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Who Are Customers, and Why Do They Matter?
Marketing exists to help organizations understand, reach, and deliver value to their customers. For this reason, the customer is considered the cornerstone of marketing.
With this in mind, what is likely to happen when an organization doesn’t understand or pay attention to what its customers want? What if an organization doesn’t even really understand who its customers are?
One of the world’s best-known brands, Coca-Cola, provides a high-profile example of misunderstanding customer “wants.” In the following video, Roberto Goizueta—in his only on-camera interview on this topic—recounts the disastrous launch of New Coke in 1985 and describes the lessons the company learned. Goizueta was chairman, director, and chief executive officer of the Coca-Cola Company from August 1980 until his death in October 1997.
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “All About New Coke” here (opens in new window) or the text alternative for “All About New Coke” (opens in new window).
Focus on Customers: The “Marketing Orientation”
The purpose of marketing is to gain a balance between creating more value for customers against making profits for the organization. To achieve this, many firms have adopted a marketing philosophy or what is generally termed a “marketing orientation.”
A marketing orientation can be defined as focusing the organization on identifying and understanding the customers’ preferences in terms of needs and wants and delivering them more effectively and efficiently than their competitors.
Prior to the adoption of a marketing orientation, many organizations followed what was referred to as the “production philosophy.” This approach focused on improving the efficiency of production and distribution in order to reduce costs and deliver more affordable products—both were considered the source of competitive advantage.
Another philosophy that has been followed historically is the “selling concept.” This approach required organizations to aggressively focus on selling and promotion efforts as a way to stimulate demand and drive sales.
A marketing-driven approach, or marketing orientation, has consistently delivered superior results over these other philosophies. Adopting a marketing orientation is now widely accepted as delivering greater levels of customer satisfaction, profitability, and sustainability.
As an example, Toyota, with its strategy of manufacturing cars for different segments of populations around the world, maintains a balance between customer value and profitability. With the marketing philosophy in mind, it has replaced its original goal of 10% of the world’s market share with being “Number one in customer satisfaction,” as it believes its market share will follow the satisfaction it delivers to its customers.[1]
The Problem of Misplaced Focus
Both historically and currently, many businesses do not follow the marketing orientation. In the past, companies such as Texas Instruments and Otis Elevator followed a production orientation, maintaining a primary focus on technology, innovation, and low production and distribution costs. Such companies assume that a technically superior or less expensive product sells itself. While this may be true in some cases, over time this approach leaves businesses particularly vulnerable to competitors who outpace them technologically or undercut their pricing. Without a sufficient focus on the customer’s needs and preferences, businesses can lose sight of what matters most in the exchange process.
Other companies, such as Amway, treat sales and marketing as essentially the same thing. This sales orientation assumes that a good salesperson has the capability to generate demand and sell anything regardless of the customer’s needs and the value provided in the exchange process. Often, this focus on selling and the promotion process effectively ignores the customer or views the customer as someone to be manipulated. Organizations with this orientation become vulnerable to competitors that do a better job of understanding and catering to what customers actually want.
Staying Close to the Customer
Insightful businesses acknowledge the importance of production and sales but realize that the following three-step process is most effective:
1. Continuously collect information about customers’ needs and competitors’ capabilities
2. Share the information across departments, including production and sales
3. Use the information to create a competitive advantage by increasing value for customers
Thanks to the Internet and other technological advances, today’s consumers have access to far more and far better information than ever before. They also have many more choices. To succeed in this environment, businesses must provide comparable levels of information to competitors, and they must deal with new competitors that are quicker, smarter, and open 24-7-365.
Organizations that employ marketing correctly know that keeping customers informed is easier if they maintain constant contact with the customer. This does not necessarily mean that they write or call regularly, although it could. Rather, it means a marketing organization knows a great deal about the characteristics, values, interests, and behaviors of its customers. It monitors how these factors change over time. It provides channels of information and communication to meet customers where they are and be accessible at any moment. Although the customer-oriented marketing process is not an exact science, there is sufficient evidence that marketers who do this well tend to succeed.
A prime guideline for marketing success is to establish customer satisfaction as a company’s number-one priority. This forces an organization to measure and pay attention to customers’ experiences purchasing and using its products. The drive to improve customer satisfaction typically results in improvements to products, processes, and relationship building. This approach helps organizations develop a marketing mentality that facilitates information gathering and maintains effective communication with the customers who are critical to growth, profitability, and success.
GLOSSARY
customer: a person or organization who pays to consume a product or service; the customer has needs/wants that the business seeks to address
exchange process: the act of obtaining a desired object from someone by offering something of value in return
marketing orientation: an approach focused on identifying and understanding the customer’s needs and wants and addressing them more effectively/efficiently than one’s competitors
production orientation: an approach focused primarily on technology, innovation, and low production and distribution costs
sales orientation: an approach focused on selling a product and using promotion techniques to attain the highest sales possible, regardless of what a customer wants
1. Kotler, P., Brown, L., Adam, S., Burton, S., Armstrong, G 2008, 'Marketing', Pearson, Australia. ↵
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• Focus on Customers: The Marketing Orientation. Provided by: State of New South Wales through NSW Department of Industry. Located at: toolkit.smallbiz.nsw.gov.au/part/1/1/1. License: Other. License Terms: You may copy, distribute, display, download and otherwise freely deal with the material for any non-commercial purpose, on the condition that you include the copyright notice u00a9 State of New South Wales through NSW Department of Industry on all uses.
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• All About New Coke. Provided by: EnterpriseMediaVideo. Located at: https://youtu.be/BmQs8g9ytRA. License: All Rights Reserved. License Terms: Standard YouTube license
2.25: Self Check- Importance of Customer
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/731
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• Self Check: Importance of Customer. Provided by: Lumen Learning. License: CC BY: Attribution
2.26: Outcome- Segmentation and Targeting Introduction
What you’ll learn to do: briefly explain the concepts of segmentation and targeting
We have established that the customer is at the center of marketing and arguably of business, as well. How do businesses find and communicate with customers?
Let’s think about a couple of realities in the business world. First, every organization has limited resources. Organizations simply cannot do everything and be all things to all people. They have to prioritize and choose. Second, marketing is always most effective when it’s relevant to the potential customer. How can an organization create the right products, services, messages and experiences for a potential customer? Answer: through segmentation and targeting.
The starting point for understanding your potential customer is figuring out exactly whom you want to reach. That process is called segmentation. The next step is focusing on those customer segments that are most promising customers. That’s where targeting comes in. Targeting helps organizations use their resources wisely and customize what they do much more specifically for those who will see the greatest value from their offering.
Learning Activities
The learning activities for this section include the following:
• Reading: Defining Your Target Market
• Self Check: Segmentation and Targeting Introduction
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• Outcome: Segmentation and Targeting Introduction. Provided by: Lumen Learning. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/02%3A_Marketing_Function/2.24%3A_Reading-_Why_Customers_Matter.txt |
Whom Are You Trying to Reach?
Suppose you are selling automotive detailing products. Is your target “anyone with money to pay for your product?” Or are you focusing your efforts on a tightly defined market niche of people with an identified need for what you are selling? “Anyone with money” is such a broad audience that it’s difficult to make any impact at all with your marketing efforts or convince very many people that they need your product. If you narrow and carefully define your target market, though, your efforts will be more fruitful because they’re focused on people with a preexisting need or interest in what you offer.
Step 1: Identify the Business Need You Address
To define your total market, start by stating the needs you will fulfill: Who are your products or services intended for? Who do you want to do business with? What is unique about your product? If you’re selling products used in automotive detailing, your total market consists of vehicle owners—that is, all the people who could potentially buy your product. Your business will help them keep their vehicles clean and shiny.
Step 2: Segment Your Total Market
Next, break down this large market into smaller sections, using a process known as segmentation. You can use a variety of approaches to segment your total market into groups with common wants or needs. In this case, we can segment by vehicle ownership and related behavior. Specific segments might include the following:
• People who restore classic automobiles
• People who drive old clunkers and run them through the car wash occasionally
• People who own “status” cars
• Truck drivers
• Motorcycle owners
Which of these subgroups are likely to be your most productive market niche(s)? You recognize that auto owners who don’t care about keeping their cars clean and shiny probably won’t be very interested in your products. Then there are those who care, but they lack the time and interest to do the work themselves. They take their vehicle to a shop. Others only worry about auto detailing only when it’s time for a trade-in.
You reject these segments as unsuitable for your niche market because they probably don’t care enough about what you offer. After further consideration and research, you decide that your market segment will be automobile owners who have both the time and the interest to do their own detailing work—people who enjoy puttering with their vehicles, who have the time to spend, and who take pride in their vehicle’s appearance.
You need to conduct research to confirm that there are enough potential customers in that group to support your business. You should also do competitive analysis to confirm that what you are offering is not readily available to them elsewhere. With this validation, you move to step three.
Step 3: Profile Your Target Customer Segment(s)
Next, develop profiles of your target customer(s) to get a true picture of the people you’re trying to serve. Describe these potential customers as fully as you can. Who will actually buy your product? What do you know about them? Where are they situated geographically? How much do they spend on car detailing? What are they likely to spend on your products? Where do they shop? What is their annual income? What languages do they speak? What kinds of automobiles do they drive? If you are selling online, what methods do they prefer for online payment? What type of Web sites do they visit? How do they want their product delivered?
Identify your customer profile before you conduct market planning, so that your planning is a good fit for your customers’ behavior, interests, and needs.
Step 4: Research and Validate Your Market Opportunity
Now that you have fully identified your target market, conduct research to verify that there will be enough business in this group to support your company in its growth. This process confirms that the need actually exists and that it’s not just wishful thinking on your part.
Use both primary and secondary sources in your research. You might consult business directories, obtain statistics regarding automobile owners and their car-care practices, or locate newspaper articles and magazine stories written on the subject. You can also conduct your own market research using techniques such as surveys, focus groups, interviews, and so forth.
Your research should also determine the size of the market opportunity in terms of revenue as well as your potential market share.
You can use primary and secondary sources to find out how many potential customers there are in the geographic area you have defined and how many businesses are directly or indirectly competing with you. Your market share will be the number of customers likely to buy from you rather than from your competition.
Having defined and validated your target market, you are now better positioned to develop a marketing plan that will reach your potential customers. Perhaps your sales will take off right away—a great problem to have!
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2.28: Self Check- Segmentation and Targeting Introduction
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/732
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• Self Check: Segmentation and Targeting Introduction. Provided by: Lumen Learning. License: CC BY: Attribution
2.29: Outcome- Communicating the Value Proposition
What you’ll be able to do: define and communicate an organization’s value proposition in a competitive marketplace
Once you know your target market, you must have a compelling way to communicate your value proposition. This requires the marketer to answer a number of questions:
• What is value? Each customer will weigh the benefits and the costs of an offering differently and determine whether it is providing value. It is important to understand how customers perceive value.
• What is the value this offering provides to the target customer? You hope that you have selected target customers that view the value that you provide favorably, but the marketer has to test and refine the assumption that the offering is actually providing value to the target customer.
• How is the value provided different from the value that competitors provide? Each time a competitor shifts its offering(s), that change will have an impact on the perceived value of your offering. In a competitive marketplace, it becomes important to understand and react to changes, but also to identify the value that you provide that is most difficult for others to copy.
• How are you communicating the promise of value to target customers? With so many marketing channels and messages all around, customers have a very short attention span. The marketer has to grab that attention and communicate value to customers in only a few seconds.
Learning Activities
The learning activities for this section include the following:
• Reading: Value for the Customer
• Reading: Communicating the Value Proposition
• Self Check: Communicating the Value Proposition
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• Outcome: Communicating the Value Proposition. Provided by: Lumen Learning. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/02%3A_Marketing_Function/2.27%3A_Reading-_Defining_Your_Target_Market.txt |
What Is Value?
Earlier in this module we discussed that marketing exists to help organizations understand, reach, and deliver value to their customers. In it’s simplest form, value is the measure of the benefit gained from a product or service relative to the full cost of the item.
Value = benefit – cost
In the process of the marketing exchange, value must be created. Let’s look at the simplest example: If you and I decide to give each other a \$5 bill at the same moment, is value created? I hand my \$5 bill to you, and you hand yours to me. It is hard to say that either of us receives a benefit greater than the \$5 bill we just received. There is no value in the exchange.
Now, imagine that you are passing by a machine that dispenses bus tickets. The machine is malfunctioning and will only accept \$1 bills. The bus is about to arrive and a man in front of the machine asks if you would be willing to give him four \$1 bills in exchange for a \$5 bill. You could, of course, decide to make change for him (and give him five \$1 bills), but let’s say you agree to his proposal. In that moment a \$1 bill is worth \$1.25 to him. How does that make sense in the value equation? From his perspective, the ability to use the bus ticket dispenser in that moment adds value in the transaction.
This is where value becomes tricky for marketers. Value is not simply a question of the financial costs and financial benefits. It includes perceptions of benefit that are different for every person. The marketer has to understand what is of greatest value to the target customer, and then use that information to develop a total offering that creates value.
Value Is More Than Price
You will notice that we did not express value as value = benefit – price. Price plays an important role in defining value, but it’s not the only consideration. Let’s look at a few typical examples:
• Example One: Two products have exactly the same ingredients, but a customer selects the higher-priced product because of the name brand. For the marketer, this means that the brand is adding valuein the transaction.
• Example Two: A customer shopping online selects a product but abandons the order before paying because there are too many steps in the purchase process. The inconvenience of filling in many forms, or concerns about providing personal information, can add cost (which will subtract from the value the customer perceives).
• Example Three: An individual who is interested in a political cause commits to attending a meeting, but cancels when he realizes that he doesn’t know anyone attending and that the meeting is on the other side of town. For this person, the benefit of attending and participating is lower because of costs related to personal connection and convenience.
As you can begin to imagine, the process of determining the value of an offering and then aligning it with the wants and needs of a target customer is challenging, indeed. Throughout this course, though, you will gain a deeper understanding of the tools and processes that marketers use to do it effectively.
Value in a Competitive Marketplace
As if understanding individual perceptions of value weren’t difficult enough, the presence of competitors further complicates perceptions of value. Customers instinctively make choices between competitive offerings based on perceived value.
Imagine that you are traveling to Seattle, Washington, with a group of six friends for a school event. You have the option to stay at a Marriott Courtyard Hotel that is located next to the event venue for \$95 per night. If you pay the “additional person fee,” you could share the room with one friend for a cost of \$50 per night. However, one of your friends finds an AirBnB listing for an entire apartment that sleeps six people. Cost: \$280 per night. That takes the price down to \$40 per night, but the apartment is five miles away from the venue and, since there are seven of you, you would likely be sleeping on a couch or fighting for a bed. It has a more personal feel and a kitchen, but you will really be staying in someone else’s place with your friends. It’s an interesting dilemma. Regardless of which option you would really choose, consider the differences in the value of each and how the presence of both options generates unavoidable comparisons: the introduction of the AirBnb alternative has the effect of highlighting new shortcomings and benefits of the Marriott Courtyard hotel room.
Alternatives generally fall into two categories: competitors and substitutes. A competitor is providing the same offering but is accentuating different features and benefits. If, say, you are evaluating a Marriott Courtyard hotel room vs. a Hilton Hampton Inn hotel room, then you are looking at competitive offerings. Both offerings are hotel rooms provided by different companies. The service includes different features, and the price and location vary, the sum of which creates different perceptions of value for customers.
AirBnb is a service that allows individuals to rent out their homes, apartments, or a single room. AirBnb does not offer hotel rooms; it offers an alternative to, or substitute for, a hotel room. Substitute offerings are viewed by the user as alternatives. The substitution is not a perfect replication of the offering, which means that it will provide different value to customers.
Competitors and substitutes force the marketer to identify the aspects of the offering that provide unique value vis-à-vis the alternatives. We refer to this as differentiation. Differentiation is simply the process of identifying and optimizing the elements of an offering that provide unique value to customers. Sometimes organizations refer to this process as competitive differentiation, since it is very focused on optimizing value in the context of the competitive landscape.
Finally, organizations seek to create an advantage in the marketplace whereby an organization’s offerings provide greater value because of a unique strategy, asset, or approach that the firm uses that other cannot easily copy. This is a competitive advantage. The American Marketing Association defines competitive advantage as “as total offer, vis-à-vis relevant competition, that is more attractive to customers. It exists when the competencies of a firm permit the firm to outperform its competitors.” When a company can create greater value for customers than its competitors, it has a competitive advantage.
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Segmentation Success: A Dating Web Site for Women
When it was launched in 2000, eHarmony quickly made its mark as a new brand and new category in the online dating landscape: a dating site for the serious relationship seeker, particularly women. By focusing on women as its target segment, eHarmony made wise, profitable choices about its product and user experience to address this group’s unique needs.
eHarmony entered an online market dominated by two well-established brands, Match.com and Yahoo, and it seemed to violate all the standard practices and conventional wisdom of the industry at the time. Unlike other dating sites, eHarmony decided not to allow users to search and browse their Web site for potential mates. Instead, it requires participants to complete an exhaustive questionnaire before they can receive any information about prospective suitors.
This process creates a much better user experience for eHarmony’s target demographic in a couple ways. First, women don’t feel like they are being judged solely on their looks. They perceive that they are being matched according to a complex array of compatibility criteria—not just superficial markers like age or income. Second, the entire eHarmony process is very time-consuming. It takes at least forty minutes to fill out the initial questionnaire, and users must court their potential mates through a series of essay questions and then write reviews of any contenders. By making the process so time-consuming, eHarmony has the natural effect of weeding out non-serious users and helping women to feel less vulnerable. This makes the product much better for the serious female relationship seeker who doesn’t want to waste time on or take a chance with casual dating.
In the following eHarmony ad, notice how the company differentiates itself from competitors:
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “Free Personality Profile” here (opens in new window).
The result of creating a product suited to women seeking marriage or long-term relationships has had two huge financial benefits for eHarmony. First, they can charge much more and enjoy much better margins than competitors. Because the customer perceives more value in being matched with a “soul mate” than in just being helped to “find a date,” eHarmony is able to charge more than other dating sites (\$50 per month versus \$20 per month). Second, eHarmony is able to generate revenue from women users much more effectively than other dating sites (many of which make most of their money on men): almost 60% of eHarmony’s paying users are women.
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• Revision and Adaptation. Provided by: Lumen Learning. License: CC BY-SA: Attribution-ShareAlike
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• Measuring a Successful Segmentation, from Marketing 2014. Provided by: Boundless. Located at: courses.lumenlearning.com/boundless-marketing/. License: CC BY-SA: Attribution-ShareAlike
• American Bullfrog on a Lily Pad. Authored by: Katja Schulz. Located at: www.flickr.com/photos/treegrow/7915817762/. License: CC BY: Attribution
All rights reserved content
• Free Personality Profile. Provided by: eHarmony. Located at: youtu.be/YbkFzwkog7I?list=PLB7FC4A6E53A96C88. License: All Rights Reserved. License Terms: Standard YouTube license
3.02: Self Check- Segmentation Decisions
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
assessments.lumenlearning.com/assessments/740
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• Self Check: Segmentation Decisions. Provided by: Lumen Learning. License: CC BY: Attribution
3.03: Outcome- Targeting and Marketing Mix
What you’ll learn to do: explain how targeting influences each element of the marketing mix
Segmentation helps you decide who your target customers are, while targeting helps you zero in on the best method for reaching them. Your targeting strategy helps you set priorities for making an impact on your target segments and on the market as a whole. As you’ll see in this section, your targeting strategy also helps you determine which combination of product, promotion, place, and price—i.e., which marketing mix—will best fit the segments you are trying to capture.
Take a moment to watch the following video, which explains how the car company Toyota used segmentation and a new targeting strategy to improve a product (the first P of the marketing mix) and give it genuine family appeal.
A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/pom2/?p=174
Learning Activities
The learning activities for this section include the following:
• Reading: Targeting Strategies and the Marketing Mix
• Case Study: Red Bull Wins the “Extreme” Niche
• Simulation: Segmenting the Ice Cream Market
• Self Check: Targeting and Marketing Mix
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• Outcome: Targeting and Marketing Mix. Provided by: Lumen Learning. License: CC BY: Attribution
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• Toyota Appeals to Kids. Provided by: BBC. Located at: youtu.be/zUjsfqDZnO8. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/03%3A_Segmentation_and_Targeting/3.01%3A_Case_Study-_eHarmony_Targets_Women.txt |
Using the Marketing Mix to Reach Target Segments
Once target segments are identified, the marketing manager selects a targeting strategy that will be the best fit for reaching them. Targeted marketing enables the marketing and sales teams to customize their message to the targeted group(s) of consumers in a focused manner. The targeting strategy is where the marketing mix comes together to create the right offer and marketing approach for each target segment. A summary of common targeting strategies is provided in the table below.
Common Target Strategies
Strategy Target Market Example
Mass marketing Everybody everywhere Target
Differentiated marketing Large groups within the total market Costco, Sam’s Club
Niche marketing High penetration within smaller, specialized segments Trader Joe’s, Whole Foods
Micromarketing Individual customers or localized microsegments Groupon
Mass Marketing
Mass marketing, also called undifferentiated marketing, involves marketing to the entire market the same way. Mass marketing effectively ignores segmentation and instead generates a single offer and marketing mix for everyone. The market is treated as a homogeneous aggregate. Mass marketing aims to reach the largest audience possible, and exposure to the product is maximized. In theory, this would directly correlate with a larger number of sales or buy-in to the product.
Mass marketing tries to spread a marketing message to anyone and everyone willing to listen. Communication tends to be less personal, as evidenced by common mass-marketing tactics: national television, radio and print advertising campaigns; nationally focused coupons; nationally focused point-of-purchase displays. The success of mass-marketing depends on whether it is possible to reach enough people, through mass-communication techniques and one universal product offer, to keep them interested in the product and make the strategy worthwhile. While mass-marketing tactics tend to be costly because they operate on a large scale, this approach yields efficiencies and cost savings for companies because it requires the marketing team to execute only one product offer and marketing mix.
All-purpose toothpaste isn’t targeted to one particular market segment.
For certain types of widely consumed items (e.g., gasoline, soft drinks, white bread), the undifferentiated market approach makes the most sense. For example, toothpaste (such as the brands Crest and Colgate) isn’t made specially for one consumer segment, and it is sold in huge quantities. The manufacturer’s goal is to get more people to select and buy their particular brand over another when they come to the point of purchase. Walk through any supermarket, and you will observe hundreds of grocery products, especially generic items, that are perceived as nearly identical by the consumer and are treated as such by the producer. Many mass-marketed items are considered staple or “commodity” items. People buy new ones when the old ones wear out or are used up, and mass-marketed brand loyalty might be the primary driver when they decide which replacement product to purchase.
Differentiated Marketing
A differentiated marketing strategy is one in which the company decides to provide separate offerings to each different market segment that it targets. It is also called multisegment marketing. Each segment is targeted in a particular way, as the company provides unique benefits to different segments. The goal is to help the company increase sales and market share across each segment it targets. Proctor and Gamble, for example, segments some of its markets by gender, and it has separate product offerings and marketing plans for each: Secret-brand deodorant for women, and Rogaine (a treatment for hair loss) for men.[1]
When it is successful, differentiated marketing can create a very strong, entrenched market presence that is difficult for competitors to displace because of consumers’ strong affinity for products and offers that meet the unique needs of their segment. A differentiated strategy can be a smart approach for new companies that enter a market and lure customers away from established players to capture share in a large overall market. Often, established companies become vulnerable to new competitors because they don’t give sufficient attention to the perfect marketing mix for any given market segment.
However, differentiated marketing is also very expensive. It carries higher costs for the company because it requires the development of unique products to fit each target segment. Likewise, each unique product and market segment requires its own marketing plans and execution: unique messages, campaigns, and promotional tactics and investments. Costs can add up quickly, especially if you are targeting a lot of unique market segments.
Chinese Oreos
For a large company such as Kraft, the cost of this kind of marketing is well worth it, since its products are sold all over the world. An example of its differentiated marketing strategy are the many surprising variations of the famous Oreo cookie developed for the Chinese market. Consumers there can enjoy Oreos with cream flavors such as green-tea ice cream, raspberry-blueberry, mango-orange, and grape-peach. All of these Oreo formulations have been heavily market tested and are based on the unique preferences of Chinese consumers. [2]
Niche Marketing
Niche marketing (also called concentrated marketing) is a strategy that targets only one or a few very defined and specific segments of the consumer population. The goal is to achieve high penetration among the narrowly defined target segments. For example, the manufacturer of Rolex watches has chosen to concentrate on only the luxury segment of the watch market.
An organization that adopts a niche strategy gains an advantage by focusing all efforts on only one or a small handful of segments. All of their market analysis, product development, marketing strategy, and tactics concentrate on serving that select part of the market. When they do it well, this approach can provide a differential advantage over other organizations that don’t concentrate all their efforts on the “niche” segment(s). Niche targeting is particularly effective for small companies with limited resources, as it does not require the use of mass production, mass distribution, or mass advertising. When a company is highly successful in desirable “niche” market segments, it can be very profitable.
Ralph Lauren store, London
The primary disadvantage of niche marketing is that it makes companies vulnerable to demand in the narrow market segments they serve. As long as demand is robust, the organization’s financial position will be strong. But if something changes and demand drops off, the company has nothing to cushion it from financial hardship. Since the company has focused all efforts on one market (essentially putting all their eggs in one basket), the firm is always somewhat at risk. Such companies are especially vulnerable to small shifts in population or consumer tastes, which can greatly affect their position (for better or for worse). Large competitors with deeper pockets may choose to enter a market and use their size and resources to put smaller, niche players out of business. To insulate themselves from this type of risk, many companies pursing a niche strategy may target multiple segments.
Luxury-goods providers are a great illustration of the challenges of the niche marketing strategy. When economic recessions occur, luxury-goods providers like Rolex, Chanel, and Armani routinely struggle financially because their narrow segment of “luxury” consumers has less disposable income. When fickle consumer tastes shift from Ralph Lauren to Dolce & Gabanna to Prada (and back again), the company’s profitability can hang in the balance.
Micromarketing
Micromarketing is a targeting strategy that focuses even more narrowly than niche marketing. It caters to the needs of individuals (“individual marketing”) or very small segments in a targeted geography (“local marketing”). Micromarketing can be very powerful by giving consumers exactly what they want, when they want it. However, to achieve large-scale success with this approach, companies must figure out how to meet highly individualized needs efficiently and profitably.
Individual marketing is sometimes referred to as “mass customization” or “one-to-one marketing.” With this approach, companies offer consumers a product created to their individual specifications. For example, Build-A-Bear Workshop invites children to create their own custom stuffed animals. A child can select the type of animal, from teddy bear to unicorn, along with color, size, clothing, and other accessories. Creators of handmade goods on Etsy.com take orders from buyers who may request variations on the individually crafted jewelry, clothing, toys, and other items displayed on the Web site. In the following video, Etsty CEO, Chad Dickerson, explains what makes the company’s approach unique.
A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/pom2/?p=176
You can view the transcript for “Etsy Business” (opens in new window).
Achieving wide-scale success with individual marketing requires product providers to develop production strategies and an entire marketing mix that can ramp up as demand grows. Frequently this involves offering a baseline product with parameters customers can customize to fit their needs. For example, you can order custom M&M candies , selecting colors, packaging, and even custom-printed with words or images you select. The advent of digital print technologies has also made mass customization a viable targeting strategy for companies like Vistaprint and Sticker Mule. They provide custom print materials, stickers, decals and other printed products for businesses and individuals using designs created and uploaded by customers. Their primary messaging emphasizes custom products designed by and for individual customers, matching their unique needs and preferences.
Local marketing is a targeting strategy focused expressly on a small, clearly defined neighborhood or geographic area. Organizations using this technique strive to generate a strong local presence, and targets may include any person or organization within that small area.
A weekly produce share from Suzie’s Farm, a CSA in California
Groupon and Amazon Local are excellent examples of local marketing. Both online services partner with local businesses to promote timely offers and special pricing for individuals living in a designated geographic area. Limited-time and limited-quantity deals may include restaurant meals, spa treatments, performances, recreational activities, lessons, hotel accommodations, and a wide variety of other local area products and services. These local marketing companies earn revenue when consumers purchase and redeem the special offers in their neighborhood or city. Another example are farm cooperatives and CSAs (community-supported agriculture shares), which virtually always use a local marketing strategy. They market locally grown produce and farm-fresh goods to people residing in the immediate community, and their ongoing goal is to increase local supply and demand for healthy, local, farm-fresh food and produce.
Applying the Marketing Mix to Target Segments
With any of the strategies described above, the marketing team must come together to develop a marketing mix tailored to the needs of each segment being targeted. This marketing mix is the unique combination of product, promotion, place, and price designed expressly to fit a designated market segment.
Try It
This course will explore each element of the marketing mix in further detail in other modules. However, the following questions can help you start down the path toward shaping the marketing mix to fit your target segments.
Product
• What would make the ideal product for your target segment?
• What special features or capabilities are critical for this segment?
• What unique problems does your product help this segment solve?
Promotion
• What are the best ways to get your target segment’s attention?
• What do you want this segment to remember about your product?
Place / Distribution
• Where does this segment look or shop for your product?
• What is the best way to get your product to your target customers?
Price
• What price(s) are your target customers willing to pay for your product?
• How much is too expensive? How much is too cheap?
As you consider each of these questions, you generate ideas for altering the marketing mix to appeal to your target segment.
Example: Alumni Charitable Giving
Let’s see how this works in practice. A university alumni organization embarks on a fund-raising campaign to generate funding for the strategic expansion of new and existing university programs. The baseline “product” this organization sells is charitable giving: an affiliation with the university, a tax deductible charitable donation, and the honor of contributing to a worthy philanthropic cause.
For the coming year, the alumni organization decides to use a niche marketing strategy. Specifically, it will target alumni with significant upcoming reunions or years since graduation: 5 years, 10 years, 15 years, 20 years, 25 years, 30 years, and so forth. The organization chooses to tailor the marketing mix as follows:
• Product: The ideal product for these alumni isn’t just a generic philanthropic donation. Instead, it is a giving opportunity that reflects their significant anniversary. For this reason, the alumni organization introduces a new “product” or type of donation opportunity: a class legacy fund that encourages alumni to contribute with other classmates to a common fund. When they do, they can select the areas they want their donation to benefit, such as scholarships, library, technology, and endowed professorship, etc.
• Promotion: Getting the attention of busy alumni scattered across the world is a challenge. People are most likely to pay attention when a message is coming from someone they know personally, and so the alumni organization decides to capitalize on classmate relationships. It recruits several well-connected people from each class to post on social media and send email messages to fellow classmates about an upcoming reunion as well as the legacy-fund donation opportunity. The email message asks people to share with other former classmates who may not have heard about the reunion and class legacy fund. Hopefully, this message begins to go viral, working through pre-existing networks to spread the word. The organization also sends a letter about the class legacy fund to older alumni who are less likely to be active with email or digital technology.
• Place/Distribution: As people learn about the class legacy fund, the alumni organization wants to make sure the donation opportunity is easy for anyone to act on. For this reason, they offer a variety of different ways to contribute: mail a check; dial a phone number; donate on a Web site using PayPal or a credit card; donate via phone using a mobile app. People can even come to the annual reunion activities and contribute to the legacy fund in person.
• Price: For a voluntary donation, “price” can be tricky. On one hand, the alumni organization wants to encourage donations of any size to the class legacy funds, no matter how small. On the other hand, it also wants to encourage alumni to consider making larger donations when possible. Based on publicly available income data, the alumni organization recognizes that most recent graduates have lower average salaries and disposable income compared to those who have been working their fields for a decade or more. Acting on this information, it adjusts the range of “suggested donation” levels for each class. Recent alumni marking a 5-year anniversary are invited to contribute between \$25 and \$250. Alumni marking 10- and 15-year anniversaries are invited to contribute between \$50 and \$500 to class legacy funds. Alumni with 20 or more years see suggested donation amounts ranging from \$150 to \$2,500 or more.
Thoughtful consideration of the four Ps leads to a successful launch of the alumni organization’s class legacy funds. Because the alumni organization has tailored the product, promotional strategy, placement, and pricing to the interests of the target segments, the effort is much more successful than the all-purpose, generic, “please donate to your alumni organization” campaign used in the past. In this example, wise targeting strategy works hand-in-hand with the marketing mix to yield better results.
1. Markgraf, Bert. “Real-World Examples of Effective Market Segmentation.” Small Business - Chron.com. Chron.com, November 21, 2017. http://smallbusiness.chron.com/realworld-examples-effective-market-segmentation-60195.html. ↵
2. Eric Jou,Jou, Eric. “The Wonderfully Weird World Of Chinese Oreos.” Kotaku. Kotaku, October 1, 2012. http://kotaku.com/5947767/the-wonderfully-weird-world-of-chinese-oreos. ↵
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• Micromarketing and Applying the Marketing Mix to Target Segments. Authored by: Lumen Learning. License: CC BY: Attribution
• Photo: Harvard Kennedy School of 1995 Class Reunion. Authored by: Julie Curtis. License: CC BY: Attribution
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Background
Red Bull is an Austria-based company started in 1987 by Dietrich Mateschitz that sells one product: an energy drink containing taurine (an amino acid) that’s sold in a slim, silver-colored 8.3-ounce can. The drink has been an enormous hit with the company’s target youth segment around the globe. In the year 2018, Red Bull boasted sales of \$1.06 billion USD in the United States alone[1], and has held the majority of the energy-drink market share for years, with a 35.3% market share in 2019 (Monster Energy, their closest competitor, held 25.4%).[2] From Stanford University in California to the beaches of Australia and Thailand, Red Bull has managed to maintain its hip, cool image, with virtually no mass-market advertising.
Red Bull’s Targeted Approach to Marketing
“Red Bull. It gives you wings.” Over the years, Red Bull has organized extreme sports events (like cliff diving in Hawaii and skateboarding in San Francisco), parties, and even music festivals to reinforce the brand’s extreme, on-the-edge image. In 2012, they sponsored Felix Baumgartner’s record-setting freefall from 128,000 feet:
(Note that the following video has limited narration. Access audio description using the widget below the video.)
A link to an interactive elements can be found at the bottom of this page.
Their grass-roots approach to reaching the youth market worked: “In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi,” said Nancy F. Koehn, author of Brand New: How Entrepreneurs Earned Consumers’ Trust from Wedgwood to Dell. Red Bull’s success has also gained attention (and concern) among beverage-industry giants, and some have tried to follow its lead: For a time Coke ran a stealth marketing campaign, packaging its cola in a slim can reminiscent of Red Bull and offering it to customers in trendy bars and clubs in New York City.
1. “Red Bull Energy Drink Sales U.S., 2015–2018.” Statista. Accessed September 25, 2019. https://www.statista.com/statistics/558082/us-sales-of-red-bull-energy-drinks/. ↵
2. “Energy Drink Market Share in the US in 2019.” Statista. Accessed September 25, 2019. https://www.statista.com/statistics/306864/market-share-of-leading-energy-drink-brands-in-the-us-based-on-case-volume-sales/. ↵
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• Felix Baumgartner's supersonic freefall from 128k' - Mission Highlights. Provided by: Red Bull. Located at: https://youtu.be/FHtvDA0W34I. License: All Rights Reserved. License Terms: Standard YouTube License
3.06: Simulation- Segmenting the Ice Cream Market
Try It
We’ve been talking a lot about segmentation and targeting and discussing how they both work in real-life marketing. Now it’s time for you to give it a try.
Remember the ice cream shop you ran in a simulation earlier in the course? We’re going back to that scenario: you are an entrepreneur working to building your house-made ice cream business. This time you’ll explore how to use segmentation, targeting, and the marketing mix to grow the business.
Try the simulation a few times to see how different choices lead to different outcomes. In a simulation you should take the opportunity to try out choices you think are right and some you suspect are wrong, since you can learn from both. All simulations allow unlimited attempts so you can gain experience exploring and applying the concepts.
Good luck!
A link to an interactive elements can be found at the bottom of this page.
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• Simulation: Segmentation Sandbox. Provided by: Clark Aldridge for Lumen Learning. License: CC BY: Attribution
3.07: Self Check- Targeting and Marketing Mix
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/741
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Remember Chumber, your new employer from the beginning of this module?
Now that you’ve learned something about segmentation and targeting strategy, let’s return to the request your boss made for recommendations about whom Chumber ought to target and why.
Remember that Chumber’s product is an automated, fully online system for checking the references of job candidates. Chumber’s customers are other companies. After learning about market segmentation, you know that “all companies” is too broad to be a useful target market. Even on your first day of work, you can guess that marketing to every company you can find isn’t going to be a smart strategy.
Instead, you do a little research. It stands to reason that Chumber will be most valuable to companies that do a lot of hiring. A Google search for “employment by industry” brings up U.S. Bureau of Labor statistics data to help you identify which industries are expected to post the biggest gains in employment in the coming years.
Table 1: Employment by major industry sector
Industry Sector Thousands of Jobs Change Percent Distribution Compound Annual Rate of Change
2008 2018 2028 2008–2018 2018–2028 2008 2018 2028 2008–2018 2018–2028
Total[1][2] 149,276.0 161,037.7 169,435.9 11,761.7 8,398.2 100.0 100.0 100.0 0.8 0.5
Nonagriculture wage and salary[3] 137,991.0 149,803.7 157,662.0 11,812.7 7,858.3 92.4 93.0 93.1 0.8 0.5
Goods-producing, excluding agriculture 21,277.9 20,661.3 20,872.7 −616.6 211.4 14.3 12.8 12.3 −0.3 0.1
Mining 709.9 683.3 727.9 −26.6 44.6 0.5 0.4 0.4 −0.4 0.6
Construction 7,162.5 7,289.3 8,096.8 126.8 807.5 4.8 4.5 4.8 0.2 1.1
Manufacturing 13,405.5 12,688.7 12,048.0 −716.8 −640.7 9.0 7.9 7.1 −0.5 −0.5
Services-providing excluding special industries 116,713.1 129,142.4 136,789.3 12,429.3 7,646.9 78.2 80.2 80.7 1.0 0.6
Utilities 558.8 554.6 537.2 −4.2 −17.4 0.4 0.3 0.3 −0.1 −0.3
Wholesale trade 5,875.0 5,852.5 5,754.0 −22.5 −98.5 3.9 3.6 3.4 0.0 -0.2
Retail trade 15,289.1 15,833.1 15,679.4 544.0 −153.7 10.2 9.8 9.3 0.4 -0.1
Transportation and warehousing 4,513.6 5,419.1 5,741.4 905.5 322.3 3.0 3.4 3.4 1.8 0.6
Information 2,983.8 2,828.1 2,833.7 −155.7 5.6 2.0 1.8 1.7 −0.5 0.0
Financial activities 8,206.1 8,568.8 8,849.4 362.7 280.6 5.5 5.3 5.2 0.4 0.3
Professional and business services 17,792.3 20,999.5 22,661.9 3,207.2 1,662.4 11.9 13.0 13.4 1.7 0.8
Educational services 3,039.8 3,727.5 4,201.0 687.7 473.5 2.0 2.3 2.5 2.1 1.2
Health care and social assistance 16,188.6 19,939.3 23,335.4 3,750.7 3,396.1 10.8 12.4 13.8 2.1 1.6
Leisure and hospitality 13,436.2 16,348.5 17,904.9 2,912.3 1,556.4 9.0 10.2 10.6 2.0 0.9
Other services 6,320.5 6,622.4 6,716.7 301.9 94.3 4.2 4.1 4.0 0.5 0.1
Federal government 2,762.0 2,796.0 2,670.2 34.0 −125.8 1.9 1.7 1.6 0.1 -0.5
State and local government 19,747.3 19,653.0 19,904.0 −94.3 251.0 13.2 12.2 11.7 0.0 0.1
Agriculture, forestry, fishing, and hunting[4] 2,071.4 2,310.0 2,320.6 238.6 10.6 1.4 1.4 1.4 1.1 0.0
Agriculture wage and salary 1,208.6 1,547.2 1,587.2 338.6 40.0 0.8 1.0 0.9 2.5 0.3
Agriculture self-employed 862.8 762.8 733.4 −100.0 −29.4 0.6 0.5 0.4 −1.2 −0.4
Nonagriculture self-employed 9,213.6 8,924.0 9,453.4 −289.6 529.4 6.2 5.5 5.6 −0.3 0.6
Segmenting by industry makes a lot of sense in this case because some industries clearly do more hiring than others. You decide that Chumber should focus on industries with the highest projected hiring increases in the next decade: health care; professional and business services; construction; leisure and hospitality; and retail. Companies in growth industries will definitely get the most value from Chumber.
Next you want to understand more about which decision makers in these companies will be the best targets for Chumber. Having just come through the hiring process, you know who is interested in reference checking: human resources professionals, job recruiters, and hiring managers. You email Ken, the Chumber HR person who handled your hiring process, to see if he can answer a few questions about how decisions are made in HR departments.
Ken is very helpful. Prior to Chumber, he worked in HR for a health care company and a consulting firm. He confirms that an HR manager or director of recruiting oversees the reference-checking process for new hires. This person would also be the primary decision maker for a product like Chumber.
Ken explains that the requirements for reference checking differ by industry. In health care, for instance, where people routinely handle life-and-death situations, reference checks are essential and thorough. Ken mentions a couple of features Chumber could add to fit the specific requirements of the health care industry. You take notes about product improvements that could be part of the marketing mix for this segment.
When you’re back at your desk, Ken sends you a list of Web sites, publications, and conferences where many HR recruiters go for professional information. This will be really useful when your boss wants to talk about promotion and place!
You invite Ken out for lunch to thank him for his valuable input.
You still have a lot to learn about Chumber and product marketing. But applying your knowledge about segmentation and targeting is giving you a good feel for how you might help the company succeed.
1. Employment data for wage and salary workers are from the BLS Current Employment Statistics survey, which counts jobs, whereas self-employed and agriculture, forestry, fishing, and hunting are from the Current Population Survey (household survey), which counts workers. ↵
2. ndividual sectors do not necessarily add to major sectors due to rounding. ↵
3. Includes wage and salary data from the Current Employment Statistics survey, except private households, which is from the Current Populations Survey. Logging workers are excluded. ↵
4. Includes agriculture, forestry, fishing, and hunting data from the Current Population Survey, except logging, which is from Current Employment Statistics survey. Government wage and salary workers are excluded. ↵
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Why determine market segments and target customers?
Suppose you have just accepted a product marketing job with a technology company called Chumber. You’re excited about the company and the team you’ll be working with. Chumber’s main product is an automated, fully online system for checking the references of job candidates and getting feedback from coworkers about their professional skills.
After a morning orientation session and a product demonstration on the first day, your boss gives you your first assignment: spend a half day doing research. Then come back to her with recommendations about whom Chumber should be targeting in its sales and marketing activities, and why.
After you give your boss a puzzled look, she adds, “Don’t look so worried. I already know who I think we should be targeting. But with you coming in fresh, I’d like to hear what you think. We can probably learn something from each other!”
As you sit down at your new desk, the wheels start turning in your head.
Q: What problem is Chumber’s product solving?
A: The hassle of checking references for job candidates and finding out who is really a good fit.
Q: Who has this problem?
A: Companies that hire people.
You recognize that this is a business-to-business marketing challenge, not a business-to-consumer issue. But “companies that hire people” covers a lot of ground. How effective will Chumber be if you try marketing and selling to every company in the world? And within any given company, which people would be most interested in using this product?
The question of whom to target is a foundational part of any marketing activity. Marketers use the tools of segmentation and targeting to answer this question. Segmentation helps you understand your market and divide it into groups that share common needs and characteristics. Targeting helps you figure out which of these groups to focus on in your sales and marketing activities.
As you work through this module, you will learn about segmentation, targeting, and how they work. You will also learn how these tools help you shape the marketing mix to reach your target audiences effectively.
Learning Outcomes
• Explain the purpose of segmentation and targeting in marketing
• Describe common segmentation approaches
• Explain the process of selecting an appropriate segmentation approach and deciding which customer segments to target for marketing activities
• Explain how targeting influences each element of the marketing mix
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3.10: Outcome- Segmentation and Targeting Rationale
What you’ll learn to do: explain the purpose of segmentation and targeting in marketing
Segmentation and targeting are essential building blocks of marketing because they help marketers answer a basic question: Who am I trying to reach?
If you can’t answer this question with a reasonable amount of certainty and detail, your marketing efforts will probably not have much impact. You’ll spend a lot of time and money with little to show for it because you’re not choosing marketing tactics that fit your audience.
However, when you know your target audience, you can make smart decisions about your marketing activities: why they need your product, where and how to get their attention, what to say to generate interest, and what types of offers will attract them.
In this module, first we will focus on why segmentation and targeting are so important. Then we will discuss how to conduct segmentation and targeting and use these tools to guide marketing activity.
Learning Activities
The learning activities for this section include the following:
• Reading: The Purpose of Market Segmentation and Targeting
• Self Check: Segmentation and Targeting Rationale
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What Is Market Segmentation All About?
Segmentation helps marketers answer the following set of fundamental questions:
1. To whom should I be marketing?
2. Why them?
3. How can I reach them most effectively?
Because marketers have finite resources, they have to make decisions about how and where to focus their efforts. Market segmentation provides useful information about prospective customers to guide these decisions and to ensure that marketing activities are more buyer focused.
Market segmentation is the process of splitting buyers into distinct, measurable groups that share similar wants and needs. Once different segments are identified, marketers determine which target segments to focus on to support corporate strategy and growth.
Professional tennis players are a specific segment of the market.
For example, suppose your company produces high-performance athletic clothing. The market segmentation first identifies everyone with an interest in and need for this type of clothing. Then it identifies groups within the market that share common needs. These could include groups associated with different sports, levels of athletic activity, brand loyalty, fashion consciousness, price sensitivity, etc. As a marketer, you analyze the groups to determine which ones you want to focus on and why.
Defining a Market
In order to understand the purpose and benefits of segmentation, it’s helpful to step back momentarily and look at markets as a whole and how segments help us understand a market. A market is a group of potential buyers with needs and wants, as well as the purchasing power to satisfy those needs and wants. These buyers might be individuals, groups, businesses, or organizations. The “total market” constitutes all the potential customers for a given product. Potential customers share a common problem or business need that your product can address, and they share other characteristics as well.
In order for a market to exist, the following five criteria must be met:
1. There must be a true need and/or want for the product, service, or idea; this need may be recognized, unrecognized, or latent.
2. The person/organization must have the ability to pay for the product via means acceptable to the marketer.
3. The person/organization must be willing to buy the product.
4. The person/organization must have the authority to buy the product.
5. The total number of people/organizations meeting the previous criteria must be large enough to be profitable for the marketer.
If these criteria aren’t met, there probably isn’t a viable market for your product(s).
Segments within a Market
Markets are generally large entities that require significant investment to serve effectively. In fact, markets may be so large that it isn’t feasible for a marketing organization to market their products effectively to all potential customers at the same time. A product provider might ask, “Given that my product will not be needed or wanted by all people in the market, and given that my organization has certain strengths and weaknesses, which target group(s) should I focus on?”
The answer to this question comes through market segmentation. Segmentation is a twofold process that includes:
1. Identifying and classifying people into homogeneous groupings, called segments
2. Determining which of these segments are viable target markets.
In essence, the marketing objectives of segmentation are:
• To improve an organization’s understanding of who their prospective customers are and how to serve them
• To reduce risk in deciding where, when, how, and to whom a product, service, or brand will be marketed
• To increase marketing efficiency by directing effort toward designated segment(s) in ways that are consistent with that segment’s characteristics
While, in theory, there may be “ideal” market segments for any given product, in reality, every organization engaged in a market will develop different ways of imagining market segments and create product differentiation strategies to exploit those segments. With a refined understanding of market segments, companies can differentiate their products to fit the needs of a particular segment. They can also use segmentation analysis to identify and create competitive advantages with their target audiences. A deeper understanding of their target audiences can guide marketers’ choices in how they develop and promote products, how their products are delivered and priced, and so forth.
Focusing on the Target Market
It is rare that any single product will be an ideal fit for every member of an entire market. For example, no single shampoo is perfect for everyone on the planet. No single printer or cleaning service is ideal for every organization in the world. Buyers have different sets of needs. Segmentation acknowledges that different people and groups have different needs. Successful marketers use segmentation to figure out which groups (or segments) within the market are the best fit for the products they offer. These groups constitute their target market.
The target market should include only those segments of a market that are both profitable to serve and likely to be receptive to the products a company provides. Time, money, and effort spent on marketing will be most effective when it focuses on these target audiences. When organizations don’t identify a target market, they dilute the impact of their marketing resources because they are spending money and effort trying to attract people who are unlikely ever to become profitable customers.
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• Sample Market Segmentation (Chart). Authored by: Lumen Learning. License: CC BY: Attribution
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3.12: Self Check- Segmentation and Targeting Rationale
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/738
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3.13: Outcome- Common Segmentation Approaches
What you’ll learn to do: describe common segmentation approaches
The next section of this module walks through several common approaches to market segmentation. Some approaches will probably seem familiar, or even obvious—like segmenting by gender or income level—but others, like “psychographic” segmentation, may not. These methods are common because they provide useful guidance to marketers about how to identify and reach prospective buyers.
It’s important to remember that there may be more than one “right” way to segment a market. Certainly there are more-effective and less-effective approaches for different products or services. Sometimes a segmentation strategy is effective for a while, but then something shifts and a new approach is needed. In that way, segmentation is like a compass for marketers: when your position or direction changes, you revisit market segmentation to fine-tune where you’re heading and how to get there. Different segmentation approaches applied individually or together help refine a marketer’s understanding of the target market.
Learning Activities
The learning activities for this section include the following:
• Reading: Segmentation Criteria and Approaches
• Self Check: Common Segmentation Approaches
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Common Approaches to Market Segmentation
Segmentation starts by identifying all the potential buyers for your product: individuals with the need and the means to buy what you offer. In most cases, this represents a large universe of people or organizations that are similar in some ways but different in many other ways. Segmentation is a process that helps marketers narrow their focus on the most promising groups within that universe.
There is no single correct way to segment a market. Defining a target consumer base can be performed using a variety of segmentation methods. Several common methods are discussed below. Marketers may apply a combination of these methods to provide greater insight into their target market and the customers they want to serve. In fact, good marketers generally try out different methods and combinations to figure out what approach is most successful to help them achieve their goals. Because people and their needs change, effective approaches for segmenting a market can also evolve over time.
The following is a list of common market segmentation approaches:
• Geographic: nations, states, regions, cities, neighborhoods, zip codes, etc.
• Demographic: age, gender, family size, income, occupation, education, religion, ethnicity, and nationality.
• Psychographic: lifestyle, personality, attitudes, and social class.
• Behavioral: user status, purchase occasion, loyalty, readiness to buy.
• Decision maker: decision-making role (purchaser, influencer, etc.)
Geographic Segmentation
You’re much more likely to sell surfboard in a location with a beach than in a landlocked location.
Geographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codes–define geographic market segments. Geography represents the oldest basis for segmentation. Regional differences in consumer tastes for products are well known, such as the affinity for barbecue in the southern U.S. or preferences for health-conscious menus in coastal California. Geographic segmentation suggests that in areas prone to rain, for instance, you can sell things like raincoats, umbrellas, and rubber boots. In hot regions, you can sell summer wear; in cold regions, you can sell warm clothes.
Geographic markets are easily identified, and large amounts of data are usually available. Many companies simply do not have the resources to expand beyond local or regional areas, so they must focus on one geographic segment only. There is very little waste in the marketing effort, in that the product and supporting activities such as advertising, physical distribution, and repair can all be directed at the customer. Further, geography provides a convenient organizational framework. Products, salespeople, and distribution networks can all be organized around a central, specific location.
The drawbacks of using a geographic basis for segmentation are also worth noting. There is always the possibility that consumer preferences aren’t dictated by location—other factors, such as ethnic origin or income, may be more important. The stereotypical Texan, for example, is hard to find in Houston, where one-third of the population has immigrated from other states. Another problem is that geographic areas can be defined as very large, regional locations. Members of a geographic segment may be too heterogeneous to qualify as a meaningful target market.
Demographic Segmentation
Demographics are statistical data that describe various characteristics of a population. Demographic segmentation consists of dividing the market into groups based on demographic variables such as age, gender, family size, income, occupation, education, religion, political opinions, ethnicity, and nationality. Demographic segmentation variables are among the most popular bases for segmenting customer groups because demographic data are plentiful and customer wants and needs often link closely to these variables.
For example, the youth market (roughly ages five to thirteen) not only influences how their parents spend money, but also how they make purchases of their own. Manufacturers of products such as toys, records, snack foods, and video games have designed promotional efforts directed at this group. “Tweens” are children between the ages of eight and twelve who are discovering what it means to be a consumer and are shaping the attitudes and brand perceptions they will carry with them as they grow up and gain more purchasing power. The elderly market (age sixty-five and over) has grown in importance for producers of products such as low-cost housing, cruises, hobbies, and health care.
Dove Shampoo
The following advertisement illustrates how the advertising and marketing promotion of Dove’s Men+Care product line focuses on the unique needs and interests of the young to middle-aged male segment.
A link to an interactive elements can be found at the bottom of this page.
Life stage is another demographic trait associated with age, gender, marital, and family status. There is evidence that individuals and families go through predictable behavioral patterns associated with buying behaviors. For example, a young couple with one young child has far different purchasing needs than empty-nesters in their late fifties or single, middle-aged professionals.[1]
Income is perhaps the most common demographic basis for segmenting a market because it indicates who can or cannot afford a particular product. It is quite reasonable, for example, to assume that individuals earning minimum wage could not easily purchase a \$80,000 sports car. Income is particularly useful as a segmentation input as the price tag for a product increases. It can also be helpful in understanding certain types of buying behavior, such which income groups are most prone to use coupons.
Similarly, other demographic characteristics can influence other types of consumer activities.
Despite the apparent advantages of demographic segmentation (i.e., low cost and ease of implementation), uncertainty exists about its effectiveness. The method can be misused. For example, it might be said that the typical consumer of Thai food is under thirty-five years of age, has a college education, earns more than \$10,000 a year, lives in a suburban fringe of a moderate-size urban community, and resides in the West. While these characteristics may describe a typical consumer of Thai food, they also describe many other consumers and may paint an overly broad or inaccurate portrait of a supposed “segment.” When a segment is too broad, it loses its defining characteristics and there isn’t much to differentiate the target segment from the general population. In this situation, the segmentation approach does not provide much useful guidance to help marketers make effective marketing choices.
Psychographic Segmentation
In psychographic segmentation, consumers are divided according to common characteristics in their lifestyle, personality, attitudes, and social class. Evidence suggests that attitudes of prospective buyers toward certain products influence their subsequent purchase or nonpurchase of them. If persons with similar attitudes can be isolated, they represent an important psychological segment. Attitudes can be defined as predispositions to behave in certain ways in response to given stimulus.[2]
For market segmentation purposes, personality is defined as long-lasting characteristics and behaviors of a person that shape how they cope and respond to their environment. Consumption of particular products or brands relates to consumer personality. For example, risk-seeking individuals are attracted to extreme sports and travel, and extroverts tend to dress conspicuously.
Social class segmentation identifies individuals based on a combination of socioeconomic such as education, occupation, income, family background, and attitudes related to these factors.
Lifestyle segmentation refers to the orientation that an individual or a group has toward consuming products, work, and play and can be defined as a pattern of attitudes, interests, and opinions held by a person. Lifestyle segmentation has become very popular with marketers, because of the availability of consumer data, measurement devices and instruments, and the intuitive categories that result from this process.[3] As a result, producers target versions of their products and their promotions to various lifestyle segments. For example, U.S. companies like All State Insurance are designing special programs for the good driver, who has been extensively characterized through a lifestyle segmentation approach.[4]
Lifestyle analysis generally begins by asking questions about the consumer’s activities, interests, and opinions. If a woman earns \$100,000–\$150,000 per year as an executive, is married and has two children, what does she think of her roles as a professional, a wife, and a mother? How does she spend her spare time? To what groups does she belong? What does she read? How does she use electronic devices? What brands does she prefer, and why? AIO (activities, interests, opinions) inventories, as they are called, reveal vast amounts of information concerning attitudes toward product categories, brands within product categories, and user and non-user characteristics.
Overall, psychographic segmentation tends to focus on how people spend their money; their patterns of work and leisure; their major interests; and their opinions of social and political issues, institutions, and themselves. While it can create intuitive groupings and useful insights into consumer behavior, it can also take significant research and effort to inform a more complex and nuanced approach to defining market segments.
Behavioral Segmentation
Consumers are divided into groups according to common behaviors they share. Typically these behaviors link to their knowledge of, attitude toward, use of, or response to a product.
The most common type of behavioral segmentation is around user segments. In 1964, the market researcher Twedt made one of the earliest departures from demographic segmentation when he suggested that the heavy user, or frequent consumer, was an important basis for segmentation. He proposed that consumption of a product should be measured directly to determine usage levels, and that promotion should be aimed directly at the heavy user. This approach has since become very popular. Considerable research has been conducted on “heavy users” of a variety of products. The results suggest that finding other characteristics that correlate with usage rate often greatly enhances marketing efforts.[5]
Other behavioral bases for market segmentation include the following:
• User status: Looking beyond “heavy users,” it can also be helpful to identify segments based on a broader set of use patterns, such as non-users versus ex-users, or one-time users versus regular users. Mobile phone service providers examine usage patterns to create optimal plans and targeting based on specific sets of user needs: family plans, individual plans, no contract plans, unlimited talk and data plans, and so forth. New car producers have become very sensitive to the need to provide new car buyers with a great deal of supportive information after the sale in order to minimize unhappiness after the purchase.
• Purchase occasion: This approach tries to determine the reason or occasion for purchasing a product and how it will be used. For example, airlines typically segment customers based on the reason for a passenger’s trip: business versus personal travel. Someone traveling for business generally has different needs and wants from someone traveling for pleasure. A business traveler tends to be less sensitive about price and more focused on timing, location, and convenience.
• Loyalty: This approach places consumers in loyalty categories based on their purchase patterns of particular brands. A key category is the brand-loyal consumer. Companies have assumed that if they can identify individuals who are brand loyal to their brand, and then delineate other characteristics these people have in common, they will locate the ideal target market. There is still a great deal of uncertainty about the most reliable way of measuring brand loyalty.
• Readiness: Readiness segmentation proposes that potential customers can be segmented according to how ready they are to purchase a product: unaware, aware, informed, interested, desirous, and intend to buy. Using this approach, a marketing manager can design the appropriate market strategy to move them through the various stages of readiness. These stages of readiness are rather vague and difficult to measure accurately, but readiness may be a useful lens for understanding the customer’s mindset and how to nudge them toward buying, particularly when an education process is required prior to purchase.
Decision-Maker Segmentation
This segmentation approach groups people according to who makes the purchasing decision in an organization or household. Typically there is a “primary buyer”: the individual who makes the final decision about what to buy and allocates the budget for the purchase. Many purchasing decisions also involve “influencers.” These are people who do not make the final purchasing decision, but they can influence the final choice about what to buy.
In families, for example, young children may be influencers in whether a parent buys Cheerios, Chex, or Fruit Loops. In companies, a department manager may be the primary buyer for a software product, but that manager’s work team may influence product selection by helping evaluate options to determine which choice best fits their needs. Segmentation by decision-making role helps marketers understand who truly matters in the purchase process and home in on the individuals who matter most.
Segmenting Business-to-Business Markets
All of the segmentation approaches above apply to consumer markets. There are many similarities between consumer and business behavior, and therefore similar segmentation bases and variables apply. Common business segmentation approaches include:
• Organization size: segmentation according to large, medium, and small customers by revenue, by number of employees, by geographic reach, etc.
• Geography: organizing segments based on geographic location
• Industry: segmenting by the industrial sector an organization operates within—for example manufacturing, retail, hospitality, education, technology, health care, government, professional services, and so forth
• User status: usage frequency, volume used, loyalty, longevity, products already in use, readiness to buy, etc. For example, longtime loyal customers with “strategic” relationships are often handled differently and receive preferable terms compared to newer customers.
• Benefits sought: grouping customers by common elements they look for in a product or purchasing experience
• End use: identifying segments based on how they plan to use the product and where it fits into their operations and supply chain. For example, an electric motor manufacturer learned that customers operated motors at different speeds. After making field visits and confirming these uses, he thought to divide the market into slow-speed and high speed segments. In the slow-speed segment, the manufacturer emphasized a competitively priced product with a maintenance advantage, while in the high-speed market product, superiority was stressed.
• Purchasing approaches: organizing the market according to the way in which organizations prefer to make purchases; those preferences, in turn, determine how the seller builds the relationship with the customer and works the deal.
Combining Multiple Bases for Segmentation
Marketers may find it most useful to combine different bases for segmentation in order to create a richer picture of their target market. For example, a “geo-cluster” approach combines demographic data with geographic data to create a more accurate profile of a specific consumer. Geographic data combined with behavioral data can point companies toward locations where customers are clustered who demonstrate behaviors that make them a good target for a company’s product. Overlaying demographic data onto lifestyle or behavioral segments helps marketers understand more about their target customers and how to reach them effectively with the marketing mix.
Any of these approaches may be the “right” approach for a given company and product set. It is also important for marketers to continually evaluate what’s happening in their target market and to adjust their segmentation approach as customer attitudes, behaviors, and other market dynamics evolve.
1. William R. Darden, W.A. French, and R.D. Howell, "Mapping Market Mobility: Psychographic Profiles and Media Exposure," Journal of Business Research, Vol. 7, No.8, 1979, pp. 51-74. ↵
2. Martha Farnsworth, "Psychographies for the 1990s," American Demographics, July 1989, pp. 25, 28-30. ↵
3. William D. Wells, "Psychographies: A Critical Review," Journal 0f Marketing Research, May 1975, pp. 196-213. ↵
4. Joseph T. Plummer, "The Concept and Application of LifeStyle Segmentation," Journal of Marketing, January 1974, p. 33. David J. Reibstein, Christopher H. Lovelock, and Ricardo de P. Dobson, "The Direction of Causality Between Perceptions, Affect, and Behavior: An Application to Travel Behavior," Journal of Consumer Research, Vol 6., March 1980, pp. 370-376. ↵
5. Ronald J. Frank, William Massey, and Yoram Wind, Market Segmentation, Englewood Cliffs, N.J.:Prentice-Hall, 1972. II. ↵
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
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3.16: Outcome- Segmentation Decisions
What you’ll learn to do: explain the process of selecting an appropriate segmentation approach and deciding which customer segments to target for marketing activities
Now that you’ve learned about common segmentation approaches, how do you know when to apply them? When is geographic segmentation a better fit than demographic segmentation? When should you consider using both at the same time?
It comes down to your marketing goals: What are you trying to achieve?
The following section explains the process of aligning your goals with your segmentation approach and target market.
Learning Activities
The learning activities for this section include the following:
• Reading: Choosing a Segmentation Approach and Target Segments
• Case Study: eHarmony
• Self Check: Segmentation Decisions
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3.17: Reading- Choosing a Segmentation Approach and Target Segments
Conducting a Market Segmentation
As you have seen, there are many different ways a company can segment its market, and the optimal method varies from one product to another. Good market segmentation starts by identifying the total market for the product: all the individuals who might conceivably need a product and have the means to purchase it. The total market for accounting software, say, is different from the total market for Lego building sets or the total market for chewing gum.
The next step is to identify marketing goals you want to achieve with the segmentation strategy. Do you want to generate awareness and sales in a local community that has never heard of your company? Do you want to get occasional customers to buy your product regularly? Do you want loyal supporters to dig deeper into their pockets and spend more of their money on your goods or services? Your segmentation approach should offer the best fit for your specific marketing goals.
Your marketing goals point you toward the segmentation criteria that will be most useful to achieve your marketing objectives. For example, if your goal is to build loyalty or increase frequency of purchase, behavioral segmentation is important to consider. If your goal is to broaden your customer base within a given region, geographic segmentation may be useful.
As you identify segmentation criteria that will help you understand the total market and meet your marketing goals, you’ll develop the basis for your segmentation approach. Next, you conduct research to collect segmentation data. Analyzing the market data can tell you whether your segmentation approach makes sense and where you may need to adjust the criteria to yield useful, valid market-segment data.
After conducting research and analysis of segmentation data, you should be able to diagram and profile different segments within your total market. A typical segmentation diagram could look like this:
Evaluating Your Segmentation Approach
An ideal market segment meets all of the following conditions:
• It’s possible to measure. If you can’t measure it, you can’t collect data to know who the segment is or how to reach them.
• It’s profitable. Segments must have the resources to purchase the product and be large enough to earn a profit for the company; otherwise they aren’t worth pursuing.
• It’s stable. Segments need to stick around long enough for you to execute your marketing plan.
• It’s reachable. It must be possible for marketers to reach potential customers via the organization’s promotion and distribution channel(s).
• It’s internally homogeneous. Potential customers in the same segment must prefer the same product qualities and exhibit similar characteristics that are pertinent to the segmentation approach.
• It’s externally heterogeneous. Potential customers from different segments have different product quality preferences and characteristics that affect their purchasing decisions.
• It’s responsive. Segments should respond consistently to a given market stimulus or marketing mix. If they do not, then marketing efforts directed at them will not be well spent.
• It’s cost-effective. Worthwhile market segments can be reached by marketing activities in a cost-effective manner. If too expensive to reach, then serving this segment will negatively impact profits.
• It helps determine the marketing mix. Ideally, when you have identified a market segment, you’ll have insight into ways of shaping the combination of product, promotion, price, and place to fit that segment’s needs.
If your segmentation approach fails to meet any of these conditions, you should go back to the drawing board to refine it. If any one of these factors is not in place, your market segmentation may actually undermine the effectiveness of your marketing and business. But with all these factors in place, market segmentation will point you toward the most promising customer groups in your target market.
For example, if you’re trying to launch a print services company in a large city, targeting “all business owners” isn’t cost effective, and the individuals within this group are actually quite different. That means that no single marketing mix will be effective with everyone in this segment. Instead, you would be better served by researching types of businesses (by industry, size, etc.), geographic locations, and other relevant factors to help you identify and target logical segments with shared characteristics.
Keep in mind that market segmentation is an ongoing activity that needs periodic evaluation to ensure that the approach still makes sense. Since markets are dynamic and people and products change over time, the basis for segmentation must also evolve.
Selecting Target Segments
Rolex focuses on a single market segment—those who want a luxury watch—and is thus a prime example of the concentration strategy of market segmentation.
Once an actionable segmentation approach is in place, marketing organizations typically follow one of two major segmentation strategies: a concentration strategy or a multisegment strategy.
In the concentration strategy, a company chooses to focus its marketing efforts on only one market segment. Only one marketing mix is developed: the combination of product offerings, promotional communications, distribution, and pricing targeted to that single market segment. The primary advantage of this strategy is that it enables the organization to analyze the needs and wants of only one segment and then focus all its efforts on that segment. The primary disadvantage of concentration is that if demand in the segment declines, the organization’s sales and financial position will also decline.
In the multisegment strategy, a company focuses its marketing efforts on two or more distinct market segments. The organization develops a distinct marketing mix for each segment. Then they develop marketing programs tailored to each of these segments. This strategy is advantageous because it may increase total sales with more marketing programs targeting more customers. The disadvantage is the higher costs, which stem from the need for multiple marketing programs that may include segment-specific product differentiation, promotions and communication, distribution/delivery channels, and pricing.
How do you choose?
Selecting the target segments boils down the following questions, which connect to the “ideal segment” conditions listed above:
• Whose needs can you best satisfy?
• Who will be the most profitable customers?
• Can you reach and serve each target segment effectively?
• Are the segments large and profitable enough to support your business?
• Do you have the resources available to effectively reach and serve each target segment?
As you answer these questions with regard to the different market segments you have defined, you will confirm which segments are most likely to be good targets for your product(s). These segments become your target market—the object of your targeting strategy, marketing mix, and marketing activities.
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With a clear understanding of the corporate objectives, marketers must decide which strategies and tactics will best align with and support them.
This is rarely a simple decision. Markets are constantly changing, and buyer behavior is very complex. The marketer must evaluate all aspects of the marketing mix and determine which combination of product, price, promotion, and distribution will be most effective.
Decisions about the marketing-mix variables are interrelated. Each of the marketing-mix variables must be coordinated with the other elements of the marketing program. Consider, for a moment, a situation in which a firm has two product alternatives (deluxe and economy), two price alternatives (\$6 and \$3), two promotion alternatives (advertising and coupons), and two distribution alternatives (department stores and specialty stores). Taken together, the firm has a total of sixteen possible marketing-mix combinations. Naturally, some of them will be incompatible, such as the “deluxe” product and low price combination. Nevertheless, the organization must consider many of the possible alternative marketing programs. The problem is magnified by the existence of competitors. The organization must find the right combination of product, price, promotion, and distribution so that it can gain a differential advantage over its competitors. (All of the marketing mix elements will be discussed in more detail in other modules of the course.)
Recall that Southwest Airlines created a company strategy to expand its target market to include business travelers. One of its objectives was to grow revenue and market share to achieve specific targets by expanding into the business traveler market.
Which marketing strategies are needed to support such a corporate strategy? To answer that, Southwest had to investigate the four Ps:
• Do we need new products that appeal to business travelers? (Product)
• Are business travelers willing to pay a higher price point? (Price)
• How will we communicate our offerings to business travelers? (Promotion)
• How do business travelers book their travel? Are new distribution points needed? (Place)
As you can see, these questions about the four Ps are nicely aligned with Southwest’s corporate strategy and objectives, but they’re also connected to questions about the target customer: Who is the business traveler and how does he or she define value? The optimal marketing strategy will need to include a deep understanding of the target customer and specify how it offers unique value to that customer. Southwest did that in the ways described below:
Product Strategy
Created a series of programs that offer time savings and convenience for business travelers, who value those benefits above price.
Pricing Strategy
Created add-on services that provide business travelers with time savings and convenience at a total price that is higher than what leisure travelers pay for no-frills services, but is at or slightly below competitors’ prices for business fares.
In each case, the marketing strategy supports the corporate strategy, focuses on providing unique value to the target customer, and incorporates the elements of the marketing mix that can be leveraged to deliver that value.
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4.02: Reading- Implementation and Budget
Implementation
Even a well-designed marketing program that has been through a thorough evaluation of alternatives will fail if it’s poorly implemented. Implementation involves the tactics used to execute the strategy. It might include such things as determining where to promote the product, getting the product to the consumer, and setting a commission rate for the salespeople.
The implementation process emphasizes the timely completion of tasks. Often marketing organizations have a project- or program-planning function that tracks the tasks that will be completed, the individual or team that will complete the tasks, the budget spent, and the results achieved. If the organization manages each element of the plan carefully, it can intervene if progress is falling behind, rather than waiting until it affects the objectives or strategy.
Today, the process for implementing, measuring, and adjusting marketing tactics is much faster and more quantitative than it has ever been. Take the following comparison: a store decides on a promotional tactic to hang a billboard on the freeway near the exit ramp to the store. The billboard company can provide estimates on the number of cars that will pass the billboard, but how many people will actually look at the billboard? How many will be within the target market? How many will take the exit? How many will continue driving, but remember and come back to the store at a later date? It is almost impossible to answer any of these questions with certainty.
If, on the other hand, the same store launches a promotional campaign on Facebook, it will gain much more visibility into who sees the ad and whether the ad is effective. It can track who clicks on the ad, who buys after clicking, how often they come back, and what they buy in the future.
Developments like this have improved marketing tactics immensely by making it easier to measure impact and make adjustments that can be used a day, hours, or even minutes later.
Budget
Marketing-mix components must be evaluated as part of an overall marketing strategy. Therefore, the organization must establish a marketing budget based on the marketing effort needed to influence consumers. The marketing budget represents a plan to allocate expenditures to each of the components of the marketing mix. For example, the firm must establish an advertising budget as part of the overall marketing budget and allocate expenditures to various types of advertising media—television, newspapers, and magazines, e.g. A sales promotion budget should also be determined, allocating money for coupons, product samples, and trade promotions. Similarly, budgets are required for personal selling, distribution, and product development.
How much should be spent to promote the sale of a company’s products? The answer hinges on the following: “What are we really trying to accomplish? What are our goals?” Subsequent discussion should focus on finding the best path around any obstacles, toward those identified goals. In other words, product promotion is just one aspect of the larger picture.
Too often, when marketers ask whether their budgets are adequate, the question is driven by how much their competitors are spending. Knowing how much others in the same industry are spending can be useful to a company whose performance lags behind the competition or to a company that suspects its expenditures are higher than they need to be. In general, though, knowing what others spend can lead to a counterproductive “keeping-up-with-the-Joneses” mentality. It also assumes that others know what they are doing.
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No marketing program is planned and implemented perfectly. Marketing managers will tell you that they experience many surprises during the course of their activities. In an effort to ensure that performance goes according to plans, marketing managers establish controls that help them evaluate results and identify needed modifications. Surprises occur, but marketing managers who have established sound control procedures can react to unexpected results quickly and effectively.
Marketing control involves a number of decisions—one is simply deciding which function to monitor. Some organizations monitor their entire marketing program, while others choose to monitor only a part of it, such as their sales force or their advertising program. A second set of decisions concerns the establishment of performance standards—for example, market share, profitability, or sales. A third set of decisions concerns how to collect information for making comparisons between actual performance and standards. Finally, to the extent that discrepancies exist between actual and planned performance, adjustments in the marketing program or the strategic plan must be made.
Once a plan is put into action, a marketing manager must still gather information on the effectiveness of the plan’s implementation. Information on sales, profits, consumer reactions, and competitor reactions must be collected and analyzed so that a marketing manager can identify new problems and opportunities.
Return on the Marketing Investment
Increasingly, the single most important evaluation measure is the return on the marketing investment (or marketing ROI). Earlier in this module we learned that strategies define how an organization can best use its resources to achieve the mission. Measuring return on the marketing investment helps marketers understand whether their use of resources is yielding the most effective results.
Let’s look at an example of marketing ROI.
Example: Marketing ROI
A retail store launches a campaign to increase online sales. The firm tracks the cost of setting up the online campaign, promotion costs, costs of the images and designs for the promotion, and staff time used to implement the campaign. These are the investments. Let’s say the total marketing spending on the campaign is \$10,000.
Next, the store tracks a range of metrics, including how many people view online promotions (page views), how many people click on promotions (click-throughs), and ultimately the number of resulting sales. Thanks to the campaign, the company sees an additional \$100,000 in sales.
The marketing ROI can be calculated by taking the revenue generated (\$100,000) and dividing it by the cost of the marketing budget invested (\$10,000). In this case, the marketing ROI for the retail store’s online campaign is 10.
Marketing ROI does not only focus on sales generated. Marketers may talk about spending per new customer acquired, increases in the lifetime value of the customer, increases in market share, or other metrics that are important to the strategy.
Why has marketing ROI become an important metric? Many marketing leaders have realized that they are better able to secure appropriate marketing budgets when they can point to tangible results. Managers who found themselves constantly responding to the question “What do we get from our marketing budget?” have learned that marketing ROI can provide a definitive answer.
In addition to the marketing ROI, there are many new technology-based marketing programs and tools that give marketers an enhanced ability to capture data and evaluate results in quantitative terms.
Example: Old Spice
The video below provides an excellent example of the evaluation of a marketing campaign:
A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/pom2/?p=210
Think about the following questions regarding the ad campaign in the video you just watched:
• What were the goals of the campaign?
• How did the target customer influence the campaign and the goals?
• Was it successful?
• What metrics were used to determine the success of the campaign?
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4.04: Self Check- Marketing Strategy Mechanics
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
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4.05: Outcome- Strategic Planning Tools
What you’ll learn to do: show how common analytic tools are used to inform the organization’s strategy
When a company is developing its strategy, it is faced with a vast array of considerations and choices. It needs to take into account its resources and capabilities, the strength of existing customer relationships, the competitive landscape, the economic and legal environments, important societal trends—the list of inputs goes on and goes on. Then, based on that information, it must devise a plan—a strategy—that contains the best options for addressing the inputs. But which inputs are most important, and which options should be included in the strategy? To answer these questions, businesses have at their disposal a number of strategic planning tools that help to simplify, organize, and focus both the inputs and the possible strategy options. In this section you’ll learn about three: the SWOT analysis, the Boston Consulting Group matrix, and the strategic growth matrix.
The specific things you’ll learn in this section include:
• Conduct a SWOT analysis and describe how it informs the organization’s marketing strategy
• Explain how businesses use the Boston Consulting Group matrix to inform growth strategies
• Explain how businesses use the strategic growth matrix to inform growth strategies
Learning Activities
The learning activities for this section include the following:
• Reading: SWOT Analysis
• Reading: BCG Matrix
• Reading: Strategic Opportunity Matrix
• Self Check: Strategic Planning Tools
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A situation analysis is often referred to by the acronym SWOT, which stands for strengths, weaknesses, opportunities, and threats.
Essentially, a SWOT analysis is an examination of the internal and external factors that impact the organization and its strategies. The internal factors are strengths and weaknesses; the external factors are opportunities and threats. A SWOT analysis gives an organization a clear picture of the “situation” in which it operates and helps it identify which strategies to pursue.
Internal Factors
Strengths and weaknesses include the resources and capabilities within the organization now. Since the company has the most control over internal factors, it can craft strategies and objectives to exploit strengths and address weaknesses. Examples of internal factors include the following:
• Financial resources
• Technical resources and capabilities
• Human resources
• Product lines
All of these are controlled by the organization. Competitive positioning can also be a strength or a weakness. While competitors’ strategies and tactics are external to the company, the company’s position relative to the competitors is something that it can control.
External Factors
External factors include opportunities and threats that are outside of the organization. These are factors that the company may be able influence—or at least anticipate—but not fully control. Examples of external factors include the following:
• Technology innovations and changes
• Competition
• Economic trends
• Government policies and legislation
• Legal judgments
• Social trends
While a company can control how it positions itself relative to the competition, it can’t control competitors’ actions or strategies.
Benefits of a SWOT Analysis
A SWOT analysis benefits organizations in two key ways:
The SWOT Analysis Encourages Realistic Planning
Imagine a growing company that is able to attract new customers more easily than the competition because it has a strong reputation and visible leader. These strengths should be considered and exploited in the strategy. Now imagine that the company also has a poor history of delivering on customer commitments. If this weakness is not addressed, it will not only make it difficult to retain customers but also likely damage the reputation of the company and its leader—which would eliminate key strengths. By conducting a situation analysis, the company is more likely to consider both of these factors in its planning.
The SWOT Analysis Improves Ability to Forecast Future Events
What’s the worst thing that could happen to your business? Most organizations can answer this question because they have assessed the environment in which they operate. For instance, perhaps they know of pending legislation that might adversely affect them. Or perhaps they recognize legal risks, or unique challenges from past economic cycles. By considering threats and “worst-case scenarios” during the planning process, organizations can take steps to avoid them, or minimize the impact if they do they occur.
SWOT Analysis Example
A situation analysis can benefit any organization. The example below shows the SWOT analysis for a fictional college.
Even this rudimentary analysis highlights some strategic issues, discussed below, which the college needs to consider.
Internal
The college has a number of strengths. Committed faculty and trusted leaders have collaborated to build academic programs that are showing high completion rates among students. The student advising program is also contributing to that success. Also, the college has excellent relationships with businesses in the community.
Among the weaknesses, the technology infrastructure is outdated. The college also employs a large number of part-time faculty members, but doesn’t provide them with adequate training or support. Nursing, one of the more expensive programs at the college, is not attracting enough students to keep it full. Also, the college has learned from some of its recent graduates that students are not receiving transfer credit at the local university for all of their courses taken at the college. The students wonder if the college faculty and advisers really understand their academic goals or the requirements of the four-year degree programs at the university.
By completing a SWOT analysis, the college can shape its strategies and objectives to align with both the internal resources and capabilities it has, as well as the external factors it faces.
External
The college leadership is feeling pulled by conflicting economic factors. The region has been through an economic downturn, which resulted in cuts to state funding. At the same time, an economic recovery has just begun. During the previous economic recovery, college enrollment dropped when students who were pursuing additional education returned to the workforce. How might the timing of those two funding issues work out? The college is also being affected by a local institution that is aggressively marketing to its students— especially students in the nursing program.
Still, there are opportunities. Students have expressed interest in more online courses and programs. That might also slow the local competitor, though it would also require the college to address its aging technology infrastructure. The college has identified a number of innovative programs that would enable students to earn degrees more quickly and at the same time expand its partnership and collaboration with local businesses.
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Purpose
When a company has many different products or even many different lines of business, strategy becomes more complex. The company not only needs to complete a situation analysis for each business, but also needs to determine which businesses warrant focus and investment. The BCG matrix (sometimes called the Growth-Share matrix) was created in 1970 by Bruce Henderson and the Boston Consulting Group to help companies with many businesses or products determine their investment priorities.
The BCG matrix considers two different aspects of a business unit or product:
1. What is the current market share?
2. What is the market’s growth potential?
Market Share
Market share is the percentage of a market (defined in terms of units sold or revenue) accounted for by a specific product or entity. For instance, if you run a neighborhood lemonade stand that sells 200 glasses of lemonade each summer, and there are two other competing lemonade stands that sell 50 glasses and 150 glasses, respectively, then you have 50 percent market share. Out of 400 glass sold, you sell 200 glasses, or 50 percent of the total.
Companies track market share data closely. For example, what is the market share for different types of cell phones in the U.S.? The International Data Corporation reports these numbers quarterly. As the following table shows, Android phones have had the dominant market share over the past several years.
Smartphone Market Share 2017–2019[1]
Period Android iOS Others
2017 85.1% 14.7% 0.2%
2018 85.1% 14.9% 0.0%
2019 86.7% 13.3% 0.0%
Market-Growth Potential
The market-growth potential is more difficult to quantify, but it’s the other important factor in the BCG matrix. Let’s use some of the products in Proctor & Gamble’s portfolio to identify markets with different growth potential. How about bathroom tissue—is that a high-growth market? Probably not. Data shows that, in the U.S. anyway, bathroom tissue use tracks closely with population numbers, which have declined 0.7 percent since 1992. How about the market for high-end skin-care products? Generally, markets for products that serve Americans born between 1946 and 1964—the baby boomers—are growing rapidly. The reason is that this large generation is aging with more income and a longer life expectancy that any previous generation.
Market-growth potential generally includes analysis of similar markets, as well as analysis of the underlying drivers for marketing growth. It can be thought of as a “best guess” at what the future value of a market will be.
Applying the BCG Matrix
The BCG Matrix is comprised of four quadrants that show high and low market share and high and low growth potential. Each quadrant has a name and specific characteristics.
Dog
A product or business with low market share in a mature industry is a dog. There is no room for growth, which suggests that no new funds should be invested in it.
Cash Cow
A cash cow is a product or business that has high market share and is in a slow-growing industry. It’s bringing in more money than is being invested in it, but it doesn’t have much growth potential. The profits from a cash cow can be used to fund high-growth investments, but the cash cow itself warrants low investment.
Question Mark
A question mark is a product or business that has low market share currently, but in a growing industry. This case is trickier: the product/business is consuming financing and creating a low rate of return for now, but its direction isn’t clear. A question mark has the potential to become either a star or a dog, so close monitoring is needed to determine its growth potential.
Star
A star has high market share in a fast-growing industry. This kind of product or business is poised to bring strong return on the funds invested. It also has the potential to become a cash cow at the end of the product life cycle, which can fund future investments.
According to the logic of the BCG matrix, as an industry grows, all investments become cows or dogs. The intent of the matrix is to help companies make good portfolio-management decisions, focusing investment in the areas that are likely to provide returns and fund future growth.
1. “Smartphone Market Share - OS.” IDC. Accessed September 25, 2019. https://www.idc.com/promo/smartphone-market-share/os. ↵
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4.08: Reading- Strategic Opportunity Matrix
The last strategic framework that we will consider is the strategic opportunity matrix (sometimes called the Ansoff matrix, named after its creator, Igor Ansoff). Whereas the SWOT analysis can help organizations identify new market and new product opportunities (it’s the “O” in SWOT), the strategic opportunity matrix focuses on different growth strategies for markets and products. The matrix examines the following:
1. New vs. existing markets
2. New vs. existing products
As the diagram shows, each quadrant represents a different growth strategy:
1. Market penetration: focus on current products and current markets with the goal of increasing market share
2. Market development: use existing products to capture new markets
3. Product development: create new products that can be sold in existing markets
4. Diversification: create completely new opportunities by developing new products that will be introduced in new markets
Each strategy entails a different level of risk. Market penetration has the lowest risk since it emphasizes known markets and existing products. Diversification has the highest risk because it involves the development of new products and taking them to new markets. The company must consider whether it can achieve the desired returns without risking a move into new markets or introducing new products. Often, though, higher risk leads to a higher return.
Which strategy should the company pursue? The answer can be informed by a SWOT analysis, which takes into account the strengths and weakness of a company’s existing products, as well as the opportunities and threats in the competitive market.
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4.09: Self Check- Strategic Planning Tools
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/744
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4.10: Outcome- Examples of Corporate Strategies
What you’ll learn to do: give some examples of corporate strategies
It can be challenging to get a handle on an abstract concept like “corporate strategy” unless you can see what it means in the context of a real business. The goal of this section is to deepen your understanding of corporate strategies—particularly the ones described by the strategic growth matrix—by doing just that.
Learning Activities
The learning activities for this section include the following:
• Reading: Market Penetration Example
• Reading: Market Development Example
• Reading: Product Development Example
• Reading: Diversification Example
• Self Check: Examples of Corporate Strategies
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Why explain how a marketing strategy supports an organization’s corporate strategy?
In this module you’ll learn about the important role that marketing strategy plays in supporting corporate strategy. When a company has a mission and a set of corporate-level objectives, the marketing strategy must support those goals, which is perhaps the most important lesson that the following companies—and many others like them—failed to learn:
With Kolos, we did a lot of things right, but it was useless because we ignored the single most important aspect every startup should focus on first: the right product.
We didn’t spend enough time talking with customers and were rolling out features that I thought were great, but we didn’t gather enough input from clients. We didn’t realize it until it was too late. It’s easy to get tricked into thinking your thing is cool. You have to pay attention to your customers and adapt to their needs.
What I didn’t understand was, you charge not for how much work it is for you. You charge how much the service is worth.
As these companies attest, a lot of things can go wrong in the startup world, and learning the hard way can mean going out of business. Take a look at the following list, which reveals the major reasons startups fail:
Top 20 Reasons Startups Fail[1]
Note: You may notice that the percentages in this equal far greater than 100%. This is because there are often multiple reasons a startup failed.
1. No Market Need (42%)
2. Ran Out of Cash (29%)
3. Not the Right Team (23%)
4. Get Outcompeted (19%)
5. Pricing/Cost Issues (18%)
6. Poor Product (17%)
7. Need/Lack Business Model (17%)
8. Poor Marketing (14%)
9. Ignore Customers (14%)
10. Product Mis-Timed (13%)
11. Lose Focus (13%)
12. Disharmony on Team/Investors (13%)
13. Pivot gone bad (10%)
14. Lack Passion (9%)
15. Bad Location (9%)
16. No Financing/Investor Interest (8%)
17. Legal Challenges (8%)
18. Don’t Use Network/Advisors (8%)
19. Burn Out (8%)
20. Failure to Pivot (7%)
Many businesses go under because their products are inferior or don’t match a need, because of poor pricing strategy, poor marketing, or because of other issues related to product, price, promotion, or distribution. In essence, they fail to have a good plan that supports the goals of the company.
It is exceptionally difficult to get marketing strategy right. It is easy to get busy doing the work of the company, rather than planning the work that will ensure the company’s survival and success. Successful companies have a good corporate strategy that is supported by an effective marketing strategy. In this module you’ll begin to understand why that’s so important.
Learning Outcomes
• Evaluate how marketing strategies align with corporate strategies
• Explain the inputs and components of a marketing strategy
• Show how common analytic tools are used to inform the organization’s strategy
• Give examples of corporate strategies
• Explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy
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• Why It Matters: Marketing Strategy. Provided by: Lumen Learning. License: CC BY: Attribution
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4.12: Reading- Market Penetration Example
Under Armour
Under Armour promotes its products through sponsorship agreements with celebrity athletes, professional teams, and college athletic teams.
Market penetration: focus on current products and current markets in order to increase market share
Market penetration requires strong execution in pricing, promotion, and distribution in order to grow market share.
Under Armour is a good example of a company that has demonstrated successful market penetration. The company sells performance apparel, and in recent years it has surpassed Adidas to become the number-two athletic-wear provider in the U.S. The company has persistently focused on selling athletic footwear, clothing, and accessories, and was able to capture a leadership position in the market with that strategy.
Throughout 2014, Under Armour fueled its growth by focusing largely on promotion, distribution, and consistent product. As a result the company could claim major success—especially relative to major competitors Nike and Adidas—in the fight for its share of the fitness apparel market.
Like Nike, Under Armour’s has been very effective at developing inspiring advertisements that feature well-known male and female athletes. The following video ads are examples:
A link to an interactive elements can be found at the bottom of this page.
A link to an interactive elements can be found at the bottom of this page.
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• Rule Yourselfu2014Stephen Curry. Provided by: Under Armour. Located at: https://youtu.be/qd-ZtNsNiH4. License: All Rights Reserved. License Terms: Standard YouTube license
• Misty Copelandu2014I Will What I Want. Provided by: Under Armour. Located at: https://youtu.be/ZY0cdXr_1MA. License: All Rights Reserved. License Terms: Standard YouTube license | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/04%3A_Marketing_Strategy/4.11%3A_Why_It_Matters-_Marketing_Strategy.txt |
Poached Jobs
Market development: use existing products to capture new markets
Together, the hospitality industry, restaurants, and hotels account for 14 million jobs across the U.S., but the industry has a crushing 65 percent job-turnover rate. That means that, in a single year, there will be 8 million job openings in the industry. Most restaurant and hotel managers post jobs on Craigslist.com and have a terrible time sorting through hundreds of applicants who lack necessary qualifications or experience.
Poached Jobs is a young company that addresses this problem by providing an industry-based dedicated jobs platform that allows managers to find qualified applicants and manage the hiring process.
The company has chosen a market development strategy that’s based on geography. When Poached enters a new market, it wants to own that market and become the hiring solution for every restaurant and hotel in the region. The company used its initial markets, Seattle and Portland, to refine a market-entry strategy for its product and then took on larger markets such as San Francisco and Chicago. With each subsequent market the company incorporated new approaches that sped the adoption process. In late 2014, Poached entered the enormous New York City market. Most of 2015 was spent focusing on growth and success in that single market in order to build credibility that would enable it to move into other geographic regions.
The market development strategy allows a small company like Poached to stage its growth, perfect its existing product, and capture new markets one at a time.
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4.14: Reading- Product Development Example
Nissan Motors
Product development: create new products that can be sold in existing markets
Nissan was the first major automaker to commit to the mass production of an electric vehicle (EV). In 2008, it made good on its promise with the launch of the Nissan Leaf. Industry analysts immediately recognized the significance of this major move. The Economist had this to say:
Within the industry, the adjective most often used to describe Mr. Ghosn’s plan to make the Renault-Nissan alliance the first big manufacturer of zero-emission vehicles is “bold”—in other words, somewhere between very risky and certifiably mad.[1]
In 2011, industry watchers reported the following:
When announced in 2008, Nissan’s EV [electric vehicle] program was lauded by environmentalists and derided by the auto industry in equal measure. Nearly three years on . . . it has precipitated a seismic shift towards EVs in the auto industry, with all the other automakers now following suit. But will Nissan’s heavy EV investment program deliver the environmental benefits and market share that it hopes for? It is too early to tell, but it is undeniably exciting.[2]
Eight years after the Nissan Leaf was introduced, it’s fair to say that the company’s gamble paid off. Nissan saw two unmet needs in the market that it sought to address. It recognized that the zero-emissions Leaf would appeal to the environmentally minded consumer concerned about climate change. With oil prices on the rise, Nissan saw that their electric vehicle would also appeal to the cost-conscious consumer who wants to save on fuel expenses.
Today, the Nissan Leaf is the world’s top-selling, highway-legal, plug-in electric car, reaching global sales of nearly 200,000 vehicles in September 2015.[3] The company’s product development strategy enabled it to move into a leadership position among EV manufacturers, while successfully fulfilling unmet needs in its existing markets.
1. Mr Ghosn bets the company. The Economist, October 17, 2009. http://www.economist.com/node/14678942
2. www.thecrowd.me/sites/default/files/NissanCaseStudy.pdf ↵
3. Jeff Cobb (2015-09-16). "One Million Global Plug-In Sales Milestone Reached." HybridCars.com. Retrieved 2015-09-16. Cumulative global sales totaled about 1,004,000 highway legal plug-in electric passenger cars and light-duty vehicles by mid-September 2015. ↵
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4.15: Reading- Diversification Example
Disney
Diversification: create new opportunities by creating new products that will be introduced in new markets
Disneyland Toontown
When you hear the word Disney, what comes to mind? Many people think of Disney movies such as Cinderella and Beauty and the Beast or theme parks like Disneyland and Disney World. Disney’s product portfolio also includes Marvel Comics, television network ABC, and cable sports channel ESPN. The company has pursued a diversification strategy, which means purchasing other companies that enable it to bring new products into new markets while remaining true to Disney’s origins.
Today, 54% of Disney’s revenues—but only 32% of its profits—come from movies and parks.[1] Its most profitable growth comes from new products in new markets.
Strategic Business Unity Percent of 2014 revenue Percent of 2014 profits
Studio entertainment
Films in theater, home and TV
18% 12%
Parks and resorts
Theme parks, cruises
36% 20%
Media networks
TV stations and advertising
51% 56%
Consumer products
Licensing characters for products
10% 10%
Interactive
Game platforms and games
3% 1%
An industry analyst explains:
This wide diversification is what has allowed Disney to be so successful recently; Disney owns some of the biggest names in the entertainment world: ESPN, ABC, Disney theme parks, Disney cruise lines, and Pixar, just to name a few. Unlike many entertainment companies, Disney does not solely rely on films, TV, or parks; it is well diversified and relies on its wide reach to create one of the most recognized and popular brands in the world.[2]
Disney’s diversification identifies new products and markets that are close enough to its core business that the company can leverage its internal strengths to create business growth. Following the acquisition of ABC, Barry Diller, the former head of QVC Inc. and the man credited with creating the Fox network, said, “Taking nothing away from the senior management at the other networks, this will be the only one where the senior executive is trained true in the creative process.”[3]
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4.16: Self Check- Examples of Corporate Strategies
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/745
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What you’ll learn to do: explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy
If you are getting the impression that an organization’s planning around marketing strategy, tactics, and objectives is very complex, you are perceptive. There are a lot of variables for companies to consider, align, and track, and occasionally an important part of the planning process gets overlooked: the customer. In this last section, we’ll return to the customer and explain why customer relationships are such a crucial part of the marketing strategy and plan.
Let’s pause for a moment and put the customer into our discussion of market growth opportunities. We discussed the market for high-end skin-care products for older Americans. Imagine the woman who might buy a Proctor & Gamble antiwrinkle cream. She is standing in front of a shelf of products and chooses Proctor & Gamble’s cream. Who is she? Why is she there? What is her story? Our customer is hoping to stop the aging process and it is a personal, vulnerable moment. She doesn’t care about the SWOT analysis or the size of the market. She wants to find a product that “understands” what she needs and helps her.
In this section you’ll see how marketers address such issues and keep the customer at the center of the planning process in a very personal way.
The specific things you’ll learn in this section include:
• Describe how businesses use buyer personas to better understand the target customer
• Define customer relationship management
Learning Activities
The learning activities for this section include the following:
• Reading: Customer-Relationship Strategies
• Video: Harley Davidson Customer Relationships
• Self Check: Customer Relationships
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4.18: Reading- Customer-Relationship Strategies
A situation analysis can reveal whether a company’s relationship with customers is a strength to be exploited or a weakness that needs to be addressed. In many cases it’s a bit of both. For instance, a company might have loyal customers in one demographic but fail to hold the attention of customers in another demographic.
The question, then, is how do companies evaluate the quality of their customer relationships, and what approaches do they use to develop and maintain strong customer relationships? We will explore the answers to these questions in greater depth throughout this course. For now, we’ll touch on an approach that companies use to incorporate their customers in strategic planning and some of the tools they use to connect with them.
Buyer Personas
The basis for a strong relationship is getting to know and understand someone well enough to form a connection. The same is true for company relationships with customers. The trouble is that companies rarely have a chance to personally connect with individual customers—much less with all of their target customers.
Marketers use something called “buyer personas” to get a more accurate picture of the customers they’re trying to connect with and also to help them think of customers as real people. Buyer personas are fictional, generalized representations of a company’s ideal, or typical, customer. They help the marketer understand current and potential customers better. As a marketer, knowing whom you’re trying to reach and attract makes it easier to tailor your content, messages, product development, and services to the specific needs, behaviors, and concerns of different groups. For example, instead of sending the same email message to all potential customers, marketers will create a unique message for different buyer personas that aligns better with their personal interests and values.
Typically, a buyer persona will have a name and a story, as in Figure 1, above. The story will include information about how the persona spends her time and details about her interests, her concerns or fears, and her goals. Often, the write-up will explain what the persona wants from the company and its products to help marketers to use the information consistently. Each of these details helps the marketer focus on developing relationships with real people, and that results in a more personalized marketing plan.[1]
The strongest buyer personas are based on market research—both the information that is broadly available and information the company gathers through surveys, interviews, and observations of customer behavior.
1. blog.hubspot.com/blog/tabid/6307/bid/33491/Everything-Marketers-Need-to-Research-Create-Detailed-Buyer-Personas-Template.aspx ↵
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4.19: Video- Harley Davidson Customer Relationships
Once a company understands its buyer personas, how can it match those to real people who will buy its products or services? Today, companies use significant amounts of data and complex technology systems to create the right match in what it offers to individuals and groups of buyers.
The American Marketing Association defines customer relationship management in the following way:
A discipline in marketing combining database and computer technology with customer service and marketing communications. Customer relationship management seeks to create more meaningful one-on-one communications with the customer by applying customer data (demographic, industry, buying history, etc.) to every communications vehicle. At the simplest level, this would include personalizing e-mail or other communications with customer names. At a more complex level, customer relationship management enables a company to produce a consistent, personalized marketing communication whether the customer sees an ad, visits a Web site, or calls customer service.[1]
Customer relationship management brings data and technology together with the marketing mix to increase the personal connection with the customer. Let’s look at an example. Harley Davidson has a famously strong brand. This video provides a glimpse into the relationship that customers have with the brand and shows how a new technology is assisting the company in expanding its connection with customers.
A link to an interactive elements can be found at the bottom of this page.
What are some elements of the Harley Davidson buyer persona?
How is technology being used for customer relationship management?
Key Terms
Buyer persona. Fictional, generalized representations of an ideal customer that help a marketer understand current and potential customers better.
Customer relationships management. A discipline in marketing combining database and computer technology with customer service and marketing communications. Customer relationship management seeks to create more meaningful one-on-one communications with the customer by applying customer data (demographic, industry, buying history, etc.) to every communications vehicle.
1. www.ama.org/resources/Pages/Dictionary.aspx?dLetter=C ↵
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• Harley Davidsonu2014Community, Brand, IBM. Authored by: Chris Sparshott. Located at: https://youtu.be/iOF7aAVZMqA. License: All Rights Reserved. License Terms: Standard YouTube license
4.20: Self Check- Customer Relationships
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/746
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Since Southwest Airlines is a familiar example by now, let’s do a more complete review of its strategy to help with your assignments in this course.
In this module we have focused on the following aspects of marketing planning:
• Evaluate marketing strategies for alignment with the organization’s corporate strategies
• Show how common analytic tools are used to inform the organization’s strategy
• Explain inputs and components of a marketing strategy
• Give examples of corporate strategies
• Explain how the development and maintenance of customer relationships are an essential part of an organization’s marketing strategy
The summary below shows one analysis of the planning process for Southwest Airlines:
Corporate Strategy
Southwest Airlines’ strategy is driven by its mission.
The mission of Southwest Airlines is dedication to the highest quality of customer service delivered with a sense of warmth, friendliness, individual pride, and company spirit.footnote]www.southwest.com/html/about...st/[/footnote]
Note: Southwest Airlines’ mission is not limited to a focus on leisure travel or even air travel. Rather, the company is driven by a mission to provide the best customer service across all sectors.
A Fortune magazine article describes Southwest’s unique profile in the airline industry:
Starting with just four planes flying to three Texas cities on June 18, 1971, [co-founder Herb] Kelleher built a maverick operation that prided itself on charting a different route from other airlines. It wooed passengers with ultra-friendly onboard service, squeezed more flights a day from every plane, and made money not by raising fares but by lowering them—and hence filling seats with folks who could never before afford to fly. Along the way Southwest evolved from an upstart to a colossus that last year carried 134 million passengers in the U.S., more than any other airline and some 20% of the total. In an industry in which every other major company has gone through bankruptcy, Southwest has never gotten close to Chapter 11 and has made money for 42 straight years. [1]
Despite this success, Southwest airlines found its revenue per customer to be low, so it launched a strategy to attract higher-revenue business customers.
Objective: raise the portion of business customers on Southwest from 35% to 40% during the five-year period from 2014 to 2019.
Note: In a competitive industry such as the airlines industry, it is remarkably difficult to gain 1% of market share. Often organizations track .1% and .01% changes.
Analysis Tools
In order to achieve the company objective Southwest needs to bring its strengths to new customers in a way that addresses both its own weaknesses and those of competitors (which create opportunities).
SWOT Analysis
Southwest’s SWOT analysis, below, identifies a number of opportunities and challenges:
Strengths
• Exceptional customer loyalty among price-conscious leisure travelers.
• Strong customer service culture throughout organization.
• Dominance among regional airports and short trip segments.
Weaknesses
• Lower revenue per passenger than competitors.
• Limited offerings on lucrative “long-haul” flight routes.
• Low awareness among business travelers who exhibit strong loyalties to airlines with frequent traveler programs.
• Product offering emphasizes convenience at the expense of fringe benefits.
Opportunities
• Low customer satisfaction ratings of airlines that serve business travelers. [2]
• Increasing monitoring of corporate travel costs by boards and shareholders as an example of excessive perks.
• Increasing costs (threat) have less impact per customer if Southwest can attract new segments of customers that competitors are already serving.
Threats
• Competitor dominance of business hubs such as Atlanta, Minneapolis, and Chicago.
• Increasing fuel costs and labor costs impacting the industry.
• Risk of price wars as existing providers drop price to hold on to lucrative business travelers.
Strategic Opportunities Matrix
With its objective to raise its share of business customers, Southwest decided to enter a new market. Is this a market development or a diversification strategy? Is the business traveler buying a different product, or benefiting from different promotion and pricing? In this case, Southwest made the choice to pursue a market development strategy that emphasized pricing, promotion, and distribution rather than making significant changes in its product (by refitting planes to add first-class seats or creating new flights for business travelers, e.g.).
Southwest’s company mission likely played a guiding role in arriving at this decision. The airline’s focus on providing great customer service means that it’s less interested in bringing a new product to market than in taking “amazing customer service” to a new market—i.e., the business traveler.
4 Growth Strategies: The Strategic Opportunities Matrix
The following is a list of the four growth strategies in the Strategic Opportunities Matrix:
• Market Penetration Strategy: New market and current product
• Product Development Strategy: New market and new product
• Market Development Strategy: Current market and current product
• Diversification Strategy: Current market and new product
Components of the Marketing Strategy
In order to appeal to corporate customers, Southwest must focus all elements of the marketing mix on a new target customer that is less cost-conscious and less patient with the inconveniences of travel.
Marketing Mix
Southwest did not implement a separate strategy for each of the four Ps. Instead, it brought the elements of the marketing mix together into major initiatives that touch all aspects of the marketing mix. We are going to explore two of those marketing strategies here.
The Business Select Offering
Southwest’s Business Select provides an additional layer of service that emphasizes the convenience and comfort that business travelers require, at a higher price. A traveler from Los Angeles to Norfolk, Virginia, can select a budget fare of \$351 or a Business Select fare of \$583. For the higher price the customer gets early boarding, access to faster check-in and security clearance, a free alcoholic beverage, and extra frequent-flyer points. The price is \$232 higher for travelers who are willing to pay for these conveniences. For a lower price, travelers can buy only EarlyBird check-in, which moves them to the front of the boarding line but does not include the additional features.
The marketing mix includes a new price point, and a series of new services that are packaged in one new offering. It is worth noting that competitor airlines provide these benefits to their frequent flyers through free first-class upgrades for unfilled seats in first class. On those airlines, first-class passengers also get a higher class of customer service. Southwest has found a way to introduce a higher price and provide a comparable set of benefits to business travelers, while leveraging the customer service it provides to all travelers.
SWABiz
For leisure travelers, Southwest only sells tickets through its own distribution channel—its phone line and Web site. Many other airlines also sell through distributors such as Expedia, Hotwire, and CheapTrips, which all require additional discounting to cover their mark-up on the ticket price. Instead, Southwest has kept its fares lower and drawn customers to its own Web site to make purchases.
In the SWOT analysis, we see that Southwest does not have good awareness among business customers. How can it draw business customers to its Web site or get to the places where business travelers will book? SWABiz was the solution. SWABiz provides a free travel-booking and management tool for companies that do the majority of their travel on Southwest. It provides companies that often book travel for their employees (or direct employees to a single place to book) with a tool to manage flights, hotels, and car rentals. SWABiz also enables participating companies to monitor spending and enforce corporate travel policies.
Southwest also expanded its distribution network for corporate travelers. The company sells flights through Concur, a travel-booking and management system used by many corporate travel organizations that want to book across many airlines.
SWABiz is a new distribution strategy that creates an opportunity to promote its business offering to corporate travel offices and managers.
Through these marketing strategies Southwest is building a network of business customers who have a relationship with the airline. Southwest’s frequent-flyer program creates an opportunity to track customers’ purchases and preferences and to bring this understanding into future strategies and plans.
Evaluation
Are these strategies successful? Southwest Airlines is actively monitoring its progress in attracting business travelers and adjusting its strategy accordingly. As with most aggressive strategies that span multiple years, the results are mixed, and there is room for new approaches.
Southwest’s chief operating officer, Robert Jordan, sees the potential: “The combination of these factors has led to “double-digit growth” year-after-year in managed corporate bookings.” He adds, “[O]ur [Southwest’s] corporate business is growing faster than our base business.”[3]
CEO Gary Kelly acknowledges that there is still work to do, noting that it is not yet adding enough business travelers to its fare mix. From the first half of 2012 to the same period in 2015, Southwest’s average passenger fare increased just 6%, to \$158, even though it was adding longer flights to lure business customers.” [4]
Southwest has begun a strategy of adding more long-haul flights to its schedule, entering new airports, and competing head-to-head with its competitors in America’s busiest airports. The work of defining, implementing, measuring, and adjusting strategies is never done.
1. fortune.com/2015/09/23/southwest-airlines-business-travel/ ↵
2. www.jdpower.com/press-releases/2015-north-america-airline-satisfaction-study#_ftnref2 ↵
3. http://www.forbes.com/sites/airchive/2014/04/22/southwest-airlines-opens-for-business-customers/
4. http://fortune.com/2015/09/23/southwest-airlines-business-travel/
Contributors and Attributions
CC licensed content, Original
• Putting It Together: Marketing Strategy. Provided by: Lumen Learning. License: CC BY: Attribution
4.22: Outcome- Evaluate Alignment of Marketing Strategies
What you’ll learn to do: evaluate how marketing strategies align with corporate strategies
Most of this course will focus on elements of the marketing strategy and the different tactics organizations use to execute the strategy. How do you know if you have the right marketing strategy?
Every organization has a mission. The mission describes the company’s reason for existing. In order to achieve the mission, the company creates broad strategies that define how it can best use its resources to achieve the mission. At the company level, executives create specific, measurable goals to determine whether the company is making progress in executing the strategy. These time-based goals are called objectives.
The marketing function also defines a strategy that supports the corporate-level objectives. Marketing must clearly understand the target customer and identify the right mix of product, promotion, pricing, and distribution strategies that will provide unique value to the customer. Marketing also creates measurable objectives that show whether it is executing the strategy well and hitting the targets that support the corporate-level objectives. Then marketing performs specific tasks (using tactics) to execute the strategy and achieve the objectives.
The specific things you’ll learn in this section include:
• Define strategy, tactics, and objectives
• Describe how to align mission, strategy, and objectives
• Explain the role of marketing strategy in corporate strategy
Learning Activities
The learning activities for this section include the following:
• Video: What Is Strategy?
• Reading: Strategy and Tactics
• Reading: The Mission Statement
• Reading: Strategy and Objectives
• Self Check: Evaluate Alignment of Marketing Strategies
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• Outcome: Evaluate Alignment of Marketing Strategies. Provided by: Lumen Learning. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/04%3A_Marketing_Strategy/4.21%3A_Putting_It_Together-_Marketing_Strategy.txt |
Student Instructions: Complete the following information about the organization and products and/or services you will focus on as you develop a complete marketing plan throughout the course. You may need to do research to get answers to the questions below. Be sure the organization and offering you select will 1) remain interesting to you for the duration of the course, and 2) have sufficient information available for you to conduct research and make informed recommendations in your marketing plan.
Company Profile
• Company Name:
• Industry:
• Major products and/or services (names, types):
• Products and/or services your marketing plan will focus on:
• Target customers:
• Distribution channel(s):
• Headquarters (city, state, country):
• Year founded:
• Number of employees:
• Annual revenue (estimated)
• Key competitors:
• Link to Web site:
• Link to Yahoo! Finance information page (for public companies):
Market Segmentation and Targeting
• What problem does your product or service solve?
• Describe the total market for your solution: Who are potential customers?
• What are the key segments within this market?
• Identify and briefly describe 1–3 segments that this company serves.
• Which segment does this marketing plan focus on, and why? Why do you believe this segment will offer growth and profit opportunities?
Situation and Company Analysis
Economic Environment
Discuss factors that affect your consumers’ purchasing power and spending patterns. What is the economic environment that you are operating in? Is it a growth, recovery or recession? Will it be easy to find staff? What is the current interest rate i.e. is it increasing or decreasing? What is consumer confidence like?
Technical Environment
The technological environment changes rapidly. You need to make sure that you are aware of trends in your industry and other industries could affect your business. New technologies create new markets and can influence you consumers and competitors. Industry environment What are the trends in your industry? Are there new entrants in the market? Has a substitute product been introduced? Are there changes in industry practices or new benchmarks to use?
Competitive Environment
How many competitors do you have? Who are the key competitors? What are the key selling points or competitive advantages of each one. What is your advantage over competitors? Is the market large enough to support you and competitors?
Political Environment
Consider the political environment for the areas that your business will trade and operate in. Is there a stable political system? Are there any licenses and regulations that you should be aware of? Do you need to win support to be able to operate?
SWOT Analysis
Instruction: Complete the table below with descriptive responses and explanation as you answer the questions below.
Strengths
• Does the organization have a strong brand presence?
• What resources are available for marketing activities?
• Does the the company have unique products or services that satisfy the needs of their target market?
• What makes the company’s products or services unique?
• What value is brought to customers?
Weaknesses
• Does the organization have a weak brand presence?
• Are resources insufficient for marketing activities?
• Does the company lack distinctive products or services?
• Do current products or services fail to satisfy the needs of customers?
• Do current products or services fail to bring value to customers?
Opportunities
• What is the unique opportunity that the company is trying to take advantage of?
• Does the target market have any unfulfilled needs that the company can satisfy?
• Are there emerging target markets with needs that the company can satisfy?
• Are there ways the company and its competitors can benefit by working together?
• Are there opportunities for collaborating with customers to build brand presence?
• Describe and analyze if market demand is increasing?
• Are there changes in the government regulations that will affect the company?
• Describe any emerging global issues that will affect the company?
Threats
• What are the tactics that competitors use to pursue customers?
• What are the strengths of the company’s biggest and or emerging competitors?
• In what ways are the competitors’ products or services superior to the company’s offerings?
• How are competitors likely to respond to any changes in the way the company markets?
• Is the company behind in adopting new technologies for marketing?
• Describe any ways in which international competitors are taking away market share?
• What do customers dislike about the company?
• Describe and analyze if market demand is decreasing?
Mission, Objectives, and Goals
State the mission or business purpose: what the organization wants to achieve, in market-oriented terms. (Example: Disney’s mission could be, “We create happiness by providing the finest in entertainment for people of all ages.)
List 1–3 objectives that move the organization a step closer to achieving the mission. (Example: A Disney objective could be, “To be the most popular theme park for international visitors.”)
Convert objectives into specific marketing goals that are easy to measure and evaluate. (Example: Our goal is to increase market share of international theme park visitors by 10% in the next two years.”)
Sample Grading Rubric
Company Profile Grading Rubric
Company Profile Grading Rubric
Criteria: Company Profile Not Evident Developing Proficient Exemplary Points
Professionalism 0-1 pts
Many grammar and spelling mistakes, citations are missing or not all sources are cited, writing lacks logical organization. It may show some coherence but ideas lack unity. Serious errors and generally is an unorganized format and information.
2 pts
Grammar and spelling mistakes, citations mistakes, some sources not cited, organization and readability is difficult to follow, fairly clear articulation of ideas, incorrect use of templates, etc.
3 pts
Few grammar and spelling mistakes, few citations mistakes, all sources cited, fair organization and readability, fairly clear articulation of ideas, mostly correct use of templates, etc.
4 pts
Proper grammar, spelling, citations, sources, good organization, readability, clear articulation of ideas, correct use of templates, etc.
4 pts
Thoroughness 0-1 pts
Response doesn’t follow instructions; response is not researched or may state items directly from the source with little to no original thought, writing is confusing and difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete or missing analysis
2 pts
Doesn’t follow all instructions; response is not researched and may be confusing or difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete analysis
3 pts
Follows instructions; response is researched and articulate; may slightly fall short of or exceed appropriate length; addresses the majority of the prompts and assignment criteria; thoughtful analysis.
4 pts
Follows instructions; response is well-researched and articulate; appropriate length; addresses all prompts and assignment criteria; thoughtful analysis.
4 pts
Progression 0 pts
Does not incorporate feedback or suggestions from instructor and peers
1 pts
Incorporates minimal feedback and suggestions from instructor and peers; demonstrates minimal continuous improvement
1.5 pts
Incorporates much of the feedback and suggestions from instructor and peers; demonstrates continuous improvement
2 pts
Incorporates feedback and suggestions from instructor and peers and makes an effort to improve the writing by editing it themselves; demonstrates continuous improvement and initiative in revising and improving work
2 pts
Total points possible for Company Profile Assignment: 10 pts.
Market Segmentation and Targeting Grading Rubric
Market Segmentation and Targeting Grading Rubric
Criteria: Market Segmentation and Targeting Not Evident Developing Proficient Exemplary Points
Professionalism 0-1 pts
Many grammar and spelling mistakes, citations are missing or not all sources are cited, writing lacks logical organization. It may show some coherence but ideas lack unity. Serious errors and generally is an unorganized format and information.
2 pts
Grammar and spelling mistakes, citations mistakes, some sources not cited, organization and readability is difficult to follow, fairly clear articulation of ideas, incorrect use of templates, etc.
3 pts
Few grammar and spelling mistakes, few citations mistakes, all sources cited, fair organization and readability, fairly clear articulation of ideas, mostly correct use of templates, etc.
4 pts
Proper grammar, spelling, citations, sources, good organization, readability, clear articulation of ideas, correct use of templates, etc.
4 pts
Thoroughness 0-1 pts
Response doesn’t follow instructions; response is not researched or may state items directly from the source with little to no original thought, writing is confusing and difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete or missing analysis
2 pts
Doesn’t follow all instructions; response is not researched and may be confusing or difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete analysis
3 pts
Follows instructions; response is researched and articulate; may slightly fall short of or exceed appropriate length; addresses the majority of the prompts and assignment criteria; thoughtful analysis.
4 pts
Follows instructions; response is well-researched and articulate; appropriate length; addresses all prompts and assignment criteria; thoughtful analysis.
4 pts
Progression 0 pts
Does not incorporate feedback or suggestions from instructor and peers
1 pts
Incorporates minimal feedback and suggestions from instructor and peers; demonstrates minimal continuous improvement
1.5 pts
Incorporates much of the feedback and suggestions from instructor and peers; demonstrates continuous improvement
2 pts
Incorporates feedback and suggestions from instructor and peers and makes an effort to improve the writing by editing it themselves; demonstrates continuous improvement and initiative in revising and improving work
2 pts
Total points possible for Market Segmentation and Targeting Assignment: 10 pts.
Situation and Company Analysis Grading Rubric
Situation and Company Analysis Grading Rubric
Criteria: Situation and Company Analysis Not Evident Developing Proficient Exemplary Points
Professionalism 0-5 pts
Many grammar and spelling mistakes, citations are missing or not all sources are cited, writing lacks logical organization. It may show some coherence but ideas lack unity. Serious errors and generally is an unorganized format and information.
10 pts
Grammar and spelling mistakes, citations mistakes, some sources not cited, organization and readability is difficult to follow, fairly clear articulation of ideas, incorrect use of templates, etc.
15 pts
Few grammar and spelling mistakes, few citations mistakes, all sources cited, fair organization and readability, fairly clear articulation of ideas, mostly correct use of templates, etc.
20 pts
Proper grammar, spelling, citations, sources, good organization, readability, clear articulation of ideas, correct use of templates, etc.
20 pts
Thoroughness 0-5 pts
Response doesn’t follow instructions; response is not researched or may state items directly from the source with little to no original thought, writing is confusing and difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete or missing analysis
10 pts
Doesn’t follow all instructions; response is not researched and may be confusing or difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete analysis
15 pts
Follows instructions; response is researched and articulate; may slightly fall short of or exceed appropriate length; addresses the majority of the prompts and assignment criteria; thoughtful analysis.
20 pts
Follows instructions; response is well-researched and articulate; appropriate length; addresses all prompts and assignment criteria; thoughtful analysis.
20 pts
Progression 0-2.5 pts
Does not incorporate feedback or suggestions from instructor and peers
5 pts
Incorporates minimal feedback and suggestions from instructor and peers; demonstrates minimal continuous improvement
7.5 pts
Incorporates much of the feedback and suggestions from instructor and peers; demonstrates continuous improvement
10 pts
Incorporates feedback and suggestions from instructor and peers and makes an effort to improve the writing by editing it themselves; demonstrates continuous improvement and initiative in revising and improving work
10 pts
Total points possible for Situation and Company Analysis Assignment: 50 pts.
Total points possible for Marketing Plan, Part 1 Assignment (Consists of Company Profile Assignment, Market Segmentation and Targeting Assignment, and Situation and Company Analysis Assignment combined): 100 pts.
Contributors and Attributions
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• Assignment: Marketing Plan, Part I . Provided by: Lumen Learning. License: CC BY: Attribution
• SWOT and Integrated Marketing Communications Templates. Authored by: Melissa Barker. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/04%3A_Marketing_Strategy/4.23%3A_Assignment-_Marketing_Plan_Part_I.txt |
A strategy is a directed course of action to achieve an intended set of goals.[1] A tactic is the means by which a strategy is carried out. [2]
A link to an interactive elements can be found at the bottom of this page.
Strategy answers the following four questions:
1. Where do we compete?
2. What unique value do we bring to customers?
3. How will we use our capabilities to provide unique value?
4. How will we sustain our unique value and position?
1. Mintzberg, H. Ahlstrand, B. and Lampel, J. Strategy Safari : A Guided Tour Through the Wilds of Strategic Management, The Free Press, New York, 1998. ↵
2. www.businessdictionary.com/definition/tactics.html ↵
Contributors and Attributions
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• What Is Strategy?. Authored by: David Kryscynski. Located at: youtu.be/TD7WSLeQtVw. License: All Rights Reserved. License Terms: Standard YouTube license
4.25: Reading- Strategy and Tactics
Definitions
A strategy is a directed course of action to achieve an intended set of goals.[1] A tactic is the means by which a strategy is carried out. [2]
Background
Plan of the battle of Chantilly, Virginia, fought in 1862.
Long before the word strategy had meaning in business, it was used in the context of war. In that context it came to mean the battle plan devised by one side in order to gain an advantage or victory over an opponent. The term tactics referred to the specific short-term actions taken by soldiers on the battlefield to support the strategy.
Military strategy and business strategy have many things in common. Both include uncertainty, making it more challenging to achieve desired results. Often there are many variables or factors that will interact in unpredictable ways. Finally, there is a combative or competitive aspect that drives both kinds of strategies: the participants keenly watch the events unfold and adjust their strategies and tactics along the way in order to win. Whether it’s a battle or an economic downturn, the complexity and unpredictability of events underscores the need for a broad strategy that factors in as many contingencies as possible.
A business strategy must take into account the changing environment and identify a plan that will use the company’s resources most effectively to achieve its mission and goals.
Differentiating Strategy and Tactics
Let’s look at some specific characteristics of business strategy and consider how strategy differs from tactics.
Strategy Identifies Where We Will Compete
The strategy determines which markets we will pursue, where we will sell our goods and services. It focuses efforts on a specific target market.
Tactics indicate specific actions that we will take in those markets.
Strategy Describes the Unique Value for Customers
When developing a strategy, the aim is to identify unique benefits in the products or services that customers value and that differ from what competitors offer. A strategy should define and clarify the unique value.
Tactics include the tasks of creating, delivering, and expanding the value.
Strategy Explains How the Company’s Assets Will Create Unique Value
How do the company’s activities interact and reinforce one another? For an organization to define a strategy that creates a unique and valuable position, it must bring together and align the various capabilities and resources of the business.
Tactics are planned to reinforce this unique value. Effective tactics, or specific actions, must support the strategy in order for the customer to have a consistent experience with the product or service that aligns with the unique value that the company is seeking to deliver.
Strategy Determines How the Company Will Sustain Unique Value[3]
Over time, competitors will try to eliminate the company’s advantage or copy the areas where it is successful. How will the company continue to provide unique value and protect or expand the areas in which it has an advantage?
As the company refines its strategy retain or expand its advantage, the tactics must also be adjusted to execute the strategy effectively.
Strategy and Tactics in Practice
In each case, strategy defines the high-level plan. Tactics include the steps taken to execute that plan. The following examples show how strategies and tactics are employed by real businesses.
Strategy and Long-Term Planning: Southwest Airlines
Strategy
In its early days, Southwest Airlines’ strategy focused on being the low-cost airline of choice for leisure travelers. Prior to 2008 the company recognized that without expanding its target market, it could not sustain growth. The company expanded its target market to include business travelers, without compromising the low cost and inviting brand that appealed to leisure travelers.
Tactics
Two programs provided tactics to support this shift. The company began to offer a Business Select service, which includes perks such as early boarding, priority check-in, and a free alcoholic beverage for those purchasing a premium fare. Early Bird Check-in provides automatic check-in, which allows the customer to board early.
According to CEO Gary Kelly, Southwest does “Six percent or seven percent of our boardings by Business Select, [and] probably more than double that by Early Bird.” The combined direct revenues from the programs were nearly \$295 million in 2013.[4]
Strategy and Focus: Walgreens
Strategy
In the book Good to Great, author Jim Collins identifies Walgreens as a company that demonstrates focus in its strategy. After inventing the malted milkshake at the soda counter in its pharmacies, the CEO made a strategic decision to divest all food operations over a five-year period and focus on being the most convenient drugstore. Today there are more than 8,200 Walgreens stores across all fifty states.[5]
Tactics
After dragging its feet for six months, the management team began a process of closing soda fountains in the stores and selling the Corky’s restaurant chain and other food holdings.
Strategy and Aligned Activities: Zappos
Strategy
Zappos’ strategy centers on providing the best customer service in the world. The company was initially founded with three assumptions behind its vision:
1. One day, 30 percent of all retail transactions in the U.S. will be online
2. People will buy from the company with the best service and the best selection
3. Zappos.com will be that online store[6]
The emphasis on a strategy of exceptional service for every customer drives strategic decisions such as choosing to join forces with Amazon.
Tactics
The strategy is also a point of alignment for every tactic in the organization including the process for interviewing and selecting new employees, decisions about warehousing, and decisions about which products are offered in the company’s online store.
1. Mintzberg, H. Ahlstrand, B. and Lampel, J. Strategy Safari : A Guided Tour Through the Wilds of Strategic Management, The Free Press, New York, 1998. ↵
2. www.businessdictionary.com/definition/tactics.html ↵
3. Kryscynski, D. (2015, January 5). What is strategy
4. www.forbes.com/sites/airchive/2014/04/22/southwest-airlines-opens-for-business-customers/ ↵
5. "Good to Great: Why Some Companies Make the Leap... And Others Don't (Review)." September 3, 2001. Retrieved 2012-07-13. ↵
6. www.zappos.com/d/about-zappos ↵
Contributors and Attributions
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• Strategy and Tactics. Provided by: Lumen Learning. License: CC BY: Attribution
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A Mission Statement Explains Why an Organization Exists
The mission statement guides the corporate strategy, which, in turn, guides the marketing strategy and planning. All marketing activities should relate to and support the company’s mission.
In the marketing planning process diagram at the right, the planning begins with the mission statement. The mission statement doesn’t change. The strategy and tactics might shift—and, indeed, after an implementation and evaluation process, they often do—but the company’s mission remains fixed. For instance, if a company discovered that its product design were creating new opportunities in an adjacent market, that might spur development of a new corporate-level strategy to expand into the new market, but it wouldn’t change the fundamental mission of the company.
Google’s Mission Statement
Google’s mission is to organize the world’s information and make it universally accessible and useful.[1]
The mission statement is clear and direct, and it gives the company enormous opportunity to make an impact.
How does Google’s mission statement drive the company’s strategies? Let’s look at it from several different angles.
Google’s Target Market
Google’s target market is the world. For most companies that would seem overly ambitious, right? In effect, the company has chosen not to target and not to segment. Why does such a decision make sense for Google? The company’s mission demands a comprehensive, global focus, and therefore so does its targeting.
Google’s Strategy
Google has defined a set of strategies that support its mission, one of which is the product strategy. There are two core components of Google’s product strategy: its search engine and the advertising platform that is fed by the search engine. Both of these products are not only designed to serve the world but they become more and more powerful as they gain users. If Google were to narrow its focus to a segment of Internet users, it would hamper the company’s ability to achieve its mission—and, at the same time, make Google less successful and profitable.
Google’s Tactics
Google uses a range of tactics to execute its strategy. One tactic is to create promotional videos, such as the one below, that convey the power of Google’s mission and align the mission with the specific benefits of the Google search engine.
A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/pom2/?p=196
Through the course of the ad, Google suggests that its search engine connects us to
• Hope more than fear
• Science more than fiction
• Things we love
• Greatness
• Hope
• Memories
• Inspiration
In what ways does this promotional tactic align with the company mission and support the product strategy?
From this example you can begin to see that
• The mission statement functions as an important guide for all aspects of company strategy.
• When the strategy and tactics support the mission statement, they are more effective because they reinforce one another.
1. www.google.com/about/company/ ↵
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• The Mission Statement. Provided by: Lumen Learning. License: CC BY: Attribution
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• Google - Year in Search 2014. Provided by: Google. Located at: youtu.be/DVwHCGAr_OE. License: All Rights Reserved. License Terms: Standard YouTube license | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/04%3A_Marketing_Strategy/4.26%3A_Reading-_The_Mission_Statement.txt |
The Need for Objectives
As we discussed before, a business strategy must take into account the changing environment and identify a plan that will use the company’s resources most effectively to achieve its mission and goals. Businesses define and and communicate their goals using objectives.
Objectives specify measurable outcomes that will be achieved within a particular time frame. Objectives help individuals across the team to understand the goals and to determine whether the strategy is effective and the tactics are being well executed. Objectives are used to align expectations and plans, to coordinate efforts, to measure progress, and to hold teams accountable for achieving results.
Companies often have long-term strategies but create objectives based on a quarterly or annual plan. Clear, measurable objectives enable the company to track progress and adjust tactics (and, sometimes, strategies) to improve the chance of success.
Creating Effective Objectives
In general, effective objectives meet the following criteria:
• They are specific. They identify what must be accomplished in language that is clear and easy for the whole company to understand.
• They are measurable. They help managers ascertain whether the objectives have been achieved in very concrete terms.
• They have a time frame. The objectives specify when they are to be met so that others can count on the results being available at a certain time.
Below are some examples of good objectives:
• Implement a new customer loyalty plan in 20XX
• Increase market share for the product by 2 percent during 20XX
• Execute marketing campaigns that result in 2,000 qualified leads for a new product by June 1
Using Objectives to Align Company Activities
Companies do not have a single strategy. At any time they are executing a range of different strategies. A company might simultaneously execute on strategies to enter a new market, grow market share in an existing market, and improve organizational efficiency. Moreover, strategy at the corporate level will guide the development of strategies for each function, including marketing. Remember, a business strategy must identify a plan that will use the company’s resources most effectively to achieve its mission and goals. Likewise, the marketing strategy must identify a plan that will use the marketing function’s resources and expertise most effectively to achieve its mission and goals.
We will discuss the process for developing and executing the marketing strategy further, but first let’s focus on the alignment of the marketing strategy. How can the marketing function make sure that its strategy and tactics support the corporate-level objectives? How does it know if it is on track to achieve results? During the marketing planning process, the organization creates its own marketing objectives that support the company objectives. These marketing objectives must also specify measurable outcomes that will be achieved within a particular time frame.
Let’s take a look at some examples of typical corporate and marketing objectives. At the corporate level, objectives include profitability, cost savings, growth, market-share improvement, risk containment, reputation, and so on. All of these corporate objectives can imply specific marketing objectives. Below are two common corporate-level objectives and the marketing objectives that would support them effectively.
Example: Annual Objectives
1. Company Objective: Increase profitability by 6% over prior year
• Marketing Objective: Increase the average selling price of the product from \$186 to \$198
• Marketing Objective: Complete end-of-life process for three products with profit margins below 3%
• Marketing Objective: Increase sales of start product by 30% over prior year
2. Company Objective: Increase market share in one key market by 4%
• Marketing Objective: Implement a competitive-positioning campaign relative to a key competitor
• Marketing Objective: Introduce two new products to market
• Marketing Objective: Introduce major enhancements in two product lines
• Marketing Objective: Bring two new distribution partners on board to expand coverage to new major markets
As you can see, if the marketing organization achieves its objective to introduce new products to market, then it will support the company objective to grow market share. If the marketing organization does not introduce new products, then the other objectives will need to be adjusted or the company is unlikely to show the market share growth that is part of its strategy.
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/742
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• Self Check: Evaluate Alignment of Marketing Strategies. Provided by: Lumen Learning. License: CC BY: Attribution
4.29: Outcome- Marketing Strategy Mechanics
What you’ll learn to do: explain the inputs and components of a marketing strategy
The company strategy and objectives provide direction for the whole company, but they don’t specify how the company will get the most benefit from marketing resources and capabilities. That is the role of the marketing strategy. The marketing strategy defines how the company shapes its product, promotion, pricing, and distribution to provide unique value to its customers and to support the broader company goals.
Throughout this course we will delve more deeply into the strategies, tools, and processes that a marketer uses, but this module emphasizes the planning process itself. How does the marketing function create an effective plan and execute it successfully? That planning process is the focus of this module.
The specific things you’ll learn in this section include:
• Identify the inputs to the marketing strategy
• Describe how a marketing strategy optimizes the marketing mix
• Discuss the role of budget, implementation, and evaluation in the marketing strategy
Learning Activities
The learning activities for this section include the following:
• Reading: Creating the Marketing Strategy
• Reading: Optimizing the Marketing Mix
• Reading: Implementation and Budget
• Reading: Evaluating Marketing Results
• Self Check: Marketing Strategy Mechanics
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4.30: Reading- Creating the Marketing Strategy
Inputs That Inform Marketing Strategy
To a great extent, developing the marketing strategy follows the same sequence of activities used to define the corporate strategy. The chief difference is that the marketing strategy is directly affected by the corporate strategy, as well as by the other functions within the organization. As a result, the marketing strategy must always involve monitoring and reacting to changes in the corporate strategy and objectives.
In order to be effective, a marketing strategy must capitalize on the resources at its disposal within the company, but also take advantage of the market forces that are outside the company. One way to assess these different factors, or inputs, is by conducting a situation analysis (also called a SWOT analysis). A SWOT analysis includes a review of the company’s internal strengths and weaknesses and any external opportunities and threats that it faces. We will discuss the SWOT analysis and other strategic planning frameworks in more detail later in this module.
Centering on the Target Customer
The marketing strategy defines how the marketing mix can best be used to achieve the corporate strategy and objectives. The centerpiece of the marketing strategy is the target customer. While the corporate strategy may have elements that focus on internal operations or seek to influence external forces, each component of the marketing strategy is focused on the target customer.
Recall the following steps of determining who your target customer is:
1. Identify the business need you will address, which will be driven by the corporate strategies and objectives;
2. Segment your total market, breaking down the market and identifying the subgroup you will target;
3. Profile your target customer, so that you understand how to provide unique value;
4. Research and validate your market opportunity.
Focusing the marketing strategy on the target customer seems like a no-brainer, but often organizations get wrapped up in their own strategies, initiatives, and products and forget to focus on the target customer. When this happens the customer loses faith in the product or the company and turns to alternative solutions.
Aligning Corporate and Marketing Strategies
As we discussed before, objectives can create alignment between the corporate and marketing strategies. If the corporate objectives are clearly defined and communicated, then they become a calibration tool for every step of the marketing planning process.
How would good corporate-level objectives inform the marketing strategy and objectives? Consider the following examples:
1. Imagine completing a market segmentation process. You find a target market that will find unique value in your offering. The decision to pursue that target market will depend on whether that segment is large enough to support the corporate objectives for market growth.
2. How many new products should the company launch this year? The answer should be informed by the corporate objectives for growth and profitability.
3. The marketing function has identified a customer relationship management campaign that would create greater customer loyalty. Does the cost of the campaign and its expected returns align with the company objectives?
As you can see, company objectives provide important guidance to the marketing planning process. Likewise, marketing objectives ensure that the goals of the marketing strategy are defined, communicated, and measured.
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What does privacy mean in today’s world? Privacy is the ability of an individual or group to seclude themselves, or information about themselves, and thereby express themselves selectively. Most of us expect some level of privacy, but the boundaries around privacy can differ depending on the individual and the situation.
The right-to-privacy issue has gotten more complicated as our culture has come to rely so heavily on digital communication—for everything from social networking to education to conducting business. Marketers have been quick to capitalize on the potential of digital technology to yield creative, aggressive techniques for reaching their target buyers. Sometimes these aggressive tactics cause a public backlash that results in new laws. For example, intrusive telephone marketing activities led to the passage of the the Do-Not-Call Implementation Act of 2003, which permits individuals to register their phone number to prevent marketing calls from organizations with which they don’t have an existing relationship. The act was intended to protect consumers from a violation of privacy (incessant sales phone calls particularly during the evening hours), and it closed down many businesses that had used telephone solicitation as their primary sales channel.
What follows is an overview of important privacy laws that have a particular impact on marketers. These are areas in which marketers need to be thinking ahead of the law. While there are plenty of perfectly legal marketing tactics that utilize personal information, if they are a nuisance to prospective customers, they are probably not good marketing and may be affected by future legislation when the public decides it has had enough.
Email Spam
Have you received email messages without giving permission to the sender? The Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act, passed in 2003, establishes federal standards for commercial email. Consumers must be given the opportunity to opt out of receiving future solicitations, as in this opt-out notice provided by the clothing company Abercrombie & Fitch:
This is a product offering from Abercrombie & Fitch. You have received this email since you submitted your email address to our list of subscribers. To unsubscribe, please click here and submit your email address. Please see our Website Terms of Use, and to know how we use your personal data, please see our Privacy Policy.
Despite its name, the CAN-SPAM Act doesn’t apply just to bulk email. It covers all commercial messages, which the law defines as “any electronic mail message the primary purpose of which is the commercial advertisement or promotion of a commercial product or service,” including email that promotes content on commercial Web sites. The law makes no exception for business-to-business email. That means that all email—even, for example, a message to former customers announcing a new product line—must comply with the law. Each separate email in violation of the CAN-SPAM Act is subject to penalties of up to \$16,000, so non-compliance can be very costly. The good news is that following the law isn’t complicated.
Managing Customer Data
Sometimes companies and organization possess personal data about their customers that is collected during the course of doing business. The most obvious examples are medical organizations that keep confidential patient records, financial institutions that capture your financial data, and educational institutions that record student test scores and grades. Other companies might know your contact information, your purchase patterns, and your Internet-shopping or search history. These organization all have important legal responsibilities to protect your data.
The Federal Trade Commission (FTC) gives access to an important source of information about the necessity of securing sensitive data: the lessons contained in the more than fifty law enforcement actions taken by the FTC so far. These are settlements—no findings have been made by a court—and the details of the orders apply just to the companies involved, but learning about alleged lapses that have led to law enforcement actions can help your company improve its practices. Most of these alleged practices involve basic, fundamental security missteps or oversights. Without getting into the details of those cases, below are ten practical tips that we can learn from them. Distilling the facts of those cases down to their essence, here are ten lessons to learn that touch on vulnerabilities that could affect your company, along with practical guidance on how to reduce the risks they pose.
1. Start with security: only collect customer data when necessary; be transparent; and treat the data with extreme care.
2. Control and restrict access to sensitive data.
3. Require strong, secure passwords and authentication; protect access to sensitive data
4. Store sensitive personal information securely and protect it during transmission: use best-in-class security technology.
5. Segment your network and monitor who’s trying to get in and out
6. Secure remote access to your network: put sensible access limits in place.
7. Apply sound security practices when developing new products; train engineers in security and test for common vulnerabilities.
8. Make sure your service providers implement reasonable security measures: write security into contracts and verify compliance.
9. Establish procedures to keep your security current and address vulnerabilities that may arise; heed credible security warnings.
10. Secure paper, physical media, and devices—not all data are stored digitally.
These may seem like overly technical considerations that aren’t important to someone working in a marketing organization, but in the same way that it is important for a marketer to protect its company from product liability suits, it is important to protect customers from security breaches related to the company’s products, services, and marketing activities.
Protecting Privacy Online
The Internet provides unprecedented opportunities for the collection and sharing of information from and about consumers. But studies show that consumers have very strong concerns about the security and confidentiality of their personal information in the online marketplace. Many consumers also report reluctance to engage in online commerce, partly because they fear that their personal information can be misused. These consumer concerns present an opportunity for marketers to build consumer trust by implementing sound practices for protecting consumers’’ information privacy.
The FTC recommends four Fair Information Practice Principles. These are guidelines that represent widely accepted concepts concerning fair information practice in an electronic marketplace.
Notice
Consumers should be given notice of an entity’s information practices before any personal information is collected from them, including, at a minimum, identification of the entity collecting the data, the uses to which the data will be put, and any potential recipients of the data.
Choice
Choice and consent in an online information-gathering sense means giving consumers options to control how their data is used. Specifically, choice relates to secondary uses of information beyond the immediate needs of the information collector to complete the consumer’s transaction. The two typical types of choice models are “opt-in” or “opt-out.” The opt-in method requires that consumers give permission for their information to be used for other purposes. Without the consumer taking these affirmative steps in an opt-in system, the information gatherer assumes that it cannot use the information for any other purpose. The opt-out method requires consumers to affirmatively decline permission for other uses. Without the consumer taking these affirmative steps in an opt-out system, the information gatherer assumes that it can use the consumer’s information for other purposes.
Access
Access, as defined in the Fair Information Practice Principles, includes not only a consumer’s ability to view the data collected but also to verify and contest its accuracy. This access must be inexpensive and timely in order to be useful to the consumer.
Security
Information collectors should ensure that the data they collect is accurate and secure. They can improve the integrity of data by cross-referencing it with only reputable databases and by providing access for the consumer to verify it. Information collectors can keep their data secure by protecting against both internal and external security threats. They can limit access within their company to only necessary employees to protect against internal threats, and they can use encryption and other computer-based security systems to stop outside threats.
In June 1998, the FTC issued a report to Congress noting that while more than 85 percent of all Web sites collected personal information from consumers, only 14 percent of the sites in the FTC’’s random sample of commercial Web sites provided any notice to consumers of the personal information they collect or how they use it. In May 2000, the FTC issued a follow-up report that showed significant improvement in the percent of Web sites that post at least some privacy disclosures; still, only 20 percent of the random sample sites were found to have implemented all four fair information practices: notice, choice, access, and security. Even when the survey looked at the percentage of sites implementing the two critical practices of notice and choice, only 41 percent of the random sample provided such privacy disclosures.
In the evolving field of privacy law there is an opportunity for marketers build trust with target customers by setting standards that are higher than the legal requirements and by respecting customers’ desire for privacy.
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• Email Spam. Provided by: Federal Trade Commission. Located at: www.ftc.gov/system/files/documents/plain-language/bus61-can-spam-act-compliance-guide-business.pdf. Project: The CAN-SPAM Act: A Compliance Guide for Business. License: Public Domain: No Known Copyright
• Managing Customer Data. Provided by: Federal Trade Commission. Located at: https://www.ftc.gov/system/files/documents/plain-language/pdf0205-startwithsecurity.pdf. Project: Start with Security: A Guide for Business. License: Public Domain: No Known Copyright
• Protecting Privacy Online. Provided by: Federal Trade Commission. Located at: www.ftc.gov/system/files/documents/plain-language/bus28-advertising-and-marketing-internet-rules-road.pdf. Project: Advertising and Marketing on the Internet. License: Public Domain: No Known Copyright | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/05%3A_Ethics_and_Social_Responsibility/5.01%3A_Reading-_Privacy_Laws.txt |
Fraud is the deliberate deception of someone else with the intent of causing damage. The damage need not be physical damage—in fact, it is often financial.[1]
The Federal Trade Commission has determined that a representation, omission, or practice is deceptive if it is likely to:
• mislead consumers and
• affect consumers’ behavior or decisions about the product or service.
When it comes to marketing fraud, the two key words are deliberate deception. In a legal setting, a judge asked to rule on a marketing fraud case would need to evaluate the extent of the deception and the impact of the deception on the consumer. For our purposes, though, it is more useful to begin outside the courtroom with the basic starting point of marketing: the goal of marketing is not to deceive the customer; it is, in fact, to build trust.
When we consider the elements of the marketing mix—product, price, promotion, and distribution—there are opportunities for deception in each area.
Product: Is the product designed and manufactured as the customer would expect, given the other elements of the marketing mix? Is the customer warned about the product’s limitations or uses that are not recommended?
Price: Is the total price of the product fairly presented to the customer? Is the price charged for the product the same as the price posted or advertised? Has something been marketed as “free” and, if so, does it meet FTC guidelines for the definition of free? Does the company disclose information about finance charges?
Promotion: Can claims made to consumers be substantiated? Are disclaimers clear and conspicuous? For products marketed to children, is extra care taken to accurately represent the product?
Place (Distribution): Does the distribution channel deliver the product at the price and quality promised? Do other companies in the distribution channel (wholesalers, retailers) perform as promised and deliver on expectations set for product, price, and promotions?
Marketing Fraud in Education
Sadly, it is easy enough to find a case of pervasive marketing fraud that any student can understand: Corinthian Colleges.
As you review the following press release from the Consumer Financial Protection Bureau, consider the following questions:
• Where was the Corinthian Colleges chain deliberately deceptive in presenting its offering to students?
• Where was Corinthian deliberately deceptive in the way it represented pricing?
• Where was the company’s promotion of its offering deceptive?
CFPB Sues For-Profit Corinthian Colleges for Predatory Lending Scheme[2]
Bureau Seeks More than \$500 Million In Relief For Borrowers of Corinthian’s Private Student Loans
WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) sued for-profit college chain Corinthian Colleges, Inc. for its illegal predatory lending scheme. The Bureau alleges that Corinthian lured tens of thousands of students to take out private loans to cover expensive tuition costs by advertising bogus job prospects and career services. Corinthian then used illegal debt collection tactics to strong-arm students into paying back those loans while still in school. To protect current and past students of the Corinthian schools, the Bureau is seeking to halt these practices and is requesting the court to grant relief to the students who collectively have taken out more than \$500 million in private student loans.
“For too many students, Corinthian has turned the American dream of higher education into an ongoing nightmare of debt and despair,” said CFPB Director Richard Corday. “We believe Corinthian lured consumers into predatory loans by lying about their future job prospects, and then used illegal debt collection tactics to strong-arm students at school. We want to put an end to these predatory practices and get relief for the students who are bearing the weight of more than half a billion dollars in Corinthian’s private student loans.”
Corinthian Colleges, Inc. is one of the largest for-profit, post-secondary education companies in the United States. The publicly traded company has more than 100 school campuses across the country. The company operates schools under the names Everest, Heald, and WyoTech. As of last March, the company had approximately 74,000 students.
In June, the U.S. Department of Education delayed Corinthian’s access to federal student aid dollars because of reports of malfeasance. Since then, Corinthian has been scaling down its operations as part of an agreement with the Department of Education. However, Corinthian continues to enroll new students.
Today’s CFPB lawsuit alleges a pervasive culture across the Everest, Heald, and WyoTech schools that allowed employees to routinely deceive and illegally harass private student loan borrowers. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions engaging in unfair, deceptive, or abusive practices. Based on its investigation, the CFPB alleges that the schools made deceptive representations about career opportunities that induced prospective students to take out private student loans, and then used illegal tactics to collect on those loans. Today’s lawsuit covers the period from July 21, 2011 to the present.
Lured into Loans by Lies
Most students who attend Everest, Heald, and WyoTech schools come from economically disadvantaged backgrounds and many are the first in their families to seek an education beyond a high school diploma. According to internal Corinthian documents, most students lived in households with very low income. Today’s lawsuit alleges that the schools owned by Corinthian Colleges, Inc. advertised their education as a gateway to good jobs and better careers. It alleges that throughout the Corinthian schools, consumers were lured into loans by lies, including:
• Sham job placement rates: The CFPB alleges that Corinthian’s school representatives led students to think that when they graduated they were likely to land good jobs and sufficient salaries to repay their private student loans. But the CFPB believes that Corinthian inflated the job placement rates at its schools. Based on its investigation, the CFPB alleges that this included creating fictitious employers and reporting students as being placed at those fake employers.
• One-day long “career”: According to the CFPB’s investigation, Corinthian schools told students they would have promising career options with an Everest, Heald, or WyoTech degree. But Corinthian counted a “career” as a job that merely lasted one day, with the promise of a second day.
• Pay for placement: The CFPB also alleges that the Corinthian schools further inflated advertised job placement rates by paying employers to temporarily hire graduates. The schools did not inform students about these payments or that these jobs were temporary.
• Craigslist career counseling: According to the CFPB’s investigation, the Corinthian schools promised students extensive and lasting career services that were not delivered. Students often had trouble contacting anyone in the career services office or getting any meaningful support. The limited career services included distributing generally available job postings from websites like Craigslist.
Predatory Loans
Tuition and fees for some Corinthian programs were more than five times the cost of similar programs at public colleges. In 2013, the Corinthian tuition and fees for an associate’s degree was \$33,000 to \$43,000. The tuition and fees for a bachelor’s degree at Corinthian cost \$60,000 to \$75,000.
The CFPB believes the Corinthian colleges deliberately inflated tuition prices to be higher than federal loan limits so that most students were forced to rely on additional sources of funding. The Corinthian schools then relied on deceptive statements regarding its education program to induce students into taking out its high-cost private student loans, known as “Genesis loans.” Today’s lawsuit alleges that under the Genesis loan program:
• Interest rates were more than twice as expensive: Corinthian sold its students predatory loans that typically had substantially higher interest rates than federal loans. In July 2011, the Genesis loan interest rate was about 15 percent with an origination fee of 6 percent. Meanwhile, the interest rate for federal student loans during that time was about 3 percent to 7 percent, with low or no origination fees.
• Loans were likely to fail: Corinthian expected that most of its students would ultimately default on their Genesis loans. In fact, more than 60 percent of Corinthian school students defaulted on their loans within three years. The Everest, Heald, and WyoTech schools did not tell students about these high default rates. Defaulting on private student loans can have grave consequences for consumers, including affecting a borrower’s job prospects and making it difficult to get any kind of loan for years.
Strong-Armed by Illegal Debt Collection Tactics
Under the Genesis loan program, nearly all student borrowers were required to make monthly loan payments while attending school. This is unusual; federal loans and almost all other sources of private student loans do not require repayment until after graduation. This put pressure on Everest, Heald, and WyoTech students to come up with funding while attending school. Today’s lawsuit alleges that Corinthian took advantage of this position of power to engage in aggressive debt collection tactics. The CFPB alleges that Corinthian’s campus staff members received bonuses based in part on their success in collecting payments from students. The debt collection tactics included:
• Pulling students out of class: The CFPB’s investigation revealed that Corinthian’s efforts to collect payments included shaming students by pulling them out of class. Financial aid officers would inform instructors and other staff that students were past due on their Genesis loans. Corinthian schools also required students to meet with campus presidents to discuss the seriousness of the overdue loans. At one Corinthian campus, students and employees referred to one financial aid staff member as the “Grim Reaper” because the staff member so frequently pulled students out of class to collect debts.
• Putting education in jeopardy: According to the CFPB’s investigation, the Corinthian colleges jeopardized students’ academic experience by denying them education until they paid up. They blocked students’ access to school computer terminals and other academic resources. The Corinthian schools also prevented students from attending and registering for class, and from receiving their books for their next classes.
• Withholding diplomas: According to the CFPB investigation, Corinthian schools informed students that they could not participate in the graduation ceremony or would have their certificate withheld if they were not current on their Genesis loan in-school payments. In many cases, financial aid staff threatened that if students did not become current on their loans, they could not graduate or start their externships. Some former students stated that Corinthian schools continue to withhold their certificates because they are unable to make payments on their Genesis loans.
Halting Illegal Conduct and Obtaining Relief for Private Student Loan Borrowers
Today’s lawsuit seeks, among other things, compensation for the tens of thousands of students who took out Genesis loans. The CFPB estimates that from July 2011 through March 2014, students took out approximately 130,000 private student loans to pay tuition and fees at Everest, Heald, or WyoTech colleges. Some of these loans have been paid back in part or in full; the total outstanding balance of these loans is in excess of \$569 million.
The CFPB is seeking redress for all the private student loans made since July 21, 2011, including those that have been paid off. In its lawsuit, the CFPB is also seeking to keep Corinthian from continuing the illegal conduct described above, and to prevent new students from being harmed.
Today the CFPB is also publishing a special notice for current and former Corinthian students to help them navigate their options in this time of uncertainty, including information on loan discharge options.
The Close of the Corinthian College Story
In May 2015, Corinthian Colleges declared bankruptcy. [3]
In October 2015, the CFPB won its case against Corinthian Colleges in federal court.
As a fellow student you will be pleased to hear that the federal government is providing loan relief for students who were victims of financial fraud.[4]
From a marketer’s point of view, the story demonstrates a number of different types of fraud, which had devastating consequences for both shareholders and stakeholders. Deliberate deception was part of the company’s strategy, and it played a dominant role in all aspects of marketing.
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/748
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5.04: Outcome- B2B and B2C Marketer Ethical Dilemmas
What you’ll learn to do: explain how ethical dilemmas in business-to-business marketing differ from those in consumer marketing
In June 2013, Los Angeles United School District (LAUSD), the second largest school district in the U.S., announced that it had signed a \$30 million contract with Apple to provide students with iPads that were preloaded with educational software from Pearson PLC. It was an ambitious education technology initiative that promised to give students new learning tools and technology literacy.
By the end of 2015 the superintendent would resign, the program the would be canceled, Pearson’s philanthropic foundation would be closed, the companies would pay a \$6.4 settlement to the school district to prevent litigation, and the FBI would be involved in a criminal probe of the program. It would be hard to imagine a worse result for any of the parties involved.
Circumventing the Public Bid Process
California law requires that such large projects to go to public bid, which this project did, but well before the bid process, the email record between LAUSD Superintendent John Deasy and then CEO of Pearson Marjorie Scardino suggested that deals were made to purchase Pearson curriculum and Apple hardware. In fact, Superintendent Deasy made the inital introduction between Scardino and Apple CEO. In an email to Scardino, Deasy writes:
I wanted to let you know I have [sic] an excellent meeting with Tim at Apple last Friday. The meeting went very well and he was fully committed to being a partner. He said he and his team will take 5 days to present a price plan and scope of partnership. He was very excited about being a partner with Pearson. I think it would be good for you to loop back with him at this point. I will reach out to you again in a week.[1]
Deputy Superintendent Jaime Aquino was tasked to work with Pearson on the project in advance of the bid process. His email messages indicate that he was attempting to influence the bid process in Pearson’s favor. His email messages to Pearson executives include the following statements:
I am not sure if legally we can enter into an agreement when we have not reviewed the final product for each grade and if the materials have not been approved by the state.
I believe we would have to make sure that your bid is the lowest one.[2]
Violating the Restriction on Nonprofit Philanthropy
Pearson’s non-profit philanthropy foundation was also involved in securing the deal, which violated certain federal restrictions. A Pearson Foundation vice president, Sherry King, was deeply involved in discussions with top officials at the Los Angeles Unified School District about selling the district the new Common Core digital curriculum in 2012 and 2013, well in advance of the formal bid process. The Pearson Foundation was providing education leadership grants to LAUSD as early as 2007.[3]
The Pearson Foundation came under fire for another tactic. The New York Times reported:
In recent years, the Pearson Foundation has paid to send state education commissioners to meet with their international counterparts in London, Helsinki, Singapore and, just last week, Rio de Janeiro.
The commissioners stay in expensive hotels, like the Mandarin Oriental in Singapore. They spend several days meeting with educators in these places. They also meet with top executives from the commercial side of Pearson, which is one of the biggest education companies in the world, selling standardized tests, packaged curriculums and Prentice Hall textbooks.[4]
The New York Times reported that Gavin Payne of California participated in an expense-paid trip to Singapore.
The Pearson Foundation was also fighting battles over its tactics in New York state, where the New York state attorney general won a \$7.7 million judgment against the foundation. His written statement read:
The fact is that Pearson is a for-profit corporation, and they are prohibited by law from using charitable funds to promote and develop for-profit products. I’m pleased that this settlement will direct millions of dollars back to where they belong.
The Pearson Foundation board announced that it was closing the foundation in December 2013, after the New York judgment.
Poor Execution from All Players
Almost immediately after the district announced the deal, Apple unveiled new, updated iPads—in other words, from the get-go, students in the district would be receiving out-of-date devices. The cost the district was paying per iPad was actually higher than the regular consumer price. Many schools did not have the Wi-Fi infrastructure needed to support devices for all students. The district hadn’t created policies or plans for loss or theft. Students bypassed security protocols so they could install music and video apps. The iPads were supposed to come preloaded with Common Core–aligned curriculum, designed by the education behemoth Pearson. But the curriculum was incomplete. A report[5] on the district’s iPad program revealed that only one teacher actually used the Pearson materials.[6]
The Fallout
In October 2014, John Deasy resigned his role as superintendent.
In December 2015, with the help of a grand-jury subpoena, the FBI seized twenty boxes of documentation related to the procurement process. No charges have been made since the seizure.
Immediately after the subpoena and FBI seizure, Deasy’s successor canceled the contract with Apple (and therefore Pearson).
In September 2015, the vendors (Apple, Pearson, and hardware-provider Lenovo)collectively agreed to pay LAUSD a \$6.4 million settlement. Pearson has agreed to pay the full \$6.4 million.
When businesses engage in selling to other businesses or to government entities, the laws, policies, norms, and ethics change. Some challenges involved in marketing to consumers are minimized, or go away altogether, but other ones arise. In this module we will explore the unique ethical challenges and opportunities in business-to-business marketing.
The specific things you’ll learn in this section include:
• Explain how B2B marketing creates unique ethical risks and challenges
• Describe the risks associated with customer gifts and bribes
Learning Activities
The learning activities for this section include the following:
• Reading: Ethics in B2B Marketing
• Reading: Gifts and Bribes
• Self Check: B2B and B2C Marketer Dilemmas
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You will recall that business-to-business (B2B) marketing differs from business-to-consumer (B2C) marketing in key ways. B2B marketers sell to other businesses or institutions, which then consume the product as part of their business operations or use the product in the assembly of the final product they sell to consumers. B2C marketers focus their efforts on consumers—the individuals who consume finished products.
Also, the marketing processes used by B2B marketers are different. One important difference is the tactic of more “personal” selling, in which a sales force builds personal relationships with individuals in decision-making roles in order to facilitate sales within the organizations they’re targeting. Also, because B2B sales tend to be higher-priced, larger-ticket items, marketing tactics often include extensive adjustments in factors such as the selling price, product features, terms of delivery, and so forth.
In the context of ethics, there are some important challenges that are unique to B2B marketing, too. These are discussed below.
The Challenge of Monitoring Ethics in B2B Marketing
Imagine that Banana Republic, the retail clothing store, wants to launch a new promotion with a significant price discount. Banana Republic sells to consumers, which makes it a B2C company. Before the promotion is announced, the corporate marketing team will analyze the pricing discount. The Web site design for the promotion will be throughly reviewed. If this is a new promotion, the legal team will evaluate and approve the official language. The display materials that are sent to stores go through the same review. The marketing team will craft communications for the sales associates in stores around the country, explaining the promotion and scripting how it should be presented to shoppers. It is possible that the marketing team at Gap Inc., Banana Republic’s parent company, will also review the promotion—or they may have provided a “promotion template” that’s been reviewed and approved. For a B2C company selling to a large consumer audience, pricing is fairly uniform for all buyers, and the marketing and legal teams typically review the pricing strategies and communications.
In a B2B sales environment this process is very different. Imagine that a sales representative from Microsoft comes to your college campus to meet with technology leaders about a new software package for student communications. She might meet with the college’s chief information officer over lunch and discuss the college’s current products, as well as the new software package she is hoping to sell. When the discussion turns to price, the sales rep will try to present the right price to close the sale. She will be thinking about what the college has already purchased, what else she hopes to sell to the college, and how she might “bundle” this product to drive the largest total sale. She will also care about the timing of the sale. Does she want the college to buy the product this year or this quarter in order to maximize her commission? That will make a difference in whether she presents more aggressive pricing now or tries to create a larger deal that may take longer to close. The individual sales rep has significant discretion in crafting the right deal. Often the company’s sales leadership will not have visibility into the details of this deal until she is well into the sales process, and the legal team will not review it until it is in a formal contract that the company is preparing to sign.
B2B sales processes generally have fewer controls than B2C processes for a number of reasons:
1. Personal sales are relationship based, requiring the seller to tailor the process according to the buyer’s personality and approach
2. B2B sales are often large and complex, which necessitates personalizing the marketing mix to the individual buyer
3. Pricing is negotiated between the buyer and seller, rather than being set and uniform across all customers
4. Communication about the product and pricing takes place mainly through informal or formal verbal presentations and discussions
The B2B sales process is difficult to monitor and control. It is also very high stakes. There are approximately 320 million potential consumers in the United States. There are just over 5.7 million firms doing business in the United States.[1] B2B firms market to a much smaller number of customers and are often selling products with a higher total cost.
Structural Challenges in Personal Selling
The challenges of creating appropriate controls in the B2B sales process places special pressure on the individual sales representatives to make good judgment calls in a very flexible environment. In addition, personal selling almost always uses an incentive structure, which puts immense pressure on the sales rep to close large deals.
Often a B2B company will spend approximately 20 percent of its total revenue on sales costs, with a significant portion of that paid out in commissions. In other words, if a company buys a software package that costs \$1 million, as much as \$200,000 will be paid in sales commissions. This is generally distributed through the sales management chain, such that an individual sales rep is paid a commission on his sales, and a sales manager is paid a commission on the sales from all of the sales reps that she manages.
Let’s look at an example of a commission plan and consider how it might impact ethical judgment calls during the sales process.
Commission Plan Example
Amount Sold Sales Quota Commission Percent Commission Paid
\$500,000 \$1 million 0% \$0
\$1 million \$1 million 10% \$100,000
\$1.5 million \$1 million 15% \$225,000
Each salesperson has an annual sales quota that he is expected to meet—in this case, \$1 million in annual sales. On top of a base salary, sales representatives are paid a commission on their sales. Often, either no commission is paid (as in this example) or a very low commission is paid until the sales quota is met. Once the sales quota is met, the sales rep earns a percentage of all sales. In this example, if the rep sells a \$1 million deal, then he will meet his quota and be paid a \$100,000 sales commission. There is also an accelerator: If the sales rep sells more, he will earn a higher-percent commission. B2B sales representatives have a personal financial stake in closing deals.
Besides the financial incentive they face, sales reps are also motivated to meet (and exceed) sales quotas because they don’t want to get fired (which is a pretty common, legitimate worry).
Let’s revisit the scenario above where a software sales rep is on your college’s campus. Will she act differently if she is approaching the end of the year and has only closed \$800,000 in sales? In that case should would not have met her sales quota for the year, and both her compensation and her job would be at risk. She might be tempted to oversell the features and benefits of the product this one time in order to close a sale before the end of the year. She would also be more likely to advocate for steep pricing discounts that might bring the price of the software right to the \$200,000 she needs to meet quota.
What if she has exceeded her quota but needs a few big sales once the new year starts? In that case, our sales rep might be tempted to slow down a sales deal in order to push the sale into next year. While that doesn’t present an ethical dilemma for the customer, it does create an issue for the company. If an employee is purposely reducing the company’s sales this year in order to profit, does that constitute ethical behavior?
Companies understand and expect that the sales compensation structure will influence behavior, but they try make adjustments that lead to smaller ethical issues (slowing down a sales process, e.g.,) rather than larger ethical issues (promising value that the product cannot deliver, e.g.). B2B marketers must carefully consider the sales-compensation and incentives structure and identify where it creates unnecessary ethical risks or puts sales reps in an ethical bind.
Diverse Policy Requirements
Finally, while all marketers are required to be aware of state and federal laws that impact their work, B2B marketers must also understand the procurement policies of the organizations to which they sell. The policies and guidelines can vary significantly. Company policies will generally define:
• The total purchase authority of a single individual or department
• The threshold at which a purchase decision must go out for competitive bid
• The circumstances under which the company’s status as a customer can be disclosed
• A dollar threshold for gifts from vendors
It is the responsibility of the employees within the company to follow the policies, so why does this matter to the marketer? Let’s return to the example of a software rep selling a product to your college or university. The chief information officer is responsible for understanding and following the college’s policies. Still, the software company and its sales rep are in a position to conduct sales and marketing efforts that either respect and support the college’s policies or push against them. Even when issues arise from the vendor’s ignorance about the college’s policies, such lapses can create a tone in which the vendor is seen to be undercutting the college’s requirements instead of understanding and supporting ethical behavior.
1. www.census.gov/econ/susb/ ↵
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Gift giving in business is commonplace and contentious at the same time. Business gifts are usually seen as an advertising, sales-promotion, and marketing-communication medium.[1] Such gifting is usually practiced for the following reasons:
1. In appreciation for past client relationships, placing a new order, referrals to other clients, etc.
2. In the hopes of creating a positive first impression that might help to establish an initial business relationship
3. As a quid pro quo—returning a favor or expecting a favor in return for something [2]
Making good decisions about when business gifts are appropriate is extremely complex in the United States. In global marketing it becomes one of the most challenging ethical issues, since the cultural norms in other countries can be at odds with standard ethical practices in the United States. For this reason, gifts and bribes warrant a deeper discussion, especially with regard to B2B marketing.
In considering appropriate business gifts it is helpful to think about the content of the gift, the context of the gift, and the culture in which it will be received. Let’s examine one of Microsoft’s promotions that included a gift.
Case Study: Microsoft’s “Gift” to Bloggers
When Microsoft introduced its Vista operating system, the launch included a noteworthy promotion. During the 2006 Christmas season, Microsoft sent out ninety Acer Ferrari laptops, loaded with Windows Vista Operating system, to approximately ninety influential bloggers.
Different bloggers received different machines, but the lowest model was worth around two thousand dollars. Michael Arrington, editor of TechCrunch, shared the message that accompanied his gift:
This would be a review machine, so I’d love to hear your opinion on the machine and OS. Full disclosure, while I hope you will blog about your experience with the PC, you don’t have to. Also, you are welcome to send the machine back to us after you are done playing with it, or you can give it away to your community, or you can hold on to it for as long as you’d like. Just let me know what you plan to do with it when the time comes. And if you run into any problems let me know. A few of the drivers aren’t quite final, but are very close.[3]
Clearly, Microsoft was hoping to encourage reviews of Vista and wanted to make sure that the bloggers experienced Vista on a high-end machine that would optimize performance. Did they also hope to influence the bloggers’ opinions of the company along the way?
Sending the gift to bloggers was a risky marketing tactic even without the ethical question. Culturally, bloggers are a highly influential group of people with strong opinions, which they share openly to a wide audience. Many of the recipients reacted to the gift by sharing the news of the promotion and their opinions about it. A broad range of ethical issues emerged from the surrounding discussions in the blogosphere. Below are several excerpts.
The Gifts Diminish Trust in the Reviewers
Now that I know these guys (any gals?) have access to a tailored laptop, preloaded, etc., I know their wisdom is no longer that of The Crowd—I suspect it is going to be tainted (even if not the case), so I have already discounted them. And, since I don’t know who has and has not had the gift, I will distrust them all on this subject![4]
The Laptops Provide a Review Experience That Will Not Match Users’ Experiences
If you’ve ever tried to add a new Microsoft OS to an existing computer, you know you can’t do that without totally f****** up your computer. The only way to switch to a new Microsoft OS is to start with a new computer. And, of course, to wait a year or two while they get the kinks out. Microsoft wouldn’t chance having dozens of bloggers writing about how VISTA screwed up their computers, so they installed the system on brand-new computers. They gave the computers as gifts instead of lending them to the bloggers for review, which is the norm when dealing with traditional journalists.
The Bloggers Should Disclose the Gift in Their Reviews
Microsoft’s approach raises some problematic issues . . . How many bloggers have received a notebook but have not declared it on their blog? Quite a few, I suggest, which highlights the fundamental problem with blogging, which is that bloggers are not trained journalists and not necessarily in tune with the ethical problems that gifts entail . . .
Finally, sending bribes to bloggers is not a good look for Microsoft, and this is exactly how this initiative will be perceived. Even as they try to defend themselves, Microsoft’s PR gurus show that they do not understand the blogosphere.[5]
Another blogger shared the disclosure concern while supporting the promotion:
That is a GREAT idea. After all, how can anyone have a decent conversation about Windows Vista without having put a bunch of time on one of the machines? Now, regarding blogger ethics. Did you disclose? If you did, you have ethics. If you didn’t, you don’t. It’s that black-and-white with me. [6]
While there was not a clear consensus on the ethics of this promotion, the debate drowned out whatever little positive opinion Windows Vista had generated in the blogs. The Microsoft case stands as a good example of a business gift program gone wrong. The company not only wasted the money spent on the gifts (none of the bloggers reported to have returned the laptops) but suffered weeks of bad press—and soured the commercial launch of the product.
Three Dimensions of Evaluating Gifts
The Microsoft example provides a three-dimensional framework by which to evaluate whether a gift crosses the line into bribery. (Remember that a bribe is something given to induce someone to alter their behavior—in this case, to write a favorable product review.) The framework helps establish guidelines for keeping business gifting aboveboard.
Content
The chief problem with Microsoft’s gift was the content. Content refers to the nature of the gift itself (a shiny, new, top-of-the-line laptop) and the price (\$2,000 or more). The company claimed that such a high-end machine was necessary to showcase the full capability of the Windows Vista operating system. And, they asserted, since the bloggers were given the option of returning the laptops (or giving them away), the issue of bribery didn’t come into play and the onus of acting ethically fell to the recipients.
Nonetheless, Microsoft’s actions represented a departure from standard industry practice of sending preview disks of software to opinion-makers. While it might be acceptable to give out \$2,000 gifts in other industries (like sending out expensive fashion clothing to movies stars), and one can dicker about whether \$2,000 is or isn’t too extravagant, the point is that Microsoft broke with the conventions of its own industry.
The key lesson is that what is being given defines the nature of gifting, and extreme care must be taken to determine whether that gift is appropriate. While the market price of a gift item can be used as a benchmark, the type of gift is as important as its price. If Microsoft had given out \$2,000 worth of software, it wouldn’t have been so controversial. Another point, which Microsoft surely knew, is that items sent around Christmastime are more apt to be perceived as gifts.
Context
The other objection to the Microsoft gifts was the company’s motives for giving them. People argued that Microsoft sent the expensive laptops to bloggers as a quid pro quo. Though the accompanying email said “you don’t have to write about Vista,” that was mainly a legal disclaimer meant to protect Microsoft against formal bribery charges (U.S. corruption law prohibits corporate gifts designed to induce action by the recipient). The company may have kept itself out of legal hot water, but it remained vulnerable to the charge that it tried to exert psychological pressure on the bloggers to write about their “pleasurable” experiences with Vista.
The other argument was that laptops were given to the bloggers so that they would lack the proper testing environment of mainstream tech journalists. The bloggers were set up to write good things about Vista by seeing it function in a brand-new machine, tuned and tested for this purpose by Microsoft engineers. The experience of actual users—who might be influenced by these bloggers’ opinions—would be different, since they would have to install the software on older machines with no help from Microsoft. Critics argued that the company’s promotion was intended to create a false opinion of the market.
While most businesses define what is a bribe and what isn’t in terms of the content of the gift, in most countries the matter is decided on the basis of context. So, regardless of the size, type, and value of the gift, if it can be established that the gift was given with the intent to induce an action, it will be regarded as a bribe. The lesson here is that it isn’t enough for businesses to set clear value/type limits on corporate gifts; it’s also necessary to scrutinize the motives behind the gift giving, think carefully about how the gift will be received, and stop short of anything that induces the recipient to crosses the line of ethical behavior.
Culture
Other critics held that Microsoft’s blunder was not caused by the content or context of the gifts but that the company fundamentally misunderstood the culture of blogging. This view came primarily from marketing practitioners, who pointed out that giving the laptops to elite bloggers violated the egalitarian and sponsorship-free nature of social media. It’s a culture whose members loathe any kind of commercial taint to their independence and are highly sensitive to charges of “selling out.”
Thus, culture is clearly the third very important aspect of gift giving. It’s crucial to establish clear boundaries and protocols so that gifts are truly received as gifts—not as attempts to influence. To do that means factoring in the recipient’s mindset and culture, since what may be perceived as a gift in one group may seem like a bribe in another. The “cultural” dimension is easily understood in personal gift giving (a toy truck might be an excellent present for your six-year-old nephew, but it wouldn’t be appropriate for your boss or grandparent). Yet, somehow the idea of discretionary gift giving hasn’t gained much ground in business. However, understanding the cultural preferences of the receiver is obviously an important issue in international business—and was a key failure.
1. Cooper,M. J., Madden, C. S., Hunt, J. B.,& Cornell, J. E. (1991). Specialty advertising as a tool for building goodwill: Experimental evidence and research implications. Journal of Promotions Management, 1, Pg 41–54 ↵
2. Arunthanes, W., Tansuhaj, P. & Lemak, D.J. (1994), Cross-Cultural Business Gift Giving, International Marketing Review, Vol 11, Issue 4, Pg 44 ↵
3. http://www.prweek.com/article/1259420/microsoft-vista-blogger-campaign-causes-controversy
4. http://www.broadstuff.com/archives/97-Why-giving-Ferraris-to-Bloggers-is-a-bad-idea.html
5. http://www.cnet.com/news/microsoft-doesnt-know-when-to-stop/
6. http://scobleizer.com/2006/12/27/i-think-the-microsoft-vista-giveaway-is-an-awesome-idea
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/749
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5.08: Outcome- Ensuring Ethical Marketing and Sales
What you’ll learn to do: describe measures companies take to encourage ethical behavior
Ethical issues arise at both an organizational level and an individual level. A single individual can engage in unethical behavior, but most ethical breaches that have significant impact on a business occur when many individuals come together to act unethically. This section will review the steps that businesses take at each level to define ethical behavior and create a culture that encourages employees to do the right thing.
The way to gain a good reputation is to endeavor to be what you desire to appear.—Socrates
The specific things you’ll learn in this section include:
• Explain the importance of ethics policies and a culture of accountability for all employees
• Identify the unique ethical considerations and roles for company executives
• Describe how companies manage ethical behavior of marketing employees
Learning Activities
The learning activities for this section include the following:
• Reading: A Culture of Accountability
• Reading: Executive Role in Ethics
• Reading: Ethics for Marketing Employees
• Simulation: Ethics
• Self Check: Ensuring Ethical Marketing and Sales
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5.09: Reading- A Culture of Accountability
At the beginning of this module we discussed the 2015 revelation that Volkswagen installed emissions-altering software in eleven million diesel vehicles worldwide, which caused the cars to pass emissions tests they should have failed. Consider, for a moment, how many employees would have to be involved in order to achieve this level of fraud? This was not the handiwork of a single employee but the result of a pattern of unethical behavior in the company. When the Ethics & Compliance Initiative (ECI) released the results of its 2013 National Business Ethics Survey, it noted that these types of broad, organizational breaches are fairly common.
The survey shows that a significant amount of misconduct involves continuous, ongoing behavior rather than one-time incidents: Employees say that more than a quarter (26 percent) of observed misconduct represents an ongoing pattern of behavior. Another 41 percent said the behavior has been repeated at least a second time. Only one-third (33 percent) of rule breaking represents a one-time incident.[1]
In the case of Volkswagen, an early internal investigation pointed to a “culture of tolerance” for ethical compromises. Employees were pushed to do what was needed to meet corporate objectives at any cost.
The organizational culture is comprised of the values and beliefs that an organization shares, which create its social environment. The culture of a large organization can be difficult to understand since it is influenced by many different factors. Still, many research studies point to leadership and policies as being instrumental in building an ethical organizational culture.
Policies That Encourage Ethical Behavior
Many companies have a specific policy that defines appropriate behavior. The policy is often called the Standards for Business Conduct. As the name suggests, the policy is intended to set the standards for acceptable behavior; it’s not meant to be an exhaustive list of every type of ethical behavior.
Many of these policies do the following:
• Define the threshold for behavior: While it should go without saying that employees are expected to be law abiding, companies choose to be quite explicit about stating that they require their employees to follow the law.
• Create expectations for behavior: The policies identify common issues that employees may encounter—such as accepting gifts from suppliers—and explain how they should be handled.
• Set policy: establish company protocols for handling confidential information, including customer data, etc.
• Give guidance on making judgment calls: Companies often define how they would like employees to make decisions when guidelines do not adequately cover them.
• Describe reporting and enforcement procedures: There is generally a process for reporting and addressing issues, as well as information about how the company will protect those reporting concerns.
Let’s examine some examples from company policies to see how some of these components are addressed.
The Legal Threshold
The ethics policy generally begins by reminding employees that they are required to act in accordance with the law. For companies that engage in business across the globe this can be complex. Starwood Hotels and Resorts addresses this issue in their Code of Business Conduct and Ethics:
You must, at all times, obey the laws of the jurisdictions where we conduct business. Starwood conducts business all around the world. Our associates are citizens of many countries. As a result, our operations are subject to the laws of many jurisdictions. It is often challenging for us to understand how those various laws apply to our businesses. However, whether you are a Starwood associate or member of the Board of Directors, you are expected to conduct yourself in accordance with applicable law.
Starwood is a company organized under the laws of the United States and is generally subject to U.S. federal law. From time to time, the laws of the United States conflict with laws of a city, town, country or other jurisdiction where we conduct business. If there is a conflict between the applicable laws, seek guidance from the Office of the General Counsel (Legal). [2]
Starwood has established a clear expectation to follow the law, acknowledged the complexity of their business environment, and provided direction when employees need help.
Creating Expectations for Behavior
In the course of a normal business day, many service employees receive tips. Where is the line between an appropriate tip and a gift? Starbucks has defined this for employees in its Standards of Business Conduct:
A gift or favor should not be accepted or given if it might create a sense of obligation, compromise your professional judgment or create the appearance of doing so. In deciding whether a gift is appropriate, you should consider its value and whether public disclosure of the gift would embarrass you or Starbucks.
A gift of money should never be given or accepted. (Some retail partners, however, may accept customary tips for service well done.) As a general rule, partners should limit gifts to or from any one vendor or business associate to US \$75 per year. A gift of nominal value may be given or accepted if it is a common business courtesy, such as coffee samples, a coffee cup, pens or a similar token. However, during traditional gift-giving seasons in areas where it is customary to exchange gifts of money, such as China, Japan, Malaysia, Singapore and Thailand, partners should not solicit but may exchange cash with nongovernmental business associates in nominal amounts up to the equivalent of US \$20.[3]
It is very common for company’s to set a threshold for giving and receiving gifts. These specific guidelines help employees navigate what would otherwise be a judgment call and make it easier to identify an ethical breach and initiate corrective action.
Setting Policy
United Parcel Service (UPS) groups the sections of its Code of Business Conduct into stakeholder groups: our company, our people, our customers, our shareholders, and our communities. This enables the company to address a range of workforce expectations, such as workplace safety:
UPS is committed to a safe work environment that is free of threats, intimidation, and physical harm. Everyone has a right to work in a safe environment and everyone shares the responsibility for ensuring the safety of others. We have zero tolerance for workplace violence, and we will investigate and take appropriate action up to and including dismissal regarding any threats to a safe workplace.
UPS prohibits violent behavior in the workplace including, but not limited to, physical assaults, fighting, threatening comments, intimidation, threats through electronic communications including social media, and the intentional or reckless destruction of property of the company, employee, UPS representative, or customer. Comments or behavior that reasonably could be interpreted as intent to do harm to people or property will be considered a threat. We also prohibit the unauthorized possession and/or use of weapons by any employee or UPS representative while at work, on company property, or while on company business.[4]
The UPS policy is very specific about its expectations of employees in ensuring a safe work environment.
Judgment Calls
No policy will address every issue, nor should it try. Most policies try to guide employees in the way they should make judgment calls. In its Standards of Business Conduct, American Airlines addresses this issue specifically:
Remember, your best resource about what’s right or wrong is your own conscience. So if you find yourself in a difficult situation, think before you act. And ask yourself the following questions:
• Is it legal? If it’s not legal, don’t do it.
• Is it ethical? If it feels wrong, it probably is wrong.
• How would it look in the newspaper? If you wouldn’t feel comfortable if your friends and family knew about your actions, you probably shouldn’t do it.[5]
These policies are an important tool in building a culture of accountability and ethical behavior in a company, but the policies must be upheld by all the employees, and senior leaders play a significant role in reinforcing their importance.
1. www.ethics.org/newsite/research/eci-research/nbes/nbes-reports/nbes-2013 ↵
2. https://secure.ethicspoint.com/domain/media/en/gui/711/code_en.pdf
3. https://globalassets.starbucks.com/assets/eecd184d6d2141d58966319744393d1f.pdf
4. www.ups.com/media/en/code_bus_conduct.pdf ↵
5. www.aa.com/i18n/amrcorp/corporateInformation/facts/ethics.jsp ↵
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Consider the following observation by the ECI on the results of the National Business Ethics survey:
Managers–those expected to act as role models or enforce discipline–are responsible for a large share of workplace misconduct (60 percent) and senior managers are more likely than lower-level managers to break rules. Surveyed employees said that members of management are responsible for six of every ten instances of misconduct and they pointed the finger at senior managers in 24 percent of observed rule breaking. Middle managers were identified as the culprit 19 percent of the time and first-line supervisors were identified as bad actors 17 percent of the time.[1]
If you’re thinking about ways of boosting or ensuring ethical behavior in an organization, this is an interesting and alarming finding. In a supplemental report on Ethical Leadership, ECI reports that employees at all sizes of companies draw conclusions about their leaders’ character primarily on the basis of the following:
• The overall character of their leaders as experienced through personal interactions;
• How senior managers handle crises; and
• The policies and procedures adopted by senior leaders to manage the company.
Employees want to know, for example, whether leaders treat lower level employees with dignity and respect, share credit when good things happen, and uphold standards even when it reduces revenues and profits. They watch to see whether leaders are steady in crisis, hold themselves accountable or, alternatively, shift blame to others. Workers also look at day-to-day management decisions to gauge whether ethical behavior is recognized and rewarded, or whether praise and promotions go to workers who bend the rules.[2]
These findings suggest the important role that executives play in building ethical organizations—ethics and integrity tend to start (or fail) at the top and trickle down.
Executives Set Company Objectives
When executives establish specific, measurable objectives for the company, those objectives determine where people will focus their time and effort. When the objectives cannot be met and there are dire personal consequences for failure, such conditions can lead to the compromise of ethics and standards. In the National Business Ethics Survey, 70 percent of employees identified pressure to meet unrealistic business objectives as most likely to cause them to compromise their ethical standards, and 75 percent identified either their senior or middle management as the primary source of pressure they feel to compromise the standards of their organizations.
Former Volkswagon CEO, Martin Winterkorn
In the Volkswagen case, internal investigations have questioned how both the company culture and the behavior of former CEO Martin Winterkorn contributed to a systemic ethical breach. Like many chief executives, Martin Winterkorn was a demanding boss who didn’t like failure, but critics say the pressure on managers at Volkswagen was unusual, which may go some way toward explaining the carmaker’s crisis. When he became CEO in 2007, Winterkorn set an objective to make VW the world’s biggest carmaker, which would require tremendous growth in the highly competitive U.S. car market. In the years since, VW has nearly doubled it global annual sales to 10 million cars and its revenue to \$225 billion. In early 2015, VW finally approached its goal, selling marginally more vehicles than the world’s number-one automaker, Toyota of Japan. One former sales executive said that the pressure soared under the target.”If you didn’t like it, you moved of your own accord or you were performance-managed out of the business,” he said.[3]
In describing a Winterkorn’s leadership style, a former VW executive confidentially told Reuters New Agency, “There was always a distance, a fear and a respect . . . If he would come and visit or you had to go to him, your pulse would go up. If you presented bad news, those were the moments that it could become quite unpleasant and loud and quite demeaning.”
A week after U.S. regulators revealed the company’s cheating, Bernd Osterloh, the employee representative on VW’s supervisory board, sent a letter to VW staff suggesting the change that was needed: “We need in the future a climate in which problems aren’t hidden but can be openly communicated to superiors,” said Osterloh. “We need a culture in which it’s possible and permissible to argue with your superior about the best way to go.”[4]
In Fortune magazine, Dr. Paul Argenti suggested, “Rather than playing the blame game, executives should ask if pressures to grow at all costs might have created dishonest employees.”[5]
It seems likely that aggressive corporate objectives (and more specifically marketing objectives related to market share) played a contributing role in the Volkswagen ethics scandal. Moreover, when executives set aggressive goals, it becomes more important to cultivate communication channels to openly address issues. This was obviously not the case at Volkswagon.
Executives Create Company Policy
In the previous reading we reviewed a number of company policies that address ethical conduct. Executives play an important role in creating those policies—and by visibly following and upholding them. As the survey data cited above suggest, employees look to executives to decide whether standards-of-business-conduct policies should be observed and respected. When executives bend the rules or turn a blind eye to bad behavior, the policies lose value and executives lose the respect of employees. This opens the door to a range of unanticipated issues, as employees look to ethical norms outside stated policy and beyond the executives’ control.
Executives Hire and Promote Company Managers
Internal promotions send very strong signals about what is important to a company. When the company hires an employee from a different company, she is likely not well known by most employees. If the company promotes an employee who is already working at the company, others know him and understand what he has done to deserve the promotion. If the company promotes individuals to management positions when they have displayed questionable ethics in the workplace, it creates two issues. First, it creates a level of managers who are more likely to encourage their employees to achieve business results at any cost, even when ethics are compromised. Second, it sends a message to all employees that business results are more important than ethics.
1. www.ethics.org/newsite/research/eci-research/nbes/nbes-reports/nbes-2013 ↵
2. www.ethics.org/newsite/research/eci-research/nbes/nbes-reports/ethical-leadership ↵
3. http://www.reuters.com/article/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010
4. http://www.reuters.com/article/us-volkswagen-emissions-culture-idUSKCN0S40MT20151010
5. http://fortune.com/2015/10/13/biggest-culprit-in-volkswagen-emissions-scandal/
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Why learn about ethics and social responsibility?
Generally speaking, students believe that there are two primary reasons to act ethically:
1. Acting ethically is the right thing to do from a moral perspective;
2. If you act unethically, then you might get caught and be punished.
Neither of these is a bad reason to apply principles of ethics and social responsibility, but it is worth considering another reason, as well. In most cases strong ethical behavior leads to strong business results. Behaving ethically is actually good business. Let’s look at two different auto companies whose track records on ethical behavior have had very different outcomes.
Tesla and Social Responsibility
Tesla, Inc. was founded in 2003 by a group of engineers who wanted to prove that electric cars could be better than gasoline-powered cars. They hoped to build cars that wouldn’t require the tradeoffs in power and comfort of electric cars in the past. The founders pledged that each new generation of cars would be increasingly affordable, helping the company work toward its mission: “to accelerate the world’s transition to sustainable energy.”[1]
In order to design and build luxury electric cars, Tesla invented a number of new technologies that it patented in order to protect its competitive advantage. In June 2014 the company announced that it was releasing access to all of its patents, making its technological advances open to competitors and inventors. In the announcement, company CEO Elon Musk said, “Tesla Motors was created to accelerate the advent of sustainable transport. If we clear a path to the creation of compelling electric vehicles, but then lay intellectual-property land mines behind us to inhibit others, we are acting in a manner contrary to that goal. Tesla will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.”[2]
Tesla has a mission with an emphasis on social responsibility; it strives to develop products that have both a societal and economic benefit. Industry analysts and consumers alike see this as a distinct advantage in the marketplace. Investment analyst Seeking Alpha explains:
Companies like Toyota Motor and Honda are already pushing for gas-less cars and more and more efficiency from their cars. Tesla is not single-handedly pushing this, but it is part of the overall push to improve one of the most important aspects of our country—how we envision the car. Yet, the company extends beyond this—challenging how we vision luxury, how we understand how to build a car, and what the future electric grid could look like.[3]
Volkswagen and Ethical Behavior
The car company Volkswagen (which is part of the larger Volkswagen Group) does not have a formal mission statement, but its goal is “to offer attractive, safe, and environmentally sound vehicles that can compete in an increasingly tough market and set world standards in their respective class.”[4]
In September 2015, the Environmental Protection Agency announced that Volkswagen had installed special software in its cars to manipulate emissions levels (making it appear that the cars are less polluting than they are). A week later Volkswagen disclosed that 11 million diesel vehicles contained the devices, and CEO Martin Winterkorn resigned. The price of Volkswagen stock plunged—losing 30 percent of its value overnight—and the company scrambled to understand what had happened and control the damage to its reputation.
In the months following the discovery of the deceptive devices, investigators identified a team of Volkswagen employees who had hatched the plan and implemented it over a number of years. An internal evaluation identified a “culture of tolerance” for rule breaking at the company. It also came to light that Volkswagen’s emphasis on “results at any cost” had contributed to the breach in ethical standards. Industry experts believe that the company’s violation of consumers’ trust will be will be exceedingly difficult to repair and that it may take years to rebuild the Volkswagen brand.
1. “About Tesla,” Tesla, accessed September 23, 2019, www.tesla.com/about↵
2. Musk, Elon. “All Our Patent Are Belong To You,” Tesla, June 12, 2014, www.tesla.com/blog/all-our-patent-are-belong-you. ↵
3. “Tesla: Social Responsibility Scorecard Shows Strengths And Weaknesses,” Seeking Alpha, Jan 6, 2015, seekingalpha.com/article/2801365-tesla-social-responsibility-scorecard-shows-strengths-and-weaknesses. ↵
4. Jurevicius, Ovidijus. “Mission statement of Volkswagen,” Strategic Management Insight. September 14, 2013, https://www.strategicmanagementinsight.com/mission-statements/volkswagen-mission-statement.html. ↵
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If you are hired to work in marketing at a typical company, there will likely be clear ethical standards defined in a company policy and some level of compliance among employees at all levels in the company. You will witness ethical breaches and need to decide whether to report them or not. You will see examples of outstanding ethics and have the opportunity to participate in debates about ethical disagreements and issues. No company is perfect, but most are trying to be ethical.
How can you, as a marketer, make a difference? Marketers have a specific set of responsibilities when it comes to preventing and addressing ethical issues. These are described below.
Demonstrate Respect for Your Target Customer
Marketing is not a game of manipulation. Good marketing provides compelling solutions and informs customers to help them make good selections and realize value. Recognize the customer’s need for an offering that is easy to use and includes clear instructions and appropriate warnings. Remain available to customers to hear complaints. Be humble enough to recognize that not everyone wants to hear your messages. If you demonstrate respect for the consumer, you will find new opportunities to provide value. If you treat consumers like a commodity to be manipulated, a host of ethical issues will clutter your path.
Prepare the Sales Team to Sell Effectively and Ethically
If personal sales are a part of the business plan, then marketers have an important responsibility to prepare the sales team for success. Often marketers are asked to create the message, and sales reps are asked to deliver it. When the sales rep is prepared with a strong value proposition, effective communication materials and presentations, and thorough market research, the sales rep can do her best work. When the marketing mix is not hitting the mark, the sales rep’s is much more difficult, and there is a greater risk of ethical issues. It is the marketer’s responsibility to prepare sales reps to be successful without compromising their integrity.
Demonstrate High Personal Standards in Business Relationships
Marketers often entertain and give gifts. It is not unusual for the marketing team to create the gift list for all customers. Marketers cultivate business relationships and distributor relationships, too. If marketing demonstrates a high standard for professionalism and ethics in these relationships, it sends a strong message and increases the expectation that others will, as well.
Provide Fair Value to the Target Customer
Many ethical issues result from some level of deception involving misstatement of value to the customer. Be accurate in communications to customers about the value that a product provides. Be clear in pricing and contracts. Pricing strategies that confuse customers and cost more than the customer initially believed are never a good long-term strategy.
Play Nicely in the Competitive Environment
Companies in a competitive market shift positions and introduce innovations to give them new competitive advantage. This is the very nature of a competitive marketplace. Treat competitors with respect and learn from their approaches. Do thorough competitive research to understand them better. Do not seek to gain confidential information about competitors or their products.
Be Truthful
Seek to create a relationship of trust with your target customer through honest, helpful communication. This is such a simple but important recommendation for all marketers. If customers trust the product, the company, and the brand, business results improve, and the company has greater flexibility to introduce new products or make market adjustments.
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5.13: Simulation- Ethics
Try It
Play the simulation below multiple times to see how different choices influence the outcome. All simulations allow unlimited attempts so you can gain experience applying the concepts.
A link to an interactive elements can be found at the bottom of this page.
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5.14: Self Check- Ensuring Ethical Marketing and Sales
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/750
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5.15: Outcome- Social Responsibility Marketing Impact
What you’ll learn to do: explain how demonstrating corporate social responsibility can impact marketing
We have reviewed many ethical challenges and potential traps for marketers. How can a marketer win? Actually, in lots of ways. Increasingly, marketers are doing more than just trying to avoid doing harm; as you’ll see, they’re taking on important issues and are making a difference, actively doing good.
Earlier in this module we discussed what corporate social responsibility is and how social responsibility programs impact many different stakeholders in a business. In this section we focus on the role of corporate social responsibility in marketing. We will look at the marketing mix—product, price, promotion, and distribution—and see how companies are changing their marketing strategies to visibly contribute to their communities.
Finally, we’ll talk about the results that companies achieve when social responsibility is part of the marketing strategy.
The specific things you’ll learn in this section include:
• Define social responsibility
• Identify examples of social responsibility that create value for customers
• Explain the impact of social responsibility on marketing results
Learning Activities
The learning activities for this section include the following:
• Reading: Social Responsibility in the Marketing Strategy
• Reading: Social Responsibility Initiatives
• Self Check: Social Responsibility Marketing Impact
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You’ll recall that we defined corporate social responsibility as the ethical behavior of a company toward society. It means acting responsibly toward the stakeholders—not just the shareholders—who have a legitimate interest in the business. Let’s focus on how marketers use corporate social responsibility to achieve marketing objectives.
First, let’s return for a moment to the marketing planning process. Where does social responsibility fit in? It generally comes into the planning process in one of two ways:
1. Social responsibility may be a corporate-level strategy with specific objectives.
2. Social responsibility may be part of the marketing mix based on the situation analysis
Let’s look at both of these approaches.
Corporate Strategy at Coca-Cola
Coca-Cola’s mission is:
• To refresh the world . . .
• To inspire moments of optimism and happiness . . .
• To create value and make a difference.
In support of the vision, the company has created what it calls a “roadmap” that defines the focus areas for company strategies and tactics. These include:
• People: Be a great place to work where people are inspired to be the best they can be.
• Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy people’s desires and needs.
• Partners: Nurture a winning network of customers and suppliers, together we create mutual, enduring value.
• Planet: Be a responsible citizen that makes a difference by helping build and support sustainable communities.
• Profit: Maximize long-term return to shareowners while being mindful of our overall responsibilities.
• Productivity: Be a highly effective, lean, and fast-moving organization.[1]
Which of the roadmap areas focus on social responsibility? “Planet” is clearly a social responsibility focus, as it acknowledges a responsibility to improve the world beyond the sale of Coca-Cola’s products. “People” also suggests a note of social responsibility; Coca-Cola strives to be a place where employees are not only doing a good job for the company but are inspired to be their best as people.
Marketing Strategies to Address Childhood Obesity
Coca-Cola doesn’t specifically call out customer health in its roadmap, but that concern has become a significant component of its marketing strategy, and the company has developed a specific set of marketing programs to address childhood obesity. Childhood obesity is a challenging issue for the company. If you were to conduct a SWOT analysis of Coca-Cola, you could imagine that this issue would appear under “external threats” and have a negative impact on its market. In most K–12 schools in the United States, the sale of soft drinks has been steadily eliminated. Rather than wait to find out how this trend might play out, marketing decided to take a proactive role. In 2013, Coca-Cola announced its four global well-being commitments to help fight obesity, each of which has a direct impact on the marketing mix:
1. Offer low- or no-calorie beverage options in every market. (Product)
2. Provide transparent nutrition information, featuring calories on the front of all of our packages. (Product)
3. Help get people moving by supporting physical activity programs in every country where we do business. (Promotion)
4. Market responsibly, including no advertising to children under 12 anywhere in the world. (Promotion)[2]
Coca-Cola has added a number of water and juice brands to its product portfolio in order to achieve these social responsibility objectives, and has devoted a substantial budget to develop physical activity programs in its markets. The tone of the company’s advertising has shifted to focus on an older audience.
Increasingly companies around the world are including some social responsibility objectives in their corporate-level plans. The majority of U.S. companies in the S&P 500 and Fortune 500 provide reporting to investors on their sustainability goals and performance.[3] In South Africa, companies are required to provide such reporting in order to be listed on the Johannesburg stock exchange.
With this emphasis and accountability, social responsibility is no longer regarded as a “special project,” but is becoming an integral part of the corporate and marketing planning process that is central to business performance and success. | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/05%3A_Ethics_and_Social_Responsibility/5.16%3A_Reading-_Social_Responsibility_in_the_Marketing_Strategy.txt |
The Business Case for Social Responsibility
Regardless of broader benefits, there is a strong business case for social responsibility. Public companies’ stock prices benefit from strong social responsibility initiatives. In 2013, more than \$6.57 trillion were invested based on socially responsible investment strategies.[1]
For marketers, the desire for socially responsible products and companies is driven by consumers. Nearly 30 percent of consumers plan to increase the amount of goods and/or services they buy from socially responsible companies in the coming year. Twenty-five percent avoided buying products from an enterprise because they thought it wasn’t socially responsible.[2]
Social Responsibility Programs
In defining social responsibility programs and goals, companies are acknowledging a commitment to creating a better world. How do they determine where to focus these efforts and what are they trying to achieve? Generally, companies are expanding on unique market strengths that benefit society and trying to reduce the negative impact of their products on society. As with any other business strategy, an approach that is customized to the company and its market is likelier to have greater impact. For example, Coca-Cola’s emphasis on preventing childhood obesity acknowledges and addresses a risk that the company brings to its market. If Exxon Mobile launched a childhood obesity initiative, it wouldn’t have the same impact. The company’s oil and gas offerings don’t have a direct impact on childhood obesity, and thus it would raise questions about the energy company’s commitment to addressing issues much closer to home—i.e., the serious impact that Exxon Mobile products have on the environment.
Many companies are implementing a host of social responsibility strategies through sustainable product initiatives.
Creating Sustainable Products
A sustainable product is constantly environmental-friendly during its entire life. That is, from the moment the raw materials are extracted to the moment the final product is disposed of, there must be no permanent damage to the environment.[3]
A sustainable product focus may include:
• Use of organic raw materials
• Sustainably harvesting of raw materials
• Emphasizing human rights and labor conditions in sourcing decisions
• Use of renewable energy in the production process
• Ensuring that use of the product creates a positive impact on the community
• Creating product recycling and reuse options
• Improving the impact of the product’s use on human and environmental health
The intent of a sustainable product strategy is that the company is identifying the impact of its products on society at every phase of the product lifecycle, and minimizing the negative impacts. Sustainable product initiatives are so broad in scope that they often encompass all of the social responsibility initiatives. This broad scope also requires companies to be focused and realistic about what they can achieve, setting appropriate objectives that demonstrate progress and identify where more work is needed.
As the world’s largest retailer, Wal-Mart faces unique challenges in product sustainability. It must not only focus on its stores, but on the products provided and transported by a board network of suppliers. To address this, Wal-Mart has partnered with The Sustainability Consortium to create a sustainability index that can be used to set standards and measure progress across its value chain. The goals of the index are to:
• Improve the sustainability of the products customers love
• Integrate sustainability into the business of buying and selling merchandise
• Reduce cost, improve product quality and create a more resilient supply chain
• Strengthen customers’ trust in retailers and the brands we carry
The company cites progress in its work to date.
One great example of how we are delivering impact is through the progress we’ve made on our goal to eliminate 20 million metric tons (MMT) of greenhouse gas (GHG) emissions from the supply chain. Through our partnership with the Environmental Defense Fund and by leveraging the Index as a tool to gain buy-in and create accountability, we’ve:
• Eliminated 7.575 MMT of GHG by the end of 2013
• Implemented projects that are estimated to eliminate 18MMT of GHG emissions by the end of 2015[4]
Clearly, Walmart has significant work ahead, but independent evaluations have been positive. Joel Makower of Green Biz reports that Walmart’s sustainability initiatives are having a real impact, both on its operations and those of the companies in its supply chain. He also notes that some of that progress is offset by the company’s rapid growth.[5]
1. http://www.ussif.org/sribasics
2. http://www.forbes.com/sites/annefield/2013/04/05/consumers-like-social-responsibility-but-they-arent-sure-what-a-social-enterprise-is/
3. Frank-Martin B. and Peattie, K. (2009). Sustainability Marketing: A Global Perspective. Wiley, United Kingdom. ↵
4. corporate.walmart.com/article/sustainability-index ↵
5. http://www.greenbiz.com/article/walmart-sustainability-10-assessment
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/751
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5.19: Putting It Together- Ethics and Social Responsibility
In this module we’ve covered a range of different corporate ethical challenges, legal requirements, and opportunities to contribute to social good. Every year, a company called Ethisphere provides a through review of businesses seeking to gain recognition for being upstanding corporate citizens. (See the full list of the World’s Most Ethical Companies honorees.)
The review process captures company performance in five areas, but in order to be honored, the companies must demonstrate that they are addressing ethics and social responsibility holistically. The five factors, which are nicely aligned with the topics of this module, are described below, each with a brief description of how the companies show compliance.
Ethics and Compliance Program
We discussed this topic in our focus on company policy, along with the important role of executive leadership in supporting and following the policy. This category reviews the ethics program structure, responsibility, and resources, and evaluates the program oversight and tone among top management in the company.
In the following video, Walmart’s chief ethics officer, Cindy Moehring, explains how the compliance and ethics team makes this sophisticated program simple:
A link to an interactive elements can be found at the bottom of this page.
Corporate Citizenship and Responsibility
We’ve looked at a number of ways in which companies can be good corporate citizens and “give back” to society and stakeholders. In this category, Ethisphere evaluates a wide range of a company’s performance indicators associated with sustainability, citizenship, and social responsibility, with special attention to areas such as environmental stewardship, community involvement, corporate philanthropy, workplace impact and well-being, and supply chain engagement and oversight.
In the video below, Executive Vice President of Government Affairs, General Counsel, and Corporate Secretary of PepsiCo Tony West discusses the responsibility to society that businesses have:
A link to an interactive elements can be found at the bottom of this page.
Culture of Ethics
We also discussed the importance of building a culture of accountability within an organization. In this area the Ethisphere evaluation measures an organization’s efforts and success at establishing an ethical tone throughout every level of the company.
In the following video, Tony West of PepsiCo shares insight on sustainable ethical cultures, employee values, and their persistence over time:
A link to an interactive elements can be found at the bottom of this page.
Governance
We discussed the importance of executive leadership when it comes to monitoring and promoting a quality company culture. This category of the Ethisphere review examines the availability and quality of systems designed to ensure strong corporate governance, which not only includes executive managers, but also the company’s board of directors.
CH2M Hill board member Georgia Nelson discusses the positive effects of board diversity on corporate governance and innovation in the video below:
A link to an interactive elements can be found at the bottom of this page.
Leadership, Innovation, and Reputation
The companies that make Ethisphere’s list of honorees are visibly presenting themselves in an ethical context, which supports their reputation among all stakeholders. This category evaluates the company’s ethical reputation in the marketplace and among key stakeholders such as employees and customers.
In the video below, the corporate communications manager of Aflac International, John Sullivan, explains how ethical practices reflect on the business:
A link to an interactive elements can be found at the bottom of this page.
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5.20: Discussion- Analyzing Social Responsibility
Instructions
Write a two-part post for the Discussion on this topic. Each part should be 1–2 paragraphs in length.
Part 1: Current Status
It is no longer acceptable for businesses to disregard issues related to ethics and social responsibility. Conduct research and briefly describe what your organization is doing now with regard to corporate social responsibility and pursuing sustainable business practices.
Think broadly about what to consider: philanthropy, energy conservation, sustainable supply chains, reducing carbon footprint, fair trade, community service, volunteerism, etc.
Part 2: Recommendations
Based on your understanding of the organization’s goals, what recommendations do you have for how to create a more ethical, socially responsible, and/or sustainable business? What practices do you recommend the organization pursue?
Part 3: Respond to Classmates’ Posts
After you have created your own post, look over the discussion posts of your classmates and respond to at least two of them.
Grading Rubric for Discussion Posts
The following grading rubric may be used consistently for evaluating all discussion posts.
Discussion Grading Rubric
Discussion Grading Rubric
Criteria Response Quality: Not Evident Response Quality: Developing Response Quality: Exemplary Point Value Possible
Submit your initial response No post made – 0 pts Post is either late or off-topic – 2 pts Post is made on time and is focused on the prompt – 5 pts Point value possible – 5 pts
Respond to at least two peers’ presentations No response to peers – 0 pts Responded to only one peer – 2 pts Responded to two peers – 5 pts Point value possible –5 pts
Total Points Possible for Discussion Assignment: 10pts.
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What you’ll learn to do: describe the types of ethical and social responsibility issues that marketing must address
We will begin by introducing definitions to clarify ethical terms and then turn to the issues that marketing professionals most often encounter.
If you’ve taken other business courses, you’ve probably studied business ethics and have some familiarity with examples of corporate malfeasance (which is a fancy term for unethical behavior). These cases typically involve financial fraud. (Read about investor Bernie Madoff, the man responsible for the largest financial fraud in U.S. history). Financial fraud is certainly an example of unethical (and, often, illegal) behavior, but it isn’t directly related to marketing. Despite the presence of financial scandals in the news, you might be surprised to learn that the ethical issues U.S. businesses worry about the most are related to marketing.[1] Take a look at their “top eight” list of ethical concerns, below:
1. Gifts, gratuities, bribes (marketing and sales)
2. Price discrimination and unfair pricing (marketing and sales)
3. Dishonest advertising (marketing and sales)
4. Miscellaneous unfair competitive practices
5. Cheating customers, unfair credit practices, and overselling (marketing and sales)
6. Price collusion by competitors or price fixing (marketing and sales)
7. Dishonesty in making or keeping a contract
8. Unfairness to employees and prejudice in hiring
You will notice that five of the eight ethical issues cited are governed by the marketing function, and the other three can certainly affect or involve marketing. In this section, you’ll learn more about these issues and the challenges in overcoming them. As with ethics in general, the line between ethical behavior and unethical behavior can be very fine indeed.
The specific things you’ll learn in this section include:
• Define ethics in the context of marketing
• Identify common ethical issues and their impact on individuals and organizations
• Identify ethical issues introduced through new marketing channels
• Explain the role of social responsibility in marketing
Learning Activities
The learning activities for this section include the following:
• Reading: Defining Ethics
• Reading: Common Ethical Issues in Marketing
• Reading: New Challenges in Marketing Ethics
• Reading: Corporate Social Responsibility
• Self Check: Ethical Marketing Issues
1. Brenner, S. N, Molander, E. A. "Is the Ethics of Business Changing" Harvard Business Review 55: 57-71 (1977). ↵
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• Outcome: Ethical Marketing Issues. Provided by: Lumen Learning. License: CC BY: Attribution
5.22: Reading- Defining Ethics
Ethics is the set of moral principles or values that guides behavior. There is a general recognition that many, if not most, business decisions involve some ethical judgment.
Each party in a marketing transaction brings a set of expectations regarding how the business relationship will exist and how transactions should be conducted. For example, when you as a consumer wish to purchase something from a retailer, you bring the following expectations about the transaction: (a) you want to be treated fairly by the salesperson, (b) you want to pay a reasonable price, (c) you want the product to be available as advertised and in the indicated condition, and (d) you want it to perform as promised. Unfortunately, your expectations might not be in agreement with those of the retailer. The retail salesperson may not “have time for you,” or the retailer’s notion of a “reasonable” price may be higher than yours, or the advertising for the product may be misleading. These differences in expectations can lead to ethical questions that are sometimes difficult to analyze.
To create greater clarity for marketing professionals, the American Marketing Association has created the American Marketing Association Statement of Ethics. It’s helpful to review this short document in order to understand the scope of issues that marketing professionals face. The preamble of the document defines a number of key terms and explains why ethics are of particular importance to marketers:
The American Marketing Association commits itself to promoting the highest standard of professional ethical norms and values for its members (practitioners, academics, and students). Norms are established standards of conduct that are expected and maintained by society and/or professional organizations. Values represent the collective conception of what communities find desirable, important, and morally proper. Values also serve as the criteria for evaluating our own personal actions and the actions of others. As marketers, we recognize that we not only serve our organizations but also act as stewards of society in creating, facilitating, and executing the transactions that are part of the greater economy. In this role, marketers are expected to embrace the highest professional ethical norms and the ethical values implied by our responsibility toward multiple stakeholders (e.g., customers, employees, investors, peers, channel members, regulators and the host community).[Emphasis added][1]
The exchange process between an organization and a customer is based on a relationship of trust. The Statement of Ethics aims to protect that trust.
1. archive.ama.org/archive/AboutAMA/Pages/Statement%20of%20Ethics.aspx ↵
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Let’s start by taking at look at a hypothetical business situation:
Examples
You’re a member of the marketing team for a B2B company that sells software to restaurants. Your product is a point-of-sale system that manages orders, menus, and staff scheduling. While it generally works well, there are sometimes glitches that cause it to drop orders, and the system goes down more often than you would like. You are marketing the system to a major restaurant chain, and they’ve asked for a list of references from current customers. The marketing and sales teams sit around a table reviewing the current customer list trying to decide which references to provide. First, the team screens out those who have complained most vocally about the glitches with the product. There is one customer who told his account manager, “These thing happen with all systems,” so the team thinks he would be a good reference. There’s also a new customer who started using the system recently and hasn’t yet experienced the system down time that other customers have. The team selects that restaurant, as well, and prepares to send the two names to the sales prospect.
Question
Is that ethical? Is it fair and honest to cherry-pick the customer references, selecting only the ones that are unlikely to share negative experiences about your product? To be sure, there’s a range of customer feedback, and not all of it is positive. Are you expected to give a full picture of customers’ experience—warts and all—so the restaurant chain will know exactly what it’s buying?
Answer
In general, when prospective customers request customer references, they expect to receive favorable ones, and doing so is not a violation of their trust. It’s a lot like a prospective employer’s request for a job candidate’s work references. When you’re marketing yourself for a new job, you name the references who are most likely to report your talents and strengths—you don’t include a crabby boss who never had good things to say about anyone.
The question becomes more challenging when the customer relationship is more complicated. In every case—even the simplest—it’s a judgment call. Suppose your company compensates customers for providing references. A company might give some small thank-you gift to acknowledge that taking reference calls requires time, and that the company appreciates the client’s support. Is that unethical? Possibly. On one hand, it’s reasonable and desirable to express your appreciation to the customer, since part of maintaining the customer relationship is letting customers know that you value them and their time. On the other hand, there’s a risk, especially if the gift is large, that the customer might be influenced or even induced to give your company or product a favorable review. There is a point where the compensation begins to distort the customer dialogue and relationship, and then it’s clearly unethical—and if you’re inducing a customer to alter their behavior in exchange for a gift, it’s bribery.
Marketing professionals face regularly face questions of this kind. Where the organization appreciates a close partnership with a client, a thank-you gift may well be appropriate. The challenge is to choose one of the right size that expresses appreciation but doesn’t compromise the integrity of the client or the marketing organization.
Below is a list that shows how marketing professionals responded to a survey on the most difficult ethical issues they face.[1]
Most Difficult Ethical Issues Marketing Professionals Face
• 15% of marketing professionals say bribery is the most difficult ethical issue
• Gifts from outside vendors, payment of questionable commissions, “money under the table”
• 14% of marketing professionals say fairness is the most difficult ethical issue
• Unfairly placing company interests over family obligations, taking credit for the work of others, inducing customers to use services not needed, manipulation of others
• 12% of marketing professionals say honesty is the most difficult ethical issue
• Lying to customers to obtain orders, misrepresenting services and capabilities
• 12% of marketing professionals say price is the most difficult ethical issue
• Differential pricing, charging higher prices than firms with similar products while claiming superiority
• 11% of marketing professionals say product is the most difficult ethical issue
• Product safety, product and brand infringement, exaggerated performance claims, products that do not benefit consumers
• 10% of marketing professionals say personnel is the most difficult ethical issue
• Firing, hiring, employee evaluation
• 5% of marketing professionals say confidentiality is the most difficult ethical issue
• Temptations to use or obtain classified, secret, or competitive information
• 4% of marketing professionals say advertising is the most difficult ethical issue
• Crossing the line between exaggeration and misrepresentation, misleading customers
• 4% of marketing professionals say manipulation of data is the most difficult ethical issue
• Falsifying figures or misusing statistics or information, distortion
Notice that many of the responses include watchwords like “questionable,” “exaggerated,” “distortion,” and “crossing the line.” In marketing, the greatest challenge is to influence the behavior of the target customer (by getting them to buy) without violating the customer’s trust or acting unethically. With the rise of social media, customers are in a much better position to share frank evaluations of products and services publicly, and this gives marketers a new means of capturing unbiased customer feedback. (It also opens the door to the problem of “fake customer reviews,” but that’s another issue.)
1. Lawrence B. Chonko and Shelby D. Hunt, “Ethics and Marketing Management: An Empirical Examination,” Journalof Business Research, Vol. 13, 1985, pp. 339–359. ↵
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New marketing channels create opportunities for new tactics, but sometimes these developments bring new ethical challenges. Eventually society may establish what is acceptable behavior and what is not, but that process takes time.
In the following blog post, marketer Augie Ray explains growing sensitivities around the appropriate uses of social media, and shares his guidance to marketers who are seeking to create a trusted relationship with their customers and prospects.
Social Media Ethics on Display (or Not) During Week of Boston Marathon Tragedy
Instead of considering this in the abstract, let’s examine two brands’ actions last week, during the frightening events in Boston. NBC Bay Area posted a photo of a young bombing victim and implored people to “‘Like’ this to wish him a continued speedy recovery.” This desperate attempt to trade on people’s feelings for a young victim of the bombing in order to receive a bit of EdgeRank-building engagement is horrifyingly unethical, in my book. (And if you do not agree, then please tell me how “liking” an NBC post lends support to or otherwise helps this poor hospitalized child.)
Ford, a brand I praised for authenticity in my last blog post, waded into dubious water with a Facebook status update following the capture of the second bombing suspect. The brand said, “To the first responders of Boston: Thank you. You are true American heroes.” Nothing wrong with that—in fact, I love that a brand like Ford feels it can express sincere appreciation for the sacrifices of those who serve. The problem was that Ford didn’t post that as text but included it within a beauty shot of their products, complete with the Ford logo and tagline.
Not everyone will agree, but I feel that Ford’s use of brand imagery not only reduced the sincerity of the message but demonstrated questionable ethics. Before you disagree, I would ask you to view the two status updates below—one Ford could have posted and the other it actually did—and consider three questions:
1. Which is a more authentic expression of appreciation to people who sacrificed their safety to protect us?
2. What does the product and brand imagery of the post on the right add (if anything) to the sincerity of the gratitude compared to the simple text version?
3. Which version more clearly puts the focus on the heroes in Boston?
The version on the left imagines what Ford could have posted as text while the one on the right is what Ford actually posted following the capture of the second bombing suspect in Watertown, MA
Issues of ethics are difficult to discuss. They often are not clear cut, and while it is easy to see when a company crosses the line with both feet (as did NBC Bay Area), it can tough to discern as brands toe the gray line (as did Ford, in my opinion).
It is even tougher to see when you yourself cross ethical lines. If your boss wants to know why your brand has half a million customers but only 25,000 fans on Facebook, a sweepstakes to accumulate fans may not seem unethical. Your perspective may change, however, if you put yourself on the other side of this equation; if you do not want to see your friends becoming shills for brands in return for freebies and giveaways, then your brand should not follow this path. It is unethical to treat your own customers in a way you would not appreciate from the brands you buy or the people you know. (Fifty years ago, David Ogilvy, the father of modern advertising, expressed the same sentiment when he said, “Never write an advertisement which you wouldn’t want your family to read. You wouldn’t tell lies to your own wife. Don’t tell them to mine.”)
We are roughly ten years into the social media era, and I think perhaps it is time to reset our moral compasses, not to save our souls but to improve business results. Study after study demonstrate that consumers want something more from brands than silly images and memes; they want ethical behaviors and communications.[1] The 2012 Edelman Trust Barometer Study found that customers increasingly expect brands to “place customers ahead of profits and have ethical business practices,” and Interbrand’s 2018 brand study noted that successful businesses are those who are willing “to simultaneously look through a microscope and a telescope, to have the courage to intercept the future, not just flow with it, and, to take decisive action that makes a real impact.”
I’d like to believe this is always the case in every business situation, but when it comes to social media marketing, the ethical path also happens to be the best one for enhancing brands and business results.
Before you click “submit” to your next social media post, don’t simply ask whether it will achieve its goal, fit best practices, or suit the brand. Ask yourself if it is honest, transparent, and ethical. That is a much higher standard, but higher standards are what consumers want and what brands increasingly wish to deliver, aren’t they?
1. "Miracle on Social Media Street." Experience: The Blog. December 27, 2012. Accessed September 10, 2019. http://www.experiencetheblog.com/2012/12/miracle-on-social-media-street.html
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So far we have focused on ethical dilemmas in terms of risk. If a company acts unethically, it risks damaging its reputation and its customers’ trust—worse, it can face lawsuits and criminal prosecution. In this section we’ll discuss one of the ways in which companies attempt to get out in front of such risks by taking a proactive stance on ethics, instead. As you saw with Tesla, companies that place “doing the right thing” at the center of their corporate mission and strategy often see a competitive advantage. Increasingly, they’re finding that good corporate citizenship not only benefits customers and communities but is good business, too.
Corporate social responsibility is the ethical behavior of a company toward society. It means acting responsibly toward the stakeholders—not just the shareholders—who have a legitimate interest in the business.
Shareholders own a portion or “share” of a business. Stakeholders do not own the business, but they have some stake or interest in it because they are affected by the business’s strategies and tactics. Examples of stakeholders are employees, suppliers, business partners, and the community in which the business operates.[1]
Below are a few examples of businesses behaving ethically in ways that have a positive impact on their stakeholders.
Xeros Supports Employee Volunteerism
Xerox is one of many companies that creates opportunities for its employees to contribute to their local communities. In 1974 Xerox launched the Xerox Community Involvement Program, which supports employee involvement in community-focused causes. Since that time more than half a million Xerox employees have participated in the program. , as the name suggests, . In its most current reporting on the impact of the program Xerox has announced spending \$1.3 million for 13,000 of its employees to participate in 800 community projects. Xerox benefits from the program through community recognition, but also in supporting its employees make contributions that are important to them increasing their loyalty to their employer. [2]
Anheuser-Busch Wants Customers to Drink Responsibly
In January 2014, Anheuser-Busch ran a Super Bowl ad featuring a cute puppy and the famous Budweiser Clydesdale horses. The ad plays on romance and nostalgia to remind viewers of the brand’s history (and to sell more beer). View the Budweiser Clydesdale 2014 Super Bowl commercial here.
In September 2014, the company brought back the puppy, this time to promote responsible drinking:
A link to an interactive elements can be found at the bottom of this page.
On its Web site, Anheiser-Busch lists a number of programs it has launched to reduce drunk driving. These are marketing programs that were developed to reduce the risk for consumers using the company’s products.
Anheuser-Busch is opposed to drunk driving and we believe it is 100 percent preventable. According to the U.S. Department of Transportation, drunk-driving fatalities have decreased 53 percent since 1982 to record lows, but we recognize there is still work to be done. As part of our effort to prevent drunk driving, we have key initiatives like the Budweiser Designate a Driver campaign and Bud Light safe ride home programs, including Bud Light Alert Cab and Bud Light Tow to Go.
The company is actively promoting safety for its customers and their communities.
Target Invests in Communities
Target places an emphasis on being a “good corporate citizen” in the communities it serves. Each year the company publishes a corporate responsibility report that shares its goals and progress in a number of areas including the environment, team member well-being, education, and volunteerism.
Target shows that it is committed to protecting the environment by increasing the number of organic foods it offers and by putting in place measures to reduce waste and greenhouse gasses.
The company also makes significant contributions to education by paying for employees’ education, and by contributing to schools in its local communities. In 2014 Target donated \$31,722,837 to more than 84,000 schools in all fifty states and the District of Columbia.
Haagen-Dazs Cares about Its Tiniest Suppliers
Recently, the ice-cream company Haagen-Daz initiated a campaign to raise awareness about the threats to honey bees, which are rapidly disappearing and are vital to the global food chain (and many of the ingredients in flavored ice cream). The company started a honeybee microsite and is donating a portion of the proceeds from its honeybee brand to bee research. In November 2014, it raised an additional \$7,000 for research during a two-day Twitter campaign (#HelpHoneyBees hashtag).[3]
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/747
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5.27: Outcome- Regulatory Laws
What you’ll learn to do: explain the laws that regulate marketing
While there are situations in which we expect individuals to act according to higher moral laws, at a basic level we always expect business professionals to follow the law. Most of the laws that impact marketers fall into a category called consumer protection. Consumer protection laws are created to ensure the rights of consumers and to create a fair marketplace for consumers.
The History of Consumer Protection
Historically, consumer protection laws in the United States have been specific formal legal responses to address public outrage over the disclosure of industry abuses and crises. For example, in 1905 a man named Upton Sinclair exposed the terrible worker conditions in the American meat-packing industry. His work sparked public outrage and, in turn, led to the creation of the Food & Drug Administration and the first comprehensive inspection and regulation of food safety in the United States.[1]
Similarly, in the 1960s consumer advocate Ralph Nadar took on automobile safety, highlighting the immense profits made by auto companies relative to their investment in customer safety. In 1966 Congress unanimously passed the National Traffic and Motor Vehicle Safety Act, and the National Highway Traffic Safety Administration gained consumer protection powers. The number of vehicular deaths in the U.S. reached a high of 50,000 in 1960 and have continued to fall despite a larger number of drivers on the road.
Government Consumer Protection and Enforcement Agencies
A number of governments agencies are charged with protecting consumers. The U.S. Federal Trade Commission (FTC) was created in 1914 and is charged with protecting America’s consumers and promoting competition. The commission includes individual divisions that oversee a range of activities that are of importance to marketers, including the following:
• Privacy and identity protection
• Advertising practices
• Marketing practices
• Financial practices
The FTC’s Bureau of Consumer Protection stops unfair, deceptive, and fraudulent business practices by collecting complaints and conducting investigations, suing companies and people who break the law, developing rules to maintain a fair marketplace, and educating consumers and businesses about their rights and responsibilities.
In addition to government-based agencies, consumer associations and other nonprofit entities also play an important role in protecting the consumer.
As a marketer, it is important to understand the current laws and consider where there are risks to consumers that might lead to new legislation.
The specific things you’ll learn in this section include:
• Explain product liability and its impact on marketing
• Explain privacy law and its impact on marketing
• Explain fraud in the marketing process and its impact
Learning Activities
The learning activities for this section include the following:
• Reading: Product Liability
• Reading: Privacy Laws
• Reading: Fraud in Marketing
• Self Check: Regulatory Laws
1. Spencer Weber Waller, Jillian G. Brady, and R.J. Acosta, "Consumer Protection in the United States: An Overview," www.luc.edu/media/lucedu/law/...nFormatted.pdf. ↵
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Introduction
Product liability is the legal liability a manufacturer or trader incurs for producing or selling a faulty product.
There is not a single federal law or code that covers all product liability. Fourteen states have adopted the Uniform Commercial Code, which governs business transactions between states. Specifically, Article 2 of the code includes the requirements for contract formation and breach, which are important in many product liability cases. In general, product liability laws come about as a result of civil court cases being prosecuted at the state level.
The courts are increasingly holding sellers responsible for the safety of their products. The U.S. courts generally maintain that the producer of a product is liable for any product defect that causes injury in the course of normal use. Liability can even result if a court or a jury decides that a product’s design, construction, or operating instructions and safety warnings make the product unreasonably dangerous to use.
Types of Product Defects
There are three types of product defects that incur product liability: design defects, manufacturing defects, and defects in marketing.
Design Defects
Design defects exist before the product is manufactured. There is something in the design of the product that is inherently unsafe, regardless of how well it is manufactured. Since “product” is one of the primary elements of the marketing mix, the marketer bears responsibility for ensuring that the design results in a product that is safe and that the product will fulfill the promises of the other aspects of the marketing mix such as promotional commitments.
Hoverboard
Let’s look at a current example of a product design going awry. One of the hottest holiday gift items in 2015 is the hoverboard self-balancing scooter. The premium models often cost more than \$1,000, but several companies have created less expensive versions by using lower-cost board components. One expensive component that has been downgraded in the cheaper models is the rechargeable lithium-ion battery. Many less expensive boards use a lower-quality (and lower-priced) mass-produced battery cell. These cheaper batteries are more likely to have quality issues that might cause them to break and burst into flame when they are repeatedly bumped, which is a regular occurrence during the normal use of the scooter. After more than ten reported fires, the U.S. Consumer Product Safety Commission opened a case to investigate the hoverboard fires.
Manufacturing Defects
Manufacturing defects occur while a product is being constructed, produced, or assembled. Specifically, when a product departs from its intended design, even though all possible care was exercised in the preparation and marketing of the product[1], it is a manufacturing defect. The manufacturer may be very careful with the design, the material selection, the development of the manufacturing process, and the quality-assurance guidelines. Nevertheless, if a poorly manufactured product leaves the manufacturers facility and causes injury when used for any of its intended purposes, then there is a defect in manufacturing.
It might seem that manufacturing defects occur only in product sales and not in the service industry, but there’s a very well-known case in this category: the McDonald’s coffee case.
On February 27, 1992, a seventy-nine-year-old woman named Stella Liebeck went to McDonald’s with her grandson, Chris. They got the coffee, and Chris pulled into a parking space so that Stella could add cream and sugar. Since the car had a curved dash and lacked cup holders, Stella put the cup between her knees and removed the lid. When she did, the cup fell backward, burning her groin, thighs, genitalia, and buttocks. Liebeck was taken to the hospital, where it was discovered that she had third-degree burns on 6 percent of her body and other burns on 16 percent of her body. She required multiple skin grafts and was in the hospital for eight days. Liebeck spent two years recovering from the injury, lost 20 percent of her bodyweight after the accident, and was left permanently scarred by the ordeal.
Liebeck wrote a letter to McDonald’s asking them to pay her medical bills, which totaled around \$10,500 in 1992 (approximately \$16,110 today). The company offered her \$800. Liebeck and McDonald’s exchanged several more letters, but the company refused to increase their \$800 offer, so Liebeck hired a law firm.
Liebeck’s lawyers conducted a study of coffee temperatures. They discovered that coffee brewed at home is usually served at 135–145°F and coffee served at most fast-food restaurants is in the 160–175°F range. McDonald’s, however, served its coffee at 190°F, which can cause third-degree burns on human skin after two to seven seconds of contact. No safety study of any kind was undertaken by either McDonald’s or the consultant who recommended the hotter temperature.
Moreover, Liebeck’s lawyers also discovered more than seven hundred other burn claims—many of them for third-degree burns—from McDonald’s customers between February 1983 and March 1992. In court, McDonald’s quality-control manager, Christopher Appleton, testified that McDonald’s served around 20 million cups of coffee a year and that seven hundred incidents during nine years was statistically insignificant. While this was factually accurate, the jury did not like to hear that McDonald’s considered seven hundred burned customer to be insignificant.
The jury found in Liebeck’s favor. They awarded her \$200,000 in compensatory damages, but that amount was later reduced to \$160,000 because they felt that the spill was 20 percent Liebeck’s fault. The jury made headlines when it came to the punitive damages, however, which they settled at \$2.7 million. The jurors defended the amount, saying that it was to punish the company for its callous attitude toward Ms. Liebeck and the 700+ other McDonald’s customers who had suffered burns. Although it sounds like a lot, \$2.7 million represented only two days’ worth of McDonald’s coffee sales, and the jurors felt that was fair.
The judge agreed, accusing McDonald’s of “willful, wanton, and reckless behavior” for ignoring all the customer complaints.
McDonald’s process for making coffee constituted a manufacturing defect, which resulted in many customer injuries and generated significant product liability for the company.
Marketing Defects
Marketing defects result from flaws in the way a product is marketed. Examples include improper labeling, poor or incomplete instructions, or inadequate safety warnings. Often marketing defects are referred to as a “failure to warn.” It is important for the marketer to think not only about the warnings that the user might need when using the product as intended but also about other, potentially dangerous uses for which the product was not intended.
For example, fabric used in children’s sleepwear must meet certain flammability requirements to prevent the risk of injury from fires. Certain comfortable children’s clothing that does not meet the flammability requirement can be confused with sleepwear. For this reason, such clothing will often contain a warning label that reads, “Not intended for sleepwear.”
Over time, product liability has shifted more to the side of the injured product user. Consumer advocates like Ralph Nader argue that, for too long, product liability favored producers at the expense of the product user. They assert that it’s the threat of lawsuits and huge settlements and restitutions that force companies to make safe products. While a discussion of all aspects of product liability is beyond the scope of this course, it is clear that liability has and will continue to have a tremendous impact on consumers and manufacturers alike. These two groups are not the only ones affected, either. Retailers, franchises, wholesalers, sellers of mass-produced homes, and building-site developers and engineers are all subject to liability legislation.
1. Restatement of Torts, Third, Apportionment of Liability (2000) ↵
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A Standard Approach to Research Inquiries
Marketing research is a useful and necessary tool for helping marketers and an organization’s executive leadership make wise decisions. Carrying out marketing research can involve highly specialized skills that go deeper than the information outlined in this module. However, it is important for any marketer to be familiar with the basic procedures and techniques of marketing research.
It is very likely that at some point a marketing professional will need to supervise an internal marketing research activity or to work with an outside marketing research firm to conduct a research project. Managers who understand the research function can do a better job of framing the problem and critically appraising the proposals made by research specialists. They are also in a better position to evaluate their findings and recommendations.
Periodically marketers themselves need to find solutions to marketing problems without the assistance of marketing research specialists inside or outside the company. If you are familiar with the basic procedures of marketing research, you can supervise and even conduct a reasonably satisfactory search for the information needed.
Click for a larger image.
Step 1: Identify the Problem
The first step for any marketing research activity is to clearly identify and define the problem you are trying to solve. You start by stating the marketing or business problem you need to address and for which you need additional information to figure out a solution. Next, articulate the objectives for the research: What do you want to understand by the time the research project is completed? What specific information, guidance, or recommendations need to come out of the research in order to make it a worthwhile investment of the organization’s time and money?
It’s important to share the problem definition and research objectives with other team members to get their input and further refine your understanding of the problem and what is needed to solve it. At times, the problem you really need to solve is not the same problem that appears on the surface. Collaborating with other stakeholders helps refine your understanding of the problem, focus your thinking, and prioritize what you hope to learn from the research. Prioritizing your objectives is particularly helpful if you don’t have the time or resources to investigate everything you want.
To flesh out your understanding of the problem, it’s useful to begin brainstorming actual research questions you want to explore. What are the questions you need to answer in order to get to the research outcomes? What is the missing information that marketing research will help you find? The goal at this stage is to generate a set of preliminary, big-picture questions that will frame your research inquiry. You will revisit these research questions later in the process, but when you’re getting started, this exercise helps clarify the scope of the project, whom you need to talk to, what information may already be available, and where to look for the information you don’t yet have.
Applied Example: Marketing Research for Bookends
To illustrate the marketing research process, let’s return to Uncle Dan and his ailing bookstore, Bookends. You need a lot of information if you’re going to help Dan turn things around, so marketing research is a good idea. You begin by identifying the problem and then work to set down your research objectives and initial research questions:
Identifying Problems, Objectives, and Questions
Core business problem Dan needs to solve
• How to get more people to spend more money at Bookends.
Research Objectives
1. Identify promising target audiences for Bookends
2. Identify strategies for rapidly increasing revenue from these target audiences
Initial research questions
• Who are Bookends’ current customers?
• How much money do they spend?
• Why do they come to Bookends?
• What do they wish Bookends offered?
• Who isn’t coming to Bookends, and why?
Step 2: Develop a Research Plan
Once you have a problem definition, research objectives, and a preliminary set of research questions, the next step is to develop a research plan. Essential to this plan is identifying precisely what information you need to answer your questions and achieve your objectives. Do you need to understand customer opinions about something? Are you looking for a clearer picture of customer needs and related behaviors? Do you need sales, spending, or revenue data? Do you need information about competitors’ products, or insight about what will make prospective customers notice you? When do need the information, and what’s the time frame for getting it? What budget and resources are available?
Once you have clarified what kind of information you need and the timing and budget for your project, you can develop the research design. This details how you plan to collect and analyze the information you’re after. Some types of information are readily available through secondary research and secondary data sources. Secondary research analyzes information that has already been collected for another purpose by a third party, such as a government agency, an industry association, or another company. Other types of information need to from talking directly to customers about your research questions. This is known as primary research, which collects primary data captured expressly for your research inquiry. Marketing research projects may include secondary research, primary research, or both.
Depending on your objectives and budget, sometimes a small-scale project will be enough to get the insight and direction you need. At other times, in order to reach the level of certainty or detail required, you may need larger-scale research involving participation from hundreds or even thousands of individual consumers. The research plan lays out the information your project will capture—both primary and secondary data—and describes what you will do with it to get the answers you need. (Note: You’ll learn more about data collection methods and when to use them later in this module.)
Your data collection plan goes hand in hand with your analysis plan. Different types of analysis yield different types of results. The analysis plan should match the type of data you are collecting, as well as the outcomes your project is seeking and the resources at your disposal. Simpler research designs tend to require simpler analysis techniques. More complex research designs can yield powerful results, such as understanding causality and trade-offs in customer perceptions. However, these more sophisticated designs can require more time and money to execute effectively, both in terms of data collection and analytical expertise.
The research plan also specifies who will conduct the research activities, including data collection, analysis, interpretation, and reporting on results. At times a singlehanded marketing manager or research specialist runs the entire research project. At other times, a company may contract with a marketing research analyst or consulting firm to conduct the research. In this situation, the marketing manager provides supervisory oversight to ensure the research delivers on expectations.
Finally, the research plan indicates who will interpret the research findings and how the findings will be reported. This part of the research plan should consider the internal audience(s) for the research and what reporting format will be most helpful. Often, senior executives are primary stakeholders, and they’re anxious for marketing research to inform and validate their choices. When this is the case, getting their buy-in on the research plan is recommended to make sure that they are comfortable with the approach and receptive to the potential findings.
Applied Example: A Bookends Research Plan
You talk over the results of your problem identification work with Dan. He thinks you’re on the right track and wants to know what’s next. You explain that the next step is to put together a detailed plan for getting answers to the research questions.
Dan is enthusiastic, but he’s also short on money. You realize that such a financial constraint will limit what’s possible, but with Dan’s help you can do something worthwhile. Below is the research plan you sketch out:
Identifying Data Types, Timing, Budget, Data Collection Methods, Analysis, and Interpretation
Types of data needed
1. Demographics and attitudes of current Bookends customers
2. Current customers’ spending patterns
3. Metro area demographics (to determine types of people who aren’t coming to the store)
Timing and budget
• Complete project within 1 month
• No out-of-pocket spending
Data collection methods
1. Current customer survey using free online survey tool
2. Store sales data mapped to customer survey results
3. Free U.S. census data on metro-area demographics
4. 8 to 10 intercept (“man on the street”) interviews with non-customers
Analysis plan
• Use Excel or Google Sheets to tabulate data
• Marina (statistician cousin) to assist in identifying data patterns that could become market segments
Interpretation and Reporting
• You and Dan will work together to comb through the data and see what insights it produces. You’ll use PowerPoint to create a report that lays out significant results, key findings, and recommendations.
Step 3: Conduct the Research
Conducting research can be a fun and exciting part of the marketing research process. After struggling with the gaps in your knowledge of market dynamics—which led you to embark on a marketing research project in the first place—now things are about to change. Conducting research begins to generate information that helps answer your urgent marketing questions. There are two types of research: primary and secondary. Primary research is research that you conduct yourself (i.e., you go out into the field and find data and complete experiments). Secondary research is research conducted or synthesized by someone else (i.e., someone else has gone out into the field or someone else has compiled multiple sources of research). Though it may seem counterintuitive based on their names, typically data collection begins by reviewing any existing secondary research. After getting everything you can from secondary research, it’s time to shift attention to primary research. After all, it’s much easier (and smarter!) to review existing research before potentially redoing experiments or recapturing known information.
Secondary Research
With secondary research, it’s important to narrow your scope to existing research and data that provide some information or insight about the problem. Prior research projects, internal data analyses, industry reports, customer-satisfaction survey results, and other information sources may be worthwhile to review. Even though these resources may not answer your research questions fully, they may further illuminate the problem you are trying to solve. Secondary research and data sources are nearly always cheaper than capturing new information on your own. Your marketing research project should benefit from prior work wherever possible.
Primary Research
You may not always complete primary research, but it is often part of research plans. Primary research involves asking questions and then listening to and/or observing the behavior of the target audience you are studying. In order to generate reliable, accurate results, it is important to use proper scientific methods for primary research data collection and analysis. This includes identifying the right individuals and number of people to talk to, using carefully worded surveys or interview scripts, and capturing data accurately. Without proper techniques, you may inadvertently get bad data or discover bias in the responses that distorts the results and points you in the wrong direction. The module on Marketing Research Techniques discusses these issues in further detail, since the procedures for getting reliable data vary by research method.
Applied Example: Getting the Data on Bookends
Dan is on board with the research plan, and he’s excited to dig into the project. You start with secondary data, getting a dump of Dan’s sales data from the past two years, along with related information: customer name, zip code, frequency of purchase, gender, date of purchase, and discounts/promotions (if any).
You visit the U.S. Census Bureau Web site to download demographic data about your metro area. The data show all zip codes in the area, along with population size, gender breakdown, age ranges, income, and education levels.
The next part of the project is customer-survey data. You work with Dan to put together a short survey about customer attitudes toward Bookends, how often and why they come, where else they spend money on books and entertainment, and why they go other places besides Bookends. Dan comes up with the great idea of offering a 5 percent discount coupon to anyone who completes the survey. Although it eats into his profits, this scheme gets more people to complete the survey and buy books, so it’s worth it.
For a couple of days, you and Dan take turns doing “man on the street” interviews (you interview the guy in the red hat, for instance). You find people who say they’ve never been to Bookends and ask them a few questions about why they haven’t visited the store, where else they buy books and other entertainment, and what might get them interested in visiting Bookends sometime. This is all a lot of work, but for a zero-budget project, it’s coming together pretty well.
Step 4: Analyze and Report Findings
Analyzing the data obtained in a market survey involves transforming the primary and/or secondary data into useful information and insights that answer the research questions. This information is condensed into a format to be used by managers—usually a presentation or detailed report.
Analysis starts with formatting, cleaning, and editing the data to make sure that it’s suitable for whatever analytical techniques are being used. Next, data are tabulated to show what’s happening: What do customers actually think? What’s happening with purchasing or other behaviors? How do revenue figures actually add up? Whatever the research questions, the analysis takes source data and applies analytical techniques to provide a clearer picture of what’s going on. This process may involve simple or sophisticated techniques, depending on the research outcomes required. Common analytical techniques include regression analysis to determine correlations between factors; conjoint analysis to determine trade-offs and priorities; predictive modeling to anticipate patterns and causality; and analysis of unstructured data such as Internet search terms or social media posts to provide context and meaning around what people say and do.
Good analysis is important because the interpretation of research data—the “so what?” factor—depends on it. The analysis combs through data to paint a picture of what’s going on. The interpretation goes further to explain what the research data mean and make recommendations about what managers need to know and do based on the research results. For example, what is the short list of key findings and takeaways that managers should remember from the research? What are the market segments you’ve identified, and which ones should you target? What are the primary reasons your customers choose your competitor’s product over yours, and what does this mean for future improvements to your product?
Individuals with a good working knowledge of the business should be involved in interpreting the data because they are in the best position to identify significant insights and make recommendations from the research findings. Marketing research reports incorporate both analysis and interpretation of data to address the project objectives.
The final report for a marketing research project may be in written form or slide-presentation format, depending on organizational culture and management preferences. Often a slide presentation is the preferred format for initially sharing research results with internal stakeholders. Particularly for large, complex projects, a written report may be a better format for discussing detailed findings and nuances in the data, which managers can study and reference in the future.
Applied Example: Analysis and Insights for Bookends
Getting the data was a bit of a hassle, but now you’ve got it, and you’re excited to see what it reveals. Your statistician cousin, Marina, turns out to be a whiz with both the sales data and the census data. She identified several demographic profiles in the metro area that looked a lot like lifestyle segments. Then she mapped Bookends’ sales data into those segments to show who is and isn’t visiting Bookends. After matching customer-survey data to the sales data, she broke down the segments further based on their spending levels and reasons they visit Bookends.
Gradually a clearer picture of Bookends’ customers is beginning to emerge: who they are, why they come, why they don’t come, and what role Bookends plays in their lives. Right away, a couple of higher-priority segments—based on their spending levels, proximity, and loyalty to Bookends—stand out. You and your uncle are definitely seeing some possibilities for making the bookstore a more prominent part of their lives. You capture these insights as “recommendations to be considered” while you evaluate the right marketing mix for each of the new segments you’d like to focus on.
Step 5: Take Action
Once the report is complete, the presentation is delivered, and the recommendations are made, the marketing research project is over, right? Wrong.
What comes next is arguably the most important step of all: taking action based on your research results.
If your project has done a good job interpreting the findings and translating them into recommendations for the marketing team and other areas of the business, this step may seem relatively straightforward. When the research results validate a path the organization is already on, the “take action” step can galvanize the team to move further and faster in that same direction.
Things are not so simple when the research results indicate a new direction or a significant shift is advisable. In these cases, it’s worthwhile to spend time helping managers understand the research, explain why it is wise to shift course, and explain how the business will benefit from the new path. As with any important business decision, managers must think deeply about the new approach and carefully map strategies, tactics, and available resources to plan effectively. By making the results available and accessible to managers and their execution teams, the marketing research project can serve as an ongoing guide and touchstone to help the organization plan, execute, and adjust course as it works toward desired goals and outcomes.
It is worth mentioning that many marketing research projects are never translated into management action. Sometimes this is because the report is too technical and difficult to understand. In other cases, the research conclusions fail to provide useful insights or solutions to the problem, or the report writer fails to offer specific suggestions for translating the research findings into management strategy. These pitfalls can be avoided by paying due attention to the research objectives throughout the project and allocating sufficient time and resources to do a good job interpreting research results for those who will need to act on them.
Applied Example: Bookends’ New Customer Campaign
Your research findings and recommendations identified three segments for Bookends to focus on. Based on the demographics, lifestyle, and spending patterns found during your marketing research, you’re able to name them: 1) Bored Empty-Nesters, 2) Busy Families, and 3) Hipster Wannabes. Dan has a decent-sized clientele across all three groups, and they are pretty good spenders when they come in. But until now he hasn’t done much to purposely attract any of them.
With newly identified segments in focus, you and Dan begin brainstorming about a marketing mix to target each group. What types of books and other products would appeal to each one? What activities or events would bring them into the store? Are there promotions or particular messages that would induce them to buy at Bookends instead of Amazon or another bookseller? How will Dan reach and communicate with each group? And what can you do to bring more new customers into the store within these target groups?
Even though Bookends is a real-life project with serious consequences for your uncle Dan, it’s also a fun laboratory where you can test out some of the principles you’re learning in your marketing class. You’re figuring out quickly what it’s like to be a marketer.
Well done, rookie!
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/775
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6.03: Outcome- Marketing Research Techniques
What you’ll learn to do: recognize alternative techniques for conducting marketing research, including primary and secondary research methods
The five-step marketing research process provides a well-structured approach to follow any time you have a marketing problem that research can help you solve. What type(s) of research you conduct depends on the kind of information needed to solve your problem. Sometimes you can solve the problem using secondary data someone else has already collected for another purpose. At other times, you will need to collect your own data through primary research focused expressly on your problem.
The next section of this module discusses common methods for conducting secondary and primary research. As you become familiar with these techniques, you will learn which marketing research methods tend to be most appropriate for which sorts of problems.
The specific things you’ll learn in this section include:
• Describe primary research methods and the types of information they yield
• Explain the pros and cons of in-person, telephone, and online research methods
• Describe secondary market research and the types of insights it produces
Learning Activities
The learning activities for this section include the following:
• Reading: Secondary Marketing Research
• Reading: Primary Marketing Research Methods
• Self Check: Marketing Research Techniques
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6.04: Reading- Secondary Marketing Research
Tapping Existing Sources of Information
Before diving into primary research for a marketing research project, it’s always wise to investigate whether there’s an existing body of relevant information that you can work with. It’s at least a place to start, and it may show you what you’re missing. This is known as secondary research.
Secondary research uses secondary data, or source information that has previously been collected either inside or outside the organization. Internal data and some external data are freely available or have only a nominal cost. Other secondary-data providers charge fees to marketing researchers who want to access their data sets, reports, and customer insights. Common types of secondary data are described below.
Internal Data
A company’s internal data, such as sales and marketing records, customer account information, product purchasing and usage data are typical secondary data sources. Previously prepared marketing research reports may also be a great source of insights as you seek to solve a new or related business problem. Marketing researchers may also compile a large amount of internal data into a shared database and conduct marketing analytics to understand patterns in customer behavior, market trends, and other insights to guide management and marketing strategy decisions.
Government and Nongovernmental Organization (NGO) Data
Many government agencies as well as nonprofits and other nongovernmental organizations collect and publish vast amounts of freely available data that may be useful for marketing research purposes. For example, demographic data published by the U.S. Census Bureau offers great insight into the makeup of the U.S. population by age, gender, educational attainment, and many other factors. The U.S. Bureau of Economic Analysis publishes economic indicators for the nation at large, as well as economic data associated with domestic industries, states, regions, and so forth. The World Trade Organization publishes economic data, trade statistics, and information about the regulatory environment for business for more than one hundred WTO member countries.
2018 Median Household Income in the United States. Access an interactive version of this median household income map on the U.S. Census Bureau website.
When leading auto-repair franchise Midas developed a formula for “placing” their new franchised stores in successful locations, they turned to government research sources such as U.S. census data. The company explains that they look for “streets with high traffic counts, with 50,000 or more residents within three miles, and with speed limits no higher than 45 miles per hour. We look for areas that have several other major food, automotive, or retail brands, and we like to put new locations near car dealerships, since many customers transition their freshly out-of-warranty cars from dealer maintenance to Midas.”[1]
These examples of governmental and NGO data just scratch the surface of the many and varied publicly available data sources that can inform smart marketing and business decisions.
Industry Associations, Professional Journals, and Media
A variety of industry and professional associations publish data to inform professionals and the general public about what’s happening in their profession or economic sector. Most industries also have dedicated media that focus on pertinent news, research, and developments including online or offline news outlets, magazines, newsletters and journals, as well as popular Web sites, blogs, and other online forums. Similarly, academic journals and libraries can be great secondary data sources for influential developments. Topics can range broadly, from sizing industries and product categories to discussions of key challenges faced by organizational leaders such as corporate chief information officers or college and university presidents. Marketers should be attuned to the organizations and publications that cover the industries or product categories they work within. These will likely be the most fertile sources of insightful, up-to-date secondary data.
Commercial Marketing Research Data
A number of commercial marketing research companies offer syndicated marketing research. Syndicated research usually covers topics that may be of interest to multiple organizations. Research companies collect data, analyze it, and resell it to organizations interested in the topics and consumers these initiatives explore. Often these projects collect vast amounts of consumer data over time, providing a useful historical view about the consumer population and how it may be evolving over time.
For example, the research company Nielsen captures data associated with PRIZM, an elaborate lifestyle and behavioral segmentation of the U.S. consumer market. Marketers can purchase data and analyses from Nielsen to help them better understand the PRIZM segments and how these segments map to target audiences they want to reach and penetrate. Nielsen also collects scanner data, which are detailed information about the sale of consumer goods obtained by “scanning” the bar codes for individual products at electronic points of sale in retail outlets. The data can provide information about quantities, characteristics, and prices of goods sold.[2]
This kind of data helped a number of quick-serve pizza chains (Pizza Hut, Domino’s, and Papa John’s, e.g.) spot the growing encroachment of retail frozen-pizza sales on their market. In response, the chains launched a series of marketing campaigns, which paid off. In 2011, they used Nielsen data tracking the sales of prepackaged, UPC-coded pizza to show that the dollar sales of frozen pizza had fallen 4.5 percent in U.S. food, drug, and mass merchandiser stores (including Walmart) during the previous year.
Student Monitor, another example of a commercial marketing research company, tracks attitudes, trends, and behaviors among American college students. Industry analysts like Forrester, Gartner, and Outsell publish research reports that estimate market size, penetration, and how competitors stack up against one another in various industries and product categories. Still other research firms offer syndicated research and insights about consumer trends and developments in various global geographies, industries, economic sectors, and product categories.
Database marketing organizations, sometimes called customer insights services providers, collect massive amounts of information about consumers by linking financial and credit data to tracking data about online and offline purchases and other behaviors. Then they mine these data to find patterns and indicators about which data points are most useful for sales and marketing purposes. Organizations can purchase access to this information for use in marketing research analyses as well as ongoing marketing activity. They can also combine it with their own internal data to get a richer view of their customers and target segments.
Macy’s flagship store, New York City
Macy’s, one of the oldest department stores in the United States, took advantage of this approach when it hired the database marketing organization Acxiom in 1999. Since then, Acxiom has managed Macy’s customer profiles and helps the company provide its customers with a much more customized shopping experience. Before that time, Macy’s customer and purchasing data were scattered across many disparate departments, and the company had no way of meeting its marketing goal of having a 360-degree view of its customers. Acxiom was tasked with integrating customer records to give the store more visibility into individual purchases and preferences, and ways of linking together other useful data such as promotional history, demographics, attitudinal data, survey responses, and online activity. The resulting integration enabled the department store to leave behind the Dark Ages of Rolodexes and typewriters and give its customers a “magical customized experience” of personalized marketing and customer service. It also helped give Macy’s a competitive advantage and foster customer loyalty and retention.
As data about individual consumers, companies, and industries proliferate, so do the ways companies try to capitalize on them by packaging, analyzing, and selling reports, data sets, and other information products to organizations that need them. It’s a burgeoning industry in its own right. The breadth and variety of commercially available secondary data will continue to expand along with the tools marketers use to exploit the available information.
Search Engine Results
Whether or not you are familiar with secondary data sources pertinent to your marketing research project, it is smart to conduct an Internet search (using a reputable search engine) to see what sources surface. Search engines can be hugely helpful in locating both free and commercially available secondary data. With this information, you can compare the options and decide whether it makes sense to pay for data or rely only on free resources.
In addition, thorough Internet searches can help confirm that you’ve tapped into whatever existing data sources might be helpful to you before you decide to invest in primary research and data collection, which is usually more expensive than secondary data.
Analyzing Secondary Data
With secondary research in hand, the next step is to review your source materials to pull out the insights that are most pertinent to your marketing problem. Some secondary research sources may include data you can analyze and map to your own customer segmentation or other market analyses. Other secondary research provides analysis and insights you can use to develop implications and recommendations for your organization and marketing problem.
It is helpful to capture key findings and recommendations from the secondary research review and analysis, just as you would for a primary research project. The goal is to summarize what you have learned, making it easier for any primary research activity to build on what as already been discovered from secondary research.
Advantages and Disadvantages of Secondary Research
There are tremendous advantages in using data from secondary sources. First, the expense of gathering information from secondary sources is usually a fraction of the cost of collecting primary data. It also requires less time to collect secondary data, and often there are significant time pressures around getting the information needed to solve a marketing or management problem. With rapid, ongoing developments in information technology, it is becoming easier and more cost-effective to gather, merge, and reformulate numerous secondary sources of data within a single system or database. This capability has made secondary data even more attractive.
There are two primary limitations of secondary research. First, the information may be somewhat dated, since you are using data previously collected by a third party. Second, secondary data are rarely collected for precisely the same reasons that you are conducting your marketing research project. The secondary research may be related to your current marketing problem, but it probably does not address your exact problem with your exact market and competitive dynamics.
You can gain a lot from secondary research, but it is important to account for these limitations as you decide how to incorporate insights from secondary data. In spite of these limitations, the advantages of secondary research are so great that it’s standard practice not to proceed with primary data collection until a thorough review of secondary information has been conducted.
1. midasfranchise.com/research-midas/how-do-i-find-a-midas-location/ ↵
2. stats.oecd.org/glossary/detail.asp?ID=5755 ↵
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Choosing the Right Primary Research Method
When secondary research doesn’t provide all the answers, marketers often turn to primary research, which involves data collection that’s tailored to the specific problem or challenge you’re trying to address. There are many ways to conduct primary research. Which approach to take depends on the type of information you need along with the timing, budget, and resources of your project.
Quantitative vs. Qualitative Research
Qualitative research explores ideas, perceptions, and behaviors in depth with a relatively small number of research participants. It aims to answer questions with more complex, open-ended responses such as, “What does this mean to you . . . ?” or “Why do you believe . . . ?” or “How do you like to . . . ?” Qualitative research doesn’t yield data that are easily tabulated and translated into tidy percentages. Instead, provides information that can help marketers understand the big picture of how customers perceive or experience something.
Qualitative research can also give an organization directional information. That is, it can help an organization tell whether it’s on the right track with its approach or solution to a problem. Qualitative research techniques tend to be loosely structured and less formal, since the topical exploration may head in very different directions depending on the person or group participating. These techniques can provide great insights to marketers, but because they involve relatively few participants, the results can be very subjective and idiosyncratic. The risk is in assuming what you learn from a handful of individuals pertains to your target audience as a whole.
In contrast, quantitative research collects information that can easily be counted, tabulated, and statistically analyzed. When organizations need to understand (or quantify) the exact percentage of people who believe or act in a certain way, quantitative research is necessary. Quantitative methods allow researchers to test and validate a hypothesis or what they believe is the best course of action. These methods collect enough data to provide statistically valid results, and managers use them to inform the choices they make.
Often marketing research projects start with qualitative research activities to get a more complete picture of an issue or problem and how customers/consumers are thinking about it. With a better understanding of the issue, they follow up with quantitative research that provides more specificity about what proportion of the population shares common preferences, beliefs, or behaviors. This information provides insights to help marketers refine their segmentation and targeting strategy, the marketing mix, or other considerations related to marketing effectiveness.
Qualitative Research Methods
Typical qualitative methods include behavioral observation, in-depth interviews, focus groups, and social listening. Each of these methods is described below.
Observation
Observation may be the oldest method of primary research. Since the beginning of commerce, merchants have been watching their customers and non-customers engage in a variety of behaviors. Examples include information-gathering, shopping, purchasing, product returns, complaints, and so forth. Observation can be as simple as a local fast-food restaurant manager watching the expression on customers’ faces as they eat a new sandwich.
More formal observation techniques are also employed. Researchers might record observations in a prescribed way for later analysis and reference. Video cameras, audio systems, movement tracking, biofeedback, and other technologies may be used to observe and capture information about consumers. Some observational techniques can be quite intrusive. For instance, a researcher might enter a consumer’s home and conduct an audit to take an inventory of products found. Ethnographic research requires that the researcher practically move in with the consumer to observe and record various relevant behaviors.
Observation may be the only way to capture some types of information, such as how consumers actually behave or use a product. It can provide important research insights, especially if consistent patterns are identified.
A great example of observational research is the way technology company Google works to ensure that its search-engine product functions well in every market in which it operates. One of its major markets is China. In Chinese, though, the alphabet has a much more extensive character set than English does, which makes it difficult for Chinese users to get helpful research results. Google researchers observed and video-recorded Chinese people using search engines to help them understand exactly what, when, and why problems occurred. The company used this information to develop potential solutions such as “Google Suggest,” which auto-fills search suggestions so people don’t have to type in the full search query. The research also led to Google’s “Did You Mean?” feature, which asks users if they meant to type in a different, more popular, standardized, or spell-checked search query. Experimenting with and adding these sorts of features helped the company create a much more useful product for the Chinese market. Google has also added improvements with broad appeal to its standard search-engine product in other markets.[1]
Depending on the approach, observation can be relatively inexpensive and quick. More sophisticated observational research can be significantly more expensive, but it can also offer unique insights that marketers might otherwise miss.
In-Depth Interviews
In-depth interviews give marketing researchers the opportunity to delve deeply into topics of interest with the individuals they want to understand better. Research projects that use this method typically involve a fairly small number of these interviews, and they target the precise characteristics of the audiences that researchers want to understand. For example, a pharmaceutical company might want to understand a medical doctor’s reasoning when considering which drugs to prescribe for certain medical conditions. A business software company might want to have a focused discussion with a product “power-user” about the limitations they see in the current product and what improvements they would like to see.
In-depth interviews are structured around a discussion guide. The interviewer asks questions and then listens carefully to capture responses—and sometimes asks follow-up questions to gain additional clarity and insight. In-depth interviews provide the opportunity to get under the surface and probe for more thoughtful answers and nuanced responses to interviewer questions. Often these interviews help researchers identify the range of questions and responses they should include in a quantitative survey (with more participants). In-depth interviews might also be combined with behavioral observation to get a richer understanding of why people do what they do: “What were you thinking when…?” or, “Why did you do this . . . ?”
Interview length is an important consideration for in-depth interviews. It is difficult to keep people deeply engaged in a conversation for more than thirty minutes, so both the discussion guide and the interviewer must be very focused on covering key topics in the time allotted.
A primary disadvantage of in-depth interviews is cost: they tend to be quite expensive because they require not only the time of an experienced interviewer, but also some compensation, or incentives, for interview participants. Exactly how much compensation depends on the audience. To get a busy practicing lawyer to participate in an in-depth interviewer, researchers must offer significantly more money than they might to a flexible (and cash-strapped) college student, for example.
Focus Groups
Focus groups are much like in-depth interviews, except that they involve small groups (usually 6–12 individuals) rather than one person at a time. Like in-depth interviews, focus groups also try to delve deeply into topics of interest with people whose perspectives the researchers want to understand better. Focus groups have the added benefit of inviting peers to talk to one another about the topics in question, so the researchers hear not just one individual’s views but also listen to and observe the group’s interactions.
Whereas in-depth interviews are fairly short, focus groups tend to be longer, running 60–90 minutes, on average. It takes more time to hear from multiple people weighing in on a topic and to build an insightful group dynamic during the discussion. Focus groups tend to be expensive because each person receives an incentive for their time and participation. Audio or video recording and transcription are often preferred, so as to capture information for later reference.
It can be difficult to control the group dynamic in focus groups: sometimes one or a few people dominate the discussion while others hang back. “Groupthink” can be a problem when a charismatic participant manages to persuade others to adopt his way of thinking instead of allowing the full range of opinions to come to light. For these reasons, focus groups require skilled facilitators who are good at listening, managing time, steering the discussion, and keeping people on track. Focus group facilitators must also scrupulously avoid biasing participants with their own views, in order to ensure that the information captured accurately represents customer views.
The following video satire shows some of the challenges in conducting focus groups effectively and why a skilled facilitator isn’t always enough:
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “Focus Group on John Kenney’s TRUTH IN ADVERTISING” here (opens in new window).
Networks and media production companies frequently rely on focus groups to guide their decisions about which television programs to produce and how to make improvements to programs in development. Termed “audience research,” these focus groups invite people into a viewing room to watch and provide feedback on a show. All are given a feedback dial—a tool participants use to indicate when they like or dislike something in the program. If they like something, they turn the dial up, and if they dislike something, they turn it down. A computer records the audience responses and provides a second-by-second view of the program overlaid with the audience’s response. Focus group facilitators monitor this feedback and then follow up with discussion about what people did or didn’t respond to, and why.
Interpreting the feedback from this audience research is something of an art: notoriously, the hit program Seinfeld was nearly canceled because the pilot show tested poorly in focus groups. Show creators look to audiences to help them understand not only what they like or dislike, but also what is interesting or unusual, and why. According to Michael Wright, former head of programming for TBS and TNT, “It’s very rare that a test compels you to order or not order a show. All you’re looking for is interesting feedback, to get insight you didn’t have before. It’s a tool. It’s diagnostic.” The focus group insights then provide guidance about where and how to improve a program to increase the chances that it will be a hit. [2]
Communication strategists use this same technique to test messaging in political speeches, advertising, and other presentations. The following video, from the PR firm Luntz Mazlansky, shows the results from a focus group’s feedback-dial reactions to a Barack Obama speech. The tracking lines on the screen show reactions from audience members who lean Democratic (green line) and Republican (red line). Marketers and messaging strategists use this feedback to understand which ideas and messages generate strong positive or negative feedback from the target audience:
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “Obama Speech Focus Group Reaction – Responsibility” here (opens in new window).
Social Listening
With the proliferation of social media comes a tremendous opportunity to learn exactly what key individuals are saying with regard to marketing-related messages. Social listening is a systematic process for tracking what is being said about a given topic in forums such as Facebook, Twitter, LinkedIn, blogs, and even mainstream media. When they engage in social listening, marketers monitor and analyze both positive and negative perspectives. Social listening helps marketers map not only who is saying what, but also who is influencing whom to help shape these opinions.
Social listening can be passive, with marketers mainly tracking which topics are trending and the prevailing sentiments around those topics. Social listening can also be conducted in a more focused, proactive way by putting questions or prompts out to a targeted group—a set of bloggers and influencers or a social media community, for instance—and saying, “Tell me what you think about . . .”
A key challenge with social listening is how to best interpret the data that’s collected: There can be so much information or chatter that it’s hard to sift through everything to pick out the worthwhile nuggets. Marketers have a growing number of interesting tools to help monitor and harness the power of social media for social listening, from free tools like Google Alerts and Tweetdeck to advanced social media monitoring services like Brandwatch and Social Studio.
Unlike the other research methods described here, social listening takes place in public forums rather than through private research activities and interviews. This means that anything associated with the project may garner attention from members of the community or even the media. While this can be beneficial if an organization is trying to generate awareness, it can also seem manipulative or disingenuous. Social media communities have been known to turn on companies for misjudging the difference between “observation” and “interference.”
Most marketing leaders today would argue that social listening should be an integral part of a marketer’s job all the time in order to stay abreast of what people are saying about a product, company, industry, and competitive set. At the same time, marketing research projects may target social listening in a given subject or community in order to provide additional insight about a problem the organization is trying to solve or an opportunity under exploration.
An interesting example of social listening research is the work Brandwatch provides to video gaming companies. It tracks social media conversations over time as companies announce and launch new video games and new editions to monitor what creates buzz, who are the influential voices, and what generates positive and negative reactions.
The company analyzes this information and offers insights to game creators and marketers about audience receptivity to the new games, the effectiveness of marketing campaigns and messages, product and competitive strategy, and whom to target in the future to influence market perceptions.[3]
Quantitative Research Methods
The most common quantitative marketing research methods are surveys and experimental research. Each is explained below.
Survey Research
Survey research is a very popular method for collecting primary data. Surveys ask individual consumers to give responses to a questionnaire. Questions may cover a variety of topics, but the question topics, format, response options, and survey length must all be a good fit for the audience and contact method (telephone, online, mail, in-person; more on this shortly).
Survey questions and responses must always be clearly worded and unambiguous. This stands to reason: if survey respondents are confused about what a question is asking, the data collected for that question won’t be very valid. Surveys typically contain a combination of close-ended questions and open-ended questions. Closed-ended questions (also called structured questions) are easily tabulated, with a discrete set of answers such as yes/no, multiple choice, a scale rating, or “select all that apply.” Open-ended questions (also called unstructured questions) ask for a verbal or textual response, such as “Why did you choose X?” While it may be tempting to include lots of open-ended questions in surveys, in fact it is best to use this type of question sparingly. Survey respondents find closed-ended questions easier to answer and often skip open-ended questions or supply only minimal responses. Too many open-ended questions increases the likelihood that participants will abandon the survey before it’s complete.
When creating a survey, marketing researchers must strike the right balance between covering enough information to gain useful data and making the questionnaire short enough that people will finish it. The longer the questionnaire the less likely people are to take the time to answer all the questions. Most marketing researchers concur that if a questionnaire takes longer than 15 minutes to answer, odds are good that people won’t get through it.
Surveys can be conducted quickly and inexpensively. For example, a store owner can ask people visiting the store to answer a few questions verbally or with a pencil-and-paper survey. Alternatively, a company can distribute a customer satisfaction survey at little or no out-of-pocket cost using freely available online survey tools (such as Survey Monkey or Wufoo).
Some surveys may require more complex and expensive data collection. For instance, a candidate running for public office may want to poll likely voters to learn which way they are leaning and what factors might influence their vote. For the survey to be useful and accurate, a representative set of likely voters must take the survey. This requires a screening process to make sure that the survey reaches the right people: likely voters whose age, ethnicity, gender, and other characteristics are similar to the population in the voting district. In this case, marketing researchers might opt for a telephone survey rather than an online or in-person survey. A telephone survey allows an interviewer to efficiently screen respondents to make sure they fit the likely voter profile and other characteristics of the voting population.
Once data are collected, the results are tabulated and analyzed with statistical methods in order to help marketing researchers understand the views, preferences, and experiences of their target audiences. The statistical analysis confirms not only how people respond to the survey questions, but also how confident researchers can be about the results’ accuracy. A large number of completed surveys yields greater confidence that the results accurately represent the views of the general population. A smaller number of completed surveys means researchers can be less sure that the sample reflects the views of the general population.
The brokerage and banking firm Charles Schwab takes an interesting approach to survey research. The company frequently commissions quantitative surveys to better understand different various issues related to investing, such as attitudes about retirement savings among 401K plan participants, and the economic outlook of adults living in major metropolitan centers. The company uses these surveys for two purposes. First, they gain deeper insights into ways of winning new customers and better serving existing customers. They can adjust targeting, marketing messages, product features, pricing, and placement as a result. Second, the company publishes many of the research results through its Web channels, social media, and paid media in order to generate attention. The company views this type of content as “currency for engagement”—that is, it’s a way of starting conversations with new and current customers about ways that Charles Schwab might meet their needs.[4]
Experimental Research
Another quantitative research method is to conduct experiments in which some factor or set of factors is varied to yield comparative results. A typical example is A/B testing in marketing campaigns. In an A/B test, marketers develop two different versions of a marketing campaign artifact, such as a Web site landing page. Each version may use a slightly different call to action, image, or headline. The marketers send out each version to a set of target customers and then track the results to see which one is most effective. Marketers then use this information to further refine the campaign message and materials, hoping to boost results.
Experimental research may also be used to investigate how individuals with one set of factors or criteria compare to another. For instance, marketing researchers for a sales consulting services company might track the sales growth of companies using their services to companies that do not. Marketers might use the data from this research to demonstrate how using their company’s services is linked to improved financial performance.
Research Contact Methods: Offline vs. Online
As marketing researchers decide which type of primary research to conduct, they must also decide which contact method fits best with their needs. In some situations, offline techniques like mail, telephone, and in-person research work best. In other situations, online contact methods are preferred, using email, mobile phone, and/or Web sites to attract survey participants and capture responses.
The following table outlines advantages and disadvantages of each contact method.
Marketing Research Contact Methods: Pros and Cons
Contact Method Advantages Disadvantages
Telephone Good control over who participates
Quick, timely data collection
Moderately expensive
Fewer people to answer phones, leading to low response rates
Interviewer quality may affect research results
Questionnaire length limitations
Mail Inexpensive Little control over who participates
Data collect takes longer
Low response rates
In-person Great control over who participates
Quick, timely data collection
Fairly good response rates
Great for capturing in-depth detail and/or feedback
Very expensive
Interviewer quality may affect research results
Questionnaire length limitations
Online Inexpensive
Quick, timely data collection
Low cost to continue data collection until desired response rates are achieved
Little control over who participates
Greater possibility for self-selection bias
misses people who aren’t online
Before the advent of the Internet, marketing researchers relied on a combination of mail, in-person, and telephone contact to conduct marketing research. Observation techniques and focus groups were typically carried out in person, using skilled interviewers to facilitate high-quality data collection in the processes described above. Telephone and mail were the preferred contact methods for surveys, with researchers mailing a survey packet to targeted households or making telephone calls to request that people participate in survey research.
In mail surveys, a typical packet might contain a cover letter explaining the purpose of the research, a copy of the questionnaire, a stamped self-addressed return envelope, and an incentive for compliance (cash, merchandise, contribution to charity, or copy of report). Mail questionnaires allow the researcher to ask a large number of questions over a broad range of topics. They also permit the respondents to answer the questionnaire at their leisure. Mail surveys also have disadvantages. Researchers lose control through the mail process: Did the targeted person receive and answer the questionnaire? Did the respondent understand the questions? Did she/he complete the questionnaire? On what time frame? Mail surveys have been a good option for budget-conscious marketing-research projects, while, until recently, telephone surveys have been the preferred method for in-depth interviews and short, timely surveys with highly targeted audiences.
Historically, telephone surveys have offered several advantages. Names and related telephone numbers can be obtained directly from a telephone directory or from internal or external databases. Telephone survey costs are relatively low, and research companies can provide well-trained and technically supported interviewers to ensure good data collection. Telephone surveys are limited in several important ways, though, such as the difficulty of reaching the correct respondent, the problem of completing the interview if the respondent decides to hang up, and the inability to eliminate the bias introduced by not interviewing those without phones or individuals with unlisted numbers. Telephone survey respondents may lose patience rather quickly, so it is best to limit survey length as much as possible. This means only a limited number of topics can be addressed.
Digital technologies have altered the picture of marketing research data collection dramatically. Today, virtually everything that was once done in-person via telephone or mail can now be conducted digitally, often very effectively and at a lower cost. Digital tools like Skype, Google Hangouts, and a variety of other Web conferencing technologies offer effective means of conducting in-depth interviews and even focus groups. Surveys can be provided through links in email messages, pop-up windows on Web sites, online forms, and through a range of other delivery mechanisms. Even many types of observational research can be conducted in virtual settings.
However, digital data collection has limitations, as well. In the digital world, researchers have less control over who opts to participate in a survey, so there is greater potential for self-selection bias—the problem of data reflecting the views of those who choose to participate, while omitting a significant proportion of the population who choose not to participate. Digital data collection also bypasses the many individuals who spend little if any time online. Over time as the population approaches universal access to the Internet, this will become less of a factor. As long as the digital divide exists, researchers must factor in this issue when they design data collection among their target audiences.
Depending on the target audience, the quality and type of data researchers need, in-person, telephone, or mail may still be the optimal contact method. But with a growing array of sophisticated and cost-effective online data collection tools now available, it’s always sensible for marketing researchers to evaluate online options for data collection, too.
Developing Research Instruments
Every marketing research method requires an instrument—the tool used for data collection. There are three basic types of marketing research instruments: questionnaires (for surveys), discussion guides (for in-depth interviews and focus groups), and mechanical data collection techniques designed to capture data associated with a research activity such as observation or experiment.
Designing Questionnaires
There are several rules of thumb for designing a questionnaire. Each question should be worded carefully, concisely and clearly, so that the respondent knows exactly what is being asked and what the response options mean. After drafting survey questions, it is always wise to have others review them and provide feedback on the question wording, clarity and overall flow from question to question. A good questionnaire should resemble a well-written story: it should be logical, relevant, easy to follow, and interesting to the reader or respondent.
As explained above, questionnaires usually include a mix of open-ended and closed-ended questions. The figure below illustrates the forms questions can take. As a yes/no question, Question 1 is considered a closed-ended dichotomous question; i.e., the respondent must check one of two possible answers. Question 2 is considered short response; the respondent enters a brief text response of no more than a few words. Questions 3 and 4 are two different scaled questions, a type of closed-ended. Questions 5 and 6 are open-ended, allowing the respondent to provide any answer desired. Closed-ended questions are best used when the researcher wants to capture a particular set of answers or feels the respondent is unlikely to come up with an original answer.
Open-ended questions allow the respondent to provide personal answers with as much or as little detail as desired. Of course, there is a risk that the respondent will have no answer.
Questionnaire Development: Question Types
Question Response Options
1. Have you purchased a new automobile since January 1st of this year? ___Yes
___No
2. If you have purchased a new automobile since January 1st, what make and model is it? Make: ____________
Model: ____________
3. If you have not purchased a car since January 1st, how likely is it that you will buy a new care sometime before December 31st of this year? ___Extremely likely
___Quite likely
___Unlikely
___Extremely unlikely
4. How strongly do you agree with the following statement? When buying a car, I tend to rely heavily on the reputation of the car brand Disagree 1 2 3 4 5 Agree
5. If you have not purchased a new automobile this year, what is the most important reason for your decision not to buy a new car? Text response:
6. Are there any other reasons that you have not bought a new car this year? Text response:
Another important consideration is how to sequence the questions in the questionnaire. This may include placing easier questions at the beginning, to encourage people to stick with the survey and complete it, whether and how to group similar questions, and where to place demographic questions such as gender, age, occupation, and so forth. Typically demographic questions are grouped at the beginning or end. Researchers must also pay attention to making questions flow logically. Again, the goal is to create a coherent questionnaire so that respondents can answer it easily and accurately.
Designing Qualitative Discussion Guides
Discussion guides for in-depth interviews and focus groups follow many of the same rules as questionnaires: Questions need to be clearly worded and logically sequenced to provide a natural flow of discussion. Because these qualitative techniques are trying to get beneath the surface and uncover more in-depth information, they typically contain fewer closed-ended questions and more open-ended questions. Closed-ended questions might preface a thoughtful discussion about why a research participant feels or acts in a certain way.
Discussion guides should leave flexibility for the interviewer to pursue a useful line of inquiry that might surface. Focus group discussion guides should include questions that spark dialogue among the participants, so the researcher can benefit from the richness of peer interaction and opinion.
Timing is always an important consideration for these research instruments: How much ground can the interviewer realistically cover in the time allotted? Researchers must also pay close attention to where questions are placed in the discussion guide to ensure that the most important topics are covered even if the interviewer runs out of time.
Using Mechanical Instruments for Marketing Research
Some marketing research techniques collect information as research participants complete a task or go through a process. The research instruments in these research activities may involve some type of mechanical device and/or activity for data collection. For instance, marketing researchers may conduct Web site user testing to understand the effectiveness of the the Website design, layout, and messaging to encourage desired behaviors and perceptions. This research activity may involve equipment and a research process to track the user’s eye movements, mouse/pointer movements and click stream, as well as his or her impressions of the Web site user experience. Marketing research on media and messaging may use a variety of devices to track research participants’ media usage habits or their responses to messages and images as they view an advertisement, program, or speech.
Rather than designing these research tools from the ground up, marketing researchers typically work with specialists to conduct marketing research projects using these techniques and tools. Often these techniques are used in conjunction with other qualitative or quantitative methods to understand a marketing problem and possible solutions from multiple perspectives and approaches.
Sampling: Selecting Research Participants
In most marketing research, it is not necessary or feasible to conduct a complete census—that is, to speak to 100 percent of the target segment you want to study. This would be time-consuming, expensive, and superfluous, since after you have heard from a number of individuals, you will have information that is representative of the views of the entire population. Sampling is the process of selecting the appropriate number and types of research participants so that the data you collect is sufficiently representative of the whole segment.
A sample is a group of elements (persons, stores, financial reports) chosen for research purposes from among a “total population” or “universe” of all possible participants who fit the target criteria for research subjects. The value of a research project is directly affected by how well the sample has been conceived and constructed.5
The first critical question in sampling is getting the right participant profile: whom, exactly, should you talk to or study for this marketing research? For example, if a research project is about laundry soap, the sampling plan must identify the right individuals to contact: Is it the person in the household who buys laundry soap? Is it the person who usually does the laundry? Is it the supermarket inventory manager who decides which products and brands to stock? Any of these individuals could be the right research subject, depending on what problems and questions the marketing research project is trying to address.
Another essential question is sample size: How many people must participate in the research to give valid results? A small project involving in-depth interviews or focus groups might require recruiting just a dozen research participants or thereabouts. A large qualitative survey might involve hundreds or even thousands of individuals in order to yield the type of data and desired level of reliability in the results.
Marketing researchers must also determine how to identify potential participants. For some projects, a company’s own customer and prospective-customer records provide enough names within a target segment to complete the research. For other projects, marketing researchers must purchase lists of individuals who fit the target profile, or they may pay a marketing research services company to recruit participants. Another option for some projects is to use a panel: a group of people who have been recruited by an organization to participate in periodic research projects. While these are effectively professional (paid) marketing research subjects, if they happen to fit the respondent profile, they may still provide useful data and perspectives. Because their members are pre-screened for a wide variety of criteria, panels can be extremely useful for reaching hard-to-find individuals amongst the general population—such as people who drive Volkswagen vehicles or parents of teenagers.
How researchers select the individuals who will participate—also known as the sampling procedure—is another important consideration. All sampling procedures can be classified as either probability samples or nonprobability samples. In a probability sample, each individual has a known chance of being selected for inclusion in the sample. The simplest version is the simple random sample, in which each individual in the research population has exactly the same chance of selection. For example, a sample of names could be selected from the company’s customer list according to a random process, such as using a randomization algorithm to order the list.
While in a probability sample the sampling units have a known chance of being selected, in a nonprobability sample the sampling units are selected arbitrarily or according to a marketing researcher’s judgment. Returning to the customer list example, instead of using a randomization algorithm to order the list, an arbitrary selection method would be to start research with the first fifty or sixty names on the list. Another method would be for researchers to select a subset of the customer list that includes known individuals or entities that would be great prospects for being willing to participate and provide useful information.
Analyzing Primary Data
Once primary data collection is complete, these projects proceed with the process described previously for analyzing data: interpreting what it means, generating recommendations, and reporting results to the appropriate stakeholders within an organization. As noted above, qualitative research methods do not yield neat percentages and statistically reliable results, so it can be difficult to describe the data in these projects. Summarizing key themes and takeaways can be a useful approach, as well as including verbatim comments from research participants that express important points.
Quantitative research usually has a rigorous analysis phase involving cleaning and formatting the data. Researchers apply a variety of statistical tabulations, manipulations, and tests to determine what the data are saying, which findings are truly significant, and what meaningful correlations or relationships exist to offer new insights about the target segment. A key challenge for interpreting quantitative data involves sifting through lots of information and data points to determine which findings are most important and what they mean as organizations take steps to apply the results of marketing research. With this in mind, it can be helpful for marketers and researchers to look for the story quantitative data tell: What is the picture they paint of the problem, and how should managers understand the problem (and possible solutions) differently as a result of the research?
This type of approach can help managers, marketers, and teams who are stakeholders in the marketing research better understand and digest the insights provided by the research project and take action accordingly.
1. hbr.org/2009/03/how-google-and-pg-approach-new ↵
2. How We Decide by Jonah Lehher, pp. 108–109, books.google.com/books?id=f9LqaUbde2QC. See also www.nytimes.com/2012/05/13/ar...ose-shows.html ↵
3. www.brandwatch.com/de/wp-content/uploads/2012/01/social_media_in_videogames.pdf ↵
4. aboutschwab.com/press/research and blog.news360.com/2014/05/content-marketing-all-star-qa-with-helen-loh-of-charles-schwab/↵
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
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6.07: Outcome- Marketing Data Sources
What you’ll learn to do: Identify major sources of available marketing data
Marketing information and research are powerful tools to improve your understanding of your customers, competitors, and the industry and market in which you work. In today’s information-rich world, many great sources of marketing data are already available. Knowing what they are and how to find them is a great skill for any marketer.
Learning Activities
The learning activities for this section include the following:
• Reading: Marketing Data Sources
• Self Check: Marketing Data Sources
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6.08: Reading- Marketing Data Sources
Marketing Information: Where the Data Are
Earlier sections of this module alluded to excellent sources of marketing data, many of which are freely available or carry minimal cost. Others are well-respected commercial sources of marketing data and customer insights. This reading provides an overview of useful go-to data sources that marketers should know about, should the occasion arise to use them. The data sources recommended below are a representative sampling, rather than a complete list.
It is also worth noting that the marketing information landscape is continually changing. Marketers would be well served to continually scan for new developments and information sources that may be beneficial to improve their understanding of customers and ways of serving them.
Publicly Available Data Sources
Government agencies, non-profit organizations, and non-governmental organizations often publish freely available data that may inform marketers’ understanding of consumers, customers, the geographies, and industry sectors where they operate. Great information sources include the following:
Publicly Available Data Sources
Source Description
Data.gov A centralized portal for open data available from the U.S. government on a wide variety of topics. Helpful for finding government data that you know exist somewhere, but you aren’t sure which agency maintains it.
FedStats A U.S. government-maintained Web site that provides access to a wide variety of statistical data published by the federal government. Also helpful for finding data that you know exist somewhere, but you aren’t sure which agency maintains it.
Google Public Data Directory A directory of publicly-available data sources from around the world.
Google Trends A search tool for exploring search volume for any term used in a Google search.
Pew Research Center Public opinion and research reports from a non-partisan, American think tank. Freely available research covers social issues, public opinion, and demographic trends shaping the United States and the world
U.S. Bureau of Economic Analysis Data published by the federal government about economic indicators for the economy as a whole, as well as specific industries and economic sectors.
U.S. Census Bureau Data Demographic and geographic information about the population of the United States.
U.S. Small Business Administration (SBA) General Business Data and Statistics A collection of data about the U.S. economy, industries, businesses and the general population, developed with business users in mind.
United Nations UNdata A data service of the United Nations that provides centralized access to a wide variety of U.N.-maintained data sets such as demographics, socioeconomic status and development indicators for nations around the world.
World Bank Data Economic data and economic development indicators for 100+ countries around the world.
World Trade Organization (WTO) Data Information about international trade and tariffs and the regulatory environment for 100+ WTO member countries.
Syndicated Marketing Research Data
A number of commercial companies provide syndicated marketing research that is well respected and often well used by organizations that subscribe to their services. A sampling of these services is provided below:
Syndicated Marketing Research Data
Source Description
Acxiom Extensive consumer datasets containing demographic, purchasing, credit, and other information companies can map to their own customer and prospect data for research, marketing analytics, and marketing campaign execution.
Experian Extensive consumer datasets containing demographic, purchasing, credit, and other information that companies can map to their own consumer and prospect data for research, marketing analytics, and marketing campaign execution.
Ipsos The Affluent Survey USA is an annual survey tracking media and consumer spending habits of U.S. households in the top 20% income level.
IRI Point-of-sale data linked to household panel purchasing data, providing detail around sales, pricing, promotion and market share for a variety of consumer products.
Media Audit Audience demographics and media consumption profiles for 100+ media markets in the U.S.
MRI Simmons (formerly GfK MRI and MediaMark) Extensive datasets around multimedia audience research and measurement.
Nielsen Point-of-sale data linked to household panel purchasing data, providing detail around sales, pricing, promotion and market share for a variety of consumer products. Datasets to support popular lifestyle and behavioral segmentation systems such as PRIZM.
Roper Center for Public Opinion Research Database of public opinion and polling questions exploring many aspects of American life, including contemporary data as well as polling data dating back to the 1930s.
Yankelovich MONITOR provides long-running syndicated research about consumer values, attitudes, and trends.
Other Useful Sources for Marketing Data
These additional sources for other types of marketing information are also warrant attention. Whether or not marketers use them, they should be aware of these tools and how they can be useful for a variety of marketing purposes.
Other Useful Sources for Marketing Data
Source Description
Google Analytics Detailed analytics, statistics and insights about Web site traffic, usability and sales effectiveness. Free and premium services available.
LexisNexis Searchable source for full-text articles from regional, national and international newspapers, government documents, and many legal, medical and business publications.
Statista A subscription-based statistics portal, providing searchable access to many original sources of market, industry, and business data.
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
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6.10: Outcome- Customer Relationship Management (CRM) Systems
What you’ll learn to do: explain how customer relationship management (CRM) systems can help organizations manage and gain customer insights from marketing information
To round out our discussion of marketing information and research, we need to add one more important tool to the mix: customer relationship management (CRM) systems. These increasingly prevalent systems are the centerpiece in how many organizations make sense of and manage marketing data about current and prospective customers. A basic understanding of CRM systems can help you recognize their potential for helping organizations use marketing information more effectively.
The specific things you’ll learn in this section include:
• Define CRM systems and explain their purpose
• Describe the types of marketing information CRM systems can capture and why it is valuable for generating customer insights
Learning Activities
The learning activities for this section include the following:
• Reading: Customer Relationship Management Systems
• Self Check: Customer Relationship Management (CRM) Systems
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6.11: Why It Matters- Marketing Information and Research
Why use marketing information and research to develop marketing strategies for organizations?
Your uncle Dan owns an independent bookstore called Bookends in Seattle, Washington. You drop in to see him whenever you’re in the neighborhood to catch up and borrow some graphic novels. (That’s you in the picture.)
When you visit this time, Dan sits you down in a corner and tells you he needs help. “Sales are down,” he says, “and rent’s going up. It’s killing me. I’d say I’ve got six months to turn things around or I’m done. The end of Bookends. You still learning about marketing?—your mom said you’re taking a class. Got any bright ideas? Maybe some whiz-bang advertising?”—he grins and punches you lightly on the shoulder.
You start to tell him that marketing isn’t just advertising . . . but instead you say, “I don’t know, Dan. I’ll have to think about it.”
So, you do think about it. You don’t know everything about marketing yet, but you’ve learned this: Your uncle needs to understand his customers—that’s where marketing starts and ends. Who are Dan’s customers, and what’s up with them? Why aren’t they buying as much as they used to? How can you find out more about what they want?
These are big, important questions. For now, they all have one answer: marketing information and research.
Read on if you want to save your uncle’s bookstore . . .
Marketing information and marketing research are tools that organizations use to understand what’s happening in the markets they serve.
Why do marketing information and research matter? Because no one has all the answers all the time. Because people and attitudes and behaviors change. Because customers, competitors, the economy, and other factors can all affect your success. Marketing is an increasingly data-rich field, and these days, doing it well means using all the information you can to gain insights into what your customers want and how you can give them value. Without that information, you’re trying to shoot a target in the dark.
Learning Outcomes
• Explain the role of marketing information in helping firms understand and reach consumers
• Describe the key types of marketing information including internal data, competitive intelligence and marketing research
• Outline a standard process for using marketing research to address an organization’s strategic questions
• Recognize alternative methods for conducting marketing research, including primary and secondary research methods
• Identify major sources of available market data
• Explain how Customer Relationship Management (CRM) systems can help organizations manage and gain customer insights from marketing information
• Use marketing information to inform the marketing strategy
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Marketing Information and Customer Relationship Management (CRM)
Earlier in this course, we cited the American Marketing Association’s definition of customer relationship management: “a discipline in marketing combining database and computer technology with customer service and marketing communications.” The AMA’s definition goes on to describe the ultimate goal of customer relationship management as the ability to provide “meaningful one-on-one communications with the customer by applying customer data (demographic, industry, buying history, etc.) to every communications vehicle.”[1] Because customer relationship management (CRM) relies on customer data—and specifically the effective use of internal data—it’s important to discuss CRM systems in the context of marketing information and research.
CRM systems are powerful software systems that serve several essential functions for marketing, sales, and account management. Organizations use them to:
• Capture internal data about customers and customer interactions and house these data in a central location
• Provide business users with access to customer data in order to inform a variety of customer touch points and interactions
• Conduct data analysis and generate insights about how to better meet the needs of target segments and individual customers
• Deliver a marketing mix tailored to the needs and interests of these target segments and individual customers
Leading providers of CRM systems include Salesforce.com, Oracle (Siebel), and Microsoft, among others. These large, many-faceted systems include several components. Databases and data warehouses provide information infrastructure for storing and accessing customer information. Contact management capabilities allow organizations to track a variety of customer interactions, including how each customer or prospective customer relationship is progressing over time. CRM packages also include sophisticated analytical tools to help marketing and sales analysts examine the data and find patterns and correlations that help them better anticipate and address customer needs (with the goal of strengthening each customer relationship).
Does this analytical process sound familiar? It should. Marketing analysts working with CRM data follow the same basic process outlined previously for general marketing research activities: Identify a problem; develop a plan for the information and analysis needed to solve the problem; conduct research; analyze and report findings; and take action based on the results. The primary difference from traditional marketing research projects is that the CRM inquiries may be more self-contained because of the breadth of marketing information and tools these systems provide.
The CRM system is especially effective at helping to surface a marketing problem, and it can provide the internal data needed for an analysis, which, in turn, is used to solve the problem. CRM systems are designed to capture data across the customer life cycle, starting with the initial contact point and progressing through each conversation and interaction that moves a prospective customer toward a purchasing decision. CRM systems also capture sales and spending data, and they enable analysts to project future spending patterns and lifetime value based on broader patterns in the customer data. These systems may also incorporate data about customer satisfaction and support, with accompanying insights into what is driving satisfaction ratings and customers’ perceptions of the company. In addition to bringing together disparate customer data, CRM systems can recommend an analytical approach and provide research tools to complete the analysis. Many CRM systems have mechanisms for reporting results, orchestrating plans for taking action on the results, and even evaluating the effectiveness of those actions.
Adidas and Salesforce
Consider the following example of how sports company adidas is using Salesforce.com (a CRM provider) to improve its ability to engage customers and design better products. Notice the company’s emphasis on connecting the customers—with products, services, and other people—and why that’s such a key part of what the CRM system provides.
A link to an interactive elements can be found at the bottom of this page.
1. www.ama.org/resources/Pages/Dictionary.aspx?dLetter=C ↵
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6.13: Self Check- Customer Relationship Management (CRM) Systems
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/778
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6.14: Outcome- Using Marketing Information
What you’ll learn to do: use marketing information to inform the marketing strategy
After you work through the process of identifying a problem, collecting and analyzing the best marketing information available, you arrive at the moment you’ve been waiting for: You can use this information to guide your decisions about marketing strategy. That strategy is aimed at getting you the results you need.
We’ve already described this final part of the overall marketing research process, but in this section you’ll get a chance to see how real-world companies undertake this final, important step.
The specific things you’ll learn in this section include:
• Explain and provide examples of how marketers can use marketing information to improve the marketing mix
Learning Activities
The learning activities for this section include the following:
• Reading: Using Marketing Information
• Self Check: Using Marketing Information
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Translating Marketing Information into Action
With marketing information and research results collected, it’s now the responsibility of marketers to share this information internally with people who need to understand it. It’s standard practice to hold meetings with appropriate team members to walk through the research findings and brainstorm together about how to apply the results to marketing strategy and operations. It’s also good practice to make the research report available on a company intranet or other central forum, where people who need the information can readily find and access it.
The reception to research results may vary from person to person or from team to team. In some cases, where marketers have been waiting on the research results before they move forward, the new information fills a gap in their knowledge. They are likely very eager to take guidance from the research and charge ahead. In other cases, marketers may have a vested interest in continuing to do the things they’ve always done—perhaps because they dislike change or because they think the original course of action is still working. In these situations, if the research suggests that a course change is necessary, there may be significant resistance.
Start Conversations About New Customer Insights
To help encourage a better reception to what the organization is learning from marketing information, it may be useful to review the original problem the research is trying to solve. Remind team members that the goal of using marketing information is to gain new customer insights that will help make the organization more effective. With this in mind, marketers should think about how the research results can help them better understand customers and translate this understanding into adjustments to the marketing mix to better address customers’ needs. By framing research results around a deeper or broader understanding of the customer, it can help defuse resistance and make people feel more informed and empowered to make good marketing decisions.
The following section lists the types of questions marketers can explore as they brainstorm about how marketing information and research results can help them adjust marketing strategy and improve the marketing mix. These questions are a useful jumping-off point for deeper conversations about new customer insights and how to put them into action.
Using Marketing Information to Shape Marketing Strategy: Types of Questions to Explore
Target Segment(s)
• What new insights do we have about our target segment(s)?
• Which problems should we be solving for our customers?
• Are we targeting the right segments?
Product
• What attracts customers to our products?
• What improvements would make them even more attractive to our target segments?
Promotion
• What types of messages will make target segments want our products?
• What types of promotional campaigns will work best for each target segment?
• Who do out target segments listen to, and what are they saying about us?
Price
• How are we going at providing good value for the price?
• How does out pricing affect customers’ willingness to buy?
• How would changes to pricing affect sales?
Place
• Are we offering our products in the places and times that target segments feel the need for them? If now, how can we improve?
• How can we make it easier for customers to find and buy our products?
• Are there more efficient ways for us to get out products into customers’ hands?
Don’t Forget to Measure Impact
As marketers begin to apply the research findings and recommendations, it is essential to track the impact of the new strategy to determine whether the original problem or challenge is being addressed. If the original marketing problem was focused on improving the messaging associated with a product, for example, then the organization should start to see improved lead generation, inquiries, and/or sales once the new messaging is adopted and implemented. If the original marketing problem was focused on which segments to target and how to reach them, organizations should be able to track improvements in interest and sales among these segments after they have begun to implement a market mix focused on these segments.
This link between taking action and measuring results is important. It provides a continuing stream of marketing information to help marketers understand if they are on the right path and where to continue to make adjustments. Eventually this process will surface new marketing problems that warrant attention through the marketing research process. In this way, the process of using marketing information to solve problems becomes a continuous cycle.
What does this process look like in the real world? Let’s examine two examples.
Example: Procter & Gamble Goes to China
For decades, the consumer products company Procter & Gamble has been a visible leader when it comes to relying on marketing research and using it to guide marketing strategy decisions. In particular, it has focused on ways of entering new markets and establishing a leading market position. As it explored opportunities for market leadership in China, one standout product category was disposable diapers, a profitable category for P&G in the U.S. and other global markets.
In the early 2000s, the company rushed in to launch Pampers in China, its leading disposable diaper brand. The effort flopped. Culturally, Chinese parents did not see the need for the new American disposable diaper product. They were doing fine using cloth diapers and kaidangku, the open-crotch pants used traditionally for infants and young children. Instead of pulling out, P&G turned to marketing research for additional insights about ways of generating demand for Pampers. The research focused on identifying “winning qualities” of disposable diapers that would make Chinese mothers interested in trying the product. It concluded that improving infants’ sleep quality could become a powerful motivator.
In 2007, P&G launched campaign called “Golden Sleep” to promote the idea that Pampers disposable diapers can help babies fall asleep faster and sleep with less disruption. Marketing research was directly responsible P&G’s adjustments to product positioning and promotion strategy. The campaign invited parents to upload pictures of their sleeping babies to a Chinese Pampers Web site. This reinforced the link between Pampers products and the message of “better sleep for babies.” The ad campaign also featured research results linked to Pampers and infant sleep such as, “Baby Sleeps with 50 percent Less Disruption,” and “Baby Falls Asleep 30 percent Faster.”
“Golden Sleep” was a tremendous success, moving Pampers to a leading market position and creating broad demand for a product category that was previously almost nonexistent in China. P&G attribute this success to the insights generated by a marketing team and research effort focused on better understanding and addressing customer needs.[1]
Example: Shaking Up the Milkshake
A fast-food restaurant chain identified milkshakes as a focus for improving sales. Initial marketing research efforts were focused on creating a “typical” milkshake-drinker profile. The researchers then found people who fit the profile and were willing to help them understand what constituted the ideal milkshake: thick or thin? Which flavors? Smooth or chunky? These effort led the company to tinker with its milkshake products, segmentation, targeting, and promotion strategies, but sales still did not improve.
The company hired an outside researcher to help the company understand what they might be missing about milkshakes. This researcher spent time in a restaurant observing and documenting milkshake sales, as well as talking to milkshake buyers about why they had made their product choice. A couple of key insights emerged about milkshake buyers. First and somewhat surprising, 40 percent of milkshake sales took place early in the morning, and the buyers were commuters on their way to work. Second, the ideal milkshake for these customers was thick and substantial but easy to consume during a commute. Third, another key buyer audience was parents purchasing a treat for children, but the ideal milkshake for them was a thinner product children can drink quickly with a straw.
Acting on these new insights, the company adjusted its marketing strategy. Instead of focusing on a single “milkshake buyer” profile, it reformulated its milkshake products and promotion strategy to better fit the needs of different types of target milkshake customers. It offered a thicker, chunkier “morning milkshake” to appeal to commuters who wanted a satisfying alternative to a morning donut or bagel. The chain also introduced a different milkshake positioned as a kid treat, which offered the thinner, easier-and-quicker-to drink benefits parents wanted. Persistence and perseverance in the marketing research process led the company to dig deeper to understand customers, their unique needs, and how to adjust marketing strategy in response to this new information.[2]
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/777
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6.17: Putting It Together- Marketing Information and Research
Back to Bookends
Let’s pay Uncle Dan and his bookstore another visit, now that you’re a little further along in your understanding of marketing research.
You’ll remember that you and Dan conducted both primary and secondary research to get a handle on who Bookends’ customers are—and who they aren’t. With the help of your cousin Marina, you crunched the data and identified three target segments you believe Dan should focus on. Here is the profile data you compiled for them:
Bookends Target Segment Profiles
Characteristics Bored Empty-Nesters Busy Families Hipster Wannabes
Age & family status 45–75, mix of single and married 25–50, mostly married with kids under 12 15–35, mostly single
Times most likely to visit Bookends Daytime, evenings, weekends, holidays After school, weekends, summertime, holidays Evenings & weekends
Most likely to buy Cards, gifts, novels, history/biography Kids’ books, how-to books, bestsellers Magazines, used books, graphic novels, snacks
Why they come to Bookends Socialize, shop, read Family outing Socialize
Communications preferences Hard copy, email, face-to-face Email, texting, Facebook Texting, Twitter, Instagram & beyond
Effective promotions Coupons, loyalty cards Loyalty points (recorded electronically) Point-of-sale
What they wish Bookends would offer Book clubs & discounts More hours in the day Coffee, beer & wine, live music
% of all customers/month 36% 27% 21%
Avg. # of customers/month 144 108 84
% of monthly revenue 43% 29% 18%
Avg. monthly revenue/person \$30 \$27 \$21
Together, these segments make up more than 80 percent of Bookends’ clientele and about 90 percent of its monthly revenue. Looking at what they buy and why they come to Bookends, you’re getting some good ideas for ways of making the store more attractive for current customers, and you’ve got some ideas for bringing in new ones. With this new and improved information, it’s time to get to work on a marketing strategy and mix for each target segment.
Marketing Strategy: Bored Empty-Nesters
Bookends’ Bored Empty-Nesters are both the largest and the most profitable of the target segments. They have more time and more disposable income, and they spend more of both at your uncle’s bookstore. They like to use Bookends as a meeting place with friends and acquaintances, and you think that is a promising direction. You and your uncle brainstorm about ways of using the four Ps to win over even more of these customers (and get them to spend). The “product” you’re adjusting is not just the books you carry, but the whole experience customers have when the come to Bookends. Dan is excited about introducing book clubs—one for fiction and one for nonfiction books—to cater to this segment’s interests. Since Empty-Nesters have told you they love both socializing and getting a discount, you and Dan are trying out a “buddy night” promotion, in which people get a better price if they talk their friends into spending at Bookends, too.
Here is your Bored Empty-Nester game plan for the next couple of months:
Bookends Segment Strategy: Bored Empty-Nesters
Element Marketing Mix Adjustment
Marketing Goals 15% increase in store visitors for this segment
20% increase in monthly revenue per person
Product Carry larger selection of history and biography
Adjust shelves and seating to create more socializing spaces
Launch two book clubs led by Dan and longtime employee Emma, one featuring new fiction and the other on new nonfiction
Promotion Print flyers, posters, and send emails about book clubs, buddy discount
Set up in-store sign-up table for book club
Introduce Thursday night “buddy discount”: Get 5% off if you and a buddy each spend over \$20
Explore interest in loyalty program: Spend \$100 to get 10% discount on next purchase
Price Offer 5% discount on monthly book club selection
Place No changes (yet). Explore opening online store
Marketing Strategy: Busy Families
Research tells you that Busy Families come to Bookends as a family outing, so you need to make some aspects of the store more family-friendly, without ruining the atmosphere for your other target segments. The socializing-area adjustments you’re already planning for the Empty Nesters will be good for the Family segment, as well. You’re trying to get parents to spend a little more money at Bookends each month, so you’re adding a small toy section, a slightly expanded children’s book section, and also bottled drinks, packaged cookies, and brownies from a delicious local bakery. These adjustments add to the Bookends experience and include some new items Dan can sell with a nice profit markup.
Your Busy Families marketing mix is shaping up like this:
Bookends Segment Strategy: Busy Families
Element Marketing Mix Adjustment
Marketing Goals 10% increase in store visitors for this segment
10% increase in monthly revenue per person
Product Increase selection of DIY, crafting, and “How-To” books
Slightly expand children’s book selection and add a small toy section
Add child seating to the kids’ area, and donate your old train table to the Bookends cause
Hold children’s story hour on Tuesdays and Saturdays with stories, songs, games
Sell packaged baked goods from a local bakery and bottled drinks
Promotion Send emails and post to Facebook about story time, bigger kids’ area, buddy discount, social media discount promo
Explore interest in loyalty program: Spend \$100 to get 10% discount on next purchase
Price Run Facebook promotion offering 5% discount to people who post about Bookends
Place No changes (yet). Explore opening online store
Marketing Strategy: Wannabe Hipsters
The Wannabe Hipsters are an interesting group. You almost didn’t include them in the three target segments because they are a smaller-sized group and don’t spend as much as the others. However, they do make up one in five Bookends customers, so it’s worth reaching out to see if you can bring more of them into the store and get them to spend more money while there. Fortunately, they like to come to Bookends during times when there aren’t many Busy Families around, so that opens some unique possibilities for ways of appealing to both segments.
Dan is excited about your suggestion to invite local bands to perform on Saturday nights. The Hipsters you spoke with suggested Dan try this, and it could make Bookends more of a social draw for that crowd. By rearranging shelving to create more socializing space, it opens up enough area for a live band to play for a small audience. You’re not convinced it’s going to translate into more book sales, but it’s worth a try.
The Hipster crowd has decidedly different communication preferences compared to the other groups, so your communication and promotion activities reflect this. To make sure they see the buddy discounts you’re offering, you suggest that Dan add signage about this promotion near the checkout counter, since that’s the place this audience is most likely to notice it.
The broad strokes of your Hipster Wannabe strategy are the following:
Bookends Segment Strategy: Hipster Wannabe
Element Marketing Mix Adjustment
Marketing Goals 15% increase in store visitors for this segment
20% increase in monthly revenue per person
Product Adjust shelves and seating to create more socializing spaces
Invite local bands to play on Saturday evenings
Add more prominent shelf placement to feature graphic novels
Sell packaged baked goods from a local bakery and bottled drinks
Promotion Promote live music nights and buddy discount nights via social media
Add point-of-sale signage about Thursday and Saturday night “buddy discounts”
Explore interest in loyalty program: Spend \$100 to get 10% discount on next purchase
Price Thursday and Saturday night “buddy discounts”: Get 5% off if you and a buddy each spend over \$20
Place No changes (yet). Explore opening online store.
Onward and Upward for Bookends
After running the numbers with Dan, you are optimistic that outreach to these target audiences will be the jumpstart his business needs. Your use of near-term promotions and events will help generate renewed interest and traffic for the store. You have advised Dan to explore interest in and options for a customer loyalty program that rewards customers for spending more at Bookends. That’s what the next round of marketing research will investigate.
In the meantime, you’ve learned a lot about the marketing research process and how to turn marketing information into future marketing strategies and plans. You’re excited to keep helping Dan as he puts your ideas to work, and, best of all, if business at the Bookends really starts to improve, you’ve got free graphic novels for life.
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• Putting It Together: Marketing Research. Provided by: Lumen Learning. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/06%3A_Marketing_Information_and_Research/6.16%3A_Self_Check-_Using_Marketing_Information.txt |
What you’ll learn to do: explain the role of marketing information in helping organizations understand and reach customers
Marketers are fortunate to work in an information-rich environment. They don’t have to make decisions based on gut feeling or blind luck. These days, many valuable sources of marketing information are available to guide marketers’ thinking, choices, and actions. While it’s true that this information may be more readily accessible in some organizations than others, it’s important for marketers to know what to look for and how to find it in order to make wise decisions about marketing strategy and execution.
The specific things you’ll learn in this section include:
• Define marketing information
• Explain why organizations use marketing information to provide customer insights
Learning Activities
The learning activities for this section include the following:
• Reading: The Importance of Marketing Information
• Case Study: Juicy Fruit Gum
• Self Check: Importance of Marketing Information
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6.19: Reading- The Importance of Marketing Information and Research
Fresh Customer Insights
Effective marketing starts with a strong knowledge of your customers: the kind of knowledge that gives you unique insights into what they want and how to satisfy them better than the competition. The most reliable source of fresh customer insights is good marketing information. Useful marketing information may come from a variety of sources both inside and outside your organization. Marketing information is generated by a variety of different activities, including marketing research.
Marketing research is a systematic process for identifying marketing opportunities and solving marketing problems, using customer insights that come out of collecting and analyzing marketing information. The mechanics of marketing research must be controlled so that marketers uncover the relevant facts to answer the problem at hand. Control over this fact-finding process is the responsibility of the marketing research director, who must correctly design the research and carefully supervise its execution, to ensure it yields the customer insights the organization needs.
A marketing information system is a combination of people, technologies, and processes for managing marketing information, overseeing market research activities, and using customer insights to guide marketing decisions and broader management and strategy decisions.
Knowledge Is Power Against the Competition
The business environment is increasingly competitive. With something as simple as a Google search, customers have unprecedented opportunities to explore alternatives to what any single company offers. Likewise, companies have ample opportunity to identify, track, and lure customers away from their less-vigilant competitors. A regular infusion of fresh customer insights can make all the difference between keeping customers and losing them. Marketing information and research are essential tools for marketers and the management team as they align strategy with customer wants and needs.
Consider the following examples:
• Before introducing OnStar, the first-ever embedded wireless service in cars, GM used marketing research to understand what types of applications would make consumers most interested in subscribing to the service and how much they would pay for it. Of all the benefits OnStar could offer, the research helped GM prioritize how the initial service would provide value, focusing on driver assistance and security. Research also helped determine OnStar pricing to help the company build a large subscriber base quickly.[1]
• Enterprise systems provider PeopleSoft recruited a diverse set of universities as early-adopter “Beta” partners to provide input as it designed a new student information system for higher education. This marketing research helped PeopleSoft create a versatile system that could support the needs of a variety of colleges and universities, ultimately leading to strong receptivity and market share when the new system became widely available.[2]
What Should Marketers Investigate Using Marketing Information?
An easy—and truthful—answer to this question is “everything.” There is no aspect of marketing to which information and research do not apply. Every marketing concept and every element involved in the marketing management process can be subjected to a great deal of careful marketing research and inquiry. Some important questions include:
• Who is the customer?
• What problems is the customer trying to solve with a given purchase?
• What does s/he desire in the way of satisfaction?
• How does the customer get information about available choices?
• Where does s/he choose to purchase?
• Why does s/he buy, or not buy?
• When does s/he purchase?
• How does s/he go about seeking satisfaction in the market?
Seeking answers to these questions yields insights into the customer’s needs, perceptions, and behaviors. Another area in which research is critical is profitability. Organizations need to forecast sales and related costs in order to understand how their operations will be profitable. They also need to plan competitive marketing programs that will produce the desired level of sales at an appropriate cost. The analysis of past sales and interpretation of cost information are important in evaluating performance and providing useful facts for future planning. All these activities rely on marketing information and a rigorous marketing research process to produce insights managers can trust and act on.
When to Use Marketing Information and Research
Many marketing decisions are made without consulting marketing information or the use of formal marketing research. For example, a decision maker may feel she already knows enough to make a good decision. The time required to investigate a question or conduct formal marketing research may not be available. In other cases, the cost of obtaining the data is prohibitive, or the desired data cannot be obtained in reliable form. In a few instances, there may be no choice among alternatives and therefore no decision to make because there is little value in spending time and money to study a problem if there is only one possible solution. But in most business situations, marketers and managers must choose among two or more courses of action. This is where fact-finding, marketing information, and research enter to help make the choice.
Marketing information and research address the need for quicker, yet more accurate, decision making by the marketer. These tools put marketers close to their customers to help them understand who they customers are, what they want, and what competitors are doing. When different stakeholders have very different views about a particular marketing-related decision, objective information and research can inform everyone about the issues in question and help the organization come to agreement about the path forward. Good research should help align marketing with the other areas of the business.
Marketers should always be tapping into regular sources of marketing information about their organization and industry in order to monitor what’s happening generally. For example, at any given time marketers should understand how they are doing relative to sales goals and monitor developments in their industry or competitive set.
Beyond this general level of “tuning in,” additional market research projects may also be justified. As a rule, if the research results can save the company more time, money, and/or risk than it costs to conduct the research, it is wise to proceed. If the cost of conducting the research is more than it will contribute to improving a decision, the research should not be carried out. In practice, applying this cost-test principle can be somewhat complex, but it provides useful guidance about when marketing research is worthwhile. Ultimately, successful marketing executives make decisions on the basis of a blend of facts and intuition.
Fact: Top Performers Research Customer Preferences
In 2010, the management consultancy McKinsey published research about the difference between organizations that produced top-performing products and those that produced under-performing products. The use of marketing research was a striking differentiator:
More than 80 percent of the top performers said they periodically tested and validated customer preferences during the development process, compared with just 43 percent of bottom performers. They were also twice as likely as the laggards to research what, exactly, customers wanted. [3]
The study also identified other differences between top and bottom performers, but an underlying theme was the emphasis successful projects and companies placed on understanding their customers and adjusting course when necessary to better address customers’ needs. This research provides more than anecdotal evidence that marketing research and well-applied marketing information can make a substantial contribution to an organization’s success.
1. Vincent P. Barabba, Surviving Transformation: Lessons from GM's Surprising Turnaround, pp 46–50, https://books.google.com/books?id=VvbDYad7cLoC&pg
2. Proquest, "First We Built, Now We Buy: A Sociological Case Study for Enterprise Systems in Higher Education," pp 292–203, books.google.com/books?id=rgIAaigKQBIC&pg↵
3. http://www.mckinsey.com/insights/operations/the_path_to_successful_new_products
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Discovering Why They Chew
Back in the nineties, Juicy Fruit Gum, the oldest brand of the Wm. Wrigley Jr. Company, was not chewing up the teen market, gum’s top demographic. In 1997, the company found itself under pressure from competitors. Sales and market share were down. How could Wrigley get more kids to go for their famous gum?
Wrigley went to the source to find out. Marketing researchers approached teens who chewed five or more sticks of Juicy Fruit each week and gave them a homework assignment: Find pictures that remind you of Juicy Fruit gum and write a short story about it. When the kids shared their stories, Wrigley learned that they chew Juicy Fruit because it’s sweet. They said it refreshed and energized them.
Wrigley’s ad agency, BBDO, confirmed what the teens were saying. Conducting survey research, BBDO asked more than four hundred heavy gum chewers to rate various brands by attributes that best represented them. For Juicy Fruit, respondents picked phrases such as “has the right amount of sweetness” and “is made with natural sweetness.”
Another of BBDO’s studies investigated why teens in particular chew gum. Was it to cope with stress? Or because they forgot to brush their teeth before going to school? Nearly three out of four teens reported popping a stick of gum into their mouth when they craved something sweet. And Juicy Fruit was the top brand they picked to fulfill that need. (Rival chewing-gum brand Big Red was a distant second.)
Chewing on the Results
Although the marketing research conducted by the Wrigley Co. was fairly simple, it provided a new direction for the company’s marketing strategy to capture more of the essential teen market. BBDO developed four TV commercials with the “Gotta Have Sweet” theme. Roughly 70 percent of respondents voluntarily recalled the Juicy Fruit name after watching the commercial (the average recall for a brand of sugar gum is 57 percent). Sales of 100-stick boxes of Juicy Fruit rose 5 percent after the start of the ad campaign, reversing a 2 percent decline prior to it. Juicy Fruit’s market share also increased from 4.9 percent to 5.3 percent—the biggest gain of any established chewing-gum brand during the year following the campaign.
In this case, marketing research paid off with better customer insights that marketers translated into improved product positioning, messaging, advertising and ultimately market share.
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6.21: Self Check- Importance of Marketing Information
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
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6.22: Outcome- Types of Marketing Information
What you’ll learn to do: describe key types of marketing information including internal data, competitive intelligence, and marketing research
Marketing information and research are most effective when they feed an ongoing awareness of what’s happening with customers, their perceptions, and purchasing decisions. The next section of this module explores different types of information that contribute to the customer insights that inform your organization, strategy, and the marketing mix.
The specific things you’ll learn in this section include:
• Explain the types of insights provided by each type of marketing information
• Describe how organizations manage marketing information
Learning Activities
The learning activities for this section include the following:
• Reading: Types of Marketing Information
• Self Check: Types of Marketing Information
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Illuminating the Marketing Picture
There are three primary types of marketing information marketers use to gain insights that will contribute to wise marketing choices: internal data, competitive intelligence, and marketing research.
Internal Data
Internal data consists of the information companies collect about their customers and prospective customers, typically as part of their internal operations. Marketing departments, for example, maintain information about the interest and leads they generate from prospective customers and how they are interacting with these contacts. They may capture information used for segmentation and targeting purposes, such as geographic location, gender, age, buying behaviors, and communication preferences. Information about Web site visitors, traffic, and other customer engagement activities can be another useful type of internal data. Additionally, sales teams capture and maintain information about who is buying the product, where buyers are located, buying patterns, and behaviors. Sales and marketing teams may also maintain information about customer references, success stories, and how prospective customers are progressing toward becoming new clients.
Other parts of the organization capture also capture and maintain data that may be useful as marketing information. Accounting and billing departments track information about customers such as how much they spend with the organization, when they buy, and other payment details. Product managers and customer support organizations maintain information about customers implementing or using products, problems or issues they run into, and satisfaction levels with the company and products.
Historically, it was standard for each department to maintain these data in their own systems rather than in a common system or database that all parts of the organization could access. This presented challenges for marketers, who had a difficult time gaining access to complete, up-to-date internal data, since the information would need to be pulled out of the various systems and put into usable formats before they could conduct any sort of analysis.
Increasingly, organizations capture and maintain internal data by using information systems and databases shared across multiple departments. A database is a set of structured data accessible via a computer, and the data can be organized so that it’s available for a variety of different uses, such as marketing or financial analysis. Shared information systems may include large enterprise systems designed to support business processes and functions, customer support systems, and customer relationship management (CRM) systems, among others.
“Database marketing,” also known as marketing analytics, takes internal data several steps further. Large databases collect massive amounts of data from a variety of sources: customer demographic and profile data linked to in-store and online purchasing history, Web site search terms, page views, social media posts, and other data. In a process called data mining, computer algorithms search for patterns in the data and generate recommendations and insights about how to increase sales.
With access to accurate, up-to-date internal data, marketers gain a better understanding of who the organization is serving and how it is performing relative to its goals for sales, customer satisfaction, and other priorities. Marketers rely on internal data to manage communications and interaction with customers and prospects, as they track the series of interactions that take place when a prospective customer is making a purchase decision. They may also use internal data to identify patterns that make someone more likely to become a customer, and behaviors that contribute to any given customer type having a higher or lower total lifetime value.
To illustrate the power of internal data, consider this example from Trident Marketing, a company that conducts marketing and sales activities for other businesses like home security firm ADT, satellite media company DirectTV, and Travel Resorts of America. It used marketing analytics to generate insights based on internal data from its customer-service call centers, order systems, CRM systems, search engine results, and external credit-bureau data about customers. The resulting recommendations were powerful and provided specific guidance about the following:
When to call a consumer, which product to pitch, and which salesperson is best suited to close the sale. Plus, sophisticated analytic models can also predict which consumers are likely to cancel services within twelve months—a metric that goes straight to the bottom line because the company must compensate its customers for consumer churn.[1]
Using this information, the company was able to apply sales and marketing techniques to increase sales, profitability, and customer retention on behalf of its clients. In fact, revenue increased nearly 1000 percent over four years.[2]
Competitive Intelligence
Competitive intelligence is marketing information that helps marketers and other members of an organization better understand their competitors and competitive market dynamics. Common types of competitive intelligence include the following:
• Product information: Who is making products that compete with your offerings? What features or capabilities make these products attractive to prospective customers? How do these features compare to yours? How are products packaged and offered to customers?
• Market share and penetration: Which companies in your competitive market sell the most products to your target market, and how much do they sell? Which organizations are considered the market leaders? How is market share evolving over time?
• Pricing strategy: What do competitors charge for their products? What pricing structure and strategies do they use? What special pricing or discounting do they offer? How does this affect your pricing and position relative to competitors?
• Competitive positioning and messaging: What are competitors saying about themselves? What are they saying to current and prospective clients or other stakeholders about your organization or products? How effective are their messages at generating interest in competitor products or diminishing interest in yours? What keywords are competitors dominating in search engines?
• Win/loss analysis: What proportion of new sales are you winning or losing? Why are people selecting your product over competitors’? Why are they selecting a competitor’s offering instead of yours?
Companies tend to guard sensitive information closely, such as detailed information about product cost, pricing structure, and market share. In fact, there are market analysts who specialize in competitive intelligence because it can be so difficult to obtain. However, anyone in a marketing role should maintain a general level of awareness about competitors and what’s happening in their market, and there are fairly easy ways to do this. Marketers can learn a lot directly from competitors, such as reading their Web sites, following them on social media, and monitoring press releases and other published content to understand what they are communicating to the market and to prospective customers. Information can also come from industry-focused newsletters, blogs, social media conversations, reports, conferences, and other forums that discuss new developments and key players in a product category or market.
When marketing activities are associated with a higher-priced sale and a complex decision process, sales and marketing organizations may conduct some type of win/loss analysis after a purchasing decision is made. A win/loss analysis captures information from individuals involved in a sale to understand the key factors influencing the final purchasing decision. It can help marketers better understand how to improve the marketing mix—product, price, promotion, placement—in order to improve sales performance in comparison with competitors.
All of these activities can provide useful insights about how customers view the choices available to them, as well as how competitors view and compete in the market. As with internal data, a better understanding of these factors helps marketers improve the marketing mix to compete more effectively and become a preferred choice for customers.
Marketing Research
Marketing research is a systematic process for identifying marketing opportunities and solving marketing problems, using customer insights derived from the collection and analysis of marketing information. Marketing research identifies the problem to be solved or the opportunity to be explored, as well as the information required to address research questions. It also involves processes for collecting the information, analyzing it, identifying insights, and reporting findings and recommendations to those who will take action based on the results.[3]
Marketing research may cover a full spectrum of topics related to customers, products, and market dynamics, and it can use a variety of research methods (which will be discussed later in this module). In general, marketing research requires some additional information beyond what marketers have at their fingertips (like, say, internal data). Sometimes it is necessary to collect new primary data directly from target audiences, such as current or prospective customers. In other situations, marketing research uses secondary data captured previously by another organization. Marketing research may incorporate internal data and/or competitive intelligence in order to provide a more complete answer to a marketing problem or question.
Common subjects for marketing research include:
• Environmental factors and how they affect consumer behavior. These include factors such as the health of the economy, the legal environment, market trends and other social factors, technology and its influence, and cultural factors that make doing business different in one region or country compared to others.
• Customer attitudes, behaviors, and perceptions. Marketing research can be essential in understanding customer needs, how their needs are or aren’t being met by the market, views about various products and companies, satisfaction levels, preferences for product features and pricing, the consumer decision-making process, and factors that influence it.
• Product research. Product research explores where opportunities and gaps exist for improving existing products or introducing new ones, concept testing, sizing the market for a product, market penetration, prioritizing product features and preferences, testing product effectiveness and customer receptivity, user testing, pricing strategies, product naming and branding, and gauging how to position a product relative to competitors.
• Marketing, advertising, and promotion research. This area of research seeks to improve the effectiveness and reach of marketing activities such as market segmentation, messaging and communications, advertising and media testing, events and sponsorships, packaging and display testing.
• Corporate research. Corporate research investigates corporate reputation and opportunities for strengthening an organization’s position in the market through brand building, research and development, mergers and acquisitions, strategic partnerships, corporate planning and profitability.
Marketing research is usually a wise investment when it’s undertaken to inform decisions involving a significant shift in direction, whether that shift is associated with a product, brand, message, tone, corporate image or other area linked to a major change and related investment. Marketing research projects may be large or small in terms of time, scope, cost, and resources involved. With a simple project, it could take an in-house marketer just a few hours to formulate research questions and analyze a data set from internal or secondary data sources, with no external costs. Complex marketing research projects may take longer than a year to complete and cost hundreds of thousands of dollars paid to research firms that specialize in particular markets or types of research.
As organizations grow, they may employ a marketing research director to oversee and coordinate research activities to ensure that they are getting accurate data and useful results. Smaller organizations without this internal capacity may hire a marketing research company or consultant to conduct the project, lead data collection, provide analysis, and advise on the best methods for interpreting and acting on research findings.
Target
American retail giant Target employed extensive marketing research to help it figure out how to rebuild its brand after a sales slump. The slump was triggered by an unsuccessful repositioning move as a “bargain brand” during the economic downturn of 2008 and a highly publicized data breach in 2013 that left many customers distrustful of the company. Company leadership used marketing research to identify opportunities to reinvigorate the Target brand and win new audiences.
A strategy unveiled in 2015 targets young Hispanic moms as a new and growing demographic the company wants to win over, in addition to suburban “soccer moms” who have been the company’s mainstay segment. Targeted advertising (no pun intended), product development, and the in-store experience are all being tested and refined to appeal to this segment.[4]
In 2019, Target created commercials targeting college students living in dorms, further expanding their targeted segments:
A link to an interactive elements can be found at the bottom of this page.
1. www.chiefmarketer.com/big-data-marketing-analytics-can-help-sales/ ↵
2. www.fuzzyl.com/wp-content/uploads/49415_TridentMarketingIncreases_Case-Study_PRF2_May18_12-2.pdf ↵
3. www.ama.org/AboutAMA/Pages/Definition-of-Marketing.aspx ↵
4. www.washingtonpost.com/news/business/wp/2015/03/04/targets-new-strategy-we-need-more-than-just-minivan-moms/ ↵
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• Make the most out of a small space. Provided by: Target. Located at: youtu.be/3skMCwimDSY. License: All Rights Reserved. License Terms: Standard YouTube License
6.24: Self Check- Types of Marketing Information
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/774
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6.25: Outcome- The Marketing Research Process
What you’ll learn to do: outline a standard process for using marketing information and research to address an organization’s strategic questions
Marketers can glean powerful insights from marketing information, but these insights generally don’t come from nowhere.
Instead, it takes a well-structured research process to identify what you are trying to understand better and then take the appropriate steps, using the right information, to get your questions answered. The next part of this module explains a standard process organizations use to conduct marketing research and generate insights from marketing information of all types.
The specific things you’ll learn in this section include:
• Identify the steps of conducting a marketing research project
Learning Activities
The learning activities for this section include the following:
• Reading: The Marketing Research Process
• Self Check: The Marketing Research Process
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What, Exactly, Influences a Purchasing Decision?
While the decision-making process itself appears quite standardized, no two people make a decision in exactly the same way. People have many beliefs and behavioral tendencies—some controllable, some beyond our control. How all these factors interact with each other ensures that each of us is unique in our consumer actions and choices.
Although it isn’t feasible for marketers to react to the complex, individual profiles of every single consumer, it is possible to identify factors that tend to influence most consumers in predictable ways.
The factors that influence the consumer problem-solving process are many and complex. For example, as groups, men and women express very different needs and behaviors regarding personal-care products. Families with young children tend to make different dining-out choices than single and married people with no children. A consumer with a lot of prior purchasing experience in a product category might approach the decision differently from someone with no experience. As marketers gain a better understanding of these influencing factors, they can draw more accurate conclusions about consumer behavior.
We can group these influencing factors into four sets, illustrated in the figure below:
• Situational Factors pertain to the consumer’s level of involvement in a buying task and the market offerings that are available
• Personal Factors are individual characteristics and traits such as age, life stage, economic situation, and personality
• Psychological Factors relate to the consumer’s motivation, learning, socialization, attitudes, and beliefs
• Social Factors pertain to the influence of culture, social class, family, and reference groups
Each of these factors will be discussed in greater detail in the next four readings.
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7.02: Reading- Situational Factors
Buying Task
The buying task refers to the consumer’s approach to solving a particular problem and how much effort it requires. The level of consumer involvement is an important part of the buying task: whether the buyer faces a high-involvement decision with lots of associated risk and ego involved, versus a low-involvement decision with little risk or ego on the line.
Product or brand familiarity is another, related dimension of the buying task. When a consumer has purchased a similar product many times in the past, the decision making is likely to be simple, regardless of whether it is a high- or low-involvement decision. Suppose a consumer initially bought a product after much care and involvement, was satisfied, and continued to buy the product. For the buyer, this is still a high-involvement decision, but now it’s simpler to make. The customer’s careful consideration of a product and the subsequent satisfaction have produced brand loyalty, which resulted from involvement in the product decision.
Once a customer is brand loyal, a simple decision-making process is all that is required for subsequent purchases. The consumer now buys the product through habit, which means making a decision without additional information or needing to evaluate alternatives. Selling to and satisfying brand-loyal customers can be a great position for marketers, although it’s important not to rest on one’s laurels and take them for granted. New competitors are always looking for ways to break existing brand-loyal habits and lure the consumer into an enticing new product experience.
Market Offerings
The available market offerings are another relevant set of situational influences on consumer problem solving. The more extensive the product and brand choices available to the consumer, the more complex the purchase decision process is likely to be. And the more limited the market offerings are, the simpler the purchase decision process is likely to be.
For example, if you already have purchased or are considering purchasing a smartphone, you know that there are multiple brands to choose from—Samsung Galaxy, Apple iPhone, Sony, LG, HTC One, and Nokia, to name several. Each manufacturer sells several models that differ in various features–design, screen size, memory, speed, camera quality, and so on. What criteria are important to you? Is purchasing a smartphone an easy decision? If a consumer has a need that can be met by only one product or one outlet in the relevant market, the decision is relatively simple: Either buy the product or let the need go unmet.
This is not ideal from the customer’s point of view, but it does happen. For example, suppose you are a student on a campus in a small town many miles from another marketplace. Your campus and town have only one bookstore. You need a textbook for class tomorrow; only one particular book will do, and only that bookstore carries it. Amazon and other online retailers have the book at a lower price, but they can’t get the book to you overnight, so you’re stuck. In this case the limitation on alternative market offerings has a clear influence on your purchase behavior.
As you saw in the smartphone example, when the extent of market offerings increases, the complexity of the problem-solving process and the consumers’ need for information also increase. A wider selection of market offerings is better from the customers’ perspective, because it allows them to tailor their purchases to their specific needs. However, lots of choices may also confuse and frustrate the consumer, such that less-than-optimal choices are made.
Marketers can find opportunities in either scenario—a crowded competitive set and a complex decision for the consumer, or a narrow competitive set with limited choices and a simpler decision for the consumer. In a crowded field, the marketer’s challenge is to make compelling offerings and useful information prominent in the consumer’s processes for gathering information and evaluating alternatives. In a narrow field with limited choices, effective marketing can help the consumer feel good about the choice they had to make. A good experience with the product during and after purchase is a recipe for brand loyalty.
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In addition to situational factors, there are also individual traits and characteristics that can shape purchasing decisions. These include things like demographics, life stage, lifestyle, and personality.
Demographics
Demographics are an important set of factors that marketers should not overlook when trying to understand and respond to consumers. Demographics include variables such as age, gender, income level, educational attainment, and marital status. Each of these can have a strong influence on consumer behavior.
Historically, marketers have made much of generational differences—focusing on the best ways of reaching different cohorts such as Baby Boomers, Generation Xers, Millennials, and so on. Many of the distinctions between these groups are related to the groups’ ages and related needs at any given point. For example, as Baby Boomers head into their retirement years, marketers target them with messages about prescription drugs and other health care products, insurance, home and financial security—all issues of growing concern for people as they age. Generational differences can also be factors in they ways people use media and where they go for information to inform their consumer choices. A 2013 study found that Millennial moms (birth years 1981–1997) were online “followers” of 22.5 brands, on average, while Generation X moms (birth years 1965–1980) followed just 13.7 brands online.[1] Understanding differences like these can be essential to developing the right marketing mix whenever age is an identifying factor in market segmentation.
Gender is also a defining characteristic for many consumers, as is the marketing that targets them. You have only to watch TV ads during an NFL game and the TV ads during the women-oriented talk show The View to see how the different needs and wants of men and women are translated into marketing messages and imagery.
DeBeers Limited, which has commanded an 80 percent share of the market for diamonds used in engagement rings, employs a consumer demographic profile in the development of its promotional programs. Their primary target market for engagement rings is single women and single men between the ages of 18 and 24. The company combined this profile with some additional lifestyle-related factors to develop a successful promotional program.
The demographic marker of economic status is another strong influencer in consumer decisions. Not surprisingly, people in different income brackets tend to buy different types of products, shop in very different ways, and look for different qualities. Many designer clothing shops, for example, aim their marketing at higher-income shoppers. Meanwhile, a retail chain like Wal-Mart sticks closely to its “lowest prices” positioning in order to maintain its appeal for middle- and lower-income shoppers.
Life Stage
Linked to demographics is the concept of life stage: consumer behavior is tied to the significant life events and circumstances people are experiencing at any given moment. Moving out of your parents’ home, going to college, getting married, buying a house, starting a family, sending children to college, retiring: all of these are life events that shape consumer attitudes, behaviors, and decisions.
Life stage has a big enough impact on consumer decisions that many marketing organizations develop proprietary segmentation schema to help them better understand this dimension of the consumer experience and better target products and services to individual needs. A representative example is the set of lifestyle segments developed by the consumer data company Experian. Experian’s life stage segments include Independent Youth, Young Families, Maturing Couples & Families, Elderly Singles, and six other segments it uses to encompass the entire U.S. adult population.
American consumers experience life-stage marketing when offers relevant to their life events appear in their in-boxes, mailboxes, and even in the checkout line. Producers and sellers of baby products like Procter & Gamble, Johnson & Johnson, and Target send a barrage of product samples, coupons, and other promotions to expecting and new parents. Families of young children are invited to sign their kids up for LEGO’s free quarterly magazine and become part of the Toys-R-Us Rewards program for frequent shoppers. Financial services companies target new college students and their parents with credit card offers and banking plans. Home Depot, Lowe’s, and even the U.S. Postal Service send promotional welcome packets to new homeowners, hoping to win their business as they settle into a new residence.
Lifestyle
One of the newer and increasingly important set of factors that’s being used to understand consumer behavior is lifestyle. In this context, “lifestyle” refers to the potential customer’s pattern or being or living in the world combined with his or her psychographics (a set of attitudes, opinions, aspirations, and interests). The variables determining lifestyle are wide-ranging:
• Activities and interests (e.g., hunter; fitness enthusiast; fashionista; foodie; lawyer; musician; pet lover; farmer; traveler; reader; homebody; crafter, etc.)
• Opinions about oneself and the world (e.g., politically conservative; feminist; activist; entrepreneur; independent thinker; do-gooder; early adopter; technophobe; populist; explorer, etc.)
Lifestyle variables reveal what consumers care about, how they spend their time, what they’re likely to spend money on, and how they view themselves. Inevitably these individual characteristics impact consumer decisions—and brand preference in particular. The criteria that determine lifestyle are often things consumers feel passionately about. When a consumer identifies your brand as consistent with his interests, attitudes and self-identity, it paves the way for building a long and loyal customer relationship. It is the multifaceted aspect of lifestyle research that makes it so useful in consumer analysis. A prominent lifestyle researcher, Joseph T. Plummer, summarizes the concept as follows:
. . . lifestyle patterns combines the virtues of demographics with the richness and dimensionality of psychological characteristics . . . Lifestyle is used to segment the marketplace because it provides the broad, everyday view of consumers lifestyle segmentation and can generate identifiable whole persons rather than isolated fragments.
Marketers are often attracted to lifestyle as a segmentation schema because it helps reveal a deeper, more vivid picture of consumers and what makes them tick. As marketers try to create strong emotional connections between the brands they promote and the consumers they serve, they are selling more than product features. They are selling a sensibility, an attitude, a set of values they hope will resonate strongly with the target segments they want to reach.
Oprah Winfrey and Martha Stewart are interesting comparative examples of extremely successful marketing that uses a lifestyle orientation to attract and keep devoted consumers. Both brand empires are built around strong, successful, self-made women, and they both target women consumers. Oprah Winfrey’s brand is architected to appeal to women who are socially conscious seekers, readers, idealists, self-helpers, working women, striving for balance and self-fulfillment. Martha Stewart’s brand, on the other hand, is carefully curated to appeal to women with a passion for fine food, design, beautiful surroundings, cultural experiences, arts and crafts, and the creative act of doing it yourself. The strong lifestyle-oriented identity of each brand makes it relatively easy for individual consumers to recognize which one is most consistent with their own identity and values.
Personality
Personality is used to summarize all the traits of a person that make him or her unique. No two people have the same personalities, but several attempts have been made to classify people with similar traits. Perhaps the best-known personality types are those proposed by Carl Jung, which are variations on the work of Jung’s teacher, Sigmund Freud. His personality categories are introvert and extrovert. The introvert is described as defensive, inner-directed, and withdrawn from others. The extrovert is outgoing, other-directed, and assertive. Over the years, several other more elaborate classifications have also been devised.
Personality traits may also include characteristics linked to they ways people view themselves and calibrate their behavior in the world: for example, sincerity, self-confidence, empathy, self-reliance, adaptability, and aggression.
Various personality types are likely to respond in different ways to different market offerings. For example, an extrovert may enjoy the shopping experience and rely more on personal observation to secure information. In this case, in-store promotion becomes an important communication tool. Knowing the basic personality traits of target customers can be useful information for the manager in designing the marketing mix. Marketers have found personality to be difficult to apply in many cases, primarily because it is not easy to measure personality traits. Personality tests are usually long and complex; many were developed to identify people with problems that needed medical attention. Translating these tools into useful marketing data is no small feat, and marketers have turned to lifestyle analysis instead.
Where personality does come into play more prominently is in the notion of brand personality. Brand managers strive to cultivate strong, distinctive, recognizable personalities for the brands they promote. The personality gives dimension to the brand, opening the door for consumers to connect with the brand emotionally and identify its personality as consistent with their own values and self-identity. In this case there is a blurry line between the use of lifestyle and personality to understand and appeal to target customers. If you run down a list of super-brands, though, it is easy to recognize the power of brand personality at work: Apple, Coca-Cola, Walt Disney, Star Wars, Google, and Nike, to name a few.
1. Holland, Stephanie. “Marketing to Women Quick Facts.” She-Conomy, 15 Sept. 2016, http://she-conomy.com/report/marketing-to-women-quick-facts. ↵
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Consumer Decisions and the Workings of the Psyche
When we talk about psychological factors that influence consumer decisions, we are referring to the workings of the mind or psyche: motivation, learning and socialization, attitudes and beliefs.
Motivation
A motive is the inner drive or pressure to take action to satisfy a need. A highly motivated person is a very goal-oriented individual. Whether goals are positive or negative, some individuals tend to have a high level of goal orientation, while others tend to have a lower level of goal orientation. People may display different levels of motivation in different aspects of their lives. For example, a high school junior may be flunking trigonometry (low motivation) while achieving champion performance levels at the video game Guitar Hero (high motivation).
In order for any consumer purchasing decision to happen, the need must be aroused to a high enough level that it serves as a motive. At any given time, a person has a variety of needs that are not of sufficient urgency to generate the motivation to act, while there are others for which he is highly motivated to act. The forces that create a sense of urgency and motivation may be internal (people get hungry), environmental (you see an ad for a Big Mac), or psychological (thinking about food makes you hungry).
For motivation to be useful in marketing practice, it is helpful for marketing managers to understand how motivation plays into a specific purchasing situation—what triggers consumers to set goals, take action, and solve their need-based problems.
Motivation starts with an unmet need, as does all consumer problem solving. One of the best-known theories about individual motivation is the work of A. H. Maslow, known as the hierarchy of needs. Maslow developed a model that lays out five different levels of human needs. These needs relate to one another other in a “need hierarchy,” with basic survival-oriented needs at the lower levels of the hierarchy, building up to higher emotional needs associated with love, self-esteem, and self-fulfillment. This hierarchy is shown in the figure below:
Physiological needs are at the first level of Maslow’s hierarchy: hunger, thirst, and other basic drives. All living beings, regardless of their level of maturity, possess physiological needs. Physiological needs are omnipresent and recur throughout nature.
Safety and security are second in Maslow’s hierarchy. Safety and security needs imply a continued fulfillment of physiological needs, as well as the absence of the threat of physical harm. Safety and security encompass both physical and financial security, because financial security is linked to a person’s ability to have her physiological needs met. Health and physical well-being and protection from accidents are also associated with this level of need. This is considered an extension of the more basic needs.
Love and belonging are third in Maslow’s hierarchy of needs. Love encompasses the needs for belonging, friendship, human intimacy, and family. They involve a person’s interaction with others and the need to feel accepted by social groups, large or small.
Self-esteem is the fourth level. Self-esteem includes the need to feel good about oneself, to be respected and valued by others, and to have a positive self-image.
Self-actualization is the fifth and highest level in Maslow’s needs hierarchy. Also described as “self-fulfillment,” this is the need humans feel to reach their full potential and to accomplish all that they can with their talents and abilities. Different people may express this need in very different ways: for one person, self-actualization might involve musical or artistic pursuits, for another, it’s parenting, and for a third the focus might be athletics. At different points in their lives, individuals may express this need through different pursuits.
In his work, Maslow asserts that these five levels of needs operate on an unconscious level. In other words, people may not even be aware that they are concentrating on one particular level of need or an assortment of needs. Maslow’s theory suggests that lower levels of need must be met before an individual can focus on higher-level needs. At the same time, a person may experience several different needs simultaneously. How an individual is motivated to act depends on the importance of each need.
When we think about Maslow’s needs hierarchy in the context of marketing and segmentation, we might use the hierarchy to help identify a common level of needs for a given segment. Effective and powerful marketing may operate at any level of Maslow’s hierarchy. Consider the following examples:
• In-N-Out Burger’s freeway billboards featuring a giant, 3-D cheeseburger (physiological needs)
• Procter & Gamble’s “Thank You Mom” ad campaign featuring dedicated parents of Olympic athletes and their loving relationships (love & belonging)
• The U.S. Army’s famous “Be All You Can Be” slogan and advertising campaigns encouraging young adults to join the army (self-actualization), shown in the following video.
A link to an interactive elements can be found at the bottom of this page.
Learning and Socialization
In the context of consumer behavior, learning is defined as changes in behavior that result from previous experiences. Learning is an ongoing process that is dynamic, adaptive, and subject to change. Learning does not include behavior associated with instinctive responses or temporary states of an individual, such as hunger, fatigue, or sleep.
Learning is an experience and practice that actually brings about changes in behavior. For example, in order to learn to play tennis, you might learn about the rules of the game and the skills tennis players need. You would practice the skills and participate in tennis games to gain experience. Learning can also take place without actually participating in the physical experience. You can learn about something conceptually, too. In other words, you could learn to play tennis by observing experts and reading about it without actually doing it. This is called nonexperiential learning.
Consumer decisions can be influenced by both experiential and nonexperiential learning. Take an example of buying wine. Suppose you are at a winery and you are considering buying a bottle of zinfandel, which you have never tried before. If you taste the wine and discover you don’t care for the strong, spicy flavor, you have learned experientially that you don’t like zinfandel. On the other hand, you could ask the tasting-room host about the flavor of zinfandel, and she might say that it resembles strong ginger ale, in which case you might decide not to buy the wine because you don’t like ginger ale. In this second case, you have learned about the product nonexperientially.
Marketing relies heavily on nonexperiential learning, using tactics like customer testimonials, case studies, and blogger reviews to teach new customers through the experiences and opinions of others. Consumers themselves seek out resources for nonexperiential learning when they read book and product reviews on Amazon, film reviews on Rotten Tomatoes, and restaurant reviews on Yelp.
Another characteristic of learning is that the changes may be immediate or anticipated. In other words, learning may be taking place even if there is no evidence of it. We can store our learning until it’s needed, and we do this often with purchasing decisions. For example, a person might read up on product reviews for the latest set of tablet computers even though she doesn’t expect to buy one soon. Eventually she may be in the market, and at that point she can put her learning to use.
Reinforcement is the process of having your learning validated through rewards or punishments, which confirm that what you learned was correct. Over time, reinforcement can shape strong patterns of behavior. Suppose a consumer’s first car purchase is a Subaru. He loves the car and finds it to be safe, reliable, energy efficient, and a great value for the money. Each positive experience with his car rewards him and reinforces what he has learned about Subarus: they are great cars. When he decides to replace the car, positive reinforcement will almost certainly lead him to consider a Subaru again. Reinforcement can work in positive or negative ways, with consumers experiencing rewards or punishments that influence their decisions.
Socialization is the process by which people develop knowledge and skills that make them more or less able members of their society. Socialized behaviors are learned and modified throughout a person’s lifetime. This social learning approach stresses “socialization agents” (i.e., other people), who transmit cognitive and behavioral patterns to the learner. These people can be anyone: a parent, friend, celebrity spokesperson, teacher, role model, etc. In the case of socialization in consumer behavior, this takes place in the course of the person’s interaction with other people in various social settings. Socialization agents may include any person, organization, or information source that comes into contact with the consumer.
Consumers acquire this information from other individuals through the processes of modeling, reinforcement, and social interaction. Modeling involves imitation of the agent’s behavior. For example, a teenager may acquire a brand-name preference for Adidas from friends and teammates. Marketers can take advantage of this idea by employing product spokespeople who have strong credibility with their target consumers, as in the case of NBA star LeBron James for Nike. As noted above, reinforcement involves either a reward or a punishment mechanism used by the agent. When a colleague compliments a coworker on her outfit, it conveys a rewarding message about the type of clothing to wear to work. Marketers may use reinforcement by providing good product performance, excellent post-purchase services, or some similar rewarding experience. Social interaction may include a combination of modeling and reinforcement in a variety of social settings. These variables can influence learning by having an impact on the relationship between the consumer and other people.
Attitudes and Beliefs
Attitudes and beliefs represent another psychological factor that influences consumer behavior. A belief is a conviction a person holds about something, such as “dark chocolate is bitter,” or “dark chocolate is delicious,” or “dark chocolate is good for baking.” An attitude is a consistent view of something that encompasses the belief as well as an emotional feeling and a related behavior. For example, an attitude toward dark chocolate may be expressed as a belief (“dark chocolate is delicious”), a feeling (“dark chocolate makes me happy”), and a behavior (“I eat dark chocolate every afternoon as a pick-me-up”).
People have beliefs and attitudes about all sorts of things: food, family, politics, places, holidays, religion, brands, and so on. Beliefs and attitudes may be positive, negative, or neutral, and they may be based on opinion or fact. It is important for marketers to understand how beliefs and attitudes affect consumer behavior and decision making. If an incorrect or detrimental belief exists among the general population or a target audience, marketing efforts may be needed to change people’s minds.
For example, in 1993, rumors erupted and spread widely about a syringe allegedly being found inside a can of Diet Pepsi. The entire incident turned out to be a hoax, but PepsiCo responded not only with strong immediate public statements but also with videos and a public relations campaign to quell the rumors and reassure consumers that Pepsi products are safe.
Beliefs and attitudes do not always translate into behaviors: in some situations customers may choose to do something despite their personal views. Suppose a consumer likes pizza but doesn’t like Pizza Hut. In a social setting where everyone else wants to go to Pizza Hut for dinner, this person might go along with the group rather than dining alone or skipping dinner.
When consumer attitudes present a major stumbling block, marketers have two choices: either they can change consumers’ attitudes to conform with their product, or they can change the product to match attitudes. Often it is easier to change the product than to change consumers’ attitudes. Attitudes can be very difficult to change, chiefly because they are intertwined with a pattern of beliefs, emotions, and behaviors. Changing the attitude requires changing the whole pattern. As a rule, it is easier for marketing to align with existing attitudes rather than trying to alter them.
However, marketers may look for opportunities to reshape or create new attitudes in moments when consumers may be more open-minded, as with a product redesign or a new product introduction.
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• Be All That You Can Be In The Army commercial 1982. Authored by: Kevin Noonan. Located at: https://youtu.be/VlPEg9LCKgo. License: All Rights Reserved. License Terms: Standard YouTube license
7.05: Video- Consumer Attitudes and Heinz Baked Beans
Putting Consumer Attitudes and Beliefs to the Test
Just how powerful are consumer attitudes and beliefs? Are they so powerful that they can fool consumers during a taste test?
Watch the following video to see the power of consumer attitudes in action as a journalist conducts a taste test to see whether people’s brand-loyal attitudes can overrule the reality of what they are tasting.
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “Heinz and Packaging” (opens in new window).
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People Influencing People
Social factors represent another important set of influences on consumer behavior. Specifically, these are the effects of people and groups influencing one another through culture and subculture, social class, reference groups, and family.
Culture
A person’s culture is represented by a large group of people with a similar heritage. Culture exerts a strong influence on a person’s needs and wants because it is through culture that we learn how to live, what to value, and how to conduct ourselves in society. The American culture, which is a subset of the Western (European) culture, will be the primary focus of this discussion, although other societies in other parts of the world have their own cultures with accompanying traditions and values.
Traditional American culture values include freedom, hard work, achievement, security, self-reliance, community involvement, and the like. Marketing strategies targeted to people with a common cultural heritage might demonstrate how a product or service reinforces these traditional values. There are three components of culture that members of that culture share: beliefs, values, and customs. As discussed in the prior section, a belief is a proposition that reflects a person’s particular knowledge or opinion of something. Values are general statements that guide behavior and influence beliefs. The function of a value system is to help people choose between alternatives in everyday life and prioritize choices that are most important to them personally.
Customs are traditional, culturally approved ways of behaving in specific situations. For example, in the United States, Thanksgiving is a holiday celebrated on the fourth Thursday in November with the custom of feasting with family and offering thanks for the things we appreciate in life. Taking your mother to dinner and giving her gifts for Mother’s Day is an American custom that Hallmark and other card companies support enthusiastically.
Understanding customs is hugely important for marketing to consumers, because many customs represent occasions for spending money, and culture dictates the appropriate things to buy in order to honor the custom. The power of culture is evident when you think about the tens of millions of Americans who buy Valentine’s Day flowers in February, chocolate Easter eggs in April, Independence Day fireworks in July, Halloween candy in October, and all kinds of food and gifts throughout the holiday season.
It is worth noting that for marketers anywhere in the world, it is essential to develop a strong understanding of the local culture and its accompanying beliefs, values, and customs. Culture is how people make sense of their society, its institutions, and social order. Culture frames how and what people communicate, how they express what is proper and improper, what is desirable and detestable. Without an understanding of culture, marketers are not really even speaking the right language to the consumers they want to target. Even if the words, grammar, and pronunciation are correct, the meaning will be off.
An expensive example of a massive cultural blunder was Wal-Mart’s short-lived foray into Germany. In 2006, the retailer pulled out of Germany after opening eighty-five stores in six years. The company expected success in Germany using the formula that works well in the U.S.: streamlined supply chain, low-priced products sold in big stores with wide selection and long operating hours. What Wal-Mart didn’t account for was the strong cultural preference in Germany for several things that directly oppose the Wal-Mart model. Germans prefer small and medium-sized retailers grounded in local communities. They have a cultural suspicion of low prices, which create concern about quality. German law includes significant restrictions on retail establishments’ operating hours and many labor protections, and these laws are viewed, in part, as important in protecting the German quality of life. Due in large part to these cultural disconnects, Wal-Mart was unable to sustain successful operations.[1]
Subculture
Subcultures are cohesive groups that exist within a larger culture. Subcultures develop around communities that share common values, beliefs, and experiences. They may be based on a variety of different unifying factors. For example, subcultures exist around the following:
• Geography: Southerners, Texans, Californians, New Englanders, midwesterners, etc.
• Ethnicity: Latinos, Asian Americans, African Americans, etc.
• Religion: Catholics, Jews, Mormons, Baptists, Muslims, etc.
• Nationality: Italians, Koreans, Hungarians, Japanese, Ethiopians, etc.
• Occupation: military, technology worker, state department, clergy, educator, etc.
Subcultures can represent huge opportunities for marketers to make a significant impact within a population that may feel underserved by companies operating in the mainstream market. Individuals with strong subcultural identity are likely to welcome organizations that seem to understand them, speak their subcultural language, and satisfy their subculture-specific needs.
In the United States, many organizations and marketing activities focus on major ethnicity-based subcultures such as Latinos, Asian Americans, and African Americans. Each subculture has distinct experiences living and working within the broader U.S. culture, and it has shared customs and values that shape their consumer needs and preferences. As each of these subcultures grows in size and buying power, they become a distinct market for companies to woo.
A noted example of effective marketing to a subculture is Ford Motor Company’s approach to serving the African American community. Ford invests in advertising campaigns that specifically target the black community and celebrate its diversity. Ford supports a number of scholarship and community-building programs at historically black colleges and universities (HBCUs). Through public relations activities, Ford maintains a presence at significant events, such as the Essence Festival and the BET Awards.[2]
The following video shows how a shopping mall managed to save itself by catering and marketing to the Latino subculture.
A link to an interactive elements can be found at the bottom of this page.
Social Class
Some manifestation of social class is present in virtually every society. It’s determined by a combination of factors including family background, wealth, income, education, occupation, power, and prestige. Like culture, it affects consumer behavior by shaping individuals’ perceptions of their needs and wants. People in the same social class tend to have similar attitudes, live in similar neighborhoods, attend the same schools, have similar tastes in fashion, and shop at the same types of stores.
In some nations, the social class system is quite rigid, and people are strongly encouraged to stay within their own class for friendships, marriage, career, and other life decisions. In other countries, such as the United States, social class is more permeable, and people can move between classes more easily based on their circumstances, behaviors, and life choices. Social class mobility is an important value in mainstream American culture and is part of our collective belief system about what makes the nation great.
In the U.S., the most common social classification system is illustrated in the figure below.
Social Class in the United States
Upper Class makes up 1% of the population. Characteristics of the upper class include
• Heirs, celebrities, top corporate executives
• \$500,000+ income
• Elite education is common
Upper Middle Class makes up 15% of the population. Characteristics of the upper middle class include
• Managers, professionals
• \$100,000+ income
• Highly educated, college and graduate degrees are likely
Lower Middle Class makes up 32% of the population. Characteristics of the lower middle class include
• Skilled contractors, craftspeople, artisans, semi-professionals, autonomy in work environment is common
• \$35,000 to \$75,000 income
• Some college, training, secondary education is likely
Working class makes up 32% of the population. Characteristics of the working class include
• Clerical, blue- and pink-collar workers, job security is often a problem.
• \$16,000 to \$30,000 income
• High School Education
Lower Class makes up 20% of the population. Characteristics of the lower class include
• Poorly paid positions and/or reliance on government assistance
• Some high school education
Source: Thompson, W. & Hickey, J. (2005). Society in Focus. Boston, MA: Pearson, Allyn & Bacon.
For marketers, social class may be a useful factor to consider in segmentation and targeting. It provides helpful context about how consumers view themselves and their peer groups, their expectations, life experiences, income levels, and the kinds of challenges they face. For example, if a marketer wishes to target efforts toward the upper classes, they should realize that, first, this is a very small proportion of the population, and second, the market offering must be designed to meet their high expectations in terms of quality, service, and atmosphere. Having enough money is a persistent concern for people in the lower, working, and lower middle classes, so price sensitivity and value for the money are important for products targeting these groups.
Reference Groups
Consumer behavior can be influenced by the groups a person comes into contact with, through friendship, face-to-face interaction, and even indirect contact. Marketers often call these reference groups. A reference group may be either a formal or informal group. Examples include churches, clubs, schools, online social networks, play groups, professional groups, and even a group of friends and acquaintances. Individuals may be influenced by the groups of which they are members. They may also be influenced by aspirational groups–a reference group a person hopes to belong to one day, such as young boys hoping to grow up and become Major League Soccer (MLS) players.
Reference groups are characterized by having individuals who are opinion leaders for the group. Opinion leaders are people who influence others. They are not necessarily higher-income or better educated, but others may view them as having greater expertise, broader experience, or deeper knowledge of a topic. For example, a local high school teacher may be an opinion leader for parents in selecting colleges for their children. In a group of girlfriends, one or two may be the opinion leaders others look to for fashion guidance. These people set the trend and others conform to the expressed behavior. If a marketer can identify the opinion leaders for a group in the target market, then she can direct efforts towards attracting these people.
The reference group can influence an individual in several ways:
• Role expectations: Reference groups prescribe a role or way of behaving based on the situation and one’s position in that situation. For example, as a student, you are expected to behave in a certain basic way under certain conditions when interacting with a reference group at school.
• Conformity: Conformity the way we modify out behavior in order to fit in with group norms. Norms are “normal” behavioral expectations that are considered appropriate within the group. To illustrate, in a school lecture setting, you might conform to the group norm of raising your hand to make a comment or question, rather than shouting out to the teacher.
• Group communications through opinion leaders: As consumers, we are constantly seeking out the advice of knowledgeable friends or acquaintances who can provide information, give advice, or even make the decision for us. In some product categories, there are professional opinion leaders who are easy to identify, such as auto mechanics, beauticians, stock brokers, or physicians. In a school setting, an opinion leader might be a favorite teacher who does a good job explaining the material, a popular administrator who communicates well with students and parents, or a well-liked fellow student who is willing to assist when peers ask for help–or all of these individuals.
• Word-of-mouth influence: Consumers are influenced by the things they hear other people say. This is “word-of-mouth” communication. It happens every time you ask someone for a recommendation or an opinion about a product or service, and every time someone volunteers an opinion. Do you know a good dentist? Where should we go for lunch? Have you heard that new song from . . . ? Not surprisingly, research consistently shows that word-of-mouth information from people they know is more credible than advertising and marketing messages. Word-of-mouth influence in the school reference group example might include students discussing which Spanish instructor is better, or where to shop for a dress to wear to the homecoming dance.
Reference groups and opinion leaders are essential concepts in digital marketing, where consumers tap into a variety of social networks and online communities. Marketers need to understand which reference groups influence their target segments and who the opinion leaders within these groups are. Those leaders may be bloggers, individuals with many followers who post frequently on various social media, and even people who write lots of online reviews. Then marketing activity can focus on winning over the opinion leaders. If you manage to get the opinion leaders in your segment to “like” your product, “follow” your brand, tweet about your news and publish favorable reviews or comments on their blogs, your work with online reference groups is going well. (You’ll recall from the module on ethics that this was the strategy Microsoft adopted—and misgauged—when it attempted to influence opinion leaders with its gifts of free laptops loaded with its latest operating system.)
Family
One of the most important reference groups for an individual is the family. A consumer’s family has a major impact on attitude and behavior, and families themselves are critically important in society as consumer units. Many consumer decisions are made by family members on behalf of the family, so understanding the family consumer decision-making dynamics around your product is essential.
Depending on the product or service under consideration, different family members may be in the role of primary decision maker or influencer. In some cases, the husband is dominant, in others the wife or children, and still other cases, families make joint decisions. Traditionally the wife has made the primary decisions around store choice and brands for food and household items, although this has evolved somewhat as more women participate in the workforce. A joint decision is typical for purchases involving a larger sum of money, such as a refrigerator or a vehicle. Teenagers may exercise a lot of influence over their own clothing purchases. Children may heavily influence food and entertainment choices. Of course, decision dynamics within any individual family can vary, but marketers need to understand the general tendencies around family decision making for the product or service in question.
1. https://journalofinternationalmanagement.wordpress.com/2011/05/16/walmarts-downfall-in-germany-a-case-study/
2. www.foxbusiness.com/industries/2015/10/12/why-procter-gamble-mcdonalds-ford-are-chasing-black-consumer/, targetmarketnews.com/storyid06071201.htm ↵
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/781
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7.08: Outcome- B2B Purchasing Decisions
What you’ll learn to do: explain the B2B buying process and factors influencing B2B purchasing decisions
Up to this point, our discussion about decision making has focused on individual consumers (B2C). Next we will shift attention to the decision making of businesses and other organizations when they are considering what to buy (B2B). While many of the same principles apply in business-to-business purchasing decisions, there are important differences that warrant discussion.
The specific things you’ll learn in this section include:
• Explain the B2B purchasing decision process
• Describe factors influencing B2B purchasing decisions
• Differentiate between B2C and B2B purchasing decisions
Learning Activities
The learning activities for this section include the following:
• Reading: Organizational Buying Process
• Video: Complexities of a B2B Solution Sale
• Reading: The Organizational Buying Process
• Self Check: B2B Purchasing Decisions
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7.09: Reading- Organizational Buyer Behavior
Individual consumers are not the only buyers in a market. Companies and other organizations also need goods and services to operate, run their businesses, and produce the offerings they provide to one another and to consumers. These organizations, which include producers, resellers, government and nonprofit groups, buy a huge variety of products including equipment, raw materials, finished goods, labor, and other services. Some organizations sell exclusively to other organizations and never come into contact with consumer buyers.
B2B markets have their own patterns of behavior and decision-making dynamics that are important to understand for two major reasons. First, when you are a member of an organization, it’s helpful to appreciate how and why organization buying decisions are different from the decisions you make as an individual consumer. Second, many marketing roles focus on B2B rather than B2C marketing, or they may be a combination of the two. If you have opportunities to work in B2B marketing, you need to recognize how the decision-making process differs in order to create effective marketing for B2B customers and target segments.
Who Are the Organizational Buyers?
Unlike the consumer buying process, multiple individuals are usually involved in making B2B buying decisions. A purchasing agent or procurement team (also called a buying center) may also be involved to help move the decision through the organization’s decision process and to negotiate advantageous terms of sale.
Organizations define and enforce rules for making buying decisions with purchasing policies, processes, and systems designed to ensure the right people have oversight and final approval of these decisions. Typically, more levels of consideration, review, and approval are required for more expensive purchases.
For anyone involved in B2B marketing or selling, it is important to know:
• Who will take part in the buying process?
• What criteria does each person use to evaluate prospective suppliers?
• What level of influence does each member of the process have?
• What interpersonal, psychological, or other factors about the decision team might influence this buying process?
• How well do the individuals work together as a group?
• Who makes the final decision to buy?
Because every organization is unique, the answers to these questions will be different for every organization and every sale. Marketers should understand their target segments well enough to identify commonalities where they exist and then create effective marketing to address the common roles and decision makers identified.
For example, a technology company selling a travel- and expense-management system should expect decision makers from several departments to be involved in the purchasing decision: the HR department (to ensure the system is user-friendly for employees and compatible with company travel policies), the accounting department (to ensure the system is a good complement to the company’s accounting and finance systems), and the IT department (to ensure the system is compatible with the other systems and technologies the company uses). Marketers should focus first on managers in the group most responsible for travel and expense policy—typically the HR department. As the company generates serious interest and leads, marketing and sales staff should take the time to learn about decision dynamics within each organization considering the system. Marketing and sales support activities can focus on getting each of the essential decision makers acquainted with the product and then convincing them to make it their final selection.
B2B Buying Situations
Who makes the buying decision depends, in part, on the situation. Common types of buying situations include the straight rebuy, the modified rebuy, and the new task.
The straight rebuy is the simplest situation: the organization reorders a good or service without any modifications. These transactions are usually routine and may handled entirely by the purchasing department because the initial selection of the product and supplier already took place. With the modified rebuy, the buyer wants to reorder a product but with some modification to the product specifications, prices, or other aspects of the order. In this situation, a purchasing agent may be involved in negotiating the terms for the new order, and several other participants who will use the product may participate in the buying decision.
The buying situation is a new task when an organization considers buying a product for the first time. The number of participants and the amount of information sought tend to increase with the cost and risks associated with the transaction. For marketers, the new task is the best opportunity for winning new business because there is no need to displace another supplier (which would be the case for the rebuy situations).
For sales opportunities that are new tasks, there may be an opportunity for a solution sale (sometimes called system selling). In these opportunities, the buyer may be interested in a provider that offers a complete package or solution for the business problem, rather than individual components that address separate aspects of the problem. Providers win these opportunities by being the company that has both the vision and the capability to provide combination of products, technologies, and services that address the problem–and to make everything work together smoothly. Solution sales are particularly common in the technology industry.
Characteristics of Organizational Buying
B2B purchasing decisions include levels of complexity that are unique to organizations and the environments in which they operate.
Timing Complexity
The organizational decision process frequently spans a long period of time, which creates a significant lag between the marketer’s initial contact with the customer and the purchasing decision. In some situations, organizational buying can move very quickly, but it is more likely to be slow. When personnel change, go on leave, or get reassigned to other projects, the decision process can take even longer as new players and new priorities or requirements are introduced. Since a variety of factors can enter the picture during the longer decision cycles of B2B transactions, the marketer’s ability to monitor and adjust to these changes is critical.
Technical Complexity
Organizational buying decisions frequently involve a range of complex technical dimensions. These could be complex technical specifications of the physical products, or complex technical specifications associated with services, timing, and terms of delivery and payment. Purchases need to fit into the broader supply chain an organization uses to operate and produce its own products, and the payment schedule needs to align with the organization’s budget and fiscal plans. For example, a purchasing agent for Volvo automobiles must consider a number of technical factors before ordering a radio to be installed in a new vehicle model. The electronic system, the acoustics of the interior, and the shape of the dashboard are a few of these considerations.
Organizational Complexity
Because every organization is unique, it is nearly impossible to group them into precise categories with regard to dynamics of buying decisions. Each organization has a characteristic way of functioning, as well as a personality and unique culture. Each organization has its own business philosophy that guides its actions in resolving conflicts, handling uncertainty and risk, searching for solutions, and adapting to change. Marketing and sales staff need to learn about each customer or prospect and how to work with them to effectively navigate the product selection process.
Unique Factors Influencing B2B Buying Behavior
Because organizations are made up of individual people, many of the same influencing factors discussed earlier in this module apply in B2B settings: situational, personal, psychological, and social factors. At the same time, B2B purchasing decisions are influenced by a variety of factors that are unique to organizations, the people they employ, and the broader business environment.
Individual Factors
B2B decisions are influenced by characteristics of the individuals involved in the selection process. A person’s job position, tenure, and level in the organization may all play a role influencing a purchasing decision. Additionally, a decision maker’s relationships with peers and managers could lead them to exert more–or less–influence over the final selection. Individuals’ professional motives, personal style, and credibility as a colleague, manager, or leader may play a role. To illustrate, a new department head might want to introduce an updated technology system to help her organization work more productively. However, her short time in the role and rivalry from other department heads could slow down a buying decision until she has proven her leadership capability and made a strong case for investment in the new technology.
Organizational Factors
Purchasing decisions, especially big-ticket expenditures, may be influenced by the organization’s strategies, priorities, and performance. Generally the decision makers and the providers competing for the business must present a compelling explanation for how the new purchase will help the organization become more effective at achieving its mission and goals. If a company goes through a quarter with poor sales performance, for example, the management team might slow down or halt purchasing decisions until performance improves. As suggested above, organizational structure plays a central role determining who participates in the buying process and what that process entails. Internal organizational politics and culture may also impact who the decision makers are, what power they exert in the decision, the pace of the buying process, and so forth. An organization’s existing systems, products, or technology might also influence the buying process when new purchases need to be compatible with whatever is already in place.
Business Environment
B2B purchasing is also influenced by factors in the external business environment. The health of the economy and the company’s industry may determine whether an organization chooses to move ahead with a significant purchase or hold off until economic indicators improve. Competitive pressures can create a strong sense of urgency around organizational decision making and purchasing. For instance, if a leading competitor introduces a compelling new product feature that causes your organization to lose business, managers might be anxious to move forward with a project or purchase that can help them regain a competitive edge. When new technology becomes available that can improve products, services, processes, or efficiency, it can create demand and sales opportunities among companies that want the new technology in order to compete more effectively.
Government and the regulatory environment can also influence purchasing decisions. Governmental organizations often have very strict, highly regulated purchasing processes to prevent corruption, and companies must comply with these regulations in order to win government contracts and business. Similarly, lawmakers or governmental agencies might create new laws and regulations that require organizations to alter how they do business—or face penalties. In these situations, organizations tend to be highly motivated to do whatever it takes, including purchasing new products or altering how they operate, in order to comply.
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With the rise in mobile communications, Air Canada found itself in a situation where its technology just wasn’t keeping up with what its passengers and employees needed. It initiated a buying process to figure out what new systems and processes it should implement to improve information, communications, and how people interact with the airline.
The following video provides insight into the technical needs of Air Canada and how working with IBM and Apple to provide solutions has benefited Air Canada and their customers.
A link to an interactive elements can be found at the bottom of this page.
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7.11: Why It Matters- Consumer Behavior
Why learn about consumer behavior?
Please welcome a new arrival
At 1:26 a.m. this morning, in Houston’s Memorial Hermann Hospital, a consumer was born. His name is Finnegan Henry James. By the time he goes home three days later, some of America’s biggest marketers will be pursuing him with samples, coupons, and assorted freebies. Proctor & Gamble hopes its Pampers brand will win the battle for Finn’s bottom, but retailer Target has a lower-priced contender. To welcome Finn’s family, Johnson & Johnson has already sent his mother a sample of its gentle baby wash. Bristol-Myers Squibb Company is sending a free, bulky box of Enfamil baby formula.
Like no generation before, Finn enters a consumer culture surrounded by logos, labels, and messages almost from the moment of birth. As an infant, he may wear Sesame Street diapers and a miniature NBA jersey. Right away, this little boy will begin influencing his parents’ purchasing decisions–that’s what spitting out spoonfuls of baby food is all about. By the time he is twenty months old, he will start to recognize some of the thousands of brands flashed in front of him each day. Around age four, Finn will begin making decisions about how to spend his own money. At age seven, if he is anything like the typical kid, he will see some forty thousand commercials a year.[1] By the time he is twelve, he will have his own entry in the massive data banks of marketers.
Many forces are at work influencing Finn’s consumer choices from a very early age. Some of these forces are social: his parents, cousins, and play group. Some of these forces are cultural: Finn is a Texan and an American. As Finn grows and matures, his age, gender, education, economic status, life stage, and personality all play a role in his decisions as a consumer. Multiply Finn by millions of babies born in the U.S. every year, and you have new, increasingly marketing-savvy generations flooding the market.
This is Finn’s story. And if you’re living in the U.S. today, your story probably sounds a lot like his.
You Are the Target and the Hunter
Setting aside the ethics of marketing to children, the fact remains that you are a consumer living in a highly commercialized, modern society. Marketing artifacts are so woven into the fabric of our lives that many people hardly recognize them. Every year, companies and marketing organizations spend billions of dollars focused on one central goal: to influence consumers’ purchasing decisions.
As a consumer, hopefully your growing understanding of marketing is helping you see the world around you a little differently, with more and better information about the forces that are trying to influence you.
With your increasing skills as a marketer, you recognize how important it is to understand your customers if you are going to reach them effectively. Part of that is understanding the factors that influence their purchasing decisions. Once you’re educated about those influencing factors, they’ll be tools you can use to create effective marketing.
1. www.apa.org/pi/families/resources/advertising-children.pdf ↵
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Making B2B Buying Decisions
The organizational buying process contains eight stages, which are listed in the figure below. Although these stages parallel those of the consumer buying process, there are important differences that have a direct bearing on the marketing strategy. The complete process occurs only in the case of a new task. In virtually all situations, the organizational buying process is more formal than the consumer buying process.
It is also worth noting that B2B buying decisions tend to be more information-intensive than consumer buying decisions. As the marketing opportunity progresses, buyers seek detailed information to guide their choices. It is unlikely that a B2B buyer—in contrast to a consumer—would ever make a final buying decision based solely on the information they see in a standard advertisement.
The organization buying process stages are described below.
Problem Recognition
The process begins when someone in the organization recognizes a problem or need that can be met by acquiring a good or service. Problem recognition can occur as a result of internal or external stimuli. Internal stimuli can be a business problem or need that surfaces through internal operations or the actions of managers or employees. External stimuli can be a presentation by a salesperson, an ad, information picked up at a trade show, or a new competitive development.
General Need Description
Once they recognize that a need exists, the buyers must describe it thoroughly to make sure that everyone understands both the need and the nature of solution the organization should seek. Working with engineers, users, purchasing agents, and others, the buyer identifies and prioritizes important product characteristics. Armed with knowledge, this buyer understands virtually all the product-related concerns of a typical customer.
From a marketing strategy perspective, there is opportunity to influence purchasing decisions at this stage by providing information about the nature of the solution you can provide to address the the organization’s problems. Trade advertising can help potential customers become aware of what you offer. Web sites, content marketing, and direct marketing techniques like toll-free numbers and online sales support are all useful ways to build awareness and help potential customers understand what you offer and why it is worth exploring. Public relations may play a significant role by placing stories about your successful customers and innovative achievements in various trade journals. (Note that the AirCanada video you just watched is an example of this. The video was created by IBM and is offered as one of many “IBM client stories.”)
Product Specification
Technical specifications come next in the process. This is usually the responsibility of the engineering department. Engineers design several alternatives, with detailed specifications about what the organization requires. These specifications align with the priority list established earlier.
Supplier Search
Six of the mirror segments for NASA’s James Webb Space Telescope. The mirrors were built by Ball Aerospace & Technologies Corp., Boulder, Colorado
The buyer now tries to identify the most appropriate supplier (also called the vendor). The buyer conducts a standard search to identify which providers offer what they need, and which ones have a reputation for good quality, good partnership, and good value for the money. This step virtually always involves using the Internet to research providers and sift through product and company reviews. Buyers may consult trade directories and publications, look at published case studies (written or video), seek out guidance from opinion leaders, and contact peers or colleagues from other companies for recommendations.
Marketers can participate in this stage by maintaining well-designed Web sites with useful information and case studies, working with opinion leaders to make advantageous information available, using content marketing strategies to make credible information available in sources the buyer is likely to consult, and publishing case studies about customers using your products successfully. Consultative selling (also called personal selling) plays a major role as marketers or sales personnel learn more about the organization’s goals, priorities, and product specifications and provide helpful information to the buyer about the offerings under consideration.
Proposal Solicitation
During the next stage of the process, qualified suppliers are invited to submit proposals. Depending on the nature of the purchase, some suppliers send only a catalog or a sales representative. More complex purchases typically require submission of a detailed proposal outlining what the provider can offer to address the buyer’s needs, along with product specifications, timing, and pricing. Proposal development requires extensive research, skilled writing, and presentation. For very large, complex purchasing decisions, such as the solution sale described above, the delivery of a proposal could be comparable to a complete marketing strategy targeting an individual customer. Organizations that respond to many proposals typically have a dedicated proposal-writing team working closely with sales and marketing personnel to deliver compelling, well-crafted proposals.
Supplier Selection
At this stage, the buyer screens the proposals and makes a choice. A significant part of this selection involves evaluating the vendors under consideration. The selection process involves thorough review of the proposals submitted, as well as consideration of vendor capabilities, reputation, customer references, warranties, and so on. Proposals may be scored by different decision makers using a common set of criteria. Often the selection process narrows down vendors to a short list of highest-scoring proposals. Then the short-listed vendors are invited to meet with the buyer(s) virtually or in person to discuss the proposal and address any questions, concerns, or gaps. At this stage, the buy may attempt to negotiate final, advantageous terms with each of the short-listed vendors. Negotiation points may cover product quantity, specifications, pricing, timing, delivery, and other terms of sale. Ultimately the decision makers finalize their selection and communicate it internally and to the vendors who submitted proposals.
Consultative selling and related marketing support are important during this stage. While there may be procurement rules limiting contact with buyers during the selection process, it can be helpful to check in periodically with key contacts and offer any additional information that may be helpful during the selection process. This phase is an opportunity for companies to demonstrate their responsiveness to buyers and their needs. Being attentive during this stage can set a positive tone for how you will conduct future business.
Order-Routine Specification
The buyer now writes the final order with the chosen supplier, listing the technical specifications, the quantity needed, the warranty, and so on. At this stage, the supplier typically works closely with the buyer to manage inventories and deliver on agreement terms.
Performance Review
In this final stage, the buyer reviews the supplier’s performance and provides feedback. This may be a very simple or a very complex process, and it may be initiated by either party, or both. The performance review may lead to changes in how the organizations work together to improve efficiency, quality, customer satisfaction, or other aspects of the relationship.
From a marketing perspective this stage provides essential information about how well the product is meeting customer needs and how to improve delivery in order to strengthen customer satisfaction and brand loyalty. Happy, successful customers may be great candidates for published case studies, testimonials, and references for future customers. Dissatisfied customers provide an excellent opportunity to learn what isn’t working, demonstrate your responsiveness, and improve.
Procurement Processes for Routine Purchases
As noted above, the complete eight-stage buying process describe here applies to new tasks, which typically require more complex, involved purchasing decisions. For rebuys and routine purchases, organizations use abridged versions of the process. Some stages may be bypassed completely when a supplier has already been selected.
Organizations may also use e-procurement processes, in which an approved supplier has been selected to provide a variety of standard goods at pre-negotiated prices. For example, an organization may negotiate an e-procurement agreement with Staples that allows employees to order office supplies directly from the company using an approval workflow in the ordering system. These systems help simplify the buying process for routine purchases, while still allowing appropriate levels of approvals and cost controls for the buyer.
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7.13: Self Check- B2B Purchasing Decisions
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/782
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Applying the Concepts: Finn’s Family Buys a Pet
Do you remember Finn, the newest little consumer who arrived at the beginning of this module? Let’s suppose that Finn’s parents decide they want him to grow up with an animal friend. This gives us a chance to apply what we’ve been discussing about consumer behavior and see what happens as they go through the consumer decision process to buy a pet.
Since finding a pet is definitely a high-involvement decision for them, these are the steps they will go through:
Recognize Needs
The Consumer Perspective: Finn’s parents, Robert and Amanda, know they want a pet. They’re not sure what kind of pet. They’re pretty sure they want it to be cuddly and lovable—something a child can interact with and not get too wet, bitten, or diseased (or maybe just a little). They also want a pet with some longevity, so that Finn can grow up with his animal friend. Although they are busy getting used to a new infant in their lives, Robert and Amanda are both on leave from their jobs for eight weeks, so it could be a good time to get used to a new animal, too. They decide it’s time to get serious about finding a pet.
The Marketer’s Perspective and Tactics: You manage marketing for an animal rescue organization in your local community. Somehow you need to get in front of Finn’s family to let them know about your animals and why they should start their search with you. Fortunately, you’ve been working with Google to get a paid placement for your organization near the top of Google searches for kittens and puppies in your area, so when Robert does his first search, he sees your listing. You also routinely post fliers on information boards around your community, and you’ve been working on your Web site to make sure it is search optimized for people searching for pets in your area.
Search for Information
I am so much better than a dog. Take me home.
The Consumer Perspective: Robert has grown skilled at searching the Internet while rocking Finn to sleep at the same time. He and Amanda need to research a few questions:
• What kind of pet should they get: dog, cat, guinea pig, ferret, something else?
• Where should they get the pet: pet shop, breeder, online provide, animal rescue, someplace else?
• How much should they expect to pay for the pet?
• How should they take care of the pet once they get it?
Robert is already leaning strongly toward getting a dog. His family had dogs when he was growing up, and he loves the idea of his son having the same experience. Amanda is on the fence, until they start reading about best pets for kids in parenting articles online, and they start talking to friends. Robert’s family preference for dogs is validated in articles claiming that dogs are good pets for children and that potential problems (allergies, behavior issues) can be minimized by having the dog around children from a young age. As they begin to investigate places to get a dog, Amanda and Robert are disturbed to read about puppy mills and warnings against buying dogs from unscrupulous online sellers. They agree that they should stay local and check out pet shops, breeders, or animal rescue organizations in their area. Animal rescue would probably be the cheapest option, but they want to shop around and see what’s available.
The Marketer’s Perspective and Tactics: One of your organization’s board members is a well-known mommy blogger who feels passionately about pets and kids. At your request, she’s written a few posts over the past several months providing advice for parents who are considering a pet, and recommending animal rescue as the way to go. You’ve cross-posted her pieces on the rescue organization’s Web site blog, and she’s linked to your Web site in her posts. You know from Google Analytics that you’re getting pretty good traffic to your Web site from that link and her posts. The Web site also contains information to educate people about the advantages of adopting rescue animals, reinforcing how rewarding it is to offer these pets a loving home. You know from research that families tend to get interested in pets when they have young children, so you update the Web site with adorable recent-adoption photos showing young families welcoming their new pets. You also know that people have lots of questions when they’re looking for pets, so you prominently feature “Adopting a Pet: What To Expect” on your Web site.
Evaluate Alternatives
Sad pet-store dog. Eye problems.
The Consumer Perspective: Now that Robert and Amanda know they want a dog, they are honing in on what type of dog and where to get it. They’ve been reading dog owner sites about different breeds, and they’ve been reading Yelp reviews about people’s experiences with the local pet shops, breeders, and rescue organizations. They are keeping an eye on Craigslist to see what shows up there, and they’ve made a couple of visits to see some of the breeds they are considering. Robert is really charmed by a local breeder’s labradoodles, and online communities rave about how good these dogs are with children, but there is a yearlong waitlist for the puppies and they cost upwards of \$1,500. Amanda has joined a mothers’ group, and two of the moms have dogs. One has a golden retriever. She bought the dog at a local pet shop and loves him, but she has been surprised by the number of health problems he’s had. The other mom has a friendly terrier mix she got from a local rescue organization, and she was very happy with the experience.
The Marketer’s Perspective and Tactics: You’re trying to do more with word-of-mouth and social media promotion, so you’ve started asking each family that adopts one of your animals to post about their experience on Yelp and Google reviews. You’ve been doing more with Facebook and Instagram, building up followers and posting pictures of some of the sweet rescue animals people can meet and adopt. Since it’s free, you also post regularly in the “Pets” area of Craigslist and you’ve found that is a great way to connect with local area families looking for pets. Craigslist shoppers tend to be good candidates for adopting rescue animals. When people come in to the center, you find out what they are looking for, and you make sure they learn about the advantages of adopting a rescue animal and how simple the process can be. You also get their contact information so you can stay in touch with them electronically and let them know when a new animal arrives that might be a good fit for their family.
Make a Purchase
The Consumer Perspective: Amanda is very moved by their visit to the local animal rescue center. She is impressed with several of the dogs they met, and she loves the idea of adopting an already-house-trained pet, instead of starting from scratch with a puppy. Robert’s heart is still with the labradoodles, but they agree that the yearlong wait and hefty price tag probably aren’t worth it. Although the pet store puppies are adorable, Amanda keeps thinking about her friend’s golden retriever and health problems, which are probably linked to overbreeding. After thinking things over, they decide to return to the rescue center with Finn and meet the dogs there again. This time, one of the dogs is a standout: a smart little Scottish terrier mix named Bonnie who makes Finn’s eyes light up every time she comes near. The choice is made, and the James family is delighted.
The Marketer’s Perspective and Tactics: Once a family comes to the center a second time, you know from experience that they’re hooked. You need to make sure they fall in love with an animal that will be a good fit for their children and living situation. You’ve designed the application process to make sure that it helps you screen people and also match them with the best pets. But it’s also a thoughtful, informative experience for the people who come in, so they can learn about what it takes to be a good pet owner. Once a new pet owner finds “The One,” you snap photos for the happy family bulletin board at the center and ask permission to share the pictures on your Web site and social media. You also invite them to post the picture on social media and share their experience with the center in a Yelp or Foursquare review. A going-home packet includes useful information about caring for their new animal and contact information in case they have questions or concerns.
Post-Purchase Behavior
Bonnie, the winner.
The Consumer Perspective: The new addition to the James family is everything Amanda and Robert had hoped for. Bonnie is sweet-tempered, playful, gentle with Finn, and smart as a whip. For Robert, Bonnie brings back the joy and companionship he remembers from his childhood pets. Amanda is so delighted that she tells everyone who will listen about their wonderful experience adopting a rescue animal. Next time they are considering a pet, they’ll know exactly where to go.
The Marketer’s Perspective and Tactics: You’ve developed a process for checking in on adoption families after a couple of weeks to make sure things are working out. If they haven’t done so already, you nudge them to write a review about their adoption experience on Yelp or another review site, assuming their experience has been good. If they aren’t doing so well, you try to find out why and suggest some tips and strategies for turning things around. If red flags come up during these conversations, you make a note for one of the center’s volunteers to do a wellness check on the owner and animal, so that the center can intervene and avoid serious problems. Fortunately the follow-up process usually results in happy stories about how much the animals and their new families love each other. And that’s a major reason why you keep doing this job.
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Instructions
Write a post for the Discussion on this topic, addressing the questions below. Each part should be 1–2 paragraphs or several bullet points in length.
Part 1: Identifying the Customer and Problem
Describe a primary decision maker in your target segment: who they are, what they like, how they make buying decisions. Describe the primary problem(s) your organization, product or service will help them solve.
Part 2: Factors Influencing Customer Decisions
Provide a brief profile of your target segment using at least three of the following categories:
• Geographic characteristics: e.g., location, region, population size or climate.
• Personal and demographic characteristics: e.g., age, gender, family size, family life stage, income, personality.
• Social and Psychological characteristics: e.g., culture, social class, lifestyle, motivation, attitudes, reference groups, beliefs.
• Situational characteristics: e.g., buying situation, level of involvement, market offerings, frequency of use, brand loyalty.
• B2B/organizational buying considerations: e.g., individual factors, organizational factors, business environment factors, types of complexity
Part 3: Reaching the Customer
Based on this profile, identify 2–3 marketing strategies or tactics you believe would be effective at reaching this target segment, and briefly explain why they are a good fit.
Part 4: Respond to Classmates’ Posts
After you have created your own post, look over the discussion posts of your classmates and respond to at least two of them.
Part 5: Incorporate Feedback
Review the feedback you receive from classmates and your instructor. Use this feedback to revise and improve your work before submitting it as part of the “Marketing Plan, Part 2” assignment.
Grading Rubric for Discussion Posts
The following grading rubric may be used consistently for evaluating all discussion posts.
Discussion Grading Rubric
Discussion Grading Rubric
Criteria Response Quality: Not Evident Response Quality: Developing Response Quality: Exemplary Point Value Possible
Submit your initial response No post made – 0 pts Post is either late or off-topic – 2 pts Post is made on time and is focused on the prompt – 5 pts Point value possible – 5 pts
Respond to at least two peers’ presentations No response to peers – 0 pts Responded to only one peer – 2 pts Responded to two peers – 5 pts Point value possible –5 pts
Total Points Possible for Discussion Assignment: 10pts.
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7.16: Outcome- Buying-Process Stages
What you’ll learn to do: describe the stages of the buying process
Take a moment to think about the last time you bought something. What factors played a role in your decision to buy? What process did you go through on the way to deciding?
Were you on autopilot, or was it a thoughtful, deliberate decision? What alternatives did you consider? How did you know where to go to make that purchase? And would you buy that same thing again?
Many decisions about what to buy are so routine that we hardly think about them. Other decisions may take days, weeks, or even months to finally get made. Believe it or not, there is a fairly common process that consumers follow when they make decisions about what to buy. Learning about that process is an important first step in unlocking the mystery of consumer behavior—and how to influence it.
The specific things you’ll learn in this section include:
• Describe theories of consumer decision-making
Learning Activities
The learning activities for this section include the following:
• Reading: The “Black Box” of Consumer Behavior
• Reading: Buying-Process Stages
• Self Check: Buying Process Stages
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The relationship between the customer (also called the buyer) and the provider (the seller) forms through a phenomenon called a market exchange. During the exchange process, each party assesses the relative trade-offs they must make to satisfy their respective needs and wants. On the part of the seller, the trade-offs are guided by company polices and objectives. For example, company policy may dictate that it can proceed with an exchange only when the profit margin is 10 percent or greater. The buyer—the other party in the exchange—also has policies and objectives that guide his or her decisions in an exchange. For individual buyers, these are usually unwritten personal policies and objectives that people make at each stage of a purchasing decision based on the information and options available to them. Even more likely, individuals often are not fully conscious of what prompts them to behave in a particular manner.
Essential Questions About Buyer Behavior
Buyers are essential partners in the exchange process. Without them, exchanges would stop. Buyers are the focus of successful marketing; their needs and wants are the reason for marketing. Without an understanding of buyer behavior, it isn’t possible to tailor an offering to the demands of potential buyers. When potential buyers are not satisfied, exchange does not proceed, and the goals of the marketer are not met. As long as buyers have free choice and competitive offerings from which to choose, they are ultimately in control of the marketplace.
A market can be defined as a group of potential buyers with needs and wants and the purchasing power to satisfy them. During the exchange process, the potential buyers “vote” (usually with their dollars) for the market offering they feel best meets their needs. When marketers understand how buyers arrive at a decision, they can create offerings that will attract buyers. Two key questions a marketer needs to answer related to buyer behavior are:
• How do potential buyers go about making purchase decisions?
• What factors influence their decision process and in what way?
The answers to these two questions form the basis for the design of a market offering.
When we use the term “buyer,” we are referring to an individual, group, or organization that engages in market exchange. In fact, there are differences in the characteristics of these three entities and how they behave in an exchange. Therefore, individuals and groups are traditionally placed in the consumer category, while organization is the second category. This module will first discuss consumer purchasing decisions, followed by business-to-business purchasing decisions.
Opening the “Black Box” of Consumer Behavior
Consumer behavior refers to buyers who are purchasing products for personal, family, or group use. Over time, marketers have turned to the work of behavioral scientists, philosophers, economists, social psychologists, and others to help them understand consumer behavior. As a result, there are many different theories and models used to explain why consumers act as they do. Are consumers fundamentally active or passive? Rational or emotional? How do they make buying decisions?
The Economic Man Theory
One early theory of consumer decision making based on principles of economics is known as the “economic man.” According to the “economic man” model, consumers are rational and narrowly self-interested. This theory assumes people act selfishly as consumers, always trying to maximize the benefits they derive from the exchange process. (This theory asserts that the seller/producer is also an economic man, who always strives to maximize his profits from an exchange.) The economic man model suggests consumers actively use information about all the available options before making a decision to purchase.
Although this model may help explain some consumer decisions, most would agree it is too simplistic to explain every consumer choice. In fact, people often make decisions based on irrational factors as well. For example, some consumers may be heavily influenced by word-of-mouth information from friends or peers. They might choose something because of herd mentality rather than because it provides the greatest objective value. Similarly, many people are averse to change, and so they make suboptimal consumer choices because a familiar choice seems easier or safer.
The Stimulus-Response Model
Another model of consumer behavior, called the stimulus-response or “black box” model, focuses on the consumer as a thinker and problem solver who responds to a range of external and internal factors when deciding whether or not to buy. These factors are shown in Figure 1, below:
As illustrated in the figure above, the external stimuli that consumers respond to include the marketing mix and other environmental factors in the market. The marketing mix (the four Ps) represents a set of stimuli that are planned and created by the company. The environmental stimuli are supplied by the economic, political, and cultural circumstances of a society. Together these factors represent external circumstances that help shape consumer choices.
The internal factors affecting consumer decisions are described as the “black box.” This “box” contains a variety of factors that exist inside the person’s mind. These include characteristics of the consumer, such as their beliefs, values, motivation, lifestyle, and so forth. The decision-making process is also part of the black box, as consumers come to recognize they have a problem they need to solve and consider how a purchasing decision may solve the problem. As a consumer responds to external stimuli, their “black box” process choices based on internal factors and determine the consumer’s response–whether to purchase or not to purchase.
Like the economic man model, this model also assumes that regardless of what happens inside the black box (the consumer’s mind), the consumer’ response is a result of a conscious, rational decision process. Many marketers are skeptical of this assumption and think that consumers are often tempted to make irrational or emotional buying decisions. In fact, marketers understand that consumers’ irrationality and emotion are often what make them susceptible to marketing stimuli in the first place.
For this reason, consumer purchasing behavior is considered by many to be a mystery or “black box.” When people themselves don’t fully understand what drives their choices, the exchange process can be unpredictable and difficult for marketers to understand.
Buyer Behavior As Problem Solving
A common way for marketers to think about consumer behavior today is as a set of activities a person goes through in order to solve problems. This problem-solving process is triggered when a consumer identifies some unmet need. For instance, a family consumes all of the milk in the house, or a birthday party is coming up and a gift is needed, or a soccer team is planning an end-of-season picnic. Each buying scenario presents a problem the buyer must solve. These problems can involve two types of needs: physical (such as a need for milk, a birthday gift, or picnic food) or psychological (for example, the need to feel secure, the need to be loved, or the need to have fun).
This problem-solving process also involves needs and wants. A need is a basic deficiency for an essential item. You need food, water, air, security, and so forth. A want places specific, personal criteria on how a need must be fulfilled. To illustrate, when we are hungry, food is a need. When we have a specific food item in mind, that item is a want. That difference is illustrated by the familiar scenario of standing in front of a full refrigerator and complaining that there is nothing to eat.
Most of marketing is in the want-fulfilling business, not the need-fulfilling business. Swatch and Timex do not want you to buy just any watch. They want you to want their brands of watches. Likewise, H&M wants you to desire their brand of clothing when you shop for clothes. On the other hand, the American Cancer Association markets to you in the hope that you will feel the need to get a checkup, and it doesn’t care which doctor you go to. But in the end, marketing is mostly about creating and satisfying wants.
This model of consumer behavior acknowledges that both rational and irrational factors may shape a buyer’s purchasing decisions. It also recognizes that internal and external factors play a role in the decision process. In fact, the problem-solving model helps us map a consistent process individuals go through as they make buying decisions. When marketers understand this process and the factors that influence it, they can take action to influence buyer perceptions and behavior at various stages of the process.
The next reading will discuss the stages of the decision-making process in greater detail.
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The Consumer Decision Process
Figure 1 outlines the process a consumer goes through in making a purchase decision. Once the process is started, a potential buyer can withdraw at any stage before making the actual purchase. This six-stage process represents the steps people undergo when they make a conscious effort to learn about the options and select a product–the first time they purchase a product, for instance, or when buying high-priced, long-lasting items they don’t purchase frequently. This is called complexdecisionmaking.
Figure 1
For many products, the purchasing behavior is routine: you notice a need and you satisfy that need according to your habit of repurchasing the same brand or the cheapest brand or the most convenient alternative, depending on your personal assessment of trade-offs and value. In these situations, you have learned from your past experiences what will best satisfy your need, so you can bypass the second and third stages of the process. This is called simple decision making. However, if something changes appreciably (price, product, availability, services), then you may re-enter the full decision process and consider alternative brands.
The following section discusses each step of the consumer decision-making process.
Need Recognition
The first step of the consumer decision process is recognizing that there is a problem–or unmet need–and that this need warrants some action. Whether we act to resolve a particular problem depends upon two factors: (1) the magnitude of the difference between what we have and what we need, and (2) the importance of the problem. A man may desire a new Lexus and own a five-year-old Ford Focus. The discrepancy may be fairly large but relatively unimportant compared to the other problems he faces. Conversely, a woman may own a two-year-old car that is running well, but for various reasons she considers it extremely important to purchase another car this year. Consumers do not move on to the next step until they have confirmed that their specific needs are important enough to act on.
Part of need recognition is defining the problem in a way that allows the consumer to take the next step toward finding a solution. In many cases, problem recognition and problem definition occur simultaneously: a consumer runs out of toothpaste, for instance. In other cases, these are separate tasks. Consider a scenario in which you injure your knee. You may know that your knee hurts, and you can’t walk very well, but you need to further define the problem before you can take action: Do you need a good night’s sleep? A brace? Pain medication? Physical therapy? Surgery? All of these things? As a consumer, you will be able to begin solving your problem once it is adequately defined.
Marketers get involved in the need recognition state at three points:
1. Knowing what problems consumers are facing, so they can develop a marketing mix to address these problems
2. Activating problem recognition, in order to trigger the start of the purchasing process
3. Shaping how consumers define the need or problem, in order to influence their wants as they look for a solution
Marketing interactions through ads, Web sites, salespeople, and any number of other activities create opportunities for marketers to communicate with consumers and become engaged in need recognition. Listening to customers through social media or the customer support team provides insight into the ways consumers perceive the problems they face. A public service announcement espousing the dangers of cigarette smoking helps trigger a sense of needing to do something about cancer prevention. Advertising weekend and evening shopping hours triggers awareness of the problem of limited weekday shopping opportunities for busy working parents. Once a young man recognizes that he needs a new coat, marketing tries to influence his choices: Should it be a trendy, bargain-priced jacket from Old Navy or the pricey North Face coat he can wear snowboarding (assuming he can scrape together money for a lift pass after buying the coat). In each of these scenarios, marketing plays an active role in facilitating need recognition.
Information Search
After recognizing a need, the prospective consumer may seek information to help identify and evaluate alternative products, services, experiences, and outlets that will meet that need. Information may come from any number of sources: family and friends, search engines, Yelp reviews, personal observation, Consumer Reports, salespeople, product samples, and so forth. Which sources are most important depends on the individual and the type of purchase he or she is considering.
The promotion element of the marketing mix should provide information to assist consumers in the decision process. When marketers understand which information sources their target consumers turn to during the search process, they can develop a promotion strategy and tactics that put their offerings and message into the search path. For instance, teen boys rely heavily on peer networks to know what’s interesting, cool, and desirable. A social media strategy is essential for virtually any product—video games, fashion, gadgets, sports gear, music, and on—targeting these consumers.
In some cases, consumers already have the information they need based on past purchasing and consumption experience–for better or for worse. Good experiences reinforce customer loyalty, while bad experiences destroy opportunities for repeat purchases. For instance, a consumer who needs new tires may look for sales in the local newspaper or ask friends for a recommendation. If she has bought tires before and had a good experience, she may go to the same dealer and buy the same brand.
The information-search process can also identify new needs. As a tire shopper looks for information, she may decide that the tires are not the real problem, but instead she needs a new car. At this point, her newly perceived need may trigger a new information search.
Information search involves both mental and physical activities that consumers must perform in order to make decisions and solve their problems through the marketplace. As anyone who has purchased a car, computer, or pet knows, it takes time, energy, and money to achieve a satisfactory outcome. Often it means foregoing more desirable activities. Eventually most consumers learn that the benefits of information search can outweigh the costs, particularly for bigger-ticket purchases. A thorough information search may save money, improve the quality of selection, or reduce risks.
Evaluation of Alternatives
As a consumer finds and processes information about the problem she is trying to solve, she identifies the alternative products, services, and outlets that are viable options. The next step is to evaluate these alternatives and make a choice, assuming a choice is possible that meets the consumer’s financial and psychological requirements. Evaluation criteria vary from consumer to consumer and from purchase to purchase, just as the needs and information sources vary. One consumer may consider price most important while another puts more weight on quality or convenience.
The information search helps inform consumers about the criteria they might consider as they are evaluating options and making a final selection. For any given purchasing decision, each consumer develops a set of criteria–often only a mental list–along with the relative importance of each quality in their final selection. This evaluation process may be very systematic and comprehensive for some people and purchases. There are also people who find the selection process difficult or frustrating, and so they cope with their discomfort by keeping the number of alternatives to a minimum, or by making an impulse purchase at the last moment. Note that the selection and evaluation phases of consumer problem solving are closely related and often happen simultaneously.
Consider a situation in which you are buying a new vacuum cleaner. During your information search process, you identified five leading models in online reviews, as well as a set of evaluation criteria that are most important to you: 1) price, 2) suction power, 3) warranty, 4) weight, 5) noise level, and 6) ease of using attachments. After visiting Sears and Home Depot to check out all the options in person, you’re torn between two models you short-listed. Finally you make the agonizing choice, and the salesperson heads to the warehouse to get one for you. He returns with bad news: The vacuum cleaner is out of stock, but a new shipment is expected in three days. Strangely relieved, you take that as a sign to go for the other model, which happens to be in stock. Although convenience wasn’t on your original list of selection criteria, you need the vacuum cleaner before the party you’re having the next day. You pick the number-two choice and never look back.
From the marketer’s perspective, understanding your target consumer’s evaluation criteria is critical. You need to demonstrate these qualities in order to be short-listed in the selection set. Often these qualities make the difference in your offering being selected over competitors’. In the end, selection remains something of an unpredictable black box because people think differently, and the circumstances for any given purchasing situation are unique to the person, the product, and the problem being solved.
The Purchase Decision
After much searching and evaluating (or perhaps very little), consumers at some point have to decide whether they are going to buy. Anything marketers can do to simplify purchasing will be attractive to buyers. For example, in advertising, marketers might suggest the best size of product for a particular use or the right wine to drink with a particular food. Sometimes several decision situations can be combined and marketed as one package. For example, travel agents often package travel tours, and stores that sell appliances try to sell them with add-on warranties.
To do a better job of marketing at this stage of the buying process, a seller needs to have answers to questions about consumers’ shopping behavior. Those answers will increase the likelihood of closing the sale and maximizing value at the moment of purchase. Useful questions to ask include the following:
• How much effort is the consumer willing to spend in shopping for the product?
• What factors influence when the consumer will actually make the purchase?
• Are there any conditions that would prohibit or delay the purchase?
Marketers should look for opportunities to influence things in their favor at the point of purchase. Product pricing, labeling, and packaging can be hugely influential at this stage of the process. Product sampling, coupons, and rebates may also give an extra incentive to buy. Personal selling, product display, convenience, and ease of finding the product may also lead the consumer to make one choice over another. Actually determining how a consumer goes through the decision-making process is a difficult research task, in part because it can vary so much from consumer to consumer. The key for marketers is to be aware of the influencing factors and how to shape them to your advantage.
Postpurchase Behavior
All the behavior determinants and the steps of the buying process up to this point take place before or during the time a purchase is made. However, a consumer’s feelings and evaluations after the sale are also significant to a marketer, because they can influence repeat sales and what the customer tells others about the product or brand.
Marketing is all about keeping the customer happy at every stage of the decision-making process, including postpurchase. It is normal for consumers to experience some postpurchase anxiety after any significant or nonroutine purchase. This anxiety reflects a phenomenon called cognitive dissonance. According to this theory, people strive for consistency among their cognitions (knowledge, attitudes, beliefs, and values). When there are inconsistencies, dissonance arises, which people try to eliminate.
In some cases, the consumer makes the decision to buy a particular brand already aware of dissonant elements or things that are inconsistent with their internal criteria. A common example is price: a consumer falls in love with every aspect of a product, but it costs more money than he intended to spend. His cognitive dissonance is whether to spend the extra money for a product he loves or else stick with a second-best product that fits the budget. In other cases, dissonance is aroused by information received after the purchase. For instance, a disturbing report about sweatshop labor comes out days after you purchase a pair of athletic shoes from the company involved.
Marketers may take specific steps to reduce postpurchase dissonance. One obvious way is to help ensure delivery of a quality solution that will satisfy customers. Another step is to develop advertising and new-customer communications that stress the many positive attributes or confirm the popularity of the product. Providing personal reinforcement has proven effective with big-ticket items such as automobiles and major appliances. Salespeople in these areas may send cards or even make personal calls in order to reassure customers about their purchase.
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/779
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7.20: Outcome- Low-Involvement vs. High-Involvement Decisions
What you’ll learn to do: explain the different buying processes for low-involvement and high-involvement decisions
In our discussion of the consumer decision process, we noted that not all purchasing decisions go through all six stages of the process. Some consumer decisions are quick and easy, requiring little if any focused attention. Others can be long, involved, and tough.
The next section will explore each of these situations in more detail, as we discuss how the buying process differs between low-involvement products and high-involvement products.
Learning Activities
The learning activities for this section include the following:
• Reading: Low-Involvement vs. High-Involvement Decisions
• Self Check: Low-Involvement vs. High-Involvement decisions
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7.21: Reading- Low-Involvement vs. High-Involvement Decisions
How Involved Are You?
You’re at the grocery store, looking at the dog food selection. How long does it take you to choose a product, buy it, and get out the door?
Change of scene.
You’re on a car sales lot, looking at the selection of vehicles for sale. How long does it take you to choose a product, buy it, and drive off the lot?
For most people these scenarios are worlds apart in terms of the time, effort, emotional, and psychological work it takes to make a purchasing decision.
When a purchasing decision involves a low-cost item that is frequently bought—such as bread or toothpaste—the buying process is typically quick and routinized. Buying a new car is quite different. The extent to which a decision is considered complex or simple depends on the following:
• Whether the decision is novel or routine
• The extent of the customers’ involvement with the decision
High-involvement decisions are those that are important to the buyer. These decisions are closely tied to the consumer’s ego and self-image. They also involve some risk to the consumer. This may include financial risk (highly priced items), social risk (products that are important to the peer group), or psychological risk (the wrong decision may cause the consumer some concern and anxiety). In making these decisions, consumers generally feel it is worth the time and energy needed to do research and consider solution alternatives carefully. The full, six-stage, complex process of consumer decision making is more likely to happen with high-involvement product purchases. In these cases, a buyer gathers extensive information from multiple sources, evaluates many alternatives, and invests substantial effort in making the best decision.
Low-involvement decisions are more straightforward, require little risk, are repetitive, and often lead to a habit. In effect, these purchases are not very important to the consumer. Financial, social, and psychological risks are not nearly as great. In these cases, it may not be worth the consumer’s time and effort to search for exhaustive information about different brands or to consider a wide range of alternatives. A low-involvement purchase usually involves an abridged decision-making process. In these situations, the buyer typically does little if any information gathering, and any evaluation of alternatives is relatively simple and straightforward. Consumers are diligent enough to get a product they want, but they generally spend no more time or effort than is needed.
There are general patterns about what constitutes a high-involvement decision (buying cars, homes, engagement rings, pets, computers, etc.) versus a low-involvement decision (buying bread, chewing gum, toothpaste, dishwasher detergent, trash bags, etc.). However, the real determinant is the individual consumer and how involved they choose to be in solving the problem or need they have identified.
Marketing Considerations About Consumer Involvement
Let’s imagine another couple of scenarios.
Situation 1: You have just moved in with roommates for the first time. Excitement about your new independence temporarily dims when you scour the kitchen and find just three forks, four spoons, and zero table knives. On your way to Walmart, you stop off at Goodwill, and you are delighted to pay less than \$4 for an unmatched service for eight.
Situation 2: You are a soon-to-be bride. You have spent days looking through magazines, browsing online, and visiting shops to find the perfect silverware to match the dishes on your wedding registry. It gives you pause, though, when you learn that your dream flatware costs \$98 per place setting. Still, you rationalize that you only get married once—or at least that’s your plan.
In each of these situations, the consumer is making a purchasing decision about the same product: silverware. But the level of involvement in each situation is very different. The new roommate wants to spend as little time and money as possible to get a product that will get the job done. The soon-to-be-bride is pinning her future happiness on selecting the right pattern. Who is more involved?
Now suppose you are a marketer trying to promote the flatware designs your company makes. Which of these consumers will pay any attention to the full-page ads you have placed in seven popular women’s magazines? Which of these consumers will click on the paid search listing Google placed in their search results for new silverware patterns? Which one is most likely to come to a store to see the beautiful sheen of your new product line and feel its perfectly balanced weight with her fingertips?
As a marketer you should recognize high-involvement versus low-involvement consumers of your products and strategize accordingly. It is entirely possible for your target segments to include a mix of both. When you recognize the differences in how they make decisions, you can create a marketing mix designed to impact each type of consumer. For the customer who wants little involvement, your marketing mix can simplify their buying process. For the consumer who is highly involved, you can provide the information and validation they seek.
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7.22: Self Check- Low-Involvement vs. High-Involvement Decisions
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/780
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7.23: Outcome- Factors Influencing Consumer Decisions
The consumer decision process helps you understand the steps people go through when they are deciding whether and what to buy. Many different factors can influence the outcomes of purchasing decisions.
Some of these factors are specific to the buying situation: what exactly you are buying and for what occasion. Other factors are specific to each person: an individual’s background, preferences, personality, motivations, and economic status. Because no two people are exactly alike, it is difficult to predict how the tangled web of influencing factors will ultimately shape a final purchasing decision.
For marketers, an understanding of these factors provides a more complete view into the mind of the customer. As you learn more about what influences decisions for your particular target segment, product category, brand, and competitive set, you can use these influencing factors to your advantage. What you say to customers, the words you use, the people who say them, the images they evoke—all of these things can link back to that web of influencing factors at work in a purchaser’s mind. Great marketing uses those connections powerfully and effectively to win the minds and hearts of customers.
The specific things you’ll learn in this section include:
• Describe situational factors that influence what and when consumers buy:
• Buying situation
• Market offerings
• Describe personal factors that influence what and when consumers buy:
• Demographics (age, economic status, etc.)
• Life stage
• Lifestyle
• Describe psychological factors that influence what and when consumers buy:
• Motivation and Maslow’s hierarchy of needs as it pertains to marketing
• Perception, learning, belief
• Describe social factors that influence what and when consumers buy
• Culture, subculture, social class, family, reference groups
• Culture and marketing in different countries
Learning Activities
The learning activities for this section include the following:
• Reading: Situational Factors
• Reading: Personal Factors
• Reading: Psychological Factors
• Video: Consumer Attitudes and Heinz Baked Beans
• Reading: Social Factors
• Self Check: Influences on Consumer Decisions
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A Simple Formula
A positioning statement is one sentence that succinctly identifies the target market and spells out what you want them to think about your brand. This statement should include 1) the target segment, 2) the brand name, 3) the product/service category or frame of reference in which you are establishing this market position, 4) the key points of differentiation, and 5) the reasons customers should believe the positioning claims.
The brand consultancy EquiBrand recommends the following straightforward formula for writing positioning statements:
To [target audience], Product X is the only [category or frame of reference] that [points of differentiation/benefits delivered] because [reasons to believe].[1]
The parts of the formula supplied by you (the marketer) are as follows:
• The “target audience” is a brief description of the segment you’re targeting with this positioning strategy. For example: young urban males, managing partners in law firms, or small business owners in the Pacific Northwest.
• “Product X” is your product, service, or brand name.
• The “category or frame of reference” is the category of products or services you’re competing in. For instance: spectator sporting events, virtual assistant services, or employer 401K benefit plans.
• The “points of differentiation/benefits delivered” explains both what problem you solve and how you solve it in a different and better way than competitors. It highlights the competitive advantage(s) underpinning your positioning strategy. Be sure to explain not just what is different about you, but why customers care about that difference.
• The “reasons to believe” are any proof points or evidence that show your customers how you live up to your claims about how you are different and better.
Let’s look at some examples of well-written positioning statements:
Example #1: Amazon (circa 2001, when it sold primarily books)
For World Wide Web users who enjoy books, Amazon is a retail bookseller that provides instant access to over 1.1 million books. Unlike traditional book retailers, Amazon provides a combination of extraordinary convenience, low prices and comprehensive selection.[2]
This clearly worded positioning statement follows the formula closely, even though the “reasons to believe” are added as a second sentence. It presents the competitive advantage (“instant access to over 1.1 million books“) as a clear differentiator, and with this wording we also understand the problem Amazon solves–convenient access to lots of books. The specific reasons to believe are highly desirable benefits for the target audience. Note that World Wide Web refers to the Internet.
Example #2: Motel 6
To frugal people, Motel 6 is the alternative to staying with family and friends that provides a welcoming, comfortable night’s rest at a reasonable price.[3]
The Motel 6 example is a very concise positioning statement. It’s interesting that the frame of reference is “staying with friends and family,” rather than “motels” generally. This shows an astute understanding of the target customer’s mindset and the recognition that the motel chain’s leading competitor is not staying in a motel. The point of differentiation also reveals the problem Motel 6 solves: where to get a “welcoming, comfortable night’s rest at a reasonable price.” Its points of differentiation and reasons to believe blur together, but the statement provides well-focused direction for a marketing mix that targets “frugal people.”
Example #3: Tide Laundry Detergent
For cost-conscious moms of large blue-collar families with active children, Tide is the brand of laundry detergent that gets clothes their cleanest and keeps them looking new because “improved” Tide formulation powers out stains while keeping clothes from fading and fraying.[4]
This third positioning statement identifies the target audience so specifically that it’s easy to create a vivid mental picture of the customer. The problem Tide solves is very clear: getting close clean. This statement emphasizes the product’s competitive advantage around cleaning power and superior formulation, while promising valued benefits that customers enjoy when they use this product. The onus here is on the brand to provide these concrete benefits around not “fading and fraying,” but these are definite reasons to believe if indeed the product can deliver.
Evaluating Positioning Statements
How do you know when a positioning statement is going to be effective? Obviously, positioning statements should contain all the elements in the formula above, since that information is needed to translate the positioning strategy into a well-developed marketing mix. There are other criteria you should look for, as well. For example, the following:
• Is it tailored to the target market? Too often, positioning statements either leave out the target segment, or else the entire approach isn’t really suited to that unique group. If a positioning statement would work just as well if you plugged in a completely different target segment, then you probably haven’t thought deeply enough about your target’s unique needs and what will make them want your product. Or, you’ve defined your target segment too narrowly, in which case you should revisit whom you’re trying to reach.
• Is it simple, focused, and memorable? A positioning statement that is overly complex will be hard to execute against because it isn’t focused enough to deliver a clear message to the customer. Make sure it is very clear what problem(s) you solve. Use easy-to-understand words instead of jargon that muddles the meaning. If your statement is running long, consider trimming a few differentiators or benefits. It’s actually very good to prune down to the essentials so your meaning is crystal clear. Make every word count!
• Does it provide an unmistakable picture of your product, service, or brand? Your positioning statement should work beautifully for you, but not very well for your competitors. If you can substitute any competitor’s name for your own in the positioning statement—and it still sounds credible—then you need some additional work on your differentiators and competitive advantages. If you are going to own your market niche, it must be a place that no one else can easily occupy.
• Can you deliver on the promise you make? The positioning statement promises some benefits or outcomes to your customers. You must be able to consistently live up to this promise—otherwise you’ll lose credibility, and your offering will stand for something that’s untrustworthy. If you can’t live up to your promise, you need to take another, more realistic look at the offering’s benefits and the customers’ reasons to believe.
• Does it provide helpful direction for designing the marketing mix and other decisions? From the positioning statement, you should have a sense of what types of activities and messages are consistent with that positioning and support the brand you are working to build.
Practice: Evaluate These Statements
Read the following statements. For each one, ask yourself whether it’s a strong positioning statement based on the formula and criteria outlined in this reading. Why or why not?
1. Nike brings inspiration and innovation to every athlete in the world. [5]
2. To married women over fifty, Victoria’s Secret is the brand of alluring lingerie that will reignite the passion in their marriage. [6]
3. For taxpayers, H&R Block offers the best tools and tax professionals to examine their lives through taxes and find ways to help them save time and money. [7]
4. For shoppers, Macy’s is a premier national omnichannel retailer with iconic brands that serve customers through outstanding stores and dynamic online sites. [8]
5. To business leaders, Wieden+Kennedy is an independent, creatively driven advertising agency that creates strong and provocative relationships between good companies and their customers. [9]
Analysis: Here is how these examples stack up:
1. Nike: This is a powerful mission statement, and it sets a perfect tone for the Nike brand. However, it is not an effective positioning statement because it doesn’t really articulate any points of differentiation, problems solved or reasons to believe.
2. Victoria’s Secret: This example works reasonably well as a positioning statement, since it contains all the key elements. Although the wording of the competitive advantage/benefit does a great job explaining the problem Victoria’s Secret solves (“alluring lingerie that reignites the passion in their marriage”), it’s unclear whether this positioning truly differentiates this brand from competitors. After all, isn’t all lingerie alluring? However, if no one else has claimed this niche and if Victoria’s Secret can truly “own” reigniting passion, it just might work!
3. H&R Block: This is an exemplary positioning statement, including each element of the formula in clear, concise terms. What’s memorable and unexpected about this statement is how it humanizes tax preparation services by presenting them as services that “examine your life” and “find ways to help.” There is room for improvement: it’s arguable whether “taxpayers” is too broad as a target segment. But overall, this is a great example.
4. Macy’s: This example exhibits a couple of obvious weaknesses as a positioning statement. First, it’s got a lot of jargon–terms like premier, omnichannel, and dynamic online sales. Second, as a segment, “shoppers” is too broad. Surely Macy’s has more detailed information about its target segments and what they want. Third, this statement discusses features (“outstanding stores,” “iconic brands,” “dynamic online sites”) but it does not mention any customer benefits. Positioning statements definitely need benefits–and reasons to believe. Full disclosure: This statement is actually taken from an “About Macy’s, Inc.” page on the company’s Web site, so it may be intended as a simple company description, not a positioning statement.
5. Wieden+Kennedy: As we would expect from one of the world’s leading advertising agencies, this statement does a reasonably good job positioning the company for a broad business-leader audience. As with example #2 above, the competitive advantages and differentiators blur with the benefits, but “strong and provocative relationships” is a compelling promise for anyone investing in advertising and promotion.
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8.02: Self Check- Developing Positioning Statements
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/785
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8.03: Outcome- Repositioning
What you’ll learn to do: explain repositioning and the associated risks and complexities of repositioning a product or service
Positioning is a powerful tool, but when you position a product, service, or brand, the world doesn’t stand still. Market conditions change. Your customers and competitors change. You change.
Positioning should be designed to last. But for most offerings, you’ll eventually need to revisit your positioning strategy and consider whether to make adjustments. This process has a very logical name: repositioning. In some ways, repositioning is more challenging than initial positioning because you’re building on prior established work, trying to strengthen what’s working and fix what isn’t—it’s a bit like remodeling an old house instead of building one from scratch. In this next reading, you’ll learn more about repositioning, the associated risks and complexities, and the rationale for doing it in the first place.
Learning Activities
The learning activities for this section include the following:
• Reading: Repositioning
• Self Check: Repositioning
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When It’s Time to Change Direction
After they are initially introduced to the market, products, services, and brands are constantly being repositioned as a result of changes in competitive and market situations. Repositioning involves changing the market’s perceptions of an offering so that it can compete more effectively in its present market or in other target segments.
Generally it is good to consider repositioning when you see the need or opportunity to improve demand for the offering. Perhaps sales have slowed down, your target segment is getting smaller, or you’ve developed a new innovation you’d like to introduce to the product. Specific factors that can trigger the decision to reposition a product, service, or brand include the following:
• Competition: New competitors entering or leaving the market; competitors joining forces; a competitor’s innovation that threatens to make your offering obsolete; competitive pricing strategies
• Market environment: Economic slow-down or recovery; changes in consumer confidence, the political climate, or social forces like the movement around social responsibility and sustainability
• Consumer trends: Changing tastes and preferences; evolving attitudes and behaviors such as how consumers use technology to learn about, acquire, or interact with your offering; new segments emerging as targets for your offering
• Internal environment: Changes in organizational leadership and strategy; acquisition or development of new technology; introduction of innovation that offers new competitive advantages and differentiators
The tax preparation service H&R Block provides a useful example. As technology-savvy millennials (people born between 1980 and 2000) began entering the workforce and caring about taxes, H&R Block saw that this sizable young segment overwhelmingly preferred TurboTax and other technology-based, do-it-yourself tools, rather than hiring tax professionals like H&R Block. Even after introducing its own online tax preparation tools, H&R was not able to capture this market segment. With its competitive advantage undermined by technology and its established customer base getting older, H&R Block knew that if it wanted to survive, it had to figure out how to appeal to younger taxpayers.
In 2012 and 2014, the company invested in repositioning campaigns to alter the company’s image and appeal to millennials. The campaigns combined satirical humor, social media, and social responsibility (in the form of charitable donations) to get millennials’ attention and create buzz around the H&R Block brand.[1] The following H&R Block video ad from the 2012 “Stache Act” campaign makes the case for a fictional Million Mustache March on Washington to alter the tax code to include a \$250 deduction for facial hair grooming materials:
A link to an interactive elements can be found at the bottom of this page.
The Repositioning Process
The repositioning process is very similar to the original positioning process, but it has a different starting point. The original positioning process focuses on creating a new position or market niche for an offering that wasn’t there previously. The repositioning process, on the other hand, evaluates the established position of a product, service, or brand and focuses on how to alter the positioning–and, with positioning, market perceptions–in order to improve competitiveness.
To change market perceptions, repositioning may involve changes in the tangible product or in its selling price, but this is not always required. Often the new positioning and differentiation are accomplished through changes in the promotional message and approach. It is very common to see companies launch marketing campaigns focused on repositioning a product or service, but few, if any changes, made to the product or service itself. These repositioning efforts often focus on trying to get a current target segment to take another look at a product or service and see it with a new perspective. Repositioning often aims to shift market perceptions in ways that make an offering more appealing to a broader swath of the market.
An important ongoing part of repositioning is to monitor the position of a product, service, or brand over time. This is necessary in order to evaluate what is working or not working about the current position and generate feedback to inform future positioning strategies. A product position, like the score in a ball game, may change readily; keeping track and making necessary adjustments is very important.
Repositioning Risks and Pitfalls
While repositioning is quite common, it carries risks and complexities that marketers must consider. Repositioning happens after initial market perceptions have already been established. Effective repositioning isn’t just creating something new. Instead, it is trying to preserve what is good from the existing market positions and build or shift thinking toward something new. Repositioning offers the opportunity to make something new and better than what you had previously, but it also has the potential to undermine or weaken market perceptions.
Repositioning must always consider carefully what has come before, as well as what’s ahead. In the repositioning process there’s inevitably baggage: residual issues left over from earlier positioning work, which is what led you to the point of needing to reposition. Your product, service, or brand has a history, and people have memories: some people remember what the offering used to stand for, and they will try to figure out how the new positioning fits with their perceptions. Customers, employees, and other stakeholders will have opinions–sometimes very vocal ones–about whether the new positioning is better or worse, effective or ineffective. All of this represents a potential minefield for marketers. Despite these challenges, repositioning can also be very rewarding if you are successful at reshaping perceptions and creating a more powerful, meaningful product, service, or brand.
As you consider repositioning opportunities, try to avoid the following common pitfalls:
• Insufficient research: Marketing research should inform your choices about how to shift positioning in order to improve market perceptions of your product, service, or brand. You should also conduct research to help you understand how your target segment will react to the repositioning, so you’re not caught off guard by adverse reactions.
• A bridge too far: It can be tempting to get wild and crazy with repositioning, especially if you’re trying to freshen things up. While this strategy can work, sometimes marketers go so far in the new direction that customers no longer believe the claims. Their perceptions of the offering can’t accommodate the new message or image, and the offering loses credibility.
• Underestimating “back to basics”: Sometimes repositioning is undertaken because the target segment isn’t sure what a product, service, or brand stands for. Instead of trying to infuse more new ideas and new meaning, marketers are sometimes better served by stripping positioning down to its bare essentials of competitive advantage, benefit, and message. Reinforcing the simple “basics” can be very powerful: this is what customers usually care about most.
• Overpromising: When faced with strong competitive threats, it can be easy for repositioning to overpromise benefits that a product, service, or brand is really ready to deliver. This can be disastrous because it creates customer expectations that the organization cannot live up to. Rarely does this end well.
• Confusing positioning: Repositioning can introduce confusion between the old positioning and the new, especially if they seem to contradict each other. Repositioning needs to offer a clear message for customers; otherwise they are not sure what to believe.
The risks and pitfalls of repositioning are evident in the example of United Airlines and its “Rising” campaign. For decades, United positioned itself as a passenger-center carrier providing great service embodied in the iconic tagline “Fly the Friendly Skies.” Seeking a change in the late 1990s, United introduced a new positioning approach it called “Rising.” Their strategy was to to highlight common frustrations with air travel and make bold promises about how United Airlines provided a different, better level of service. However, the airline was unable to operationalize the changes needed to live up to these promises. The company abandoned the campaign after just two years because the positioning–and the airline–had lost credibility with the customer.[2]
Repositioning Success
Despite the risks, repositioning can be wildly successful when it is handled effectively. A good case in point is the American Red Cross. In 2009, the U.S. had sunk into the Great Recession, and the American Red Cross (ARC) was also feeling the pain. With its budget relying heavily on charitable donations, and with Americans giving less due to the recession, the nonprofit organization faced a budget deficit going into the fourth quarter.
For many nonprofit organizations, the last quarter of the year is prime fundraising season, since people open their wallets for holiday giving. Up until 2009, this was not the case for the Red Cross. Americans gave generously to the organization during disasters, but the ARC wasn’t people’s top choice for holiday giving. Seeing an opportunity in this apparent disconnect, the ARC engaged a creative agency to help repositioning the organization in the minds of potential donors.
Research confirmed that the competitive advantage of the American Red Cross, in consumers’ minds, was providing help in times of disaster. The organization’s then-current positioning of “Change a Life, Starting with Your Own shared a powerful emotional message, but it did not reinforce the competitive advantage or create a sense of urgency around giving to the ARC. The repositioning effort developed a new positioning direction expressed in the tag line “Give the gift that saves the day.”
This message reinforced the powerful role that the Red Cross plays in times of disaster and invited Americans to be part of that important work. With words like “give the gift,” it also implanted the idea of the ARC as a great recipient for holiday giving. The following video was created as part of the 2009 integrated marketing campaign that introduced this new positioning.
A link to an interactive elements can be found at the bottom of this page.
The repositioning was a resounding success. Income increased more than 5 percent compared to prior years. People who saw ads associated with the repositioning campaign were twice as likely to donate as people who didn’t see them. The fourth quarter of 2009 was one of the strongest since 2000. Brand awareness increased by 6 percentage points. The benefits didn’t stop in 2009, either. Building on their success, the ARC expanded the repositioning campaign in 2010. By the end of the year, income had increased 26 percent over 2009, and the average gift size increased 43 percent.[3]
These impressive results reveal the power of repositioning when it is handled well.
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• Revision and Adaptation. Authored by: Lumen Learning. License: CC BY: Attribution
• Repositioning Risks and Pitfalls, Repositioning Success. Authored by: Lumen Learning. License: CC BY: Attribution
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• Stache Act Campaign Ad - The Oval Office. Authored by: 'Stache Act. Located at: https://youtu.be/oZWeYVrdhSc. License: All Rights Reserved. License Terms: Standard YouTube license
• American Red Cross - Holiday 2009 Campaign. Authored by: BlankTV. Located at: https://youtu.be/1QmOw7Snu_M. License: All Rights Reserved. License Terms: Standard YouTube license | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/08%3A_Positioning/8.04%3A_Reading-_Repositioning.txt |
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/786
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• Self Check: Repositioning. Provided by: Lumen Learning. License: CC BY: Attribution
8.06: Outcome- Implementing Positioning Strategy
What you’ll learn to do: describe the process of implementing a positioning strategy
With your new positioning strategy and a well-formulated positioning statement, you are poised to take action.
But . . . how exactly?
What comes next is more familiar than you might think: You head back to the fundamentals of the marketing mix. The positioning strategy helps guide your adjustments to product, price, place (distribution), and promotion, so that you can effectively reach and shape the perceptions of your target market segment(s). In this section you’ll learn how to do this.
The specific things you’ll learn in this section include:
• Adjust the marketing mix to deliver on positioning strategy
• Develop promotion strategy based on new positioning
• Measure effectiveness
Learning Activities
The learning activities for this section include the following:
• Reading: Implementing Positioning Strategy
• Self Check: Implementing Positioning Strategy
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8.07: Reading- Implementing Positioning Strategy
Putting Positioning into Practice
The positioning strategy, embodied in a strong positioning statement, is a touchstone for marketing and brand-building activities as marketers work to align everything they do in support of this core idea. In simple terms this means aligning the positioning strategy with the marketing mix.
Positioning statements provide a relatively easy way to check whether some aspect of the marketing mix is on target or off target: if a particular marketing message or activity reinforces the positioning statement, it’s probably consistent with your goals for reaching a target segment. If a marketing activity doesn’t reinforce the positioning statement, it will probably create some confusion among customers about what your product, service, or brand stands for.
What does this mean in practice?
As you consider what you’re doing in each area of the marketing mix, think about what your positioning statement is communicating to customers. Then ask yourself how each part of the marketing mix is helping you deliver on the expectations you are setting with those customers.
• Product: Is your product, service, or brand capable of delivering everything your positioning statement claims? Are any competitors doing it better than you? How should you adjust your offering to ensure that it lives up to the promises?
• Price: When it comes to pricing, how are you positioning your offering relative to competitors? If pricing is part of your positioning strategy, is your offering well aligned with the price you’re asking customers to pay? What pricing strategies should you consider in order to compete more effectively? (More on this in the Pricing module.)
• Place (Distribution): Are any distribution-related themes like convenience or availability part of your positioning strategy or competitive advantage? If so, what are you doing to ensure that you can live up to what you promise? How are you communicating your new positioning approach to distribution and channel partners, and how does it impact them? (More on this in the Place module)
• Promotion: How are you translating your positioning strategy into messaging and actual communications with your target audiences? What behavioral shift are you trying to create as you launch your new positioning? Where and how do you need to alter existing materials to make them consistent with the new positioning (e.g., Web site, print, ads, social media, marketing content, sponsorships, events, etc.)? What types of campaigns will you use to introduce the new positioning? Which communication tools will be most effective at reaching target audiences, and what are you doing to coordinate marketing messages and activities across different channels? (Much much more to come in this area in the Promotion: Integrated Marketing Communications module.)
Persistence Pays
Implementing a new positioning or repositioning strategy is not a simple task. It takes time and effort to bring all the pieces together, to update the old and create the new. Implementing a positioning strategy resembles turning a ship: At first the maneuver is slow and deliberate. But once you’ve turned and charted the new direction, momentum picks up.
To be sure your positioning activities are having the effect you want, look for ways to measure the impact of your efforts. Depending on your goals and implementation activities, what you measure can vary, but may include one or more of the following:
• Sales/revenue
• Number of new/returning customers
• Average spending per transaction
• Brand/product awareness or perceptions
• Favorability toward product/service/brand
• New leads or inquiries from inside and outside your target segments
• Web site traffic
• Social media “buzz”
• Media attention
• Customer satisfaction
• Return on investment for marketing campaigns and other activities
Above all, don’t forget to check in with customers directly to monitor how they are responding to the new positioning efforts. In all likelihood, there are things that will work and things that won’t work as you introduce the new direction. Having a direct line to customers for constructive feedback and recommendations can help you identify potential improvements and adjust course early to strengthen your impact and results.
Before leaving the topic of implementing positioning, another application of positioning strategy deserves attention. For large, complex organizations that have many products and serve many different markets and customer types, effective positioning is crucial. It’s the only way to ensure that the organization can deliver a coherent message and unique value to each target segment.
Example: Tyco Integrated Security
What does this look like in practice? Let’s examine how the electronic security company Tyco Integrated Security (TycoIS) uses positioning.
Tyco Integrated Security is a B2B company that sells electronic security products, installation, and services in the U.S. and Canada. They recently merged with Johnson Controls. TycoIS produces a variety of security-related products and services that can be used across many different industries and sizes of companies. When you think about the security-related needs of different kinds of businesses, you realize that their needs vary widely. A small business needs systems and processes that are affordable and manageable by a single person or a small team. Large companies have extremely complex needs around physical, financial, personnel, supply chain, and information security. Needs also differ by industry. For instance, companies in the food business are concerned about food safety, handling, protection, and complying with regulations and inspections in order to stay in business. Most other industries have similarly specialized needs.
Company-Level Positioning
TycoIS must communicate at several different levels in order to convince people that it’s the right partner for their business. Operating at the highest level, company-to-company, the following statement explains TycoIS’s company-level positioning:
We help companies protect their employees, customers, facilities, and operations from internal and external threats, and allow business to work smarter through enhanced security management and information management solutions.[1]
This positioning statement from the company’s Web site fits our positioning formula quite nicely, except for one thing: the defined target segment is “companies.” Is it possible to market anything effectively to all companies everywhere? No. This target is too broad. But it is a great starting point for businesspeople looking for security systems; it encourages them to delve deeper.
Two-Tiered Segmentation
To divide up “all companies” into manageable chunks for marketing purposes, TycoIS uses two different segmentation schema at the same time: segmentation by 1) organization size and 2) industry. Figure 1, below, illustrates how Tyco mixes these schema together:
Figure 1. Source: www.tycois.com/solutions-by-industry
Given the separate messaging for each business size, it’s clear that TycoIS has developed positioning around three unique market segments: small businesses, medium-sized businesses, and large enterprises.
The “Small Business” positioning uses a tone of personal reassurance: “We’re right here with you.” And, going a level deeper, “We offer affordable products and services to help you, as a small business owner, protect your investment.”
The “Medium Business” positioning mentions “industry-leading” solutions—a term that resonates with these organizations, which are striving to grow and become leaders. The “Enterprise” positioning emphasizes TycoIS expertise working at the global, national, and regional level. It also offers to “help enhance” security and business intelligence, rather than “provide” them. This subtle wording is wise: large, enterprise organizations tend to have a lot of legacy infrastructure and processes already in place, as well as in-house security expertise. With this positioning, TycoIS suggests that it will be an expert, helpful partner to complement and strengthen the security large companies already have.
Industry-Specific Positioning
Within each business-size segment, TycoIS has identified the common types of industries it works with. For each of these industries, TycoIS has unique positioning to convey that 1) we speak your language, 2) we understand your needs, and 3) we have a great combination of solutions just for you.
Figure 2. Source: www.tycois.com/solutions-by-industry/medium-business/restaurants-and-entertainment
Figure 2, above, illustrates how TycoIS positions its offering for medium-sized businesses in the restaurant and entertainment industry. For this target segment, the company clarifies the category of security solutions it offers: physical security, theft protection, food inventory and protection for restaurants, nightclubs, and other entertainment venues. The messaging highlights TycoIS’s competitive advantage of offering industry-specific security specialists and business insights—on top of all the systems and gadgets it provides.
This detailed, industry-specific positioning flows across each of the company-size segments, and it effectively communicates the following: “Regardless of your company size or industry, TycoIS has relevant experience and familiarity with your security challenges and needs.” On the company’s Web site, it is easy to browse the matrix of company types and industries to find the area that matches your business. Then, as you dig deeper, TycoIS’s attention to target-segment positioning ensures that you will find information that speaks to your unique needs.
Figure 3. Source: www.tycois.com/solutions-by-industry/enterprise
It’s mind-boggling to imagine all the positioning-strategy and messaging work that has gone into this type of marketing effort. In all, TycoIS actively targets 35+ different business segments! Not every organization needs this kind of detailed targeting and positioning schema. But many organizations, ones smaller and larger than TycoIS, find that this highly targeted use of positioning strategy is an effective way to do business and support their ongoing focus on customer needs.
1. www.tycois.com/ ↵
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• Implementing Positioning Strategy. Authored by: Lumen Learning. License: CC BY: Attribution
All rights reserved content
• Screenshot of Tyco Solutions by Industry. Provided by: TycoIS. Located at: www.tycois.com/. License: All Rights Reserved. License Terms: Fair Use
• Screenshot of Tyco Restaurants and Entertainment. Provided by: TycoIS. Located at: www.tycois.com/. License: All Rights Reserved. License Terms: Fair Use | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/08%3A_Positioning/8.05%3A_Self_Check-_Repositioning.txt |
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/787
Contributors and Attributions
CC licensed content, Original
• Self Check: Implementing Positioning Strategy. Provided by: Lumen Learning. License: CC BY: Attribution
8.09: Putting It Together- Positioning
Positioning Your Way Out of Obscurity
Let’s get back to the challenge that started this module: how to position and differentiate a company in a crowded field of competitors.
You’ll recall that you have a swell job at a newish events management company called Shindiggity. The company is struggling to find ways of setting itself apart in a crowded and growing field. At the company retreat, you have an opportunity to suggest some strategies that can help Shindiggity stand out from the competition. You also have a chance to impress your divisional VP, who is assigned to the same brainstorming and breakout group as you.
Now that you know something about positioning and differentiation, you step forward to lead your group through the positioning process.
Step 1: Confirm Your Understanding of Market Dynamics
Once your breakout group gets going, you start with a discussion about what you’re all seeing in the market generally. You ask Kara, your VP, to share perspectives from the executive team about where it plans to target growth for the company in the coming year, and whether there are particular industries or segments it plans to focus on. Kara says that the company has seen particular growth potential in the health care and pharmaceutical industries. Shindiggity has several clients in these segments already, and you know from your experience with these events that they can be quite technical and specialized.
In fact, recently Shindiggity won three proposals for health-care-related events that you helped write. You recall from the selection process that two factors helped push your proposals over the finish line: 1) knowledge and experience required to produce and manage an event with significant industry-specific technical needs; and 2) strong, established relationships with industry thought leaders whom Shindiggity could bring into the program at relatively short notice. As you share these insights, you realize the conversation is already moving on to the next step in the positioning strategy.
Step 2: Identify Your Competitive Advantages
You ask your colleagues to share what other factors are helping Shindiggity win new business. They agree that industry-specific technical knowledge and strong relationships with thought leaders are important distinguishing factors. While many other event management companies seem perfectly competent, there is an extra level of confidence customers express when they know Shindiggity has the expertise and connections to pull off highly technical, industry-specific events.
Someone mentions that since Shindiggity is a smaller firm than many others, it has lower overhead costs. This generally translates into somewhat lower pricing, which customers like. Kara expresses concern: “I don’t think we want to compete on lowest price. That just doesn’t feel like the right path.”
This is a perfect opportunity for you to jump in. You back her up and say, “Positioning as the low price alternative would be a mistake, since our customers don’t make their decisions based on price alone. But what about positioning Shindiggity as offering more value for the money?” Kara and the others seem to like this approach. It acknowledges the reality that pricing exercises important influence in technology decisions, but it doesn’t force the company into uncomfortably low budgets or profit margins.
Step 3: Choose Competitive Advantages That Define Your “Niche”
The group rounds out the discussion of Shindiggity’s strengths and advantages: creativity, caring people, strong partnership with clients to achieve all their goals for the event. Next you suggest listing out the company’s key competitors and their competitive advantages, to give everyone a common picture of the competitive landscape.
The list on the whiteboard runs long—nearly twenty companies are on it. As the team begins to enumerate the competitors’ strengths, a pattern emerges. At least half of the competitors have noted competitive advantages related to the industries where they do the most work: media, sports and recreation, finance, apparel, and automotive, to name a few. If this survey of key players is any indicator, industry expertise is a great way to establish a place for yourself in events management.
While Shindiggity is not the only company with particular expertise in health care and pharmaceuticals, it is the only smallish company that has established this expertise as a competitive advantage. The handful of others tends to be larger firms with higher overhead, and, according to client feedback you heard recently, they tend to be more “cookie cutter” in their approach to events, rather than going the extra mile to give clients exactly what they want. All this talk of relative strengths and weaknesses is exciting: you’re starting to see a positioning strategy come together.
Step 4: Define Your Positioning Strategy
After a short break, your group gets to work again. Kara observes, “We’ve got a great list of Shindiggity’s strengths here, but what do we want customers to remember about us? What’s going to make them seek us out and choose us over all these other companies they could work with?”
This is the moment you’ve been waiting for. “For our positioning strategy,” you say, “I think we should focus on owning a distinctive benefit, something we do better than anyone else, linked to Shindiggity’s strengths and competitive advantages. I’m not sure of the wording yet, but I think it’s a combination of our health care and pharma expertise, and the way we partner with clients creatively to make events feel unique and visionary. How does that sound?”
Your proposal generates excitement because it taps into what makes people at Shindiggity so enthusiastic about their jobs: creativity, vision, and the challenge of designing events that are out of the ordinary. Kara remarks that it’s a good sign when employees get this excited about a positioning strategy.
Step 5: Communicate and Deliver on the Positioning Strategy
Your breakout group needs to consolidate its thinking to share back with the rest of the company. You suggest translating the positioning strategy into a positioning statement, using the tried-and-true formula you learned in your marketing class:
To [target audience], Product X is the only [category or frame of reference] that [points of differentiation/benefits delivered] because [reasons to believe].[1]
After a few minutes’ work, the group hammers out a positioning statement worth sharing:
To health care and pharmaceutical companies, Shindiggity is the only visionary partner that produces top-notch events health care professionals love to attend because they bring together great minds, enriching activities, and a dose of the extraordinary.
Heading back into the main meeting room, Kara compliments you on your great ideas and suggests that you be the spokesperson to share your group’s work with the rest of the company. “You should be proud,” she adds. “I think we’re really on to something here.”
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• Putting It Together: Positioning and Differentiation. Provided by: Lumen Learning. License: CC BY: Attribution
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Instructions
Write a post for the Discussion on this topic, addressing the questions below. Unless otherwise specified, each part should be 1–2 paragraphs or several bullet points in length.
Part 1: Competitive Advantages
List the competitive advantages of the product, service or organization you’re focusing on: the things that make it different from competitors in positive ways.
Part 2: Market Niche and Positioning Strategy
Describe the market niche you want to fill, along with the positioning strategy you recommend using. Why do you think this is the right approach?
Part 3: Positioning Statement
Develop a positioning statement using this formula: “To [target audience], [product/service/organization name] is the only [category or frame of reference] that [points of differentiation/benefits delivered] because [reasons to believe].[1]
Part 4: Respond to Classmates’ Posts
After you have created your own post, look over the discussion posts of your classmates and respond to at least two of them.
Part 5: Incorporate Feedback
Review the feedback you receive from classmates and your instructor. Use this feedback to revise and improve your work before submitting it as part of the “Marketing Plan, Part 2” assignment.
Grading Rubric for Discussion Posts
The following grading rubric may be used consistently for evaluating all discussion posts.
Discussion Grading Rubric
Criteria Response Quality: Not Evident Response Quality: Developing Response Quality: Exemplary Point Value Possible
Submit your initial response No post made – 0 pts Post is either late or off-topic – 2 pts Post is made on time and is focused on the prompt – 5 pts Point value possible – 5 pts
Respond to at least two peers’ presentations No response to peers – 0 pts Responded to only one peer – 2 pts Responded to two peers – 5 pts Point value possible –5 pts
Total Points Possible for Discussion Assignment: 10pts.
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8.11: Why It Matters- Positioning
Why create a product or service positioning statement that aligns with a value proposition and a target segment?
Ever since you were small, you have loved special occasions and gatherings. It started with sprawling extended-family picnics when you were a child. From there, you graduated to bigger and more elaborate events: attending fairs and grand openings, crashing weddings and voter conventions, wandering through business expositions at the local convention center. In fact, one of your favorite memories is of the time you sneaked into the legendary Consumer Electronics Show when you were visiting your cousin in Las Vegas. As far as you’re concerned, the more people, the bigger the party and the better.
Now, as an adult, you’ve landed a job with Shindiggity, an events management firm that specializes in putting on conferences, trade shows, and events for industry associations and companies. You love getting to meet new people, travel, and work on making fun, memorable events.
Here’s the challenge: Shindiggity is relatively small and new on the events management scene. Although events management is a growing area for business services, it’s also a fairly crowded field. When you google “events management company,” you get 432 million results. Shindiggity is easily lost in the crowd.
At Shindiggity’s annual retreat, employees from across the company are divided into several groups, and each group is given the same task: How can we get Shindiggity to stand out from the competition?
You realize that the VP from your division has been assigned to your group and that this is a great chance for you to impress her with your creativity and initiative. You also want to help your company be successful. Right off, you jot down some questions to focus your thinking:
• What makes Shindiggity better than competitors? Is it the quality of events? The creative ideas? The amazing people? The way it uses technology to make things smoother and more efficient? Something else?
• Who do we need to talk to about Shindiggity, and what will make them decide to give us a try?
• How can we make sure they remember Shindiggity and what we stand for?
These are critical questions you need to answer in order to help your company (and, you think, impress the VP). At the core, they are questions about positioning and differentiation: What position do you hold in customers’ minds? What position do you want to hold? How are you different in positive ways that make you stand out from the pack?
If Shindiggity can’t figure out how to make a lasting impact in customers’ minds, it won’t win enough clients to stay in business. And, if it goes out of business, you’ll be job hunting instead of continuing to do the work you love. On the other hand, if you come up with great ideas, you may help Shindiggity position itself effectively against competitors, which could lead to new business and—who knows?—to more job responsibility or a promotion for you. It’s pretty obvious which scenario you decide to pursue.
Learning Outcomes
• Define positioning and differentiation, and why they are important to marketing a product or service
• Explain the process of selecting a positioning and differentiation strategy
• Develop and evaluate positioning statements based on defined criteria
• Explain repositioning and the associated risks and complexities of repositioning a product or service
• Describe the process of implementing a positioning strategy
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• Why It Matters: Positioning and Differentiation. Provided by: Lumen Learning. License: CC BY: Attribution
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8.12: Outcome- Defining Positioning and Differentiation
What you’ll learn to do: define product positioning and differentiation, and explain why they are important to marketing a product or service
Positioning addresses an important question: What do you want to be known for?
Positioning provides the basic foundation for effectively marketing any product or service to a target audience. Positioning goes hand in hand with differentiation (in much the same way that segmentation and targeting work together). Differentiation is the process of figuring out what will make your product different and better in ways that matter to customers–and ways that are not easily replicated by competitors.
Positioning and differentiation offer something of a road map for marketing a product or service to the customers you’re targeting. Read on to learn more.
The specific things you’ll learn in this section include:
• Define positioning and differentiation
• Explain the relationship between positioning and value proposition
• Explain the importance of positioning in executing segmentation and targeting strategy
Learning Activities
The learning activities for this section include the following:
• Reading: Defining Positioning and Differentiation
• Self Check: Defining Positioning and Differentiation
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What Makes You Different and Better?
Positioning is a strategic process that marketers use to determine the place or “niche” an offering should occupy in a given market, relative to other customer alternatives. When you position a product or service, you answer these questions:
• Place: What place does the offering occupy in its market?
• Rank: How does the product or service fare against its competitors in the areas evaluated by customers deciding what to buy?
• Attitude: How do we want customers to think about this offering and the benefits it offers them?
• Outcomes: What must we do to ensure the product or service delivers on the positioning we select?
Marketers use the positioning process to identify the distinctive place they want a product or service to hold in the minds of a target market segment. Effective positioning is always aimed at a specific target segment. In fact, positioning tailors the generally focused value proposition to the needs and interests of a particular target segment.
Positioning can be subtle and hard to detect, but it can also be easy to spot when it conforms to your perceptions as a consumer. Perhaps one of the following positions appeals to you: Volvo, for example, positions itself as a family of premium vehicles that are well designed for performance, innovation, and safety. Kia strives to position itself as delivering practical, utilitarian vehicles that offer high quality and value for the price. Cadillac is, well, the Cadillac of automobiles: powerful, luxurious, and catering to every need of its well-heeled drivers and passengers.
Differentiation is closely related to positioning. Differentiation is the process companies use to make a product or service stand out from its competitors in ways that provide unique value to the customer. Differentiation identifies a set of characteristics and benefits that make a product different and better for a target audience. Ideally these qualities are things that 1) customers value when they are evaluating choices in a purchasing decision, and 2) competitors cannot easily copy. When both conditions exist, the offering is more attractive to target customers.
Differentiation is at work any time you’re choosing between two products in the same category. For example, when you’re buying a soft drink, why do you choose Coke, Pepsi, Sprite, or Mountain Dew? Is it because of the taste? The cost? The level of sugar or caffeine? Or is it something less tangible, like the way you just want to smile when you drink Coke, or you feel amped up when you drink Mountain Dew? These tangible and intangible qualities are what differentiate one soft drink from another.
Interconnected Strategies
Positioning and differentiation are connected in important ways. Effective positioning for a product or service is based on the differentiating characteristics or qualities that make the product/service better than the competition in the minds of the target segment. Positioning and differentiation are strategic activities: marketers work to create a desired position for a product or service in the market, rather than waiting for it to be created by customers, the public, or competitors. The end result of positioning is the successful creation of a market-focused value proposition: “This is the compelling reason why the target segment should buy the product.” Positioning shapes key elements of the marketing mix: which features matter most in the differentiation of a product or service, what messages to communicate about the offering, how to price it relative to competitors, and the role distribution might play in satisfying the customer.
To illustrate, think about American retail chains targeting American households as a target segment. The table below identifies the ways in which three large retail chains position themselves to attract customers and the key differentiators they use to set themselves apart.
Retail Positioning and Differentiators
Name Positioning Differentiators
Wal-Mart Wide selection of products people want, at the lowest prices Wide selection; low prices
Target Trendy, fashionable products at reasonable prices Continually refreshed, on-trend product selection
Macy’s Preferred “go-to” shopping destination for upscale brands and current fashions. Broad selection of most-wanted, upscale brands; engaging shopping experience
Note that, in each case, positioning is based on factors that are important to the target segment(s) each retailer focuses on. Wal-Mart customers are very brand-loyal because of the company’s commitment to low prices and huge selection. Loyal Target customers love browsing the latest, on-trend apparel, accessories, and home fashions. Macy’s shoppers appreciate a more elegant, upscale shopping experience and are willing to pay more for upscale brands. Each of these positioning strategies carves out a “niche” of the retail market that defines the particular, differentiating strengths of each chain in the minds of customers.
Positioning is essential for launching a new product or service, because it helps marketers and customers understand how the new offering fits into the set of available choices, and it makes a set of claims about why customers should consider it. Positioning can also be useful at any other stage of the product life cycle to help clarify what makes a product or service different from competitors and why people should prefer it.
Positioning Is a Statement
Positioning plays an important role for marketers in expressing how they will make an offering attractive to customers. It also helps customers become educated about the options available to them so they can evaluate and select the product or service that’s the best fit.
Positioning is most often articulated as a positioning statement. A positioning statement is one sentence that concisely identifies the target market and what you want customers to think about your brand. This statement should include 1) the target market, 2) the brand name, 3) the key points of differentiation, 4) the product/service category or frame of reference in which you are establishing this market position, and 5) the reasons customers should believe the positioning claims.
Positioning statements should also be statements of truth. Effective positioning is credible and convincing, reflecting customers’ actual experiences with the product or service. If a positioning statement does not reflect the customer’s reality, the positioning will fail because it will not take hold in the minds of consumers. Likewise, positioning must be based on qualities that matter to customers as they consider which product/service to purchase. If positioning is based on characteristics or customer benefits that do not matter, customers will opt for other offerings that deliver what they care about. We will discuss positioning statements in more detail later in this module.
Same Offering, Different Positioning
Because effective positioning is always linked to a specific target segment, it is worth pointing out that the same basic product or service may be positioned differently for different market segments. When this happens, it is because companies recognize that their target segments are looking for different qualities when they make their purchasing decisions. Different positioning strategies for the same product enable marketers to communicate the value of the product or service more effectively to each target audience.
For example, the airline JetBlue caters to two “sweet spot” target segments: 2) “high-value leisure travelers” and 2) “mixed-wallet customers,” who fly for both business and leisure. The airline’s positioning for “high-value leisure travelers” focuses on attractively priced airfare and packages to fun vacation destinations, along with a comfortable flying experience. For “mixed-wallet customers,” JetBlue positions itself as providing a competitively priced and convenient flying experience with features like expedited security and multiple fare options in case travel plans need to change. In both cases, JetBlue is selling air travel, but the positioning for each target segment is built around the differentiating qualities that make JetBlue particularly attractive to those segments.[1]
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8.14: Self Check- Defining Positioning and Differentiation
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/783
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8.15: Outcome- The Positioning Process
What you’ll learn to do: explain the process of selecting a positioning and differentiation strategy
Positioning and differentiation are powerful tools to help you establish the market position you want for your product or service. In this section you’ll learn how various positioning approaches work for different target segments and how to choose an effective positioning and differentiation strategy.
The specific things you’ll learn in this section include:
• Explain the concept of competitive advantage and how it relates to positioning strategy
• Differentiate between product features and benefits
• Explain positioning (perceptual) maps
• Identify common positioning strategies
Learning Activities
The learning activities for this section include the following:
• Reading: The Positioning Process
• Video: Starbucks Delivers Community and Connection
• Self Check: The Positioning Process
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Getting to the Right Position
Arriving at the best positioning and differentiation strategy involves a process. The goal of the process is to design an identity that both confirms the value of the product, service, or brand in the customer’s mind and explains why and how the offering is better than the competition. To reach that goal, marketers typically follow a positioning process comprised of the following five steps:
Steps of the Positioning Process
1. Confirm your understanding of market dynamics
2. Identify your competitive advantages
3. Choose competitive advantages that define your market “niche”
4. Define your positioning strategy
5. Communicate and deliver on the positioning strategy
Step 1: Confirm Your Understanding of Market Dynamics
At the start of the positioning process, you need a firm understanding of your target market and answers to the following questions:
• In which product, service, or market category (also called the “frame of reference”) do you plan to use this positioning?
• Which target segment is your focus for the positioning you are developing?
• What factors do these buyers evaluate when they make a purchasing decision?
• How do these buyers view your competitors in the category?
If you don’t have answers to these questions, you should consider conducting formal or informal marketing research to reach a better understanding of your target market and the market dynamics around it. Some marketers may have the time and resources to conduct extensive research, while others may need to rely on their own experience and anecdotal conversations with target customers. Either way, you’ll remember that the customer is at the center of the marketing mix, so knowing whom you’re targeting is the only place to start.
Step 2: Identify Your Competitive Advantages
A competitive advantage is some trait, quality, or capability that allows you to outperform the competition. It gives your product, service, or brand an advantage over others in purchasing decisions. Competitive advantage may come from any or all of the following:
• Price: Something in your production process or supply chain may make it possible for you to provide comparable value at a lower cost than competitors.
• Features: You may provide tangible or intangible features that your competitors do not: for example, more colors, better taste, a more elegant design, quicker delivery, personalized service, etc.
• Benefits: You may provide unique benefits to customers that your competitors cannot match. Benefits are intangible strengths or outcomes your customer gets when they use your offering. For example, time savings, convenience, increased control, enjoyment, relaxation, more choices, feeling better about oneself, being more attractive, etc.
Create a list of the things that make you different from competitors in positive ways. Then identify which of these factors are also competitive advantages: the influential factors that help you perform better in the marketplace and cause customers to choose your product, service, or brand over other options.
As a rule, it is relatively easy for competitors to undercut your pricing or match your features, so it is difficult to maintain a consistent competitive advantage in either of these areas. Market-leading products, services, and brands are most likely to differentiate based on benefits—the intangible strengths and outcomes that are harder for competitors to match.
For example, many car companies achieve strong ratings in safety tests, but driving a Volvo provides an extra, intangible benefit for the driver of feeling safer because of Volvo’s longstanding record and reputation for safety. A variety of theme parks in Southern California offer exciting rides and family fun, but only Disneyland’s Magic Kingdom makes people feel like they’re in the happiest place on earth.
You don’t necessarily need a long list of competitive advantages, but your list should be substantive: it should include the things that truly create distance between your offering and competitors. Dig deep to identify the intangible benefits your customers experience–or intangible benefits they could experience—from your offering that make it different and better than the alternatives.
Step 3: Choose Competitive Advantages That Define Your Niche
Your list of competitive advantages represents a set of possible positioning strategies you could pursue for your product, service, or brand. The next step is to examine how these factors fit into customer perceptions of your broader competitive set. Your goal is to pick a positioning approach that gives you a unique and valued position in the market that competitors are not addressing.
A perceptual map is a great tool for this step. Perceptual maps create a picture of how different competitors are positioned in the market, based on the key criteria that strongly influence customer decisions. Examples of two different perceptual maps are included below. The first one maps automobile brands based on customer perceptions of price and quality. The second one maps lifestyle programming on cable TV channels, according to whether it is younger/edgier vs. older/mainstream and educational vs. entertainment.
Marketers use these sorts of perceptual maps to identify gaps in the market; these, in turn, represent opportunities to to fill a niche in the market that isn’t being addressed. For example, the lifestyle programming map suggests that there are not a lot of choices in the area of younger/edgier AND educational space. This might be a good place to position a new cable channel or programming direction. On the other hand, there are already lots of established players in the younger/edgier/entertaining space, so new entrants would have to beat out more competition to make an impact.
You can create a perceptual map similar to these by identifying the key criteria customers use when deciding what to buy and setting these as the horizontal and vertical axes. Then you can overlay competitors in the perceptual space where they seem to fit. You can even create multiple maps of the same market with different criteria on the horizontal and vertical axes to get a different view of how competitors are positioned. Perceptual maps are most robust when they are based on actual marketing research data, but marketers can also create directional maps based on their experience and anecdotal understanding of market dynamics.
With your maps in hand, look for areas where there are fewer competitors: these are the spaces where you are most likely to be successful creating your own niche. Consider where your competitive advantages would help you fit well into these gaps; this will direct you to the strongest positioning opportunities for your product, service, or brand.
Give this approach a try: Suppose you are exploring whether to introduce your homemade, artisan-style ice cream to a wider audience, which will mean competing with national brands carried in local and regional grocery stores. Looking at the following perceptual map, where are the gaps in which you could create a niche for your product? Who would be your closest competitors?
Your competitive advantage around a homemade, artisan-style product puts you on the upper half of the map. You would have to choose between more classic versus interesting and innovative ice cream choices. Based on your strengths and preferences, you can choose where to claim your positioning niche: Perhaps you stake your future on the classical side by introducing the most marvelous, pure, premium vanilla and chocolate ice creams your customers have ever tasted. Alternatively, you might choose to introduce an ice cream line that capitalizes on interesting flavor combinations using local and seasonal ingredients, which would position you squarely in the innovative quadrant. Either approach could be a winning combination in a unique market niche.
If you choose not to create a perceptual map, an alternate approach is to list competitors and their competitive advantages. Then, add your own own offering and competitive advantages to the list. Based on the alternatives available to customers, think about where there are gaps between what customers want and value most and what they can get from the choices available today. Identify where your competitive advantages can help you fit into these gaps, since they will be the most promising positioning approaches for you.
Remember to think creatively as you are defining your competitive advantages and choosing those that will define your positioning and market niche. You have a greater likelihood of success if you are also the first in the market to claim your positioning. You won’t have to displace anyone else, and you can generate excitement by fulfilling a previously unmet need.
Step 4: Define Your Positioning Strategy
With your competitive advantages identified and information about how key competitors are positioned, you’re ready to evaluate and select your positioning strategy. This is the decision you make about how, exactly, you plan to position your offering relative to the rest of the field. How will you be different and better?
There are several common positioning strategies you should consider, shown in the following table:
Common Positioning Strategies
Differentiator Positioning Strategy Examples
Category Benefit Position yourself as “owning” an important benefit and delivering it better than anyone else Volvo = Safety
Hallmark = Caring shared
Hawaii = Aloha spirit
Best fit for the Customer Position yourself as an ideal fit for the customer’s personality, style, and approach Red Bull = Extreme
Guess Jeans = Sexy chic
Virgin Atlantic = Ultra cool fun
Business Approach Position yourself with a distinctive approach to doing business Jimmy John’s = Unbelievably fast
TurboTax = Easy DIY
Anti-Competition Position yourself as a preferred alternative to the competition Apple = Think different
Seven-Up = The Uncola
Price Position yourself according to pricing: lowest cost, best value for the money, luxury or premium offering, etc. Wal-Mart = Lowest prices
RyanAir = Cheap flights
Old Navy = Affordable fashion
Quality Position yourself according to a quality standard: high quality, best-in-class, or else reliably good quality at a reasonable price Hearts on Fire = Perfect cut
Ritz Carlton = Ultimate luxury
Strong positioning is simple: it focuses on a single, powerful concept that is important to the customer. It uses your most promising competitive advantage to carve out the niche you will fill better than anyone else. Your positioning strategy puts this competitive advantage into the context of your competitive set: it explains what distinguishes you from the competition. Perhaps you deliver an emotional benefit that your target audience doesn’t get anywhere else (escape? balance?) Perhaps you are hands down the best choice for a geeky, gear-head audience (bikers, coders). Perhaps you provide great customer service in a category where customer service is unheard of (cable TV, contractors).
Your positioning will become the “special sauce” that sets you apart. Concoct it well.
Step 5: Communicate and Deliver on Your Positioning Strategy
The next sections of this module will delve deeper into this step, but don’t underestimate its importance. Communicating your positioning strategy begins with creating a positioning statement and sharing it internally across the organization to make sure that everyone understands how and where your offering will fit in the market. Your positioning builds on a competitive advantage, and it is essential for you to deliver on the expectations your positioning sets in customers’ minds. You should design your positioning strategy to endure over time, while recognizing that it can and should be adjusted from time to time to reflect changes in the competitive set, your target segment, market trends, and so forth.
If your positioning is based on being an ideal “lifestyle” fit for your target audience, for example, you need to demonstrate how your offering is attuned to the needs and experiences of this audience. This includes evolving as your target segment evolves. If your positioning is based on “owning” an important benefit like security or reliability or delight, then you should explore all the ways you can deliver that benefit better than any competitor who might try to imitate you.
The marketing mix provides the set of coordinated tools you use to execute on your positioning strategy. You might think of your positioning strategy as the tune you want your target segment to hear. The marketing mix is how you orchestrate and harmonize that tune, making it a memorable, preferred choice for your target customers.
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8.17: Video- Starbucks Delivers Community and Connection
What business is Starbucks really in?
“We wanted to build a third place between home and work,” says Starbucks’ CEO Howard Schultz, as he sits in one of his cafés, “at a time in America when people are hungry for human connection.”
Watch the following video to learn how, from the beginning, Starbucks has positioned itself to be much more than just a seller of gourmet coffee. It has built its entire brand experience around a core positioning that offers “a sense of community” as much as coffee.
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “Starbucks the Brand” (opens in new window).
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8.18: Self Check- The Positioning Process
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/784
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8.19: Outcome- Developing Positioning Statements
What you’ll learn to do: develop and evaluate positioning statements based on defined criteria
After marketers work through the process of homing in on the best positioning strategy, they arrive at the final step: the positioning statement. The positioning statement reflects everything you’ve learned up to that point about how your product, service, or brand can best reach your target segment. As a document, it explains exactly how you plan to provide value to those target customers. In effect, it’s a short, persuasive argument.
In this next section, you’ll learn a simple formula for creating effective positioning statements. You’ll also learn how to evaluate existing positioning statements and decide whether and how they might be improved.
The specific things you’ll learn in this section include:
• Describe a standard structure for positioning statements
• Outline criteria for a strong positioning statement
• Recognize good examples of positioning statements
• Create a positioning statement aligned with a value proposition and target audience
Learning Activities
The learning activities for this section include the following:
• Reading: Developing Positioning Statements
• Self Check: Developing Positioning Statements
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What you’ll learn to do: explain how marketers use brand positioning to align marketing activities and build successful brands
It is clear that brands are valuable assets that benefit organizations and their customers. Building brand loyalty is an important goal for marketers. But what does it take to build a brand?
Brands are shaped by many different activities. As a marketer, you can control some of these activities, but not others. For instance, you can put together an amazing product design, a fabulous brand name, memorable packaging, irresistible marketing promotions, and delightful customer service—those are all things within your control. But you can’t control how customers actually react to and use the product, despite your best efforts to direct and influence them. You also can’t control what they write in online reviews.
In order to optimize the success of your brand, you should become very good at aligning all the activities you can control, so that the brand experience you provide is consistent for the customers you care about. Consistency and alignment are essential for building strong brands.
Brand positioning is an ideal tool for creating this alignment. It’s how you figure out what your brand really means to you. It’s the yardstick you use to figure out which messages and activities will communicate that brand most effectively. It provides the pattern for helping customers understand what to think about your brand and decide whether it matters to them and they can trust it.
In the end, brand positioning is the clearest path toward creating brand-loyal customers.
The specific things you’ll learn in this section include:
• Explain the concept of brand positioning
• Discuss techniques marketers use to achieve strong brand positioning and alignment:
• Brand promise
• Brand voice and personality
• Brand positioning statement
Learning Activities
The learning activities for this section include the following:
• Reading: Brand Positioning and Alignment
• Video: Red Bull’s Extreme Brand Alignment
• Self Check: Brand Positioning and Alignment
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9.02: Reading- Brand Positioning and Alignment
Building Strong Brands: Consistency Matters
In order to make an impression in a market, brands need to stand for something. Inconsistent brands and messages fail to make a lasting impression because it is difficult for customers to trust them or register what these brands represent. On the other hand, when a brand is both consistent and relevant to customers, it builds recognition, credibility, trust, and ultimately loyalty. And loyalty, as you’ve learned, translates into sales.
Consistency is also important when it comes to differentiating a product. Brands simplify decisions for customers. When a brand consistently communicates how and why it is distinct from competitors, it reminds customers why they prefer this brand over others–and why they may be willing to pay more for it.
Finally, consistency is an imperative in the globalized economy in which virtually every business operates today. Brand-related messages and communications circulate around the world at astonishing speed: Just ask any company that has seen a major story break on social media. While it does make sense to target specific messages to different global markets according to consumer needs, those messages should all be aligned to a consistent, centralized brand identity. A brand manager–the marketer responsible for directing and managing brand strategy–must think of herself as an ambassador, advocating and communicating on behalf of that common brand in the various markets where the brand is represented.
Brand Positioning: A Tool for Achieving Consistency
The Brand Platform
As you learned in the previous module, product positioning is an important strategic tool that helps organizations focus their messages and marketing activities around a consistent, differentiating message aimed at a target segment. Brand positioning works on the same principle. The goal of brand positioning—like the positioning for any product or service—is to explain why that brand is different and better for its target customers, and why the differences matter.
At the same time, brands need a consistent, universal identity that is the same regardless of whom you communicate with. For this reason, brand positioning starts with defining precisely what the brand stands for. This is called the brand platform. The brand platform may include a variety of descriptive elements to paint a clear picture of what a brand represents. Some brand platform models are very complex, with ten or more inputs. Others are simpler and more streamlined.
The brand platform begins with the organization’s mission statement, since the ultimate purpose of a brand is to help the organization achieve its mission. It also incorporates the value proposition for whatever the brand promotes. Remember that brands may operate at the company level (needing a company-level value proposition) or at the product or service level (needing an offering-specific value proposition). In addition to the mission statement and value proposition, the basic elements of any brand platform are a brand promise, core values, a brand voice or personality, and a brand-positioning statement. These are discussed below.
The Brand Promise
The brand promise is, in effect, the singular experience your brand promises to provide to your customers. It expresses what you want them to feel when they interact with your products and services. Year in, year out, the brand promise is what your customers count on and, ideally, it’s the reason they keep coming back to you. The brand promise should be unique and linked to your competitive advantage: something other brands do not and cannot deliver in the way you do. It describes the most salient benefits your brand provides, including benefits that create an emotional connection with customers.
The brand promise is important not only for customers, but also for employees and other internal audiences. It sets the tone for how the company operates and for the experience the brand provides to customers across all segments and all points of contact.
Finally, the brand promise should be simple and easily understood, so it’s easy to communicate and reinforce. Some marketers equate the marketing tagline, or advertising slogan, with the brand promise. While there are some exceptions, most brand-promise statements do not use the same marketing language that’s used in ad slogans. For instance, Nike’s “Just Do It” slogan works very well as part of an ad campaign, but it’s not very illuminating as a brand promise. Similarly, fast-food chain Taco Bell never intended its catchy “Make a Run for the Border” tagline to be interpreted as a brand promise. Also, taglines, which are part of marketing communications, may need to be updated more frequently than the brand promise. In contrast, the brand promise should be the global, enduring commitment you stand for over time.
The following are examples of effective brand promises:
• The Coca-Cola Company: to refresh the world in mind, body, and spirit, and inspire moments of optimism[1]
• TOMS Shoes: Through your purchases, TOMS helps provide shoes, sight, water, safe birth and
bullying prevention services to people in need. Learn more about what we give.[2]
• Target: expect more, pay less[3]
Core (Brand) Values
Core values are guiding principles for how an organization does business. These values express a perspective on the world, and they govern both internal conduct and external behavior. While the brand promise explains what consistent experience a brand will deliver, the core values describe how the company will behave as it delivers that experience.
Zappos’ Values
An excellent example of core values infusing a strong brand comes from online retailer Zappos. The company’s ten “Family Core Values,” listed below, are written for current and prospective employees and describe Zappos’ operating principles. At the same time, these values also set the tone for what customers can expect from Zappos and how they interact with the Zappos brand.
Zappos Family Core Values[4]
1. Deliver WOW through Service
2. Embrace and Drive Change
3. Create Fun and a Little Weirdness
4. Be Adventurous, Creative, and Open-Minded
5. Pursue Growth and Learning
6. Build Open and Honest Relationships with Communication
7. Build a Positive Team and Family Spirit
8. Do More with Less
9. Be Passionate and Determined
10. Be Humble
Even if you are unfamiliar with Zappos, these core values give you a strong sense of what the company must be like, either to work for or to do business with.
Not every organization defines ten core values; in fact, most keep the number to six or fewer in order to retain a better focus on defining and expressing the organization’s identity. What does matter is to find ways for the brand to deliver these values, so that they become real for employees and customers. For example, Zappos empowers individual employees to make judgment calls about how they deliver WOW-worthy customer service; every decision doesn’t have to go through manager approval. By encouraging personal initiative in this way, the company also invites creativity, learning, and passion from its employees.
Brand Voice and Personality
Just like people, strong brands have an outlook, tone, and personality that help reinforce the consistency of what and how brand gets communicated to customers, employees, and other stakeholders. The brand voice and personality are rooted in the brand promise and values, but they help flesh out the brand’s distinctive image and presence. A useful template for defining brand voice and personality is the “is/is never” template. Using this template, marketers define the voice and personality attributes of the brand, almost as if it were a person. For example:
• Brand X is strong, authentic, independent, resourceful, and classic.
• Brand X is never frivolous, trendy, or fake.
A well-defined brand voice is a window into the personality of the brand. Together, the brand voice and personality set the linguistic tone for all brand-related communications and promotions. They also guide the choice of visual design, logo, and the look and feel of the brand, ensuring that the overall visual representation is a good match for what the organization wants the brand to convey.
As a short exercise, take a moment and see if you can construct “is/is never” statements for a couple well-known brands. What are the brand voice and personality of, say, GAP clothing compared with another well-known clothing brand, such as Guess?
Brand-Positioning Statement
Brand positioning follows the same process for product and service positioning outlined in the positioning module: understanding market and competitive dynamics, confirming competitive advantages, defining the market niche and positioning strategy, and delivering on that strategy. Fortunately, the brand promise should provide strong guidance around the competitive advantages and market niche that should be represented in the positioning statement.
Brand managers may develop brand-positioning statements according to the same formula used for product positioning (discussed in the positioning module):
To [target audience], Brand X is the only [category or frame of reference] that [points of differentiation/benefits delivered] because [reasons to believe].[5]
Note that the target audience for the brand-positioning statement should include all the audiences for the brand, not just the specific, narrowly defined target segment you’d expect in a product- or service-positioning statement. The brand needs to be relevant to every conceivable audience you are trying to reach (which may include multiple target segments). For that reason, the brand-positioning statement needs to be written in such a way that it has a broad enough appeal to speak to that “larger” audience.
As with a product- or service-positioning statement, the brand-positioning statement becomes a guiding document for decisions about the key messages the organization should communicate about the brand, as well as other marketing activities.
Aligning to Deliver the Brand
It takes strong focus and hard work to get through the brand-positioning process and build a brand platform. But once this work is done, brand managers and marketers have a basis for deciding what they want to achieve with the brand. Next, the fun of brand building can begin.
Because brand encompasses much more than just marketing, it is important for the entire organization to understand the brand and each person’s role in delivering the brand promise to customers. Every employee in every department, from Accounting and Finance to Product Development and Technology (and everyone in between) plays a part. Organizations with great brands look for ways to educate all internal stakeholders about what the brand means and how it connects with their way of doing business. Company leaders provide incentives for employees to innovate and excel at delivering the brand effectively.
Of course, organizations also communicate about their brands to external audiences—to current and future customers, investors, thought leaders, and influencers, for instance. Brand is embedded in every strategy, tactic, and activity associated with a marketing mix for a given target segment. The brand platform is like a filter that lets through the kinds of communication that an organization needs to reach its audience, but it keeps out the distracting noise and chatter that might confuse or alienate that audience. The brand platform gives a brand coherence and helps the company stay on track.
Figure 1, below, illustrates the tools and artifacts marketers use to deliver strong alignment between brand, messaging, and other marketing activities. The brand strategy and positioning are very consistent from year to year, and they rely on the tools and artifacts we’ve discussed in this reading. Market-specific positioning and messaging are designed to reinforce the brand while promoting the organization’s products and services to target segments. The positioning tools and process discussed in the previous positioning module work at this level of marketing alignment. They remain relatively consistent, with marketers reviewing and refining positioning strategy every twelve to twenty-four months in alignment with company strategy, priorities, and performance.
At the bottom of the alignment pyramid are the day-to-day marketing activities associated with executing the marketing mix to reach target segments. These include marketing campaigns and the tactics, messaging, promotions, and other activities that accompany these campaigns. We’ll explore this dimension of marketing activity in much more detail when we turn to integrated marketing communications (IMC).
1. "Workplace Culture." The Coca-Cola Company. Accessed March 01, 2019. www.coca-colacompany.com/our-company/diversity/workplace-culture/↵
2. Toms. "Improving Lives." TOMS® Official Site. Accessed March 01, 2019. www.toms.com/improving-lives. ↵
3. "A Bullseye View. Behind the Scenes at Target." Target Corporate. Accessed March 01, 2019. corporate.target.com/about/purpose-values. ↵
4. "Zappos 10 Core Values." Zappos Insights. Accessed March 01, 2019. https://www.zapposinsights.com/about/core-values. ↵
5. "Brand Positioning Template | Brand Consultant | Brand Strategy Consultant." EquiBrand | Marketing Consulting | Branding | Digital | Innovation. Accessed March 01, 2019. http://equibrandconsulting.com/templates/positioning-templates. ↵
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• Gummi Bears. Provided by: Pixabay. Located at: pixabay.com/en/giant-rubber-bear-gummib%C3%A4r-1089618/. License: CC0: No Rights Reserved
• Lone Texas Cowboy. Authored by: Don the Upnorth Memories Guy. Located at: https://www.flickr.com/photos/upnorthmemories/5147038060/. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.01%3A_Outcome-_Brand_Positioning_and_Alignment.txt |
The energy drink Red Bull has developed a fun, edgy, maverick identity to match the young male adult segment it targets. To stay true to this brand identity, Red Bull’s leadership decided not to go with business as usual and sponsor another sporting event like the Coca-Colas and Procter & Gambles of the world. Instead, they set out to control the entire brand experience in a different way by producing the events themselves—and even by inventing a completely new sport!
Watch the following video to learn more about the extreme steps Red Bull has taken to invest its own money in the creation and ownership of sporting events and teams, all with the goal of building the brand’s name, image, and dedicated following. For Red Bull, brand alignment is the name of the game.
A link to an interactive elements can be found at the bottom of this page.
You can view the transcript for “Red Bull” (opens in new window).
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• Red Bull's Extreme Brand Alignment. Provided by: Lumen Learning. License: CC BY: Attribution
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9.04: Self Check- Brand Positioning and Alignment
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/790
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9.05: Outcome- Name Selection
What you’ll learn to do: explain the importance of name selection in the success of a brand
How important is naming in the success of a brand? Very important.
Consider the function of a brand name: It identifies a product, service, or company and differentiates it from competitors. But it does much more than that. It can generate attention or make something utterly forgettable. It can evoke positive or negative feelings and emotions. It can capture the imagination or drive someone to boredom. It can make a remarkable or unremarkable first impression.
Naming can be difficult in the crowded, increasingly global marketplace in which businesses operate today. As you understand the role of naming and the systematic process for selecting a new brand name, you can help lead your organization in making wise, informed choices about this essential element of branding.
The specific things you’ll learn in this section include:
• Discuss the connection between brand and name
• Outline key steps in the naming process
Learning Activities
The learning activities for this section include the following:
• Reading: Name Selection
• Self Check: Name Selection
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9.06: Reading- Name Selection
What’s in a (Brand) Name?
A brand identifies a company, product, or service as distinct from the competition. The brand is comprised of all the things that create this identity. A brand’s name is an essential part of the package. A brand name may be a product name (like Windows or Gmail), or it may be the name under which the entire organization operates (like Microsoft or Google). Because the name is so central to identity, naming a brand is an integral part of creating the brand’s reputation, development, and future success.
To some extent, a brand name amounts to whatever an organization makes of it: this is the genius of brand building and marketing strategy. Unlikely names have, on occasion, become powerhouse brands, and well-named brands have fizzled out. Naming is important because an ill-conceived or poorly chosen name can torpedo an organization’s chances. At the same time, a great name alone isn’t enough to guarantee success.
Naming a Brand
Apple iPod line as of 2014. From left to right: iPod Shuffle, iPod Nano, iPod Touch. iPod is one of Apple’s products named with the distinctive “i.”
Selecting a brand name is one of the most important product decisions a seller makes. A brand name reflects the overall product image, positioning, and, ideally, its benefits. A successful brand name can enable a product to be meaningfully advertised and distinguished from competitors; tracked down by consumers; and given legal protection. At its best, a brand can provide a carryover effect when customers are able to associate quality products with an established brand name. Attention to naming also helps customers associate products within the same brand family. For example, Apple names its mobile products with a lowercase i—for example, iPad, iPod, iPhone. Starbucks names its coffee sizes in Italian.
Remember that legally protectable brand names are mandatory if an organization plans to produce mass advertising for their product or service. Once an organization starts using a new brand name, it may encounter other organizations’ claim to own the rights to that name and threaten legal action. To avoid the risks and potential expense associated with legal challenges to a brand name, it is important to use a thorough, systematic process for selecting a brand name.
Selecting a Naming Strategy
Before you start brainstorming new brand names and registering domain names, the company should evaluate which naming/branding policy to pursue for the new offering and choose one the following three viable options. This process helps determine whether you even need a new brand name.
• Strategy 1: Own Brand. A strict branding policy under which a company only produces products and services using its own brand. In this scenario, you need a new brand name.
• Strategy 2: Private-Label Brand. An exclusive distributor’s brand policy in which a producer does not have a brand of his own but agrees to sell his products only to a particular distributor and carry that distributor’s brand name (typically employed by private brands). In this scenario, the new offering will carry the distributor’s brand name, so you don’t need to create your own new brand.
• Strategy 3: Mixed Brand. A mixed-brand policy allows both own-branded and private-label versions of the offering. In this scenario, you need a new brand name for the own-branded product, and the distributor’s version of the product will carry the distributor’s brand name.
Steps to Develop a New Brand Name
Once you have confirmed that you need a new brand name, you should follow a systematic approach to developing and selecting one, as described below:
1. Define what you’re naming. Define the personality and distinctive attributes of the company or product to be named.
2. Check the landscape. Scan the competitive landscape to identify brand names already active in the category, in order to avoid selecting a name that would easily be confused with competitors.
3. Brainstorm ideas. Engage a naming team to brainstorm ideas and generate potential brand names. Due to the challenges of identifying a unique, protectable name in today’s global market, the naming team should include some members with prior naming experience. Often companies hire specialty naming firms to add creative power and expertise to the process. The team should generate lots of ideas, knowing that the vast majority will fall out during the screening process.
4. Screen and knock out problematic names. Screen favorite names to make sure they are available to use perceptually (no mind-share conflicts with other known brands), legally (no trademark conflicts) and linguistically (no problems in translation).
1. Perceptual screening: Start the screening process with thorough Google searches on the names being considered in order to eliminate any that could easily be confused with established players in your product or service category, or a related category. If an established brand name is similar in terms of phonetics (sound), spelling, root word, or meaning, there is probably a conflict. Check with a trademark attorney if you have questions.
2. Legal screening: The next screening process is to evaluate potential conflicts with registered trademarks that exist in the product or service categories in question. Each country has its own trademark registry, so this search must be performed in each country where you expect to do business using this brand name. While anyone can attempt this process, due to the legal complexities of global trademark law, it’s advisable to engage an experienced trademark attorney to review the names, conduct an authoritative search, and provide legal clearance for the short list of final names. To learn more about this process, check out the freely available U.S. Patent & Trademark Office (USPTO) Trademark Electronic Search Service (TESS) trademark search tools.
3. Linguistic screening: If you plan to use the brand name in different countries and languages, a linguistic screening is a must. Use a naming firm or a linguistic screening firm to screen your final, short-listed name candidates with native speakers from the countries where you plan to operate. The linguistic screening can help you avoid blunders like GM rushing to rename the Buick LaCrosse sedan in Canada when it learned that the word crosse means either rip-off or masturbation in Quebec French, depending on the context.[1]
5. Check domain name and social media availability. If you want to operate a Web site or social media using your new brand name, you will need an Internet domain name for your Web site, as well as social media accounts. As you are refining your short list of cleared names, check on the availability of domain names and social media handles. If you’re lucky, a clear .com domain will be available to reserve or purchase at a reasonable price, and a clear Twitter name will also be available. Here are some tips for navigating this process:
1. Use a reputable registry to check availability. When you’re checking on domain-name availability, don’t just google domain names at random. Instead, use a reputable domain-name registry like Godaddy.com or Register.com. When you use Google or other standard search engines, Internet bots track this activity to detect interest in unregistered domain names. Unscrupulous Internet profiteers buy up these domains and then offer them for resale at a significant markup. When you decide to reserve your domain names, be sure to use reputable registries in all the countries where you plan to operate.
2. Look at variations of your chosen name(s). Consider reserving domain-name variations of your chosen brand name(s), either because the original names you want are not available, or because you may want to control close variations to avoid letting them fall into the hands of competitors or Internet profiteers. For example, if your chosen brand name is “Chumber,” you may find that chumber.com has been taken, but chumber.net, chumber.org, and chumbercompany.com are all available. Although you don’t need all of these, you might choose to register them so that no one else can “own” the names and make mischief for you. For social media account names, if your first choice isn’t available, explore variations—perhaps a shortened version of your desired name. Remember, for services such as Twitter, shorter names fit better into the limited length of social media posts.
3. Check out your Internet “neighbors.” For any domain names that are not available according to a reputable domain-name registry, do google them to see where they take you. Some may be operated by other businesses, while others may be “parked” and inoperative. Before you settle on a final domain name for your brand, make sure you investigate where common misspellings of your name might take site visitors. For example, an education technology company seriously considered the brand name “OpenMind” and the domain openmind.com until a marketing team member discovered that a variant spelling, openminded.com, would take prospective site visitors to an adult entertainment Web site.
4. Reserve domains in geographies where you plan to do business. Consider whether to reserve domain names using different extensions. In other words, not just yourbrand.com, but also other extensions including those in other countries where you plan to operate: yourbrand.mx for Mexico, yourbrand.cn for China, yourbrand.ca for Canada, and so forth. If you plan to do business in multiple countries, it is wise to reserve domain names in each of the countries that are strategically important to your company.
6. Customer-test your final short-listed names. It is always wise to conduct market research to test short-listed names among your target customers. This gives you insight into how they will hear, interpret, and think about the names you are considering. Customer testing can reveal nuances or connotations of a name that didn’t occur to the naming team earlier–for better or for worse. Customer testing results can also be a great tie-breaker if the naming team is split between finalists.
7. Make your final selection. Ultimately the naming team should select the name with the most potential for creating a strong, differentiated brand, combined with the least risk from a trademark ownership perspective.
8. Take steps to get trademark protection for your new brand.
Official registered trademark symbol
Once a final name is chosen, engage a trademark attorney to file a trademark or service mark registration for the new brand. Ask for legal counsel on where to register your marks based on where you plan to operate globally. While this step may seem expensive and time-consuming, it can protect you and diminish risk for the organization if your brand name is ever challenged legally. Down the road, it is easier to enter into licensing and other types of agreements if a brand name is registered. Licensing can be a lucrative strategy for strong brands.
Contributors and Attributions
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• Revision and adaptation. Provided by: Lumen Learning. License: CC BY-SA: Attribution-ShareAlike
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• Branding, from Introduction to Business. Authored by: Linda Williams and Lumen Learning. Located at: courses.candelalearning.com/masterybusiness2xngcxmasterfall2015/chapter/reading-branding-labeling-and-packaging/. License: CC BY-SA: Attribution-ShareAlike
• Hello, My Name Is Opportunity. Authored by: One Way Stock. Located at: www.flickr.com/photos/paulbrigham/8423157044/. License: CC BY-ND: Attribution-NoDerivatives
• The iPod Line. Authored by: Kyro. Located at: https://commons.wikimedia.org/wiki/File:IPod_line_as_of_2014.png. License: CC BY: Attribution
• RCMP in Formal Dress. Authored by: Kris Kru00fcg. Located at: www.flickr.com/photos/kk/100453947/. License: CC BY-SA: Attribution-ShareAlike
• Registered Trademark Symbol. Provided by: Pixabay. Located at: pixabay.com/en/registered-trademark-brand-sign-98574/. License: CC0: No Rights Reserved | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.03%3A_Video-_Red_Bulls_Extreme_Brand_Alignment.txt |
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/791
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• Self Check: Name Selection. Provided by: Lumen Learning. License: CC BY: Attribution
9.08: Outcome- Packaging
What you’ll learn to do: discuss the role of packaging in the brand-building process
Imagine yourself standing in the aisle of a grocery store, scanning the shelves and trying to decide which product brand to buy. What catches your eye? What makes you pick something and take a closer look? What influences your decision to drop it into your basket . . . or return it to the shelf?
This critical moment for brands and the purchasing process is often won or lost because of packaging. According to Marty Neumeier in his book The Brand Gap, “A retail package is the last and best chance to make a sale.”[1]
In this section, we’ll explore how packaging can play a powerful role in shaping consumer perceptions of brands and influencing buying decisions.
Learning Activities
The learning activities for this section include the following:
• Reading: Packaging
• Self Check: Packaging
Contributors and Attributions
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9.09: Reading- Packaging
Creating the Perfect Package
Product packaging is an underappreciated hero in the marketing world. Packaging is supremely functional: it protects the product. It contains the product. It displays the product. It promotes the product. Its design and labeling communicate about the product. And the package itself can even increase the product’s utility, making it better suited to however the customer wants to use it.
If packaging does all these things, why is it undervalued? As a marketing tool, packaging often feels low-tech and old-school in the information age. It’s just not as sexy as Web sites, events, or social media—and yet, it remains a staple of the purchasing environment.
With the increased emphasis on self-service marketing at supermarkets, drugstores, and even department stores, the role of packaging is significant. For example, in a typical supermarket a shopper passes about six hundred items per minute—or one item every tenth of a second. Thus, the only way to get some consumers to notice a product is by in-store displays, shelf hangers, tear-off coupon blocks, other point-of-purchase devices, or, last but not least, effective packages.[1]
Packaging provides an opportunity for a product to jump out and differentiate itself on the crowded, viciously competitive shelves of supermarkets, drugstores, department stores, and other retailers. Every single customer who buys a product inevitably interacts with the packaging, which is what makes it such a potentially powerful touch point.
The Roles Packaging Can Play
Marketers invest a great deal on motivational research, color testing, psychological manipulation, and so on in order to learn how the majority of consumers will react to a new package. Based on the results of this research, past experience, and the current and anticipated decisions of competitors, marketers determine what primary role the package will play relative to the product. They determine which of the following needs to be included:
• Quality
Royal Fruitmasters Holland box.
Example: One Dutch packaging company developed a cardboard package design for fresh produce sold in the Netherlands and exported to other countries. The decorative elements were based on world-famous, collectible Delft blue porcelain, to convey high quality and desirability.[2]
• Safety
Example: Product protection and child-proofing are standard features in the packaging of Tylenol, Benadryl, Children’s Motrin, and other over-the-counter drugs.
• Instruction
Example: Dosage information for drugs and “how to use this product” information for a variety of appliances, devices, and other products helps ensure that consumers use products responsibly and as intended.
• Legal compliance
Example: The U.S. Food & Drug Administration (FDA) maintains strict regulations about the types of information food companies must disclose on their product labels: ingredients, calorie counts, nutritional information, serving size and servings per container, and so forth.
• Distinction
Example: Packaging can be distinctive as a familiar, favored brand: the Coca-Cola or Heinz Ketchup bottles, the Campbell’s Soup can, the Kleenex tissue box. Alternatively, designers may use color, shape, materials, labeling and other packaging features to convey something is new, different or improved.
• Affordability
Example: In packaged goods, packaging simplicity and plainness—for generic and store-brand products—often suggests greater affordability in the minds of consumers.
• Convenience
Example: Resealable packages have been a welcome, convenient packaging innovation for a variety of products, from baby wipes to sliced bologna to snack foods.
• Aesthetic beauty
Example: Perfume manufacturers devote extensive time and attention to making beautiful, distinctive designs for perfume bottles and packaging. One estimate suggests that for each \$100 bottle of perfume, the manufacturer’s expense for the bottle and packaging is \$10. Meanwhile, their expense for the bottle’s contents is only about \$2.[3]
• Improved utility
Example: Packaging single-serving yogurt or applesauce in tubes rather than traditional packages makes them usable in more settings and circumstances because they are less messy and no longer require spoons or a table-top to be able to eat them effectively.
• Sustainability
Example: Environmentally-friendly packaging can create brand preference from consumers who are conscious about their carbon footprints. Using fewer chemical-based inks and dyes, less wasteful packaging design, and preference for recycled and recyclable materials all set products apart as “green” and eco-friendly.
Matching the Package to the Product . . . and the Consumer
Clearly delineating the role of the product should lead to the actual design of the package: its color, size, texture, location of trademark, name, product information, and promotional materials. Market leaders in the dry food area, such as cake mixes, have established a tradition of recipes on the package. However, there are many package-related questions. Do the colors complement one another? Are you taking advantage of consumer confusion by using a package design similar to that of the market leader? Can the product be made for an acceptable cost? Can it be transported, stored, and shelved properly? Is there space for special promotional deals? Finally, various versions of the product will be tested in the market. How recognizable is the package? Is it distinctive? Aesthetically pleasing? Acceptable by dealers?
Packaging designers can be extremely creative when it comes to incorporating multiple requirements into the container design. The key is to understand what factors most influence customer decisions about what to buy. For a given purchase situation, any of the factors above–or a combination of them–might help a consumer settle on which product to buy.
In some product categories, the promoting the package has become almost as important—if not more important—than promoting product performance. This is true for products as diverse as powdered and soft drinks, margarine, perfumes, and pet foods. In the case of Pringles, the stacked potato chip made by Procter & Gamble, a package had to be designed that would protect a very delicate product. Hence the Pringles can. When it introduced Pringles to the market, Procter & Gamble took a risk that retailers and consumers would be open to something new.
Packaging and Brand Loyalty
Packaging is one dimension of a brand that can contribute to customer loyalty. Familiar or aesthetically pleasing packaging can simplify the buying process in customers’ minds. The package is a clear extension of the brand, and brands with strongly loyal fans (or “tribes,” as they are sometimes called) may create significant brand equity associated with the package.
GAp’s 2010 Logo
An interesting example of this phenomenon is actually a brand misstep on the part of clothing manufacturer Gap. In “8 of the Biggest Marketing Faux Pas of All Time,” Amanda Sibley describes what happened when Gap introduced a new logo in October 2010. The company was trying to make its image more contemporary and hip. How long did the logo last?
A whopping two days.
Gap quickly put the old logo back into place after unbelievable backlash from the public. Gap, known for everyday basics, tried to redo their image to appeal to a more hip crowd. Unfortunately, they didn’t understand who their target market is—people who want the basics and aren’t interested in trendy styles. Their loyal customers felt that Gap was changing their image for the worse and lost a connection with the brand. Gap was also unsuccessful at attracting the younger, trendy generation with the redesign (albeit only a two-day redesign), resulting in a failure on two fronts with this new logo.
It wasn’t so awful for Gap to pursue a logo redesign, the lesson is simply to stay in touch with your buyer personas so you can ensure your new design reflects them. Marketers focus a lot on metrics—for good reasons—but never underestimate your audience’s feelings toward your brand. They’re harder to quantify, sure, but boy will people speak out when their sensibilities are offended.[4]
1. William O. Bearden and Michael G. Etzel, "Reference Group Influence on Product and Brand Choice,"Journal of Consumer Research, September 1982, pp. 183–194 ↵
2. “Communicating Quality through Packaging.” DS Smith, June 30, 2014. http://www.dssmith.com/packaging/about/media/news-press-releases/2014/6/communicating-quality-through-packaging/. ↵
3. Thau, Barbara. “Behind the Spritz: What Really Goes Into a Bottle of \$100 Perfume.” AOL.com. AOL, July 22, 2012. www.aol.com/2012/05/22/celebrity-perfume-cost-breakdown/. ↵
4. Amanda Sibley, "8 of the Biggest Marketing Faux Pas of All Time," HubSpot, July 17, 2012, http://blog.hubspot.com/blog/tabid/6307/bid/33396/8-of-the-Biggest-Marketing-Faux-Pas-of-All-Time.aspx
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/809
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9.11: Why It Matters- Branding
Why analyze elements of a brand and explain how the brand-building process contributes to the success of products or services?
Pop Quiz!
Instructions: Grab a piece of paper and jot down answers to the following questions:
• What is your favorite brand of clothing?
• Why is it your favorite?
• List a word or phrase that describes how this brand makes you feel:
• What is your favorite brand of car?
• Why is it your favorite?
• List a word or phrase that describes how this brand makes you feel:
• What is your favorite place to stop for coffee, donuts, a bagel, or some other snack?
• Why is it your favorite?
• List a word or phrase that describes how this place (which is also a brand) makes you feel:
Set the paper aside for a moment and keep reading. We’ll come back to it.
The Power of Brand
Brands are images that exist in your mind–and in the minds of other consumers–about the things around you: products, services, places, companies, people, entertainment, and so on. In a modern world that offers many choices, brands help simplify the decisions you make about what to buy, where to go, and how to spend your time.
Brands are powerful. When you explain why a brand is your favorite, you probably identify some of the traits or features of its products or services that explain rationally what makes it better than others. But rational explanations are just part of the story. Strong brands are powerful because they also tap into emotions. They make you feel a certain way, and that feeling is hard for any other brand to replicate—let alone replace.
Brands can cause people to spend more money on a product than they would otherwise. Brands can create a sense of loyalty and even lock-in—that haloed point where a tribe of dedicated fans always chooses one company’s product or services over another.
So how do they do it? What’s happening in marketing departments to create these powerful, emotional assets called brands?
What Creates a Brand Experience?
Go back to your pop quiz responses. Pick one of your favorite brands and list 2–3 things the company behind the brand provides to help make that favorite brand so memorable or special for you. It could be any of the following things–or something else entirely:
• Brand name
• Product design
• The shopping experience
• The post-purchase experience
• People or communities associated with the brand
• Product packaging
• Advertising
• Social media activity
• Customer service
• Comfort, convenience, or ease-of-use
• Attitude or personality of the brand
• Special information, deals, or promotions targeted to you
• Membership or loyalty programs
• Pricing or value for the money
• Events or activities tied to the brand
• Something else?
Marketers use these tools and many others to create the total experience with a product, service, or company that turns it into an actual “brand.” In this module, you’ll learn how a brand starts and discover what it takes to coordinate all the different parts of the unique brand.
The Paradox of Brand
Although organizations take all kinds of measures to create and build brands, in fact, the brand isn’t just what the company says it is. In the end, the brand is what customers believe it is, as the following quote explains:
So what exactly is a brand?
A brand is a person’s gut feeling about a product, service, or organization.
It’s a gut feeling because people are emotional, intuitive beings. It’s a person’s gut feeling because brands are defined by individuals, not companies, markets, or the public.
It’s not what YOU say it is.
It’s what THEY say it is.
—Marty Neumeier, author and branding consultant, Neutron LLC
Companies can do a lot to create and build brands, but the net impact and value is what happens inside the mind of the consumer. The supreme challenge of brand is to make your vision of your brand the same thing other people experience and believe about your brand.
Read on to learn more.
Learning Outcomes
• Describe the elements of brand and how brands add value to an organization’s products and services
• Define brand equity and its role in measuring brand strength
• Explain the how marketers use brand positioning to align marketing activities and build successful brands
• Explain the importance of name selection in the success of a brand
• Discuss the role of packaging in the brand-building process
• Explain key strategies for developing brands including brand ownership, brand and line extensions, co-branding and licensing
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9.12: Outcome- Brand Development Strategies
What you’ll learn to do: explain key strategies for developing brands including brand ownership, brand and line extensions, co-branding, and licensing
Up to this point, this module has explored the important ingredients of creating brands. But once you’ve combined the ingredients and you have a fledgling brand, then what?
You need a branding strategy.
Branding strategies are different approaches for expanding the reach of a brand, reinforcing its value, and finding advantageous ways to coexist with other brands. It’s a crowded marketplace for brands today, and in the future it will only grow more crowded. As you’ll discover, carefully selected and wisely executed branding strategies can multiply the benefits of the brands you build.
Learning Activities
The learning activities for this section include the following:
• Reading: Brand Development Strategies
• Self Check: Brand Development Strategies
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• Outcome: Brand Development Strategies. Provided by: Lumen Learning. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.10%3A_Self_Check-_Packaging.txt |
Managing Brands As Strategic Assets
As organizations establish and build strong brands, they can pursue a number of strategies to continue developing them and extending their value to stakeholders (customers, retailers, supply chain and distribution partners, and of course the organization itself).
Brand Ownership
Steve Jobs, Co-founder and CEO of Apple
Who “owns” the brand? The legal owner of a brand is generally the individual or entity in whose name the legal registration has been filed. Operationally speaking, brand ownership should be the responsibility of an organization’s management and employees. Brand ownership is about building and maintaining a brand that reflects your principles and values. Brand building is about effectively persuading customers to believe in and purchase your product or service. Iconic brands, such as Apple and Disney, often have a history of visionary leaders who champion the brand, evangelize about it, and build it into the organizational culture and operations.
When an organization truly owns its brand, its efforts are unified around a common symbol of the value it provides to customers. These organizations use their resources wisely to produce marketing that is targeted and effective because they have a sophisticated understanding of the marketplace; they know how their brand and offerings fit into it, which audiences they are targeting, and they have a strategy for successful growth. These advantages lead to disciplined and effective brand management, which enables these organizations to remain relevant in a rapidly changing and often saturated marketplace.
Branding Strategies
A branding strategy helps establish a product within the market and to build a brand that will grow and mature. Making smart branding decisions up front is crucial since a company may have to live with their decisions for a long time. The following are commonly used branding strategies:
“Branded House” Strategy
A “branded house” strategy (sometimes called a “house brand”) uses a a strong brand—typically the company name—as the identifying brand name for a range of products (for example, Mercedes Benz or Black & Decker) or a range of subsidiary brands (such as Cadbury Dairy Milk or Cadbury Fingers). Because the primary focus and investment is in a single, dominant “house” brand, this approach can be simpler and more cost effective in the long run when it is well aligned with broader corporate strategy.
“House of Brands” Strategy
Kool-Aid Man
With the “house of brands” strategy, a company invests in building out a variety of individual, product-level brands. Each of these brands has a separate name and may not be associated with the parent company name at all. These brands may even be in de facto competition with other brands from the same company. For example, Kool-Aid and Tang are two powdered beverage products, both owned by Kraft Foods. The “house of brands” strategy is well suited to companies that operate across many product categories at the same time. It allows greater flexibility to introduce a variety of different products, of differing quality, to be sold without confusing the consumer’s perception of what business the company is in or diluting brand perceptions about products that target different tiers or types of consumers within the same product category.
Competitive Multi-Brand Strategy
In a very saturated market, a supplier can deliberately launch totally new brands in apparent competition with its own existing strong brand (and often with identical product characteristics) to soak up some of the share of the market. The rationale is that having three out of twelve brands in such a market will give a greater overall share than having one out of ten. Procter & Gamble is a leading exponent of this philosophy, running as many as ten detergent brands in the U.S. market. In 2015, hotel giant Marriott International operated sixteen different hotel chains across different pricing tiers, including some chains that compete with one another directly. A sampling of these includes Fairfield Inn, Springhill Suites, Residence Inn, Courtyard, Marriott, JW Marriott, and The Ritz Carlton, among others.
Cannibalization is a particular problem with the multi-brands-strategy. As will be discussed further in the product marketing module, cannibalization occurs when the new brand takes business away from an established one, which the organization also owns. This may be acceptable (indeed expected) if there is a net gain overall.
Brand Families, or “Umbrella Branding”
Similar to a “branded house” strategy, a brand family uses a single brand name for multiple products. However, brand families–also called umbrella branding–may also be used in a “house of brands” strategy to extend the reach of some of the company’s brands. For instance, consumer products powerhouse Procter & Gamble manages many popular brands including Tide (laundry detergent), Pampers (disposable diapers), Ivory (soap), and Olay (skin care and beauty products) among many others. Each of these brands constitutes its own family, with multiple products carrying the same brand name.
Attitude Branding and Iconic Brands
Attitude branding is a strategy of representing the larger feeling that a brand comes to embody. The idea is that the brand’s feeling or “attitude” transcends the specific products being consumed. Examples of companies that use this approach effectively include:
• Nike: “Just do it”
• Apple: “Think different”
• Patagonia: “We’re in business to save the planet.”
Effective attitude branding can transform strong brands into iconic, “lifestyle” brands that contribute to the consumer’s self-expression and personal identity.
Component Branding
Some suppliers of important product or manufacturing components try to guarantee positions of preference by promoting these components as brands in their own right. For example, Intel created competitive advantage for itself in the PC market with the slogan (and famous sticker) “Intel Inside.”
Private-Label or Store Branding
Also called store branding, private-label branding has become increasingly popular. In cases where the retailer has a particularly strong identity, the private label may be able to compete against even the strongest brand leaders and may outperform those products that are not otherwise strongly branded. The northeastern U.S. grocery chain Wegman’s offers many grocery products that carry the Wegman’s brand name. Meanwhile national grocery chain Safeway offers several different private label “store” brands: Signature Select, O Organics, Signature Cafe, and Primo Taglio, among others.[1]
“No-Brand” Branding
A number of companies successfully pursue “no-brand” strategies by creating packaging that imitates generic-brand simplicity. “No brand” branding can be considered a type of branding since the product is made conspicuous by the absence of a brand name. “Tapa Amarilla” or “Yellow Cap” in Venezuela during the 1980s is a prime example of no-brand strategy. It was recognized simply by the color of the cap of this cleaning products company.
Personal and Organizational Brands
Personal and organizational branding are strategies for developing a brand image and marketing engine around individual people or groups. Personal branding treats persons and their careers as products to be branded and sold to target audiences. Organizational branding promotes the mission, goals, and/or work of the group being branded. The music and entertainment industries provide many examples of personal and organizational branding. From Justin Bieber to George Clooney to Kim Kardashian, virtually any celebrity today is a personal brand. Likewise, bands, orchestras, and other artistic groups typically cultivate an organizational (or group) brand. Faith branding is a variant of this brand strategy, which treats religious figures and organizations as brands seeking to increase their following. Mission-driven organizations such the Girl Scouts of America, the Sierra Club, the National Rifle Association (among millions of others) pursue organizational branding to expand their membership, resources, and impact.
Crowd-Sourced Branding
Crowd-sourced branding is the phenomenon of brands being created “by the people” for the business, which is the opposite of how branding traditionally works (business create the brands). This method minimizes the risk of brand failure, since the people who might reject the brand are the ones involved in the branding process. The drawback is that the business cannot fully control these brands, because they are the product of crowd sourcing and, in effect, are owned by “the crowd.”
An interesting example of crowd-sourced branding is the Timbers Army, the independent fan organization of the Portland Timbers Major League Soccer (MLS) Team. The Timbers Army was created by fans, and it operates independently from the MLS team and the Portland Timbers management. Although the organizations coordinate in many areas, ultimately the fan organization gets to assert and control its own brand identity.
Place Branding and Nation Branding
The developing fields of place branding and nation branding work on the assumption that places compete with other places to win over people, investment, tourism, economic development, and other resources. With this in mind, public administrators, civic leaders, and business groups may team up to “brand” and promote their city, region, or nation among target audiences. Depending on the goals they are trying to achieve, targets for these marketing initiatives may be real-estate developers, employers and business investors, tourists and tour/travel operators, and so forth. While place branding may focus on any given geographic area or destination, nation branding aims to measure, build, and manage the reputation of countries.
The city-state Singapore is an early, successful example of nation branding. The Las Vegas “What Happens Here, Stays Here” campaign, shown in in the following video, is a well-known example of place branding.
A link to an interactive elements can be found at the bottom of this page.
Co-Branding
Co-branding is an arrangement in which two established brands collaborate to offer a single product or service that carries both brand names. In these relationships, generally both parties contribute something of value to the new offering that neither would have been able to achieve independently. Effective co-branding builds on the complementary strengths of the existing brands. It can also allow each brand an entry point into markets in which they would not otherwise be credible players.
The following are some examples of co-branded offerings:
• Delta Airlines and American Express offer an entire family of co-branded credit cards; other airlines offer similar co-branded cards that offer customer rewards in terms of frequent flyer points and special offers.
Fiat 500 “Barbie”
• Home furnishings company Pottery Barn and the paint manufacturer Benjamin Moore co-brand seasonal color palettes for home interior paints
• Forever 21 worked with the USPS to create an exclusive line of clothing featuring USPS branding.
• Auto maker Fiat and toy maker Mattel teamed up to celebrate Barbie’s fiftieth anniversary with the nail-polish-pink Fiat 500 Barbie car.
Co-branding is a common brand-building strategy, but it can present difficulties. There is always risk around how well the market will receive new offerings, and sometimes, despite the best-laid plans, co-branded offerings fall flat. Also, these arrangements often involve complex legal agreements that are difficult to implement. Co-branding relationships may be unevenly matched, with the partners having different visions for their collaboration, placing different priority on the importance of the co-branded venture, or one partner holding significantly more power than the other in determining how they work together. Because co-branding impacts the existing brands, the partners may struggle with how to protect their current brands while introducing something new and possibly risky.
Brand Licensing
Brand licensing is the process of leasing or renting the right to use a brand in association with a product or set of products for a defined period and within a defined market, geography, or territory. Through a licensing agreement, a firm (licensor) provides some tangible or intangible asset to another firm (licensee) and grants that firm the right to use the licensor’s brand name and related brand assets in return for some payment. The licensee obtains a competitive advantage in this arrangement, while the licensor obtains inexpensive access to the market in question.
Campbell’s “Star Wars” Soup.
Licensing can be extremely lucrative for the owner of the brand, as other organizations pay for permission to produce products carrying a licensed name. The Walt Disney Company was an early pioneer in brand licensing, and it remains a leader in this area with its wildly popular entertainment and toy brands: Star Wars, Disney Princesses, Toy Story, Mickey Mouse, and so on. Toy manufacturers, for example, pay millions of dollars and vie for the rights to produce and sell products affiliated with these “super-brands.”
A licensing arrangement contains risk, in that if the licensing venture is very successful, the profit potential is limited by the terms of the licensing agreement. If the venture isn’t successful, the licensee loses a substantial investment, and the failure may reflect poorly on the original brand. Also, a licensor might be very controlling about how the licensed offering is designed, produced, distributed, marketed, or sold, making it difficult for the licensee to meet the expectations or requirements of the licensor. Conversely, a licensor might make a long-term commitment to a firm, and that firm could be less capable than expected, leading to a botched implementation of the licensing venture. Or, the licensee may be unwilling to invest in product quality, marketing, distribution, or other areas needed to be successful.
Franchising represents a very popular type of licensing arrangement for many consumer products firms. Holiday Inn, Hertz Car Rental, and McDonald’s have all expanded globally through franchising. In a franchise, the entity purchasing the franchise (the franchisee) typically pays an up-front fee plus a percentage of revenue in return for the right to use branded assets such as recognized brand name(s), proven products, building design and decor (as in a fast-food restaurant chain), business processes, and so forth.
Lines Extensions and Brand Extensions
Organizations use line extensions and brand extensions to leverage and increase brand equity.
A company creates a line extension when it introduces a new variety of offering within the same product category. To illustrate with the food industry, a company might add new flavors, package sizes, nutritional content, or products containing special additives in line extensions. Line extensions aim to provide more variety and hopefully capture more of the market within a given category. More than half of all new products introduced each year are line extensions. For example, M&M candy varieties such as peanut, pretzel, peanut butter, and dark chocolate are all line extensions of the M&M brand. Diet Coke™ is a line extension of the parent brand Coke ™. While the products have distinct differences, they are in the same product category.
A brand extension moves an existing brand name into a new product category, with a new or somehow modified product. In this scenario, a company uses the strength of an established product to launch a product in a different category, hoping the popularity of the original brand will increase receptivity of the new product. An example of a brand extension is the offering of Jell-O pudding pops in addition to the original product, Jell-O gelatin. This strategy increases awareness of the brand name and increases profitability from offerings in more than one product category.
Another form of brand extension is a licensed brand extension. In this scenario, the brand owner works with a partner (sometimes a competitor), who takes on the responsibility of manufacturing and selling the new products, generally paying a royalty every time a product is sold.
Line extensions and brand extensions are important tools for companies because they reduce financial risk associated with new-product development by leveraging the equity in the parent brand name to enhance consumers’ perceptions and receptivity towards new products. Due to the established success of the parent brand, consumers will have instant recognition of the product name and be more likely to try the new line extension.
Also, launching a new product is time-consuming, and it requires a generous budget to create awareness and promote a product’s benefits. As a result, promotional costs are much lower for a line extension than for a completely new product. More products expand the company’s shelf-space presence, too, thereby enhancing brand recognition. For example, consider Campbell’s Soups™: the strength of Campbell’s™ brand lowers costs of launching a new flavor of soup, such as Healthy Request Roasted Chicken with Country Vegetables Soup™, due to the established brand name and package design. Consumers who have enjoyed Campbell’s Chicken Noodle Soup™ are likely to try Campbell’s Healthy Request Roasted Chicken with Country Vegetables Soup™, even with minimal impact from advertisements and promotions.
Overall, the main benefits of a line extensions and brand extensions are the following:
• Expand company shelf-space presence
• Gain more potential customers
• Offer customers more variety
• Greater marketing efficiency
• Greater production efficiency
• Lower promotional costs
• Increased profits
Risks of Brand/Line Extension
Zippo Perfume. Brand extension, or dilution?
While there can be significant benefits to brand-extension strategies, there can also be significant risks, resulting in a diluted or severely damaged brand image. Poor choices for brand extension may overextend the brand so that it no longer stands for something meaningful and valued by consumers. This phenomenon is called branddilution. It causes the core brand to deteriorate, and it damages brand equity. According to research, there is a higher rate of brand extension failures than successes. Studies also suggest that when brand extensions fail, not only does the new product fail but the core brand’s image and equity also suffer. When products fail, negative associations and a poor communications strategy can harm the parent brand and even an entire brand family.
A common, visible example of brand dilution occurs when fashion and designer companies extend brands into fragrances, shoes, and accessories, furniture, hotels, vehicles, and beyond. Often the products being introduced are no different from the offerings already available in the market, with the exception of an added brand name (and probably a higher “designer” price tag). Brand dilution is almost guaranteed when consumers no longer see the branded product adding value. Brand dilution can also happen when the new products do not meet the standards consumers expect around quality, workmanship, price, design, or other differentiating features of the brand. An inferior brand extension leads to negative associations that reflect poorly on the original brand. Customers no longer trust the brand in all product categories, and they may be less willing to pay a price premium for it in the future.
Line extensions carry similar risks. If the new line extension fails to satisfy, consumers’ attitudes toward other products carrying the same brand name may be damaged. Additionally, there is potential for intra-firm competition between the parent product and the line extension or between two or more line extensions. The key to avoiding intra-firm competition is to clearly differentiate between products. Although similar, the products must be different enough that they will not compete with one another as much as they will with the brands of rival companies.
1. “Our Brands.” Safeway. Accessed September 23, 2019. www.safeway.com/ShopStores/Brands/Our-Brands.page. ↵
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• Image: Kool-Aid Man. Provided by: Kraft Foods. Located at: en.Wikipedia.org/wiki/File:Kool_Aid_Man.jpeg. License: All Rights Reserved. License Terms: Fair use under U.S. copyright law
• Timbers Army Crest. Provided by: Timbers Army. Located at: https://en.Wikipedia.org/wiki/File:Timbers_Army_crest.png. License: All Rights Reserved. License Terms: Fair use under U.S. copyright law
• Image: Campbell's Star Wars Soup. Provided by: Campbell's Soup Company. License: All Rights Reserved. License Terms: Fair use under U.S. copyright law
• Screenshot Zippo Perfume. Provided by: Zippo Manufacturing Company. License: All Rights Reserved. License Terms: Fair use under U.S. copyright law
• What Happens Here, Stays Here - Sketchbook Commercial. Authored by: Visit Las Vegas. Located at: https://youtu.be/HsCJCsDd2IY. License: All Rights Reserved. License Terms: Standard YouTube license
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• Intel Inside. Provided by: Wikipedia. Located at: upload.wikimedia.org/Wikipedia/commons/thumb/4/44/Intel_Inside_Logo.svg/1000px-Intel_Inside_Logo.svg.png. License: Public Domain: No Known Copyright | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.13%3A_Reading-_Brand_Development_Strategies.txt |
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/792
Contributors and Attributions
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• Self Check: Brand Development Strategies. Provided by: Lumen Learning. License: CC BY: Attribution
9.15: Putting It Together- Branding
Investigating Brand Power
As noted earlier in this module, every year organizations conduct analyses and publish lists of the world’s top brands. Forbes publishes a list of the most valuable brands in terms of dollar value. Interbrand analyzed what Business Insider called the most powerful brands in terms of the companies’ “financial performance, their role in purchasing decisions, and their competitive strength.”[1] The results are summarized in the following table:
Forbes Most Valuable Brands and Business Insider’s Most Powerful Brands
Most Valuable Brands in 2019[2] Most Powerful Brands in 2018[3]
1. Apple 1. Apple
2. Google 2. Google
3. Microsoft 3. Amazon
4. Amazon 4. Microsoft
5. Facebook 5. Coca-Cola
6. Coca-Cola 6. Samsung
7. Samsung 7. Toyota
8. Disney 8. Mercedes-Benz
9. Toyota 9. Facebook
10. McDonald’s 10. McDonald’s
Most of the brands on both lists are household names. Not surprising in our present information age, technology companies are heavily represented on both the most valuable brand list and the most powerful brand list.
All of these brands offer products and services that have created, shaped, or fundamentally redefined the categories in which they operate. What sets these companies apart from their competitors who didn’t make the list is how they have invested in brand building to support their broader corporate goals for growth and success.
Behind the Power Brand: LEGO
Toymaker LEGO provides a great example of the brand-alignment and brand-building strategies explored in this module. Anyone who has wandered through the LEGO section of a toy store or a department store knows that the company understands its target audiences very well: young children (ages 1.5 to 11) who like to build things and parents who want to guide their children’s development and success—in other words, virtually all children and all parents.
LEGO articulates perfectly the brand promise its toys deliver to these audiences: Joy of building, pride of creation. As illustrated in the LEGO Brand Framework (see Figure 1, below), the company values are in step with this promise: imagination, creativity, fun, learning, caring, and quality.
The company has also developed a fairly elaborate definition–and a name–for its brand personality: My LEGO Friend. What is this friend like?
My LEGO friend . . . has a vivid imagination . . . is curious and likes to try out new things . . . is always positive and optimistic . . . is fun to be around with . . . enjoys bringing people together . . . is friendly and approachable . . . is caring for others . . . doesn’t get bothered by the little things . . . can comfortably adapt to play different roles[4]
With such a clear articulation of its brand promise, brand personality, and the related benefits it aspires to deliver, LEGO employees have clear guidance about what they need to accomplish. The next step is to effectively deliver on the brand promise with products, services, and marketing activities that guarantee that children and their parents will experience joy and pride in connection with LEGO Bricks. Here is just a sampling:
• Product Design: Easy, step-by-step instructions that do not require reading, in every building kit . After a short learning curve, children can assemble age-appropriate LEGO creations without help from adults.
• Events: Free, monthly “Mini Model Build” events at LEGO toy stores around the world, where children can build and take home a mini model, free of charge.
• Fan Communications: A free quarterly magazine, available online or mailed to a child’s home, filled with stories, contests, fan photos, building ideas to capture the imagination, and, of course, the latest generation of LEGO products any child might desire.
• Licensing Agreements: Product lines offering toys linked to popular children’s entertainment brands such as Disney Princesses, Star Wars, Frozen, Hello Kitty, and Minecraft.
• Theme Parks: LEGOLAND amusement parks designed around the LEGO theme, inviting fans to experience a life-size world of LEGO and see the the wonders of the world constructed out of LEGO bricks.
LEGOLAND
It is worth noting that LEGO considers seriously only the activities that are in keeping with its brand, but also the activities that might undermine it. In October 2015, the Chinese dissident artist Ai Weiwei tried to place a bulk order of LEGO bricks for an art exhibition he was planning at the National Gallery of Victoria, Australia, on the subject of free speech. Somewhat surprisingly for many LEGO fans, the company declined Weiwei’s request.
According to the artist, the company indicated that “they cannot approve the use of LEGOs for political works.” This explanation was later confirmed by a company spokesman.
Weiwei went on to denounce the company publicly in social media, accusing it of censorship and discrimination. He also suggested that LEGO’s decision was motivated by trying to protect its commercial interests in China. In response to the social media flurry, many LEGO owners offered to donate their bricks to help Weiwei complete the project. Donation centers were set up in eleven cities (including Beijing) to help the artist’s cause. LEGO itself faced public criticism from longtime fans who were disappointed by its decision. People cited other artistic projects with political themes that LEGO had supported, complaining about the company’s apparently inconsistent behavior.[5]
So why would LEGO make this decision, and how does it relate to brand management? The company was concerned about politicizing its brand and product, and it didn’t want to get embroiled in a controversy that might overshadow the universal, positive experience at LEGO’s core: Joy of building, pride of creation.
Then, in January 2016, the Weiwei vs. LEGO story broke again, but this time with a different ending. In the intervening weeks, the artist had continued to lobby LEGO’s executive leadership to change their position, and eventually they agreed.[6] When people submit bulk order requests, the company will no longer inquire about the “thematic purpose” of the project. Instead, it will simply require any publicly displayed works to make it clear that LEGO does not endorse or support the project. According to a company statement,
Previously, when asked to sell very large quantities of LEGO® bricks for projects, the LEGO Group has asked about the thematic purpose of the project. This has been done, as the purpose of the LEGO Group is to inspire children through creative play, not to actively support or endorse specific agendas of individuals or organizations.
However, those guidelines could result in misunderstandings or be perceived as inconsistent, and the LEGO Group has therefore adjusted the guidelines for sales of LEGO bricks in very large quantities. As of January 1st, the LEGO Group no longer asks for the thematic purpose when selling large quantities of LEGO bricks for projects. Instead, the customers will be asked to make it clear – if they intend to display their LEGO creations in public – that the LEGO Group does not support or endorse the specific projects.[7]
With the opportunity for deeper consideration, LEGO found a new policy that is consistent with its brand promise and purpose of supporting creative activity, while at the same time protecting the LEGO brand from being politicized.
Navigating the complexities of brand management is never simple. As LEGO discovered, even hard-core fans may turn away from a beloved brand. However, brand building is a long-term endeavor. Over time, most super-brands demonstrate that staying true to consistent, well-designed brand positioning pays off.
1. Chenel, Thomas. “These Are the 17 Most Powerful Brands in the World.” Business Insider, October 9, 2018. https://www.businessinsider.com/these-are-the-17-most-powerful-brands-in-the-world-2018-10. ↵
2. “The World's Most Valuable Brands.” Forbes. Forbes Magazine. Accessed September 23, 2019. https://www.forbes.com/powerful-brands/list/. ↵
3. Interbrand. “Best Brands.” Interbrand. Accessed September 23, 2019. www.interbrand.com/best-brands/best-global-brands/2018/ranking/. ↵
4. “Lego Brand Identity & Experience.” Lego. Lego, 2014. http://www.hothbricks.com/pdf/6123880.pdf. ↵
5. Ryan, Fergus. “Ai Weiwei Swamped by Lego Donation Offers after Ban on Use for 'Political' Artwork.” The Guardian. Guardian News and Media, October 25, 2015. http://www.theguardian.com/artanddesign/2015/oct/25/ai-weiwei-swamped-by-lego-donation-offers-after-ban-on-use-for-political-artwork. ↵
6. news.vice.com/article/the-chinese-artist-ai-weiwei-has-convinced-lego-to-change-its-policy-on-political-projects ↵
7. Trangbæk, Roar Rude. “Adjusted Guidelines for Bulk Sales.” Lego Newsroom, January 12, 2016. www.lego.com/en-gb/aboutus/news-room/2016/january/adjusted-guidelines-for-bulk-sales. ↵
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Student Instructions: Complete the following information about the organization and products and/or services you will focus on as you develop a complete marketing plan throughout the course. You may need to do research to get answers to the questions below. The subject for this assignment should be the organization and products and/or services you identified for the Marketing Plan, Part 1 Assignment.
Marketing Information and Research
Research Question
Describe an important question you need to answer or a problem you are trying to solve in order to help the organization meet its goals and objectives.
Information Needed
Describe the information your organization needs to make effective decisions about how to answer this question or solve this problem.
Research Recommendations
What research do you recommend in order to provide the information you need? What research method(s) would you use to get the information you need? Will it involve secondary data and research? Primary research such as interviews, focus groups and surveys? Why do you recommend this research approach?
Customer Decision-Making Profile
Identifying the Customer and Problem
Describe a primary decision maker in your target segment: who they are, what they like, how they make buying decisions. Describe the primary problem(s) your organization, product or service will help them solve.
Factors Influencing Customer Decisions
Provide a brief profile of your target segment using at least three of the following categories:
• Geographic characteristics: e.g., location, region, population size or climate.
• Personal and demographic characteristics: e.g., age, gender, family size, family life stage, income, personality.
• Social and Psychological characteristics: e.g., culture, social class, lifestyle, motivation, attitudes, reference groups, beliefs.
• Situational characteristics: e.g., buying situation, level of involvement, market offerings, frequency of use, brand loyalty.
• B2B/organizational buying considerations: e.g., individual factors, organizational factors, business environment factors, types of complexity
Reaching the Customer
Based on this profile, identify 2-3 marketing strategies or tactics you believe would be effective at reaching this target segment, and briefly explain why they are a good fit.
Positioning and Differentiation
Positioning and differentiation explain what you want to be known for in the market, and how you are different from competitors. Respond to the following questions.
Competitive Advantages
List the competitive advantages of the product, service or organization you’re focusing on: the things that make it different from competitors in positive ways.
Market Niche and Positioning Strategy
Describe the market niche you want to fill, along with the positioning strategy you recommend using. Why do you think this is the right approach?
Positioning Statement
Develop a positioning statement using this formula: “To [target audience], [product/service/organization name] is the only [category or frame of reference] that [points of differentiation/benefits delivered] because [reasons to believe].
Repositioning Considerations
Do you recommend a repositioning that improves on what the organization has been using up to this point? Why or why not?
Branding
Brand Description
What is the “brand” you are trying to build? What do people think about this brand today, and how do they experience it?
Brand Promise
What is the brand promise for this brand? If one hasn’t been defined yet, create one. If you believe the brand promise needs improvement, please suggest how you would refine it. Why is your recommended brand promise a good fit?
Brand Voice and Personality
Describe your brand voice and personality using the is/is never template:
• [Brand] is:
• [Brand] is never:
Brand Positioning and Strategy
Make a recommendation about brand positioning and/or branding strategy to help build the brand and contribute to align it with what your target segment wants. How will this contribute to the success of your product, service or organization?
Sample Grading Rubric
Marketing Information and Research Grading Rubric
Marketing Information and Research Grading Rubric
Criteria: Marketing Information and Research Not Evident Developing Proficient Exemplary Points
Professionalism 0-6 pts
Many grammar and spelling mistakes, citations are missing or not all sources are cited, writing lacks logical organization. It may show some coherence but ideas lack unity. Serious errors and generally is an unorganized format and information.
12 pts
Grammar and spelling mistakes, citations mistakes, some sources not cited, organization and readability is difficult to follow, fairly clear articulation of ideas, incorrect use of templates, etc.
18 pts
Few grammar and spelling mistakes, few citations mistakes, all sources cited, fair organization and readability, fairly clear articulation of ideas, mostly correct use of templates, etc.
24 pts
Proper grammar, spelling, citations, sources, good organization, readability, clear articulation of ideas, correct use of templates, etc.
24 pts
Thoroughness 0-6 pts
Response doesn’t follow instructions; response is not researched or may state items directly from the source with little to no original thought, writing is confusing and difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete or missing analysis
12 pts
Doesn’t follow all instructions; response is not researched and may be confusing or difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete analysis
18 pts
Follows instructions; response is researched and articulate; may slightly fall short of or exceed appropriate length; addresses the majority of the prompts and assignment criteria; thoughtful analysis.
24 pts
Follows instructions; response is well-researched and articulate; appropriate length; addresses all prompts and assignment criteria; thoughtful analysis.
24 pts
Progression 0-3 pts
Does not incorporate feedback or suggestions from instructor and peers
6 pts
Incorporates minimal feedback and suggestions from instructor and peers; demonstrates minimal continuous improvement
9 pts
Incorporates much of the feedback and suggestions from instructor and peers; demonstrates continuous improvement
12 pts
Incorporates feedback and suggestions from instructor and peers and makes an effort to improve the writing by editing it themselves; demonstrates continuous improvement and initiative in revising and improving work
12 pts
Total points possible for Marketing Information and Research Assignment: 60 pts.
Branding Grading Rubric
Branding Grading Rubric
Criteria: Branding Not Evident Developing Proficient Exemplary Points
Professionalism 0-4 pts
Many grammar and spelling mistakes, citations are missing or not all sources are cited, writing lacks logical organization. It may show some coherence but ideas lack unity. Serious errors and generally is an unorganized format and information.
8 pts
Grammar and spelling mistakes, citations mistakes, some sources not cited, organization and readability is difficult to follow, fairly clear articulation of ideas, incorrect use of templates, etc.
12 pts
Few grammar and spelling mistakes, few citations mistakes, all sources cited, fair organization and readability, fairly clear articulation of ideas, mostly correct use of templates, etc.
16 pts
Proper grammar, spelling, citations, sources, good organization, readability, clear articulation of ideas, correct use of templates, etc.
16 pts
Thoroughness 0-4 pts
Response doesn’t follow instructions; response is not researched or may state items directly from the source with little to no original thought, writing is confusing and difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete or missing analysis
8 pts
Doesn’t follow all instructions; response is not researched and may be confusing or difficult to follow; significantly falls short of or exceeds appropriate length; doesn’t address all prompts and assignment criteria; incomplete analysis
12 pts
Follows instructions; response is researched and articulate; may slightly fall short of or exceed appropriate length; addresses the majority of the prompts and assignment criteria; thoughtful analysis.
16 pts
Follows instructions; response is well-researched and articulate; appropriate length; addresses all prompts and assignment criteria; thoughtful analysis.
16 pts
Progression 0-2 pts
Does not incorporate feedback or suggestions from instructor and peers
4 pts
Incorporates minimal feedback and suggestions from instructor and peers; demonstrates minimal continuous improvement
6 pts
Incorporates much of the feedback and suggestions from instructor and peers; demonstrates continuous improvement
8 pts
Incorporates feedback and suggestions from instructor and peers and makes an effort to improve the writing by editing it themselves; demonstrates continuous improvement and initiative in revising and improving work
8 pts
Total points possible for Branding Assignment: 40 pts.
Total points possible for Marketing Plan, Part 2 Assignment (Marketing Information and Research, and Branding combined): 100 pts.
Contributors and Attributions
CC licensed content, Original
• Assignment: Marketing Plan, Part 2. Provided by: Lumen Learning. License: CC BY: Attribution
9.17: Outcome- Elements of Brand
What you’ll learn to do: describe the elements of brand and how brands add value to an organization’s products and services
If you walk through a parking lot at school, work, or the local mall, chances are good that you could identify all the car brands just by looking at hood emblems. When you spot someone with a “swoosh” on her T-shirt, you probably already know she’s wearing Nike-brand apparel without even asking. How is it possible to know so much just by looking at an image or a shape? The answer is branding!
These familiar symbols are the tangible marks of branding in our everyday lives. But brands are much more than just logos and names. Brands also encompass everything else that contributes to your perception of that brand and what it represents.
The specific things you’ll learn in this section include:
• Define brand
• Explain elements that contribute to a brand and the brand-building process
• Explain how brands contribute value to organizations and consumers
• Describe different types of brands
Learning Activities
The learning activities for this section include the following:
• Reading: Elements of Brand
• Video: REI Builds Brand by Closing on Black Friday
• Reading: Types of Brands
• Self Check: Elements of Brand
Contributors and Attributions
CC licensed content, Original
CC licensed content, Shared previously
• Outcome: Branding. Authored by: Linda Williams and Lumen Learning. Located at: courses.candelalearning.com/masterybusiness2xngcxmasterfall2015/chapter/branding/. License: CC BY: Attribution | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.16%3A_Assignment-_Marketing_Plan_Part_2.txt |
What Is a Brand?
As we start our exploration of brand and its role in marketing, take a few minutes to watch the following video about Coca-Cola, which is perhaps one of the most iconic brands of all time. As you watch this video, look and listen for the all the different elements that contribute to the thing we call a “brand.”
A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/pom2/?p=452
Brands are interesting, powerful concoctions of the marketplace that create tremendous value for organizations and for individuals. Because brands serve several functions, we can define the term “brand” in the following ways:
1. A brand is an identifier: a name, sign, symbol, design, term, or some combination of these things that identifies an offering and helps simplify choice for the consumer.
2. A brand is a promise: the promise of what a company or offering will provide to the people who interact with it.
3. A brand is an asset: a reputation in the marketplace that can drive price premiums and customer preference for goods from a particular provider.
4. A brand is a set of perceptions: the sum total of everything individuals believe, think, see, know, feel, hear, and experience about a product, service, or organization.
5. A brand is “mind share”: the unique position a company or offering holds in the customer’s mind, based on their past experiences and what they expect in the future.
A brand consists of all the features that distinguish the goods and services of one seller from another: name, term, design, style, symbols, customer touch points, etc. Together, all elements of the brand work as a psychological trigger or stimulus that causes an association to all other thoughts one has had about this brand.
Brands are a combination of tangible and intangible elements, such as the following:
• Visual design elements (i.e., logo, color, typography, images, tagline, packaging, etc.)
• Distinctive product features (i.e. quality, design sensibility, personality, etc.)
• Intangible aspects of customers’ experience with a product or company (i.e. reputation, customer experience, etc.)
Branding–the act of creating or building a brand–may take place at multiple levels: company brands, individual product brands, or branded product lines. Any entity that works to build consumer loyalty can also be considered a brand, such as celebrities (Lady Gaga, e.g.), events (Susan G. Komen Race for the Cure, e.g.), and places (Las Vegas, e.g.).
History of Branding
The word “brand” is derived from the Old Norse brand meaning “to burn,” which refers to the practice of producers burning their mark (or brand) onto their products. Italians are considered among the first to use brands in the form of watermarks on paper in the 1200s. However, in mass-marketing, this concept originated in the nineteenth century with the introduction of packaged goods.
The Coca-Cola logo is an example of a widely recognized trademark and global brand.
During the Industrial Revolution, the production of many household items, such as soap, was moved from local communities to centralized factories to be mass-produced and sold to the wider markets. When shipping their items, factories branded their logo or insignia on the barrels they used. Eventually these “brands” became trademarks—recognized symbols of a company or product that have been established by use. These new brand marks enabled packaged-goods manufacturers to communicate that their products were distinctive and should be trusted as much as (or more than) local competitors. Campbell Soup, Coca-Cola, Juicy Fruit gum, Aunt Jemima, and Quaker Oats were among the first products to be “branded.”
Brands Create Market Perceptions
A successful brand is much more than just a name or logo. As suggested in one of the definitions above, brand is the sum of perceptions about a company or product in the minds of consumers. Effective brand building can create and sustain a strong, positive, and lasting impression that is difficult to displace. Brands provide external cues to taste, design, performance, quality, value, or other desired attributes if they are developed and managed properly. Brands convey positive or negative messages about a company, product, or service. Brand perceptions are a direct result of past advertising, promotion, product reputation, and customer experience.
As an automobile brand, the Mercedes-Benz logo suggests high prestige.
A brand can convey multiple levels of meaning, including the following:
1. Attributes: specific product features. The Mercedes-Benz brand, for example, suggests expensive, well-built, well-engineered, durable vehicles.
2. Benefits: attributes translate into functional and emotional benefits. Mercedes automobiles suggest prestige, luxury, wealth, reliability, self-esteem.
3. Values: company values and operational principles. The Mercedes brand evokes company values around excellence, high performance, power.
4. Culture: cultural elements of the company and brand. Mercedes represents German precision, discipline, efficiency, quality.
5. Personality: strong brands often project a distinctive personality. The Mercedes brand personality combines luxury and efficiency, precision and prestige.
6. User: brands may suggest the types of consumers who buy and use the product. Mercedes drivers might be perceived and classified differently than, for example, the drivers of Cadillacs, Corvettes, or BMWs.
Brands Create an Experience
Effective branding encompasses everything that shapes the perception of a company or product in the minds of customers. Names, logos, brand marks, trade characters, and trademarks are commonly associated with brand, but these are just part of the picture. Branding also addresses virtually every aspect of a customer’s experience with a company or product: visual design, quality, distinctiveness, purchasing experience, customer service, and so forth. Branding requires a deep knowledge of customers and how they experience the company or product. Brand-building requires long-term investment in communicating about and delivering the unique value embodied in a company’s “brand,” but this effort can bring long-term rewards.
In consumer and business-to-business markets, branding can influence whether consumers will buy the product and how much they are willing to pay. Branding can also help in new product introduction by creating meaning, market perceptions, and differentiation where nothing existed previously. When companies introduce a new product using an existing brand name (a brand extension or a branded product line), they can build on consumers’ positive perceptions of the established brand to create greater receptivity for the new offering.
Brands Create Value
Brands create value for consumers and organizations in a variety of ways.
Benefits of Branding for the Consumer
The Dunkin’ Donuts logo, which includes an image of a DD cup of coffee, makes it easy to spot anywhere. The coffee is known for being a good value at a great price.
Brands help simplify consumer choices. Brands help create trust, so that a person knows what to expect from a branded company, product, or service. Effective branding enables the consumer to easily identify a desirable company or product because the features and benefits have been communicated effectively. Positive, well-established brand associations increase the likelihood that consumers will select, purchase, and consume the product. Dunkin’ Donuts, for example, has an established logo and imagery familiar to many U.S. consumers. The vivid colors and image of a DD cup are easily recognized and distinguished from competitors, and many associate this brand with tasty donuts, good coffee, and great prices.
Benefits of Branding for Product and Service Providers
For companies and other organizations that produce goods, branding helps create loyalty. It decreases the risk of losing market share to the competition by establishing a competitive advantage customers can count on. Strong brands often command premium pricing from consumers who are willing to pay more for a product they know, trust, and perceive as offering good value. Branding can be a great vehicle for effectively reaching target audiences and positioning a company relative to the competition. Working in conjunction with positioning, brand is the ultimate touchstone to guide choices around messaging, visual design, packaging, marketing, communications, and product strategy.
The Starbucks brand is associated with premium, high-priced coffee.
For example, Starbucks’ loyal fan base values and pays premium prices for its coffee. Starbucks’ choices about beverage products, neighborhood shops, the buying experience, and corporate social responsibility all help build the Starbucks brand and communicate its value to a global customer base.
Benefits of Branding for the Retailer
Retailers such as Target, Safeway, and Wal-Mart create brands of their own to create a loyal base of customers. Branding enables these retailers to differentiate themselves from one another and build customer loyalty around the unique experiences they provide. Retailer brand building may focus around the in-store or online shopping environment, product selection, prices, convenience, personal service, customer promotions, product display, etc.
Retailers also benefit from carrying the branded products customers want. Brand-marketing support from retailers or manufacturers can help attract more customers (ideally ones who normally don’t frequent an establishment). For example, a customer who truly values organic brands might decide to visit a Babies R Us to shop for organic household cleaners that are safe to use around babies. This customer might have learned that a company called BabyGanics, which brands itself as making “safe, effective, natural household solutions,” was only available at this particular retailer.
Contributors and Attributions
CC licensed content, Original
• Revision and adaptation. Provided by: Lumen Learning. License: CC BY-SA: Attribution-ShareAlike
CC licensed content, Shared previously
• Reading: Branding. Authored by: Linda Williams and Lumen Learning. Located at: courses.candelalearning.com/masterybusiness2xngcxmasterfall2015/chapter/reading-branding-labeling-and-packaging/. License: CC BY-SA: Attribution-ShareAlike
• Mercedes Benz. Authored by: MikesPhotos. Provided by: Pixabay. Located at: pixabay.com/photos/car-mercedes-transport-auto-motor-1506922/. License: CC0: No Rights Reserved
• Coca-Cola. Provided by: BBC. Located at: https://youtu.be/C_7tMOusVYo. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives
• Coca Cola Crown Corks. Authored by: Couleur. Provided by: Pixabay. Located at: pixabay.com/photos/coca-cola-crown-corks-red-1218688/. License: CC0: No Rights Reserved
• Dunkin Donuts. Authored by: Kirakirameister. Provided by: Wikimedia Commons. Located at: commons.wikimedia.org/wiki/File:Dunkin%27_Donuts_Myeongdong.JPG. License: CC BY-SA: Attribution-ShareAlike
• Starbucks Coffee Sign. Authored by: JerryUnderscore. Provided by: Pixabay. Located at: pixabay.com/photos/starbucks-coffee-sign-city-urban-1972319/. License: CC0: No Rights Reserved | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.18%3A_Reading-_Elements_of_Brand.txt |
Organizations build their brands through all the ways they communicate and interact with consumers. Sometimes a company takes specific actions to demonstrate what a brand stands for, attract attention, and hopefully deepen customer loyalty because of what their brand represents.
That’s exactly what outdoor retailer REI did when it announced in October 2015 that their doors would be locked on one of the biggest shopping days of the year. Its CEO, Jerry Stritzke, told employees in an email, “While the rest of the world is fighting it out in the aisles, we hope to see you in the great outdoors.” In the following video, Stritzke joins CBS This Morning to explain the company’s decision and how it reflects on the REI brand.
As you watch this video, think about how this announcement might change your perceptions of the avid outdoors enthusiasts REI targets? Even if you don’t fit this target segment, how would this announcement affect your perceptions of the REI brand?
A link to an interactive elements can be found at the bottom of this page.
Contributors and Attributions
CC licensed content, Original
• REI Builds Brand by Closing on Black Friday. Provided by: Lumen Learning. License: CC BY: Attribution
CC licensed content, Shared previously
• REI Closing on Black Friday. Provided by: BBC. Located at: youtu.be/eEiDcAkEs6I. License: CC BY-NC-ND: Attribution-NonCommercial-NoDerivatives
9.20: Reading- Types of Brands
There Are Many Types of Brands
Many kinds of things can become brands. Different types of brands include individual products, product ranges, services, organizations, individual persons, groups, events, geographic places, private label brands, media, and e-brands.
Individual Brands
The most common type of brand is a tangible, individual product, such as a car or drink. This can be very specific, such as the Kleenex brand of tissues, or it can encompass a wide range of products. Product brands can also be associated with a range of offerings, such as the Mercedes S-class cars or all varieties of Colgate toothpaste.
Service Brands
A service brand develops as companies move from manufacturing products to delivering complete solutions and intangible services. Service brands are characterized by the need to maintain a consistently high level of service delivery. This category includes the following:
• Classic service brands (such as airlines, hotels, car rentals, and banks)
• Pure service providers (such as member associations)
• Professional service brands (such as advisers of all kinds—accountancy, management consultancy)
• Agents (such as travel agents and estate agents)
• Retail brands (such as supermarkets, fashion stores, and restaurants)
Organization Brands
Organization brands are companies and other entities that deliver products and services. Mercedes and the U.S. Senate each possess strong organization brands, and each has associated qualities that make up their brand. Organizations can also be linked closely with the brand of an individual. For example, the U.S. Democratic party is closely linked with Bill and Hillary Clinton and Barack Obama.
Personal Brands
A person can be considered a brand. It can be comprised of one individual, as in the cases of Oprah Winfrey or Mick Jagger. Or it may be composed of a few individuals, where the branding is associated with different personalities. With the advent of the Internet and social media, the phenomenon of personal branding offers tools and techniques for virtually anyone to create a brand around themselves.
Group Brands
OWN: The Oprah Winfrey Network
Group branding happens when there is a small group of branded entities that have overlapping, interconnected brand equity. For example, the OWN group brand of the Oprah Winfrey Network and the brand of its known members (Oprah and her team) are strongly connected. Similarly, the Rolling Stones represents a group brand that is strongly associated with the personal brands of its members (most enduringly, Mick Jagger, Keith Richards, Ronnie Wood, and Charlie Watts).
Event Brands
Events can become brands when they strive to deliver a consistent experience that attracts consumer loyalty. Examples include conferences the TED series; music festivals like Coachella or SXSW; sporting events like the Olympics or NASCAR; and touring Broadway musicals like Wicked. The strength of these brands depends on the experience of people attending the event. Savvy brand managers from product, service, and other types of brands realize the power of event brands and seek to have their brands associated with the event brands through sponsorships. Event sponsorship is now a thriving big business.
Geographic Place Brands
Many places or areas of the world seek to brand themselves to build awareness of the essential qualities they offer. Branded places can range from countries and states to cities, streets, and even buildings. Those who govern or represent these geographies work hard to develop the brand. Geographic branding is used frequently to attract commerce and economic investment, tourism, new residents, and so on.
Private-Label Brands
Private-label brands, also called own brands, or store brands, exist among retailers that possess a particularly strong identity (such as Save-A-Lot). Private labels may denote superior, “select” quality, or lower cost for a quality product.
CNN Logo
Media Brands
Media brands include newspapers, magazines, and television channels such as CNN.
E-Brands
E-brands exist only in the virtual world. Many e-brands, such as Amazon.com, have a central focus on providing an online front end for delivering physical products or services. Others provide information and intangible services to benefit consumers. Typically a common denominator among e-brands is the focus on delivering a valued service or experience in the virtual environment.
Contributors and Attributions
CC licensed content, Original
• Revision and adaptation. Provided by: Lumen Learning. License: CC BY-SA: Attribution-ShareAlike
CC licensed content, Shared previously
• Licensing, Chapter 6: Marketing in global markets in Introducing Marketing. Authored by: John Burnett. Provided by: Global Text. Located at: solr.bccampus.ca:8001/bcc/file/ddbe3343-9796-4801-a0cb-7af7b02e3191/1/Core%20Concepts%20of%20Marketing.pdf. License: CC BY: Attribution
• Branding, from Introduction to Business. Authored by: Linda Williams and Lumen Learning. Located at: courses.candelalearning.com/masterybusiness2xngcxmasterfall2015/chapter/reading-branding-labeling-and-packaging/. License: CC BY-SA: Attribution-ShareAlike
9.21: Self Check- Elements of a Brand
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/788
Contributors and Attributions
CC licensed content, Original
• Self Check: Elements of a Brand. Provided by: Lumen Learning. License: CC BY: Attribution
9.22: Outcome- Brand Equity
What you’ll learn to do: define brand equity and its role in measuring brand strength
When most people see the Nike swoosh, what makes them think, “Just Do It!”? When kids see Mickey Mouse ears, what makes them think, “Disneyland”? When fans see the international soccer logo, FIFA, what makes them think of corrupt officials and financial misdeeds? When many Americans see the BP logo, what makes them think of environmental disaster in the Gulf of Mexico?
All of these scenarios are examples of brand equity, which are the associations people have about a particular brand. Brand equity translates into a value premium (or deficit) associated with a given brand in the minds of customers. Think of it as the “super bonus” a teen boy feels for a pair of Adidas or Nike sneakers compared with Skechers or no-name shoes. Or think of it as the negativity an airline has to overcome the day after one of its planes goes down in a crash.
Brand equity waxes and wanes with the fortunes of a company, product, and market. As you’ll discover, many things contribute to brand equity, and there are many ways to measure it.
The specific things you’ll learn in this section include:
• Explain the concept of brand equity
• Discuss why and how marketers measure brand equity
Learning Activities
The learning activities for this section include the following:
• Reading: Brand Equity
• Self Check: Brand Equity
Contributors and Attributions
CC licensed content, Original | textbooks/biz/Marketing/Principles_of_Marketing_(Lumen)/09%3A_Branding/9.19%3A_Video-_REI_Builds_Brand_by_Closing_on_Black_Friday.txt |
Brand Equity
In marketing, brand equity refers to the value of a well-known brand that conjures positive (or negative) mental and emotional associations. What does this actually mean? Let’s do a experiment with brand equity in action.
A link to an interactive elements can be found at the bottom of this page.
Brand equity is what exists in your mind (or doesn’t yet exist) to help you recognize these branded images and phrases. Brand equity is also the set of positive, negative, or neutral thoughts, beliefs, and emotions you associate with each of the brands. Brand equity can manifest itself in consumer recognition of logos or other visual elements, brand language associations, consumers’ perceptions of quality, and consumers’ perceptions of value or other brand attributes.
For any given product, service, or company, brand equity is considered a key asset because it gives meaning to the brand in the minds of its consumers. Brand equity can help a strong brand remain relevant and competitive in the marketplace, and it can help brands and companies weather storms that threaten their value and existence. Volkswagen, for example, is hoping that the strong brand equity it built during the decades before the 2015 emissions scandal will help restore customer confidence in its company and product brand.
When consumers trust a brand and find it relevant to themselves and their lives, they may select the offerings associated with that brand over those of competitors even at a premium price. For example, Häagen-Dazs and Ben & Jerry’s both command higher prices per pint at the grocery store than many national brands and most store brands of ice cream. Starbucks can sell its coffee at a higher price than solid market competitors because consumers associate the brand with quality, value, and the experience of connecting with other people in a comfortable space. This is why brand equity often correlates directly with a brand’s profitability.
Measuring Brand Equity
Brand equity is strategically important but also difficult to measure (or “quantify”). As a result, many experts have developed tools or metrics to analyze brand equity, although there is no universally accepted way to measure it. For example, while it can be measured quantitatively using numerical values such as profit margins and market share, this approach fails to capture qualitative elements such as prestige and mental and emotional associations.
What to Measure
According to David Aaker, a marketing professor and brand consultant, the following are ten attributes of a brand that can be used to assess its strength, or equity:[1]
1. Price premium: the amount a customer is willing to pay for one brand in comparison to other comparable brands
2. Customer satisfaction/loyalty: whether a customer would buy the brand at the next opportunity, or remain loyal to that brand
3. Perceived quality: perceptions about whether a brand is of high, average, or inferior quality
4. Leadership/popularity: being in market leadership position as a leading brand, a leader in innovation, and/or growing in popularity
5. Value: perceptions of whether a brand has good value for the money and whether there are reasons to choose it over competitors
6. Brand personality: distinctive, interesting, emotional, and self-expressive benefits associated with a brand
7. Organizational associations: the people, values, and programs associated with the brand
8. Brand awareness: the degree to which customers are familiar with and have knowledge about a brand
9. Market share: share of sales among the competitive set
10. Market price and distribution coverage: measures of average selling price relative to competitors and how many people have access to the brand
Marketers can use various research methods to measure each of these attributes. Some organizations invest in complex marketing research projects to measure and track brand equity over time using one or more of these metrics.
Brand Asset Valuator
Young & Rubicam (Y&R), a marketing communications agency, has developed the “brand asset valuator,” a tool used to diagnose the power and value of a brand. The agency uses this tool to survey and measure consumers’ perspectives along the following four dimensions:[2]
1. Differentiation: the defining characteristics of the brand and its distinctiveness relative to competitors
2. Relevance: the appropriateness and connection of the brand to a given consumer
3. Esteem: consumers’ respect for and attraction to the brand
4. Knowledge: consumers’ awareness of the brand and understanding of what it represents
This approach is useful for gaining a detailed understanding of how target audiences perceive a brand, how well they understand it, and how relevant it is in their lives. Y&R uses this methodology to help organizations diagnose whether their brands are rising or fading relative to competitors and help them develop strategies and tactics to strengthen existing brands or freshen up/rebuild those that are waning.
There are several different categories of brands, sorted by their differentiation, relevance, esteem, and knowledge. Note that we’ll also discuss their their brand strength (which is their differentiation and relevance) and their brand stature (which is their esteem and knowledge).
• New/Fading Brands have low brand stature and low brand strength. They can be sorted into two categories:
• Neu has medium differentiation, less relevance, less esteem, and low knowledge.
• Unfocused has low-medium differentiation, low relevance, low esteem, and high-medium knowledge.
• Aspiring Brands have low brand stature and high brand strength. They have high differentiation, medium relevance, slightly less esteem, and slightly less knowledge.
• Power Brands have high brand stature and high brand strength. They can be sorted into two categories:
• Leadership has high differentiation, high relevance, high esteem, and high knowledge.
• Decline has low differentiation and high relevance, high esteem, and high knowledge.
• Eroding Brands have low brand stature and high brand strength. They have low differentiation, slightly higher relevance, slightly higher esteem, and medium knowledge.
Other Methods for Measuring Brand Equity
Brand equity can also be measured using other methods, such as the following:
• As a financial asset: Brand equity can be studied as a financial asset by making a calculation of a brand’s worth as an intangible asset. For example, a company can estimate brand value on the basis of projected profits discounted to a present value. In turn, the present value can be used to calculate the risk profile, market leadership, stability, and global reach. Forbes, Interbrand and other organizations conduct this type of valuation and publish annual lists of the most valuable global brands.
• As a price differential: The price of an equivalent well-known brand can be compared to that of competing, no-name, or private-label products. The value of this price differential can be calculated to estimate the brand’s price premium in terms of past, present, or future revenue.
• As consumer favorability and preference: Several brand-equity methodologies try to map the mind of the consumer to uncover associations with a given brand. For example, projective techniques can be used to identify tangible and intangible attributes, attitudes, and various perceptions about the brand. Under this approach, the brands with the highest levels of awareness and most favorable and unique associations are considered high-equity brands.
• As consumer perceptions: Another brand-equity measurement technique assesses which attributes are most important in influencing customer buying choices, and then measures how well various competitors perform against the most important attributes. This approach helps marketers better understand the customer decision-making process, how brands influence it, and which competitors “own” key attributes that drive customer decisions.
Building Brand Loyalty
One of the most important reasons for building brand equity is to win brand-loyal customers. In marketing, brand loyalty refers to a consumer’s commitment to repurchase or otherwise continue using a particular brand by repeatedly buying a product or service.
The American Marketing Association defines brand loyalty in the following ways:
1. The situation in which a consumer generally buys the same manufacturer-originated product or service repeatedly over time rather than buying from multiple suppliers within the category (sales promotion definition)
2. The degree to which a consumer consistently purchases the same brand within a product class (consumer behavior definition)
Aside from a consumer’s ability to repurchase a brand, true brand loyalty exists when the customer is committed to the brand and has a high relative attitude toward the brand, which is then demonstrated through repurchase behavior. For example, if Joe has brand loyalty to Company A, he will purchase Company A’s products even if Company B’s products are cheaper and/or of a higher quality. As an organization increases its number of brand-loyal customers, it develops a stronger and more predictable position in the market. As noted above, brand equity and brand loyalty enable an organization to enjoy price premiums over competitors.
Like brand equity, brand loyalty is multidimensional. It is determined by several distinct psychological processes, such as the customers’ perception of value, brand trust, satisfaction, repeat-purchase behavior, and commitment. Commitment and repeated-purchase behavior are considered necessary conditions for brand loyalty, followed by perceived value, satisfaction, and brand trust.
Philip Kotler identifies the following four customer types that exhibit similar patterns of behavior:
1. Hard-core Loyals, who buy the brand all the time
2. Split Loyals, who are loyal to two or three brands
3. Shifting Loyals, who move from one brand to another
4. Switchers, who have no loyalty (are possibly “deal-prone,” constantly looking for bargains, or are “vanity prone,” looking for something different)
Understanding the dynamics of these audiences can be very important for marketers, so they know what’s happening among their target segments and where to focus their attention and marketing investment. A large-scale 2013 study across 14 million store visits by 1 million customers found that loyal customers (those visiting the stores 10+times) accounted for about 20 percent of all customers but 80 percent of revenue and 72 percent of all store visits. Obviously, knowing and growing your loyal customer base makes a huge difference.[3]
Benefits of Brand Loyalty
The benefits of brand loyalty are longer tenure, or staying a customer for longer, and lower sensitivity to price. Recent research found evidence that longer-term customers were indeed less sensitive to price increases.
According to Andrew Ehrenberg, consumers buy “portfolios of brands.” They regularly switch between brands, often because they simply want a change. Thus, “brand penetration” or “brand share” reflects only a statistical chance that the majority of customers will buy that brand next time as part of a portfolio of brands. It does not guarantee that they will remain loyal.
By creating promotions and loyalty programs that encourage the consumer to take some sort of action, companies are building brand loyalty by offering more than just an advertisement. Offering incentives like big prizes creates an environment in which customers see the advertiser as more than just the advertiser. Individuals are far more likely to come back to a company that uses interesting promotions or loyalty programs than a company with a static message of “buy our brand because we’re the best.”
Popular Loyalty Programs
Below are some of the most popular customer loyalty programs used today by many companies. These programs allow organizations to engage their customers beyond traditional advertising and create incentives for consumers to become brand-loyal, repeat customers.
• Sweepstakes and Advergames
• Points-based loyalty programs, awarding prizes for incremental purchase behavior (e.g., frequent-flyer programs
• Branded digital games that engage consumers with prize incentives
• Contests
• Skill tests and user-generated promotions such as video and photo contests
• Social media applications and management
• Social media promotions and offers
• Customer rewards programs (e.g., pay lower prices using a frequent-buyer card)
• Coupons (hard copy and/or digital)
• Promotional auctions—bid for prizes with points earned from incremental purchase behavior
• Email clubs
• Subscription databases—national and/or segmented by market
• SMS Promotions
• iPhone apps
• Branded Web apps
As you’ll see in the following video, customers are well aware that companies are using loyalty programs to court them and win their repeat business—but it doesn’t seem to matter. Customers have come to expect something in exchange for their loyalty.
A YouTube element has been excluded from this version of the text. You can view it online here: pb.libretexts.org/pom2/?p=462
You can view the transcript for “Give and Take Rewards” (opens in new window).
1. www.iuc-edu.eu/group/sem1_L3/2013%20DNPBM/Lecture%2014%20Measuring%20Brand%20Equity.pdf ↵
2. young-rubicam.de/tools-wissen/tools/brandasset-valuator/?lang=en ↵
3. http://www.marketingprofs.com/chirp/2013/11338/surprising-facts-about-customer-loyalty-marketing-infographic#ixzz2wj6EeIlJ
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9.24: Self Check- Brand Equity
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
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A company has to be good at both developing new products and managing them in the face of changing tastes, technologies, and competition. Products generally go through a life cycle with predictable sales and profits. Marketers use the product life cycle to follow this progression and identify strategies to influence it. The product life cycle (PLC) starts with the product’s development and introduction, then moves toward withdrawal or eventual demise. This progression is shown in the graph, below.
The five stages of the PLC are:
1. Product development
2. Market introduction
3. Growth
4. Maturity
5. Decline
The table below shows common characteristics of each stage.
Product Life Cycle Stages and Common Characteristics
Stage 1: Product Development
1. investment is made
2. sales have not begun
3. new product ideas are generated, operationalized, and tested
Stage 2: Market Introduction
1. costs are very high
2. slow sales volumes to start
3. little or no competition
4. demand has to be created
5. customers have to be prompted to try the product
6. makes little money at this stage
Stage 3: Growth
1. costs reduced due to economies of scale
2. sales volume increases significantly
3. profitability begins to rise
4. public awareness increases
5. competition begins to increase with a few new players in establishing market
6. increased competition leads to price decreases
Stage 4: Maturity
1. costs are lowered as a result of increasing production volumes and experience curve effects
2. sales volume peaks and market saturation is reached
3. new competitors enter the market
4. prices tend to drop due to the proliferation of competing products
5. brand differentiation and feature diversification is emphasized to maintain or increase market share
6. profits decline
Stage 4: Decline
1. costs increase due to some loss of economies of scale
2. sales volume declines
3. prices and profitability diminish
4. profit becomes more a challenge of production/distribution efficiency than increased sales
Using the Product Life Cycle
The product life cycle can be a useful tool in planning for the life of the product, but it has a number of limitations.
Not all products follow a smooth and predictable growth path. Some products are tied to specific business cycles or have seasonal factors that impact growth. For example, enrollment in higher education tracks closely with economic trends. When there is an economic downturn, more people lose jobs and enroll in college to improve their job prospects. When the economy improves and more people are fully employed, college enrollments drop. This does not necessarily mean that education is in decline, only that it is in a down cycle.
Furthermore, evidence suggests that the PLC framework holds true for industry segments but not necessarily for individual brands or projects, which are likely to experience greater variability.[1]
Of course, changes in other elements of the marketing mix can also affect the performance of the product during its life cycle. Change in the competitive situation during each of these stages may have a much greater impact on the marketing approach than the PLC itself. An effective promotional program or a dramatic lowering of price may improve the sales picture in the decline period, at least temporarily. Usually the improvements brought about by non-product tactics are relatively short-lived, and basic alterations to product offerings provide longer benefits.
Whether one accepts the S-shaped curve as a valid sales pattern or as a pattern that holds only for some products (but not for others), the PLC concept can still be very useful. It offers a framework for dealing systematically with product marketing issues and activities. The marketer needs to be aware of the generalizations that apply to a given product as it moves through the various stages.
1. Mullor-Sebastian, Alicia. “The Product Life Cycle Theory: Empirical Evidence.” Journal of International Business Studies 14.3 (1983): 95–105. ↵
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There are some common marketing considerations associated with each stage of the PLC. How marketers think about the marketing mix and the blend of promotional activities–also known as the promotion mix–should reflect a product’s life-cycle stage and progress toward market adoption. These considerations cannot be used as a formula to guarantee success, but they can function as guidelines for thinking about budget, objectives, strategies, tactics, and potential opportunities and threats.
Keep in mind that we will discuss the new-product development process later in this module, so it is not covered here.
Market Introduction Stage
Think of the market introduction stage as the product launch. This phase of the PLC requires a significant marketing budget. The market is not yet aware of the product or its benefits. Introducing a product involves convincing consumers that they have a problem or need which the new offering can uniquely address. At its core, messaging should convey, “This product is a great idea! You want this!” Usually a promotional budget is needed to create broad awareness and educate the market about the new product. To achieve these goals, often a product launch includes promotional elements such as a new Web site (or significant update to the existing site), a press release and press campaign, and a social media campaign.
There is also a need to invest in the development of the distribution channels and related marketing support. For a B2B product, this often requires training the sales force and developing sales tools and materials for direct and personal selling. In a B2C market, it might include training and incentivizing retail partners to stock and promote the product.
Pricing strategies in the introduction phase are generally set fairly high, as there are fewer competitors in the market. This is often offset by early discounts and promotional pricing.
It is worth noting that the launch will look different depending on how new the product is. If the product is a completely new innovation that the market has not seen before, then there is a need to both educate the market about the new offering and build awareness of it.
Google Glass
Google Glass
In 2013 when Google launched Google Glass—an optical head-mounted computer display—it had not only to get the word out about the product but also help prospective buyers understand what it was and how it might be used. Google initially targeted tech-savvy audiences most interested in novelty and innovation (more about them later when we discuss diffusion of innovation). By offering the new product with a lot of media fanfare and limited availability, Google’s promotional strategy ignited demand among these segments. Tech bloggers and insiders blogged and tweeted about their Google Glass adventures, and word-of-mouth sharing about the new product spread rapidly. You can imagine that this was very different from the launch of Wheat Thins Spicy Buffalo crackers, an extension of an existing product line, targeting a different audiences (retailers, consumers) with promotional activities that fit the product’s marketing and distribution channels. The Google Glass situation was also different from the launch of Tesla’s home battery. In that case Tesla offered a new line of home products from a company that had previously only offered automobiles. Breaking into new product categories and markets is challenging even for a well-regarded company like Tesla. As you might expect, the greater the difference in new products from a company’s existing offerings, the greater the complexity and expense of the introduction stage.
One other consideration is the maturity of the product. Sometimes marketers will choose to be conservative during the marketing introduction stage when the product is not yet fully developed or proven, or when the distribution channels are not well established. This might mean initially introducing the product to only one segment of the market, doing less promotion, or limiting distribution (as with Google Glass). This approach allows for early customer feedback but reduces the risk of product issues during the launch.
While we often think of an introduction or launch as a single event, this phase can last several years. Generally a product moves out of the introduction stage when it begins to see rapid growth, though what counts as “rapid growth” varies significantly based on the product and the market.
Growth Stage
Once rapid growth begins, the product or industry has entered the growth stage. When a product category begins to demonstrate significant growth, the market usually responds: new competitors enter the market, and larger companies acquire high-growth companies and products.
These emerging competitive threats drive new marketing tactics. Marketers who have been seeking to build broad market awareness through the introduction phase must now differentiate their products from competitors, emphasizing unique features that appeal to target customers. The central thrust of market messaging and promotion during this stage is “This brand is the best!” Pricing also becomes more competitive and must be adjusted to align with the differentiation strategy.
Often in the growth phase the marketer must pay significant attention to distribution. With a growing number of customers seeking the product, more distribution channels are needed. Mass marketing and other promotional strategies to reach more customers and segments start to make sense for consumer-focused markets during the growth stage. In business-to-business markets, personal selling and sales promotions often help open doors to broader growth. Marketers often must develop and support new distribution channels to meet demand. Through the growth phase, distribution partners will become more experienced selling the product and may require less support over time.
The primary challenges during the growth phase are to identify a differentiated position in the market that allows the product to capture a significant portion of the demand and to manage distribution to meet the demand.
Maturity Stage
When growth begins to plateau, the product has reached the maturity phase. In order to achieve strong business results through the maturity stage, the company must take advantage of economies of scale. This is usually a period in which marketers manage budget carefully, often redirecting resources toward products that are earlier in their life cycle and have higher revenue potential.
At this stage, organizations are trying to extract as much value from an established product as they can, typically in a very competitive field. Marketing messages and promotions seek to remind customers about a great product, differentiate from competitors, and reinforce brand loyalty: “Remember why this brand is the best.” As mentioned in the previous section, this late in the life cycle, promotional tactics and pricing discounts are likely to provide only short-term benefits. Changes to product have a better chance of yielding more sustained results.
In the maturity stage, marketers often focus on niche markets, using promotional strategies, messaging, and tactics designed to capture new share in these markets. Since there is no new growth, the emphasis shifts from drawing new customers to the market to winning more of the existing market. The company may extend a product line, adding new models that have greater appeal to a smaller segment of the market.
Often, distribution partners will reduce their emphasis on mature products. A sales force will shift its focus to new products with more growth potential. A retailer will reallocate shelf space. When this happens the manufacturer may need to take on a stronger role in driving demand.
We have repeatedly seen this tactic in the soft drink industry. As the market has matured, the number of different flavors of large brands like Coke and Pepsi has grown significantly. We will look at other product tactics to extend the growth phase and manage the maturity phase in the next section.
Decline Stage
Once a product or industry has entered decline, the focus shifts almost entirely to eliminating costs. Little if any marketing spending goes into products in this life stage, because the marketing investment is better spent on other priorities. For goods, distributors will seek to eliminate inventory by cutting prices. For services, companies will reallocate staff to ensure that delivery costs are in check. Where possible, companies may initiate a planned obsolescence process. Commonly technology companies will announce to customers that they will not continue to support a product after a set obsolescence date.
Often a primary focus for marketers during this stage is to transition customers to newer products that are earlier in the product life cycle and have more favorable economics. Promotional activities and marketing communications, if any, typically focus on making this transition successful among brand-loyal segments who still want the old product. A typical theme of marketing activity is “This familiar brand is still here, but now there’s something even better.”
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In theory, the product life cycle follows a predictable path that is easy to understand. This might suggest that the marketer just needs to gear up for the ride and be ready to adjust tactics as the product moves through its life cycle. To the contrary, a marketer’s job is much less passive—instead, the marketer’s goal is to influence the life cycle. An effective marketer tries to extend the growth stage in order to maximize revenue and profits and to extend the maturity stage in order to fund the development and introduction of new products.
Apple’s iPod Life-Cycle Strategies
It is easier to understand the complexity of the product life cycle in the context of a real-life example. The total sales of Apple’s iPod across all models follow a classic product life-cycle curve (see Figure 1, below).
Remember, these data include all models of iPods. One strategy that Apple employed to increase growth was to introduce new models often. The new models had fairly similar functions but offered significantly different styling. This drove multiple sales to the same buyer. A buyer was less likely to say, “I already have an iPod,” than to say, “I have an iPod Classic but I want an iPod Nano.” From the initial launch in October 2002 through 2007, Apple introduced five major iPod models, with multiple versions of each. The graph below shows the sequence of releases, with large dots representing the initial release of each new model. In September of 2008 and 2010, Apple released new versions of three different iPod models at the same time.
Apple’s rapid product releases kept it on the cutting edge of design and made it difficult for competitors to take market share during the product’s growth stage. In September 2006, Apple CEO Steve Jobs reported that iPods held 75.6 percent market share.
Throughout the growth period Apple chose not to sell old versions of new devices. Once the company introduced the third generation of the iPod Nano, it stopped selling new second-generation iPod Nanos (though it did still offer refurbished versions of the older products). This allowed the company to quickly make the older versions obsolete, which drove new sales and reduced the ongoing support costs for older models.
When companies talk about “cannibalizing” their market, they mean that one product takes market share from another. In effect, one of the company’s products is eating the other product’s market share. Each new model of the iPod took market share from its predecessors, but collectively the iPod products dominated their market. The greatest cannibal of all in the Apple story is the iPhone, which was first released in June 2007.
The Smartphone Product Life Cycle
A smartphone is a mobile phone that performs many of the same functions as a computer. Prior to the introduction of the smartphone, most people used cell phones—which are now referred to as “feature phones.” Feature phones provide phone and text capabilities but lack an operating system that can support the more advanced capabilities of today’s smartphones.
Early smartphones saw broad adoption in Japan in 2001, but mass adoption of smartphones did not reach the U.S. until business users fell in love with the Blackberry in 2003. Today, smartphones from a range of providers use primarily Google’s Android operating system, Apple’s iOS, or Microsoft Mobile.
Global sales of smartphones have grown rapidly, as shown in Figure 3, below.
Marketers are using many different strategies to drive the growth of smartphones, but perhaps the greatest impact has been the opening of the technology platform to allow other vendors to offer applications for them. Apple, Samsung, Microsoft, and other players have not tried to imagine every possible use for a smartphone and build it themselves. Instead they have created the technology infrastructure and an open marketplace for applications. Programmers can develop applications that can run on any phone, and smartphone owners can select and buy the apps that are of interest.
Through this broad range of applications, the smartphone brings together a number of different functions on one device. Before the first release of the smartphone, many people carried a feature phone to answer calls and a personal digital assistant to manage email and calendars. With the smartphone, these two functions came together, and as the device has matured, it has taken over many other tasks that were formerly performed on a separate device.
Adoption of smartphones has had tremendous impact on the product life cycle of a range of other products. When Apple introduced the iPhone in 2007, the company was cannibalizing its market for iPods. Today, most Apple customers play their media on a phone rather than on a separate media-dedicated device. There are still sales of iPods, but the company, in effect, initiated the decline of the market with its own introduction of the iPhone—a market in which it had more than 75 percent market share.
The markets for digital cameras (especially the low-end models) and personal navigation systems (GPS systems) have also been impacted. The product life-cycle graph for digital camera purchases, shown in Figure 4, below, shows a striking resemblance to that of the iPod.
While smartphone cameras have lagged behind digital cameras in terms of features and performance, they provide two distinct benefits:
1. The smartphone adds the camera to an existing device that the user already carries with him
2. The smartphone makes it easier to use and share photos through other applications on the phone
Smartphones are a dominant factor in the product life cycle of digital cameras, iPods, and a number of other products.
Lessons from the Smartphone Life Cycle
This example shows some benefits of considering the product life cycle in marketing strategies but also some significant limitations.
The product life cycle is not forward looking. At any point on the graph, a marketer can see what has already occurred but not what is ahead. In planning a product strategy, it is important to understand the past sales performance of the product and the industry broadly, but the role of marketing is to shape future performance, and the product life cycle doesn’t offer many tools to inform that proactive work.
The product life cycle can focus a marketer on a defined set of products and competitors in the current market—but miss broad trends or innovations in adjacent markets and products. A marketer looking for the next feature to add to a digital camera to extend the maturity phase could easily miss the impact that the smartphone would have on the digital camera market. We can learn from Apple’s description of a product marketing manager position in its own company: One of the product marketing manager’s responsibilities is to “closely follow emerging technology, consumer, and societal trends and make recommendations for how products will leverage or fit into those emerging trends.” This broad view is critical to successful marketing.
Finally, this example demonstrates the importance of creating a diverse set of products. When the iPod lost market share to the iPhone, Apple won. Other companies that have lost market on account of the transition to smartphones—Nikon and Canon in cameras, Garmin in navigation devices, etc.—have not fared as well.
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10.04: Self Check- Product Life Cycle
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/794
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10.05: Outcome- Product Portfolio Management
What you’ll learn to do: explain product portfolio management and how it relates to the organization’s marketing strategy and tactics
Our last example showed the importance of marketing a diverse set of products and using new products to gain strategic advantage. Defining and managing this collection of products is called product portfolio management.
Think of an artist’s portfolio. The artist will use her portfolio to display a range of work. She will try to select works that showcase her strengths in different areas so that someone reviewing her portfolio can see the range of different things she can do well.
Similarly, a product portfolio requires diversity in order to be effective. In this module we will talk about what the product portfolio is and how a marketer can use the power of a product portfolio to achieve marketing objectives.
The specific things you’ll learn in this section include:
• Define the product portfolio and explain its use in marketing
• Identify marketing strategies and tactics used to achieve portfolio objectives
• Explain why new products are crucial to an organization’s success
Learning Activities
The learning activities for this section include the following:
• Reading: The Product Portfolio
• Reading: Achieving Portfolio Objectives
• Reading: New Products in the Portfolio
• Self Check: Product Portfolio Management
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Throughout this course we have discussed a number of ways that organizations market products successfully. How does an organization decide which products to offer? When should a company add new products, and when should it discontinue existing ones? Product portfolio management answers these questions.
Organizing for Effective Product Marketing
Before we dive into the product portfolio it is important to understand how products are organized in most businesses.
Typically, organizations group like products into product lines, and then group lines of business targeting a common set of customers into something called strategic business units (SBUs).
A product line is a group of products marketed by an organization to one general market. The products have some characteristics, customers, and uses in common, and may also share technologies, distribution channels, prices, services, etc. There are often product lines within product lines.[1]
Before we take a look at an example, let’s review some definitions within product organizations:
• A product is a bundle of attributes (features, functions, benefits, and uses) that a person receives in an exchange. In essence, the term “product” refers to anything offered by a firm to provide customer satisfaction—tangible or intangible. Thus, a product may be an idea (recycling) , a physical good (a pair of jeans), a service (banking), or any combination of the three.
• An example of a product is Tylenol pain reliever.
• A product line is a group of products marketed by an organization to one general market. The products have some characteristics, customers, and/or uses in common, and may also share technologies, distribution channels, prices, services, etc. There are often product lines within product lines.
• An example of a product line is the full range of Tylenol products, or over-the-counter medicines.
• A strategic business unit or SBU is a self-contained planning unit for which discrete business strategies can be developed.
• An example of a strategic business unit is consumer health care products.
Johnson & Johnson
Johnson & Johnson has hundreds of products. They sell baby shampoo to new parents and knee systems to surgeons who perform knee-replacement surgeries. Imagine trying to understand all of the different products and their target buyers. It would be impossible to span all of those products well. At the same time, what if your organization owns a single product—say, Johnson & Johnson’s Neutrogena face wash? A different organization owns Johnson & Johnson’s Aveeno face wash. It would be easy to optimize for a single product, rather than trying to achieve company objectives across all the products.
And as for a product line inside a product line? Johnson & Johnson has a product line of skin and hair care products. Within that product line, there are a number of brands that have a set of complementary products. Returning to our previous example, the Neutrogena product line includes a complete set of dermatologist-recommended skin and hair care products. The Aveeno product line includes a complete set of natural skin care products. Neutrogena products target buyers who place greater trust doctors, and Aveeno targets buyers who trust natural products, but both are part of the Johnson & Johnson skin and hair care product line.
The skin and hair care product line is part of a larger strategic business unit for Johnson & Johnson: the consumer health care products business unit. This SBU includes:
• baby care
• skin and hair care
• wound care and topicals
• oral health care
• over-the-counter medicines
• vision care
• nutritionals
Think about this list. There are differences in the target buyer for each product line, but drugstores like Walgreen’s and CVS carry all of these products, and they are, of course, all targeting consumers.
Johnson & Johnson’s other SBUs include medical devices and prescription products.
Managing the Product Portfolio
The goal of product portfolio management is to ensure that the company’s investment in products meets objectives. In order to do this, portfolio management must understand the needs and contributions of the products and allocate resources across product lines and SBUs to optimize their market performance.
Analyzing SBU Performance
Should Johnson & Johnson invest equally in all of its SBUs and product lines? The table below shows Johnson & Johnson’s 2014 financial results.[2]
Johnson & Johnson’s 2014 Financial Results
SBU 2014 revenue Revenue growth from 2013 % profit Research and Development spending
Consumer health care \$14.5 billion 1% 13.4% \$629 million
Medical devices \$27.5 billion 1.6% 28.9% \$1.7 billion
Prescription products \$32.3 billion 16.5% 36.2% \$6.2 billion
You can see that Johnson & Johnson is spending ten times more on research and development (R&D) for prescription products than for consumer health care products. Given the higher growth rates and profit margins for prescription products, this looks like a good decision.
Within the SBUs, managers also make important decisions about where to invest. For example, in 2013, the lowest-growth product line in medical devices was diagnostics, which decreased by 8.9 percent from 2012 to 2013. In 2014, Johnson & Johnson sold a major diagnostic product from that product line to another company for \$4 billion. This eliminated a product that was not contributing to the portfolio objectives, and it generated new capital that could be invested in higher-growth product lines.
The examples here demonstrate a simple review of SBU performance, but companies can also perform a deep analysis of an SBU and product performance in order to understand past performance and identify future growth opportunities.
Analyzing Market Opportunities
Beyond the internal performance data, portfolio analysis considers broader market factors. In the marketing planning module, we discussed the Boston Consulting Group’s growth-share matrix, which is a tool to used analyze the product portfolio. You’ll recall that this model considers the attractiveness of the market by studying the growth potential in the market, and it includes company performance by showing the product’s current market share. These are both important factors to consider in determining the future growth opportunities.
In its annual report, Johnson & Johnson shared the following information with investors about its largest prescription-drug product line:
Immunology products achieved sales of \$10.2 billion in 2014, representing an increase of 10.9 percent as compared to the prior year. The increased sales of STELARA® (ustekinumab) and SIMPONI® /SIMPONI ARIA® (golimumab) were primarily due to market growth and market share gains. REMICADE® (infliximab) growth was primarily due to market growth.
A very simplistic analysis of this information suggests that Stelara and Simponi are stars (high market growth and high market share) while Remicade is a question mark. It is benefiting from market growth but is not achieving gains in market share.
Knowing about the product life cycle is also important to understanding market growth. During the introduction phase, the market growth rate is low, and the longer-term potential is unknown. As the market moves into the growth phase, it moves up the market growth axis and creates opportunities for products that are gaining market share and becoming stars. Those that don’t perform well in gaining market share will become question marks. As the market moves into maturity and decline, the market growth moves back down the axis and products will become either cash cows or dogs.
If we add the data from the iPod product life cycle to the growth-share matrix, as shown above, we can see how Apple’s products might be analyzed. In the growth-share matrix, the size of product sphere is determined by the total sales. Obviously, this diagram is not perfectly sized, but it gives a picture of the way in which product life cycle can be used to inform product portfolio management.
1. www.ama.org/resources/Pages/Dictionary.aspx?dLetter=P#product+line ↵
2. files.shareholder.com/downloads/JNJ/1279939564x0x815170/816798CD-60D9-4653-BB5A-50A66FD5B9E7/JNJ_2014_Annual_Report_bookmarked_.pdf ↵
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In our discussion of the product life cycle, we saw that competition generally increases as more competitors are drawn to high-growth markets. As more brands enter the marketplace and lock into a particular share of the market, it becomes more difficult to win and hold buyers. Apart from these competitive factors, other market factors can shift, too. For example:
• Changes in consumer tastes
• Changes in the size and characteristics of particular market segments
• Changes in availability or cost of raw materials and other production or marketing components
Internally, a company might have a proliferation of small-share brands that were introduced to address market opportunities but never saw significant growth. This can reduce efficiencies in production, marketing, and servicing for existing brands.
In product portfolio management there is an assumption that a company has an existing set of products. The number may be small or large, but each brand, product, and product line has an impact on the external market view of the others and on the internal resources available to the others. For this reason, portfolio management requires marketers to consider each product individually but also understand the way the products fit together collectively.
In order to optimize the product portfolio, marketers may change the marketing mix for a product, change a product line, delete products, or introduce new products.
Marketing Mix Strategies
When a product is introduced, it’s not locked down forever. Marketers continually gather market data about products so they can refine the product and its position in the marketplace.
Product Modification
It is normal for a product to be changed several times during its life. Certainly, a product should be equal or superior to those of principal competitors. If a change can provide superior satisfaction and win more initial buyers and switchers from other brands, then a change is probably warranted.
However, the decision to make a significant product change introduces risk and cannot be approached in a haphazard manner. First, the marketer must answer the question “What specific attributes of the product and competing products are perceived to be most important by the target customer?” Factors such as quality, features, price, services, design, packaging, and warranty may all be determinants. Each change introduces the risk that it may not align with customer needs. For example, a dramatic increase in product quality might drive the price too high for the existing target consumer, or it might cause him to perceive the product differently and unfavorably. Similarly, the removal of a particular product feature might be the one characteristic that’s regarded as most important by a market segment.
The product modification decision can only be made if the marketer has a strong understanding of the target customer. What new information is the marketer learning about the buyer persona? Perhaps additional market research is needed to understand the improvements buyers want, to evaluate the market reception of competitors’ products, and evaluate improvements that have been developed within the company. In determining product improvements, sales teams and distributors can provide valuable information. Sales is likely to hear objections from target customers or learn the reasons why they are choosing not to buy. Distributors often deal with a range of products in a category and provide helpful insights into what is tipping the purchase process toward a competitor’s product.
Repositioning
In an earlier module we discussed product positioning, which requires finding the right marketing mix for a product in order to distinguish it from competitors and give it a unique position in the market. As competitors’ offerings and customer preferences change, marketing may need to make a significant change to the marketing mix to reposition the product. This involves changing the market’s perceptions of a product or brand so that the product or brand can compete more effectively in its present market or in other market segments.
For example, since its heyday in the late seventies and early eighties, Cadillac sales have dropped by more than 50 percent as the Cadillac customer base aged. In order to restore sales, General Motors is trying to redefine the Cadillac product and brand for a new generation of consumers. This is a dramatic example in which a substantial change is needed. Product repositioning can also involve a very subtle change, such as updating the packaging or tweaking the pricing approach, but it is an important way to shift perceptions as market factors change.
Product-Line Decisions
A product line can contain one product or hundreds of products. The number of products in a product line refer to its depth, while the number of separate product lines owned by a company is the product line width.
There are two overarching strategies that deal with product line coverage. With a full-line strategy the company will attempt to carry every conceivable product needed and wanted by the target customer. Few full-line manufacturers attempt to provide items for every conceivable market niche. Instead, they provide many products for a particular market segment.
Companies that employ a limited-line strategy will carry selected items. Limited-line manufacturers will add an item if the demand is great enough, but they make that decision based on the market opportunity for the product rather than on a desire to meet all customer needs with their product line.
Line-Extension Strategies
Line extension of Bon Ami
A line-extension strategy involves adding new products under an already established and well-known brand name. The objective is to serve different customer needs or market segments while taking advantage of the widespread name recognition of the original brand.[1]
When Frito-Lay added Dinamita Mojo Criollo Flavored Rolled Tortilla Chips to its Doritos line, that was an example line-extension strategy. Frito-Lay is able to take advantage of a strong brand with existing shelf space and add a new product that has an appeal to shoppers seeking a spicier snack than the traditional nacho cheese flavor. Similarly, Clinique provides high-end skin care products and has extended its line to provide anti-acne products.
Generally, line-extension strategies are lower risk because they introduce a product change but are able to take advantage of other proven elements of the marketing mix. Still, there is a risk of cannibalizing the market for existing products or, if the product is not well received, damaging the brand. Also there a danger in overextending the product line by offering so many products that consumers can’t find unique value, and company resources get stretched across many, low-volume products.
Line-Filling Strategies
Line-filling strategies involve increasing the number of products in an existing product line to take advantage of marketplace gaps and to reduce competition. Many businesses use line filling to round out an already well-established product line and to help increase the market success of new related products.[2]
Before considering such a strategy several key questions should be answered:
• Can the new product support itself?
• Will it cannibalize existing products?
• Will existing outlets be willing to stock it?
• Will competitors fill the gap if we do not?
• What will happen if we do not act?
Assuming that a company decides to fill out the product line further, there are several ways of going about it. The following three are most common:
1. Product proliferation: the introduction of new varieties of the initial product or products that are similar (e.g., a ketchup manufacturer introduces hickory-flavored and pizza-flavored barbecue sauces and a special hot dog sauce).
2. Brand extension: strong brand preference allows the company to introduce the related product under the brand umbrella (e.g. Jell-O introduces pie filling and diet desserts under the Jell-O brand name).
3. Private branding: producing and distributing a related product under the brand of a distributor or other producers (e.g., Firestone producing a less expensive tire for Costco).
In addition to the demand from consumers or pressure from competitors, there are other legitimate reasons to engage in these tactics. First, the additional products may have a greater appeal and serve a greater customer base than did the original product. Second, the additional product or brand can create excitement both for the manufacturer and distributor. Third, shelf space taken by the new product means it cannot be used by competitors. Finally, the danger of the original product becoming outmoded is hedged. Yet, there is serious risk that must be considered as well: unless there are markets for the proliferations that will expand the brand’s share, the newer forms will cannibalize the original product and depress profits.
Product Deletion
Eventually a product reaches the end of its life. There are several reasons for deleting a mature product. First, when a product is losing money, it is a prime deletion candidate. In regard to this indication, it is important to make sure that the loss is truly attributable to the product. If the product appears not to be profitable when it is actually covering costs of other products, then deleting the product could negatively impact other products in the portfolio.
Second, there are times when a company with a long product line can benefit if the weakest of these products is dropped. This thinning of the line is referred to as product-line simplification. Product overpopulation spreads a company’s productive, financial, and marketing resources very thin. Moreover, an excess of products in the line, some of which serve overlapping markets, not only creates internal competition among the company’s own products but also creates confusion in the minds of consumers. Consequently, a company may apply several criteria to all its products and delete those that are faring worst.
A third reason for deleting a product is that problem products absorb too much management attention. Many of the costs incurred by weak products are indirect: management time, inventory costs, promotion expenses, decline of company reputation, and so forth.
Missed-opportunity costs constitute the final reason for product deletion. Even if a mature product is making a profit contribution and its indirect cost consequences are recognized and considered justifiable, the company might still be better off without the product. Each product requires focus and resources that are not available to grow other products or create new ones.
1. www.businessdictionary.com/definition/line-extension.html#ixzz3wK7lJ700 ↵
2. www.businessdictionary.com/definition/line-filling.html#ixzz3wK9onLtn ↵
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Factors Influencing the Pace of Product Development
New-product introductions are an important component of the product portfolio. This has always been the case, but there have been a number of changes since 2000 that have increased the pace of new-product development and, with it, the importance of new products in the portfolio.
The Internet has fundamentally changed the way that we think about new products. We could devote an entire course to exploring and substantiating this statement, but for our purposes here, we’ll concentrate on the following notable developments:
1. The Internet increases our ability to find new products. In the past, if a local store carried version 3.0 of any product, a buyer could consider the attributes of version 3.0 and make a purchase decision. Today, the buyer may enter the store, but she’s more likely to know the improvements incorporated in version 4.0 and the new features expected in version 5.0.
2. The Internet supports real-time comparisons of competitive products, including their features and users’ experience with the products.
3. The Internet enables new products and services that have changed expectations for service delivery.
4. The Internet enables customers to recommend new products and experiences to others.
In addition to these Internet-related developments, there are many new tools, technologies, and methodologies that are speeding the pace of new product development. For example, software development frameworks make it possible to launch, test, and refine a new Web-based service in a fraction of the time that it required in the past. A new retail offering that, in the past, would have required a team of programmers to bring to market can be launched on Etsy today in less than an hour.
New products have never been faster and easier to launch.
New Products Bring Risk
Still, new products are risky. In the strategic opportunity matrix section we reviewed a number of strategies that include new and existing products. Why is it important to consider whether the product and/or market is new in this strategic context? Current products in current markets are known, and new products and new markets are not known.
In this section we have discussed a couple of examples of new products in the context of company strategies. Apple launched five major iPod models in six years, and then followed them with a total of twenty different versions of those models. Perhaps most interesting, Apple launched three different iPod models—the Classic, the Mini, and the Shuffle—before it saw significant sales growth.
The Johnson & Johnson medical practices unit launched more than fifty new products between 2012 and 2014 but has seen only a 0.5 percent increase in sales during that period. With the 2014 sale of a diagnostics product that was showing declining sales numbers, the SBU is better poised to show growth in its 2015 sales numbers.
Both of these examples show that new products do not guarantee new sales, and they certainly don’t guarantee immediate success.
Role of New Products in the Portfolio
New products bring greater risk to the product portfolio but also greater potential reward. The goal of portfolio management is to balance risk in order to create strong performance today and in the future. Though new products can drain resources in the short run, they are positioned to generate new sales in the long run—and to take off when other products are entering stages of maturity and decline.
The early investment in multiple new iPod models that were not growing quickly created a future base for the growth of the iPod. That, in turn, generated returns and positioned the Apple brand for the development and release of the iPhone. Johnson & Johnson’s medical products division has aggressively invested in new products that can spur growth and divested from products with declining sales. Still, in the first three quarters of 2015, overall growth for the division is down. It is not yet clear whether the new products will generate enough growth to replace the growth of their predecessors.[1]
1. files.shareholder.com/downloads/JNJ/1279939564x0x854183/3152FFAB-82A7-4F38-AA75-D25F107767DB/Sales_of_Key_Products_Franchises_3Q2015.pdf ↵
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/795
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10.10: Outcome- New Product Development Process
What you’ll learn to do: describe the new-product development process
We have considered the role of new products throughout this module. It is important to introduce new products in order to have a balanced portfolio containing products at the various stages of the product life cycle. We have not yet focused on ways of creating successful new products.
In this module we will discuss a standard, somewhat fixed new-product development process. The logic behind this rather rigid process is that it requires a great deal of discipline to create new products. It’s expensive to launch a successful new product—but it’s far more expensive to launch an unsuccessful products. For these reasons, organizations invest a lot in the creation and refinement of their new-product development processes. It helps them raise the odds that they’ll be successful.
Consider the following dramatic product failures that, in hindsight, should have been screened out much earlier in the product development process.
In 1998 Frito-Lay introduced WOW! chips. These snack chips contained significantly less fat and fewer calories than other snack foods thanks to the fat substitute Olestra. Initially, the product performed well, generating \$347 million in 1998 and making WOW! the best-selling potato chip brand that year. The success was short lived, though. Olestra had an unpleasant side-effect: soon customers complained of cramping, incontinence, and diarrhea—in some cases requiring hospitalization—after eating the chips. Frito-Lay’s parent company, PepsiCo, spent \$35 million on an advertising campaign to turn things around, but sales plummeted nonetheless.[1]
In 2011 Hewlett Packard launched a product designed to go head-to-head with Apple’s iPad. The product boasted a higher number of performance features than the iPad, but it had none of the “cool factor” that drew customers to Apple. MarketWatch reported, “Despite large-scale press events and promotions, the HP TouchPad was a colossal failure and was discontinued almost immediately. As a result of the TouchPad’s failure, the company wrote off \$885 million in assets and incurred an additional \$755 million in costs to wind down its webOS operations, ending all work on the TouchPad’s failed operating system.”
To repeat: developing new products creates opportunity and risk.
The specific things you’ll learn in this section include:
• Explain how new products are planned
• Identify approaches to generate new product ideas
• Identify methods to evaluate new product ideas
• Explain the process to create and commercialize new products
Learning Activities
The learning activities for this section include the following:
• Reading: Generating and Screening Ideas
• Reading: Developing New Products
• Reading: Commercializing New Products
• Video: Target Product Design
• Self Check: New Product Development Process
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Why make product marketing decisions based on product life cycle and product portfolio structure?
Often when students begin to study marketing they expect to study promotion or perhaps only advertising, but product is the core of the marketing mix. Product defines what will be priced, promoted, and distributed. If you are able to create and deliver a product that provides exceptional value to your target customer, the rest of the marketing mix becomes easier to manage. A successful product makes every aspect of a marketer’s job easier—and more fun.
Is it possible to offer a product that is so good it markets itself? Yes. When this is the case, marketers can employ something called viral marketing, which is a method of product promotion that relies on customers to market an idea, product, or service themselves by telling their friends. Generally, in order for viral marketing to work, the product must be so compelling that customers who use it can’t stop talking about it.
Let’s look at an example of viral marketing and a successful new product that has changed transportation in cities around the world. How did the individuals who created the product at the beginning of its life cycle develop a winning product concept and take it to market?
Technically speaking, Uber is a ride-sharing solution—an incredibly successful one. The company launched in June 2010, and today Uber drivers provide well over one million rides each day to passengers around the globe. The company’s self-reported annual revenue for 2018 was \$11.3 billion.[1]
When a passenger needs a ride, he simply opens the Uber app on his phone. He can immediately see the locations of cars nearby and request a pickup. The passenger knows which driver is coming and can track the car’s location until it arrives. When the ride is over, the passenger’s credit card is automatically billed for the service.
Bill Gurley, a seasoned investor who has put money in Uber, evaluates the company this way: “The product is so good, there is no one spending hundreds of thousands of dollars on marketing.”[2] Industry experts who have analyzed Uber’s success agree again and again that Uber took on a problem that was real for many people—poor taxicab availability and abysmal service—and completely fixed it.
Among the many problems Uber is tackling are: poor cab infrastructure in some cities, poor service, and fulfillment–including dirty cabs, poor customer experience, late cars, drivers unwilling to accept credit cards, and more.
Uber set out to reimagine the entire experience to make it seamless and enjoyable across the board. They didn’t fix one aspect of the system (e.g. mobile payments for the existing taxi infrastructure); they tackled the whole experience from mobile hailing, seamless payments, better cars, to no tips and driver ratings.
By avoiding the trap of smaller thinking, and iterating on one element of the taxi experience (say, by making credit card payments more accessible in the car) they were able to create a wow experience that has totally redefined what it means to use a car service, sparking an avalanche of word of mouth and press.[3]
Again, the product creates a “wow experience” that creates “an avalanche of word of mouth and press.” That is the power of the product in the marketing mix.
Learning Outcomes
• Explain what a product is and the importance of products in the marketing mix
• Discuss the product life cycle and its implications for marketing
• Explain product portfolio management and how it relates to the organization’s marketing strategy and tactics
• Define the process for creating new products
• Identify the challenges associated with creating a successful new product
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Introduction
There are probably as many varieties of new-product development systems as there are types of companies, but most of them share the same basic steps or stages—they are just executed in different ways. Below, we have divided the process into eight stages, grouped into three phases; subsequent readings will discuss these phases in greater detail. Many of the activities are performed repeatedly throughout the process, but they become more concrete as the product idea is refined and additional data are gathered. For example, at each stage of the process the product team is asking, “Is this a viable product concept?” but the answers change as the product is refined and more market perspectives can be added to the evaluation.
New-Product Development Process: Phases and Stages
Phase I: Generating and Screening Ideas Phase II: Developing New Products Phase III: Commercializing New Products
Stage 1: Generating New Product Ideas Stage 4: Business Case Analysis Stage 6: Test Marketing
Stage 2: Screening Product Ideas Stage 5: Technical and Marketing Development Stage 7: Launch
Stage 3: Concept Development and Testing Stage 8: Evaluation
Stage 1: Generating New Product Ideas
Generating new product ideas is a creative task that requires a particular way of thinking. Coming up with ideas is easy, but generating good ideas is another story. Companies use a range of internal and external sources to identify new product ideas. A SWOT analysis might suggest strengths in existing products that could be the basis for new products or market opportunities. Research might identify market and customer trends. A competitive analysis might expose a hole in the company’s product portfolio. Customer focus groups or the sales team might identify unmet customer needs. Many amazing products are also the result of lucky mistakes—product experiments that don’t meet the intended goal but have an unintended and interesting application. For example, 3M scientist Dr. Spencer Silver invented Post-It Notes in a failed experiment to create a super-strong adhesive.[1]
The key to the idea generation stage is to explore possibilities, knowing that most will not result in products that go to market.
Stage 2: Screening Product Ideas
The second stage of the product development process is idea screening. This is the first of many screening points. At this early stage much is not known about the product and its market opportunity. Still, product ideas that do not meet the organization’s objectives should be rejected at this stage. If a poor product idea is allowed to pass the screening stage, it wastes effort and money in later stages until it is abandoned. Even more serious is the possibility of screening out a worthwhile idea and missing a significant market opportunity. For this reason, this early screening stage allows many ideas to move forward that may not eventually go to market.
At this early stage, product ideas may simply be screened through some sort of internal rating process. Employees might rate the product ideas according to a set of criteria, for example; those with low scores are dropped and only the highest ranked products move forward.
Stage 3: Concept Development and Testing
Today, it is increasingly common for companies to run some small concept test in a real marketing setting. The product concept is a synthesis or a description of a product idea that reflects the core element of the proposed product. Marketing tries to have the most accurate and detailed product concept possible in order to get accurate reactions from target buyers. Those reactions can then be used to inform the final product, the marketing mix, and the business analysis.
New tools for technology and product development are available that support the rapid development of prototypes which can be tested with potential buyers. When concept testing can include an actual product prototype, the early test results are much more reliable. Concept testing helps companies avoid investing in bad ideas and at the same time helps them catch and keep outstanding product ideas.
Stage 4: Business Case Analysis
Before companies make a significant investment in a product’s development, they need to be sure that it will bring a sufficient return.
The company seeks to answer such questions as the following:
1. What is the market opportunity for this product?
2. What are the costs to bring the product to market?
3. What are the costs through the stages of the product life cycle?
4. Where does the product fit in the product portfolio and how will it impact existing product sales?
5. How does this product impact the brand?
6. How does this product impact other corporate objectives such as social responsibility?
The marketing budget and costs are one element of the business analysis, but the full scope of the analysis includes all revenues, costs, and other business impacts of the product.
Stage 5: Technical and Marketing Development
A product that has passed the screening and business analysis stages is ready for technical and marketing development. Technical development processes vary greatly according to the type of product. For a product with a complex manufacturing process, there is a lab phase to create specifications and an equally complex phase to develop the manufacturing process. For a service offering, there may be new processes requiring new employee skills or the delivery of new equipment. These are only two of many possible examples, but in every case the company must define both what the product is and how it will be delivered to many buyers.
While the technical development is under way, the marketing department is testing the early product with target customers to find the best possible marketing mix. Ideally, marketing uses product prototypes or early production models to understand and capture customer responses and to identify how best to present the product to the market. Through this process, product marketing must prepare a complete marketing plan—one that starts with a statement of objectives and ends with a coherent picture of product distribution, promotion, and pricing integrated into a plan of marketing action.
Stage 6: Test Marketing and Validation
Test marketing is the final stage before commercialization; the objective is to test all the variables in the marketing plan including elements of the product. Test marketing represents an actual launching of the total marketing program. However, it is done on a limited basis.
Initial product testing and test marketing are not the same. Product testing is totally initiated by the producer: he or she selects the sample of people, provides the consumer with the test product, and offers the consumer some sort of incentive to participate.
Test marketing, on the other hand, is distinguished by the fact that the test group represents the full market, the consumer must make a purchase decision and pay for the product, and the test product must compete with the existing products in the actual marketing environment. For these and other reasons, a market test is an accurate simulation of the broader market and serves as a method for reducing risk. It should enhance the new product’s probability of success and allow for final adjustment in the marketing mix before the product is introduced on a large scale.
Stage 7: Launch
Finally, the product arrives at the commercial launch stage. The marketing mix comes together to introduce the product to the market. This stage marks the beginning of the product life cycle.
Stage 8: Evaluation
The launch does not in any way signal the end of the marketing role for the product. To the contrary, after launch the marketer finally has real market data about how the product performs in the wild, outside the test environment. These market data initiate a new cycle of idea generation about improvements and adjustments that can be made to all elements of the marketing mix.
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Introduction
The first phase of the new product development process is creating a viable product concept that can move through the development phase. This phase includes the following:
• Stage 1: Generating New Product Ideas
• Stage 2: Screening Product Ideas
• Stage 3: Concept Development and Testing
This early phase of the process differs from later phases in several ways. First, it requires immense creativity. Each of the later phases focuses on screening out ideas, but this is a generative stage whose goal is the production of new ideas. Second, the early phase of the process is difficult to plan and manage. On what day will the innovative product idea emerge? That can’t be planned or scheduled.
The Fuzzy Front End
Researcher Peter Koen refers to this first phase as the Fuzzy Front End (FFE) of the product development process. In his work he has identified a number of characteristics that differentiate the FFE from later phases of product development. These are shown in the table below.
Difference Between the Fuzzy Front End and the New-Product Development Process[1]
Fuzzy Front End vs. New-Product Development Traits
Fuzzy Front End (FFE) New-Product Development (NPD)
Nature of Work Experimental, often chaotic. “Eureka” moments. Can schedule work—but not invention. Disciplined and goal oriented with a project plan.
Commercialization Date Unpredictable or uncertain. High degree of certainty.
Funding Variable—in the beginning phases many projects may be “bootlegged,” while others will need funding to proceed. Budgeted.
Revenue Expectations Often uncertain, with a great deal of speculation. Predictable, with increasing certainty, analysis, and documentation as the product release date gets closer.
Activity Individuals and team conducting research to minimize risk and optimize potential. Multifunction product and/or process development team.
Measures of Progress Strengthened concepts. Milestone achievement.
As the product concept moves through the stages of the product development process, everything will become more refined and more certain. The time line, the budget, and the performance expectations will all become more concrete, but in the early phase it is important to allow for the ambiguity that supports creativity.
Creating Successful Product Concepts
How can businesses influence the success of the new business idea? Koen suggests a number of factors that play a role: the corporation’s organizational capabilities, customer and competitor influences, the outside world’s influences, and the depth and strength of enabling sciences and technology.[2]
Organizational Capabilities
You may have noticed that some companies are able to launch one dominant product after another. Other companies struggle to create any products that compete well or have one amazing product and then disappear. Companies develop processes to manage new products, hire leaders to manage new-product development, and develop a culture based on their institutional values and norms around new products. All of these factors tip the scale toward success or failure. If leaders ask employees to take risks with cutting-edge product ideas but fire those whose ideas are not successful, they will not draw out risky ideas that might lead to the greatest success. Also, the best ideas are often refinements of and enhancements to other ideas. If individual performance is rewarded over team success, there is less likelihood of idea sharing and collaboration.
Customer and Competitor Influences
Innovation by a competitor can spur new ideas and possibilities across the industry. Similarly, customers seeking innovation who are willing to share ideas with their vendors can accelerate the generation of new product ideas and bring a voice of reality that increases the chance of success.
Outside World Influences
There are a range of influences outside of the company that affect the ease with which new ideas can be developed. Government regulations can positively or negatively influence new-product and idea generation. Society, culture, and the economic environment can create a rich environment for new ideas.
Enabling Sciences and Technologies
Enabling technologies refer to those technologies that can be used to develop new products. When employees have access to technologies that expose them to new ideas, or technologies that allow rapid development and iteration of new ideas, this can be instrumental in sparking the development of new products. Often companies invest in technology components that can be reused across multiple products. Such technology has the effect of both speeding the new-product development process and facilitating the addition of refinements and enhancements to existing products.
Evaluating Product Concepts
The goal of the initial product development process is to generate ideas, actively evaluate the ideas, and create a viable product concept. In the past it was difficult to get a clear reading on how products might perform until late in the product development process. That is less true today. Consider the following examples of innovations that accelerate market feedback on new products:
Kickstarter is a crowd-funding platform that allows entrepreneurs to pitch a new product concept to potential funders. The entrepreneur receives immediate feedback on the idea from a broad market and, if it generates enough support, funding to bring the product to market.
Etsy offers an e-commerce platform from which entrepreneurs can sell products on the Internet without having to develop their own e-commerce Web sites to present products or process payments.
3-D printers create physical products from digital files. These products can be tested and refined with users much more quickly and economically than traditionally manufactured prototypes and products. The video below demonstrates a number of interesting examples.
A link to an interactive elements can be found at the bottom of this page.
On a larger scale, there are a number of Web application frameworks that allow programmers to quickly develop Internet applications, significantly speeding the pace at which software companies can prototype and develop new features.
Once a product concept has been successfully evaluated, it moves to the next phase of development.
1. Fuzzy Front End: Effective Methods, Tools, and Techniques Peter A.Koen, Greg M.Ajamian, Scott Boyce, Allen Clamen, Eden Fisher, Stavros Fountoulakis, Albert Johnson, Pushpinder Puri, and Rebecca Seibert ↵
2. Ibid. ↵
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Introduction
The second phase of the new-product development process focuses on the actual development of the new product. This phase includes the following:
• Stage 4: Business Case Analysis
• Stage 5: Development
Making the Business Case
The business case is often the most challenging screening process in the new-product development process. It is not uncommon for a product team to get excited about an idea, get positive feedback on the concept from target buyers, and then fail to make the numbers work in the business case. Usually the business case review results in a “go, no-go” decision for the product concept.
The business case doesn’t only need to answer the question “Can this product make money?” It’s also trying to answer a more complicated question: “Will the product provide the greatest total return out of all the potential strategies we could pursue?” In addition, the business case is looking at the expected performance of the product—financial and otherwise—over the entire product life cycle. For these reasons, the business case takes into account a broad range of factors.
One common tool for presenting a summary of the business case is called the “business model canvas” (see Figure 1, below). The canvas doesn’t cover all of the analysis that must be done, but it does provide a nice structure for identifying the different components that are important to the success of the product or business.
Figure 1. The Business Model Canvas
You will notice that the center of the canvas focuses on the value proposition of the product, whereas the lower segments specify the costs to create value and the revenue earned by delivering the value. In the analysis of the business case, the key questions are the following:
1. Does the product provide sufficient unique value to the target customer?
2. Can that be achieved at a cost that supports the value?
3. Does that value appeal to a large enough target market to generate sufficient revenue?
If the product development team can demonstrate satisfactory answers to these questions, without introducing other objections, then the product will move into development.
Developing the Product
Regardless of the type of product—a tangible good, a service, a business-to-business product—someone needs to define the marketing requirements for the product. This is the role of a product marketing manager. Product marketing isn’t usually tasked with the technical specifications for the product but is focused on specifying the needs of the target buyer. Product marketing addresses the following question: “What problem does this product solve for the target buyer?” The answers to this question are typically presented in a marketing-requirements document, which also includes a full buyer persona. (Recall that a buyer persona describes the needs, experiences, feelings, and preferences of a specific buyer.)
Defining Market Requirements
Let’s say your new product is a packaged meal item, and you’re the product marketer. Your marketing-requirements document would explain who the buyer is, what she needs, and which particular features of the product will best address her needs. Your buyer persona is a woman named Aleisha. She has three kids and works part time as a nurse. She feels stretched between her job and her kids’ busy schedule and the demands of keeping up the house. She needs to be able to come home from work and get dinner on the table in twenty minutes, yet not feel like she’s cutting corners. It’s important to her to provide her family with a healthy home-cooked meal.
This description of target-buyer Aleisha suggests and guides a set of product requirements that will inform the design and development of the product. Whether the product is a food item, a fashion accessory, a software program, or a banking service, defining the marketing requirements based on the buyer persona will increase the chances that the final product meets the market need.
Defining Product Requirements
The marketing requirements become an input to the product team to define the technical product requirements for the product. In the packaged meal example, someone will need to decide whether there are visible solids in Aleisha’s sauce and how much ground oregano should be added. Those will become product requirements that drive the production process.
With more technical products or products that include a complex manufacturing process, the translation from marketing requirements to technical requirements can be a daunting task. For example, in the manufacturing of semiconductors that power computers and electronics, there is significant interplay between the marketing requirements, the technical requirements, and the manufacturing process. The factory cannot deliver products that exceed their technical capabilities regardless of the market desires. In that case, the limits of the manufacturing process are set, and the role of product marketing is to identify the most attractive products given a fixed manufacturing capability.
In all cases, the product team seeks a tight match between the market need and the product that is designed, developed, and delivered.
Creating the Go-to-Market Plan
The marketing requirements drive the technical product requirements that will be used to develop the product, but they have a second purpose, too. The market requirements are the major input to the marketing plan that will be used during the product launch.
In answering what problem a product solves for the target buyer, we gain information about the messaging and promotion strategy. By understanding the alternatives that the target buyer might select and the unique value that our product provides, we can begin to understand the pricing dynamics. In knowing how she wants to buy the product we have options to analyze for the distribution strategy. The initial marketing mix for the product launch is driven from the information in the marketing requirements document.
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Introduction
The final phase of the new-product development process focuses on commercializing the new product. This phase includes:
• Stage 6: Test Marketing
• Stage 7: Launch
• Stage 8: Evaluation
At last the product is ready to go. It has survived the development process and is now, you hope, on the way to commercial success. How can it be guided to reach that marketing success?
The different stages in this phase include a common set of activities performed on increasingly larger scale. In all three stages the marketer is implementing, evaluating, and improving the marketing plan, which includes the full marketing mix.
Test Marketing
The goal of test marketing is to improve the success of the product launch. The marketer will launch the marketing plan to a smaller subset of the market, quickly analyze how the plan can be improved, refine the plan, and then launch to the full market.
Test marketing provides a wonderful opportunity to get feedback from buyers in a realistic buying situation in which they experience the full marketing mix—but it’s a challenge to do it right. Because of the special expertise needed to conduct test markets, and the associated expenses, many large manufacturers employ independent marketing research agencies that specialize in test marketing. Among the challenging decisions are the following:
• Duration of testing: the product should be tested long enough to account for market factors to even out, but a long test cycle delays the broad launch and may diminish the impact of the product announcement.
• Selectionof test markets: the test market should reflect the norms for the new product in such areas as advertising, competition, distribution system, and product usage.
• Sample size determination: the number of markets and tests must account for the different variables in the market, while allowing for the fact that each test market adds cost to the launch budget and time to the product release cycle.
The test data drives evaluation and refinement of the marketing plan. Even after all the test results are in, adjustments to the product and other elements of the marketing mix may still be made. Additional testing may be required, or the product may be canceled.
The Launch
The product launch is truly the beginning of the implementation of a sustained marketing plan—a plan that will be analyzed, evaluated, and adjusted throughout the product life cycle. That said, there certain marketing techniques that figure more prominently during the launch phase.
Press Strategies
Often companies issue press releases about new products in order to increase visibility through earned media. The press release can be sent to targeted press outlets, posted on the company Web site, sent as an information message to customers, and distributed to industry influencers. The goal of the press strategy is to build broad visibility for the product, backed up by the credibility of the media outlet.
Price Discounts
Companies will sometime offer a price discount during a product launch. When we cover pricing in more detail in the next module, we will discuss when this can be an effective strategy.
Channel Partner Incentives
If the company depends on a partner to sell or distribute the pricing, it might choose to offer pricing discounts and incentives to the distribution partner. A new product carries some risk, and an incentive at launch can encourage channel partners that might be reluctant to add the new product or to sell it aggressively.
Evaluation
Though we are identifying “evaluation” here as the final stage of the development process, it should be clear that product evaluation is a recurring activity that begins with the idea-screening stage. Careful, objective evaluation of the product at every stage leads to better investment decisions and better products. The difference in this final stage of the process is that the marketer has the benefit of significant market data for the evaluation, which can help improve the marketing plan going forward. It is only at this stage—after the product launch—when the marketer can see which buyers purchase the product, how competitors respond, and how the new product interacts with the company’s other products in the marketplace.
10.16: Video- Target Product Design
Target’s design products include many of the success factors we’ve discussed in this module. As you watch the following video, see if you can identify which aspects of Target’s approach and design process are key to their success. What role does the corporate culture play?
A link to an interactive elements can be found at the bottom of this page.
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• Target Product Design (Introduction). Provided by: Lumen Learning. License: CC BY: Attribution
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10.17: Self Check- New-Product Development Process
Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/796
10.18: Outcome- Challenges for New Products
What you’ll learn to do: identify the challenges associated with marketing a new product successfully
Have you ever waited in line to be among the first to buy a new product when it was released?
Are you careful, maybe pragmatic, about trying new products?
Do you continue to use products that your friends and family believe are outdated?
Your answers to these questions matter to the marketers who are targeting you. We have looked at the life cycle of products and the process for developing new products. As a buyer, you have specific attitudes and behaviors when it comes to new products—or at least toward groups of products. These behaviors are both intriguing and vexing to marketers.
The specific things you’ll learn in this section include:
• Explain common challenges of new products
• Identify approaches to improving the success of new products
Learning Activities
The learning activities for this section include the following:
• Reading: Diffusion of Innovation
• Reading: Improved Success in Product Development
• Self Check: Challenges for New Products
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Just as the product life cycle has a typical bell-shaped pattern, there is a predictable—and similar-shaped—pattern of buying, or adoption, when it comes to new products. This customer adoption pattern is important because it can be used to inform marketing decisions.
Diffusion-of-Innovation Theory
Common sense suggests that not everyone will buy a new product at the same time. Some will rush out and buy first or try to get an early version of a product before it is widely available. Others will wait until many people have adopted a product before they reluctantly consider the purchase. As early as 1962, Everett Rogers recognized this phenomenon and described it as the “diffusion of innovation.” He developed a theory to support it, explaining how, why, and at what rate an innovation will be adopted by participants in a social system. The theory divides adopters into different groups with shared characteristics, as shown in Figure 1, below:
The purple line on the graph indicates the percentage of the market that will buy a new product in each phase of product adoption. You can see from the graph that there is a small number of innovators, and a large number of early majority and late majority adopters. The yellow line on the graph shows the cumulative market share gained. In other words, the yellow line shows the total of the market share gained at the end of each phase, adding together the share from each prior phase.
Consumer Adoption Patterns
Innovators
Innovators are willing to take risks and are viewed by their peers as risk takers. Innovators’ risk tolerance enables them to adopt technologies that may ultimately fail, and they typically need sufficient financial resources to absorb these failures. Innovators tend to be very tuned into market leaders and the latest developments. To stay on top of current trends, they research products thoroughly using “in-the-know” sources such as expert blogs and product forums. Innovators are willing to pay a premium to be the first to try a new offering. Although this is the smallest segment in the diffusion-of-innovation theory, if innovators approve of a product, it marks an important gateway toward generating broader market acceptance.
Early Adopters
Early adopters have a high degree of opinion leadership among the adopter categories. Others look to this group to road-test and validate new products. As a significantly larger segment than innovators, early adopters are influential in shaping the opinions of later adopters. Therefore it is essential to achieve high customer satisfaction with this segment. Early adopters are more aggressive than later adopters, but they are judicious about their adoption choices. Early adopters don’t look to be first at any cost, so they actively consider risk as part of the decision-making process. To illustrate, classic innovator behavior is to camp out overnight for the first showing of a new film, while early adopters read the reviews before deciding to see a film during the opening weekend.
Early Majority
Early majority adopters are more risk averse than early adopters, so they wait for the wrinkles to be ironed out of new products before making a purchase. Early majority buyers tend to seek a lot of opinion and validation to guide their choices: they want to know that the early adopters and innovators have had a good experience before they invest. The window of early majority purchasing spans a longer period of time than the innovators’ and early adopters.’ Early majority buyers generally have more choices in terms of quality, features, and price because competition tends to peak when this group’s buying cycle is in full swing. Like the early adopters, the early majority’s opinions and decisions carry weight across the adopter categories.
Late Majority
Late majority adopters arrive after the “average” participant has embraced an innovation. These individuals approach innovations reluctantly and with more skepticism than their predecessors. Late majority buyers are less likely to conduct extensive research about a purchase; instead they tend simply to follow the buying behaviors of earlier-adopting segments.
Laggards
Laggards are the last to adopt an innovation. Often they are older and less educated than buyers in the other diffusion of innovation segments. Laggards typically have little or no opinion leadership and are averse to things they perceive as “agents of change.” Laggards tend to be focused on traditions. They are less connected socially, less involved with media, and harder to reach than the other groups.
Marketing an Innovation
Figure 1, above, shows a tipping point between the early majority and the late majority adopters. A tipping point is the point at which small changes are enough to cause a larger, more substantial change. The challenge for the marketer is to encourage the adoption of a product by early adopters and the early majority in order to reach that tipping point. Once these groups are on board, their momentum helps drive the product from the introduction stage of the life cycle into the growth stage.
Often marketers are tempted to focus their marketing efforts on the innovators. Innovators are game to try the product, which makes them an easier target than risk-averse consumers. In all but the most unusual, extreme cases, though, this will be a flawed strategy. The early adopters are actually in a much better position to influence broad opinion of the product and to draw in the early majority. By the same token, aggressive marketing to laggards is unlikely to influence their pattern of adoption.
Understanding the patterns of adoption and adjusting the marketing strategy to address changes in adoption profiles is a challenge that marketers of new products need to understand and face.
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One common cause of failure in the developing and marketing of new products is something called “product-market fit.” Marc Andreesen, a technology entrepreneur and investor who has written about this, explains that product-market fit is simply being in a good market with a product that can satisfy that market.[1]
New technologies enhance the ability of companies to bring products to market quickly, but speed doesn’t guarantee the right product-market fit. Without a good fit, companies risk launching a product that doesn’t satisfy the market need.
A couple of innovations in new-product development strategies have had a significant impact on the way companies improve their chances of a successful fit.
User-Centered Design
Have you ever found a product that seems like it was made for you? You don’t need to read the instructions. You don’t have to learn how to use it. It seems naturally to conform to your preferences and needs. The creation of such products is the goal of user-centered design.
User-centered design is a product development process in which the needs, wants, and limitations of end users are given extensive attention at each stage of the design process. The chief difference from other product design approaches is that user-centered design tries to optimize the product around how users can, want, or need to use the product, rather than forcing the users to change their behavior to accommodate the product.
In a user-centered design process the product team tries to understand user needs and define the requirements to meet those needs—but that’s true of any good product-design process. User-centered design requires the designers to test their assumptions about user behavior and requirements in real-world settings with actual users during every step of the product development process—all the way from product concept and requirements to production and prelaunch. This recursive approach gives designers a steady stream of information that confirms the original requirements or suggests needed modifications. The frequent user testing encourages designers to think of typical or recurring user challenges as design requirements rather than problems that ought to be solved by the user.
For example, most educational institutions want to make the course selection and registration process easier for students. Portland State University decided to employ a user-centered design process when it set out to improve its own system. After a number of student interviews, the university created a prototype of the new process. When they were ready to test the concept, the university registrar went to the homes of students and watched them try to work through the course selection and registration processes on their home computers. The idea was to gain information about students’ real experience of these processes in the places where they actually happen—and make design decisions accordingly. The home-setting experiment revealed a number of unanticipated design flaws and new requirements that hadn’t come to light during interviews or simulations run in the campus computer lab. As a result, by prioritizing the user perspective, the university was able to design a much more effective solution.
The Lean Startup Methodology
The “lean startup methodology” has been described by Eric Ries as an approach that helps new companies achieve product-market fit during their earliest product launch. The methodology is based on the assumption that it’s essential to get real market data from product users as early as possible in the design process. The challenge, as you have learned, is that marketers don’t see substantial, realistic market data (which are used to refine the marketing mix) until well after the product launch. The lean startup methodology tries to get around this problem by shortening the time frame needed to capture the data.
Ries proposes that rather launching a fully developed, full-featured product, companies should begin with a very limited launch of what he calls “the minimum viable product.” The minimum viable product (MVP) is the most streamlined product that any group of users will accept. According to this approach, the company develops and launches its MPV, captures market and user data, and quickly uses that information to make adjustments for its next minimal feature set. In each cycle of development the product team learns from actual market and user data, and uses them to refine the product and stay aligned with company goals.[2]
The lean startup methodology is used by organizations of all sizes, but it’s particularly well suited to small companies that can’t afford the risk of a single product-fit issue and to software-based companies that can launch an online offering to a user base without needing complex manufacturing processes and distribution channels.
Neither of these approaches will address all new-product challenges or guarantee success, but both are considered important innovations in the new-product design process, since they improve the odds of new-product success and reduce the cost of product failure.
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• Improved Success in Product Development. Provided by: Lumen Learning. License: CC BY: Attribution
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Check Your Understanding
Answer the question(s) below to see how well you understand the topics covered in the previous section. This short quiz does not count toward your grade in the class, and you can retake it an unlimited number of times.
Use this quiz to check your understanding and decide whether to (1) study the previous section further or (2) move on to the next section.
https://assessments.lumenlearning.com/assessments/797
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• Self Check: Challenges for New Products. Provided by: Lumen Learning. License: CC BY: Attribution
10.22: Outcome- Products and Marketing Mix
What you’ll learn to do: explain what a product is and the importance of products in the marketing mix
We’ll start this module by defining what a product is and seeing how it fits in the marketing mix. When thinking about the target customer’s perspective, it’s useful to have an “expansive” view of product and keep in mind that the customer experience is not only about the tangible aspects of a good.
For example, imagine that you stop at a fast-food restaurant for a quick sandwich. The sandwich is fresh and delicious and is exactly what you wanted to eat. However, the wait for the sandwich was exceptionally long, the restaurant was filthy, and the sales clerk was rude. Does that change your level of satisfaction?
Or, have you ever been excited to get a bargain on an airline ticket and then been surprised by additional fees for what seem like basic services, such as checking your luggage? Do the fees change your level of satisfaction with the product?
As we explore products and product marketing, you will find that most products include a broader range of components than you might first expect.
The specific things you’ll learn in this section include:
• Define a product
• Identify difference between products that offer goods versus services
• Explain how to augment a product with services
• Define product marketing
• Explain the role of product marketing in the marketing mix
Learning Activities
The learning activities for this section include the following:
• Reading: Defining Product
• Reading: Consumer Product Categories
• Reading: Products and Services
• Reading: Augmenting Products with Services
• Reading: Product Marketing and the Marketing Mix
• Self Check: Products and Marketing Mix
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10.23: Putting It Together- Product Marketing
In this module we’ve covered a wide range of topics related to the role of the product in the marketing mix. As you’ve seen, creating clear value for the customer, understanding the product life cycle, and creating a balanced product portfolio are all interrelated aspects of thinking about the customer and market behavior.
At the beginning of this module we discussed the success of Uber’s ride-sharing product. Let’s take another look at it from the viewpoint of the new-product development process.
Recall that the business model canvas is a tool companies use to lay out the business case for a new product concept. Figure 1, below, is an example of how Uber’s business model canvas might have looked when the founders cooked up the idea for their ride-sharing offering. Given what we know now about the product’s success, it’s pretty clear that Uber hit its mark: the company identified and delivered on a value proposition with incredible product-market fit.
Figure 1. Uber Business Model Canvas
The successful definition, development, and delivery of the product reduced risk in other elements of the marketing mix, though Uber’s affordable and predictable pricing is an important part of the value proposition. The product has been successful and is continuing to grow in the market. In 2018 the company reported revenue growth of 43 percent year over year.[1]
Uber’s market may be reaching maturity. In terms of the adoption cycle, Uber has moved far past the innovators and early adopters and likely past most of the early majority. Now it needs to attract late majority customers and fight to hold on to its existing customers in a very competitive marketplace. As you think about Uber’s product and market, will laggards ever use the service? Should the company try to influence them?
Chris Nicholson, from FutureAdvisor, explains the impact of this trend on Uber and its competitor, Lyft: “They both feel that the only way to maintain their growth rate in the U.S. is to grab each other’s market share.” As the market reaches maturity, competition is getting more fierce. The companies have to fight to keep their customers and try to lure customers from competitors if they want to sustain their growth.[2]
In using more of the tools and frameworks that we have discussed in this module, you are better able to understand a product’s success, identify risks to its future success, and use effective marketing to influence the course of that product’s success.
Contributors and Attributions
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• Putting It Together: Product Marketing. Provided by: Lumen Learning. License: CC BY: Attribution
• Screenshot Trends in Rides Given. Provided by: Lumen Learning. License: CC BY: Attribution
• Screenshot Trend in Growth Rate of Distinct New Customers. Provided by: Lumen Learning. License: CC BY: Attribution
10.24: Discussion- Product Strategy
Instructions
Write a post for the Discussion on this topic, addressing the questions below. You may use either written paragraph or bullet-point format. Part 1 should be 2–3 paragraphs in length or an equivalent amount of content in bullet-point form. Responses to your classmates’ posts should be 1–2 paragraphs or several bullet points in length.
Part 1: Product Strategy
Briefly describe your product or service. Where is it in the product development life cycle? What recommendations do you have for improving the offering to fit your target market’s needs? Be sure to consider the following:
• What level of quality and consistency does the offering have?
• How many features does it have and can they be removed or added?
• Does the design and/or service deliver what the customer values? If not, how can it improve?
• What improvements would help your offering compete more effectively?
Part 2: Respond to Classmates’ Posts
After you have created your own post, look over the discussion posts of your classmates and respond to at least two of them.
Part 3: Incorporate Feedback
Review the feedback you receive from classmates and your instructor. Use this feedback to revise and improve your work before submitting it as part of the “Complete Marketing Plan” assignment.
Grading Rubric for Discussion Posts
The following grading rubric may be used consistently for evaluating all discussion posts.
Discussion Grading Rubric
Discussion Grading Rubric
Criteria Response Quality: Not Evident Response Quality: Developing Response Quality: Exemplary Point Value Possible
Submit your initial response No post made – 0 pts Post is either late or off-topic – 2 pts Post is made on time and is focused on the prompt – 5 pts Point value possible – 5 pts
Respond to at least two peers’ presentations No response to peers – 0 pts Responded to only one peer – 2 pts Responded to two peers – 5 pts Point value possible –5 pts
Total Points Possible for Discussion Assignment: 10pts.
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A product is a bundle of attributes (features, functions, benefits, and uses) that a person receives in an exchange. In essence, the term “product” refers to anything offered by a firm to provide customer satisfaction, tangible or intangible. Thus, a product may be an idea (recycling), a physical good (a pair of jeans), a service (banking), or any combination of the three.[1]
Broadly speaking, products fall into one of two categories: consumer products and business products (also called industrial products and B2B products). Consumer products are purchased by the final consumer. Business products are purchased by other industries or firms and can be classified as production goods—i.e., raw materials or component parts used in the production of the final product—or support goods—such as machinery, fixed equipment, software systems, and tools that assist in the production process.[2] Some products, like computers, for instance, may be both consumer products and business products, depending on who purchases and uses them.
The product fills an important role in the marketing mix because it is the core of the exchange. Does the product provide the features, functions, benefits, and uses that the target customer expects and desires? Throughout our discussion of product we will focus on the target customer. Often companies become excited about their capabilities, technologies, and ideas and forget the perspective of the customer. This leads to investments in product enhancements or new products that don’t provide value to the customer—and, as a result, are unsuccessful.
Four Levels of the Product
There are four levels of a product (shown in the figure below): core, tangible, augmented, and promised. Each is important to understand in order to address the customer needs and offer the customer a complete experience.
The Core Product
The core product satisfies the most basic need of the customer. For example, a consumer who purchases a healthy snack bar may be seeking health, convenience, or simply hunger relief. A student who buys low-priced, sturdy sneakers may just be seeking footwear. A student on a tight budget who buys top-of-the-line sneakers might be hoping to achieve status. Or, the student might be seeking a sense of freedom by splurging on an item that represents a true sense of style, even though he can’t really afford it. Footwear, status, and freedom are all legitimate core products. The core product is complex because it is so individualized, and, often, vague. The marketer must have a strong understanding of the target customer (and the different segments of target customers) in order to accurately identify the core product.
The Tangible Product
Once the core product has been identified, the tangible product becomes important. Tangible means “perceptible by touch,” so the tangible aspects of a product are those that can be touched and held. This idea can be expanded to also include the characteristics of the product that directly touch the buyer in the buying decision. These are the product elements that the customer will use to evaluate and make choices: the product features, quality level, brand name, styling, and packaging. Every product contains these components to a greater or lesser extent, and they are what the consumer uses when evaluating alternatives.
The importance of each aspect of the tangible product will vary across products, situations, and individuals. For example, at age twenty, a consumer might choose a particular brand of new car (core product=transportation) based on features such as gas mileage, styling, and price (choice=Toyota Yaris); at age forty-five, the core product remains the same, while the tangible components such as quality level, power, features, and brand prestige become important (choice=Audi A6).
The Augmented Product
Every product is backed up by a host of supporting services. The augmented product includes the tangible product and all of the services that support it. Often, the buyer expects these services and would reject the tangible product if they were not available. For example, if you shop at a department store, you are likely focused on a core and tangible product that centers on the merchandise, but you will still expect the store to have restrooms, escalators, and elevators. Dow Chemical has earned a reputation as a company that will bend over backward in order to service an account. It means that a Dow sales representative will visit a troubled farmer after hours in order to solve a serious problem. This extra service is an integral part of the augmented product and a key to their success.
When the tangible product is a service, there is still an augmented product that includes support services. Westin hotels offer hotel nights with a specific set of features as their tangible product. The augmented product also includes dry cleaning services, concierge services, and shuttle services, among others.
In a world with many strong competitors and few unique products, the augmented product is gaining ground, since it creates additional opportunities to differentiate the product from competitive offerings.
The Promised Product
The outer ring of the product is referred to as the promised product. Every product has an implied promise, which is a characteristic that is attached to the product over time. The promised product is the long-term result that the customer hopes to achieve by selecting the product. The promised product may be financial—the resale value of a car, home, or property, for example—but it is often more aspirational. The customer hopes to be healthier, happier, more productive, more successful, or enjoy greater status.
Like the core product, the promised product is highly personal. Generally, marketers find that there will be groupings of customers seeking a similar promise but that there is not a single promised product across all customers.
Can the core product and the promised product be the same thing? Yes, they can, but often the the core product is more focused on the immediate need and the promised product has a longer-term element.
Let’s compare two different examples of the same purchase to understand how the product levels might change for different customers.
Purchase Comparison
Impetus to Buy I need to be in Miami for a meeting next Thursday I need a break from my stressful life
Core Product Transportation Escape, peace of mind
Tangible Product Airline ticket from New York to Miami
• Convenient routing
• Reasonable cost
• Frequent-flier points
• Optimal flight times
Airline ticket from New York to Miami
• Reasonable cost
• Ease of booking
• Quality of flight experience and service
Augmented Product
• In-flight meal purchase
• Insurance for flight changes
• Full vacation services (hotel, rental car)
• In-flight meal and premium drink purchase
• Baggage services
Promised Product Productivity, convenience, success Escape, peace of mind, happiness
In the first case, the customer’s impetus to buy is transportation, so that is the core product. In the second case, the purchase is more aspirational and less concrete, so the core product and the promised product are quite similar.
For a marketer, the most important element is to have a holistic view of the product. If I believe that I’m simply selling airline tickets, then I fail to provide the full product offering that will satisfy either of my customers in the example above. And of course, it is always key to truly understand the motivation and perspective of the target customer.
1. www.ama.org/resources/Pages/Dictionary.aspx?dLetter=P#product ↵
2. www.businessdictionary.com/definition/industrial-goods.html ↵
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Consumer products are often classified into four groups related to different kinds of buying decisions: convenience, shopping, specialty, and unsought products. These are described below.
Convenience Products
A convenience product is an inexpensive product that requires a minimum amount of effort on the part of the consumer in order to select and purchase it. Examples of convenience products are bread, soft drinks, pain reliever, and coffee. They also include headphones, power cords, and other items that are easily misplaced.
From the consumer’s perspective, little time, planning, or effort go into buying convenience products. Often product purchases are made on impulse, so availability is important. Consumers have come to expect a wide variety of products to be conveniently located at their local supermarkets. They also expect easy online purchase options and low-cost, quick shipping for those purchases. Convenience items are also found in vending machines and kiosks.
For convenience products, the primary marketing strategy is extensive distribution. The product must be available in every conceivable outlet and must be easily accessible in these outlets. These products are usually of low unit value, and they are highly standardized. Marketers must establish a high level of brand awareness and recognition. This is accomplished through extensive mass advertising, sales promotion devices such as coupons and point-of-purchase displays, and effective packaging. Yet, the key is to convince resellers (wholesalers and retailers) to carry the product. If the product is not available when, where, and in a form the consumer desires, the convenience product will fail.
Shopping Products
In contrast, consumers want to be able to compare products categorized as shopping products. Shopping products are usually more expensive and are purchased occasionally. The consumer is more likely to compare a number of options to assess quality, cost, and features.
Although many shopping goods are nationally advertised, in the marketing strategy it is often the ability of the retailer to differentiate itself that generates the sale. If you decide to buy a TV at BestBuy, then you are more likely to evaluate the range of options and prices that BestBuy has to offer. It becomes important for BestBuy to provide a knowledgeable and effective sales person and have the right pricing discounts to offer you a competitive deal. BestBuy might also offer you an extended warranty package or in-store service options. While shopping in BestBuy, consumers can easily check prices and options for online retailers, which places even greater pressure on BestBuy to provide the best total value to the shopper. If the retailer can’t make the sale, product turnover is slower, and the retailer will have a great deal of their capital tied up in inventory.
There is a distinction between heterogeneous and homogeneous shopping products. Heterogeneous shopping products are unique. Think about shopping for clothing or furniture. There are many stylistic differences, and the shopper is trying to find the best stylistic match at the right price. The purchase decision with heterogeneous shopping products is more likely to be based on finding the right fit than on price alone.
In contrast, homogeneous shopping products are very similar. Take, for example, refrigerators. Each model has certain features that are available at different price points, but the basic functions of all of the models are very similar. A typical shopper will look for the lowest price available for the features that they desire.
Speciality Products
Specialty goods represent the third product classification. From the consumer’s perspective, these products are so unique that it’s worth it to go to great lengths to find and purchase them. Almost without exception, price is not the principle factor affecting the sales of specialty goods. Although these products may be custom-made or one-of-a-kind, it is also possible that the marketer has been very successful in differentiating the product in the mind of the consumer.
Blizzcon attendees, 2014
For example, some consumers feel a strong attachment to their hair stylist or barber. They are more likely to wait for an appointment than schedule time with a different stylist.
Another example is the annual Blizzcon event produced by Blizzard Entertainment. The \$200 tickets sell out minutes after they are released, and they are resold at a premium. At the event, attendees get the chance to learn about new video games and play games that have not yet been released. They can also purchase limited-edition promotional items. From a marketer’s perspective, in Blizzcon the company has succeeded in creating a specialty product that has incredibly high demand. Moreover, Blizzard’s customers are paying for the opportunity to be part of a massive marketing event.
It is generally desirable for a marketer to lift her product from the shopping to the specialty class—and keep it there. With the exception of price-cutting, the entire range of marketing activities is needed to accomplish this.
Unsought Products
Unsought products are those the consumer never plans or hopes to buy. These are either products that the customer is unaware of or products the consumer hopes not to need. For example, most consumers hope never to purchase pest control services and try to avoid purchasing funeral plots. Unsought products have a tendency to draw aggressive sales techniques, as it is difficult to get the attention of a buyer who is not seeking the product.
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Goods vs. Services
In marketing, are services considered products? Should products that are predominately goods be treated differently than products that are predominantly services? Whether or not there are substantial differences between goods, products, and service products has been the source of great debate in marketing. Opponents of the division assert that “products are products,” and just because there are some characteristics associated with service products and not goods products and vice versa, it doesn’t mean that customized strategies are necessary for each. Advocates on the other side offer evidence that the differences are significant indeed.
You may have noticed that throughout this course we use the term “product” broadly to address the full product offering that is comprised of goods, services, and often a combination of both. We’ve given examples of service products (hotel stays, for instance) and goods products (sneakers and bread, for instance). Thinking inclusively about the tangible and intangible aspects of all products is useful because it creates a more complete view of the customer’s product needs and experience. Still, there are unique characteristics of services that set them apart from goods. It is important to understand the differences and to consider them in the development of strategies, tactics, and objectives.
Service products are reflected by a wide variety of industries: utilities, restaurants, educational institutions, consulting firms, hotels, medical care providers, and banking, to name but a few. Beyond these traditional industries there is a growing sector of software as a service offered by companies that provide individuals and other companies with hosted and managed access to software systems. In 2013, software as a service was a \$22.6 billion industry, it is projected to hit \$100 billion in 2019[1]. Services account for nearly 50 percent of the average consumer’s total expenditures, 70 percent of the jobs, and two-thirds of the U.S. Gross National Product (GNP). Clearly, the service sector is large and is growing. While all products share certain common facets, service products tend to differ from goods products in a number of ways.
Characteristics of Service Products
As you can see from the examples above, service products are quite diverse. Nonetheless, they tend to have the following characteristics.
Intangible
Leonard Berry offers this useful differentiation: “A good is an object, a device, a thing; a service is a deed, a performance, an effort.”[2]With the purchase of a good, you have something tangible—an item that can be seen, touched, tasted, worn, or displayed. That’s not true of a service, which is intangible (quite literally, “not able to be touched”).
Although you pay your money and consume the service, there is nothing tangible to show for it. For example, if you attend a professional football game, you spend money for a ticket and spend nearly three hours taking in the entertainment. After the game, you leave. Unless you have purchased a good at the game, you will not take anything tangible to take away (except, perhaps, the ticket stub).
Simultaneous Production and Consumption
Service products are consumed at the same time they are being produced. The tourist attraction is producing entertainment or pleasure at the same time it is being consumed. In contrast, goods products are produced, stored, and then consumed. A result of this characteristic is that the provider of the service is often present when consumption takes place. Dentists, hotel staff, hair stylists, and ballet dancers are all present when the product is used.
Little Standardization
Because service products are so closely related to the people providing the service, ensuring the same level of satisfaction every time is very difficult. Dentists have their bad days, not every baseball game is exciting, and the second vacation to Walt Disney World Resort may not be as wonderful as the first.
High Buyer Involvement
With many service products, the purchaser may provide a great deal of input into the final form of the product. For example, if you wanted to go on a Caribbean cruise, you would visit a number of websites describing the various cruise locations, review the available options for cabin location and size, islands visited, food, entertainment, prices, and whether they accommodate children. Although the task would be very time consuming, you could, if you wanted, practically design every moment of your vacation.
It should be noted that the four characteristics associated with service products described above vary in intensity from product to product. In fact, service products are best treated as existing on a continuum, shown in the following figure.
When marketing a service, it’s important to remember that (a) service products on the right side of the continuum (i.e., those with greater intangibility) are different from goods products on the left side of the continuum, and (b) service products tend to require certain adjustments in their marketing strategy on account of these differences.
All products, whether they are goods, services, blankets, diapers, or plate glass, possess peculiarities that require adjustments in the marketing effort. However, “pure” goods products and “pure” service products (i.e. those on the extreme ends of the continuum) tend to reflect characteristics and responses from customers that suggest different marketing strategies. Admittedly, offering an exceptional product at the right price, through the most accessible channels, promoted extensively and accurately, should work for any type of product. The goods/services classification provides the same useful insights provided by the B2B/B2C classification discussed earlier.
1. https://www.cbronline.com/news/saas-market
2. Leonard L. Berry, "Services Marketing Is Different," Business May/June 1980: 24–29. ↵
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