure, inefficient wholesaling, outdated retailing practices, poor facilities, and customer immobility. • Selling points of difference. Inexpensive labor makes it economical to create a sales organization. 7) In emerging markets, the marketer must look at the following criteria: • How large is that market? • How quickly is it growing? • Is there a dominant local competitor? • Are the consumers in the market aware of Western products? 8) When entering an emerging market, marketers must determine how they will enter the market. Will they enter through acquisition, developing a separate company, or through a joint venture with a local company?
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Glossary
Cultural Insensitivity
The failure of a company to understand the cultural, regional, ethnic, and other nuances and unique qualities of the people in a new market.
Emerging Market
A market that has a strong enough economy to be viable for goods from developed countries, rather than just a source of cheap goods and raw materials. Typically an emerging market will have three tiers of products: high-priced premium imports, such as perfume or other luxury products; joint-venture products, items created in joint ventures between local companies and Western multinationals; and local products made by indigenous companies.
Global Marketing
The use of a standard marketing program or marketing mix to apply to customers throughout the world.
Leading Market
A market that is reaching the stage of its economic development where can be considered “emerging.”
Market Entry Criteria
Such factors as market size, economic growth trend, dominance of local competitors, awareness of Western products, possible joint venture partners, low advertising rates, capacity to gain a distribution stronghold, etc., which a company must consider a part of a strategic decision to enter a new market.
Market Entry Determinants
Tactical factors to be considered after a company has made the strategic decision to enter a new market, including: mode of entry, establishing good government relations, the presence of multinational corporations, and adjustments to the company’s marketing mix based on the development stage of the new market.
Market Selection Criteria
Issues a company must address in assessing a potential new foreign market, including its political stability, the volatility of its economy, government policies on foreign investment and/or protectionism, etc.
Multinational Marketing
The adjustment and alteration of the marketing mix to fit the unique profile of different national target markets.
Piracy
Theft or unauthorized duplication of a product, trademark, idea, or intellectual property.
Trailing Market
A market that is not yet at the point where it is viable for goods from developed countries.
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Case Study
Despite its small size, Los Angeles-based Da Da Footwear thrives in competition with giants such as Nike, Adidas, and Reebok. How? By using effective global marketing. Once an option only for a large, established company, global marketing is now a way for a startup to leverage speed and agility into consistent success. The giant shoe companies take roughly 120 days to design, make and test, and manufacture a new product. Da Da does it all in forty-five. A sketch by founder/designer Lance Simpson can be a working model in Da Da’s Taiwan-based research and development partner five days later. Meanwhile, Da Da can send digitized photos and color variations of the new design to clients in Australia, Japan, Europe, South America, and the United States for instant feedback. The new prototype goes to China for manufacturing, and the product is shipped from there to ports worldwide. Why is speed so crucial for Da Da? CEO and President Lavetta Willis says her company has “one chance and one chance only” to prove itself to a new client, so Da Da has to deliver competitive quality in better-than-competitive time. Evidently, it’s working: Foot Locker, The Finish Line, and several other global retailers are steady Da Da customers, and Da Da’s distinctive products are hot in markets as far away as New Zealand. They sell for about 25 percent off the big manufacturers’ rates, in part because Da Da can turn its accelerated product development into savings for the buyer. Speed gives Da Da another edge: by executing products with new colors, distinctive construction, and innovative digital embroidery so quickly, Da Da can outrun the competition enough to stay at the forefront of fashion. Da Da’s next move will extend its global reach. The company plans to start Internet-based sales and distribution, an even faster way to stay one step ahead. DIRECTIONS Watch the video clip and answer the question below. Send the completed case study to your professor. How has global marketing helped DaDa compete with giants such as Nike, Adidas, and Reebok? Could DaDa have been successful if it only operated domestically? Why or why not? In what other ways can DaDa compete with larger competitors?
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Assignments
Assignment One: To Do Business – or Not Many governments of the world still deny their citizens basic human rights. Some people believe that refusing to do business with these countries is the most effective way to pressure them to change. Others argue that maintaining a presence in those countries is a more effective method to force change. Which method do you believe is most effective and why? Address this in a one-page paper. Send your completed assignment to your instructor, according to his or her directions.
Assignment Two: Plastic Containers for Japan You are the director of marketing for a firm about to undertake its first global expansion. You will bring your line of plastic containers, from garbage cans to microwaveable cookware, to market in Japan. Soon you will send employees overseas to secure manufacturing facilities, establish distribution channels, and begin promoting your product. Write a memo to your staff that details the possible ways the role of culture will affect the new global venture. Send your assignment to your instructor, according to his or her directions.
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Participating
Businesses
La Agencia de Orci & Asociados
Based in Los Angeles, La Agencia de Orci & Asociados is one of the leading independent Hispanic advertising agencies in the United States. Founded in 1986 by Hector and Norma Orcí, and staffed by over seventy bilingual and bicultural professionals from sixteen countries, the agency represents clients including Allstate Insurance, American Honda, Bell Atlantic, Hormel Foods, Shell Oil Co., and Washington Mutual Bank, with billings exceeding $60 million. La Agencia de Orci & Asociados is a founding member of The Association of Hispanic Advertising Agencies (AHAA).
American Airlines, Inc. (AMR Corporation)
American Airlines is the second-largest air carrier in the United States. With hubs in Chicago, Dallas/Fort Worth, Miami, and San Juan, Puerto Rico, American Airlines serves about 180 destinations in the Americas and Europe. American Airlines’ parent company, AMR, provides commuter service through American Eagle. AMR holds 80 percent of Sabre, operator of the No. 1 travel reservation system. The company was ranked second in the airline industry among America's Most Admired Companies as compiled by Fortune magazine in March, 1999.
Autobytel Inc.
Founded in 1995, Autobytel Inc., has processed more than 3.5 million purchase requests for new and used vehicles, and is currently generating over $1 million an hour in vehicle sales. Based in Irvine, California, the company uses Internet technology to link customers with affiliate dealers throughout the United States, and accounts for 45 percent of all new vehicles sold through an online service. In 1997, Autobytel.com was named the 4th Fastest Growing New Small Business in America by Dun & Bradstreet and Entrepreneur magazine, and in October 1998, it was named Internet Company of the Year by the Software Council of Southern California.
Babe’s Booth
Babe’s Booth is a Los Angeles home-based business founded in 1991. Babe Evans, a former television actress, started with a line of ethnic greeting cards, then expanded to jewelry, footwear, and plus-size natural-fiber clothing targeted to women over thirty. Evans has organized other minority boutique owners and vendors to share mailing lists and a customer base, and plans buying trips to Paris and Milan to expand her offerings.
Baskin-Robbins U.S.A. Co.
Since its founding in 1950, Baskin-Robbins has grown to more than 4,400 franchised stores in fifty countries. Headquartered in Randolph, Massachusetts, the company’s pioneering concept of serving thirty-one flavors of ice cream changed the industry. For twelve of the past fifteen years, Baskin-Robbins has been voted “America's Favorite Sweets Chain” in the prestigious Restaurants and Institutions magazine survey, an award based on quality, menu variety, value, service, atmosphere, cleanliness, and convenience. Entrepreneur magazine ranks the company as one of the top franchisers in the United States.
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Body Glove
Body Glove grew out of twin brothers Bill and Bob Meistrell’s lifelong passion for diving and ocean recreation. Founded in the early 1950s as an adjunct to a sports shop, the Hermosa Beach, California-based company invented the neoprene wetsuit to enable divers and surfers to enjoy California’s cold Pacific waters. The company continues to manufacture the most innovative and technologically advanced wetsuits and diving wear on the market, which it sells through sporting goods stores worldwide. Still family owned, Body Glove’s annual sales exceed $2 million.
California Milk Advisory Board
The California Milk Advisory Board, a producer-funded organization based in San Francisco, was founded in 1969. The Board created the award-winning “It’s the Cheese” marketing campaign to promote awareness of the quality and variety of cheese made in California, the leading producer of dairy products in the United States. Since 1995, the “It’s the Cheese” campaign has proven instrumental in a 75 percent increase in production and a near doubling of the number of California-made specialty cheeses.
The Coca-Cola Company
Since 1886, when Atlanta pharmacist Dr. John Stith Pemberton concocted a caramel-colored soda syrup in his backyard, Coca-Cola has grown to an international beverage and bottling company with nearly 30,000 employees, selling syrups, concentrates, and beverage bases for more than 160 soft-drink brands manufactured in nearly 200 countries. A third of the soft drinks and half the colas consumed in the United States are made by Coca-Cola. Coca-Cola’s bottle and logo are among the most recognized trademarks in the world, and its stock is one of thirty Blue Chip issues that make up the Dow Jones Industrial Average.
Da Da Footwear
Los Angeles-based Da Da Footwear designs and markets athletic footwear and apparel. The company was founded in 1998 by former college athlete Lavetta Williams. Da Da’s distinctive product colors and designs, and innovative marketing such as concert tie-ins, enable it to compete successfully against much larger shoemakers, and to achieve margins far above industry norms. Da Da sells to retailers around the world.
Digital Evolution/U.S. Interactive
Digital Evolution merged with U.S. Interactive in 1998. The combined company, U.S. Interactive, has produced more than 400 e-commerce, digital marketing, knowledge management, and enterprise relationship management solutions for more than 200 clients, including AT&T, Comedy Central, Lexus, McNeil Consumer Products, the National Football League, and The Walt Disney Company. The company has full-service offices in Los Angeles, New York, Philadelphia, Seattle, and Washington, D.C.
Federal Express Corpo ration
Federal Express is the world’s largest express transportation company. Based in Memphis, Tennessee, Federal Express serves 210 countries with more than 43,000 vehicles, delivering more than 3.1 million packages daily. The company was founded in 1973, and today is a key to new business practices such as “just-in-time" shipping, electronic commerce, and global sourcing and selling across markets.
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Food From The ‘Hood
Food From The 'Hood is a student-owned-and-operated entrepreneurship program at Crenshaw High School in Los Angeles. Begun in 1992, the program stresses values, self-discipline, and socially responsible business practices by making and marketing a line of natural salad dressings and by maintaining an organic garden. The program’s profits are awarded as scholarships to Crenshaw students. Food From The ‘Hood distributes 10,000 cases of dressing annually to 2,000 markets, and plans national distribution of its products. The program has received coverage from Business Week , Newsweek , and other national newspapers and magazines.
Giorgio Beverly Hills
Giorgio Beverly Hills was created as the signature fragrance for the Giorgio boutique in 1981. By 1986, annual sales were $60 million. Called “The Scent of the Century" by Newsweek magazine, Giorgio continues to rank among the world’s best-selling perfumes. The Giorgio name also brands other consumer products plus handbags, eyewear, watches, scarves, jewelry and umbrellas. In August, 1994, Giorgio Beverly Hills was purchased by Procter & Gamble, and integrated with P&G's prestige fragrance business, EuroCos, to form Procter & Gamble’s Fine Fragrance Division.
Hard Candy
Hard Candy makes cosmetics including nail polish and lipstick. The Beverly Hills-based company began in 1995 when founder Dineh Mohajer, then a pre-med student, blended her own nail polish and sold a small batch to the Los Angeles retailer where she worked. Hard Candy specializes in nail polish for men and women in signature colors with names such as Gigolo, Testosterone, Pavement, Sky, Haze, Jail Bait, and Greed. The company wholesales to stores across North America, with sales in excess of $25 million.
Hilton Hotels Corporation
Hilton Hotels Corporation owns, manages, and/or franchises more than 250 hotels and resorts worldwide, including airport lodgings, mid-range hotels, and five-star casino resorts such as New York’s Waldorf-Astoria® and its newest property, the Conrad International Cairo in Egypt. Founded in 1919, the Beverly Hills, California-based company employs more than 45,000 people and is publicly traded on the New York Stock Exchange.
HotHotHot
HotHotHot, founded by father and son Raveen and Govind Arora in 1983, makes a wide variety of salad dressings, seafood and barbecue marinades, cooking seasonings and rubs, pickles and condiments, and hot sauces. In1994 the San Pedro, California-based company was the first hot sauce maker to market its products via the Internet, and now does the majority of its business electronically with customers as distant as Japan and South America.
Legoland California Inc. / Asher & Partners
Legoland California, the first Legoland in the United States, is a theme park based on Lego toys made by the Denmark-based Lego Group. Designed for children aged two to twelve, Legoland California is located in Carlsbad, California. Asher & Partners is a Los Angeles-based, fullservice advertising agency. With billings more than $120 million a year, Asher & Partners services clients including Legoland California, Suzuki Motors, New York-New York Hotel and Casino, and the State of California HIV Prevention Campaign.
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Louise’s Trattoria
Louise’s Trattoria is a chain of sixteen restaurants, with fifteen located in and around Los Angeles, and one in Milwaukee. The company calls its restaurants “neighborhood casual," and specializes in fresh, healthy Italian cuisine. Louise’s contracts directly with growers and producers in Italy for items such as extra virgin olive oil, parmesan cheese, prosciutto, pasta, and wine. Louise’s is privately held and based in Los Angeles.
My Romance Audio Romance Classics
My Romance was founded in 1997 by former daytime drama actor Greg Marx. The Los Angeles-based company creates romance fiction on audio cassettes, read by name television actors. My Romance distributes through bookstores and web retailers including Amazon.com.
NBC Television
The National Broadcasting Company, wholly owned by General Electric, owns NBC Television, the second-largest television network in the United States. NBC Television serves thirteen company-owned stations and more than 200 domestic affiliates. The company also operates 24hour cable channels CNBC and MSNBC, and has partial ownership in cable channels such as A&E. New York-based NBC produces programs including Friends, ER, The Tonight Show with Jay Leno, Saturday Night Live, and Dateline NBC.
Outdoor Systems Advertising, Inc.
Outdoor Systems, Inc., is the largest out-of-home media company in North America. The Phoenix, Arizona-based company operates approximately 237,500 bulletins, posters, transit shelters, subway, mall displays, building-sized banners, and sports marketing services in North America, including 125,000 subway displays in New York City. OSI has operations in most of the largest markets in the United States, Canada, and Mexico, and is publicly traded on the New York Stock Exchange.
Philips Lighting Corporation
Royal Philips Electronics, based in the Netherlands, is one of the world's biggest electronics companies, and the leader in the global lighting market. The company developed the Alto line of low mercury fluorescent lamps in response to environmental concerns about hazardous mercury waste. Featuring mercury content less than 20 percent that of standard fluorescents, the Alto line is the first lamp capable of passing the U.S. Environmental Protection Agency’s stringent tests for non-hazardous waste. Philips also designed a method of recycling mercury within each lamp so the lamp would need a smaller supply, and encouraged the market to switch to low mercury lamps.
Tiger Foods
Tiger Foods, founded in 1998, specializes in distributing smoked meats, turkey, ground beef, and chicken to delicatessens and sandwich shops. Founder/Owner Jon Startz and Vice President of Sales Randy Quinton also educate customers on optimum preservation and presentation of meat products (Tiger Foods’ business cards say, “We are not just in the food business, we are in the people business selling food”). Tiger Foods is in Toluca Lake, California.
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Saturn Corporation
Saturn Corporation, a subsidiary of General Motors Corporation, was conceived in 1982 and officially announced in 1985 as a response to the success of Japanese automakers in the United States. Created to be a “clean slate” and to take innovative directions in technology, labor relations, and product design, the company’s first vehicle was completed in 1990, and its twomillionth produced in 1999. Saturn has won numerous awards, not only for product quality, design and engineering, customer satisfaction, and marketing, but also for community relations.
Subway Restaurants
Today the world's largest submarine sandwich franchise, Subway began as a storefront in Bridgeport, Connecticut, in 1965, and opened its first franchise in 1974. With over 14,000 restaurants in seventy countries, Subway has more franchises than any other restaurant chain except McDonald's, and makes a specialty of operating in non-traditional locations including convenience stores, truck stops, casinos, grocery stores, bus and railroad terminals, airports, amusement parks, arenas, hospitals, and military bases. Still owned by its co-founders, Subway, based in Milford, Connecticut, markets its sandwiches as healthy alternatives to other fast food.
Toyota Motor Sales of America/Toyota Genesis Group
Convened in 1998 by Toyota Motor Sales USA, Inc., the Toyota Group consists of eight employees age thirty-five and under, and is charged with increasing Toyota’s market share among buyers in the same demographic. The Genesis Group is credited with influencing the design, development, and pricing of three new Toyota models for the years 1999 and 2000, including the Echo, the lowest-priced Japanese car on the market and the company’s first car in five years to start at under $10,000.
Trick R/C Products
Trick R/C Products, based in Venice, California, makes and sells model airplane and glider kits, radio controllers, and spare parts to hobbyists and retailers around the world. The company’s signature product is its Zagi line of radio-operated electronic aerobatic wings suitable for sport gliding or combat. Based on Jerry and Joe Teisan’s lifelong interest in model aviation, Trick R/C was founded in 1996, when Internet-based global marketing permitted the Teisans to turn a handicraft with devoted local buyers into a business with customers worldwide.
Volvo Cars of North America
Volvo Cars of North America was founded in 1955 by an American hardware wholesaler who was impressed by Volvo taxis during a visit to Sweden. In 1963, Volvo became the first European car manufacturer to open a North American assembly plant in the post war era. Since then, Rockleigh, New Jersey-based Volvo has built a reputation for safe, durable products. Volvo Group companies in North America now include makers and dealers of cars, buses, trucks, and marine engines.
Women’s World Cup
Women’s World Cup 1999 Organizing Committee, Inc., is the Los Angeles-based nonprofit legal entity that successfully designed the 1999 Women’s World Cup to be a “breakthrough event” for women’s sports. Two years of qualifying matches culminated in the final round of teams from sixteen nations, who played in venues across the United States before roughly 500,000 ticket holders.
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Pa r t i c i p a t i n g
Expe rts
Dr. Gordon L. Berry Senior Adviser for CBS Network Advisory Board on Educational Children’s Programming
Dr. Berry is a professor emeritus at University of California at Los Angeles. His major areas of research relate to the study of media and social behavior and crosscultural counseling psychology. Dr. Berry has served as a consultant and adviser to children’s programs at NBC, Nickelodeon, Jim Henson Productions, the Children’s Television Workshop, Warner Bros., and Universal Pictures. He is author of the book Children and Television: Images in a Changing Sociocultural World . In addition, he has authored four curriculum handbooks on children and the learning of values in a McGraw-Hill multimedia series. Dr. Berry’s most recent book is Research Paradigms in the Study of Television and Social Behavior . He holds a bachelor’s degree from Central State University, a master’s from the University of Wisconsin, and a doctorate of education in counseling psychology from Marquette University.
Aimee Drolet Assistant Professor of Marketing The Anderson School of Management University of California at Los Angeles
Ms. Drolet is an assistant professor at the John E. Anderson Graduate School of Management. She received a doctorate in business and a master’s in psychology from Stanford University. Ms. Drolet has a master’s in public policy and bachelor’s in classical history from the University of Chicago. Her research focuses on consumer preference and decision-making and interpersonal psychological processes. Among her research papers is “The Role of Attribute Values in Consumer Choice,” published in the Journal of Consumer Research.
Shantanu Dutta, Ph.D. Associate Professor of Marketing University of Southern California
Mr. Dutta has consulted and taught for a number of major corporations, including Amoco, Abbott Laboratories, and Motorola. Before arriving at USC, he was on the faculty at the University of Chicago. His research interests are in channels of distribution, marketing strategy, and pricing. Mr. Dutta’s articles on these subjects have been widely published, in the Journal of Marketing, Marketing Letters, Journal of Law, and Economics and Organization to name only few. His teaching and consulting have focused in the areas of market positioning and assessing market niches, strategic partnering, segmented and value pricing, and managing gray markets in domestic and international settings. Dutta holds a doctorate from the University of Minnesota.
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Richard A. Elbrecht Supervising Attorney of the Legal Services Unit California Department of Consumer Affairs
Mr. Elbrecht has served with the Department of Consumer Affairs since 1976. His unit currently provides a wide range of legal services, including legislative drafting, advocacy before administrative agencies, litigation, and education. He has worked in areas affecting consumers, including banking, electronic funds transfer, telecommunications, insurance, sales, warranties, credit and cable communications. He helped design and administer California’s State Quality Awards. Along with his numerous publications, Mr. Elbrecht has served as an adviser to the Direct Marketing Association, the Smart Card Forum, Pacific Bell, American Express, the Department of Insurance, the State Bar of California, the University of California, and Consumer Research Foundation. Mr. Elbrecht graduated from Yale University with a degree in economics, with a concentration on money, banking, and antitrust law, and later from Michigan Law School with a juris doctorate and a focus on international trade.
Susan Fournier, Ph.D. Associate Professor of Business Administration in the Marketing area Harvard Business School
Professor Fournier teaches the brand marketing elective in the MBA program at Harvard University and strategic marketing management in the executive education program. She also teaches executive education programs for other universities and corporations. Her awardwinning dissertation and followup work examine the relationships consumers form with brands, the strength of those relationships, and how marketers’ actions can enhance or dilute those bonds. Before joining the faculty at Harvard Business School, Ms. Fournier served as vice president and associate research director at Young & Rubicam advertising in New York. She currently consults with a range of consumer marketing companies and advertising agencies, including Saatchi and Saatchi Advertising, Land Rover, Coca-Cola, Harley-Davidson, and Phillips Electronics. Ms. Fournier received her doctorate in marketing from the University of Florida. She also holds a master’s in marketing from Pennsylvania State University and a bachelor’s degree from the University of Massachusetts at Amherst.
Michael A. Kamins, Ph.D Marketing Consultant, Member of the Editorial Board of the Journal of Advertising and the Journal of Business Research
Dr. Kamins’s current research interests lie in the areas of the pioneer advantage, rumor, puffery, and exaggeration in advertising, celebrity advertising, and cognitive and affective processes in advertising. He is an associate professor of marketing at the University of Southern California. In the course of his career, Dr. Kamins has published more than thirty articles in scholarly journals in marketing and psychology inclusive of the Journal of Marketing Research, Journal of Marketing, Psychology and Marketing, and the Journal of the Market Research Society. He has consulted for such companies as Thompson’s Minwax, AT&T, Hilton Hotels Corporation, and Kalkan and for such individuals as Kareem Abdul Jabbar. Dr. Kamins received his doctorate from New York University in 1984.
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Joseph Nunes, Ph.D. Independent Consultant Professor of Marketing Marshall School of Business University of Southern California
Dr. Nunes has several years of business and consulting experience, having worked in administration at the U.S. Department of Commerce, along with numerous years of experience in media and public relations. He has also served as an independent consultant to BBDO Advertising Agency, Tribune/Knight Ridder Services, Peapod Home Shopping Service, and Abbott Laboratories. Mr. Nunes is currently an assistant professor of marketing at the University of Southern California’s Marshall School of Business. He has also taught marketing management to executive MBAs at the University of Chicago, where he received his doctorate. in 1998 Mr. Nunes earned his bachelor’s at Northwestern University and his master’s in business administration at the University of Chicago. Rohit K. Shukla President & Chief Executive Officer of the Los Angeles Regional Technology Alliance
Under his leadership, the Los Angeles Regional Technology Alliance has been recognized internationally as a focal point for information, investment, and business strategy in Southern California. Mr. Shukla serves on the board of several organizations, including the Caltech/MIT Enterprise Forum; EC2, the Annenberg Incubator Project; and the Digital Coast Roundtable. Involved in high technology since 1983, he founded his own company, providing database and communications solutions and devices. In October 1997 Mr. Shukla was appointed to the Los Angeles Board of Information Technology Commissioners as well as to a special blue-ribbon task force on communications infrastructure for the City of Los Angeles. Mr. Shukla holds a master’s in economics and politics from Cambridge University and a master’s in communications from Loyola Marymount University, Los Angeles.
David W. Stewart, Ph.D. Robert E. Brooker Professor of Marketing and Chairman of the Department of Marketing University of Southern California Former Editor of the Journal of Marketing
Before moving to California in 1986, David Stewart was senior associate dean and associate professor of marketing at the Owen Graduate School of Management at Vanderbilt University. Dr. Stewart received his bachelor’s from Northeast Louisiana University and his master’s and doctorate in psychology from Baylor University. Dr. Stewart serves or has served on the editorial boards of twelve professional journals, including the Journal of Marketing Research, the Journal of Advertising, the Journal of Marketing, and the Journal of Public Policy and Marketing . Stewart has been honored for innovation in teaching by the Decision Sciences Institute and received the 1988 Senior Research Fellowship from the American Academy of Advertising. Dr. Stewart has worked as a manager of research for Needham, Harper, and Steers Advertising, Chicago (now DDB Needham). He has also consulted for such organizations as Hewlett Packard, the Coca-Cola Company, Honeywell, Hughes, Texas Instruments, IBM, Intel, and the United States Federal Trade Commission.
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A dv i s o r y B o a r d Susan P. Douglas Professor of Marketing New York University New York City, New York
Susan P. Douglas has a doctorate in business and applied economics from the University of Pennsylvania, and a master’s in economics and history from the University of Manchester, where she also received a bachelor’s in economics, politics, and modern history. She teaches International Marketing Management and is a Research Professor of International Business at New York University. Her research interests include global marketing strategy, crosscultural consumer behavior, and international marketing research. She is co-author of Global Marketing Strategy for the McGraw-Hill Research Series, and International Marketing Research . She has also published articles in the Journal of Research in Marketing.
Jack Heinsius Instructor Modesto Junior College Modesto, California
Jack Heinsius has been a business instructor at California’s Modesto Junior College since 1979. Before joining the faculty at Modesto, he administered the Work Experience Program and taught at Columbia College at Sonora, California, for four years. Mr. Heinsius has extensive experience working in private industry for a variety of corporations in retailing, industrial wholesaling, and manufacturing, with a focus on operations management, sales, and sales management. He has consulted in management and marketing for the Yosemite Community College District and independently with local and national firms.
Ray Tewel l Professor of Marketing American River College Sacramento, California
Ray Tewell earned his master’s in marketing from the California State University at San Francisco. He did additional graduate work in marketing at the University of Colorado at Boulder, and received his bachelor’s in retailing at the University of Denver. He has taught marketing, retailing, international business, and advertising at American River College since 1965. He has also taught international business and marketing at California State University at Sacramento. Professor Tewell recently developed a complete two-year degree DistanceEducation program in marketing, and he has developed a certificate program for the retail grocery industry in the Sacramento area. His publications include books on merchandising and store-location theory.
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Alice M. Tybout Professor of Marketing Northwestern University Evanston, Illinois
Alice M. Tybout is the Harold T. Martin Professor of Marketing at the Kellogg Graduate School of Management at Northwestern University in Evanston, Illinois, where she teaches Advertising, Consumer Information Processing, and Marketing Management. She holds a doctorate in marketing from Northwestern University and a master’s in consumer behavior and a bachelor’s in business administration from Ohio State University. Her numerous awards, honors, and fellowships include the General Foods Research Chair and the Sidney J. Levy Teaching Award (1995-96). A trustee of the Marketing Science Institute (1988-1998), Professor Tybout consults for many Fortune 100 companies, among them Dow Chemical, Dow Elanco, Abbott Labs, Searle, and Xerox. She serves on the Editorial Board of the Journal of Consumer Research.
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About the
P r o f e ss o r
JOHN A. QUELCH
One of the world’s leading authorities on modern marketing, John A. Quelch is Dean of the London Business School and Professor at London University. He formerly served as the Sebastian S. Kresge Professor of Marketing and Co-Chair of the Marketing Area at Harvard Business School. Professor Quelch is an internationally recognized expert on global business, international marketing, and human resource management; the role of the multinational corporation and the nation state; and issues at the juncture of business management, public policy, and society. He is the author or co-author of twelve standard texts, including Global Marketing Management (1998), Cases in Marketing Management and Strategy: An Asia-Pacific Perspective (1997), and The Marketing Challenge of Europe 1992 (1991). He has written more than fifty articles on marketing management and public policy issues, published in leading journals such as Harvard Business Review, McKinsey Quarterly, and Sloan Management Review. He is frequently quoted by news and business journals including Business Week, The Economist, Financial Times, and The Wall Street Journal , and he has appeared on CNN and CNBC. Professor Quelch serves as a nonexecutive director of London-based WPP Group PLC, one of the world’s largest marketing communications groups, with offices in ninety-two countries, providing services to local, multinational, and global clients. He is also a nonexecutive director of Pentland Group PLC, international makers of sports and leisure wear; Unicapital Corporation, sellers and lessors of commercial equipment; and USA Floral Products Inc. He was a founding nonexecutive director of Reebok International Ltd. and U.S. Office Products Company. Professor Quelch has served as a consultant, seminar leader, and speaker for firms, industry associations, and government agencies in more than forty countries. He has consulted with more than fifty leading global companies in a wide variety of industries and markets, including American Airlines, AT&T, Coca-Cola, Colgate-Palmolive, Fidelity Investments, Gillette, General Electric, Hoffman LaRoche, Honeywell, IBM, Procter & Gamble, Textron, and Westinghouse. Born in London, England, Professor Quelch was educated at Exeter College, Oxford University (M.A.), the Wharton School of the University of Pennsylvania (M.B.A.), the Harvard School of Public Health (M.S.), and Harvard Business School (D.B.A.).
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Course Development Team Elizabeth Kellison, Director of Academic Affairs
Elizabeth Kellison is in charge of the University Access curricula and University Access's relationships withacademicians around the United States. She launched and currently serves as Executive Editor of the online journal "@cademyonline," a publication on information technology, management education and distance learning, which is co-published by University Access and AACSB-the International Association for Management Education. Her substantial background in education includes more than twelve years of experience in teaching, learning and curricular development on both the college and secondary school level. She has a master's in Russian Literature from the University of North Carolina at Chapel Hill, and a bachelor's in Russian from Williams College in Williamstown, Massachusetts. Lynne Hill, Director of Creative Affairs, CourseWorks
Lynne Hill holds a master’s in television journalism from the University of California, Los Angeles, and a bachelor’s in journalism from the University of Southern California. She has been writing, producing, and directing television documentaries and educational films for more than twenty years. She has worked extensively in the field of educational programming, including production of three other University Access courses: Introduction to Business Communications: Tools for Leadership; Introduction to Microeconomics: Analytical Building Blocks for Business; and Introduction to Entrepreneurship: Building the Dream . Hill’s work has appeared on the Discovery Channel, the Learning Channel, NBC Network News, Lifetime Television, ABC-TV, and in syndication.
Rupert Macnee, Executive Producer
After earning a bachelor’s from Princeton University and a certificate from the Woodrow Wilson School of Public and International Affairs, Rupert Macnee began his extensive career in film and television with the long-running wildlife series The Untamed World . Macnee was a producer on the recent University Access series, Introduction to Macroeconomics: Mastering the Global Economy. He has accumulated wide experience as a producer, executive, director, and writer in entertainment, documentaries, and industrial films including the Discovery Channel series Movie Magic , A&E Network’s Ancient Mysteries , and the comedy series, An Evening at the Improv.
Lynda Palmer, Professor of Marketing
Lynda Palmer is a Professor of Undergraduate and Graduate Marketing at Pepperdine University in Malibu, California. In addition to her academic expertise, she also has many years of experience as a Marketing and Strategic Planning Consultant, specializing in the utilization of technology to enhance marketing efforts. She is an active member of several professional and honor societies, delivers frequent professional presentations about marketing, and dedicates a great deal of her time to enhancing her community. Ms. Palmer received her M.B.A. from Pepperdine University and her B.A. in Economics from the University of Washington.
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Anne Donnelly, Instructional Designer
After studying marketing at Northern Arizona University, Anne Donnelly developed and delivered training programs as an instructional designer for AIM Management Group, a Houston-based financial services company. Before that, she served as an agency development specialist for Nationwide Insurance Company. Her areas of expertise were variable annuities, offshore mutual funds, and retirement plans. She joins the University Access team with Introduction to Marketing: Competing in the 21st Century.
Kerrin T. Sullivan, Producer
Kerrin T. Sullivan is an Emmy Award-winning producer, director, and writer, with more than twenty-five years of experience in local and national broadcast journalism. His work has appeared on national news programs, including ABC’s World News Tonight and Nightline , plus numerous local newscasts. He was news director/producer for KCOP-TV in Los Angeles. Sullivan’s editorial experience includes magazines, newspapers, and radio (for which he has won four Golden Mike awards). He has also worked as a corporate public-relations manager and as owner-operator of a public relations and advertising firm.
Ken Gale, Producer
Ken Gale has written and produced more than a dozen documentaries on a variety of subjects over the past fifteen years. He has been a print, radio, and television journalist since 1958, covering the Vietnam war, civil rights, Watergate, and numerous other pivotal events. Gale was co-executive producer of Physician’s Journal Update , a weekly half-hour medical news program by and for doctors on Lifetime Medical Television, and he produced many continuing medical education programs for the Annenberg Center at the Eisenhower Medical Center in Palm Springs, California.
Christina Taylor, Producer
Holder of a bachelor of fine arts degree in theater from the University of California at Santa Barbara, Christina Taylor has worked as designer, story researcher, footage researcher, content supervisor, and producer on projects ranging from educational CD-ROM titles for teens and adults to producing five recent University Access courses: Introduction to Business Communications: Tools for Leadership, Introduction to Microeconomics: Analytical Building Blocks for Business; Introduction to Entrepreneurship: Building the Dream; Introduction to Macroeconomics: Mastering The Global Economy ; and Introduction to Marketing: Competing in the 21st Century.
Robert Tisinai, Manager of Instructional Design
Robert Tisinai is a graduate of Pennsylvania State University, where he won the Senior Award in Economics. He went on to earn a master’s in economics with distinction in macroeconomics from Stanford University, where he pursued doctoral studies. He was a teaching assistant and instructor at Stanford University, taught for both the business and economics departments at San Francisco State University. He was the writer of course materials and developer of online content for the University Access courses Introduction to Microeconomics: Analytical Building Blocks for Business and Introduction to Macroeconomics: Mastering the Global Economy. He also contributed to Introduction to Marketing: Competing in the 21st Century. Tisinai has also designed and implemented courses in online education, distance learning, and Internet research tools for UCLA Extension’s Online Teaching Certification Program.
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Brenda Reiswerg, Senior Vice President, CourseWorks
Brenda Reiswerg was executive producer of University Access’ courses Introduction to Microeconomics: Analytical Building Blocks for Business and Introduction to Entrepreneurship: Building the Dream. A graduate of the University of Texas, she spent several years at the documentary film unit at KUHT, Houston’s public television affiliate. She produced such notable television documentaries as Scared Silent , hosted by Oprah Winfrey (a Humanitas Award winner); Break the Silence , hosted by Jane Seymour (a Peabody Award winner); Victory Over Violence, hosted by Walter Cronkite; and Everybody’s Business: America’s Children, hosted by Katie Couric.
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Course Materials Information What follows is a comprehensive list of all the class materials needed for Introduction to Marketing: Competing in the 21st Century , plus ordering information. Textbook and ordering information is also available in the Faculty Guide . When ordering materials directly from University Access, a purchase order or check must be received before the materials can be shipped. If broadcast master videos of this course and/or other courses are needed, please contact University Access directly at 888.960.1700 or at
[email protected]. Faculty and Campus Bookstores Faculty and campus bookstores can obtain textbook packages and student guides by contacting the publisher directly. Please refer to the following listings or the Faculty Guide for ordering information. The Faculty Guide is reserved for faculty and instructors and is available only to licensees of University Access courseware. Please call 888.960.1700 to place an order. Textbook Package Perreault, Jr., William D., and E. Jerome McCarthy. Basic Marketing: A Global-Managerial Approach , 13th Edition, New York: Irwin/McGraw-Hill 1999 and Introduction to Marketing: Student Guide
The McGraw-Hill Companies Phone: 800.338.3987 Fax: 614.755.5645
Requests for textbook desk copies must be made on institutional letterhead and sent to:
The McGraw-Hill Companies College Division P. O. Box 445 148 Princeton Road S-1 Hightstown, NJ 08520-1450 Phone: 800.338.3987, prompt 3 Fax: 609.426.5625
Or to order the student guide only: Introduction to Marketing: Student Guide, New York: Irwin/McGraw-Hill, 1999
The McGraw-Hill Companies Phone: 800.338.3987 Fax: 614.755.5645
Videos (box set contains entire 12-hour program) Introduction to Marketing Student Video Set Los Angeles, California: University Access, 1999.
University Access Sales Service Department Phone: 888.960.1700 Fax: 323.962.9950
[email protected]
Students — To Order Online Textbook packages, Student Guide s, and videos for the telecourse and teleweb course can be ordered online through the University Access Campus Store at www.universityaccess.com. Select the course name — Introduction to Marketing: Competing in the 21st Century — and follow the instructions. Visa, MasterCard, American Express and Discover are accepted. Video Rentals Students can rent course videos from RMI Media by calling 800.745.5480. To rent online, go to www.rmimedia.com and proceed to the Telecourse Rental Program area. Introduction
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About University Access
University Access is an Internet-based company specializing in broadband content for higher education. University Access collaborates with respected professors from the world’s leading business schools to create a world-class curriculum. By combining the strengths of two distribution media, the Internet and television, University Access is building a library of online and video courseware for a powerful, interactive educational experience for distance and lifelong learners. University Access serves three distinct marketplaces: undergraduate, graduate business, and corporate education. University Access changed the paradigm of distance learning with the innovation of its teleweb courses, comprising documentary-style video lectures and customizable Internet-based courseware. With a similar belief that teleweb courses were the future architecture of distance education, PBS Adult Learning Service (ALS), the largest distributor of technology-based college credit, partnered with University Access in 1998. This belief was expanded in 1999 by offering videos of the courses through an arrangement with Broadcast.com. In addition to its numerous partnering colleges and universities worldwide, University Access has joined with AACSB — The International Association for Management Education — to launch @cademyonline (www.academyonline.com), an online journal created for the rapidly evolving worlds of distance education and lifelong learning. University Access is building a complete business degree at a distance.
Corporate Training
The corporate division of University Access handles a variety of skill development goals for corporate partners. University Access specializes in broadband content for education, providing a top-quality learning experience for anyone, anytime, anywhere. Video and Internet technologies enable organizations to leverage University Access connections with well-known business leaders in ways that are convenient and specific to an organization’s needs, all at minimal cost. University Access’s award-winning platform is an organization’s to use — at no extra charge — when licensing the modular courseware. University Access is a critically acclaimed distance-learning company that has won numerous honors in the last two years, including the 1999 Inc . Magazine/Cisco Grand Prize in the “Startup” category as part of its “Growing With Technology” awards program. University Access offers a variety of options to assist organizations in meeting their educational and training needs, including: • award-winning, high-quality business courseware developed in concert with the nation’s top business-school professors. • instructional design services for creating and designing multimedia courses. • access to a leading distance-learning platform with asynchronous and synchronous functions, as well as full technical support and training.
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University Access’s broadband content can be offered through almost any distribution channel including the Internet, corporate Intranets, private satellite networks, and traditional video. University Access uses a variety of means to assist you in meeting your organization’s needs: • Creating and designing specific courses for your company. • Customizing courses. • Use of our pre-produced, high caliber courseware. For more information, please contact the Corporate Sales Department at 888.960.1700 or
[email protected].
Training and Support
University Access provides training and support to instructors as they adapt to the online teaching environment. University Access trains them to administer online courses effectively, making full use of both the synchronous and asynchronous features of the courseware. University Access continues to support instructors during the academic term, providing feedback to improve their techniques. After the training, faculty should be able to: • interact with students in a chat room. • correct and submit grades for online tests and homework assignments effectively. • utilize each feature and function (such as announcements, discussion groups, online testing, etc.) at the most appropriate time. • customize the courseware to meet specific teaching needs. • understand the ways students interact with the professor. • comprehend how students interact with the courseware.
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Other University Access Courses
Introduction to Business Communication Tools for Leadership Business students and corporate clients will find valuable practical information in Introduction to Business Communication: Tools for Leadership, taught by Dr. Laree Kiely, professor of management communication at the University of Southern California’s Marshall School of Business. The course presents compelling teaching in a dynamic video format, augmented by interviews with guest experts and real-world case studies that illustrate the academic content. Introduction to Business Communication, which won the prestigious U.S. Distance Learning Association Excellence in Distance Learning Teaching Award in 1998, covers such important topics as communications theory, public speaking, teamwork, meeting management, business writing, negotiations, and diversity. The course also includes on-location case studies of such enterprises as The J. Paul Getty Museum, the Jet Propulsion Laboratory, the television series Frasier, Ballet Folklorico de Mexico, and the Hartford Courant . Introduction to Entrepreneurship Building the Dream Starting a business may be one of the most challenging and rewarding journeys a person can take, but it is a journey fraught with obstacles and setbacks. Introduction to Entrepreneurship: Building the Dream helps prepare students to succeed on that trip. Taught by Thomas O’Malia, director of the Lloyd Greif Center for Entrepreneurial Studies at the University of Southern California’s Marshall School of Business, the course includes documentary-style interviews, combined with a powerful Web site of interactive courseware activities, research materials, and interactive discussions that bring vitality to the lessons. The course explains the entrepreneurial way of thinking and acting, ways of testing the feasibility of an idea, the skills needed, how to raise capital, the means of marketing the product, how to develop a business plan, and more. Illustrating these subjects are case studies that range from such large corporations as Kinko’s and Subway, to technological organizations such as EarthLink and QAD, to smaller fast-growing companies that include Border Grill and Hard Candy. For students who want to launch their own businesses or those who want to be more innovative in a corporate setting, this course is both practical and inspiring. This course has been honored by the United States Distance Learning Association with the 1999 first place award for “Excellence in Distance Learning — Higher Education.” Introduction to Microeconomics Analytical Building Blocks for Business The complex issues of firms’ and households’ economic decisions are made clear in this Introduction to Microeconomics: Analytical Building Blocks for Business course, taught by Robert Connolly, Ph.D., associate professor of economics and finance, University of North Carolina – Chapel Hill. Lectures by Dr. Connolly, interviews with leading business professionals, and case studies — in combination with a dynamic Web site of interactive courseware — all enhance the learning experience and show how to apply microeconomics to a wide variety of issues in the rapidly changing world. This course features visits to several businesses, including Wolfgang Puck’s expanding food empire, the historic Rickenbacker guitar factory, Southern California Edison, and a typical, budget-conscious American family. Introduction to Microeconomics covers such crucial topics as supply and demand, market equilibrium, resource allocation, profit maximization, monopolies, and international analysis. It is a practical tool for business professionals, as well as students of business, management, social sciences, and the humanities. This course has been honored with two 1998 United States Distance Learning Association awards, including second place in the category of “Best Distance Learning Program — Higher Education” and third place for “Best Distance Learning Program — Continuing Education.” Introduction to Microeconomics can be used as a standalone course or in conjunction with its companion, Introduction to Macroeconomics: Mastering the Global Economy. Together, these courses create a complete first-year introduction to economics.
Introduction to Macroeconomics Mastering the Global Economy Macroeconomics is based on today’s headlines as well as historical events. Such basic macroeconomic issues as inflation, interest rates, and unemployment commonly determine the outcome of elections and the transfer of power in a country. Along with its real world effects, macroeconomics is a rigorous social science that helps develop analytical skills. Introduction to Macroeconomics: Mastering the Global Economy is on the cutting edge of next-generation education. Students learn the concept of Gross Domestic Product (GDP); the importance of interest rates, saving, and investment to economic growth; unemployment; the money supply, price levels, and inflation; international trade and capital flows; the aggregate supply and demand model; and monetary and fiscal policy issues. The material is grounded in the work of Robert Connolly, Ph.D., associate professor of economics and finance, University of North Carolina – Chapel Hill. The content is illuminated by interviews with renowned experts, animated graphics, and compelling case studies. Web links and Java applets enrich the course’s innovative online activities, which include interactive and collaborative exercises and Internet research projects. Introduction to Macroeconomics: Mastering the Global Economy is invaluable as a stand-alone course, as a supplement to any existing macroeconomics program, and as a companion to Introduction to Microeconomics: Analytical Building Blocks for Business. Together, these courses create a complete first-year introduction to economics. The Legal Environment of Business Making Decisions, Managing Risks University Access’ new teleweb course, The Legal Environment of Business: Making Decisions, Managing Risks, provides a sound legal foundation that students can use to understand the important laws and regulations affecting today’s businesses. Presented by Prof. Jane P. Mallor, award-winning professor of business law at Indiana University’s Kelley School of Business, this teleweb course features expert commentary from leading legal authorities and dramatic case studies of landmark judicial decisions that affect social policy as well as the environment in which all businesses operate.
To learn more about our course offerings, please contact us at: www.universityaccess.com Telephone: 888.960.1700 Email:
[email protected] Information can also be obtained by writing: PBS/ALS 1320 Braddock Place Alexandria, VA 22314-1698 Telephone: 800.ALS.ALS8
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Video Order Form University Access would like to thank you for enrolling in one of our courses. So that you may continue to enjoy its value long after the semester ends, we are extending this special discount offer. Throughout the course and up to thirty days after completion of the semester or quarter, all University Access students may purchase a copy of the video series from the course(s) they completed or are currently taking at the discounted student rate of $69 (plus tax and shipping, where applicable). Now you can buy the entire twelve-hour video series for just $5.75 per hour — more than a 75 percent discount off the retail price of $295! For more information, please contact our video sales department by phone at 888.960.1700, or by email at
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Introduction to Marketing (home use only) Subtotal Shipping ($8 per series) Sales Tax (8.25% CA, 6% NC) Total
Limit one series at $69 plus tax and shipping, where applicable. Submit order form by fax: (323) 960-1707 Or mail to: Video Sales Department, University Access, 6255 Sunset Blvd. Suite 801, Los Angeles, CA 90028. 210
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