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198 PART 3 | Conne CTing Wi Th Cus Tome Rs the expectancy-value model, we multiply her weights by her beliefs about each computer's attributes. This compu-tation leads to the following perceived values: Laptop A=0. 4182 + 0. 3192 + 0. 2162 + 0. 1192 = 8. 0 Laptop B=0. 4172 + 0. 3172 + 0. 2172 + 0. 1172 = 7. 0 Laptop C=0. 41102 + 0. 3142 + 0. 2132+ 0. 1122 = 6. 0 Laptop D=0. 4152 + 0. 3132 + 0. 2182 + 0. 1152 = 5. 0 An expectancy-model formulation predicts that Linda will favor laptop A, which (at 8. 0) has the highest per-ceived value. 61 Suppose most laptop buyers form their preferences the same way. Knowing this, the marketer of laptop B, for example, could apply the following strategies to stimulate greater interest in brand B: Redesign the laptop. This technique is called real repositioning. Alter beliefs about the brand. Attempting to alter beliefs about the brand is called psychological repositioning. Alter beliefs about competitors' brands. This strategy, called competitive depositioning, makes sense when buyers mistakenly believe a competitor's brand is higher quality than it actually is. Alter the importance weights. The marketer could try to persuade buyers to attach more importance to the attributes in which the brand excels. Call attention to neglected attributes. The marketer could draw buyers' attention to neglected attributes, such as styling or processing speed. Shift the buyer's ideals. The marketer could try to persuade buyers to change their ideal levels for one or more attributes. 62 Pur Chase De CIs Ion In the evaluation stage, the consumer forms preferences among the brands in the choice set and may also form an intention to buy the most preferred brand. In executing a purchase intention, the consumer may make as many as five subdecisions: brand (brand A), dealer (dealer 2), quantity (one computer), timing (weekend), and payment method (credit card). noncompensa To Ry models of consume R choice The expectancy-value model is a compensatory model, in that perceived good things about a product can help to overcome perceived bad things. But consumers often take “mental shortcuts” called heuristics or rules of thumb in the decision process. With noncompensatory models of consumer choice, positive and negative attribute considerations don't necessarily net out. Evaluating attributes in isolation makes decision making easier for a consumer, but it also increases the likelihood that she would have made a different choice if she had deliberated in greater detail. We highlight three choice heuristics here. 63Table 6. 3 A Consumer's Brand Beliefs about Laptop Computers Laptop Computer Attribute Memory Capacity Graphics Capability Size and Weight Price A 8 9 6 9 B 7 7 7 7 C 10 4 3 2 D 5 3 8 5 Note: Each attribute is rated from 0 to 10, where 10 represents the highest level on that attribute. Price, however, is indexed in a reverse manner, with 10 representing the lowest price, because a consumer prefers a low price to a high price. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Consume R m AR ke Ts | chapter 6 199 1. Using the conjunctive heuristic, the consumer sets a minimum acceptable cutoff level for each attribute and chooses the first alternative that meets the minimum standard for all attributes. For example, if Linda decided all attributes had to rate at least 5, she would choose laptop B. 2. With the lexicographic heuristic, the consumer chooses the best brand on the basis of its perceived most im-portant attribute. With this decision rule, Linda would choose laptop C. 3. Using the elimination-by-aspects heuristic, the consumer compares brands on an attribute selected probabilistically—where the probability of choosing an attribute is positively related to its importance—and eliminates brands that do not meet minimum acceptable cutoffs. Our brand or product knowledge, the number and similarity of brand choices and time pressures present, and the so-cial context (such as the need for justification to a peer or boss) all may affect whether and how we use choice heuristics. Consumers don't necessarily use only one type of choice rule. For example, they might use a noncompensatory decision rule such as the conjunctive heuristic to reduce the number of brand choices to a more manageable num-ber and then evaluate the remaining brands. One reason for the runaway success of the Intel Inside campaign in the 1990s was that it made the brand the first cutoff for many consumers—they would buy only a personal computer that had an Intel microprocessor. Leading personal computer makers at the time, such as IBM, Dell, and Gateway, had no choice but to support Intel's marketing efforts. A number of factors will determine the manner in which consumers form evaluations and make choices. University of Chicago professors Richard Thaler and Cass Sunstein show how marketers can influence consumer decision making through what they call the choice architecture —the environment in which decisions are struc-tured and buying choices are made. According to these researchers, in the right environment, consumers can be given a “nudge” via some small feature in the environment that attracts attention and alters behavior. They maintain Nabisco is employing a smart choice architecture by offering 100-calorie snack packs, which have solid profit margins, while nudging consumers to make healthier choices. 64 in Te RVenin G fac To Rs Even if consumers form brand evaluations, two general factors can intervene between the purchase intention and the purchase decision (see Figure 6. 6). The first factor is the attitudes of others. The influence on us of another person's attitude depends on two things: (1) the intensity of the other person's negative attitude toward our preferred alternative and (2) our motivation to comply with the other person's wishes. 65 The more intense the other person's negativism and the closer he or she is to us, the more we will adjust our purchase intention. The converse is also true. Related to the attitudes of others is the role played by infomediaries' evaluations: Consumer Reports, which provides unbiased expert reviews of all types of products and services; J. D. Power, which provides consumer-based ratings of cars, financial services, and travel products and ser-vices; professional movie, book, and music reviewers; customer reviews of books and music on such sites as Amazon. com; and the increasing number of chat rooms, bulletin boards, blogs, and other online sites like Angie's List where people discuss products, services, and companies. 66 Consumers are undoubtedly influenced by these external evaluations, as evidenced by the run-away success of the movie Ted. 67 Ted With a modest production budget of $50 million, the R-rated comedy Ted became a summer blockbuster in 2012, eventually grossing more than a staggering $530 million worldwide, thanks to favor-able reviews by critics and moviegoers and a carefully constructed online marketing campaign. Edgy videos and a Twitter feed with raunchy advice from Ted, the often-crude teddy bear star, created much online buzz. Fans of the movie's Facebook page approached 3 million, Twitter followers reached 400,000, and a “Talking Ted” i Phone app was downloaded 3. 5 million times. Universal Pictures' marketing campaign also included several different theater trailers to attract different types of audiences. Social media targeted fans of the Family Guy television show, whose creator, Seth Mc Farlane, directed Ted and provided the voice of the title character. After the first trailer went online, the studio picked up much online chatter with a song, “Thunder Buddies,” that the other star of the movie, Mark Wahlberg, sang to Ted while in bed. To capitalize on the buzz, the studio put out a remixed version of the song on the movie's Web site, e-cards with lyrics on Facebook, Thunder Buddy pajamas from Cafe Press. com, and a 30-second video clip of the song. Evaluation of alternatives Purchase intention Purchase decision Attitudes of others Unanticipated situational factors | Fig. 6. 6 | Steps between Evaluation of Alternatives and a Purchase Decision | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
200 PART 3 | Conne CTing Wi Th Cus Tome Rs The second factor is unanticipated situational factors that may erupt to change the purchase intention. Linda might lose her job before she purchases a laptop, some other purchase might become more urgent, or a store salesperson may turn her off. As Chapter 15 discusses, much marketing occurs at the point of purchase: online or in the store. Preferences and even purchase intentions are not completely reliable predictors of purchase behavior. A con-sumer's decision to modify, postpone, or avoid a purchase decision is heavily influenced by one or more types of perceived risk:68 1. Functional risk —The product does not perform to expectations. 2. Physical risk —The product poses a threat to the physical well-being or health of the user or others. 3. Financial risk —The product is not worth the price paid. 4. Social risk —The product results in embarrassment in front of others. 5. Psychological risk —The product affects the mental well-being of the user. 6. Time risk —The failure of the product results in an opportunity cost of finding another satisfactory product. The degree of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty, and the level of consumer self-confidence. Consumers develop routines for reducing the uncertainty and negative consequences of risk, such as avoiding decisions, gathering information from friends, and developing preferences for national brand names and warranties. Marketers must understand the factors that provoke a feeling of risk in consumers and provide information and support to reduce it. Post Pur Chase behav Ior After the purchase, the consumer might experience dissonance from noticing certain disquieting features or hearing favorable things about other brands and will be alert to information that supports his or her decision. Marketing communications should supply beliefs and evaluations that reinforce the consumer's choice and help him or her feel good about the brand. The marketer's job therefore doesn't end with the purchase. Marketers must monitor postpurchase satisfaction, postpurchase actions, and postpurchase product uses and disposal. pos Tpu Rchase sa Tisfac Tion Satisfaction is a function of the closeness between expectations and the product's perceived performance. 69 If performance falls short of expectations, the consumer is disappointed; if it meets expectations, the consumer is satisfied; if it exceeds expectations, the consumer is delighted. These feelings make a difference in whether the customer buys the product again and talks favorably or unfavorably about it to others. The larger the gap between expectations and performance, the greater the dissatisfaction. Here the consumer's coping style comes into play. Some consumers magnify the gap when the product isn't perfect and are highly dis-satisfied; others minimize it and are less dissatisfied. pos Tpu Rchase ac Tions A satisfied consumer is more likely to purchase the product again and will also tend to say good things about the brand to others. Dissatisfied consumers may abandon or return the product. They may seek information that confirms its high value. They may take public action by complaining to the company, going to a lawyer, or complaining directly to other groups (such as business, private, or government agencies) or to many others online. Private actions include deciding to stop buying the product ( exit option ) or warning friends ( voice option ). 70 Ted became a summer blockbuster due to strong posi-tive word-of-mouth and a well conceived and executed social media campaign. Source: ASSOCIATED PRESS | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Consume R m AR ke Ts | chapter 6 201 Chapter 5 described CRM programs designed to build long-term brand loyalty. Postpurchase communications to buyers have been shown to result in fewer product returns and order cancellations. Computer companies, for example, can send a letter to new owners congratulating them on having selected a fine new tablet computer. They can place ads showing satisfied brand owners. They can solicit customer suggestions for improvements and list the location of avail-able services. They can write intelligible instruction booklets. They can send owners e-mail updates describing new tablet applications. In addition, they can provide good channels for speedy redress of customer grievances. pos Tpu Rchase uses and disposal Marketers should also monitor how buyers use and dispose of the product (Figure 6. 7). A key driver of sales frequency is product consumption rate—the more quickly buyers consume a product, the sooner they may be back in the market to repurchase it. Consumers may fail to replace some products soon enough because they overestimate product life. 71 One strat-egy to speed replacement is to tie the act of replacing the product to a certain holiday, event, or time of year (such as promoting changing the batteries in smoke detectors when Daylight Savings ends). Another strategy is to provide consumers with better information about either (1) the time they first used the product or need to replace it or (2) its current level of performance. Batteries have built-in gauges that show how much power they have left; razors have color in their lubricating strips to indicate when blades may be worn; and so on. Perhaps the simplest way to increase usage is to learn when actual usage is lower than recommended and persuade customers that more regular usage has benefits, overcoming potential hurdles. If consumers throw the product away, the marketer needs to know how they dispose of it, especially if—like bat-teries, beverage containers, electronic equipment, and disposable diapers—it can damage the environment. There also may be product opportunities in disposed products: Air Salvage International is the largest plane dismantler in Europe and a major player in the booming secondhand market for aircraft parts, which totaled $2. 5 billion from 2009 to 2011; vintage clothing shops, such as Savers, resell 2. 5 billion pounds of used clothing annually; Diamond Safety buys finely ground used tires and then makes and sells playground covers and athletic fields. 72 Product Get rid of it temporarily Get rid of it permanently Keep it Rent it To be (re)sold To be used Direct to consumer Through middleman To middleman Trade it Give it away Sell it Throw it away Lend it Use it to ser ve original purpose Convert it to ser ve a new purpose Store it| Fig. 6. 7 | How Customers Use or Dispose of Products Source: Jacob Jacoby, et al., “What about Disposition?,” Journal of Marketing (July 1977), p. 23. Reprinted with permission from the Journal of Marketing, published by the American Marketing Association. Air Salvage International is a market leader in the booming business of selling used aircraft parts. Source: © Jim West / Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
202 PART 3 | Conne CTing Wi Th Cus Tome Rs Mo Derat In G e FFe Cts on Consu Mer De CIs Ion Mak In G The path by which a consumer moves through the decision-making stages depends on several factors, including the level of involvement and extent of variety seeking. low-in Vol Vemen T consume R decision makin G The expectancy-value model assumes a high level of consumer involvement, or engagement and active processing the consumer undertakes in responding to a marketing stimulus. Richard Petty and John Cacioppo's elaboration likelihood model, an influential model of attitude formation and change, describes how consumers make evaluations in both low-and high-involvement circumstances. 73 There are two means of persuasion in their model: the central route, in which attitude formation or change stimulates much thought and is based on the consumer's diligent, rational consideration of the most important product informa-tion; and the peripheral route, in which attitude formation or change provokes much less thought and results from the consumer's association of a brand with either positive or negative peripheral cues. Peripheral cues for consum-ers include a celebrity endorsement, a credible source, or any object that generates positive feelings. Consumers follow the central route only if they possess sufficient motivation, ability, and opportunity. In other words, they must want to evaluate a brand in detail, have the necessary brand and product or service knowledge in memory, and have sufficient time and the proper setting. If any of those factors is lacking, consumers tend to fol-low the peripheral route and consider less central, more extrinsic factors in their decisions. We buy many products under conditions of low involvement and without significant brand differences. Consider salt. If consumers keep reaching for the same brand in this category, it may be out of habit, not strong brand loyalty. Evidence suggests we have low involvement with most low-cost, frequently purchased products. Marketers use four techniques to try to convert a low-involvement product into one of higher involvement. First, they can link the product to an engaging issue, as when Crest linked its toothpaste to cavity prevention. Second, they can link the product to a personal situation—for example, fruit juice makers began to include vitamins such as calcium to fortify their drinks. Third, they might design advertising to trigger strong emotions related to personal values or ego defense, as when cereal makers began to advertise to adults the heart-healthy nature of cereals and the importance of living a long time to enjoy family life. Fourth, they might add an important feature—for example, when GE lightbulbs introduced “Soft White” versions. These strategies at best raise consumer involvement from a low to a moderate level; they do not necessarily propel the consumer into highly involved buying behavior. If consumers will have low involvement with a purchase decision regardless of what the marketer can do, they are likely to follow the peripheral route. Marketers must give consumers one or more positive cues to justify their brand choice, such as frequent ad repetition, visible sponsorships, and vigorous PR to enhance brand familiarity. Other peripheral cues that can tip the balance in favor of the brand include a beloved celebrity endorser, attractive packaging, and an appealing promotion. Va Rie Ty-seekin G buyin G beha Vio R Some buying situations are characterized by low involvement but significant brand differences. Here consumers often do a lot of brand switching. Think about cookies. The consumer has some beliefs about cookies, chooses a brand without much evaluation, and evaluates the product during consumption. Next time, the consumer may reach for another brand out of a desire for a different taste. Brand switching occurs for the sake of variety rather than from dissatisfaction. The market leader and the minor brands in this product category have different marketing strategies. The mar-ket leader will try to encourage habitual buying behavior by dominating the shelf space with a variety of related product versions, avoiding out-of-stock conditions, and sponsoring frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, deals, coupons, free samples, and advertising that tries to break the consumer's purchase and consumption cycle and presents reasons for trying something new. Behavioral Decision Theory and Behavioral Economics As you might guess from low-involvement decision making and variety seeking, consumers don't always process information or make decisions in a deliberate, rational manner. One of the most active academic research areas in marketing over the past three decades has been behavioral decision theory (BDT). Behavioral decision theorists have identified many situations in which consumers make seemingly irrational choices. Table 6. 4 summarizes some provocative findings from this research. 74 What all these and other studies reinforce is that consumer behavior is very constructive and the context of decisions really matters. Understanding how these effects show up in the marketplace can be crucial for marketers. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Consume R m AR ke Ts | chapter 6 203 The work of these and other academics has also challenged predictions from economic theory and assumptions about rationality, leading to the emergence of the field of behavioral economics. 75 Here we review some of the is-sues in three broad areas: decision heuristics, framing, and other contextual effects. De CIs Ion heur Ist ICs Above we reviewed some common heuristics that occur with non-compensatory decision making. Other heu-ristics similarly come into play in everyday decision making when consumers forecast the likelihood of future outcomes or events. 76 1. The availability heuristic —Consumers base their predictions on the quickness and ease with which a par-ticular example of an outcome comes to mind. If an example comes to mind too easily, consumers might over-estimate the likelihood of its happening. For example, a recent product failure may lead consumers to inflate the likelihood of a future product failure and make them more inclined to purchase a product warranty. 2. The representativeness heuristic —Consumers base their predictions on how representative or similar the outcome is to other examples. One reason package appearances may be so similar for different brands in the Table 6. 4 Selected Behavioral Decision Theory Findings Consumers are more likely to choose an alternative (a home bread maker) after a relatively inferior option (a slightly better but significantly more expensive home bread maker) is added to the available choice set. Consumers are more likely to choose an alternative that appears to be a compromise in the particular choice set under consideration, even if it is not the best alternative on any one dimension. The choices consumers make influence their assessment of their own tastes and preferences. Getting people to focus their attention more on one of two considered alternatives tends to enhance the perceived attractiveness and choice probability of that alternative. The way consumers compare products that vary in price and perceived quality (by features or brand name) and the way those products are displayed in the store (by brand or by model type) both affect their willingness to pay more for additional features or a better-known brand. Consumers who think about the possibility that their purchase decisions will turn out to be wrong are more likely to choose better-known brands. Consumers for whom possible feelings of regret about missing an opportunity have been made more relevant are more likely to choose a product currently on sale than wait for a better sale or buy a higher-priced item. Consumers' choices are often influenced by subtle (and theoretically inconsequential) changes in the way alterna-tives are described. Consumers who make purchases for later consumption appear to make systematic errors in predicting their future preferences. Consumer's predictions of their future tastes are not accurate—they do not really know how they will feel after con-suming the same flavor of yogurt or ice cream several times. Consumers often overestimate the duration of their overall emotional reactions to future events (moves, financial windfalls, outcomes of sporting events). Consumers often overestimate their future consumption, especially if there is limited availability. In anticipating future consumption opportunities, consumers often assume they will want or need more variety than they actually do. Consumers are less likely to choose alternatives with product features or promotional premiums that have little or no value, even when these features and premiums are optional (like the opportunity to purchase a collector's plate) and do not reduce the actual value of the product in any way. Consumers are less likely to choose products selected by others for reasons they find irrelevant, even when these other reasons do not suggest anything positive or negative about the product's values. Consumers' interpretations and evaluations of past experiences are greatly influenced by the ending and trend of events. A positive event at the end of a service experience can color later reflections and evaluations of the experience as a whole. When faced with a simple but important decision, consumers can actually make things more complicated than they should. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
204 PART 3 | Conne CTing Wi Th Cus Tome Rs same product category is that marketers want their products to be seen as representative of the category as a whole. 3. The anchoring and adjustment heuristic —Consumers arrive at an initial judgment and then adjust it— sometimes only reluctantly—based on additional information. For services marketers, a strong first impres-sion is critical to establishing a favorable anchor so subsequent experiences will be interpreted in a more favorable light. Note that marketing managers also may use heuristics and be subject to biases in their own decision making. Fra MIn G Decision framing is the manner in which choices are presented to and seen by a decision maker. A $200 cell phone may not seem that expensive in the context of a set of $400 phones but may seem very expensive if other phones cost $50. Framing effects are pervasive and can be powerful. 77 We find framing effects in comparative advertising, where a brand can put its best foot forward by compar-ing itself to another with inferior features; in pricing where unit prices can make the product seem less expensive (“only pennies a day”); in product information where larger units can seem more desirable (a 24-month warranty versus a two-year warranty); and with new products, where consumers can better understand a new product's functions and features by seeing how it compares with existing products. 78 Marketers can be very clever in framing decisions. To help promote its environmentally friendly cars, Volkswagen Sweden incorporated a giant working piano keyboard into the steps next to the exit escalator of a Stockholm subway station. Stair traffic rose 66 percent as a result, a fact VW cleverly captured in a Y ou Tube video seen more than 20 million times. 79 men Tal accoun Tin G Researchers have found that consumers use a form of framing called “mental accounting” when they handle their money. 80 Mental accounting describes the way consumers code, categorize, and evaluate financial outcomes of choices. Formally, it is “the tendency to categorize funds or items of value even though there is no logical basis for the categorization, e. g., individuals often segregate their savings into separate accounts to meet different goals even though funds from any of the accounts can be applied to any of the goals. ”81 Consider the following two scenarios: 1. Y ou spend $50 to buy a ticket for a concert. 82 As you arrive at the show, you realize you've lost your ticket. Y ou decide to buy a replacement. 2. Y ou decide to buy a ticket to a concert at the door. As you arrive at the show, you realize somehow you lost $50 along the way. Y ou decide to buy the ticket anyway. Which one are you more likely to do? Most people choose scenario 2. Although you lost the same amount in each case—$50—in the first case you may have mentally allocated $50 for going to a concert. Buying another ticket would exceed your mental concert budget. In the second case, the money you lost did not belong to any account, so you had not yet exceeded your mental concert budget. Mental accounting has many applications to marketing. 83 According to the University of Chicago's Richard Thaler, it is based on a set of core principles: In a clever promotion by VW to emphasize its environmental friendliness, more people used stairs when they were made into a piano keyboard coming out of a Stockholm subway station. Source: Li Zhong/Xinhua/Photoshot/Newscom | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Consume R m AR ke Ts | chapter 6 205 1. Consumers tend to segregate gains. When a seller has a product with more than one positive dimension, it's desirable to have the consumer evaluate each dimension separately. Listing multiple benefits of a large indus-trial product, for example, can make the sum of the parts seem greater than the whole. 2. Consumers tend to integrate losses. Marketers have a distinct advantage in selling something if its cost can be added to another large purchase. House buyers are more inclined to view additional expenditures favorably given the already high price of buying a house. 3. Consumers tend to integrate smaller losses with larger gains. The “cancellation” principle might explain why withholding taxes from monthly paychecks is less painful than making large, lump-sum tax payments—the smaller withholdings are more likely to be overshadowed by the larger pay amount. 4. Consumers tend to segregate small gains from large losses. The “silver lining” principle might explain the popularity of rebates on big-ticket purchases such as cars. The principles of mental accounting are derived in part from prospect theory. Prospect theory maintains that consumers frame their decision alternatives in terms of gains and losses according to a value function. Consumers are generally loss-averse. They tend to overweight very low probabilities and underweight very high probabilities. 4. The typical buying process consists of the following sequence of events: problem recognition, information search, evaluation of alternatives, purchase decision, and postpurchase behavior. The marketers' job is to understand the behavior at each stage. 5. Consumers will not necessarily go through the buying process in an orderly fashion and make skip and reverse stages and alternative between going online and offline. 6. The attitudes of others, unanticipated situational factors, and perceived risk may all affect the decision to buy, as will consumers' levels of postpurchase product satisfac-tion, use and disposal, and the company's actions. 7. Consumers are constructive decision makers and sub-ject to many contextual influences. They often exhibit low involvement in their decisions, using many heuris-tics as a result. Summary 1. Consumer behavior is influenced by three factors: cul-tural (culture, subculture, and social class), social (ref-erence groups, family, and social roles and statuses), and personal (age, stage in the life cycle, occupation, economic circumstances, lifestyle, personality, and self-concept). Research into these factors can provide clues to reach and serve consumers more effectively. 2. Four main psychological processes that affect consum-er behavior are motivation, perception, learning, and memory. 3. To understand how consumers actually make buying decisions, marketers must identify who makes and has input into the buying decision; people can be initiators, influencers, deciders, buyers, or users. Different mar-keting campaigns might be targeted to each type of person. My Marketing Lab go to mymktlab. com to complete the problems marked with this icon as well as for additional assisted-graded writing questions. Applications Marketing Debate Is Target Marketing Ever Bad? As marketers increasingly tailor marketing programs to target market segments, some critics have denounced these efforts as exploitive. They see the preponderance of billboards advertising cigarettes and alcohol in low-income urban areas as taking advantage of a vulnerable market segment. Critics can be especially harsh in evaluating mar-keting programs that target African Americans and other mi-nority groups, claiming they often employ stereotypes and inappropriate depictions. Others counter that targeting and | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
206 PART 3 | Conne CTing Wi Th Cus Tome Rs positioning is critical to marketing and that these marketing programs are an attempt to be relevant to a certain con-sumer group. Take a position: Targeting minorities is exploitive ver-sus Targeting minorities is a sound business practice. Marketing Discussion What Are Your Mental Accounts? What mental accounts do you have in your mind about purchasing products or services? Do you have any rules you employ in spending money? Are they different from what other people do? Do you follow Thaler's four principles in reacting to gains and losses? Aladdin (1992), The Lion King (1994), Toy Story (with Pixar, 1995), and Mulan (1998). In addition, the company thought of creative new ways to target its core family-oriented consumers as well as expand into new areas to reach an older audience. It launched the Disney Channel, Touchstone Pictures, and Touchstone Television. Disney featured classic films during The Disney Sunday Night Movie and sold its classic films on video at extremely low prices, reaching a whole new generation of children. It tapped into publishing, international theme parks, and theatrical productions that helped reach a variety of audi-ences around the world. Today, Disney consists of five business segments: Studio Entertainment, which creates films, recording la-bels, and theatrical performances; Parks and Resorts, which focuses on Disney's 11 theme parks, cruise lines, and other travel-related assets; Consumer Products, which sells all Disney-branded products; Media Networks, which includes Disney's television networks such as ESPN, ABC, and the Disney Channel; and Interactive. Disney's greatest challenge today is keeping a 90-year-old brand relevant and current with its core au-dience while staying true to its heritage and core brand values. Disney's CEO Bob Iger explained, “As a brand that people seek out and trust, it opens doors to new platforms and markets, and hence to new consumers. When you deal with a company that has a great legacy, you deal with decisions and conflicts that arise from the clash of heritage versus innovation versus relevance. I'm a big believer in respect for heritage, but I'm also a big believer in the need to innovate and the need to balance that respect for heritage with a need to be relevant. ” Internally, to achieve quality and recognition, Disney has focused on the Disney Difference, which stems from one of Walt Disney's most recognizable quotes: “Whatever you do, do it well. Do it so well that when peo-ple see you do it they will want to come back and see you do it again and they will want to bring others and show them how well you do what you do. ” Disney works hard to connect with its customers on many levels and through every single detail. For ex-ample, at Disney World, “cast members” or employees are trained to be “assertively friendly” and greet visitors by waving big Mickey Mouse hands, hand out maps to adults and stickers to kids, and clean up the park Marketing Excellence >> Disney Few companies have been able to connect with their audience as well as Disney has. From its founding by brothers Walt and Roy Disney in 1923, the Disney brand has always been synonymous with trust, fun, and qual-ity entertainment for the entire family. Walt Disney once stated, “I am interested in entertaining people, in bringing pleasure, particularly laughter, to others, rather than being concerned with 'expressing' myself with obscure creative impressions. ” The Walt Disney Company has grown into the world-wide phenomenon that today includes theme parks, feature films, television networks, theatre productions, consumer products, and a growing online presence. In its first two decades, however, it was a struggling cartoon studio that introduced the world to Mickey Mouse, who went on to become its most famous character. Few believed in Disney's vision at the time, but the smashing success of cartoons with sound and of the first full-length animated film, Snow White and the Seven Dwarfs, in 1937 led to other animated classics through-out the 1940s, 1950s, and 1960s, including Pinocchio, Bambi, Cinderella, and Peter Pan, live-action films such as Mary Poppins and The Love Bug, and television series like Davy Crockett. When Walt Disney died in 1966, he was considered the best-known person in the world. He had expanded the Disney brand into film, television, consumer products, and Disneyland in southern California, the company's first theme park. After Walt's death, Roy Disney took over as CEO and realized his brother's dream of opening the 24,000-acre Walt Disney World theme park in Florida. Roy died in 1971, and the company stumbled for several years without the leadership of its two founding brothers. It wasn't until the late 1980s that the company reconnected with its audience and restored trust and interest in the Disney brand. It all started with the release of The Little Mermaid, which turned an old fairy tale into a magical animated Broadway-style movie that won two Oscars. Between the late 1980s and 2000, Disney entered an era known as the Disney Renaissance as it released groundbreaking animated films such as Beauty and the Beast (1991), | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Consume R m AR ke Ts | chapter 6 207 shows as well as to post news about its products and interviews with Disney's employees, staff, and park of-ficials. Disney's Web site provides insight into its movie trailers, television clips, Broadway shows, and virtual theme park experiences. Disney's marketing campaign in recent years has focused on how it helps make unforgettable family mem-ories. The campaign, “Let the Memories Begin,” fea-tures real guests throughout Disney enjoying different rides and magical experiences. Leslie Ferraro, executive vice president of global marketing, Disney Destinations, elaborated, “The inspiration for this effort came from our guests. Each and every day people are making memories at our parks, posting them online and sharing them with friends and family. ” According to internal studies, Disney estimates that consumers spend 13 billion hours “immersed” with the Disney brand each year. Consumers around the world spend 10 billion hours watching programs on the Disney Channel, 800 million hours at Disney's resorts and theme parks, and 1. 2 billion hours watching a Disney movie—at home, in the theater, or on their computer. Today, Disney is the 13th most powerful brand in the world, and its rev-enues topped $45 billion in 2013. Questions 1. What does Disney do best to connect with its core consumers? 2. What are the risks and benefits of expanding the Disney brand in new ways, such as video games or superheroes? Sources: “Company History,” Disney. com; “Annual Reports,” Disney. com; Richard Siklosc, “The Iger Difference,” Fortune, April 11, 2008; Brooks Barnes, “After Mickey's Makeover; Less Mr. Nice Guy,” New York Times, November 4, 2009; “World's Most Powerful Brands,” Forbes, April 2012; Dorothy Pomerantz, “Five Lessons in Success from Disney's $40 Million CEO,” Forbes, January 23, 2013; “Disney Launches Infinity Video Game That Costs More Than an i Pad Mini,” Daily Mail, January 16, 2013; Carmine Gallo, “Customer Service the Disney Way,” Forbes, April 14, 2011; Hugo Martin, “Disney's 2011 Marketing Campaign Centers on Family Memories,” LA Times, September 23, 2010; Elena Malydhina, “Disney Parks Campaign Borrows Family Memories,” Adweek, September 23, 2010; Disney Annual Report 2013. so diligently that it's difficult to find a piece of garbage anywhere. Every detail matters, right down to the behavior of custodial workers who are trained by Disney's anima-tors to take their simple broom and bucket of water and quietly “paint” a Goofy or Mickey Mouse in water on the pavement. It's a moment of magic for guests that lasts just a minute before it evaporates in the hot sun. Disney's broad range of businesses allows the com-pany to connect with its audience in multiple ways, ef-ficiently and economically. Hannah Montana provides an excellent example. The company took a tween-targeted television show and moved it across several divisions to become a significant franchise for the company, includ-ing millions of CD sales, video games, popular consumer products, box office movies, concerts around the world, and ongoing live performances at international Disneyland resorts in Hong Kong, India, and Russia. Recently, Disney acquired three huge brands: Pixar, Marvel, and Lucas Films. The company has started to leverage these properties, which include the Star Wars brand and superheroes such as Spiderman, Iron Man, and the Hulk, across many of its businesses in order to create sustainable character brands and new growth op-portunities for the company. Perhaps the most anticipated new product of 2013 was the Disney Infinity gaming platform, which crossed all Disney boundaries. Disney Infinity allowed consumers to play with many of the Disney characters at the same time, interacting and working together on different adventures. For example, Andy from Toy Story might join forces with Captain Jack Sparrow from Pirates of the Caribbean and several monsters from Monsters, Inc. to fight villains from outer space. With so many brands, characters, and businesses, Disney uses technology to ensure that a customer's ex-perience is consistent across every platform. The com-pany connects with its consumers in innovative ways through e-mail, blogs, and its Web site. It was one of the first companies to begin regular podcasts of its television a retail titan in home furnishings and a global cultural phe-nomenon, inspiring Business Week to call it a “one-stop sanctuary for coolness” and “the quintessential cult brand. ” IKEA inspires remarkable levels of interest and devo-tion from its customers. Each year more than 650 million visitors walk through its stores all over the world. Most need to drive 50 miles round-trip but happily make the effort in order to experience IKEA's unique value proposi-tion: leading-edge design and functional home furnish-ings at extremely low prices. Marketing Excellence >> IKEA IKEA was founded in 1943 by a 17-year-old Swede named Ingvar Kamprad who sold pens, Christmas cards, and seeds out of a shed on his family's farm. The name IKEA was derived from Kamprad's initials (IK) and the first letters of the Elmtaryd farm and the village of Agunnaryd where he grew up (EA). Over the years, the company grew into | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
208 PART 3 | Conne CTing Wi Th Cus Tome Rs Year of the Rooster, IKEA stocked 250,000 plastic place-mats with rooster themes, which quickly sold out. When employees realized U. S. shoppers were buying vases as drinking glasses because they considered IKEA's regular glasses too small, the company developed larger glasses for the U. S. market. After IKEA managers vis-ited European and U. S. consumers in their homes, they learned that Europeans generally hang their clothes, whereas U. S. shoppers prefer to store them folded. As a result, IKEA designed wardrobes for the U. S. market with deeper drawers. Showrooms in each country or region vary as well. For example, managers learned that many U. S. con-sumers thought IKEA sold only European-size beds. Beds are very important to U. S. consumers, so IKEA quickly changed its U. S. showrooms to feature king beds and a wide range of styles. After visiting Hispanic households in California, IKEA added more seating and dining space to its California stores, as well as brighter color palettes and more picture frames on the show-room walls. In China, IKEA set up its showrooms in small spaces to accurately reflect the small size of apartments in that country. As the company expands globally, it is learning that attitudes towards its core DIY (do it yourself) delivery and assembly business model vary. In China, for ex-ample, consumers do not want to assemble products themselves and will pay a significant amount for home delivery and assembly. As a result, IKEA has added these services, and sales in Asia have taken off. The company plans to implement the same strategy in India, where DIY is also less common. IKEA is known for its quirky marketing campaigns, which help generate excitement and awareness of its stores and brand. It ran a campaign inviting customers to be the “Ambassador of Kul” (Swedish for “fun”), but in order to collect the prize, the contestants had to live in an IKEA store for three full days before it opened, which they happily did. Thousands of people will line up for a chance to win prizes and IKEA furniture. In Sweden, IKEA launched a Facebook page for the manager of a new store. Anyone who could tag his or her name to an IKEA product on the profile page won that item. The promotion generated thousands of tags. IKEA has evolved into the largest furniture retailer in the world, with approximately 350 stores in 43 countries and revenues topping €27. 9 billion, or $36 billion, in 2013. The majority of sales still come from Europe, but the company has aggressive plans to expand the $11 bil-lion brand further into Asia, India, and the United States. IKEA's Scandinavian-designed products are well made and appeal to the masses. To stay relevant and fashionable, the company replaces approximately one-third of its product lines each year. Most have Swedish names, such as HEKTAR lamps, BILLY bookcases, and LACK side tables. Kamprad, who was dyslexic, believed it was easier to remember product names rather than codes or numbers. Besides featuring fashionable and good-quality prod-ucts, IKEA stands out in the industry because of its bar-gain prices. The company's vision is and always has been “to create a better everyday life for the many people. ” As Kamprad said, “People have very thin wallets. We should take care of their interests. ” A high percentage of its cus-tomers are college students and families with children. IKEA continuously seeks out new ways to run its businesses more efficiently and pass those cost savings on to the customer. In fact, it reduces prices across its products by 1 percent to 3 percent annually. How can it do so? For starters, IKEA engages the consumer on many levels, including having the customer do all the shopping, shipping, and assembly. IKEA's floor plan is designed in a winding, one-way format featuring different inspirational room settings, so consumers experience the entire store. Next, they can grab a shopping cart, pay for the items, visit the warehouse, and pick up their purchases in flat boxes. Consumers load the items in their car, take them home, and completely assemble the products themselves. This strategy makes storage and transportation easier and cheaper for the store. IKEA has also implemented several company-wide strategies to keep operational costs low. The company buys in bulk, controls the supply chain, uses lighter pack-aging materials, and saves on electricity through solar panels, low-wattage light bulbs, and energy from its own wind farms in six different countries. Its stores are located a good distance from most city centers, which helps keep land costs down and taxes low. When IKEA develops new products, its designers and product developers start with a low price tag first and then work with one of their 1,350 suppliers around the world to develop the product within that price range. Designs are efficient, and waste is kept to a minimum. Most stores resemble a large box with few windows and doors and are painted bright yellow and blue—Sweden's national colors. Many of IKEA's products are sold uniformly through-out the world, but the company also caters to local and regional tastes. For example, stores in China stock specific items for each New Year. During the Chinese | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Consume R m AR ke Ts | chapter 6 209 Sources: Kerry Capell, “IKEA: How the Swedish Retailer Became a Global Cult Brand,” Business Week, November 14, 2005, p. 96; “Need a Home to Go with That Sofa?,” Business Week, November 14, 2005, p. 106; Ellen Ruppel Shell, “Buy to Last,” Atlantic, July/August 2009; Jon Henley, “Do You Speak IKEA?,” Guardian, February 4, 2008; “Innovative Retailers: IKEA,” Retailinsider. com/PCMS, March 29, 2012; Jenna Goudreau, “How IKEA Leveraged the Art of Listening to Global Dominance,” Forbes, January 30, 2013; IKEA, www. ikea. com. Questions 1. What are some of the things IKEA is doing well to reach consumers in different markets? What else could it be doing? 2. IKEA has essentially changed the way people shop for furniture. Discuss the pros and cons of this strategy, especially as the company plans to continue to ex-pand in places like Asia and India. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
210 In This Chapter, We Will Address the Following Questions 1. What is organizational buying? (p. 211) 2. What buying situations do business buyers face? (p. 215) 3. Who participates in the business-to-business buying process? (p. 215) 4. How do business buyers make their decisions? (p. 220) 5. In what ways can business-to-business companies develop effective marketing programs? (p. 226) 6. How can companies build strong loyalty relationships with business customers? (p. 230) 7. How do institutional buyers and government agencies do their buying? (p. 233)My Marketing Lab™ Improve Y our Grade! Over 10 million students improved their results using the Pearson My Labs. Visit mymktlab. com for simulations, tutorials, and end-of-chapter problems. CEO John Chambers has helped transform Cisco to become an exemplary customer-focused organization. Source: ASSOCIATED PRESS | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
211 Some of the world's most valuable brands belong to business marketers: ABB, Caterpillar, Du Pont, Fed Ex, GE, Hewlett-Packard, IBM, Intel, and Siemens, to name a few. Many principles of basic marketing also apply to business market-ers. They need to embrace holistic marketing principles, such as building strong loyalty relationships with their customers, just like any marketer. But they also face some unique consid-erations in selling to other businesses. In this chapter, we will highlight some of the crucial similarities and differences for marketing in business markets. 3Business organizations do not only sell; they also buy vast quantities of raw materials, manufactured components, plant and equipment, supplies, and business services. According to the Census Bureau, there were roughly 7. 4 million businesses with paid employees in 2010 in the United States alone. 1 To create and capture value, sellers such as Cisco must understand these organizations' needs, resources, policies, and buying procedures. 2Analyzing Business Markets7 At the height of the dot-com boom, Cisco Systems was briefly the most valuable company in the world, with a valuation of $500 billion. Since those heady days, Cisco has faced a number of challenges and obstacles to its market leadership but has taken a series of steps to try to stay ahead. The company prides itself on staying close to its customers and sees its core competency as helping them get through big transitions by breaking down their corporate silos. Long-time CEO John Chambers cites compact and efficient blade servers as a good example of how Cisco helps companies form a common technological vision, noting that Cisco's is the only computing technology that can handle data, voice, and video. As a technology company, Cisco is constantly reinventing itself to reflect shifts in the marketplace, whether by tapping into trends to enable voice and video over the Internet or by becoming a major player in cloud computing. Acquisitions play a key role, some notable ones being the $6. 9 bil-lion purchase of set-top box maker Scientific Atlanta in 2005 and the $5 billion purchase of video software solutions provider NDS in 2012. Cisco knows that as many as a third of its acquitions will fail, as was the case when it bought Pure Digitial, maker of the Flip video camera, for $600 million in 2009. Cisco does spend $6 billion annually on research and development, and it generates 55 percent of its revenue and 70 percent of its growth from overseas. What is Organizational Buying? Frederick E. Webster Jr. and Y oram Wind define organizational buying as the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. 4 The Bus Iness Marke T versus The Consu Mer Marke T The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. Any firm that supplies components for products is in the business-to-business marketplace. Some of the major industries making up the business market are aerospace; agriculture, forestry, and fisheries; chemical; computer; construction; defense; energy; mining; manufacturing; construction; transportation; communication; public utilities; banking, finance, and insurance; distribution; and services. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
212 PART 3 | Conne CTing Wi Th Cus Tome Rs More dollars and items change hands in sales to business buyers than to consumers. Consider the process of producing and selling a simple pair of shoes. 5 A broad spectrum of materials and material combinations are used today in shoe manufacturing. Leathers, synthetics, rubber and textile materials are counted among the basic upper materials. Each ma-terial has its own specific character and they differ not only in their appearance but also in their physical properties, their service life and treatment needs. The choice of shoe material significantly influences the life of the footwear, and in many cases dictates its use. For leather shoes, hide dealers must sell hides to tanners, who sell leather to shoe manufacturers, who sell shoes to wholesalers, who sell shoes to retailers, who finally sell them to consumers. Each party in the supply chain also buys many other goods and services to support its operations. Given the highly competitive nature of business-to-business markets, the biggest enemy to marketers here is commoditization. 6 Commoditization eats away margins and weakens customer loyalty. It can be overcome only if target customers are convinced that meaningful differences exist in the marketplace and that the unique benefits of the firm's offerings are worth the added expense. Thus, a critical step in business-to-business marketing is to create and communicate relevant differentiation from competitors. Here is how Siemens has improved its marketing to better compete in recent years:7 Sie Men S Although mammoth in size, with over $100 billion in revenue and approximately 336,000 employees in 190 countries, German engineering giant Siemens was still not well known in its largest market, the United States, which draws almost $20 billion in revenue. With a goal to establish “who we are, what we are about, and what we look like,” the company launched the “Answers” campaign in 2007 to unify its diverse units—which design and manufacture products ranging from trains to diagnostic imaging systems to wind turbines—into one brand identity. Developed by communication agency partner Ogilvy, the campaign was thoroughly integrated across media. Over time, ads became more emotional and human in nature, focusing on how Siemens has solutions that impact customers, society, the environment and the economy. The advertising touched on Siemens' job generation, productivity and work to ensure a sustainable society. Sustainability solutions were reflected in approximately one-third of its revenue. Due to the severe economic recession, there was a strong “buy American” push. The “Siemens Answers” advertising program also helped Siemens reinforce its American credentials. With a focus on the number one Siemens market—the United States—and new emerging markets like China, Siemens began to hit its financial stride again. Business marketers face many of the same challenges as consumer marketers, especially understanding their customers and what they value. The well-respected Institute for the Study of Business Markets (ISBM) notes that the three biggest hurdles for B-to-B marketing are: (1) building stronger interfaces between marketing and sales; (2) building stronger innovation-marketing interfaces; and (3) extracting and leveraging more granular customer and market knowledge. Four additional imperatives cited by ISBM are: (1) demonstrating marketing's contribution to business performance; (2) engaging more deeply with customers and customers' customers; (3) finding the right mix As with many products, shoes are manufactured with a wide variety of different kinds of materials and ingredients. Source: © edu1971/Fotolia | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 213 of centralized versus decentralized marketing activities; and (4) finding and grooming marketing talent and competencies. 8 Business marketers contrast sharply with consumer markets in some ways, however. They have: Fewer, larger buyers. The business marketer normally deals with far fewer and much larger buyers than the consumer marketer does, particularly in such industries as aircraft engines and defense weapons. The fortunes of Goodyear tires, Cummins engines, Delphi control systems, and other automotive part suppliers depend in large part on getting big contracts from just a handful of major automakers. Close supplier-customer relationships. Because of the smaller customer base and the importance and power of the larger customers, suppliers are frequently expected to customize their offerings to individual business customer needs. On an annual basis, Pittsburgh-based PPG Industries purchases more than $7 billion in materials and services from thousands of suppliers. The company presented seven Excellent Supplier Awards for superior performance in 2011, the criteria for which included product quality, delivery, documentation, innovation, responsiveness, continuous improvement, and participation in the Supplier Added Value Effort ($AVE) program. With its $AVE program, PPG challenges its suppliers of maintenance, repair, and operating (MRO) goods and services to deliver on annual value-added and cost-savings proposals equaling at least 5 percent of their total annual sales to PPG. 9 Business buyers also often select suppliers that also buy from them. A paper manufacturer might buy chemicals for its pulp and paper making from a chemical company that in turn buys a considerable amount of paper from the manufacturer. Professional purchasing. Business goods are often purchased by trained purchasing agents, who must follow their organizations' purchasing policies, constraints, and requirements. Many business buying instruments— for example, requests for quotations, proposals, and purchase contracts—are not typically found in consumer buying. Many professional buyers belong to the Institute for Supply Management (ISM), which seeks to im-prove the profession's effectiveness and status. This means business marketers must provide greater technical data about their product and its competitive advantages. Business-to-business powerhouse Siemens has emphasized its American roots and sustainability accomplishments in its most important U. S. market. Source: © Siemens AG 2014 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
214 PART 3 | Conne CTing Wi Th Cus Tome Rs Multiple buying influences. More people typically influence business buying decisions. Buying committees that include technical experts and even senior management are common in the purchase of major goods. Business marketers need to send well-trained sales representatives and teams to deal with these equally well-trained buyers. Multiple sales calls. A study by Mc Graw-Hill found that it took four to four-and-a-half calls to close an aver-age industrial sale. For capital equipment sales for large projects, it may take many attempts to fund a project, and the sales cycle—between quoting a job and delivering the product—can even take years. 10 Derived demand. The demand for business goods is ultimately derived from the demand for consumer goods. For this reason, the business marketer must closely monitor the buying patterns of end users. Pittsburgh-based Consol Energy's coal and natural gas business largely depends on orders from utilities and steel companies, which, in turn, depend on consumer demand for electricity and for steel-based products such as automobiles, machines, and appliances. Business buyers must also pay close attention to economic factors like the level of production, investment, and consumer spending and the interest rate. Business marketers can do little to stimulate total demand. They can only fight harder to increase or maintain their share of it. Inelastic demand. The total demand for many business goods and services is inelastic—that is, not much affected by price changes. Shoe manufacturers are not going to buy much more leather if the price of leather falls, nor less if the price rises unless they find satisfactory substitutes. Demand is especially inelastic in the short run because producers cannot make quick changes in production methods. Demand is also inelastic for business goods that represent a small percentage of the item's total cost, such as shoelaces. Fluctuating demand. The demand for business goods and services tends to be more volatile than the demand for consumer goods and services. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for plant and equipment. Demand for plant and equipment is more vola-tile because it reflects the normal year-to-year replacement demand as well as the need to satisfy increased or decreased consumer demand. Economists refer to this as the acceleration effect. Sometimes a rise of only 10 percent in consumer demand can cause as much as a 200 percent rise in business demand for products in the next period; a 10 percent fall in consumer demand may cause a complete collapse in business demand as replacement needs drop considerably. Geographically concentrated buyers. For years, more than half of U. S. business buyers have been concen-trated in seven states: New Y ork, California, Pennsylvania, Illinois, Ohio, New Jersey, and Michigan. The geographical concentration of producers helps to reduce selling costs. At the same time, business marketers need to monitor regional shifts of certain industries such as the automobile industry, which is no longer con-centrated around Detroit. Direct purchasing. Business buyers often buy directly from manufacturers rather than through intermediar-ies, especially items that are technically complex or expensive such as servers or aircraft. Bu YIn G s ITua TIons The business buyer faces many decisions in making a purchase. How many depends on the complexity of the problem being solved, newness of the buying requirement, number of people involved, and time required. Three types of buying situations are the straight rebuy, modified rebuy, and new task. 11 Consol Energy's revenue depends indirectly on market demand for electricity and steel-based products. Source: ©Adam Ziaja/Shutterstock | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 215 Straight rebuy. In a straight rebuy, the purchasing department reorders items like office supplies and bulk chemicals on a routine basis and chooses from suppliers on an approved list. The suppliers make an effort to maintain product and service quality and often propose automatic reordering systems to save time. “Out sup-pliers” attempt to offer something new or exploit dissatisfaction with a current supplier. Their goal is to get a small order and then enlarge their purchase share over time. Modified rebuy. The buyer in a modified rebuy wants to change product specifications, prices, delivery re-quirements, or other terms. This usually requires additional participants on both sides. The in-suppliers be-come nervous and want to protect the account. The out-suppliers see an opportunity to propose a better offer to gain some business. New task. A new-task purchaser buys a product or service for the first time (an office building, a new security system). The greater the cost or risk, the larger the number of participants, and the greater their information gathering—the longer the time to a decision. 12 The business buyer makes the fewest decisions in the straight rebuy situation and the most in the new-task situ-ation. Over time, new-buy situations become straight rebuys and routine purchase behavior. New-task buying is the marketer's greatest opportunity and challenge. The buying process passes through several stages: awareness, interest, evaluation, trial, and adoption. Mass media can be most important during the initial awareness stage; salespeople often have their greatest impact at the interest stage; and technical sources can be most important during evaluation. Online selling efforts may be useful at all stages. In the new-task situation, the buyer must determine product specifications, price limits, delivery terms and times, service terms, payment terms, order quantities, acceptable suppliers, and the selected supplier. Different participants influence each decision, and the order in which these decisions are made varies. Because of the complicated selling required, many companies use a missionary sales force consisting of their most effective salespeople. The brand promise and the manufacturer's name recognition will be important in establishing trust and persuading the customer to consider change. The marketer also tries to reach as many key participants as possible with information and assistance. Once a customer has been acquired, in-suppliers are continually seeking ways to add value to their market offer to facilitate rebuys. EMC has successfully acquired a series of computer software leaders to reposition the company to manage and protect—not just store—information, helping companies to “accelerate their journey to cloud com-puting” in the process. Where one hardware product once made up 80 percent of its sales, the company now gets about 60 percent of its revenue from software and services. 13 Oracle has also made a number of strategic acquisi-tions to expand its offerings. 14 Orac Le Business-software giant Oracle became an industry leader by offering a range of products and services to satisfy customer needs for enterprise software. Originally known for its flagship database management systems, Oracle spent $30 billion in recent years to buy 56 companies, including $7. 4 billion for Sun Microsystems, doubling its revenue to $24 billion and sending its stock soaring in the process. To become a one-stop shop for all kinds of business customers, Oracle now sells everything from server computers and data storage devices to operat-ing systems, databases, and software for running accounting, sales, and supply-chain management. At the same time, the company has launched “Project Fusion” to unify its applications so customers can consolidate solutions to their software needs, as reinforced by their company slogan, “Hardware and Software, Engineered to Work Together. ” Oracle's market power has sometimes raised both criticism from customers and concerns from government regula-tors. At the same time, its many long-time customers speak to its track record of product innovation and customer satisfaction. Participants in the Business Buying Process Who buys the trillions of dollars' worth of goods and services needed by business organizations? Purchasing agents are influential in straight-rebuy and modified-rebuy situations, whereas other employees are more influ-ential in new-buy situations. Engineers are usually influential in selecting product components, and purchasing agents dominate in selecting suppliers. 15 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
216 PART 3 | Conne CTing Wi Th Cus Tome Rs The Bu YIn G Cen Ter Webster and Wind call the decision-making unit of a buying organization the buying center. It consists of “all those individuals and groups who participate in the purchasing decision-making process, who share some com-mon goals and the risks arising from the decisions. ”16 The buying center includes all members of the organization who play any of seven roles in the purchase decision process. 1. Initiators —Users or others in the organization who request that something be purchased. 2. Users —Those who will use the product or service. In many cases, the users initiate the buying proposal and help define the product requirements. 3. Influencers —People who influence the buying decision, often by helping define specifications and providing information for evaluating alternatives. Technical people are particularly important influencers. 4. Deciders —People who decide on product requirements or on suppliers. 5. Approvers —People who authorize the proposed actions of deciders or buyers. 6. Buyers —People who have formal authority to select the supplier and arrange the purchase terms. Buyers may help shape product specifications, but they play their major role in selecting vendors and negotiating. In more complex purchases, buyers might include high-level managers. 7. Gatekeepers —People who have the power to prevent sellers or information from reaching members of the buying center. For example, purchasing agents, receptionists, and telephone operators may prevent salesper-sons from contacting users or deciders. Several people can occupy a given role such as user or influencer, and one person may play multiple roles. 17 A purchasing manager, for example, is often buyer, influencer, and gatekeeper simultaneously. She can decide which sales reps can call on other people in the organization, what budget and other constraints to place on the purchase, and which firm will actually get the business, even though others (deciders) might select two or more potential vendors that can meet the company's requirements. A buying center typically has five or six members and sometimes dozens. Some may be outside the orga-nization, such as government officials, consultants, technical advisors, and other members of the marketing channel. 18 Bu YIn G Cen Ter Influen Ces Buying centers usually include participants with differing interests, authority, status, susceptibility to persuasion, and sometimes very different decision criteria. Engineers may want to maximize the performance of the product; production people may want ease of use and reliability of supply; financial staff focus on the economics of the purchase; purchasing may be concerned with operating and replacement costs; union officials may emphasize safety issues. Business buyers also have personal motivations, perceptions, and preferences influenced by their age, income, education, job position, personality, attitudes toward risk, and culture. Some are “keep-it-simple” buyers, or “own-expert, ” “want-the-best, ” or “want-everything-done” buyers. Some younger, highly educated buyers are technically proficient and conduct rigorous analyses of competitive proposals before choosing a supplier. Other buyers are “toughies” from the old school who pit competing sellers against one another, and in some companies, the pur-chasing powers-that-be are legendary. Webster cautions that ultimately individuals, not organizations, make purchasing decisions. 19 Individuals are motivated by their own needs and perceptions in attempting to maximize the organizational rewards they earn (pay, advancement, recognition, and feelings of achievement). But organizational needs legitimate the buying pro-cess and its outcomes. In other words, according to Webster, businesspeople are not buying “products. ” They are buying solutions to two problems: the organization's economic and strategic problem and their own personal need for achievement and reward. In this sense, industrial buying decisions are both “rational” and “emotional”—they serve both the organization's and the individual's needs. 20 Research by one industrial component manufacturer found that although top executives at its small-and medium-size customers were comfortable buying from other companies, they appeared to harbor subconscious insecurities about buying the manufacturer's product. Constant changes in technology had left them concerned about internal effects within the company. Recognizing this unease, the manufacturer retooled its selling ap-proach to emphasize more emotional appeals and the way its product line actually enabled the customer's employees to improve their performance, relieving management of the complications and stress of using its components. 21 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 217 Tar Ge TIn G f Ir Ms and Bu YIn G Cen Ters Successful business-to-business marketing requires that business marketers know which types of companies to fo-cus on in their selling efforts, as well as whom to concentrate on within the buying centers in those organizations. Targe Ting Firms As we will discuss in detail in Chapter 9, business marketers may divide the marketplace in many different ways to choose the types of firms to which they will sell. Finding the sectors with the greatest growth prospects, most profitable customers, and most promising opportunities for the firm is crucial, as Timken found out. 22 Ti Mken When Timken, which manufactures bearings and rotaries for companies in a variety of industries, saw its net income and shareholder returns dip compared with competitors', the firm became concerned that it was not investing in the most profitable areas. To identify businesses that operated in financially attractive sectors and would be most likely to value its offerings, it conducted an extensive market study and discovered that some customers generated a lot of business but had little profit potential, while for others the opposite was true. As a result, Timken shifted its attention away from the auto industry and into the heavy processing, aerospace, and defense industries. It also addressed custom-ers that were financially unattractive or minimally attractive. A tractor manufacturer complained that Timken's bearings prices were too high for its medium-sized tractors. Timken suggested the firm look elsewhere but continued to sell bear-ings at the higher price for the manufacturer's large tractors to the satisfaction of both sides. By adjusting its products, prices, and communications to appeal to the right types of firms, Timken experienced record revenue despite a recession. It's also true, however, that as a slowing economy has put a stranglehold on large corporations' purchasing departments, small and midsize business markets are offering new opportunities for suppliers. See “Marketing Insight: Big Sales to Small Businesses” for more on this important B-to-B market. Targe Ting wi Thin The Business Cen Ter Once it has identified the type of businesses on which to focus marketing efforts, the firm must then decide how best to sell to them. Who are the major decision participants? What decisions do they influence, and how deeply? What evaluation criteria do they use? Consider the following example: A company sells nonwoven disposable surgical gowns to hospitals. The hospital staff who participate in the buying decision include the vice president of purchasing, the operating-room administrator, and the surgeons. The vice president of purchasing analyzes whether the hospital should buy disposable or reusable gowns. If disposable, the operating-room administrator compares various competitors' products on absorbency, anti-septic quality, design, and cost and normally buys the brand that meets functional requirements at the lowest cost. Surgeons influence the decision retroactively by reporting their satisfaction with the chosen brand. The business marketer is not likely to know exactly what kind of group dynamics take place during the decision process, though whatever information he or she can obtain about personalities and interpersonal factors is useful. Timken carefully segments business markets and adjusts the marketing programs for its bearings and rotaries to maximally satisfy target segments. Source: PR NEWSWIRE | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
218 PART 3 | Conne CTing Wi Th Cus Tome Rs Big Sales to Small Businesses In its March 2012 guidelines, the Small Business Administration (SBA) defined small businesses as those with fewer than 500 employees for most mining and manufacturing industries and $7 million in average annual receipts for most nonmanufacturing industries. Some exceptions exist in specialized industries, such as grocery and department stores and motor vehicle and electronic appliance dealers, and the guide-lines are constantly being updated to reflect changes in the business environment. The SBA counted approximately 28 million small businesses in the United States in 2013. These provide almost half of all private-sector employment and have generated almost two-thirds of net new private-sector jobs since the 1970s. Those new ventures all need capital equipment, technology, supplies, and services. Look beyond the United States and you find a huge and growing B-to-B market, one that top companies have recognized. IBM launched Express, a line of hardware, software services, and financing, specifically for the small to midsize customers (with fewer than 1,000 employees) that supply 20 percent of its business. As one VP of marketing noted, “In today's world, we see that over 80% of the time a small or medium business makes a technology decision, it starts with a search engine. ... We have to make sure we show up in their search queries, not just paid or organic search, but we want to drive stimulated search. ” IBM makes heavy use of social media—including blogs, Facebook, Linked In, and Twitter—to drive conversations around top-ics of interest to small and midsize businesses, such as IT security and cloud-based computing. The company is also using events to reach small businesses, such as a series on IT security that attracted more than 10,000 attendees. It has pledged $1 billion in financing to help small and midsize businesses procure certain IBM systems and services. Small and midsize businesses present huge opportunities and huge challenges. The market is large and fragmented by industry, size, and number of years in operation. Small business owners are notably averse to long-range planning and often have an “I'll buy it when I need it” decision-making style. Here are some guidelines for marketing to small businesses: Don't lump small and midsize businesses together. There's a big gap between $1 million in revenue and $50 million or between a start-up with 10 employees and a more mature business with 100 or more employees. IBM distinguishes its offerings to small and medium-sized businesses on its common Web site for the two. Do keep it simple. Offer one supplier point of contact for all service problems or one bill for all services and products. AT&T serves millions of small-business customers (with fewer than 100 employees) with services that bundle Internet, local phone, long-distance phone, data management, business networking, Web hosting, and teleconferencing. Do use the Internet. Hewlett-Packard found that time-strapped small-business decision makers prefer to buy, or at least research, products and services online. So it designed a site for them that pulls visitors through extensive advertising, direct mail, e-mail campaigns, catalogs, and events. Don't forget about direct contact. Even if a small business owner's first point of contact is via the Internet, you still need to of-fer phone or face time. Do provide support after the sale. Small businesses want part-ners, not pitchmen. When the De Witt Company, a 100- employee landscaping products business, purchased a large piece of machinery from Moeller, the company's president paid De Witt's CEO a personal visit and stayed until the machine was up and running properly. Do your homework. The realities of small or midsize business man-agement are different from those of a large corporation. Microsoft created a small, fictional executive research firm, Southridge, and baseball-style trading cards of its key decision makers to train its employees to tie sales strategies to small-business realities. Sources: Based on Barnaby J. Feder, “When Goliath Comes Knocking on David's Door,” New York Times, May 6, 2003; Jay Greene, “Small Biz: Microsoft's Next Big Thing?,” Business Week, April 21, 2003, pp. 72-73; Jennifer Gilbert, “Small but Mighty,” Sales & Marketing Management (January 2004), pp. 30-35; Kate Maddox, “Driving Engagement with Small Business,” Advertising Age, November 7, 2011; Christine Birkner, “Big Business Think Small,” Marketing News, May 15, 2012, pp. 12-16; “IBM Luring SMBs with Expanded Finance Options,” Network World, September 12, 2011; www. sba. gov; www. openforum. com; www-304. ibm . com/businesscenter/smb/us/en, all accessed May 20, 2014. marketing insight Small sellers concentrate on reaching the key buying influencers. Larger sellers go for multilevel in-depth sell-ing to reach as many participants as possible. Their salespeople virtually “live with” high-volume customers. Companies must rely more heavily on their communications programs to reach hidden buying influences and keep current customers informed. 23 Business marketers must periodically review their assumptions about buying center participants. Traditionally, SAP sold its software products to CIOs at large companies. A shift to focus on selling to individual corporate units lower down the organizational chart raised the percentage of software license sales going to new customers to 40 percent. 24 Insights into customers and buying centers are critical. GE's ethnographic research into the plastic-fiber indus-try revealed that the firm wasn't in a commodity business driven by price, as it had assumed. Instead it was in an artisanal industry, with customers who wanted collaboration at the earliest stages of development. GE completely | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 219 reoriented the way it interacted with companies in the industry as a result. In developing markets, ethnographic research also can be very useful, especially in far-flung rural areas, given that marketers often do not know these consumers as well. 25 In developing selling efforts, business marketers can also consider their customers' customers, or end users, if appropriate. Many B-to-B sales are to firms using the products they purchase as components in products they sell to the ultimate consumers. Business marketers can seek out opportunities to interact with their customers' custom-ers and improve their offerings or even their business model. When XSENS, a Dutch supplier of three-dimensional motion-sensor technology, helped solve the problems of one of its customers' customers, it also developed a new operating procedure that improved accuracy of its products by an order of magnitude. 26 The Purchasing/Procurement Process In principle, business buyers seek the highest benefit package (economic, technical, service, and social) in rela-tionship to a market offering's costs. The strength of their incentive to purchase will be a function of the differ-ence between perceived benefits and perceived costs. 27 Business marketers must therefore ensure that customers fully appreciate how the firm's offerings are different and better. Framing occurs when customers are given a perspective or point of view that allows the seller to “put its best foot forward. ” It can be as simple as making sure customers recognize all the benefits or cost savings afforded by the firm's offerings or becoming more influential in the customers' thinking about the economics of purchasing, owning, using, and disposing of product offerings. In the past, purchasing departments occupied a low position in the management hierarchy, in spite of of-ten managing more than half the company's costs. Recent competitive pressures have led many companies to upgrade their purchasing departments and elevate administrators to vice presidential rank. These new, more strategically oriented purchasing departments have a mission to seek the best value from fewer and better suppliers. Some multinationals have even elevated purchashing departments to “strategic supply departments” with re-sponsibility for global sourcing and partnering. At Caterpillar, purchasing, inventory control, production schedul-ing, and traffic have been combined into one department. Here are two other companies that have benefited from improving their business buying practices. Rio Tinto is a world leader in finding, mining, and processing the earth's mineral resources, with a significant presence in North America and Australia. Coordinating with its suppliers was time-consuming, so Rio Tinto embarked on an electronic commerce strategy with one key supplier. Both parties have reaped significant benefits. In many cases, orders are being filled in the suppliers' warehouse within minutes of being transmit-ted, and the supplier can now use a pay-on-receipt program that has shortened Rio Tinto's payment cycle to about 10 days. 28 GE learned that its plastic-fiber customers saw themselves more as artisans, completely changing how the company treated those customers. Source: © aykuterd/Fotolia | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
220 PART 3 | Conne CTing Wi Th Cus Tome Rs Medline Industries, the largest privately owned manufacturer and distributor of health care products in the United States, used software to integrate its view of customer activity across online and direct sales channels. The results? The firm enhanced its product margin by 3 percent, improved customer retention by 10 percent, reduced revenue lost to pricing errors by 10 percent, and enhanced the productivity of its sales representatives by 20 percent. 29 The upgrading of purchasing means business marketers must upgrade their sales staff to match the higher caliber of today's business buyers. Supplier diversity may not have a price tag, but it is a benefit purchasing departments and business buyers overlook at their own risk. Minority suppliers are the fastest-growing segment of today's business landscape, and CEOs of many of the largest companies see a diverse supplier base as a business imperative. In 2011, Mc Donald's U. S. restaurant system purchased nearly $6. 7 billion in goods and services from minority-and women-owned suppliers, about two-thirds of what the system spends for food, packaging, uniforms, operating supplies, and premiums. 30 Stages in the Buying Process We're ready to describe the general stages in the business buying-decision process. Patrick J. Robinson and his associates identified eight stages and called them buyphases. 31 The model in Table 7. 1 is the buygrid framework. In modified-rebuy or straight-rebuy situations, some stages are compressed or bypassed. For example, the buyer normally has a favorite supplier or a ranked list of suppliers and can skip the search and proposal solicitation stages. Here are some important considerations in each of the eight stages. Pro Ble M re Co Gn ITIon The buying process begins when someone in the company recognizes a problem or need that can be met by acquiring a good or service. The recognition can be triggered by internal or external stimuli. The internal stimulus might be a decision to develop a new product that requires new equipment and materials or a machine that breaks down and requires new parts. Or purchased material turns out to be unsatisfactory and the company searches for another supplier or lower prices or better quality. Externally, the buyer may get new ideas at a trade show, see an ad, receive an e-mail, read a blog, or receive a call from a sales representative who offers a better product or a lower price. Business marketers can stimulate problem recognition by direct marketing in many different ways. Ta Ble 7. 1 Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation to Major Buying Situations (Buyclasses) Buyclasses New Task Modified Rebuy Straight Rebuy Buyphases1. Problem recognition Yes Maybe No 2. General need description Yes Maybe No 3. Product specification Yes Yes Yes 4. Supplier search Yes Maybe No 5. Proposal solicitation Yes Maybe No 6. Supplier selection Yes Maybe No 7. Order-routine specification Yes Maybe No 8. Performance review Yes Yes Yes | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 221 General need des Cr IPTIon and Produ CT s Pe CIf ICa TIon Next, the buyer determines the needed item's general characteristics and required quantity. For standard items, this is simple. For complex items, the buyer will work with others—engineers, users—to define characteristics such as reliability, durability, or price. Business marketers can help by describing how their products meet or even exceed the buyer's needs. The buying organization now develops the item's technical specifications. Often, the company will assign a product-value-analysis engineering team to the project. Product value analysis (PVA) is an approach to cost reduc-tion that studies whether components can be redesigned or standardized or made by cheaper methods of produc-tion without adversely affecting product performance. The PV A team will identify overdesigned components, for instance, that last longer than the product itself. Tightly written specifications allow the buyer to refuse compo-nents that are too expensive or that fail to meet specified standards. Suppliers can use product value analysis as a tool for positioning themselves to win an account. Whatever the method, it is important to eliminate excessive costs. Mexican cement giant Cemex is famed for “The Cemex Way, ” which uses high-tech methods to squeeze out inefficiencies. 32 su PPl Ier sear Ch The buyer next tries to identify the most appropriate suppliers through trade directories, contacts with other companies, trade advertisements, trade shows, and the Internet. The move to online purchasing has far-reaching implications for suppliers and will change the shape of purchasing for years to come. Companies that purchase online are utilizing electronic marketplaces in several forms: Catalog sites. Companies can order thousands of items through electronic catalogs, such as W. W. Grainger's, distributed by e-procurement software. Vertical markets. Companies buying industrial products such as plastics, steel, or chemicals or services such as logistics or media can go to specialized Web sites called e-hubs. Plastics. com allows plastics buyers to search the best prices among thousands of plastics sellers. “Pure Play” auction company. Ritchie Bros. Auctioneers is the world's largest industrial auctioneer, with 44 auction sites worldwide. It sold $3. 8 billion of used and unused equipment at more than 356 unreserved auctions in 2013, including a wide range of heavy equipment, trucks, and other assets for the construction, transportation, agricultural, material handling, oil and gas, mining, forestry, and marine industry sectors. While some people prefer to bid in person at Ritchie Bros. auctions, they can also do so online in real time at rbauction. com—the company's multilingual Web site. In 2013, 50 percent of the bidders at Ritchie Bros. auc-tions bid over the Internet; online bidders purchased $1. 4 billion of equipment. 33 Spot (or exchange) markets. On spot electronic markets, prices change by the minute. Intercontinental Exchange (ICE) is the leading electronic energy marketplace and soft commodity exchange with billions in sales. Private exchanges. Hewlett-Packard, IBM, and Walmart operate private exchanges to link with specially invited groups of suppliers and partners over the Web. Barter markets. In barter markets, participants offer to trade goods or services. Buying alliances. Several companies buying the same goods can join together to form purchasing consortia to gain deeper discounts on volume purchases. Top Source is an alliance of firms in the retail and wholesale food-related businesses. Mexican cement giant Cemex is known for its sophisticated ways to reduce costs for its customers. Source: © Justin Kase zsixz / Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
222 PART 3 | Conne CTing Wi Th Cus Tome Rs Online business buying offers several advantages: It shaves transaction costs for both buyers and suppliers, reduces time between order and delivery, consolidates purchasing systems, and forges more direct relationships between partners and buyers. On the downside, it may help to erode supplier-buyer loyalty and create potential security problems. e-pro Curemen T Web sites are organized around two types of e-hubs: vertical hubs centered on industries (plastics, steel, chemicals, paper) and functional hubs (logistics, media buying, advertising, energy management). In addition to using these Web sites, companies can use e-procurement in other ways: Set up direct extranet links to major suppliers. A company can set up a direct e-procurement account at Dell or Office Depot, for instance, and its employees can make their purchases this way. Form buying alliances. A number of major retailers and manufacturers such as Acosta, Ahold, Best Buy, Carrefour, Family Dollar Stores, Lowe's, Safeway, Sears, SUPERV ALU, Target, Walgreens, Walmart, and Wegmans Food Markets are part of a data-sharing alliance called 1SYNC. Several auto companies (GM, Ford, Chrysler) formed Covisint for the same reason. Covisint is the leading provider of services that can integrate crucial business information and processes between partners, customers, and suppliers. The company has now also targeted health care to provide similar services. Set up company buying sites. General Electric formed the Trading Process Network (TPN), where it posts requests for proposals (RFPs), negotiates terms, and places orders. Moving into e-procurement means more than acquiring software; it requires changing purchasing strategy and structure. However, the benefits are many. Aggregating purchasing across multiple departments yields larger, cen-trally negotiated volume discounts, a smaller purchasing staff, and less buying of substandard goods from outside the approved list of suppliers. lead genera Tion The supplier's task is to ensure it is considered when customers are—or could be—in the market and searching for a supplier. Marketing must work with sales to define what makes a “sales ready” prospect and cooperate to send the right messages via sales calls, trade shows, online activities, PR, events, direct mail, and referrals. Marketers must find the right balance between the quantity and quality of leads. Too many leads, even of high quality, and the sales force may be overwhelmed and allow promising opportunities to fall through the cracks; too few or low-quality leads and the sales force may become frustrated or demoralized. 34 To generate high-quality leads, suppliers need to know about their customers. They can obtain background information from vendors such as Dun & Bradstreet and Info USA or information-sharing Web sites such as Jigsaw and Linked In. 35 Suppliers that qualify may be visited by the buyer's agents, who will examine the suppliers' manufacturing facili-ties and meet their staff. After evaluating each company, the buyer will end up with a short list of qualified suppli-ers. Many professional buyers have forced suppliers to make adjustments to their marketing proposals to increase their likelihood of making the cut. Richie Bros., the world's largest industrial auctioneers, conducts numerous online as well as in-person auctions for its customers. Source: Courtesy of Ritchie Bros. Auctioneers. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 223 Pro Posal sol ICITa TIon The buyer next invites qualified suppliers to submit written proposals. After evaluating them, the buyer will invite a few suppliers to make formal presentations. Business marketers must be skilled in researching, writing, and presenting proposals as marketing documents that describe value and benefits in customer terms. Oral presentations must inspire confidence and position the company's capabilities and resources so they stand out from the competition. Proposals and selling efforts are often team efforts that leverage the knowledge and expertise of coworkers. Pittsburgh-based Cutler-Hammer, part of Eaton Corp., developed “pods” of salespeople focused on a particular geographic region, industry, or market concentration. su PPl Ier sele CTIon Before selecting a supplier, the buying center will specify and rank desired supplier attributes, often using a supplier-evaluation model such as the one in Table 7. 2. To develop compelling value propositions, business marketers need to better understand how business buyers arrive at their valuations. 36 Researchers have identified eight different customer value assessment (CVA) methods. Companies tended to use the simpler methods, though the more sophisticated ones promise a more accurate pic-ture of CPV (see “Marketing Memo: Developing Compelling Customer Value Propositions”). The choice of attributes and their relative importance vary with the buying situation. Delivery reliability, price, and supplier reputation are important for routine-order products. For procedural-problem products, such as a copying machine, the three most important attributes are technical service, supplier flexibility, and product reli-ability. For political-problem products that stir rivalries in the organization (such as the choice of a computer sys-tem or software platform), the most important attributes are price, supplier reputation, product reliability, service reliability, and supplier flexibility. over Coming pri Ce pressures Despite moves toward strategic sourcing, partnering, and participation in cross-functional teams, buyers still spend a large chunk of their time haggling with suppliers on price. The number of price-oriented buyers can vary by country, depending on customer preferences for different service configurations and characteristics of the customer's organization. 37 Marketers can counter requests for a lower price in a number of ways, including framing as noted above. They may also be able to show that the total cost of ownership, that is, the life-cycle cost of using their product, is lower Ta Ble 7. 2 An Example of Vendor Analysis Attributes Rating Scale Importance Weights Poor (1) Fair (2) Good (3) Excellent (4) Price. 30 x Supplier reputation. 20 x Product reliability. 30 x Service reliability. 10 x Supplier flexibility. 10 x Total Score:. 30(4) +. 20(3) +. 30(4) +. 10(2) +. 10(3) = 3. 5 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
224 PART 3 | Conne CTing Wi Th Cus Tome Rs than for competitors' products. They can cite the value of the services the buyer now receives, especially if it is superior to that offered by competitors. 38 Research shows that service support and personal interactions, as well as a supplier's know-how and ability to improve customers' time to market, can be useful differentiators in achieving key-supplier status. 39 Improving productivity helps alleviate price pressures. Burlington Northern Santa Fe Railway has tied 30 percent of employee bonuses to improvements in the number of railcars shipped per mile. 40 Some firms are using technol-ogy to devise novel customer solutions. With Web technology and tools, Vistaprint printers can offer professional printing to small businesses that previously could not afford it. 41 Some companies handle price-oriented buyers by setting a lower price but establishing restrictive conditions: (1) limited quantities, (2) no refunds, (3) no adjustments, and (4) no services. 42 Cardinal Health set up a bonus-dollars plan and gave points according to how much the customer pur-chased. The points could be turned in for extra goods or free consulting. GE is installing diagnostic sensors in its airline engines and railroad engines. It is now compensated for hours of flight or railroad travel. IBM is now more of a “service company aided by products” than a “product company aided by services. ” It can sell computer power on demand (like video on demand) as an alternative to selling computers. To command price premiums in competitive B-to-B markets, firms must create compelling customer value propositions. The first step is to research the cus-tomer. Here are a number of productive research methods: 1. Internal engineering assessment —Have company engineers use laboratory tests to estimate the product's performance characteristics. Weakness: Ignores the fact that the product will have different economic values in different applications. 2. Field value-in-use assessment —Interview customers about how costs of using a new product compare with those of using an incumbent. The task is to assess how much each cost element is worth to the buyer. 3. Focus-group value assessment —Ask customers in a focus group what value they would put on potential market offerings. 4. Direct survey questions —Ask customers to place a direct dollar value on one or more changes in the market offering. 5. Conjoint analysis —Ask customers to rank their preferences for alternative market offerings or concepts. Use statistical analysis to estimate the implicit value placed on each attribute. 6. Benchmarks —Show customers a benchmark offering and then a new-market offering. Ask how much more they would pay for the new offering or how much less they would pay if certain features were removed from the benchmark offering. 7. Compositional approach —Ask customers to attach a monetary value to each of three alternative levels of a given attribute. Repeat for other attributes, then add the values together for any offer configuration. 8. Importance ratings —Ask customers to rate the importance of different attributes and their suppliers' performance on each. Having done this research, firms can specify the customer value proposition, following a number of important principles. First, clearly substantiate value claims by concretely specifying the differences between your offerings and those of competitors on the dimensions that matter most to the customer. Rockwell Automation identified the cost savings customers would realize from purchasing its pump instead of a competitor's by using industry-standard metrics of functionality and performance: kilowatt-hours spent, number of operating hours per year, and dollars per kilowatt-hour. Also, make the financial implications obvious. Second, document the value delivered by creating written accounts of costs savings or added value that existing customers have actually captured by using your offerings. Chemical producer Akzo Nobel conducted a two-week pilot on a production reactor at a prospective customer's facility to document the advantages of its high-purity metal organics product. Finally, make sure the method of creating a customer value proposition is well implemented within the company, and train and reward employees for devel-oping a compelling one. Quaker Chemical conducts training programs for its managers that include a competition to develop the best proposals. Sources: James C. Anderson and Finn Wynstra, “Purchasing Higher-Value, Higher-Price Offerings in Business Markets,” Journal of Business-to-Business Marketing 17 (2010), pp. 29-61; James C. Anderson, Marc Wouters, and Wouter van Rossum, “Why the Highest Price Isn't the Best Price,” MIT Sloan Management Review, Winter 2010, pp. 69-76; James C. Anderson, Nirmalya Kumar, and James A. Narus, Value Merchants: Demonstrating and Documenting Superior Value in Business Markets (Boston: Harvard Business School Press, 2007); James C. Anderson, James A. Narus, and Wouter van Rossum, “Customer Value Propositions in Business Markets,” Harvard Business Review, March 2006, pp. 2-10; James C. Anderson and James A. Narus, “Business Marketing: Understanding What Customers Value,” Harvard Business Review, November 1998, pp. 53-65. Developing Compelling Customer Value Propositions marketing memo | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 225 Solution selling can also alleviate price pressure and comes in different forms. Here are three examples. 43 Solutions to enhance customer revenues. Hendrix UTD has used its sales consultants to help farmers deliver an incremental animal weight gain of 5 percent to 10 percent over competitors. Solutions to decrease customer risks. ICI Explosives formulated a safer way to ship explosives for quarries. Solutions to reduce customer costs. W. W. Grainger employees work at large customer facilities to reduce materials-management costs. More firms are seeking solutions that increase benefits and reduce costs enough to overcome any low-price concerns. Consider the following example. 44 Linc OLn e Lec Tric Lincoln Electric has a decades-long tradition of working with its customers to reduce costs through its Guaranteed Cost Reduction (GCR) Program. When a customer insists that a Lincoln distributor lower prices to match competitors, the company and the distributor may guarantee that, during the coming year, they will find cost reductions in the customer's plant that meet or exceed the price difference between Lincoln's products and the competition's. The Holland Binkley Company, a major manufacturer of components for tractor trailers, had been purchasing Lincoln Electric welding wire for years. When Binkley began to shop around for a better price on wire, Lincoln Electric devel-oped a package for reducing costs and working together that called for a $10,000 savings but eventually led to a six-figure savings, a growth in business, and a strong long-term partnership between customer and supplier. Risk and gain sharing can offset price reductions customers request. Suppose Medline, a hospital supplier, signs an agreement with Highland Park Hospital promising $350,000 in savings over the first 18 months in exchange for getting a tenfold increase in the hospital's share of supplies. If Medline achieves less than this promised savings, it will make up the difference. If it achieves substantially more, it participates in the extra savings. To make such arrangements work, the supplier must be willing to help the customer build a historical database, reach an agree-ment for measuring benefits and costs, and devise a dispute resolution mechanism. num Ber o F suppliers Companies are increasingly reducing the number of their suppliers. Ford, Motorola, and Honeywell have cut their number of suppliers 20 percent to 80 percent. These companies want their chosen suppliers to be responsible for a larger component system, achieve continuous quality and performance improvement, and at the same time lower prices each year by a given percentage. They expect their suppliers to work closely with them during product development, and they value their suggestions. There is even a trend toward single sourcing, though companies that use multiple sources often cite the threat of a labor strike, natural disaster, or any other unforseen event as the biggest deterrent to single sourcing. Companies may also fear single suppliers will become too comfortable in the relationship and lose their competi-tive edge. Burlington Northern Santa Fe (BNSF) Railway rewards employees for improvements in the number of railcars shipped per mile. Source: © B. Leighty / Photri Images / Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
226 PART 3 | Conne CTing Wi Th Cus Tome Rs order-rou TIne s Pe CIf ICa TIon After selecting suppliers, the buyer negotiates the final order, listing the technical specifications, the quantity needed, the expected time of delivery, return policies, warranties, and so on. Many industrial buyers lease heavy equipment such as machinery and trucks. The lessee gains a number of advantages: the latest products, better ser-vice, the conservation of capital, and some tax advantages. The lessor often ends up with a larger net income and the chance to sell to customers that could not afford outright purchase. For maintenance, repair, and operating items, buyers are moving toward blanket contracts rather than periodic purchase orders. A blanket contract establishes a long-term relationship in which the supplier promises to resup-ply the buyer as needed, at agreed-upon prices, over a specified period of time. Because the seller holds the stock, blanket contracts are sometimes called stockless purchase plans. They lock suppliers in tighter with the buyer and make it difficult for out-suppliers to break in unless the buyer becomes dissatisfied. Companies that fear a shortage of key materials are willing to buy and hold large inventories. They will sign long-term contracts with suppliers to ensure a steady flow of materials. Du Pont, Ford, and several other major companies regard long-term supply planning as a major responsibility of their purchasing managers. For example, General Motors wants to buy from fewer suppliers, which must be willing to locate close to its plants and produce high-quality components. Business marketers are also setting up extranets with important customers to facilitate and lower the cost of transactions. Customers enter orders that are automatically transmitted to the supplier. Some companies go further and shift the ordering responsibility to their suppliers, using systems called vendor-managed inventory (VMI). These suppliers are privy to the customer's inventory levels and take responsibility for continuous replenishment programs. Plexco International AG supplies audio, lighting, and vision systems to the world's leading automakers. Its VMI program with its 40 suppliers resulted in significant time and cost savings and allowed the company to use former warehouse space for productive manufacturing activities. 45 Perfor Man Ce rev Iew The buyer periodically reviews the performance of the chosen supplier(s) using one of three methods. The buyer may contact end users and ask for their evaluations, rate the supplier on several criteria using a weighted-score method, or aggregate the cost of poor performance to come up with adjusted costs of purchase, including price. The performance review may lead the buyer to continue, modify, or end a supplier relationship. Many companies have set up incentive systems to reward purchasing managers for good buying performance, leading them to increase pressure on sellers for the best terms. Developing Effective Business-to-Business Marketing Programs Business-to-business marketers are using every marketing tool at their disposal to attract and retain customers. They are embracing systems selling and adding valuable services to their product offerings and employing cus-tomer reference programs and a wide variety of online and offline communication and branding activities. Co MMun ICa TIon and Brand In G a CTI v ITIes Business marketers are increasingly recognizing the importance of their brand. Swiss-based ABB is a global leader in power and automation technologies with 145,000 employees in about 100 countries. The company spends $1 billion in R&D annually to fuel a long tradition of groundbreaking and nation-building projects. An extensive and carefully planned rebranding project in 2011 evaluated five alternative positioning platforms, con-cluding that ABB should stand for “Power and Productivity for a Better World. ” Magazines, posters, brochures, and digital communication were all revamped to give the brand a new look. 46 Net App is another good example of the increased importance placed on branding in business-to-business marketing. 47 ne Ta PP Net App is a Fortune 1000 company providing data management and storage solutions to medium- and large-sized clients. Despite some marketplace success, the company found its branding efforts in disarray by 2007. Several variations of its name were in use, leading to a formal name change to Net App in 2008. Branding consultants Landor also created a new identity, architecture, nomenclature, tone of voice, and tagline (“Go further, faster. ”). Messages | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 227 emphasized Net App's superior technology, innovation, and customer-centric “get things done” culture. Some marketing efforts still left a few things to be desired, however. Called “Frankensites” because they had been modified by so many developers over a 12-year period, the company's Web sites were streamlined to organize the company's presentation and make updates easier. The new Web sites were estimated to increase sales leads from inquiries fourfold. Investing heavily in marketing communications despite the recession, Net App also ran print and online ads and tapped into a number of social media outlets—communities and forums, bloggers, Facebook, Twitter, and You Tube. Social media initiatives helped it in Asia where it did not have an advertising presence. In business-to-business marketing, the corporate brand is often critical because it is associated with so many of the company's products. At one time, Emerson Electric, a global provider of power tools, compressors, electrical equipment, and engineering solutions, was a conglomerate of 60 autonomous—and sometimes anonymous—com-panies. A new CMO, Kathy Button Bell, aligned the brands under a new global brand architecture and identity, allowing Emerson to achieve a broader presence so it could sell locally while leveraging its global brand name. She also took on the challenge of strengthening the corporate brand online. A global consolidation cut the number of company Web sites in half; Web sites and marketing campaigns were translated into local languages around the globe; and social media platforms were built out. Record sales and stock price highs have followed. 48 SAS is an-other firm that recognized the importance of its corporate brand. 49 Sa S With sales of more than $2. 3 billion and a huge “fan club” of IT customers, SAS, the business analytics soft-ware and services firm, seemed to be in an enviable position in 1999. Yet its image was what one industry observer called “a geek brand. ” To extend the company's reach beyond IT managers with Ph Ds in math or statistical analysis, the company needed to connect with C-level executives in the largest companies—people who either didn't have a clue what SAS's software was or didn't think business analytics was a strategic issue. Working with its first outside ad agency ever, SAS emerged with a new logo, a new slogan, “The Power to Know®,” and a series of TV spots and print ads in business publica-tions such as Business Week, Forbes, and the Wall Street Journal. One TV spot that exemplifies SAS's rebranding effort ran like this: The problem is not harvesting the new crop of e-business information. It's making sense of it. With e-intelligence from SAS, you can harness the information. And put the knowledge you need within reach. SAS. The Power to Know. Later research showed that SAS had made the transition to a mainstream business decision-making support brand and was seen as both user-friendly and necessary. Highly profitable and now one of the world's largest privately owned soft-ware companies, more than doubling its revenue stream since the brand change, SAS has met with just as much success inside the company. For more than 15 years, Fortune magazine has ranked it one of the best U. S. companies to work for. Here are some examples of the way top firms are redesigning Web sites, improving search results, engaging in social media, and launching Webinars and podcasts to improve their business performance through their B-to-B marketing. Chapman Kelly provides audit and other cost-containment products to help firms reduce their health care and insurance costs. The company originally tried to acquire new customers through traditional cold calling and outbound selling techniques. After it redesigned its Web site and optimized the site's search engine so the company's name moved close to the top of relevant online searches, revenue nearly doubled. 50 Emerson Process Management makes automation systems for chemical plants, oil refineries, and other types of factories. Readers like to hear and swap factory war stories on the company's blog about factory automa-tion, which attracts 35,000 to 40,000 regular visitors each month and generates five to seven leads a week. Given that its systems sell for millions of dollars, ROI on the blog investment is immense. 51 Machinery manufacturer Makino builds relationships with end-user customers by hosting an ongoing series of industry-specific Webinars, averaging three a month. The company uses highly specialized content, such as how to get the most out of machine tools and how metal-cutting processes work, to appeal to different industries and different styles of manufacturing. Its database of Webinar participants has allowed the firm to cut marketing costs and improve its effectiveness and efficiency. 52 Canadian supply-chain management company Kinaxis uses a fully integrated approach to communications including blogs, white papers, and a video channel that hinges on specific keywords to drive traffic to its Web | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
228 PART 3 | Conne CTing Wi Th Cus Tome Rs site and generate qualified leads. With research suggesting that 93 percent of all B-to-B purchases start with search, Kinaxis puts much emphasis on search engine optimization (SEO), reusing and repurposing content as much as possible to make it relevant and “Google-friendly. ”53 Some business-to-business marketers are adopting marketing practices from business-to-consumer markets to build their brand. Xerox ran a fully integrated communication campaign to cleverly reinforce the fact that 50 percent of its revenue comes from business services and not copiers. Here is how its Marriott ad unfolded:54 Two Marriott bellmen are sitting in an office. “Did you finish last month's invoices?” one asks the other. “No, but I did pick up your dry cleaning and have your shoes shined, ” the second replies. “Well, I made you a reservation at the sushi place around the corner!” the first bellman says. This voiceover follows: “Marriott knows it's better for Xerox to automate their global invoice processes so they can focus on serv-ing their customers. ” Sometimes a more personal touch can make all the difference. Customers considering dropping six or seven figures on one transaction for big-ticket goods and services want all the information they can get, especially from a trusted, independent source. “Marketing Memo: Spreading the Word with Customer Reference Programs” de-scribes the role of that increasingly important marketing tool. s Ys Te Ms Bu YIn G and sell In G Many business buyers prefer to buy a total problem solution from one seller. Called systems buying, this practice originated with government purchases of major weapons and communications systems. The government solic-ited bids from prime contractors that, if awarded the contract, became responsible for bidding out and assembling the system's subcomponents from second-tier contractors. The prime contractor thus provided a turnkey solution, so-called because the buyer simply had to turn one key to get the job done. Sellers have increasingly recognized that buyers like to purchase in this way, and many have adopted systems selling as a marketing tool. Cisco Systems began to take share from telcommunications rival Avaya by offering cus-tomers a one-stop solution for communications technology. 55 Technology giants such as Hewlett-Packard, IBM, Oracle, Dell, and EMC are all transitioning from specialists to competing one-stop shops that can provide the core technology necessary as businesses shift to the cloud. 56 One variant of systems selling is systems contracting, in which a single supplier provides the buyer with its entire requirement of MRO supplies. During the contract period, the supplier also manages the customer's in-ventory. Shell Oil manages the oil inventories of many of its business customers and knows when they require replenishment. The customer benefits from reduced procurement and management costs and from price protec-tion over the term of the contract. The seller achieves lower operating costs thanks to steady demand and reduced paperwork. Systems selling is a key industrial marketing strategy in bidding to build large-scale industrial projects such as dams, steel factories, irrigation systems, sanitation systems, pipelines, utilities, and even new towns. Project Machinery maker Makimo employs an extensive series of webinars to build stronger ties with its customers. Source: Makino | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 229 engineering firms must compete on price, quality, reliability, and other attributes to win contracts. Suppliers, however, are not just at the mercy of customer demands. Ideally, they're active early in the process to influence the actual development of the specifications. Or they can go beyond the specifications to offer additional value in vari-ous ways, as the following example shows. Se LLing TO The ind One Sian g OV ern Men T The Indonesian govern-ment requested bids to build a cement factory near Jakarta. A U. S. firm made a proposal that included choosing the site, designing the factory, hiring the construction crews, assembling the materials and equipment, and turning over the finished factory to the Indonesian government. A Japanese firm, in its proposal, included all these services, plus hiring and training the workers to run the factory, exporting the cement through its trading companies, and using the cement to build roads and new office buildings in Jakarta. Although the Japanese plan would cost more money, it won the contract. Clearly, the Japanese viewed the problem not just as building a cement factory (the narrow view of systems selling) but as contributing to Indonesia's economic development. They took the broadest view of the customer's needs, which is true systems selling. role of serv ICes Services play an increasing strategic and financial role for many business-to-business firms selling primarily products. Adding high-quality services to their product offerings allows them to provide greater value and estab-lish closer ties with customers. A classic example is Rolls-Royce, which has invested heavily in developing giant jet engine models for the new jumbo planes being introduced by Boeing and Airbus. An important source of profits for Rolls-Royce, beyond sell-ing engines and replacement parts, is the add-on “power by the hour” long-term repair and maintenance contracts it sells. Margins are higher because customers are willing to pay a premium for the peace of mind and predictability the contracts offer. 57In a networked economy, buyers increasingly rely on the input of others to help them make purchase decisions. One way to entice or reassure potential new buyers is to create a customer reference program in which satisfied existing customers act in concert with the company's sales and marketing department by agreeing to serve as references. Technology companies such as HP, Lucent, and Unisys have all employed such programs. Buyers can interact with a company and its customers in a variety of ways—via social media; conferences, events, and trade shows; and their own per-sonal and professional networks. Companies need to recognize the importance of peer-to-peer interaction and know how they can assist a potential buyer. One expert offers the following advice: 1. Establish a formal, organized customer reference program to build an army of advocates. 2. Put references at the center of your growth strategy. 3. Give your customer reference program a seat at the table by using an experienced executive as its leader. 4. Don't strive for “100 percent referenceability”—put focus on a smaller group of truly committed, impactful company advocates. 5. Revolutionize your customer value proposition; find customers who want to be advocates because of their passion for the company and not as the result of any financial inducement. Research has shown that another potential benefit of a customer reference program is that it can increase the loyalty even of the customer advocates themselves. Sources: V. Kumar, J. Andrew Petersen, and Robert P. Leone, “Defining, Measuring, and Managing Business Reference Value,” Journal of Marketing 77 (January 2013), pp. 68-86; David Godes, “The Strategic Impact of References in Business Markets,” Marketing Science 31 (March-April 2012), pp. 257-76; Bill Lee, “Customer Reference Programs at the Tipping Point,” HBR Blog Network, June 7, 2012. Spreading the Word With Customer Reference Programs marketing memo | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
230 PART 3 | Conne CTing Wi Th Cus Tome Rs Technology firms are also bundling services to improve customer satisfaction and increase profits. Like many software firms, Adobe Systems is making the transition to a digital-marketing business with cloud-based monthly subscriptions. Revenue is increasing because the company is able to sell support services, Web site hosting, and server management to its cloud customers. 58 All kinds of firms are finding ways to bundle value-added services to their products. Italian firm Mondo makes state-of-the-art running tracks for stadiums all over the world. Despite competition, it has continued to win new clients, such as the London Olympics, in part because of the installation and maintenance services it offers. 59 Managing Business-to-Business Customer Relationships Business suppliers and customers are exploring different ways to manage their relationships. 60 Loyalty is driven in part by supply chain management, early supplier involvement, and purchasing alliances. 61 Business-to-business marketers are avoiding “spray and pray” approaches to attracting and retaining custom-ers in favor of honing in on their targets and developing one-to-one marketing approaches. 62 Nearly 80 percent of the Fortune 500 use SAP software, but the software giant begin to lose market share and revenue when, as one cofounder observed, “We had lost the trust in relationships with our customers, and employees did not believe in management. ” Embracing innovation with new cloud-based services was a big part of the company's turnaround strategy; the other was focusing on improving customer relationships. A controversial price hike introduced dur-ing the financial crisis was reversed, and new co-CEOs vowed to listen more closely to customer concerns. 63 The Benef ITs of ver TICal Coord Ina TIon Much research has advocated greater vertical coordination between buying partners and sellers so they can transcend merely transacting and instead create more value for both parties. 64 Building trust is one prerequisite to enjoying healthy long-term relationships. “Marketing Insight: Establishing Corporate Trust, Credibility, and Reputation” identifies some key dimensions of such trust. Knowledge that is specific and relevant to a relation-ship partner is also an important factor in the strength of interfirm ties. 65 A number of forces influence the development of a relationship between business partners. Four relevant ones are availability of alternatives, importance of supply, complexity of supply, and supply market dynamism. Based on these we can classify buyer-supplier relationships into eight categories:66 1. Basic buying and selling —These are simple, routine exchanges with moderate levels of cooperation and infor-mation exchange. 2. Bare bones —These relationships require more adaptation by the seller and less cooperation and information exchange. 3. Contractual transaction —These exchanges are defined by formal contract and generally have low levels of trust, cooperation, and interaction. Mondo combines state-of-the-art running tracks with value-added services to successfully sell to stadiums all over the world. Source: Mondo S. p. A. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 231 4. Customer supply —In this traditional supply situation, competition rather than cooperation is the dominant form of governance. 5. Cooperative systems —The partners in cooperative systems are united in operational ways, but neither dem-onstrates structural commitment through legal means or adaptation. 6. Collaborative —In collaborative exchanges, much trust and commitment lead to true partnership. 7. Mutually adaptive —Buyers and sellers make many relationship-specific adaptations, but without necessarily achieving strong trust or cooperation. 8. Customer is king —In this close, cooperative relationship, the seller adapts to meet the customer's needs with-out expecting much adaptation or change in exchange. Over time, however, relationship roles may shift or be activated under different circumstances. 67 Some needs can be satisfied with fairly basic supplier performance. Buyers then neither want nor require a close relationship with a supplier. Likewise, some suppliers may not find it worth their while to invest in customers with limited growth potential. One study found the closest relationships between customers and suppliers arose when supply was important to the customer and there were procurement obstacles, such as complex purchase requirements and few alternate suppliers. 68 Another study suggested that greater vertical coordination between buyer and seller through informa-tion exchange and planning is usually necessary only when high environmental uncertainty exists and specific investments (described next) are modest. 69 r Isks and o PPor Tun Is M In Bus Iness rela TIonsh IPs Researchers have noted that establishing a customer-supplier relationship creates tension between safeguarding (ensuring predictable solutions) and adapting (allowing for flexibility for unanticipated events). Vertical coordi-nation can facilitate stronger customer-seller ties but may also increase the risk to the customer's and supplier's specific investments. 70 Establishing Corporate Trust, Credibility, and Reputation Corporate credibility is the extent to which customers believe a firm can design and deliver products and services that satisfy their needs and wants. It reflects the supplier's reputation in the marketplace and is the foundation of a strong relationship. Corporate credibility depends on three factors: Corporate expertise, the extent to which a company is seen as able to make and sell products or conduct services. Corporate trustworthiness, the extent to which a company is seen as motivated to be honest, dependable, and sensitive to customer needs. Corporate likability, the extent to which a company is seen as lik-able, attractive, prestigious, and dynamic. In other words, a credible firm is good at what it does; it keeps its cus-tomers' best interests in mind and is enjoyable to work with. Trust is a firm's willingness to rely on a business partner. It depends on a number of interpersonal and interorganizational fac-tors, such as the firm's perceived competence, integrity, honesty, and benevolence. Personal interactions with employees of the firm, opinions about the company as a whole, and perceptions of trust will evolve with experience. A firm is more likely to be seen as trustworthy when it: Provides full, honest information Provides employee incentives aligned to meet customer needs Partners with customers to help them learn and help themselves Offers valid comparisons with competitive products Building trust can be especially tricky in online settings, and firms often impose more stringent requirements on their online business partners than on others. Business buyers worry that they won't get products of the right quality delivered to the right place at the right time. Sellers worry about getting paid on time—or at all—and debate how much credit they should extend. Some firms, such as transportation and supply chain management company Ryder System, use automated credit-checking applications and online trust services to assess the creditworthiness of trading partners. Sources: Kevin Lane Keller and David A. Aaker, “Corporate-Level Marketing: The Impact of Credibility on a Company's Brand Extensions,” Corporate Reputation Review 1 (August 1998), pp. 356-78; Robert M. Morgan and Shelby D. Hunt, “The Commitment-Trust Theory of Relationship Marketing,” Journal of Marketing 58, no. 3 (July 1994), pp. 20-38; Christine Moorman, Rohit Deshpande, and Gerald Zaltman, “Factors Affecting Trust in Market Research Relationships,” Journal of Marketing 57 (January 1993), pp. 81-101; Glen Urban, “Where Are You Positioned on the Trust Dimensions?,” Don't Just Relate-Advocate: A Blueprint for Profit in the Era of Customer Power (Upper Saddle River, NJ: Pearson Education/Wharton School Publishers, 2005). marketing insight | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
232 PART 3 | Conne CTing Wi Th Cus Tome Rs Specific investments are those expenditures tailored to a particular company and value chain partner (investments in company-specific training, equipment, and operating procedures or systems). 71 They help firms grow profits and achieve their positioning. 72 Xerox worked closely with its suppliers to develop customized pro-cesses and components that reduced its copier manufacturing costs by 30 percent to 40 percent. In return, sup-pliers received sales and volume guarantees, an enhanced understanding of their customer's needs, and a strong position with Xerox for future sales. 73 Specific investments, however, also entail considerable risk to both customer and supplier. Transaction theory from economics maintains that because these investments are partially sunk, they lock firms into a particular rela-tionship. Sensitive cost and process information may need to be exchanged. A buyer may be vulnerable to holdup because of switching costs; a supplier may be more vulnerable because it has dedicated assets and/or technology/ knowledge at stake. In terms of the latter risk, consider the following example. 74 An automobile component manufacturer wins a contract to supply an under-hood component to an original equipment manufacturer (OEM). A one-year, sole-source contract safeguards the supplier's OEM-specific investments in a dedicated production line. However, the supplier may also be obliged to work (noncontractually) as a partner with the OEM's internal engineering staff, using linked computing facilities to exchange detailed engineering information and coordinate frequent design and manufactur-ing changes over the term of the contract. These interactions could reduce costs and/or increase quality by improving the firm's responsiveness to marketplace changes. But they could also magnify the threat to the supplier's intellectual property. When buyers cannot easily monitor supplier performance, the supplier might shirk or cheat and not deliver the expected value. Opportunism is “some form of cheating or undersupply relative to an implicit or explicit contract. ”75 When it was discovered in 2007 that a supplier to a supplier to a supplier to a supplier of Mattel chose to use lead-based ingredients outside Mattel's specification, the toy-makers reputation took a significant PR hit. A more passive form of opportunism might be a refusal or unwillingness to adapt to changing circumstances or just negligance in satisfying contractual obligations. When a peanut-processing company, Peanut Corporation of America, with only $25 million in sales was found to have a contaminated product, a $1 billion recall resulted because the ingredient was found in 2,000 other products. 76 Opportunism is a concern because firms must devote resources to control and monitoring that they could otherwise allocate to more productive purposes. Contracts may become inadequate to govern supplier transac-tions when supplier opportunism becomes difficult to detect, when firms make specific investments in assets they cannot use elsewhere, and when contingencies are harder to anticipate. Customers and suppliers are more likely to form a joint venture (instead of signing a simple contract) when the supplier's degree of asset specificity is high, monitoring the supplier's behavior is difficult, and the supplier has a poor reputation. 77 When a supplier has a good reputation, it is more likely to avoid opportunism to protect this valuable intangible asset. The presence of a significant future time horizon and/or strong solidarity norms typically causes customers and suppliers to strive for joint benefits. Their specific investments shift from expropriation (increased opportunism on the receiver's part) to bonding (reduced opportunism). 78 A firm like Mattel must carefully monitor its suppliers' behaviors to ensure they conform to company standards and values. Source: ASSOCIATED PRESS | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 233 Institutional and Government Markets Our discussion has concentrated largely on the buying behavior of profit-seeking companies. Much of what we have said also applies to the buying practices of institutional and government organizations. However, we want to highlight certain special features of these markets. The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that must provide goods and services to people in their care. Many of these organizations are characterized by low budgets and captive clienteles. For example, hospitals must decide what quality of food to buy for patients. The buying objective here is not profit because the food is provided as part of the total service package; nor is cost mini-mization the sole objective because poor food will cause patients to complain and hurt the hospital's reputation. The hospital purchasing agent must search for institutional-food vendors whose quality meets or exceeds a certain minimum standard and whose prices are low. In fact, many food vendors set up a separate sales division to cater to institutional buyers' special needs and characteristics. Heinz produces, packages, and prices its ketchup differently to meet the requirements of hospitals, colleges, and prisons. ARAMARK, which provides food services for stadi-ums, arenas, campuses, businesses, and schools, also has a competitive advantage in providing food for the nation's prisons, a direct result of refining its purchasing practices and supply chain management. 79 ara Mark Where ARAMARK once merely selected products from lists provided by potential suppliers, it now collaborates with suppliers to develop products customized to meet the needs of individual segments. In the corrections seg-ment, quality has historically been sacrificed to meet food cost limits that operators outside the market would find impossible to work with. “When you go after business in the corrections field, you are making bids that are measured in hundredths of a cent,” says John Zillmer, president of ARAMARK's Food & Support Services, “so any edge we can gain on the purchasing side is extremely valuable. ” ARAMARK sourced a series of protein products with unique partners at price points it never could have imagined before. These partners were unique because they understood the chemistry of proteins and knew how to lower the price while still creating a product acceptable to ARAMARK's customers, allowing the company to drive down costs. Then ARAMARK replicated this process with 163 different items formulated exclusively for corrections. Rather than reducing food costs by 1 cent or so a meal as usual, ARAMARK took 5 to 9 cents off—while maintaining or even improving quality. In most countries, government organizations are a major buyer of goods and services. They typically require suppliers to submit bids and often award the contract to the lowest bidder, sometimes making allowance for supe-rior quality or a reputation for completing contracts on time. Governments will also buy on a negotiated-contract basis, primarily in complex projects with major R&D costs and risks and those where there is little competition. A major complaint of multinationals operating in Europe is that each country shows favoritism toward its nationals despite superior offers from foreign firms. Although such practices are fairly entrenched, the European Union is attempting to remove this bias. Another challenge is the volatility of spending due to economic swings and cycles. When state governments suddenly cut back their spending, a firm like Cisco, which makes 22 percent of its sales to the public sector, is likely to feel the effects. 80 When the U. S. government announced a long-term cutback of hundreds of billions of dollars in defense spending in 2011—with more cuts anticipated—many defense contractors prepared to take signficant hits. 81 Because their spending decisions are subject to public review, government organizations require considerable paperwork from suppliers, who often complain about bureaucracy, regulations, decision-making delays, and frequent shifts in procurement staff. But the fact remains that the U. S. government now spends more than $500 billion a year— or roughly 14 percent of the federal budget—on private-sector contractors, making it the largest and potentially the most attractive customer in the world. 82 Motorola Solutions, created when Motorola was split into two companies, sells wireless communications equipment to public-safety agencies around the world that need state-of-the-art com-munications networks for police cars in a multibillion-dollar government market. 83 Not only the dollar figure is large; so is the number of individual buys. According to the General Services Administration Procurement Data Center, more than 20 million individual contract actions are processed every year. Although most items purchased cost between $2,500 and $25,000, the government also makes purchases in the billions, many in technology. Government decision makers often think vendors have not done their homework. Different types of agencies— defense, civilian, intelligence—have different needs, priorities, purchasing styles, and time frames. In addition, vendors often do not pay enough attention to cost justification, a major activity for government procurement pro-fessionals. Companies hoping to be government contractors need to help government agencies see the bottom-line | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
234 PART 3 | Conne CTing Wi Th Cus Tome Rs impact of products. Demonstrating useful experience and successful past performance through case studies, espe-cially with other government organizations, can be influential. 84 Just as companies provide government agencies with guidelines about how best to purchase and use their prod-ucts, governments provide would-be suppliers with detailed guidelines describing how to sell to the government. Failure to follow the guidelines or to fill out forms and contracts correctly can create a legal nightmare. 85 Fortunately for businesses of all sizes, the federal government has been trying to simplify the contracting pro-cedure and make bidding more attractive. Reforms place more emphasis on buying off-the-shelf items instead of customizing, communicating with vendors online to eliminate paperwork, and debriefing losing vendors to improve their chances of winning the next time around. 86 More purchasing is being done online via Web-based forms, digital signatures, and electronic procurement cards (P-cards). Several federal agencies that act as purchasing agents for the rest of the government have launched Web-based catalogs that allow authorized defense and civilian agencies to buy everything from medical and office supplies to clothing online. The General Services Administration, for example, not only sells stocked merchandise through its Web site but also creates direct links between buyers and contract suppliers. A good starting point for any work with the U. S. government is to make sure the company is in the Central Contractor Registration (CCR) database (www. ccr. gov), which collects, validates, stores, and disseminates data in support of agency acquisitions. 87 Still, many companies that sell to the government have not used a marketing orientation, though some have established separate government marketing departments. Gateway, Rockwell, Kodak, and Goodyear anticipate government needs and projects, participate in the product specification phase, gather competitive intelligence, prepare bids carefully, and produce strong communications to describe and enhance their companies' reputations. environmental, organizational, interpersonal, and indi-vidual factors. 4. The buying process consists of eight stages called buy-phases: (1) problem recognition, (2) general need de-scription, (3) product specification, (4) supplier search, (5) proposal solicitation, (6) supplier selection, (7) order-routine specification, and (8) performance review. 5. Business marketers are strengthening their brands and using technology and other communication tools to de-velop effective marketing programs. They are also using systems selling and adding services to provide custom-ers added value. 6. Business marketers must form strong bonds and rela-tionships with their customers. Some customers, how-ever, may prefer a transactional relationship. 7. The institutional market consists of schools, hospitals, nursing homes, prisons, and other institutions that pro-vide goods and services to people in their care. Buyers for government organizations tend to require a great deal of paperwork from their vendors and to favor open bidding and domestic companies. Suppliers must be prepared to adapt their offers to the special needs and procedures found in institutional and government markets. Summary 1. Organizational buying is the decision-making process by which formal organizations establish the need for pur-chased products and services, then identify, evaluate, and choose among alternative brands and suppliers. The business market consists of all the organizations that acquire goods and services used in the production of other products or services that are sold, rented, or supplied to others. 2. Compared with consumer markets, business markets generally have fewer and larger buyers, a closer cus-tomer supplier relationship, and more geographically concentrated buyers. Demand in the business market is derived from demand in the consumer market and fluc-tuates with the business cycle. Nonetheless, the total demand for many business goods and services is quite price inelastic. Business marketers need to be aware of the role of professional purchasers and their influencers, the need for multiple sales calls, and the importance of direct purchasing, reciprocity, and leasing. 3. The buying center is the decision-making unit of a buy-ing organization. It consists of initiators, users, influenc-ers, deciders, approvers, buyers, and gatekeepers. To influence these parties, marketers must consider My Marketing Lab go to mymktlab. com to complete the problems marked with this icon as well as for additional assisted-graded writing questions. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 235 Applications Marketing Debate How Different Is Business-to-Business Marketing? Some business-to-business marketing executives lament the challenges of business-to-business marketing, main-taining that many traditional marketing concepts and prin-ciples do not apply and that selling products and services to a company is fundamentally different from selling to individu-als. Others disagree, claiming marketing theory is still valid and only requires some adaptation in marketing tactics. Take a position: Business-to-business marketing requires a special, unique set of marketing concepts and principles versus Business-to-business marketing is really not that different, and the basic marketing con-cepts and principles apply. Marketing Discussion Applying B-to-C Concepts to B-to-B Consider some of the consumer behavior topics for business-to-consumer (B-to-C) marketing from Chapter 6. How might you apply them to business-to-business (B-to-B) settings? For example, how might noncompensatory mod-els of choice work? Mental accounting? Ac. com Web site), which would help the firm retain some of its former brand equity. At midnight on December 31, 2000, Andersen Consulting officially adopted the Accenture name and launched a global advertising, mar-keting, and communications campaign targeting senior executives at its clients and prospects, all partners and employees, the media, leading industry analysts, potential recruits, and academia. The results were quick and impressive. Accenture's brand equity increased 11 percent the first year, and the number of firms that inquired about its services increased 350 percent. Awareness of the company's breadth and depth of services reached 96 percent of its previous level, and awareness of Accenture as a provider of manage-ment and technology consulting services already topped 76 percent of its previous level. These results enabled Accenture to successfully complete a $1. 7 billion IPO in July 2001. Accenture believed its differentiator was the abil-ity both to provide innovative ideas—ideas grounded in business processes as well as IT—and to execute them. Competitors such as Mc Kinsey were seen as highly specialized at developing strategy, whereas other competitors such as IBM were seen as highly skilled in technological implementation. Accenture wanted to be seen as excelling at both. As Ian Watmore, its UK chief, explained: “Unless you can provide both transformational consulting and outsourcing capability, you're not going to win. Clients expect both. ” In 2002, Accenture unveiled a new positioning state-ment, which reflected its role as a partner that helped cre-ate strategies and execute them. The tagline “Innovation Delivered” was supported by the statement “From innova-tion to execution, Accenture helps accelerate your vision. ” Marketing Excellence >> Accenture Accenture was launched as the Administrative Accounting Group in 1942 and was the consulting arm of accounting firm Arthur Andersen. In 1989, it became a separate busi-ness unit focused on IT consulting and bearing the name Andersen Consulting. At that time, though it was earning $1 billion annually, Andersen Consulting had low brand awareness among information technology consultancies and was commonly mistaken for its corporate parent. To build a strong brand and separate itself from the account-ing firm, Andersen Consulting launched the first large-scale advertising campaign in the professional services area. By the end of the decade, it was the world's largest management and technology consulting organization. In 2000, following arbitration against its former par-ent, Andersen Consulting was granted full independence from Arthur Andersen but had to relinquish the Andersen name. Andersen Consulting was given three months to find a name that could be trademarked in 47 countries, was effective and inoffensive in more than 200 languages, was acceptable to employees and clients, and corre-sponded with an available URL. The effort that followed was one of the largest and most successful rebranding campaigns in corporate history. The company's new name came from one of the company's own consultants at its Oslo office. As part of an internal name-generation initiative dubbed “Brandstorming,” he submitted the Accenture name be-cause it rhymed with “adventure” and suggested an “accent on the future. ” The name also retained the “Ac” of the original Andersen Consulting name (echoing the | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
236 PART 3 | Conne CTing Wi Th Cus Tome Rs As the company diversified its business-to-business product lines in the 1970s and 1980s, it created new corporate campaigns, including “Progress for People” and “We Bring Good Things to Life. ” In 1981, Jack Welch succeeded Reginald Jones as GE's eighth CEO. During Welch's two decades of leadership, he helped grow GE from an “American manufacturer into a global services giant” and increased the company's market value from $12 billion in 1981 to $280 billion in 2001, making it the world's most valuable corporation at the time. Over the years, GE has exhibited a keen under-standing of the business market and the business buy-ing process by putting itself in the shoes of its business Marketing Excellence >> GE Thomas Edison founded the Edison Electric Light Company in 1878. The company, which soon changed its name to General Electric (GE), became an early pioneer in lightbulbs and electrical appliances and served the electrical needs of various industries, such as transporta-tion, utilities, manufacturing, and broadcasting. GE be-came the acknowledged pioneer in business-to-business marketing in the 1950s and 1960s under the tagline “Progress Is Our Most Important Product. ”As part of its new commitment to helping clients achieve their business objectives, Accenture also introduced a policy whereby many of its contracts contained incentives that it realized only if specific business targets were met. For instance, a contract with British travel agent Thomas Cook was structured such that Accenture's bonus de-pended on five metrics, including a cost-cutting one. In late 2003, Accenture built upon the “Innovation Delivered” theme and announced its new tagline, “High Performance. Delivered,” along with a campaign that fea-tured golf superstar Tiger Woods as spokesperson. When Accenture sought Woods as its spokesperson, the athlete was at the top of his game—the world's best golfer with an impeccable image and an ideal symbol of high perfor-mance. Accenture's message communicated that it could help client companies become “high-performing business leaders,” and the Woods endorsement drove home the importance of high performance. Over the next six years, Accenture spent nearly $300 million in ads that mostly featured Tiger Woods, alongside slogans such as “We know what it takes to be a Tiger” and “Go on. Be a Tiger. ” The campaign capitalized on Woods's international appeal, ran all over the world, and became the central focus of Accenture-sponsored events such as the World Golf Championships and the Chicago Marathon. That all changed when the scandal surrounding Tiger Woods, his extramarital affairs, and his indefinite absence from golf hit the press in late 2009. Accenture dropped Woods as a spokesperson, saying he was no longer a good fit for its brand. Indeed, focus groups showed that consumers were too distracted by the scandal to focus on Accenture's strategic message. Accenture found itself in familiar territory and worked on developing and execut-ing a groundbreaking campaign that not only resonated across the world and translated appropriately into differ-ent cultures but also elevated Accenture's brand to the next level. In 2011, Accenture launched the “Greater Than” campaign to an international audience across 35 coun-tries. The campaign highlighted successful case studies from clients like Unilever, Starwood Hotels, and Caterpillar and focused on Accenture's capabilities in areas such as emerging technologies and globalization. The company conducted extensive research to ensure that its brand positioning—“High performance. Delivered. ”—was not only effective but also still relevant to business leaders. Lastly, Accenture created a new marketing twist to the campaign. The “greater than” symbol, >, which had al-ways appeared in the Accenture logo, was pulled out and used as a major element of the campaign. It appeared on cabs and billboards in major cities and became a critical unifying element across all Accenture's print, digital, and social media as well as among employees. Today, Accenture continues to excel as a global man-agement consulting, technology services, and outsourc-ing company. Its clients include 99 of the Fortune Global 100 and more than three-quarters of the Fortune Global 500. The company ended fiscal 2013 with revenues of $28. 6 billion and has a brand value close to $9 billion. Questions 1. How does Accenture target its B-to-B audience so effectively? 2. Evaluate Accenture's history of branding campaigns. What remains consistent throughout? Sources: Accenture. com, “Annual Reports,” Accenture. com; “Lessons Learned from Top Firms' Marketing Blunders,” Management Consultant International, December 2003, p. 1; Sean Callahan, “Tiger Tees Off in New Accenture Campaign,” Bto B Magazine, October 13, 2003, p. 3; “Inside Accenture's Biggest UK Client,” Management Consultant International, October 2003, pp. 1-3; “Accenture's Results Highlight Weakness of Consulting Market,” Management Consultant International, October 2003, pp. 8-10; “Accenture Re-Branding Wins UK Plaudits,” Management Consultant International, October 2002, p. 5; Mary Ellen Podmolik, “Accenture Turns to Tiger for Global Marketing Effort,” Bto B Magazine, October 25, 2004; Sean Callahan, “Tiger Tees Off in New Accenture Campaign,” Bto B Magazine, October 13, 2003; Emily Steel, “After Ditching Tiger, Accenture Tries New Game,” Wall Street Journal, January 14, 2010; “Best Global Brands 2012,” Interbrand. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
An Alyzing Business m AR ke Ts | chapter 7 237 customers. For example, the company understands that buying an aircraft engine is a multimillion-dollar expendi-ture that doesn't end with the purchase. Customers (the airlines) face substantial maintenance costs to meet FAA guidelines and ensure reliability of the engines. In 1999, GE pioneered a new pricing option called “Power by the Hour,” giving customers an opportunity to pay a fixed fee each time they run the engine. In return, GE performs all the maintenance and guarantees the engine's reliability. When demand for air travel is uncertain, “Power by the Hour” provides GE's customers with a lower cost of ownership. In 2003, GE and its new CEO, Jeffrey Immelt, faced a fresh challenge: how to promote its diversified brand with a unified global message. A source at GE explained, “(Immelt) wants advertising that's more high-tech, more innovative and contemporary. Something that will make GE look more advanced, out in front. ” So, after 24 years and $1 billion in financial support, GE dropped its signature slogan “We Bring Good Things to Life” for the new tagline “Imagination at Work,” highlighting its renewed focus on innovation and new technology. The award-winning new campaign promoted units such as GE Aircraft Engines, Medical Systems, and Plastics, focusing on the breadth of the company's prod-uct offerings, and it got results. “Research indicates GE is now being associated with attributes such as being high tech, leading edge, innovative, contemporary, and cre-ative,” stated Judy Hu, GE's general manager for global advertising and branding. In addition, survey respondents continued to associate GE with some of its traditional at-tributes, including trust and reliability. In 2005, GE evolved the campaign into a company-wide initiative that continues today, “Ecomagination. ” Ecomagination highlighted the company's efforts to de-velop environmentally friendly “green” technologies such as solar energy, lower-emission engines, and water pu-rification technologies. GE initially set several aggressive goals for the new initiative, including doubling the revenue from “Ecomagination” products to $20 billion in five years and promising to reduce greenhouse gas emissions by 1 percent within seven years. The company believed then and still believes that embracing innovation around Ecomagination is critical to its growth. Immelt made some strategic restructuring decisions that helped the company survive the worldwide reces-sion of 2008 and 2009 and also helped shift it even more in the B-to-B direction. GE moved from 11 divisions to five and sold off some of its consumer-focused busi-nesses, including 51 percent of NBC Universal (sold to Comcast). This shift allowed the company to spend more resources on innovation, green initiatives, and its growing businesses such as power generation, aviation, medical imaging, and fuel cell technologies. GE understood that it needed another huge initia-tive to help pull the conglomerate out of its current poor financial situation. Management believed there was huge growth potential in affordable health care around the world. As a result, the company embraced a $6 billion company-wide initiative called Healthymagination. The business strategy aimed at growing GE's health care business by providing innovative solutions to more people around the world, and the company launched an inte-grated marketing plan for it. GE's B-to-B marketing savvy has helped it lock in the top position in the Financial Times 's “World's Most Respected Companies” ranking for years. The com-pany's in-depth understanding of each of its business markets has kept its B-to-B marketing strategies pro-gressive, relevant, and effective. In addition, its global marketing campaign helps keep brand equity strong. GE was ranked sixth in Interbrand/ Business Week 's “Top 100 Global Brands” report, with a brand value of $45 billion. “The GE brand is what connects us all and makes us so much better than the parts,” Chief Marketing Officer Beth Comstock said. Today, General Electric operates in a wide range of industries, including power and water, oil and gas, en-ergy management, aviation, health care, transportation, home and business solutions, and capital. As a result, the firm sells a diverse array of products and services from home appliances to jet engines, security systems, wind turbines, and financial services. Its revenues topped $146 billion in 2013, making it so large that its largest business units could rank separately in the Fortune 200. If GE were a country, it would be the 50th largest in the world, ahead of Kuwait, New Zealand, and Iraq. Questions 1. Discuss GE's B-to-B marketing strategy. Why has the company been so successful over the years at targeting such a large business audience? 2. Have “Ecomagination” and “Healthymagination” suc-cessfully communicated GE's focus on its newer endeavors? Why or why not? Sources: “A New Life. General Elective to Change Corporate Image,” Delaney Report, June 10, 2002; Geoffrey Colvin, “What Makes GE Great?,” Fortune, March 6, 2006, pp. 90-104; Thomas A. Stewart, “Growth as a Process,” Harvard Business Review, June 2006, pp. 60-70; Kathryn Kranhold, “The Immelt Era, Five Years Old, Transforms GE,” Wall Street Journal, September 11, 2006; Daniel Fisher, “GE Turns Green,” Forbes, August 15, 2005, pp. 80-85; John A. Byrne, “Jeff Immelt,” Fast Company, July 2005, pp. 60-65; Rachel Layne, “GE's NBC Sale Brings Immelt Cash, Scrutiny,” Business Week, December 3, 2009; GE Annual Report, 2013. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
238 In This Chapter, We Will Address the Following Questions 1. What factors should a company review before deciding to go abroad? (p. 239) 2. How can companies evaluate and select specific international markets to enter? (p. 241) 3. What are the differences between marketing in a developing and a developed market? (p. 242) 4. What are the major ways of entering a foreign market? (p. 248) 5. To what extent must the company adapt its products and marketing program to each foreign country? (p. 251) 6. How do marketers influence country-of-origin effects? (p. 260)My Marketing Lab™ Improve Y our Grade! Over 10 million students improved their results using the Pearson My Labs. Visit mymktlab. com for simulations, tutorials, and end-of-chapter problems. By skillfully combining quality, reliability, and style, Korean automaker Hyundai is finding success in markets all over the world. Source: HYUNDAI MOTOR COMPANY. Andy Glass Wyatt-Clarke & Jones. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
239 The world has dramatically shrunk in recent years. Countries are increasingly multicultural, and products and services developed in one country are finding enthusiastic acceptance in others. A German businessman may wear an Italian suit to meet an English friend at a Japanese restaurant, who later returns home to drink Russian vodka and watch a U. S. movie on a Korean TV. Emerging markets that embrace capitalism and consumerism are especially attractive targets. Some marketers are finding success both in developing and developed markets. Consider the rapid ascent of Hyundai. 1Tapping into Global Markets8 Once synonymous with cheap and unreliable cars, Hyundai Motor Company has experienced a massive global transformation. In 1999, its new chairman, Mong-Koo Chung, declared that Hyun-dai would focus not on volume and market share but on quality instead. The company began to benchmark industry leader Toyota, adopted Six Sigma processes, organized product development cross-functionally, partnered more closely with suppliers, and increased quality oversight meetings. From a place near the bottom of J. D. Power's study of U. S. new vehicle quality in 2001—32nd of 37 brands—Hyundai zoomed to number 4 by 2009, surpassed only by luxury brands Lexus, Porsche, and Cadillac. Hyundai also transformed its marketing. Its groundbreaking 10-year warranty sent a strong signal of reliability and quality, and more consum-ers began to appreciate the value its stylish cars had to offer. The U. S. market was not the only one receiving at-tention from Hyundai and its younger, more affordable brand sibling, Kia. Hyundai is the second-largest carmaker in India. In Europe, it invested in a $1. 4 billion factory in the Czech Republic and a new $7. 5 research center near a famed German racetrack, and its market share has surpassed Toyota's. A joint venture with Beijing Automotive is targeting China. Competing on a Global Basis Some companies have long been successful global marketers—firms like Shell, Bayer, and Toshiba have sold around the world for years. In luxury goods such as jewelry, watches, and handbags, where the addressable mar-ket is relatively small, a global profile is essential for firms like Prada, Gucci, and Louis Vuitton to profitably grow. But global competition is intensifying in more product categories as new firms make their mark on the interna-tional stage. In China's fast-moving mobile-phone market, Motorola found its once-promising share drop to the point where it was only the eighth-ranked competitor behind a slew of new entrants. 2 To better understand the Chinese market, Starwood's CEO and top management team even temporarily relocated to Shanghai for five weeks in 2011. Sixty percent of guests in their hotels in China were native Chinese, and the firm anticipated a wave of Chinese travelers going abroad. 3 Competition from developing-market firms is also heating up. Founded in Guatemala, Pollo Campero (Spanish for “country chicken') has launched more than 50 stores in different parts of the United States—including three as far north as Massachusetts—blending old favorites such as fried plantains and milky horchata drinks with Although opportunities to compete in international markets are significant, the risks can be high. Companies sell-ing in global industries have no choice, however, but to interna-tionalize their operations. In this chapter, we review the major decisions in expanding into global markets. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
240 PART 3 | Conne CTing Wi Th Cus Tome Rs traditional U. S. fare such as grilled chicken and mashed potatoes. 4 Tata has created a marketing powerhouse in India and set its sights on other parts of the world. 5 Ta Ta Na NO Tata Group, India's biggest conglomerate, is also its largest commercial vehicle maker. The company created a stir with the 2009 launch of its $2,500 Tata Nano, dubbed the “People's Car. ” Although impossibly low by Western standards, the Nano's price of 1 Indian lakh is three times India's annual per capita income. Looking somewhat like an egg on wheels, the Nano comfortably seats five while running a 33-horsepower engine that gets nearly 50 miles per gallon. Aiming to sell 250,000 units annually, Tata targeted the 7 million Indians who buy scooters and motorcycles every year, in part because they cannot afford a car. Huge market potential exists in the country, which has just seven automobiles per 1,000 people. Tata is also targeting other “bottom of the pyramid” markets such as Africa and Southeast Asia, and perhaps even parts of Eastern Europe and Latin America, as well as the U. S. market. Despite its positive features, the Nano got off to a rocky start in India due in part to the stigma attached to buying a “cheap” car. In a country where incomes have risen dramatically in recent years, some saw it as a glorified version of a tuk-tuk, the three-wheeled motorized rickshaw often seen on the streets of developing nations. Many low-income consumers decided to try to stretch their budgets to buy the Maruti-Suzuki Alto instead, with its bigger 800cc engine. On the other hand, some target customers who had never owned a car before were intimidated by Tata's glittering showrooms. After sales reached a low point in November 2012— only 3,500 cars sold against a target of 10,000—another makeover was announced—the third since launch in 2009, including a possible 800cc engine and a diesel option. Although some U. S. businesses may want to eliminate foreign competition through protective legislation, the better way to compete is to continuously improve products at home and expand into foreign markets. In a global industry, competitors' strategic positions in major geographic or national markets are affected by their overall global positions. 6 A global firm operates in more than one country and captures R&D, production, logistical, mar-keting, and financial advantages not available to purely domestic competitors. Global firms plan, operate, and coordinate their activities on a worldwide basis. Otis Elevator uses door systems from France, small geared parts from Spain, electronics from Germany, and motor drives from Japan; systems integration happens in the United States. Although some countries have erected entry barriers or regulations, the World Trade Organization, consisting of 160 countries, continues to press for more free trade in international ser-vices and other areas. 7 An interconnected world and global supply chains can have drawbacks, though, as the 2011 tsunami and earthquake in Japan vividly demonstrated. 8 To sell overseas, many successful global U. S. brands have tapped into universal consumer values and needs— such as Nike with athletic performance, MTV with youth culture, and Coca-Cola with youthful optimism. These firms hire thousands of employees abroad and make sure their products and marketing activities are consistent with local sensibilities. Global marketing extends beyond products. Services represent the fastest-growing sector of the global economy and account for two-thirds of global output, one-third of global employment, and nearly 20 percent of global trade. Tata is attacking automobile markets all over the world with its extraordinarily inexpensive Nano or “People's Car. ” Source: © Neil Mc Allister/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 241 For a company of any size or any type to go global, it must make a series of decisions (see Figure 8. 1). We'll examine each of these decisions here. 9 Deciding Whether to Go Abroad Most companies would prefer to remain domestic if their domestic market were large enough. Managers would not need to learn other languages and laws, deal with volatile currencies, face political and legal uncer-tainties, or redesign their products to suit different customer needs and expectations. Business would be easier and safer. Y et several factors can draw companies into the international arena: Some international markets present better profit opportunities than the domestic market. The company needs a larger customer base to achieve economies of scale. The company wants to reduce its dependence on any one market. The company decides to counterattack global competitors in their home markets. Customers are going abroad and require international service. As cultures blend across countries, another benefit of global expansion is the ability to transfer ideas and products or services from one market into another market. Cinnabon discovered that products it developed for Central and South America were finding success in the United States, too, given its large Hispanic population. 10 Reflecting the power of these forces, exports accounted for roughly 14 percent of U. S. GDP in 2013, more than double the figure 40 years ago. 11 Before making a decision to go abroad, the company must also weigh several risks: The company might not understand foreign preferences and could fail to offer a competitively attractive product. The company might not understand the foreign country's business culture. The company might underestimate foreign regulations and incur unexpected costs. The company might lack managers with international experience. The foreign country might change its commercial laws, devalue its currency, or undergo a political revolu-tion and expropriate foreign property. Some companies don't act until events thrust them into the international arena. The internationalization pro-cess typically has four stages:12 Stage 1: No regular export activities Stage 2: Export via independent representatives (agents) Stage 3: Establishment of one or more sales subsidiaries Stage 4: Establishment of production facilities abroad The first task is to move from stage 1 to stage 2. Most firms work with an independent agent and enter a nearby or similar country. Later, the firm establishes an export department to manage its agent relationships. Still later, it Deciding whether to go abroad Deciding which markets to enter Deciding ho w to enter the market Deciding on the marketing program Deciding on the marketing organization | Fig. 8. 1 | Major Decisions in International Marketing Cinnabon found that some products developed for Central and South America found acceptance in the U. S. too. Source: Associated Press | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
242 PART 3 | Conne CTing Wi Th Cus Tome Rs replaces agents with its own sales subsidiaries in its larger export markets. This increases investment and risk but also earning potential. Next, to manage subsidiaries, the company replaces the export department with an inter-national department or division. If markets are large and stable or the host country requires local production, the company will locate production facilities there. By this time, the firm is operating as a multinational and optimizing its sourcing, financing, manufacturing, and marketing as a global organization. According to some researchers, top management begins to focus on global opportunities when more than 15 percent of revenue comes from international markets. 13 Deciding Which Markets to Enter In deciding to go abroad, the company needs to define its marketing objectives and policies. What proportion of international to total sales will it seek? Most companies start small when they venture abroad. Some plan to stay small; others have bigger plans. How Man Y Markets to enter The company must decide how many countries to enter and how fast to expand. Typical entry strategies are the waterfall approach, gradually entering countries in sequence, and the sprinkler approach, entering many coun-tries simultaneously. Increasingly, firms—especially technology-intensive firms or online ventures—are born global and market to the entire world from the outset. 14 Matsushita, BMW, General Electric, Benetton, and The Body Shop followed the waterfall approach. It allows firms to carefully plan expansion and is less likely to strain human and financial resources. When first-mover advantage is crucial and a high degree of competitive intensity prevails, the sprinkler approach is better. Microsoft sold more than 60 million licenses and upgrades of Windows 8 in the first 10 weeks after its October 26, 2012, global launch. Marketing spanned 42 countries with TV, print, and banner ads, outdoor posters, and branded entertainment. The main risk in the sprinkler approach is the substantial resources needed and the difficulty of planning entry strategies for many diverse markets. 15 The company must also choose the countries to enter based on the product and on factors such as geography, income, population, and political climate. Competitive considerations come into play too. It may make sense to go into markets where competitors have already entered to force them to defend their market share as well as to learn from them how they are marketing in that environment. A critical consideration without question is market growth. Getting a toehold in a fast-growing market can be a very attractive option even if that market is likely to soon be crowded with more competitors. 16 KFC has entered scores of countries as a pioneer by franchising its retail concept and making its marketing culturally relevant. 17 KFC KFC is the world's largest fast-food chicken chain, serving more than 12 million customers at more than 4,600 restaurants in the United States and more than 18,000 restaurants in 120 countries and territories around the world. The company is world famous for its Original Recipe fried chicken—made with the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more than a half-century ago. In China, KFC is the largest, oldest, most popular, and fastest-growing quick-service restaurant chain, with more than 4,260 locations in 850 towns or cities, often enjoying healthy margins of 20 percent per store. The company has tailored its menu in China to local tastes with items such as the Dragon Twister, a wrap stuffed with chicken strips, Peking duck sauce, cucumbers, and scallions. KFC even has a Chinese mascot—a kid-friendly character named Chicky, which the company boasts has become “the Ronald Mc Donald of China. ” Like any emerging market, China does pose challenges to KFC. Sales there took a stumble early in 2013 when state-owned Chinese media accused the company of using local suppliers that gave their chickens exces-sive antibiotics to stimulate faster growth. A social media firestorm followed, eventually causing KFC to apologize for not having tighter controls. Supply chain problems have posed a different challenge in Africa, KFC's next growth target. Without enough domestic supply of chickens, the company has to import them, but that is illegal in Nigeria and Kenya. To overcome the supply problem in Nigeria, it added fish to the menu. By 2013, KFC had more than 1,000 restaurants in 17 countries in Africa. As it moved into more and more African markets, the company made sure to localize its menu—sell-ing Ugali, a type of porridge, in Kenya and jollof rice in Nigeria—and to showcase local culture on the walls and in the advertising. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 243 evaluat In G Potent Ial Markets However much nations and regions integrate their trading policies and standards, each market still has unique features. Readiness for different products and services and attractiveness as a market depend on the market's demographic, economic, sociocultural, natural, technological, and political-legal environments. How does a company choose among potential markets to enter? Many companies prefer to sell to neighboring countries because they understand them better and can control their entry costs more effectively. It's not surpris-ing that the two largest U. S. export markets are Canada and Mexico or that Swedish companies first sold to their Scandinavian neighbors. At other times, psychic proximity determines choices. Given more familiar language, laws, and culture, many U. S. firms prefer to sell in Canada, England, and Australia rather than in larger markets such as Germany and France. Companies should be careful, however, in choosing markets according to cultural distance. Besides overlooking potentially better markets, they may only superficially analyze real differences that put them at a disadvantage. 18 It often makes sense to operate in fewer countries, with a deeper commitment and penetration in each. In gen-eral, a company prefers to enter countries that have high market attractiveness and low market risk and in which it possesses a competitive advantage. Digicel has a very unusual market expansion strategy, an interesting twist on those market-entry criteria. 19 Digi Ce L In its 11-year existence, Jamaica-based Digicel has conquered politically unstable developing coun-tries such as Papua New Guinea, Haiti, and Tonga with mobile telecommunication products and services appealing to poor and typically overlooked consumers. The company strives for 100 percent population coverage with its networks, bringing affordable mobile service to local and rural residents who have never had the opportunity for coverage before and whose fierce loyalty helps protect Digicel from aggressive government interventions. It operates in 32 markets in the Caribbean, South Pacific, and Central and South America, serving 13 million customers. To be locally relevant, Digicel sponsors local cricket, rugby and other high-profile sports teams in each of these areas. Well-known champion Olympic sprinter Usain Bolt is the chief Digicel Brand Ambassador for various advertising and promotions across the region. The company also runs a host of community-based initiatives in each market through the educational, cultural, and social development programs of its Digicel Foundation. The company's marketing efforts in Fiji are instructive. Pitched in a fierce battle with incumbent Vodafone only two years after entry, Digicel Fiji even added a shade of light blue from the bottom of the Fiji national flag to its own red logo to reflect the company's pride in its contributions to Fijian life and sport, as reflected in its campaign, “Fiji Matters to Us. ” succeed In G In develo PIn G Markets One of the sharpest distinctions in global marketing is between developed and developing or emerg-ing markets such as Brazil, Russia, India, China, and South Africa. These five countries have formed an KFC has become one of the world's biggest global brands by adapting its products appropriately and overcoming any local market obstacles. Source: © Jeff Greenberg 5 of 6/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
244 PART 3 | Conne CTing Wi Th Cus Tome Rs association dubbed “BRICS” (for Brazil, Russia, India, China, and South Africa). 20 Another developing market with much economic and market-ing significance is Indonesia. Some have begun grouping that country and South Africa with Columbia, Vietnam, Egypt, and Turkey, dubbing them CIVETS to raise their profile. 21 These markets offer many opportunities but also many challenges. The unmet needs of the developing world represent huge potential markets for food, clothing, shelter, consumer electronics, appliances, and many other goods. Many market leaders are relying on developing markets to fuel their growth. Nestlé estimates about 1 billion consumers in emerging markets have increased their incomes enough to afford its products within the next decade. The world's largest food company now gets about 40 percent of its revenue from emerging markets. Developing markets make up more than 50 percent of Unilever's sales and 30 percent of Kraft's total business, as well as more than 40 percent of its newly spun-off snack business, Mondelēz. 22 Developing markets account for about 82 percent of the world's population, and 90 percent of future population growth is projected to occur there. 23 Can marketers serve this huge population, which has much less purchasing power and lives in conditions ranging from mild deprivation to severe deficiency? Next we highlight some important developments in each of the BRICS coun-tries and Indonesia. BRAZIL24 Resource-rich Brazil is the biggest economy in Latin America and the sixth largest in the world. According to a study by Goldman Sachs, it will likely move into fourth place by 2050, meaning it would economically be larger than countries like Germany, Japan, and the United Kingdom. The 2014 World Cup in soccer and the 2016 Summer Olympics in Rio de Janeiro will put the world's spotlight on recent progress made by Brazil, though also highlighting some of the country's unease in huge investments in athletic events as opposed to addressing pressing domestic concerns such as education and infrastructure. Brazil is also the fifth-largest country globally in terms of digital users, with about 91 million people online, making digital strategies attractive. Social media are especially popular. Firms are increasingly using mobile mar-keting, with a strong local flavor in their marketing communications. Marketers are finding innovative ways to sell products and services to Brazil's poor and low-income residents. Nestlé Brazil boosted sales of Bono cookies 40 percent after shrinking the package from 200 to 140 grams and low-ering the price. One Unilever Brasil marketing vice president noted: There are common themes that resonate well with Brazilians—family life, happiness, optimism, and pride at being from Brazil. Brazilians are natural optimists, and notoriously upbeat, and the way brands engage with them must reflect this. Brazil experienced some “go-go” growth years in the 1960s and 1970s, when it was the world's second-fastest-growing large economy. As a result, it now boasts large and well-developed agricultural, mining, manufacturing, and service sectors. Brazilian firms that have succeeded internationally include aircraft manufacturer Embraer, sandal maker Havaianas, and brewer and beverage producer Am Bev, which merged with Interbrew to form In Bev. Brazil also differs from other emerging markets in being a full-blown democracy, unlike Russia and China, and it has no seri-ous disputes with neighbors, unlike India. A number of obstacles exist, however, that are popularly called custo Brasil (“the cost of Brazil”). The cost of transporting products eats up nearly 13 percent of Brazil's GDP, five percentage points more than in the United States. Unloading a container is twice as expensive as in India and takes three times longer than in China. Strict and costly labor laws have inspired a massive underground economy that Mc Kinsey estimated accounted for as much as 40 percent of Brazil's gross domestic product, taking about half of all urban jobs. Crime and corruption are still problems. Russ IA25 The 1991 splintering of the Soviet Union transformed Russia's isolated, centrally planned economy into a globally integrated, market-based economy. Russia is the largest exporter of natural gas, the second-largest exporter of oil, and the third-largest exporter of steel and primary aluminum. Reliance on commodities has its Digicel offers affordable mobile phone service and locally relevant marketing programs to overlooked consumers in developing markets. Source: Digicel. Katie Taylor, Head of Marketing; Bernard Prasad, Graphic Designer. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 245 downside, however. The country's economy was hammered in the recent recession by plunging commodity prices and the credit crunch. Russians make heavy use of social media, spending an average of 9. 8 hours per visitor on a monthly basis, twice the world average, though Facebook has lagged behind local competitors. The company is engaging Russian devel-opers of apps, games, and similar tools to provide more local content. Russia has a dwindling workforce and poor infrastructure. The Organization for Economic Cooperation & Development (OECD) cautions that economic reforms have stagnated and ranks Russia as one of the most cor-rupt countries in the world. Many feel the government of Vladimir Putin has been unpredictable and difficult to work with. For these and other reasons, market entry can be daunting. To distribute in Russia, Cyclo Industries, a U. S. manufacturer of chemicals for the automotive industry, had to translate its labeling, determine how to competi-tively price its products, and develop specialized marketing plans. Logistical problems caused one of the company's marketers to note, “The roads are just terrible and there's no way to get from one part of Russia to another. ” Although it took the company more than a year to even establish a presence there, within six months the Russian market was contributing 10 percent of Cyclo's revenue. Ind IA26 India's transformation over a generation has been staggering. Reforms in the early 1990s lowered trade barriers and liberalized capital markets, bringing booming investment and consumption. India boasts a lively democracy and a youthful population. The world's second most populous nation with 1. 21 billion people, it is also one of the youngest large economies, with a median age of 25. In fact, one-quarter of the entire world's under-25 population lives in India. A strong economy has been matched by progress in literacy and access to financial services and modern tech-nology. India has fully embraced mobile technology; mobile phone density is approximately 75 percent of the population, of whom around 15 percent use their mobile devices to go online. Enjoying some of the lowest prices anywhere, one-third of Indian mobile subscribers live in rural areas. India's ascent opens a larger market for U. S. and Western goods. About 16 million, or 3 percent, of Indian con-sumers are high-earning targets of youth lifestyle brands connoting status and affluence, like luxury cars and shiny motorbikes, followed by clothing, food, entertainment, consumer durables, and travel. Opportunities abound for firms of all types. Indians drank an average of only 14 eight-ounce bottles of Coke in 2012, compared with an aver-age of 241 bottles in Brazil and 745 bottles in Mexico, leading Coca-Cola to announce a $5 billion investment over 2012-2020. As the seventh-largest country in size, however, India has important regional differences. Its 28 separate states each have their own policies and tax rules, 23 official languages, 1,500 dialects, and a multitude of faiths. Areas around Mumbai and Bangalore are richer and more highly literate, while poorer, less educated states lie in the east. Even the weather is significant to marketers. Cool winters in the north create dry skin conditions, in stark contrast to the humid climates of Mumbai and Chennai. Some Indian firms—such as Mittal, Reliance Group, Tata, Wipro, Infosys, and Mahindra—have achieved international success. Reliance touches the life of one in 10 Indians every day, and its worldwide customer base numbers 100 million. For all its opportunities, India struggles with poor infrastructure and public services—education, health, and water supply—and restrictive labor laws. The national government in New Delhi vows to spend $1 trillion on infrastructure over five years, although, as in many emerging markets, corruption remains a huge problem at vir-tually all levels of government. A complicated retail network has been slow to modernize, leading to distribution problems. Ch In A27 China's 1. 34 billion people have marketers scrambling to gain a foothold, and competition has heated up between domestic and international firms. Its 2001 entry into the World Trade Organization (WTO) eased China's manufacturing and investment rules and modernized retail and logistics industries. Greater competition in pricing, products, and channels resulted, though some industries remained fiercely protected or off-limits to foreigners altogether. Foreign businesses complain about subsidized competition, restricted access, conflicting regulations, opaque and seemingly arbitrary bureaucracy, and lack of protection for intellectual property; 90 percent of PC software is reportedly pirated in China. The Chinese government encourages partnerships with foreign companies, in part so that its firms can learn enough to become global powerhouses themselves. Nevertheless, opportunities exist. Although China is Nestlé's ninth-biggest market, the company sells half what it does in Brazil, despite China's having seven times the population. While it's the largest auto market in the world, at 60 vehicles per 1,000 people, China lags in car ownership at half the world average. Pepsi Co has big plans for its | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
246 PART 3 | Conne CTing Wi Th Cus Tome Rs food and beverage brands knowing that consumption of potato chips in China is around one small bag every two to four weeks, compared with 15 bags in the United States, and that the average Chinese buys a beverage 230 times per year while the average U. S. consumer buys 1,500. Selling in China means going beyond the big cities to the second-and third-tier cities, as well as to the 700 mil-lion potential consumers in small communities in the rural interior. Chengdu and Chongqing are two second-tier economic powerhouses in western China and experiencing much growth. Rural consumers can be challenging; they have lower incomes (the income ratio between China's coastal cities and rural interior is six to one), are less sophisticated, and often cling to local habits. China is also ethnically diverse—the banknote features eight lan-guages, including Arabic, Mongolian, and Tibetan. China's emerging urban middle class is active and discerning, demanding higher-quality products and variety. Although they number four times the U. S. population, Chinese consumers spend a fraction of what U. S. consum-ers do. China is now the world's top consumer of luxury consumer goods, with many Chinese consumers view-ing these as trophies of success. Luxury cars are the fastest-growing auto segment thanks to the swelling ranks of Chinese millionaires. Burberry's sales in China now almost match those in Europe as a whole. Competition among foreign firms is fierce as they attempt to get the upper hand in the fast-growing market. Walmart contends with Carrefour, General Motors fights Volkswagen, and Nike battles Adidas. In competing with local firms, many Western companies benefit from their reputation of quality, safety, and dependability with Chinese consumers, who have seen numerous scandals from their domestic companies. At the same time, Western companies need to be locally relevant. Starbucks has a localized menu of beverages particularly tailored for Chinese consumers—including a unique “East meets West” blend—from which local stores can choose. south Af RICA28 Although South Africa is a developed market, we include it here not only as an important market in its own right but also for its role as an access point to the African region; many international companies are using it as a launch pad for African expansion. The 2010 World Cup in soccer offered a chance to reexamine economic progress in South Africa and other African countries. Africa has experienced much change in recent years. Although political turmoil in Egypt, Tunisia, and Libya during the “ Arab Spring” is a reminder of the instability that has plagued the continent and logistical and in-frastructure problems prevail, improvements in many other areas such as health, education, and social services paint a rosier picture of the continent's future, as do economic forecasts. Mc Kinsey Global Institute estimates the number of African households with discretionary income—money available to spend on items other than food—is expected to increase by a robust 50 percent to 128 million people by 2020. Additional Mc Kinsey research shows that many African consumers seek high-quality products and are brand conscious, “belying the view that the continent is a backwater where companies can sell second-rate merchandise. ” Unilever is finding success by tailoring products for African customers: affordable food, water-conserving washing powders, and grooming products to fit local tastes. Its best-selling Motions range of shampoos and conditioners were made especially for African hair and black skin. Some firms have worked for years to develop their African business. General Motors now sells in more than 50 African countries and has manufacturing facilities in South Africa, Egypt, and Kenya. Like any other continent, Africa is highly heterogeneous, and some experts emphasize that it should be seen as 53 separate and often very different countries. The Boston Consulting Group has dubbed eight of Africa's strongest economies the “ African Lions”: Algeria, Botswana, Egypt, Libya, Mauritius, Morocco, South Africa, and Tunisia. Nestlé is especially bullish on Kenya, Ethiopia, Mozambique, Angola, and the Democratic Republic of the Congo. Although agriculture is the largest economic sector, telecommunications, energy, consumer products, and health care are experiencing the fastest growth. More than 650 million Africans had mobile phones by the end of 2011; more than 300 million of them are new subscribers since 2000. Mobile phones are used not just for talking but also as a platform to support daily living, playing a crucial role in health care and banking, for example, where extensive infrastructure does not exist. Two-thirds of adults used a mobile money service, with Vodafone and MTN leading the way. The Internet is playing an increasingly important marketing role in Africa, often accessed by mobile phones. Indones IA29 Indonesia's reputation as a country historically struggling with natural disasters, terrorism, and economic uncertainty is quickly being replaced by a profile of political stability and economic growth. The fourth-largest country in the world and the largest Muslim country, given all its progress, Indonesia strikes many as ready to join the BRICS countries. It has become the third-fastest-growing economy in the region—behind India and China—largely on the basis of its 240 million consumers. By 2030, forecasts expect the number of middle-class Indonesians—those making between $2 and $20 per day—to increase from 131 million to 244 million and those in the “consumer class”—who make more than $3,600 per year—to increase from 45 million to 135 million. Marketers have found Indonesian consumers to be very brand conscious, an important preference given their rising incomes. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 247 An archipelago with more than 14,000 islands in a hot and humid climate, Indonesia does present challenges. Effective, efficient distribution is critical. Large importers have established distribution networks that allow them to reach beyond the one-third of the population living in the six or seven largest cities, but as in many developing countries, infrastructure can be lacking. Recent progress is noteworthy, however. Indonesia is L 'Oréal's fastest-growing market in Asia-Pacific, leading the firm to build a plant there. IKEA has made a recent entry. With more than 20 percent of its Internet users hav-ing a Twitter account, Indonesia is the fifth-most active country on the microblogging site. MARket Ing st RAteg Ies fo R deve Lop Ing M ARkets Successfully entering developing markets requires a special set of skills and plans and an ability to do a number of things differently and well. 30 Consider how these companies pioneered ways to serve “invisible” consumers in these markets:31 Grameenphone marketed cell phones to 35,000 villages in Bangladesh by hiring village women as agents who leased phone time to other villagers, one call at a time. Colgate-Palmolive rolled into Indian villages with video vans that showed the benefits of toothbrushing. Corporación GEO builds low-income housing in Mexico, featuring two-bedroom homes that are modular and expandable. These marketers capitalized on the potential of developing markets by changing their conventional marketing practices. Selling in developing areas can't be “business as usual. ” Economic and cultural differences abound, a marketing infrastructure may barely exist, and local competition can be surprisingly stiff. 32 Many companies are tapping into the growing middle class in developing markets. Boston Consulting Group estimates there will be nearly a billion middle-class Chinese and Indians by 2020. 33 Many will have aspirations that include the purchase of premium products and global brands. 34 For example, when Unilever introduced TRESemmé in Brazil, it secured the support of 40 big retailers, courted fashion bloggers, distributed 10 million free samples, and launched the company's biggest-ever single-day online ad blitz, which eventually lured 1 million fans to the brand's Brazilian Facebook page. In under a year, sales of TRESemmé surpassed those of P&G shampoo stalwart Pantene in hypermarkets and drugstores, giving Unilever confidence to set its sights on India and Indonesia next. 35 Because the needed marketing practices are more similar to those employed in developing markets, it is typically much easier to tap into the middle class in developing markets than to reach the 4 billion people at the “ bottom of the pyramid. ” Although they may collectively be worth $3 trillion, each individual low-income con-sumer may have very little to spend. Satisfying the bottom of the pyramid also requires careful planning and execution. Conventional wisdom says a “low price, low margin, high volume” business model is the key to successfully appealing to lower-income mar-kets in developing markets. Although there are some good examples of such a strategy—Hindustan Unilever with Wheel detergent in India, for one—others have struggled. Procter & Gamble launched its Pur water-purification product in India, and although priced at only 10 cents a sachet, the product yielded a 50 percent margin. But after disappointing overall results, the company transitioned the brand to a philanthropic venture. 36 Marketers are learning the nuances in marketing to a broader population in emerging markets, especially when cost reductions are difficult to realize because of the firm's established supply chain and when production methods and distribution strategy and price premiums are hard to command because of consumer price sensitivity. Getting the marketing equation right in developing markets can pay big dividends: Smaller packaging and lower prices are often critical when income and space are limited. Unilever's four-cent sachets of detergent and shampoo were a big hit in rural India, where 70 percent of the population still lives. 37 The vast majority of consumers in emerging markets buy their products from tiny bodegas, stalls, kiosks, and mom-and-pop stores not much bigger than a closet, which Procter & Gamble calls “high-frequency stores. ” In India, food is largely purchased from the 12 million neighborhood mom-and-pop outfits called kirana stores. These thrive by offering convenience, credit, and even home delivery, though modern retailing is beginning to make inroads. 38 Nokia sent marketing, sales, and engineering staff from its entry-level phone group to spend a week in people's homes in rural China, Thailand, and Kenya to observe how they used phones. By developing rock-bottom-priced phones with just the right functionality, Nokia has retained market-share leadership in some parts of Africa and Asia despite being surpassed by other brands in parts of the developed world. 39 Digital strategies will be crucial in developing markets given the rapid penetration of smart phones as more than a means of communication. One research study showed that social media is six times more important for brands in developing markets such as Indonesia and Thailand than it is in Japan or the United Kingdom. 40 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
248 PART 3 | Conne CTing Wi Th Cus Tome Rs deve Lop Ing and deve Loped M ARkets Competition is also growing from companies based in developing markets. Wipro of India, Cemex of Mexico, HTC from Taiwan, and Petronas of Malaysia have emerged from developing markets to become strong multinationals selling in many countries. Often the key is to both develop a global business model and build a global brand that will effectively work in all the targeted markets. 41 One strategy successfully employed by some companies from emerging markets is to identify neglected niches in larger markets. 42 Mahindra has been selling U. S. farmers small tractors from its three U. S. assembly plants for more than 20 years. It has used its expertise in manufacturing small tractors to also expand into niche mar-kets for lawn care and golf course maintenance. Another strategy for going global is to acquire one or more firms in developed markets. India's Apollo Tyres acquired businesses in the Netherlands and South Africa. After Lenovo bought IBM's PC business for $1. 25 billion in 2005, many other Chinese firms began to look overseas for possible acquisitions, leading one pundit to declare that the well-known phrase “Made in China” would soon be replaced by “Owned by China. ”43 On the other hand, many firms from developed markets are using lessons gleaned from developing mar-kets to better compete in their home or existing markets (recall the “bottom of the pyramid” discussion from Chapter 3). Product innovation has become a two-way street between developing and developed markets. The challenge is to think creatively about how marketing can fulfill the dreams of most of the world's popula-tion for a better standard of living. 44 Many companies are betting they can do that. To feed a projected world population of 9 billion by 2050, ana-lysts estimate that food production globally must increase by 60 percent, a challenge John Deere is addressing. 45 JOh N Deere John Deere's new 8R line was the first tractor line designed to accommodate the needs of different farmers in 130 countries worldwide. The 8R is powerful but agile and fuel-efficient, best suited for larger farms. But it is highly customizable to suit the needs of growers in developing markets like Brazil and Russia as much as the developed markets of the United States or Germany. From March 2011 to March 2012, customers ordered more than 7,800 different configurations of the 8R tractor. Deere has nine factories outside the United States in both developed and developing markets, including Germany, India, China, Mexico, and Brazil. Regional economic integration—the creation of trading agreements between blocs of countries—has intensified in recent years. This means companies are more likely to enter entire regions at the same time. Certain countries have formed free trade zones or economic communities—groups of nations organized to work toward common goals in the regulation of international trade. Deciding How to Enter the Market Once a company decides to target a particular country, it must choose the best mode of entry with its brands. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment, shown in Figure 8. 2. Each succeeding strategy entails more commitment, risk, control, and profit potential. Joint ventures Direct investment Indirect exporting Licensing Commitment, Risk, Control, and Profit P otential Direct exporting | Fig. 8. 2 | Five Modes of Entry into Foreign Markets In India, millions of consumers buy their food from the ubiquitous kirana or “mom & pop” shops. Source: © image BROKER/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 249 Ind Irect and d Irect ex Port Companies typically start with export, specifically indirect exporting —that is, they work through independent intermediaries. Domestic-based export merchants buy the manufacturer's products and then sell them abroad. Domestic-based export agents, including trading companies, seek and negotiate foreign purchases for a commis-sion. Cooperative organizations conduct exporting activities for several producers—often of primary products such as fruits or nuts—and are partly under their administrative control. Export-management companies agree to manage a company's export activities for a fee. Indirect export has two advantages. First, there is less investment: The firm doesn't have to develop an export department, an overseas sales force, or a set of international contacts. Second, there's less risk: Because inter-national marketing intermediaries bring know-how and services to the relationship, the seller will make fewer mistakes. Companies may eventually decide to handle their own exports. The investment and risk are somewhat greater, but so is the potential return. Direct exporting happens in several ways: Domestic-based export department or division. A purely service function may evolve into a self- contained export department operating as its own profit center. Overseas sales branch or subsidiary. The sales branch handles sales and distribution and perhaps warehous-ing and promotion as well. It often serves as a display and customer service center. Traveling export sales representatives. Home-based sales representatives travel abroad to find business. Foreign-based distributors or agents. These third parties can hold limited or exclusive rights to represent the company in that country. Many companies use direct or indirect exporting to “test the waters” before building a plant and manufacturing their product overseas. A company does not necessarily have to attend international trade shows if it can effectively use the Internet to attract new customers overseas, support existing customers who live abroad, source from inter-national suppliers, and build global brand awareness. Successful companies adapt their Web sites to provide country-specific content and services to their highest-potential international markets, ideally in the local language. Finding free information about trade and exporting has never been easier. Here are some places to start a search: www. trade. gov U. S. Department of Commerce's International Trade Administration www. exim. gov Export-Import Bank of the United States www. sba. gov U. S. Small Business Administration www. bis. doc. gov Bureau of Industry and Security, a branch of the Commerce Department Many states' export-promotion offices also have online resources and allow businesses to link to their sites. l Icens In G Licensing is a simple way to engage in international marketing. The licensor issues a license to a foreign company to use a manufacturing process, trademark, patent, trade secret, or other item of value for a fee or royalty. The licensor gains entry at little risk; the licensee gains production expertise or a well-known product or brand name. The licensor, however, has less control over the licensee than over its own production and sales facilities. If the licensee is very successful, the firm has given up profits, and if and when the contract ends, it might find it has created a competitor. To prevent this, the licensor usually supplies some proprietary product ingredients or com-ponents (as Coca-Cola does). But the best strategy is to lead in innovation so the licensee will continue to depend on the licensor. Licensing arrangements vary. Companies such as Hyatt and Marriott sell management contracts to owners of foreign hotels to manage these businesses for a fee. The management firm may have the option to purchase some share in the managed company within a stated period. In contract manufacturing, the firm hires local manufacturers to produce the product. Volkswagen has a contract agreement with the GAZ Group through 2019, whereby GAZ will build the Volkswagen Jetta, Skoda Octavia, and Skoda Y eti models in Nizhny Novgorod for the Russian market, with planned production volume of 110,000 vehicles per year. 46 Toshiba, Hitachi, and other Japanese television manufacturers use contract manufac-turing to service the Eastern European market. 47 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
250 PART 3 | Conne CTing Wi Th Cus Tome Rs Contract manufacturing reduces the company's control over the process and risks loss of potential profits. However, it offers a chance to start faster, with the opportu-nity to partner with or buy out the local manufacturer later. Finally, a company can enter a foreign market through franchising, a more com-plete form of licensing. The franchisor offers a complete brand concept and operat-ing system. In return, the franchisee invests in and pays certain fees to the franchisor. Quick-service operators like Mc Donald's, Subway, and Burger King have franchised all over the world, as have service and retail companies such as 7-Eleven, Hertz, and Best Western Hotels. 48 Jo Int ventures Historically, foreign investors have often joined local investors in a joint venture company in which they share ownership and control. To reach more geographic and technological markets and to diversify its investments and risk, GE Capital—GE's re-tail lending arm—views joint ventures as one of its “most powerful strategic tools. ” It has formed joint ventures with financial institutions in South Korea, Spain, Turkey, and elsewhere. 49 Emerging markets, especially large, complex countries such as China and India, see much joint venture action. A joint venture may be necessary or desirable for economic or political reasons. The foreign firm might lack the financial, physical, or managerial resources to un-dertake the venture alone, or the foreign government might require joint ownership as a condition for entry. Joint ownership has drawbacks. The partners might disagree over investment, marketing, or other policies. One might want to reinvest earnings for growth, the other to declare more dividends. Joint ownership can also prevent a multinational company from carrying out specific manufacturing and marketing policies on a worldwide basis. The value of a partnership can extend far beyond increased sales or access to dis-tribution. Good partners share “brand values” that help maintain brand consistency across markets. For example, Mc Donald's fierce commitment to product and service standardization is one reason its retail outlets are so similar around the world. Mc Donald's handpicks its global partners one by one to find “compulsive achievers” who will put forth the desired effort. d Irect Invest Ment The ultimate form of foreign involvement is direct ownership: The foreign company can buy part or full interest in a local company or build its own manufacturing or service facilities. Cisco had no presence in India before 2005, but it has already opened a second headquarters in Bangalore to take advantage of opportunities in India and other locations such as Dubai. 50 If the market is large enough, direct investment offers distinct advantages. First, the firm secures cost econo-mies through cheaper labor or raw materials, government incentives, and freight savings. Second, the firm strengthens its image in the host country because it creates jobs. Third, the firm deepens its relationship with the government, customers, local suppliers, and distributors, enabling it to better adapt its products to the local envi-ronment. Fourth, the firm retains full control over its investment and can develop manufacturing and marketing policies that serve its long-term international objectives. Fifth, the firm ensures its access to the market in case the host country insists that locally purchased goods must have domestic content. The main disadvantage of direct investment is that the firm exposes a large investment to risks like blocked or devalued currencies, worsening markets, or expropriation. If the host country requires high severance pay for local employees, reducing or closing operations can be expensive. acqu Is It Ion Rather than bringing their brands into certain countries, many companies choose to acquire local brands for their brand portfolio. Strong local brands can tap into consumer sentiment in a way international brands may find difficult. A good example of a company assembling a collection of “local jewels” is SABMiller. 51 Companies such as Best Western have used franchise arrangements to cost-effectively enter markets all over the world. Source: © Tupungato /Shutterstock | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 251 Sab Mi LLer From its isolated origins as the dominant brewery in South Africa, SABMiller now has a pres-ence in 75 different countries all over the world, thanks to a series of acquisitions including its 2002 purchase of Miller Brewing in the United States for $5. 6 billion. The company is the world's second-largest beer maker, producing such well-known brands as Grolsch, Miller Lite, Peroni, Pilsner Urquell, South Africa's Castle Lager, and Australia's Victoria Bitter. Its global strategy, however, is in stark contrast to that of its main competitor. Anheuser-Busch In Bev's strategy with Budweiser is to sell the brand all over the world, positioned as “The American Dream in a Bottle. ” SABMiller calls itself “the most local of global brewers” and believes the key to global success is pushing local brands that appeal to a home country's customs, attitudes, and traditions. The company relies on sociologists, anthropologists, and historians to find the right way to create “local intimacy” and also employs 10 analysts whose sole responsibility is segmentation re-search in different markets. Peru's Cusquena brand “pays tribute to the elite standard of Inca craftsmanship. ” Romania's Timisoreana brand taps into its own 18th-century roots. In Ghana and other parts of Africa, cloudy Chibuku beer is priced at only 58¢ a liter to compete with home brews. When research revealed that many beer drinkers in Poland felt “no one takes us seriously,” SABMiller launched a campaign for its Tyskie brand featuring foreigners lauding the brew and the Polish people. Deciding on the Marketing Program International companies must decide how much to adapt their marketing strategy to local conditions. 52 At one extreme is a standardized marketing program worldwide, which promises the lowest costs; Table 8. 1 summarizes some pros and cons. At the other extreme is an adapted marketing program in which the company, consistent with the marketing concept, believes consumer needs vary and tailors marketing to each target group. A good example of the latter strategy is Oreo cookies. 53 t ABL e 8. 1 Globally Standardized Marketing Pros and Cons Advantages Economies of scale in production and distribution Lower marketing costs Power and scope Consistency in brand image Ability to leverage good ideas quickly and efficiently Uniformity of marketing practices Disadvantages Ignores differences in consumer needs, wants, and usage patterns for products Ignores differences in consumer response to marketing programs and activities Ignores differences in brand and product development and the competitive environment Ignores differences in the legal environment Ignores differences in marketing institutions Ignores differences in administrative procedures | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
252 PART 3 | Conne CTing Wi Th Cus Tome Rs Ore O In launching its Oreo brand of cookies worldwide, Kraft chose to adopt a consistent global positioning, “Milk's Favorite Cookie. ” Although not necessarily highly relevant in all countries, it did reinforce generally desirable asso-ciations like nurturing, caring, and health. To help ensure global understanding, Kraft created a brand book with a CD in an Oreo-shaped box that summarized brand management fundamentals—what needed to be common across countries, what could be changed, and what could not. At first, Kraft tried to sell the U. S. Oreo everywhere. When research showed cultural differences in taste preferences—Chinese found the cookies too sweet whereas Indians found them too bitter—new for-mulas were introduced across markets. In China, the cookie was made less sweet and with different fillings, such as green tea ice cream, grape-peach, mango-orange, and raspberry-strawberry. Indonesia has a chocolate-and-peanut variety; Argentina has banana and dulce de leche varieties. In an example of reverse innovation, Kraft successfully introduced some of these new flavors into other countries. The company also tailors its marketing efforts to better connect with local con-sumers. One Chinese commercial has a child showing China's first NBA star Yao Ming how to dunk an Oreo cookie. Global s IMIlar It Ies and d Ifferences The vast penetration of the Internet, the spread of cable and satellite TV, and the global linking of telecommuni-cations networks have led to a convergence of lifestyles. Increasingly shared needs and wants have created global markets for more standardized products, particularly among the young middle class. Once the butt of jokes like “Why do you need a rear-window defroster on a Skoda? To keep your hands warm when pushing it, ” the Czech carmaker Skoda was acquired by VW, which invested to upgrade quality and image and offer an affordable option to lower-income consumers worldwide. 54 At the same time, consumers can still vary in significant ways. 55 The median age is only about 26 or 27 in India and Mexico and 35 in China but about 43 to 45 in Japan, Germany, and Italy. 56 Doughnuts don't appeal to British consumers for breakfast, while Kenyans need to be convinced that cereal is a good option. 57 When asked whether they are more concerned with getting a specific brand rather than the best price, roughly two-thirds of U. S. consumers agreed, compared with about 80 percent in Russia and India. 58 The percentage of the population online varies wildly across countries: United Kingdom (85 percent), Japan (80 percent), United States (79 percent), Brazil (40 percent), China (34 percent), and India (7. 5 percent). U. S. Internet users spend an average of 32 hours per month, compared with 16 hours globally. 59 Consumer behavior may reflect cultural differences that can be pronounced across countries. 60 Hofstede identi-fies four cultural dimensions that differentiate countries:61 1. Individualism versus collectivism —In collectivist societies, the self-worth of an individual is rooted more in the social system than in individual achievement (high collectivism: Japan; low: United States). 2. High versus low power distance —High power distance cultures tend to be less egalitarian (high: Russia; low: Nordic countries). SABMiller has assembled a diverse portfolio of iconic local beer brands from all over the world. Source: Associated Press | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 253 3. Masculine versus feminine —This dimension measures how much the culture reflects assertive characteristics more often attributed to males versus nurturing characteristics more often attributed to females (highly mas-culine: Japan; low: Nordic countries). 4. Weak versus strong uncertainty avoidance —Uncertainty avoidance indicates how risk-aversive people are (high avoidance: Greece; low: Jamaica). Consumer behavior differences as well as historical market factors have led marketers to position brands differ-ently in different markets. Heineken beer is a high-end super-premium offering in the United States but more middle-of-the-road in its Dutch home market. Honda automobiles denote speed, youth, and energy in Japan and quality and reliability in the United States. The Toyota Camry is the quintessential middle-class car in the United States but is at the high end in China, though in the two markets the cars differ only in cosmetic ways. Market In G ada Ptat Ion Because of all these differences, most products require at least some adaptation. 62 Even Coca-Cola is sweeter or less carbonated in certain countries. Rather than assuming it can introduce its domestic product “as is” in another coun-try, a company should review the following elements and determine which add more revenue than cost if adapted: Product features Labeling Colors Materials Sales promotion Prices Advertising media Brand name Packaging Advertising execution Advertising themes The best global brands are consistent in theme but reflect significant differences in consumer behavior, brand development, competitive forces, and the legal or political environment. 63 Oft-heard—and sometime modified— advice to marketers of global brands is to “Think Global, Act Local. ” In that spirit, HSBC was explicitly positioned for years as “The World's Local Bank. ” Take Mc Donald's, for example. 64 It allows countries and regions to customize its basic layout and menu staples (see Table 8. 2). In cities plagued by traffic tie-ups like Manila, Taipei, Jakarta, and Cairo, Mc Donald's delivers via fleets of motor scooters. t ABL e 8. 2 Mc Donald's Global Menu Variations Country Noteworthy Menu Items United States Big Mac, Chicken Mc Nuggets, Filet-o-Fish, Egg Mc Muffin, Fries India Mc Veggie, Chicken Maharaja-Mac, Mc Spicy Paneer France Le Mc Baguette, Le Croque Mc Do, Le Royal Cheese Egypt Beef N Pepper, Mc Arabia (grilled kofta), Mc Falafel Israel Mc Kebab, Mc Falafel, Big New York and Big Texas (hamburgers) Japan Ebi Filet-O, Mega Teriyaki Burger, Bacon Egg and Lettuce Wrap, Shaka Shaka Chicken China Prosperity Burger, Taro Pie, Mc Wings, Mc Nuggets with Chili Garlic sauce Brazil Banana Pie, Mc Nífico Bacon, Cheddar Mc Melt, Big Tasty Mexico Big Mac, Mc Chicken, Fries, etc. Sources: “Discover Mc Donald's Around the World,” www. aboutmcdonalds. com/mcd/country/map. html, accessed May 20, 2014; David Griner, “Mc Donald's 60-Second Meals in Japan Aren't Going So Well,” Adweek, January 7, 2013; Richard Vines and Caroline Connan, “Mc Donald's Wins Over French Chef with Mc Baguette Sandwich,” www. bloomberg. com, January 15, 2013; Ségolène Poirier, “Mc Donald's Brazil Has Big Plans,” The Rio Times, April 8, 2012; Susan Postlewaite, “Mc Donald's Mc Falafel a Hit with Egyptians, Advertising Age, June 19, 2001. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
254 PART 3 | Conne CTing Wi Th Cus Tome Rs Companies must make sure their brands are relevant to consumers in every market they enter. After highlight-ing how Amazon and Netflix are entering global markets, we next consider some specific issues in developing global product, communications, pricing, and distribution strategies. 65 a Maz ON a ND Ne TFLix Two of the most successful marketing companies in recent years, Amazon and Netflix are going overseas to fuel their rapid growth, but they are also finding themselves butting heads as they both seek to become the market leader for digital movie downloads. The older of the two, Amazon has been overseas longer, finding much success in the United Kingdom, Germany, and other parts of Europe. Amazon has also moved into Asia-Pacific but has found progress in emerging markets like China to be slow. Amazon acquired Love Film, a European DVD rental and movie-streaming business, to compete with Netflix. It also opened up a massive media R&D center in London and expanded its Android-based Appstore distribution business to cover 200 countries. Netflix has expanded aggressively overseas, starting with Canada in 2010 and Latin America in 2011 and then the United Kingdom, Ireland, and Nordic coun-tries in 2012. Although its international base of more than 6 million consumers is formidable, the company faces heavy local and regional competition and has to negotiate with local broadcasters and distributors for its streaming TV licenses. To attract new users, Netflix is emphasizing breadth of content and original programming such as the Emmy-and Golden Globe-winning political thriller “House of Cards. ” Global Product strate GIes Developing global product strategies requires knowing what types of products or services are easily standardized and what are appropriate adaptation strategies. p Rodu Ct st And ARd IZAt Ion Some products cross borders without adaptation better than others, and consumer knowledge about new products is generally the same everywhere because perceptions have yet to be formed. Many leading Internet brands—such as Google, e Bay, Twitter, and Facebook—made quick progress in overseas markets. High-end products also benefit from standardization because quality and prestige often can be marketed similarly across countries. Culture and wealth factors influence how quickly a new product takes off in a coun-try, though adoption and diffusion rates are becoming more alike across countries over time. Food and beverage marketers find it more challenging to standardize, of course, given widely varying tastes and cultural habits. 66 A company may emphasize its products differently across markets. In its medical-equipment business, Philips traditionally reserved higher-end, premium products for developed markets and emphasized products with basic functionality and affordability in developing markets. Increasingly, however, the company is designing, engineer-ing, and manufacturing locally in emerging markets like China and India. 67 Amazon has found great success moving into global markets, especially in Europe. Source: © Robert Morris/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 255 With a growing middle class in many emerging markets, many firms are assembling product portfolios to tap into different income segments. French food company Danone has many high-end healthy products, such as Dannon yogurt, Evian water, and Bledina baby food, but it also sells much lower priced products targeting consumers with “dollar-a-day” food budgets. In Indonesia, where average per-capita income is about US$10 a day, the company sells Milkuat, a 6 month shelf life neutral ph milk beverage. Danone now generates over 60% of its sales from growth markets (i. e. all except Western Europe), up from just 23% in 1996 (source: www . danone. com). 68 p Rodu Ct Ad Apt At Ion st RAteg Ies Warren Keegan has distinguished five product and communications adaptation strategies (see Figure 8. 3). 69 We review the product strategies here and the communication strategies in the next section. Straight extension introduces the product in the foreign market without any change. Tempting because it requires no additional R&D expense, manufacturing retooling, or promotional modification, the strategy has been successful for cameras, consumer electronics, and many machine tools. In other cases, it has been a disaster. Campbell Soup Company lost an estimated $30 million introducing condensed soups in England; consumers saw expensive small-sized cans and didn't realize water needed to be added. Product adaptation alters the product to meet local conditions or preferences. Flexible manufacturing makes it easier to do so on several levels. A company can produce a regional version of its product. Dunkin' Donuts has been introducing more region-alized products, such as Coco Leche donuts in Miami and sausage kolaches in Dallas. 70 A company can produce a country version. Kraft blends different coffees for the British (who drink coffee with milk), the French (who drink it black), and Latin Americans (who want a chicory taste). A company can produce a city version —for instance, a beer to meet Munich's or Tokyo's tastes. A company can produce different retailer versions, such as one cof-fee brew for the Migros chain store and another for the Cooperative chain store, both in Switzerland. Some companies have learned adaptation the hard way. The Euro Disney theme park, launched outside Paris in 1992, was harshly criti-cized as an example of U. S. cultural imperialism that ignored French customs and values, such as the serving of wine with meals. As one Do Not Change Product Adapt Product Product Communications Develop New Product Straight extension Product adaptation Product invention Communication adaptation Do Not Change Communications Adapt Communications Dual adaptation | Fig. 8. 3 | Five International Product and Communication Strategies Milkuat is a popular milk beverage in Indonesia due to its six month shelf life and affordability. Source: Groupe Danone. Used with permission. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
256 PART 3 | Conne CTing Wi Th Cus Tome Rs Euro Disney executive noted, “When we first launched, there was the belief that it was enough to be Disney. Now we realize our guests need to be welcomed on the basis of their own culture and travel habits. ” Renamed Disneyland Paris, the theme park eventually became one of Europe's biggest tourist attraction—even more popular than the Eiffel Tower—by implementing a number of local touches. 71 On the other hand, South Korea's LG Electronics has found success in India by investing in local design and manufacturing facilities that helped it develop TVs with higher-quality speakers, refrigerators with brighter colors and smaller freezers, and microwaves with one-touch “Indian menu” functions, all reflecting Indian preferences. 72 Product invention creates something new. It can take two forms: Backward invention reintroduces earlier product forms well adapted to a foreign country's needs. A big hit in developing markets in Latin America, Mexico, and the Middle East, the powdered drink Tang has added local flavors like lemon pepper and soursop. Although its U. S. sales have fallen precipitously, its worldwide sales doubled from 2006 to 2011. 73 Forward invention creates a new product to meet a need in another country. Less-developed countries need low-cost, high-protein foods. Companies such as Quaker Oats, Swift, and Monsanto have researched their nu-trition requirements, formulated new foods, and developed advertising to gain product trial and acceptance. BRAnd e Le Ment Ad Apt At Ion When they launch products and services globally, marketers may need to change certain brand elements. 74 Even a brand name may require a choice between phonetic and semantic translations. 75 When Clairol introduced the “Mist Stick, ” a curling iron, in Germany, it found that mist is slang for manure. In China, Coca-Cola and Nike have both found sets of Chinese characters that sounds broadly like their names but also offer some relevant meaning at the same time (“Can Be Tasty, Can Be Happy” and “Endurance Conquer, ” respectively). 76 Numbers and colors can take on special meaning in certain countries. The number four is considered unlucky throughout much of Asia because the Japanese word sounds like “death. ” Some East Asian buildings skip not only the fourth floor but often every floor that has a four in it (14, 24, 40-49). Nokia doesn't release phone models with the number four in them in Asia. 77 Purple is associated with death in Burma and some Latin American nations, white is a mourning color in India, and in Malaysia green connotes disease. Red generally signifies luck and prosperity in China. 78 Brand slogans or ad taglines sometimes need to be changed too:79 When Coors put its brand slogan “Turn it loose” into Spanish, some read it as “suffer from diarrhea. ” A laundry soap ad claiming to wash “really dirty parts” was translated in French-speaking Quebec to read “a soap for washing private parts. ” Perdue's slogan—“It takes a tough man to make a tender chicken”—was rendered into Spanish as “It takes a sexually excited man to make a chicken affectionate. ” Table 8. 3 lists some other famous marketing mistakes in this area. t ABL e 8. 3 Classic Blunders in Global Marketing Hallmark cards failed in France, where consumers dislike syrupy sentiment and prefer writing their own cards. Philips became profitable in Japan only after reducing the size of its coffeemakers to fit smaller kitchens and its shavers to fit smaller hands. Coca-Cola withdrew its big two-liter bottle in Spain after discovering that few Spaniards owned refrigerators that could accommodate it. General Foods' Tang initially failed in France when positioned as a substitute for orange juice at breakfast. The French drink little orange juice and almost never at breakfast. Kellogg's Pop-Tarts failed in Britain because fewer homes have toasters than in the United States and the product was too sweet for British tastes. The U. S. campaign for Procter & Gamble's Crest toothpaste initially failed in Mexico. Mexicans did not care as much about the decay-prevention benefit nor the scientifically oriented advertising appeal. General Foods squandered millions trying to introduce packaged cake mixes to Japan, where only 3 percent of homes at the time were equipped with ovens. S. C. Johnson's wax floor polish initially failed in Japan. It made floors too slippery for a culture where people do not wear shoes at home. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 257 Global co MMun Icat Ion strate GIes Changing marketing communications for each local market is a process called communication adaptation. If it adapts both the product and the communications, the company engages in dual adaptation. Consider the message. The company can use one message everywhere, varying only the language and name. 80 General Mills positions its Häagen-Dazs brand in terms of “indulgence, ” “affordable luxury, ” and “ intense sensuality. ” To communicate that message, it ran a 30-second TV spot called “Sensation, ” with the tag-line “ Anticipated Like No Other” in markets all over the world, substituting only the voice-over in the language of each country. 81 The second possibility is to use the same message and creative theme globally but adapt the execution. GE's global “Ecomagination” ad campaign substitutes creative content in Asia and the Middle East to reflect cultural interests there. Even in the high-tech space, local adaptations may be necessary. 82 The third approach, which Coca-Cola and Goodyear have used, consists of developing a global pool of ads from which each country selects the most appropriate. Finally, some companies allow their country managers to create country-specific ads—within guidelines, of course. The challenge is to make the message as compelling and effec-tive as in the home market. g Lo BAL Ad Apt At Ions Companies that adapt their communications wrestle with a number of challenges. They first must ensure their communications are legally and culturally acceptable. U. S. toy makers were surprised to learn that in many countries (Norway and Sweden, for example), no TV ads may be directed at children under 12. To foster a culture of gender neutrality, Sweden also now prohibits “sexist” advertising—a commercial that spoke of “cars for boys, princesses for girls” was criticized by government advertising regulators. 83 A number of countries are taking steps to eliminate “super skinny” and airbrushed models in ads. Israel has banned “underweight” models from print and TV ads and runway shows. Models must have a body-mass index— a calculation based on height and weight—of greater than 18. 5. According to that BMI standard, a female model who is 5 feet, 8 inches tall can weigh no less than 119 pounds. 84 Firms next must check their creative strategies and communication approaches for appropriateness. Comparative ads, though acceptable and even common in the United States and Canada, are less frequent in the United Kingdom, unacceptable in Japan, and illegal in India and Brazil. The EU seems to have a very low tolerance for comparative advertis-ing and prohibits bashing rivals in ads. Companies also must be prepared to vary their messages' appeal. 85 In advertising its hair care products, Helene Curtis observed that middle-class British women wash their hair frequently, Spanish women less so. Japanese women avoid overwashing for fear of removing protective oils. Language can vary too, whether the local language, another such as English, or some combination. 86 When the brand is at an earlier stage of development in its new market, con-sumer education may need to accompany brand development efforts. In launch-ing Chik shampoo in rural areas of South India, where hair is washed with soap, Cavin Kare showed people how to use the product through live “touch and feel” demonstrations and free sachets at fairs. 87 Personal selling tactics may need to change too. The direct, no-nonsense ap-proach favored in the United States (“let's get down to business” and “what's in it for me”) may not work as well in Europe or Asia as an indirect, subtle approach. 88 Global Pr Ic In G strate GIes Multinationals selling abroad must contend with price escalation and transfer prices (and dumping charges). As part of those issues, two particularly thorny pricing problems are gray markets and counterfeits. p RICe es CALA t Ion A Gucci handbag may sell for $120 in Italy and $240 in the United States. Why? Gucci must add the cost of transportation, tariffs, importer margin, wholesaler margin, and retailer margin to its factory price. Price escalation from these added costs and currency-fluctuation risk might require the price to be two to five times as high for the manufacturer to earn the same profit. Marketers in Israel must observe the body-mass restrictions prohibiting overly-skinny models. Source: Associated Press | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
258 PART 3 | Conne CTing Wi Th Cus Tome Rs Companies have three choices for setting prices in different countries: 1. Set a uniform price everywhere. Pepsi Co might want to charge $1 for Pepsi everywhere in the world, but then it would earn quite different profit rates in different countries. Also, this strategy would make the price too high in poor countries and not high enough in rich countries. 2. Set a market-based price in each country. Pepsi Co would charge what each country could afford, but this strategy ignores differences in the actual cost from country to country. It could also motivate intermediaries in low-price countries to reship their Pepsi to high-price countries. 89 3. Set a cost-based price in each country. Here Pepsi Co would use a standard markup of its costs everywhere, but this strategy might price it out of markets where its costs are high. When companies sell their wares over the Internet, price becomes transparent and price differentiation between countries declines. Consider an online training course. Whereas the cost of a classroom-delivered day of training can vary significantly from the United States to France to Thailand, the price of an online-delivered day would be similar everywhere. In another new global pricing challenge, countries with overcapacity, cheap currencies, and the need to export aggressively have pushed their prices down and devalued their currencies. Sluggish demand and reluctance to pay higher prices make selling in these markets difficult. Here is what IKEA did to compete in China's challenging pricing market. 90 i Kea When the Swedish home furnishings giant IKEA opened its first store in Beijing in 2002, local stores were selling copies of its designs at a fraction of IKEA's prices. The only way to lure China's frugal customers was to drasti-cally slash prices. Western brands in China usually price products such as makeup and running shoes 20 percent to 30 percent higher than in their other markets, both to make up for China's high import taxes and to give their products added cachet. By stocking its Chinese stores with Chinese-made products, IKEA has been able to slash prices as low as 70 per-cent below their level outside China. Western-style showrooms provide model bedrooms, dining rooms, and family rooms and suggest how to furnish them, an important consideration given home ownership in China has gone from practically zero in 1995 to about 70 percent today. Young couples are especially drawn to IKEA's stylish, functional modern styles. Although it still contends with persistent knockoffs, IKEA maintains sizable stores in eight locations and aims to have 15 by 2015. t RAnsfe R p RICes A different problem arises when one unit charges another unit in the same company a transfer price for goods it ships to its foreign subsidiaries. If the company charges a subsidiary too high a price, it may end up paying higher tariff duties, though it may pay lower income taxes in the foreign country. If the company charges its subsidiary too low a price, it can be accused of dumping, charging either less than its costs or less than it charges at home in order to enter or win a market. Various governments are watching for abuses and often force companies to charge the arm's-length price —the price charged by other competitors for the same or a similar product. When the U. S. Department of Commerce finds evidence of dumping, it can levy a dumping tariff on the guilty company. After much debate over government support for clean-energy products, the United States chose to set anti-dumping duties of 44. 99 percent to 47. 59 percent on wind towers produced in China and Vietnam and sent to the United States. 91 g RAy MARkets Many multinationals are plagued by the gray market, which diverts branded products from authorized distribution channels either in-country or across international borders. Often a company finds some enterprising distributors buying more than they can sell in their own country and reshipping the goods to another country to take advantage of price differences. Gray markets create a free-rider problem, making legitimate distributors' investments in supporting a manufacturer's product less productive and selective dis-tribution systems more intensive to reduce the number of gray market possibilities. They harm distributor relationships, tarnish the manufacturer's brand equity, and undermine the integrity of the distribution channel. They can even pose risks to IKEA has gone to great lengths to draw customers into its showrooms and establish a market presence in China. Source: © ZUMA Press, Inc. /Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 259 consumers if the product is damaged, relabeled, obsolete, without warranty or support, or just counterfeit. Because of their high prices, prescription drugs are often a gray market target, though U. S. government regulators are looking at the industry more closely after fake vials of Riche Holding AG's cancer drug Avastin were shipped to U. S. doctors. 92 Multinationals try to prevent gray markets by policing distributors, raising their prices to lower-cost distributors, or altering product characteristics or service warranties for different countries. 93 3Com successfully sued several companies in Canada (for a total of $10 million) for using written and oral misrepresentations to get deep dis-counts on 3Com networking equipment. The equipment, worth millions of dollars, was to be sold to a U. S. educa-tional software company and sent to China and Australia but instead ended up back in the United States. One research study found that gray market activity was most effectively deterred when penalties were severe, manufacturers were able to detect violations or mete out punishments in a timely fashion, or both. 94 Counte Rfe It p Rodu Cts As companies develop global supply chain networks and move production farther from home, the chance for corruption, fraud, and quality-control problems rises. 95 Sophisticated overseas factories seem able to reproduce almost anything. Name a popular brand, and chances are a counterfeit version of it exists somewhere in the world. 96 Counterfeiting is estimated to cost more than a trillion dollars a year. U. S. Customs and Border Protection seized $1. 26 billion worth of goods in 2012; the chief culprits were China (81 percent) and Hong Kong (12 per-cent), and the chief products were apparel and accessories, followed by electronics, optical media, handbags and wallets, and watches and jewelry. 97 At the Summer Olympics in London in 2012, the Egyptian Olympic team even admitted to buying fake Nike gear from a Chinese distributor because of the country's dire economic situation. Once Nike found out what had happened, the company donated all the necessary training and village wear to the team. 98 Fakes take a big bite of the profits of luxury brands such as Hermès, LVMH Moët Hennessy Louis Vuitton, and Tiffany, but faulty counterfeits can literally kill people. Cell phones with counterfeit batteries, fake brake pads made of compressed grass trimmings, and counterfeit airline parts pose safety risks to consumers. Pharmaceuticals are especially worrisome. Toxic cough syrup in Panama, tainted baby formula in China, and fake teething powder in Nigeria have all led to the deaths of children in recent years. 99 Virtually every product is vulnerable. Microsoft estimates that four-fifths of Windows OS software in China is pirated. 100 As one anti-counterfeit consultant observed, “If you can make it, they can fake it. ” Defending against counterfeiters is a never-ending struggle; some observers estimate that a new security system can be just months old before counterfeiters start nibbling at sales again. 101 The Internet has been especially problematic. After surveying thou-sands of items, LVMH estimated 90 percent of Louis Vuitton and Christian Dior pieces listed on e Bay were fakes, prompting the firm to sue. Manufacturers are fighting back online with Web-crawling software that detects fraud and automatically warns apparent viola-tors without the need for any human intervention. Acushnet, maker of Titleist golf clubs and balls, shut down 75 auctions of knockoff gear in one day with a single mouse click. 102 Web-crawling technology searches for counterfeit storefronts and sales by detecting domain names similar to legitimate brands and unau-thorized Internet sites that plaster brand trademarks and logos on their homepages. It also checks for keywords such as cheap, discount, authen-tic, and factory variants, as well as colors that products were never made in and prices that are far too low. Global d Istr Ibut Ion strate GIes Too many U. S. manufacturers think their job is done once the product leaves the factory. They should instead note how the product moves within the foreign country and take a whole-channel view of distribut-ing products to final users. Ch Anne L ent Ry Figure 8. 4 shows three links between the seller and the final buyer. In the first, seller's international marketing headquarters, the export department or international division makes decisions about channels and other marketing activities. The second Nike came to the rescue of the Egyptian Olympic team after they admit-ted buying fake Nike gear because of the country's budgetary problems. Source: Associated Press | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
260 PART 3 | Conne CTing Wi Th Cus Tome Rs link, channels between nations, gets the products to the borders of the foreign nation. Decisions made in this link include the types of intermediaries (agents, trading companies), type of transportation (air, sea), and financing and risk management. The third link, channels within foreign nations, gets products from their entry point to final buyers and users. When multinationals first enter a country, they prefer to work with local distributors with good local knowl-edge, but friction often arises later. 103 The multinational complains that the local distributor doesn't invest in business growth, doesn't follow company policy, and doesn't share enough information. The local distributor complains of insufficient corporate support, impossible goals, and confusing policies. The multinational must choose the right distributors, invest in them, and set up performance goals to which they can both agree. 104 Ch Anne L d Iffe Ren Ces Distribution channels across countries vary considerably. To sell consumer products in Japan, companies must work through one of the most complicated distribution systems in the world. They sell to a general wholesaler, who sells to a product wholesaler, who sells to a product-specialty wholesaler, who sells to a regional wholesaler, who sells to a local wholesaler, who finally sells to retailers. All these distribution levels can make the consumer's price double or triple the importer's price. Taking these same consumer products to tropical Africa, the company might sell to an import wholesaler, who sells to several jobbers, who sell to petty traders (mostly women) working in local markets. Another difference is the size and character of retail units abroad. Large-scale retail chains dominate the U. S. scene, but much foreign retailing is in the hands of small, independent retailers. Millions of Indian retailers operate tiny shops or sell in open markets. Markups are high, but the real price comes down through haggling. Incomes are low, most homes lack storage and refrigeration, and people shop daily for whatever they can carry home on foot or bicycle. In India, people often buy one cigarette at a time. Breaking bulk remains an important function of intermediaries and helps perpetuate long channels of distribution, a major obstacle to the expansion of large-scale retailing in developing countries. Nevertheless, retailers are increasingly moving into new global markets, offering firms the opportunity to sell across more countries and creating a challenge to local distributors and retailers. 105 France's Carrefour, Germany's Aldi and Metro, and United Kingdom's Tesco have all established global positions. But even some of the world's most successful retailers have had mixed success abroad. Despite concerted efforts and earlier success in Latin America and China, Walmart had to withdraw from both the German and South Korean markets after heavy losses. Walmart now earns a quarter of its revenue overseas by being more sensitive to local market needs in different countries. 106 Country-of-Origin Effects Country-of-origin perceptions are the mental associations and beliefs triggered by a country. Government offi-cials want to strengthen their country's image to help domestic marketers that export and to attract foreign firms and investors. Marketers want to use positive country-of-origin perceptions to sell their products and services. bu Ild In G countr Y IMa Ges Governments now recognize that the images of their cities and countries affect more than tourism and have im-portant value in commerce. Foreign business can boost the local economy, provide jobs, and improve infrastruc-ture. Image can also help sell products. For its first global ad campaign for Infiniti luxury cars, Nissan chose to tap into its Japanese roots and association with Japanese-driven art and engineering. 107 Countries are being marketed like any other brand. New Zealand has developed concerted marketing programs both to sell its products outside the country, via its New Zealand Way program, and to attract tourists, by show-ing the dramatic landscapes featured in The Lord of the Rings film trilogy. Both efforts reinforce the image of New Zealand as fresh and pure. The launch of the new Hobbit trilogy in November 2012—with the fictional Middle Earth again being depicted by New Zealand—has attracted a new wave of visitors. 108 Another film affected the image of a country in an entirely different way. Kazakhstan has a positive story to tell given its huge size, rich natural resources, and rapid modernization. British comedian Sacha Baron Cohen's mock documentary Borat, however, portrayed the country in a sometimes crude and vulgar light, and the character Borat was sexist, homophobic, and anti-Semitic. Despite that fact, Y erzhan Kazykhanov, Kazakhstan's foreign min-ister, observed: “ After this film, the number of visas issued to Kazakhstan grew by ten times. This is a big victory for us, and I thank Borat for attracting tourists to Kazakhstan. ” Evidently, enough publicity about the country sur-rounded the film to boost its awareness. 109 A strong company that emerges as a global player can do wonders for a country's image. Before World War II, Japan had a poor image, which the success of Sony with its Trinitron TV sets and of Japanese automakers Honda, Nissan, and Toyota helped change. Relying partly on the global success of Nokia, Finland campaigned to enhance Final buyers Seller Channels between nations Seller's international marketing headquarters Channels within foreign nations | Fig. 8. 4 | Whole-Channel Concept for International Marketing | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 261 its image as a center of high-tech innovation. Current events can also shape the image of a country. When public unrest and violent protests surrounded the government's austerity program to address Greece's debt crisis, tourist bookings there dropped as much as 30 percent. 110 consu Mer Perce Pt Ions of countr Y of or IGIn Global marketers know that buyers hold distinct attitudes and beliefs about brands or products from different countries. 111 These perceptions can be attributes in decision making or influence other attributes in the process (“If it's French, it must be stylish”). Coca-Cola's success against local cola brand Jianlibao in China was partly due to its symbolic values of U. S. modernity and affluence. 112 The mere fact that a brand is perceived as successful on a global stage—whether it sends a quality signal, taps into cultural myths, or reinforces a sense of social responsibility—may lend credibility and respect. 113 Research studies have found the following:114 People are often ethnocentric and favorably predisposed to their own country's products, unless they come from a less developed country. The more favorable a country's image, the more prominently the “Made in... ” label should be displayed. The impact of country of origin varies with the type of product. Consumers want to know where a car was made, but not the lubricating oil. Certain countries enjoy a reputation for certain goods: Japan for automobiles and consumer electronics; the United States for high-tech innovations, soft drinks, toys, cigarettes, and jeans; France for wine, perfume, and luxury goods. Sometimes country-of-origin perception can encompass an entire country's products. In one study, Chinese consumers in Hong Kong perceived U. S. products as prestigious, Japanese products as innovative, and Chinese products as cheap. Marketers must look at country-of-origin perceptions from both a domestic and a foreign perspective. In the domestic market, these perceptions may stir consumers' patriotic notions or remind them of their past. As international trade grows, consumers may view certain brands as symbolically important in their own cultural identity or as playing an important role in keeping jobs in their own country. More than three-quarters of U. S. consumers said that, given a choice between a product made at home and an identical one made abroad, they would choose the U. S. product. 115 Patriotic appeals underlie marketing strategies all over the world, but they can lack uniqueness and even be overused, especially in economic or political crises. Many small businesses tap into community pride to emphasize their local roots. To be successful, these need to be clearly local and offer appealing product and service offerings. 116 Sometimes consumers don't know where brands come from. In surveys, they routinely guess that Heineken is German and Nokia is Japanese (they are Dutch and Finnish, respectively). Few consumers know Häagen-Dazs and Estée Lauder originated in the United States. With outsourcing and foreign manufacturing, it's hard to know what the country of origin really is anyway. Only 65 percent of the content of a Ford Mustang comes from the United States or Canada, whereas the Toyota Avalon is assem-bled in Georgetown, Kentucky, with one of the highest percentages of local components, 85 percent. Foreign automakers The government of New Zealand markets the country as fresh and pure, a message reinforced by the use of stunning New Zealand scenery in many popular films such as the Hobbit trilogy. Source: © Moviestore collection Ltd/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
262 PART 3 | Conne CTing Wi Th Cus Tome Rs are pouring money into North America, investing in plants, suppliers, and dealerships as well as design, testing, and research centers. But what makes a product more “ American”—having a higher percentage of North American compo-nents or creating more jobs in North America? The two measures may not lead to the same conclusion. 117 Many brands have gone to great lengths to weave themselves into the cultural fabric of their foreign markets. One Coca-Cola executive tells of a young child visiting the United States from Japan who commented to her parents on seeing a Coca-Cola vending machine—“Look, they have Coca-Cola too!” As far as she was concerned, Coca-Cola was a Japanese brand. Haier is another global brand working hard to establish local roots in other countries. 118 haier As China's leading maker of refrigerators, washing machines, and air conditioners, Haier was well known and respected in its home market for its well-designed products. For rural customers, Haier sold extra-durable washing machines that could wash vegetables as well as clothes; for urban customers, it made smaller washing machines to fit in tiny apartments. In 1999, the company set its sights on a much bigger goal: building a truly global brand. Unlike most other Asian companies that chose to enter Asian markets before considering Western markets, Haier decided to first target the United States and Western Europe. The company felt success there would enable greater success elsewhere in the world. In the United States, Haier established a beachhead by tapping a neglected market—mini-fridges for homes, offices, dorms, and hotels—and securing distribution at Walmart, Target, Home Depot, and other top retailers. After some initial success, the company began to sell higher-end refrigerators and other appliances such as air conditioners, washing machines, and dishwashers. Its goal is to be seen as a “localized U. S. brand,” not an “imported Chinese brand. ” Thus, Haier invested $40 million in a manufacturing plant in South Carolina and became a marketing partner with the National Basketball Association. The firm's global marketing efforts have paid off. By 2012, 30 percent of U. S. households owned a Haier product, and Haier is now the world's top-selling home appliance brand. Interestingly, even when the United States has not been that popular, its brands typically have been. As one marketer noted, “Regardless of all the problems we have as a country, we are still looked to as the consumer capital of the world. ”119 cies. It must determine whether to market in a few or many countries and rate candidate countries on three criteria: market attractiveness, risk, and competitive advantage. 3. Developing countries offer a unique set of opportunities and risks. The “BRICS” countries—Brazil, Russia, India, Summary 1. Despite shifting borders, unstable governments, foreign- exchange problems, corruption, and technological pirating, companies selling in global industries need to internationalize their operations. 2. Upon deciding to go abroad, a company needs to define its international marketing objectives and poli-China's large appliance maker Haier has made being seen as a localized U. S. brand one of their top business priorities. Source: Wang jun qd-Imaginechina | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 263 My Marketing Lab go to mymktlab. com to complete the problems marked with this icon as well as for additional assisted-graded writing questions. Applications Marketing Debate Is the World Coming Closer Together? Many social commentators maintain that youth and teens are becoming more alike across countries over time. Oth-ers, though not disputing the fact, point out that differences between cultures at even younger ages by far exceed the similarities. Take a position: People are becoming more and more similar versus The differences between people of differ-ent cultures far outweigh their similarities. Marketing Discussion Diverse Channels As observed in the chapter, global economy does not necessarily mean homogeneity in distribution channels and similarities in marketing, advertising, and promotions. In fact, distribution channels around the world could not be more different. Why is this the case? only read them. In response to users' comments and ideas, the company added more features to help organize the on-going communication on Twitter, including the @ sign in front of usernames, direct messages, and the retweet. Web de-veloper Chris Messina suggested adding a hashtag (#) sym-bol to help organize categories of conversation or search for tweets on a common topic. For example, #Grammys will bring a user to conversations about the Grammys. Twitter grew slowly during its first year, but things started to heat up in 2007 when the company set up 51-inch plasma screens around the grounds of the South by Southwest interactive festival and broadcast tweets sent by attendees. Overnight, activity increased from 20,000 to 60,000 tweets a day. Another milestone came on January 15, 2009, when US Airways flight 1549 landed safely on the Hudson River in New York City during an emergency. An eyewitness on a commuter ferry broke the news worldwide when Marketing Excellence >> Twitter Few companies have had such a vast global impact in so short a time as Twitter. The online social networking com-pany was the brainchild of Jack Dorsey, Evan Williams, Biz Snow, and Noah Glass back in 2005. Dorsey thought it would be revolutionary if people could send a text to one number and have it broadcast to all their friends: “I want to make something so simple, you don't even think about it, you just write. ” The code name for the concept was “twttr,” which eventually morphed into Twitter. Dorsey sent the first Twitter message on March 21, 2006. At the heart of Twitter are tweets, text messages lim-ited to 140 characters. Dorsey once tweeted, “One could change the world with 140 characters. ” Registered users can send and receive tweets, while unregistered users can China, and South Africa—plus other significant markets such as Indonesia are a top priority for many firms. 4. Modes of entry are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Each succeeding strategy entails more commitment, risk, control, and profit potential. 5. In deciding how much to adapt their marketing programs at the product level, firms can pursue a strategy of straight extension, product adaptation, or product invention. At the communication level, they may choose communica-tion adaptation or dual adaptation. At the price level, firms may encounter price escalation, dumping, gray markets, and discounted counterfeit products. At the distribution level, firms need to take a whole-channel view of distribut-ing products to the final users. Firms must always consider the cultural, social, political, technological, environmental, and legal limitations they face in other countries. 6. Country-of-origin perceptions can affect consumers and businesses alike. Managing those perceptions to best advantage is a marketing priority. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
264 PART 3 | Conne CTing Wi Th Cus Tome Rs Much of the company's early international expansion is credited to Sir Lindsay Owen-Jones, who transformed L'Oréal from a small French business into an international cosmetics phenomenon with strategic vision and precise brand management. During his almost 20 years as CEO and chairman, Owen-Jones divested weak brands, in-vested heavily in product innovation, acquired ethnically diverse brands, and expanded into markets no one had dreamed of, including China, South America, and the former Soviet Union. His quest was to achieve diversity and “meet the needs of men and women around the globe, and make beauty products available to as many people as possible. ” Today, L'Oréal focuses on five areas of beauty ex-pertise: skin care, hair care, makeup, hair coloring, Marketing Excellence >> L'Oréal When it comes to globalizing beauty, no one does it better than L'Oréal. The company was founded in Paris more than 100 years ago by a young chemist, Eugene Schueller, who sold his patented hair dyes to local hairdressers and salons. By the 1930s, Schueller had invented beauty products like suntan oil and the first mass-marketed shampoo. Today, the company has evolved into the world's largest beauty and cosmetics company, with distribution in 130 countries, 27 global brands, and more than $30. 8 billion in sales. he snapped a photo of the plane on the river, wrote a tweet, and sent it to his 170 followers. The tweet and #Flight1549 went viral within minutes and proved that Twitter had transformed the way we get news. Seth Mnookin, MIT's Associate Director of Science Writing, explained why Twitter has been so revolution-ary in media: “What the advent of television or radio did was give a small group of people a new way to reach the masses. And this essentially is doing the same thing, for the masses. ” Twitter captures and records history in real time with eyewitness accounts, pictures, and thoughts. Celebrities and sports figures started to embrace Twitter in 2009. Perhaps the most influential early adopter was Ashton Kutcher, the first celebrity to reach 1 mil-lion followers. Katy Perry, Barack Obama, Lady Gaga, and Justin Bieber are now among the most followed Tweeters, with tens of millions followers each. By 2011, Twitter had expanded across seven differ-ent countries and languages. The medium had a huge impact on the Arab Spring, when millions demanded the overthrow of oppressive Middle East regimes. Bahraini protester Maryam Al-Khawaja explained that in many countries Twitter is about entertainment, but in the Middle East and North Africa, it can make the difference between life and death. Twitter gave activists a means to share accurate and uncensored information, connect with like-minded individuals, and organize street operations at unheard-of speed. Hussein Amin, professor of mass communication at the American University in Cairo, explained, “[Social networks] for the first time provided activists with an opportunity to quickly disseminate infor-mation while bypassing government restrictions. ” During the 2012 U. S. presidential election, Twitter had enormous impact on campaigns and communications with voters. In fact, the most popular tweet of 2012 was “Four more years,” posted by Barack Obama after he won the reelection. It was retweeted almost 1 million times. Twitter went public in November 2013 and raised $2. 1 billion in the second-biggest Internet IPO in history (Facebook raised $16 billion in 2012). Its global impact has grown so great that it operates in 35 languages and 70 percent of users live outside the United States. In 2014, 500 million users were registered on Twitter, 250 million were active, and more than 400 million tweets were posted each day around the globe. Today, people use Twitter for many reasons, includ-ing promoting a brand or company, raising money for charities, breaking news, following favorite celebrities, or, as Dorsey said, changing the world. Twitter describes itself as a global platform for public self-expression and conversation in real time. Mark Burnett, the producer of shows like The Voice, Survivor, and The Apprentice, stated, “Twitter actually is the real time, water cooler conversation of young America. ” The company's ultimate goal is to reach everyone in the world. Questions 1. Discuss Twitter's global impact since its inception. 2. Who are Twitter's biggest competitors? How does Twitter differ from other social media companies? 3. What marketing challenges does Twitter face as it continues to expand its brand globally? Sources : Dom Sagolla, 140Characters. com, January 30, 2009; Nicholas Carlson, “The Real History of Twitter,” Business Insider. com, April 13, 2011; Victor Luckerson, “The 7 Most Important Moments in Twitter History,” Time, November 7, 2013; Drew Olanoff, “Twitter's Social Impact Can't Be Measured, but It's the Pulse of the Planet,” Techcrunch. com, January 15, 2013; Heesun Wee, “Twitter May Be Going Public but Can It Make Money?” CNBC, November 5, 2013; Elizabeth Kricfalusi, “The Twitter Hashtag: What Is It and How Do You Use It?” Tech for Luddites, November 12, 2013; Julianne Pepitone, “#WOW! Twitter Soars 73% in IPO,” CNNMoney. com, November 7, 2013; “#Twitter Revolution,” CNBC. com, August 7, 2013; David Wolman, “Facebook, Twitter Help the Arab Spring Blossom,” Wired, April 16, 2013; David Jolly, Mark Scott, and Eric Pfanner, “Twitters IPO Plan Has an International Focus,” New York Times, October 5, 2013; Saleem Kassim, “Twitter Revolution: How the Arab Spring Was Helped by Social Media,” Policy Mic. com, July 3, 2012; www. twitter. com. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
TAPP ing in To glob Al m AR ke Ts | chapter 8 265 and perfume. Its brands fall into four different groups: (1) Consumer Products (52 percent of sales, includes mass- marketed brands like Maybelline and high-technology products sold at competitive prices through mass-market retailing chains), (2) L'Oreal Luxe (27 percent of sales, in-cludes prestigious brands like Ralph Lauren perfume that are available only in premium stores, department stores, or specialty stores), (3) Professional Products (14 per-cent of sales, includes brands such as Redken designed specifically for professional hair salons), and (4) Active Cosmetics (7 percent of sales, includes dermo-cosmetic products sold at pharmacies, drugstores, and medi-spas). L'Oréal believes precise target marketing—hitting the right audience with the right product and message at the right place—is crucial to its global success. Owen-Jones explained, “Each brand is positioned on a very precise [market] segment, which overlaps as little as possible with the others. ” The company has built its portfolio primarily by pur-chasing local beauty companies all over the world, revamp-ing them with strategic direction, and expanding the brand into new areas through its powerful marketing arm. For ex-ample, L'Oréal instantly became a player (with 20 percent market share) in the growing ethnic hair care industry when it purchased and merged the U. S. companies Soft Sheen Products in 1998 and Carson Products in 2000. L'Oréal believed the competition had overlooked this category be-cause it was fragmented and misunderstood. Backed by a deep portfolio of brands and products, Soft Sheen-Carson is now the market leader in the ethnic hair care industry. L'Oréal also invests significant money and time in its 22 local research centers around the world. The com-pany spends 3. 5 percent of annual sales on R&D, more than one percentage point above the industry average, researching and innovating products that meet the local needs of each region. Understanding the unique beauty routines and needs of different cultures, climates, traditions, and physiologies is critical to L'Oréal's global success. Hair and skin greatly dif-fer from one part of the world to another, so L'Oreal listens to and observes consumers across the globe to gather a deep understanding of their beauty needs. L'Oréal scientists study consumers in laboratory bathrooms and in their own homes, sometimes achieving scientific beauty milestones. In Japan, for example, L'Oréal developed Wondercurl mascara specially formulated to curl Asian women's eyelashes, which are usually short and straight. Within three months, Wondercurl mascara had become Japan's number-one selling mascara, and young women lined up outside stores to buy it. L'Oréal continued to research the market and developed nail polish, blush, and other cos-metics aimed at this new Asian generation. L'Oréal believes its future lies in emerging areas such as Asia, Africa, and Latin America, where it expects to find millions of new customers over the next few years. Marc Menesguen, L'Oréal's managing director-strategic marketing, explained, “Our projection for 2020 is that 50% to 60% of sales will be coming from [emerging] markets. ” As a result, new research centers have popped up in these countries, and the company is working ag-gressively on understanding these consumers' needs and developing beauty products to satisfy them. Well known for its 1973 advertising tagline— “Because I'm Worth It”—L'Oréal is the leader in beauty products around the world. The company spends ap-proximately $5 billion in advertising each year, making it the third-largest advertiser. As Gilles Weil, its head of luxury products, explained, “You have to be local and as strong as the best locals, but backed by an international image and strategy. ” Questions 1. Review L'Oréal's brand portfolio. What role have local and global marketing, smart acquisitions, and R&D played in growing those brands? 2. What are the keys to successful local product launches like Maybelline's Wondercurl in Japan? 3. What's next for L'Oréal on a global level? Who are its biggest competitors? If you were CEO, how would you sustain the company's global leadership? Sources: Andrew Roberts, “L'Oréal Quarterly Sales Rise Most since 2007 on Luxury Perfume,” Bloomberg Business Week, April 22, 2010; Richard Tomlinson, “L'Oréal's Global Makeover,” Fortune, September 30, 2002; Doreen Carvajal, “International Business; Primping for the Cameras in the Name of Research,” New York Times, February 7, 2006; Richard C. Morais, “The Color of Beauty,” Forbes, November 27, 2000; Jack Neff, “How L'Oreal Zen Master Menesguen Shares Best Practices around the Globe,” Advertising Age, June 11, 2012; L'Oréal, www. loreal. com. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
266 In This Chapter, We Will Address the Following Questions 1. In what ways can a company divide the consumer market into segments? (p. 268) 2. How should business markets be segmented? (p. 283) 3. How should a company choose the most attractive target markets? (p. 284) 4. What are the requirements for effective segmentation? (p. 285) 5. What are the different levels of market segmentation? (p. 285)Linked In offers a variety of relevant value-added online services to its target market of career-minded professionals. Source: © PSL Images/Alamy My Marketing Lab™ Improve Y our Grade! Over 10 million students improved their results using the Pearson My Labs. Visit mymktlab. com for simulations, tutorials, and end-of-chapter problems. Building Strong Brands Part 4 Chapter 9 Identifying Market Segments and Targets Chapter 10 Crafting the Brand Positioning Chapter 11 Creating Brand Equity Chapter 12 Addressing competition and driving growth | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
267 To compete more effectively, many companies are now embracing target marketing. Instead of scattering their marketing efforts, they're focusing on those consumers they have the greatest chance of satisfying. Effective target marketing requires that marketers: 1. Identify and profile distinct groups of buyers who differ in their needs and wants (market segmentation). 2. Select one or more market segments to enter (market targeting). 3. For each target segment, establish, communicate, and deliver the right benefit(s) for the company's market offering (market positioning). Market segmentation, targeting, and positioning are known as the “STP” of marketing. This chapter will focus on the first two steps ; Chapter 10 discusses the third step. Chapters 11 and 12 describe how effective market segmentation, targeting, and positioning can build strong brands that grow over time and withstand competitive attacks. Companies cannot connect with all customers in large, broad, or diverse markets. They need to identify the market segments they can serve effectively. This decision requires a keen understand-ing of consumer behavior and careful strategic thinking about what makes each segment unique and different. Identifying and uniquely satisfying the right market segments are often the key to marketing success. Linked In has built an online powerhouse by fulfilling the needs of career-minded professionals. 1Identifying Market Segments and Targets9 Linked In was the first major social network to issue an IPO, after being one of the first entries into social networking back in 2003. The company targeted a different audience than most other social networks, establishing itself as the premier professional networking site with a vision “... to create economic opportunity for every professional in the world. ” Also separating Linked In from other social networks is the fact that it has diverse revenue streams, driven by three distinct customer segments: job seekers who buy premium subscriptions with various special services; advertisers large and small who rely on its marketing solutions unit; and, supporting its largest and fastest-growing business, corporate recruiters who buy special search tools from its talent solutions unit. At the time of its IPO on May 19, 2011, Linked In had amassed 100 million registered users, adding a new one literally every second and a million every 10 days, half of them outside the United States. These users were attracted by the ability to manage their careers by networking with other profes-sionals, seeking and sharing insights, and searching for jobs if the need arose. Like most online services, Linked In strives to engage users on its site for as long as possible through continually improved content and new features. Toward that goal, the company acquired Slide Share, a presentation-hosting site, and Pulse, a news-reading application, and also launched Talent Pipeline to help recruiters manage their leads. Linked In sees much growth from its mobile users, who in 2013 ac-counted for more than 30 percent of unique visits to the site, leading to a complete makeover of its apps for easier navigation and greater personalization. Although Linked In's well-targeted and positioned brand has led to much initial success, competition looms from other online giants, such as Facebook, and from established professional network services overseas, such as Viadeo SA in Europe and elsewhere. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
268 PART 4 | Building S TRong B RAnd S Bases for Segmenting Consumer Markets Market segmentation divides a market into well-defined slices. A market segment consists of a group of customers who share a similar set of needs and wants. The marketer's task is to identify the appropriate number and nature of market segments and decide which one(s) to target. We use two broad groups of variables to segment consumer markets. Some researchers define segments by looking at descriptive characteristics—geographic, demographic, and psychographic—and asking whether these segments exhibit different needs or product responses. For example, they might examine the differing attitudes of “professionals, ” “blue collars, ” and other groups toward, say, “safety” as a product benefit. Other researchers define segments by looking at behavioral considerations, such as consumer responses to ben-efits, usage occasions, or brands, then seeing whether different characteristics are associated with each consumer-response segment. For example, do people who want “quality” rather than “low price” in an automobile differ in their geographic, demographic, and/or psychographic makeup? Regardless of which type of segmentation scheme we use, the key is adjusting the marketing program to rec-ognize customer differences. The major segmentation variables—geographic, demographic, psychographic, and behavioral segmentation—are summarized in Table 9. 1. Geo Graph Ic Se Gmentat Ion Geographic segmentation divides the market into geographical units such as nations, states, regions, counties, cities, or neighborhoods. The company can operate in one or a few areas, or it can operate in all but pay attention to local variations. In that way it can tailor marketing programs to the needs and wants of local customer groups in trading areas, neighborhoods, even individual stores. In a growing trend called grassroots marketing, marketers concentrate on making such activities as personally relevant to individual customers as possible. Much of Nike's initial success came from engaging target consumers through grassroots marketing efforts such as sponsorship of local school teams, expert-conducted clinics, and provision of shoes, clothing, and equipment to young athletes. Citibank provides different mixes of banking services in its branches depending on neighborhood demographics. Retail firms such as Starbucks, Costco, Trader Joe's, and REI have all found great success emphasizing local marketing initiatives, and other types of firms have also jumped into the action. 2 More and more, regional marketing means marketing right down to a specific zip code. Many companies use mapping software to pinpoint the geographic locations of their customers, learning, say, that most customers are within a 10-mile radius of the store and are further concentrated within certain zip+4 areas. By mapping the densest areas, the retailer can rely on customer cloning, assuming the best prospects live where most of the customers already come from. Some approaches combine geographic data with demographic data to yield even richer descriptions of consumers and neighborhoods. Nielsen Claritas has developed a geoclustering approach called PRIZM (Potential Rating Index by Zip Markets) NE that classifies more than half a million U. S. residential neighbor-hoods into 14 distinct groups and 66 distinct lifestyle segments called PRIZM Clusters. 3 The groupings take into consideration 39 factors in five broad catego-ries: (1) education and affluence, (2) family life cycle, (3) urbanization, (4) race and ethnicity, and (5) mobility. The neighborhoods are broken down by zip code, zip+4, or census tract and block group. The clusters have descriptive titles such as Blue Blood Estates, Winner's Circle, Hometown Retired, Shotguns and Pickups, and Back Country Folks. The inhabitants in a cluster tend to lead similar lives, drive similar cars, have similar jobs, and read similar magazines. Table 9. 2 has examples of three PRIZM clusters. Geoclustering captures the increasing diversity of the U. S. population. PRIZM has been used to answer questions such as: Which neighborhoods or zip codes contain our most valuable customers? How deeply have we already penetrated these segments? Which distribution channels and promotional media work best in reaching our target clusters in each area? Barnes & Nobles placed its stores Source: Denver Post via Getty Images Outdoor goods retailer REI emphasizes local marketing initiatives in engaging its customers. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 269 Table 9. 1 Major Segmentation Variables for Consumer Markets Geographic region Pacific Mountain, West North Central, West South Central, East North Central, East South Central, South Atlantic, Middle Atlantic, New England City or metro size Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-100,000; 100,000-250,000; 250,000-500,000; 500,000-1,000,000; 1,000,000-4,000,000; 4,000,000+ Density Urban, suburban, rural Climate Northern, southern Demographic age Under 6, 6-11, 12-17, 18-34, 35-49, 50-64, 64+ Family size 1-2, 3-4, 5+ Family life cycle Young, single; young, married, no children; young, married, youngest child under 6; young; married, youngest child 6 or older; older, married, with children; older, married, no children under 18; older, single; other Gender Male, female Income Under $10,000; $10,000-$15,000; $15,000-$20,000; $20,000-$30,000; $30,000-$50,000; $50,000-$100,000; $100,000+ Occupation Professional and technical; managers, officials, and proprietors; clerical sales; craftspeople; forepersons; operatives; farmers; retired; students; homemakers; unemployed Education Grade school or less; some high school; high school graduate; some college; college graduate; post college Religion Catholic, Protestant, Jewish, Muslim, Hindu, other Race White, Black, Asian, Hispanic, Other Generation Silent Generation, Baby Boomers, Gen X, Millennials (Gen Y) Nationality North American, Latin American, British, French, German, Italian, Chinese, Indian, Japanese Social class Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers Psychographic lifestyle Culture-oriented, sports-oriented, outdoor-oriented Personality Compulsive, gregarious, authoritarian, ambitious Behavioral occasions Regular occasion, special occasion Benefits Quality, service, economy, speed User status Nonuser, ex-user, potential user, first-time user, regular user Usage rate Light user, medium user, heavy user Loyalty status None, medium, strong, absolute Readiness stage Unaware, aware, informed interested, desirous, intending to buy Attitude toward product Enthusiastic, positive, indifferent, negative, hostile | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
270 PART 4 | Building S TRong B RAnd S where the “Money & Brains” segment hangs out. Hyundai successfully targeted a promotional campaign to neigh-borhoods where the “Kids & Cul-de-Sacs, ” “Bohemian Mix, ” and “Pool & Patios” could be found. 4 Marketing to microsegments has become possible even for small organizations as database costs decline, soft-ware becomes easier to use, and data integration increases. Going online to reach customers directly can open a host of local opportunities, as Y elp has found out. 5 Ye LP Founded in 2004, Yelp. com wants to “connect people with great local businesses” by targeting consum-ers who seek or want to share reviews of local businesses in 96 markets around the world. Almost two-thirds of the Web site's millions of vetted online reviews are for restaurants and retailers. Yelp was launched in San Francisco, where monthly parties with preferred users evolved into a formal program, Yelp Elite, now used to launch the service into new cities. The company's recently introduced mobile app allows it to bypass the Internet and connect with consumers directly; almost 50 percent of searches on the site now come from its mobile platform. Yelp generates revenue by selling designated Yelp Ads to local merchants via hundreds of salespeople. The local advertising business is massive—estimated to be worth between $90 billion and $130 billion—but relatively untapped given that many local businesses are not that tech-savvy. Sheryl Sandberg, COO of Facebook (a Yelp competitor), calls local advertising the Internet's “Holy Grail. ” Local businesses also benefit from Yelp—several research studies have demonstrated the potential revenue payback from having reviews of their businesses on the site. Table 9. 2 Examples of PRIZM Clusters Young Digerati. Young Digerati are the nation's tech-savvy singles and couples living in fashionable neighbor-hoods on the urban fringe. Affluent, highly educated, and ethnically mixed, they live in areas typically filled with trendy apartments and condos, fitness clubs and clothing boutiques, casual restaurants, and all types of bars— from juice to coffee to microbrew. Beltway Boomers. One segment of the huge baby boomer cohort—college-educated, upper-middle-class, and home-owning—is Beltway Boomers. Like many of their peers who married late, these boomers are still raising children in comfortable suburban subdivisions and pursuing kid-centered lifestyles. The Cosmopolitans. Educated, midscale, and multiethnic, the Cosmopolitans are urbane couples in America's fast-growing cities. Concentrated in a handful of metros—such as Las Vegas, Miami, and Albuquerque—these households feature older homeowners, empty nesters, and college graduates. A vibrant social scene surrounds their older homes and apartments, and residents love the nightlife and enjoy leisure-intensive lifestyles. Source: Nielsen, www. claritas. com. Yelp has attracted scores of consumers and advertisers with its carefully vetted online reviews of local businesses. Source: © Don Smetzer/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 271 Those who favor such localized marketing see national advertising as wasteful because it is too “arm's length” and fails to address local needs. Those against local marketing argue that it drives up manufacturing and market-ing costs by reducing economies of scale and magnifying logistical problems. A brand's overall image might be diluted if the product and message are too different in different localities. Demo Graph Ic Se Gmentat Ion One reason demographic variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class are so popular with marketers is that they're often associated with consumer needs and wants. Another is that they're easy to measure. Even when we de-scribe the target market in nondemographic terms (say, by personality type), we may need the link back to demographic characteristics in order to estimate the size of the market and the media we should use to reach it efficiently. Here's how marketers have used certain demographic variables to segment markets. age and life-Cy Cle STage Consumer wants and abilities change with age. Toothpaste brands such as Crest and Colgate offer three main lines of products to target kids, adults, and older consumers. Age segmentation can be even more refined. Pampers divides its market into prenatal, new baby (0-5 months), baby (6-12 months), toddler (13-23 months), and preschooler (24 months+). Indirect age effects also operate for some products. One study of kids ages 8-12 found that 91 percent decided or influenced clothing or apparel buys, 79 percent grocery purchases, and 54 percent vacation choices, while 14 percent even made or swayed vehicle purchase decisions. 6 Nevertheless, age and life cycle can be tricky variables. The target market for some products may be the psycho-logically young. To target 21-year-olds with its boxy Element, which company officials described as a “dorm room on wheels, ” Honda ran ads depicting sexy college kids partying near the car at a beach. So many baby boomers were attracted to the ads, however, that the average age of Element buyers turned out to be 42! With baby boom-ers seeking to stay young, Honda decided the lines between age groups were getting blurred. When sales fizzled, Honda decided to discontinue sales of the Element. When it was ready to launch a new subcompact called the Fit, the firm deliberately targeted Gen Y buyers as well as their empty-nest parents. 7 life S Tage People in the same part of the life cycle may still differ in their life stage. Life stage defines a person's major concern, such as going through a divorce, going into a second marriage, taking care of an older parent, deciding to cohabit with another person, buying a new home, and so on. As Chapter 6 noted, these life stages present opportunities for marketers who can help people cope with the accompanying decisions. For example, the wedding industry attracts marketers of a vast range of products and services. No surprise—the average U. S. couple spends almost $27,000 on their wedding (see Table 9. 3 for some major wedding expenditures). 8 But that's just the start. Newlyweds in the United States spend a total of about $70 billion on their households in the first year after marriage—and they buy more in the first six months than an established household does in five years! The Honda Fit targets young Gen Y buyers as well as psychologically young empty nest parents. Source: Courtesy American Honda Motor Co., Inc. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
272 PART 4 | Building S TRong B RAnd S Marketers know marriage often means two sets of shopping habits and brand preferences must be blended into one. Procter & Gamble, Clorox, and Colgate-Palmolive include their products in “Newlywed Kits, ” distrib-uted when couples apply for a marriage license. JCPenney has identified “Starting Outs” as one of its two major customer groups. Marketers pay a premium for name lists to assist their direct marketing because, as one noted, newlywed names “are like gold. ”9 But not everyone goes through that life stage at a certain time—or at all, for that matter. More than a quarter of all U. S. households now consist of only one person—a record high. It's no surprise this $1. 9 trillion market is at-tracting interest from marketers: Lowe's has run an ad featuring a single woman renovating her bathroom; De Beers sells a “right-hand ring” for unmarried women; and at the recently opened, ultra-hip Middle of Manhattan 63-floor tower, two-thirds of the occupants live alone in one-bedroom and studio rental apartments. 10 gender Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization. 11 Research shows that women have traditionally tended to be more communal-minded and men more self-expressive and goal-directed; women have tended to take in more of the data in their immediate environment and men to focus on the part of the environment that helps them achieve a goal. A research study of shopping found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Men often like to read product information; women may relate to a product on a more personal level. Marketers can now reach women more easily via media like Lifetime, Oxygen, and WE television net-works and scores of women's magazines and Web sites; men are more easily found at ESPN, Comedy Central, and Spike TV channels and through magazines such as Maxim and Men's Health. 12 After Pinterest proved its Table 9. 3 Major Wedding Expenditures Reception: $11,599 Engagement ring: $5,229 Wedding rings: $1,594 Photography: $2,186 Wedding gown: $1,355 Flowers: $1,334 Wedding cake: $486 Source: May 2012 survey from Brides magazine. Given their elevated household spending rates, newlyweds are a lucrative target segment for marketers. Source: © MNStudio/Fotolia | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 273 popularity among women, five different Web sites with similar functionality but targeted at men sprang up, including MANinteresting, Dudepins, and Gentlemint. 13 Gender differences are shrinking in some other areas as men and women expand their roles. One Y ahoo sur-vey found that more than half of men identified themselves as the primary grocery shoppers in their households. Procter & Gamble now designs some ads with men in mind, such as for its Gain and Tide laundry detergents, Febreze air freshener, and Swiffer sweepers. On the flip side, according to some studies, women in the United States and the United Kingdom make 75 percent of decisions about buying new homes and purchase 60 percent of new cars. 14 Nevertheless, gender differentiation has long been applied in clothing, hairstyling, and cosmetics. Avon, for one, has built a $6 billion-plus business by selling beauty products to women. Gillette has found similar success with its Venus razor. 15 Venus Raz OR Gillette's Venus razor has become the most successful women's shaving line ever— holding more than 50 percent of the global women's shaving market—as a result of insightful consumer research and extensive market tests revealing product design, packaging, and advertising cues. The razor was a marked departure from earlier designs, which had essentially been colored or repackaged versions of men's razors. Venus was designed to uniquely meet women's needs, instead of men's. Extensive research identified unique shaving needs for women, including shaving a surface area 9X greater than the male face; in a wet environment and across the unique curves of the body. The result-ing female design included an oval shaped cartridge to better fit in to tight areas like underarms and bikini and additional lubrication for better glide. Furthermore, after discovering that women change their grip on a razor about 30 times during each shaving session, Gillette designed Venus razor with a wide, sculpted rubberized handle offering superior grip and control. Design work did not stop with the differences be-tween men and women's shaving needs, when Gillette later found four distinct segments of female shavers—perfect shave seekers (no missed hairs), skin pamperers, pragmatic functionalists, and EZ seekers—the company designed Venus products for each of them. It also commissioned Harris Interactive to conduct an online study among more than 6,500 women in 13 countries that found seven of 10 wanted so-called goddess skin, defined as smooth (68 per-cent), healthy (66 percent), and soft (61 percent), leading to the introduction of the new Gillette Venus & Olay razor. in Come Income segmentation is a long-standing practice in such categories as automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Blue-collar workers were among the first purchasers of color television sets; it was cheaper for them to buy a television than to go to movies and restaurants. Many marketers are deliberately going after lower-income groups, in some cases discovering fewer com-petitive pressures or greater consumer loyalty. Procter & Gamble launched two discount-priced brand exten-sions in 2005—Bounty Basic and Charmin Basic— which have met with some success. Other marketers are finding success with premium-priced products. When Whirlpool launched a pricey Duet washer line, sales doubled their forecasts in a weak economy, due primar-ily to middle-class shoppers who traded up. Increasingly, companies are finding their markets are hourglass-shaped, as middle-market U. S. consumers Years of in-depth consumer research with women has been critical to the long-term success of Gillette's Venus razor. Source: Procter & Gamble Company | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
274 PART 4 | Building S TRong B RAnd S migrate toward both discount and premium products. Companies that miss out on this new market risk being “trapped in the middle” and seeing their market share steadily decline. Recognizing that its channel strategy emphasized retailers like Sears selling primarily to the middle class, Levi-Strauss has since introduced pre-mium lines such as Levi's Made & Crafted to upscale retailers Bloomingdales and Saks Fifth Avenue and the less-expensive Signature by Levi Strauss & Co. line to mass-market retailers Walmart and Kmart. genera Tion Each generation or cohort is profoundly influenced by the times in which it grows up—the music, movies, politics, and defining events of that period. Members share the same major cultural, political, and economic experiences and often have similar outlooks and values. Marketers may choose to advertise to a cohort by using the icons and images prominent in its experiences. They can also try to develop products and services that uniquely meet the particular interests or needs of a generational target. Although the beginning and ending birth dates of any generation are always subjective—and generalizations can mask important differences within the group—here are some general observations about the four main genera-tion cohorts of U. S. consumers, from youngest to oldest. 16 Millennials (or Gen Y) Although different age splits are used to define Millennials, or Gen Y, the term usually means people born between 1977 and 1994. That's about 78 million people in the United States, with annual spending power approaching $200 billion. If you factor in career growth and household and family formation and multiply by another 53 years of life expectancy, trillions of dollars in consumer spending are at stake over their life spans. It's not surprising that marketers are racing to get a bead on Millennials' buying behavior. Here is how one bank has targeted these consumers. 17 Pn C's Vi Rtua L Wa LLet In early 2007, PNC Bank hired design consultants IDEO to study Gen Y—defined by PNC at that time as 18-to 34-year-olds—to help develop a marketing plan to appeal to them. IDEO's research found this cohort (1) didn't know how to manage money and (2) found bank Web sites clunky and awkward to use. PNC thus chose to introduce a new offering, Virtual Wallet, that combined three accounts—“Spend” (regular checking and bill payments), “Reserve” (backup interest-bearing checking for overdraft protection and emergencies), and “Grow” (long-term savings)—with a slick personal finance tool—the “Money Bar”—by which customers can drag money from account to account online by ad-justing an on-screen slider. Instead of seeing a traditional ledger, customers can view balances on a calendar that displays esti-mated future cash flow based on when they get paid, when they pay their bills, and what their spending habits are. Customers also can set a “Savings Engine” tool to transfer money to savings when they receive a paycheck as well as get their account balances via text. PNC has added even more features to Virtual Wallet, such as transaction information for credit cards and a joint calendar view for joint account holders, which has expanded the service's appeal beyond its 1 million Gen Y customers. PNC also engages 80,000-plus of its Virtual Wallet customers in an “Inside the Wallet” blog, which the bank feels provides more detailed feedback than it can get with its Twitter and Facebook accounts. Also known as the Echo Boomers, “digital native” Millennials have been wired almost from birth—playing computer games, navigating the Internet, downloading music, and connecting with friends via texting and social The Signature by Levi Strauss & Co. line of jeans allows the company to effectively and efficiently reach more mass-market consumers than with its other existing jeans lines. Source: PR NEWSWIRE | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 275 media. They are much more likely than other age groups to own multiple devices and multitask while online, mov-ing across mobile, social, and PC platforms. They are also more likely to go online to broadcast their thoughts and experiences and to contribute user-generated content. They tend to trust friends more than corporate sources of information. 18 Although they may have a sense of entitlement and abundance from growing up during the economic boom and being pampered by their boomer parents, Millennials are also often highly socially conscious, concerned about environmental issues, and receptive to cause marketing efforts. The recession hit them hard, and many have accumulated sizable debt. One implication is they are less likely to have bought their first homes and more likely to still live with their parents, influencing their purchases in what demographers are calling a “boom-boom” or boomerang effect. That is, the same products that appeal to 20-somethings also appeal to many of their youth-obsessed parents. Because Gen Y members are often turned off by overt branding practices and “hard sell, ” marketers have tried many different approaches to reach and persuade them. 19 Consider these widely used experiential tactics. 1. Student ambassadors —Red Bull enlisted college students as Red Bull Student Brand Managers to distribute samples, research drinking trends, design on-campus marketing initiatives, and write stories for student newspapers. American Eagle, among other brands, has also developed an extensive campus ambassador program. 2. Street teams —Long a mainstay in the music business, street teams help to promote bands both big and small. Rock band Foo Fighters created a digital street team that sends targeted e-mail blasts to members who “get the latest news, exclusive audio/video sneak previews, tons of chances to win great Foo Fighters prizes, and become part of the Foo Fighters Family. ” 3. Cool events —Hurley, which defined itself as an authentic “Microphone for Y outh” brand rooted in surf, skate, art, music, and beach cultures, has been a long-time sponsor of the U. S. Open of Surfing. The actual title sponsor for the 2013 event was Vans, whose shoes and clothing also have strong Millennial appeal. Vans has also been the title sponsor for almost 20 years of the Warped tour, which blends music with action (or ex-treme) sports. Gen X Often lost in the demographic shuffle, the 50 million or so Gen X consumers, named for a 1991 novel by Douglas Coupland, were born between 1964 and 1978. The popularity of Kurt Cobain, rock band Nirvana, and the lifestyle portrayed in the critically lauded film Slacker led to the use of terms like grunge and slacker to characterize Gen X when they were teens and young adults. They bore an unflattering image of disaffection, short attention spans, and weak work ethic. These stereotypes have slowly disappeared. Gen Xers were certainly raised in more challenging times, when work-ing parents relied on day care or left “latchkey kids” on their own after school and corporate downsizing led to the threat of layoffs and economic uncertainty. At the same time, social and racial diversity were more widely accepted, and technology changed the way people lived and worked. Although Gen Xers raised standards in educational achievement, they were also the first generation to find surpassing their parents' standard of living a serious challenge. These realities had a profound impact. Gen Xers prize self-sufficiency and the ability to handle any circum-stance. Technology is an enabler for them, not a barrier. Unlike the more optimistic, team-oriented Gen Y ers, Gen Xers are more pragmatic and individualistic. As consumers, they are wary of hype and pitches that seem inauthentic The Foo Fighters have used digital street teams to build stronger ties and a sense of community with their devoted fan base. Source: Getty Images | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
276 PART 4 | Building S TRong B RAnd S or patronizing. Direct appeals where value is clear often work best, especially as Gen Xers have become parents raising families. 20 Baby Boomers Baby boomers are the approximately 76 million U. S. consumers born between 1946 and 1964. Though they represent a wealthy target, possessing $1. 2 trillion in annual spending power and controlling three-quarters of the country's wealth, marketers often overlook them. In network television circles, because advertisers are primarily interested in 18-to 49-year-olds, viewers over 50 are referred to as “undesirables, ” though ironically the average age of the prime-time TV viewer is 51. With many baby boomers approaching their 70s and even the last and youngest wave cresting 50, demand has exploded for products to turn back the hands of time. According to one survey, nearly one in five boomers was actively resisting the aging process, driven by the mantra “Fifty is the new thirty. ” As they search for the fountain of youth, sales of hair replacement and hair coloring aids, health club memberships, home gym equipment, skin-tightening creams, nutritional supplements, and organic foods have all soared. Contrary to conventional marketing wisdom that brand preferences of consumers over 50 are fixed, one study of boomers ages 55 to 64 found a significant number are willing to change brands, spend on technology, use social networking sites, and purchase online. 21 Although they love to buy things, they hate being sold to, and as one mar-keter noted, “Y ou have to earn your stripes every day. ” But abundant opportunity exists. Boomers are also less likely to associate retirement with “the beginning of the end” and see it instead as a new chapter in their lives with new activities, interests, careers, and even relationships. 22 Silent Generation Those born between 1925 and 1945—the “Silent Generation”—are redefining what old age means. To start with, many people whose chronological age puts them in this category don't see themselves as old. 23 One survey found that 60 percent of respondents over 65 said they felt younger than their actual age. A third of those 65 to 74 said they felt 10 to 19 years younger, and one in six felt at least 20 years younger than their actual age. 24 Consistent with what they say, many older consumers lead very active lives. As one expert noted, it is if they were having a second middle age before becoming elderly. Advertisers have learned that older consumers don't mind seeing other older consumers in ads targeting them, as long as they appear to be leading vibrant lives. But marketers have learned to avoid clichés like happy older couples riding bikes or strolling hand in hand on a beach at sunset. Strategies emphasizing seniors' roles as grandparents are well received. Many older consumers not only happily spend time with their grandkids, they often provide for their basic needs and at least occasional gifts. The founders of e Beanstalk. com, which sells children's learning toys, thought their online business would be driven largely by young consumers starting families. They were surprised to find that as much as 40 percent of their customers were older, mainly grandparents. These customers are very demanding but also more willing to pay full price than their younger counterparts. 25 But they also need their own products. To design better appliances for the elderly, GE holds empathy sessions to help designers understand the challenges of aging. They tape their knuckles to represent arthritic hands, put ker-nels of popcorn in their shoes to create imbalance, and weigh down pans to simulate the challenge of putting food into ovens. Researchers at the MIT Age Lab use a suit called AGNES ( Age Gain Now Empathy System) to research Researchers at the MIT Age Lab use special suits in their shopping experiments to mimic the physical limitations of being elderly. Source: Nathan-Fried-Lipiski/MIT Age Lab | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 277 the changing needs of the elderly. The suit has a pelvic harness that connects to a headpiece, mimicking an aging spine and restricted mobility, range of motion, joint function, balance, and vision. 26 Race and Culture Multicultural marketing is an approach recognizing that different ethnic and cultural segments have sufficiently different needs and wants to require targeted marketing activities and that a mass market approach is not refined enough for the diversity of the marketplace. Consider that Mc Donald's now does 40 percent of its U. S. business with ethnic minorities. Its highly successful “I'm Lovin' It” campaign was rooted in hip-hop culture but has had an appeal that transcended race and ethnicity. 27 The Hispanic American, African American, and Asian American markets are all growing at two to three times the rate of nonmulticultural populations, with numerous submarkets, and their buying power is expanding. Multicultural consumers also vary in whether they are first, second, or a later generation and whether they are im-migrants or born and raised in the United States. Marketers need to factor the norms, language nuances, buying habits, and business practices of multicultural markets into the initial formulation of their marketing strategy, rather than adding these as an afterthought. All this diversity also has implications for marketing research; it takes careful sampling to adequately profile target markets. Multicultural marketing can require different marketing messages, media, channels, and so on. Specialized media exist to reach virtually any cultural segment or minority group, though some companies have struggled to provide financial and management support for fully realized programs. Fortunately, as countries become more culturally diverse, many marketing campaigns targeting a specific cul-tural group can spill over and positively influence others. Ford developed a TV ad featuring comedian Kevin Hart to launch its new Explorer model that initially targeted the African American market, but it became one of the key ads for the general market launch too. 28 Next, we consider issues in the three largest multicultural markets—Hispanic Americans, African Americans, and Asian Americans. Table 9. 4 lists some important facts and figures about them. 29 Hispanic Americans Accounting for more than half the growth in the U. S. population from 2000 to 2010, Hispanic Americans have become the largest minority in the country. It's projected that by 2020, 17 percent of U. S. residents will be of Hispanic origin. With annual purchasing power of more than $1 trillion in 2010—and expected to rise to $1. 5 trillion by 2015—Hispanic Americans would be the world's ninth-largest market if they were a separate nation. 30 This segment is youthful. The median age of U. S. Hispanics is 27—right in the middle of the highly coveted 18-to-34 Millennial age range—compared with a median age of 42 for non-Hispanic whites. In fact, every 30 seconds, two non-Hispanics retire while a Hispanic turns 18. 31 Hispanic Millennials have been called “fusionistas” because Table 9. 4 Multicultural Market Profile Hispanic Americans Asian Americans African Americans Estimated population—2012 52. 4 million 15. 7 million 41. 1 million Forecasted population—2060 128. 8 million 34. 4 million 61. 8 million Number of minority-owned businesses in 2007 2. 3 million 1. 5 million 1. 9 million Revenue generated by minority-owned businesses in 2007 $345. 2 billion $507. 6 billion $137. 5 billion Median household income in 2011 $38, 624 $65,129 $32,229 Poverty rate 2011 25. 3% 12. 3% 27. 6% Percentage of those ages >25 with at least a high school education in 201265% 88. 8% 84. 9% Number of veterans of U. S. armed forces in 2011 1. 2 million 264,695 2. 3 million Median age in 2011 27. 0 36. 0 31. 7 Percent of population under 18 years old in 2011 35% 23% 28% Sources: www. selig. uga. edu and www. census. gov. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
278 PART 4 | Building S TRong B RAnd S they see themselves as both fully American and Latino. 32 As one marketing executive noted, “they eat tamales and burgers and watch football and fútbol. ”33 More than half the U. S. Hispanic population lives in just three states—California, Texas, and Florida—and more than 4 million Hispanics live in New Y ork and Los Angeles. The Hispanic American market holds a wide variety of subsegments. Hispanics of Mexican origin are the dominant segment, followed by those of Puerto Rican and Cuban descent, though numbers of Salvadorans, Dominicans, Guatemalans, and Columbians are growing faster. 34 To meet these divergent needs, Goya, the largest U. S. Hispanic food company with $1. 3 billion in annual rev-enue, sells 1,600 products ranging from bags of rice to ready-to-eat, frozen empanadas and 38 varieties of beans alone. The company also has found much success selling key products directly to non-Hispanics. Its new philoso-phy: “We don't market to Latinos, we market as Latinos. ”35 Hispanic Americans often share strong family values—several generations may reside in one household—and strong ties to their country of origin. Even young Hispanics born in the United States tend to identify with the country their families are from. Hispanic Americans desire respect, are brand loyal, and take a keen interest in product quality. Procter & Gamble's research revealed that Hispanic consumers believe “ lo barato sale caro ” (“cheap can be expensive, ” or in the English equivalent, “you get what you pay for”). P&G found Hispanic consum-ers were so value-oriented they would even do their own product tests at home. One woman was using different brands of tissues and toilet paper in different rooms to see which her family liked best. 36 U. S.-born Hispanic Americans also have different needs and tastes than their foreign-born counterparts and, though bilingual, often prefer to communicate in English. Though two-thirds of U. S. Hispanics are considered “bicultural” and comfortable with both Spanish-and English-speaking cultures, most firms choose to run Spanish-only ads on traditional Hispanic networks Univision and Telemundo. Univision is the long-time market-leader, which has found great success with its DVR-proof telenovelas (like daily soap operas), though new competition is emerging from Fox and other media companies. 37 Marketers are reaching out to Hispanic Americans with targeted promotions, ads, and Web sites, but they need to capture the nuances of cultural and market trends. 38 Consider two companies that did so. Although Kleenex was the market-share leader in fa-cial tissues among Hispanics, brand owner Kimberly-Clark felt there was much room to grow. Relying on research showing that more than twice as many Hispanics base their purchase decisions on package and design as in the general population, it launched the “Con Kleenex, Expresa Tu Hispanidad” cam-paign. Amateur artists were solicited to submit de-signs for customized packages sold during National Hispanic Heritage Month. Public voting chose three winners, and the campaign increased Kleenex sales at participating retailers by an impressive 476 percent. 39 The Clorox Company found its Hispanic American customers were relatively more likely to agree or over-index on “cleaning more to prevent family and friends from getting sick, ” especially in spring and summer months and when visitors came. Additional research also revealed the importance of packaging and a preference for scent as the final step in the cleaning process. Product development led to the launch of the FRANGAZIA line of cleaning products with lavender and other scents that had tested well. As support, Spanish-only ads were run on Hispanic media. 40 General Motors, Southwestern Airlines, and Toyota have used a “Spanglish” approach in their ads, conver-sationally mixing some Spanish with English in dia-logue among Hispanic families. 41 Continental Airlines, General Mills, and Sears have used mobile marketing to reach Hispanics. 42 With a mostly younger population Clorox developed its Fraganzia line of cleaning products to appeal to those Hispanics who had strong preferences for hygiene and scent. Source: FRAGANZIA is a registered trademark of The Clorox Company and is used with permission. © 2016 The Clorox Company. Reprinted with permission. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 279 that may have less access to Internet or landline service, Hispanics are much more active with mobile technology and social media than the general population. Staying connected to friends and family is important for them. 43 Asian Americans According to the U. S. Census Bureau, “ Asian” refers to people having origins in any of the original peoples of the Far East, Southeast Asia, or the Indian subcontinent. Six countries represent 79 percent of the Asian American population: China (21 percent), the Philippines (18 percent), India (11 percent), Vietnam (10 percent), Korea (10 percent), and Japan (9 percent). The diversity of these national identities limits the effectiveness of pan-Asian marketing appeals. For example, in terms of general food trends, research has uncovered that Japanese eat much more raw food than Chinese; Koreans are more inclined to enjoy spicy foods and drink more alcohol than other Asians; and Filipinos tend to be the most Americanized and Vietnamese the least Americanized in terms of food choices. 44 The Asian American market has been called the “invisible market” because, compared with the Hispanic Americans and African American markets, it has traditionally received a disproportionally small fraction of U. S. companies' total multicultural marketing expenditure. 45 Y et it is getting easier to reach this market, given Asian-language newspapers, magazines, cable TV channels, and radio stations targeting specific groups. 46 Telecommunications and financial services are a few of the industries more actively targeting Asian Americans. Wells Fargo Bank has a long tradition of marketing to Asian Americans, aided by its deep historical roots in California where a heavy concentration exists. The bank has engaged its Asian American agency partner, Dae Partners, for years. Wells Fargo itself is diverse with an internal team of multicultural experts and a significant group of Asian American executives. It has developed products and programs specifically for the Asian American market and is highly engaged in volunteerism and community efforts. 47 Asian Americans tend to be more brand-conscious than other minority groups yet are the least loyal to par-ticular brands. They also tend to care more about what others think (for instance, whether their neighbors will approve of them) and share core values of safety and education. Comparatively affluent and well educated, they are an attractive target for luxury brands. The most computer-literate group, Asian Americans are more likely to use the Internet on a daily basis. 48 African Americans African Americans are projected to have a combined spending power of $1. 1 trillion by 2015. They have had a significant economic, social, and cultural impact on U. S. life, contributing inventions, art, music, sports achievements, fashion, and literature. Like many cultural segments, they are deeply rooted in the U. S. landscape while also proud of their heritage and respectful of family ties. 49 Based on survey findings, African Americans are the most fashion-conscious of all racial and ethnic groups but are strongly motivated by quality and selection. They're also more likely to be influenced by their children when selecting a product and less likely to buy unfamiliar brands. African Americans watch television and listen to the radio more than other groups and are heavy users of mobile data. Nearly three-fourths have a profile on more than one social network, with Twitter being extremely popular. 50 Media outlets directed at black audiences received only 2 percent of the $120 billion firms spent on advertising in 2011, however. 51 A Nielsen research study found that roughly half of African Americans say they are more likely to buy a product if its advertising portrays the black community in a positive manner. More than 90 percent said black media are more relevant to them than generic media outlets. 52 To encourage more marketing investment, the Cabletelevision Advertising Bureau trade organization even created an information-laden Web site, www. reachingblackconsumers. com. Ad messages targeting African Americans must be seen as relevant. In a campaign for Lawry's Seasoned Salt tar-geting African Americans, images of soul food appeared; a campaign for Kentucky Fried Chicken showed an African American family gathered at a reunion—demonstrating an understanding of both the market's values and its lifestyle. 53 P&G's “My Black Is Beautiful” campaign was started by women inside the company who saw a lack of positive images of African American women in mainstream media. The campaign has a dedicated Web site, a national television show on BET network, and various promotional efforts featuring P&G's beauty, health, and personal care brands. 54 Many companies have successfully tailored products to meet the needs of African Americans. Sara Lee Corporation's L ' eggs discontinued its separate line of pantyhose for black women; now shades and styles popular among black women make up half the company's general-focus sub-brands. In some cases, campaigns have ex-panded beyond their African American target. State Farm's “50 Million Pound Challenge” weight-loss campaign began in the African American community but expanded to the general market. Cigarette, liquor, and fast-food firms have been criticized for targeting urban African Americans. As one writer noted, with obesity a problem, it is disturbing that it is easier to find a fast-food restaurant than a grocery store in many black neighborhoods. 55 Lesbian, Gay, Bisexual, and Transgender (LGBT) The lesbian, gay, bisexual, and transgender (LGBT) market is estimated to make up 5 percent to 10 percent of the population and have approximately $700 billion in buying power. 56 Many firms have recently created initiatives to target this market. 57 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
280 PART 4 | Building S TRong B RAnd S American Airlines created a Rainbow Team with a dedicated LGBT staff and Web site that has emphasized community-relevant services such as a calendar of gay-themed national events. JCPenney hired openly gay Ellen De Generes as its spokesperson, featured both male and female same-sex couples in its catalogs, and sponsored a float in New Y ork's Gay Pride parade. Wells Fargo, General Mills, and Kraft are also often identified as among the most gay-friendly businesses. 58 Logo, MTV's television channel for a gay and lesbian audience, has 150 advertisers in a wide variety of product categories and is available in more than 52 million homes. Increasingly, advertisers are using digital efforts to reach the market. Hyatt's online appeals to the LGBT community target social sites and blogs where customers share their travel experiences. Some firms worry about backlash from organizations that will criticize or even boycott firms supporting gay and lesbian causes. Although Pepsi, Campbell's, and Wells Fargo all experienced such boycotts in the past, they continue to advertise to the gay community. p SYcho Graph Ic Se Gmentat Ion Psychographics is the science of using psychology and demographics to better understand consumers. In psycho-graphic segmentation, buyers are divided into groups on the basis of psychological/personality traits, lifestyle, or values. People within the same demographic group can exhibit very different psychographic profiles. One of the most popular commercially available classification systems based on psychographic measurements is Strategic Business Insight's (SBI) V ALS™ framework. V ALS is based on psychological traits for people and clas-sifies U. S. adults into eight primary groups based on responses to a questionnaire featuring four demographic and 35 attitudinal questions. The V ALS system is continually updated with new data from more than 80,000 surveys per year (see Figure 9. 1). Y ou can find out which V ALS type you are by going to the SBI Web site. 59 The main dimensions of the V ALS segmentation framework are consumer motivation (the horizontal dimen-sion) and consumer resources (the vertical dimension). Consumers are inspired by one of three primary motiva-tions: ideals, achievement, and self-expression. Those primarily motivated by ideals are guided by knowledge and principles. Those motivated by achievement look for products and services that demonstrate success to their peers. Consumers whose motivation is self-expression desire social or physical activity, variety, and risk. Personality traits such as energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, and Thinkers Achievers Innovators Ideals Experiencers Believers Strivers Survivors Makers Achievement Self-Expression Low Resources Low Innovation High Resources High Innovation US VALS Framework Primary Motivation| Fig. 9. 1 | The VALS Segmentation System: An Eight-Part Typology Source: www. strategicbusinessinsights. com/ vals © 2014 by Strategic Business Insights. All rights reserved. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 281 vanity—in conjunction with key demographics—determine an individual's resources. Different levels of resources enhance or constrain a person's expression of his or her primary motivation. Behav Ioral Se Gmentat Ion Although psychographic segmentation can provide a richer understanding of consumers, some marketers fault it for being somewhat removed from actual consumer behavior. 60 In behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. need S and benefi TS Not everyone who buys a product has the same needs or wants the same benefits from it. Needs-based or benefit-based segmentation identifies distinct market segments with clear marketing implications. For example, Constellation Brands identified six different benefit segments in the U. S. premium wine market ($5. 50 a bottle and up). 61 Enthusiast (12 percent of the market). Skewing female, their average income is about $76,000 a year. About 3 percent are “luxury enthusiasts” who skew more male with a higher income. Image Seekers (20 percent). The only segment that skews male, with an average age of 35. They use wine basically as a badge to say who they are, and they're willing to pay more to make sure they're getting the right bottle. Savvy Shoppers (15 percent). They love to shop and believe they don't have to spend a lot to get a good bottle of wine. Happy to use the bargain bin. Traditionalist (16 percent). With very traditional values, they like to buy brands they've heard of and from wineries that have been around a long time. Their average age is 50, and they are 68 percent female. Satisfied Sippers (14 percent). Not knowing much about wine, they tend to buy the same brands. About half of what they drink is white zinfandel. Overwhelmed (23 percent). A potentially attractive target market, they find purchasing wine confusing. de Ci Sion role S It's easy to identify the buyer for many products. In the United States, men normally choose their shaving equipment and women choose their pantyhose, but even here marketers must be careful in making targeting decisions because buying roles change. When ICI, the giant British chemical company now called Akzo Nobe, discovered that women made 60 percent of decisions on the brand of household paint, it decided to advertise its Dulux brand to women. People play five roles in a buying decision: Initiator, Influencer, Decider, Buyer, and User. For example, assume a wife initiates a purchase by requesting a new treadmill for her birthday. The husband may then seek information from many sources, including his best friend who has a treadmill and is a key influencer in what models to con-sider. After presenting the alternative choices to his wife, he purchases her preferred model, which ends up being used by the entire family. Different people are playing different roles, but all are crucial in the decision process and ultimate consumer satisfaction. USer and U Sage-rela Ted Variable S Many marketers believe variables related to users or their usage—occasions, user status, usage rate, buyer-readiness stage, and loyalty status—are good starting points for constructing market segments. Occasions Occasions mark a time of day, week, month, year, or other well-defined temporal aspects of a consumer's life. We can distinguish buyers according to the occasions when they develop a need, purchase a product, or use a product. For example, air travel is triggered by occasions related to business, vacation, or family. Occasion segmentation can help expand product usage. User Status Every product has its nonusers, ex-users, potential users, first-time users, and regular users. Blood banks cannot rely only on regular donors to supply blood; they must also recruit new first-time donors and contact ex-donors, each with a different marketing strategy. The key to attracting potential users, or even possibly nonusers, is understanding the reasons they are not using. Do they have deeply held attitudes, beliefs, or behaviors or just lack knowledge of the product or brand benefits? Included in the potential-user group are consumers who will become users in connection with some life stage or event. Mothers-to-be are potential users who will turn into heavy users. Producers of infant products and services learn their names and shower them with products and ads to capture a share of their future purchases. Market-share leaders tend to focus on attracting potential users because they have the most to gain from them. Smaller firms focus on trying to attract current users away from the market leader. Usage Rate We can segment markets into light, medium, and heavy product users. Heavy users are often a small slice but account for a high percentage of total consumption. Heavy beer drinkers account for | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
282 PART 4 | Building S TRong B RAnd S 87 percent of beer consumption—almost seven times as much as light drinkers. Marketers would rather attract one heavy user than several light users. A potential problem, however, is that heavy users are often either extremely loyal to one brand or never loyal to any brand and always looking for the lowest price. They also may have less room to expand their purchase and consumption. Light users may be more responsive to new marketing appeals. 62 Buyer-Readiness Stage Some people are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. To help characterize how many people are at different stages and how well they have converted people from one stage to another, recall from Chapter 5 that marketers can employ a marketing funnel to break the market into buyer-readiness stages. The proportions of consumers at different stages make a big difference in designing the marketing program. Suppose a health agency wants to encourage women to have an annual Pap test to detect cervical cancer. At the beginning, most women may be unaware of the Pap test. The marketing effort should go into awareness-building advertising using a simple message. Later, the advertising should dramatize the benefits of the Pap test and the risks of not getting it. A special offer of a free health examination might motivate women to actually sign up for the test. Figure 9. 2 displays a funnel for two hypothetical brands. Compared with Brand B, Brand A performs poorly at converting one-time users to more recent users (only 46 percent convert for Brand A compared with 61 percent for Brand B). Depending on the reasons consumers didn't use again, a marketing campaign could introduce more relevant products, find more accessible retail outlets, or dispel rumors or incorrect beliefs consumers hold. Loyalty Status Marketers usually envision four groups based on brand loyalty status: 1. Hard-core loyals —Consumers who buy only one brand all the time 2. Split loyals —Consumers who are loyal to two or three brands 3. Shifting loyals —Consumers who shift loyalty from one brand to another 4. Switchers —Consumers who show no loyalty to any brand63 A company can learn a great deal by analyzing degrees of brand loyalty: Hard-core loyals can help identify the products' strengths; split loyals can show the firm which brands are most competitive with its own; and by looking at customers dropping its brand, the company can learn about its marketing weaknesses and attempt to correct them. One caution: What appear to be brand-loyal purchase patterns may reflect habit, indifference, a low price, a high switching cost, or the unavailability of other brands. Attitude Five consumer attitudes about products are enthusiastic, positive, indifferent, negative, and hostile. Workers in a political campaign use attitude to determine how much time and effort to spend with each voter. They thank enthusiastic voters and remind them to vote, reinforce those who are positively disposed, try to win the votes of indifferent voters, and spend no time trying to change the attitudes of negative and hostile voters. Multiple Bases Combining different behavioral bases can provide a more comprehensive and cohesive view of a market and its segments. Figure 9. 3 depicts one possible way to break down a target market by various behavioral segmentation bases. 96 65% 6346% 2962% 1867% 12 650% Brand A Aware Ever T ried Recent T rial Occasional User Regular User Most Often Used 97 76%7461% 4571% 3275% 241562% Brand B Aware Ever T ried Recent T rial Occasional User Regular User Most Often Used| Fig. 9. 2 | Example of Marketing Funnel | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 283 How Should Business Markets Be Segmented? We can segment business markets with some of the same variables we use in consumer markets, such as geog-raphy, benefits sought, and usage rate, but business marketers also use other variables. Table 9. 5 shows one set of these. The demographic variables are the most important, followed by the operating variables—down to the personal characteristics of the buyer. The table lists major questions that business marketers should ask in determining which segments and custom-ers to serve. A rubber-tire company can sell tires to manufacturers of automobiles, trucks, farm tractors, forklift trucks, or aircraft. Within a chosen target industry, it can further segment by company size and set up separate operations for selling to large and small customers. A company can segment further by purchase criteria. Government laboratories need low prices and service contracts for scientific equipment, university laboratories need equipment that requires little service, and indus-trial labs need equipment that is highly reliable and accurate. Business marketers generally identify segments through a sequential process. Consider an aluminum company: The company first undertook macrosegmentation. It looked at which end-use market to serve: au-tomobile, residential, or beverage containers. It chose the residential market, and it needed to determine the most attractive product application: semifinished material, building components, or aluminum mobile homes. Deciding to focus on building components, it considered the best customer size and chose large. The second stage consisted of microsegmentation. The company distinguished among customers buying on price, service, and quality. Because it had a high-service profile, the firm decided to concentrate on the service-motivated seg-ment of the market. Target Market Negative opinion Neutral Favorable opinion Rejector Not yet repeated Repeated Loyal to other brand Switcher Loyal to brand Light user Regular user Heavy user Aware Unaware Not tried Tried | Fig. 9. 3 | Behavioral Segmentation Breakdown | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
284 PART 4 | Building S TRong B RAnd S Business-to-business marketing experts James C. Anderson and James A. Narus have urged marketers to pres-ent flexible market offerings to all members of a segment. 64 A flexible market offering consists of two parts: a na-ked solution containing the product and service elements that all segment members value and discretionary options that some segment members value. Each option might carry an additional charge. Siemens Electrical Apparatus Division sells metal-clad boxes to small manufacturers at prices that include free delivery and a warranty, but it also offers installation, tests, and communication peripherals as extra-cost options. Market Targeting There are many statistical techniques for developing market segments. 65 Once the firm has identified its market-segment opportunities, it must decide how many and which ones to target. Marketers are increasingly combining several variables in an effort to identify smaller, better-defined target groups. Thus, a bank may not only identify a group of wealthy retired adults but within that group distinguish several segments depending on current in-come, assets, savings, and risk preferences. This has led some market researchers to advocate a needs-based mar-ket segmentation approach. Roger Best proposed the seven-step approach shown in Table 9. 6. Table 9. 5 Major Segmentation Variables for Business Markets Demographic 1. Industry: Which industries should we serve? 2. Company size: What size companies should we serve? 3. Location: What geographical areas should we serve? Operating Variables 4. Technology: What customer technologies should we focus on? 5. User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers? 6. Customer capabilities: Should we serve customers needing many or few services? Purchasing Approaches 7. Purchasing-function organization: Should we serve companies with a highly centralized or decentralized purchasing organization? 8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on? 9. Nature of existing relationship: Should we serve companies with which we have strong relationships or simply go after the most desirable companies? 10. General purchasing policies: Should we serve companies that prefer leasing? Service contract? Systems purchases? Sealed bidding? 11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price? Situational Factors 12. Urgency: Should we serve companies that need quick and sudden delivery or service? 13. Specific application: Should we focus on a certain application of our product rather than all applications? 14. Size or order: Should we focus on large or small orders? Personal Characteristics 15. Buyer-seller similarity: Should we serve companies whose people and values are similar to ours? 16. Attitude toward risk: Should we serve risk-taking or risk-avoiding customers? 17. Loyalty: Should we serve companies that show high loyalty to their suppliers? Source: Adapted from Thomas V. Bonoma and Benson P. Shapiro, Segmenting the Industrial Market (Lexington, MA: Lexington Books, 1983). | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 285 Effective Segmentation Criteria Not all segmentation schemes are useful. We could divide buyers of table salt into blond and brunette custom-ers, but hair color is undoubtedly irrelevant to the purchase of salt. Furthermore, if all salt buyers buy the same amount of salt each month, believe all salt is the same, and would pay only one price for salt, this market is mini-mally segmentable from a marketing point of view. To be useful, market segments must rate favorably on five key criteria: Measurable. The size, purchasing power, and characteristics of the segments can be measured. Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for people who are under four feet tall. Accessible. The segments can be effectively reached and served. Differentiable. The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. If married and single women respond similarly to a sale on perfume, they do not constitute separate segments. Actionable. Effective programs can be formulated for attracting and serving the segments. Michael Porter has identified five forces that determine the intrinsic long-run attractiveness of a market or mar-ket segment: industry competitors, potential entrants, substitutes, buyers, and suppliers. The threats these forces pose are as follows. 66 1. Threat of intense segment rivalry —A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It's even more unattractive if it's stable or declining, if plant capacity must be added in large increments, if fixed costs or exit barriers are high, or if competitors have high stakes in staying in the seg-ment. These conditions will lead to frequent price wars, advertising battles, and new-product introductions and will make it expensive to compete. The mobile phone market has seen fierce competition due to segment rivalry. 2. Threat of new entrants —The most attractive segment is one in which entry barriers are high and exit bar-riers are low. Few new firms can enter the industry, and poorly performing firms can easily exit. When both entry and exit barriers are high, profit potential is high, but firms face more risk because poorer-performing firms stay in and fight it out. When both entry and exit barriers are low, firms easily enter and leave the in-dustry, and returns are stable but low. The worst case occurs when entry barriers are low and exit barriers are high: Here firms enter during good times but find it hard to leave during bad times. The result is chronic Table 9. 6 Steps in the Segmentation Process Description 1. Needs-Based Segmentation Group customers into segments based on similar needs and benefits sought by customers in solving a particular consumption problem. 2. Segment Identification For each needs-based segment, determine which demographics, lifestyles, and usage behaviors make the segment distinct and identifiable (actionable). 3. Segment Attractiveness Using predetermined segment attractiveness criteria (such as market growth, competitive intensity, and market access), determine the overall attractiveness of each segment. 4. Segment Profitability Determine segment profitability. 5. Segment Positioning For each segment, create a “value proposition” and product-price positioning strategy based on that segment's unique customer needs and characteristics. 6. Segment “Acid Test” Create “segment storyboard” to test the attractiveness of each segment's positioning strategy. 7. Marketing-Mix Strategy Expand segment positioning strategy to include all aspects of the marketing mix: product, price, promotion, and place. Source: Adapted from Roger J. Best, Market-Based Management, 6th ed. (Upper Saddle River NJ: Prentice Hall, 2013). © 2013. Printed and electronically reproduced by permission of Pearson Education, Inc. Upper Saddle River, New Jersey. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
286 PART 4 | Building S TRong B RAnd S overcapacity and depressed earnings for all. The airline industry has low entry barriers but high exit barriers, leaving all carriers struggling during economic downturns. 3. Threat of substitute products —A segment is unattractive when there are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits. If technology advances or competition increases in these substitute industries, prices and profits are likely to fall. Air travel has severely challenged profitability for Greyhound and Amtrak. 4. Threat of buyers' growing bargaining power —A segment is unattractive if buyers possess strong or growing bargaining power. The rise of retail giants such as Walmart has led some analysts to conclude that the poten-tial profitability of packaged-goods companies will become curtailed. Buyers' bargaining power grows when they become more concentrated or organized, when the product represents a significant fraction of their costs, when the product is undifferentiated, when buyers' switching costs are low, or when they can integrate upstream. To protect themselves, sellers might select buyers who have the least power to negotiate or switch suppliers. A better defense is developing superior offers that strong buyers cannot refuse. 5. Threat of suppliers' growing bargaining power —A segment is unattractive if the company's suppliers are able to raise prices or reduce quantity supplied. Suppliers tend to be powerful when they are concentrated or orga-nized, when they can integrate downstream, when there are few substitutes, when the supplied product is an important input, and when the costs of switching suppliers are high. The best defenses are to build win-win relationships with suppliers or use multiple supply sources. evaluat In G an D Select In G the market Se Gment S In evaluating market segments, the firm must look at two factors: the segment's overall attractiveness and the company's objectives and resources. How well does a potential segment score on the five criteria? Does it have characteristics that make it generally attractive, such as size, growth, profitability, scale economies, and low risk? Does investing in it make sense given the firm's objectives, competencies, and resources? Some attractive seg-ments may not mesh with the company's long-run objectives, or the company may lack one or more competen-cies necessary to offer superior value. Marketers have a range or continuum of possible levels of segmentation that can guide their target market deci-sions. As Figure 9. 4 shows, at one end is a mass market of essentially one segment; at the other are individuals or segments of one person each. Between lie multiple segments and single segments. We describe approaches to each of the four levels next. f Ull marke T Co Verage With full market coverage, a firm attempts to serve all customer groups with all the products they might need. Only very large firms such as Microsoft (software market), General Motors (vehicle market), and Coca-Cola (nonalcoholic beverage market) can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways: through differentiated or undifferentiated marketing. In undifferentiated or mass marketing, the firm ignores segment differences and goes after the whole market with one offer. It designs a marketing program for a product with a superior image that can be sold to the broad-est number of buyers via mass distribution and mass communications. Undifferentiated marketing is appropriate when all consumers have roughly the same preferences and the market shows no natural segments. Henry Ford epitomized this strategy when he offered the Model-T Ford in one color, black. The argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can lead to lower prices or higher margins. The narrow product line keeps down the costs of research and development, production, inventory, transportation, marketing research, advertising, and product management. The undifferentiated communication program also reduces costs. However, many critics point to the increasing splintering of the market and the proliferation of marketing channels and communication, which make it difficult and increasingly expensive to reach a mass audience. Customization omizati Mass Market Mass Mar Full Market Coverage Multiple Segments Single Segments Individuals as Segments| Fig. 9. 4 | Possible Levels of Segmentation | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 287 When different groups of consumers have different needs and wants, marketers can define multiple segments. The company can often better design, price, disclose, and deliver the product or service and also fine-tune the mar-keting program and activities to better reflect competitors' marketing. In differentiated marketing, the firm sells different products to all the different segments of the market. Cosmetics firm Estée Lauder markets brands that appeal to women (and men) of different tastes: The flagship brand, the original Estée Lauder, appeals to older con-sumers; Clinique caters to middle-aged women; M. A. C. to youthful hipsters; Aveda to aromatherapy enthusiasts; and Origins to ecoconscious consumers who want cosmetics made from natural ingredients. 67 Perhaps no firm practices differentiated marketing like Hallmark Cards, which celebrated its 100th birthday in 2010. 68 Ha LLMa Rk Hallmark's personal expression products are sold in more than 40,000 retail outlets nation-wide and in 100 countries worldwide. Each year the company produces 10,000 new and redesigned greeting cards, as well as related products including party goods, gift wrap, and ornaments. Its success is due in part to its vigorous seg-mentation of the greeting card business. In addition to popular sub-branded card lines such as the humorous Shoebox Greetings, Hallmark has introduced lines targeting specific market segments. Fresh Ink targets 18-to 39-year-old women. The Simple Motherhood line targets moms with designs featuring fresh photography and simple, relatable sentiments. Hallmark's three ethnic lines—Mahogany, Sinceramente Hallmark, and Tree of Life—target African American, Hispanic, and Jewish consumers, respectively. Specific greeting cards also benefit charities such as (PRODUCT) RED™, UNICEF, and the Susan G. Komen Race for the Cure. Hallmark has also embraced technology. Musical greeting cards incorporate sound clips from popular movies, TV shows, and songs. Hallmark recently introduced its Magic Prints line of interactive products, with “magic mitt” technology that lets kids leave an imprint of their hand on an insert in a card or other keepsake for parents or grandparents. Online, Hallmark offers e-cards as well as personalized printed greeting cards that it mails for consumers. For business needs, Hallmark Business Expressions offers personalized corporate holiday cards and greeting cards for all occasions and events. Differentiated marketing typically creates more total sales than undifferentiated marketing. However, it also increases the costs of doing business. Because differentiated marketing leads to both higher sales and higher costs, no generalizations about its profitability are valid. m Ul Tiple Segmen T Spe Cializa Tion With selective specialization, a firm selects a subset of all the possible segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each promises to be a moneymaker. When Procter & Gamble launched Crest Whitestrips, initial target segments included newly engaged women and brides-to-be as well as gay males. The multisegment strategy also has the advantage of diversifying the firm's risk. Keeping synergies in mind, companies can try to operate in supersegments rather than in isolated segments. A supersegment is a set of segments sharing some exploitable similarity. For example, many symphony orchestras target people who have broad cultural interests, rather than only those who regularly attend concerts. A firm can also attempt to achieve some synergy with product or market specialization. Hallmark has thoroughly segmented the greeting card market according to occasion, personality, race, and other factors. Source: © Jeff Greenberg 1 of 6/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
288 PART 4 | Building S TRong B RAnd S With product specialization, the firm sells a certain product to several different market segments. A microscope manufacturer, for instance, sells to university, government, and commercial laboratories, making different instruments for each and building a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology. With market specialization, the firm concentrates on serving many needs of a particular customer group, such as by selling an assortment of products only to university laboratories. The firm gains a strong reputation among this customer group and becomes a channel for additional products its members can use. The down-side risk is that the customer group may suffer budget cuts or shrink in size. Single-Segmen T Con Cen Tra Tion With single-segment concentration, the firm markets to only one particular segment. Porsche concentrates on the sports car enthusiast and Volkswagen on the small-car market— its foray into the large-car market with the Phaeton was a failure in the United States. Through concentrated marketing, the firm gains deep knowledge of the segment's needs and achieves a strong market presence. It also enjoys operating economies by specializing its production, distribution, and promotion. If it captures segment leadership, the firm can earn a high return on its investment. A niche is a more narrowly defined customer group seeking a distinctive mix of benefits within a segment. Marketers usually identify niches by dividing a segment into subsegments. Whereas Hertz, Avis, Alamo, and others specialize in airport rental cars for business and leisure travelers, Enterprise has attacked the low-budget, insurance-replacement market by primarily renting to customers whose cars have been wrecked or stolen. By cre-ating unique associations to low cost and convenience in an overlooked niche market, Enterprise has been highly profitable. Another up-and-coming niche marketer is Allegiant Air. 69 a LLegiant ai R The recent prolonged recession wreaked havoc on the financial performance of all the major U. S. domestic airlines. Up-and-comer Allegiant Air, however, managed to turn a profit quarter after quarter. Founded in Eugene, OR, in 2007, Allegiant has developed a highly successful niche strategy by providing leisure travelers afford-able nonstop flights from smaller markets such as Great Falls, MT; Grand Forks, ND; Knoxville, TN; and Plattsburgh, NY; to popular vacation spots in Florida, California, and Hawaii and to Las Vegas, Phoenix, and Myrtle Beach. By staying off the beaten track, it avoids competition on all but a handful of its 100-plus routes. Much of its passenger traffic is additive and incremental, attracting tourist travel that might not have otherwise even happened. If a market doesn't seem to be taking hold, Allegiant quickly drops it. The carrier carefully balances revenues and costs. It charges for services—like in-flight bev-erages and overhead storage space—that are free on other airlines. It also generates additional revenue by cross-selling vacation products and packages. Allegiant owns its 64 used MD-80 planes and also cuts costs by flying only a few times a week instead of a few times a day like most airlines. It even fixes its seats at a pitch halfway between fully upright and fully reclined—adjustable seats add weight, burn fuel, and are a “maintenance nightmare. ” The formula seems to be working. Passengers in its local markets love the convenience, keeping Allegiant's planes full and the company profitable. Allegiant Air has found a niche flying leisure travelers from smaller markets. Source: © Michael Matthews/Alamy | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 289 What does an attractive niche look like? Niche customers have a distinct set of needs; they will pay a premium to the firm that best satisfies them; the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many competitors; and it gains certain economies through specialization. As marketing efficiency increases, niches that seemed too small may become more profitable. See “Marketing Insight: Chasing the Long Tail. ” indi Vid Ual marke Ting The ultimate level of segmentation leads to “segments of one, ” “customized marketing, ” or “one-to-one marketing. ”70 As companies have grown proficient at gathering information about individual customers and business partners (suppliers, distributors, retailers), and as their factories are being designed more flexibly, they have increased their ability to individualize market offerings, messages, and media. Mass customization is the ability of a company to meet each customer's requirements—to prepare on a mass basis individually designed products, services, programs, and communications. 71 Chasing the Long Tail The advent of online commerce, made possible by technology and epitomized by Amazon. com, e Bay, i Tunes, and Netflix, has led to a shift in consumer buying patterns, according to Chris Anderson, editor-in-chief of Wired magazine and author of The Long Tail. In most markets, the distribution of product sales conforms to a curve weighted heavily to one side—the “head”—where the bulk of sales are generated by a few products. The curve falls rapidly toward zero and hovers just above it far along the X-axis—the “long tail”— where the vast majority of products generate very little sales. The mass market traditionally focused on generating “hit” products that occupy the head, disdaining the low-revenue market niches comprising the tail. The Pareto principle-based “80-20” rule—that 80 percent of a firm's revenue is generated by 20 percent of a firm's products—epitomizes this thinking. Anderson asserts that as a result of consumers' enthusiastic adoption of the Internet as a shopping medium, the long tail holds significantly more value than before. In fact, he argues, the Internet has directly contributed to the shifting of demand “down the tail, from hits to niches” in a number of product categories including music, books, clothing, and movies. According to this view, the rule that now prevails is more like “50-50,” with lower-selling products adding up to half a firm's revenue. Anderson's long-tail theory is based on three premises: (1) Lower costs of distribution make it economically easier to sell products without precise predictions of demand; (2) The more products available for sale, the greater the likelihood of tapping into latent demand for niche tastes unreachable through traditional retail channels; and (3) If enough niche tastes are aggregated, a big new market can result. Anderson identifies two aspects of Internet shopping that sup-port these premises. First, the increased inventory and variety afforded online permit greater choice. Second, the search costs for relevant new products are lowered due to the wealth of information online, the filtering of product recommendations based on user preferences that vendors can provide, and the word-of-mouth network of Internet users. Some critics challenge the notion that old business paradigms have changed as much as Anderson suggests. Especially in entertain-ment, they say, the “head” where hits are concentrated is valuable also to consumers, not only to the content creators. One critique argued that “most hits are popular because they are of high quality,” and another noted that the majority of products and services making up the long tail originate from a small concentration of online “long-tail aggregators. ” Although some academic research supports the long-tail theory, other research is more challenging, finding that poor recommendation systems render many very low share products in the tail so obscure and hard to find they disappear before they can be purchased frequently enough to justify their existence. For companies selling physical prod-ucts, inventory, stocking, and handling costs can outweigh any financial benefits of such products. Harvard's Anita Elberse provides an especially detailed analysis of various media and entertainment options via sources such as sales data from Nielsen Soundscan and online music service Rhapsody, with some provocative findings. Blockbusters are capturing even more of the market than they used to, which Elberse attributes to humans' social nature and desire to share experiences. Consumers in the tail tend to be heavier users in the category but actually don't like niche products as much as they like the hit products. Elberse concluded that consumer behavior online and offline in the media and entertainment industries was highly similar and favored hit products in both cases. She notes that niche products at the tail end of a distribution can have value, but keeping costs low is critical. The debate over the importance of the long tail is likely to continue; perhaps the answer is that it is not so much either/or, but how hit and niche products can best be created and marketed. Sources: Chris Anderson, The Long Tail (New York: Hyperion, 2006); “Reading the Tail,” interview with Chris Anderson, Wired, July 8, 2006, p. 30; “Wag the Dog: What the Long Tail Will Do,” The Economist, July 8, 2006, p. 77; John Cassidy, “Going Long,” New Yorker, July 10, 2006; Erik Brynjolfsson, Yu “Jeffrey” Hu, and Michael D. Smith, “From Niches to Riches: Anatomy of a Long Tail,” MIT Sloan Management Review (Summer 2006), p. 67; Anita Elberse, “Should You Invest in the Long Tail,” Harvard Business Review, July-August 2008, pp. 88-96 (with online commentary); Lee Gomes, “Study Refutes Niche Theory Spawned by Web,” Wall Street Journal, July 2, 2008; Erick Schonfeld, “Poking Holes in the Long Tail Theory,” www. techcrunch. com, July 2, 2008; “Rethinking the Long Tail Theory: How to Define 'Hits' and 'Niches,'” Knowledge@Wharton, September 16, 2009. insightmarketing | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
290 PART 4 | Building S TRong B RAnd S Consumers increasingly value self-expression and the ability to capitalize on user-generated products (UGP) as much as user-generated content (UGC). 72 MINI Cooper's online “configurator” allows prospective buyers to virtu-ally select and try out many options for a new MINI. Coke's Freestyle vending machine allows users to choose from more than 100 Coke brands or custom flavors or to create their own. 73 Consumers can buy customized jeans, cowboy boots, and bicycles that cost thousands of dollars. 74 Peter Wagner started Wagner Custom Skis in Telluride, Colorado, in 2006. His company now makes about 1,000 snowboards and pairs of skis a year, with prices that start at $1,750. Each ski or snowboard is unique and precisely fitted to the preferences and riding style of its owner. Strategies like using NASA-like materials and making adjustments of thousands of an inch send a strong performance message, matched by the attractive aesthetic of the skis. 75 Services are also a natural setting to apply customized marketing; airlines, hotels, and rental car agencies are at-tempting to offer more individualized experiences. Even political candidates are embracing customized marketing. On Facebook, politicians can find an individual's preferences by observing the groups or causes he or she joins, and then, using Facebook's ad platform, the campaign team can test hundreds of ad messages designed to reflect the theme of these other interests. Hikers may get an environmentally themed message; members of particular religious groups may get a Christian-themed message. 76 Early pioneers in individual marketing Don Peppers and Martha Rogers outlined a four-step framework for what they called one-to-one marketing as follows:77 1. Identify your prospects and customers. Don't go after everyone. Build, maintain, and mine a rich customer database with information from all the channels and customer touch points. 2. Differentiate customers in terms of (1) their needs and (2) their value to your company. Spend propor-tionately more effort on the most valuable customers (MVCs). Apply activity-based costing and calculate customer lifetime value. Estimate net present value of all future profits from purchases, margin levels, and referrals, less customer-specific servicing costs. 3. Interact with individual customers to improve your knowledge about their individual needs and to build stronger relationships. Formulate customized offerings you can communicate in a personalized way. 4. Customize products, services, and messages to each customer. Facilitate customer interaction through the company contact center and Web site. One-to-one marketing is not for every company. It works best for firms that normally collect a great deal of individual customer information and carry a lot of products that can be cross-sold, need periodic replacement or upgrading, and offer high value. For others, the required investment in information collection, hardware, and software may exceed the payout. The cost of goods is raised beyond what the customer is willing to pay. Customers must know how to express their personal product preferences, however, or be given assistance to best customize a product. 78 Some customers don't know what they want until they see actual products, but they also cannot cancel the order after the company has started to work on it. The product may be hard to repair and have little resale value. In spite of this, customization has worked well for some products. legal and e Thi Cal i SSUe S Wi Th marke T Targe TS Marketers must target carefully to avoid consumer backlash. Some consumers resist being labeled. 79 Singles may reject single-serve food packaging if they don't want to be reminded they are eating alone. Elderly consumers who don't feel their age may not appreciate products that label them “old. ” Market targeting also can generate public controversy when marketers take unfair advantage of vulnerable groups (such as children) or disadvantaged groups (such as inner-city residents) or promote potentially harmful products. The cereal industry has been criticized through the years for marketing efforts directed toward children. Critics worry that high-powered appeals presented by lovable animated characters will overwhelm children's de-fenses and lead them to want sugared cereals or poorly balanced breakfasts. Toy marketers have been similarly criticized. A key area of concern for many consumer protection advocates is the millions of kids who are online, as discussed in “Marketing Memo: Protecting Kids Online. ” Not all attempts to target children, minorities, or other special segments draw criticism. Colgate-Palmolive's Colgate Junior toothpaste has special features designed to get children to brush longer and more often. Thus, the issue is not who is targeted, but how and for what purpose. Socially responsible marketing calls for targeting that serves not only the company's interests but also the interests of those targeted. This is the case many companies make in marketing to the nation's preschoolers. With nearly one in four youngsters under the age of five attending some kind of organized child care, they feel the potential market—in-cluding kids and parents—is too great to pass up. 80 So in addition to standards such as art easels, gerbil cages, | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 291 With the explosion of cell phones, tablets, software apps, and social networking sites, an important concern is protecting unknowing or unsuspecting children in an increasingly complex technological world. The 8-to-12 tween market today is highly mobile and happy to share locations via an app and communicate with others by phone, leading one trendspotting expert to characterize them as “So Lo Mo” (Social Local Mobile). Only one in five parents, however, uses basic content control features on smart phones, tablets, and game consoles. Thus, establishing ethical and legal boundaries in marketing to children online—and offline—continues to be a hot topic. The Children's Online Privacy Protection Act (COPPA) was designed to better control the online collection of personal information from children under 13. It became law in July 2000 and helped ensure that Web sites targeted to children could not inappropriately collect names, e-mail addresses, and other sensitive information. Updates to the law in 2010 reflect the rapid technological developments that allowed marketers to collect so much more information from kids. COPPA spells out “what a Web site operator must include in a privacy policy, when and how to seek verifiable consent from a parent and what responsibilities an operator has to protect children's privacy and safety online. ” The act forbids the collection of certain information about children unless a parent first gives permission. That information includes photos, videos, and audio files containing a human image or voice, as well as location data generated by a cell phone. “Personal identifiers” that allow a person to be tracked over time and across Web sites were deemed personal infor-mation and covered by the law. The updated law also outlined how parental consent could be verified through electronically scanned consent forms, video conferencing, and e-mail. Some software developers were opposed to the amended COPPA, complaining that the cost of compliance and the risk of violations were too great. Penalties can be stiff. In 2008, Sony BMG Music Entertainment agreed to pay $1 million as part of a settlement with the FTC after being charged with improp-erly collecting information from 30,000 children under 13 on its Web sites. Mrs. Fields Cookies and Hershey Foods were fined early on. Despite the restrictions of COPPA and other regulations, businesses continue to eye the potentially rewarding youth market. e Bay has explored allowing consumers under 18 to set up accounts with parental authorization and shop, with some safeguards to prevent access to adult content and products. Facebook's stated interest in allowing children 12 and under to join its site has met with criticism from consumer, privacy, and child advocacy groups. Sources: Anton Troianovski, “New Rules on Kids' Web Ads,” Wall Street Journal, August 1, 2012; www. ftc. gov/ogc/coppa1. htm; “How to Comply with the Children's Online Privacy Protection Rule, www. business. ftc. gov/documents/; Richard Lardner, “Government Issues New Online Child Privacy Rules,” www. news. terra. com, December 19, 2012; Greg Bensinger, “EBay to Target Under-18 Set,” Wall Street Journal, July 26, 2012; Tim Peterson, “Tweenage Wasteland,” Adweek, June 25, 2012, p. 11; Sharon M. Goldman, “The Social Tween,” Adweek, June 25, 2012, p. T1; Heather Chaet, “The Tween Machine,” Adweek, June 25, 2012; Bruce Levinson, “Does Technology Change the Ethics of Marketing to Children,” Fast Company, April 11, 2013. Protecting Kids Online marketing memo 3. Business marketers use all these variables along with operating variables, purchasing approaches, and situ-ational factors. 4. To be useful, market segments must be measurable, substantial, accessible, differentiable, and actionable. 5. We can target markets at four main levels: mass, multi-ple segments, single (or niche) segment, and individuals. Summary 1. Target marketing includes three activities: market seg-mentation, market targeting, and market positioning. Market segments are large, identifiable, distinct groups within a market. 2. The major segmentation variables for consumer mar-kets are geographic, demographic, psychographic, and behavioral. Marketers use them singly or in combination. and blocks, the nation's preschools are likely to have Care Bear worksheets, Pizza Hut reading programs, and Nickelodeon magazines. Teachers and parents are divided about the ethics of this increasingly heavy preschool marketing push. Some side with groups such as Campaign for a Commercial-Free Childhood, whose members feel preschoolers are in-credibly susceptible to advertising and that schools' endorsements of products make children believe the product is good for them—no matter what it is. Y et many preschools and day care centers operating on tight budgets welcome the free resources marketers offer. 81 | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
292 PART 4 | Building S TRong B RAnd S My Marketing Lab go to mymktlab. com to complete the problems marked with this icon as well as for additional assisted-graded writing questions. Marketing Discussion Marketing Segmentation Schemes Think of various product categories. In each segmenta-tion scheme, to which segment do you feel you belong? How would marketing be more or less effective for you de-pending on the segment? How would you contrast demo-graphic and behavioral segment schemes? Which one(s) do you think would be most effective for marketers trying to sell to you?Applications Marketing Debate Is Mass Marketing Dead? With marketers increasingly adopting more and more re-fined market segmentation schemes—fueled by the Internet and other customization efforts—some claim mass market-ing is dead. Others counter there will always be room for large brands employing marketing programs to target the mass market. Take a position: Mass marketing is dead versus Mass marketing is still a viable way to build a profitable brand. key player in reestablishing Hong Kong's economy after World War II. By the end of the 20th century, it had ac-quired numerous companies in hopes of implementing a “three-legged stool” strategy; the three legs represented a foothold in the United Kingdom, the United States, and Asia. HSBC continued to grow around the world for many years, and by the early 21st century, it was the second-largest bank in the world. HSBC has successfully grown its business under a single global brand and for years kept the tagline “The World's Local Bank. ” The aim was to link its huge inter-national size with the close relationships it nurtures in each of the countries in which it operates. Sir John Bond, HSBC's former chairman, said, “Our position as the Marketing Excellence >> HSBC HSBC, originally known as the Hong Kong and Shanghai Banking Corporation Limited, was established in 1865 to finance the growing trade between China and the United Kingdom. Over the years, the bank has pioneered many modern banking practices in different countries. For ex-ample, it was the first bank in Thailand and printed the country's first banknotes. During the early 20th century, HSBC issued significant loans to several national govern-ments, including China, which helped finance projects such as its railway development. The bank was also a 6. A mass market targeting approach is adopted only by the biggest companies. Many companies target mul-tiple segments defined in various ways such as vari-ous demographic groups who seek the same product benefit. 7. A niche is a more narrowly defined group. Globalization and the Internet have made niche marketing more fea-sible for many. 8. More companies now practice individual and mass cus-tomization. The future is likely to see more individual consumers take the initiative in designing products and brands. 9. Marketers must choose target markets in a socially re-sponsible manner at all times. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 293 trade in dollars, euros or renminbi, global markets are opening up to everyone. At HSBC we can connect your business to new opportunities on six continents—in more than 90 currencies. ” HSBC has traditionally focused much of its advertis-ing in airports but also sponsors more than 250 cultural and sporting events, with a special concentration on helping youth, growing education, and embracing com-munities. These sponsorships allow the company to learn from different people and cultures around the world. The bank has gained insight into how to target con-sumer niches with unique products and services. For example, it found a little-known product area growing at 125 percent a year: pet insurance. HSBC now distributes nationwide pet insurance to its depositors through its HSBC Insurance agency. In Malaysia, it offered a “smart card” and no-frills credit cards to the underserved student segment and targeted high-value customers with special “Premium Center” bank branches. Today, HSBC remains one of the largest banks in the world, with four global businesses: retail banking and wealth management, commercial banking, global banking and markets, and global private banking. It serves 60 million customers through 6,600 branches in 80 countries and earned $22. 6 billion in profit in 2013, with a brand value of $11. 4 billion, according to Interbrand/ Business Week global brand rankings. Questions 1. What were the risks and benefits of HSBC's position-ing itself as the “World's Local Bank”? 2. Evaluate HSBC's recent business and marketing shift. How do you think its current ad campaign and tagline, “HSBC helps you unlock the world's poten-tial,” resonate with its key consumers? Sources: Carrick Mollenkamp, “HSBC Stumbles in Bid to Become Global Deal Maker,” Wall Street Journal, October 5, 2006; Kate Nicholson, “HSBC Aims to Appear Global yet Approachable,” Campaign, December 2, 2005, p. 15; Deborah Orr, “New Ledger,” Forbes, March 1, 2004, pp. 72-73; “HSBC's Global Marketing Head Explains Review Decision,” Adweek, January 19, 2004; “Now Your Customers Can Afford to Take Fido to the Vet,” Bank Marketing, December 2003; Kenneth Hein, “HSBC Bank Rides the Coattails of Chatty Cabbies,” Brandweek, December 1, 2003, p. 30; Sir John Bond and Stephen Green, “HSBC Strategic Overview,” presentation to investors, November 27, 2003; “Lafferty Retail Banking Awards 2003,” Retail Banker International, November 27, 2003, pp. 4-5; “Ideas That Work,” Bank Marketing, November 2003; “HSBC Enters the Global Branding Big League,” Bank Marketing International, August 2003; Normandy Madden, “HSBC Rolls Out Post-SARS Effort,” Advertising Age, June 16, 2003, p. 12; Douglas Quenqua, “HSBC Dominates Ad Pages in New York Magazine Issue,” New York Times, October 20, 2008, pg. B. 6; Kimia M. Ansari, “A Different Point of View: HSBC. ” Unbound Edition, July 10, 2009; “The Evolution of “Your Point of View,” press release, October 20, 2008; Fortune, Global 500; Alex Brownsell, “HSBC's Chris Clark on a New Era for the Bank's Marketing,” Marketingmagazine. co. uk, May 31, 2012; “Best Global Brands 2012,” Interbrand; HSBC. com; 2013 HSBC Annual Report. world's local bank enables us to approach each country uniquely, blending local knowledge with a worldwide op-erating platform. ” HSBC launched one global campaign titled “Different Values,” which embraced this exact notion of understanding multiple viewpoints and different in-terpretations. Print ads showed the same picture three times with a different interpretation in each. For ex-ample, an old classic car appeared with the words freedom, status symbol, and polluter. Next to the pic-ture the copy read, “The more you look at the world, the more you realize that what one person values may be different from the next. ” In another set of print ads, the word accomplishment is first shown on a picture of a woman winning a beauty pageant, then an as-tronaut walking on the moon, and a young child tying his sneaker. The copy read, “The more you look at the world, the more you realize what really matters to peo-ple. ” Tracy Britton, head of marketing for HSBC Bank, USA, explained the strategy behind the campaign: “It encapsulates our global outlook that acknowledges and respects that people value things in very different ways. HSBC's global footprint gives us the insight and the opportunity not only to be comfortable, but con-fident in helping people with different values achieve what's really important to them. ” HSBC revised its business strategy in 2011, con-solidating in underperforming markets and investing in growth markets and businesses. As a result, it made a strategic shift in its branding efforts, moving away from the familiar “World's Local Bank” message and introduc-ing “HSBC helps you unlock the world's potential. ” HSBC hoped to communicate how it connects local businesses to the world economy and, ultimately, how it focuses on the business elements that affect the world of the future. Chris Clark, HSBC's marketing director, explained that the new ads and campaign “are symptomatic of a shift from pure brand-led advertising to a more product-driven approach. ” In one television ad, a young girl and her father set up a lemonade stand advertising lemonade for 50 cents. As customers passing by scramble to find a few quarters, the girl explains (in a different language) that she accepts other global currencies, including Hong Kong dollars and Brazilian reals. The voiceover says, “At HSBC we believe that in the future even the smallest business will be mul-tinational. ” The ads were meant to make consumers feel reassured about banking with HSBC. In a corresponding print ad, a lemonade stand sign displayed the cost of a glass as 50 ¢, €0. 4, and ¥3. The copy read, “Whether you | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
294 PART 4 | Building S TRong B RAnd S less about the bragging rights of the BMW brand and instead desired a variety of design, size, price, and style choices. As a result, the company took several steps to grow its product line by targeting specific market seg-ments. This resulted in unique premium-priced cars such as SUVs, convertibles, and roadsters, as well as less expensive compact cars like the 1 Series. In addition, BMW redesigned its 3, 5, and 7 Series cars, making them unique in appearance yet maintaining their exceptional performance. BMW's full range of cars now includes the 1 Series, 3 Series, 5 Series, 6 Series, 7 Series, X Series, Z4 Roadster, M Series, Hybrids, and BMWi. BMW created the lower-priced 1 Series and X1 SUV to target the “modern mainstream,” a group who are also family-focused and active but had previously avoided BMWs because of their premium cost. The 1 Series reached this group with its lower price point, sporty de-sign, and luxury brand. The X1 and X3 also hit home with a smaller, less expensive SUV design. The redesign of the 7 Series, BMW's most luxuri-ous car, targeted a group called “upper conservatives. ” These wealthy, traditional consumers don't usually like sportier cars, so BMW added electronic components such as multiple options to control the windows, seats, airflow, and lights, a push-button ignition, and night vi-sion, all controlled by a point-and-click system called i Drive. These enhancements added comfort and luxury, attracting drivers away from competitors like Jaguar and Mercedes. BMW successfully launched the X Series by targeting “upper liberals” who had achieved success in the 1990s and gone on to have children and take up extracurricular activities such as biking, golf, and skiing. These consum-ers needed a bigger car for their active lifestyles and growing families, so BMW created a high-performance luxury SUV. BMW refers to its SUVs as sport activity vehicles in order to appeal even more to these active consumers. BMW introduced convertibles and roadsters to target “post-moderns,” a high-income group that continues to attract attention with more showy, flamboyant cars. Marketing Excellence >> BMW BMW is the ultimate driving machine. Manufactured by the German company Bayerische Motoren Werke AG, BMW stands for both performance and luxury. The com-pany was founded in 1916 as an aircraft-engine manu-facturer and produced engines during World Wars I and II. It evolved into a motorcycle and automobile maker by the mid-20th century, and today it is an internationally respected company and brand with $106 billion in sales in 2012. * BMW's logo is one of the most distinctive and glob-ally recognized symbols ever created. The signature BMW roundel looks like a spinning propeller blade set against a blue sky background—originally thought to be a tribute to the company's founding days as an aircraft-engine manufacturer. Recently, however, a New York Times reporter revealed that the logo, which fea-tures the letters BMW at the top of the outer ring and a blue-and-white checkered design in the inner ring, was trademarked in 1917 and meant to show the col-ors of the Free State of Bavaria, where the company is headquartered. BMW's growth exploded in the 1980s and 1990s, when it successfully targeted the growing market of baby boomers and professional yuppies who put work first and wanted a car that spoke of their success. BMW gave them sporty sedans with exceptional performance and a brand that stood for prestige and achievement. The cars, which came in a 3, 5, or 7 Series, were basi-cally the same design in three sizes. It was at this time that yuppies made Beemer and Bimmer the slang terms for BMW's cars and motorcycles, popular names still used today. At the turn of the century, consumers' attitudes to-ward cars changed. Research showed that they cared *BMW Group includes BMW, MINI, and Rolls-Royce brands. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
iden Tifying M ARke T Seg Men TS And T ARge TS | chapter 9 295 Questions 1. How does BMW segment its consumers? Why does this work for BMW? 2. What does BMW do well to market to each seg-ment group? Where could it improve its marketing strategy? 3. Should BMW ever change its tagline, “The Ultimate Driving Machine”? Why or why not? Sources: Mark Clothier, “Mercedes Outlasts BMW's Late Surge to Capture U. S. Luxury Crown,” www. bloomberg. com, January 4, 2014; Stephen Williams, “BMW Roundel: Not Born from Planes,” New York Times, January 7, 2010; Gail Edmondson, “BMW: Crashing the Compact Market,” Business Week, June 28, 2004; Neil Boudette, “BMW's Push to Broaden Line Hits Some Bumps in the Road,” Wall Street Journal, January 10, 2005; Boston Chapter BMW Club Car of America, http://boston-bmwcca. org; Rupal Parekh, “BMW Changes Gears with New Campaign from KBS&P,” Advertising Age, January 6, 2012; BMW. com; BMWgroup. com; BMW 2013 Annual Report, Company History. BMW's 6 Series, a flashier version of the high-end 7 Series, also targeted this group. BMW uses a wide range of advertising tactics to reach each of its target markets. However, the com-pany's U. S. tagline, “The Ultimate Driving Machine,” has remained consistent since it first launched there in 1974. During that time, sales have grown to more than 300,000 units in the United States in 2013. In recent years, BMW has returned to emphasizing performance over status, stating, “We only make one thing, the ultimate driving machine. ” BMW owners are very loyal to the brand, and enthu-siasts host an annual Bimmerfest each year to celebrate their cars. The company nurtures these loyal consumers and continues to research, innovate, and reach out to specific segment groups year after year. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
296 In This Chapter, We Will Address the Following Questions 1. How can a firm develop and establish an effective positioning in the market? (p. 297) 2. How do marketers identify and analyze competition? (p. 298) 3. How are brands successfully differentiated? (p. 300) 4. How do firms communicate their positioning? (p. 308) 5. What are some alternative approaches to positioning? (p. 313) 6. What are the differences in positioning and branding for a small business? (p. 314)Direc TV has established a unique position in the marketplace as the world's leading provider of digital television entertainment services. Source: Courtesy of DIRECTV My Marketing Lab™ Improve Y our Grade! Over 10 million students improved their results using the Pearson My Labs. Visit mymktlab. com for simulations, tutorials, and end-of-chapter problems. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
297 As the success of Direc TV demonstrates, a company can reap the benefits of carving out a unique position in the market-place. Creating a compelling, well-differentiated brand position requires a keen understanding of consumer needs and wants, company capabilities, and competitive actions. It also requires disciplined but creative thinking. In this chapter, we outline a process by which marketers can uncover the most powerful brand positioning. No company can win if its products and services resemble every other product and offering. As part of the strategic brand management process, each offering must represent the right kinds of things in the minds of the target market. Consider how Direc TV has positioned itself. 1Crafting the Brand Positioning10 Launched a little more than two decades ago, Direc TV now has more than 32 million subscribers in the United States and Latin America. The direct-broadcast satellite service provider faces competition on a number of fronts: from classic cable companies (Comcast and Time Warner Cable), from other direct broadcast satellite service providers (Dish), and from alternate ways to watch television digitally through downloads and streaming (Hulu, Netflix, and Amazon). The world's leading provider of digital television entertainment services, Direc TV carries the slogan “Don't Just Watch TV, Direc TV,” reflecting the unique po-sitioning it has crafted thanks to a combination of features not easily matched by any competitor. Three pillars of that positioning are captured by its claims to “state-of-the-art technology, unmatched programming, and industry leading customer service. ” The company puts much emphasis on its comprehensive set of sports packages, its wide array of HD channels, and its broad broadcast platform that lets customers watch programming on their TVs at home and on their laptops, tablets, and cell phones. With its Genie service, users can record as many as five shows at once. In exaggerated fashion, its “Get Rid of Cable” TV ad campaign shows how customers who get mad at cable have their lives turn for the worse through a series of unfortunate events. Direc TV has made a strategic targeting shift to focus on “high quality” subscrib-ers: loyal customers who purchase premium services, pay their bills on time, and call less often to complain. Developing a Brand Positioning All marketing strategy is built on segmentation, targeting, and positioning (STP). A company discovers differ-ent needs and groups of consumers in the marketplace, targets those it can satisfy in a superior way, and then positions its offerings so the target market recognizes its distinctive offerings and images. By building customer advantages, companies can deliver high customer value and satisfaction, which lead to high repeat purchases and ultimately to high company profitability. Understand In G Pos It Ion In G and Val Ue Pro Pos It Ions Positioning is the act of designing a company's offering and image to occupy a distinctive place in the minds of the target market. 2 The goal is to locate the brand in the minds of consumers to maximize the potential benefit to the firm. A good brand positioning helps guide marketing strategy by clarifying the brand's essence, identifying the goals it helps the consumer achieve, and showing how it does so in a unique way. Everyone in the organiza-tion should understand the brand positioning and use it as context for making decisions. | Keller Kevin Lane_ Kotler Philip - Marketing management-Pearson Education 2016 1.pdf |
Subsets and Splits