Solution Manual for Marketing An Introduction, 16th edition Gary Armstrong Philip Kotler Sridhar Bal

Solution Manual Marketing An Introduction, 16th edition Gary Armstrong Philip Kotler Sridhar Balasubramanian Chapter 1-16 CHAPTER 1 MARKETING: CREATING CUSTOMER VALUE AND ENGAGEMENT PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 1-1.

1-2.

1-3.

1-4.

1-5.

Define marketing and outline the steps in the marketing process.

Explain the importance of understanding the marketplace and customers and identify the five core marketplace concepts.

Identify the key elements of a customer value-driven marketing strategy and discuss the marketing management orientations that guide marketing strategy.

Discuss customer relationship management and identify strategies for creating value for customers and capturing value from customers in return.

Describe the major trends and forces that are changing the marketing landscape in this age of relationships.

JUST THE BASICS CHAPTER OVERVIEW Marketing is managing profitable customer relationships.

The aim of marketing is to create value for customers and to capture value in return.

Chapter 1 is organized around five steps in the marketing process (see Figure 1.1) – from understanding customer needs, to designing customer-driven marketing strategies and programs, to building customer relationships and capturing value for the firm.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Amazon: Obsessed with Creating Customer Value, Engagement, and Relationships When you think of shopping online—or of shopping anywhere, for that matter—chances are good that you think first of Amazon.

The online pioneer first opened its virtual doors in 1995, selling books. Amazon is rapidly moving beyond online selling, not just into physical stores but also into video and music streaming, cloud services, and the Internet of Things. If one company represents where the world is now headed, it’s probably Amazon.

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Its annual sales have rocketed from a modest $150 million in 1997. During just the past three years, Amazon’s revenues have more than doubled to $386 billion, an average of $283,000 every minute of every day.

Currently, Amazon is the nation’s second-largest retailer, trailing only Walmart.

What has made Amazon such an amazing success story? Jeff Bezos puts it in three simple words: ―Obsess over customers.‖ To its core, the company is relentlessly customer driven.

Amazon wants to deliver a special experience to every customer.

Visitors to Amazon.com receive a unique blend of benefits: huge selection, good value, low prices, and convenience. But it’s the ―discovery‖ factor that makes the buying experience really special.

Amazon does much more than just sell goods online. It engages customers and creates direct, personalized customer relationships and satisfying experiences.

Amazon’s innovations have made the order and delivery process a breeze.

As Walmart and other store retailers are increasingly invading Amazon’s digital domain, the online retailer is now invading their brick-and-mortar worlds. Amazon is expanding its physical store presence further with store concepts such as Amazon Books (books), Amazon 4-Star (selections of top-rated or trending items), Amazon Fresh (assortments of fresh and prepared food).

Amazon has become the poster child for companies that are obsessively and successfully focused on delivering customer value. ―Our customers are loyal to us right up until the second somebody offers them a better service,‖ says Bezos.

WHAT IS MARKETING? A simple definition of marketing is engaging customers and managing profitable customer relationships.

Marketing must both attract new customers and grow the current customers.

Every organization must perform marketing functions, not just for-profit companies.

Non-profits (colleges, hospitals, churches, etc.) also must perform marketing. Today’s marketers want to become a part of your life and enrich your experiences with their brands. They want to help you live their brands.

Marketing Defined

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Most people think of marketing as selling and/or advertising—―telling and selling.‖ Selling and advertising are only part of a larger marketing mix—a set of marketing tools that work together to satisfy customer needs and build customer relationships.

We define marketing as the process by which companies engage customers, build strong customer relationships, and create customer value in order to capture value from customers in return.

Use Key Term Marketing here.

Use Chapter Objective 1 here.

The Marketing Process Figure 1.1 shows the five-step marketing process.

1. Understand the marketplace and customer needs and wants.

2. Design a customer-driven marketing strategy.

3. Construct a marketing program that delivers superior value.

4. Build profitable relationships and create customer delight.

5. Capture value from customers to create profits and customer quality.

Use Figure 1.1 here.

In the first four steps, companies work to understand consumers, create customer value, and build strong customer relationships.

In the final step, companies reap the rewards of creating superior customer value. By creating value for consumers, they in turn capture value from consumers in the form of sales, profits, and long-term customer equity.

UNDERSTANDING THE MARKETPLACE AND CUSTOMER NEEDS Five core customer and marketplace concepts are critical: (1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets.

Customer Needs, Wants, and Demands The most basic concept underlying marketing is that of human needs.

Human needs are states of felt deprivation. They include physical, social, and individual needs. Marketers did not create these needs; they are a basic part of the human makeup.

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Wants are the form human needs take as they are shaped by culture and individual personality. An American needs food but wants a Big Mac. When backed by buying power, wants become demands.

Outstanding marketing companies go to great lengths to learn and understand their customers’ needs, wants, and demands.

Use Key Terms Needs, Wants, and Demands here.

Use Discussion Question 1-1 here.

Market Offerings—Products, Services, and Experiences Needs and wants are fulfilled through market offerings—some combination of products, services, information, or experiences offered to a market to satisfy a need or want.

Market offerings are not limited to physical products. They also include services— activities or benefits offered for sale that are essentially intangible and do not result in the ownership of anything. Examples include banking, airline, hotel, retailing, and home repair services.

Marketing myopia occurs when a company becomes so taken with their own products that they lose sight of underlying customer needs.

Use Chapter Objective 2 here.

Use Discussion Question 1-2 here.

Use Key Terms Market Offerings and Marketing Myopia here.

Customer Value and Satisfaction Customers form expectations about the value and satisfaction that various market offerings will deliver and buy accordingly.

Satisfied customers buy again and tell others about their good experiences.

Dissatisfied customers switch to competitors and disparage the product to others.

Customer value and customer satisfaction are key building blocks for developing and managing customer relationships.

Exchanges and Relationships Exchange is the act of obtaining a desired object from someone by offering something in return.

Marketing consists of actions taken to build and maintain desirable exchange

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relationships with target audiences.

Use Key Term Exchange here.

Use Critical Thinking Exercise 1-7 here.

Markets A market is the set of actual and potential buyers of a product.

Marketing means managing markets to bring about profitable customer relationships.

Figure 1.2 shows the main elements in a marketing system.

Use Figure 1.2 here.

Use Key Term Market here.

DESIGNING A CUSTOMER VALUE-DRIVEN MARKETING STRATEGY AND PLAN Marketing management is defined as the art and science of choosing target markets and building profitable relationships with them.

Use Chapter Objective 3 here.

Use Discussion Question 1-3 here.

Use Key Term Marketing Management here.

The marketing manager must answer two important questions: 1. What customers will we serve (what’s our target market)?

2. How can we serve these customers best (what’s our value proposition)?

Selecting Customers to Serve A company must decide whom it will serve.

It does this by dividing the market into segments of customers (market segmentation) and selecting which segments it will go after (target marketing).

Marketing managers know they cannot serve all customers. By trying to do so, they end up not serving any well.

Marketing management is customer management and demand management.

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Choosing a Value Proposition A company’s value proposition is the set of benefits or values it promises to deliver to consumers to satisfy their needs. (JetBlue promises ―Just Alright Doesn’t Fly Here‖ by bringing ―humanity back to travel.‖ By contrast, Spirit Airlines gives you ―Bare Fare‖ pricing: ―Less Money. More Go.‖ Netflix wants simply to let you ―See What’s Next.‖ And online accommodations site Airbnb helps people to ―Belong Anywhere‖—to live like a local wherever they travel.

Such value propositions differentiate one brand from another.

Marketing Management Orientations Marketing management wants to design strategies that will build profitable relationships with target consumers. But what philosophy should guide these marketing strategies?

There are five alternative concepts under which organizations design and carry out their marketing strategies: 1) The Production Concept The production concept holds that consumers will favor products that are available and highly affordable.

Management should focus on improving production and distribution efficiency.

2) The Product Concept The product concept holds that consumers will favor products that offer the most in quality, performance, and innovative features.

Under this concept, marketing strategy focuses on making continuous product improvements.

3) The Selling Concept The selling concept holds that consumers will not buy enough of the firm’s products unless the firm undertakes a large-scale selling and promotion effort.

The concept is typically practiced with unsought goods – those that buyers do not normally think of buying, such as insurance or blood donations.

These industries must be good at tracking down prospects and selling them on product benefits.

4) The Marketing Concept The marketing concept holds that achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfactions better than

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competitors do.

Under the marketing concept, customer focus and value are the paths to sales and profits.

The job is not to find the right customers for your product but to find the right products for your customers.

The selling concept takes an inside-out approach, whereas the marketing concept uses an outside-in perspective. (see Figure 1.3) Customer-driven companies research current customers deeply to learn about their desires, gather new product and service ideas, and test proposed product improvements.

Customer-driving marketing involves understanding customer needs even better than customers themselves do and creating products and services that meet existing and latent needs.

5) The Societal Marketing Concept The societal marketing concept questions whether the pure marketing concept overlooks possible conflicts between consumer short-run wants and consumer long-run welfare.

Many leading business and marketing thinkers are now preaching the concept of shared value, which recognizes that societal needs, not just economic needs, define markets.

The societal marketing concept holds that companies should balance three considerations in setting their marketing strategies: company profits, consumer wants, and society’s interests. (see Figure 1.4) Use Key Terms Production Concept, Product Concept, Selling Concept, Marketing Concept, and Societal Marketing Concept here.

Use Figures 1.3 and 1.4 here.

Preparing An Integrated Marketing Plan and Program The company’s marketing strategy outlines which customers the company will serve and how it will create value for these customers.

Next, the marketer develops an integrated marketing program that will actually deliver the intended value to target customers.

The marketing program consists of the firm’s marketing mix, the set of marketing tools the firm uses to implement its marketing strategy.

The marketing mix tools are classified into the four Ps of marketing: product, price, place, and promotion.

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The firm blends all of these marketing mix tools into a comprehensive integrated marketing program that communicates and delivers the intended value to chosen customers.

Use Linking the Concepts 1 here.

MANAGING CUSTOMER RELATIONSHIPS AND CAPTURING CUSTOMER VALUE Engaging Customers and Managing Customer Relationships The first three steps in the marketing process all lead up to the fourth step: engaging customers and managing profitable customer relationships.

Customer Relationship Management Customer relationship management is the most important concept of modern marketing.

Customer relationship management is the overall process of building and maintaining profitable customer relationships by delivering superior customer value and satisfaction.

It deals with all aspects of acquiring, keeping, and growing customers.

Relationship Building Blocks: Customer Value and Satisfaction The key to building lasting customer relationships is to create superior customer value and satisfaction.

Customer-Perceived Value. This is the customer’s evaluation of the difference between all the benefits and all the costs of a market offering relative to those of competing offers.

Customers often do not judge values and costs ―accurately‖ or ―objectively.‖ They act on perceived value.

Customer Satisfaction. Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations.

If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted.

Although the customer-centered firm seeks to deliver high customer satisfaction relative to competitors, it does not attempt to maximize customer satisfaction.

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A company can always increase customer satisfaction by lowering its prices or increasing its services. But this may result in lower profits.

The purpose of marketing is to generate customer value profitably.

Use Discussion Question 1-4 here.

Customer Relationship Levels and Tools Companies can build customer relationships at many levels.

At one extreme, a company with many low-margin customers may seek to develop basic relationships with them.

At the other extreme, in markets with few customers and high margins, sellers want to create full partnerships with customers.

Many companies offer frequency marketing programs that reward customers who buy frequently or in large amounts.

Companies sponsor loyalty rewards programs that enhance and strengthen a customer’s brand experience. (For example, membership in Uber Rewards gives loyal customers points for Uber rides and Uber Eats that can be converted to redeemable Uber Cash—the more you use Uber, the more you benefit.)

Use Chapter Objective 4 here.

Use Key Terms Customer Relationship Management, Customer-Perceived Value, and Customer Satisfaction here.

Customer Engagement and Today’s Digital, Mobile, and Social Media Yesterday’s companies focused on mass marketing to all customers at arm’s length.

Today’s companies are using online, mobile, and social media to refine their targeting and to engage customers more deeply and interactively.

Old marketing involved marketing brands to consumers. The new marketing is customer-engagement marketing.

Customer-engagement marketing goes beyond just selling a brand to consumers. Its goal is to make the brand a meaningful part of consumers’ conversations and lives.

Use Key Term Customer-Engagement Marketing here.

Marketers are now embracing not only customer relationship management but also customer-managed relationships, in which customers connect with companies and with each other to help forge and share their own brand experiences.

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Marketers want to create customer brand advocacy, by which satisfied customers initiate favorable interactions with others about a brand.

Greater consumer empowerment means that companies can no longer rely on marketing by intrusion. Instead, they must practice marketing by attraction.

Consumer-Generated Marketing A growing part of the new consumer dialogue is consumer-generated marketing, by which consumers themselves are playing a bigger role in shaping their own brand experiences and those of others.

Use Key Term Consumer-Generated Marketing here.

Use Discussion Question 1-5 here.

Use Critical Thinking Exercise 1-8 here.

Partner Relationship Management Marketers must not only be good at customer relationship management, they must also be good at partner relationship management – working closely with others inside and outside the company to jointly bring more value to customers.

The new thinking is that—no matter what your job is in the company—you must understand marketing and be customer focused.

Marketing channels consist of distributors, retailers, and others who connect the company to its buyers.

The supply chain describes a longer channel, stretching from raw materials to components to final products that are carried to final buyers.

Through supply chain management, many companies today are strengthening their connections with partners all along the supply chain.

Use Key Term Partnership Relationship Management here.

Capturing Value From Customers The first four steps in the marketing process outlined in Figure 1.1 involve building customer relationships. The final step involves capturing value in return.

By creating superior customer value, the firm creates highly satisfied customers who stay loyal and buy more.

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Creating Customer Loyalty and Retention The aim of customer relationship management is to create not just customer satisfaction, but customer delight.

Companies realize that losing a customer means losing the entire stream of purchases the customer would have made over a lifetime of patronage. This is known as customer lifetime value.

Use Key Term Customer Lifetime Value here.

Growing Share of Customer Share of customer is defined as the share the company gets of customers purchasing in their product categories. (Thus, banks want to increase ―share of wallet.‖) Use Key Term Share of Customer here.

Building Customer Equity Companies want not only to create profitable customers, but also to ―own‖ them for life, capture their customer lifetime value, and earn a greater share of their purchases.

What Is Customer Equity?

Customer equity is the total combined customer lifetime values of all of the company’s current and potential customers.

Clearly, the more loyal the firm’s profitable customers, the higher the firm’s customer equity.

Customer equity may be a better measure of a firm’s performance than current sales or market share.

Building the Right Relationships with the Right Customers Not all customers, not even all loyal customers, are good investments.

Figure 1.5 classifies customers into one of four relationship groups, according to their profitability and projected loyalty. ―Strangers‖ show low potential profitability and little projected loyalty. The relationship management strategy for these customers is simple: Don’t invest anything in them. ―Butterflies‖ are potentially profitable but not loyal. The company should use promotional blitzes to attract them, create satisfying and profitable transactions with them, and then cease investing in them until the next time around.

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―True friends‖ are both profitable and loyal. There is a strong fit between their needs and the company’s offerings. The firm wants to make continuous relationship investments to delight these customers and retain and grow them. ―Barnacles‖ are highly loyal but not very profitable. There is a limited fit between their needs and the company’s offerings.

Important point: Different types of customers require different relationship management strategies.

The goal is to build the right relationships with the right customers.

Use Key Term Customer Equity here.

Use Figure 1.5 here.

Use Linking the Concepts 2 here.

Use Marketing by the Numbers here.

THE CHANGING MARKETING LANDSCAPE This section looks at four major developments: the digital age, the growth in not-forprofit marketing, rapid globalization, and the call for sustainable marketing practices.

The Digital Age: Online, Mobile, and Social Media Marketing Welcome to the age of the Internet of Things (IoT), a global environment where everything and everyone is digitally connected to everything and everyone else.

Almost 5 billion people—63 percent of the world’s population—are now online; 80 percent of all American adults own smartphones.

The COVID-19 pandemic greatly hastened the shift to digital in almost every area of human activity, including marketing-related activities.

Digital and social media marketing involves using digital marketing tools and digital platforms to engage consumers anywhere, anytime.

At the most basic level, marketers set up company and brand websites that provide information and promote the company’s products.

Beyond brand websites, most companies are also integrating social and mobile media into their marketing mixes.

Social Media Marketing

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Some social media are huge—Facebook has more than 2.8 billion active monthly users.

But smaller, more focused social media sites are also thriving, such as CafeMom, an online community of 25 million moms who exchange advice, entertainment, and commiseration.

Online social media provide a digital home where people can connect and share important information and moments in their lives.

Mobile Marketing Mobile marketing is perhaps the fastest growing digital marketing platform.

Marketers use mobile channels to stimulate immediate buying, make shopping easier, and enrich the brand experience.

More than 50 percent of all online purchases are now made from mobile devices.

Mobile advertising is surging and accounts for about two-thirds of all digital ad spending.

Big Data and Artificial Intelligence (AI) With the explosion in digital technologies, marketers can now amass mountains of data.

Brands can use such big data to gain deep customer insights, personalize marketing offers, and improve customer engagements and service.

Artificial intelligence (AI) involves machines that think and learn in a way that looks and feels human but with a lot more analytical capacity.

Use Chapter Objective 5 here.

Use Key Term Digital and Social Media Marketing here.

Use Online, Mobile, and Social Media Marketing here.

Use Critical Thinking Exercise 1-9 here.

Use Discussion Question 1-6 here.

Use Marketing Ethics here.

The Growth of Not-for-Profit Marketing The nation’s nonprofits face stiff competition for support and membership. Sound marketing can help them to attract membership and support.

Government agencies have shown an increased interest in marketing. The U.S. military is now designing social marketing campaigns.

Rapid Globalization

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Almost every company, large or small, is touched in some way by global competition.

The skillful marketing of European and Asian multinationals has challenged American firms at home.

McDonald’s now serves 69 million customers daily at more than 37,000 restaurants worldwide—some 73 percent of its revenues come from outside the United States.

Today, companies are buying more supplies and components abroad.

Sustainable Marketing: The Call for More Environmental and Social Responsibility Marketers are being called upon to take greater responsibility for the social and environmental impact of their actions and to develop sustainable marketing practices.

Corporate ethics and social responsibility have become hot topics for almost every business.

Forward-looking companies view sustainable marketing as an opportunity to do well by doing good.

So, What Is Marketing? Pulling It All Together Marketing is the process of building profitable customer relationships by creating value for customers and capturing value in return.

The first four steps in the marketing process create value for customers.

The final step in the process allows the company to capture value from customers.

In building customer and partner relationships, marketers must harness marketing technologies in the new digital age, take advantage of global opportunities, and ensure that they act sustainably in an environmentally and socially responsible way.

Figure 1.6 shows a model of the marketing process.

Use Figure 1.6 here.

Developing Skills for Your Career Marketing is an exciting, fast-changing discipline that offers a wide range of rewarding careers. See Appendix 4, Careers in Marketing, to see if one of these careers is right for you.

END OF CHAPTER MATERIAL

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Discussion and Critical Thinking Discussion Questions 1-1 What are the paths to profits under the marketing concept? (AASCB: Written and Oral Communication) Answer: Customer focus and value are the paths to sales and profits under the marketing concept. Marketing focuses on engaging customers and managing profitable customer relationships. Marketers want to attract new customers by promising superior value and to keep and grow current customers by delivering value and satisfaction.

1-2 Identify the two important questions a marketing manager must answer to design a winning marketing strategy. Briefly describe why the answer to each question is important. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The two questions a marketing manager must answer to design a winning marketing strategy are (1) What customers will we serve (what’s our target market)? and (2) How can we serve these customers best (what’s our value proposition)?

The first question relates to the decision about whom the company will serve, which typically involves segmenting the market and selecting the segments to pursue (target marketing). The company wants to select customers it can serve well and profitably.

The second question relates to the decision about how the company will serve targeted customers. The company will differentiate its offerings and position itself in the marketplace. Its value proposition is the set of beliefs or values it promises to deliver to satisfy customer needs.

1-3 What is consumer-generated marketing? What are the challenges associated with consumer-generated marketing? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A growing part of the new customer dialogue is consumer-generated marketing, by which consumers themselves are playing a bigger role in shaping their own brand experiences and those of others. This might happen through uninvited or invited consumer-to-consumer exchanges in blogs, video-sharing sites, and other digital forums. It can be costly and time-consuming. Examples in the text included the #MyOreoCreation contest, the My Starbucks Idea site, and #MakingArtWithHeinz.

Encourage students to find their own recent examples.

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1-4 What is customer brand advocacy? Why is it important to brand managers?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Customer brand advocacy is actions by which satisfied customers initiate favorable interactions with others about a brand. Brands with strong relationships with customers benefit by retaining the existing customer, which is usually less expensive than attracting a new customer. Brands also benefit when the customers help inform others about the brand’s positive attributes and why they have favorable attitudes toward the brand. Customers often believe information that comes from other customers.

1-5 How did the COVID-19 pandemic impact markets and marketing? In the aftermath of the pandemic, are things returning to the way they were before? Why or why not?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: The COVID-19 pandemic lockdown accelerated the growth of e-commerce and boosted use of consumer-generated content. Marketers shifted from in-store and inperson connections to digital-first consumer engagement strategies. Marketing tactics shifted in response to the disruption to meet customers where they were. During the pandemic, customers were isolated in their homes. Customer use of online, mobile, social media, and other digital platforms to connect with each other and to acquire products increased the opportunities for brands to use digital channels to engage with consumers. Students may have different responses about what changes remain and the value of increased engagement via digital touchpoints in response to the disruption.

1-6 What is the Internet of Things (IoT)? How does it impact consumers and the marketers who serve them? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The Internet of Things is a global environment where everything and everyone is digitally connected to everything and everyone else. It has applications in households, like smart appliances, and in industry, as it shapes health care, transportation, agriculture, and supply chain management. It has the potential to reduce waste and make life more convenient for consumers. And it provides more avenues for marketers to understand, reach, and serve consumers.

Critical Thinking Exercises 1-7 Visit the GORE-TEX website and discuss how well the brand balances the three considerations underlying the societal marketing concept. To what extent has GORE-TEX shifted from the pure marketing concept to the societal marketing concept? (AACSB: Written and Oral Communication; Analytical Thinking)

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Answer: By visiting various tabs at www.gore-tex.com, students can assess the extent to which GORE-TEX balances the interests of customers and company profits against current and longer-term societal welfare. The pure marketing concept might overlook conflicts between what consumers want in the short run and what is best for consumers in the long run. If a firm focuses only on the immediate needs and wants of its target markets and wants to shift to an approach that delivers value to customers in a way that maintains or improves the consumer’s and society’s well-being, it would probably emphasize shared value, which uses societal needs that define markets and focuses on creating economic value and value for society. It would balance company profits, consumer wants, and society’s interests as it set its marketing strategy. The Sustainability portion of the GORE-TEX website outlines a ―Protect & Prolong‖ strategy for the brand: ―Protect People, Protect the Planet, Prolong Product Life, and Prolong Well-Being.‖ 1-8 Your manager sets a goal for your office: 100 percent satisfaction from 100 percent of customers. How would you communicate with your manager about the limitations of this goal? Describe why firms might use different relationship management strategies for customers with different potential profitability and loyalty. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Customer satisfaction depends on the product’s perceived performance relative to a buyer’s expectations. If the product’s performance falls short of expectations, the customer is dissatisfied. If performance matches expectations, the customer is satisfied. If performance exceeds expectations, the customer is highly satisfied or delighted. Companies aim to delight customers by promising only what they can deliver and then delivering more than they promise.

The challenge with 100 percent satisfaction from 100 percent of customers is that different customers are likely to have different needs, wants, and expectations. As a result, a goal that completely satisfies all customers may be costly, as it reduces the efficiencies gained by segmenting and targeting specific segments and based on the firm’s ability to profitably meet their expectations. The needs of the entire market may not match the company’s offerings. Therefore, it may be more profitable to satisfy a segment of potential customers than to try to satisfy all customers.

Figure 1.5 in the chapter separates groups into strangers (low potential profitability and little projected loyalty), butterflies (potentially profitably but not loyal), true friends (profitable and loyal), and barnacles (not profitable but very loyal). It suggests different relationship management strategies for each: 1) Do not invest in strangers; make money on every transaction.

2) Capture as much of the business from butterflies as possible in the moment but do not invest to try to convert them to loyal customers.

3) Invest in continuous relationships to delight true friends; engage, nurture, retain, and grow them. Turn them into true believers who advocate on behalf of the firm.

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4) Sell barnacles more, raise fees, or reduce services to make the relationships profitable. If that can’t be done, fire them.

1-9 Visit the Fitbit website at www.fitbit.com. Scroll to the bottom of the page and notice how Fitbit (recently acquired by Google) is currently connecting with customers on social media platforms including Facebook, Twitter, Pinterest, YouTube, and Instagram. Click on one or more of the platform icons to view ways in which Fitbit is building and maintaining customer linkages while illustrating value and providing information behind the brand. Evaluate Fitbit’s effectiveness in creating customer engagement through its web and social media sites. Is the Fitbit brand message consistent across platforms? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will depend on the social media channels they review. For example, a recent visit to the Fitbit Facebook page showed it had more than 2.97 million likes. It responded to individual comments from consumers, which may have increased consumer engagement. It put a spotlight on products, features of the products, and tips that were associated with brand values, which helped create customer engagement. Fitbit also utilizes its social media channels to help customers engage with each other. Although each platform has its own function, the message appears to be consistent across the website and social media.

Minicases and Applications Digital Marketing Fionamania Fiona, a young hippo who was born prematurely and survived, lives in the Cincinnati Zoo’s Africa exhibit. Fiona became a star when the zoo’s communication director and her team started posting every move she made from the day she was born prematurely. She became a symbol of resilience and positivity, earning millions of fans and engaging the not-for-profit zoo’s visitors and potential donors. Today, videos of Fiona twirling around the internet gain millions of views, people on Twitter even follow her flatulence, she has inspired everything from a children’s book to beer and ice cream flavors, and she has her own reality show on Facebook (four seasons, 27 episodes, and 3.5 million followers).

People are heavily invested in Fiona’s story.

1-10 Go to www.facebook.com/cincinnatizoo and find posts that feature Fiona the hippo.

How does the zoo’s communications team engage with Fiona’s fans? What benefit does the zoo receive from Fionamania? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The Facebook page includes features that highlight Fiona’s history and capitalizes on emotions from Fiona’s team and from user-generated content. People post messages

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for Fiona, for the team that cares for her, and for each other. Fans ask for new or updated content and express how much they care about Fiona. In all, Fionamania benefits the zoo in terms of attracting visitors as well as financial and volunteer support.

1-11 What can other not-for-profit marketers learn from the Cincinnati Zoo’s use of social media to generate interest in Fiona? How does it fit with the Cincinnati Zoo’s overall social media strategy? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. Since the not-for-profit space is competitive, other marketers in this space might use storytelling or mythology to make the cause resonate with the potential donor or customer. They may also choose to highlight an individual beneficiary and his/her/its struggle or triumph. Fiona is one of the animals featured on the Cincinnati Zoo’s Facebook page; other animals are also featured and the zoo is doing less live streaming of Fiona than it used to when she was more popular. The user comments reflect a desire for updated content. The lesson for marketers is if an audience is engaged, you should be prepared to keep up your end of the conversation.

Marketing Ethics Patagonia—Saving Our Home Planet Companies are increasingly building social and environmental responsibility into their company value and mission statements. More than 500 American companies have signed the UN Global Compact, a commitment to standards that improve human rights, protect the environment, and advance societal goals. Outdoor clothing and gear company Patagonia has grown its business profitably for more than 45 years while advocating for public lands, environmental activism, and sustainable supply chains. Its founding mission was to ―build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.‖ Recently, Patagonia changed its mission to ―Patagonia is in business to save our home planet.‖ To ensure movement toward this mission, the company prepared for a full year in advance of publicly announcing the shift. Patagonia recently announced that it would give the $10 million it gained from a federal tax cut to fight for environmental causes that were threatened by the tax cut, including regenerative agriculture, politics, and protected lands. It has also used its brand marketing to endorse specific political candidates who support sound environmental policies.

1-12 Patagonia’s mission realignment and its focus on counteracting the causes of global warming may seem more appropriate for a nonprofit organization than for a business. How might Patagonia’s new mission affect its reputation among

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consumers who rely on it to make and market the best products? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: In the past, Patagonia’s stances on corporate social responsibility (CSR) have attracted both consumers and employees that share the company’s values, resulting in substantial increases in sales. Because of its target audience—people who love the outdoors—its business and social goals align with the values of its customers.

However, consumers may notice that the desire to build the best products is no longer the first part of its mission. Further, Patagonia may have higher costs associated with raw materials if it uses processes such as regenerative agriculture to grow cotton for its clothing. It wants to use a process that does not use chemicals and takes carbon out of the air, which is a higher priority for the firm than profits, but it may have to pass the costs on to its customers, which may in turn affect the perceived value associated with the products.

1-13 How should a public firm that wants to engage in corporate social responsibility in a way that might sacrifice short-term profitability explain this decision to shareholders? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: A public firm could point to the recent study that suggests that although leaders at companies that are committed to CSR are making choices that put social responsibility before profits, the firms have higher profit margins, valuation, and more stable returns on assets but lower risk. However, if the firm is going to engage in CSR, it should do so in an authentic, meaningful way that relates to the firm’s values or it could backfire, resulting in a loss of reputation and lower sales revenues.

Marketing by the Numbers Gillette Trying to Shave Off Competition The Global Grooming division of Procter & Gamble, which includes Gillette, is experiencing challenges from consumer trends and upstart digital competitors. Gillette and close competitor Schick (an Edgewell brand) have focused on product innovation and higher prices. In 2021, Gillette was the number one razor even though it had experienced years of market share erosion. Gillette continued to innovate and sought to expand its reach by putting more emphasis on grooming tools, purchasing the Bevel brand, which targets Black men, and attempting to acquire a razor startup that sells blades and bodycare products to young women. Still, Gillette faces threats posed by the continuing consumer trend of ―beardedness,‖ such as the ―scruff‖ or ―stubble‖ look associated with the more casual workplace. It also faces threats from high-growth direct-to-consumer competitors like Harry’s and Shavelogic. As a result, Gillette’s market share dropped

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from 70 percent in 2010 to only about 50 percent in 2021. To protect its market leader position, Gillette periodically cuts prices on its razors.

1-14 Assuming a contribution margin of 65 percent and current sales of $1.6 billion, what sales would be necessary to break even (that is, maintain the current total contribution) on a 15 percent across-the-board price reduction? Refer to Financial Analysis of Marketing Tactics: Price Decrease in Appendix 3: Marketing by the Numbers to learn how to perform this analysis. (AACSB: Written and Oral Communication; Analytical Thinking) Answer: Since price decreases by 15 percent, that means the contribution margin will decrease because costs do not change with a price reduction. Therefore, to determine sales necessary to maintain the current total contribution in terms of absolute dollars, we must first determine the current total contribution: Current total contribution = contribution margin  sales = 0.65  $1.6 billion = $1.04 billion Though we do not know individual prices, we can base our analyses on 100 percent or price equals $1.00. Because we know the contribution margin is 65 percent, the unit contribution margin will equal $0.65per unit and unit variable costs will equal $0.35 per unit if price equals $1.00 per unit. Thus, we can see the effect on unit contribution margin and contribution margin percentage when price is decreased 15 percent to $0.85 per unit ($1.00 x (1 – 0.15) = $0.85): Old

New (reduced 15%)

$1.00 per unit

$0.85 per unit

 Unit variable costs

$0.35 per unit

$0.35 per unit

= unit contribution margin

$0.65 per unit

$0.50 per unit

Contribution margin (%)

65% (given)

$0.50/$0.85 = 0.588 or 59%

Price

As can be seen, a 15 percent reduction in price resulted in a decrease of the contribution margin from 65 percent to 50 percent. To determine the level of sales necessary to break even on this price reduction, we calculate the level of sales that must be attained at the new, lower contribution margin to achieve the original total contribution of $1.04 billion: New contribution margin  new sales level = original total contribution

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So, original total contribution ($) $1,040,000,000 New sales level = ——————————— = —————— = $1,768,707,483 new contribution margin (%) 0.588 1-15. What absolute increase and percentage increase in sales does this represent?

(AACSB: Written and Oral Communication; Analytical Thinking) Answer: The absolute increase in sales to break even on a 15 percent reduction in price equals $168,707,483 (i.e., $1,768,707,483  $1,600,000,000).

So, % change in sales

salesnew  salesold $168,707,483 = ——————— = ——————— = 0.10 => 10.5% increase sales $1,600,000,000

Company Case Teaching Notes Company Cases 1 Buffalo Wild Wings / 4 Qualtrics / 11 Ulta Beauty See Appendix 1 for teaching notes for the below cases.

Case 1, Buffalo Wild Wings: Fueling the Sports Fan Experience. With a mission to ―WOW people every day,‖ Buffalo Wild Wings serves up more than wings and beer. It is in the business of providing the best customer experience possible for sports fans.

Case 4, Qualtrics: Managing the Complete Customer Experience. Qualtrics pioneered the online survey. Now, it employs online surveys toward managing customer experience.

Case 11, Ulta Beauty: Where the Experience Is Beautiful. As the largest U.S. beauty retailer, customers of all kinds enthusiastically flock to Ulta because more than any other retailer, it offers a complete beauty experience.

GREAT IDEAS Barriers to Effective Learning 1.

For most students, this will be their first introduction to marketing and all its ramifications. To most of them, marketing is nothing more than selling and/or advertising, and this gets reinforced daily when they see ―marketing‖ job ads that are really sales positions. It helps to get students talking about what marketing is,

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

2.

3.

4.

5.

and to give examples of what they think is really good marketing. Try to bring in contemporary examples that the students can relate to.

Building relationships can sometimes be easy to understand in a business-tobusiness transaction, but it can be much more difficult to comprehend in consumer businesses. Use examples such as Amazon.com that do a wonderful job of developing one-on-one relationships with millions of customers through their tracking of customer purchases and analysis of these purchases to recommend additional items. Ask students to discuss how they feel about the companies they buy from. Have any developed relationships with them that have made them loyal to the brand or store?

Societal marketing is something that can be a little unclear to students. Why should fast food chains, for instance, be responsible for the nation’s obesity (just one very topical discussion point)? Understanding how one should balance the need for profits with what some might consider ―soft‖ issues can be difficult at times. And that can be made even more difficult among the politically astute students, as they can easily lead the class into a left versus right discussion on individual versus corporate versus governmental responsibility. Try to not let that happen, instead focusing on how companies can actually increase their revenue and profits by showing that they care about their customers and their communities. Newman’s Own is a brand that could be discussed, as most profits are donated to charities, and the company has moved strongly into ensuring a sustainable environment.

Traditional-age undergraduates have spent their entire lives with technology, and so some of them can actually snicker when the discussion turns to how technology has changed business in general and marketing more specifically. A discussion of the difficulties of connecting to consumers without the internet is warranted. How would the students approach a one-on-one relationship with millions of customers if they didn’t have digital social media (Facebook or Twitter), email, or internet?

At this stage, students are very apprehensive about the course. When they walked into class, they thought they might learn about selling and advertising, and now they’ve discovered that there is much more to marketing than just those two subjects. Ease their minds and make them look forward to learning more by talking about how much fun it is to be the center of the company and to know more about customers than any other functional area in the company.

Emphasizing that marketing combines both the analytical and the creative can also ease some tension. The accounting and finance majors will find that there is something in it to suit their more analytical frame of reference, and the artists and designers who hope to become fashion mavens can also rest assured that although they will need to understand the more logical areas of the subject, their intuition can still reign supreme.

Student Projects

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1. What does the term ―marketing‖ mean to you? Think about an automobile you would like to have (realistically) when you graduate. Write about how each phase of the marketing process is addressed by that vehicle.

2. Why is it important to truly understand the customer? Make a list of 10 ―wants‖ that you have. What would have to occur to move each of these from ―wants‖ to ―needs?‖ 3. Not everyone can be part of your market. Go take a look at CBS online (www.cbs.com). Who would you say is their market? Why? 4. Review the five alternative concepts under which organizations design and carry out their marketing strategies. Now, take a look at one of the auto dealers in your town. Which one of these five concepts do you believe they are typically employing? Why? 5. Think of a product or retailer to which you are loyal. What has caused this loyalty? What could a competing product/retailer do to break this loyalty?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Amazon. Each group should answer the following questions: 1. How has Amazon managed to create such intense customer loyalty? What can Amazon do to ensure customer loyalty remains at current high levels?

2. Each group should then share its findings with the class.

Individual Assignment Companies are realizing that losing a customer means more than losing a single sale. It means losing a stream of revenue from that customer over their lifetime. Reread the story of Stew Leonard (under Creating Customer Loyalty and Retention).

Is it possible to take his idea of ―the customer is always right‖ too far so that it becomes a negative for the company? Why or why not?

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to the questions from the instructor.

These questions could also be given as out-of-class assignments.

1. Do marketers create needs?

2. How is marketing different from selling?

3. What are two companies with which you have an emotional bond? Describe that bond.

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Classroom Exercise/Homework Assignment Five core customer and marketplace concepts are critical to success: (1) needs, wants, and demands; (2) market offerings (products, services, and experiences); (3) value and satisfaction; (4) exchanges and relationships; and (5) markets.

Take a look at Sea Ray boats (www.searay.com). Answer the following questions: 1.

2.

3.

4.

5.

What needs, wants, and/or demands is Sea Ray attempting to fill?

Describe their marketing offers.

How are they providing value?

Describe the relationships they have with their customers.

What are their markets?

Classroom Management Strategies The first chapter of this textbook sets the stage for the rest of the content. It outlines the major topics and principles that will be discussed in each of the following chapters, and gives students a good grounding in what to expect in their journey into the world of marketing.

First classes are always difficult, both for the instructor and for the students. Therefore, using examples students can easily relate to is always a good idea when starting out.

In reviewing the material in class, a good way to break it down follows. This assumes a typical one-hour structure; if the class is longer, you can work through the Marketing Application in class. If shorter, you can either break the chapter over two sessions, or shorten each topic’s allotted discussion time.

1.

2.

3.

Ten minutes should be spent on discussing what marketing really is. Many students will come into class thinking they are going to be learning all about advertising, or all about selling. Ask students to talk about what they think marketing is, and to use examples of what they’ve encountered in their own lives.

Ten minutes can also be spent on the second major topic of the chapter, understanding the marketplace and consumer needs. Discussing the differences of needs, wants, and demands, and how they relate to marketing, can greatly enhance the students’ understanding of the basis of marketing. Also included in this section are the notions of market offerings, satisfaction, and relationships. You can discuss the various ways companies develop relationships with their customers. Using Amazon, the company discussed in the opening pages of the chapter, can really help the students understand that a company with thousands of customers can still easily develop relationships with each and every one of them.

Another 10 minutes can be spent on designing customer-driven marketing strategies. Many students will still not understand how needs, wants, and demands can drive companies’ product development, but this section of the chapter will help them see it a little more clearly.

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4.

5.

6.

Preparing a marketing plan and program can be covered in 5 minutes. This section shows how everything they learn in marketing will be pulled together, but it is too soon in the semester to be spending a lot of time on the topic.

Customer relationships are the heart of the chapter and the entire text. Spend 15 minutes discussing this topic, and use examples that the students will appreciate.

Discussing the difference in the relationships they have with their hairdresser or barber and that of www.amazon.com or another one of the online merchants can drive home the importance of holding on to good customers. Students will also be well aware of frequency marketing programs, and examples of those will also be beneficial.

The final 10 minutes can be spent discussing the future of marketing and the development of customer relationships. Spend time talking about the recent economic meltdown and how it has impacted business. Next, remember that the majority of students will never have known an era without the ability to be online.

Asking them how they would have developed relationships with their customers without the assistance of technology is always a good way to get a discussion started on how marketing programs are developed. Then you can talk about how the rise of digital social media marketing has opened the entire world for even a small retailer, as well as raised some ethical issues, such as marketing American culture to the entire world, regardless of the mores and cultures of other societies.

If time permits, revisit the question of ―what is marketing?‖ The students should now have a greater appreciation of the science behind marketing, as well as the creativity necessary to develop successful marketing programs.

PROFESSORS ON THE GO Marketing: Creating and Capturing Customer Value Key Concepts Needs, wants, and demands Market offerings Customer value and satisfaction  



Copy or clip three advertisements from newspapers or magazines. What customer needs are the advertisers trying to meet?

It seems just about everyone has purchased products through Amazon.com.

Certainly, the product purchased is important, but describe the complete market offering of Amazon.com. What services, information, or experiences are included?

This chapter discusses the concepts of customer value and satisfaction.

Building on this knowledge, is it logical to assume that if you increase the perceived customer value for a product that there is a corresponding increase in customer satisfaction? Under what conditions might this not occur?

Key Concepts

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Choosing a value proposition Marketing management orientations 



Contrast the following marketing management orientations: ―The Selling Concept‖ and ―The Marketing Concept.‖ Can you name a market or market category where ―The Selling Concept‖ is still the most popular marketing management orientation?

How is your college positioned in the marketplace?

Key Concepts Relating to customers Relating to partners Creating customer loyalty and retention 

 

Customer loyalty and retention programs are important in building customer relationships and customer equity. Discuss why a national grocery chain such as Safeway or Kroger would choose a ―club‖ program over a ―frequency‖ program. ―Today, most marketers realize that they don’t want to connect with just any customers.‖ Do you agree with this statement? Why? Which company would be more likely to follow this creed, Sephora or Chanel?

Think of a product or brand that you buy over and over. What might your customer lifetime value be, assuming the product or brand continues to delight you?

CHAPTER 2 COMPANY AND MARKETING STRATEGY: PARTNERING TO BUILD CUSTOMER ENGAGEMENT, VALUE, AND RELATIONSHIPS PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 2-1.

Explain company-wide strategic planning and its four steps.

2-2.

Discuss how to design business portfolios and develop growth strategies.

2-3.

Explain marketing’s role in strategic planning and how marketing works with its partners to create and deliver customer value.

2-4.

Describe the elements of a customer value-driven marketing strategy and mix and the forces that influence them.

2-5.

List the marketing management functions, including the elements of a marketing plan, and discuss the importance of measuring and managing marketing return on investment.

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JUST THE BASICS CHAPTER OVERVIEW In this chapter, we dig deeper into steps two and three of the marketing process— designing customer value-driven marketing strategies and constructing marketing programs.

First, we look at the organization’s overall strategic planning.

Next, we discuss how marketers partner closely with others inside and outside the firm to engage customers and create value for them.

We then examine marketing strategy and planning—how marketers choose target markets, position their market offerings, develop a marketing mix, and manage their marketing programs.

Finally, we look at measuring and managing return on marketing investment (marketing ROI).

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP

Nike: Building Customer Value through Brand Engagement and Community The Nike ―swoosh‖—it’s everywhere! Just for fun, try counting the swooshes whenever you browse sports news. Over the past 55 years, through innovative marketing, Nike has built the ever-present swoosh into one of the world’s best-known brand symbols.

Product innovation has always been a cornerstone of Nike’s success. Nike makes outstanding shoes, clothing, and gear, whether for basketball, football, and baseball or golf and hiking. But from the start, Nike revolutionized sports marketing. To build image and market share, the brand lavishly outspent competitors on big-name endorsements, splashy promotional events, and big-budget, in-your-face ―Just Do It‖ ads.

Beyond shoes, Nike markets a way of life, a genuine passion for sports, a ―just-do-it‖ attitude. Customers don’t just wear their Nikes, they experience them. Nike’s mission is to ―bring inspiration and innovation to every athlete. Few brands have become more ever present and valued than Nike in their customers’ lives. Nike is forging a new kind of brand–customer connection—a deeper, more personal, more engaging one. Nike now spends the lion’s share of its marketing budget on cutting-edge digital and social media marketing that interacts with customers to build brand engagement, experiences, and community. As discouraged people everywhere worked to manage their sports and fitness routines in a pandemic-restricted world, Nike’s first ―You Can’t Stop Us‖ video— named ―This is our chance. Play for the world.‖— offered a unifying and hopeful

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

message. It featured a montage of people from all over the world.

COMPANY-WIDE STRATEGIC PLANNING: DEFINING MARKETING’S ROLE Strategic planning is the process of developing and maintaining a strategic fit between the organization’s goals and capabilities and its changing marketing opportunities.

Strategic planning sets the stage for the rest of the planning in the firm.

Companies usually prepare annual plans, long-range plans, and strategic plans.

The annual and long-range plans deal with the company’s current businesses and how to keep them going.

In contrast, the strategic plan involves adapting the firm to take advantage of opportunities in its constantly changing environment.

The strategic planning process begins with the company defining its overall purpose and mission.

The stages of the strategic planning process are outlined in Figure 2.1.

This mission is turned into objectives that guide the whole company.

Marketing planning occurs at the business-unit, product, and market levels.

Use Key Term Strategic Planning here.

Use Chapter Objective 1 here.

Use Figure 2.1 here.

Defining a Market-Oriented Mission An organization exists to accomplish something, and this purpose should be clearly stated.

A mission statement is a statement of the organization’s purpose—what it wants to accomplish in the larger environment.

A clear mission statement acts as an ―invisible hand‖ that guides people in the organization.

Mission statements should be market oriented and defined in terms of customer needs.

A market-oriented mission statement defines the business in terms of satisfying basic

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customer needs.

Mission statements should be meaningful and specific, yet motivating.

A company‘s mission statement should not be stated as making more sales or profits; profits are a reward for creating value for customers.

Use Key Term Mission Statement here.

Use Discussion Question 2-1 here.

Use Critical Thinking Exercise 2-9 here.

Use Table 2.1 here.

Use Online, Social Media, and Mobile Marketing here.

Setting Company Objectives and Goals The company turns its mission into detailed supporting objectives for each level of management.

Each manager should have objectives and be responsible for reaching them.

Marketing strategies and programs must be developed to support these marketing objectives.

Each broad marketing strategy must then be defined in greater detail.

DESIGNING THE BUSINESS PORTFOLIO A business portfolio is the collection of businesses and products that make up the company.

The best business portfolio is the one that matches the company’s strengths and weaknesses to opportunities in the environment.

Business portfolio planning involves two steps: 1. The company must analyze its current business portfolio and decide which businesses should receive more, less, or no investment.

2. It must shape the future portfolio by developing strategies for growth and downsizing.

Analyzing the Current Business Portfolio The major activity in strategic planning is business portfolio analysis.

Use Key Term Business Portfolio here.

Use Marketing at Work 2.1 here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Chapter Objective 2 here.

Portfolio analysis: management evaluates the products and businesses making up the company.

The steps in portfolio analysis are: 1. To identify the strategic business units (SBU). An SBU is a separately managed unit of the company with its own missions and objectives.

2. To assess the attractiveness of its various SBUs and decide how much support each deserves. Most companies are well advised to ―stick to their knitting‖ when designing their business portfolios.

The purpose of strategic planning is to find ways in which the company can best use its strengths to take advantage of attractive opportunities in the environment.

Most standard portfolio-analysis methods evaluate SBUs on two dimensions: 1. The attractiveness of the market or industry, and 2. The strength of the position in that market or industry.

Analyzing the Current Business Portfolio A company classifies its SBUs according to the growth-share matrix (see Figure 2.2).

The vertical axis: market growth rate provides a measure of market attractiveness.

The horizontal axis: relative market share provides a measure of company strength in the market.

Use Key Terms Portfolio Analysis and Growth-Share Matrix here.

Use Figure 2.2 here.

The growth-share matrix defines four types of SBUs: Stars. High-growth, high-share businesses or products. They will turn into cash cows.

Cash cows. Low-growth, high-share businesses or products. They produce a lot of cash that the company uses to pay its bills and support other SBUs that need investment.

Question marks. Low-share business units in high-growth markets. They require a lot of cash to hold their position.

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Dogs. Low-growth, low-share businesses and products.

One of four strategies can be pursued for each SBU: 1.

2.

3.

4.

The company can invest to build its share.

It can invest just enough to hold its share.

It can milk its short-term cash flow, or harvest.

It can divest by selling it or phasing out.

As time passes, SBUs change their positions in the growth-share matrix. Each SBU has a life cycle.

Problems with Matrix Approaches Difficult, time consuming, and costly to implement.

These approaches focus on classifying current businesses but provide little advice for future planning.

Many companies have dropped matrix methods in favor of customized approaches better suited to their specific situations.

Use Critical Thinking Exercise 2-7 here.

Developing Strategies for Growth and Downsizing A company’s objective must be ―profitable growth.‖ Marketing has the main responsibility for achieving profitable growth for the company.

The product/market expansion grid is used in identifying growth opportunities (see Figure 2.3). 

Market penetration—making more sales to current customers without changing its products.



Market development—identifying and developing new markets for its current products.



Product development—offering modified or new products to current markets.



Diversification—starting up or buying businesses outside of its current products and markets.

Use Key Terms Product/Market Expansion Grid, Market Penetration, Market Development, Product Development, and Diversification here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Figure 2.3 here.

Use Discussion Question 2-2 here.

Companies must also develop strategies for downsizing.

When a firm finds brands/businesses that are unprofitable or no longer fit the overall strategy, it may prune, harvest, or divest them.

PLANNING MARKETING: PARTNERING TO BUILD CUSTOMER RELATIONSHIPS Marketing plays a key role in the company’s strategic planning.

1. Marketing provides a guiding philosophy—the marketing concept.

2. Marketing provides inputs to strategic planners.

3. Marketing designs strategies for reaching the unit’s objectives.

Customer value is the key ingredient in the marketer’s formula for success.

In addition to customer relationship management, marketers must also practice partner relationship management.

Use Chapter Objective 3 here.

Partnering with Other Company Departments Each company department can be thought of as a link in the company’s internal value chain.

Use Key Term Value Chain here.

Success depends on how well the various departments coordinate their activities.

A company’s value chain is only as strong as its weakest link.

Ideally, a company’s different functions should work in harmony to produce value for consumers.

Other departments may resist marketing’s efforts because their actions can increase purchasing costs, disrupt production schedules, increase inventories, and create budget headaches.

Customer experience doesn’t depend solely on the marketing team, but [marketing] sets the tone and leads the way for all other departments.

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Partnering with Others in the Marketing System Firms need to look beyond their own value chains and into the value chains of their suppliers, distributors, and customers.

Companies today are partnering with the other members of the supply chain to improve the performance of the customer value delivery network.

Competition takes place between the entire value-delivery networks created by competitors.

Use Key Term Value Delivery Network here.

Use Discussion Question 3-3 here.

Use Linking the Concepts here.

MARKETING STRATEGY AND THE MARKETING MIX Figure 2.4 shows the major activities in managing marketing strategy and the marketing mix.

Consumers are in the center. Profitable customer relationships are the goal.

Marketing strategy is next—this is the broad logic under which the company attempts to develop profitable relationships.

Guided by the strategy, the company develops its marketing mix—product, price, place, and promotion.

Use Key Term Marketing Strategy here.

Use Figure 2.4 here.

Customer Value-Driven Marketing Strategy Marketing requires a deep understanding of customers.

There are many different kinds of consumers, and they exhibit many different kinds of needs.

Companies cannot profitably serve them all.

Companies must divide up the total market, choose the best segments, and design strategies for profitably serving chosen segments.

This process involves market segmentation, market targeting, differentiation, and positioning.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Market Segmentation Market segmentation is the process of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors and who might require separate products or marketing programs.

Every market has segments, but not all ways of segmenting a market are equally useful.

A market segment consists of consumers who respond in a similar way to a given set of marketing efforts.

Use Key Terms Market Segment, Market Segmentation, Market Targeting, Differentiation, and Positioning here.

Use Chapter Objective 4 here.

Use Marketing Ethics here.

Market Targeting

Market targeting involves evaluating each market segment’s attractiveness and selecting one or more segments to enter.

A company with limited resources might serve only a few ―market niches.‖ Market niches are segments that major competitors overlook or ignore.

Most companies enter a new market by serving a single segment. If this proves successful, they add segments.

Use Marketing at Work 2.2 here.

Market Differentiation and Positioning Product position is the place the product occupies relative to competitors in consumers’ minds.

Positioning is arranging for a product to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.

Positioning begins with differentiation—differentiating the company’s market offering so that it gives consumers more value.

Use Discussion Question 2-4 here Use Critical Thinking Exercise 2-8 here.

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Developing an Integrated Marketing Mix Use Key Term Marketing Mix here.

Use Figure 2.5 here.

Use Discussion Question 2-5 here.

The marketing mix is the set of controllable, tactical marketing tools that the firm blends to produce the response it wants in the target market.

The marketing mix consists of the ―four Ps‖: product, price, place, and promotion.

(Figure 2.5)    

Product: the goods-and-services combination the company offers to the target market.

Price: the amount of money customers have to pay to obtain the product.

Place: the company activities that make the product available to target consumers.

Promotion: the activities that communicate the merits of the product.

From the buyer’s viewpoint, the four Ps might be better described as the four As:    

Product = Acceptability Price = Affordability Place = Accessibility Promotion = Awareness

Acceptability: extent to which the product exceeds customer expectations.

Affordability: extent to which customers are willing and able to pay the product’s price.

Accessibility: extent to which customers can readily acquire the product.

Awareness: extent to which customers are informed.

MANAGING THE MARKETING EFFORT AND MARKETING RETURN ON INVESTMENT MANAGING THE MARKETING EFFORT Managing the marketing process requires the four marketing management functions of analysis, planning, implementation, and control.

Use Figure 2.6 here.

Marketing Analysis Analysis should be performed to understand the markets and marketing environment the company faces.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Key Term SWOT Analysis here.

SWOT analysis is used to evaluate the company‘s strengths (S), weaknesses (W), opportunities (O), and threats (T).    

Strengths include capabilities, resources, and positive situational factors.

Weaknesses include negative internal factors and negative situational factors.

Opportunities are favorable external factors.

Threats are unfavorable external factors.

Use Figure 2.7 here.

Marketing Planning A detailed marketing plan has to be developed for each business, product, or brand.

Table 2.2 shows the major sections of a marketing plan for a product or a brand.

A marketing strategy consists of specific strategies for target markets, positioning, the marketing mix, and marketing expenditure levels.

Use Table 2.2 here.

Use Chapter Objective 5 here.

Marketing Implementation Marketing implementation turns plans into actions.

Use Key Term Marketing Implementation here.

Use Discussion Question 2-6 here.

Implementation addresses the who, where, when, and how.

Marketing Department Organization The marketing organization must be designed so it can carry out the strategies/plans that are developed.

In small companies, one person may perform all the marketing functions. In large companies, many specialists are found. Many companies have now created the Chief Marketing Officer (CMO) position.

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The functional organization is the most common form. This organizational form has the different activities headed by a functional specialist, such as sales, advertising, marketing research, etc.

Use Discussion Question 2-5 here.

A geographic organization might be utilized in a company that sells nationally or internationally.

A product management organization can be found in companies with many different products or brands.

A market or customer management organization is used in companies that sell one product to many different kinds of markets and customers.

Very large companies might utilize a combination of all these forms.

Marketing Control Marketing control involves evaluating the results of marketing strategies and plans, and taking corrective action to ensure that objectives are attained.

The control process includes the following: 

Operating control checks the ongoing performance of the marketing programs against the annual plan.



Strategic control looks at whether the company‘s basic strategies are matched to its opportunities.

Use Discussion Question 2-6 here.

Use Key Term Marketing Control here.

MEASURING AND MANAGING MARKETING RETURN ON INVESTMENT Marketing managers must ensure that their marketing dollars are being well spent.

Return on marketing investment (or marketing ROI) is the net return from a marketing investment divided by the costs of the marketing investment. (see Figure 2.8) Use Key Term Marketing Return on Investment here.

Use Chapter Objective 5 here.

Use Marketing by the Numbers here.

Use Figure 2.8 here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Marketing ROI measures the profits generated by investments in marketing activities.

A company can assess return on marketing in terms of standard marketing performance measures, such as brand awareness, sales, or market share.

Marketing dashboards—meaningful sets of marketing performance measures in a single display used to monitor strategic marketing performance.

Marketers are using customer-centered measures of marketing impact, such as customer acquisition, customer retention, and customer lifetime value.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

2-1.

Select one company from Table 2.1 and explain why the market-oriented definition is superior to the product-oriented definition. (AACSB: Written and Oral Communication) Answer: Mission statements should be market oriented and defined in terms of the customer needs the firm satisfies. Products may change, but basic market needs may last forever. The market-oriented definitions for the firms included in Table 2.1 are focused on customer needs.

2-2.

Identify the two steps involved in business portfolio planning. Explain why each step is important. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The first step is an analysis of the firm‘s current portfolio. The portfolio analysis step is important because it helps firms determine which businesses or strategic business units should receive more resources and which businesses should receive fewer or no resources. Firms strategically allocate resources to profitable businesses and phase down or drop less profitable businesses. The second step is to shape the future portfolio by developing strategies for growth and downsizing. Marketing has a responsibility to achieve profitable growth. Therefore, marketers need to identify, evaluate, and select market opportunities.

2-3.

Why would a firm sell a major brand or business to another firm? Please provide an example. (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: When a firm finds brands or businesses that are unprofitable or that no longer fit its overall strategy, the firm may prune, harvest, or divest the brand or business. The chapter provided P&G as an example of a firm that sold off dozens of major brands to focus on household care and beauty and grooming products.

2-4.

Why do companies segment markets? How does market segmentation relate market targeting? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies cannot profitably serve all consumers in a given market in the same way. Different kinds of consumers have different kinds of needs. A market segment consists of consumers who respond in a similar way to a given set of marketing efforts. Companies divide up the total market, choose the segments that they are prepared to serve, and design strategies for profitably serving chosen segments. After a company has defined its market segments, it evaluates each market segment’s attractiveness and selects one or more segments to enter. A company should target segments in which it can profitably generate the greatest customer value and sustain it over time.

2-5.

What is an integrated marketing mix, and why is it important for a firm‘s marketing strategy? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The marketing mix consists of everything the firm can do to engage consumers and deliver customer value. An effective marketing program blends the marketing mix elements—product, price, place, and promotion—into an integrated marketing program designed to achieve the company‘s marketing objectives by engaging consumers and delivering value to them. The marketing mix constitutes the company‘s tactical tool kit for establishing strong positioning in target markets.

2-6.

One criticism of the four Ps is that they take the seller’s view of the market, not the buyer’s view. Briefly describe the four As, which take the buyer’s view of the market. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The four As are acceptability, affordability, accessibility, and awareness.

Acceptability is related to the product and is the extent to which the product exceeds customer expectations. Affordability is related to the price and is the extent to which customers are willing and able to pay the product’s price.

Accessibility is the extent to which customers can readily acquire the product, which is related to place. Finally, awareness is the extent to which customers are

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familiar with the product and its features. It is related to promotion.

Critical Thinking Exercises 2-7.

Apply the product/market expansion grid, shown in Figure 2.3, to Lovepop greeting cards (www.lovepopcards.com). How can Lovepop apply this grid to manage profitable growth? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students may be familiar with Lovepop cards because of its unique designs, its appearance on the television show Shark Tank, or its recent physical retail space in the Hudson Yards development in New York City.

Students who are unaware can use the website to gain familiarity with the cards that include 3D paper sculptures made with sliceform kirigami and with the company that posts the unique cards for its consumers and allows consumers to schedule cards in advance. Lovepop has unique designs, including special Game of Thrones cards, and it recently began to allow consumers to include photographs to make the cards more personalized.

If Lovepop wants to manage profitable growth using the product/market expansion grid in Figure 2.3, management would consider market penetration (more sales of existing products to existing customers), market development (new markets for existing products), product development (new or modified products to current markets), and diversification (buying or starting a business beyond its current products and markets). Student ideas for how to apply each approach to Lovepop will vary. Examples may include product bundles or loyalty programs that encourage customers to buy more cards (market penetration); opening a physical location or kiosk in a new geographic market (market development); creating digital, virtual, or augmented reality add-ons that let the card recipient experience the card by virtually exploring the unique design (product development); and something related to occasions that serves a different audience, such as a business-to-business offering of sliceform kirigami paper sculptures that are shipped to offices each week to decorate their waiting rooms (diversification).

2-8.

The 15 Percent Pledge calls on retailers to increase the shelf space allocated to Black-owned brands to at least 15 percent to reflect the approximate percentage of the Black population in the United States. Hudson’s Bay Company, a large, 350year-old department store in Canada, pledged to focus on new brands that were owned or designed by Black, indigenous, or people of color. The Pledge offers firms consulting services and quarterly audits for accountability. Other firms are not taking the Pledge but are engaged in their own initiatives to increase products from Black-owned brands. For example, beauty products retailer Ulta made a $25 million investment in diversity and inclusion initiatives and aimed to double the

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Black-owned brands it carries. From a positioning perspective, is Hudson’s Bay Company better off engaging in its own initiative to differentiate the firm? Or is joining other retailers that took the 15 Percent Pledge a wiser strategy? Support your answer. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary, but they should support their position with a rationale that indicates the implications for strategic marketing. There may be comments related to the retailers‘ respective values and other practices and processes on the operations side that may communicate brand values beyond the retailers‘ purchasing practices.

2-9.

Create a mission statement for a nonprofit organization you would be interested in starting. Have another student evaluate your mission statement while you evaluate the other student‘s statement, suggesting areas for improvement. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Some organizations define their missions myopically in product or technology terms. But mission statements should be market oriented and defined in terms of satisfying basic customer needs—even for nonprofit organizations. For example, a nonprofit organization might be a house that offers emergency shelter for people in need. But defining its mission as a house could be too narrow. Perhaps the organization can also provide funds to pay for a hotel room for someone in need.

Thus, defining its mission as providing shelter is broader than providing a house for people to stay in during emergencies. Mission statements should be meaningful and specific yet motivating. Too often, mission statements are written for public relations purposes and lack specific, workable guidelines. Instead, they should emphasize the company’s strengths and tell forcefully how it intends to succeed. Finally, an organization’s mission should focus on customers and the customer experience the organization seeks to create.

Minicases and Applications Digital Marketing Lush UK Abandons Social Media Lush Fresh Handmade Cosmetics UK sells handmade premium beauty products such as body washes, bath bombs, and face masks through 950 cosmetics shops around the globe. Lush previously engaged customers with captivating Instagram posts, which contributed to its massive following of more than 570,000 people. Therefore, people were surprised when the company announced it was abandoning social media because it inhibited the firm‘s ability to engage with fans and because Lush does not pay for advertising, including paid social media

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posts. Lush mentioned difficulties associated with talking directly to customers and the challenges of changing social media algorithms the firm had to fight to appear in customers‘ newsfeeds. Social media platforms order posts by relevancy rather than chronology, which makes it harder for many brands to appear in consumers‘ social media feeds without paying to be there. ―We want social to be more about passions and less about likes,‖ says Lush.

2-10. Evaluate the rationale behind Lush‘s decision to discontinue its social media channels. Do you think followers understood Lush‘s choice? Why or why not? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student opinions will vary. The firm is abandoning a large following that values the unique content posted on social media platforms. However, its customers may want a meaningful community outside social media.

Therefore, students may speculate about how the loss of a social media presence affects customer relationships and revenues.

2-11. As Lush UK implemented the change, how could it measure the effects of leaving social media on the achievement of its marketing goals? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: As part of the marketing control process, Lush UK captures metrics and compares progress to its goals. It may have gained engagement (comments and likes) because of the buzz from its announcement. The firm can measure number of person-to-person interactions, brand loyalty, and sales as part of the control process.

Marketing Ethics Pharrell Williams’s Humanrace Brand In 2020, Pharrell Williams launched an all-gender, all-race skincare line called Humanrace, sold exclusively through its website (www.humanrace.com). The skincare line had three vegan and sustainable products sold in Japan-inspired green packaging made with 50 percent post-consumer recycled landfill plastic with braille writing for the visually impaired. The signature recyclable and refillable green packaging includes what a consumer needs for a three-step, three-minute facial: a cleanser, an exfoliant, and a moisturizer. The sustainable packaging is one major source of differentiation for the product.

Despite the brand‘s goal of accessibility to all, its prices were expensive relative to those of competing products. When launched, the cost of the three-product set was $100. One reason for the high price was the quality of the ingredients.

Another reason was fit with the brand‘s positioning as a high-quality product that really works. Even so, Humanrace‘s prices raised questions about whether it

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really offered skin care for all humans. Still, Pharrell Williams was applauded for associating his celebrity with a position related to inclusivity.

2-12. Humanrace‘s focus on reusable, recyclable plastics; high-quality, vegan ingredients; and skincare products that work for all humans seems to go against the traditional segmentation and targeting process. Defend this market segmentation strategy. Is it ethical to characterize the Humanrace product line as skin care for all? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Student responses will vary, but they should discuss how the Humanrace skincare line is positioned and should reflect an understanding of how segmentation, targeting, and positioning are typically linked in strategic marketing. The question about whether it is ethical to characterize the product line as skincare for all, when the products may not be ideal for all consumers with less discretionary income or with different skin types, may also result in differing opinions. There may be comments related to the brand‘s values as it attempts to produce products that are better for skin and minimize the harm to the environment.

2-13. From an ethics standpoint, discuss Humanrace‘s focus on sourcing highquality, vegan ingredients and post-recycled, reusable packaging instead of developing products that keep costs down. Discuss the challenges Humanrace faces as a brand that is positioned as accessible to everyone but not affordable for many. (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding and Reasoning) Answer: Student responses will vary, but they should discuss ways Humanrace’s choice of ingredients and its price points affect suppliers, distributors, and customers. The genderless, convenient skincare solution creates value because of its ingredients, its efficacy, and its reusable packaging. The idea that it is appropriate for all skin but not everyone with skin can afford it may raise questions about whether targeting is taking place that is not central to the messaging about the brand and whether it is ethical to withhold the information.

Marketing by the Numbers Facebook versus Google Facebook and Google are both giants in the tech industry. However, if you compare sales and profits, you would think that Google is a far better marketer than Facebook: Google‘s sales last year were more than double Facebook‘s sales, and its profits were 38 percent higher. Sales and profits provide information to compare the profitability of companies, but between these numbers is information regarding the efficiency of the marketing efforts in

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creating those sales and profits. Appendix 2: Marketing by the Numbers, Marketing Performance Measures discusses other marketing profitability measures beyond the return on marketing investment (marketing ROI) measure described in this chapter. Review the appendix to answer the questions using the following information from the two companies‘ incomes statements (all numbers are in thousands):

Sales Gross Profit Marketing Expenses Net Income (Profit)

Facebook $85,965,000 $69,273,000 $13,616,250 $29,146,000

Google $182,257,000 $97,795,000 $21,748,500 $40,269,000

2-14. Calculate profit margin, net marketing contribution, marketing return on sales (or marketing ROS), and marketing return on investment (or marketing ROI) for each company. Which company is performing better?

(AACSB: Written and Oral Communication; Analytic Thinking) Answer: Profit Profit Margin = ————— Net sales $29,146,000 Profit MarginFacebook = ————— = 0.3340 = 33.40% $85,965,000 $40,269,000 Profit MarginGoogle = ————— = 0.2209 = 22.09% $182,257,000 Net Marketing Contribution (NMC) = net sales  cost of goods sold  marketing expenses Because Gross Profit = net sales  cost of goods sold, students just need to subtract marketing expenses from gross profit: NMCFacebook = $69,273,000 $13,616,250 = $55,656,750 NMCGoogle = $97,795,000 $21,748,500= $76,046,500 net marketing contribution Marketing ROS = ——————————— net sales $55,656,750 Marketing ROSFacebook = ———————— = 0.6474 = 64.74%

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$85,965,000 $76,046,500 Marketing ROSGoogle = ————————— = 0.4172 = 41.72% $182,257,000 net marketing contribution Marketing ROI = ——————————— marketing expenses $55,656,750 Marketing ROIFacebook = ————————— = 4.09 = 409% $13,616,260 $76,046,500 Marketing ROIGoogle = ——————— = 3.49 = 349% $21,748,500 Although Google has larger absolute sales, gross profits, expenses, and net marketing contribution, Facebook is performing more efficiently as measured by the profit margin, Marketing ROS, and Marketing ROI. While other factors besides marketing, such as research and development, are likely driving Google‘s profit metrics down, this analysis suggests that Google is not getting as great of a marketing return, albeit still very good, for the investment it has made in marketing compared to Facebook.

2-15. Go to Yahoo! Finance (http://finance.yahoo.com/) and find the income statements for two other competing companies. Perform the same analyses for these companies that you performed for the previous question. Which company is doing better overall and with respect to marketing? For marketing expenses, use 75 percent of the company‘s reported ―Selling General and Administrative‖ expenses, as not all of the expenses in that category are marketing expenses. (AACSB: Written and Oral Communication; Analytic Reasoning; Reflective Thinking Answer: Students‘ answers will vary. The information used in the previous question can be found at: Facebook: https://finance.yahoo.com/quote/FB/financials/ Google: https://finance.yahoo.com/quote/GOOGL/financials/ The information students need is: Total Revenue, Gross Profit, Selling General and Administrative (use 75% to represent marketing expenses), and Net Income.

Company Case Teaching Notes Company Cases 2 Dyson/6 Outschool /8 Pfizer

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

See Appendix 1 for teaching notes for the below cases.

Case 2, Dyson: Solving Customer Problems in Ways They Never Imagined.

Much more than a make of vacuum cleaners, at its core, Dyson is a technology company that seeks to develop new and innovative versions of everyday products that wow customers.

Case 6: Outschool: Personalized Education for All. A fast-growing marketplace for remote-delivered K-12 classes, Outschool is out to make learning fun, social, and self-directed.

Case 8, Pfizer: Developing New Products to Save Lives. With a tried-and-true strategy for developing pharmaceuticals that make the world a healthier place, Pfizer brought the first COVID-19 vaccine to market in record time.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

5.

6.

Students will largely be unfamiliar with strategic planning and its concepts and objectives. Making this come alive with the examples in the textbook, or your own examples from your own experience, will help them deal with the complex issues in this section.

Working through a mission statement for the marketing department of your university, or for the business college within which it exists, may give the students a greater appreciation for the difficulty and importance of defining a mission that lives and breathes life into the objectives that follow.

The Boston Consulting Group‘s portfolio analysis tool can also be difficult to understand. Again, working through examples with companies the students should be familiar with will aid understanding.

University business courses rarely talk about cross-functional teamwork, so this may come as a surprise to students. If they have worked in internships with large companies, they may well have seen functional silos at work, and their coursework only serves to reinforce that mentality.

Examples of companies failing because of a lack of teamwork—which can happen frequently at small companies in particular—will open many students‘ eyes to the importance of ensuring that all functions work in concert to make the company a success.

Value chains and supply chains are important concepts that also are typically not discussed in other courses. Getting students to understand these concepts is important for their understanding of the remainder of the course. Showing how sloppy quality in a component purchased from a vendor ultimately affects customer satisfaction will help.

Market segmentation and targeting are universally new concepts to students, unless they happen to have a parent who works in marketing.

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7.

Although this is discussed in detail in a future chapter, showing how a large, amorphous market can be broken down in more and more detailed groups of buyers will help.

Market positioning can be difficult to understand as well. Students will normally think of a product in terms of its features, and although positioning includes the features, it also spans the concepts of benefits and perceptions. Using examples of brands at opposite ends of a price continuum, such as Rolex versus Swatch watches, helps drive home what positioning means.

Student Projects 1.

Look at the mission statements of five companies in the same industry. How do their mission statements differ and how are they alike? Which ones do you believe are good?

2.

A business portfolio is the collection of businesses or products that make up the company. Take a look at Ford (www.ford.com). Describe Ford’s business portfolio in terms of both businesses and products.

3.

Using the Boston Consulting Group’s growth-share matrix, place Ford’s vehicles on the grid. Which are the stars, the cash cows, the question marks, and the dogs?

4.

Still using Ford as our example, discuss the product positioning of their SUVs and trucks.

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Nike. Each group should answer the following questions: 1. What has caused Nike lasting popularity?

2. What has been the company‘s primary strategy?

3. What is Nike doing to ensure its future growth and success?

Each group should then share its findings with the class.

Individual Assignment Consider the fashion retailers H&M (http://www.hm.com/us/) and Zara (http://www.zara.com/us/). What is the positioning strategy of each? How are they similar? How are they different?

Think-Pair-Share

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. Design a mission statement for your college/university.

2. What are some of the problems with using a matrix approach (e.g., the BCG matrix)?

3. What is the difference between market development and product development?

4. Under what conditions might downsizing be a usable strategy?

Classroom Exercise/Homework Assignment Develop a strategy for attracting new students to your college or university. Write a statement that describes your college/university‘s fit between the goal of attracting the best students and its capabilities for then educating those students.

Classroom Management Strategies This chapter starts outlining some fairly difficult subjects for students. Strategic planning, growth-share matrices, and even the development of the marketing mix are relatively tough concepts for a second chapter in a beginning marketing text.

Therefore, when planning how to present the material, be sure to leave plenty of time to go through at least some of the Applying the Concepts, as well as defining what the Key Terms really mean in the everyday working world. Several of the concepts presented in this chapter become important later in the text, and if the students come away understanding this chapter, they will have an easier time later in the semester.

1.

2.

3.

Company-wide Strategic Planning can be covered in about 15 minutes.

Focus on the ―thread‖ that ties together the corporate strategic plan, corporate and business unit objectives, and the business or product portfolio. This last topic should be prominent in the discussion, as it sets the stage for later discussions of new product development.

The second major section of the chapter, Planning Marketing, can be covered in 5 minutes. Although this section is important and touches on issues that will come up later in the text, it does not need to have the same level of focus as the other topics in this chapter.

The next section, Marketing Strategy, is extremely important; 20 minutes should be devoted to this topic. In particular, ensuring the students understand the true meaning of developing an intelligent marketing mix will set the stage for such later topics as integrated marketing communications, because they will already have thought about how different components of a plan should work together.

Finally, 20 minutes should also be devoted to Managing the Marketing Effort. This section should really drive home the notion that marketing isn‘t

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just a creative endeavor. For instance, when discussing marketing analysis and the marketing environment, you can point out how these topics are a big part of what market research is all about.

PROFESSORS ON THE GO Company and Marketing Strategy: Partnering to Build Customer Engagement, Value and Relationships Key Concepts Market-oriented mission statements Setting goals and objectives Designing and analyzing a business portfolio 

 

In a small group, discuss whether the following statement from Amazon.com meets the criteria of a good mission statement. ―Our vision is to be the earth‘s most concentric company; to build a place where people can come to find and discover anything they might want to buy online.‖ The BCG growth-share matrix identifies four classifications of SBUs: Stars, Cash Cows, Question Marks, and Dogs. Briefly discuss why management may find it difficult to dispose of a ―Question Mark.‖ Which of the following two terms do you think best describes the process of developing and maintaining a fit between the organization‘s goals and capabilities and its changing marketing opportunities: strategic planning or corporate planning. Why?

Key Concepts Market segmentation, target marketing, and market positioning The 4 Ps of marketing  





Discuss each of the three steps that a company must perform in choosing the best market segments and designing strategies to maximize profitability in selected segments.

Nordstrom‘s and Kohl‘s are two department stores. Visit their websites (www.nordstroms.com and www.kohls.com) to familiarize yourself with each. Who do you think each is targeting? How might they be trying to position themselves in the marketplace?

Do you think that the ―4 Ps‖ marketing mix framework does an adequate job of describing marketer responsibilities in preparing and managing marketing programs? Why? Do you see any issues with this framework in relation to service products?

Why would a focus on the 4 Cs be more important than the 4 Ps?

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CHAPTER 3 ANALYZING THE MARKETING ENVIRONMENT PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 3-1.

Describe the environmental forces that affect the company’s ability to serve its customers.

3-2.

Explain how changes in the demographic and economic environments affect marketing decisions.

3-3.

Identify the major trends in the firm’s natural and technological environments.

3-4.

Explain the key changes in the political and cultural environments.

3-5.

Discuss how companies can react to the marketing environment.

JUST THE BASICS CHAPTER OVERVIEW This chapter shows that marketing does not operate in a vacuum but rather in a complex and changing environment.

Other actors in this environment—suppliers, intermediaries, customers, competitors, publics, and others—may work with or against the company.

Major environmental forces—demographic, economic, natural, technological, political, and cultural—shape marketing opportunities, pose threats, and affect the company’s ability to serve customers and develop lasting relationships with them.

To understand marketing, and to develop effective marketing strategies, you must first understand the environment in which marketing operates.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Microsoft: Adapting to the Fast-Changing Marketing Environment In the fast-changing digital marketing environment, Microsoft has transformed itself into a brand that consumers can’t live without in the post-PC world.

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The huge success of Windows drove Microsoft‘s revenues, profits, and stock price to dizzying heights. By the start of the 2000s, Microsoft‘s was the most valuable company in corporate history. In the new digitally connected world, Microsoft found itself lagging more-glamorous competitors such as Google, Apple, Samsung, and even Amazon and Facebook, which provided a complete slate of things digital.

But times change. Moving through the first decade of the new millennium, PC sales growth flattened as the world fell in love with a rush of alluring new digital devices and technologies. So Microsoft began a sweeping transformation to align itself better with the new digital world order. More than just a PC software developer, Microsoft set out to become a full-line digital competitor. In tune with the times, the company pursued a new mobile phone strategy along with Xbox console to access—tablets, TVs, and phones.

But even with these new initiatives, Microsoft found itself still chasing rather than leading the pack of new digital competitors. The Microsoft Windows operating system still dominates the declining PC market, but its mobile versions capture only a sliver of the mobile operating system market dominated by Apple iOS and Google Android.

Thus, to continue its massive makeover, Microsoft has made yet another significant shift. In 2015, Microsoft announced a simpler mission: ―to empower every person and every organization on the planet to achieve more.‖ So this is not your grandfather‘s Microsoft. With its sweeping transformation well under way, Microsoft now seems to be making the right moves to stay ahead of the times. As a result, sales and profit growth have rebounded.

Still, continued success will depend on Microsoft‘s ability to effectively adapt to— or even lead—the lightning-quick changes occurring in the marketing environment.

Use Key Term Marketing Environment here.

Use Chapter Objective 1 here.

THE MICROENVIRONMENT AND MACROENVIRONMENT A company‘s marketing environment consists of the actors and forces outside marketing that affect marketing management‘s ability to build and maintain successful relationships with target customers.

The microenvironment consists of the actors close to the company that affect its ability to service its customers.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The macroenvironment consists of larger societal forces that affect the microenvironment.

Use Key Terms Microenvironment and Macroenvironment here.

The Microenvironment Marketing management’s job is to build relationships with customers by creating customer value and satisfaction.

Figure 3.1 shows the major actors in the marketer’s microenvironment.

Use Figure 3.1 here.

The Company All the interrelated groups form the internal environment.

All groups should work in harmony to provide superior customer value and relationships.

Suppliers Suppliers provide the resources needed by the company to produce its goods and services.

Marketing managers must watch supply availability—supply shortages or delays, labor strikes, and other events can cost sales in the short run and damage customer satisfaction in the long run.

Marketing managers monitor the price trends of their key inputs.

Marketing Intermediaries Marketing intermediaries help the company to promote, sell, and distribute its products to final buyers.

Use Key Term Marketing Intermediaries here.

Use Discussion Question 3-2 here. 

Resellers are distribution channel firms that help the company find customers or make sales to them. These include wholesalers and retailers.



Physical distribution firms help the company to stock and move goods from their points of origin to their destinations.



Marketing services agencies are the marketing research firms, advertising

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agencies, media firms, and marketing consulting firms that help the company target and promote its products to the right markets. 

Financial intermediaries include banks, credit companies, insurance companies, and other businesses that help finance transactions or insure against the risks associated with the buying and selling of goods.

Marketers recognize the importance of working with their intermediaries as partners rather than simply as channels through which they sell their products.

Competitors Marketers must gain strategic advantage by positioning their offerings strongly against competitors’ offerings in the minds of consumers.

No single competitive marketing strategy is best for all companies.

Publics Use Key Term Public here.

A public is any group that has an actual or potential interest in or impact on an organization’s ability to achieve its objectives.

Financial publics influence the company’s ability to obtain funds.

Media publics carry news, features, and editorial opinions.

Government publics. Management must take government developments into account.

Citizen-action publics. A company’s marketing decisions may be questioned by consumer organizations, environmental groups, etc.

Internal publics include workers, managers, volunteers, and the board of directors.

General public. The general public’s image of the company affects its buying.

Local publics include neighborhood residents and community organizations.

Customers Use Discussion Question 3-1 here.

Five types of customer markets: 1. Consumer markets: individuals and households that buy goods and services for personal consumption.

2. Business markets buy goods and services for further processing or for use in their production process.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

3. Reseller markets buy goods and services to resell at a profit.

4. Government markets consist of government agencies that buy goods and services to produce public services.

5. International markets: buyers in other countries, including consumers, producers, resellers, and governments.

The Macroenvironment Figure 3.2 shows the six major forces in the company’s macroenvironment.

Use Figure 3.2 here.

THE DEMOGRAPHIC AND ECONOMIC ENVIRONMENTS The Demographic Environment Use Key Term Demography here.

Use Chapter Objective 2 here.

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics.

Changes in the world demographic environment have major implications for business.

Thus, marketers keep close track of demographic trends and developments in their markets, both at home and abroad.

The Changing Age Structure of the Population The U.S. population stands at more than 330 million and may reach almost 360 million by the year 2030.

The single most important demographic trend in the United States is the changing age structure of the population.

The Baby Boomers There are currently 71 million baby boomers, born between 1946 and 1964.

Baby boomers account for nearly 21 percent of the population but account for 53 percent of total consumer spending.

The boomers constitute a lucrative market for financial services, new housing and home remodeling, new cars, travel and entertainment, eating out, health and fitness products, and just about everything else.

Some 70 percent of baby boomers now use mobile internet. And they are the fastest-

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growing shopper demographic online, outspending younger generations two to one.

Generation X The baby boom was followed by a ―birth dearth,‖ creating another generation of 49 million people born between 1965 and 1976.

Author Douglas Coupland calls them Generation X. Increasing parental divorce rates and higher employment for their mothers made them the first generation of latchkey kids.

They developed a more cautious economic outlook.

The GenXers are a more skeptical bunch.

Millennials (also called Generation Y or the echo boomers) Born between 1977 and 2000, these children of the baby boomers number about 73 million.

They don’t just embrace technology; it’s a way of life.

For them, technology is not something separate; it’s just something they do.

They engage with brands in an entirely new way, such as with mobile or social media.

More than sales pitches from marketers, Millennials seek authenticity and opportunities to shape their own brand experiences and share them with others.

Generation Z Born after the year 2000.

In the U.S., Gen Zers consist of 80 million girls and boys (kids, tweens, and teens) who spend an estimated $43-$143 billion annually of their own money and influence another $133 billion of their parents’ spending.

They have an utter fluency and comfort with digital technologies – even more so than millennials.

More than half of all Generation Z tweens and teens do product research before buying a product or having their parents buy it for them.

Generation Alpha Born after 2012.

Although still a relatively small market, by 2025, this group will grow larger even than the millennials.

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An important Generation Alpha marketing concern involves children’s privacy and their vulnerability to marketing pitches. Companies marketing to this group must do so responsibly or risk the wrath of parents and public policy makers.

Use Key Terms Baby Boomers, Generation X, Millennials/Generation Y, Generation Z, and Generation Alpha here.

Use Discussion Question 3-3 here.

Generational Marketing Defining people by their birth date may be less effective than segmenting them by their lifestyle, life stage, or the commons values they seek in the products they buy.

The Changing American Family The ―traditional household‖ consists of a husband, wife, and children (and sometimes grandparents).

In the U.S.:      

Married couples with children under 18 make up 18 percent of the households.

Married couples without children make up 30 percent.

Single parents comprise 8 percent.

Nonfamily households make up 35 percent.

10 percent of all new marriages are interracial or interethnic.

21 percent of married, same-sex couple households raise children.

Both husband and wife work in 59 percent of all married-couple families.

Geographic Shifts in Population About 9 percent of all U.S. residents move each year.

The U.S. population has shifted toward the Sunbelt states.

Americans have been moving from rural to metropolitan areas.

A Better-Educated, More White-Collar, More Professional Population The U.S. population is becoming better educated.

In 2019, 90 percent of the U.S. population over age 25 had completed high school and 36 percent had completed college.

Between 2016 and 2026, of 10 detailed occupations projected to have the fastest employment growth, most require some type of postsecondary education.

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Increasing Diversity The United States has become more of a ―salad bowl‖ in which various groups have mixed together but have maintained their diversity by retaining important ethnic and cultural differences.

The U.S. population is about 61 percent white, 19 percent Hispanic, and 13 percent African American.

The Asian American population now totals about 6 percent of the population.

By 2060, Hispanics will comprise an estimated 28 percent of the U.S. population.

Black Americans will be about 15 percent, and Asian Americans will increase to 9 percent.

Many companies have begun to explicitly target the LBGTQ community which has a buying power of $3.7 trillion globally.

Another attractive segment is the nearly 20 percent of U.S. adults with disabilities.

Use Critical Thinking Exercise 3-8 here.

Use Marketing by the Numbers here.

Use Linking the Concepts here.

The Economic Environment Use Key Term Economic Environment here.

The economic environment consists of factors that affect consumer purchasing power and spending patterns.

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The Great Recession of 2008 to 2009 and its aftermath hit American consumers hard.

After two decades of overspending, new economic realities forced consumers to bring their consumption back in line with their incomes and rethink their buying priorities.

In today’s post-recession era, consumer spending is again on the rise. However, even as the economy has strengthened, rather than reverting to their old free-spending ways, Americans are retaining an enthusiasm for frugality.

Consumers have now adopted a back-to-basics sensibility in their lifestyles and spending patterns that will likely persist for years to come.

Use Discussion Question 3-4 here.

THE NATURAL AND TECHNOLOGICAL ENVIRONMENTS The Natural Environment The natural environment involves the natural resources that are needed as inputs by marketers or that are affected by marketing activities.

Trends in the natural environment: 1.

2.

3.

4.

5.

Shortages of raw materials.

Increased pollution.

Increased government intervention.

Health crises such as the COVID-19 pandemic.

Weather and natural disasters.

Companies are developing environmentally sustainable strategies.

Use Key Terms Natural Environment and Environmental Sustainability here.

Use Marketing at Work 3.1 here.

Use Chapter Objective 3 here.

Use Discussion Question 3-5 here.

Use Critical Thinking Exercise 3-7 here.

The Technological Environment The technological environment is the most dramatic force now shaping our destiny.

Use Key Term Technological Environment here.

Use Online, Social Media, and Mobile Marketing here.

Use Critical Thinking Exercise 3-9 here.

Technology has released such wonders as antibiotics, robotic surgery, miniaturized

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electronics, laptop computers, and the internet.

Digital technologies and the dawn of the Internet of Things (IoT) have created a brave new world of marketing.

New technologies create new markets and opportunities; however, every new technology replaces an old technology.

THE POLITICAL-SOCIAL AND CULTURAL ENVIRONMENTS The Political and Social Environment The political environment consists of laws, government agencies, and pressure groups that influence or limit various organizations and individuals in a given society.

Use Key Term Political Environment here.

Use Chapter Objective 4 here.

Legislation Regulating Business Governments develop public policy to guide commerce.

Legislation affecting business around the world has increased steadily over the years.

Business legislation has been enacted for a number of reasons.

1. To protect companies from each other.

2. To protect consumers from unfair business practices.

3. To protect the interests of society against unrestrained business behavior.

Because government agencies have discretion in enforcing laws, they can have an impact on a company’s marketing performance.

Use Table 3.1 here.

Increased Emphasis on Ethics and Socially Responsible Actions Socially Responsible Behavior Enlightened companies encourage their managers to ―do the right thing.‖ The boom in online, mobile, and social media marketing has created a new set of social and ethical issues.

Use Marketing Ethics here.

Cause-Related Marketing

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Many companies are now linking themselves to worthwhile causes.

Cause-related marketing has stirred some controversy.

The Cultural Environment Use Key Term Cultural Environment here.

Use Critical Thinking Exercise 3-8 here.

The cultural environment is made up of institutions and other forces that affect a society’s basic values, perceptions, preferences, and behaviors.

The Persistence of Cultural Values Core beliefs and values are passed on from parents to children and are reinforced by schools, churches, businesses, and government.

Secondary beliefs and values are more open to change.

Shifts in Secondary Cultural Values Marketers want to predict cultural shifts in order to spot new opportunities or threats.

People’s Views of Themselves People vary in their emphasis on serving themselves versus serving others.

People use products, brands, and services as a means of self-expression.

People’s Views of Others Shifts in people’s attitudes toward and interactions with others have been noted.

Trend trackers see ―mass mingling‖—people are using online social media and mobile communications to connect more than ever.

People’s Views of Organizations People are willing to work for major organizations and expect them to carry out society’s work.

Many people see work as a required chore to earn money to enjoy their non-work hours.

People’s Views of Society People vary in their attitudes toward their society.

People’s Views of Nature Recently, people have recognized that nature is finite and fragile; that it can be destroyed by human activities.

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The U.S. organic-food market now generates $50 billion in sales and is expected to reach $70 billion by 2025.

People’s Views of the Universe Religious conviction and practice have been dropping off gradually through the years.

26 percent of Americans (between 18 and 29 years of age) say they are not affiliated with any particular faith.

Use Discussion Question 3-6 here.

RESPONDING TO THE MARKETING ENVIRONMENT Many companies think the marketing environment is an uncontrollable element to which they have to adapt.

Other companies take a proactive rather than reactive approach to the marketing environment.

Use Chapter Objective 5 here.

Use Marketing at Work 3.2 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking 3-1. Identify the five major generational groups and briefly describe their impact on today‘s marketing strategies. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The five major generational groups are baby boomers, Generation X, millennials, Generation Z, and Generation Alpha. Baby boomers were born in the post–World War II baby boom from 1946 to 1964, and the 72 million consumers in the United States represent the wealthiest generation in U.S. history. They account for 22 percent of the U.S. population but control 42 percent of the spending power, which influences marketing strategies for companies that promote financial services, travel and entertainment, automobiles, restaurants, health and fitness, and homes and home remodeling services, among other things. They are also the fastest-growing shopper demographic online, outspending younger generations two to one.

Generation X is smaller, with 65 million people born between 1965 and 1980. Generation X consumers are less materialistic, prize experiences,

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and are skeptical of marketing messages. They tend to do more research before choosing a product or brand, but once they choose, they also tend to be more brand loyal. They account for less than one-quarter of U.S. adults but earn 29 percent of the nation‘s total income. They attract home improvement marketers, among others.

Millennials, also known as Generation Y or echo boomers, were born between 1981 and 1996. They represent 73 million or more people in the United States and wield considerable spending power. They are comfortable with digital technology and shop and do their banking online.

They respond to marketing strategies that are authentic and speak to value, and they prefer opportunities that let them shape their own brand experiences and share them with others.

Generation Z was born between 1997 and 2012. They are the largest generation in the United States with 80 million people, so they comprise 26 percent of the population. They are ethnically and culturally diverse.

They spend and influence considerable spending, and they are forming brand relationships now that will affect their future spending. They are fluent and comfortable with digital technologies, and they use social media for self-expression, but they still feel traditional media and brick-andmortar stores are important.

Generation Alpha was born after 2012. This group will grow larger than millennials by 2025. This group influences household buying decisions of its millennial parents. The buying decisions this group influences extend beyond technology to include entertainment and travel. Marketing strategies to reach this group need to consider their influence and the fact that they are less likely to watch television than previous generations.

3-2.

Why should marketers pay attention to geographic shifts in the U.S. population? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Consumers who live in different regions of the country buy differently. As consumers continue to move from cities to suburbs or smaller cities, it affects where people work. As a result, more people telecommute, or work remotely with the help of technology products. Marketers have responded with products and services that help people telecommute or connect when they work remotely. Digital workspaces and shared office spaces have also been developed to help telecommuters.

3-3.

What should brands be aware of if they want to be authentically aligned with the LGBTQ community? Provide an example of a brand that supports

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LGBTQ Pride in an authentic way. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Inclusivity thinking and the spending power of the LGBTQ community have attracted brands to allocate marketing dollars to sponsor events or create customized marketing and communications associated with LGBTQ Pride. And brands are also increasingly including this segment in their general market advertising and marketing. Brands that were previously perceived as anti-LGBTQ have been criticized for jumping on the bandwagon for capitalistic reasons, which undermines their efforts to connect with that community.

Student answers and examples will vary based on their personal experiences. Examples may include Cann, Kiva, PAX Labs, and H&M. These brands have donated funds to support LGBTQ initiatives, use inclusive voices in their campaigns, and show support beyond Pride month. Students should recognize that as the cultural environment changes, marketers who respond to cultural shifts need to do so in a way that is authentically aligned with the brand‘s values. Otherwise, brands might be accused of co-opting or culturally appropriating rainbows to increase their bottom lines, not to support the community.

3-4.

How should marketers respond to unpredictable disruptions from the natural environment? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies must react quickly and decisively. For example, retailers that responded quickly to the COVID-19 pandemic with increased mobile and online ordering options, including curbside pickup, home delivery, and digital as well as in-person shopping experiences were able to protect their businesses and, in some cases, were able even to grow their businesses. As world air and water pollution reach dangerous levels, there may be predictable shortages of raw materials, but there also may be less predictable, disruptive natural disasters related to climate change.

Companies must look ahead for possible disruptions and be flexible and adaptive in their strategies.

3-5.

Briefly describe the consumer movement toward environmental sustainability. Provide two specific examples of brands that have responded to this trend. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: As awareness of global environmental issues increases, consumers are more likely to choose products that meet their needs while also minimizing

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

the harm of consumption on the environment, so that future generations can meet their needs. Student examples of brand responses will vary but may include brands that have introduced products that are less processed or clean, brands with sustainable and environmentally responsible services and products, and brands with manufacturing practices that consider the entire product life cycle, including product disposal. Retailers that increasingly offer sustainable products or that provide information that helps consumer trace the entire supply chain may also be included as examples. Companies that invest in sustainable business practices can gain consumer trust and a positive reputation that is positively related to future returns.

3-6.

Target built upon its brand promise ―Expect More. Pay Less.‖ to launch a campaign under the tagline ―What we value most shouldn‘t cost more.‖ Discuss how the campaign‘s tagline aligns with changing economic conditions. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Economic factors shape consumer spending and choices. Students should consider how customers shifted their buying priorities during and after the pandemic. They may have different opinions about how an emotion like joy relates to rational consumer decisions that are influenced by economic factors.

Critical Thinking Exercises 3-7.

Vice Media‘s Broadly site, which tells stories that focus on the experiences of women, gender-nonconforming people, and LGBTQ individuals, recently offered to the public The Gender Spectrum Collection, a stock photo library of more than 180 images of 15 transgender and nonbinary models (whose gender identities are not exclusively masculine or feminine). The goal was to avoid stereotypes that result from misleading images of gender-fluid and transgender people. Also, recent search results suggested that there is an unmet need for transgender and nonbinary models. How does the availability of the new stock photo library relate to diversity trends? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Marketers need to be aware of increasing diversity. Many major companies target LGBTQ consumers. Although this segment represents a relatively small percentage of U.S. adults, it has buying power of nearly $1 trillion. Also, diversity and inclusivity have become major brand social responsibility issues that are important to many consumers. Therefore, the images may be useful for target marketing and to demonstrate that a firm

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values diversity. The wider availability of images may help marketers guard against stereotypes, particularly when using life-cycle segmentation, since it includes photos of people in relationships that may not have been previously represented in stock images.

3-8.

Games like Fortnite and Roblox provide virtual spaces for consumers to explore different worlds and spend time with friends. During the pandemic, consumers migrated to digital environments to fulfill social, entertainment, and communication needs. Form a small group and discuss the future of virtual experiences. How might the accelerated cultural shift from physical spaces to virtual spaces impact marketers? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student opinions about how virtual experiences and virtual worlds might reshape society will vary. From a marketing perspective, there is speculation that companies that learn how to develop engaging virtual worlds, informed by best practices in gaming and social media, will have an opportunity to profitably connect with customers and be an integral part of their relationships with others.

3-9. Visit http://engageforgood.com/halo-awards/ to learn about companies that have won Halo Awards for outstanding cause-related marketing programs.

Present an award-winning case study to your class. (AACSB: Written and Oral Communication) Answer: Student responses will vary. Students can scroll down to learn about past winners of this award. Past recipients are highlighted with short explanations of their campaigns.

Minicases and Applications Digital Marketing Brand Support for Black Lives Matter In May 2020, amid many protests over police killings of Black Americans, many brands posted messages of support for the Black community and for the Black Lives Matter (BLM) movement. On June 2, 2020, many brands participated in Black Out Tuesday, on which they silenced their social media for the day and displayed a black square to show support for Black Lives Matter, pledging to support policy changes countering systemic racism in the criminal justice system.

Some of the nation‘s most popular brands—from Starbucks, Netflix, Nordstrom, and Nike to REI, Glossier, Ben & Jerry‘s, and the NFL—used their marketing power to help build awareness and momentum for the BLM movement. Social

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

media posts from such brands earned higher-than-usual engagement. Use of the #BlackLivesMatter hashtag grew more than 250-fold.

One reason that many brands that don‘t normally take public stands on controversial issues supported the Black Lives Matter movement is its broad support among millennial and Generation Z consumers, generational cohorts important to brands‘ future growth. However, many people questioned whether brand commitments to the Black community would extend beyond the support shown in June 2020. Brands that spoke out to support diversity, equity, and inclusion then are being asked now to back their commitments with actions.

3-10. Many brands supported the BLM movement in 2020 and 2021. Research the issue and discuss how brands communicated their positions to customers. What online or social media platforms did they use? Are they still communicating the message clearly and effectively? Are they backing their messaging with actions? Give examples. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students‘ answers will vary based upon their experience and research.

Linked below are some articles on this subject. www.nytimes.com/2021/03/04/style/Black-representation-fashion.html www.cnet.com/how-to/companies-donating-black-lives-matter/ https://theconversation.com/why-companies-were-so-quick-to-endorseblack-lives-matter-142532 https://tpinsights.com/2020/05/31/twilio-box-spotify-and-other-tech-ceosspeak-out-against-racism-and-police-brutality-others-stay-silent/ https://builtin.com/diversity-inclusion/companies-that-support-black-livesmatter-social-justice https://qz.com/1971689/fashion-brands-arent-keeping-their-instagramdiversity-promises/ 3-11. Is the Black Lives Matter movement a marketing issue? How are customers likely to react to companies that do or do not support the movement and back their commitments to diversity, equity, and inclusion with actions? How can brands respond reactively and proactively to scrutiny of their efforts? (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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The #BlackLivesMatter movement is a broad environmental issue with much potential impact on companies and brands. Responses will be shaped by the current state of activity, including activity on social media. A company‘s reputation strongly affects the reputations and images of its brands. Students may hold differing views concerning the impact of Black Lives Matter and other efforts to counter systemic racism on brands and on marketing‘s role in addressing social equality issues. Differing student views should lead to an interesting discussion.

Marketing Ethics Echo Dot Kids Edition Amazon recently introduced its Echo Dot Kids Edition, which the company markets as a sturdy, safe, kid-friendly, transaction-free smart speaker with voiceactivated virtual assistant Alexa. Designed for kids, the device has parental controls that can limit activities and content that parents do not want children to access. However, the Boston-based Campaign for Commercial-Free Childhood (CCFC), which advocates against child-targeted marketing, is concerned that parents may rely on the Echo Dot Kids Edition for convenience or assistance and not realize that it is a marketing device.

For example, if children tell Alexa they are bored, the Echo Dot will offer games or activities, which could be from one of Amazon‘s brand partners. This raises concerns to the extent that children cannot differentiate advertising messages from non-advertising messages. The Echo Dot Kids also gathers information from children that it uses to make personalized recommendations, which could influence purchase behavior. The CCFC likened the data collection process to surveillance. Further, a recent study from MIT‘s Media Lab reported that 74 percent of children studied thought of Alexa as a person who always tells the truth. Although parents might benefit from this effect when they use the Echo to tell children to sleep or to do a chore, the CCFC suggests there is reason for parental concern.

3-12. Debate the pros and cons of purchasing the Echo Dot Kids Edition for a child. (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding and Reasoning) Answer: One argument in favor of allowing children to have the Echo Dot Kids Edition is that parents can monitor their children‘s activities and turn off voice commands that enable purchases. It is better for parents than other Echo devices. However, privacy, lack of persuasion knowledge by the users, and the potential for surveillance are major concerns. The fact that Amazon‘s brand partners will be actively marketing to children raises issues.

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3-13. Some of the prospective users of the Echo Dot Kids Edition are part of the emerging Generation Alpha group, who have been identified as a gateway to their parents. How might this influence parents‘ responses to the Echo Dot Kids Edition? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Generation Alpha is known for demanding technology and has a history of heavily influencing technology purchases by its mostly millennial parents.

The concern is that if Amazon can win over children, who are unaware that the messages they are receiving are promoted, it might establish loyalty that will carry on later into the children‘s lives and affect the family‘s decisions in the short term.

Marketing by the Numbers An Aging America As marketers focus on Generation Z and its sizable purchasing power, another generation should not be forgotten: the aging baby boomers. The U.S. 65-andolder population will increase to almost 100 million people by 2060. One reason for this trend is the sheer size of the cohort to begin with—76 million people born between 1946 and 1964. Another major factor is that Americans are living longer.

In 1950, the average life span was 68 years but is now 78.7 years. And the lifespan gap between men and women is decreasing because of reduced smoking rates among men. In addition to longer life spans, families are spreading out—as children embark on careers and start their own families, they are no longer staying close to their hometowns. These factors contribute to a greater need for caregiver support for the elderly. There is already a proliferation of services such as Visiting Angels and A Place for Mom. The number of Americans needing longterm care is expected to double by 2030, reaching 24 million individuals, where costs could reach $2.5 trillion by 2030. The chart below shows the population estimates for the 65-and-over population for 2016 and 2019, the latest years for which data are available:

Both sexes Males Females

2016 49,244,195 21,792,826 27,451,369

2019 54,058,263 24,074,290 29,983,973

3-14. Calculate the percentage change in the 65-and-over population between 2016 and 2019 for both sexes, males, and females. (AACSB: Analytical Reasoning) Answer:

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Students often have difficulty with percentage change calculations, with the common mistake of dividing by the final figure instead of the initial figure. final  initial % change = ——————— x 100 initial So, Population2019  Population2016 % change = ————————————— x 100 Population2016

% changeBoth

54,058.263  49,244,195 = ——————————— x 100 = 9.8% 49,244,195

24,074,290  21,792,826 % changeMales = ——————————— x 100 = 10.5% 21,792,826

29,983,973  27,451,369 % changeFemales = ——————————— x 100 = 9.2% 27,451,369 3-15. How many more females than males aged 65 and over were there in 2016 and 2019? What percentage of the population did females make up in each year? Draw some conclusions regarding this data. (AACSB: Written and Oral Communication; Analytical Reasoning) Answer: The difference in the number of females and males and the percentage of females for each year are calculated with the following equations: Difference = PopulationFemales – Populationmales PopulationFemales % Females = ————————— x 100 PopulationBoth In 2016, Difference2016 = 27,451,369  21,792,826 = 5,658,543 more females than males

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27,451,369 % Females2016 = ——————— x 100 = 55.7% 49,244,195 In 2019, Difference2019 = 29.983,973  24,074,290 = 5,909,683 more females than males 29,983,973 % Females2019 = ——————— x 100 = 55.4% 54,058,263 Even though males are living longer than in previous generations, there are still more females than males aged 65 and over, comprising more than 50 percent of that population. However, with the gap between males and females decreasing, perhaps more elderly will still have a spouse to care for them. Additionally, elder care facilities may need to accommodate couples in addition to single elderly individuals. Regardless, the increase in the 65 and over population will require greater caregiver support.

Company Case Teaching Notes Company Cases 3 Square/7 Avocados from Mexico/16 Microsoft See Appendix 1 for teaching notes for the below cases.

Case 3, Square: In Relentless Pursuit of a More Elegant Payments Experience.

Having deeply disrupted the credit card payments industry, Square continues to expand its portfolio of services for businesses large and small.

Case 7, Avocados from Mexico: Building a Brand in a Brandless Category. By building a consumer brand, Avocados From Mexico has succeeded in increasing U.S. market share for thousands of Mexico-based growers and packers, while simultaneously increasing overall consumption of avocados.

Case 16, Microsoft: Eliminating Carbon—The World’s Next Moonshot. In a world where climate change is increasingly demanding reductions of carbon emissions, Microsoft has set the standard by committing to the goal to remove all the carbon the company has ever emitted by the year 2050.

GREAT IDEAS Barriers to Effective Learning 1.

This is an intense chapter, and it presents a whole lot of information that might make some students‘ heads swim. If it hasn‘t happened before, this is where students really begin to get the picture that marketing managers need to be very analytical. Presenting the in-depth discussion of current

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2.

3.

macro trends as something that needs to be understood but not memorized helps.

Students will also be anxious about how a marketing manager successfully tracks these kinds of forces. Explaining the use of purchased marketing and economic reports, and what market researchers do for a living, helps relieve that anxiety.

As usual, examples of companies that successfully adapt to changing forces and factors will help students internalize the messages in this chapter.

Student Projects 1. Define the marketing environment for Starbucks (www.starbucks.com). Keep in mind that a company‘s marketing environment consists of the actors and forces outside marketing that affect marketing management‘s ability to build and maintain successful relationships with target customers.

2. What are the fundamental differences between consumer markets, business markets, and reseller markets?

3. Consider your college/university. What are the publics to which it must pay attention?

4. About 12 percent of the U.S. population moves every year. How is this good for marketers?

5. Describe the differences in products that appeal to the middle class, working class, and upper class.

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Microsoft. Each group should answer the following questions: 1. What was the foundation of Microsoft‘s initial success in the marketplace?

2. What caused Microsoft to stumble and lose millions in sales?

3. What consumer preference changes may be on the horizon that could cause additional problems for Microsoft?

Each group should share its findings with the class.

Individual Assignment Go online and compare the marketing strategies of McDonald‘s (www.mcdonalds.com), Wendy‘s (www.wendys.com), and Burger King (www.burgerking.com). What age group is each targeting? Do you agree with their strategy?

Think-Pair-Share

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Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What are the fundamental differences between Millennials and Generation Z? 2. How has the typical family changed just in your lifetime?

3. Overall, the U.S. population is becoming better educated. What implication does this hold for marketers?

4. By 2060, Hispanics will comprise an estimated 28 percent of the U.S. population. How will this impact the manner in which some products are marketed?

5. What is the one most significant trend in the natural environment, in your opinion, and how is it impacting marketing activities?

Classroom Exercise/Homework Assignment Take a look at Wendy‘s (www.wendys.com). How is this company attempting to set itself apart from its primary competitors? What publics does Wendy‘s appear to be concentrating on? Why do you believe this is the case?

Classroom Management Strategies This will be the first time students will have thought about the marketing environment and what it means to companies in their marketing efforts. The concept of understanding consumer needs and wants will be totally foreign to them at worst, and at best a novel concept. Once the students begin to see the complexity of the marketing environment, however, there will be a tendency for their eyes to glaze over. As usual, working through several examples for each concept will help tremendously.

1. College is a place to break things down into their component parts to study them in isolation. The section on the company‘s microenvironment may well be the first time the students will have looked at marketing as needing to pay attention to anything other than marketing concepts. At least 15 minutes should be devoted to this topic in class. The difficult concepts will most likely be in the areas of marketing intermediaries and publics; spending sufficient time on these two topics will make the following chapters that much easier.

2. The majority of the class time, 30 to 40 minutes, should be spent on the macroenvironment. There is a tremendous amount of information in this section, particularly in the section describing the demographic environment. It‘s helpful here to link some of these concepts back to what they learned in sociology courses, or, if the students have not taken any of the social sciences, you can point out how they interact with business. The next most intense part of this section is the political environment and the

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sheer number of laws passed that affect marketers. The cultural environment section is a good time to tie in principles of psychology.

PROFESSORS ON THE GO Analyzing the Marketing Environment Key Concepts Microenvironmental forces 



 

List the six factors in the company‘s microenvironment. Next, go to the Walmart website (www.walmart.com), scroll down to the Investor Relations section, and click on the most recent annual report. How many of the six microenvironment factors can you find? Briefly describe each.

Get in groups in class and role-play bringing a new product to market that the R&D department has just developed. There should be a person for each of these roles: R&D, Marketing, Finance, Purchasing, Suppliers, and a Marketing Intermediary. Each should argue from their point of view and for the needs of each of their organizations. Report your findings and your impressions to the class.

What does a marketing intermediary do?

How many publics can you name for your college or university?

Key Concepts Macroenvironmental forces 







A writer once observed, ―You can watch the size of the Cadillac market shrink by just reading the obituaries.‖ In the context of the external environmental forces discussed in the chapter, what did this person mean? What has Cadillac done to counter this trend? From an environmental management perspective, would you consider Cadillac‘s actions to be reactive or proactive? Why? There‘s an old saying that, ―two good marketing people can make up for one bad technology decision.‖ Is it a certainty that a company will lose out on new opportunities if it does not keep up with new technology? Explain your position. Can you think of an industry segment where technology may not play an important role?

Collect ten advertisements and comment on how they apply to the cultural environment (use the areas suggested by the chapter as a place to begin). What effect do cultural values and beliefs have on consumption? Relate this approach to what you learned about the marketing concept and value delivery in the previous chapters.

Do you think the internet should be regulated? Why or why not? Do you buy online? Why or why not?

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CHAPTER 4 MANAGING MARKETING INFORMATION TO GAIN CUSTOMER INSIGHTS PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 4-1.

Explain the importance of information in gaining insights about the marketplace and customers.

4-2.

Define the marketing information system and discuss its parts.

4-3.

Outline the role of marketing research and the steps in the marketing research process.

4-4.

Explain how companies analyze and use marketing information.

4-5.

Discuss the special issues some marketing researchers face, including public policy and ethics issues.

JUST THE BASICS CHAPTER OVERVIEW This chapter looks at how companies develop and manage information about important marketplace elements.

This chapter is an examination of marketing information systems designed to assess the firm’s marketing information needs, develop the needed information, and help managers to use the information to gain actionable customer and market insights.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Marketing Research at P&G: Creating Irresistibly Superior Experiences P&G makes and markets an impressive list of food, beauty, and household products, including such familiar brands as Tide, Gillette, Pampers, Always, Febreze, Crest, Pantene, and Old Spice.

P&G‘s goal is to create innovative brands that give consumers an ―irresistibly superior experience.‖ To create such superior experiences, P&G must first create a steady flow of deep, fresh insights into consumers‘ constantly changing needs and behaviors.

How does P&G gain these insights? Through marketing research.

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P&G mastered the art and science of consumer immersion research—called ―Living It‖—in which small teams of P&G staffers live, work, and shop with consumers to gain deep insights into what they think, feel, need, and do.

Traditional surveys and focus groups are also used.

Beyond traditional research approaches, P&G has shifted heavily toward faster and less expensive digital marketing research tools, such as online surveys and social media panels.

So how does P&G go about creating those irresistibly superior experiences? By gaining deep and fresh insights into what consumers need and want. And how does P&G gain those consumer insights? Through marketing research—lots and lots of marketing research.

But more than just gathering information, marketers must use the information to gain powerful customer and market insights.

The company’s ever-improving, increasingly sophisticated marketing research prowess lets it ―get to market quicker, and hopefully do things that are going to be more meaningful to consumers in a much better, faster way.

MARKETING INFORMATION AND CUSTOMER INSIGHTS Companies use such customer insights to develop competitive advantage.

To gain good customer insights, marketers must effectively manage marketing information from a wide range of sources.

Marketing Information and Today’s ―Big Data‖ With the recent explosion of information technologies, companies can now generate and find marketing information in great quantities.

Far from lacking information, most marketing managers are overloaded with data and often overwhelmed by it. This problem is summed up in the concept of big data.

Big data refers to the huge and complex data sets generated by today‘s sophisticated information generation, collection, storage, and analysis technologies.

The Marketing Information System The real value of marketing research and marketing information lies in how it is used—in the customer insights that it provides.

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A marketing information system (MIS) consists of people and procedures for assessing information needs, developing the needed information, and helping decision makers to use the information to generate and validate actionable customer and market insights. (see Figure 4.1) Use Key Terms Big Data, Customer Insights, and Marketing Information System here.

Use Chapter Objectives 1 and 2 here.

Use Discussion Question 4-1 here.

Use Figure 4.1 here.

ASSESSING INFORMATION NEEDS AND DEVELOPING DATA A good marketing information system balances the information users would like to have against what they really need and what is feasible to offer.

Sometimes the company cannot provide the needed information, either because it is not available or because of MIS limitations.

The MIS must monitor the marketing environment to provide decision makers with information and insights they should have to make key marketing decisions.

The company must decide whether the value of insights gained from additional information is worth the costs of providing it, and both value and cost are often hard to assess.

Use Marketing by the Numbers here.

Developing Marketing Information Marketers can obtain the needed information from internal data, marketing intelligence, and marketing research.

Internal Data Use Key Term Internal Databases here.

Use Discussion Question 4-3 here.

Internal databases are electronic collections of consumer and market information obtained from data sources within the company network.

Information in the database can come from many sources.

Problems with internal data:

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  

It may be incomplete or in the wrong form for making marketing decisions.

Keeping the database current requires a major effort because data ages quickly.

Managing and mining the information that a large company produces require highly sophisticated equipment and techniques.

Use Key Term Competitive Marketing Intelligence here.

Use Discussion Question 4-4 here.

Competitive Marketing Intelligence

Competitive marketing intelligence is the systematic collection and analysis of publicly available information about consumers, competitors, and developments in the marketplace.

Companies can use the internet to search specific competitor names, events, or trends and see what turns up.

Firms use competitive marketing intelligence to gain early insights into competitor moves and strategies and to prepare quick responses.

Companies need to actively monitor competitors’ activities. They can monitor competitors’ web and social media sites.

Much competitor intelligence can be collected from people inside the company.

The growing use of marketing intelligence raises a number of ethical issues.

Use Key Term Marketing Research here.

Use Chapter Objective 3 here.

Use Marketing Ethics here.

MARKETING RESEARCH Marketing research is the systematic design, collection, analysis, and reporting of data relevant to a specific marketing situation facing an organization.

Use Figure 4.2 here.

Use Discussion Question 4-2 here.

Use Critical Thinking Exercise 4-6 here.

The marketing research process has four steps (see Figure 4.2): 1.

Defining the Problem and Research Objectives

Defining the problem and research objectives is often the hardest step in the research

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process.

A marketing research project might have one of three types of objectives.

Use Key Terms Exploratory Research, Descriptive Research, and Causal Research here.

1. Exploratory research: to gather preliminary information that will help define the problem and suggest hypotheses.

2. Descriptive research: to describe things, such as the market potential for a product.

3. Causal research: to test hypotheses about cause-and-effect relationships.

Start with exploratory research and later follow with descriptive or causal research.

2.

Developing the Research Plan

The research plan outlines sources of existing data and spells out the specific research approaches, contact methods, sampling plans, and instruments that researchers will use to gather new data.

Research objectives must be translated into specific information needs.

The research plan should be presented in a written proposal.

Secondary data consist of information that already exists somewhere, having been collected for another purpose.

Primary data consist of information collected for the specific purpose at hand.

Gathering Secondary Data Researchers usually start by gathering secondary data.

Using commercial online databases, marketing researchers can conduct their own searches of secondary data sources.

Internet search engines can also be a big help in locating relevant secondary information sources.

Secondary data can usually be obtained more quickly and at a lower cost than primary data.

Secondary sources can sometimes provide data an individual company cannot collect on its own.

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Use Key Term Secondary Data here.

Secondary data can present problems.  

The needed information may not exist.

The data might not be very usable unless it is: o relevant (fits research project needs), o accurate (reliably collected and reported), o current (up-to-date enough for current decisions), and o impartial (objectively collected and reported).

Primary Data Collection In most cases, a company must also collect primary data. Care must be given to making certain the primary data is relevant, accurate, current, and unbiased.

Use Key Term Primary Data here.

Use Table 4.1 here.

Research Approaches Observational Research involves gathering primary data by observing relevant people, actions, and situations.

Use Key Term Observational Research here.

Observational research can obtain information that people are unwilling or unable to provide.

Disadvantages:   

Some things cannot be observed.

Long-term or infrequent behavior is also difficult to observe.

Observations can be very difficult to interpret.

Ethnographic research involves sending trained observers to watch and interact with consumers in their ―natural habitat.‖ Use Key Term Ethnographic Research here.

Ethnographic research often yields the kinds of details that just don’t emerge from traditional research questionnaires or focus groups.

Survey research, the most widely used method for primary data collection, is the approach best suited for gathering descriptive information.

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Use Key Term Survey Research here.

The major advantage of survey research is its flexibility.

Disadvantages:    

Sometimes people are unable to answer survey questions.

People may be unwilling to respond to unknown interviewers or about things they consider private.

Respondents may answer survey questions even when they do not know the answer.

People may not take the time, or they might resent the intrusion into their privacy.

Experimental Research is best suited for gathering causal information.

Use Key Term Experimental Research here.

Contact Methods Mail, Telephone, and Personal Interviewing Mail questionnaires can be used to collect large amounts of information at a low cost per respondent.

Respondents give more honest answers to more personal questions.

No interviewer is involved to bias the respondent’s answers.

Disadvantages:    

Not very flexible Take longer to complete The response rate is very low.

The researcher often has little control over the mail questionnaire sample.

Telephone interviewing is one of the best methods for gathering information quickly, and it provides greater flexibility than mail questionnaires.

Interviewers can explain difficult questions.

Response rates are higher than with mail questionnaires.

Disadvantages:

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    

Cost per respondent is higher than with mail questionnaires.

People may not want to discuss personal questions with an interviewer.

Introduces interviewer bias.

Different interviewers may interpret and record responses differently.

Increasingly high rates of hang-ups.

Personal interviewing takes two forms—individual and group interviewing.  

Individual interviewing involves talking with people one-on-one.

Group interviewing (focus group interviewing) consists of inviting six to ten people to meet with a trained moderator to talk about a product, service, or organization.

Use Key Term Focus Group Interviewing here.

Use Critical Thinking Exercise 4-7 here.

Online Marketing Research Increasingly, researchers are collecting primary data through online marketing

research.

Use Key Term Online Marketing Research here.

The internet is especially well suited for quantitative research.

Almost 90 percent of Americans now use the internet.

Web-based research offers many advantages over more traditional approaches:  Speed  Low costs  More interactive and engaging  Easier to complete  Less intrusive Sample size has little impact on costs.

Use Key Terms Online Focus Groups and Behavioral Targeting here.

The primary qualitative web-based research approach is online focus groups.

Although online focus groups require some advance scheduling, results are almost immediate.

Disadvantages:

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

Controlling who’s in the online sample is difficult.

To overcome sample and context problems, online research firms use opt-in communities and respondent panels.

Online Behavioral and Social Tracking and Targeting Increasingly, online researchers are listening to and watching consumers by actively mining the rich veins of unsolicited, unstructured, ―bottom-up‖ customer information already available on the internet.

Online listening provides the passion and spontaneity of unsolicited, real-time consumer opinions.

Use Marketing at Work 4.1 here.

Use Critical Thinking Exercise 4-8 here.

Use Discussion Question 4-5 here.

Behavioral targeting is the practice of marketers using online data to target ads and offers to specific consumers.

Sampling Plan A sample is a segment of the population selected for marketing research to represent the population as a whole.

Use Key Term Sample here.

Designing the sample requires three decisions.

1. Who is to be surveyed (what sampling unit)?

2. How many people should be surveyed (what sample size)?

3. How should the people in the sample be chosen (what sampling procedure)?

Table 4.2 describes different kinds of samples.

Use Table 4.2 here.

Use Linking the Concepts here.

The two types of samples are:  

probability samples nonprobability samples

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Research Instruments The questionnaire is the most common data collection instrument.

Closed-end questions include all the possible answers, and subjects make choices among them.

Open-end questions allow respondents to answer in their own words.

Care should be given to the wording and ordering of questions.

Researchers also use mechanical instruments to monitor consumer behavior. Checkout scanners are an example.

3.

Implementing the Research Plan

This stage involves collecting, processing, and analyzing the information.

Researchers must process and analyze the collected data to isolate important information and findings.

4.

Interpreting and Reporting the Findings

Researchers should present important findings and insights that are useful in the major decisions faced by management.

ANALYZING AND USING MARKETING INFORMATION Customer Relationship Management (CRM) Companies capture information at every possible customer touch point.

Customer relationship management (CRM) is used to manage detailed information about individual customers and carefully manage customer touch points in order to maximize customer loyalty.

Use Chapter Objective 4 here.

Use Key Term Customer Relationship Management (CRM) here.

CRM integrates everything that a company knows about individual customers to provide a 360-degree view of the customer relationship.

Big Data, Marketing Analytics, and Artificial Intelligence

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Use Marketing at Work 4.2 here.

Today’s big data can yield big results. But simply collecting and storing huge amounts of data has little value. Marketers must sift through the mountains of data to mine the gems—the bits that yield customer insights.

As one marketing executive puts it, ―It’s actually [about getting] big insights from big data. It’s throwing away 99.999 percent of that data to find things that are actionable.‖ Says another data expert, ―right data trumps big data.‖ That’s the job of marketing analytics.

Marketing analytics consists of the analysis tools, technologies, and processes by which marketers dig out meaningful patterns in big data to gain customer insights and gauge marketing performance.

The most common mistake is to view CRM and marketing analytics as technology processes only.

Use Online, Mobile, and Social Media Marketing here.

Use Key Term Marketing Analytics here.

Distributing and Using Marketing Information The marketing information system must make the information available to managers and others who make marketing decisions or deal with customers.

Many companies use an intranet to facilitate information distribution. The intranet provides ready access to data, stored reports, and so forth.

Companies are increasingly allowing key customers and value-network members to access account and product information, along with other information. The systems that do this are called extranets.

Use Linking the Concepts 2 here.

Use Chapter Objective 4 here.

OTHER MARKETING INFORMATION CONSIDERATIONS Marketing Research in Small Businesses and Nonprofit Organizations Managers of small businesses and nonprofit organizations can obtain marketing insights by observation, secondary data searches, or informal surveys using small convenience samples.

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Many associations, local media, and government agencies provide special help to small organizations.

Small businesses can collect a considerable amount of information at very little cost online.

International Marketing Research International marketing researchers follow the same steps as domestic researchers.

The international researcher may have a difficult time finding good secondary data.

International researchers often must collect their own primary data.

Reaching respondents is often not easy in other parts of the world.

Cultural differences from country to country cause additional problems for international researchers.

Language is the most obvious obstacle.

Even when respondents are willing to respond, they may not be able to because of high functional illiteracy rates.

Digital surveys have now become the major means for conducting international research.

Once recognized, many of the problems associated with international marketing research can be overcome or avoided.

Use Chapter Objective 5 here.

Public Policy and Ethics in Marketing Research Intrusions on Consumer Privacy Many consumers strongly resent or even mistrust marketing research.

Failure to address privacy issues could result in angry, less cooperative consumers and increased government intervention.

If researchers provide value in exchange for information, customers will gladly provide it.

The best approach is for researchers to ask only for the information they need, to use it responsibly to provide customer value, and to avoid sharing information without the customer’s permission.

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Consumer Data Security and Protection Today’s large consumer databases can pose serious data security challenges for companies.

In just the past few years, dozens of well-respected companies and brands have experienced major consumer data breaches, some affecting huge numbers of consumers.

Misuse of Research Findings Many research studies appear to be little more than vehicles for pitching the sponsor’s products.

Several associations have developed codes of research ethics and standards of conduct.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

4-1.

Marketers make heavy use of both primary and secondary data. What is primary data? What is secondary data? What are possible benefits or drawbacks of using each of these data types? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Primary data consist of information collected for the specific purpose at hand.

Secondary data consist of information that already exists somewhere, having been collected for another purpose.

The benefits of primary data include greater control over the data collection and research process, ability to conduct more in-depth research on specific issues, and having proprietary data that the firm can use as a potential advantage, or that is specific to the firm only. The benefits of secondary data include substantial time savings because the data is already assembled, low or possibly no cost because data has already been generated by an existing entity, and data is publicly or easily accessible. The drawbacks of primary data include the cost to obtain data and overall research process, time constraints, and it’s not always practicable or easy to do. The drawbacks of secondary data include that it may be too general in nature, may not be completely relevant to the issue being researched, may not be collected in a timely or relevant way, or perhaps is incomplete or dated.

4-2.

What is a marketing information system? Why does it matter to marketing decision makers? (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: A marketing information system (MIS) includes the people and procedures that assess information needs, develop needed information, help decision makers use information, and validate actionable customer and market insights. Companies design MIS systems to help managers gain the information they need to create customer value, engagement, and strong customer relationships.

4-3.

How do companies use internal databases? What challenges do internal databases present? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Internal databases are collections of consumer and market information that are obtained from data sources within the company network. Internal databases usually can be accessed more quickly and cheaply than other information sources.

However, because the internal information is often collected for other purposes, it may be incomplete or in the wrong form for making marketing decisions. Data also age quickly; keeping the database current requires a major effort. Finally, managing and mining the mountains of information that a large company produces require highly sophisticated equipment and techniques.

4-4.

What is the goal of competitive marketing intelligence? How do companies gain competitive marketing intelligence? (AACSB: Written and Oral Communication) Answer: Competitive marketing intelligence is the systematic monitoring, collection, and analysis of publicly available information about consumers, competitors, and developments in the marketplace. Competitive marketing intelligence is used to improve strategic decision making. It helps firms understand the consumer environment, track competitive actions, and identify opportunities and threats. Monitoring social and mobile media, quizzing employees, benchmarking, and conducting online research can produce competitive marketing intelligence. Companies can also send out teams of trained observers to interact with customers.

4-5.

What is behavioral targeting? Provide an example. (AACSB: Written and Oral Communication) Answer: Behavioral targeting is using online consumer tracking data and analytics to target advertisements and marketing offers to specific consumers. Student examples may vary. One example is a company serving an ad to you based on your search history for a particular product.

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Critical Thinking Exercises 4-6.

Visit www.nielsen.com/us/en/insights/reports.html and select an example of a recent research report. Include the URL in a response that describes the study or studies that informed the report. Where did Nielsen get the data that informed the insights in the report? (The report may include more than one source of data.) What are the strengths and weaknesses of the types of data used? How is the information presented? How will people who see the results of the study likely respond based on the presentation?

Provide one example of how the insight might be used by a marketer.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary based on the examples they select. Most reports include survey data and secondary data from Nielsen‘s tracking databases. Responses may include information about the methods used and/or the way the information is presented. When it comes to the analysis of how the insight is distributed and an example of how the insight might be applied, students should be praised for recognizing shortcomings associated with the types of research, particularly if they impact the application of the findings.

4-7.

Suppose you are conducting market research for a new line of electric sport utility vehicles. People are skeptical about your SUV’s product claims and reliability and you are determined to find out why. You decide to host an in-person focus group to gain customer insights into your brand’s current product offerings. You also want to obtain feedback on an advertising campaign that your brand plans to launch in the next six months. Determine the makeup of your focus group. Who should be invited to the focus group and why? What types of information would you want to obtain? Identify possible questions to present to the focus group.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student answers will vary but should discuss some of the following issues.

The target population for the focus group will be consumers that are target customers for the product. Since gaining insight about the new product is the goal of the focus group, including new or potential consumers will bring a fresh perspective. The larger demographic will be consumers who have an interest in electric vehicles or fuel-efficient sport utility vehicles.

As a market researcher, the job is to find out what consumers really think. The first issue would be finding out why consumers are skeptical. Is it because of their experiences with other products from your brand? Are there negative reviews?

Are they skeptical about electric vehicles in general, or is their skepticism associated only with your brand or the type of electric vehicles (SUVs)? Market researchers will want to dig into spending habits and consumption patterns of the focus group.

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Regarding the new product being tested with the focus group, providing the opportunity to experience the vehicle will result in valuable feedback. Asking for feedback about possible promotional strategies would obtain effective ideas to target consumers.

As a way to thank the focus group participants for their time and feedback, consider offering a gift card or another form of reward to demonstrate the value of their participation in the focus group process.

4-8.

Are behavioral and social targeting initiatives that target consumers based on their activities harmful or helpful? Defend your response. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. Some students may perceive value in exposure to advertisements and messages that are relevant to their interests. Others may have privacy concerns or concerns about the use of the technique in certain product categories (for example, products that are unhealthy; services that are addictive; and so on).

4-9.

Go to Google Trends (http://trends.google.com). Assume you are a consumer goods marketer who oversees a sparkling water product. How could the Google Trends information help your company improve its understanding of its market? Conduct a search that could provide information that might increase profits. Explain what you searched and what insights you gained that could inform decision making. (AACSB: Oral and Written Communication; Reflective Thinking) Answer: Ask students to share their unique searches and analyses in class.

Although student responses may vary, examples that demonstrate the difference between data and insights should be highlighted in the discussion.

Minicases and Applications Digital Marketing Amore Pacific Asia-Pacific beauty product provider Amore Pacific experienced sales and operating profit losses during the pandemic. The losses were particularly acute in its home market, South Korea, where it sells many whitening and anti-aging products. Looking for solutions, Amore Pacific conducted a survey of 1,500 consumers in its target audience.

The survey results suggested that almost 80 percent of its consumers check online content before buying a beauty product. It also revealed young target consumers’ interests in Kpop and other cultural movements. In response, Amore Pacific invested $2.7 million to

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purchase a beauty content creator network startup. The beauty media firm startup gave the company’s marketers access to 250 video creators and influencers that specialize in beauty products.

4-10. How would a researcher at Amore Pacific determine if the results of its survey provided accurate estimates of the target market’s thoughts and behaviors?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: In addition to knowing the sample size, which is related to the ability to generalize the information gained from the sample to the population of interest, Amore Pacific would want to know the procedure used to gather the sample. For example, a probability sample would allow the decision maker to calculate the chance each population member had of being included in the sample and to determine the confidence limits for the sampling error. However, a nonprobability sample would be less expensive but would have limitations that would make it challenging to interpret how the results relate to the population of interest.

4-11. How might a marketer like Amore Pacific use neuromarketing to better understand its customers? Would such an approach be more useful than surveys in assessing the effectiveness of messages and images from its new content creator/influencer network? How? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Neuromarketing might use EEG and MRI technologies to track consumers’ brain activity to learn how consumers feel and respond. A marketer like Amore Pacific might study brain activity to see how consumers react to new packaging, advertising campaigns, a spokesperson, or the brand. Given its investment in the content creator network, Amore Pacific might study how consumers react to stories and images from influencers. Neuromarketing approaches might give deeper insights than surveys into underlying reactions and motivations.

Marketing Ethics WeChat WeChat, owned by Chinese tech giant Tencent and available in 17 languages, offers its users a ―one-stop shop‖ for features. Users can chat, shop, form new social connections, order and pay for food, make payments, identify crowded locations, make investments, and make doctor‘s appointments—among other things—all without leaving the app. As a result, WeChat collects large amounts of valuable data about its consumers and their habits, which it monetizes by selling advertising. Companies in China are required to share this information with the government, which has a history of human rights violations. Technology companies in the United States aim to develop similar capabilities in order to

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keep people engaged and gather volumes of valuable data, which may be one reason Facebook moved to allow users of Facebook Messenger, Instagram, and WhatsApp messengers to communicate across platforms. While consumers value the convenience and personalized offers they gain by letting WeChat gather data, there are concerns about privacy intrusions and other entities that can access the data.

4-12. If you used an app like WeChat, what information would you be comfortable having tied to your identity? What information would you prefer not be tracked?

What is the trade-off between convenience and privacy? (AACSB: Communication; Reflective Thinking) Answer: Student answers will vary based on their feelings about privacy and their device usage. Many mobile device apps that students may use, such as Google Maps and The Weather Channel, use location tracking to be able to provide the information the user is requesting. Twitter tweets provide the time and date a tweet was posted. Users check into locations using apps such as Foursquare and Facebook, which leave behind location, date, and time data.

4-13. Is it ethical for marketers to gather massive amounts of data about everything a consumer does and then sell advertising using the information? What types of protections do you value as a consumer?

(AACSB: Communication; Ethical Reasoning) Answer: Student opinions on whether it is ethical will be influenced by their concerns about privacy and security of the information they provide online.

Many consumers are not aware that they can be identified, and some students will argue that this is unethical. However, the data can assist marketers in targeting individualized ads and offers, which may benefit consumers.

Marketing by the Numbers Descriptive Research As you read in the chapter, the objective of descriptive research is to describe things, such as the market potential for a product or the demographics and attitudes of consumers who buy the product. Three common statistics used in descriptive research are mean, median, and mode. From these simple statistics, marketers can learn from the multitude of data available what the average value of something is, such as the average time a consumer spends on a website or the average attitude toward their brand. That is the mean, found by adding up all the values and dividing by the number of data points added together. Marketers are also interested in the middle value (that is, median) because outliers may

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skew a mean high or low. To find the median, marketers order the values from highest to lowest and locate the value in the middle of the dataset. Finally, mode tells the marketing researcher how often a value occurs. Creating graphs like histograms of the data are useful for visually showing the frequency of each value. Use the following consumer attitude data, collected using an attitude statement ranging from 1 = ―strongly dislike‖ to 5 = ―strongly like‖ concerning the brand, to calculate descriptive statistics.

Consumer Caleb Cameron Jasmine Frank Susan Jamal Eliana

Attitude toward Brand Score (1– 5) 5 2 4 5 5 3 3

4-14. Calculate the mean, median, and mode for this data. (AACSB: Written and Oral Communication; Analytical Reasoning) Answer: Mean = average = (5+2+4+5+5+3+3) ÷ 7 = 27 ÷ 7 = 3.86 Median = middle value = 2, 3, 3, 4, 5, 5, 5 = 4 Mode = most frequent value = 5 (occurs 3 times) 4-15. Create a histogram (that is, a bar chart) that shows the number of times each attitude score is given by a consumer in the dataset. What conclusions can you draw from these descriptive statistics? (AACSB: Written and Oral Communication; Analytical Reasoning) Answer: Students‘ graphs will vary. Following are two examples:

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Students‘ conclusions will vary, but the descriptive statistics show that attitude scores are relatively favorable, with nobody giving the brand a score of 1 (strongly dislike), the average (3.86) and median (4) being above the mid-point (score = 3), and 5 (―strongly like‖) being the most frequently given score.

Company Case Teaching Notes Company Cases 4 Qualtrics/3 Square/6 Outschool See Appendix 1 for teaching notes for the below cases.

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Case 4, Qualtrics: Managing the Complete Customer Experience. Qualtrics pioneered the online survey. Now, it employs online surveys toward managing customer experience.

Case 3, Square: In Relentless Pursuit of a More Elegant Payments Experience.

Having deeply disrupted the credit card payments industry, Square continues to expand its portfolio of services for businesses large and small.

Case 6, Outschool: Personalized Education for All. A fast-growing marketplace for remote-delivered K-12 classes, Outschool is out to make learning fun, social, and selfdirected.

GREAT IDEAS Barriers to Effective Learning 1.

2.

While today‘s students have grown up with computers, the idea of an ―information system‖ may be very new to them. They typically will not have had to do any research, and any jobs they‘ve held to this point in their lives will most likely have entailed very basic, entry-level type work. To get them past this, you could talk about the type of information the university will hold on each student—their major, the courses they‘ve taken, the grades they‘ve earned, their current address, their home address, their parents‘ names, whether they are paying full tuition or are on any kind of scholarship, what high school they attended and their grade point average there, what sports they play or activities they participate in, and so forth.

Then talk about how the university might use that information to understand their current student population to figure out how to target future students while they are still in high school. This should help them grasp how data gets turned into information, and from that point to knowledge.

Virtually no one in class will be at all familiar with the market research process. They have not had to worry about collecting information in any large-scale process, although they might have been involved with collecting information from members of a student organization as to what activities the members would like to participate in. One effective way of discussing this issue is to talk about the course evaluations that are completed at the end of the semester. Explaining that this is not to rate the instructors but to provide valuable feedback to the university, the department, and the instructor on course offerings, content within the courses, and only lastly to get an idea of the competence of instructors should help. Also, give examples of poorly designed surveys, and show how they lead the respondent to answer in a given way. Especially helpful are questionnaires that use leading or loaded questions or doublebarreled questions that are difficult to answer.

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3.

A final barrier is the lack of understanding of commercial and/or online databases. Showing a database in class, such as the U.S. Census data or state information, both of which are available for free, will help them see the amount of data that is available. If possible, it would then be helpful to ―find the story‖ in the data—that is, to apply the data to a small problem, such as where to locate a new Starbucks outlet. Using the data to show population clusters of mid- to upper-level income areas—the kind of consumer most likely to pay a premium for coffee—will help them internalize the power of using effective and relevant data in marketing decision making.

Student Projects 1. Imagine some situations where your school might make good use of exploratory research and/or descriptive research. Explain.

2. Secondary data consists of information that already exists, having been collected for another purpose. What are some secondary data sources you might take a look at if you were helping your school develop a recruitment strategy?

3. Observational research involves gathering primary data by observing people.

Do you see any potential ethical conflicts with its use?

4. Why would you want to (or not want to) use a mail questionnaire to reach Generation Y individuals? Give both pros and cons.

5. Focus group interviewing can be a most effective interview technique. Under what situations does it make sense to use this technique?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on P&G. Each group should answer the following questions: 1. What was the cause of P&G‘s success?

2. What forms of research did P&G undertake?

3. How did P&G gain customer insights?

Answer: To gain deep customer insights, P&G employs a wide range of marketing research approaches—from traditional large-scale surveys and smallscale focus groups to real-time social media listening, mobile surveys, and big data analytics.

Individual Assignment Construct two simple (5 question) surveys that examine student‘s attitudes toward your school. One survey should contain open-end questions only and the

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other only closed-end questions. Be careful of your wording. Which of the two surveys do you believe would provide the greatest depth of information? Why? Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What are the four steps of the marketing research process?

2. What are the differences between causal, exploratory, and descriptive research methods?

3. Why does it make sense to use secondary data before you turn to primary data?

4. What are some of the more substantial drawbacks of observational research?

5. The internet is well suited for the collection of quantitative research. Why is not too good for qualitative research?

Classroom Exercise/Homework Assignment Using observational research, gather data on your roommate’s eating habits. What do your findings tell you? More importantly, what do your findings NOT tell you about his/her eating habits?

Classroom Management Strategies This chapter will be a first introduction into managing any kind of information for most students. It is also a very brief introduction to marketing research. Figure 4.1 should figure prominently in the discussion about this chapter so that students don‘t lose track of all the varying sources of information marketers need.

1. Only 5 minutes should be spent on Assessing Marketing Information Needs. This is an introductory segment, and it also represents a topic that is necessarily company-driven rather than generic.

2. The majority of the class, probably 40 minutes, should be spent on Developing Marketing Information. This is the meat of the chapter, and it not only covers information sources such as internal data and marketing intelligence, but it also goes into some detail on performing marketing research. Most of the key terms from marketing research are defined and explained in this section.

3. The time remaining can be used to cover the last three sections of this chapter: Analyzing Marketing Information; Distributing and Using Marketing Information; and Other Marketing Information Considerations. Customer Relationship Management is covered in the first of these sections. Of the topics listed here, that will be the most important for students to comprehend.

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PROFESSORS ON THE GO

Managing Marketing Information to Gain Customer Insight Key Concepts Where to get marketing information Marketing research 







Assume that you are a regional marketing manager for a cellular phone company. List at least three potential sources of internal data and discuss how these data would help you create cellular services that provide greater customer value and satisfaction.

In this chapter we define primary data and secondary data. Once secondary data, such as customer usage, is gathered and analyzed with the express purpose of making a pricing decision, is it still called secondary data or is it primary data?

Imagine you are an owner of a small children’s clothing store that specializes in upscale girl’s fashion from size 2 to 6. You have found a potential clothing line, but you are unsure whether or not the line will generate the sales needed to be profitable. Which type of research methodology (exploratory, descriptive, or causal) is best suited to solve your research objective. Why? Discuss why you would use a focus group to gather information, rather than interviewing the same people individually.

Key Concepts Analyzing marketing information and customer relationship marketing Marketing research for small businesses and nonprofits Ethics in marketing research 

 



Small businesses and nonprofit organizations often lack the resources to conduct extensive market research. Assume that you are the director of fundraising for a small nonprofit that is focused on a social issue. List three ways, using limited resources, that you could gather information about your primary donor group.

Find an example of a company that you believe uses customer relationship management. Describe the process. Outline the ―connections‖ created with customers, suppliers, and publics.

Talk to students on campus from other countries about the uses of market research in their countries. Is there a focus on market research there? How is it conducted? Are there any taboos or social norms that need to be taken into consideration? Compare answers in class from the different countries represented.

What do you think is the greatest problem today with respect to ethical business practices on the internet? What solution would you offer?

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CHAPTER 5

UNDERSTANDING CONSUMER AND BUSINESS BUYER BEHAVIOR PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 1. Understand the consumer market and the major factors that influence consumer buyer behavior.

2. Identify and discuss the stages in the buyer decision process.

3. Describe the adoption and diffusion process for new products.

4. Define the business market and identify the major factors that influence business buyer behavior.

5. List and define the steps in the business buying decision process.

6. Discuss how online, mobile, and social media have changed business-to-business marketing.

JUST THE BASICS CHAPTER OVERVIEW In this chapter, we continue our marketing journey with a closer look at the most important element of the marketplace—customers.

The aim of marketing is to engage customers and affect how they think and act. To affect the whats, whens, and hows of buying behavior, marketers must first understand the whys.

We look first at final consumer buying influences and processes and then at the buying behavior of business customers.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP The brainchild of entrepreneur Sara Blakely, SPANX has grown rapidly to become a billion-dollar brand. But beneath that success lies an interesting consumer behavior story that began with changing widespread consumer attitudes toward how people think about clothing and their body shapes. SPANX, the market-leading company in women’s shapewear—bodysuits, camis, slips, hosiery—SPANX even makes arm tights. With subbrands such as Brallelujuh! and Slim Cognito, SPANX has grown quickly to become a full-line brand of women’s apparel, from underwear and hosiery to swimwear, shorts, skirts, and jeans. Its mission is ―to help women feel great about themselves and their potential.‖ SPANX is widely considered to be the company that saved an industry in decline.

Blakely’s first hurdle was finding retail outlets. Blakely’s innovative product had to

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change basic retailer and consumer attitudes toward foundation garments. Experts predict that by 2025, the global shape- wear market will reach almost $4 billion a year.

SPANX has changed the way women—and men—think about both clothing and their body shapes. In the process, the innovative brand has modernized the foundationwear industry by giving new life to garments that long sat dormant in the backs of women’s closets. The SPANX revolution has also made founder Sara Blakely the world’s youngest self-made female billionaire. ―Shapewear is the canvas and the clothes are the art,‖ Blakely declares. ―I know things are right on me by the way I feel.‖

CONSUMER MARKETS AND CONSUMER BUYER BEHAVIOR Consumer buyer behavior refers to the buying behavior of final consumers— individuals and households who buy goods and services for personal consumption.

All of these consumers combine to make up the consumer market.

The American consumer market consists of more than 320 million people.

Use Key Terms Consumer Buyer Behavior and Consumer Market here.

Use Chapter Objective 1 here.

Model of Consumer Behavior The central question for marketers is: How do consumers respond to various marketing efforts the company might use?

The starting point is the stimulus-response model of buyer behavior shown in Figure 5.1.

Use Figure 5.1 here.

Marketing stimuli consist of the Four Ps. Other stimuli include major forces and events in the buyer’s environment: economic, technological, political, and cultural.

The marketer wants to understand how the stimuli are changed into responses inside the consumer’s black box, which has two parts.

1. The buyer’s characteristics influence how he or she perceives and reacts to the stimuli.

2. The buyer’s decision process itself affects the buyer’s behavior.

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Use Discussion Question 5-1 here.

Characteristics Affecting Consumer Behavior Cultural Factors Culture is the most basic cause of a person’s wants and behavior.

Marketers are always trying to spot cultural shifts.

Use Key Term Culture here.

Use Figure 5.2 here.

Subcultures are groups of people with shared value systems based on common life experiences and situations.

Use Key Term Subculture here.

The Black American market is growing in affluence and sophistication.

The U.S. Hispanic market consists of more than 61 million consumers.

Asian Americans are the most affluent U.S. demographic segment.

By targeting segments such as Hispanics, Black Americans, and Asian Americans with specially tailored efforts, marketers now embrace a total marketing strategy—the practice of including ethnic themes and cross-cultural perspectives within their mainstream marketing.

Social classes are society’s relatively permanent and ordered divisions whose members share similar values, interests, and behaviors.

Social class is not determined by a single factor but is measured as a combination of occupation, income, education, wealth, and other variables.

Use Key Term Social Class here.

Use Discussion Question 5-2 here.

Social Factors Groups, Social Networks, and Influencer Marketing. A person’s behavior is influenced by many small groups.

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Use Key Terms Reference Group, Opinion Leader, and Word-of-Mouth Influence here.

Reference groups serve as direct (face-to-face interactions) or indirect points of comparison or reference in forming a person’s attitudes or behavior.

Opinion leaders are people within a reference group who, because of special skills, knowledge, personality, or other characteristics, exert social influence on others.

Word-of-mouth influence is the impact of the personal words and recommendations of trusted friends, associates, and other consumers on buying behavior.

Influencer marketing involves enlisting or creating opinion leaders to serve as ―brand ambassadors‖ who spread the word about a company’s products.

Online social networks are online communities where people socialize or exchange information and opinions.

Use Key Terms Influencer Marketing and Online Social Networks here.

Use Marketing at Work 5.1 here.

Family is the most important consumer buying organization in society.

Husband-wife involvement varies widely by product category and by stage in the buying process.

Recent surveys show that one-third of men do the majority of the house cleaning and 43 percent of men perform food preparation and cleanup activities.

Women outspend men on new technology purchases, and they influence 50 percent of all car purchases.

The nation’s kids and tweens influence up to 80 percent of all household purchases.

Roles and Status. A role consists of the activities people are expected to perform. Each role carries a status reflecting the general esteem given to it by society.

Personal Factors Occupation. A person’s occupation affects the goods and services bought.

Age and Life Stage. People change the goods and services they buy over their lifetimes.

Tastes in food, clothes, furniture, and recreation are often age related.

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Economic Situation. A person’s economic situation will affect product choice.

Lifestyle is a person’s pattern of living as expressed in his or her psychographics.

Use Key Term Lifestyle here.

AIO dimensions are activities (work, hobbies, shopping, sports, social events), interests (food, fashion, family, recreation), and opinions (about themselves, social issues, business, products).

Personality and Self-Concept. Personality refers to the unique psychological characteristics that lead to relatively consistent and lasting responses to one’s own environment.

Use Key Term Personality here.

A brand personality is the specific mix of human traits that may be attributed to a particular brand. One researcher identified five brand personality traits: 1. Sincerity (down-to-earth, honest, wholesome, and cheerful) 2. Excitement (daring, spirited, imaginative, and up-to-date) 3. Competence (reliable, intelligent, and successful) 4. Sophistication (upper class and charming) 5. Ruggedness (outdoorsy and tough) The basic self-concept (self-image) premise is that people’s possessions contribute to and reflect their identities; that is, ―we are what we have.‖ Psychological Factors Motivation. A motive (or drive) is a need that is sufficiently pressing to direct the person to seek satisfaction.

Use Key Term Motive (or Drive) here.

Freud suggests that a person’s buying decisions are affected by subconscious motives that even the buyer may not fully understand.

Motivation research refers to qualitative research designed to probe consumers’ hidden, subconscious motivations.

Many marketers are using interpretive consumer research to dig deeper into consumer psyches and develop better marketing strategies.

Maslow sought to explain why people are driven by particular needs at particular times. (see Figure 5.3)

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Use Figure 5.3 here.

Perception is the process by which people select, organize, and interpret information to form a meaningful picture of the world.

Use Key Term Perception here.

Selective attention is the tendency for people to screen out most of the information to which they are exposed.

Selective distortion describes the tendency of people to interpret information in a way that will support what they already believe.

Selective retention is the retaining of information that supports their attitudes and beliefs.

Subliminal advertising refers to marketing messages received without consumers knowing it. Studies find no link between subliminal messages and consumer behavior.

Learning describes changes in an individual’s behavior arising from experience.

Use Key Term Learning here.

A drive is a strong internal stimulus that calls for action.

A drive becomes a motive when it is directed toward a particular stimulus object.

Cues are minor stimuli that determine when, where, and how the person responds.

Beliefs and Attitudes. A belief is a descriptive thought that a person has about something.

Attitude describes a person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea.

Use Key Terms Belief and Attitude here.

Use Discussion Question 5-3 here.

Use Marketing Ethics here.

THE BUYER DECISION PROCESS (Figure 5.4) The buyer decision process consists of five stages: 1. need recognition,

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

2.

3.

4.

5.

information search, evaluation of alternatives, purchase decision, and postpurchase behavior.

Use Figure 5.4 here.

Need Recognition The buyer recognizes a problem or need.

The need can be triggered by either an:  

internal stimuli or external stimuli.

Information Search Information search may or may not occur.

Consumers can obtain information from any of several sources.    

Personal sources (family, friends, neighbors, acquaintances), Commercial sources (advertising, salespeople, dealer websites, packaging, displays), Public sources (mass media, consumer-rating organizations, internet searches), and Experiential sources (handling, examining, using the product).

Commercial sources inform the buyer.

Personal sources legitimize or evaluate products for the buyer.

Evaluation of Alternatives

Alternative evaluation: how the consumer processes information to arrive at brand choices.

How consumers go about evaluating purchase alternatives depends on the individual consumer and the specific buying situation.

In some cases, consumers use careful calculations and logical thinking.

At other times, the same consumers do little or no evaluating; instead they buy on impulse and rely on intuition.

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Purchase Decision Generally, the consumer’s purchase decision will be to buy the most preferred brand.

Two factors can come between the purchase intention and the purchase decision.

1. Attitudes of others 2. Unexpected situational factors Postpurchase Behavior Consumer satisfaction is determined by the difference between the consumer‘s expectations and the perceived performance of the good purchased.

If the product falls short of expectations, the consumer is disappointed; if it meets expectations, the consumer is satisfied; if it exceeds expectations, the consumer is said to be delighted.

Cognitive dissonance, or discomfort caused by postpurchase conflict, occurs in most major purchases.

Customer journey refers to the sum of the ongoing experiences consumers have with a brand that affect their buying behavior, engagement, and brand advocacy over time.

Use Key Term Cognitive Dissonance here.

Use Discussion Question 5-4 here.

Use Critical Thinking Exercise 5-7 here.

Use Marketing by the Numbers here.

THE BUYER DECISION PROCESS FOR NEW PRODUCTS A new product is a good, service, or idea that is perceived by some potential customers as new.

The adoption process is the mental process through which an individual passes from first learning about an innovation to final adoption.

Use Key Term New Product here.

Use Chapter Objective 3 here.

Adoption is the decision by an individual to become a regular user of the product.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Key Term Adoption Process here.

Stages in the Adoption Process Consumers go through five stages in the process of adopting a new product: Awareness: The consumer becomes aware of the new product but lacks information about it.

Interest: The consumer seeks information about the new product.

Evaluation: The consumer considers whether trying the new product makes sense.

Trial: The consumer tries the new product on a small scale to improve his or her estimate of its value.

Adoption: The consumer decides to make full and regular use of the new product.

Use Discussion Question 5-5 here.

Individual Differences in Innovativeness People differ greatly in their readiness to try new products.

People can be classified into the adopter categories shown in Figure 5.5.

Use Figure 5.5 here.

The five adopter groups have differing values.

1. Innovators are venturesome—they try new ideas at some risk.

2. Early adopters are guided by respect—they are opinion leaders in their communities and adopt new ideas early but carefully.

3. Early mainstream adopters are deliberate—although they rarely are leaders, they adopt new ideas before the average person.

4. Late mainstream adopters are skeptical—they adopt an innovation only after a majority of people have tried it.

5. Lagging adopters are tradition bound—they are suspicious of changes and adopt the innovation only when it has become something of a tradition itself.

Influence of Product Characteristics on Rate of Adoption Five characteristics are important in influencing an innovation’s rate of adoption.

Relative advantage: the degree to which the innovation appears superior to existing products.

Compatibility: the degree to which the innovation fits the values and experiences

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of potential consumers.

Complexity: the degree to which the innovation is difficult to understand or use.

Divisibility: the degree to which the innovation may be tried on a limited basis.

Communicability: the degree to which the results of using the innovation can be observed or described to others.

Use Linking the Concepts here.

Use Critical Thinking Exercise 5-8 here.

BUSINESS MARKETS AND BUSINESS BUYER BEHAVIOR Business buyer behavior refers to the buying behavior of the organizations that buy goods and services for use in the production of other products and services that are sold, rented, or supplied to others.

Use Key Terms Business Buyer Behavior and Business Buying Process here.

Use Chapter Objective 4 here.

In the business buying process, business buyers determine which products and services their organizations need to purchase, and then find, evaluate, and choose among alternative suppliers and brands.

Business-to-business (B-to-B) marketers must do their best to understand business markets and business buyer behavior.

Business Markets Business markets involve far more dollars and items than do consumer markets.

The main differences between business markets and consumer markets relate to the following:    1.

market structure and demand nature of the buying unit the types of decisions and the decision process involved Market Structure and Demand

Many business markets have inelastic demand; that is, total demand for many business products is not affected much by price changes.

Business markets have more fluctuating demand.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does.

Business demand is derived demand—it ultimately derives from the demand for consumer goods.

Use Key Term Derived Demand here.

2.

Nature of the Buying Unit

Business purchases usually involve more decision participants and a more professional purchasing effort.

3.

Types of Decisions and the Decision Process

Business buyers usually face more complex buying decisions than do consumer buyers.

The business buying process tends to be more formalized.

The buyer and seller are often much more dependent on each other.

Supplier development involves systematically developing networks of supplierpartners to ensure an appropriate and dependable supply of products and materials that they will use in making their own products or resell to others.

Use Key Term Supplier Development here.

Business Buyer Behavior Figure 5.6 shows a model of business buyer behavior.

Within the organization, buying activity consists of two major parts: 1. The buying center and 2. The buying decision process.

Major Types of Buying Situations

Straight rebuy: the buyer reorders something without any modifications.

Modified rebuy: the buyer wants to modify product specifications, prices, terms, or suppliers.

New-task buy: the company is buying a product or service for the first time.

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Use Figure 5.6 here.

Use Key Terms Straight Rebuy, Modified Rebuy, and New Task here.

Systems selling (solutions selling) is often a key business marketing strategy because many business buyers prefer to buy a packaged solution to a problem from a single seller.

In this situation, a buyer may ask sellers to supply the components and assemble the package or system.

Use Key Term Systems Selling (Solutions Selling) here.

Participants in the Business Buying Process

A buying center consists of all the individuals and units that play a role in the business purchase decision-making process.

The buying center is not a fixed and formally identified unit within the buying organization.

Use Key Term Buying Center here.

Major Influences on Business Buyers Most B-to-B marketers recognize that emotion plays an important role in business buying decisions.

When suppliers‘ offers are very similar, buyers can allow personal factors to play a role in their decisions.

However, when competing products differ greatly, business buyers tend to pay more attention to economic factors.

Figure 5.7 lists various groups of influences on business buyers.

Use Figure 5.7 here.

Environmental factors include the current and expected economic environment, as well as shortages of key materials.

Technological, political, and competitive developments can also affect business buyers.

Culture and customs can also influence buyer reactions to the marketer‘s behavior and strategies.

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Organizational factors are important because each buying organization has its own objectives, policies, procedures, structure, and systems.

Interpersonal factors influence the business buying process. These can be very difficult to ascertain.

Individual factors are involved as well. Each participant in the business buying process brings in personal motives, perceptions, and preferences.

Individual factors are, in turn, influenced by personal characteristics such as age, income, education, professional identification, personality, and attitudes toward risk.

Use Chapter Objective 5 here.

Use Figure 5.8 here.

Use Critical Thinking Exercise 5-9 here.

THE BUSINESS BUYING DECISION PROCESS (see Figure 5.8) 1.

2.

3.

4.

5.

6.

7.

8.

Problem recognition: The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a specific product or service.

A general need description is generated to describe the characteristics and quantity needed of an item.

The product specification includes the technical product specifications. Product value analysis is an approach to cost reduction in which components are studied carefully to determine if they can be redesigned, standardized, or made by less costly methods of production.

A supplier search is conducted to find the best vendors.

The newer the buying task, and the more complex and costly the item, the greater the amount of time the buyer will spend searching for suppliers.

The proposal solicitation is the stage in which the buyer invites qualified suppliers to submit proposals.

Supplier selection occurs after the buying center reviews the proposals.

An order-routine specification includes the final order with the chosen supplier or suppliers. Many large buyers now practice vendor-managed inventory, in which they turn over ordering and inventory responsibilities to their suppliers.

Buyers conduct a performance review. This review may lead the buyer to continue, modify, or drop the arrangement with the seller.

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ENGAGING BUSINESS BUYERS WITH DIGITAL AND SOCIAL MARKETING Use Chapter Objective 6 here.

E-Procurement and Online Purchasing Online purchasing (e-procurement) has grown rapidly in recent years.

Companies can do e-procurement in any of several ways.    

They can conduct reverse auctions, in which they put their purchasing requests online and invite suppliers to bid for the business.

They can use online trading exchanges, through which companies work collectively to facilitate the trading process.

Companies can set up their own company buying sites.

They can create extranet links with key suppliers.

Use Key Term E-Procurement here.

Business-to-business e-procurement yields many benefits.

1. It shaves transaction costs and results in more efficient purchasing for both buyers and suppliers.

2. It reduces the time between order and delivery.

3. It frees purchasing people to focus on more-strategic issues.

The use of e-purchasing presents some problems.

1. It can erode decades-old customer-supplier relationships.

2. It can create potential security disasters.

Business-to-Business Digital and Social Media Marketing Today’s B-to-B marketers are now using a wide range of digital and social media marketing approaches.

Digital and social media marketing have rapidly become the new space for engaging business customers.

Compared with traditional media and sales approaches, digital and social media can create greater customer engagement and interaction. B-to-B marketers know that they aren’t really targeting businesses, they are targeting individuals in those businesses who affect buying decisions.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Discussion Question 5-6 here.

Use Marketing at Work 5.2 here.

Use Online, Mobile, and Social Media Marketing here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 5-1. How do subcultures affect consumer purchase decisions? Provide an example. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Subcultures are groups of people with shared value systems based on common life experiences and situations and include nationalities, religions, racial groups, age cohorts, and geographic regions. Subcultural groups usually exhibit some distinct needs and preferences. Most brands and marketing campaigns today are multicultural in nature, inclusive of the diverse mix of subcultures that make up the American consumer marketplace. However, as with other types of market segments, subcultural groups usually exhibit some distinct needs and preferences, so marketers often supplement their diverse general-market offerings with additional products and programs tailored to specific subcultural segment needs. For example, a brand like Toyota may target Hispanic consumers with a specific campaign.

5-2. Provide examples of a situations in which environmental disruptions affected consumer attitudes and buying behaviors. (AACSB: Written and Oral Communications; Reflective Thinking) Answer: People‘s physical, technological, and health circumstances impact what they buy, where and how they shop, and more. For example, South African consumers who face severe water shortages purchase waterless shampoos. One of the biggest recent examples is the global COVID-19 pandemic, which affected almost every aspect of consumer buying. Just one lasting change is the accelerated shift toward online shopping during the pandemic. Marketers must be prepared to adjust quickly to major environmental disruptions.

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5-3. Why do marketers want to understand the customer journey? Provide an example of a customer journey. (AACSB: Written and Oral Communications; Reflective Thinking) Answer: The customer journey is the sum of the ongoing experiences consumers have with a brand that affect their buying behavior, engagement, and brand advocacy over time. Marketers want to understand the customer journey so they know how to engage customers at different touchpoints in ways that develop a strong brand, increase the likelihood of a positive purchase experience, and help the customer engage with become a loyal advocate for the brand. Examples may vary. The chapter includes an example from Amazon‘s Echo device with the Alexa voice assistant.

5-4. Identify the stages of the adoption process and describe what might happen at each stage when a consumer considers a new smartphone. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The adoption process is a mental process in which an individual learns about an innovation to finally adopting it. The stages in the adoption process are:  Awareness: The consumer becomes aware of the new product but lacks information about it. A consumer might become aware of a new phone via an advertisement.  Interest: The consumer seeks information about the new product. The consumer might visit the phone manufacturer‘s website, read reviews, and talk to friends or family members to gather information.  Evaluation: The consumer considers whether trying the new product makes sense. In the context of a smartphone, consumers might weigh the costs associated with the phone (including switching costs) against its benefits.  Trial: The consumer tries the new product on a small scale to improve his or her estimate of its value. A consumer may gain experience with the smartphone at a retail location.  Adoption: The consumer decides to make full and regular use of the new product. In the context of the smartphone, the consumer may sign a contract or purchase the phone.

5-5. How do business markets differ from consumer markets? Briefly explain each of the major differences. (AACSB: Written and Oral Communication)

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Answer: Business markets differ in many ways from consumer markets. The main differences are in market structure and demand, the nature of the buying unit, and the types of decisions and the decision process involved. In business markets, marketers typically deal with fewer, larger buyers than in consumer marketers. Business markets have inelastic and relatively fluctuating demand that is derived from consumer markets. The business buying unit typically includes more participants than are involved consumer decisions. The decisions tend to be more complex in business markets.

5-6. What is derived demand, and why is it important in business-to-business marketing?

Provide an example. (AACSB: Written and Oral Communication) Answer: Derived demand means the demand for business products is derived from the demand for consumer goods. An example is Gore-Tex, which markets directly to end consumers in order to increased demand for apparel brands and manufacturers that contain its fabrics. Both Gore-Tex and its business customers benefit.

Critical Thinking Exercises 5-7. How would the buyer decision process for a sports fan preparing to buy a pair of gloves to wear in the stands at a professional hockey game differ from that of a snowboarder purchasing a pair of gloves? How would you use this knowledge to develop an advertising plan? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary but should recognize that the snowboarder may have higher involvement in the purchase process because of her/his reliance on the gloves over an extended period of time. The snowboarder may engage in additional research to learn about important product attributes since there may be greater physical and social risk associated with the decision.

5-8. Assess the Beyond Meat burger using each of the five characteristics identified in the chapter as especially important in influencing an innovation‘s rate of adoption. Given its

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performance on each of these characteristics, what could Beyond Meat‘s marketers do to increase the product‘s rate of adoption?

Answer: The five characteristics that are especially important in influencing an innovation‘s rate of adoption are relative advantage, compatibility, complexity, divisibility, and communicability. Student responses to Beyond Meat‘s performance on each of these characteristics may vary. If students evaluate that consumer perceptions of the relative advantage are low, they may suggest a lower price, stronger communications about product benefits, or additional features or attributes. If students evaluate the compatibility or fit with the existing values and experiences of potential customers is low, they might recommend recipes or demonstrations that show prospective customers how to prepare the burgers. The Beyond Meat burger will not likely rate high on complexity, but students may express concern about the ingredients used to simulate animal meat using plants. The product is relatively easy to try and observe. If consumers are concerned about how the product tastes or the impact of the ingredients on one‘s physical health, a product trial or advocate from health-care professionals might increase the rate of adoption.

5-9.

Your manager suggests you do everything in your power to limit customer complaining. Make an argument about why your firm should encourage consumers to complain.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: The manager should set up a system that encourages customers to complain because the alternatives to customers complaining directly to the firm are likely to cause more harm than managing the complaint.

Consumers vary in how they respond to cognitive dissonance and dissatisfaction following a purchase. For example, a dissatisfied consumer may bad-mouth the seller. Unfortunately, bad word of mouth reaches more people than good word of mouth and spreads quickly. Further, buyers may choose not to complain at all, so sellers do not have an opportunity to fix the source of dissatisfaction for the existing buyer or future buyers. Buyers may choose to do business with another seller in the future.

Minicases and Applications Digital Marketing Glossier and the WNBA

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

To build on its reputation for accessible luxury body care, online skin care and beauty products marketer Glossier recently showcased eight WNBA players in its digital marketing campaign to launch two new products in its Body Hero collection. The campaign leveraged fan love and highlighted how its Body Hero products make the athletes feel before the game, a departure from previous campaigns that focused on aesthetics or on how its products make users look. In the campaign, the WNBA stars—including Sue Bird of the Seattle Storm and Lexie Brown of the Minnesota Lynx—in their own voices shared their rituals, defined beauty, and discussed how the Glossier products make them feel. Such presentations increased the authenticity and intimacy of consumer connections with the Glossier brands. According to a senior Glossier marketer, the brand wanted to align with the WNBA community because of its long history as changemakers and champions for equality. The campaign expanded Glossier‘s market beyond its loyal customer base by tapping into growth in the skin health category. And it strengthened Glossier‘s message that its products can help consumers express themselves.

5-10. Explain how factors like age, life stage, and economic factors might affect consumer responses to Glossier‘s digital marketing campaign. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Consumers may have different skin care concerns as they age and their rituals, including time and money available to support the rituals, may vary based on life stage. Student responses may reference PRIZM, which classifies American households into life stage segments based on affluence, age, and family characteristics. The 68 segments may have different purchasing and media consumption preferences, including whether they are fans of the WNBA. Glossier‘s efforts to provide accessible luxury body care suggests the products are a good value in the metropolitan markets it traditionally served. Economic factors and reference prices for body care may vary in different regions of the United States, which may impact whether consumers connect with the message that they deserve to feel beautiful by utilizing the Body Hero products.

5-11. Compare CoverGirl‘s ―I Am What I Make Up‖ ad campaign to Glossier‘s #BodyHero campaign featuring the WNBA stars. Identify similarities and differences in their uses of influencers. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The ―I Am What I Make Up‖ campaign was discussed in the chapter, and students may search for additional examples of the execution. Both campaigns identified influencers who were a natural fit with their brands, were current brand users, and allowed the influencers to explain the brand‘s message in their own words. This supposedly created more

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authentic messages that resonated with their target audiences. Both campaigns aimed to inspire the target audience and leveraged the respective influencers‘ social networks. The CoverGirl campaign utilized more diverse, more popular stars as ambassadors, which may have helped it reach different segments.

Marketing Ethics Cashless Pizza Restaurant A recent retailing movement is cashless stores, which align with the consumer trend away from cash purchases in favor of purchases with debit cards, credit cards, or electronic payments like Apple Pay and Google Pay. Stores and restaurants feel going cashless makes transactions faster, reduces their risk of theft, and cuts costs associated with money management. However, critics of cashless retailers say they discriminate against consumers who avoid bank accounts and credit cards, which often includes consumers with poor credit or undocumented immigrants. Consider whether a specific pizza restaurant near your university should go cashless.

5-12. What factors are likely to influence whether consumers in your market choose to do business with the pizza restaurant that does not accept cash? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Social class is related to whether consumers have bank accounts and credit cards. Personal or social factors impact whether friends dine at the cashless pizza restaurant, which could impact consumption behavior.

Individual motivations to save time and money if the cost savings are passed along to the consumers may influence whether consumers patronize the restaurant. In the same way, consumers‘ attitude toward the pizza restaurant is likely to shape their response to the cashless format.

The adoption of the pizza restaurant with the cashless checkout is likely to be impacted by perceptions that the payment method provides an advantage relative to competitive offerings. The number of available alternatives depends on the market. Consumers who are more comfortable paying through apps or debit cards are likely to adopt the pizza restaurant before more risk averse, lagging consumers do.

5-13. Discuss the ethical challenges surrounding the pizza restaurant‘s decision to go cashless. (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer:

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Students may have different opinions about whether it is ethical to exclude consumers who only have the ability to use cash. Some students may characterize it as segmentation and targeting and, given the steadily decreasing percentage of people who pay with cash, may not perceive it as an ethical challenge. Other students may identify the characteristics of consumers who are excluded in cashless restaurants and note they are often discriminated against and underserved by retailers. The discussion of ethical considerations may also extend to employees, who may be safer if they do not manage cash.

Marketing by the Numbers Evaluating Alternatives One way consumers can evaluate alternatives is to identify important attributes and assess how alternative choices perform on those attributes. Consider a consumer deciding among various fitness centers. Each attribute considered, such as price, class offerings, and so on, is given a score to reflect its level of importance to that consumer. In this example, consumers give each attribute a score of 1 to 10 to reflect how important that attribute is to them. Then the consumers evaluates each alternative on each attribute (that is, their belief about how an alternative performs on each attribute). For example, in the following table, location (with an importance score of 8) is the most important attribute for this consumer. This consumer believes that Peak Fitness performs best on this attribute because it is closest to home, rating it 9 (higher ratings indicate better perceived performance), but also believes this alternative to be the most expensive (belief rating of 2). The consumer believes Revolution Fitness offers the best price, but it is located relatively far away. Class offerings is the least important attribute for this consumer.

Attributes Considered

Price Location Hours of operation Class offerings

Importance of Each Attribute

4 8 5 1

Alternatives Considered Revolutio 24/7 Peak n Fitness Fitnes Fitness Beliefs s Beliefs Belief s 9 6 2 4 7 9 6 9 5 5 4 7

A score can be calculated for each alternative by multiplying the importance rating for each attribute by the alternative‘s perceived rating on that attribute.

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These scores are then summed to determine the score for that brand. For example, ScoreRevolution = (4 x 9) + (8 x 4) + (5 x 6) + (1 x 5) = 36 + 32 + 30 + 5 = 103. This consumer will calculate the scores for each brand in a similar way and select the brand with the highest score.

5-14. Calculate the scores for 24/7 Fitness and Peak Fitness. Which fitness center would this consumer likely choose? (AACSB: Written and Oral Communication; Analytical Reasoning) Answer: Score24/7 Fitness = (4 x 6) + (8 x 7) + (5 x 9) + (1 x 4) = 24 + 56 + 45 + 4 = 129 ScorePeak Fitness = (4 x 2) + (8 x 9) + (5 x 5) + (1 x 7) = 8 + 72 + 25 + 7 = 112 Based on this analysis, the consumer would select 24/7 Fitness because it has the highest score (129 compared to 103 for Revolution Fitness and 112 for Peak Fitness).

5-15. Which brand is this consumer least likely to select? Discuss two ways the marketer of this alternative can enhance consumer likelihood of joining its fitness club. (AACSB: Written and Oral Communication; Reflective Thinking; Analytical Reasoning) Answer: This consumer is least likely to select Revolution Fitness because it has the lowest score. The marketer can attempt to change consumer attitudes toward its brand in three ways: a. Change beliefs—if consumers believe a brand does not perform well on an attribute, then the marketer can attempt to change that belief. This consumer believes Revolution Fitness is further away than the alternatives. This company should consider ways to change consumers‘ beliefs about it being too far away, perhaps comparing the drive time or referencing other things the consumer might take care of along the way to and from the fitness center. Revolution Fitness could also expand its hours of operation or increase the target market‘s beliefs about its hours of operation. b. Change attribute importance—Revolution Fitness can attempt to influence how consumers evaluate product attributes. Revolution Fitness performs very well on price, but this attribute is not rated as very important. Increasing the importance weight on this attribute will help this brand considerably because it performs better than both competitors on price.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

c. Add a new attribute to consider—Revolution Fitness could attempt to get consumers to consider an attribute that is not on the list, such as amenities like child care or a smoothie bar. The added attribute needs to be something that will be considered important by consumers and be one that the brand would be perceived as better than the competition for this to be successful.

Company Case Teaching Notes

Company Cases: 5 Kraft Heinz/1 Buffalo Wild Wings/11 Ulta Beauty See Appendix 1 for teaching notes for the below cases.

Case 5, Kraft Heinz. Once a Taste Maker Now Struggles as Consumer Tastes Change.

Facing unprecedented changes in consumer tastes, Kraft Heinz is fighting to maintain its historic role in the packaged foods industry.

Case 1, Buffalo Wild Wings: Fueling the Sports Fan Experience. With a mission to ―WOW people every day,‖ Buffalo Wild Wings serves up more than wings and beer. It is in the business of providing the best customer experience possible for sports fans.

Case 11, Ulta Beauty: Where the Experience Is Beautiful. As the largest U.S. beauty retailer, customers of all kinds enthusiastically flock to Ulta because more than any other retailer, it offers a complete beauty experience.

GREAT IDEAS Barriers to Effective Learning 1.

2.

By and large, students have not been exposed to the consumer behavior concepts in this chapter before. If they have taken a sociology or human behavior course, chances are very high that the concepts were not presented in a way that allowed the students to understand them as they apply to business in general and marketing in particular. After presenting the concepts of consumer behavior, have the students discuss the concepts in terms of their own buying habits, their backgrounds, and how they differ from others in the class.

There is a lot of material in this chapter; although it hits only the high points of consumer behavior, the authors have done a good job of summarizing the constructs in a way that allows students to comprehend, albeit in a basic way, why these concepts are important to marketing managers. Explaining that consumer behavior is usually offered as a

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3.

4.

course unto itself can actually relieve some of their anxiety. Also helpful is continually reminding them of how they can apply this material to more fully appreciate their own motivations for purchases. This can then lead them to understand how a marketer could approach understanding consumers‘ motives in general.

Understanding business buyer behavior and the business buying process can be especially difficult for students. Very few have ever had any experience with business purchasing decisions. This requires thorough explanation; the strategic use of personal experience in this regard is particularly helpful. If the instructor has no personal experience in business buying situations, it could be very helpful to bring in a guest speaker for this topic.

Business buying centers can be a very nebulous topic for students, particularly their dynamic nature. Discussing the importance and uses of inter-departmental teamwork in this section can be highly enlightening.

This can then lead to a discussion of the different types of influencers, users, and so forth that could be found in a business buying center, and what their functions could be in the buying decision–making process.

Student Projects 1. Every culture contains smaller subcultures. In the U.S., the rapidly increasing Hispanic market holds opportunities for many businesses. Look around your community and make a list of those businesses that may well prosper from this increasing subculture. Why do you think this is so?

2. Within the U.S. Hispanic market there exist many distinct subsegments.

Research these subsegments and detail the characteristics unique to each.

3. What social class do you belong to? Why? What would it take for you to move up a class?

4. How does social class in the U.S. differ from social class in India?

5. Think about the online social networks (such as Facebook or Twitter). How are marketers trying to use these networks to promote their products?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on SPANX. Each group should then answer the following questions: 1. Who is the SPANX customer?

2. How has SPANX gained such a devoted following?

3. What is SPANX doing to ensure the customer experience remains at a high level?

Share your findings with the class.

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Individual Assignment Take a look at the websites for Apple (www.apple.com), Dell (www.dell.com), and Lenovo (www.lenovo.com). How are each of these companies appealing to their potential customer? Are they using emotions, facts, comparisons, or other factors? How effective do you believe each of them to be?

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to the questions from the instructor.

1. Describe the ―black box.‖ 2. Describe a cultural shift that has had an impact on marketers.

3. Highlight some of the more significant differences in purchase habits between Black Americans and the U.S. Hispanic market.

4. What factors determine social class in the U.S.?

5. How are online social networks changing the face of marketing?

Classroom Exercise/Homework Assignment Age and lifecycle changes have a dramatic impact on the many and type of products we purchase and consume. Go to Toyota‘s website (www.toyota.com) and examine their complete product offering. How has Toyota tried to reach consumers of all ages and stages of the lifecycle?

Classroom Management Strategies This chapter has a tremendous amount of material. Consumer buying behavior, in particular, presents an incredible amount of information, and all of this information is key to understanding marketing. As in Chapter 3, it is helpful to tie in both sociological and psychological principles in discussing this chapter.

1. More than half the class should be spent on Consumer Markets and Consumer Buyer Behavior. A thorough understanding of this section will make the business part of this chapter that much easier to comprehend. It is divided up into the ―why‖ of buying and the ―how‖ of buying. The former is guaranteed to never have crossed the students‘ mind prior to this, so lots of examples will help drive home the importance of understanding why people buy what they do. Using their own buying history helps, particularly when really drilling down into why they really choose the school they are attending, the clothes they are wearing, etc. The actual buying process can be illustrated through examples of buying something very complex, such as a computer or a

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car, and then something very simple, such as salt. The new product buying decision process is also covered, and several minutes should be spent on this topic.

2. The remaining third or so of this class will then be spent on Business Markets and Business Buyer Behavior. Again, the section is divided into the ―why‖ of buying and then the ―how.‖ There is also a discussion of the different market structure and demand characteristics of business markets. The terminology of business buying is different, and you should be certain the students understand the differences between straight rebuy, modified rebuy, and new tasks. Also, the buying process is more complex and more likely to be followed in practice, particularly for very expensive or very large purchases. Students will need to be aware of the eight steps in the business buying process as well as all of the participants in this process and the roles they play.

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PROFESSORS ON THE GO

Understanding Consumer and Business Buyer Behavior Key Concepts Consumer behavior model Cultural, social, personal, and psychological factors 

 

A bank used Consulting Business Intelligence Values and Lifestyles (VALS) research to profile a customer segment that did not use any automated or electronic services. Based on your knowledge of this lifestyle classification system, speculate what might be the primary and secondary VALS type for this customer segment.

In general, how are decisions and the decision processes for business markets similar to those of consumer markets? How are they different?

List four primary characteristics of the business market.

Key Concepts Complex, dissonance-reducing, habitual, and variety-seeking behavior The stages of the buyer decision process New product adoption process Environmental, organizational, interpersonal, and individual influences The business buying process 

 

In a small group, discuss how the buyer decision process for a college student would differ from that of a snowboarder in purchasing a backpack. How would you use this knowledge to develop an advertising plan?

The vice president of marketing for a regional doughnut retailer says, ―We believe our customers exhibit high involvement buying behaviors.‖ Do you agree? Why or why not?

Assume that while you were vacationing in Australia, you ran across a book published there that you believed would do well in the United States market. You negotiate U.S. distribution rights with the Australian publisher and set about getting the book into the major U.S. outlets— Amazon.com, Barnes & Noble, and iTunes. Go to the websites for these companies and find out how you list books with them. How have they used the internet to simplify their buying process? Do their procedures meet the needs of small businesses that want to sell to these giants? Why or why not?

CHAPTER 6 CUSTOMER VALUE-DRIVEN MARKETING STRATEGY: CREATING VALUE FOR TARGET CUSTOMERS

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PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 7. Define the major steps in designing a customer value-driven marketing strategy: market segmentation, market targeting, differentiation, and positioning.

8. List and discuss the major bases for segmenting consumer and business markets.

9. Explain how companies identify attractive market segments and choose a markettargeting strategy.

10. Discuss how companies differentiate and position their products for maximum competitive advantage.

JUST THE BASICS CHAPTER OVERVIEW This chapter looks further into key customer value-driven marketing strategy decisions— how to divide up markets into meaningful customer groups (segmentation), choose which customer groups to serve (targeting), create market offerings that best serve targeted customers (differentiation), and position the offerings in the minds of consumers (positioning).

Then, the chapters that follow explore the tactical marketing tools—the Four Ps—by which marketers bring these strategies to life.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP

P&G: Competing with Itself—and Winning Procter & Gamble is the world’s premier consumer products company. P&G invented brand management, and few companies do it better.

P&G builds big brands. The consumer package goods giant markets 22 brands with annual revenues between $1 billion and $10 billion, nearly all of which hold the number one or two position in their category.

Many of these P&G brands compete directly with one another on the same supermarket shelves.

Why would P&G introduce several brands in one category instead of concentrating its resources on a single leading brand? The answer lies in the concepts of segmentation and positioning and the fact that different people want different sets of benefits from the products they buy.

Each brand is specially formulated to deliver the promised set of benefits.

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Even as private-label detergents from Walmart, Costco have picked up steam, P&G is still cleaning up in the $13 billion U.S. laundry detergent market, with 54 percent market share.

P&G’s dominance has forced major competitors such as Unilever and Colgate to throw in the towel and sell off their U.S. laundry detergent brands. So, by competing with itself, P&G wins.

Use Chapter Objective 1 here.

Use Discussion Question 6-1 here.

Use Figure 6.1 here.

MARKETING STRATEGY Market segmentation involves dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors that might require separate marketing strategies or mixes.

Market targeting (or targeting) consists of evaluating each market segment’s attractiveness and selecting one or more market segments to enter.

Use Key Terms Market Segmentation and Market Targeting (Targeting) here.

Differentiation involves actually differentiating the firm’s market offering to create superior customer value.

Positioning consists of arranging for a market offering to occupy a clear, distinctive, and desirable place relative to competing products in the minds of target consumers.

Use Key Terms Differentiation and Positioning here.

MARKET SEGMENTATION Through market segmentation, companies divide large, diverse markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.

Use Chapter Objective 2 here.

Segmenting Consumer Markets Table 6.1 outlines the major variables that might be used in segmenting consumer markets.

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Use Key Term Geographic Segmentation here.

Use Table 6.1 here.

Geographic Segmentation

Geographic segmentation calls for dividing the market into different geographical units such as nations, regions, states, counties, cities, or even neighborhoods.

Demographic Segmentation

Demographic segmentation divides the market into groups based on variables such as age, gender, family size, family life cycle, income, occupation, education, religion, race, generation, and nationality.

Demographic factors are the most popular bases for segmenting customer groups.

Use Key Term Demographic Segmentation here.

Use Discussion Question 6-2 here.

With age and life-cycle segmentation, firms offer different products or use different marketing approaches for different age and life-cycle groups.

Gender segmentation has long been used in clothing, cosmetics, toiletries, and magazines.

Income segmentation has long been used by the marketers of products and services such as automobiles, clothing, cosmetics, financial services, and travel.

Psychographic Segmentation

Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or personality characteristics.

Marketers use personality variables to segment markets.

Use Key Terms Age and Life-Cycle Segmentation, Gender Segmentation, Income Segmentation, and Psychographic Segmentation here.

Behavioral Segmentation Use Key Term Behavioral Segmentation here.

Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or responses concerning a product.

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Occasion segmentation involves grouping buyers according to occasions when they get the idea to buy, actually make their purchase, or use the purchased item.

Benefit segmentation is grouping buyers according to the different benefits that they seek from the product.

Use Key Terms Benefit Segmentation and Occasion Segmentation here.

User status refers to segmenting markets into nonusers, ex-users, potential users, firsttime users, and regular users of a product.

Usage rate involves grouping markets into light, medium, and heavy product users.

Loyalty status is dividing buyers into groups according to their degree of loyalty.

Use Marketing at Work 6.1 here.

Using Multiple Segmentation Bases Marketers rarely limit their segmentation analysis to only one or a few variables.

Acxiom’s Personicx Lifestage system (one of the leading segmentation systems) classifies every American household into one of 70 distinct clusters within 21 life stage groups.

Segmenting Business Markets Consumer and business marketers use many of the same variables to segment their markets.

Business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics.

Segmenting International Markets Companies can segment international markets using one or a combination of several variables.   

Geographic factors: Nations close to one another will have many common traits and behaviors.

Economic factors: Countries may be grouped by population income levels or by their overall level of economic development.

Political and legal factors: Type and stability of government, receptivity to foreign firms, monetary regulations, and the amount of bureaucracy should be considered.

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

Cultural factors: Markets can be grouped according to common languages, religions, values and attitudes, customs, and behavioral patterns.

Intermarket segmentation is segmenting consumers who have similar needs and buying behaviors even though they are located in different countries.

Use Discussion Question 6-3 here.

Use Key Term Intermarket (cross-market) Segmentation here.

Requirements for Effective Segmentation To be useful, market segments must be: Measurable: The size, purchasing power, and profiles of the segments can be measured.

Accessible: The market segments can be effectively reached and served.

Substantial: The market segments are large or profitable enough to serve.

Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

Actionable: Effective programs can be designed for attracting and serving the segments.

Use Linking the Concepts here.

Use Marketing by the Numbers here.

MARKET TARGETING Evaluating Market Segments In evaluating different market segments, a firm must look at three factors: 1. Segment size and growth, 2. Segment structural attractiveness, 3. Company objectives and resources.

The largest, fastest-growing segments are not always the most attractive ones for every company.

The company also needs to examine major structural factors that affect long-run segment attractiveness. 

A segment is less attractive if it already contains many strong and aggressive competitors.

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  

The existence of many actual or potential substitute products may limit prices and the profits.

The relative power of buyers also affects segment attractiveness.

A segment may be less attractive if it contains powerful suppliers who can control prices.

Selecting Target Market Segments A target market consists of a set of buyers who share common needs or characteristics that the company decides to serve. (see Figure 6.2) Use Figure 6.2 here.

Use Discussion Question 6-4 here.

Use Key Term Target Market here.

Use Critical Thinking Exercise 6-8 here.

Use Online, Mobile, and Social Media Marketing here.

Undifferentiated Marketing Using an undifferentiated marketing (or mass-marketing) strategy, a firm might decide to ignore market segment differences and target the whole market with one offer.

This mass-marketing strategy focuses on what is common in the needs of consumers rather than on what is different.

Differentiated Marketing Using a differentiated marketing (or segmented marketing) strategy, a firm decides to target several market segments and designs separate offers for each.

Concentrated Marketing When using a concentrated marketing (or niche marketing) strategy, instead of going after a small share of a large market, the firm goes after a large share of one or a few smaller segments or niches.

It can market more effectively by fine-tuning its products, prices, and programs to the needs of carefully defined segments.

It can market more efficiently, targeting its products or services, channels, and communications programs toward only consumers that it can serve best and most profitably.

Use Key Terms Undifferentiated (Mass) Marketing, Differentiated (Segmented) Marketing, and Concentrated (Niche) Marketing here.

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Micromarketing

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations.

Micromarketing includes local marketing and individual marketing.

Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups—cities, neighborhoods, and even specific stores.

Local marketing has drawbacks.   

It can drive up manufacturing and marketing costs by reducing economies of scale.

It can create logistics problems.

The brand’s overall image might be diluted if the product and message vary too much in different localities.

Individual marketing is the tailoring of products and marketing programs to the needs and preferences of individual customers.

Individual marketing has also been labeled one-to-one marketing, mass customization, and markets-of-one marketing.

Use Critical Thinking Exercise 6-7 here.

Use Key Terms Micromarketing, Local Marketing, and Individual Marketing here.

Choosing a Targeting Strategy Which strategy is best depends on:     

Company resources; Product variability; Product’s life-cycle stage; Market variability; and Competitors’ marketing strategies.

Socially Responsible Target Marketing Target marketing sometimes generates controversy and concern. Issues usually involve the targeting of vulnerable or disadvantaged consumers with controversial or potentially harmful products.

Problems arise when marketing adult products to kids, whether intentionally or unintentionally.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The growth of the internet and other carefully targeted direct media has raised concerns about potential targeting abuses.

The issue is not so much who is targeted, but how and for what. Controversies arise when marketers attempt to profit when they unfairly target vulnerable segments or target them with questionable products or tactics.

In digital platforms, the lines between educational, entertainment, and commercial content are often blurred.

Thus, as children consume increasing amounts of online and digital content, experts advise close parental supervision of children using digital devices.

Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company, but also the interests of those targeted.

Use Linking the Concepts 2 here.

Use Marketing Ethics here.

DIFFERENTIATION AND POSITIONING Value proposition: How a company will create differentiated value for targeted segments and what positions it wants to occupy in those segments.

A product’s position is the way the product is defined by consumers on important attributes.

Use Key Term Product Position here.

Use Figure 6-3 here.

Use Chapter Objective 4 here.

Positioning Maps Perceptual positioning maps show consumer perceptions of their brands versus competing products on important buying dimensions.

Choosing a Differentiation and Positioning Strategy The differentiation and positioning task consists of three steps: 1. Identifying possible value differences and competitive advantages 2. Choosing the right competitive advantages 3. Selecting an overall positioning strategy Use Figure 6.4 here.

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Use Key Term Competitive Advantage here.

Use Discussion Question 6-5 here.

Identifying Possible Value Differences and Competitive Advantages To the extent that a company can differentiate and position itself as providing superior customer value, it gains competitive advantage.

It can differentiate along the lines of product, services, channels, people, or image.

Choosing the Right Competitive Advantages How Many Differences to Promote. Ad man Rosser Reeves believes a company should develop a unique selling proposition (USP) for each brand and stick to it.

Other marketers think that companies should position themselves on more than one differentiator.

Which Differences to Promote. A difference is worth establishing to the extent that it satisfies the following criteria: Important: The difference delivers a highly valued benefit to target buyers.

Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.

Superior: The difference is superior to other ways that customers might obtain the same benefit.

Communicable: The difference is communicable and visible to buyers.

Preemptive: Competitors cannot easily copy the difference.

Affordable: Buyers can afford to pay for the difference.

Profitable: The company can introduce the difference profitably.

Use Discussion Question 6-6 here.

Selecting an Overall Positioning Strategy The full positioning of a brand is called the brand’s value proposition. (See Figure

6.4) Use Figure 6.4 here.

Use Key Term Value Proposition here.

Use Critical Thinking Exercise 6-9 here.

More for More positioning involves providing the most upscale product or service and

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

charging a higher price to cover the higher costs.

More for the Same positioning involves introducing a brand offering comparable quality but at a lower price.

The Same for Less positioning can be a powerful value proposition—everyone likes a good deal.

Less for Much Less positioning is offering products that offer less and therefore cost less. ―Less-for-much-less‖ positioning involves meeting consumers’ lower performance or quality requirements at a much lower price.

More for Less positioning is the winning value proposition.

In the long run, companies will find it very difficult to sustain such best-of-both positioning.

Use Marketing at Work 6.2 here.

Developing a Positioning Statement Company and brand positioning should be summed up in a positioning statement.

The statement should follow the form: To (target segment and need) our (brand) is (concept) that (point of difference).

Communicating and Delivering the Chosen Position Once it has chosen a position, the company must take strong steps to deliver and communicate the desired position to target consumers. All the company’s marketing mix efforts must support the positioning strategy.

Use Key Term Positioning Statement here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

6-1.

Name and briefly describe four different ways of segmenting consumer markets. (AACSB: Written and Oral Communication) Answer:

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Students have more than four choices. Table 6.1 includes examples of geographic, demographic, psychographic, and behavioral segmentation variables, where the subsequent sections provide an explanation and examples of each. Among the options, behavioral segmentation is identified as an option that is perceived by many marketers as the best starting point for building market segments.

6-2.

What is hyperlocal social marketing? Why might a retailer use this approach? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Hyperlocal social marketing is location-based targeting to consumers in local communities or neighborhoods using digital and social media.

Marketers might use it to promote unplanned purchases or to increase the likelihood that they connect with people who might be able to respond immediately to a call to action, given the targeted consumers‘ proximity to the retailer‘s location. Social media and search engine sites offer advertisers opportunities to target specific geographic areas as well.

Retailers can increase the likelihood that they show up in searches for options near the consumer.

6-3.

Describe how marketers segment business markets. Provide an example.

(AACSB: Written and Oral Communication) Answer: Like consumer markets, business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate, and loyalty status. Yet business marketers also use some additional variables, such as customer operating characteristics, purchasing approaches, situational factors, and personal characteristics. Examples in the chapter included Keurig and Steelcase, but students may offer other examples.

6-4.

Describe intermarket segmentation. How does it compare to other ways to segmenting international markets? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Intermarket or cross-market segmentation forms segments of consumers who have similar needs and buying behaviors, even though they are located in different countries. Relative to other ways of segmenting international markets, which recognize that countries that are geographically close can vary in their economic, cultural, and political makeup in ways that result in different buying needs and behaviors, intermarket or cross-market segmentation looks for commonalities (for

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

example, language, economic factors, cultural factors, common behaviors among youth or teen markets).

6-5.

Explain why a company might use a differentiated marketing strategy.

Provide an example. What is the downside? (AACSB: Written and Oral Communication)

Answer: Differentiated or segmented marketing allows firms to cover more of the market in a category by designing separate offerings for different segments.

Student examples may vary. The text notes how Marriott International captures a larger share of the travel and hospitality market by offering different options aimed at different segments of consumers. The downside is differentiated marketing increases costs associated with production, distribution, and promotion of different options.

6-6.

Why do firms need to make choices about how many and which competitive advantages to promote? (AACSB: Written and Oral Communication) Answer: Although marketer opinions vary about whether a firm should focus on one unique selling proposition (USP) so the message does not get lost in the clutter or whether firms should position themselves on more than one differentiator, there is agreement that not all brand differences are meaningful or worthwhile. Further, each difference has the potential to create company costs as well as customer benefits. In general, a difference is worth establishing to the extent that it satisfies the following criteria:  Important: The difference delivers a highly valued benefit to target buyers.  Distinctive: Competitors do not offer the difference, or the company can offer it in a more distinctive way.  Superior: The difference is superior to other ways that customers might obtain the same benefit.  Communicable: The difference is communicable and visible to buyers.  Preemptive: Competitors cannot easily copy the difference.  Affordable: Buyers can afford to pay for the difference.  Profitable: The company can introduce the difference profitably.

Critical Thinking Exercises 6-7.

Should YouTube target children with YouTube Kids? Why or why not?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Student responses may vary, but they should refer to the section on socially responsible target marketing. Marketing to children raises concerns because they are vulnerable and have limited knowledge about persuasion. There are also questions about marketing unhealthy options or increasing materialism by targeting children. Critics of YouTube Kids‘ business practices are concerned about the nature of content and its use to advertise to children. It is more difficult for parents to observe what children are watching on digital platforms, where the lines between educational, entertainment, and commercial content are often blurred.

Thus, as children consume increasing amounts of online and digital content, experts advise close parental supervision of children using digital devices.

6-8.

Segment the U.S. deodorant market. Describe each of the major segments and subsegments. Pick two different deodorant brands and compare who they target and how they are positioned. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student answers will vary. Examples could include age segmentation; benefit segmentation; behavioral segmentation; and gender segmentation.

Students should identify how selected products are positioned for their segments.

6-9.

In a small group, look at InsomniaCookies.com. Using the steps described in the chapter, describe the company‘s customer value–driven marketing strategy. Write as a positioning statement for this business. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students should identify the customers served by Insomnia Cookies—how does the business segment the market and who are its target customers?

Then students should evaluate the company‘s value proposition, including its differentiation strategy—how the company creates superior customer value—and its positioning strategy—how the company creates a distinct offering in the mind of its target customer. That is, what does this business offer that others do not? A difference is worth establishing and promoting to the extent that it is important, distinctive, superior, communicable, preemptive, affordable, and profitable.

Once value differences and competitive advantages are identified, the positioning statement should follow the form: To (target segment and need) our (brand—business in this case) is (concept) that (point of difference).

Minicases and Applications

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Digital Marketing Influence Not Accepted as Payment Recently, Mr. Gianluca Casaccia, manager and co-owner of the White Banana Beach Club on an island in the Philippines, posted the following message on Facebook: ―We are receiving many messages regarding collaborations with influencers, Instagram influencers. We kindly would like to announce that White Banana is not interested to ‗collaborate‘ with self-proclaimed ‗influencers.‘ And we would like to suggest to try another way to eat, drink, or sleep for free. Or try to actually work.‖ Despite prior efforts to work with ―real influencers,‖ which Mr. Casaccia classified as travelers with 500,000 or more Instagram followers, he was bothered by ―wannabe freeloaders.‖ The message went viral, with mixed responses. Some suggested that the travelers were entrepreneurial and that it did not hurt to ask.

Others suggested that the number of requests had become a challenge to manage and equated influencers to beggars. Further, if U.S.-based Instagram influencers are compensated for posts, they must note that the content is sponsored (see www.ftc.gov/news-events/press-releases/2017/04/ftc-staffreminds-influencers-brands-clearly-disclose).

6-10. Should the White Banana Beach Club sponsor Instagram influencers who have fewer than 500,000 followers to help position its offering? Should it sponsor Instagram influencers who have more than 500,000 followers? In each case, explain why or why not. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary, but the use of influencers in either category (more than or fewer than 500,000 followers) depends on the ability of the influencer to reach the target audience and to help position the White Banana Beach Club‘s services. For example, some influencers may provide an image that helps differentiate the White Banana Beach Club from competitors. The opinions of the influencers may be discredited if they note that their posts were sponsored, if they only write positive reviews, or if they write too many reviews in exchange for free services.

The White Banana Beach Club will want to ensure there is a positive return on the investment for the opportunity cost associated with giving up free services to the influencers.

6-11. How does using an Instagram influencer with more than 500,000 followers compare to using a micromarketing strategy? Which would you recommend to the White Banana Beach Club? Why? (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: An influencer marketing strategy or a micromarketing strategy can be successful for the White Banana Beach Club, so students should support their opinions. While an influencer with more than 500,000 followers can raise awareness to the service offerings, it is a question of whether they are the right target audience. On the other hand, micromarketing, which includes local marketing and individual marketing, would tailor the marketing program to individual tastes or local customer segments. For example, the White Banana Beach Club could implement a program like the Renaissance Hotels‘ Navigator program, which helps guests inform and guide other guests with an internal review system (among other things). Another example would be for the White Banana Beach Club to use technology to create custom experiences for its guests, which might include special dishes or drinks that are informed by visitors‘ social media posts, custom tours, or personalized advertising messages.

Marketing Ethics Cameo: Do the Celebrity Connections Reinforce Gender Pay Gaps?

Cameo offers a platform for consumers and businesses to hire celebrities of varying levels of notoriety to create short, personalized videos. Last year, the platform facilitated 1.3 million transactions and signed on 10,000 celebrities, including athletes, musicians, actors, and media personalities, which brought its total talent pool to more than 40,000 celebrities. People have used Cameo to give employees pep talks, send birthday wishes, feel connected with stars, and even ask for a divorce. As a result of the platform‘s popularity, it earned a $1 billion valuation in a recent round of venture funding. However, a recent content analysis by Quartz indicates a wide disparity between compensation of the 20 highest-paid male and female celebrities on Cameo. Celebrities set their own rates, but Cameo gains more revenue from celebrities who charge a greater amount, which provides an incentive for the firm to feature male celebrities.

Therefore, the difference raises questions about whether Cameo‘s platform is helping normalize and reinforce the gender pay gap.

6-12. Visit Cameo‘s website (www.cameo.com). How do the ―Featured‖ celebrities relate to Cameo‘s position and value proposition? Do the prices and the way different celebrities are promoted on Cameo reinforce the idea that male celebrities are more valuable than female celebrities?

Support your responses. (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Students can discuss the relationship between the cost to hire a celebrity to do a Cameo, consumers‘ perceived value associated with the celebrity‘s message, and the Cameo business model. Cameo features vary but often include celebrities from both genders and feature at least

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

one charity option. The ethical issue comes into play if Cameo chooses to feature high-priced men alongside women who are arguably more famous or noteworthy but charge a lower fee or if Cameo chooses to disproportionately promote male celebrities because male celebrities charge more. Students may speculate that Cameo could make more revenue from celebrities who are willing to work for a lower fee and book more videos, depending on its audience, which may impact who it features. However, this approach may impact its positioning in the market (if it features B-list celebrities when A-list celebrities are available).

6-13. Does Cameo have a responsibility to audit the fees and set policies that help minimize disparities between genders? Defend your position.

(AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Student opinions about whether Cameo should provide some standardization or criteria that reduce the pay gap on its platform are likely to vary.

Marketing by the Numbers See the Clot, Bust the Clot, Save a Life Stroke is the fifth leading cause of death among Americans, claiming more than 140,000 lives each year. Almost 800,000 people suffer a stroke each year in the United States, one every 40 seconds. These grim statistics are actually not as grim as they used to be. New technologies and treatments are increasing the survival rate among sufferers of the most common type of stroke caused by a clot blocking a blood vessel supplying blood to the brain. A procedure known as thrombectomy busts or removes clots and increases survival rates if patients are treated within 6 to 24 hours of symptom presentation. However, fewer than 5 percent of patients present symptoms within this short time window. Neural Analytics, Inc. has a solution—its Lucid Robotic System. The system is a combination of two products: transcranial ultrasound and a robotic system. The ultrasound, taken from a natural ―window into the brain‖ near a patient‘s ear, lets medical professionals see if a clot is blocking blood flow. The robotic system, using artificial intelligence (AI), then compares the image to thousands of stored images of severe strokes to identify candidates for the life-saving thrombectomy procedure. This device will help hospital emergency departments better identify the 10 to 15 percent of stroke patients who qualify for a thrombectomy and send them to one of the country‘s 100 certified stroke centers. Neural Analytics plans to market its Lucid Robotic System to hospitals first, with the ultimate goal of getting a lower-priced portable system into every emergency response vehicle in the United States.

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6-14. There are 6,146 certified hospitals in the United States, and 88.5 percent have emergency departments. Assuming the price of the Lucid Robotic System is $60,000 and that hospitals with emergency departments purchase one system, use the chain ratio method described in Market Potential and Sales Estimates in Appendix 3: Marketing by the Numbers to calculate the market potential for this product. (AACSB: Analytical Thinking) Answer: The chain-ratio method described in Appendix 3 for estimating total market demand uses three variables: a) number of prospective buyers b) quantity purchased by an average buyer per year c) price of an average unit Market demand can be determined as follows: Q=nxqxp where Q = total market demand n = number of buyers in the market q = quantity purchased by an average buyer per year p = price of an average unit

The potential buyers represent all hospitals with emergency departments.

There are 6,146 hospitals in the United States, but not all of them have emergency departments.

Therefore, the total number needs to be multiplied by 0.885: n = 6,146 hospitals x 0.885 = 5,439.21 or 5,439 hospitals q = 1 per hospital p = $60,000 per system So, Q = 5,439 hospitals x 1 system per hospital x $60,000 per system = $326,340,000 6-15. There are approximately 55,000 emergency response vehicles operated by private ambulance companies, municipal fire departments, and hospitals. Assuming the price of the portable Lucid Robotic System is $6,000 and that each emergency response vehicle would be equipped with one system, calculate the market potential of this target market.

(AACSB: Analytic Thinking) Answer:

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The potential number of ―buyers‖ would be the number of emergency response vehicles, which is 55,000. So, the market potential calculation is simply: n = 55,000 EMS vehicles q = 1 per vehicle p = $6,000 per system Company Case Teaching Notes Company Cases 6 Outschool/11 Ulta Beauty/13 Urban Outfitters See Appendix 1 for teaching notes for the below cases.

Case 6, Outschool: Personalized Education for All. A fast-growing marketplace for remote-delivered K-12 classes, Outschool is out to make learning fun, social, and selfdirected.

Case 11, Ulta Beauty: Where the Experience Is Beautiful. As the largest U.S. beauty retailer, customers of all kinds enthusiastically flock to Ulta because more than any other retailer, it offers a complete beauty experience.

Case 13, Urban Outfitters: Brand-Building Rewards Program Promotions. Urban Outfitters has employed a rewards program that has allowed it to grow over the past decade, even as most apparel retailers have struggled.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

Understanding the concept of a market segment can be very difficult for students. Working through breaking down a market, such as their own university, into separate groups can help tremendously, as can drawing a big box on the board, and then breaking the box down into separate sections to represent pieces of a larger market.

Also difficult to understand is the concept that there is no one, single way to segment a market. Students will often point out that companies segment on a single variable frequently, not understanding that the concept is much broader than that. Using a simple pen as an example, you can point out the various segmentation variables, such as income, occasion (such as graduations), and lifestyle that a pen manufacturer could study to determine effective segments. While Mont Blanc might segment based on income and occasion factors, Bic could very well look at lifestyle or even age.

Segmenting business markets could also pose some problems, particularly in the discussion of operating characteristics and purchasing

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4.

5.

styles. It would be helpful to contrast large corporations with small, local enterprises or to ask students about their parents‘ business lives and any responsibilities they have in purchasing goods and services for their employers.

If anyone knows anything about target marketing before coming to class, they will think of it as simply selling to one type of customer. But most students will never have heard of this concept, either. Students may understand more clearly if you use the ―box‖ principle in #1 to illustrate how a company could choose one or more of the sections to target. This can also be expanded to show how companies might move from focusing on one target segment to moving along to another when penetration of the first has been accomplished, even though this goes beyond the scope of this textbook.

Development of a positioning statement is also a difficult concept. It requires students to boil down a company‘s strategy into one sentence, which can be quite tricky. Going through the examples in the book, and then applying them to something within the students‘ sphere of knowledge (books, soft drinks, breakfast foods, coffee, etc.) can enrich the explanations in the text.

Student Projects 1. Go to Apple Music (www.apple.com/music) or Spotify (www.spotify.com).

What unique market segments appear to be the target of specific genres of music? How did you determine the segments?

2. You‘ve agreed to help a friend with a home furnishings business to segment her market. Suggest a way to segment the market for her. Select a target market to go after, keeping in mind segment size and growth, structural attractiveness, and probable company resources. What target marketing strategy would you use (using Figure 6.2)? Explain your answers.

3. There are many ways to segment a market. Using the four segmentation variables discussed in the chapter, discuss which variables would be most important for segmenting (a) candidates for cataract surgery and (b) possible enrollees in a culinary school. Explain your choices.

4. Collect advertisements that demonstrate the positioning of different watch brands. Sort the various brands into categories of brands with similar positions.

5. Find ads for several different types of watches. For instance, select one diver‘s watch, one prestige watch, one economy watch, and one avant garde watch. What market is each trying to reach? What type of segmentation is the advertiser using?

Small Group Assignment

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Form students into groups of three to five. Each group should read the opening vignette to the chapter on P&G. Each group should then answer the following questions: 1. What is P&G‘s strategy?

2. What is unique about their market segmentation strategy?

3. Are there weaknesses in the P&G strategy? If so, what are they?

4. Do you see any uncovered market segments? If so, what are they? How would you exploit this?

Each group should share its findings with the class.

Individual Assignment You have been asked by your college/university to help develop a market segmentation strategy for them. What market segments would you encourage them to pursue and why?

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. How would you define market segmentation?

2. How does geographic segmentation differ from demographic segmentation?

3. Which one segmentation form do you consider the most valuable? Why? 4. What is benefit segmentation? Give a good example.

5. List the requirements for effective segmentation.

Classroom Exercise/Homework Assignment Review the requirements for effective market segmentation. Now, log on to Spotify (www.spotify.com). How are they attempting to segment their markets?

Rate Spotify on each of the five requirements for effective segmentation. Do you believe they are doing a good job on each? What suggestions for improvement would you recommend?

Classroom Management Strategies Most students will still be thinking, even at this point in the semester, that marketing is all about getting everyone to buy your product. This chapter will set them straight. It uses three sections to discuss the three important topics of segmentation, targeting, and positioning.

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1.

2.

3.

Divide this chapter up equally. Spend about 20 minutes on market segmentation, with the majority of that time spent on segmenting consumer markets. Students will understand geographic and demographic segmentation fairly quickly but benefit and occasion segmentation will take a little more time. Business and international markets can be covered fairly quickly.

Target marketing should also take about 20 minutes. It is important for the students to grasp that once they‘ve divided the market, they then need to decide which of those segments to address. Evaluating and selecting segments to target should be the primary topics in this section.

Finally, positioning should take the remainder of the class. Discussing a brand you are especially loyal to, so you can speak about it emotionally, often helps the students realize the importance of positioning, and also how dependent positioning is on the responses of the consumer to the product itself as well as the messaging about the product.

PROFESSORS ON THE GO

Customer Driven Marketing Strategy: Creating Value for Target Customers Key Concepts Segmenting consumer markets Requirements for effective segmentation 



 

Briefly define the four sets of primary segmentation variables. If you could only use one set of variables to segment prospective students for the part-time MBA Program at your university or college, which would it be? Why? The chapter discusses requirements for effective segmentation.

Suppose you are a product manager in a regional fast-food restaurant company. You are listening to a presentation on a new sandwich wrap idea (chicken breast and okra), and it is your turn to ask questions.

Write five questions that you would ask the person presenting this product idea. Each question should be directed at one of the five segmentation requirements.

Go to a retail bookstore and survey the magazine section. What unique market segments appear to be the target of specialty magazines? How did you determine the segments?

Find ads for several different types of cars. For instance, select one mini-van, one SUV, one sports car, and one sedan. What market is each trying to reach? What type of segmentation is the advertiser using?

Key Concepts Evaluating marketing segments

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Selecting target market segments Identifying and choosing competitive advantages  

  

Is it a good idea for a small company to adopt a differentiated segmentation strategy? Explain.

You‘ve gone to work for a shoe designer who is just launching her business. Suggest a way to segment the market for her. Then, select a target market to go after, keeping in mind segment size and growth, structural attractiveness, and probable company resources.

What is the best way to evaluate a target market?

How is competitive advantage obtained?

How does a company choose the right competitive advantage to promote?

CHAPTER 7 PRODUCTS, SERVICES, AND BRANDS: BUILDING CUSTOMER VALUE PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 11. Define product and describe the major classifications of products and services.

12. Describe the decisions companies make regarding their individual products and services, product lines, and product mixes.

13. Identify the four characteristics that affect the marketing of services and the additional marketing considerations that services require.

14. Discuss branding strategy—the decisions companies make in building and managing their brands.

JUST THE BASICS CHAPTER OVERVIEW We take a deeper look at the marketing mix: the tactical tools that marketers use to implement their strategies, engage customers, and deliver superior customer value.

In this chapter, we study how companies develop and manage products, services, and brands.

Then, in the chapters that follow, we look at pricing, distribution, and marketing communication tools.

The product and brand are usually the first and most basic marketing consideration.

We start with a seemingly simple question: What is a product? As it turns out, the answer is not so simple.

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ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Starbucks: Delivering the “Starbucks Experience” More than fifty years ago, Howard Schultz began transforming the coffee industry by bringing a European-style coffeehouse to America.

He believed that people needed to slow down—to ―smell the coffee‖ and to enjoy life a little more.

The result was a retail coffee chain designed around a whole new strategy for engaging customers and creating customer value.

Starbucks didn’t sell just coffee; it sold the ―Starbucks Experience‖—―an uplifting experience that enriches people’s lives one moment, one human being, one extraordinary cup of coffee at a time.‖ Starbucks gave customers what it calls a ―third place‖—a place away from home and away from work.

To maintain its phenomenal growth in the increasingly overcaffeinated marketplace, Starbucks brewed up an ambitious growth strategy.

It opened new stores at a breakneck pace, seemingly everywhere.

Then business declined, and Schultz laid plans to refocus the company on giving customers the authentic Starbucks Experience.

Shultz announced, ―we started to lose sight of our focus on the customer and our commitment to continually and creatively enhance the Starbucks Experience.‖ Starbucks reignited the Starbucks customer experience through new products, innovative store formats, and new platforms for engaging customers.

Beyond employee training, new products, and innovative store formats, Starbucks has extended the Starbucks Experience well beyond its stores through digital and mobile platforms When the coronavirus pandemic hit in 2020, Starbucks responded aggressively with even greater emphasis on digital order-and-pay options through its Starbucks app.

Starbucks remains devoutly committed to delivering the one-of-a-kind Starbucks Experience in its nearly 31,000 stores in 79 countries.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

WHAT IS A PRODUCT? A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need.

Use Key Term Product here.

Use Chapter Objective 1 here.

Broadly defined, ―products‖ also include services, events, persons, places, organizations, ideas, or mixes of these.

Services are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything.

Use Key Term Service here.

Products, Services, and Experiences A company’s market offering often includes both tangible goods and services.

At one extreme, the offer may consist of a pure tangible good, such as soap or toothpaste.

At the other extreme are pure services, for which the offer consists primarily of a service.

To differentiate their offers, marketers are creating and managing customer experiences with their brands or companies.

6.

Levels of Product and Services (see Figure 7.1) Use Discussion Question 7-1 here.

Use Figure 7.1 here.

Product planners need to think about products and services on three levels.

1. Core customer value addresses the question: What is the buyer really buying?

2. Actual product 3. Augmented products are built around the core benefit and actual product by offering additional consumer services and benefits.

When developing products, marketers first must identify the core customer value that consumers seek from the product. They must then design the actual product and find ways to augment it in order to create this customer value and the most satisfying customer experience.

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Product and Service Classifications Consumer Products

Consumer products are products and services bought by final consumers for personal consumption.

Consumer products include the following (see Table 7.1): • Convenience products are consumer products and services that customers usually buy frequently, immediately, and with a minimum of comparison and buying effort.

• Shopping products are less frequently purchased consumer products and services that customers compare carefully on suitability, quality, price, and style.

• Specialty products are consumer products and services with unique characteristics or brand identifications for which a significant group of buyers is willing to make a special purchase effort.

• Unsought products are consumer products that the consumer either does not know about or knows about but does not normally think of buying.

Use Key Terms Consumer Product, Convenience Product, Shopping Product, Specialty Product, and Unsought Product here.

Use Table 7.1 here.

Use Discussion Question 7-3 here Industrial Products

Industrial products are those purchased for further processing or for use in conducting a business.

Use Key Term Industrial Product here.

The distinction between a consumer product and an industrial product is based on the purpose for which the product is bought.

There are three groups of industrial products and services: • • •

Materials and parts include raw materials and manufactured materials and parts.

Capital items are industrial products that aid in the buyer’s production or operations, including installations and accessory equipment.

Supplies and services include operating supplies and maintenance and repair services.

Organizations, Persons, Places, and Ideas

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Organization marketing consists of activities undertaken to create, maintain, or change the attitudes and behavior of target consumers toward an organization.

Person marketing consists of activities undertaken to create, maintain, or change attitudes or behavior toward particular people.

Place marketing involves activities undertaken to create, maintain, or change attitudes or behavior toward particular places.

Social marketing is the use of commercial marketing concepts and tools in programs designed to influence individuals’ behavior to improve their well-being and that of society (social ideas).

Use Key Term Social Marketing here.

PRODUCT AND SERVICE DECISIONS Individual Product and Service Decisions (see Figure 7.2) Use Chapter Objective 2 here.

Use Figure 7.2 here.

Use Discussion Question 7-2 here.

Product and Service Attributes Developing a product or service involves defining the benefits that it will offer. These benefits are communicated and delivered by product attributes such as quality, features, and style and design.

Product quality involves creating customer value and satisfaction.

Total quality management (TQM) is an approach in which all the company’s people are involved in constantly improving the quality of products, services, and business processes.

Product quality has two dimensions: level and consistency.

Use Key Term Product Quality here.

Use Marketing at Work 7.1 here.

The quality level means performance quality or the ability of a product to perform its functions. Quality conformance means quality consistency, freedom from defects, and consistency in delivering a targeted level of performance.

Product features are a competitive tool for differentiating the company’s product from

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competitors’ products.

The company should periodically survey buyers who have used the product and ask these questions: How do you like the product? Which specific features of the product do you like most? Which features could we add to improve the product?

Product style and design is another way to add customer value.

Style describes the appearance of a product. Design contributes to a product’s usefulness as well as to its looks.

Branding A brand is a name, term, sign, symbol, or design, or a combination of these, that identifies the maker or seller of a product or service.

Branding helps buyers in many ways.

• Brand names help consumers identify products that might benefit them.

• Brands say something about product quality and consistency.

Branding gives the seller several advantages.

• The brand name becomes the basis on which a whole story can be built about a product.

• The brand name and trademark provide legal protection for unique product features.

• The brand name helps the seller to segment markets.

Use Key Term Brand here.

Packaging

Packaging involves designing and producing the container or wrapper for a product.   

Companies realize the power of good packaging to create immediate consumer recognition of a brand.

Innovative packaging can give a company an advantage over competitors and boost sales.

Distinctive packaging becomes an important part of a brand’s identity.

Use Key Term Packaging here.

Labeling and Logos Labels and logos perform several functions.

• The label identifies the product or brand.

• The label describes several things about the product.

• The label promotes the brand.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Labels and logos can support the brand’s positioning and add personality to the brand.

Today’s logos must stand out visually on screens of all sizes, from big-screen TVs to tablets, mobile phones, and smartwatches.

Most logo modifications focus on creating simpler, brighter, more modern designs that present better on digital screens and platforms.

Companies need to tread carefully when making changes to their brand logos. Old logos closely link brands to the hearts and minds of consumers. Studies show that the stronger their attachments to a brand, the more resistant consumers are to logo changes.

Labeling also raises concerns. As a result, several federal and state laws regulate labeling.

The most prominent is the Fair Packaging and Labeling Act of 1966.

Product Support Services The first step is to survey customers periodically to assess the value of current services and to obtain ideas for new ones.

Next, the company can take steps to fix problems and add new services that will both delight customers and yield profits to the company.

Product Line Decisions A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges.

Use Key Term Product Line here.

Product line length is the number of items in the product line.

Product line filling involves adding more items within the present range of the line.

Product line stretching occurs when a company lengthens its product line beyond its current range.

Companies located at the upper end of the market can stretch their lines downward.

Companies located at the lower end of the market can stretch their product lines upward.

Companies located in the middle range of the market can stretch their lines in both directions.

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Product Mix Decisions

Product mix (or product portfolio) consists of all the product lines and items that a particular seller offers for sale.

Use Key Term Product Mix (or Product Portfolio) here.

A company’s product mix has four dimensions: width, length, depth, and consistency.

• • • •

Product mix width refers to the number of different product lines the company carries.

Product mix length refers to the total number of items the company carries within its product lines.

Product mix depth refers to the number of versions offered of each product in the line.

Product mix consistency refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.

The company can increase its business in four ways.

1.

2.

3.

4.

It can add new product lines, widening its product mix.

It can lengthen its existing product lines.

It can add more versions of each product, deepening its product mix.

It can pursue more product line consistency.

Use Critical Thinking Exercise 7-7 here.

Use Linking the Concepts here.

SERVICES MARKETING Services account for close to 68 percent of U.S. gross domestic product.

Service industries vary greatly.  Governments offer services through courts, employment services, hospitals, military ser- vices, police and fire departments, the postal service, and schools.  Private not-for-profit organizations offer services through museums, charities, churches, colleges, foundations, and hospitals.  Business organizations offer services— airlines, banks, hotels, insurance companies, consulting firms, real estate firms, and retailers.

Some marketers call for adding three more Ps to the marketing mix to create the 7Ps services marketing mix—the 4Ps plus people, process, and physical evidence.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

  

The people element points to the fact that the service market offering can’t be separated from the people who provide it.

The process element recognizes that service experiences usually happen over time.

The physical evidence element refers to the importance of providing tangible proof of quality in addition to intangible service attributes.

The Nature and Characteristics of a Service A company must consider four service characteristics when designing marketing programs: intangibility, inseparability, variability, and perishability (see Figure 7.3).

Use Figure 7.3 here.

Use Key Terms Service Inseparability, Service Intangibility, Service Perishability, and Service Variability here.

Use Chapter Objective 3 here.  

 

Service intangibility means that services cannot be seen, tasted, felt, heard, or smelled before they are bought.

Service inseparability means that services cannot be separated from their providers, whether the providers are people or machines. Because the customer is also present as the service is produced, provider-customer interaction is a special feature of services marketing.

Service variability means that the quality of services depends on who provides them as well as when, where, and how they are provided.

Service perishability means that services cannot be stored for later sale or use.

Marketing Strategies for Service Firms Just like manufacturing businesses, good service firms use marketing to position themselves strongly in chosen target markets.

Use Marketing Ethics here.

The Service-Profit Chain In a service business, the customer and front-line service employee interact to create the service.

Use Key Term Service Profit Chain here.

Use Critical Thinking Exercise 7-8 here.

The service profit chain consists of five links: •

Internal service quality: superior employee selection and training, a quality

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work environment, and strong support for those dealing with customers, which results in...

•

Satisfied and productive service employees: more satisfied, loyal, and hardworking employees, which results in...

•

Greater service value: more effective and efficient customer value creation and service delivery, which results in...

•

Satisfied and loyal customers: satisfied customers who remain loyal, make repeat purchases, and refer other customers, which results in...

•

Healthy service profits and growth: superior service firm performance.

Service marketing requires internal marketing and interactive marketing. (see Figure 7.4)

Internal marketing means that the service firm must orient and motivate its customercontact employees and supporting service people to work as a team to provide customer satisfaction.

Interactive marketing means that service quality depends heavily on the quality of the buyer-seller interaction during the service encounter.

Use Key Terms Interactive Marketing and Internal Marketing here.

Use Figure 7.4 here.

Service companies face three major marketing tasks: They want to increase their service differentiation, service quality, and service productivity.

Managing Service Differentiation The offer can include innovative features that set one company’s offer apart from competitors’ offers.

Service companies can differentiate their service delivery by having more able and reliable customer-contact people, by developing a superior physical environment in which the service product is delivered, or by designing a superior delivery process.

Service companies can work on differentiating their images through symbols and branding.

Managing Service Quality Service quality is harder to define and judge than product quality.

Service quality will always vary, depending on the interactions between employees and

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customers.

LEARN stands for:  Listen to the customer  Empathize and show concern for complaint  Apologize for the problem  Resolve the issue by fixing the problem  Notify by following up Good service recovery can turn angry customers into loyal ones.

Managing Service Productivity Service firms are under great pressure to increase service productivity.

• They can train current employees better or hire new ones who will work harder or more skillfully.

• They can increase the quantity of their service by giving up some quality.

• They can harness the power of technology.

Use Linking the Concepts 2 here.

BRANDING STRATEGY: BUILDING STRONG BRANDS Some analysts see brands as the major enduring asset of a company.

Use Chapter Objective 4 here.

Brand equity is the differential effect that knowing the brand name has on customer response to the product or its marketing.

Use Key Term Brand Equity here.

WWP’s BrandAsset Valuator measures brand strength along four consumer perception dimensions: 1. differentiation (what makes the brand stand out), 2. relevance (how consumers feel it meets their needs), 3. knowledge (how much consumers know about the brand), and 4. esteem (how highly consumers regard and respect the brand).

Brand value is the process of estimating the total financial value of a brand.

High brand equity provides a company with many competitive advantages.

• High level of consumer brand awareness and loyalty • More leverage in bargaining with resellers • Greater ability to launch line and brand extensions

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• •

Defense against fierce price competition Basis for building strong and profitable customer relationships

The fundamental asset underlying brand equity is customer equity—the value of the customer relationships that the brand creates.

Use Discussion Question 7-5 here.

Use Figure 7.5 here.

Building Strong Brands (see Figure 7.5) Brand Positioning Marketers can position brands at any of three levels.

1. They can position the brand on product attributes.

2. They can position the brand with a desirable benefit.

3. They can position the brand on beliefs and values.

Brand Name Selection Desirable qualities for a brand name include the following:  It should suggest something about the product’s benefits and qualities.  It should be easy to pronounce, recognize, and remember.  The brand name should be distinctive.  It should be extendable.  The name should translate easily into foreign languages.  It should be capable of registration and legal protection.

Brand Sponsorship A manufacturer has four sponsorship options:  The product may be launched as a manufacturer’s brand (or national brand).  The manufacturer may sell to resellers who give it a private brand (also called a store brand or distributor brand).  The manufacturer can market licensed brands.

Two companies can join forces and co-brand a product.

National Brands versus Store Brands National brands (or manufacturers’ brands) have long dominated the retail scene. In recent times, an increasing number of retailers and wholesalers have created their own store brands (or private brands).

Store brands have grown much faster than national brands in recent years.

Use Key Term Store Brand (Private Brand) here.

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Use Marketing at Work 7.2 here.

In the battle of the brands between national and private brands, retailers have many advantages.

• • •

Retailers often price their store brands lower than comparable national brands.

Store brands yield higher profit margins for the reseller.

Store brands give resellers exclusive products that cannot be bought from competitors.

Licensing Name and character licensing has grown rapidly in recent years.

Annual retail sales of licensed products in the United States and Canada have grown from only $4 billion in 1977 to $55 billion in 1987 and almost $300 billion today.

Co-branding Use Key Term Co-branding here.

Co-branding occurs when two established brand names of different companies are used on the same product.

Co-branding offers many advantages.

• •

The combined brands create broader consumer appeal and greater brand equity.

Co-branding also allows a company to expand its existing brand into a category it might otherwise have difficulty entering alone.

Co-branding also has limitations.

• • •

Such relationships involve complex legal contracts and licenses.

Co-branding partners must carefully coordinate their advertising, sales promotion, and other marketing efforts.

Each partner must trust that the other will take good care of its brand.

Brand Development Use Figure 7.6 here.

A company has four choices when it comes to developing brands (see Figure 7.6).

1. Line extensions occur when a company extends existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category.

2. Brand extensions extend a current brand name to new or modified products in a

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new category.

Use Key Terms Line Extension and Brand Extension here.

3. Multibrands introduce additional brands in the same category.

4. New brands are created if an existing brand is waning. A company may create a new brand name for a new product category Managing Brands Brand position must be continuously communicated to consumers.

The brand experience involves customers coming to know a brand through a wide range of contacts and touch points.

Companies need to periodically audit their brands’ strengths and weaknesses.

Use Discussion Question 7-6 here.

Use Marketing by the Numbers here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 7-1.

Why are firms increasingly relying on experiences to differentiate their market offerings? (AACSB: Oral and Written Communication; Reflective Thinking) Answer: Products and services are becoming more commoditized. Firms are being more intentional about the experiences associated with the purchase and use of their products in order to add value and differentiate their products beyond simply making products and delivering services.

7-2.

What are the three levels of a product—and the value added at each level—that marketers must consider as they develop products (bundles of benefits that satisfy consumer needs)? Provide an example of each.

(AACSB: Written and Oral Communication)

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Answer: The most basic level of a product‘s value is the core customer value, which addresses the question: What is the buyer really buying? It can be the problem-solving benefits, services, or experiences that consumers seek. The second level turns the core benefit into an actual product.

Marketers need to develop product and service features, a design, a quality level, a brand name, and packaging. The product‘s name, styling, features, sounds, parts, and other attributes are carefully combined to deliver the core customer values. Finally, product planners must build an augmented product around the core benefit and actual product by offering additional consumer services and benefits. Student examples will vary but may include Harley-Davidson, which was featured in the chapter.

7-3.

What are the four types of consumer products? How do marketing considerations vary by consumer product type? (AACSB: Written and Oral Communication) Answer: The four types of consumer products are convenience products, shopping products, specialty products, and unsought products. Convenience products are frequently purchased with minimal comparison and buying effort. They are low involvement purchases. They are usually low priced, and marketers place them in many locations to make them readily available when customers need or want them. They are mass promoted by the producer.

Shopping products are less frequently purchased; consumers spend much time and effort in gathering information and making brand comparisons on price, quality, and style. Shopping product marketers usually distribute their products through fewer outlets but provide deeper sales support to help customers in their comparison efforts. They are higher priced than convenience products and are advertised by the producer and resellers.

Specialty products have unique characteristics or brand identifications for which a significant group of buyers is willing to make a special purchase effort. Buyers normally do not compare brands of specialty products. They have low price sensitivity. They invest only the time needed to reach exclusive dealers carrying the wanted products. Specialty products have high prices and are promoted using carefully targeted promotions from the producer and resellers.

Unsought products are products that the consumer either does not know about or knows about but does not normally consider buying. They may have negative interest due to the nature of the products. Most major new innovations are unsought until the consumer becomes aware of them

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through advertising. Unsought products require a lot of advertising, personal selling, and other marketing efforts. Their prices vary.

7-4.

What are industrial products? Briefly describe the three groups of industrial products. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: An industrial product is a product bought by individuals and organizations for further processing or for use in conducting a business. Three groups of industrial products and services include: materials and parts; capital items; and supplies and services. Materials and parts include raw materials and manufactured materials and parts; capital items are the industrial products that aid in the buyer‘s production or operations; supplies and services include operating supplies and repair and maintenance items.

7-5.

Musical performer Rhianna recently launched her own makeup line called Fenty. If Fenty makeup does not succeed, how could it impact Rhianna as a person brand? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Rhianna has a strong human brand. If we think of her as a product, she has engaged in many appearances, which should help protect her reputation if something goes wrong with the makeup brand. Fenty is associated with Rhianna and is an extension of her ―self-expression‖ person marketing. But because it has a different name, it is unlikely that a negative outcome for the makeup would hurt Rhianna‘s reputation or her ability to represent other brands to her loyal followers.

7-6.

What is co-branding? What are its advantages? What are its disadvantages or limitations? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Co-branding uses two established brand names from different product categories on the same product. Advantages of co-branding include combining brands can create broader consumer appeal and greater brand equity, taking advantage of complementary strengths of both brands, and helping a company expand its brand into a new category. The disadvantages are that co-branding relationships often involve complex legal contracts and licenses; co-branding partners must carefully coordinate their advertising, sales promotion, and other marketing efforts; and if something happens to damage the reputation of one brand, it can hurt the co-brand.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Critical Thinking Exercises 7-7.

Select a local retailer and describe its service profit chain. What would you improve, if anything? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The service profit chain links service firm profits with employee and customer satisfaction. This chain consists of five links: internal service quality, satisfied and productive service employees, greater service value, satisfied and loyal customers, and healthy service profits and growth. In a service business, the customer and the front-line service employee interact to co-create the service. Effective interaction, in turn, depends on the skills of front-line service employees and on the support processes backing these employees. Thus, successful service companies focus their attention on both their customers and their employees. Student responses will vary.

7-8.

Companies must consider four special service characteristics when designing service marketing programs. Discuss a recent service experience using the four characteristics. Compare your service experience with that of a classmate. How do they differ? (AACSB: Written and Oral Communication, Reflective Thinking) Answer:

Student answers will vary depending upon the service experience chosen. Each student should discuss service intangibility, inseparability, variability, and perishability.

Instructors could provide several options from which students could choose in order to narrow the focus. For example, medical services offered by a doctor‘s office have intangibility (no tangible products accompany the medical service performed), inseparability (the service is not separate from the physician), variability (the service experience depends on the specific doctor), and perishability (the service cannot be stored for later purchase if the customer misses an appointment). Medical services can be compared to a student‘s restaurant experience. Diners receive tangible products along with the services (intangibility). The server becomes an integral part of the dining experience (inseparability).

Interacting with a server in a restaurant can vary with each experience and the same experience can be viewed differently by each customer (variability). The value of an empty table cannot be stored for later use (perishability).

Student experiences will differ. This is the very nature of services. One may have a wonderful experience at a fast-food drive-through getting hot food quickly and with a pleasant server at the window; another student

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may have a terrible experience waiting a long time only to return home with items missing from the order.

7-9.

Is it problematic if brands from different categories have the same purpose? For example, if Coca-Cola (a beverage brand) and Gap (a clothing brand) both aspire to improve water efficiency, does it diminish or enhance the impact of each individual brand‘s efforts to improve water efficiency? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A brand‘s purpose should relate to its values and intangible benefits associated with the brand. While a brand might seek to differentiate itself from other brands in its category using its features and augmented value, it is possible that its purpose might align with the purpose of other brands, particularly when it comes to massive problems or challenges that can benefit from collective action. The brand should seek purposes where it can have an impact, and brands need to follow through on their statements with actions.

Minicases and Applications Digital Marketing Engaging Rival Brand Fans Brands often focus their marketing efforts on encouraging fans to engage with them on their web and social media sites. But what happens when fans of competing brands engage with the brand and its fans on its social media pages—sometimes called ―trolling‖? Brand managers may have heard not to ―feed the trolls.‖ However, recent research suggests that when rival brand fans engage, it provides an opportunity for marketing managers to influence the rival brand‘s customers and to strengthen their own brand‘s message. The research also suggests that posts from rival brand fans can motivate central brand fans to react in a positive way that increases engagement and positive brand messages about the central brand.

7-10. Consider ad agency Young & Rubicam‘s BrandAsset Valuator. How might the central brand‘s fans speaking up in support of a brand affect the four consumer perception dimensions? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Consumers who speak out on behalf on their brand may offer points related to the brand‘s differentiation (what makes the brand stand out), relevance (how they feel it meets their needs), and knowledge (how much

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

consumers know about the brand) and may note their respect or esteem for the brand. Typing the messages can reinforce the consumer‘s commitment to the brand. In addition, other consumers will be exposed to the messages. If the brand messages come from other consumers, they may be perceived as more credible than messages from the firm.

7-11. What are the potential drawbacks of leveraging or encouraging dialogue from brand rivals? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Just as the discussion can help marketers influence rival brand fans and reinforce the central brand‘s messages, it can also help rival brands influence central brand fans and reinforce their central brand‘s messages.

In the current marketing environment, consumers increasingly help shape the brand‘s meaning and tell the brand‘s story. Encouraging brand rivals to participate in the story increases the risk that the brand‘s meaning will change, which could impact consumer preferences or their relationships with the brand. While the research suggests there are positive outcomes, brand managers should engage in social listening and track the valence of comments from the central brand‘s fans.

Marketing Ethics How Should Brands Celebrate Juneteenth?

Juneteenth (representing June 19, 1865) was recently declared a federal holiday.

The holiday acknowledges the end of slavery in the United States. In response to substantial recent social movements addressing systemic racism and racial injustice, many companies began recognizing Juneteenth as a holiday, providing paid time off or holiday pay. However, although companies were quick to acknowledge Juneteenth as a holiday, many brands are not sure about if and how to recognize and celebrate the historic event. Fawn Weaver, the first woman and first Black American to establish a major spirits brand in the United States, was acknowledged when she selected Juneteenth for the grand reopening of the Nearest Green Whiskey distillery. The brand is named after the enslaved man who originally taught Jack Daniel how to make whiskey, and Juneteenth is clearly connected with the brand‘s founding values. Similarly, Amazon earned accolades for its Juneteenth launch of a Black Business Accelerator to support Blackowned, third-party sellers on its site. And Twitter‘s Juneteenth employee donation-matching program, which allocated funds to nonprofits that were fighting for racial justice, also earned praise. In contrast, Old Navy was criticized for its attempts to get Black influencers to purchase Juneteenth T-shirts.

Whereas consumers may be willing to pay more for brands that take a stand, they may also be cynical and lose trust in brands that commercialize Juneteenth or do not follow up promises with actions. Thus, brands that promote the

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Juneteenth holiday without careful thought and follow-through risk undermining their social message and harming their brand equity.

7-12. If you were a brand manager for Toyota’s Camry line, would you use your brand platforms to promote Juneteenth? Why or why not? If so, how? (AACSB: Written and Oral Communications; Reflective Thinking) Answer: Student responses will vary. They should consider the likely impact of a communication initiative and whether the holiday connects with the brand’s values and behaviors. In the case of Toyota, that should provoke a wide-ranging discussion if and how the brand should respond.

7-13. In your opinion, is it proper and ethical for brands to use the Juneteenth holiday to promote their brands or sales? If you were advising a firm, what would you recommend? (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding and Reasoning) Answer: Student responses will vary. They should consider the benefits to the social movement (in terms of increased awareness) when brands lend their voices to the celebration, and the potential for brands to be rewarded by consumers when they support social causes that are important to their target market. However, they should also consider whether their efforts could result in perceptions of wokewashing—or communicating about social movements in a performative way that is not authentic or in line with the brand’s actions.

Marketing by the Numbers Diet Coke with Fiber Coca-Cola launched Coca-Cola Plus in a limited market in Japan last year and now plans to launch it nationwide in that country. Coca-Cola Plus is a zerocalorie soda (essentially Diet Coke) with 5 grams of an indigestible dietary fiber called dextrin. Although some might just call it Diet Coke with a laxative, CocaCola Plus is touted in Japan as a health food that suppresses the absorption of fat and keeps blood triglycerides at moderate levels. In fact, the product has earned the Japanese government‘s ―gold label,‖ designating it as a governmentapproved Food of Specific Health Use (FOSHU). Although the new Coca-Cola Plus reaps a higher wholesale price for the company ($1.15 per 470-milliliter bottle versus $1.10 per bottle for the original Diet Coke), it also comes with higher variable costs ($0.80 per bottle versus $0.50 per bottle for the original product). Although some Diet Coke drinkers will switch to Coca-Cola Plus, the company believes the new product will attract new customers because of its health benefits.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

7-14. What brand development strategy is Coca-Cola undertaking? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Coca-Cola is using a line extension strategy, extending an existing brand names to new forms, colors, sizes, ingredients, or flavors of an existing product category. However, students may decide this is an example of a brand extension strategy, extending a current brand name to new or modified products in a new category (for example, health drinks).

7-15. Assume the company expects to sell 6 million bottles of Coca-Cola Plus in the first year after introduction but that 55 percent of those sales will come from buyers who would normally purchase Diet Coke (that is, cannibalized sales). Assuming the sales of Diet Coke are normally 320 million bottles per year and that the company will incur an increase in fixed costs of $650,000 during the first year to launch Coca-Cola Plus, will the new product be profitable for the company? Refer to the Financial Analysis of Marketing Tactics: Extend the Product Line section in Appendix 3: Marketing by the Numbers for an explanation regarding how to conduct this analysis. (AACSB: Written and Oral Communication; Analytical Thinking) Answer: This is a cannibalization problem. To analyze this problem, we need to determine unit contributions (contribution per bottle): Unit contribution = price  unit variable costs Unit contribution for Diet Coke = $1.10  $0.50 = $0.60 per bottle Unit contribution for the new Coca-Cola Plus = $1.15  $0.80 = $0.35 per bottle Coca-Cola will lose $0.25 for every bottle cannibalized from Diet Coke.

One way to analyze this is to assess the incremental contribution gained (or lost) by adding the new product. The company estimates that the first year‘s sales of the new product would be 6 million bottles, but 3.3 million bottles (55% of 6 million) will be cannibalized from Diet Coke. Thus, if the company loses $0.25 in contribution for every bottle cannibalized: Contribution lost due to cannibalization = 3,300,000 bottles  ($0.25) = $825,000 Therefore, the company will lose $825,000 in contribution due to cannibalization. However, it is estimated that the new Coca-Cola Plus product will generate an additional 2.7 million bottles in sales (6 million bottles  3.3 million cannibalized bottles), which generate an additional $0.35 per bottle in contribution. Thus,

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Contribution due to net new volume = 2,700,000 bottles  $0.35 per bottle = $945,000 The net effect is that the company will gain $120,000 in contribution by introducing the new product (incremental contribution = $945,000  $825,000= $120,000).

This increase in total contribution is less than the $650,000 increase in fixed costs to introduce this product, so the new product will not enhance Company Case Teaching Notes Company Cases 7 Avocados From Mexico/5 Kraft Heinz/12 Hyundai See Appendix 1 for teaching notes for the below cases.

Case 7, Avocados From Mexico: Building a Brand in a Brandless Category. By building a consumer brand, Avocados From Mexico has succeeded in increasing U.S. market share for thousands of Mexico-based growers and packers, while simultaneously increasing overall consumption of avocados.

Case 5, Kraft Heinz: A Former Taste Maker Now Struggles as Consumer Tastes Change. Facing unprecedented changes in consumer tastes, Kraft Heinz is fighting to maintain its historic role in the packaged foods industry.

Case 12, Hyundai: An Integrated Marketing Communications Campaign That’s Wicked Smaht. Focusing on a single innovative feature, Hyundai created a captivating integrated promotional campaign.

GREAT IDEAS Barriers to Effective Learning 1.

2.

Students will most likely have difficulty understanding the levels of products exhibited in Figure 7.1; no one in class is likely to have thought of a product in that level of detail before. This is a critical piece of information the students will need, however, so it is worthwhile going through several products and services to get at the core benefit, actual product, and augmented product in each so that they can see how to apply this concept.

Students’ eyes can glaze over at the concepts of brand equity and brand sponsorship. Asking questions about the students’ perceptions of well-known brands such as Starbucks, Coke, Nike, and the like will help them understand what brand equity is all about. You can also tie in the discussion of the three levels of product with this idea of brand equity. Finally, by using different products with different brand sponsorships—several examples from Sears, auto companies, department store private labels, and various licensed properties from Disney or Warner Brothers—you can bring students to an understanding of this important concept.

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3.

The service characteristics of intangibility, inseparability, variability, and perishability are usually picked up fairly easily, but again, various examples from day-to-day life may help. For instance, everyone has had to cancel at least one doctor’s appointment in his or her life—that beautifully illustrates the problem of perishability. Females will understand inseparability by talking about the beauty salons they use. Ask: If the hairdresser you used left, would you easily switch to another person at the salon? Many students today travel heavily, so talking about airline personnel can illustrate service variability. Intangibility is the easiest characteristic to appreciate, as most students will have suffered through having to choose between several universities from whom they had received acceptances.

Student Projects 1.

2.

3.

4.

What is your all-time favorite brand? What do you most like about the product and/or brand name? What (if anything) do you dislike? What image does the brand have in your mind? How loyal are you toward the brand? Why? Go to the supermarket and take a look at the brand extensions that exist for Coke.

Do you think this makes sense or not? When is brand extension a good strategy?

When is it a poor one?

Consider Dunkin’ Donuts. Consumers sometimes bond very closely with their preferred brands. What type of brand equity do you believe they have established over the years? How did this happen?

What do you like about your bank? How would you compare the services you receive from your bank to other competing banks and to your ―ideal‖ bank? What is good about the service you currently receive? Review the service using the material from the chapter. What specifics about the service make it very good from a marketing standpoint?

Small Group Assignment Read the chapter-opening vignette on Starbucks. Form students into groups of three to five. Each group should then answer the following questions: 1. What is Starbucks selling?

2. How has Starbucks managed to develop a deep-down connection with its customers?

3. What is a ‗brand experience‘? How has Starbucks managed to create this?

Each group should share its findings with the class.

Individual Assignment Review the gaming industry in Mississippi. How has that industry positioned itself in the overall gaming market? How have they attempted to build customer value?

How successful do you believe they have been in this effort?

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Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. Define ―product.‖ 2. How do products and services really differ?

3. Your text states ―The product is the key element in the overall market offering.‖ What does this mean?

4. When a buyer purchases a product, what are they really buying?

5. What is the difference between shopping goods and specialty goods?

Classroom Exercise/Homework Assignment In many parts of the world, birth control is an unsought product. Assume you have been given the task of promoting birth control in a region of the world where it has traditionally been unused. How would you attempt to make inroads?

Classroom Management Strategies This chapter will challenge the students to think more deeply about the concepts of products, services, and branding strategy.

1.

2.

3.

4.

The first major section of this chapter ―What Is a Product?‖ should take 10 minutes. The primary focus should be on the classification of products and services, which will aid in the comprehension of the next section.

Product and Service Decisions should be covered in 20 minutes. The individual product decisions have the most material, and by and large students will never have focused on the importance of packaging and labeling. Bringing in several products to discuss these attributes is helpful. Students will generally be confused about the product line and product mix decisions, so a careful discussion of these topics is beneficial.

Services marketing can be covered in 10 minutes. The special characteristics of services, outlined in Figure 7.3, are very important to understanding the differences between products and services. The service-profit chain seems a difficult concept to students until they work through the fact that each link in the chain leads to the next.

Branding Strategy should also take about 20 minutes. Branding decisions are closely tied in with positioning discussed in the last chapter, and now would be a good time to cover such areas as naming and sponsorship. Again, confusion can enter the student’s mind regarding line extensions, brand extensions, multibrands, and new brands, so examples of each are very helpful.

PROFESSORS ON THE GO

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Product, Services, and Brands: Building Customer Value Key Concepts Products, services, and experiences Levels and classifications of products Product and service decisions   

Is Apple‘s El Capitan operating software a product or a service?

Describe the core, actual, and augmented levels of this software offering.

What is a brand? Describe the value of branding for both the buyer and seller.

Take a product of your choice and analyze it using the diagram found in Figure 7.1. Be sure to carefully outline each of the three major levels.

Key Concepts Brand equity Building strong brands Managing brands 

 

List ten of your favorite brand names. What do you like about the product and/or brand name? What do you dislike? What image does the brand have in your mind? When was the last time you abandoned a brand you had used for some time in favor of a new brand? Why did this happen?

Go to the supermarket and list five examples of products/brands that have been brand extended. Do you think this makes sense or not?

What is brand equity?

Key Concepts Nature and characteristics of a service Marketing strategies for service firms 



TDAmeritrade is one of the world's leading financial management and advisory companies (see www.tdameritrade.com). Do TDAmeritrade‘s financial advising activities meet the four special characteristics of a service? Explain.

List a service that you use that you think is very good. Why is the service good? Review the service using the material from the chapter.

What specifics about the service make it very good from a marketing standpoint? Now, do the same thing with a service that you don‘t like.

After comparing them separately, compare them against each other.

What could you do to improve the negative service? If you were a competitor, how could you attack the positive service?

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

What are the four characteristics of a service? Apply these to a dentist‘s office.

CHAPTER 8

DEVELOPING NEW PRODUCTS AND MANAGING THE PRODUCT LIFE CYCLE PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 15. Explain how companies find and develop new product ideas.

16. List and define the steps in the new product development process and the major considerations in managing this process.

17. Describe the stages of the product life cycle and how marketing strategies change during a product’s life cycle.

18. Discuss two additional product issues: socially responsible product decisions and international product and services marketing.

JUST THE BASICS CHAPTER OVERVIEW In this chapter, we’ll look into two product topics: 1. Developing new products 2. Managing products through their life cycles.

New-product development is risky, and many new products fail.

The first part of this chapter lays out a process for finding and growing successful new products.

In the second part of the chapter, we see that every product passes through several lifecycle stages and that each stage poses new challenges requiring different marketing strategies and tactics.

Finally, we look at two additional considerations: social responsibility in product decisions and international product and services marketing.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP

Google (. . . er, Alphabet): The New Product Moon Shot Factory Google is wildly innovative. Over the past decade and a half, it has become a top-five fixture in every list of most-innovative companies. Google simply refuses to get comfortable with the way things are. Instead, it innovates constantly, plunging into new markets and taking on new competitors.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Google began as an online search company with a mission ―to organize the world’s information and make it universally accessible and useful.‖ In that mission, Google has been spectacularly successful. Despite formidable competition from giants Microsoft, Yahoo!, and China’s Baidu, Google’s share of worldwide online search stands at a breathtaking 88 percent—a virtual Googleopoly.

But Google is now much more than just an online search and advertising company. In Google’s view, information is a kind of natural resource—one to be mined, refined, and universally distributed. That broad perspective gives Google’s engineers and developers a blank canvas, a broad brush, and plenty of incentive to innovate.

With so many ventures and innovations becoming more and more diverse, Google created a parent holding company called Alphabet to contain them all. The X innovation lab is Alphabet’s incubator for earthshaking projects that may or may not pay for themselves in the long run. The program has birthed many highly successful innovations, including Gmail, Google News, and the Cardboard VR headset.

The marvel of Google is its ability to continue to instill a sense of creative fearlessness and ambition in its employees.

INTRODUCTION Every product seems to go through a life cycle.

This product life cycle presents two major challenges: 1. Because all products eventually decline, a firm must be good at developing new products to replace aging ones (the challenge of new product development).

2. The firm must be good at adapting its marketing strategies in the face of changing tastes, technologies, and competition as products pass through life-cycle stages (the challenge of product life-cycle strategies).

NEW PRODUCT DEVELOPMENT STRATEGY Use Key Term New Product Development here.

By new products we mean original products, product improvements, product modifications, and new brands that the firm develops through its own research and development (R&D) efforts.

A firm can obtain new products in two ways.

1. Acquisition—by buying a whole company, a patent, or a license to produce someone else’s product.

2. New product development efforts.

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Use Chapter Objective 1 here.

Use Discussion Question 8-1 here.

THE NEW-PRODUCT DEVELOPMENT PROCESS Figure 8.1 shows the eight major steps in the new-product development process.

Use Figure 8.1 here.

Use Chapter Objective 2 here.

Use Discussion Question 8-2 here.

1. Idea Generation Use Key Term Idea Generation here.

Idea generation is the systematic search for new-product ideas.

Internal Idea Sources Using internal sources, the company can find new ideas through formal research and development. Or it can pick the brains of employees—from executives to salespeople to scientists, engineers, and manufacturing staff.

External Idea Sources Companies can also obtain good new-product ideas from any of a number of external sources, such as distributors and suppliers or even competitors.

Perhaps the most important source of new-product ideas is customers themselves.

Crowdsourcing Many companies are now developing crowdsourcing new-product idea programs.

Crowdsourcing invites broad communities of people into the new-product innovation process.

Use Key Term Crowdsourcing here.

Use Discussion Question 8-3 here.

Use Critical Thinking Exercise 8-7 here.

2.

Idea Screening Use Key Term Idea Screening here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The first idea-reducing stage is idea screening, which helps spot good ideas and drop poor ones as soon as possible.

3.

Concept Development and Testing Use Key Terms Product Concept and Concept Testing here.

Use Table 8.1 here.

A product idea is an idea for a possible product that the company can see itself offering to the market.

A product concept is a detailed version of the idea stated in meaningful consumer terms.

A product image is the way consumers perceive an actual or potential product.

Concept Development In concept development, several descriptions of the product are generated to find out how attractive each concept is to customers. From these concepts, the best one is chosen.

Concept Testing

Concept testing calls for testing new-product concepts with groups of target consumers. (see Table 8.1) Use Discussion Question 8-4 here.

Marketing Strategy Development

4.

Marketing strategy development involves designing an initial marketing strategy for a new product based on the product concept.

Use Key Term Marketing Strategy Development here.

The marketing strategy statement consists of three parts.

1. A description of the target market; the planned value proposition; and the sales, market share, and profit goals for the first few years.

2. An outline of the product’s planned price, distribution, and marketing budget for the first year.

3. A description of the planned long-run sales, profit goals, and marketing mix strategy.

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5.

Business Analysis Use Key Term Business Analysis here.

Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether they satisfy the company’s objectives.

6.

Product Development Use Key Term Product Development here.

In product development, R&D or engineering develops the product concept into a physical product.

The product development step calls for a large jump in investment.

7.

Test Marketing Use Key Term Test Marketing here.

Test marketing is the stage at which the product and marketing program are introduced into realistic market settings.

8.

Commercialization Use Key Term Commercialization here.

Commercialization involves introducing the new product into the market.

Decisions must be made about introduction timing as well as where to launch the new product.

Use Critical Thinking Exercises 8-8 and 8-9 here.

Managing New Product Development Customer-Centered New Product Development Use Key Term Customer-Centered New Product Development here.

New-product development must be customer centered.

Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Team-Based New Product Development Under the sequential product development approach, one company department works individually to complete its stage of the process before passing the new product along to the next department and stage.

This orderly, step-by-step process can help bring control to complex and risky projects.

But it also can be dangerously slow.

In order to get their new products to market more quickly, many companies use a teambased new product development approach.

Use Key Term Team-Based New Product Development here.

Under this approach, company departments work closely together in cross-functional teams, overlapping the steps in the product development process to save time and increase effectiveness.

Instead of passing the new product from department to department, the company assembles a team of people from various departments that stay with the new product from start to finish.

Systematic New Product Development An innovation management system can be used to collect, review, evaluate, and manage new product ideas.

The innovation management system approach yields two favorable outcomes.

1. It helps create an innovation-oriented company culture.

2. It will yield a larger number of new product ideas, among which will be found some especially good ones.

Use Marketing at Work 8.1 here.

PRODUCT LIFE-CYCLE STRATEGIES Figure 8.2 shows a typical product life cycle (PLC), the course that a product’s sales and profits take over its lifetime.

Use Key Term Product Life Cycle (PLC) here.

Use Figure 8.2 here.

Use Chapter Objective 3 here.

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The product life cycle has five distinct stages: 19. Product development begins when the company finds and develops a new-product idea. During product development, sales are zero, and the company’s investment costs mount.

20. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.

21. Growth is a period of rapid market acceptance and increasing profits.

22. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.

23. Decline is the period when sales fall off and profits drop.

The PLC concept can describe a product class (gasoline-powered automobiles), a product form (SUVs), or a brand (the Ford Escape).

Product classes have the longest life cycles.

Product forms have the standard PLC shape.

Product brand PLC can change quickly because of changing competitive attacks and responses.

The PLC can be applied to styles, fashions, and fads (see Figure 8.3).

• • •

A style is a basic and distinctive mode of expression.

A fashion is a currently accepted or popular style in a given field.

Fads are temporary periods of unusually high sales driven by consumer enthusiasm and immediate product or brand popularity.

Use Key Terms Style, Fashion, and Fad here.

Use Figure 8.3 here.

Strategies for each of the other life-cycle stages: Introduction Stage Use Key Term Introduction Stage here.

Use Marketing at Work 8.2 here.

The introduction stage starts when the new product is first launched.

In this stage, profits are negative or low, promotion spending is relatively high, and only basic versions of the product are produced.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

A company, especially the market pioneer, must choose a launch strategy that is consistent with the intended product positioning.

Growth Stage Use Key Term Growth Stage here.

The growth stage is where sales begin to climb quickly.

New competitors will enter the market. They will introduce new product features, and the market will expand.

The increase in competitors leads to an increase in the number of distribution outlets.

Prices remain stable.

Profits increase during the growth stage.

Maturity Stage Use Key Term Maturity Stage here.

The maturity stage is characterized by slowing product growth.

The slowdown in sales growth results in many producers with many products to sell.

Competitors begin marking down prices, increasing their advertising and sales promotions, and upping their product-development budgets to find better versions of the product.

These steps lead to a drop in profit.

Product managers should consider modifying the market, product, and marketing mix.

In modifying the market, the company tries to increase the consumption of the current product.

In modifying the product, the company tries changing characteristics such as quality, features, style, or packaging to attract new users and to inspire more usage.

In modifying the marketing mix, the company tries changing one or more marketing mix elements.

Use Marketing at Work 8.2 here.

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Decline Stage Use Key Term Decline Stage here.

Use Online, Mobile, and Social Media Marketing here.

Use Table 8.2 here.

The sales of most product forms and brands eventually dip. This is the decline stage.

Management may decide to maintain its brand without change in the hope that competitors will leave the industry.

Management may decide to harvest the product, which means reducing various costs (plant and equipment, maintenance, R&D, advertising, sales force) and hoping that sales hold up.

Management may decide to drop the product from the line. (see Table 8.2) Use Discussion Question 8-5 here.

Use Marketing by the Numbers here.

ADDITIONAL PRODUCT AND SERVICE CONSIDERATIONS Product Decisions and Social Responsibility Marketers should consider public policy issues and regulations regarding acquiring or dropping products, patent protection, product quality and safety, and product warranties.

Regarding new products, the government may prevent companies from adding products through acquisitions if the effect threatens to lessen competition.

Manufacturers must comply with specific laws regarding product quality and safety.

The litigation phenomenon has resulted in huge increases in product liability insurance premiums, causing big problems in some industries.

Some companies are now appointing product stewards, whose job is to protect consumers from harm and the company from liability by proactively ferreting out potential product problems.

Use Chapter Objective 4 here.

Use Marketing Ethics here.

International Product and Services Marketing

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International product and service marketers face special challenges.

• • •

They must figure out what products and services to introduce and in which countries.

They must decide how much to standardize or adapt their products and services for world markets.

Packaging presents new challenges for international marketers.

The trend toward growth of global service companies will continue, especially in banking, airlines, telecommunications, and professional services.

Use Discussion Question 8-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 8-1.

Why do some companies acquire innovations from other firms instead of or in addition to developing their own products? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies might purchase a company, patent, or license to another firm‘s product to reduce risks associated with developing its own products, to acquire something superior to its own offerings, or to decrease competition. Acquisitions may be expensive, but new product development efforts are also expensive, and new products often fail.

8-2.

What is concept testing? Provide an example. (AACSB: Written and Oral Communication) Answer: Concept testing is when firms test new product concepts with a group of target consumers to find out if the concepts have strong consumer appeal.

It is used to eliminate and refine concepts. The example in the text is the HondaJet for families.

8-3.

Give examples of external sources that might be used to generate good new product ideas for companies. (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Ideas can come from a number of internal sources. Distributors and suppliers can contribute ideas. Competitors, trade magazines, shows, websites, and seminars; government agencies; advertising agencies; marketing research firms; university and commercial laboratories; and inventors are all external sources of ideas. Companies may also get new product ideas from customers.

8-4.

What is customer-centric new product development? Provide an example.

(AACSB: Written and Oral Communication) Answer: Customer-centered new product development focuses on finding new ways to solve customer problems and create more customer-satisfying experiences. The most successful new products are ones that are differentiated, solve major customer problems, and offer a compelling customer value proposition. Companies that directly engage their customers in the new product innovation process can gain higher return on assets and growth in operating income versus firms that do not.

Retailer Target is a strong proponent of customer-centered new product development (for example, its Good & Gather brand).

8-5.

When do firms engage in business analysis as part of the new product development process? What happens during this step? Why is business analysis an important step in the process? (AACSB: Written and Oral Communication) Answer: After management decides on its product concept and marketing strategy but before it moves on to the product development stage, the firm evaluates the business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and profit projections for a new product to find out whether it satisfies the company‘s objectives. The firm estimates sales and assesses the range of risk. It also estimates the expected costs and profits for the product, including marketing, R&D, operations, accounting, and finance costs. The company uses the sales and cost figures to analyze the new product‘s financial attractiveness.

8-6.

Describe the R-W-W (real, win, worth doing) new product screening framework. How is it used? (AACSB: Written and Oral Communication) Answer: The R-W-W (―real, win, worth doing‖) new product screening framework asks three questions:  Is it real? Is there a real need and desire for the product, and will customers buy it? Is there a clear product concept, and will such a product satisfy the market?

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

 

Can we win? Does the product offer a sustainable competitive advantage? Does the company have the resources to make such a product a success?

Is it worth doing? Does the product fit the company‘s overall growth strategy? Does it offer sufficient profit potential?

The company should be able to answer yes to all three R-W-W questions before developing the new product idea further.

Critical Thinking Exercises 8-7.

Visit http://ideas.lego.com. How does LEGO use crowdsourcing to find innovative new product ideas? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Crowdsourcing connects people to a company‘s brand. The internet has created an easy platform for companies to engage customers and benefit from customers‘ creative ideas. In the LEGO Ideas example, LEGO runs contests and invites fans to become LEGO designers. LEGO also communicates with engaged fans about the designs of others.

8-8.

In small groups, research the AirPop Active+ Halo face mask. Where is this product in the new product life cycle? How does the product relate to trends in the marketplace? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The AirPop Active+ Halo face mask is a smart mask that collects data about the wearer‘s breathing and the air quality based on your location.

The product is in the introductory stage. It is in line with trends of people tracking data about their health using smart trackers, and the pandemic normalized mask wearing. However, there are questions about the future popularity of masks.

8-9.

DNA travel gained popularity as people gained DNA test results from companies like 23andMe. People wanted to take adventures to explore their heritage and connect with distant relatives. In response to its popularity, Airbnb partnered with 23andMe to offer customized experiences and travel options related to the information provided in the DNA profiles. Is DNA travel a fad? What is its likely product life cycle?

Respond in a way that reflects your understanding of fads. (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Student opinions about whether it is a fad may vary for a few reasons.

First, it is not clear that DNA travel has the rapid growth in sales that characterizes fads. Its popularity has grown steadily over a few years as its availability has increased across the United States. Its growth may have been impacted by both the pandemic and the travel rebound that followed. Second, demand for DNA testing has increased steadily over a long period of time. However, the question may arise about what is driving interest in DNA travel. If people are interested in DNA travel because it is novel and they want to post the photos on Instagram but the value that would drive repeat travel experiences is not there, it may not follow a traditional product life cycle. Even if it lacks a large spike in sales in the short term, it may fizzle if it becomes too common and novelty is the only thing driving demand. If so, it may have a relatively quick decline.

Minicases and Applications Digital Marketing Share the Robot Vacuum Love Although robot vacuums have been around for more than a decade, recent upgrades made them smarthome gadgets, allowing consumers to provide cleaning instructions from a smartphone app. The upgrade increased adoption of the innovation and the number of competitors in the market. iRobot (www.irobot.com), which offers several different robot cleaning machines, invites consumers to share the #iRobotLove on social media. The #iRobotLove campaign is iRobot‘s initiative to move the conversation about owning an iRobot vacuum onto social media. iRobot positions its products on the benefit of a cleaner home every day free of the mundane work. It hopes that consumers will share their passion for the product that enables such freedom.

8-10. Visit a social media channel (Twitter, Instagram, or Facebook) and search for the hashtag #iRobotLove. What do user posts suggest about iRobot‘s ability to solve major customer problems? How could such user-generated content inform the new product development process? (AACSB: Written and Oral Communications; Reflective Thinking) Answer: Consumer posts may vary by channel and based on the time frame. At the time of this writing, the user posts featured pets and children, which suggested the value proposition associated with the new product was compelling to people who had to clean up dog or cat hair and/or crumbs.

There were also calls to innovate the product to avoid wet messes, like pet waste, which may get spread around by an iRobot. iRobot can use the information that comes from customer involvement to inform its new product development process and improve the likelihood of success.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

8-11. Visit https://www.pcmag.com/picks/the-best-robot-vacuums. How do the reviews of iRobot vacuums compare to competing robot vacuums? Does the information from the review match the value proposition that is communicated using the user-generated content? What are the implications of your observations for consumer evaluations of the iRobot robot vacuums? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Both the iRobot Roomba 960 ($699.99) and the iRobot Roomba i7 ($949.99) were labeled with the Editors‘ Choice and earned four out of five stars from the editor. Another product that earned four out of five stars and the Editors‘ Choice label was the Ecovacs Deebot N79S, which sold for $229 at the time this was written. Students may make observations about the difference in features, the role of consumers in the innovation process, and the value proposition that justifies the steep price premium for the iRobot products.

Marketing Ethics Space Tourism Virgin Galactic, SpaceX, and Blue Origin are among companies that are offering or plan to offer space tourism experiences to paying customers. The costs associated with crafting and operating space craft are high, resulting in recent space tourism offerings that ranged from $250,000 for a suborbital flight to $55 million. The companies offering space tourism services anticipate prices will decrease when they can offer more space flights. One goal is to show space tourists that space travel is safe, routine, and reliable, an important first step toward consumer openness to the expansion of industry and to putting humanity into space. For example, if people are comfortable with space travel, it could increase planned economic activity such as asteroid mining and expeditions to the moon and Mars. There has to be sufficient demand from consumers for companies to invest in larger space projects.

8-12. What are the ethical concerns related to innovations in commercial space travel, and how should space tourism marketers address them? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Student responses will vary. Some students will note safety risks and lack of regulation (particularly as it compares to travel by airplane and automobile). Others may note the potential for health effects of space travel. Other students may note the impact of space travel on the atmosphere or the presence of trash in space. If the goal of space travel is purely for entertainment or recreation, is the cost to the environment justified? Others may note the high prices associated with space flight and

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raise questions about the costs and whether space tourism firms will have to make sacrifices if they want to be profitable. Students should offer ideas for how marketers might use communications, training and recruitment, product innovations, and disclosures to minimize the potential harm associated with commercial space flights.

8-13. If the discretionary funds were available to you, would you be an early adopter of space tourism? Why or why not? Support your answer.

Answer: Students should reflect an understanding of what an early adopter is in their response. Student responses may echo some of the concerns related to the previous question. They should consider the unknowns associated with the relatively new way to travel. The risks may be notable given the number of setbacks faced by companies that aspired to bring customers to space.

Marketing by the Numbers Dental House Calls With the population aging and patients who dread sitting in a sterile dental office, dentists are finding an opportunity in dental house calls. The Blende Dental Group has taken its service on the road in San Francisco and New York City, performing everything from routine exams and cleanings to root canals. Some patients are wealthy and prefer the personal service, whereas others with physical limitations cannot get out to the dentist‘s office. Recreating a dental office in a home requires additional equipment, such as a portable X-ray machine that looks like a ray gun, sterile water tanks, a dental drill, lights, and a laptop in addition to a vehicle. A portable X-ray machine alone costs $10,000. Refer to Increase Distribution Coverage in Appendix 3: Marketing by the Numbers to answer the following questions.

8-14. What types of fixed costs are associated with this service? Assuming fixed costs of adding this mobile service will increase by $40,000 and a desired contribution margin of 65 percent, determine the amount of sales necessary to breakeven on this increase in fixed costs to offer this additional service. (AACSB: Written and Oral Communication; Analytical Thinking) Answer: Fixed costs include things such as insurance, salaries, and equipment. The equation for calculating change in breakeven sales is: Δ Breakeven sales

=

Δ Total Fixed Costs ———————— Contribution Margin

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

With an increase in total fixed costs of $40,000, then: Breakeven sales =

$40,000 ———— = $61,538 0.65

8-15. What other factors must dentists consider before offering this service in addition to their in-office service? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A house-call service added to an in-office service could create cannibalization of existing patients switching to the new service. If margins are higher for the house-call service, then that is not a significant problem.

However, if margins are lower, perhaps because costs are higher and price, while maybe higher, cannot be increased enough to offset the increased costs, each cannibalized patient will contribute less to the dentist‘s bottom line. If the new house-call service reaches patients the dentist would not have otherwise served, then increase in total contribution could make it worthwhile. If new patients bring in enough contribution to cover the additional fixed costs, then it will be more profitable for the dentist to add this service.

Company Case Teaching Notes

Company Cases 8 Pfizer/3 Square/6 Outschool See Appendix 1 for teaching notes for the below cases.

Case 8, Pfizer: Developing New Products to Save Lives. With a tried-and-true strategy for developing pharmaceuticals that make the world a healthier place, Pfizer brought the first COVID-19 vaccine to market in record time.

Case 3, Square: In Relentless Pursuit of a More Elegant Payments Experience. How did Fitbit create the fast-growing category of wearable tech? By coming up with the right product at the right time.

Case 6, Outschool: Personalized Education for All. A fast- growing marketplace for remote-delivered K-12 classes, Outschool is out to make learning fun, social, and selfdirected.

GREAT IDEAS Barriers to Effective Learning

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1.

2.

3.

4.

Understanding the systematic nature of the new-product development process will cause problems for some students. They will have some difficulty understanding why a process is needed at all, and they will also not realize how development costs rise at each and every stage. Finally, the amount of analysis that goes into the screening phases might be a surprise to them. To overcome these barriers, come up with a new product idea in class and review how you might develop it into a viable product.

The commercialization phase of the new-product development process could also be somewhat difficult for the students to comprehend. They may not be aware that not all products are launched nationally or globally when first introduced. Some examples of products that are available only regionally—food and drink products frequently are regional—may help them to understand the logistics of launching a new product.

The phases of the product life cycle, and the fact that it can apply to product classes, forms, and brands, can cause some difficulty. Discussing brands that are in each stage helps tremendously, as does discussing products that have successfully moved back from decline into maturity or growth (e.g., Arm & Hammer baking soda).

The differences among fads, fashions, and styles can be explained through asking the students to discuss clothing in those terms. Because these items are routinely discussed in terms of fashions and styles, students can easily internalize the differences in meaning of these terms.

Student Projects 1. Go to Apple‘s (the makers of the iPhone and iPad) website (www.apple.com) and read about their newest offerings, the iPhone Xs and Xr. Imagine if you had been assigned the job of developing questions for the concept test of this product. Develop a series of five questions that you would have included.

2. Why is test marketing so important for marketers? Why is not more often used?

3. Find two products that you believe are in the introduction stage of the product life cycle. Justify your beliefs.

4. What is the difference between fads, styles, and fashions?

5. In what ways do the growth and maturity stages of the product life cycle differ?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter about Google. Each group should then answer the following questions: 1. How has Google used innovation to become so successful?

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

2. Google‘s product development is all about ―Wow!‖ What is this concept and how has Google used it to their advantage?

3. What is IoT and how is Google utilizing it to their advantage?

Each group should share its findings with the class.

Individual Assignment Read the opening vignette to the chapter. Think about the answers to the following questions:

Take a look at some of the products Google has introduced to the market. Medical technology project Verily creates healthcare devices, such as glucose-monitoring contact lenses that could help identify cancer cells. Chronicle employs sophisticated analytics tools that can predict and fight cybercrimes before they happen.

1. Which of these do you consider long-term ―winners?‖ Why? 2. What does the following statement mean to you: ―Every new product has to pass the ‗Wow!‘ test.‖ 3. Who is Google‘s primary competitor? Why? Share your findings with the class.

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. How do companies find new products?

2. Define the stages of the new-product development process.

3. How are competitors a source of new-product ideas?

4. What are the advantages of team-based new-product development?

Classroom Exercise/Homework Assignment Research the bottled water market. Check out the websites for Evian (www.evian.com/en_us), Aqua Pacific (www.aquapacific.com), Mountain Valley Spring Water (www.mountainvalleyspring.com), and Perrier (http://www.perrier.com/us). What stage of the PLC would you say bottled water occupies? How is each of these companies attempting to maintain or grow sales of their products?

Classroom Management Strategies

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This is a relatively short chapter, so you have the luxury of really being able to focus on each section. Still, there is a lot of material to discuss, so effective use of time is important. The majority of class time should be spent on the newproduct development section, with slightly less than half being devoted to product life-cycle strategies.

1.

2.

3.

4.

An introductory 5 minutes should be spent on the discussion of Google‘s development as an example of why companies need to continually offer new products and services.

Another 5 minutes should be spent discussing the reasons why a systematic new-product development process is important, rather than developing products in a haphazard manner. Tie this discussion back to earlier in the term when you talked about marketing strategies, mission statements, and goals and objectives for the company as a whole.

Spend about 35 minutes going through the eight stages of the newproduct development process. At each phase, using examples from your own and the students‘ experience will help tremendously. Having a guest speaker from a company that has developed and launched several products is a unique way of driving home the importance of a systematic process.

Finally, spend 15 minutes discussing the PLC and the marketing strategies that can accompany each stage. Going online and looking at webpages for various kinds of products at each of the different stages could make this more interesting for the students, while also providing a more detailed introduction to the meaning of a product life cycle.

PROFESSORS ON THE GO

Developing New Products and Managing the Product Life Cycle Key Concepts The steps in the new-product development strategy    

Under what conditions would you consider not test marketing a product?

You are a new-product manager and have been asked to design an idea-screening process for your company. Prepare a five-step process for screening consumer convenience good ideas.

Take a product that has failed. Analyze why this happened. What suggestions could you offer that might have prevented the failure?

What are the different types of test markets?

Key Concepts Product life-cycle strategies

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    

What is a fad? Take a fad product and show how it could be maintained on the market past its fad stage. Describe your strategies for doing so. How could the internet be used to aid your strategy?

Collect and describe ten advertisements that show products in different phases of a product life cycle. What did you use to determine which stage the products were in?

What is the difference between a style, fashion, and fad?

What are the different strategies for modifying a product in the maturity stage?

What are the strategies for dealing with products in the decline stage?

CHAPTER 9 PRICING: UNDERSTANDING AND CAPTURING CUSTOMER VALUE PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 9-1.

9-2.

9-3.

9-4.

9-5.

9-6.

Define price, identify the three major pricing strategies, and discuss the importance of understanding customer value perceptions, company costs, and competitor strategies when setting prices.

Identify and define the other important external and internal factors affecting a firm‘s pricing decisions.

Describe the major strategies for pricing new products.

Explain how companies find a set of prices that maximizes the profits from the total product mix.

Discuss how companies adjust and change their prices to take into account different types of customers and situations.

Discuss the major public policy concerns and key pieces of legislations that affect pricing decisions.

JUST THE BASICS CHAPTER OVERVIEW Firms successful at creating customer value with the other marketing mix activities must capture this value in the prices they earn.

Despite its importance, many firms do not handle pricing well.

In this chapter, we begin with the question, ―What is a price?‖ Next, we look at three major pricing strategies – customer value-based, cost-based, and competition-based pricing – and at other factors that affect pricing decisions.

Finally, we examine pricing strategies for new-product pricing, product mix pricing, price adjustments, and dealing with price changes.

ANNOTATED CHAPTER NOTES/OUTLINE

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FIRST STOP Peloton: Premium Priced. But It’s Not about the Price Peloton in-home exercise bikes sell at a steep price of $1,895, compared with the typical bikes you’d find at your local sporting goods store for as little as $200 or $300. What’s more, buying a Peloton requires a $39 monthly membership fee. But even at those prices, Peloton sales are really rolling.

The company’s annual bike, treadmill, and subscription sales have doubled in each of the past four years to an estimated $3.5 billion.

The brand got an astronomical boost from the COVID-19 pandemic as gym closings and social distancing measures left millions of gym-less people scrambling to get their fitness fixes with Peloton’s in-home gear and workout app.

Peloton found itself selling gear faster than it could make it, with customers waiting six to eight weeks for delivery.

Although the price might seem steep, when consumers buy a Peloton, they’re getting much more for their money than just a premium home fitness bike. They’re buying into an absorbing lifestyle and a closely connected community of like-minded exercise enthusiasts, who ride together through classes on-demand or live-streamed from Peloton’s studios to an internet-connected tablet on the bike.

Based on customer data gathered through the Peloton network, the company soon discovered opportunities among less affluent riders. All of this makes Peloton an interesting study in pricing strategy.

Whatever the psychology, with its cult-like following and the largest membership base in the industry, even at its high price, Peloton appears to be giving riders more than their money’s worth.

INTRODUCTION Companies today face a fierce and fast-changing pricing environment.

Yet, cutting prices is often not the best answer.

What is a Price?

In the narrowest sense, price is the amount of money charged for a product or service.

Use Key Term Price here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

More broadly, price is the sum of all the values that customers give up in order to gain the benefits of having or using a product or service.

Price is the only element in the marketing mix that produces revenue.

Price is one of the most flexible marketing mix elements.

MAJOR PRICING STRATEGIES Figure 9.1 summarizes the major considerations in setting price.

Use Chapter Objective 1 here.

Use Figure 9.1 here.

Use Discussion Question 9-1 here.

Customer Value-Based Pricing In the end, the customer will decide whether a product’s price is right.

Figure 9.1 suggests three pricing strategies: customer value-based pricing, cost-based pricing, and competition-based pricing.

Use Figure 9.2 here.

Customer value-based pricing uses buyers’ perceptions of value, not the seller’s cost, as the key to pricing.

Price is considered along with the other marketing mix variables before the marketing program is set.

Figure 9.2 compares value-based pricing with cost-based pricing.

Cost-based pricing is product driven. ―Good value‖ is not the same as ―low price.‖ Two types of value-based pricing are good-value pricing and value-added pricing.

Use Key Terms Customer Value-Based Pricing and Good-Value Pricing here.

Use Marketing Ethics here.

1. Good-value pricing involves offering just the right combination of quality and good service at a fair price.

Everyday low pricing (EDLP). EDLP involves charging a constant, everyday low

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price with few or no temporary price discounts.

High-low pricing involves charging higher prices on an everyday basis but running frequent promotions to lower prices temporarily on selected items.

2. Value-added pricing is the strategy of attaching value-added features and services to differentiate their offers and thus support higher prices.

Use Key Term Value-Added Pricing here.

Use Discussion Question 9-2 here.

Use Marketing at Work 9.1 here.

Cost-Based Pricing Whereas customer-value perceptions set the price ceilings, costs set the floor for the price that the company can charge.

Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling the product plus a fair rate of return for effort and risk.

Types of Costs

Fixed costs (also known as overhead) are costs that do not vary with production or sales level.

Variable costs vary directly with the level of production. They are called variable because their total varies with the number of units produced.

Use Key Terms Cost-Based Pricing, Fixed Costs (Overhead), and Variable Costs here.

Total costs are the sum of the fixed and variable costs for any given level of production.

Use Key Term Total Costs here.

Use Critical Thinking Exercise 9-7 here.

Cost-Plus Pricing Use Key Term Cost-Plus Pricing (Markup Pricing) here.

The simplest pricing method is cost-plus pricing (markup pricing) – adding a standard markup to the cost of the product.

Does using standard markups to set prices make sense? Generally, no.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Markup pricing remains popular for many reasons.

1. Sellers are more certain about costs than about demand.

2. When all firms in the industry use this pricing method, prices tend to be similar and price competition is thus minimized.

Another cost-oriented pricing approach is break-even pricing, or a variation called target return pricing. The firm tries to determine the price at which it will break even or make the target profit it is seeking.

Target return pricing uses the concept of a break-even chart, which shows total cost and total revenue expected at different sales volume levels.

The major problem with this analysis is that it fails to consider customer value and the relationship between price and demand.

Typically, as the price increases, demand decreases.

Use Key Term Break-even Pricing (Target Return Pricing) here.

Use Figure 9.3 here.

Competition-Based Pricing Competition-based pricing involves setting prices based on competitors’ strategies, costs, prices, and market offerings.

What principle should guide decisions about what price to charge relative to those of competitors? The answer is simple in concept but difficult in practice.

Be certain to give customers superior value for the price.

Use Key Term Competition-Based Pricing here.

OTHER INTERNAL AND EXTERNAL CONSIDERATIONS AFFECTING PRICE DECISIONS Overall Marketing Strategy, Objectives, and Mix Price is only one of the marketing mix tools that a company uses to achieve its marketing objectives.

Price decisions must be coordinated with product design, distribution, and promotion decisions to form a consistent and effective integrated marketing program.

Companies often position their products on price and then tailor other marketing mix decisions to the prices they want to charge.

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Target costing starts with an ideal selling price based on customer-value considerations, and then targets costs that will ensure that the price is met.

Use Chapter Objective 2 here.

Use Key Term Target Costing here.

Companies may deemphasize price and use other marketing mix tools to create nonprice positions.

Organizational Considerations In small companies, prices are often set by top management rather than by the marketing or sales departments.

In large companies, pricing is typically handled by divisional or product line managers.

In industrial markets, salespeople may be allowed to negotiate with customers within certain price ranges.

In industries in which pricing is a key factor, companies often have pricing departments to set the best prices or to help others in setting them.

The Market and Demand Pricing in Different Types of Markets

Pure competition: The market consists of many buyers and sellers trading in a uniform commodity. No single buyer or seller has much effect on the going market price.

In a purely competitive market, marketing research, product development, pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do not spend much time on marketing strategy.

Monopolistic competition: The market consists of many buyers and sellers who trade over a range of prices rather than a single market price. A range of prices occurs because sellers can differentiate their offers to buyers.

Oligopolistic competition: The market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies.

There are few sellers because it is difficult for new sellers to enter the market.

Pure monopoly: The market consists of one seller. The seller may be a government monopoly, a private regulated monopoly, or a private nonregulated monopoly.

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Analyzing the Price-Demand Relationship The relationship between the price charged and the resulting demand level is shown in the demand curve (see Figure 9.4).

Use Key Term Demand Curve here.

Use Figure 9.4 here.

In a normal case, demand and price are inversely related; that is, the higher the price, the lower the demand.

In a monopoly, the demand curve shows the total market demand resulting from different prices.

If the company faces competition, its demand at different prices will depend on whether competitors’ prices stay constant or change with the company’s own prices.

Price Elasticity of Demand

Price elasticity: How responsive demand will be to a change in price.

If demand hardly changes with a small change in price, we say demand is inelastic.

If demand changes greatly with a small change in price, we say the demand is elastic.

Use Key Term Price Elasticity here.

Use Discussion Question 9-3 here.

Use Marketing by the Numbers here.

The Economy Economic conditions can have a strong impact on the firm’s pricing strategies.

In the aftermath of the recent Great Recession (2008-2009) and the 2020–2021 COVID19 pandemic, consumers have rethought the price-value equation. Many consumers have tightened their belts and become more value conscious.

The most obvious response to the new economic reality is to cut prices. Rather than cutting prices, many companies are shifting their marketing to focus on more affordable items in their product mixes.

Remember, even in tough economic times, consumers do not buy based on price alone.

The key is to offer great value for the money.

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Other External Factors The company must also consider what impact its prices will have on other parties in its environment, such as resellers and the government.

Social concerns may have to be taken into account.

Use Linking the Concepts here.

NEW-PRODUCT PRICING STRATEGIES Market-Skimming Pricing

Market-skimming pricing (or price skimming) is setting high initial prices to ―skim‖ revenues layer by layer from the market.

Market skimming makes sense under certain conditions.

1. The product’s quality and image must support its higher price and enough buyers must want the product at that price.

2. The costs of producing a smaller volume cannot be so high that they cancel the advantage of charging more.

3. Competitors should not be able to enter the market easily and undercut the high price.

Use Key Term Market-Skimming Pricing (Price Skimming) here.

Use Chapter Objective 3 here.

Market-Penetration Pricing

Market-penetration pricing is setting a low initial price in order to penetrate the market quickly and deeply—to attract a large number of buyers quickly and win a large market share.

Several conditions must be met for this strategy to work.

1. The market must be highly price sensitive so that a low price produces more market growth.

2. Production and distribution costs must fall as sales volume increases.

3. The low price must help keep out the competition, and the penetration pricer must maintain its low-price position.

Use Discussion Question 9-4 here.

Use Key Term Market-Penetration Pricing here.

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PRODUCT MIX PRICING STRATEGIES (see Table 9.1) In product line pricing, management must decide on the price steps to set between the various products in a line.

Use Table 9.1 here.

The price steps should take into account cost differences between the products in the line.

Use Key Term Product Line Pricing here.

Use Chapter Objective 4 here.

Optional product pricing is offering to sell optional or accessory products along with a main product.

Use Key Term Optional-Product Pricing here.

In captive product pricing, companies make products that must be used along with a main product.

Use Key Term Captive-Product Pricing here.

In the case of services, captive-product pricing is called two-part pricing. The price of the service is broken into a fixed fee plus a variable usage rate.

Using by-product pricing, the company seeks a market for the by-products produced in the generation of some products and services.

Use Key Term By-Product Pricing here.

Using product bundle pricing, sellers often combine several of their products and offer the bundle at a reduced price.

Use Key Term Product Bundle Pricing here.

Use Discussion Question 9-5 here.

PRICE ADJUSTMENT STRATEGIES AND PRICE CHANGES Use Chapter Objective 5 here.

Use Table 9.2 here.

Discounts include:

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   

Cash discount is a price reduction to buyers who pay their bills promptly.

Quantity discount is a price reduction to buyers who buy large volumes.

Functional discount (also called a trade discount) is offered by the seller to trade-channel members who perform certain functions.

Seasonal discount is a price reduction to buyers who buy merchandise or services out of season.

Allowances are a reduction from the list price.  

Trade-in allowances are price reductions given for turning in an old item when buying a new one.

Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales support programs.

Use Key Terms Discount and Allowance here.

Segmented pricing occurs when the company sells a product or service at two or more prices, even though the difference in prices is not based on differences in costs.    

Customer-segment pricing: Different customers pay different prices for the same product or service.

Product-form pricing: Different versions of the product are priced differently but not according to differences in their costs.

Location-based pricing: A company charges different prices for different locations, even though the cost of offering each location is the same.

Time-based pricing: A firm varies its price by the season, the month, the day, and even the hour.

Use Marketing Ethics here.

Use Key Term Segmented Pricing here.

Psychological pricing occurs when sellers consider the psychology of prices and not simply the economics.

One aspect of psychological pricing is reference prices—prices that buyers carry in their minds and refer to when looking at a given product.

Use Key Terms Psychological Pricing and Reference Prices here.

With promotional pricing, companies will temporarily price their products below list price and sometimes even below cost to create buying excitement and urgency. 

Discounts: A reduction from normal prices to increase sales and reduce inventories.

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  

Special-event pricing: Pricing differently in certain seasons to draw more customers.

Limited-time offers (flash sales): Create buying urgency and make buyers feel lucky to have gotten in on the deal.

Cash rebates: Offered to consumers who buy the product from dealers within a specified time; the manufacturer sends the rebate directly to the customer.

Promotional pricing can have adverse effects.

1. Price promotions can create ―deal-prone‖ customers who wait until brands go on sale before buying them.

2. Constantly reduced prices can erode a brand’s value in the eyes of customers.

3. Promotional pricing can lead to industry price wars.

Use Key Term Promotional Pricing here.

Geographical Pricing Geographical pricing involves deciding how to price products for customers located in different parts of the country or world.     

FOB-origin pricing: The goods are placed free on board (hence, FOB) a carrier. At that point the title and responsibility pass to the customer, who pays the freight from the factory to the destination.

Uniform-delivered pricing is the opposite of FOB pricing. Here, the company charges the same price plus freight to all customers, regardless of their location.

Zone pricing falls between FOB-origin pricing and uniform-delivered pricing.

All customers within a given zone pay a single total price; the more distant the zone, the higher the price.

Basing-point pricing: The seller selects a given city as a ―basing point‖ and charges all customers the freight cost from that city to the customer location, regardless of the city from which the goods are actually shipped.

Freight-absorption pricing. Using this strategy, the seller absorbs all or part of the actual freight charges in order to get the desired business.

Dynamic and Personalized Pricing Dynamic Pricing is adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Dynamic pricing offers many advantages: 

Services ranging from retailers, airlines, and hotels to sports teams change prices on the fly to optimize sales according to changes in demand, costs, or competitor pricing, adjusting what they charge for specific items on a daily, hourly, or even continuous basis.

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 

Marketers also use dynamic pricing to adjust their prices and personalize offers to customers.

Online offers and prices might well be based on what specific customers search for and buy, how much they pay for other purchases, and whether they might be willing and able to spend more.

Use Key Term Dynamic Pricing here.

Use Online, Mobile, and Social Media Marketing here.

Use Marketing at Work 9.2 here.

International Pricing The price that a company should charge in a specific country depends on many factors, including economic conditions, competitive situations, laws and regulations, and development of the wholesaling and retailing system.

Costs play an important role in setting international prices.

Price Changes Initiating Price Changes Initiating Price Cuts Several situations may lead a firm to consider cutting its price.   

Excess capacity Falling demand in the face of strong price competition Desire to dominate market

Initiating Price Increases A major factor in price increases is cost inflation.

When raising prices, the company must avoid being perceived as a price gouger.

One technique for avoiding this problem is to maintain a sense of fairness surrounding any price increase.

Buyer Reactions to Price Changes Customers do not always view price changes in a straightforward or rational way. They may view price cuts or price increases in several ways.

Competitor Reactions to Price Changes Competitors are most likely to react when the number of firms involved is small, when the product is uniform, and when the buyers are well informed about products and prices.

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Responding to Price Changes (see Figure 9.5) The firm needs to consider several issues: Why did the competitor change the price? Is the price change temporary or permanent? What will happen to the company’s market share and profits if it does not respond? Are other competitors going to respond?

Figure 9.5 shows the ways a company might assess and respond to a competitor’s price cut.

Use Figure 9.5 here.

1. The company could reduce its price to match the competitor’s price.

2. The company could maintain its price but raise the perceived value of its offer.

3. The company could improve quality and increase price, moving its brand into a higher price-value position.

4. The company could launch a low-price “fighter brand”—adding a lower-price item to the line or creating a separate lower-price brand.

PUBLIC POLICY AND PRICING Figure 9.6 shows the major public policy issues in pricing.

Pricing Within Channel Levels Federal legislation on price-fixing states that sellers must set prices without talking to competitors. Otherwise, price collusion is suspected.

Sellers are prohibited from using predatory pricing—selling below cost with the intention of punishing a competitor or gaining higher long-run profits by putting competitors out of business.

Pricing Across Channel Levels The Robinson-Patman Act seeks to prevent unfair price discrimination by ensuring that sellers offer the same price terms to customers at a given level of trade.

Laws prohibit retail (or resale) price maintenance—a manufacturer cannot require dealers to charge a specified retail price for its product.

Although the seller can propose a manufacturer’s suggested retail price to dealers, it cannot refuse to sell to a dealer who takes independent pricing action, nor can it punish the dealer by shipping late or denying advertising allowances.

Deceptive pricing occurs when a seller states prices or price savings that mislead consumers or are not actually available to consumers.

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Other deceptive pricing issues include scanner fraud and price confusion.

Use Discussion Question 9-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 9-1.

What factors should firms consider as they set the floor and the ceiling for prices? How do firms ultimately set prices between the floor and the ceiling? (AACSB: Written and Oral Communication) Answer: Price is a strategic tool for creating and capturing customer value. Firms should not set the price higher than customer perceptions of the product’s value, which sets the ceiling for its price. Customers will not purchase a product if they perceive the price is greater than the value. On the other hand, a firm that sets its prices below its costs will lose money on each sale. Firms typically set prices between the ceiling and the floor based on external and internal factors, including competitors’ strategies and prices, the overall marketing strategy and mix, and the nature of the market and demand.

9-2.

What is customer value–based pricing? How does it compare to cost-based pricing? (AACSB: Written and Oral Communication) Answer: Customer value–based pricing uses buyers’ perceptions of value as the key to pricing. Price is set based on buyers’ perceptions of value rather than on the seller’s costs. Value-based pricing means that the marketers cannot design a product and marketing program and then set the price. Price is considered along with all other marketing mix variables before the marketing program is set.

Although costs are an important consideration in setting prices, cost-based pricing is often product driven. The company designs what it considers to be a good product, adds up the costs of making the product, and sets a price that covers costs plus a target profit. Marketing must then convince buyers that the product’s value at that price justifies its purchase.

9-3.

What is competition-based pricing? What principle should guide decisions about prices to charge relative to those of competitors? (AACSB: Written and Oral Communication) Answer:

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Competition-based pricing involves setting prices based on competitors‘ strategies, costs, prices, and market offerings. Consumers will base their judgments of a product‘s value on the prices that competitors charge for similar products. Firms should consider not only the price to purchase the product but also the lifetime costs associated with the product‘s usage and disposal. Firms should follow the principle that no matter what price they charge—high, low, or in between—they should be certain to give customers superior value for that price.

9-4. What is the demand curve? Why do companies consider it when they set prices? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The demand curve is a curve that shows the number of units the market will buy in a given time period at different prices that might be charged.

Each price the company might charge will lead to a different level of demand. In the normal case, demand and price are inversely related—that is, the higher the price, the lower the demand. Consumers with limited budgets probably will buy less of something if its price is too high.

Therefore, understanding a brand‘s price-demand curve is crucial to good pricing decisions because setting the price too low could result in insufficient inventory or leaving profits on the table, while setting the price too high may discourage shoppers from purchasing your product or move them toward competitors and substitutes.

9-5. Compare fixed pricing with dynamic pricing. Illustrate how and when each of these strategies is used. (AACSB: Written and Oral Communication) Answer: Historically, prices were set by negotiation between buyers and sellers.

Today, most prices are set through fixed pricing—setting one price for all buyers. However, some companies are now reversing the fixed pricing trend. They are using dynamic pricing—adjusting prices continually to meet the characteristics and needs of individual customers and situations.

Dynamic pricing is especially prevalent online, where the internet seems to be taking us into a new age of fluid pricing. Such pricing offers many advantages for marketers.

9-6. Identify and briefly describe three major public policy concerns related to pricing. (AACSB: Written and Oral Communication) Answer: Student selections will vary. They may include policies that curb the formation of monopolies and regulate business practices that might unfairly restrain trade and policies that regulate damaging pricing practices within a given level of the channel (price-fixing and predatory pricing) and

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across levels of the channel (retail price maintenance, discriminatory pricing, and deceptive pricing).

Critical Thinking Exercises 9-7.

You earned money painting houses over summers for the past five years and have saved $75,000. As summer ends, one of your house painting colleagues suggests that you start your own business that provides general household maintenance and upkeep on an hourly basis during the academic year: Rent a Handyperson. You have always wanted to run your own business and noticed a demand for such services from your region‘s aging population. New tools and a used cargo van will cost about $35,000. Other fixed costs include your part-time salary, gas for the truck, insurance, and business fees of $38,000 per year. Your services will be priced at $40 per hour, and most jobs take two hours. Variable costs are $10 per project on average. Calculate the break-even number of jobs for the year for your business. After reviewing the break-even, what changes would you consider? Is this how you want to spend your savings?

(AACSB: Written and Oral Communication; Reflective Thinking)

Answer: Break-even volume = Fixed costs * 543 jobs Price – Variable cost

=

$38,000

=

$80 – $10

*Fixed costs should not include the cost of the used cargo van and tools as that cost would not be expected to be recouped in the first year.

If 543 jobs is the break-even for a year, students will need to analyze how they can sell an average of 1.5 jobs per day. They should discuss how likely it would be in their community to sell this many jobs and whether three hours per day, including weekends, is the right amount of hours for part-time work. Students could also consider raising the price of services or passing the variable costs of repairs along to the clients to lower the break-even. Also, examining fixed costs is another option. Based on these variables, students will choose to move ahead with the business or keep their savings.

9-8. A company that delivers subscription boxes of children‘s clothes to customers all over the United States is considering different geographical pricing strategies. If the company wants to penetrate the market and hold its market share in a competitive market, which geographical pricing policy should it use? Why is your chosen strategy better than the other geographical pricing policies you considered? (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: Students should identify advantages associated with a freight-absorption strategy. The seller would absorb the shipping cost to get more business, perhaps with the idea that it will lower the costs if it serves more of the market or it might outlast competitors. A freight-absorption pricing strategy is often used by companies in competitive markets and by companies that are trying to penetrate the market. Students may identify advantages to this strategy relative to free on board (FOB)-origin pricing, which passes the cost of freight on to the customer, which would likely create cost barriers associated with serving markets that are farther away from the shipping location. Uniform-delivered pricing charges the same amount to all customers, regardless of location, but can result in higher shipping costs for customers who are close to the shipping location, relative to FOB-origin pricing. Zone pricing falls between FOB-origin pricing and uniform-delivered pricing so each geographic zone pays a single price, which depends on the zone‘s distance from the shipping location.

Similarly, basing-point pricing chooses a location and charges freight from that location, regardless of the shipping location. All four approaches may make the offering less attractive relative to a freight-absorption strategy if the market is very competitive.

9-9. Your company has developed a new hand sanitizer that has proven to be successful in the test market phase. The product was proven to be as effective as competitive products but does not have the same skin-drying effects as competitive products because of your secret, plant-based ingredient. The cost to produce the hand sanitizer is relatively low, with total manufacturing costs running $0.10 per ounce. Each bottle of hand sanitizer is 12 ounces, and the packaging is designed to fit in a vehicle‘s cupholder. What pricing strategy do you recommend for this product?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students can choose from three major pricing strategies: customer value– based pricing, cost-based pricing, and competition-based pricing.

Customer value–based pricing uses buyers‘ perceptions of value as the basis for setting price. If buyers perceive the hand sanitizer is better, a higher price will be justified. Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling products plus a fair rate of return for effort and risk. At $.10 per ounce, a price of $5 per bottle may be profitable. Competition-based pricing involves setting prices based on competitors‘ strategies, costs, prices, and market offerings.

Hand sanitizers range in price from $0.50 per fluid ounce to $1.00 per fluid ounce. Students will want to consider alternatives to hand sanitizer (such as washing hands with soap and water).

Minicases and Applications

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Digital Marketing Online Price Tracking Got your eye on a new Fitbit Alta Smart Fitness Activity Tracker? Well, you better not purchase it in December—that‘s when the price was highest on Amazon.com ($129 versus $69 in March). Most consumers know that prices fluctuate throughout the year, but did you know they fluctuate even hourly? You probably can‘t keep up with that, but there‘s an app that can. The Camelizer (aka Camelcamelcamel) is an app that tracks Amazon‘s prices for consumers and sends alerts when a price hits the sweet spot. This app allows users to import entire Amazon wish lists and to set desired price levels at which emails or tweets are sent to inform them of the prices. All of this is free. Camel makes its money from an unlikely partner—Amazon—which funnels price data directly to Camel.

Camel is a member of Amazon‘s Affiliate program, by which Amazon kicks back 8.5 percent of sales for each customer Camel refers. It would seem that Amazon would want customers to buy when prices are higher, not lower. But the online behemoth sees this as a way to keep bargain hunters happy while still realizing more profitable sales from less price-sensitive customers. This is an improvement over Amazon‘s earlier pricing tactics, which charged different customers different prices based on their buying behavior.

9-10. Go to www.camelcamelcamel.com and set up a free account. Track five products that interest you. Did any of the products reach your desired price? Write a report on the usefulness of this type of app for consumers.

(AACSB: Written and Oral Communication) Answer: Students will discover that they can find a very wide range of products to track. They will see that they can create price watch lists and find out what products have recently experienced price drops. For any product, the app provides information showing pricing trends. Students‘ reactions will vary depending on the products they tracked and the desired prices they set.

Setting desired prices too low will result in no alerts. Instructors may want to assign products to students and have them track prices over a period of time longer period than a typical assignment.

9-11. Camel is not the only Amazon tracking or online price tracking application. Find and describe an example of another online price tracking tool for consumers. (AACSB: Written and Oral Communication) Answer: Student answers will vary. Simply searching for ―online price tracking‖ will provide links to other price tracking sites and articles evaluating some of the trackers. There are other Amazon price tracking apps such as The Tracktor, Dropped, PricePulse, and Keepa. Another service that tracks

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websites in addition to Amazon is Yroo (www.yroo.com). It tracks prices at many stores like Target, Amazon, Walmart, eBay, Best Buy, and more.

Marketing Ethics Pink Tax Your firm did market research and realized it can maintain demand and charge $20 more for a pink version of a bicycle helmet than the blue version. Both helmets cost the same amount to produce. Your manager asks you whether the firm should charge a higher price for the pink helmet. As you research your response, you come across a recent report by the Government Accountability Office. The report found that about half of the items it evaluated—which included deodorant, shaving gel/cream, razors, perfumes and body sprays, and financial products—cost more when they were marketed to women, which is sometimes referred to as a ―pink tax.‖ Gender-based pricing differences are legal, and the GAO could not conclude that bias was to blame for the price differences.

However, you also find information that suggests consumers have requested laws that punish retailers and manufacturers that charge higher prices for women‘s versions of products when there is no cost-based justification. Further, you learn that consumer activists are publicly shaming brands that charge higher prices for certain population segments.

9-12. Should the firm charge $20 more for the pink helmet? Why or why not?

(AACSB: Written and Oral Communication; Ethical Understanding and Reasoning; Reflective Thinking) Answer: Student responses may vary but should consider the potential for genderbased pricing differences to hurt the brand‘s reputation and credibility.

Although the practice is legal, it upsets consumers when they cannot identify a rationale or increased value associated with a higher price. If there is not a cost difference, it should raise a question about the ethics associated with charging a higher price for the pink helmet. Students should also consider the power of social media in the current market environment. Negative word of mouth may result in a loss that exceeds the amount gained by charging more for each pink helmet. Further, if the demand for the pink helmet is high, charging less for the pink helmet may allow the firm to sell more units and lower its production costs, which could offset the lower margin.

9-13. One of your coworkers makes the argument that the higher price on the pink helmet makes sense because it is an example of value-based pricing. Her argument is that a consumer who does not want to pay the higher price for the pink helmet can buy the blue version. Respond to her argument. (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: Value-based pricing utilizes consumers‘ perceptions of what a product is worth to set prices. However, learning that the price is higher because consumers were willing pay more for pink would probably not appease consumers who get upset after learning about the ―pink tax‖ differential.

Further, encouraging someone to buy blue if they are unhappy with the higher price of pink raises questions about cultural norms and the use of color to gender products (e.g., if you are unhappy with the price of the ―girl‘s‖ color, buy the ―boy‘s‖ color). Therefore, students should identify that the potential ramifications for the brand‘s reputation and costs associated with consumer backlash are unlikely to be alleviated by the colleague‘s argument.

Marketing by the Numbers Rock Bottom Promotional Pricing Rock Bottom Golf is an online golf equipment retailer that sells clubs, shoes, balls, and all the other gadgets golfers could ever need. Rock Bottom‘s prices are lower than those of most brick-and-mortar golf and sporting goods retailers, but they often go even lower with limited-time promotional pricing, especially around major holidays. For example, the Father‘s Day promotion offers $50 to $75 off Rock Bottom‘s already low price on select clubs and range finders that normally cost hundreds of dollars. One current offer is $60 off the Tour Edge E529 Driver that Rock Bottom normally sells for $229.99. To get the word out about the offer, Rock Bottom spent $9,000 on banner ads on golf-related websites like www.golfchannel.com and www.pga.com. Rock Bottom understands that promotional pricing cuts into its profits for each sale but also knows that such pricing generates excitement and a sense of urgency among buyers because of the limited time the promotional price is available. In fact, Rock Bottom‘s research of past Father‘s Day promotions shows that it‘s mostly men buying the clubs and gadgets for themselves!

9-14. Assuming Rock Bottom‘s cost of goods sold (COGS) is 65 percent, calculate Rock Bottom‘s margin per driver before the $60 off promotional price and after the promotional price. What effect does the promotional pricing have on the margin Rock Bottom earns for every driver sold?

Refer to Break-Even and Margin Analysis in Appendix 3: Marketing by the Numbers to learn how to perform this analysis. (AACSB: Written and Oral Communication; Analytical Thinking; Reflective Thinking) Answer: Margin per driver = Price – cost of goods sold

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Cost of goods sold is given as 65 percent, which means it is equal to 65 percent of the selling price: COGS = 0.65 x $229.99 = $149.49 Therefore, Margin per driver before the promotion = $229.99 – $149.49 = $80.50 The price of the driver is reduced $60 due to the promotion, so the promotional price is: Price = $229.99 – $60 = $169.99 Therefore, Margin per driver with the promotion = $169.99 – $149.99 = $20 Because the $60 off promotion reduces the price by that amount, the margin per driver also decreased by that amount because costs do not change.

9-15. How many additional drivers must Rock Bottom sell to break even on this promotion? Assume the $9,000 spent on banner ads is the only fixed cost associated with this promotion. (AACSB: Analytical Thinking) Answer: Since the advertising cost is a fixed cost, Rock Bottom must sell 450 drivers to break even on this promotion: Advertising expense $9,000 ΔBEdrivers = ————————— = ————— = 450 drivers Margin per driver $20 Company Case Teaching Notes

Company Cases

9 Casper/2 Dyson/8 Pfizer

See Appendix 1 for teaching notes for the below cases.

Case 9, Casper: A Pricing Strategy that Flipped the Mattress Industry. An innovative new product and a direct-to- consumer model are behind a pricing strategy that gave Casper an edge in the mattress market.

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Case 2, Dyson: Solving Customer Problems in Ways They Never Imagined. Much more than a make of vacuum cleaners, at its core, Dyson is a technology company that seeks to develop new and innovative versions of everyday products that wow customers.

Case 8, Pfizer: Developing New Products to Save Lives. With a tried-and-true strategy for developing pharmaceuticals that make the world a healthier place, Pfizer brought the first COVID-19 vaccine to market in record time.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

There are so many factors to consider in setting prices that the students might begin to feel overwhelmed very early in the chapter. It might be easier to discuss this in the context of a new business the class will launch—say, a laundry service on campus. Most students hate doing laundry, so they are willing to pay someone to do it for them, especially with pickup and delivery service. You can easily run through the internal and external factors that would affect such a service, and even discuss pricing strategy if a competitor were to develop a similar service.

Students may also need further explanation regarding why cost-based pricing isn‘t the right way to price everything. It‘s simple, it‘s easy to apply a formula, and there is no guesswork involved. You need to drive home the point that it ignores the customer completely—cost-based pricing is internally focused, without a thought to the demand parameters or competitors‘ prices. You can talk about this from the perspective of a highcost manufacturer—how much would they be able to sell if their product cost 50% more than the competition simply because the company hadn‘t figured out how to manufacture it effectively?

Value-based pricing could engender a considerable amount of conversation, particularly if someone thinks it is unethical to charge a price for something that yields the company a very large margin. Why wouldn‘t you treat customers ―right‖ by charging them less? A discussion of the meaning of customer focus and of benefits to the customer will help the class to understand that if the customer thinks he is getting value, he will happily pay the price.

After this discussion, the students might then be quite confused that value pricing and everyday low pricing are subsets of value-based pricing. It might be helpful here to differentiate between value-based pricing in a business market and value or EDLP in the consumer market. Many businesses will buy based on a value they assign to a product or service, often in terms of ROI for themselves. Consumers will rarely do that explicitly and, at least for basic necessities, will often buy based on price.

It is still value-based pricing.

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5.

6.

7.

Product line pricing can easily be illustrated with the example of gasoline.

Virtually every gas station in this country sets the prices of each of its grades of gas between 8 and 10 cents apart (e.g., regular for $3.25, the next grade for $3.35, and the premium grade for $3.55). This is an everyday example of price steps with which everyone will have experience. Captive-product pricing will also be a fairly easy concept to understand with the example of razors and razor blades. Optional-product pricing could cause some problems, however. Discussing the example of buying a computer with or without a service agreement could help explain how this is done.

Segmented pricing can easily be explained by using the examples of senior citizen discounts or the discount you get at the movies for going during the day (matinee prices). Most students today have traveled, so it is also useful to talk about the airlines‘ use of yield management.

Geographical pricing can cause some problems. Although the students might have heard of FOB pricing, it will not be a common term for them.

Explaining that this is basically a decision between the customer paying the freight and the company paying the freight will help, especially because the majority of the students will have purchased at least something online, so they will have experience with freight or delivery charges.

Student Projects 1. Take a drive around town and look at the pricing of gasoline at a variety of different stations. Use Product Line Pricing to explain what you are seeing.

2. Explain how companies such as Dell use Cost-Plus Pricing. What are the competitive disadvantages of such pricing strategies?

3. Take a look at Rolex watches (www.rolex.com/en). What pricing strategy is being employed here? What message is this pricing strategy sending to potential consumers?

4. Walk through your favorite supermarket or discount store. Make a list of 10 products that employ Captive-Product Pricing.

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Peloton. Each group should then answer the following questions: 1. What pricing strategy do you believe Peloton is using? Why? 2. What are the dangers Peloton faces from competitors that utilize a different pricing strategy?

3. What is the market position of Peloton in the mind of the customer?

Each group should share its findings with the class.

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Individual Assignment Product Bundle Pricing has become a very popular pricing strategy. Review and compare the current pricing strategies being used by your local cable provider and that offered by DirectTV (www.directtv.com). Are they making the most of product bundle pricing? What suggestions could you offer to improve their competitive positions against one another?

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. Under what conditions should market-penetration pricing be used?

2. Provide examples of when promotional pricing may be considered unethical.

3. What is predatory pricing and why is its use questionable?

4. When raising prices, care must be taken so that the company does not appear to be a price gouger. What techniques can be employed to assist in this?

5. Give examples of unfair price discrimination.

Classroom Exercise/Homework Assignment For the ultimate in Dynamic Pricing, one need only look to the air travel industry.

Go online to Expedia (www.expedia.com), one popular booking engine, and ―book‖ yourself a flight to Cancun for the Christmas break. Examine the vast differences in prices offered and explain why this is occurring. Now, ―book‖ this same trip to Cancun, and add in a hotel stay for six nights. Again, examine and explain the vast differences in prices offered.

Classroom Management Strategies This is a very long chapter, and it might be best to break it into two class periods.

It is noted below where a reasonable break would be if you are able to do so.

1.

2.

Discussing the history of pricing, and the differences between fixed prices and dynamic prices is worthy of at least 5 minutes. You can also tie dynamic pricing back into the individual markets that were discussed in a previous chapter to drive home the value of dynamic pricing.

If you are breaking the chapter into two class sessions, spend 20 minutes on Factors to Consider when Setting Prices. If you do not have that luxury, 10 minutes will suffice. In this case, you will want to hit the major factors of

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

3.

4.

5.

6.

7.

marketing objectives and marketing mix strategy for internal factors, and the market and demand for the external factors.

Another 20 minutes should be spent on General Pricing Approaches in a two-session approach to this chapter. If covering the material in one session, spend 10 minutes on this. In this approach, focus on the differences among the three pricing approaches.

New Product Pricing Strategies should be covered in 15 minutes. In one class session, spend about 5 minutes covering the differences between market skimming and market penetration. This would also be where you should break for the session if you are going to continue with the chapter in the next class.

Product Mix Pricing Strategies covers a lot of information. In the second class session, spend 20 minutes on this topic, being sure to cover each of the five subsections. In one class period, you can cover this in 10 minutes by focusing on the three pricing strategies, briefly explaining the last two.

Price-Adjustment Strategies also covers a lot of material. In a second class section, 20 minutes should also be spent on this topic. Again, you can cover this in 10 minutes by focusing on the first three subsections.

Regardless of whether you are presenting this material in one class or two, spend 15 minutes on Price Changes. This is an important element to understanding pricing, and this is the area where many marketing managers make their money when it comes to pricing.

PROFESSORS ON THE GO

Pricing: Understanding and Capturing Customer Value Key Concepts Internal factors affecting pricing External factors affecting pricing Cost-based pricing Value-based pricing Competition-based pricing  



The chapter points out many companies do not handle pricing well.

Beyond focusing too much on cost, what are some of the other difficulties that marketers have in setting prices?

Interview a local business about their pricing philosophy and/or strategy. Use their terms and then apply what you have learned from them to assess their approach to those described in the text. What are the similarities and differences? How successful do the strategies appear to be? How did you make this judgment?

Explain why the elasticity of demand is such an important concept to marketers who market a ―commodity-type‖ product.

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 

Cost-plus-pricing and target-profit-pricing are two different types of cost-based pricing. Which of these methods is a better tool for marketers?

What are the primary methods of competition-based pricing?

Key Concepts Market-skimming and market-penetration pricing Product mix pricing strategies  

What market conditions would discourage a company from using a market-penetration pricing strategy to enter a market?

Cell phone companies use a two-part pricing strategy. From a consumer‘s perspective, is there a better pricing strategy? What is it?

Explain.

Key Concepts Pricing within channel levels Pricing across channel levels  

Lawful price discrimination by sellers is a common practice. Discuss the conditions under which this price discrimination practice becomes unlawful.

Find several examples where a retail outlet charges less than the manufacturer‘s suggested price. Why would they do that? Can you find any examples of retailers charging more than the suggested price?

How would a manufacturer react to each of these scenarios?

CHAPTER 10 MARKETING CHANNELS: DELIVERING CUSTOMER VALUE PREVIEWING THE CONCEPTS: CHAPTER OBJECTIVES 24. Explain why companies use marketing channels and discuss the functions these channels perform.

25. Discuss how channel members interact and how they organize to perform the work of the channel.

26. Identify the major channel alternatives open to a company.

27. Explain how companies select, motivate, and evaluate channel members.

28. Discuss the nature and importance of marketing logistics and integrated supply chain management.

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JUST THE BASICS CHAPTER OVERVIEW This chapter deals with distribution.

An individual firm’s success depends not only on how well it performs but also on how well its entire marketing channel competes with competitors’ channels.

To be good at customer relationship management, a company must also be good at partner relationship management.

The first part of this chapter explores the nature of marketing channels and the marketer’s channel design and management decisions.

We then examine physical distribution—or logistics—an area that is growing dramatically in importance and sophistication.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP AirBnb: Disrupting Traditional Distribution Channels

Airbnb boasts more rooms than the six largest global hotel groups combined.

Airbnb‘s channel disruption has significantly reshaped the habits of many of the world‘s vacation travelers. With Airbnb, you ―Belong Anywhere.‖ Founders Brian Chesky and Joe Gebbia decided to make some extra income to help pay the rent on their San Francisco loft apartment by renting out three air mattresses on the apartment‘s floor at $40 each (hence the ―air‖ in Airbnb). They realized that people who booked air mattresses got a lot more than just a cheap place to stay. They got an authentic ―live-like-the-locals‖ experience. The idea blossomed into Airbnb, an online lodgings marketplace that matches people who need a place to stay with property owners who have room to spare.

The basic Airbnb model is simple. It starts with hosts—who register and are vetted for legitimacy. Listings can include anything from a couch, single room, suite of rooms, or apartment to moored yachts, entire houses, or even a castle. Some hosts even rent space in their yards for guests to pitch a tent.

Registered users search by city, room type, price range, amenities, host language, and other options. Most listings provide photos and details that offer a good idea of what their

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stay will be like. Bookings are made through Airbnb, so money changes hands only through a secure interface. When guests arrive at the property, the host either greets them or arranges for entry.

Exhaustive research found that guests do not want to be tourists. They want to be insiders who engage with people and immerse themselves in local cultures. They wanted to belong. Airbnb’s mission is to help people belong anywhere, to live in a place instead of just traveling to it. This mission inspired Airbnb’s tagline—―Belong Anywhere.‖ Belonging means having a local experience even if the host is not present. It means venturing into local spots guests might not otherwise see and doing things they might not otherwise.

The pandemic hit Airbnb hard—2020 results were half of those in the previous year. But even in that horrific environment, Airbnb continued to adapt and innovate. It launched ―Go Near,‖ a social media campaign to promote safe, nearby, longer-term getaways.

Airbnb’s disruption has reshaped the habits of many travelers, challenging many age-old principles of the hotel and hospitality businesses. Airbnb must adapt and innovate, focusing on you ―Belong Anywhere.‖

INTRODUCTION Most firms cannot bring value to customers by themselves. Instead, they must work closely with other firms in a larger value-delivery network.

Use Chapter Objective 1 here.

SUPPLY CHAINS AND THE VALUE DELIVERY NETWORK The supply chain consists of ―upstream‖ and ―downstream‖ partners.

Upstream from the company is the set of firms that supply the raw materials, components, parts, information, finances, and expertise needed to create a product or service.

Marketers have traditionally focused on the ―downstream‖ side of the supply chain—on the marketing channels (or distribution channels) that look forward toward the customer.

A better term would be demand chain because it suggests a sense-and-respond view of the market.

Under this view, planning starts with the needs of target customers, to which the company responds by organizing a chain of resources and activities with the goal of

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

creating customer value.

Use Key Term Value Delivery Network here.

As defined in Chapter 2, a value delivery network is made up of the company, suppliers, distributors, and ultimately customers who ―partner‖ with each other to improve the performance of the entire system.

The Nature and Importance of Marketing Channels Producers try to forge a marketing channel (or distribution channel)—a set of interdependent organizations that help make a product or service available for use or consumption by the consumer or business user.

Use Key Term Marketing Channel (Distribution Channel) here.

Use Figure 10.1 here.

How Channel Members Add Value Figure 10.1 shows how using intermediaries can provide economies.

The role of marketing intermediaries is to transform the assortments of products made by producers into the assortments wanted by consumers.

Members of the marketing channel perform many key functions. Some help to complete transactions: 

Information: Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange.



Promotion: Developing and spreading persuasive communications about an offer.



Contact: Finding and communicating with prospective buyers.



Matching: Shaping and fitting the offer to the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging.



Negotiation: Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.

Others help to fulfill the completed transactions: 

Physical distribution: Transporting and storing goods.



Financing: Acquiring and using funds to cover the costs of the channel work.



Risk taking: Assuming the risks of carrying out the channel work.

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Use Discussion Question 10-1 here.

Number of Channel Levels A channel level is each layer of marketing intermediaries that performs some work in bringing the product and its ownership closer to the final buyer.

Use Key Term Channel Level here.

The number of intermediary levels indicates the length of a channel. (see Figure 10.2)

A direct marketing channel has no intermediary levels; the company sells directly to consumers.

An indirect marketing channel contains one or more intermediaries.

Use Key Terms Direct Marketing Channel and Indirect Marketing Channel here.

Use Figure 10.2 here.

Use Discussion Question 10-2 here.

From the producer’s point of view, a greater number of levels means less control and greater channel complexity.

Use Chapter Objective 2 here.

CHANNEL BEHAVIOR AND ORGANIZATION Channel Behavior A marketing channel consists of firms that have partnered for their common good. Each channel member depends on the others.

Each channel member plays a specialized role in the channel. The channel will be most effective when each member assumes the tasks it can do best.

Disagreements over goals, roles, and rewards generate channel conflict.

Horizontal conflict occurs among firms at the same level of the channel.

Vertical conflict occurs between different levels of the same channel.

Use Key Term Channel Conflict here.

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Vertical Marketing Systems Use Key Term Conventional Distribution Channel here.

A conventional distribution channel consists of one or more independent producers, wholesalers, and retailers. Each is a separate business seeking to maximize its own profits, perhaps even at the expense of the system as a whole.

A vertical marketing system (VMS) consists of producers, wholesalers, and retailers acting as a unified system. One channel member owns the others, has contracts with them, or wields so much power that they must all cooperate. (see Figure 10.3) A Corporate VMS integrates successive stages of production and distribution under single ownership.

A Contractual VMS consists of independent firms at different levels of production and distribution, who join together through contracts to obtain more economies or sales impact than each could achieve alone.

The franchise organization is the most common type of contractual relationship—a channel member called a franchisor links several stages in the production-distribution process.

There are three types of franchises.

1. The manufacturer-sponsored retailer franchise system—for example, Ford and its network of independent franchised dealers.

2. The manufacturer-sponsored wholesaler franchise system—Coca-Cola licenses bottlers (wholesalers) in various markets who buy Coca-Cola syrup concentrate and then bottle and sell the finished product to retailers in local markets.

3. The service-firm-sponsored retailer franchise system—examples are found in the auto-rental business (Avis), the fast-food service business (Burger King), and the motel business (Holiday Inn).

In an Administered VMS, leadership is assumed not through common ownership or contractual ties but through the size and power of one or a few dominant channel members.

Use Key Terms Vertical Marketing System (VMS), Corporate VMS, Contractual VMS, Franchise Organization, and Administered VMS here.

Use Figure 10.3 here.

Use Critical Thinking Exercise 10-7 here.

Horizontal Marketing Systems

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Two or more companies at one level join together to follow a new marketing opportunity.

Use Key Term Horizontal Marketing System here.

Use Discussion Question 10-3 here.

Multichannel Distribution Systems

Occurs when a single firm sets up two or more marketing channels to reach one or more customer segments. (see Figure 10.4)

Use Key Term Multichannel Distribution System here.

Use Figure 10.4 here.

Use Marketing Ethics here.

Changing Channel Organization

Disintermediation occurs when product or service producers cut out intermediaries and go directly to final buyers, or when radically new types of channel intermediaries displace traditional ones.

Use Key Term Disintermediation (or channel disruption) here.

Use Marketing at Work 10.1 here.

Use Linking the Concepts here.

CHANNEL DESIGN DECISIONS Marketing channel design calls for analyzing consumer needs, setting channel objectives, identifying major channel alternatives, and evaluating them.

Use Chapter Objective 3 here.

Use Key Term Marketing Channel Design here.

Analyzing Consumer Needs As noted previously, marketing channels are part of the overall customer-value delivery network.

The company must balance consumer needs not only against the feasibility and costs of meeting these needs but also against customer price preferences.

Setting Channel Objectives Companies should state their marketing channel objectives in terms of targeted levels of customer service.

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The company should decide which segments to serve and the best channels to use in each case.

The company’s channel objectives are influenced by the nature of the company, its products, its marketing intermediaries, its competitors, and the environment.

Environmental factors such as economic conditions and legal constraints may affect channel objectives and design.

Identifying Major Alternatives Types of Intermediaries A firm should identify the types, number, and responsibilities of channel members available to carry out its channel work.

Number of Marketing Intermediaries Companies must also determine the number of channel members to use at each level.

Three strategies are available: 1. Intensive distribution: Ideal for producers of convenience products and common raw materials. It is a strategy in which they stock their products in as many outlets as possible.

2. Exclusive distribution: Purposely limit the number of intermediaries handling their products. The producer gives only a limited number of dealers the exclusive right to distribute its products in their territories.

3. Selective distribution: This is the use of more than one, but fewer than all, of the intermediaries who are willing to carry a company’s products.

Use Key Terms Intensive Distribution, Exclusive Distribution, and Selective Distribution here.

Use Critical Thinking Exercise 10-8 here.

Use Marketing by the Numbers here.

Use Discussion Question 10-4 here.

Responsibilities of Channel Members The producer and intermediaries need to agree on the terms and responsibilities of each channel member.

They should agree on price policies, conditions of sale, territorial rights, and specific services to be performed by each party.

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Evaluating the Major Alternatives Using economic criteria, a company compares the likely sales, costs, and profitability of different channel alternatives.

Using control issues means giving them some control over the marketing of the product, and some intermediaries take more control than others.

Using adaptive criteria means the company wants to keep the channel flexible so that it can adapt to environmental changes.

Designing International Distribution Channels In some markets, the distribution system is complex and hard to penetrate, consisting of many layers and large numbers of intermediaries.

At the other extreme, distribution systems in developing countries may be scattered, inefficient, or altogether lacking.

Sometimes local customs can greatly restrict how a company distributes products in global markets.

CHANNEL MANAGEMENT DECISIONS Marketing channel management calls for selecting, managing, and motivating individual channel members and evaluating their performance over time.

Use Chapter Objective 4 here.

Use Key Term Marketing Channel Management here.

Selecting Channel Members When selecting intermediaries, the company should determine what characteristics distinguish the better ones.

Managing and Motivating Channel Members The company must sell not only through the intermediaries but also to and with them.

Most companies practice strong partner relationship management (PRM) to forge long-term partnerships with channel members.

Use Marketing at Work 10.2 here.

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Evaluating Channel Members The company should recognize and reward intermediaries who are performing well and adding good value for consumers.

Those who are performing poorly should be assisted or replaced.

Companies need to be sensitive to their channel partners.

Public Policy and Distribution Decisions Exclusive distribution occurs when the seller allows only certain outlets to carry its products.

Exclusive dealing occurs when the seller requires that these dealers not handle competitors’ products.

Exclusive arrangements exclude other producers from selling to these dealers. This brings exclusive dealing contracts under the scope of the Clayton Act of 1914.

Exclusive territorial agreements occur when the producer agrees not to sell to other dealers in a given area, or the buyer may agree to sell only in its own territory.

Full-line pricing occurs when producers of a strong brand sell it to dealers only if the dealers will take some or all of the rest of the line. This is also known as a tying agreement.

In general, sellers can drop dealers ―for cause.‖ Use Linking the Concepts 2 here.

MARKETING LOGISTICS AND SUPPLY CHAIN MANAGEMENT Use Chapter Objective 5 here.

Use Key Term Marketing Logistics (Physical Distribution) here.

Nature and Importance of Marketing Logistics

Marketing logistics—also called physical distribution—involves planning, implementing, and controlling the physical flow of goods, services, and related information from points of origin to points of consumption to meet customer requirements at a profit.

Marketing logistics involves outbound distribution (moving products from the factory to resellers and ultimately to customers), inbound distribution (moving products and materials from suppliers to the factory), and reverse distribution (moving broken,

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unwanted, or excess products returned by consumers or resellers).

Use Key Term Supply Chain Management here.

Use Figure 10.5 here.

It involves the entirety of supply chain management—managing upstream and downstream value-added flows of materials, final goods, and related information among suppliers, the company, resellers, and final consumers (see Figure 10.5).

Companies today are placing greater emphasis on logistics for several reasons.

1. Companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices.

2. Improved logistics can yield tremendous cost savings to both the company and its customers.

3. The explosion in product variety has created a need for improved logistics management.

4. Improvements in information technology have created opportunities for major gains in distribution efficiency.

5. Logistics affects the environment and a firm’s environmental sustainability efforts (the development of a green supply chain).

Sustainable Supply Chains Designing sustainable supply chains is simply the right thing to do. It’s one more way that companies can contribute to saving our world for future generations.

Not only are sustainable channels good for the world, they’re also good for a company’s bottom line.

Companies green up their supply chains through greater efficiency, and greater efficiency means lower costs and higher profits.

Goals of the Logistics System The goal of marketing logistics should be to provide a targeted level of customer service at the least cost.

Major Logistics Functions Warehousing A company must decide how many and what types of warehouses it needs and where they will be located.

Storage warehouses store goods for moderate to long periods.

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Use Key Term Distribution Center here.

Distribution centers are designed to move goods rather than just store them.

Inventory Management Just-in-time logistics systems: Producers and retailers carry only small inventories of parts or merchandise, often only enough for a few days of operations.

Transportation Trucks have increased their share of transportation steadily and now account for 64 percent of total cargo ton-miles.

Trucks are highly flexible in their routing and time schedules, and they can usually offer faster service than railroads.

They are efficient for short hauls of high-value merchandise.

Railroads account for 10 percent of total cargo ton-miles moved.

They are one of the most cost-effective modes for shipping large amounts of bulk products—coal, sand, minerals, and farm and forest products—over long distances.

Water carriers account for 4 percent of cargo ton-miles and transport large amounts of goods by ships and barges on U.S. coastal and inland waterways.

Although the cost of water transportation is very low for shipping bulky, low-value, nonperishable products, it is the slowest mode and may be affected by the weather.

Pipelines account for 18 percent of cargo ton-miles and are a specialized means of shipping petroleum, natural gas, and chemicals from sources to markets.

Air carriers transport less than 1 percent of the nation’s goods. Airfreight rates are much higher than rail or truck rates.

The internet carries digital products from producer to customer via satellite, cable, or phone wire.

Use Key Term Multimodal Transportation here.

Use Marketing Ethics here.

Use Discussion Question 10-5 here.

Multimodal transportation: Combining two or more modes of transportation.

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   

Piggyback: Rail and trucks; Fishyback: Water and trucks; Trainship: Water and rail; Airtruck: Air and trucks.

Logistics Information Management Electronic data interchange (EDI) is the computerized exchange of data between organizations.

Vendor-managed inventory (VMI) systems or continuous inventory replenishment systems, is the customer sharing real-time data on sales and current inventory levels with the supplier. The supplier then takes full responsibility for managing inventories and deliveries.

Use Key Term Integrated Logistics Management here.

Use Critical Thinking Exercise 10-9 here.

Integrated Logistics Management

Integrated logistics management is a concept that recognizes that providing better customer service and trimming distribution costs require teamwork, both inside the company and among all the marketing channel organizations.

Cross-Functional Teamwork Inside the Company The goal of integrated supply chain management is to harmonize all of the company’s logistics decisions.

Close working relationships among departments can be achieved in several ways.   

Permanent logistics committees, made up of managers responsible for different physical distribution activities Supply chain manager positions that link the logistics activities of functional areas System-wide supply chain management software

Building Logistics Partnerships Cross-functional, cross-company teams: For example, Nestlé’s Purina pet food unit has a team of dozens of people working in Bentonville, AR, the home of Walmart. They work jointly with their counterparts at Walmart to find ways to squeeze costs out of their distribution system.

Shared projects: For example, Home Depot allows key suppliers to use its stores as a testing ground for new merchandising programs.

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Third-Party Logistics

Third-party logistics (3PL) providers help clients tighten up overstuffed supply chains, slash inventories, and get products to customers more quickly and reliably. (Also called outsourced logistics or contract logistics.)

Companies use third-party logistics providers for several reasons.

1. These providers can often do it more efficiently and at lower cost.

2. Outsourcing logistics frees a company to focus more intensely on its core business.

3. Integrated logistics companies understand increasingly complex logistics environments.

Use Key Term Third-Party Logistics (3PL) Provider here.

Use Discussion Question 10-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

10-1. The supply chain consists of upstream and downstream partners.

Differentiate between upstream and downstream partners. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Upstream partners include the set of firms that provide raw materials, components, parts, information, finances, and expertise the company needs to manufacture the product or deliver the service. Downstream partners include distribution channels like wholesalers and retailers that help deliver the product of service to customers.

10-2. What is the difference in meaning among the terms supply chain, demand chain, and value delivery chain? Why is the difference important to marketing strategy? (AACSB: Written and Oral Communication) Answer: Demand chain was provided as an alternative term to supply chain because the term supply chain was perceived to be limited to a make-andsell view of the business. It suggests that raw materials, productive inputs, and factory capacity should serve as the starting point for market planning.

Demand chain suggests a sense-and-respond view of the market. Under this view, planning starts by identifying the needs of target customers, to

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which the company responds by organizing a chain of resources and activities with the goal of creating customer value. Value delivery network is different from demand chain because a demand chain view of a business may also be limited. It takes a step-by-step, linear view of purchase-production-consumption activities. Most large companies today are engaged in building and managing a complex, continuously evolving value delivery network that is made up of the company, suppliers, distributors, and, ultimately, customers who ―partner‖ with each other to improve the performance of the entire system.

10-3. How do decisions about marketing channels relate to other marketing decisions (for example, decisions about pricing, products, or promotion)?

(AACSB: Written and Oral Communication) Answer: Decisions about marketing channels—the distribution channels or interdependent organizations that make the product or service available for use or consumption by the consumer or business user—often involve long-term commitments that impact a firm‘s ability to change in response to shifts in demand or the environment. A firm‘s channel decisions also impact prices. Pricing depends on which retailers are selected to bring the product to the customers (for example, discount chains versus specialty stores, direct to consumer). The firm‘s sales force and communications decisions depend on the persuasion, training, motivation, and support the channel partners need. Whether a company develops or acquires products depends on how well products fit with the capabilities of its channel members.

10-4. Define disintermediation and channel disruption and describe how they affect the nature and design of marketing channels. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Disintermediation and disruption occur when product or service producers cut out intermediaries and go directly to final buyers or when radically new types of channel intermediaries displace traditional ones. When disintermediation or disruption occurs, it can displace traditional intermediaries. For example, many traditional brick-and-mortar retailers have been replaced by online retailers selling directly to consumers.

Others have met this threat by bolstering their omni-channel marketing capabilities. Therefore, disintermediation presents opportunities and problems for producers and resellers. Traditional intermediaries must continue to innovate.

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10-5. How do channel members add value? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Channel members make it more efficient for providers to make their goods and services available to target markets. Functions that often must be performed to complete key transactions include: gathering and distributing information about consumers, producers, and other actors and forces in the marketing environment needed for planning and aiding exchange; promoting offers; finding and engaging customers and prospective buyers; shaping offers to meet the buyer’s needs, including activities such as manufacturing, grading, assembling, and packaging; negotiating to reach an agreement on price and other terms so that ownership or possession can be transferred; transportation and storage of goods; financing; and risk-taking. Oftentimes, if a producer performs these functions on its own, its costs go up, which necessitates higher prices to the customer. On the other hand, channel members can reduce costs by specializing in a function and spreading the costs associated with that function across more producers. They also can add value to the function through their contacts, experience, specialization, and scale of operation. Intermediaries usually offer the firm more than it can achieve on its own.

10-6. Identify three reasons why companies use third-party logistics (3PL) providers. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies use third-party logistics providers because (1) getting the product to market is the company‘s main focus, so these providers can often do it more efficiently and at lower cost; (2) outsourcing logistics frees a company to focus more intensely on its core business; and (3) integrated logistics companies like UPS understand increasingly complex logistics environments.

Critical Thinking Exercises 10-7. Explain how channel members help candy maker Mars, Inc. deliver value to consumers. Could or should Mars take on any of these distribution functions itself? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Channel members add value by bridging the major time, place, and possession gaps that separate goods and services from those who use them. In getting its products to final consumers, Mars relies on its channel members for information, promotion, engaging consumers, matching source ingredients and packaging to consumer needs, negotiation, and

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help with distribution, finance, and risk taking. Responses will vary because Mars could perform many of these functions on its own. The question is whether the intermediaries add value that exceeds the cost of their work.

10-8. Robots have long been a key part of automation in manufacturing but are now increasingly used in distribution centers. Robots can do everything from moving merchandise to sweeping floors and counting pallets. For example, autonomous forklifts now efficiently and reliably perform a variety of repetitive pallet and product transportation needs in automated distribution centers. How will future automation impact the value that distribution centers provide in the retail supply chain? Is replacing humans with automated equipment a good thing? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Distribution centers are designed to receive goods, take orders, fulfill them, and deliver goods to customers as quickly as possible. Replacing human labor on repetitive tasks with automation can reduce downtime associated with shifts and breaks, which may allow distribution centers to reallocate human labor to other, value-added tasks and increase the distribution center‘s speed to deliver goods. Machines may be able to communicate with each other, learn from past tasks, and cut labor costs, which could also increase processing efficiencies.

10-9. Research how vendor-managed inventory (VMI) compares to a traditional inventory management system. Given their benefits, why wouldn’t all suppliers and retailers establish VMI systems? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The chapter explains that when using VMI, the retailer shares real-time data on sales and current inventory levels with the supplier. A Google search on VMI might lead students to a site such as www.nchannel.com/blog/vendor-managed-inventory-benefits-advantages/, which explains the challenges associated with traditional inventory systems (for example, the need to purchase excess inventory to pad the retailer against stockouts and the resulting costs of carrying the excess) and the advantages associated with VMI. With VMI, the retailer only buys what it can sell. Retailers use the technology to buy inventory in more frequent, smaller batches. Having the right amount of stock keeps costs down and helps ensure that goods are available when customers need them. The information also helps customers learn about the products. The vendor benefits because it can form more accurate forecasts and manage

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ordering and fulfillment. Both parties benefit from a more stable supply chain and a stronger relationship that adds value to the supply chain.

But VMI systems can be difficult to implement, and they aren‘t right for every company. The vendor assumes responsibility for managing the inventory based on demand. Since VMI relies on data, both parties need to have a high commitment to the channel partnership, investing in the infrastructure to support VMI and to allow the data interchange.

Minicases and Applications Digital Marketing Petco’s Partnership with Shipt Pet products and services retailer Petco formed a partnership with Target-owned Shipt to expand its same-day delivery options, which it already offers in some markets through Instacart‘s PetcoNow service. Shipt now delivers goods from Petco stores to nearly 70 million households in as little as one hour. Many analysts were positive about Petco‘s move to maximize same-day delivery coverage for its customers. Same-day delivery is now an expectation for online consumers in almost every category. However, critics of the partnership questioned why Target would offer its Shipt service to competitors like Petco instead of using Shipt exclusively to deliver its own pet products, including its private-label Boots & Barkley brand. Critics also noted Petco‘s frequent in-store stockouts, which would affect its ability to deliver desired products.

10-10. Is it wise for Petco to expand its same-day delivery offerings to additional customers through Shipt? Why or why not? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: It is wise for Petco to offer additional same-day delivery only if Petco customers value it as executed. If partnerships with Shipt and Instacart let Petco reliably deliver products that customers need quickly, that can help Petco meet growing customer delivery expectations. It may slow losing share of wallet to competitors like Target and Chewy.com (PetSmart). But it will differentiate Petco‘s offerings only to the extent that competing retailers do not offer same-day delivery. Petco must also evaluate whether same-day delivery of online orders results in losing sales and margins gained from impulse purchases customers might otherwise make shopping in its physical stores. But if Petco can use customer data to recommend related products online or to remind customers about products they‘ve previously purchased that they can add to orders to help justify the delivery cost, same-day delivery might give Petco an opportunity to increase share of wallet. And it could generate the massive demand required to offset the infrastructure and inventory expenditures. If so, the move to expand same-day delivery could result in profitable

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growth. Beyond issues relating to same-day delivery, students will also debate whether it‘s wise in the long run for Petco to rely on a competitor like Target to provide this service. Good arguments can be made on both sides of that issue.

10-11. Transportation, inventory, warehousing, and information management activities can interact in inverse ways. What trade-offs will Petco have to make in offering its customers same-day delivery? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: To provide immediate access to inventory, Petco may need to increase inventory levels, which will increase the costs associated with carrying inventory. Offering same-day delivery will likely set expectations that the desired product will be available immediately, which may increase a loss of customers if there are stockouts or backorders. Petco will need to coordinate inventory investments and accurately forecast demand. Quick, accurate data will need to be shared between the partners to provide the same-day delivery service in a way that meets expectations at a reasonable cost.

Marketing Ethics Did Channel Partner Decisions Motivate Canada Goose to Stop Using Fur? Luxury outerwear apparel brand and retailer Canada Goose will no longer manufacture products with fur after next year. Its announcement followed similar pledges from fashion houses Gucci and Chanel and announcements from department stores in its distribution chain—including Saks Fifth Avenue, Macy‘s, Bloomingdale‘s, and Nordstrom—that they would stop selling products made with animal fur. These companies are responding to consumer concerns about animal treatment, the societal shift in attitudes toward fur sales, and a California policy that prohibits fur sales. However, Canada Goose and the retailers are still selling other products made with animal products (for example, shearling, goatskin, cattle hide, down, feathers, and leather).

10-12. Did the decisions by its distribution channels impact Canada Goose‘s decision about the use of fur in its products? Support your response.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses may vary. Canada Goose sells directly to consumers through its own retail outlets. It might be responding to a change in customer preferences and criticism to its use of coyote fur, which is a social issue. However, Canada Goose also distributes its products through high-end retailers that made the commitment to stop selling products

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made with fur. It is an example where the relationships with marketing channels might impact what Canada Goose can and cannot sell to its ultimate customers.

10-13. Canada Goose has publicly committed to activities designed to make its practices more sustainable and to minimize the impact of its manufacturing process on the environment. However, faux fur substitutes for real fur often rely heavily on petroleum-derived plastics and synthetic textiles such as acrylic, modacrylic, and polyester. How can Canada Goose partner with upstream channel members to replace fur products in a sustainable way? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses may vary. Canada Goose may find ways to make the replacement textile something that can be recycled. Its traditionally high margins may help it take advantage of recent sustainable innovations on the product side. It might help invest in research with channel partners to discover alternative materials that protect its brand and the perceived value of its iconic jackets in the absence of their fur components. Look for evidence that students know that upstream channel partners provide the materials needed to produce the jackets.

Marketing by the Numbers Drinking from the Source The post-Prohibition ―three-tier system‖ requires the separation of the production, distribution, and retailing of alcohol in most states. That wasn‘t much of an issue for craft brewers during the explosive growth years between 2011 and 2015, when craft beers doubled their percentage of the beer market and could hardly keep up with demand. However, craft beer volume through the three-tier system declined 9 percent last year, causing craft brewers to turn to direct distribution for growth. Adding direct distribution, mainly through operating taprooms and brewpubs, resulted in 4 percent volume growth. Taprooms are located in working breweries where consumers can buy beer and brewpubs are restaurants with a brewery. Now, such establishments account for almost 8 percent of all U.S. bar traffic. Small craft brewers are excited about this trend—they make higher margins selling direct compared to using an indirect channel of distributors and bars. A brewer‘s average cost per keg of craft beer is $65, and a keg sells to distributors for $92. The distributor then resells the keg to a bar for $110. Each keg serves more than 100 14.5-ounce glasses, the amount typically poured into a 16-ounce glass at a bar to accommodate a foam head. A bar‘s cost per glass of craft beer poured is $1.00 per glass. The standard in the bar industry is to have 19 percent liquor cost, meaning 19 percent of the price to consumers represents the bar‘s cost of goods sold, leaving 81 percent for the bar‘s margin.

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10-14. Calculate the price at which a bar will sell one 14.5-ounce glass of craft beer if the desired 81 percent margin is based on selling price. What is the bar‘s dollar markup on a glass of craft beer? Refer to Setting Price Based on External Factors in Appendix 3: Marketing by the Numbers to learn how to do this analysis. (AACSB: Analytical Thinking) Answer: In general, a dollar markup is the difference between a company’s selling price for a product and its cost to manufacture or purchase it. For a bar, then, the markup is the difference between the price it charges consumers and the cost the bar must pay for the product. Thus: Dollar markup = Selling price – Cost Price  Cost Markup percentage on price = —————— Price So, Cost Price = ————— (1  Markup %) Therefore, for the bar with costs of $1.00 per glass and a desired margin of 81% based on selling price, the price for a 14.5-ounce glass will be: $1.00 Price = ————— = $5.26 per glass (1  0.81) Dollar markup = Selling price – Cost = $5.26 – $1.00 = $4.26 per glass Note: This represents over a 400% markup based on cost!

10-15. Determine the brewer‘s cost per 14.5-ounce serving (one glass). What price would a brewer sell that glass of beer for to achieve an 81 percent margin based on its selling price at its own taproom or brewpub? What dollar and percentage margin would a brewer realize if the glass of beer was sold for the same price as it is sold in bars? Is the brewer better off using the direct channel compared to the ―three-tiered system‖ indirect channel? (AACSB: Written and Oral Communication; Analytical Thinking; Reflective Thinking) Answer: First, the brewer‘s cost per 14.5-ounce service must be determined because it is not $1.00 as it is for bars. This can be determined with the following ratio: Cost per servingBar Cost per servingBrewer ——————— = ——————

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Cost per kegBar

Cost per kegBrewer

Solving for the brewer‘s cost per serving: Cost per servingBar x Cost per kegBrewer Cost per servingBrewer = —————————————— Cost per kegBar So, $1.00 x $65 Cost per servingBrewer = ———————— = $0.59 per serving $110 To determine price: Cost Price = ————— (1  Markup %) So, $0.59 Price = ————— = $3.11 per glass (1  0.81) If the brewer sold the glass of beer for the same price as bars sell it for ($5.26 per glass found in Question 1), then the dollar markup and percentage margin based on priced is: Dollar markup = Selling price – Cost = $5.26 – $0.59 = $4.67 per glass Price  Cost Markup percentage on price = —————— Price $5.26  $0.59 Markup percentage on price = —————— = 0.89 = 89% $5.26 Therefore, if the price of a glass of beer sold in a taproom or brewpub is the same as the price in a bar, the brewer will realize a higher margin percentage than the bar realizes (89% versus 81%). While the margin is higher, there are many additional fixed and variable costs brewers must assume when using a direct channel (that is, operating taprooms or brewpubs) compared to the ―three-tiered system‖ indirect channel of distribution.

Company Case Teaching Notes See Appendix 1 for teaching notes for the below cases.

Case 10, Weyerhaeuser: Riding Out a Supply Chain Storm. Facing a perfect storm of disrupting factors, Weyerhaeuser seeks to distribute surpluses of raw materials.

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Case 3, Square: In Relentless Pursuit of a More Elegant Payments Experience.

Having deeply disrupted the credit card payments industry, Square continues to expand its portfolio of services for businesses large and small.

Case 14, Shopify: The Unknown Ecommerce Giant. Providing a genuine end-to-end ecommerce platform for companies that want to sell online, Shopify becomes an ecommerce giant without selling anything to consumers.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

5.

Students will probably not have previously considered the complicated nature of getting products to consumers before, and the concepts of ―supply chain‖ and ―value delivery network‖ will most likely be foreign. Figure 10.1 is excellent in showing how complex delivery networks could become without intermediaries, and an early focus should be placed on this figure.

Vertical marketing systems can be difficult to understand. It might actually be easier to begin discussion of the contractual VMS with the illustration of franchises. Most students understand that McDonald’s is a franchise organization, and so the concept will be understood quickly and easily. A corporate VMS then becomes easy to understand because those consumer outlets are all owned by the company whose logo is on the door. Administered VMS can be illustrated by the example of Walmart, whose marketplace power has been making news.

Students will recognize horizontal VMS if they have been in a grocery store recently. The addition of bank branches, and in some grocery stores, Starbucks outlets, easily explains this concept.

Multichannel distribution systems can be illustrated by discussing how PC manufacturers, like HP, sell through retail outlets but also have their own sales forces for business customers. Dell will sell to consumers via its website to large companies through its own sales force, and to small businesses through many certified resellers.

In marketing logistics, the concepts of inbound and reverse logistics should be fully explained. Most students, at this point in the chapter, will have no problems with outbound logistics.

Student Projects 1.

2.

Why do some manufacturers establish contractual relationship with their dealers instead of owning them?

Draw the diagram of the channel of distribution for Green Giant canned corn and Rolex watches. (You may have to do a little internet research if you‘re not familiar with the brands.) How does distribution differ between these two products?

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3.

4.

How do channel members add value? Give specific examples.

One of the major trends is disintermediation. Why are companies turning to this?

What are the primary advantages and disadvantages associated with disintermediation? Under what conditions does it make the most sense?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Airbnb. Each group should then answer the following questions: 1. How has the Airbnb strategy been different from other competitors‘ strategies?

2. What is Airbnb doing to stay ahead of competition?

3. Most firms cannot bring value to customers by themselves. How does Airbnb bring value to its customers?

4. What is the source of Airbnb‘s competitive advantage? Can competitors easily duplicate this? Explain.

Each group should share its findings with the class.

Individual Assignment Mobile phone manufacturers largely distribute their products through service providers like T-Mobile and AT&T. Why do you believe this is so? Do you think this is the most efficient method?

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What are the major channel alternatives open to a company?

2. What are some of the ways that companies have to evaluate channel members?

3. What is the difference between an ―upstream‖ channel member and a ―downstream‖ member?

4. The term ―supply chain‖ seems pretty limiting. What phrase would you use to replace it? Why? 5. What are some of the key functions that members of the marketing channel typically perform?

Classroom Exercise/Homework Assignment

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Read about Starbucks’ commitment to help indigenous farmers in underdeveloped countries. (http://www.starbucks.com/responsibility/community/farmer-support).

After reading, write up your interpretation of the full distribution channel – from beans in the field to the finished cup of coffee you enjoy at your local Starbucks.

Classroom Management Strategies We have a chapter with a lot of very important material, but planned carefully, this chapter can easily be covered in one class period.

1.

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The first two sections of this chapter, Supply Chains and the Value Delivery Network and The Nature and Importance of Marketing Channels, can be covered in 5 minutes each. Both sections are important for establishing a vocabulary and baseline for the remainder of the chapter and, as such, are relatively short and to the point. Utilizing Figures 10.1 and 10.2 will be extremely helpful.

The next section, Channel Behavior and Organization, should be covered in 15 minutes. The concept of vertical marketing systems will most likely take the majority of that time, because it can be a difficult concept to comprehend.

Utilizing lots of examples will help.

Channel Design Decisions should also take 15 minutes to discuss. In this section, an equal amount of time should be spent on virtually all the subheadings, although Identifying Major Alternatives may take several minutes longer than the remaining sections.

The next two major sections, Channel Management Decisions and Public Policy and Distribution Decisions, can be covered in 5 minutes each. Again, these sections are short, with the information presented in a concise manner.

Finally, Marketing Logistics and Supply Chain Management can be covered in 10 minutes. Half of this time should be spent on the subsection Major Logistics Functions. If the students are required to take an Operations Management course, they will cover these topics in more detail, but if not, this could be the only time they are exposed to these concepts while in college.

PROFESSORS ON THE GO

Marketing Channels: Delivering Customer Value Key Concepts Value delivery network Channel members add value Channel behavior Vertical and horizontal marketing systems  

Describe at least three different distribution channels a new textbook might take to get from the publisher to the student-consumer.

Take a product or service of your choice and draw a diagram of the channel of distribution that is used to bring the product or service to the marketplace.

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

Why are marketing intermediaries used?

Key Concepts Making channel design decisions Making channel management decisions  

What are some of the methods companies use to motivate channel partners?

College students frequently want food late at night, so you are going to launch a business that picks up and delivers food to on-campus dormitories. Using the information in the text, design your channel of distribution. What are the needs of the consumer? What are your channel objectives? Do you want to use any intermediaries?

Key Concepts Marketing logistics and its functions Integrated logistics management   

Why would a company consider outsourcing its own logistics functions?

What are the overall goals of integrated supply chain management?

What can a company do to achieve the close working relationships necessary for effective supply chain management?

What do you think is the most critical function performed in logistics?

Explain why and describe how the field is changing and what you think will happen in the future.

CHAPTER 11 RETAILING AND WHOLESALING

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 29. Explain the role of retailers in the distribution channel and describe the major types of retailers.

30. Discuss how retailers are using omni-channel marketing to meet the cross-channel shopping behavior of today’s digitally connected consumers.

31. Describe the major retailer marketing decisions.

32. Discuss the major trends and developments in retailing.

33. Explain the major types of wholesalers and their marketing decisions.

JUST THE BASICS

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CHAPTER OVERVIEW This chapter is a continuation of the prior chapter on marketing channels; it provides more detail on retailing and wholesaling, which are two very important concepts in the value delivery network.

Retailers can be classified according to several characteristics, including the amount of service they offer, the breadth and depth of their product lines, the relative prices they charge, and how they are organized.

The major decisions retailers make are centered on their target market and positioning, their product assortment and services, their price, their promotion strategies, and where they are located.

There are many types of wholesalers, including merchant wholesalers, agents and brokers, and manufacturers‘ sales branches and offices.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Walmart: A Battle Between Titans in the New World of Retail Walmart is almost unimaginably big. It‘s the world‘s largest retailer— the world‘s largest company. It rang up an incredible $559 billion in sales last year—more than four times the sales of competitors Target, Macy‘s, JCPenney, and Kohl‘s combined.

Walmart is passionately dedicated to its long-time, low-price value proposition and what those low prices mean to customers: ―Save money. Live better.‖ The iconic retailer grew rapidly by offering a broad selection of goods at ―unbeatable low prices,‖ day in and day out.

Walmart is a lean, mean distribution machine—it has the lowest cost structure in the industry. Walmart‘s low costs result from efficient distribution, sophisticated information technology, and good old ―tough buying‖ from suppliers.

Having grown so big, the maturing giant has had difficulty maintaining the rapid growth rates of its youth. Its same-store sales growth has stagnated over the past decade, averaging just 3 percent per year. Think about this: To grow just 6 percent next year, Walmart would have to add more than $33 billion in new sale.

Although Walmart still dominates store retailing and outperforms most of its store-based rivals, consumers have increasingly shifted toward digital and mobile

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buying. Thus, Walmart is now locked in the fight of its life with another retail titan: online seller Amazon.

Digital technologies have reshaped the very foundations of how the world works.

And the recent COVID-19 pandemic only intensified the shift to digital shopping, as more and more shut-in consumers learned more about and grew fonder of shopping online.

No company does store retailing better than Walmart. In turn, no company does online retailing better than Amazon. Now, however, each is invading the other‘s domain, hoping to give customers the seamless omni-channel blend of in-store and digital options they seek. In short, Walmart wants to become Amazon before Amazon can become Walmart.

Walmart‘s omni-channel efforts really paid off during the COVID-19 pandemic.

Already growing at mid-double-digit rates, Walmart‘s online business grew by a whopping 79 percent in 2020.

The future of retailing belongs to the merchant that best merges the digital and physical worlds into a seamless omni-channel experience that fits the ways that today’s consumers shop. In redefining how it delivers on its long-standing ―Save money. Live better.‖ promise, Walmart is acting more like a startup than an aging giant.

Use Key Terms Retailing, Retailer, and Shopper Marketing here.

Use Chapter Objective 1 here.

RETAILING Retailing includes all the activities involved in selling products or services directly to final consumers for their personal, nonbusiness use.

Retailers: Businesses whose sales come primarily from retailing.

Many marketers are embracing the concept of shopper marketing, focusing the entire marketing process—from product and brand development to logistics, promotion, and merchandising—toward turning shoppers into buyers as they approach the point of sale.

Today’s consumers are increasingly omni-channel buyers, who make little distinction between in-store and online shopping and for whom the path to a retail purchase runs across multiple channels.

The Shifting Retailing Model Omni-channel retailing is creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping.

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Use Key Term Omni-Channel Retailing here.

Use Discussion Question 11-1 here.

In recent years, direct and online retailing has been growing much faster than has store retailing.

Store Retailing Amount of Service Self-service retailers serve customers who are willing to perform their own ―locatecompare-select‖ process to save time or money.

Limited-service retailers provide more sales assistance because they carry more shopping goods about which customers need information.

Full-service retailers include high-end specialty stores and first-class department stores.

Salespeople assist customers in every phase of the shopping process.

Use Discussion Question 11-2 here.

Product Line

Specialty stores carry narrow product lines with deep assortments within those lines.

Department stores carry a wide variety of product lines.

In recent years, department stores have been squeezed between more focused and flexible specialty stores on the one hand, and more efficient, lower-priced discounters on the other.

Supermarkets are the most frequently shopped type of retail store.

Supermarkets also have been hit hard by the rapid growth of out-of-home eating.

Online grocery buying captured 7.4 percent of total grocery sales last year and will grab an estimated 21.5 percent by 2025.

Convenience stores are small stores that carry a limited line of high-turnover convenience goods.

Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services.

Supercenters are very large combination food and discount stores.

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Category killers are superstores that are actually giant specialty stores. (Best Buy and Petco are examples.)

Service retailers include hotels and motels, banks, airlines, colleges, hospitals, movie theaters, tennis clubs, bowling alleys, restaurants, repair services, hair salons, and dry cleaners.

Service retailers in the United States are growing faster than product retailers.

Use Critical Thinking Exercise 11-7 here.

Use Key Terms Specialty Store, Department Store, Supermarket, Convenience Store, Superstore, and Service Retailer here.

Relative Prices Use Table 11.1 here.

Discount stores sell standard merchandise at lower prices by accepting lower margins and selling higher volume.

Off-price retailers offer products to fill the ultralow-price, high-volume gap by pricing lower than discount stores.

The three main types of off-price retailers are: 1. Independent off-price retailers are either independently owned and run or are divisions of larger retail corporations.

2. Factory outlets—manufacturer-owned and operated stores—sometimes group together in factory outlet malls and value-retail centers.

3. Warehouse clubs (or wholesale clubs or membership warehouses) operate in huge, drafty, warehouse-like facilities and offer few frills.

Use Discussion Question 11-3 here.

Use Marketing at Work 11.1 here Use Key Terms Discount Store and Off-Price Retailer here.

Organizational Approach

Corporate chains are two or more outlets that are commonly owned and controlled.

They have many advantages over independents. 

Their size allows them to buy in large quantities at lower prices and gain promotional economies.

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

They can hire specialists to deal with pricing, promotion, merchandising, inventory control, and sales forecasting.

There are three forms of contractual associations: 1. Voluntary chain—A wholesaler-sponsored group of independent retailers that engages in group buying and common merchandising.

2. Retailer cooperative—A group of independent retailers that bands together to set up a jointly owned, central wholesale operation and conducts joint merchandising and promotion efforts.

3. Franchise—The main difference between franchise organizations and other contractual systems is that franchise systems are normally based on some unique product or service or on a method of doing business.

Franchises command 40 percent of all retail sales in the United States.

Use Key Terms Corporate Chains and Franchise here.

Use Linking the Concepts here. .

Non-Store Direct Retailing Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a person at a particular address.

Catalog marketing: direct marketing through print, video, or digital catalogs that are mailed to select customers, made available in stores, or presented online.

Telemarketing involves using the telephone to sell directly to consumers and business customers.

Direct-response television (DRTV) marketing allows retailers to air television spots, often 60 or 120 seconds in length, which persuasively describe a product and give customers a toll-free number or an online site for ordering.

OMNI-CHANNEL MARKETING: BLENDING IN-STORE, ONLINE, MOBILE, AND SOCIAL MEDIA CHANNELS To succeed in this age of retail upheaval, traditional retailers must adapt to the ways that today‘s digitally connected customers shop, providing provider seamless, cross-channel buying experiences.

Use Chapter Objective 2 here.

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RETAILER MARKETING DECISIONS (see Figure 11.1) Use Figure 11.1 here.

Use Chapter Objective 3 here.

Segmentation, Targeting, Differentiation, and Positioning Decisions Too many retailers fail to define their target markets and positions clearly.

In contrast, successful retailers define their target markets well and position themselves strongly.

Product Assortment and Services Decision Retailers must decide on three major product variables: 1. Product assortment should differentiate the retailer while matching target shoppers’ expectations.

2. Services mix can help set one retailer apart from another.

3. Store atmosphere is another important element in the reseller’s product arsenal.

Use Critical Thinking Exercise 11-8 here.

Price Decision Most retailers seek either:  

High markups on lower volume (most specialty stores) Low markups on higher volume (mass merchandisers and discount stores)

Other pricing decisions:  

Everyday low pricing (EDLP)—Charging constant, everyday low prices with few sales or discounts.

High-low pricing—Charging higher prices on an everyday basis, coupled with frequent sales and other price promotions to increase store traffic, clear out unsold merchandise, create a low-price image, or attract customers who will buy other goods at full prices.

Use Marketing by the Numbers here.

Promotion Decision Retailers use any or all of the promotion tools—advertising, personal selling, sales promotion, public relations, and direct marketing—to reach consumers.

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Place Decision Retailers often point to three critical factors in retailing success: location, location, and location!

It’s very important that retailers select locations that are accessible to the target market in areas that are consistent with the retailer’s positioning.

Location options include:  

 

Central business districts which were the main form of retail cluster until the 1950s.

Shopping centers which are a group of retail businesses planned, developed, owned, and managed as a unit. o Regional shopping centers, or regional shopping malls, are the largest and most dramatic shopping centers and contain from 50 to over 100 stores, including two or more full-line department stores. o Community shopping centers contain between 15 and 50 retail stores. It normally contains a branch of a department store or variety store, a supermarket, specialty stores, professional offices, and sometimes a bank. o Neighborhood shopping centers or strip malls that generally contain between 5 and 15 stores. They are close and convenient for consumers.

Power centers are huge unenclosed shopping centers consisting of a long strip of retail stores, including large, freestanding anchors. This is the current trend.

Lifestyle centers are smaller malls with upscale stores, convenient locations, and non-retail activities such as dining and a movie theater.

Use Key Term Shopping Center here.

Use Critical Thinking Exercise 11-9 here.

RETAILING TRENDS AND DEVELOPMENTS Use Chapter Objective 4 here.

Use Discussion Question 11-4 here.

Increased Uncertainty and Disruption Following years of good economic times for retailers, the Great Recession of 2008-2009 turned many retailers’ fortunes from boom to bust.

The pandemic also greatly accelerated the shift from in-store to digital buying.

Tighter Consumer Spending Some retailers actually benefit from a down economy (for example, Costco and Dollar

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General).

Beyond cost-cutting and price promotions, many retailers added new value pitches to their positioning. For example: Home Depot replaced their old theme (You can do it. We can help.) with a thriftier one (More saving. More doing.)

In times of economic difficulty, retailers must be careful that their short-run actions do not damage their long-run images and positions.

New Retail Forms, Shortening Retail Life Cycles, and Retail Convergence New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter.

New retail forms are always emerging. Many retailers now are experimenting with limited-time pop-up stores that let them promote their brands to seasonal shoppers and create buzz in busy areas.

The online and mobile equivalent of the pop-up store is the flash sale site.

The merging of consumers, products, prices, and retailers is called retail convergence.

Such convergence means greater competition for retailers and greater difficulty in differentiating offerings.

The Rise of Megaretailers The megaretailers are shifting the balance of power between retailers and producers. A relative handful of retailers now control access to enormous numbers of consumers, giving them the upper hand in their dealings with manufacturers.

Use Marketing at Work 11.2 here.

Use Marketing Ethics here.

Rapid Advances in Retail Technology As digital and omni-channel shopping become the norm, retail technologies have become critically important as competitive tools. Progressive retailers are using advanced information technology and software systems to produce better forecasts, control inventory costs, interact digitally with suppliers, send information between stores, and even sell to customers within stores.

Retailers are experimenting with augmented (AR) and virtual reality (VR) to enhance the shopping experience.

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Using artificial intelligence, retailers can tailor merchandise, promotions, recommendations, and service to individual customer profiles.

Use Online, Mobile, and Social Media Marketing here.

Sustainable Retailing Today’s retailers are increasingly adopting environmentally sustainable practices.

At the most basic level, most large retailers are making their stores more environmentally friendly through sustainable building design, construction, and operations.

Retailers are also greening up their product assortments.

Many retailers have launched programs that help consumers make more environmentally responsible decisions.

Global Expansion of Major Retailers Retailers with unique formats and strong brand positioning are increasingly moving into other countries.

Many are expanding internationally to escape mature and saturated home markets. Many U.S retailers are still significantly behind Europe and Asia when it comes to global expansion.

Use Linking the Concepts here.

WHOLESALING Wholesaling includes all activities involved in selling goods and services to those buying for resale or business use.

Wholesalers are those firms engaged primarily in wholesaling activities.

Use Key Terms Wholesaling and Wholesaler here.

Use Chapter Objective 5 here.

Wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers.

Wholesalers add value by performing one or more of the following channel functions: Selling and promoting: Wholesalers’ sales forces help manufacturers reach many small customers at a low cost.

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Buying and assortment building: Wholesalers can select items and build assortments needed by their customers, thereby saving the consumers much work.

Bulk-breaking: Wholesalers save their customers money by buying in carload lots and breaking bulk (breaking large lots into small quantities).

Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and risks of suppliers and customers.

Transportation: Wholesalers can provide quicker delivery to buyers because they are closer than the producers.

Financing: Wholesalers finance their customers by giving credit, and they finance their suppliers by ordering early and paying bills on time.

Risk bearing: Wholesalers absorb risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence.

Market information: Wholesalers give information to suppliers and customers about competitors, new products, and price developments.

Management services and advice: Wholesalers often help retailers train their salesclerks, improve store layouts and displays, and set up accounting and inventory control systems.

Types of Wholesalers (see Table 11.2) Use Table 11.2 here.

1. Merchant wholesalers are the largest single group of wholesalers, accounting for roughly 50 percent of all wholesaling. Merchant wholesalers include two broad types: a. Full-service wholesalers provide a full set of services. b. Limited-service wholesalers offer fewer services to their suppliers and customers.

The different types of limited-service wholesalers perform varied specialized functions: 2. Brokers and agents differ from merchant wholesalers in two ways: a. They do not take title to goods. b. They perform only a few functions.

A broker brings buyers and sellers together and assists in negotiation.

Agents represent buyers or sellers on a more permanent basis. Manufacturers’ agents (also called manufacturers’ representatives) are the most common type of agent wholesaler.

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3. Manufacturers’ and retailers’ branches and offices involves wholesaling by sellers or buyers themselves rather than through independent wholesalers.

Use Key Terms Merchant Wholesaler, Broker, Agent, and Manufacturers’ and Retailers’ Branches and Offices here.

Wholesaler Marketing Decisions (see Figure 11.2) Segmentation, Targeting, Differentiation, and Positioning Decisions Like retailers, wholesalers must segment and define their target markets and differentiate and position themselves effectively—they cannot serve everyone.

Marketing Mix Decisions Wholesalers add customer value though the products and services they offer.

They are often under great pressure to carry a full line and to stock enough for immediate delivery. But this practice can damage profits.

Price is an important wholesaler decision.

Most wholesalers are not promotion minded.

Their use of trade advertising, sales promotion, personal selling, and public relations is largely scattered and unplanned.

Distribution (location) is important—wholesalers must choose their locations, facilities, and web locations carefully.

Use Figure 11.2 here.

Trends in Wholesaling The industry remains vulnerable to one of the most enduring trends—the need for evergreater efficiency.

Recent economic conditions have led to demands for even lower prices and the winnowing out of suppliers who are not adding value based on cost and quality.

The distinction between large retailers and large wholesalers continues to blur.

Wholesalers will continue to increase the services they provide to retailers—retail pricing, cooperative advertising, marketing and management information reports, accounting services, online transactions, and others.

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As with other types of marketers, the goal is to build value-adding customer relationships.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

11-1. Define omni-channel marketing. How did the COVID-19 pandemic impact omni-channel marketing? (AACSB: Written and Oral Communication) Answer: Omni-channel marketing is a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping. Consumers are increasingly omni-channel buyers who make little distinction between in-store and online shopping and for whom the path to a retail purchase runs across multiple channels. Consumers are increasingly ―mobile-first‖ shoppers who begin—and sometimes end—their buying processes on mobile devices. Purchases often consist of researching a product online and buying it from an online retailer without ever setting foot in a retail store. Or they might involve using a smartphone to research a purchase on the fly or while in retail store aisles. The pandemic accelerated the shift toward omni-channel retailing. The Best Buy example from the text provides some specific tactics used to help create a seamless experience for customers across different channels.

11-2. Differentiate between retailers based on the amount of service they offer.

Provide an example of each type. (AACSB: Written and Oral Communication) Answer: Self-service retailers serve customers who are willing to perform their own locate-compare-select process to save time or money. Examples include supermarkets and discount stores like Target or Kohl‘s. Limited-service retailers, such as Macy‘s or JCPenney, provide more sales assistance because they carry more shopping goods about which customers need information. Their increased operating costs result in higher prices. Fullservice retailers, such as high-end specialty stores (for example, Tiffany or Williams-Sonoma) and first-class department stores (such as Nordstrom or Neiman Marcus), assist customers in every phase of the shopping process. Full-service stores usually carry more specialty goods for which customers need or want assistance or advice. They provide more services, which results in much higher operating costs. These higher costs are passed along to customers as higher prices.

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11-3. Differentiate between different types of retailers based on the length and breadth of their product assortments. Provide an example of each type.

(AACSB: Written and Oral Communication) Answer: Specialty stores carry narrow product lines with deep assortments within those lines. (For example, REI offers a deep selection of outdoor clothing and gear.) Department stores carry a wide variety of product lines. Supermarkets are the most frequently visited type of retail store. Their product offerings emphasize food, and they tend to have more depth in each product category than discounters like Costco. In an effort to compete, some supermarkets have expanded their product assortments to include higherquality food offerings, such as from-scratch bakeries, gourmet deli counters, natural and organic foods, and fresh seafood departments.

Others are adding online buying options, such as online ordering for home delivery, in-store pickup, or curbside pickup. They are beefing up their websites and mobile app‘s shopping list creators, recipes and meal ideas, and other features. Convenience stores like Kwikmart are small stores that carry a limited line of high-turnover convenience goods and products for fill-in trips. Superstores are much larger than regular supermarkets and offer a large assortment of routinely purchased food products, nonfood items, and services. Walmart, Target, Meijer, and other discount retailers offer supercenters, very large combination food and discount stores. The average Walmart supercenter brings in about three times the sales of a traditional supermarket. Giant specialty stores, called category killers (for example, Best Buy, Home Depot, Petco, and Bed Bath & Beyond), feature very deep assortment of the product lines they offer. Category killers are found in a wide range of categories, including electronics, homeimprovement products, books, home goods, sporting goods, and pet supplies.

11-4. What is catalog marketing? How do retailers use catalogs in an increasingly digital retail environment? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Catalog marketing is direct marketing through print, video, or digital catalogs that are mailed to select customers, made available in stores, or presented online. Shifts to digital have provided opportunities for retailers to use digital and mobile catalogs, which have allowed some retailers to offer personalized catalog experiences. Digital catalogs allow retailers to merchandise offerings and change prices in real time, which can help retailers manage demand. Digital catalogs eliminate printing and mailing costs as well. However, some retailers continue to use printed catalogs to drive in-store, online, and mobile sales. Amazon recently added catalogs.

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11-5. How are retailers using technology to improve the customer experience?

(AACSB: Written and Oral Communication) Answer: Students have many examples to select from in the chapter—and from their own experiences. Checkout-free stores, increased ability to shop on social media, and mobile shopping experiences may be included in the responses. Responses may also include self-checkout kiosks and selfguided displays. Students may mention retailer use of augmented reality (AR) and virtual reality (VR), fueled by artificial intelligence (AI), to create enhanced, personalized, and highly engaging retail experiences (for example, the Magic Wand app at Showfields and the ability to envision large items in one‘s home with Holoroom from Lowe‘s).

11-6. Retailers are increasingly adopting sustainable practices. Provide three examples of how retailers are engaging in more environmentally and socially sustainable practices. (AACSB: Written and Oral Communication) Answer: Student responses may vary. Some retailers are increasing the environmental friendliness of their stores and operations. Others are promoting environmentally responsible products. Some retailers offer programs to help customers recycle or utilize reusable packaging and bags. Retailers may also offer programs to help consumers make better choices and selections that minimize or do not have packaging. They make arrangements with channel partners to reduce the environmental impact associated with operations and work to address economic and social inequities in their communities.

Critical Thinking Exercises 11-7. You need a new pair of dress shoes for an interview, and you have many retail options. Using the information in the text, choose three different major store retailer types and select a specific store for each type chosen.

Visit each store (in person or online) and describe each store‘s segmentation and positioning strategy and retail marketing mix—product, price, place, and promotion. How do the product assortments differ? What is each store‘s pricing approach? What promotional tools are used?

Discuss store locations. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student answers will vary based on the stores selected. For example, if a student shopped for a pair of women‘s dress shoes:

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

Department store—Macy‘s Naturalizer, Ferragamo)

Product: upscale manufacturer (say Price: $99–$700 Promotion: advertising, personal selling, direct and social media marketing Location: mall, shopping center, online



Off-price retailer—TJ Maxx Product: range of manufacturers from low end to high end Price: $39.99–$349 Promotion: advertising, direct and social media marketing Location: strip mall, online



Discount store—Kohl‘s

Product: store version of brand (Soft Style by Hush Puppies) Price: $39 Promotion: advertising, sales promotion; direct and social media marketing Location: strip mall, online

11-8. The COVID-19 pandemic resulted in uncertainty and disruptions for many retailers. In a small group, describe how a local retailer might be better prepared for future disruptions. In your plan, include suggestions for how the retailer might leverage digital formats to improve its resiliency.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. The chapter has examples that describe how many retailers switched to digital and the increasingly important role of omni-channel marketing. Students may also discuss merchandise strategy, delivery service, services provided to differentiate the retailer from online options, and promotional strategies.

11-9. In a small group, present a plan for a new wholesaler. Identify and describe what type of wholesaler it will be, the target market it will serve, and which channel functions it will provide to add value to its target market. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. Encourage students to learn more about wholesalers that perform different functions for the target market they serve. Students should define the new wholesaler‘s target market and how it will differentiate itself from competitors based on who it serves and what it offers. Types of wholesalers include merchant wholesalers, which include full-service wholesalers and limited-service wholesalers; brokers

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and agents; and manufacturers‘ and retailers‘ branches and offices.

Channel functions may include selling and promoting, buying and assortment building, breaking bulk, warehousing, transportation, financing, risk bearing, market information, and management services and advice.

Students should also outline the marketing mix that will allow their wholesaler to position itself for the target market.

Minicases and Applications Digital Marketing Kohl’s Courts Millennials with Merchandise Curated by Social Media Influencers Kohl‘s developed shopper loyalty among middle-aged moms but had challenges appealing to millennials. Millennial fashion trends are often driven by social media influencers. Further, millennials are comfortable shopping online and do not want to waste time roaming around in big-box retailers looking for the right sizes and styles. Based on feedback from millennials, Kohl‘s launched an ―Outfit Bar‖ that was inspired by Pinterest. Kohl‘s customers can shop online or in the store and shop for outfits and find their favorite ―look.‖ The in-store experience features signage and merchandise that seems tailor-made for Instagram. The online site has a companion landing page that lets customers shop by outfit.

Social media personalities will curate the Outfit Bar selections, which will be updated every 30 days with new looks.

11-10. What benefits and challenges will Kohl’s have in introducing its Outfit Bar? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Kohl’s could benefit if it increases share of wallet among millennial customers. It is a large and potential lucrative target market. Kohl’s could differentiate itself from other box stores and compete with services like Stitch Fix or Nordstrom Trunk Club, which offer stylist input on outfits.

However, Kohl’s could alienate its core group of loyal customers if it gives prime real estate to the Outfit Bar and the concept does not appeal to the middle-aged moms. It needs to use technology to see what consumers purchase together and what consumers pin and respond to on social media. It also needs to choose the right social media personalities as curators to ensure the selections save customers time and increase their total basket size.

11-11. If a Kohl’s Outfit Bar was available at a location near you, would your friends use it? Why or why not? Based on your response, what advice would you give Kohl’s management in advance of their rolling out the Outfit Bar nationwide? (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Student responses may vary and they may have different levels of insights about their friends’ shopping habits. Responses may include information about consumers’ individual differences, social media behavior, pricing, desire for guidance/curation, attitudes toward online shopping, and access to a Kohl’s.

Encourage students to think of specific recommendations or advice based on their analysis of whether their friends would shop for clothes at Kohl’s.

Marketing Ethics Nordstrom’s 2025 Corporate Social Responsibility Goals Upscale department store chain Nordstrom recently set its 2025 corporate social responsibility goals. Nordstrom made commitments to improve the environmental sustainability of its operations and product value chains; to improve human rights through positive labor practices and women‘s empowerment; and to support families and organizations in the communities it serves. Nordstrom works closely with organizations such as The G7 Fashion Pact, the Sustainable Apparel Coalition, and CDP Supply Chains to align with best practices within the industry.

The 2025 goals build from Nordstrom‘s 2020 goals, where it sourced more energy from renewables in deregulated markets, achieved 100 percent pay equity for employees, and furthered empower women in its global supply chain.

All of the goals are part of Nordstrom‘s efforts to operate as a responsible company so that customers, employees, and communities associated with Nordstrom can be proud.

11-12. Research Nordstrom and its direct competitors online. How do Nordstrom‘s corporate social responsibility goals compare to those of other upscale department stores? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Students‘ opinions will vary. Students should do research to compare the efforts at Nordstrom to the efforts of other department stores, which may include Neiman Marcus, Saks 5th Avenue, Bloomingdale‘s, and Harrods.

11-13. Upscale retailers that sell luxury and fashion goods have been criticized for promoting materialism and increasing waste. In your opinion, does Nordstrom‘s public commitment to corporate social responsibility satisfactorily address these concerns? Why or why not? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses may vary. Brand values are increasingly important to consumers and employees, and Nordstrom wants to be a company both groups can be proud of. However, it generates revenue by selling things

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and aims to have relationships with its customers so it can gain a greater share of wallet. One could make the argument that if shoppers did not get their items at Nordstrom, they would purchase them elsewhere. In that case, making purchases from a retailer that invests in its employees, supply chain, and communities would be preferred. Further, one could argue that buying fewer luxury goods is more sustainable than purchasing fast fashion. On the other hand, fashion cycles and promotions may increase demand and excess, which are related to materialism and, in some cases, overspending. The product life cycle is also a consideration.

Marketing by the Numbers Grocery Stores Offering Meal Kits Half of Americans‘ food dollars are spent eating out, and many meals eaten at home are not actually cooked there, trends that are eating into grocery store sales. More recently, firms such as Blue Apron, Plated, Hello Fresh, and others have begun delivering meal kits that include premeasured ingredients to be cooked at home, further eroding grocery store sales. Although the meal kit industry has exploded to over $4.6 billion in annual sales, it has had problems achieving scale and profitability. To combat this, Hello Fresh and Blue Apron are distributing meals kits through supermarkets and wholesale clubs. Other meal kit firms are being acquired by grocery chains. For example, Kroger, the largest U.S. supermarket chain, purchased Home Chef, the largest privately owned meal kit company. In addition to increasing its online delivery, Kroger also intends to sell meal kits in its stores. However, the meal kit business could be difficult for Kroger. Online subscription meal kit operators have found that it‘s not good to offer too many recipe options. But how many different recipes are optimal?

Kroger thinks that its no-subscription requirement and price ($14 to $18 for a twoperson meal kit compared to $50 or more for regular home-delivery meal kits) will attract more sales. But finding the right balance of kit offerings and stocking levels is challenging. Not stocking enough merchandise—in this case varied meal kits—results in lost sales. But carrying too much inventory increases costs and lowers margins, especially because of perishability. Both conditions reduce profits. One measure of a reseller‘s inventory management effectiveness is its stockturn rate (also called inventory turnover rate for manufacturers). Retailers want to realize a large volume of sales on as little inventory as possible while maintaining enough stock to meet customer demand. To determine this, Kroger plans to run short-term market tests in selected stores to determine the optimum inventory levels.

11-14. Using the data below, determine Kroger‘s weekly stockturn rate for meal kits during one of the market tests. Refer to Analytic Ratios in Appendix 3: Marketing by the Numbers to learn how to calculate stockturn rate.

(AACSB: Analytical Thinking)

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Cost of goods sold Average inventory at cost

Week 1 $120,000 $40,000

Week 2 $115,000 $30,000

Week 3 $130,000 $45,000

Week 4 $160,000 $80,000

Answer: cost of goods sold Stockturn rate = ——————————— average inventory at cost

$120,000 Stockturn rateweek 1 = —————— = 3 $40,000 $115,000 Stockturn rateweek 2 = —————— = 3.83 $30,000 $130,000 Stockturn rateweek 3 = —————— = 2.89 $45,000 $160,000 Stockturn rateweek 4 = —————— = 2 $80,000 11-15. Interpret your answers in the previous question. Is Kroger‘s weekly stockturn rate good or bad? What factors should be considered to determine this? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students‘ answers will vary. Usually, ratios are compared to previous periods and industry averages to determine if they are ―good‖ or ―bad.‖ Generally, the higher the stockturn rate, the higher the management efficiency and company profitability. However, too high of a rate could mean the retailer runs out of stock. The stockturn rate was much higher in Week 2 compared to Week 1.

Perhaps customers really liked the meal kit offering, so Kroger turned over its inventory much faster during Week 2, perhaps due to customers coming back the next week to purchase a meal kit. However, too high of a stockturn rate could result in out-of-stocks. Perhaps this was a problem in Week 2. This might not be much of a problem for a grocery store if shoppers come for a meal kit and it is out of stock, though, because there are plenty of other food options for them to purchase. So, there might be little risk for a supermarket, such as Kroger, from offering this merchandise but occasionally running out of stock. Factors to consider when interpreting stockturn rates are the category of product and the time period for which the rate was calculated.

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While most stockturn rates for retailers selling nonperishable goods are calculated on a yearly basis, meal kits are perishable products because they typically contain a protein, produce, and perhaps dairy products. Thus, the stockturn rate should be determined for a short period of time, such as a week.

Company Case Teaching Notes

Company Cases 11 Ulta Beauty/13 Urban Outfitters/15 7-Eleven See Appendix 1 for teaching notes for the below cases.

Case 11, Ulta Beauty: Where the Experience Is Beautiful. As the largest U.S. beauty retailer, customers of all kinds enthusiastically flock to Ulta because more than any other retailer, it offers a complete beauty experience.

Case 13, Urban Outfitters: Brand-Building Rewards Program Promotions.

Urban Outfitters has employed a rewards program that has allowed it to grow over the past decade, even as most apparel retailers have struggled.

Case 15, 7-Eleven: Adapting to the World’s Many Cultures. A Japanese company takes an American concept and makes it a global success.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

Retailing is generally not a difficult concept for students. However, the different types of retailers should be thoroughly explained to the students to ensure their understanding. Table 11.1 is an excellent resource in this regard. The differing types of retail organizations are also critical to understand; Table 11.2 helps here.

The decisions retailers need to make will be easily understood with a review of Figure 11.1. It is very clear in this figure that the marketing mix elements studied earlier in the text are being applied in a retail environment. Explain carefully how the type of retail organization chosen affects the marketing mix, and vice versa.

Nonstore retailing should be familiar to students, but perhaps not by this name. Many students may not realize that they are visiting a retailer when they buy books or stream music from Amazon.com or select an item from a catalog and order it over the phone.

Wholesaling, by contrast, could be a difficult subject for many students.

Although the concept was introduced in an earlier chapter, there is more detail here, and there are many more terms for the students to learn.

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5.

The description of the types of wholesalers is brief but important.

Examples will help tremendously, even though most wholesalers, by their nature and as discussed in the text, are virtually unknown to consumers.

Due to summer jobs or family members, some students, might be familiar with distributors who service grocery stores and other retail outlets. Table 11.3 will be helpful in this discussion.

Student Projects 1. Go to a local power center. Make a list of all the stores located there.

Which of these stores serve as the anchor and which stores are dependent on the anchor?

2. Visit a local discount store (Walmart, Target, etc.) and a local off-price store (T.J. Maxx, Stein Mart, etc.). Examine the product mix and pricing strategies of both stores. Who would you say is the target market of each? Why? 3. Describe the major types of wholesalers located in your community and give an example of each.

4. Locate an online company that specializes in ―flash sales‖ (www.ruelala.com) is one such site. Examine their marketing strategy. Why do you think it is successful? Or is it?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Walmart vs. Amazon and then answer the following questions: 1. What are the basic strategies of both Walmart and Amazon?

2. Describe Walmart based on the types of retailers described in the text— via service, product line, prices, and organizational approach.

3. Describe Amazon based on the types of retailers described in the text— via service, product line, prices, and organizational approach.

4. Describe the decisions that Amazon has made for each variable of the marketing mix.

5. If you were a wholesaler, how would you approach Walmart to carry your products?

Each group should share its findings with the class.

Individual Assignment Become an online detective and do some research on the history of Walmart.

Trace the evolution of the company from its humble beginnings to the global

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powerhouse it is today. Do you believe the company is still fulfilling the objectives laid down by its founder, Sam Walton? Why or why not? Justify your answer.

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. How would you define retailing? How does it fundamentally differ from wholesaling?

2. What is a category killer? Why do you believe they have become so popular in recent years?

3. What do you believe to be the primary reason for the explosive growth of online merchants, such as Amazon.com? Do you think it is possible for traditional brick-and-mortar merchants to successfully compete?

4. What are the basic functions that wholesalers perform? Why don‘t retailers perform these functions instead?

5. What does it mean that the retail life cycle is becoming shorter?

Classroom Exercise/Homework Assignment Consider both Walmart (www.walmart.com) and Amazon (www.amazon.com).

Specifically, take a look at how both companies market their music offerings.

Which do you believe has the upper hand? Why? Classroom Management Strategies This chapter can easily be covered in one standard class period. Although the terminology will be new to students, particularly the types of retailers and wholesalers, the material itself is easily understood as a general rule, and students will tend to be pretty familiar with retailing in particular.

1.

2.

The majority of the class, perhaps 40 minutes in a 60-minute class, should be spent on retailing. This can be broken down further, with 15 minutes on the Types of Retailers, 15 minutes on Retailer Marketing Decisions, and 10 minutes on New Retail Forms and Retail Convergence. You can liberally use examples and the various questions from the chapter in going through this material.

The remaining 20 minutes of the class will be spent on the Wholesaling section. Here, it is very important that time be spent on discussing the various types of wholesalers and what kinds of functions they perform.

Students will be less familiar with this type of business, so several examples should be gathered to discuss in class. The Classroom Exercise/Homework Assignment provided previously can be very useful.

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PROFESSORS ON THE GO

Retailing and Wholesaling Key Concepts Types of retailers Marketing decisions retailers make The future of retailing   

 

What are the four characteristics used in the chapter to classify retailers? What are the seven major store retailer types? Give an example of each type.

Explain why it is important for retailers to define their target markets and to decide how they will position themselves in these markets. Give an example of a national specialty retailer who has done this well.

Consider this statement made by a retailing insider: ―The mall represents a point in time in the evolution of retailing…. We are reaching the end of one era and entering something new.‖ What is the ―something new‖ that is being suggested? Where will Americans be shopping if not at the malls?

Online retailing is now an everyday and growing part of life. Consider the ramifications on the traditional mom-and-pop brick-and-mortar retail store. How can they effectively compete?

What is a category killer?

Key Concepts Types of wholesalers Marketing decisions made by wholesalers Trends in wholesaling    

Suppose that you are a manufacturer‘s agent for three lines of complementary women‘s apparel. Discuss what types of marketing mix decisions you will be making.

How can wholesalers use the internet to increase their business?

Provide an example of how wholesalers can use the internet to compete.

What are the functions of wholesalers? Can these be replaced? If so, how?

What do you think is the most dramatic trend in wholesaling?

CHAPTER 12

ENGAGING CONSUMERS AND COMMUNIATING CUSTOMER VALUE: ADVERTISING AND PUBLIC RELATIONS

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PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 34. Define the four promotion mix tools for communicating customer value.

35. Discuss the changing communications landscape and the need for integrated marketing communications.

36. Describe and discuss the major decisions involved in developing an advertising program.

37. Explain how companies use public relations to communicate with their publics.

JUST THE BASICS CHAPTER OVERVIEW This chapter concentrates on the final element of the marketing mix—promotion.

Companies use promotion to communicate customer value clearly and persuasively.

Promotion is not a single tool but rather a mix of several tools.

Ideally, under the concept of integrated marketing communications, the company will carefully coordinate these promotion elements to deliver a clear, consistent, and compelling message about the organization and its products.

The chapter begins by introducing the various promotion mix tools.

Next, it examines the rapidly changing communications environment and the need for integrated marketing communications.

Finally, the chapter looks closely at two of the promotion tools—advertising and public relations.

ANNOTATED CHAPTER NOTES/OUTLINE Burger King: Anything but Traditional Integrated Marketing Communications Burger King is the world’s third-largest fast-food hamburger chain behind industry leader McDonald’s and number two Wendy’s.

Although Burger King trails in sales, it routinely dominates the competition when it comes to innovative, attention-getting, and effective marketing communications.

Year after year, Burger King runs award-winning campaigns, with bold, edgy promotions that pique the imagination, engage brand fans and the public, and keep the Burger King brand fresh and contemporary.

Burger King campaigns are anything but traditional; brand fans have learned to expect the unexpected. Many of the chain’s campaigns are built around provocative stunts and pranks.

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The campaigns use a rich, carefully integrated mix of traditional and digital media for maximum impact.

Burger King campaigns often strike direct jabs at archrival McDonald’s.

Burger King consistently shows that it is willing to take risks with its promotional campaigns.

And thanks in large part to Burger King’s award-winning promotional campaigns, Burger King’s systemwide sales have increased solidly by 40 percent over the past eight years.

INTRODUCTION Building good customer relationships calls for more than just developing a good product, pricing it attractively, and making it available to target customers.

Companies must also engage consumers and communicate their value propositions to customers.

THE PROMOTION MIX Use Key Term Promotion Mix (Marketing Communications Mix) here.

Use Chapter Objective 1 here.

The promotion mix is also called the marketing communications mix.

It consists of four tools:

Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.

Sales promotion: Short-term incentives to encourage the purchase or sale of a product or service.

Personal selling: Personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships.

Public relations (PR): Building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

Use Key Terms Advertising, Sales Promotion, Public Relations, Personal Selling, and Public Relations (PR) here.

Use Discussion Question 12-1 here.

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Use Chapter Objective 2 here.

INTEGRATED MARKETING COMMUNICATIONS The New Marketing Communications Model Factors which are changing the face of marketing communications: 1. Consumers are changing. They are better informed and more communicationsempowered.

2. Marketing strategies are changing. As mass markets have fragmented, marketers are shifting away from mass marketing.

3. Changes in digital technology are causing changes in the ways in which companies and customers communicate with each other.

Marketers now view themselves more broadly as content marketing managers who create, inspire, and share brand messages and conversations with and among customers across a fluid mix of paid, owned, earned, and shared communication channels.

Use Key Term Content Marketing here.

Use Marketing at Work 12.1 here.

The Need for Integrated Marketing Communications

Integrated marketing communications (IMC) requires the company to integrate its many communications channels carefully to deliver a clear, consistent, and compelling message about the organization and its brands. (see Figure 12.1)

Use Key Term Integrated Marketing Communications (IMC) here.

Use Figure 12.1 here.

Use Discussion Question 12-2 here.

IMC leads to a total marketing communications strategy aimed at building strong customer relationships by showing how the company and its products can help customers solve their problems.

Shaping The Overall Promotion Mix The concept of integrated marketing communications suggests that the company must blend the promotion tools carefully into a coordinated promotion mix.

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The Nature of Each Promotion Tool Each promotion tool has unique characteristics and costs.

Advertising Advantages: 1. Advertising can reach masses of geographically dispersed buyers at a low cost per exposure, and it enables the seller to repeat a message many times.

2. Large-scale advertising says something positive about the seller’s size, popularity, and success.

3. Consumers tend to view advertised products as more legitimate.

Shortcomings: 1. Advertising is impersonal and cannot be as directly persuasive as can company salespeople.

2. Advertising can carry on only a one-way communication with the audience.

3. Advertising can be very costly.

Personal Selling Advantages: 1. Personal selling is the most effective tool at certain stages of the buying process, particularly in building up buyers’ preferences, convictions, and actions.

2. It involves personal interaction between two or more people.

3. With personal selling, the buyer usually feels a greater need to listen and respond.

Shortcomings: 1. A sales force requires a longer-term commitment than does advertising.

2. Personal selling is the company’s most expensive promotion tool.

Sales Promotion Sales promotion includes a wide assortment of tools—coupons, contests, cents-off deals, premiums, and others.

Advantages: 1.

2.

3.

4.

They attract consumer attention.

They offer strong incentives to purchase.

They can be used to dramatize product offers and to boost sagging sales.

Sales promotions invite and reward quick responses.

Shortcomings:

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1. Sales promotion effects are often short-lived.

2. They are often not as effective as advertising or personal selling in building long-run brand preference and customer relationships.

Public Relations (PR)  Public relations is very believable—news stories, features, sponsorships, and events seem more real and believable to readers than ads do.  Public relations can reach many prospects who avoid salespeople and advertisements.  Public relations can dramatize a company or product.

Promotion Mix Strategies (see Figure 12.2) Marketers can choose from two basic promotion mix strategies—push promotion or pull promotion.  

A push strategy involves ―pushing‖ the product through marketing channels to final consumers.

A pull strategy involves the producer directing its marketing activities toward final consumers to induce them to buy the product.

Most large companies use some combination of both strategies.

Factors to consider when designing promotion mix strategies include type of product and market.

Use Key Terms Push Strategy and Pull Strategy here.

Use Discussion Question 12-3 here.

Use Critical Thinking Exercise 12-7 here.

Use Figure 12.2 here.

Use Linking the Concepts here.

ADVERTISING AND MAJOR ADVERTISING DECISIONS U.S. advertisers now spend almost $183 billion yearly on advertising.

Use Figure 12.3 here.

Use Chapter Objective 3 here.

The four decisions to make when developing an advertising program are (see Figure 12.3): 1. Setting Advertising Objectives Advertising objectives should be based on past decisions about the target market,

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positioning, and the marketing mix, which define the job that advertising must do in the total marketing program.

Use Key Term Advertising Objective here.

An advertising objective is a specific communication task to be accomplished with a specific target audience during a specific period of time.

Advertising objectives can be classified by primary purpose (Table 12.1): Use Table 12.1 here.

Use Discussion Question 12-5 here.

Use Key Term Advertising Budget here.  



Informative advertising is used heavily when introducing a new product category.

Persuasive advertising becomes important as competition increases. Here, the company’s objective is to build selective demand. o Comparative advertising (attach advertising) involves directly or indirectly comparing one brand with another.

Reminder advertising is important for mature products—it helps to maintain customer relationships and keep consumers thinking about the product.

2. Setting the Advertising Budget Here are the four common methods used to set the total budget for advertising: 

Affordable Method

The affordable method involves setting the promotion budget at the level believed to be what the company can afford.

Small businesses often use this method.

Shortcomings:    

It ignores the effects of promotion on sales.

It tends to place promotion last among spending priorities, even in situations in which advertising is critical to the firm‘s success.

It leads to an uncertain annual promotion budget.

It more often results in under spending.

Percentage-of-Sales Method

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The percentage-of-sales method involves setting the promotion budget at a certain percentage of current or forecasted sales.

It is simple to use and helps management think about the relationships between promotion spending, selling price, and profit per unit.

Shortcomings:     

It wrongly views sales as the cause of promotion rather than as the result.

It is based on availability of funds rather than on opportunities.

It may prevent the increased spending sometimes needed to turn around falling sales.

Because the budget varies with year-to-year sales, long-range planning is difficult.

The method does not provide any basis for choosing a specific percentage.

Competitive-Parity Method The competitive-parity method requires setting the promotion budgets to match competitors‘ outlays.

Two arguments support this method.  

Competitors‘ budgets represent the collective wisdom of the industry.

Spending what competitors spend helps prevent promotion wars.

Neither argument is valid.

Objective-and-Task Method The most logical budget-setting method is the objective-and-task method, whereby the company sets its promotion budget based on what it wants to accomplish with promotion.

This budgeting method entails: (1) Defining specific promotion objectives, (2) Determining the tasks needed to achieve these objectives, and (3) Estimating the costs of performing these tasks.

The advantage of the objective-and-task method is that it forces management to spell out its assumptions about the relationship between dollars spent and promotion results.

It is the most difficult method to use.

Use Marketing by the Numbers here.

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Use Critical Thinking Exercise 12-9 here.

Use Key Terms Affordable Method, Competitive-Parity Method, Percentage-ofSales Method, and Objective-and-Task Method here.

3. Developing Advertising Strategy

Advertising strategy consists of two major elements:  

Creating advertising messages Selecting advertising media

The goal is to create and manage brand content across a full range of media, whether they are paid, owned, earned, or shared.

Creating the Advertising Message and Brand Content Today, the average household receives about 175 TV channels, and consumers have more than 7,200 magazines from which to choose.

Breaking Through the Clutter Ads are sandwiched in with a clutter of other commercials, announcements, and network promotions, totaling nearly 20 minutes of non-program material per prime-time hour with commercial breaks coming every 6 minutes on average.

Use Key Terms Advertising Strategy here.

Use Discussion Question 12-4 here.

Such clutter in television and other ad media has created an increasingly hostile advertising environment.

Just to gain and hold attention, today’s advertising messages must be better planned, more imaginative, more entertaining, and more rewarding to consumers.

Merging Advertising and Entertainment To break through the clutter, many marketers are now subscribing to a new merging of advertising and entertainment.

The merging of advertising and entertainment takes one of two forms: 1. Advertainment involves making the ads themselves so entertaining, or useful, that people actually want to watch them.

2. Branded Entertainment (brand integration) involves making the brand an inseparable part of some other form of entertainment. The most common form is product placement.

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Message and Content Strategy The first step in creating effective advertising messages is to plan a message strategy—to decide what general message will be communicated to consumers.

Developing an effective message strategy begins with identifying customer benefits that can be used as advertising appeals. The advertiser must next develop a compelling creative concept—or “big idea”—that will bring the message strategy to life in a distinctive and memorable way.

Advertising appeals should have three characteristics.   

Being meaningful Being believable Being distinctive

Message Execution The advertiser has to turn the big idea into an actual ad execution that will capture the target market’s attention and interest.

Execution styles include the following: Slice of life: This style shows one or more ―typical‖ people using the product in a normal setting.

Lifestyle: This style shows how a product fits in with a particular lifestyle.

Fantasy: This style creates a fantasy around the product or its use. For instance, many ads are built around dream themes.

Mood or image: This style builds a mood or image around the product or service, such as beauty, love, or serenity.

Musical: This style shows people or cartoon characters singing about the product.

Personality symbol: This style creates a character that represents the product.

Technical expertise: This style shows the company’s expertise in making the product.

Scientific evidence: This style presents survey or scientific evidence that the brand is better or better liked than one or more other brands.

Testimonial evidence or endorsement: This style features a highly believable or likable source endorsing the product.

Use Key Terms Creative Concept and Execution Style here.

Use Critical Thinking Exercise 12-8 here.

Use Marketing Ethics here.

The advertiser must choose tone, words, and format for the ad.

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Consumer-Generated Content Taking advantage of today’s interactive technologies, many companies are now tapping consumers for message ideas or actual ads.

If used carefully, consumer-generated advertising efforts can produce big benefits.  

For little expense, companies can collect new creative ideas.

These campaigns can boost consumer involvement and get consumers talking and thinking about a brand and its value to them.

Selecting Advertising Media The major steps in advertising media selection are (1) deciding on reach, frequency, and impact; (2) choosing among major media types; (3) selecting specific media vehicles; and (4) deciding on media timing.

Determining Reach, Frequency, Impact, and Engagement Reach is a measure of the percentage of people in the target market who are exposed to the ad campaign during a given period of time. Frequency is a measure of how many times the average person in the target market is exposed to the message.

The advertiser must decide on the desired media impact—the qualitative value of a message exposure through a given medium.

Typically, the advertiser wants to choose media that will engage consumers rather than simply reach them.

Although Nielsen is beginning to measure levels of television media engagement, such measures are hard to come by for most media.

Choosing Among Major Media Types (see Table 12.2) The media planner has to know the reach, frequency, and impact of each of the major media types.

Today’s marketers want to assemble a full mix of paid, owned, earned, and shared media that create and deliver engaging brand content to target consumers.

Another important trend affecting media selection is the rapid growth in the number of media multitaskers, people who absorb more than one medium at a time.

Use Key Term Advertising Media here.

Use Discussion Question 12-6 here.

Use Table 12.2 here.

Major media types:

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      

Television Online, mobile, and social media Newspapers Direct mail Magazines Radio Outdoor

Selecting Specific Media Vehicles The media planner now must choose the best media vehicles—specific media within each general media type.

Media planners must compute the cost per thousand persons reached by a vehicle.

The media planner must also consider the costs of producing ads for different media.

The media planner must balance media costs against several media effectiveness factors.   

Audience quality Audience engagement Editorial quality

Deciding on Media Timing The advertiser must decide how to schedule the advertising over the course of a year.

Some marketers do only seasonal advertising: For instance, P&G advertises its Vicks NyQuil only during the cold and flu season.

4. Evaluating Advertising Effectiveness and the Return on Advertising Investment Advertising accountability and return on advertising investment have become hot issues for most companies.

Advertisers should regularly evaluate two types of advertising results:  

Measuring the communication effects of an ad or ad campaign tells whether the ads and media are communicating the ad message well.

Sales and profits effects of advertising are often harder to measure. Sales and profits are affected by many factors besides advertising—such as product features, price, and availability.

One way to measure the sales and profit effects of advertising is to compare past sales and profits with past advertising expenditures.

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Use Key Term Return on Advertising Investment here.

Use Marketing at Work 12.2 here.

Other Advertising Considerations Organizing for Advertising Different companies organize in different ways to handle advertising.

In small companies, advertising might be handled by someone in the sales department.

Large companies set up advertising departments whose job it is to set the advertising budget, work with the ad agency, and handle advertising not done by the agency.

Use Key Term Advertising Agency here.

Advertising agencies employ specialists who can often perform advertising tasks better than the company‘s own staff.

Most large advertising agencies have the staff and resources to handle all phases of an advertising campaign for its clients, from creating a marketing plan to developing ad campaigns and preparing, placing, and evaluating ads.

International Advertising Decisions International advertisers face many complexities not encountered by domestic advertisers.

The most basic issue concerns the degree to which global advertising should be adapted to the unique characteristics of markets in various countries.

Standardization produces many benefits—lower advertising costs, greater global advertising coordination, and a more consistent worldwide image.

There are also drawbacks. It ignores the fact that country markets differ greatly in their cultures, demographics, and economic conditions.

Global advertisers face several special problems.  Advertising media costs and availability differ vastly from country to country.  Countries differ in the extent to which they regulate advertising practices.  Although advertisers may develop global strategies to guide their overall advertising efforts, specific advertising programs must usually be adapted to meet local cultures and customers, media characteristics, and advertising regulations.

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Use Linking the Concepts 2 here.

PUBLIC RELATIONS Public relations departments may perform any or all of the following functions: Press relations or press agency: Creating and placing newsworthy information in the news media to attract attention to a person, product, or service.

Product and brand publicity: Publicizing specific products and brands.

Public affairs: Building and maintaining national or local community relations.

Lobbying: Building and maintaining relations with legislators and government officials to influence legislation and regulation.

Investor relations: Maintaining relations with shareholders and others in the financial community.

Development: Public relations with donors or members of nonprofit organizations to gain financial or volunteer support.

Public relations is used to promote products, people, places, ideas, activities, organizations, and even nations.

Use Chapter Objective 4 here.

The Role and Impact of PR Public relations can have a strong impact on public awareness at a much lower cost than advertising can.

The company does not pay for the space or time in the media.

If the company develops an interesting story or event, it could be picked up by several different media, having the same effect as advertising that would cost millions of dollars.

It has more credibility than advertising.

Public relations is sometimes described as a marketing stepchild because of its often limited and scattered use.

Major Public Relations Tools Public relations uses several tools: 

News

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     

Speeches Special events Written materials Videos Corporate identity materials Public service activities

Management should set PR objectives, choose the PR messages and vehicles, implement the PR plan, and evaluate the results.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

12-1. Name and define the major promotion tools used in a company‘s marketing communications mix. (AASCB: Written and Oral Communication) Answer:  Advertising: Any paid form of nonpersonal presentation and promotion of ideas, goods, or services by an identified sponsor.  Sales promotion: Short-term incentives to encourage the purchase or sale of a product or service.  Personal selling: Personal presentation by the firm‘s sales force for the purpose of making sales and building customer relationships.  Public relations: Building good relations with the company‘s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories, and events.

12-2. How has the role of marketing communicators shifted in response to the increasingly fragmented and digital communications environment?

(AACSB: Written and Oral Communication) Answer: Marketer communicators now view themselves as content marketing managers instead of as people who create individual ads. They create, inspire, and share brand messages and conversations with and among customers across a fluid mix of paid, owned, earned, and shared communication channels. Marketers are concerned about context and mapping the customer journey to start a conversation with consumers that leads to engagement, purchase, loyalty, and advocacy.

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12-3. What major decisions should a marketing manager consider when developing an advertising program? (AACSB: Written and Oral Communication) Answer: Marketers must make four important decisions when developing an advertising program: 1. Setting advertising objectives based on past decisions about the target market, positioning, and the marketing mix, which define the job that advertising must do in the total marketing program.

2. Setting the advertising budget by choosing one of the following methods: the affordable method, the percentage-of-sales method, the competitive-parity method, and the objective-and-task method.

3. Developing advertising strategy that consists of two major elements: creating advertising messages and selecting advertising media.

4. Evaluating advertising effectiveness and the return on advertising investment involves regularly evaluating two types of advertising results: the communication effects and the sales and profit effects.

12-4. What is content marketing? How are media types classified in content marketing?

(AACSB: Written and Oral Communication) Answer: Content marketing is creating, inspiring, and sharing brand messages and conversations with and among consumers across a fluid mix of paid, owned, earned, and shared channels. The content marketing classification identifies four major types of media: paid, owned, earned, and shared (POES). Paid media include promotional channels paid for by the marketer, including traditional media (such as TV, radio, print, or outdoor) and online and digital media (paid search ads, web and social media display ads, mobile ads, or email marketing).

Owned media include promotional channels owned and controlled by the company, including company websites, corporate blogs, owned social media pages, proprietary brand communities, sales forces, and events. Earned media include PR media channels, such as television, newspapers, blogs, online video sites, and other media not directly paid for or controlled by the marketer but that include the content because of viewer, reader, or user interest. Finally, shared media are media shared by consumers with other consumers, such as social media, blogs, mobile media, and viral channels as well as traditional word of mouth.

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12-5. Differentiate between informative advertising, persuasive advertising, and reminder advertising. When would a brand use each type of advertising?

(AACSB: Written and Oral Communication) Answer: Informative advertising provides information about a product or service. It is used to build primary demand or to introduce a new product. Persuasive advertising is more commonly used to differentiate between offerings as competition increases. Reminder advertising is used later in the product life cycle to remind people who previously used a brand about the offering or to help sustain existing relationships. Students can refer to Table 12.1 for possible advertising objectives associated with informative, persuasive, and reminder advertising.

12-6. How do firms know if they are spending the right amount on advertising?

(AACSB: Written and Oral Communication) Answer: Firms calculate their return on advertising investment, which is the net return on advertising investment divided by the costs of the advertising investment. Advertisers evaluate two types of advertising results: the communication effects and the sales and profit effects. Measuring the communication effects of an ad or ad campaign tells whether the ads and media are communicating the ad message well. Individual ads can be tested before or after they are run. Before an ad is placed, the advertiser can show it to consumers, ask how they like it, and measure message recall or attitude changes resulting from it. After an ad is run, the advertiser can measure how the ad affected consumer recall or product awareness, engagement, knowledge, and preference. Pre- and postevaluations of communication effects can be made for entire advertising campaigns as well. Sales and profit effects of advertising and other content are often harder to measure, although digital advertising makes it easier.

Critical Thinking Exercises 12-7. Recently, a former creative director from Netflix founded a canned water startup called Liquid Death Mountain Water. The brand positions itself as a sustainable alternative to energy drinks and soda and targets the straight-edge punk crowd that abstains from drugs and alcohol using the tagline ―Murder Your Thirst.‖ The brand aims to make the world‘s healthiest beverage, water, as funny and entertaining as unhealthy brands in other categories (energy drinks, soda, beer). The brand sells water in tallboy cans that resemble beer cans for $1.83, which includes delivery. It donates 5 cents from every can sold to clean up plastic garbage from the ocean. Should Liquid Death emphasize a push or pull strategy? Explain.

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(AACSB: Written and Oral Communication; Ethical Reasoning; Reflective Thinking) Answer: Based on the consumer focus, where the things that differentiate the water are directed at the consumer, Liquid Death will probably use a pull strategy to get final consumers to engage with and buy the product. Like many business-to-consumer companies, it will put funds into advertising, sales promotion, personal selling, and public relations, in that order. Given the messaging about using Liquid Death as an alternative to water in plastic bottles, it may place a greater emphasis on public relations to help include the product in stories that mention concerns about sustainability and plastic waste. However, the beverage category is saturated, and Liquid Death also will likely utilize a push strategy, including personal selling and trade promotions, to get shelf space. Its messages related to sustainability may fit with retailers‘ desires to carry sustainable products that appeal to consumers.

12-8. Visit the website for the OBIE Awards, which celebrates creative excellence in advertising. Go to the section for current winners and select one of the winning campaigns (http://obieawards.org/Current-Winners).

Evaluate the campaign you selected. Describe how the advertiser used the media vehicle(s) to reach the target audience and get them to engage.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary based on the examples chosen. Students who choose an out-of-home advertisement may consider issues related to reach and frequency. Students who choose something novel that breaks through the clutter may consider issues related to the message tone, its headline, creative execution factors, and its location. Students may also consider the product‘s stage in its life cycle, the role of media multitasking in the marketer‘s decision to utilize the creative, and the competitive environment.

12-9. Nike recently offered a Snapchat Lens that lets users wear the U.S. women‘s soccer kit virtually. Fans of the U.S. women‘s national soccer team could try on home and away jerseys through an augmented reality filter and then swipe up to purchase it at Nike.com. What factors may have influenced Nike‘s decision to advertise in this way? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Nike may have recognized that the target audience was using Snapchat, so it was meeting the consumers where they were. It used the Snapchat Lens along with other advertising efforts. Utilizing novel approaches to communicate with consumers may result in publicity for Nike. Although

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this was the first time Nike did a shoppable lens for apparel on Snapchat, Nike previously became the first brand to sell a product directly through Snapchat when it sold Air Jordan III ―Tinker‖ shoes via Snap codes.

Similar to the Adidas example, the Nike Snapchat Lens is personalized and engaging. Unlike television, the consumer can immediately respond to an offer to purchase the soccer kit.

Minicases and Applications Digital Marketing Plum Organics: Patenting Unfiltered Plum Organics, an organic baby food brand, recently created a video-led campaign called Parenting Unfiltered that celebrated the messiness and complications associated with parenting. The campaign did not feature a product; it was a lifestyle campaign designed to get parents talking to each other and engaging with the brand. It showed videos of real parents having real, unfiltered moments (for example, a goldfish funeral) and partnered with influential parents who engaged consumers on a variety of platforms using #ParentingUnfiltered.

Plum launched a multi-platform social campaign to support the launch of the videos. It aimed to create a conversation that others could go back and reference over time and offered user-generated content, in the form of realistic holiday cards people could share, to increase engagement. The campaign resulted in more than 4 million video views and hundreds of thousands of engagements across platforms.

12-10. Plum Organics chose to focus its advertising on lifestyle dimensions associated with parenting rather than on its products. What are the positives and negatives of this approach? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Plum Organics chose to use the advertising to try to be known as a brand that ―gets it.‖ Plum was trying to build long-term customer engagement and relationships with its consumers. Entertaining content can break through the clutter, which was effective in this case. An advertisement that differentiated the product from competitors or asked for action may have sold more products in the short term. It is possible that parents were so focused on engagement with one another that they missed that Plum was the sponsor. Consumers with lower familiarity with baby food may need more exposures/impressions to remember the brand name than they would need if the messaging was focused on the product and what differentiates it from competitors.

12-11. Create an outline for a marketing-focused public relations campaign to run alongside the Parenting Unfiltered advertising campaign. What would the

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public relations campaign encompass? How would it complement the advertising campaign? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses may vary but will likely focus on product and brand publicity or public affairs if they see the advertisements as a tool to strengthen relationships with the community. The advertising campaign, the storytelling aspect, and the use of influential parents suggest the advertising campaign has some elements that would also be used in public relations campaigns. This may be a good place to discuss the growing role of public relations in marketing content management. Brand publicity gained through public relations would likely be categorized as earned media, where the advertisements and sponsored posts would be paid media. Students may also suggest public relations efforts that include special events, which would fit with the brand messaging.

Marketing Ethics Communicating Brand Purpose without Boasting A recent study by social-impact consultancy DoSomething Strategic showed that 58 percent of young consumers were more likely to buy from brands that back a good cause. However, it can be tricky for marketers to tell consumers what things a brand is doing to make a social impact in a way that breaks through the noise but does not come off sounding like a gimmick. Part of the challenge is that some brands advertise the brand‘s social purpose but do not follow up with actions that actually make an impact. By contrast, brands that successfully communicate a brand‘s purpose—such as Lush, The Body Shop, Patagonia, United by Blue, and TOMS—are perceived as authentically committed to a social purpose. They follow up with good deeds and activate consumers and employees to make a social impact, which generates a positive response.

12-12. How can a brand like Honda communicate that it backs good causes such as HOLA (see www.honda.com/community/philanthropy-giving-back)?

What communication channels should it use? What risks does it face as it attempts to let people know about its commitments? (AACSB: Communication; Reflective Thinking) Answer: Student responses may vary but they should include a mix of marketing communication tools and should emphasize action or experiences that demonstrate the social purpose. The promotion mix could include advertising that educates consumers about the cause, its importance, and Honda‘s commitment to it. A sales promotion could help build the Honda brand while incentivizing someone to act in the short term. Public relations outreach could include events and efforts to generate publicity. And digital

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marketing, particularly on social media channels and the brand‘s website, could be a great way of sharing the brand‘s story.

12-13. What legal and ethical issues should a company consider before it makes claims about its commitment to a social purpose? (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Reasoning) Answer: A company must avoid false or deceptive advertising, so it should not make claims about its commitment to a social purpose if it cannot back up those claims. The company must avoid ads or communications that have the capacity to deceive, even though no one actually may be deceived.

Marketing by the Numbers Advertising Costs A common measure of advertising efficiency is cost per thousand (CPM), which is the ad cost per thousand potential audience contacts. Although all audience members are important for advertisers, the 18-to-49 demographic is the most coveted by many because they are the most difficult to reach with advertising messages. Because these viewers basically make or break a television show‘s success, television networks break out this demographic when giving audience numbers. Below are average costs and audience sizes for some of America‘s favorite primetime television shows during a five-week period in 2018:

Program This Is Us The Big Bang Theory Empire Young Sheldon The Voice (Monday) Grey’s Anatomy The Connors The Voice (Tuesday)

Average Cost per :30 Spot $433,866 $285,934

Average Number of Viewers (in millions) 9.309 12.483

18-to-49 Demo Viewers (in millions) 2.47 2.27

$227,494 $213,536 $212,618 $204,792 $201,065 $193,140

5.387 10.731 9.816 6.739 10.563 9.372

1.67 1.74 1.99 1.73 2.35 1.91

Although cost-per-thousand calculations for television programs are normally done on a household basis rather than viewer basis, comparing CPM per overall audience members versus CPM per 18-to-49 demographic audience members can help advertisers select appropriate media vehicles (that is, appropriate television programs) when trying to reach this demographic.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

12-14. Calculate both the overall CPM and the CPM for the 18-to-49 demographic for each show. Refer to the ―Selecting Specific Media Vehicles‖ section of ―Selecting Advertising Media‖ in the chapter to learn how to do this calculation. Which programs were the most efficient media buys for advertisers during that period? (AACSB: Analytical Reasoning; Reflective Thinking) Answer: CPM =

Ad cost x 1,000 ——————————— Audience size

So, for This Is Us,

This Is Usall viewers =

This Is Us18–49 =

$433,866 x 1,000 ———————— = $46.61 per thousand viewers 9,309,000 viewers

$433,866 x 1,000 ———————— = $175.65 per thousand 18-to-49

viewers 2,470,000 viewers

Notice that the ad cost does not change when calculating CPMs for different audience segments. The more specific the audience desired, the more expensive on a cost-per-thousand basis the media vehicle becomes because not all audience members fit the desired market profile.

The overall CPMs and CPMs for the 18-to-49 demographic for each show are: Program This Is Us The Big Bang Theory Empire Young Sheldon The Voice (Monday) Grey’s Anatomy The Connors The Voice (Tuesday)

Overall CPM $46.61 $22.91 $42.23 $19.90 $21.66 $30.39 $19.03 $20.61

18-to-49 Demo CPM $175.65 $125.96 $136.22 $122.72 $106.84 $118.38 $85.56 $101.12

On purely an efficiency basis, the least expensive shows on an overall cost-perthousand basis are The Connors, Young Sheldon, and The Voice (Monday and Tuesday). For the 18-to-49 demographic, the most efficient shows are The Connors and The Voice (both days).

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12-15. If an advertiser wanted to reach the 18-to-49 demographic, which programs would you suggest? Explain. (AACSB: Communication; Analytical Reasoning; Reflective Thinking) Answer: Student answers will vary. However, students should understand that efficiency is only one aspect considered. As noted in the chapter, media planners must consider the media vehicle‘s audience quality. As seen in question 1, the most efficient shows to reach this demographic are The Connors and The Voice.

Students might look at the 18-to-49 demographic percentage of the total audience by dividing the 18-to-49 viewers by the total viewers as an indication of audience quality in reaching the desired demographic and use that information in conjunction with the CPM information.

Program

Empire This Is Us Grey’s Anatomy The Connors The Voice (Monday) The Voice (Tuesday) The Big Bang Theory Young Sheldon

18-to-49 Percentage of Total Audience 31% 27% 26% 22% 20% 20% 18% 16%

Overall CPM

18-to-49 Demo CPM

$42.23 $46.67 $35.73 $19.03 $21.66 $20.61 $22.91 $19.90

$136.22 $175.65 $118.38 $85.56 $106.84 $101.12 $125.96 $122.72

Empire seems to be the best show to reach the 18-to-49 demographic, followed

by This Is Us and Grey’s Anatomy. The Big Bang Theory and Young Sheldon would be the least effective shows to reach this demographic.

Company Case Teaching Notes

Company Cases 12 Hyundai/7 Avocados From Mexico/14 Shopify See Appendix 1 for teaching notes for the below cases.

Case 12, Hyundai: An Integrated Marketing Communications Campaign That’s Wicked Smaht. Focusing on a single innovative feature, Hyundai created a captivating integrated promotional campaign.

Case 7, Avocados From Mexico: Building a Brand in a Brandless Category. By building a consumer brand, Avocados From Mexico has succeeded in increasing U.S. market share for thousands of Mexico-based growers and packers, while simultaneously increasing overall consumption of avocados.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Case 14, Shopify: The Unknown Ecommerce Giant. Providing a genuine end-to-end ecommerce platform for companies that want to sell online, Shopify becomes an ecommerce giant without selling anything to consumers.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

5.

Some students will need to have explained in detail the differences among the various communication methods outlined in the chapter. Figure 12.1 will help in this regard. Asking students for examples from each channel of communication will also help. Many students will be able to give examples from their parents‘ work.

There is a tremendous amount of information delivered in only a few pages in the advertising section. The differences among informative, persuasive, and reminder advertising may seem simple to students at first, but these concepts should be studied in some detail to ensure understanding. Again, examples are a tremendous help here.

Message execution is also a key concept. Many students will have trouble with the various execution styles and will particularly have difficulty with slice of life versus lifestyle. There may also be difficulty in understanding the difference between fantasy and mood or image. Again, use examples of your own and from the class, as well as those shown in the text.

Sales promotions, particularly consumer promotions, will be familiar to students. It is important that they understand the terminology, however.

Trade promotion is also fairly simple, although the difference between a discount and an allowance is crucial to understand. Business promotions, as well, will go quickly. You can tie this section back into the push strategy to show how a strategy gets turned into tactics.

One of the examples of masterful public relations the book points out is Johnson & Johnson during the Tylenol product-tampering scare. This example alone is often enough to explain the importance of this communication channel.

Student Projects 1. Many supermarkets will give you coupons based on what you purchase.

What type of promotion is this and do you believe it to be effective?

2. Pick up a Sunday newspaper (they always have the most advertisement in them). Remember the conversation on advertising objectives. Now find two examples of advertisements that inform, persuade, and remind.

3. Review the five components of the promotion mix. Find a merchant that is utilizing all five components and describe how they are using each.

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4. Why are companies doing less broadcasting and more narrowcasting?

What is a company that uses both and give examples of how they are accomplishing this?

5. Describe the four promotion tools and discuss the factors that must be considered in shaping the overall promotion mix.

Small Group Assignments Form students into groups of three to five. Each group should read the opening vignette to the chapter on Burger King. Each group should then answer the following questions: 1. How did Burger King break through the clutter of all the advertising done by other fast-food companies to get recognized?

2. What type of execution style did Burger King employ in its campaign?

3. Would Burger King‘s method of marketing communication work in an international environment? Why or why not?

4. What‘s next for Burger King? What new promotional direction would you suggest for them now?

Each group should share its findings with the class.

Individual Assignments Marketers can choose from two basic promotion mix strategies—push or pull promotion.

First, describe each. Larger companies typically use a combination of both strategies.

Find two examples of companies that are making successful use of BOTH promotion mix strategies. Describe what they are doing and why you believe it to be successful.

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What is an advertising objective?

2. What is the main difference between reach and frequency? Write a definition of each.

3. How is public relations different from advertising and sales promotion?

4. What are the advantages and disadvantages of the various types of media?

5. What form of media do you believe would be best for reaching a 70-yearold retired schoolteacher? For reaching a 12-year-old girl?

Classroom Exercise/Homework Assignment

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Examine the advertising for cigarettes over time. Spend some time researching how advertising for cigarettes has changed over the past 50 years. Look at old ads from the 1950s and 60s and compare them with modern ads. How has the message changed? During which time frame do you believe the advertising to be the most effective? Why? Classroom Management Strategies This chapter is full of good information. Make sure to keep the focus on integrating all communication channels as you go through the material. As discussed previously in Barriers to Effective Learning, use examples liberally through your discussion to drive home the importance of cohesive marketing messaging.

1.

2.

3.

4.

The introductory sections are short and can be covered in 10 minutes.

These sections set the stage for the chapter and provide valuable background information so that the remaining material is put into the proper context. Figure 12.1 illustrates the tools in the communication process.

Setting the Overall Communication Mix goes through the different communications channels, and 15 minutes should be spent here.

Attention should be paid to the push and pull strategies. Figure 12.2 illustrates these two strategies in a very clear format.

The section on Advertising is dense and should take 20 minutes. There are several subsections here, with the heart of the section in Developing Advertising Strategy. Table 12.1 discusses advertising objectives.

Public relations can be covered in 15 minutes. Be sure to talk in some detail about the different tools PR managers have at their disposal so that the students understand this is not just about getting mentions in the newspapers, even though that is extremely important and one of the key focus points for PR departments.

PROFESSORS ON THE GO

Communicating Customer Value: Advertising and Public Relations Key Concepts The promotion mix The need for integrated marketing communications The communications process 

Many companies are adopting the integrated marketing communication concept. Discuss two major problems that this marketing communications philosophy is designed to remedy.

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 

Find an example of the communication process shown in Figure 12.1.

Illustrate and explain each component part.

What is integrated marketing communications? Why has a shift in this direction occurred?

Key Concepts Steps in developing effective communications Setting the total promotion budget Setting the overall communication mix and integrating the mix The role of public relations      

Compare and contrast personal and non-personal communication channels.

How do you determine communications objectives?

Find at least five different forms of appeals in magazine advertisements. Compare and contrast the effectiveness of each. How were the appeals communicated to you?

Find at least two examples each of push and pull strategies used by marketers.

What is the major advantage of the objective-and-task method for setting the promotional budget? What is the major drawback?

Describe the six roles that public relations can perform. Which do you believe to be the most crucial to the success of a business?

CHAPTER 13 PERSONAL SELLING AND SALES PROMOTION

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 38. Discuss the role of a company’s salespeople in engaging customers, creating customers value, and building customer relationships.

39. Identify and explain the six major sales force management steps.

40. Discuss the personal selling process, distinguishing between transaction-oriented marketing and relationship marketing.

41. Explain how sales promotion campaigns are developed and implemented.

JUST THE BASICS CHAPTER OVERVIEW This chapter concentrates on two more IMC elements—personal selling and sales promotion.

Personal selling is the interpersonal arm of marketing communications, in which the sales

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

force interacts with customers and prospects to build relationships and make sales.

Sales promotion consists of short-term incentives to encourage purchase or sale of a product or service.

Although this chapter examines personal selling and sales promotion as separate tools, they must be carefully integrated with other elements of the promotion mix.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Salesforce: You Need a Great Sales Force to Sell Salesforce Salesforce is way out in front of the $53 billion market for customer relationship management (CRM) solutions.

Cloud-based systems are common today, but Salesforce pioneered the concept more than 20 years ago. Since then, the company has established itself as a leading innovator, constantly finding new ways to help client companies connect with customers and achieve greater sales force effectiveness using the latest online, mobile, social, artificial intelligence (AI), and cloud technologies.

Salesforce‘s innovative products have made it the world‘s number-one and fastest-growing CRM platform.

Salesforce has its own army of experienced, well-trained, highly motivated sales reps who take the company‘s products to customers.

The first fundamental of good selling at Salesforce is to listen and learn.

Understanding the customer leads to a second selling fundamental: empathize.

The next step is to offer solutions.

At Salesforce—or anywhere else—good selling starts with the fundamentals of engaging and listening to customers, understanding and empathizing with their problems, and building relationships by offering meaningful solutions for mutual gain.

PERSONAL SELLING Use Chapter Objective 1 here.

Robert Louis Stevenson once noted, ―Everyone lives by selling something.‖ The Nature of Personal Selling

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Personal selling is one of the oldest professions in the world.

The people who do the selling go by many names: salespeople, sales representatives, district managers, account executives, sales consultants, sales engineers, agents, and account development reps to name just a few.

Use Key Terms Personal Selling and Salesperson here.

The term salesperson covers a wide range of positions.

At one extreme, a salesperson might be an order taker, such as the department store salesperson standing behind the counter.

At the other extreme are order getters, whose positions demand creative selling and relationship building for products and services ranging from appliances to industrial equipment.

The Role of the Sales Force Personal selling is the interpersonal arm of the promotion mix.

The role of personal selling varies from company to company.

Some firms have no salespeople at all—for example, companies that sell only online or through catalogs, or companies that sell through manufacturer’s reps, sales agents, or brokers. In most firms, however, the sales force plays a major role.

Linking the Company with Its Customers The sales force serves as a critical link between a company and its customers.  

They represent the company to customers.

They represent customers to the company.

Salesperson-owned loyalty is the concept of customers becoming loyal to salespeople as well as to the companies and products they represent.

Use Discussion Question 13-1 here.

Coordinating Marketing and Sales A company can take several actions to help bring its marketing and sales functions closer together. 

It can increase communications between the two groups by arranging joint meetings and by spelling out when and with whom each group should

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

   

communicate.

The company can create joint assignments.

The company can create joint objectives and reward systems for sales and marketing.

They can appoint marketing-sales liaisons—people from marketing who ―live with the sales force‖ and help to coordinate marketing and sales force programs and efforts.

The firm can appoint a high-level marketing executive who oversees both marketing and sales.

MANAGING THE SALES FORCE Sales force management is defined as the analysis, planning, implementation, and control of sales force activities. (see Figure 13.1) Use Key Term Sales Force Management here.

Use Chapter Objective 2 here.

Use Discussion Question 13-3 here.

Use Figure 13.1 here.

Designing Sales Force Strategy and Structure The Sales Force Structure A company can divide sales responsibilities along any of several lines.

Territorial Sales Force Structure: Each salesperson is assigned to an exclusive geographic area and sells the company’s full line of products or services to all customers in that territory.

Characteristics:   

The organization defines each salesperson’s job and fixes accountability.

The organization increases the salesperson’s desire to build local customer relationships.

Because each salesperson travels within a limited geographic area, travel expenses are relatively small.

Product Sales Force Structure: The sales force sells along product lines.

This structure can lead to problems if a single large customer buys many different company products.

Customer (Market) Sales Force Structure: The sales force is organized along customer or industry lines.

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Separate sales forces may be set up for different industries, for serving current customers versus finding new ones, and for major accounts versus regular accounts.

Complex Sales Force Structures: A company often combines several types of sales force structures when it sells a wide variety of products to many types of customers over a broad geographic area.

Use Key Terms Territorial Sales Force Structure, Product Sales Force Structure, and Customer (or Market) Sales Force Structure here.

Use Discussion Question 13-2 here.

Sales Force Size Sales force size may range in size from only a few salespeople to tens of thousands.

Workload approach: A company first groups accounts into different classes according to size, account status, or other factors related to the amount of effort required to maintain them. It then determines the number of salespeople needed to call on each class of accounts the desired number of times.

Other Sales Force Strategy and Structure Issues Outside (Field Sales Force) and Inside Sales Forces Outside salespeople travel to call on customers in the field.

Inside salespeople conduct business from their offices via telephone, the internet, or visits from buyers.   

Technical sales support people provide technical information and answers to customers’ questions.

Sales assistants provide administrative backup for outside salespeople.

Telemarketers and online sellers use the phone and internet to find new leads and qualify prospects or to sell and service accounts directly.

Use Key Terms Outside Sales Force (or Field Sales Force) and Inside Sales Force here.

Use Discussion Question 13-4 here Most companies now use team selling to service large, complex accounts. Sales teams can unearth problems, solutions, and sales opportunities that no individual salesperson could.

Such teams might include experts from any area or level of the selling firm—sales, marketing, technical and support services, R&D, engineering, operations, finance, and others.

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Shortcomings of team selling: 1. Salespeople who are used to having customers all to themselves may have trouble learning to work with and trust others on a team.

2. Selling teams can confuse or overwhelm customers who are used to working with only one salesperson.

3. Difficulties in evaluating individual contributions to the team selling effort can create some sticky compensation issues.

Use Key Term Team Selling here.

Recruiting and Selecting Salespeople In a typical sales force, the top 30 percent of the salespeople might bring in 60 percent of the sales.

The best salespeople possess four key talents: 1.

2.

3.

4.

Intrinsic motivation Disciplined work style The ability to close a sale The ability to build relationships with customers

When recruiting, companies should analyze the sales job itself and the characteristics of its most successful salespeople to identify the traits needed by a successful salesperson in their industry.

Sources of new potential hires:  

The human resources department gets names from current salespeople, using employment agencies, placing classified ads, searching the web, and working through college placement services.

Another source is to attract top salespeople from other companies.

Training Salespeople Training programs have several goals.

1. The training program must teach them about different types of customers and their needs, buying motives, and buying habits.

2. It must teach them how to sell effectively and train them in the basics of the selling process.

3. The training program must teach them about the company’s objectives, organization, and chief products and markets, and about the strategies of major competitors.

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Many companies are using new digital techniques in their sales training programs.

Compensating Salespeople Management must decide what mix of compensation elements makes the most sense for each sales job.

Different combinations of fixed and variable compensation give rise to four basic types of compensation plans: 1.

2.

3.

4.

Straight salary Straight commission Salary plus bonus Salary plus commission

Compensation should direct salespeople toward activities that are consistent with overall sales force and marketing objectives.

Supervising and Motivating Salespeople Use Discussion Question 13-5 here The goal of supervision is to help salespeople ―work smart‖ by doing the right things in the right ways.

The goal of motivation is to encourage salespeople to ―work hard‖ and energetically toward sales force goals.

Supervising Salespeople Companies vary in how closely they supervise their salespeople.  

The annual call plan shows which customers and prospects to call on and which activities to carry out.

The time-and-duty analysis shows the time the salesperson spends selling, traveling, waiting, taking breaks, and doing administrative chores.

On average, active selling time accounts for only 10 percent of total working time!

Sales force automation systems: Computerized, digitized sales force operations that let salespeople work more effectively anytime, anywhere.

Companies now routinely equip their salespeople with laptops or tablets, smartphones, wireless connections, videoconferencing technologies, and customer-contact and relationship management software.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Motivating Salespeople Organizational climate describes the feeling that salespeople have about their opportunities, value, and rewards for a good performance.

Use Key Term Sales Quota here.

Sales quotas: Standards stating the amount they should sell and how sales should be divided among the company’s products.

Compensation is often related to how well salespeople meet their quotas.

Companies use various positive incentives to increase sales force effort: 

Sales meetings provide social occasions, breaks from routine, chances to meet and talk with ―company brass,‖ and opportunities to air feelings and to identify with a larger group.



Companies sponsor sales contests to spur the sales force to make a selling effort above what would normally be expected.



Other incentives include honors, merchandise and cash awards, trips, and profit-sharing plans.

Evaluating Salespeople and Sales-Force Performance Management sources of salesperson information include:   

Sales reports Call reports Expense reports

Formal evaluation forces management to develop and communicate clear standards for judging performance and provides salespeople with constructive feedback and motivates them to perform well.

Social Selling: Using Digital Sales Platforms and Tools The fastest-growing sales trend is the explosion in social selling – the use of online,

mobile, and social media to engage customers, build stronger customer relationships, and augment sales performance.

Use Key Term Social Selling here.

Online and social media technologies won‘t likely make salespeople obsolete.

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When used properly, digital technologies can make salespeople more productive and effective. They provide powerful tools for identifying and learning about prospects, engaging customers, creating customer value, closing sales, and nurturing customer relationships.

Social selling hasn't really changed the fundamentals of selling.

Today’s customers have much more control over the sales process than they had in the days when brochures, pricing, and product advice were available only from sales reps.

Customers can now browse corporate websites and social media sites to identify and qualify sellers.

Salespeople now routinely use digital tools that monitor customer social media exchanges to spot trends, identify prospects, and learn what customers would like to buy, how they feel about a vendor, and what it would take to make a sale.

Today’s sales forces have also ramped up their own use of digital content and social media to engage customers throughout the buying process.

The tools and techniques may be different as sales forces leverage and adapt to selling in the digital and social media age. But B-to-B marketers still need strong sales teams comprised of salespeople who can engage customers, discover customer needs, solve customer problems, and build relationships.

Use Marketing at Work 13.1 here.

Use Linking the Concepts here.

THE PERSONAL SELLING PROCESS Steps in the Selling Process (see Figure 13.2) Use Chapter Objective 3 here.

Use Key Term Selling Process here.

Use Figure 13.2 here.

The selling process consists of seven steps.

1.

2.

3.

4.

5.

6.

7.

Prospecting and qualifying Preapproach Approach Presentation and demonstration Handling objections Closing Follow-up

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

1. Prospecting and Qualifying

Prospecting involves identifying qualified potential customers.

The best source of prospects is referrals.

There are several sources of referrals.    

Current customers Suppliers, dealers, and noncompeting salespeople The web or other social network contacts Unannounced office visits (a practice known as ―cold calling‖)

Qualifying a lead requires knowing how to identify the good ones and screen out the poor ones.

Prospects can be qualified by looking at various factors.     

Financial ability Volume of business Special needs Location Possibilities for growth

2. Preapproach The preapproach is the stage in which the salesperson learns as much as possible about the organization (what it needs, who is involved in the buying) and its buyers (their characteristics and buying styles).

Call objectives are set by the salesperson and may involve qualifying the prospect, gathering information, or making an immediate sale.

Other call objectives may include deciding on the best approach and the best timing and determining the overall sales strategy for the account.

3. Approach During the approach step, the salesperson should know how to meet and greet the buyer and get the relationship off to a good start.

4. Presentation and Demonstration During the presentation step of the selling process, the salesperson tells the ―value story‖ to the buyer, showing how the company’s offer solves the customer’s problems.

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The customer-solution approach fits better with a relationship marketing focus.

Before salespeople can present customer solutions, they must develop solutions to present.

The following qualities are ones that buyers dislike most in salespeople:    

Pushiness Being late Deceitfulness Being unprepared or disorganized

The following qualities are ones that buyers value most in salespeople:      

Good listening skills Empathy Honesty Dependability Thoroughness Follow-through

5. Handling Objections In handling objections, the salesperson should do the following:     

Use a positive approach Seek out hidden objections Ask the buyer to clarify any objections Take objections as opportunities Turn the objections into reasons for buying

Every salesperson needs training in the skills of handling objections.

6. Closing Salespeople can use one of several closing techniques:     

Ask for the order Review points of agreement Offer to help write up the order Ask whether the buyer wants this model or that one Note that the buyer will lose out if the order is not placed now

7. Follow-Up

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Follow-up is necessary if the salesperson wants to ensure customer satisfaction and repeat business.

Use Key Terms Prospecting, Preapproach, Approach, Presentation, Handling Objections, Closing, and Follow-Up here.

Use Critical Thinking Exercises 13-7 and 13-8 here.

Use Marketing Ethics here.

Personal Selling and Managing Customer Relationships A transaction orientation is intended to help salespeople close a specific sale with a customer.

A relationship orientation is intended to serve the customer over the long haul in a mutually profitable relationship.

Most companies want their salespeople to practice value selling—demonstrating and delivering superior customer value and capturing a return on that value that is fair for both the customer and the company.

Use Marketing at Work 13.2 here.

SALES PROMOTION Sales promotion consists of short-term incentives to encourage the purchase or sale of a product or service.

Use Chapter Objective 4 here.

Use Key Term Sales Promotion here.

The Rapid Growth of Sales Promotion Sales promotion tools are targeted toward final buyers (consumer promotions), retailers and wholesalers (trade promotions), business customers (business promotions), and members of the sales force (sales force promotions).

Today, in the average consumer packaged-goods company, sales promotion accounts for 77 percent of all marketing expenditures.

Several factors have contributed to the rapid growth of sales promotion: 1. Product managers face greater pressures to increase their current sales.

2. The company faces more competition, and competing brands are less differentiated.

3. Advertising efficiency has declined.

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4. Consumers have become more deal oriented.

The growing use of sales promotion has resulted in promotion clutter. Consumers are increasingly tuning out promotions, weakening their ability to trigger immediate purchase.

Sales Promotion Objectives Use Discussion Question 13-6 here Sales promotion objectives vary widely.   

Consumer promotions: Urge short-term customer buying or enhance customer brand involvement.

Trade promotions: Get retailers to carry new items and more inventory, buy ahead, or promote the company’s products and give them more shelf space.

Business promotions: Generate business leads, stimulate purchases, reward customers, and motivate salespeople.

Sales promotions should help to reinforce the product’s position and build long-term customer relationships.

Frequency marketing programs and loyalty card programs have mushroomed in popularity in recent years. These are programs that give rewards to regular customers to keep them coming back.

Major Sales Promotion Tools Many tools can be used to accomplish sales promotion objectives. Descriptions of the main consumer, trade, and business promotion tools follow.

Consumer Promotions Use Key Term Consumer Promotions here.

Use Critical Thinking Exercise 13-9 here.

Consumer promotions include a wide range of tools.

Samples are offers of a trial amount of a product.

Sampling is the most effective—but most expensive—way to introduce a new product or to create new excitement for an existing one.

Coupons are certificates that save buyers money when they purchase specified products.

Most major consumer goods companies are issuing fewer coupons and targeting them

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

more carefully.

Cash refunds (or rebates) are like coupons except that the price reduction occurs after the purchase rather than at the retail outlet.

Price packs (also called cents-off deals) offer consumers savings off the regular price of a product.

Premiums are goods offered either free or at low cost as an incentive to buy a product.

Advertising specialties, also called promotional products, are useful articles imprinted with an advertiser’s name, logo, or message that are given as gifts to consumers.

Point-of-purchase (POP) promotions include displays and demonstrations that take place at the point of sale.

Contests, sweepstakes, and games give consumers the chance to win something. 

A contest calls for consumers to submit an entry to be judged.



A sweepstakes calls for consumers to submit their names for a drawing.



A game presents consumers with something every time they buy.

Event marketing (or event sponsorships) allows companies to create their own brand marketing events or serve as sole or participating sponsors of events created by others.

Use Marketing at Work 13.2 here.

Trade Promotions Trade promotions persuade resellers to carry a brand, give it shelf space, promote it in advertising, and push it to consumers.

Use Key Terms Event Marketing (or Event Sponsorships) and Trade Promotions here.

Use Discussion Question 13-6 here.

Manufacturers direct more sales promotion dollars toward retailers and wholesalers (79 percent) than to final consumers (21 percent).

Manufacturers use several trade promotion tools:   

A straight discount (also called a price-off, off-invoice, or off-list) An allowance (usually so much off per case) Free goods

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 

Push money Free specialty advertising items

Business Promotions Business promotions are used to generate business leads, stimulate purchases, reward customers, and motivate salespeople.

Use Key Term Business Promotions here.

Conventions and trade shows: Firms selling to the industry show their products at the trade show.

Vendors receive many benefits:       

Opportunities to find new sales leads Contact customers Introduce new products Meet new customers Sell more to present customers Educate customers with publications and audiovisual materials Reach many prospects not reached through their sales forces

Sales contests: Contests for salespeople or dealers to motivate them to increase their sales performance over a given period.

Sales contests work best when they are tied to measurable and achievable sales objectives (such as finding new accounts, reviving old accounts, or increasing account profitability).

Developing the Sales Promotion Program Marketers must determine the following when designing the sales promotion program: 1.

2.

3.

4.

5.

Size of the incentive Conditions for participation Promotion and distribution Length of the promotion Evaluation methods Use Marketing by the Numbers here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Discussion Questions

13-1. Define salesperson and briefly describe the differences between order takers and order getters. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A salesperson is an individual who represents a company to customers by performing one or more of the following activities: prospecting, communicating, selling, servicing, information gathering, and relationship building. A salesperson might be an order taker, such as the department store salesperson standing behind the counter, or an order getter, which demands creative selling, social selling, and relationship building for products and services ranging from appliances, industrial equipment, and airplanes to insurance and IT services.

13-2. Identify three actions a company can take to help bring the marketing and sales functions closer together. (AACSB: Written and Oral Communication) Answer: Student responses may vary. A company can increase communications between sales and marketing by arranging joint meetings and sales functions. It can increase communications between the two groups by arranging joint meetings and spelling out communication channels. It can create opportunities for salespeople and marketers to work together.

Brand managers and researchers can attend sales calls or sit in on sales planning sessions. Salespeople can sit in on marketing planning sessions and share their firsthand customer knowledge. A company can arrange joint objectives and reward systems. It can appoint marketing-sales liaisons who coordinate marketing and sales force programs and efforts. It can appoint a high-level marketing executive to oversee marketing and sales. The leader can help create value for customers and capture value from customers.

13-3. What are the differences between a territorial sales force structure, a product sales force structure, and a customer sales force structure? When might a firm choose to combine more than one sales force structure?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: In a territorial sales force structure, each salesperson is assigned to an exclusive geographic area and sells the company‘s full line of products or services to all customers in that territory. The salesperson‘s job is clearly defined and the salesperson is accountable and invested in local relationships, which can improve selling effectiveness and limit travel expenses. The territorial salesperson might report to a regional sales manager. If a company sells many products to many types of customers, it

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might need a product sales force structure, a customer sales force structure, or a combination of the two. In a product sales force structure, the sales force specializes along product lines because no single salesperson can become an expert in the product categories. In a customer or market sales force structure, the company organizes the sales force along customer or industry lines. Sales forces may be set up for different industries, serving current customers or finding new ones, serving major accounts versus regular accounts. Organizing the sales force around customers can help a company build stronger relationships with important customers. A complex structure combines several types of organization or sale force structures. Complex structures may serve customer needs and fit the overall marketing strategy when products are complex and geographic regions are vast.

13-4. What is team selling? When is it used? What are the pitfalls? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Team selling is using teams of people from sales, marketing, engineering, finance, technical support, and upper management to service large, complex accounts. Team selling is used when a single salesperson cannot handle all of a large customer‘s complex needs. Sales teams work together to unearth problems, solutions, and sales opportunities that no individual salesperson could. Teams might include experts from any area or level of the selling firm. The sales team might also mirror changes in the customer buying organization if the customer uses a team-based purchasing approach.

The pitfalls of team selling include these: sometimes salespeople have trouble learning to work with and trust others; selling teams can confuse or overwhelm customers; and difficulties in evaluating individual contributions to the team-selling effort can create sticky compensation issues.

13-5. Why is salesperson motivation important? How do sales managers motivate salespeople? (AACSB: Written and Oral Communication) Answer: Selling can also be frustrating. Salespeople often work alone and they must sometimes travel away from home. They may also face aggressive competing salespeople and difficult customers. Therefore, salespeople often need special encouragement to do their best. Sales managers can use organizational climate, sales quotas, and positive incentives to motivate salespeople. Organizational climate describes the feeling that salespeople have about their opportunities, value, and rewards for a good performance. Salespeople are motivated when they are treated as valued

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

contributors and allowed opportunities for earning and promotion.

Companies may use sales quotas, or standards stating the amount they should sell and how sales should be divided among the company‘s products, to motivate salespeople. Incentives such as contests, recognition, honors, profit-sharing, and invitations to sales meetings can also motivate salespeople.

13-6. Discuss the differences among consumer promotions, trade promotions, and business promotions. Provide examples of the different sales promotion tools that could be used in each promotion campaign. (AACSB: Written and Oral Communication) Answer:

Consumer promotions are sales promotion tools used to boost shortterm customer buying and engagement or enhance long-term customer relationships. Examples include coupons, rebates, premiums, contests, sweepstakes, and events.

Trade promotions are sales promotion tools used to persuade resellers to carry a brand, give it shelf space, and promote it in advertising. Examples include discounts and allowances, free goods, and push money.

Business promotions are sales promotion tools used to generate business leads, stimulate purchases, reward customers, and motivate salespeople. Business promotions include many of the same tools used for consumer or trade promotions, but there are two additional major business promotion tools— conventions and trade shows, and sales contests.

Critical Thinking Exercises 13-7. Write a job description for an order getter at Snap-on tools, a company that sells advanced tools to auto mechanics and technicians. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. Students should reference job descriptions on an online job board like Monster.com for models. They should also reflect on the information in the chapter, including the ideas that order getting, creative selling, social selling, and relationship building. The job description might include the requirements that the salesperson find and develop customers, communicate information about the products, learn about customer needs, present solutions, answer objections, negotiate prices and terms, close sales, service accounts, and maintain relationships. It should mention that strong relationship skills and communication skills are required.

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13-8. A sales manager for a telecommunications company is trying to calculate the optimal number of salespeople. The company has 500 A-level accounts and 3,000 B-level accounts. A-level accounts require 20 calls per year; B-level accounts require 10 calls per year. The average salesperson can make 1,000 calls per year. What is the workload? How many salespeople should the sales manager hire? What other factors should he or she consider? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: If the company has 500 A-level accounts that require 20 calls per year and 3,000 B-level accounts that require 10 calls per year, the workload is 40,000 calls [(500 x 20) + (3,000 x 10) = 10,000 + 30,000 = 40,000]. If the average salesperson can make 1,000 calls a year, the company would need 40 salespeople (40,000/1,000). Other factors for consideration may include the structure of the sales force, training, turnover, and compensation.

13-9. Design a consumer promotion to increase brand awareness and trial of cricket flour-based Chirps Chips (www.eatchirps.com). (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student examples will vary, and may include sampling events, coupons, point-of-purchase displays, contests, sweepstakes, and event sponsorships. Students may also include digital coupons or referral programs, where advocates for Chirps Chips may be rewarded for their advocacy. Specific recommendations should consider the target audience and the objective of the sales promotion.

Minicases and Applications Digital Marketing Innovation Lab at a Trade Show Marriott set up a pop-up innovation lab at the Americas Lodging and Investment Summit (a hotel industry investment conference) to showcase its Aloft and Element hotel brands. Marriott wanted not only to get feedback from consumers (influencers) and industry professionals (potential investors and franchisees) who visited the conference on separate days and answered different questions but also to create opportunities for both groups to share images of and reactions to their conference experiences via social media. The pop-up innovation lab allowed participants to experience the two hotel properties using virtual reality.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

They could also interact with the Aloft‘s Botlr Bellhop Robot service; use ecofriendly Element‘s self-service wine tap, which can be accessed using an app or a keycard; and try the solar-powered umbrellas, which doubled as charging devices. Marriott brand ambassadors carrying iPads engaged attendees and asked them to take a survey about their perceptions and reactions to the space— or they texted people a link to take the survey later.

13-10. Marriott used the innovation lab as both a business promotion and a consumer promotion, which served different segments with different needs. Was that a wise strategy? Explain.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: The business promotion was probably used to increase interest in franchises and generate sales leads. The consumer promotion was probably used to increase consumer–brand engagement. The two goals are different. Many of the tools used for business promotions and consumer promotions overlap.

However, the exception is trade shows, which is where the pop-up innovation lab was set up. The costs associated with creating the innovation lab, including the virtual experiences, was high. Students may see an advantage to gaining as many impressions and insights from both audiences as possible to maximize the return on investment. Separating the two groups so they interacted with the pop-up innovation lab on different days allowed Marriott to focus on different messages and desired behaviors on different days while using the same stage. Critics of the approach will note that focusing on only one of the two audiences may have allowed Marriott to maximize the value proposition and focus the communications for that group.

Since the goals were to get feedback and stage shareable content, the focus may not have changed.

13-11. An alternative and potentially lower cost way to get consumers to interact with the Aloft and Element brands would be to offer deep promotional discounts to influencers and prospects so they stay at one of the properties. How would a price-only promotion compare to the trade show innovation lab? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A promotional discount may have cost less than the innovation lab, particularly if the discounted rates were offered during periods of low occupancy. However, the innovation lab was offered during a trade show where many potential consumers and industry connections could be reached at the same time and place. Further, the social, in-person approach likely

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created more excitement, was choreographed to reinforce the positioning of the brands, and may have done more to develop social media engagement and long-term customer relationships than a discounted stay, which might be associated with less favorable (versus more favorable) brand associations.

Marketing Ethics Pharmaceutical Sales Strategies to Promote Cost-Effective Drugs One criticism of pharmaceutical sales is that it makes healthcare more expensive. Although pharmaceutical companies increasingly restrict entertainment gifts, meals, and other incentives that were once part of pharmaceutical salespeople‘s sales pitches, the reps still buy lunches for medical staffs, take doctors out to eat, and pay for doctors to attend informational presentations at physician conferences, sometimes in exotic destinations, as part of their efforts to promote expensive medications. They also pitch their branded drugs rather than less expensive generics. But now, health insurers are recruiting existing pharmaceutical salespeople away from big pharmaceutical companies to use the same relationship-building and creative selling skills, without the expense accounts, to raise health-care provider awareness of generic drugs, which cost less and work as well as the expensive brands. The premise is that doctors are often unaware of the costs of drugs they prescribe and may not realize when pharmaceutical companies increase their prices. The insurance companies‘ pitch to the pharmaceutical salespeople is that they will get to use the skills they learned from pharmaceutical companies to do something meaningful: lower healthcare costs. The goal is to save the insurance companies and the insured millions of dollars.

13-12. A recent analysis of top salespeople suggested salespeople who are driven by a strong sense of customer-related purpose outsell salespeople who are focused on sales and money goals. The insurance companies are using such purpose-related pitches in recruiting the pharmaceutical salespeople. What other characteristics should the insurance companies look for in their recruits? (AACSB: Written and Oral Communication, Reflective Thinking) Answer: In addition to a sense of purpose and a strong internal drive or external motivation to sell, strong salespeople are disciplined and lay out detailed, organized plans. They close sales and build strong customer relationships.

They have the skills and knowledge to get the job done and they actively listen so they can solve the prospect‘s problems and offer their products as solutions. They also communicate about the prospect‘s needs, and in this

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case, the needs of their patients, to help the firm they represent come up with better solutions. They are patient, caring, empathetic, and responsive.

13-13. Why would the insurance companies recruit existing pharmaceutical salespeople instead of hiring and training their own sales forces? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Sales training can be expensive. Also, proven salespeople who are high performers can be difficult to identify in an interview process. A proven track record can help limit the risk and cost associated with recruiting a salesperson. Identifying people who are motivated from within and have a drive to excel may be more important than the product they are selling. In this case, a drug that results in high profits for a pharmaceutical company and a drug that results in cost savings for insurance companies and their customers may be marketed using the same approach. They may focus on salespeople who are driven by the desire to provide service and build relationships.

Marketing by the Numbers Buy One, Get Something Free!

Mountain Goat Cyclery is an independent bicycle retailer in Colorado specializing in mountain bikes. It offers a full line of mountain bikes for men, women, and children as well as accessories and bike repair services. Like many local retailers, it advertises in local media such as newspaper, radio, magazines, and during the local news. The owner is considering spending $700 to advertise a summer sales promotion premium offer. For every Diamondback Lux bicycle purchased, the retailer is offering a free Fox Flux mountain bike helmet. It sells the bike for $800, and the retail value of the helmet is $125.

13-14. If Mountain Goat‘s markup percentage on selling prices is 35 percent, what margin will the retailer realize for each bike purchased during the premium offer?

How many additional bikes would Mountain Goat need to sell to break even on this premium offer?

Refer to Break-Even and Margin Analysis in Appendix 3: Marketing by the Numbers to learn how to perform this analysis. (AACSB: Written and Oral Communication; Analytical Thinking; Reflective Thinking) Answer:

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Margin = Price – cost of goods sold Cost of goods sold is given as 65 percent (which is 1 – markup percentage), which means it is equal to 65 percent of the selling price: COGSBike = 0.65 x $800 = $520 Therefore, Margin per bike = $800 – $520 = $280 Another way to quickly determine this is to multiply the selling price by the markup percentage because it is based on selling price: Margin per bike = $800 x 0.35 = $280 The margin on the helmet will be negative, however, because the consumer receives it free with the purchase of the bike and the retailer must still account for the cost of the helmet.

Cost of goods sold is given as 65 percent (which is 1 – markup percentage), which means it is equal to 65 percent of the selling price: COGSHelmet = 0.65 x $125 = $81.25 Therefore, Margin per helmet = $0 – $81.25 = –$81.25 So, Margin per bike with the free helmet promotion = $280 – $81.25 = $198.75 Since the advertising cost is a fixed cost, Mountain Goat must sell 4 bikes to break even on this promotion:

ΔBEBike&Helmet =

Advertising expense ————————— MarginBike & Helmet

$700 = ————— = 3.52 => 4 bikes $198.75

13-15. Mountain Goat ran the promotion and sold 18 bikes during the promotional period. Assuming the $700 spent on advertising is the only marketing cost associated with this promotion, calculate the net marketing contribution of the promotion. Was the promotion successful? Refer to Net Marketing

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Contribution in Appendix 3: Marketing by the Numbers to learn how to do this analysis. (AACSB: Analytical Thinking) Answer: Net Marketing Contribution (NMC) considers the contribution gained (or lost) by the promotion minus marketing expenses.

NMC = net sales – cost of goods sold – marketing expenses Net sales = Price x Quantity = $800 x 18 = $14,400 COGSPromotion = COGSBikes + COGSHelmets = ($520 x 18) + ($81.25 x 18) = $9,360 + $1,462.50 = $10,822.50 Therefore, NMC = $14,400 – $10,822.50 – $700 = $2,877.50 Yes, the promotion was successful because the net marketing contribution is positive. Another way to tell the promotion was a success if that the number of bikes sold (18) is greater than the number they needed to sell to break even on the promotion (4).

Note: A quicker way to calculate the net marketing contribution is to just determine the total contribution of the premium, which was calculated in question 1, and then subtract the advertising cost: NMC = ($198.75 x 18) – $700 = $3,577.50 –$700 = $2,877.50 Notice that Sales – COGS used in the first NMC calculation (that is, $14,400 – $10,822.50 = $2,877.50) is the same as the margin per bike and helmet multiplied by the number of bikes sold during the premium offer.

Company Case Teaching Notes

Company Cases 13 Urban Outfitters/11 Ulta Beauty See Appendix 1 for teaching notes for the below cases.

Case 13, Urban Outfitters: Brand-Building Rewards Program Promotions. Urban Outfitters has employed a rewards program that has allowed it to grow over the past decade, even as most apparel retailers have struggled.

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Case 11, Ulta Beauty: Where the Experience Is Beautiful. As the largest U.S. beauty retailer, customers of all kinds enthusiastically flock to Ulta because more than any other retailer, it offers a complete beauty experience.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

The issues surrounding managing the sales force can be difficult for some students. Individually, each of the decisions a sales manager needs to make seem reasonable enough, but bringing them all together to actually plan how to develop and manage the sales force appears complicated to most undergraduates. These issues can be made simpler by going through each of the concepts carefully and thoroughly. You may also want to have students design their own sales force for a product or service idea they have. This will really drive home the concepts of how you design the sales force, as well as all the management processes.

Sales to most students equate to retail sales, a field that many people dislike. Therefore, many students will not be planning on going into sales as a career, and this could cause them to ―tune out‖ during this section.

You can bring them back by talking about the nature of selling in various kinds of service firms (e.g., accounting firms) that many students may be heading toward after graduation. Also, a discussion of the sophistication and professionalism of the salespeople in companies such as IBM and other business-to-business companies can generate some enthusiasm for this important field.

The personal selling process will be a surprise to many students, again because they typically think of retail sales, if they‘ve thought about sales at all. The importance of all of these steps in the sales process can be highlighted in the discussion of business-to-business sales.

Direct marketing is a hot topic these days because of the national Do-NotCall list and the federal legislation on anti-spamming. The students should be able to maintain their interest in this topic, but they may be surprised that direct marketing is not just for underfunded or shady enterprises.

Student Projects 1. Examine Salesforce (www.salesforce.com). How is the Salesforce sales force structured?

2. List and describe each step of the personal selling process. Analyze your own potential as a salesperson at each step of the process. What steps of the process would be the easiest for you to handle and what steps the most difficult? Why? 3. Consider your college/university. How could they effectively use sales promotion as a recruiting tool?

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4. What are the distinguishing features between transaction-oriented marketing and relationship marketing?

5. Discuss the pros and cons of the different sales force compensation methods.

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Salesforce. Each group should then answer the following questions: 1. What is the role of the sales force in Salesforce?

2. What sort of people would you recruit for the Salesforce sales force?

3. How would you motivate such highly-trained salespeople? Be specific.

4. In an internet environment, how would you prospect for and qualify potential customers?

Each group should share its findings with the class.

Individual Assignment The sales force serves as a critical link between a company and its customers. They represent the company to customers and they represent customers to the company.

Explain how this would work for a company such as Salesforce.

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor: 1. What are the major forms of sales force compensation? Which do you believe to be superior? Why? 2. List and briefly describe the stages of the personal selling process.

3. What is direct marketing?

4. What do you believe to be the major advantages and disadvantages of team selling?

5. In the personal selling process, when would you consider the sale over?

Why? Classroom Exercise/Homework Assignment Consider you are a salesperson for the local Hyundai dealership. A young, newly married couple enters the lot. Walk us through the personal selling process, using this couple as your target.

Classroom Management Strategies

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This chapter describes two communications methods for integrated marketing communications. Most of the chapter is spent on the sales process, and then sales promotion is discussed.

1.

2.

3.

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The introduction and Personal Selling section can be covered in 5 minutes. These sections set the stage for the next two sections, and for that reason should not be rushed through.

Spend 20 minutes going over the section entitled Managing the Sales Force. This is critical information that the students will need to learn.

Figure 13.1 provides an introduction to the steps in sales force management. Review Table 13.1 to show the connection between marketing strategy and sales force compensation.

The Personal Selling Process can be covered in 15 minutes. Be sure to work with the students to ensure their understanding of each step of the process. Having them team up to ―sell‖ something to other teams is often helpful in this section, ensuring that they ―prospect,‖ develop their preapproach and approach, and then present, close, and follow-up. Figure 13.2 shows the complete selling process.

The Sales Promotion section is a packed section. Spend 20 minutes here, paying particular attention to the subsections on the various types of sales promotion programs.

PROFESSORS ON THE GO

Personal Selling and Sales Promotion Key Concepts The nature of personal selling and the role of the sales force Designing the sales force strategy and structure Managing the sales force   

According to the chapter, salespeople serve ―two masters.‖ What does this mean? Is it a good or bad thing?

The ability to build relationships with customers is the most important of a salesperson‘s key talents. Do you agree with this statement?

Explain.

What is the role of the sales force in modern business?

Key Concepts Seven steps in the personal selling process Customer relationship management 

The text emphasizes the link between personal selling and customer relationship management. Why is this link such an important concept?

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 



Suppose your grade in one of your classes is hovering between an A and B. How would you apply the seven steps in the personal selling process to convince your professor that you deserve an A? Demonstrate how a salesperson could prospect for sales customers via the internet. Which search sites seemed to be the most effective in your search effort? Try to be as specific as possible with the illustration you chose.

How should salespeople strive to build relationships? What is relationship marketing?

Key Concepts The different types of sales promotion objectives Customer promotions  

Sales promotion objectives vary greatly. Suppose you are interested in spurring short-term customer buying of your product. What type of sales promotion do you believe would be the most appropriate? Why? Go to your local department discount store. List and describe four examples of customer promotions you see. Which do you believe to be the most effective?

CHAPTER 14 DIGITAL MARKETING PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 14-1 Define digital marketing and discuss its rapid growth and benefits to customers and companies.

14-2 Discuss the consumer and market research required to design an effective digital marketing campaign.

14-3 Discuss the different digital channels and media and explain how companies employ them to create an omni-channel marketing strategy.

14-4 Identify and discuss the public policy issues presented by digital marketing.

JUST THE BASICS CHAPTER OVERVIEW This chapter digs deeper into the fastest-growing form of marketing: digital marketing (which includes online, social media, and mobile marketing).

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Over the past decade, marketing has undergone a dramatic transformation spurred by the surge in internet usage and buying as well as rapid advances in digital technologies— from smartphones, tablets, and IoT devices to the spate of online, mobile, and social media.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Coca-Cola: Making the Brand a Part of the Consumer’s Story Down through the decades, Coca-Cola has been an undisputed master of mass-media advertising and marketing. The company has produced an impressive string of big-budget campaigns.

The campaigns have featured memorable characters ranging from Michael Jordan to Santa Claus and the iconic Coca-Cola Polar Bears. Coca-Cola now spends a jawdropping $4 billion a year on advertising worldwide—10 percent of its revenues.

In the old days, Coca-Cola’s advertising objective was to build the brand’s image and positioning through mass-media impressions.

Coca-Cola now seeks to create consumer ―expressions,‖ brand-related exchanges and responses such as comments, retweets, and photo uploads that advocate for the brand and share brand content on social media.

Coca-Cola has learned that today’s empowered consumers often generate more content about a brand than a company can.

In its efforts to create a ―connected Coke‖ and spur consumer co-creation and sharing of brand content, Coca-Cola maintains a massive digital footprint.

In addition to hundreds of global websites, the brand is associated with 71 Facebook pages, 64 Twitter handles, 51 Instagram accounts, more than 100 YouTube channels created by the company and fans.

Coca-Cola’s digital messaging constantly evolves to keep pace with the changing times.

Coca-Cola makes extensive use of mobile marketing.

Digital content doesn’t just tell the brand story, it makes the brand part of the consumer’s story. It engages consumers directly and personally, fuels brand conversations, and makes the brand a part of consumers’ lives.

UNDERSTANDING DIGITAL MARKETING

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Use Chapter Objective 1 here.

Use Figure 14.1 here.

Use Discussion Question 14-1 here Digital marketing uses technology-intensive platforms such as the internet, mobile networks and devices, and social media to engage with individual consumers, consumer communities, and businesses.

Digital marketing is the fastest-growing form of marketing, claiming a surging share of marketing spending and sales. (see Figure 14.1) Use Key Term Digital Marketing here.

The New Digital Marketing Models The technologies needed to manage and exchange digital information have progressed rapidly. Such advances have propelled marketing into a digital, big data world that offers both great promise and daunting challenges.

It can serve as a supplementary channel for selling directly to customers. For other companies, digital marketing serves as a complete business model.

Many online-only startups that have cropped up in recent years—the so-called direct-toconsumer (DTC) brands—have employed this business model.

Use Discussion Question 14-2 here.

Benefits of Digital Marketing to Buyers and Sellers Buyer Benefits    

Digital marketing is convenient, easy, and private.

Buyers interact with sellers via websites or mobile apps.

Consumers benefit from increased price competition.

Digital marketing provides brand engagement and community—a place to share information and experiences.

Seller Benefits    

Digital marketing can provide a low-cost, efficient, speedy alternative for reaching markets.

Companies can set up forums to increase consumer engagement and improve customer service.

Digital marketing provides the flexibility to adjust prices and programs.

Companies can create positive word of mouth.

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 

Digital marketing can shorten the consumer’s decision journey.

Digital marketing provides opportunities for real-time marketing.

PREPARING FOR A DIGITAL MARKETING CAMPAIGN Use Chapter Objective 2 here.

Use Figure 4.2 here.

Use Discussion Question 14-3 here Use Key Terms Digital Consumer Personas and Consumer Omni-Channel Navigation Behavior here.

Knowing the Digital Customer Good marketing research provides consumer insights to guide the design and implementation of digital marketing campaigns.

Digital consumer personas—detailed, nuanced, and tangible representations of prototypical consumers to be targeted by the digital marketing campaign.

Use Discussion Question 14-4 here.

Understanding Consumer Omni-Channel Navigation Behavior Marketers must understand consumer omni-channel navigation behavior.

Consumer omni-channel navigation behavior: The consumer’s use of multiple marketing channels, both digital and nondigital, across stages of the consumer buying decision process.

Challenges:  Tracking the consumer through the omni-channel decision process is difficult.  The specific pattern of channel navigation varies across consumers.  Consumer decision process varies across buying stages and digital channels.

Companies must:  research and understand the patterns of consumer omni-channel navigation for their brands.  use data fusion, integrating data from different sources to build a comprehensive picture of consumer omni-channel behavior.

The resulting insights can guide decisions related to influencing consumers with timely and relevant information.

Use Linking the Concepts here.

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Using Experimentation to Understand What Works Experimentation in the digital marketing can assess everything from changes in pricing to the effectiveness of different online product offerings, brand messages, or presentation formats.

Marketers must prepare for digital marketing campaigns by gaining a deep knowledge of the digital consumer.

EMPLOYING DIGITAL CHANNELS IN AN OMNI-CHANNEL STRATEGY Use Chapter Objective 14.3 here.

Use Key Terms Online Marketing, Marketing Website, and Brand Community Website here.

Online Marketing Online marketing refers to marketing via the internet using company websites, online advertising and promotions, email marketing, online video, and blogs.

Marketing Websites and Brand Community Websites  

Marketing website: A website that engages consumers to move them closer to a direct purchase or other marketing outcome.

Brand community website: A website that presents brand-related content that engages consumers and creates a customer community around a brand.

Use Critical Thinking Exercise 14-8 here.

Use Key Terms Online Advertising, Online Display Ads, Search-Related ads, Email Marketing, Spam, Viral Marketing, and Blogs here.

Online Advertising      

Online advertising: Advertising that appears while consumers are navigating websites or other digital platforms, including display ads and search-related ads.

Search-related ads: Text- and image-based ads and links appear atop or alongside search engine results on sites such as Google, Yahoo!, and Bing.

Online display ads: Digital ads that appear anywhere on an internet or mobile user’s screen and are often related to the information being viewed.

Email marketing: Sending highly targeted, highly personalized, relationshipbuilding marketing messages via email.

Spam: Unsolicited, unwanted commercial email messages.

Online Videos: Companies often post digital video content on brand websites and on social media.

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  

Viral marketing: The digital version of word-of-mouth marketing that are so engaging that consumers pass them along to friends.

Blogs: Online forums where people and companies post their thoughts related to narrowly defined topics.

Omni-Channel Strategy Use Discussion Question 14-5 here.

Use Critical Thinking Exercise 14-7 here.

Use Marketing at Work 14.1 here.

Use Key Terms Social Media, Mobile Marketing, and Omni-channel marketing here.

Social Media Marketing Marketers are now riding the social media wave.

Social media can support deep consumer engagement and a sense of shared community.

Facebook has 2.8 billion monthly active users worldwide, more than seven times the population of the United States. Twitter has more than 353 million monthly active users, and YouTube has more than 2.3 billion users.

Types and Functions of Social Media             

Image and video platforms Social bookmarking platforms Influence platforms Messaging platforms Crowdfunding platforms Blogs/microblogs Location platforms Nicheworking platforms Wikis Service networking platforms Reviews and ratings platforms Event platforms Livestreaming platforms

Marketers can engage in social media in two ways:  They can participate in existing social media.  They can set up their own social media.

Social Media Marketing Advantages and Challenges Using social media presents both advantages and challenges.

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Advantages:  Social media are targeted and personal.  Social media are interactive.  Social media are immediate and timely.  Social media can be very cost effective.  Social media are engaging and have social sharing capabilities.

Challenges:  Most companies are still experimenting with how to use them and results are hard to measure.  Social networks are largely user controlled.

Mobile Marketing Mobile marketing features marketing messages, promotions, and other marketing content delivered to on-the-go consumers through their mobile devices.

Mobile marketing can engage consumers anywhere, anytime.

The widespread surge in mobile devices and traffic has mobile marketing a must for every brand.

Companies use mobile marketing to stimulate immediate buying, make shopping easier, and enrich the brand experience.

Use Marketing at Work 14.2 here.

Creating an Integrated Omni-Channel Strategy Traditional store retailers are reaping increasingly larger proportions of their sales online.

Today’s consumers are increasingly adept at omni-channel navigation across online, social media, mobile, brick-and-mortar, and other channels during the shopping process.

Omni-channel marketing: Creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping.

Overcoming the Challenges to Omni-Channel Marketing 

 

Aligning Omni-Channel Marketing and the Overall Business Model.

Aligning Organizational Incentives and Structures.

Aligning the Marketing Mix. Use Chapter Objective 14.4 here.

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PUBLIC POLICY ISSUES IN DIGITAL MARKETING Online marketers face growing privacy concerns and must deal with internet and mobile security issues.

Abuses range from simple excesses that irritate consumers to instances of unfair practices or even outright deception and fraud.

Consumer Privacy Invasion of privacy is the toughest public policy issue now confronting the directmarketing industry.

Consumers worry about their digital privacy.

Many critics worry that marketers know too much about consumers’ lives and that they may use this knowledge to take unfair advantage of consumers.

Using sophisticated big data analytics, digital marketers can mine these databases to ―micro- target‖ their selling efforts.

Irritation, Deception, and Fraud Beyond irritating consumers, digital media have also opened the door to a wide range of tricksters and fraudsters who take advantage of the low costs of online information transmission:  phishing, identity theft that uses deceptive emails and fraudulent web and online mobile sites to fool users into divulging personal data.  access by vulnerable or unauthorized groups.

Use Marketing Ethics here.

Data Integrity and Security One recent study indicated that more than 70 percent of participants were still concerned about identity theft.

Rapidly increasing number of networked and IoT devices opens new doors for hackers to potentially infiltrate unsecured home networks, access connected computers, and capture sensitive personal information.

Consumers are also concerned about the security of the data stored about them in digital repositories based either online or in the cloud.

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Antitrust Concerns Online giants like Apple, Amazon, and Google have grown at tremendous rates.

Each has a market value of more than $1.5 trillion.

Policy makers worry that their size and dominance gives them a kind of monopoly power.

Use Discussion Question 14-6 here.

The Need for Action The federal government has considered numerous legislative actions to regulate how online, social media, and mobile operators obtain, store, and use consumer information.

The General Data Protection Regulation (GDPR) sets strict requirements for collecting and protecting personal information about people who live in the European Union. Many American lawmakers are calling for similar legislation in the United States.

The FTC is taking a more active role in policing online privacy.

The privacy rights of children are of special concern. In 1998, Congress passed the Children’s Online Privacy Protection Act (COPPA), which requires online operators targeting children to post privacy policies on their sites.

The government and law enforcement agencies have introduced consumer protection measures and stepped up enforcement.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 14-1. What is digital marketing? Why is it important to marketers? (AACSB: Written and Oral Communication) Answer: Digital marketing is the use of technology-intensive platforms such as the internet, mobile networks and devices, and social media to engage directly with carefully targeted individual consumers, consumer communities, and businesses. It is important to marketers because it is the fastest-growing form of marketing. It earns a growing share of marketing spending and sales. For example, total digital advertising spending—spending for

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advertising that appears on computers, mobile phones, tablets, and other internet-connected devices—now makes up an estimated 58 percent of all U.S. advertising spending. Growing at more than 20 percent per year, digital will claim an estimated two-thirds of all ad spending by 2025. And as consumers spend more and more time on their tablets and smartphones, ad spending on mobile media is exploding. By itself, mobile ad spending now accounts for 34 percent of all U.S. ad spending, 2 percent higher than the spending on television advertising.

14-2. What are the major benefits of digital marketing to buyers and sellers?

(AACSB: Written and Oral Communication) Answer: For buyers, digital marketing is convenient, easy, and private. It gives buyers anywhere, anytime access to an almost unlimited assortment of goods and a wealth of product and buying information. Buyers can interact with sellers via websites or mobile apps to create exactly the configuration of information, products, or services they want, order them on the spot, and have them delivered days or even hours later. In the digital marketplace, consumers often benefit from increased price competition.

Competitors are only a mouse-click away, making price and product comparisons remarkably easy, for both consumers and companies. As a result, competitors usually try to match or beat competitors‘ prices. This increased price competition ultimately leads to lower prices paid by consumers. Further, consumers expect comparable prices across a company‘s websites and in retail stores. Changes made to the online prices are often quickly reflected in the retail store prices. Finally, for consumers who want it, digital marketing through online, mobile, and social media provides a sense of brand engagement and community—a place to share brand information and experiences with other brand fans.

Digital marketing also offers sellers multiple benefits. First, digital marketing can provide a low-cost, efficient, speedy alternative for reaching sellers‘ markets. For many new or small companies, going the traditional store route is not an option. It takes too much time, effort, and financial resources to gain placement on the shelves of established store retailers.

However, these companies can market their products online. Companies can set up online forums to increase consumer engagement and improve customer service. Digital marketing also provides marketers with the flexibility to make ongoing adjustments to prices and programs, and to create immediate, timely, and personal engagement and offers.

Companies with compelling value propositions can leverage the digital medium‘s capacity to create positive word-of-mouth. Finally, digital marketing can shorten the consumer‘s decision journey of considering multiple brands, evaluating them, purchasing one brand, and then potentially enjoying, advocating, and bonding with the brand after

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purchase. With digital marketing, brands can place highly persuasive information in front of potential customers at the right place and at the right time. This can shorten the decision process, bypassing the lengthy consideration and evaluation stages and making purchase decisions mentally easier to justify and more impulse-based.

14-3. What are digital marketing personas? How are they used? (AACSB: Written and Oral Communication) Answer: Digital consumer personas are detailed, nuanced, and tangible representations of prototypical consumers to be targeted by the digital marketing campaign.

Because digital marketing is information-intensive, it can pervade many activities in a consumer’s daily life. Digital marketing messages can penetrate time and space barriers that create big hurdles to conventional marketing techniques. For example, location-based digital marketing can fine-tune the targeting of marketing offers and messages to consumers based on their physical locations at anytime and anywhere. Thus, compared to conventional consumer personas, digital personas must contain deeper details relative to how consumers seek and consume certain types of information, their preferences for information access platforms, their location-related habits, and other such characteristics.

A well-prepared consumer persona captures the key traits of a targeted market segment. Therefore, digital marketers should keep the key personas constantly in mind when designing the company’s digital marketing strategy. A company should develop a distinct digital consumer persona for each targeted segment.

Such consumer personas serve as a touchstone for designing the digital marketing strategy—for generating new ideas, helping to screen ideas for feasibility and relevance, and pulling different ideas together into a coherent, consumer-focused digital marketing strategy.

14-4. What is consumer omni-channel navigation behavior? Provide an example. (AASCB: Written and Oral Communication) Answer: Consumer omni-channel navigation behavior is the consumer‘s use of multiple marketing channels, both digital and nondigital, across stages of the consumer buying decision process. To effectively market to consumers with the right marketing content at the right place and time, marketers must understand which channels consumers are using at each stage of the customer journey. Student examples may vary. The example in the text is omni-channel shopping behavior for a 65‖ HDTV. 14-5. Discuss why Instagram is a popular social media platform for marketers.

(AACSB: Written and Oral Communication)

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Answer: Instagram differentiated itself from other apps in two ways: It was mobileonly and it was designed with a single, simple function in mind—sharing images. Instagram‘s simplicity and the growing appeal of communicating through images made it the preferred social network for then-young millennials to communicate with their friends, out of sight of their parents‘ watchful eyes. Facebook offers advertisers the opportunity to provide commercial content along with the images. Instagram‘s user base includes more than 1.16 billion users who contribute more than 1 billion posts each day. Instagram‘s unique user base is a great fit for the content strategies of many brands. The Instagram community is big and youngish—85 percent of U.S. teenagers—but spans a wide demographic range. This allows for precision targeting. Instagram‘s audience is also loyal: 25 percent of teenagers in the United States say Instagram is their favorite social medium. Users in the 18-24 age group spend a daily average of over 30 minutes on the app and more than 67 percent of them use the app multiple times a day. The audience is the main reason Instagram is one of the world‘s premier digital, social media, and mobile advertising channels.

Instagram‘s design makes it easy for advertisers to blend their brand content with user content. As a result, rather than disrupting the Instagrammer experience, brand content often enhances it. Brands can place content directly into the feeds of targeted Instagrammers through various photo and video formats, including Reels—a short video format designed to take on rival TikTok. Then, with Instagram Stories, advertisers can present brand content in the same way that Instagrammers use the Stories feature—weaving photos and videos together, enhancing them with text and doodles, and presenting them in full-screen slideshows that stay around for 24 hours. Instagram branded content ads pair brands with Instagram creators to organically insert sponsored material into creators‘ posts, ―bringing people closer to product and brands they love, through the voices of creators they trust.‖ Instagram has a marketplace that will essentially be a brand–influencer matchmaking service. In addition to numerous options for brand content, Instagram provides tools that make it simple for advertisers big and small to process and monitor visual content quickly, efficiently, and with emotional impact.

Instagram Shopping provides a set of features that turn a business Instagram account into a shoppable storefront, allowing users to buy products directly from brand shops with a single tap without leaving the platform. And on Instagram, shopping is as flexible and integrated as advertising. Brands can tag products or post captions for their branded content. And with Instagram Collections, businesses can curate their products into themes and add an editorial flare.

14-6. How does the General Data Protections Regulation (GDPR) act affect

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data collection and protection? (AACSB: Written and Oral Communication) Answer: The GDPR sets privacy rights of Europeans, including strict guidelines for collecting and protecting personal information about people who live in the European Union. It also gives European consumers more control over what is collected and how it is used. Students can learn more about the law here: digitalguardian.com/blog/what-gdpr-general-data-protectionregulation-understanding-and-complying-gdpr-data-protection. Many U.S. privacy advocates and regulators are calling for similar laws in the United States.

Critical Thinking Exercises 14-7. Taco Bell uses social media to engage consumers around marketing stunts targeting its millennial and Gen Z segments. For example, it has hosted Airbnb sleepovers in its restaurants and once erected a billboard that dispensed hot nacho cheese. Recently, Taco Bell created a slide-thru window through which 125 snow-tubers and Taco Bell fans bused to a resort outside Toronto could reach out and grab a Cheetos Crunchwrap Slider in a to-go bag as they tubed past. The goal was to generate social media engagement that would raise awareness of the return of the Cheetos Crunchwrap Slider. Fans ordered their food at the top of the hill.

The food was prepared in a kitchen and taken to the booth below by snowmobile. The snow tubers were then given a Taco Bell-branded tube to slide by and grab their food before heading to the lounge to enjoy the meal. How can Taco Bell‘s marketers evaluate the success of this promotion event? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Given the small number of consumers served, factors that might interfere with food quality, and the considerable costs associated with the delivery mechanism, some students may question why Taco Bell did not simply set up a pop-up restaurant in the lounge. Even if the 125 consumers who were engaged were highly loyal, it is unlikely the revenue gains would be enough to offset the costs of the engagement if no one else was aware of it. However, the event was ideal for social media sharing and for generating earned media or publicity. The exclusivity of the event may help the news travel further—invited guests may want to brag about the unique experience. Although setting up a pop-up kitchen inside the lodge would have saved money, it would not have generated as much buzz or brand-building. The event, which probably cost about the same as producing a television ad, was probably successful at getting customers to engage with the brand. To measure the event‘s success, Taco Bell could measure engagement with the content, track the event hashtag, conduct a

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sentiment analysis on posts related to the event, monitor changes in social media traffic on its channels and mentions of Taco Bell on other channels, and track change in sales of the Cheetos Crunchwrap Slider in Tack Bell stores.

14-8. Thanks to the Internet of Things, marketers can now add value to the shopping experience by using digital displays. They can use the displays to gather data about consumers, send advertising messages to their mobile phones as they pass, and use their mobile phones or facial recognition to personalize the marketing messages that appear on the displays. However, in response to technology advancements and heightened sensitivity to privacy, several policies have been introduced to limit the collection and resharing of data. Is it a wise strategy for retailers to use digital displays to market directly to consumers? Why or why not?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. Marketers who capture relevant insights may be able to add more value to the customer experience. For example, brick-and-mortar retailers might utilize the technology to personalize communications, draw attention to local and exclusive offerings that match consumer preferences, and update consumer preferences. However, unlike online environments where, even as companies move to make the use of cookies and data tracking more transparent, people seem to accept data tracking as something that goes with the online environment. The computer-mediated environment may be perceived as different from technology that uses a consumer‘s phone or facial recognition to capture or recall data that allows the firm to market directly to the consumer.

Students may suggest that consumers opt in to the programs. They also may question the return on investment of implementing some of these systems, particularly when there is a threat of consumer backlash and/or legislation that could limit its use.

14-9. Cosmetic brands that are trying to reach female Gen Z consumers are connecting with them via one of their favorite activities: online gaming.

Brands are offering products to customize avatars, sponsoring esports teams, running social media campaigns to target gamers, launching channels on Twitch, and incorporating game brands in their offline offerings. One criticism is that brands are overlooking the opportunity to sponsor Black content creators in their efforts to target gamers. Identify a Black creator with gaming content. Create a plan for how a brand like e.l.f. cosmetics might include Black creators in a digital marketing brand campaign. (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Student responses will vary based on their selection and how they choose to incorporate the creator in the campaign. Some brands have named products after creators; others have provided creators with promotional consideration for inclusion in their content. Students should be specific about what makes the creator a good fit, given the brand‘s target audience and marketing objectives.

Minicases and Applications Digital Marketing Can Social Media Raise Awareness of Uniqlo in the United States?

Uniqlo targets young, urban, professional, and practical American shoppers with fashions that are not unique and bear no labels. It offers low prices (such as jeans for $40), so it is sometimes grouped with other big brands such as Zara and H&M in the fast fashion category. However, unlike Zara and H&M, Uniqlo does not chase trends. It offers staples, much as the Gap did when it made basics cool in the 1990s before it lost its edge by being in every mall and becoming the uniform of suburban moms and dads. Uniqlo offers basics with clean lines and positions itself as affordable fashion that is not disposable. It offers free tailoring and has built a reputation for durability. It also uses a number of signature technologies in its clothing, including ultra-light down, HeatTech insulating system, and AIRism moisture-wicking. Madewell and Everlane offer similar products at a higher price. Although it is owned by Fast Retailing, one of the five largest clothing retailers in the world, only a small percentage of Uniqlo‘s 2,000 stores are located in the United States, where it lacks brand awareness.

Uniqlo fell short of an expected 200 stores in the United States by 2020; it currently operates 50 U.S. stores at a loss.

14-10. Compare Uniqlo‘s approach on Instagram (www.instagram.com/uniqlousa) to Madewell‘s approach (www.instagram.com/madewell). Identify similarities and differences between the two brands‘ approaches to consumer engagement on Instagram. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Uniqlo uses the hashtag #SimpleMadeBetter and features urban backdrops and cosmopolitan lifestyles in its visuals. It highlights its licensing deals and exclusive designer lines in its stories. It has more than 377,000 followers. Its posts can generate more than one thousand likes but do not generate comments. Madewell‘s messaging (#everydaymadewell) to more than 1.4M Instagram followers focuses on jeans, and the images emphasize a lifestyle that is more oriented toward exploration and nature (beaches, deserts), with cityscapes featured as backdrops for outdoor exploration. Students may

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provide feedback or opinions about how the products are featured, the colors, the copy, and how it all relates to brand sales.

14-11. In a small group, design a social media approach that would help increase brand awareness and communicate the value proposition of Uniqlo relative to its competitors. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Uniqlo uses an operational excellence approach to provide superior value by leading the industry in price and convenience. However, it treats its social media channels like catalogs, with attractive images but little enticement for consumer interactions. Students‘ ideas for how they might engage consumers will vary but should emphasize ways to engage consumers around the product lines and innovations that make Uniqlo‘s offerings unique.

Marketing Ethics Home Hub Paranoia Home hubs that contain voice technologies and microphones, such as Amazon‘s Echo with Alexa and Google‘s Nest Hub with Google Assistant, are popular devices that continuously listen in for commands. Many consumers like the convenience that comes with the home hubs but worry about their privacy. In response, people often place the devices in common areas but not in bedrooms or other more private areas. Wherever the devices are located, marketers could conceivably use them to collect information that could be used to microtarget selling efforts to consumers. This possibility along with recent revelations about other devices, such as the unadvertised, on-device microphone included Amazon‘s Nest Guard that lets Amazon collect information in order to provide future features, plus reports of Amazon employees listening in on Alexa conversations, have made some consumers paranoid about who is listening and when.

14-12. How should companies that offer home hubs address consumer concerns about privacy violations? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies should make the privacy policy very consumer-friendly so that consumers know what data is being collected, how it is protected, and how it is used. They should also make it easy to turn off microphones and opt out of monitoring, including processes that use human intervention to improve voice recognition. Companies should also make the benefits gained by consumers in exchange for their data very evident. For

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example, Google‘s new positioning for its Nest Hub shifted from the promise of a thoughtful home to the promise of a helpful home.

14-13. Is it ethical for marketers to gather and use data from inside the home to improve the value proposition to consumers? Explain. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. One factor that may affect responses is whether students believe that the data collected is useful for improving the customer experience. Some students may question whether the data collected and used to customize the user experience can be stored locally, where it may be less vulnerable to security breaches and where its use will be focused on the tasks in the home. On the other hand, the company‘s ability to recommend relevant products and services depends on its ability to process the data and integrate it with other data. Students are likely to be wary of the technology‘s use to manipulate or nudge consumers and may be concerned about excess data that is collected for research that will be applied for other purposes, including military applications, which may be covered by broad privacy policies.

Marketing by the Numbers Uniqlo’s Fast Moving Image Campaign Uniqlo is a Japanese retail brand that has grown into a global brand in fifteen countries thanks to digital marketing campaigns. Founder Tadashi Yamai inherited a chain of men‘s tailoring retail stores, so he was no stranger to fashion retailing. But he wanted to bring affordable, fashionable, casual clothing to all people, so he created Uniqlo in 1984 to offer casual clothing for all. As noted previously, the brand‘s philosophy is ―UNIQLO clothes are MADE FOR ALL.‖ The company focuses on its signature innovative clothing lines that have names such as HeatTech, UV Cut, LifeWear, and AIRism. In 2007, its pioneering ‗Uniqlock‘ viral marketing campaign won dozens of advertising awards, including the coveted Grand Prix award at Cannes. The company continues to run digital marketing campaigns, and while awards are nice, results are better. Marketers measure all sorts of metrics related to digital campaigns from impressions and click-throughs to purchases. Consider one of its most recent digital campaigns that Uniqlo ran in Australia to increase brand awareness and sales of its clothing.

A fast-moving image ran a series of stills on digital billboards at a rate of 20 to 30 frames per second. A unique product code was embedded in the images. The code could not be seen unless a consumer took a photo of the display. If consumers uploaded the code to the campaign website, they received a sample from the Uniqlo clothing line. Consumers also created content about the campaign, including videos that were viewed more than 1.3 million times.

Sample campaign measures follow:

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Measures Impressions Click-through to site Cost of campaign New customers New newsletter subscribers Number of orders generated Revenue generated Abandoned shopping cart Average cost of goods sold (%) Shipping and handling costs (per order) Performance Metric Click-through rate (CTR) Cost-per-click (CPC) Conversion ratio Cost per conversion Average-order-value (AOV) Shopping cart abandonment rate

Value 7,000,000 300,000 $150,000 35,000 25,000 45,750 $3,450,000 450 45% $9.50

Equation (Click-throughs ÷ Impressions) x 100 Cost of campaign ÷ Click-throughs (Number of orders ÷ Click throughs) x 100 Cost of campaign ÷ Number of orders Revenue generated ÷ Number of orders (Abandoned shopping cart ÷ Click-throughs) x 100

14-14. Calculate the performance metrics listed in the table above. Based on these metrics, evaluate the campaign. (AACSB: Written and Oral Communication; Analytical Thinking; Reflective Thinking) Answer: Performance Metric Click-through rate (CTR) Cost-per-click (CPC) Conversion ratio Cost per conversion Average-order-value (AOV) Shopping cart abandonment rate

Calculation (300,000 ÷ 7,000,000) x 100 = 4.3% $150,000 ÷ 300,000 = $0.50 per click (45,750 ÷ 300,000) x 100 = 15.25% $150,000 ÷ 45,750 = $3.28 $3,450,000 ÷ 45,750 = $75.41 (450 ÷ 300,000) x 100 = 0.15%

Based on these metrics, the campaign was very successful. If students researched average click-through rates, they‘d learn that it is usually very low (around 0.05% for banner ads), so 4.3% is very good. Also, the cost-per-click is very low as well as the cost per conversion. The campaign resulted in converting more than fifteen percent of those who clicked through to the website, and only a small percentage of consumers who put things in a shopping cart didn‘t continue on to make the actual purchase. Indeed, the

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average shopping cart abandonment rate is between 60% and 80%, so this campaign was very successful in bringing consumers to the site who actually followed through with a purchase.

14-15. Calculate the net marketing contribution (NMC), Marketing Return on Sales (Marketing ROS), and Marketing Return on Investment (Marketing ROI). Was the campaign successful? Refer to Marketing Profitability Metrics in Appendix 3: Marketing by the Numbers to learn how to do this analysis. (AACSB: Written and Oral Communication; Reflective Thinking; Analytical Thinking) Answer: Net marketing contribution (NMC) = net sales – cost of goods sold – marketing expenses Sales (given) = $3,450,000 Cost of goods sold (COGS) is 45%, which means 45% of sales: COGS = 0.45 x $3,450,000 = $1,552,500 Marketing expenses include the cost of the campaign and the shipping and handling costs per order: Marketing expenses = $150,000 + ($9.50 x 45,750 orders) = $150,000 + $434,625 = $584,625 NMC = $3,450,000 – $1,552,500 – $584,625 = $1,312,875 Net marketing contribution Marketing ROS = ——————————— Net sales $1,312,875 Marketing ROS = ———————— = 0.38 = 38 % $3,450,000 Net marketing contribution Marketing ROI = ——————————— Marketing expenses $1,312,875 Marketing ROI = ————————— 584,625

= 2.25 = 225%

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The campaign was a success because the Net Marketing Contribution was positive. High values of Marketing ROS and Marketing ROI are desirable, and this campaign resulted in very high values for these performance metrics. However, they should be compared to those from other campaigns or to goals set for the campaign.

Company Case Teaching Notes Company Cases 14 Shopify/6 Outschool/9 Casper See Appendix 1 for teaching notes for the below cases.

Case 14, Shopify: The Unknown Ecommerce Giant. Providing a genuine end-to-end ecommerce platform for companies that wants to sell online, Shopify becomes an ecommerce giant without selling anything to consumers.

Case 6, Outschool: Personalized Education for All. A fast-growing marketplace for remote-delivered K-12 classes, Outschool is out to make learning fun, social, and selfdirected.

Case 9, Casper: A Pricing Strategy that Flipped the Mattress Industry. An innovative new product and a direct-to-consumer model are behind a pricing strategy that gave Casper an edge in the mattress market.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

The students will have grown up with the internet, so there are few concepts in this chapter that will be totally new to them. However, the vocabulary and terminology could be new to them, so you will want to go through all the Key Terms carefully.

While students are intimately familiar with social media, its use as a powerful marketing tool may be lost on them. The discussion of Marketing and the rapid growth of the Digital interface is important to help familiarize them.

Many (if not most) students will have their own social media sites, either for personal use or through their college activities. They will understand the nuances of web design, but may not understand some of the key concepts of attracting and retaining customers through effective design decisions. Discussing web and social media sites that they enjoy using, as well as those they think are poorly designed, will help with these concepts.

Student Projects

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1.

2.

3.

4.

5.

Look at the different types of online advertising. Describe each. Which form of advertising do you believe would be the most effective for you?

Why? How often do you click on one of these ads?

You are the owner of a small, local, hometown gourmet meats store.

What, if any, advantage do you see in setting up an online presence? In what ways could this possibly help your business? Or could it?

How does your college/university use direct, online, social media, and mobile marketing to attract quality prospective students? Are they doing a good job? What suggestions would you make to them to improve their efforts?

Find an example of a company that appears to be doing an absolutely terrible job of connecting with customers via social media. Make recommendations to improve their presence and visibility What do you believe to be the future of traditional catalog marketing? Find examples of companies that have discontinued their printed catalog in favor of a fully online version. Has this been successful for them?

Small Group Assignments Form students into groups of three to five. Each group should read the opening vignette to the chapter on Coca-Cola. Each group should answer the following questions: 1. How has Coke become so successful with consumers?

2. What are the advantages of Coke‘s business model? What are the disadvantages?

3. What is Coke‘s biggest challenge?

4. What‘s next for Coke?

Each group should share its findings with the class.

Individual Assignments Go onto to Dell‘s website (www.dell.com) and that of major competitor Apple (www.apple.com). ―Build‖ your ideal laptop on each. Compare the competitors on product offerings, price, and website ease of navigation, appeal, and use. Who wins? Why? Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. How would you define digital marketing?

2. What are the benefits of digital marketing to customers? To companies?

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3. What are the major forms of digital marketing?

4. What are some of the significant ethical issues raised by the use of digital marketing?

5. How are companies using online, social media, and/or mobile marketing to deliver greater value to consumers?

Classroom Exercise/Homework Assignment The University of Phoenix‘s ―online campus‖ was established in 1989, well before the advent of and widespread use of the internet. Since then, the University of Phoenix has exploded, and more and more adults are earning their Bachelor‘s, Master‘s, and even Doctoral degrees online.

Because this model has proven so successful, traditional universities have added online options to their degree programs. Sometimes courses are only ―web enhanced,‖ meaning that the students still gather in a traditional classroom, but some work takes place via the internet. Many colleges and universities, however, are moving much of their course catalog completely online. This allows them to reach many non-traditional students, and students who simply cannot relocate to the city in which their campus is located.

1. How has the University of Phoenix Online affected the college experience? Be specific.

2. What are the benefits of obtaining a degree online? What are the disadvantages, if any?

3. Analyze where the University of Phoenix Online advertises. Are they reaching their target audience?

4. Visit their website at www.phoenix.edu. Is it an effective website? Defend your answer.

Classroom Management Strategies As was noted previously, students today have grown up with the internet and social media. This chapter should not be difficult for them, although stressing the Key Terms will be important for them to be able to have intelligent business discussions about the uses of the internet.

1.

2.

Spend 5 minutes each on the first two sections regarding the forces shaping the digital age and the strategies for responding. Figure 14.1, showing the forces that underlie the digital age, will be of great assistance in getting this topic across.

Forms of Digital Marketing make up most of this chapter. Plan to spend about 30 minutes on this section. Again, although this material may well be familiar to students, they have not considered it from a businessbuilding perspective and may not know all of the Key Terms. The Marketing at Work vignette will be useful here.

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3.

The final section on Public Policy Issues can be covered in 20 minutes.

PROFESSORS ON THE GO

Digital Marketing Key Concepts Benefits of digital marketing Forms of digital marketing Integrated digital marketing Public policy and ethical issues in digital marketing    

Write a description of the most irritating, unfair, deceptive, or fraudulent experience you‘ve had with a digital marketing company.

Write a position paper on privacy and security issues in direct and digital marketing. Where are the industry‘s strengths and weaknesses?

What would you recommend to solve problems facing the industry?

What are the benefits to buyers of digital marketing?

What are the benefits to sellers of digital marketing?

Key Concepts Digital and social media marketing The online social presence The promise and the problems of direct and digital marketing   



The internet now influences more than 50 percent of total retail sales (in-store and online). As a small local retailer, how can you use the internet to boost your visibility and sales?

What is an online social community? How can marketers use this to their advantage?

As marketing director of a small urban sportswear company, you have been given the assignment to spread the word to 18–25-year-old social media users that your company has some great products. Outline a plan for doing so. What social communities might you choose? How would you use viral marketing to aid your effort?

What are the basic digital marketing security fears of consumers? Are these fears justified?

CHAPTER 15 THE GLOBAL MARKETPLACE

PREVIEWING THE CONCEPTS – CHAPTER OBJECTIVES 42. Define global marketing and the questions companies must ask in deciding whether and how to go global.

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43. Understand how global political, economic, sociocultural, technological, legal, and environmental factors affect a company’s global marketing decisions.

15-3. Discuss how companies decide whether to go global and, if so, which markets to enter.

15-4.

Describe three key approaches to entering global markets.

15-5.

Explain how companies adapt their marketing strategies and marketing mixes for global markets.

15-6.

Identify the three major forms of global marketing organization.

JUST THE BASICS It is difficult to find an area of marketing that does not contain some global elements.

Advances in communication, transportation, and digital technologies have made the world a much smaller place.

Today, almost every company, large or small, faces global marketing issues. This chapter examines six major decisions marketers make in going global.

CHAPTER OVERVIEW There are several factors that draw a company into the international arena.  

Global competitors might offer better products or lower prices.

The company might discover foreign markets that present higher profit opportunities than the domestic market does.

Most companies start with exporting, using either indirect or direct exporting, or they go into a joint venture, through such means as licensing, contract manufacturing, management contracting, or joint ownership.

Finally, the company could make a direct investment by developing assembly or manufacturing facilities.

Each form of entry carries its own risks and rewards; the company must weigh these carefully before making final decisions.

Companies that operate in one or more foreign markets must decide how much, if at all, to adapt their marketing mixes to local conditions.

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At one extreme are global companies that use a standardized marketing mix, selling largely the same products and using the same marketing approaches worldwide.

At the other extreme is an adapted marketing mix. In this case, the producer adjusts the marketing mix elements to each target market, bearing more costs but hoping for a larger market share and return.

However, global standardization is not an all-or-nothing proposition. Rather, it is a matter of degree.

Companies can manage their international marketing activities in at least three different ways.

1. They can organize an export department.

2. They can create an international division.

3. They can become a global organization.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP ’

: “Beauty for ll. Beauty for Each Individual.”

L’Oréal sells more than $36 billion worth of cosmetics, hair care products, skincare concoctions, and fragrances each year in 150 countries, making it the world’s biggest cosmetics marketer.

L’Oréal sells its brands globally by understanding how they appeal to varied cultural nuances of beauty in specific local markets.

Then it finds the best balance between adapting its brands to meet local needs and desires and standardizing them for global impact.

L’Oréal’s global mastery starts with a corps of highly multicultural managers.

The company is known for building global brand teams around managers with deep multicultural backgrounds who bring diverse cultural perspectives to their brand.

L’Oréal’s vision is to universalize beauty—to offer ―beauty for all‖ around the world.

But universalization does not mean uniformity. The company says: ―At L’Oréal, no single and unique model of beauty exists, but an infinite diversity, changing with the times, through cultures, histories, individuals.‖

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L’Oréal also adapts brand positioning and marketing to global needs.

L’Oréal’s huge global success comes from achieving a well-designed global–local balance.

GLOBAL MARKETING TODAY Use Chapter Objective 1 here.

The total volume of global trade, including merchandise and service exports, has grown sharply over the past three decades, from about $3.5 trillion in 1990 to about $25 trillion in 2020.

Global marketing is the process of marketing products and services within and across multiple countries.

As barriers to trade and market entry fall, global competition is intensifying.

Foreign companies are expanding into new global markets, and saturated home markets are no longer as rich in opportunity.

Few industries are now safe from foreign competition.

A global company is one that, by operating in more than one country, often in numerous countries, gains marketing, production, research and development (R&D), financial, and other advantages that are not available to purely domestic competitors.

The global company sees the world as one market.

It minimizes the importance of national boundaries and develops global brands.

The rapid move toward globalization means that all companies will have to answer basic questions.    

What market position should we try to establish in our country, in our economic region, and globally?

Who will our global competitors be and what are their strategies and resources?

Where should we produce or source our products?

What strategic alliances should we form with other firms around the world?

The global marketing process involves five steps. (see Figure 15.1) Use Key Term Global Company here.

Use Figure 15.1 here.

Use Discussion Question 15-2 here.

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UNDERSTANDING THE GLOBAL MARKETING CONTEXT A company must understand the macroenvironmental contexts of the countries or regions in which it might operate.

The PESTLE framework analyzes the forces that impact marketing decisions in various global environments.

PESTLE stands for factors that set the marketing context in a country or region:      

Political Economic Sociocultural Technological Legal/Institutional Environmental/Ecological

Political Context The political systems in some nations are receptive to foreign companies; others are less so.

Russia’s recent geopolitical conflicts with Europe, the United States, and other countries have made doing business in Russia difficult and risky.

A company must evaluate both the nature and the certainty of the political climate before committing to enter a country.

If there are serious political concerns, the company may decide to enter in a way that its commitment can be reversed quickly and efficiently.

Economic Context Two economic factors reflect the country’s attractiveness as a market.

1. Industrial structure 2. Income distribution 1. The country’s industrial structure shapes its product and service needs, income levels, and employment levels.

The types of industrial structures are as follows: Subsistence economies: The vast majority of people engage in simple agriculture.

They consume most of their output and barter the rest for simple goods and

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services. They offer few market opportunities. 

Developed economies such as the United States, Japan, and South Korea and the countries of Western Europe are major importers and exporters of goods and services. Their varied manufacturing activities and large middle classes make them attractive markets for both business and consumer goods and services.



Developing economies are experiencing rapid economic growth and industrialization. Examples include the BRICS countries (Brazil, Russia, India, China, and South Africa) and MENA countries (the Middle East and North Africa region).

2. Income distribution is the second factor.    

Industrialized nations may have low-, medium-, and high-income households.

Countries with subsistence economies may consist mostly of households with very low family incomes.

Still other countries may have households with only either very low or very high incomes.

Even poor or developing economies may be attractive markets for all kinds of goods.

Use Marketing at Work 15.1 here.

Use Marketing by the Numbers here.

Use Figure 15.2 here.

Sociocultural Context The Impact of Culture on Marketing Strategy The seller must understand the ways that consumers in different countries think about and use certain products before planning a marketing program.

Companies that violate sociocultural norms can make expensive and embarrassing mistakes.

Business norms and behavior vary from country to country.

Dimensions of National Cultures Understanding cultural differences across countries can help global marketers determine which countries offer the best prospects for their brands.

Marketers can position and market their brands across countries for maximum success.

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A tool for systematically assessing cultural differences across countries is Geert Hofstede’s Six Dimensions of National Culture framework:  





 

Power Distance Index—High versus Low. This dimension deals with the extent to which less powerful members of society are comfortable with an unequal distribution of power across its members.

Individualism versus Collectivism. In highly individualistic societies, people are more focused on the needs and well-being of themselves and their immediate family members. By contrast, in highly collectivistic societies, people are embedded in strong social networks and expect that the large social group will take care of their needs.

Toughness versus Tenderness. Tougher societies tend to prefer achievement, heroism, assertiveness, and material rewards. More tender societies seek cooperation, exhibit modesty, feel a sense of caring for less fortunate or weak society members, and emphasize quality of life.

Uncertainty Avoidance Index—High versus Low. Societies that are high on this dimension dislike uncertainty, work in line with a well-established belief and value system, and try to control the future to reduce uncertainty. By contrast, societies that are low on this dimension are comfortable with uncertainty.

Long-Term Orientation versus Short-Term Orientation. Societies value their pasts differently. Societies that are long-term oriented tend to be ready for future change, even when it requires them to break sharply from the past.

Indulgence versus Restraint. Societies scoring high on indulgence are open to individuals seeking goods, services, and experiences that go beyond their basic needs. By contrast, societies high on restraint operate have rigid norms that govern behavior, emphasize the fulfillment of basic needs, and frown on showy consumption.

The Impact of Marketing Strategy on Cultures Social critics contend that large American multinationals such as McDonald’s, CocaCola, Starbucks, Nike, Microsoft, Disney, and Facebook are ―Americanizing‖ the world’s cultures.

Critics worry that, under such ―McDomination,‖ countries around the globe are losing their individual cultural identities.

Such concerns have sometimes led to a backlash against American globalization.

In the most recent survey of global brands, 21 of the top 25 brands were American owned.

Technological Context Global marketing has been energized by three technological advances:  rapid rise of electronic networks that carry huge amounts of information that

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 

can be accessed in every part of the globe. global adoption of smart devices—including computers, smartphones, and tablets—that interface with the internet and other data networks. rise of digital commerce platforms that bring together buyers and sellers.

A company must evaluate the level of technological evolution of those markets.

The technology context will influence the company’s entry strategy, product and service design, and sales and distribution approaches.

The Legal and Institutional Context The Global Trade Perspective Global trade occurs when an offering produced in one country is sold in another country.

Companies engaging in global trade face restrictions on trade between nations.

Countries may impose tariffs, duties, or quotas on imported products in order to raise revenue, protect domestic companies, manage currency reserves and fluctuations, or manage the trade deficits between countries.    

Tariffs are taxes on certain imported products designed to raise revenue or to protect domestic firms.

Quotas are limits on the amount of foreign imports that a country will accept in certain product categories.

Exchange controls are limits on the amount of foreign exchange and the exchange rate against other currencies.

Nontariff trade barriers are such things as biases against U.S. company bids, restrictive product standards, or excessive regulations.

Use Discussion Question 15-4 here.

Global Trade Agreements and Organizations The General Agreement on Tariffs and Trade (GATT), established in 1947 and modified in 1994, was designed to promote world trade by reducing tariffs and other international trade barriers.

It established the World Trade Organization (WTO), which replaced GATT in 1995 and now oversees the original GATT provisions.

WTO and GATT member nations (currently numbering 164) have met in eight rounds of negotiations to reassess trade barriers and set new rules for international trade.

The first seven rounds of negotiations reduced the average worldwide tariffs on manufactured goods from 45 percent to just 5 percent.

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Regional Free Trade Zones Free trade zones or economic communities are groups of nations organized to work toward common goals in the regulation of international trade.

Use Key Term Economic Community here.

One such community is the European Union (EU).

The European Union represents one of the world’s single largest markets. Currently, it has 27 member countries containing 338 million consumers and making it the world’s largest trading bloc and the top trading partner to 80 countries.

Widespread adoption of the euro will decrease much of the currency risk associated with doing business in Europe, making member countries with previously weak currencies more attractive markets.

However, even with the adoption of the euro, it is unlikely that the EU will ever go against 2,000 years of tradition and become the ―United States of Europe.‖ After a lengthy and contentious transition period, the UK left the EU in January 2021.

Another important free trade zone is the United States-Mexico-Canada Agreement (USMCA).

Taking effect in July 2020, the USMCA replaced the North American Free Trade Agreement (NAFTA), which first established a free trade zone among the United States, Mexico, and Canada in 1994.

The agreement created a single market of 450 million people who produce and consume over $24 trillion worth of goods and services annually.

NAFTA has eliminated trade barriers and investment restrictions among the three countries.

Trade among the NAFTA nations nearly tripled from $288 billion in 1993 to more than $1.3 trillion a year.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) among 11 Pacific Rim countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.

The 11 CPTPP members have a collective population of 500 million people and account for 13.5 percent of the world’s GDP. The Internal Legal Perspective

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Global marketers may also face rules and restraints within another country’s borders.   

Some countries impose currency restrictions. A country may insist that sellers take payment in its own or a less widely accepted world currency.

Countries may impose labor restrictions.

Companies may face nontariff trade barriers, such as biases against certain kinds of bids for business contracts, restrictive product standards, and excessive or selective host-country regulations or enforcement.

The Environmental and Ecological Context Countries and societies are concerned about social and environmental conditions and feel increasing pressure from customers, employees, policy makers, and citizens.

Governments and companies across the globe have increased regulations and voluntary initiatives that promote socially and environmentally sustainable business practices.

Many companies adopt their own sustainable initiatives and practices.

DECIDING WHETHER TO GO GLOBAL AND WHICH MARKETS TO ENTER Not all companies need to venture into global markets.

But if they do go global, they must assess which markets offer the best opportunities for their products and services.

Operating domestically is easier and safer.

Domestic companies can avoid the complexities related to unstable currencies, political and legal uncertainties, communication and cultural barriers, and varying customer needs of global marketing.

Any of several factors might draw a company into the international arena.  Global competitors might attack the company’s home market by offering better products or lower prices.  The company might want to counterattack these competitors in their home markets.  The company’s customers might be expanding abroad and require international servicing.  A diversified presence across numerous countries can dilute the risks that come with being overly concentrated in one country.  Some industries are inherently global.

Before going abroad, the company must weigh the advantages and disadvantages and evaluate its assets and capabilities:

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    

the presence of open and global managerial mindsets cash reserves to fund global expansion the ability to quickly gain global customer and market insights a pathway to build the global brand access to global sourcing and distribution partners

Deciding Which Markets to Enter Before going abroad, the company should:  Define its international marketing objectives and policies.  Decide what volume of foreign sales it wants.  Decide how many countries it wants to market.  Decide on the types of countries to enter.  Evaluate each selected country.

A country’s attractiveness depends on the product, geographical factors, income and population, political climate, and many other considerations.

Possible global markets should be ranked on several factors, including:     

Market size Market growth Cost of doing business Competitive advantage Risk level Use Table 15.1 here

DECIDING HOW TO ENTER GLOBAL MARKETS Use Key Term Exporting here.

Use Figure 15.3 here.

Use Chapter Objective 4 here.

Exporting

Exporting is the simplest way to enter a foreign market.

Indirect exporting is working through independent international marketing intermediaries.

Indirect exporting involves less investment and less risk.

Direct exporting is where the company handles its own exports.

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The investment and risk are somewhat greater in this strategy, but so is the potential return.

Joint Venturing

Joint venturing is joining with foreign companies to produce or market products or services.

There are four types of joint ventures.

1.

2.

3.

4.

Licensing Contract manufacturing Management contracting Joint ownership

1. Licensing

Licensing is a simple way for a manufacturer to enter international marketing.

The company enters into an agreement with a licensee in the foreign market.

For a fee or royalty, the licensee buys the right to use the company’s manufacturing process, trademark, patent, trade secret, or other item of value.

Licensing has disadvantages:   

The firm has less control over the licensee than it would over its own operations.

If the licensee is very successful, the firm has given up profits.

When the contract ends, it may find it has created a competitor.

2. Contract Manufacturing

Contract manufacturing occurs when the company contracts with manufacturers in the foreign market to produce its product or provide its service.

The drawbacks are:  

Decreased control over the manufacturing process.

Loss of potential profits on manufacturing.

The benefits are:  

The chance to start faster, with less risk.

The later opportunity either to form a partnership with or to buy out the local manufacturer.

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3. Management Contracting

Management contracting takes place when the domestic firm supplies management know-how to a foreign company that supplies the capital.

This is a low-risk method of getting into a foreign market, and it yields income from the beginning.

The arrangement is not sensible if the company can put its management talent to better uses or if it can make greater profits by undertaking the whole venture.

4. Joint Ownership

Joint ownership ventures consist of one company joining forces with foreign investors to create a local business in which they share joint ownership and control.

A company may buy an interest in a local firm, or the two parties may form a new business venture.

Joint ownership may be needed for economic or political reasons.

Joint ownership has drawbacks:  

The partners may disagree over policies.

Whereas U.S. firms emphasize the role of marketing, local investors may rely on selling.

Use Key Terms Joint Venturing, Licensing, Contract Manufacturing, Management Contracting, Joint Ownership, and Direct Investment here.

Direct Investment

Direct investment is the development of foreign-based assembly or manufacturing facilities.

Advantages:    

Lower costs in the form of cheaper labor or raw materials, foreign government investment incentives, and freight savings.

The firm may improve its image in the host country.

Development of a deeper relationship with government, customers, local suppliers, and distributors.

The firm keeps full control over the investment.

The main disadvantage of direct investment is that the firm faces many risks.

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Use Key Terms Standardized Global Marketing and Adapted Global Marketing here.

Use Discussion Question 15-5 here.

Use Chapter Objective 5 here.

Use Linking the Concepts here.

DECIDING ON THE GLOBAL MARKETING PROGRAM Standardized global marketing is using largely the same marketing strategy approaches and marketing mix worldwide.

Adapted global marketing is adjusting the marketing strategy and mix elements to each target market, bearing more costs but hoping for a larger market share and return.

Some global marketers believe that technology is making the world a smaller place and that consumer needs around the world are becoming more similar.

This paves the way for ―global brands‖ and standardized global marketing. Global branding and standardization, in turn, result in greater brand power and reduced costs from economies of scale.

However, because cultural differences are hard to change, most marketers adapt their products, prices, channels, and promotions to fit consumer desires in each country.

Use Discussion Question 15-5 here.

Product Use Figure 15.4 here.

Use Marketing at Work 15.2 here Use Critical Thinking Exercise 15-9 here.

Five strategies are used for adapting product and marketing communication strategies to a global market (see Figure 15.4).

Straight product extension means marketing a product in a foreign market without any change.

Product adaptation involves changing the product to meet local conditions or wants.

Product invention consists of creating something new for a specific country market.

Use Key Terms Straight Product Extension, Product Adaptation, and Product Invention here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Discussion Question 15-5 here.

Promotion Companies can either: 1. Adopt the same communication strategy they used in the home market, or 2. Change it for each local market.

Colors are changed sometimes to avoid taboos in other countries.

Communication adaptation is fully adapting advertising messages to local markets.

Use Key Term Communication Adaptation here.

Use Critical Thinking Exercise 15-8 here.

Price Regardless of how companies go about pricing their products, their foreign prices probably will be higher than their domestic prices for comparable products.

Why? It is a price escalation problem. It must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price.

To overcome this problem when selling to less-affluent consumers in developing countries, many companies make simpler or smaller versions of their products that can be sold at lower prices.

The internet is making global price differences more obvious.

When firms sell their wares over the internet, customers can see how much products sell for in different countries. This is forcing companies toward more standardized international pricing.

Distribution Channels The whole-channel view takes into account the entire global supply chain and marketing channel. It recognizes that to compete well internationally, the company must effectively design and manage an entire global value delivery network.

Figure 15.5 shows the two major links between the seller and the final buyer.

Channels between nations move company products from points of production to the borders of countries within which they are sold.

Channels within nations move products from their market entry points to final

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consumers.

Use Discussion Question 15-6 here.

Use Key Term Whole-Channel View here.

Use Figure 15.5 here.

DECIDING ON THE GLOBAL MARKETING ORGANIZATION Use Chapter Objective 6 here.

A firm normally gets into international marketing by simply shipping out its goods. If its international sales expand, the company organizes an export department.

Many companies get involved in several international markets and ventures. An international division may be created to handle all international activity.

International divisions are organized in a variety of ways.   

Geographical organizations: Country managers are responsible for salespeople, sales branches, distributors, and licensees in their respective countries.

World product groups: Each unit is responsible for worldwide sales of different product groups.

International subsidiaries: Each unit is responsible for its sales and profits.

Global organizations are companies that have stopped thinking of themselves as national marketers who sell abroad and have started thinking of themselves as global marketers.

Use Marketing Ethics here.

Use Discussion Question 15-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

15-1. What is global marketing, and why is it growing? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Global marketing is the full process of marketing products and services within and across multiple countries. Global marketing is growing because global trade is growing. Companies increasingly sell products and resources produced in one country in another country, resulting in a total volume of global trade that reached $25 trillion in 2020. Global competition

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

is more intense as foreign companies expand into new global markets and home markets are saturated. Global expansion involves risks. Since global marketing facilitates exchanges by gaining information about global markets, consumers, and competitors; developing segmentations, targeting, and positioning strategies across countries; and implementing global marketing mixes that balance global standardization and local market customization, global marketing is an important part of growth via global expansion.

15-2. What are the five steps in the global marketing process? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The five steps in the global marketing process are: 1. Understanding the global marketing context 2. Deciding whether to go global and which markets to enter 3. Deciding how to enter global markets 4. Deciding on the global marketing program 5. Deciding on the global marketing organization Through these steps, marketers answer the following questions: What market position should we try to establish in our country, in our economic region, and globally? Who will our global competitors be, and what are their strategies and resources? Where should we produce or source our products? What strategic alliances should we form with other companies around the world?

15-3. What does PESTLE stand for? Provide an example of how each factor might impact marketing decisions in global environments.

Answer: PESTLE stands for Political, Economic, Sociocultural, Technological, Legal/Institutional, and Environmental/Ecological factors that set the marketing context in any country or region. It is useful for identifying risks and benefits associated with marketing decisions in global markets.

Student examples may vary.

15-4. Briefly describe the World Trade Organization and its role in world trade.

(AACSB: Written and Oral Communication) Answer: The World Trade Organization (WTO) oversees provisions that were designed to promote world trade by reducing tariffs and other international trade barriers, established under the General Agreement on Tariffs and Trade in 1947 and modified in 1994. It has successfully reduced tariffs.

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The WTO also imposes international trade sanctions and mediates global trade disputes.

15-5. What factors influence a company‘s level of standardization or adaptation of products and marketing across global markets? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies must decide how much their marketing strategies and their products, promotion, price, and channels should be adapted for each foreign market. Marketers who believe that technology is making the world a smaller place and who feel consumer needs are converging might be more likely to use standardized global marketing worldwide, which leads to global brands, greater brand power, and economies of scale. However, some markets benefit from adapted marketing efforts that are tailored to consumers‘ needs in the market. Adaptation recognizes that cultures vary and consumers differ in terms of needs and wants, spending power, product preferences, and shopping behaviors. Marketers can adjust the marketing strategy and mix to each target market, bearing more costs but hoping for a larger market share and return.

15-6. Consider different organizational structures to support global marketing.

How are companies with global marketing organizations different from companies with export departments and companies with global divisions?

(AACSB: Reflective Thinking; Written and Oral Communications) Answer: Global organizations consider themselves global marketers. The top corporate management and staff plan worldwide manufacturing facilities, marketing policies, financial flows, and logistical systems. The global operating units report directly to the chief executive or the executive committee, not to the head of a global division. Executives are trained in worldwide operations, not just domestic or global operations. Global companies recruit management from many countries, buy components and supplies where they cost the least, and invest where the expected returns are greatest.

Global organizations usually go through two stages prior to reaching the global organizational structure. The first stage is an export department, which is typically composed of a sales manager and a few assistants who manage shipping exports. The export department might include marketing functions associated with business development. If the company moves into joint ventures or direct investment, the organizational structure will expand to include a global division or subsidiary. Global divisions typically have a corporate staff that includes marketing, manufacturing, research, finance, planning, and personnel. They can be organized as geographical

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

organizations with country managers; world product groups with product managers; or global subsidiaries, where each operating unit is responsible for its own global sales and profits.

Critical Thinking Exercises 15-7. The United States and several U.S. allies chose to limit market access for Huawei, a Chinese telecommunications company that is neck and neck with Apple as the world‘s number two smartphone maker behind Samsung. Critics of the ban argue that it limits competition and innovation—Huawei is the fifth-largest investor in R&D worldwide. Rather than commenting on national security fears driving the bans, Huawei responded with ads that align with local cultures and promote Huawei‘s technological prowess, hoping to get consumers to demand that Huawei gain market access. Which part of the marketing environment is having the greatest impact on Huawei‘s expansion into other countries: economic, political-legal, or cultural? In your response, explain why you selected this factor and also why you ruled out the other two factors. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Huawei is limited by the political-legal environments in the countries.

When a company considers market entry to a new country, the company needs to consider factors such as government bureaucracy, regulatory stability, and attitudes toward international buying. The economic environment in United States relates to whether the market is stable and whether incomes would provide sufficient means to purchase the products, which does not seem to be a challenge in this case. Similarly, although the Huawei ads in response to bans attempted to use cultural norms, the bans are happening because of government policies, not lack of consumer demand or mistakes related to culture.

15-8. Lululemon, a Canada-based retailer, is facing increased competition from less expensive alternatives to its $100 yoga pants. However, instead of lowering prices or expanding beyond its own 440 stores or website, it will launch new products (for example, deodorant and sneakers) and expand via e-commerce and physical stores into international markets, including China. What barriers might slow Lululemon‘s expansion into international e-commerce in China? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The Canadian firm should be aware of international dynamics that affect trade negotiations, which could result in tariffs against other countries, such as the United States, which could benefit Lululemon. It should also plan for lack of coordinated distribution systems in China, where rural markets are decentralized and include different subcultures, which may

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limit the portion of the population it can access. The fragmented distribution system also means the costs associated with distribution are higher than most other countries. For communications, the Chinese government limits Western social media and other online marketers.

Chinese consumers connect through controlled, local social networking platforms. Lululemon will want to understand China‘s culture, consumers, content, platforms, and regulations.

15-9. Should Unilever utilize standardized international pricing for its Sunsilk hair care products? Why or why not? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: If Sunsilk utilized the same price for its Sunsilk hair care products around the globe, it would likely hurt its profits. Foreign prices may need to be higher than domestic prices for comparable products because of transportation costs, tariffs, and the margins due to importers, wholesalers, and retailers. Sunsilk may have different formulations in different markets that change the costs as well. For example, some countries may have greater challenges accessing water, which may change the formulation of the hair care products. The markets may respond differently to prices based on the economic context. The brand could have a price that is too high in poor countries and not high enough in rich countries. While the internet is making global price differences more obvious and opening up alternative distribution channels, the firm needs to be able to adjust for the costs associated with doing business in different markets.

Minicases and Applications Digital Marketing Tinder Is an International Sensation Match Group‘s biggest brand, Tinder, is a location-based, social search mobile app that is often used to set up dates. Launched in 2010, the dating app now accounts for 55 percent of total subscribers across all of Match Group‘s brands, which include Match.com, Hinge, and OkCupid. Tinder has had double-digit revenue growth year over year fueled, in part, by its expansion into emerging markets like India, where it is the nation‘s top-grossing dating app. The app‘s growth in India is attributed to India‘s urbanization and the decline of arranged marriages.

15-10. Which marketing environment factors may be having an impact on Tinder‘s growth in India? (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The cultural environment is likely having the greatest impact on Tinder‘s growth in India. The decline in arranged marriages and the increase in young people working in cities may be fueling demand for people looking to make their own connections within a specific location. Other responses may note the size of the market, since India‘s population is the second largest in the world; technological factors like smartphone penetration; or economic factors, such as the increase in the middle class, which may affect who can afford the service.

15-11. Develop a relevant profile of India that informs Match Group management about the country‘s demographics, competitors, and market potential.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students may use online references like http://worldpopulationreview.com/countries/india-population/ or the CIA Fact Book at www.cia.gov/library/publications/the-worldfactbook/geos/in.html to learn about India‘s demographics. Students can refer to popular press and specialized news sources to learn about competitors (see www.ft.com/content/7c0d0b8c-fc16-11e8-aebf99e208d3e521). Sources like Statista provide information about anticipated growth in the online dating market in India.

Marketing Ethics Barcelona Street Sellers Launch Top Manta Barcelona street vendors, or manteros, are known for selling unlicensed or counterfeit copies of shoes and handbags. Now, a cooperative of street vendors—the Popular Union of Street Vendors—has created its own brand of ethical streetwear through a shop in Barcelona and online. Its first offering is a line of sneakers sold under the brand name Top Manta. The cooperative‘s members are mostly migrant, African, and undocumented people. Profits will be used to help improve living conditions of the cooperative‘s members and their families and to fund the pursuit of legal status for the street vendors. The cooperative‘s manufacturing jobs help fulfill the requirement that to become legal residents, immigrants must have a work contract for at least a year. The Top Manta name and logo design come from the blanket, or manta, that Barcelona street vendors typically use to merchandise their products. The wave-like logo also represents the waves that many street vendors faced when making the journey to Spain in small inflatable boats. One motivation for the initiative was to reduce street vendor suffering caused by the COVID-19 pandemic lockdown, when tourists stayed home, sales plunged, and vendors were not eligible for unemployment benefits or government support. The Top Manta brand aims to compete with brands like Nike. A spokesperson for the brand expressed optimism that consumers both inside and outside Spain would choose to buy Top

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Manta sneakers instead of supporting multinational corporations that exploit people in emerging economies.

15-12. If the cooperative chooses to sell Top Manta sneakers directly to customers outside Spain, what factors does it need to consider? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students may note the PESTLE factors associated with the marketing context. They may note that the meaning associated with ―manta‖ may not resonate in other languages and markets. They may recall consumers are converging around a desire for purpose-driven brands. They may question whether the price and the size of the opportunity in other countries would make global expansion worthwhile, particularly if the brand is just starting and has high costs. That said, if consumers in Spain do not want to welcome or support illegal immigrants, they may get more sales or support from people outside the country.

15-13. The manteros previously created and sold counterfeit products to both create jobs and provide consumers with access to products they would not typically be able to afford. Because of the high costs of goods manufactured in small quantities for Top Manta footwear, the margins and inventory turnover were much higher for the counterfeit products. Does this in any way justify the continued production of counterfeit products?

(AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Companies seek to deliver value to their customers. Responsible companies discover what consumers want and respond with market offerings that create value for buyers and capture value in return. Both entities must obtain mutual gain. If a consumer is harmed by a company’s product or by claims for its product, the company’s operating practices become ethically questionable.

In addition to providing access to a product a consumer might not be able to purchase because of its price on the legitimate market, some may argue that companies manufacturing counterfeit goods are providing jobs for people to care for their families, and money to spend in local economies. While this is certainly the case, ethical standards make it necessary for all companies to comply with legal and regulatory requirements to protect valued assets (such as patents and trademarks) of companies around the globe.

Marketing by the Numbers Peloton Pedals to Australia

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The word peloton means ―the main group of cyclists in a race.‖ But Peloton means something different to the million or so fanatics in the United States who‘ve shelled out $1,895 for an internet-connected indoor exercise bike and who pay $39 a month to stream live and on-demand classes from Peloton‘s New York City studio to the tablet connected to the bike. Peloton streams fourteen hours of live content every day and thousands of ondemand cycling and treadmill classes, and other classes such as yoga, arms, legs, and core strengthening. Riders can select their favorite instructor, class length, class type, and even music genre, and they can follow and compete with others. Peloton‘s success comes from being more than an exercise bike, studio, or cycling class—it‘s an experience that has created a cult-like following among its subscribers. Peloton‘s closed Facebook group boasts more than 429,000 members. Peloton offers its bikes and associated services in Canada, the United Kingdom, and Germany. Peloton is continuing its global expansion in Australia, with plans to expand into one or two markets a year and with trademark filings in China, Korea, Israel, Mexico, New Zealand, the Philippines, Singapore, and Switzerland. Its plans for Australia include physical showrooms in cities such as Sydney and Melbourne. Peloton bikes will be priced at its cost, $2,895 Australian dollars (AUD), including goods and services tax. And the AllAccess Membership to content, where users can create accounts for the entire household, will be $59 AUD per month.

15-14. How many bikes must Peloton sell to break even on this international expansion if total fixed costs are $45 AUD million per year, variable costs are $2,895 AUD per bike (again, Peloton sells them at cost), and monthly service variable costs are $10 AUD? Assume that a consumer purchasing a bike at the price of $2,895 AUD will also subscribe for 12 months of the streaming service at $59 AUD per month. Refer to Break-Even and Margin Analysis in Appendix 3: Marketing by the Numbers to learn how to perform this analysis. (AACSB: Analytical Thinking) Answer: Break-even volume =

total fixed costs ——————————— price  unit variable costs

Contribution per unit is price minus unit variable costs. In this problem students must calculate the contribution received from the bike plus the contribution received from the subscription service.

Contributionbike = pricebike – variable costsbike = $2,895 – $2,895 = $0 AUD Contributionservice = (priceservice – variable costsservice) x 12 months = ($59 – $10) x 12 months = $588 AUD So, Contributionbike & service = $0 + $588 = $588 AUD

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Therefore, fixed cost $45,000,000 Break-even volume = ———————— = ————— = 76,531 Contributionbike & service $588 Thus, Peloton will have to sell 76,531 bikes with 12-month subscription service to break even.

15-15. What U.S. dollar sales does your answer in the previous question represent? Use a currency exchange calculator, such as the one at www.xe.com/currencyconverter/, to convert from Australian dollars to U.S. dollars. (AACSB: Analytical Thinking) Answer: Students will first have to calculate the break-even sales by multiplying the break-even unit volume by the selling price and then convert it to U.S. dollars.

The selling price for the bike and 12-month subscription is: Pricebike & service = ($2,895 + $59 x 12) = $2,895 + $708= $3,603 AUD So, Break-even sales = $3,603 AUD x 76,531 units = $ 275,741,193 AUD Using the currency converter at www.xe.com/currencyconverter/ (on July 4, 2021), break-even sales = $207,631,509.55 US. Students‘ answers will vary depending on when they do the conversion.

Company Case Teaching Notes

Company Cases 15 7-Eleven/7 Avocados From Mexico/8 Pfizer See Appendix 1 for teaching notes for the below cases.

Case 15, 7-Eleven: Adapting to the World’s Many Cultures. A Japanese Company takes an American concept and makes it a global success.

Case 7, Avocados From Mexico: Building a Brand in a Brandless Category. By building a consumer brand, Avocados From Mexico has succeeded in increasing U.S. market share for thousands of Mexico-based growers and packers, while simultaneously increasing overall consumption of avocados.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Case 8, Pfizer: Developing New Products to Save Lives. With a tried-and-true strategy for developing pharmaceuticals that make the world a healthier place, Pfizer brought the first COVID-19 vaccine to market in record time.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

Many students today have traveled internationally, and perhaps even studied abroad. However, this chapter will introduce concepts that most likely will not have crossed their minds before. Free trade agreements may be known in name, but not in what they actually do. The analytics of deciding whether to go global and if so, which countries to enter, will certainly not have been encountered before. This chapter will serve as an excellent introduction to these ideas.

The terms involved in the international trade system (tariff, quota, embargo, etc.) are generally unfamiliar to most students. Go through these carefully and use examples from recent press. Ask the students to express their feelings about tariffs, quotas, embargoes, etc. How does government policy affect free trade? Why would these barriers be erected? How do they feel about the USMCA? Do they think that it will be good for trade? When would trade barriers be justified?

The economic and political-legal environments will also most likely be unfamiliar to most students. Some students might have done some mission or humanitarian work in foreign countries with economies and political systems vastly different from our own. If you are lucky enough to have them in your class, have them relate their experiences. Economics majors, or those who enjoyed an economics class, may also be able to relate what they have learned about these issues from a different point of view.

On deciding whether to go international, many students will believe that it is simply a matter of the company deciding to expand. The concept of being forced to go into other countries because of customers pulling you along, or having to fight a global competitor on your home turf, will surprise some of them. Challenge them to think about how small companies grow, and why they might start selling their goods overseas.

Use a local company that sells unique items. How might foreign customers find them? How would they decide that there is a market in another country? You can break the class into teams to work on these types of issues.

Student Projects 1. Read about the WTO (www.wto.org). What are the advantages and disadvantages of the existence of this organization? Take a stand on its

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effectiveness and substantiate your position.

2. Describe the three key approaches to entering international markets. Which do you believe would be the best for a company just beginning to work internationally?

3. What are ―global‖ brands? Give examples of three brands you believe fall into this category and why.

4. Research the history of the USMCA. Write a position paper stating your beliefs regarding its overall effectiveness and its future.

5. Talk about the ―Americanization‖ of foreign cultures. What is it? How does it happen? Is it even a real phenomenon?

Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on L‘Oréal. Each group should then answer the following questions: 1. L‘Oréal finds the best balance between standardizing its brands for global impact and adapting them to meet local needs and desires. What does this mean and how do they accomplish this?

2. One of the strengths of L‘Oréal is its corps of highly multicultural managers. Why would this be a strength to the company?

3. Discuss how L‘Oréal has dug deep to understand different cultures and how this has impacted their operations.

4. What potential challenges to you see facing L‘Oréal?

Each group should share its findings with the class.

Individual Assignment Read Thomas Friedman‘s great book The Lexus and the Olive Tree. Write a 5 page summary of the major points he makes.

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to questions from the instructor.

1. What is the fundamental difference between a tariff and a quota?

2. What is countertrade and how does it work?

3. What is the purpose of the World Trade Organization (WTO)? Do you believe it is doing a good job?

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

4. Discuss USMCA and the EU. In the long run, which do you believe has the greatest probability of success?

5. What is meant by the term ―whole-channel view?‖ What do you believe to be the greatest advantage of such an outlook?

Classroom Exercise/Homework Assignment Review the history of Disneyland Paris. Why was it initially such a failure? How did Disney turn it around (or have they really)? What lessons can we take away from their experiences in France?

Classroom Management Strategies This chapter contains a lot of information that will be new to all students. Each section should be reviewed carefully.

1.

2.

3.

4.

5.

The introduction and first section can be covered in 10 minutes. They provide a basis for the remaining content, and the L‘Oréal example in the opening vignette is excellent.

The next section has key information in it that the students must understand. Take 10 minutes with this section, paying particular attention to the international trade system and the economic environment. These two subsections cover very important material and new terminology that the students should understand before moving on.

Deciding whether to go global and into which markets to move can be covered together in 10 minutes. Table 15.1 should figure prominently in this discussion.

The global marketing program introduces for the first time the marketing mix element decisions that must be made. This should also be discussed for at least 10 minutes, and again, examples are very important here.

The various ways to organize the company for global marketing can be covered in 5 to 10 minutes. Again, examples of various firms and how they are organized will be very helpful here.

PROFESSORS ON THE GO

The Global Marketplace Key Concepts The international trade system Economic, political-legal, and cultural environments 

Explain how the addition of the World Trade Organization as a functioning body has changed the nature of international commerce.

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 



The United States has a trade restriction on Cuba. Is this restriction a tariff, quota, or embargo? To what extent does this trade restriction allow U.S. businesses to export their products to Cuba?

Find five examples of international products that you regularly buy.

Have these products been customized for sale here in the U.S.? Is the producing company following standardization or adaptation in each case?

Define the following terms: tariff, quota, embargo, exchange controls, and nontariff trade barriers. Explain the role played by these terms in international trade.

Key Concepts Deciding whether to go international Deciding which markets to enter and how to enter them 

 

Assume your boss has asked you for your opinion on how your company should enter the Japanese, South Korean, and Vietnamese markets with a new line of women‘s athletic shoes. Would you recommend entering with a standardized marketing mix or an adapted marketing mix? Explain.

Assess the joint-venture opportunities a software manufacturer would have available if it were looking to market to the European Union?

Discuss the three market entry strategies shown in Figure 15.2. Which of these strategies is the riskiest? Why?

Key Concepts The 4 Ps internationally Global marketing organization 

Write a brief position paper on why you would like to ―be in‖ or ―work for‖ an international firm. What would you see as advantages and disadvantages to working for an international firm? You are free to pick any firm you wish (such as BMW, Sony, Honda, BP Oil, etc.) to use as an illustration for your comments.  List and briefly discuss each of the five international product and promotion strategies shown in Figure 15.4.

CHAPTER 16 SUSTAINABLE MARKETING: SOCIAL RESPONSIBILITY AND ETHICS

PREVIEWING THE CONCEPTS: CHAPTER OBJECTIVES 44. Define sustainable marketing and discuss its importance.

45. Identify the major social criticisms of marketing and some counterarguments.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Understand how consumer, societal, and corporate forces drive sustainable marketing strategy.

16-4.

Understand how to build a sustainable marketing organization.

JUST THE BASICS CHAPTER OVERVIEW This final chapter focuses on the concepts of sustainable marketing, meeting the needs of consumers, businesses, and society—now and in the future—through socially and environmentally responsible marketing actions.

First, the chapter defines sustainable marketing and then looks at some common criticisms of marketing as it impacts individual consumers and public actions that promote sustainable marketing.

Finally, we look at how companies can benefit from proactively pursuing sustainable marketing practices that bring value not just to individual customers but also to society as a whole.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Patagonia’s “Conscious Consumption”: Telling Consumers to Buy ess Because Patagonia wants to be in business for a good long time—and leave a world inhabitable for our kids—it wants to do the opposite of every other business today.

Patagonia asks you to buy less and to reflect before you spend a dime on this jacket or anything else.

A for-profit firm telling customers to buy less may sound short-sighted, but that message perfectly aligns with Patagonia’s reason for being.

Founder Chouinard contends that capitalism is on an unsustainable path.

Today’s companies and customers are wasting the world’s resources by making and buying low-quality goods that are bought and discarded quickly and mindlessly.

Instead, Patagonia calls for conscious consumption, asking customers to think before they buy and to stop consuming for consumption’s sake.

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To Patagonia, the campaign expressed the brand’s deeply held philosophy of sustainability.

The purpose was to increase awareness of and participation in the Patagonia Common Threads Initiative, which urges customers to take a pledge to work together with the company to consume more responsibly.

Says founder Chouinard, ―I know it sounds crazy, but every time I have made a decision that is best for the planet, I have made money. Our customers know that—and they want to be part of that environmental commitment.‖

Use Chapter Objective 1 here.

SUSTAINABLE MARKETING Sustainable marketing calls for socially and environmentally responsible actions that meet the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs.

Use Key Term Sustainable Marketing here.

Use Figure 16.1 here.

Use Discussion Question 16-1 here.

The marketing concept recognizes that organizations thrive from day to day by determining the current needs and wants of target group customers and fulfilling those needs and wants more effectively and efficiently than competitors do.

However, satisfying immediate needs and desires doesn’t always serve the future best interests of either customers or the business. Whereas the societal marketing concept considers the future welfare of consumers and the strategic planning concept considers future company needs, the sustainable marketing concept considers BOTH.

SOCIAL CRITICISMS OF MARKETING Marketing’s Impact on Individual Consumers Use Chapter Objective 2 here.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Consumer advocates, government agencies, and other critics have accused marketing of harming consumers through high prices, deceptive practices, high-pressure selling, shoddy or unsafe products, planned obsolescence, and poor service to disadvantaged consumers.

High Prices Many critics charge that the American marketing system causes prices to be higher than they would be under more ―sensible‖ systems.

High Costs of Distribution. A long-standing charge is that greedy channel intermediaries markup prices beyond the value of their services.

How do resellers answer these charges? They argue that intermediaries do work that would otherwise have to be done by manufacturers or consumers.

High Advertising and Promotion Costs. Modern marketing is accused of pushing up prices to finance heavy advertising and sales promotion.

Marketers respond that advertising does add to product costs. But it also adds value by informing potential buyers of the availability and merits of a brand.

Excessive Markups. Critics charge that some companies markup goods excessively.

Marketers respond that most businesses try to deal fairly with consumers because they want to build customer relationships and repeat business.

Deceptive Practices Deceptive practices fall into three groups: 1. Promotion 2. Packaging 3. Pricing Deceptive promotion includes practices such as misrepresenting the product’s features or performance or luring customers to the store for a bargain that is out of stock.

Deceptive packaging includes exaggerating package contents through subtle design, using misleading labeling, or describing size in misleading terms.

Deceptive pricing includes practices such as falsely advertising ―factory‖ or ―wholesale‖ prices or a large price reduction from a phony high retail list price.

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For example, identity theft protection company LifeLock recently paid a record $100 million relating to FTC charges of deceptive advertising. The FTC accused LifeLock of falsely claiming that it protected consumers’ sensitive data ―Puffery‖ is defined as innocent exaggeration for effect.

High-Pressure Selling Marketers have little to gain from high-pressure selling.

Such tactics may work in one-time selling situations for short-term gain. However, most selling involves building long-term relationships with valued customers.

Shoddy, Harmful, or Unsafe Products There are a number of typical product complaints:   

Products are not made well and services are not performed well.

Product safety has been a problem for several reasons, including company indifference, increased product complexity, and poor quality control.

Many products deliver little benefit, or they might even be harmful.

Planned Obsolescence Critics also have charged that some companies practice planned obsolescence, causing their products to become obsolete before they actually should need replacement.

Other companies are charged with perceived obsolescence—continually changing consumer concepts of acceptable styles to encourage more and earlier buying. An obvious example is the fast-fashion industry with its constantly changing clothing fashions.

Marketers respond that consumers like style changes; they get tired of the old goods and want a new look in fashion. Or they want the latest high-tech innovations, even if older models still work.

Use Discussion Question 16-2 here.

Poor Service to Disadvantaged Consumers The American marketing system has been accused of serving disadvantaged consumers poorly.

Critics accuse major chain retailers of redlining, drawing a red line around disadvantaged neighborhoods and avoiding placing stores there.

Clearly, better marketing systems must be built to service disadvantaged consumers.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

The COVID-19 pandemic intensified the problem of food deserts as many smaller food stores in low-income areas closed down and transportation options withered.

Companies can promote sustainable marketing by evaluating how they can better serve disadvantaged consumers.

They can undertake initiatives on their own or in partnership with the government—as with retailers partnering with the SNAP online project

Use Linking the Concepts here.

Marketing’s Impact on Society as a Whole False Wants and Excessive Materialism Critics have charged that the marketing system urges too much interest in material possessions.

People are judged by what they own rather than by who they are.

These criticisms overstate the power of business to create needs.

Increased Pressure on Public Goods Business has been accused of overselling private goods at the expense of public goods.

A way must be found to restore a balance between private and public goods.

Some options include:  

Making producers bear the full social costs of their operations.

Making consumers pay the social costs.

Cultural Pollution Critics charge the marketing system with creating cultural pollution. They feel our senses are being constantly assaulted by marketing and advertising.

Marketers answer the charges of ―commercial noise‖ with these arguments: 1. They hope that their ads primarily reach the target audience.

2. Ads make much of television and radio free to users and keep down the costs of magazines and newspapers.

3. Consumers find many television commercials entertaining and seek them out.

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Marketing’s Impact on Other Businesses Critics charge that a company’s marketing practices can harm other companies and reduce competition.

Three problems are involved: 1.

2.

3.

Acquisitions of competitors Marketing practices that create barriers to entry Unfair competitive marketing practices.

Use Discussion Question 16-3 here.

Use Chapter Objective 3 here.

PATHWAYS TO SUSTAINABLE MARKETING The two major movements have been consumerism and environmentalism.

Consumer Actions to Promote Sustainable Marketing Use Key Term Consumerism here.

Use Discussion Question 16-4 here.

Use Discussion Question 16-5 here.

The Rise of Consumerism Consumerism is an organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers.

Traditional sellers’ rights include:     

The right to introduce any product in any size and style, provided it is not hazardous to personal health or safety; or, if it is, to include proper warnings and controls.

The right to charge any price for the product, provided no discrimination exists among similar kinds of buyers.

The right to spend any amount to promote the product, provided it is not defined as unfair competition.

The right to use any product message, provided it is not misleading or dishonest in content or execution.

The right to use any buying incentive programs, provided they are not unfair or misleading.

Traditional buyers’ rights include:

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

  

The right not to buy a product that is offered for sale.

The right to expect the product to be safe.

The right to expect the product to perform as claimed.

Consumer advocates call for the following additional consumer rights:  The right to be well informed about important aspects of the product.  The right to be protected against questionable products and marketing practices.  The right to influence products and marketing practices in ways that will improve the ―quality of life.‖  The right to consume now in a way that will preserve the world for future generations of consumers.

Consumers have not only the right but also the responsibility to protect themselves instead of leaving this function to someone else.

Use Key Terms Environmentalism and Carbon Footprint here.

The Rise of Environmentalism

Environmentalism is an organized movement of concerned citizens, businesses, and government agencies to protect and improve people’s living environment.

Environmentalism is concerned with damage to the ecosystem caused by global warming, resource depletion, toxic and solid wastes, litter, and other problems.

The term carbon footprint captures the total negative atmospheric impact associated with a product or service.

In recent years, most companies have accepted responsibility for doing no harm to the environment.

Environmentalists and regulators apply many approaches to reducing the adverse environmental impact of consumer and business activity.  

Many companies sponsor campaigns designed to help people consume more responsibly.

Environmentalists can directly influence corporate decision-making and regulatory policy.

Use Key Term Environmental Sustainability here.

Use Marketing at Work 16.1 here.

Use Figure 16.2 here.

Public Actions toward Sustainability

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Citizen concerns about marketing practices will often lead to public attention and legislative proposals.

Business Actions toward Sustainable Marketing Companies are now moving more proactively to take their own actions on these fronts.

Companies that embrace socially sustainable practices infuse that spirit into the fabric of their brands. This strengthens the brand externally and builds that spirit into their internal—or employer—branding.

Corporate Social Sustainability Initiatives Independent of the pressure from environmentalists and regulators, companies are increasingly engaging in socially sustainable marketing practices.

Corporate Environmental Sustainability Initiatives Environmental sustainability – Environmental sustainability is about generating profits while helping to save the planet.

Companies can develop a sustainability vision, which serves as a guide to the future.

Figure 16.2 shows a grid that companies can use to gauge their progress toward environmental sustainability.

The greening activities pay off for the firm in the short run.

Pollution prevention – Eliminating or minimizing waste before it is created.

Product stewardship – Minimizing not just pollution from production and product design but all environmental impacts throughout the full product life cycle, and all the while reducing costs.

Design for environment (DFE) and cradle-to-cradle practices involve thinking ahead to design products that are easier to recover, reuse, or recycle and developing programs to reclaim products at the end of their lives.

The beyond greening activities identified in Figure 16.2 look to the future.

New clean technology. Many organizations that have made good sustainability headway are still limited by existing technologies. To create fully sustainable strategies, they will need to develop innovative new technologies.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Sustainability vision. Serves as a guide to the future. It shows how the company’s products and services, processes, and policies must evolve and what new technologies must be developed to get there.

Specific Approaches to Reducing Environmental Harm      

Reimagine Material Choices Source Materials from Sustainable Suppliers Simplify Product Design and Other Processes Shift to Sustainable Energy Sources Rethink Packaging Construct Closed-Loop Value Chains Use Critical Thinking Exercise 16-8 here.

BUILDING THE SUSTAINABLE MARKETING ORGANIZATION Sustainable Marketing Principles

Use Chapter Objective 4 here.

Under the sustainable marketing concept, a company’s marketing should support the best long-run performance of the marketing system.

Market with Ethics Ethical marketing: Applying high standards of ethics and morality when making marketing decisions.

Corporate marketing ethics: Broad guidelines that all employees must follow.

Marketing Ethics (see Table 16.1) What principle should guide companies and marketing managers on issues of ethics and social responsibility?

One philosophy is that such issues are decided by the free market and legal system.

A second philosophy puts responsibility not on the system but in the hands of individual companies and managers.

Each company must work out a philosophy of socially responsible and ethical behavior.

As with environmentalism, ethical behavior and standards present special challenges for international marketers.

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Many industrial and professional associations have suggested codes of ethics, and many companies are now adopting their own codes. The American Marketing Association code:

  

Do no harm Foster trust in the marketing system Embrace ethical values

Use Discussion Question 16-6 here.

Use Table 16.1 here.

Use Critical Thinking Exercise 16-9 here.

Use Marketing Ethics here.

A company’s marketing should be guided by five sustainable marketing principles: market with ethics, be consumer-centric, build long-term customer value, embrace a sense of mission, and do no harm.

 Be Consumer-Centric Always Consumer-centric marketing: The company should view and organize its marketing activities from the consumer’s point of view.

Only by seeing the world through its customers’ eyes can the company build lasting and profitable customer relationships.  Build Long-Term Customer Value Customer-value marketing: The company should put most of its resources into customer value-building marketing investments.

By creating value for consumers, the company captures value from consumers in return.  Embrace a Sense of Mission Sense-of-mission marketing: Define the mission in broad social terms rather than narrow product term.  Do No Harm-Inspire Socially Responsible Outcomes Neglecting consumer and societal long-run interests is a disservice to consumers and society.

Products can be classified according to their degree of immediate consumer satisfaction and long-run consumer benefit. (see Figure 16.3)  Deficient products have neither immediate appeal nor long-run benefits.  Pleasing products give high immediate satisfaction but may hurt consumers in the long run.  Salutary products have low appeal but may benefit consumers in the long run.  Desirable products give both high immediate satisfaction and high long-run benefits.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Use Key Terms Ethical Marketing, Customer-Centric Marketing, Customer ValueBuilding Marketing, Sense-of-Mission Marketing, Deficient Products, Pleasing Products, Salutary Products, and Desirable Products here.

Use Critical Thinking Exercise 16-7 here.

Use Marketing at Work 16.2 here.

The Sustainable Marketing Organization Sustainable company: A company that creates value for customers through socially, environmentally, and ethically responsible actions.

Sustainable marketing goes beyond caring for the needs and wants of today‘s customers.

Sustainable marketing provides the context in which companies can build profitable customer relationships by creating value for customers in order to capture value from customers in return, now and in the future.

Use Marketing by the Numbers here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 16-1. What is sustainable marketing and why is it important? (AACSB: Written and Oral Communication) Answer: Sustainable marketing calls for socially and environmentally responsible actions that meet the present needs of consumers and businesses while also preserving or enhancing the ability of future generations to meet their needs. If a firm focuses on meeting the company‘s short-term sales, growth, and profit needs by engaging customers and giving them what they want or desire in the present, it may not serve the future best interests of either customers or the business. The sustainable marketing concept considers both the future welfare of consumers and future company needs.

16-2. Briefly describe the three areas of deceptive practices. Why should marketers avoid deceptive practices? (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Deceptive practices fall into three areas: promotion, packaging, and pricing. Deceptive promotion includes practices such as misrepresenting the product’s features or performance or luring customers to the store for a bargain that is out of stock. Deceptive packaging focuses on overstating package contents using misleading package design elements, inaccurate labeling, or exaggerated product dimensions. Deceptive pricing includes falsely advertising ―factory‖ or ―wholesale‖ prices or a large price reduction from a fictional high retail ―list price.‖ There are regulations that protect consumers from deceptive practices but most marketers avoid deceptive practices because they hurt the company’s reputation and consumer trust, which is important to long-term, profitable relationships.

16-3. Why do critics believe marketers create false wants? What are the counterarguments? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Critics believe that marketers can create false wants and an obsession with material goods and worldly possessions. They believe that by selling the ―American dream,‖ marketers are encouraging waste and mass consumption (or unsustainable overconsumption). However, marketers do not have the power to create wants and they are more successful when they appeal to existing wants than when they try to create new ones. People seek information to ensure they get a good value. They rely on peers and family members to guide consumption habits. Products often fail. Firms cannot manipulate demand or wants. And modern consumers support social and environmental sustainability initiatives.

16-4. Identify a company that is engaged in product stewardship and explain how its practices differentiate it from companies that merely practice pollution prevention. (AACSB: Written and Oral Communication) Answer: Companies that practice product stewardship minimize pollution from production and product design as well as all environmental impacts throughout the full product life cycle while at the same time reducing costs. Many companies have adopted design for environment (DFE) and cradle-to-cradle practices. This involves thinking ahead to design products that are easier to recover, reuse, recycle, or safely return to nature after usage, thus becoming part of the ecological cycle. In comparison, pollution prevention is a basic level that simply removes or eliminates waste before it is created. Companies emphasizing prevention have responded with internal green marketing programs—designing and developing ecologically safer products, recyclable and biodegradable packaging, better pollution controls, and more energy-efficient operations.

16-5. What is consumerism? What are traditional sellers‘ rights? What are traditional buyers‘ rights? (AACSB: Written and Oral Communication)

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Answer: Consumerism is an organized movement of citizens and government agencies to improve the rights and power of buyers in relation to sellers.

Traditional sellers’ rights include the following:     

The right to introduce any product in any size and style, provided it is not hazardous to personal health or safety, or, if it is, to include proper warnings and controls.

The right to charge any price for the product, provided no discrimination exists among similar kinds of buyers.

The right to spend any amount to promote the product, provided it is not defined as unfair competition.

The right to use any product message, provided it is not misleading or dishonest in content or execution.

The right to use buying incentive programs, provided they are not unfair or misleading.

Traditional buyers’ rights include the following:   

The right not to buy a product that is offered for sale.

The right to expect the product to be safe.

The right to expect the product to perform as claimed.

16-6. What are some specific approaches marketers use to reduce environmental harm?

(AACSB: Written and Oral Communication) Answer: Marketers work with other company functions to reduce the harm associated with consumption by reimagining materials, sourcing materials from sustainable suppliers, simplifying product design and other processes (making products more frugal or reusable), shifting to sustainable energy, rethinking packaging, constructing closed-loop value chains, improving product durability and productivity, strategically lowering provided service levels, and using more efficient transportation at various points of the value delivery chain.

Critical Thinking Exercises 16-7. Products can be classified according to their degree of immediate consumer satisfaction and long-run consumer benefit as deficient, pleasing, salutary, or desirable products. Identify two products for each of the four categories and explain why they belong in that category. (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Student answers will vary based on product selections. Deficient products, such as bad-tasting and ineffective medicine, have neither immediate appeal nor longrun benefits. Pleasing products give high immediate satisfaction but may hurt consumers in the long run. Examples include cigarettes and junk food. Salutary products have low immediate appeal but may benefit consumers in the long run, for instance, bicycle helmets or some insurance products. Desirable products give both high immediate satisfaction and high long-run benefits, such as a tasty and nutritious breakfast food.

16-8. Suppose you are the champion for consumers with disabilities in your role on the inclusive excellence team at Enterprise Rent-A-Car. You recognize your role has the ability to impact the bottom line both by engaging consumers with disabilities and by establishing goodwill from consumers who want to support brands that practice social responsibility. How would you ensure consumers with disabilities were considered and included in Enterprise‘s marketing efforts? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Products and communications should be accessible to people with disabilities.

Retail locations should be accessible; customers should know how to call for additional assistance. Support may be particularly useful for people who have disabilities related to mobility, hearing, and vision. Audio messages should have transcripts; images should have alternative text; and videos should have closed captioning, descriptive audio, and transcripts. Storytelling can include stories from consumers with disabilities, who should have representation in communications and in the firm. You can consult with nonprofits, consultants, and agencies that support people with disabilities to identify authentic representatives of the target audience, including influencers with disabilities.

16-9. ―Greenwashing‖ is the practice of promoting a product by misleading consumers about its environmentally beneficial aspects. Products might be labeled as ―natural,‖ ―green,‖ ―environmentally friendly,‖ or biodegradable‖ but have little or no environmental benefits. Go to www.truthinadvertising.org/six-companiesaccused-greenwashing/ and choose one of the 10 examples of companies that are not as environmentally friendly as they would like to appear. In your opinion, is the company‘s product or business practice sustainable or is the company engaging in greenwashing? Explain your answer. (AACSB: Written and Oral Communication; Ethical Reasoning) Answer: Student answers will vary depending on the example they choose and their perspectives. For example, students may have different reactions to information about deforestation and child and slave labor in the context of Nestlé‘s ad for its sustainably sourced cocoa beans than they have for the concern that Nest thermostats do not cut air conditioning consumption as much as ads claim.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Minicases and Applications Digital Marketing Politically Neutral Social Media During a time when Starbucks was vowing to hire 10,000 refugees and Burger King UK social media posts seemed to encourage leftist activists who were throwing milkshakes at political opponents, Dunkin‘ Brands took a stand against politicizing its businesses, including Dunkin‘ and Baskin Robbins. A Dunkin‘ spokesperson noted that its stores aim for efficient customer service—getting satisfied customers in and out of its stores quickly—rather than trying to engage customers in political conversations. The spokesperson also noted pointedly that the Dunkin‘ brand was not political like Starbucks. Conservative social media followers reacted favorably to Dunkin‘s choice to remain politically neutral.

16-10. Analyze recent Twitter posts from Starbucks and Dunkin‘. Based on posts that are not related to the products—and customer responses to those posts—do you agree or disagree with Dunkin‘s decision to remain politically neutral? Explain.

(AACSB: Written and Oral Communication; Ethical Reasoning) Answer: Student opinions will vary. There are differences in the number of followers – Dunkin‘ (@dunkindonuts) has less than 10 percent of the followers of Starbucks (@starbucks). Both accounts include lifestyle posts and heartwarming stories.

Starbucks posts and retweets topics that may be controversial, particularly among those with conservative viewpoints. The posts that may be polarizing tend to have high engagement, which could increase the visibility of the brand among the users it wants to attract. Dunkin‘ may choose to focus on users who do not want to make a political statement or who do not agree with the philosophy of Starbucks. The two brands target different consumer profiles.

16-11. How do Starbucks‘s decision to get political and Dunkin‘s decision to remain politically neutral relate to the five sustainable marketing principles? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Dunkin‘s decision speaks to what it believes its customers value – the ability to get in and out of its stores quickly. Dunkin‘ is likely focused on consumer-oriented marketing and perhaps customer value marketing. Consumer-oriented marketing is when the company views and organizes its marketing activities from the consumer‘s point of view. Customer value marketing is when the company puts most of its resources into customer value-building marketing investments and continuously seeks real product and marketing improvements. Students may identify Starbucks as more aligned with innovative marketing, where the company continuously seeks real product and marketing improvements, but both companies invest in innovation. Starbucks is more likely to be associated with

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sense-of-mission marketing, where the company defines its mission in broad social terms rather than narrow product terms; and societal marketing, where the company makes marketing decisions by considering consumers‘ wants, the company‘s requirements, consumers‘ long-run interests, and society‘s long-run interests.

Marketing Ethics Patagonia Rethinks Fleeces for Banker Bros Fleece vests from Patagonia, the outdoor clothing and gear company, have been popular among venture capitalists. They may be perceived as a visual statement that the wearer has elite status and can get things done. However, Patagonia recently announced that it would no longer do co-branded fleece vests for new financial services businesses. Instead, it would only do co-branded vests for B corporations (companies certified for meeting certain environmental and social standards), companies that are members of One Percent for the Planet, and existing B-to-B companies and nonprofits that were short- or long-term loyal customers. The idea is that Patagonia will do more to support companies that share the brand‘s value system and avoid pairing its brand name with brand names from companies with different philosophical approaches.

16-12. In a small group, research how Patagonia‘s previous societally oriented marketing decisions impacted its sales and profits. Then discuss how Patagonia‘s decision about who to target for co-branded merchandise could affect its profitability. Present your conclusions. (AACSB: Written and Oral Communication; Ethical Reasoning) Answer: Student research should uncover that although Patagonia has spoken out against a quarterly growth at all costs mentality, it has increased its sales despite taking political stances that are polarizing and have been described as ―uncompromising.‖ Student opinions are likely to vary about how the decision to target specific market segments with its co-branded merchandise, which represents a small but growing percentage of Patagonia‘s total sales. Patagonia is not turning away existing customers. It could increase sales of core product lines from customers who identify with the brand‘s mission.

16-13. Is it wrong for Patagonia to exclude customers from firms that have different philosophies? Support your answer. (AACSB: Written and Oral Communication; Ethical Reasoning) Answer: Student opinions may vary. Patagonia‘s decision not to pursue co-branded merchandise with some firms and organizations does not prevent people who work from those organizations from purchasing Patagonia products. Some students may note that the decision may not benefit certain firms who want branded Patagonia merchandise in the short term but instead considers consumers‘ long-run interests.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

Marketing by the Numbers Gouging Their Eyes Out MyEye 2.0 is a thumb drive-sized device that weighs less than an ounce and attaches magnetically to the stem of almost any pair of glasses. It helps people with impaired vision to ―see.‖ It recognizes paper money dominations, faces based on stored images, surroundings, and almost anything else to which the user points a finger. MyEye 2.0 can read a menu or package label and softly tell the wearer what‘s for dinner via a small speaker near the user‘s ear. To almost 8 million visually impaired Americans and 253 million visually impaired people worldwide, this could be a game-changer. However, for many, the $3,500 price tag is a game-stopper. Many smartphones equipped with AI technology have apps that can do many of the same things as MyEye 2.0, although they are not wearable. Some believe this wearability does not add enough value to justify MyEye 2.0‘s outrageous price, especially considering that some 58 percent of U.S. adults with significant vision impairment are unemployed and that percentage is likely higher worldwide. Apple‘s iPhone 12 —with Face ID, Siri, and its other AI sensors, camera, speaker, and app capabilities—can do many of the things the MyEye 2.0 can do. It carries a price tag of $800 with the estimated cost of goods sold (COGS) of $290.

In contrast, MyEye 2.0‘s COGS is estimated at $190 per device.

16-14. Calculate the gross margin dollars and percentage for the MyEye 2.0 and the iPhone 12. Refer to The Profit-and-Loss Statement and Marketing Budget in Appendix 3: Marketing by the Numbers to learn how to calculate gross margins.

(AACSB: Analytical Thinking) Answer: Gross margin ($) = Price – Cost of goods sold Gross margin (%)

Gross margin ($) = ————————— x 100 Price

So, Gross margin ($)MyEye 2.0 = $3,500 – $190 = $3,310 $3,310 Gross margin (%)MyEye 2.0 = —————— x 100 = 94.6% $3,500 Gross margin ($)iPhone 12 = $800 – $290 = $510 $510 Gross margin (%)iPhone 12 = —————— x 100 = 63.8% $800

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16-15. Discuss the pros and cons of the company‘s decision to price the MyEye 2.0 so high. Is the company following the principle of societal marketing? Should it?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students’ answers will vary, but they should indicate an understanding of the societal marketing concept. Following the principle of societal marketing, a company makes marketing decisions by considering consumers’ wants, the company’s requirements, consumers’ long-run interests, and society’s long-run interests. Companies should be aware that neglecting consumer and societal long-run interests is a disservice to consumers and society. Alert companies view societal problems as opportunities. In this case, the company may have high R&D costs it may be trying to recoup by using a skimming pricing strategy for this new product. However, considering the vulnerable market this product is targeting, not many can afford this product that they do not just merely want but need. This product could increase this market’s employment opportunities, which would benefit society as a whole, and if the product was available at a lower price, more consumers in this market, and thus society, could benefit from it.

Company Case Teaching Notes

Company Cases 16 Microsoft/8 Pfizer/10 Weyerhaeuser See Appendix 1 for teaching notes for the below cases.

Case 16, Microsoft: Eliminating Carbon—The World’s Next Moonshot. In a world where climate change is increasingly demanding reductions of carbon emissions, Microsoft has set the standard by committing to the goal to remove all the carbon the company has ever emitted by the year 2050.

Case 8, Pfizer: Developing New Products to Save Lives. With a tried-and-true strategy for developing pharmaceuticals that make the world a healthier place, Pfizer brought the first COVID-19 vaccine to market in record time.

Case 10, Weyerhaeuser: Riding Out a Supply Chain Storm. Facing a perfect storm of disrupting factors, Weyerhaeuser seeks to distribute surpluses of raw materials.

GREAT IDEAS Barriers to Effective Learning 1. This chapter may be used to ―hammer home‖ the idea of sustainable marketing. Although sustainability is a common buzzword today, most students will never have considered the concept applied to marketing.

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

2. Most of the concepts in this chapter will be new. Some students cast an uncritical eye on the opinions of activist groups and think that not a single company can be trusted to ―do the right thing.‖ The task in this chapter is to present both sides, both good and bad, so that students can see that although problems do exist, there are solutions, and industry does tend to work toward reining in those who would create problems for consumers, society as a whole, or other businesses.

3. Unless the university is in an urban environment, most students will be surprised that many large retailers stay away from disadvantaged neighborhoods, and that banks and insurance companies might discriminate against customers living in these areas. Even at urban universities this could be cause for surprise, because most urban schools are not located in the truly disadvantaged areas. A discussion on the pros and cons of, say, a Walmart or a major grocery retailer locating in an inner-city neighborhood can aid in the comprehension of the risks and rewards for the company, as well as for the consumers.

4. Consumerism and environmentalism are two important concepts for the students to be aware of. It is unlikely that either of these movements will go away any time soon, and because the internet has made so much information available to so many, these issues will likely only become more in the forefront of consumers’ minds. Product recalls have become commonplace, but it is worthwhile discussing in class any recalls the students have been affected by. Comparing the number of recalls today to the number in the 1960s and 1970s will also help. As for environmentalism, one thing that is useful is to ask how many students have traveled to cities in other countries where the pollution controls are not as stringent as in the United States. Also, discuss how your own university recycles, particularly if computers are given to the students every two years, as many business schools are now doing.

Student Projects 1. Explain how the marketing concept is applicable to marketing ethics and social responsibility.

2. From a marketing concept point of view, is it wrong to sell alcohol? Defend your position.

3. What is planned obsolescence? Think about the fashion industry. How (or is) planned obsolescence employed in this industry? If it is, do you believe its practice to be ethical?

4. Examine the urban area of your town. Do you find examples of what you would consider redlining? Explain.

5. Discuss the statement ―Marketing creates false wants and too much materialism.‖ Small Group Assignments Form students into groups of three to five. Each group should read the opening vignette to the chapter on Patagonia. Each group should then answer the following questions: 1. Describe the culture of Patagonia

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2. Do you believe companies have a basic responsibility to preserve the environment around the globe? Or is their responsibility to their owners, employees, and shareholders? Are the two mutually exclusive?

3. Do you think that customers really care about Patagonia’s social responsibility beliefs?

Defend your position.

Each group should share its findings with the class.

Individual Assignment Traditional buyers’ rights include the following three items.

1. The right not to buy a product that is offered for sale.

2. The right to expect the product to be safe.

3. The right to expect the product to perform as claimed.

Do you believe these rights are sufficient to adequately protect consumers? Defend your answer.

If you do not believe the rights are sufficient, what additional rights would you suggest and why?

Think-Pair-Share Consider the following questions, formulate answers, pair with the student on your right, share your thoughts with one another, and respond to the questions from the instructor.

1. How would you define consumerism?

2. What is planned obsolescence? Do you believe marketers make a habit of using this concept?

3. Do you believe marketers should be responsible to their shareholders or to environmentalists? Why? 4. Define environmentalism.

5. Explain the role of ethics in marketing.

Classroom Exercise/Homework Assignment People for the Ethical Treatment of Animals, known as PETA, claims that animals have rights, and humans have no right to eat them, use them to produce clothing (leather goods and furs, for example), or for testing purposes. They are against practices they say are cruel and barbaric, including everything from corporate animal farming to breeding dogs and cats to supply our nation‘s pet supply.

The organization targets high profile companies and their practices, recently targeting Perdue Farms and KFC for cruelty to chickens. Their activists have been known to

Chapter 16 Sustainable Marketing: Social Responsibility and Ethics

break into test labs and release the animals there. Others have released dogs that were with their owners at dog shows.

Some have decried PETA as the lunatic fringe, while others praise their efforts to force us all to treat animals humanely.

Read about PETA (www.peta.org). What do you think about the organization, their goals, and methods?

Classroom Management Strategies Although there are several Key Terms in this section that should be defined for the students, this is that rare chapter that could be more easily learned in a discussion format than a lecture. Drawing out student opinions on the topics in this chapter will make the material come alive.

1. Take the time to fully discuss the concept of sustainability. It is important for students to realize that businesses today must be focused on more than just the bottom line.

2. You can spend a full 30 minutes on the next section. Discussing actual situations that could cause critics to make these charges would be helpful. If Christmas is near, a good discussion can also ensue about the onslaught of advertising, both on television and in newspapers. Debate whether this is the cause of materialism, or a reaction to it. An interesting debate can also be held regarding cigarettes and alcohol – is it ethical to market these products when we know they can be harmful? Have students take sides to fully discuss the pros and cons.

3. The section on citizen and public actions should take 15 minutes. A brief history of both consumerism and environmentalism is generally helpful. If you have an activist university, and Earth Day is near, perhaps you could organize a group to participate through increasing your own recycling and studying the history of the environmental movement in the United States.

4. Finally, take 15 minutes to discuss sustainable marketing principles and marketing ethics.

PROFESSORS ON THE GO

Sustainable Marketing: Social Responsibility and Ethics Key Concepts Sustainable marketing and its importance The impact of marketing on individuals, society, and business 

What is sustainable marketing and how does it differ from the marketing concept and the societal marketing concept?  Review the claims made by consumers, consumer advocates, public policy makers, and others that the marketers are harming consumers through planned obsolescence, shoddy or unsafe products, and poor service to disadvantaged consumers. Do you agree with these claims?  Review the responses offered by marketers to claims that high distribution costs, high advertising and promotional costs, and excessive markups lead to high prices that are harmful to the consumer. Do you agree with the marketers‘ responses?  Bring an example of a firm to class that you do not think is being socially-responsible. How did you determine this? What were the firm‘s negative actions? What could the firm do to remove the negative social image?

Key Concepts Consumerism Environmentalism 1-1 Copyright © 2025 Pearson Education, Inc.

Part 1 Defining Marketing and the Marketing Process

  

Can an organization be focused on both consumerism and environmentalism at the same time? Explain.

Find five examples of products or marketer practices that you perceive to be environmentally-sensitive. How can you tell that this is a policy that is being stressed?

What is environmental sustainability? List and describe the four parts of Figure 16.2.

Key Concepts Societal marketing Marketing ethics   

Find an example of a company that you perceive is practicing the concepts of societal marketing. Describe why you feel the company qualifies. Is its practice publicized? Should it be?

List and describe the forms of products shown in Figure 16.4. Which of these are desirable, and which are not?

How do firms meet their social responsibility function?