PREFACE
Through good economic times and bad, marketing remains the pivotal function in any business. Determining and satisfying the needs of customers through products that have value and accessibility and whose features are clearly communicated is the general purpose of any business. It is also a fundamental definition of marketing. This text introduces students to the marketing strategies and tools that practitioners use to market their products.
BALANCED COVERAGE
To emphasize how various marketiilg areas work together to create a cohesive strategy, I define and explain the various marketing areas and their comparative strengths and weaknesses, as well as stress how to best "mix" marketing tools in a strategic, integrated plan. The book begins with a discussion of the marketing planning process, continues with a discussion of the preliminary tasks of developing the plan, and concludes witb the tactics available to the marketing planner. This complete coverage ensures that students will learn how to plan, execute, and evaluate a marketing program that is effective and efficient from start to finish.
INTERNATIONAL ANDTECHNOLOGY COVERAGE
Introducing Marketing recognizes the impact of the global community on marketing practices. International implications are discussed in Chapter 6 and are also integrated into the text through relevant examples.
Technology is altering many marketing practices. The World Wide Web. databases, tracking devices, and market simulations are only a few examples of the ways technology has affected marketing strategies. Technology coverage is woven throughout the text, features, and end-of-chapter materials of this book. (Note that because technology is changing so rapidly, it is virtually impossible for a text such as this to remain absolutely current.)
CURRENT EXAMPLES FROM ALL TYPES AND SIZES OF BUSINESS
This book demonstrates how companies use marketing. Specific examples appear not only in text discussions, but also in the chapter openers, the Integrated Marketing and Newsline boxes, and the end of chapter cases. Examples and stories bring theory to life, demonstrating the relevance of the reaaing. The example subjects are vivid, current, and varied. They range from Fortune 500 companies to smaller, privately held businesses. The text also focuses on international companies of all sizes.
VI PREFACE
Learning is not always about success stories. Diagnosing problems and failures is an important aspect of critical thinking, and examples of such are introduced to challenge stu dents to learn from others' mistakes and better manage real-world problems.
A CLEAR, EFFECTIVE ORGANIZATION
Time is a precious commodity to instructors and students. Market feedback revealed that instructors want an introductory marketing text that (1) covers the basics well and (2) omits unnecessary detail. Careful selection of topics, appropriate depth of coverage, and concise writing helped us meet those two objectives. Instead of the typical 20-25 chapters, this text offers 10 chapters of manageable length.
HELPFUL PEDAGOGY
We introduce several features to reinforce learning and help students build business skills that they can use on tne job. Our comprenensive learning system enables students to master materials quickly and thoroughly. Some features of that system include opening vignettes, performance-basec learning objectives, concept reviews, Integrated Marketing boxes, Newsline boxes, end-of-chapter projects, and end-of chapter cases.
SUPPLEMENTS OFTHE BOOK
5 The Instructor's Manual with Test Questions provides helpful teaching ideas, advice on course development, sample assignments and chapter-by-chapter text highlights, learning objectives, lecture outlines, class exercises and more. This manual also includes multiple choice, true/false, and short answer text questions for each chapter.
• PowerPoint Presentations are available for download via the text web site (www.wiley.com/college/burnett). These slides contain lecture outlines for each chapter of the text.
• A computerized version of the Test Bank is available to instructors for customization of their exams.
• Additional online resources are available to instructors via the text web site. These resources include: In Practice exerciser for each chapter, which relate directly to the Wall Street Journal articles on-line; an interactive Study Guide; interactive web-based cases; on-line chapter summaries; a Reading Room containing on-line articles from the Wall Street Journal, which correlate with key concepts and topics within eacJl chapter of the text; and more.
ACKNOWLEDGMENTS
introducing Marketing, First Edition benefits from insights provided from marketing educators around the country that carefully read and critiqued draft chapters. I am pleased to express my appreciation to the following colleagues for their contributions:
Joe K. Ballenger
Stephen F. Austin State TJniversity
Dong Jin Lee
State University of New York (SUNY), Bingha;nton
Amit Bhatnagar
University of Wisconsin, Milwaukee
Thomas L. Ainscough College of William and Mary
Jeffrey B. Schmidt
University of Illinois at 'Jrbana-Champaign
James V. Spiers Arizona State University
I would also like to thank the Wiley team including my editor, Jeff Marshall, marketing manager. Charity Robey, production editor, Norine Pigliucci, Cindy Rhoads, Dawn Stanley, Mike Brennan, and Elyse Rieder for their hard work and support of this project. A great deal of thanks also goes to my friend and colleague, Pallab Paul, for his outstanding contributions to the web site.
CONTENTS
CHAPTER ONE INTRODUCING MARKETING 1
Introduction 2
Marketing: Definition and Justification 3
Defining Marketing 3
Justification for Study 6
Characteristics of a Marketing Organization 7
The Role of Marketing in the Firm: A Basis for Classification 12
Strategic Components of Marketing 17 Keys to Marketing Success 22 Summary 24 Marketer's Vocabulary 24 Discussion Questions 24 Project 25
Case Application: The Hog Is Alive and Well 25 References 26
CHAPTERTWO THE MARKET
UNDERSTANDING AND APPROACHING
27
Introduction 28 Defining the Market 28
The Market Is People 28
The Market Is a Place 29
The Market Is an Economic Entity 29 Types of Markets 30
Consumer Markets 30
Industrial Markets 30
Institutional Markets 30
Reseller Markets 30 Approaching the Market 31
The Undifferentiated Market (Market Aggregation) 32
Product Differentiation 33
The Segmented Market 34
The Strategy of Market Segmentation 45 Summary 49 Marketer's Vocabulary 49 Discussion Questions 50 Project 51
Case Application: Rolling Rock Finds Its Niche 51 References 52
CHAPTER THREE MARKETING RESEARCH: AN AID TO DECISION MAKING 53
Introduction 53
The Nature and Importance of Marketing Research 54 What Needs Researching in Marketing? 55 Procedures and Techniques in Marketing Research 57
Making a Preliminary Investigation 57
Creating the Research Design 59 Conducting the Research 67 Processing the Data 67 The Value of Marketing Research 67 Summary 70 Marketer's Vocabulary 70 Discussion Questions 71 Project 71
Case Application: Research Saves the Day at Case 72 References 72
CHAPTER FOUR
BEHAVIOR 73
UNDERSTANDING BUYER
Introduction 74
Buyer Behavior and Exchange 74
Buyer Behavior as Problem Solving 75
The Decision Process 76
Influencing Factors of Consumer Behavior 82 Organizational Buyer Behavior 91
Characteristics of Organizational Buying 91
Stages in Organizational Buying 93 Summary 98 Marketer's Vocabulary 98 Discussion Questions 99 Project 99
Case Application: Customer Satisfaction Still Matters 99 References 100
CHAPTER FIVE
MARKETING
EXTERNAL CONSIDERATIONS IN
101
Introduction 102
External Factors that Affect Planning
External Surprises 104
Competitors 104
103
CONTENTS
LegallEthicaJ Factors 106
EconomiclPolitical Issues 110
Technology 113
Social Trends 115
Forecasts of the Future 120 Summary 123 Marketer's Vocabulary 123 Discussion Questions 123 Project 124 Case Application 124 References 125
CHAPTER SIX MARKETING IN GLOBAL MARKETS 126
Introduction 127
Defining International Marketing 127 Standardization and Customization 128 Reasons for Entering International Markets 129 Reasons to Avoid International Markets 130 The Stages of Going International 130
Exporting 131
Licensing 131
Joint Ventures 132
Direct Investment 132
U.S. Commercial Centers 132
Trade Intermediaries 13 3
Alliances 133 The International Marketing Plan 133
The Corporate Level 134
The Business Level 134
The Functional Level 136 The International Marketing Environment 139
The SociaVCultural Environment 139
The PoliticallLegal Environment 142
The Technological Environment 144
The Economic Environment 145
The Competitive Environment 145 Summary 148 Marketer's Vocabulary 148 Discussion Questions 149 Project 149
Case Application: Unilever's Global Brand 149 References 150
CHAPTER SEVEN PRODUCT 151
INTRODUCING AND MANAGING THE
Introduction 152 Defining the Product 152 Classification of Products 154
Consumer Goods and Industrial Goods 155
Goods Versus Services 157
Product Planning and Strategy Formulation 159 The Determination of Product Objectives 159 The Product Plan 160 Product Strategies 161
Strategies for Developing New Products 168 Step I: Generating New Product Ideas 173 Step 2: Screening Product Development Ideas Step 3: Business Analysis 176 Step 4: Technical and Marketing Development Step 5: Manufacturing Planning 178 Step 6: Marketing Planning 178 Step 7: Test Marketing 178 Step 8: Commercialization 180
Summary 182
Marketer's Vocabulary 182
Discussion Questions 183
Project 183
Case Application: Hershey Chocolate Milk 183
References 184
175
178
CHAPTER EIGHT
MASS MARKETS
COMMUNICATING TO 185
Introduction 186 The Role of IMC 187
Primary Tasks 187
Integrated Marketing Communication 189 The Meaning of Marketing Communication 189 The Objectives of Marketing Communication 190 How We Communicate 191
Basic Elements of Communication 191
Types of Communication Systems 193
Marketing Communications 194 Designing an IMC Strategy 194
The Promotion Mix 197
The Campaign 198 Understanding Advertising 199
The Organization of Advertising 199
The Advertising Agency 200
Developing the Creative Strategy 200
Developing the Media Plan 201
Banner Advertisements 202 Sales Promotion and Public Relations 204
Sales Promotion: A Little Bit of Everything 204
Public Relations: The Art of Maintaining Goodwill 207
Personal Selling and the Marketing Communication Mix 211
Strengths and Weaknesses of Personal Selling 218
The Sales Force of the Future 219 Summary 222 Marketer's Vocabulary 222 Discussion Questions 223
CONTENTS
XI
Project 224
Case Application: The Microrecorder
References 225
224
CHAPTER NINE PRICING THE PROD UCT 226
Introduction 227
Price Defined: Three Different Perspectives 227
The Customer's View of Price 227
Price from a Societal Perspective 228
Rational Man Pricing: An Economic Perspective 229
Irrational Man Pricing: Freedom Rules 230
The Marketer's View of Price 230 Pricing Objectives 230 Developing a Pricing Strategy 231
Nonprice Competition 232
Competitive Pricing 234 New Product Pricing 235 Price Lines 237 Price Flexibility 237
Discounts and Allowances 237 Price Bundling 240 Psychological Aspects of Pricing 240 Alternative Approaches to Determining Price 242
Cost-Oriented Pricing: Cost-Pius and Mark-Ups 242
Break-Even Analysis 243
Target Rates of Return 244
Demand-Oriented Pricing 244
Value-Based Pricing 244 The Future of Pricing 246 Summary 248 Marketer's Vocabulary 248 Discussion Questions 248 Project 249
Case Application: United Techtronics 249 References 250
Organizing the Channel 267
Conventional Channels 267
Vertical Marketing Systems 268
Horizontal Channel Systems 268 The Channel Management Process 269
Analyze the Consumer 269
Establish the Channel Objectives 270
Specify Distribution Tasks 270
Evaluate and Select from Channel Alternatives
Evaluating Channel Member PerfOlmance 272 The Human Aspect of Distribution 2 73
Role 273
Communication 273
Conflict 274
Power 274 Summary 276 Marketer's Vocabulary 2 76 Discussion Questions 277 Project 277
Case Application: Connecting Channel Members 277 References 278
PHOTO CREDITS 279
INDEX 281
CHAPTER TEN CHANNEL CONCEPTS: DISTRIBUTING THE PRODUCT 252
Introduction 253
The Dual Functions of Channels 253
The Evolution of the Marketing Channel 254
Flows in Marketing Channels 255
Functions of the Channel 256
Channel Institutions: Capabilities and Limitations 257
Producer and Manufacturer 257
Retailing 258
Wholesaling 263
Physical Distribution 264
CHAPTER
7
INTRODUCING MARKETING
LEARNING OBJECTIVES
As you read the chapter, you should develop an understanding of the following key marketing concepts:
The important role marketing can play in the success of an organization.
Organizations that correctly employ marketing have several common characteristics.
The various kinds of marketing.
the strategic workings of marketing components.
ELVIS-ALIVE AND WELL
It's Elvis week in Memphis, and all over town they've got banners: '"20 years/Still Rocking.'" Is it just us, or is it weird to wax so upbeat about the twentieth anniversary of a death? You can't help but feel that the world's got the Elvis Presley it wanted: a changeless, ageless object of contemplation and veneration. Elvis Week culminates in an event called Elvis-The Concert 2000 in which the man himself, resurrected by video technology, will sing with his living ex-band mates and the Memphis Symphony Orchestra. Who wouldn't secretly prefer this fail-safe digitized spectacle to a weary 62-year-old grinding out "If I Can Dream" one more time?
Twenty years ago, no one close to Elvis could have imagined that his fans would spend over $250 million annually on Elvis dolls, plates, key chains, towels, and wigs-to name just a few items. Two years after Elvis's death, his estate was worth less on paper than it owed in taxes. Then, in 1979, Priscilla Presley, Elvis's ex-wife, was named an executor of the estate for her daughter. The family's crown jewels-Elvis's recordings-had been sold off years earlier and Priscilla had just one chance to save the legacy. She gambled that Elvis's name, image, and likeness were worth something. And she turned his home into a roadside attraction to fmance a legal war, fighting for control of all that was Elvis.
Priscilla concluded that there was only one way to save Graceland: sell tickets to the hundreds of gawkers who daily pressed their faces against Elvis's gates. Meanwhile, why not sell some gewgaws to the fans that were already buying cheesy trinkets at the strip mall across the street? Buoyed by an initial investment of $560,000, Graceland's doors were opened to the public in 1982. It took 38 days to recoup their investment; 350,000 visitors walked through the house the first year. "I felt I was betraying Elvis," says Priscilla, recalling her decision to enter the amusement business. "Graceland was
CHAPTER 1 INTRODUCING MARKETING
Elvis Presley Enterprises, Inc.
his pride and joy. But it came down to the reality that I had to open it up for my daughter's future."
Today 750,000 people visit Graceland each of them under 35, which
suggests this is a business with a future. The marsion has upgraded its public facilities many times over the years, but there still are no vending machines on the grounds and the lawns have never been turned into a parking lot. The original 24 acres have been expanded into an 80-acre compound and Priscilla intends to add a hotel to the complex. There are also plans for a casino in Las Vegas-perhaps with an Elvis wedding chapel-and an international chain of Hard Rock Cafe-style restaurants called Elvis Presley's Memphis. Finally, a staff of ten lawyers is employed full-time by Elvis Presley Enterprises simply to protect El vis's image from interlopers.
Sources: Corie Brown, "Look Who's Taking Care of Business," Newsweek, August 18, 1997, p. 62. Karen Schoemer, "Burning Love," Newsweek, August 18, 1997, pp. 58-61. G. Brown, "More Earll' Elvis Unearthed. The Denver Post. August 15, 1997, p. 9F. Greg Hassell, "King ofTrees Rises From Graceland," Houston Chronicle, Dec. 8,1999, p. 11. Duncan Hughes, "Elvis is Back From the Dead Financially," Sunday Business, August 15, 1999, p. 23.
INTRODUCTION
The success of Elvis Presley Enterprises was a result of the insights and courage of Priscilla Presley. Despite her lack of formal training in marketing, she exhibited a creative approach
toward doing business that will become more and more necessary as the 21 st century continues. Innovative thinking has become a prerequisite for success in today's global environment, which is saturated with near clone products being sold by millions of comparable competitors. The status quo will no longer suffice. The need for constant change paired with clear strategies is now essential.
Marketing constitutes just one of the functions available to every business. Along with research, production, finance, accounting, and a myriad of other functions, marketing contributes to the ability of a business to succeed. In many businesses, marketing may be deemed of highest importance; in others, it may be relegated to a lesser role. The very existence of business depends upon successful products and services, which in turn rely on successful marketing. For this reason, every business person will benefit from even basic marketing knowledge. Moreover, marketing principles have been effectively applied to several nonbusiness institutions for more than 30 years. Bankers, physicians, accounting firms, investment analysts, politicians, churches, architectural firms, universities, and the United Way have all come to appreciate the benefits of marketing.
A word of warning: there is a long-standing myth that marketing is easy. After going through this book you may conclude that marketing is interesting, fun, challenging—even vague-but it is not easy. Whether you like numbers or hate numbers, like people or hate people, like doing the same thing every day or like constant change there are opportunities for you in marketing.
MARKETING: DEFINITION AND JUSTIFICATION
Defining Marketing
Noted Harvard Professor of Business Theodore Levitt, states that the purpose of all business is to "find and keep customers." Furthermore, the only way you can achieve this objective is to create a competitive advantage. That is, you must convince buyers (potential customers) that what you have to offer them comes closest to meeting their particular need or want at that point in time. Hopefully, you will be able to provide this advantage consistently, so that eventually the customer will no longer consider other alternatives and will purchase your product out of habit. This loyal behavior is exhibited by people who drive only Fords, brush their teeth only with Crest, buy only Dell computers, and have their plumbing fixed only by "Samson Plumbing-On Call 24 hours, 7 days a week." Creating this blind commitment-without consideration of alternatives-to a particular brand, store, person, or idea is the dream of all businesses. It is unlikely to occur, however, without the support of an effective marketing program. In fact, the specific role of marketing is to provide assistance in identifying, satisfying, and retaining customers.
While the general tasks of marketing are somewhat straightforward, attaching an acceptable definition to the concept has been difficu't. A textbook writer once noted, "Marketing is not easy to define. No one has yet been able to formulate a clear, concise definition that finds universal acceptance." Yet a definition of some sort is necessary if we are to layout the boundaries of what is properly to be considered "marketing." How do marketing activities differ from nonmarketing activities? What activities should one refer to as marketing activities? What institutions should one refer to as marketing institutions?
Marketing is advertising to advertising agencies, events to event marketers, knocking on doors to salespeople, direct mail to direct mailers. In other words, to a person with a hammer, everything looks like a nail. In reality, marketing is a way ofthinking about business, rather than a bundle of techniques. It's ;nuch more than just selling stuff and collecting money. It's the connection between people and products, customers and companies. Like
CHAPTER 1 INTRODUCING MARKETING
organic tissue, this kind of connection-orrelationship-is always growing or dying. It can rever be in a steady state. And like tissue paper, this kind of connection is fragile. Customer relationships, even long-standing ones, are contingent on the last trung that happened. Tracing the evolution of the various definitions of marketing proposed during the last thirty years reveals two trends: 1) expansion of the application of marketing to non-profit and non-business institutions; e.g., charities, education, or health care; and 2) expansion of the responsibili'jes of marketing beyond the personal survival of the individual firm, to include the betterment of society as a whole. These two factors are reflected in the official American Marketing Association definition published in 1988.
"Marketing is the process ofplanning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual (customer) and organiwtional objectives.'"
While this definition can help us better comprehend the parameters of marketing, it does not provide a full picture. Definitions of marketing cannot flesh out specific transactions and other relationships among these elements. The following propositions are offered to supplement this definition and better position marketing within the firm:
1. The overall directive for any organization is the mission statement or some equivalent statement of organizational goals. It reflects the inherent business philosophy of the organization.
2. Every organization has a set of functional areas (e.g., accounting, production, finance, data processing, marketing) in which tasks t;lat are necessary for the success of the organization are performed. These functional areas must be managed if they are to achieve maximum performance.
3. Every functional area is guided by a philosophy (derived from the mission statement or company goals) that governs its approach toward its ultimate set of tasks.
4. Marketing differs from the other functional areas in that its primary concern is with exchanges that take place in markets, outside the organization (called a transaction).
5. Marketing is most successful when the philosophy, tasks, and manner of implementing available Lechnology are coordinated and complementary.
Perhaps an example will clarify these propositions: L.L. Bean is an extremely successful mail order company. The organization bases much of its success on its longstanding and straightforward mission statement: "Customer Satisfaction: An L.L. Bean Tradition" (Proposition 1). The philosophy permeates every level of the organization and is reflected in high quality products, fair pricing, convenience, a 100% satisfaction policy and-above all-dedication to customer service (Proposition 2). This philosophy has necessitated a very high standard of production, efficient billing systems, extensive and responsive communication networks, computerization, innovative cost controls, and so forth. Moreover, it has meant that all of these functional areas have to be in constant communication, must be totally coordinated, and must exhibit a level of harmony and mutual respect that creates a positive environment in order to reach shared goals (Proposition 3). The L.L. Bean marketing philosophy is in close harmony with its mission statement. Everything the marketing department does must reinforce and make real the abstract concept of "consumer satisfaction" (Proposition 4). The price-product-quality relationship must be fair. The product must advertise in media that reflects trus high quality. Consequently, L.L. Bean adver-
MARKETING: DEFINITION AND JUSTIFICATION
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tises through its direct-mail catalogue and through print ads in prestigious magazines (e.g., National Geographic). It also has one of the most highly regarded websites (Ad 1.1). Product selec:ion and design are based upon extensive research indicating the preferences of their customers Since product delivery and possible product return is critical, marketing must be absolutely sure that both these tasks are performed in accordance with customers' wishes (Proposition 5). While one might argue that the marketing function must be the most important function at L.L. Bean, this is r.ot the case. L.L. Bean is just as likely to lose a customer because of incorrect billing (an accounting function) or a flawed hunting boot (a product function) as it is from a misleading ad (a marketing function).
Admittedly, marketing is often a critical part of a firm's success. Nevertheless, the importance of marketing must be kept in perspective. For many large manufacturers such as Proctor & Gamble, Microsoft, Toyota, and Sanyo, marketing represents a major expenditure, and these businesses depend on the effectiveness of their marketing effort. Conversely, for regulated industries (such as utilities, social services, or medical care or small businesses providing a one-of-a-kind product) marketing may be little more than a few informative brochures. There are literally thousands of examples of businesses-many quite small-that have neither the resources nor the inclination to support an elaborate marketing organization and strategy. These businesses rely less on research than on common sense. In all these cases, the marketing program is worth the costs only if it fits the organization and facilitates its ability to reach its goals.
6 CHAPTER 1 INTRODUCING MARKETING
NEWSLINE: PICTURE YOUR MISSION
Artist Linda Armantrout, owner of Armantrout Graphic Design and Illustration, works with businesses to help them picture their goals-literally-through a "pictorial mission statement."
As op;JOsed to the typical written mission statement that is handed down to employees from management. Armantrout creates a bright watercolor picture of the statement, after receiving input from both employees and managers, The final result is usually a collage of sorts that depicts what is important to the staff and the business-such as clients, products, services, and ethics.
The mission statement picture that Armantrout designs is framed and hung at the company to remind employees of their goals. The piC-torial statements also can be put on coffee mugs, jackets, and desktop posters, or turned into screen savers.
One of Armantrout's clients, BancOne Leasing Corporation, came up with a colorful image of a globe sur