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Learning Objectives
By the end of this section, you will be able to:
• Explain and describe the stages in the B2B buying process.
The B2B Buying Process
The B2B buying process—the journey B2B buyers and the buying center take to complete a purchase—is significantly different and more complex than the consumer purchasing decision process. You’ll recall from Consumer Markets and Purchasing Behavior. That the consumer buying decision encompasses five stages—need recognition or problem awareness, information search, evaluation of alternatives, purchase decision, and post-purchase evaluation. By contrast, the B2B process involves eight stages (shown in Figure 4.7). Let’s take a closer look at each of these stages.
Stage 1: Problem Recognition
Similar to the consumer purchasing decision process, the first stage in the B2B buying decision process begins when someone within the organization identifies a problem or a need that can be resolved through a purchase. For straight rebuy purchases, this stage may be as simple as the fact that the organization is running low on copier paper or toner. In a case like this, the B2B buyer simply places the order, and the process ends.
Modified rebuy purchases make the process more complex, as these may involve replacing outdated equipment, technological changes, or revising marketing brochures or advertisements. Now, instead of placing an order from an existing supplier for an already-purchased product, the B2B buyer has to follow through on more of the stages in the process.
New-task buying is the most complex. For example, your organization may decide that, due to the growth of the organization, it needs to purchase an accounting software system or a new piece of manufacturing equipment. In these cases, the B2B buying process will likely incorporate all of the steps listed in Figure 4.7.
Stage 2: Need Description
Next, the buying center will need to further define what needs to be purchased. This often involves collaboration among members of the buying center in terms of describing what is needed from a technical perspective, desired features, quantity, etc.
Consider a firm that is developing a new electronic control for an appliance. The components are many—a printed circuit board, capacitors, resistors, microprocessors, etc. Members of the buying center will be called upon to develop a bill of materials—a list of parts, items, assemblies, subassemblies, documents, drawings, and other materials required to create the control. Think of the bill of materials as the “recipe” used to create the finished product.
Stage 3: Product Specification
B2B buyers often develop product specifications, a blueprint that outlines the product to be built, how it will look, what features it will have, and how it will function. The product specification needs to be concise and readable for everyone in the buying center and yet contain sufficient technical data to provide the product team with the information it needs to develop the new product or feature.
Stage 4: Supplier Search
Now that you’ve established the technical specifications for the product, it’s time to identify potential suppliers. This is where the experience of those in the buying center comes into play, as they attempt to determine which suppliers have the best quality, delivery, and price. Just like consumers in the “information search” stage of the consumer buying process, those in the buying center may look online to find suppliers, but there are many other resources available to B2B buyers, such as trade magazines, industry expert blogs, and webinars conducted by suppliers.
Stage 5: Proposal Solicitation
Once the list of potential vendors has been developed and whittled down, qualified vendors will be asked to submit proposals. If it’s a relatively straightforward purchase, this proposal may be as easy as a vendor sending the buyer a catalog or providing the buyer with a link to the company’s website. However, more complex purchases typically require the vendor to submit a detailed proposal outlining what the vendor can do to address the company’s needs. This proposal will likely contain product specifications, timing, and—of course—pricing.
Stage 6: Supplier Selection
After reviewing the proposals from the various vendors, the buying center makes a choice. This stage in the B2B buying process involves a thorough review of the proposals submitted, with a critical eye tuned to factors such as supplier capabilities, reputation, warranties, price, etc. If the purchase requires a substantial financial outlay and/or is extremely complex, or if many proposals were solicited, the buying center may narrow down the list of vendors to just a few and invite them to meet (either in person or virtually) to further discuss the proposal and address any questions or concerns.
Stage 7: Order-Routine Specification
After selecting suppliers, the B2B buyer negotiates the details of the order. The critical items here are what is needed (i.e., the technical specifications), how much is needed (i.e., the quantity required), and when it is needed (i.e., the expected time of delivery). This stage will likely also include negotiation of things such as return policies, warranties, and other critical items involved with the purchase.
Stage 8: Performance Review
Just as consumers evaluate purchases after they have made them, and similar to the way that your employer may conduct a performance review to assess your job performance, the B2B buyer periodically reviews the performance of the selected supplier to assess if the product and the supplier meet expectations. For example, the B2B buyer may solicit product feedback from users and/or rate the supplier on different criteria such as quality, promptness of delivery, etc. As a result of the performance review, the B2B buyer may decide to continue, modify, or even end a supplier relationship.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
A blueprint that outlines the product the company will be building, what it is going to look like, and its specific requirements and functions is known as a ________.
1. project scope
2. bill of materials
3. product specification
4. participant matrix
2.
Jackson has asked several qualified vendors to submit proposals. Which stage of the B2B buying process does this illustrate?
1. Stage 2: Need description
2. Stage 3: Product specification
3. Stage 4: Supplier search
4. Stage 5: Proposal solicitation
3.
During which stage of the B2B buying process will members of the buying center be called upon to develop a bill of materials?
1. Stage 1: Problem recognition
2. Stage 2: Need description
3. Stage 3: Product specification
4. Stage 4: Supplier search
4.
During which stage of the B2B buying process will the B2B buyer negotiate the order?
1. Stage 4: Supplier search
2. Stage 5: Proposal solicitation
3. Stage 6: Supplier selection
4. Stage 7: Order-routine specification
5.
Donita has determined that the current payroll software system is no longer adequate to handle the growing number of employees in the company. Which stage of the B2B buying process does this illustrate?
1. Stage 1: Problem recognition
2. Stage 2: Need description
3. Stage 5: Proposal solicitation
4. Stage 8: Performance review | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/04%3A_Business_Markets_and_Purchasing_Behavior/4.04%3A__Stages_in_the_B2B_Buying_Process.txt |
Learning Objectives
By the end of this section, you will be able to:
• Discuss ethical issues pertaining to B2B marketing.
• Explain the Foreign Corrupt Practices Act.
• Provide an example of a company that displays ethics in B2B marketing.
Business Culture and Industry Practices
As we’ve seen above, there are several differences between B2C and B2B marketing. Consider purchasing, for example. Unlike B2C transactions, it is far more common in B2B transactions for vendors to offer “perks” such as free dinners, golf outings, and trips. In some foreign countries, B2B and government buyers not only expect these types of “perks” but also may demand bribes if you want to do business with them on their turf. This presents unique ethical challenges for B2B sellers and buyers. As a B2B seller, of course you want to make the sale, particularly if it’s a large sale. On the other hand, you know that a reputation for ethical behavior, including honesty, transparency, and open communication, is critical to the success of your business and may even be the decisive factor in a B2B buyer’s decision to buy from you instead of a competitor.
Bribes and “Grease Payments”
Transparency International, a watchdog group, annually ranks the likelihood of companies from the world’s industrialized countries to bribe abroad. The index ranks 180 countries and territories by their perceived levels of public sector corruption on a sale of 1 to 100, in which 100 is perceived to be very clean and 0 is perceived to be highly corrupt.17
Which countries ranked in the bottom five for 2021? Let’s take a look:
• South Sudan
• Syria
• Somalia
• Venezuela
• Yemen18
If you’re curious, the United States ranked 25th in the world. And the least corrupt countries in 2021? That would be Denmark, Finland, and New Zealand, which tied for first place.19
Link to Learning: Fighting Corruption
For more information about Transparency International, including corruption wins, scandals, and predictions, check out this corruption perceptions index. You may also enjoy this TEDx Talks video about the power of corruption.
Let’s consider how you would handle a scenario involving bribes. You’re the plant manager in Taiwan for a US-based electronics company. You are expecting a critical shipment of diodes that are being imported into Taiwan from South Vietnam. Without the diodes, you will miss an important production deadline for a new—and potentially lucrative—customer. The shipment arrives in the Port of Taipei on a timely basis, but customs refuse to release the shipment, claiming that it needs to do further inspection, and it may be several days or even a couple of weeks before the shipment is released. However, an agent of customs advises you that in exchange for a “facilitation fee” of several hundred dollars, the process can be expedited. How do you handle this? Do you pay the “facilitation fee” (essentially a bribe, which is illegal according to the Foreign Corrupt Practices Act, covered below) and meet your customer’s deadline, or do you refuse to pay the fee and miss your customer’s deadline? How will missing that deadline impact your firm’s relationship with the new customer?
Let’s consider how you would handle still another similar scenario. You’re the regional distribution manager for a US company, and you’ve been assigned to head up a new distribution facility in a South American country. At least two other competitors (both foreign corporations) are also trying to enter the same market, so you’ve been instructed to establish this facility as quickly as possible in order to beat the competition. However, government officials have advised you that it may take up to 10 months to obtain a building permit but that the time frame could be considerably shortened in exchange for the payment of an “expediting fee.” These fees (essentially a bribe) are both illegal according to US law. However, your competitors are foreign firms not subject to US law, and paying such fees is neither illegal nor considered unethical. How will you handle this situation? Will you pay the fees in order to be first in the market, or will you let your competitors beat you to the market?
These are a couple of dilemmas faced by marketers in B2B situations.
Link to Learning: Corruption Scandals
Check out Transparency International’s list of top corruption scandals. Interesting read!
Price Fixing
Price fixing—an agreement among competitors (either written, verbal, or inferred from the parties’ conduct) that affects prices or competitive terms—is prohibited by the Federal Trade Commission (FTC).20 Keep in mind that, despite the term, price fixing isn’t confined to an agreement to set the same price. Companies can also be involved in price fixing if they offer or withhold the same discounts or shipping terms or set a production amount or quota.
Price fixing is illegal because it’s considered anticompetitive and hurts both consumers and businesses. Let’s illustrate with a real-life example with a company you’re likely familiar with—StarKist. In 2019, a San Francisco federal judge ordered the company to pay a fine in the amount of \$100 million in connection with a canned tuna price-fixing conspiracy that involved StarKist, Bumble Bee Foods, and Chicken of the Sea, who regularly exchanged information about their sales and plans for pricing. The lawsuit alleged that, under the scheme, consumers were forced to pay more for canned tuna than they would have otherwise.21
Link to Learning: Tuna Price-Fixing Lawsuit
Learn more about the details of the price-fixing lawsuit from this short video on the Ring of Fire channel.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA) was enacted in 1977. Its purpose is to prohibit the payment of bribes (sometimes called “facilitation fees”) to foreign officials in order to obtain or retain business. The FCPA applies to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents.22
The Securities and Exchange Commission (SEC) and the Department of Justice work cooperatively to enforce the FCPA. Sanctions for violations can be significant, including both civil and criminal penalties. The SEC can bring civil enforcement actions against companies (along with their officers, directors, employees, stockholders, and agents) for violations or for bribery, and if found guilty under the act, the company may have to pay back its “ill-gotten gains” as well as paying prejudgment interest and civil penalties. For example, one of its most recent cases involved KT Corporation, a South Korean telecommunications company, in which the SEC alleged that the company had violated the books and records and internal accounting controls provisions of the FCPA by making improper payments to government officials in Korea and Vietnam.23
Companies with a Conscience: Kforce
Kforce is a B2B professional staffing and solutions firm that specializes in technology, finance, and accounting. Headquartered in Tampa, Florida, the company has over 50 offices nationwide and two national recruiting centers.24
The location of its corporate headquarters played a big role when Hurricane Irma struck South Florida and the Bahamas in 2017, because the hurricane’s impact was felt on a personal level by the company. The hurricane, which struck Florida as a Category 4 storm, ripped off roofs, flooded coastal cities, and knocked out power for more than 6.8 million people.25
Instead of idly standing by or focusing solely on getting its business back up and running, Kforce decided to “make lemonade out of lemons” and have a positive impact on the community (see Figure 4.8). The company raised \$1 million for the American Red Cross and sponsored private jet missions that flew essential supplies to the Bahamas. It also encouraged users to make donations for hurricane relief, generating several thousand additional dollars for the cause.26
But Kforce’s philanthropy after Hurricane Irma wasn’t a one-time deal. In 2021, the company expanded its “Day of Giving” campaign to a “Season of Impact” and encouraged employees to give their time and talents to nonprofit organizations of their choice. It also held a number of events such as a food drive and the Tampa Bay Heart Walk to benefit the American Heart Association.27
KForce does a lot for the community. Check out its website to learn more about its corporate social responsibility programs. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/04%3A_Business_Markets_and_Purchasing_Behavior/4.05%3A_Ethical_Issues_in_B2B_Marketing.txt |
In this chapter, we defined business-to-business (B2B) markets and buying behavior and explored the differences between business-to-consumer (B2C) and B2B markets. We discussed the types of buyers in B2B transactions—producers, resellers, governments, and institutions—and identified the different types of buy classes in the B2B market, as well as the roles of those in the buying center—the people within the organization who have varying influence on the purchase decision.
We examined the five major categories of influencing factors on B2B decisions: external factors, internal factors, organizational factors, interpersonal factors, and conditional factors. We also reviewed the eight stages of the B2B buying process: problem recognition, need description, product specification, supplier search, proposal solicitation, supplier selection, order-routine specification, and performance review. Finally, we explored some ethical issues with respect to the B2B buying process, including Transparency International’s Corruption Perceptions Index and the Foreign Corrupt Practices Act (FCPA).
4.07: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
authority the right to give orders, supervise the work of others, and make certain decisions
B2B buying process encompasses 8 stages: problem recognition, need description, product specification, supplier search, proposal selection, supplier selection, order-routine specification, performance review
bill of materials a comprehensive inventory of the raw materials, assemblies, subassemblies, parts, and components
brokers individuals or businesses that bring buyers and sellers together, usually for a commission
business objectives and goals achievable outcomes that provide a framework for achieving success
business-to-business (B2B) a transaction or business conducted between one business and another
buy classes buying situations that are distinguished on four characteristics: newness to decision makers, number of alternatives to be considered, uncertainty inherent in the buying situation, and the amount of information needed for making a buying decision
buyers the people in the buying center who handle the paperwork of the actual purchase
buying center groups of people within organizations who make purchasing decisions
competition the rivalry between companies selling similar products and services with the goal of achieving revenue, profit and market share growth
deciders the people in the buying center who ultimately determine any part of the entire buying decision
derived demand market demand for a good or service that results from a demand for a related good or service
direct demand the demand for a commodity for direct consumption purposes
economic factors factors that affect the economy, such as interest rates, tax rates, laws, policies, wages, and government actions
expertise expert skill or knowledge in a particular field
Foreign Corrupt Practices Act (FCPA) a US statute that prohibits firms and individuals from paying bribes to foreign officials
gatekeepers individuals in the buying center who control information and/or access to decision makers and influencers
government markets purchases made by the governing bodies of nations, states, or communities
influence the capacity to have an effect on the character, development, or behavior of someone or something
influencers individuals whose views influence other members of the buying center in making the final decision
initiator the person in the buying center who first suggests or thinks of the idea of buying the product or service
institutions organizations, establishments, foundations, societies, or the like devoted to the promotion of a particular cause or program, especially one of a public, educational, or charitable character
modified rebuy a buying situation in which an individual or organization buys goods that have been purchased previously but changes either the supplier or some element of the previous order
new-task buy a complex B2B buying situation in which the organization buys a product or service for the first time
personality the combination of characteristics or qualities that form an individual’s distinctive character
political and legal factors factors such as the political system, the political situation, and government policies that influence B2B buying decisions
producers those individuals or businesses who buy raw goods to use in the creation of goods or services
product specifications a document carrying essential information to keep teams on track when designing and developing a product
resellers companies or individuals (merchants) that purchase goods or services with the intention of selling, leasing, or renting rather than consuming or using them
retailers businesses that sell goods to consumers in relatively small quantities for personal consumption
social environment the values, attitudes, beliefs, wants, and desires of the consuming public
straight rebuys purchases in which the business customer buys the same goods from the same supplier in the same quantity at the same terms and requires minimal decision making
systems selling selling a complete solution to a problem or need rather than one or more of the component parts
technology applications of science, data, engineering, and information for business purposes
users the people who consume or use the product or service
wholesalers businesses that typically purchase larger quantities from producers and then resell them to retailers
workforce skills also called employability skills, the basic skills a person must have to succeed in any workplace | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/04%3A_Business_Markets_and_Purchasing_Behavior/4.06%3A_Chapter_Summary.txt |
1 .
Go to the Tesla corporate website. Which market(s)—consumer, business, institutional, resellers, producers/suppliers—does Tesla serve? Why did Tesla decide to serve these markets? When reading Tesla’s 2021 Impact Report, what main goal does the company say it is “driven” by?
2 .
Manufacturers work with resellers primarily to move large amounts of inventory quickly, thus limiting stagnant inventory that can limit cash flow. Which two types of businesses historically have contributed to moving manufacturers’ products to end consumers?
3 .
Visit your college’s website, and look through academics, sports, organizations, and campus life. When looking at the photos, which items do you see depicted that are likely straight rebuys? Do you see sports uniforms, test tubes, musical instruments, computers, desks, library books? Which items are likely modified rebuys, new task situations, and systems selling?
4 .
What segmentation tools do you have at your disposal when marketing in a B2B setting? Are there challenges associated with using social media platforms in marketing to other businesses rather than individual consumers? If so, one of these challenges might be that members of the buying center are more experienced and less emotional purchasers. Can you identify additional challenges?
5 .
City, county, state, and federal governments are heavily engaged in the B2B market. List one product each governmental entity might purchase directly from a producer/supplier.
4.09: Critical Thinking Exercises
1 .
Compose a paragraph of 250–500 words using all of the following terms as they relate to B2B. The goal is to prove you understand the meaning of each term.
Terms:
business markets
institutions
business culture
competitors
internal factors
gatekeeper
deciders
problem recognition
buying center
economic factors
personal selling
derived demand
product specifications
reseller
performance review
2 .
Explain the Foreign Corrupt Practices Act and why it is important as US businesses compete in the international marketplace.
3 .
Tesla is building a 10 million square-foot “Gigafactory” in Nevada. While Tesla didn’t rely on systems selling in building the manufacturing facility, the company did contract with many suppliers, such as Anning-Johnson, to provide vital elements such as decking. For Tesla, this was a new task situation. List the various phases Tesla went through to arrive at the construction and operation of this lithium-ion battery Gigafactory.
4.10: Building Your Personal Brand
Your personal brand is the skills and talents you bring to future employers or to your own business. Think about how businesses market to other businesses. How can you adopt some of those same marketing techniques and develop a plan to market yourself for an internship or employment?
Visit LinkedIn, and look at the profiles of a handful of marketing managers. Examine how each marketing manager depicts their brand within their profile. What do they say about themselves that’s unique?
Now write a one-page summary of your brand.
4.11: What Do Marketers Do
Utilize LinkedIn to find brand managers in your geographic area, and invite one or more to connect with you. It’s best to go beyond the suggested LinkedIn request message and be more inviting and clearer on why you are reaching out to them. Once linked, “interview” the professional by asking questions. A few questions to begin with might be: Was there a particular class in college that resonated with you and your career goals? How did you find your first internship? Do you have suggestions that can help me improve my LinkedIn profile? Additional questions may explore their education, their experience, their career goals, and how they spend their days and weeks. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/04%3A_Business_Markets_and_Purchasing_Behavior/4.08%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Corporate Medical Services
Corporate Medical Services (CMS) was established in Tennessee on October 1, 1995, with one person, one computer, and one client.28 The company was started with the goal of providing Department of Transportation (DOT) customers with a resource to meet new drug testing requirements.
“The Federal Motor Carrier Safety Administration (FMCSA), along with the Department of Transportation (DOT), requires that persons subject to the commercial driver’s license (CDL) requirements and their employers follow alcohol and drug testing rules.”29 These rules include procedures for testing, frequency of tests, and substances tested for. An employer who employs only themselves as a driver shall implement a random alcohol and controlled substances testing program of two or more covered employees in the random testing selection pool.
With a combination of technology and great customer service, the company grew steadily.
• 1995: CMS founded
• 1996: First office location established
• 1998: Nationwide 24/7 services offered
• 2001: Automated faxing of results
• 2001: New office location established due to growth of company
• 2004: Automated emailing of results
• 2008: Created in-house DotStopi consortium program
• 2009: Online results reporting made available
• 2010: Online scheduling of services made available
• 2012: Began providing management services for existing consortiums
• 2013: Introduced CMS’s Sleep Express
• 2016: Began developing programs to automate DMV updates30
Today, CMS provides services to a wide variety of clients and industries across the United States and Canada. Clients include trucking, busing, firework manufacturers, schools, construction, hospital organizations, other third-party administrators, consortiums, and associations. In 2020, CMS reported over 100,000 drug screens and additional services for more than 2,500 companies.31
With stricter requirements coming to the industry, there is a tremendous need for drug and alcohol testing. Data reveals that there are 3.5 million truck drivers in the United States.32 For just the trucking industry alone, the need for consortium services as well as company-sponsored drug and alcohol testing is increasing every year.
CMS prides itself as the concierge service provider in the industry. Figure 4.9 is a competitive analysis grid, and it outlines how CMS compares to its competitors based on the number of services they offer and the level of customer service provided. For example, DISA Global Solutions (DISA), Workforce QA, and FSS Solutions (FSS) are companies that provide a higher number of services than CMS but much lower customer service. CMS offers fewer services but the highest level of customer service. Notice that as companies offer more services, their level of customer service decreases.
Marketers use competitive analysis grids to understand how they compare to their competitors on the various metrics that are important in their industry. It is important for a company to grasp both its points of parity and points of differentiation compared to competitors.
In choosing to differentiate their company based on service, CMS was promising customers an unrivaled experience when they needed drug or alcohol testing. Many times, the need for testing was the result of an emergency situation. Companies that relied on CMS for this service felt a level of comfort knowing they would be taken care of quickly and efficiently when they were in the most need.
Among the promises, CMS vowed the following:
1. Unrivaled Experience
“CMS has been helping companies manage the complexities of regulations and requirements for over 25 years. During that time, we have helped over 15,000 companies significantly reduce the hassle of managing their drug testing programs.”
2. Concierge Level Personal Service
“Concierge level service is not a term frequently used in our industry, but we believe in it and actively demonstrate it to our clients daily. When you are miles from home and need support, it’s what you want. It is always a good day at CMS, and we hope to make your day better by helping you in any way we can.”
3. More Security, Less Hassle
“Dealing with governmental regulations and requirements is no easy task. We have developed processes, procedures, and performance benchmarks to deal with the complexity of this industry so that you don’t have to. At the end of the day, you will be confident that your program is operating the way it should.”
4. Respect
“We are here to serve our clients. To successfully accomplish that goal, we treat our staff, our clients, our vendors, and your donors with respect. In an industry where conversations can sometimes get tense, we handle every situation in a respectful and professional manner in order to mitigate any issues that may arise.”
5. Speed of Technology
“Our systems and processes are designed to get you the results you need as quickly as possible, which is why no one is faster at reporting drug screens. Our system averages a 7-minute turnaround on negative reports, once released from the lab.”
As CMS looked for growth, it began to work with industry trade associations. The trucking industry was growing rapidly. Industry leaders were continuing to expand their fleets, and new trucking companies were entering the market. Providing drug and alcohol testing was not something the companies wanted to think about—until it was a necessity. Corporate safety managers could be difficult to reach; however, with a narrow focus and significant industry knowledge, CMS was well positioned to network and provide critical information regarding the ever-changing government regulations.
CMS knew it needed to begin developing brand awareness and continue fostering relationships in the industry. When it was time to make the buying decision, CMS wanted to be in the top-of-mind consideration set. The company knew the buying cycle may be long for a corporate decision to change which provider they were using for testing. It was a process it was willing to wait for, and it was in it for the long haul.
Case Questions
1 .
Which characteristics of the B2B market are most evident for CMS?
2 .
If a trucking company wanted to buy services from CMS, what type of buying behavior would this be?
3 .
List and describe the major B2B buying influences prevalent for the CMS market segment.
4 .
List three ways Corporate Medical Services can become a leading contender in the supplier search stage of the B2B buying process.
Footnotes
• iDotStop is the brand name of a drug and alcohol testing consortium for trucking companies with 20 or fewer drivers.
4.13: References
1. “RingCentral Case Study,” Medallia, accessed September 29, 2021, https://www.medallia.com/customers/ringcentral/.
2. Gastón Dubois, (2021, September 8). “Indian Government Approves Purchase of 56 Airbus C295MW for Its Air Force,” Aviacionline.com, published August 9, 2021, https://www.aviacionline.com/2021/09...its-air-force/.
3. “What Are the Four Types of B2B Markets?,” IGW, accessed August 4, 2022, https://infographicworld.com/b2b-wha...f-b2b-markets/.
4. Amy Lamare, “Meet the billionaire who supplies the burgers for McDonald’s and Burger King,” Celebrity Net Worth, published November 7, 2020, https://www.celebritynetworth.com/ar...d-burger-king/.
5. “How to Buy and Source from Alibaba,” Alibaba.com Seller Central, published December 15, 2020, https://seller.alibaba.com/businessb...e-from-alibaba.
6. “How to Buy and Source from Alibaba,” Alibaba.com Seller Central, published December 15, 2020, https://seller.alibaba.com/businessb...e-from-alibaba.
7. “Selling Greener Products and Services to the Federal Government,” United States Environmental Protection Agency, last updated April 28, 2022, https://www.epa.gov/greenerproducts/...ral-government.
8. “4.2 Types of B2B Buyers,” University of Minnesota Libraries Publishing, accessed August 4, 2022, https://open.lib.umn.edu/principlesm...of-b2b-buyers/.
9. “Buy Classes,” Common Language Marketing Dictionary, accessed August 4, 2022, https://marketing-dictionary.org/b/buy-classes/.
10. “Systems Buying,” Monash Business School, last updated February 2018, https://www.monash.edu/business/mark...systems-buying.
11. “7 Different Members of the Buying Centre of an Organisation,” Your Article Library, accessed September 29, 2021, https://www.yourarticlelibrary.com/o...nisation/22538.
12. Marco Nink and John H. Fleming, “B2B Companies: Do You Know Who Your Customer Is?,” Gallup.com, published November 11, 2014, https://news.gallup.com/businessjour...-customer.aspx.
13. Marco Nink and John H. Fleming, “B2B Companies: Do You Know Who Your Customer Is?,” Gallup.com, published November 11, 2014, https://news.gallup.com/businessjour...-customer.aspx.
14. “Government bans hundreds of painkillers, creams, antibioticsm” Mint, accessed August 23, 2022, https://www.livemint.com/Companies/z...governmen.html
15. Shirley Leung, “Wendy’s Sees Green in Salad, So Rivals Begin to Follow Suit,” The Wall Street Journal, published April 24, 2003, https://www.wsj.com/articles/SB105113127748655200.
16. “There’s Intel to Be Gained Looking at B2B Buyers’ by Generation,” published January 28, 2020, https://www.finnpartners.com/news-in...by-generation/.
17. “Corruption Perceptions Index,” Transparency International,” accessed May 11, 2022, https://www.transparency.org/en/cpi/2021.
18. “Corruption Perceptions Index,” Transparency International,” accessed May 11, 2022, https://www.transparency.org/en/cpi/2021.
19. “Corruption Perceptions Index,” Transparency International,” accessed May 11, 2022, https://www.transparency.org/en/cpi/2021.
20. “Price Fixing,” Federal Trade Commission, published December 15, 2017, https://www.ftc.gov/tips-advice/comp...s/price-fixing.
21. “StarKist Price Fixing: StarKist to Pay \$100M Fine in Tuna Price-Fixing Case,” CBS News, updated September 11, 2019, https://www.cbsnews.com/news/starkis...e-fixing-case/.
22. “Spotlight on Foreign Corrupt Practices Act,” SEC Emblem, modified February 2, 2017, https://www.sec.gov/spotlight/foreig...ices-act.shtml.
23. “SEC Enforcement Actions: FCPA Cases,” SEC Emblem, modified June 6, 2022, https://www.sec.gov/enforce/sec-enfo...ons-fcpa-cases.
24. “About Kforce,” Kforce, accessed May 12, 2022, https://www.kforce.com/about-test/.
25. Chris Huber, “2017 Hurricane Irma: Facts, FAQs, and How to Help,” World Vision, updated August 1, 2018, https://www.worldvision.org/disaster...ane-irma-facts.
26. Brian Anderson, “3 Inspirational Examples of How B2B Brands Spread Cheer on #GivingTuesday,” B2B Marketing Exchange, December 3, 2019, https://b2bmarketing.exchange/blog/3...givingtuesday/.
27. “Kforce Launches Season of Impact to Further Connect with Communities,” Kforce, accessed January 27, 2022, https://www.kforce.com/press-release...f-impact-2021/.
28. “CMS History,” Corporate Medical Services, accessed May 12, 2022, corporatemedicalservices.com...y/cms-history/.
29. “CMS Executive Staff,” Corporate Medical Services, accessed May 12, 2022, https://corporatemedicalservices.com...ecutive-staff/.
30. “Drug & Alcohol Testing Program,” FMCSA, accessed May 12, 2022, https://www.fmcsa.dot.gov/regulation...esting-program.
31. “CMS History,” Corporate Medical Services, accessed May 12, 2022, corporatemedicalservices.com...y/cms-history/.
32. Stasha Smiljanic, “How Many Trucking Companies Are There in the United States,” PolicyAdvice, accessed May 12, 2022, https://policyadvice.net/insurance/i...nies-in-the-us. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/04%3A_Business_Markets_and_Purchasing_Behavior/4.12%3A_Closing_Company_Case.txt |
To begin this chapter, we are going to look at an example of a well-known company that successfully used market segmentation to appeal to a very specific consumer market as a way to revive one of its products.
Mattel Inc. is the producer of popular children’s toys like Hot Wheels, Barbie, and Max Steel. Its action figure Max Steel was introduced in 1999 to only modest success in the United States, but it was enormously popular in South America, even outselling the company’s top lines—Hot Wheels and Barbie. Nearly a decade later, marketers decided to revive the brand in the United States, hoping for a second chance at success.1
Mattel used a number of important market segmentation variables and market strategies to appeal to its target market. First, in terms of demographic variables, marketers recognized that the Max Steel figure typically appealed to boys (gender segmentation) between the ages of 6 and 11 (age segmentation), so they decided to focus on this segment by developing a website that included games, character biographies, and other features popular with boys in this age bracket.
Market research also revealed that its target audience was interested in superheroes and enjoyed watching videos and playing video games centered around these superheroes, so the company used psychographic and lifestyle segmentation to appeal to this segment.2 For example, Mattel created a Disney Channel cartoon for Max Steel so that, months before the relaunch of the product in the United States, its target market was already familiar with the character and was more likely to buy (or pressure their parents to buy) the action figure. The result? Max Steel has become a minor superhero “staple” in toy aisles, cartoons, and movies.
5.01: Market Segmentation and Consumer Markets
Learning Objectives
By the end of this section, you will be able to:
• Define market segmentation.
• Describe the benefits of market segmentation.
• Discuss methods of segmenting consumer markets.
Market Segmentation Defined
You may have heard the saying “You can’t be all things to all people.” That sums up the essence and purpose of market segmentation—the process of dividing a target market into smaller, more precisely defined groups of consumers or organizations who have common needs and are expected to respond similarly to a marketing action.
The Advantages of Market Segmentation to the Organization
It’s estimated that the average person sees an astounding 4,000–10,000 advertising messages each day.3 That’s why it’s critical to target the right market. Most marketers have limited advertising budgets, so using one marketing message to reach a broad audience may garner a few new customers, but it’s likely to come at a high advertising cost.
Consider a company that makes woodworking tools for the professional or home hobbyist. The company would waste a lot of money placing ads in “general interest” magazines like Reader’s Digest because the average reader likely has little interest in woodworking tools. A better bet would be placing ads in specialty magazines like The Family Handyman (published by the same company as Reader’s Digest), Wood Magazine, or Popular Woodworking— publications aimed at professional woodworkers and hobbyists. Not only would it likely cost less to advertise in specialty magazines like these, but the ads would be more relevant to the company’s desired customer base.
There are other benefits to market segmentation. Let’s look at a few:
• Improved Focus on the “Important” Customers. Customers are not all alike. Some will love your product or service, while others will be indifferent. Instead of trying to appeal to everyone, market segmentation enables marketers to focus their efforts and resources on those customers who will likely result in revenue for the company.
• Improved Product Development. Market segmentation allows marketers to better understand what consumers want in a product or service, and that knowledge enables the marketer to make recommendations for refinements to existing products and services to meet those needs. This knowledge is equally important in terms of designing new products and services to meet the needs of the target market.
• Improved Brand Loyalty. When customers feel that your company’s products or services are a good fit for them, they are more likely to stick with your brand and recommend it to others.4
Methods of Segmenting Consumer Markets
There are several different types of marketing segments you can create. We’ll focus on four major types:
• Geographic segmentation: the “where”
• Demographic segmentation: the “who”
• Behavioral segmentation: the “how”
• Psychographic segmentation: the “why”
Geographic Segmentation: The “Where”
Let’s first take a look at geographic segmentation, or dividing the market based on where your customers or potential customers live. There are several geographic parameters a marketer can use to focus their marketing efforts, including location, cultural preferences, climate, language, and population type and density (see Figure 5.2).
Let’s explore each of these individually.
Segmenting the market on the basis of location can be as small as a county or zip code or as large as a country. Segmenting a market this way can also be used to identify a new geographic location into which the business may wish to expand.
Starbucks is a great example of a company that uses location segmentation. First, the company segments its markets according to global geographic segmentation—the Americas, China, and Asia Pacific and Europe, the Middle East, and Africa.5 Each of these segments is then subject to sub-segmentation in order to cater to markets that share cultural preferences. For example, in China, where tea tends to be the beverage of choice, Starbucks offers a lengthy menu of tea-based drinks like Red Bean Green Tea Frappuccino and Black Tea Latte. In Taiwan, where consumers prefer creamy beverages, Starbucks offers Jeju Honey Peanut Latte and Happy Cheese White Mocha.6
Customers’ choices and market behavior can also be influenced by their location in terms of climate or season. Segmenting the market this way also allows the marketer to present the most relevant information to the audience. There’s not much of a need for snowmobiles during the summer, even in northern climates, and not much demand for convertibles in the middle of winter in those same northern climates. In the same manner, companies that sell beachwear are more likely to record increased sales during the summer and in warmer climates.
Language can be used to segment a market geographically. For instance, there are a number of different languages spoken in different regions and states in India. Therefore, it stands to reason that an advertisement in the Hindi language would miss the mark in states where Assamese or Telugu is spoken. These advertisements would need to be translated for people in different regions.7 To give you an idea of the complexity of this, however, there are more than 19,500 languages or dialects spoken in India and 121 languages spoken by 10,000 people or more!8
Finally, the marketer can segment the market on the basis of population type or density—in other words, whether the market is urban, suburban, or rural. Think about this in terms of a company that does home lawn treatments like fertilization, weed control, or grub control. That company would likely have more success targeting a suburban area where residents need extra yard care. It would be less successful in an urban area where residents have smaller yards or maybe no yards at all!
Demographic Segmentation: The “Who”
Now let’s look at dividing a market on the basis of demographic segmentation (see Figure 5.3).
With demographic segmentation, the marketer will divide the market into smaller groups, generally on the basis of common demographic factors such as gender, income, age, educational level, race, religion, ethnicity, occupation or job type, and even family structure. These smaller segments enable marketers to focus their efforts and resources on those customers who will likely result in revenue for the company.
With gender segmentation, the market is divided into men and women. Those who identify as men and those who identify as women have different interests in terms of shopping for various products like apparel, shoes, and food. For example, look at the ad campaigns crafted toward women in fashion magazines such as Vogue or Vanity Fair. You’ll likely see a different ad focus in magazines like GQ or Men’s Health.
Income segmentation involves segmenting the market on the basis of monthly or yearly income. With income data, a company can determine how its potential consumer base spends money on both the high and low ends of the spectrum. Mercedes-Benz is a classic example of this as it markets different car models at different price points: A-Class vehicles starting in the low \$30,000 range, C-Class in the \$40,000–\$55,000 range, E-Class in the \$55,000–\$72,000 range, and, finally, its S-Class vehicles, which are priced at \$95,000 and up.9
Age is another common factor used to segment consumers. It’s likely no surprise to you that our preferences change with age. The products that appeal to us as teens or young adults are likely not the same products that appeal to us when we’re older. The age segmentation is threefold:
• Age Range. This type of segmentation represents a specific age group, such as children, teens, adults, and older adults. However, you also need to consider “perceived age” (i.e., how old you feel) versus “actual age” (i.e., your chronological age). Purchases tend to reflect our perceived age rather than our chronological age.
• Life Cycle or Life Stage. In the same way that our preferences change with age, they change with our life stage, and most people typically pass through many life stages, from childhood to adolescence to young adult, middle age, and older adult. This type of segmentation can be a little tricky, however, particularly in view of stereotypes and changing family dynamics. For instance, some teens or young adults may be parents, while middle-aged adults may be starting families, having second families, becoming empty nesters, or are single (or single again).
• Generation Based. This method of breakdown defines age by generation, such as baby boomers, millennials, and Generation X. Consumers within generations will differ slightly in age (for example, baby boomers were born between 1946 and 1964, and Gen Xers were born between 1965 and 198010 ), but these generational cohorts still tend to share certain characteristics and ideas.
Education is another means through which marketers can segment a market, and it also affects the channels through which marketers reach the target market. For example, if you were going to open a bookstore in your hometown, you’d want to determine the average educational level in your community as part of your due diligence. Are most of your would-be customers elementary or middle school students? Their tastes in reading will be considerably different than if you live in a college town populated by a number of literary professors who prefer the classics.11
Race, ethnicity, and religion can be used to segment a market. It’s always dangerous to stereotype, but consumers of different races, ethnicities, and religions have different preferences and needs. Consider a company like Zondervan, a leading bible publisher. It would make sense for the company to segment its market based upon religion because it offers products that complement the religious beliefs of a particular group. Likewise, IMAN Cosmetics is designed for women with darker skin tones, so its target market would likely be women of color.
Marketers can also segment the market based on occupation or job type. Focusing on a smaller segment of the market enables a company to make better use of its limited resources. For example, AllHeart is a producer of medical scrubs, nursing uniforms, shoes, and medical accessories, so it has segmented the market to focus on medical professionals. Another example can be found with Saf-Gard, a producer of safety shoes and work boots that meet or exceed safety standards. This company targets workers in the construction and farming industries.
Finally, a company can segment its market on the basis of family structure, marital status, whether there are children in the home, and the life stages of those in each family.
Behavioral Segmentation: The “How”
Behavioral segmentation divides consumers into market segments depending on their behavior patterns when interacting with a product or service (see Figure 5.4).
The behavioral pattern benefit segmentation focuses on which benefits or features of a product or service are most applicable to the customer. Consider toothpaste. People who buy toothpaste may do so for a variety of reasons—sensitive teeth, tartar control, whitening, fresh breath, cavity prevention, etc. This means that two consumers may look identical in terms of their demographics but could have very different values regarding the benefits and features that are most important to them.
For example, Procter & Gamble markets various formulations of its Crest brand toothpaste, including Crest Kids, Gum Detoxify Deep Clean, Gum and Breath Purify Deep Clean, and more. Marketing messages sharing the toothpaste’s benefits and differences are tailored for each formulation.12
Occasion segmentation divides consumers (or potential consumers) on the basis of the occasions when they make purchases or plan to buy. Occasion marketing is huge because marketers know that consumers will be purchasing certain items on certain occasions. Just look at the number of Internet or TV ads advertising chocolates, flowers, and jewelry in the weeks preceding Valentine’s Day or the sudden appearance of PEEPS and chocolate bunnies before Easter.
Usage-based segmentation identifies various segments of users based on how much they use a product. Consumers are typically divided into groups of non-, light, medium, and heavy product users. As a general rule, companies target heavy users because, although heavy users may be a relatively small percentage of the market, they generally account for a high percentage of total buying. This is actually called the Pareto principle in marketing, which asserts that 80 percent of a company’s revenue comes from the top 20 percent of repeat or loyal customers.13
Link to Learning: Pareto Principle
Regardless of which area of business you go into, the Pareto principle is a concept you will encounter often. It’s a concept people adopt in their life and in management. Check out these resources to learn more:
Psychographic Segmentation: The “Why”
Psychographic segmentation breaks down consumer groups into segments that influence buying behaviors, such as lifestyle, personality variables, and values (see Figure 5.5).
A person’s lifestyle provides insight on what they value, or how they spend their time and money. Marketers analyze three lifestyle dimensions, commonly called AIO (activities, interests, and opinions) variables:
• Activities. Activities focus on a person’s daily routine and/or hobbies. For instance, if you’re an urban dweller who rides your bike to work and works out regularly, your buying patterns are probably going to be vastly different from someone who drives to work and doesn’t work out.
• Interests. Interests drive passions. What are your interests? Crypto investing? Gaming? Photography? That’s important information to marketers because by identifying your interests (assuming you’re a target consumer), they can more easily determine what marketing messages will appeal to you.
• Opinions. Opinions matter, and especially in the age of social media, opinions spread fast. Companies monitor social media sites to gain insight about consumers’ opinions of their products or services and respond accordingly—and quickly! Companies such as PepsiCo and Mastercard continuously monitor 24/7 all social media postings about their companies, products, and competitors worldwide.
Link to Learning: Social Media Segmentation
There are a number of ways to segment social media markets. Read more about it on HubSpot: “8 Simple Ways to Segment Your Social Media Audience.” Understanding how social media influences market segmentation is critical. Read this article from Marketing Tech to gain insight.
Marketers can also segment a market based on personality variables to create a group of people with similar personality traits because personality and purchasing habits are strongly related. To illustrate this, look at the fitness tool Mirror. This interactive home trainer has performed well in the market since its inception in 2018 because it targets those people who want to work out but can’t find the time to go to the gym.
Link to Learning: Personality Segmentation
Harley-Davidson is another great example of a company that segments its market based on personality. Check out this video from Harley-Davidson as an example of how it is sending a message that resonates with motorcycle riders.
Values are the principles and important things that influence the way you live and work. As one example, environmental concerns are becoming a value issue for consumers, and they are looking for products from companies that are better for the earth. Knowing this, IKEA has incorporated a furniture buyback and resale program in the United States. If you have a piece of IKEA furniture that’s an oldie but still a goody and you want to retire it, IKEA will buy it back and help you pave the way toward sustainable living.14 Another great example is Lululemon’s Like New program. You can bring in any used Lululemon gear, trade it in at the store, get an eGift card for use at a Lululemon store, and 100 percent of the Like New profits are reinvested in the company’s sustainability initiatives.15
In addition to the AIO model of psychographic segmentation, there is another model known as VALS (values, attitudes, and lifestyles) that segments consumers into eight different types (as shown in Figure 5.6).
The premise of VALS is relatively simple: if you know what consumers are thinking, you will know which promotions or marketing messages will attract them to your product or service. And you can use the framework to determine what consumers are thinking by determining their values, attitudes, and lifestyles.16
Let’s take a look at these eight consumer types:
• Innovators are characterized by high income and high resources. These innovators have definite individual tastes and preferences and are motivated to achieve the “finer things” in life.
• Thinkers are consumers who have resources and are motivated by their knowledge.
• Believers are subtly different from thinkers in that thinkers typically make their own decisions, whereas believers look to their peers for affirmation of their decisions. They have fewer resources than innovators or thinkers.
• Achievers tend to be high-resource consumers who want to excel, both at the workplace and within their families. They are likely to purchase brands that have stood the test of time in terms of their success in the marketplace.
• Strivers tend to be lower-resource consumers. They have similar values as achievers but lack the same level of resources.
• Experiencers have relatively high resources and want to experience “being different.” The majority of experiencers are young adults.
• Makers, like experiencers, want self-expression, but they lack the resources to make that happen, so they tend to be more focused on building a better family than spending money.
• Survivors have the least number of resources and are the least likely to adopt innovative products. Survivors tend to be brand-loyal customers.17
Using Multiple Segmentation Bases
Keep in mind that a company doesn’t have to use just one or two segmentation bases; it can use all of them or a mix of them, a process that’s also known as multi-segment marketing. It’s not uncommon for companies to develop products that compete against their own offerings as long as the new products offer different perceived benefits to consumers. For instance, Procter & Gamble sells several different types of laundry detergent, such as Tide, Gain, and Cheer. Each of these brands offers different benefits like all-temperature use, fresh scent, unscented, stain removal, or whitening. By having these different brands, P&G can appeal to multiple target markets.
Careers In Marketing: Market Research Analyst
What does a market research analyst do, you might ask? They study markets and data to determine potential new opportunities for a company. According to the Bureau of Labor Statistics, the typical entry-level education required is a bachelor’s degree, and there are about 741,000 jobs with an expected growth rate of 22 percent from 2020 to 2030. This article from Coursera, “What Is a Marketing Analyst? And How to Become One,” outlines job roles and responsibilities, compares this job to other types of analyst jobs, and describes steps for how to become a marketing analyst.
Watch this video to learn about the typical marketing analyst job description. And watch this video from a real digital marketing analyst at Accenture to learn what a typical day includes.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
In China, Starbucks offers tea-based drinks featuring regional ingredients. On what basis has Starbucks segmented its market?
1. Demographic
2. Behavioral
3. Geographic
4. Psychographic
2.
A travel agency offers adventure trips like hut-to-hut camping in the mountains as well as quieter vacations in all-inclusive resorts. On what basis has the travel agency segmented its market?
1. Psychographic
2. Demographic
3. Behavioral
4. Geographic
3.
Road Scholar is an American not-for-profit organization that provides educational travel programs geared primarily to older adults. On what basis has Road Scholar segmented the market?
1. Geographic
2. Psychographic
3. Demographic
4. Behavioral
4.
Garnier offers a wide range of shampoos, including hydrating shampoo, smoothing shampoo, color-safe shampoo, volumizing shampoo, and more. On what basis has Garnier segmented the market?
1. Geographic
2. Psychographic
3. Behavioral
4. Demographic
5.
Peloton’s main products are Internet-connected stationary bikes and treadmills that enable subscribers to remotely participate in live classes via streaming media. This enables subscribers to have a “spin class” experience without going to the gym. On what basis has Peloton segmented the market?
1. Demographic
2. Behavioral
3. Geographic
4. Psychographic | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the challenges of segmenting B2B markets.
• Discuss the advantages of segmenting B2B markets.
• Explain methods of segmenting B2B markets.
Challenges of Segmenting B2B Markets
Just like its consumer market counterpart, business-to-business (B2B) market segmentation focuses on identifying unique market segments based on common characteristics. However, segmenting a B2B market is in many ways far more challenging than segmenting a consumer market because the motivations, processes, and considerations of B2B buyers are quite different from those of business-to-consumer (B2C) buyers. Let’s take a closer look.
• Challenge #1: Dealing with Highly Complex B2B Markets. As discussed in Business Markets and Purchasing Behavior, decision-making in B2B markets is quite different from decision-making in B2C markets. In a B2C market, the consumer is often the only decision maker involved in making a purchase. That’s not the case in B2B markets, where you’re often dealing with a buying center—all the people in the organization who have varying influence on the B2B buy decision. You may also recall from this chapter that buying centers have a variety of members who play different roles, such as users, initiators, influencers, gatekeepers, decision-makers, etc. Accordingly, it can be difficult to identify precisely who the target buyer is.18
• Challenge #2: Dealing with More Rational Buyers. Although the view is somewhat controversial, it is said that B2B buyers are more “rational.” Consumers tend to buy what they want and are more affected by emotions in buying decisions. Alternatively, B2B buyers typically buy what they need, and buying decisions are more deliberate, particularly in terms of price. Accordingly, in B2B markets, the marketer must determine the drivers of those needs.
• Challenge #3: Complexity of B2B Products. Just as the decision-making unit in a B2B transaction is more complex, so too are the B2B products themselves. When you make a major purchase, like a high-definition TV, your choice is likely made on the basis of fairly simple criteria. You might evaluate things like screen size, resolution, and your budget. However, in the B2B market, even the simplest of products may have to be integrated into a larger system. For example, a new payroll system might have to be integrated into the company’s human resources information system (HRIS). Another consideration with respect to the complexity of B2B products is that many B2B purchases are frequently tweaked to meet the company’s detailed specifications, whereas consumer products are almost always standardized.19
Advantages of Segmenting B2B Markets
Market segmentation is a tried-and-true method that’s been around since the 1950s, but there is still some confusion about how to use it in a B2B setting because it’s not as clear-cut as other forms of market segmentation. How does a marketer target the characteristics of something impersonal like a business? Despite the challenges of segmenting B2B markets, it still plays a critical role. Let’s examine some of the advantages.20
• Improved Campaign Performance. Similar to the previous example of a company using specialty magazines to reach the right target audience with the right message, B2B marketers can do the same. For example, Mailchimp, a marketing automation platform and email marketing service, examined user data to compare segmented marketing campaigns with non-segmented campaigns. The statistics based upon a comparison of 18 million email recipients were eye-opening. Campaigns directed toward defined market segments saw increases in a number of areas, including a 14.3 percent higher email open rate.21
• Improved Customer Loyalty and Retention. In our discussion of consumer market segmentation, we pointed out that market segmentation allows marketers to better understand what consumers are looking for in a product or service, and the same holds true with B2B market segmentation. The more marketers know about their customers’ business objectives and challenges, the more they can attempt to meet their needs. That not only builds confidence in the brand but also ultimately leads to greater customer retention and loyalty.22
• Assistance in Product Development. By using market segmentation, a company can refine its products or services to better meet the needs of its B2B customers. For example, let’s say your company’s product is payroll software. Having better identified the needs of the target market, your company may be able to add new features and functionality to make it even more attractive for the target market and possibly add a new revenue stream by making the product useful for another market segment.
• Improved Profitability. Implementing a market segmentation strategy accomplishes three important goals. First, targeting the right B2B customers with the right message increases your company’s competitiveness. Second, it enables the marketer to properly price products with the best price for its different customer segments. Third, it helps identify the best prices with which to target new customers and ensure that your organization’s offerings are neither overpriced nor underpriced, thereby increasing profitability.23
Methods of Segmenting B2B Markets
How do you segment B2B markets? Just like with consumer markets, there is a variety of methods. Marketers can segment B2B markets based on firmographics, technographics, needs-based segmentation, value-based segmentation, and behavioral segmentation (see Figure 5.7). We will look at each of these in the following sections.
Firmographics
Where demographics are concerned with people, firmographics are concerned with companies. They are a grouping of B2B customers based on shared company attributes. There are five general categories of firmographics:
• Industry. What are the organization’s primary activities? Once you’ve determined that piece of information, you can use market segmentation to group firms that are in a similar line of business.
• Location. The mantra in the real estate industry is that there are three things that matter: location, location, location. Just like with geographic segmentation in the B2C market, a marketer can choose a city, state, country or even a continent, depending on the line of business. For instance, depending on the cybersecurity challenges or threats faced by customers in different countries or regions, a cybersecurity firm may offer different cybersafety features in its software.24
• Size. Will your company target small and midsize operations or Fortune 500 companies? The needs of these organizations are vastly different. Firmographic size typically involves two components: revenue and number of employees.
• Legal Structure. In firmographics, legal structure denotes the legal status of a firm. For example, is the organization a sole proprietorship, a limited liability company, a corporation, or a nonprofit firm? Is it an independent business, a parent company, or a subsidiary of another business?25 All of these factors are important to know in order to create targeted content.
• Performance. Customer segments can be broken down based on performance, such as market share, quarterly or annual sales figures, and growth and/or losses (both in employees and revenue).
Segmenting Customers Based on Technographics
Technographic segmentation is based on the various hardware and software technologies used by B2B customers. It allows the marketer to organize prospects by their technology ownership and usage and narrow the market to those prospects who want to invest in new technological solution in the future.26
Needs-Based Segmentation
Think about it: What’s the point of marketing a product or a service to an organization that doesn’t need it? Needs-based segmentation is the concept that a marketer should focus limited resources on those customers that need the product and have the ability to purchase it.
Needs-based segmentation clusters groups of customers on the basis of what they need or want when seeking a product. Does your company’s product offer the features or benefits that the B2B buyer is seeking? Will the product meet the buyer’s (or company’s) needs? Those are the questions marketers need to answer when segmenting the B2B market based on needs. The late Theodore Levitt, an economist and a professor at Harvard Business School once said, “People don’t want to buy a quarter-inch drill; they want a quarter-inch hole.”27 Accordingly, rather than segmenting a market based on firmographics, many marketers choose to segment it based on what is valued by decision influencers.
Value-Based Segmentation
Value-based segmentation (sometimes called tiering or profitability segmentation) groups customers according to the potential value they may bring to a business. It places potential customers with the same value level (or “transactional worth”) into individual segments for target marketing. In its simplest terms, this approach is like the usage-based segmentation strategy of B2C markets. A marketer examines previous purchase data to determine how much a company buys, how frequently it buys, and the value of the purchases.28
Behavioral Segmentation
Behavioral segmentation considers the behavior of customers toward a company’s products or services. We’re not talking about two-way mirrors or covert operations here. This can be as simple as determining how the customer interacted with your company’s website, what content they interacted with, and whether the customer opened your last marketing email. The marketer then segments customers on the basis of their interaction with the company and attempts to discern if customers within that segment have become more interested or less interested over time. Behavioral segmentation is often used together with value-based segmentation to identify which customers should be pursued to get greater value out of them.29
Link to Learning: The Importance of Segmentation
For more information on the importance of segmenting B2B customers, check out this video, The Importance of Segmenting Your Customers. This video is from B2B Business International Market Research, a market research company, and it speaks to the importance and value of knowing your customers.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Hoffman Enterprises, a manufacturer of electronic controls for appliances, has segmented its customers based upon the size of the company in terms of revenue and its geographic location. What method of segmenting B2B markets is Hoffman Enterprises using?
1. Technographics
2. Behavioral
3. Firmographics
4. Needs Based
2.
Matias is a marketing manager for a company whose product integrates with customer relationship management (CRM) systems such as Salesforce. In order to segment the market, he researches which companies currently use Salesforce as well as any other complementary or competing tools. On what basis is Matias segmenting the market?
1. Technographics
2. Value-based
3. Behavioral
4. Firmographics
3.
Which form of B2B market segmentation differentiates customers according to their “transactional worth”?
1. Behavioral
2. Firmographics
3. Value based
4. Needs based
4.
Which form of B2B market segmentation groups customers based on sets of characteristics such as industry, location, size, legal structure, and performance?
1. Technographics
2. Psychographics
3. Firmographics
4. Demographics
5.
Which B2B market segmentation strategy clusters groups of customers on the basis of what features they normally look for in a product?
1. Firmographics
2. Behavioral
3. Technographics
4. Needs based | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.02%3A__Segmentation_of_B2B_Markets.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the challenges of segmenting international markets.
• Discuss the advantages of segmenting international markets.
• Explain methods of segmenting international markets.
Challenges of Segmenting International Markets
As we’ve outlined in this chapter, companies can’t be all things to all people because buyers differ in terms of their needs, wants, and demands. Accordingly, just as with consumer markets and B2B markets, companies typically find it necessary to segment international markets.
That’s not to say that segmenting international markets is easy; rather, the reverse is true: it adds a whole new set of complications, including differences in cultural, economic, and political environments in various countries. Additionally, because of those cultural, economic, and political differences, consumers in international markets tend to be more diverse in character than domestic markets. Moreover, the range of income levels and populations and the diversity of lifestyles in international markets tend to be significantly greater than in the domestic market.30 Accordingly, a single marketing strategy for all segments is questionable at best.
Advantages of Segmenting International Markets
The advantages of segmenting international markets aren’t all that different from the advantages of segmenting the consumer or B2B markets, but there are some subtle differences. A marketer in the United States may have a much easier time understanding the needs and wants of US consumers, but that may not be the case with international consumers. Segmenting the international market and conducting market research allows the marketer to have a better understanding of international customers. It also enables the marketer to identify similarities and differences across international markets, which may lead them to combine segments across countries or even regions.31
Methods of Segmenting International Markets
There are four primary methods of segmenting international markets, as shown in Figure 5.8.
Geographic Segmentation
Just as with domestic markets, international markets can be segmented geographically. A company might segment by regions, such as Western Europe, the Middle East, Africa, Latin America, etc. Keep in mind, however, that although geographic segmentation groups countries by location, they may be very different from one another in other respects. For example, if you were to consider the countries included in a Western European region, you’d find that, both culturally and economically, the United Kingdom and Scotland are very similar, but both differ significantly from neighboring Ireland.32 Similarly, people in West Africa tend to share similarities in dress, cuisine, and music, but these characteristics aren’t shared extensively with groups outside of West Africa.33
In terms of geographic segmentation, marketers also need to consider the infrastructure of the country—the basic physical systems of the nation, such as roads, sewage treatment, communication, water treatment, electricity, etc. You may have the best product for the consumers in the international market segment, but if the infrastructure is such that you can’t reasonably get the products to the consumers, that represents a restraining force that limits the opportunity.
Although the project is controversial, China has invested billions of dollars in an effort to strengthen its economy and global trade through its Belt and Road Initiative (BRI), a vast network of railways, energy pipelines, and highways through six economic corridors, both westward through former Soviet republics and southward to Pakistan, India, and Southeast Asia. In order to expand maritime trade traffic, China is investing in port development along the Indian Ocean, from Southeast Asia to East Africa and parts of Europe. The BRI spans a multitude of infrastructure projects intended to promote the flow of goods and foreign investment and is expected to impact more than 80 countries.34
Segmentation Based on Political and Legal Factors
As you’ve seen from our discussion of segmenting consumer markets, it’s often done on the basis of factors such as age, gender, product usage, personality, etc. That’s true as well in international markets, but the marketer needs to add still another dimension: country characteristics. These characteristics are typically political and legal factors, such as the type and stability of the government, how receptive the government is to foreign firms, monetary regulations, and how complex the bureaucracy of the nation is.35 There are numerous other governmental policies that can interfere with international trade, such as tariffs (taxes imposed on imports), import quotas, currency controls, and local content requirements.
In 2022, in response to Russia’s invasion of Ukraine, major sanctions have been put in place against Russia by the United States, the European Union, and the United Kingdom. For example, the United Kingdom imposed a 35 percent tax on some Russian imports, and several international companies like McDonald’s, Coca-Cola, Starbucks and Marks & Spencer have either suspended operations in Russia or have withdrawn altogether. It doesn’t take much to imagine the financial impact on Russia as a result of these sanctions.36
Segmentation Based on Economic Factors
Still another way to segment markets internationally is on the basis of economic factors—the level of economic development and the income levels of the population. This is often differentiated on the basis of whether the country is developing, developed, or underdeveloped. This classification is based on the nation’s economic status (i.e., gross domestic product, gross national product, per capita income, degree of industrialization, and standard of living).
Developed countries typically have a high rate of industrialization and a relatively high level of individual income. Unemployment and poverty are typically low in developed nations, and citizens enjoy a relatively high standard of living, along with higher life expectancy.37 It’s likely in developed nations that companies will focus their international marketing efforts. According to the United Nations in 2020, 36 countries were classified as developed; interestingly enough, all of these countries were located in either North America, Europe, or “Developed Asia and Pacific.”38
Developing countries, on the other hand, have a lower standard of living, a lower per capita income, and a slow rate of industrialization. Unemployment and poverty tend to be relatively high compared to developed countries, as are infant mortality rates.39 The United Nations categorized 126 countries as developing, and all of these were located in either Africa, Asia, Latin America or the Caribbean.40
Underdeveloped countries are less developed economically than most other nations. These countries typically have little industry, and the standard of living is considerably lower than in developed or developing countries. Infrastructure may also be compromised in terms of roads, sewage treatment, water quality, etc. As a general rule, although there may be an attractive market for your company’s product or service in an underdeveloped country, the challenges of getting the product into the customer’s hands are often difficult to overcome.
Segmentation Based on Cultural Factors
Cultural factors, such as common language, religions, values, and attitudes, can also be used to segment a country or region. McDonald’s uses a “think global, act local” strategy to help meet the cultural needs of various market segments. On one hand, it offers a standardized menu of offerings worldwide, like McNuggets and the McFlurry. On the other hand, it customizes other offerings on its menu to adapt to the cultural requirements of consumers. For example, in India, in order to appeal to vegetarian and non-beef-eating customers, McDonald’s introduced the Maharaja Mac, which is made with a corn and cheese patty. The company also used the term “Maharaja” to appeal to India’s history and liking of royalty and called it the “Social Burger” to suggest that it can be eaten quickly, giving people more time to spend with friends.41
McDonald’s not only customizes its menu based on where it operates, but it also customizes its digital and TV advertisements depending on each country and consumer segment. For example, in Singapore, McDonald’s ads attempted to appeal to consumers’ love of nightlife by showing how McDonald’s can enhance a night out, whereas in the United Kingdom, the company created cartoon ads focusing on Happy Meals to attract the large segment of children in the UK.42
Not to be outdone by McDonald’s, Burger King also offers a wide variety of international menu items that aren’t available in the United States. Did you know that there’s a Spicy Shrimp Whopper available in Japan and a SufganiKing (Donut Burger) in Israel? In Norway, where there is one sauna for every two people, Burger King opened a fully operational spa complete with a 15-person sauna and media lounge where customers can enjoy their meals.43
One model that is particularly useful in assessing culture is social psychologist Geert Hofstede’s cultural dimensions, originally published in the 1970s. Hofstede had studied IBM employees in over 50 countries and identified five dimensions that could be used to distinguish one culture from another.44 Four of these dimensions directly affect marketing in different cultures:
• Power Distance Index (PDI). This dimension refers to how much power inequality exists within a culture and the degree to which people are accepting of this inequality. A high PDI score suggests that society accepts an unequal distribution of power, whereas a low PDI score means that power is shared and widely dispersed. If you’re curious, the United States has a moderately low PDI score of 40 on a scale of 1 to 100, compared to a world average of 55.45 This means that the United States is less accepting of hierarchy and authority than nations such as Malaysia, which has the highest power distance index in the world.46 This cultural dimension plays an important role in marketing because, in countries where there is a high power distance index, marketers need to appeal to the leadership or the head of the family, whereas in low power distance index countries, it’s more important to reach a broad range of “ordinary” people who will be the ultimate decision makers.
• Individualism versus Collectivism (IDV). This dimension refers to whether the culture emphasizes the needs and goals of the group as a whole or whether individual needs are paramount.47 Think of individualism and collectivism as an “I” versus a “we” orientation. An individualistic society places emphasis on attaining personal goals, whereas a collectivist culture places emphasis on group goals and the well-being of the group. The United States has a very high individualism score of 91, compared to many Latin American countries such as Ecuador and Guatemala, which have single-digit individualism scores.48 The implications for marketing are important here because for countries with high individualism, the marketing messages should emphasize how your products or services benefit them individually, such as by saving time and rewarding themselves. On the other hand, in countries with a low individualism ranking, it’s more important to stress how buying your company’s products will benefit the community as a whole.
• Uncertainty Avoidance (UAI). This dimension refers to the degree to which a society avoids risk or ambiguity. Societies with a high degree of uncertainty avoidance compensate for this uncertainty by establishing rules, policies, and procedures, whereas societies with low uncertainty avoidance more readily accept change. The UAI for the United States is 46, putting it into the moderate range compared to European nations like Italy (UAI of 75) and Poland (UAI of 93).49 Let’s consider how this affects marketing. Cultures with high uncertainty avoidance generally prefer to have product characteristics clearly spelled out, complete with product warranties and money-back guarantees. For example, if you want to market automobiles in that type of culture, it would be important to focus on the safety features of the car. Conversely, cultures with low uncertainty avoidance are more accepting of trying something new.
• Masculinity/Femininity (MAS). This dimension refers to the degree to which gender-specific roles are valued in the society: Are “masculine” values such as achievement, ambition, and acquisition or “feminine” values such as quality of life and service to others valued more? In countries with a high masculinity ranking (e.g., Japan), men are intended to lead; women are supposed to follow. This is in direct contrast to countries with a low masculinity ranking (such as the United States and Canada), where women are treated equally to men and gender roles are more fluid. Societies with low masculinity would tend to respond negatively to gender-oriented promotion, so a neutral approach that appeals to both men and women would be more appropriate.50 Consider how many brands in the United States focus on female empowerment and positive body image. That type of advertising would not appeal to a society with a masculine orientation.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
The Hofstede cultural dimension that assesses the degree to which a society avoids risk or ambiguity is known as ________.
1. masculinity/femininity
2. uncertainty avoidance
3. power distance index
4. individualism versus collectivism
2.
Jamal’s company is looking to expand into a market in West Africa, but Jamal wants to ensure that there are roads, bridges, nearby airports, and shipping terminals from which to distribute the product. Jamal is examining the country’s ________.
1. infrastructure
2. governmental stability
3. inflation and unemployment rates
4. culture
3.
Alexis is making a sales presentation in Japan, and she realizes suddenly realizes that she is the only woman in the meeting. This suggests that Japan has a high ________.
1. degree of uncertainty avoidance
2. individualism ranking
3. power distance index
4. masculinity ranking
4.
Jose’s firm is looking to market its products in Venezuela, but the marketing department is concerned about the current inflation rate in the country. This would be considered a(n) ________ factor.
1. geographic
2. political
3. economic
4. cultural
5.
Which Hofstede cultural dimension assesses the degree to which gender-specific roles are valued in a society?
1. Power distance index
2. Masculinity/femininity
3. Uncertainty avoidance
4. Individualism versus collectivism | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.03%3A_Segmentation_of_International_Markets.txt |
Learning Objectives
By the end of this section, you will be able to:
• List and describe the essential factors in effective market segmentation.
Essential Factors in Effective Market Segmentation
There’s an acronym you can remember for the essential factors in effective and successful market segmentation—ADAMS. The acronym stands for five criteria:
• Accessible
• Differentiable
• Actionable
• Measurable
• Substantial
First, a market segment should be accessible. Can you reach consumers in that segment at an affordable cost, given the strengths and abilities of your marketing department? For example, if you discover that certain segments respond more effectively to outdoor advertising, social media campaigns, TV infomercials, or print ads, does your organization have the capabilities (and budget) to reach that segment?
Second, a market segment should be differentiable. In an ideal world, a market segment should be internally homogeneous (i.e., consumers within that segment have similar preferences and characteristics) but externally heterogeneous (i.e., different segments should be quite distinct and different from each other). You have to clearly define the differences between market segments so that the marketing programs directed at them can be implemented without overlap.
Third, a market segment should be actionable. Is it practical (or profitable) to execute a marketing strategy aimed at that segment? A market segment should be able to respond to a certain marketing strategy and have outcomes—e.g., awareness, interest, or purchase—that can be easily quantified.
Fourth, a market segment should be measurable. You should be able to accurately estimate the size of the market segment in terms of either sales value or number of customers so that you can decide whether, how, and to what extent you should focus your efforts on that segment.
Finally, a market segment should be substantial. It doesn’t make sense to waste resources to market the product or service to a group too small to justify the expenditure of resources.51
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Mateus is a marketer for a consumer products company. His company is considering marketing a new breakfast drink, but Mateus wants to make certain that there is a sufficient number of consumers in his target audience to make the new product development process worthwhile. Which essential factor of market segmentation is he analyzing?
1. Accessible
2. Differentiable
3. Actionable
4. Measurable
2.
Wall Enterprises is considering developing a new product for a market segment that has been identified by marketing research. However, based on the research, it appears that the market segment may be smaller than originally anticipated. Which essential factor of market segmentation does this reflect?
1. Accessible
2. Differentiable
3. Substantial
4. Actionable
3.
Alma is analyzing the market segment she has identified for a new service to determine whether her firm can reach the consumers in that market within the constraints of her budget, given the resources of the firm. Which essential factor of market segmentation does this reflect?
1. Accessible
2. Actionable
3. Substantial
4. Measurable
4.
Idris has been researching a potential market segment for his company’s new product. He is concerned that, although the product holds considerable promise, the advertising campaign would be beyond the company’s budget. Which essential factor of market segmentation appears to be lacking in Idris’s analysis?
1. Differentiable
2. Substantial
3. Measurable
4. Accessible
5.
Which essential factor in selecting a target market refers to the ability to accurately determine the size of the market in terms of either sales volume or number of customers?
1. Actionable
2. Differentiable
3. Measurable
4. Substantial | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.04%3A__Essential_Factors_in_Effective_Market_Segmentation.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define target market.
• Explain target market strategies.
Target Markets Defined
Ultimately, the purpose of segmenting a market is to highlight the differences between groups of customers so that you can decide on which group(s) to focus your marketing efforts and resources—that’s your target market (Figure 5.9).
Think of your target market in terms of focusing your marketing resources on segments that are more likely to buy from you. The bottom line is that target marketing is a more efficient, effective, and affordable way to reach customers and generate business. It’s simply a subset of the total market.
Keep in mind that the target market isn’t the same as the target audience. The target audience is narrower in that it refers to the group of consumers you expect to actually purchase the product. The audience may or may not overlap with the target market. For example, a children’s toy may have a target market of boys between the ages of 6 and 12, but it’s the boys’ parents (who actually purchase the toy) who are the target audience. Let’s take a look at how LEGO has mastered this concept.
Marketing in Practice: LEGO
You might think that children are the primary target market of toy manufacturers, but smart toy marketers know that they also have to market to parents because it’s parents who actually buy the toys for their children. The marketers at LEGO (see Figure 5.10) seemed to have figured this out and have made the brand parent-approved by combining fun for children with an educational “twist.”
LEGO brands its products not only as a creative outlet for children but also an opportunity to grow their interest in STEAM—a learning approach that incorporates science, technology, engineering, the arts, and mathematics. For example, one of its websites features education sets for children from preschool through middle school that promote learning through the toys. Another of its websites has an entire section of tips for playful parenting with LEGO bricks.52 It also has websites for daily LEGO challenges and even daily build challenges and LEGO lessons for families at home.
Parents today want to buy their children toys that are safe and fun and that help them learn, and LEGO seems to have been able to win over the hearts (and money) of its target audience.
For more information about LEGO and STEAM, watch this video from Kansas City PBS.
Another important concept in target marketing is what’s known as a buyer persona. A buyer persona is a semi-fictional representation of an ideal customer that helps marketers understand and relate to the target market. Buyer personas are intended to help marketers “visualize” those to whom they are selling so they can fine-tune their marketing messages.
Best Buy used personas in precisely this way. Its buyer personas are “Buzz” (the young tech enthusiast), “Barry” (the wealthy professional), “Ray” (the family man), and “Jill” (a soccer mom who is the main shopper for the household but usually avoids electronics stores).53
What’s typically included in the buyer persona? Some examples include the following:
• Name. It may seem silly to include a made-up persona name like Best Buy did, but it’s done so that the marketing team can more easily discuss their customers and plan how to reach them.
• Age. The age (or age range) of a persona allows for understanding generation-specific characteristics. As we pointed out in our earlier discussion of using age as a way to segment the market, consumers within the same age group tend to share characteristics and purchase preferences.
• Interests. The interests of the buyer persona describe things like hobbies or what they do in their spare time.
• Media Usage. What media platforms does the buyer persona use? Television, radio, the Internet? This is important because the marketer wants to know where to reach these “people” with their marketing messages.
• Finances. The income and other financial characteristics of the buyer personas help marketers glean insights as to what types of products or services will pique the interests of these buyer personas. These financial characteristics also assist in making decisions about price points and promotions that would be successful in reaching these customers.
• Brand Affinities. Do they like certain brands? If so, this can provide the marketer with valuable information about the type of content to which they best respond.54
Link to Learning: Importance of Buyer Personas
Customer personas are a tool to help marketers better understand their potential customers. Learn what a customer persona is and how to develop them from this brief Go Daddy video.
Also, check out this video from HubSpot’s Stephen Higgins on how to use buyer personas to drive your marketing strategy.
Target Market Strategies
Thus far, we’ve discussed the how of segmenting a market and selecting target markets. At this point, it’s up to the marketer whether the company will focus its efforts and resources on one or more of the identified segments or instead cater to the mass market. That choice is the determining factor in the company’s marketing mix and its positioning plank. There are four generic target marketing strategies, as illustrated in Figure 5.11.
Let’s look at each of these strategies more closely.
Undifferentiated Marketing (Mass Marketing)
Sometimes there are no strong distinctions in customer characteristics. In cases like this, the costs involved in developing separate marketing mixes for separate target markets doesn’t make financial sense. That’s when a company may decide to use a single marketing mix for the entire market.
Let’s imagine the entire market as one big apple pie. With undifferentiated marketing, the company doesn’t take just one slice or perhaps a few slices of the pie—it takes the whole thing. The concept of undifferentiated marketing is quite simple. You want to reach as many people as possible and hope they’ll jump on board with your product or service. Mass marketing is typically used when a brand has a product or service that has high market appeal, such as things that most (or maybe even all) people will always need or want. Consider a product that nearly everyone purchases, like soft drinks. Now think about all the advertising messages you get for a brand like Coca-Cola—you’ll see TV commercials, magazine ads, billboards, banner ads in search engines, and the list goes on. That’s the hallmark of mass marketing.
One of the biggest advantages of undifferentiated marketing is the scope and cost-efficiency of advertising on a much larger scale. Every single marketing message can be deployed across a variety of media channels and can potentially reach millions of consumers. This is where economies of scale come into play: with high-volume sales, production becomes less expensive because costs can be spread out over a larger amount of goods. That’s a huge advantage compared to companies that produce products for smaller, more precisely targeted audiences. It’s like buying in bulk at Sam’s Club or Costco—because you buy so much of a product, the cost is lower. Companies that use undifferentiated marketing experience the same thing.55
Differentiated Marketing (Segmented Marketing)
Now let’s take that same apple pie (the entire market), but instead of taking the whole thing, we’re going to take only some of it. Perhaps we’ll take just a few slices, or maybe we’ll take more. It depends on how many target markets you want to serve. That’s the premise of differentiated marketing.
This type of market targeting is one of the most common. A company identifies several target markets and designs separate, concentrated strategies for each. Separate brands are developed to serve each of the segments. Consider Nike, for example, which (like most apparel companies) offers different products for different segments. When Nike began its business, the founders were both competitive distance runners, so they targeted people like themselves as a segment of the running shoe market and the brand took off. However, in order to grow the business, Nike now focuses on three segments—women, young athletes, and runners.56
The automobile market is another good example of a clearly segmented market. Look around you on any given day, and you’ll clearly see that people want different types of vehicles—small cars, big cars, SUVs, trucks, hybrids, and luxury cars. Many of the car makers like GM, Ford, Toyota, Honda, and others generally offer cars for most or all of the segments. For example, Honda's lineup includes models like the CR-V compact SUV, the Civic compact car, the midsize Honda Accord sedan, larger SUVs, and even a minivan.57
Concentrated Marketing (Niche Marketing)
Now we’re going to take that same apple pie (remember, representing the entire market), and we’re only going to take a single slice, and perhaps a small one at that. That’s concentrated marketing.
Concentrated marketing doesn’t mean that the company hasn’t identified other target markets; it simply means that it chooses not to serve all of them. Some markets may not be attractive; other markets may not align with the company’s business strengths. Therefore, the company focuses on just one target market with a single marketing mix. It channels all of its marketing efforts toward that specific segment with the aim of “owning” it over its competitors and creating strong brand loyalty.58
A good example of concentrated marketing is the eco-friendly cosmetics retailer LUSH. LUSH advocates for ethical buying and purity of handmade products and doesn’t use animals in testing its products. As a matter of fact, at least half of its website is dedicated to fighting animal testing and overuse of plastic packaging and creating environmental awareness. The company also differentiates itself from its competitors with eco-friendly packaging and organic ingredients.59
This is a smart strategy for smaller companies or companies with limited resources that might be stretched thin if they attempt to compete in too many market segments. It has the added benefit that R&D and marketing can concentrate on understanding and meeting the needs of one group of customers rather than a diverse base of customers.
Micromarketing (Customized Marketing)
Micromarketing goes one step further than concentrated marketing and targets a specific group of individuals within a niche market based on specific information that has been collected about them.
For a good example of micromarketing, consider the real estate industry. A realtor may specialize in commercial sales or residential sales. Within the scope of residential sales, that realtor may drill down further and specialize in new construction, luxury properties, land and development, over-55 communities, or farms/ranches/equestrian properties.
Now let’s assume that you’re in the market for an expensive home in a particular area of the city. You’d likely contact a realtor who has developed a reputation in dealing with properties in a specific price range and knows the area where you’d like to move. That realtor is going to consider your specific needs and demands and will invest their efforts in finding a property that meets as many of your requirements as possible. That’s micromarketing.
Stitch Fix is another good example of a company that uses micromarketing. Stitch Fix is an online personal styling service for men, women, and children that sends a selection of clothing and accessories to your door using a mix of machine learning, data, algorithms, and human stylists. The company uses “85 meaningful data points” about each customer, and based on those data points, it predicts clothing choices that the customer will want. If they doesn’t like the product, they can just send it back with a prepaid, printable label within 30 days.60 You can’t get much more personalized than that!
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
M&M’s addresses people of all ages and appeals to everyone looking for sweets (that melt in your mouth, not in your hand). What target marketing strategy does M&M’s use?
1. Differentiated marketing
2. Concentrated marketing
3. Undifferentiated marketing
4. Micromarketing
2.
A ________ is a semi-fictional representation of your ideal customer that helps you understand and relate to the audience to which you want to market your product and/or services.
1. buyer persona
2. target market
3. niche market
4. brand affinity
3.
Lefty’s is a retail shop that makes specific products like left-handed scissors and left-handed notebooks for the population of left-handed people. What target marketing strategy does Lefty’s use?
1. Undifferentiated marketing
2. Differentiated marketing
3. Concentrated marketing
4. Micromarketing
4.
A running shoe company specializes in designing sustainable sneakers from recycled and renewable materials for athletes who care about the environment, as well as performance models of running shoes with less cushioning for runners who are concerned with speed. What target marketing strategy does the running company use?
1. Concentrated marketing
2. Undifferentiated marketing
3. Differentiated marketing
4. Micromarketing
5.
55places.com is a website for active adult “retirement” communities in the United States. It features unbiased information, current home sale listings, floor plans, photos, and third-party reviews. All the communities listed on the website are for residents who are age 55+. What target marketing strategy does the company use?
1. Undifferentiated marketing
2. Differentiated marketing
3. Micromarketing
4. Concentrated marketing | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.05%3A__Selecting_Target_Markets.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define product positioning.
• Explain approaches to product positioning.
• Describe the positioning statement and perceptual maps.
Product Positioning Defined
So far, you’ve segmented the market by dividing the market into distinct groups of customers using the segmentation process and you’ve determined which customer group(s) you want to focus your marketing efforts on—the target marketing process. Product positioning is the process of deciding and communicating how an organization wants its market to think and feel about a product or service.
This third and final step is contained in what’s known as the segmenting, targeting, and positioning model, the STP model. With the STP model, a company segments the market, selects the target market, and positions its products and services into the existing marketplace (see Figure 5.12). In their book Positioning: The Battle for Your Mind, marketing gurus Al Ries and Jack Trout write, “The basic approach of positioning is not to create something new and different, but to manipulate what’s already up there in the mind.”61
The STP model is helpful in identifying your most valuable customers and developing products and marketing messages that are targeted specifically toward those customers. This allows you to interact with each market segment in a more meaningful way by personalizing your messages (and hopefully selling more of your product!).
For example, Marriott International owns several different hotel chains that target specific consumer groups:
• Courtyard by Marriott focuses on over-the-road travelers who aren’t looking for luxury and all the amenities; they just want a basic, clean hotel in which to stay during their trip.
• Ritz-Carlton hotels are by their nature more luxurious and target those travelers who don’t mind paying a premium price for more luxury and amenities.
• Marriott ExecuStay hotels are aimed at professionals who need a longer-term place to stay (i.e., an extended stay hotel).
Since these target groups are seeking vastly different things from a hotel stay, Marriott tailors its marketing messages (and hotels) to appeal to the unique wants and needs of each specific group.62
As you can see, in this last step of the STP process, you want to first identify how you can most effectively position your product to target the customer segments that you’ve determined to be most valuable and then tailor the marketing mix that will be most effective in reaching them.
Approaches to Product Positioning
There are two main types of product positioning in marketing: head-to-head and differentiation. Let’s take a look at both.
Head-to-Head Positioning
Head-to-head positioning focuses on comparison. It involves directly competing with competitors on similar product attributes in the same market. For instance, let’s imagine that you have a small kiosk in a shopping mall where you serve freshly baked pretzels. If your kiosk makes different flavors of dough from scratch and your competitors use only processed frozen dough, you can set your pretzel business apart from your competitors in your customers’ minds by emphasizing that selling point.
A classic example is when Avis (the car rental company) launched an advertising campaign that went head-to-head with Hertz, the market leader. Avis made a point of comparing itself to Hertz and made its position in the market a selling point using the slogan “When you’re only No. 2, you try harder. Or else.” This campaign positioned Avis as a direct competitor of Hertz and also did something unique: it highlighted its underdog status, turning it from a liability into an asset. The results? Prior to the ads, Avis was losing \$3.2 million a year; after the ads, Avis improved its performance and earned \$1.2 million. Remarkably, that was the first time in over a decade that Avis had been profitable.63
Link to Learning: Example of Head-to-Head Positioning
Another good example of head-to-head positioning is Wendy’s, which launched an advertising campaign a few years ago saying that its beef is fresh, never frozen, versus its competitors, particularly McDonald’s. Check out this Wendy’s Super Bowl commercial from 2018 where it goes head-to-head with McDonald’s.
Differentiation Positioning
Differentiation positioning is all about emphasizing your product’s or service’s unique qualities vis-à-vis the competition. Similar to head-to-head positioning, you’re going to focus on your offerings and attempt to convince customers to buy your products or services instead of those of the competition. However, dissimilar to head-to-head positioning, instead of competing in the same market, you’ll attempt to identify new markets and seek out customers who may be interested in your offerings because of those unique qualities you’ve identified.64 Common differentiation strategies are intended to draw consumers’ attention to the value, quality, or uniqueness of your offering.
For instance, Curves, the largest women’s fitness franchise in the world, succeeded by offering a fitness alternative to both home-based exercise routines and traditional health clubs. The experience of a Curves facility was entirely different from that of a typical health club. Instead of machines arranged in rows facing a TV, Curves arranged its machines in a circle to facilitate interaction among members. There were few (if any) mirrors and no men staring. The result was that Curves did not compete head-to-head with other health and exercise concepts; rather, it created new demand.65
Positioning Statements
In your other college courses, you may have heard terms such as vision statement and mission statement. We’re going to add a third term to your vocabulary—positioning statement. Essentially, a positioning statement briefly describes your brand, product, service, and target market. Not only does it define how your brand meets the customer’s needs, but it also tries to clarify why it does so better than your competition. It answers the question “What experience do you want your customers to have with this product or service?”
Templates for writing your positioning statement abound. Here are just a few examples:
• [Your brand] provides [your offering/benefit that makes you better than competitors] for [your customers] who [customer needs] because [the reason why your customers should believe you are better than competitors].66
• For [target audience], [brand name] is the [your market] that delivers [your points of differentiation] so they can [end benefit] because [your evidence].67
Now let’s take a look at some examples of positioning statements for companies with which you’re likely familiar so that you can see these templates in action:
• Amazon: “For consumers who want to purchase a wide range of products online with quick delivery, Amazon provides a one-stop online shopping site. Amazon sets itself apart from other online retailers with its customer obsession, passion for innovation, and commitment to operational excellence.”68
• Apple: “For individuals who want the best personal computer or mobile device, Apple leads the technology with the most innovative products. Apple emphasizes technological research and advancement and takes an innovative approach to business best practices—it considers the impact our products and processes have on its customers and the planet.”69
• McDonald’s: “For individuals looking for a quick-service restaurant with an exceptional customer experience, McDonald’s is a leader in the fast-food industry, with friendly service and consistency across thousands of convenient locations. McDonald’s dedication to improving operations and customer satisfaction sets it apart from other fast-food restaurants.”70
• Coca-Cola: “For individuals looking for high quality beverages, Coca-Cola offers a wide range of the most refreshing options—each creates a positive experience for customers when they enjoy a Coca-Cola brand drink. Unlike other beverage options, Coca-Cola products inspire happiness and make a positive difference in customers’ lives, and the brand is intensely focused on the needs of consumers and customers.”71
Perceptual Positioning Maps and How They Are Used
A perceptual map is a visual diagram that shows how the average target market consumer perceives your product versus those of your competitors.72
A perceptual map uses two determinant attributes on a graph. Determinant attributes are those attributes that a customer uses in making their purchase decision. In other words, what you do believe consumers’ “hot buttons” are with respect to your product or service offering? You’ve got a vast array of determinant attributes to use. You could use price versus quality, sugar versus protein, or any number of other attributes. The bottom line is that these attributes should reflect what customers are looking for in the product or service.
Once you’ve established the determinant attributes, you plot your product offering onto the map. Let’s imagine that your company is getting ready to introduce a new nutritional drink for seniors. You might start out with determinant attributes like high/low sugar and high/low protein (although you could use other determinant attributes like price, taste, etc.). Step one of your perceptual map might look something like Figure 5.13.
Now it’s time to map your offering as well as the competitors’ offerings on the perceptual map. The simple combination of these two scores places the product offering onto the map. It’s not necessary to list every single competitor on this perceptual map, but you should try for a list of at least 5 to 10 competitors.
Once you’ve mapped your competitors’ offerings on the perceptual map, it may look something like Figure 5.14 (although you would have brand names in the circles instead of “Brand A,” “Brand B,” etc.).
Once you have developed the perceptual map, you will have a clearer idea of where your product or service offering stands vis-à-vis your competition. You will look at which brands occupy the same space as your offering (or a nearly identical space) based on consumer attitudes. Things to look for on your perceptual map include:
• Do consumer attitudes toward your offering align with what you want them to think about it?
• Do consumer attitudes toward your competitors’ offerings align what you thought consumers would think about them?
• Look at the map closely and determine which of your competitors’ offerings consumers perceive as being closest to your offering.
• Perceptual maps are also an opportunity to determine if there are any holes or gaps in the map. This may signal that there is potential for new offerings.73
Some other things to think about once you’ve completed your perceptual map:
• If consumer attitudes toward your offering aren’t what you expected, it may be necessary to change your marketing actions to correct or modify these consumers’ attitudes.
• Let’s assume for a minute that consumers view your competitors’ offerings as being very similar to yours. If this is the case, you may want to think about ways to make your offering stand out from the competition rather than going head-to-head with competitors.
• If there are gaps in the map that you think you can fill based on your company’s capabilities, you may want to consider introducing a new offering or moving your offering into an unfilled position by modifying its features and attributes.74
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following BEST describes a positioning statement?
1. It is a brief description of your offering, how it meets the needs of a consumer, and why it is superior to your competitor’s offerings.
2. It sets forth the group(s) of people with shared characteristics that you’ve identified as potential customers for your products.
3. It defines where your offering fits in the marketplace and why it is better than competitors’ offerings.
4. It is a visual tool designed to demonstrate the perception of your offerings by the average target market consumer vis-à-vis your competitors’ offerings.
2.
The STP process is an acronym for ________.
1. segmentation, targeting, and positioning
2. screening, targeting, and promotion
3. sampling, test marketing, and publicity
4. segmentation, training, and promotion
3.
Build-A-Bear put a twist on buying cuddly toys by providing consumers with the ability to modify and personalize their toys. What type of positioning strategy did Build-A-Bear use?
1. Undifferentiated positioning
2. Differentiated positioning
3. Head-to-head positioning
4. Niche positioning
4.
When Artesha is on the road for her job and wants some fast food for lunch, she is looking for speed of service, value, and cleanliness of the restaurant. The factors would be referred to as ________.
1. her buyer persona
2. a perceptual map
3. her determinant attributes
4. a positioning statement
5.
A visual technique designed to show how the average target market consumer perceives the positioning of competing products in the market place is known as ________.
1. a positioning statement
2. head-to-head positioning
3. differentiation positioning
4. a perceptual map | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.06%3A__Product_Positioning.txt |
Learning Objectives
By the end of this section, you will be able to:
• Discuss ethical implications of target market selection.
• Provide an example of a company that displays ethics in target marketing.
Ethical Implications of Target Market Selection
To understand unethical target marketing, let’s first review the notion of ethics in this realm. Ethics is the systematic study of morality—what people commonly refer to as “morals.” The American Marketing Association (AMA) has a clear Statement of Ethics, and marketers are expected to conform to this ethical code. Before examining the issue of ethical target marketing, let’s first review the general notion of ethics as it applies to marketing and other business disciplines.
Individuals and organizations choose to act morally—or immorally—when faced with a moral dilemma. The decision of whether to behave in a moral way or an immoral one has serious implications for oneself, for other individuals, and for society as a whole. The bottom line is that morally responsible, ethical marketers both sympathize with and empathize with consumers and their legitimate needs and wants. However, there are moral issues in terms of who is targeted and with what purpose. To illustrate these points, let’s review some examples of target marketing tactics that can reasonably be construed to be immoral or unethical.
Ethnic and Racial Profiling
Earlier in this chapter, we used the example of a firm advertising woodworking equipment in specialty magazines rather than general interest magazines in order to stretch its limited advertising dollars. Do-it-yourselfers, amateur woodworkers, or hobbyists would be considered an affinity audience to the firm—that group of potential customers who have interests or hobbies in common. That’s the positive aspect of target marketing.
However, there’s a negative aspect to targeting affinity audiences as well. Over the past few years, Facebook has been criticized for potential discrimination on its ad platform by excluding users who have been classified into certain racial or ethnic affinity groups. As a matter of fact, Facebook was sued by the US Department of Housing and Urban Development because its algorithms allowed advertisers to purposely target their ads by race, gender, and religion, potentially violating federal laws that prevent discrimination in ads for jobs, housing, and credit.75
Facebook’s algorithm and machine learning allowed advertisers to purposely target their ads by race, gender, and religion. In itself, trying to reach an affinity audience through advertising isn’t illegal. The problem comes in because Facebook’s platform allowed advertisers to exclude users based on that algorithm. For example, with Facebook’s “ethnic affinity” marketing product, the company has the ability to exclude users by race or ethnicity.76
Children and Teens
According to Statista, there are approximately 73 million children in the United States between the ages of 0 and 17.77 That’s a huge target market that can be extraordinarily lucrative for a marketer. Accordingly, it makes sense to target this demographic because of its potential value.
However, there are inherent ethical issues involved in marketing to children, including distinguishing intent, gender stereotypes, violence, and obesity. Let’s first consider distinguishing intent. According to the American Psychological Association (APA), children under the age of 7 or 8 can’t discern the “persuasive intent” of advertising. In other words, they don’t realize that the marketing message is made to sell something to them. Instead, children tend to accept the content at face value and believe that it’s true, accurate, fair, and unbiased. This lack of distinguishing intent can potentially exploit children because it takes advantage of their inability to make sound, calculated decisions about a product or service based on the available information.78
Now let’s consider gender stereotypes. At approximately age 2, children become conscious of the physical differences between boys and girls, and according to the Campaign for a Commercial-Free Childhood (CCFC), gender-stereotyped messages can interfere with that process. Consider the number of gender-stereotyped toys on the market today (or go to the toy section of any big-box store). For example, there are approximately 40,000 Disney Princess items on the market today, typically aimed at girls, whereas toys like Transformers are typically marketed to boys.79
Violence is still another ethical issue to consider. Research indicates that more than half of TV shows and even some commercials (particularly those for video games) contain violence, and the concern is that watching violence may desensitize youth to it and may even suggest to youngsters that violence is an effective way to settle conflicts.80
Another ethical issue is childhood obesity. According to the Centers for Disease Control and Prevention (CDC), childhood obesity has “more than tripled since the 1970s,” and it’s estimated that one in five school-aged children is obese.81 Yet watch the commercials on children’s TV shows, and you’ll find that they are almost completely dominated by unhealthy food products like candy, sugary cereal, and snacks. To their credit, some forward-thinking companies have made it a practice not to advertise to children under 12 because of the association with childhood obesity. For instance, according to the Council of Better Business Bureaus, Brach’s, Lemonhead, Ghirardelli, Jelly Belly, PEEPS, Mike and Ike, and Welch’s Fruit Snacks avoid advertising to children under 12.82
Let’s examine still another societal problem—vaping. According to recent studies, approximately four million students admit to vaping, an increase of over two million users. One of the major players in the industry is Juul, which has been criticized for targeting adolescents with colorful packaging; flavors like mint, crème, and mango; and a USB flash drive design that made the product small and easy to conceal in a backpack, pocket, or even a hoodie.83 The problem has become so pervasive with young people that, in June of 2022, the US Food and Drug Administration was poised to issue an order removing Juul Labs vaping products from the market.84
Marketing to the Elderly
Older adults are also often exploited by target marketers. Older adults often have fixed incomes along with health problems, and this has made them a poplar target for products that give “assurances” of good health and affordability. The most common instances of bad ethics involve prescription drug targeting. Misleading statements about product efficacy are rampant, whether it’s for a prominent drug manufacturer or a company that markets “natural” or “organic” products. The COVID-19 pandemic has seen this problem emerge in full force, with many brands touting a “cure-all” to alleviate the virus. The bottom line is that elderly audiences may make questionable purchasing decisions if they believe their health may be at risk as a result of not taking action.85
Low-Income Targeting
Low-income earners tend to be more susceptible to ads that promise a better way of life, such as high APR (annual percentage rate) credit cards and multilevel marketing schemes. Targeting low-income audiences can pose a threat to their safety and ultimately have dire legal ramifications.86
Low-income earners can also be wrongfully excluded from the market if companies curtail or fail to enable consumption of products because they “assume” the consumers cannot afford the product(s) at the specified price.
Companies with a Conscience: Subway
We’ve just read about some of the ways that children are targeted in negative or unhealthy ways, so let’s take a look at one company that tried to get it right, Subway (see Figure 5.15).
Back in 2014, Subway aligned itself with then–First Lady Michelle Obama’s Let’s Move! initiative. The company vowed to spend \$41 million over a three-year period to promote a healthy-eating program aimed specifically toward children. The ad campaign bore the slogan “Playtime: Powered by Veggies.”
But Subway didn’t stop there. The company also teamed up with the Partnership for a Healthier America (PHA), a nonprofit organization that works with the private sector to help advance the goals of Mrs. Obama’s Let’s Move! initiative.
Suzanne Greco, vice president of operations for Subway, stated, “From a sign on each restaurant’s door that says ‘Playtime Powered by Veggies’ to a video collaboration with Disney’s The Muppets, [Subway] will build upon our ongoing efforts to create better choices for families.”87
Watch this video on the partnership between Subway and the Let’s Move! initiative. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.07%3A__Ethical_Concerns_and_Target_Marketing.txt |
In this chapter, market segmentation is defined and the differences between segmenting B2C, B2B, and international markets are explored. Segmentation, plus targeting and positioning, are the major elements of a customer-driven marketing strategy. Smart marketers know they can’t reach and serve every buyer, so they approach the broader market with tools that help them identify, select, and position their products for consumers who are most likely to need the company’s products and services.
Better understanding B2C or B2B markets also helps marketers better understand unmet needs, assisting in the development of new products and services. Targeted marketing, top-notch customer service, and new product developments that are based upon customer needs result in customer experiences that successfully reinforce brand loyalty.
5.09: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
ADAMS the essential factors in effective market segmentation—accessible, differentiable, actionable, measurable, and substantial
affinity audience a group of potential customers who have interests or hobbies in common
behavioral segmentation method of grouping customers by their behavior patterns or interactions with a brand
buyer persona semi-fictional representation of an organization’s ideal customers based on data and research
concentrated marketing marketing segmentation strategy in which the firm concentrates its efforts and resources on serving one segment of the market
demographic segmentation grouping customers and potential customers together by focusing on certain traits such as age, gender, income, occupation, and family status
determinant attributes those attributes of a product or service that consumers rely upon when making a purchase decision
differentiated marketing marketing strategy that involves creating marketing campaigns that appeal to two or more different target audiences, demographics, or marketing segments
differentiation positioning product/service positioning based on the differentiating characteristics or qualities that make an organization better than its competitors in the mind of the target audience
firmographics a grouping of B2B customers based on shared company attributes; includes five categories: industry, location, size, legal structure, and performance
geographic segmentation marketing strategy used to target products or services at people who live in or shop at a particular location
head-to-head positioning directly competing with competitors on similar product attributes in the same market
market segmentation the process of dividing a broad consumer or business market into subgroups based on shared characteristics
micromarketing marketing strategy used on a targeted group of customers in a niche market
multi-segment marketing marketing strategy in which the firm targets several different market segments simultaneously
needs-based segmentation dividing the market up into smaller groups of people who have approximately the same needs
perceptual map visual depiction of how target customers view and feel about a given brand or product
positioning statement short description of an organization’s target market(s) and the product(s) provided to them
product positioning the process of deciding and communicating how an organization wants its market to think and feel about a product or service
psychographic segmentation dividing consumers into subgroups based on shared psychological characteristics, including beliefs, motivations, and priorities
STP model three-step marketing framework in which an organization segments the market, selects target market(s), and positions its products or services
target market group of people with some shared characteristics that a company has identified as potential customers for its products
technographic segmentation organizing B2B prospects by their technology ownership and usage
undifferentiated marketing also called mass marketing, a strategy that entails creating one message for an entire audience
value-based segmentation evaluating groups of customers in terms of the revenue they generate and the costs of establishing and maintaining relationships with them | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.08%3A_Chapter_Summary.txt |
1 .
Somewhat like the cola wars of the 1980s, quick-service food chains are engaging in chicken wars. List and discuss at least two ways Chick-fil-A, Popeye’s, and Slim Chickens have differentiated and positioned their products as they fight for customers.
2 .
Why would a local hair salon choose to use geographic segmentation variables and a narrow, concentrated marketing strategy rather than psychographic, demographic, or behavioral variables plus undifferentiated, differentiated, or micromarketing strategies? Might the salon be more successful at reaching its target audience by utilizing multi-segment marketing?
3 .
Describe the major elements of a positioning statement. Which words in the following Walt Disney World positioning statement—“For the young and young-at-heart, Walt Disney World is the theme park that best delivers on an immersive and magical experience because Walt Disney World, and only Walt Disney World, connects you to the characters and worlds you most desire”—illustrate what Disney World promises customers and why it delivers on this promise better than competitors in the entertainment industry?
4 .
Have you ever watched cartoons? If so, have you seen content that you would consider to be unethical targeting by advertisers? Common examples of ethical lapses include ethnic and racial profiling, promoting gender stereotypes, depicting violence, and encouraging child obesity.
5.11: Critical Thinking Exercises
1 .
Mountain Dew was introduced in 1940 and marketed as “moonshine,” complete with Willy the Hillbilly proclaiming “It’ll tickle yore innards!” Since PepsiCo acquired the brand in the 1960s, Mountain Dew has cycled through new looks, logos, slogans, packaging, flavors, and brand personalities now connected with speed and velocity rather than soda brewed in a whiskey still. Research Mountain Dew’s history and consider this question: How has Mountain Dew steadily moved away from other competitors in the soft drink industry in its positioning efforts, and do you believe this movement has grown consumers’ brand loyalty?
2 .
The three-step STP model has proven successful in stepping systematically through the target market selection process. How has your college proceeded from segmentation to targeting to effectively positioning? Offer examples of each step and develop a perceptual map showing how the average high school student may perceive your college’s attributes versus its competitors’.
3 .
Why might candy companies such as Lemonhead, Ghirardelli, Jelly Belly, PEEPS, Mike and Ike, and Welch’s Fruit Snacks make the pledge not to advertise to children under the age of 12? Does this decision also send a message to parents?
5.12: Building Your Personal Brand
There are numerous examples of successful personal brands. For good examples, read this article from the Webflow blog where 18 of the best personal brand examples in 2022 are listed. Using what you learned in this chapter about marketing to target markets and using the inspiration and knowledge gained from this article, write the opening page to your website. Keep in mind the things shared in the article on what made the personal brands stand out. And know your target market so you can craft a message that will appeal to them.
5.13: What Do Marketers Do
Utilize LinkedIn to find two sales managers in your geographic area and invite them to connect with you. Try using what you now know about segmentation, targeting, and positioning to consider industries you’d like to work in, where they might be located, and how you can make your resume appealing to them. Can you craft a compelling message that encourages sales managers to connect with you? Once linked, “interview” at least one sales professional and ask questions about what they enjoy most and least about their sales careers.
5.14: Marketing Plan Exercise
Complete the following information about the company and products/services you chose to focus on as you develop the marketing plan throughout the course. You may need to conduct research in order to obtain necessary information.
Instructions: Using the Marketing Plan Template file you created from the Marketing and Customer Value assignment and expanded upon in Strategic Planning in Marketing, complete the following sections of your marketing plan:
• Market Segmentation
• Target Market
• Buyer Personas
• Positioning
Submit the marketing plan to your instructor for grading and feedback. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.10%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Travelers Point Distillery
In early 2000, several friends got together to tell stories and drink bourbon. It was obvious that friends and stories come together with good bourbon. The best stories included the rich family history of Master Distiller Mel Lytton.
Dating back to the 1880s and into prohibition, Mel’s great grandfather distilled bourbon in rural Virginia. Having grown up in a bourbon family, Mel not only had the ability to detect all the subtle flavors of a great bourbon, but he had the family recipe that had been passed down through the generations. And Mel knew how to distill it.
Mel had more stories than most. Having mastered the art of just about everything he set out to do, Mel was a stone mason, a blacksmith, and a carpenter skilled at woodworking. As Mel talked about the bourbon he was tasting and told stories of his family distilling in the mountains and backwoods of Virginia, an idea was born. The friends decided they would love to get into the business of distilling bourbon.
Bourbon is a truly American drink. It is generally aged in oak barrels and made with grain, primarily corn. Bourbon can range in price from thousands of dollars to \$40–50 per bottle. In the early 1960s, Congress declared bourbon “America’s Native Spirit.”
While traditionally bourbon is mostly consumed by men, it is catching on with women too. In fact, bourbon is quickly gaining popularity among those 21 and over. “The Kentucky Bourbon Trail and the Kentucky Bourbon Trail Craft Tour have drawn more than 2.5 million visitors from all 50 states and 25 countries in the last five years and have become leading educational and tourism attractions.”88
With the growth and popularity of bourbon drinking and collecting, it was clear that there was room in the industry for one more bourbon brand.
Mel’s family recipe and his history of distilling made the group of friends confident in their ability to provide a craft or small-batch bourbon that would be equal to if not better than many currently available. They formed the company and found the perfect location to open the distillery—an old granary in the heart of America’s farming country in Kirklin, Indiana. The community is uniquely located in the middle of the state with a major highway passing through the middle of the town. Kirklin truly is the crossroads of America.
With the original group of investors and a few additions, the business was formed. Mel began distilling the bourbon. It was put in barrels and up in the rack room to age. The label, the brand, and the distribution were in the works.
The group determined that some of the best things in life included bourbon and travels. In fact, many of the stories they told over a great glass of bourbon included their many collective travels around the world. The name for their new bourbon was decided—Travelers Point. It wouldn’t be long before Travelers Point began marketing its bourbon.
As the company considered its branding and value proposition, the founders knew they wanted to have a unique story of production along with a price point that ranked with some of the premium bourbon brands currently on the market. Travelers Point bourbon would sell for around \$45–60 per bottle. This would put it in the ranks of some of the sought-after brands with a following among die-hard bourbon drinkers.89
The difference in Travelers Point is obvious to discerning bourbon drinkers. The bourbon profile is unique, with deep caramel notes and a rich combination of oak and vanilla. Many bourbon drinkers enjoy the hunt for the perfect bourbon. Travelers Point has something special. Finding the market segment that is ready for a new bourbon with a long history will be critical to its marketing success.
For more information about Travelers Point Distillery, check out their website.
Case Questions
1 .
Based on the price point and branding for Travelers Point bourbon, what is the recommended method the company should use to segment its market?
2 .
Which target market strategy would you recommend for Travelers Point, and why?
3 .
What approach to brand positioning do you recommend for Travelers Point? Support your answer.
4 .
Develop a perceptual map of the bourbon brands currently selling for \$40–60 per bottle. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.15%3A_Closing_Company_Case.txt |
1. Gregory Schmidt, “Mattel Is Reviving Max Steel Action Figure for a New Media Age,” New York Times, January 27, 2013.
2. Sophia Chianese, “Market Segmentation: Mattel Case Study,” LinkedIn, September 28, 2018, https://www.linkedin.com/pulse/marke...phia-chianese/.
3. Jon Simpson, “Finding Brand Success in the Digital World,” Forbes, August 25, 2017, https://www.forbes.com/sites/forbesa...digital-world/.
4. “What Are the Benefits of Market Segmentation?,” Kadence International, last modified October 14, 2021, https://kadence.com/en-us/the-benefi...-segmentation/.
5. Adam Jones, “Starbucks’s Geographic Segment Update,” Yahoo! Finance, Yahoo, January 20, 2015, https://finance.yahoo.com/news/starb...173101323.html.
6. Cathy Jacobs, “What Is a Starbucks Menu Like around the World?,” The Spruce Eats, updated September 17, 2020, https://www.thespruceeats.com/starbu...u-guide-766068.
7. Jo Hartley, “Indian Languages: A Useful Guide to All the Languages Spoken in India,” Berlitz Blog, Berlitz, October 31, 2021, https://www.berlitz.com/blog/indian-...es-spoken-list.
8. “More Than 19,500 Mother Tongues Spoken in India: Census,” Indian Express, July 1, 2018, https://indianexpress.com/article/in...ensus-5241056/.
9. “2021 Mercedes-Benz Price List,” Mercedes-Benz of Chandler, accessed October 20, 2021, https://www.mercedesbenzofchandler.c...nz-price-list/.
10. Michael T. Robinson, “The Generations: Which Generation are You?,” CareerPlanner.com, updated October 21, 2017, https://www.careerplanner.com/Career...enerations.cfm.
11. John Li, “Demographic Segmentation,” PickFu, updated May 25, 2021, https://www.pickfu.com/demographic-segmentation.
12. “A Toothpaste for Every Need,” Crest US, Procter & Gamble, accessed July 2, 2022, https://crest.com/en-us/oral-care-products/toothpaste.
13. Niyathi Rao, “The Pareto Principle (80:20 Rule) for Customer Success,” Customer Success Intelligence (blog), SmartKarrot, March 17, 2021, https://www.smartkarrot.com/resource...tomer-success/.
14. “Buy Back & Resell,” IKEA, accessed November 30, 2021, https://www.ikea.com/us/en/customer-...ck-pubfeb6cc00.
15. Lululemon Like New (website), Lululemon Athletica, accessed June 24, 2022, likenew.lululemon.com/.
16. Hitesh Bhasin, “Vals: Values Attitude Lifestyle,” Marketing91, January 30, 2020, https://www.marketing91.com/vals-val...ude-lifestyle/.
17. Ibid.
18. “Market Segmentation Strategies: 3 Major Challenges B2B Enterprises Face and Ways to Tackle Them,” Thoughts, Infiniti Research, December 12, 2018, https://www.infinitiresearch.com/tho...-segmentation/.
19. Paul Hague and Matthew Harrison, “Market Segmentation in B2B Markets,” B2B International, last modified June 22, 2022, https://www.b2binternational.com/pub...tion-research/.
20. “How Organizations Can Benefit from B2B Market Segmentation,” B2B Global Zone (blog), Kompass International, May 4, 2021, https://www.solutions.kompass.com/bl...-segmentation/.
21. Kit Smith, “The Complete Guide to B2B Market Segmentation,” Sopro, April 20, 2021, https://sopro.io/added-value/blog/b2...ntation-guide/.
22. Rohit Roy, “How to Do Market Segmentation: 5 Most Effective Types of B2B Market Segmentation Strategies,” Clodura, May 13, 2020, https://clodura.ai/blog/how-to-do-ma...on-strategies/.
23. Emily Pribanic, “Benefits of Market Segmentation for Business,” MarTech, TechFunnel, updated January 6, 2020, https://www.techfunnel.com/martech/b...-for-business/.
24. Roy, “Market Segmentation.”
25. Roy, “Market Segmentation.”
26. Roy, “Market Segmentation.”
27. Mark Eardley, “B2B Customer Centricity: Why It’s Vital for Needs-Based Segmentation,” MarkLives.com, June 19, 2018, https://www.marklives.com/2018/06/b2...-segmentation/.
28. Roy, “Market Segmentation.”
29. Roy, “Market Segmentation.”
30. Yoram (Jerry) Wind and David R. Bell, “Market Segmentation,” in The Marketing Book, ed. Michael J. Baker and Susan J. Hart, 6th ed. (Burlington, MA: Butterworth-Heinemann, 2008), 222–244, from https://faculty.wharton.upenn.edu/wp...gmentation.pdf.
31. Wind and Bell, “Market Segmentation.”
32. Kenneth Fillmore, “Segmenting International Markets,” ZABANGA Marketing (blog), updated June 4, 2022, https://www.zabanga.us/customer-rela...l-markets.html.
33. Frank Jerry, reply to “How are the various African countries different from each other? What makes each of them unique?,” Quora, April 25, 2014, https://www.quora.com/How-are-the-va...of-them-unique.
34. Sonal Varma, Euben Paracuelles, and Craig Chan, “The Belt and Road Initiative: Globalization, China Style,” Nomura Connects, Nomura Holdings, April 2018, https://www.nomuraconnects.com/focus...n-china-style/.
35. “International Market Segmentation, Selection and Positioning,” International Marketing, Hahu Zone, accessed June 24, 2022, https://hahuzone.com/international-m...nd-positioning.
36. “What Are the Sanctions on Russia and Are They Hurting Its Economy?,” BBC News, BBC, June 27, 2022, https://www.bbc.com/news/world-europe-60125659.
37. Ibid.
38. “Top 25 Developed and Developing Countries,” Investopedia, Dotdash Meredith, updated May 27, 2022, https://www.investopedia.com/updates...ing-countries/.
39. Ibid.
40. Ibid.
41. Arianna and Virginia, “McDonald’s International Market Communications Strategy,” Global Marketing Professor, May 3, 2021, https://globalmarketingprofessor.com...ions-strategy/.
42. Ibid.
43. Ian Burke, “From a 7-Patty Whopper to Burgers with Black Buns, Here Are 13 of the Wildest International Burger King Menu Items,” Insider, August 18, 2019, https://www.insider.com/13-wild-burg...t-in-us-2019-6.
44. “Hofstede’s Cultural Dimensions: Understanding Different Countries,” Career Skills, Mind Tools, accessed June 24, 2022, https://www.mindtools.com/pages/article/newLDR_66.htm.
45. “United States of America Business Etiquette, Culture, & Manners,” International Business Etiquette and Manners for Global Travelers, International Business Center, accessed June 24, 2022, https://www.cyborlink.com/besite/us.htm.
46. Kate Sweetman, “In Asia, Power Gets in the Way,” Harvard Business Review, April 10, 2012, https://hbr.org/2012/04/in-asia-power-gets-in-the-way.
47. Kendra Cherry, “What Is a Collectivist Culture? Individualism vs. Collectivism,” Verywell Mind, Dotdash Meredith, February 23, 2022, https://www.verywellmind.com/what-ar...ltures-2794962.
48. “Individualism,” Geert Hofstede Cultural Dimensions, Clearly Cultural, accessed June 24, 2022, https://clearlycultural.com/geert-ho...individualism/.
49. Mind Tools, “Hofstede’s Cultural Dimensions.”
50. Bert Markgraf, “How to Apply Hofstede’s Classification Scheme in a Global Marketing Context,” Small Business, Chron.com, last modified October 26, 2016, https://smallbusiness.chron.com/appl...ext-75008.html.
51. “5 Requirements for Effective Segmentation,” Commence CRM Blog, Commence, February 18, 2021, https://commence.com/blog/2021/02/18...-segmentation/.
52. Amanda Dodge, “How Lego Keeps Winning Fans Wherever It Goes,” ReferralCandy Blog, ReferralCandy, February 9, 2017, https://www.referralcandy.com/blog/l...ting-strategy/.
53. Anne Gentle, “Best Buy’s Personas Hit the Mainstream,” JustWriteClick, September 29, 2005, https://justwriteclick.com/2005/09/2...he-mainstream/.
54. “Examples of Buyer Personas for Any Business,” Marketo Engage, Adobe, January 21, 2021, www.marketo.com/articles/buy...sona-examples/.
55. Alexa Drake, “What Is Mass Marketing and How It’s Effective,” Learn Hub, G2, July 29, 2019, https://learn.g2.com/mass-marketing.
56. Ashley Lutz, “Nike Is Going after 3 Kinds of Customers,” Insider, April 7, 2015, https://www.businessinsider.com/nike...stomers-2015-4.
57. “Honda,” Research & Reviews, Cars.com, accessed June 24, 2022, www.cars.com/research/honda/.
58. Smriti Chand, “Target Marketing: Four Generic Target Marketing Strategies,” Your Article Library, last modified December 8, 2013, https://www.yourarticlelibrary.com/m...rategies/13400.
59. Stevie Langford, “Market Targeting: Why It Pays to Differentiate,” Hurree’s Marketing Blog, Hurree, January 25, 2022, https://blog.hurree.co/blog/market-targeting.
60. Eric Lam, “What Every Marketer Can Learn from the Stitch Fix IPO,” Medium, October 27, 2017, https://medium.com/@elam/what-every-...o-54b208dd416c.
61. Al Ries and Jack Trout, Positioning: The Battle for Your Mind (New York: McGraw-Hill, 2001), 5.
62. “Explore Our Brands,” Marriott Bonvoy, Marriott International, accessed February 23, 2022, https://www.marriott.com/marriott-brands.mi.
63. Seth Stevenson, “We’re No. 2! We’re No. 2!,” Slate, August 12, 2013, https://slate.com/business/2013/08/h...ond-place.html.
64. Devra Gartenstein, “Two Types of Product Positioning,” Bizfluent, Leaf Group, February 5, 2019, https://bizfluent.com/info-8352422-t...sitioning.html.
65. Chan Kim and Renée Mauborgne, “Curves,” Blue Ocean Strategy, Blue Ocean Global Network, last modified January 26, 2022, https://www.blueoceanstrategy.com/bos-moves/curves/.
66. Hannah Tow, “Awesome Brand Positioning Statement Examples (+Template),” Learn Hub, G2, April 30, 2019, https://learn.g2.com/positioning-statement-examples.
67. “Positioning Statement: 7 Examples and How to Write One,” HelpCenter, Shark Byte, August 23, 2021, https://www.helpcenterapp.com/blog/h...ment-examples/.
68. Shark Byte, “Positioning Statement.”
69. Shark Byte, “Positioning Statement.”
70. Shark Byte, “Positioning Statement.”
71. Meredith Hart, “12 Examples of Positioning Statements & How to Craft Your Own,” HubSpot Blog, HubSpot, updated August 25, 2021, https://blog.hubspot.com/sales/positioning-statement.
72. “Understanding Perceptual Maps,” Market Segmentation Study Guide, accessed March 23, 2022, https://www.segmentationstudyguide.c...rceptual-maps/.
73. Angela Hausman, “How to Build a Perceptual Map That Explodes Your ROI,” MKT Maven, Hausman and Associates, October 16, 2020, https://www.hausmanmarketingletter.c...erceptual-map/.
74. Hausman, “Build a Perceptual Map.”
75. Karen Hao, “Facebook’s Ad-Serving Algorithm Discriminates by Gender and Race,” MIT Technology Review, April 5, 2019, https://www.technologyreview.com/201...nates-ai-bias/.
76. Safiya U. Noble and Sarah T. Roberts, “Targeting Race in Ads Is Nothing New, but the Stakes Are High,” USA Today, November 12, 2016, https://www.usatoday.com/story/tech/...high/93638386/.
77. “Number of Children in the United States in 2019, by Age Group,” Statista, January 20, 2021, accessed October 21, 2021, https://www.statista.com/statistics/...the-us-by-age/.
78. “Exploitative Ethical Issues in Target Marketing,” Paypervids, last modified November 10, 2017, https://www.paypervids.com/exploitat...get-marketing/.
79. 14ideas, “Marketing to Kids: Is It an Issue?,” Medium, April 19, 2017, https://medium.com/@14ideas/marketin...e-9df4b7085977.
80. Paula Giuffrida, “Letter: Time to Stop Violence on TV, Video Games,” letter to the editor, Eagle-Tribune (North Andover, MA), April 22, 2022, https://www.eagletribune.com/opinion...b49ace2f0.html.
81. “Childhood Overweight & Obesity,” Overweight & Obesity, Centers for Disease Control and Prevention, last reviewed April 1, 2022, https://www.cdc.gov/obesity/childhood/index.html.
82. 14ideas, “Marketing to Kids.”
83. “Did Juul Target Teens, Knowing They’d Get Hooked?,” WebMD, accessed June 24, 2022, https://www.webmd.com/connect-to-car...people-smoking.
84. Ken Alltucker, “Report: Federal Ban on Popular Juul Products Forthcoming amid Youth Vaping Concerns,” USA Today, June 22, 2022, https://www.usatoday.com/story/news/...ys/7701204001/.
85. “Ethical Target Advertising: Where Should Marketing Draw the Line?,” Out of the Blue Blog, Blue Laser Digital, September 3, 2021, https://www.bluelaserdigital.com/eth...et-advertising.
86. Blue Laser Digital, “Ethical Target Advertising.”
87. Lynette Holloway, “First Lady, Subway Launch Healthy Eating Campaign for Kids,” NewsOne, Interactive One, January 24, 2014, https://newsone.com/2848891/michelle-obama-subway/.
88. “Did You Know?,” Kentucky Bourbon Trail, Kentucky Distillers’ Association, accessed March 23, 2022, https://kybourbontrail.com/about/.
89. Travelers Point Distillery (website), accessed March 23, 2022, https://travelerspointdistillery.com/. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/05%3A_Market_Segmentation_Targeting_and_Positioning/5.16%3A_References.txt |
When you think of LEGO, you may imagine a child building a spaceship or castle, but LEGO wanted to learn more about how children are encouraged or discouraged to play with its bricks. In 2021, LEGO launched a research study of close to 7,000 parents and children aged 6 to 14 years old in seven countries to determine how gender stereotypes influence play in creative activities.
During this study, LEGO learned that girls are more open to bending gender roles than boys but that parents have learned to stereotype some careers as being gender-specific. Additionally, parents are more likely to encourage girls to play dress-up (83 percent for girls, 17 percent for boys), dance (81 percent for girls, 15 percent for boys), and bake (80 percent for girls, 20 percent for boys), while they suggest computer coding (71 percent for boys, 29 percent for girls) and sports for boys (76 percent for boys, 24 percent for girls). Due to these findings, LEGO initiated its “Ready for Girls” campaign.
The data compiled in this study allowed LEGO to take a step forward in helping to break down some gender norms when it comes to its product. On October 11, 2021, the International Day of the Girl, LEGO announced a new program to encourage girls to show their creativity. “Get the World Ready for Me” was launched with a 10-step guide to collect information about how girls are engaging with LEGO. Due to this program, LEGO has launched a campaign of stories about how girls are involved with imagination and creativity.
Through this campaign, LEGO identified a way to encourage girls to challenge worldwide views of gender norms (see Figure 6.2). The background necessary for this campaign was researched and used in a way that would help the company stand out. For LEGO and many other companies and organizations, research is its competitive advantage.1
6.01: Marketing Research and Big Data
Learning Objectives
By the end of this section, you will be able to:
• Define marketing research.
• Explain how marketing information provides an understanding of the customer and the marketplace.
• Explain the role of big data and the marketing information system.
What Is Marketing Research?
Oftentimes people think of marketing as the process of communicating with a target market—sharing messages, products, and value with customers. However, marketers know that understanding customers, learning about their wants and needs, and developing a relationship with them is essential for success. Marketing research allows marketers to listen and assess the needs of the market, to understand what’s missing and how to reduce those gaps from their customers, target markets, and prospective clients. Managers need marketing information in order to make data-driven decisions rather than make assumptions about consumers. In this chapter we’re going to investigate the importance of marketing research, some strategies employed in the field, and how to complete the marketing research process.
Marketing research is the work to gather information and data about customers and markets. Let’s look at the definition, why it’s important, and the influx of big data.
Marketing Research Defined
According to the American Marketing Association (AMA), marketing research “is the function that links the consumer, customer, and public to the marketer through information.”2 Marketing research presents information gained through various sources as a resource for managers to make data-driven business decisions. Additionally, the AMA states that “marketing research specifies the information required to address these issues, designs the method for collecting information, manages and implements the data collection process, analyzes the results, and communicates the findings and their implications.”3
The Importance of Marketing Information
Marketing information, also known as business intelligence, competitive intelligence, or marketing intelligence, is information about the market that helps to identify opportunities in the market. This information helps to determine a company’s strengths and weaknesses while also evaluating the external environment’s opportunities and threats. Ideas generated through analysis of marketing information support business decision-making from a long-term strategic approach to smaller issues at a tactical level.
Marketing information is essential for a company or organization to stay competitive and also meet the customer’s needs. As referenced above, LEGO used marketing research to gather information about how children use its product but also how parents felt about opportunities for their children. Universities and colleges use information gathered through marketing research to build next year’s recruitment materials by asking students their perceptions of the previous year’s items. Additionally, a fast-food restaurant might conduct an analysis of the time of day each of its items are more likely to be purchased. Obvious to most, coffee would probably be an item more likely ordered earlier in the day. Other items might not be as evident but could require different preparation times. By accounting for when each of these items is most likely to be ordered, the restaurant can plan its inventory and schedule of employees more efficiently.
Big Data and the Marketing Information System (MIS)
The amount of data currently available is not only vast but is growing at an exponential level every day, which describes the concept of big data. Big data is the countless number of records that continues in an increasing capacity and at a faster rate. Because of the constantly changing landscape of data, it’s difficult for companies to develop an approach for analyzing it. Big data is often described through the use of the three Vs: volume, velocity, and variety. The amount of data, or volume, is more than we have ever witnessed. Additionally, it is growing at a fast rate; the velocity is also ever increasing. We expect that the velocity of data will continue to surge exponentially as each day more users are contributing to the data available. Finally, there is the variety of data that is part of this enormous data set—because each user is contributing to the cache of data available, the diversity of data is just as unique as its creators.
Link to Learning: What Is Big Data?
Big data is massive amounts of data. But what does that mean? Think of all the data a smartphone generates with texts, searches, emails, photos, etc. Now consider how many smartphone users there are in the world. Watch this video and learn how much data is generated on the internet each day and how it can be classified through the three Vs concept.
“Big data has become one of the most valuable assets held by enterprises, and virtually every large organization is making investments in big data initiatives.”4 This statement was based on a 2021 NewVantage Partners survey of senior C-level executives at Fortune 1000 companies regarding their perceptions of big data and their utilization of its resources. NewVantage Partners learned that many companies are already pursuing this data, with 96 percent reporting that their companies have already had success using big data and artificial intelligence programs. Additionally, 99 percent of the executives surveyed are pursuing either new or existing big data programs. Why are companies so keen to invest in this source? It is estimated that the world creates approximately 2.5 quintillion bytes of data daily. This vast accumulation of data can be collected through various methods, such as point-of-sale databases, connected devices through the Internet of Things (IoT), third-party marketing research firms, social media, location data from mobile devices, or surveys.5 Tapping into the resource generators is helpful for companies to understand their customers, employees, or others.
So, who are these data generators? They are everyone, like you and your friends, who post content on social media, engage with web content through streaming services, and share stories through web applications. In addition, businesses are contributing to the massive amount of content available. Extra data (volume), at a faster rate (velocity), and from a more widely diverse set of people (variety) explain why it is called “big” data.6 So how do businesses and individuals capitalize on this vast data world?
In order to be able to utilize and make the most of the availability of business data, businesses use a marketing information system to collect, analyze, and report interesting findings from internal and external data of the company. This system is an ever-changing database of content that is used to support the company or organization’s marketing efforts. The marketing information system is the collection of data and requires actions taken by marketers to utilize the data saved.
Careers In Marketing: Market Research Analysts
Market research analysts are needed in numerous industries, and according to the US Bureau of Labor and Statistics, the job outlook has a much higher rate of growth than average. Read about the skills needed, typical pay, education requirements, and career outlook in this article and watch this video about the various types of jobs available as a market research analyst.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Anaya is collecting information from a variety of sources to make a decision on where to market her new line of designer scarves. Anaya is conducting ________.
1. market intelligence
2. big data
3. management information system
4. marketing research
2.
The collection of data the company has gathered over time and used to make marketing decisions on a regular basis is called its ________.
1. big data
2. marketing information system
3. marketing research
4. survey data
3.
Ryan and Christie are uploading their recent pictures to Instagram, tagging the photographer and the venue. What is this content adding to?
1. Market intelligence
2. Big data
3. Management information system
4. Marketing research
4.
Which of the following is not a reason why marketing research is important for the success of a business?
1. It provides a guarantee of customer satisfaction.
2. It identifies opportunities in the market to explore.
3. It helps to quantify customer perceptions.
4. It uncovers weaknesses within a company.
5.
Which of the following would not be considered marketing research?
1. Analyzing the product purchases of current customers
2. Measuring the number of reactions to a social media post
3. Examining a competitor’s database of information
4. Surveying potential employees about why they are interested in working for a company | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify sources of marketing information.
• Describe the different categories of marketing information.
Identify Sources of Marketing Information
Data, as mentioned in the first section of this chapter, comes from a variety of sources. In this section, we’ll investigate the sources of important marketing information and how these resources can be accessed to meet the needs of the institution. Online resources such as company websites, journal databases, and e-commerce locations could provide valuable resources to someone opening a new business. For instance, if a new product is to be sold, some companies will review competitors’ websites to glean information about comparable pricing before setting their price. The sources identified are closely aligned with the category of information and are described below.
Describe the Different Categories of Marketing Information
Marketing information can be derived from many sources. We will review three types in this section—internal data, external data, and competitive intelligence—and further explain other types of data in the next section. External and internal data both have unique qualities that make them essential for businesses to utilize. Additionally, competitive intelligence refer to specific types of data that must be examined to further the company or organization’s continued success and effectiveness.
External Data and Databases
External data is data that originates from outside the organization. Examples of external data would be information gleaned from customers through a customer service survey or reviews of a competitor’s website. Previously we learned about big data and the volume of information that is available daily. These data pieces would also be considered external data. Competitive and market intelligence is often gathered through these external sources of material. Data sources can include any interested parties of the business or a competitor’s business, social media mentions, news articles, journal publications, and others. The only limitation of collecting external data is financial. Not all sources of information are free, and the time spent to collect these insights is also a valuable commodity as “time is money.” Once external information is collected and available for those within the institution, it can be considered internal data.
Internal Data and Databases
Critical marketing intelligence can be data that already exists in the company’s databases. This data is called internal data and gives the company a historic view of what has worked in the past as well as identifies times when the company did not meet its goals. Internal data includes sales, promotional effectiveness, pricing, product launch information, research and development, and logistics information. Examples of internal data include the percentage of coupons redeemed, the sales volume at specific prices, the highest-grossing motion picture for a production company, and even the most-missed question on last unit’s marketing exam.
Businesses, organizations, nonprofits, and even colleges and universities use these types of data sources to make day-to-day and more comprehensive decisions. A database is a collection of related data. For instance, at the school you are currently attending, there are multiple databases—one for current students, one for alumni, and still another for faculty. Within each of these databases, there is information about that specific population. The current student database will be a list of all students who are enrolled in courses this term, with additional information such as what courses they are enrolled in, any past enrollments, grades earned, major, hometown, and academic advisor’s name.
Competitive Intelligence
Marketing research can be conducted on every aspect of business and marketing. Understanding the competition and its strengths and weaknesses through an analysis of the industry and competing forces gives a company a competitive edge. Competitive intelligence is the collection of that information from the marketplace. A company’s position must be examined to determine if it matches with the needs of the customers.
This competitive intelligence may be related to any of the marketing mix elements: product, price, distribution, or promotion. Checking prices of competitors’ products to make sure a company’s pricing is competitive, conducting a promotional audit to verify reach of the messages, or examining the competitive industry’s distribution channels may allow the company to identify a new location, and all help to make the company more educated on future decisions. When in a competitive space, why do customers choose the competitor over the company’s products? Marketing research can come in many forms and helps managers to make data-driven decisions. Once this data is collected, it becomes part of the business or organization’s internal data cache.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following is a source for external information?
1. Sales receipts of your company’s most popular product
2. Employee salaries
3. Comments received from a customer service survey
4. Company’s website content
2.
Xin wants to determine the best price for a new product. What source of data would be the most appropriate to use?
1. Price of a competitor’s products
2. Inventory expenses
3. Journal articles
4. Online news site
3.
Which of the following is not a source of marketing information?
1. Journal articles
2. Social media posts
3. Experiments
4. Marketing information systems
4.
Which of the following would be a good source of competitive intelligence?
1. Experiments
2. Product sales of a company’s products
3. Consumer responses to a poll on a company’s new products
4. Competitor’s website
5.
Critical data that already exists within a company’s databases is called ________.
1. big data
2. internal data
3. external data
4. competitive data | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.02%3A__Sources_of_Marketing_Information.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify and describe the steps in a marketing research plan.
• Discuss the different types of data research.
• Explain how data is analyzed.
• Discuss the importance of effective research reports.
Define the Problem
There are seven steps to a successful marketing research project (see Figure 6.3). Each step will be explained as we investigate how a marketing research project is conducted.
The first step, defining the problem, is often a realization that more information is needed in order to make a data-driven decision. Problem definition is the realization that there is an issue that needs to be addressed. An entrepreneur may be interested in opening a small business but must first define the problem that is to be investigated. A marketing research problem in this example is to discover the needs of the community and also to identify a potentially successful business venture.
Many times, researchers define a research question or objectives in this first step. Objectives of this research study could include: identify a new business that would be successful in the community in question, determine the size and composition of a target market for the business venture, and collect any relevant primary and secondary data that would support such a venture. At this point, the definition of the problem may be “Why are cat owners not buying our new cat toy subscription service?”
Additionally, during this first step we would want to investigate our target population for research. This is similar to a target market, as it is the group that comprises the population of interest for the study. In order to have a successful research outcome, the researcher should start with an understanding of the problem in the current situational environment.
Develop the Research Plan
Step two is to develop the research plan. What type of research is necessary to meet the established objectives of the first step? How will this data be collected? Additionally, what is the time frame of the research and budget to consider? If you must have information in the next week, a different plan would be implemented than in a situation where several months were allowed. These are issues that a researcher should address in order to meet the needs identified.
Research is often classified as coming from one of two types of data: primary and secondary. Primary data is unique information that is collected by the specific researcher with the current project in mind. This type of research doesn’t currently exist until it is pulled together for the project. Examples of primary data collection include survey, observation, experiment, or focus group data that is gathered for the current project.
Secondary data is any research that was completed for another purpose but can be used to help inform the research process. Secondary data comes in many forms and includes census data, journal articles, previously collected survey or focus group data of related topics, and compiled company data. Secondary data may be internal, such as the company’s sales records for a previous quarter, or external, such as an industry report of all related product sales. Syndicated data, a type of external secondary data, is available through subscription services and is utilized by many marketers. As you can see in Table 6.1, primary and secondary data features are often opposite—the positive aspects of primary data are the negative side of secondary data.
Strengths Weaknesses
Primary Data
• Can be structured to be exactly what is needed
• Under complete control of researchers
• Timely, current data
• Expensive to implement
• Takes time to compile
• May not be generalizable beyond specific research question
Secondary Data
• Generally inexpensive or free
• Can be accessed quickly
• Available through a variety of sources
• May not match required parameters
• Can be outdated
• Same data accessible by competitors
Table 6.1 The Strengths and Weaknesses of Primary and Secondary Data
There are four research types that can be used: exploratory, descriptive, experimental, and ethnographic research designs (see Figure 6.4). Each type has specific formats of data that can be collected. Qualitative research can be shared through words, descriptions, and open-ended comments. Qualitative data gives context but cannot be reduced to a statistic. Qualitative data examples are categorical and include case studies, diary accounts, interviews, focus groups, and open-ended surveys. By comparison, quantitative data is data that can be reduced to number of responses. The number of responses to each answer on a multiple-choice question is quantitative data. Quantitative data is numerical and includes things like age, income, group size, and height.
Exploratory research is usually used when additional general information in desired about a topic. When in the initial steps of a new project, understanding the landscape is essential, so exploratory research helps the researcher to learn more about the general nature of the industry. Exploratory research can be collected through focus groups, interviews, and review of secondary data. When examining an exploratory research design, the best use is when your company hopes to collect data that is generally qualitative in nature.7
For instance, if a company is considering a new service for registered users but is not quite sure how well the new service will be received or wants to gain clarity of exactly how customers may use a future service, the company can host a focus group. Focus groups and interviews will be examined later in the chapter. The insights collected during the focus group can assist the company when designing the service, help to inform promotional campaign options, and verify that the service is going to be a viable option for the company.
Descriptive research design takes a bigger step into collection of data through primary research complemented by secondary data. Descriptive research helps explain the market situation and define an “opinion, attitude, or behavior” of a group of consumers, employees, or other interested groups.8 The most common method of deploying a descriptive research design is through the use of a survey. Several types of surveys will be defined later in this chapter. Descriptive data is quantitative in nature, meaning the data can be distilled into a statistic, such as in a table or chart.
Again, descriptive data is helpful in explaining the current situation. In the opening example of LEGO, the company wanted to describe the situation regarding children’s use of its product. In order to gather a large group of opinions, a survey was created. The data that was collected through this survey allowed the company to measure the existing perceptions of parents so that alterations could be made to future plans for the company.
Experimental research, also known as causal research, helps to define a cause-and-effect relationship between two or more factors. This type of research goes beyond a correlation to determine which feature caused the reaction. Researchers generally use some type of experimental design to determine a causal relationship. An example is A/B testing, a situation where one group of research participants, group A, is exposed to one treatment and then compared to the group B participants, who experience a different situation. An example might be showing two different television commercials to a panel of consumers and then measuring the difference in perception of the product. Another example would be to have two separate packaging options available in different markets. This research would answer the question “Does one design sell better than the other?” Comparing that to the sales in each market would be part of a causal research study.9
The final method of collecting data is through an ethnographic design. Ethnographic research is conducted in the field by watching people interact in their natural environment. For marketing research, ethnographic designs help to identify how a product is used, what actions are included in a selection, or how the consumer interacts with the product.10
Examples of ethnographic research would be to observe how a consumer uses a particular product, such as baking soda. Although many people buy baking soda, its uses are vast. So are they using it as a refrigerator deodorizer, a toothpaste, to polish a belt buckle, or to use in baking a cake?
Select the Data Collection Method
Data collection is the systematic gathering of information that addresses the identified problem. What is the best method to do that? Picking the right method of collecting data requires that the researcher understand the target population and the design picked in the previous step. There is no perfect method; each method has both advantages and disadvantages, so it’s essential that the researcher understand the target population of the research and the research objectives in order to pick the best option.
Sometimes the data desired is best collected by watching the actions of consumers. For instance, how many cars pass a specific billboard in a day? What website led a potential customer to the company’s website? When are consumers most likely to use the snack vending machines at work? What time of day has the highest traffic on a social media post? What is the most streamed television program this week? Observational research is the collecting of data based on actions taken by those observed. Many data observations do not require the researched individuals to participate in the data collection effort to be highly valuable. Some observation requires an individual to watch and record the activities of the target population through personal observations.
Unobtrusive observation happens when those being observed aren’t aware that they are being watched. An example of an unobtrusive observation would be to watch how shoppers interact with a new stuffed animal display by using a one-way mirror. Marketers can identify which products were handled more often while also determining which were ignored.
Other methods can use technology to collect the data instead. Instances of mechanical observation include the use of vehicle recorders, which count the number of vehicles that pass a specific location. Computers can also assess the number of shoppers who enter a store, the most popular entry point for train station commuters, or the peak time for cars to park in a parking garage.
When you want to get a more in-depth response from research participants, one method is to complete a one-on-one interview. One-on-one interviews allow the researcher to ask specific questions that match the respondent’s unique perspective as well as follow-up questions that piggyback on responses already completed. An interview allows the researcher to have a deeper understanding of the needs of the respondent, which is another strength of this type of data collection. The downside of personal interviews it that a discussion can be very time-consuming and results in only one respondent’s answers. Therefore, in order to get a large sample of respondents, the interview method may not be the most efficient method.
Taking the benefits of an interview and applying them to a small group of people is the design of a focus group. A focus group is a small number of people, usually 8 to 12, who meet the sample requirements. These individuals together are asked a series of questions where they are encouraged to build upon each other’s responses, either by agreeing or disagreeing with the other group members. Focus groups are similar to interviews in that they allow the researcher, through a moderator, to get more detailed information from a small group of potential customers (see Figure 6.5).
Link to Learning: Focus Groups
Focus groups are a common method for gathering insights into consumer thinking and habits. Companies will use this information to develop or shift their initiatives. The best way to understand a focus group is to watch a few examples or explanations. TED-Ed has this video that explains how focus groups work.
You might be asking when it is best to use a focus group or a survey. Learn the differences, the pros and cons of each, and the specific types of questions you ask in both situations in this article.
Preparing for a focus group is critical to success. It requires knowing the material and questions while also managing the group of people. Watch this video to learn more about how to prepare for a focus group and the types of things to be aware of.
One of the benefits of a focus group over individual interviews is that synergy can be generated when a participant builds on another’s ideas. Additionally, for the same amount of time, a researcher can hear from multiple respondents instead of just one.11 Of course, as with every method of data collection, there are downsides to a focus group as well. Focus groups have the potential to be overwhelmed by one or two aggressive personalities, and the format can discourage more reserved individuals from speaking up. Finally, like interviews, the responses in a focus group are qualitative in nature and are difficult to distill into an easy statistic or two.
Combining a variety of questions on one instrument is called a survey or questionnaire. Collecting primary data is commonly done through surveys due to their versatility. A survey allows the researcher to ask the same set of questions of a large group of respondents. Response rates of surveys are calculated by dividing the number of surveys completed by the total number attempted. Surveys are flexible and can collect a variety of quantitative and qualitative data. Questions can include simplified yes or no questions, select all that apply, questions that are on a scale, or a variety of open-ended types of questions. There are four types of surveys (see Table 6.2) we will cover, each with strengths and weaknesses defined.
Strengths Weaknesses
Mailed Surveys
• Ability to reach large population
• Convenience of respondent
• Time delays
• Expensive
Phone Surveys
• Respondent can ask questions
• Collection in real time
• Time intensive
• People don’t answer calls from numbers they don’t know
In-Person Surveys
• Respondent can ask questions
• Follow-up questions can be asked based on answers
• Time intensive
• People avoid talking with strangers
Electronic Surveys
• Less time intensive than other methods
• Less expensive
• Identification as spam
• Low response rate
Table 6.2 The Four Survey Method Options
Let’s start off with mailed surveys—surveys that are sent to potential respondents through a mail service. Mailed surveys used to be more commonly used due to the ability to reach every household. In some instances, a mailed survey is still the best way to collect data. For example, every 10 years the United States conducts a census of its population (see Figure 6.6). The first step in that data collection is to send every household a survey through the US Postal Service (USPS). The benefit is that respondents can complete and return the survey at their convenience. The downside of mailed surveys are expense and timeliness of responses. A mailed survey requires postage, both when it is sent to the recipient and when it is returned. That, along with the cost of printing, paper, and both sending and return envelopes, adds up quickly. Additionally, physically mailing surveys takes time. One method of reducing cost is to send with bulk-rate postage, but that slows down the delivery of the survey. Also, because of the convenience to the respondent, completed surveys may be returned several weeks after being sent. Finally, some mailed survey data must be manually entered into the analysis software, which can cause delays or issues due to entry errors.
Phone surveys are completed during a phone conversation with the respondent. Although the traditional phone survey requires a data collector to talk with the participant, current technology allows for computer-assisted voice surveys or surveys to be completed by asking the respondent to push a specific button for each potential answer. Phone surveys are time intensive but allow the respondent to ask questions and the surveyor to request additional information or clarification on a question if warranted. Phone surveys require the respondent to complete the survey simultaneously with the collector, which is a limitation as there are restrictions for when phone calls are allowed. According to Telephone Consumer Protection Act, approved by Congress in 1991, no calls can be made prior to 8:00 a.m. or after 9:00 p.m. in the recipient’s time zone.12 Many restrictions are outlined in this original legislation and have been added to since due to ever-changing technology.
In-person surveys are when the respondent and data collector are physically in the same location. In-person surveys allow the respondent to share specific information, ask questions of the surveyor, and follow up on previous answers. Surveys collected through this method can take place in a variety of ways: through door-to-door collection, in a public location, or at a person’s workplace. Although in-person surveys are time intensive and require more labor to collect data than some other methods, in some cases it’s the best way to collect the required data. In-person surveys conducted through a door-to-door method is the follow-up used for the census if respondents do not complete the mailed survey. One of the downsides of in-person surveys is the reluctance of potential respondents to stop their current activity and answer questions. Furthermore, people may not feel comfortable sharing private or personal information during a face-to-face conversation.
Electronic surveys are sent or collected through digital means and is an opportunity that can be added to any of the above methods as well as some new delivery options. Surveys can be sent through email, and respondents can either reply to the email or open a hyperlink to an online survey (see Figure 6.7). Additionally, a letter can be mailed that asks members of the survey sample to log in to a website rather than to return a mailed response. Many marketers now use links, QR codes, or electronic devices to easily connect to a survey. Digitally collected data has the benefit of being less time intensive and is often a more economical way to gather and input responses than more manual methods. A survey that could take months to collect through the mail can be completed within a week through digital means.
Design the Sample
Although you might want to include every possible person who matches your target market in your research, it’s often not a feasible option, nor is it of value. If you did decide to include everyone, you would be completing a census of the population. Getting everyone to participate would be time-consuming and highly expensive, so instead marketers use a sample, whereby a portion of the whole is included in the research. It’s similar to the samples you might receive at the grocery store or ice cream shop; it isn’t a full serving, but it does give you a good taste of what the whole would be like.
So how do you know who should be included in the sample? Researchers identify parameters for their studies, called sample frames. A sample frame for one study may be college students who live on campus; for another study, it may be retired people in Dallas, Texas, or small-business owners who have fewer than 10 employees. The individual entities within the sampling frame would be considered a sampling unit. A sampling unit is each individual respondent that would be considered as matching the sample frame established by the research. If a researcher wants businesses to participate in a study, then businesses would be the sampling unit in that case.
The number of sampling units included in the research is the sample size. Many calculations can be conducted to indicate what the correct size of the sample should be. Issues to consider are the size of the population, the confidence level that the data represents the entire population, the ease of accessing the units in the frame, and the budget allocated for the research.
There are two main categories of samples: probability and nonprobability (see Figure 6.8). Probability samples are those in which every member of the sample has an identified likelihood of being selected. Several probability sample methods can be utilized. One probability sampling technique is called a simple random sample, where not only does every person have an identified likelihood of being selected to be in the sample, but every person also has an equal chance of exclusion. An example of a simple random sample would be to put the names of all members of a group into a hat and simply draw out a specific number to be included. You could say a raffle would be a good example of a simple random sample.
Another probability sample type is a stratified random sample, where the population is divided into groups by category and then a random sample of each category is selected to participate. For instance, if you were conducting a study of college students from your school and wanted to make sure you had all grade levels included, you might take the names of all students and split them into different groups by grade level—freshman, sophomore, junior, and senior. Then, from those categories, you would draw names out of each of the pools, or strata.
A nonprobability sample is a situation in which each potential member of the sample has an unknown likelihood of being selected in the sample. Research findings that are from a nonprobability sample cannot be applied beyond the sample. Several examples of nonprobability sampling are available to researchers and include two that we will look at more closely: convenience sampling and judgment sampling.
The first nonprobability sampling technique is a convenience sample. Just like it sounds, a convenience sample is when the researcher finds a group through a nonscientific method by picking potential research participants in a convenient manner. An example might be to ask other students in a class you are taking to complete a survey that you are doing for a class assignment or passing out surveys at a basketball game or theater performance.
A judgment sample is a type of nonprobability sample that allows the researcher to determine if they believe the individual meets the criteria set for the sample frame to complete the research. For instance, you may be interested in researching mothers, so you sit outside a toy store and ask an individual who is carrying a baby to participate.
Collect the Data
Now that all the plans have been established, the instrument has been created, and the group of participants has been identified, it is time to start collecting data. As explained earlier in this chapter, data collection is the process of gathering information from a variety of sources that will satisfy the research objectives defined in step one. Data collection can be as simple as sending out an email with a survey link enclosed or as complex as an experiment with hundreds of consumers. The method of collection directly influences the length of this process. Conducting personal interviews or completing an experiment, as previously mentioned, can add weeks or months to the research process, whereas sending out an electronic survey may allow a researcher to collect the necessary data in a few days.13
Analyze and Interpret the Data
Once the data has been collected, the process of analyzing it may begin. Data analysis is the distillation of the information into a more understandable and actionable format. The analysis itself can take many forms, from the use of basic statistics to a more comprehensive data visualization process. First, let’s discuss some basic statistics that can be used to represent data.
The first is the mean of quantitative data. A mean is often defined as the arithmetic average of values. The formula is:
$Sum of ValuesNumber of ValuesSum of ValuesNumber of Values$
A common use of the mean calculation is with exam scores. Say, for example, you have earned the following scores on your marketing exams: 72, 85, 68, and 77. To find the mean, you would add up the four scores for a total of 302. Then, in order to generate a mean, that number needs to be divided by the number of exam scores included, which is 4. The mean would be 302 divided by 4, for a mean test score of 75.5. Understanding the mean can help to determine, with one number, the weight of a particular value.
Another commonly used statistic is median. The median is often referred to as the middle number. To generate a median, all the numeric answers are placed in order, and the middle number is the median. Median is a common statistic when identifying the income level of a specific geographic region.14 For instance, the median household income for Albuquerque, New Mexico, between 2015 and 2019 was \$52,911.15 In this case, there are just as many people with an income above the amount as there are below.
Mode is another statistic that is used to represent data of all types, as it can be used with quantitative or qualitative data and represents the most frequent answer. Eye color, hair color, and vehicle color can all be presented with a mode statistic. Additionally, some researchers expand on the concept of mode and present the frequency of all responses, not just identifying the most common response. Data such as this can easily be presented in a frequency graph,16 such as the one in Figure 6.9.
Additionally, researchers use other analyses to represent the data rather than to present the entirety of each response. For example, maybe the relationship between two values is important to understand. In this case, the researcher may share the data as a cross tabulation (see Figure 6.10). Below is the same data as above regarding social media use cross tabulated with gender—as you can see, the data is more descriptive when you can distinguish between the gender identifiers and how much time is spent per day on social media.
Not all data can be presented in a graphical format due to the nature of the information. Sometimes with qualitative methods of data collection, the responses cannot be distilled into a simple statistic or graph. In that case, the use of quotations, otherwise known as verbatims, can be used. These are direct statements presented by the respondents. Often you will see a verbatim statement when reading a movie or book review. The critic’s statements are used in part or in whole to represent their feelings about the newly released item.
Link to Learning: Infographics
As they say, a picture is worth a thousand words. For this reason, research results are often shown in a graphical format in which data can be taken in quickly, called an infographic.
Check out this infographic on what components make for a good infographic. As you can see, a good infographic needs four components: data, design, a story, and the ability to share it with others. Without all four pieces, it is not as valuable a resource as it could be. The ultimate infographic is represented as the intersection of all four.
Infographics are particularly advantageous online. Refer to this infographic on why they are beneficial to use online.
Prepare the Research Report
The marketing research process concludes by sharing the generated data and makes recommendations for future actions. What starts as simple data must be interpreted into an analysis. All information gathered should be conveyed in order to make decisions for future marketing actions. One item that is often part of the final step is to discuss areas that may have been missed with the current project or any area of further study identified while completing it. Without the final step of the marketing research project, the first six steps are without value. It is only after the information is shared, through a formal presentation or report, that those recommendations can be implemented and improvements made. The first six steps are used to generate information, while the last is to initiate action. During this last step is also when an evaluation of the process is conducted. If this research were to be completed again, how would we do it differently? Did the right questions get answered with the survey questions posed to the respondents? Follow-up on some of these key questions can lead to additional research, a different study, or further analysis of data collected.
Methods of Quantifying Marketing Research
One of the ways of sharing information gained through marketing research is to quantify the research. Quantifying the research means to take a variety of data and compile into a quantity that is more easily understood. This is a simple process if you want to know how many people attended a basketball game, but if you want to quantify the number of students who made a positive comment on a questionnaire, it can be a little more complicated. Researchers have a variety of methods to collect and then share these different scores. Below are some of the most common types used in business.
Awareness
Is a customer aware of a product, brand, or company? What is meant by awareness? Awareness in the context of marketing research is when a consumer is familiar with the product, brand, or company. It does not assume that the consumer has tried the product or has purchased it. Consumers are just aware. That is a measure that many businesses find valuable. There are several ways to measure awareness. For instance, the first type of awareness is unaided awareness. This type of awareness is when no prompts for a product, brand, or company are given. If you were collecting information on fast-food restaurants, you might ask a respondent to list all the fast-food restaurants that serve a chicken sandwich. Aided awareness would be providing a list of products, brands, or companies and the respondent selects from the list. For instance, if you give a respondent a list of fast-food restaurants and ask them to mark all the locations with a chicken sandwich, you are collecting data through an aided method. Collecting these answers helps a company determine how the business location compares to those of its competitors.17
Customer Satisfaction (CSAT)
Have you ever been asked to complete a survey at the end of a purchase? Many businesses complete research on buying, returning, or other customer service processes. A customer satisfaction score, also known as CSAT, is a measure of how satisfied customers are with the product, brand, or service. A CSAT score is usually on a scale of 0 to 100 percent.18 But what constitutes a “good” CSAT score? Although what is identified as good can vary by industry, normally anything in the range from 75 to 85 would be considered good. Of course, a number higher than 85 would be considered exceptional.19
Customer Acquisition Cost (CAC) and Customer Effort Score (CES)
Other metrics often used are a customer acquisition cost (CAC) and customer effort score (CES). How much does it cost a company to gain customers? That’s the purpose of calculating the customer acquisition cost. To calculate the customer acquisition cost, a company would need to total all expenses that were accrued to gain new customers. This would include any advertising, public relations, social media postings, etc. When a total cost is determined, it is divided by the number of new customers gained through this campaign.
The final score to discuss is the customer effort score, also known as a CES. The CES is a “survey used to measure the ease of service experience with an organization.”20 Companies that are easy to work with have a better CES than a company that is notorious for being difficult. An example would be to ask a consumer about the ease of making a purchase online by incorporating a one-question survey after a purchase is confirmed. If a number of responses come back negative or slightly negative, the company will realize that it needs to investigate and develop a more user-friendly process.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Sagar is completing a marketing research project and is at the stage where he must decide who will be sent the survey. What stage of the marketing research plan is Sagar currently on?
1. Defining the problem
2. Developing the research plan
3. Selecting a data collection method
4. Designing the sample
2.
A strength of mailing a survey is that ________.
1. you are able to send it to all households in an area
2. it is inexpensive
3. responses are automatically loaded into the software
4. the data comes in quickly
3.
Bartlett is considering the different types of data that can be pulled together for a research project. Currently they have collected journal articles, survey data, and syndicated data and completed a focus group. What type(s) of data have they collected?
1. Primary data
2. Secondary data
3. Secondary and primary data
4. Professional data
4.
Which statistic can be used to show how many people responded to a survey question with “strongly agree”?
1. Mean
2. Median
3. Mode
4. Frequency
5.
Why would a researcher want to use a cross tabulation?
1. It shows how respondents answered two variables in relation to each other and can help determine patterns by different groups of respondents.
2. By presenting the data in the form of a picture, the information is easier for the reader to understand.
3. It is an easy way to see how often one answer is selected by the respondents.
4. This analysis can used to present interview or focus group data. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.03%3A_Steps_in_a_Successful_Marketing_Research_Plan.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe ethical issues relating to marketing research.
• Discuss ways to avoid unethical research practices.
The Use of Deceptive Practices
In marketing research, there are many potential areas of ethical concern. Each day people share personal information on social media, through company databases, and on mobile devices. So how do companies make sure to remain ethical in decisions when it comes to this vast amount of research data? It is essential that marketers balance the benefits of having access to this data with the privacy of and concern for all people they can impact.
Too many times, we have heard about the lack of ethical decision-making when it comes to marketing research or personal data. Companies are hacked, share or sell personal information, or use promotion disguised as research. Each of these can be considered unethical.
Link to Learning: The Insights Association
There is an organization devoted to the support and integrity of quality marketing research. This organization, called The Insights Association (IA), “protects and creates demand for the evolving insights and analytics industry by promoting the indisputable role of insights in driving business impact.”21 Having a solid understanding of ethical practices is critical for any marketing professional. Become familiar with terminology, responsibilities, enforcements, and sanctions of the IA’s code of standards and ethics.
First, let’s look at some deceptive practices that might be conducted through research. The first is representing something as research when it is really an attempt to sell a product. This is called sugging. Sugging happens when an individual identifies themselves as a researcher, collects some data, and then uses the data to suggest specific purchases.22 According to the Insights Association Code of Marketing Research Standards, researchers should always separate selling of products from the research process.23
Other deceptive research practices include using persuasive language to encourage a participant to select a particular answer, misrepresenting research data subjectively rather than objectively while presenting the results, and padding research data with fabricated answers in order to increase response rate or create a specific outcome.
Invasion of Privacy
Privacy is another concern when it comes to marketing research data. For researchers, privacy is maintaining the data of research participants discretely and holding confidentiality. Many participants are hesitant to give out identifying information for fear that the information will leak, be tied back to them personally, or be used to steal their identity. To help respondents overcome these concerns, researchers can identify the research as being either confidential or anonymous.
Confidential data is when respondents share their identifying information with the researcher, but the researcher does not share it beyond that point. In this situation, the research may need some identifier in order to match up previous information with the new content—for instance, a customer number or membership number. Anonymous data is when a respondent does not provide identifying information at all, so there is no chance of being identified. Researchers should always be careful with personal information, keeping it behind a firewall, behind a password-protected screen, or physically locked away.
Breaches of Confidentiality
One of the most important ethical considerations for marketing researchers is the concept of confidentiality of respondents’ information. In order to have a rich data set of information, very personal information may be gathered. When a researcher uses that information in an unethical manner, it is a breach of confidentiality. Many research studies start with a statement of how the respondent’s information will be used and how the researcher will maintain confidentiality. Companies may sell personal information, share contact information of the respondents, or tie specific answers to a respondent. These are all breaches of the confidentiality that researchers are held accountable for.24
Although we hear about how companies are utilizing customers’ data unethically, many companies operate in an ethical manner. One example is the search engine DuckDuckGo. The search industry generates millions of pieces of user data daily; most of the providers of searches capitalize on this data by tracking and selling this information. Alternatively, DuckDuckGo has decided NOT to track its users. Instead, it has built its business model on the fact that no user information is stored—ever. Ethically, DuckDuckGo offers users private searches, tracker blocking, and site encryption. In an industry that is continuously collecting and selling personal search information, DuckDuckGo is the exception. There is no concern with being hacked because no data is collected.25
Companies with a Conscience: Gallup
The Gallup Organization is a market research firm that specializes in understanding market sentiment (see Figure 6.11). Every year among its numerous polls, Gallup completes an assessment of the honesty and ethical approach of different professions. In the 2021 survey, nursing was the top profession regarding these two measures.26
Gallup’s research led additional findings about the state of ethics for businesses. “Ethical standards need to be at the core of an organization’s purpose, brand and culture.”27 But what about Gallup’s own ethical standards? Gallup is “a global analytics and advice firm that helps leaders and organizations solve their most pressing problems.”28 In order to be proficient and well-informed on the variety of topics Gallup investigates, it must hold itself and its employees to a high ethical standard.
Gallup completes multiple polls and research continuously. In order to meet the high standards of its public, Gallup must perform these practices in an ethical manner. Each step of the research process is completed with diligence and intention. For those reasons, Gallup is recognized for its ethically backed data. Gallup is a global leader in market insights and has locations in seven cities within the United States and an additional 27 locations internationally. According to Chuck Hagel, former Secretary of Defense of the United States, “Gallup is truly an island of independence—it possesses a credibility and trust that hardly any institution has. A reputation for impartial, fair, honest and superb work.”29
6.05: Chapter Summary
In this chapter, we discovered the critical nature of marketing research on the success of a business. Big data, marketing intelligence, and marketing information systems were defined, and each was explained regarding its impact on the field of marketing research. Next, we learned about the seven steps of the marketing research process and how each step builds toward an actionable plan by management. The difference between secondary and primary data was clarified, and several sources of each were shared. Finally, ethical decision-making in research is essential as some very detailed information about consumers is collected. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.04%3A_Ethical_Issues_in_Marketing_Research.txt |
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
aided awareness when a product, brand, or company list is provided to select from to measure awareness
anonymous data data in which the respondent is not identified
awareness a consumer’s familiarity with a product, brand, or company
big data the countless number of records that continues in an increasing capacity and at a faster rate; often described as volume, velocity, and variety of data generated
breach of confidentiality a situation where the researcher promises to hold private information but discloses it in an unethical manner without permission
causal research studies that define a cause-and-effect relationship between two factors
census when all potential target population members are included in the research
competitive intelligence a collection of information about competitors from the marketplace
confidential data data that is tied back to a respondent, but the respondent’s personal information is not shared
convenience sample a nonprobability sample type where potential respondents to the research are selected by convenience rather than through any scientific method
cross tabulation an analysis of two variables and the frequency of each answer in relation to the other variable
customer acquisition cost the total expenses a company spends to gain a new customer
customer effort score a survey used to measure ease of service experience with an organization
customer satisfaction score also known as a CES, a survey used to measure ease of service experience with an organization
data analysis the distillation of information into a more understandable and actionable format
data collection systematic gathering of information that addresses an identified problem
database a collection of related data
descriptive research data collected to describe the situation in the market and help define an opinion, attitude, or behavior
electronic surveys surveys sent through digital means to respondents; respondents also reply to the survey digitally
ethnographic research method of collecting data that is conducted by observing people’s natural behavior
experimental research studies that define a cause-and-effect relationship between two factors
exploratory research research conducted that is more general to learn more about the industry or market
external data data that originates from outside the organization
focus group a small group, typically 8 to 12 people, who are asked several questions by a moderator and encouraged to build upon each other’s responses
frequency a report of the number of each answer received
in-person surveys surveys conducted when the respondent and data collector are face-to-face
infographic a representation of data in a variety of visual presentations
internal data critical marketing intelligence that already exists in the company’s records
judgment sample a nonprobability sample type where the potential participants are selected based on a perceived match to the sample frame
mailed surveys surveys sent to potential participants through a mail service, such as the US Postal Service
marketing information also known as business intelligence, competitive intelligence, or marketing intelligence; information about the market that helps to identify opportunities available
marketing information system a system used to collect, analyze, and report interesting findings from internal and external data of the company
marketing research the function that links the consumer, customer, and public to the marketer through information
mean an arithmetic average of values
mechanical observation the use of electronic monitoring to record the actions of the observed
median the middle number when all answers are organized from smallest to largest; if an even number of data, the mean of the two middle answers is the median
mode the most common response
nonprobability sample a situation which each member of the population has an unknown chance of being selected to be part of the sample
observational research data collected by watching consumers and recording actions
one-on-one interview an interview that happens on an individual level between researcher and respondent
personal observations observations that are collected by human recorders
phone surveys surveys conducted through the use of a telephone that can be completed through digital or human methods
primary data unique information that is collected by the researcher with the current project in mind
privacy maintaining the data of research participants discretely and holding confidentiality
probability sample a sample in which everyone has a known chance of being included in the research
problem definition the realization that there is an issue that needs to be addressed
qualitative data data that cannot be distilled into number of responses, such as responses to an interview
qualitative research data shared through words, descriptions, and open-ended comments
quantify the research to take a variety of data and compile it into a quantity that is easily understood
quantitative data data that can be reduced to number of responses, such as number of responses to each answer on a multiple-choice question
questionnaire also known as a survey, a series of several questions that can collect a variety of qualitative and quantitative data; can be distributed through several different methods
sample a portion of the entire population that is included in the research
sample frame a parameter that defines who will be included in the sample and who would not be included
sample size the number of respondents that are to be included in the research
sampling unit each individual entities that is included in the sample
secondary data any research that was completed, within the organization or outside of the organization, for another purpose
simple random sample a type of probability sample where every entity has an equal chance of being selected
stratified random sample a probability sample type where the population is divided into groups and then participants are selected from each stratum randomly
sugging suggesting a purchase disguised as research
survey also known as a questionnaire, a series of several questions that can collect a variety of qualitative and quantitative data; can be distributed through several different methods
syndicated data a type of secondary data that is available through a subscription service
target population the group of people that are of interest for a study
unaided awareness when no prompts or lists of potential products, brands, or companies are given to test awareness
unobtrusive observation a type of observation research where the observed is not aware they are being monitored
verbatims exact quotations of responses to a qualitative question | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.06%3A_Key_Terms.txt |
1 .
Why is it vital for companies to understand and use customer insights in gathering and managing marketing information?
2 .
Public policies and laws supporting ethics in marketing research have resulted in companies like Meta (formerly Facebook) being accused of intruding upon consumer privacy, misusing information gathered from users, and exploiting children. As a consumer, how do you feel about companies tracing your digital footprint? As a marketer, what value do you see in tracing consumers’ online activities?
3 .
What are the seven steps necessary in designing a marketing research project?
4 .
List two reasons why quantitative research data is better utilized to measure a population’s attitudes and potential responses to new product releases than qualitative data. List two reasons why qualitative data is most often collected to provide deeper insights into consumer behavior.
5 .
Research codes of conduct are published by the American Marketing Association, the American Association for Public Opinion Research, the Council of American Survey Research Organizations, and the Marketing Research Association in order to define standards of ethical behavior. List three overlapping areas these organizations have identified as important in regulating the marketing industry.
6.08: Critical Thinking Exercises
1 .
Draw a diagram depicting a marketing information system. Show how the marketing research process connects marketing managers with the marketing environment in order to collect information through internal records, marketing intelligence, and marketing research. Remember that the overall intent is first to assess information needs in order to reduce information gaps between the company and its customers, target markets, suppliers, and prospective clients. Amassing timely information allows firms to address these gaps, design the method for collecting information, manage and implement the data collection process, analyze the results, and disseminate results and their implications.
2 .
Conduct a survey of five college students via email, social media, telephone, or in person to learn more about the student demographic. Explain that you are collecting data for a classroom assignment only and will not identify them by name.
Ask these questions:
1. If you could adopt a rescue animal today, what would it be?
2. What is the best pizza topping?
3. Would you rather sneeze for an hour or have hiccups for an hour?
4. Would you rather get \$1 million right now or \$10,000 per month for a lifetime?
5. What is your least favorite food?
• 2a. Summarize and report your results in a chart.
• 2b. C and D are structurally different questions than A, B, and E. What is different between these questions?
• 2c. Can your findings be applied to all college students? Why or why not?
3 .
The US Census gathers and disseminates detailed big data about US residents. Visit Explore Census Data and type your hometown into the search box. The results will include maps, web pages mentioning your hometown, and tables of information gathered by the decennial census as well as the American Community Survey. What method was used to collect this data? Do these tables represent probability or nonprobability samples? Why might these tables be important informational sources for marketers? Check out the table reporting age and sex. What is the median age? Does this statistic surprise you? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.07%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
If you’re a curious person, you may enjoy a career in data science, marketing research, or consumer insights. Businesses report that there is a growing need for data specialists—analysts, engineers, scientists, translators, and cybersecurity managers—to grasp the power of data insights to drive major business initiatives. Business professionals across organizations depend on analytical know-how to make informed decisions with real-time insights. Ongoing data evolution requires data scientists to learn and adopt new technology to accelerate organizational data strategies.
For budding professionals in the data science/consumer insights field, it’s essential to have foundational knowledge in applied mathematics, statistics, data analytics and visualization, machine learning, computer science, or data engineering. These may be courses you wish to add to your upper-level academic work. You can also apply the resulting skill sets to your brand as you investigate internships and projects. Keep in mind that insights specialists must be able to communicate and present complex findings to cross-functional teams clearly and succinctly, driving data-driven decision-making from those findings.
Internal marketing departments generally rely on analysts to handle business intelligence and data scientists to aggregate company data. Read this article to better understand the role differences between a marketing analyst and a data scientist. Review the differences in salaries for marketing analysts and data scientists here.
Now build a chart summarizing the skills necessary for both roles and then identify which of those skills you feel you already possess and which of those you need to work on. For those skills that you need to develop, identify one or two steps you can take to add this to your personal brand.
6.10: What Do Marketers Do
Research is a part of many career paths for marketers and business personnel. Financial planners, human resource managers, logistics analysts, and marketing strategists all use research on a daily basis. Most businesses now rely upon customer loyalty and product/service ratings as they attempt to gain distinction among competitors. Many companies now ask consumers to rate their products and services. That rating is the next best thing to asking friends and family members for product suggestions. Customers want proof that products or services are reputable. Customer reviews are vital in providing personalized experience and insights to promote customer relationships.
Speak to a consumer insights specialist from a local advertising agency or a professor at your college or another university—especially one who specializes in big data analytics—about the importance of data in making marketing decisions. To find an insights specialist or professor, conduct a Google and/or LinkedIn search. Also check out this list of top marketing professors on Twitter.
In your interview, you might ask the following questions, but be sure to also include any questions you might have.
• What is big data, and how do firms gather it?
• How do companies I may be familiar with analyze and use data on a regular basis to inform marketing efforts?
• What are metrics, dashboards, and actionable goals?
• I understand that employee turnover is a major consideration in customer satisfaction these days. How does data analysis help companies measure employee satisfaction?
• Are there specific methods to gather information about customer satisfaction?
• I’ve received emails after making a purchase online, asking for my feedback. How seriously is this feedback taken?
• Can you give an example of how researchers may use primary and secondary data?
• Are there specific courses I should take if I’m interested in the data side of marketing?
6.11: Marketing Plan Exercise
Complete the following information about the company and products/services you chose to focus on for this marketing plan exercise. You may need to conduct research to gather necessary information.
Instructions: Using the Marketing Plan Template file you created from Marketing and Consumer Value and expanded upon in Strategic Planning in Marketing and Market Segmentation, Targeting, and Positioning, complete the following section of your marketing plan: Current Market Situation/Situation Analysis.
Once complete, submit the marketing plan to your instructor for grading and feedback. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.09%3A_Building_Your_Personal_Brand.txt |
Nordstrom
One day a customer walked into an upscale fashion retail store in Anchorage, Alaska, to return a set of tires. The store had a wide selection of shoes, clothes, and accessories, but no tires. However, the store that previously occupied the space did sell tires. After much discussion, a Nordstrom store manager made the return and accepted the tires. The story is legendary in customer service circles. It is also true.
A leading fashion retailer based in Seattle, Washington, Nordstrom prides itself on customer service and innovative methods of serving the customer. Founded in 1901, the company now operates 358 retail stores in the United States and Canada as well as online retail.30
Nordstrom has long been famous for its customer-centric mindset. The “Nordstrom way” has always been about serving customers according to their needs and making them feel good about the shopping experience. Part of the experience is focused on ease, selection, and convenience.
In 2020, Nordstrom saw tremendous growth in online sales. By integrating online and in-store sales, the company realized that 50 percent of customers who buy in store at Nordstrom have first had a digital experience with the retailer. Identifying trends between in-store sales and online sales has assisted Nordstrom in formulating a more customer-centric strategy.31
To better serve customers and increase sales, Nordstrom sales associates are key. Sales associates develop connections with the customer. With good questions and involvement in the customer experience, the sales associates determine consumer needs and wants. Understanding consumer needs and wants leads Nordstrom to craft an experience unparalleled in retail.32
Through careful study of the customer and the analytics available in online and in-person shopping patterns, Nordstrom has developed a more robust system that allows for seamless coordination between all Nordstrom properties. In developing a better customer experience, Nordstrom worked to really understand how customers live and behave.
From customer interactions, observation, online data, and careful marketing research, Nordstrom Local emerged. One key piece of information was that 35 percent of customers who place an online order first visited a store to help guide the purchase decision.33 With Los Angeles and New York as the top markets, Nordstrom needed methods to connect with and help ease the purchase process for its customers in these locations.
One significant aspect of the purchase process was to make online ordering easier, allowing for quick in-store pickups and returns while also including a method of getting alterations when and where it was most convenient. The creation of Nordstrom Local was the answer. Through a Nordstrom Local, available in the top markets, the customer could get the Nordstrom experience—closer to home.
Nordstrom realized the more channels a customer could use, the more they would spend with the retailer. In fact, soon after opening Nordstrom Local, the company was able to determine that customers using the new locations spend 2.5 times the amount of all other customers. So how could the company better serve those customers and make transactions more profitable?
Part of the Nordstrom plan to connect the customer more fully with the “experience” included the ability to easily order online and pick up in-store—using Nordstrom Local made that possibility easier to achieve. Nordstrom Local also included tailors available at pickup, the exclusive Nordstrom Stylist who would travel to all stores within a local market area, easy returns and exchanges, and finally, Certified Gift-Wrapping Specialists to make special packages look styled for whatever the occasion.
Consumer insights help Nordstrom to provide curated merchandise for each store. When shopping at Nordstrom, you will find merchandise specific to the region and store location. Pop-up shops are a regular feature at Nordstrom. The pop-up allows for a preview of potential merchandise to meet the needs of the local market. A well-rounded plan to connect at every point of contact has allowed Nordstrom to create an experience unrivaled in the industry.
Case Questions
1 .
Nordstrom is legendary for providing the best customer experience. What are some of the ways Nordstrom has gathered marketing research from the consumer?
2 .
When Nordstrom analyzes the data found in its online sales platforms, what type of marketing research is it using?
3 .
In what ways has Nordstrom used data to enhance the customer experience?
4 .
Nordstrom realized a connection between online shopping and in-store shopping. It developed methods to capture the online customer and increase in-store sales. In what ways was Nordstrom able to understand customer shopping behaviors?
6.13: References
1. “Girls Are Ready to Overcome Gender Norms but Society Continues to Enforce Biases That Hamper Their Creative Potential,” About Us, The LEGO Group, October 10, 2021, https://www.lego.com/en-us/aboutus/n...irls-campaign/.
2. “Definitions of Marketing,” American Marketing Association, last modified July 20, 2022, https://www.ama.org/the-definition-o...-is-marketing/.
3. Ibid.
4. Mary K. Pratt, “How Big Data Collection Works: Process, Challenges, Techniques,” Tech Accelerator, TechTarget, February 7, 2022, https://www.techtarget.com/searchdat...best-practices.
5. Ibid.
6. Rob Kitchin and Gavin McArdle, “What Makes Big Data, Big Data? Exploring the Ontological Characteristics of 26 Datasets,” Big Data & Society 3, no. 1 (January–June 2016), doi.org/10.1177/2053951716631130.
7. Raimo Streefkerk, “Qualitative vs. Quantitative Research,” Methodology, Scribbr, revised August 13, 2021, https://www.scribbr.com/methodology/...tive-research/.
8. “The 3 Types of Survey Research and When to Use Them,” SurveyMonkey, Momentive, last modified May 4, 2021, https://www.surveymonkey.com/mp/3-ty...rvey-research/.
9. Ibid.
10. Ken Anderson, “Ethnographic Research: A Key to Strategy,” Harvard Business Review, March 2009, 24, https://hbr.org/2009/03/ethnographic...ey-to-strategy.
11. “Data Collection Methods: Definition, Examples and Sources,” Online Survey Software and Data Intelligence Blog, QuestionPro, last modified July 21, 2022, https://www.questionpro.com/blog/dat...ction-methods/.
12. “Restrictions on Telemarketing, Telephone Solicitation, and Facsimile Advertising,” 47 C.F.R. 64.1200, 2021 comp., p. 486, sec. (c)(1), https://www.govinfo.gov/content/pkg/...sec64-1200.pdf.
13. Pritha Bhandari, “A Step-by-Step Guide to Data Collection,” Methodology, Scribbr, revised August 13, 2021, https://www.scribbr.com/methodology/data-collection/.
14. Statistics.com, Glossary, s.v. “Median,” accessed November 21, 2021, https://www.statistics.com/glossary/median/.
15. “Albuquerque City, New Mexico,” QuickFacts, United States Census Bureau, accessed November 23, 2021, https://www.census.gov/quickfacts/fa...xico/PST040219.
16. Statistics.com, Glossary, s.v. “Mode,” accessed November 21, 2021, https://www.statistics.com/glossary/mode/; Statistics.com, Glossary, s.v. “Frequency Distribution,” accessed November 21, 2021, https://www.statistics.com/glossary/...-distribution/.
17. “Unaided vs. Aided Brand Awareness Survey Questions: What Do They Tell You?,” SurveyMonkey, Momentive, last modified April 9, 2021, https://www.surveymonkey.com/mp/unai...vey-questions/.
18. “What Is CSAT and How Do You Measure It?,” Experience Management, Qualtrics, last modified August 10, 2022, https://www.qualtrics.com/experience.../what-is-csat/.
19. Dom Nicastro, “What Is Customer Satisfaction Score (CSAT)?,” CMSWire, Simpler Media Group, September 20, 2021, https://www.cmswire.com/customer-exp...on-score-csat/.
20. “Customer Effort Score (CES): Examples, Definition, and Calculations,” Online Survey Software and Data Intelligence Blog, QuestionPro, last modified December 16, 2021, https://www.questionpro.com/blog/cus...-effort-score/.
21. “IA Code of Standards & Ethics,” (2021). Insights Association, November 2021, https://www.insightsassociation.org/...s-of-Standards.
22. Terry Masters, “Ethical Considerations of Marketing Research,” Chron.com, Hearst, March 1, 2019, https://smallbusiness.chron.com/ethi...rch-43621.html.
23. Insights Association, “IA Code.”
24. Masters, “Ethical Considerations.”
25. DuckDuckGo (website), accessed November 20, 2021, https://duckduckgo.com/.
26. Lydia Saad, “Military Brass, Judges among Professions at New Image Lows,” News, Gallup, January 12, 2022, https://news.gallup.com/poll/388649/...mage-lows.aspx.
27. Ghassan Khoury and Maria Semykoz, “The New Frontier of Business Ethics,” Workplace, Gallup, February 6, 2019, https://www.gallup.com/workplace/246...ss-ethics.aspx.
28. “About,” Gallup, last modified June 1, 2022, https://www.gallup.com/corporate/212...ho-we-are.aspx.
29. Ibid.
30. Ken Worzel, “Market Strategy: Q&A with Ken Worzel,” Press Releases, Nordstrom, accessed March 30, 2022, https://press.nordstrom.com/news-rel...-qa-ken-worzel.
31. “Nordstrom to Host Virtual Investor Event on February 4,” Press Releases, Nordstrom, January 21, 2021, https://press.nordstrom.com/news-rel...ent-february-4.
32. “Celebrating Our 120th Anniversary with WWD and Footwear News,” Press Releases, Nordstrom, accessed June 11, 2022, https://press.nordstrom.com/news-rel...-footwear-news.
33. Christian Conte, “Nordstrom Customer Service Tales Not Just Legend,” Jacksonville Business Journal, September 7, 2012, https://www.bizjournals.com/jacksonv...-customer.html. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/06%3A_Marketing_Research_and_Market_Intelligence/6.12%3A_Closing_Company_Case.txt |
Starbucks is no stranger to the global marketplace. In 2020, the Seattle-based coffee company had over 30,000 stores in 80 countries.1 Each fall, Starbucks’s United States–based fans anticipate the release of the Pumpkin Spice Latte (or PSL, as it has come to be known). But what about other countries?
In 2021, the Starbucks Pumpkin Spice Latte was made available in stores across Europe, the Middle East, and Africa.2 But the advertisements and the specific Pumpkin Spice Latte formula were modified from what you see in the United States because they were specifically crafted for each of the company’s global markets. For example, in Portugal, the iced version of the Pumpkin Spice Latte is more popular, so it is marketed more heavily than the hot latte.3
Starbucks has seen its share of failures when expanding into global markets. In 2000, the company opened its first coffee shop in Australia. However, the company failed to allow the Australians to “develop an appetite for the Starbucks brand.”4 Asking locals to pay a premium for a brand that wasn’t already ingrained in their culture didn’t go over well. In the first seven years, the company reported losses of over \$105 million and closures of 61 Australian stores.5 Since then, Starbucks has changed its marketing strategy in Australia to focus on tourists rather than locals, and the result has been slower than desired.
The company has learned from its failures and successes across the globe. For example, in 2018, Starbucks opened its Starbucks Reserve Roastery in Milan, Italy. You might be surprised when visiting the Roastery as you can’t order a Frappuccino, but instead, you can order wood-fired pizza and cocktails. The company promotes its Milan location as a cup of coffee and an experience. “Milan Roastery is the crown jewel of Starbucks global retail footprint—a place where Italian customers can come to discover the art and science of coffee in a breath-taking environment.”6
Global markets vary by many factors. Look at our coffee example. Something as seemingly basic as coffee is perceived very differently across the globe, and marketers must be keenly aware of how to appeal to each market.
7.01: The Global Market and Advantages of International Trade
Learning Objectives
By the end of this section, you will be able to:
• Define global market opportunities.
• Explain why international trade is advantageous to business.
• Discuss the challenges of international trade.
Global Market Opportunities Defined
For some, the thought of expanding business operations into the global market is new, exciting, and fun. For others, it may seem daunting or impossible. At some point, most if not all companies will decide if and how they will expand into global markets based on global market opportunities. Global market opportunities simply refer to conditions that are favorable for a company to expand outside its home country market. These conditions include internal factors, such as the company’s ability and knowledge, as well as external factors, such as market growth, customer demand, and regulations or trade barriers within the industry.
Many companies have a presence in the global marketplace at some level. Consider a small Etsy shop that sells custom-printed T-shirts. While the T-shirts may be printed in the United States (maybe even in someone’s garage), the T-shirts may be purchased in foreign markets, such as China. While Etsy is a small-scale example, larger companies may have a greater presence in the global marketplace. Consider that Nike, founded in 1964, now sells its products in 170 countries that serve more than 30 major sports and consumer lifestyles.7 While there are considerable risks to entering global markets, there are numerous advantages as well.
Advantages to International Trade
There are several advantages to international trade, including increased revenues, decreased competition, faster growth, diversification of risk, and the ability to more easily find buyers of excess inventory. Let’s look at each of these in more detail.
Increased Revenues
One of the most obvious advantages to international trade is an increase in revenue. Recall that revenue is the money earned from business operations, so the more countries in which a product or service is available, the more revenue will be generated.
Decreased Competition
A US-based company may have a great deal of competition. Consider the automobile industry. In the United States, most households own at least one vehicle. Competition in this industry is rather fierce, and it would be difficult for a new company to enter the market. However, in developing countries where automobiles are not as prevalent or infrastructure is still in development, competition for automobile buyers could be much lower.
Alternatively, fiercer automobile competition in some countries may force competitors to leave the market or choose not to enter at all. China is the world’s largest vehicle market in terms of both sales and manufacturing output.8 As such, carmakers around the world continue to vie for the Chinese automobile market share. However, the market is mainly dominated by its domestic automakers, making international competition difficult.9
For example, the Hongguang Mini EV, a battery electric microcar manufactured by China-based SAIC-GM-Wuling, has been a top EV seller since 2020.10 In an effort to take market share, Ford has set the “groundwork to accelerate a refresh of the company’s product portfolio in China by launching three new vehicles offered only in China.”11
Faster Growth
For companies with a growth strategy, international expansion may be a viable option to achieve these goals. This is particularly true when the home country’s market is saturated or experiencing slow or no growth. A market becomes saturated when there is enough capacity in the industry to meet all of consumer demand or when consumer demand begins to decrease. Either instance may make the international market an attractive opportunity for a business.
In addition to the growth of the company, as firms decide to expand into global markets, the international market will also experience growth. For example, when Amazon expanded its global operations to include a fulfillment center in Poland, the company had to hire employees to fulfill those orders. As of 2022, the Poland fulfillment center employed 25,000 people.12 These individuals use their paychecks to purchase goods and services within their economy, causing the economy to grow. As new companies enter these markets, individuals are given the opportunity to consume a wider selection of goods and services and to move into higher standards of living.
Diversification of Risk
Risk refers to any situation or condition that leads a company to decreased profits or even failure.13 Have you ever heard the saying “Don’t put all your eggs in one basket”? It refers to putting all of your effort in one area and risking great loss. It’s a reminder of how international expansion can help diversify business risk. Rather than focusing on one product or one market, companies are able to spread their risk across various markets. Additionally, while one country may be experiencing a recession and causing sales for a company to decline, another country may be experiencing a boom, which would likely result in an increase in sales for that same company. With operations in multiple countries, a company can potentially balance the up and down markets. A downturn in one or a few markets will not cause the company to fail completely because the demand in other markets may be growing.
Disposal of Surplus Goods
A final major advantage to international trade is the ability to dispose of surplus goods. For example, prior to each Super Bowl, the NFL makes clothing for both teams that states each is the winner so that supply is available immediately after the game. However, only the winning team’s clothing is sold after the game. Rather than the losing team’s clothing going to the landfills, it is donated to other countries, decreasing the waste of the unsold product.14 Do not confuse the disposal of surplus goods with the concept of dumping, an illegal practice that will be discussed later in the chapter.
Challenges to International Trade
While there are numerous advantages to international trade, there are also challenges. Those challenges are discussed in more detail in the following sections.
Understanding the Business Environment
Regardless of where a business is located, its success depends largely on management’s understanding of the business landscape. The business landscape refers to all internal and external factors of the business, its industry, and its environment. Companies that intend to expand internationally often make the grave mistake of assuming the landscape of a new market is the same of that in the home country, a concept known as ethnocentrism. In most instances, this causes companies to stumble or even fail. Understanding the nuances, expectations, and regulations in international markets is one element that drives success.
Understanding the Target Country’s Business Politics
Politics, laws, and industry relationships shape the environment of businesses both locally and abroad. The way business is conducted varies greatly from country to country, and businesspeople must not only be aware of these differences but must also have the ability to adapt to the local business politics.
Differences in Regulations and Marketing
Remember, there is no one-size-fits-all marketing campaign. You can imagine how this notion is amplified when thinking about marketing in various countries. Marketers must be in tune with their target markets to succeed. Additionally, marketing is perceived differently in various cultures, and it is important to understand how cultural differences influence consumer behavior.
For example, in the United States, it is not uncommon to see a plethora of advertisements for prescription medications targeting the general public. Most other countries do not regularly advertise prescriptions to the public but rather to the doctors prescribing those medications. In fact, the United States and New Zealand are the only countries where this type of marketing is allowed.15 Each international market requires marketers to adapt or create new marketing strategies, which can vary considerably with each of the marketing mix elements—product, price, place, and promotion.
Cultural Differences
Local culture has an impact on marketing campaigns. It’s common for marketers and other businesspeople to find it challenging to understand the differences between their own culture and the target market. Cultural sensitivity can help to alleviate these challenges when preparing marketing campaigns for other countries and cultures. Cultural sensitivity is the awareness and appreciation of and the ability to adapt to a cultural, ethnic, racial, or other group other than one’s own.16 By increasing cultural sensitivity, marketers can better create marketing campaigns that truly encompass the target market.
Two examples of companies not readily prepared come from Nivea and Gucci. In 2017, Nivea launched a social media campaigned stating “White Is Purity.” The phrase was perceived by the public as being racially insensitive. To make matters worse, the slogan was then used by white supremacists in their propaganda.17 While the company apologized and removed the campaign, these marketers should never have let the campaign leave the idea room. In 2019, luxury fashion designer Gucci introduced a balaclava knit jumper that had material that went up and around the mouth. The advertisement for this clothing featured a White woman modeling the sweater with bright red lipstick. Many critics noted its similarity to blackface. The company immediately pulled the \$890 sweater from stores.18
Link to Learning: Gucci
Read more about the balaclava polo jumper from Italian designer Gucci, the public commentary, and Gucci’s official response. Also check out the details behind the Nivea “White Is Purity” ad and the uproar from consumers.
Cultural differences are an important factor in the marketing of a product, but these differences are also critical with business practices. Suppose you are meeting with a business partner in another country. Do you know if there is a gift-giving expectation? You may be aware that there are ethical concerns and sometimes prohibitions with gift giving in the United States, but in other countries it would be unprofessional to attend a meeting without a gift. For example, in Japan, it is customary to bring a small gift with an initial sales call.19 In the United States, some companies won’t allow employees to accept gifts.
Using another US example, it is not unusual to “get right down to business” when meeting with others. Conversely, it may take several meetings of developing rapport with Japanese businesspeople before business is ever discussed. In addition, it’s commonplace in Japan for people to not shake hands (see Figure 7.2) but rather bow to one another.20
Link to Learning: Cultural Sensitivity
There are many ways you can begin to be more culturally sensitive. The first step is awareness. Read this short article on five ways to improve your cultural awareness. Also check out this video to learn how to develop cultural competency as a skill.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
When conditions are favorable for a company to expand globally, the company is experiencing ________.
1. global market opportunities
2. international trade
3. growth
4. increased sales
2.
Which of the following is NOT an advantage of international trade?
1. Increased sales
2. Growth
3. Cultural barriers
4. Diversification of risk
3.
Being aware of and appreciating variations in culture is known as ________.
1. cultural sensitivity
2. cultural barriers
3. cultural differences
4. marketing regulations
4.
Ashia is planning a business dinner with her new clients in Chile. She has never visited Chile before and is not familiar with their customs. Which of the following would you NOT advise Ashia to do?
1. Tell Ashia she should consider talking with a colleague who has traveled to Chile before.
2. Tell Ashia to study some of the most important Chilean customs so as not to embarrass herself or offend her dinner guest.
3. Tell Ashia that if she is in doubt, she should follow her dinner guests’ lead on what is appropriate.
4. Tell Ashia not to worry about it because the Chilean businesspeople should adapt to her customs because her customs are the best ones to follow.
5.
Which of the following is true regarding business politics?
1. They do not vary from culture to culture.
2. Business politics can vary greatly across cultures, and businesspeople should decide what is within their own ethical compass before deciding to conduct international business.
3. Business ethics are the same across every culture.
4. When conducting business in a foreign market, you should always do what is asked of you, even if it’s unethical or illegal in your home country. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify the different ways marketers can assess opportunity in global markets.
• Discuss effective methods of analyzing global opportunities.
Internal Assessment for Global Readiness
According to Douglas Quackenbos and his coauthors in their Harvard Business Review article “Does Your Company Have What It Takes to Go Global,” “external factors only set the stage for an international opportunity.”21 In other words, even though a global market may represent an opportunity for the company, the organization also must be prepared internally to expand. The factors external to the organization—a country’s economy, for example—is only half of the equation. Company leaders must do a thorough internal assessment of their organization to determine if it has what it will take to expand globally. Managers and marketers who will be working directly in the international market should have fully assessed the other countries’ regulations, business landscape, and cultural differences, for example.
Harvard Business Review has a published list of the seven common characteristics found with companies that have been successful in international expansion.22 The list includes attitude, aptitude, magnitude, latitude, rectitude, exactitude, and fortitude, each of which is defined in Table 7.1.
Characteristic Definition
Attitude Global expansion is a priority.
Aptitude The company has the knowledge and skills to expand.
Magnitude The scope of expansion is aligned with capabilities.
Latitude The company has the ability to adapt.
Rectitude The company has the legal and ethical flexibility to adapt to foreign markets.
Exactitude Corporate culture aligns with flexibility and ambiguity of expansion.
Fortitude There is a commitment to long-term expansion despite setbacks.
Table 7.1 Seven Characteristics of Firms That Win Globally
Economic Infrastructure
Economic infrastructure refers to the facilities of an economy that benefit the production and distribution of goods and services.23 Infrastructure includes anything that would be required to produce and/or transport goods and services—for example, roads, railways, and high-speed Internet. Imagine that you are starting a lemon tree farm. You would not plan your farm in Michigan, where the temperatures often fall below freezing, because that would wipe out your lemon crops. Or imagine starting an online company where you sell art, but you live in a location where your Internet access is spotty and unreliable. Infrastructure considerations are critical in business needs evaluation.
Consumer Income and Purchasing Power
There are three types of income for you to be aware of:
• Consumer income, the amount of money a household or individual earns. Consumer income is often defined as the amount of money a household has to spend.
• Disposable income, the income available after taxes are paid.
• Discretionary income, the money available once consumers have paid taxes and living expenses such as, rent, food, heat, groceries, etc. This income is the predominant type of income that interests marketers because it’s the money consumers typically have the most flexibility with.
Marketers evaluate discretionary and disposable income differently. It depends on the type of product or service they offer. For example, consider the impact of inflation. With inflation, the cost of goods and services increases but individual income does not also increase, meaning things cost more but there isn’t additional income to cover the additional cost. When this happens, consumers purchase fewer items and prioritize their spending differently because with the increase in the cost of necessities, there is less discretionary income to spend. As a result, consumers will cut back on nonessential items. Due to this, marketers of luxury goods are concerned with discretionary income, while marketers of packaged consumer goods are concerned with disposable income.
Companies are also impacted by inflation. Just as it costs consumers more to purchase the same goods and services during inflation, inflation will increase the cost of production for companies to create the same number of products. Companies have various tactics on addressing environmental influences like inflation. One way in which companies of consumer-packaged goods avoid increasing prices during inflation is to decrease the size of products while not increasing the price, a practice known as shrinkflation. For example, Procter & Gamble’s Charmin ultra-soft toilet paper 18-count mega package was decreased in 2022 from 264 double-ply sheets per roll to 244 two-ply sheets, yet the price either remained the same or was slightly increased.24 Often with shrinkflation, consumers don’t notice that a package is smaller, and they focus on their ability to get as much as they can for the price.
Purchasing Power
Purchasing power is defined as how many goods can be purchased with one unit of currency. As you can imagine, purchasing power varies greatly across the globe and is of great importance when deciding whether to expand into foreign markets. For example, in a country where consumers have very little income and poor purchasing power, it would be difficult to sell expensive, nonessential goods. Consumers simply would not have the money to purchase them.
Currency Exchange Rates
Marketers and other business executives must understand foreign exchange rates and how fluctuations can affect marketing strategies.25 An exchange rate is the rate at which one country’s currency can be exchanged for that of another country. Because currency exchange rates fluctuate daily, the prices of goods and services in global markets will also fluctuate.26 In turn, fluctuations in prices of goods and services will have an impact on the purchasing power of consumers and even larger effects on economic indicators such as jobs and inflation.
Suppose that in 1997, your US-based family imported British pantry items from the UK in order to create and export its own brand of barbecue sauce for sale in the UK. In 1997, it took \$1.64 to buy 1 British pound (£).27 So, \$1.00 was worth £0.61 in British currency (1/1.6).28 In this situation, the dollar is relatively weak compared to the British pound. One British pound would go a long way toward paying for that barbecue sauce.
Fast-forward 25 years. For the majority of 2021, it only took \$1.37 to buy £1.00. So, \$1.00 would buy £0.73 worth of British goods in 2021 (1/1.37). As you can see, the dollar had strengthened relative to the pound (which is the same as saying the pound had weakened relative to the dollar). This means that, by 2021, your dollar would buy more in terms of paying for British imports; conversely, consumers in the UK would have to pay more for your barbecue sauce!
Link to Learning: Exchange Rates
Exchange-Rates.org is a great resource for comparing exchange rates between hundreds of countries. Try it out by indicating countries in the From and To fields and check out the currency value between countries.
Analyzing Governmental Actions
Just as every economy in the world operates differently, so does each country’s government. Businesses are greatly influenced by politics in every country (some more than others). Therefore, understanding how governmental actions impact the ability to be successful in a global market is imperative.
Political Stability
A country’s political stability can impact nearly every facet of the country. Most notably, political stability has been linked to economic conditions in various countries. When there is increased political stability, the country’s economy tends to stabilize or grow.29 This is of keen interest to marketers as they consider new foreign markets to enter. As a country’s stability increases, the opportunities to gain early entry into these markets grows. Conversely, many companies choose to avoid entering markets that lack political stability, not only because of the shaky economy but also because of potential changes in leadership, laws, and regulations.
Consider Russia’s invasion of Ukraine in early 2022. In response, many companies pulled their operations out of Russia in a show of support for Ukraine. McDonald’s, which opened its first Russian location in 1990, was one of the first global companies to cease operations there. The company stated that the activities of the Putin government were not consistent with McDonald’s values, but also that the turbulent operating environment made it untenable to continue operations there.30
Trade Regulations
In an effort to promote (or inhibit) trade with other countries, governments often have some level of trade regulations. These regulations can be within industries or with specific nations or groups of nations. The common trade regulations surrounding imports and exports around the world include tariffs, quotas, trade blocs, and embargoes. Additionally, countries have specific regulations for foreign companies hoping to establish business within their markets.
Tariffs are taxes that governments impose on imports coming into the country. Tariffs can be imposed as a percentage (most common) or dollar amount. Tariffs are generally used by governments to bring more money into a country. Japan, for example, has one of the lowest tariffs in the world at 2.5 percent for nonagricultural products.31 Conversely, the East African nation of Seychelles once had a much higher tariff rate, averaging well over 50 percent prior to joining the World Trade Organization (WTO) in 2015.32 After joining the WTO, tariffs were reduced to under 25 percent.33
Quotas are maximum allowable units to be imported into or exported out of a specific country. Quotas are often used by a country to protect a domestic industry. For example, if the US government limited the number of Japanese automobiles to 2 million imports per year, this would cause lower sales of imported vehicles and, in turn, higher sales of domestically produced vehicles.34
Embargoes are bans on trading a product with a specific country and are imposed between countries that have different political ideologies. The United States, for example, has embargoes against Cuba, Iran, North Korea, and Syria that prohibit all transactions with these countries without a license.35
Trade blocs are intergovernmental agreements that remove barriers of trade within regions of the world. There are currently 10 major trade blocs in the world.36 The United States-Mexico-Canada Agreement (USMCA) and the EU27 are two prominent examples. The USMCA allows free trade among Canada, the United States, and Mexico.
There are a variety of examples of the sorts of approaches countries will take with trade regulations. For example, companies may impose strict laws and regulations on who can own the factors of production. In some instances, there are issues with corrupt governments requiring bribes and kickbacks.
Transparency International publishes an annual survey called the Corruption Perceptions Index (CPI). Marketers use this survey for insights into country dynamics and can evaluate market viability of their product or service offering. This guide helps company leadership determine how much work they may have in understanding a country’s way of operating and what kind of work it would take to make their product or service successful.
Link to Learning: CPI
The Corruption Perceptions Index (CPI) is an interesting and interactive tool where you can select specific countries to find their CPI rating. One hundred eighty countries are each rated on a scale of 0 to 100, where 100 indicates very clean and 0 means highly corrupt. Interact with the index here and learn more about the CPI rating scale and assessment by watching this video.
If you’d like to learn more about the Transparency International organization and its work, check out this brief summary of its 2021 annual report.
Analyzing Sociocultural Factors
While the economic and political factors of a foreign market will determine a firm’s ability to enter a market, the sociocultural factors may be most important in determining whether goods and services will be successful in a market. Sociocultural factors include values, behaviors, culture, lifestyle, and language that shape a person’s or group’s way of living. As you can imagine, there are hundreds of cultures around the world, and every culture within a country has its own nuances, preferences, and even ways of conducting business. Marketers who want enter foreign markets must have a deep understanding of these factors to establish effective marketing strategies.
Lifestyles
The way a person or group lives is known as their lifestyle. Each person has their own unique lifestyle, while cultures and families share similar traits within their collective lifestyles. Marketers must get to know their consumers to understand their buying behavior and how their lifestyles affect it.
In 2009, toy manufacturer Mattel Inc. opened a huge, three-story, Barbie-inspired flagship store in Shanghai, China. What marketers failed to do before making this market-entry decision was to study the lifestyles of Chinese consumers. In China, the culture stresses educational toys and playtime that builds skills; Barbie was neither of those. The store closed after only two years.37
Marketers must also be careful to avoid stereotypes of other cultures and countries. Stereotypes are oversimplified perceptions, images, or ideas of a person or groups.38 While they can be negative or positive, they are overgeneralized perceptions about an entire group or people. Companies sometimes learn the hard way to avoid stereotypes.
For example, in 2014, Delta Air Lines, a major US passenger airline carrier (see Figure 7.3), made a big stereotype blunder with its social media marketing. The company sent out a congratulatory tweet to the US team for its win over the Ghanaian team in the World Cup in which it used a photo of a giraffe to represent Ghana.39 Unfortunately, Delta marketers failed to realize that there is not one wild giraffe in Ghana; this is a frequent stereotype about the entire continent of Africa. In fact, there are over 50 countries in Africa, but only around 20 have naturally wild giraffes.40 The Twitter market caught on to this error quickly and proceeded to tease Delta for its stereotype mistake.
Law and Politics
Laws and politics have a large impact on a country’s economy and, in turn, how products will (or even can) be marketed. Political and legal decisions made within a country’s system surrounding tariffs, labor laws, the environment, and even an expectation of bribery can impact a business’s decisions. Even politics between two countries can have a big impact on decisions made by marketers.
In 2019, President Donald Trump increased the tariffs on Chinese goods to 25 percent. Several companies subsequently opted to pull their production facilities out of China. For example, Apple and Dell moved some of their production to Vietnam and other parts of Asia to avoid these tariffs.41
Education
Education impacts a consumer’s product and service choices. Generally speaking, the more educated an individual is, the more discretion they use when purchasing products.42 In other words, that person will spend more time researching various products before deciding which to purchase. Levels of education also effect an individual’s choices in magazines, television shows, and other entertainment.43 Therefore, platforms, messages, and even specific words marketers choose for the promotion mix will depend on the level of education that the target market holds. Is the market tech savvy? If not, using technical words and messages may confuse a consumer who doesn’t understand the message.
Technology
The availability of technology within an international market will have several impacts on marketing efforts. First, the ability for consumers to access and use technology will directly impact the goods and services that are being marketed. Second, the company’s access to technology to produce goods and services within the country will also be impacted.
For example, Uganda has the second-youngest population in the world.44 It is also ranks among the poorest countries in the world.45 Because of this, someone may make the mistake of thinking that Uganda would not be a market to enter with technology, but this is far from true. While many citizens of Uganda live without electricity or running water, the country’s population of 45.74 million is estimated to own around 16 million cell phones, but only around 1 million homes have electric lights.46 Due to the young population seeking to be more connected with others, the people of Uganda prioritize and are heavily reliant on their cell phones (see Figure 7.4).
But if there is limited electricity, how do Ugandans charge their cell phones? It has certainly been a challenge for many who have to share solar power with neighbors or travel to a nearby village that has electricity. However, the use of portable charging solutions has become more widespread. One company, Charge Ko Technologies, has turned this into an opportunity and created various portable charging solutions, including solar backpacks and energy generation through bicycle usage.47 While some impoverished Ugandan consumers may not be able to afford these products, the company is hopeful that the wealthier will purchase enough to help bring the price down over time.
Conducting a Cross-Cultural Analysis
When the Walt Disney Company decided to open Disneyland Hong Kong in 2005, the company struggled to gain momentum with its Chinese target market. Among other blunders, such as its high admission price, the company assumed that its Chinese market would love the Disney brand as much as Americans do. The company failed to realize that, unlike Americans, the Chinese did not grow up with the Disney brands and characters. Imagine walking into a fantasy theme park with characters you had never heard of or seen before. Unlike Americans, the Chinese do not view Disney characters as cultural icons. The fantasy aspect of the brand and park was another issue Disney faced. Its closest competitor, Ocean Park, provided visitors with real animals, educational material, and thrilling rides. The Asian market, which values education, found Disney’s high ticket prices with little educational value to be wasteful when the park initially opened.48
Values
Cultural values are often unspoken. They include the aesthetics, socialization, and religious aspects woven throughout a culture. Consider the Disney example. Marketers stumbled with truly understanding the Chinese consumer culture when opening Disney Hong Kong by assuming that Chinese values were similar to those of Americans.
Customs and Cultural Symbols
Like other cultural values, customs are often unspoken. Customs consist of mannerisms or behaviors that are considered characteristics within a social system.49 For example, in Spain, the afternoon siesta is a cultural custom. The siesta is an afternoon nap taken after the midday meal. Businesses will close for extended lunch breaks to allow employees to take their afternoon siesta.50 If you are considering opening a business in Barcelona, you should expect to do the same!
Cultural symbols are physical representations of a culture’s language, values, and traditions. They include items such as flags, gestures, holiday decorations, and many others. For example, in China, the national animal is the giant panda, and it has significant cultural importance as a symbol.51 Similarly, the maple leaf is symbolic of Canada52 (see Figure 7.5).
Language, Idioms, and Nuances
It may seem obvious, but even language differences play a large role in the marketer’s job as products and services are rolled out in international markets. Brands and product names may have one meaning in the home country and a completely different meaning in another language. For example, Nestlé had problems when rolling out its Gerber baby food in France because “Gerber” translates to “puke” in French. For obvious reasons, this didn’t appeal to French parents choosing food for their infants.53
Nuances are words, phrases, or beliefs that vary slightly from one culture to another and can cause miscommunication in translation. For example, UK citizens use the word “jelly” to describe what people in the United States would call “Jell-O,” and they use the word “biscuit” for “cookie.”54
Idioms are phrases used in a culture that mean something completely different. For example, if you hear someone say “break a leg” in the United States, it would mean “good luck.” However, using this idiom in another culture may leave the other person quite confused or even offended, thinking it was meant literally to go break their leg.55 In Spanish-speaking cultures, the popular idiom “a lot of noise and no walnuts (mucho ruido y pocas nueces)” means “all talk and no action,” but it would have no meaning in the United States.56
However, even idioms can become problematic within and across languages and cultures. In 2022, Lizzo, a world-renowned pop star, issued an apology and a rerelease of a song because she had used a culturally insensitive word that she was unaware of at the time of recording.57
Careers In Marketing: Global Marketing Manager
With the increase in companies doing business internationally, global marketing managers’ job roles are becoming more important. Global marketing managers work to understand what international markets need, the competition, rules and regulations, and local cultures and values. They then use this information to develop global marketing strategies that appeal to the local market. Learn more about this role from these sources:
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
During the Russian invasion of Ukraine in 2022, the Russian ruble’s value decreased to less than one United States penny. This conversion from ruble to dollar is known as the ________.
1. exchange rate
2. business landscape
3. purchasing power
4. consumer income
2.
Generally speaking, when a country’s political stability improves, so does its ________.
1. international business
2. purchasing power
3. economy
4. consumer income
3.
The assumption that all Chinese individuals are extremely gifted in mathematics is known as a ________.
1. stereotype
2. lifestyle
3. culture
4. sociocultural factor
4.
During the Russian invasion of Ukraine in 2022, United States President Joe Biden halted all imports of Russian oil. This action is known as a(n) ________.
1. tariff
2. quota
3. trade bloc
4. embargo
5.
The United States, Canada, and Mexico are part of a trade bloc known as ________.
1. ASEAN
2. USMCA
3. tariffs
4. embargoes | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.02%3A__Assessment_of_Global_Markets_for_Opportunities.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the strategies used in global competition.
• Discuss the different forms of global competition.
Ways in Which an Organization Can Enter the Global Arena
After a company has decided to enter the global marketplace, managers must determine which method of international involvement is best for the company’s strategic goals. These methods include exporting, franchising, licensing, joint ventures, strategic alliances, and direct foreign investment (see Figure 7.6). Each method represents a different level of involvement. Let’s look at each of these in more detail.
Exporting
The most basic and least involved method to enter global markets is through exporting. Exporting is when a company makes a product or service in one country and sells it in others. Many companies choose this method of entry into global markets because it requires the least amount of m risk and allows the firm’s managers to learn the ins and outs of international business. For example, in the UK’s East Midlands, the county of Northampton is home to Alfred Sargent & Sons, Church’s, John Lobb, and other shoemakers. An increased emphasis on exporting allowed these dying businesses to see new life because people in other countries wanted a piece of traditional “English cobbling.”58
Franchising
Franchising is a business strategy in which the owner (the franchisor) allows another person or entity (the franchisee) to operate a business using the franchisor’s products, branding, and knowledge in exchange for a fee.59 Over 90 percent of the McDonald’s around the world are franchises owned by independent local businesspeople.60 The cost to franchise a business varies. A person interested in opening a McDonald’s franchise will need \$500,000 in liquid assets and \$45,000 for a franchise fee and should expect to spend between \$1.3 million and \$2.3 million over time.61 On the other hand, franchising the exercise brand Jazzercise requires a one-time initial fee of \$1,250 and liability insurance.62
Franchising rules and commitment vary by company for both home-based and international markets.
Licensing
Licensing is a contract in which one organization permits another to use its name, brand, or trademark on its own items. While licensing and franchising might seem similar, franchising involves all business operations, whereas licensing applies to a specific aspect (usually trademarked) of the business.63 Licensing agreements allow the company to enter other markets without as high of a financial risk. However, with little business involvement in licensing by the licensee (the company licensing its brand), strong business relationships are critical in order to reduce the risk of the licensor damaging the brand’s reputation. With licensing, the licensee loses brand control. Licensing is common in the fashion industry, where well-known apparel brands such as Armani license their names to companies that make eyeglass frames, fragrances, and watches.
Joint Venture
A joint venture is a business arrangement whereby two or more companies create one single enterprise or project. The joint venture can last for any length of time but typically is not permanent. The advantage of a joint venture is that the two companies share all the risks associated with the venture.64 In 2012, Kellogg’s and Wilmar International Limited announced a joint venture. Kellogg’s wanted to expand its presence in the Chinese market. Creating a joint venture with Wilmar International provided the company with an extensive distribution network. Both companies benefited from this venture: Wilmar International through its financial incentives and Kellogg’s with a way to penetrate the market.65
Strategic Alliance
A strategic alliance occurs when two companies from different countries agree to invest resources in a mutually beneficial way. For example, Microsoft relies heavily on alliances when entering new markets as a way to optimize the knowledge and market identification of local companies. Uber and Spotify entered into a strategic alliance to allow Uber riders to connect to their Spotify account and stream music while catching a ride.66
Direct Foreign Investment
The most involved and riskiest way for a business to get involved in the international arena is through direct foreign investment. Foreign direct investment (FDI) involves establishing operations within a foreign country. Consider automobile manufacturers. Nearly all producers have made significant investments in manufacturing outside of their home countries. For example, Tesla invested in a Shanghai factory to produce electric vehicles (EVs), and in 2022, the company announced it is “taking steps to ramp up output in order to double its original planned annual target to 1 million cars.”67
Forms of Global Competition
Global competition can come from international firms, multinational firms, and transnational firms. Let’s look at each to better understand their impact.
Any firm that operates on a global level is classified as an international firm regardless of the intensity of the involvement. International firms can further be classified as either multinational firms or transnational firms. Often, this classification depends on the business structure and products or services offered.
The most common characteristic of a multinational firm is its centralized business structure. Consider Amazon, whose headquarters are located in Seattle, Washington.68 Amazon operates in over 50 countries across the globe.69 However, the majority of all major decisions are made at its headquarters, making it a multinational firm.
Let’s look at McDonald’s again. The company’s franchise strategy relies heavily on the brand name and similar core menu items across the globe. However, the company also allows for local responsiveness by allowing local menu items to be included in the menu. For this reason, McDonald’s is often referred to as a transnational firm, one that allows for a higher degree of localization.70
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Janai is considering opening a McDonald’s in her home country of Nicaragua. Which type of market entry strategy would she use?
1. Franchise
2. Joint venture
3. Strategic alliance
4. Exporting
2.
Imagine you are interested in entering the global marketplace. Which would be the easiest way for you to begin?
1. Franchising
2. Strategic alliance
3. Exporting
4. Joint venture
3.
Ryana owns a T-shirt company in Japan. With her T-shirts, she applies Disney characters and pays Disney royalties based on each shirt sold and an agreement the two companies entered into. Which of the following is Ryana most likely involved in?
1. Licensing
2. Unethical behavior
3. Trademark fraud
4. Franchising
4.
A company wants to expand into a particular global market, but local firms are better equipped to handle some business processes, such as logistics. Additionally, it is particularly difficult to enter this market. Which of the following would you recommend to the expanding company?
1. Franchising
2. Exporting
3. Licensing
4. Joint venture
5.
After being hired at ABC Corporation, you realize that all decisions for each facility in the world are made at the headquarters you work at in Pensacola, Florida. Which type of firm best describes the one you are working at?
1. Exporting firm
2. International firm
3. Transnational firm
4. Importing firm | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.03%3A__Entering_the_Global_Arena.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe how marketing strategies are adapted for a global marketplace.
• Summarize how global strategies affect the 4Ps of marketing.
Adapting Marketing Strategies for the Global Marketplace
Until this point, we’ve mostly been learning about the bigger-picture decisions that a company must make when deciding whether to enter the global marketplace. Once these company-wide decisions are made, marketing managers must determine the most effective way to market their products in the new markets. They must determine if completely new products or existing products will be offered in the new market. Additionally, they must determine if the other marketing mix variables must be adapted to the local market.
Standardized Global Marketing
A standardized global marketing strategy is one in which a company uses the same marketing strategy in all markets. Coca-Cola primarily uses a standardized marketing strategy in all markets. The brand, brand name, and iconic cursive writing in white on red background can be seen all over the world. The advantage that Coca-Cola has in this strategy is that the company can spread the cost of marketing over all the regions in which it operates.71
Adapted Global Marketing
Conversely, a company may not find success in a one-size-fits-all marketing strategy. In this case, the company may choose an adapted global marketing strategy, one in which marketing strategies differ among global markets. If a company chose an adapted global marketing strategy, there would be high marketing costs associated with each of the markets in which the company conducted business. Netflix, for example, offers different content (movies and shows) in each of its markets based on the customer demands in each country.72
The 4Ps of Marketing in a Global Environment
Now that the company has chosen either a standardized or adapted marketing strategy for its global operations, it’s time to consider each of the 4Ps of global marketing—product, price, place, and promotion.
Product
Companies entering new foreign markets have three choices surrounding the product. They include straight product extension, product adaptation, and product invention. Each has its own advantages and disadvantages and levels of risk. Let’s take a look:
• A straight product extension is a strategy that entails maintaining the same product for both home and foreign markets. As you can imagine, this is the easiest product strategy and has the same advantages as a standardized marketing strategy. Some products are globally known and need no modifications in order to sell them.
• Product adaptation is when companies modify products to align with the local culture. For example, Nike manufactures different styles of shoes based on the local culture’s preferences, such as the Nike Air Zoom, a high-intensity interval training (HIIT) shoe that was released in Australia.73 This particular shoe is not available in the United States and looks quite different than other performance shoes offered in the United States.74
• The most involved product strategy used in global marketing is that of product invention. Product invention consists of creating entirely new products for a global market. Consider the earlier example of the Ugandan market. Because less than half of the population has access to electricity, there is a potential for companies to invent new products, such as cooling systems, that do not require electricity.76
Link to Learning: 7-Eleven and Product Adaptation
There a numerous examples of product adaptation across markets. Check out this video on how 7-Eleven differs between American and Japanese markets.
Price
When pricing a product in a foreign market, there are other factors to evaluate in addition to home country considerations. Tariffs, the local economy, shipping, and other factors need to be considered because these will all have an impact on earnings and profit.
Do you know in which country it is the most expensive to purchase a car? You might be surprised to hear it is Singapore. The small island country doesn’t have a lot of room to accommodate everyone having an automobile, so the government has imposed high import taxes and yearly fees to keep the number of automobiles down.77
Place: Distribution Channels
When marketers are considering distribution channels in foreign markets, they may find themselves with limited options compared to their home country. In the United States, for example, most companies find themselves with many choices of wholesalers, retailers, and supply chains. However, in more remote areas of the world and developing countries, those options can be limited. Consider again our Uganda example. Most retailers, particularly outside the capital city of Kampala, are “mom-and-pop” stores. Additionally, there are few transportation routes, and the ones that do exist consist mostly of dirt roads and a few highways. Unlike the United States, it is rare to see tractor trailers (semis) carrying containers of goods from one location to another. Instead, taxis, motorbikes, and foot traffic are the main modes for product transportation.
It is imperative that marketers consider the whole channel when making distribution decisions. The whole channel refers to the design of the international channels that incorporates all members, including the manufacturing, retailer, and wholesaler sites as well as transportation.78
Have you seen the movie Captain Phillips starring Tom Hanks? The movie was loosely based on the true story of the Maersk Alabama container ship that was hijacked by Somali pirates off the coast of Somalia. Yes, pirates exist, and when they are able to capture large cargo ships, they can loot a lot of valuable cargo.79 While many large vessels avoid pirate territory when considering the whole channel, pirates still exist today and are often waiting at sea to steal millions of dollars’ worth of goods.
Promotion
Just as marketing managers must determine whether to adapt their product to new markets, they must also determine the best course of action for the promotion strategy. Nearly all promotion strategies will need to adapt to some degree in different markets, even if it is a simple product expansion.
Consider Coca-Cola, whose brand name remains unchanged. However, in some countries, the slogan is slightly tweaked to have a more local meaning, but with the same underlying promotional message. Refer to Table 7.2 for some of the Coca-Cola slogans used around the world.80
Country Slogan
India Always the Real Thing
United States Real Magic
New Zealand Real Magic
Spain Siente El Sabor (Feel the Flavor)
Hungary Kóstold meg az érzést (Taste the Flavor)
Indonesia Rasakan Keajaiban (Real Magic or Feel the Magic)
Table 7.2 Coca-Cola Slogans
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
A company that uses the same marketing strategy in all markets is most likely utilizing which of the following?
1. Standardized
2. Adapted
3. Invention
4. Modified
2.
Which of the following is correct regarding the promotion strategy of global markets?
1. All promotion strategies should remain the same across markets.
2. Promotion strategies of global markets should deviate only slightly from the home market.
3. Promotion strategies should reflect the market, some to different degrees.
4. Promotion strategies of global markets should always be completely different from the home market.
3.
Which of the following Coca-Cola slogans is used in New Zealand?
1. “Real Magic”
2. “Always the Real Thing”
3. “Feel the Flavor”
4. “Feel the Magic”
4.
Which of the following is part of the whole channel?
1. Promotions
2. Communications
3. Price
4. Distribution channel members
5.
Which country has the highest automobile prices?
1. China
2. Singapore
3. United States
4. Canada | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.04%3A__Marketing_in_a_Global_Environment.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify ethical issues facing global organizations.
• Provide an example of a company that displays ethics in the global marketplace.
Identifying Ethical Issues in the Marketplace
As with all business decisions, there are ethical matters to consider when entering into the global marketplace.
Outsourcing
Outsourcing refers to a business moving some of its operations to a foreign country for the purpose of saving money and time or to increase volume and quality. WhatsApp, an encrypted communication app owned by Meta Platforms (formerly Facebook), has been used globally for several years. Based out of California, the company realized that it would have difficulty growing if it did not outsource. In 2012, the company began utilizing Russian companies for a small fraction of what it would have had to pay within the United States.81 While outsourcing has its advantages, many will argue that outsourcing eliminates jobs in the home country.
Work Standards and Conditions
Unlike most developed countries, those countries still developing often have much lower standards for working conditions. This has been a topic of hot debate for many years in the United States and around the world as companies have moved some or all of their operations to countries with lower standards. In Xinjiang, China, more than half a million people from ethnic minority groups are forced to pick cotton for the fashion industry.82 Well-known companies such as Nike, Apple, and Levi’s have come under the same scrutiny in more recent years. While cheaper production costs will provide the company with more profits, more often than not, lower standards, working conditions, and otherwise unethical behavior will put them under a microscope. Alternately, many companies and experts will argue that even the worst of working conditions have a positive impact on developing nations.83
Workplace Diversity and Equal Opportunity
In recent decades, many countries have passed regulations to include and promote diversity in the workplace.84 However, in other countries, diversity and equal opportunity remain human rights issues. Having a diverse workforce has numerous benefits, particularly in those companies expanding globally. Companies committed to diversity have increased chances of success in the global market; diversity often breeds an increase in ideas and cultural intelligence and creates a more agile workforce.85
Additionally, marketers must also be considerate of diversity within their marketing strategies. Alienating underrepresented groups of people within a target market might not only cost sales but also backfire in terms of representation. Procter & Gamble has utilized its many marketing platforms to not only include diversity but also to shed light on societal struggles of people of many racial identities in its target markets. The company has also extended diversity into its hiring practices to “mirror the US population.”86
Child Labor
The use of child labor is seen by most Americans as unethical. The United Nations (UN) has implemented many treaties that establish human rights for children within member nations.87 However, each country has its own standards for child labor and the minimum age at which a child can work.
Bribery and Corruption
Bribery and corruption may seem like a thing from the past, but in fact, both are still quite prevalent in both developed and developing nations. Nearly all countries have laws against bribery and corruption, but in many areas that are politically unstable, doing business means bribing officials. When a company decides to expand into international markets, the managers and marketers must decide to what degree they are willing to participate in practices that would otherwise be deemed illegal or unethical in the home country. The Foreign Corrupt Practices Act of 1977 “was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.”88
Dumping is a practice in which a company manufactures a very large of number of goods and exports them to a foreign market and the product is offered at an extremely low price to the consumer market. This often drives out all competition in the market. Once competition is driven out, the company then raises the price of the product, essentially creating a monopoly on the product. The United States and other countries have laws strictly prohibiting the practice of dumping, and many impose fines against those companies attempting to practice dumping.
Link to Learning: Free and Fair Trade
As a marketer, it’s important to be aware of ethical practices. Learn more about the United States Department of Commerce and how it promotes free and fair trade.
Companies with a Conscience: Kao Corporation
Founded in 1887 in Tokyo, Japan, Kao is a “16-time Ethisphere World’s Most Ethical Companies honoree and [it has] been honored every year since Ethisphere started recognizing companies.”89 The company’s strategies aim for zero waste when producing its cleaning and health and beauty products. Using leftover materials, Kao developed Bio IOS, a sustainable ingredient in its cleaning products. Its product development process encourages consumers to use refill packs to reduce waste.90
In 2022, Kao and Costco teamed up to begin testing foldable containers that allow for repeated use as packing materials in a Kanagawa Prefecture Costco warehouse (see Figure 7.7).91 To read more about this initiative and to see the packaging, visit the Kao website.
The company has plans to expand the use of these reusable packing materials into other warehouses and hopefully further into the industry. Kao prides itself on the innovation of societal and environmentally friendly products as well as practicing gender equality and universal product design.92 | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.05%3A__Ethical_Issues_in_the_Global_Marketplace.txt |
As outlined in this chapter, transportation, technological developments, and business landscape and cultural considerations go hand in hand with globalization. Marketers must develop competitive marketing strategies in a realm far different than they’re accustomed to. Decisions have expanded to encompass complex international considerations. Once a company has decided to enter an international marketplace, it must decide how best to make that entry. Some companies decide to export products, some determine a joint venture is the best approach, and others elect to invest in building manufacturing facilities. Each offers differing levels of investment, control, and potential profit. An additional and vital concern is whether the company will standardize its product offerings or shift products to adapt to cultural differences. In any event, successful businesses select their marketing partners and intermediaries carefully as they aim to add value global customers want.
7.07: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
adapted global marketing strategy a strategy in which a company utilizes different marketing strategies in different global markets
business landscape everything internal and external to the business, its industry, and its environment
consumer income the amount of money a household or individual earns
cultural sensitivity awareness and appreciation of and the ability to adapt to a cultural, ethnic, racial, or another group other than one’s own
cultural symbols physical representations of a culture’s language, values, and traditions
cultural values unspoken aesthetics, socialization, and religious aspects woven throughout a culture
customs mannerisms or behaviors that are considered characteristics within a social system
discretionary income the money individuals and households are left with after paying taxes and other living expenses, such as food and shelter
disposable income the money individuals and households are left with after paying taxes
dumping the practice in which a company manufactures a very large of number of goods and exports them to a foreign market to see cheaply
economic infrastructure the physical facilities of an economy that benefit product and distribution
embargoes trading bans on a product with a specific country; imposed between countries that have different political ideologies
ethnocentrism an assumption that the business landscape or culture of an international market is the same as the home country or personal culture
exchange rate the rate at which one country’s currency can be exchanged for that of another country
exporting when a firm makes a product or service in one country and sells it in others
foreign direct investment (FDI) the process of establishing operations within a foreign country
franchising a business strategy in which the owner (the franchisor) allows another person or entity (the franchisee) to operate a business using the franchisor’s products, branding, and knowledge in exchange for a fee
global market opportunities conditions that are favorable for a company to expand into the global marketplace
international firm a company that operates on a global level regardless of intensity of involvement
joint venture a business arrangement whereby two or more companies create a single enterprise or project
licensing a contract in which one organization permits another to use its name brand or trademark on its own items
lifestyle the way a person or group lives
outsourcing the process of moving some of a business’s operations to a foreign country for the purpose of saving money and time or to increase volume and quality
product adaptation when companies modify products to align with the local culture
product invention when companies create entirely new products for a global market
purchasing power the goods that can be purchased with one unit of currency
quotas maximum allowable units (usually in currency) to be imported into or exported out of a specific country
risk any situation or condition that leads a company to decreased profits or even failure
sociocultural factors values, behaviors, culture, lifestyle, and language that shape a person’s or group’s way of living
standardized global marketing strategy a strategy in which a company uses the same marketing strategy in all markets
stereotypes oversimplified images, perceptions, or ideas of a person or group
straight product extension a strategy that entails maintaining the same product for both the home and foreign markets
strategic alliance when two companies from different countries agree to invest resources in a mutually beneficial way
tariffs taxes that governments impose on imports into the country
trade blocs intergovernmental agreements that remove barriers to trade within regions of the world
transnational firm a company that allows for a higher degree of localization
whole channel the design of the international channels that incorporates all members, including the manufacturing, retailer, and wholesaler sites as well as transportation | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.06%3A_Chapter_Summary.txt |
1 .
Why do most global organizations envision the world as a huge market without borders?
2 .
Describe the differences between exporting products, forming joint ventures, and licensing products.
3 .
What factors do companies consider when determining a foreign country’s market attractiveness?
4 .
Adding value to the delivery network is tricky and complex for international sellers. With whom do these sellers usually partner to move products seamlessly through distribution channels?
7.09: Critical Thinking Exercises
1 .
Marketers must consider the global marketing environment when determining strategy. In addition to the international trade system, economic environment, and cultural norms, what other environmental factor is a critical consideration? Use an example to illustrate the importance of this environmental factor.
2 .
Thousands of businesses must strike a balance between standardizing marketing practices on a global scale versus adapting products to local markets. List two companies within the same industry, such as Toyota and Volkswagen, that approach their global marketing strategy using product standardization or adaptation. Then check global sales to help determine which approach is most effective.
3 .
Procter & Gamble makes dozens of laundry detergents and adapts these products to market preferences around the world. Two of these brands include Ariel and Mif. Why might European markets prefer Ariel’s formulation and Russian markets demand Mif? Build a list of three reasons why Western Europe and Eastern Europe may differ in their laundry detergent preferences.
4 .
You are working on a marketing campaign for the Japanese division of Malley’s Chocolates. You have created a pitch to top executives for a commercial featuring a Japanese husband surprising his wife in her bedroom on Valentine’s Day with a small box of chocolates containing four candies. Would this be a good idea for a commercial? Why or why not?
7.10: Building Your Personal Brand
There are ways to build skills that will help you in international markets. Consider the items shared in this chapter and consider what you might do to enhance your skills. Then write a one-to-two-page document outlining a plan for what you will do to improve your skills. Be specific and include a timeline. You might also want to meet with international business instructors to help identify areas to include.
Here are several things to consider:
• Does your campus offer courses or workshops in diversity? Many diversity training opportunities also offer a certificate of completion that you can include in your resume.
• Is there a foreign language requirement at your university? If so, this education plus a study abroad experience will reinforce your language skills, business etiquette, and exposure to cultural realities. Satisfying college requirements can also work in your favor.
• Political science courses offer credits toward graduation that also may extend to the political realities of foreign countries or regions, enhancing your awareness of business practices, economic conditions, and historical underpinnings.
7.11: What Do Marketers Do
Part of the International Trade Administration, Export Assistance Centers (found in the United States, Europe, the Middle East, Africa, and Asia) help US-based businesses plan, develop, and execute international strategies to succeed in today’s global marketplace through the. Find the center nearest to you and conduct a short interview with an export counselor there to learn more about their job. To learn more about global market opportunities through the International Trade Administration, watch the short video “Discover Global Markets.”
Here are some questions to ask:
• What services does the center offer?
• What is an “initial market check”?
• Does the center provide customized market research?
• Does the International Trade Administration work with US consulates and embassies?
• Are there training or networking events to attend where I can network and learn more?
• How does the export center help companies located in rural areas successfully export products?
• What training did you complete to qualify for your position? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.08%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Timmy Global Health
Founded in 1997 by Dr. Charles (Chuck) Dietzen, Timmy Global Health has a mission to empower communities to address health disparities in a sustainable way. For over two decades, Timmy has supported care sites across four countries in Latin America and Africa: Guatemala, Ecuador, the Dominican Republic, and Nigeria. Since its founding, it has served 100,000+ patients through medical service trips and local follow-up care. The most enduring legacy is the trusting relationships it has built with local communities.
With a vision to build a healthier world through a community of global health leaders, Timmy has been active at more than 18 colleges and universities throughout the United States. For two decades Timmy organized to provide medical clinics and much-needed supplies to people in underserved areas. All who went on the medical service trips learned the mission of health care firsthand by tending to those who most needed the care and resources.
Dr. Chuck founded Timmy Global Health in Greenwood, Indiana. His reputation as a physician and his connection to schools and community health leaders was a primary driver for his development of the organization near the area where he lived and worked. However, it was the spirit of giving and the generosity that Hoosiers (Indiana natives) are known for that solidified his decision to have the organization headquartered in Greenwood.
Through the years, Dr. Chuck provided his vision and numerous resources to Timmy Global Health. Dr. Chuck was the biggest fundraiser and the visionary behind many of the programs and global community connections. Having traveled to over 30 countries himself, he knew the challenges and the opportunities around the globe.
When Dr. Chuck founded Timmy Global Health, his idea was to have an organization that was self-sustaining. With good leadership at the helm, the possibilities were endless for the work that could be conducted throughout the world. Timmy needed good leaders who had a passion for the underserved and a willingness to work in various capacities. It would take individuals who were interested in mission over profit.
Over the years, Timmy saw many challenges to the model of service. Good leadership was difficult to find, and over its path from infancy to maturity, Timmy had its share of both good leadership and poor leadership. As a nonprofit, it was fundamental that the organization always continue to raise money, spend conservatively, and hire people who were service minded. Through the work it did around the globe, Timmy was also dependent on workers in-country who could liaise with Timmy’s partner organizations.
Each country Timmy worked with had a different political and economic system that required a network of individuals with a working knowledge of the country. Understanding and working around operational disparities was a job requirement for those who worked for Timmy Global Health. Moving medicine, supplies, and people to meet the needs of the underserved required a different set of resources in each country.
Timmy’s mission was challenged in late 2019 when the COVID-19 pandemic disrupted its global network. Forced to shut down its mission trips and still work to support global health issues, the organization created an updated service model with a way to empower communities to achieve their stated health goals.
The organization had to streamline operations. It realized remote work was at the core of what it did. To that end, the organization sold its headquarters building, downsized its staff, and focused on building up its financial reserves. Continuing to work with its partners in the countries it serves, Timmy was able to pay for the salaries of local doctors, buy essential medications and supplies, provide personal protective equipment to clinic staff and patients, pay for the transport of patients, train community health workers, and even start new programs.
Looking toward the future, the organization is still exploring models of remote work that can lead to better utilization of resources. Technology is allowing for continued connection with the in-country partners. College chapters are continuing to raise money and awareness and provide local health care support for underserved communities in their own local areas. Timmy is looking to add more college chapters in the United States and abroad.93
The COVID-19 pandemic proved that global health care affects us all. As our world and how we work together changes, it is important to have fluid plans to address how we operate. How we care for each other may change, but the ability to do so should remain.
Case Questions
1 .
To provide for the needs of underserved people in communities around the globe, Timmy Global Health faced many challenges. What are some of the most pressing challenges in the global landscape?
2 .
What are some of the global issues that have impacted Timmy Global Health and the work it does?
3 .
Marketers often have to adapt to international markets. What are some of the adaptations most prevalent for the work Timmy Global Health is doing?
4 .
Ethical issues are always a concern for any company. When working internationally, ethics can be a challenge since practices in a home country may be very different than in a foreign country. What are some ethical issues that may pose difficulties for Timmy Global Health? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.12%3A_Closing_Company_Case.txt |
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84. Erika C. Collins, “Global Diversity and International Employment,” in The Employment Law Review, ed. Erika C. Collins, 11th ed. (London: Law Business Research, 2020), 19–28.
85. Tina Yazdi, “5 Reasons Why International Success and Diversity Are Inseparable,” Amplitude, November 16, 2017, https://amplitude.com/blog/why-diver...re-inseparable.
86. Gillian Oakenfull, “Marketing with Cultural Intelligence for Growth and Good,” Forbes, April 7, 2021, https://www.forbes.com/sites/gillian...-intelligence/.
87. “Child Labor and the Law,” Child Labor Facts, GoodWeave, accessed August 30, 2022, https://goodweave.org/the-issue/laws/.
88. “Foreign Corrupt Practices Act,” Fraud Section (FRD), US Department of Justice, last modified February 3, 2017, https://www.justice.gov/criminal-fra...-practices-act.
89. “Past World’s Most Ethical Companies,” World’s Most Ethical Companies, Ethisphere, last modified February 18, 2022, https://worldsmostethicalcompanies.com/past-honorees/.
90. Nikola Gemeš, “44 of the World’s Most Ethical Companies (Updated 2022),” GreenCitizen Blog, GreenCitizen, April 10, 2022, https://greencitizen.com/blog/ethical-companies/.
91. “Kao and Costco Test the Introduction of Foldable Containers as Reusable Packing Material,” News Release, Kao, July 28, 2022, https://www.kao.com/global/en/news/s.../20220728-001/.
92. Gemeš, “World’s Most Ethical Companies.”
93. Timmy Global Health, https://www.timmyglobalhealth.org/; “Timmy Global Health Responds to COVID-19,” Timmy Global Health Blog, https://www.timmyglobalhealth.org/bl...ds-to-covid-19; “Wrestling at Its Finest—21st Annual Timmy Takedown,” EinPresswire.com, September 22, 2022, https://www.einnews.com/pr_news/5922...timmy-takedown; | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/07%3A_Marketing_in_a_Global_Environment/7.13%3A_References.txt |
Multinational consumer goods corporation Procter & Gamble is a good example of a company that understands the significance and impact of marketing in a diverse marketplace. P&G has a long history of reaching out to consumers from different sociocultural communities. In 1961, the company became one of the first major manufacturers in the United States to air a TV commercial in Spanish aimed at Hispanic consumers on a Spanish-language channel (later known as Univisión).1
After the Civil Rights Act was signed in 1964 and the Equal Employment Opportunity Commission (EEOC) was formed in 1965, P&G proactively launched its own affirmative action plans across all its business units. P&G instituted the changes even before the EEOC was fully functional. That same year, P&G also conducted product research with Hispanic consumers in Miami, focusing on the scent used in its Secret deodorant line. This commitment to diversity in business practices has remained strong through the years.
P&G continues to demonstrate how to embrace diversity marketing, not just through actions, but through core beliefs and values. The company debuted its “Widen the Screen” campaign in 2021 during the National Association for the Advancement of Colored People (NAACP) Image Awards. The commercial has several short episodes developed by a team of Black creators. Its message is intended to challenge stereotypes and negative attitudes toward the Black community. In a special TV interview, influencer and daytime TV celebrity Oprah Winfrey strongly praised the campaign’s creative opportunities, since Black creators account for only 6 percent of all films made.2 These types of initiatives are evidence that P&G remains steadfast in its support of cultural and societal values, as well as expanding marketing’s horizons to be more inclusive.
Diversity in marketing is often shortsightedly thought of as simply featuring people, objects, or situations linked to various cultural or sociodemographic groups in marketing efforts. These are important components, but diversity marketing goes much deeper than that. In a 2021 keynote presentation about advancing diversity in advertising and business, P&G Chief Brand Officer Marc Pritchard emphasized that the company’s commitment to consumers extends to race, ethnicity, and gender representation equal to the American population.3
Pritchard added that true and complete inclusion calls for having equitable representation throughout the entire business, including up and down the company’s supply chain. This means that even subcontracted agencies, production crews, and media companies that P&G works with reflect the market’s diverse demographics. P&G is a diversity marketing champion because it believes in the accurate representation of all people in advertising and communications, regardless of cultural or social group, to build a better society.
P&G’s value-creating strategies and purposeful actions embody the concepts of this chapter. Marketing in a diverse marketplace is about understanding why and how to meet consumers’ diversity-based needs, while achieving corporate objectives and driving business sustainability at the same time. P&G's campaign “Widen the Screen” invites viewers to widen their perspectives and appreciate the full picture of Black people's lives through a series of diverse everyday situations.
8.01: Strategic Marketing- Standardization versus Adaptation
Learning Objectives
By the end of this section, you will be able to:
• Define marketing standardization.
• Define marketing adaptation.
• Explain when to use diversity marketing as an adaptation strategy.
Standardization Strategy Defined
To meet the marketplace’s demands, companies must carefully formulate competitive strategies based on internal and external conditions. These strategies must balance the capabilities of the organization’s business activities, such as marketing, sales, operations, customer service, finance, and human resources management, with multiple environmental factors in the market. Among these are competition, globalization, technology, culture, and changes in consumer demographics and behavior. Companies can choose between two types of strategic approaches, standardization or adaptation, depending on these internal and external variables.
Standardization is the process of purposefully applying identical or consistent guidelines to achieve uniformity. It is not limited to goods and services. Ideas, experiences, data, manufacturing processes, metrics, and operating practices within a business can also be standardized.
A standardized strategy is expressed through the sameness of an offering’s features, packaging, pricing, messaging, or advertising to consumers in the marketplace. Companies adopt this strategy for several reasons. These include increasing sales, reducing costs, maximizing efficiencies, improving competitiveness, and gaining a larger customer base.
Think about Apple products. The company standardizes its iPhone, iPad, and Mac computers worldwide. Anywhere you go, Apple devices look and work the same. Only the devices’ power source is changed, because of power voltage differences in different parts of the world. Standardization allows Apple to streamline production, speed up market launches, and increase device recognition around the globe.
Adaptation Strategy Defined
Adaptation is the process of adjusting a company’s work efforts, goods, or services in response to specific needs, tastes, or expectations from different groups of consumers. An adaptation strategy typically involves two steps. The first is identifying the modifications required to increase an offering’s appeal among a targeted audience. The second is implementing the changes based on the organization’s abilities and resources. Both of these tasks are crucial to determine the strategy’s viability.
Why do companies consider modifying products when doing so generally entails additional costs? The reason is that adaptations are useful to create unique market offerings, generate interest, or provide a competitive differentiation. In other words, this strategy is advisable when the outcome of the change results in reduced risks to the business. Companies can also adapt an existing product, instead of creating a new one, to reduce costs associated with producing new goods. For example, Ford Motor Company adapts the D4 automobile platform for chassis design and engine configuration to its Ford and Lincoln models to save money and offer cars at competitive price points.
Sometimes businesses need adaptation strategies because of market disruptions caused by socioeconomic issues, natural disasters, or health concerns like the COVID-19 pandemic. Zoom, the video conferencing company, was forced to adjust its practices at lightning speed to meet the unexpected demand uptick caused by the pandemic. In only five months (December 2019 to April 2020), Zoom’s customer base grew from 10 million to 300 million users.4 Zoom’s adaptation strategy included new data centers, extended partnerships, price and service changes, and platform updates to serve all types of customers.
Diversity Marketing as an Adaptation Strategy
In marketing, an adaptation strategy translates into tailoring the marketing mix—product, price, place, and promotion—to suit the preferences of targeted populations. Adaptation strategies are often associated with entering a foreign country.
McDonald’s is a good example of a company that adapts its marketing mix to be locally relevant to diverse global consumers. McDonald’s introduced the McVeggie and the McAloo in India (see Figure 8.2), the Bai Shrimp Filet-O and the Bai Teriyaki Chicken Filet-O in Japan, poutine fries in Canada, the Picanha ClubHouse Burger in Brazil, and the Bubblegum Squash McFlurry in New Zealand. Besides adjusting the menu (product), McDonald’s also aligns advertisements (promotion) and services with local expectations (price and place), while delivering a consistent customer experience from one country to another.
This strategy is not limited to marketing in different parts of the globe. Companies can adjust any element of the marketing mix when expanding their market share within a region or a single country. This decision, however, should not be taken lightly. Adapting marketing efforts can be costly, time consuming, and disruptive to the business. Plus, unexpected changes in a product’s message can be confusing to existing customers.
Marketing adaptation is clearly an option to grow the marketplace. When this strategy is based on a population’s cultural or demographic differences, it is diversity marketing. Here is a good example from Nike. The “Nike by You” (see Figure 8.3) shoe-designing service enables the company to expand its appeal to different population segments. By allowing consumers to change the footwear’s colors and materials, Nike delivers products adapted to audiences’ ethnic and social preferences.5
Link to Learning: Nike and Diversity
To prepare for a marketing career, learning from companies that are known for their diversity campaigns will help you with your future campaigns. According to eMarketer data, Nike is a company with one of the highest levels of diversity in its advertising. Here are a few examples supporting information about Nike’s diversity and inclusion campaigns:
• Emmy-winning You Can’t Stop Us
There are other companies that are also known for their diversity and inclusion strategies. Read about some of them in this HubSpot article.
Diversity marketing is an effective response to consumers’ cultural or demographic diversity in a market. Why is it an adaptation strategy? Because diversity marketing involves changing a product or service to match the needs, wants, and demands of a population’s subgroup of consumers.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Choosing between standardization and adaption strategies includes ________.
1. balancing internal capabilities, like operations, with external forces, like competition
2. assessing only external forces, like technology, and consumer demographic changes
3. adjusting only a company’s resources, assets, and conditions to the market
4. assessing and reducing the company’s consumer base to be more effective
2.
Which of the following is NOT a reason to implement a standardized marketing strategy?
1. To increase sales and reduce costs
2. To maximize a company’s manufacturing or production efficiencies
3. To improve competitiveness and increase customer base
4. To increase flexibility with constrained standards
3.
A marketing adaptation strategy involves ________.
1. adjusting a company’s efforts and the marketing mix to increase appeal
2. responding to targeted consumers’ specific needs, tastes, or expectations
3. implementing company changes based on organizational abilities and resources
4. All of these statements are correct.
4.
Adaptations are useful for all the following EXCEPT ________.
1. creating a unique market product
2. generating interest for a service
3. reducing production costs
4. providing a competitive differentiation
5.
An adaptation strategy to expand into culturally or demographically diverse markets can benefit a company by ________.
1. reducing business disruptions
2. increasing the customer base
3. speeding up the execution time
4. shifting the marketing focus solely to the company | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define diversity marketing, multicultural marketing, and sociodemographic marketing.
• Explain why diversity marketing is needed in today’s marketplace.
• Explain the importance of diversity in market research.
• List the factors that impact diversity marketing.
Diversity Marketing Defined
As you read in the previous section, diversity marketing is a strategic approach that involves identifying diverse subsegments of the population within a market and creating intentional marketing efforts to reach wider audiences. This last piece is key. It has an element of inclusion because it purposefully incorporates identity-specific consumers that have been overlooked or pushed to the margins of society such as some ethnic minorities, people with disabilities, elderly adults, low-income persons, and other groups. Marginalized consumers are often excluded in mainstream advertising, translating into missed business opportunities. Diversity marketing is a strategy for marketers to include them.
Diversity marketing is more than just an awareness of minority identities, underrepresented communities, or racial distinctions. It is about being culturally responsive, meaning having an actionable understanding of diverse consumers’ interests and preferences based on shared cultural and sociodemographic characteristics. Consider the five key parameters most often used to describe diversity: cultural, racial, and ethnic; gender and sexual identity; generational; religion; and disability.6 Culture, race, and ethnicity are part of the cultural aspect, while the others are part of the sociodemographic aspect. Because of the broad scope of diversity marketing, as seen in Figure 8.4, this strategy can help marketers reach larger market audiences. Diversity marketing can also influence consumers’ mindsets and generate positive attention.
Importance of Diversity Marketing
The idea of marketing driven by consumer diversity is very relevant and meaningful, because today’s marketplace is changing dramatically. This evolution is happening not only in the United States but also around the globe. For marketers, this means that generalizing buyers, households, or communities anywhere in the world is a shortsighted perspective, because it limits business growth and commercial possibilities. Plus, oversimplifying population segments can also adversely affect a company’s reputation by shifting the public’s opinion in a negative way. The consequences can hurt sales, lead to missed opportunities, and undermine competitive status. This makes it essential to align markets and diversity marketing goals.
Even though “one size fits all consumers” type of tactics worked in past decades, that is no longer the case. Failure to recognize diversity marketing as an essential component of any marketing plan in these changing times is definitely a business blunder. In a study conducted by Adobe in 2019 among 2,000+ consumers, results showed that 61 percent of participants believed that diversity in marketing campaigns was important, and at least 38 percent were also said to be more inclined to trust brands that showed good diversity in advertisements.7 Inclusion and diversity marketing are vital to a company’s success in any market.
What It Means to Businesses
Leading the marketing strategy with a diversity-driven intention can increase customer satisfaction and build stronger brand loyalty. Top Design Firms surveyed hundreds of consumers in late 2020 and found that 67 percent would consider making repeat purchases from companies committed to diversity in marketing campaigns.8
Another report confirmed that these observations are not restricted to specific populations. Market analysis by Heat agency found that high diversity scores for brands translated into a whopping 83 percent higher preference by consumers.9 Besides improving brand sentiment overall, studies show that companies that build emotional ties through diversity marketing programs generate more revenue, increase stock price performance, and enhance brand perceptions.10
What It Means to Consumers
Diversity marketing is important on a personal level because of what it implies. Companies that prioritize this strategy clearly demonstrate a higher level of understanding, value, and respect for all individuals in society. The conscientious inclusion of racially, ethnically, culturally, and socially distinct groups in marketing efforts suggests a genuine desire to communicate and engage with everyone.
Acknowledging consumers’ differences and adopting tactics to meet each group’s needs and preferences also validates individuals’ importance in the market. From a consumer standpoint, the application of diversity and inclusion measures in a company’s marketing practices shows a universal recognition and appreciation for people.
Factors Impacting Diversity Marketing
As shown in Figure 8.4, diversity marketing is based on a variety of cultural and sociodemographic consumer characteristics. Marketers have to be mindful of these distinctions so marketing communication campaigns launched are sensitive to the audiences they are attempting to serve. After all, cultural and sociodemographic factors can greatly influence consumers’ motivations, reactions, and decisions. Other related variables, such as behavioral and personal, can shape buyers’ consumption levels and their receptiveness to marketing messages. Given the impact of these factors, for companies to be successful in any market, the focus of diversity marketing has to be customer centric rather than company centric. Being customer centric is when a company targets customers first regarding any decisions about its goods, services, or experiences, while company centric is when a company focuses decisions from the perspective of the organization. Building a proper sociocultural conscience in marketing starts with good research.
Market Research
Market research is essential for developing successful marketing strategies because it leads to consumer insights. It also identifies potential communication gaps. This means that diversity must be treated as a market research factor to learn about multidimensional audiences. Leveraging consumer diversity in the research process has several benefits. For instance, it provides the information needed to better understand people’s cultural or social differences. This is useful for companies to avoid wrong assumptions and avert public mishaps.
To do good research, marketers do not have to belong to or identify with a specific consumer group. However, understanding how ethnic and sociocultural differences impact buyers’ decisions and actions requires diversity marketing intelligence (DMiQ). Diversity marketing intelligence refers to the capability of identifying, accepting, and valuing the diversity of consumers within a market and using this knowledge to tailor the marketing mix accordingly.
In early 2018, Tarte Cosmetics introduced to the market its highly anticipated Shape Tape Foundation. The launch featured 15 shades of makeup, almost all light tones. However, the product was not well received. Loyal customers were furious because of the lack of shades for people with darker skin. Tarte Cosmetics was accused of being a whitewashed brand and even making deeper skin-toned people feel inadequate.11 The company quickly apologized for alienating customers and changed its product and marketing communication.
Link to Learning: Fenty Beauty
Rihanna did more than just lend her name to the brand Fenty Beauty—she also developed products that increased diversity in the beauty business with its 40-shade foundation range and a wide range of sizes, making \$100 million in sales the first 40 days! The company has been criticized for use of child labor by some of its suppliers, and has made what its founder described as careless choices during a fashion show. But it remains known for continuing to reflect a more inclusive approach to beauty and clothing products. Read more about Fenty Beauty from this Latana article or this article from Newsweek.
When diversity marketing efforts fall short, as the Tarte Cosmetics case shows, it is often the result of racially or socially charged insensitivities and missteps. The outcome can have costly repercussions for companies. In 2017, PepsiCo (see Figure 8.5) received heavy backlash for its “Live for Now Moments Anthem” campaign featuring Kendall Jenner. The commercial was criticized for trivializing the Black Lives Matter (BLM) movement and undermining protesters’ real-life hardships in pursuit of peace and justice.12 It was described as insensitive and offensive.
Link to Learning: Live for Now Moments Anthem
Evaluating successful campaigns and failures is important in the learning process. Find as many opportunities as you can to learn from failures. Start by watching Live for Now Moments for an example of a campaign that failed because it was offensive and missed the mark.
PepsiCo defended its position as not intending to be socially disrespectful. However, PepsiCo withdrew the commercial, estimated to have cost \$5 million to produce, and widely apologized to the market and to Jenner.13 A final lesson here is that when diversity marketing efforts are done correctly—as Fenty Beauty did—it can boost brand awareness, consumer engagement, and sales.
Race and Ethnicity
Two out of every five individuals in the United States—over 40 percent of the population—identify racially or ethnically as other than non-Hispanic White.14 Researchers expect this trend to keep growing in the coming decades, and as consumer diversity increases, cultural identification becomes even more important. Race, ethnicity, and culture give meaning to one another. This makes it critical for marketers to pay attention to how multiracial or multiethnic consumers identify culturally. Having a multicultural identity means that a person has been exposed to various cultures and self-identifies as being part of more than one racial or ethnic community or various social groups.15 We will focus on four key multicultural identity segments of the American population: Hispanic, Black, Asian, and Native American/Alaska Native.
Being multicultural can take many forms. Multicultural individuals may speak multiple languages or have different sets of friends in each culture. From a marketing perspective, multicultural consumers may have different responses to brands or products depending on their multicultural affiliation.16 Why is this significant? Because marketers must consider the effects of multiculturalism on the marketplace when developing the marketing mix. Race and ethnicity are clearly linked to diversity marketing.
Modelo Especial is a good example. Modelo Especial is a Mexican beer that has successfully capitalized on its heritage to target the Hispanic population while also appealing to the general market. Marketed by Constellation Brands, the beer has had strong sales in the United States since the 1990s.17 In 2019, Hispanic consumers captured close to 70 percent of the brand’s national sales, but Hispanic people are only about half of the customer base.18 Over the course of several decades, various aspects of Hispanic culture have been widely embraced in the United States. Have you heard of artists like Jennifer Lopez, Pitbull, Bad Bunny, and J Balvin? The marketing team at Constellations Brands attributes the brand’s mainstream appeal not only to connecting well with Hispanic consumers but also to the openness of millennial and Gen Z consumers to different cultures and lifestyles.
Sociodemographics
In marketing, sociodemographics describes the combination of social and demographic factors that characterize specific consumer groups in the market. These factors are mostly quantifiable, meaning they can be measured or verified to a certain extent. Though race and ethnicity are cultural factors, sometimes they are included in market research as sociodemographic parameters. This is done to increase the generalization of consumer findings and to uncover potential areas of concern linked to social issues.19
Sociodemographic variables typically consist of gender and sexual orientation, age or generation, family structure, religion, education level, and income. The latter two are also frequently associated with socioeconomic status. Disability is another variable that can be treated as a demographic factor. Figure 8.4 offers a more comprehensive list of diversity marketing’s sociodemographic factors.
Just like with multicultural consumers, segmenting buyers based on shared sociodemographic factors allows companies to tailor goods or services to match the needs and preferences of this diverse group. This enables marketers to develop the right marketing mix—as well as create effective advertising content—to influence distinct consumers. Here is how Disney uses family structure as a sociodemographic factor to segment and target social media users. Disney on Ice is a music and skating show that brings the magic of Disney to ice rinks around the country. People with small children are more likely to consider family entertainment activities, so Disney on Ice targets these consumers on Facebook with tailored family-oriented ads.
Multicultural Marketing Defined
Multicultural marketing is a strategic approach to intentionally target audiences based on different racial, ethnic, and cultural identities and backgrounds. It focuses on relevant, value-rich, and culturally authentic communication tailored to multicultural consumers.
You are probably asking, Is multicultural marketing the same thing as diversity marketing? After all, both are often used interchangeably. The answer is no; they are not the same thing. Diversity marketing is an inclusive approach that results in reaching a wider portion of the entire market. Multicultural marketing is a subcategory of diversity marketing that is aimed at multicultural individuals.
Multicultural Populations
Racial and ethnic diversity continue to grow every day around the world. In the United States, in particular, demographers predict a majority–minority population shift by the mid-2040s, as Figure 8.6 shows. In other words, the bulk of American consumers will identify as multicultural, meaning racially and ethnically diverse people of color.
This projection has enormous marketing implications for companies and nonprofit organizations. As the marketplace becomes even more racially and ethnically diverse, marketing efforts must be aligned to the needs and expectations of multicultural groups to be effective.
Let’s take a closer look at these key multicultural segments of the American population:
• The Hispanic population is the largest multicultural group in the nation and makes up about 19 percent of the total population. According to data-driven marketing company Claritas, the Hispanic population is one of the fastest-growing groups, with over 63 million individuals, and is also responsible for 59 percent of the country’s population growth between 2010 and 2021.20 Plus, by 2026, business strategists believe that nearly two out of every three consumers in the United States will belong to this ethnic group.21 With a median age of 29, this group also has the youngest population in the country.
• The Black population is also a growing segment with 46.9 million individuals—or 14.2 percent of the total population—according to the 2020 US Census. This group is made up of three different subethnicities: individuals who identify as Black alone (single race), or as Black Hispanic, or as Black with another race such as White or Native American (multiracial). The Black population in general has the second youngest median age. In fact, almost 60 percent of this group were millennials or younger (under the age of 38) in 2019 based on findings from the American Community Survey.22
• The Asian population accounts for 7.2 percent of the American population with 24 million individuals from combined subethnicities as reported by the 2020 Census. Like Black people, Asian people also self-classify as either single race, Asian Hispanic, or multiracial individuals. Communities often included as part of the Asian multiracial composition are Native Hawaiians and Pacific Islanders. Asians’ three classifications combined experienced the fastest population growth of all multicultural segments in the nation between 2000 and 2019.23 The Asian population has a median age of 34 and is expected to reach around 35 million individuals by 2040.24
• The Native American/Alaska Native population represents 1.1 percent of the population in the United States with 3.7 million individuals identifying as single race Native people. During the 2020 Census, these Native groups were combined with other races and ethnicities, boosting the number to 9.7 million people, or about 2.9 percent of the total population.25
Sociodemographic Marketing Defined
Sociodemographic marketing is a strategic approach to intentionally target audiences based on shared social and demographic characteristics. Sounds familiar? Like multicultural marketing, sociodemographic marketing also focuses on relevant and authentic communications with consumers. Both strategies help business and organizations align their products and services with audiences’ needs, preferences, and expectations.
In a 2019 study, nearly 3,000 consumers were asked to consider ads with sociodemographic attributes like gender identity, sexual orientation, age, socioeconomic status, and physical ability. Results showed 64 percent of consumers taking some sort of action after seeing an ad with sociodemographic diversity.26
You might be wondering, Is sociodemographic marketing the same thing as diversity marketing then? The answer is no. Again, as with multicultural marketing, sociodemographic marketing includes underrepresented and overlooked consumers in a large population. Sociodemographic marketing is another subcategory of diversity marketing.
Sociodemographic Populations
While all sociodemographic consumer groups are important, the following are essential segments of sociodemographic marketing:
• LGBTQIA+ population. LGBTQIA+ stands for lesbian, gay, bisexual, transsexual, queer/questioning, intersex, asexual, and other sexual identities. About 5.6 percent of American adults—roughly 14.4 million individuals—identify as LGBTQIA+ according to a 2020 survey.27 In general, LGBTQIA+ consumers spend more at retail stores than other groups and have a higher percentage of online purchases compared to non-LGBTQIA+ households. Not only is this segment part of diversity marketing, but the LGBTQIA+ community is very diverse too.
• Generational population. Consumers are grouped into age clusters based on birth year. These populations include 21.7 million Traditionalist or Silent Generation (born between 1928 and 1945), 70.6 million baby boomers (born between 1946 and 1964), 65 million Generation X (born between 1965 and 1980), 72.2 million Generation Y or millennials (born between 1981 and1996), 67 million Generation Z or Zoomers (born between 1997 and 2009), and 27.6 million Generation Alpha (born between 2010 and 2025) according to 2020 US Census data.28 Every generation is unique and has different historical references, challenges, interests, and technological experiences that impact these consumers’ preferences and appeals.
• Socioeconomically disadvantaged population. These individuals tend to come from low-income households, experience financial insecurity, and have less access to education. In the United States, the estimated number of people living in poverty was over 34 million individuals in 2019.29 The majority of disadvantaged consumers are located either in poor rural areas or inner-city communities that lack social resources and infrastructure to reduce poverty.30 Marketers must be careful targeting these consumers to avoid negative repercussions from the market.
• Consumers with disabilities. This group represents an estimated 61 million Americans. About one in four adults lives with some type of disability.31 Disability is a classification derived from an impairment related to mobility, learning, intellectual, or other types of functions. This group is also considered very diverse because disabilities span cultural, social, and demographic factors. Consumers with disabilities have been traditionally underrepresented in marketing efforts, though studies show they are one of the largest sociodemographic market opportunities after baby boomers and other segments.32
Careers In Marketing: Multicultural Marketing Director
With the growing opportunities for multicultural marketing, demand is growing for multicultural marketing directors. If this job opportunity interests you, do your research on what type of skills are desired by hiring managers. To get you started, read this article about the 7 Must Have Qualities in a Multicultural Marketing Director. You can also learn directly from marketing executives in this article about how marketers can foster diverse cultures and who is getting hired and promoted in this area. The best way to learn is to follow others doing the work. Expand your network to include diverse and inclusive leaders. Start by checking out this list of 59 female marketing and growth influencers.
As you’re building a portfolio of skills for the job market, remember to continue to develop your soft skills. Why, you might ask? Read this article: 7 Soft Skills You Need to Achieve Career Growth.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Diversity marketing is a strategic approach that includes ________.
1. identifying different subsegments of consumers
2. creating advertisements to connect with specific consumers
3. consumers that share cultural and sociodemographic characteristics
4. All of these statements are true.
2.
Which of the following is true regarding why diversity marketing is important?
1. Today’s marketplace is changing dramatically everywhere.
2. Buyers, households, and communities are staying the same.
3. Consumers don’t believe that diversity in advertising is important.
4. Diversity marketing has no impact on brand loyalty.
3.
For companies to be successful in any market, the focus of diversity marketing should be ________.
1. company centric
2. brand centric
3. consumer centric
4. industry centric
4.
Diversity in market research is a good idea because it can ________.
1. help companies win over people from different population segments
2. provide information to better understand cultural and social differences
3. reduce wrong assumptions and avert public relations missteps
4. All of these statements are true.
5.
Which is not an example of a diversity marketing consumer segment?
1. Multicultural segments like Hispanic, Black, and Asian people
2. Sociodemographic segments like tech-savvy and digital natives
3. Multicultural segments like American Indian and Alaskan Native people
4. Sociodemographic segments like Gen Xers, Zoomers, and consumers with disabilities | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.02%3A__Diversity_and_Inclusion_Marketing.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define culture.
• Explain the difference between tangible and intangible cultural objectives.
• List the main elements through which culture is expressed.
• Describe Hofstede’s cultural dimensions.
What Is Culture?
You have already read about corporate culture in Marketing and Customer Value and cultural factors influencing buying behavior in Consumer Markets and Purchasing Behavior. Let’s explore culture in more detail. After all, learning about culture is the first step to understand why the concept is a fundamental component of multicultural marketing and how it connects with diversity marketing.
Culture refers to the social norms, beliefs, behaviors, and accomplishments that characterize a particular set of individuals. Culture also encompasses shared customs, arts, language, foods, and knowledge. In essence, it is a snapshot of a society’s accepted way of living at a given place or time. Figure 8.7 provides a more extensive view of the things that represent it. As you can see, culture clearly influences many aspects of life.
The term originates from the Latin word cultura, which is associated with nurturing, growing, and cultivating.33 This explanation makes sense because some cultural aspects are taught or passed down from one generation to the next. Think of it as planting a seed—not a physical one, but a seed of inner values. Culture is also fostered through community socialization. The outcome of these shared learnings leads to the continued growth of a group’s cultural identity and its idiosyncrasies.
To be effective in an increasingly diverse marketplace, marketers need to recognize the profound role that culture plays in consumers’ behaviors and purchasing decisions. That is why multicultural insights are so important to diversity marketing.
Tangible versus Intangible Culture
Culture is both tangible and intangible. This means that it can be seen, but it can also be concealed. Anthropologist Edward T. Hall describes it as an iceberg with external and internal surfaces.34 As Figure 8.8 depicts, some elements of culture are readily visible, like the tip of the iceberg. Traditions, music, languages, artifacts, clothing, and literature are just a few aspects that are easy to recognize. They are tangible and external. In other words, they are the conscious part of culture.
Other aspects of culture are like the bottom part of the iceberg. Did you know that 90 percent of an iceberg’s mass is hidden below the waterline? Thought processes, assumptions, skills, beliefs, and interpretations are more difficult to observe. Can you see a person’s thoughts? Can you understand a person’s worldviews without asking? These things happen out of sight, making them the subconscious part of culture. Intangible and internal aspects are just like the larger portion of the iceberg in the sense that they are often beneath the surface.
The iceberg analogy gives us a valuable lesson about cultural insights. Connecting with multicultural consumers requires understanding not only those elements of culture that can be observed but also those that are deep-seated in a specific community.
The “Texican Whopper” campaign from Burger King (see Figure 8.9) makes this point clear. Burger King was forced to revise the ads that featured a tiny Mexican wrestler dressed in a poncho-style Mexican flag standing next to a tall American cowboy. Some Spanish-speaking customers thought the campaign was funny. However, others were offended. Insights about the distaste for stereotypes and the high respect for the flag as a national symbol could have prevented this situation. It could have also saved Burger King money because the campaign had to be redone.
Main Expressions of Culture
Culture is expressed through emotional experiences, symbols, linguistic communication, values and attitudes, and other practices. Cultural expressions are a vital part of a person’s identity. They provide insights about what an individual believes in or why an individual behaves a certain way. How would you perceive somebody waving an American flag on a holiday like Memorial Day, Fourth of July, or Veteran’s Day? You would probably think the person is patriotic, right? What about somebody with a colorful sugar skull face painting on Día de Los Muertos? Or how about someone with beautifully henna-decorated hands for Diwali? Visible manifestations of culture empower people to be comfortable with personal thoughts and feelings. Visible symbols also help people to be accepted in a given community by showing solidarity.
Symbols
Symbols are essential expressions of culture that represent a group’s ideologies, values, and actions. They include things such as objects, ceremonial artifacts, designs, colors, and ideas. Printed characters, words, signs, and logos can be symbols too. Even punctuation marks, or emoticons, symbolize facial expressions or people’s feelings. Marketers must be careful when using symbols because they can have different representations or meanings among different cultures. For instance, the emoticon :) symbolizes happiness in the United States. However, in Japan the emoticon for happiness looks more like this (^_^) or has a triangle-shaped mouth instead of a parenthesis.35
In the United States, the rainbow flag and its variations are symbols of the LGBTQIA+ community. Yet, for people who emigrated from Peru or have family in the Andes, the rainbow flag symbolizes the reign of the Inca empire.36 As you can see in Figure 8.10, both flags are alike but not identical (the Andean rainbow flag has two blue stripes). Despite the similarities, the rainbow flag as a symbol has different meanings to both groups.
Language
Like symbols, language is an important part of culture. Language communicates personal identity. It also shapes how people perceive the world around them. Have you heard of 9Lives? It is a popular brand of cat food in the United States owned by the J.M. Smucker Company. The brand’s name comes from the popular expression that cats have nine lives. However, did you know that in Spanish and Portuguese, the expression is that cats only have seven lives? For these multicultural consumers, such language differences can influence their perceptions of the product.
Language takes verbal and nonverbal forms; it can be spoken, signed, or written. In fact, there were 7,139 living languages reported around the world in 2021, with 23 of them in particular adding up to a combined number of speakers totaling over half the globe’s population.37 The top 15 languages in Figure 8.11 are based on the number of native- and second-language speakers in the world. Language is a main expression of culture because it provides insights to connect with audiences.
As you have read, consumer diversity in the marketplace is growing. That is why it is imperative for marketers to conduct language research with targeted populations to avoid miscommunication or lost opportunities. This means that even within cultural groups, there are speech regionalisms and slang terms that can affect the success of marketing campaigns.38
The Hispanic population has multiple subethnicities that prove this point. Let’s say that an automotive tire company wants to market its product to Hispanic consumers throughout the United States. The company could create several ad variations using words for tire that are popular among the subgroups. It could use the word gomas for Puerto Rican consumers in New York, llantas for Mexican buyers in Texas, neumáticos for Chilean clients in California, or ruedas for Cuban shoppers in Florida. The challenge for the company would be to decide if the effort and expense associated with creating multiple ads are justified. It should also consider if the words have other meanings among the subgroups. For example, for Puerto Ricans ruedas are thin wheels, not something associated with car tires.
Values and Attitudes
Values are cultural indicators of a society’s standards for goodness and justice. They are described as basic beliefs that guide behavior and give meaning to actions and attitudes. Dutch social psychologist and diversity thinker Geert Hofstede created a survey to uncover how national culture reflects a society’s values.39 Hofstede summarized the survey’s findings into the following dimensions:
• Individualism versus Collectivism. Culture is classified as either individualistic or collectivistic. In the United States, non-Hispanic White people and individuals of European descent tend to have an individualistic view. Individualism places a higher value on personal accomplishments and individual experiences. Hispanic, Black, and Asian people lean toward a collectivistic view.40 Collectivism values achieving group or family goals above those of individuals. The level of individualism versus collectivism, however, varies within multicultural segments, so it is important not to make assumptions.
• High versus Low Power Distance. In addition to their basic function, products can also serve to display an individual’s power or position in society. Think about flip phones and smartphones. Cost-wise, the traditional flip phones are a lot less expensive in general. Yet, smartphone ownership is on the rise. This is due not only to the additional capabilities of smartphones, but also to the fact that their ownership is seen as a symbol of social status. Hispanic and Black people also use smartphones more than other groups for online access to health information and educational content.41
• Masculinity versus Femininity. Gender can strongly impact the creative concept and messaging behind marketing promotions, ads, and social media. American society in general is masculine oriented, with Black men having a stronger view of masculinity than non-Hispanic White and Hispanic counterparts.42 Achievement, power, and strength are considered masculine traits. For this reason, the message of many ads in the United States is about product performance and functionality. Some Asian groups such as Japanese and Chinese are also masculine oriented. However, other Asian subgroups are considered more feminine oriented.43 For these consumers, visual ads that emphasize quality of life, people, and relationships would have a higher appeal.
• Uncertainty Avoidance. A high dislike for ambiguity and the unknown is not just an individual trait; it is a characteristic of societies in general. Cultures that do not tolerate uncertainty well seek safety and rules to reduce anxiety. These cultures also embrace technology to feel safer, which might explain why Hispanic people are such quick adopters of it. Black and Asian people also tend to avoid uncertainty and high risks more than non-Hispanic White people.44
• Long-Term versus Short-Term Orientation. This dimension describes how individuals believe and behave in society. It is also based on links to the past and challenges in the future. Cultures with long-term orientation value perseverance, orderliness, thriftiness, and having a sense of shame. Asian people overall rate extremely high in the long-term orientation.45 Short-term cultures, on the other hand, focus more on personal steadiness, happiness, and stability. The challenge for marketers is to balance orientations to successfully reach diverse audiences and influence consumption.
• Indulgence versus Restraint. Societies that prioritize satisfaction, leading a happy life, and savoring leisure activities with family and friends are described as indulgent. On the other hand, societies that favor living according to strict traditional norms and curbing life’s enjoyment are seen as restrained.
How Culture Influences Diversity Marketing
Identifying multicultural population segments and engaging them with intentional efforts is at the core of multicultural marketing. However, this requires having cultural insights because culture influences consumers’ decision-making processes and purchasing behaviors. The lack of cultural insights can spell disaster when marketing to this audience.
Let’s look at some cultural perspectives about living experiences, outlook, and community involvement. Living in the present moment and sharing situations with loved ones is an important goal to 42 percent of Hispanic people in comparison to only 23 percent of non-Hispanic White people.46 Based on this insight, marketers targeting Hispanic consumers should create advertisements that feature meaningful messages and friendly people sharing a profound experience instead of simply showing the features of a product or service.
Hispanic, Black, and Asian consumers overall are more optimistic than non-Hispanic White consumers. In a study about their financial outlook, multicultural consumers were twice as optimistic as non-Hispanic White consumers about reaching economic success in their lifetime. As collectivistic-oriented cultures, they also think more about family and community when making financial decisions. Plus, when it comes to community, Hispanic and Black consumers believe more can be achieved by working together than non-Hispanic White consumers.47
These insights suggest that expressions of culture and elements like confidence, hope, and teamwork are crucial for implementing multicultural marketing campaigns. As you read earlier, multicultural marketing is a subcategory of diversity marketing. This means that culture has a significant impact on diversity marketing as well.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Culture is described as which of the following?
1. Social norms, beliefs, and accomplishments of particular individuals
2. Elements taught or passed down from one generation to the next
3. Something that influences consumers’ decision-making processes and purchasing behaviors
4. All of these
2.
Which of the following are not examples of tangible or external expressions of culture?
1. Actions and behaviors
2. Traditions and customs
3. Values and attitudes
4. Music and visual arts
3.
Marketers must be careful when using symbols as cultural expressions because ________.
1. there are too many to choose from among different cultures
2. they can have different meanings among different cultures
3. they can have similar meanings among different cultures
4. they are verbal and nonverbal forms of communication
4.
An advertisement that appeals to personal accomplishments, independence, and assertiveness is an example of which of Hofstede’s cultural dimensions?
1. High power distance
2. Masculinity
3. Individualism
4. Long-term orientation
5.
An advertisement that is visually appealing and emphasizes quality of life, people, and relationships is an example of which of Hofstede’s cultural dimensions?
1. Femininity
2. Masculinity
3. Uncertainty avoidance
4. Short-term orientation | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.03%3A__Multicultural_Marketing.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the Hispanic, Black, and Asian identities.
• Define acculturation.
• Explain how identity-related characteristics and factors connect Hispanic, Black, and Asian consumers.
• Describe how to market to Hispanic, Black, and Asian consumers.
Hispanic, Black, and Asian Consumer Identities
The United States is a mixture of nationalities, backgrounds, cultures, and identities. This mixture has been shaped through many decades of immigration from people across many lands and by their interactions with their new environments. The US population is often referred to as consisting of majority and minority groups. The majority consists of non-Hispanic White people. The minority consists of other races, ethnicities, and communities. From a marketing standpoint, companies have historically treated the majority segment as the mainstream market. Conversely, the minority segment has been treated as a subgroup of consumers, or the multicultural market.
As you read earlier in the chapter, the demographics of the United States continue to change, and the majority segment will cease to exist in the future. The country is expected to become a “plurality nation” by 2050. This means that no group will have a sizeable majority. The non-Hispanic White population is projected to remain the largest single group.48 However, the majority position will be lost in terms of population percentage. Check out Figure 8.6 again to compare the overarching segments.
Hispanic Identity
Let’s examine the data from the 2020 US Census to better understand Hispanic consumers. The Hispanic population reached over 63 million people in 2020. Is this number significant? Yes, because it means that one out of every five people in the United States is Hispanic or of Hispanic descent. This is a 23 percent growth since the previous census! In fact, the Hispanic population has grown significantly in the last four decades. The Hispanic population is projected to reach almost 100 million individuals by 2050.
Hispanic people are not a uniform group or single ethnicity. On the contrary, the Hispanic population in the United States is very diverse. Hispanic people originate from 20 different countries, as shown in Figure 8.12, and can belong to any race. An overwhelming 83 percent of the Hispanic population belongs to just five subethnicities. These subgroups are Mexican (62.2 percent), Puerto Rican (9.5 percent), Cuban (3.9 percent), Salvadoran (3.9 percent), and Dominican (3.5 percent).49 The rest of the population is made up of the other 15 Hispanic subethnicities.
You are probably familiar with the terms Hispanic, Latino/Latina, and Latinx. They are often used interchangeably but can have different meanings. Hispanic is a language-based term that describes individuals from a Spanish-speaking country. Latino/Latina is a location-based term that identifies gendered individuals whose families originate in Latin America regardless of the language they speak. For example, a person from Spain is considered Hispanic because of language but not Latino because of location. A person from Brazil is considered Latino/Latina because of location but not Hispanic because of language (Brazilians speak Portuguese). Unlike Latino/Latina, the term Latinx is gender neutral. While Latinx has picked up momentum among some groups, many Hispanic people dislike the word or find it offensive.
Many cultures integrate traditions in their lives as the generations progress. Hispanic people demonstrate this same movement of traditions, from their countries and cultures of origin into their family practices in the United States. Why is that? It has to do with identity. Identity is a person’s self-image. Cultural identity, in particular, is how a person identifies with a given culture, ethnicity, or social group. It is a sense of belonging that influences personal thinking and actions.
For the majority of Hispanic people, identity is strongly linked to heritage or to their family’s country of origin.50 Customs and social practices are strong components as well. To increase its connection with these consumers, Target (see Figure 8.13) appealed to the Hispanic identity with its sobremesa commercial. The sobremesa is the additional time spent at the dinner table with friends and family after a big meal for relaxing or having meaningful conversations. This Hispanic tradition does not have a direct translation in terms of American culture. Target created the hashtag #SinTraducción for the campaign, which means “without translation” to further emphasize this. Target also used “There will always be a part of you that simply doesn’t translate” as the slogan for social media outreach. The commercial is part of the retailer’s first campaign ever aimed directly at Hispanic millennials.
Link to Learning: Target “Sobremesa” Commercial
Target’s “Sobremesa” commercial shows an entire Hispanic family sitting at the table clearly after the meal has ended to share desserts and enjoy fun conversation as a group.
Black Identity
Black people are the second largest multicultural group in the United States after Hispanic people. Let’s consider the statistics from the 2020 US Census again. The Black population shows growth at 46.8 million people in 2020 versus 38.9 million people a decade earlier. Black consumers make up 14.2 percent of the country’s total inhabitants. Another key point is that individuals who identify as Black in combination with another race have increased 88.7 percent since the last census. This “in combination” trend is not unique to the Black community; the “in combination” identification accounted for the majority of the changes in all the racial categories.51
This multicultural segment shows a couple of other interesting changes that impact consumer and consumption behaviors. For example, Black consumers are forecasted to account for 15–17 percent of the total population growth in the nation over the next decade. Black people have also had the largest change in education level in recent years. Since the 2010 census, the percentage of Black people with an undergraduate degree has increased by more than 55 percent. 52
While Black people account for 14.2 percent of the population, this segment makes up just under 10 percent of spending on goods and services. This is because Black workers earn a lower median income than other demographics. However, this inequity in spending and wealth is showing signs of moving toward a better balance. The growing Black population is estimated by management consulting firm McKinsey to represent over \$300 billion per year in unmet demand.53
A 2019 survey by the Pew Research Center shows that nearly 75 percent of Black people believe that race is at the center of their identity.54 Race is deeply tied to how people perceive themselves. When it comes to defining the Black identity further, the community is also facing a unique challenge. There is a growing argument in the United States over differences between Black people who emigrated from Africa and those who did not. The debate is caused by the ancestral link to slavery that many American-born Black people have but immigrants do not. Plus, Black people can also have other subethnicities such as Black Hispanic and multiracial (White, Asian, or Native American). While the subethnicities may not be physically visible, marketers need to be aware that identity differences can be significant among the Black population.
These multicultural consumers also feel relatively well connected to the broader Black community and prioritize social activities that offer support to the group as a whole. To show solidarity with the BLM movement, popular ice cream brand Ben & Jerry’s (see Figure 8.14) named one of its flavors “Justice ReMix’d” to raise awareness of racism and criminal justice reform. The company worked with the Advancement Project national office to advocate for social change and civil rights. Ben & Jerry’s also enacted a multipoint corporate plan challenging other companies to champion the cause and join the conversation about racial inequalities.
Asian Identity
The Asian population in the United States has also increased since the last census. This growth has been fueled largely by foreign-born individuals. There were 19.9 million people in 2020 who identified as single-race Asians. This number is up from 14.7 million a decade earlier. There were also 4.1 million people in 2020 who identified primarily as Asian “in combination” with another race. In fact, this combination of single race and mixed race increased a whopping 55.5 percent from 2010 to 2020, making it one of the fastest-growing demographic segments.55 Overall, the Asian population in the United States is 24 million individuals, which is 7.2 percent of the total country’s inhabitants. The US Census Bureau projects this multicultural community to more than double by 2060.
Like the Hispanic population, the Asian population is very diverse too. Figure 8.15 shows the 22 different subethnicities that make up these multicultural consumers. Did you know that six of these origin groups account for 85 percent of the total Asian American community? These groups derive from the Asian continent and the Indian subcontinent. These origin groups are Chinese (24 percent), Indian (21 percent), Filipino (19 percent), Vietnamese (10 percent), Korean (9 percent), and Japanese (7 percent).56 The remainder of the Asian people come from Native Hawaiian, Pacific Islander, and other subgroups.
The geographic distribution of this population is worth noting. There are over 9.8 million Asian people living in the western region of the country. This is nearly half the entire Asian population! Plus, almost one-third of Asian consumers live in California alone, making Asians one of the state’s largest population segments. The southern states have the second largest Asian population with 5.3 million individuals. Overall, Asian people are projected to be the largest source of immigrants by 2055, accounting for 36 percent of all immigration, followed by Hispanic people at 34 percent.57
As an immigrant group, Asian people have the fastest adoption rate of the English language. Almost 75 percent of Asian households speak English, and nearly two-thirds of American-born Asians speak English only. Asian people are also more likely than the average American household to live in a multigenerational setting.58 Because of their diversity and unique characteristics, it is difficult to narrow it down to a uniform Asian identity. This poses a challenge for marketers. Creating generalized messages for Asian people or having a “one size fits all” marketing approach is unwise. Plus, making assumptions about consumers’ purchasing behaviors as a singular market can be very tricky, if not inadvisable, because there is not a sole Asian cultural identity.
A 2019 survey about race found that 56 percent of Asian people said race was a key part of their identity.59 Using this insight, Nike created two different—but very effective—commercials targeting different subsegments of Asian consumers. Nike’s “The Great Chase” is inspired by the longtime Chinese tradition of gifting money in little red envelopes.
Link to Learning: Nike
Check out the “Great Chase” commercial and compare it to the upbeat “Da Da Ding” commercial featuring Indian women practicing many types of sports.
The Acculturation Spectrum
People who immigrate to the United States from another country will probably experience some personal level of acculturation. Even American-born multicultural individuals whose families speak another language at home besides English may also experience acculturation. Acculturation is the process by which a person’s family cultural patterns change because of direct and constant contact with a different culture.60 Acculturation can happen in various degrees. The spectrum ranges from complete adoption to total rejection of the new culture. Individuals that simultaneously merge both cultures in daily life are considered bicultural.
Hispanic and Asian consumers can experience various degrees of acculturation. This depends on birthplace, immigration status, community connections, and personal comfort level. For instance, a person born in the United States to immigrant parents is more likely to be acculturated than unacculturated. For marketers, being aware of acculturation levels is important because they play a significant role in how these multicultural consumers respond to marketing messages. Here is another example. Hispanic people in general think of language as a tool to preserve the culture. As a result, unacculturated Hispanic consumers are more likely than acculturated consumers to support a brand that advertises to them in the Spanish language. This effort is seen as a sign of respect and appreciation.61
Identity-Connecting Characteristics and Factors
The Hispanic, Black, and Asian populations each have a general set of cultural characteristics based on their multicultural identities. Being aware of each segment’s personal characteristics helps marketers create effective marketing promotions and advertisements. In addition to internal characteristics, these consumers are also influenced by external factors such as social circumstances and market behaviors. Let’s explore characteristics and factors in more detail.
Hispanic Consumers
Hispanic consumers in general are optimistic, family-oriented, warmhearted, and hospitable.62 The culture’s energy and liveliness are visible through elements like music, food, decor, and language. Hispanic people place a high value on relationships and social interactions. Have you noticed that some commercials aimed at Hispanic consumers show people in close proximity, touching, or hugging? Physical contact is important to this multicultural segment. It is seen as a way to build trust and group harmony. Did you notice it in Target’s sobremesa commercial?
Hispanic consumers support brands that demonstrate cultural authenticity, transparency, and honesty. After all, openness and having meaningful connections are at the heart of these consumers’ values. In terms of factors, the concept of product quality and service quality is deeply desirable to Hispanic consumers. Have you heard of Hispanic actress Jessica Alba? Alba, who is of Mexican descent, founded The Honest Company (see Figure 8.16) in 2012 with the mission of formulating safe, high-quality personal and beauty products for the family. Other factors that influence Hispanic consumers include companies’ pledges to sustainability and social responsibility. Indeed, these are growing concerns that shape this community’s purchasing behaviors.
Black Consumers
Two noteworthy characteristics of Black consumers in general are determination and self-expression. As you read earlier in the chapter, race is a key component of the Black identity. The social, educational, and economic struggles that Black people have faced because of racial discrimination and injustice have made these consumers highly determined to pursue their dreams regardless of the obstacles encountered. Self-expression is also a significant cultural trait. It is a way to show personal pride in one’s identity. Among Black consumers, self-expression is typically conveyed through fashion, music, sports, and the arts.
Like Hispanic consumers, Black people are optimistic and resilient. Strong community bonds, observance of religious practices, and deep commitments to social activism are factors closely linked to Black consumers’ identities. The opportunity to raise a collective voice about key issues is a fueling factor too. In 2020, Beats by Dre launched the “You Love Me” campaign (see Figure 8.17).
Link to Learning: Beats by Dr. Dre
Beats is a leading manufacturer of audio products cofounded by Black rapper Dr. Dre. The two-minute commercial plays on the audio pun and challenges viewers to emotionally listen by asking the question “You love Black culture, but do you love me?”
Asian Consumers
Asian cultures are steeped in rich traditions and customs. Asian consumers are very proud of their heritage, and at the same time, they identify well with the American culture. Asian people share this cultural duality characteristic with Hispanic people. Cultural duality is not the same thing as acculturation. Cultural duality happens when an individual’s cultures overlap with each other and the person feels a sense of belonging to both simultaneously. Did you know that almost 50 percent of Asian consumers in the United States watch TV in both English and in an Asian language?63 This helps them stay current with American culture while keeping connected with their native culture.
Shared societal values are a trait that influence people’s behaviors. One of these is collectivism. Think about Hofstede’s cultural dimensions, individualism versus collectivism in particular. Collectivism places more emphasis on group activities than on individual ones. Overall, Asian societies are collectivistic, though the degree of collectivism varies among the populations’ countries of origin.64 Cultural celebrations are also a factor linked to identity. Instacart, Target, Wells Fargo, and Toyota are just a few companies marketing to Asian consumers in the United States using traditional festivities like Diwali and Lunar New Year to appeal to the group’s collectivism.
Link to Learning: Asian Celebrations
Two examples posted on social media platforms are Wells Fargo’s Happy Lunar New Year on Instagram and Toyota’s Diwali tweet on Twitter.
Marketing to Hispanic, Black, and Asian Consumers
As you have seen, marketing to each of these multicultural segments is unique. Marketers must do the research and understand the demographics, cultures, identities, and group characteristics of these targeted consumers. It is also equally important to recognize that none of these elements are static. They are dynamic and interact with one another.
Being successful with multicultural marketing, and ultimately with diversity marketing, includes many factors. Success also requires connecting with each consumer segment on a personal and intimate level. This inevitably means that marketers must recognize the similarities and differences between the cultural identities that shape daily life experiences in the United States.
In the upcoming decades, the meaning of the terms minority and majority segments are going to wane in significance. Groups that have been historically classified as the minority market are going to grow, while the group historically classified as the majority is going to shrink in size. This is setting the stage for a future of a “plurality nation,” further emphasizing the importance of multicultural trends and diversity marketing.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following is the largest segment of multicultural consumers in the United States?
1. Asian population
2. Black population
3. Hispanic population
4. Native American and Alaskan Native population
2.
Which ethnic term can be used for a person from Puerto Rico or of Puerto Rican descent?
1. Only Hispanic
2. Both Hispanic and Latino/Latina
3. Only Latino/Latina
4. None of these terms are correct.
3.
Acculturation is the process by which a person’s family cultural patterns change because of direct and constant contact with ________.
1. their home culture
2. a different culture
3. many cultures simultaneously
4. a high degree of global travel
4.
When it comes to cultural identity, which of the following do the overwhelming majority of Black people believe is a major contributor and attribute?
1. Cultural duality and relationships
2. Education and income level
3. Immigration status and conventionality
4. Race and community
5.
Effectively marketing to Hispanic, Black, and Asian consumers requires ________ with each multicultural demographic and understanding ________.
1. connecting; segmentation
2. surveying; advertising
3. using influencers; social media
4. using culturally relevant idioms; fun advertising | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.04%3A_Marketing_to_Hispanic_Black_and_Asian_Consumers.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define sociodemographic marketing.
• Explain how to market to the LGBTQIA+ community.
• Explain how to market based on generational differences.
• Explain how to market to consumers with disabilities.
• Describe how sociodemographic trends will impact future marketing.
Sociodemographic Marketing
As defined earlier in the chapter, sociodemographics is the combination of two distinct factors—social and demographic—within a given population. This combination results in a set of quantifiable variables for narrowing down customers in a large market. Social variables can be quite literally anything with which people identify. In other words, social variables are associated with identity. Because of that, they can include racial and ethnic identities too. Social variables are broad and can feel loosely defined. However, it is this unstructured nature that often provides important insights for marketers. Demographic variables, on the other hand, are more specific or have precise descriptions. These include things like gender, age or generation, religion, marital status, income, employment, education, political affiliation, disability, and more.
As you have already read, sociodemographic marketing is a subcategory of diversity marketing (refer back to Figure 8.4). It intentionally targets certain audiences with attractive advertising and promotions based on shared social and demographic variables. Overlaying these two factors has several worthwhile benefits for marketers. One of them, for instance, is that it makes it easier to detect market trends and shopping patterns based on a large number of consumers with variables in common. Such findings are indispensable for marketers to gauge the financial and emotional impact of their marketing efforts.
Another benefit is that sociodemographic marketing creates valuable opportunities for reaching historically underrepresented individuals or underserved communities. This outreach is significant because it demonstrates companies’ commitments toward a more diverse and inclusive market. Sociodemographic marketing also enables marketers to adapt products, services, and messaging to be more effective for both businesses and consumers.
Marketing to the LGBTQIA+ Community
The LGBTQIA+ population is composed of consumers who express a diversity of gender identities, preferences, and sexual orientations. The acronym stands for lesbian, gay, bisexual, transgender, queer/questioning, intersex, and asexual. The plus sign (+) represents other sexual identities as well as allies who are not LGBTQIA+ members but support the community’s cause. The acronym has evolved over the decades to become more inclusive and capture diverse relationships, expressions, and identities.
The LGBTQIA+ community in the United States is growing. In 2012, only 3.5 percent of Americans self-identified as LGBTQIA+. American analytics company Gallup shows this number increasing to 5.6 percent in 2020 (see Figure 8.18). Did you know that one in six adults in Generation Z (born between 1997 and 2012) identifies as LGBTQIA+?65 This indicates a growth trend reaching toward 16 percent in the future as other generations age out.
You might be wondering what is driving this growth. Some of it is attributed to greater confidence in both societal acceptance and in the ability to find support within the LGBTQIA+ community itself. Sociologists and psychologists have known for a long time that a sense of belonging, whether to a family or a social group, is essential for normal and optimal human functioning. Therefore, the growth of the LGBTQIA+ community is also partly the result of this human need to belong. Plus, it is driven by a political and sociological need to be represented and treated fairly as well.
For marketers, focusing on the societal experience around belonging (acceptance, welcoming, support, and inclusion) is key for reaching the growing number of LGBTQIA+ consumers. Global furniture giant IKEA (see Figure 8.19) understands this very well. In 2021, IKEA promoted the #ProgressIsMade campaign in the United States during the entire month of June. The campaign featured rainbow-themed products like carrying bags and an audio speaker cover. IKEA donated up to \$50,000 in proceeds from these limited-edition products to LGBTQIA+ nonprofit organization GLSEN. In Canada, IKEA displayed at select stores 10 different love seats as concept art inspired by Pride flags to increase its support for inclusion during Pride month.
Link to Learning: IKEA Loveseats
Learn more about the IKEA love seat collection and see the designs by reading these articles:
What can marketers do to be more successful in advertising to LGBTQIA+ consumers? Consider the following steps. First, review the company’s values and have an open and honest conversation with leadership about authentic support of the LGBTQIA+ community. After all, genuine care and inclusiveness are the base for all marketing efforts. Second, establish guidelines on how to speak with and about the LGBTQIA+ community. This means the words, tone, imagery, and core messaging of marketing communications. Third, find experts to provide advice and insights into the community. This reduces the possibility of unknowingly offending this consumer segment. Plus, using group members for brainstorming and evaluation is extremely helpful too. Fourth, test and verify that products, services, and messaging are perceived as designed.
Marketing to the Generations
Age is a frequently used demographic statistic for segmenting populations. Age is also expressed or compared in terms of generational groups. This approach enables marketers to capture a larger number of consumers by grouping them into defined categories.
You read earlier in the chapter about these categories: Silent Generation, baby boomers, Generation X, millennials, Generation Z, and Generation Alpha. Figure 8.20 shows these generations based on their percentage among the American population. Think about this. A member of Generation Alpha (people born between 2010 and 2025) is born every nine seconds in the United States. This generation is expected to account for 2 billion individuals worldwide by 2025!66 Grouping consumers into generational segments helps maximize marketing efforts and reach a larger portion of the total market.
It is crucial for marketers to keep in mind that each generation has unique life experiences built on social, economic, and political dynamics associated with their formative years. These experiences influence each generation’s views and values, which subsequently impact their behaviors as consumers. Let’s consider Generation Z and Generation Alpha again. Members of both generations are highly technologically literate. They have also been directly impacted by the COVID-19 pandemic’s aftermath in terms of remote learning and reduced face-to-face interactions. Consequently, this “lockdown generation” has spent more time engaged with social media and virtual environments. Marketers need to consider how such situations will influence these generations’ shopping behaviors and consumption patterns.
There are many factors that can be combined with a generational view of consumers. One of the more useful for marketers to keep in mind is economic influence. Figure 8.21 shows the wealth distribution by generation in the United States as of 2020. This chart tells a significant story.
Until 2008, the Silent Generation and earlier generations controlled a relatively equal amount of wealth. Two primary factors gradually shrunk the amount of wealth of these consumers: natural mortality and the 2008 recession. Conversely, the wealth of baby boomers grew. In fact, many have said that the Boomer Generation is the wealthiest generation to have ever lived. Generation X’s wealth started to grow in 2015, but the ability of this generation to build riches has slowed down compared to preceding generations. Millennials’ wealth building appears to be even slower (see Figure 8.22).
What does this mean? Wealth and income level play a role in people’s spending decisions, so marketers need to understand how it is shaped by generational groups. Here are some steps to consider to be more successful in advertising to consumers based on their generations. First, use deeper and more extensive combinations of sociodemographic variables. Grouping by generation alone is likely not enough. Adding another variable such as income, education, or social markers may prove useful. Second, use focus groups and individuals who fit the target group to provide direct input and ideas. Third, consider adapting the marketing communication to fit the norms of each generation. Fourth, test and verify that products, services, and messaging are perceived as designed.
Marketing to Consumers with Disabilities
Americans with disabilities make up a much larger segment of the market than you might realize. There are approximately 61 million Americans with disabilities. That number is over 18 percent of the total population of the United States. When the word disability is used, many people usually visualize a mobility difficulty like having trouble walking or climbing stairs. However, as seen in Figure 8.22, functional mobility makes up less than a third of the different types of disabilities. Other forms include cognitive or neurological, autonomous living, and sensory related. This makes consumers with disabilities a very diverse group too.
Disability is more frequent in adults over the age of 65 and in women. Among racial and ethnic segments, it is more common in non-Hispanic, Native American, and Alaskan Native people. Adults living with a disability are also more likely to be obese, smoke, have heart disease, and have diabetes.67 While disabilities are very often important and impactful aspects of people's lives, people with disabilities have many defining characteristics, goals, needs, and identities.
How can marketers best reach consumers with disabilities? By using an approach that ensures the company’s efforts express humanity, authenticity, and inclusivity. Let’s look at a couple of examples. In January 2019, a picture from a bridal boutique’s window display went viral due to its powerful inclusivity message. The display showed a mannequin in a wheelchair dressed in a wedding gown. In February 2022, Hispanic model Sofia Jirau made history as the first person with Down syndrome to become a model for Victoria’s Secret. These examples demonstrate that people with disabilities are not only part of our social fabric but also are an integral part of the overall market.
Other suggestions for marketers consist of ensuring that disabilities are properly represented. This means consulting or hiring individuals who have a disability rather than using actors or models who do not. Marketers also need to keep in mind how disabilities affect marketing communications. In other words, think about closed captioning on videos or the use of alternative text on images for websites. The types of disabilities are diverse, so marketing initiatives have to be diverse as well. That is what makes sociodemographic marketing a subset of diversity marketing.
Developing Sociodemographic Trends and Their Future Impact
Discovering sociodemographic trends takes an enormous amount of study. To do an effective job, marketing researchers are constantly working with a multitude of variables. They set parameters, collect data, analyze it, and come up with ideas based on results. This work is done repeatedly over time. It is precisely the extended time frame that enables marketing researchers to see market patterns surface. Let’s check out some current trends that will have a future impact for companies and marketers in general.
Population Stagnation
The population has been growing around the world at historically unprecedented rates for many years now. Yet, there are several sources claiming that it will decline globally around the middle of the 21st century.68 The United States has already been in a relatively steady population growth decline—or population stagnation—according to trends from the US Census Bureau. In fact, the American growth rate has slowed to its lowest point in over 120 years. If this trend continues, the United States will see its first net population decrease in the next couple of years.69
Marketers need to consider the sociodemographic factors that are contributing to this trend: births, deaths, and international migration. No doubt COVID-19 has impacted the death rate, which was already being fueled by the growth deceleration from years earlier. Figure 8.23 illustrates the population changes in the United States through 2021 based on some of these factors. The rapid percent change in 2020 and 2021 is probably due to the pandemic’s effect.
Consumer Spending Dominated by Baby Boomers
While this is not a new trend, it is certainly one that will continue through the 2030s as the baby boomer population ages out. The American Association for Retired Persons (AARP) reports that American workers over 65 years of age have a median income of \$78,000 per year, while workers under age 65 have a median income that is only \$55,000.70 Keep in mind that this statistic is about individuals who are actively working, meaning not yet retired. Couple it with the wealth accumulation information you read about earlier. The baby boomer population certainly exerts outsized economic and purchasing influence, making this an important current and future market segment.
Understanding sociodemographic trends such as population growth and decline as well as market consumption based on generational groups is crucial for marketers to create relevant and effective marketing campaigns in the growing age of marketplace diversity.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Sociodemographic marketing is a subcategory of diversity marketing, and it targets audiences based on ________.
1. psychological distinguishing factors
2. political affiliation
3. geographical and governmental boundaries
4. shared social and demographic variables
2.
Which of the following is a key marketing approach for reaching the LGBTQIA+ audience?
1. Focus on the societal experience around belonging.
2. Build empirical value differences in products and services.
3. Compare mainstream market adoption levels for new technology.
4. Use a personal argument as a persuasive purchasing strategy.
3.
Which of the following is a useful step to improve a marketer’s ability to reach a generational target audience?
1. Use deeper and more extensive combinations of sociodemographic variables.
2. Add variables such as income, education, or social markers.
3. Use focus groups to provide direct input and deeper insights and ideas.
4. All of these are useful steps.
4.
When marketing specifically to consumers with disabilities, you can express inclusivity in advertising by using ________.
1. all individuals, even those who do not have a disability
2. impersonal and abstract images
3. individuals who have a disability
4. only nonvisual advertising media
5.
Which of the following is an emerging sociodemographic trend that will impact future marketing?
1. Rapid population growth in the United States
2. Consumer spending dominated by baby boomers
3. Redistribution of economic wealth
4. Hemispherical global migration caused by global warming | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.05%3A__Marketing_to_Sociodemographic_Groups.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify the ethical issues related to diversity marketing.
• Discuss how to address different consumer values to reduce issues in marketing.
Ethical Considerations in Marketing
The issues related to business ethics reside within society’s definitions and standards. Like with many topics, what is considered ethical business behavior or an accepted practice today can change tomorrow based on context. In other words, business ethics do not remain fixed. Ethical standards transform and adapt in conjunction with changes in the business environment.
Consider the following scenario. Let’s say you are visiting the doctor for your annual checkup. How would you feel if the doctor walked into the exam room smoking a cigarette? Most people would have a negative reaction to this. In most places in the United States, it is against city ordinances to smoke indoors in public places unless it is a designated smoking area. These ordinances are enforced because the government recognizes that smoking is a health hazard. If your doctor walked into the exam room with a cigarette, it would pose several ethical concerns. However, did you know that until the 1950s, doctors approved of smoking and even appeared in cigarette ads? By the mid-1960s, the medical field developed clarity around the hazards of smoking, and norms were changed in society and in advertising. Figure 8.24 shows an advertisement making this point.
Where do business ethics come from? Ethics originate from the need and desire to promote both fair and equitable competition in the market. Ethics are supported by legislation such as the Sherman Antitrust Act from the US Department of Justice. Ethical considerations in diversity marketing have a similar background. They are linked to companies’ fair and equitable outreach and representation of diverse audiences in the market. These include multicultural and sociodemographic consumer segments in particular.
Business ethics shape companies’ and employees’ work behaviors, corporate activities, and marketing efforts. This implies that ethics are inseparable from a company’s brand. Why? Because a brand is essentially what a business stands for and what it represents. Consumers associate certain characteristics and traits with a company’s brand. These expectations, in turn, influence purchasing actions. For this reason, marketers need to take great care in creating an accurate reflection of the company’s ethics that are also culturally and socially sound.
Ethics are often contextual, so it is important to recognize that values and behaviors vary by culture, identity, and other demographic variables. This means it is imperative to truly understand targeted segments as thoroughly as possible. It is common for marketers to research things like buying patterns, consumption sentiment, desired features, and media efficacy. However, to succeed in a diverse marketplace, research must extend deeper. It needs to be ethically based on target segments’ cultural sensitivities and social issues. Economic fairness, political viewpoints, differences in technological access, legal protections, and environmental risks should also be considered in ethical marketing research.
Ethical Issues in Diversity Marketing
One of marketing’s primary functions is to reflect an organization’s business ethics and values to the marketplace and to consumers. This must be done in an active and intentional manner. Marketers have a responsibility to ensure that efforts and communications are honest, balanced, and authentic to the company and to the marketing profession. Creating awareness of cultural and social issues that impact ethical practices is also a key function of diversity marketing.
Cultural and Social Values
How messages are perceived and decoded in advertising is the most publicly visible representation of a company’s ethics, values, and overall business culture. Marketers need to ensure that advertising campaigns do not reinforce harmful stereotypes and unconscious biases. This is not easy to do because, after all, cultural and social beliefs are deeply seated. This explains why some biases are unconscious.
Stereotypes and unconscious biases are evident in every facet of life. In fact, everybody has them. Cultural stereotypes and social biases are common in advertising. Let’s explore some situations. Asian people share many cultural values and characteristics. As you have read, the Asian population in the United States is comprised of 22 different countries of origin. Red is considered a lucky color by most Asian people. When advertising to Chinese consumers, it is typical to see the color red used prominently. However, assuming that all Asian consumers feel the same about this color is stereotyping. For Japanese people, green symbolizes youth and vital energy; yellow is associated with vitality and light for Korean people.71
You may have seen ads that suggest that only boys or men play football or maybe that only girls and women cook. These types of ads perpetuate gender stereotypes. That’s why campaigns like Procter & Gamble’s groundbreaking 2014 “Like a Girl” campaign challenged people’s stereotypes with its ads about what it means to do things as a female. Here is yet another example. Radio advertisers could ignore baby boomers in favor of millennials and Generation Z consumers. This bias is driven by the incorrect assumption that baby boomers are not active radio listeners, which is not true. Stereotypes and biases can cost companies a lot of money in negative publicity and lost opportunities. From an ethical perspective, biases can have unintended discriminatory results among diverse consumer segments.
Diversity Representation
Diversity marketing is about reaching a larger portion of the total market by including diverse population segments such as multicultural and sociodemographic audiences. Representation matters for a growing number of consumers. While trying to be inclusive, marketers need to steer clear of tokenism. Tokenism happens when an individual from either a minority group or an underrepresented community is included in ads or marketing communications to prevent criticism. Tokenism is a symbolic act that gives the appearance of representation. However, it is not a genuine desire to portray consumer diversity.
When it comes to ethical considerations such as advertisements’ diversity balance, the focus is on ensuring positive associations. This inclusive balance is not limited to just people. It also applies to terms, phrases, and other forms of communication. For instance, the misuse of words or incorrect translations can inadvertently convey a lack of sensitivity to multicultural or sociodemographic consumers. Marketers may offend without intending to do so. As an example, as you read earlier in the chapter, some terms can be disliked by ethnic consumers.
Marketers need to intentionally consider every characteristic, factor, and set of values that shape diversity and inclusivity. These need to be weighed against the perceptions of each consumer segment. Doing a thorough job of research, design, and review goes a long way to ensuring a fair and equitable representation of all consumer segments.
Companies with a Conscience: Culturally Sensitive and Socially Inclusive Marketing
Multinational industry leaders like Coca-Cola, Google, Adidas, Unilever, AT&T, Marriott International, and Microsoft are just a few of the companies that, like P&G, are focusing their marketing efforts on being more culturally sensitive and socially inclusive. Even niche players, partnerships, and private companies such as Bumble, Fenty Beauty, and ThirdLove are also championing diversity as a core value through equal cultural and sociodemographic representation rather than just chasing a trend in marketing.72
Consider Coca-Cola’s long history of advertisements and promotions, for example. In the early 1970s, Coca Cola released the “Hilltop” commercial (also known as “I’d Like to Buy the World a Coke”), which showed people from different races and cultures bonding over the beverage. In 2011, the company launched the groundbreaking campaign “Share a Coke” in Australia to connect with consumers in a personal way while influencing product purchases. The campaign went viral and became a global success.73
For the 2014 Super Bowl and the Winter Olympics in Sochi, Russia, Coca-Cola launched the “America Is Beautiful” campaign.74 Recognizing the growth of multicultural consumers in the United States, the campaign’s commercial featured seven young bilingual American women singing in different languages. It also showed culturally diverse consumers from all walks of life. Although the campaign was subject to severe criticism and sparked outrage and boycotts by some people, Coca-Cola was applauded by others for its commitment to a more inclusive marketing communication. That is what diversity marketing is all about. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.06%3A__Ethical_Issues_in_Diversity_Marketing.txt |
Marketing reflects an organization’s ethics and values as it communicates, especially with current and prospective customers. Marketers have learned to adjust over time to changes in the marketplace, especially as technology, the environment, politics, culture, and demographics have evolved and altered customer needs, wants, and demands. This chapter introduces concepts primarily concerned with culture and diversity and the need for businesses to focus more on customer individuality than on customer commonality. Research shows that companies that build emotional ties through diversity generate more revenue, increase stock price performance, and enhance brand perceptions.
Marketers must be constantly aware of demographic trends, especially in multicultural identities, generational differences, consumers with disabilities, and changes in spending. Ethics, too, transform and adapt to the business environment. Ethical norms not only promote fair and equitable competition, they also set standards for brand stewardship and social responsibility.
Finally, the focus of many successful marketers today is to rely on marketing intelligence to guide them toward establishing and maintaining positive customer associations across population characteristics.
8.08: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
acculturation the process by which a person’s family cultural patterns change because of direct and constant contact with a different culture
adaptation the process of adjusting a company’s work efforts, goods, or services in response to specific needs, tastes, or expectations—whether real or perceived—from different groups of consumers
Asian population third largest multicultural group in the United States; made up of 22 different subethnicities from the Asian continent, Hawaii, and islands of the Pacific; can belong to a single race or mixed races
Black population second largest multicultural group in the United States; made up of three different subethnicities: single race, Black Hispanic, or Black mixed with another race (White or Native American)
company centric a company’s approach to focusing decisions and execution from the perspective of the organization rather than the customers
consumers with disabilities sociodemographic group living with some type of disability related to mobility, learning, intellectual, or other types of functions; a very diverse group because disabilities span cultural, social, and demographic factors
cultural duality characteristic of a multicultural individual for whom cultures overlap with each other and the person feels a sense of belonging to both at the same time
cultural identity how a person identifies with a given culture, ethnicity, or social group, which instills a sense of belonging that influences personal thinking and actions
culture objective and subjective elements like social norms, beliefs, behaviors, accomplishments, customs, arts, language, foods, and skills that characterize a particular group of individuals’ way of life
customer centric a company’s focus on putting targeted customers first regarding any decisions about its goods, services, or experiences to create satisfaction and strengthen loyalty
diversity marketing a strategic approach that involves identifying different subsegments of the population—based on shared cultural and sociodemographic characteristics—and creating intentional marketing efforts to connect with these consumer groups
diversity marketing intelligence (DMiQ) the capability of identifying, accepting, and valuing the diverseness of consumers within a market and using this knowledge to tailor the marketing mix accordingly
generational population sociodemographic category based on birth year clusters that includes Lost Generation (1883–1900), Greatest Generation (1901–1927), Traditionalist/Silent Generation (1928–1945), baby boomers (1946–1964), Generation X (1965–1980), millennials/Generation Y (1981–1996), Zoomers/Generation Z (1997–2009), and Generation Alpha (2010–2024)
Hispanic population largest multicultural group in the United States; made up of diverse subethnicities and races originating from 20 different Spanish-speaking countries in North America, Central America, the Caribbean, South America, and Europe
LGBTQIA+ population community composed of individuals who express a diversity of genders, preferences, and sexual orientations that include lesbian, gay, bisexual, transsexual, queer/questioning, intersex, asexual, and other sexual identities
marginalized consumers populations of consumers that have been pushed to the margins of society and are often excluded in mainstream advertising
marketing mix the four key elements—product, price, place, and promotion—that shape the development and execution of marketing objectives to reach a target market
multicultural identity having an affinity with multiple racial or ethnic groups that a person has been exposed to and self-categorizing as being part of more than one of them
multicultural marketing a subcategory of diversity marketing aimed at intentionally targeting audiences based on different racial, ethnic, and cultural identities and backgrounds
Native American, Alaska Native population multicultural group of individuals of a single race and mixed races who are native to the United States and its territories including American Indians, Alaska Natives, Native Hawaiians, and American Samoans
sociodemographic marketing a subcategory of diversity marketing aimed at intentionally targeting audiences based on shared social and demographic characteristics such as gender and sexual orientation, age or generation, family structure, religion, education, income level, and disability
sociodemographics the combination of social and demographic factors that characterize specific consumer groups in the market
socioeconomically disadvantaged population disadvantaged community that lacks social resources and infrastructure to reduce poverty; members tend to be in low-income households, experience financial insecurity, and have less access to education
standardization the process of purposefully applying identical or consistent guidelines to goods or services to achieve uniformity
tokenism the practice of including an individual from either a minority group or an underrepresented community in marketing efforts simply as a symbol | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.07%3A_Chapter_Summary.txt |
1 .
The Special Olympics offers businesses the opportunity to sponsor local, regional, national, and international events. Using what you have learned from this chapter, list three reasons why companies such as Procter & Gamble, Toyota, Coca-Cola, United Airlines, Microsoft, and the NFL would choose to spend millions of marketing dollars to partner with Special Olympics.
2 .
The United States is moving swiftly to a “plurality nation” status, according to the US Census Bureau. Identify two major multicultural trends that have and will continue to impact market segmentation.
3 .
Student Services on your campus likely has a diversity and inclusion staff that encourages an expansive range of cultural perspectives, experiences, voices, and methods for taking action on campus. How does your college or university market diversity and inclusion services to prospective students through its website?
4 .
Market fragmentation is the concept that all markets are increasingly diverse and comprised of smaller segments of consumers that respond differently to marketing messages. Media, too, has splintered, and in addition to having access to information provided by newspapers, magazines, TV, and radio, consumers now have access to millions of informational sources. However, severe fragmentation of both consumers and ways to communicate with them poses many challenges in marketing efficiency and branding. Why?
5 .
DMiQ reveals that baby boomers offer the best marketing opportunities for firms. Which sociodemographic group offers the next best marketing opportunity by sheer size of the segment?
8.10: Critical Thinking Exercises
1 .
Like Nike’s marketing adaptation with “Nike by You,” other retailers offer customers individualized products. For instance, you can design your own jeans online. Brainstorm five other products that may lend themselves to customized offerings that express cultural or sociodemographic differences.
2 .
Diversity marketing intelligence (DMiQ) refers to the capability of identifying, accepting, and valuing the diversity of consumers within a market and using this knowledge to tailor the marketing mix accordingly. Thus, capturing insights about consumers’ heritage, experience, lifestyle, beliefs, or living situations helps explain the nuances and idiosyncrasies associated with diversity. These insights helped identify that the LGBTQIA+ community generally spends more money online and at retail stores. Additionally, the research firm Out Now estimates the LGBTQIA+ community spends more than \$211 billion on travel. How can the travel industry employ DMiQ to derive more value from this group that enjoys travel and is willing to pay for it?
3 .
Research has shown that members of the baby boomer generation possess the most wealth in the United States and are responsible for 70 percent of annual spending on prescriptions and medical supplies. Are there any ethical considerations in developing marketing messages to this large and older segment of society that doesn’t want to be pigeonholed as “elderly”?
8.11: Building Your Personal Brand
Students who are building their résumés have always been encouraged to set themselves apart from the competition for internships, jobs, and volunteer experiences. In other words, focus on what makes you stand out from other job seekers. If you are bilingual, why not prepare your résumé, blog, or LinkedIn profile in both languages? Are you especially knowledgeable in a particular area such as designing alternate reality games? Do you collect comic books or baseball trading cards? All of these interests, collections, and abilities not only have the potential to create a dialogue with potential employers, but they also highlight your heritage, lifestyle, or singularity to your advantage.
8.12: What Do Marketers Do
Relatively few recent marketing graduates think about entering the nonprofit arena. Some of the key positions in nonprofits include marketing director, event coordinator, director of development, communications specialist, and volunteer coordinator.
There are many nonprofit organizations operating in the United States that strive to serve multicultural groups and sociodemographic communities. Some have purposeful objectives like equitable rights and inclusivity. Some national examples include Advancement Project, American Civil Liberties Union (ACLU), Asian Americans Advancing Justice (AAJC), Equal Justice Initiative (EJI), Human Rights Campaign Foundation, League of United Latin American Citizens (LULAC), National Association for the Advancement of Colored People (NAACP), National Immigration Law Center, National Organization on Disability, National Urban League, Prospanica, The Asian American Foundation (TAAF), The PhD Project, and The Trevor Project.
Contact a local nonprofit organization and interview an employee filling one of the above-mentioned roles. Questions may include:
• What drew you to this organization?
• What is its mission?
• What groups or communities does it serve?
• Does the position require specific training?
• How many volunteers do you have, and what are their responsibilities and time commitments?
Finally, consider whether volunteering for this organization may fulfill you, add to your résumé, and/or bring you in contact with future employees, colleagues, and friends. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.09%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Lineout
If 50 is the new 30, most 50-year-olds want to look 30. Consumers in their twenties want to look like their favorite Hollywood star or Instagram influencer. New methods, procedures, and products are flooding the market to appeal to the market demand for better skin, reduced facial wrinkles, and improved appearance. A big part of the market for skin care products is dermal fillers. According to Fortune Business Insights, the global dermal fillers market is projected to grow from \$3.07 billion in 2021 to \$6.28 billion in 2028 at a compound annual growth rate (CAGR) of 10.8 percent in the forecast period, 2021–2028.75
Noninvasive and minimally invasive procedures for smoother and younger-looking skin are rising in popularity among many different demographic groups. Through facial fillers or digitally enhanced photographs, many people are looking to improve their look. While most consumers may not have the money or the willingness to undergo surgical cosmetic procedures, many are very willing to take an alternate route—receive an injection that may last 3, 6, or 12 months and provide the appearance of younger-looking, smoother, line-free skin.76
Looking to break into the market of dermal fillers and provide excellence in the injection experience and outcome, Lineout jumped into the market. The company didn’t want to be a typical medical spa with a wide breadth of services. Instead, it was looking to be a boutique provider of an in-demand service done with excellence and provided through a vast network of boutique locations nationwide.
Like the nail salon that only does nails, Lineout is a boutique that focuses only on facial fillers. The boutique experience with niche specialization was lacking in the industry. To provide facial injections with precision and only do the best for its clients, Lineout had a business model that could break into the market and be replicated throughout the country.
While most medical spas market primarily to middle-aged women, Lineout realized the market was much bigger and much more diverse than most medical spas recognized. Consumers of various ages, genders, and ethnicities were seeking facial fillers. Many of the medical spas were set up to cater to the female market. With feminine-sounding names, pink pastels, and soft floral graphics, the marketing was all focused toward this one demographic.
Lineout purposefully structured its business to meet the needs of a more diverse market. With simple graphics, a bright color palette, and marketing promotion through various channels, Lineout was able to tap a broader market.
The male audience skewed older.77 To meet the needs of men who were wanting facial fillers, Lineout promotions included male-themed blogs, promotions through barbershops, and digital advertising with business and sports teams. For men “in the know,” lineout is a rugby term. Rugged men saw Lineout as a product for them as they stepped into the facial filler’s market.
On the opposite spectrum, young women had much different needs for facial fillers. Younger women primarily wanted lips that looked like the Kardashians and “line”-free foreheads, similar to what they were seeing from favorite celebrities and Instagram influencers. Media choices for women in their late teens and early twenties were primarily focused on TikTok and Instagram along with some select YouTube channels and reality shows. Lineout was able to connect with this audience by targeting messaging specific to the bigger, beautiful lip craze.
And finally, the biggest and most obvious market was middle-aged women who made facial fillers part of their skin care. Getting facial fillers for this demographic was as regular as a teeth cleaning or appointment with a hairstylist. Without hesitation, this market signed up for regular appointments and memberships that provided discounts for frequent and regularly scheduled sessions.
Lineout counted this demographic as its bread and butter. Demand from this market segment is highest, and this consumer group is also the most discerning. Without all the traditional services offered by medical spas, Lineout had to ensure that the level of skill and the overall results were superior to other services in the market. To reach this market, Lineout created specific blogs to address the stated concerns and needs. Lineout used Facebook and select digital channels to court the older women seeking facial filler services.
While the marketing for each demographic is a bit different, the services and the experience are similar for each of the company’s market segments. Men want specific things from their facial fillers, young women want something different, and middle-aged women are even more precise. Lineout provides for each diverse need while maintaining its niche focus of only doing facial fillers.
Learn more about the company from the Lineout website and Instagram feed.
Case Questions
1 .
How does Lineout adapt its marketing for each of the diverse markets it serves?
2 .
The trend in noninvasive cosmetic procedures grows every year. What are some of the factors that have impacted the demand for facial fillers?
3 .
What are the factors Lineout is considering when looking at how it changes its marketing to meet the needs of its different consumer markets?
4 .
The various consumer groups Lineout is serving have different and unique concerns. What are some of the factors that have created the concerns? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.13%3A_Closing_Company_Case.txt |
1. Procter & Gamble, A Common Goal Drives Our Aspirations: P&G and the Hispanic Community, n.d., https://www.pg.com/images/company/wh...%20English.pdf.
2. OWN, “OWN and P&G Present: Widen the Screen—A Fuller View of Black Life,” May 20, 2021, YouTube video, 1:06, https://youtu.be/J11Vfgha6uc.
3. Jack Myers, “P&G’s Marc Pritchard Sets Diversity Priorities and Goals for Ad Community,” MediaVillage, October 6, 2021, https://www.mediavillage.com/article...-ad-community/.
4. Jason Nazar, “13 Leadership Lessons from Zoom Founder and CEO Eric Yuan,” Entrepreneur, April 21, 2021, https://www.entrepreneur.com/article/368550.
5. Masaaki Kotabe and Kristiaan Helsen, Global Marketing Management, 8th ed. (Hoboken, NJ: Wiley, 2020), 252.
6. Helen Eboh Cletus et al., “Prospects and Challenges of Workplace Diversity in Modern Day Organizations: A Critical Review,” Holistica 9, no. 2 (August 2018): 35–52, https://doi.org/10.2478/hjbpa-2018-0011.
7. Sonia Thompson, “Data Shows Consumers Want Diversity in Marketing: Why Many Brands Struggle to Get It Right and How to Fix,” Forbes, February 5, 2020, https://www.forbes.com/sites/soniath...nd-how-to-fix/.
8. Shelby Jordan, “Why Is Diversity Marketing Important?,” Top Design Firms, November 11, 2020, https://topdesignfirms.com/web-desig...sity-marketing.
9. Robert Williams, “Study: Diversity in Ads Correlates to Gains in Revenue, Brand Perception,” Marketing Dive, Industry Dive, October 2, 2019, https://www.marketingdive.com/news/s...eption/564153/.
10. “The Heat™ Test: Measuring DEI Effectiveness in Advertising,” Deloitte Digital, Deloitte, last modified August 12, 2022, https://www.deloittedigital.com/us/e...heat-test.html.
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18. Alexia Elejalde-Ruiz, “Chicago, Long a Miller Stronghold, Has a New Top-Selling Beer: Modelo Especial Captures the City’s Sales Crown,” Chicago Tribune, September 5, 2019, https://www.chicagotribune.com/busin...vsy-story.html.
19. Annette Flanagin, Tracy Frey, and Stacy L. Christiansen, “Updated Guidance on the Reporting of Race and Ethnicity in Medical and Science Journals,” JAMA 326, no. 7 (August 17, 2021): 621–627, https://doi.org/10.1001/jama.2021.13304.
20. Claritas, The 2021 Hispanic Market Report: The New American Mainstream, 2021, https://www2.claritas.com/2021-Hispa...Report-Website.
21. Claritas, “Claritas Projects Hispanic Consumers Will Account for 67% of Total US Population Growth in the Next Five Years,” GlobeNewswire, September 20, 2021, https://www.globenewswire.com/en/new...ive-Years.html.
22. Christine Tamir, “The Growing Diversity of Black America,” Pew Research Center, March 25, 2021, https://www.pewresearch.org/social-t...black-america/.
23. Abby Budiman and Neil G. Ruiz, “Asian Americans Are the Fastest-Growing Racial or Ethnic Group in the US,” Pew Research Center, April 9, 2021, https://www.pewresearch.org/fact-tan...up-in-the-u-s/.
24. Abby Budiman and Neil G. Ruiz, “Key facts about Asian Americans, a Diverse and Growing Population,” Pew Research Center, April 29, 2021, https://www.pewresearch.org/fact-tan...ian-americans/.
25. Tim Henderson, “Census Prompts Push for More Indigenous School Lessons,” Stateline (blog), The Pew Charitable Trusts, October 19, 2021, https://www.pewtrusts.org/en/researc...school-lessons.
26. Victoria Petrock, “Consumers Expect Brands to Be Inclusive,” Insider Intelligence, November 25, 2020, https://www.emarketer.com/content/co...ands-inclusive.
27. Jeffrey M. Jones, “LGBT Identification Rises to 5.6% in Latest US Estimate,” Gallup, February 24, 2021, https://news.gallup.com/poll/329708/...-estimate.aspx.
28. Michael Dimock, “Defining Generations: Where Millennials End and Generation Z Begins,” Pew Research Center, January 17, 2019, https://www.pewresearch.org/fact-tan...tion-z-begins/.
29. Jessica Semega et al., Income and Poverty in the United States: 2019, Report No. P60-270 (Washington, DC: United States Census Bureau, September 2020), https://www.census.gov/library/publi...o/p60-270.html.
30. “New Index Ranks America’s 100 Most Disadvantaged Communities,” Affecting Change to Prevent & Alleviate Poverty, Poverty Solution at the University of Michigan, January 30, 2020, https://poverty.umich.edu/2020/01/30...d-communities/.
31. “Disability Impacts All of Us,” infographic, Disability and Health Promotion, Centers for Disease Control and Prevention, last reviewed September 16, 2020, https://www.cdc.gov/ncbddd/disabilit...pacts-all.html.
32. National Business & Disability Council, “Disabilities in the United States,” infographic, The Viscardi Center, July 15, 2015, https://www.viscardicenter.org/wp-co...t_07.15.15.pdf.
33. Merriam-Webster, s.v. “culture (n.),” accessed October 30, 2021, https://www.merriam-webster.com/dictionary/culture.
34. Mayra Rodriguez Ruiz and Neusa Olinda Varela Spínola, “Improving the Intercultural Communicative Competence of English Language Students,” Journal of Intercultural Communication, no. 49 (March 2019), https://immi.se/oldwebsite/nr49/ruiz.html.
35. University of Alberta, “Culture Is Key to Interpreting Facial Emotions,” ScienceDaily, April 5, 2007, www.sciencedaily.com/release...0404162321.htm.
36. Pavlína Springerová and Zdeňka Picková, “Aspects Determining the Auto-identification of Native Communities in Contemporary Peru,” Ethnologia Actualis 18, no. 1 (June 2018): 68–92, https://doi.org/10.2478/eas-2018-0010.
37. David M. Eberhard, Gary F. Simons, and Charles D. Fennig, eds., “How Many Languages Are There in the World?,” in Ethnologue: Languages of the World, 25th ed. (Dallas, TX: SIL International), accessed October 30, 2021, www.ethnologue.com/guides/how-many-languages.
38. Julie Otto, “Connecting with Hispanics in South Florida,” Sun Sentinel Media Group, August 22, 2018, https://www.sunsentinelmediagroup.co...south-florida/.
39. “Geert Hofstede,” People, The British Library, accessed October 30, 2021, https://www.bl.uk/people/geert-hofstede.
40. Heather M. Coon and Markus Kemmelmeier, “Cultural Orientations in the United States: (Re)Examining Differences among Ethnic Groups,” Journal of Cross-Cultural Psychology 32, no. 3 (May 2001), 348–364, doi.org/10.1177/0022022101032003006.
41. Monica Anderson, “Racial and Ethnic Differences in How People Use Mobile Technology,” Pew Research Center, April 30, 2015, https://www.pewresearch.org/fact-tan...le-technology/.
42. Juliana Menasce Horowitz, “Americans’ Views on Masculinity Differ by Party, Gender and Race,” Pew Research Center, January 23, 2019, https://www.pewresearch.org/fact-tan...nder-and-race/.
43. “Country Comparison,” Hofstede Insights, last modified June 21, 2021, https://www.hofstede-insights.com/co...korea,vietnam/.
44. Geert Hofstede, Gert Jan Hofstede, and Michael Minkov, Cultures and Organizations: Software of the Mind, 3rd ed. (New York: McGraw-Hill, 2010).
45. “Working with Cultural Differences,” Our Thinking, Change Factory, accessed October 30, 2021, https://www.changefactory.com.au/our...l-differences/.
46. Opal Tomashevska, “6 Key Differences Drive Multicultural Consumer Behavior,” CCUL Headlines, Carolinas Credit Union League, November 13, 2018, https://www.carolinasleague.org/news...r-behavior.htm.
47. Tomashevska, “6 Key Differences.”
48. “US Census Bureau Projections Show a Slower Growing, Older, More Diverse Nation a Half Century from Now,” Newsroom, United States Census Bureau, December 12, 2012, https://www.census.gov/newsroom/rele.../cb12-243.html.
49. Luis Noe-Bustamante, “Key Facts about US Hispanics and Their Diverse Heritage,” Pew Research Center, September 16, 2019, https://www.pewresearch.org/fact-tan...u-s-hispanics/.
50. Paul Taylor et al., “When Labels Don’t Fit: Hispanics and Their Views of Identity,” Pew Research Center, April 4, 2012, https://www.pewresearch.org/hispanic...s-of-identity/.
51. Nicholas Jones et al., “Improved Race and Ethnicity Measures Reveal US Population Is Much More Multiracial,” America Counts: Stories behind the Numbers, United States Census Bureau, https://www.census.gov/library/stori...ltiracial.html.
52. Christine Tamir, “Key Findings about Black America,” Pew Research Center, March 25, 2021, https://www.pewresearch.org/fact-tan...black-america/.
53. Michael Chui et al., “A \$300 Billion Opportunity: Serving the Emerging Black American Consumer,” McKinsey Quarterly, August 6, 2021, https://www.mckinsey.com/featured-in...rican-consumer.
54. Amanda Barroso, “Most Black Adults Say Race Is Central to Their Identity and Feel Connected to a Broader Black Community,” Pew Research Center, February 5, 2020, https://www.pewresearch.org/fact-tan...ack-community/.
55. Jones et al., “Race and Ethnicity Measures.”
56. Budiman and Ruiz, “Key Facts.”
57. Budiman and Ruiz, “Key Facts.”
58. Budiman and Ruiz, “Key Facts.”
59. Barroso, “Most Black Adults.”
60. Maria Gomez Albrecht, “The Effect of Bicultural Acculturation among Hispanic Consumers’ Attitudes and Its Implications for Mobile Advertising” (PhD diss., Swiss Management Center University, 2020), unpublished.
61. Gomez Albrecht, “Effect of Bicultural Acculturation.”
62. Pew Hispanic Center, “Life Satisfaction, Priorities and Values,” in Between Two Worlds: How Young Latinos Come of Age in America (Washington, DC: Pew Research Center, December 2009), https://www.pewresearch.org/hispanic...es-and-values/.
63. Nielsen, Asian-Americans: Culturally Diverse and Expanding Their Footprint; The Asian-American Consumer 2016 Report, May 2016, https://www.nielsen.com/insights/201...eir-footprint/.
64. Kathleen Y. Kawamura, “Body Image among Asian Americans,” in Encyclopedia of Body Image and Human Appearance, ed. Thomas F. Cash (Waltham, MA: Academic Press, 2012), 2:95–102.
65. Jones, “LGBT Identification.”
66. “What Is Generation Alpha?,” Casey Connects (blog), The Annie E. Casey Foundation, November 4, 2020, https://www.aecf.org/blog/what-is-generation-alpha.
67. Centers for Disease Control and Prevention, “Disability Impacts All.”
68. The Lancet, “World Population Likely to Shrink after Mid-century, Forecasting Major Shifts in Global Population and Economic Power,” ScienceDaily, July 15, 2020, www.sciencedaily.com/release...0715150444.htm.
69. Luke Rogers, “US Population Grew 0.1% in 2021, Slowest Rate since Founding of the Nation,” America Counts: Stories behind the Numbers, United States Census Bureau, December 21, 2021, https://www.census.gov/library/stori...he-nation.html.
70. AARP, “More Americans Working Past 65,” April 22, 2019. https://www.aarp.org/work/employers/...0report%20says.
71. Jacob Olesen, “Color Meanings in Japan,” Color Meanings, last modified February 7, 2022, https://www.color-meanings.com/color-meanings-japan/; Meong Jin Shin et al., “Colour Preferences for Traditional Korean Colours,” Journal of the International Colour Association 9 (2012): 48–59, https://www.aic-color.org/resources/...jaic_v9_05.pdf.
72. Nadra Nittle, “Brands Once Used Elitism to Market Themselves. Now Inclusion Sells,” The Goods by Vox, Vox Media, December 7, 2018, https://www.vox.com/the-goods/2018/1...ctorias-secret.
73. “What Was the ‘Share a Coke’ Campaign?,” Coca-Cola Australia, Coca-Cola, September 2, 2019, https://www.coca-colacompany.com/au/...-coke-campaign.
74. Patrick Kevin Day, “Coca-Cola Super Bowl Ad Stirs Controversy,” Los Angeles Times, February 3, 2014, https://www.latimes.com/entertainmen...203-story.html.
75. “Dermal Fillers Market Size, Growth and Revenue Analysis,” Fortune Business Insights, accessed September 26, 2021, https://www.fortunebusinessinsights....-market-100939.
76. “From Extreme to Mainstream: The Future of Aesthetics Injectables,” McKinsey & Company Our Insights, December 20, 2021, https://www.mckinsey.com/industries/...cs-injectables
77. GQ Staff, “Are Dermal Fillers Getting Popular Among Men Today?” GQ Grooming, September 28, 2021, https://www.gqmiddleeast.com/gq-part...l-fillers-now# | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/02%3A_Understanding_the_Marketplace/08%3A_Marketing_in_a_Diverse_Marketplace/8.14%3A_References.txt |
Peloton, producer of high-end home fitness equipment and streaming fitness classes, has taken advantage of the tech boom to bundle its products and service for a recurring revenue source. Peloton is known for its expensive at-home fitness bikes and treadmills aimed at a high-end target audience. Once a customer purchases a bike for \$1,500–\$2,600 and/or a treadmill for \$3,500,1 most fitness companies would not expect additional revenue from a customer for several years.
But Peloton sees itself as a technology company that facilitates service. Peloton CEO John Foley has said that “we see ourself more akin to an Apple, a Tesla, or a Nest or a GoPro—where it’s a consumer product that has a foundation of sexy hardware technology and sexy software technology.”2 In the case of Peloton, that sexy software technology comes in the form of streaming workout classes including cycling, strength, boot camp, yoga, and meditation taught by charismatic instructors who have become social media influencers. The price tag for Peloton customers is a recurring \$39 monthly fee for all access on top of the cost of the product.
Peloton customers are purchasing more than a one-time durable good. Instead, they are buying a networked effect in which they are connected to fitness instructors and one another. Hailed the new form of competitive advantage, networked effects bring customers closer to the brand through personal connections between the brand and customers and between customers. Once a customer is a loyal part of the network, the cost to switch brands in terms of habit and lifestyle is high. As a result, loyal customers are less likely to brand switch and are less price sensitive.
While product bundling isn’t a new concept—think about a value meal at a restaurant that includes a sandwich, fries, and a beverage—the product-service bundle is an emerging trend among technology companies. It provides recurring revenue for the brand while bringing the customer into a more intimate customer experience, leading to brand loyalty. Typically, the service fees ultimately provide more revenue per customer than the one-time product purchase in this model. The recurring revenue model makes the product facilitate the service exchange, blurring the traditional product-service lines.
What examples come to mind when you think of product-service bundles? Do you have a prediction for how this trend may shape product development in the future?
9.01: Products Services and Experiences
Learning Objectives
By the end of this section, you will be able to:
• Differentiate between products, services, and experiences.
• Describe how consumer and business/industrial products are classified.
• Identify the four levels of a product.
Products and Services Defined
When a customer makes a purchase, they expect value from that exchange. Think about what you ate for breakfast today. You paid money to receive a product that satisfied your hunger. Is that all the value you received? Perhaps not. If you ate eggs, bacon, and coffee at a restaurant, you had both a product and a service experience. Maybe someone at the restaurant handed you a menu, took your order, brought your food, refilled your coffee, cleaned up dishes, and collected payment for your meal. The eggs, bacon, and coffee were the product, while the acts of the restaurant staff were a service. And the summation of it all was the product–service experience.
Products are tangible items that are part of an exchange between a buyer and seller. Products can be seen, touched, owned, and stored. For example, the computer or tablet you’re using to read this textbook is a product. You may have visited a store to see and touch the product before purchasing to ensure it met your needs. Post-purchase, the computer or tablet is yours to own and store for later use as you please. The tangible nature of the product allows the consumer to possess it.
Services are intangible solutions that are also an exchange between buyer and seller. Unlike products, services cannot be touched, owned, or stored for later use. For example, a college course on marketing is a service. Students cannot own the course; they cannot store it for later, nor will they have a tangible object representing the course. Another defining feature of a service is the customer is typically a part of the service experience. Imagine buying tickets to your favorite band in concert. You will have to attend the concert to realize the full benefit of the service experience.
While a computer is a true product and a marketing class is a true service, many exchanges between buyer and seller fall somewhere in the middle of the product–service continuum (see Figure 9.2). Think back to the restaurant breakfast at the top of this section; restaurants are a prime example of an exchange that includes products and services. Marketers are typically working with an offering that falls on the product–service continuum. This means that they need to understand how to influence consumer behavior in the search for products and services.
Customer Experience
Customer experience (CX) is the overarching impression that customers have of a brand. Therefore, each touchpoint with a product or service becomes a part of the customer experience. A strong customer experience integrates technology, marketing, sales, and customer service to deliver a strong brand perception.
For example, if you have ever visited an Apple Store, you probably have experienced one of the most lauded customer experiences there is. From the moment you walk in, you are surrounded by products and transported into a world of technology. Each touchpoint, from the check-in on an iPad to the latest products that are available for use, reinforces the brand through customer experience. Brands with strong customer experience tend to have more loyal customers who become brand advocates.
Marketing in Practice: Netflix
Netflix has perfected the customer experience (see Figure 9.3). Using technology as a driver, Netflix predicts its customers’ viewing preferences using an algorithm, removing friction from the user experience and making the brand an essential part of its customers’ lives. Netflix’s use of personalization is common among companies that excel in customer experience. The customer is at the center of the experience that is entirely tailored to them.
Once users enter the Netflix website, they see an experience that makes their viewing opportunity seamless and flexible. Netflix lets the user know right away that it streams thousands of movies and television shows on various devices. The sign-up involves three easy steps, and then the customer is brought into a viewing world built around them.
The Netflix algorithm analyzes viewing habits based on a variety of factors, including:
• Viewing history
• Genre or category
• Time of day watched
• How long the user watched
• Devices currently streaming
• Rating history for similar content
• Other Netflix users with similar preferences on the platform3
As the algorithm learns more about the viewer, the customer experience improves, becoming essential to customers’ lives and building brand loyalty.
Classifications of Consumer and Business Products
Product managers classify products first by whether they are consumer products or industrial products. This classification is essential because businesses typically make product purchase decisions to create a consumer good. Meanwhile, consumers are buying products for their personal use. Therefore, this distinction impacts how product managers design, market, and sell products.
Consumer products are classified into four main categories (see Table 9.1):
1. Convenience products are products that consumers can purchase easily, quickly, and without a lot of thoughtful decision-making. Convenience product purchases may be habitual in that the consumer buys the same brand each time. In addition, they are typically lower-priced and have wide distribution, so they are easily accessible to consumers. Frozen waffles, bar soap, milk, and bathroom cleaners are examples of convenience products.
2. Shopping products require more thought from the consumer. Consumers may research and shop around for shopping products, seeking the best quality or price. Shopping products are typically available at a few retail stores and online, and they may be priced higher than convenience products. Exercise equipment, technology, clothing, and airline tickets are shopping products.
3. Specialty products have unique qualities that consumers will make an extra effort to seek out. The product’s unique nature typically means that the consumer will not comparison shop and will spend a significant amount of time and money to procure the product. Luxury cars, rare breeds of saltwater fish, fine art, and jewelry are examples of specialty products.
4. Unsought products are consumer goods that a buyer doesn’t anticipate purchasing. As a result, the consumer is often not aware of the product or does not think it is needed. A flat tire that needs repairing, a roof damaged in a storm that needs to be replaced, and funeral services are examples of unsought products.
Type of Product Price Consumer Decision-Making Process Distribution
Convenience Low This is a habitual/automatic purchase process that involves little comparison shopping. Widespread distribution at several retail outlets
Shopping Low-Mid There is time spent on the consumer decision-making process and comparison shopping for price and quality. Selective distribution at retail outlets that match customer and brand type
Specialty High Having a specific brand or product in mind means little comparison shopping. Typically, this is a special purchase with a lot of planning. Exclusive distribution at one or a select few retail outlets
Unsought Variable The consumer is unaware or uninterested, so they exert little thought or comparison shopping. Variable distribution depends on the product
Table 9.1 Types of Products
Classifications of Business and Industrial Products
Businesses purchase products to aid in manufacturing or creating consumer products or services. For example, if you have ever been to a doughnut shop, you might think about how the bakers produce a doughnut. The bakers have probably purchased baking equipment, ingredients for the doughnuts, boxes to package the doughnuts, and a service to make deliveries. Business and industrial products are classified as follows:
1. Raw materials are the products that a business needs to purchase in order to make a consumer good, such as flour, sugar, and yeast in our doughnut example.
2. Manufactured materials and parts are products used to create the product. For example, large baking sheets are manufactured materials specific to a bakery and purchased to enable product creation.
3. Capital items are assets that are valuable to the business and have tangible value. For example, our bakery’s large ovens would be considered a capital item.
4. Supplies and services are goods and services that are typically disposed of and do not contain a tangible value. For example, the bakery’s boxes are part of its supplies to package doughnuts.
The Three Levels of Product
In marketing, we often say that consumers do not make rational decisions—this consumer decision-making process ties directly to how we think about products. Therefore, product marketers should ask themselves, “What’s the problem the consumer is trying to solve?” The answer to this question gets to the root of the core product. The core product is what your customer is actually buying: convenience, ego, ease, flexibility, etc. For example, if you have ever purchased single-use plastic water bottles, you were likely purchasing a core product of convenience.
The second level of a product is the actual product: a toaster, a waffle, or a sports car, for example. The actual product includes the product features, brand, level of quality, packaging, and design.
The third level of a product is the augmented product: warranties, customer service, product support, etc. The augmented product is the unseen aspects of the product essential to its service to you. For example, Butterball launches a turkey talk-line that provides tips on cooking the perfect Thanksgiving turkey each Thanksgiving. So if you have turkey roasting questions, the talk-line is ready and waiting to answer your questions in this augmented product. A hotel might provide concierge services to obtain tickets to events or limousine service, dry cleaning services, recommendations for local restaurants, etc. All of these would be augmented services. (see Figure 9.4).
Careers In Marketing: Product Marketer
A product marketer, also sometimes known as a product marketing manager, promotes a product and its features to a target market. Learn more about this job role through this article from HubSpot, including a job description, necessary qualifications, and job responsibilities. Also, check out this video from a Google employee about being a product marketer.
If this job interests you, check out this article from Indeed that outlines more details, including the typical salary, necessary skills, and education requirements. Or refer to this guide on how to take the next step and get a job in product marketing.
Lastly, to start preparing for a job in this role, check out this mock interview for the product marketing manager role.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following is the best example of a pure service?
1. Haircut
2. Meal at a restaurant
3. Frozen waffles
4. Sports car
2.
Jorge visited his favorite retailer to find that the store had transformed into a space with product demonstrations, product trials, and technology, which improved his overall perception of the brand. This is called a(n) ________
1. product
2. service
3. experience
4. advertisement
3.
A package of gum at the checkout of a grocery store is considered a(n) ________ product.
1. convenience
2. shopping
3. specialty
4. unsought
4.
Potbelly Sandwich Shops use paper bags to hold customers' sandwiches. What type of industrial product is the bag?
1. Raw materials
2. Manufactured materials and parts
3. Capital items
4. Supplies and services
5.
At the beginning of this chapter, we learned about the Peloton brand. Peloton users use not only the physical bike also but online classes with an instructor to stay fit within their own homes. This need represents the ________ product.
1. core
2. actual
3. augmented
4. valued | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define product items, product lines, and product mixes.
• Describe product line length and depth.
• Discuss product line filling and product line stretching.
Product Line Length and Depth
Companies typically sell many products, some of which are singular and some of which are part of a larger category of offerings. So let’s start with a product item, a particular good that a company sells. For example, Domino’s Pizza sells its original hand-tossed pizza as a product item on its menu.
A company will also sell a product item as a part of a broader product line. A product line is a set of products that are similar or complementary. For example, Domino’s sells crunchy thin, handmade pan, Brooklyn style, and gluten-free crust along with its hand-tossed pizza crust as a part of a product line.
A product mix contains all the products that a company sells. In addition to pizza, Domino’s sells salads, sandwiches, appetizers, pasta, desserts, and beverages. These products make up the product mix for Domino’s (Figure 9.5).
There are benefits to brands in organizing into product lines and mixes. For example, if you have ever added a chocolate lava cake to your Domino’s order, you know firsthand that products within a mix are easily cross-sold. You may have also seen a commercial where Domino’s promotes its product mix, creating efficiencies in its media advertising spend. In addition, breadth of products provides some assurance that competitors will not compete in the same space. Finally, you may have noticed that some appetizers and desserts are packaged in the same box, creating supply efficiencies.
On the flip side, if product offerings are too similar, they may cannibalize (or steal from) the original product, resulting in lower profitability. For example, if Domino’s had 30 types of pizzas, the stores might have to stock extra ingredients to make those pizzas, but Domino’s might not sell more pizzas as a whole because the product line offerings are too similar.
Product Line Depth and Product Mix Width
Product line depth refers to the number of products in the line. Using our previous example, Domino’s carries five products in the pizza product line. Meanwhile, the product mix width refers to the number of product lines a brand carries. Domino’s offers seven product lines within its product mix (pizza, salads, sandwiches, appetizers, pasta, desserts, and beverages).
The product line depth and product mix width allow a company to diversify its offerings to maximize customer loyalty and mitigate risk. For example, if a customer enjoys Domino’s Pizza, they may extend their order to include one of the other offerings in the product mix. On the flip side, if a customer has a bad experience with the pizza, they might try chicken or pasta instead next time. However, it is essential to note that too many offerings can cannibalize one another and drive up the cost of goods sold because of the variations that each product requires.
Product Line Filling and Product Line Stretching
One of the reasons for an ample product line is to leave no room for competitors to solve a customer’s need. Companies use a product line filling strategy when they add products to the product line to ensure that competitors do not enter their market. If you wonder why Domino’s has so many pizza toppings, consider that it might be product line filling at work.
On the other hand, it might make more sense for a company to add product lines. The addition of product lines is a practice called product line stretching. There are three main ways to stretch a product line:
1. Stretching Downward. A brand introduces a product line that is less expensive than its current offering. This may open a new target market or change a brand’s positioning in a competitive market. However, it is essential to consider whether stretching down might shift the brand’s perception or take share from other product lines. Tesla introduced its Model 3 following its more expensive Model S, following the stretching downward strategy.4
2. Stretching Upward. A brand introduces a product line that is more expensive than its current offering. This may increase profitability or reposition the brand. First, however, it is essential to determine whether the brand has equity in the upward market. Godiva introduced its gold collection to stretch its product line upward.
3. Stretching Up and Down. A brand can stretch up and down simultaneously. While this has the potential for great rewards, it also introduces a fair amount of risk. Dell utilizes a strategy to stretch up and down with its everyday access laptops, creator laptops, and all the way up to its immersive gaming laptops.
Suppose Domino’s wanted to join the wood-fired pizza trend. It could employ an upward product line stretching strategy to introduce Domino’s to a more upscale market that appreciates wood-fired pizza.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Oreo's selection of flavors would be considered a ________.
1. product
2. product line
3. product mix
4. product category
2.
A product mix contains ________.
1. a mix of the company’s most popular products
2. a singular product
3. all the products that a company sells
4. a group of similar products
3.
If Domino's were to add a Chicago-style stuffed pizza to its menu, this would represent an expansion of the ________ of its pizza offerings.
1. product line depth
2. product mix width
3. product items
4. product differentiation
4.
Product line depth refers to ________.
1. product characteristics
2. the number of product lines
3. product assortment
4. the number of products in the product line
5.
Which of the following is a benefit of product line filling?
1. Less money spent on research and development
2. Protection against competitors
3. Creates a product line assortment
4. Stretches the product line | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.02%3A__Product_Items_Product_Lines_and_Product_Mixes.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define the product life cycle.
• List and describe the stages of the product life cycle.
The Product Life Cycle
Have you ever wondered what happens after a new product launch? Is the product successful right away, or does it need a little help from marketing to realize its potential? Then, as the product matures, does it stay on the shelf, or does it have a natural endpoint? The product life cycle (see Figure 9.6) maps the stages a product goes through, tracking its sales and profitability.
The Product Life Cycle Stages
The product life cycle begins in the introduction stage. This is when consumer awareness is building and sales are starting to grow. The marketing investment is high as brands invest heavily in advertising and sales promotion to encourage trial. Profitability is low due to costs to launch and scale a new product. What products can you think of that are in the introduction stage of the product life cycle?
Once a product catches on in the marketplace, it enters the growth stage of the product life cycle. The growth stage is characterized by increasing sales and the potential for copycat brands to enter the market once they see revenue and profitability. In addition, products require less marketing and distribution investments during the growth stage, making them more profitable. However, a brand can decide to invest in product improvements and distribution, which may decrease profitability in the short term in exchange for long-term gain. When hoverboards were new to the market, they experienced explosive growth that quickly tapered off.
The product enters the maturity stage when sales growth slows and profitability levels taper off. The maturity stage is typically the longest stage of the product life cycle, with products remaining in this stage for years or even decades. Profitability may remain if the brand has a solid competitive advantage or decline if too many competitors enter the market. Marketing investment can increase at this stage if the brand has a rival, and product modification can alter the product to meet consumers’ needs. Yet often a brand will retain a low level of marketing during the maturity stage to remind consumers of its benefits. Kraft Macaroni & Cheese is an example of a product that has a solid place in the market and has stabilized as a mature product.
Eventually, most products enter the decline stage. The decline stage is characterized by a significant decrease in sales and profitability. Sometimes the decline occurs because the market has changed: technology has evolved, consumer tastes have shifted, or the need that the product satisfies is no longer relevant. Other times, the product is pushed out by rising costs or competitors. Many companies report their earnings quarterly and do not want to keep an unprofitable brand in their portfolio. As a result, companies typically try to divest a product in the decline stage. Another company may pick up the brand, invest in it, and bring the product back to a growth or maturity stage. Apple’s iPod entered the decline stage when the popular iPhone was introduced, bringing a host of features plus music.
It is important to note that products do not always travel through the product life cycle at a linear rate, nor do they all travel through all product life cycle stages. For example, a product can be introduced and never gain traction, so it goes directly from introduction to decline. Or a product might gain popularity rapidly during the growth stage and then meet a quick decline. This phenomenon occurs when products are fads.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following is NOT a stage of the product life cycle?
1. Introduction
2. Growth
3. Maturity
4. Profitability
2.
Which criterion does the product life cycle use?
1. Sales
2. Profitability
3. A and B
4. None of these are correct.
3.
Which stage of the product life cycle is characterized by a rapid increase in sales?
1. Introduction
2. Growth
3. Maturity
4. Decline
4.
Which stage of the product life cycle is characterized by stable sales and profitability?
1. Introduction
2. Growth
3. Maturity
4. Decline
5.
Which of the following is a reason that brands may not follow the product life cycle sequentially?
1. Brands can grow rapidly.
2. Brands can skip the product life cycle all together.
3. Brands can be a fad.
4. Brands can skip to maturity right away. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.03%3A__The_Product_Life_Cycle.txt |
Learning Objectives
By the end of this section, you will be able to:
• Discuss marketing strategies in the introduction stage of the product life cycle.
• Classify marketing strategies used in the growth stage of the product life cycle.
• Characterize marketing strategies used in the maturity stage of the product life cycle.
• Identify marketing strategies used in the decline stage of the product life cycle.
Marketing Strategies in the Introduction Stage
The introduction stage is characterized by awareness-building to encourage trial. There is a significant investment in marketing activities at this stage to make the shift from early adopters to a broader audience, and pricing is a means of enticing trial.
A rapid skimming strategy sets a high price along with extensive advertising and sales promotion to establish the product in the marketplace. This strategy allows a product to gain share quickly and fend off potential competitors. Technology innovations typically use a rapid skimming strategy to attract early adopters who are willing to pay a higher price.
In contrast, a slow skimming strategy may be utilized when there is not an anticipated influx of competitors. The slow skimming strategy sets high prices with low advertising and sales promotion investment. For example, we may see a rapid skimming strategy for the new model of a truck or SUV in the automobile market because competition is high and the barrier to entry is low. On the other hand, the Tesla brand used a slow skimming strategy in its initial launch with a high-priced offering making it exclusive.
A rapid penetration pricing strategy is appropriate when volume sales will increase market share quickly, and a lower-priced strategy is employed. Rapid penetration pricing strategies encourage customers to try a product and switch to a new brand. This strategy works well with product categories with many competitors and price-sensitive customers. For example, Old Navy used a rapid penetration pricing strategy when it opened its stores in 1994 with an \$8 jeans promotion under the assumption that if customers tried its jeans, they would be hooked and become brand advocates.
In contrast, a slow penetration pricing strategy establishes low prices and low promotion to capture share more slowly in a market that typically does not readily react to promotion. Products that do not have a lot of brand equity and are necessities do not respond to promotion readily and are appropriate for a slow penetration pricing strategy. For example, if a store brand of butter were to establish an everyday low price without the use of promotion, it would be adopting a slow penetration pricing strategy.
Marketing Strategies in the Growth Stage
The growth stage is characterized by growing sales and increasing competition in the marketplace. Investment in product and place is essential at the growth stage to maximize market share and scale quickly.
Brands may improve product quality or add new features in the growth stage based on early lessons from the introduction stage and to fend off competitors. Products with a first-mover advantage may find competitors who replicate their products entering the market, so product improvement is essential. For example, OXO is a brand that uses universal design to innovate products to make them easier to use. This continuous product improvement makes it a leader in the kitchenware market.
Once a product becomes mainstream in the growth stage, expanding distribution channels can increase market share. While expanded distribution adds expense, it also brings the product to more customers in various settings. For example, Chicago-based Home Run Inn Pizza was so famous in the restaurant format that it expanded to grocery stores to increase share.
Finally, brands use promotion to shift their message from awareness to preference. The shift from a niche market to a mass market typically involves an advertising investment. In 2021, TikTok moved from awareness to preference, and its promotion followed suit, reminding users why they enjoy using the platform.
Marketing Strategies in the Maturity Stage
Stability characterizes the maturity stage: profits, customers, and pricing. While this sounds like good news, brands must defend their market share from increasing product replication and product innovation from competitors.
Products in the maturity stage may engage in market modification, an extension of the product to new customers. For example, Cheerios adopted a market modification strategy when it positioned its cereal to the aging baby boomer demographic as a heart-healthy breakfast. This strategy opened a new market for Cheerios to increase its market share.
Products in the maturity stage may also engage in product modification, altering products to fit the market. Modifications may be made to the function of the product, the quality of the product, and/or the style of the product. For example, Chobani modified its yogurt product in 2015 by altering the container, allowing the customer to flip toppings into yogurt, and changing the functionality of the yogurt and topping product.5
Marketing Strategies in the Decline Stage
The decline stage of the product life cycle is characterized by declining sales and profitability. The product is at the end of its life cycle and is no longer sustainable or a good investment. Brands reduce to a core set of activities and set out to divest the brand asset.
A brand might divest a product to protect the rest of its portfolio, either by selling the brand or discontinuing it. For example, the Coca-Cola brand divested New Coke in 2002 after 17 years on the market in various forms.6 The product was taken off the shelves because it was unsuccessful in the marketplace.
A brand might also choose to harvest an unsuccessful product. Harvesting involves reducing all unnecessary expenses to retain any remaining revenue. In addition, harvesting allows the brand to invest cash in its more profitable products. Typically, products do not reemerge after harvesting and more often are divested over time. Technology products, such as smartphones, are often harvested as their up-to-date replacements hit the market. Refurbished products may be sold at a discount or used for parts for new models.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Mohammad's Shoe Company is expanding distribution for its most popular shoe line. The shoe line is in the ________ stage of the product life cycle.
1. introduction
2. growth
3. maturity
4. decline
2.
Jia has established a rapid skimming strategy for her ice cream shop. The ice cream shop is in the ________ stage of the product life cycle.
1. introduction
2. growth
3. maturity
4. decline
3.
Carlos has ceased all nonessential spending for his computer repair business. The computer repair business is in the ________ stage of the product life cycle.
1. introduction
2. growth
3. maturity
4. decline
4.
LaToya has found a new market for her restaurant by expanding to catering. The restaurant is in the ________ stage of the product life cycle.
1. introduction
2. growth
3. maturity
4. decline
5.
Jamie’s legal business has had some early success and decided to add estate planning to its business portfolio. The legal business is in the ________ stage of the product life cycle.
1. introduction
2. growth
3. maturity
4. decline | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.04%3A__Marketing_Strategies_at_Each_Stage_of_the_Product_Life_Cycle.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define branding and discuss its benefits.
• Discuss ways in which an organization can build strong brands.
Branding
A brand is an intangible asset with tangible value. We cannot see, touch, or put a brand on a balance sheet. Rather, a brand is a feeling that is made up of the organization’s promotion efforts along with consumer meaning. The value of a brand is challenging to measure, but it is often the most valuable part of a company.
Think about the Harley-Davidson brand (see Figure 9.7). What images and feelings does it evoke? Those images and feelings are its brand, and companies spend a lot of resources developing and nurturing their brands. The brand is the reason that customers purchase and advocate. A brand is the feeling associated with a product or service that gives it currency in the marketplace. The brand is the essence of the product or service and must be reinforced at every touchpoint. The marketing team at Harley-Davidson knows this all too well. Brand is Harley’s business, and the company knows that every product, every promotion, and every event must reinforce the brand, which will build value over time to become a significant asset.
Branding is the process of developing a brand. Successful brands engage their customers on a personal level, connecting to their emotions and needs. Some of the assets of a brand, such as the brand name, brand mark, or brand positioning, can be influential in creating a feeling about a brand.
Link to Learning: Logos
Visit the Harley-Davidson website for more logo examples. While looking at the logos, think about its name. What emotions are associated with the brand name and mark? While marketing teams can influence how a brand is seen in the marketplace, consumers often define the brand.
Did you know that the colors used in logos have meaning? This website shares a handful of stories behind the colors of famous logos.
Brands are created experiences that are shared among most loyal customers. Harley-Davidson customers experience the brand together through events and organized rides, creating brand meaning and contributing to the overall feeling.
Benefits of Branding
The central benefit of branding is establishing a connection with customers that encourages them to purchase the brand, creating a financial return. But you may be wondering how companies can measure the impact of their brand. Brand value is the financial asset associated with a brand. Brand valuation occurs when a company is sold and becomes a part of the financial transaction, along with the assets and liabilities on the company’s financial statements. There is no singular measure of brand value, so the valuation process is subjective and may be based on brand visibility, customer loyalty, and perception of the brand, along with financial measures such as revenue.
Brand equity is the additional value that a brand has over a substitute. If a consumer will pay more for one similar product over another because of the brand, that difference represents its brand equity. For example, Tide, owned by Procter & Gamble, is the market leader in the laundry space.7 While its product may not differ significantly from its competitors, Tide demands a higher price because of its brand equity. The brand equity measure is the amount that a brand with equity can charge over its counterparts. Take a moment and look up the price of Tide and a few competitors. What does that tell you about Tide’s brand equity?
Kevin Lane Keller developed the brand equity model to illustrate how brands can develop equity. He postulated that if a brand could develop positive associations, it could charge more than its competitors. The model begins with defining a brand through its identity. Brands should answer the question, Who are you and how do you solve the consumers’ needs? The next level of the model determines a brand’s meaning. On one hand, how well does the brand perform, and on the other, how does it meet consumers’ social and psychological needs? The third level of the framework is about feelings and thoughts. In other words, What do consumers think of your brand and what judgements do they make about it? Finally, the top of the pyramid examines brand resonance, or how much connection, engagement, or loyalty the brand has with its consumers.8
Link to Learning: Keller’s Brand Equity Model
Keller’s brand equity model is a prevailing framework that scholars use to think about the concept of brand equity. Check out this article to learn more about the model and how you could apply it to a brand.
Building Strong Brands
If a brand is a combination of the efforts made by the marketing team and how consumers think, feel, and act, then there is some room for the marketing team to build a strong brand. A strong brand is resonant in the minds of consumers and solves their problems.
Building a strong brand begins with brand positioning, or the way the brand signals emotions in consumers’ minds. Brands can position themselves based on an attribute—one aspect of the product or service. For example, Taco Bell has positioned itself as the option for late-night cravings. This singular aspect defines its positioning. The problem with positioning based on an attribute is that it is easily replicable by competitors.
The second method of positioning is benefiting the consumer—how the product or service solves the consumer’s problem. For example, the Eggo brand’s positioning is convenience. The brand solves the consumer’s morning rush issue by providing a convenient breakfast solution. The benefits positioning works well for convenience products.
Lastly, a brand can position itself based on values. Values-based positioning is the most robust brand positioning because it links to a consumer’s personal beliefs. For example, Ford uses the language “Built Ford Tough” in its advertising to connect to American values of hard work and determination. Ford’s strategy is particularly effective because brands can connect to consumers’ sense of self and how they show up to the world.
A product’s brand name also clues consumers in to feelings, thoughts, and attitudes. Therefore, marketing teams spend a lot of time selecting brand names that evoke a feeling harmonious with the brand. A strong brand name also helps consumers see the benefit of the brand. For example, a favorite of many, Kellogg’s Frosted Mini-Wheats, tells the consumer that they are eating something made of wheat with a touch of sugar.
A brand name should also translate effectively into a variety of languages. Finally, a brand name should be unique to that product. For example, we all know that the brand Pop-Tarts is a toaster pastry that pops out of a toaster. This is a distinctive element of the Pop-Tarts brand that is exemplified by its name.
Brands use trademarks (service marks) to ensure that they are protected under the law. According to the United States Patent and Trademark Office, a trademark can be any “word, phrase, symbol, design or a combination of these things that identified your goods and services.”9 Brands can trademark their names, logos, packaging, or even specific colors that represent the brand. This ensures that competitors do not replicate a known brand and cause confusion among customers. You will know that a brand is trademarked if you see a “TM” or “R” near the name or logo. Take a peek in your pantry to view trademarks on food packaging.
Brands can be owned in one of four ways: national brand, private brand, licensed brand, or co-brand. Each has its unique set of advantages and disadvantages, which will be discussed in this section.
National brands are the name brands that sell a product or service under its corporate name and identity. Brands like Heinz, Smartwater, and Morton’s Salt are examples of name brands. Brand equity commands higher prices, so national brands typically charge higher prices than their private brand counterparts. National brands often pay for premium retail space, making them a convenient choice for shoppers. However, price-sensitive shoppers may be turned off by the higher prices of national brands.
Private-label brands are store brands that are similar products to a national brand and labeled privately. If you have shopped at a Walgreens, you may have seen its private-label brand of products that begin with the prefix Wal-. A McKinsey study indicates that price accounted for 45 percent of brand switchers from national to private brands, while lack of availability was a secondary reason.10 The same study suggests that customers can develop loyalty to private-label brands. However, the private-label brand must create a point of differentiation relevant to the target audience in the same way that a national brand would.
Licensed brands provide the likeness of their brand as a fee for use. If you wear eyeglasses, you likely have a licensed brand name on your eyeglasses frame. Brands like Tiffany & Co., Kate Spade, and Tommy Hilfiger do not produce eyeglasses frames. Rather, they license their brand to manufacturers like Luxottica, an Italian eyewear company that makes the product with the licensed brand name. Licensing a brand is a quick way to gain recognition and benefit from the brand’s equity. On the other hand, licensing fees can be costly and ultimately reduce profitability for manufacturers.
Finally, two or more brands may collaborate to co-brand; a product. Co-branding brings the equity of each brand together for greater value. For example, Doritos and Taco Bell developed Doritos Locos Tacos, a co-branded line of tacos that feature Doritos as the shell and Taco Bell ingredients as the toppings. In this case, the two brands had a similar target audience and could benefit from the awareness and equity of the other. However, co-branding necessitates a revenue split, which could impact financial results for each brand. Table 9.2 lists the advantages and
Brand Type Advantages Disadvantages
National brands Well-known by consumers; OK to charge more Some consumers unwilling to pay more than for private-label brands
Private brands Attract price-sensitive customers More difficult to build brand equity
Licensed brands Gain brand recognition and benefit from brand equity Expensive licensing fees
Co-brands Benefit from the equity of both brands Revenue split between two or more brands
Table 9.2 Types of Brands: Advantages and Disadvantages
Marketing in Practice: Trader Joe’s
Most of us do not love our weekly grocery shopping trip. Aisles upon aisles of boxes, cans, and cartons lining shelves create monotony in shopping for the food that nourishes us. We have trudged through supermarkets, pilling items into our carts uninspired—until Trader Joe’s entered the scene.
Trader Joe’s has taken the drudgery of grocery shopping and created a customer experience. Using the tenets of the Blue Ocean Strategy, Trader Joe’s removed the costly parts of the traditional grocery store such as a large footprint and overwhelming stock that do not add to the customer experience. And it added Hawaiian shirts, friendly employees, interesting food selections, and a much smaller store. The result is a true neighborhood store that is so popular that Trader Joe’s fan groups have popped up all over the Internet, and the cult brand has continued growth since its inception.
So what’s the magic in creating an experience out of what used to be a chore? Trader Joe’s looked at the customer experience from beginning to end to determine what its shopper values and what can go by the wayside.
Trader Joe’s prioritized building its culture through empowering its “crew members.” Employees at Trader Joe’s are interviewed for enthusiasm and cross-trained throughout the store’s operations.11 Crew members are Trader Joe’s fans themselves and are known for giving recommendations to customers and are empowered to connect with the customers, adding to the neighborhood feel of the store. The food at Trader Joe’s is interesting to the shopper, much of it convenient and ready to eat. Trader Joe’s leverages social media to put its food front and center with recipes and easy-to-prepare pairings. Trader Joe’s thinks about the in-store experience and stocks about 10 percent of the food of a normal supermarket,12 making choices easier on the customer.
Link to Learning: Interbrand’s Best Global Brands
Interbrand ranks the best global brands annually. Take a look at the Interbrand website to see which brands make the top 100 and consider what attributes led them to the top of the list.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following is a benefit of a brand?
1. Consumers always choose name brands.
2. Brands can command higher prices.
3. Shareholders demand strong brands.
4. Every company must have a brand.
2.
Which of the following describes the financial asset associated with a brand?
1. Brand price
2. Brand name
3. Brand equity
4. Brand value
3.
Which of the following is NOT a means of brand positioning?
1. Value
2. Benefits
3. Brand equity
4. Attributes
4.
The Whole Foods 365 brand is an example of a ________.
1. national brand
2. private brand
3. licensed brand
4. co-brand
5.
Uber and Spotify teamed up to bring custom playlists to Uber rides. This is an example of a ________.
1. national brand
2. private brand
3. licensed brand
4. co-brand | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.05%3A_Branding_and_Brand_Development.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify branding strategies.
• Describe degrees of brand loyalty.
• Discuss metrics that can be used to measure brand strength and value.
Brand Development
New products can be added to a brand at any time. There are a few ways to add products that are classified on two measures: new/existing brand name and new/existing product category (see Figure 9.8).
Line extensions create new opportunities for an existing product and brand to serve customers. For example, the Oreo brand adds flavors to its product line for holidays. These line extensions provide the existing brand with an extension of its current product. As a result, a line extension may sell more products to already-aware and interested customers without many risks. However, sometimes brands may overextend their product lines and products may be too similar, failing to increase sales.
Brand extensions leverage the brand name to new product categories. For example, Starbucks developed a line of bottled coffees under its corporate brand name. A brand extension uses awareness and equity in the brand to gain instant recognition and affinity for the new product, which may increase sales rapidly. However, if the new product is inferior to the brand’s known quality, the entire brand portfolio may be at risk.
Multibrands are new brand names within a company’s existing product category. For example, Nabisco manufactures various cookies within a product line but is marketed with different brand names. In this case, Chips Ahoy, Oreo, and Teddy Grahams all have brand equity on their own and do not need the benefit of the Nabisco brand. Each of these brands has a significant market share, so there is a benefit to retaining a multibranding approach. However, a multibranding approach does not work when the products have a small market share or fail to gain favorable retail shelf space to encourage sales.
New brands are an entirely different entity from the parent company. A new brand strategy can be effective if the new product or service is markedly different from the existing offering and benefits from its own branding. For example, the Starbucks brand owns Ethos Water. Ethos is in a beverage category other than Starbucks’s primary offering and retains its name. A new brand strategy works well when the new brand is distinct from the parent brand and has a defined target market and positioning; however, a marketing strategy for a new brand can be expensive to maintain over time.
Brand Loyalty Levels
As you can see, brands spend time and resources to gain loyal customers. Loyal customers are the holy grail of marketing because they will purchase your brand and advocate for the brand to others. Loyal customers become instant word of mouth, spreading the positive attributes of a brand. However, not all customers are intensely loyal to one brand. Instead, customers fit into one of four loyalty categories (see Figure 9.9).
Switchers are customers who continually change their purchasing behaviors. Switchers may be motivated by price, convenience, or innovation. Therefore, it is essential to develop a product or service that meets the switching consumers’ needs to retain them as customers. For example, a switcher might purchase the lowest-price laundry detergent each time they are at the store.
Shifting loyals are customers who are loyal to one product or service for a time, then turn their loyalty to a different product or service for the second period. Brands can expect that shifting loyal customers will move back and forth between products and services. For example, a shifting loyal might purchase a Toyota followed by a Honda, then turn their loyalty back to Toyota for a third purchase.
Split loyals are customers who have a consideration set of two to three products or services in the category. The split loyal is willing to buy this select set of brands on any occasion without hard-core loyalty to any in the group. However, brands can convert split loyals into hard-core loyals with product/service consistency, loyalty programs, and marketing efforts. For example, customers may have loyalty to Gap, Banana Republic, and J.Crew for workwear.
Hard-core loyals are the customers that every brand wants. They are tried-and-true customers who will generally only purchase one brand in a category. For example, when purchasing from a catalog, they tend to make a purchase with less concern about price. In addition, hard-core loyals often tell friends and family about their purchases, extending word-of-mouth marketing for the brand. Brands need to retain hard-core loyal customers. For example, Dunkin’ knows that loyalty is essential to its business, so it rewards its loyal customers with free food and coffee through its DD Perks program.
Metrics to Measure Brand Effectiveness
Brand sentiment is challenging to measure. Unlike sales or revenue, sentiment is not easily quantifiable. However, brands must measure their effectiveness because organizations invest heavily in building brands. There are three ways to quantify a brand’s impact: brand lift, brand engagement, and brand preference.
Brand lift measures perception over time. To determine whether the campaign improved perceptions, brands can survey customers and noncustomers about their perception of a brand pre-campaign and again post-campaign. Keep in mind that positive perception doesn’t necessarily mean that people will make a purchase; it simply indicates a positive affect toward the brand.
Brand engagement measures how deeply the customer identifies emotionally with a brand. Deeply engaged customers typically make more purchases, advocate for the brand, and become loyal customers. Social media metrics, time spent on site, subscriptions, and bounce rate are ways to measure brand engagement.
Brand preference measures consumer behavior by determining the degree to which a brand is preferred over others in the category. Brand preference is the most accurate of the three measures in predicting sales, as its focus is on behavior over attitudes. Marketing research is the best way to assess brand preference.
Marketing Dashboard: Profit Margins
Profit margins are a widely used financial measure to determine the profitability of a business, considering the cost to manufacture and sell a product or service and measuring how much of every dollar in sales or services your company keeps from its earnings. Cost of goods sold, or COGS, describes expenses directly attributable to the product or service. It is important to deduct COGS from profitability to fully understand how much direct costs impact profitability. However, expenses don’t end once manufacturing costs are considered. Companies pay for overhead, such as office space, trucks, and warehouses. They also account for depreciation on their assets, pay taxes, and incur costs for employee salaries. All of these expenses chip away at profitability. Profit margin calculates profitability after expenses.
There are two types of profit margin on an income statement: gross profit and net profit.
Gross profit margin equates to net sales minus the cost of goods sold. The gross margin shows the amount of profit made before deducting selling, general, and administrative (SG&A) costs. The formula for gross profit margin is
$Gross Profit Margin=Net Sales-COGSNet Sales× 100Gross Profit Margin=Net Sales-COGSNet Sales× 100$
The calculation is expressed as a percentage.
Net profit margin takes the calculation one step further. It deducts all expenses from profitability, including administrative, sales, amortization, debt payments, taxes, income, and asset depreciation. This provides a more accurate look at profitability because it considers all the costs associated with producing and selling the product or service. The formula for net profit margin is
$Net Profit Margin=Revenue-COGS-Other Taxes & ExpensesRevenue× 100Net Profit Margin=Revenue-COGS-Other Taxes & ExpensesRevenue× 100$
The calculation is expressed as a percentage.
Suppose your sandwich shop is interested in its profit margins for a single order. Look at the chart and calculate the gross and net profit margins.
Total revenue \$6.25
COGS \$3.50
Administrative, sales \$0.75
Taxes, depreciation, debt payments, amortization \$0.50
Table 9.3
Answer
Solution
Gross profit margin: 44%
Net profit margin: 24%
Which measure is more accurate?
Answer
Solution
Net profit margin considers all expenses, so it is a more accurate measure than gross profit margin that only considers COGS.
Your business partner, Priya, wants to decrease the revenue of a single order to \$5.50. How will that impact your profit margins?
Answer
Solution
Profitability per order will decrease if revenue decreases unless COGS or other expenses are reduced in turn.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Domino's Pizza recently added sandwiches to its menu. This is an example of a ________.
1. line extension
2. brand extension
3. multibrand
4. new brand
2.
The North Face adds a new parka to its line of North Face–branded winter coats. This is an example of a ________.
1. line extension
2. brand extension
3. multibrand
4. new brand
3.
Bethany purchases a different bar soap every time she shops based on what is on sale. Bethany can be considered a ________.
1. switcher
2. shifting loyal
3. split loyal
4. hard-core loyal
4.
Jorge only purchases Apple computers and will not accept a substitute. Jorge can be considered a ________.
1. switcher
2. shifting loyal
3. split loyal
4. hard-core loyal
5.
Which of the following brand metrics measures intended behavior?
1. Brand lift
2. Brand engagement
3. Brand preference
4. Brand equity | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.06%3A_Forms_of_Brand_Development_Brand_Loyalty_and_Brand_Metrics.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe how an organization creates value through packaging and labeling.
• Explain how packaging is used as a marketing tool.
Creating Value through Packaging and Labeling
If you have ever purchased from Apple, you know the power of sleek packaging. Apple is known for its simple white design packaging with metallic logos. Products are visually appealing in their packages, and unboxing an Apple product feels like an experience. Apple’s packaging is as innovative as its products, which brings us to an important lesson in packaging. The package and label must represent the brand effectively (see Figure 9.10). While not one of the 4Ps of marketing, packaging is an important element of the marketing mix based on its close tie to the product. Packaging is also a critical shopper marketing tool as related to place. And, certainly, effective packaging can be its own form of promotion.
A package essentially serves as a container for the product. It has a functional purpose to protect the product from harm. Package designers are first and foremost concerned with protecting the product and secondarily with designing an appealing package and label that piques interest on store shelves and online retailers’ websites.
There are a variety of benefits to effective packaging and labeling. The first is that consumers see packaging before seeing a product. This provides a sensory experience that can influence a purchase. Colors, fonts, and logos can appeal to the eye, while packaging material can appeal to the sense of touch. These clues give a customer a sense of what to expect inside the package.
Additionally, the package reflects the brand, cuing the customer in to the brand feeling. For example, LaCroix is flavored carbonated water sold in brightly colored cans. The cans, as seen below, attempt to make the customer feel the excitement of opening a tasty carbonated beverage (see Figure 9.11).
The functional benefits of packaging are numerous. First, a package serves to store the product to protect it from harm in transit from manufacturer to customer. Items such as foam and cardboard shield the product from damage and keep it clean. Second, packaging can also serve as convenience and safety for customers to carry items and store them in the home. For example, Tide Pods are sold in a plastic container with a child-locked lid. This packaging is convenient for customers to safely store the pods in their home.
Third, packaging can aid in the product’s usability or become a part of the product experience itself. For example, drinkable yogurt is sold in small bottles. The bottles become part of the product experience when a consumer takes a sip of the yogurt. Fourth, packaging and labeling can aid in a brand’s compliance with the law. For example, the Federal Trade Commission Act of 1914 stipulates that false, misleading, or deceptive labels or packaging may be upheld as unfair competition.13 Thus, packaging and labeling allow a brand to be clear, accurate, and transparent in communication with customers.
Packaging can also have perceptual benefits to customers as they seek to associate with brands. Brand packaging containing logos might indicate status of the customer or signal the customer’s values pertaining to quality. Tiffany & Co. is known for its “little blue box,” a package that indicates status and a quality product inside (see Figure 9.12). The blue color of the box is a copyrighted by Tiffany as part of its brand’s intellectual property.14
Packaging Used as a Marketing Tool
Packaging can be used to differentiate a brand, either through design or functionality. For example, beautifully designed packages, such as Tiffany’s little blue box, differentiate the brand through its status. Meanwhile, functional packaging, such as potato chip bags filled with air, serves as differentiation to deliver uncrushed chips.
Packaging can also create a customer experience. Unboxing a product can contribute to the positive emotions associated with a brand. Artisans who sell goods on Etsy understand packaging as a contributor to customer experience. Artisans will often take special care to package goods beautifully with a handwritten note of gratitude. Personalization and packaging make Etsy customers feel involved in an experience.
Packaging can display the value of a product. A well-designed, attractive package demonstrates value instead of a package that frustrates a consumer. For example, American Girl dolls are packaged in a box with a window to show the doll’s face and serve as a keepsake for the owner. The packaging is so popular that some collectors purchase the package without a doll.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
How can a brand capture attention with packaging?
1. Location in store
2. Supply chain
3. Colors, fonts, and logos
4. Printing the price on the package
2.
Which of the following functional benefits of packaging is at play when the package becomes a part of the product?
1. Storage
2. Convenience
3. Safety
4. Usability
3.
Which of the following functional benefits of packaging is at play when the package protects the customer from personal harm?
1. Storage
2. Convenience
3. Safety
4. Usability
4.
Maria purchased a Louis Vuitton purse for her mom because of the dust cover that protects the purse from wear and tear. This is an example of packaging used as a marketing tool for ________.
1. brand differentiation
2. creating customer experience
3. displaying value
4. encouraging people to purchase
5.
The brand team at a technology company created product packaging that was enjoyable to unbox. This is an example of packaging used as a marketing tool for ________.
1. brand differentiation
2. creating customer experience
3. displaying value
4. encouraging people to purchase | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.07%3A_Creating_Value_through_Packaging_and_Labeling.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe environmental concerns with respect to product packaging.
• Discuss strategies that are being used to address environmental concerns.
Environmental Concerns in Product Packaging
Consumers are increasingly concerned about the environmental impact of packaging and its contribution to waste. A study by McKinsey indicates that more than half of US consumers are highly concerned about the impact of product packaging. While it is not a top criterion for purchase, product packaging is a consideration among consumers. Furthermore, consumers are willing to purchase products that have green packaging, such as recycled plastics and fiber-based substitutes.15
Groceries are typically packaged in glass, cardboard, plastic, and metal cans. Single-serve plastics are a concern when used for groceries, as they cannot be recycled. Electronics and other fragile products may be packaged with cardboard and foam, which can find their way into landfills. In addition to the energy used to manufacture the product, packaging adds to the environmental burden. Discarded product packaging can be found in landfills, as street litter, and in water sources, harming the environment. Creation of product packaging depletes critical resources, such as trees, and adds to air pollution.
Link to Learning: How Much Plastic Floats in the Great Pacific Garbage Patch?
Check out this website that describes the impact of the Great Pacific Garbage Patch. Think about the impact that packaging has on the environment and what you can do to reduce your personal plastic waste.
Companies are innovating on packaging to make it sustainable. As you may see at a restaurant like Chipotle, brands are adopting more fiber-based packaging and compostable, and recyclable options (see Figure 9.13).
Companies are also looking at ways to reduce packaging to only its necessary components. Boxed Water Is Better has adopted a cardboard box for its water that is 75 percent paper and 100 percent recyclable (see Figure 9.14). The packaging is free of BPA and other chemicals. The paper is ethically sourced and shipped flat to reduce the amount of space in a truck, further reducing the company’s carbon footprint.16
Cradle-to-cradle packaging design takes the waste out of the life cycle of a package. The package is designed to be something that can be reused or 100 percent recycled. It is meant to imitate nature’s processes by being regenerative. A cradle-to-cradle approach uses renewable energy and keeps parts of the biological world within the biological world. In a similar way, some consumer goods flow in a technical cycle, so that the material resources can be generated into new products (see Figure 9.15).
E-commerce introduces an additional challenge: How can companies sustainably ship single products to a customer? Companies must consider protecting the item, efficiency, cost, and sustainability in their e-commerce packaging. Companies can reduce packaging and use recycled or recyclable materials in their packaging. Additionally, companies can provide return-ready packaging so packages that need to be returned to the manufacturer are the same packages that arrive with the product.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the following is not a type of grocery product packaging?
1. Paper
2. Plastic
3. Metal
4. Wood
2.
Which of the following is not part of the technical cycle?
1. Product
2. Use
3. Disassembly
4. Natural resources
3.
Which of the following is a trend in sustainable packaging?
1. Increasing the amount of packaging
2. Using boxes
3. Using only necessary resources
4. Using plastic
4.
Where can discarded packaging be found?
1. Water sources
2. Landfills
3. On the ground
4. All of these are correct.
5.
Which part of the cradle-to-cradle approach is regenerative?
1. Production
2. Product
3. Use
4. Biodegradation | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.08%3A__Environmental_Concerns_Regarding_Packaging.txt |
Learning Objectives
By the end of this section, you will be able to:
• Explain ethical issues with respect to product packaging.
• Discuss product safety and ethical packaging trends.
The Importance of Ethics in Product Packaging
In addition to concerns about sustainability, marketing professionals must be mindful of ethical concerns regarding packaging. Remember, a consumer can see the package on the store shelf, not the product inside. The customer is seeking guidance, explanation, and assurance of a product’s quality from the packaging. The package must not mislead customers about the size, quality, ingredients, or health claims. The graphics on a package must also properly represent the product inside. For example, a package might display a photo of a product that is larger or more substantial than the product inside, leading the consumer to erroneously believe that the product matches the photo.
Product packaging should be effective in protecting the product. Therefore, brands have a responsibility beyond sustainability to design packaging that ensures that the product survives transport from the manufacturer, to the wholesaler, to the retailer, and finally home with the customer. Think about the last time you purchased eggs at the grocery store. The eggs are quite fragile, but they are packaged in such a way that minimizes damage as the container travels from the farm to your home. It would be unethical for a brand to reduce packaging to save money and leave the consumer with a damaged product.
Additionally, product packaging informs the customer of important safety issues. For example, a package with small parts might have a warning that it is a choking hazard for children under the age of three.
Companies must consider groups beyond their customers. Government, advocacy groups, and NGOs may influence ethical packaging. Some experts predict that ethical packaging will become a legal mandate, so brands have an incentive to think about packaging today and prepare for a more sustainable future.
9.10: Chapter Summary
Products are the consumer offering. They are the reason that the customer is making a value exchange. Products and services differ but are inextricably linked through experiences. Consumer products are classified in four ways based on consumer behavior, price, and distribution. Meanwhile, business and industrial products are classified by materials, parts, capital items, and supplies/services.
Products are often not the only offering for a company. Rather, products are sold in product lines and mixes to maximize consumer choice and profitability. Companies may stretch or fill their product lines to appeal to new customers or create new options for existing offerings. A product lives through a product life cycle, including introduction, growth, maturity, and decline, all of which consider revenue and growth. Marketing decisions are often made based on where a product is in the product life cycle. Companies may use levers such as product innovation, pricing, and promotion to encourage purchase.
Ultimately, products become part of a brand. A brand is a feeling that is evoked and a reason that consumers might make a purchase. Brand equity is an intangible asset with tangible value for a company, so it must be protected. Brands position themselves in consumers’ minds to capture brand equity. Developing a brand can occur through extension or creating a new offering. Consumers have varying degrees of brand loyalty, which can be measured through preference, lift, and engagement.
Packages are more than containers for products, they are also an extension of the brand. They are useful in brand identity, differentiation, and customer experience. Packaging and labeling also serve functional benefits such as storage, convenience, protection, safety, usability, and legality. Brands should be mindful that packaging has an environmental impact. Brands are continually innovating their packaging designs to meet sustainability expectations. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.09%3A__Ethical_Issues_in_Packaging.txt |
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
actual product product available for purchase
augmented product product having unseen aspects essential to customers
brand an intangible asset with tangible value; made up of promotion efforts and customer meaning
brand engagement measure of how deeply the customer identifies emotionally with a brand
brand equity the additional value that a brand has over a substitute
brand extensions products that leverage the brand name to new product categories
brand lift measure of customer and noncustomer perception of a product over time
brand name the official name of a brand
brand positioning the way a brand signals emotions in consumers’ minds
brand preference measure of the degree to which a brand is preferred over others in the category
brand value the financial asset associated with a brand
branding the process of developing a brand
capital items assets valuable to a business that also have tangible value
co-brand to bring the equity of two brands together for greater value
convenience products products that consumers can purchase easily, quickly, and without a lot of thoughtful decision-making
core product product solution that the customer is actually buying: convenience, ego, ease, flexibility, etc.
cost of goods sold expenses directly attributable to the product or service
cradle-to-cradle packaging design product design that eliminates waste from the life cycle of package
customer experience the overarching impression that customers have of a brand
decline stage part of the product life cycle characterized by a significant decrease in sales and profitability
divest to sell a brand or discontinue a product to protect a portfolio
gross profit margin comparison of profit before expenses to total revenue
growth stage part of the product life cycle characterized by increasing sales; stage when copycat brands may enter the market
hard-core loyals tried-and-true customers who will generally only purchase one brand in a category
harvest to reduce all unnecessary expenses to retain any remaining revenue
introduction stage part of the product life cycle when consumer awareness is building and sales are starting to grow
licensed brands brands that provide the likeness of their brand as a fee for use
line extensions products that create new opportunities for an existing product and brand
manufactured materials and parts products used to create a product
market modification an extension of a product to new customers
maturity stage part of the product life cycle when sales growth slows and profitability levels off
multibrands new brand names within a company’s existing product category
national brands name brands that sell a product or service under its corporate name and identity
net profit margin calculation that deducts all expenses from profitability
new brands an entirely different brand entity from a parent company
private-label brands store brands that are similar products to a national brand and labeled privately
product item a particular good that a company sells
product life cycle the stages a product goes through, tracking its sales and profitability
product line a set of products that are similar or complementary
product line depth the number of products in a line
product line filling products added to a product line to keep competitors from entering the market
product line stretching addition of product lines
product mix all the products a company sells
product mix width the number of product lines a brand carries
product modification alteration of products to fit the market
products tangible items that are part of an exchange between a buyer and a seller
profit margins a widely used financial measure to determine the profitability of a business; considers costs to manufacture and sell a product or service
rapid penetration pricing strategy strategy that sets a lower-price strategy; appropriate when volume sales will increase market share quickly
rapid skimming strategy strategy that sets a high price along with extensive advertising and sales promotion to establish a product in the marketplace
raw materials products that a business needs to purchase in order to make a consumer good
services intangible solutions that are an exchange between buyer and seller
shifting loyals customers who are loyal to one product or service for a time, then turn their loyalty to a different product or service at another time
shopping products products that require more thought from the consumer as they seek the best quality or price
slow penetration pricing strategy strategy that sets low prices and little promotion to capture market share slowly in a market not susceptible to promotion
slow skimming strategy strategy that sets high prices with low advertising and sales promotion investment
specialty products products that have unique qualities that consumers will make an extra effort to seek out
split loyals customers who have a consideration set of two or three products or services in a category
supplies and services goods and services that are typically disposed of and do not contain a tangible value
switchers customers who continually change their purchasing behaviors
trademarks (service marks) symbols that show legal ownership of a brand name or brand mark
unsought products consumer goods that a buyer doesn’t anticipate purchasing | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.11%3A_Key_Terms.txt |
1 .
Think of a product that you have used recently. What are the core, actual, and augmented products?
2 .
How would you promote a shopping product differently than a specialty product?
3 .
Look at the Oreo product line. Why are there so many products? What purpose does this variety serve?
4 .
Consider the Sears brand. Which stage of the product life cycle is Sears currently in? What do you recommend it do to change this stage?
5 .
Discuss a brand to which you are loyal. Why are you loyal to the brand? How does the brand contribute to your loyalty?
6 .
Would you consider yourself a switcher, shifting loyal, split loyal, or hard-core loyal for your favorite brand? Why?
7 .
Look at the Apple brand packaging in this chapter. How does this packaging meet the criteria that we discuss in the chapter?
8 .
Review Boxed Water Is Better’s website. How do the website and packaging address environmental concerns?
9 .
Discuss a brand’s packaging. How could the brand reduce its packaging or introduce recyclable packaging?
10 .
Why are safety statements important on packaging? What might you add to product safety statements?
9.13: Critical Thinking Exercises
1 .
Brainstorm purchases that you have made this week. Classify each into convenience products, shopping products, specialty products, or unsought products.
2 .
Explain the product life cycle. How and why might it change based on certain criteria?
3 .
Examine the package of a product that you have in your pantry at home. Determine how the packaging aligns with the brand, protects the product, and displays value.
9.14: Building Your Personal Brand
Can you honestly say that you “own” who you are? Do your habits and mannerisms belong to you? Are you comfortable in your skin?
In her TED Talk, Harvard professor Amy Cuddy discusses how body language impacts how others perceive you. Our nonverbals give others a perception about who we are and how we are feeling. Our body language conveys dominance, much like animals do to show their power. Our posture and the space that we take up signals confidence. But sometimes we take cues from others. If our conversation partner is showing dominance, our body language might shrink in response. It turns out that posing for dominance changes the way we think and act. So use body language to your advantage next time you are trying to make an impression.17
Watch Amy Cuddy’s video “Your Body Language May Shape Who You Are” and develop a perspective on how you can use body language to develop your personal brand. Specifically, write a 1-to-2-page document outlining what you will start doing and what you will stop doing, and explain why. Your professor might even enjoy seeing a photo of your “power pose.”
9.15: What Do Marketers Do
A product manager is the keeper of a brand. Their job is to develop the product strategy—the what, where, when, and how much of a product. Then, a product manager coordinates a cross-functional team of professionals from marketing, development, finance, legal, operations, manufacturing, supply chain, and more to bring the product to market successfully and shepherd the product through its life cycle. Product managers understand how strategy underpins a product’s success in the market and serves as a path to grow the brand.
Interview a product manager to determine the following:
1. What is their philosophy on successful product management from launch through the product life cycle?
2. What does their job entail? Who are the key members of their product ecosystem?
3. What is the career path that led them to this role?
Product managers can be found at companies of all sizes, including both B2B and B2C. You can use your network on LinkedIn or your professor to source an interviewee.
9.16: Marketing Plan Exercise
Complete the following information about the company and products/services you chose to focus on as you develop the marketing plan throughout the course. You may need to conduct research in order to obtain necessary information.
Instructions: Using the Marketing Plan Template file you created from the Marketing and Customer Value assignment and expanded upon in Strategic Planning in Marketing, Market Segmentation, Targeting, and Positioning, and Marketing Research and Market Intelligence, complete the following section of your marketing plan:
• Marketing Strategy: Product
Submit the marketing plan to your instructor for grading and feedback. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.12%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Ramblewood
In 2018, husband and wife duo Zach and Riley McDonald began getting a flood of requests to help with events. Each of them individually had significant talents. They were great foodies, and they understood good food both in taste and in presentation. Their combined skill for aesthetics in design, display, color, and texture was remarkable. And they were both gifted at bringing everything together and staging it all like a flawlessly produced Broadway show.
When the idea to create a business doing event planning started to become a reality, both were employed full-time while also tending to their young family. To say their plates were full was an understatement. However, after helping with a few events, the duo realized they had a passion for event planning, and they both really enjoyed working with people, helping others to bring their dreams to reality.
Zach and Riley were both very involved in their community, and they were often guests at events around town. They noticed a lack of coordination between all the moving event components—planning, floral design, event rentals, decor, and catering. Was there a marketplace need to coordinate an event from beginning to end?
After putting together a few events for friends and acquaintances, they received rave reviews. Requests started pouring in for their services. With a keen eye for every detail and methodical oversight for all facets of an event, the Ramblewood team had a unique niche in its market. And with a robust start, Ramblewood came to life.
Ramblewood had a compelling value proposition in that it was a one-stop-shop for all event components. It was not uncommon for an event host to research, interview, and coordinate with musicians, furniture and linen rentals, caterers, florists, bakers, digital designers, and printers. Ramblewood would do it all and coordinate it seamlessly to take some of the stress off the work of an event.
While weddings might be the primary event market, Ramblewood had a strong following with corporations, family reunions, baby showers, bridal showers, and birthday parties. No event was too big or small for Ramblewood. If clients wanted to host an event to flawlessly match a vision, Ramblewood could make it a reality.
With over a decade of art and design experience, Zach and Riley were able to sit down with their clients and hear about their dreams and visions to bring them to reality. The team had a special skill for looking at creative ways to stretch the budgets and create focal points that would make an experience unforgettable.
As the business was getting off the ground, Zach and Riley wondered how to scale and still create the unique experience expected by every event. However, they were worried that quick growth might damage their unique brand. The two wanted to maintain the integrity of the brand. Every event deserved to have the same attention to detail and beauty they had built in to their very first event.
Zach and Riley quickly realized that every event they managed was in fact their “calling card.” Guests who attended Ramblewood events talked about the experience. Guests discussed the beauty of the flowers, the exceptional food, the layout and decor, and most importantly, how well the event flowed. Each event had elements that created “oohs” and “ahs” that prompted the question, Who created this event? Marketing through word of mouth and social media seemed to be creating the growth engine Zach and Riley were seeking.
The essence of the Ramblewood brand was to create the vision and develop a magical experience for every guest in attendance. “From small intimate home parties or dinners, to large upscale corporate events, we love them all. We love hearing what the event is about and who it is for and then custom building your event into a true lasting experience”18 was Ramblewood’s mission.
After four years of unforgettable events, the duo chose to extend their brand with an upscale gourmet grocery market to deliver event elements in one location. Market customers could stop in and take a little bit of Ramblewood home. Ramblewood created RMarket—a place for a few magical moments available for everyone, including napkins, flowers, food, decor, and dishes.
The small company Zach and Riley launched was growing rapidly, and its brand was associated with the best events in the South. Growth was coming with the addition of its gourmet food market, and the two were looking for the next steps for their business. 19
To learn more about Ramblewood, visit its website.
Case Questions
1 .
Ramblewood provides many benefits to its customers. What are the four levels of product provided by Ramblewood?
2 .
Products are tangible items offered for exchange between a buyer and seller. Services are intangible solutions that are also an exchange between buyer and seller. Ramblewood provides event planning. As part of its “offering,” it also supplies flowers, decor, and food. Where does the Ramblewood offering fall on the product–service continuum?
3 .
Ramblewood was able to capitalize on positive word of mouth to build its business at the introduction stage. As it entered the growth phase, it incorporated some marketing strategies used by many companies. What did Ramblewood do to fuel growth?
4 .
Brands are built in the hearts and minds of the customers. Successful brands engage customers on a personal level, connecting to their emotions and needs. Name some of the strategies Ramblewood uses to create its brand.
9.18: References
1. “Compare Bikes: Which One Is Right for You?,” Peloton, accessed February 1, 2022, https://www.onepeloton.com/bikes/compare; “Tread Specs: Take a Closer Look,” Peloton, accessed February 1, 2022, https://www.onepeloton.com/tread/specs.
2. Marco Iansiti and Karim R. Lakhani, Competing in the Age of AI: Strategy and Leadership When Algorithms and Networks Run the World (Boston: Harvard Business Review Press, 2020).
3. Erica Schneider, “How Netflix Creates Immersive Experiences with Exceptional Design and UX,” All Things Data-Driven Marketing (blog), CXL, August 27, 2021, cxl.com/blog/netflix-design/.
4. John A. Davis, Competitive Success: How Branding Adds Value (Hoboken, NJ: John Wiley, 2010), 76.
5. Roberto A. Ferdman, “Goodbye, Good Old Greek Yogurt,” Washington Post, December 18, 2015, https://www.washingtonpost.com/news/...-greek-yogurt/.
6. Kieran Fogarty et al., “New Coke,” Encyclopaedia Britannica, August 13, 2018, https://www.britannica.com/topic/New-Coke.
7. “Sales of the Leading Liquid Laundry Detergent Brands of the United States in 2018,” Statista, accessed May 19, 2022, https://www.statista.com/statistics/...united-states/.
8. Kevin Lane Keller and Vanitha Swaminathan, Strategic Brand Management: Building, Measuring, and Managing Brand Equity, 5th ed. (Hoboken, NJ: Pearson, 2020).
9. “What Is a Trademark?,” United States Patent and Trademark Office, last modified June 13, 2022, https://www.uspto.gov/trademarks/bas...what-trademark.
10. Steven Begley and Angus McOuat, “Turning Private Labels into Powerhouse Brands,” Retail Insights, McKinsey & Company, October 30, 2020, https://www.mckinsey.com/industries/...erhouse-brands.
11. Mark Mallinger and Gerry Rossy, “The Trader Joe’s Experience,” Graziadio Business Review 10, no. 2 (2007), https://gbr.pepperdine.edu/2010/08/t...es-experience/.
12. Drew Wilkinson, “How Trader Joe’s Makes the Experience Its Competitive Advantage,” Customer Service Blog, Fonolo, updated November 17, 2021, https://fonolo.com/blog/2019/03/how-...ive-advantage/.
13. “Federal Trade Commission Act,” Encyclopaedia Britannica, August 16, 2017, https://www.britannica.com/event/Fed...Commission-Act.
14. “Tiffany Blue,” Tiffany & Co. Newsroom, Tiffany & Co., last modified December 14, 2020, https://press.tiffany.com/our-story/tiffany-blue/.
15. David Feber et al., “Sustainability in Packaging: Inside the Minds of US Consumers,” Insights on Paper, Forest Products & Packaging, McKinsey & Company, October 21, 2020, https://www.mckinsey.com/industries/...f-us-consumers.
16. “Is Boxed Water Really Better?,” Boxed Water, accessed December 10, 2021, https://boxedwaterisbetter.com/pages/how-we-compare.
17. Amy Cuddy, “Your Body Language May Shape Who You Are,” filmed June 28, 2012, in Edinburgh, Scotland, TEDGlobal 2012 video, 20:46, https://www.ted.com/talks/amy_cuddy_...pe_who_you_are.
19. “Wedding Specialists: Ramblewood,” CityScope Magazine, https://cityscopemag.com/city-scope/...ts-ramblewood/ | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/09%3A_Products-_Consumer_Offerings/9.17%3A_Closing_Company_Case.txt |
Swarovski, a well-known company that specializes in crystal cutting, developed a campaign around diversity and acceptance a few years ago in an effort to reach worldwide customers. One such campaign that was launched during the holiday season in China focused on the Advent calendar despite the fact that the observance of Advent is primarily a Western tradition. If you’re not familiar with Advent calendars, they’re a type of calendar that counts down the days from December 1 to December 25, Christmas day. On each day in December, you open a pouch or flap on the calendar where a small candy or toy is included. Swarovski took the concept to a whole new level.
The Swarovski Advent calendar retailed for \$458 and contained 25 individual compartments with Swarovski crystals. You might be thinking that the price is a little high, but think again—the market supported the price, and the calendars sold out quickly. While the physical Advent calendars took off in the market, so did the digital version. With the digital calendar, users would play interactive games, earn game cards, and then swap the cards with other people. After they collected seven unique cards, they could turn them in to Swarovski for a gift.
Later in this chapter, we’re going to explore some measurement metrics for determining the success of new product launches, but one immediate indicator that a product launch was successful is a quick sellout. For Swarovski, the fact that their Advent calendar sold out so quickly is a testament to the successful product launch.1
10.01: New Products from a Customers Perspective
Learning Objectives
By the end of this section, you will be able to:
• Define a new product.
• Explain “newness” from the perspective of the customer.
• Explain the risks and rewards of developing new products.
New Product Defined
You’ve probably watched at least one episode of the popular television show Shark Tank, where budding entrepreneurs pitch their business plans to a panel of investors in return for funding. To date, over 1,000 sales pitches have been made on the show—some forgettable, others memorable—and some pitches have resulted in wildly successful businesses. Some of Shark Tank’s most successful products include the Squatty Potty (over \$200 million in sales since appearing on Shark Tank), Bombas Socks (over \$225 million), and Scrub Daddy (over \$330 million).2
Link to Learning: Shark Tank
You will learn a lot about new products and their development by watching Shark Tank. You can watch the episodes online here. Interested in learning which Shark Tank products have been most successful? Check out these stories:
Perhaps you’ve got an idea for a new product that’s going to take the world by storm. If so, this chapter will be especially relevant for you. We’re going to explore everything about new products in this chapter: the stages of new product development, what facets of those new products contribute to their success or failure, how consumers adopt new products, and more.
You would think that a “new product” would be an easy definition, but the term can mean different things. In fact, there are five different categories of new products (see Figure 10.2), each one unique.
Let’s look at these new product categories in more detail.
• New-to-the-World Products: New-to-the-world products essentially are new inventions that create new markets. Some examples from products recently introduced include biomagnetic ear stickers for weight loss, cat self-groomers, and portable blenders.3
• New-to-the-Firm Products: These are products that are new to a company but not to the world. It’s likely that marketers have seen a gap in the market and their product line and attempted to fill that void by adding a “me-too” type of product to their product line. For example, Nature Valley originally only made granola cereal but later introduced granola bars that could be eaten “on the go.”4 There’s a perfect example of a company that saw a gap in the market and added a product that wasn’t new to the world, but it certainly was new to Nature Valley.
• Additions to Existing Product Lines: Recall that a product line is a group of related products marketed under a single brand. Additions to existing product lines are simple product line extensions, designed to “flesh out” the product line. During its 130+ years in business, Coca-Cola has launched a number of product line extensions. The next time you’re in a supermarket, look on the shelves in the soft drink aisle. You’ll likely see a number of different flavors and styles of Coca-Cola varieties, such as Coca-Cola Cherry, Coca-Cola Cherry Vanilla, Coca-Cola Vanilla, Coca-Cola Zero, and more.5
• Improvements and Revisions to Existing Products: This is when existing products are improved. Think about how many times you’ve seen “new and improved” on the packaging of a product that you’ve been using for a while, like laundry detergent. As a concrete example, Meta (formerly Facebook) released its Oculus Quest 2 VR (virtual reality) headset and controllers late in 2021, which was simply an updated version of its original Oculus Quest.6
Link to Learning: Oculus Quest 2
Are you new to VR and would like to see what you can do with the Oculus Quest 2 device? Check out this short video where Meta Quest uses YouTube to market the features and benefits of using the Oculus 2. Meta Quest also provides tons of videos about how you can use the Oculus 2 in fitness, gaming, social experiences, and space exploration. Check out those Meta Quest videos here.
• Repositioned Products: Another reminder: product positioning is the process that defines how your product is different from others on the market.7 Repositioned products are those that are retargeted for a new use or application. For example, Bayer repositioned its aspirin from treating headaches, fever, and inflammation to also safeguarding against heart attacks.8
Customer Perceptions of Newness
Just as there are different ways to categorize new products, there are different customer perceptions of newness. The difference in these perceptions is the result of how much change they cause in a consumer’s existing habits. Newness can be categorized three ways:
• Discontinuous Innovation: Sometimes referred to as radical or disruptive innovations, discontinuous innovations consist of new-to-the-world products that are so different from products currently existing in the market that they require a significant change in consumer behavior when adopted. For example, think about how cell phones have changed the way we communicate today. Older cell phones did one thing—make and receive phone calls. With a smartphone, you can still make phone calls, but you can also listen to music, send and receive emails, surf the Internet, conduct online banking, and get driving directions, to name just a few. Consider how learning to operate all the features on your smartphone required you to change your behavior.9
• Continuous Innovation: This is the other end of the spectrum from discontinuous innovation. With continuous innovation, the existing product undergoes marginal changes and doesn’t alter customer habits. For example, when Sony introduced new TVs that promised sharper, brighter TV pictures, the picture quality was better, but as a consumer, it didn’t require you to change your TV viewing habits.10
• Dynamically Continuous Innovation: With dynamically continuous innovation, some changes in consumer habits are necessary, but the changes aren’t as large or small as you see with the two other types of innovation. For example, manual and even electric typewriters have gone the way of the dinosaur since the advent of PCs, but the keyboard layout remained the same, so little change was required with consumer habits.
Risks and Rewards of Developing New Products
We started this chapter with a discussion of Shark Tank and some of the products that have been successful in the market as a result of the television show. However, not all products are successful, and there are both risks and rewards when developing new products.
Rewards of Developing New Products
You have probably heard the saying “No risk, no reward,” and nothing could be truer in terms of new product development. However, a company’s ability to maintain its competitive edge in the market requires a delicate balance between the necessity and the challenges of new product development.
We’ve already looked at Swarovski’s successful product launch of its Advent calendar, but let’s consider a few other examples to show you just how rewarding a well-executed product launch can be. Instagram, the social networking platform that allows users to share photos and videos, was first released in October 2010, and it quickly racked up 25,000 users in one day. The company now boasts that it has more than 1 billion (that’s with a “b”) monthly active users. Instagram succeeded by introducing bold features in its platform, from video editing features to interactive features like face filters and polling.11
And, of course, we can’t talk about successful product launches without mentioning Apple, whose original iPhone was one of the most successful product launches in history—racking up 1 million units sold within just 74 days of its launch.12
Keeping the success of these products in mind, let’s look at the reasons why products succeed.
• Targeting New Markets: New product development gives businesses the opportunity to expand into new markets, providing an opportunity to connect with different target markets. This creates the added benefit of growing their customer base. For example, research from the Centers for Disease Control and Prevention (CDC) indicated that Americans were reporting symptoms of anxiety and depression since COVID-19 came about, so PepsiCo launched two new drinks that claim to support relaxation—Driftwell and Soulboost.13
• Increasing Market Share: Think about market share as a pizza, and every company that participates in the market has a slice (obviously some slices are bigger than others). As the market grows, a company needs to expand with it in order to keep its share of that pizza, but it can also increase its market share—and take another slice or two of pizza—through new product development.
• Increasing Revenue Stream: Revenue streams are all the ways a company can generate cash from the sale of its products or services. New products and/or services will create additional revenue streams that will generate extra income for the business, perhaps spurring even more new product development. For example, Apple generates revenue streams by developing new hardware products such as the Apple Watch and AirPods wireless headphones, and the company enjoys recurring revenues from services such as iCloud, Apple Music, and Apple TV+.
Risks of Developing New Products
Developing new products has many unforeseen issues and surprises, so it should come as no surprise to you that there are some significant risks associated with these efforts.
• Lack of Differentiation: There can be many problems with the design of a product, including insufficient differentiation from competitors’ products. Perhaps the product or service did not solve enough problems or did not solve them sufficiently, or the product incompletely addresses the needs of the target market.
For example, in 2021 Apple discontinued its HomePod smart speaker, which was not perceived as being sufficiently different from Amazon’s Echo despite offering high-quality music playback.
• Financial Feasibility: New product development is expensive and can be financially risky for companies. It’s important that a financial feasibility study is conducted in the earliest stages of new product development to determine whether it’s worth launching the product or service in the context of sales and revenues.
Financial feasibility is the primary reason why pharmaceutical companies typically don’t invest large amounts of money in developing a new drug if the market for the drug is small. Novartis was the exception to this rule. The company developed a drug that treats children under the age of two suffering from spinal muscular atrophy (SMA). According to the Cleveland Clinic, only 1 in 10,000 children suffer from this rare genetic mutation, but Novartis went ahead and developed the drug anyway.14 With a price tag of \$2,125,000 for a one-dose treatment, it’s the most expensive drug the world has ever seen.15 You may be asking yourself, Is it worth it? Just ask the parents of a child suffering from SMA.
• Technical Feasibility: Technical feasibility studies are equally important as a financial feasibility study. Does the organization have the technical resources to meet capacity? Can the technical team convert the idea into a working product or service?
For example, while Taco Bell’s Doritos Loco Taco was in development, the team wasn’t sure it was technically possible to coat a taco shell with the iconic Doritos flavoring. Its research and development (R&D) department spent approximately two years developing over 40 prototype taco shells before it found the right combination of crunch, seasoning, and flavor.16
• Poor Timing: Author Joshua Harris once wrote, “The right thing at the wrong time is the wrong thing.” This couldn’t be truer when it comes to new product development. You may have developed the best product or service, but if it’s introduced to the market at the wrong time, it’s likely to fail. The product development process can take a year or longer, and imagine the market changes that can take place during that time. A new competitor may enter the market before you do, consumer preferences and needs can change, legislative or environmental regulations can change, or the economy can go south before you’re ready to launch.
The situation with in-home COVID-19 testing kits is a perfect example of poor timing. By the time the US government made these kits widely available to the public, the need for these tests had greatly diminished because the majority of the population had already been vaccinated.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Many years ago, liquid soap was introduced in place of traditional bar soaps. This innovation changed an intrinsic feature of the product, but it’s used for the same purpose. This is an example of ________.
1. discontinuous innovation
2. continuous innovation
3. dynamically continuous innovation
4. noncontinuous innovation
2.
Coca-Cola, a behemoth in the soft drink market, decides that it is going to develop and market Coca-Cola popsicles. What type of new product would this constitute?
1. New-to-the-world
2. New-to-the-firm
3. Improvements and revision to existing products
4. Repositioned product
3.
Saundra went to the grocery store and purchased the same laundry detergent she’s been buying for years, but she noticed that the packaging had been changed and the label indicated that the laundry detergent was “new and improved.” What category of new products would the laundry detergent likely fall under?
1. New-to-the-world products
2. New-to-the-firm products
3. Repositioned products
4. Improvements and revisions to existing products
4.
Hoffman Enterprises has introduced a new product to the market that has undergone only marginal changes and doesn’t alter consumer use habits. What type of product has Hoffman Enterprises introduced?
1. Discontinuous innovation
2. Continuous innovation
3. Intermittent innovation
4. Dynamically continuous innovation
5.
Sources through which a business earns income from the sales of goods or services are known as ________.
1. capital gains
2. incremental income
3. profits
4. revenue streams | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify the stages of the new product development process.
• Define and describe the important factors of each stage of development.
The New Product Development Process
The new product development process involves activities where a company thinks of a new product concept and introduces a new product offering. New product development usually follows a process divided into stages (see Figure 10.3).
Stage 1: Idea Generation. With idea generation, you are working to create as many ideas as you can. The purpose of this stage is to focus on the products that are more likely to turn a profit so you can reduce the product development expense later in the process and develop profitable products.17
Instead of looking at the new product development process in abstract terms, let’s discuss a potential product idea and follow it through all the steps of the process. Imagine that you’re a marketer for a food processing company, and you believe there is a gap in the market for a high-protein freeze-dried yogurt powder that can be added to juice to make a nutritious, low-fat, fruit-flavored smoothie. This is what’s known as a product idea—a new product that a company could potentially offer to the market. This idea may have been generated by internal sources such as research and development (R&D), market research, or employees who are not part of R&D. On the other hand, the idea may have come from external sources such as customers, suppliers, distributors, or even competitors.
Stage 2: Idea Screening and Evaluation. This is the process of filtering through the ideas brought to the table by your team, picking the ones that are most likely to turn a profit, and dropping the less favorable ones. For example, with our high-protein freeze-dried yogurt powder, the team would create numerous product concepts that they then sift through to reach the best idea.
Stage 3: Concept Development and Testing. In this stage, a product idea can be turned into several product concepts—the perception of a new idea or innovation. The product team will consider who will use the product (e.g., children, athletes, or adults), what benefits the product will provide (e.g., meal replacement, a snack, nutrition, or energy), and when consumers would typically consume the product (e.g., for breakfast, as a midmorning or afternoon snack, or after a workout or exercise).
For example, your product team may come up with the following product concepts for our yogurt powder:
1. The yogurt powder would be marketed as an instant, on-the-go breakfast drink.
2. The yogurt powder would be marketed as a high-protein snack that is more nutritious than plain juice or milk.
3. The yogurt powder would be marketed to adults or athletes who work out and want to replenish the body’s loss of protein during exercise.
It’s important to develop these product concepts because each concept defines the product’s competition. For example, Concept #1 would compete against other breakfast foods such as cereal, breakfast bars, toast, and bacon and eggs. Concept #2 would compete against juice, soft drinks, and plain milk. Concept #3 would compete against protein shakes.
Once you’ve developed your product concept, it’s time to test that concept with consumers in what you believe to be your target market. This is what’s known as concept testing. Concept testing is a market research method in which customers are presented with a description of a product or service.
Let’s assume that the product concept we’ve chosen is the instant, on-the-go breakfast drink. Customers in the target market would be presented with a description of the product that may read something like: “Our product is a high-protein powdered yogurt mixture that is added to juice to make an instant breakfast smoothie that provides nutrition, good taste, and convenience. The product will be offered in individual packages, six to a box, priced at \$3.49 per box.”
Potential customers will then be asked a series of screening or qualifying questions, such as:
• To what extent do you like or dislike this product?
• How appealing are the attributes of the product?
• How likely would you be to purchase this product?
Quite often, these (and other) questions are scored using a five-point Likert Scale. For example, the last question might be scored on the basis of these five options: definitely would purchase; likely would purchase; may or may not purchase; unlikely to purchase; and definitely would not purchase. The answers to these questions suggest if the product will likely be successful in the market or not. If the answers are generally positive, the product concept will move to the next stage; if the answers are less than positive, the product concept will likely be rejected.
Stage 4: Market Strategy Development. Once concept testing has been completed and the decision has been made to proceed further, it’s time for the product team to develop a preliminary marketing strategy plan. This plan will address the target market for the product. It will outline product positioning, pricing, distribution, promotion, budget, and both short- and long-term goals for sales, market share, and profit.
Stage 5: Business Analysis. Armed with the preliminary marketing strategy plan, the company now needs to assess the new product’s business appeal. For example, the company will want to know if sales will be sufficient for the company to make the desired profit. The company will need to understand the costs involved in the new product development in terms of research and development, manufacturing, and marketing.
There are a couple of different analyses that can be done:
• Payback: This simply refers to the time frame within which the company can expect to recover the investment it made in the product development process.
• Break-even analysis: This analysis determines how many units must be sold before the company recoups its costs and starts making a profit.
These analyses are performed so that management can now determine if anticipated profits from the sale of the breakfast drink mix will satisfy company objectives. If the answer is yes, the product concept moves on to the next stage, product development. If the answer is no, the product concept is shelved.
Stage 6: Product Development. Remember that, until now, our product concept has existed only as words or perhaps a drawing. If our breakfast drink mix has passed the business analysis test, it will now move into the product development stage, and engineering will develop a physical version of the product, called a prototype.18
It’s important to note that sometimes the company realizes in this stage that the product concept simply can’t be translated into a commercially feasible product. For example, through market research, Maxwell House determined that consumers wanted a coffee that was “bold, vigorous, and deep tasting.” However, after working with coffee blends for four months, the company determined that it was too expensive to commercially produce the formula, so Maxwell House changed the blend to meet its targeted manufacturing cost. Unfortunately, the taste of the new blend didn’t meet consumers’ expectations, and the new product flopped.19
The prototype is then put through functional and customer tests to see how well it perform. For example, at carpet manufacturer Shaw Industries, temporary employees are paid to walk on carpet samples for eight hours a day to see how the carpet holds up.20 At Gillette, volunteers come to work unshaven so they can use certain razors, shaving cream, or aftershave and complete questionnaires. (The “motto” of this group is “We bleed so you’ll get a good shave at home.”)21
Stage 7: Test-Marketing. If the product team is satisfied with how the prototype performs functionally, the product concept is then test-marketed to determine its viability before it’s launched on a large scale. Typically, the product is introduced in a limited number of stores or in a few geographic regions in order to gauge customer acceptance. There are several methods of consumer-goods marketing testing, but we’ll just cover a few here:
• Sales-Wave Research: This is the least costly method of test-marketing. With this method, consumers are initially allowed to try the product at no cost. They are then reoffered the product (or a competitor’s product) at a reduced price a number of times (i.e., sales waves). The point of this research is to see how many consumers select the new product and record their reported levels of satisfaction with the product.22
• Controlled Test-Marketing: In this type of test-marketing, the company arranges for a certain number of stores to carry the new product. The new product is delivered to the store, and marketers manage shelf position in the store, pricing, point-of-purchase displays, and more. The company then measures sales results through the scanners at checkout.
• Test-Marketing: Of course, the best (but also the most expensive) way to test a product concept is with a full-blown market test. The company will select a few representative cities (markets that closely resemble the target customers) and introduce the product with a full advertising and promotional campaign. In essence, the company is measuring the success of the new product on a smaller scale before launching it on a national or even global scale. Curious to know the top cities to test-market a national product? They are Nashville, Tennessee; Cincinnati, Ohio; Indianapolis, Indiana; Charleston, South Carolina; and Jacksonville, Florida.23
• Simulated Test-Markets: With this method, consumers are exposed to simulated market situations in order to gauge their reactions. Marketers interview consumers in two stages: concept stage and after use. The concept stage interviews provide the marketer with information about the product’s appeal and trial rate, whereas the post-usage interviews determine consumers’ likelihood of purchasing the product again.
• Crowdsourcing: Crowdsourcing is the practice of using the input of a large group of people. This form of market testing would be particularly useful if your product includes mobile apps, web apps, or websites. The product team would choose a crowdsource testing platform, test the product, analyze the results, and tweak the product accordingly.24
Stage 8: Commercialization. In this stage, the company launches the product, complete with full-scale production, distribution, advertising, and sales promotion. The cost of launching a new product varies depending on the product itself, the industry, and the competition.
Stage 9: Evaluation of Results. As we’ve pointed out with the marketing metrics features in this textbook, you can’t fix what you don’t measure, so it’s important after commercialization for the company to review the marketing performance of the new product. Is the new product accepted by consumers? Is there sufficiently high demand, sales, and profits? Are there competitors who are introducing a similar new product in the market? Depending on the answers to these questions, savvy marketers will closely monitor the performance of the new product and make changes as needed in both the marketing plan and the marketing mix strategy.25
Careers In Marketing: Product Development as a Career
Most companies have product manager (PM) as a job role. In this job, you manage the product creation or further development. Check out this summary of what a product developer position entails, including average salaries.
This article from Stanford online outlines what you need to know to have a career in product management. ZipRecruiter also outlines skills and training needed for this job role.
Many companies post job descriptions to help you prepare. Here are a few for the product manager job role:
If you’re interested in learning more about the product manager job role and career, read here about the typical path you can expect.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
A physical version of the product concept that is developed during the new product development process is called a ________.
1. mock-up
2. model
3. prototype
4. precedent
2.
You’ve gathered customers in the target market and presented them with a description of the product concept you have selected. This process is known as ________.
1. prototyping
2. concept testing
3. test-marketing
4. crowdsourcing
3.
At what stage in the new product development process would you launch the product, complete with full-scale production, distribution, advertising, and sales promotion?
1. Test-marketing
2. Product development
3. Business analysis
4. Commercialization
4.
The least costly method of test-marketing is known as ________.
1. controlled test-marketing
2. sales-wave research
3. simulated test-marketing
4. crowdsourcing
5.
What is the first stage in the new product development process?
1. Idea screening and evaluation
2. Market strategy development
3. Commercialization
4. Idea generation | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.02%3A__Stages_of_the_New_Product_Development_Process.txt |
Learning Objectives
By the end of this section, you will be able to:
• Explain the importance of establishing new product metrics.
• Describe metrics used to evaluate the success or failure of new products.
The Importance of Establishing New Product Metrics
There are few marketing activities that are as difficult to manage as new product development. Not only does a company have to juggle multiple tasks like new features and innovative technologies against factors like cost, risk, and time to market, but it has to ensure that it’s making the most efficient use of its limited resources on new products that will meet both its short-term and long-term strategic goals. In this section we’re going to review product development metrics that can measure the success (or failure) of your new product launch.
Product metrics are quantifiable data that a business tracks and analyzes to determine how successful its new product(s) are. One way that companies accomplish this is by using key performance indicators (KPIs). KPIs are target metrics set by a company as a way to measure if the product is delivering on expectations. An example of a KPI could be targeted new customers per month or revenue growth.
Link to Learning: KPIs
If you haven’t already heard the term KPI, and you plan on working at a business, it will become a part of your language. No matter what job role you hold in a company, KPIs are important to understand. Learn more about KPIs from there resources:
Specific Metrics Used to Evaluate New Products
There are any number of metrics you can use to measure the success of a new product. For our purposes, we’re going to focus on just a few of the more common KPIs (see Figure 10.4).
• Research and Development Spending as a Percentage of Sales: This metric is used to compare the effectiveness of R&D expenditures between companies in the same industry. It’s important to use companies within the same industry because R&D numbers vary widely based upon the industry. For example, pharmaceutical and software companies tend to spend considerable dollars on R&D, whereas consumer product companies generally spend less. The percentage is calculated as R&D dollars spent divided by total sales.
• Current Year Percentage of Sales: This method calculates cost of goods sold, inventory, cash, and other financial line items as a percentage of sales and then applies that percentage to future sales estimates. It’s a “quick and dirty” way to estimate the product’s future value.26
• Time to Value (TTV): Time to value refers to how long it takes new users to recognize your product’s value (sometimes referred to as the “aha!” moment in marketing). Obviously, the sooner this occurs, the better, although time to value varies widely depending upon the product itself.27 For example, if you purchase a new book for your Kindle, it’s a matter of seconds before the book is available to you. On the other hand, if you subscribe to a magazine, it may be days or weeks before you see your first issue.
• Product Adoption Rate: When launching a new product, this metric is almost always at or near the top of the product team’s list of KPIs to track. Product adoption (or user adoption) is the process by which people learn about a product and start using its features to meet their needs.28 The formula for calculating the adoption rate: divide the number of new users by the total number of users.
• For example, if sales grew by \$100,000 as a result of the new product launch, but the cost of the marketing campaign was \$20,000, the ROI would be: $Return on Investment (ROI)=(Sales − Costs)Costs × 100Return on Investment (ROI)=(Sales − Costs)Costs × 100$ $Return on Investment (ROI)=(100,000 − 20,000)20,000 × 100=400%Return on Investment (ROI)=(100,000 − 20,000)20,000 × 100=400%$
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Data measurements that businesses use to evaluate the success of new products are called ________.
1. ROI
2. product adoption rates
3. R&D
4. product metrics
2.
Which method calculates cost of goods sold, inventory, cash, and other financial line items as a percentage of sales and then applies that percentage to future sales estimates?
1. Product adoption rate
2. Current year percentage of sales
3. Time to value (TTV)
4. Revenue growth rate
3.
To calculate this metric, the return of the investment is divided by its cost.
1. Time to value (TTV)
2. R&D spending as a percentage of sales
3. ROI
4. Revenue growth rate
4.
This metric measures how long it takes new users to recognize the value of a new product.
1. Product adoption rate
2. ROI
3. Time to value (TTV)
4. Revenue growth rate
5.
Which of the following metrics would likely NOT be used to evaluate the effectiveness of new products?
1. R&D spending as a percentage of sales
2. Time to value (TTV)
3. Return on investment (ROI)
4. Annual recurring revenue (ARR) | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.03%3A__The_Use_of_Metrics_in_Evaluating_New_Products.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify and discuss factors that contribute to the success of a new product.
• Identify and discuss factors that contribute to the failure of a new product.
What Factors Contribute to the Success of New Products?
The story about how the Dollar Shave Club was started is more than just urban legend. Founders Mark Levin and Michael Dubin met at a party and commiserated about how expensive razor blades were. After that party, using their own money and investments from start-up incubator Science Inc., they launched their website that sold razor blades much more cheaply starting in April 2011. These founders seized an opportunity based on several insights: that prices for blades charged by market leader Gillette were perceived as too high; that most men do not want to shop in stores for shaving supplies; and lastly, that the move to online/subscription boxes was gaining traction. Five years later, the company was bought by Unilever for an astounding \$1 billion.30
Link to Learning: Direct-to-Customer Sales
Watch this viral video of the founders speaking about the virtues of direct-to-customer sales. It’s funny and informative. Check it out!
Instant, phenomenal, new product success is what every marketer wants to achieve when launching a new product. But the reality is quite different. When you look objectively at new product introduction success or failure, significant differences emerge between successful and unsuccessful product launches. There’s a similar pattern or a recipe for success. Figure 10.5 outlines the key factors that strongly influence new product success.
Let’s explore each of these factors:
• Delivering Unique Benefits to Users: The product itself—in terms of its design, features, and benefits to customers—is the often the bellwether of new product success. Are you introducing a “me too” product vis-à-vis the competition, or does the new product deliver unique benefits to the consumer? It probably comes as no surprise that innovative products typically fare better than those that have few elements of differentiation. As a matter of fact, research has shown that innovative products that offer unique benefits versus the competition have five times the success rate of products with fewer elements of differentiation.31
• Planning before Development: This would seem almost intuitive, but unfortunately, many companies fail to plan properly before developing a new product. Remember the old phrase “If you fail to plan, you plan to fail.” The “rule of thumb” in successful new product development is to thoroughly define the product before development gets underway. This means defining the target market, the product concept, customer needs and wants, and product requirements. Numbers don’t lie. Research has demonstrated that new products in which predevelopment activities were well-defined and executed had a success rate of 75 percent versus just over 31 percent for products in which those predevelopment activities were lacking.32
• Technological Synergy and Quality: Technological synergy is when a new product is built on the firm’s existing technological resources. The bottom line is that new products that have a strong fit between the project needs and the company’s existing technological and production resources are typically much more successful in the marketplace. The further away the product strays from the company’s current technology, the less likely it is that the product will be successful.33
• Marketing Synergy and Quality: Like technological synergy, marketing synergy is also an important factor in new product success. Marketing synergy examines the fit between the needs of the new product development project and the company’s sales, advertising resources, customer service capabilities, distribution, and marketing research. The closer the fit, the more successful the product will likely be in the marketplace. As a matter of fact, according to research, new products in which marketing synergy existed were 2.3 times more likely to be successful than products where marketing synergy was lacking.34
• Market Attractiveness: Market attractiveness is a measure of potential value and considers factors like short- and long-term profit, market growth rate, how much competition currently exists in the market, the cost of entry into the market, and how much the product satisfies the needs of customers in the target market.35
Marketing in Practice: Kentucky Fried Chicken (KFC)
If you were to ask people what they eat during the holiday season, you’d probably get answers like turkey or ham. It’s not likely that many of them will say fried chicken (see Figure 10.6). That’s less than ideal for Kentucky Fried Chicken (KFC) because despite the fact that consumer spending typically spikes during the last six weeks of the year, KFC’s sales typically falter.
Fortunately, savvy marketers at KFC came up with a new product designed to remind consumers of KFC during the holiday season: the KFC 11 Herbs and Spices Firelog that, when ignited, makes your house smell like fried chicken.36 The idea behind this new product was twofold. First, a home’s fireplace usually plays an important role in the holiday season. Second (and perhaps more importantly for KFC), hopefully the smell of fried chicken makes people want to eat fried chicken!
Some of KFC’s promotional efforts involved discussions on TV talk shows and magazines. From these initiatives came 5,000 user-generated social posts and the logs being sold out in three hours!37 How’s that for a successful product launch?
What Causes New Products to Fail?
We’ve just examined the factors that are favorable to the success of a new product, but what about the reverse? Those failure rates we mentioned in the previous section aren’t to be taken lightly.
Statistics on New Product Failure
So, you’ve made it through all the stages of new product development, and you think your troubles are over. Think again! Just because something is new, improved, or changed doesn’t guarantee that consumers will accept it or even hear about it. Every person reacts differently in how they hear about innovation, how they understand it, and whether they accept it.
Harvard Business School professor Clayton Christensen has been quoted as suggesting that approximately 30,000 new products are launched each year, and 95 percent of them fail. A study by the Product Development and Management Association found that new product failure rates varied among industries, ranging from 35 percent for health care products to 49 percent for consumer goods. Although those numbers are significantly lower than that proposed by Professor Christensen, the message remains the same: successful product launches shouldn’t be taken for granted.38
What causes new products to fail? The reasons are likely different from one product to the next, but certain key factors appear to contribute heavily to the failure (see Figure 10.7).
Let’s review each of these factors more closely.
• Failure to Understand Consumer Needs and Wants: Let’s illustrate this with a real-life scenario that some of you may recall: Google Glass “smart glasses,” which were like eyeglasses with smartphone capabilities (i.e., wearable technology). When Google announced the product in 2013, it issued a statement of principle reading, “We think technology should work for you — to be there when you need it and get out of your way when you don’t.” However, sales were disappointing despite the company’s usual market hype, and it quickly became clear that consumers didn’t want or need the product. There were other devices with longer battery life, faster processors, and better cameras, and most had lower prices. Google discontinued the product’s development in 2015.39
• Targeting the Wrong Market: It doesn’t matter how incredible your technology is or how phenomenal you think your product is. If you can’t reach the right people in the right market at the right time to buy your product, it’s likely going to fail. Even Microsoft fell prey to this mistake. The company decided to challenge the Apple iPod and launched Zune in 2006. The product failed, and Microsoft later admitted that it was just chasing Apple, and its product gave consumers little incentive to switch from the iPod to Zune.40
• Lack of Product Point of Difference: This could also be referred to as a lack of product uniqueness. If a new product doesn’t satisfy a unique need of consumers, it’s unlikely to dislodge existing brands that are available. The bottom line is that, to succeed in the market, a product has to either satisfy a new function or satisfy an existing function in new ways. For example, Google launched Google+, its own social media site, in 2011 to compete with Facebook. However, Google+ was unable to distinguish itself from Facebook, and the site never garnered the market share Google anticipated. The company shut down personal accounts in 2019.41
• Prolonged Development/Delayed Market Entry: You’ve probably heard the idiom that “time is money,” and this is especially true in new product development. If a company takes too long to launch a product, it often spells doom for the product launch. By the time the product hits the market, the economy may have taken a downturn, consumer needs may have changed, or new competitors may have entered the market.
That’s what happened to Amazon when it introduced its Fire Phone after four years of development. CEO Jeff Bezos had said at the time, “Our job is to build the greatest device we know how to build, and then customers will choose. The other job we have is to be patient.”42 Apparently, that patience didn’t pay off, because by the time the phone was introduced to the market in 2014, Apple and Android already had several generations of smartphones on the market. Amazon ceased production of the Fire Phone just a year later and discontinued sales soon thereafter. Sometimes, timing is everything!
• Poor Pricing or Cost Structure: Unfortunately, many new products suffer from a poor pricing or cost structure. Perhaps the company designed the product with a number of innovative features to try to bring “something new and different” to the market, but the inclusion of all those features made the product more costly to produce. You may be keeping your fingers crossed that the market will be willing to pay more for that “new and improved” product, but the reality is that this may not be the case.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
The degree to which a new product is built on the firm’s existing technological resources is known as ________.
1. market attractiveness
2. marketing synergy
3. technological synergy
4. cost-benefit analysis
2.
A study by the Product Development and Management Association found that new product failure rates varied among industries, ranging from 35 percent for ________ to 49 percent for ________.
1. health care products; consumer goods
2. consumer goods; pharmaceuticals
3. consumer goods; technology products
4. technology products; health care products
3.
Graham, a marketer for ABC Corporation, was concerned about the new product launch because R&D was months behind in development and the economy appeared to be heading toward a recession. Which factor contributing to the failure of new products is Graham’s concern?
1. Lack of product differentiation
2. Prolonged development/delayed market entry
3. Targeting the wrong market
4. Failure to understand customer needs/wants
4.
Your company has added so many features to the new product you’re launching that the price point when it hits the market is going to be significantly higher than originally anticipated. Which factor contributing to the failure of new products is at play here?
1. Lack of product differentiation
2. Prolonged development/delayed market entry
3. Targeting the wrong market
4. Poor pricing or cost structure
5.
The FurZapper, which removes pet hair from laundry in the washing machine, was introduced on Shark Tank and became an immediate hit. It garnered over 5,000 five-star reviews on Amazon because customers were amazed at how much pet hair it trapped in the washer. Which factor contributing to the success of new products is likely at play here?
1. Delivering unique benefits to users
2. Technology synergy
3. Planning before development
4. Market attractiveness | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.04%3A__Factors_Contributing_to_the_Success_or_Failure_of_New_Products.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the stages in the adoption process for new products.
• Identify and define new product adopter categories.
Stages in the Adoption Process
Consumers go through five stages in the process of adopting a new product (see Figure 10.8).
Let’s look at each of these stages in the consumer adoption process (often referred to as the “hierarchy of effects model”) in some detail.
• Stage 1: Product Awareness. The first stage in the consumer adoption process is simply creating awareness that the product is available, so the company develops a successful marketing strategy to make customers cognizant of the new product. This strategy might include creating a strong presence for the product in social media, for example. The goal here is to reach as many customers as possible at a relatively low cost. Let’s assume for a minute that you’re watching a football game on Saturday afternoon, and you see a television commercial for a mouthwash that whitens your teeth while you rinse. You’re now aware of the product, thanks to that commercial!
• Stage 2: Product Interest. In this stage, consumers are aware of the product, and it has piqued their interest. The company should guide consumers by providing easily accessible information on the product, such as a website, blog posts, tutorials, or instructional videos. Let’s go back to our mouthwash example. You’re intrigued with the concept that a mouthwash can whiten your teeth, so you call your brother who’s a dentist to ask if he’s familiar with the product and what he has to say about it. That’s product interest.
• Stage 3: Product Evaluation. Before they buy it, consumers will typically examine, compare, and evaluate the product. They haven’t purchased it yet, and they often look to social media channels, such as online reviews and recommendations, to see how other consumers feel about the product or service. Think about it: How many times have you viewed customer reviews on Amazon prior to purchasing a product? In our example of the mouthwash, you might do an Internet search to read reviews of the product before you actually purchase it. That’s product evaluation.
• Stage 4: Product Trial. This is the stage in the consumer adoption process where the consumer actually tries the product out. It might be a free sample in a retail store or a “100 percent money-back guarantee” trial purchase of an online product. This is also the stage in which marketers are hoping that the product will deliver on consumer expectations.
• Stage 5: Product Adoption. When consumers enter this phase, they’re ready to buy, whether it’s online or in a retail store. As a marketer, hopefully you’ve made the acquisition and payment process as seamless as possible so that your customers can easily obtain your product.
It should be noted that there are five characteristics of innovation, and each affects the rate of adoption differently. This is also known as the process of diffusion of innovation—the process through which new products are adopted (or not) by customers. Let’s take a look:
• Relative Advantage: How much is the new product “better than” what it replaces? This is, of course, based entirely on a consumer’s perception, but as a general rule, the easier it is to recognize the advantages of using the product, the more quickly it will be adopted.
• Compatibility: This is the level at which the innovation fits into a specific society due to economic, lifestyle, and cultural reasons. For example, PCs were very compatible with middle-class lifestyles, so the product was quickly adopted. On the other hand, the diffusion of birth control in parts of the world is not compatible with social mores due to religious beliefs and cultural values.
• Complexity: How difficult is the new product for the adopter to understand and use? If the difficulty level is too high, it is less likely that adoption/diffusion will take place. Think about your own experiences: Have you ever returned a product because it was too complicated to use?
• Divisibility: Divisibility is the ability to give the product a “test run” before putting down your hard-earned cash. For example, in no small part due to the COVID-19 pandemic, some online car sellers like Carvana and Shift, as well as some car dealerships, have adopted touchless test drives. The car is brought to the shopper’s home, it’s wiped down with disinfectant, and the consumer takes the car for a test drive alone while the delivery person waits.43
• Communicability: You may know your product is great, but you need to be able to effectively communicate to your audience. Communicability is the ability to effectively communicate the benefits and results of using the product, and when those benefits and results are both observable and describable to others. Let’s imagine for a moment that you’ve purchased an expensive Peloton bike to get in shape after the new year. Would you continue to use it if you didn’t see the desired results? Perhaps even more importantly in terms of communicability, would you be willing to share your results with others if those results weren’t favorable?
It was first thought that diffusion was a one-step process: from mass media (i.e., advertising) to the individual. Marketers now recognize that it is a two-step process, and the second step is personal influence—that is, communication between individuals in which individuals can affect the purchasing decision of others because of their authority, knowledge, or position. For example, Kylie Jenner is a powerful social media influencer with over 250 million followers on Instagram.44
New Product Adopter Categories
Consumers adopt new products at their own speed. Some want to have the “latest and the greatest” as soon as it is available. If you doubt that, just look at the lines around any Apple store on the day of a new product release. Others tend to wait a while before buying. Scholar and professor of sociology at The Ohio State University Everett Rogers is credited with introducing the diffusion of innovation theory in 1962, in which he explained how a product or idea gains momentum and spreads through a population or society. In his theory, he identified five adopter categories (see Figure 10.9).45
Let’s look at each of these categories in a little more depth.
• Innovators: Innovators are the risk-takers in the market. As a general rule, they have higher-than-average income and are typically well-educated. They enjoy the “rush” of taking risk but are also willing to accept the consequences of failure. It’s the innovators who buy new products as soon as they hit the market.
• Early Adopters: Early adopters are actually the best target market for new innovations. These people tend to be well-educated “opinion leaders” with neighbors and friends, and their product advice is generally accepted more readily than product advice provided by innovators.
• Early Majority: The early majority typically look to the innovators and early adopters to determine if the new product meets expectations because they don’t want to take the risk of being the first to adopt the new product, but they do accept innovation before the “average person.” This group of consumers is typically above average in terms of education and income but also tend to be “followers” in their social group.
• Late Majority: Consumers in the late majority category are typically slow to catch on to the popularity of new services, products, ideas, or solutions. About 34 percent of the population will buy a new product only after about half of the population does. They’re not interested in the “bells and whistles” (i.e., functionality and benefits) of the “latest model” and want simple, cost-effective products that focus on specific uses. As a general rule, their income and education are limited, and they’re typically unwilling to take a chance with a new product unless the majority of consumers has already adopted the innovation.46
• Laggards: Laggards are more in tune with the past than the future, and they’re leery of new ideas. By the time they adopt a product, there’s probably already a new version or innovation taking its place.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Garrett is the type of consumer who has to have the absolute “latest and greatest” technology products on the market. He is often the very first of his group of friends to acquire the newest smartphone or other gadget. Garrett would be considered a(n) ________.
1. early adopter
2. laggard
3. late majority
4. innovator
2.
What is the first stage in the consumer adoption process?
1. Product awareness
2. Product evaluation
3. Product trial
4. Product interest
3.
The extent to which the beneficial results of using a new product are observable or describable to others is referred to as ________.
1. divisibility
2. product awareness
3. marketing synergy
4. communicability
4.
Bob refuses to get “on board” with smartphones. He insists on having a landline in his apartment. In terms of the new product adopter categories, Bob would be considered a(n) ________.
1. early adopter
2. innovator
3. laggard
4. late adopter
5.
Which group of consumers tends to be unwilling to take a chance on a new product or innovation until the majority of consumers has already adopted the product?
1. Innovators
2. Early majority
3. Laggards
4. Late majority | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.05%3A__Stages_in_the_Consumer_Adoption_Process_for_New_Products.txt |
Learning Objectives
By the end of this section, you will be able to:
• Discuss violations of patents, trademarks, and/or copyrights.
• Describe ways to exercise due care in product development.
Violations of Patents, Trademarks, and/or Copyrights
Before we proceed with a discussion of the areas of concern with respect to patents, trademarks, and copyrights in new product development, it would probably be helpful to have some definitions. Patents secure the right to exclude others from making, using, or offering for sale the invention you’ve developed. As a general rule, US patents last 20 years from when the application is filed with the US Patent Office. Copyrights are original works of authorship that include software, songs, television shows, and motion pictures. Trademarks are words or symbols legally registered or established by use as representing a company or product. Collectively, these terms are referred to as intellectual property (IP).
You may think that intellectual property infringements are uncommon or, at least, limited to new product development by smaller companies, but nothing could be further from the truth. Patent lawsuits and ever-increasing scrutiny for anticompetitive behavior have cost “Big Tech” companies like Apple, Microsoft, and Google hundreds of millions of dollars.
For example, in March 2021, a jury ruled against Apple for patent infringement and ordered it to pay over \$300 million to Personalized Media Communications LLC. That same year, a judge ruled that Google had infringed on five patents owned by Sonos, and if the ruling is upheld, it may result in the ban of imports of products like Google Home and Pixel smartphones.47
Intellectual property infringement can have serious consequences in terms of both monetary fines and, of course, the reputation of the company. Penalties can include civil damages, lost profits, injunctions, payment of the other damaged party’s attorneys’ fees, and even felony charges with prison time.48
Methods of Exercising Due Care During Product Development
Intellectual property rights add immense value to a company’s assets. Imagine having a product team invest time, energy, and money developing and then launching a new product only to discover that the company’s intellectual property rights aren’t protected or—worse yet—that the product team has infringed on another company’s intellectual property rights. That’s why it’s important in the product development stage to do three things:
• Conduct a Trademark Search: It’s critical to know whether anyone else is already using the mark before time and resources are invested into developing a name and market recognition. For example, Takeda Pharmaceuticals was required to change the name of its antidepressant drug Brintellix to Trintellix because of consumer confusion between Brintellix and an anti-blood-clotting drug named Brilinta.49
• File a Trademark Application: Filing a trademark application provides the company with a bona fide statement of intention to use the mark within six months of the application.
• Conduct a Patent Search: If the product relates to a technological or scientific invention, the company should also conduct a patent search. As noted above, the patent excludes others from making, using, or selling a claimed invention for 20 years.50
Another issue that you may hear a lot about is the control or lack of control users have over their personal data. Companies that collect personal data have to carefully (and ethically) consider what information is embedded in systems design, how much data is really needed from users, where that data will be stored, and when and how it will be disposed of after use.51
Companies with a Conscience: Meta
Meta (formerly Facebook) has come under fire for several reasons recently, including a scandal that involved a whistleblower (see Figure 10.10). This person revealed that the tech giant “chooses profits over safety” when they released internal research and documents and testified before the United States Senate.52
However, the company took steps to ensure ethics in its new product development by hiring Zvika Krieger to its Responsible Innovation Team (RIT). Although the team had been in existence for some time, it’s growing in size with the emergence of new ethical issues. Krieger’s role focused on ethical issues in both the engineering and the design processes. For example, the RIT was involved in the decision to disallow filtering dating app results by race.
The RIT focused on the design and development stage of product development with the specific role of identifying ethical issues. Krieger departed Meta, and the RIT was dissolved in 2022; most members moved into other areas of the company, where they may be able to influence decisions more directly.
10.07: Chapter Summary
In this chapter we discussed the different forms of innovation as applied to new product development. The rewards of this development can include means to target a new market, to increase market share, and to increase revenue streams. Included in the risks are financial and technical feasibility and a lack of differentiation from existing products. There are seven stages to developing new products that include idea generation, idea screening and evaluation, concept development and testing, marketing strategy development, business analysis, product development, and test-marketing. The stages are followed by commercialization and evaluation of results.
Metrics are used to evaluate such things as R&D spending as a percentage of sales, return on investment (ROI), the percentage of sales due to the new product release, and other key concepts.
New products succeed when there is synergy and quality of technology and marketing and when the product delivers benefits to users. By contrast, failure can be due to targeting the wrong market and misunderstanding consumer needs/wants. The adoption process was discussed and includes different categories of consumers. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.06%3A__Ethical_Considerations_in_New_Product_Development.txt |
Example and Directions
Words (or words that have the same definition)The definition is case sensitive(Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages](Optional) Caption for Image(Optional) External or Internal Link(Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...")(Eg. "Relating to genes or heredity")The infamous double helix https://bio.libretexts.org/CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s)DefinitionImageCaptionLinkSource
additions to existing product linesproduct line extensions that involve changes to styles or flavors
business analysisthe fifth step in the new product development process, in which a potential new product is evaluated
commercializationthe eighth step in the new product development process, in which the product is launched with full-scale production, distribution, advertising, and sales promotion
communicabilitythe ability to communicate to the audience the benefits of using a particular product or service
concept development and testingthe third step in the new product development process, in which a product concept is developed into a detailed idea
concept testingmarket research method in which customers are presented with a description of a product or service
consumer adoption processstages consumers go through in adopting a new product
continuous innovationcategory of “newness” in which the existing product undergoes only marginal changes that do not alter consumer habits
copyrightsoriginal works of authorship that include software, songs, television shows, and motion pictures
crowdsourcingusing the input of a large group of people for market testing
diffusion of innovationtheory about how products gain momentum and spread through a population or society
discontinuous innovationnew-to-the-world products that require a significant change in consumer behavior when adopted
divisibilitythe ability of a consumer to give a product a “test run” before purchasing it
dynamically continuous innovationchanges to a product or service that require little change to consumer habits
early adoptersconsumers who are willing to try new products typically before others but not as early as innovators
early majorityconsumers who are initially reluctant to risk trying a new product but accept innovation
evaluation of resultsthe ninth and final step in the new product development process, in which a company evaluates product launch performance based on predetermined metrics
external sourcesin product development, sources of ideas for new products or services from those outside the organization
idea generationthe first step in the new product development process, in which many new ideas for a product are developed
idea screening and evaluationthe second step in the new product development process, in which ideas are filtered to those most likely to turn a profit
improvements and revisions to existing productsimprovements to existing products that fine tune or perfect them
innovatorsconsumers who are the first to take a risk and buy new products as soon as they are available
intellectual propertycollective term used to describe patents, copyrights, and trademarks
internal sourcesin product development, sources of ideas for new products or services from those inside the organization
laggardsconsumers who are skeptical of new ideas and are reluctant to try new products
late majorityconsumers who are slow to catch on to the popularity of new services, products, ideas, or solutions
market attractivenessthe measure of potential value; considers factors like short- and long-term profit, market growth rate, how much competition currently exists in the market, the cost of entry into the market, and how much the product satisfies the needs of customers in the target market
market strategy developmentthe fourth step in the new product development process, in which a preliminary marketing strategy is developed
marketing synergythe fit between the needs of the new product development project and the company’s marketing capabilities
new-to-the-firm productsproducts that are new to a company but not to the world
new-to-the-world productsnew product inventions that create new markets
patentsthe right to exclude others from making, using, or offering for sale an invention
personal influencecommunication between individuals in which individuals can affect the purchasing decision of others because of their authority, knowledge, or position
product adoptionthe fifth stage in the consumer adoption process, also known as user adoption, in which people learn about a product and start using its features
product awarenessthe first stage in the consumer adoption process, in which a company creates awareness that the product is available
product conceptsperceptions of a new idea or innovation
product developmentthe sixth step in the new product development process, in which a potential new product undergoes development; may include the creation of a prototype
product evaluationthe third stage in the consumer adoption process, in which consumers examine, compare, and evaluate the product prior to purchase
product ideaconcept of a new product that a company could potentially offer to the market
product intereststage in the consumer adoption process in which the product has piqued the consumer’s interest
product metricsquantifiable data that a business tracks and analyzes to determine how successful its new products are
product trialthe fourth stage in the consumer adoption process, in which the consumer tries the product out
prototypein new product development, the creation of a physical version of the product
repositioned productsproducts that are retargeted for a new use
return on investment (ROI)a metric formula used to evaluate the profitability of an investment and, in marketing, the measurement of the profitability of a new product launch
revenue streamsall the ways in which a company can generate cash flow from the sale of its products or services
technological synergythe extent to which a new product is built on the firm’s existing technological resources
test-marketingthe seventh step in the new product development process, in which a product concept is test-marketed to determine its viability before launch to market
trademarkswords or symbols legally registered or established by use as representing a company or product | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.08%3A_Key_Terms.txt |
1 .
Explain the differences in:
1. Continuous innovation
2. Dynamically continuous innovation
3. Discontinuous innovation
2 .
List the stages of new product development.
3 .
Consider new product adopter categories and answer the following questions.
1. Do you believe that consumers are always in the same category? For example, once a laggard, always a laggard? Can someone be a laggard in one category and an early majority in another?
2. What impact do these categories have on new product development?
3. Can you think of a time or product category where marketing would want to push more consumers into one category?
10.10: Critical Thinking Exercises
1 .
From a consumer perspective, what motivates you to try a new product? What new products have you tried in the last year? Did you continue to purchase them after the initial trial?
2 .
Idea generation is the first step in new product development. Where do those ideas come from? Do all the ideas that are suggested make it to the prototype stage? Explain your answers.
3 .
Success and failure are always possible outcomes of new product development. Describe two factors that may lead to success and two factors that may lead to failure of a new product.
4 .
Ethical considerations of new product development include avoiding violations of patents, trademarks, and/or copyrights. How can marketing and R&D departments work to make sure that they do not violate these standing rights?
10.11: Building Your Personal Brand
Review this Ascent article by Aaron Weber and pay attention to his explanation of the 5 Ps for building your personal brand. Write two paragraphs on what you feel your personal brand is today. Is it what you want it to be? Interview three colleagues, classmates, or family members and ask them to describe how they see your brand. Add a paragraph to your write-up describing their assessment.
Add another paragraph discussing your brand assessment compared to those you interviewed. Is it the same or different? Include changes you would like to make and the impact it would have on your personal brand.
10.12: What Do Marketers Do
Using an online networking platform—for example, LinkedIn—network and connect with someone in product development. Explain that you have a college project and that you’d like to interview them. There are hundreds of product development professionals, and you will quickly find that professionals in this field love to talk about their products and ideas.
Use the following questions as a guide to dig deeper into their job responsibilities.
1. Could you please outline your career and how you got started on this path?
2. Please outline for me your current job responsibilities.
3. Do you specialize in a particular product concept (food, fashion, etc.)?
4. How do you interact with and support your team or clients in this role?
5. What product have you worked on that you are most proud of or excited about?
6. What product did you work on that failed? What did you learn in that process?
7. What advice can you offer me if I choose to pursue product development as my career path?
As always, follow up with any questions that you have, being respectful of their time, and be sure to thank them for their information and help! | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.09%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Maintaining a Competitive Edge with New Offerings—Ember
Every morning, millions of Americans wake up and prepare a cup of coffee. But as they sit down to drink it, the deluge of interruptions begins. Once the interruptions begin, that delicious dark roast often goes cold. Within the United States there are approximately 150 million coffee drinkers.53 Throughout the day, people pour a cup of coffee, a cup of tea, or a variety of other hot drinks, only to be distracted and come back to a cold beverage. Many hot beverage drinkers have transitioned to the insulated travel mug where the drink stays hot for a while, but it too eventually gets cold.
Back in 2009, Clay Alexander was eating his breakfast. By the time he took his last bite, his scrambled eggs were cold. Alexander began experimenting with dinner plates that could stay hot and keep food at the same temperature throughout the meal. Then, one day as he was drinking coffee, he realized that using the same the technology with a coffee mug would be a transformative experience. In playing with the technology, he developed the Ember mug. (Watch this video for more information on the Ember mug development story.)
Alexander’s first version of the Ember mug looked like something from Weird Science. The prototype mug was not sleek or stylish and definitely was not easy to clean. But as he carried his early version of the Ember mug to work and around town, curious commuters began to ask questions. Alexander was raising awareness and piquing the interest of potential new consumers. Through his interactions, he knew that there was definitely interest in a product that could keep beverages at a constant temperature for a long period of time.
This new innovation was a juncture of cutting-edge digital technology and the low-tech coffee mug. Using technology to warm the cup and keep a hot beverage at a constant temperature, Ember transformed the common mug. The Ember mug was able to keep hot beverages at a constant temperature for hours.
Creating the new product required hours of development. Building the product meant developing, testing, creating more prototypes, more testing, and running a business analysis. The new product was great. There was nothing like it on the market. But would customers buy it? A new entrant in the market often comes with a high price tag. All the hours, months, and years of development are coupled with the high cost of creating brand awareness.
The biggest question with the Ember mug was, How would the customer respond? Innovators are the first to purchase new market entry products, and they typically look for and buy new products before the rest of the market. And for this product, that market would probably include the coffee connoisseur and die-hard coffee drinkers. As with any new product, the biggest obstacle would be creating awareness and connecting with consumers about the benefits of the Ember mug.
Alexander knew that consumers were already attached to their smartphones, so he incorporated the Ember technology into something they already used. Consumers could control the temperature of their Ember mug beverages through the Ember app on their smart phones. With dozens of settings to create and keep the perfect temperature, Ember technology was easy and very customizable.
Getting the product to market meant getting it right and easily educating the consumer on the benefits of the Ember mug. The Ember mug incorporates smart LEDs to indicate when the mug has the beverage at the perfect temperature. Using a built-in battery, the Ember mug can work all day if placed on its charging coaster or upward of two hours without the coaster after being fully charged. The Ember mug also comes with auto-sleep technology to know when to turn off as well as built-in temperature controls for the variable preferences of consumers.
Initially the Ember was only available for sale on the company’s website; however, as brand awareness increased and consumer demand picked up, the Ember could be purchased through both online and in-store retailers. The mug can now be purchased at Amazon, Best Buy, Costco, Starbucks, and several other locations.54
Ember has been featured in leading publications such as Forbes, Fast Company, and People as well as broadcast and digital media including Today. With many positive reviews, excellent public relations, and organic word of mouth from customers, the Ember mug saw positive growth. Since the introduction of the original 10-ounce mug, Ember added a 14-ounce version as well as a travel mug and plenty of added charging options.
Case Questions
1 .
How did the Ember mug redefine the coffee-drinking experience?
2 .
What was the first step Alexander needed to do in developing the Ember mug?
3 .
What three things helped drive sales of the Ember mug?
4 .
How would you describe the first customers of the Ember mug? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.13%3A_Closing_Company_Case.txt |
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8. Ian Mullaney, “Teaching Old Drugs New Tricks: Why Companies Reposition Medicines,” The Conversation, February 12, 2012, https://theconversation.com/teaching...medicines-4621.
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10. Kishore Shenoy, “Difference between Continuous Innovations and Discontinuous Innovations,” LinkedIn, March 18, 2018, https://www.linkedin.com/pulse/diffe...shenoy-ranjal/.
11. Frederik Bussler, “10 Successful Product Launches to Inspire Product Innovation,” Commerce.AI, accessed June 12, 2022, https://www.commerce.ai/blog/10-succ...uct-innovation.
12. Bussler.
13. Ellen Byron, “Companies Target a New Market: The Stressed Out,” The Wall Street Journal, July 10, 2021, https://www.wsj.com/articles/compani...ut-11625889712.
14. “Spinal Muscular Atrophy (SMA),” Cleveland Clinic, accessed June 12, 2022, https://my.clevelandclinic.org/healt...000%20children.
15. John Cumbers, “Why Some Drugs Cost \$2.1 Million per Dose and How One Company Plans to Change This,” Forbes, December 16, 2021, https://www.forbes.com/sites/johncum...h=58a0f9898953.
16. Caitlyn Hitt, “The Well-Seasoned History of Taco Bell’s Doritos Locos Taco,” Thrillist. August 11, 2020, https://www.thrillist.com/news/natio...os-locos-tacos.
17. Maximilian Claessens, “The New Product Development Process (NPD)—8 Steps,” Marketing-Insider, January 31, 2022, https://marketing-insider.eu/new-pro...pment-process/.
18. “Managing the Development Process Development to Commercialization,” Zabanga Marketing, June 3, 2022, https://www.zabanga.us/sales-force/a...alization.html.
19. “Managing the Development Process.”
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21. “Many Marketers Are Now Using New Simulated Marketing Technologies,” Zabanga Marketing, accessed July 26, 2022, https://www.zabanga.us/customer-rela...ive-4-sia.html.
22. “Consumer Goods Market Testing,” Zabanga Marketing, accessed May 6, 2022, https://www.zabanga.us/sales-force/c...t-testing.html.
23. Christopher Pliny, “Top U.S. Microcosm Cities to Test Market a National Product,” SmallBusiness.com, August 28, 2014, https://smallbusiness.com/product-de...ional-product/.
24. Marvin Burman, “5 Ways Product Managers Can Use Crowdsourcing Effectively,” Applause, May 30, 2017, https://www.applause.com/blog/exampl...-crowdsourcing.
25. Lindsay Kolowich Cox, “How to Launch a Product, According to HubSpot’s Product Marketers,” HubSpot Blog, August 24, 2021, https://blog.hubspot.com/marketing/p...20to%20achieve.
26. Jay Fuchs, “The Percent of Sales Method: What It Is and How to Use It,” HubSpot Blog, May 5, 2020, from https://blog.hubspot.com/sales/perce...f-sales-method.
27. Katryna Balboni, “11 Essential Product Metrics for Measuring Product-Led Growth,” Appcues Blog, accessed January 8, 2022, https://www.appcues.com/blog/product...growth-metrics.
28. “What Is Product Adoption & How Do You Measure It Properly?” Heap, accessed January 8, 2022, https://heap.io/topics/what-is-produ...re-it-properly.
29. Jason Fernando, “Return on Investment (ROI): How to Calculate It and What It Means,” Investopedia, June 30, 2022, https://www.investopedia.com/terms/r...investment.asp.
30. Joe Lazauskas, “How Storytelling Turned Dollar Shave Club into a Billion Dollar-Brand,” Marketing Insights (blog), Convince & Convert, accessed January 18, 2022, https://www.convinceandconvert.com/c...-dollar-brand/.
31. Robert G. Cooper, “From Experience: The Invisible Success Factors in Product Innovation,” Journal of Product Innovation Management 16 (1999), 115–133, https://dep.ufmg.br/old/disciplinas/...6/artigo03.pdf.
32. Robert Cooper and Elko J. Kleinschmidt, “Success Factors for New‐Product Development,” in Wiley International Encyclopedia of Marketing, eds. Jagdish N. Sheth and Naresh K. Malhotra (John Wiley & Sons Ltd., 2010), https://www.researchgate.net/publica...ct_Development.
33. “What Makes Products Successful?” Magnetic, accessed May 6, 2022, fluxx.uk.com/2015/11/what-ma...cts-successful.
34. Robert G. Cooper and Elko J. Kleinschmidt, New Products: The Key Factors in Success (Chicago: American Marketing Association, 1990).
35. Cooper and Kleinschmidt.
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37. Bond.
38. Kurt Schroeder, “Why So Many New Products Fail (and It’s Not the Product),” The Business Journals, March 14, 2017, https://www.bizjournals.com/bizjourn...0for%20granted.
39. Justin Burton Weidner, “How and Why Google Glass Failed,” Investopedia, August 8, 2021, https://www.investopedia.com/article...ass-failed.asp.
40. Jared Shaffer, “11 Reasons New Products Fail,” UserVoice, accessed January 8, 2022, https://www.uservoice.com/blog/why-products-fail.
41. Michael B. Sauter, Evan Comen, Thomas C. Frohlich, and Samuel Stebbins, “When Product Launches Go Awry: 50 Worst Product Flops of all Time,” USA Today, July 11, 2018, https://www.usatoday.com/story/money...time/36734837/.
42. Victor Luckerson, “4 Reasons Amazon’s Fire Phone Was a Flop,” Time, October 4, 2014, https://time.com/3536969/amazon-fire-phone-bust/.
43. Philip Reed, “The New World of Car-Buying: Remote Negotiation, Home Delivery and No-Touch Test Drives,” MarketWatch, April 14, 2020, https://www.marketwatch.com/story/th...ves-2020-04-14.
44. “9 of the biggest social media influencers on Instagram,” Digital Marketing Institute, September 19, 2021, https://digitalmarketinginstitute.co...20done%20right.
45. “Diffusion of Innovation,” Corporate Finance Institute, April 24, 2021, https://corporatefinanceinstitute.co...of-innovation/.
46. Charlie Wells, “Forget Early Adopters: These People Are Happy to Be Late,” The Wall Street Journal, January 26, 2016, https://www.wsj.com/articles/forget-...ate-1453827437.
47. Hannah Towey, “Big Tech Giants Apple and Google Are Losing Legal Battles Over Patents Amid a Recent Litigation Surge, Risking Hundreds of Millions in Potential Costs,” Business Insider, August 16, 2021, https://www.businessinsider.com/big-...patents-2021-8.
48. Adam Uzialko, “Tips to Avoid Intellectual Property Infringement,” Business News Daily, June 29, 2022, https://www.businessnewsdaily.com/60...erty-tips.html.
49. “Brintellix (Vortioxetine) Renamed Trintellix (Vortioxetine) in U.S. to Avoid Name Confusion,” Takeda, May 16, 2016, from https://www.takeda.com/newsroom/news...ame-confusion/.
50. Sanford E. Warren Jr., “Protect Assets and Limit Liability: Three Things to Consider When Launching a New Product,” IRMI Update, International Risk Management Institute Inc., April 2011, https://www.irmi.com/articles/expert...-a-new-product.
51. Michael Huth, “Rethinking Product Development and Usage to Make a Tech Business Ethical,” Nasdaq, February 10, 2021, https://www.nasdaq.com/articles/reth...cal-2021-02-10.
52. Brian McHugh, “Facebook Under Fire as Whistleblower Reveals Harmful Practices,” Marist Circle, October 25, 2021, https://www.maristcircle.com/citynat...mful-practices.
53. “Coffee Statistics 2022,” E-Imports, accessed July 24, 2022, https://www.e-importz.com/coffee-statistics.php
54. “Find an Ember Retailer Near You,” Ember, accessed July 24, 2022, https://ember.com/pages/retailers | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/10%3A_Maintaining_a_Competitive_Edge_with_New_Offerings/10.14%3A_References.txt |
Services are acts a consumer is willing to pay for, and there are hundreds of different types. One such service is day care. According to the US Chamber of Commerce, 88 percent of two-parent families and 83 percent of single-parent families relied on non-parental care prior to the COVID-19 pandemic and spent approximately \$42 million on early care and education.1
Sara Bullock, who has a background in early childhood education and four children of her own, owned a childcare business in Maryland for more than 10 years. When her husband was required to move to Tennessee for his job, she closed her business and started a new childcare business using a different business model. She changed it from a conventional daycare center to a “drop-in” center, allowing parents to bring in their children for short periods of time (anywhere from one to seven hours) without requiring them to make a monthly commitment. That was the birth of MeTime Drop-In Child Care. The concept has been so successful that Bullock has already begun plans to open a second location.2
11.01: Classification of Services
Learning Objectives
By the end of this section, you will be able to:
• Define services.
• List the classification of services.
• Describe the characteristics of services.
Services Defined
You may have heard that the United States’ economy is primarily considered a service economy. But do you know why this is? Figure 11.2 provides the answer. It outlines the percentage each industry contributed to the gross domestic product (GDP) in 2020.3 (A quick refresher from your economics course: the GDP is a measure of the total monetary value of all finished goods and services generated within a country’s borders during a specified period of time.) Which industries are the largest contributor to the GDP? Service industries. (Note that this figure does not include smaller industries such as utilities, or mining and agriculture.) When you total the service industries, they make up a whopping 67 percent of GDP versus only 10.8 percent for manufacturing.
In a nutshell, services are the nonphysical, intangible economic activities. On the other hand, physical goods are the things we can touch or handle, commonly called tangibles. Do you realize that, as you read this textbook, you’re participating in the services sector of the economy? That’s because education is considered part of the service sector. The service sector also includes things like banking, medical treatment, transportation, insurance, and many more categories. Based on the fact that the majority of contributions to the GDP in the United States are services, and more than half of the country’s workforce is employed in producing “intangibles,” it’s critical to understand this important sector from a marketing perspective.
Consider the challenges to marketers when selling services as opposed to products. A consumer can’t touch or see the service before they purchase, so it’s difficult to examine or evaluate benefits. Think about it: you can’t take a service out for a test drive the way you might if you were buying a new car. Yet it’s just as crucial for organizations that provide services to build brand awareness and brand loyalty.
Classification of Services
Services are classified as people-based services or equipment-based services. And within those classifications, there are subcategories (see Figure 11.3).
People-Based Services
People-based services are when people primarily deliver the service, rather than equipment or machinery (see Figure 11.4 for examples). It’s the individuals delivering the service, and the knowledge and skills that they possess, that add value and allow the service to be performed. People-based services can be broken down further into these subcategories:
• services provided by unskilled labor: parking lot attendants, babysitters, and janitors
• services provided by skilled labor: plumbers, caterers, and hairstylists
• services provided by professionals: doctors, attorneys, college professors, and accountants
Equipment-Based Services
Equipment-based service firms utilize equipment, machinery, and other forms of technology to perform service tasks (see Figure 11.5). Similar to people-based services, equipment-based services can be further broken down into subcategories:
• automated services: car washes and parking meters
• equipment-based services operated by relatively unskilled operators: dry-cleaning equipment
• equipment-based services operated by skilled operators: X-ray machines and ultrasound equipment
There is another way to categorize services, according to well-known author and professor Christopher Lovelock (1940–2008). He proposed four broad categories of services:
• people processing: services toward people’s bodies
• possession processing: services toward possessions
• mental stimulus processing: services toward people’s mind
• information processing: services toward intangible assets4
In Figure 11.6, the categories are defined on a two-dimensional matrix, wherein one of the dimensions is the direct recipient of the service and the other is the nature of the service act.5
Link to Learning: Lovelock
If you plan to continue toward a marketing degree, you’ll want to familiarize yourself with Christopher Lovelock’s work. You can run a search on Amazon.com for his books or a search in your browser for articles and more information. Start by reading his Wikipedia page to learn about his academic background and achievements.
Let’s look at each of these categories in more depth. The first two categories (people processing and possession processing) involve tangible actions directed toward a person’s physical body or property, whereas mental stimulus processing and information processing involve intangible actions directed toward a person’s mind or information. We’ll expand on this in the following sections.
People Processing
In people processing services, the customer is a direct recipient of the service, and the production and consumption of the service are simultaneous. Consider examples of services where you must be present in the service facility in order to interact with the service provider and receive the service, such as barbershops or hair salons, physical therapists’ offices, or restaurants.
Possession Processing
The difference between people processing and possession processing is that the service is directed toward the customer’s physical possessions. In other words, production and consumption are separate. Your only involvement is dropping off the item that requires service or repair and explaining the problem. For example, once you have taken your car in for an oil change, you do not need to be physically at the location for the oil change to occur. Similarly, once you’ve dropped your clothes off at the dry cleaner’s, you don’t need to be physically present when the cleaning process is performed. These services are tangible because the direct recipient is one of your possessions rather than you as a person.
Mental Stimulus Processing
In its simplest explanation, mental stimulus processing is when the services interact with your mind rather than your body. Time and mental effort are required from the customer to receive this type of service. What you’re doing right now—reading this textbook—is a prime example of mental stimulus processing. Other examples include psychotherapy or counseling services. The key here is that services rendered in this category are intangible.
Information Processing
Information processing is the most intangible form of service, although it can be transformed into a tangible service output like reports, books, letters, DVDs, etc. Some examples of information processing services are things like meeting with your financial advisor regarding investment advice, legal services, and banking.6
Link to Learning: Service Industry Stats and a Changing Industry
If you’d like more insight into service industries, check out the US Bureau of Labor Statistics website. It categorizes industries and provides interesting statistics on employment.
Companies are launching new services every day. Think about it—services like Uber didn’t exist 20 years ago. As a marketer, understanding services and their business models is critical. Start here and read about on-demand service companies and how services—and apps—are changing the industry. And also check out this article about the top 15 service businesses for 2022.
Characteristics of Services
As outlined in Figure 11.2, service industries contribute the major percentage of the US GDP. It’s important to understand that this shift from the manufacturing sector to the service sector isn’t limited to the United States. Increasingly, the world economy is being characterized as a service economy. Looking at economic history, we can see a natural evolution in developing countries from the agricultural industry to the service sector as the mainstay of the economy. That’s why it’s critical for marketers to understand the characteristics of services.
As we pointed out above, some services come from physical products, such as getting a haircut or having your income tax return prepared by a professional. But other services are completely intangible. When you rent a hotel room, travel on an airplane, visit your doctor, attend a professional sporting event, or get advice from a lawyer or an accountant, you’re buying a service, so a marketer needs to consider the characteristics of services in order to get the right marketing messages to the right target market (see Figure 11.7).
Service Intangibility
By their very nature, services are intangible. This means they can’t be seen, tasted, felt, smelled, or heard before they are purchased. Consider the last time you purchased automobile insurance for your car. Other than the physical policy the company sends you (the only tangible asset), what you’ve paid for is completely intangible—it’s the company’s promise to pay claims against the policy.
Intangible services have a number of implications in marketing. The very fact that there’s nothing to touch, hear, smell, and so on typically increases the level of uncertainty that a consumer faces when choosing between services offered by your organization or those of competitors. Intangible services can seldom be tried out, inspected, or even given a “test drive” by a customer. Customers have to rely on the word of the marketers in order to assess what they’re actually going to get in return for what they’ve paid. In effect, they are buying a promise.
Savvy marketers reduce this uncertainty by creating physical “evidence” that allows the consumer to picture the service before it is purchased. For example, a hair salon may have imaging software that predicts how you would look with different hairstyles or colors. Companies like Zenni and Eyebuydirect have a virtual mirror that allows you to “try on eyeglasses” and see how the selected frames look on your face before you purchase.7
Service Inseparability
The order of production and consumption between a physical product and a service differs. Think about a box of Girl Scout cookies, a physical good or product. The cookies were produced, stored, sold, and finally consumed. That’s not the way it works with services. Like goods, services are sold, but they are produced and consumed simultaneously. They can’t be separated from the service providers, whether they are people or equipment.8 For example, try to get money out of your bank on a weekend or evening without an ATM, or try to get a haircut without the physical presence of your stylist. That’s the concept of service inseparability—you can’t separate the delivery of the service from the presence of the customer. In other words, the service provider is physically connected to the service and is evaluated on the basis of their communication skills, language, demeanor, personal hygiene, and clothing.
The impact to the marketer in these services—in which the service provider and customer must both be present—is how service providers (sometimes called frontline employees) conduct themselves in the presence of the customer because it may determine the likelihood of repeat business.9 There are also other marketing implications with this concept, such as customer cooperation and participation, not to mention the influence from other customers who may be present.
Service Variability
Have you ever gone to a restaurant and had stellar customer service? You were seated promptly by a cheerful hostess; the busser filled up your water glass and refilled it several times during the evening; the waitstaff was attentive but not to the point of being annoying; and your dirty dishes were cleared promptly. But perhaps the next time you visit the same restaurant, your experience isn’t quite as amazing. The hostess isn’t as cheerful, and it takes her several minutes to seat you. It takes a while for someone to refill your water glass. The waitstaff isn’t nearly as attentive as they were during your first visit. What went wrong?
Perhaps what you’ve experienced is what’s known as service variability—the quality of the service depends on who provides it, when it is provided, and how it is provided. For example, Delta Air Lines prides itself on improving peoples’ lives and exceeding customer expectations.10 However, because services are provided by humans who have human experiences where they may not be feeling well or they are having a bad day, the service may be variable between employees. One Delta employee may be cheerful and efficient, while another lags due to their energy and state of mind.
This is a challenge to marketers because products generally have little variability: each unit is built to certain specifications. For example, if you buy an Apple iPad Pro and your classmate purchases the same model, it’s likely that the two iPads will be virtually identical. The case color may be different, but otherwise they are the same. That’s not the case with a service, where there will undoubtedly be variations in the quality of the service depending on who offers the service, when it is offered, and at which location. Service-based companies need to rely on standardizing processes to the extent possible, frequent audits, customer surveys, and most importantly, customer feedback.
Service Perishability
Unlike most goods, services can’t be produced and stored for later use or sale. Services are, in effect, performances by the service provider. That’s the concept of service perishability. Did you miss tonight’s concert because of traffic? Too bad, because a ticket for tonight’s concert can’t be used for tomorrow night’s performance. Hotel rooms that are not occupied, airline seats that are not purchased, and unused gym memberships cannot be reclaimed.11 Because these items can’t be stored for later use, they are considered a perishable service. This is particularly important for marketers because the perishability factor and the fluctuating demand poses special problems in capacity planning, scheduling, product planning, and pricing.12
One way that marketers deal with this problem is by manipulating demand. Consider how many restaurants offer “happy hours” with discounted food and drinks during the late afternoon or early evening. Restaurants do this because this time is typically the period where there is a lull before the start of the dinner rush.
Careers In Marketing: Salaries
You might be curious about the salaries of marketing jobs. There are numerous online resources that provide guides, but the best step to take is to check out popular sites like Monster, Indeed, and LinkedIn to view current job positions. They may not all include the salary, but most will include salary ranges. The following is a list of a few of resources to get you started.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
You purchased an airline ticket to go on vacation, but on the way to the airport, you get a flat tire and miss your flight. Which characteristic of service does this example illustrate?
1. Service variability
2. Service inseparability
3. Service perishability
4. Service intangibility
2.
You go to a new hairstylist, and he suggests that you add highlights to your hair, cut off a few inches, and add some layers. You’re hesitant to do so because you can’t imagine what you’re going to look like with your new hairstyle. What characteristic of service does this example illustrate?
1. Service intangibility
2. Service variability
3. Service perishability
4. Service inseparability
3.
You go to the spa to get a massage, but your regular massage therapist is off for the day. The massage therapist to whom you’re assigned does an adequate job, but they don’t have the same technique as your regular massage therapist. What characteristic of service does this example illustrate?
1. Service inseparability
2. Service perishability
3. Service variability
4. Service intangibility
4.
You go to your Certified Public Accountant (CPA) to have your tax return prepared and filed for the year. How would this service be characterized in terms of classifications of services?
1. People-based services: unskilled labor
2. Equipment-based services: unskilled operator
3. People-based services: professionals
4. Equipment-based services: skilled operator
5.
You’re headed to lunch with friends at a downtown restaurant. Because there is no restaurant parking lot, you have to park on the street and feed the parking meter or risk getting a parking ticket. How would the service provided to you by the parking meter be classified?
1. Equipment-based services: unskilled operator
2. People-based services: professionals
3. People-based services: skilled labor
4. Equipment-based services: automated service | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define and explain the purpose of the service-profit chain model.
• Describe the steps in the service-profit chain model.
• Explain the Services Marketing Triangle.
Definition and Purpose of the Service-Profit Chain Model
Just like goods-producing businesses, service firms use marketing to position themselves in selected markets. These businesses position themselves in the market through marketing mix activities (i.e., product, price, place, and promotion). However, because of the inherent differences between services and tangible products, different marketing approaches may be required. Consider a product like a laptop or smartphone. The products are fairly standardized, so they can be produced and shipped to retailers and then sit on shelves in the store until purchased by a consumer. However, if you’re a service business, it takes the interaction of the frontline employee and the customer to literally create the service. The interaction between the employee and customer is important in creating the value of that service.
The service-profit chain model, created by a group of Harvard researchers in the 1990s, establishes relationships between profitability, employee satisfaction, loyalty, and productivity. The concept is reasonably simple: happy workers make happy customers who keep coming back and tell their friends. The model itself is a little more complicated and states the following:
• Internal service quality (the support received by frontline employees from the rest of the organization) leads to employee satisfaction.
• Employee satisfaction results in employee loyalty, productivity, and the willingness to go that “extra mile” for the customer, which creates value.
• Value contributes to customer satisfaction, resulting in customer loyalty.
• Customer loyalty translates to profitability and growth for the organization.
Perhaps the most critical aspect of this model is that all of these points link together, are equally important, and depend on one another. There are no shortcuts to increasing profitability. Didn’t quite follow that? Refer to Figure 11.8 for a visual depiction.
Steps in the Service-Profit Chain Model
The service-profit chain model connects the interworkings and relationships between the different parts of a business. It impacts employee satisfaction and retention, customer satisfaction, customer loyalty, and profitability. Let’s take a closer look.
Internal Service Quality
Internal service quality refers to the perceived satisfaction frontline employees experience when they are supported by effective policies and service from the organization. If you’ve ever worked in a restaurant, you’ll be familiar with the terms “back of house” and “front of house.” Front-of-house employees are “guest-facing” roles like hosts/hostesses and servers—those who intentionally interact with the customer. Back-of-house employees like bussers, dishwashers, and cooks typically don’t have direct interaction with the customer. Rather, it’s their work that supports the front-of-house employees. Even if your server may is friendly, attentive, and efficient, if your silverware is dirty or your steak isn’t prepared as ordered, the overall dining experience is going to be less than optimal. In addition to the customer dissatisfaction, server/employee satisfaction will also suffer due to the lack of support from the back-of-house staff.
Consider another example. Your flight was delayed, and it took forever to get your luggage and rental car. By the time you get to your hotel, you’re tired and cranky, and you just want to check in and get some rest. The front desk clerk is cordial and efficient. However, your room isn’t available because the housekeeping staff hasn’t cleaned the room yet. Who gets the brunt of your anger? Imagine the lack of job satisfaction on the part of the front desk clerk who’s tried to do everything right and was thwarted by the lack of support from housekeeping.
One of the ways that this problem can be alleviated within an organization is to create an employee feedback loop in which frontline employees can communicate problems that hurt productivity, satisfaction, and loyalty. The feedback loop is a critical element because, as consultant Sidney Yoshida reports in his study “The Iceberg of Ignorance,” 4 percent of an organization’s frontline problems are known by top management, 9 percent are known by middle management, 74 percent are known by supervisors, and 100 percent are known by employees.13
Employee Satisfaction
Employee satisfaction is the level of happiness or contentment employees have with their jobs and work environment. It’s often the direct result of company policies and support services that empower employees to deliver quality products and services. If employees are satisfied with the company’s policies, it’s easier to facilitate a happy attitude that helps consumers have pleasurable experiences with the organization.
For several years, Zappos has made Fortune’s list of “100 Best Companies to Work For.” The late CEO Tony Hsieh focused so much on the happiness of his team and customers that he wrote a series of books about it, including Delivering Happiness: A Path to Profits, Passion, and Purpose. He recognized that the only person-to-person contact a customer would have with an online retailer would be with customer service personnel, so he encouraged his employees to go above and beyond for the customer.14
Employee Retention and Productivity
Employee turnover is one of the most frustrating and recurring problems that organizations face. Turnover is costly regardless of whether it’s involuntary (such as termination due to poor performance) or voluntary (such as employee-decided resignation or retirement). The conservative estimate from the Society of Human Resource Management (SHRM) is that it costs six to nine months of an employee’s annual salary to replace that person.15 That’s why employee retention—keeping employees motivated so that they choose to remain with the company—is so critical.
The good news is that employee satisfaction is inversely related to employee turnover. In other words, an increase in employee satisfaction brings about a decrease in employee turnover. Perhaps even more importantly, studies have shown that low turnover leads to an increase in organizational productivity (the efficiency and output of employees) and performance. For example, some time ago, Taco Bell discovered that its restaurants with high employee retention had twice as many sales as other stores and had 55 percent higher profits than restaurants with high turnover. In response to these findings, the company enhanced its internal service quality by giving employees more latitude for on-the-job decision-making.16
Link to Learning: The Great Resignation
You may be aware of the Great Resignation, in which employees are leaving their jobs in large numbers. Because of the cost to hire, train, and retain employees, employee retention is a major concern for organizations. There are many reasons why this is happening, and there are ways companies can improve to help them retain their employees. Read these articles from the Pew Research Center, Forbes, and Mashable about this shift in employee thinking.
There are corporate strategies companies can take to counteract this resignation trend. Learn about these strategies from LinkedIn and Family Business.
External Service Value Proposition
Customer value is also known as external value proposition. It’s the promise of value that a customer expects a business to deliver.17
Think about your last haircut. Why did you choose to get your hair cut at that particular salon versus a competitor? Certainly, the quality of the haircut itself was important, but the customer value you experienced from your stylist played a role. What else factored into your experience? How about the other behind-the-scenes employees who made it easy for you to book an appointment or who checked you in efficiently, the person who kept the salon clean and attractive, and the person who made it easy for you to pay and perhaps book another appointment when you were leaving?
That’s why employees (both frontline and behind the scenes) play a major role in ensuring customer value. Satisfied, motivated employees generally (and genuinely) care about the company and the services it provides and can convey this to consumers in an honest, positive manner.18
Customer Satisfaction
The next two steps (customer satisfaction and customer loyalty) in the service-profit chain model are related and directly linked. A dissatisfied customer will not be loyal and will likely not do business with the company in the future. Conversely, customer loyalty—the ongoing positive relationship between a customer and business—is a result of customer satisfaction—or the measure of how happy customers are with the company’s products, services, and capabilities.
The greater the satisfaction from a customer, the more likely they will return. Additionally, satisfied customers often serve as unofficial “ambassadors” of the company and will spread the word about their positive experience.19
Customer Loyalty
The definition of customer loyalty is when a person goes to the same company for subsequent services, even if that service is more expensive than those of the competitor. The customer makes a deliberate choice to do repeat business with a company with which they have had positive experiences, resulting in growth and higher profits for the company.20
Profit and Growth
In terms of the service-profit chain model, profit isn’t the goal; it’s the result. The formula is really quite simple:
• Happy employees result in happy customers.
• Happy customers mean repeat business and spreading the word about your organization.
• Repeat (and new) business mean profit and growth for the organization.
The key is to keep employees happy because it leads to company profits.
Link to Learning: Putting the Service-Profit Chain to Work
Learn from this Harvard Business Review article about the connectivity of the service-profit chain links.
Interested in understanding how the model works in other industries? Read this Hospitality News and Business article about why the service profit chain is important in the hospitality industry.
Marketing in Practice: Ritz-Carlton
Employee empowerment is one of those buzzwords that has become popular over the last few decades. It’s defined as the ways in which an organization provides its employees with some autonomy and freedom to make decisions and have some control in their day-to-day activities. For example, a supermarket may empower its cashiers to match competitors’ ads without approval from a manager for up to a certain dollar amount.
If you were the owner of a business, how much latitude would you give your employees in helping customers? A lot? A little? None? The Ritz-Carlton, considered a gold standard for hospitality (see Figure 11.9), allows its employees to spend up to \$2,000 to solve customer problems without manager approval.21
You might be shaking your head right now, trying to understand this. Two thousand dollars seems like a lot of money to be left to the discretion of employees, doesn’t it? But you may not realize that the average Ritz-Carlton customer will spend approximately a quarter of a million dollars with the hotel chain over their lifetime. When you consider that the customer lifetime value (CLV) of a Ritz-Carlton guest is \$250,000, that \$2,000 doesn’t seem hard to believe, does it?22
For more information about Ritz-Carlton and its commitment to customer service, watch this brief video with Ritz-Carlton founder Horst Schulze and Yahoo! Finance where he discusses the importance of and value in caring for customers.
The Service Marketing Triangle
The Service Marketing Triangle is a visual image of a model that speaks to the importance of people in a company’s ability to keep its service promises (see Figure 11.10). It might help to imagine the Service Marketing Triangle as a three-legged stool. Take out one of the legs, and the stool won’t stand for long. That’s the premise and the importance of the Service Marketing Triangle—all three aspects must be achieved or exceeded for the customer to be delighted.
External Service Marketing—Making Promises
External service marketing refers to the promotion of an organization’s services in an external environment where the company promotes its services to customers through various traditional techniques like pricing, advertising, direct marketing, public relations, and personal selling. These marketing techniques are intended to achieve multiple aims, such as creating and increasing awareness, setting price expectations, and setting expectations for the level of service to be delivered.23
Internal Service Marketing—Enabling Promises
In a service business, employees are seen as “internal customers.” As you’ve seen from the discussion on the service-profit chain model, if a company wants to better serve its customers, it has to start with satisfying its employees so that they’re committed to delivering the best service possible to external customers. That’s the essence of internal service marketing.
Internal service marketing is the process of motivating employees to deliver customer value and ensure customer satisfaction by acting as a team. While that is obviously true for frontline employees who interact with the customer, it is equally applied to all employees, including those behind-the-scenes employees who support the frontline employees. In other words, all employees of an organization need to be empowered so they can deliver great customer service.
Key components of internal service marketing include motivating employees, training them in customer satisfaction techniques, ongoing communication of company goals and objectives, and (of course) good pay and working conditions.24
Interactive Service Marketing—Keeping Promises
Interactive service marketing is the communication between the service provider and the customer, called a service encounter. The service encounter is where external marketing promises are either upheld, exceeded, or broken by employees.
Interactive service marketing is critical because it sets short-term and long-term customer satisfaction. In its simplest terms, when a customer is happy in the short term, they are more likely to be happy over the long term.25
Let’s review the elements of the Service Marketing Triangle with an example of a fine-dining restaurant in a major metropolitan area. The three “parties” involved in the Service Marketing Triangle are the owner of the restaurant, the restaurant employees, and the diners. As part of internal marketing, the owner may offer training to servers about the pairing of certain dishes on the menu with wines offered by the restaurant or hold a “huddle” at the beginning of each shift to train servers about daily specials and wine pairings. As part of external marketing, diners might be lured to the restaurant through the restaurant’s Facebook page, which touts its extensive list of wines and the fact that servers are experienced in recommending wines to enhance the flavor of the menu items. Finally, as part of interactive marketing, servers are encouraged to give diners full descriptions of all menu items and daily specials and recommend which wines to pair with their food choices, leading to a more satisfying dining experience.26
Link to Learning: Service Marketing Triangle
Check out this brief video about the Service Marketing Triangle model to gain a better understanding.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
According to the service-profit chain model, what drives organizational profitability and growth?
1. Internal service quality
2. Employee satisfaction
3. Customer loyalty
4. Value
2.
The extent to which employees are happy or content with their work environment is known as which of the following in the service-profit chain model?
1. Employee satisfaction
2. Internal service quality
3. External value proposition
4. Customer loyalty
3.
Which two steps in the service-profit chain model are related and directly linked?
1. Internal service quality and value
2. Value and customer satisfaction
3. Customer satisfaction and customer loyalty
4. Internal service quality and increased productivity and growth
4.
In the Service Marketing Triangle, ________ occurs when employees and customers associate and communicate.
1. internal marketing
2. external marketing
3. interactive marketing
4. customer satisfaction
5.
In the service-profit chain model, there is a(n) ________ relationship between employee satisfaction and employee turnover.
1. behavioral
2. equivalent
3. parallel
4. inverse | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.02%3A__The_Service-Profit_Chain_Model_and_the_Service_Marketing_Triangle.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the Gap Model of Service Quality.
• List and describe the dimensions of service quality.
Dimensions of Service Quality
While we’re still on the subject of customer satisfaction, let’s take a look at still another model that aids marketers in better understanding customer satisfaction: the Gap Model of Service Quality (sometimes also known as the Customer Service Gap Model or the Five-Gap Model), first proposed in 1985. The importance of this model is that it demonstrates that customer satisfaction is essentially a function of perception. In other words, if the service provided meets or exceeds customers’ expectations, they will be satisfied; if not, they will be dissatisfied, likely as a result of one of the customer service gaps presented below.27
According to the model (see Figure 11.11), there are five major gaps or potential inconsistencies organizations encounter in seeking to meet customers’ expectations of the customer experience.28
The gaps are:
• Gap 1—knowledge gap: the difference between customer expectations and what managers think they expect
• Gap 2—policy gap: the difference between management’s understanding of the customer’s needs and how they translate that understanding into service delivery policies and standards for employees
• Gap 3—delivery gap: the difference between the experience specification and the actual results of the service
• Gap 4—communication gap: the difference between the delivery of the customer experience and what is communicated to the customer
• Gap 5—customer gap: the difference between the customer’s expectations of the service or experience and their perception of the experience
Let’s look at each one of these gaps in a little more detail.
Gap 1: The Knowledge Gap
The knowledge gap is the difference between what customers expect and what the company thinks they expect.29 The bottom line here is that the company doesn’t know exactly what customers want. This could be due to a variety of factors—lack of communication between frontline employees and management, inadequate market research, or simply a failure to listen to customer feedback, including complaints. For example, a hotel manager may think that guests want a hot breakfast instead of a continental breakfast, but the reality is that guests are more concerned with the cleanliness of their rooms or the speed of the Internet service at the hotel than they are with breakfast.
Gap 2: The Policy Gap
The policy gap reflects the difference between management’s perception of the customer’s needs and the translation of that understanding into its service delivery policies and standards. Typically, management has an accurate understanding of what the customer wants, but performance standards haven’t been established that ensure the appropriate employee behaviors are displayed.30 Using the hotel example again, assume that a number of customers have complained that the phone rings innumerable times before it is answered. Management wants to address this issue, so it establishes a policy that phones must be answered “quickly.” What’s your interpretation of the word quickly—two rings, four rings, six rings? Specificity here is the key.
Gap 3: The Delivery Gap
The delivery gap is the difference between service standards and policies and the actual delivery of the service. In this situation, frontline service workers know what to do to delight the customer; they simply aren’t doing it. For instance, management may have established a policy that the front desk phones get answered on or before the second ring, but the front desk employees are allowing phones to ring much longer before answering. This gap may arise due to improper training, lack of capability on the part of employees, unwillingness to meet the established service standards, or staff shortages.
Southwest Airlines is a great example of this. According to its website, the mission of the company is “dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride and Company Spirit.”31 The company doesn’t “overhype” its service, so there is no delivery gap—the difference between the experience specification and the actual delivery of its service. This is demonstrated by the fact that, compared to other airlines, Southwest has the greatest customer service rating, earning a 33.9 percent excellence rating.32
Gap 4: The Communication Gap
If marketers are doing an effective job in terms of their promotion efforts, the customer is likely to be highly influenced by that promotion. The problem now becomes, the company had better deliver. The communication gap is the difference between the delivery of the service and what is communicated to the customer. In other words, what did the company promise versus what did it deliver?
For example, if your coffee shop asserts in its advertising and on its menu that its food is gluten-free, and it isn’t, customer expectations won’t be met. Failure to deliver on a promise hurts the company’s credibility. Former US President Donald Trump wrote, “A brand is two words: the ‘promise’ you telegraph, and the ‘experience’ you deliver.”33
Gap 5: The Customer Gap
The customer gap is the difference between the customer’s expectations of the service or experience and their perception of the experience itself. In an ideal world, the customer’s expectations would be nearly identical to their perception, but customer perception is totally subjective and has been shaped by word of mouth, their personal needs, and their own past experiences. The problem here is that each individual perceives their world through their own eyes, and everyone perceives reality differently. In other words, while reality is a fixed factor, perception of reality is a variable.
Link to Learning: Understanding the Gap Model
Watch this video and learn more about quality of service and the gap model from Jochen Wirtz, a well-known marketing author.
Also check out this article from Indeed about the GAP Model of Service Quality, with examples.
The RATER Model
In their book Delivering Quality Service, researchers Valerie Zeithaml, A. Parasuraman, and Leonard Berry identified five dimensions of service that customers use when evaluating service quality. Their research pointed to the fact that these five dimensions result in service excellence and lead to higher customer loyalty. This model is sometimes known as the RATER framework of service quality.34 Refer to Figure 11.12 for a visual representation of the RATER framework.
Let’s explore each of these dimensions (represented by the acronym RATER) in some detail:
Reliability
R, for reliability, depicts the organization’s capability to provide accurate, dependable, and on-time service.35 Consistency is critical. Companies that provide on-time, error-free service to customers tend to have repeat customers. Research has shown that service reliability is three times more important to customers than the latest equipment or flashy uniforms.36 The bottom line when it comes to service reliability and quality is: Do you deliver as promised?
Assurance
A, for assurance, is the degree to which the organization inspires trust in its customers. For example, when you take your sick pet to a veterinarian or have your income tax return prepared (or any other service, for that matter), you expect the service provider to be an expert in the service they’re delivering. Research has shown that communicating this expertise to customers is important. If customers aren’t aware of that expertise, they often have less confidence in that provider, which can lead to a low assessment of that provider’s service.37
Does your organization inspire confidence in its service providers? Whether you’re a hairstylist, a physical therapist, a tattoo artist, or any number of other service professions, it’s important to communicate your expertise before you do the work. For example, a plumber’s business card may contain the words “licensed, bonded, and insured.” Hairstylists generally display their state licenses in their work space. Doctors often have framed diplomas in the office from medical school, residencies, and fellowships. These are all ways in which these service providers communicate their competencies. Communicating these competencies to customers helps shape expectations and influence assessments in advance of the service.38
Tangibles
When we talk about tangibles in the RATER model, we’re focusing on factors such as the physical appearance of both the physical facility and employees. Does your organization present itself professionally? This is one of the factors in the RATER metric that is hard to define because it takes into account customers’ perceptions, and different customers may respond in different, subjective ways to the environment created.
Let’s imagine that you’re taking that special someone out for a romantic or special-occasion dinner at a fine-dining restaurant. What tangibles contribute to that experience? You may expect a knowledgeable, uniformed staff; soft lighting and background music; an appealing menu; and clean restrooms. All of these tangibles will factor into your overall perception of the quality of service you receive.
Another good example of tangibles in terms of the RATER model is the Mayo Clinic in Rochester, Minnesota, where tangibles include Warhol prints on the wall, Chihuly sculptures hanging from the ceiling, and a professionally attired staff that projects a sense of caring and expertise. There are 500 original pieces of art from 70 US artists on display throughout the hospital.39
Customer perception isn’t the only challenge marketers face in terms of tangibles. It’s also the fact that, done right, customers may not even notice and point out the tangibles unless their feedback is negative. That’s why listening and acting on customer complaints is critical in improving an organization’s tangibles and promoting a strong customer service image.40
Empathy
Empathy in terms of the RATER model means focusing on customers attentively to ensure that they receive caring and distinguished service. It isn’t enough to be efficient and thorough in delivering service to customers—it’s also about service providers “connecting” with customers during delivery of the service and making them feel valued.
You may have heard the old saying that it’s not what was said, it’s how it was said. The same is true of providing service. For example, let’s go back to the example of that special dinner in the fine-dining restaurant. Imagine that you accidently spill your beverage all over the table. A busser is called to clean the spill, change the tablecloth, and provide you with new silverware and napkins. That busser may have taken care of those tasks effectively and efficiently but didn’t make eye contact, smile, or ask you if you needed anything else. In this hypothetical situation, the busser’s tasks were performed fully, but you didn’t feel that they cared about your predicament.41
Responsiveness
A service staff’s desire to treat customers with respect and provide satisfactory and quick service speaks to their responsiveness. This dimension focuses on promptness and willingness. Accordingly, the organization has to ensure that customers are getting quick service, without delay, and with an effort that makes customers believe the company genuinely wants to help them.42
Responsiveness is directly in line with the amount of time that customers wait for an answer or a solution. Have you ever called an organization with a service question and had to play “20 Questions” with the company’s automated phone system? You know the drill—press 1 for option A, press 2 for option B, press 3 for option C, etc. The chances are that your patience evaporated after about the fourth telephone prompt and you were left screaming “Representative” into your phone. That’s a classic example of a company that needs to focus on its responsiveness if it wants to generate customer loyalty.
Link to Learning: Applying the RATER Model to Real-World Companies
Check out this video about Disney guest service and the RATER model.
Also look at this article that applies the RATER model to Amazon, Thermomix, Apple, and a bank.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which gap in the Gap Model of Service Quality represents the difference between what customers expect and what the company thinks they expect?
1. Communication gap
2. Customer gap
3. Knowledge gap
4. Policy gap
2.
Management in a hotel perceives that the biggest problem in customer service is the length of time that it takes to check in guests, so they have established a policy that check-in will take no more than 5 minutes. Which gap in the Gap Model of Service Quality does this action illustrate?
1. Policy gap
2. Delivery gap
3. Communication gap
4. Customer gap
3.
In the Gap Model of Service Quality, which dimension is the difference between the customer’s expectation of the service and their perception of the experience?
1. Communication gap
2. Delivery gap
3. Customer gap
4. Knowledge gap
4.
The acronym RATER in the RATER framework of service quality stands for which dimensions of service quality that result in service excellence and lead to higher customer loyalty?
1. Responsibility, accuracy, tangibles, empathy, and responsiveness
2. Risk, acceptance, transparency, earnings, and revenue
3. Reliability, assurance, tangibles, empathy, and responsiveness
4. Revenue, appreciation, trust, efficiency, and responsibility
5.
Which dimension in the RATER model represents the physical facilities, employees’ appearance, equipment, machinery, and information systems?
1. Assurance
2. Responsiveness
3. Transparency
4. Tangibles | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.03%3A_The_Gap_Model_of_Service_Quality.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the ethical considerations in providing services to customers.
• Discuss how ethics contribute to customer satisfaction.
How Do Ethics Contribute to Customer Satisfaction?
In 2019, AT&T ran a series of TV commercials featuring a variety of professionals who don’t quite “make the grade.” These commercials included a surgeon who has “almost” been reinstated and a tax professional who will get your taxes into an “okay” place when his audit is over. The catchphrase is each of these commercials was “Just OK is not OK.” The same is true of an organization’s ethical culture. Do you want your ethical culture to be “just OK”?
In this chapter, we’ve been talking about the importance of building customer loyalty, which drives profitability and growth. But what about the link between ethics and customer loyalty? Ethics are becoming central to consumers, employees, and a company’s reputation (and hence its ability to gain customer loyalty). New research from Mintel, a market intelligence agency, reveals that over half of US consumers stop buying from companies they perceive to be unethical.43 Talk about a wake-up call!
Service Excellence through Ethics
Obviously, ethics matter. But how do you ensure that those ethics are instilled and demonstrated by your employees, particularly those frontline employees who interact directly with the customer? The National Ethics Association (NEA) has two suggestions. First, within your ethics program, make customer service a core component. Second, promote values and ethics, and include them within the rules for your frontline workers along with the consequences if they aren’t followed.44
According to the NEA, steps can include the following:
• Identifying customer service behaviors that are unethical, like lying to customers or failing to display sensitivity to customers with problems.
• Training employees on an ongoing basis in desired behaviors.
• Ensuring customers know that promises aren’t empty words but rather a commitment to their satisfaction.
• Monitoring interactions between frontline employees and customers to spot ethical gaps, especially in times of high stress and work volume.
• Leading by example. It’s not enough to just “talk the talk” when it comes to ethical behavior within the organization; managers also need to “walk the talk.” It’s important to “walk the talk” of ethical behavior as a model for employees when dealing with customers’ complaints and problems.45
Royal Caribbean Group is another company that takes its ethical behavior seriously. It has a Code of Business Conduct and Ethics decree that connects its core values (fairness, integrity, honesty, and trustworthiness) to all of its actions. Chairman and CEO Richard Fain reaffirms its commitment to integrity and an ethical culture and states, “Simply complying with the law is not enough; we need to be ABC (Above and Beyond Compliance).”46 Beyond just words, however, the company has established an ethics hotline managed by The Network, a leading third-party hotline provider. Through the use of this ethics hotline, employees can anonymously report their concerns about ethics violations 24 hours a day, 7 days a week, by either telephone or the Internet.47
Link to Learning: Royal Caribbean
Also, read this article on the potential ethical issues specific to service marketing.
Companies with a Conscience: Nasco Gulf
You may not be familiar with Nasco Gulf, a leading insurance agent in Dubai, but the company stands out in its Customer Service Code of Conduct (see Figure 11.13). The “customer service mission is to provide customers with timely, responsive service with integrity, simplicity, and a passion for excellence while meeting or exceeding the customer’s expectations.”48
The principles upon which Nasco serves its customers are trust, understanding, and resolve. The following is from its Customer Service Fundamental Principles:
• “Trust—I work hard to gain and maintain customer trust in us . . .
• Understand—I understand our customers and their needs . . .
• Resolve—I solve our customer’s problems, even if the solution is difficult”49
Nasco lists its values on its website for all to see. The company outlines that its word is good, it is a bold partner, it works to earn loyalty, and it focuses on what matters. For more information about Nasco Gulf, visit the Nasco Gulf website.
Link to Learning: When It Goes Wrong
We have all heard the stories where companies poorly handled a customer issue, and you can easily find numerous videos where customers have recorded a company’s poor customer service. Here are a few articles that share some of the more well-known stories: | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.04%3A_Ethical_Considerations_in_Providing_Services.txt |
In this chapter, we explore services. One of the first concepts is that services are intangible, meaning that they cannot be felt, tasted, heard, or smelled before purchase. Customer satisfaction is dependent upon many factors, the first one being the communication of what can be expected by the customer and the actual customer experience. It can be considered a communication gap when customer expectations and experiences do not match. This gap is the first point in the Gap Model of Service Quality. The second point is based on the perception of service received versus customer expectations. Other issues covered in this model are service quality, knowledge, and policies.
Service goes a long way in building customer satisfaction and loyalty; without returning customers, a business is doomed to struggle and fail.
Employees are responsible for a sizable amount of what goes into satisfaction at the customer level. One of the key points is employee satisfaction and retention. A more engaged, happier employee delivers a higher level of customer service. This is an additional point that employers are measuring. The act of internal service marketing is a concept that many have not experienced. This covers the activities that the company engages in to keep employees involved with delivering the desired level of service.
External service marketing is the act of promoting or selling services to the customer. This is a well-known concept both inside and outside the company.
Services can be further examined with the understanding of the following concepts: Services are inseparable; they are produced and consumed at the same time. They are intangible, which means that they cannot be touched, felt, heard, tasted, or smelled before purchase. They are perishable, so they cannot be stored in inventory for future use or sale. They are variable, meaning that the service depends on who provides them, as well as when, where, and how. These concepts help to explain the complexities of marketing services and satisfying the consumer.
11.06: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
assurance in terms of the RATER model, the degree to which an organization inspires trust in its customers
communication gap in the Gap Model of Service Quality, the variance between what is communicated to the customer and their actual experience
customer gap in the Gap Model of Service Quality, the variance between the customer’s expectations and their perception of the service
customer loyalty an ongoing positive relationship between a customer and a business that drives repeat purchases
customer satisfaction a measurement that determines how happy customers are with a company’s products, services, and capabilities
delivery gap in the Gap Model of Service Quality, the difference between the experience specification and the actual delivery of the service
empathy in terms of the RATER model, focusing on customers attentively to assure they receive caring and distinguished service
employee retention an organization’s ability to retain its employees and stop employees from leaving
employee satisfaction the level of happiness and contentment employees have about their jobs and the work environment
equipment-based services when machinery or equipment plays the primary role in the service delivery
external service marketing the action of promoting or selling services to customers and potential customers
external value proposition the value companies promise to deliver to customers post-purchase
GAP Model of Service Quality theoretical marketing model that helps to identify the gaps between the perceived service and the expected service
information processing intangible actions directed at a customer’s assets, such as insurance or consulting
intangible unable to be seen, tasted, felt, smelled, or heard
interactive service marketing the communication between the service provider and the customer; also called a service encounter
internal service marketing satisfying employees to motivate them to work as a team to satisfy customers
internal service quality the perceived level of satisfaction an employee experiences with services offered by internal service providers
knowledge gap in the GAP Model of Service Quality, the difference between what customers expect and what managers think they expect
mental stimulus processing situation in which the services interact with the customer’s mind rather than the body
people processing services in which the customer is the direct recipient of the service and production and consumption are simultaneous
people-based services tasks in which people, rather than equipment or machinery, play a major role in the delivery of the service
policy gap in the GAP Model of Service Quality, the difference between managers understanding customer needs and being able to turn that into service delivery practices
possession processing services in which the service is directed toward the customer’s physical possessions
productivity the efficiency and output of employees
RATER framework of service quality theoretical model that focuses on the five dimensions of service excellence: reliability, assurance, tangibles, empathy, and responsiveness
reliability in terms of the RATER model, the organization’s capability to produce an accurate, dependable, and on-time service
responsiveness in terms of the RATER model, promptness and willingness to provide satisfactory and quick service
service encounter a consumer’s direct contact with a service provider
service inseparability concept where services must be produced and consumed concurrently
Service Marketing Triangle a visual representation of a strategic model that outlines the importance of people in a company’s ability to keep its service promises
service perishability concept that states services cannot be stored in inventory for future use or sale
service variability concept that states the quality of the service depends on who, when, where, and how it is provided
service-profit chain model model that establishes relationships between profitability, employee satisfaction, loyalty, and productivity
services nonphysical, intangible economic activities
tangibles in terms of the RATER model, the physical appearance of both the facility and its employees | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.05%3A_Chapter_Summary.txt |
1 .
Review this Houston Chronicle article about the eight elements of service marketing. Pick two different service-oriented organizations and describe each of these eight elements as they relate to the service each company offers. Conduct additional research if needed to address these eight elements.
2 .
Take the information that you have learned about internal and external marketing and describe two instances where as a student you have noticed excellent and poor marketing strategies. Are they internal or external, and why did you feel the way you did about them?
3 .
Consider service variability instances where you were a customer and noticed exceptional service and poor service. For each instance, answer the following questions:
1. Were you surprised?
2. What specifically made you notice?
3. Had you had this experience before with this company or another company?
4. What response did you have? For instance, did you compliment? Tip? Complain? Do nothing? And why?
5. If you were the company owner, what kind of training program would you develop to address the poor service you experienced? What might you implement as a reward for exceptional service? Why?
4 .
Analyze the differences between internal and external marketing.
1. Define both terms.
2. Consider and list the positive impact that both internal and external marketing can have on an organization.
11.08: Critical Thinking Exercises
1 .
Agree or disagree with the following statement: I tip for service based solely on the amount of the bill, not on things like quality of service, timing, etc. Discuss or make a list of the reasons why you agree or disagree.
2 .
Nordstrom’s reputation was built upon its value proposition of superior service. The company has maintained a high level of service over the years. Research other retailers that have a similar service-oriented value proposition. It could be a car company, restaurant, clothing store, etc. In looking at the changing demographics, do you believe that this level of service will continue to be perceived as value? If not, what will take its place?
3 .
Have you ever experienced service that was so poor that you did not return? Compare your views with someone that you know. Is this a common service issue?
11.09: Building Your Personal Brand
“Communication is the act or process of using words, sounds, signs, or behaviors to express or exchange information or to express your ideas, thoughts, feelings, etc., to someone else.”50 What type of communicator are you? Analytical? Intuitive? Functional? Personal? Research communication styles and describe which best describes you. Outline a plan on how you might communicate with those who adhere to a different style. To get started, try this free communication style assessment. There are also other assessments available online, so try a few and see and see if there are any differences.
Keep in mind that communication also includes nonverbal signs such as our facial expressions and body language. How does your body position change when communicating a happy story versus a sad story? Try this body language self-assessment.
A large percentage of our personal brand comes from how we communicate with others. Think about the people you admire; odds are they communicate in a way that you understand and relate to. Work on becoming comfortable in your style and recognizing the styles of others. If you do this, others will be comfortable with you, and they will remember you. Often, a key component to a promotion is being noticed and remembered for the personal brand you exhibit.
11.10: What Do Marketers Do
Considering that “70% of small businesses are operated and owned by a single person,” the question arises: Who is doing the marketing?51
Find at least two small service businesses, one that you know to be successful and one that might be hanging on by a thread (hair salons, dry cleaners, mechanics, party planners, florists, etc.). Call and see if you can arrange a time, either on the phone or in person, to ask questions about their marketing efforts. You might want to do a bit of homework before you do. Here are questions that will help you gather information:
1. Do they consider what they do to promote their business as marketing?
2. Do they have someone who helps them?
3. Do they have a website or Facebook page?
4. What are the main activities that they do to market their business?
5. Do they have a formal business plan? A budget?
6. How do they figure out what their budget should look like?
7. Are there efforts that they consider successful and anything that seriously did not work?
8. Do they respond to the marketing of their competitors?
Of course, there are additional questions that you can ask as time permits. The idea here is to get a good look at what the challenges are to marketing a small business. Is this something that you see yourself doing—perhaps even as a business of your own? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.07%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Adventist Health Castle
Adventist Health Castle in Kailua, Hawaii, is an award-winning hospital focused on serving the mind, body, and spirit of its patients. The 300 physicians provide services to the entire island of Oahu, following the mission to “care for the community and share God’s love.”52
Adventist Health Castle offers programs in wellness and lifestyle, cutting-edge weight-loss procedures, and advanced imaging techniques. All programs come with a patient-focused approach with compassion and dedication from its health team. The mission statement of “transforming the health experience of our community by improving health, enhancing interactions and making care more accessible” is accomplished through “integrity, compassion, respect, and excellence.”53 In 2017, it won the Malcolm Baldrige National Quality Award, an award that recognizes the excellent patient care the staff provides to the community.
Adventist Health Castle is proud of its Wellness and Lifestyle Medicine center because of the variety of health education and lifestyle resources it provides for the community. It offers classes, events, and services to the public for a small fee or often for free. Check out more here about the medical services it offers.
Health systems are a product of the community they serve, and Adventist Health Castle is no exception. To help with its cause, it developed a community needs assessment to understand the concerns and needs of the populations within its service area. From that work, it has developed numerous programs and events, including diabetes care classes and improved access to health services. It also added ENT, cardiology, and dental services to its Rural Health Clinic in Laie. With this addition of the new Rural Health Clinic, Adventist’s system served 2,432 unique patients in its first year.54
With its work, Adventist Health Castle expanded access to classes to include a center in Kaneohe. Multiple locations allow the health system to extend its reach to the community with more classes and events. And it’s working! Through a postcard mailing, Adventist received a positive response to class enrollment.
Another initiative created around better access to care included having physician practices add more office hours to include evenings and weekends. Through this effort, Adventist has been able to engage with more patients and coordinate care better for the populations it serves.
With this work, the community has seen many positive outcomes including increased overall health due to the greater availability of healthy center resources. Serving a community means adapting to the needs of the community and meeting the populations where they are most vulnerable.
Case Questions
1 .
Adventist Health Castle is a health system operating to serve the population of Oahu. How would you classify its services?
2 .
When community members choose to take a class on diabetes management, they are learning about diabetes from a clinical nurse instructor. The instructor informs the participants of the health risks associated with unhealthy lifestyle choices. Different clinical nurse instructors teach the classes each time. Depending on who teaches the course, the participants may learn the risks of a sedentary lifestyle. This is an example of which service characteristic?
3 .
Adventist Health Castle realized that access to health services was an important need in its community. To provide for that need, it developed a multidisciplinary clinic to serve rural communities. It immediately started seeing and treating patients. How does this fit into the service-profit chain?
4 .
When Adventist Health Castle added more hours to physician practices, what dimension of service quality was it addressing be | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.11%3A_Closing_Company_Case.txt |
1. Andrea Forstadt, “10 Service-Based Business Ideas,” US Chamber of Commerce, April 2, 2021, https://www.uschamber.com/co/start/b...business-ideas.
2. “Success Story: MeTime Drop-In Child Care,” Pathway Lending, March 26, 2018, https://www.pathwaylending.org/news-...-story-metime/.
3. “Percentage Added to U.S. GDP by Industry 2020,” Stastista, June 3, 2021, https://www.statista.com/statistics/...p-by-industry/.
4. Richa Saxena, “SM: Session3: Service Classification, Characteristics and Triangle,” The Awakener (blog), November 26, 2015, http://richaprof.blogspot.com/2015/1...ification.html.
5. Rakesh Panchal, “Service Marketing: Four Categories of Services,” My View: M-bullshit (blog), April 7, 2014, http://misbullshit.blogspot.com/2014...gories-of.html.
6. Ibid.
7. Jake, “These 21 Alternatives to Warby Parker Also Let You Try-On Prescription Eyeglasses at Home in 2022,” Modern Fellows, July 28, 2022, https://www.modernfellows.com/altern...-warby-parker/.
8. “4 Characteristics of Service,” iEduNote, accessed November 11, 2021, https://www.iedunote.com/service-characteristics.
9. Ibid.
10. Delta Airlines, “Delta Airlines Mission & Vision Analysis,” accessed June 15, 2022, https://mission-statement.com/delta-airlines/.
11. “4 Characteristics of Service,” iEduNote, accessed November 11, 2021, https://www.iedunote.com/service-characteristics.
12. S. R. Rao, “Implications of Unique Features of Services,” Citeman, December 14, 2007, https://www.citeman.com/2519-implica...-services.html.
13. John Ryder, “Why the Iceberg of Ignorance Is Still Relevant and How to Melt It,” Hive (blog), June 26, 2019, https://www.hive.hr/blog/iceberg-of-ignorance/.
14. Will Schmidt, “5 Lessons from Zappos on Employee Happiness,” Classy, accessed October 14, 2021, https://medium.com/classy-blog/5-les...ss-10e3889b7ba
15. iGrad Author, “The Cost of Replacing an Employee and the Role of Financial Wellness,” The Well (blog), Enrich Financial Wellness, accessed May 22, 2022, https://www.enrich.org/blog/The-true...enrich#:~:text.
16. Nkem Anigbogu, “Understanding the Service-Profit Chain,” LinkedIn, March 13, 2018, https://www.linkedin.com/pulse/under...nkem-anigbogu/.
17. Basha Coleman, “How to Write a Great Value Proposition [5 Top Examples + Template],” HubSpot, March 10, 2022, https://blog.hubspot.com/marketing/w...ue-proposition.
18. P. Mulder, “Service Profit Chain,” Toolshero, October 5, 2018, https://www.toolshero.com/strategy/s...-profit-chain/.
19. Ibid.
20. Ibid.
21. Adam Toporek. “The Ritz-Carlton’s Famous \$2,000 Rule,” Customers That Stick, September 12, 2017, https://customersthatstick.com/blog/...ous-2000-rule/.
22. Ibid.
23. “Services Marketing Triangle,” Expert Program Management, accessed November 11, 2021, https://expertprogrammanagement.com/...ting-triangle/.
24. Ibid.
25. Ibid.
26. Anam Ahmed, “What Is a Service Marketing Triangle?” Chron., March 8, 2021, https://smallbusiness.chron.com/serv...gle-61170.html.
27. “What Is the GAP Model of Service Quality? (With Examples),” Indeed Career Guide, November 23, 2021, https://www.indeed.com/career-advice...ment/gap-model.
28. Ibid.
29. Ibid.
30. Ibid.
31. Sean Peek, “What Your Business Can Learn from Southwest Airlines,” Business.com, August 2, 2022, https://www.business.com/articles/so...tomer-service/.
32. Ibid.
33. Donald Trump, “A brand is two words: The ‘promise’ you telegraph, and the ‘experience’ you deliver,” Minimalist Quotes, accessed February 27, 2022, https://minimalistquotes.com/donald-...p-quote-18890/.
34. Arlen, C. (2018, July 2). The 5 service dimensions all customers care about. Retrieved November 11, 2021, from https://www.serviceperformance.com/t...rs-care-about/.
35. Ibid.
36. Ibid.
37. Ibid.
38. Ibid.
39. Mary Carole McCauley, “New Hopkins Hospital Takes an Artful Approach to Health Care,” Baltimore Sun, April 26, 2012, https://www.baltimoresun.com/health/...-41-story.html.
40. “Measuring Customer Service Quality with the RATER Framework,” Simplesat, accessed November 11, 2021, https://www.simplesat.io/measuring-c...ter-framework/.
41. Ibid.
42. M. M. Kobiruzzaman, “Five Dimensions of Service Quality—Servqual Model of Service Quality,” Newsmoor, September 15, 2020, https://newsmoor.com/servqual-model-...-gaps-reasons/.
43. “56% of Americans Stop Buying from Brands They Believe Are Unethical,” Mintel, November 18, 2015, https://www.mintel.com/press-centre/...-are-unethical.
44. National Ethics Association, “Customer Service Ethics: Beware the Dark Side,” December 2, 2011, https://www.ethics.net/articles/cust...-the-dark-side.
45. Ibid.
46. Royal Caribbean Cruises Ltd., Code of Business Conduct and Ethics, 2019, https://www.rclinvestor.com/content/...lean_Final.pdf.
47. Chief Executive Office [username], “Royal Caribbean Ethics Hotline,” Ship Happens forum, September 29, 2014, http://www.inozemstvo-posao.com/smf_...p?topic=9533.0.
48. Nasco Gulf, Customer Service Code of Conduct, accessed November 11, 2021, http://www.nascogulf.com/Content/upl...nduct_-_V1.pdf.
49. Ibid.
50. Merriam-Webster, “communication,” accessed March 8, 2022, https://www.merriam-webster.com/dict.../communication.
51. Deyan Georgiev, “Small Business Statistics [Guide to Success in 2022],” Review42, May 12, 2022, https://review42.com/resources/small...ss-statistics/.
52. “Home page,” Adventist Health Castle, https://www.adventisthealth.org/castle.
53. “About Us: Mission, Vision, and Values,” Adventist Health Castle, accessed May 5, 2022, https://www.adventisthealth.org/cast...-vision-values
54. Adventist Health Castle, 2019 Community Health Plan Update, 2019, https://www.adventisthealth.org/docu...ual-Report.pdf. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/11%3A_Services-_The_Intangible_Product/11.12%3A_References.txt |
In February 2005, Amazon launched Amazon Prime, which offered unlimited two-day delivery for millions of items.1 At a time when consumers were accustomed to paying high shipping fees and experiencing slow service, the membership service—\$79 per year—offered a new alternative. It was a first-of-its-kind pricing structure that has sparked many companies to do the same. Today’s subscription services cover everything from toilet paper to dog toys. Amazon Prime is still arguably the most prevalent subscription service in history. In 2021, Amazon reported its Amazon Prime members had reached 200 million worldwide.2
The membership, according to a public letter from Jeff Bezos, executive chair of the Amazon board, “takes the effort out of ordering; no minimum purchase and no consolidating orders. Two-day shipping becomes an everyday experience rather than an occasional indulgence.”3
Since its first offering in 2005, Amazon has raised its prices only three times—in 2014 to \$99 a year, in 2018 to \$119, and most recently to \$139/year.4 While rumbles in the market suggested that these price increases might drive away customers, Amazon has proven this was not the case. The price increases through the years also included new benefits—Amazon Prime video, Prime Pantry, Prime Reading, and many others. The company demonstrates that consumers are, in fact, willing to pay higher prices—so long as they can perceive value that is added to the increase in price.
12.01: Pricing and Its Role in the Marketing Mix
Learning Objectives
By the end of this section, you will be able to:
• Define pricing.
• Explain pricing and its role in the marketing mix.
• Explain the psychology of pricing.
Pricing Defined
Anytime anything is sold, a price is involved. Recall that during the exchange process, a seller is offering something of value to a buyer in exchange for also something of value. This value to the seller is often referred to as price. The practice of pricing is not a new concept. Some of the oldest records of prices ever discovered were found on clay tablets with symbols in Uruk, located in modern-day Iraq. The records are written receipts of exchanges of sheep, beer, and barley and date back to 3300 BCE!5
You may recall that price is one of the 4Ps of marketing, or one element in the marketing mix. Once a product has been developed, marketers must determine at which price the product or service will be offered to the target market. Today, pricing is one of the more difficult decisions that marketers must make in the marketing mix because it directly impacts the perception of value from the customer as well as the company’s bottom line. Poor decisions in pricing can have immediate and catastrophic effects on profits that are difficult for companies to recover from. Price decisions must be linked to a product or service’s real and perceived value while also considering competition, supply costs, and when discounts should be offered.
Simply put, price refers to the exchange of something of value between a buyer and a seller. The price determines how much revenue the company will earn and drives the financial health of the organization. However, marketers cannot simply price products and services based on the expected revenue of the organization. The price must be set so that the buyer sees value in the product offering and the price they will pay for it. In other words, marketers must put the perception of value in the product’s price at the forefront while also considering the financial impact to the organization.
While price is what is referred to when discussing most goods and services, price can take on many terms depending on the exchange that is taking place. In higher education, you are paying tuition—the price—in exchange for your education. If you need an attorney, you are likely going to pay a fee—the price—for services rendered. When you are traveling and have to pay a toll, it is the price you pay for using the road or bridge. Regardless of the exact terminology used, pricing of goods and services have the same basic elements.
Elements of Pricing
While a marketer is determining the price of goods and services, they must keep in mind that pricing must benefit both parties involved in the exchange process: the seller (company) and the buyer (customer). Both parties must see value in the product process through pricing for the exchange process to be successful. We’ll first discuss how price is an indicator of value to the buyer and then turn our attention to the seller.
Price as an Indicator of Value
When a buyer purchases a product or service, they seek to satisfy a need through the purchase. The customer will, consciously or not, use several criteria to determine the amount they are willing to spend to satisfy that need. These criteria ultimately lead to the value that the customer sees in the product.
The price-value equation is a subjective assessment by a consumer about what they deem as a value. The price-value equation states that as a customer’s expectations are met at what they consider an acceptable price, value is realized. Value is related to the quality and price of the product, and the formula is
$Value=QualityPriceValue=QualityPrice$
For example, if a consumer purchases a high-end designer Chanel handbag for \$11,000, they might equate the value to a beautiful, high-end, well-made handbag that will last for many years. They may also subconsciously believe the bag will portray a certain social status while carrying it. For them, there is value and quality in the product, and they are willing to pay the high price.
Consider another example: you are in the middle of fixing dinner, and you realize you don’t have enough milk for the dish you are preparing. There is a convenience store just a block away from your house and a grocery store five miles away. If you send your partner to walk to the closer convenience store, they will pay more for the milk than if they were to drive the extra five miles to the grocery store, which would be less expensive. With the higher-priced item at the convenience store, you are paying for the convenience. The value in this scenario is in the time saved even at a higher price.
With these two examples, the perceived benefits are directly related the price-value equation. Perceived benefits can include status, convenience, brand, quality, etc. and can vary from buyer to buyer or even situation to situation.
Perceived costs can also include a host of criteria in addition to the price printed on the price tag. Let’s return to the milk purchase example. If the situation were different—say you were not in the middle of cooking dinner—would your decision change? Perhaps. You will still consider other factors before making the decision. How long does it take for you to drive that extra five miles? Is the grocery store known for having long lines during the time you will be shopping? Do you need other items you can only get at that store? Does the store carry the brand of milk you prefer? These are only a few of the many considerations you make before you decide to make the purchase. These are all perceived costs and are weighed against the perceived benefits the buyer considers when determining value.
Marketing in Practice: Upside
Founded in 2016, Upside is an app that promotes itself as saving customers money on purchases at gas stations as well as helping local brick-and-mortar businesses earn more profit. Here’s how it works: Upside links to gas stations, restaurants, and grocery stores within a specified mile-radius of the user. The user chooses to claim an offer on the app and has four hours to upload the receipt. The linked businesses are those that have contracted with Upside to drive business to their establishment. Once redeemed, cash is deposited into the user’s account and can be cashed out for gift cards or to a PayPal account.
Upside is banking on the value equation as well as psychological factors of pricing to attract both buyers and sellers. Gas prices, for example, are relatively unchanged from station to station in a small geographical area. If the user is able to get 25 cents cash back per gallon on their fill-up, they may swap convenience of the closer station with that of getting a cash reward at a station a few miles away. If the buyer chooses the station with cash back over one without, the seller (gas station) also finds value in a one-time or new customer.
For more information about Upside, visit the app’s website.
Price in the Marketing Mix
Recall that the marketing mix elements include product, price, promotion, and place. Marketers create value through the maximization of benefits within an acceptable price point using the marketing mix elements. Price, however, is the only element of the marketing mix that directly produces revenue for the company. The other elements are considered costs to organization. Another way to think of price as differing from the other elements is to understand the price not only creates perceived value for the customer but also harvests monetary value for the company. Because price is the revenue-generating element of the marketing mix, it is vital that marketers set the right price both to match buyer perceptions and to maximize company profits. Profit is determined by subtracting total expenses from total revenue.
The Profit Equation
Recall that the goal of any for-profit company is make a profit. The price marketers set for goods and services offered will have a direct impact on the company’s profit-making ability. Therefore, it is imperative that the price set is one that achieves value not only for the buyer but also for the company. Certainly, buyers would prefer a lower price—or even free—for goods and services. It’s simply not feasible for a company to give its products and services away for free; the company would cease to exist very quickly, which does not serve either the company or the buyer well. Rather, it is in the company’s interest to set prices that create value for the buyer and profit maximization for the company, as this gives the organization the best chance of continuing to create value in the long term.
So what is the best price that creates value for the seller? In short, it’s the one that creates value for the buyer and simultaneously generating the maximum profit. If a price is set too high, the buyer may refuse to purchase because they do not see the value; in turn, the company loses out on profit. Alternatively, if the price is set too low, the company may be losing out on profits when a buyer would be willing to pay a higher price.
Profit is the financial gain of a company, or the difference between the amount earned and the amount spent in buying, operating, or producing something. It is the difference between total revenue and total costs and is calculated with the profit equation.
$Profit = Total Revenue – Total Costs Profit = Total Revenue – Total Costs$
Let’s look at this formula more closely.
• Total revenue is the money generated from normal business operations. It is calculated by the sales price of a product times the quantity of units sold. For example, a company selling wireless earbuds for \$19.99 that sold 5,000 units in one period has revenues of \$99,950.
• Total costs of a company are the costs of sales and operating expenses. It is all expenses related to operating the business that are directly related to producing a good or service and that are indirectly related to producing goods and services. In other words, it includes items such as building leases, employee salaries, and electricity as well as direct costs in producing the product, such as component parts and equipment.
Total costs can be categorized as either fixed or variable. Fixed costs are those expenses that do not change regardless of the number of units sold. For example, if the company selling wireless earbuds makes one unit or one million units, the company still has to pay the mortgage for the building it is occupying; the mortgage payment does not increase or decrease based on the number of units produced. Alternatively, variable costs do change based on the number of units produced. In the wireless earbud example, the company would spend more per unit if it ordered fewer units. If it ordered a higher quantity of units, the unit price would decrease.
In determining profit, the total costs include both the fixed and variable costs. The formula is
$Total Costs = Fixed Costs + Variable Costs Total Costs = Fixed Costs + Variable Costs$
When setting prices, the marketer must determine how much profit can be made from the sale of goods and services. However, as mentioned earlier, profit is not the only deciding factor in price. Much research has been done on how psychology also effects the perception of pricing.
The Psychology of Pricing
From a marketer’s standpoint, these are all factors that must be considered when setting price. In addition to the value perceived by the buyer, the marketer must also understand other psychological factors that influence the buyer’s perception of price. Several psychological pricing examples are discussed next.
Price Anchoring
When Steve Jobs introduced the Apple iPad during a Keynote in 2010, he showed off the high-resolution screen and talked about its revolutionary features. “What should we price it at?” he asked. “If you listen to the pundits, we’re going to price it at under \$1,000, which is code for \$999.” He put a giant \$999 on the screen. He finally went on: “I am thrilled to announce to you that iPad pricing starts not at \$999, but at just \$499.” The screen then showed the \$999 price being crushed with the \$499 price.6 The crowd went wild!
The concept of price anchoring relies on the first piece of information that a buyer sees. This acts as an anchor, or a frame of reference for what the buyer expects a price to be. Steve Jobs used this concept in his introduction of the iPad. The anchor price he quoted was \$999. This immediately made buyers believe the product should be priced around \$999. However, when Jobs showed the actual price, starting at \$499, the buyers immediately believed, psychologically, that it was a great deal. Viewers did not know what the worth of the iPad was; they just believed they were saving nearly \$500 by having the initial anchor of \$999.
Artificial Time Constraints
Marketers—particularly retailers—often use the psychological strategy of artificial time constraints. These trigger a sense of urgency in the buyer; if they don’t buy today, they’ll miss out on a great deal. Whereas a consumer may have been on the fence about spending money, these artificial time constraints act as a catalyst for consumers to spend money right now. And there is a lot of power in artificial constraints: consumers are afraid of missing out and don’t want to later regret not buying. But consumers can often find the same prices many times throughout the year because retailers use this tactic frequently.
Price Appearance
A study on the effects of auditory representation in pricing showed that buyers believed \$1,555.83 was a very complicated price and difficult to comprehend quickly. The study further outlined that a price of \$1,555 (no cents) was better but that buyers were able to more easily and quickly comprehend a price of \$1555 (no commas) and thus more likely to pause and consider the product.7
If you’ve ever gone to a fancy restaurant, you may have noticed the prices on the menu are in a small font and don’t have zeros at the end. The price will be listed as \$29 instead of \$29.00. Psychologically, longer prices appear to be more expensive because they take longer to read. This effect is augmented by the use of a dollar sign. Similarly, the use of prices with multiple syllables seems more expensive because consumers pronounce the prices in their head. In short, the longer it takes to read and pronounce, the more impact the buyer believes it has on their wallet,8 which is explained by price appearance.9
Price Gouging
Price gouging is when companies or individuals take advantage of a situation, typically an emergency or natural disaster, and charge exceptionally high prices for products or services. In some states, like New York, it’s illegal for businesses to price gouge during a state of emergency.10 In fact, New York was the first state to enact a price gouging law. In 1978, when there was a shortage of oil for heating in the winter and the lives of young and elderly people were threatened, the state created a law where companies could not sell goods or services at excessive prices.11
Can you think of recent examples where price gouging was a potential concern? During the COVID-19 pandemic, several states posted on their government websites lists of items that couldn’t be subject to price gouging. Currently, the US Department of Justice provides a list of items that can’t be hoarded or subject to price gouging due to COVID-19 precautions, including masks and other personal protective equipment (PPE), respirators, ventilators, and medical gowns.12 There have been other instances where price gouging was an issue. According to AccuWeather, “some of the most rampant examples of price gouging came during the most destructive storms in recent years, such as Hurricane Katrina, Hurricane Sandy, Hurricane Harvey, and Hurricane Irma.”13 After Hurricane Katrina, a hotel manager boosted room prices and was sentence to five years in jail.14
Careers In Marketing: Pricing Analyst
A pricing analyst studies the market and analyzes data to determine the best pricing for products. This article from Zippia provides helpful information about the job role, including qualifications, career paths, salary, education, resume templates, and online courses to improve skills. Indeed.com also provides a thorough job description that outlines top duties and qualifications.
The best way to understand the core of any job is to learn from people who have done the job. Watch this video from a pricing analyst where he discusses his career.
Also check out this article on what makes a great pricing analyst. Some people wonder how a pricing analyst and a data analyst differ. Learn the answer to that question in this article.
Once you’ve determined this may be the career for you, prepare for an interview by watching this video.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
You receive an email from your favorite clothing store. It is having a one-day sale where everything is 50 percent off. The retailer is using a form of psychology known as ________.
1. artificial time constraint
2. price appearance
3. profit
4. fixed costs
2.
Which of the following best describes the profit equation?
1. Profit = Fixed Costs – Variable Costs
2. Profit = Total Costs – Total Revenue
3. Profit = Total Revenue – Total Costs
4. Profit = Fixed Costs + Variable Costs
3.
Marquis has decided to purchase a new kitchen table. He looks at various brands online and decides to purchase one that is \$500 more than the others because it is a brand his parents had when he was growing up and they offer free delivery. These factors indicate Marquis has perceived ________ in the higher-priced table.
1. value
2. artificial time constraints
3. costs
4. profit
4.
Kilee sees an advertisement for a new computer. The advertisement portrays an initial price of \$699 that has a large red “X” through it with a new price of \$499. The advertisement is utilizing which pricing concept?
1. Artificial time constraints
2. Price appearance
3. Price gouging
4. Price anchoring
5.
The perception of a buyer’s value includes which of the following?
1. Profit a company can expect from sales
2. Perceived benefits less the perceived costs associated with a purchase
3. Revenue expected from a sale
4. Costs of manufacturing the product | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the five critical Cs of pricing.
• Characterize the five critical Cs of pricing.
Cost
What should you charge for a product or service? As you’ve probably discovered by now, pricing is not something that marketers approach without a lot of research. Using the five critical Cs of pricing can help to determine the best price—one that provides optimal value to the buyer and profit maximization for the company. Figure 12.3 illustrates the five critical Cs to consider when pricing: cost, customers, channels of distribution, competition, and compatibility.
Cost is the most obvious element of the pricing decisions. As we’ve already discussed, you must know the cost of doing business—both fixed and variable—before you can set an adequate price. However, cost alone cannot be the only basis on which a pricing decision made. After all, buyers never know (and don’t care) how much it costs a business to produce its goods and services.
Link to Learning: The Five Critical Cs of Pricing
Scale Finance has provided an excellent article that may help you get your mind around the five Cs of pricing.
Customers
Customers are another key element to pricing decisions, as you’ve learned already in this chapter. Marketers must determine not only what customers expect a product or service to be priced at but also what those customers are willing to pay. Toyota manufactures cars and markets them toward the middle class. Through research, it has determined what its target market is willing and able to pay for a particular vehicle. Alternatively, Lexus, which is marketed as more of a luxury car, has a higher price point and is marketed to a different market than that of Toyota.
Channels of Distribution
Many products are sold through channels of distribution—intermediaries who move products from manufacturer to end users. Intermediaries affect the prices of products because they also need to maximize their profits. Therefore, pricing decisions must consider profits, expenses, and the value they are adding to the product or service.
IKEA began as a mail-order catalog in 1953 in Älmhult, Sweden. Today, it is a global home furnishings brand that focuses on sustainability.15 Its distribution channel consists of the manufacturer, dealer, wholesaler, and retailer. Each of these channel members are in business to make a profit. Therefore, the price strategy that IKEA utilizes must help to ensure that each member is financially satisfied while making a profit itself and keeping the price that is of value to the end user. If any of the channel members (or the end user) does not find value in the price set by IKEA, the entire channel becomes weak and unsustainable.
Link to Learning: IKEA
IKEA is a very interesting company to study when you are learning about marketing and business. As this blog examines, it has 1,600 suppliers for manufacturing products that deliver to 186 global stores. That’s a complex—and successful—system!
The MBA Skool website provides an explanation of the IKEA marketing strategy and the four Ps, including IKEA’s distribution model.
The Contact Pigeon blog outlines IKEA’s strategy that made it the successful company it is today.
Competition
Every company and product faces competition. Even the most unique products are competing for buyer dollars. Buyers’ perception of one product in comparison to that of alternatives has an important impact on pricing decisions. Gazelle Bikes is a top-tier manufacturer of bicycles. The bikes offered by Gazelle have a starting price point of \$1,499.16 One of Gazelle’s competitors, Giant, has a starting price point of \$1,720.17 For bicycle enthusiasts, these price points are important when comparing one brand with another; an enthusiast who comes across a new brand of bicycles with a starting price of just \$200 would not position it with Gazelle and Giant bicycles.
Compatibility
Panama City Beach has been one of the most popular spring break destinations of college students for decades. In fact, it is considered the “Spring Break Capital of the World.”18 It is well-known for its late-night parties, concerts, and celebrity sightings. Hotels and clubs along the beach of Panama City drive their marketing efforts toward this segment of the market: college-aged spring break–goers. The prices they set for the weeks of spring break are compatible with both this segment of the market’s ability to pay and the businesses’ profitability. Conversely, hotels in areas of Florida that are more family-friendly set prices that are considered a value for families and promote the hotels toward families rather than college-aged partygoers.
Pricing decisions are not made in a vacuum. When marketers set a price for a good or service, it must be consistent with the other marketing objectives. Imagine if McDonald’s starting offering a \$20.00 ribeye steak. This decision would be inconsistent with the marketing of the company’s low-priced fast food, would be confusing to customers, and thus would not be successful.19
Marketing in Practice: The Five Cs of Pricing
The five Cs of pricing has long been a standard for marketing practitioners. However, some practitioners also consider another area when determining price: context. Context refers to a more complex strategy of pricing where marketers set—and change—prices according to variables external to the company. For example, an ice cream truck in the US Midwest would arguably have more traffic during the peak summer hours and less during the colder winter months. The owner of the ice cream truck would change their prices to best fit the context (in this case, weather). The product (ice cream) remains the same regardless of the price, but the price is changed to fit the context of the situation. The appropriateness of using this strategy depends on several factors, including the product category, market size, and other nuances of the industry.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Which of the critical Cs of pricing includes taking into the consideration the value of the product to retailers and suppliers?
1. Cost
2. Competition
3. Channels of distribution
4. Customers
2.
Amir is the head of marketing and is explaining to colleagues that the company’s new boutique bed and breakfast near the ocean should not be priced similarly to the local Super 8 motel. Amir explains that the new bed and breakfast is of the highest quality, has posh amenities, and is therefore being marketed to upper- and upper-middle-class couples. Amir is explaining which of the critical Cs of pricing?
1. Cost
2. Competition
3. Customer
4. Compatibility
3.
Kevin is a marketing intern at a large corporation. They are tasked with presenting a price for a new service the company will be offering. Which of the following would you recommend Kevin do first?
1. Analyze the critical Cs of pricing
2. Choose a pricing strategy
3. Create an advertisement
4. Ask his friends what price they would be willing to pay
4.
Which of the following statements is false with regard to pricing?
1. Customers are interested in the price of the product, not the cost to a company.
2. Cost only includes the materials needed to produce a product.
3. If cost is not considered in pricing, the company will likely be unsuccessful.
4. Costs include both variable and fixed costs.
5.
Which of the following is not a critical C of pricing?
1. Customers
2. Cost
3. Competition
4. Commitment | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.02%3A__The_Five_Critical_Cs_of_Pricing.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the five-step procedure for establishing pricing policy.
• Describe ways to determine the pricing objective.
• Identify ways to estimate demand.
• List ways to estimate costs.
• Explain how to analyze the external environment.
• Discuss selecting pricing strategies or tactics.
Determine Pricing Objectives
Whether a product is new to the market or established, marketers face the challenge of setting prices. Recall that the main objective for pricing is for the buyer to perceive value in the product while the company maximizes profits. Marketers often use a five-step approach for establishing pricing policies (see Figure 12.4).
During the first step in establishing pricing policies, the marketing team will set the pricing objectives (see Table 12.1). The most common pricing objectives are based on customer value, cost, sales orientation, market share, target return, competition, and being customer-driven. It is not uncommon for more than one objective to be set within the company. Let’s take a look at each of the pricing objectives in more detail.
Objective Description
Customer value Based on a product’s added value
Cost Based on the cost to produce a product
Sales orientation Developed to boost sales volume(s) of a product
Market share Focused on increasing market share
Target return Focused on a specific profit at a specific time
Competition Developed based on competitors’ prices
Customer driven Focus on what the customer is willing to pay
Table 12.1 Pricing Objectives
Customer Value–Based Objective
As you’ve already learned, it’s essential to have a deep understanding of the value a product will provide for customers. Before Jim Semick and his team launched GoToMeeting, a conferencing app, they developed the pricing of \$49 “all you can meet flat-rate pricing.” This pricing was unique to the industry, and Semick stated that they determined this pricing structure based on dozens of interviews with potential customers. From these interviews, the GoToMeeting team discovered key areas that would provide value to customers not only through the product itself, but also through the flat-rate price structure that was easy to understand.20 Semick utilized the customer value–based objective, one in which the company has a good understanding of the value-added benefits of a product and sets its price accordingly.
Cost-Based Objective
A fairly simple way to price products and services is using the cost-based objective. This pricing objective sets prices based on the costs of doing business, which were explained earlier in the chapter. The biggest pitfall of utilizing this pricing objective is that it might not align well with the customer’s value perception. Remember, customers don’t know (or care) what the cost of doing business is, so long as they receive value in their purchase. Therefore, marketers run the risk of overpricing the product. Marketers using this objective also run the risk of pricing their products too low and failing to maximize profits.
Consider the manufacturing of a smartphone. Assume the total cost to the manufacturer to produce one smartphone is \$3,000. This cost includes all expenses to the company for producing this one smartphone (product costs, variable and fixed expenses). The company chooses to set the selling price of this smartphone to include these costs plus a profit of 10 percent, which sets the final price at $3,300 (3,000 + 10% × 3,000)$21
Sales-Oriented Objective
A company may wish to seek a boost in sales volume of a product. In this case, marketers would choose the sales-oriented objective. The goal of a sales-oriented objective is to increase the volume, or units sold, of a product against the company’s sales over a period of time. This objective is achieved by raising or lowering prices to increase sales. An increase in sales assumes a direct impact on profits, thus maximizing profits. Consider the smartphone manufacturer again. Executives have set a sales goal of 1,000 units within the first quarter. Marketers may choose to lower the price of the smartphone to meet the goal. So perhaps the company changes the price from \$3,300 to \$3,100 for a short period of time until the sales goal is reached. Note that it is still covering the cost to manufacture the product and still making some profit.
Market Share–Oriented Objective
A market share–oriented objective is one in which the company’s pricing objective is to set prices based on those of the competition. This strategy involves comparing similar products being offered in the market and pricing at, below, or above those prices depending on the products offering. The cell phone market is one example of an industry that leans on market share orientation. The biggest suppliers of cell phones—Apple, Google, and Samsung —take their pricing cues from one another and are priced very similarly.22
Target Return Objective
A target return objective is one in which marketers calculate the price so that it returns a specific profit in a given period of time. Let’s assume that a company has invested \$1 million into a new product. Company executives wish to recuperate 10 percent of those costs in year one of sales. If it costs the company \$2 to manufacture one unit of product and marketers estimate that it will sell 50,000 products in the first year, marketers know they will need to price the product high enough that it will yield the desired results. The obvious drawback to this objective is that much of the decision is based on estimations of units sold in a given time frame.
Competition Objective
A competition-based objective, as its name suggests, is when a company sets its prices according to the prices of its competitors. Amazon uses this pricing objective often with some of its most popular products. Using data intelligence, the company gathers the prices of products of its competitors and sets its prices just below the price set by competitors.23
Customer-Driven Objective
Some companies choose to set prices based on customer-driven objectives—that is, what the customer is willing to pay for a product or service. Auctions, e-trades, and bids are common examples of customer-driven objectives. eBay, for example, allows a company (or individual) to place an item for sale on its website. Often, the interested buyer will bid on the item, thus stating what they are willing to pay. The highest bidder is then able to buy the product.
Estimate Demand
After setting the pricing objectives, marketers will estimate the product or services demand. Demand is an economic term that refers to the buyer’s desire and willingness to purchase a product or service at various prices. All other factors being consistent, an increase in price will result in a decrease in demand. The demand curve is a visual representation to understand demand.
Understanding the Demand Curve
The demand curve is a graph that shows how the demand for a product or service varies with the change in price. As you can see from Figure 12.5, the price (p) is located on the vertical axis and the quantity (q) demanded is located on the horizontal axis. As the price of a product increases, the demand of the product decreases.
The relationship between price and demand shown in the figure above is contingent on certain conditions remaining constant. Such conditions include substitute goods, personal income, and consumer tastes, which are discussed further below. Changes in these conditions can cause a change in demand that might not follow this basic concept of the demand curve.
The Demand Curve for Prestige Products
One pricing strategy that negates the demand curve is prestige pricing. Prestige pricing is a strategy that marketers use to set high prices knowing that demand will increase with higher prices because the higher price increases the perceived value of the product. Prestige pricing is closely tied to brand image and appeals to buyers who see value in elevated status. Consider these brands of shoes. The Adidas Yeezy Boost 750 costs around \$76 to produce but sometimes sells for over \$1,000, while the D Rose 5 Boost costs around \$43 and sells for around \$100. So why the large price difference? The Yeezy Boost 750 pricing strategy is that of prestige pricing. The allure and exclusivity of the Yeezy Boost 750 allowed the company to price the shoes at a much higher price.24
Link to Learning: Prestige Pricing
In this article, HubSpot explores the pros and cons to prestige pricing and things to consider when implementing this strategy. Included are several prestige pricing examples such as the Adidas Yeezy Boost and the D Rose 5 Boost, diamonds, cars, AirPods, and T-shirts.
Demand Elasticity
What will be the impact of demand for a product if the price is changed? If the product is discounted, will demand increase? If the price goes up, will demand decrease? The concept of demand elasticity helps marketers answer these questions. In short, demand elasticity is a measure of the change in the quantity demanded in relation to the change in its price. Mathematically, it is derived from the percent change in quantity demanded divided by the percent change in price. If you have been considering buying a new home, would the prices of homes sway your decision? Perhaps so. Home prices are considered elastic because the price has a huge impact on the demand for new homes. Additionally, there are many options for housing, including apartments, roommates, living with relatives, condos, etc.25
As a second example, consider gasoline. Since we need gasoline to get to work, school, the grocery store, and meetups with friends, it is considered relatively inelastic. There are very few substitutes for gasoline. Because gasoline has inelastic demand, the price may fluctuate considerably, but the demand for gasoline remains relatively the same. Consider the higher gas prices of 2022, averaging over \$5.00/gallon across the United States and even higher globally. Even though the prices have risen, the demand for gasoline has not changed because people still must travel to work and other essential places.26
In summary, if a product is determined to be inelastic, the demanded quantity does not change with a change in price. Conversely, if the product is elastic, the demanded quantity will change with a change in price. You might be asking: What makes a product elastic or inelastic? There are several factors that will help determine how elastic a product or service will be.
Factors in Demand Elasticity
When determining the demand elasticity of products and services, there are several factors to keep in mind. These include substitutes, the effect of income, time, and cross-elasticity of demand (see Figure 12.6). Let’s explore each of these in depth.
Availability of Substitutes
Substitutes are products and services that are similar to the one being offered. If a buyer can easily choose a different product when the prices change, the demand will be more elastic. For example, if you are at the grocery store to buy English muffins but the store is out, you can easily choose to purchase bagels instead. Conversely, if there are relatively few or no alternatives, demand will be more inelastic. Consider the generic need for gasoline. It is fairly inelastic. The availability of substitutes for car travel is inconvenient. However, the demand for gasoline at specific gas stations is considered elastic because buyers can choose the gas station they prefer based on price. If two gas stations are located within a convenient geographic region to the buyer, they will choose the station that has lower prices.
Income
Buyers have limited money to spend on their needs and must make decisions on how the purchase of goods and services will impact their total income. The income effect is the way in which buyers see the change in price affecting their real income. Generally, an increase in price indicates that the buyer will have less money left over to spend; therefore, they will choose to buy less of a product, decreasing demand. The opposite is also true: the lower a price, the more money buyers have to buy more of the product, thus increasing demand. Consider the 8.6 percent inflation that the United States saw between May 2021 and May 2022. Because inflation is a general rise in prices, consumers noticed that their purchases of goods and services caused their real income to decline. In other words, consumers had less money to spend on products and ultimately chose to purchase less of those products.
Time
When the price of a good or service is changed, it takes time for buyers to adjust to the change in price. The time factor of price elasticity indicates that the product’s elasticity of demand is dependent upon the time it takes buyers to adjust to the new prices. For example, if there is a sharp decrease in the price of automobiles, buyers would not immediately go out and buy a new vehicle. Rather, it would take some time to save money for a down payment, secure a loan, and generally go through the buying process. Therefore, the demand for automobiles would increase, but over time rather than immediately.
Cross-Elasticity of Demand
What happens when one of two similar products has a price increase or decrease? If the price of coffee increases, it would be expected that the demand of tea (a substitute product) would also increase. Buyers see the price increase and look for lower-priced substitutes to replace the higher-priced item. The cross-elasticity of demand measures the amount demanded of one good when the price for a similar good or service changes.27
Estimate Costs
The next step in determining a pricing policy is to estimate the total cost of producing a product or service. Recall that maximizing profits is the goal of a pricing strategy and marketers must factor the cost of doing business into pricing considerations. When estimating total costs, it is important to divide costs into fixed and variable costs.
Fixed and Variable Costs
As mentioned earlier in this chapter, costs are categorized as either fixed or variable. Fixed costs are those expenses that do not change regardless of the number of units sold. Consider the example used earlier in the chapter of manufacturing a smartphone. If the company manufacturers 1,000 or 100,000 smartphones, the company must pay the same amount for its lease on the property the plant is located on. The lease payment does not change based on the number of units produced. Alternatively, variable costs do change based on the number of units produced. In this same example, the amount manufacturing spends is dependent on the number of smartphones produced.
Analyze the External Environment
The fourth step in determining prices is to analyze the external environment. The external environment is comprised of factors outside of the organization that impact marketing decisions. While marketers cannot directly change these factors, they should be aware of how they might impact pricing decisions.
One way to remember the factors of the external environment is through the acronym PESTLE: political, economic, social, technological, legal, and environmental.28 Questions to consider in a PESTLE analysis when analyzing the external environment as it relates to pricing are included in Table 12.2.
Factors Question Example
Political What is the current political situation as it relates to the market? A price cap on certain pharmaceuticals would limit the price a company could charge.
Economic What is the current economic climate? During inflation or deflation, prices may need to increase or decrease.
Social How is culture changing or shaping the industry? During the latter months of the year, the Indian market purchases more vehicles than at other times of the year.
Technological What technologies are trending? If technology for a product is becoming obsolete, a decrease in price may be necessary.
Legal What current legislation is impacting the industry? A new vehicle emission law may require new technology, thus increasing the price of vehicles.
Environmental What are the environmental concerns of the product? A highly toxic product or process may need to have a higher price to properly and safely dispose of byproducts.
Table 12.2 PESTLE Factors
Link to Learning: PESTLE Analysis
There are hundreds of online resources that discuss PESTLE. Here are a few to start with:
Competitors’ Costs, Prices, and Products
It probably seems obvious by now that analyzing the competition is key in setting prices. Marketers must constantly analyze both current and potential competition in the market to understand how their products will measure up to that of the competition. If a competitor is planning to introduce a nearly identical product to one that your organization already has on the market—but at a much lower price—you will need to consider how that will affect your sales as well as analyze how it is offering such a lower price. Should you lower your price? Consider changing suppliers for lowered costs? Take a cut in profits to stay competitive? All of these questions, and more, will help you as a marketer determine what pricing strategy should be used.
Stage in the Product Life Cycle
How long a product—and its substitutes—have been in the market will have an impact on the marketer’s choice of pricing strategies. Recall that the product life cycle consists of four stages: introduction, growth, maturity, and decline. During the introduction stage, marketers must choose pricing strategies wisely to capture the intended market and begin recuperating research and development costs. As a product moves through the other stages of the life cycle, prices may need to be changed in order to stay relevant to consumers.
Status of the Economy
As you can imagine, the state of the economy at any given time will have an impact on the buyer’s ability to purchase products as well as their willingness to spend. Economic factors that marketers should specifically be aware of when considering demand for products include employment, inflation, interest rates, and consumer confidence.29
One of the main factors that influences consumer demand is the employment rate. The unemployment rate is a measure of the number of people who are not employed but are actively seeking work in a given period—usually one month. When buyers are employed and receiving steady income, they are more likely to use discretionary income. Discretionary income is the money left over after all taxes and necessities—such as food and housing—are paid. When discretionary income decreases, demand for nonessential items also decreases.
Inflation is an economic measure of the rate of rising prices of goods and services in an economy. When inflation incurs, prices for most goods and services rise. Therefore, the amount of discretionary income a buyer has decreases, and demand for nonessential goods and services also decreases. Consider the high inflation in the United States economy from 2021 to 2022, which was 8.6 percent as of May 2022.30 The rate of inflation is currently the highest that it has been since 1981. Because of the higher price of goods and services within the economy, consumers are spending more of their earned income on necessities such as food and shelter. This, in turn, causes them to purchase fewer nonessential items such as vacations, toys, and the like. Inflation also impacts pensions and other retirement accounts, so as inflation rises considerably, people are even less likely to spend their discretionary income and more likely to save anything left over after essentials for future use.31
Even consumers who do not have a deep understanding of the economy have some degree of optimism regarding the overall state of the economy. This is known as consumer confidence—it measures how optimistic consumers are about the economy and their own finances.32 When consumers have little optimism in the economy, they are more likely to save their discretionary income rather than spend it.
The overall status of the economy—both current and future—is important for marketers to be aware of as it has a direct impact on the ability and willingness of buyers to spend money. Choosing pricing strategies that are aligned with the health of economy will have a greater chance of success.
Select Pricing Strategies or Tactics
After gathering all the data explained in previous steps, marketers are ready to set specific pricing strategies or tactics. The strategies and tactics chosen for a product or service should align with the other marketing mix elements, create value for the customer, and maximize profits for the company. In the next section, we will discuss specific strategies and tactics and how to optimize each.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Sam is explaining to her friend Beth that prices for video conferencing software is increasing because more people are working from home. This relationship can be described by ________.
1. prestige pricing
2. customer-driven pricing
3. the demand curve
4. the income effect
2.
Each month you pay your rent. It is \$800 and does not change based on the number of hours you work. This is known as a ________.
1. variable cost
2. fixed cost
3. changing cost
4. profit
3.
Decreases in prices are most often associated with which stage of the product life cycle?
1. Introduction
2. Growth
3. Maturity
4. Decline
4.
Adding fixed costs to variable costs yields which of the following?
1. Total costs
2. Profit
3. Value
4. Inflation
5.
When the price of a product increases and the demand for its substitute product increases, this is explained by ________.
1. elasticity
2. inelasticity
3. a change in income
4. cross-elasticity of demand | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.03%3A__The_Five-Step_Procedure_for_Establishing_Pricing_Policy.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the pricing strategies for new products.
• Explain each pricing strategy for new products.
Price Skimming
When a new product is introduced to the market, marketers often use one of three pricing strategies. Remember that when a company introduces a new product to the market, a good deal of financial resources have already been used even before the first unit is sold. Therefore, it is important for marketers to choose an appropriate price that both appeals to buyers and helps to recuperate the costs of research and development so that the company can begin to maximize profits more quickly.
Price skimming is a new-product strategy in which marketers choose to initially set a high price for a product or service and lower it over time. The goal of price skimming is to attract the segment of the market that is willing to pay the highest possible price for the product. Once achieved, the price is lowered to attract another segment of the market and so on. The term skimming comes from the skimming the cream, layer by layer, from raw milk—or in this case, each segment of customers.
Innovative technology often uses price skimming. For example, when Sony launched the PlayStation 3, it was set at a fairly high price of $599. With little competition and a well-established brand, it was successful. Each year thereafter, it lowered the price—and gained new customers—until it eventually reached a price of$299.33
Market Penetration Pricing
The opposite of price skimming is penetration pricing. The penetration pricing strategy is one in which the new product or service is set at the lowest price possible. This strategy’s objective is to penetrate the market, or gain as many customers in all segments as possible from the beginning of the product life cycle.
In the late 1990s, Netflix introduced its movie rental service. For a monthly subscription fee, users could rent four movies at a time with no return date. The low initial price targeted the most segments of the market and allowed customers to try the new service with little effort or financial impact.
Break-Even Pricing
Break-even pricing is a pricing strategy in which marketers choose a price that will cover all of the costs of manufacturing. The break-even point is when the number of units produced equals the revenue for the product. The break-even point will produce zero profit but will cover all associated costs.
The break-even formula is calculated by dividing the total fixed costs by the production unit price minus variable unit costs. The break-even point in units will tell a marketer exactly how many units must be sold in order to start making a profit.
$Break Even=Fixed Costs(Unit Price-Variable Unit Costs)Break Even=Fixed Costs(Unit Price-Variable Unit Costs)$
1. 57
2. 2
3. Less than 1
4. 25
4.
Which of the following is true of price skimming?
1. It captures the most market share in the introduction stage of a product.
2. It is setting an initially high price of a product.
3. It is setting an initially low price of a product.
4. It determines break-even units.
5.
David hopes to capture as much of the market as possible with the company’s new product. Which pricing strategy should David use?
1. Price skimming
2. Cost-based pricing
3. Psychological pricing
4. Penetration pricing | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.04%3A__Pricing_Strategies_for_New_Products.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the pricing strategies and tactics for existing products.
• Provide examples of each pricing strategy and tactic.
Product Line Pricing
More often than not, marketers must make pricing decisions on existing products rather than new products. As products go through the product life cycle, price changes will likely need to occur to maintain value for customers and continue to maximize profits. Some common strategies and tactics for existing products are discussed next.
Many large companies offer multiple products and product lines in their product mix. One strategy for pricing products is to price products in a product line the same or similar. For example, Unilever is the manufacturer of many brands that you’ve likely heard of: Dove, Axe, and Hellman’s to name a few. Within its host of products, Unilever has divided its products into price categories; higher priced items have a higher perception of value and so on. (Recall that a product line is a group of related products differentiated by features and price.) Unilever sets a higher price for some of its product lines and lower price points for others in order to capture various target markets, known as product line pricing (see Figure 12.7).
Captive Product Pricing
Assume you need to purchase a new printer for your home computer. Once you buy the printer, you’re also going to need to purchase what? That’s right, ink. Captive product pricing uses a strategy that requires both a core product and a captive product. In the above example, the core product is the printer and the captive product is the ink. When you are shopping for the printer, you are likely to take into consideration the price you will have to pay for ink as well. Marketers may price the printer at a very reasonable price, knowing it will catch your attention and thus make the price of the ink seem less expensive. Captive product pricing maximizes profits by intentionally pricing both the core and captive products at a level that will increase the perceived value to consumers.
Bundle Pricing
Bundle pricing is another popular pricing strategy that marketers use to promote purchasing multiple products at once. Consider when you go to the drive-through at your favorite fast-food establishment. Ever notice that it is cheaper or nearly so to purchase a “meal” than each item individually? Have you ever gone to the drive-through intending to get a cheeseburger but feel compelled to get the value meal instead because it only costs a little more? This strategy is used to prod customers to purchase (and spend) more than they may have otherwise.
Psychological Pricing (Odd/Even Pricing)
One popular form of psychological pricing is odd-even pricing. Similar to price appearance discussed earlier in this chapter, odd-even pricing banks on human motivation to lure in customers. The “odd” in this pricing tactic refers to the odd number at the end of a price, such as \$19.95. Psychologically, the odd number in the price equates to value; the product is not \$20.00, it is still in the “teens” at \$19.95. Conversely, the “even” in the tactic utilizes even numbers at the end of the price, often zero, as in \$50.00. This pricing tactic leads buyers to believe that the product is of higher quality because it is a nice, even number. Luxury items are often priced using the “even” side of odd-even pricing.
Ever wonder how odd-even pricing got its start? Decades ago, retailers began using this pricing strategy not to lure customers but rather to force cashiers to open their cash register drawers to make change—and thus record the sale. Over time, consumer psychologists studied the impact of odd-even pricing on consumption and found it to work!
Economy Pricing
When you are grocery shopping, are you surprised to see that name-brand products are priced much higher than store brands even though the product is essentially the same? Does the name brand really cost that much more to produce? Well, yes and no. Brand-name items spend considerably more on advertising than store brands. In order to recoup those costs (and based on the fact that name brands have a higher value perception to buyers), companies set prices higher for name brands. Economy pricing, on the other hand, is a tactic in which store brand prices are set much lower than their name-brand competitors. The focus on these products is selling in high volume by lowering prices and minimizing advertising costs.
Another example of economy pricing is used in the airline industry. Allegiant Air strives to offer no-frills air travel that is priced considerably lower than its competitors. But you have to get your seats fast at the lowest prices because the price increases as seats fill up. Oh, and if you want to travel with any luggage, you’ll need to pay extra; Allegiant charges for any luggage other than one personal item.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
You are considering purchasing cable for your new apartment. You would really like to add HBO to your cable plan, so you can watch some of the shows all of your friends are talking about. You can purchase basic cable for \$49.99 per month and add HBO for an additional \$12.99 month as a standalone addition. Alternatively, you can choose a package that includes HBO for \$59.99. Obviously, you will choose the less expensive package. The cable company is using which of the following pricing tactics?
1. Product line pricing
2. Odd-even pricing
3. Bundle pricing
4. Economy pricing
2.
Finley was tasked with setting the price of a new coffee maker that would utilize coffee pods instead of traditional coffee filters. Because customers would have to buy the pods in order to utilize the product, Finley should consider which pricing tactic?
1. Captive pricing
2. Odd-even pricing
3. Bundle pricing
4. Economy pricing
3.
Thames is shopping for a new pair of jeans. He notices that one brand is priced at \$49.99 and another is priced at \$50.00. He immediately chooses the pair priced at \$50.00 because he believes they are of better quality. Which pricing tactic was used to help Thames make his decision?
1. Odd-even pricing
2. Captive pricing
3. Bundle pricing
4. Economy pricing
4.
Which of the following is NOT considered a pricing tactic for existing products?
1. Odd-even pricing
2. Price skimming
3. Bundle pricing
4. Captive pricing
5.
Daphne often buys store or generic brand items at the grocery store because they are so much cheaper than name-brand items. Which pricing tactic is generally used for store or generic brands?
1. Bundle pricing
2. Cost-based pricing
3. Psychological pricing
4. Economy pricing | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.05%3A__Pricing_Strategies_and_Tactics_for_Existing_Products.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify ethical issues related to the pricing of products and services.
• Describe the different types of unethical practices.
Price Fixing
Recall that ethics is defined as behaviors based on values and beliefs of right and wrong. In marketing, unethical behavior can have catastrophic consequences. If a customer’s trust is broken with a product, their likelihood of continuing to do business with that company dramatically decreases. Companies practicing unethical behavior run the risk of not only losing customers and profits, but also facing legal consequences. Let’s explore some unethical (illegal) practices as they relate to pricing.
Price fixing occurs when two or more competitors agree to set prices at a specific level. The practice of price fixing force customers to pay higher prices than normal with no substitute alternatives. Consumers who purchased or leased certain automobiles were part of a class-action lawsuit involving several automobile manufactures. The brands, including Audi, BMW, Buick, Chevrolet, and many others agreed to pay into the settlement after being accused of conspiring together to artificially inflate the prices of various auto parts.34
Deceptive/Illegal Price Advertising
Deceptive price advertising is an unethical pricing practice in which the advertised price of a product is misleading to consumers. For example, let’s assume a company advertised a product with a “suggested retail price” of \$9.99 but is offering the same product for the “low price of only \$4.99.” If the same product is actually priced in a market in the same country for \$9.99, it is not considered deceptive. However, if the product is not priced at \$9.99 in any other market, it is considered deceptive.
Say you sell hats for a price of \$29.99, but sales are sluggish. You decided to offer your hats “buy one get one free,” but just before the sale starts, you raise the price of one hat to \$59.99. Is this deceptive price advertising? Yes. This is not a bargain for consumers and is considered deceptive according to the Federal Trade Commission (FTC).
Predatory Pricing
Another unethical (and usually illegal) pricing strategy is that of predatory pricing. Predatory pricing occurs when a company prices goods or services so low that other companies cannot compete. Predatory pricing often entails a company selling products below its cost with the intent of driving out competition and creating a monopoly situation. Once competition is eliminated, the company will often increase the prices exponentially—not only to recuperate losses from the lower prices, but also to make more profit. Under various antitrust laws, this practice is illegal when it seeks to drive out competition and makes a market susceptible to monopolies.35 In 2000, Walmart was accused by the Wisconsin Department of Agriculture, Trade, and Consumer Protection of predatory pricing practices. The complaint stated that the company was selling staple goods such as butter and milk below cost with a goal to drive out competition and create a monopoly.36 In short, predatory pricing undermines the free market where supply and demand sets prices.
Price Discrimination
Price discrimination is a pricing strategy that charges different prices to customers based on what the seller believes it can get the customer to agree to. This pricing strategy is not illegal so long as it does not cause specific economic harm. But marketers should be wary of using this price tactic, as it could lead to disloyal customers if they feel they are not getting the best price.
Monopoly Gouging
Monopoly gouging is when a seller increases the prices of goods and services that are not considered fair or competitive. If there are no or very few substitutes, a company may be enticed to force buyers to pay a much higher price, leaving them no options. When there are very few competitors in a market, such as utilities, the industry is highly regulated by the government. For example, your electric company cannot choose to randomly increase prices to increase profits; it must follow a regulated process when increasing prices.
During the winter of 2020–2021, Texas experienced much colder and snowier conditions than usual. Millions were left without power, and dozens lost their lives. As hotels began to fill up, prices skyrocketed. A Super 8 motel was shown on Hotels.com at nearly \$400/night, exponentially higher than in ordinary times. Identifying price gouging is a bit more complicated than it seems. While basic economics would expect higher demand to equal higher prices, the practice of price gouging is not only unethical but also illegal in many states when a disaster is announced.37
Companies with a Conscience: Warby Parker
Warby Parker sought to find a solution to the problem of expensive eyeglasses—a medical necessity for many people. The company stated that “the eyewear industry [was] dominated by a single company that has been able to keep prices artificially high while reaping huge profits from consumer who have no other options.”38 Warby Parker set out to change the way in which glasses were offered to consumers. The company’s direct-to-consumer approach and a uniform pricing strategy have made waves in the eyewear industry.
All of Warby Parker’s eyeglasses are not only priced lower than its competitors, but all of its eyeglasses are priced the same: \$95. The average cost of eyewear was \$263, making it difficult for some consumers to afford the needed glasses and making it difficult for people to distinguish the value between a \$200 pair of glasses and a \$400 pair of glasses.39
The company bypassed traditional supply chains and began making glasses in-house. It also talked directly to customers to understand the needs of the market and, in turn, is able to offer prescription eyeglasses at a fraction of the cost. In addition, it saw a global problem: too many people need glasses but cannot afford them. That’s why the company donates one pair of glasses for every pair sold. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.06%3A__Ethical_Considerations_in_Pricing.txt |
In this chapter, we explored the process of setting pricing for products and services and the importance of pricing to the profitability of a business. We defined fixed and variable costs and how they factor into the break-even equation in initial pricing decisions. Commonly used pricing objectives were defined as cost based, sales oriented, market share, and target return. These objectives are used to set a clear pricing strategy for both products and services.
The new-product pricing strategies of price skimming and penetration pricing were defined, explaining common practices used based on the product type and placement in the market. The psychology of pricing based on consumer buying habits was identified and defined. Techniques include odd-even pricing, prestige pricing, and artificial time constraints.
The final concept we covered was ethics in pricing and how the consumer can identify unethical and/or illegal pricing practices. Price fixing, deceptive/illegal pricing in advertising, price discrimination, and monopoly/price gouging were discussed as practices that are used in an effort to increase profits.
12.08: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
artificial time constraints pricing strategy that creates a sense of urgency in buyers’ minds
break-even pricing pricing strategy in which marketers choose a price that will cover all the costs of manufacturing
bundle pricing pricing strategy that promotes purchasing multiple items at once; used to prod customers to purchase (and spend) more than they may have otherwise
competition-based objective product pricing based on the prices of a company’s competitors
consumer confidence an economic indicator that measures the degree of optimism that consumers have regarding the overall state of the country’s economy and their own financial situations
cost-based objective product pricing based on the costs of doing business
cross-elasticity of demand the change in price of one good or service as a similar good or service’s price changes
customer value–based objective product pricing based on a company’s understanding of the value-added benefits of a product
customer-driven objective product pricing based on what a customer is willing to pay for a product or service
deceptive price advertising an unethical pricing practice in which the advertised price of a product is misleading to consumers
demand a buyer’s ability and willingness to purchase a specific product or service
demand curve a graph that illustrates the relationship between demand and price
demand elasticity measure of the change in the quantity demanded in relation to the change in its price
discretionary income a household’s money that is left over after all taxes and necessities are paid
economy pricing setting a price much lower than competitors to sell high volumes of a product
fixed costs costs of doing business that do not change based on number of units produced
income effect the perception buyers have of how price changes will affect their income
inflation an economic measure of the rate of rising prices of goods and services in an economy
market share–oriented objective setting prices at, below, or above competitors in an effort to increase market share
monopoly gouging when a seller increases the prices of goods and services that are not considered fair or competitive
odd-even pricing psychological pricing strategy that uses prices that end with odd or even numbers to attract customers
penetration pricing new product or service strategy that sets the lowest price possible in order to reach the majority of the market in the introduction stage
predatory pricing when a company prices goods or services so low that other companies cannot compete
prestige pricing a strategy marketers use to set high prices knowing that demand will increase with higher prices because the higher price increases the perceived value of the product
price the exchange of something of value between a buyer and seller
price anchoring a frame of reference for a buyer to set an expectation of a price
price appearance the way in which a customer perceives a price based on how it is visually represented
price discrimination selling goods and services at different prices to different customers
price fixing two or more companies agreeing to set certain prices in the market
price gouging when companies take advantage of a situation, typically an emergency or natural disaster, and charge exceptionally high prices for products or services
price skimming pricing strategy in which a company initially sets a high price for a product or service and lowers it over time as new segments of the market are reached
product line pricing setting a higher price for some product lines and lower price points for others in order to capture various target markets
profit the financial gain of a company
sales-oriented objective setting prices based on the goal of increasing the volume of sales
substitutes products and services that are similar to the one being offered
target return objective setting prices so they return a specific profit during a given period of time
total costs total expenses of doing business
total revenue the money generated from normal business operations
unemployment rate measure of the number of people not employed in an economy during a given period of time
variable costs costs that vary based on the number of units produced | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.07%3A_Chapter_Summary.txt |
1 .
Choose a mass retailer such as Walmart or Target and look at its weekly advertisement. You can do this online, in the store, or with a physical flyer. Identify and analyze the pricing strategies used. Apply what you have learned to how you personally respond to those strategies.
2 .
Consider what products the penetration-price strategy and the price-skimming strategy work for. What are the advantages and disadvantages of these strategies?
3 .
Analyze the role pricing plays in strategic marketing.
4 .
Discuss with your family and friends what you have learned about pricing. Ask them how they respond to odd-even pricing, prestige pricing, and artificial time constraints. Note generational differences and possibly how family traditions can skew the answers.
12.10: Critical Thinking Exercises
1 .
Compose a 150–200-word paragraph using all the following terms as they relate to pricing. The goal is to prove you understand the meaning of each term.
Terms to include:
• Unemployment
• Inflation
• Discretionary income
• Consumer confidence
2 .
Describe a break-even point and provide a mathematical example.
3 .
Pick one product that you would find at a grocery store, a mass merchandiser, and a convenience store. Now go to each of these stores and check the price of the product you selected. Note if the product is on sale or listed at its regular price.
Are the prices consistent? Is one store higher or lower across the board? What would compel a consumer to pay higher prices for products when they can purchase them at a lower price?
12.11: Building Your Personal Brand
One of the most important tasks you have in establishing your personal brand is how you are going to communicate your skill level and experience to others. Let’s start by developing a 30-second elevator pitch about yourself. An elevator pitch is what you would say about yourself if you were in an elevator with someone and only had the time between floors to share your message. What is the most important thing you would want to share about yourself and your personal brand if you were in an elevator with a hiring manager at company you want to work for? Things to consider covering include a quick introduction, your unique value or skill that would want to make them hire you, and something engaging about yourself to help them remember you.
12.12: What Do Marketers Do
Using LinkedIn, find a pricing analyst. Reach out to them, introduce yourself, and let them know that you’re a student wanting to know more about their job role. Then schedule an interview. Questions you may want to ask include:
• What is your background and education, and what brought you to this job?
• What do you feel are the pros and cons of this job role?
• Share with me what a typical day, week, and year look like in this job role.
• How has COVID-19 impacted your work?
• What advice do you have for someone interested in pursuing this job?
12.13: Marketing Plan Exercise
Complete the following information about the company and products/services you chose to focus on as you develop the marketing plan throughout the course. You may need to conduct research in order to obtain necessary information.
Instructions: Using the Marketing Plan Template file you created from the Marketing and Customer Value assignment and expanded upon in Strategic Planning in Marketing, Market Segmentation, Targeting, and Positioning, Marketing Research and Market Intelligence, and Products: Consumer Offerings, complete the following section of your marketing plan:
• Marketing Strategy: Pricing
Submit the marketing plan to your instructor for grading and feedback. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.09%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Naked Wines
Buying a good bottle of wine can be hit or miss. A consumer can pay a lot and not enjoy the wine or pay a little and really love the wine. As with any product, there are fixed costs and variable costs included in the price of a bottle of wine. Some of those expenses include the costs of production, the raw materials including grapes, barrels, bottles, utilities, and labor. Other costs include administrative overhead, sales, and marketing costs.40
Of course, distribution must be factored into the price of a bottle of wine. With an indirect distribution channel, wine often passes from the winemaker to a distributor, a wholesaler, and then a retailer. Macroenvironmental factors such as nature can affect pricing by affecting the grape supply, which will also add to the overall cost.
In addition to the obvious cost factors, there are psychological factors such as branding, exclusivity, and rating points. Wine rating points are awarded to wines based on input from industry experts and wine critics. Bottles with higher ratings points can generally command a higher price. In addition, a bottle with greater notoriety and awards will also be able to sell for significantly more than more obscure wines or those just starting out.
Breaking into the wine-making business can be incredibly challenging. All business start-ups face steep hurdles in the beginning stages. Wine making may well have more sunk costs than a typical start-up. With grapes taking years to grow and reach their peak and the labor for harvesting, juicing, and fermenting, entering the wine-making business can quickly burn through start-up cash. 41
Getting money from a bank to start a business means business plans, initial investment, proven experience, and endless paperwork that takes up valuable time that could be spent tending the grapes. And making a name for yourself in the wine industry can take years. How do you get consumers to choose and buy your wine from the thousands of labels available?
Enter Naked Wines. The company was founded as a way to help small, independent winemakers break into the wine business. Started in 2008, Naked Wines had a mission to give consumers great wines at significantly reduced prices and help winemakers get the funding needed to start their business. 42
Naked Wines thought it could break into the wine business by allowing consumers to join as investors. When a customer buys from Naked Wines, they become an investor. Each month investors purchase wine at a reduced cost from Naked Wines, which in turn invests in the winemakers it represents.
While the pricing is an advantage, being invested in the winemakers is a bigger advantage. Each month, investors get to choose which wines are delivered to them. The wines are carefully curated based on their wine preference profile along with the ratings they provide to the winemakers on previous purchases.
The Naked Wines business model allows the winemakers to have access to funding and market research, while the investors have access to great wines. As Naked Wines continues to grow from an initial start in the United Kingdom to operations in the United States, it continues to add winemakers and investors. Small winemakers who would otherwise not have had an opportunity to grow their business have found success and community through Naked Wines.
Case Questions
1 .
What are the psychological factors that affect the pricing of wine?
2 .
Name the five critical Cs of pricing evident in the Naked Wines pricing model.
3 .
What elements of the external environment are most evident in the pricing of a bottle of wine?
4 .
How might you best define the pricing strategy for Naked Wines? | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.14%3A_Closing_Company_Case.txt |
1. George Hatch, “What You Need to Know about Amazon Prime: 2005–Today,” Pattern Blog, Pattern, August 20, 2020, https://pattern.com/blog/amazon-prim...-2005-to-2020/.
2. Parkev Tatevosian, “Amazon Reaches 200 Million Prime Members: Here’s Why That’s a Big Deal,” The Motley Fool, April 27, 2021, https://www.fool.com/investing/2021/...ber-milestone/.
3. Hatch, “What You Need.”
4. Anisha Sekar and Tommy Tindall, “What Is Amazon Prime? The Benefits, the Cost and Whether It’s Worth It,” NerdWallet, June 28, 2022, https://www.nerdwallet.com/article/f...its-cost-worth.
5. Charles Fishman, “Which Price Is Right?,” Fast Company, February 28, 2003, www.fastcompany.com/46061/which-price-right.
6. Steve Jobs, “2010 Apple iPad Keynote,” Apple Soldier, January 28, 2010, YouTube video, 1:32:35, https://www.youtube.com/watch?v=lTNbKCAFHJo&t=4453s.
7. Keith S. Coulter, Pilsik Choi, and Kent B. Monroe, “Comma n’ Cents in Pricing: The Effects of Auditory Representation Encoding on Price Magnitude Perceptions,” Journal of Consumer Psychology 22, no. 3 (July 2012): 395–407, doi.org/10.1016/j.jcps.2011.11.005.
8. Eric Yu, “What Is Psychological Pricing? 4 Strategies, Examples, and Tactics,” Price Intelligently, ProfitWell, updated June 28, 2021, https://www.priceintelligently.com/b...s-your-head-at.
9. Yu, “What Is Psychological Pricing?”
10. “Price Gouging Is Illegal,” NYC Department of Consumer and Worker Protection, City of New York, accessed May 31, 2022, https://www1.nyc.gov/site/dca/media/...-COVID-19.page.
11. Christopher E. Ondeck et al., “State Price Gouging Laws and Price Controls: A Historical View on a Questionable Objective,” The National Law Review, September 18, 2020, https://www.natlawreview.com/article...able-objective.
12. “Combating Price Gouging & Hoarding,” Coronavirus Response, United States Department of Justice, updated March 23, 2022, https://www.justice.gov/coronavirus/...ouginghoarding.
13. Mark Puleo, “The History of Price Gouging amid US Disasters and How Different States Fight against It,” AccuWeather, last modified July 1, 2019, https://www.accuweather.com/en/weath...inst-it/344793.
14. Puleo, “History of Price Gouging.”
15. “This Is IKEA,” IKEA, accessed June 1, 2022, https://www.ikea.com/us/en/this-is-ikea/.
16. “eBikes,” Gazelle Bikes, Royal Dutch Gazelle, accessed June 11, 2022, https://www.gazellebikes.com/en-us/ebikes.
17. “Full Suspension Mountain Bikes,” Liv Cycling, accessed June 11, 2022, https://www.liv-cycling.com/us/bikes...ull-suspension.
18. Panama City Beach Spring Break (website), CMG, accessed June 11, 2022, https://www.pcbeachspringbreak.com.
19. “The 5 Critical Cs of Pricing,” Scale Finance, accessed May 30, 2022, https://scalefinance.com/the-5-criti...cs-of-pricing/.
20. Jim Semick, “SaaS Pricing: How to Price Software Products,” Pragmatic Institute, May 20, 2015, https://www.pragmaticinstitute.com/r...saas-products/.
21. Hitesh Bhasin, “Cost-Based Pricing: Definition, Types, Examples, Advantages and Disadvantages,” Marketing91, August 30, 2021, https://www.marketing91.com/cost-based-pricing/.
22. Patrick Campbell, “What Is Market-Based Pricing: Advantages & Disadvantage (+Examples),” Recur, ProfitWell, February 19, 2020, https://www.profitwell.com/recur/all...-based-pricing.
23. “Competitive Pricing: Definition, Advantages & Disadvantages,” Prisync Blog, Prisync, October 18, 2018, https://prisync.com/blog/competitive...disadvantages/.
24. Jay Fuchs, “A Crash Course on Prestige Pricing (with Real-Life Examples),” The HubSpot Sales Blog, HubSpot, last modified October 15, 2021, https://blog.hubspot.com/sales/prestige-pricing.
25. Mary Hall, “Elasticity vs. Inelasticity of Demand: What’s the Difference?,” Investopedia, Dotdash Meredith, updated June 30, 2022, https://www.investopedia.com/ask/ans...ity-demand.asp.
26. Eliana Eitches and Vera Crain, “Using Gasoline Data to Explain Inelasticity,” Beyond the Numbers 5, no. 5 (March 2016), https://www.bls.gov/opub/btn/volume-...elasticity.htm.
27. Adam Hayes, “Cross Price Elasticity: Definition, Formula for Calculation, and Example,” Investopedia, Dotdash Meredith, updated July 31, 2022, https://www.investopedia.com/terms/c...ity-demand.asp.
28. Francis Joseph Aguilar, Scanning the Business Environment (New York: Macmillan, 1967).
29. J. B. Maverick, “Which Economic Factors Most Affect the Demand for Consumer Goods?,” Investopedia, Dotdash Meredith, updated March 17, 2022, https://www.investopedia.com/ask/ans...umer-goods.asp.
30. “Historical Inflation Rates: 1914–2022,” US Inflation Calculator, CoinNews Media Group, last modified May 11, 2022, https://www.usinflationcalculator.co...flation-rates/.
31. Kimberly Amadeo, “How Inflation Impacts Your Life,” The Balance, Dotdash Meredith, updated December 31, 2021, https://www.thebalance.com/inflation...conomy-3306102.
32. “US Consumer Confidence,” The Conference Board, updated August 30, 2022, www.conference-board.org/dat...confidence.cfm.
33. Bharath Sivakumar, “Price Skimming: Definition, Strategy, & Examples,” Feedough, July 17, 2021, https://www.feedough.com/price-skimm...tion-examples/.
34. “Auto Parts Price-Fixing 4th Round Class Action Settlement,” Top Class Actions, October 16, 2019, https://topclassactions.com/lawsuit-...on-settlement/.
35. Will Kenton, “Predatory Pricing,” Investopedia, Dotdash Meredith, updated January 30, 2022, https://www.investopedia.com/terms/p...ry-pricing.asp.
36. Stacy Mitchell, “Wal-Mart Charged with Predatory Pricing,” Institute for Local Self-Reliance, November 1, 2000, https://ilsr.org/walmart-charged-predatory-pricing/.
37. Natalie B. Compton, “Texas Hotel Prices Skyrocketed after Power Outages. Here’s What to Know about Price Gouging,” Washington Post, February 17, 2021, https://www.washingtonpost.com/trave...price-gouging/.
38. “History,” Warby Parker, accessed May 30, 2022, https://www.warbyparker.com/history.
39. Knowledge@Wharton, “The Consumer Psychology behind Warby Parker’s \$95 Pricing for Eyeglasses,” Time, May 23, 2013, https://business.time.com/2013/05/23...or-eyeglasses/.
40. “10 Tips for Getting into the Wine Business,” Napa Valley Wine Academy, https://napavalleywineacademy.com/10...wine-business/
41. Kerana Todorov, “Farming for Labor Day: Winemakers Discuss the Challenging 2022 Harvest,” Wine Business, September 23, 2022, https://www.winebusiness.com/news/article/262997
42. us.nakedwines.com/content/about/about-us | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/12%3A_Pricing_Products_and_Services/12.15%3A_References.txt |
Peloton started in 2012 with a group of ambitious people and the mission to “use technology and design to connect the world through fitness, empowering people to be the best version of themselves anywhere, anytime.”1 In 2019, Peloton, still a relatively new company, released a holiday television ad that put it front and center in a very controversial spot. The ad opens with a mother and daughter walking down a set of stairs to open Christmas presents. You can see the snow outside through the windows of the house. At the bottom of the stairs is her husband waiting with a Christmas gift.
“A PELOTON?!?” she shrieks—but it isn’t immediately clear if she is happy with the gift. The commercial progresses with the mother documenting her fitness journey. She rides after work. She rides early in the morning. She rides through the seasons as you watch them change through the windows of the house.
The audience watches as she records her fitness journey on her Peloton. Toward the end of the ad, a Peloton instructor gives the young mother a name in a workout class by saying “Let’s go, Grace from Boston!” As the commercial comes to an end, Grace shares her journey with her husband. It turns out she was talking to him the whole time.
“A year ago, I didn’t realize how much this would change me,” she says, now a true believer. After her year-long journey and her new “fit” state, Grace thanks her husband for the gift and how it transformed her.
Consumers immediately took to social media to accuse Peloton of promoting a negative body image, economic privilege, and archaic marital relationships. The controversial ad sparked a significant spike in social media engagement. The brand and the ad were widely publicized in the media. The ad and the controversy definitely produced significant brand awareness and an intense interest in the benefits of using a Peloton.
Once the controversy died down, Peloton was a well-known brand name. And with the lockdowns that came with the COVID-19 pandemic, consumers around the world were seeking options for in-home exercise. Peloton was poised to become the market leader with a reputation as a premier means of in-home workouts.
Much of Peloton’s success is a result of its robust integrated marketing strategy. Consumers learn about Peloton through a variety of methods: YouTube ads, television commercials, mall kiosks, social media posts, and web content. Though the organization does its best to develop its promotional messages, its best marketing strategy is the excellent word of mouth and rave reviews from all its loyal and satisfied customers. Using multiple avenues for reaching customers is known as an integrated marketing communication strategy, the core concept that you’ll learn more about in this chapter.
Throughout 2020 and into 2021, during the height of the pandemic, Peloton experienced a 172 percent increase in sales.2 But quick growth can create other problems. As Peloton’s popularity exploded during the COVID-19 pandemic, management issues began to surface. In February of 2022, Peloton saw a 73 percent drop in its stock price, which led to the ousting of founding partner and CEO John Foley. Marketing communications can bring much-needed brand awareness, but it’s been said that great marketing can quickly kill a bad company. What is next for the twice-named “CNBC Disrupter 50 Company”?3 | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define the promotion mix and explain its importance.
• List and describe the elements of the promotion mix.
What Is the Promotion Mix?
We are all consumers, and we have all been the target of promotional campaigns. To connect with consumers of a target market, companies conduct extensive market research so that they may better understand the consumer. When companies understand the consumer, they can better structure a message to appeal to the consumer and also find the best channels for reaching the customer.
The created messages aim to get consumers’ attention. Sometimes they create awareness of a new event, a new product, a new idea, or a place to visit. Sometimes they are asking consumers to make a purchase. Marketing promotion is all around us.
According to the marketing firm Yankelovich Inc., the average digitally connected person is exposed to around 5,000 ads per day.4 Among the biggest promotional spenders in the United States is Disney.5 Disney produces ads for everything from its movies and toys to its vacation clubs and theme parks. While we should be flattered that these companies are thinking of us and trying to figure out how to reach us and what messages they should send, many consumers are busy trying to figure out how to shut out the messages.
When you sit down to watch television, you are typically exposed to ads that a company believes that you will respond to based on the research it has done about the audience watching the show you tuned in to watch. During your time scrolling through your news feed on Facebook, you are being served ads that correspond to your Internet search history and even products you may have mentioned while your phone was on and your news feed open. Digital advertising relies heavily on algorithms of your search history and site visits.
As recipients of these marketing messages, many consumers believe that marketing is only advertising or sales. However, advertising and sales are simply two options in a marketer’s arsenal of communication tools used to connect with the target market. Developing a marketing communications strategy is something marketers should only do after they have developed the rest of the marketing mix.
In fact, marketers have a wide variety of strategies to use from the overall promotional mix (see Figure 13.2). Most companies choose to use a combination of the promotional mix methods to create an integrated marketing communication message that reaches the customer in many different ways. When the messaging is integrated, the consumer receives the same message no matter which method of promotion is chosen. If the consumer is watching the news and hears a story about the company or product, public relations has impacted them. If they then scroll through their social media accounts at the end of the day and they see an ad for the same product, advertising has impacted them. When they sort through their email and have a message from the company, they have received a direct marketing communication.
No longer does promotion need to rely heavily on just one method of marketing communication. Marketers can be much more targeted and more cost-effective in the promotional methods they choose. Using a combination of methods to send the same message allows the marketer to be more strategic in their messaging and in their budgeting.
The best products are nothing until the consumer knows about them. Without good promotion, the best products are just secrets. We all have things we want to say, and on any given day we make phone calls, create Instagram posts, upload TikTok videos, send emails, shoot off text messages, and talk face-to-face with people. And just like us, marketers also have things to say. Usually, they want to tell consumers about their new brand extension of Reese’s, a trade-in allowance for a new Toyota Camry that just hit the car lot, or even a buy-one-get-one-free promotion for your Starbucks latte. How marketers decide to say and send the message is the promotion mix.
The promotion mix is the set of strategies marketers use to communicate with their customers. With combined strategies, the promotion mix creates a powerful method of connecting with the customer and conveying all the other marketing mix elements for a holistic marketing approach. The promotion mix allows marketers to reach customers in many different ways, ensuring that the message is seen, heard, and understood. After determining and defining the target market, creating a good product, selecting a pricing strategy and optimal price, and deciding on the distribution method, the marketer is ready to communicate with the customer.
Messages sent by multiple methods provide a better opportunity for consumers to see and hear the message and make the connection back to the company. When a message is only sent by one method, the potential for interference, noise, and avoidance is more likely to occur. Marketers use a multichannel approach to send an integrated message.
Promotion Mix Defined
The full set of strategies that combine to make up the promotion mix include advertising, sales promotion, personal selling, public relations, direct marketing, and Internet/digital marketing. Each of these methods is intended to produce different results when used. Combining the elements creates an overall integrated message designed to reach consumers at various points in their path to purchase. Marketers call this integrated messaging integrated marketing communications.
The Importance of the Promotion Mix
Of all the marketing mix variables, the promotion mix can be further divided into different message channels that allow for connection and communication with the customer. When the promotion connects with the customer, it is the moment when all the marketing activities come together. When the messaging and method of delivery reach the customer and create the desired result, the marketing has achieved its purpose.
The strategies in the promotion mix provide the marketer with an arsenal of methods to achieve their marketing objectives, such as increasing sales or introducing a new product. However, consumers are bombarded with marketing messages throughout the day, and these are combined with the business of everyday life events like news, music, work, chores, family, and friends. With this busy pace and activity, the consumer is very difficult to reach. For the busy consumer, one communication method alone is not likely to cut through the clutter and noise to reach them and make an impact. Marketers must combine the various communication elements to connect with the customer and meet the communication objective.
Elements of the Promotion Mix
When analyzed individually, each of the promotional mix elements is powerful. They each have a part to play in the overall success of a company. When combined and carefully executed, they create powerful brands with legions of loyal fans and followers—the consumers. What do each of these promotional mix elements do, and how do they contribute to the whole process of connecting with the consumer?
Advertising
Advertising is a multibillion-dollar industry. According to Statista, in 2020 alone, worldwide advertising spending reached \$586 billion.6 Advertising is paid, nonpersonal communication from an identified source that allows for creative messaging about all aspects of a product, service, idea, person, or place. Consumers are able to quickly point to advertising as a form of promotion. It is perhaps the element of the promotional mix that we are most familiar with and the one we have been most exposed to throughout every phase of our lives.
From our very first commercial showing how much fun it is to build with LEGO to imagery of a toddler walking the Disney streets with a costumed princess and Cinderella’s castle in the foreground, we know what advertising looks like. And while advertising can take many forms, it is important to note that advertising consists of carefully designed messaging from the company to the consumer. Advertising is meant to produce a response in the viewer. And advertising is all about what the company wants to tell us.
Advertising can be the pop-up window while we are doing a Google search. It can be the Chick-fil-A billboard we pass every day on our way to work. Advertising can be the trailer we watch before our movie starts. And advertising can be the fun Doritos spots we look forward to during the annual Super Bowl.
While advertising can be a costly means of communication with the customer, it is relatively inexpensive based on the number of people reached. When NBC priced the 2021 Super Bowl at \$6 million for a 30-second spot, with a record 96 million viewers, the price averaged out to around \$0.06 per person reached.7
Advertising is effective based on the frequency with which it is usually viewed. And because of the media, the advertising message can usually be repeated many times, depending on the budget. Due to its repeatability, production costs have a better return on investment (ROI) the more an ad is used, and the recall of the ad increases significantly.
Sales Promotion
Most consumers love a sales promotion. It creates a feeling of excitement and often includes a bit of a gaming experience into the purchase decision. Marketers value the benefits of sales promotions because the results are immediate and they have a wide variety of options when using this promotional mix element. A sales promotion is a method for a marketer to induce sales in the short term. Sales promotion is not a long-term strategy but is geared toward specific calls to action, typically aimed at getting the consumer to buy something immediately or enter a sweepstakes or contest (see Figure 13.3).
Using sales promotions can be an effective method of getting the consumer to try a product or buy more of a product, or it can be a way to quickly deplete an inventory to make way for new products.
While sales promotions have many tactics that the marketer can employ, several commonly used examples of sales promotion include the following:
• Buy One Get One (BOGO). When Domino’s Pizza offers the customer a free pizza when they buy a medium one-topping pizza, this BOGO deal is used to get an immediate increase in sales for Domino’s pizza. Consumers may buy Domino’s over other pizza brands because they can get more pizza for their money.
• Enter to Win. PepsiCo needed to gain traction with the millennial audience. It needed to boost the Lay’s brand of potato chips and compete with new flavorful organic chips that were getting market share in the category once dominated by Lay’s. To generate new interest in its brand, Lay’s launched a campaign for consumers to create a new flavor. New flavors could be entered, Lay’s would create samples, and the winner of the new chip flavor would win \$1 million.
• Coupons. This method of promotion has come a long way with the use of technology. While consumers are still able to “clip” coupons and redeem them at the point of sale to receive savings on the products they are buying, many companies are making coupons available through mobile apps and discount codes to apply at the point of sale through an e-commerce store. Using coupons is a great method of inducing trial of a new product and increasing market share.
For National Ice Cream Day (see Figure 13.4), Cumberland Farms wanted to increase the sales of its house brand of ice cream, Ultimate Scoop.8 It offered consumers a digital coupon for \$1 off a pint of the ice cream. Cumberland Farms’ existing customers received their coupon via text message, and new customers could text in to get the coupon.
• Rebates. Companies offer rebates to induce purchase and generally to receive something in return besides the sale. When a rebate is offered for the purchase of an Energy Star–certified product, the consumer gets a designated dollar amount off the price of the product, and in turn they must submit the proof of purchase along with identifying information about themselves.
Personal Selling
Personal selling is one of the most expensive forms of promotion because it is a one-on-one, person-to-person form of communicating with the customer. The role of the salesperson is to inform and persuade the customer. This is usually done in what is termed an exchange situation. The salesperson is exchanging knowledge and something of value, while the customer is exchanging money for the item of value. Personal selling is ideal for products that can be customized, are complex, and have a relatively high price point.
Typically, personal selling is most often used in business-to-business (B2B) markets. Business buyers have longer buying cycles, more complex buying situations, and larger budgets. The pharmaceutical industry is well-known for using personal selling. Company representatives must have a high degree of training and knowledge about the products they are selling to physicians and hospitals. It is also very common to have a sales force to sell equipment and machinery to manufacturing plants. Businesses rely on the knowledge and service of the sales force selling them products.
In the business-to-consumer (B2C) market, personal selling is used for items that cost more or items that have a high degree of variation. We find sales representatives when we buy automobiles, home improvement products, and insurance. The job of the sales representative is to determine our needs and provide solutions that fill those needs.
When compared to advertising, which has a very general message directed to a very large audience, personal selling is an individualized message for one or several people within the buying group. When evaluating the costs of personal selling, it is typically hundreds to thousands of dollars per person reached.
The process of personal selling can be time-consuming. The process of selling and the tasks of the sales force can be complex. The sales professional is tasked with prospecting to identify the right customers and then qualifying them to make certain they are a good fit for the product.
It is not uncommon to hear people say, “You talk a good game. You could sell to anyone.” In reality, salespeople do not want to talk people into a product. A good sales force only wants to sell to customers who want and need the product. The best sales force knows that when the customer is a good fit, they will bring repeat business and good word of mouth.
While some salespeople have a natural inclination for selling, others are highly skilled with the technical knowledge of the products they are selling. Understanding customers, the buying situation, and the product being sold are a few of the skills needed to master the art of selling. Good sales professionals know that the real work of the sale is to service the needs of the client long after the sale has been made.
Public Relations
Public relations is a nonpaid, nonpersonal form of promotion. Because it is nonpaid, it has a high degree of credibility and is beneficial because a typically credible, non-biased third party is the messenger. While there are many tactics that marketers might use for public relations, some of the most commonly used include press releases, press conferences, events, and annual reports.
Many of the other promotional tools focus specifically on communication with the customer. By contrast, public relations includes efforts to work with the community where it operates, media, government officials, educators, and potential investors.
When Nordstrom opened its flagship store in Manhattan, it unlocked the doors a few days early for a VIP celebration that included Vogue’s editor, Anna Wintour, along with actresses, models, and designers. Some of the noted attendees included Zoe Saldana, Katie Holmes, Olivia Wilde, Karlie Kloss, Joan Smalls, Winnie Harlow, Tory Burch, Tommy Hilfiger, and Stacey Bendet of Alice + Olivia. Guests formed long lines around the store in an attempt to access the party.9
TOMS shoes has long been a leader in cause marketing (see Figure 13.5). When you buy from TOMS, one-third of the profits go to Grassroot Good.10 TOMS’ annual report highlights the people the company helps and how it helps them. Investors and any interested parties receive the annual report that details the work TOMS does right along with the profits it is making.
When celebrities wind up in the news, it is public relations, and it works to keep their name before the public and their fans. So the headline that hits the front page of the New York Times or is a leading story on the NBC nightly news both create publicity for the celebrity. Businesses also use publicity. A business might have a product as part of a movie, such as BMW vehicles showing up in 37 of the highest-grossing movies of 2018.11
Public relations can also include crisis communication when negative issues occur. One of the biggest public relations issues happened in 1982 to Tylenol. A malicious person or persons in the Chicago area tampered with a few bottles of Tylenol Extra Strength capsules by replacing the actual capsules with cyanide-laced capsules. Consumers who unwittingly bought the Tylenol ended up dead. Johnson & Johnson, the maker of Tylenol, was facing issues that could easily have destroyed its business. The issue was the leading story for every news outlet.
Johnson & Johnson faced the issue head-on and made the bold move to have Tylenol removed from all shelves. The recall resulted in the removal of 30 million products from store shelves.12 In the end Tylenol was a hero and won the trust of a nation.
Direct Marketing
Direct marketing allows for direct communication with the customer. Messages can be tailored to specific market segments and even personalized toward individual consumers. Early tactics of direct marketing included telephone and mail; however, technology has allowed for new methods of connecting with the customer to include text messaging and email marketing.
In 2019, the Data & Marketing Association (DMA) reported that the direct mail industry was valued at \$44.2 billion.13 It’s the second largest channel for ad spend in the United States, and it continues to grow. Transformed by technology, direct marketing is finding new methods to connect with the customer. Most connection includes a call to action that provides for immediate feedback on the effectiveness of the method.
Internet/Digital Marketing
Internet/digital marketing includes uses of technology to reach customers at many different points of interaction. Marketers have at their disposal a variety of methods to reach their customers and brand products. Some of the tools include websites, landing pages, social media pages, widgets, and customer relationship management (CRM) systems. All the digital properties work together to drive traffic to the branded properties and engage the consumers.
Digital marketing is geared toward very specific market segments and is primarily interactive. Think of digital marketing as the mechanism that produces the immediate interaction with the customer and produces some type of feedback. Digital is considered two-way communication between the company and the customer. During the early stages of launching the SPANX brand, Sara Blakely primarily used digital marketing with a heaving emphasis on social media.14 She involved her women friends who were in her target market demographic and had them post about the brand through their social media.
By contrast, Internet marketing is sending a message to a mass audience. The Internet is used to for digital marketing and includes websites and digital ads as well as the two-way communication of social media. Other forms of digital marketing include mobile technology such as SMS and mobile apps.
When a consumer completes a Google search for shoes and then jumps to Facebook to scroll their feed and are served shoe ads from Nordstrom, Macy’s, and Steve Madden, they have been targeted by these shoe companies. The targeting, immediacy, and changeability of the messaging makes digital a quick and efficient method of reaching consumers. Digital promotional tools are extremely effective and can cut through the clutter and reach the consumer when they are in the demand phase of the buying process and have signaled an intent to purchase.
According to a 2020 chief marketing officer (CMO) survey from Gartner, two-thirds of promotional budgets are being spent on digital.15 Because of the tremendous analytics available, marketers are able to assess the effectiveness immediately. Messages can be tested for effectiveness and quickly changed if they are not producing results. It is very difficult to get the same quick feedback with any of the other forms of promotion. Through careful tracking and robust customer relationship management (CRM) systems, marketers are quickly able to promote products, increase brand awareness, and move consumers down the sales funnel to instantly purchase through online e-commerce sites.
Utilizing mobile app technology, marketers are able to push promotions to customers while segmenting them by their behaviors and simultaneously filling their CRM with insights and analytics that can help drive promotions and sales.
Careers In Marketing: Integrated Marketing Career
An integrated marketing communications (IMC) professional builds and manages campaigns that integrate all the facets of marketing—advertising, public relations, digital campaigns, sales, etc. If you’re interested in this job role, check out this article to learn about the qualifications, experience, and salary. You can also refer to programs offered by educational organizations that specialize in integrated marketing. A few examples of those educational organizations include San Diego State University, Marist, Northwestern, and Eastern Michigan University, to name a few. Check out this list for the Best Marketing Communication Colleges according to Best Accredited Colleges.
Additional resources to explore include the following video:
• IMC Careers from Northwestern’s IMC director
• Introduction to IMC geared toward marketing management students
• Evolution of IMC from Marist College
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
The goal of an integrated marketing communications (IMC) program is to ________.
1. have all of a company’s marketing and promotional activities project a consistent image and message to its target market
2. control all facets of a product’s distribution
3. communicate with customers only through television commercials
4. have complete control over all facets of the marketing mix
2.
One of the promotional mix methods is advertising. Advertising may be defined as any ________.
1. communications about a good, service, or company
2. paid forms of nonpersonal communication about a good, service, or company
3. communication that moves the product from the wholesaler to the retailer
4. communication from a company sales representative to a company buyer
3.
If you have a new brand and you want to reach a large consumer audience, which promotional mix element would probably be used?
1. Sales promotion
2. Personal selling
3. Advertising
4. Public relations
4.
Dunkin’ includes coupons in its print magazine advertisements. This is an example of ________.
1. sales promotion
2. public relations
3. personal selling
4. Internet/digital promotion
5.
When a singer who is voted off The Voice television series appears on Today to discuss the experience, it is an example of ________.
1. advertising
2. public relations
3. sales promotion
4. direct marketing | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.01%3A__The_Promotion_Mix_and_Its_Elements.txt |
Learning Objectives
By the end of this section, you will be able to:
• Describe the communication process.
• Identify and discuss each element of the communication process.
Communication Process Defined
At first glance, the communication process seems simple. However, a deeper look shows the complexity and issues that are involved with communicating. When choosing how to send a message to the consumer, it is important to understand how the communication process works. All forms of marketing promotion are methods of communicating from the company to the consumer. No matter which method of promotion you use, the elements of the communication process are important to recognize and consider.
Understanding how communication flows helps the marketer to create better messaging, better media, and a response system that facilitates the communication objective. Sending and receiving a message are only two small parts of the complex system that marketers work with when trying to send promotional messages to consumers.
Within the complex system of communicating are the variables of the sender, encoding, messaging, media, the receiver, decoding, and the feedback loop—all while contending with constant noise. Out of all the elements of the communication process, only the sender, the encoding, the message, and the media are in the marketer’s control. All of the other elements are outside of what marketing can control. Marketers must understand all of the other aspects of the communication process to mitigate the unknown and meet the campaign objectives.
When we consider communication, we are simply transmitting information. On the granular level, the communication process is how the message gets created, sent, and received. The elements of the communication process are consistent no matter what the message is or how you choose to send it. However, the variation in messaging, medium, and receiver all affect the encoding process and the feedback loop (see Figure 13.6).
The Elements of the Communication Process
In order for communication to happen, it must go through a process. Both personal and professional communication are comprised of several elements that occur in order for the exchange of information to take place. For communication to happen, there must be a sender of the message and a receiver of the message. Between the sender and the receiver is the message itself as well as the channel by which the message is sent. All the variables in between include the elements that are uncontrollable and, if not managed well, can cause issues. These elements include the encoding and decoding of the message as well as the noise that gets in the way and the feedback that helps us gauge the success or failure of the message.
The Sender
The sender is the source of the message. This can be the company, the marketer, or the hired talent for a commercial. For example, when PepsiCo signed a multiyear contract with Beyoncé to be a brand ambassador, Pepsi made Beyoncé the sender of its messaging.16
Encoding
How the message gets developed is the creative process marketers go through to put meaning behind the information they want to share with their customer. The process of creating the message is known as encoding. The process of putting the thoughts and ideas into words or symbols is encoding. Encoding could be writing a press release, developing a tag line, writing ad copy, creating a jingle, or designing a brand symbol. How a marketer chooses to encode the message should be dependent on the characteristics of the audience.
The Message
From the encoding process, a message is developed. For marketers, the goal is to have the message reflect the value the product provides to the consumer. When Nike tells its customers to “Just Do It,” it has created a message. Dove’s “Real Beauty” campaign created a message that beauty comes in many different forms.
The Medium
Once the marketer has the message developed, they need to send it. The medium is how the message is delivered. The message could be sent through the television in the form of an advertisement or a news story. The message could travel to the customer through an email directly in the customer’s inbox. Or the message could be a salesperson describing why the new Ford Broncos are safe and dependable.
The Receiver
In marketing, the customer is generally the receiver. However, messaging can also be delivered to groups and organizations. When Comcast develops its annual report and sends it to its group of investors, the investors are the receivers of the message. If Chick-fil-A creates a billboard saying to “Eat More Chicken,” the travelers passing the billboard are the receivers.
Decoding
Decoding is the process of unpacking the message and giving it meaning. It is the receiver’s understanding of the message that has been sent. Many things affect the process of decoding, some of which include the receiver’s knowledge and experience. To create the most effective messages and delivery, the marketer needs to have extensive research about and understanding of the receiver. When the consumer hears the message “Red Bull gives you wiings,” the company (sender) wants to convey that the product will give the customer (receiver) the energy to do whatever they want to do. If the receiver believes that they can actually fly after drinking Red Bull, there was an error in the decoding process.
Feedback
The feedback loop tells the sender if the receiver understood the message as they were intending it when they encoded the message. Feedback is the checkpoint on a specific call to action. It can be a return email, a click to a website, or a purchase using a coupon. When the feedback loop is complete, the marketer has data regarding the communication process.
Personal selling has the richest method of feedback. If the salesperson is in front of the receiver and can hear their voice when they respond and can see their body language, they have a complete understanding of whether the encoding was effective when the decoding takes place. If the marketer sends a coupon to a consumer via a mobile app and the consumer redeems the coupon at the point of purchase, the redemption is the feedback loop for the sales promotion.
Noise
In the communication process, many elements are outside of the marketer’s control. The biggest factor that can be a point of conflict for the marketer is the noise that interferes with the receiver’s ability to get the message, decode it, and provide feedback. All the elements that get in the way of the receiver getting the message are noise. Noise can be the distractions that happen while the ad plays during an episode of Seal Team—things such as getting a snack, talking to a family member or friend, or surfing channels just as the ad is playing. Noise can be the other thousands of messages targeting the same receiver and vying for their attention.
The marketer’s job is to understand the various sources of noise and work to create encoding and mediums that will help to reduce the interference. It is typically believed that because of all the noise that exists, the receiver must be exposed to the message on average 7–10 times before they take action toward the message.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
When a message is created and the company chooses to have a celebrity as the spokesperson, what does the celebrity represent in the communication process?
1. Sender
2. Feedback loop
3. Medium
4. Noise
2.
Which of the following is considered noise in the communication process?
1. The sender sings a jingle.
2. A special news bulletin interrupts a paid ad.
3. The consumer calls the 800 telephone number displayed in the advertisement.
4. The consumer clips the coupon from a mailer.
3.
A popular form of communicating is through television advertisements. Which element of the communication process is the television advertisement?
1. Noise
2. Sender
3. Medium
4. Feedback loop
4.
Putting thoughts, ideas, or information together in symbolic form is called ________.
1. encoding
2. noise
3. decoding
4. sender
5.
The Tennessee Department of Tourist Development purchased and ad in Southern Living. The ad encouraged people to choose the state of Tennessee for summer vacations. Along with beautiful, scenic photos of Tennessee, the ad includes the tagline “Tennessee sounds good to me.” In this print ad, the source of the advertising message is ________.
1. the Tennessee Department of Tourist Development
2. Southern Living magazine
3. the people in the scenic pictures
4. readers of the magazine | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.02%3A__The_Communication_Process.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define integrated marketing communications (IMC).
• Discuss why IMC is important in marketing.
Integrated Marketing Communications (IMC) Defined
Now that you are familiar with the various forms of marketing promotions, how do you use them? Because consumers are all different—no matter how they fit into your target market—it is important to reach them through a combined approach, using a variety of the methods in the marketing promotion mix.
The method of using various forms of the promotional mix to send the same message to the target audience is called integrated marketing communications.
Importance of IMC in Marketing
If a group of friends is planning to go out to dinner, as the group organizer you may find it best to text some friends and call others. The message is the same: “Let’s meet for dinner at Chipotle at 6:00 p.m.” The methods of communication are different depending on the traits and characteristics of the group. This works similarly in marketing. Marketers have many forms of communicating through the various methods available in the promotional mix. However, it is important to send the same message in different ways to reach different customers within the target market. And consumers need to hear the same message many times and in many different forms.
Benefits of IMC
Benefits of an integrated marketing campaign are many. As a marketer seeks to create awareness, stimulate demand, or even encourage product trial, they are continuously seeking methods of cutting through the clutter and noise and trying to reach their intended audience—the customer. When using one method, they may reach a few customers; when using two or more methods, the odds begin to increase; and when using all of their available promotional mix methods to reach the consumer with a consistent message, marketing becomes more effective. The benefits of the integrated approach are significant.
Better Results
Without an integrated approach, the marketing message and methods of delivery will be disjointed. Different members of the marketing team may be sending very different messages to the consumer. The consumer will then be confused as to what they should do. Think of it as a bike with all the pieces lying on the sidewalk—the bike doesn’t work very well. However, when the pieces all come together to form the bike, it glides smoothly along the sidewalk. It is the same when the message comes together.
When Taco Bell (see Figure 13.7) wants to tell the consumer that the Grilled Steak Burrito is only available for a limited time, it can send the message many different ways. The consumer soon knows the Grilled Steak Burrito is only available for a limited time. They have received the same message through ads on television and radio, an email, a photo and reminder on Instagram, and a billboard on their way to work. After receiving the same message in many different ways, the consumer realizes there is some urgency in getting to Taco Bell to try the new Grilled Steak Burrito. When the customer is in physical proximity to their local Taco Bell, apps such as RetailMeNot can send push notifications to customers when they pass the location. The offer can include BOGO or other promotions to convince the customer the time to purchase a Grilled Steak Burrito meal is now.
Increased Efficiency
Having streamlined communication channels all working toward a unified goal reduces waste and increases productivity. The marketing effort should not create divergent messaging. Through integrated marketing communications, the creation of a clear and simple message allows the marketing team to focus on the single message while each team member uses their skills to push the message through their unique specialization, be it public relations or advertising. Everyone comes together through a shared goal.
Improved Brand Awareness
You can tell a small child to brush their teeth multiple times, and chances are good it still won’t happen. But when a parent tells the child to brush their teeth, the dentist provides them with a toothbrush and tells them to brush their teeth, and Elmo shows them the importance of brushing their teeth, soon the child understands that it is a good idea to brush their teeth. The same thing happens when Southwest Airlines publishes all of its fares and fees on its website, broadcasts ads on television and radio, send emails to its Southwest Rapid Rewards customers, and advertises on its mobile app (see Figure 13.8).
Repeated Success
Through the use of an integrated approach, marketers are finding repeated success. Success is generally based on the metrics chosen for the campaign objectives. Typically, marketers are concerned with objectives such as return on investment, cost per impression, cost per lead, and customer lifetime value. With a truly integrated campaign, you will see the objectives remain the same while the execution strategies change across the various promotional methods.
Customer Satisfaction
When customers know the brand promise and they hear it repeated often with increased company connection, customers are more educated and have more realistic expectations. The combination of connection and knowledge leads to increased customer satisfaction.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
British Airways used the James Bond movie Die Another Day to show that James Bond flies first class. The airline also ran ads with the slogan “Save your moneypennys, fly like Bond,” which referenced one of the main characters in the film. The airline also posted ads where consumers were watching the movie. This an example of ________.
1. the marketing mix
2. distribution
3. integrated marketing communications
4. advertising
2.
The goal of integrated marketing communications is to ________.
1. have all marketing and promotional activities project a consistent unified image
2. gain control of the distribution process
3. use only paid methods of promotion
4. develop a competitive pricing structure
3.
When Sally is able to quickly recall the Taco Bell ad and think about purchasing a Grilled Steak Burrito from Taco Bell when she is hungry, it indicates which of the following benefits of an integrated marketing communications approach?
1. Increased efficiency
2. Customer satisfaction
3. Improved brand awareness
4. Expense
4.
Tina knows that when she goes to Walgreens, she can use coupons and her reward points. She is thrilled with the way she saves money at Walgreens, and she is happy to be able to use so many of the great promotional opportunities. She tells many of her family and friends about her savings and her experience. Which of the following integrated marketing communications benefits is Tina demonstrating?
1. Better results
2. Increased efficiency
3. Improved brand awareness
4. Customer satisfaction
5.
When a marketer uses multiple promotional methods to send a consistent message to the consumer, they are demonstrating the use of ________.
1. advertising
2. public relations
3. integrated marketing communications
4. personal selling | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.03%3A__Integrated_Marketing_Communications.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the steps in the IMC planning process.
• Summarize the details of each step in IMC planning.
Identify the Target Audience
All successful IMC campaigns start with a good foundation and a carefully written and executed plan. Every step in the marketing process should be driven by research; the same is true for the IMC planning process (see Figure 13.9).
Understanding the audience is integral to creating an effective IMC campaign. Using a variety of tools, marketers are able to identify the target audience. The more that is known about the target audience, the higher the likelihood is of making sure the message is coded correctly and the right medium for effective encoding and reduced noise is chosen.
Marketers employ many tools to understand the target audience. Both primary and secondary marketing research can provide significant insights. A clear understanding of the consumer allows the marketer to create messages that resonate with the needs and wants of the target audience.
Determine the Marketing Communications Objectives
Marketing campaigns must start with clear objectives. Objectives define what needs to be done, and they help to keep the strategy and tactics clearly aligned. Good objectives will help marketers create cohesive messaging across all the promotional mix methods. Objectives need to be simple, and they should be written in such a way that they provide opportunity for analysis. If done correctly, marketers should be able to analyze if the messaging and the medium are working. When creating objectives, follow the SMART guidelines: simple, measurable, actionable, realistic, and time-bound.
The 5A Framework
The 5A framework is the map of the customer’s needs. Through the 5A framework (see Figure 13.10), marketers create messaging that moves the customer through the funnel, or customer journey with the brand. The 5As provide the marketer with clear steps on the role of the messaging at each step of the framework.
Let’s look at the five steps of the 5A framework in more detail:
• Aware: The first stage in the customer journey with any product is to be aware that the product exists. It is difficult for a product to be desired by the customer if they don’t know about it.
When Angel Johnson launched her activewear company ICONI, she needed to stand out from more popular and well-funded activewear brands. As a Black woman–owned business, Angel wanted to appeal to other women, many of whom needed different types of activewear. Angel found success in creating awareness through running ads on Amazon, where customers could easily find and purchase her products.17
• Appeal: After becoming aware that a product exists, the consumer must gain some understanding of what the product can do for them. If the benefits are favorable for the consumer, they may put it in their consideration set of things that appeal to them.
• Ask: After the appeal stage, the consumer may become motivated to actively seek out information about the product. When the consumer asks the company about the product, they have opened the channels of communication. This is part of the feedback loop. Methods of asking include the consumer engaging online through a chatbot or a contact form or by calling a listed phone number.
• Act: Further down the customer journey funnel, if the customer has received information and they feel it is favorable, then they will act. The action can be to either purchase the product or not purchase the product. Either form of action must be evaluated by the marketing team. The marketer can determine if the messaging created a favorable or unfavorable reaction and then modify the messaging for the segment that acted not to buy the product.
• Advocacy: At the bottom of the funnel is the marketer’s holy grail—the consumer becomes a loyal customer. The marketer can begin to calculate lifetime value, but most importantly the consumer becomes an advocate for the product. Through their advocacy, the consumer provides positive word of mouth and encourages purchase by other consumers.
Design the Message
A key element of integrated marketing communications is creating the message. Messages are designed to fulfill the established objectives. Depending upon the objective and the desired action of the consumer, the marketer may create the message to meet the various stages in the customer journey and have a call to action.
The biggest part of the message design is the content of the message. To move the consumer to the point where they act, marketers have at their disposal various forms of appeal. The appeal is the approach used to attract the attention of the target audience or to persuade it to take action.
Create the Message Content
When creating the message, the marketer has to consider not only the stage of the customer journey, but the product’s features and benefits as well. Other factors to consider in the message content include the media and the traits and characteristics of the target market. All of the segmentation bases should be considered when creating the appeal.
Rational Appeals
When Toyota advertises the features of alternative-fuel vehicles and tells the consumer how those features benefit them, it is creating a rational appeal (see Figure 13.11). Rational appeals prompt the consumer to make the choice for the product because of all the ways they will benefit from using it.
Emotional Appeals
Consumers have a wide variety of emotions. Advertising messages can play to all those emotions. A few of the typical emotional appeals include happiness, fear, trust, sadness, anger, and guilt. It can be quite effective to create fear if the customer doesn’t purchase the product. Some examples of common fear appeals include skin care products and the fear of the effects of aging on skin. Vitamins and supplements use the fear of being unhealthy. And automobiles promote the fear of not being safe in a crash unless you drive a certain brand with a good crash-test rating.
Link to Learning: Happiness Campaign
Coca-Cola (see Figure 13.12) wanted to associate drinking a Coke with being happy and created a whole campaign on the emotion of happiness. Everything in the campaign was focused on drinking Coke and choosing to be happy. They created the #choosehappiness hashtag to be used in their social and digital promotions. Consumers would include their pictures drinking a Coke with friends and add #choosehappiness. Check out this commercial from the campaign.
Public health campaigns often rely on fear appeals (see Figure 13.13). If you continue a behavior there may well be negative consequences, which can arouse fear in the consumer. These campaigns seek to change behavior through fear. Fear appeals can be very effective in some circumstances.
Moral Appeals
A moral appeal pushes the consumer to want the product because of a sense of morality or social good (see Figure 13.14). The messaging may encourage the consumer to do the “right thing.” If they don’t do what is being asked of them, the situation will get worse.
Message Structure
Promotional messages generally have common elements, which include a slogan, the text or content, and the graphics. The graphics can include photos and brand identification. Messages can tell stories with words or lead the audience to their own conclusion based on the graphics.
When Apple first promoted its iPod, the company used the imagery of a very colorful background, a completely black silhouette, and the stark contrast of the all-white iPod with white headphones. The graphic alone conveyed the message that the iPod would allow consumers to “jam” to their own tunes through this new device.
Message Format
The format of the message depends largely on the media being used to send the message. For example, a television ad combines sight and sound, while radio is reliant only on sound. The same is true for print, billboards, and various digital campaigns. Formatting the message needs to take into consideration the target market as well as the medium of the message.
Determine the Budget
Promotional budgets are determined based on many variables. In developing the promotional budget, it is important to consider where the consumer is in their journey. Additional considerations include the current level of brand awareness for the product, accessibility of the target market, creation of the promotion, and specific media under consideration. There are several commonly used methods of creating promotional budgets.
• Objective and Task: This is perhaps the best method but is often used the least. With objective and task, the marketer determines the objectives of the IMC campaign and what tasks need to be done in order to complete the objectives. The tasks are priced, and the level of reach (number of consumers who will see the message) and the frequency (the number of times the consumer will see the message) are estimated. Based on the tasks necessary to achieve the campaign objectives, the budget is established.
• Top Down: With a top-down budgeting approach, the IMC campaign budget is issued from the operating budget based on input from the executives responsible for setting the budgets. While this method takes into consideration the overall organization, it pays little heed to the needs of the specific campaign.
• Percent of Sales: While personal selling is one of the methods included in the promotional mix, it is not the only method. A percent-of-sales approach attributes sales to all the functions of marketing. Generally, an organization may provide an arbitrary percent of overall sales as the total budget for the marketing promotions. Because many issues affect the sale of a product, it is difficult to make sales the only determinant of the marketing activities and the promotional methods.
• Affordable: The affordable method allocates only the amount of money the company can provide to a marketing budget. This method does not create a mindset of growth within the organization. A robust marketing strategy is focused on the growth of the organization. Affordable only provides for what is left over after all the other expenses have been allocated.
• Competitive Parity: If you were to look at the advertising budgets of competitors in the same industry, you might very likely see that they are spending similar amounts on a very similar promotional mix. Companies of every size closely monitor the promotional activities of their competitors. With the competitive parity method of budgeting, the allocations essentially mirror whatever the closest competitor is spending on promotions. This method of budgeting doesn’t allow for increased market share.
Develop Strategies and Tactics
The promotional strategies include the promotional methods the marketer chooses in order to achieve the objectives. Within the promotional methods, the tactics are the specifics the marketer must use to achieve the objectives. For example, if Panera Bread wants a 10 percent increase in brand awareness for its decorated Christmas sugar cookies from November 26 to December 30, it may choose to use the following strategy and corresponding tactics:
A strategy might be to create an Internet/digital messaging campaign focused on creating awareness with a message to try the Panera Christmas sugar cookies for a limited time. The tactics might then be developed as follows:
• Develop push ads through the Panera Bread mobile app
• Publish pop-up banner ads through Google
• Post campaign messages in Instagram
• Post campaign messages in Facebook
Select the Promotional Tools
The marketer must decide on the mix of promotional tools based on the established marketing objectives. Choosing the mix of promotional methods is also primarily dependent on the consumer and how best to reach them.
When Timmy Global Health, a not-for-profit organization, wanted to do an end-of-year fundraising ask, it chose to reach its donor base through direct mail. The organization chose an email campaign for the segment of its market that is responsive to email and has an email address in the CRM system. For a small segment of its market, those who are older and not responsive to digital marketing, it chose to do a direct mail campaign with a postcard mailed through the US Postal Service.18
Link to Learning: Direct Mail Examples
There are hundreds of examples where companies have used direct mail campaigns in their promotional mix. Check out some of the best as referenced in this article.
Designing the Promotion
In considering the target market and the message to send, the marketer must think of the desired response. Three important issues arise in the design of the promotion: what to say (message), how to say it (creative), and who should say it (source). This leads the marketer to the overall message strategy, which will look at the appeal as it relates to the brand positioning. A marketer will consider the following in designing a promotion:
• Message Strategy: A good message strategy must tie the brand to the target audience. What will appeal to them? What action do you want them to take? How does the brand positioning need to be portrayed? The marketer may choose to highlight how the product compares to the competition (points of parity), or the marketer may choose to focus on how the product is different (points of difference). In doing so, it is important to showcase the product or service through the value it will bring to the target market. Ultimately, the customer wants to know “What’s in it for me?”
• Creative Strategy: Through a creative strategy, the marketer is able to translate their message into words, images, and sounds. If the message and the creative do not match up, the communication objectives may miss their mark. The creative strategy helps the marketer cut through the clutter and get the attention of the target audience. A properly done creative strategy serves as the guiding principles to develop good content.
• Communication Channel: Think of the communication channel as the delivery mechanism, taking the message from the company to the consumer. Determining which channel is generally guided by the audience, the message, and the creative strategy. Channels can be nonpersonal or personal. The channel options are as varied as the consumers themselves.
Personal communication channels can include social networks like friends, family, and neighbors. They can also include paid or unpaid experts and even the company’s own sales force. Nonpersonal communication channels include everything from television and radio to billboards and direct mail.
In designing the promotion, the marketer can mix and match the message, creative, and communication strategies until they have the right combination to execute on their objectives and connect with the target market.
For example, when World Food Championships wanted to reach home cooks, professional chefs, and aspiring chefs to participate in its Food Sport events, it enticed them with the opportunity for a big payout in winnings. And it created a connection with them through smaller local qualifying events. When the winners of smaller events received a Golden Ticket to compete, they were instantly excited. Then they realized the competition would allow them to meet with even bigger food celebrities and increase their chances of television fame (see Figure 13.15).
Scheduling the Promotion
Knowing when to promote and how often to promote is a critical juncture in the promotional process. For scheduling purposes, it is important to understand the complexity of the message and the medium or channel for delivery. If the average of 5,000 promotional messages a day is correct, the consumer will need to see a message many times in order to become aware and act. To move them down through the customer journey, the message has to cut through the clutter and stick.
Reach is the number of consumers who will be exposed to the promotional message at any given time. Frequency is the number of times the consumer will be exposed to the message. Using the combination of reach times frequency, the marketer is able to determine the promotional schedule. Marketers typically work to create promotional schedules that optimize the exposure to the target market. Once again, we see that having extensive knowledge of the target market is critical to creating effective campaigns. There are three promotional schedules a marketer may consider:
• Continuous: With a continuous promotional schedule, the marketer will conduct the promotion year-round on a very regular schedule. Consumers will continuously see the ads.
• Flighting: Through a flighting promotional schedule, the marketer will run a period of heavy promotions and then go for a period of time without any promotional messaging. The idea is to give the target market a break and avoid potential wear-out of the message.
• Pulsing: If you see promotions on a regular basis and then suddenly you see them a lot during certain seasons, the sender is using a pulsing schedule.
For example, let’s consider the television commercial for MyPillow. Throughout a broadcast, the MyPillow commercial plays two or three times. The commercial plays every night on one broadcast station. However, during holiday seasons, the commercial plays more often. The commercial is often accompanied by a special code. With the code, viewers can receive a discount on the pillows. The viewer gets a discount, and MyPillow receives analytics to determine if its budget for this commercial television time is effective. In this example, MyPillow is utilizing a pulsing schedule for its promotional efforts.
Evaluate and Measure the Objectives
Before starting a promotional campaign, marketers must establish objectives. Including measurable and time-bound objectives is important. The marketer must evaluate the campaign on a continual basis to ensure that every element in the campaign is working to achieve the objective. Measuring and evaluating the campaign on a continual basis allows the marketer to evaluate the elements and make changes. Typically, objectives also have financial accountability. Changing elements of a campaign avoids overspending on components that are not working to meet the objectives.
Some common key performance indicators (KPIs) for evaluating promotional campaigns include the following:
• return on investment
• cost per lead
• cost per sale
• conversion
• engagement
Digital promotional campaigns allow marketers to track many analytics in real time and have the ability to make changes to the campaign in real time. The advantages of digital media include a host of valuable analytics, such as the following:
• website traffic
• page views
• bounce rate
• conversion rate
• impressions
• cost per click
Marketing Dashboard: ROCI
IMC is centered on data-driven decision-making to drive organizational value. So it’s no surprise that the founder of IMC, Don Schultz, determined a way to measure IMC campaigns. Schultz calls this metric return on customer investment (ROCI). ROCI is a marginal analysis that shows the efficiency of marketing communications spending. We often think of effectiveness as the key measure of a campaign’s success. But equally important is the efficiency of how we spend resources. We should consider how hard our resource works for us.
We should also be concerned about how well our investment does in the short term and the long term. After all, we are trying to build financial returns for our organizations. ROCI looks at short- and long-term value by considering the change in profitability and value during the period and overall.
IMC considers all aspects of the marketing communications relationship, not just a single campaign. The ROCI metric looks at how revenue grows over time and not just in response to one action.
The formula for ROCI is as follows:
$ROCI = Profit from Customer in Current Period + Change in the Customer’s Value in PeriodCustomer’s Value at the Beginning of the PeriodROCI = Profit from Customer in Current Period + Change in the Customer’s Value in PeriodCustomer’s Value at the Beginning of the Period$
Let’s say we own an ice cream shop and we are interested in the efficiency of our recent IMC campaign. So, we decide to conduct an ROCI calculation for an average customer using the following data. What is the ROCI?
Profit from the customer in the current period \$38.00
Change in customer’s value in the current period \$10.00
Customer’s value at the beginning of the period \$21.00
Table 13.1
Answer
Solution
\$38.48
Last period, the ROCI was \$37.50. What factors might impact the change from the previous period to this period?
Answer
Solution
ROCI considers all aspects of the IMC relationship, so as the relationship grows, the ROCI does as well.
What is the value of the ROCI calculation?
Answer
Solution
It determines the marketing communication campaigns that yield the most profitable customers.
Link to Learning: Don Schultz
Hear from Dr. Schultz directly about IMC trends in this video.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
The first step in the IMC planning process is ________.
1. determine the objectives
2. determine the budget
3. identify the target audience
4. select the promotional tools
2.
According to the 5A framework, when Jennifer uses the Panera Bread coupon sent through a text message to her mobile device, which stage of the customer journey is she in?
1. Advocacy
2. Aware
3. Appeal
4. Act
3.
When advertising is scheduled to run constantly without variation, this is referred to as ________.
1. flighting
2. continuity
3. reach
4. pulsing
4.
When Nestlé shows an advertisement that has children coming down the stairs on Christmas morning to the smell of freshly baked Nestlé Tollhouse chocolate chip cookies, this is an example of which method of message appeal?
1. Rational
2. Emotional
3. Fear
4. Moral
5.
The CFO for Wendy’s tells the CMO that after doing the annual budget, there is only \$700,000 left for marketing promotions. Which form of budgeting is Wendy’s using?
1. Objective and task
2. Competitive parity
3. Affordable
4. Percent of sales | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.04%3A__Steps_in_the_IMC_Planning_Process.txt |
Learning Objectives
By the end of this section, you will be able to:
• Identify ethical issues with respect to marketing communications.
• Discuss ways to maintain and foster ethical marketing communications.
Socially Responsible Marketing Communications
While some argue that marketing makes people buy things they don’t want, marketing cannot make someone buy something. The adage “buyer beware” still holds true. And while there are stories of rogue marketers not holding to the American Marketing Association (AMA) code of ethics, ultimately marketers want lifetime customers. The lifetime customer is easier to educate, more agreeable, and generally a good word-of-mouth testament for the company. It is difficult to get and keep customers without ethical marketing.
Marketers look to self-regulation as the first line of defense. It is in the marketer’s best interest to always maintain a code of ethics in order to serve their customers and grow their organization. Good brands are always built on trust.
After self-regulation, there is regulation by trade associations, followed by federal regulation. The federal agencies with oversight for marketing promotions include the following:
• Federal Trade Commission (FTC). The FTC maintains oversight of commercial speech, unfair methods of competition, and deceptive advertising.
• Federal Communications Commission (FCC). The FCC regulates broadcast communication and has jurisdiction over the radio, television, and telephone sectors.
• Food and Drug Administration (FDA). This organization has authority over labeling, packaging, branding, ingredients lists, and advertising of packaged foods, pharmaceutical products, and cosmetics.
• CAN-SPAM Act. This regulation monitors commercial email practices and is one of the prominent regulations that affect many marketers across industries.
Companies have realized that when they are socially responsible, it benefits many of their customers, their communities, the environment, and their shareholders. Customers have come to expect more from the companies they purchase from, and they want to support companies that “do good.” When companies support and sponsor programs and charities that are important to their customers, their customers in turn support them.
In 2021, Subaru celebrated 14 years of its Share the Love event.19 To celebrate this event, it debuted a national ad campaign highlighting the people, places, and pets that have been impacted by its social responsibility. Charities supported by Subaru include the American Society for the Prevention of Cruelty to Animals (ASPCA), Make-A-Wish Foundation, Meals on Wheels America, and the National Park Foundation. In its advertising, Subaru also showcases some of the local charities—selected by Subaru retailers—that benefit from the Subaru Share the Love event, as well as the impact of the automaker’s work with Feeding America to help address food insecurity.20
Maintaining and Fostering Ethical Marketing Communications
Ethical marketing communications includes avoiding activities that could mislead consumers—communication such as withholding information, making misleading claims, and misstating information. In an effort to make products be all that a consumer would want from them, marketers can easily go down the slippery slope that leads to ethical missteps. To make sure marketing communication doesn’t follow any of the common unethical practices, it is important to be aware of two of the most used and violated ethical issues:
• Puffery is when marketers exaggerate at extreme levels. For example, a marketer may say that a product is “10x stronger than the competition.” This is an unethical statement unless the marketer can support this claim through independent research from a third-party firm. Using general terms such as “awesome,” “fabulous,” and “best” are all acceptable, but making specific statements crosses the ethics threshold.
• Paid sponsorship is when a person promoting a product is paid by the company to make an endorsement. We’ve all seen the political ads describing who has paid for the ad and who has endorsed the ad. When we see a television commercial and it has a Ford truck driving over rugged terrain and we hear “Built Ford Tough,” we are certain the ad was paid for and sponsored by the Ford Motor Company. However, if we scroll through Instagram and we see one of our favorite Instagram accounts using the new Babyliss Pro Titanium Flat Iron for their styling hair, and they are extolling its many great features, we cannot be sure if this Instagram account simply really likes the flat iron or if they are a paid influencer. Paid influencers must disclose their relationship to the brand so the consumer is notified that the endorsement of the product is a business arrangement. Disclosing paid sponsorship is a big issue, particularly for advertorials, native advertising, paid links, influencer marketing, affiliate marketing, and any “pay for play” content.
Companies with a Conscience: Farmer Direct Organic
This group of farmers in Canada and the United States banded together to provide better food and better prices. The mission of Farmer Direct Organic is not only to grow better food but to change the way consumers think about food and how they eat. The farmers who participate in the cooperative are focused on quality and transparency. All of their food is 100 percent organic and 100 percent farmer owned.
Through its Facebook and Pinterest accounts, Farmer Direct Organic showcases the family farms that grow the food it sells. Consumers can purchase Farmer Direct Organic at Fresh Market and Whole Foods locations throughout North America. In keeping with its mission to help consumers eat better food, the company shares recipes and serving suggestions on social media and the organization’s website.
With a vision of a “food future that is good for you, for your family, for farmers, and for the planet,” Farmer Direct Organic carefully monitors the food that bears its brand, and it has an unwavering commitment to pesticide monitoring, transparency, and traceability from the store back to the farm that grew the food that is now on your table.21 | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.05%3A__Ethical_Issues_in_Marketing_Communication.txt |
After the marketer has facilitated all the other marketing mix variables, they are ready to communicate with their intended target audience. Marketers have a set of promotional methods for communicating. This chapter explores the various methods of communication along with modeling the communication process.
Throughout the chapter we explore the various promotional methods: advertising, personal selling, sales promotion, public relations, direct marketing, and internet and digital marketing. The communication process has multiple steps: sender, receivers, message, medium, encoding, decoding, feedback, and noise. To get messages through the process, it is important for the marketer to have an extensive understanding of the intended target audience.
To reach the target audience and build value for an organization, the marketer typically sends a consistent message through multiple promotional methods; this is called integrated marketing communications (IMC).
13.07: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
5A framework map of the consumer’s various need states as they find out about a product and finally decide to purchase
advertising a paid form of nonpersonal communication about a product, service, or idea
buy one get one (BOGO) promotion strategy in which consumers are offered the opportunity to buy one product at regular price and get a second item free
communication channel delivery mechanism that takes the message from the company to the consumer
continuous promotional schedule process of conducting promotions year-round on a regular schedule
coupons sales promotion strategy that works to induce a consumer to buy a product based on a price reduction
creative strategy method of translating a message into words, images, and sounds
decoding method of transforming and interpreting a message
direct marketing method of promotion that directly connects with the customer and generally requires a response or transaction
emotional appeals advertising messages that appeal to human emotions
encoding process of putting ideas and thoughts into a transmittable form
enter to win promotion strategy where consumers must complete entry requirements for a chance to win something of value from a company
fear appeals campaigns that seek to change behavior through fear
feedback loop notification that the message has been received between the sender and the receiver
flighting promotion schedule process of running a period of heavy promotions and then going for a period of time without any promotional messaging
frequency number of times the target market is exposed to a promotion
integrated marketing communications development and execution of multiple promotional methods that include a coordinated message
Internet/digital marketing promotional method that utilizes the Internet and digital technology such as text messaging, phone applications, and social media to reach consumers
key performance indicators (KPIs) methods of evaluating promotional campaigns
medium various methods of communicating with a target audience; may include broadcast, print, outdoor, and other forms
message strategy method of developing a message based on how the message will best tie the brand to the target market
moral appeal information communicated to the consumer to appeal to their sense of right and wrong
noise unplanned distractions that interfere with the communication between a sender and a receiver
paid sponsorship when a person promoting a product is paid by the company to make the endorsement
personal selling one-to-one communication between the seller and the buyer; used to inform and persuade the buyer
promotion mix tactics marketers use to communicate with the customer
promotional mix elements tactics to communicate with the customer including advertising, sales promotion, personal selling, public relations, and direct marketing
public relations nonpaid, nonpersonal communication
puffery providing unrealistic and unsubstantiated claims about a product
pulsing schedule process of running steady promotions followed by a period of heavy promotions
rational appeals information communicated to the consumer based on how they will benefit
rebates sales promotion strategy in which consumers must provide key information to a company in exchange for dollars off the product
receiver intended message recipient
return on customer investment (ROCI) a marginal analysis that shows the efficiency of marketing communication spending
sales promotion promotion that creates an incentive to purchase; provides for a fairly immediate increase in sales in the short term
sender source of a message; can be an organization or person | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.06%3A_Chapter_Summary.txt |
1 .
Evaluate the skills that are required to be successful in a personal-selling position. What are they, and why do you believe they would be important?
2 .
Consider the communication process discussed in this chapter. Explain the process as you understand each step. Where do you believe the biggest challenges are from a marketing perspective?
3 .
Explain the ethical issues involved in the messaging that marketers create. How can they make sure that they are not crossing the line when it comes to these issues?
4 .
Identify some of the benefits and the pitfalls of paid sponsorships. Occasionally an issue hits the news about something that had a blowback effect on the company that sponsored a team, event, and/or product.
13.09: Critical Thinking Exercises
1 .
Compose a 150–200-word paragraph using all the following terms as they relate to integrated marketing communications. The goal is to prove you understand the meaning of each term.
Terms:
• advertising
• digital marketing
• frequency
• reach
• feedback loop
• sales promotion
2 .
Several companies come to mind when we think about great integrated marketing communications; Target and Gap are two of those. Consider other companies that have campaigns that you recognize in any form of marketing that truly stand out. What makes them memorable?
3 .
Socially responsible marketing campaigns such as the Subaru one mentioned are becoming more visible over time. Identify two to three other campaigns that you have seen. What do they use as a motivator? Is it to give to a cause, to buy a product or service that they sell based on the fact that they make a donation in your name, or is it simply an informative campaign?
13.10: Building Your Personal Brand
One of the key ways that you can build your personal brand is by association. The following is a list of marketing associations. Research each of these to determine which organization(s) are most congruent with your goals. Many of these organizations have local chapters that you can join, where you can attend a function, or that you can simply use to gather additional information. These are great ways to network with other marketing professionals, organizations, and industry leaders. From this association you can continue to develop a network of peers that you can gather information, experiences, and ideas from.
• American Advertising Federation (AAF) is a leading professional organization that includes members across all disciplines and career levels in advertising.
• American Marketing Association (AMA) is the largest marketing association in North America with more than 30,000 members globally.
• Association of National Advertisers (ANA) is a leading marketing and advertising organization.
• Association of International Product Marketing and Management (AIPMM) is a membership-based professional organization for product managers, brand managers, and more.
• Association of Network Marketing Professionals (ANMP) is the premier association uniting network marketing professionals worldwide.
• Legal Marketing Association (LMA) is the universal voice of the legal marketing and business development profession.
• Social Media Association (SMA) informs, inspires, and empowers business through social, digital, and future media.
• Society for Marketing Professional Services (SMPS) is for marketing and business development professionals in the architecture, engineering, and construction industry.
13.11: What Do Marketers Do
Using the same list of marketing associations above, contact the one that interests you the most and ask if it is possible to speak with a member. Explain that you are a student and you would like to interview someone in the field. Before the interview, consider what information you would like to leave the interview with. Below is a list to get you started, but be sure to add anything else that the list does not contain and be prepared to ask follow-up questions for clarity.
1. Tell me about yourself. What is your education, how long have you held this position, and how did you get here?
2. Can you outline your current job?
3. What does your typical day look like?
4. What do you like best and least?
5. What is the biggest challenge of this position?
6. What does a career path look like from where you are now?
13.12: Marketing Plan Exercise
Complete the following information about the company and products/services you chose to focus on as you develop the marketing plan throughout the course. You may need to conduct research in order to obtain necessary information.
Instructions: Using the Marketing Plan Template file you created from the Marketing and Customer Value assignment and expanded upon in Strategic Planning in Marketing, Market Segmentation, Targeting, and Positioning, Marketing Research and Market Intelligence, Products: Consumer Offerings, and Pricing Products and Services, complete the following section of your marketing plan:
• Marketing Strategy: Promotion
Submit the marketing plan to your instructor for grading and feedback. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.08%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
Little Debbie
Part of your childhood nostalgia may include the Little Debbie Oatmeal Creme Pie, Nutty Buddy, or Swiss Roll. These much-loved products are from the family bakery known as McKee Foods. The company was founded in 1934 by O. D. and Ruth McKee. The company started out as Jack’s Cookie Company, a small bakery in Chattanooga, Tennessee, that was bought by the couple to provide convenient snacks for school lunches.
Prior to McKee Foods, bakery or snack cake items were not individually wrapped and sold in a multipack carton. The snack cake brand was named Little Debbie after the founders’ granddaughter. Her image is still the famous logo on all packaging. Back in the 1960s, a carton of 12 cakes and cookies had a suggested retail price of 49 cents.
Among the company’s brands are Little Debbie, Sunbelt Bakery, Drake’s Cakes, and Fieldstone Bakery. The largest brand is Little Debbie, with a wide range of favorites from Apple Fruit Pies to Zebra Cakes. Little Debbie offers seasonal items in rotation, such as Christmas Tree Cakes. Distribution extends to all 50 states, Mexico, and Canada.
The Little Debbie brand of products is widely available in grocery stores, convenience stores, and vending machines. The company has many best-selling products that are pantry mainstays in households throughout the markets they serve. Because the company is such an American icon, the products evoke a sense of nostalgia in many consumers. One such product: Christmas Tree Cakes. Debuting in 1985, the beloved product can be found on shelves to celebrate Christmas and is widely anticipated by consumers around the start of the Thanksgiving season. It is one of the best-selling holiday treats.
For the 2021 holiday season, Little Debbie launched a new Christmas treat, Christmas Tree Cake Ice Cream. To create this new confection, Little Debbie partnered with Hudsonville Ice Cream, a Michigan-based company that has been in business for over 90 years. The new product launched with a great deal of media attention. Public relations were in full swing with articles in newspapers across the country as well as trial of the product on live news broadcasts. Additional headlines appeared in digital media outlets to amplify the message that this new treat was available in stores for the holidays “while supplies last.”22
Little Debbie featured the product in its social media with release information on all of its channels starting in October, well ahead of the holiday selling season. The company has a robust social media presence with over two million fans on Facebook, 85,000 followers on Instagram, and 200,000 followers on Twitter. The likes, shares, and positive comments had social media buzzing in anticipation of this new product.23
Case Questions
1 .
When Little Debbie creates its message about the Christmas Tree Cake Ice Cream, what is an example of the encoding?
2 .
Because this promotion was largely dependent on public relations and publicity, what is the potential noise that may interfere with the media?
3 .
How did Little Debbie integrate its communication for the introduction of the Christmas Tree Cake Ice Cream?
4 .
What type of appeal is Little Debbie using for the launch of the Little Debbie Christmas Tree Cake Ice Cream?
13.14: References
1. “The Peloton Story,” Peloton, accessed June 30, 2022, https://www.onepeloton.com/company.
2. Jordan Valinsky, “Peloton Sales Surge 172% as Pandemic Bolsters Home Fitness Industry,” CNN Business, Cable News Network, September 11, 2020, https://www.cnn.com/2020/09/11/busin...ngs/index.html.
3. Ian Thomas, “The Fall of Peloton’s John Foley and the Stock Market’s Big Founder Problem,” CNBC, updated February 14, 2022, https://www.cnbc.com/2022/02/12/the-...r-problem.html.
4. Sheree Johnson, “New Research Sheds Light on Daily Ad Exposures,” SJ Insights, September 29, 2014, https://sjinsights.net/2014/09/29/ne...-ad-exposures/.
5. “Largest Advertisers in the United States in 2020,” Statista, accessed June 15, 2022, https://www.statista.com/statistics/...ers-in-the-us/.
6. “Advertising Media Owners Revenue Worldwide from 2012 to 2026,” Statista, accessed June 21, 2022, https://www.statista.com/statistics/...sing-spending/.
7. Brian Steinberg, “NBC Seeks Record \$6 Million for Super Bowl Commercials (Exclusive),” Variety, June 16, 2021, https://variety.com/2021/tv/news/sup...rd-1234998593/.
8. Isabelle Gustafson, “Cumberland Farms Offers National Ice Cream Day Discount,” CStore Decisions, WTWH Media, July 16, 2020, https://cstoredecisions.com/2020/07/...-day-discount/.
9. Tessa Trudeau, “Hello, New York! Nordstrom’s New Manhattan Store,” Nordstrom, accessed June 15, 2022, https://www.nordstrom.com/browse/sty...anhattan-store.
10. “Impact Overview,” TOMS, accessed June 15, 2022, https://www.toms.com/us/impact.html.
11. Ben Stewart and Maude Campbell, “Most Famous Movie Cars of All Time,” Popular Mechanics, March 22, 2022, https://www.popularmechanics.com/car...s-of-all-time/.
12. Judith Rehak, “Tylenol Made a Hero of Johnson & Johnson: The Recall That Started Them All,” New York Times, March 23, 2002, https://www.nytimes.com/2002/03/23/y...t-started.html.
13. Andrew Robinson, “What Is the Response Rate from Direct Mail Campaigns?,” DMA: Data & Marketing Association, May 21, 2021, https://dma.org.uk/article/what-is-t...mail-campaigns.
14. Clare O’Connor, “How Spanx Became a Billion-Dollar Business without Advertising,” Forbes, March 12, 2012, https://www.forbes.com/sites/clareoc...t-advertising/.
15. Rama Ramaswami, “Gartner CMO Spend Survey 2020–2021: Technology and Digital Channels Withstand Budget Cuts,” Marketing Insights, Gartner, August 17, 2020, https://www.gartner.com/en/marketing...nd-budget-cuts.
16. Meghan Casserly, “Beyoncé’s \$50 Million Pepsi Deal Takes Creative Cues from Jay Z,” Forbes, December 10, 2012, https://www.forbes.com/sites/meghanc...es-from-jay-z/.
17. Matt Miller, “Angel Johnson’s Gym Mishap Turned into the Thriving Activewear Brand ICONI,” Amazon Ads, Amazon, March 28, 2022, https://advertising.amazon.com/en-us...s-accelerator/.
19. “Share the Love,” Subaru of America, last modified May 26, 2022, https://www.subaru.com/our-commitmen...-the-love.html.
20. Subaru of America, “Subaru Share the Love Event Returns for Fourteenth Consecutive Year,” News Releases, Cision, October 18, 2021, https://www.prnewswire.com/news-rele...301402491.html.
21. “About Farmer Direct Organic,” Farmer Direct Organic, accessed June 21, 2022, https://fdorganic.com/pages/about.
22. Chrissy Callahan, “Little Debbie Is Turning Its Famous Christmas Tree Cakes into Ice Cream,” Today, NBC Universal, https://www.today.com/food/little-de...flavor-t234396.
23. “This Is McKee;” McKee: A Family Bakery, https://mckeefoods.com/1/this-is-mckee; “Our History,” McKee: A Family Bakery, https://mckeefoods.com/105/our-history; “Who We Are,” Little Debbie, https://www.littledebbie.com/6/who-we-are | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/13%3A_Integrated_Marketing_Communications/13.13%3A_Closing_Company_Case.txt |
Leo Burnett was a journalist for the Peoria Times in Illinois when he decided to start his own advertising firm with the same name in 1935.1 His strategies were fairly simple: to utilize models who looked like ordinary people instead of Hollywood stars. His motto: “What helps people, helps business.” That strategy paid off big for Philip Morris with the introduction of the iconic—albeit now considered unethical—Marlboro Man. In 1952, the ageless Tony the Tiger cartoon icon for Kellogg’s Frosted Flakes was also born from the Leo Burnett ad agency. Other notable companies that have utilized the Leo Burnett ad agency include Procter & Gamble, McDonald’s, and Fiat, to name just a few.
Today, the company has offices around the globe, and it still prides itself on aligning brands with human values. According the company, “Leo Burnett was built on a simple belief. That the most creative, most effective and most powerful work has people at its core—their needs, wants, dreams and hopes. It’s a belief that can be seen in action in everything we make.”2
In July of 2021, Leo Burnett London released a new advertisement for McDonald’s—“Fancy a McDonald’s?”—that showcases one of life’s simpler pleasures: laughter. It featured a television advertisement with no dialogue, just some friends and family enjoying time together.3 The advertisements, a big success, ultimately highlight Leo Burnett’s ability to reach a multitude of audiences across cultures and generations.4
Link to Learning: Leo Burnett
There is a lot to learn from the Leo Burnett advertising agency. Check out the agency’s website to see the various kinds of campaigns the company has worked on. Be sure to check out the News section to read about several campaigns.
Interested in the campaigns mentioned in this section? Check out these websites:
• Fancy a McDonald’s laughter commercial
• Kellogg’s discussion about the Tony the Tiger campaign
• Food nonfiction’s history of Tony the Tiger
• Video on the history of Tony the Tiger
14.01: Advertising in the Promotion Mix
Learning Objectives
By the end of this section, you will be able to:
• Define advertising and provide examples.
• Discuss the importance of advertising in the promotion mix.
Advertising and its Importance in the Promotion Mix
Marketers utilize a variety of ways—or media channels—to promote the organization’s offerings. Regardless of the media channel used, marketers must be consistent in the communication they send to customers.
Advertising is paid communication messages that identify a brand or organization and is intended to reach a large number of recipients. The most traditional media that are used for advertising include newspapers, magazines, television, radio, Internet, and billboards (see Figure 14.2). The increase in the availability and use of the Internet and other technology has also led organizations to advertise on mobile phones, through email, on social media, and on other digital devices.
Like every promotion mix element and media channel, advertising has its own advantages and disadvantages. Advertising is fairly expensive, so the cost to the organization is high. However, advertising reaches a large audience with one ad, so the cost per exposure is relatively low. For example, just one 30-second commercial during the 2021 Super Bowl cost companies around \$6 million.5 But with 96.4 million viewers, the cost per exposure (assuming every viewer sees the commercial) is only around 6 cents per viewer. Because advertising is nonpersonal and reaches a large audience, the message can get distorted from the marketer’s intention to that of the audience. For this reason, it is difficult to quickly change the message if it is misunderstood, and it also difficult to capture how well the message was received.
Link to Learning: Cost of Super Bowl Commercials over Time
Super Bowl ads have a large following, and the expense has increased each year. Check out this article from The Sporting News that compares the cost of commercials from 1967 to 2022.
Product Advertisements
Product advertisements are those that promote a specific product within the organization’s product mix. These advertisements focus on a singular product and intend to bring brand awareness to a product or to differentiate the brand from competitors. In 2013, PepsiCo created a print ad showing a can of Pepsi wearing a Coca-Cola cape, wishing the audience a Happy Halloween. In 2020, Coca-Cola used the same advertisement to counteract the original ad by stating: “Everyone wants to be a hero!” Both are examples of product advertisements, cheekily comparing two fiercely competing brands.6
Link to Learning: Pepsi versus Coke
Brands roasting one another through advertisements is not something that PepsiCo invented. It’s been done many times. To see the Pepsi versus Coke campaigns as well as other big brands roasting their competitors, check out this Bulldog article.
Institutional Advertisements
Unlike product advertisements that focus on one product or brand in an organization’s product mix, institutional advertisements focus on the organization. This differs also from public relations—discussed next—in that it is a paid form of communication. The goal of institutional advertising is to create a positive image or support for the entire organization. Institutional ads also have the advantage of creating a positive impact by attracting potential candidates and increasing employee engagement within the organization. At the start of the COVID-19 pandemic, many companies stepped up to help mitigate the effects the pandemic had on the country. Early on, Anheuser-Busch switched some of its operations from distilling beer to making hand sanitizer. In April 2020, just one month after the pandemic hit the United States, the company had already delivered over 500,000 bottle of hand sanitizer.7 The company utilized both print and television advertisements to communicate its philanthropic efforts to consumers. It wasn’t trying to sell the public a Budweiser, but rather was using the ads to help bolster its image to consumers.
Importance of Advertising
While there has been a major increase in commercial-free television and the ability to skip ads in multiple media platforms, advertising still remains an important part of the promotion mix. Advertising assists in consumer awareness—making sure the audience is aware of a product or service and its benefits. Advertising also helps to retain customers through reminders and can show audiences that a business aligns with their values. However, with the increase in society’s reluctance to believe what they see in advertisements, it is more important than ever that marketers ensure they are sending the right message at the right time.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Promoting a product in a television commercial aligns with which of the promotion mix elements?
1. Advertising
2. Public affairs
3. Social media
4. Institutional advertising
2.
You see a television advertisement from Ford thanking frontline heroes during the pandemic. Which term best describes this advertisement?
1. Product advertising
2. Public relations
3. Institutional advertising
4. Press relations
3.
As a new marketer in a firm, you are asked to provide the advantages of using advertising in an upcoming promotion strategy. Which of the following would be included in your list of advantages?
1. Advertising’s per-exposure cost is an advantage.
2. Advertising is nonpaid, so it does not cost the company.
3. Advertising’s message is easy to change.
4. Advertising’s effectiveness is easy to capture early.
4.
Breana sees an advertisement that compares Colgate toothpaste with that of Crest. She decides to change her toothpaste brand based on this new information. Which term best describes what Breana was exposed to?
1. Institutional advertisement
2. Public relations
3. Social media
4. Product advertisement
5.
Which of the following is a false statement about advertising?
1. It is still as important to the promotion mix as other elements.
2. It is the least costly of all promotion mix elements.
3. It should always be a well-thought-out strategy.
4. It assists in consumer awareness and brand loyalty. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.00%3A_In_the_Spotlight.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the steps involved in developing an advertising plan.
• Describe the details involved in each step of advertising development.
• Discuss methods for assessing and evaluating the advertising program.
Major Advertising Decisions in an Advertising Plan
As with any successful plan, certain decisions need to be made while creating an advertising plan. Advertising is expensive and should have specific objectives with clear communication to the audience to ensure the right message is being sent at the right time with the biggest impact. These steps include choosing the objective(s), choosing a push or pull strategy, establishing a budget, developing the strategy, executing the program, and assessing the impact (see Figure 14.3).
Establishing Advertising Objectives
The aim of advertising is to communicate something to an audience. The objectives of such communication can vary depending on the goals of the advertisement. Some common objectives of advertising include information, persuasion, comparisons, and reminders. Let’s explore each of these types of advertising objectives in more detail.
Informative Advertising
Informative advertising is most often used as a new product is being introduced in the market. The goal of informative advertising is to bring awareness to a product through educational communication to increase demand for the product. A new product can only be successful if people know it exists and why.
Specific messages of informative advertising will vary depending on the product or service. A simple teaser of a new product is effective for some products, while for others, more detailed information may be necessary so the audience understands the product. For example, when the newest iPhone is about to be launched, Apple often uses a short and simple advertisement with only a photo of the phone and its available date. For an existing brand such as Apple, this works well because consumers are already familiar with the product’s brand. Conversely, when a brand-new product is brought to market that consumers may not be aware of, more information may be necessary in the message.
Persuasive Advertising
The goal of persuasive advertising is to convince consumers to purchase by highlighting the benefits of a product or service being advertised. Whereas informative advertising often uses facts and figures to introduce a product, persuasive advertising often focuses more on the emotions of the audience. For example, when an automobile company advertises a brand of its SUV, it might include a scene with a family and focus on the safety of the vehicle (see Figure 14.4). This is an attempt to showcase the benefits of the automobile to the consumer on an emotional level.
Comparative Advertising
Comparative advertising’s aim is to showcase the benefits and values of one product over its competitors. Wendy’s, a fast-food burger establishment known for its “fresh never frozen” beef, has long used comparative advertising to showcase its freshness over competitors, particularly McDonald’s—its biggest competitor. The marketing team at Wendy’s often uses humorous advertisements to compare its food with competitors, and in recent years, the company has become known for its humorous social media posts.
Reminder Advertising
Reminder advertising is aimed at bringing a product back into the forefront of the consumer’s mind. Typically, reminder advertising is used during the maturation stage of the product life cycle. For any well-established brand, most advertisements are considered reminder advertisements—unless the brand is introducing a new product or a change to an existing product. McDonald’s 2021 advertisements that remind consumers to get their friends fries if they say they don’t want them is an example of reminder advertising, as the company is not introducing a new product but rather reminding audiences that McDonald’s is there as a choice in fast food.8
Push Strategy versus Pull Strategy
After choosing an objective for the advertising plan, marketers must determine whether a push or pull strategy will be most effective. A push strategy is aimed at pushing the brand in front of an audience. Often a push strategy will utilize multiple forms of advertising media so that the product or service is in front of the consumer at multiple times. Common push strategies involve sending postcards or emails and placing ads in print and television media.
Conversely, a pull strategy is intended to bring audiences to the product. For example, if a company is launching a new game app, the company may choose to advertise in another game app. The interested consumer would then click on the advertisement and be pulled into the new product (app).
Link to Learning: GameStop
GameStop is a great example of a company with push and pull strategies. Check out its website for examples.
Establishing the Advertising Budget
The next step in the advertising decision process is establishing an advertising budget. There are several approaches to this decision, but it is important to keep in mind that the advertising budget is just one component of the overall promotion budget. Table 14.1 outlines the most common approaches to budgeting.
Budget Approach Definition
Percent of sales Budgets are set as a percentage of prior years’ sales or predicted future sales.
All you can afford Budgets are set after all other necessary expenditures have been covered in the organizational budget.
Return on investment (ROI) Budgets are set based on the expected return, in dollars, an advertising campaign will produce.
Competitive parity Budgets are set based on predications of what competitors will spend.
Objective and task Budgets are set based on the objectives set for activities planned.
Table 14.1 Advertising Plan Budget
Companies often use previous year (or period) data to set objectives for the current or future years. Marketing budgets can use the same approach. The percentage-of-sales approach utilizes prior years’ sales or predicted year’s sales and sets a percentage of those sales aside for advertising. This is a simple way to budget, particularly in stable markets. However, it is somewhat backward of what you have learned thus far in marketing: instead of advertising creating sales, it assumes sales creates advertisements.
Some companies choose to budget their advertising dollars after all other organizational budgeting is complete. The all-you-can-afford approach to budgeting ensures everything else in the organization is budgeted for and then sets aside the remaining funds for advertising. This is a practical and simple approach, but it can often lead to budgets that have less money than desired for much-needed advertising.
Unlike other approaches to budgeting, the return-on-investment (ROI) approach views advertising as an investment rather than a cost. The idea behind the return-on-investment (ROI) approach is that for every dollar spent on advertising, a return of that dollar—plus some—is expected. The disadvantage to this approach is the difficulty in determining exactly which ad, media, or campaign is specifically contributing to the return.
The competitive-parity approach relies on setting budgets based on the expected budgets of competitors. This approach works well in stable markets where competition is well established. However, with this approach, marketers are setting rather important budgetary decisions based on competition and can lose sight of internal objectives.
The final common approach to budgeting for advertising is the objective and task approach. The objective-and-task approach is budgeting based on the objectives set previously for the advertising plan. This approach does not consider previous sales or expected competitor budgets. However, marketers must be aware that this approach can lead to overspending when other factors are not considered.
Developing the Advertising Strategy
After marketers and other company executives set a budget for the advertising plan, it is time to work toward the advertising strategy. In this stage of planning, marketers will create the message and choose the appropriate media.
Creating the Advertising Message
Creating the advertising message can be a difficult task for marketers, particularly in the current climate of media. The advertising message is the visual or auditory information that is used in an advertisement to inform or persuade the audience regarding the product, service, or organization. Messages are usually broken down into five areas: the headline, subheading, copy, images, and call to action.9 See Table 14.2. Each area must be consistent with one another and with the overall strategy of the advertising plan and the company’s values and mission.
Message Component Purpose Example
Headline Grabs the attention of the target audience Buy One Get One Free! (BOGO)
Subheading Clarifies the headline or provides attention details Buy a couch, get a matching recliner free
Copy Answers any immediate questions of the audience Add a stylish yet comfortable look to your living room with our new rich brown couch and recliner in soft chenille fabric, built to last for generations
Image(s) Visuals to enhance the message An image of a family sitting on a new couch and recliner watching television
Call to action Tells the audience what they need to do now that they have seen the advertisement Come to our showroom today to select your couch!
Table 14.2 Advertising Message Components
Link to Learning: Advertising Messages
There are numerous examples of the message components listed in Table 14.2. Check out these articles discussing ways each of these can be successful:
Selecting Advertising Media
Once the message is determined, the marketer will select which advertising media is appropriate for the message. The selection of advertising media will often be determined based on reach, frequency, impact, and engagement that the marketer is hoping for.
Reach refers to the estimated number of potential customers that can be reached with an advertising campaign. Frequency refers to how many times someone is exposed to an advertisement in a given time period or how many times an advertisement is shown in a time period.
Impact refers to how quickly members of the audience receive an advertising message. The form of media that is used will help to determine the impact of the message. For example, a direct mailing may take longer to be received by the audience than a Facebook advertisement. Finally, engagement refers to any interaction with advertising content. This becomes particularly important in digital marketing. The number of times members of an audience click on an Internet ad would measure the engagement of that particular advertisement. Clearly, the more engagement, the more likely a consumer is to make a purchase. Keep in mind that engagement can also be negative—such as a “dislike” or negative comment on a social media advertisement.
There are trade-offs between reach and frequency. It seems obvious that marketers would want an advertising campaign to reach the greatest number of people possible with one advertisement. But is one exposure enough to call a person to purchase the product? Often, potential consumers need to be exposed to a message more than once before they will make a purchase. Therefore, the marketer must decide whether reaching the most people or reaching the same people the most is more beneficial to the advertising strategy.
Different Media Alternatives
As you learned earlier in this chapter, there are different forms of advertising media that marketers will choose from. Most marketing strategies do not focus on only one media but rather on a mix of media that are most likely to reach the target audience. Print media includes magazines, newspapers, brochures, and fliers (see Figure 14.5). Broadcast media includes radio and television.
Outdoor advertising is a very economical option because it has such a large reach. Banners, flags, wraps, events, billboards, and even automobiles are types of outdoor advertising. Most companies have shifted their budgets away from some of these more traditional media and moved to digital media. Digital media is any advertising done via the Internet, mobile phones, and other devices other than television and radio (Kindles, iPads, etc.).
Link to Learning: Car and Social Media Advertising
Have you ever seen a car drive by advertising a company or service? There are companies that will pay you to advertise on your car. Read more about three companies that will pay you to put their advertisement on your car.
Check out these thought leader articles on social media marketing trends in 2022 from Digital Agency Network. And learn about the value and impact of social listening here.
Each media has its own advantages and disadvantages and best uses. When marketers decide on media to be used, they must consider the product or service, the target market, and any budgetary constraints. For example, a product that is primarily targeted toward senior citizens would be best advertised through traditional media, while millennials are more likely to see advertisements in digital form.
Executing the Advertising Program
At this stage in the advertising plan, marketers are almost ready to release their advertisements to the chosen media. However, before doing so, most marketers will choose to test their advertising to a small group of the target audience to ensure all the messaging is clear and concise.
Pretesting the Advertising
Pretesting advertising involves research that predicts the performance of an advertisement before it airs. The three most common types of pretesting are portfolio tests, jury tests, and theater tests.
Portfolio tests consist of respondents browsing through various versions of an advertisement and then being asked to recall certain details from each. Respondents are chosen from the target audience, and those advertisements most recalled by participants are chosen to air for the entire target audience.
Similarly, jury tests are a form of pretesting in which the respondents discuss the advertisements most likely to induce a purchase.
Theater tests utilize a sample of the target audience as well. In this form of pretesting, the audience is shown advertisements—usually television ads—in the context that they would be shown to the entire target market.
Assessing and Evaluating the Advertising Program
After pretests are completed, it is time for the marketers to make any necessary changes and disseminate the ads to the target audiences through the chosen media. But the advertising planning does not end there. Once advertisement messages have been out, marketers then must assess and evaluate the programs. Even the best-planned and best-tested programs can still be failures.
Post-testing the Advertising
Post-testing simply refers to testing the effectiveness of a campaign after it has launched. Marketers have several ways in which they can post-test the advertising campaign.
Aided recall is a type of advertising posttest that uses cues to assist a sample audience in recalling brands and products in an advertisement.
The opposite of aided recall, unaided recall does not use any cues or prompts to test the recollection of the advertisement message. The respondent is typically asked open-ended questions to gauge information retained from the advertising message.
Attitude tests investigate the attitudes of a sample target audience toward a product or service. Often, the attitude test will ask the respondent to compare the advertised product with a competing product.
An inquiry test is a type of advertising posttest that runs two or more similar ads on a limited scale and determines which of the ads are most recalled by and effective for respondents.
Another form of advertising posttest is the sales test. The sales test determines how many sales will be made based on a test market. This test can be done as either a pretest or a posttest. As a pretest, it is used as an estimate or prediction of future sales that the advertisement will attract. As a posttest, it measures the actual sales that can be linked to the advertisement.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Daved is a marketer looking to see how successful his new marketing campaign was. Which of the following would you suggest to Daved?
1. Posttest
2. Pretest
3. Jury test
4. Portfolio test
2.
As a marketer in charge of a new advertising campaign, what is the first step you will utilize in planning?
1. Determine a budget
2. Decide on a push or pull strategy
3. State the objectives
4. Execute the plan
3.
If the target market for a product or service is millennials, which advertising media would you most likely choose?
1. Digital media
2. Outdoor advertising
3. Newspapers
4. Billboards
4.
Jamal is trying to explain the difference between reach and frequency to his classmates. Which of the following best describes reach?
1. Interactions with an advertisement
2. Estimated number of times a potential customer will see an advertisement
3. How quickly the audience will be reached with an advertisement
4. Estimated number of potential customers to see an advertisement
5.
Which of the following is the final step in the advertising plan?
1. Assessment
2. Strategy
3. Budgeting
4. Execution | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.02%3A_Major_Decisions_in_Developing_an_Advertising_Plan.txt |
Learning Objectives
By the end of this section, you will be able to:
• List the key performance indicators (KPIs) for measuring the effectiveness of an advertising campaign.
• Describe how each KPI is measured.
Key Metrics in Measuring Success
The most well-planned advertising campaigns are only effective if they bring about some result. Marketers use performance metrics to determine the effectiveness of a campaign.
Key performance indicators (KPIs) are indicators that measure how an advertising campaign is achieving certain goals or objectives. There are several KPIs marketers choose to measure to determine the impact of an advertising campaign. These metrics help marketers make changes to campaigns in order to meet the goals and objectives set forth.
Brand Recognition
Brand recognition refers to the ability of a campaign audience to recognize and identify a specific brand. It measures the extent to which an audience can identify a brand with only a logo or photo. Depending on the advertising media used, marketers will choose the most appropriate metric to measure brand recognition. There are also numerous brand-tracking software programs that will gather this data for marketers.
Brand Awareness
While brand recognition and brand awareness sound very similar, there is a distinct difference. Brand awareness takes recognition a step further to determine if audiences can recall information about the brand. Awareness often seeks to determine the emotions and impressions that a campaign has raised with specific advertisements.
Impressions (Ad Views)
During an advertising campaign, marketers are also interested in quantifying how many times an advertisement appears in a chosen medium, known as impressions. To calculate impressions, you need to first determine the rating of the advertisement. The rating is simply a percentage of the target audience that is reached with an advertisement. This data is often gathered by outside firms, such as Nielsen, a long-time marketing research firm.
The following is the accepted impressions formula:
$Impressions = Rating × Target Population × Number of Ads RunImpressions = Rating × Target Population × Number of Ads Run$
Let’s assume that one of your television advertisements ran 2 times this week. Your target audience is 1 million people. You discover that your ad has a rating of 30 percent, or 0.30. Using the impressions formula
$Impressions = 0.30 × 1,000,000 × 2 = 600,000 ImpressionsImpressions = 0.30 × 1,000,000 × 2 = 600,000 Impressions$
Link to Learning: Nielsen
If you’re going to be a marketer, you’re going to need to know Nielsen Company, a “global leader in audience measurement, data and analytics, shaping the future of media.”10 To better understand what the Nielsen Company is about, read this Investopedia article.
Check out Nielsen’s 2022 Global Annual Marketing Report about current trends.
Conversion Rate
A conversion rate refers to the percentage of an audience that has completed a desired action. The formula for conversion rate is
$Conversion Rate=Number of Converts(Audience Size)× 100%Conversion Rate=Number of Converts(Audience Size)× 100%$
For example, a web page advertisement may be attempting to get a viewer to click on the advertisement.
The conversion rate, then, would be the percentage of those viewers who clicked on the advertisement. Using our example of the web page advertisement, let’s assume that our audience size 500,000 and the number of converts (that is, the number of viewers who click the ad) is 100,000. Our conversion rate would be
$Conversion Rate=100,000500,000 × 100% = 0.020, or 2.0%Conversion Rate=100,000500,000 × 100% = 0.020, or 2.0%$
While industry averages can vary, generally a conversion rate somewhere between 2 percent and 5 percent for traditional marketing and above 10% for digital marketing is considered effective.11
Return on Ad Spend (ROAS)
Marketers are also often interested in calculating the return on advertising spending. Return on ad spend (ROAS) is a metric that measures the amount of revenue earned for every dollar spending on advertising. Unlike the other metrics discussed, ROAS utilizes the revenue from advertising. To calculate ROAS, you will simply divide the revenue for a given period by the advertising dollars in the period. The ROAS formula is
$ROAS=RevenueAdvertising DollarsROAS=RevenueAdvertising Dollars$
Let’s assume your company spent \$1,000 on an online campaign in a given month. The revenue generated from this campaign was \$5,000. Your ROAS for this campaign in this period would be \$5, or a 5:1 ratio:
$ROAS=5,0001,000 = 5ROAS=5,0001,000 = 5$
In other words, for every \$1 spent on advertisement, your company generated \$5 in revenue.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
Ally is a new marketer trying to determine the return on ad spend that her first marketing campaign netted. She spent \$500 on a Facebook advertisement, and the ad brought in \$20 of revenue. Which of the following would be the return on ad spend (ROAS)?
1. \$25
2. 5:1
3. 10,000
4. \$2.50
2.
You show your friend the Adidas logo and ask them which brand it identifies. This is an example of ________.
1. brand impression
2. brand awareness
3. brand recognition
4. conversion rate
3.
Coco is trying to determine if the most recent ad she created and launched has been effective at increasing revenue. Which of the following metrics would you recommend Coco use?
1. ROAS
2. Impressions
3. Brand awareness
4. Brand recognition
4.
Indicators that measure the effectiveness of an advertising campaign are known as ________.
1. KMAs
2. Recalls
3. ROIs
4. KPIs
5.
Liam is interested in the ratings of a recent television advertisement. They are interested in calculating the impressions of this ad. Liam knows that the target population of this ad is 500,000, and the ad runs three times. Which information is Liam missing to calculate impressions?
1. Converts
2. Rating
3. Conversion rate
4. Number of weeks the ad ran
Marketing Dashboard: Measuring the Impact of Advertising
When marketing professionals purchase advertising, they are primarily interested in who will see it. Advertising is dependent on views, as it is not direct response like search or email marketing. Therefore, marketing professionals are looking for the biggest bang for their buck. This is where cost per thousand (CPM) comes in. The “M” in cost per thousand represents the Latin term mille. CPM is the cost to advertise to 1,000 people.
An advertisement’s cost per thousand depends on a variety of factors. One such factor is how targeted an ad is to a given audience. Targetability increases the cost per thousand. Another factor is whether the media is digital or traditional. Traditional media (television, radio, print, and outdoor) have a higher CPM than digital advertising. Niche media may have higher CPM than mass media.
There are some legitimate criticisms of CPM. First, an ad view does not indicate an intent to purchase. It simply means that a prospective customer saw the ad. We have no way of knowing whether the ad was persuasive or changed behavior. CPM does not allow us to track behavior. Next, ad views may be duplicative or not properly targeted, potentially wasting the impression. For example, if you see an ad for the same running shoe three times and you’re not a runner, the brand wasted three impressions on you because you have no intent to purchase. Finally, ads may not run or load as intended, wasting advertising dollars on a failed impression.
$CPM=Campaign Cost(Impressions)× 1,000CPM=Campaign Cost(Impressions)× 1,000$
Let’s revisit our ice cream shop from Integrated Marketing Communications. We decided to run an advertising campaign in the local newspaper. We paid \$1,000 for 2,000 impressions. What is our CPM?
Answer
Solution
\$500
Last period, we acquired 15 customers from our advertising campaign with an average customer lifetime value of \$50. Did our advertising campaign have a profitable result in the last period?
Answer
Solution
No. We spent \$1,000 on advertising and gained \$750 in revenue.
Let’s say we decide to reallocate our \$1,000 advertising spend on a more targeted campaign. Do you expect that our CPM will increase or decrease?
Answer
Solution
CPM will most likely increase because targeted media typically has a higher CPM. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.03%3A_The_Use_of_Metrics_to_Measure_Advertising_Campaign_Effectiveness.txt |
Learning Objectives
By the end of this section, you will be able to:
• Define public relations and discuss its role in the promotion mix.
• List and describe the tools of public relations.
Public Relations Defined
With today’s ever-changing media landscape, maintaining a positive image with the public is of utmost importance. This is where public relations becomes an important tool in the promotion mix. Public relations is about creating and maintaining a favorable public image. Unlike other tools in the promotion mix, public relations is not paid for; it is earned media. The result of public relations is called publicity.
There are two sides to public relations. The first is considered the “fun” side, where marketers get to share stories of all the great things an organization is doing. This helps to promote the brand’s image in a positive, feel-good way. The other side of public relations is damage control. This is when something negative happens within an organization and marketers must perform crisis communication—that is, addressing issues that could negatively impact the reputation of a brand. Consider in 2017, amid the height of Black Lives Matter protests, when PepsiCo aired a commercial featuring Kendall Jenner calming an angry crowd by simply handing a police officer a can of Pepsi.12 Activists slammed Pepsi for trivializing such an important issue. Originally, Pepsi released a statement supporting its advertisement, but public backlash soon changed that position, and the company issued an apology, saying it had “missed the mark” with its intentions.
Careers In Marketing: Public Relations
A public relations professional is someone who shares information on behalf of a company. There are various types of public relation jobs, and knowing the types of skills you should have to get the job is important. Read this article to learn about the various types of jobs and the necessary skills needed.
Read this article from Harvard Business Review to gain insight into whether a job in public relations is right for you. And learn from this expert guide on how to get a job in public relations. Want to learn about what a day looks like for a public relations professional? Check out this video from a public relations professional about what a day in the life of a real-world public relations professional looks like.
The Role of Public Relations in the Promotion Mix
In many organizations, public relations has been an afterthought or a sidebar to marketing, something used only when a crisis has occurred. However, public relations is more important than ever as the public seeks brands that have values aligned with their own and are not hesitant to boycott those who don’t. In fact, according to a 2017 survey, 86 percent of consumers say that authenticity is a key factor when deciding which companies and brands they will support.13 For example, in the past several years, the public has become more aware and vocal about the use of Photoshop in advertisements. In fact, many celebrities have spoken out about their own photos being Photoshopped in media and the unauthenticity it translates to the public. Similarly, companies such as CVS, Dove, and Target have stopped—or limited—the use of model editing to challenge unrealistic beauty standards.
The Tools of Public Relations
In an age of information access and sharing, companies can no longer afford to hide behind their mistakes, nor can they afford to miss opportunities to boast about their good deeds. Marketers need to be keenly aware of how the organization’s image is portrayed publicly—to all interested parties. There are several tools that marketers should use to positively impact this image. While the goal of public relations and publicity is to promote positive images to the public, marketers must use public relations to minimize the impact of negative publicity as well.
Consider CNN’s Blackfish, which aired in 2013. The documentary shed light on the consequences of keeping orcas in captivity, forcing them to perform for sightseers at sea parks. It takes a deep dive into the lives of these captive marine mammals and how sometimes such animals can be deadly, as was witnessed at SeaWorld in 2014.14 The results of the negative publicity created by the documentary caused SeaWorld’s park attendance, as well as its market value, to drop.15
Link to Learning: Examples of Bad Publicity
Watch the Blackfish official trailer and see for yourself the message behind this documentary, and read here about the impact this negative publicity had on SeaWorld.
You can find numerous examples of bad publicity on the Internet. Check out this article that identifies many from companies such as Easy Jet, Tinder, and Tesla.
Press Relations
Press relations entails establishing and maintaining positive relationships with those in the media, such as newspapers and television. Press relations are controlled internally by the marketing team and often include the marketer sending press releases and other stories that help to maintain a positive image of the brand. Although press relations are controlled internally, it is up to the media whether the stories will be disseminated to the public. Consider your local news station that covers a story of a local bakery raising money for charity. The bakery owner or marketer has most likely sent the news station a press release of the upcoming event. The local news station will decide if it will or will not cover the story in its newscast. The more positive relationships the bakery team has with the local news station, the more likely it is to receive media coverage.
Public Affairs
Another important tool of public relations is public affairs—efforts to influence public policy and engage with public officials and trade associations. Public affairs often align with noncorporate entities, such as nonprofits and government agencies. However, for-profit organizations are becoming more and more involved in public affairs. Organizational leaders and marketers often share their economic impact with legislators to help policy makers amend or set new policies. For example, when Walmart plans to open a new store, the executives often reach out to local legislators to explain the goodwill and positive impact on the local economy. They continue conversations with local politicians to show they are “good citizens” of the community and help to impact local (as well as state and federal) legislation.16
Lobbying
Very similar to public affairs, lobbying involves the intention of influencing public policy and law. Lobbying is a way for companies to influence legislation in their favor. Lobbying is a large part of the political system in the United States, and many companies and industry associations contribute massive amounts of money to influence politicians. Lobbying has come under a lot of scrutiny over the years as companies continue to grow and have larger resources to influence laws and legislation in their favor as opposed to favoring the individual or the greater society.17
For example, in 2020, the National Association of Realtors was the top lobbying association in the United States, followed by the US Chamber of Commerce, Pharmaceutical Research and Manufacturers of America, and the American Hospital Association. Together, these associations spent over \$200 million lobbying to impact local, state, and federal legislation.18
Events
Organizations are increasingly sponsoring or hosting special events to show support for various causes. Such events are also a way to showcase the company, products/services, and/or brands to the public. Often, companies use special events to show the public that their values and ideals are part of their business model. For example, Kroger has sponsored and volunteered for the Susan G. Komen Central Indiana Race for a Cure for many years. With one of its division offices located in Indianapolis, Indiana, the company has been covered by media for its involvement in the local chapter of the Breast Cancer Foundation.19 The events not only provide a much-needed community service but also generate positive publicity for the company.
Digital Media/Social Media Marketing
Social and digital media have become important tools for marketing managers, and the use of these platforms is advantageous in public relations as much as in advertising. The biggest advantages to using digital tools in public relations and publicity is that they can reach a larger audience in a short time, are fairly inexpensive in comparison to other mediums, and allow for real-time communication.
The San Francisco Batkid took social media by storm when the campaign was rolled out by Make-A-Wish Foundation. A boy fighting leukemia wished to be Batman, and the campaign went viral with the hashtag #SFBatman. People everywhere took time to volunteer and take part in the boy’s dream.
Link to Learning: #SFBatman
Check the #SFBatkid Twitter hashtag here to see the Batkid’s journey, watch the trailer to a movie telling his story, and watch a video showcasing the public relations campaign.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
What is a promotion mix element that is earned rather than paid for?
1. Public relations
2. Advertising
3. Television advertisements
4. Web page advertisements
2.
Which of the following is a way companies attempt to influence public policy and law?
1. Press relations
2. Events
3. Lobbying
4. Publicity
3.
Mikel does not have a lot of money for marketing his new business. But he wants to raise awareness of his company and decides to commit to handing out free water at a local 5K run. Which of the following is Mikel participating in?
1. Events
2. Lobbying
3. Press relations
4. Public affairs
4.
As a marketer, you are responsible for creating and maintaining positive relationships with the press. Which part of public relations are you responsible for?
1. Lobbying
2. Publicity
3. Public affairs
4. Press relations
5.
As a new business owner, Michaela is attempting to sway local leaders to give the business a tax cut for the first year of operation. She invites all the local officials to a public meeting, where she presents the anticipated economic impact of her business. Michaela is engaged in which public relations tool?
1. Press relations
2. Public affairs
3. Lobbying
4. Events | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.04%3A__Public_Relations_and_Its_Role_in_the_Promotion_Mix.txt |
Learning Objectives
By the end of this section, you will be able to:
• Discuss the advantages of public relations.
• Discuss the disadvantages of public relations.
Advantages of Public Relations
From a business perspective, the greatest advantage to public relations is that of cost; public relations is not a paid form of promotion. However, there are other advantages that accompany a well-thought-out public relations strategy.
Increasing Brand Credibility
Because public relations are unpaid and come from an objective source—news media—they are perceived as much more credible than paid forms of advertising. In fact, it is the most credible and persuasive form of promotion. Most consumers value the opinions of news media and opinion leaders over that of a company’s best advertising.
Increasing Sales and Leads
Another advantage of public relations is that of sales and leads. Again, because public relations is considered a more credible source of information, various tools in public relations can help to increase sales and leads for the organization. Imagine you are attending an event that is raising money for the local animal shelter because you are a huge animal advocate. You see signs that an organization unfamiliar to you is the lead sponsor. While you may never have heard of this organization, let alone considered buying from this company in the past, the fact that it is helping raising money for the local animal shelter sways your decision to do business with them. For example, let’s look at Campfire Treats, which makes dog treats. This company was one of the first in its industry to embrace the Better Chicken Commitment (BCC) to ensure better treatment of chickens.20 The company has gained industry publicity and is becoming popular with pet owners that embrace more humane animal treatment.21
Link to Learning: Pet Food Industry.com
Check out this Pet Food Industry.com article to learn more about Campfire Treats and its commitment to BCC. If you’re interested in learning more about the product, check out this video review from Top Dog Tips or this article from Groovy Goldendoodles.
Positive Brand Image
Because consumers are more likely to patronize organizations whose values align with their own, public relations has the distinct opportunity to provide a positive brand image to audiences. When organizations are authentic in their own values, it translates to increased loyalty and brand equity.
Cost-Effectiveness
As you’ve already learned, public relations is not a paid tool in the promotion mix. A really good brand or company story can be picked up by several media outlets, exposing the promotion to a large audience. Considered the Ice Bucket Challenge that went viral in 2015. The challenge was first promoted by Pat Quinn and Pete Frates as a way for the public to better understand how Lou Gehrig’s disease (amyotrophic lateral sclerosis [ALS]) affects those with the disease. The challenge raised over \$115 million worldwide for the disease and was an extremely cost-effective (and fun) way to raise funds when it went viral on social media.22
Disadvantages of Public Relations
While public relations is a cost-effective way to potentially reach a large audience, it does come with its own set of challenges, including no direct control, lack of guaranteed results, and a difficulty in evaluating effectiveness.
No Direct Control
Unlike other tools in the promotion mix, marketers have no direct control over public relations. In other words, the media controls how the organization is portrayed, when—or if—the coverage will appear, and where it will be placed. This is why press relations is such an integral part of the public relations strategy.23
Lack of Guaranteed Results
Proficient marketers will spend time crafting the perfect press release, curating photographs, and getting just the right message to the media. They can even have excellent relationships with media personnel, but it is ultimately the decision of the media if it will publish a story. A story that is buried deep in a newspaper’s pages or a blur during a news program may not create the results marketers intended.
Difficulty of Evaluating Effectiveness
Public relation activities can be difficult to measure. A marketer can observe media mentions and stories, but the impact they have on the audience can be difficult to determine. Other tools in the promotion mix can be targeted to the audience of interest, but public relations is not. As such, marketers should consider paying keen attention to areas such as website traffic and social media mentions or shares to determine who is seeing the press and what they are saying about it.
Knowledge Check
It’s time to check your knowledge on the concepts presented in this section. Refer to the Answer Key at the end of the book for feedback.
1.
After watching a TikTok, you learn that Thinx—a company that produces period underwear—has donated over \$25,000 in period and other products to Afghan women who have recently fled their country. Because of this, you decide to purchase Thinx products. Which advantage of public relations has been achieved in this scenario?
1. Increased sales and leads
2. Lack of direct control
3. Guaranteed results
4. Direct control
2.
Public relations has all the following advantages except ________.
1. increased brand credibility
2. increased brand image
3. direct control
4. increased sales and leads
3.
When Story Land, a children’s museum in New Hampshire, reopened, it utilized public relations. Numerous local television stations picked up and reported the story, providing free marketing to potential customers. The company bet on the positive virality of its press release, which worked in its favor. Which of the following disadvantages explains why Story Land “bet on the positive virality”?
1. No direct control
2. Increased brand recognition
3. Increased sales
4. Guarantee of results
4.
Which of the following is a true statement concerning public relations?
1. Public relations is more expensive than advertising.
2. Public relations has more of a guarantee of positive results than other forms of promotion.
3. Public relations has the most message control of the various forms of promotion.
4. Public relations is free but has no guarantee of results.
5.
When Taco Bell was hit with a lawsuit that claimed its seasoned beef was only 35 percent beef, the company utilized social media to show its ingredients, a campaign that was wildly successful. Which of the following was Taco Bell hoping for?
1. Guaranteed results
2. Improved brand image
3. Direct control of the message
4. Increase sales and leads | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.05%3A_The_Advantages_and_Disadvantages_of_Public_Relations.txt |
Learning Objectives
By the end of this section, you will be able to:
• Illustrate ethical issues with respect to advertising.
• Illustrate ethical issues with respect to public relations.
Ethical Issues Related to Advertising
Marketers must be keenly aware of not only the legal implications of advertising, but also the ethical ramifications. The Federal Trade Commission (FTC) has a number of laws that help to protect consumers against false claims in advertisements. The watchdog group Truth in Advertising is an independent, nonprofit organization that “empower[s] consumers to protect themselves and one another against false advertising and deceptive marketing.”24
Truth in Advertising
Every year, Americans spend billions of dollars on health-related products, such as supplements, exercise programs, and nonprescription medication. Unfortunately, many of the advertisements claim that these—and many other—products will perform in a way that has not been proven. Not only can such claims be very harmful to individuals, but they can also get companies in big trouble.
In 2021, Subway was put in the spotlight by its own franchisees for its “Eat Fresh” slogan. The franchisees claimed that the slogan was misleading and that Subway’s ingredients were often days or weeks old when they arrived at the stores and that the meat was laden with chemicals.25
Advertising to Children
Marketers must be keenly aware of how they advertise to children. Children are exposed to advertising just as often as adults. It is estimated that children view more than 40,000 commercials per year.26 However, children and youth do not understand how to decipher those advertisements that are trying to get them to want something. For products that are harmful to, not meant for, or illegal to sell to children, marketers need to steer clear of advertising to children.
The vape company Juul found itself in hot water in 2019 when it was accused of marketing to teens. The company advertised its product—intended for adults only—on websites such as Nickelodeon, the Cartoon Network, and Seventeen, all sites directed toward youth.27
Advertising Harmful Products
When organizations run advertisements for potentially harmful products, they can be held legally liable for the claims and for any harm caused by the product. Even if the company is not held legally liable, the reputation of the business can be damaged.28
Have you ever noticed in a prescription drug commercial, there is considerable time spent on the side effects of the medication? Or that at the bottom of the screen there is a disclosure that the actor is not an actual patient? These are all required by the Federal Food, Drug, and Cosmetic Act (FFDCA), the Food and Drug Administration (FDA), and the FTC to adhere to truth in advertising expectations.
Ethical Issues Related to Public Relations
Similar to being truthful in advertising, marketers must also be aware of how they are disseminating information via public relations. Again, with the increase in social media and the Internet in general, it is much easier for consumers to find information regarding companies. In addition, it is much more commonplace for consumers to call out companies that are being unethical or dishonest. It is much easier for organizations to be honest and transparent up front than try to dig themselves out of a public relations nightmare.
Link to Learning: IKEA
The start of the COVID-19 pandemic required the entire world to shift its perspective. This was true for marketers as well. Many companies changed their marketing strategies from selling goods and services to creating feelings of goodwill and solidarity. IKEA, the Swedish furniture manufacturer, was no exception. In a marketing campaign launched early in the pandemic, the company offered six ways to build a furniture fort, giving the public ways to cope with being quarantined. The campaign earned a nod in AdWeek’s most notable advertisements.29 Read more about the campaign, and see the forts, here.
Transparency
An important part of managing public relations is to disseminate information to the public. It can be a very effective way of gaining loyalty and interest in the brand. The more transparent a company is to its target market, the more trust consumers have in the brand.
Whole Foods, known for offering natural foods, faced scrutiny over its mislabeling of genetically engineered foods. The company’s top priority became that of transparency, and it requires every product sold as non-GMO to go through a verification process.30
Selective Truth Telling
Selective truth telling is a practice in which a person or organization tells a portion of the truth but omits other portions of the truth. Particularly in the face of scrutiny, marketers have always had to decide how much of the truth should be provided in order to satisfy the public but also protect the organization. In more recent years, many organizations have been increasingly telling the whole truth upfront, to avoid being called out later.
Verifying Facts and Information
Fact-checking in a process to verify facts on an issue. Marketers must do their best to present information that is valid to their target. This should be done before the information gets released to the public. In a society of “fake news,” consumers are more skeptical than ever when it comes to information. Obviously, presenting information that is not factual will lead to decreased trust from the public.
Companies with a Conscience: TOMS
In 2006, Blake Mycoskie founded TOMS shoes (see Figure 14.6), the name of which comes from the word “tomorrow.” TOMS is committed to its One for One model: for every item purchased, an item is donated to those in need.31 Since its inception, TOMS has also committed one-third of its profits to grassroots movements.32
TOMS remains transparent, and the company’s behavior is aligned with its values. In every advertising campaign launched, TOMS’ philanthropic mission is consistently reinforced to the public. As a result, it’s nearly impossible for anyone to think of TOMS as anything but aligned completely with its mission, whether one is visiting the company’s website, viewing print media, or looking at the company’s social media.33 | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.06%3A__Ethical_Concerns_in_Advertising_and_Public_Relations.txt |
In this chapter, we discuss the importance of advertising and public relations in the promotional mix. Major decisions that need to be made in order to successfully build a strong advertising campaign include establishing objectives, creating an advertising budget, developing a strategy, executing the campaign, assessing and evaluating the program, and post-testing the advertising. The use of metrics to measure the success provide key information to marketers and include brand recognition and/or awareness, ad views, conversion rates, and return on ad spend.
The advantages and disadvantages of public relations as it impacts the promotion mix were discussed, along with related ethical issues. The tools used to carry out public relations and publicity were explained.
14.08: Key Terms
Example and Directions
Words (or words that have the same definition) The definition is case sensitive (Optional) Image to display with the definition [Not displayed in Glossary, only in pop-up on pages] (Optional) Caption for Image (Optional) External or Internal Link (Optional) Source for Definition
(Eg. "Genetic, Hereditary, DNA ...") (Eg. "Relating to genes or heredity") The infamous double helix https://bio.libretexts.org/ CC-BY-SA; Delmar Larsen
Glossary Entries
Word(s) Definition Image Caption Link Source
advertising paid communication messages that identify a brand or organization and are intended to reach a large number of recipients
aided recall a type of advertising posttest that uses cues to assist a sample audience in recalling brands and products in an advertisement
all-you-can-afford approach advertising budget approach that ensures everything else in the organization is budgeted for and then sets aside the remaining funds for advertising
attitude tests a type of advertising posttest that investigates the attitudes of a sample target audience toward a product or service
brand awareness metric used to determine if audiences can recall information about a brand
brand recognition the ability of a campaign audience to recognize and identify a specific brand
comparative advertising type of advertising that showcases the benefits and values of one product as compared to its competitors
competitive-parity approach advertising budget strategy that relies on setting budgets based on the expected budgets of competitors
conversion rate the percentage of an audience that has completed a desired action
engagement any interaction with advertising content
frequency how many times someone is exposed to an advertisement in a given time period or how many times an advertisement is shown in a time period
impact how quickly members of the audience receive an advertising message
impressions quantifying how many times an advertisement appears in a medium
informative advertising a type of advertising intended to raise awareness of a product through educational communication to increase demand of the product
inquiry test a type of advertising posttest that runs two or more similar ads on a limited scale and determines which of the ads are most recalled by and effective for respondents
institutional advertisements advertisements intended to create a positive image or support for an entire organization
jury tests a form of pretesting in which the respondents discuss the advertisements that are most likely to induce a purchase
key performance indicators (KPIs) indicators (metrics) that measure how an advertising campaign is achieving certain goals or objectives
lobbying networking and other efforts that have the intention of influencing public policy and law
objective-and-task approach advertising budget strategy that is based on the objectives set previously for the advertising plan
percentage-of-sales approach advertising budget strategy that utilizes prior years’ sales or predicted year’s sales and sets a percentage of those sales aside for advertising
persuasive advertising a type of advertising that aims to highlight the benefits of a product or service being advertised
portfolio tests a type of advertising pretest that consists of respondents browsing through various versions of an advertisement and then being asked to recall certain details from each
press relations efforts to establish and maintain positive relationships with those in the media by sending press releases and other stories that help to maintain a positive image of the brand
pretesting advertising research that predicts the performance of an advertisement before it airs
product advertisements advertisements that promote a specific product within the organization’s product mix
public affairs efforts to influence public policy and engage with public officials and trade associations
public relations any actions that help to create and maintain a favorable public image
publicity notice or attention given by the media
pull strategy advertising strategy intended to bring audiences to the product
push strategy advertising strategy aimed at pushing the brand in front of an audience
reach the estimated number of potential customers you can reach with an advertising campaign
reminder advertising advertising aimed at bringing a product back into the forefront of the consumer’s mind
return on ad spend (ROAS) metric that measures the amount of revenue earned for every dollar spent on advertising
return-on-investment (ROI) approach advertising budget strategy that focuses on every dollar spent on advertising; a return of that dollar—plus some—is expected
sales test a type of posttest in advertising that determines how many sales will be made based on a test market
theater tests a form of advertising pretest in which the audience is shown advertisements—usually television ads—in the context that they would be shown to the entire market
unaided recall a type of advertising posttest that does not use any cues or prompts to test the recollection of the advertisement message | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.07%3A_Chapter_Summary.txt |
1 .
List the objectives of advertising.
2 .
Explain the five approaches to creating a marketing budget.
3 .
List the tools used for public relations and explain how each of these are used.
4 .
List the tools used for publicity and explain how each is used.
14.10: Critical Thinking Exercises
1 .
Explain the key metrics used to measure the success of an advertising campaign.
2 .
List the advantages and disadvantages of public relations.
3 .
Provide examples of ethical issues related to advertising and include ways to avoid them.
4 .
Provide examples of ethical issues related to public relations and include the ways to avoid them.
14.11: Building Your Personal Brand
The act of building a personal brand requires a commitment that comes with having a well-developed and clear path. One of the many tools that a person can use to set and review their progress is the GOOD framework from Quantum Workplace. This framework can be used to set goals, identify obstacles and opportunities, and make decisions. As with any strategic goal-setting framework, the important thing to remember is that it should be used organically, allowing for the shifts that come with growth and development.
The framework includes the following parts:
• Goals: What goals are you setting? What needs to be done to achieve them?
• Obstacles: What is standing in your way? Can you work around or remove the obstacles?
• Opportunities: What can you pursue for learning and development to move you forward?
• Decisions: What decisions do you have to make to reach your goals? What will you do more of? What will you do less of?
This framework can be utilized on a personal and professional basis. The idea is to monitor and review throughout the year to determine whether you are on track, have the need to reassess, have achieved your goals, or need to create new ones.
14.12: What Do Marketers Do
Send a message to your college or university marketing department asking for a time to talk to the marketing manager about their job for your class. These positions vary greatly based on how many functions they outsource. Use the following questions as a guide to dig deeper into their process and responsibilities.
1. Please share with me your employment history and how you got to where you are today.
2. Can you summarize your job responsibilities?
3. Is the organizational structure of the company you work for private, nonprofit, or state?
4. Can you share with me what functions, if any, are outsourced (for example, website design, website maintenance, graphic design, or printing of materials)? How long have you been outsourcing these functions?
5. How many employees report to you, and what is person’s role?
6. What challenges do you face with the structure you currently have in place?
Feel free to add any questions you might have. Thank them for their time. From this interview you should be able to gain more insight into how different areas of marketing are handled within a given organization’s marketing department. | textbooks/biz/Marketing/Principles_of_Marketing_(OpenStax)/03%3A_Product_Promotion_Price_and_Place/14%3A_The_Promotion_Mix-_Advertising_and_Public_Relations/14.09%3A_Applied_Marketing_Knowledge-_Discussion_Questions.txt |
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