Solution Manual For Marketing An Introduction, Global Edition, 16th Edition by Gary Armstrong Philip

Solution Manual For Marketing An Introduction, Global Edition, 16th Edition by Gary Armstrong Philip Kotler Chapter 1-16 CHAPTER 1 MARKETING: CREATING CUSTOMER VALUE AND ENGAGEMENT

Objectives Outline 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.

Previewing the Concepts 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 and 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.

Amazon makes each customer‘s shopping experience unique to them. Using the latest technologies, including AI, Amazon offers the conveniences of 1-Click ordering and

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Alexa. They also offer easy returns through partnerships with businesses such as Kohl‘s, UPS, and their own Whole Foods stores. In an effort to provide a more seamless experience for its customers, Amazon has experimented with other physical formats— Amazon Fresh and Amazon Go. These customers conveniences come at an expense to Amazon.

To better manage and control these expenses, Amazon uses its physical stores as platforms for the pickup, delivery, and return of other goods. They also use their own fleet of delivery vehicles enabling it to out-deliver UPS and FedEx. While this enhances the customer‘s omnichannel experience, it helps Amazon establish a corporate vertical marketing system (VMS). (This is explored more in Chapter 10.)

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, and churches) 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 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 a social and managerial process by which individuals and organizations obtain what they need and want through creating and exchanging value with others.

Use Chapter Objective 1 here.

Use Key Term Marketing 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 an integrated marketing mix that delivers superior value.

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4. Engage customers, build profitable relationships, and create customer delight.

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

Use Figure 1.1 here.

In the first four steps, companies work to understand consumers, create superior 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, advocacy, 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, solutions, and experiences); (3) customer 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.

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, Solutions, 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. They include solutions—combinations of products and services offered that solve customer problems in their entirety, as when a tour company provides end-to16-3

end vacation planning and execution for a family. And they include experiences— offerings that are designed to create customer journeys with memorable customer touch points.

Marketing myopia occurs when a company becomes so taken with their own products that they lose sight of underlying customer needs. They focus on the product they are offering and not the customer benefits and experiences the product delivers.

Use Chapter Objective 2 here.

Use Key Terms Market Offerings and Marketing Myopia here.

Use Discussion Question 1-3 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 relationships with target audiences.

Use Key Term Exchange 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.

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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 Key Term Marketing Management here.

Use Discussion Question 1-2 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.

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 Orientations Marketing managers want 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:

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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 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.

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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.

Use Critical Thinking Exercise 1-7 here.

Preparing an Integrated Marketing Mix 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.

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 (CRM) is the most important concept of modern marketing.

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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, engaging, 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. This 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 even delighted.

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

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 1-5 here.

Use Chapter Objective 4 here.

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

Use Discussion Question 1-6 here.

Customer Engagement and Today’s Digital 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.

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

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.

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.

Use Key Term Customer-Generated Marketing 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 (PRM)—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.

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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 engaging customers and 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, buy more, and advocate the brand to others.

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.

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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. ―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.

Marketing in the Digital Age Today, everything and everyone are digitally connected to everything and everyone else.

There are 5 billion social media users, who spend an average of 6.4 hours online daily.

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

Online, Mobile, and Social Media Marketing Online, mobile, and social media marketing involves using digital marketing tools and digital platforms to engage consumers anywhere, anytime.

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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 digital marketing mixes.

Social media marketing provides opportunities to extend customer engagement in realtime by engaging consumers in the moment about trending topics.

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

Mobile marketing is the fastest growing digital marketing platform.

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

91 percent of U.S. shoppers make online purchases using their smartphones and mobile commerce sales are expected to account for 62 percent of all retail sales by 2027.

Digital marketing spending now totals about $700 billion per year globally.

Artificial Intelligence (AI) and Big Data 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 technology that mimics the way humans think and learn to perform tasks that typically require human intelligence but much faster and with greater analytical capacity.

Use Chapter Objective 5 here.

Use Key Terms Online, Mobile, and Social Media Marketing here.

Use Key Terms Artificial Intelligence and Big Data here.

Use Discussion Question 1-4 here.

Use Critical Thinking Exercise 1-9 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.

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

Rapid Globalization 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 70 million customers daily at more than 41,500 restaurants worldwide—59 percent of its revenues come from outside the United States.

Today, companies are sourcing more supplies and components abroad, and developing specialized new products for markets around the world.

Sustainable Marketing: The Call for More Environmental and Social Responsibility Consumers expect marketers to be socially and environmentally responsible. Thus, marketers are reexamining their social responsibilities and their relationship with the earth and sustainability.

Most companies view sustainable marketing as an opportunity to do well by doing good.

Use Key Terms Sustainable Marketing and social responsibility here.

Use Marketing Ethics here.

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.

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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 Discussion and Critical Thinking Discussion Questions 1-1 What is marketing, and what is the goal of the marketing process? (AACSB: Written and Oral Communication) Answer: Marketing is the set of strategies and activities that companies use to acquire and engage customers, build strong customer relationships, and create superior customer value so they can capture value from customers in return.

The high-level goal of the five-step marketing process is creating and capturing customer value. In the first four steps, companies work to create customer value by: (1) understanding the marketplace and customer needs and wants; (2) designing a customer value-driven marketing strategy; (3) constructing an integrated marketing program mix that delivers superior value; and (4) engaging customers, building profitable relationships, and creating customer delight. In the last step, companies reap the rewards of creating superior customer value by (5) capturing value from customers to create profits and customer equity.

1-2 Describe the five marketing orientations. (AACSB: Written and Oral Communication) Answer: The five marketing orientations are as follows: 1. The production concept, which holds that consumers will favor products that are available and highly affordable. This concept focuses on improving production and distribution efficiency.

2. The product concept, which holds that consumers will focus on the functional and aesthetic attributes of the product. The focus is on designing the most impressive product.

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

4. The marketing concept, which focuses on achieving organizational goals depends on knowing the needs and wants of target markets and delivering the desired satisfaction better than competitors.

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5. The societal marketing concept, which holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s well-being.

1-3 What is marketing myopia? What are the short- and long-term implications for a business in this situation? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Marketing myopia occurs when a business only focuses on the wants of existing customers and loses sight of their underlying needs. This means that the business will not be prepared when customers want change. It will fail to respond to changes in the short term but may be able to recover in the long term.

1-4 Describe how artificial intelligence is revolutionizing marketing. Provide examples with your answer. (AACSB: Written and Oral Communication) Answer: Artificial Intelligence (AI) is a technology that emulates human cognitive processes to execute tasks that usually need human intellect, but it does so more rapidly and with superior analytical capabilities.

AI is transforming the marketing landscape by automating numerous analytical and creative tasks that are traditionally performed by humans, but with greater speed, improved quality, and reduced costs. AI is being utilized in nearly every aspect of marketing. Here are some ways marketers are leveraging AI: Data collection, analysis, and insights—AI can swiftly collect and analyze vast data sets to detect trends and patterns, offering insights that inform more effective marketing strategies and actions. AI facilitates “speed to insight,” delivering realtime, actionable evaluations of market trends and consumer behavior and preferences.

Customer interaction and personalization—Marketers employ AI to engage with consumers and create personalized customer interactions, marketing messages and offerings, recommendations, and brand experiences.

Idea generation—AI can be used to generate new ideas and concepts, from new product ideas to marketing strategy brainstorming. For instance, Coca-Cola can develop new product ideas in just weeks using its AI-powered Coke Creations platform, compared to the 12 months it typically takes without AI. Marketing content creation: Marketers use AI to create high-quality, original marketing content, ranging from advertising copy and images, video scripts, and website designs to personalized emails, blog posts, and social media posts. With AI, marketers can create compelling, almost-human content in less time and at a lower cost.

Customer service—AI can be used to enhance customer service and support, such as answering customer queries and resolving issues or directing customers to FAQs, tutorials, and videos. For instance, AI-powered chatbots and digital assistants can interact directly with customers to provide immediate responses, personalized recommendations, and seamless customer support.

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The power AI provides marketers in terms of speed, and conceptually acting as a sound board for ideas, enables marketers to act on data in real-time making marketing more dynamic and real-time in today’s rapidly evolving business environment.

1-5 List the key elements in developing a customer value-driven marketing strategy.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: The key elements are as follows: 1. Selecting customers to serve, which involves identifying and targeting a specific segment, or specific segments, of consumers who are most likely to be interested in the company’s product or service.

2. Choosing a value proposition, which involves determining the unique benefits or advantages the product or service offers to customers compared to competitors.

3. Deciding on marketing orientations, which involves choosing a strategic approach to marketing, such as production-oriented, product-oriented, sales-oriented, customeroriented, or societal marketing-oriented. Note that the customer-oriented approach is what most firms should embrace, even while paying attention to social sustainability.

All these steps help in planning the marketing mix, which involves creating a balance of the four Ps of marketing—product, price, place, and promotion. This puts the value strategy into action and effectively reaches and serves the customers. Finally, through pricing, the firm recaptures value in terms of profits. Throughout, the firm should focus on building long-term, profitable customer relationships.

1-6 Discuss the concept of customer relationship management. Why is it essential that a business incorporate this in its operations? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Customer relationship marketing is the term used to describe the process of building and maintaining long-term, profitable relationships with customers. This is achieved by delivering products and services of superior value and ensuring customer satisfaction, which is likely to lead to greater customer retention.

Critical Thinking Exercises 1-7 Visit www.lego.com and discuss how well Lego balances the three considerations of the societal marketing concept. To what extent has Lego embodied this concept?

(AACSB: Written and Oral Communication; Analytical Thinking) Answer: There are three considerations of the societal marketing concept: 1. Company profits 2. Consumer wants 3. Society’s interests

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Student answers may vary, but there are many instances of Lego embodying the societal marketing concept. First, Lego’s profitability is driven by product innovation which involves co-creating new product ideas with customers. Second, Lego provides value to its customers through its dedication to their interests and diversity. Third, Lego’s concern for societal welfare is shown through its various sustainability programs focused on children (for example, Build the Change and Re: Code), the environment (for example, Replay and developing sustainable materials), and people (for example, promoting a family-friendly workplace and a diverse and inclusive Lego group).

1-8 Consider Apple’s recurring “Shot on iPhone” campaigns. These campaigns encourage customers to take photos with their iPhones and share them on social media with the hashtag #ShotOniPhone. This not only showcases the iPhone’s highquality camera but also creates a community of Apple enthusiasts sharing their creativity. How does Apple’s “Shot on iPhone” campaign demonstrate effective customer-brand advocacy? How might other companies implement similar strategies to foster customer advocacy? (AACSB: Communication; Reflective Thinking) (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The #ShotOniPhone campaigns leverage the power of user-generated content, turning customers into brand advocates. The campaign demonstrates effective customerbrand advocacy along the following dimensions: By encouraging users to share their iPhone photos and using the hashtag #ShotOniPhone, Apple fosters a sense of community among its users. The more people around them that own an iPhone, the more comfortable an individual consumer is in choosing an iPhone.

The public act of uploading a photo taken on an iPhone strengthens the customer's emotional connection with the brand.

Many of the photos uploaded display striking imagery, highlighting the superior quality of the iPhone camera.

Apple saves on advertising costs, letting customers do the brand-building.

Other companies can implement similar strategies: They can encourage user-generated content that highlights the use of their products or services. Adventure camera-maker GoPro adopts a similar strategy. This not only promotes the product but also builds a community around the brand, fostering customer loyalty and advocacy.

They can get customer communities engaged in co-developing offerings. For example, T-shirt company Threadless uses customer-generated designs to make its products.

They can get customer communities to solve problems for other customers. For example, the Dell Technologies User Community (DTUC) solves many technical problems for Dell customers.

Companies that engage customers in these ways must ensure that they provide a platform that truly values and showcases their customers' contributions.

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1-9 YETI specializes in outdoor products like coolers, drinkware, and gear. YETI has cultivated a strong community of advocates through its targeted engagement strategies that resonate deeply with outdoor enthusiasts. YETI’s approach involves creating high-quality, durable products that appeal to those who value reliability in harsh outdoor conditions. The brand has effectively used storytelling through its “YETI Presents” series, which features documentaries and short films showcasing real customers’ adventures and experiences with YETI products in the wild. Visit YETI’s website (www.yeti.com/) and evaluate the brand’s effectiveness in creating customer engagement through its customer touchpoints. Is YETI’s brand message consistent across platforms? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: After visiting the website, students may answer in different ways depending on their perspective of how YETI is positioning itself. However, here is some guidance: 1. YETI’s marketing strategy includes product testing and reviews by customers, fostering a sense of community and belonging among its audience which are on all of its digital platforms. The strategy also makes the reviews more authentic.

2. YETI collaborates with outdoor influencers, expanding its reach to the influencers’ followings and establishing brand trust.

In terms of brand message consistency, YETI maintains a unified brand message across all channels and touchpoints, despite the fact that customers are involved in building the brand reputation. This is because YETI is itself positioned with discipline, highlighting its high-quality rugged products that won’t let customers down. Thus, YETI’s messaging is consistent, impactful, and memorable.

Minicases and Applications Digital Marketing and AI: Dell’s User Community and Contact Connect AI The Dell Technologies User Community (DTUC) is an independent, customer-led community that provides a platform for Dell‘s IT professionals, customers, and outside technical experts to network, collaborate, share new product ideas, and troubleshoot problems. On a second digital front, Dell‘s firm-to-customer Contact Connect AI (CCA) leverages natural language understanding (NLU) to improve customer experiences and reduce issue resolution times. The AI platform identifies customer issues and creates resolutions across multiple channels and at multiple stages of the customer support process.

1-10 Explore DTUC at www.dtuc.com/. How does the digital community that DTUC represents help Dell customers and the company? (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: DTUC provides customers with many benefits: 1. It builds a sense of community across Dell customers and employees, giving them a sense of belonging.

2. It provides the ability to troubleshoot complex customer problems, drawing on the wisdom of the crowd.

3. It helps solve customer problems much faster than Dell alone could.

4. It increases brand engagement for customers who contribute solutions and help solve other customers‘ problems.

5. It helps customers get the news of new products early and enables them to contribute to the design of new offerings.

At the same time, DTUC provides Dell with many benefits: 1. It substantially reduces customer service and troubleshooting costs.

2. It surfaces customer-driven solutions to problems of which Dell itself may not be aware.

3. It provides Dell with a constant line of feedback on what is performing well and what is not, letting it incorporate that feedback into new offering design.

4. It builds customer loyalty and increases repurchase rates.

1-11 Read about the Contact Connect AI at www.dell.com/en-us/blog/transformingcustomer-support-with-contact-connect-ai/. Suppose you are part of Dell‘s marketing team. You want to integrate Contact Connect AI into the Dell Technologies User Community (DTUC) to enable a single customer interface for real-time interaction and feedback. To help with this task, login to an AI interface of your choice and ask the question, ―How can I merge Dell‘s DTUC customer community and Dell‘s firm-to-customer Contact Connect AI system into one holistic interface?‖ Summarize what you learned from this response. (AACSB: Reflective Thinking; Integration of Real-World Business Experiences) Answer: Students‘ answers will vary depending on the AI interface they use. However, the AI interface should respond with a complex, multi-stage process starting with defining objectives/scope, proceeding through stages such as user interface design, stakeholder engagement, feedback and iterations, and user training, and ending with ongoing support and maintenance. The instructor should emphasize the following points: - AI systems may appear to be very simple and powerful to use. But the behind-thescenes work required to set them up is complex and takes ample time and resources.

- It‘s not just about the technology. Customers must be trained and induced to embrace the new technology.

- The strength of DTUC is the network of people and the key roles they play.

However, introducing AI may reduce the role of people, diluting the foundations of DTUC. Therefore, even if Contact Connect AI makes the process more efficient, Dell must think carefully about how it is introduced so that people remain at the center of DTUC. The instructor can provoke an interesting discussion on this point,

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challenging students to come up with ideas about AI can be integrated while ensuring that DTUC remains people- and community-centric.

Marketing Ethics: Dr. Bronner’s ALL-ONE! Ethical Model Dr. Bronner‘s ALL-ONE!, the organization behind the top-selling organic liquid soap in the United States, has built its brand on ethical foundations. The company supports a broad range of causes such as income equality, drug policy reform, sustainability, animal advocacy, and regenerative organic agriculture. Founded in the late 1940s, Dr. Bronner‘s has remained relevant through changing trends and consumer preferences thanks to its effective marketing strategy. It‘s ―Cosmic Principles…guide us in everything we do, from soapmaking to peacemaking.‖ Known for its all-natural ingredients and multi-use functionality, Dr. Bronner‘s has been a staple in the organic and natural product world for decades. From sourcing fair trade ingredients to giving back to communities, Dr. Bronner‘s puts its values first into everything it does. This ethics-driven approach has been a part of Dr. Bronner‘s marketing strategy from the very beginning.

1-12 Today, consumers are increasingly conscious of the ethics and socially responsible practices of companies they support. As a result, many companies now promote their ethical practices. In this increasingly competitive environment, how can a company like Dr. Bronner‘s ALL-ONE! continue to be profitable in the short and long run? (AASCB: Integration of Real-World Business Experiences).

Answer: Balancing profitability with ethical practices and social responsibility in an increasingly competitive environment is indeed a challenge for many companies, including Dr. Bronner‘s. That said, here are some ideas to maintain short- and longterm profitability: 1. Continue to position the brand clearly on the social responsibility front with clear and transparent communication.

2. Emphasize the long history of the brand in the ethical space.

3. Behind the scenes, work to improve efficiency and profit margins without compromising on ethical standards. These initiatives can include investing in new technologies, improving supply chain management, or finding creative ways to reduce waste.

4. Expand the product line into new, adjacent areas which are less competitive and where there is pent-up demand for ethically strong products.

5. Strengthen relationships with the retail trade, ensuring retail strong support for the brand.

6. Possibly increase the emphasis on direct-to-customer marketing and sales.

7. Forming partnerships with other ethical businesses or organizations can lead to shared marketing costs, increased buying power, and other synergies that can improve profitability.

8. Typically, consumers who are conscious of ethical practices are often willing to pay a premium for products that align with their values. Engaging these consumers, telling the company‘s story, and highlighting its commitment to ethical practices and

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social responsibility can help build a loyal customer base that supports the company‘s mission as well as its products.

9. While some ethical practices may involve higher costs in the short term, they can lead to greater sustainability and profitability in the long term. For example, investing in sustainable practices can reduce future environmental costs, and treating employees well can lead to higher productivity and lower turnover.

Marketing by the Numbers: Netflix Trying to Outshine Competition The Global Streaming division of Netflix is experiencing challenges from changing consumer trends and from high-growth direct-to-consumer subscription services such as Amazon Prime Video, Hulu, Max, and even Newsmax. As a result, Netflix‘s market share dropped from 70 percent in 2010 to 44.21 percent in 2024. Netflix and close competitor Disney+ have focused on content innovation and higher subscription prices.

Netflix continues to innovate and sought to expand its reach by putting more emphasis on original content. It purchased the Millarworld brand, which targets comic book fans, and is attempting to acquire a start-up that produces content for young women. To protect its market leader position, Netflix has sometimes cut prices on its subscriptions.

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Assuming a contribution margin of 75 percent and current sales of $33 billion for Netflix, what sales would be necessary to break even (that is, maintain the current total contribution) on an 8 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 8 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 = 0.75  $33 billion = $24.75 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 75 percent, the unit contribution margin will equal $0.75 per unit and unit variable costs will equal $0.25 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 8 percent to $0.92 per unit ($1.00 × (1 − 0.08) = $0.92):

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Old

New (reduced 8%)

$1.00 per unit

$0.92 per unit

 Unit variable costs

$0.25 per unit

$0.25 per unit

= unit contribution margin

$0.75 per unit

$0.67 per unit

Contribution margin (%)

75% (given)

$0.67/$0.92 = 0.728 or 72.8%

Price

As can be seen, an 8 percent reduction in price resulted in a decrease of the contribution margin from 75 percent to 72.8 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 $24.75 billion: New contribution margin  new sales level = original total contribution So, original total contribution ($) $24,750,000 New sales level = ——————————— = —————— new contribution margin (%) 0.728

= $33,997,252.75 or $34 million rounded

Thus, Netflix needs to increase sales by approximately $1 million to compensate for the price cut if it wants to maintain the original contribution margin.

1-14 Consider another scenario where Netflix has enhanced the customer experience and decides to increase prices across the board by 10 percent. What is the level of sales required to maintain the original contribution margin? (AACSB: Written and Oral Communication; Analytical Thinking) Answer: As described earlier, a contribution margin of 75 percent implies that $1 of sales brings in $0.75 of contribution. That is, $0.25 is consumed by costs.

As before, the current total contribution = contribution margin x sales = 0.75 x $33 billion = $24.75 billion.

With a price increase of 10 percent, what sold at $1 now sells for $1.10. The costs for the content remain the same at $0.25. Therefore, the new contribution is $1.10

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− $0.25 = $0.85. Therefore, the new contribution percent is ($0.85/$1.10) × 100 = 77.2 percent.

Let S be the sales required to generate the same total $24.75 billion contribution as earlier.

Then, it must be that S × 0.772 = $24.75 billion.

Therefore, required sales S = $24.75 billion/0.772 = $31.73 billion.

Thus, Netflix can afford a drop in sales from $33 billion to $31.73 billion in response to the price increase and yet maintain the original contribution margin.

Company Case Teaching Notes Company Cases 1 Walt Disney World Resort/6 WeightWatchers/11 Temu See Appendix 1 for teaching notes for the below cases.

Case 1, Walt Disney World Resort: Making Magical Moments.

Through attention to detail, innovative attractions, and exceptional customer service, Walt Disney World ensures that visitors leave with lasting memories.

Case 6, WeightWatchers: Preserving the Brand’s Heritage while Charting a Course for the Future.

WeightWatchers now integrates weight-loss medications into its approach. By combining behavioral regimens with modern solutions, it tries to attract a broader audience while promoting healthy lifestyles.

Case 11, Temu: A Rising New Era Retailer.

Temu aims to revolutionize online retail with ultra-low prices and a gamified shopping experience. The company is shaking up the competition and redefining consumer expectations.

GREAT IDEAS Barriers to Effective Learning 1.

2.

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, social media marketing, 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, 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 16-23

3.

4.

5.

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. Bombas is a brand that could be discussed. Many students are familiar with their socks and some wear them. Bombas doesn‘t just give money to an issue, they have worked with homeless shelters to create specifically manufactured products to address specific problems experienced by those who are unhoused.

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 (Instagram; TikTok; or X, formerly 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, social media marketing, 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 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?

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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.

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

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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 market offerings.

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.

4.

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, social media, 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. Try asking them to respond to a survey question ―What is marketing‖ and post the results in a word cloud.

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, solutions, 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.

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.

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5.

6.

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 recent economic events such as inflation 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?

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Key Concepts 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?

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CHAPTER 2 COMPANY AND MARKETING STRATEGY: PARTNERING TO BUILD CUSTOMER ENGAGEMENT, VALUE, AND RELATIONSHIPS Objectives Outline 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.

Previewing the Concepts 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

Starbucks: Delivering the “Starbucks Experience” First, let’s look at Starbucks, a great brand with a fascinating marketing strategy story. Starbucks met with enormous early success by focusing not just on coffee but on the coffee-drinking experience. The company has since taken a bumpy ride from boom to bust and back to boom again. Along the way, it learned that good marketing strategy means more than just growth, sales, 16-29

and profits. It means skillfully engaging customers and creating value for them.

At its core, Starbucks doesn’t sell just coffee, it sells the “Starbucks Experience.”

Over the years, Starbucks has grown its brand and adopted strategy to meet customer needs and create value. They’ve accomplished this through creating a successful vision, expansion, innovation, focus on the brand, and a commitment to the company’s core values.

Starbucks is an example of the importance of a customer-focused marketing strategy.

Despite sometimes hasty growth, they always returned to their core value of delivering an experience, the “Starbucks Experience,” and enhancing customer engagement. By prioritizing this customer connection, Starbucks has been able to maintain its success through a strong value-focused customer relationship.

COMPANY-WIDE STRATEGIC PLANNING: DEFINING MARKETING’S ROLE Strategic planning is the process of developing and maintaining a profitable long-term 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, growing, and profitable.

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.

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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 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 Marketing at Work 2.1 here.

Use Discussion Question 2-4 here.

Use Critical Thinking Exercise 2-9 here.

Use Table 2.1 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 with specific goals.

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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 achieves the best fit between opportunities in the environment and 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.

Use Key Term Business Portfolio here.

Use Chapter Objective 2 here.

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

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 can be a company division, a product line within a division, or sometimes a single product or brand.

2. To assess the attractiveness of its various SBUs and decide how much support each deserves.

A key purpose of strategic planning is to ensure the company has a strong mix of SBUs providing strong sales, profits, and growth in both the short run and in the future.

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

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Analyzing the Current Business Portfolio A company classifies its SBUs according to the growth-share matrix The vertical axis uses market growth rate as a measure of market attractiveness.

The horizontal axis uses relative market share as a measure of company strength in the market.

Use Key Terms Portfolio Analysis and Growth-Share Matrix 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.

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.

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Use Discussion Questions 2-1, 2-3, and 2-5 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 2.2). 

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.

Use Figure 2.2 here.

Use Critical Thinking Exercises 2-7 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 insights 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.

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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 Internal 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.

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 Linking the Concepts here.

MARKETING STRATEGY AND THE MARKETING MIX Figure 2.3 shows the major activities in managing marketing strategy and the marketing mix.

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

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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 2.3 here.

Customer Value-Driven Marketing Strategy Marketing requires a deep understanding of customer needs and wants.

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.

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 Digital Marketing and AI here.

Market Targeting

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

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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.

Use Discussion Question 2-6 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 Critical Thinking Exercise 2-8 here.

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

Use Figure 2.4 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 2.4)    

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 16-37

 

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 organization, and control.

Use Figure 2.5 here.

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

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 or trends.

Threats are unfavorable external factors or trends.

Use Figure 2.6 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.

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Use Table 2.2 here.

Use Chapter Objective 5 here.

Marketing Implementation and Organization 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.

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 2-2 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:

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

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 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 2.7 here.

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.

What are the two steps involved in business portfolio planning? 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

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strategically allocate resources to profitable businesses and phase down or drop less profitable businesses with a bleak outlook.

The second step is to shape the future portfolio by developing strategies for growth and downsizing. Therefore, marketers need to identify, evaluate, and select market opportunities to pursue. This may lead to the introduction of new products into the portfolio.

2-2.

What key roles does marketing play in a firm‘s strategic planning? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Marketing plays the following key roles in the firm‘s strategic planning: 1. Providing a guiding philosophy that focuses the company strategy on creating customer value and building profitable relationships with key customer segments.

2. Providing critical insights to strategic planners to help them shape high-level corporate strategy by assessing market conditions, identifying attractive market opportunities, and evaluating the company‘s ability to take advantage of them.

3. Facilitating the design and execution of comprehensive market-focused strategies at the unit level to profitably achieve the corporate objectives.

4. Taking charge of deeply understanding customer needs, developing offerings to serve those needs, and capturing value back to drive firm profits.

5. Engaging in customer relationship management to build stable and profitable long-term customer relationships.

6. Managing the internal value delivery network.

7. Managing the external value delivery network.

2-3.

Why would a firm sell a major brand or business to another firm? Provide an example. (AACSB: Written and Oral Communication, Reflective Thinking) Answer: 1. A firm might sell a brand to another firm for many reasons: 2. The brand is unprofitable and the firm that acquires it may be able to manage it better.

3. The brand may be profitable but is seen as much more valuable for the acquirer who is willing to pay a premium for it.

4. The firm wants to concentrate and build its reputation in other business areas.

5. The firm may need to raise cash in the short term to fund other key initiatives.

6. The firm simply wants to harvest the brand and channel the money back to shareholders.

The chapter provides P&G as an example of a firm that sold off many major brands, including Iams and Natura, to focus on household care and beauty and 16-41

grooming products.

2-4.

What is the purpose of the mission statement? Explain with an example.

(AACSB: Written and Oral Communication, Reflective Thinking)

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Answer: The mission statement‘s role is to provide an uplifting description of the company‘s reason to exist, beyond just making profits.

Mission statements should be meaningful and specific yet motivating. They should forcefully convey how the company will make customers and the world better off even while winning in the marketplace.

For example, consider Nike‘s mission statement: ―To bring inspiration and innovation to every athlete in the world. If you have a body, you are an athlete.‖ This mission statement serves multiple purposes: 1. It clearly states that Nike‘s purpose is not just to sell athletic gear, but to inspire and innovate.

2. It identifies Nike‘s target audience as every person in the world, not just professional athletes.

3. It unifies Nike‘s employees and stakeholders under the common goal of inspiration and innovation.

4. It helps Nike maintain its focus on these goals as it grows and changes.

2-5.

How should companies design business portfolios? What are the attributes of a good portfolio? (AACSB: Written and Oral Communication, Reflective Thinking) Answer: A business portfolio is the collection of businesses and products that make up a company. In this process we have to first analyze the current business portfolio which involves evaluating the future of existing products and businesses that the firm currently has. This exercise will provide some insights into the levels of resources that should be allocated to each brand and into which brands should be dropped. In parallel, companies need to think about the longer-term future and potentially introduce new brands/products into the portfolio.

Good portfolio management is all about balance. Companies must ideally have some cash cows in play, actively generating cash. They should have some stars on board, being fed well to propel their growth into future cash cows when their markets plateau. They have to decide whether or not to support a couple of the more promising question marks to try to transform them into stars and then into cash cows. And they must drop any dogs from the portfolio.

2-6.

Define market targeting. How should a company select segments to target?

(AACSB: Written and Oral Communication, Reflective Thinking) Answer: Market targeting involves evaluating each market segment‘s attractiveness and selecting one or more market segments to enter. A company should target market segments in which it can generate strong customer value resulting in high profitability which can be sustained over time. A company with limited resources might serve only one or a few special segments or market niches. Such ―nichers‖ specialize in serving customer segments that major competitors overlook or 16-43

ignore. Other companies may choose to serve a wide range of market segments.

Many companies enter a new market by serving a single segment; if this proves successful, they add more segments.

Critical Thinking Exercises 2-7.

Visit www.businessfinancing.co.uk/the-most-popular-consumer-brand-in-everycountry/, and choose one of the world maps showing the popularity of brands around the world. Identify the top five and the bottom five brands. Suggest a strategy for each of those brands using the product/market expansion grid shown in Figure 2.2. Support your suggestions with arguments. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student answers will vary but should include supporting evidence for their choices. Students can choose from consumer brands, smartphones, gaming, fashion, fast food, or appliances. They will note the dominance of some brands in the major markets but their absence in others. For example, Amazon is the most popular brand in the US, but eBay is most popular in the UK; in Saudi Arabia, the most popular smartphone brand is Huawei – but in China, where Huawei is made, the top smartphone brand is Apple. Students should be able to identify brands that are in ascendency and those that are in decline.

2-8.

The United Nations Economic Commission for Europe (UNECE) has launched ―The sustainability pledge‖ for measurable and verifiable sustainability in the garment and footwear industry. Footwear company Allbirds uses materials like merino wool, eucalyptus tree fiber, and sugarcane-based foam, which are all sustainable and reduce the environmental impact compared to traditional footwear materials. From a positioning perspective, how would you encourage Allbirds to highlight being part of the UNECE pledge? How does your recommendation support the firm‘s strategic marketing goals? (AACSB: Written and Oral Communications; Reflective Thinking) Answer: Allbirds can highlight being part of the UNECE pledge through the following steps: 1. Sharing detailed information about sustainable practices, materials used, and the impact on the environment. This openness builds trust with consumers.

2. Using compelling narratives about the journey towards sustainability.

Stories resonate with consumers and make the firm‘s commitment memorable.

3. Highlighting the UNECE pledge logo on products, the website, and marketing materials. This serves as a visual reminder of the firm‘s commitment.

4. Engage consumers. Involve customers in the sustainability journey

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through interactive campaigns, encouraging them to make sustainable choices and to be involved in sustainability efforts in their own communities.

These initiatives support the firm‘s marketing goals in the following ways: 1. Differentiating the brand: The commitment to sustainability sets the firm apart from competitors, enhancing brand image.

2. Building customer loyalty: Consumers are increasingly conscious about sustainability. Aligning with their values fosters brand loyalty and increases profits.

3. Expanding market reach: The UNECE pledge can attract new customer segments interested in sustainable products.

4. Future-proofing the business: With increasing regulatory focus on sustainability, early adoption of sustainable practices prepares the firm for future requirements.

5. Sometimes green can be gold. That is, wisely integrating sustainable materials into products can lower costs and/or support a premium price.

2-9.

1.

2.

3.

4.

Pick one of your favorite companies and locate its mission statement on its website. Evaluate the mission using the criteria for creating a sound mission statement. If you were the brand manager for this firm, how would you improve the mission statement? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students‘ answers will vary based on their chosen organization. But the responses should be evaluated in terms of: Whether the mission statement provides a focused strategic direction for the company.

Whether it is not just focused on sales and profits.

Whether it is market-oriented and framed in terms of making a positive difference to customers and society, even while winning in the marketplace.

Whether it provides employees with a sense of purpose at work and energizes them.

Minicases and Applications Digital Marketing and AI: Sephora’s Influencer Marketing Strategy Sephora, a leader in global beauty retailing, has adeptly used influencer marketing to enhance its brand appeal and drive sales. With a robust network of beauty influencers ranging from YouTube beauty vloggers to Instagram beauty gurus, Sephora creates dynamic campaigns that reach diverse audiences. A notable aspect of Sephora‘s strategy involves its Beauty Insider Community, where influencers and customers alike share reviews, photos, and beauty tips.

This community fosters a sense of belonging and direct interaction between the 16-45

brand and its consumers. Moreover, Sephora regularly sends new and exclusive products to influencers, encouraging them to create fresh digital content that promotes these products through demonstrations and honest reviews. This strategy not only helps in launching products successfully but also in maintaining customer engagement and trust. The influencers‘ followers often see these authentic endorsements as personal recommendations, rather than as traditional advertisements.

2-10. Reflect on Sephora‘s use of a diverse range of influencers and the creation of its own Beauty Insider Community. How does engaging influencers from different backgrounds and with varying audience sizes benefit Sephora‘s marketing strategy? (AACSB: Written and Oral Communication; Reflective Thinking; Diversity and Inclusion).

Answer: Students‘ answers will vary. That said, here are points to consider in the discussion: 1. Sephora‘s use of a diverse range of influencers and customer champions allows the brand to tap into varied demographics and cultural backgrounds, broadening its appeal and relevance across different customer segments.

2. The Beauty Insider Community enhances the effectiveness of Sephora‘s influencer campaigns by fostering an interactive platform where consumers feel directly engaged with the brand.

3. Sephora‘s community-driven approach helps build strong brand loyalty as customers view the platform as a trusted source for beauty tips and product recommendations, further amplified by authentic endorsements from influencers.

Using the feedback, Sephora can modify its existing products and their positioning, and gains insights that help the company develop new products.

2-11. Assume you are the product manager of Sephora‘s Longwear foundation line. Use your preferred AI interface to ask the following question: ―I am trying to design a product portfolio for the new Sephora Longwear foundation line. What do I need to consider so I can appeal to diverse audiences?‖ Evaluate the response. How would you change the suggested considerations and why? (AACSB: Written and Oral Communication; Reflective Thinking; Diversity and Inclusion; Integrating real-world application).

Answer: Students‘ answers will vary based on the AI interface they use. We asked ChatGPT the same question, and received the following response (paraphrased from ChatGPT): 1. Shade Range: Ensure a comprehensive and inclusive shade range

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that caters to all skin tones. This should include a variety of undertones (cool, warm, neutral) and intensities, from the fairest to the deepest shades.

2. Skin Types: Different formulas should be considered for various skin types such as oily, dry, combination, sensitive, and acne-prone skin. Offering products that cater to specific skin needs can greatly enhance customer satisfaction.

3. Product Formulation: Prioritize high-quality ingredients that promote skin health. Consider hypoallergenic, non-comedogenic, and dermatologically tested formulations. It‘s also valuable to offer vegan, cruelty-free, and environmentally friendly options.

4. Packaging: Make it functional and appealing…use hygienic dispensers such as pumps. Be eco-friendly. Appeal to diverse demographics.

5. Marketing and Representation: Use diverse models in marketing campaigns to represent the entire spectrum of potential users.

Everyone should see themselves represented in the advertising.

6. Accessibility and Availability: Make sure the distribution channels cover areas with diverse demographics. Online availability and international shipping can also broaden your market.

7. Testing and Feedback: Prior to launch, conduct extensive testing with diverse focus groups to gather feedback on the shades, formulations, and packaging. This can help refine the products to better meet the needs of a diverse consumer base.

8. Education and Support: Provide resources that help consumers choose their correct shade and formulation. This might include detailed online guides, videos, or in-store technology like colormatching tools. Well-trained staff in stores can also enhance customer experience by providing personalized guidance.

9. Brand Partnerships and Collaborations: Collaborating with influencers from various backgrounds can help reach different communities and add authenticity to your brand's commitment to diversity.

The instructor should highlight the richness of ideas related to increasing the inclusivity of the brand that an AI platform will provide.

Marketing Ethics: The Tesla S Plaid We learned a lot about Tesla in this Chapter. In 2022, Tesla introduced a new model called the Tesla Model S Plaid, which showcased cutting-edge technology and performance enhancements, including a 0-60 mph acceleration time of under two seconds. This model was promoted as one of the fastest production cars available, emphasizing Tesla‘s ongoing commitment to innovation in electric vehicle technology. Sold primarily through Tesla‘s own website and showrooms, the Model S Plaid was marketed as an elite option for electric vehicle 16-47

enthusiasts. However, despite its innovative features, the Model S Plaid came with a steep price tag starting at around $130,000, which placed it well above the price range of the average consumer and even many other electric vehicles. This pricing was justified by the advanced technology and performance capabilities of the vehicle but raised questions about Tesla‘s accessibility and sustainability claims.

2-12. Is it socially responsible for Tesla to claim green credentials and broad market accessibility while offering a product like the Model S Plaid?

(AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Students‘ answers will vary. The instructor can catalyze an interesting student debate on both sides of the issue keeping these points in mind: Yes, the Model S Plaid makes sense for Tesla and the market: 1. Even if it offers cutting-edge performance, the Model S Plaid is far less polluting than gas-powered vehicles.

2. The Model S Plaid helps build Tesla‘s reputation for vehicles that are both sustainable and high-performing on account of their batterygenerated power.

3. The Model S Plaid will take market share away from the Porsche 911 and other such cars which are supreme gas-guzzlers.

4. The profits Tesla makes on the Model S Plaid can be used to support its more affordable vehicles.

5. Technologies perfected on models like the Model S Plaid will find their way into the more affordable cars.

No, the Model S Plaid does not make sense for Tesla and the market: 1. Tesla should stay focused on affordable performance—that is what the company is now about.

2. Some higher-end vehicles such as the Model S are fine, but this is going too far in terms of straying from Tesla‘s positioning.

3. Such acceleration and speedy performance may encourage irresponsible driving.

4. The car will not sell a whole lot and is unlikely to generate substantial profits anyway.

The time and resources spent on developing and producing the Model S Plaid could be better spent on multiple initiatives in the lower-end market where competition is rising.

2-13. Tesla has recently gone through a round of big layoffs, including employees working on Tesla electric superchargers, which are necessary to support the charging infrastructure for electric vehicles. As a company committed to sustainability, is it fair for Tesla to lay off thousands of such

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employees at quick notice? (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding and Reasoning) Answer: Students‘ answers will vary based on their perspective of what sustainability entails. Here are some broad guidelines for the discussion: Yes, Tesla should have the same freedom to lay off employees as any other company: 1. Tesla operates in a competitive market and being flexible with respect to the labor force is a part of reacting to the environment.

2. Carrying excess employees on the payroll will ultimately be reflected in higher car prices, hurting customers and ultimately making things even worse for Tesla.

3. Tesla may need a different mix of skilled employees as the company matures and should be able to decide on that mix.

4. Possibly a good fraction of the employees who were laid off were not performing well and should be replaced by more productive hires (this is speculative).

No, Tesla should be constrained when it comes to employee layoffs: 1. Tesla is a champion of sustainability. But sustainability also includes social sustainability. In this context, Tesla has special responsibilities to its workforce compared to most other companies.

2. Tesla was considered a model company for which to work. Such large-scale layoffs damage that reputation and make it difficult to attract top talent.

3. Tesla is sabotaging its own future by cutting back on superchargers because range anxiety is a key adoption barrier for mainstream customers when it comes to all-electric vehicles.

4. Tesla should try harder to channel employees to other jobs and departments within the company.

Tesla should have hired more thoughtfully and carefully in the first place.

Marketing by the Numbers: Amazon versus Walmart Amazon and Walmart are the largest retail companies globally. Even though Amazon‘s portfolio is varied, including cloud services, online retail is the main revenue and profit driver for Amazon. The financial statements of Amazon and Walmart provide information that allows us to compare the efficiency of their marketing efforts. See Appendix 3: Marketing by the Numbers—Marketing Performance Measures for a discussion of marketing profitability measures.

Review the appendix to answer the questions using the following information from the two companies‘ income statements (all numbers are in millions):i (all $ in millions) Sales

Amazon $255,887* 16-49

Walmart $605,881

Gross profit $1,424 $20,428 Marketing expenses (75% of $42 $4,623 selling and general admin expenses) *For this comparison with Walmart, we consider only Amazon‘s net product sales, exclusive of services revenues.

1 Table sales information is from annual reports at https: //bit.ly/4bdMmBK and https://bit.ly/4bfumqR.

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)

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Answer: Let‘s calculate the profit margin, net marketing contribution, marketing return on sales (or marketing ROS), and marketing return on investment (or marketing ROI) for each company.

Profit Margin = Gross Profit / Net sales Profit Margin Amazon = $14240/$255887 = 0.00556 = 0.556%

Profit Margin Walmart = $20,428 ------------------ = 0.0337 = 3.37% $605881 Net Marketing Contribution (NMC) = gross profit – marketing expenses NMC Amazon = $1424- $42 = $1382 NMC Walmart = $20,428,- $4,623 =$15805

Marketing ROS = net marketing contribution --------------------------------net sales $138 Marketing ROS Amazon = ----------------- = 0.0054 = 0.54% $255,887

Marketing ROS Walmart = $15805 ----------------- = 0.0260 = 2.6% $605881 Marketing ROI = net marketing contribution -----------------------------------marketing expenses

$1382 MROI Amazon = ------------------ = 32.90 = 3290% $42

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MROI Walmart = $15805 ----------------- = 3.418 = 341.8% $ 4,623 As can be seen Walmart has larger sales, gross profits, expenses, net marketing contribution, and Marketing ROS indicating it is more efficient at turning sales into profit after marketing expenses. Amazon has a significantly higher Marketing ROI suggesting it generates a much greater return on its marketing investments, likely due to lower marketing expenses.

Overall, Walmart performs better in terms of profitability and return on sales while Amazon performs better on MROI. The better performing company would depend on the goals – Walmart performs better in terms of profit efficiency while Amazon performs better in terms of marketing efficiency.

2-15. Select two other competing companies and find the income statements in their annual reports online. 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 the expenses in that category are marketing expenses. (AACSB: Communication; Analytic Reasoning; Reflective Thinking).

Answer: Students‘ answers will vary based on the companies they choose. This question is designed to increase their comfort with seeking out and using numbers from financial statements.

Company Case Teaching Notes Company Cases 2 DuPont/6 Chipotle /8 Carhartt See Appendix 1 for teaching notes for the below cases.

Case 2, DuPont: Improving Everyday Life by Solving the World’s Most Challenging Problems. DuPont leads in sustainable innovation, developing biodegradable plastics to reduce environmental impact and create a better tomorrow.

Case 16, Chipotle: An Environmental Sustainability Mission.

Chipotle‘s mission is to ―Cultivate a Better World‖ by transforming fast food through sustainable, ethically sourced ingredients, providing fresh, real food that‘s good for you and the planet.

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Case 7, Carhartt: A Rugged Brand Embraces a Growing Women’s Wear Market.

Carhartt is revolutionizing women‘s workwear by combining durability with style and comfort tailored for women. Carhartt supports the growing number of women in labor-intensive jobs.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

5.

6.

7.

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.

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. Even using close competitor brands can help student understand position: Walmart v. Target or Dunkin‘ v. Starbucks.

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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 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?

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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 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

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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?

CHAPTER 3 ANALYZING THE MARKETING ENVIRONMENT Objectives Outline 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.

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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.

Previewing the Concepts 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 and physical, 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 BEST BUY: Thriving in a Fast-Changing Marketing Environment Best Buy‘s transformation highlights how adapting to external environmental trends can help a company overcome significant market disruptions. This case emphasizes Best Buy‘s ability to respond to changes in consumer behavior, technological advances, and competitive pressures by reshaping its strategy to thrive in the omnichannel retailing landscape.

Key External Environmental Trends and Changes 1. Technological Advancements o Rise of E-commerce: Online retailers, especially Amazon, reshaped consumer expectations with lower prices, broader selections, and convenient shopping. o Smartphone Usage: Enabled ―showrooming,‖ where consumers compared prices online while visiting physical stores.

Response: o Price-matching policies neutralized price advantages of online competitors. o Invested in omnichannel capabilities, integrating digital and physical channels for a seamless shopping experience.

2. Shifts in Consumer Behavior

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o Increased preference for convenience, fast delivery, and integrated

shopping experiences. o Growing demand for expert advice and personalized solutions in

complex technology products.

Response: o Enhanced services like Geek Squad and Home Experts to provide

tech support and personalized home solutions. o Introduced same-day and next-day delivery options, curbside pickup,

and virtual consultations.

3. Competitive Landscape o Competitors such as Circuit City and CompUSA failed to adapt, leaving Best Buy as a surviving brick-and-mortar electronics retailer. o Collaborations with major tech brands allowed Best Buy to differentiate itself from online-only competitors.

Response: o Partnered with brands like Apple and Samsung to create ―storewithin-a-store‖ showcases, offering exclusive customer experiences.

4. Demographic and Lifestyle Trends o Increasing consumer focus on connected homes, smart technologies, and personalized experiences.

Response: o Refreshed store layouts to emphasize emerging trends such as home theaters, smart homes, and smartphones. o Expanded product assortments and launched experiential and smaller stores to cater to diverse consumer needs.

5. Economic and Competitive Pressures o Cost pressures from operating physical stores while competing with leaner, online-only retailers.

Response: o Leveraged physical stores as local fulfillment hubs for fast delivery and integrated services. o Experimented with smaller, efficient store formats and virtual stores to reduce costs while maintaining consumer engagement.

Takeaway Best Buy‘s evolution reflects its ability to analyze and respond to external environmental forces. By embracing technological trends, addressing consumer needs, and differentiating itself in an increasingly competitive landscape, Best Buy has successfully positioned itself as a leader in the omnichannel retail space.

Use Key Term Marketing Environment here.

Use Chapter Objective 1 here.

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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 and profitable relationships with target customers.

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

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

Use Key Terms Microenvironment and Macroenvironment here.

Use Discussion Question 3-3 here.

Use Critical Thinking Exercise 3-8 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 and costs—rising supply costs, supply shortages or delays, labor strikes, natural disasters, and other events can cost sales in the short run and damage customer satisfaction in the long run.

Most marketing managers treat their suppliers as partners in creating and delivering customer value.

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

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to final buyers.

Use Key Term Marketing Intermediaries here.

Use Discussion Question 3-1 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 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 Publics 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.

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Customers Use Discussion Question 3-5 here.

Five types of customer markets: 1. Consumer markets are 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.

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 are 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.

The world‘s large and highly diverse population poses both opportunities and challenges.

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 336 million and may reach almost 350 million by the year 2030.

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

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The Baby Boomers There are currently 69 million baby boomers, born between 1946 and 1964.

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

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

Baby boomers are the fastest-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 65 million people born between 1965 and 1976. Author Douglas Coupland calls them Generation X. Often overlooked as an ―in-between‖ consumer group, they are less materialistic than other groups while seeking success. They can be skeptical, eschew marketing pitches, research products heavily, and prefer quality to quantity.

Millennials (also called Generation Y or the echo boomers) Born between 1981 and 1996, 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 between 1997 and 2012.

In the U.S., Gen Zers consist of 80 million girls and boys (kids, tweens, and teens) who spend an estimated $143 billion annually of their own money and influence up to $360 billion of their parents’ spending.

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

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

Generation Alpha Born after 2012.

They will be the most formally educated generation ever, the most technology-supplied generation, and globally the wealthiest generation ever. They are already influencing household buying decisions of their mostly millennial parents. And they are also educating their parents about new brands and products.

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 3-2 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 25 percent.

19 percent of all new marriages are interracial or interethnic.

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

More than 55 percent of all women are now employed.

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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 urban areas.

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

In 2022, 91 percent of the U.S. population over age 25 had completed high school and 38 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.

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 58.9 percent non-Hispanic white, 19.1 percent Hispanic or Latino American, 13.6 percent Black or African American, and 6.3 percent Asian American.

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, of which 7 percent of US adults identify with, which has a buying power of $3.7 trillion globally.

Another attractive segment is the 15 to 20 percent of U.S. adults with disabilities. While often overlooked, they represent about $13 million in spending power. Marketers who are able to adapt their products and services will appeal to this segment.

Use Marketing at Work 3.1 here.

Use Critical Thinking Exercise 3-9 here.

Use Linking the Concepts here.

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The Economic Environment Use Key Term Economic Environment here.

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

The Great Recession of 2008 to 2009 and the COVID-19 pandemic have caused consumers to think frugally. They are looking for greater value in what they do buy.

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

Marketers should pay attention to and forecast the movements of key economic variables such as income, cost of living, and savings and borrowing patterns.

Use Critical Thinking Exercise 3-8 here.

THE NATURAL AND TECHNOLOGICAL ENVIRONMENTS The Natural Environment The natural environment involves the physical environment including the natural resources that affects or is 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 out of concerns for the natural environment.

Use Key Terms Natural Environment and Environmental Sustainability here.

Use Chapter Objective 3 here.

Use Critical Thinking Exercise 3-7 here.

Use Marketing by the Numbers here.

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

Use Key Term Technological Environment here.

Use Discussion Question 3-6 here.

Use Digital Marketing and AI here.

Use Critical Thinking Exercise 3-9 here.

Technology has released such wonders as antibiotics, robotic surgery, miniaturized electronics, laptop computers, and the internet.

Digital technologies and the have created a brave new world of marketing. The digital world is affecting every aspect of how consumers learn about, shop for, buy, and experience brands. Many new technologies replace older technologies.

THE POLITICALSOCIAL 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 and maintain competitive markets.

2. To protect and inform consumers from unfair business practices.

3. To protect national and societal interests 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.

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

Use Marketing Ethics here.

Use Marketing at Work 3.2 here Cause-Related Marketing Many companies are now linking themselves to worthwhile causes to demonstrate their social responsibilities and build a positive brand image.

Other brands practice brand activism by taking a stand on social, political, and environmental issues. To be effective, brand activism must be backed by authentic and long-term commitment and action.

The Cultural Environment Use Key Term Cultural Environment here.

Use Critical Thinking Exercise 3-7 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 should examine core and secondary cultural shifts 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, and they buy products and services that match their views of themselves.

People’s Views of Others Shifts in people‘s attitudes toward and interactions with others have shifted over time.

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Today‘s digital technologies seem to allow people to connect more than ever, even if differently than in the past. However, there is an emergence of an ―alone together‖ phenomenon.

People’s Views of Organizations The past two decades have seen a sharp decrease in confidence in and loyalty toward America‘s business and political organization and institutions.

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.

Despite sharpening political divides, American patriotism has been increasing gradually for the past two decades. Companies have been running patriotic ads and promotions in response to this shift.

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

Global sales of natural foods total $200 billion. Similarly, organic, natural, and ethical beauty and personal care products are growing strongly.

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

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

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. To help, some companies engage in scenario analysis.

Use Chapter Objective 5 here.

Use Marketing at Work 3.2 here.

Use Discussion Question 3-4 here.

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END OF CHAPTER MATERIAL Discussion and Critical Thinking 3-1. How do the different components of a firm‘s value creation and delivery network help create value and satisfaction? (AACSB: Written and Oral Communication; Reflective Thinking)

Answer: Within the company, functional areas such as top management, marketing, finance, R&D, IT, purchasing, operations, human resources, and accounting must work in cooperation and coordination to create and deliver value. Top management—including the company‘s top marketers—sets the company‘s mission, objectives, broad strategies, and policies. Marketing managers make decisions within the articulated mission and high-level strategies. The internal groups must also coordinate with external components of the value network to ensure that value is created, delivered, and extracted in ways that are efficient and profitable.

Key value network components on the external side include suppliers who provide resources and parts needed to produce the firm‘s products, and marketing intermediaries including resellers, physical distribution firms, marketing services agencies, and financial intermediaries who help the firm sell, distribute, promote, finance, and conduct transactions for products. The firm must coordinate with these external value network partners to ensure the profitable creation and delivery of value.

Modern customers don‘t just consume value—they can also serve as product co-creators and brand champions. Therefore, they can be seen as part of the external value network. The firm must engage customers to create the best products that serve their needs well—and thus drive profits.

The company must recognize that competitors can help create and deliver value. For example, a competitor may introduce and popularize a new technology. The company must be ready to ride on the created demand.

Finally, public entities can create regulations and policies that impact value creation, delivery, and extraction. Thus, it is in the best interest of companies to work within the bounds of regulations and treat customers fairly.

3-2.

What is demography? Provide one example of why marketers should pay attention to trends in this part of the marketing environment. (AACSB: Written and Oral Communication; Reflective Thinking) 16-73

Answer: Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other characteristics. The demographic environment is important because it involves people, and people make up markets. Marketers must closely track demographic trends and developments. For example, the age distribution in the United States is changing shifting upwards due to falling birth rates and longer life expectancy. This creates substantial opportunities for money management firms and age-based communities.

3-3.

What are the environmental forces that affect the company‘s ability to serve its customers? (AACSB: Written and Oral Communication; Reflective Thinking)

Answer: The environmental forces affecting a company‘s ability to serve its customers are: 1. The Microenvironment: This consists of actors close to the company such as suppliers, marketing intermediaries, competitors, publics and customers.

2. The Macroenvironment: This consists of the societal forces such as demographic, economic, natural, technological, political, and cultural forces.

3-4.

What is scenario analysis? Do research and provide an example of how it helps companies prepare to respond to the disruptions in the marketing environment. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Scenario analysis is the art and science of preparing for multiple imagined futures. To conduct scenario analysis, managers work in teams to predict multiple futures (scenarios) that may happen and then develop contingency plans for each potential scenario. This allows managers to quickly recognize if the future is trending in a particular direction and to efficiently deploy the best plan for that future. By engaging in scenario analysis, companies are better able to understand and prepare for possible futures.

There is no specific example in the book. That is why the question encourages students to do some research. Here is an example the instructor could use. Shell Oil uses scenario analysis to analyze and respond to forces that impact the global oil market. They use scenario analysis to prepare for the future by considering various potential

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situations and outcomes related to the global oil supply including economic slowdowns, natural disasters, geopolitical crises, or sudden changes in oil prices. By examining a spectrum of different potential situations and outcomes, typically ranging from a best-case to worst-case scenario, Shell is able to better prepare for an uncertain future.

3-5.

What are publics in the marketing context? Why are they important to marketers? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Publics (either organized as a group or not) have either a direct or indirect association with an organization. They can be customers, investors, the media, employees, or anyone else who interacts with the organization. They can influence the way the organization is able to meet its objectives.

3-6.

How should companies prepare for shifts in the technological environment? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies are increasingly being challenged by rapid technological developments. To prepare for these shifts, companies must: 1. continuously monitor trends and advancements in technology that are relevant to their industry.

2. allocate resources to R&D that can help companies innovate and adapt technologies that keep them competitive.

3. constantly ensure that staff are trained on new technologies—that will help companies integrate new technologies, such as those related to AI application, more smoothly.

4. incorporate technology forecasts into strategic plans to help companies anticipate changes and adapt their business models accordingly.

5. create flexible business processes—this allows companies to adjust more easily as new technologies emerge.

6. partner with technology-intensive companies to help provide insights into technological developments.

7. engage in early assessments of how technological changes could impact the firm negatively—this will help the firm proactively mitigate potential risks associated with those technologies.

8. lastly, in the pursuit of customer-centric marketing, the company must explore how emerging technologies affect customer behavior—this can guide technology investments at the firm-customer interface.

Critical Thinking Exercises

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3-7.

Oatly, a Swedish company known for its oat-based dairy alternatives, is navigating the challenges of rapid growth in a competitive market. With a strong commitment to sustainability and health, Oatly is popular for its innovative products like its oat-based milk, ice cream, and yogurt.

However, as the company grows, it faces many challenges. First, Oatly has struggled with supply shortages due to the growing demand for plantbased milk. This has prevented it from ramping up capacity as quickly as expected. Second, Oatly has faced many operational challenges. For example, its U.S. production slowed after its new self-manufacturing facility in Utah experienced mechanical and automation issues. And in the UK, sales were $1 million lower than hoped because of driver shortages that delayed deliveries. Third, Oatly faced backlash over its advertising campaign and retracted advertisements after they were found to have made unsubstantiated environmental claims. Finally, nutritionists have raised concerns about the effects of oat milk, including blood glucose spikes, bloating, skin issues, and protein deficiency. Some nutritionists have claimed that oat milk is nutritionally equivalent to a glass of sugary water. Given these challenges, what strategic steps should Oatly take to improve its market position? Consider the implications of each step and provide a rationale for your recommendations. (AACSB: Written and Oral Communication; Reflective Thinking, Integration of Real-World Business Experiences) Answer: Students answers will vary based on their strategic outlook. But here are some ideas: 1. Supply shortages: Oatly can establish partnerships with local farmers to secure a steady supply of oats. It could consider other grains as potential sources of non-dairy milk, and maybe even offer some milk blends that do not rely too much on one grain.

2. Manufacturing issues: Oatly could hire experienced engineers to troubleshoot and optimize their production lines. It could implement a comprehensive quality management program, with frequent quality checks. It could invest in training employees on quality standards and management. It could consider implementing lean manufacturing principles to eliminate waste and improve efficiency.

It could build backup production plans that kick in when one production line goes down. It could build stronger labor relations and build an image of a fair employer who deserves the best from employees. It could also have backup supply chain arrangements in place if needed.

3. Misleading claims: Oatly should establish a dedicated council, including legal staff, to ensure that all marketing materials are

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compliant with advertising standards. They should conduct scientific tests to verify the truthfulness of their claims. They should build the entire value network to uphold high standards of sourcing, manufacturing, and distribution. They should establish open and honest lines of communication with stakeholders within and outside the company about their products and their effects.

4. Nutritional concerns: Oatly could collaborate with nutritionists and food scientists to improve the nutritional profile of their products. It could conduct internal research to identify nutrients that could be added to their products without affecting taste or texture. It could launch a line of fortified products that cater to specific dietary needs. With improved products, it could work to gain high-profile endorsements from nutritionists that it can display on its websites and ads.

3-8.

The metals and mining sector is responsible for about 25 percent of the reported greenhouse gas emissions by the world‘s 12,000 largest companies. Top companies such as Codelco in Chile, Tata Steel in India, and BHP in Australia are in a race to produce lower-carbon products compared to their competitors. How would you recommend they publicize their changing approach to emissions to the wider public? (AACSB: Written and Oral Communication) Answer: Many companies are beginning to realize that being seen as good corporate entities gives them a huge potential competitive edge over the opposition, particularly if some of the competitors are still seen as essentially ―dirty‖ or ―polluting‖. A good place to look at the responses of these corporates is https://www.bloomberg.com/news/articles/2021-10-21/how-metals-and-miningcompanies-are-adapting-to-a-greener-world. Student answers will vary based on their personal responses, but the message needs to be simple and non-technical.

The image of these extraction companies is not favorable. It also seems that single-extraction companies are making the most progress while conglomerates that extract multiple ores and raw materials are lagging behind.

3-9.

Businesses have seen a significant shift toward remote work and digital collaboration. There is much debate about the use of virtual reality (VR), augmented reality (AR), and mixed reality (MR) technologies for both professional and personal purposes. Thinking ahead, how might these technologies be used by marketers? Come up with some practical and tangible ideas. (AACSB: Written and Oral Communication; Reflective Thinking, Integration of Real-World Business Experiences) Answer:

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There is a lot of hype in this area, and marketers and companies are still feeling their way through it. Here are some potential applications. The instructor can use the links to demonstrate and discuss the possibilities with students: 1. Product experiences: IKEA uses MR to show how its products will look in a customer‘s home (see bit.ly/3yk8Ke8).

2. Creating AR images: Samsung has partnered with Snapchat to directly integrate its AR filters into its Galaxy A Series phones, allowing users to efficiently morph photos and images.

3. Generative AI platforms: These can help with morphing existing images to accommodate new elements such as brands.

4. Customization: Checking how accessories such as sunglasses would look on the customer before purchasing them.

5. Avatars for gaming: Create customer-based avatars including personality traits to navigate virtual worlds (see bit.ly/4auR7Wi).

6. Complex product design: Getting multiple suppliers to work in a coordinated way on complex virtual product designs (see bit.ly/4bJntxL).

Minicases and Applications Digital Marketing and AI ClickUp’s AI Implementation ClickUp, a productivity platform that positions itself as ―one app to replace them all,‖ aims to get everyone working on a single platform to manage any type of work (visit www.clickup.com). In addition, ClickUp has developed an AI-powered tool called ―ClickUp Brain,‖ positioned as ―The world's first neural network connecting tasks, docs, people, and all of your company‘s knowledge with AI.‖ Users can use ClickUp in any number of ways. For example, consider a user who is designing a website for their business. ClickUp uses AI tools to drive Search Engine Optimization (SEO)—which involves increasing the likelihood of a site being pulled up and presented in response to a search engine query.

ClickUp identifies high-performing keywords and gains insights into the ideal article structure to maximize SEO. Thus, ClickUp can guide a website designer even as they develop a website, prompting them to integrate specific keywords and helping them optimally structure the website and its content—all toward the goal of SEO. Such approaches have boosted the productivity of ClickUp‘s clients by up to 30 percent, improved their alignment across teams, and cut their costs by as much as 75 percent.

3-10. What kind of digital marketing strategy should ClickUp adopt to increase sales and profitability? (AACSB: Written and Oral Communication; Reflective Thinking, Integration of Real-World Business Experiences))

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Answer: Here are some interesting digital marketing strategies of relevance to ClickUp: 1. ClickUp should identify credible influencers with a strong following— including productivity gurus, business coaches, and technology influencers—who can authentically promote ClickUp‘s platform.

2. ClickUp should also identify influencers who are credible industry experts—across industries such as consumer packaged goods, automobile, transportation, health care, and so on—to get them to endorse the relevance and applicability of ClickUp within their focal industries.

3. ClickUp should maintain a strong presence on professional networks such as LinkedIn. 4. Different social media platforms cater to different audiences and content types and ClickUp should tailor their content strategy for each platform. For example, they could use LinkedIn for B2B marketing and thought leadership, Instagram for visual content and stories and customer engagement, and X for updates.

5. ClickUp could collaborate with influencers for content creation, webinars, or live Q&A sessions, thereby providing value to the influencer‘s following and also showcasing ClickUp‘s product features and benefits.

6. ClickUp is primarily targeted at business customers. But it should have a consumer version of the platform. This will enable brand- and reputation-building, which can then spill over into the business space.

7. ClickUp could focus on building a community on social media involving hosting regular AMA (Ask Me Anything) sessions, sharing usergenerated content, and creating a dedicated hashtag for users to share their experiences with ClickUp. 3-11. Imagine you are the product manager of ―ClickUp Brain.‖ You are asked to come up with a new digital marketing strategy to promote the product. Log on to an AI interface of your choice and ask, ―I want to develop a distinctive digital marketing strategy for ClickUp Brain that stands out, focusing on innovative approaches that are not currently in use by ClickUp. Please suggest some ideas.‖ Evaluate the response. What would you implement and what would you not? (AACSB: Written and Oral Communication; Reflective Thinking, Integration of Real-World Business Experiences) Answer: Students‘ answers may vary based on the interface they use. We prompted ChatGPT with the same question and here is the answer (paraphrased from ChatGPT): 1. Create an Interactive Learning Platform: Develop a gamified learning 16-79

hub where users can take courses on productivity, project management, and using ClickUp Brain. Offer certificates and badges upon completion to incentivize participation.

2. AR/VR Demonstrations: Create immersive AR and VR experiences that allow users to explore ClickUp Brain‘s features in a virtual environment. This can be used for virtual tours, interactive tutorials, and virtual conferences.

3. Create an Exclusive VIP Community: Establish a VIP community for top users and brand advocates. Offer them early access to new features, exclusive content, and special events. This can help build strong loyalty and generate word-of-mouth promotion.

4. Launch a Sustainability Campaign: Align with the growing trend of sustainability by launching a campaign that highlights how ClickUp Brain can help organizations go paperless and reduce their carbon footprint. Share success stories and case studies on how using ClickUp Brain contributes to sustainability.

5. Produce an Influencer-Led Web Series: Collaborate with influencers to create a web series focused on productivity hacks, project management tips, and real-life applications of ClickUp Brain. This content can be shared on YouTube, IGTV, and other video platforms.

6. Host User-Generated Content Challenges: Encourage users to create content around how they use ClickUp Brain through challenges and contests. Reward the best submissions with prizes and feature them on official channels.

7. Organize Hackathons: Host hackathons and innovation contests to encourage developers to create new integrations and add-ons for ClickUp Brain. This can drive engagement and foster a community of innovators around your product.

The instructor should make the following points in conclusion: 1. ChatGPT knows a whole lot about ClickUp Brain! The instructor can ask students to raise their hands if they know about ClickUp Brain before the class to set up a comparison.

2. The ideas provided by ChatGPT are useful and particularly relevant to the ClickUp business model. Some of them go beyond what we came up with in Question 3.10.

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Marketing Ethics Alexa Is HIPPA Compliant but …

People typically use Amazon‘s Alexa AI virtual assistant to play music, answer questions, schedule tasks and appointments, shop, and manage smart home devices. In 2019, Alexa was certified as compliant with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), a federal law requiring the creation of national standards to protect sensitive patient health information from being disclosed without the patient's consent or knowledge. Developing the proper physical, administrative, and technical safeguards needed to keep health information secure has allowed Alexa to expand into health care. For example, Alexa has expanded into senior and assisted-living communities. In addition to setting reminders to manage daily living activities such as grooming, homemaking, and leisure, Alexa has helped people manage health care tasks in novel ways. Thus, Alexa is thriving in a fast-changing market. Being able to manage daily tasks and health care by voice can potentially benefit everyone.

But there are multiple concerns with doing this. And doing so through global tech giant Amazon invites additional ethical concerns, such as whether and when the pursuit of profits trumps the goal of enhancing health care for Alexa users.

3-12. Discuss three pros and three cons of using Alexa devices for health care.

(AACSB: Written and oral communication; Reflective thinking; Ethical Understanding and Reasoning) Answer: Students will come up with a range of ideas. Some arguments in favor of using Alexa in health care are the following: 1. Caregivers can consistently remotely monitor well-being.

2. Devices are easy to use for scheduling reminders (e.g., to take medicine), which is critically important for many patients.

3. Communicating with health care givers providers is more efficient.

4. Alexa can use AI-powered algorithms to detect when something is ―off‖ with the user, alerting their doctor‘s office.

5. Alexa can possibly make ordering for medications easier by translating and communicating spoken instructions more formally to the pharmacy; for example, the patient might just need to say: ―Alexa, reorder my blood pressure medication as usual.‖ Some arguments against using Alexa in health care are as follows: 1. Privacy concerns related to data captured by Amazon or other organizations.

2. Older users and users with serious illness being particularly susceptible to advertising, including deceptive advertising that might tag along.

3. Potential for hackers to engage in intrusive voice and video 16-81

surveillance, and financial fraud. This is particularly a concern for older customers.

4. Mistakes in translation of instructions, leading to negative outcomes.

5. Patients leaning too much on Alexa for medical information instead of relying on their doctors.

6. Patients who struggle without access to Alexa in case of power outages or other emergencies. These patients may have ―forgotten‖ other (non-digital) ways of getting things done.

3-13. Consider the case where Alexa becomes a common and useful part of the health-care ecosystem, leading to better coordinated, higher-quality care for Alexa users. Might this deepen the social divide between socioeconomic groups related to health-care access? (AACSB: Written and oral communication; Information Technology; Reflective Thinking) Answer: While the use of Alexa is appealing and useful on many fronts, it can deepen the divide related to health-care access because of the following: 1. Patients with low income who cannot afford such smart devices can fall further behind.

2. Patients with less education who are less tech-savvy and are uncomfortable using the technology can fall further behind.

3. Rural areas with poor technology infrastructure and connectivity can fall behind.

Younger generations are much more into technology, irrespective of their income levels. This provides hope that these gaps will be better bridged in the future.

Marketing by the Numbers Nike’s Sustainability Promise In recent years, there has been a growing trend in the social environment toward sustainable and ethical fashion. Consumers are preferring brands that demonstrate a commitment to environmental responsibility and ethical labor practices. This trend is particularly strong among younger consumers who support brands that align with their values. Nike, as a leading global sportswear brand, faces the challenge of transitioning its production and supply chain processes to more sustainable practices. This includes using eco-friendly materials, reducing carbon emissions, and ensuring fair labor practices throughout its supply chain. While Nike has made strides in this area, such as the launch of its ―Move to Zero‖ campaign aimed at achieving zero carbon and zero waste, the shift requires significant investments and innovation. In 2021, Nike used recycled polyester extensively, particularly in its football kits, which were made entirely from recycled polyester fabric derived from plastic bottles. By

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2022, Nike incorporated recycled materials into 78 percent of its products across its main brands: Nike, Jordan, and Converse.

3-14. Nike‘s use of recycled polyester from 2021 to 2022 rose from 20,000 tons to 28,000 tons. Calculate the percentage increase in its use of recycled polyester. (AACSB: Written and Oral Communication; Analytical Reasoning)

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Answer:

3-15. How has Nike‘s transition using recycled plastic bottles affected its carbon footprint? Do some internet research to answer this question. (AACSB: Written and Oral Communication; Analytical Reasoning) Answer: Estimates available on the internet show that one 500-milliliter (0.53 quarts) plastic bottle of water has a total carbon footprint equal to 82.8 grams (about 3 ounces) of carbon dioxide. But this includes the manufacturing of the bottle material, the transport of the bottle, and so on.

PET resin, resembling grains of rice, is the source material for plastic PET bottles. The energy to produce PET resin represents about 30 percent of the total carbon footprint of a 500-milliliter plastic bottle. Thus, Nike ―saves‖ approximately 0.3 x 82.8 grams = 24.8 grams of carbon dioxide per bottle by using recycled polyester.

Therefore, Nike saves 400,000,000 x 24.8 grams = 9,920,000,000 grams of carbon dioxide.

This translates into 9,920,000 kilograms or 9,920 tons of carbon dioxide of emissions incrementally ―saved‖ or prevented from being emitted by Nike from 2021 to 2022.

Interesting discussion point for the instructor: This saving does not include the carbon footprint associated with waste generation—carting the bottle to landfills, the possible leak of plastics into the ocean, and the slow degradation of the discarded plastic. Therefore, Nike‘s incremental reduction in the carbon footprint is likely to be more than 9,920 tons.

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Company Case Teaching Notes Company Cases 3 SiriusXM/14 Telly/5 Harley-Davidson See Appendix 1 for teaching notes for the below cases.

Case 3, Sirius XM: Competing in a Morphing Industry. SiriusXM, a pioneer in satellite radio, is adapting by integrating satellite and streaming services. It leverages exclusive content and celebrity channels to offer a unique, curated listen experience.

Case 14, Telly: The Free TV Gamble. Telly aims to revolutionize home entertainment by offering free smart TVs with a secondary ad screen.

Blending AI and personalized content, Telly balances consumer value with advertiser ROI to redefine TV-watching.

Case 5, Harley-Davidson: Selling Freedom, Independence, Power, and Authenticity. Harley-Davidson embodies freedom, independence, and authenticity. Facing market shifts, it strives to balance its iconic legacy with strategies to attract a new generation of riders.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

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 macro trends as something that needs to be understood but not memorized helps. Pointing out how GenAI could be used might be helpful here: While GenAI can identify trends, student (marketing managers) must assess their creditability and applicability to their industry.

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.

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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 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?

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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 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

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



 

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 social media posts from a business or product 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?

CHAPTER 4 MANAGING MARKETING INFORMATION TO GAIN CUSTOMER INSIGHTS Objectives Outline 4-1.

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

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4-2.

Define the marketing information ecosystem 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 public policy and ethics issues in managing marketing information and marketing research.

Previewing the Concepts This chapter continues to explore how marketers gain insights into consumers and markets.

This chapter looks at how companies develop and manage information about customers, competitors, products, and marketing programs.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP NIELSEN: A New Era of Marketing Research and Customer Insights Nielsen is a leading player in marketing research, specializing in providing comprehensive consumer insights through both traditional and innovative methods. The company has evolved significantly since its founding in 1923, adapting to the complex digital information landscape while maintaining its reputation for accuracy and actionable data.

Nielsen‘s traditional marketing research strengths lie in their retail scanner data and TV viewing panels that provide ratings data. They have adapted and innovated by expanding the sources of their viewing data to included streaming platforms. And they‘ve partnered with other companies to develop new tools such as automatic content recognition and Digital Content Ratings. They‘ve developed tools such as Digital Ad Rating (DAR) that allow businesses to measure digital campaign effectiveness across different social media platforms.

Nielsen has been able to leverage their marketing research tools and customer insights to gain a competitive advantage in the marketplace. They have been able to help clients such as LG develop more in-depth customer segments. DAR helps clients refine their ad campaigns in real-time, helping to improve effectiveness.

Nielsen continues to innovate with tools like Nielsen ONE, aiming to provide unified cross-media measurements. Its focus on integrating traditional and digital research methods positions the company as a critical player in helping

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businesses navigate the complexities of modern marketing and consumer behavior. Through its mix of established research methodologies and cuttingedge analytics, Nielsen delivers actionable insights that empower marketers to understand and adapt to rapidly changing consumer and market dynamics.

MARKETING INFORMATION AND CUSTOMER INSIGHTS To create value for customers and build meaningful and profitable relationships with them, marketers must first gain deep insights into their needs and wants.

Companies can use these customer insights, which often derive from good marketing information, to develop a 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 data generation, collection, storage, and analysis technologies.

Developing Customer Insights The real value of marketing research and marketing information lies in how it is used—in the customer insights that it provides.

Advances in analytics technologies such as artificial intelligence and machine learning are helping automate the process of quickly wading through and gaining insights from available data.

Using AI and data analytics technologies, companies now often analyze performance, conduct marketing research, and gain insights in real time.

The Marketing Information Ecosystem Companies must adopt a systematic marketing information collection and management ecosystem to gain timely and relevant insights.

A marketing information ecosystem (MIE) consists of people, processes, and assets 16-91

dedicated to assessing managers‘ information needs, developing the needed information, and helping managers and decision makers apply that information to generate and validate actionable customer and market insights.

Use Key Terms Big Data, Customer Insights, and Marketing Information Ecosystem here.

Use Chapter Objectives 1 and 2 here.

Use Marketing at Work 4.1 here.

Use Discussion Question 4-1 here.

Use Figure 4.1 here.

ASSESSING INFORMATION NEEDS AND DEVELOPING DATA Assessing Information Needs 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 the cost of providing the additional information is not worth the value of the insights.

The MIE must help managers define their information needs well, avoiding both an oversupply of unneeded data and a scarcity of useful data.

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

Internal Data Use Key Term Internal Databases 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:   

It may be incomplete or poorly structured 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.

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Use Key Term Competitive Marketing Intelligence here.

Competitive Marketing Intelligence

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

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

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 Discussion Question 4-3 here.

Use Marketing Ethics here.

MARKETING RESEARCH Marketing research is the systematic design and execution of initiatives to collect, analyze, and report data, information, and insights relevant to a specific marketing situation facing an organization.

Use Figure 4.2 here.

Use Discussion Question 4-2 here.

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

Defining the Problem and Research Objectives Defining the problem and research objectives is a critical but often hard step in the research process.

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

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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 market and consumer characteristics, such as the market potential for a product or the demographics and attitudes of consumers who buy the product 3. Causal research: to test hypotheses about cause-and-effect relationships

Developing the Research Plan The research plan outlines the managerial problems addressed, the research objectives, the proposed data sources, the specific research approaches, contact methods, sampling plans, and the data collection instruments. It also lays out the analytical approaches to be applied to extract insights from the collected data.

Research objectives must be translated into specific information needs.

The research plan should be presented in a written proposal, including estimated research costs.

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 searches 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.

Use Key Term Secondary Data here.

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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 Approaches In most cases, a company must also collect primary data.

Use Key Term Primary Data here.

Use Table 4.1 here.

Observational Research 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 environments.‖ 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.

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

Use Key Term Survey Research here.

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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.

Sampling Plan A sample is a fraction 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)?

Use Linking the Concepts here.

The two types of samples are:  

probability samples nonprobability samples

Interviews and Focus Groups Through interviews, researchers engage participants in one-on-one, semi-structured but open-ended conversations that can reveal deep or unexpected insights.  

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

Focus group interviewing consists of inviting a small, carefully chosen group of people to meet with a trained moderator to talk about a product, service, or organization. o Today, online focus groups are common.

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Use Key Term Interviews here.

Use Key Term Focus Group here.

Use Key Term Online Focus Groups here.

Use Critical Thinking Exercise 4-7 here.

Customer Insight Communities Increasingly, companies have developed their own online ―customer insight communities‖ where they gain feedback. These are ongoing physical or online panels or communities of engaged consumers who interact, provide input, and take part in research projects.

Use Key Term Customer Insight Communities here.

Experimental Research This is best suited for gathering causal information. It involves selecting matched groups of participants and giving them different treatments or options to try to establish a clear relationship between a marketing action and its effects.

Use Key Term Experimental Research here.

Digital Text Analysis Using AI, companies can analyze text data to identify relevant posts and trends, underlying consumer sentiment, and key insights.

Digital, Mechanical, and Biosensors Researchers are increasingly using smart sensors to monitor consumer behavior and market developments. The use of internet-connected sensors, also called the Internet of Things (IoT), has proliferated.

Use Key Term Digital Text Analysis here.

Use Key Term Digital, Mechanical, and Biosensors here.

Online Tracking and Targeting Online tracking captures unsolicited, spontaneous, unstructured, real-time consumer behaviors and opinions. Website ―cookies‖ are essential to this process, though increasingly causing privacy concerns.

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

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Behavioral targeting is the practice of marketers using online data to target ads and offers to specific consumers. Automated algorithms can place digital ads in front of the consumer at critical points.  Locational targeting is based on geographic proximity to a store/brand.  Social targeting mines individual social networking activity to target ads.

These types of targeting are fraught with privacy concerns. Marketers much understand the line between understanding and serving the customer better and abusing their privacy rights.

Use Key Term Online Tracking here.

Use Key Term Behavioral Targeting here. use Discussion Question 4-4 here.

IMPLEMENTING THE RESEARCH PLAN The researcher puts the marketing research plan into action to collect, process, and analyze the data. This included identifying important information and insights.

INTERPRETING AND REPORTING THE FINDINGS Market researchers must consolidate and interpret the findings, draw conclusions, and report them to management.

Use Linking the Concepts here.

ANALYZING AND USING MARKETING INFORMATION Managing Customer Experiences 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.

Use Marketing by the Numbers here.

CRM integrates everything that a company knows about individual customers to provide a 360-degree view of the customer relationship and then optimize all tough points and experiences to enhance customer loyalty, share of wallet, and lifetime value.

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Big Data, Marketing Analytics, and Artificial Intelligence Big data by itself 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.

Rather than relying entirely on their own marketing analytics capabilities, many brands now rely on outside firms that specialize in marketing analytics to improve customer experiences.

Use Key Term Marketing Analytics here.

Use Marketing at Work 4.2 here.

Use Critical Thinking Exercise 4-8 here.

Use Digital Marketing and AI here.

Distributing and Using Marketing Information Marketing information has no value until it used to make better marketing decisions.

Thus, the marketing information system must be readily available to managers and others who need it.

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.

Use Critical Thinking Exercise 4-6 here.

PUBLIC POLICY AND ETHICS IN MARKETING RESEARCH Use Chapter Objective 5 here.

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Use Marketing Ethics here.

Intrusions on Consumer Privacy While many consumers believe marketing research serves a useful purpose, some consumers strongly resent or even mistrust marketing research.

Failure to address privacy issues could result in angry, less cooperative consumers and increased government intervention. The best approach is for researchers to ask only for the information they need, use it responsibly to provide customer value, and avoid sharing information without the customer‘s permission.

The marketing research industry is considering ways to respond to intrusion and privacy issues. Many companies are now appointing chief privacy officers (CPOs).

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

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.

Why is obtaining deep customer insight critically important in designing an effective marketing strategy? Why has ―speed to insight‖ become more important in recent times? (AACSB: Written and Oral Communication; Reflective Thinking).

Answer: Obtaining deep customer insight is essential in marketing because it helps marketers understand exactly what their customers want and need. This knowledge lets them create products and strategies that appeal directly to them.

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With the rise of the internet and social media, trends and customer preferences change rapidly. In parallel, competitors are able to roll out new and modified strategies at short notice. Therefore, gaining these insights quickly, or developing ―speed to insight,‖ has become crucial. It enables businesses to respond to market changes swiftly, staying ahead of competitors, engaging customers, and meeting customer demands in real time.

4-2.

Explain how internal databases differ from marketing intelligence. What are some advantages and disadvantages of both? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Internal databases are collections of consumer and market information obtained from data sources within the company‘s network. Harnessing such information can provide powerful customer insights and competitive advantage. However, there is a risk that internal databases will be leaked to competitors.

Marketing intelligence, on the other hand, is the systematic monitoring, collection, and analysis of publicly available information about consumers, competitors, and developments in the marketplace with the objective of improving strategic decision making. Good marketing intelligence can help marketers gain insights into how consumers talk about and engage with their brands. However, the growing use of marketing intelligence also raises ethical issues; some intelligence-gathering techniques may involve questionable ethics.

4-3.

Marketers make heavy use of both open-ended and closed-ended questions in questionnaires. What are some of the benefits or drawbacks of using each of these types of questions? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Open-end questions are especially useful in exploratory research, when the researcher is trying to find out what people think. However, these questions are not useful in measuring how many people think in a certain way. Closed-end questions provide answers that are easier to interpret and tabulate; however, they tend to limit respondents‘ answers.

4-4.

How can marketers use big data and artificial intelligence to target consumers behaviorally? (AACSB: Written and Oral Communication).

Answer: Marketers can use big data analytics and artificial intelligence (AI) to analyze vast amounts of data from various sources to understand patterns in purchasing and preferences. Further, AI algorithms and analytics can drill down to help predict preferences and behaviors at the individual customer level. This allows for more effective behavioral targeting by 16-101

tailoring advertisements, messages, and offerings at the individual level.

Additionally, AI-driven tools like chatbots can enhance customer interaction, providing personalized recommendations and support.

However, marketers must balance these enticing possibilities with ethical considerations and data privacy compliance.

4-5.

What are some new marketing research approaches that complement traditional approaches? How should the new and traditional approaches work together?

Answer: New approaches that complement traditional marketing research include big data analytics, social media listening, and artificial intelligence. Big data analytics allow for the analysis of vast, complex datasets, providing deeper insights into consumer behavior and trends. Social media listening involves monitoring social media platforms to gather real-time consumer feedback and sentiment, offering a more immediate and authentic understanding of public opinion, and often facilitating real-time responses to customer queries and problems. Artificial intelligence enhances the ability to generate data-driven insights to predict consumer behavior and personalize marketing efforts at the individual customer level.

These newer approaches complement but do not replace traditional marketing research. For example, ethnographic research can provide insights into problems that customers face on a daily basis that cannot be unearthed by the newer technology-intensive techniques. Well-conducted surveys and focus groups can yield rapid, in-depth insights into specific research questions that can be difficult to obtain using broader but non-specific data that is available to the researcher.

Thus, the process of obtaining market and customer insight works best when these approaches are thoughtfully combined and used as a portfolio.

Critical Thinking Exercises 4-6.

Select an episode from ―The Marketing Insider | A Claritas Podcast‖ (available at https://claritas.com/claritas-podcast/) and review it analytically. Identify the central theme and insights related in the episode.

Highlight the key research or studies underlying the episode‘s discussion.

Examine the origins of the data used by Claritas in its analysis, such as Claritas‘ own data, industry studies, or external sources like the U.S. Census. Critically assess the reliability and relevance of the data types presented in the episode. Discuss the podcast‘s presentation style and effectiveness and assess how audiences might receive and interpret the content. Conclude with a practical scenario showing how a digital marketer might apply one of the podcast‘s insights in a real-world context.

(AACSB: Written and Oral Communication; Reflective Thinking).

Answer:

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Student responses will differ based on their chosen episode. Typically, the podcasts blend survey data with secondary data from Claritas research and external sources such as the U.S. Census. Responses should consider the methodologies used for data gathering and the effectiveness of the presentation style. Critique of how the insights are conveyed and suggestions for their application in digital marketing are encouraged, with an emphasis on recognizing any research limitations that might influence the implementation of these insights.

4-7.

Suppose you are a research manager for a telecommunications company conducting market research for a new range of affordable, high-speed internet service packages aimed at lower-income consumers. These packages are unique because they offer relatively high-speed internet at a lower cost, something typically reserved for premium customers. In return, the packages lock in customers for at least a year of service. To gain insights into the proposed new product line, you decide to host an online focus group. You also want to obtain feedback on the marketing campaign that your company plans to run when introducing the new packages. Who should be invited to the focus group and why? What types of information will 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 should represent consumers who are the primary target segments for the product. The larger demographic will include individuals who are price-sensitive and possibly those who currently have limited access to high-speed internet due to cost barriers. Thus, from a demographic perspective, the company may want to focus on low- to medium-income customers, including families that need the speed and bandwidth to serve many users simultaneously. Since the goal is to gain insight about the new internet packages, including both existing customers of your services and potential new consumers who currently use alternative services will bring a diverse perspective.

One decision to consider is whether to conduct separate focus groups for existing and potential customers.

As a market researcher, you need to find out what these consumers really think about the offering. The first issue is determining if potential customers are skeptical about the offer due to past experiences with other internet service providers or due to skepticism towards your brand. Are there negative perceptions about your company‘s service quality or reliability? Is there a history of hidden fees or poor customer support? In addition, market researchers will want to understand the participants‘ current internet usage patterns, challenges with existing services, and priorities when choosing an internet provider.

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Following that, participants can provide valuable feedback on the details about the new high-speed internet packages. Such feedback can address specific features such as speed and data limits (if any), pricing, and potential marketing and promotional strategies. These insights will yield ideas on how best to target and appeal to the targeted consumer segments.

To thank the focus group participants for their valuable time and feedback, offering a reward such as a discount on their future internet bill or a complimentary upgrade could be considered, demonstrating the value the company places on their participation and opinions. But such a reward should be offered as an unexpected surprise after the research effort to avoid biasing participant responses.

4-8.

Suppose that you are a marketing strategist for a fitness app that offers personalized workout and nutrition plans. Your task is to research various online sources for data that reveals real-world customer insights. Your data should reflect user demographics, workout preferences, and subscription trends, along with competitor actions. Then analyze this data to identify potential marketing strategies aimed at increasing user engagement and subscriptions. Be prepared to present or discuss your research process, findings, and insights. Dive in and see what innovative strategies you can develop. (AACSB: Written and Oral Communication; Reflective Thinking).

Answer: Students should be encouraged to share their individual search experiences and findings during the class discussion. Responses will vary, but the focus should be on how they use data from various sources—including but not limited to competitor and market trend research—to gather data that results in actionable insights. They should demonstrate an understanding of how to interpret the data found to refine marketing tactics, improve app features, and identify gaps in the market or areas for competitive advantage. This exercise emphasizes the importance of market research in strategizing and decision-making in today‘s tech-driven marketplace.

Minicases and Applications Digital Marketing and AI Wild Mint: Using AI-Drive Real-Time Insights Wild Mint Cosmetics, a sustainable skincare brand marketed by a small business, sought to maintain customer engagement and drive sales during the pandemic. They implemented a strategy to leverage digital marketing for real-time insights using AIdriven analytics to monitor customer behavior and preferences in real time. For instance, if a customer frequently visited its website and considered a specific eco-friendly product, Wild Mint Cosmetics would immediately follow up with personalized email

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offers and targeted social media ads featuring that product. This approach resulted in a 30 percent increase in conversion rates and a 20 percent rise in customer engagement.

4-9.

Imagine you are an entrepreneur who plans to set up a high-end coffee shop serving a variety of globally sourced coffees in a college town. As part of the marketing plan, you want to create a ―customer prototype‖ to focus your business on. Go to any generative AI interface —such as ChatGPT, Bing AI, or BARD— and enter the following request: ―Create a prototype customer for a high-end artisanal coffee shop set in a college town that specializes in a variety of global coffee types.‖ Evaluate the result. Did the AI application overdeliver or underdeliver on your query? What additional questions or requests would you ask to refine the initial AI response? Contrast your AI experience with what it would take to build a customer prototype on your own without employing such technology. Prepare a summary of your experience and results to share in class.

(AACSB: Written and Oral Communication; Reflective Thinking).

Answer: Students should be encouraged to share their individual search experiences and findings during the class discussion. Responses will vary, but the focus should be on the GenAI tool responses and how their selfbuilt prototype differs.

4-10. Suppose you are part of the Wild Mint Cosmetics marketing team and you want to create a ―customer prototype‖ to focus on. Use your preferred AI interface and enter the following request: ―Create a prototype customer for Wild Mint Cosmetics.‖ Evaluate the result. Did the AI interface overdeliver or underdeliver on your query? What additional questions or requests would you ask to refine the initial AI response? Compare your AI experience with what it would take to build a customer prototype on your own without AI. Share a summary of your experience in class. (AACSB: Written and Oral Communication; Reflective Thinking).

Answer: Students should be encouraged to share their individual search experiences and findings during the class discussion. Responses will vary, but the focus should be on the differences between the GenAI tool responses and their self-built prototype.

Marketing Ethics TikTok TikTok is a short-form video sharing app owned by Chinese parent company ByteDance. With more than 1.9 billion active users, TikTok is the world‘s most downloaded app. With a young, engaged user base, TikTok is a cultural powerhouse of internet superstars, brands, opinions, and data. However, given TikTok‘s widespread use and influence, its Chinese ownership raises concerns about user privacy. Data privacy expectations differ greatly between China and 16-105

Western countries such as the United States and the EU nations. In 2020, TikTok was implicated in data use scandals involving the improper collection of data from children, harvesting personal data on over a million users, and gathering user facial recognition data, all without user consent. And given TikTok‘s Chinese ownership, it‘s data privacy concerns also became a major issue of national security for the United States.

To address such concerns, ByteDance is proposing to enhance user data protection and safeguard user data against misuse. The proposed measures also include employing third-party companies to independently audit TikTok‘s data controls and protections and to investigate any incidents or infractions. However, the effectiveness of these measures remains to be fully assessed. Meanwhile, the onus is on users to manage their privacy settings proactively. For instance, users can restrict TikTok from accessing personal data such as location, camera, and contacts. But such restrictions often limit the very TikTok features that make it so appealing.

4-11. Are you comfortable with TikTok gathering information about you? What information are you comfortable sharing? Why? (AACSB: Communication; Ethical Reasoning).

Answer: Student answers will vary based on how they balance their priorities related to privacy with their priorities related to a customized usage experience on the TikTok app. Many apps that students may use, such as Lyft, Google Maps, and Door Dash use location tracking to be able to provide the information the user is requesting. Tweets provide the time and date of a post. Users check into locations using apps such as Yelp and Facebook, which leave behind location, date, and time data. All of this should provide for a good discussion of the balance between user privacy and the benefits of customization based on user data.

4-12. Should the government mandate whether TikTok is allowed to operate, or should decisions about using the app be left to users? (AACSB: Communication; Ethical Reasoning) Answer: Student opinions on whether the government should mandate will be influenced by their concerns about the privacy and security of the information and freedom of expression.

Students who prioritize privacy and security risks will advocate for government intervention. In contrast, students who prioritize individual freedom and choice will favor user control. The discussion could also encompass the effectiveness and consistency of government regulation, the global implications of a ban and its economic impacts, and ethical concerns related to censorship.

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Marketing by the Numbers Descriptive Research As discussed 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, the median) because outliers at either extreme may 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, the mode tells the marketing researcher how often a value occurs—specifically, the mode is the value that appears most often in the data.

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 the descriptive statistics—mean, median, and mode.

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Consumer Aaliyah Amelia Chloe Ethan Jorge Lucas Misaki Mohammed Navita Oliver

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

4-13. Calculate the mean, median, and mode for these data. (AACSB: Written and Oral Communication; Analytical Reasoning) Answer: Mean = average = (2 + 1 + 5 + 2 + 3 + 5 + 2 + 4 + 2 + 4) ÷ 10 = 30 ÷ 10 = 3.00 Median = middle value = 1, 2, 2, 2, 2, 3, 4, 4, 5, 5 = 2.5 Mode = most frequent value = 2 (occurs 4 times) 4-14. 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 neutral, with the mean rating at 3.00. One person gives the brand a score of 1 (strongly dislike). Both the median and the mode are below 3.00.

Overall, this does not present a rosy picture of the brand.

Company Case Teaching Notes Company Cases 4 P&G/10 Ford Motor Company/8 Apple See Appendix 1 for teaching notes for the below cases.

Case 4, P&G: Creating Irresistibly Superior Experiences Through

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Market Research. Procter & Gamble leads the consumer goods industry in marketing research and data analytics, creating superior experiences through deep consumer insights and innovative products.

Case 10, Ford Motor Company: Navigating the ICE and EV Dealer Dilemma. Ford planned to force its dealerships to choose exclusively between EV vehicles and traditional internal combustion engine vehicles. Facing challenges, Ford is revisiting that plan.

Case 8, Apple: Innovative to Its Core. Apple redefines industries with its groundbreaking products, from the first Macintosh to the latest AI-powered iPhone. It leads the market with cutting-edge technology and sleek designs.

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

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3.

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.

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 Nielsen. Each group should answer the following questions: 1. How did Nielsen adapt its traditional market research methods to address changes in consumer behavior and the digital streaming?

2. How did Nielsen‘s partnerships provide actionable insights for streaming services?

3. Based on Nielsen‘s developments, what are the key trends in marketing research that will shape the future? How can marketers use these emerging tools and insights effectively?

Individual Assignment

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Construct two simple (5 questions) surveys that examine student‘s attitudes toward your school. One survey should contain open-end questions only and the 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

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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 mobile phone company. List at least three potential sources of internal data and discuss how these data would help you create mobile 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?

CHAPTER 5

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UNDERSTANDING CONSUMER AND BUSINESS BUYER BEHAVIOR Objectives Outline 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 digital marketing, social media, and AI and marketing technology have changed business-to-business marketing.

Previewing the Concepts 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 Beyond Meat’s journey highlights significant challenges in shifting consumer and business buyer behaviors. Initially, the company captured attention with its innovative plant-based products that mimicked the taste, texture, and appearance of real meat.

However, convincing meat-loving consumers to make a lasting switch proved difficult.

While some embraced the environmental and health benefits, others remained hesitant due to taste discrepancies, higher prices, and concerns over the processed nature of the products. These factors illustrate how ingrained attitudes and preferences can resist change, even when presented with compelling alternatives.

For business buyers, Beyond Meat’s partnerships with grocery stores and fast-food chains demonstrated a willingness to cater to emerging consumer trends. These partnerships were exploratory, as businesses sought to gauge customer interest before making plantbased items a permanent menu option. The hesitancy of major chains to commit longterm reflects the caution business buyers exhibit when venturing into unproven markets.

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This case underscores the importance of aligning product attributes with consumer needs while maintaining affordability and accessibility. For businesses, balancing innovation with market demand is crucial, as early interest does not always translate into sustained growth. Beyond Meat’s experience serves as a lesson in the complexities of influencing both individual and organizational buying behavior in emerging product categories.

CONSUMER MARKETS AND 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 336 million people consuming more than $15 trillion worth of goods and services.

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, social, and cultural.

The marketer wants to understand how the stimuli are changed into responses inside the consumer‘s decision processing, which has two parts.

1. The buyer‘s characteristics influence how they perceive and react to the stimuli.

2. The stimuli influence and shape the buyer‘s decision process, which affects the buyer‘s responses and 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.

Many brands are multicultural, inclusive of the diverse mix of subcultures in the American marketplace.

Use Key Term Subculture here.

Use Key Term Multicultural here.

The U.S. Hispanic American market consists of more than 66 million consumers with $1.9 trillion in buying power.

The Black American market is also growing, now totaling 48 million consumers and $1.8 trillion in buying power.

Asian Americans are the fastest growing U.S. demographic segment. They are affluent and number more than 21 million consumers with $1.6 trillion in buying power.

Brands often include a mix of subcultural groups representative of the broader consumer population. Marketers must routinely audit everything from product designs to brand names and logos for both culture-related opportunities and insensitivities.

Social Factors Groups, Social Networks, and Influencer Marketing. A person‘s behavior is influenced by many small groups.

Use Key Terms Reference Group, Opinion Leader, and Word-of-Mouth Influence here.

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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 new influencers to spread positive information about a company‘s brands or 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 Discussion Question 5-2 here.

Use Critical Thinking Exercise 5-7 here.

Use Marketing at Work 5.1 here.

Family. The family is the most important membership consumer buying organization in society.

Buying roles have changed over time with evolving consumer lifestyles.

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 today purchase more than half of products traditionally considered in the ―male domain,‖ such as cars, electronics, and home-improvement products.

The nation‘s kids and tweens influence up to 90 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.

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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.

Economic Situation. A person‘s economic situation will affect product choice.

Environmental Situation. People‘s physical, technological, and health circumstances will impact what products they buy and where and how they shop.

Lifestyle. Lifestyle is a person‘s pattern of living as expressed in their 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).

When used carefully, the lifestyle concept can help marketers understand changing consumer values and how they affect buyer behavior.

Personality and Self-Concept. Personality refers to the unique psychological characteristics that distinguish a person or group. Marketers can apply personality traits to segment customers, understand their behavior, and serve them better.

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,

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subconscious motivations.

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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) Use Figure 5.3 here.

Perception. 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. 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.

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Use Key Terms Belief and Attitude here.

The Buyer Decision Process The buyer decision process consists of five stages (Figure 5.4): 1.

2.

3.

4.

5.

need recognition, 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 is how the consumer processes information to arrive at brand choices.

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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.

Consumers often go through two stages in evaluating alternative: 1. They start with a large consideration set that contains many brands.

2. Then they narrow to a choice set that they evaluate more carefully.

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 After purchasing the product, the consumer will be either satisfied or dissatisfied and will engage in 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 The sum of the ongoing experiences consumers have with a brand that affect their buying behavior, engagement, and brand advocacy over time is viewed by many marketers as a broader customer journey. Each consumer‘s journey is unique. The cumulative effect of the customer‘s journeys will shape their continuing behavior and attitudes toward the brand.

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Use Key Term Cognitive Dissonance here.

Use Discussion Question 5-3 here.

Use Discussion Question 5-4 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.

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.

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.

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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.

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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 of potential consumers.

Complexity: the degree to which the innovation is difficult to understand or use.

Trialability: the degree to which the innovation may be tried on a limited basis.

Observability: the degree to which the results of using the innovation can be observed or described to others.

Risk: the degree to which the customer perceives risk in purchasing the product.

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.

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The main differences between business markets and consumer markets relate to the following:   

Market structure and demand Nature of the buying unit The types of decisions and the decision process involved

Market Structure and Demand The business marketer normally deals with far fewer but far larger buyers than the consumer marketer does.

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.

Business demand is derived demand—it ultimately derives from the demand for consumer goods.

Use Key Term Derived Demand here.

Nature of the Buying Unit Business purchases usually involve more decision participants and a more professional purchasing effort.

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.

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Within the organization, buying activity consists of two major parts: 1. The buying center, composed of all the people involved in the buying decision, 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.

Use Figure 5.6 here.

Use Discussion Question 5-5 here.

Use Discussion Question 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 complete solution to a problem from a single seller.

The sale often goes to the firm that engages business customers deeply and provides the most complete system for meeting a customer‘s needs and solving its problems.

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.

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When suppliers‘ offers are very similar, buyers can allow personal factors to play a role in their decisions.

Business buyers are heavily influenced by factors in the current and expected economic environment, such as the level of primary demand, the economic outlook, and the cost of money.

Figure 5.7 lists various groups of influences on business buyers.

Use Figure 5.7 here.

Environmental factors including 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.

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.

THE BUSINESS BUYER DECISION PROCESS

Figure 5.8 list the eight stages of the business buyer decision process: 1.

2.

3.

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 16-131

4.

5.

6.

7.

8.

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.

ENGAGING BUSINESS BUYERS WITH DIGITAL MARKETING, SOCIAL MARKETING, AND AI TECHNOLOGIES Use Chapter Objective 6 here.

E-Procurement and Online Purchasing Online purchasing (e-procurement) is the standard for most companies.

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.

Use Critical Thinking Exercise 5-9 here.

Use Marketing at Work 5.2 here.

Business-to-business e-procurement yields many benefits.

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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.

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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 become standard places 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.

AI and Marketing Analytics in Business-to-Business Marketing AI and marketing analytics are transforming B-to-B marketing and selling by helping marketers develop more data-driven, efficient, and customized B-to-B strategies and customer experiences.

AI-driven analysis of data about various customer segment needs and behaviors can help B-to-B marketers segment their markets more effectively, resulting in better targeting strategies. Predictive analytics can help develop customer leads and guide B-to-B sales teams to select and convert the most promising prospects.

Use Marketing Ethics here.

Use Digital Marketing and AI here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 5-1. Describe the consumer market and outline a basic model of consumer buyer behavior. (AACSB: Written and Oral Communication).

Answer: The consumer market encompasses all individuals and households that purchase or obtain goods and services for personal use.

A basic model of consumer buyer behavior suggests, as described in Figure 5.1, that marketing stimuli and other factors influence the consumer‘s decision-making process, leading to specific purchasing actions. This process is shaped by the consumer‘s unique attributes, such as cultural, social, personal, and psychological elements, which determine

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their perception and response to these stimuli. Additionally, the decisionmaking journey itself, starting well before and extending beyond the actual purchase, also plays a crucial role in shaping consumer behavior.

5-2.

How has influencer marketing reshaped consumer behavior? (AACSB: Written and Oral Communications; Reflective Thinking).

Answer: Students‘ answers will vary depending on the students‘ individual cultural stances and on their perceptions of influencers and their following.

However, the following points could act as a guide: -

-

-

-

-

5-3.

Influencers are viewed as more authentic and relatable than traditional advertising—therefore, consumers tend to trust influencers‘ opinions.

Influencers in turn build trust-based relationships with consumers, guiding their purchasing decisions through relatable and targeted content.

Additionally, the growing emphasis on cultural sensitivity in marketing has led consumers to gravitate towards brands that align with their values, particularly regarding social responsibility and diversity. Companies can use a portfolio of influencers to develop more customized content that addresses the values of different segments.

Younger customer segments particularly see influencers they identify with as being more authentic, value driven, and culturally aware.

Influencers with dedicated following can often break through the clutter in the market and capture customer attention more effectively and less expensively than traditional advertising.

How does the concept of the customer journey impact marketing strategy?

(AACSB: Written and Oral Communications; Reflective Thinking).

Answer: Understanding the customer journey is pivotal in shaping marketing strategies. It emphasizes tailoring marketing efforts to various stages of consumer interaction with the brand, from initial awareness to postpurchase advocacy. For instance, encountering an Echo ad on Amazon.com may spark initial interest, but actual purchase decisions may be influenced by direct experiences or recommendations. Marketers need to create multiple touchpoints, like targeted print and TV ads, user reviews, digital ads, influencer posts, and follow-up communications to guide consumers along this journey, enhancing their experience, encouraging purchase, and fostering brand loyalty.

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5-4.

How is need recognition triggered in the buyer decision process? Provide examples of the two different types of triggers. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students are likely to suggest a wide range of different examples. Need recognition occurs when the buyer recognizes a problem or need, triggered by either internal or external stimuli.

5-5.

What are systems or solutions selling? How can an organization be successful in this area of sales? What are customers looking for from suppliers? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Systems or solutions selling are sales mythologies that focus on the buyer‘s needs as opposed to the product‘s features or benefits. The seller aims to identify the buyer‘s key needs and explain to them how the product or service can help them meet those needs. The sales processes aim to provide a holistic product or service, backed up by excellent customer service, to eliminate concerns that a buyer might have in a particular area (printing, copying or storing documents or digital information, handling vehicle fleets, etc.).

5-6.

What are the major types of business buying situations? (AACSB: Written and Oral Communication).

Answer: There are four major types of business buying situations.

- Straight Rebuy: A business buying situation in which the buyer routinely reorders something without modifications.

- Modified Rebuy: A business buying situation in which the buyer wants to modify product specifications, prices, terms, or suppliers.

- New Task: A business buying situation in which the buyer purchases a product or service for the first time.

- Systems Selling (or Solutions Selling): Buying a packaged solution to a problem from a single seller, thus avoiding all the separate decisions involved in a complex buying situation.

Critical Thinking Exercises 5-7. Different business occasions require different attire. Consider the differences between business casual and business formal attire. How would the buyer decision process for a student preparing for an event with business casual attire differ from that of a student preparing for an event with business formal attire? How would you use this knowledge to develop an advertising plan for a clothing retailer, such as Banana Republic or Macy‘s, targeting young

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professionals? (AACSB: Written and Oral Communication; Reflective Thinking).

5-8.

Answer: Student responses will vary. Responses should recognize business formal buyer decision process may have higher involvement, anticipated higher price, limited usage occasions, and unfamiliarity with product-class attributes (i.e., fabrics, hemlines, break, etc.). Some students may conduct additional information search, for example by online window-shopping, to learn about important attributes, societal norms, and different alternatives.

Responses should also be clear about cultural expectations for business casual versus business formal attire. Students may focus more on masculine attire—the instructor can ensure that they pay equal attention to the needs of consumers across genders.

Evaluate the adoption of an electric bicycle (e-bike) brand using each of the six characteristics that significantly influence an innovation‘s rate of adoption. Based on these characteristics, what strategies could marketers employ to enhance the adoption rate of e-bikes? (AACSB: Written and Oral Communication; Reflective Thinking).

Answer: The six characteristics important in influencing an innovation's rate of adoption are: relative advantage, compatibility, complexity, trialability, observability, and risk. Student responses regarding e-bikes‘ performance on each of these characteristics may vary.

Relative Advantage: This refers to how e-bikes compare to traditional bicycles or motor vehicles in terms of convenience, speed, environmental impact, and health benefits. If consumers perceive e-bikes as having substantial relative advantages, this could accelerate their adoption.

Compatibility: This assesses how well e-bikes align with potential users' existing values, experiences, and transportation needs. High compatibility, especially in urban areas or among environmentally conscious consumers, is likely to speed up adoption.

Complexity: This involves the ease of understanding and using e-bikes.

Any perceived complexity in operating or maintaining e-bikes could hinder their adoption rate.

Trialability: The ability for consumers to test e-bikes before purchase can significantly impact their decision to adopt. Greater availability of e-bikes for trial, such as through rental services, can encourage adoption.

Observability: The extent to which the benefits of using e-bikes are visible or can be communicated to potential buyers. Demonstrations, user testimonials, and visibility in public areas can enhance observability and, consequently, the adoption rate.

Risk: The perceived risks associated with e-bikes, such as safety concerns or investment cost, can affect their adoption. Addressing these risks through safety features, warranties, or financing options can help in 16-137

increasing adoption rates. Based on these factors, e-bike marketers can focus on strategies like highlighting functional and environmental benefits, ensuring ease of use and communicating that to customers, and offering trial opportunities. Also, they can reduce perceived risks by offering reasonable prices and generous return policies and building in safety features to enhance the adoption rate.

5-9.

Your company is considering implementing an e-procurement system but is concerned about the potential resistance from long-standing suppliers accustomed to traditional procurement methods. Devise a strategy to convince these suppliers of the benefits of transitioning to e-procurement.

(AACSB: Written and Oral Communication; Reflective Thinking).

Answer: Students‘ answers will vary. But the answers must focus on the specific benefits of e-procurement strategy that the company must communicate to its suppliers, including the following: -

Shaving transaction costs resulting in efficient purchasing.

Reducing time between order and delivery.

Eliminating paperwork associate with traditional requisition and ordering procedures.

Minicases and Applications Digital Marketing and AI Patagonia and Sephora’s Influencer Marketing Strategies Outdoor gear company, Patagonia, is known for its commitment to environmental sustainability. Patagonia recently launched a digital campaign featuring famous rock climber Tommy Caldwell as an influencer. The campaign showcases Patagonia‘s new line of eco-friendly climbing gear and highlights Caldwell‘s dedication to environmental conservation. Unlike traditional campaigns focusing on product functionality, this campaign delves into Caldwell‘s climbing experiences and his commitment to sustainability, aligning with Patagonia‘s brand values.

5-10. How might factors like environmental awareness, engagement in climbing or outdoor activities, and economic status influence consumer responses to Patagonia‘s digital marketing campaign featuring Tommy Caldwell?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Consumers reactions to Patagonia‘s campaign can vary based on their environmental awareness, involvement in climbing/outdoor activities, and economic status. Most existing Patagonia customers are already aware of the brand‘s emphasis on sustainability. Therefore, the campaign will likely

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resonate with them and strengthen the brand. It will also likely strengthen Patagonia‘s environmental credentials in the broader market.

This campaign will need to be tailored to consumers who are interested in climbing/outdoor activities. Otherwise, the digital marketing investments will likely be wasted. Therefore, tracking the right consumer segments and targeting them with the digital marketing campaign is important.

The campaign‘s focus on authentic experiences and sustainability could appeal to those seeking products that align with their environmental values and outdoor lifestyles. At the same time, consumers‘ economic status will likely affect perceptions of the gear's affordability and value.

Typically, sustainable products tend to be higher priced. Thus, Patagonia must target the higher-end segments of the outdoor enthusiast and climbing markets with its digital advertising.

5-11. Compare Patagonia‘s campaign with Sephora‘s campaign using mainstream celebrity influencers such as Wayne Goss. Discuss the differences in influencer selection and the potential impact on the campaigns‘ effectiveness. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Patagonia‘s campaign, featuring influencer Tommy Caldwell, emphasizes authenticity, environmental values, and real-life adventure sports experiences, targeting consumers who value sustainability and outdoor activities. In contrast, Sephora‘s choice of influencer Wayne Goss reflects a focus more on style, glamour, and aspirational qualities, appealing to a different consumer segment interested in high-fashion trends and celebrity lifestyles. Patagonia‘s approach would appeal more to environmentally conscious outdoor and adventure-sport enthusiasts. On the other hand, Sephora‘s campaign might attract those drawn to luxury, trendiness, and celebrity culture—this is likely a larger market than that targeted by Patagonia.

5-12. Let‘s explore how AI can help Patagonia better understand the behavior of outdoor-orientated and eco-conscious customers. Go to ChatGPT, Bard, Bing AI, or any other generative AI interface of your choice and type in the question: ―What should Patagonia prioritize when it comes to outdoor equipment and gear for young, environmentally oriented customers?‖ Evaluate the AI platform‘s response. Which ideas that it generated were ideas that you would not have thought about? (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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Students‘ answers will have varied insights related to the ChatGPT-like interfaces. The generated answers will orient their thinking toward lesser thought of topics like minimalism and consumer education. Students can then understand the power of AI in understanding consumer markets and behavior and spark thoughts about the different dimensions to be considered.

Marketing Ethics Maersk Global shipping giant Maersk has transitioned to conducting all its business operations with customers and suppliers online. The transition to a fully digital platform means all interactions, from booking shipments to supplier negotiations, are conducted electronically, relying heavily on data analytics for decisionmaking. While this shift streamlines processes and enhances efficiency, it raises ethical concerns related to data privacy and the handling of sensitive data, and the digital divide pertaining to the potential exclusion of smaller suppliers who may lack digital capabilities.

5-13. How should Maersk address these ethical challenges to ensure fair and responsible business practices? (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding) Answer: While students‘ answers may vary depending on their beliefs and perceptions, they must ideally delve into how Maersk can address these challenges while maintaining ethical business practices. For example, students may suggest that Maersk: - work with internal and external IT experts to strengthen the security of its data systems.

- require the use of strong passwords and multifactor authentication to reduce the likelihood of data breaches.

- avoid storing key login data on its own servers, similar to how modern password managers work.

- not store more customer data than is necessary or optimal for its business purposes.

- provide training sessions for smaller suppliers to help them manage the digital transition.

- provide financial support for small suppliers to make the hardware and software upgrades to work with the new digital system.

5-14. Thinking forward, how should Maersk prepare a communications plan in case it did suffer a data breach? (AACSB: Written and Oral Communication; Reflective Thinking; Ethical Understanding) Answer:

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While students‘ answers may vary depending on their beliefs and perceptions of B2B ethical marketing communications, they must ideally consider the following in preparing a communications plan: - Make a list of all stakeholders that must be communicated with.

- Create a list of actions that Maersk must immediately take in response to the breach and create a set of ―mock communications‖ detailing these actions that can be quickly customized and communicated to the different stakeholders.

- Create a press and PR (public relations) release plan.

- Create and prepare to communicate a list of actions that customers must take at their end to protect themselves from further harm related to the data breach.

- Think through the potential worst-case scenarios and prepare communications customized to each of them.

All of this must be done in advance so that no time is lost in taking the right actions and communicating them if a data breach does occur.

Marketing by the Numbers Evaluating Alternatives Consider a consumer evaluating alternatives for purchasing a new laptop. The consumer identifies several key attributes: price, battery life, performance (speed and processing power), and brand reputation. Each attribute is given a score from 1 to 10 based on its importance to the consumer. In this example, the consumer believes that performance is the most critical factor, followed by battery life, price, and brand reputation. Three laptop brands —Aces, Bell, and Creative—are rated on how they perform on each of these attributes.

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Attributes

Price Battery Life Performance Brand Reputation

Importance of Each Attribute (Score) 3 7 9 5

Alternatives brands and their ratings Aces Beliefs Bell Creative Beliefs Beliefs 7 6 8 9

8 9 6 7

5 7 9 8

5-15. Calculate the total rating for Brand Aces, Bell and Creative. Which laptop would this consumer likely choose? (AACSB: Written and Oral Communication; Reflective Thinking; Analytical Reasoning) Answer: The total rating for a brand is obtained by multiplying the importance score of the attribute by the brand rating on that attribute and adding the results across the attributes. Thus:  Total rating of Aces = (3 × 7) + (7 × 6) + (9 × 8) + (5 × 9) = 21 + 42 + 72 + 45 = 180  Total rating of Bell = (3 × 8) + (7 × 9) + (9 × 6) + (5 × 7) = 24 + 63 + 54 + 35 = 176  Total rating of Creative = (3 × 5) + (7 × 7) + (9 × 9) + (5 × 8) = 15 + 49 + 81 + 40 = 185 Based on this analysis, the consumer would likely choose the Creative brand, as it has the highest rating (185 compared to 176 for brand Bell and 180 for brand Aces).

5-16. Which brand is this consumer least likely to select? Suggest some strategies the marketer of this alternative could use to increase the likelihood of consumers choosing their brand. (AACSB: Written and Oral Communication; Reflective Thinking; Analytical Reasoning) Answer: This consumer is least likely to choose the Bell brand because it has the lowest total rating. The marketer of brand Bell can enhance consumer likelihood of choosing their brand by: a. Improving Perceived Performance: Since performance is the most important attribute for the consumer and Bell‘s score is lower than brand Creative‘s, the marketer could focus on improving and then better communicating the technical specifications and processing power of their laptops.

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b. Enhancing Battery Life: Given the high importance of battery life, the marketer could invest in battery technology to improve the laptop‘s endurance and promote this enhancement, positioning it as a significant advantage over competitors. c. Influencing Customer Perceptions: Bell should consider if customers have lower ratings for the brand along any attribute than the reality would suggest. If so, they can design advertising and messaging to ―correct‖ the customers‘ perceptions.

Company Case Teaching Notes

Company Cases: 5 Harley-Davidson/9 Texas Roadhouse/16 Chipotle See Appendix 1 for teaching notes for the below cases.

Case 5, Harley-Davidson: Selling Freedom, Independence, Power, and Authenticity.

Harley-Davidson embodies freedom, independence, and authenticity. Facing market shifts, it strives to balance its iconic legacy with strategies to attract a new generation of riders.

Case 9, Texas Roadhouse: Strategic Pricing in Tough Times. Known for hand-cut steaks and an exceptional dining experience, Texas Roadhouse masters value-based pricing to thrive in tough times.

Case 16, Chipotle: An Environmental Sustainability Mission. Chipotle‘s mission is to ―Cultivate a Better World‖ by transforming fast food through sustainable, ethically sourced ingredients, providing fresh, real food that‘s good for you and the planet.

GREAT IDEAS Barriers to Effective Learning 1.

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.

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2.

3.

4.

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 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 United States, 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 United States differ from social class in India?

5. Think about the online social networks (such as Facebook or Instagram or X (formerly 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 Beyond Meat. Each group should then answer the following questions:

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1. Who are the Beyond Meat customers?

2. What challenges does Beyond Meat face in terms of gaining customers, both consumer and business?

3. How can Beyond Meat improve the likelihood a customer would choose Beyond Meat?

Share your findings with the class.

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 United States?

5. How have online social networks changed 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? Which vehicles are meant for which consumer age or stage?

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 16-145

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 car, and then something very simple, such as soap. 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 the roles the people in the buying center may 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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Objectives Outline 7. Define the major steps in designing a customer value-driven marketing strategy: market segmentation, targeting, differentiation, and positioning.

8. Discuss the major bases for segmenting consumer and business markets.

9. Explain how companies identify attractive market segments and choose a segmenttargeting strategy.

10. Discuss how companies differentiate and position their products for maximum competitive advantage.

Previewing the Concepts 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

Meta: Targeting the Diverse Needs of Different Social Media Segments Thanks to successful segmentation and targeting, Meta‘s four social media platforms— Facebook, Instagram, WhatsApp, and Messenger—now rank as four of the world‘s five top social media brands.

Meta Platforms exemplifies the importance of segmentation, targeting, and positioning (STP) in the social media landscape. Recognizing that no single platform can meet the needs of all users, Meta has built a diverse portfolio of brands tailored to distinct user segments. Facebook, its flagship product, caters to a broad audience for connecting with family and friends, while Instagram targets younger, visually focused users. WhatsApp appeals to international users seeking private, streamlined communication, and Messenger serves as a standalone messaging platform for Facebook users and beyond.

Meta‘s acquisition strategy underscores its commitment to segmentation. The purchase of Instagram allowed it to tap into a younger demographic, while WhatsApp provided access to a rapidly growing global market. Both acquisitions allowed Meta to reach new user bases with specific preferences, distinct from its core Facebook audience. By maintaining the individuality of these platforms, Meta has maximized their appeal to their respective segments.

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Looking forward, Meta‘s strategic pivot toward the metaverse demonstrates its forwardthinking approach to targeting emerging markets. Through investments like Oculus VR and Horizon Worlds, Meta aims to position itself as a leader in virtual reality and 3D interaction, anticipating a future where these technologies cater to new, tech-savvy consumer segments.

Meta‘s segmentation and targeting efforts have paid off, with its platforms accounting for a significant share of global social media usage. By aligning its products with the specific needs and preferences of diverse audiences, Meta continues to lead in both user engagement and innovation.

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 distinct groups of buyers with 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.

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Segmenting Consumer Markets Table 6.1 outlines the major variables that might be used in segmenting consumer markets.

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.

Advances in digital and mobile technologies have added new location-based ways to reach individual consumers in specific communities, neighborhoods, or even stores.

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.

With age and life-cycle stage segmentation, firms offer different products or use different marketing approaches for different age and life-cycle groups.

Gender and Gender Identity segmentation has long been used in clothing, cosmetics, toiletries, and magazines. Consumer products companies are reaching out both genders with gender-specific product offerings while other companies are now offering gender-neutral products.

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 lifestyle or personality characteristics.

Marketers use personality variables to segment markets using ―personas.‖

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Use Key Terms Age and Life-Cycle Segmentation, Gender and Gender Identity 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.

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 and purchasing approaches.

Use Discussion Question 6-2 here.

Use Discussion Question 6-3 here.

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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 Discussion Question 6-4 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.

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.

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A target market consists of the total set of targeted buyers across the market segments that the company decides to serve. (see Figure 6.2) Use Key Term Target Market here.

Use Figure 6.2 here.

Use Discussion Question 6-5 here.

Use Discussion Question 6-6 here.

Use Critical Thinking Exercise 6-7 here.

Use Critical Thinking Exercise 6-8 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.

Use Marketing at Work 6.2 here.

Micromarketing

Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific individuals and locations.

Micromarketing includes hyperlocal marketing and individual marketing.

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Hyperlocal marketing involves location-based targeting to consumers using digital, mobile, and social media technologies.

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 6-9 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.

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.

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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 Digital Marketing and AI 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.

Use Key Term Competitive Advantage here.

Identifying Possible Value Differences and Competitive Advantages To the extent that a company can differentiate and position itself as providing superior

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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.

Selecting an Overall Positioning Strategy The full positioning of a brand is called the brand‘s value proposition (see Figure

6.4). It’s the answer the customer’s question, ―Why should I buy your brand?‖ Use Figure 6.4 here.

Use Key Term Value Proposition here.

More for More positioning involves providing the most upscale product or service and 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.

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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.

Developing a Positioning Statement Company and brand positioning should be summed up in a positioning statement.

The statement should follow the form: For (target customer or segment) who (statement of unsolved customer needs) our product is (description of product) which provides (key benefits). Unlike (competing products), our product (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.

What is a customer value-driven marketing strategy? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A customer value-driven marketing strategy consists of four major steps that answer who marketers will serve and how marketers will serve.

Market segmentation involves dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviors, and who might require separate marketing strategies or mixes. Market targeting is the selection of markets to serve based on their attractiveness to the firm.

Differentiation involves designing the market offering to create superior customer value that is distinct from that offered by competitors. Positioning is developing a distinctive place in the minds of your customers.

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6-2.

Explain how marketers can use multiple segment bases to define and analyze their customers. Provide an example to further detail the process.

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Marketers cannot in today‘s day and time limit their segmentation analysis to only one or a few variables. Rather, they must use multiple segmentation bases in combination to identify smaller, better-defined target groups. Several organizations—such as Acxiom, Nielsen, Esri, and Experian—provide multivariable segmentation systems that merge geographic, demographic, lifestyle, and behavioral data to help companies segment their markets down to zip codes, neighborhoods, and even households.

The example students provide will vary based on their specific perspective and the product category they focus on. Ideally, students will connect some geographic, demographic, lifestyle, and behavior characteristics of consumers with their preferences for a specific product or service. For example, busy, single professionals with little time on their hands may be a key target segment for prepared meal delivery services.

6-3.

Describe how marketers segment consumer and business markets at the same company. Provide an example in your answer. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Marketers segment consumer and business markets based on various factors. For consumer markets, segmentation is often based on demographics, psychographics, behavior, and geography to name a few.

For example, a clothing brand might segment its consumer market based on age, fashion preferences, shopping habits, and location. Business markets, on the other hand, are typically segmented based on industry, size of the business, location, and buying behavior. For instance, a software company might segment its business market into small businesses and large corporations, further dividing these segments based on their specific software needs.

For example, computer hardware company Dell segments its market into consumers and businesses. For the consumer market, Dell might further segment consumers based on factors like age, income, and techsavviness, offering different products like gaming laptops for younger, tech-savvy consumers, or budget-friendly laptops for older, less techsavvy consumers. For the business market, Dell might further segment based on the size of the business, industry, and specific needs of the business. For example, they might offer high-performance workstations for 16-159

businesses in the graphic design industry, or durable, long-lasting laptops for educational institutions.

6-4.

What criteria are used to evaluate whether a market segmentation approach is effective? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: There are multiple factors used to gauge the effectiveness of market segmentation:    



6-5.

Measurable: The segments‘ size, buying power, and characteristics should be quantifiable.

Accessible: It should be possible to reach and serve the segments efficiently.

Substantial: The segments must be significant or profitable enough to warrant serving. For example, it wouldn‘t be feasible for a car company to create vehicles specifically for individuals over seven feet tall.

Differentiable: Segments should be clearly distinct and show varied responses to marketing strategies. If there‘s no difference in how men and women react to marketing for a product like soft drinks, then separating them into distinct segments wouldn‘t be practical.

Actionable: There should be the capability to develop and implement effective strategies for targeting and serving the segments. For example, a small airline may lack the resources to cater to each one of seven customer segments with unique marketing strategies.

What factors should companies use to evaluate market segments?

(AACSB: Written and Oral Communication) Answer: Evaluating market segments involves assessing (a) size and growth, (b) structural attractiveness, and (c) alignment with company goals and resources. In terms of size and growth, firms should prioritize segments that match their size and growth needs, recognizing that the biggest or fastest-growing ones aren‘t always the best fit, especially for smaller companies due to competition and resource limitations. Structural attractiveness is diminished by strong competition, easy entry for new competitors, substitute products, and powerful buyers or suppliers that can squeeze profits. In terms of alignment, companies must ensure segments align with their objectives and available resources, avoiding areas where they can‘t offer superior value or compete effectively, even if a segment is large and growing. For instance, it wouldn‘t make sense for a luxury carmaker like Mercedes-Benz to target the economy car segment.

Choosing segments should be based on the ability to deliver unique value, outperform competitors, and uphold brand reputation.

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6-6.

How do marketers select a market segment to target? (AACSB: Written and Oral Communication) Answer: There are several elements that help shape a market segment to target.  First, the objectives and resources of a company play a crucial role.

Concentrated marketing is often the best approach when a company has specific goals or limited resources.  Second, the type of product is important. For homogeneous products like grapefruit or steel, undifferentiated marketing is typically more effective. However, for products that have design variations, such as cars or fashion items, differentiation or concentration strategies are more suitable.  Third, the stage of the product‘s life cycle is a key consideration. When a company launches a new product, it might make sense to use undifferentiated or concentrated marketing that focuses on a single product. However, as the product matures, differentiated marketing often becomes more effective.  Fourth, market variability matters. If most consumers have similar tastes, purchase similar quantities, and respond similarly to marketing efforts, then undifferentiated marketing is usually the right choice.  Finally, the marketing strategies of competitors should be considered.

If competitors are using differentiated or concentrated marketing, then using an undifferentiated marketing strategy could be risky. On the other hand, if competitors are using undifferentiated marketing, a company could gain an advantage by using differentiated or concentrated marketing to cater to the needs of specific buyer segments.

Critical Thinking Exercises 6-7.

Suppose you are a marketer for the educational app Quizlet, a popular app offering an inclusive, flexible learning environment that adapts to the diverse needs of students, including those who are neurodivergent.

Quizlet ensures that education is approachable and equitable for learners from all backgrounds. The app is free with ads, and users can access basic features like flashcard creation, study modes, and some study sets at no cost. Quizlet Plus is a premium version offering additional features like an ad-free experience, offline access, advanced creation tools, and enhanced studying features for $35.99 per year, but prices can vary slightly depending on the region and any ongoing promotions. What consumer segments would you target? To practice socially responsible targeting, how would you identify and choose consumer segments that need help and ensure that the app not only reaches its intended audience 16-161

but also provides meaningful value and support to them? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses may vary depending on their perception of the context and the notion of neurodivergence and inclusivity, but they should refer to the section on socially responsible target marketing as children are a vulnerable group and targeting and marketing to children has come under scrutiny.

6-8.

Analyze the U.S. snack food market, focusing on the segmentation of health-conscious snack options. Identify and describe the key segments and any notable subsegments within this market. Also, choose two different health snack brands and analyze their target audiences and market positioning strategies. (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.

How might a coffee shop chain benefit from combining hyperlocal marketing with occasion segmentation? The chain often tailors its offerings based on local preferences and specific customer occasions (for example, seasonal beverages, study sessions, or casual business meetings). What are the competitive advantages of utilizing both hyperlocal marketing and occasion segmentation for the coffee shop chain? Design a specific promotion that does this. (AACSB: Written and Oral Communication; Reflective Thinking)

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6-10.

Answer: Student responses may vary but they should refer to the section on hyperlocal marketing and occasion segmentation and talk about the competitive advantages of location-based targeting to consumers in specific locations using digital, mobile, and social media technologies.

Some advantages include the ability to target specific customer segments at specific times and places. For example, a coffee bar in a university town could offer large group study tables with discounted coffee for students during exam week and advertise the offering on locally targeted social media.

Minicases and Applications Digital Marketing and AI Slutty Vegan and Pinky Cole’s Social Media Outreach Aisha ―Pinky‖ Cole founded Slutty Vegan in the summer of 2018, offering signature burgers made fresh to order via Instagram. This innovative use of social media was just the beginning of the brand‘s digital strategy. Within weeks, orders were being filled throughout Atlanta from a mobile food truck, and in fall of that year, Slutty Vegan opened its first restaurant location. At the grand opening, a crowd of 1,200 gathered outside the restaurant in 45 degree weather, a testament to the buzz the brand had generated. Slutty Vegan has now evolved into a rapidly expanding fast-casual food chain.

The brand‘s success can be attributed to a smart blend of positioning, segmentation, and a willingness to experiment with the narrative of vegan foods.

Cole‘s concept of a ―slutty vegan‖ is someone who enjoys vegan junk food, ―as long as it‘s not dead.‖ This has helped to shift perceptions of vegan food, particularly in communities of color, that are often overserved by fast food and underserved by health food. Based on its early success, Slutty Vegan raised $25 million in investment funds with plans to quickly open 20 new Slutty Vegan locations, including the first out-of-state locations in Brooklyn, NY, and Birmingham, AL. All Slutty Vegan locations are now open on Sundays and the brand has also announced plans for its first-ever drive-thru.

Slutty Vegan‘s success is a testament to the brand‘s ongoing innovation and commitment to making vegan food accessible and enjoyable for all. Slutty Vegan has effectively utilized social media to engage with its audience, drive its message, and expand its reach, demonstrating the power of social media in modern business strategies.ii

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6-11. Explore Slutty Vegan‘s website, social media, and press. How does the firm segment the market and who does it target and innovate for?

(AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: Student responses will vary. Slutty Vegan relies on social media (Facebook, TikTok, Instagram, YouTube, and X/Twitter) to promote the brand. The messages differ across platforms, with Instagram and TikTok having the most overlap. Users also differ across platforms, with X/Twitter and Facebook skewing older and more educated, and Instagram and TikTok skewing younger and less educated. There is evidence that Slutty Vegan uses geographic (that is, fixed locations in certain cities, food-truck, and popups) and psychographic (that is, interested in vegan food, supporting Black and/or women-owned businesses) segmentation. These social media platforms make it easier to engage in hyperlocal segmentation and to understand what kinds of things potential customers are interested in.

6-12. Research vegan and vegetarian restaurants in cities where Slutty Vegan operates. Use an AI interface such as ChatGPT to find another vegan or vegetarian restaurant in one of these cities. Then prompt the AI interface to identify and elaborate on the differences between the other restaurant and Slutty Vegan, including their relative positionings and specific aspects like menu offerings, brand image, customer expectations (taste, texture, mouthfeel, smell), and any unique traits. Based on the AI responses, what would you do differently to re-strategize, segment, and add customer value to the other restaurant in comparison to Slutty Vegan? (AACSB: Written and Oral communication; Ethical Understanding and Reasoning Answer: Student responses will vary based on the prompts and follow up prompts while engaging with the interface. However, the responses should stimulate curiosity into thinking how AI helps in understanding customer segments, and detail how to differentiate and position a new or not so popular brand.

Marketing Ethics Twitch: Do Streamer Partnerships Exacerbate Gender Pay Gaps?

Twitch offers a platform for streamers to broadcast their gaming sessions, creative content, and more to a live audience. With millions of active users and streamers, Twitch has become a central hub for digital entertainment. Last year, the platform saw exponential growth in viewership and streamer partnerships.

Twitch‘s partnership program allows streamers to earn revenue through subscriptions, advertisements, and donations from viewers, making it a lucrative platform for many. Twitch has become a valuable platform for streamers to build their brands and connect with fans globally. However, a recent analysis by a leading digital media outlet suggests a noticeable disparity in earnings and visibility between men and women streamers on Twitch. Streamers set their own subscription prices and generate income based on viewer engagement, but 16-165

Twitch benefits more from streamers who attract larger audiences and, consequently, higher earnings, potentially incentivizing the platform to feature streamers who generate more revenue. This disparity raises questions about whether Twitch‘s practices contribute to reinforcing the gender pay gap within the digital entertainment industry.

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6-13. Visit Twitch‘s website (twitch.tv). How do the ―Featured‖ streamers relate to Twitch‘s position and value proposition? Do the visibility and monetization strategies employed by Twitch reinforce the notion that streamers who are men are more valuable than streamers who are women? Support your responses. (AACSB: Written and Oral communication; Ethical Understanding and Reasoning) Answer: Students can discuss the relationship between a streamer‘s ability to attract and maintain an audience, the perceived value of their content, and Twitch‘s business model. Twitch‘s featured streamers often include a diverse group of content creators across different genres, including streamers of all genders. The ethical issue arises if Twitch predominantly features streamers who are men and have higher viewership and subscription rates, overshadowing equally talented or popular streamers who are women and might not receive the same level of promotion.

Students might argue that Twitch could potentially increase its revenue by promoting a wider range of streamers, appealing to a broader audience, which could lead to more equitable visibility and earnings among genders.

However, such a strategy might affect its market positioning if it appears to prioritize quantity over quality.

6-14. Does Twitch have a responsibility to audit streamer earnings and implement policies that help minimize disparities between genders?

Explain and defend your position. (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Student perspectives on whether Twitch should enforce standards or criteria to reduce the pay gap among its streamers may differ. Some may argue for the platform to take a more active role in ensuring gender equity in visibility and earnings, while others might see it as an interference in the market dynamics of supply and demand within the digital entertainment industry. This discussion can lead to a sensitive debate, and the instructor should manage the debate with empathy but also keep the discussion within reasonable boundaries.

Marketing by the Numbers Cultivating Tomorrow: The Precision Farming Revolution There are over 7,200 health and fitness clubs in the United Kingdom.

Collectively, this means one in six people or 10 million people are members.

About 50 percent of the clubs are fitness-only centers, with an annual turnover of nearly £2 billion. Most of the facilities are relatively small, with turnovers under £300,000.

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The COVID-19 pandemic has had a drastic impact on the health and fitness market. The health and fitness clubs were shut down during the lockdown, and even outdoor exercise was restricted. From March 2020 to April 2021, 52 percent of UK consumers were engaged in home workouts, and 53 percent purchased products to aid their workouts a home. The average spend on the products was about £165. Of those who bought workout equipment, 31.7 percent had not exercised regularly before, and 76 percent claimed that they would continue to use the equipment after the pandemic had passed.

According to global data, remote work appeared to have a longer-term impact on working patterns, making UK consumers much more confident about investing in higher-cost exercise machines and equipment from Amazon, Argos, and eBay, all of which benefitted from a high rise in demand. At the same time, the sales of ―athleisure wear‖ increased, with consumers opting to wear this type of clothing at home for work as well as for workout. This increase in sales of casual clothing promoted the UK Office of National Statistics to add these and home exercise equipment to their basket of goods and services used to calculate the cost of living.

6-15. A home gym and athleisure wear retailer has a consumer catchment area of 70,000. Research suggests that 40 percent are interested in spending about £320 on equipment and clothing. Use the chain ratio method described in Market Potential and Sales Estimates in Appendix 3 to calculate the market potential for these products for the retailer. (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 the total number of consumers in the catchment area likely to buy equipment and clothing. There are 70,000 people living in the catchment area but not all of them are interested in the products sold by the retailer. Therefore, the total number needs to be multiplied by 0.40: n = 70,000 population x 0.40 = 28,000 customers

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q = 1 purchase of equipment and clothing per customer p = $320 per customer So, Q = 28,000 customers x 1 purchase per customer x $320 per customer = $8,960.000 6-16. During the pandemic, Adidas focused on direct sales to customers in the UK, and this approach paid off: 20.9 percent consumers bought workout products from them, twice as much as those bought from rivals such as Nike. Assuming the size of the sportswear market is 12 million, the average Adidas trainer costs £56.60, and the average athleisure wear costs £52.70, calculate the market potential of this target market. (AACSB: Analytic Thinking) Answer: The potential number of ―buyers‖ would be the number of customers, which is 12 million divided by the Adidas market share of 20.9 percent. So, the market potential calculation is simply: n = 2,508,000 customers q = 1 purchase per customer p = $56.60 + $52.70 = $109.30 Q = 2,508,000 customers x 1 combined purchase x $109.30 per purchase = $274,124,400 Company Case Teaching Notes Company Cases 6 WeightWatchers/3 SiriusXM/7 Carhartt See Appendix 1 for teaching notes for the below cases.

Case 6, WeightWatchers: Preserving the Brand’s Heritage while Charting a Course for the Future. WeightWatchers now integrates weight-loss medications into its approach. By combining behavioral regimens with modern solutions, it tries to attract a broader audience while promoting healthy lifestyles.

Case 3, SiriusXM: Competing in a Morphing Industry. SiriusXM, a pioneer in satellite radio, is adapting by integrating satellite and streaming services. It leverages exclusive content and celebrity channels to offer a unique, curated listening experience.

Case 7, Carhartt: A Rugged Brand Embraces a Growing Women’s Wear Market.

Carhartt is revolutionizing women‘s workwear by combining durability with style and comfort tailored for women. Carhartt supports the growing number of women in laborintensive jobs.

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Barriers to Effective Learning 1.

2.

3.

4.

5.

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 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

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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?

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Small Group Assignment Form students into groups of three to five. Each group should read the opening vignette to the chapter on Meta. Each group should then answer the following questions: 1. What is Meta‘s strategy?

2. What is unique about their market segmentation strategy?

3. Are there weaknesses in Meta‘s 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

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them straight. It uses three sections to discuss the three important topics of segmentation, targeting, and positioning.

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?

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Key Concepts Evaluating marketing segments 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 Objectives Outline 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. Explore 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.

Previewing the Concepts 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 and the next 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.

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We start with a seemingly simple question: What is a product? As it turns out, the answer is not so simple.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP NIKE: More than Just Innovative Sports Gear—A Total Brand Experience Nike‘s success story is a masterclass in leveraging product innovation and customercentric marketing to create an enduring global brand. The iconic Nike swoosh, now synonymous with athletic excellence, was built through decades of innovative product design and revolutionary marketing strategies. Nike consistently integrates advanced technologies into its products, like its Nike Adapt BB basketball shoes, which adjust to a player‘s needs mid-game via app or voice commands, elevating the customer experience beyond the functional.

More than just a sports brand, Nike markets a lifestyle and mindset, epitomized by its "Just Do It" philosophy. Through emotional storytelling and campaigns like ―You Can‘t Stop Us,‖ Nike connects deeply with customers, turning its brand into a symbol of inspiration and perseverance. Its transition from traditional advertising to cutting-edge digital and social media marketing further strengthens this connection, engaging millions globally through personalized apps, community-building initiatives, and social media interactions.

Nike doesn‘t just sell products, it fosters a sense of community and shared purpose, making its brand an integral part of customers‘ lives. This approach has cemented Nike as the world‘s leading sports apparel company, dominating market share and growing revenues even amidst fierce competition and economic challenges. By intertwining product excellence with an emotional connection to customers, Nike exemplifies how marketing can create immense brand loyalty and value.

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.

A product is defined as anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want or need. 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 16-175

for sale that are essentially intangible and do not result in the ownership of anything.

Use Key Term Service here.

Products, Services, Solutions, 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.

Some companies are focused on solving customer problems by offering customer solutions, which are carefully thought-out bundles of products and services designed to comprehensively solve customers‘ problems.

To differentiate their offers, marketers are creating and managing customer experiences with their brands or companies.

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Use Discussion Question 7-1 here.

Use Discussion Question 7-2 here.

6.

Product and Service Classifications Consumer Products

Consumer products are products and services bought by final consumers for personal consumption.

Consumer products include the following: • 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.

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 four 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.

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•

Products for resale are purchased from manufacturers by wholesalers or retailers to be resold to final consumers/users.

Organizations, Persons, Places, and Ideas

Organization marketing aims 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.

Use Discussion Question 7-3 here.

Use Marketing Ethics here.

Levels of Product and Services (see Figure 7.1) 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.

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 7-6 here.

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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.

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 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.

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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.

Smart packing, using QE codes or other technologies, allows products to connect consumers to the internet and other virtual resources and experiences.

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.

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.

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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.

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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.

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 Linking the Concepts 1 here.

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SERVICES MARKETING Services account for more than 75 percent of U.S. gross domestic product.

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Service industries vary greatly.   

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.

Governments offer services through courts, employment services, hospitals, military ser- vices, police and fire departments, the postal service, and schools.

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.   

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.

Use Discussion Question 7-4 here.

Use Critical Thinking Exercise 7-9 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

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themselves strongly in chosen target markets.

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.

The service profit chain consists of five links: •

Internal service quality: superior employee selection and training, a quality 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 traditional external marketing, 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.

Use Critical Thinking Exercise 7-7 here.

Service companies face three major marketing tasks: They want to manage 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.

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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 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 improve workplace culture and morale so employees contribute more strongly.

• 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.

Use Marketing at Work 7.1 here.

Use Critical Thinking Exercise 7-8 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.

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Use Key Term Brand Equity here.

BAVGROUP‘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),

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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 raise prices as customers are willing to pay • Defense against 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 Figure 7.4 here.

Building Strong Brands (see Figure 7.4) 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).  The manufacturer can market licensed brands.

Two companies can join forces and co-brand a product.

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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.

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 $278 billion today and a projected $385 billion by 2028.

Co-branding Use Key Term Co-branding here.

Use Discussion Question 7-5 here.

Use Digital Marketing and AI 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 can lead to the sharing of key competencies.

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.

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Brand Development Use Figure 7.5 here.

A company has four choices when it comes to developing brands (see Figure 7.5).

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 new category.

Use Key Terms Line Extension and Brand Extension here.

Use Marketing by the Numbers 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.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

7-1.

What is a service? Can services be differentiated as consumer services and industrial services? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Services are intangible products offered for sale, that may involve activities,

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benefits, or satisfaction, such as banking, hotel, tax preparation, and home-repair services. Just like tangible products, they can be differentiated based on whether they are targeted at regular customers (consumer services) or at business customers (industrial services).

7-2.

What is the ―customer experience?‖ Why are companies increasingly focusing on creating great customer experiences to deliver customer value? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Customer experiences are market offerings with strong sensory or emotional components that play out over time. They span a customer‘s interaction with the company and its offerings, all the way from getting to know about the company and buying its product to using it and finally disposing of it. Great customer experiences are increasingly important because, as markets become more competitive, the sensory and emotional aspects of the experience differentiate the offering and also build stronger customer attachments and relationships with the company.

In addition, modern technologies ranging from smartphone apps to customized online webpages can be of great use in building and supporting customer experiences.

7-3.

What is social marketing? Provide an example. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Social marketing is the use of traditional business marketing concepts and tools to encourage behaviors that will create individual and societal wellbeing. Many companies and organizations engage in social marketing to support ideas they believe in. For example, Dove‘s ―Real Beauty‖ campaign aimed to challenge the traditional beauty standards set by the beauty industry. The campaign featured women of various ages, sizes, and ethnicities, breaking away from the industry‘s norm of using models who fit a very specific and narrow definition of beauty. The objective was to make a social statement about body positivity and self-esteem.

Students will give a wide range of examples that provide excellent opportunities for discussion.

7-4.

The 7Ps of the service marketing mix add three more Ps to the 4Ps marketing mix. What are the additional three Ps, and why do service marketers benefit from including them in the service marketing mix framework? (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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The additional three Ps are: people, emphasizing the training (often measured in expertise and qualifications) and the motivation (measured in their eagerness to serve customers) of the people providing the service; process, acknowledging the importance of developing efficient and effective service delivery processes that ensure a consistent standard of service quality, from anticipating customer needs through responding to customer feedback; and physical evidence, underscoring the importance of providing tangible proof of quality such as restaurant lightning and restroom cleanliness, the quality of email communication, and so on in addition to intangible service attributes. Managing the people, process, and physical evidence helps craft and deliver higher-quality services.

7-5.

Explain the four key brand strategy options for a business. Provide an example of each. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The four options are: positioning (product attributes, benefits, beliefs and values), name selection (should imply benefits and qualities, be easy to pronounce, recognize, and remember, be distinctive and ideally extendable, it should also be translatable for overseas markets), sponsorship (manufacturers, private, licensed or co-brand), development (line and brand extensions, multi-brands, and new brands). Students should be encouraged to give local and global examples of these.

7-6.

What specific decisions must companies make when designing and marketing products and services? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: As described in Figure 7.2, developing a product or service starts with defining its proposed benefits in response to researched customer needs.

The firm must then decide how to convey the benefits through attributes like quality, features, style, and design. Quality is crucial for positioning and influencing perceived customer value and satisfaction. Features distinguish a product from competitors. Effective design focuses on addressing customer needs and usage experiences, rather than just technical specifications. Branding, involving a name, symbol, or design, creates emotional connections and adds value for consumers. Packaging, now a significant marketing tool, must attract buyers and communicate the brand, with labeling and logos playing key roles in identification, information provision, and brand promotion. Support services, whether a minor or major part of the offering, significantly impact the overall brand experience.

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Critical Thinking Exercises 7-7.

Select a local library and evaluate its internal and interactive marketing strategies, focusing on both internal dynamics among staff and interactive engagements with patrons. Reflect on these strategies‘ effectiveness.

Assess how these strategies foster a positive work environment, promote staff development, and encourage effective internal communication.

Consider aspects such as staff training programs, team-building activities, recognition initiatives, and platforms for staff feedback and collaboration.

Focus on the use of digital platforms (social media, email newsletters, interactive websites), community engagement events (workshops, author talks, educational programs), and personalized services (book recommendations, help desks) from an interactive marketing perspective.

What, if anything, would you improve? Outline an internal and interactive marketing program for the library. What elements would the program include? (AACSB: Written and Oral Communication; Reflective Thinking)

Answer:

Student responses will vary. Internal marketing in a library involves the coordination and motivation of staff to ensure they work collaboratively to provide an enriching experience for library patrons.

This includes regular staff training, team-building activities, and a strong internal communication system. Interactive marketing, on the other hand, focuses on the staff’s engagement with patrons, such as how they assist in information retrieval, respond to queries, and create a welcoming environment.

Taking the example of a local public library, the staff might be trained and encouraged to engage with visitors, guiding them in book selection or using digital resources. Internal marketing could involve workshops to enhance digital literacy among staff, ensuring they are equipped to assist patrons with diverse needs. Interactive marketing might manifest in staff proactively offering help, organizing community events, or running educational programs.

To improve, the library could enhance its internal marketing by incorporating more cross-training, so staff are versatile in different roles. For interactive marketing, introducing more personalized services, like book recommendations based on patron history or targeted community programs, could enhance user experience. The library could also evaluate how to better use technology to help its customers, and to help customers help themselves. Regular feedback 16-193

channels from patrons could also be established to continuously adapt and improve both internal and interactive marketing strategies.

7-8.

In the hospitality industry, companies employ numerous technology-based amenities that create guest convenience while also reducing service costs. For example, many hotels offer automated check-in systems, allowing guests to bypass the reception desk and access their rooms directly. However, digital check-in processes are not universally embraced. Despite the convenience and the potential for saving time, a significant number of guests still prefer the personal touch of checking in with a hotel staff member. Considering guests‘ fondness for traditional check-in methods, in line with the service profit chain, how should hotels encourage more customers to adopt automated check-in options and other technologies?

Answer:

Student answers will vary. However, they could cover the following points:  Applying the service profit chain, motivate employees to encourage guests to try out the technology.  Incentivize customers to try the new technology by offering additional stay points or some inexpensive giveaways.  Make the process fun and easy.  Emphasize the freedom that customers will have to view the available inventory of rooms and make their choice.

7-9.

Choose a recent experience you‘ve had with a service provider. This could be anything from a visit to a restaurant, a retail store visit, an online shopping experience, a visit to a bank, a medical appointment, a stay at a hotel, or any other service interaction. Evaluate this experience using the 7Ps service marketing mix. Share your analysis on a class discussion board or in class. Compare your experience and analysis with that of a classmate. Discuss how your experiences differ, focusing on each of the 7Ps. What insights can you gain from these differences? Assess what this exercise taught you about the complexity and challenges of delivering high-quality services. Consider how understanding the 7Ps can help businesses in improving their service delivery. (AACSB: Written and Oral Communication, Reflective Thinking) Answer: Students‘ answers will vary depending on their chosen service experience.

Each student should provide a detailed analysis using the 7Ps framework, highlighting the nuances and unique aspects of their experience. The comparison with classmates‘ experiences will underscore the variability and personalized nature of service experiences. Students will gain a

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deeper understanding of how each of the 7Ps impacts customer perception and satisfaction.

Instructors can initiate the exercise by providing examples or case studies to illustrate the 7Ps in action. Encourage students to think critically and empathetically, putting themselves in the shoes of both the service provider and the consumer. Also emphasize how providers can improve services by working in each of the 7 Ps.

Minicases and Applications Digital Marketing and AI: Dyson—Digital Influencer Partnerships and Unboxing Videos Dyson revolutionized the household vacuum cleaner. It emerged as a vacuum cleaner pioneer by introducing the first bagless model. This innovative approach aligned well with Dyson‘s forward-thinking commitment to environmental sustainability and user-friendliness. Dyson‘s initial bagless upright vacuum, launched in 1993, featured the groundbreaking Dual Cyclone technology. This technology addressed two major complaints about vacuum cleaners: loss of suction and the hassle of changing bags.

Dyson‘s use of digital marketing, particularly through influencer partnerships and engaging unboxing videos and product demonstrations, has played a crucial role in establishing its brand. And it facilitated Dyson‘s expansion into a new segment—home lamps and lighting products. For its vacuum cleaners, air purifiers, and other products, Dyson collaborated with influencers across various social media platforms. It leveraged influencer credibility and reach to showcase the innovative features and design aesthetics of its products. These influencers, through their authentic engagement with the products, created relatable and compelling content that resonated with a broad audience. This approach highlighted the practicality and luxury associated with Dyson‘s vacuum cleaners and air purifiers. Dyson then implemented the same approach to establish its new lamps and lighting products. It used unboxing videos and demonstrations of these products on platforms such as TikTok and YouTube, providing potential customers with a relatable, firsthand look at the products in action. This digital marketing strategy effectively communicated Dyson‘s core commitment to innovation and quality, thereby enhancing brand equity and customer engagement. As a result, Dyson was able to employ its established brand identity and digital presence to reduce the risks of entering the home lighting market, ensuring a smoother transition and acceptance of its new product line by consumers.

7-10. Evaluate the effectiveness of unboxing videos and product demonstrations on platforms such as TikTok and YouTube in enhancing Dyson‘s brand 16-195

visibility and appeal (see https://bit.ly/3UQs24c , https://bit.ly/3SIqTc0 , https://bit.ly/49KQF6x). How do these digital marketing tools help in communicating the innovative features and design aesthetics of Dyson products? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students‘ answers may vary, but unboxing videos and product demonstrations on platforms such as TikTok and YouTube have been pivotal in enhancing Dyson‘s brand visibility and appeal. These formats capture the excitement of unboxing and the practicality of Dyson‘s products in real-life scenarios. Unboxing videos highlight the quality and design of Dyson products, creating an emotional connection with viewers, while demonstrations emphasize functionality and innovation, building trust in the products‘ performance and justifying their relatively high prices to potential customers. This strategy has been particularly influential in introducing Dyson‘s lighting products, where both design and functionality are key selling points. The use of influencers and real users in these videos also adds authenticity, aligning well with consumer preferences for transparent and relatable marketing.

7-11. Use ChatGPT or any other generative AI interface and conduct a focused analysis of Dyson‘s customer value-based branding strategy, concentrating on vacuum cleaners. Begin by asking ChatGPT to identify the distinctive features and innovations of Dyson vacuum cleaners, understanding how they align with Dyson‘s brand values and appeal to specific target markets. Note the characteristics highlighted by ChatGPT. Is Dyson well differentiated from the competition? Next, ask ChatGPT to suggest how Dyson could further innovate its vacuum cleaners. Do you think ChatGPT‘s responses would be useful to Dyson, which is already an innovative company? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Student responses will vary. However, they should find that ChatGPT is able to pick up many key factors that distinguish Dyson in two distinct fronts: aesthetic design and technology characteristics/performance.

Despite Dyson being a tech-savvy company, ChatGPT will generate a surprisingly rich set of ideas for the company to innovate and grow. The instructor should make the point that managers can and must use ChatGPT for numerous marketing purposes. Managers should be aware that ChatGPT can sometimes mislead, but it usually does a fine job in providing an excellent starting point for ideation, often surfacing some ideas and perspectives that were off the radar.

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Marketing Ethics Should Luxury Brands Engage in Environmental Awareness Campaigns?

Multinational corporations have been widely criticized for perpetuating the price differential between men‘s and women‘s razors. Clothes, beauty products, toys, and other products are also routinely more expensive for women than men. This gender-based price discrimination is often referred to as the pink tax. This price discrimination is not new; neither is it restricted to women‘s clothes, razors, and dolls. A report by the New York City of Consumer Affairs found that across 800 identical products, on average, the female version was 7 percent more expensive. Perhaps part of the explanation is price sensitivity. In other situations, a business will attempt to increase the price out of balance to match the increase in cost to them if they can manage it. Sellers do rely on making a greater profit by sneaking ―add-ons‖ or personalizing products. In these cases, the buyer effectively self-selects the higher price. It may be a simple extra topping on a dessert, a super-sized version of the standard product, or even a vanilla syrup shot in a coffee. All attract a nice mark-up for the seller.1 7-12. Is price discrimination reasonable and a viable approach in the marketing of products and services? Explain why the approach might be contrary to customer value–driven strategies. (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: In most cases, businesses cannot overtly charge different prices for men and women. The situation appears to suggest that women are less price sensitive than men; hence, businesses can charge women a higher price or a higher mark up. It is true that some consumers are less price sensitive, so this is not at odds with the customer value-driven approach. In these cases, there is some differentiation in the product or service, even if it is only in the way the product looks. Problems arise when the products are side by side, demonstrably the same, yet one is more expensive than the other. Non-gender specific clothing such as jeans, t-shirts, etc. are good examples of this; they are made from the same fabric, by using broadly the same amount of material, and take the same time to manufacture. There may be slight design differences for men and women, but this usually does not justify a price difference. In these cases, there is clear gender discrimination.

7-13. There are other forms of price discrimination that are routinely used by businesses. Identify the different types, and comment on their impact on customer value–driven approaches. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: 1. First-degree or perfect price discrimination is when the seller charges a different price to each potential buyer. In these cases, the seller can determine the highest price that each customer is prepared to pay.

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2. Second-degree price discrimination is when different prices are charged dependent on the volume of purchases. Typically, the more the buyer purchases, the cheaper each individual product becomes.

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3. Third-degree or multi-market price discrimination is seen in the case given.

The seller will charge different prices for essentially the same product to a different group of customers (in the case, women). Other examples would be travel costs or entry fees where younger people or older people often get discounts, while the bulk of other customers pay full price.

Source: 1. ―From Cradle to Cane: The Cost of Being a Female Consumer,‖ New York City Department of Consumer Affairs, December 2015, chromeextension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.nyc.gov/assets/dca/do wnloads/pdf/partners/Study-of-Gender-Pricing-in-NYC.pdf.

Marketing by the Numbers Starbucks BAYA Energy+ Starbucks BAYA Energy+ is a ready-to-drink (RTD) canned beverage that is crafted from caffeine naturally found in coffee fruit. BAYA delivers a boost of feelgood energy and is set to expand through the United States, Canada, the United Kingdom, Australia, and Japan. BAYA targets the growing market of healthconscious consumers seeking a caffeinated energy boost by combining Starbucks coffee with vitamins B and C, taurine, and ginseng. Although BAYA is priced higher than their regular coffee beverages ($3.50 per 250-milliliter can versus $2.50 for a regular coffee can), it also incurs higher production costs ($2.20 per can versus $1.50 for a regular coffee can). The target demographic includes current Starbucks coffee drinkers as well as consumers looking for a healthier alternative to traditional energy drinks.

7-14. Suppose every buyer of BAYA was an existing Starbucks coffee drinker who replaced their regular Starbucks consumption with Baya. Should Starbucks launch the brand? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Starbucks makes $2.50 − $1.50 = $1.00 of contribution per can of regular coffee. For every can of BAYA, Starbucks makes a contribution of $3.50 − $2.20 = $1.30 per can. Therefore, each can of Baya makes 30 cents more than each can of regular coffee. Therefore, Starbucks should launch the brand. Note that we have assumed that the annual fixed costs of supporting BAYA are zero. If the fixed costs are substantial, we may need to sell a whole lot of BAYA to recover those fixed costs and then start generating profits. In that case, our decision may change.

7-15. Now assume Starbucks expects to sell 30 million cans of BAYA in the next year, with 25 percent of those sales projected to come from current Starbucks coffee consumers (cannibalized sales). Assume Starbucks sells 16-199

approximately 500 million cans of coffee annually and anticipates an increase in annual fixed costs of $4,000,000 for the new BAYA product line. Will BAYA be profitable for the company? This analysis requires consideration of cannibalization and profitability—see the Financial Analysis of Marketing Tactics: Extend the Product Line section in Appendix 3: Marketing by the Numbers. (AACSB: Written and Oral Communication; Analytical Thinking) 7-16.

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 First, here are the unit contributions for each product (see previous answer): regular coffee can: $1 per can; BAYA can: $1.30 per can. Thus, the incremental contribution from replacing a can of Starbucks coffee with a can of BAYA is $1.30 – $1.00 = $0.30.

Now, with an estimated sale of 30 million cans of BAYA, and 25% (7.5 million cans) expected to cannibalize existing coffee sales, the contribution shift due to cannibalization is: Contribution gain from cannibalization = 7,500,000 cans × $0.30 gain per can = $2,250,000.

The remaining 22.5 million cans represent new sales, contributing $1.30 per can: Contribution from new sales = 22,500,000 cans × $1.30 = $29,250,000 The total incremental contribution is $31,500,000 (that is, $29,250,000 + $2,250,000).

Since this significantly exceeds the $4,000,000 annual fixed costs incurred to support BAYA, introducing BAYA is very likely to enhance Starbucks‘ profitability.

Company Case Teaching Notes Company Cases 7 Carhartt/8 Apple/2 DuPont See Appendix 1 for teaching notes for the below cases.

Case 7, Carhartt: A Rugged Brand Embraces a Growing Women’s Wear Market.

Carhartt is revolutionizing women‘s workwear by combining durability with style and comfort tailored for women. Carhartt supports the growing number of women in laborintensive jobs.

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Case 8, Apple: Innovative to Its Core. Apple redefines industries with its groundbreaking products, from the first Macintosh to the latest AIpowered iPhone. It leads the market with cutting-edge technology and sleek designs.

Case 2, DuPont: Improving Everyday Life by Solving the World’s Most Challenging Problems. DuPont leads in sustainable innovation, developing biodegradable plastics to reduce environmental impact and create a better tomorrow.

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GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

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 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.

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?

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Small Group Assignment Read the chapter-opening vignette on Nike. Form students into groups of three to five. Each group should then answer the following questions: 1. What is Nike selling?

2. How has Nike managed to develop a deep-down connection with its customers?

3. What is a ―brand experience‖? How has Nike 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?

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.

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.

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2.

3.

4.

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

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?

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 

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?

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Key Concepts Nature and characteristics of a service Marketing strategies for service firms 





Charles Schwab is one of the world‘s leading financial management and advisory companies (see www.schwab.com). Do Schwab‘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?

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 Objectives Outline 15. Explore how companies find and develop new product ideas.

16. 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 the social responsibility, public policy, and regulatory issues related to product decisions.

Previewing the Concepts In this chapter, we‘ll look into: 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.

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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.

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).

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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.

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.

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.

Use Figure 8.1 here.

Use Discussion Question 8-3 here.

Use Chapter Objective 2 here.

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.

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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 Critical Thinking Exercise 8-7 here.

2.

Idea Screening Use Key Term Idea Screening here.

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) Marketing Strategy Development

4.

Marketing strategy development involves designing an initial marketing strategy for a new product based on the product concept.

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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.

Use Discussion Question 8-2 here.

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 16-211

product.

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.

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.

Use Discussion Question 8-4 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.

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2. It will yield a larger number of new product ideas, among which will be found some especially good ones.

The Growing Role of Artificial Intelligence in New Product Development Artificial intelligence (AI) can help significantly at different stages of the new product conceptualization and development process.

The innovation management system approach yields two favorable outcomes.

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.

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.

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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 Use Critical Thinking Exercises 8-8 and 8-9 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.

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.

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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.

Decline Stage Use Key Term Decline Stage here.

Use Digital Marketing and AI 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.

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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.

Use Discussion Question 8-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 8-1.

How can companies acquire new products? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Companies typically create products internally. But they can also acquire them through the following methods: 1. Acquiring entire companies: For instance, Google acquired companies like Nest (smart home devices), Waze (a navigation app), and Fitbit (health and fitness wearables). When it acquired these companies, Google also acquired the products they marketed.

2. Obtaining patents: Samsung, for example, has purchased or used deals with other companies to gain rights to more than 75 patents since 2015. Many of its products incorporate knowledge or technology stemming from these patents.

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3. Licensing products or intellectual property: Mattel paid Nickelodeon $2.4 billion for multi-platform licensing agreements related to brands such as Jimmy Neutron, Dora the Explorer, and Blue‘s Clues.

Of course, companies can obtain ideas related to new products from a much broader set of sources, ranging from employees and customers to supply partners and R&D teams..

8-2.

Why are customers increasingly vital in the creation of innovative new products and services? How has this come about? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Perhaps the most important source for new product ideas is customers themselves.

Companies often observe the needs and wants of customers, invite them to submit their ideas and suggestions, or even involve customers in product development.

Many companies are now developing crowdsourcing or open-innovation product idea programs, which invite broad communities of people—customers, employees, independent scientists and researchers, and even the general public— into the product innovation process. Truly innovative companies do not rely only on one source or another for new product ideas.

8-3.

Give examples of internal sources that might be used to generate good new product ideas for companies. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Internal sources of new product ideas are as follows: 1. R&D/innovation centers: For example, Delta Airlines established the Delta Innovation Center to drive innovation across the organization.

The center collaborates with startups, universities, and industry experts. It explores emerging technologies like blockchain, artificial intelligence, and biometrics. Delta‘s leadership helps shape the innovation agenda.

2. Harnessing internal creativity: For example, cosmetics company LUSH encourages creativity among employees by conducting product formulation workshops where new products are built and tested based on employee input.

3. Using technology to generate ideas: For example, companies use Retool AI, powered by ChatGPT, to create AI-powered applications for various functions, including inventory management, customer support (chatbots), and tailored product experiences. The insights gathered from the tools can help develop new products that satisfy customer needs.

4. Conducting focused hackathons: For example, electronics firm Panasonic hosts hackathons where cross-functional teams collaborate 16-217

to brainstorm, build prototypes, and pitch innovative ideas. The winning ideas receive further development and funding.

5. Unbundling and repurposing existing offerings: For example, Verizon unbundled services to create customizable plans. On the other hand, the New York Times repurposed content into digital subscriptions.

They transformed print articles into digital formats. Interactive features, podcasts, and newsletters were bundled into subscription packages.

8-4.

What are the three key components of a holistic approach to new product development? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The holistic approach to new product development comprises three key components: 1. Customer-centered development: This prioritizes understanding customer needs and problems, rather than solely focusing on technology or product attributes. Profitable solutions are then tailored to address these customer needs and problems.

2. Team-based collaboration: Various company departments collaborate closely in cross-functional teams, sharing knowledge and overlapping steps in the product development process. Such teamwork saves time and increases the efficiency and effectiveness of the new product development process.

3. Systematic and structured process: Activities follow a disciplined sequence rather than being conducted haphazardly. This approach increases the likelihood of timely execution, effective risk management, and overall success.

8-5.

Describe the expected patterns of sales and profits over a typical product life cycle. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The product life cycle (PLC) outlines the course of a product‘s sales and profits throughout its existence. It typically follows four stages: 1. Introduction: Here, sales will grow gradually as the product enters the market, while profits will remain negative due to initial investment costs.

2. Growth: Here, sales increase significantly, potentially leading to positive profits. But profits will typically not be high because the company must invest in driving the growth.

3. Maturity: Sales continue to rise at a slower pace or stabilize. There is increased competition which prompts the use of product variants and 16-218

targeted marketing. Profit levels may remain strong and stable or may even rise during this phase.

4. Decline: Sales decline sharply, resulting in reduced profits as the product reaches the end of its life cycle.

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8-6.

Discuss social responsibility and regulatory issues related to product decisions. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Social responsibility goes beyond profit motives. It involves a company‘s commitment to ethical behavior and positive societal impact. Brands like Patagonia exemplify this by championing sustainable practices, fair labor, and environmental activism. Similarly, TOMS follows a ―One for One‖ model, donating shoes to those in need for every pair sold.

Regulatory considerations emphasize how rules imposed by the government and regulatory bodies significantly influence business practices. For instance, FDA regulations are designed to ensure product performance, product safety, and accurate labeling. Trade regulations impact global product availability and pricing. Companies must conduct business in ways that are consistent with these rules.

Critical Thinking Exercises 8-7.

Research press releases from Unilever related to crowdsourcing. How does Unilever use crowdsourcing to find innovative new sustainability solutions? (AACSB: Written and Oral Communication; Application of Knowledge) Answer: Students‘ answers will depend on the information they view, but here are two examples of how Unilever has used crowdsourcing to find sustainable solutions: Example 1: Oil palm plantations in Southeast Asia potentially have significant environmental consequences related to the clearcutting of tropical forests to create space for the plantations. To ensure that the oil palm fruits it collects do not come from newly clearcut lands, Unilever works with oil mill workers and suppliers to source photos of all oil palm fruit collection points. Using artificial intelligence-based algorithms, the photos are matched to physical collection points which are located close to approved plantation lands. This provides Unilever with a credible and detailed picture of where its supplies are coming from. See www.unilever.com/news/news-search/2022/using-crowdsourcing-for-amore-transparent-palm-oil-supply-chain/. Also consider showing students the video on the page.

Example 2: The Unilever Foundry is Unilever‘s global collaborative innovation platform. It collaborates with startup companies to commercialize ideas—particularly those that employ sustainable or biodegradable solutions. See www.theunileverfoundry.com.

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.

8-8.

Research the Fitbit Charge 5. Learn about the product on the official Fitbit website. Where is this product in the product life cycle? Why? (AACSB: Integration of Real-World Business Experiences; Application of Knowledge)

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Answer: The Fitbit Charge 5 is an advanced fitness tracker that monitors various health metrics such as heart rate, sleep, and stress levels. It incorporates numerous health-monitoring sensors and has GPS functionality. This product is in the growth stage of its product life cycle. The adoption of fitness trackers has increased significantly, spurred by a growing awareness of health and fitness needs in a rather sedentary society. The Fitbit Charge 5 improves upon previous models by adding new features like an EDA scan for stress management, which appeals to healthconscious consumers. To continue its growth, Fitbit needs to enhance its appeal by integrating more health services, such as personalized coaching and predictive health alerts, which would cater to a broader demographic beyond just fitness enthusiasts.

8-9.

People travel to unique and themed accommodations, such as treehouse hotels, where guests can spend a night or more in tree-mounted accommodations surrounded by nature (see websites such as https://treehousemap.com/ and www.houseandgarden.co.uk/gallery/treehouse-hotels for locations).

Treehouse hotels in the U.S. Pacific Northwest of the offer experiences of living amidst towering conifer forests, while similar accommodations in Costa Rica provide views of lush rainforests and exotic wildlife. Is treehouse hotel tourism/staycation a fad? Respond in a way that reflects your understanding of fads.

Answer: Students will list arguments on both sides. For example: Reasons that treehouse hotels are a fad: 1. It caters to a niche market, appealing primarily to those interested in unique, nature-immersive experiences.

2. Like other fads, treehouse hotels serve as a novel topic for conversation and can be seen as a way to boast about unique travel adventures.

Reasons for treehouse hotels not being a fad: 1. Unlike typical fads, the interest in treehouse hotels has grown gradually over time, suggesting a stable appeal.

2. The concept has maintained popularity and relevance for many years, demonstrating endurance beyond a mere short-lived trend.

3. While some guests may visit treehouse hotels for a one-time experience, the ongoing appeal to new tourists seeking unique accommodations seems likely to continue.

4. Treehouse hotels contribute to destination tourism, much like other specialized travel experiences (for example, ice hotels, desert safari camps, wildlife camps), which are not generally considered fads due to

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their lasting appeal and integration into broader tourism markets.

On balance, the arguments suggesting that treehouse hotel tourism is not a fad appear to be more compelling and numerous.

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Minicases and Applications Digital Marketing and AI Strategizing Growth for Tempo Launched in 2021, digital fitness brand ―Tempo‖ has redefined at-home workouts by integrating artificial intelligence into its workout equipment to provide real-time feedback and personalized training plans (see https://tempo.fit/). As a startup, Tempo has capitalized on the shift toward home-based fitness solutions, sparked by global events that limited access to traditional gym environments. However, as with many tech-driven products, privacy and data security are significant concerns, given that Tempo collects extensive personal fitness data to tailor its services.

8-10. Assuming the privacy and security challenges can be addressed, how can Tempo grow in the digital age? (AACSB: Integration of Real-World Business Experiences) Answer: Students‘ answers may vary based on perception. But, as a guide, the Tempo team can pursue several strategies to enhance its presence and expand its market reach in the digital age. For example: 1. Building out a broader range of equipment that provides different exercise experiences and targets different muscle groups, ranging from rowing machines and cycling machines to smart exercise mirrors and leg presses.

2. Implementing AI learning models that analyze workout data to predict and prevent potential injuries, and to make customized suggestions related to optimizing the workout in terms of the range of activities, activity repetitions and limits, and recovery processes.

3. Developing deeper integrations with smartwatches and fitness trackers to sync biometric data (for example, heart rate and oxygen levels) directly with Tempo‘s system. The data can be integrated to provide users with health dashboards that help them monitor their activities and progress over time.

4. Using synched videos and progressing to virtual reality-based settings to create immersive workout environments ranging from a calm yoga session on a beach to a vigorous walk on a Himalayan mountain trail.

5. Integrating IoT sensors in Tempo equipment, thereby connecting with other smart home devices. For example, users can control lighting, temperature, and other environmental factors directly from their Tempo device to optimize their workout atmosphere.

6. Similar to Peloton, build a social community-based exercise and fitness platform.

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8-11. Considering that today‘s fitness environment is highly influencer-driven, what changes can Tempo make in the new product development process to enable it to thrive in the digital age?

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Answer: Students‘ answers may vary based on their perception of influencer marketing and their perception of fitness and training. However, as a guide, the following points can provide for a good discussion: 1. Partnering with influential fitness personalities, trainers, or wellness experts. Their endorsement and feedback can validate product features and boost credibility.

2. Involving influencers in ideation and testing. Influencers‘ insights can shape product design, ensuring alignment with user needs and trends.

3. Engaging influencers for product launches. Influencers‘ reach can amplify awareness and drive user adoption.

4. Encouraging influencers and users to share their Tempo experiences on social media as authentic content that builds trust and attracts potential customers.

5. Engaging fitness influencers to lead online sessions using Tempo equipment.

Marketing Ethics John Deere and Automated Farming Systems John Deere, a leading manufacturer of agricultural machinery, is at the forefront of integrating advanced technologies into its farming equipment. The company offers a range of high-tech solutions designed to enhance the efficiency and sustainability of modern farming practices. These technologies include GPSguided tractors that can plant seeds and apply fertilizers with astonishing precision, reducing waste and improving crop yields. John Deere also provides drone technology for aerial monitoring of crops, which helps farmers detect pest infestations, water stress, and other crop health issues early on.

The goal of these innovations is to demonstrate to farmers that adopting these advanced tools can transform their farming operations, making them more efficient, cost-effective, and environmentally friendly. By proving the reliability and effectiveness of these technologies, John Deere aims to increase societal acceptance and adoption of precision agriculture. This, in turn, could lead to broader transformations within the agricultural industry, such as the adoption of fully automated farming systems and more precise crop management techniques, ultimately leading to increased productivity and sustainability in agriculture.

8-12. What are the potential ethical concerns related to John Deere‘s new product innovations in automated farming systems? (AACSB: Ethical Understanding and Reasoning) Answer: 1. Innovations in automated farming systems raise the following ethical concerns:

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2. Automation may displace farm workers, especially those in manual or low-skilled roles, creating large-scale unemployment.

3. Collecting and analyzing extensive data in automated farming systems poses privacy risks. Sensitive information about farm operations, crop yields, and soil health must be safeguarded.

4. The affordability of advanced technologies could widen the gap between large, wealthy farms and smaller, resource-poor ones, affecting industry diversity.

5. Overreliance on automation may erode traditional farming knowledge and skills, leaving farmers vulnerable if technology fails.

6. Large-scale automation may lead to farmers and their offspring losing their ―touch with the land,‖ reducing the attractiveness of farming as an occupation.

7. While automation can potentially enhance sustainability, it must be managed to prevent intensive farming practices that harm soil, biodiversity, and local ecosystems.

8-13. How can John Deere and the farming industry address these concerns?

(AACSB: Ethical Understanding and Reasoning) Answer: Some ways of addressing these concerns include: 1. Implementing programs to retrain and reskill displaced farm workers, ensuring that they can adapt to new roles and find employment beyond farming.

2. Safeguarding sensitive information collected by automated systems and preventing unauthorized access by hackers and other malicious actors.

3. Promoting affordable automation and accessible training to help small farmers keep up with and embrace the possibilities offered by technology.

4. Collaborating with experts to develop ethical guidelines specific to AI and robotics in agriculture facilitating to address safety, transparency, and accountability.

Marketing by the Numbers The Mobile Medical Group With the population aging and increasing numbers of older patients who dread sitting in a sterile doctor's office, general practitioners are finding an opportunity in house calls for primary care. The Mobile Medical Group, a group of medical providers who deliver medical services ―right to your doorstep,‖ has taken its service from where it started in Utah to cities like San Francisco and New York. It performs everything from routine check-ups and vaccinations to chronic disease management. Recreating a doctor‘s office in a home requires additional, expensive equipment, such as portable diagnostic tools like EKG machines, 16-227

sterile supply kits, a blood pressure monitor, lights, and a laptop, in addition to a vehicle. A portable EKG machine alone costs $4,000. Refer to ―Increase Distribution Coverage‖ in Appendix 3: Marketing by the Numbers to answer the following questions.

8-14. Assuming that the total fixed costs for initiating this expansion are $325,000 and the group desires a contribution margin of 60%, determine the dollar volume of sales necessary to break even on such home service.

Answer: To determine the break-even point, we use the formula: Total fixed costs Break-even sales = ———————— Contribution margin

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i.e., $325,000 Break-even sales = ———— = $541,667 0.60 That is, if the Mobile Medical Group achieves sales of $541,667, it will recoup its fixed costs of $325,000.

8-15. What other strategies to increase profits must the Mobile Medical Group (MMG) consider in today‘s times when offering their service?

8-16.

Answer: The Mobile Medical Group (MMG) can navigate the digital age to enhance profits in the following ways: 1. Prioritizing telemedicine services: Providing healthcare over the internet or mobile devices, possibly using platforms such as Zoom, can sharply reduce overhead costs (physical infrastructure, utilities, etc.) and lower the number of unnecessary personal visits.

2. Implementing automated billing systems and efficient claims processing: This will help minimize administrative costs and accelerate revenue collection.

3. Wellness programs: MMG can offer subscription-based wellness programs that help drive both patient health and profits. This ensures that MMG does not make money only when patients are sick.

4. Digital marketing: By investing in online presence, branding, and content marketing, MMG can attract more patients through positive reviews, educational content, and personalized communication.

5. Using AI: MMG can use AI and health analytics to streamline workflows, predict patient needs, optimize resource allocation, and improve efficiency. For example, tools such as Google‘s Med-PaLM 2 medical AI chatbot can help MMG diagnose and react to patient symptoms faster—and sometimes more accurately.

Company Case Teaching Notes

Company Cases 8 Apple/6 WeightWatchers/3 SiriusXM See Appendix 1 for teaching notes for the below cases.

Case 8, Apple: Innovative to Its Core. Apple redefines industries with its groundbreaking products, from the first Macintosh to the latest AIpowered iPhone. It leads the market with cutting-edge technology and sleek designs.

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Case 6, WeightWatchers: Preserving the Brand’s Heritage while Charting a Course for the Future. WeightWatchers now integrates weight-loss medications into its approach. By combining behavioral regimens with modern solutions, it tries to attract a broader audience while promoting healthy lifestyles.

Case 3, SiriusXM: Competing in a Morphing Industry. SiriusXM, a pioneer in satellite radio, is adapting by integrating satellite and streaming services. It leverages exclusive content and celebrity channels to offer a unique, curated listening experience.

GREAT IDEAS Barriers to Effective Learning 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. 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

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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?

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.

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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 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

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   

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 

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?

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   

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

Objectives Outline 9-1.

9-2.

9-3.

9-4.

9-5.

9-6.

Define price, identify the 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 choose a portfolio of prices that maximizes the profits from the total product mix.

Discuss how companies adjust their prices to account for different types of customers and situations.

Discuss the major public policy concerns and key laws and legislations that affect pricing decisions.

Previewing the Concepts 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 FIRST STOP Trader Joe’s Unique Price-Value Positioning: “Cheap Gourmet” Trader Joe‘s exemplifies innovative pricing strategies with its unique ―cheap gourmet‖ positioning, offering premium, exclusive products at remarkably low

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prices. The brand creates a memorable shopping experience through its festive, island-themed store atmosphere, limited but carefully curated product assortments, and friendly customer interactions. Over 80% of its offerings are private-label items, ensuring exclusivity and customer loyalty. Trader Joe‘s sustains low prices through efficient operations, such as small store sizes, minimal advertising, and strategic supplier negotiations. These practices allow it to offer value-driven pricing without compromising quality. This balance has propelled Trader Joe‘s to the forefront of the grocery industry, with top-tier customer satisfaction and financial performance. The brand‘s approach highlights how aligning price with perceived value can drive customer loyalty and market success.

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.

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.

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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 Digital Marketing and AI here.

1. Good-value pricing involves offering just the right combination of quality and good service at a fair price.

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 Discussion Question 9-3 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

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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.

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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.

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.

Use Critical Thinking Exercise 9-7 here.

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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.

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.

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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.

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.

Use Discussion Question 9-4 here.

Use Critical Thinking Exercises 9-8 and 9-9 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.

The Economy Economic conditions can have a strong impact on the firm‘s pricing strategies.

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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.

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 considered.

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.

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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 price must maintain its low-price position.

Use Key Term Market-Penetration Pricing here.

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 consider 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.

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PRICE ADJUSTMENT STRATEGIES AND PRICE CHANGES Use Chapter Objective 5 here.

Use Table 9.2 here.

Discounts include:    

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. o Differential pricing based on buyer demographics or other characteristics is known as third degree price discrimination. While legal and socially accepted, companies must ensure the bases for price variations are justifiable.

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 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 16-243

their minds and refer to when looking at a given product.

Use Key Terms Psychological Pricing and Reference Prices here.

Use Discussion Question 9-5 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.

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 and impact profitability.

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.

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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.

Marketers also use dynamic pricing to adjust their prices and personalize offers to customers.

Today‘s digital environment lets marketers use personalized pricing, adjusting prices in real time to fit individual customer situations, locations, and buying behaviors.

Use Key Term Dynamic Pricing here.

Use Discussion Question 9-6 here.

Use Marketing Ethics here.

Use Digital Marketing and AI 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.

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When possible, the company should consider ways to meet higher costs or demand without raising prices, for example ―shrinkflation‖ shrinks the product, thus lowering costs, but the price remains the same.

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.

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.

Use Marketing by the Numbers 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.

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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.

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 is price? (AACSB: Written and Oral Communication) Answer: In the narrowest sense, price is the amount of money charged for a product or a service. More broadly, price is the sum of all the values that customers give up to gain the benefits of having or using a product or service. Pricing is critical in determining a firm‘s market share and profitability.

9-2.

What is cost-plus pricing? (AACSB: Written and Oral Communication) Answer: Cost-based pricing involves setting prices based on the costs of producing, distributing, and selling the product plus a fair rate of return for the company‘s effort and risk. A company‘s costs can set the floor for the price it charges. In general, though, cost-plus pricing is not a good pricing approach because it 16-247

implies that the firm seeks sufficient profits. Instead, the firm should seek maximum profits while yet delivering strong customer value and a strong customer experience.

9-3.

Two different types of costs form the total cost in setting product price in cost-based pricing. Explain what these two costs are and which one is the most important in determining the price. (AACSB: Written and Oral Communication)

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Answer: Cost-based pricing involves setting prices based on the costs for producing, distributing, and selling a product in addition to a fair rate of return for effort and risk. There are two types of costs that determine the total price of a product or service: fixed and variable. Fixed costs are those that do not vary with production or sales volumes. Variable costs vary directly with the level of production, namely, the number of units produced. For any given level of production, the total cost is the sum of the fixed and variable costs. Thus, both costs are equally important.

9-4.

Briefly explain and provide an example of the four types of markets that companies must consider for pricing decisions. Are these markets relevant for all types of products? (AACSB: Written and Oral Communication) Answer: The following are the four types of markets companies must consider for pricing decisions.

1. Pure competition: This market consists of many buyers and sellers trading 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 to no role.

Thus, sellers in these markets do not spend much time on marketing strategy.

2. Monopolistic competition: This market consists of many buyers and sellers who trade over a range of prices rather than a single market price. The range of prices exist because sellers seek to differentiate their offers to buyers.

3. 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.

4. Pure monopoly: The market consists of one seller. The seller may be a government monopoly, a private regulated monopoly, or a private nonregulated monopoly.

Usually, only one out of these four market types is relevant to a product or service at a time. A marketer needs to correctly identify the relevant market type for a product or service to set appropriate prices.

9-5.

How do marketers use psychological pricing to communicate something about the product? (AACSB: Written and Oral Communication) Answer: When implementing psychological pricing, sellers consider not only the economic impact but also the psychological effects of pricing on consumers. Here are two examples: 1. Quality Perception: Consumers often associate higher-priced products 16-249

with higher quality. When information or expertise is lacking, price becomes an informative signal of quality. However, if consumers can assess quality directly (for example, by examining the product), price matters less as a signal of quality.

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2. Reference Prices: Consumers carry reference prices in their minds— these could be current prices, past experiences, or situational assessments. Sellers can leverage these reference prices when setting prices and communicating value. For instance, explicitly presenting an offered price as a discount relative to the reference price enhances perceived value.

9-6.

How is personalized pricing used in the digital marketing environment?

Provide examples with your answer. (AACSB: Written and Oral Communication) Answer: Personalized pricing involves dynamically adjusting prices to align with individual customer needs, contexts, locations, and purchasing behaviors.

This strategy often operates subtly, akin to negotiating with customers without their explicit awareness. In the digital age, personalized pricing is a natural fit for the following reasons: 1. Sophisticated analytics tools empower digital sellers to monitor competitors‘ pricing and customer payments across various product categories. Online giants like Amazon can display comparable product prices to consumers across sellers, tailoring their own prices accordingly.

2. Retailers can dig deep into their databases to understand specific customer preferences and behaviors. By analyzing browsing patterns, they can adjust prices to align with individual needs. For instance, if a customer engages in intense price comparisons across competitors, the retailer may offer discounts to stay competitive.

3. Airlines and hotels employ advanced yield management software to track supply, demand, and online customer searches. Consequently, prices paid by flyers on a single flight can significantly vary. For instance, 150 economy class passengers might pay 50 different prices for their seats.

4. Across various sectors, companies leverage technology to monitor customer product usage and implement pay-per-use pricing. For instance, car insurance rates can be customized based on driving habits and styles, all tracked digitally.

Critical Thinking Exercises 9-7.

You have always wanted to run your own business and make a positive contribution to society. You are a good organizer, and your closest friend is a talented geologist. You decide to buy a drill-rig truck and subcontract to charities and governments to drill water wells for isolated communities in Australia. The truck will cost $250,000. You calculate that your other fixed costs include salaries, gas for the truck, and license fees and are estimated to be about $70,000 per year. Variable costs including the cost 16-251

of drills, pipes, pumps, pressure vessels, bricks, cement, and other construction items will be $8,400. Communities and local authorities will assign approximately $15,000 per well. Calculate the break-even for your drilling business. After reviewing your break-even, what changes would you consider? Is this the sort of business you want to run? (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: Break-even volume = Fixed Costs * Price – Variable Cost

=

$70000 = 10.6 $15000 – $8400

*Fixed costs should not include the cost of the food truck as that cost would not be expected to be recouped in the first year.

If 10.6 wells (or 11) wells is the break-even volume for a year, students will need to analyze how they can sell an average of 1 well per month. They should discuss the likelihood that there will be a demand for this number over the year. Students should also consider that they will need to cover the cost of the truck at some point and that they might need to double the number of wells per year to achieve this. Examining fixed costs is another option. Based on these variables, students will choose to move ahead with the business.

9-8.

Amara runs a small food kiosk and prepares lunch snacks for office workers in the city. On average, a customer spends $4.55 at her kiosk.

She has asked you to suggest some viable ways in which she can increase the average spend per customer and attract new ones.

Referring to the price adjustment strategies discussed in the chapter, suggest some options to Amara to increase overall sales. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Amara could use any of the following price adjustment strategies: 



  

9-9.

Discount and allowance pricing – rewarding regular customers by giving them discounts or free products after they purchase a defined number of products Segmented pricing – adjusting prices to allow for differences in customers, such as regular office workers, workers from specified companies, or office workers and passing customers Psychological pricing – adjusting the prices for psychological effect (e.g. $2.49 or $3.99) Promotional pricing – temporarily reducing prices to increase shortterm sales Dynamic pricing – starting prices at a discounted rate and then increasing them as stocks of that product begin to run out; this would encourage earlier purchases and purchases of overstocked products

In the sustainable fashion business described in the previous exercise, other than value-based pricing and dynamic pricing, which can cause a lot of backlash, what different pricing strategies might you implement and 16-253

why? (AACSB: Integration of Real-World Business Experiences; Reflective thinking)

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Answer: Students‘ answers will vary based on their entrepreneurial streak but would likely cover the following: 1. Competitive Pricing: Setting a price based on what the competition charges is useful in a saturated market to penetrate and acquire customers.

2. Premium Pricing: Setting a high price to reflect the exclusivity and high quality of the product can be effective if your brand is well-trusted although new.

3. Bundle Pricing: Offering a group of products for a lower price than if the customer bought all of them separately can help to increase the engagement value and move more products at once.

Minicases and Applications Digital Marketing and AI Levi Strauss’s use of GenAI Recently, Levi Strauss partnered with a studio that creates digital fashion models. These virtual models showcase the company‘s products. By leveraging generative AI, Levi Strauss can augment the number of live human models used for showcasing their apparel. The AI-generated digital models represent diverse body types, allowing customers to see how the clothes would look on someone similar to themselves. Customers can virtually try on different outfits using these digital models, which enhances personalization. They can receive more information about fit, style, and appearance, leading to better and faster purchase decisions.

9-10. How does the use of generative AI for enhancing customer experience increase the value perception associated with Levi Strauss‘s products?

(AACSB: Integration of Real-World Business Experiences; Reflective thinking).

Answer: Generative AI can enhance the value perception associated with Levi‘s products in the following ways: 1. Levi Strauss enhances the perceived value of its offerings by providing personalized recommendations based on individual style preferences.

Customers feel that the brand understands their needs and caters to their unique tastes.

2. The integration of AI-powered chatbots and virtual assistants streamlines customer interactions. Shoppers can quickly find answers, resolve issues, and make purchases without friction—and without journeying to the retail store, saving them time and effort.

3. Customers can virtually ―try before they buy.‖ This increases the 16-255

likelihood of a good fit, reducing return rates and increasing customer satisfaction.

4. The availability of digital models that mirror real-world diversity creates a positive impression.

5. Generative AI assists Levi Strauss in demand forecasting and inventory management. Shoppers are satisfied when they consistently find their preferred items in stock.

9-11. Imagine you are working as a marketing manager for Levi‘s Strauss. You have come up with a low-carbon-footprint variety of jeans using fair labor practices and natural and sustainably sourced raw materials. You want to use AI to find ways to communicate the advantages and charge a premium price. To do this, go to your preferred AI interface and query: ―At Levi Strauss, we have come up with low-carbon-footprint jeans using natural materials, fair labor practices, and sustainably sourced raw materials. How can we communicate the benefits and convince customers to pay a higher price for low-carbon-footprint jeans?‖ Based on the AI responses, how would you shape your marketing strategy? (AACSB: Integration of Real-World Business Experiences; Reflective thinking; IT Application) Answer: We suggest that the instructor work through this example in class.

ChatGPT throws up 10 or more different and interesting ideas related to communicating value that will ultimately support a premium price. These ideas range from transparency initiatives and brand partnerships to customer co-creation and brand storytelling. Students can learn about how they can put ChatGPT to work in this and other similar contexts.

Marketing Ethics The Uber Surge Pricing Dilemma Uber employs dynamic pricing (commonly known as ―surge pricing‖) to adjust fares based on real-time demand and supply conditions. This algorithmic approach ensures that during peak periods—such as major events, inclement weather, or rush hours—prices increase, encouraging more drivers to be available to meet the surge in demand. Conversely, when demand is low, prices may decrease, making rides more affordable and appealing to users.

9-12. Uber‘s surge pricing has been controversial. Detail reasons why Uber surge pricing is a good and reasonable strategy and reasons why it might be bad or unreasonable. (AACSB: Integration of Real-World Business Experiences; Reflective thinking) Answer:

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Students‘ answers should ideally address the following perspectives: Uber surge pricing is good: 1. Uber is simply matching demand with supply using surge pricing.

2. Uber is ultimately a profit-making company. Surge pricing is consistent with the goal of making profits.

3. Ferrying riders during surge traffic takes more time and uses more fuel—surge pricing reflects some of those costs.

4. Surge pricing ensures that ride services are appropriately allocated to those with the more pressing needs—that is how markets should work.

5. As long as there is sufficient transparency about surge pricing, regular commuters can always choose to take mass transport or to shift their travel schedule.

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Uber surge pricing is bad: 1. It is unethical to charge vastly different prices for the same ride from A to B just because the ride takes place at a different time.

2. With surge pricing, only affluent customers can avail of ride-share services.

3. It creates a lot of uncertainty about transport costs, hitting up customers with unexpected costs. This can be especially difficult for riders on a budget.

4. It negatively affects Uber‘s brand image.

In areas with low competition from other ride-share companies and public transport, Uber can potentially use surge pricing as a screen for high regular pricing.

9-13. Suppose you are a regional marketing manager for Uber and there is a sudden surge in people traveling to a large sports bar to watch the Super Bowl. You are at your desk and in a position to coordinate Uber‘s response. What would your response to this scenario be, in terms of pricing or other actions? (AACSB: Integration of Real-World Business Experiences; Reflective thinking) Answer: The instructor may want to clarify to the students that the manager‘s authority includes the direction of Uber resources to the problem and deciding the pricing strategy. Students could then work in breakout groups to come up with recommendations.

There are multiple responses possible, with different ethical implications.

Here are some possibilities the instructor can use to augment or complement student responses: 1. Business as usual: Implement typical Uber pricing but with no surge pricing. But this will not likely fully address the built-up demand.

2. Surge pricing: Prices will rocket but more Uber drivers will rush in and the demand is more likely to be met, even if takes some time.

3. Arrange for more UberX options: Encourage customers to order UberX (formerly known as Uber Pool) and direct more UberX Share vehicles which can carry four passengers each and Uber XL, which can carry seven passengers (apart from the driver), to address the demand.

4. Inform customers that Uber is not well placed to handle all the demand, encouraging them to seek other transportation modes.

Each of these has tradeoffs related to customer satisfaction, addressing demand, and Uber‘s profitability. The instructor can encourage a debate on the possibilities.

Marketing by the Numbers Tech Gear’s Pricing in a Niche Market

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TechGear, which produces high-quality laptop computers, decides to implement a 20% price increase across its product line to meet rising costs in materials and skilled labor. Before the price increase, the average selling price of its laptops was $600 per unit, and the variable cost (including materials, labor, etc.) was $360 per unit, resulting in a 40% contribution margin. The variable costs have now increased to $390 per unit.

9-14. Given that TechGear‘s annual sales originally generated $10 million in revenue, calculate how much sales volume it can lose following the price increase while still preserving its current level of profitability. (AACSB: Written and Oral Communication; Analytical Thinking; Reflective Thinking) Answer: Initial Price per laptop = $600 Initial Variable Costs per laptop = $360 Initial Contribution per laptop = $240 Total Sales Volume = $10,000,000 (revenue)/ $600 (price per unit) = 16,667 units Total Contribution = 16,667 units × $240 = $4 million New Pricing and Required Profitability: New price per laptop = $720 (20% increase) New variable costs are $390 per laptop New contribution per gadget: $720 − $390 = $330 New contribution margin = $330 / $720 = 45% Let X be the required sales revenue to make the original contribution of $4,000,000. At a contribution margin of 45%, it must be that: 0.45 × X = $4,000,000.

Therefore X= $4,000,000/0.45 = $8,888,889. Thus, to maintain a total contribution of $4 million at the new margin, TechGear needs new sales revenue to be $8,888,889.

We can also calculate the number of units that need to be sold. New Sales Volume at $720 per unit ≈ $8,888,889 (total revenues)/ $720 (price per unit) =12,345 units.

From this, we can understand there will be a decrease in sales volume of 16,667 − 12,345 = 4,322 units. However, TechGear will maintain the same profits.

9-15. Assume TechGear next decides to target a new customer segment that is more price-sensitive but has a large potential market size. It assumes this segment will be more responsive to a lower price point. As a strategy, it considers reducing the price by 5% but expects the segment to increase unit sales volume by 15%. Using the new numbers related to price and cost just calculated, calculate the new selling price, expected sales 16-259

volume, and total revenue and profit contribution from this new segment that TechGear has not sold to so far. (AACSB: Analytical Thinking) Answer: New price after initial increase: $720 per unit.

New variable costs are $390 per unit.

New sales volume = $8,888,889 and new unit sales volume = 12,345 units.

At a 5% decrease, the selling price for the new segment is: $720 × 0.95 = $684 Calculate expected sales volume increase: Expected increase in sales volume = 12,345 × 0.15≈1,852 units (rounded for simplicity) Calculate total revenue from the new segment: Total revenue = 1,852 × $684 ≈ $1,266,597.

Calculate profit contribution from the new segment: Contribution per unit = $684 − $390 = $294.

Total contribution = 1,852 × $294 ≈ $544,488.

Thus, by reducing the price to $684 for the new market segment, and with an expected 15% increase in sales volume, TechGear would generate approximately $1.27 million in revenue from this segment. The total contribution from this segment would be around $544,488.

Company Case Teaching Notes

Company Cases

9 Texas Roadhouse/15 Starbucks/16 Chipotle

See Appendix 1 for teaching notes for the below cases.

Case 9, Texas Roadhouse: Strategic Pricing in Tough Times. Known for hand-cut steaks and an exceptional dining experience, Texas Roadhouse masters value-based pricing to thrive in tough times.

Case 15, Starbucks: Adapting for India. Starbucks aims to become India‘s premier coffeehouse by blending global strategy with local adaptation. Starbucks delivers a culturally resonant coffee experience in India.

Case 16, Chipotle: An Environmental Sustainability Mission. Chipotle‘s mission is to ―Cultivate a Better World‖ by transforming fast food through sustainable, ethically sourced ingredients, providing fresh, real food that‘s good for you and the planet.

GREAT IDEAS

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Barriers to Effective Learning 1.

2.

3.

4.

5.

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.

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.

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6.

7.

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 Trader Joe‘s. Each group should then answer the following questions: 1. What pricing strategy do you believe Trader Joe‘s is using? Why? 2. What are the dangers they face from competitors that utilize a different pricing strategy?

3. What is the market position of Trader Joe‘s in the mind of the customer?

Each group should share its findings with the class.

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

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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. 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.

3.

4.

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 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.

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5.

6.

7.

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.

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?

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

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 Objectives Outline 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.

Previewing the Concepts 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.

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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 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.

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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 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.

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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.

Use Discussion Question 10-1 here.

Use Discussion Question 10-5 here.

Use Digital Marketing and AI 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.

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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.

From the producer‘s point of view, a greater number of levels means less control and greater channel complexity.

Use Chapter Objective 2 here.

Use Discussion Question 10-3 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.

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.

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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.

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 Discussion Question 10-4 here.

Use Critical Thinking Exercise 10-8 here.

Horizontal Marketing Systems Two or more companies at one level join together to follow a new marketing opportunity.

Use Key Term Horizontal Marketing System here.

Omnichannel 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 Critical Thinking Exercise 10-7 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. Direct-to-consumer brands (DTC) have rapidly risen as a new type of channel disrupter over the past decade.

Use Key Term Disintermediation (or channel disruption) here.

Use Marketing at Work 10.1 here.

Use Linking the Concepts here.

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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.

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.

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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 Marketing by the Numbers 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.

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 adaptability 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.

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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 longterm partnerships with channel members.

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.

Use Critical Thinking Exercise 10-9 here.

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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, unwanted, or excess products returned by consumers or resellers).

Use Key Term Supply Chain Management here.

Use Figure 10.5 here.

Use Discussion Question 10-2 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).

Use Marketing at Work 10.2 here.

Use Marketing Ethics here.

Sustainable Supply Chains Designing sustainable supply chains is simply the right thing to do. It‘s one more way

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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.

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.

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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.

Multimodal transportation: Combining two or more modes of transportation.    

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.

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.

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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.

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. What is the concept of the value delivery network and why is it becoming increasingly important? Explain. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: 16-277

A 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. Downstream marketing channel partners, such as wholesalers and retailers, form a vital link between the firm and its customers. The term supply chain may be too limited, as it takes a myopic make-and-sell view of the business. In contrast, a value delivery network takes a cooperative ecosystem view of the network, composed of the company, suppliers, distributors, and, ultimately, customers who partner with each other to improve the performance of the entire system in delivering customer value. Most large companies today are engaged in building and managing a complex, continuously evolving value delivery network.

The concept of the value delivery network is becoming increasingly important for the following reasons:  Parties embedded in the network‘s ecosystem represented by the network can play multiple roles with respect to the focal company. For example, customers were traditionally thought of as mere purchasers of the company‘s outcome. But in today‘s networked business environment, customer communities can play critical roles in cocreating the company‘s offerings (see https://ideas.lego.com/community).  Companies increasingly rely on other parties who coordinate to create and deliver value. For example, a company might rely on a service contractor to solve customers‘ product problems, but that contractor might engage the services of two other parties to get things done.  The digitization of business has led to large amounts of information created and coordinated across the network. For example, once the product leaves a company‘s warehouse, the entire physical journey to the customer‘s home can be tracked on the company‘s webpage, but that information is generated and seamlessly integrated by FedEx, UPS, and other third-party logistics (3PL) providers.  As products have become more complicated so have their production networks. The assembly of a Boeing 777 airplane requires the choreographed coordination of literally thousands of suppliers at different points in the assembly process, with smaller components being integrated into bigger components at different locations until it all comes together at the final assembly site.

10-2. What is the ―last mile‖ and why is it competitively important? (AACSB: Application of Knowledge; Reflective Thinking) Answer:

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The “last mile” refers to the last leg of the delivery chain in getting the product or service into the hands of customers. The last mile is important because: - Significant costs can go into the delivery of a single unit to the customer’s home—into that last mile. Customers now want and expect fast, accurate delivery on just about everything they buy, whether it’s an online purchase or a local store pickup—therefore, great last-mile performance can yield a strong competitive advantage.

- The last mile can pose a significant and expensive hurdle when it comes to serving customers in far-flung locations, especially when companies are hesitant to saddle those customers with additional delivery costs. Reducing these costs can increase profits.

- Technology is now providing many opportunities for companies to rethink the last mile. For example, many companies are looking closely at drone-based and robotic delivery, including Amazon.

10-3. Why do producers use channel partners even though increasing the number of channel partners often leads to lesser control? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Marketing intermediaries help adjust product batches from what producers make to what consumers want. Producers create large amounts of a few products, but consumers prefer a wide variety of products in small amounts. Intermediaries, like retailers, buy in bulk from producers and offer them in smaller quantities that consumers desire.

Take, for example, Apple, which manufactures millions of iPhones each year. However, most customers buy just one or a few phones at a time.

Retail giants like Best Buy, Amazon, and Walmart buy iPhones in large volumes and make them available in their stores and online platforms.

This allows consumers to purchase a single iPhone alongside other electronics or accessories in one go. Through this, intermediaries effectively ―break bulk‖ to align with consumer demand.

Marketing channel members also bridge gaps between the production and consumption of goods through several key activities: - Information: Collecting and sharing details about the market, and informing consumers about product performance and usage - Promotion: Creating messages to persuade buyers - Contact: Finding potential customers - Matching: Adjusting products to fit consumer needs, including packaging and assembly - Negotiation: Setting terms for sale and transfer of ownership

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Other roles include delivering goods (physical distribution), funding the distribution process (financing), and managing risks.

Companies must assign these and other channel tasks to entities that can do them most efficiently and effectively. And companies are finding that relying on channel partners is the best way to go in many situations.

10-4. How can channel conflicts be managed? In particular, how can various kinds of vertical marketing systems (VMS) be used to manage conflicts?

(AACSB: Application of Knowledge; Reflective Thinking) Answer: To ensure channel efficiency, it‘s crucial to define roles within the channel and manage conflicts appropriately. Vertical marketing systems (VMS) offer a strategic framework for this purpose, combining producers, wholesalers, and retailers into a unified system where one entity either owns the others, holds substantial contracts with others, or possesses enough influence to mandate cooperation. This structure can be controlled by any channel member, whether it be the producer, wholesaler, or retailer.

VMS systems operate through three primary models: corporate, contractual, and administered VMSs. Each manages and resolves conflict differently: - Corporate VMS: Here, production and distribution stages are integrated under a single ownership, streamlining coordination and conflict resolution within the entity‘s internal structure. For example, Zara manufactures its products and sells them through Zaraauthorized stores. The company controls various business processes such as marketing, hiring, and even the management of all distribution channel members.

- Contractual VMS: This involves independent firms at various production and distribution levels joining forces via contracts to achieve better economies of scale or sales impact than achievable individually.

The franchise model is a prevalent form of this system. For example, McDonald‘s has a global network of franchisees. Each franchisee agrees to adhere to McDonald‘s operational standards and menus, allowing the brand to expand rapidly while maintaining consistency and quality control. The terms of performance and conflict resolutions are specified in the contract.

- Administered VMS: Leadership in this model is not based on ownership or contractual agreements but rather on the dominant size and power of one or a few channel members. These entities can influence their partners‘ cooperation through their market position. For example, massive retail chains such as Walmart can exercise control over vertical marketing networks that serve them, even when those

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networks are run by third parties. Walmart can thus ―call the shots‖ when it comes to conflict resolution.

10-5. How can distributors and retailers increase channel efficiency? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Today, selling directly to customers through an online website is a popular business model. But this means every product sold must be individually shipped to customers. Having distributors and retailers can provide different kinds of efficiency: - They can help manufacturers achieve scale economies by moving large quantities of products through retail stores.

- They can bring in huge numbers of customers who want to buy multiple products and have these customers interface with the product.

This is particularly true for superstores and warehouse clubs or stores with numerous outlets (for example, convenience stores like 7-Eleven).

- They can address the complexity and costs related to last mile delivery because customers typically pick up products inside the stores.

- They can help promote products within the stores and through local mail flyer promotions.

- For durable goods such as washers and dryers, they can arrange for financing, delivery and installation.

10-6. What are third-party logistics (3PL) providers, and what value do they provide for companies? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A third-party logistics (3PL) provider is an independent logistics provider that performs any or all the functions required to get a client‘s product to market. Companies increasingly use third-party logistics providers because: (1) Working with 3PLs allows the companies to focus on their own core competencies, including building the brand and customer demand. The 3PLs are masters of complex logistics processes, including global logistics and managing customs clearances at borders and other paperwork.

(2) Integrated logistics companies like UPS understand increasingly complex logistics environments. 3PLs can work particularly well with direct-to-consumer marketers, taking charge of the product all the way from the manufacturer‘s warehouse to the consumer‘s doorstep—in other words, they provide a ―whole solution.‖

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(3) 3PLs work with multiple companies. Hence, they can generate large economies of scale that a single company cannot. For example, a FedEx freight aircraft can be fully loaded with products manufactured by 50 different companies. But a single company cannot afford to hire a freight aircraft for just its own products—they will fill only a fraction of the aircraft, sending per-unit transport costs soaring..

Critical Thinking Exercises 10-7. Amazon and Best Buy have formed a horizontal marketing system to sell Amazon smart home devices. What might their relationship look like if they formed a conventional distribution channel instead? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A horizontal marketing system implies a partnership between the parties— Amazon and Best buy—that commit to working together to maximize their total profits. If Amazon used Best Buy as a conventional distribution channel, Amazon would be the independent producer and Best Buy would act as an independent retailer. Each would be a separate business seeking to maximize its own profits, often at the expense of the system.

No channel member would have much control over the other members, their activities would be poorly coordinated, and channel conflict would be difficult to resolve.

10-8. Ford has nearly 3,000 automobile dealerships in the United States and 10,000 dealer locations worldwide. How do Ford‘s channel members help Ford compete with other automobile manufacturers? (AACSB: Written and Oral Communication; Reflective Thinking)

Answer: Ford‘s channel members—their dealers—engage consumers, and promote, sell, service, and repair Ford vehicles. All dealers honor Ford warranties and provide good strong sales and aftermarket service.

Sometimes, great service can convince customers to purchase a new Ford vehicle from the dealership. By working together, the channel members collectively uphold the Ford brand‘s reputation. Finally, the entire Ford channel competes with the channels of competitors— therefore, strong and motivated channel performance can provide a competitive edge in the marketplace.

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10-9. Automation has become a cornerstone in manufacturing, with robotics now playing a pivotal role. Their use has extended into distribution centers, where they are essential for a variety of tasks, such as product sorting, maintaining inventory levels, and even ensuring cleanliness. Autonomous vehicles now seamlessly transport goods within these facilities, streamlining operations and enhancing the precision of repetitive tasks. What are the implications of this transition for efficiency, job availability, and the overall quality of service in the supply chain?

Consider both the potential advantages and disadvantages. (AACSB: Written and Oral Communication; Reflective Thinking)

Answer: Student responses to this question will reflect a range of perspectives.

Distribution centers are pivotal in the retail supply chain, tasked with receiving products, processing orders, and ensuring the swift delivery of goods to customers. The discussion on substituting human labor with automated solutions reveals a spectrum of advantages and disadvantages.

Advantages: - Automation enhances efficiency, reducing downtime due to human needs like breaks.

- It targets monotonous tasks, freeing up human workers for more complex, value-adding activities, optimizing workforce utilization.

- By handling dangerous or physically demanding tasks, automation significantly reduces the risk of workplace injuries.

- Automated systems can be capable of learning from experience and each other. Such systems can continually improve operational efficiency, speed up delivery processes, and potentially lower labor costs.

Disadvantages: - The shift toward automation could lead to job displacement, particularly affecting individuals in lower education brackets who rely on these jobs for their livelihood.

- Despite advancements in technology, humans tend to be more flexible, capable of shifting across tasks according to evolving requirements.

- Humans can quickly fit into a situation and ―get things moving.‖ Robots and other technologies can require significant installation costs and learning time.

Companies must be thoughtful about jointly using technology-driven capabilities and human capabilities to build the most effective and efficient value creation and delivery systems. Often, the presence of automated and smart systems can allow humans to shift to higher value-added tasks. Companies must look out for such opportunities.

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Minicases and Applications Digital Marketing and AI Instacart in the Digital Age 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. Why does Costco make its products available to non-members through Instacart, despite its membership-only policy for shopping in-store and on Costco.com? (AACSB: Written and Oral Communication; Integration of Real-World Business Experiences; Reflective Thinking; Information Technology Application of Knowledge) Answer: Partnering with Instacart in this way helps Costco along the following dimensions: - Instacart helps Costco promote its offerings to non-members, exposing them to the product assortment and bundles available and highlighting the benefits of Costco membership. This can help Costco grow its membership base.

- Shopping through Instacart can help non-members get a flavor of Costco‘s often unique product line-up and the fun and differentiated instore experience. This can increase the motivation to physically experience and purchase from the brick-and-mortar store, a privilege available only to members. Again, this can help Costco grow its membership base.

- Costco charges a higher price for its products via Instacart as compared to in-person pricing and online pricing. This ensures that Instacart shoppers are profitable and are not getting a better deal than traditional warehouse members.

- Costco can collect information about Instacart members who shop online at Costco.com and market its membership to them.

- For many existing Costco members, the Instacart partnership can be a welcome bonus because not every week may be open enough to accommodate a Costco visit.

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Instacart should think of other such opportunities to build partnerships and drive growth by using the power of its user base.

10-11. Recently, Instacart announced a partnership with OpenAI that would allow users to ask Instacart questions about what to make for dinner. The OpenAI system would provide the recipe along with a list of ingredients to add to the cart. Imagine you‘re an Instacart shopper—log in at www.instacart.com/login and try to ask Instacart‘s OpenAI for a recipe and add those ingredients to the cart. Verify whether the recipe and ingredients are accurate by generating the recipe for the same dish on ChatGPT or any other generative AI interface. Compare the answers to understand the accuracy on a shopping portal as opposed to an independent generative AI interface. (AACSB: Written and Oral Communication; Integration of Real-World Business Experiences; Reflective Thinking; Information Technology Application of Knowledge) Answer: Students‘ responses will vary based on the recipe they are looking for but, essentially, they must check how aligned OpenAI (ChatGPT) on Instacart is compared to using the same version of OpenAI independently. The subtle insight here is that AI systems are smart enough to substitute ingredients that Instacart does not have in stock with some equivalent ingredients that would generate a reasonably similar effect in the recipe.

One could argue, however, that it is important for customers to know about such substitutions, if any. Addressing various student opinions about this issue can yield an interesting learning experience.

Marketing Ethics Assessing the Influence of Channel Partner Decisions on Patagonia’s Shift Away from Virgin Wool Patagonia, a leader in sustainable outdoor apparel, announced its decision to stop using virgin wool—that is, wool that is freshly sheared and used, as opposed to recycled wool—in its products. Recycled wool has a CO₂ e emissions level that is 94 percent lower than that of virgin wool.

This move echoes the ethical and environmental stances of fashion brands such as Stella McCartney, department stores like REI, and Patagonia‘s own retail outlets, which have committed to more sustainable product lines. This decision aligns with growing consumer concern over animal welfare and the environmental impact of traditional wool production, as well as legislative trends aimed at promoting sustainable fashion practices. Patagonia has been at the forefront of promoting environmental sustainability and ethical practices within the outdoor apparel industry. Acknowledging the environmental impact associated with 16-285

traditional virgin wool production, as well as concerns over animal welfare, Patagonia has been proactive in seeking alternatives that align with its core values. The issue, however, does raise questions about the balance between ethical commitments and business strategy.

10-12. Is Patagonia‘s decision to forgo virgin wool in favor of more sustainable materials a step in the right direction? (AACSB: Ethical Understanding and Reasoning; Integration of Real-World Business Experiences) Answer: Evaluating the decision to drop virgin wool involves weighing the potential reactions of multiple stakeholders: Arguments in favor of dropping virgin wool: - Patagonia needed to respond to similar moves by competitors.

- Patagonia needed to respond to pressure from environmental interest groups and regulatory agencies.

- The move would help Patagonia strengthen its green credentials.

- Many customers would appreciate the decision to drop virgin wool.

- Many retailers would prefer to carry non-virgin wool, as that would help keep the product line consistent with the company‘s emphasis on sustainability.

- The industry trend is increasingly moving away from materials with high environmental and ethical costs, making such changes essential for brand alignment with consumer values.

- Continuing to use virgin wool could have subjected Patagonia to criticism and potential backlash, affecting its brand reputation as a leader in environmental sustainability.

Arguments against dropping virgin wool: Existing sheep need to be sheared—so the virgin wool is going to be generated anyway.

- However, in the long run, this can decimate the sheep-farming industry, putting the livelihoods of thousands of farmers at risk.

- Recycled wool has shorter, more damaged fibers and does not offer the same quality.

- Many customers may not be comfortable with the concept of wearing recycled wool that has been used by others in its previous life.

- Customers may expect a much lower price for recycled wool, projecting that the costs to Patagonia are significantly lower (which might not be the case).

- The costs of collected and processing used wool may be higher than that of sourcing virgin wool.

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Wool may have a life cycle, limiting the number of times it can be recycled and reused—therefore, Patagonia may not be able to turn away entirely from virgin wool in the long run.

The discussion of the pros and cons can provide many interesting insights into what appears to be a simple decision.

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10-13. A challenge for Patagonia lies in finding replacements for wool that do not compromise performance or environmental integrity, particularly avoiding synthetic materials derived from petroleum. How can Patagonia work alongside its supply chain partners to innovate wool alternatives that are sustainable?

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Answer: Students‘ responses will vary on their perceptions, but some guiding answers can include: Patagonia can engage in partnerships with material science researchers and sustainable textile manufacturers to develop innovative, biodegradable materials that offer the same benefits as wool, such as warmth, durability, and moisture-wicking properties, but without the substantial environmental footprint.

Patagonia can explore the potential of plant-based fibers that could replicate the properties of wool. Materials like hemp, organic cotton, or bamboo could be engineered to enhance their thermal properties and texture, making them viable alternatives to traditional wool.

The firm can emphasize the development and use of organic and ethically sourced wool, ensuring that all wool products adhere to stringent standards for animal welfare and environmental protection. Including closer collaboration with farmers practicing regenerative agricultural techniques that improve soil health and biodiversity.

Leveraging Patagonia‘s market position to promote the value of sustainable wool alternatives to consumers, highlighting the environmental benefits and ethical considerations behind each product. This can help shift consumer demand toward more sustainable options.

Investing in technology that enhances the recyclability and life cycle of wool products, aiming for a closed-loop system where wool garments are repurposed at the end of their life, reducing waste and the demand for new raw materials.

Marketing by the Numbers Open Up a Café?

High-quality coffee beans have doubled their market share over the last few years. Initially, demand outpaced supply, but as the market has matured, growth through traditional cafe distribution channels has plateaued. A coffee roaster‘s average cost for a pound of specialty coffee 16-287

beans is $9, which they sell to cafés for $18. Cafes then sell coffee at a rate that reflects their costs, including the beans, labor, and overhead, aiming for a similar industry-standard margin.

10-14. Assume that the cost for a cafe to produce a 12-ounce cup of specialty coffee (including beans, labor, and overhead) is $2.00. Aiming for a 60% margin based on selling price, calculate the selling price for a 12-ounce cup of specialty coffee and determine the cafe‘s dollar markup per cup.

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: - Cost to the cafe per cup of coffee: $2.00 - Desired margin percentage: 60% (0.6 in calculations) - Let the price of the cup of coffee be $X. - Then, ($X − $2) is the margin.

- Therefore, $X − $2 = 0.6 × $X (because we want the margin to be 60% of selling price) - Therefore, $0.4X= $2 - Therefore $X = $2/0.4 = $5.00 Thus, to achieve a 60% margin on the selling price, the selling price for a 12ounce cup of specialty coffee should be set at $5.00, with a dollar markup of $3.00.

10-15. Assume that the cafe sells 1,000 cups of coffee per day directly to customers. For each cup, the roaster makes a net profit of $0.75. Now, the coffee roaster is thinking about operating a coffee shop in parallel with the roasted coffee bean selling business. The roaster expects to sell 1,000 cups a day through the owned cafe but at a rate of $3.00 per cup, resulting in a daily revenue of $3,000. The total variable cost per cup is $1.50, including the cost of the coffee, the paper cup, and other consumables, resulting in a cost of $1,500 and a daily operating profit of $1500. In addition, the roaster expects to spend $10,000 each month on fixed costs related to running the cafe, including labor. If the roaster opened an owned cafe, the client cafe will stop purchasing roasted coffee beans from them. Based on these numbers, is the coffee roaster better off opening the owned cafe? (AACSB: Analytical Thinking) Answer: First, let us calculate the monthly profit from selling roaster coffee to the existing cafe. The total monthly profit is: 1,000 cups per day × $0.75 (contribution margin per cup) × 30.5 days on average per month = $22,875.

The monthly profit from an owned cafe is:

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[1,000 cups per day × $1.50 (contribution margin per cup, calculated as $3 price − $1.50 variable cost) × 30.5 days on average per month] − $10,000 (monthly fixed costs) = $35,750.

Therefore, the coffee roaster is better off opening their own cafe and going direct to the customer.

Company Case Teaching Notes Company Cases 10 Ford Motor Company/4 P&G/1 Walt Disney World See Appendix 1 for teaching notes for the below cases.

Case 10, Ford Motor Company: Navigating the ICE and EV Dealer Dilemma. Ford planned to force its dealerships to choose exclusively between EV vehicles and traditional internal combustion engine vehicles. Facing challenges, Ford is revisiting that plan.

Case 4, P&G: Creating Irresistibly Superior Experiences Through Market Research. Procter & Gamble leads the consumer goods industry in marketing research and data analytics, creating superior experiences through deep consumer insights and innovative products.

Case 1, Walt Disney World Resort: Making Magical Moments. Through attention to detail, innovative attractions, and exceptional customer service, Walt Disney World ensures that visitors leave with lasting memories.

GREAT IDEAS Barriers to Effective Learning 1.

2.

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.

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3.

4.

5.

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.

3.

4.

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?

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

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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 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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3.

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.

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4.

5.

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.

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?

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 

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

Objectives Outline 29. Explain the role of retailers in the distribution channel and describe the major types of retailers.

30. Discuss how retailers are using omnichannel marketing to meet the cross-channel shopping behavior of today‘s digitally connected consumers.

31. Describe the major marketing decisions that retailers make.

32. Discuss the major trends and developments in retailing.

33. Explain the major types of wholesalers and their marketing decisions.

Previewing the Concepts 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

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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 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 omnichannel blend of in-store and digital options they seek. In short, Walmart wants to become Amazon before Amazon can become Walmart.

Walmart‘s omnichannel 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 omnichannel 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.

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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.

Retailing: Connecting Brands with Consumers Many marketers are embracing the concept of shopper marketing, focusing on marketing initiative that turn shoppers into buyers as they shop in retail stores or online. These initiatives occur in the later stages of the customer journey and focus on the buying decision.

The Shifting Retailing Model Today‘s consumers are increasingly omnichannel buyers, who routinely shop across instore and online channels.

Omnichannel marketing is creating a seamless cross-channel buying experience that integrates in-store, online, and mobile shopping.

Use Key Term Omnichannel Marketing here.

Use Table 11.1 here.

Use Discussion Question 11-1 here.

Store Retailing Store types can be distinguished along multiple dimensions, including the amount of service they offer, the breadth and depth of the product lines they carry, the prices they charge compared to competitors, and in their organization forms.

Types of Retail Stores

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. Many have added shop-in-shop concepts.

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Supermarkets are the most frequently shopped type of retail store. They have faced increasing competition from discounters, specialty food stores, online (Amazon/Whole Foods), and food/meal delivery services.

Online grocery buying captured 13.5 percent of total grocery sales last year and will grab an estimated 20.5 percent by 2026. To compete, they are using technology to offer online purchase and either delivery or pick up.

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 of food and discount stores.

Category killers are superstores that are actually giant specialty stores. (Best Buy and Petco are examples.)

Convenience stores are small stores that carry a limited line of high-turnover convenience goods.

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.

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 Key Terms Specialty Store, Department Store, Supermarket, Superstore, Convenience Store, Discount Store, Off-Price Retailer, and Service Retailer here.

Retail Organizational Forms

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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.

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 Discussion Question 11-2 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 web, mobile, and social media links for additional information and ordering.

Use Discussion Question 11-3 here.

Use Linking the Concepts here.

OMNICHANNEL MARKETING: BLENDING IN-STORE, ONLINE, 16-297

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.

RETAILER MARKETING DECISIONS (see Figure 11.1) Use Figure 11.1 here.

Use Chapter Objective 3 here.

Segmentation, Targeting, Differentiation, and Positioning Decisions Retailers must first segment and define their target markets and then decide how they will differentiate and position themselves in these markets.

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 can create a unique store experience that suits the target market, enhances brand positioning, and moves the customers to buy. Many retailers practice experiential retailing, immersing customers in the brand while shopping to create a deeper connection.

Use Marketing at Work 11.1 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

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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.

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: 

 

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 Discussion Question 11-4 here.

RETAILING TRENDS AND DEVELOPMENTS Use Chapter Objective 4 here.

Increased Uncertainty and Disruption

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Following years of good economic times for retailers, the COVID-19 pandemic and ensuing economic crisis accelerated the shift from in-store to digital buying. It also led to record levels of retail bankruptcies and store closings. The unprecedented effects of the pandemic has heightened the need for retailers to embrace scenario analysis— anticipating and preparing for imagined futures.

Tighter Consumer Spending Some retailers actually benefit from a down economy (for example, Costco and Dollar General).

Many retailers added new value pitches to their positioning to acknowledge tighter consumer spending. For example: Lowe‘s replaced their old theme (Never Stop Improving) with a thriftier one (Do it right for less. Start at Lowe‘s.)

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 and Shortening Retail Life Cycles New retail forms continue to emerge to meet new situations and consumer needs, but the life cycle of new retail forms is getting shorter.

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.

Many brands use limited-time pop-up stores that let them promote their brands to shoppers and create buzz in busy areas.

The online and mobile equivalent of the pop-up store is the flash sale site.

Use Critical Thinking Exercise 11-9 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 making their product assortments more sustainable.

Many retailers have launched programs that help consumers make more environmentally responsible decisions.

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Use Marketing Ethics here.

Retail Media Networks One of the hottest trends in retailing is the rapid development by major retailers of their own advertising sales arms—retail media networks (RMNs). This is a retailer-owned advertising service that lets marketers and brands buy advertising space across all of the retailer‘s interconnected digital platforms (online sites, mobile apps, social media pages, in-store technology). Retailers also have a trove of consumer data that advertisers can use to target with.

RAPID ADVANCES IN RETAIL TECHNOLOGY As digital and omnichannel shopping became the norm, retail technologies have become critically important as competitive tools.

Supply-Side Retail Technologies Progressive retailers are using advanced, AI-powered 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.

Customer-Side Retail technologies Retailers are experimenting with augmented (AR) and virtual reality (VR) to enhance the shopping experience. AR can help consumers design, try out, and visualize products before buying them. VR can help customers to experience products in simulated real-world environments.

AI-Powered Customer Assistance and Support Retailers are increasingly using AI-powered technologies to connect with customers through chatbots or human-like avatars.

Omnichannel Customer Experiences Customers routinely navigate among channels through their buying journey.

Retail technology can be critical to making that journey seamless to the customer.

Use Marketing at Work 11.2 here.

Use Linking the Concepts here.

Use Discussion Question 11-5 here.

Use Critical Thinking Exercise 11-7 here.

Use Critical Thinking Exercise 11-8 here.

Use Digital Marketing and AI here.

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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.

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

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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.

3. Manufacturers’ and retailers’ branches and offices involve 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. Digital and social media are playing an increasing role in promotion.

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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.

Tight economic conditions and retailer woes have led to demands for even lower prices and the winnowing out of suppliers who are not adding value based on cost and quality.

Global supply chains are still recovering from the impact of COVID-19.

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.

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. What is omnichannel marketing? Why is it important? (AACSB: Written and Oral Communication) Answer: Omnichannel marketing is the creation of seamless cross-channel buying customer experiences that integrate in-store, online, catalog, mobile, and other forms of shopping.

Omnichannel marketing is becoming increasingly important because consumers are increasingly omnichannel buyers who make little distinction between in-store, online, and other forms of shopping, and for whom the path to a retail purchase and beyond runs across multiple channels. Consumers are also increasingly ―mobile-first‖ shoppers who begin—and sometimes end—their buying processes on mobile devices. Purchasing now often comprises researching a product online and buying it from an online retailer without ever setting foot in a retail store. Or it might involve using a smartphone to research a purchase on the fly or while in retail store aisles.

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Thus, marketers must engage in omnichannel marketing that facilitates seamless cross-channel journeys for customers during the information.

11-2. Describe the key dimensions used to organize and distinguish retail stores. (AACSB: Written and Oral Communication) Answer: Retailers come in all types and sizes, from family-owned restaurants to mega discounters like Walmart. They are distinguished along four key dimensions: 1. Stores vary in the amount of service offered, which influences how independently the consumer operates in the retail environment.

Grocery stores expect consumers to shop independently, while highend and jewelry stores tend to offer extensive service throughout the shopping experience.

2. The breadth and depth of product lines carried distinguishes stores: Specialty stores, such as Sur La Table, carry narrow product lines with deep variety, whereas convenience stores, like airport newsstands, carry relatively broad product lines with shallow variety.

3. The relative prices they charge sets discount retailers like TJ Maxx and Big Lots! apart from premium retailers such as Nordstrom and Bed Bath and Beyond, respectively.

4. Lastly, organizational forms can vary across stores. These include corporate chains, voluntary chains, retailer cooperatives, and franchises. Many stores now also have an online presence to facilitate omnichannel shopping.

11-3. How would you describe the key elements of a workable retail marketing mix? (AACSB: Written and Oral Communication) Answer: Generating a workable retail marketing mix involves situating the traditional marketing mix in the retail environment. It requires taking into account the range of products or services that are being offered and the overall experience that the retailer wants to create for customers.

11-4. How do retailers use various combinations of the four promotion tools?

Provide an example. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Retailers use various combinations of the four promotion tools— advertising, personal selling, sales promotion, and public relations—to reach consumers. They advertise in newspapers and magazines and on radio and television. Advertising may be supported by newspaper inserts and catalogs. Store salespeople greet customers, meet their needs, and 16-305

build relationships. Sales promotions may include in-store demonstrations, displays, sales, and loyalty programs. PR activities, such as new-store openings, special events, newsletters and blogs, and public service activities, are also available to retailers.

Furthermore, retailers now increasingly interact digitally with customers using mobile ads and apps, websites and digital catalogs, online ads and videos, social media, blogs, and email. In these days of omnichannel marketing, almost every retailer, large or small, maintains a full digital and social media presence.

For example, consider how Target combines the four promotion tools in its marketing. First, Target utilizes a mix of traditional and digital advertising channels, including TV commercials, online ads, social media, and print media. It runs large-scale advertising campaigns with catchy slogans and visually appealing content that highlights its product range, exclusive brands, and seasonal promotions. For instance, its ―Expect More. Pay Less.‖ campaign emphasizes value and quality. Second, Target focuses on creating a welcoming and helpful in-store environment. Its staff is trained to provide personalized assistance, answer questions, and help customers find products. Through mobile apps and online platforms, Target offers personalized recommendations and shopping assistance, enhancing the personal selling aspect even outside the physical store.

Third, Target frequently runs sales promotions, including seasonal discounts, clearance sales, and buy-one-get-one-free offers. And it has weekly deals that attract regular shoppers—these lower prices are often publicized through physical mailers that arrive in customer mailboxes. The Target RedCard offers cardholders 5 percent off on every purchase, free shipping on online orders, and extended returns, fostering customer loyalty and repeat purchases. Finally, Target on the PR front runs campaigns such as ―That Target Feeling‖ where the spotlight is on real customers who are encouraged to post on social media the joys they‘ve felt at Target.

11-5. Briefly discuss how retailers must react to the major trends and developments currently changing the course of retailing.?(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Today retailing is constantly impacted by the following developments: 1. The rise of omnichannel marketing: Modern omnichannel buyers make little distinction between in-store, online, and other forms of shopping.

For them, the path to a retail purchase and beyond runs across multiple channels. Thus, marketers must engage in omnichannel marketing that facilitates seamless cross-channel journeys for

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customers during the information seeking, product search and purchase, and post-purchase experience stages.

2. Increased uncertainty: Beyond simply reacting to unexpected disruptions, retailers must look ahead and be prepared for more uncertain futures. They must embrace the concept of scenario analysis—the art and science of preparing for multiple imagined futures—and prepare for a range of possible futures. Companies that fail to look ahead and adapt—even iconic brands—can be relegated to history‘s dustbin.

3. Tighter consumer spending: Due to the economic pressure caused by events like the COVID-19 pandemic, consumers are now more conscious of their spending habits. This frugality perspective impacts retailing as consumers go for big discounters like Costco and off-price retailers like ALDI. In response, retailers must ensure that their prices reflect the perceived value of their products. They can also launch lower-end store brands in selected categories to ensure that they minimize the loss of market share to discounters.

4. New retail styles and shorter retail life cycles: With technological advancements, retail cycles have become shorter. Retailers must introduce new products and cycle out old products more frequently.

They should develop a marketing strategy that supports such shorter product life cycles.

5. Sustainable retailing: Retailers are now expected to operate sustainable business models. In response, they should green up their stores and supply chains and work on social sustainability initiatives that help social stakeholders, including their local communities.

6. Retail media networks: RMNs are retailer-owned advertising services which provide platforms through which advertisers can target the right consumers with the right products and messages as they move through the retail buying process. Retailers must consider how to engage with customers on retail media networks in addition to their existing marketing approaches.

7. Advances in retail technology: Technology now permeates every aspect of retailing, from the customer interface to behind-the-scenes retail and supply chain operations. For example, fast-fashion retailer Zara uses AI-powered information technology and software systems to produce better forecasts, control inventory costs, interact digitally with suppliers, and send information between its stores. Retailers must be on the cutting edge of technology, incorporating it into their retailing to

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the greatest extent possible. Retailers that lag on the technology front will quickly lose competitive advantage.

11-6. Research and find an example of a company utilizing AR and VR for enhancing customer experience and engagement. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students‘ answers may vary based on the example they consider. The instructor can discuss how IKEA has developed an AR feature called IKEA Kreativ that allows customers to create a complete 3D replica of their room using LiDAR technology integrated into iPhones. Once the room is scanned, customers can remove their current furniture and explore new products. This enables a precise visual representation of how new furniture will look and fit in their homes, offering a convenient and hasslefree way for customers to redesign their living space. The instructor can screen the video available at bit.ly/3ywgV7l.

Critical Thinking Exercises 11-7. As the marketing manager of Healthy Harvest, a wholesaler and online retailer based in Tuscany, Italy, specializing in olive oils, olives, olive oil skincare, balsamic dressings, and gourmet gifts, you are considering expanding your operations. You‘ve already achieved sustainability in your operations. Now you‘re looking to integrate technology into your business.

What kind of technology would you consider integrating? (AACSB: Reflective thinking; Real-world Application) Answer: Students‘ answers may vary based on their perspectives related to the new technology trends in retailing. However, here are some ideas the instructor can use to expand and enrich the discussion: 1. Healthy Harvest can develop a strong online and mobile presence, enabling direct-to-customer sales.

2. Healthy Harvest product containers can be fitted with sensors that can communicate their inventory levels to Healthy Harvest, ensuring a timely and automatic refill shipment of the product. This can lock in customers and increase customer lifetime value.

3. Healthy Harvest can develop a mobile app to provide customers with push notifications, informing them about product updates, new products, and company news.

4. The app could incorporate scan capabilities that can access QR codes, enabling customers to explore details about the provenance and manufacturing of the products.

5. The company could use blockchain technologies to trace product origins and maintain the integrity of the supply chain.

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6. The company can use supply chain management (SCM) software to ensure that its products are available at the right time and place but without excess inventory piling up.

11-8. With increased uncertainty, from geo-political tensions to climate change and health crises, retailers are constantly having to grapple with changing dynamics. Suppose that you are a marketing manager for Walmart‘s California region. One of the natural disaster possibilities related to California is a significant earthquake that disrupts the whole region, including transportation and communication systems. How would you prepare for that possibility? (AACSB: Reflective thinking; Real-world Application) Answer: Students could discuss this scenario and Walmart‘s preparations in breakout groups. Here are some ideas to consider: 1. Supplier strategy: Consider diversifying supply sources for products that are currently concentrated in California to other regions.

2. Communications: Build a radio-based or satellite-based communication system that can be used to coordinate responses even if regular internet and cellphone services are inaccessible.

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3. Inventory: Rethink inventory levels for critical products that are important to customers during such an emergency.

4. Power: Focus on generators and fuel supplies that can help the stores operate even in the absence of electricity.

5. Transportation: Develop alternative routes of transportation, including helicopter-based transportation of critical supplies to stores.

6. Pricing: Ensure pricing strategies are in place to avoid real—and perceived—gouging during the emergency. Companies that do this have damaged their brands in the long run.

7. Humanitarian efforts: Develop a plan to get the company involved in helping the worst-affected get back on their feet in the short run and the region recover in the long run. This can build brand equity and support long-term profitability.

11-9. Makeup retailer Glossier (glossier.com) started as a blog with a direct-toconsumer business model. In markets such as Miami, Los Angeles, and London, where it has deep penetration, it has established permanent stores. It has also experimented with pop-up stores in markets with established customer bases. Why might a native online brand like Glossier want to have a physical retail presence? What are the benefits of pop-ups compared to permanent locations for a brand like Glossier? (AACSB: Reflective Thinking; Application of Knowledge) Answer: Reasons for a physical presence include the following: 1. The retail locations can attract new customers, some of whom may become online customers as well.

2. When a brand is sufficiently well-known in an area, the retail store can attract unplanned purchases from brand fans who just happen to be walking by.

3. Physical locations can send positive signals about a digital brand‘s credibility and quality.

4. The in-depth customer interactions within the physical stores can generate insightful feedback about the brand and ideas about what products to introduce next.

5. Customers are reminded about the brand each time they walk past the retail store—this helps in brand recall when they want to purchase a product in the category.

6. Customers may find it convenient to return products to the retail store, even if they bought them online.

The specific advantages of a pop-up location over a permanent (brickand-mortar) presence are as follows:

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1. Pop-ups allow retailers to experiment and learn about customer interest in specific products, market potential, and other locationrelated customer and market characteristics before deciding to make a large investment in a brick-and-mortar store.

2. Pop-ups can quickly shift how they are structured, how the products are displayed, and how the products are priced. Thus, they can serve as experimental laboratories that help test and refine brand strategy that can then be rolled out across stores.

3. Pop-ups can be used to conduct in-depth interviews with, and observational research related to, customers. The insights can inform a range of marketing decisions.

4. Glossier can run numerous pop-ups across geographical areas and locations and then, based on their performance, pick areas for store entry or even increased targeted digital advertising.

5. Pop-ups can help sow excitement and interest ahead of formal retail entry.

Minicases and Applications Digital Marketing and AI Taco Bell’s Social Strategy and AI Ideas America‘s beloved low-price Tex-Mex fast-food chain Taco Bell is a formidable social media marketer that creates and curates user-focused and user-generated content tailored to digital platforms. The chain manages active and lively accounts on Facebook, YouTube, Instagram, Vine, Pinterest, TikTok, and Tumblr. It even has an in-house think tank called the Center for Social Excellence at company headquarters in Irvine, California. Its core social media team maintains a content calendar with enough structure to maintain continuous engagement and enough flexibility to capitalize on spur-of-the-moment activity as the need arises. The team routinely solicits input from other employees.

According to AdAge, Taco Bell‘s social media dominance drives its better-thanaverage year-on-year sales growth. Taco Bell uses social media to generate anticipation for—and increase trials of—new products such as the Cool Ranch & Fiery Doritos® Locos Tacos, Mexican Pizza, and Nacho Fries. When it was first introduced, the Cheez-It Tostada sold out in one week.

11-10. Visit Taco Bell‘s website at www.tacobell.com. At the bottom of the site, you will find links to its various social media platforms. In small groups, choose one of the platforms and explore and describe Taco Bell‘s presence and activities on that platform. Try to focus on consumer-generated content. How does Taco Bell use 16-311

the platform for building the brand and generating product demand? (AACSB: Integration of Real-World Business Experience; Reflective Thinking)

Answer: Students‘ answers will vary based on the social media platform that they choose and their depth of exploration. For this question, the instructor can (optionally) choose to break the class into six groups and allocate the six linked platforms across the groups. Let‘s explore X (formerly Twitter) at https://x.com/tacobell.

The following points stand out: 1. Taco Bell has been active on X since 2007 and has 1.9 million followers.

2. The page highlights interesting points in the company‘s history and collaborations. For example, on April 30, 2024, one recent tweet featured LeBron James and James Sudeikis in a sitcom setup to promote their Taco Twosdays (see bit.ly/4dR72kU).

3. The page is highly customer-engagement focused. Taco Bell asks plenty of questions. One featured question submitted by a customer and highlighted by Taco Bell as a ―very important question‖ is: Do you eat your @tacobell one item at a time or unwrap/open everything and switch back and forth? There were 108 responses to the question (https://x.com/tacobell?lang=en).

4. The page highlights Taco Bell‘s social and environmental sustainability efforts, including its Ambition Accelerator which funds influential startup ideas.

5. The page highlights new products and limited-time product promotions. It also encourages online app-based ordering with special deals.

6. The page features some highly localized content. For example, it celebrates a local Taco Bell by congratulating its hometown NBA basketball, player Jonathan Davis.

We could go on. The point is that students must learn about the wide range of engagement and brand-building possibilities offered by social media platforms.

As an alternative approach, the instructor could allocate four or five social media platforms for exploration to class groups, and then explore a different one on the screen with the class.

11-11. Suppose you are the marketing manager of Taco Bell and you are tasked with restrategizing the digital marketing strategy. Ask ChatGPT or another generative AI

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interface the following question: ―I want to do something new that Taco Bell is still not doing in the digital marketing area. Suggest some new ideas.‖ Evaluate the response. What would you implement and what would you take inspiration from but tweak a little? (AACSB: Integration of Real-World Business Experience; Reflective Thinking)

Answer: Students‘ answers will vary based on the AI interface they use. We prompted ChatGPT with the same question, and the answer is as follows (paraphrased from ChatGPT): 1. Augmented Reality (AR) Experiences: a. Virtual Taco Building: Develop an AR feature on the Taco Bell app or social media where customers can create their own tacos in a virtual environment, then order them directly. b. Interactive Packaging: Use AR to bring Taco Bell packaging to life with interactive games, nutritional information, or stories about the ingredients.

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2. Exclusive NFT Collectibles: a. Offer limited-edition Taco Bell-themed NFTs that customers can collect or trade. These could be digital art, music, or exclusive recipes.

3. Gamification and Contests: a. Mobile Game App: Create a Taco Bell-themed mobile game where users can win points, discounts, or free menu items by achieving high scores or completing challenges. b. Social Media Challenges: Launch interactive and viral social media challenges that encourage user-generated content and engagement— including potential recipes and menu additions, with rewards for the best submissions.

4. Experiential Marketing: a. Virtual Taco Tours: Offer virtual tours of Taco Bell kitchens, showcasing how menu items are prepared and giving customers an inside look at the brand. b. Live Cooking Classes: Host live-streamed cooking classes where chefs or celebrities show how to recreate Taco Bell menu items at home, with interactive Q&A sessions.

5. Enhanced Mobile App Features: a. Taco Bell AR Filters: Introduce Taco Bell-themed filters for social media platforms that can be unlocked through the app. b. In-App Ordering with Voice Assistants: Integrate voice assistant capabilities within the app for hands-free ordering and personalized recommendations.

Marketing Ethics Eileen Fisher’s Social and Environmental Sustainability Strategies Eileen Fisher, the renowned women‘s clothing brand, recently unveiled its ambitious corporate social responsibility goals, solidifying its commitment to ethical and sustainable practices. Eileen Fisher‘s new initiatives aim to enhance environmental sustainability across its operations and product value chains, improve human rights through positive labor practices and women‘s empowerment, and support families and organizations in the communities it

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serves. It collaborates with leading organizations such as The G7 Fashion Pact, the Sustainable Apparel Coalition, and CDP Supply Chains to ensure alignment with the highest industry standards.

The new goals build on the success of the company‘s 2020 objectives, where it notably increased its use of renewable energy in deregulated markets, achieved 100 percent pay equity for its employees, and further empowered women within its global supply chain. Eileen Fisher has always been at the forefront of sustainable fashion. In addition to these new goals, the company continues to pioneer initiatives like garment recycling through its Renew program and utilizing organic and regenerative fibers in its collections.

11-12. Log on to bit.ly/4dRNpcy and evaluate the social and environmental sustainability strategies deployed by Eileen Fisher. What would you do to enhance them? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: The aim of this question is to get students to think critically. Eileen Fisher is working through a lot that invites praise. These include: 1.

Sourcing eco-friendly materials such as organic cotton, linen, and recycled fibers.

2. Using the Renew program to encourage customers to return their used Eileen Fisher clothing, which is then either resold, donated, or recycled into new garments promoting a circular economy and reducing textile waste.

3. Ensuring fair wages and safe working conditions, achieving 100 percent pay equity, and actively working toward empowering women in their global supply chain.

4. Partnering with organizations like the G7 Fashion Pact, the Sustainable Apparel Coalition, and CDP supply chains—this ensures that the sustainability initiatives meet high standards and are credible.

5. Ensuring transparent and regular reporting of progress (and hurdles) on the sustainability front.

Here are some areas for improvement: 1. Despite using sustainable materials, the production of new garments still has a significant environmental footprint. For example, manufacturing, dyeing, and transportation of new products contribute to carbon emissions and resource consumption. The company could work on more efficient production processes.

2. Eileen Fisher‘s sustainable and ethical products come at a premium price, which can be a barrier for many consumers. This limits the accessibility of their eco-friendly options. Possibly, introducing a sustainable, lower-end product brand under a sub-brand can broaden Eileen Fisher‘s appeal while taking its sustainability message further.

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3. While the Renew program is a step toward a circular economy, the initiative could be expanded. For instance, there could be more emphasis on reducing overall consumption and encouraging customers to buy fewer, higher-quality items that last longer. The company will need to think about how it can do this while growing profitability and market share.

4. Ensuring ethical practices across a global supply chain is complex and challenging. While Eileen Fisher strives for high standards, there are inherent risks and difficulties in monitoring and enforcing these practices consistently across all regions. Using technology such as satellite monitoring and blockchain tracking can help on these fronts.

5. Eileen Fisher can do a better job of conveying the depth and breadth of its sustainability initiatives across its website, advertising, public relations, and social media platforms.

11-13. Companies have increasingly come under scrutiny for ―greenwashing‖ and ―social washing.‖ How can Eileen Fisher avoid being a target for doing this? (AACSB: Written and Oral Communication; Ethical Understanding and Reasoning) Answer: Eileen Fisher can take the following steps to avoid being targeted: 1. Continue to transparently report sustainability goals and achievements, including information related to where the company has fallen short of targets. This level of transparency helps build trust and reduce the likelihood of greenwashing accusations.

2. Continue to work with reputable organizations like The G7 Fashion Pact, the Sustainable Apparel Coalition, and CDP Supply Chains to attain sustainability standards and third-party certifications.

3. Project consistent and sustained sustainability efforts over the years, building a strong reputation on this front. Companies that engage in more superficial or short-term sustainability efforts are more likely to be targeted.

4. Emphasize initiatives like the Renew program and use of regenerative fibers, which highlight a demonstrable commitment to a circular economy. These initiatives represent proactive steps beyond mere compliance.

5. Set and achieve attainable sustainability goals, rather than set ambitious goals that can be very challenging to achieve. That is, proceed in many small bites.

Marketing by the Numbers Sports Direct’s Stock Turn Rate for Tennis Rackets

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Sports Direct, a popular sports equipment retailer, has been experiencing changes in consumer behavior. More people are renting equipment instead of purchasing it outright. To adapt, Sports Direct has started offering a wider variety of rental options and has partnered with online marketplaces. This shift has affected its in-store sales and inventory management. To optimize its stock levels and improve profitability, Sports Direct conducted market tests in selected stores.

11-14. Using the data below, determine Sports Direct‘s weekly stockturn rate for tennis rackets 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) Data Week 1 2 3 4

Total Cost of Goods Sold (COGS) $50,000 $55,000 $60,000 $48,000

Average Inventory at Cost $20,000 $22,000 $25,000 $16,000

Answer: cost of goods sold Stockturn rate = ——————————— average inventory at cost

$50,000 Stockturn rateweek 1 = —————— = 2.5 $20,000 $55,000 Stockturn rateweek 2 = —————— = 2.5 $22,000 $60,000 Stockturn rateweek 3 = —————— = 2.4 $25,000 $48,000 Stockturn rateweek 4 = —————— = 3 $16,000 11-15. Using the data below and the data in 11.14, determine Sports Direct‘s weekly gross margin return on investment (GMROI) for tennis rackets each week, assuming the gross margin percentage is 50%. Refer to 16-317

Analytic Ratios in Appendix 3: Marketing by the Numbers to learn how to calculate the GMROI. Assume that the beginning inventory at cost is $10,000; the ending inventory at cost is $8,000; net sales is $30,000, the cost of goods sold (COGS) is as in 11.14; and number of weeks in the market test is 4. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: To calculate the GMROI we first need to calculate the gross margin:

(Note: This implies that products that cost $50,000 are sold at $75,000, yielding a margin of $25,000.)

Note to instructor: This question contains unnecessary information about opening and closing inventory levels. All that the students need is the average inventory held each week to calculate the GMROI. As a teaching point, the instructor can emphasize the importance of being able to recognize what data are important and what are not in the real world.

Company Case Teaching Notes

Company Cases 11 Temu/8 Apple/15 Starbucks See Appendix 1 for teaching notes for the below cases.

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Case 11, Temu: A Rising New Era Retailer. Temu aims to revolutionize online retail with ultra-low prices and a gamified shopping experience. The company is shaking up the competition and redefining consumer expectations.

Case 8, Apple: Innovative to Its Core. Apple redefines industries with its groundbreaking products, from the first Macintosh to the latest AI powered iPhone. It leads the market with cutting-edge technology and sleek designs.

Case 15, Starbucks: Adapting for India. Starbucks aims to become India‘s premier coffeehouse by blending global strategy with local adaptation. Starbucks delivers a culturally resonant coffee experience in India.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

5.

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.

Non-store 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.

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 11.2 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?

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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 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?

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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.

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.

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 

 

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 Objectives Outline 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 the major decisions involved in developing an advertising program.

37. Explain how companies use public relations to communicate with relevant publics.

Previewing the Concepts

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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 tools to engage customers and clearly and consistently deliver information about itself and the customer value it creates.

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 Kraft Heinz: From Brand Attributes to Brand Love, and Advertising Revolution Kraft Heinz, a long-established household name, has undergone a significant advertising and branding transformation to align with evolving consumer trends. The company has moved from a focus on brand attributes to fostering emotional connections, emphasizing ―brand love‖ through creative, customer-centric campaigns. This shift has revitalized its iconic brands, proving the power of strategic advertising in today‘s competitive market.

Key Strategies Driving Success 

 

Emotional Connection Over Features: Kraft Heinz shifted its focus from highlighting product features to creating campaigns that resonate emotionally with consumers. For example: o Velveeta Cheese: The ―La Dolce Velveeta‖ campaign celebrates indulgence and positions Velveeta as a lifestyle choice, embracing comfort and joy. o Kraft Mac & Cheese: The ―Help Yourself‖ campaign targets personal fulfillment, moving beyond convenience to emotional uplift.

Customer-Centric Approach: By actively listening to consumers, Kraft Heinz identified deeper motivations behind brand loyalty, such as the comfort associated with Velveeta or the playful creativity sparked by Lunchables.

Digital-First Focus: Two-thirds of its increased advertising budget now targets digital platforms, engaging audiences on TikTok, social media, and other interactive channels. o Campaigns like the TikTok #SkipChallenge encourage user interaction and foster brand engagement.

Results and Impact

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Kraft Heinz‘s new advertising approach has delivered impressive outcomes:

  

Internal measures of ―brand love‖ and purchase intent doubled across brands with refreshed campaigns.

Revenue growth remained steady despite economic challenges, with profits rising by 69 percent annually.

The transformation earned Kraft Heinz a place on Ad Age‘s ―Marketer of the Year‖ list.

Looking Ahead Kraft Heinz plans to extend its rebranding efforts across 90 percent of its portfolio, maintaining its focus on blending tradition with innovative, consumer-focused storytelling. This approach underscores its commitment to making life ―delicious‖ by deeply understanding and responding to customer needs..

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 customer interactions by the firm’s sales force to engage customer, generate sales, and build customer relationships.

Public relations (PR): Activities designed to engage the company’s various 16-324

publics and build good relations with them.

Use Key Terms Advertising, Sales Promotion, Public Relations, Personal Selling, and Public Relations (PR) here.

Use Discussion Question 12-1 here.

Use Chapter Objective 2 here.

INTEGRATED MARKETING COMMUNICATIONS The New Marketing Communications Model Factors which are changing the face of marketing communications: 1. Marketing strategies are changing. As mass markets have fragmented, marketers are shifting away from mass marketing.

2. Consumers are digitally connected. They are better informed and more empowered.

3. Changes in digital technology have altered 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 brand and company message (see Figure 12.1).

Use Key Term Integrated Marketing Communications (IMC) here.

Use Figure 12.1 here.

Different media play different roles in engaging, informing, and persuading consumers.

Coordination is becoming critically important as customers are navigating across channels and media in their omnichannel purchase process.

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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.

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. A sales force is inefficient in reaching a large audience.

Sales Promotion Sales promotion includes a wide assortment of tools—coupons, contests, cents-off deals, premiums, and others.

Advantages: 1. They attract consumer attention.

2. They offer strong incentives to purchase.

3. They can be used to dramatize product offers and to boost sagging sales.

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4. Sales promotions invite and reward quick responses.

Shortcomings: 1. Sales promotion effects are often short-lived.

2. They are often not as effective as advertising or personal selling in building longrun brand preference and customer relationships.

3. They tend to be unprofitable as they encourage existing customers to stock up at a lower price.

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 be very effective when coordinated with other promotion mix elements.  PR tends to be underutilized by marketers.

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 (through personal selling and trade promotions) to final consumers.

A pull strategy involves the producer directing its marketing activities (consumer advertising and promotion) toward final consumers to induce them to buy the product.

Business-to-consumer companies use pull more. Business-to-business companies use push more.

Use Key Terms Push Strategy and Pull Strategy here.

Use Figure 12.2 here.

Use Linking the Concepts here.

ADVERTISING AND MAJOR ADVERTISING DECISIONS U.S. advertisers now spend about $322 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):

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1. Setting Advertising Objectives Advertising objectives should be based on decisions about the target market, 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 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 (attack 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.

Use Discussion Question 12-2 here.

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 advertising on sales.

It tends to place advertising last among spending priorities, even in situations in which advertising is critical to the firm‘s success.

It leads to an uncertain annual advertising budget.

It more often results in under-spending.

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Percentage-of-Sales Method The percentage-of-sales method involves setting the advertising budget at a certain percentage of current or forecasted sales.

It is simple to use and helps management think about the relationships between advertising and 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 advertising 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.

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It is the most difficult method to use.

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 Not only do today‘s consumers have access to hundreds of TV channels, but they can also access a barrage of streaming content on their digital devices.

Breaking Through the Clutter Americans are exposed to an estimated 5,000 ads daily and 2 million TV commercials annually. Additionally, today‘s viewers are no longer captive. They are using multiple devices to consume content making it more challenging for advertisers to ―break through the clutter.‖ Use Key Terms Advertising Strategy here.

Use Discussion Question 12-4 here.

Merging Advertising and Entertainment To break through the clutter, many marketers are now merging advertising and entertainment to engage customers.

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. Brand integrations (branded entertainment) involves making the brand an inseparable part of some other form of entertainment. The most common form is product placement though it also includes scripted shows and entire movies. a. Native advertising (sponsored content) can blur the lines between editorial and brand content as it appears to be ―native to‖ the site in which it was placed.

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Use Critical Thinking Exercise 12-8 here.

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 12-7 here.

Use Marketing Ethics here.

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The advertiser must choose tone, words, and format for the ad.

Consumer-Generated Content Taking advantage of today‘s interactive technologies, many companies are now tapping consumers for marketing content, message ideas, or actual ads and videos.

If done well, consumer-generated content can:   

incorporate the voice of the customer into the brand message. generate greater customer engagement. yield new creative ideas and brand perspectives.

Using AI in Marketing Content Creation AI platforms are dramatically influencing how advertising is designed and created. AIpowered analytics (big data) can help marketers identify market trends, customer preferences, and buyer behavior patterns leading to more targeted ads and messaging.

Use Critical Thinking Exercise 12-9 here.

Use Digital Marketing and AI here.

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. Engaged consumers are more likely to act on brand messages and share with others. Rather than tracking impressions (reach × frequency), some brands track expressions or engagement on digital platforms.

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Choosing Among Major Media Types (see Table 12.2) Use Key Term Advertising Media here.

Use Table 12.2 here.

Major media types:       

Digital, mobile, and social media Television Newspapers Direct mail Magazines Radio Outdoor

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.

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 (CPM) 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.

Today‘s digital and social media environment lets advertisers create content that responds 16-333

to events in real time. In order to be effective, real-time marketing also involves a wellplanned, steady flow of engaging content.

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. Sales effects are easier to measure with digital advertising, for example A/B testing.

Use Key Term Return on Advertising Investment here.

Use Discussion Question 12-3 here.

Use Marketing by the Numbers 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.

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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. The increased popularity of digital marketing and social media sharing has increased the need for global advertising standardization.

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.

Inclusiveness in Advertising Today the world is sharply divided along economic, political, social, racial, gender-related, national, and other lines. With half of U.S. consumers believing that brands have a duty to speak on social issues and 61 percent seeing diversity in marking as crucial, marketers must be inclusive in their advertising.

Use Marketing at Work 12.2 here.

Use Discussion Question 12-5 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 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 relationships.

Lobbying: Building and maintaining relations with legislators and government officials to influence legislation and regulation.

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Investor relations: Maintaining relations with shareholders and others in the financial community.

Development: Working 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 often downplayed because of its often limited and scattered use.

Major Public Relations Tools Public relations uses several tools:      

News 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.

Use Discussion Question 12-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking

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Discussion Questions

12-1. Identify the promotion mix tools used for immediate response from customers. (AACSB: Written and Oral Communication) Answer: For immediate responses from targeted customers, companies use direct and digital marketing tools to engage with customers and cultivate relationships with them.

12-2. Why is there a need for advertisers to use more specialized and highly targeted media and content? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Advertisers are now adding a broad selection of specialized and highly targeted media and content—including on online, mobile, and social media—to reach smaller customer segments with more personalized, interactive messages.

12-3. Name and explain the two major elements in developing advertising strategy. (AACSB: Written and Oral Communication) Answer: Advertising strategy consists of two major elements: creating advertising messages and selecting advertising media. Advertising can succeed only if it engages consumers and communicates well. Good advertising messages and content are especially important in today‘s costly and cluttered advertising environment. The first step in creating effective advertising content is to plan a message strategy—the general message that will be communicated to consumers. The purpose of advertising and other content is to get consumers to engage with or react to the product or company in a certain way.

The major steps in advertising media selection are (1) determining reach, frequency, impact, and engagement with targeted customer segments; (2) choosing among major media types (e.g., digital, print, and TV advertising); (3) selecting specific media vehicles (e.g., specific TV channels for the ad to appear); and (4) choosing media timing. The decision about which media to use for an ad campaign—television, newspapers, magazines, video, websites, social media, mobile devices, or email—is sometimes more critical than the creative elements of the campaign. Also, brand content is now often co-created through interactions with and among consumers. Therefore, advertisers must orchestrate close coordination between their messages and the media that delivers them in order to reach and influence targeted customer segments.

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12-4. What are the key factors that influence the advertising budget? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Among other factors, the advertising budget is influenced by: 1. Nature of product: Products that are differentiated from the competition require more advertising, compared to commodity products.

2. Stage of life cycle: Early-stage products require more advertising to help spread information and awareness compared to mature products.

3. Geographical focus: Advertising a local business within a limited geographical area is less expensive than building a national brand.

4. Nature of marketing strategy: Reaching out to the mass market through multiple media channels can be more expensive than a focused campaign.

5. Marketing goals: High-market-share goals can be expensive to attain.

Further, the returns to advertising are usually decreasing in market share. For example, it is typically more expensive to move market share from 15 percent to 20 percent than from 10 percent to 15 percent.

12-5. What are the key decisions to be made in international advertising?

(AACSB: Diverse and Multicultural Work Environments; Reflective Thinking) Answer: Key international advertising decisions include: 1. Targeted countries—and customer segments within each country—to which to market the product.

2. The advertising budget for each country—this typically depends on the market potential, the market goals, and the costs of advertising related to each country.

3. The extent of standardization (versus customization) of the advertising campaign across countries and within each country.

4. The advertising content and media to be used in each country—these decisions can depend on the prevailing cultural factors, the degree of economic development, the media consumption patterns, and other situational variables that can vary across countries.

12-6. How can PR be used as a productive component of the marketing mix?

(AACSB: Written and Oral Communication)

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Answer: Here are some approaches (and examples) for making PR a productive part of the marketing mix: 1. PR can be used to complement other parts of the marketing mix. For example, if a company launches a limited-time price discount, PR can help embed press stories featuring the discount. Many of Apple‘s promotional initiatives are featured in news stories (for example, see www.theverge.com/good-deals/2022/6/9/23161704/apple-airtag-itemtracker-deal-sale).

2. PR can highlight new product launches to increase the buzz in the marketplace (for example, see https://punchng.com/flour-millslaunches-new-product/).

3. PR can help highlight brand-building initiatives focused on social and environmental sustainability (see the story in the chapter on how CVS employed PR to highlight its move away from stocking tobacco products).

4. PR can help a company safeguard its interests by combating unhelpful or harmful rumors (for example, see https://wrestletalk.com/news/clarification-evil-uno-aew-status/).

5. PR can help a company gain local community support for business initiatives (for example, see www.telegraph.co.uk/politics/2022/07/02/energy-firm-pledges-putfracking-revenue-local-communities-ban/).

Critical Thinking Exercises 12-7. Choose any two ads from the most recent Super Bowl. For each of the two ads, identify the audience targeted and the execution style used (choosing from the nine styles listed in the chapter). Do the ads work well for the targeted audience? How could each ad be improved? Present the two commercials in-class and support your conclusions. (AACSB: Application of Knowledge; Integration of Real-World Business Experiences) ―‖ Answer: Student answers will vary based on the ads they select to analyze. But student responses can be evaluated in terms of how well the ads they choose map to the styles they highlight. For example, an ad that invokes ―technical expertise‖ must typically feature a real or fictional character or other entity who is deeply associated with knowledge in that product category. An ad that invokes ―mood or image‖ must project an emotional impact on the viewer. Note that an ad can potentially use multiple styles.

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Students can suggest multiple avenues for improvement. Suggestions can relate to: 1. Designing the ad to target the audience more effectively.

2. The choice of different ways of conveying the message than the one used in the ad.

3. Increasing the ad‘s performance along the diversity, equity, and inclusion dimensions.

4. Tweaking the ad script at a conceptual level (that is, altering the storyline).

5. Revisiting the content and flow of the ad—location, invoked colors, choice of spokesperson, the sequence of presentation of information, and so on.

6. Making the ad‘s ―call to action‖ more urgent or effective.

7. The temptation here is to do too much in a single ad. In that case, it is useful to remind students that overburdening the ad can reduce its effectiveness. Often, as the saying goes: ―Simplicity is the greatest sophistication.‖ Note: The instructor can use this exercise to stimulate a discussion on the class forum platform or use this as an in-class discussion. Alternatively, the class can be divided into teams, each with an allocated ad to work on.

The teams can briefly present the allocated ad and their critical analysis of the ad to the class.

12-8. In 2020, the global brand Pepsi used one of MENA‘s most famous singers Amr Diab once again; the singer had collaborated with Pepsi on numerous campaigns in the past. As the regional face of the brand, this 2020 campaign (which coincided with the release of his latest album) used nostalgia, showing the singer at various stages of his career. How did consumers receive the campaign, and was it successful? (AACSB: Written and Oral communication; Reflective Thinking) Answer: The advertising campaign went viral and was successful.

It featured an advertisement that looked back at the 20-year collaboration between the brand and the celebrity. Like previous campaigns, the advertisement went viral, but not entirely for positive reasons.

The ―Pepsi and Amr Diab: More Than 20 Years‖ campaign featured some of Diab‘s most iconic music videos. It was meant to be a celebration with a touch of nostalgia. The problem was that the advertisement featured another actor with a CGI Diab face. It shocked, annoyed, and amused people in equal measure. Some thought it looked decidedly creepy and weird and that it clearly did not have the 16-340

intended impact. Pepsi was forced to release a statement that claimed that they did not use CGI but a model look-a-like called Hossam Mostafa. Fans were unconvinced.

12-9. Table 12.2 outlines the many ways that marketers are using AI to create advertising and marketing content. But using AI to generate marketing content has both pros and cons. Ask your preferred AI interface the following question: ―What are the pros and cons of using AI to create marketing content?‖ Based on the response, discuss the factors that marketers should weigh carefully when deciding how to integrate AI into their content strategies.

Answer: We asked Microsoft‘s Copilot this question and here is the response: Pros: 1. Efficiency and Speed: AI can generate content much faster than humans, allowing for quicker turnaround times.

2. Scalability: AI can produce a large volume of content, making it easier to scale marketing efforts.

3. Personalization: AI can tailor content to individual user preferences, leading to more effective targeting.

4. Cost-Effectiveness: AI can reduce labor costs associated with content creation.

5. Consistency: AI maintains a consistent tone and style across all content pieces.

6. SEO Optimization: AI tools can optimize content for search engines, improving online visibility.

7. Data-Driven Insights: AI can analyze data to create content that resonates with the target audience.

Cons: 1. Lack of Creativity: AI may struggle with truly creative ideas that require human insight.

2. Risk of Errors: AI can make mistakes, especially with complex or nuanced topics.

3. Ethical Concerns: There are concerns about AI-generated content being misleading or manipulative.

4. Depersonalization: Over-reliance on AI can lead to content that lacks a personal touch.

5. Maintenance: AI systems require regular updates and maintenance to stay effective.

6. Potential Job Displacement: AI could potentially displace jobs in content creation fields.

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7. Brand Misalignment: If not monitored, AI-generated content could misalign with the brand‘s values or voice.

Note: Based on their AI queries‘ responses, students should have plenty of fodder for a good discussion. The instructor can use this above example to initiate a discussion in class and orient the aspect of ―humans + AI‖ in advertising in contrast to relying only on AI. In addition, the instructor can ask the AI to create the script for a TV ad (―Create a TV script for an inclusive Harley Davidson bike ad‖) and review the results with the students. ―‖ Minicases and Applications Digital Marketing and AI Cadbury Fingers: Inclusive Digital Marketing Cadbury recently launched its ad campaign titled ―Sign with Fingers Big and Small,‖ which shed light on ―dinner table syndrome‖—the unintentional exclusion of deaf people during dinner and everyday conversations. Cadbury showcased the frustrations and unhappiness of deaf and hard of hearing people by covering some of the subtitled words on the screen. The campaign delivered a strong callto-action to learn sign language.

12-10. Log on to www.cadbury.co.uk/products/brands/cadbury-dairy-milk-fingers/ and scroll down to their social media. Take one specific platform (see www.instagram.com/cadburyuk/) and evaluate the inclusivity of Cadbury‘s digital marketing content. (AACSB: Application of Knowledge; Integration of Real-World Business Experiences) Answer: Plum Here is an evaluation of Cadbury‘s Instagram content: 1. Cadbury‘s content features a lot of diverse influencers and models from varied backgrounds.

2. Cadbury‘s content showcases how it supports Pride festivities across geographical locations.

3. Cadbury‘s behind-the-scenes content related to shooting the ads is posted as Reels. These videos provide additional insight into Cadbury‘s focus on inclusivity.

4. Cadbury‘s reels on Instagram make it a point to push for learning British Sign Language, even providing viewers a link to a website where they can learn sign language as a community.

Note: The instructor can use the Instagram example to stimulate a healthy in-class discussion. As an alternate approach the instructor can deploy breakout groups and provide each group with a social media platform to

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analyze in the context of inclusive advertising. Each group can then briefly present their analysis to the class. Here are the links: X: https://x.com/cadburyuk?lang=en Facebook: www.facebook.com/CadburyUK/ Instagram: www.instagram.com/cadburyuk/reels/―‖ 12-11. Suppose you are part of the Cadbury Fingers marketing team and are tasked with coming up with new ways to strategize digital marketing campaigns. Use your preferred generative AI interface and ask, ―Create the script for an emotional and inclusive TV ad for Cadbury Fingers.‖ Evaluate the answer. (AACSB: Integration of real-world experiences).

Answer: Students‘ answers will vary based on the interface they use. We interacted with ChatGPT and here is the response:

TV Ad Script: ―Share the Joy with Cadbury’s Fingers‖ Title: Share the Joy with Cadbury‘s Fingers Duration: 60 seconds Concept: Celebrating the joy of sharing moments with Cadbury‘s Fingers, highlighting inclusivity and diversity.

[Opening Scene] [Visual]: A sunny afternoon in a vibrant, multicultural neighborhood. Families and friends are setting up for a block party.

Narrator (Voiceover): ―In every moment of joy…‖

[Scene 1: Family Gathering] [Visual]: A large, extended family is gathered in a cozy living room. There are children, parents, and grandparents of various ethnicities. Everyone is smiling and laughing.

[Close-Up]: A grandmother, with a warm smile, passes a tray of Cadbury‘s Fingers to her grandchildren.

Narrator (Voiceover): ―…there's a little something that brings us all together.‖

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[Scene 2: Friends’ Game Night] [Visual]: A group of young adults from diverse backgrounds are gathered around a table, playing a board game. They are engaged and excited.

[Close-Up]: One friend, wearing a hijab, reaches for a box of Cadbury‘s Fingers in the center of the table.

Narrator (Voiceover): ―A treat that turns ordinary moments…‖

[Scene 3: Virtual Celebration] [Visual]: A split-screen showing a virtual birthday party with friends and family joining from different locations. Each person has a box of Cadbury‘s Fingers.

[Close-Up]: A young man with a visible disability smiles as he holds up a Cadbury‘s Finger to the camera, others do the same.

Narrator (Voiceover): ―…into shared joy.‖

[Scene 4: Outdoor Picnic] [Visual]: A diverse group of friends is enjoying a picnic in a park. They are playing games, chatting, and sharing food.

[Close-Up]: A pair of friends, one of whom is in a wheelchair, break a Cadbury‘s Finger in half, sharing it with a smile.

Narrator (Voiceover): ―In every shared moment…‖

[Scene 5: Cultural Festival] [Visual]: A bustling cultural festival with people dancing, wearing traditional attire, and celebrating their heritage.

[Close-Up]: A child, dressed in colorful traditional clothing, offers a Cadbury‘s Finger to a friend from another cultural background.

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Narrator (Voiceover): ―…we find a piece of ourselves.‖

[Closing Scene] [Visual]: The neighborhood block party is in full swing. People of all ages and backgrounds are seen enjoying Cadbury‘s Fingers together, laughing, and making memories.

[Close-Up]: A diverse group of people standing in a circle, each holding a Cadbury‘s Finger, raising them in a toast to the camera.

Narrator (Voiceover): ―Share the joy with Cadbury‘s Fingers.‖ [Text on Screen]: ―Cadbury‘s Fingers—Share the Joy.‖ [Visual]: The Cadbury‘s Fingers logo appears with a tagline: ―Joy Shared is Joy Doubled.‖ [Music]: A warm, uplifting melody that evokes feelings of happiness and togetherness.

[Fade Out] [End of Ad]

This script highlights inclusivity and emotional connections through shared moments, showcasing the joy of Cadbury‘s Fingers in various settings.

Note: The instructor can use this response to stimulate a healthy in-class discussion and invite more student ideas based on their AI interaction.

Marketing Ethics YesStraws An estimated 500 million plastic straws are used daily in the United States alone.

Plastic is one of the biggest enemies of the environment—non-biodegradable, prone to collecting in water bodies, and posing a lasting hazard to aquatic life.

Plastic straws are usually manufactured from raw materials that are derived from the crude oil refining process, which has its own negative environmental impact.

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Against this sobering backdrop, YesStraws aims to make a difference (see https://yesstraws.com/pages/brand-story). Under the tagline of ―Guilt-free slurping,‖ the company makes biodegradable straws from 100 percent natural materials—wheat and cane stems—with no harmful chemicals involved in manufacturing. YesStraws has even pioneered its own manufacturing processes to clean and sterilize the stems. The company has partnered with Hilton hotels and drink maker Pernod Ricard to popularize its products and broadcast its message.

12-12. Although plastic is a huge environmental problem, even if successful, YesStraws can make only a minor overall impact. Therefore, customers often view such corporate initiatives with skepticism. Against this backdrop, how can YesStraws design an effective ad campaign that comes off as genuine and inspired? (AACSB: Application of Knowledge; Reflective Thinking) Answer: In terms of the execution style, YesStraws can consider using a mix of mood or image style (for example, presenting the scary facts related to plastic-driven pollution to customers, inducing a bit of guilt each time they throw away a plastic straw); technical expertise (for example, feature a well-known environmentalist discussing how shifting to natural straws can make a difference); and lifestyle approaches (for example, encouraging parents to shift to YesStraws to build an early sense of environmental responsibility in their children).

It is important to demonstrate that the company lives its message across the board, from raw material sourcing to packaging to quality of employee work life.

Finally, being transparent is important. YesStraws can be honest about the fact that shifting to its straws will make a small difference in the global scheme of things, even while emphasizing that if everybody pitches in, we can together make a big impact.

12-13. Suppose a prominent social media influencer has criticized YesStraws, claiming that all that its products do is to allow people to feel a bit less guilty about consuming large quantities of carbonated drinks, which are harmful to their health and impose significant social costs related to longterm healthcare. How would you react in your role as YesStraws‘ marketing team? (AACSB: Written and Oral Communication; Ethical Reasoning; Reflective Thinking) Answer:

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This is a difficult situation. It‘s important to understand that a strong, inthe-face response may hurt rather than help. Here are some ways to tackle the problem, some of which can be proactively implemented: 1. Acknowledge that YesStraws cannot solve all the problems related to the environment or to unhealthy diets but that the company is passionate about making a difference—‖one straw at a time.‖ 2. Highlight that the company‘s webpages, social media, and ads show people using its products to sip healthy drinks such as green juices and ice water rather than carbonated sodas. Note: Of course, these advertising and media assets must be designed accordingly.

3. Highlight how the company has embraced socially and environmentally sustainable practices across the board, aside from its products.

4. Highlight the fact that the company has never ―oversold‖ or inflated its impact.

5. Highlight how—beyond just straws—the company has consistently tried to influence its customers and society at large to embrace sustainable practices.

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 often the most coveted by many marketers. These viewers basically make or break a television show‘s success. Television networks usually break out this demographic when providing audience numbers. Below are average costs (some estimated) and audience sizes for some of America‘s favorite primetime television (non-sports) shows from September 21, 2023 to May 23, 2024:

Program

Average Cost per 30 Spot

The OT The Masked Singer This is Us The Bachelor The Bachelorette Equalizer Grey’s Anatomy 9-1-1

$433,866 $225,764 $476,352 $154,886 $170,278 $204,792 $213,829 $190,000

Average Number of Viewers (in millions) 9.77 7.56 9.27 3.50 3.5 11.78 7.54 9.6

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18-to-49 Viewers (in millions) 2.8 2.0 2.0 1.8 1.8 1.7 1.7 1.7

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.

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 are the most efficient media buys for advertisers during that period? (AACSB: Analytical Reasoning; Reflective Thinking)

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Company Case Teaching Notes

Company Cases 12 GEICO/10 Ford Motor Company/3 SiriusXM See Appendix 1 for teaching notes for the below cases.

Case 12, GEICO: From Bit Player to Behemoth through Integrated Marketing Communications. GEICO revolutionized insurance advertising with its ―gecko‖ campaigns. With its innovative digital advertising, it is known for providing customer savings and its deep customer engagement.

Case 10, Ford Motor Company: Navigating the ICE and EV Dealer Dilemma. Ford planned to force its dealerships to choose exclusively between EV vehicles and traditional internal combustion engine vehicles. Facing challenges, Ford is revisiting that plan.

Case 3, SiriusXM: Competing in a Morphing Industry. SiriusXM, a pioneer in satellite radio, is adapting by integrating satellite and streaming services. It leverages exclusive content and celebrity channels to offer a unique, curated listening experience.

GREAT IDEAS Barriers to Effective Learning 1.

2.

3.

4.

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,

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as well, will go quickly. You can tie this section back into the push strategy to show how a strategy gets turned into tactics.

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.

4. 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 Kraft Heinz. Each group should then answer the following questions: 1. How did Kraft Heinz break through the clutter of all the advertising done by other food companies to reposition Velveeta?

2. How did Kreft Heinz media choices for Velveeta affect the success of the campaign?

3. Would this strategy work for other snack foods? Why or why not? a. If yes, what product should they reposition next? What new promotional direction would you suggest?

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?

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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 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? Be sure to look at all sources of cigarette-consumption messaging. 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

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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.

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

Objectives Outline 38. Discuss the role of a company‘s salespeople in engaging customers, creating customer 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.

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41. Explain how sales promotion campaigns are developed and implemented.

Previewing the Concepts 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 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.

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PERSONAL SELLING Use Chapter Objective 1 here.

The Nature of Personal Selling

Personal selling is one of the oldest professions in the world.

The people who do the selling go by many names: salespeople, sales representatives, agents, district managers, account executives, sales consultants, and sales engineers.

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.

Use Discussion Question 13-2 here.

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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 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.

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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.

Use Marketing Ethics here.

Customer (Market) Sales Force Structure: The sales force is organized along customer or industry lines.

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 13-3 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.

Use Critical Thinking Exercise 13-8 here.

Other Sales Force Strategy and Structure Issues Outside, Inside, and Hybrid Sales Forces Outside salespeople (field sales force) 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.

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Hybrid salespeople are a cross between an outside and inside rep combining virtual (web meetings) and in-person sales approaches.

Use Key Terms Outside Sales Force (or Field Sales Force), Inside Sales Force, and Hybrid Sales Force 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.

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.

Use Discussion Question 13-4 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

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

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.

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. Compensation consists of four elements: a fixed amount, a variable amount, expenses, and fringe benefits.

Compensation should both motive and direct the activities of the salesforce.

Supervising, Supporting, and Motivating Salespeople Use Discussion Question 13-5 here.

Use Discussion Question 13-6 here.

Use Critical Thinking Exercise 13-7 here.

The goal of supervision is to help salespeople ―work smart‖ by doing the right things in the right ways.

The goal of support is to help salespeople ―work efficiently and effectively‖ by using the best resources and tools.

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.

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

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 28 percent of total working time!

Supporting Salespeople Most companies have adopted digital salesforce support systems that let people 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 (CRM) software.

AI-Powered Sales Assistance AI is transforming selling in major ways, making salespeople more efficient and effective by assisting them with selling tasks or taking on some sales tasks altogether.

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 profitsharing plans.

Evaluating Salespeople and Sales Force Performance Management sources of salesperson information include:

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  

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 One of the fastest-growing sales trend is the explosion in social selling—the use of

digital platforms and sales tools 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.

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.

Use Digital Marketing and AI here.

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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

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. AI is increasingly being used to help in this area.     

Financial ability Volume of business Special needs Location Possibilities for growth

2. Preapproach

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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.

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 Overly talkative

The following qualities are ones that buyers value most in salespeople:      

Good (active) listening skills Empathy Honesty Dependability Thoroughness Follow-through

5. Handling Objections In handling objections, the salesperson should do the following: 16-363

    

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

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 Exercise 13-9 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.

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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).

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.

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

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.

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Consumer Promotions Use Key Term Consumer Promotions here.

Use Marketing by the Numbers 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 more carefully. Digital and mobile coupons represent the fastest-growing coupon segment.

Rebates (or cash refunds) 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.

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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 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 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: 16-367

1.

2.

3.

4.

5.

Size of the incentive Conditions for participation Promotion and distribution Length of the promotion Evaluation methods

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

13-1. Define personal selling. (AACSB: Written and Oral Communication) Answer: Personal selling is defined as personal presentations by the firm‘s sales force to engage customers, make sales, and build customer relationships.

For example, P&G employs a salesforce of ―customer business development‖ reps, skilled professional salespeople who sell to and work with the company‘s large retail customers. P&G salespeople become trusted advisors to the company‘s retailer-partners. Companies around the world use sales forces to sell products and services to business customers and final consumers. But sales forces are also found in many other kinds of organizations.

13-2. Describe how salespeople link a company and its customers. (AACSB: Written and Oral Communication) Answer: First, salespeople represent the company to customers. They find and develop new customers and communicate information about the company‘s products and services. They sell products by engaging customers and learning about their needs, presenting solutions, answering questions, negotiating prices and terms, closing sales, servicing accounts, and maintaining account relationships.

At the same time, salespeople represent customers to the company, acting inside the firm as ―champions‖ of customers‘ interests and managing the buyer–seller relationship. Salespeople relay customer concerns about company products and actions back inside to those who can handle them. They learn about customer needs and work with marketing and other functions in the company to profitably develop and deliver greater customer value.

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13-3. How have companies used AI to advance their hybrid sales forces?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: Increasingly, companies are employing sophisticated artificial intelligencedriven sales-support systems to provide virtual sales assistance, either extending the effectiveness of inside salespeople or freeing them to do more creative selling. Such AI-driven systems can do basic account research, track down sales leads, make and confirm sales appointments, prepare technical proposals, provide follow-up customer support, and automate repetitive sales tasks. In some of these tasks (for example, in preparing technical proposals), AI platforms can generate a strong first output, allowing humans to refine it as needed.

13-4. What is social selling? How are salespeople using digital technologies to benefit their companies? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Social selling is the use of online, mobile, and social media to engage customers, build stronger customer relationships, and augment sales performance.

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 technologies can produce big organizational benefits for sales forces. They help conserve salespeople‘s valuable time, save travel dollars, and give salespeople new vehicles for selling and servicing accounts.

Ultimately, online and social media technologies are helping to make sales forces more efficient, cost-effective, and productive. The technologies help salespeople do what good salespeople have always done—build customer relationships by solving customer problems—but do it better, faster, and cheaper.

13-5. What sets great salespeople apart? What motivates them? (AACSB: Written and Oral Communication) Answer: Super salespeople are motivated from within—they have an unrelenting drive to excel. Some other salespeople are driven by money, a desire for recognition, or the satisfaction of competing and winning. Yet others are driven by the desire to provide service and build relationships. The best salespeople possess some of these motivations. That said, selling with such a goal of achieving a customer-related purpose is most often the more successful approach. It‘s typically also more profitable to the company and more satisfying to salespeople.

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13-6. What are the goals of a company‘s training programs for salespeople?

(AACSB: Written and Oral Communication) Answer: Training programs have several goals. First, salespeople need to know about customers and how to build relationships with them. Therefore, the training program must teach them about different types of customers and their needs, buying motives, and buying habits. It must also teach them how to sell effectively and train them in the basics of the selling process.

And salespeople need to know and identify with the company, its products, and its competitors. Therefore, an effective training program teaches them about the company‘s objectives, organization, products, selling strategies, and the strategies of major competitors.

Critical Thinking Exercises 13-7. Use your preferred AI interface to help you write a job description for a Nike territory sales manager in the Texas region. Applying what you‘ve learned in this chapter, evaluate the AI result. (AACSB: Written and Oral Communication; Integrating Real-world knowledge experiences).

Answer:

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Note: The instructor can use this example above or one or more student examples to start a discussion for an in-class presentation. Students can compare their AI-generated descriptions to those found on an online job platform like Monster.com or indeed.com. In assessing the AI results, students should reflect on the information in the chapter, including the ideas that related to creative selling, social selling, and relationship building.

13-8. A retail store manager for a national electronics chain is trying to calculate the optimal number of sales associates. The store has 1,200 VIP customers and 25,000 regular customers. VIP customers require 15 personal interactions per year, while regular customers require 5 interactions per year. The average sales associate can handle 900 interactions per year. What is the total workload? How many sales associates should the manager hire? What other factors should the manager consider? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: The total workload is 142,500 interactions [(1,200 × 15) + (25,000 × 5) = 18,000 + 125,000 = 142,500]. If the average sales associate can handle 900 interactions a year, the store would need 142,500/900=159 sales associates. Other factors for consideration may include the structure of the sales force, training, turnover, compensation, and the pattern of demand over time.

13-9. Ingersoll Rand is a leading supplier of industrial equipment, including commercial air compressors (see www.ingersollrand.com/en-us/aircompressor). Historically, the company has sold air compressors to business customers and serviced them for the customer. Customers range from airlines to steel plants. One way for Ingersoll Rand to grow is to move deeply into selling the solutions compressor provide rather than just equipment. For example, the company could supply and charge for compressed air by providing a broad, usage-based solution that includes installation, maintenance, and continuous support for optimal performance, rather than just for the compressors. Develop a list of the key functional, economic, and psychological benefits the sales team must communicate to industrial customers to sell this new solution-focused approach. (AACSB: Application of knowledge; Integration of real-world experiences) Answer: It is useful to organize the benefits into three categories: 1. Functional benefits (what the offering delivers in terms of doing the job for customers):

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a. Ingersoll Rand will take care of the end-to-end customer needs related to compressed air. b. It will be responsible for all maintenance. c. Given its expertise in compressed air, it can solve the customers‘ airrelated problems more effectively than customers themselves can.

2. Economic benefits (cost savings and profit improvements): a. The customer does not need to invest in compressors—this reduces capital costs and conserves cash. b. Maintenance costs will be borne by Ingersoll Rand. c. The customers only pay for the compressed air they use—they don‘t pay for what they don‘t need. d. The air supply is more reliable, leading to fewer shutdowns and increased profits 3. Psychological benefits (reassurance and peace of mind): a. The customer does not need to worry about compressor purchase and maintenance—everything is handled by Ingersoll Rand. b. Customers can be confident that any breakdowns will be quickly handled. c. Customers can focus on other priorities that need attention.

Minicases and Applications Digital Marketing and AI Driving Sales Digitally at Global Industrial Global Industrial sells a wide range of industrial supplies, carrying more than 1.7 million products and serving industries ranging from facility maintenance and power generation to medical labs and food services (see www.globalindustrial.com). The company has traditionally relied on its sales force as the primary customer-lead-generation and demand-fulfillment platform. But the digital channel is now a major complement to its sales force. Global Industrial‘s digital marketing focuses on two segments: (a) Creating exceptional self-service for customers who wish to manage their purchases on their own; and (b) Creating a high-touch experience for large industrial customers who value the interaction with the sales force. Global Industrial has prioritized investments that support these strategies. For example, its new online Knowledge Center provides buyers with product data, videos, and articles written by subject experts. The company embeds tracking links in emails to allow buyers to track the location of any order in real time. Warehouse automation has reduced the walk time to get orders organized. And ecommerce dashboards now empower salespeople to increase customer retention and sales. The company has also beefed up its social media presence (see www.globalindustrial.com/knowledge-center/socialmedia). Global Industrial realizes that all this is only a start given all the potential offered by the digital business environment.

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13-10.

Is Global Industrial‘s two-fold segmentation of its industrial customers in the digital environment appropriate? Explain. What other approaches could Global Industrial use to segment the market? (AACSB: Application of Knowledge; Reflective Thinking) Answer: This segmentation approach is appealing for the following reasons:

1. It saves costs by empowering customers who seek to do things independently to take care of themselves. Such digital self-service can result in significant cost savings.

2. For those customers who desire personalized service, it provides that option. Note that while Global Industrial expects that larger customers would prefer this option, that might not always be the case. For example, for frequently purchased, standardized products, even large customers can default to self-service.

3. The key point is that the choice of which ordering and service path to take is now in the hands of the customer. This can lead to efficient “self-selection” into the path that best fits the customer.

Other approaches Global Industrial can use to segment the market in the digital marketing context including the following: 1. Segmentation based on the industries that customers operate in, given that customer needs may vary systematically across industries. A large hospital system may need very different offerings compared to a power-generation company.

2. Customer size and potential. This would allow Global Industrial to prioritize the selling and marketing effort efficiently.

3. Geographical segmentation. This would allow the sales force to prioritize areas with high concentrations of important customers, while allowing the digital channel to efficiently serve dispersed customers in other regions.

13-11.

Suppose you are tasked with expanding Global Industrial‘s sales strategies digitally. Ask an AI interface of your choice, ―How can I expand Global Industrial‘s sales strategy on the digital front, considering it is a B2B industrial supplies seller? Give me some innovative ideas.‖ Evaluate the AI platform‘s response. (AACSB: Integration of real-world experiences) Answer: Students‘ answers may vary based on their chosen AI interface. When we asked ChatGPT the question, it responded as described below (paraphrased from ChatGPT):

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Expanding Global Industrial‘s sales strategy on the digital front can leverage a mix of advanced technologies, targeted marketing, and enhanced customer experiences. Here are some innovative ideas:

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1. Advanced Data Analytics and AI Integration: a) Predictive Analytics: Use AI to analyze purchasing patterns and predict future needs of clients, allowing for proactive sales and stock management. b) Personalized Recommendations: Implement AI-driven recommendation engines on the website to suggest products based on the browsing history and previous purchases of users. c) Chatbots and Virtual Assistants: Deploy AI-powered chatbots to handle customer inquiries, provide product information, and assist with order placements 24/7.

2. Enhanced E-Commerce Platform: a) User Experience Optimization: Continuously improve the website’s user interface and user experience (UI/UX) to make navigation, search, and purchasing as seamless as possible. b) Mobile Optimization: Ensure the e-commerce platform is fully optimized for mobile devices, providing a smooth and responsive experience for users on-thego. c) AR/VR Product Visualization: Integrate augmented reality (AR) and virtual reality (VR) technologies to allow customers to visualize products in their own environments before making a purchase.

3. Content Marketing and SEO: a) Video Tutorials and Webinars: Develop and share video tutorials, product demonstrations, and webinars to educate potential and existing customers on the uses and benefits of your products. b) SEO Optimization: Optimize all content for search engines to increase organic traffic to the website. c) Industry-Specific Content: Create high-quality, industry-specific content such as blogs, whitepapers, and case studies that address common challenges and solutions within the industrial supplies sector.

4. Leveraging Social Media: a) LinkedIn Engagement: Utilize LinkedIn for B2B marketing by sharing thought leadership content, engaging with industry groups, and running targeted ad campaigns. b) YouTube Channel: Create a YouTube channel featuring product reviews, how-to guides, and customer testimonials. c) Social Proof: Encourage satisfied customers to leave reviews and share their experiences on social media platforms.

5. Email Marketing and CRM Integration:

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5. Email Marketing and CRM Integration: a) Segmented Email Campaigns: Use CRM data to segment your email lists and send targeted email campaigns based on customer behavior and preferences. b) Automated Follow-Ups: Implement automated email follow-ups for abandoned carts, product recommendations, and re-engagement campaigns for inactive customers.

6. Innovative Sales Tools: a) Digital Catalogs: Develop interactive digital catalogs that are easy to navigate and update regularly with new products and promotions. b) Sales Enablement Tools: Provide your sales team with advanced tools such as CRM-integrated sales dashboards, mobile sales apps, and virtual meeting capabilities to enhance their productivity and effectiveness.

7. Customer Loyalty Programs: a) B2B Loyalty Programs: Implement a loyalty program that rewards repeat purchases and large orders with discounts, exclusive offers, and early access to new products. b) Referral Programs: Encourage existing customers to refer new clients through a structured referral program with attractive incentives.

8. Integration with Procurement Systems: a) PunchOut Catalogs: Integrate with clients‘ procurement systems via PunchOut catalogs, allowing them to access your product catalog directly from their procurement software. b) EDI Integration: Utilize Electronic Data Interchange (EDI) to streamline order processing, invoicing, and inventory management with larger clients.

9. Partnerships and Collaborations: a) Industry Partnerships: Partner with other companies in related industries to offer bundled solutions and cross-promotions. b) Trade Shows and Virtual Events: Participate in industry trade shows and host virtual events to showcase new products and network with potential clients.

10. Customer Feedback and Improvement: a) Surveys and Feedback Forms: Regularly gather customer feedback through surveys and feedback forms to understand their needs and improve your services.

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b) Customer Advisory Boards: Establish customer advisory boards to get direct insights and advice from key clients on how to better serve their needs.

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Marketing Ethics Selling Both Financial Advisory and Auditing Services to the Same Customer A recent New York Times article titled ―Officials Balked at a Drug Company‘s Tax Shelter. Auditors Approved It Anyway,‖ highlights the ethical dilemma faced by firms that offer both financial advisory and auditing services. The story described how financial advisory giant Ernst & Young (EY) devised an arrangement that would help nonprescription drug maker Perrigo avoid more than $100 million in U.S. federal taxes. Instead of buying the drugs directly for sales in the United States and paying taxes on sales, Perrigo set up a shell subsidiary in Israel (with no employees and no offices) that purchased the drugs and resold them to Perrigo for further sales to U.S. consumers. Therefore, the bulk of Perrigo‘s profits were generated in Israel, where Perrigo paid no taxes on the profits.

Perrigo‘s independent auditing firm, BDO, questioned the propriety of the arrangement. In fact, even one EY manager thought the tax shelter was too aggressive. But Perrigo soon replaced BDO with EY‘s own auditing division. And the EY auditors ultimately approved the arrangement. The I.R.S. is now investigating this arrangement as an ―aggressive tax dodge.‖ In the wake of multiple such conflicts of interest, the push to separate financial advisory and auditing services into separate companies has gained momentum.

13-12. Hiring the same company for both financial advisory and auditing services can result in lower prices for those services and better coordination across those functions. But it can also cause conflicts of interest. Given the potential conflicts, is it ethical for EY to continue marketing both advisory and auditing services to the same customers? Explain your reasoning. Is there another way to address the problem? (AACSB: Ethical Understanding and Reasoning; Integration of Real-World Experiences) Answer: Hiring the same company for both financial advisory and auditing services can result in lower prices for those services and better coordination across those functions. But it can also cause conflicts of interest. Given the potential conflicts, is it ethical for EY to continue marketing both advisory and auditing services to the same customers? Explain your reasoning. Is there another way to address the problem? (AACSB: Ethical Understanding and Reasoning; Integration of Real-World Experiences) 13-13.

Small group exercise: In the Perrigo example above, there was a conflict of interest when a service provider sold both advisory and auditing services to a customer. Thinking more broadly, what are some ethical challenges that salespeople potentially face? (AACSB: Ethical Understanding and Reasoning; Integration of Real-World Experiences)

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Among others, salespeople face these potential ethical challenges: 1. Bribery: Salespeople can potentially bribe decision makers within their client companies to place orders with them.

2. Sales shifting: Salespeople can try to maximize their income by shifting sales to different months or quarters. For example, if they sell a lot of products in one quarter, they may report some of those sales in the next quarter, so they hit bonus performance levels for both quarters.

3. Overselling: Persuading customers to buy products they don‘t really need.

4. False claims: Making false or exaggerated claims about product performance or availability in order to bag the order.

5. Sabotaging other salespeople: Soliciting orders from customers who fall into another salesperson‘s sales area.

6. Opacity: Not disclosing terms of sales or service that are important to the customer.

Marketing by the Numbers Joe’s Outdoor Sports and Gear Buy One, Get Something Free!

The Foundry is the product design subsidiary of the UAE-based design studio called Tinkah. The Foundry designs and manufactures Khaleeji-inspired coffee sets and briefcases using natural materials and colors. Assume that they are considering an advertising campaign in the UAE to promote their range of pottery and ceramics. The brand is considering spending $5,000 on advertising to support a product premium offer. They will offer a stackable bowl set (worth $80) free for every $1,000 that a customer spends on other products from the range.

The focus of the advertisement will be social media and leaflets in shopping malls.

13-14. If The Foundry‘s markup percentage on selling prices is 65 percent, what margin will they realize for each bundle of products purchased during the premium offer?

How many additional bundles would they 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 Reasoning; Reflective Thinking) Answer: Margin = Price – cost of goods sold The cost of goods sold is 35 percent (which is 1 – markup percentage), which means it is equal to 35 percent of the selling price: COGSBundle = 0.35 x $1000 = $350

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Therefore, Margin per bundle = $100 – $350 = $650 Another way to quickly determine the margin is to multiply the selling price by the markup percentage because the margin is based on selling price: Margin per bike = $1000 x 0.65 = $650 The margin on the stackable bowls will be negative, however, because the consumer receives it free with the purchase of the bundle and the retailer must still account for the cost of the stackable bowls.

The cost of goods sold is 65 percent (which is 1 – markup percentage), which means it is equal to 65 percent of the selling price: COGSSTACKABLE BOWLS = 0.35 x $80 = $28 Therefore, Margin per stackable bowl set = $0 – $28 = -$28 So, Margin per bundle with the free stackable bowl set promotion = $650 – $28 = $622 Since the advertising cost is a fixed cost, The Foundry must sell 9 bundles to break even on this promotion: ΔBEBundle plus bowls= bundles

Advertising expense ————————— MarginBundle plus bowls

$5000 = ————— = 8.03 => 9 $622

13-15. The Foundry ran the promotion and sold 15 bundles during the promotional period. Assuming that the $5,000 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 Contribution in Appendix 3: Marketing by the Numbers to learn how to do this analysis.

(AACSB: Analytical Reasoning) 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 = $1000 x 15 = $15,000 COGSPromotion = COGSBundle + COGSBowls = ($350 x 15) + ($28 x 15) = $5,250 + $420 = $5,670 Therefore, 16-381

NMC = $15,000 ˗ $5670 ˗ $5000 = $4,330 Yes, the promotion was successful because the net marketing contribution is positive. Another indication that the promotion was a success is that the number of bundles sold (15) is greater than the number they needed to sell to break even on the promotion (9).

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Company Case Teaching Notes

Company Cases 13 Colony Realty/6 WeightWatchers/11 Temu See Appendix 1 for teaching notes for the below cases.

Case 13, Colony Realty: Personal Selling in a New Real Estate Era. Colony navigates the real estate market through expert personal selling, even amidst new commission rules.

The company aims to build trust and fulfill homeownership dreams.

Case 6, WeightWatchers: Preserving the Brand’s Heritage while Charting a Course for the Future. WeightWatchers now integrates weight-loss medications into its approach. By combining behavioral regimens with modern solutions, it tries to attract a broader audience while promoting healthy lifestyles.

Case 11, Temu: A Rising New Era Retailer. Temu aims to revolutionize online retail with ultra-low prices and a gamified shopping experience. The company is shaking up the competition and redefining consumer expectations.

GREAT IDEAS Barriers to Effective Learning 1.

2.

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.

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3.

4.

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?

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

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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 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?

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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 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.

4.

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?

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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?

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 Objectives Outline 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 omnichannel marketing strategy.

14-4 Identify and discuss the public policy issues presented by digital marketing.

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This chapter digs deeper into the fastest-growing form of marketing: digital marketing (which includes online, social media, mobile, and other forms of technology-intensive marketing).

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, social media, and now, AI.

ANNOTATED CHAPTER NOTES/OUTLINE FIRST STOP Coca-Cola: ’A Massive Shift to Digital Marketing 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 spark consumer engagements—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 more engaging 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 now has 109 million Facebook followers, 4 million X followers, 3 million Instagram followers, 8 million LinkedIn followers, and 4.5 million YouTube subscribers.

Coca-Cola‘s digital efforts extend well beyond social media. Their most recent global campaign, ―Real Magic,‖ combines real and digital consumer engagements and experiences. ―Real Magic‖ is a long-term brand philosophy guiding marketing and communications across the Coca-Cola trademark.

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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 Use Chapter Objective 1 here.

Use Figure 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.

Use Key Term Digital Marketing here.

Use Discussion Question 14-2 here.

The New Digital Marketing Models Digital marketing is the fastest-growing form of marketing, claiming a surging share of marketing spending and sales.

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. Other companies use it as a complementary channel to deliver value and seamless omnichannel experiences. 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.

Benefits of Digital Marketing to Buyers and Sellers Buyer Benefits    

Digital marketing is convenient, easy, and private.

Provides buyers with anywhere, anytime, personalized access to a nearly unlimited assortment of offerings and information.

Consumers benefit from increased price competition.

Digital marketing provides brand engagement and community—a place to share information and experiences.

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Seller Benefits      

Digital marketing can provide an efficient 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.

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 14.2 here.

Use Discussion Question 14-1 here Use Key Terms Digital Consumer Personas and Consumer Omnichannel 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 Critical Thinking Exercise 14-7 here.

Understanding Consumer Omnichannel Navigation Behavior Marketers must understand consumer omnichannel navigation behavior.

Consumer omnichannel 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 omnichannel 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:

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 

research and understand the patterns of consumer omnichannel navigation for their brands. use data fusion, integrating data from different sources to build a comprehensive picture of consumer omnichannel behavior.

The resulting insights can guide decisions related to influencing consumers with timely and relevant information.

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.

Use Linking the Concepts here.

EMPLOYING DIGITAL CHANNELS IN AN OMNICHANNEL 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, influencer sites, blogs, and other digital media.

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 Key Terms Online Advertising, Online Display Ads, Search-Related ads, Email Marketing, Spam, Viral Marketing, and Blogs here.

Online Advertising

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  

    

Online advertising: Advertising that appears while consumers are navigating websites or other digital platforms, including display ads and search-related ads.

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.

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. o Paid search ads appear when companies pay a search engine to feature their ads when consumers search for key terms related to their store, brand, or product. o Organic search includes mentions of a company‘s brand or product that occur as a result of search engine algorithms.

Email marketing: Sending highly targeted, highly personalized, relationshipbuilding marketing messages via email.

Spam: Unsolicited, unwanted commercial email messages. o Permission-based email marketing is sending emails only to those who ―‗opt in.‖‗ Online Videos: Companies often post digital video content on brand websites and on social media.

Viral marketing: The digital version of word-of-mouth marketing that are so engaging that consumers pass them along to friends.

Blogs and Other Online Forums: Online forums where people and companies post their thoughts related to narrowly defined topics.

Use Discussion Question 14-4 here.

Use Key Terms Social Media, Mobile Marketing, and Omnichannel marketing here.

Social Media Marketing Social media can support deep consumer engagement and a sense of shared community.

Using Social Media Marketers can engage in social media in two ways:  They can participate in existing social media.  They can set up their own social media.

Types and Functions of Social Media      

Image and video platforms Messaging platforms Blogs/microblogs Location platforms Wikis Reviews and ratings platforms

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 

Livestreaming platforms Metaverse platforms Use Marketing at Work 14.1 here.

Use Critical Thinking Exercise 14-8 here.

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.

Mobile buying is growing rapidly and currently accounts for more than 60 percent of all digital commerce.

Use Marketing at Work 14.2 here.

Use Linking the Concepts here.

Use Discussion Question 14-3 here Creating an Integrated Omnichannel Strategy ‘The digital age has given marketers new ways to create customer value, engage customers, and build customer relationships. Today‘s consumers are adept at omnichannel navigation across online, social media, mobile, brick-and-mortar, and other channels.

Omnichannel marketing: Creating a seamless and effective cross-channel buying experience that integrates in-store, online, and mobile shopping.

Overcoming the Challenges to Omnichannel Marketing 

 

Aligning Omnichannel Marketing and the Overall Business Model.

Aligning Organizational Incentives and Structures.

Aligning the Marketing Mix. Use Chapter Objective 14.4 here.

Use Critical Thinking Exercise 14-9 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.

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.

Use Discussion Question 14-5 here.

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Use Marketing Ethics here.

Antitrust Concerns Online giants like Apple, Amazon, and Google have grown at tremendous rates.

Each has a market value of more than $2 trillion.

Policy makers worry that their size and dominance gives them a kind of monopoly power.

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.

Use Discussion Question 14-6 here.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 14-1. How does digital marketing benefit customers and companies? (AACSB: Written and Oral Communication, Reflective Thinking) Answer: Digital marketing has several benefits to customers and companies.

Benefits to customers: 1. Digital marketing is convenient and private. Customers can shop from the privacy of their own homes.

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2. It gives buyers anywhere, anytime, personalized access to an almost unlimited assortment of goods and a wealth of products and buying information.

3. Digital marketing can work in coordination with other marketing elements to create great end-to-end customer experiences.

4. It can help customers efficiently compare attributes and prices across products and sellers.

5. Digital marketing can help customers in geographically remote markets access many products.

6. Digital marketing can support online customer communities, social media platforms, and forums for product reviews and ratings.

Benefits to companies: 1. Digital marketing helps companies provide information to build engagement with and persuade customers. It helps companies induce brand purchase and ultimately drive profitable transactions and long-term relationships.

2. Digital marketing gives companies the flexibility to dynamically adjust information, prices, and offerings to create timely and personalized customer engagement and value.

3. It helps companies employ new advertising approaches via social media platforms, the internet, and mobile devices.

4. Digital marketing helps companies address the needs of new markets and customer segments without building expensive brick-and-mortar infrastructure.

5. Digital marketing is an ideal platform for new and small entrants who do the direct-to-customer (DTC) route and who often don‘t have the resources to build out a brick-and-mortar presence.

6. Digital marketing provides opportunities for customized, real-time marketing that links brands to important moments and trending events in customers‘ lives.

7. Finally, digital marketing allows companies to build seamless omnichannel customer experiences that span online, mobile, brick-and-mortar, catalog, and other channels.

14-2. What are the steps in the digital marketing process? (AACSB: Written and Oral Communication, Reflective Thinking) Answer: The digital marketing process uses technology-intensive platforms to engage directly with carefully targeted individual consumers, communities, and businesses. The steps in the digital marketing process include: 1. Understanding digital marketing, including the benefits it delivers and the new and emerging digital marketing models.

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2. Preparing for a digital marketing campaign, including deeply understanding digital customers and their omnichannel behavior, and how to use experimentation to fine-tune digital marketing initiatives.

3. Employing digital marketing in an omnichannel strategy, including online, social media, and mobile marketing.

4. Addressing public policy issues in digital marketing, including ensuring customer privacy, assuring data integrity and security, and operating with high legal and ethical standards.‘‘‘‘‘ 14-3. What is mobile marketing and why is it important to marketers? (AACSB: Application of Knowledge) Answer: Mobile marketing delivers marketing messages, promotions, and other marketing content to consumers through their mobile devices. It can be used to reach consumers when they are on-the-go and at any point during the buying and relationship-building processes. Mobile marketing is growing in importance for the following reasons: 1. Mobile devices are widely used to access information in the United States.

They have more than 100 percent penetration in the United States, where many people possess more than one device. On average, Americans check their smartphones 80 times a day.

2. The mobile phone is increasingly consumers‘ first screen and it is their only screen away from home.

3. Smartphones are increasingly used as shopping companions. Mobile ads, coupons, texts, apps, and websites that are designed for mobile use are thus increasingly critical for marketers.

4. Marketers can use mobile marketing to stimulate immediate, impulse-based buying, make shopping easier, and/or to enrich the brand experience.

5. Since the mobile device travels with the customer, it can be used to facilitate location-based marketing. For example, using geofencing, a retail outlet can push an offer to a customer on their mobile device when they are within, say, a half-mile of the store.

6. Mobile devices can be used to access information anytime and anywhere.

Often customers will use mobile devices to access and compare information even within the retail store.

7. Finally, mobile devices can be used to create seamless customer journeys, beyond shopping. For example, even if a customer purchased an airline ticket on their desktop computer, they could check in, pay for excess baggage, choose seats, track their flight, and order meals on their mobile device. ‘‘

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14-4. In search-related advertising, what is the difference between organic search results and paid search ads? Why is each important to advertisers? (AACSB: Written and Oral Communication, Information Technology) Answer: Organic search results are search engine results, including links to stores and brands along with other information links, that appear in the search list but are not paid for by the store or brand. Stores and brands employ sophisticated search engine optimization (SEO) strategies to assure that they appear in organic search results.

Paid search ads are those that appear in the ―Ads‖ or ―Sponsored‖ section of search engine results. Companies pay a search engine to feature their ads when consumers search for key terms related to their stores or brands.

A couple of points are worth noting here. These days, it‘s critical that businesses and brands be easily found online. Thus, being featured in search-related results—whether through the organic or the paid approach—is an important goal for brands. Second, beyond search engines, the concept of organic and paid search also applies to retail platforms such as Amazon. Do a search for travel backpacks on Amazon.com and you will see both paid and organic search results. ‘

14-5. What have businesses done to protect privacy rights? (AACSB: Written and Oral Communication, Reflective Thinking) Answer: Privacy rights in the United States are governed by six major advertiser groups that represent advertisers—the American Association of Advertising Agencies, the American Advertising Federation, the Association of National Advertisers, the Data & Marketing Association, the Interactive Advertising Bureau, and the Network Advertising Initiative.

These organizations have issued a set of online advertising principles through the Digital Advertising Alliance. Businesses are encouraged to follow the principles that call for online and mobile marketers to provide transparency and choice to consumers if online data are collected or used to target interest-based advertising. Following the guidelines, businesses now add an advertising option icon—a little ―i‖ inside a triangle—to behaviorally targeted online ads to tell consumers why they are seeing a particular ad and allowing them to opt out. ‘‘‘‘‘‘‘‘ 14-6. How does the General Data Protections Regulation (GDPR) act affect data collection and protection? (AACSB: Written and Oral Communication) Answer:

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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. In fact, many of the benefits of GDPR have already been realized in the United States, as many companies work across European and U.S. markets. For example, the growing practice of asking customers to choose what types of cookies they are willing to allow a website to employ is, to a great extent, one of the privacy-enhancing outcomes of GDPR. Critical Thinking Exercises 14-7. What is a digital consumer persona? Consider a local startup that aims to provide online tutoring lessons for students at 4-year colleges. The service will tailor tutoring lessons to the material students learn in their courses. It will offer lessons across a wide range of subjects, ranging from the sciences to business and mathematics. Drawing from the coffee shop example in the chapter, work in small groups to construct a digital consumer personal of a prototypical student-customer for this startup.

What will you name the start-up? Do not use an AI platform for this task.

(AACSB: Information Technology, Written and Oral Communication, Reflective Thinking) ‘ Answer: Digital consumer personas are detailed, nuanced, and tangible representations of prototypical consumers to be targeted by the digital marketing campaign. Based on marketing research, these consumer ideals help marketers pinpoint targeted customers and better understand their needs.

Student groups may construct different digital personas. Based on the coffee shop example in the chapter, here are some things to look for: 1. The persona must richly capture the student‘s explicit and implicit needs for the service.

2. The persona must capture how the service fits into the student‘s life.

3. The persona must reflect the student‘s preferred style of learning.

4. The persona must capture the student‘s preferences related to the technology used.

5. The persona must capture insights related to how students perceive value in such a service and their willingness to pay for it.

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Names for the start-up should be striking and associated with the broad customer need that the service addresses.‘ 14-8. Airbnb has recently introduced a new feature called ―Online Experiences,‖ expanding its platform to include virtual activities that users can enjoy from the comfort of their homes. These experiences range from unique virtual hangouts with goats on a farm to interactive cooking classes led by professional chefs. The initiative aims to bring the world closer to users even without physical travel. Virtual experiences can serve as a supplementary revenue stream and maintain user engagement with the Airbnb platform. Moreover, these experiences cater to a wide range of interests and demographics, from animal lovers and culinary enthusiasts to families looking for unique activities. From a digital marketing perspective, how can Airbnb effectively promote its Online Experiences to maximize user engagement and conversion rates? Consider the roles of social media, influencer partnerships, SEO, and content marketing in your analysis. (AACSB: Application of Knowledge) Answer: Student To effectively promote its Online Experiences, Airbnb can leverage a comprehensive digital marketing strategy that incorporates various elements: 1. First, social media platforms can be pivotal in reaching a wide audience. By creating engaging content such as behind-the-scenes videos, user testimonials, and live streams of popular experiences, Airbnb can generate buzz and interest. Utilizing targeted ads and sponsored posts on social media platforms such as Instagram, YouTube, and X can also help reach specific demographics who are likely to be interested in these virtual offerings.

2. Collaborating with influencers who align with the themes of the Online Experiences, such as food bloggers for cooking classes or lifestyle influencers for virtual hangouts, can provide authentic endorsements and broaden reach. These influencers can share their personal experiences, creating relatable and compelling content that encourages their followers to try the experiences themselves.

3. SEO (Search Engine Optimization) is crucial for ensuring that these offerings appear prominently in search engine results. By optimizing the content on their website with relevant keywords, creating informative blog posts, and ensuring a user-friendly experience, Airbnb can attract organic traffic from users searching for virtual activities and experiences. For example, the link to the offering could be pulled up through paid advertising in response to a search for ―cooking Italian dishes.‖ 4. Content marketing, including blog posts, newsletters, and video content, can educate potential customers about the variety and

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uniqueness of Online Experiences. By highlighting success stories, offering sneak peeks, and providing useful tips related to the experiences, Airbnb can build excitement and anticipation.

5. Encouraging participants of Online Experiences to share their own content on social media and tag Airbnb can create a sense of community and authenticity. Running contests or offering incentives for the best user-generated content can boost participation and spread organic word-of-mouth marketing.

6. Implementing retargeting ad campaigns can help retarget users who have visited the Online Experiences section of Airbnb‘s website but did not make a booking. Displaying ads that remind them of the experiences they viewed, coupled with enticing offers or discounts, can increase conversion rates.

7. Finally, Airbnb can complement conventional vacation stays with such experiences before and after the stays.

Note: The instructor can use the above points to enhance the discussion in-class or on the discussion board.‘ 14-9. ―Epic Games‖ is a gaming company known for its immersive RPG (RolePlaying Game) titles. The company is planning to release a new game called ―Mythical Realms,‖ which blends elements of fantasy, strategy, and action. The target audience primarily includes young adults (18–34 years old) who are avid gamers and active on social media. Visit https://store.epicgames.com/en-US/ and click on their social media links toward the bottom of the page. Discover how the company markets its offerings on social media platforms, and then develop a digital marketing strategy for ―Mythical Realms.‖ (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students‘ answers will vary based on their creative ideas related to digital marketing. Here are some areas to keep in mind when developing the strategy: 1. Pre-Launch Hype and Early Store Discovery: a. Creating a ―Coming Soon‖ page on the Epic Games Store to build anticipation before the game‘s release. This allows users to add the game to their wish list, generating early interest and ensuring that potential players receive updates and notifications. b. Utilizing high-quality trailers, gameplay snippets, and behind-thescenes content to tease the game on social media platforms such as X, Instagram, and YouTube. These platforms are effective for reaching the 18–34 age group who are avid gamers and active on social media.

2. Social Media Engagement

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a. Engaging with the Epic Games community by sharing updates, participating in discussions, and leveraging hashtags like #EpicGamesStore. Maintaining a friendly, engaging, and informative tone to match Epic Games‘s social style. b. Partnering with popular gaming influencers and streamers to showcase ―Mythical Realms.‖ Influencers can create gameplay videos, live streams, and reviews to reach a broader audience and build credibility.

3. Content Marketing a. Ensuring that all promotional materials, including screenshots, videos, and trailers, highlight the game‘s unique features and aesthetics. Incorporate the Epic Games logo in these assets to clearly communicate availability on the Epic Games Store. b. Developing compelling blog posts and social media stories that delve into the game‘s lore, characters, and development process.

This content can attract and retain users interested in the game‘s narrative elements.

4. Promotions and Discounts a. Offering limited-time discounts during the launch period to encourage initial purchases and boost visibility. Announce these discounts through Epic Games‘ promotional channels and your own social media platforms to maximize reach. b. Planning regular in-game events, updates, and exclusive content releases to keep the player base engaged and attract new players through word-of-mouth and community excitement.

5. Community Building a. Integrating social features available on the Epic Games Store, such as friend lists, achievements, and community challenges, to foster a sense of community among players. b. Encouraging players to share their gameplay experiences, fan art, and custom content. Feature the best contributions on your official channels to build a loyal and active community.

6. Analytics and Feedback a. Utilizing the Developer Portal Analytics Dashboard provided by Epic Games to monitor sales, wish-list data, and player feedback.

Use these insights to adjust marketing strategies and improve player engagement. b. Regularly soliciting feedback from players through surveys and social media polls. Address their suggestions and concerns in updates to demonstrate responsiveness and build trust.

Note: The instructor can use the above points to enrich the discussion inclass or on the discussion board and invite more ideas.‘ Minicases and Applications Digital Marketing and AI 16-402

BeReal’s Strategy BeReal is a social platform that encourages customers to share unfiltered, authentic moments within a two-minute window after receiving a notification. It‘s a rebellious response to an insincere social media culture, emphasizing limited time spent on the app and zero editing options. Visit www.bereal.com and read the article at https://mashable.com/article/bereal-photosharing-app to learn more about the platform. Also, learn about how it markets itself on social media—see www.instagram.com/bereal/, https://x.com/bereal_app?lang=en and www.facebook.com/BeRealApp/?locale=en_GB. ‘ 14-10. BeReal‘s monthly customers decreased by 52 percent from October 2022 to February 2023. Based on your analysis of the company and its marketing, what do you think are the key reasons behind this decline? ‘‘‘(AACSB: Application of Knowledge; Integration of Real-world Experiences) Answer: Reasons for this decline may be as follows: 1. The younger demographic does seek authenticity, but typically they seek authenticity with a purpose. For example, they value unvarnished feedback on brands from real users. While BeReal‘s focus on authenticity may be appealing, it has no underlying purpose. Thus, it may not attract a broad audience even within the younger demographic.

2. BeReal‘s focus on organic growth through user sharing is a doubleedged sword. While cost-effective, it may not be sustainable in the long-term without investment in paid advertising and broader marketing campaigns.

3. BeReal‘s social content indicates limited or no paid advertising strategy to drive app downloads and awareness, which could be a missed opportunity to scale rapidly.

4. While BeReal‘s focus on authenticity is a key differentiator, other platforms (such as Instagram‘s ―Close Friends‖ feature or Snapchat) are also moving toward more private and authentic content, potentially diluting BeReal‘s unique appeal.‘ The biggest challenge is likely to be #1 above: What real, widespread need is the brand addressing?

14-11. Suppose you are a digital marketing manager at BeReal and are tasked with developing a new digital strategy that repositions BeReal and increases customers. To get some ideas, use a generative AI interface and ask the question: ―How can I come up with a new digital marketing strategy for BeReal that retains customers and increases new app

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downloads?‖ Evaluate the AI response. (AACSB: Application of Knowledge; Integration of Real-world Experiences) Answer: Students‘ answers will vary based on the AI interface they use. We asked ChatGPT this question and here is the paraphrased response: 1. Understanding the Target Audience: a) Demographics and Psychographics: Identify who the current users are and who the potential users could be. Understand their preferences, behaviors, and pain points. b) User Personas: Develop detailed user personas to tailor marketing messages effectively.

2. Enhancing the Unique Value Proposition (UVP) a) Highlight Authenticity: Emphasize BeReal‘s unique selling point of promoting authenticity and real-life moments, differentiating it from other social media platforms. b) User Stories and Testimonials: Share real stories and testimonials from users who have benefited from using BeReal.

3. Content Marketing: a) Engaging Content: Create high-quality content that resonates with the target audience. Use blogs, videos, infographics, and usergenerated content to highlight the app‘s features and benefits. b) Educational Content: Develop tutorials and guides on how to use BeReal effectively, showcasing the app‘s unique features.

4. Social Media Marketing a) Platforms: Focus on platforms where the target audience is most active (e.g., Instagram, TikTok, X). b) Influencer Collaborations: Partner with influencers who align with BeReal‘s brand values to reach a broader audience. c) Interactive Campaigns: Run challenges, contests, and interactive campaigns to encourage user participation and sharing.

5. Referral and Incentive Programs a) Referral Bonuses: Implement a referral program where existing users get rewards for inviting friends. b) Incentives: Offer exclusive features or discounts for new users who sign up within a specific period.

6. Email and Push Notification Campaigns a) Onboarding Emails: Send a series of onboarding emails to new users to help them get started and understand the app‘s features. b) Engagement Emails: Regularly send emails with tips, user stories, and updates to keep users engaged. c) Push Notifications: Use personalized push notifications to remind users to share their daily BeReal moment.

7. SEO and ASO (App Store Optimization) a) Keyword Optimization: Optimize the app description with relevant keywords to improve visibility in app stores.

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b) User Reviews: Encourage satisfied users to leave positive reviews and ratings.

8. Partnerships and Collaborations a) Brand Partnerships: Collaborate with brands that align with BeReal‘s values for co-marketing opportunities. b) Event Sponsorships: Sponsor events that attract the target audience, both online and offline.

9. Data-Driven Decisions a) Analytics: Use analytics tools to track user behavior, campaign performance, and app usage patterns. b) A/B Testing: Continuously test different marketing messages, visuals, and strategies to find what works best.

10. Feedback Loop a) User Feedback: Actively seek and incorporate user feedback to improve the app and its features. b) Community Engagement: Build a community around BeReal where users feel valued and heard.

11. Retargeting Campaigns a) Abandoned Users: Run retargeting campaigns to re-engage users who have downloaded the app but have not been active. b) Lookalike Audiences: Use lookalike audience targeting to reach potential new users similar to your current user base.

Note: The instructor can use these points to enrich the discussion on the discussion board or in-class.‘‘ Marketing Ethics Customized Insurance Progressive Insurance‘s networked Snapshot device is plugged into a vehicle. It provides Progressive with a steady stream of information about the vehicle‘s locations, braking patterns and acceleration rates, driving speed, amount of driving, the time of the day the driving takes place, and a host of other parameters. Progressive then personalizes car insurance rates based on some of the collected information. Monitoring consumer driving habits can result in reduced rates for some consumers. However, Snapshot also raises some questions of privacy, equity, and ethics within and across customer groups. ‘‘‘ 14-12. Research and detail some specific ethical concerns related to Progressive‘s customized usage-based insurance program. (AACSB: Diverse and Multicultural Work Environments; Ethical Understanding and Reasoning) Answer: For a good summary, see www.forbes.com/advisor/car-insurance/usagebased-insurance/. Some ethical concerns are:

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1. Drivers who do not opt for such monitoring might find that their insurance rates go up.

2. Sharing of the driving data can lead to discriminatory pricing for other products such as life insurance policies.

3. Consumers with low income who live in cheaper housing in the suburbs may need to drive more just to get to and from work.

Indirectly, they pay an additional insurance premium for having low income.

4. Slow driving does not always coincide with safe driving. When traffic regularly moves at high speeds on specific stretches of road or highway, driving slowly can be more dangerous than just keeping up.

5. If Progressive uses the vehicle‘s location as one of the decision variables, drivers with low-income in general and drivers from lowincome, underrepresented low-income communities of color who live, park, work, and drive in economically depressed, high-crime neighborhoods may end up paying more.

6. Knowledge about the driver‘s location patterns across time can leave their homes vulnerable to burglary and other crimes if Progressive‘s databases were breached or if a Progressive employee ever went rogue.

7. Collected location data can provide deep insights into the private lives of customers. ‘ 14-13. The ethics of tracking ―cookies‖ that companies place on consumers‘ browsers has caused much controversy. These cookies can track customer clickstreams as they navigate across and within websites.

Google and Microsoft have recently curtailed third-party cookies on their Chrome and Edge browsers. But cookies have benefits as well. From a customer‘s perspective, list both the benefits and the downsides of such cookies. Focus particularly on the ethical aspects when detailing the downsides. (AACSB: Written and Oral Communication; Information Technology; Reflective Thinking) Answer: Some of the benefits of cookies from a customer perspective include: 1. Cookies can alert companies that the customer need may be satisfied well by a product they offer. They can then target the customer with the appropriate product, leading to a good need-to-product match. The customer can receive a targeted and appealing offer from a company that is aware of the customer‘s needs because of the cookie.

2. Cookies can provide some of the information that is required to create a seamless omnichannel journey for the customer. For example, a cookie can track the search for a brick-and-mortar company store, which can then trigger a separate set of marketing stimuli.

3. Cookies can track the customer‘s visit to competitors‘ websites. This can lead to a low-price offer to wean the customer away. Overall,

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cookies can increase price competition and lead to lower prices as a result.

4. The company can track the entire clickstream of the potential customer. Thus, they are aware of what aspects of their website appear to be working well and what are not. This can lead to website optimization, as well as the redesign of offerings that are not able to convert the site visitor to a customer. Overall, this helps the company better address customer needs.

5. Cookies can help track which marketing initiative led to a website visit or a sale. For example, they can help track whether a visitor arrived at the website from a specific influencer link. This helps the company focus on advertising that efficiently persuades customers, reducing the distracting clutter in the marketplace.

Some of the downsides of cookies from a customer perspective include: 1. Cookies have typically tracked customers across websites, including those with no affiliation with the company that plants the cookies. This leads to reams of data being collected about customers. As a result, companies may know ―too much‖ about customers, leading to privacy concerns.

2. It is unclear whether customers actually know about the volume of data companies have on them, 3. Some of the data collected may pertain to sensitive life situations, such as medical conditions, pregnancy, mental health, personal relationship status, and other areas.

4. Companies are often unclear about their cookie policies, including what data is collected, how it is used, and whether it is shared. Many companies hide their collection and use practices deep within pages of dense declarations that few customers will every carefully read through.

5. If the company‘s data repositories are breached, a great deal of customer-related data gleaned through cookies, apart from other customer data the company may possess, is at risk.

Note: The instructor can even use this exercise as an in-class debate or on the class‘s discussion board. The points above can be used to enrich the discussion.‘‘ Marketing by the Numbers Gymshark’s “Sweat It Out” Digital Engagement Campaign’ Gymshark is a UK-based fitness apparel and accessories brand known for its innovative approach to marketing and strong social media presence. Gymshark‘s recent digital campaigns, titled ―Sweat It Out,‖ aimed to boost brand engagement and drive sales through an interactive, community-driven experience. The campaign featured a series of engaging videos and social media posts where 16-407

users could scan QR codes embedded in the content. These codes were strategically placed in high-traffic areas in stores and malls and on popular social media platforms. Scanning these codes directed consumers to a microsite where they could participate in various fitness challenges, track their progress, and earn points redeemable for exclusive Gymshark merchandise. Participants could share their progress and achievements on social media, fostering a community of motivated individuals who encouraged each other.‘‘‗‘ Key campaign metrics are as follow: 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 5,000,000 250,000 $100,000 20,000 15,000 30,000 $2,500,000 300 35% $7.00

Equation (Click-throughs ÷ Impressions) × 100 Cost of campaign ÷ Click-throughs (Number of orders ÷ Click throughs) × 100 Cost of campaign ÷ Number of orders Revenue generated ÷ Number of orders (Abandoned shopping cart ÷ Click-throughs) × 100

14-14. Using the data provided, 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:

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The campaign metrics indicate a high level of effectiveness. The clickthrough rate (CTR) of 5.0% significantly exceeds the average CTR for digital ads, demonstrating strong engagement. The cost-per-click (CPC) of $0.40 and the cost per conversion of $3.33 are both indicators of a costeffective campaign. The conversion ratio of 12.0% suggests that a substantial portion of visitors to the microsite made purchases.

Additionally, the remarkably low shopping cart abandonment rate of 0.99% highlights the effectiveness of the checkout process and the appeal of the campaign‘s incentives. Overall, this digital campaign is far outperforming the average digital campaign. In general, although CTR varies by industry and delivery method, average CTR hovers around 4%; CPC is also around 2%.‘‘ 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: 16-409

Net marketing contribution (NMC) = Net sales – Cost of goods sold – Marketing expenses -

Sales (given): $2,500,000 Cost of goods sold (COGS): 35% of sales

COGS = 0.35 x $2,500,000 = $875,000 Marketing expenses = Cost of campaign + Shipping and handling costs Marketing expenses = $100,000 + ($7.00 × 30,000 orders) = $100,000 + $210,000 = $310,000 NMC = $2,500,000 − $875,000 − $310,000=$1,315,000 Marketing ROS = Marketing ROI = Therefore, the ―Sweat It Out‖ campaign was an overwhelming success.

The positive Net Marketing Contribution, along with the high values for Marketing ROS and Marketing ROI, indicates substantial profitability and excellent return on investment. These metrics, when compared to industry benchmarks and previous campaigns, highlight the effectiveness of Gymshark‘s digital engagement strategy in achieving its marketing objectives. The campaign drove significant sales and new customers and enhanced brand engagement and loyalty.

Company Case Teaching Notes Company Cases 14 Telly/ 11 Temu/8 Apple See Appendix 1 for teaching notes for the below cases.

Case 14, Telly: The Free TV Gamble. Telly aims to revolutionize home entertainment by offering free smart TVs with a secondary ad screen. Blending AI and personalized content, Telly balances consumer value with advertiser ROI to redefine TV-watching.

Case 11, Temu: A Rising New Era Retailer. Temu aims to revolutionize online retail with ultra-low prices and a gamified shopping experience. The company is shaking up the competition and redefining consumer expectations.

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Case 8, Apple: Innovative to Its Core. Apple redefines industries with its groundbreaking products, from the first Macintosh to the latest AI-powered iPhone. It leads the market with cutting-edge technology and sleek designs.

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 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?

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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?

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,

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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.

3.

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.

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?

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 

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

Objectives Outline 42. Define global marketing and the questions companies must ask in deciding whether and how to go global.

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.

Previewing the Concepts

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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.

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.

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 16-415

FIRST STOP ”Introduction to 7-Eleven’s Global Marketing Success 7-Eleven, often seen as a quintessential ―all-American‖convenience store, is not only the largest chain in the United States but also the world‘s largest. Its success lies in its ability to blend global standardization with local adaptation, meeting diverse cultural definitions of "convenience." This unique strategy allows 7-Eleven to maintain a consistent global brand identity while tailoring its operations to align with local consumer preferences and needs.

The Evolution of a Convenience Giant: The journey of 7-Eleven began in 1927 when Jefferson Green sold basic staples from an ice company dock, introducing the concept of convenience retail. Over the decades, the chain expanded rapidly, adopting innovations like extended hours, franchising, and the small-store format to solidify its position in the U.S. market. This adaptability became a cornerstone for international expansion starting in 1969, with the brand maintaining its signature logo and branding worldwide while embracing localized offerings.

Local Adaptation in Global Markets in Japan: 7-Eleven has transformed into a culinary and service hub, offering gourmet meals, extensive beverage options, and even drone deliveries. In Taiwan, stores provide health screenings, while in Hong Kong, they double as social spaces. In Denmark, health-conscious snacks cater to Scandinavian preferences.

This market-specific approach exemplifies 7-Eleven‘s philosophy of integrating its brand into local cultures, a strategy dubbed ―retailer initiative.‖

A Global Strategy Rooted in Local Insights: With over 84,000 stores in 20 countries and plans to expand further, 7-Eleven continues to adapt its offerings to match the ―what, when, and where‖of customer needs in each market. By weaving its global strategy into the fabric of local cultures, 7-Eleven upholds its mission to ―make life a little easier‖for customers around the world. This balance of global consistency and local sensitivity underpins the brand‘s enduring global marketing success.‖‖

GLOBAL MARKETING TODAY Use Chapter Objective 1 here.

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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 nearly $30 trillion in 2023.

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.

Companies are expanding into new global markets, and saturated home markets are no longer as rich in opportunity.

Few industries are now safe from non-domestic 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.

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: 

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    

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 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).

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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 Discussion Question 15-1 here.

Use Discussion Question 15-2 here.

Sociocultural Context The Impact of Culture on Marketing Strategy Marketing managers should never assume that consumers in other countries will perceive, accept, and use their offerings in the same way that consumers in their base country do.

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.

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 16-419



 

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, 26 of the top 30 brands were American owned.

Use Discussion Question 15-3 here.

Use Discussion Question 15-4 here.

Technological Context Global marketing has been energized by three technological advances:  rapid rise of electronic networks that carry huge amounts of information that 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.

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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.

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.

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).

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The European Union represents one of the world‘s single largest markets. Currently, it has 27 member countries containing more than 440 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, Brexit, 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.

Like NAFTA, USMCA continues to eliminate trade barriers and investment restrictions among the three countries.

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 more than 13 percent of the world‘s GDP. Use Discussion Question 15-5 here.

The Internal Legal Perspective 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.

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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:  the presence of open and global managerial mindsets  resources to support 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

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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 Use Discussion Question 15-6 here.

Use Critical Thinking Exercise 15-7 here.

Use Critical Thinking Exercise 15-8 here.

DECIDING HOW TO ENTER GLOBAL MARKETS Use Key Term Exporting here.

Use Figure 15.2 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.

The investment and risk are somewhat greater in this strategy, but so is the potential return.

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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.

3. Management Contracting

Management contracting takes place when the domestic firm supplies management 16-425

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.

Use Marketing Ethics 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.

Use Key Terms Standardized Global Marketing and Adapted Global Marketing here.

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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.

Use Marketing at Work 15.2 here Product Use Figure 15.3 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.

Promotion Companies can either:

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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. Language and idioms can be especially problematic.

Communication adaptation is fully adapting advertising messages to local markets.

Use Key Term Communication Adaptation 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.

Use Critical Thinking Exercise 15-9 here.

Use Marketing by the Numbers here.

Distribution Channels The whole-channel view considers 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 consumers.

Use Discussion Question 15-6 here.

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Use Key Term Whole-Channel View here.

Use Figure 15.4 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. A global division may be created to handle all international activity.

Global 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.

Global 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.

END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions

15-1. Explain what a business should look at when considering the potential of a foreign market. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: A business should assess the foreign market‘s economic, politico-legal, and cultural characteristics.

15-2. How might the global marketing environment affect a company‘s decision to sell products in different markets? (AACSB: Reflective Thinking) Answer: A target nation‘s readiness for specific products and services and its attractiveness as a market to foreign firms depend on the following environmental factors: 1. Economic context: The industrial advancement of a nation determines 16-429

its needs for products and services and customers‘ average incomes, employment levels, and their willingness and ability to pay. Thus, economically advanced countries may be appealing targets for highend brands in industries ranging from automobiles to fashion.

2. Economically advanced countries also usually have superior infrastructure related to the internet and mobile technologies, and logistics and payment systems. These countries may be attractive destinations for countries with online direct-to-customer marketing models.

3. However, many countries have a high number of customers with higher incomes who co-exist with customers with lower incomes. In countries with large populations, the fraction of customers with high income may be sufficiently appealing to companies that market highend brands and products.

4. Countries at the low end of the economic spectrum can be attractive markets for companies that offer high-value products—products that offer enduring utility at low to moderate prices. For instance, Unilever‘s personal care products have a significant market share across South Asian countries.

5. Political-legal context: A company should consider factors such as a country‘s openness to international companies and brands, governmental bureaucracy, legal systems, political and policy stability, and monetary regulations. This is particularly relevant today, when some countries are wielding policy rules and regulations as tools of diplomatic warfare. Companies should seek stable geopolitical environments to operate in.

6. Cultural context: In the process of formulating global marketing strategies, companies need to comprehend how the local and national culture influences consumer responses to their products in each of their global markets. For instance, McDonald‘s refrains from selling beef burgers in India. They also need to understand the impact of their strategies on local cultures. Each country possesses its own customs, standards, and prohibitions.

15-3. Understanding national culture dimensions can help global marketers determine which countries offer better prospects for their brands. What are those dimensions? (AACSB: Diverse Cultural Environments; Reflective Thinking) Answer: We can deploy Geert Hofstede‘s Six Dimensions of National Culture framework to understand the national culture dimensions: 1. Individualism vs collectivism: This dimension considers whether people prioritize their own and their immediate family‘s needs (individualistic societies) or whether they rely on larger social groups for their needs in return for loyalty (collectivist societies).

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2. Power-distance index (high vs low): This aspect explores how comfortable individuals with less power in a society feel about power disparity. Societies that are comfortable with power being held by a few score high, while those that prefer equality and democracy score low.

3. Toughness vs tenderness: This dimension refers to societies that value achievement, heroism, and material success versus those that value cooperation, modesty, care for others, and quality of life.

4. Uncertainty avoidance index (high vs low): This dimension measures how much a society dislikes uncertainty. High-scoring societies adhere to established beliefs and values and try to control the future to reduce uncertainty. Low-scoring societies are more comfortable with uncertainty and are flexible about the future.

5. Long-term orientation vs short-term orientation: This dimension looks at how societies value their past. Long-term-oriented societies are open to change and ready to adopt new methods for future success, even if it means breaking away from the past. Short-term-oriented societies, on the other hand, hold on to traditional norms and behaviors and need to be persuaded to adapt to the future.

6. Indulgence vs restraint: This dimension measures how open a society is to individuals seeking and openly enjoying goods, services, and experiences beyond their basic needs (indulgence). Societies that score high on restraint have strict norms that govern behavior, focus on meeting basic needs, and discourage ostentatious consumption.

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15-4. How does marketing strategy can affect national cultures? Provide some examples to explain. (AACSB: Reflective Thinking; Diverse multicultural work environments; Analytical Thinking) Answer: If this question is discussed in class consider giving students five minutes of in-class breakout time to come up with some examples. Students‘ answers may vary based on their knowledge and experiences but there are some points to guide the discussion: 1. Marketing strategies can significantly influence national cultures by shaping consumer behavior. For instance, the introduction of fast-food chains like McDonald‘s in various countries has not only changed eating habits but also influenced the way people perceive food and dining. In Japan, for example, McDonald‘s introduced the concept of ―fast‖food, which was a shift from traditionally leisurely meals.

2. Marketing strategies can influence national cultures by reshaping existing cultural ideals. For example, traditional notions of beauty may be characterized by what were considered ―ideal‖body shapes, flawless skin, and so on. But strong marketing campaigns can challenge these narrow views. Dove‘s ―Real Beauty‖campaign challenged traditional beauty standards by featuring women of all shapes, sizes, and ethnicities in their advertisements. This campaign had a global impact and sparked challenging conversations about beauty standards in various cultures, promoting inclusivity and diversity.

3. Clever marketing can also redefine existing behavioral norms and create a ―new normal,‖though not necessarily for the better. Spending, say $5,000 for an engagement ring was considered perfectly acceptable in most circumstances. But diamond conglomerate DeBeers proclaimed in a series of ads that one should spend at least two months of salary—or more—for what was perhaps the most important occasion in their life. This dramatically boosted the average price paid for the diamond engagement ring.

15-5. When should a business use a standardized marketing strategy in an overseas market? When should it use an adapted marketing strategy?

(AACSB: Written and Oral Communication; Reflective Thinking) Answer: It will depend on the type of product or service being sold in the overseas market as well as the real and perceived differences in the market itself. Both approaches have their advantages and disadvantages. Standardization offers economies of scale, faster set-up times, a single and coherent global identity, and the use of existing methods of monitoring effectiveness. On the other hand, the marketing might not be as effective as is hoped, it is difficult for the business to react and be flexible, and there may be some negative reactions to the marketing as it does not

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cater to local needs. Adaptation respects local expectations, helps to create a positive local image, and ensures that local customers feel that the product or service is suited to them. Adaptation does, however, mean higher costs and time spent, and it can be difficult to know what local customers want.

15-6. What are the key questions marketers must work through when expanding globally? (AACSB: Reflective Thinking; Analytical Thinking) Answer: A global company is defined as a business that operates in multiple countries, gaining advantages in marketing, production, R&D, and finance that aren‘t accessible to companies operating solely within their home country. When considering global expansion, companies need to consider the following questions at a high level: 1. Should they limit their global activities to marketing their products, or should they also source products internationally?

2. What aspects of their marketing should they standardize and what aspects should they customize across countries?

3. Aside from sourcing and marketing their offerings, what aspects of the value creation process (e.g., customer call management) should they outsource globally?

At a more detailed level, marketers need to consider other questions: 1. What are their long-term and short-term goals within each country?

2. What market positioning should they aim for in their target countries?

The answer to this question can help determine the extent to which the company‘s brands should be standardized or customized across countries.

3. How will the competition in each country be managed?

4. How should the marketing mix (four Ps) be designed and implemented across countries? The positioning decision, the national culture, the nature of competition, and other environmental factors will all influence this decision.

Critical Thinking Exercises In 2024, the European Union (EU) implemented the Digital Markets Act (DMA), which was designed to regulate large tech companies, referred to as ―gatekeepers,‖to ensure fair competition and user privacy. As a result, social media giant Meta was required to allow users in the EU, European Economic Area, and Switzerland who had previously linked their Facebook and Instagram accounts to now unlink them. The DMA also imposed stringent constraints on gatekeepers, including letting consumers install third-party apps that worked with Meta apps. And it prohibits gatekeepers from using data generated by competing businesses on their platforms, and from ranking their own products or services more favorably than those of third parties in search results.

15-7. Given this context, which part of the marketing environment do you think is 16-433

having the greatest negative impact on Meta‘s expansion into other countries: economic, political-legal, or cultural? In your response, explain why you selected this factor and ruled out the other two. How can companies proactively guard against such problems? (AACSB: Written and Oral Communication; Application of Knowledge; Reflective Thinking; Integration of Real-Life Business Experiences) Answer: Students‘ answers may vary depending on their perception of the scenario. However, the political-legal factor appears to be having the greatest negative impact on Meta‘s expansion into other countries. The implementation of the Digital Markets Act (DMA) by the European Union is a clear example of this. The DMA imposes stringent rules on large technology companies like Meta, affecting how they operate and interact with users. In general, the instructor could note that the U.S. regulators have tended to historically accord high-tech companies much more leeway than their European counterparts.

Apart from the political-legal factors, one could argue that culture played an important role. This is because, compared to the United States, European citizens, regulators, and governments have historically tended to take privacy more seriously.

Cultural factors, although important in shaping user preferences and behavior, are also not the main issue here. While cultural nuances do influence the adoption and use of social media platforms, Meta has been able to navigate this successfully in the past by localizing content and adapting to cultural norms.

To guard against such problems, companies like Meta can consider the following initiatives: 1. Proactively embrace stronger privacy policies when entering privacysensitive markets.

2. Transparently communicate what collected customer data will, and will not, be used for.

3. Make it easy for customers to choose their preferred privacy settings (much like GDPR does).

4. Ensure strong multilevel data protection both on the company and consumer sides to deter hacking and data theft.

5. Proactively build strong and cooperative relationships with regulators and consumer advocacy groups.

6. Use data safety seals and certifications from independent third-party providers to signal the company‘s compliance with high safety standards.

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15-8. Lush is a quintessentially British brand. Formed in 1994, it has a revolutionary approach to the creation and ethical sourcing of fresh beauty products, all made by hand. Lush could not be more different than the mass-produced cosmetics most consumers buy today. Currently, the brand is enjoying rapid global expansion. Research how this is being achieved and how they go about adapting their key messages to each new market while retaining their core message. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Students should describe the brand‘s major transformation program since 2014.

Lush launched Lush.co.uk, Lush Times (a quarterly newspaper available in-store and sent to customers on their database) and Lush Kitchen. The rollout of the brand transformation has been a huge commercial success, with the Lush websites showing a year-on-year sales increase of 20 percent.

15-9. Kraft Heinz‘s Lunchables are pre-packaged meals consisting of deli meats, cheeses, and crackers, designed to provide a quick lunch option for adults and children. Should Kraft Heinz standardize the international pricing for its Lunchables? Justify your response. (AACSB: Written and Oral Communication; Application of Knowledge; Reflective Thinking) Answer: Lunchables should ideally be priced differently across countries for the following reasons: 1. Varying willingness to pay: Income levels and customer willingness to pay for food and beverage products vary significantly across countries.

A uniform pricing strategy for Kraft Heinz‘s Lunchables might end up trying to extract too much money from customers in low-income countries while leaving too much money on the table for customers in high-income countries. In either case, profits would fall.

2. Kraft Heinz may have different formulations of its Lunchables in different markets. For example, some countries may have great challenges accessing certain ingredients that are required for the product formulation offered to their markets. Transportation costs to access the market in some markets may be surprisingly high. Such factors will change the cost structure of the product. While prices should be based on customer willingness-to-pay and not costs, with high costs the margin may sometimes be squeezed to an extent that the company might prefer not to enter the country itself.

3. The competitive context may differ sharply across countries. Highly competitive markets may call for a lower price compared to less competitive markets.

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4. Prices may need to be higher to cover the costs related to imposed duties and tariffs, and the margins due to importers, wholesalers, and retailers—these costs can vary across countries.

Minicases and Applications Digital Marketing and AI Customize Your Shoes on the Nike Platform One of global sports apparel giant Nike‘s challenges is to accommodate varying color, materials, and style preferences across individual customers and across global regions and cultures. People in the Caribbean may prefer bright tropical colors, whereas people in Nordic countries may prefer more muted, neutral shades. But even within these broad groupings, individual customer preferences may vary substantially. One strategy that Nike has embraced to address these variations in preferences is Nike by You (see www.nike.com/how-to-nike-by-you).

At the website, customers can choose from a range of materials, textures, and colors to digitally customize their chosen shoe type. The delivered shoe is a unique expression of the owner‘s preferences and personality.

15-10. Identify and discuss some of the strengths and weaknesses of Nike‘s digital customization approach in its global marketing. (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Nike‘s digital customization approach, ―Nike by You,‖has strengths and weaknesses in the global marketing context.

Strengths: 1. Customer engagement: The customization process engages customers on a deeper level, making them feel more connected to the brand and the product.

2. Unique products: By allowing customers to customize their shoes, Nike is able to offer a product that is unique to each customer.

3. Market differentiation: This approach sets Nike apart from many competitors who do not offer the same level of customization.

4. Insight into customer preferences: The choices customers make during customization provide valuable data about customer preferences, which can inform future product development.

5. Inventory costs are lower because products are made-to-order.

6. When customers develop their own shoes, they are less likely to find faults with them.

Weaknesses: 1. Operational complexity: Customization adds complexity to the manufacturing and supply chain processes.

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2. Increased costs: Custom products can be more expensive to produce on a per-unit basis, which could lead to higher prices for customers.

3. Delivery time: Customized products can take longer to deliver, which might not appeal to customers who value quick delivery.

4. Quality control: Ensuring consistent quality can be challenging when products are being customized to individual specifications.

Overall, while Nike‘s digital customization approach offers significant benefits, it also presents certain challenges that the company must carefully manage.

Importantly, some new manufacturing techniques such as Nike‘s FlyKnit technology, where the entire upper is knit as one piece, can help address many of the weaknesses typically associated with customization (Suggestion: Show students the video at: https://bit.ly/3WlXKXR).

15-11. Imagine you are the product manager for the ―Nike by You‖feature. Login to ChatGPT or another generative AI interface and ask it to ―Compare the United States and India along Hofstede‘s six National Cultural Dimensions at www.hofstede-insights.com/fi/product/compare-countries/.‖Based on the response and comparison, ask another prompt, ―Where would expect Nike by You to perform better?‖Critically analyze the AI responses.

(AACSB: Diverse cultural work environments; Analytical Thinking) Answer: Students‘ answers will vary based on the generative AI interface used.

However, that fact can be used as a guide to further critical thinking.

We will first provide our perspective on the question and then compare them with the responses from ChatGPT: 1. Power Distance: This dimension deals with how power is distributed in a society. India tends to have a higher power distance than the United States, implying that hierarchy is more accepted in India. However, this concept is more relevant in the context of social hierarchy and authority. While Power Distance may influence the choice of the Nike brand, it will likely only marginally influence the choice to customize the shoes.

2. Individualism vs Collectivism: The United States scores high on individualism, indicating a society where individual rights are paramount. In contrast, India, with its strong family and social ties, leans toward collectivism. Individualism leads to expressing one‘s personality and self clearly, which has positive implications for customization.

3. Toughness vs Tenderness: The United States is considered more tough, with a focus on achievement and success, while India is seen as more balanced between competitive and cooperative behavior. This 16-437

dimension may have at most a marginal effect on the choice to customize a Nike shoe. Possibly, in the United States, a customized shoe may be seen as signaling economic success.

4. Uncertainty Avoidance: Both countries have a moderate score in this dimension, indicating a balanced attitude toward uncertainty and risk.

From a cultural angle, we would expect to see no differences.

5. Long-Term vs Short-Term orientation: The United States is seen as more short-term oriented, treasuring a sense of continuity with past norms and traditions, and reluctant to embrace rapid change. India is seen as more long-term oriented, ready to embrace change that is perceived to lead to a better future. This should have a marginal effect on Nike customization, only to the extent that, all else being the same, India should be more open to the technology.

6. Indulgence vs Restraint: The United States is seen as more indulgent, openly celebrating success and life. India is more restrained. U.S. customers are therefore more likely to ―indulge‖in a customized Nike shoe.

How did ChatGPT respond to how cultural differences across the United States and India would moderate the adoption of customized Nike shoes?

Here is ChapGPT‘s response (paraphrased from the actual response): The "Nike by You‖customization service, which allows customers to personalize their Nike products, could potentially perform differently in the United States and India based on Hofstede's cultural dimensions. Here's a consideration of how these dimensions might influence its success in each country: Individualism versus Collectivism: The United States scores high on individualism, suggesting a strong preference for self-expression and personalization. This aligns well with the concept of "Nike by You,‖where consumers can customize products to reflect their personal style and identity. This dimension suggests that the service would be highly appealing in the United States. India is more collectivistic, indicating that people are expected to act in the interests of their communities and families.

Indulgence versus Restraint: The United States also scores high on indulgence, indicating that its society is more oriented toward the gratification of desires and the enjoyment of life. This cultural trait supports the idea that American consumers may be more driven to indulge in personalized products that bring them joy and satisfaction, such as custom-designed sneakers.

In addition, ChatGPT suggested that economic conditions might matter, given that the United States is a higher-income economy. By contrast,

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India‘s lower score on indulgence suggests a more restrained society that observes strict social norms.

Note that we (humble humans!) were able to reason the cultural effects in a more nuanced way than ChatGPT. Marketing Ethics New York’s United Street Vendors Fund Barcelona Street vendors in New York City sell everything from food to souvenirs. Recently, a cooperative of street vendors—known as the United Street Vendors Front (USVF)—launched its own brand of sustainable merchandise through a physical store in Brooklyn and an online platform. Their initial product line includes ecofriendly tote bags under the brand name Street Gear.

Apart from the resident population, a key target customer segment is the more than 50 million tourists—including the 8.9 million global tourists—who come to New York City each year. The cooperative‘s members are primarily immigrants, many of whom are undocumented and have arrived from countries in Central and South America but also from Asia, Africa, and Europe. The co-operative‘s profits will be used to enhance the living conditions of members and their families and to fund legal assistance for the street vendors.

The jobs created by the cooperative help meet the requirement that immigrants must have a work contract for at least a year to apply for legal residency. The Street Gear name and logo design are inspired by the carts and stalls that NYC street vendors typically use to display their products. The logo, resembling a city skyline, also symbolizes the urban environment that many street vendors navigate daily.

One motivation for this initiative was to alleviate the hardship faced by street vendors during the COVID-19 pandemic lockdown, when foot traffic decreased, sales dropped, and vendors were ineligible for unemployment benefits or government aid. The Street Gear brand aims to compete with brands like H&M and Zara. The brand expressed hope that consumers, both within and outside the United States, would choose to buy Street Gear tote bags instead of supporting multinational corporations that, in their view, exploit labor in developing countries.

15-12. Evaluate the appeal of the Street Gear brand, covering both positives and negatives. (AACSB: Written and Oral Communication; Reflective Thinking) Answer:

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This is a hard question. But ethics-related questions are meant to be hard. It can provide for excellent breakout group discussions, where groups could come up with different perspectives on the problem and then debate them in class. If the discussion gets heated, it may help to reframe it by reminding students that these vendors are already here at least for the short term. Assuming that, focus on whether the cooperative itself is a good (or bad) idea from a marketing perspective.

Here are some positives and negatives from a branding and marketing standpoint: Positives: 1. Social impact: The brand has a strong social mission, which is to improve the living conditions of its members and help them gain legal status. This could appeal to consumers who want their purchases to make a positive difference in this context.

2. Unique story: The brand‘s origin story is unique and compelling. It‘s not just about selling products but about empowering a marginalized community. This could resonate with consumers who appreciate authenticity and a good story.

3. Sustainability: The brand‘s focus on eco-friendly products aligns with growing consumer interest in sustainability. This could attract environmentally conscious consumers.

4. Local appeal: As a local brand, Street Gear could appeal to consumers who prefer to support local businesses over multinational corporations.

Negatives: 1. Brand recognition: As a new brand, Street Gear may struggle with brand recognition compared to established competitors like H&M and Zara.

2. Product range: Currently, the brand only offers tote bags. A limited product range could restrict its market appeal.

3. Pricing: Depending on the pricing of its products, the brand could be seen as too expensive for some consumers, especially if they are used to cheaper prices from street vendors.

4. Quality perception: There might be a perception issue around the quality of products sold by street vendors. Overcoming this could be a challenge for the brand.

5. The brand could be an easy target for individuals upset with illegal immigration, who could stage demonstrations outside the store making

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it difficult and uncomfortable for potential customers, and protest against it online as well. ‖

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Marketing by the Numbers Mirror the Home Fitness Gym Mirror is a fitness company that sells a product of the same name: a full-length mirror that doubles as a personal home gym. When turned off, it functions like a regular mirror. But when turned on, users can see themselves, their personal fitness instructor, and a suite of workout metrics displayed on the mirror‘s surface.

Users pay $1,495 for the Mirror, and then a monthly subscription fee of $39 to access live and on-demand fitness classes. The classes range from yoga and boxing to cardio and strength training. Users can customize their workout experience by choosing their preferred instructor, class length, type, and music genre.

Mirror‘s success stems from offering more than just a home gym system—it provides an immersive fitness experience that has cultivated a dedicated following among its subscribers. The company‘s private Facebook group has over 15,000 members.

Mirror offers its home gym systems and associated services in the United States.

The company is planning to expand globally, starting with Canada. Here, Mirror plans to open physical showrooms in major cities such as Toronto and Ottawa.

The Mirror home gym system will be priced at its cost, $2,000 CAD, including goods and services tax. The monthly All-Access Membership, which allows users to create accounts for their entire household, will be priced at $50 CAD.‖ 15-13. Consider a hypothetical break-even analysis for Mirror‘s international expansion. If the total fixed costs are $40 million CAD per year, the variable costs are $2,000 CAD per system (since Mirror sells them at cost), the monthly service variable costs are $15 CAD, and the average consumer is expected to be a member for 3 years, how many systems must Mirror sell to break even on this international expansion? 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.

The selling price per unit is the cost of the Mirror home gym system plus the cost of the 12-month subscription service. The variable cost per unit is the cost of the Mirror home gym system plus the monthly service variable costs for 12 months.

Let‘s calculate the cash flows below for a period of 3 years the average customer is expected to be a member:

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 Total expected revenues per unit = $2,000 CAD (cost of Mirror) + $50 CAD/month × 12 months × 3 years = $3,800 CAD.  Total expected variable cost per unit = $2,000 CAD (cost of Mirror) + $15 CAD/month × 12 months × 3 years = $2540 CAD.  Contribution margin per unit = revenues per unit − variable cost per unit = $3,800 CAD − $2,540 CAD = $1,260 CAD. Now, we can calculate the break-even point: - Break-even point = Total fixed costs / Contribution margin per unit = $40 million CAD / $1,260 CAD = approximately 31,747 units.

So, Mirror would need to sell 31,747 units each year to break even on its international expansion, assuming that each consumer who purchases a Mirror home gym system also subscribes to the streaming service for 36 months.

Note that this is a simplified analysis and actual business scenarios might be more complex.

Company Case Teaching Notes

Company Cases 15 Starbucks/11 Temu/8 Apple See Appendix 1 for teaching notes for the below cases.

Case 15, Starbucks: Adapting for India. Starbucks aims to become India‘s premier coffeehouse by blending global strategy with local adaptation. Starbucks delivers a culturally resonant coffee experience in India.

Case 11, Temu: A Rising New Era Retailer. Temu aims to revolutionize online retail with ultra-low prices and a gamified shopping experience. The company is shaking up the competition and redefining consumer expectations.

Case 8, Apple: Innovative to Its Core. Apple redefines industries with its groundbreaking products, from the first Macintosh to the latest AI-powered iPhone. It leads the market with cutting-edge technology and sleek designs.

GREAT IDEAS Barriers to Effective Learning 1.

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 16-443

2.

3.

4.

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 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?

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Form students into groups of three to five. Each group should read the opening vignette to the chapter on 7-Eleven. Each group should then answer the following questions: 1. How does 7-Eleven find the best balance between standardizing its stores for global impact and adapting them to meet local needs and desires?

What does this mean and how do they accomplish this?

2. In which ways did 7-Eleven adapt its store management policies to be successful?

3. Discuss how 7-Eleven has dug deep to understand different cultures and how this has impacted their operations.

4. What potential challenges to you see facing 7-Eleven as it looks to other countries?

Each group should share its findings with the class.

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Individual Assignment Read Thomas Friedman‘s great book The Lexus and the Olive Tree. Write a 5page 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?

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.

The introduction and first section can be covered in 10 minutes. They provide a basis for the remaining content, and the 7-Eleven 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.

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5.

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.

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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.

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 United States? 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.

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

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

Objectives Outline 44. Define sustainable marketing and discuss its importance.

45. Identify the major social criticisms of marketing and some counterarguments.

Understand how consumer, societal, and corporate forces drive sustainable marketing strategy.

16-4. Understand how to build a sustainable marketing organization.

Previewing the Concepts 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 Less 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.

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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.

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.

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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.

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.

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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.

For example, online affordable fashion retailer Boohoo recently reached a $197 million settlement relating to FTC charges of using deceptive original prices in its advertising. The FTC claimed Boohoo rarely sold its merchandise at those prices. ‘ ―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.

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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.

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.

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.

Use Discussion Question 16-2 here.

Use Marketing by the Numbers 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.

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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 have many alternative ways to consume television and radio ad-free.

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. Acquisitions of competitors 2. Marketing practices that create barriers to entry 3. 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

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Use Key Term Consumerism 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:   

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.

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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 Discussion Question 16-4 here.

Use Figure 16.2 here.

Public Actions toward Sustainability Citizen concerns about marketing practices will often lead to public attention and legislative proposals.

Business Actions toward Sustainable Marketing Companies are increasingly engaging in socially sustainable marketing practices.

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.

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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.

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.

Use Marketing at Work 16.1 here.

Use Critical Thinking Exercise 16-9 here.

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.

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Under the sustainable marketing concept, a company‘s marketing should support the best longrun 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.

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 Table 16.1 here.

Use Critical Thinking Exercise 16-7 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

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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.

Use Marketing at Work 16.2 here.

Use Digital Marketing and AI here.

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.

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 Discussion Question 16-6 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.

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END OF CHAPTER MATERIAL Discussion and Critical Thinking Discussion Questions 16-1. Explain how marketing can be perceived as having a negative impact on the consumer. (AACSB: Written and Oral Communication) Answer: Students may cite a series of criticisms that are commonly leveled at marketing. In many situations, marketing creates high prices, uses deceptive practices, employs high-pressure sales techniques, sells unsafe products, leverages planned obsolescence, and maintains poor service standards.

16-2. What are some positive social effects of sustainable marketing? (AACSB: Ethical Understanding and Reasoning; Application of Knowledge) Answer: The positive effects of sustainable marketing—which can be classified as environmentally sustainable and socially sustainable marketing—include the following: 1. In general, sustainable marketing educates consumers about the environmental and social impact of their purchases, fostering greater awareness and encouraging more responsible consumption habits.

2. By promoting transparency and ethical practices, sustainable marketing holds companies accountable for their environmental and social responsibilities which helps build trust and loyalty among consumers who prioritize sustainability, while also ensuring that the company benefits society as a whole.

3. Environmentally sustainable marketing highlights eco-friendly products and practices, encouraging consumers to make choices that benefit the environment. Such informed consumer decision making is important in a warming world.

4. Socially sustainable marketing across the value chain can help improve living and working conditions for workers and communities globally.

5. Ultimately, companies that embrace sustainable practices can be both more responsible and profitable.‘‘ 16-3. How can marketing be criticized in terms of its negative impact on competitors and competition? (AACSB: Written and Oral Communication; Reflective Thinking) Answer: Critics claim that marketing can harm a business‘ competitors and reduce competition

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through acquisitions, practices that create barriers to entry, and unfair competitive marketing practices. Some of these concerns are justified; some are not.

16-4. How would you distinguish between consumerism and environmentalism in terms of scope and influence? (AACSB: Written and Oral Communication) Answer: Consumerism is a social movement that aims to strengthen the power of the consumer in terms of their relationship with businesses. It has three strands: information, education, and protection. Environmentalism is a coalition movement of consumers and scientists who seek to ensure that businesses do no harm to the environment in the course of their activities. Collectively, they seek to ensure that businesses adopt high levels of social responsibility.

16-5. What is sense-of-mission marketing, and how does it impact a business?

(AACSB: Written and Oral Communication) Answer: Sense-of-mission marketing suggests that the business needs to define its mission in broad terms. Rather than being product or organization oriented, it needs to see itself in a social context. This means that the business will operate in a more socially responsible manner.

16-6. Consider Figure 16.3, which discusses the societal classification of products. Choose a company and describe its classification of products. (AACSB: Written and Oral Communication; Reflective Thinking)

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Answer: Students‘ answers may vary based on the company they choose. However, here is how an answer might flow. The instructor can ask students to present their analysis, and then discuss the case of Apple, as done below: 1. Deficient products: Deficient products are those that have neither immediate appeal nor long-run benefits. For Apple, it‘s challenging to find products that fit this category because of its strong focus on design and utility. However, one could argue that some of its less successful ventures might fall into this category. For instance: a. Apple Pippin: A multimedia technology console designed by Apple in the mid-1990s, which failed due to a lack of consumer interest and software support. b. Ping (Social Network): Apple‘s attempt to create a music-based social network within iTunes. It failed to gain traction and was discontinued in 2012.

2. Pleasing products: Pleasing products give high immediate satisfaction but may hurt consumers in the long run. For Apple, certain accessories and services fit this description: a. iPhone accessories: Accessories like AirPods provide immediate satisfaction due to their ease of use and seamless integration with Apple devices. However, they may hurt consumers in the long run due to their relatively high cost, their environmental impact from frequent upgrades and the generated electronic waste, and their tendency to cut users off from social interactions and their surrounding environment. b. App Store games with in-app purchases: These games provide immediate entertainment and satisfaction but can lead to negative financial implications in the long term for users who spend excessively on in-app purchases.

3. Salutary products: Salutary products have low immediate appeal but benefit consumers in the long run. Apple‘s focus on health and sustainability has led to several products and features that fall into this category: a. Apple Watch: The Apple Watch includes features like heart rate monitoring, ECG, and fall detection. While these may not be immediately appealing to all consumers, they provide significant long-term health benefits by promoting healthier lifestyles and providing early warnings for medical issues. b. iOS Screen Time feature: This feature helps users manage their device usage, encouraging healthier digital habits. Although it might not be immediately appealing to users who enjoy unrestricted device use, it benefits them in the long run by promoting better time management and reducing digital addiction.

4. Desirable products: These products give both high immediate satisfaction and long-run benefits. Many of Apple‘s flagship products fit into this category due to their combination of design, functionality, and ecosystem integration: a. iPhone: The iPhone provides immediate satisfaction through its sleek design, intuitive user interface, and powerful features. It also offers long-

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term benefits such as regular software updates, a robust app ecosystem, and integration with other Apple services. b. MacBook: The MacBook offers immediate appeal through its highperformance hardware, Retina display, and macOS ecosystem. Long-term benefits include durability, regular software updates, and productivity features that enhance user efficiency. c. iPad: The iPad provides immediate satisfaction with its portability, highquality display, and versatility for entertainment, education, and productivity. Long-term benefits include its longevity, regular updates, and wide range of apps designed for various use cases.

Through this application of the societal product classification, we can see how Apple addresses different consumer needs through its diverse product lineup.

Critical Thinking Exercises 16-7. The Environmental Working Group is a 30-million-person-strong community that works to protect our environmental health by changing industry standards. It advocates for environmental causes related to the products consumers use. Go to its website (www.ewg.org/skindeep/) and look up one product that you use frequently, such as toothpaste, sunscreen, moisturizer, or a body soap brand.

What does the Environmental Working Group report about the products you use?

What information, if any, surprises you? Present your findings. (AACSB: Application of Knowledge; Written and Oral Communication) Answer: The instructor could ask students to post their responses on a discussion board or in class. The exercise could even be done in class.

Student responses will vary based on the product/brand they consider. For example, Sensodyne Pronamel Gentle Whitening Toothpaste received a rating of 3 (Fair) based on available data (on a 5-point scale, with higher numbers being bad). While low for cancer and developmental and reproductive toxicity, it is moderate for allergies and immunotoxicity, and high for use restrictions.

Ingredients like sodium fluoride and cocamidopropyl betaine worsen the product rating whereas ingredients like glycerin, potassium nitrate, and water are benign.

Some users might be motivated to examine alternative products that are even less harmful.

16-8. Petroleum giant BP announced a significant shift in its strategy, aiming to become a net-zero company by 2050. This change came after years of criticism and legal issues related to its environmental impact, particularly the Deepwater Horizon oil spill in 2010. Since then, BP has been working to rebuild its reputation and credibility in the environmental sphere. To understand BP‘s efforts, visit on.bp.com/3X38sCR and evaluate what the company is doing to reposition itself as an environmental leader. ‘(AACSB: Written and Oral Communication; Reflective Thinking; Integration of Real-World Experiences) 16-463

Answer: Note: the instructor can use the points below as a starting point for discussion.

Students‘ specific answers may vary based on their interpretations of the report and their perspectives on sustainable marketing. BP is making concerted efforts to transform its image and operations to align with sustainability goals. Based on the report, some of the key environmental initiatives include: 1. Net Zero ambition: BP has committed to becoming a net-zero company by 2050 or sooner. This includes reducing its operational emissions (Scope 1 and 2) to zero and cutting the carbon intensity of the products it sells by 50 percent.

2. Investment in renewable energy: BP is investing heavily in renewable energy sources, including wind, solar, and hydrogen. The company aims to increase its renewable energy capacity to 50 GW by 2030, a significant shift from its traditional oil and gas focus.

3. Carbon offsetting and capture: BP is involved in various carbon offsetting and carbon capture and storage (CCS) projects. These efforts are designed to neutralize emissions that cannot be eliminated directly, contributing to their net-zero goal.

4. Advancing cleaner fuels: The company is developing cleaner fuels and exploring biofuels and electric vehicle (EV) charging solutions to support the transition to a lower-carbon economy.

5. Sustainable practices in operations: BP is improving its operational efficiency and reducing waste. This includes optimizing energy use in its facilities and adopting more sustainable practices in its supply chain management.

6. Community and ecosystem support: BP engages in projects aimed at preserving and restoring natural ecosystems. This includes reforestation projects and initiatives to protect biodiversity.

Guiding all this is BP‘s environmental principle: ―Reimagine Energy.‖ Reimagine Energy involves transforming the company‘s approach to energy production and consumption to be more sustainable and responsible. This principle is reflected in its commitment to innovation, partnerships, and policy advocacy to support the global transition to a low-carbon economy. Given its petroleum-based business, achieving these ambitious goals will undoubtedly be challenging for BP. That said, BP‘s current sustainability initiatives represent a significant departure from its past and signal the company‘s commitment to becoming an environmental leader.

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. Likewise, ―social washing‖ is the act of presenting a façade of social responsibility and positive impact with unsubstantiated claims or without tangible actions.

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Visit bit.ly/3x99anm. What actions can companies proactively take to avoid being accused of greenwashing or social washing? ‘(AACSB: Written and Oral Communication; Ethical Reasoning) Answer: To prevent greenwashing and social washing, companies need to ensure transparency, integrity, and actionable commitments. Using Unilever as an example, we provide some guidelines below.

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1. Transparency: a. Detailed reporting: Publishing comprehensive sustainability reports that detail initiatives, progress, and challenges. Unilever‘s annual sustainability report is an excellent model—see www.unilever.com/. b. Third-party audits: Regularly engaging independent auditors to verify claims. Unilever‘s collaboration with third-party organizations adds credibility.

2. Integrity: a. Clear commitments: Setting clear, achievable goals. Unilever‘s commitment to reduce its carbon footprint in specific steps across its entire value chain is a good example. b. Consistency in messaging: Aligning marketing messages with actual practices. Unilever ensures that its marketing campaigns accurately reflect its sustainability efforts.

3. Innovative Solutions: a. Invest in sustainable innovations: Unilever‘s development of biodegradable packaging demonstrates a tangible action. b. Community engagement: Actively involve communities in sustainability projects. Unilever‘s initiatives focused on local farming communities in areas where it operates exemplify this approach.

Note: the instructor can use the Unilever example to stimulate in-class and discussion board interaction.‘ Minicases and Applications Digital Marketing and AI Harley-Davidson’s Sustainability Initiatives Harley-Davidson, a legendary name in the motorcycle industry, has long been associated with powerful, iconic bikes and a distinct rebellious spirit. In recent years, the company has embarked on a sustainability journey, recognizing the growing importance of environmental responsibility. This shift is partly driven by the increasing consumer demand for eco-friendly products and the global push toward reducing carbon footprints. By introducing electric motorcycles such as the LiveWire, Harley-Davidson aims to reduce emissions and to appeal to a new generation of environmentally conscious riders. This move also aligns with broader industry trends as many auto manufacturers pivot toward electric and hybrid models to meet stricter environmental regulations and contribute to a more sustainable future. ‘‘‘‘‘ 16-10. Visit the Harley-Davidson Website at: www.harleydavidson.com/gb/en/index.html and evaluate how it uses digital marketing to reposition its brand and address social and environmental sustainability needs.

(AACSB: Written and Oral Communication; Application of Knowledge)‘‘ Answer:

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Students‘ answers may vary. However, below is an evaluation of some of HarleyDavidson‘s digital marketing efforts related to sustainability.

1. Digital Launch and Promotion of LiveWire: a. Harley-Davidson launched its electric motorcycle, the LiveWire, with a strong digital marketing campaign. The promotion included a dedicated website, social media campaigns, and YouTube videos showcasing the motorcycle‘s features, performance, and environmental benefits. b. The company used Instagram, X, and Facebook to share high-quality images, videos, and testimonials from riders who experienced the LiveWire. c. Harley-Davidson produced a YouTube series called ―Long Way Up,‖ featuring Scottish actor Ewan McGregor and British TV presenter and travel writer Charley Boorman. The series documented their journey on electric Harley-Davidson LiveWire motorcycles from the tip of South America to Los Angeles. The series highlighted the capabilities and environmental benefits of electric motorcycles while promoting sustainable travel. d. Harley-Davidson‘s blog and website feature articles and videos about the development of electric motorcycles, the importance of reducing carbon emissions, and the future of sustainable transportation.

2. Digital Publications: a. Harley-Davidson publishes annual sustainability reports on their website.

These reports detail their environmental impact, initiatives to reduce carbon emissions, and goals for sustainability. b. It uses email marketing to share these reports with subscribers, emphasizing their commitment to transparency and environmental responsibility. c. On Earth Day and other environmental observance days, Harley-Davidson uses social media to share its sustainability efforts and progress toward environmental goals. It engages followers with infographics, videos, and interactive posts.

3. Digital Marketing of Its Inclusion Initiatives: a. Harley-Davidson runs campaigns on social media platforms to promote inclusion within the company and the motorcycle community. It uses hashtags like #WeRideTogether and #HDVoices to highlight stories from diverse riders and employees. b. It collaborates with influencers and brand ambassadors from various backgrounds to share their riding experiences and promote inclusion. c. The company produces videos featuring riders from different demographics, including women, people of color, and members of the LGBTQ+ community. These videos are shared on YouTube, Instagram, and Facebook, celebrating the diverse cultures of Harley-Davidson riders. d. Harley-Davidson organizes charity rides and events, often promoting these initiatives through their digital channels. For example, it has

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supported the Muscular Dystrophy Association (MDA) through rides and events advertised on their website and social media. e. It creates event pages on Facebook, uses X to provide real-time updates, and posts recap videos on YouTube to showcase the impact of these events. f. Harley-Davidson has a long-standing commitment to supporting veterans.

It promotes initiatives such as the Heroes Ride, which raises funds for veteran organizations, through its website, email newsletters, and social media channels. g. It features stories of veteran riders and employees, creating a narrative of support and appreciation for their service. h. Harley-Davidson runs programs designed to empower women riders, promoted through digital channels like its website, social media, and email newsletters. It organizes events and rides exclusively for women, and advertise this on its Facebook event pages, X updates, and Instagram stories, encouraging women to join the riding community and support each other. i. Harley-Davidson shares stories of women riders and their journeys on platforms like Instagram and Facebook, often featuring the hashtag #HOGSforGirls. j. The company also collaborates with women influencers and riders who share their experiences and inspire other women to ride.‘‘ 16-11. Digital marketing and AI are constantly evolving along with concepts of sustainability. Ask your preferred generative AI interface to do this: ―Provide innovative suggestions and examples of how Harley-Davidson can implement and address social and environmental sustainability within its business model.‖ Evaluate AI‘s answer by evaluating and discussing its suggested ideas. Can you come up with additional ideas beyond those provided by the AI platform?

(AACSB: Written and Oral Communication; Integration of Real-World Experiences)‘‘ Answer: Students‘ answers may vary based on the AI interface they use. However, we asked the question of ChatGPT and here are the responses as paraphrased from ChatGPT. Harley-Davidson can implement social and environmental sustainability in its business model through various innovative strategies and initiatives. Here are some suggestions and examples: 1. Electric Motorcycles and Renewable Energy a. Initiative: Expand the electric motorcycle lineup and utilize renewable energy sources in production. b. Example: Harley-Davidson can continue developing its LiveWire brand, focusing on increasing the range, reducing charging time, and enhancing

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performance. They can also invest in solar panels and wind turbines for their manufacturing plants to reduce their carbon footprint.

2. Sustainable Materials and Recycling Programs. a. Initiative: Use sustainable materials in manufacturing and establish recycling programs. b. Example: Implement the use of recycled metals and biodegradable materials in the production of motorcycles. Establish a program where customers can return old parts for recycling, ensuring proper disposal and reuse of materials.

3. Community Engagement and Education a. Initiative: Engage with communities and educate on sustainability practices. b. Example: Partner with local schools and community organizations to create educational programs about the importance of sustainability.

Harley-Davidson can sponsor community clean-up events and environmental conservation projects, promoting a culture of sustainability.

4. Supply Chain Transparency and Ethical Sourcing a. Initiative: Ensure supply chain transparency and source materials ethically. b. Example: Develop a robust tracking system for materials, ensuring they are sourced from environmentally friendly and ethically responsible suppliers. Publish annual reports on the sustainability and ethical practices of the supply chain.

5. Green Dealerships and Service Centers a. Initiative: Build or retrofit dealerships and service centers to be more ecofriendly. b. Example: Construct green buildings for dealerships with LEED certification, incorporating energy-efficient lighting, water-saving fixtures, and green roofs. Offer services such as eco-friendly bike washes and encourage dealerships to adopt sustainable practices.

6. Employee Training and Sustainable Practices a. Initiative: Train employees on sustainable practices and encourage participation in sustainability initiatives. b. Example: Develop comprehensive training programs for employees focusing on sustainability and environmental responsibility. Create incentives for employees who actively participate in sustainability initiatives, such as volunteer programs or innovation contests.

7. Carbon Offset Programs a. Initiative: Implement carbon offset programs to neutralize the company‘s carbon footprint. b. Example: Partner with organizations that offer carbon offset programs, investing in projects like reforestation, renewable energy, and conservation efforts. Offer customers the option to offset the carbon emissions from their motorcycles through a simple add-on during purchase.

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a. Initiative: Reduce waste through sustainable packaging and shipping methods. b. Example: Use biodegradable or recyclable packaging materials for parts and accessories. Optimize shipping routes and methods to reduce fuel consumption and carbon emissions, possibly even incorporating electric delivery vehicles.

9. Customer Engagement and Green Products a. Initiative: Engage customers with green products and initiatives. b. Example: Launch a line of eco-friendly motorcycle gear and accessories, such as helmets made from recycled materials and clothing made from organic cotton. Create a loyalty program that rewards customers for sustainable actions, like riding electric bikes or participating in environmental events.

10. Innovation in Product Design a. Initiative: Innovate in product design to enhance sustainability. b. Example: Develop modular motorcycle designs that make it easier to upgrade parts rather than replace entire bikes, extending the lifespan of each unit and reducing waste. Experiment with alternative fuels and propulsion systems that are less harmful to the environment.

Note: This exercise is designed to encourage students to understand how AI can help marketers and companies in idea generation. The instructor can use this exercise to help students understand how technology and sustainability are constantly evolving in line with each other. The instructor can also use this exercise and the answer as a starting point on discussions related to technology and its importance in sustainability and sustainable considerations when implementing technology, using Harley-Davidson as an example. ‘‘‘‘‘‘‘ Marketing Ethics Coca-Cola’s Washing Challenges Coca-Cola came under scrutiny in 2023 for engaging in multiple forms of unethical marketing practices, including greenwashing and social washing. The company has been criticized for making misleading claims about the environmental sustainability of its products, such as promoting the plant bottle as an eco-friendly solution despite its significant contribution to plastic waste and environmental pollution. Additionally, CocaCola has been accused of funding research to downplay the health risks of sugary beverages, thereby shifting the blame for obesity from diet to lack of exercise. Further, Coca-Cola purportedly overstated its commitment to human rights and safe and fair labor practices, even as poor working conditions and forced labor practices continued to plague its supply chains. Lastly, Coca-Cola allegedly reported only a fraction of its total emissions in its annual environmental, social, and governance (ESG) report even while the company was aware of its total emissions. Thus, Coca-Cola has been accused of lowering transparency and potentially misleading stakeholders.‘

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16-12. How can Coca-Cola reshape its business model to ensure that the company is truly faithful to its environmental, social, and ethical commitments? (AACSB: Written and Oral Communication; Integration of Real-World Experiences‘‘) Answer: Students will come up with a variety of ideas and solutions. As a guideline, the answers could include the following: 1. Investing in advanced recycling and upcycling technologies (Note: Upcycling refers to recycling processes that yield higher-value products than those that were recycled). By developing innovative packaging solutions that are 100 percent recyclable or biodegradable, and by creating products from recycled materials, Coca-Cola can significantly reduce its environmental footprint.

Collaborating with technology startups specializing in waste management and recycling can drive these initiatives forward.

2. Implementing a closed-loop supply chain where packaging materials are continuously recycled and reused can help minimize waste. This requires setting up robust collection and processing systems in partnership with local governments and waste management companies.

3. Utilizing blockchain technology to track the origins and journey of raw materials ensures full transparency in the supply chain. This can provide realtime data on labor practices, sourcing, and environmental impact, making it easier to verify claims and build consumer trust.

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4. Implementing smart contracts can automate compliance checks and audits, ensuring that suppliers adhere to Coca-Cola‘s environmental and social standards. This can prevent labor rights violations and ensure ethical sourcing practices.

5. Developing new product lines that focus on sustainability, including using alternative ingredients that have lower environmental impacts and creating packaging innovations that reduce waste can help Coca-Cola stand out.

Products like plant-based beverages or health-focused drinks made from sustainably sourced ingredients can appeal to environmentally conscious consumers.

6. Innovating ways to extend the life of Coca-Cola products through refillable packaging can reduce waste and enhance sustainability. For instance, offering durable, reusable bottles with refill stations can significantly cut down on single-use plastic consumption.

7. Ensuring that Coca-Cola‘s workforce is inclusive along many dimensions, across roles at all levels within the company.

8. Contributing to the well-being and development of the local communities that Coca-Cola and its supplier operations are embedded in.

9. Ensuring that its workers are paid fair wages and offered fair benefits, treated with respect, and provided with safe and clean working conditions. ‘‘ 16-13. How can Coca-Cola use technology to enhance its sustainable marketing initiatives? (AACSB: Written and Oral Communication; Integration of Real-World Experiences) Answer: Coca-Cola can use technology to enhance its sustainable marketing initiatives in the following ways: 1. Coca-Cola should invest in AI-driven analytics. AI-based platforms can continuously collect and analyze data across production, distribution, and sales channels to monitor and optimize the company‘s environmental footprint. Predictive analytics and optimization algorithms can help reduce energy consumption and improve resource management, ensuring operations are as eco-friendly as possible. For example, by replacing inventory with information, the company can lower the inventory levels carried across the different levels of the value chain.

2. Coca-Cola can employ generative AI platforms to design and tailor marketing campaigns that resonate with environmentally conscious consumers. AI platforms could also check for adherence to advertising standards in the context of fairness and inclusion.

3. Coca-Cola can use blockchain technology to implement a transparent, accurate, and secure tracking system for supply chain management. By tracking every step in the supply chain on the blockchain, the company can ensure that all production stages adhere to ethical and sustainable practices.

Immutable records provide a tamper-proof history that can be audited by

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stakeholders, reinforcing the integrity and sustainability of Coca-Cola‘s operations. Consumers can access detailed information about product origins and ethical certifications, building trust and confidence in the brand‘s commitment to sustainability.

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4. Coca-Cola can reduce its carbon footprint at every stage of the value chain by cutting out inefficient processes and replacing greenhouse gas-generating technologies with environmentally friendly ones. These initiatives can range from using solar panels rather than gas generators to power processes to replacing diesel vehicles with electric vehicles.

5. Coca-Cola can enhance its sustainable marketing efforts by credibly committing to achieve the standards set by third-party organizations such as the Rainforest Alliance and consequently earning the right to use their seal of approval.

6. Coca-Cola could implement training programs that enable all its employees to integrate sustainable thinking and actions into their everyday work, empowering them to generate and implement ideas that enhance the company‘s social and environmental sustainability profile. ‘‘ Marketing by the Numbers eSight 4’s Options eSight 4 is a high-tech device designed to help people with visual impairments ―see.‖ It is a wearable electronic pair of glasses that uses a high-speed camera, advanced algorithms, and high-resolution screens to deliver real-time video to the user. eSight 4 can enhance the user‘s vision by magnifying images, improving contrast, and optimizing lighting conditions, making it easier to read text, recognize faces, and navigate their surroundings. To almost 8 million visually impaired Americans and 253 million visually impaired people worldwide, this could be a game-changer. However, for many, the $5,950 price tag makes the product unattainable. By contrast, many smartphones equipped with AI technology have apps that can do many of the same things as eSight 4, although they are not wearable. Some analysts believe this wearability does not add enough value to justify eSight 4‘s high price, especially considering that some 58 percent of U.S. adults with significant vision impairment are unemployed and that percentage is likely higher worldwide. Samsung‘s Galaxy S21 series—with Bixby, facial recognition, and its other AI sensors, camera, speaker, and app capabilities—can do many of the things the eSight 4 can do. Assume that the net annual sales of eSight 4 are $7.2 million, and the corresponding cost of goods sold is $4 million. Also assume that the net sales of Samsung Galaxy 21 are $13.5 million, and the corresponding cost of goods sold is $6.5 million. ‘‘‘‘‘ 16-14. Calculate the gross margin dollars and percentage for the eSight 4 and the Samsung Galaxy. 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 Reasoning)

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Answer:

16-15. Suppose eSight 4 wants to increase its net sales by 20 percent next year. If the cost of goods sold (COGS) remains the same, what would be the new gross margin dollars and percentage for eSight 4? (AACSB: Analytical Reasoning)‘ Answer:

‘‘‘‘‘‘ Company Case Teaching Notes

Company Cases 16 Chipotle/10 Ford Motor Company/4 P&G See Appendix 1 for teaching notes for the below cases.

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Case 16, Chipotle: An Environmental Sustainability Mission. Chipotle‘s mission is to ―Cultivate a Better World‖ by transforming fast food through sustainable, ethically sourced ingredients, providing fresh, real food that‘s good for you and the planet.

Case 10, Ford Motor Company: Navigating the ICE and EV Dealer Dilemma. Ford planned to force its dealerships to choose exclusively between EV vehicles and traditional internal combustion engine vehicles. Facing challenges, Ford is revisiting that plan.

Case 4, P&G: Creating Irresistibly Superior Experiences Through Market Research.

Procter & Gamble leads the consumer goods industry in marketing research and data analytics, creating superior experiences through deep consumer insights and innovative products.

‘ 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.

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.

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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 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?

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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 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 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.

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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 © 2025 Pearson Education Ltd.

Part 1 Defining Marketing and the Marketing Process

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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?

i

Table sales information is from annual reports at https: //bit.ly/4bdMmBK and https://bit.ly/4bfumqR. ii Anna Starotsineskaya, Slutty Vegan Now Has $25 Million to Expand Vegan Empire with Help from Shake Shack‘s Danny Meyer, Veg News, May 10, 2022, https://vegnews.com/2022/5/slutty-vegan-25-million-expand-vegan-empire; and Amanda Little, How Slutty Vegan Escaped the Plant-Based Slump, Washington Post, June 24, 2023, www.washingtonpost.com/business/2023/06/24/how-slutty-vegan-ceo-escapedthe-plant-based-slump/58c177ee-128c-11ee-8d22-5f65b2e2f6ad_story.html.

1-2 © 2025 Pearson Education Ltd.