MARKETING FOUNDATIONS Tlwdl

William M. Pride Texas A & M University

0. C. Ferrell University of New Mexico

SOUTH-WESTERN CENGAGE LearningAustralia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States © 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Note: Each chapter concludes with a Chapter Review, Key Concepts, and Issues for Discussion and Review. Preface

xv

PART ONE

Strateqic Marketing and Its Environment 1 Customer-Driven Strategic Marketing Consumers Reach for the Stars and Satellite Radio 2 Marketing Defined 3 Customers Are the Focus 3 Marketing Deals with Products, Price, Distribution, and Promotion 4 Marketing Builds Relationships with Customers and Other Stakeholders 7 Marketing Occurs in a Dynamic Environment 8 Understanding the Marketing Concept 9 Evolution of the Marketing Concept 1.1 Implementing the Marketing Concept 12

Marketing Costs Consume a Sizable Portion of Buyers' Dollars 15 Marketing Is Used in Nonprofit Organizations 16 Marketing Is Important to Businesses 16 Marketing Fuels Our Global Economy 16 Marketing Knowledge Enhances Consumer Awareness 17 Marketing Connects People Through Technology 17 Socially Responsible Marketing Can Promote the Welfare of Customers and Stakeholders 18 Marketing Offers Many Exciting Career Prospects 18 . . . And now, back to XM Satellite Radio 19 Red Bull Has Wings 5

Managing Customer Relationships 12

MARKETING ENTREPRENEURS: Mark Zuckerberg

Value-Driven Marketing 13

One Planet, One IKEA 17

10

Marketing Management 15 The Importance of Marketing in Our Global Economy 15

23

2 Planning Marketing Strategies Ford's New Strategy: "The Way Forward" 23 Understanding the Strategic Planning Process 24 Assessing Organizational Resources and Opportunities 25 SWOT Analysis 26 Establishing an Organizational Mission and Goals 29 Developing Corporate, Business-Unit, and Marketing Strategies 30 Corporate Strategy 30 Business-Unit Strategy 31 Marketing Strategy 33

Creating the Marketing Plan 36 Implementing Marketing Strategies 37 Approaches to Marketing Implementation 37 Organizing Marketing Activities 39 Controlling Marketing Activities 41 . . . And now, back to Ford 43 Taste versus Health: The Trans Fat War 27 Cereality Makes Breakfast Cereal Cool 36 MARKETING ENTREPRENEURS: Tom Szaky

37

VII © 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

VIII

Contents

3 The Marketing Environment, Social Responsibility, and Ethics Starbucks Balances Growth and Responsibility 47 The Marketing Environment 48 Responding to the Marketing Environment Competitive Forces 49 Economic Forces 51 Political Forces 53 Legal and Regulatory Forces Technological Forces 57 Sociocultural Forces 58

47

Legal Dimension 62 Ethical Dimension 62 Philanthropic Dimension 63 Incorporating Social Responsibility and Ethics into Strategic Planning 67 . . . And now, back to Starbucks 68 Technology Goes to the Dogs 58

48

55

MARKETING ENTREPRENEURS: Amy Simmons

65

Timberland: Walking in Nature's Shoes 66

Social Responsibility and Ethics in Marketing 60 Economic Dimension 62

72

4 E-Marketing and Customer Relationship Management Google Helps Marketers Find Answers 72

Customer Satisfaction Is the End Result of CRM

Marketing on the Internet 73

Legal and Ethical Issues in E-Marketing 88 . . . And now, back to Google 92

Consumer-Generated Electronic Marketing

74

Basic Characteristics of Electronic Marketing E-Marketing Strategies

75

MARKETING ENTREPRENEURS: Noah Glass

80

87

75

Building a Community: YouTube Can Do It 78 Viral Marketing Propels Arctic Monkeys to the Top of the Charts 83

Customer Relationship Management 84 Database Marketing 85 Customer Lifetime Value 86 Technology Drives CRM 86

Global Markets and International Marketing

95

Gillette: Cutting Into the World Market 95

Asia-Pacific Economic Cooperation (APEC)

The Nature of Global Marketing Strategy 96

The World Trade Organization (WTO)

Environmental Forces in International Markets 97

Modes of Entry into International Markets 109

Sociocultural Forces

Importing and Exporting

Economic Forces

97

Political, Legal, and Regulatory Forces Competitive Forces Technological Forces

100 102

104

Customization Versus Globalization of International Marketing Mixes 114

105

Regional Trade Alliances, Markets, and Agreements 105 The North American Free Trade Agreement (NAFTA) The European Union (EU) 107 The Common Market of the Southern Cone (MERCOSUR) 108

110

Licensing and Franchising 111 Contract Manufacturing 111 Joint Ventures 112 Direct Ownership 113

99

Social Responsibility and Ethics Forces

108

109

. . . And now, back to Gillette 116 105

iPod's Global Success: Music to Their Ears 99 Mexican Coca-Cola: A Legal Alien 107 MARKETING ENTREPRENEURS: Pitak Ploempitakkul

108

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Contents

IX

PART THREE

Target-Market Selection and Research 120

6 Marketing Research and Information Systems Internet Research: Saving Money and Understanding Behavior 120 The Importance of Marketing Research 121 The Marketing Research Process 123 Locating and Defining Research Issues or Problems 123 Designing the Research Project 124 Collecting Data 126 Interpreting Research Findings 135 Reporting Research Findings 136 Using Technology to Improve Marketing Information Gathering and Analysis 137

Databases 138 Marketing Decision Support Systems 138 Issues in Marketing Research 139 The Importance of Ethical Marketing Research 139 International Issues in Marketing Research 139 . . . And now, back to Internet 140 PepsiCo and Coca-Cola Research Drinks to Satisfy Every Need 128 MARKETING ENTREPRENEURS: Sharon Lee and DeeDee

Gordon 133 Mystery Shoppers Uncover Information 136

Marketing Information Systems 137

7 Target Markets: Segmentation and Evaluation IKEA's Leksvik and Klippan Sofas: Coming to a Living Room Near You 145 What Is a Market? 146 Target-Market Selection Process 147 Step 1: Identify the Appropriate Targeting/Strategy 147 Step 2: Determine Which Segmentation Variables to Use 151 Step 3: Develop Market Segment Profiles 160 Step 4: Evaluate Relevant Market Segments 161 Step 5: Select Specific Target Markets 162 Developing Sales Forecasts 163 Executive Judgment 163

145 Surveys 163 Time-Series Analysis 164 Regression Analysis 164 Market Tests 165 Multiple Forecasting Methods 165 . . . And now, back to Ikea 166

Whole Foods' "Whole Babies" 151 MARKETING ENTREPRENEURS: Samanta Joseph

1 53

Se Habla Espanol: Banks Target Hispanics 155

PART FOUR

Customer Behavior 170

8 Consumer Buying Behavior The Harley-Davidson Brand Roars into Its Second Century 170 Level of Involvement and Consumer Problem-Solving Processes 171 Consumer Buying Decision Process Problem Recognition 173 Information Search 173 Evaluation of Alternatives 175 Purchase 175 Postpurchase Evaluation 175

173

Situational Influences on the Buying Decision Process 176 Psychological Influences on the Buying Decision Process 177 Perception 177 Motives 179 Learning 180 Attitudes 181 Personality and Self-Concept 182 Lifestyles 183

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Contents Social Influences on the Buying Decision Process

183

Roles 183 Family Influences 185

Reference Groups 186 Opinion Leaders 186 Social Classes 187 Culture and Subcultures 189

. . . And now, back to Harley-Davidson 191 MARKETING ENTREPRENEURS:

Marc Ecko

177

Marketers Reach Out to Consumers Who Live a "Second Life" 184 Big Spending on the Teen Scene 187

195

9 Business Markets and Buying Behavior Texas Instruments Supplies the Processing Power 195 Business Markets 196

Demand for Business Products 204 Business Buying Decisions 205

Producer Markets 197 Reseller Markets 197 Government Markets 199 Institutional Markets 199 Dimensions of Marketing to Business Customers 200 Characteristics of Transactions with Business Customers 200 Attributes of Business Customers 200 Primary Concerns of Business Customers 201 Methods of Business Buying 202 Types of Business Purchases 203

The Buying Center 205 Stages of the Business Buying Decision Process 207 Influences on the Business Buying Decision Process 208 Industrial Classification Systems 209 . . . And now, back to Texas Instruments 211 Naturally Potatoes? Naturally. 198 MARKETING ENTREPRENEURS: Venus McNabb

201

The Focus Is on Service at IBM 203

PART FIVE

Product Decisions 1 0 Product, Branding, and Packaging Concepts Heinz Brand Thrives with Innovative Products and Creative Labels 216 What Is a Product? 217 Classifying Products 219 Consumer Products 219 Business Products 221 Product Line and Product Mix 222 Product Life Cycles and Marketing Strategies 223 Introduction 223 Growth 224 Maturity 225

Decline 226 Product Adoption Process 227 Branding 228 Value of Branding 229 Brand Equity 231 Types of Brands 232

216 Selecting a Brand Name 234 Protecting a Brand 235 Branding Policies 236 Brand Extensions 236 Co-Branding 237 Brand Licensing 237 Packaging 138 Packaging Functions 238 Major Packaging Considerations 238 Packaging and Marketing Strategy 239 Labeling 240 . . . And now, back to Heinz 242 MARKETING ENTREPRENEURS: Arielle Eckstut, Jonah

Shaw, and Jason Dorf 219 The Mets and Citigroup Brand Together 230 The Rise and Fall of Bingham Hill Cheese Company 233

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Contents

1 1 Developing and Managing Goods and Services Crayola Finds Toys Are Fun with No Mess 245 Managing Existing Products 246 Line Extensions 246 Product Modifications 246 Developing New Products 248 Idea Generation 248 Screening 249 Concept Testing 249 Business Analysis 250 Product Development 250 Test Marketing 251 Commercialization 252 Product Differentiation Through Quality, Design, and Support Services 254 Product Quality 254 Product Design and Features 255 Product Support Services 255 Product Positioning and Repositioning 256

XI

245 Product Deletion 258 Managing Services as Products 259 Nature and Importance of Services 259 Characteristics of Services 260 Creating Marketing Mixes for Services 263 Organizing to Develop and Manage Products 268 . . . And now, back to Crayola 269 MARKETING ENTREPRENEURS: Alex Fisher and

Stew Maloney

251

The Marketing of "Wicked" 261 Service Quality and Consistency in the Hotel Industry 265

Perceptual Mapping 256 Bases for Positioning 256 Repositioning 258

PART 6

Pricing Decisions 274

1 2 Pricing Fundamentals The Starbury One Scores with Low-Price Strategy 274 The Role of Price 275 Price and Nonprice Competition 276 Price Competition 276 Nonprice Competition 276 Analysis of Demand 278 The Demand Curve 278 Demand Fluctuations 278 Assessing Price Elasticity of Demand 279 Demand, Cost, and Profit Relationships 281 Marginal Analysis 281 Breakeven Analysis 284 Factors Affecting Pricing Decisions 286 Organizational and Marketing Objectives 286 Types of Pricing Objectives 287 Costs 287

Other Marketing-Mix Variables 287 Channel Member Expectations 288 Customer Interpretation and Response 288 Competition 290 Legal and Regulatory Issues 291 - Pricing for Business Markets 292 Price Discounting 292 Geographic Pricing 293 Transfer Pricing 294 . . . And now, back to Starbury One 294 Netflix Survives Price Competition 277 MARKETING ENTREPRENEURS: Elliott Breece, Joshua

Boltuch, and Elias Roman 279 Airlines Struggle to Balance Demand, Costs 285

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

XII

Contents

1 3 Pricing Management Napster 2.0: The Cat Is Back 299 Development of Pricing Objectives 300 Survival 301 Profit 301 Return on Investment 301 Market Share 302 Cash Flow 302 Status Quo 302 Product Quality 302

299 Selection of a Pricing Strategy 307 Differential Pricing 307 New-Product Pricing 309 Product-Line Pricing 310 Psychological Pricing 312 Professional Pricing 315 Promotional Pricing 315 Determination of a Specific Price 316

Assessment of the Target Market's Evaluation

. . . And now, back to Napster 316 Levi's High-End Low Riders 303

of Price 304

MARKETING ENTREPRENEURS: Amy Mayer and

Evaluation of Competitors' Prices 304 Selection of a Basis for Pricing 304 Cost-Based Pricing 305 Demand-Based Pricing 306 Competition-Based Pricing 306

Ellen Navarro 306 Why Did Microsoft Price the Xbox 360 Below Cost? 311

1 4 Marketing Channels and Supply-Chain Management FedEx Packages Marketing for Overnight Success 322 Marketing Channels and Supply-Chain Management 323

Materials Handling 341 Warehousing 341 Transportation 343

The Significance of Marketing Channels 326 Types of Marketing Channels 327 Selecting Marketing Channels 331 Channel Leadership, Cooperation, and Conflict 333 Channel Integration 334 Intensity of Market Coverage 336 Physical Distribution in Supply-Chain Management 337 Order Processing 339 Inventory Management 340

. . . And now, back to FedEx 345

322

Partnering Helps Drive Toyota to the Top 325 MARKETING ENTREPRENEURS: David Ansel

328

Radio Shack Faces Channel Challenge 335

US Retailing, Direct Marketing, and Wholesaling The Hard Rock Joins the Undefeated-the Seminole Nation 349 Retailing 350 Major Types of Retail Stores 351 Strategic Issues in Retailing 356 Direct Marketing and Direct Selling 361 Direct Marketing 361 Direct Selling 364 Franchising 365

349 Wholesaling 367 Services Provided by Wholesalers 367 Types of Wholesalers 368 . . . And now, back to the Hard Rock Cafe 371 A Wild Place to Eat and Shop: The Rainforest Cafe 359 L.L. Bean Is Coming Out of the Woods 363 MARKETING ENTREPRENEURS: Jacquelyn Tran

365

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Contents

XIII

PART 8

Promotion Decisions 1 6 Integrated Marketing Communications Toyota Coordinates Promotions Across Many Platforms 378 What Is Integrated Marketing Communications? 379 The Communication Process 381 The Role and Objectives of Promotion 383 Create Awareness 3 8 4 Stimulate Demand 384

Selecting Promotion-Mix Elements 391 Promotional Resources, Objectives, and Policies 3 9 2 . Characteristics of the Target Market 392 Characteristics of the Product 392 Costs and Availability of Promotional Methods 393 Push and Pull Channel Policies 393

The Crowing Importance of Word-of-Mouth

Encourage Product Trial 385 Identify Prospects 385 Retain Loyal Customers 3 8 6 Facilitate Reseller Support 3 8 6 Combat Competitive Promotional Efforts Reduce Sales Fluctuations 387

Communications 394 Product Placement 397 Criticisms and Defenses of Promotion 398 386

. . . And now, back to Toyota 399 Nielsen Gets Students to Play the Ratings Came 389 MARKETING ENTREPRENEURS: Dave Baiter

The Promotion Mix 387 Advertising

378

395

Should Procter & Gamble Buzz Minors? 396

388

Personal Selling 389 Public Relations 3 9 0 Sales Promotion 391

1 7 Advertising and Public Relations

403

Mini Cooper's Alternative Advertising Campaign 403

Who Develops the Advertising Campaign? 418

The Nature and Types of Advertising 404

Public Relations 419

Developing an Advertising Campaign 406

Public Relations Tools 4 1 9 Evaluating Public Relations Effectiveness 421 Dealing with Unfavorable Public Relations 422

Identifying and Analyzing the Target Audience 4 0 6 Defining the Advertising Objectives 4 0 6 Creating the Advertising Platform 407 Determining the Advertising Appropriation 4 0 8 Developing the Media Plan 4 1 0 Creating the Advertising Message 412 Executing the Campaign 416 Evaluating Advertising Effectiveness 416

. . . And now, back to the Mini Cooper

423

Peyton Manning MVP: Most Marketable Player 409 Selling Insurance with a Quack 417 MARKETING ENTREPRENEURS: Alex Tew

420

1 8 Personal Selling and Sales Promotion Best Buy Reshapes the World of Selling 427 What Is Personal Selling? 428 The Personal Selling Process Types of Salespeople Types of Selling

429

432

Trade Sales Promotion Methods 447 . . . And now, back to Best Buy 448 The Ultimate Energy Salesperson 429 MARKETING ENTREPRENEURS: Sir Richard Branson

433

Managing the Sales Force

427

440

Holy Cow! Promotion at Chick-fil-A 446 434

What Is Sales Promotion? 440 Consumer Sales Promotion Methods 441

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

xiv

Contents

Glossary 453 Notes 465 Credits 495 Name Index 497 Organization Index 503 Subject Index 512

© 2009 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.