Mkt100 Textbook – Chapter 1
SECTION ONE Assessing the Marketplace CHAPTER 1 Overview of Marketing CHAPTER 2 Developing a Marketing Plan and Marketing Strategies APPENDIX 2A Writing a Marketing Plan CHAPTER 3 Analyzing the Marketing Environment CHAPTER 1 Learning Objectives After studying this chapter, you should be able to 1. LO1 Define marketing and explain its core concepts 2. LO2 Illustrate how marketers create value for a product or service 3.
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LO3 Summarize the four orientations of marketing 4. LO4 Identify the role of customer relationship management in creating value 5.
LO5 Explain the importance of marketing both within and outside the firm M arketing is essentially about creating value for consumers and the company’s shareholders. As you will learn throughout this book, creating value for consumers and the firm requires that marketers develop and nurture long-term, profitable relationships with consumers. This means that marketers must understand consumers’ needs and wants and try to satisfy them through the goods and services they offer, the prices they charge, and the way they promote and deliver the goods and services.
Let’s take a look at how one of Canada’s most successful and profitable high-tech companies, Research In Motion (RIM), is creating and delivering value to its consumers and shareholders with its BlackBerry. 1 The BlackBerry is one of Canada’s most successful and innovative products. It changed not only the way business executives and professionals communicate, but also the speed and timeliness with which decisions are made. Users around the world attest that the BlackBerry enhances their ability to access key corporate information and connect with co-workers anywhere, anytime.
The resulting efficiency means that business deals are made more quickly and key decisions are communicated to stakeholders even when they are on the golf course. The BlackBerry smartphone has become the one device that many business people can’t live without. The BlackBerry was designed for wireless email use. Within a few years of its release, it became the dominant device in the market. Not surprisingly, BlackBerry’s market position is consistently challenged by new rivals, such as Apple’s iPhone, HTC’s Droid Incredible, and Palm’s Pre.
The iPhone, launched in 2007, created huge buzz and took the smartphone market by storm, gaining more than 25 percent market share in less than three years and becoming the second most popular smartphone. Google’s Android, a recently launched operating system (OS) for smartphones, has more than doubled its market share in 2 less than a year. Page 4 To consolidate and grow its market position, RIM successfully entered into the consumer market segment 3 with two hugely popular smartphones, the BlackBerry Curve and the BlackBerry Torch.
Consumers quickly adopted both of these smartphones, challenging the market segment where the iPhone is the current favourite. In response, Apple is now trying to gain a foothold in RIM’s lucrative business market. The battle between the BlackBerry and the iPhone has many industry analysts pointing to the BlackBerry’s weaknesses, such as a lack of applications and a challenging user interface. To silence its critics, RIM released the BlackBerry 6, with a new OS, user interface, and WebKit browser, while also 4 revamping its BlackBerry App World.
Although apps and web browsing are all the rage, email access is what drives many voice-only customers to upgrade their plans to include data services, and this area has been the BlackBerry’s strength. The BlackBerry also uses wireless networks more efficiently than competing devices, which means that carriers such as Rogers and Bell can offer data services to BlackBerry customers for less money than customers pay to use competing products. In fact, telecom carriers are feeling the squeeze from data 5 hungry smartphones and have responded by introducing usage-based billing for data services.
This change could affect consumers’ monthly bills, which could, in turn, influence their buying decision. RIM co-CEO Jim Balsillie has said that carriers are well aware of how profitable the BlackBerry is for their business and how strategically RIM is aligned with them. Clearly, the BlackBerry has some unique advantages over its competitors. Despite fierce competition, RIM’s sales grew from US$85 million in 2000 to US$19. 9 billion in 2011. W ithin this same period, the company increased its workforce from about 1000 employees to more than 17 500 employees, of which 3200 are in sales, marketing, and customer support.
RIM spent US$1. 9 billion on sales and marketing in fiscal year 2010. Currently, RIM has more than 41 million subscribers globally. In addition to meeting its customer needs with an impressive portfolio of innovati ve products, RIM has made excellent customer service a top priority. It has increased the number of employees providing customer care, improved the number of service contracts to users, and developed training programs for corporate customers. This customer focus helps RIM ensure that BlackBerry is “Always On, Always Connected,” satisfying users who demand information in real time. Page 5
What Is Marketing? Unlike other subjects you may have studied, marketing is already very familiar to you. You start your day by agreeing to do the dishes in exchange for a freshly made cup of coffee. Then you fill up your car with gas. You attend a class that you have chosen and paid for. After class, you pick up lunch at the cafeteria, have your hair cut, download a few songs from iTunes, an online music store, and watch a movie. In each case, you have acted as the buyer and made a decision about whether you should part with your time and/or money to receive a particular service or type of merchandise.
If , after you return home from the movie, you decide to auction a collectible item on eBay, you have become a seller. In each of these transactions, you were engaged in marketing because you were exchanging something of value that satisfies a need. This chapter will look at the definition of marketing and at how marketing is used to create value in products or in services. We will see how the interrelated marketing mix—or four Ps—create, transact, communicate, and deliver value. As well, we will look at where marketing happens and how it has evolved over the years into today’s concept of value-based marketing.
Lastly, we will discuss why m arketing is an important function for any successful firm. Refer to the chapter roadmap to guide you through the chapter contents. The Canadian Marketing Association states that “ Marketing is a set of business practices designed to plan for and present an organization’s products or services in ways that build effective customer 6 relationships. ” What does this definition really mean? Good marketing is not a random activity; it requires thoughtful planning with an emphasis on the ethical implications of any of those decisions on consumers and society in general.
Firms develop a marketing plan that specifies the marketing activities for a specific period of time. The marketing plan is broken down into various components —how the product or service will be conceived or designed, how much it should cost, where and how it will be promoted, and how it will get to the consumer. In any exchange, the buyer and the seller should be satisfied with the value they obtained from a transaction. In our earlier example, you sh ould be satisfied or even delighted with the song you downloaded, and Apple should be satisfied with the amount of money it received from you.
The core aspects of marketing are shown in Exhibit 1. 1. Let’s see how they look in practice. CHAPTER ROADMAP EXHIBIT 1. 1 Core Aspects of Marketing Page 6 1. LO1 Marketing Is About Satisfying Customer Needs and Wants Understanding and satisfying consumer needs and wants is fundamental to marketing success. A need is when a person feels deprived of the basic necessities of life, such as food, clothing, shelter, or safety. A want is the particular way in which the person chooses to fulfill his or her need, which is shaped by a person’s knowledge, culture, and personality.
For example, when we are hungry, we need something to eat. Some people want a submarine sandwich to satisfy that hunger, whereas others want a s alad and some soup instead. The topic of understanding customer needs is described in detail in Chapter 5, whichdeals with consumer behaviour. To understand customer needs and wants, the company must first identify the customers or market for its product or service. Generally, the market for a firm’s offerings consists of all consumers who need or want a company’s products or services and have the ability and willingness to buy them.
Although marketers would prefer to sell their products and services to everyone, it is not practical to do so. Thus, marketers divide the market into subgroups or segments of people to whom they are interes ted in marketing their products, services, or ideas. For example, even though the marketplace for toothpaste users may include most of the people in the world, the makers of Crest could divide the market into adolescent, adult, and senior users, or perhaps into wine and coffee drinkers, people with sensitive gums, and denture users.
If you manufacture toothpaste that bleaches and removes stains, you want to know for which market segments your product is most relevant and then make sure that you build a mark eting strategy that meets the needs and wants of the target groups or target market. The process of how companies segment the market for their products and services and then choose which segment to target and how best to reach that segment is described in Chapter 7. The process of identifying customer segments the company wants to target with its products and services requires market research.
The types of market research that help marketers make good decisions about various aspects of the marketing mix ar e discussed in Chapter 4. Page 7 Marketing Entails Value Exchange Video: The Bottled Water Industry Marketing is about an exchange—the trade of things of value between the buyer and the seller so that each is better off as a result. As depicted in Exhibit 1. 2, sellers provide goods or services, then communicate and facilitate the delivery of their offering to consumers.
Buyers complete the exchange by giving money and information to the seller. Suppose you learn about a new Justin Bieber album when watching MTV, which gave a review of the album and mentioned that it was available online at iTunes. You go online and purchase the album. Along with gathering your necessary billing and shipping information, iTunes creates a record of your purchase: information that may be used in the coming months to inform you of the release of Bieber’s next album or of his next concert in your area. Thus, in ddition to making money on this particular transaction, iTunes can use the information you provided t o facilitate a future exchange and solidify a relationship with you —additional value for both you and iTunes. When you purchase a new Justin Bieber album, you are engaging in a marketing exchange. You get the songs, and the exchange partners get money and information about you. EXHIBIT 1. 2 Exchange: The Underpinning of Seller–Buyer Relationships Page 8 1. LO2 Marketing Requires Product, Price, Place, and Promotion Decisions Marketing traditionally has been divided into a set of four interrelated decisions known as the marketing 7 ix, or four Ps: product, price, place, and promotion, as shown in Exhibit 1. 3. Together, the four Ps comprise the marketing mix, which is the controllable set of activities that the firm uses to respond to the wants of its target markets. But what does each of them mean and how do they work together to create value for consumers? EXHIBIT 1. 3 Marketing Mix Decisions Active Exhibit: Exhibit 1. 3 – Marketing Mix Decisions Product: Creating Value One main purpose of marketing is to create value by developing a variety of offerings, including goods, services, and ideas, to satisfy customer needs.
Take, for example, water. Not too long ago, consumers perceived this basic commodity as simply water. It came out of a faucet and was consumed for drinking and washing. But taking a cue from European firms such as Perrier (France) and San Pellegrino (Italy), several Canadian-based firms, such as Clearly Canadian, Canadian Springs, and Montclair, have created a product with benefits that cons umers find valuable. In addition to easy access to water, an essential part of this created value is the product’s brand image, which lets users say 8 to the world, “I’m healthy,” “I’m smart,” and “I’m chic. Recently, however, there is growing opposition t o bottled water, which not only makes it seem socially unacceptable, but also has seen some organizations banning the sale of bottled water on their premises. For example, the University of Ottawa has banned the sale of bottled water on campus, declaring itself a bottled water–free zone; it has set aside $75,000 to 9 install new water fountains across the campus. Clearly Canadian has created a product with benefits that consumers find valuable. Many offerings are a combination of goods and services.
At a Taylor Swift concert, you can enjoy the concert (a service) and buy her CD (a good). Page 9 Goods are items that you can physically touch. Roots clothing, Molson Canadian beer, Kraft Dinner, and countless other products are examples of goods. Carmen Creek Gourmet Meats, a small Calgary-based company specializing in the marketing and distribution of grade A Canadian bison, demonstrates how a company offers value to customers. It provides exquisite gourmet bison meat that is raised, processed, and delivered using appropriate animal health practices. (SeeEntrepreneurial Marketing 1. later in this chapter. ) Unlike goods, services are intangible customer benefits that are produced by people or machines and cannot be separated from the producer. Air travel, banking, insurance, beauty treatments, and entertainment all are services. If you attend a hockey or football game, you are consuming a service. Getting money from your bank by using an ATM or teller is another example of using a service. In th is case, cash machines usually add value to your banking experience by being conveniently located, fast, and easy to use. Many offerings represent a combination of goods and services.
When you go to Hakim Optical, for example, you can have your eyes examined (service) and purchase new contact lenses (good). If you enjoy Taylor Swift’s music, you can attend one of her concerts, which can be provided only at a particular time and place. At the concert, you can purchase one of her CDs —a tangible good that provides you with a combination of a good and a service. Ideas include thoughts, opinions, philosophies, and intellectual concepts that also can be marketed. Groups promoting bicycle safety go to schools, give talks, and sponsor bike helmet poster contests fo r the members of their primary target market: children.
Then their secondary target market segment, parents and siblings, gets involved through their interactions with the young contest participants. The exchange of value occurs when the children listen to the sponsor’s presentation and wear their helmets while bicycling, which means they have adopted, or become “purchasers,” of the safety idea that the group marketed. In Chapters 8,9, and 10 of this book, you will learn much more about the decisions, theories, applications, and strategies of product and services marketing. Price: Transacting Value Everything has a price, though it doesn’t always have to be monetary.
Price, therefore, is everything the buyer gives up—money, time, energy—in exchange for the product. Marketers must determine the price of a product carefully on the basis of the potential buyer’s belief about its value. For example, Air Canada can take you from Toronto to Vancouver or New York. The price you pay depends on how far in advance you book the ticket, the time of year, whether you want to fly economy or business class, and more recently whether or not you have luggage to check in. Passengers are charged a fee if they have more than one piece of check -in luggage.
If you value the convenience of buying your ticket at the last minute for a ski trip between Christmas and New Year’s Day and you want to fly business class, you can expect to pay four or five times as much as you would for the cheapest available ticket. That is, you have traded off a lower price for convenience. For marketers, the key to determining prices is figuring out how much customers are willing to pay so that they are satisfied with the purchase and the seller achieves a reasonable profit. In Chapter 11, you will learn much more about pricing concepts, decisions, and strategies.
The Country Grocer was Canada’s first independently owned grocery store to sell groceries online. Place: Delivering Value The third P, place, describes all the activities necessary to get the product from the manufacturer or producer to the right customer when that customer wants it. Place decisions are concerned with developing an efficient system for merchandise to be distributed in the right quantities, to the right locations, and at the right time in the most efficient way in order to minimize systemwide costs 10 while satisfying the service levels required by their customers.
Many marketing students initially overlook the importance of distribution management because a lot of distributio n activities occur behind the scenes. But without a strong and efficient distribution system, merchandise isn’t available when or where customers want it. They are disappointed, and sales and profits suffer. Place or distribution activities and decisions are discussed in detail in Chapter 12. To illustrate how distribution delivers value, consider the experience of The Country Grocer, a small Ottawa-based independent grocery store.
The Country Grocer was the first independently owned grocery store in Canada to offer online groceries. You might think that because the store is independent, customers would live within a couple of kilometres of it. On the contrary, The Country Grocer (www. thecountrygrocer. com) gets more than 30 percent of its online sales from the eastern Arctic (Iqaluit) and about 5 percent of its business from customers in the United States. Customers place their orders 11 through the website, and The Country Grocer ensures that their purc hases are delivered on time.
Promotion: Communicating Value Even the best products and services will go unsold if marketers cannot communicate their value to customers. Countless Internet companies failed in the late 1990s, at least partly because they did not communicate successfully with their customers. Some such firms had great products at very fair prices, but when customers could not find them on the Internet, the companies failed. Promotion is communication by a marketer that informs, persuades, and reminds potential buyers about a product or service to influence their opinions or elicit a response.
Promotion generally can enhance a product or service’s value, as happened for Parasuco jeans. The company’s provocative advertising has helped create an image that says more than “Use this product and you will look good. ” Rather, the promotion sells youth, style, and sex appeal. The four Ps work together. Although marketers deliver value through each of the four Ps individually, they can deliver greater value to consumers by configuring the four Ps as a whole rather than by treating them as separate components.
That is, the product or service offered must satisfy the target customers’ specific needs and wants, be priced appropriately, be available at loc ations where customers want it, and be promoted in a manner and through media that are consistent with the target consumers. For instance, luxury or high-fashion items from retailers such as Coach, Louis Vuitton, and Swarovski are well -made, priced at a premium, available at exclusive locations, and promoted only in certain media where the advertisements emphasize style, fashion, sex appeal, and so on.
Parasuco is known for its provocative advertising, which appears on billboards and uses celebrities to market its denim lines. Page 11 Marketing Is Shaped by Forces and Players Within the Firm A company’s marketing activities are shaped by factors that are both internal to the firm and external to the firm, as shown in Exhibit 1. 4. The consumer is the centre of all marketing activities, and offering the best value possible will attract customers to products and keep them loyal.
For marketers to deliver the best value to their customers, they must leverage the full potential of their internal capabilities; w ork effectively with their partners (i. e. , suppliers, distributors, and other intermediaries, such as financial institutions, advertising agencies, and research firms); and constantly evaluate and respond to the competitive environment. EXHIBIT 1. 4 Understanding the Marketing Environment Page 12 As described in the chapter vignette, RIM’s success rests in the unique email capability of the BlackBerry, coupled with excellent customer service.
RIM harnesses its internal capabilities by creating a custome rdriven organization, where all internal departments and functions share information and work collaboratively toward a common goal, balance costs with benefits, and build strong relationships with customers. In addition, RIM relies on corporate partners, such as Rogers, TELUS, and Bell, to sell its BlackBerry devices, so it is hardly surprising to hear RIM co-CEO Jim Balsillie making the point that carriers are aware of how profitable the BlackBerry is for their businesses.
RIM’s competitors have improved the value they offer to customers; thus, it is imperative for RIM to enhance its value to customers, or else it could be overtaken by the competition. Suppliers or even natural disasters can exert substantial influence on a company’s marketing activities, sometimes with devastating consequences. In March 2011, a tsunami and earthquake in Japan destroyed several nuclear reactors, disrupting power and industrial production in Japan. This natural disaster also affected North American companies that relied on Japanese suppliers or inputs.
For example, both Honda and Toyota severely cut back on the production of their 2011-model vehicles because of a shortage of electronic components and other parts that were usually imported from Japan. This reduction created a huge shortage of vehicles among Japanese dealerships in Canada and the United States during the spring season, one of the best 12 seasons for new-car sales. Marketing Is Shaped by Forces and Players External to the Firm External forces such as cultural, dem ographic, social, technological, economic, and political and legal changes shape a company’s marketing activities, as shown in Exhibit 1. . For instance, two current social trends that are reshaping the marketing activities of most firms are concerns about the environment and obesity. In response to these concerns, marketers are beginning to use more environmentally friendly packaging for their products; some companies are even using alternative materials in the products themselves. In response to the obesity trend, marketers try to distinguish their products by using labels such as non-fat, low-fat, fat-free, sugar-free, and cholesterol-free. Similarly, food retailers are responding to demographic changes in Canada’s population composition.
Because the prop ortion of Chinese and South Asian people in Canada is on the rise and is forecasted to increase in the next decade, many food retailers have developed products and services that cater specifically to the needs of these groups. Sobeys’s FreshCo store format demonstrates a prime example of a retailer trying to reach out and serve these Canadians. The store’s layout, merchandise, level of service, and prices cater specifically to the needs of this segment of the Canadian demographic. The influence of all of these forces is discussed in greater detail inChapter 3. Sustainable Marketing 1. shows how marketers are trying to become more socially responsible in their business practices. Marketing Can Be Performed by Both Individuals and Organizations Imagine how complicated the world would be if you had to buy everything you consumed directly from producers or manufacturers. You would have to go from farm to farm buying your food and then from manufacturer to manufacturer to purchase the table, plates, and utensils you need to eat that food. Fortunately, marketing intermediaries, such as retailers, accumulate merchandise from producers in large amounts and then sell it to you in smaller amounts.
The process in which businesses sell to consumers is known as B2C (business-to-consumer) marketing, whereas the process of selling merchandise or services from one business to another is called B2B (business-to-business) marketing. Some companies, such as GE (General Electric), are engaged in both B2B and B2C marke ting at the same time. However, with the advent of various auction sites, such as eBay and Kijiji, and payment sites, such as PayPal, consumers have started marketing their products and services to other consumers, which requires a third category in which consumers sell to other consumers, or C2C (consumer-to-consumer)marketing.
These marketing transactions are illustrated in Exhibit 1. 5. Individuals can also undertake activities to market themselves. When you apply for a job, for instance, the research you do about the firm, the resume and cover letter you submit with your application, and the way you dress for an interview and conduct yourself during it are all forms of marketing activities. Accountants, lawyers, financial planners, physicians, and other professional service providers also market their services. EXHIBIT 1. 5 Marketing Can Be Performed by
Both Individuals and Organizations Page 13 Sustainable Marketing 1. 1 Green Your Marketing Practices The idea of sustainable development, or sustainability, is popular these days among groups representing various segments of society such as the media, environmentalists, nonprofit organizations, politicians, business executives, and even consumers. But what exactly does sustainability mean, how widespread is the adoption of sustainable development practices and policies among businesses, and what are the benefits of sustainability?
You might be surprised to learn that sustainability seems to mean different things to different people. Fo r instance, a recent global survey of 1749 business executives by McKinsey & Company reported that 55 percent say that sustainability is about managing environmental issues such as greenhouse gas emissions, energy efficiency, waste management, green-product development, and water conservation. Further, 48 percent say it is about governance issues such as complying with regulations, maintaining ethical practices, and meeting accepted industry standards, and 41 percent say it includes the 13 anagement of social issues such as working conditions and labour standards. In a nutshell, it seems that organizations that practise sustainability must strive to conduct their business in such a way as to minimize harm to the environment, follow good governance practices, and comply with social standards. Indeed, a truly comprehensive and proactive approach to sustainability requires that businesses develop practices and policies around all three perspectives: environmental, governance, and social.
This means that sustainability practices and policies must be embedded in all facets of the organization, from human resource management to manufacturing, marketing, production, planning, investments, and corporate strategy. Also, sustainability must involve all employees, from t he CEO to the employee on the shop floor. Implementing a comprehensive sustainability program is quite expensive and so many businesses tend to do the bare minimum or implement low-cost programs.
In fact, according to the McKinsey Global Survey, 36 percent of executives believe that the main benefit of sustainability is that it improves corporate and brand reputation, while less than 20 percent believe that it improves operational efficiency, lowers costs, presents growth opportunities (new markets and products), or strengthens competitive position. Clearly, we are in the early stages in the adoption of sustainability policies and practices, and it is not unusual for there to be experimentation and feelings of euphoria, uncertainty, and confusion.
Organizations and executives tend to get better as their learning improves over time. We expect to see a greater number of organizations being more proactive in implementing sustainability policies and practices. Throughout this book, we will present various examples of sustainable marketing efforts undertaken by Canadian companies. Page 14 Social Media Marketing 1. 1 What Is Social Media? W hen you hear the term social media, chances are you immediately think of Facebook, YouTube, MySpace, Twitter. Initially, many of these sites were viewed as places where people connected just for fun.
Things have changed dramatically over the last couple of years. Today, marketers are euphoric about the marketing potential of these sites. Not surprisingly, a major preocc upation of marketers these days concerns developing an integrated social media marketing strategy. So, what exactly is social media? It’s not an understatement to say that there are as many definitions of social media as there are flavours at a Baskin-Robbins ice cream store. In fact, a quick Google search revealed more than 25 definitions, an indication of the diversity of these media.
Considering the various definitions of and the use of social media leads us to the following simple definition: Social media is the use of Internet tools and software by individuals to easily and quickly create and share content, such as information, knowledge, and insights, with people who have similar interests to foster dialogue, social relationships, and personal identities. Participants act as both publishers and consumers by creating, sharing, or re-mixing content, such as videos, images, and texts.
Social media conversations and relationships may move freely between the online and physical context. That is, they may originate online and continue offline, or vice versa. Openness, authenticity, and transparency are key 14 elements of effective social media. Social media is important to marketers for several reasons. First, more than 90 percent of Canadian Internet users are actively engaged with social media, with each visitor interacting with it for an average of 15 6. 5 hours per month and downloading an average of 120 videos per month.
Social media is an excellent way to reach these consumers. Second, consumers are already carrying on conversations about companies, their brands and services; therefore, to be part of the conversation or to initiate conversations, companies must participate in social media. Third, social media enables marketers to accomplish many marketing goals, such as promoting corporate social responsibility, building customer relationships, enhancing customer service, building or defending their brands, engaging customers in research and new product development, and recruiting talent.
Although social media is currently very popular among retail businesses and the consumer packaged goods industry, interest from firms of all sizes, all industries, and all types (B2B, B2C, and C2C) are increasing daily. To illustrate how marketers are embracing this ever -changing world of social media, we have developed Social Media Marketing boxes for each chapter of this book. For a visual look at the impact of social media on the world around us, you may want to view a video called Social Media Revolution, which is available on YouTube. Sources: “What is Social Media? A not so critical review of concepts and definitions,”http://blog. etaroll. com/2008/11/14/what-is-social-media-a-not-so-critical-review-of-concepts-anddefinitions/(accessed December 2, 2009); Joseph Thornley, “Social networking isn’t just about Facebook,”http://www. itworldcanada. com/blogs/ahead/2009/04/08/social -networking-isnt-just-aboutfacebook/48460/(accessed December 2, 2009); Joseph Thornley, “What is ‘social media’? ” http://propr. ca/2008/what-issocial-media/ (accessed December 2, 2009); ComScore, www. comscore. com, 2009. Regardless of whether organizations or individuals are engaged in B2B, B2C, or C2C marketing, one thing seems to be clear: social media is quickly ecoming an integral part of their marketing and communications strategies. Social media was widely used in the 2011 federal election in Canada, as politicians tried to win the hearts and minds of Canadians. Even more dramatically, social media played a major role in the crises observed in several Mideast countries. Social media was used to organize protesters and to report news of events in these countries to the res t of the world as they unfolded in real time. Social Media Marketing 1. 1 shows how marketers are using social media to reach out to their customers. Marketing Occurs in Many Settings
Most people think of marketing as a way for firms to make profits, but ma rketing works equally well in the nonprofit sector. Think about what influenced your selection of your college or university, other than family, friends, and convenience. It’s likely that your college has a sophisticated marketing program to attract and retain students. Hospitals, theatres, charities, museums, religious institutions, politicians, and even governments rely on marketing to communicate their message to their constituents. A Piece of Africa buys art from African artists and, through its website (www. izinsa. com/apieceofafrica), makes that art available to customers all over the world, thereby creating a market that otherwise would not exist. Page 15 In addition, marketing isn’t useful only in countries with well-developed economies. It can also jump-start the economies of less developed countries by actually putting buyers and sellers together to create new markets. A Piece of Africa, for example, buys art from African artis ts and, through its website, makes that art available to customers all over the world, thereby creating a market that otherwise would not exist.
Customers become exposed to an array of products from various countries that previously would have been available only through expensive galleries, and the tribal artists can spend their earnings locally, which stimulates the local economy. Furthermore, A Piece of Africa donates 3 percent of the online sales to goodwill projects in Africa, which solidifies its soci ally responsible appeal. Marketing is often designed to benefit an entire industry, which can help many firms simultaneously. The dairy industry has used a very successful, award-winning campaign with its slogan “Got Milk? aimed at different target segments. This campaign has not only created high levels of awareness about the 16 benefits of drinking milk, but also increased milk consumption in various target segments, possibly through the use of celebrities such as Hilary Duff and athletes such as soccer s uperstar David Beckham. Overall, this campaign benefits the entire dairy industry, not just one dairy farmer. The dairy industry’s “Got Milk? ” ad campaign has created high levels of awareness about the benefits of drinking milk and has increased milk consumption by using celebrities such as David Beckham in its ads.
Now that we’ve examined what marketing is and how it creates value, let’s consider how it fits into the world of commerce, as well as into society in general. Page 16 1. LO3 Marketing Helps Create Value Marketing didn’t get to its current prominence among individuals, corporations, and society at large overnight. Over the last 100 years, marketing has evolved from an activity designed simply to produce and sell products to an integral business function aimed at creating value for consumers and the company’s shareholders.
As we have examined marketing practices over the years, we have observed four different marketing orientations or philosophies: product orientation, sales orientation, market orientation, and value-based orientation. Product Orientation Product-oriented companies focus on developing and distributing innovative products with little concern about whether the products best satisfy customers’ needs. This philosophy is best illustrated by a famous quote made around the turn of the twentieth century by Henry
Ford, the founder of Ford Motor Company, who remarked, “Customers can have any colour they want so long as it’s black. ” Manufacturers believed that a good product would sell itself, and retail stores typically were considered places to hold the merchandise until a consumer wanted it. Companies with a product orientation generally start out by thinking about the product they want to build; they try selling the product after it is developed rather than starting with an understanding of the customers’ needs and then developing a product to satisfy those needs.
Sales Orientation Companies that have a sales orientation basically view marketing as a selling function where companies try to sell as many of their products as possible rather than focus on making products consumers really want. These firms typically depend on heavy doses of personal selling and advertising to attract new customers. Companies with a selling orientation tend to fo cus on making a sale or on each transaction rather than building long-term customer relationships. They generally believe that if consumers try their products, they will like them.
Market Orientation Market-oriented companies start out by focusing on what consumers want and need before they design, make, or attempt to sell their products and services. They believe that customers have choice and make purchase decisions based on several factors, including quality, convenience, and price. Basically, the “customer is king,” and the market is a buyer’s market since consumers wield tremendous power. In this orientation, marketers’ role is to understand and respond to the needs of consumers and to do everything possible to satisfy them.
Value-Based Orientation Most successful firms today are market oriented. 17 That means they have gone beyond a production or sales orientation and attempt to discover and satisfy their customers’ needs and wants. Better marketing firms recognized that there was more to good marketing than simply discovering and providing what consumers wanted and needed; to compete successfully, they would have to give their customers greater value than their competitors. 18 Value reflects the relationship of benefits to costs, or what you get for what you give.
In a marketing context, customers seek a fair return in goods and/or services for their hard -earned money and scarce time. They want products or services that meet their specific needs or wants and that are offered at competitive prices. The challenge for firms is to find out what consumers are looking for and to attempt to provide those goods and services but still make a profit. Every value-based marketing firm must implement its strategy according to what its customers value.
Depending on the specific product or service for sale, these valuable benefits could include speed, convenience, size, accuracy, price, cost-savings, or user-friendliness. Sometimes providing greater value means providing a lot of merchandise for relatively little mone y, such as Subway’s foot-long subs for $5 or a diamond for 40 percent off the suggested retail price at Costco. But value is in the eye of the beholder and doesn’t always come inexpensively. Satisfied Louis Vuitton customers probably believe the Vuitton clothing, bags, or shoes they buy are good value because they have received many benefits for a reasonable price.
Similarly, teenagers may be willing to pay a premium for Apple’s iPhone because of its extraordinary design and packaging, even though cheaper s ubstitutes are available. This is the power of marketing in general and branding in particular. Value-based marketing is examined in greater detail in the following section; however, the story of Carmen Creek described in Entrepreneurial Marketing 1. 1 illustrates aspects of value beyond monetary cost and price. Page 17 Entrepreneurial Marketing 1. 1 Carmen Creek: Meeting Customer Needs19
In 2002, Kelly Long, Pieter Spinder, and Dean Andres joined forces to create Carme n Creek Gourmet Meats. The award-winning, Calgary-based company specializes in the marketing and distribution of grade A Canadian bison, which the Heart and Stroke Foundation’s Health Check approves as a healthy substitute for red meat. Carmen Creek saw its revenues increase 15 times during its first year of operation and 18 times during its second year. The company was a finalist for the 2008 Ernst and Young Entrepreneur of the Year Award and won the 2008 Calgary Chamber of Commerce RBC Small Business of the Year Award.
Carmen Creek attributes its success to its distinctive marketing strategy: it positions itself as a bison-specific producer with a commitment to quality and consistency to reach targeted markets. Carmen Creek brings value to its three target markets, consumers, retailers (e. g. , Safeway Canada), and foodservice businesses (e. g. , Moxie’s Classic Grill restaurant), in a variety of ways. Consumers can choose from an assortment of fresh and frozen bison meat, including bison burgers, bison steak, and prime rib.
Retailers are provided with support in the form of recipe cards, a 1-800 help line, shelf danglers, shelf talkers, and in-store sampling booths. Foodservices customers are offered support through menu inserts, table toppers, and server incentives. In addition, Carmen Creek promises all of its customers exquisite gourmet bison meat that is grown, processed, and delivered using appropriate animal health practices, exceptional attention to detail, and superior safety. It provides all of this whi le guaranteeing the best prices that it can offer.
Carmen Creek’s quality products and competitive pricing is allowing it to successfully satisfy the demands of North American and European customers. Its commitment to building a value chain that embraces producers, processors, and customers is allowing Carmen Creek to break into new markets. On February 27, 2007, Carmen Creek acquired all the shares of Grande Prairie Bison Company, along with its strong European customer base and distribution network. This acquisition opened the door for Carmen Creek to expand its European presence.
The company is actively pursuing new European markets in Belgium, Luxembourg, and the Netherlands to add to its list of international customers, which currently includes Australia and Germany. Carmen Creek Gourmet Meats brings value to its customers beyond monetary cost and price. Carmen Creek carefully focuses the distribution of its investments in Canada, the United States, and Europe. Couple this with its diversified product offerings under a consistent and supported brand, and you get a recipe for success.
The company’s approach to market development and its unique strategy has launched Carmen Creek Gourmet Meats to the top of both Profit 50’s list of Canada’s emerging growth companies and Profit 100’s list of Canada’s fastest growing companies. What Is Value-Based Marketing? Consumers make explicit and/or implicit trade-offs between the perceived benefits of a product or service and their costs. Customers naturally seek options that provide the greatest benefits at the lowest costs. Marketing firms attempt to find the most desirable balance between providing benefits to customers and keeping their costs down, as illustrated in Exhibit 1. . EXHIBIT 1. 6 Value Page 18 To better understand value and to develop a value-based marketing orientation, a business must also understand what customers view as the key benefits of a given product or service and how to improve on them. For example, some benefits of staying at a Four Points by Sheraton hotel might include the high level of service quality provided by the personnel , the convenience of booking the room via Sheraton’s website, and the overall quality of the room and meals offered. In broader terms, some critical benefits may be service quality, convenience, and merchandise quality.
The other side of the value equation entails the firm’s ability to provide either a better product/service mix at the same cost or the same level of quality and convenience for a lower cost. The customer’s potential cost elements, in terms of value-based marketing strategies, for the Sheraton hotel in our example would include the price of the room and meals, the time it takes to book a room or check in at the hotel, and the risk of arriving at the hotel and finding it overbooked. How Firms Compete on the Basis of Value W ith such a simple formula, marketers should be able to deliver value consistently, right? Well, not exactly.
In today’s quickly changing world, consistent ly creating and delivering value is quite difficult. Consumer perceptions change quickly, competitors constantly enter markets, and global pressures continually reshape opportunities. Thus, marketers must keep a vigilant eye on the marketplace so they can adjust their offerings to meet customer needs and keep ahead of their competition. Value-based marketing, however, isn’t just about creating strong products and services; it should be at the core of every firm’s functions. For example, W almart does not serve those customers who are looking to impress their friends with conspicuous consumption.
Rather, this store is for people who want convenient one-stop shopping and low prices—and on those values, it consistently delivers. But good value is not limited to just low prices. Although Walmart carries low-priced pots, pans, and coffee pots, cooking enthusiasts may prefer the product selection, quality, and expert sales assistance at a Paderno outlet. The prices there aren’t as low as at Walmart, but Paderno customers believe they are receiving good value when they shop there because of the selection, quality, and service they receive.
Even nonprofit organizations need to focus on creating value to ensure the services they provide to stakeholders are of high quality while also minimizing the total fundraising required. How Firms Become Value-Driven Firms become value-driven by focusing on three activities (see Exhibit 1. 7). First, they share information about their customers and competitors across their own organization and with other firms that might be involved in getting the product or service to the marketplace, such as manufacturers and transportation companies.
Second, they strive to balance their customers’ benefits and costs. Third, they concentrate on building relationships with customers. EXHIBIT 1. 7 Value-Oriented Firms Page 19 Sharing Information In a value-based, market-oriented firm, marketers share information about customers and competitors that has been collected through customer relationship management, and integrate it across the firm’s various departments.
The fashion designers for Zara, the Spain -based fashion retailer, for instance, collect purchase information and research customer trends to determine what their customers will want to wear in the next few weeks; simultaneously, the logisticians —those persons in charge of getting the merchandise to the stores —use the same purchase history to forecast sales and allocate appropriate merchandise to individual stores. Sharing and coordinating such information represents a critical success factor for any firm.
Imagine what might happen if Zara’s advertising department were to plan a special promotion but not share its sales projections with those people in charge of creating the merchandise or getting it to stores. Fashion designers for Zara, the Spain-based fashion retailer, collect purchase information and research customer trends to determine what their customers will want to wear in the next few weeks. They share this information with other departments to forecast sales and coordinate deliveries.
Balancing Benefits with Costs Value-oriented marketers constantly measure the benefits that customers perceive against the cost of their offering. In this task, they use a vailable customer data to find opportunities in which they can better satisfy their customers’ needs and in turn develop long -term loyalties. Such a value-based orientation has helped Canadian Tire and Walmart outperform other department stores, and WestJet Airlines and Southwest Airlines outperform mainstream carriers.
Also, as noted in the chapter vignette, RIM offers its customers not only the innovative, feature -packed portfolio of BlackBerry products, but also high-quality customer service at a competitive price. By establishing contracts with wireless carriers such as AT&T and BellSouth, it gained a solid footing before competitors such as Nokia entered the market. RIM’s marketing savvy in making customer value the centrepiece of its strategy is one of the reasons why it has been able to beat the competition. To provide a great value, U. K. based easyJet offers no food service and generally flies to and from out-ofthe-way airports. Until recently, it sometimes cost more to fly within Europe than to fl y from the United States to Europe. 20 But low-frills, low-cost carriers such as Ryanair and easyJet, modelled on Southwest Airlines and JetBlue Airways, now offer customers what they want: cheap intra -Europe airfares. Like their American counterparts, Ryanair and easyJet offer no food service and generally fly to and from out -of-the-way airports, such as Stansted, which is about 55 kilometres northeast of London.
But many customers find value despite such minor inconveniences. Consider, for example, the Lon don to Salzburg, Austria, route for $65 or the London to Sweden flight for $70. Values such as these are also what have given low -cost carriers in the United States approximately 25 percent of the market share. They are so popular that conventional airlines have started their own low-frills/low-cost airlines: Singapore Airlines provides Tiger Airways and Australia’s Qantas offers Jetstar. Page 20 1. LO4
Building Relationships with Customers During the past decade or so, marketers have begun to realize that they need to think about their customer orientation in terms of relationships rather than 21 transactions. A transactional orientation regards the buyer–seller relationship as a series of individual transactions, so anything that happened before or after the transaction is of little importance. For example, used-car sales typically are based on a transactional approach; the seller wants to get the highest price for the car, the buyer wants to get he lowest price, and neither expects to do business w ith the other again. A relational orientation, in contrast, is based on the philosophy that buyers and sellers should develop a long-term relationship. According to this idea, the lifetime profitability of the relationship matters, not how much money is made during each transaction. For example, UPS works with its shippers to develop efficient transportation solutions. Over time, UPS becomes part of the fabric of the shippers’ organizations, and their operations become intertwined. In this scenario, UPS an d its shippers have developed a long-term relationship.
Firms that practise value-based marketing also use a process known as customer relationship management (CRM), a business philosophy and set of strategies, programs, and systems that focus on 22 identifying and building loyalty among the firm’s most valued customers. Firms that employ CRM systematically collect information about their customers’ needs and then use that information to target their best customers with the products, services, and special pr omotions that appear most important to those customers. 1. LO5 Why Is Marketing Important? Marketing was once only an afterthought to production.
Early marketing philosophy went something like this: “We’ve made it; now how do we get rid of it? ” Today, marketing has evolved into a major business function that crosses all areas of a firm or organization, as illustrated in Exhibit 1. 8. Marketing works with other departments, such as research and development (R&D), engineering, and production, to ensure that high-quality, innovative products that meet customers’ needs are available in the right quantity, at the right price, and at the right pla ce, that is, wherever they want to purchase it.
It creates mutually valuable relationships between the company and its suppliers, distributors, and other external firms that are involved in the firm’s marketing process. It identifies those elements that lo cal customers value and makes it possible for the firm to expand globally. Marketing has had a significant impact on consumers as well. Without marketing, it would be difficult for any of us to learn about new products and services. You may even decide to pursue a career in marketing after you graduate.
Even if you pursue a career in another field, marketing knowledge will help you market yourself in ways that could land you your dream job. EXHIBIT 1. 8 Importance of Marketing These brands can be found in many countries. Marketing Expands Firms’ Global Presence A generation ago, Coca-Cola was available in many nations, but Levi’s and most other American and Canadian brands were not. But today most jeans, including those by Levi Strauss & Co. a nd Parasuco, are made in places other than Canada and the United States and are available nearly everywhere.
Thanks to MTV and other global entertainment venues,cheap foreign travel, and the Internet, you share many of your consumption behaviours with college and university students in countries all over the globe. The best fashions, music, and even food trends disseminate rapidly around the world. Starbucks has adjusted its menu to meet customer wants in the Japanese market more effectively. Page 21 Take a look at your next shopping bag. Whether it contains groceries or apparel, you will find goods from many countries: produce from Mexico, jeans from Italy, T -shirts from China.
Global manufacturers and retailers continue to make inroads into the Canadian market. Companies such as Honda, Sony, and Heineken sell as well in Canada as they do in their home countries. Sweden’s fashion retailer H 23 operates in 38 countries, including Canada. Its upscale competitor Spain’s Zara operates in more than 24 80 countries, including Canada. Starbucks even adjusted its menu to meet customer wants in the Japanese market more effectively. How does marketing contribute to a company’s successful global expansion? Understanding customers is critical.
Without the knowledge that can be gained by analyzing new customers’ needs and wants on a segment-by-segment, region-by-region basis—one of marketing’s main tasks—it would be difficult for a firm to expand globally. Power of the Internet 1. 1 shows how the Internet has expanded the reach of marketers and changed marketing practices. Page 22 Marketing Is Pervasive Across the Organization In value-based marketing firms, the marketing department works seamlessly with other functional areas of the company to design, promote, price, and distribute products.
Consider the Scion, a car and brand designed by Toyota for the less affluent youth market, which sometimes has been referred to as 26 Generation Y. Scion’s marketing department worked closely with engineers to ensure that the new car exceeded customers’ expectations in terms of design but remained affordable. The co mpany also coordinated the product offering with an innovative communications strategy. Because Generation Y is famous for its resistance to conventional advertising, Scion introduced a virtual road race in which participants received mileage points for sending Scion e-cards.
The more “places” they visited, the more mileage points they received. At the end of the competition, each driver’s points were totalled and compared with other racers’ scores. The driver with the most points won an onboard navigation system worth more than $2000. In addition, when Scion was a new car, the marketing department worked closely with the distribution department to ensure that advertising and promotions reached all distributors’ territories and that distribution existed where those promotions occurred.
Thus, marketing was responsible for coordinating all these aspects of supply and demand. Toyota introduced a virtual road race in which participants received mileage points for sending Scion e cards. At the end of the competition, the driver with the most points won an onboard navigation system worth more than $2000. Page 23 Power of the Internet 1. 1 Internet Marketing: Past, Present, and Future25 The Internet was released for commercial use in 1993. Immediately, the media, entrepreneurs, and others began to hype it as the “new marketing channel” that would revolutionize business practices.
For entrepreneurs and investors, it was a time of euphoria, experimentation, and instantaneous wealth; for established companies, it was a time of uncertainty and fear. Many traditional businesses with established brands thought that the Internet was just another fad; while others did not quite understand how to integrate it with their existing businesses. Fear of making mistakes that could harm their brands led many companies to create “online” businesses that were separate from their core “bricks -and-mortar” or “offline” businesses.
For instance, Procter & Gamble’s online business was called reflect. com and Kmart’s company in the United States was called bluelight. com. The apprehension that established marketers had for jumping on the dot-com bandwagon seemed justified when in 2000 the explosive growth of Internet businesses collap sed within a couple of months. The dot-com bust provided established marketers with breathing room to reflect on how they could incorporate the Internet into their business and marketing strategies.
Around 2004, almost a decade later, marketers came to realize that an effective marketing strategy requires an integration of online and offline businesses to provide customers with a seamless “multi-channel marketing” experience. W hen marketers initially pursued Internet marketing, they were mostly excited abou t designing the best website by using the latest publishing software and technology available. Although most websites were originally text-based, marketers quickly adopted multimedia technologies since their goal was to create an appealing website that would attract visitors and keep them on the site.
Little thought was given as to whether or not customers needed or valued these features. The early focus on the technology and the product is reminiscent of the product-oriented market era of early twentieth century. Two decades later, in 2012, we observe that although websites are much more complex technologically, their focus has shifted to the consumer: that is, how marketers can use the technology to identify and fulfill customer needs and deliver the best customer value while generating profits. This focus seems more in line with the value based orientation described in the book.
But, how did we get from a technology focus to a value -based focus? What were some of the steps along the way? From Static Websites to Social Media to Mobile Marketing Rewind to 1993 when the commercial Internet came into being; websites were static, text-based sites, which marketers used to “push” information to customers about their products and companies. Customer s wishing to make a purchase had to call a telephone number listed on the website. Shortly thereafter, email marketing became widespread, and the main focus was on how to create the perfect email and ensure it reached the target customers.
Second-generation websites became more dynamic and interactive; that is, they provided information to customers’ requests in real time, made greater use of multimedia technology, and offered modest interactivity. The next development was e-commerce capability, that is, the ability to order and pay for goods and services online. This capability laid the foundations for the explosive growth of online marketing since marketers could now reach customers worldwide through their online stores and customers could order products and services anytime, anywhere.
The era of instant gratification and ultimate shopping convenience seemed closer than ever. E-commerce transactions grew exponentially year after year, and they continue to grow unabated. B2C, B2B, and C2C via auction sites b ecame possible and grew exponentially. The next phase in the evolution of Internet marketing was personalization and customization, where customers were given the ability to customize the look and feel of a website, and the products shown, to suit their preferences.
Today, thanks to social networking sites such as Myspace, YouTube, Facebook, Flickr, and Twitter, and portable devices such as smartphones, social media and mobile marketing is all the rage. What will be next? The Internet is much more sophisticated and complex now than it was in the 1990s. It has changed and will continue to change. No one can predict the transform