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Marketing Management For these Global Editions, the editorial team at Pearson has collaborated with educators across the world to address a wide range of subjects and requirements, equipping students with the best possible learning tools. This Global Edition preserves the cutting-edge approach and pedagogy of the original, but also features alterations, customization, and adaptation from the North American version. Global edition Global edition Global edition fifteenth edition Kotler Keller Marketing Management Kotler • Keller This is a special edition of an established title widely used by colleges and universities throughout the world. Pearson published this exclusive edition for the benefit of students outside the United States and Canada. If you purchased this book within the United States or Canada, you should be aware that it has been imported without the approval of the Publisher or Author. 15e Pearson Global Edition Kotler_1292092629_mech.indd 1 17/03/15 8:41 PM Marketing Management 15 Global Edition Philip Kotler Northwestern University Kevin Lane Keller Dartmouth College Boston Columbus Indianapolis New York San Francisco Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo A01_KOTL2621_15_GE_FM.INDD 1 3/9/15 4:38 PM Vice President, Business Publishing: Donna Battista Editor-in-Chief: Stephanie Wall Acquisitions Editor: Mark Gaffney Development Editor: Elisa Adams Senior Acquisitions Editor, Global Editions: Steven Jackson Project Editor, Global Editions: Suchismita Ukil Program Manager Team Lead: Ashley Santora Program Manager: Jennifer Collins Editorial Assistant: Daniel Petrino Vice President, Product Marketing: Maggie Moylan Director of Marketing, Digital Services and Products: Jeanette Koskinas Executive Product Marketing Manager: Anne Fahlgren Field Marketing Manager: Lenny Ann Raper Senior Strategic Marketing Manager: Erin Gardner Project Manager Team Lead: Judy Leale Pr; oject Manager: Becca Groves Media Production Manager, Global Editions: M. Vikram Kumar Senior Production Controller, Global Editions: Trudy Kimber Operations Specialist: Carol Melville Creative Director: Blair Brown Senior Art Director: Janet Slowik Cover Designer: Lumina Datamatics Ltd. Vice President, Director of Digital Strategy & Assessment: Paul Gentile Manager of Learning Applications: Paul Deluca Digital Editor: Brian Surette Digital Studio Manager: Diane Lombardo Digital Studio Project Manager: Robin Lazrus Digital Studio Project Manager: Alana Coles Digital Studio Project Manager: Monique Lawrence Digital Studio Project Manager: Regina DaSilva Full-Service Project Management and Composition: Integra Software Services Pvt Ltd. Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsonglobaleditions.com © Pearson Education Limited 2016 The rights of Philip Kotler and Kevin Lane Keller to be identified as the authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. Authorized adaptation from the United States edition, entitled Marketing Management, 15th edition, ISBN 978-0-13-385646-0, by Philip Kotler and Kevin Lane Keller, published by Pearson Education, Inc. © 2016. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. ISBN 10: 1-292-09262-9 ISBN 13: 978-1-292-09262-1 (Print) ISBN 13: 978-1-292-09271-3 (PDF) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 14 13 12 11 Typeset in Minion Pro 9.5/11.5 by Integra Software Services Pvt Ltd. Printed and bound by Courier/Kendallville in the United States of America A01_KOTL2621_15_GE_FM.INDD 2 3/9/15 4:38 PM This book is dedicated to my wife and best friend, Nancy, with love. —PK This book is dedicated to my wife, Punam, and my two daughters, Carolyn and Allison, with much love and thanks. —KLK A01_KOTL2621_15_GE_FM.INDD 3 3/9/15 4:38 PM Philip Kotler About the Authors Philip Kotler is one of the world's leading authorities on marketing. He is the S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He received his master's degree at the University of Chicago and his Ph.D. at MIT, both in economics. He did postdoctoral work in mathematics at Harvard University and in behavioral science at the University of Chicago. Dr. Kotler is the coauthor of Principles of Marketing and Marketing: An Introduction. His Strategic Marketing for Nonprofit Organizations, now in its seventh edition, is the best seller in that specialized area. Dr. Kotler's other books include Marketing Models; The New Competition; Marketing Professional Services; Strategic Marketing for Educational Institutions; Marketing for Health Care Organizations; Marketing Congregations; High Visibility; Social Marketing; Marketing Places; The Marketing of Nations; Marketing for Hospitality and Tourism; Standing Room Only—Strategies for Marketing the Performing Arts; Museum Strategy and Marketing; Marketing Moves; Kotler on Marketing; Lateral Marketing; Winning at Innovation; Ten Deadly Marketing Sins; Chaotics; Marketing Your Way to Growth; Winning Global Markets; and Corporate Social Responsibility. In addition, he has published more than 150 articles in leading journals, including the Harvard Business Review, Sloan Management Review, Business Horizons, California Management Review, the Journal of Marketing, the Journal of Marketing Research, Management Science, the Journal of Business Strategy, and Futurist. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article published in the Journal of Marketing. Professor Kotler was the first recipient of the American Marketing Association's (AMA) Distinguished Marketing Educator Award (1985). The European Association of Marketing Consultants and Sales Trainers awarded him their Prize for Marketing Excellence. He was chosen as the Leader in Marketing Thought by the Academic Members of the AMA in a 1975 survey. He also received the 1978 Paul Converse Award of the AMA, honoring his original contribution to marketing. In 1995, the Sales and Marketing Executives International (SMEI) named him Marketer of the Year. In 2002, Professor Kotler received the Distinguished Educator Award from the Academy of Marketing Science. In 2013, he received the William L. Wilkie "Marketing for a Better World" Award and subsequently received the Sheth Foundation Medal for Exceptional Contribution to Marketing Scholarship and Practice. In 2014, he was inducted in the Marketing Hall of Fame. He has received honorary doctoral degrees from Stockholm University, the University of Zurich, Athens University of Economics and Business, DePaul University, the Cracow School of Business and Economics, Groupe H.E.C. in Paris, the Budapest School of Economic Science and Public Administration, the University of Economics and Business Administration in Vienna, and Plekhanov Russian Academy of Economics. Professor Kotler has been a consultant to many major U.S. and foreign companies, including IBM, General Electric, AT&T, Honeywell, Bank of America, Merck, SAS Airlines, Michelin, and others in the areas of marketing strategy and planning, marketing organization, and international marketing. He has been Chairman of the College of Marketing of the Institute of Management Sciences, a Director of the American Marketing Association, a Trustee of the Marketing Science Institute, a Director of the MAC Group, a member of the Yankelovich Advisory Board, and a member of the Copernicus Advisory Board. He was a member of the Board of Governors of the School of the Art Institute of Chicago and a member of the Advisory Board of the Drucker Foundation. He has traveled extensively throughout Europe, Asia, and South America, advising and lecturing to many companies about global marketing opportunities. 4 A01_KOTL2621_15_GE_FM.INDD 4 3/9/15 4:38 PM Kevin Lane Keller Kevin Lane Keller is the E. B. Osborn Professor of Marketing at the Tuck School of Business at Dartmouth College. Professor Keller has degrees from Cornell, Carnegie-Mellon, and Duke universities. At Dartmouth, he teaches MBA courses on marketing management and strategic brand management and lectures in executive programs on those topics. Previously, Professor Keller was on the faculty at Stanford University, where he also served as the head of the marketing group. Additionally, he has been on the faculty at the University of California at Berkeley and the University of North Carolina at Chapel Hill, has been a visiting professor at Duke University and the Australian Graduate School of Management, and has two years of industry experience as Marketing Consultant for Bank of America. Professor Keller's general area of expertise lies in marketing strategy and planning and branding. His specific research interest is in how understanding theories and concepts related to consumer behavior can improve marketing strategies. His research has been published in three of the major marketing journals: the Journal of Marketing, the Journal of Marketing Research, and the Journal of Consumer Research. He also has served on the Editorial Review Boards of those journals. With more than 90 published papers, his research has been widely cited and has received numerous awards. Actively involved with industry, he has worked on a host of different types of marketing projects. He has served as a long-term consultant and advisor to marketers for some of the world's most successful brands, including Accenture, American Express, Disney, Ford, Intel, Levi Strauss, Procter & Gamble, and Samsung. Additional brand consulting activities have been with other top companies such as Allstate, Beiersdorf (Nivea), BlueCross BlueShield, Campbell, Colgate, Eli Lilly, ExxonMobil, General Mills, GfK, Goodyear, Hasbro, Intuit, Johnson & Johnson, Kodak, L.L.Bean, Mayo Clinic, MTV, Nordstrom, Ocean Spray, Red Hat, SAB Miller, Shell Oil, Starbucks, Unilever, and Young & Rubicam. He has also served as an academic trustee for the Marketing Science Institute and served as their Executive Director from July 1, 2013, to July 1, 2015. A popular and highly sought-after speaker, he has made speeches and conducted marketing seminars to top executives in a variety of forums. Some of his senior management and marketing training clients have included include such diverse business organizations as Cisco, Coca-Cola, Deutsche Telekom, ExxonMobil, GE, Google, IBM, Macy's, Microsoft, Nestle, Novartis, Pepsico, SC Johnson and Wyeth. He has lectured all over the world, from Seoul to Johannesburg, from Sydney to Stockholm, and from Sao Paulo to Mumbai. He has served as keynote speaker at conferences with hundreds to thousands of participants. Professor Keller is currently conducting a variety of studies that address strategies to build, measure, and manage brand equity. His textbook on those subjects, Strategic Brand Management, in its fourth edition, has been adopted at top business schools and leading firms around the world and has been heralded as the "bible of branding." An avid sports, music, and film enthusiast, in his so-called spare time, he has helped to manage and market, as well as serve as executive producer for, one of Australia's great rock-and-roll treasures, The Church, as well as American power-pop legends Tommy Keene and Dwight Twilley. He also serves on the Board of Directors for The Doug Flutie, Jr. Foundation for Autism, the Lebanon Opera House, and the Montshire Museum of Science. Professor Keller lives in Etna, NH, with his wife, Punam (also a Tuck marketing professor), and his two daughters, Carolyn and Allison. 5 A01_KOTL2621_15_GE_FM.INDD 5 3/9/15 4:38 PM Brief Contents Preface 17 Part 1 Understanding Marketing Management Chapter 1 Chapter 2 Defining Marketing for the New Realities 25 Developing Marketing Strategies and Plans 57 Part 2 Capturing Marketing Insights Chapter 3 Chapter 4 Collecting Information and Forecasting Demand Conducting Marketing Research 121 Part 3 Connecting with Customers Chapter Chapter Chapter Chapter Creating Long-Term Loyalty Relationships Analyzing Consumer Markets 179 Analyzing Business Markets 211 Tapping into Global Markets 239 5 6 7 8 88 148 Building Strong Brands Chapter Chapter Chapter Chapter Identifying Market Segments and Targets 267 Crafting the Brand Positioning 297 Creating Brand Equity 321 Addressing Competition and Driving Growth 357 266 Part 5 Creating Value Chapter Chapter Chapter Chapter Setting Product Strategy 389 Designing and Managing Services 421 Introducing New Market Offerings 451 Developing Pricing Strategies and Programs 13 14 15 16 89 149 Part 4 9 10 11 12 24 388 483 Part 6 Delivering Value 514 Chapter 17 Chapter 18 Designing and Managing Integrated Marketing Channels Managing Retailing, Wholesaling, and Logistics 549 Part 7 Communicating Value 515 578 Chapter 19 Chapter 20 Designing and Managing Integrated Marketing Communications 579 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 607 Chapter 21 Managing Digital Communications: Online, Social Media, and Mobile 637 Chapter 22 Managing Personal Communications: Direct and Database Marketing and Personal Selling 657 6 A01_KOTL2621_15_GE_FM.INDD 6 Part 8 onducting Marketing Responsibly for Long-Term C Success 678 Chapter 23 Managing a Holistic Marketing Organization for the Long Run Appendix: Sonic Marketing Plan and Exercises Endnotes E1 Glossary G1 Name Index I1 Company, Brand, and Organization Index I5 Subject Index I18 679 A1 3/9/15 4:38 PM Contents Preface 17 Part 1 Chapter 1 Understanding Marketing Management 24 efining Marketing for the New D Realities 25 The Value of Marketing 25 Marketing Decision Making 25 Winning Marketing 26 The Scope of Marketing 27 What Is Marketing? 27 What Is Marketed? 27 Who Markets? 29 Core Marketing Concepts 31 Needs, Wants, and Demands 31 Target Markets, Positioning, and Segmentation 31 Offerings and Brands 32 Marketing Channels 32 Paid, Owned, and Earned Media 32 Impressions and Engagement 32 Value and Satisfaction 33 Supply Chain 33 Competition 34 Marketing Environment 34 The New Marketing Realities 35 Technology 35 Globalization 36 Social Responsibility 36 Marketing Insight Getting to Marketing 3.0 37 A Dramatically Changed Marketplace 38 New Consumer Capabilities 38 New Company Capabilities 39 Changing Channels 41 Heightened Competition 41 Marketing in Practice 41 Marketing Balance 41 Marketing Memo Reinventing Marketing at Coca-Cola 42 Marketing Accountability 42 Marketing in the Organization 42 Company Orientation toward the Marketplace 42 The Production Concept 42 The Product Concept 43 A01_KOTL2621_15_GE_FM.INDD 7 The Selling Concept 43 The Marketing Concept 43 The Holistic Marketing Concept Updating the Four Ps 47 43 Marketing Insight Understanding the 4 As of Marketing 48 Marketing Management Tasks 49 Developing Marketing Strategies and Plans 49 Capturing Marketing Insights 50 Connecting with Customers 50 Building Strong Brands 50 Marketing Memo Marketers' Frequently Asked Questions 50 Creating Value 51 Delivering Value 51 Communicating Value 51 Conducting Marketing Responsibly for Long-Term Success 51 Summary 51 Applications 52 Marketing Excellence Nike 52 Marketing Excellence Google Chapter 2 54 eveloping Marketing Strategies D and Plans 57 Marketing and Customer Value 57 The Value Delivery Process 57 The Value Chain 58 Core Competencies 58 The Central Role of Strategic Planning 59 Corporate and Division Strategic Planning 60 Marketing Memo What Does It Take to Be a Successful CMO? 61 Defining the Corporate Mission 61 Establishing Strategic Business Units 64 Assigning Resources to Each SBU 64 Assessing Growth Opportunities 64 Organization and Organizational Culture 68 Marketing Innovation 69 Marketing Insight Creating Innovative Marketing 69 Business Unit Strategic Planning The Business Mission 71 SWOT Analysis 71 70 7 3/9/15 4:38 PM Marketing Memo Checklist for Evaluating Strengths/Weaknesses Analysis 73 Goal Formulation 74 Strategic Formulation 74 Program Formulation and Implementation 75 The Economic Environment 99 The Sociocultural Environment 100 The Natural Environment 101 Marketing Insight Businesses Charting a New Direction 76 Feedback and Control 77 The Nature and Contents of a Marketing Plan 77 Part 2 Capturing Marketing Insights 88 Chapter 3 ollecting Information and C Forecasting Demand 89 Components of a Modern Marketing Information System 89 Internal Records 91 The Order-to-Payment Cycle 91 Sales Information Systems 91 Databases, Data Warehousing, and Data Mining 91 Marketing Insight Digging Into Big Data 92 Marketing Intelligence 92 The Marketing Intelligence System 92 Collecting Marketing Intelligence on the Internet 94 Communicating and Acting on Marketing Intelligence 94 Analyzing the Macroenvironment 94 Needs and Trends 95 Identifying the Major Forces 95 The Demographic Environment 96 The Technological Environment 104 The Political-Legal Environment 105 Forecasting and Demand Measurement 107 The Measures of Market Demand 108 A Vocabulary for Demand Measurement 109 Estimating Current Demand 111 Estimating Future Demand 113 Summary 115 Applications 116 The Role of Research 78 The Role of Relationships 78 From Marketing Plan to Marketing Action 79 Summary 79 Applications 80 Marketing Excellence Emirates Sample Marketing Plan: Pegasus Sports International 83 Marketing Insight The Green Marketing Revolution 103 Marketing Insight Watching Out for Big Brother 107 Marketing Memo Marketing Plan Criteria 77 Marketing Excellence Electrolux Marketing Memo Finding Gold at the Bottom of the Pyramid 97 Marketing Excellence Microsoft 116 80 Marketing Excellence Ferrero 117 81 Chapter 4 Conducting Marketing Research 121 The Scope of Marketing Research 121 Importance of Marketing Insights 121 Who Does Marketing Research? 122 Overcoming Barriers to the Use of Marketing Research 123 The Marketing Research Process 124 Step 1: Define the Problem, the Decision Alternatives, and the Research Objectives 124 Step 2: Develop the Research Plan 125 Marketing Memo Conducting Informative Focus Groups 127 Marketing Memo Marketing Questionnaire Dos And Don'ts 130 Marketing Insight Getting into the Heads of Consumers 131 Marketing Insight Understanding Brain Science 133 Step 3: Collect the Information 135 Step 4: Analyze the Information 135 Step 5: Present the Findings 135 Marketing Insight Bringing Marketing Research to Life with Personas 136 8 A01_KOTL2621_15_GE_FM.INDD 8 3/9/15 4:38 PM Step 6: Make the Decision 136 Measuring Marketing Productivity 137 Marketing Metrics 137 Marketing Memo Measuring Social Media ROI 139 Marketing-Mix Modeling 140 Marketing Dashboards 140 Summary 143 Applications 143 Marketing Excellence IDEO 144 Part 3 Connecting with Customers 148 Chapter 5 reating Long-Term Loyalty C Relationships 149 Analyzing Consumer Markets What Influences Consumer Behavior? Cultural Factors 179 Social Factors 181 Personal Factors 183 179 179 Marketing Memo The Average U.S. Consumer Quiz 184 Marketing Memo Designing Effective Marketing Dashboards 141 Marketing Excellence Intuit Chapter 6 146 Building Customer Value, Satisfaction, and Loyalty 149 Customer-Perceived Value 150 Total Customer Satisfaction 153 Monitoring Satisfaction 155 Product and Service Quality 156 Marketing Insight Net Promoter and Customer Satisfaction 157 Maximizing Customer Lifetime Value 158 Customer Profitability 159 Measuring Customer Lifetime Value 160 Attracting and Retaining Customers 160 Marketing Memo Calculating Customer Lifetime Value 161 Key Psychological Processes 187 Motivation 187 Perception 189 Marketing Memo The Power of Sensory Marketing 189 Learning 191 Emotions 192 Memory 193 The Buying Decision Process: The Five-Stage Model 194 Problem Recognition 195 Information Search 196 Evaluation of Alternatives 197 Purchase Decision 198 Postpurchase Behavior 200 Moderating Effects on Consumer Decision Making 202 Behavioral Decision Theory and Behavioral Economics 202 Decision Heuristics 203 Framing 204 Summary 205 Applications 205 Marketing Excellence Disney Marketing Excellence IKEA Chapter 7 Analyzing Business Markets 206 207 211 Marketing Insight The Behavioral Targeting Controversy 169 What is Organizational Buying? 211 The Business Market versus the Consumer Market 211 Buying Situations 214 Participants in the Business Buying Process 215 The Buying Center 216 Buying Center Influences 216 Targeting Firms and Buying Centers 217 Summary 174 Applications 174 Marketing Insight Big Sales to Small Businesses 218 Building Loyalty 164 Brand Communities 165 Win-Backs 168 Cultivating Customer Relationships 168 Customer Relationship Management 168 Marketing Excellence Audi Marketing Excellence Harley-Davidson 176 A01_KOTL2621_15_GE_FM.INDD 9 175 The Purchasing/Procurement Process Stages in the Buying Process 220 Problem Recognition 220 219 9 3/9/15 4:38 PM General Need Description and Product Specification 221 Supplier Search 221 Proposal Solicitation 223 Supplier Selection 223 Marketing Memo Developing Compelling Customer Value Propositions 224 Order-Routine Specification 226 Performance Review 226 Developing Effective Business-to-Business Marketing Programs 226 Communication and Branding Activities 226 Systems Buying and Selling 228 Marketing Memo Spreading the Word with Customer Reference Programs 229 Role of Services 229 Managing Business-to-Business Customer Relationships 230 The Benefits of Vertical Coordination 230 Marketing Insight Establishing Corporate Trust, Credibility, and Reputation 231 Risks and Opportunism in Business Relationships 231 Institutional and Government Markets Summary 234 Applications 235 233 Marketing Excellence Accenture 235 Marketing Excellence GE Chapter 8 10 236 Tapping into Global Markets 239 Competing on a Global Basis 239 Deciding Whether to Go Abroad 241 Deciding Which Markets to Enter 242 How Many Markets to Enter 242 Evaluating Potential Markets 243 Succeeding in Developing Markets 243 Deciding How to Enter the Market 248 Indirect and Direct Export 249 Licensing 249 Joint Ventures 250 Direct Investment 250 Acquisition 250 Deciding on the Marketing Program 251 Global Similarities and Differences 252 Marketing Adaptation 253 Global Product Strategies 254 A01_KOTL2621_15_GE_FM.INDD 10 Global Communication Strategies 257 Global Pricing Strategies 257 Global Distribution Strategies 259 Country-of-Origin Effects 260 Building Country Images 260 Consumer Perceptions of Country of Origin 261 Summary 262 Applications 263 Marketing Excellence Twitter 263 Marketing Excellence L'Oréal 264 Part 4 Building Strong Brands Chapter 9 266 I dentifying Market Segments and Targets 267 Bases for Segmenting Consumer Markets 268 Geographic Segmentation 268 Demographic Segmentation 271 Psychographic Segmentation 280 Behavioral Segmentation 281 How Should Business Markets Be Segmented? 283 Market Targeting 284 Effective Segmentation Criteria 285 Evaluating and Selecting the Market Segments 286 Marketing Insight Chasing the Long Tail 289 Marketing Memo Protecting Kids Online 291 Summary 291 Applications 292 Marketing Excellence HSBC 292 Marketing Excellence BMW 294 Chapter 10 Crafting the Brand Positioning 297 Developing a Brand Positioning 297 Understanding Positioning and Value Propositions 297 Choosing a Competitive Frame of Reference 298 Identifying Potential Points-of-Difference and Points-of-Parity 300 3/9/15 4:38 PM Choosing Specific POPs and PODs 304 Brand Mantras 307 Establishing a Brand Positioning 309 Marketing Memo Constructing a Brand Positioning Bull's-eye 309 Alternative Approaches to Positioning 313 Brand Narratives and Storytelling 313 Cultural Branding 314 Positioning and Branding for A Small Business 314 Summary 317 Applications 317 Marketing Excellence Nespresso 318 Marketing Excellence Philips 319 Chapter 11 Creating Brand Equity 321 How Does Branding Work? 321 The Role of Brands 322 The Scope of Branding 323 Defining Brand Equity 324 Brand Equity Models 326 Marketing Insight Brand Bubble Trouble 328 Building Brand Equity 331 Marketing Memo The Marketing Magic of Characters 332 Designing Holistic Marketing Activities 332 Leveraging Secondary Associations 334 Internal Branding 336 Measuring Brand Equity 337 Marketing Insight The Brand Value Chain 337 Marketing Insight What Is a Brand Worth? 339 Managing Brand Equity 340 Brand Reinforcement 340 Brand Revitalization 341 Devising a Branding Strategy 343 Branding Decisions 344 Brand Portfolios 345 Brand Extensions 347 Customer Equity 350 Marketing Memo Twenty-First-Century Branding 351 A01_KOTL2621_15_GE_FM.INDD 11 Summary 352 Applications 352 Marketing Excellence McDonald's 353 Marketing Excellence Procter & Gamble 354 Chapter 12 Addressing Competition and Driving Growth 357 Growth 357 Growth Strategies 357 Growing the Core 358 Competitive Strategies for Market Leaders 359 Expanding Total Market Demand 360 Protecting Market Share 361 Increasing Market Share 363 Other Competitive Strategies 364 Market-Challenger Strategies 364 Market-Follower Strategies 366 marketing Insight The Costs and Benefits of Fast Fashion 367 Market-Nicher Strategies 368 Marketing Memo Niche Specialist Roles 370 Product Life-Cycle Marketing Strategies 370 Product Life Cycles 370 Style, Fashion, and Fad Life Cycles 371 Marketing Strategies: Introduction Stage and the Pioneer Advantage 373 Marketing Insight Understanding Double Jeopardy 374 Marketing Strategies: Growth Stage 375 Marketing Strategies: Maturity Stage 376 Marketing Strategies: Decline Stage 377 Marketing Memo Managing a Marketing Crisis 378 Evidence for the Product Life-Cycle Concept 380 Critique of the Product Life-Cycle Concept 381 Market Evolution 381 Marketing in a Slow-Growth Economy 381 Explore the Upside of Increasing Investment 381 Get Closer to Customers 382 Review Budget Allocations 382 Put Forth the Most Compelling Value Proposition 382 Fine-Tune Brand and Product Offerings 383 11 3/9/15 4:38 PM Summary 384 Applications 384 Marketing Excellence Nivea 416 Marketing Excellence Samsung 385 Marketing Excellence Toyota 418 Marketing Excellence SABIC 386 Part 5 Creating Value 388 Chapter 13 Setting Product Strategy 389 Product Characteristics and Classifications 389 Product Levels: The Customer-Value Hierarchy 389 Product Classifications 391 Differentiation 392 Product Differentiation 393 Services Differentiation 394 Design 396 Design Leaders 396 Power of Design 397 Approaches to Design 397 Luxury Products 398 Characterizing Luxury Brands 398 Growing Luxury Brands 398 Marketing Luxury Brands 399 Environmental Issues 400 Marketing Memo A Sip or A Gulp: Environmental Concerns in the Water Industry 401 Product and Brand Relationships 401 The Product Hierarchy 402 Product Systems and Mixes 402 Product Line Analysis 403 Product Line Length 404 Marketing Insight When Less Is More 405 Product Mix Pricing 408 Co-Branding and Ingredient Branding 409 Marketing Memo Product-Bundle Pricing Considerations 410 12 Packaging, Labeling, Warranties, and Guarantees 412 Packaging 412 Labeling 414 Warranties and Guarantees 415 Summary 415 Applications 416 A01_KOTL2621_15_GE_FM.INDD 12 Chapter 14 Designing and Managing Services 421 The Nature of Services 421 Service Industries Are Everywhere 421 Categories of Service Mix 422 Distinctive Characteristics of Services 424 The New Services Realities 428 A Shifting Customer Relationship 428 Marketing Memo Lights! Cameras! Customer Service Disasters! 430 Achieving Excellence In Services Marketing 431 Marketing Excellence 431 Technology and Service Delivery 432 Best Practices of Top Service Companies 433 Differentiating Services 435 Marketing Insight Improving Company Call Centers 436 Managing Service Quality 439 Managing Customer Expectations 440 Marketing Memo Recommendations for Improving Service Quality 441 Incorporating Self-Service Technologies (SSTS) 443 Managing Product-Support Services 444 Identifying and Satisfying Customer Needs 444 Postsale Service Strategy 445 Summary 445 Applications 446 Marketing Excellence Club Med 446 Marketing Excellence Parkway Group Hotels 448 Chapter 15 Introducing New Market Offerings 451 New-Product Options 451 Make or Buy 451 Types of New Products 452 3/9/15 4:38 PM Challenges in New-Product Development 453 The Innovation Imperative 454 New-Product Success 454 New-Product Failure 455 Organizational Arrangements 456 Budgeting for New-Product Development 456 Organizing New-Product Development 457 Managing the Development Process: Ideas 460 Generating Ideas 460 Marketing Memo Ten Ways to Find Great New-Product Ideas 460 Marketing Insight P&G'S Connect + Develop Approach to Innovation 461 Marketing Memo Seven Ways to Draw New Ideas from Your Customers 462 Marketing Memo How to Run a Successful Brainstorming Session 464 Using Idea Screening 465 Managing the Development Process: Concept to Strategy 467 Concept Development and Testing 467 Marketing Strategy Development 470 Business Analysis 470 Managing the Development Process: Development to Commercialization 472 Product Development 472 Market Testing 473 Commercialization 475 The Consumer-Adoption Process 476 Stages in the Adoption Process 476 Factors Influencing the Adoption Process 476 Summary 478 Applications 479 Marketing Excellence Apple 479 Chapter 16 Developing Pricing Strategies 483 Understanding Pricing 483 Pricing in a Digital World 484 A Changing Pricing Environment 484 Marketing Insight Giving It All Away How Companies Price 486 Consumer Psychology and Pricing 487 A01_KOTL2621_15_GE_FM.INDD 13 485 489 Marketing Insight Trading Up, Down, and Over 490 Step 2: Determining Demand 492 Step 3: Estimating Costs 494 Marketing Memo How to Cut Costs 496 Step 4: Analyzing Competitors' Costs, Prices, and Offers 496 Step 5: Selecting a Pricing Method 497 Step 6: Selecting the Final Price 502 Marketing Insight Stealth Price Increases 503 Adapting the Price 504 Geographical Pricing (Cash, Countertrade, Barter) 504 Price Discounts and Allowances 504 Promotional Pricing 505 Differentiated Pricing 506 Initiating and Responding to Price Changes 507 Initiating Price Cuts 507 Initiating Price Increases 508 Anticipating Competitive Responses 508 Responding to Competitors' Price Changes 509 Summary 510 Applications 510 Marketing Excellence eBay 511 Marketing Excellence Air Arabia 512 Part 6 Delivering Value 514 Chapter 17 Designing and Managing Integrated Marketing Channels Marketing Excellence Salesforce.com 481 and Programs Setting the Price 489 Step 1: Selecting the Pricing Objective 515 Marketing Channels and Value Networks 516 The Importance of Channels 516 Multichannel Marketing 516 Integrating Multichannel Marketing Systems 517 Value Networks 519 The Digital Channels Revolution 520 The Role of Marketing Channels 521 Channel Functions and Flows 522 Channel Levels 523 Service Sector Channels 524 13 3/9/15 4:38 PM Channel-Design Decisions 525 Analyzing Customer Needs and Wants 525 Marketing Insight Understanding the Showrooming Phenomena 525 Establishing Objectives and Constraints 526 Identifying Major Channel Alternatives 527 Evaluating Major Channel Alternatives 529 Channel-Management Decisions 530 Selecting Channel Members 530 Training and Motivating Channel Members 530 Evaluating Channel Members 531 Modifying Channel Design and Arrangements 532 Channel Modification Decisions 532 Global Channel Considerations 532 Channel Integration and Systems 534 Vertical Marketing Systems 534 Horizontal Marketing Systems 536 E-Commerce Marketing Practices 536 Pure-Click Companies 536 Brick-and-Click Companies 537 M-Commerce Marketing Practices 538 Changes in Customer and Company Behavior 539 M-Commerce Marketing Practices 539 Privacy 540 Conflict, Cooperation, and Competition 540 Types of Conflict and Competition 541 Causes of Channel Conflict 541 Managing Channel Conflict 541 Dilution and Cannibalization 543 Legal and Ethical Issues in Channel Relations 543 Summary 543 Applications 544 Marketing Excellence Amazon.com 544 Marketing Excellence Tesco 546 Chapter 18 Managing Retailing,Wholesaling, and Logistics 549 Retailing 549 Types of Retailers 550 Marketing Memo Innovative Retail Organizations 551 The Modern Retail Marketing Environment 554 Marketing Insight The Growth of Shopper Marketing 556 Marketing Decisions 557 Marketing Memo Helping Stores to Sell 562 Private Labels 563 Role of Private Labels 564 Private-Label Success Factors 564 Marketing Insight Manufacturer's Response to the Private-Label Threat 565 Wholesaling 565 Trends in Wholesaling 567 Market Logistics 567 Integrated Logistics Systems 568 Market-Logistics Objectives 569 Market-Logistics Decisions 570 Summary 573 Applications 574 Marketing Excellence Zara 574 Marketing Excellence Best Buy Part 7 Communicating Value 576 578 Chapter 19 Designing and Managing Integrated Marketing Communications 579 The Role of Marketing Communications 580 The Changing Marketing Communications Environment 580 Marketing Insight Don't Touch That Remote 580 Marketing Communications Mix 581 How Do Marketing Communications Work? 583 The Communications Process Models 584 Developing Effective Communications 586 Identify the Target Audience 586 Set the Communications Objectives 587 Design the Communications 587 Select the Communications Channels 590 Marketing Memo Celebrity Endorsements as a Message Strategy 591 Marketing Insight Playing Tricks to Build a Brand 593 14 A01_KOTL2621_15_GE_FM.INDD 14 3/9/15 4:38 PM Establish the Total Marketing Communications Budget 594 Selecting the Marketing Communications Mix 595 Characteristics of the Marketing Communications Mix 596 Factors in Setting the Marketing Communications Mix 597 Measuring Communication Results 599 Managing the Integrated Marketing Communications Process 599 Coordinating Media 601 Implementing IMC 601 Marketing Memo Measuring High-Performance Sponsorship Programs 628 Creating Experiences 628 Public Relations 629 Marketing Public Relations 629 Major Decisions in Marketing PR 630 Summary 631 Applications 632 Marketing Excellence Evian 632 Marketing Excellence Gillette 634 Marketing Memo How Integrated Is Your IMC Program? 601 Summary 602 Applications 603 Online, Social Media, and Mobile 637 Marketing Excellence Red Bull 603 Marketing Excellence L'Oreal Chapter 21 Managing Digital Communications: 604 Chapter 20 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 607 Developing and Managing an Advertising Program 608 Setting the Advertising Objectives 609 Deciding on the Advertising Budget 609 Developing the Advertising Campaign 610 Marketing Memo How to Maximize the Marketing Value of E-mails 642 Social Media 642 Social Media Platforms 643 Using Social Media 644 Word of Mouth 645 Forms of Word of Mouth 646 Creating Word-of-Mouth Buzz 646 Marketing Memo How to Start a Buzz Fire 648 Marketing Memo Print Ad Evaluation Criteria 612 Marketing Insight Off-Air Ad Battles Online Marketing 637 Advantages and Disadvantages of Online Marketing Communications 638 Online Marketing Communication Options 639 614 Choosing Media 615 Marketing Insight Playing Games with Brands 618 Marketing Memo Winning The Super Bowl of Advertising 619 Evaluating Advertising Effectiveness 621 Sales Promotion 622 Advertising Versus Promotion 622 Major Decisions 623 Events and Experiences 626 Events Objectives 626 Major Sponsorship Decisions 627 Marketing Insight Tracking Online Buzz 649 Measuring the Effects of Word of Mouth 650 Mobile Marketing 650 The Scope of Mobile Marketing 650 Developing Effective Mobile Marketing Programs 651 Mobile Marketing across Markets 651 Summary 652 Applications 653 Marketing Excellence Facebook 653 Marketing Excellence Unilever (Axe and Dove) 654 15 A01_KOTL2621_15_GE_FM.INDD 15 3/9/15 4:38 PM Chapter 22 Managing Personal Communications: Direct and Database Marketing and Personal Selling 657 Direct Marketing 657 The Benefits of Direct Marketing 658 Direct Mail 659 Catalog Marketing 660 Telemarketing 660 Other Media for Direct-Response Marketing 661 Public and Ethical Issues in Direct Marketing 661 Customer Databases and Database Marketing 662 Customer Databases 662 Data Warehouses and Data Mining 662 The Downside of Database Marketing 664 Designing the Sales Force 664 Sales Force Objectives and Strategy 666 Sales Force Structure 667 Marketing Insight Major Account Management 668 Sales Force Size 668 Sales Force Compensation 668 Managing the Sales Force 669 Recruiting and Selecting Representatives 669 Training and Supervising Sales Representatives 669 Sales Rep Productivity 670 Motivating Sales Representatives 670 Evaluating Sales Representatives 671 Principles of Personal Selling 673 The Six Steps 673 Relationship Marketing 674 Summary 675 Applications 675 Organizing the Marketing Department 682 Relationships with Other Departments 684 Building a Creative Marketing Organization 684 Marketing Insight The Marketing CEO 685 Socially Responsible Marketing 685 Corporate Social Responsibility 686 Marketing Insight The Rise of Organic 689 Socially Responsible Business Models 690 Cause-Related Marketing 690 Marketing Memo Making a Difference: Top 10 Tips for Cause Branding 693 Social Marketing 694 Marketing Implementation and Control Marketing Implementation 697 Marketing Control 697 The Future of Marketing 702 697 Marketing Memo Major Marketing Weaknesses 703 Summary 705 Applications 705 Marketing Excellence Starbucks 706 Marketing Excellence Virgin Group 707 Appendix Tools for Marketing Control Marketing Excellence Progressive 676 Marketing Excellence Victoria's Secret 677 Part 8 Marketing Memo Characteristics of Company Departments That Are Truly Customer Driven 681 Conducting Marketing Responsibly for Long-term Success 678 709 Appendix: Sonic Marketing Plan and Exercises A1 Endnotes E1 Glossary G1 Name Index I1 Company, Brand, and Organization Index I5 Subject Index I18 Chapter 23 Managing a Holistic Marketing Organization for the Long Run 16 679 Trends in Marketing Practices 679 Internal Marketing 680 A01_KOTL2621_15_GE_FM.INDD 16 3/9/15 4:38 PM Preface What's New in the 15th Edition The 15th edition of Marketing Management is a landmark entry in the long successful history of the market leader. With the 15th edition, great care was taken to provide an introductory guide to marketing management that truly reflects the modern realities of marketing. In doing so, classic concepts, guidelines, and examples were retained while new ones were added as appropriate. Three broad forces—globalization, technology, and social responsibility—were identified as critical to the success of modern marketing programs. These three topics are evident all through the text. As has been the case for a number of editions now, the overriding goal of the revision for the 15th e dition of Marketing Management was to create as comprehensive, current, and engaging a MBA marketing textbook as possible. Where appropriate, new material was added, old material was updated, and no longer relevant or necessary material was deleted. Even though marketing is changing in many significant ways these days, many core elements remain, and we feel strongly that a balanced approach of classic and contemporary approaches and perspectives is the way to go. Marketing Management, 15th edition, allows those instructors who have used the 14th edition to build on what they have learned and done while at the same time offering a text that is unsurpassed in breadth, depth, and relevance for students experiencing Marketing Management for the first time. The successful across-chapter reorganization into eight parts that began with the 12th edition of Marketing Management has largely been preserved, although several adjustments have been made to improve student understanding, as described below. Many of the favorably received within-chapter features that have been introduced through the years, such as topical chapter openers, in-text boxes highlighting noteworthy companies or issues, and the Marketing Insight and Marketing Memo boxes that provide in-depth conceptual and practical commentary, have been retained. Significant changes to the 15th edition include: • Brand-new opening vignettes for each chapter set the stage for the chapter material to follow. By covering topical brands or companies, the vignettes are great classroom discussion starters. • Almost half of the in-text boxes are new. These boxes provide vivid illustrations of chapter concepts using actual companies and situations. The boxes cover a variety of products, services, and markets, and many have accompanying illustrations in the form of ads or product shots. • Each end-of-chapter section now includes two expanded Marketing Excellence mini-cases highlighting innovative, insightful marketing accomplishments by leading organizations. Each case includes questions that promote classroom discussion and student analysis. • The global chapter (8, previously Chapter 21) has been moved into Part 3 on Connecting with Customers and the new products chapter (15, previously Chapter 20) has been moved into Part 5 on Creating Value. The positioning and brand chapters (10 and 11) have been switched to allow for the conventional STP sequencing. These moves permit richer coverage of the topics and better align with many instructors' teaching strategy. • A new chapter (21) titled Managing Digital Communications: Online, Social Media, and Mobile has been added to better highlight that important topic. Significant attention is paid throughout the text to what a new section in Chapter 1 calls "the digital revolution." • The concluding chapter (23) has been retitled "Managing a Holistic Marketing Organization for the Long Run" and addresses corporate social responsibility, business ethics, and sustainability, among other topics. • Chapter 12 (previously Chapter 11) has been retitled "Addressing Competition and Driving Growth" to acknowledge the importance of growth to an organization. What Is Marketing Management All About? Marketing Management is the leading marketing text because its content and organization consistently reflect changes in marketing theory and practice. The very first edition of Marketing Management, published in 1967, introduced the concept that companies must be customer and market driven. But there was little mention of A01_KOTL2621_15_GE_FM.INDD 17 17 3/9/15 4:38 PM what have now become fundamental topics such as segmentation, targeting, and positioning. Concepts such as brand equity, customer value analysis, database marketing, e-commerce, value networks, hybrid channels, supply chain management, and integrated marketing communications were not even part of the marketing vocabulary then. Marketing Management continues to reflect the changes in the marketing discipline over the past almost 50 years. Firms now sell goods and services through a variety of direct and indirect channels. Mass advertising is not nearly as effective as it was, so marketers are exploring new forms of communication, such as experiential, entertainment, and viral marketing. Customers are telling companies what types of product or services they want and when, where, and how they want to buy them. They are increasingly reporting to other consumers what they think of specific companies and products—using e-mail, blogs, podcasts, and other digital media to do so. Company messages are becoming a smaller fraction of the total "conversation" about products and services. In response, companies have shifted gears from managing product portfolios to managing customer portfolios, compiling databases on individual customers so they can understand them better and construct individualized offerings and messages. They are doing less product and service standardization and more niching and customization. They are replacing monologues with customer dialogues. They are improving their methods of measuring customer profitability and customer lifetime value. They are intent on measuring the return on their marketing investment and its impact on shareholder value. They are also concerned with the ethical and social implications of their marketing decisions. As companies change, so does their marketing organization. Marketing is no longer a company department charged with a limited number of tasks—it is a company-wide undertaking. It drives the company's vision, mission, and strategic planning. Marketing includes decisions like whom the company wants as its customers, which of their needs to satisfy, what products and services to offer, what prices to set, what communications to send and receive, what channels of distribution to use, and what partnerships to develop. Marketing succeeds only when all departments work together to achieve goals: when engineering designs the right products; finance furnishes the required funds; purchasing buys high-quality materials; production makes high-quality products on time; and accounting measures the profitability of different customers, products, and areas. To address all these different shifts, good marketers are practicing holistic marketing. Holistic marketing is the development, design, and implementation of marketing programs, processes, and activities that recognize the breadth and interdependencies of today's marketing environment. Four key dimensions of holistic marketing are: 1. Internal marketing—ensuring everyone in the organization embraces appropriate marketing principles, especially senior management. 2. Integrated marketing—ensuring that multiple means of creating, delivering, and communicating value are employed and combined in the best way. 3. Relationship marketing—having rich, multifaceted relationships with customers, channel members, and other marketing partners. 4. Performance marketing—understanding returns to the business from marketing activities and programs, as well as addressing broader concerns and their legal, ethical, social, and environmental effects. These four dimensions are woven throughout the book and at times spelled out explicitly. The text is organized to specifically address the following eight tasks that constitute modern marketing management in the 21st century: 1. Developing marketing strategies and plans 2. Capturing marketing insights 3. Connecting with customers 4. Building strong brands 5. Creating value 6. Delivering value 7. Communicating value 18 A01_KOTL2621_15_GE_FM.INDD 18 8. Conducting marketing responsibly for long-term success 3/9/15 4:38 PM What Makes Marketing Management the Marketing Leader? Marketing is of interest to everyone, whether they are marketing goods, services, properties, persons, places, events, information, ideas, or organizations. As it has maintained its respected position among students, educators, and businesspeople, Marketing Management has kept up to date and contemporary. Students (and instructors) feel that the book is talking directly to them in terms of both content and delivery. Marketing Management owes its marketplace success to its ability to maximize three dimensions that characterize the best marketing texts—depth, breadth, and relevance—as measured by the following criteria: • Depth. Does the book have solid academic grounding? Does it contain important theoretical concepts, models, and frameworks? Does it provide conceptual guidance to solve practical problems? • Breadth. Does the book cover all the right topics? Does it provide the proper amount of emphasis on those topics? • Relevance. Does the book engage the reader? Is it interesting to read? Does it have lots of compelling examples? The 15th edition builds on the fundamental strengths of past editions that collectively distinguish it from all other marketing management texts: • Managerial orientation. The book focuses on the major decisions that marketing managers and top management face in their efforts to harmonize the organization's objectives, capabilities, and resources with marketplace needs and opportunities. • Analytical approach. Marketing Management presents conceptual tools and frameworks for analyzing recurring problems in marketing management. Cases and examples illustrate effective marketing principles, strategies, and practices. • Multidisciplinary perspective. The book draws on the rich findings of various scientific disciplines— economics, behavioral science, management theory, and mathematics—for fundamental concepts and tools directly applicable to marketing challenges. • Universal applications. The book applies strategic thinking to the complete spectrum of marketing: products, services, persons, places, information, ideas, and causes; consumer and business markets; profit and nonprofit organizations; domestic and foreign companies; small and large firms; manufacturing and intermediary businesses; and low- and high-tech industries. • Comprehensive and balanced coverage. Marketing Management covers all the topics an informed marketing manager needs to understand to execute strategic, tactical, and administrative marketing. Instructor Resources At the Instructor Resource Center, www.pearsonglobaleditions.com/kotler, instructors can easily register to gain access to a variety of instructor resources available with this text in downloadable format. If assistance is needed, our dedicated technical support team is ready to help with the media supplements that accompany this text. Visit http://247.pearsoned.com for answers to frequently asked questions and toll-free user support phone numbers. The following supplements are available with this text: • • • • • Instructor's Resource Manual Test Bank TestGen® Computerized Test Bank PowerPoint Presentation Image Library 19 A01_KOTL2621_15_GE_FM.INDD 19 3/9/15 4:38 PM Acknowledgments T he 15th edition bears the imprint of many people. From Phil Kotler: My colleagues and associates at the Kellogg School of Management at Northwestern University continue to have an important impact on my thinking: Nidhi Agrawal, Eric T. Anderson, James C. Anderson, Robert C. Blattberg, Miguel C. Brendl, Bobby J. Calder, Gregory S. Carpenter, Alex Chernev, Anne T. Coughlan, David Gal, Kent Grayson, Karsten Hansen, Dipak C. Jain, Lakshman Krishnamurti, Angela Lee, Vincent Nijs, Yi Qian, Mohanbir S. Sawhney, Louis W. Stern, Brian Sternthal, Alice M. Tybout, and Andris A. Zoltners. I also want to thank the S. C. Johnson Family for the generous support of my chair at the Kellogg School. Completing the Northwestern team are my former Deans, Donald P. Jacobs and Dipak Jain and my current Dean, Sally Blount, for providing generous support for my research and writing. Several former faculty members of the marketing department had a great influence on my thinking: Steuart Henderson Britt, Richard M. Clewett, Ralph Westfall, Harper W. Boyd, Sidney J. Levy, John Sherry, and John Hauser. I also want to acknowledge Gary Armstrong for our work on Principles of Marketing. I am indebted to the following coauthors of international editions of Marketing Management and Principles of Marketing who have taught me a great deal as we worked t ogether to adapt marketing management thinking to the problems of different nations: • • • • • • • • • Swee-Hoon Ang and Siew-Meng Leong, National University of Singapore Chin-Tiong Tan, Singapore Management University Friedhelm W. Bliemel, Universitat Kaiserslautern (Germany) Linden Brown; Stewart Adam, Deakin University; Suzan Burton: Macquarie Graduate School of Management, and Sara Denize, University of Western Sydney (Australia) Bernard Dubois, Groupe HEC School of Management (France) and Delphine Manceau, ESCP-EAP European School of Management John Saunders, Loughborough University and Veronica Wong, Warwick University (United Kingdom) Jacob Hornick, Tel Aviv University (Israel) Walter Giorgio Scott, Universita Cattolica del Sacro Cuore (Italy) Peggy Cunningham, Queen's University (Canada) I also want to acknowledge how much I have learned from working with coauthors on more specialized marketing subjects: Alan Andreasen, Christer Asplund, Paul N. Bloom, John Bowen, Roberta C. Clarke, Karen Fox, David Gertner, Michael Hamlin, Thomas Hayes, Donald Haider, Hooi Den Hua, Dipak Jain, Somkid Jatusripitak, Hermawan Kartajaya, Milton Kotler, Neil Kotler, Nancy Lee, Sandra Liu, Suvit Maesincee, James Maken, Waldemar Pfoertsch, Gustave Rath, Irving Rein, Eduardo Roberto, Joanne Scheff, Norman Shawchuck, Joel Shalowitz, Ben Shields, Francois Simon, Robert Stevens, Martin Stoller, Fernando Trias de Bes, Bruce Wrenn, and David Young. My overriding debt continues to be to my lovely wife, Nancy, who provided me with the time, support, and inspiration needed to prepare this edition. It is truly our book. From Kevin Lane Keller: I continually benefit from the wisdom of my marketing colleagues at Tuck— Punam Keller, Scott Neslin, Kusum Ailawadi, Praveen Kopalle, Peter Golder, Ellie Kyung, Yaniv Dover, Eesha Sharma, Fred Webster, Gert Assmus, and John Farley—as well as the leadership of Dean Paul Danos. I also gratefully acknowledge the invaluable research and teaching contributions from my faculty colleagues and collaborators through the years. I owe a considerable debt of gratitude to Duke University's Jim Bettman and Rick Staelin for helping to get my academic career started and serving as positive role models to this day. I am also appreciative of all that I have learned from working with many industry executives who have generously shared their insights and experiences. With this 15th edition, I received some extremely helpful research assistance from a talented group of Dartmouth undergraduate RAs—Caroline Buck, James Carlson, Ryan Galloway, Jack Heise, Jeff Keller, Jill Lyon, Richard Newsome-White, Rahul Raina, and Cameron Woodworth, —who were as accurate, thorough, dependable, and cheerful as you could possibly imagine. Alison Pearson provided superb administrative support. Finally, I give special thanks to Punam, my wife, and Carolyn and Allison, my daughters, who make it all happen and make it all worthwhile. 20 A01_KOTL2621_15_GE_FM.INDD 20 3/9/15 4:38 PM We are indebted to the following colleagues at other universities who reviewed this new edition: • • • • • • • • • • • • • • Jennifer Barr, Richard Stockton College Lawrence Kenneth Duke, Drexel University LeBow College of Business Barbara S. Faries, Mission College, Santa Clara, CA William E. Fillner, Hiram College Frank J. Franzak,Virginia Commonwealth University Robert Galka, De Paul University Albert N. Greco, Fordham University John A. Hobbs, University of Oklahoma Brian Larson,Widener University Anthony Racka, Oakland Community College, Auburn Hills, MI Jamie Ressler, Palm Beach Atlantic University James E. Shapiro, University of New Haven George David Shows, Louisiana Tech University We would also like to thank colleagues who have reviewed previous editions of Marketing Management: Homero Aguirre, TAMIU Alan Au, University of Hong Kong Hiram Barksdale, University of Georgia Boris Becker, Oregon State University Sandy Becker, Rutgers University Parimal Bhagat, Indiana University of Pennsylvania Sunil Bhatla, Case Western Reserve University Michael Bruce, Anderson University Frederic Brunel, Boston University John Burnett, University of Denver Lisa Cain, University of California at Berkeley and Mills College Surjit Chhabra, DePaul University Yun Chu, Frostburg State University Dennis Clayson, University of Northern Iowa Bob Cline, University of Iowa Brent Cunningham, Jacksonville State University Hugh Daubek, Purdue University John Deighton, University of Chicago Kathleen Dominick, Rider University Tad Duffy, Golden Gate University Mohan Dutta, Purdue University Barbara Dyer, University of North Carolina at Greensboro Jackkie Eastman,Valdosta State University Steve Edison, University of Arkansas–Little Rock Alton Erdem, University of Houston at Clear Lake Elizabeth Evans, Concordia University Barb Finer, Suffolk University Chic Fojtik, Pepperdine University Renee Foster, Delta State University Ralph Gaedeke, California State University, Sacramento Robert Galka, De Paul University Betsy Gelb, University of Houston at Clear Lake Dennis Gensch, University of Wisconsin, Milwaukee David Georgoff, Florida Atlantic University Rashi Glazer, University of California, Berkeley Bill Gray, Keller Graduate School of Management Barbara Gross, California State University at Northridge Lewis Hershey, Fayetteville State University Thomas Hewett, Kaplan University Mary Higby, University of Detroit–Mercy Arun Jain, State University of New York, Buffalo Michelle Kunz, Morehead State University Eric Langer, Johns Hopkins University Even Lanseng, Norwegian School of Management Ron Lennon, Barry University Michael Lodato, California Lutheran University Henry Loehr, Pfeiffer University–Charlotte Bart Macchiette, Plymouth University Susan Mann, Bluefield State College Charles Martin,Wichita State University H. Lee Matthews, Ohio State University 21 A01_KOTL2621_15_GE_FM.INDD 21 3/9/15 4:38 PM Paul McDevitt, University of Illinois at Springfield Mary Ann McGrath, Loyola University, Chicago John McKeever, University of Houston Kenneth P. Mead, Central Connecticut State University Henry Metzner, University of Missouri, Rolla Robert Mika, Monmouth University Mark Mitchell, Coastal Carolina University Francis Mulhern, Northwestern University Pat Murphy, University of Notre Dame Jim Murrow, Drury College Zhou Nan, University of Hong Kong Nicholas Nugent, Boston College Nnamdi Osakwe, Bryant & Stratton College Donald Outland, University of Texas, Austin Albert Page, University of Illinois, Chicago Young-Hoon Park, Cornell University Koen Pauwels, Dartmouth College Lisa Klein Pearo, Cornell University Keith Penney, Webster University Patricia Perry, University of Alabama Mike Powell, North Georgia College and State University Hank Pruden, Golden Gate University Christopher Puto, Arizona State University Abe Qstin, Lakeland University Lopo Rego, University of Iowa Richard Rexeisen, University of St. Thomas William Rice, California State University–Fresno A warm welcome and many thanks to the following people who contributed to the global case studies developed for the 14th edition: Malcolm Goodman, Durham University Torben Hansen, Copenhagen Business School Abraham Koshy, Sanjeev Tripathi, and Abhishek, Indian Institute of Management Ahmedabad Peter Ling, Edith Cowan University Marianne Marando, Seneca College Lu Taihong, Sun Yat-Sen University Mairead Brady, Trinity College John R. Brooks, Jr., Houston Baptist University Sylvain Charlebois, University of Regina Geoffrey da Silva, Temasek Business School Scott D. Roberts, Northern Arizona University Bill Robinson, Purdue University Robert Roe, University of Wyoming Jan Napoleon Saykiewicz, Duquesne University Larry Schramm, Oakland University Alex Sharland, Hofstra University Dean Siewers, Rochester Institute of Technology Anusorn Singhapakdi, Old Dominion University Jim Skertich, Upper Iowa University Allen Smith, Florida Atlantic University Joe Spencer, Anderson University Mark Spriggs, University of St. Thomas Nancy Stephens, Arizona State University Michael Swenso, Brigham Young University, Marriott School Thomas Tellefsen, The College of Staten Island–CUNY Daniel Turner, University of Washington Sean Valentine, University of Wyoming Ann Veeck, West Michigan University R.Venkatesh, University of Pittsburgh Edward Volchok, Stevens Institute of Management D. J. Wasmer, St. Mary-of-the-Woods College Zac Williams, Mississippi State University Greg Wood, Canisius College Kevin Zeng Zhou, University of Hong Kong 22 A01_KOTL2621_15_GE_FM.INDD 22 3/9/15 4:38 PM The talented staff at Pearson deserves praise for their role in shaping the 15th edition. We want to thank our editor, Mark Gaffney, for his contribution to this revision, as well as our program manager, Jennifer M. Collins. We also want to thank our project manager, Becca Groves, for making sure everything was moving along and falling into place in such a personable way, both with regard to the book and supplements. We benefited greatly from the superb editorial help of Elisa Adams, who lent her considerable talents as a development editor to this edition. We also thank our marketing managers, Anne Fahlgren and Lenny Ann Raper. Certainly, we are grateful for the editorial support provided by Daniel Petrino. Lastly, we'd like to thank the following MyLab contributors: Susan C. Schanne, School of Management, Eastern Michigan University, and Barbara S. Faries, MBA, Mission College, Santa Clara. Philip Kotler S. C. Johnson Distinguished Professor of International Marketing, Kellogg School of Management, Northwestern University, Evanston, Illinois Kevin Lane Keller E. B. Osborn Professor of Marketing, Tuck School of Business, Dartmouth College, Hanover, New Hampshire Pearson would like to thank and acknowledge the following people for their work on the Global Edition: Contributors Andrea Rumler, Berlin School of Economics and Law, Germany Abderrahman Hassi, Al Akhawayn University, Morocco Afifa Bouguerra, University of Toulouse, France Bouchra Hamelin, Al Akhawayn University, Morocco Abdelhamid Bennani Bouchiba, Al Akhawayn University, Morocco Muneeza Shoaib, Middlesex University Dubai, UAE Reviewers Naila Aaijaz, International Professors Project Frances Ekwulungo, University of Westminster, UK Michael Gründ, Zurich University of Applied Sciences in Business Administration, Switzerland Mohamed Dahlan Ibrahim, Universiti Malaysia Kelantan, Malaysia Jawahitha Sarabdeen, University of Wollongong in Dubai, UAE 23 A01_KOTL2621_15_GE_FM.INDD 23 3/9/15 4:38 PM Part 1 Understanding Marketing Management Chapter 1 Chapter 2 Defining Marketing for the New Realities Developing Marketing Strategies and Plans In This Chapter, We Will Address the Following Questions 1. Why is marketing important? (p. 25) Unilever is fundamentally changing how it is doing its marketing, including putting more emphasis on developing markets. Source: Bloomberg via Getty Images 2. What is the scope of marketing? (p. 27) 3. What are some core marketing concepts? (p. 31) 4. What forces are defining the new marketing realities? (p. 35) 5. What new capabilities have these forces given consumers and companies? (p. 38) 6. What does a holistic marketing philosophy include? (p. 42) MyMarketingLab™ Improve Your Grade! Over 10 million students improved their results using the Pearson MyLabs. Visit mymktlab.com for simulations, tutorials, and end-of-chapter problems. 7. What tasks are necessary for successful marketing management? (p. 49) 24 M01_KOTL2621_15_GE_C01.indd 24 03/03/15 1:59 PM 1 Defining Marketing for the New Realities Formally and informally, people and organizations engage in a vast number of activities we can call marketing. In the face of a digital revolution and other major changes in the business environment, good marketing today is both increasingly vital and radically new. Consider Unilever.1 Under the leadership of ex-P&G marketing executive Paul Polman and marketing whiz Keith Weed, Unilever is steering in an aggressive new direction. Its new marketing model "Crafting Brands for Life" establishes social, economic, and product missions for each brand, including Dove, Ben & Jerry's, Lifebuoy, and Knorr. P olman states, "I have a vision of all of our brands being a force for good, with each having over a billion fans or more to help drive change." One part of the mission, for instance, is s ustainability—specifically, to halve its ecological footprint while doubling revenues. To improve advertising and marketing communications, it aims to strike a balance between "magic" and "logic," doubling marketing training expenditures and emphasizing ad research. To better understand the digital world, CMO Weed took 26 top marketing executives to Silicon Valley to visit Google, Facebook, and Hulu and led a similar group to visit Hollywood executives at Disney and Universal. Unilever has set its sights on developing and emerging (D&E) markets, Good marketing is no accident. It is both an art and hoping to grow 15 percent to 20 percent annually in China and to a science, and it results from careful planning and execution draw 70 percent to 75 percent of business from D&E markets by using state-of-the-art tools and techniques. In this book, we 2020. The company has also adopted "reverse innovation" by applydescribe how skillful marketers are updating classic practices ing branding and packaging innovations from developing markets to and inventing new ones to find creative, practical solutions recession-hit developed markets. In Spain, it now sells Surf deterto new marketing realities. In the first chapter, we lay our gent in five-wash packs. In Greece, it offers mashed potatoes and foundation by reviewing important marketing concepts, tools, frameworks, and issues. mayonnaise in small packages. The Value of Marketing Finance, operations, accounting, and other business functions won't really matter without sufficient demand for products and services so the firm can make a profit. In other words, there must be a top line for there to be a bottom line. Thus, financial success often depends on marketing ability. Marketing's value extends to society as a whole. It has helped introduce new or enhanced products that ease or enrich people's lives. Successful marketing builds demand for products and services, which, in turn, creates jobs. By contributing to the bottom line, successful marketing also allows firms to more fully engage in socially responsible activities.2 Marketing Decision Making CEOs recognize that marketing builds strong brands and a loyal customer base, intangible a ssets that contrib onprofit, now have a chief marketing officer ute heavily to the value of a firm.3 Many firms, even service and n (CMO) to put marketing on a more equal footing with other C-level executives such as the chief financial officer (CFO) or chief information officer (CIO).4 25 M01_KOTL2621_15_GE_C01.indd 25 03/03/15 1:59 PM 26 PART 1 | Understanding Marketing Management In an Internet-fueled environment where consumers, competition, technology, and e conomic forces change rapidly and consequences quickly multiply, marketers must choose features, prices, and markets and decide how much to spend on advertising, sales, and online and mobile marketing. Meanwhile, the economic downturn that began globally in 2008 and the sluggish recovery since have brought budget cuts and intense pressure to make every marketing dollar count. There is little margin for error in marketing. Just a short time ago, MySpace, Yahoo!, Blockbuster, and Barnes & Noble were admired leaders in their industries. What a difference a few years can make! Each of these brands has been completely overtaken by an upstart challenger—Facebook, Google, Netflix, and Amazon—and they now struggle, sometimes unsuccessfully, for mere survival. Firms must constantly move forward. At greatest risk are those that fail to carefully monitor their customers and competitors, continuously improve their value offerings and marketing strategies, or satisfy their employees, stockholders, suppliers, and channel partners in the process. Winning Marketing Skillful marketing is a never-ending pursuit, but some businesses are adapting and thriving in these changing times. Consider American Express. 5 American Express: Small Business Saturday Launched in 2010 via radio and TV ads, social media, and PR, American Express's Small Business Saturday program encouraged p eople to shop at smaller, local retailers on the Saturday after Thanksgiving. Among businesses that participated, sales rose 28 percent. In 2012, American Express provided social media marketing kits, e-mail templates, and s ignage to help spread the word. More than 350 small business organizations supported the initiative, more than 3 million u sers "liked" the Small Business Saturday Facebook page, and 213,000 related tweets were posted on Twitter. President Obama tweeted, "Today, support small businesses in your community by shopping at your favorite store" and took his daughters to local bookstores. American Express cardholders got a $25 rebate for shopping at local, independent stores on Small Business Saturday. The company reported a roughly 21 percent increase in transactions for both 2011 and 2012 due to the program. Other top marketers are following suit. Using a Web-only campaign, BMW claimed a $110 million revenue gain for its 1-series. More than 3 million people saw a five-video teaser campaign, and 20,000 gave their contact details. BMW also targeted influential bloggers and used feedback from social media as i nput to styling and sales forecasts.6 Even business-to-business firms are getting into the action. Corning has struggled transcending its reputation as sellers of Pyrex cookware—a business it sold more than a decade ago—to its current status as makers of highly engineered specialty glass and c eramic products. To expand the vision on Wall Street as a company with a rich portfolio, Corning created a YouTube video, "A Day Made of Glass . . . Made Possible by Corning." Unconventionally long but beautifully put together, within three weeks it attracted more than a million views. Much of the social conversation it created revolved around themes of glass, product toughness, and hope for the future—exactly what Corning wanted.7 Source: WireImage for American Express American Express' Small Business Saturday has struck a chord with consumers, including TV celebrity Katie Couric. M01_KOTL2621_15_GE_C01.indd 26 03/03/15 1:59 PM Defining Marketing for the New Realities | chapter 1 27 The Scope of Marketing To be a marketer, you need to understand what marketing is, how it works, who does it, and what is marketed. What Is Marketing? Marketing is about identifying and meeting human and social needs. One of the shortest good definitions of marketing is "meeting needs profitably." When Google recognized that people needed to more effectively and efficiently access information on the Internet, it created a powerful search engine that organized and prioritized queries. When IKEA noticed that people wanted good furnishings at substantially lower prices, it created knockdown furniture. These two firms demonstrated marketing savvy and turned a private or social need into a profitable business opportunity. The American Marketing Association offers the following formal definition: Marketing is the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.8 Coping with these exchange processes calls for a considerable amount of work and skill. Marketing management takes place when at least one party to a potential exchange thinks about the means of achieving desired responses from other parties. Thus, we see marketing management as the art and science of choosing target markets and getting, keeping, and growing customers through creating, delivering, and communicating superior customer value. We can distinguish between a social and a managerial definition of marketing. A social definition shows the role marketing plays in society; for example, one marketer has said that marketing's role is to "deliver a higher standard of living." Here is a social definition that serves our purpose: Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering, and freely exchanging products and services of value with others. Cocreation of value among consumers and with businesses and the importance of value creation and sharing have become important themes in the development of modern marketing thought.9 Managers sometimes think of marketing as "the art of selling products," but many people are surprised when they hear that selling is not the most important part of marketing! Selling is only the tip of the marketing iceberg. Peter Drucker, famed management theorist, put it this way:10 There will always, one can assume, be need for some selling. But the aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. Ideally, marketing should result in a customer who is ready to buy. All that should be needed then is to make the product or service available. When Nintendo designed its Wii game system, when Apple launched its iPad tablet computer, and when Toyota introduced its Prius hybrid automobile, these manufacturers were swamped with orders because they had designed the right product, based on careful marketing homework about consumers, competition, and all the external factors that affect cost and demand. What Is Marketed? Marketers market 10 main types of entities: goods, services, events, experiences, persons, places, properties, organizations, information, and ideas. Let's take a quick look at these categories. Goods Physical goods constitute the bulk of most countries' production and marketing efforts. Each year, U.S. companies market billions of fresh, canned, bagged, and frozen food products and millions of cars, refrigerators, televisions, machines, and other mainstays of a modern economy. Services As economies advance, a growing proportion of their activities focuses on the production of services. The U.S. economy today produces a services-to-goods mix of roughly two-thirds to one-third.11 Services include the work of airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers, engineers, doctors, software programmers, and management consultants. Many market offerings mix goods and services, such as a fast-food meal. Events Marketers promote time-based events, such as major trade shows, artistic performances, and company anniversaries. Global sporting events such as the Olympics and the World Cup are promoted aggressively to companies and fans. Local events include craft fairs, bookstore readings, and farmer's markets. Experiences By orchestrating several services and goods, a firm can create, stage, and market experiences. Walt Disney World's Magic Kingdom lets customers visit a fairy kingdom, a pirate ship, or a haunted house. M01_KOTL2621_15_GE_C01.indd 27 03/03/15 1:59 PM PART 1 | Understanding Marketing Management The pageantry of the Olympics, shown here in Sochi, Russia, adds to its marketability. Source: © McClatchy-Tribune Information Services /Alamy 28 Customized experiences include a week at a baseball camp with retired baseball greats, a four-day rock and roll fantasy camp, and a climb up Mount Everest. Persons Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals often get help from marketers.12 Many athletes and entertainers have done a masterful job of marketing themselves—NFL quarterback Peyton Manning, talk show veteran Oprah Winfrey, and rock and roll legends The Rolling Stones. Management consultant Tom Peters, himself a master at self-branding, has advised each person to become a "brand." Places Cities, states, regions, and whole nations compete to attract tourists, residents, factories, and company headquarters.13 Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. The Las Vegas Convention & Visitors Authority has met with much success with its provocative ad campaign "What Happens Here, Stays Here," portraying Las Vegas as "an adult playground." Properties Properties are intangible rights of ownership to either real property (real estate) or financial property (stocks and bonds). They are bought and sold, and these exchanges require marketing. Real estate agents work for property owners or sellers, or they buy and sell residential or commercial real estate. Investment companies and banks market securities to both institutional and individual investors. Organizations Museums, performing arts organizations, corporations, and nonprofits all use marketing to boost their public images and compete for audiences and funds. Some universities have created chief marketing officer (CMO) positions to better manage their school identity and image, via everything from admission brochures and Twitter feeds to brand strategy.14 Source: Chris Pizzello/Invision/AP Oprah Winfrey has built a personal brand worth billions which she has used across many lines of business. M01_KOTL2621_15_GE_C01.indd 28 03/03/15 2:00 PM Defining Marketing for the New Realities | chapter 1 29 Information Information is essentially what books, schools, and universities produce, market, and distribute at a price to parents, students, and communities. Firms make business decisions using information supplied by organizations like Thomson Reuters: "We combine industry expertise with innovative technology to deliver critical information to leading decision makers in the financial, legal, tax and accounting, healthcare, science and media markets, powered by the world's most trusted news organization."15 Ideas Every market offering includes a basic idea. Charles Revson of Revlon once observed: "In the factory we make cosmetics; in the drugstore we sell hope." Products and services are platforms for delivering some idea or benefit. Social marketers promote such ideas as "Friends Don't Let Friends Drive Drunk" and "A Mind Is a Terrible Thing to Waste." Who Markets? Marketers and Prospects A marketer is someone who seeks a response—attention, a purchase, a vote, a donation—from another party, called the prospect. If two parties are seeking to sell something to each other, we call them both marketers. Marketers are skilled at stimulating demand for their products, but that's a limited view of what they do. They also seek to influence the level, timing, and composition of demand to meet the organization's objectives. Eight demand states are possible: 1. 2. 3. 4. 5. 6. 7. 8. Negative demand—Consumers dislike the product and may even pay to avoid it. Nonexistent demand—Consumers may be unaware of or uninterested in the product. Latent demand—Consumers may share a strong need that cannot be satisfied by an existing product. Declining demand—Consumers begin to buy the product less frequently or not at all. Irregular demand—Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis. Full demand—Consumers are adequately buying all products put into the marketplace. Overfull demand—More consumers would like to buy the product than can be satisfied. Unwholesome demand—Consumers may be attracted to products that have undesirable social consequences. In each case, marketers must identify the underlying cause(s) of the demand state and determine a plan of action to shift demand to a more desired state. Markets Traditionally, a "market" was a physical place where buyers and sellers gathered to buy and sell goods. Economists describe a market as a collection of buyers and sellers who transact over a particular product or product class (such as the housing market or the grain market). Five basic markets and their connecting flows are shown in Figure 1.1. Manufacturers go to resource markets (raw material markets, labor markets, money markets), buy resources and turn them into goods and services, and sell finished products to intermediaries, who sell them to consumers. Consumers sell their labor and receive money with which they pay for goods and services. The government collects tax revenues to buy goods from resource, Resources Money Services, money Manufacturer markets Taxes, goods Services, money Taxes Taxes, goods Consumer markets Services Services, money Taxes, goods Money Money M01_KOTL2621_15_GE_C01.indd 29 Structure of Flows in a Modern Exchange Economy Money Government markets Goods and services | Fig. 1.1 | Resources Resource markets Intermediary markets Goods and services 03/03/15 2:00 PM 30 PART 1 | Understanding Marketing Management | Fig. 1.2 | Communication A Simple Marketing System Goods/services Market (a collection of buyers) Industry (a collection of sellers) Money Information manufacturer, and intermediary markets and uses these goods and services to provide public services. Each nation's economy, and the global economy, consists of interacting sets of markets linked through exchange processes. Marketers view sellers as the industry and use the term market to describe customer groups. They talk about need markets (the diet-seeking market), product markets (the shoe market), demographic markets (the "millennium" youth market), geographic markets (the Chinese market), or voter markets, labor markets, and donor markets. Figure 1.2 shows how sellers and buyers are connected by four flows. Sellers send goods and services and communications such as ads and direct mail to the market; in return they receive money and information such as customer attitudes and sales data. The inner loop shows an exchange of money for goods and services; the outer loop shows an exchange of information. Key Customer Markets Consider the following key customer markets: consumer, business, global, and nonprofit. Consumer Markets Companies selling mass consumer goods and services such as juices, cosmetics, athletic shoes, and air travel establish a strong brand image by developing a superior product or service, ensuring its availability, and backing it with engaging communications and reliable performance. Business Markets Companies selling business goods and services often face well-informed professional buyers skilled at evaluating competitive offerings. Advertising and Web sites can play a role, but the sales force, the price, and the seller's reputation may play a greater one. Global Markets Companies in the global marketplace navigate cultural, language, legal, and political differences while deciding which countries to enter, how to enter each (as exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer), how to adapt product and service features to each country, how to set prices, and how to communicate in different cultures. Nonprofit and Governmental Markets Companies selling to nonprofit organizations with limited purchasing power such as churches, universities, charitable organizations, and government agencies need to price carefully. Much government purchasing requires bids; buyers often focus on practical solutions and favor the lowest bid, other things equal.16 Source: © Travel Pictures/Alamy Governments are a key customer market for many companies. M01_KOTL2621_15_GE_C01.indd 30 03/03/15 2:00 PM Defining Marketing for the New Realities | chapter 1 31 Core Marketing Concepts To understand the marketing function, we need to understand the following core set of concepts (see Table 1.1). Needs, Wants, and Demands Needs are the basic human requirements such as for air, food, water, clothing, and shelter. Humans also have strong needs for recreation, education, and entertainment. These needs become wants when directed to specific objects that might satisfy the need. A U.S. consumer needs food but may want a Chicago-style "deep-dish" pizza and a craft beer. A person in Afghanistan needs food but may want rice, lamb, and carrots. Our wants are shaped by our society. Demands are wants for specific products backed by an ability to pay. Many people want a Mercedes; only a few can buy one. Companies must measure not only how many people want their product, but also how many are willing and able to buy it. These distinctions shed light on the criticism that "marketers get people to buy things they don't want." Marketers do not create needs: Needs pre-exist marketers. Marketers might promote the idea that a Mercedes satisfies a person's need for social status. They do not, however, create the need for social status. Some customers have needs of which they are not fully conscious or cannot articulate. What does the customer mean in asking for a "powerful" lawn mower or a "peaceful" hotel? The marketer must probe further. We can distinguish five types of needs: 1. 2. 3. 4. 5. Stated needs (The customer wants an inexpensive car.) Real needs (The customer wants a car whose operating cost, not initial price, is low.) Unstated needs (The customer expects good service from the dealer.) Delight needs (The customer would like the dealer to include an onboard GPS system.) Secret needs (The customer wants friends to see him or her as a savvy consumer.) Responding only to the stated need may shortchange the customer.17 Consumers did not know much about tablet computers when they were first introduced, but Apple worked hard to shape consumer perceptions of them. To gain an edge, companies must help customers learn what they want. Target Markets, Positioning, and Segmentation Not everyone likes the same cereal, restaurant, university, or movie. Marketers therefore identify distinct segments of buyers by identifying demographic, psychographic, and behavioral differences between them. They then decide which segment(s) present the greatest opportunities. For each of these target markets, the firm develops a market Table 1.1 Core Marketing Concepts Needs, Wants, and Demands Target Markets, Positioning, and Segmentation Offerings and Brands Marketing Channels Paid, Owned, and Earned Media Impressions and Engagement Value and Satisfaction Supply Chain Competition Marketing Environment M01_KOTL2621_15_GE_C01.indd 31 03/03/15 2:00 PM 32 PART 1 | Understanding Marketing Management offering that it positions in target buyers' minds as delivering some key benefit(s). Volvo d evelops its cars for the buyer to whom safety is a major concern, positioning them as the safest a customer can buy. Porsche targets buyers who seek pleasure and excitement in driving and want to make a statement about their wheels. Offerings and Brands Companies address customer needs by putting forth a value proposition, a set of benefits that satisfy those needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences. A brand is an offering from a known source. A brand name such as Apple carries many different kinds of associations in people's minds that make up its image: creative, innovative, easy-to-use, fun, cool, iPod, iPhone, and iPad to name just a few. All companies strive to build a brand image with as many strong, favorable, and unique brand associations as possible. Marketing Channels To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers and include newspapers, magazines, radio, television, mail, telephone, smart phone, billboards, posters, fliers, CDs, audiotapes, and the Internet. Beyond these, firms communicate through the look of their retail stores and Web sites and other media, adding dialogue channels such as e-mail, blogs, text messages, and URLs to familiar monologue channels such as ads. Distribution channels help display, sell, or deliver the physical product or service(s) to the buyer or user. These channels may be direct via the Internet, mail, or mobile phone or telephone or indirect with distributors, wholesalers, retailers, and agents as intermediaries. To carry out transactions with potential buyers, the marketer also uses service channels that include warehouses, transportation companies, banks, and insurance companies. Marketers clearly face a design challenge in choosing the best mix of communication, distribution, and service channels for their offerings. Paid, Owned, and Earned Media The rise of digital media gives marketers a host of new ways to interact with consumers and customers. We can group communication options into three categories.18 Paid media include TV, magazine and display ads, paid search, and sponsorships, all of which allow marketers to show their ad or brand for a fee. Owned media are communication channels marketers actually own, like a company or brand brochure, Web site, blog, Facebook page, or Twitter account. Earned media are streams in which consumers, the press, or other outsiders voluntarily c ommunicate something about the brand via word of mouth, buzz, or viral marketing methods. The emergence of earned media has allowed some companies, such as Chipotle, to reduce paid media expenditures.19 Chipotle One of the fastest-growing restaurant chains over the last decade, Chipotle is committed to fresh food. The company supports family farms and sources sustainable ingredients from local growers who behave responsibly toward animals and the environment. It has over 1,600 stores and over 1.7 million social media fans–yet spends next to nothing on traditional paid media. Instead Chipotle engages customers through Facebook, Twitter, and other social media via its grassroots "Food With Integrity" digital strategy which puts the focus on what it sells and where it comes from. As CMO Mark Crumpacker notes, "Typically, fast-food marketing is a game of trying to obscure the truth. The more people know about most fast-food companies, the less likely they'd want to be a customer." YouTube videos with country legend Willie Nelson and indie rocker Karen O from the Yeah Yeah Yeahs musically made Chipotle's case against processed foods and the industrialization of family farms. Impressions and Engagement Marketers now think of three "screens" or means to reach consumers: TV, Internet, and mobile. Surprisingly, the rise of digital options did not initially depress the amount of TV viewing, in part because, as one Nielsen study found, three of five consumers use two screens at once.20 M01_KOTL2621_15_GE_C01.indd 32 03/03/15 2:00 PM Defining Marketing for the New Realities | chapter 1 33 Chipotle found marketplace success with little paid media, focusing on social media to tell its story of "Food With Integrity." Impressions, which occur when consumers view a communication, are a useful metric for tracking the scope or breadth of a communication's reach that can also be compared across all communication types. The downside is that impressions don't provide any insight into the results of viewing the communication. Engagement is the extent of a customer's attention and active involvement with a communication. It reflects a much more active response than a mere impression and is more likely to create value for the firm. Some online measures of engagements are Facebook "likes," Twitter tweets, comments on a blog or Web site, and sharing of video or other content. Engagement can extend to personal experiences that augment or transform a firm's products and services. Value and Satisfaction The buyer chooses the offerings he or she perceives to deliver the most value, the sum of the tangible and intangible benefits and costs. Value, a central marketing concept, is primarily a combination of quality, service, and price (qsp), called the customer value triad. Value perceptions increase with quality and service but decrease with price. We can think of marketing as the identification, creation, communication, delivery, and monitoring of customer value. Satisfaction reflects a person's judgment of a product's perceived performance in relationship to expectations. If performance falls short of expectations, the customer is disappointed. If it matches expectations, the customer is satisfied. If it exceeds them, the customer is delighted. Supply Chain The supply chain is a channel stretching from raw materials to components to finished products carried to final buyers. As Figure 1.3 shows, the supply chain for coffee may start with Ethiopian farmers who plant, tend, and pick the coffee beans and sell their harvest. If sold through a Fair Trade cooperative, the coffee is washed, dried, and packaged for shipment by an Alternative Trading Organization (ATO) that pays a minimum of $1.26 a pound. The ATO transports the coffee to the developed world where it can sell it directly or via retail channels. Each company in the chain captures only a certain percentage of the total value generated by the supply chain's value delivery system. When a company acquires competitors or expands upstream or downstream, its aim is to capture a higher percentage of supply chain value. Problems with a supply chain can be damaging or even fatal for a business. When Johnson & Johnson ran into manufacturing problems with its consumer products unit (which makes Tylenol and other products), it hired away from Bayer AG a top executive known for her skill at fixing consumer and supply chain problems.21 M01_KOTL2621_15_GE_C01.indd 33 03/03/15 2:00 PM 34 PART 1 | Understanding Marketing Management | Fig. 1.3 | The Supply Chain for Coffee Ethiopian farmers grow and harvest coffee beans Farmers sell the beans to Fair Trade cooperative Alternative Trading Organization transports beans to developed world Coffee is sold directly or via retail channels Coffee is washed, dried, and packaged for shipment Competition Competition includes all the actual and potential rival offerings and substitutes a buyer might consider. An automobile manufacturer can buy steel from U.S. Steel in the United States, from a foreign firm in Japan or Korea, or from a mini-mill such as Nucor at a cost savings, or it can buy aluminum parts from Alcoa to reduce the car's weight or engineered plastics from Saudi Basic Industries Corporation (SABIC) instead of steel. Clearly, U.S. Steel is more likely to be hurt by substitute products than by other integrated steel companies and would be defining its competition too narrowly if it didn't recognize this. Marketing Environment The marketing environment consists of the task environment and the broad environment. The task environment includes the actors engaged in producing, distributing, and promoting the offering. These are the company, suppliers, distributors, dealers, and target customers. In the supplier group are material suppliers and service suppliers, such as marketing research agencies, advertising agencies, banking and insurance companies, transportation companies, and telecommunications companies. Distributors and dealers include agents, brokers, manufacturer representatives, and others who facilitate finding and selling to customers. The broad environment consists of six components: demographic environment, economic environment, social-cultural environment, natural environment, technological environment, and political-legal environment. Marketers must pay close attention to the trends and developments in these and adjust their marketing strategies as needed. New opportunities are constantly emerging that await the right marketing savvy and ingenuity. Consider Pinterest.22 Pinterest One of the fastest-growing social media sites ever–its surpassed 10 million monthly unique U.S. visitors in January 2012 and doubled that just four months later–Pinterest is a visual bookmarking tool that lets users collect and share images of projects or products on digital scrapbooks or "pinboards." Especially popular with women planning weddings, saving recipes, and d esigning kitchen upgrades, Pinterest has driven more traffic to websites in a month than Twitter, Google+, LinkedIn, and YouTube combined. Part of its appeal is its unique customizable grid of images. Pinterest's sweet spot is that users are often in a shopping mindset; one study showed almost 70% of online purchasers who found a product via Pinterest went on to buy, compared to 40% for Facebook. Brands from Dell and Mercedes-Benz to Peanut Butter & Co. and Zombie SAK are integrating the site into their social media strategies. Nevertheless, Pinterest is still exploring how to best monetize its business venture. M01_KOTL2621_15_GE_C01.indd 34 03/03/15 2:00 PM Defining Marketing for the New Realities | chapter 1 35 Pinterest has tapped into consumer desire to collect and share personally relevant images online. The New Marketing Realities The marketplace is dramatically different from even 10 years ago, with new marketing behaviors, opportunities, and challenges emerging. In this book we focus on three transformative forces: technology, globalization, and social responsibility. Technology The pace of change and the scale of technological achievement can be staggering. The number of mobile phones in India recently exceeded 500 million, Facebook's monthly users passed 1 billion, and more than half of African urban residents were able to access the Internet monthly.23 With the rapid rise of e-commerce, the mobile Internet, and Web penetration in emerging markets, the Boston Consulting Group believes brand marketers must enhance their "digital balance sheets." 24 Massive amounts of information and data about almost everything are now available to consumers and marketers. In fact, technology research specialists Gartner predicts that by 2017, CMOs will spend more time on information technology (IT) than chief information officers (CIOs). Aetna's CMO and CIO have already collaborated successfully for years, launching new products and services including iTriage, a popular health app for the iPhone. With iTriage, users can research ailments, find nearby physicians, and learn about prescribed medicines.25 Procter & Gamble (P&G) is determined to stay ahead of technology trends.26 P&G P&G uses the latest Web-based tools in all 80 countries where it sells products: u biquitous high-speed networking, data visualization, and high-speed analysis of multiple information streams. In 40 locations worldwide, a massive business sphere can display real-time market share, profits, and prices by country, region, brand, and p roduct. Tide laundry detergent has a dedicated "news desk" that monitors social media chatter and joins in when relevant. When Tide was used to clean up a nasty fuel spill in a NASCAR race, the brand ran social media ads with real news footage within 72 hours. P&G looks at a wide range of technology applications. One pilot study showed that field s alespeople increased revenue 1.5 percent merely by using iPads to show store customers the layouts of different floor displays. M01_KOTL2621_15_GE_C01.indd 35 03/03/15 2:00 PM 36 PART 1 | Understanding Marketing Management Source: Getty Images for NASCAR When Tide was used to clean a fuel spill at a NASCAR, P&G quickly spread the word on social media. The old credo "information is power" is giving way to the new idea that "sharing information is power."27 Software giant SAP's online community numbers more than 2 million customers, partners, and others. Once a year, 100 are chosen to contribute ideas to product development.28 At the other end of the size spectrum, by running Facebook ads offering a free cut, shampoo, and hot towel treatment to new customers in exchange for name, phone number, e-mail address, and preferred social network, The Gent's Place barbershop in Frisco, TX, has picked up 5,000 clients. Its average marketing cost for each was $10.13, which it quickly recoups from repeat purchases.29 Even traditional marketing activities are profoundly affected by technology. To improve sales force e ffectiveness, drug maker Roche decided to issues iPads to its entire sales team. Though the company had a sophisticated customer relationship management (CRM) software system before, it still depended on sales reps to accurately input data in a timely fashion, which unfortunately did not always happen. With iPads, however, sales teams can do real-time data entry, improving the quality of the data entered while freeing up time for other tasks.30 Globalization The world has become a smaller place. New transportation, shipping, and communication technologies have made it easier for us to know the rest of the world, to travel, to buy and sell anywhere. By 2025, annual consumption in emerging markets will total $30 trillion and contribute more than 70 percent of global GDP growth.31 A staggering 56 percent of global financial services consumption is forecast to come from emerging markets by 2050, up from 18 percent in 2010. Demographic trends favor developing markets such as India, Pakistan, and Egypt, with p opulations whose median age is below 25. In terms of growth of the middle class, defined as earning more than $3,000 per year, the Philippines, China, and Peru are the three fastest-growing countries.32 Globalization has made countries increasingly multicultural. U.S. minorities have much economic clout, and their buying power is growing faster than that of the general population. A