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Chapter 1

Strategic Planning and the Marketing Management Process

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Learning Outcomes

By the end of this chapter, you should:

Understand the fundamentals, concepts, and func�ons of marke�ng and marke�ng management. Know the four elements of the marke�ng mix and be able to provide examples of the common areas of decision making related to each. Recognize the purpose, goals, and basic design of a marke�ng plan. Understand how different levels of strategy work together to promote the objec�ves of the firm.

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Ch. 1 Introduction This chapter inves�gates the fundamentals of strategic planning and the marke�ng management process. We begin with the basics of marke�ng: What is it and why is it of value? You may already be familiar with some of the core concepts of marke�ng from previous coursework or your professional experience. Just to be sure, we review the essen�al func�ons and precepts of the discipline right at the start. We then move on to an examina�on of the process of marke�ng management and the development of strategy. This sec�on highlights the strategy alterna�ves available to the organiza�on and how the marke�ng mix can be deployed to achieve strategic objec�ves. We then examine how a marke�ng plan iden�fies the specific tac�cs for the implementa�on of strategy. The concluding sec�ons of Chapter 1 examine how different levels of strategy interact to guide the organiza�on.

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Throughout my career I have traveled extensively and experienced my fair share of layovers and delays at airports. I have found that reading and conversa�on are the two most reliable ways to pass the �me while wai�ng for flights to arrive, weather to clear, and bo�lenecks to resolve themselves. On one such occasion in Toronto, I was cha�ng with a flight a�endant about our respec�ve career choices and ambi�ons. Once I had explained that I taught marke�ng at a university and did some work as a marke�ng consultant as well, she seemed disappointed. "Marke�ng? Really?" she asked incredulously. "I mean, you sound like a very smart man. . . . isn't that kind of a waste?" I was stunned and a li�le embarrassed . . . and never did find a suitable response before the conversa�on migrated to other topics. If given a second chance, I would offer a good defense for my choices. I would explain that there's more to marke�ng than she probably realized. I would do my best to explain away the bad rap that the field has go�en over the years. I would try to impress upon her the economic value and social benefits that we all derive from a vast array of diverse marke�ng ac�vi�es. But I s�ll think about that conversa�on every so o�en. It helps me to keep things in perspec�ve.

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1.1 The Importance and Scope of Marketing Marke�ng has been defined in many different ways over the years, and simply defining the term has been a conten�ous and controversial topic in both academic and business domains for nearly a century. It is a business discipline that can be defined according to its ac�vi�es, func�ons, processes, roles, values, scope, economic u�lity, and social significance based on the priori�es of its advocates and cri�cs. This text focuses exclusively on the processes of effec�ve marke�ng and marke�ng management from a business decision maker's perspec�ve. In this regard, the prac�ce of marke�ng can be defined as "the management process responsible for iden�fying, an�cipa�ng, and sa�sfying customer requirements profitably" (Chartered Ins�tute of Marke�ng, 2011). More specifically, marke�ng management can be understood as "a set of processes for crea�ng, communica�ng, and delivering value to customers and for managing customer rela�onships in ways that benefit the organiza�on and its stakeholders" (American Marke�ng Associa�on, 2011).

Both defini�ons stress that understanding buyers' wants and needs is at the very heart of marke�ng's role in the crea�on of customer value. Increasingly compe��ve global markets and rapidly shi�ing consumer needs have increased the complexity of markets and amplified the importance of the marke�ng func�on. Consequently, marke�ng and market research have emerged as essen�al core competencies for most types of organiza�ons. The responsive character of the marke�ng func�on to both rapid changes and gradual shi�s in both micro- and macro-environment condi�ons have made effec�ve marke�ng an essen�al tool for both nonprofit and for-profit organiza�ons. In short, marke�ng management provides the ability to succeed by effec�vely mee�ng the needs of target customers in a dynamic environment.

Marke�ng is essen�al to the effec�ve promo�on and successful opera�on of most business organiza�ons. The scope and pervasiveness of this essen�al func�on is evident from both the aggregate economic impact of marke�ng and the range of jobs in the field. "Sales employees in manufacturing, service, and other industries; retail employees; and workers in transporta�on, communica�ons, and other related groups represent between one-fourth and one-third of the civilian labor force. About 50 cents of every retail dollar goes to cover marke�ng costs" (World Academy Online, 2011). Marke�ng provides a very broad range of employment opportuni�es throughout business and industry, as described in Table 1.1.

Table 1.1: The 26 marke�ng occupa�ons

Product Management Adver�sing Retailing Sales Marke�ng Research Non-Profit

Product Manager, consumer goods. Develops new products that can cost millions of dollars, with advice and consent of management. A job with great responsibility.

Account execu�ve. Maintains contact with clients while coordina�ng the crea�ve work among ar�sts and copywriters. In full- service ad agencies, account execu�ves are considered partners with the client in promo�ng the product and aiding in marke�ng strategy.

Buyer. Selects products a store sells; surveys consumer trends and evaluates the past performance of products and suppliers.

Direct. Compensa�on is based mostly on commission.

Project manager, supplier. Coordinates and oversees the conduc�ng of market studies for a client.

Marke�ng manager. Develops and directs mail campaigns, fundraising, and public rela�ons for nonprofit organiza�ons.

Administra�ve manager. Oversees the organiza�on within a company that transports products to consumers and handles customer service.

Media buyer analyst. Deals with media sales representa�ves in selec�ng adver�sing media; analyzes the value of media being purchased.

Store manager. Oversees the staff and services at a store.

Sales to channel. Sells to another step in the distribu�on channel (between the manufacturer and the store or customer). Compensa�on is salary plus bonus.

Account execu�ve, supplier. Serves as liaison between client and market research firm; similar to an adver�sing agency account execu�ve.

Opera�ons manager. Supervises warehousing and other physical distribu�on func�ons; o�en directly involved in moving goods on the warehouse floor.

Copywriter. Works with the art director in conceptualizing adver�sements; writes the text of print or radio ads or the storyboards of television ads.

Industrial/semi- technical. Sells supplies and services to businesses. Compensa�on is salary plus bonus.

Project director, in- house. Acts as project manager for the market studies conducted by the firm.

Traffic and transporta�on manager. Evaluates the costs and benefits of different types of transporta�on.

Art director Handles the visual component of adver�sements.

Complex/professional. Sells complicated or custom-designed products to businesses. Requires an understanding of the technology of a product. Compensa�on is salary plus bonus.

Marke�ng research specialist, adver�sing agency. Performs or contracts for market studies for agency clients.

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In this adver�sement, Duz's marke�ng concept is to differen�ate its detergent from its compe�tors by sta�ng that the consumer can have the whitest whites "without red hands" caused by harsh cleaning chemicals.

Be�mann/Corbis/AP Images

Inventory control manager. Forecasts demand for stockpiled goods; coordinates produc�on with plant managers; keeps track of current levels of shipments to keep customers supplied.

Sales promo�on manager. Designs promo�ons for consumer products; works at an ad agency or a sales promo�on agency.

Administra�ve analyst planner. Performs cost analyses of physical distribu�on systems.

Public rela�ons manager. Develops wri�en or filmed messages for the public; handles contacts with the press.

Customer service manager. Maintains good rela�ons with customers by coordina�ng sales staffs, marke�ng management, and physical distribu�on management.

Specialty adver�sing manager. Develops adver�sing for the sales staff and customers or distributors.

Physical distribu�on consultant. Expert in the transporta�on and distribu�on of goods.

Adapted from Rosenthal and Powell, 1984

Marketing as Philosophy: The Marketing Concept

The concept of marke�ng as a business discipline has evolved significantly over �me. The field of marke�ng was once regarded simply as a branch of economics, and the emphasis was on the efficient produc�on and distribu�on of goods. In the early decades of the twen�eth century, the marke�ng emphasis became twofold: developing improved ways to sell what you produce, and improving product quality.

A different perspec�ve on the role of marke�ng began to emerge in the years following World War II. The growth of discre�onary income in the postwar era altered the rela�ve balance of power between buyers and sellers. In contrast to the pa�erns established during the Great Depression and the scarcity of the war years, buyers now had the means to be selec�ve about their purchases. Product branding became increasingly important as a means of differen�a�ng products from each other in terms of price, func�onal a�ributes, benefits, and quality. To compete effec�vely, sellers needed to develop a sharper understanding of what different types of customers wanted from the products the sellers offered. This realiza�on provided the impetus behind changes in how marke�ng was done and led to the formal recogni�on of the marke�ng concept. The marke�ng concept is a customer-oriented philosophy of business management that stresses that the objec�ves of the organiza�on can best be met through the analysis and sa�sfac�on of customers' wants and needs. This philosophy maintains that sustainable compe��ve advantage rests in focusing all of the organiza�on's efforts on iden�fying and sa�sfying the needs of the customer be�er than the organiza�on's compe�tors.

In contrast to the produc�on and selling emphasis of earlier eras, the market orienta�on established by the marke�ng concept places higher priority on understanding customers' needs before designing and producing a good or service. It explicitly recognizes that, to be successful, all of the func�ons and resources of the organiza�on need to be integrated and aligned with the goal of customer sa�sfac�on. And it explicitly iden�fies customer sa�sfac�on as the key to long- term success and profitability.

In a fundamental sense, the discipline of marke�ng remains focused on the interac�on between supply and demand, just as it did in its infancy. However, the contrasts between the contemporary customer orienta�on of marke�ng and tradi�onal economics are quite substan�al. Economic analyses of markets typically assume that all people are the same in their preferences for a given product and that all products in a category are iden�cal. In contrast, the founda�on of contemporary marke�ng prac�ce is the understanding that segments of buyers differ from other groups with respect to their wants and needs. Similarly, the value of contemporary marke�ng is based on the ability of firms to differen�ate

their unique product brands from others in the market. In a sense, it is the unrealis�c nature of these classical economic assump�ons about people and products that makes the discipline of marke�ng necessary.

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Typical marke�ng objec�ves include new products, increasing share the market, and iden�fying new markets. The marke�ng mix is integrated to meet the needs of the targeted market segments. Think of a par�cular product; how does the company appeals to their target market?

Avoiding Marke�ng Myopia

Over �me, some marke�ng organiza�ons lose sight of the importance of maintaining a customer-centered focus. In 1960, Theodore Levi� coined the term "marke�ng myopia" to describe short-sighted marke�ng strategy. The term refers to the poten�ally disastrous tendency of managers to focus on the products they sell rather than the customers they serve. As a result, they can lose sight of consumers' wants and needs as these preferences shi� over �me.

The histories of many industries provide vivid illustra�ons of opportuni�es that have been missed when management's view of buyers' wants has been shortsighted and product-oriented. The owners and managers of the vast railroad empire that dominated transporta�on at the start of the twen�eth century were focused on the efficient opera�on of trains rather than customers' needs for safe and affordable transporta�on. Consequently, they didn't recognize the opportunity to diversify into other forms of passenger and freight transport such as airplane, bus, car, and truck transporta�on.

Many successful mo�on picture companies from the "golden years" of Hollywood simply failed to recognize that their product was about entertainment rather than making movies. Many missed out on the opportunity to become television networks, for example (though 20th Century Fox is a notable excep�on). Similarly, many radio networks simply failed when confronted with the challenge of television. However, the Na�onal Broadcas�ng Corpora�on (NBC), Columbia Broadcas�ng System (CBS), and the American Broadcas�ng Company (ABC) successfully made the transi�on.

Staying focused on customers' needs is essen�al in all types of organiza�ons. Marke�ng managers need to ask themselves regularly: What business are we really in? Hospitals that focus on promo�ng wellness behave differently than those focused on trea�ng illness. A firm that realizes its business is about personal expression will respond to more opportuni�es than one that sees itself as a gree�ng card company.

Marketing Fundamentals

Marke�ng can be used to achieve a wide range of objec�ves. It determines what prospec�ve buyers want, and it also establishes the game plan for mee�ng customer demand. Although different types of organiza�ons do the work of marke�ng in different ways, the essen�al concepts of the process are the same for all. This sec�on explains those basic concepts and illustrates them using shampoo as an example product.

To begin with, a market is made up of all the individuals, groups, and organiza�ons that want or need a product and have the resources required to purchase. Products may be goods, services, ideas, places, or people. Very few markets are homogeneous, or made up of people who are all the same. Groups of prospec�ve buyers within most product markets differ from other groups based on their specific wants, needs, or purchasing ability. Market segments are clusters of prospec�ve and current customers who are similar to each other in ways that lead them to respond to a firm's marke�ng mix similarly. The process of dividing the total market into dis�nct groups or submarkets based on similar wants, needs, behaviors, or other characteris�cs is called market segmenta�on.

Marke�ng: Sa�sfying Customer Needs

Consider a very simple product like shampoo. The poten�al market for this product would include anyone with hair. Yet consumers' expecta�ons for what their shampoo should do covers a wide range of needs. Although cleaning hair is a feature that is common to all brands, one segment of the market will place the highest priority on figh�ng dandruff. Another will place greater importance on the aesthe�cs of fuller-looking, shinier hair. A third segment may stress the need for a brand that will make its hair more manageable. And, inevitably, there is always a segment whose primary priority when choosing between brands is price. It is important to recognize that these segments are not mutually exclusive with respect to the features they are seeking in a brand. Several segments, for example, may

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This father and son shop at a warehouse store to buy economy-size household items in bulk to save money. How do companies appeal to these customers?

Associated Press

want a brand that fights dandruff and makes hair shiny. However, segments are defined by differences in the rela�ve importance that each a�aches to dis�nct product a�ributes.

Each of these segments can ini�ally be defined according to what it wants from the brand it buys. An important next step in the process of market segmenta�on is examining the demographic, lifestyle, and behavioral characteris�cs of buyers who share similar needs and priori�es. The fuller-looking, shinier hair segment might be composed primarily of women aged 16 through 35. Perhaps they are less likely to be married than the popula�on at large and more socially ac�ve. Personal appearance in general, and fitness in par�cular, may be important lifestyle descriptors for this segment. The importance of developing these types of profiles is that it enables marketers to shape the promo�onal message to suit the prospec�ve buyers' lifestyles, and profiles play an important role in iden�fying the best media alterna�ves to reach the target segment. One common misconcep�on is that market segments are somehow preexis�ng divisions of the market just wai�ng for the marke�ng manager to uncover them. That is, some managers believe that market segments are simply wai�ng to be discovered in the way fossils are just below the surface, wai�ng for a paleontologist to uncover them. This is not the case. Market segments can be created by marke�ng managers based on any product or buyer characteris�cs that will be the most profitable. In fact, crea�ng new market segments within old, established product markets is one way to create new opportuni�es for the firm.

Consider the market for baby shampoo. The category name suggests a very limited poten�al market. Over the years, however, marketers have iden�fied new market segments for this product. Consumers who are concerned about the chemical "harshness" of regular shampoo brands represent an alterna�ve to the tradi�onal market. Customers with color-treated hair may find this type of shampoo a be�er op�on than "adult" brands. In short, any group of buyers who value gentleness as an essen�al product benefit of shampoo is a poten�al market segment.

Think About It

The migra�on of a brand's focus from the needs of one target market to the inclusion of others is usually confined to entering new, but similar, product-use segments—for example, from one group of buyers washing their hair to another with slightly different shampoo preferences. However, marke�ng history is replete with examples of big jumps across product categories. For instance, Arm & Hammer Baking Soda was originally limited to use as a baker's ingredient. It is now promoted for uses in household deodorizing products, toothpastes, laundry detergents, and cat li�er. Some�mes these new uses are ini�ally promoted by the manufacturer, but just as o�en they are pioneered by consumers. If you ever need to install window �n�ng film in your home or car, some manufacturers recommend preparing the glass surface by cleaning it with baby shampoo.

Can you think of other examples where products are being used for purposes different than those intended by the manufacturer?

Do you suppose it was ini�ally the manufacturer's or a consumer's new idea?

A target market is the term used to describe a group of poten�al buyers that the firm seeks to sa�sfy with its marke�ng mix. It is the segment of the market to which the firm directs its product and marke�ng efforts. Separate marke�ng mixes are developed to suit each target market according to its preferences and needs. The target market for any given product may be a single market segment, mul�ple pooled segments, or a mass market characterized by a prototypical consumer.

The tools available to the marke�ng manager to influence the target market to purchase one brand over another are collec�vely referred to as the marke�ng mix. O�en referred to as the "4 Ps," the marke�ng mix is the combina�on of four controllable factors that contribute to the organiza�on's marke�ng program: product, price, place, and promo�on. The way in which these variables are combined makes up the core marke�ng strategy of the organiza�on. The marke�ng mix is the tool kit of marketers insofar as these four elements are under the discre�onary control of the organiza�on. They provide the means by which the organiza�on can respond to and adapt to uncontrollable environmental factors such as economic, demographic, technological, natural, poli�cal, and cultural forces.

Let's return to the shampoo category. What can we say about the target market and marke�ng mix for the low-price segment of the market? In terms of demographics, you are likely to find that this segment is price sensi�ve because those in it are from the lower end of the household income spectrum. The demands of raising a large family may also be a factor in their desire to hold down expenses on common household items such as shampoo. The marke�ng mix required to sell to this segment would have several dis�nc�ve features. The product would have to be inexpensive to produce and package. This target market is not looking for anything "fancy," and a no-frills packaging presenta�on helps to communicate a good-value-for-money message. A compe��vely low price is essen�al, though this can be achieved in different ways such as coupon deals and economy-size packaging. The place element requires the manufacturer to secure distribu�on in those outlets where frugal shoppers go. These would include the big-box chain stores, price clubs, and discount and warehouse stores. The promo�onal message would necessarily emphasize value and low price.

Think About It

For virtually every product sold there is a low-price segment within the market. Suave brand shampoo has been very successful in the low-price segment of this market with promo�onal themes such as Suave does what theirs does . . . but for a lot less and Suave does what theirs does for less than half the price.

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Two product benefits for shampoo are contrasted in this map: adding volume and cleansing hair. The size of the circles indicates the market share owned by the brand. Which dominates the market?

Think of some other adver�sing themes that are intended to persuade price-conscious consumers., Can there be more than one successful brand pursuing this strategy in any given market? Can more than one brand successfully pursue this strategy in any given market?

Product differen�a�on is the term used to describe the process of dis�nguishing one product or brand from another. A product is said to be differen�ated when it is perceived as dis�nct from compe�tors' products based on any tangible or intangible feature. Product differen�a�on also refers to the generic strategy that promotes the characteris�cs or unique benefits of its brand over compe�tors' brands in the same market.

Product posi�oning, or brand posi�oning, refers to the strategy and tac�cs involved in crea�ng and shaping the brand's image in the mind of prospec�ve buyers. These images are defined rela�ve to how consumers perceive compe�ng products. Consumer percep�ons (not actual differences between products) are the cri�cal issue. In general, the term "posi�oning" can be used in reference to the process by which marketers create an iden�ty in the minds of consumers for either a product or brand.

The rela�ve posi�on of one brand to others is some�mes illustrated using a posi�oning map or perceptual chart, as shown in Figure 1.1.

Figure 1.1: Brand posi�oning map

Successful product differen�a�on and posi�oning rela�ve to the needs the target market can provide a firm with a differen�al advantage over compe�tors based on the unique a�ributes or benefits of its brand, which encourage consumer purchase. Differen�al advantages provide buyers with substan�al reasons to prefer one brand over another. Both product differen�a�on and the effec�ve posi�oning of the brand contribute to building differen�al advantages over compe�ng products.

Basic Marketing Functions

Although our approach to the prac�ce of marke�ng management emphasizes a process-oriented perspec�ve, it is worthwhile to briefly note the six primary func�ons of marke�ng management:

1. Environmental analysis 2. Consumer analysis 3. Product planning 4. Price planning 5. Place or physical distribu�on planning 6. Promo�on planning

Environmental and consumer analysis are essen�ally market research func�ons that provide the means to iden�fy new opportuni�es, evaluate market poten�al, and select target markets. One approach to environmental analysis is called PEST analysis. This model focuses on the study of poli�cal, economic, social, and technological forces within the environment that might impact the organiza�on's strategic plan. Consumer analysis provides an in-depth examina�on of the forces that shape demand. These include cultural, socioeconomic, and personal dimensions of the consumer environment. Environmental and consumer analysis are inves�gated in detail in Chapters 3 and 4.

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Product, price, place, and promo�on all have to do with the marke�ng mix, or the 4 Ps. When examined from a func�onal perspec�ve, the 4 Ps of the marke�ng mix provide the strategy planning pla�orm for the pursuit of market opportuni�es iden�fied in the environmental and consumer analyses. Specific decision-related considera�ons for each of the marke�ng mix variables are addressed in the next sec�on.

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How can you apply this process to a company, product, and target market you are aware of?

CVS and many other companies are mee�ng shoppers' needs conveniently and, ul�mately, building more traffic for their stores.

Associated Press

1.2 The Marketing Management Process Marke�ng management is a process that is intended to facilitate transac�ons by bringing buyers and sellers together. Consistent with the marke�ng concept, the ul�mate goal of the process is to create exchanges that sa�sfy both company and customer.

As illustrated in Figure 1.2, the process of marke�ng management from the seller's perspec�ve can be characterized as a series of four stages of decision making: situa�on analysis, marke�ng strategy, marke�ng mix decisions, and implementa�on and control.

Figure 1.2: Marke�ng management process

Each of these stages is described in greater detail in the sec�ons that follow. Before proceeding, however, it is important to keep two features of the model in mind. The purpose of the model is to provide a measure of discipline to the process of marke�ng management to improve the quality of managers' decisions. Its value lies in making sure that the decision maker is deliberate, thorough, and systema�c in the planning and execu�on of marke�ng strategy. An important considera�on when evalua�ng the model is that it is not simply a linear recipe card for decision making. It is intended to provide an aid to assessing the goodness of fit between marke�ng problems and alterna�ve solu�ons. As such, it is not a subs�tute for thinking. The model can only be as useful, flexible, and dynamic as the user makes it.

Stage I: Situation Analysis

In many instances, corporate, division, and business unit level goals and strategic priori�es will shape and direct the process of marke�ng management from the outset. Given those constraints, the first step of the process is to undertake a thorough analysis of the current situa�on and environment confron�ng the organiza�on. Situa�on analysis is at the heart of marke�ng's endeavor to iden�fy new opportuni�es to sa�sfy unmet customer wants and needs. Opportuni�es typically stem either from finding new ways to serve the needs of exis�ng customers or uncovering new markets for exis�ng product or service lines. Many new opportuni�es incorporate elements of both new products and new markets. Product-related opportuni�es for a regional hospital, for example, might include the addi�on of alterna�ve therapies (e.g., acupuncture) or crea�ng satellite wellness or express-care centers in local shopping centers and malls. The addi�on of a new service line in sports medicine and rehabilita�on care might be one way to reach a new segment of the market.

The goal in situa�on analysis is to provide an analysis of both macro- and micro-environmental factors that will impact marke�ng strategy. The process also serves to make the organiza�on cognizant of its capabili�es and resource limita�ons. For this reason, SWOT analysis (discussed in Chapter 3) is a star�ng point for performing situa�on analysis that is favored by many managers. SWOT is an analy�cal procedure that requires considera�on of the firm's internal Strengths and Weaknesses rela�ve to the Opportuni�es and Threats posed by the external environment.

Since the objec�ve of situa�on analysis is to uncover viable market opportuni�es, it needs to be comprehensive in scope. One way to make sure that all relevant features of the environment are considered is by using the 4 Cs framework: company, customers, compe�tors, and climate/culture. In this model, company refers to the internal capabili�es and resources of the firm, while the remaining three Cs represent elements of the external environment. (Applica�ons of this model are discussed in Chapter 5.)

Regardless of the analy�cal devices and techniques deployed, the final product of the situa�on analysis is an accurate map of both the internal and external environmental circumstances confron�ng the organiza�on. This process may iden�fy poten�al problems in the firm's current marke�ng plan that require remedial ac�on. However, the primary objec�ve is to iden�fy market opportuni�es by demonstra�ng gaps between consumer preferences and the current array of compe��ve brands. Once the most a�rac�ve of these opportuni�es are evaluated, a marke�ng strategy for applying the organiza�on's resources to sa�sfy the poten�al market demand is created.

Let's consider again the challenges confron�ng a regional hospital. The high cost of delivering quality health care and many pa�ents' limited ability to pay reflect both internal and external environmental

challenges. This growing gap or tension necessarily poses a threat to maintaining high levels of pa�ent sa�sfac�on. Marke�ng opportuni�es exist to help narrow this gap. The concept of crea�ng wellness centers at shopping centers and malls is one possible response to the challenge. These express health care centers could provide basic care for common ailments, rou�ne inocula�ons, and short customer wai�ng �mes and extended hours to make the centers more convenient. If staffed only by a registered nurse, the per-pa�ent cost of treatment for common ailments and minor injuries in this se�ng would be far less than clinic or hospital visits.

Stage II: Marketing Strategy

A�er the situa�on analysis has iden�fied the best opportuni�es for the firm, a mul�layered strategic plan is required to effec�vely and efficiently capitalize on them. The most general level of strategy that needs to be addressed at this stage in the marke�ng management process is the iden�fica�on of the generic strategy

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Strategic alterna�ves stem from either brand differen�a�on or cost-related advantages. These advantages can be broad or narrow in scope—why do you think that is?

that is best suited to pursuing the opportunity. The three basic types of generic marke�ng strategy are product differen�a�on, cost leadership, and market focus (Porter, 1980).

Product differen�a�on strategy requires dis�nguishing your product from compe�tors' in a way that makes prospec�ve buyers prefer your brand. The basis of differen�a�on can be tangible or intangible a�ributes of the product—including the brand image itself. For this reason, product differen�a�on strategy is o�en most closely iden�fied with the marke�ng func�on.

Cost leadership strategy allows a firm with lower overall costs of produc�on and marke�ng to a�ract price-sensi�ve customers by selling at rela�vely lower prices than compe�tors. Lower costs can be derived from economies of scale and experience curve efficiencies in manufacturing and other opera�onal areas of the organiza�on. Compe��vely lower direct and indirect opera�ng costs may also be rooted in outsourcing, �ghter produc�on cost control processes, more-efficient distribu�on networks, and higher rates of capacity u�liza�on.

Market focus strategy is not a separate or dis�nctly different strategy from the other two, but instead describes the scope over which the firm will implement either cost leadership or differen�a�on strategies. Organiza�ons may opt to compete in broadly defined mass markets or focus on narrower segments of the market. In a narrow, focused approach to strategy, compe��ve advantage is gained by serving the unique needs of a market segment or niche be�er than larger compe�tors can because of their size.

The generic strategy op�ons for a regional health care provider can be defined in the same way as they would be for any other type of organiza�on. Hospitals can pursue a differen�a�on strategy based on several dimensions of care. For example, some may opt to emphasize the latest in high technology, while others stress personal care. The contrast of high tech versus high touch is typical in fields such as cardiology, obstetrics, and senior care.

Cost leadership in health care can be achieved through more efficient opera�ons and superior cost management techniques. Some advantages are uniquely �ed to economies, giving bigger organiza�ons an advantage. However, smaller health care systems have access to cost-savings opportuni�es that diminish as the size of the organiza�on increases. Focus strategy op�ons, as noted, simply describe the scope over which the firm will implement either cost leadership or differen�a�on strategies. In a health care se�ng, this typically applies to decisions made for individual service lines versus the organiza�on as a whole.

The best generic strategy is chosen based on how the unique strengths of the organiza�on relate to the opportunity iden�fied by the situa�on analysis. All organiza�ons thrive in environments that allow them to leverage their strengths rela�ve to their compe�tors. The strengths of a firm are typically rooted in either superior brand differen�a�on or cost advantages over other producers. Further, these advantages can be applied in either broadly defined markets or narrow market niches. The resul�ng generic strategy op�ons are illustrated in Figure 1.3.

Figure 1.3: Porter's generic strategies

The chosen generic strategy, as the name suggests, provides a broadly defined strategic orienta�on for pursuing the iden�fied market opportunity. Beyond this ini�al determina�on of an overall strategy, three other closely related strategy decisions need to be made before an opera�onal marke�ng plan can be developed. These more specific strategic op�ons relate to market segmenta�on, product differen�a�on, and brand posi�oning.

Strategic planning is as much an art as a science, and there is no one "best way" to organize the effort. Table 1.2 provides one simple model that you may find helpful.

Table 1.2: A matrix model of marke�ng management

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The Marke�ng Mix

PRODUCT PRICE PLACE PROMOTION

Generic Market Strategy

Market Segmenta�on

Product Differen�a�on

Brand Posi�oning

Once decisions regarding the four strategy categories in the le�-hand column have been made, their goodness of fit with the four elements of the marke�ng mix can be assessed by examining each intersec�on in the 16-cell matrix. For example, is our pricing strategy (column 2) consistent with our generic market strategy, market segmenta�on strategy, product differen�a�on strategy, and brand posi�oning strategy? In prac�ce, managers may find it useful to fill in each cell of the matrix to demonstrate how each element of the marke�ng mix contributes to the strategic objec�ves established in the le�-hand column. This exercise can refine the process of strategic planning and avoid costly mismatches down the road.

Marke�ng strategy provides the overall "ba�le plan" for capitalizing on the opportuni�es ini�ally iden�fied through the situa�on analysis. The next step in the process of marke�ng management is to develop the plans for the implementa�on of the marke�ng mix.

Stage III: Marketing Mix Decisions

The marke�ng mix represents the basic tool kit of marke�ng since it provides the means for execu�ng strategy. In keeping with the marke�ng concept, the objec�ve is to make decisions and develop plans that relate the 4 Ps to the target market to provide greater perceived value than compe�tors can offer. Each of the four elements of the marke�ng mix will be addressed in detail in subsequent chapters. The outline that follows provides a brief summary of typical decisions that marke�ng managers need to make within each of the four categories.

The product variable includes both tangible and intangible dimensions of physical products and services. Common areas of product-related decision making include:

New product development, Test marke�ng, Branding and brand management, Product design and styling, Packaging, Product safety, Quality control, Post-purchase product service and support, Ancillary services and accessories, Product mix and product line management, and Product life cycle management.

The pricing variable includes both economic and psychological characteris�cs. Common areas of price-related considera�ons and decision making include:

Evalua�on of price elas�city of demand, Mee�ng legal and ethical pricing constraints, Introductory price se�ng (price skimming versus penetra�on pricing), Price discrimina�on Cost-based pricing versus demand-based pricing versus compe��on-based pricing, Economic value es�ma�on, Pricing through channels of distribu�on, Geographic pricing, Discoun�ng policies, Price–quality correla�on, Pres�ge pricing, Price lining, Leader pricing, Seasonal pricing, Bundling, Profitability and margin analysis, Break-even analysis, and Sales and profit projec�ons.

The place variable relates primarily to distribu�on and focuses on ge�ng the product to the customer. Common areas of place-related considera�ons and decision making include:

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Retailers are increasingly looking to social media to strengthen rela�onships with customers. In this image, Charlo�e Russe displays a Facebook promo�on to gain more customer support and store traffic.

Najlah Feanny/Corbis

Evalua�ng alterna�ve distribu�on plans and networks, Selec�ng distribu�on channels, Establishing and maintaining channel rela�onships, Nego�a�ng and administering channel contracts, Resolving channel conflict and maintaining channel control, Managing distribu�on coverage/intensity (intensive versus selec�ve versus exclusive), Evalua�ng and implemen�ng push versus pull strategies, Inventory management and control, Order processing, and Warehousing.

The promo�on variable encompasses a wide range of func�ons related to the firm's overall communica�ons program. Common areas of promo�on-related decision making include:

Se�ng and evalua�ng communica�ons goals, Assessing alterna�ve communica�on channels, Establishing promo�on budgets, Measuring promo�onal effec�veness, Adver�sing, Message and media planning, Social media promo�ons, Personal selling and sales management, Recrui�ng and training salespeople, Sales territory management and sales force alloca�on, Publicity and public rela�ons, Consumer- and middleman-directed sales promo�ons.

Think About It

Select a consumer product of personal interest—one that you have purchased within the past six months. It can be anything, just as long you are familiar with the product and generally understand how it is marketed. Using the matrix model of marke�ng management in Table 1.2, fill in the cells of the matrix as completely and thoroughly as you can for the brand that you purchased. Be sure that your entries correspond to your perspec�ve as a customer for this brand. In short, you are the target market. You may wish to create one or more posi�oning maps to help illustrate how you perceive the compe��ve playing field. Once you're done, examine the intersec�on of each cell.

How do the elements of the marke�ng mix align with the four strategy categories in the le�-hand column?

Does every one of the 4 Ps contribute to each of the strategic objec�ves established in the le�-hand column? Do you see room for improvement?

How would this assessment be different for other types of customers?

Stage IV: Implementation and Control

The value of the three preceding stages in the process of marke�ng management depend wholly the organiza�on's ability to effec�vely implement the developed strategy. Stages I through III have iden�fied the opportunity within the marketplace, isolated the best strategic op�on for exploi�ng the opportunity, and created the marke�ng mix that will faithfully execute the strategy. The final stage of the process is to implement the marke�ng mix decisions that have been made and monitor the results.

The final stage in the marke�ng management process is to assess whether the goals and objec�ves established through the four-step process and corresponding marke�ng plan are being achieved. This evalua�on and control process relies on specific, measureable, short-term goals or benchmarks established for the new marke�ng ini�a�ve. The comparison of performance to objec�ves provides cri�cally important performance feedback and enables decision makers to make adjustments to the marke�ng program as needed. Although poor performance may implicate the effec�veness of the marke�ng mix for a given program, it should also cause marke�ng managers to reexamine their assump�ons about the nature of the market opportunity they are pursuing. No plan can meet expecta�ons if the es�mates of market poten�al for a new opportunity are unrealis�cally inflated. Specific techniques for evalua�ng market demand and forecas�ng sales are developed in Chapter 5.

The detailed plan for implementa�on is called a marke�ng plan. The American Marke�ng Associa�on defines a marke�ng plan as "a document composed of an analysis of the current marke�ng situa�on, opportuni�es and threats analysis, marke�ng objec�ves, marke�ng strategy, ac�on programs, and projected or pro- forma income (and other financial) statements. This plan may be the only statement of the strategic direc�on of a business, but it is more likely to apply only to a

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specific brand or product. In the la�er situa�on, the marke�ng plan is an implementa�on device that is integrated within an overall strategic business plan" (American Marke�ng Associa�on, 2011).

The specific format for a marke�ng plan can vary substan�ally from one instance to the next, depending on the nature of the firm, the market, and the opportunity in ques�on. In each instance, however, the intent of the wri�en plan is to provide a detailed, systema�c blueprint for implemen�ng the decisions reached in the marke�ng management process. The outline for a typical marke�ng plan is provided in the next sec�on.

It is also worth no�ng that most compe��ve market environments are in a constant state of flux to a greater or lesser degree. The impact of macro- and micro- environmental forces on market demand requires careful monitoring. Marke�ng managers must be able to adapt the marke�ng mix for any given product to respond to these changes. Consequently, the process of marke�ng management itself requires con�nual monitoring and modifica�ons to the marke�ng mix in response to shi�s in the character of the target opportunity. As with most things in marke�ng, the focus must remain on the customer and the pursuit of ways to meet buyers' needs more effec�vely and consistently than one's compe�tors.

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A marke�ng plan iden�fies the company's strengths and weaknesses and the poten�al threats of the marke�ng environment. This ensures that specific products like PlaySta�on 3 reach the right target audience and market.

Associated Press

1.3 The Marketing Plan The marke�ng plan is the set of opera�onal blueprints that translates the ini�al strategic choices iden�fied by the marke�ng management process into ac�ons. It establishes the firm's ini�al marke�ng strategy and iden�fies the ac�vi�es required to carry out the overall plan. Marke�ng plans specify target markets and provide an overview of the decision-oriented steps and objec�ves for each element of the marke�ng mix. Addi�onal informa�on usually includes market research plans, consumer and environmental analyses, and sales forecasts.

There are many formats, outlines, and styles for wri�ng marke�ng plans, which reflects the need to tailor the plan to suit the product, market, and specific audience it is intended to reach. The following annotated outline is intended to provide a flexible guide to wri�ng a marke�ng plan, while allowing the marke�ng manager to adapt the model to suit the unique demands of most business situa�ons.

Marketing Plan Outline

The marke�ng plan outline consists of 11 sec�ons. It begins with an execu�ve summary that provides a preview of the main points of the plan. Sec�on II describes the current situa�on confron�ng the firm and includes an assessment of the compe��ve environment. This is a pivotal sec�on insofar as it forces marke�ng managers to develop a comprehensive understanding of the markets in which they are compe�ng. The sec�on that follows presents the results of any market research that has a direct

bearing on the viability of the plan.

Sec�ons III through V describe all of the strategic decisions and goals related to the pursuit of this market opportunity, with par�cular emphasis on market segmenta�on and product posi�oning. Sec�ons VI through IX provide a breakdown of how the marke�ng mix will be used to accomplish those strategic goals.

The final two sec�ons of the marke�ng plan include forecasts of the financial results an�cipated from the execu�on of the plan and a summary of the long-range plans for this product.

SECTION I: Execu�ve Summary

The execu�ve summary should provide an overview of the en�re plan, including a descrip�on of the product, the differen�al advantage, the required investment, and an�cipated sales and profits.

SECTION II: Situa�on Analysis and Assessment of the Compe��ve Environment

This sec�on of the marke�ng plan needs to:

Provide a review of past performance for exis�ng programs covered by the plan. Discuss any issues within the macro-environment that are per�nent to demand for your product, markets, and the proposed marke�ng plan. Do you intend to profit from any changes taking place in the marketplace? Macro-environmental dimensions may include: demographic shi�s, legal/poli�cal factors, changing lifestyles, social changes, economic trends, technological changes, or shi�s in cultural/religious values. Describe your compe�tors, their products, and strategies. What are their advantages in the market? What channels do they use? Iden�fy their strengths and weaknesses. Prepare a SWOT chart illustra�ng strengths, weaknesses, opportuni�es, and threats relevant to the plan.

SECTION III: Researching Market Opportuni�es and Market Poten�al

This sec�on of the marke�ng plan will present any informa�on that indicates the viability of this product. This could include either primary or secondary data that describe the size or poten�al of this market.

Fully describe your market research plans. What types of research would you conduct prior to introducing this product? Be explicit when explaining the purpose or intent of this research plan. Describe your research methodology as completely as possible.

SECTION IV: Market Segmenta�on, Product Differen�a�on, and Posi�oning

Present your segmenta�on analysis by iden�fying the market segments, segment name, and descrip�ve characteris�cs. Include a chart presen�ng this informa�on and the purchase determinant a�ributes, features, or benefits for each of the following:

Target Market Selec�on/Strategy. This should be based on the preceding analysis, specifying target market(s) by name and buyer characteris�cs. Describe your target market segment(s) in detail by using demographics, psychographics, geography, lifestyle, or whatever segmenta�on variables are appropriate. Explain why this is your target market. Describe the size and other relevant group characteris�cs. Product Differen�a�on. This should be a descrip�on of the essen�al difference between your product and its closest compe�tors. Indicate any poten�al for a�rac�ng other groups of consumers in the future: Why is it a superior alterna�ve for some buyers . . . specifically your target market? What is the mo�va�on of buyers and users of compe�ng products? What would be their mo�va�on for buying your product?

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Product Posi�oning. Here you should prepare complete posi�oning maps or comparable charts for your product and compe�ng products on relevant dimensions.

SECTION V: Statement of Marke�ng Strategy and Goals

Based on the analysis presented in Sec�ons I through IV, specify your overall marke�ng strategy for the product. In this sec�on you need to state your goals for the product in terms of sales volume, market share, return on investment, or other measures, and the �me needed to achieve each of them. Sec�ons VI through IX will describe your implementa�on of this strategy—how you will deploy the marke�ng mix to carry out your strategy.

SECTION VI: Product Planning

This part of the marke�ng plan should discuss your firm's product planning issues. What is your brand management strategy? Describe your ra�onale for this choice. Discuss product packaging and the purposes your packaging serves. Include a discussion of relevant product features that were not described previously.

SECTION VII: Pricing

Here, discuss the nature of your pricing strategy and tac�cs for this product rela�ve to compe�ng brands and subs�tute products. Organize this sec�on to stress any factors or strategies that are important to the success of your marke�ng plan. Be certain to address the issue of "skimming" versus penetra�on pricing.

SECTION VIII: Place, Physical Distribu�on, or Loca�on Strategy

In this sec�on, you should specify the details of your distribu�on strategy, compare your system of product delivery to those used by compe�tors, and describe where your service will be offered or how the service will be delivered to the buyer. How important is the choice of loca�on? Discuss the relevance of push versus pull strategies with respect to your goals.

SECTION IX: Promo�on

State the goals of your promo�onal strategy and iden�fy your promo�onal campaign theme clearly and concisely. Remember to explain how the choice of goals and themes will accomplish the objec�ves stated in Sec�on V. You should also discuss how the elements of the promo�ons mix are interrelated in your promo�onal efforts. Where do your priori�es lie?

SECTION X: Projec�ons of Sales, Costs, and Profits

You will need to determine project or product launch startup costs and a monthly opera�ons budget. Calculate the break even point for alterna�ve price levels and provide sales and cash flow projec�ons for same.

SECTION XI: Summary and Conclusion

In addi�on to a summary overview of the plan, you should also provide a descrip�on of your long-range plans and expecta�ons for this product. This sec�on also offers an opportunity to highlight the strengths of your marke�ng plan and acknowledge its weaknesses.

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Companies are increasingly responding to customers' social concerns as well as their product needs to strengthen the image of the brand.

WireImage/Ge�y Images

1.4 Hierarchy of Corporate, Business, and Marketing Strategies The process of marke�ng management takes place within the much broader context of the organiza�on's limited resources and objec�ves. The hierarchy of most large organiza�ons requires that the strategic direc�on for the whole body is established at the highest levels. Consequently, marke�ng decisions at lower levels of the hierarchy must be informed and shaped by an understanding of the organiza�on's larger priori�es and goals.

The term strategy has many meanings, depending on the context in which it is used. In its simplest form, however, a strategy is a long-term plan of ac�on designed to achieve specific objec�ves. In business, common strategic goals are o�en expressed in terms of growth and profitability. Strategy is dis�nct from tac�cs, which are the short-term means required to execute the strategy and achieve the stated goals.

In this sec�on, we turn our a�en�on to big picture issues by tracing the path of strategic planning from its origins in the company mission statement and through the development of a corporate-level strategy un�l we reach the level of the individual business units. It is at the business unit level of decision making that marke�ng managers take charge of strategic planning.

Corporate Mission Statement

Most large organiza�ons develop mul�ple levels or layers of strategy over �me. Corporate-level strategy establishes the opera�onal domain or boundaries of the organiza�on. The corporate mission statement defines the purpose and scope of the organiza�on. In doing so, it typically sets forth the company's values and establishes the predominant areas of business focus and prac�ce. A formal corporate mission statement may also include other features such as the historical roots of the firm, the prevailing management philosophy, relevant environmental concerns, and a statement of what the company perceives as its dis�nc�ve competencies.

Peter Drucker, a twen�eth-century business author, believes that the mission of a corpora�on can be defined by the answer to five basic ques�ons (Drucker, 2008):

1. What is our mission? 2. Who is our customer? 3. What does the customer value? 4. What are our results? 5. What is our plan?

Corporate mission statements define the character of the company for people inside and outside the company. The most significant role of the mission statement for company managers is in shaping the development of corporate-level and business-level strategy.

Corporate Strategy

Strategies at all levels of an organiza�on share certain features. They define the objec�ves that the business will pursue within a given environment, and they guide the alloca�on of organiza�onal resources and effort. At a basic level of analysis, corporate-level strategy is primarily concerned with establishing the corporate domain by answering the core ques�on, "What businesses should we be in?" Business-level strategy is designed to answer the ques�on, "In which product markets should we compete within these businesses?" Marke�ng strategy is a statement of how a brand or product line will achieve its objec�ves within the broader context of business-level objec�ves.

Corporate-level strategy defines the business areas in which the organiza�on will compete and provides a statement of the core ra�onale required to integrate the subordinate goals of the opera�onal subunits and func�onal departments. This is necessary to be certain that every strategic business unit (SBU) within the company is pulling in the same direc�on.

Strategic Business Units

Strategic business units are o�en the unit of analysis for planning corporate strategy, and they can be defined in many ways. SBU typically refers to any major product or service line within a company that is small enough to be flexible in its response to external market forces and big enough to exercise direct control over the internal decision factors affec�ng its performance. From a marke�ng manager's perspec�ve, this includes direct control over the elements of the marke�ng mix. Most SBUs have a significant degree of managerial autonomy and have their own objec�ves and business strategies independent of the organiza�on as a whole. The strategy statement for a strategic business unit defines the markets in which the business will compete and describes how it intends to achieve and promote a compe��ve advantage in that market. From the perspec�ve of planning corporate strategy, SBUs represent the individual elements within the company's por�olio of business ventures.

Alloca�ng Corporate Resources

Large corpora�ons typically have many SBUs under their organiza�onal umbrella. Having an array or por�olio of product lines and brands under the control of one en�ty affords the company several poten�al advantages. Managers can shi� the investment of corporate resources to those SBUs that hold the promise of greater growth and profitability while reducing their commitment to less a�rac�ve op�ons. These resources may include the assignment of key managerial talent, research

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The BCG Growth-Share Matrix helps managers assign corporate resources to opportuni�es with the greatest poten�al by evalua�ng each SBU's rela�ve market share and the corresponding rate of market growth.

and development funding, and marke�ng support. Marke�ng support includes the company's investment in product development, adver�sing, promo�ons, the development of distribu�on channels, and the commitment of increased support from the sales staff.

In the early 1970s the Boston Consul�ng Group (BCG) introduced a conceptual planning model for managing a por�olio comprised of mul�ple SBUs. The BCG Growth-Share Matrix is an aid to decision making that displays each of the firm's strategic business units on a two-by-two graph defined by forecasted market growth rate and current rela�ve market share. Each SBU is assigned to one of four categories on the resul�ng matrix as a func�on of its market share rela�ve to immediate compe�tors and growth rates for the industry.

The BCG matrix illustrated in Figure 1.4 provides a framework for evalua�ng the alloca�on of corporate resources among different business units. Recommenda�ons for the alloca�on of resources to strategic business units are made according to where the units are situated within the BCG Growth-Share Matrix.

Figure 1.4: BCG Growth-Share Matrix

Cash cow is a business unit that has a large market share in a mature, slow-growing industry. These units typically generate large profits and require rela�vely li�le investment to maintain their market share in slow growth industries. Cash generated from cash cows can be reinvested into other, growth-oriented SBUs.

Stars are defined by their rela�vely high market shares in high-growth markets. They tend to generate substan�al profits but also consume substan�al resources to finance their con�nued growth in rapidly growing, compe��ve markets. Just "keeping up" in these dynamic markets may require a substan�al commitment from the firm. If successful, a star will become a cash cow in the long run, as its industry matures.

A ques�on mark (some�mes called a "problem child") is a business unit that holds a rela�vely small market share in a high growth market. These units do not generate substan�al profits at this �me, but they require resources to grow their market share. Whether they will succeed and develop into stars is usually uncertain, but they s�ll require high levels of investment to maintain or build their market share. The decision to invest in these opportuni�es or divest them is among the most challenging ones facing marke�ng managers.

Dogs provide the organiza�on with li�le profitability or opportunity for sales growth. These are SBUs with rela�vely small market shares, surviving in a low-growth or mature industry. A dog may not require substan�al cash to maintain its market posi�on, but it �es up capital that could be be�er invested in other product lines.

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Companies succeed by looking for new ways to serve their customers' essen�al needs. A fruit "floral" basket is an example of this innova�ve response to customer desires.

Design pics/SuperStock

The BCG por�olio analysis can be applied to organiza�ons of kinds and sizes. Consider the challenges facing a small retail florist shop. Perhaps its cash cows are made-to-order floral arrangements and fresh-cut flowers sold to walk-in traffic. The market is defined by the store's loca�on. These represent the core SBUs that generate most of the stores profits.

Online sales and local delivery have been growing in popularity. This shop got into this aspect of the market earlier than most. It enjoys rela�vely high market share on a citywide basis and con�nued sales growth. Though quite profitable on a per-order basis, the costs of maintaining the website, making deliveries, and promo�ng the service have been limi�ng the overall profitability and growth of this SBU. It will require investment in newer technology and dedicated delivery staff to remain compe��ve in this market. This could be considered a star.

Recently this florist has been experimen�ng with line extensions of edible products such as fruit baskets and chocolate bouquets. This is currently a very high-growth market in this area, but franchised compe�tors are capturing most of the sales volume. To build market share, this ques�on mark would require significant investments in new prepping/packaging facili�es, the acquisi�on of more inventory, and a big commitment to adver�sing and promo�on. If the franchised opera�ons are already too well entrenched in prospec�ve buyers' minds, all of this investment could be lost.

Small toys, stuffed animals, and novel�es related to specific holidays are also sold at the retail shop. The margins are quite poor, since the florist needs to compete on price with the big-box retailer across the street. These lines require far more inventory and retail space than they are worth. However, many of the store's oldest and most loyal customers have

been faithfully buying these items for years. In fact, the tradi�on began with many of the current customers' parents at a �me when there were no big-box retailers in the city. The owner may feel the need to keep this dog to retain the loyalty and goodwill of some of his best customers.

The underlying conceptual model is straigh�orward and intui�vely appealing, but, as with all of the decision making aids presented in this text, it is not intended to be a subs�tute for thinking. Each SBU requires considera�on and subsequent analysis on its own merits. O�en other considera�ons take precedence over near-term growth. Some�mes, for example, a firm will retain an "old dog" long a�er its financial value to the company has ended. Old flagship brands have value in terms of the company's image, its rela�onship to core customer groups, and its significance to the firm's own employees.

Although the BCG matrix can be of great value in the process of strategic planning, it is necessary to understand the basic assump�ons required by the model. First, it assumes that increasing market share will result in a corresponding growth in profitability. However, the costs of building market share o�en grow propor�onately faster than the corresponding improvements in profits. In short, "buying" more market share can cost more than it is worth.

A second poten�al weakness in the applica�on of this model is that it can only provide a snapshot of the current situa�on. There is a built-in assump�on that growing markets will con�nue to grow and not decline. If this assump�on is violated by the reality of dynamic market shi�s, the firm may reassign resources to units that represent a declining opportunity. Conversely, the model may underes�mate the poten�al value that remains in declining markets and prompt a shi� of resources away from profitable opportuni�es.

Expansion and Diversifica�on

The BCG Growth-Share Matrix model focuses on how to allocate corporate resources within an exis�ng por�olio of business units to improve the organiza�on's performance in the dimensions of growth and profitability. Two other paths to the pursuit of these goals rely on the expansion of the current business por�olio and diversifica�on into new areas of business. Decisions about expanding or diversifying the corpora�on's por�olio of SBUs are complex and typically have substan�al consequences for the organiza�on, but the iden�fica�on and development of new opportuni�es is essen�al to the growth and long-term success of the firm. As we will see in subsequent sec�ons of the text, marke�ng managers rely on several different approaches to finding and evalua�ng growth opportuni�es. In Chapter 3 we will examine a range of applica�ons and market research methodologies for uncovering poten�al new ventures. This includes the Ansoff Matrix model and SWOT analysis. Chapter 5 will explore the techniques that marke�ng managers use to evaluate market demand for new products and forecast sales.

Strategic Decisions for Marke�ng Managers

When it comes to making strategic decisions, marke�ng managers necessarily take their lead from strategies set at the corporate and divisional levels of their organiza�on. The larger strategic context for the iden�fica�on of marke�ng objec�ves, new market opportuni�es, and subsequent development of marke�ng plans is provided by the organiza�on's corporate strategic plan. In many instances, the specific corporate culture will also establish a prevailing theme in terms of generic compe��ve strategies. For example, some companies find that their core competencies in manufacturing or distribu�on favor the pursuit of a cost leadership strategy in most product-markets. In fact, such firms are likely to evaluate prospec�ve market opportuni�es based on the ability to exercise this compe��ve advantage.

A marke�ng strategy is a statement of how a brand or product line will coordinate the marke�ng mix to achieve its objec�ves. The strategy for a given product or service is always specific to its target market. Marke�ng objec�ves iden�fy growth and profitability goals for the firm in quan�ta�ve terms (e.g., sales, profit, and market share) as well as establish benchmarks for qualita�ve goals (e.g., market leadership and corporate image). To be effec�ve in shaping decision making, these objec�ves must be specific, measurable, and stated specifically for the �me period for which they are in effect. These objec�ves can then be converted into detailed goals that shape the integra�on and coordina�on of the marke�ng mix. Marke�ng strategy also provides direc�on regarding issues such as the segmenta�on of the market, iden�fica�on of the target market, posi�oning, and the alloca�on of budgets.

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Ch. 1 Conclusion The strategic applica�on of the principles of marke�ng management provides many firms with an essen�al compe��ve advantage in crowded markets. The value of the marke�ng func�on increases as the compe��on for customers and market share intensifies. Effec�ve managers are those who can leverage the resources of the firm to serve the needs of their target market more efficiently and effec�vely than their compe�tors.

At the core of marke�ng strategy is the marke�ng concept: the philosophy that emphasizes customer sa�sfac�on as the means to sustained compe��ve advantage and profitability. Consequently, companies need to be keenly aware of the need to understand value: the basis on which consumers make purchasing decisions. Our focus in the next chapter will be on the marke�ng manager's role in crea�ng value for the buyer as the primary path to producing customer sa�sfac�on.

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Ch. 1 Learning Resources

Key Ideas

Cri�cal Thinking Ques�ons

1. Marke�ng can't possibly be the only effec�ve business strategy. What alterna�ve strategy paradigms or philosophies are there? Can these alterna�ves be used effec�vely in isola�on? Can they be used in conjunc�on with marke�ng strategy?

2. Why is so much emphasis in marke�ng placed on brands? How did companies compete with each other before there were brands? 3. What does a brand name mean to a consumer? Consider some of your favorite brands. Are you brand loyal? Why? 4. The marke�ng concept requires balancing the interests of consumers against those of the company. What happens if things get out of balance and you become too

focused on just customer sa�sfac�on or just profitability? 5. Marke�ng myopia happens all the �me in business. Consider what different types of businesses would look like if they just focused on the quality of the products

they sell and ignored the preferences of customers. 6. Product differen�a�on and brand posi�oning are very important concepts. Can you explain how these two concepts differ from each other? Use two or three

specific examples to illustrate the contrast. 7. Why are new market opportuni�es and growth considered essen�al to the survival of both small and large companies? Why can't an organiza�on remain content

to stay where it is? 8. Explain how Porter's generic strategy op�ons could be applied to a symphony orchestra, a carpet manufacturer, and a CPA firm. Does this model of three

alterna�ve strategies seem to work be�er in one of these contexts than the other? Why? 9. The text noted that strategic business units are typically the unit of analysis for planning corporate strategy. Why does this make more sense than planning at the

divisional level for large corpora�ons?

Key Terms

Click on each key term to see the defini�on.

BCG Growth-Share Matrix (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A decision making aid that displays strategic business units on a two-by-two graph defined by forecasted market growth rate and rela�ve market share.

cash cow (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An SBU with a large market share in a mature, slow-growing industry.

corporate mission statement (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A formal, wri�en statement that defines the purpose and scope of the organiza�on.

cost leadership strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Leveraging lower overall costs of produc�on to enable the firm to a�ract price-sensi�ve customers by selling at prices that are rela�vely lower than compe�tors' prices.

differen�al advantage (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

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The unique product a�ributes or benefits that provide buyers with significant and substan�al reasons to prefer one brand over another.

dogs (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

SBUs with li�le profitability or li�le opportunity for sales growth.

generic strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A general level of strategy applied to the pursuit of market opportuni�es. The three basic types of generic marke�ng strategy are product differen�a�on, cost leadership, and market focus.

market (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

All the individuals, groups, and organiza�ons that want or need a product and have the resources required to purchase.

market focus strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A strategy op�on defined by the scope over which the firm will implement either cost leadership or differen�a�on strategies.

market segmenta�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of dividing the total market into dis�nct groups or submarkets based on similar wants, needs, behaviors, or other characteris�cs.

market segments (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Clusters of prospec�ve and current customers who are similar to each other in ways that lead them to respond to a firm's marke�ng mix similarly.

marke�ng concept (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A customer-oriented philosophy of business management which stresses that the objec�ves of the organiza�on can best be met through the analysis and sa�sfac�on of customers' wants and needs.

marke�ng management (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A set of processes for crea�ng, communica�ng, and delivering value to customers and for managing customer rela�onships in ways that benefit the organiza�on and its stakeholders.

marke�ng mix (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Tools available to the marke�ng manager to influence the target market to purchase one brand over another. O�en referred to as the 4 Ps.

marke�ng objec�ves (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Growth and profitability goals for the firm expressed in quan�ta�ve and qualita�ve terms.

marke�ng plan (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A document composed of an analysis of the current marke�ng situa�on, marke�ng objec�ves, marke�ng strategy, marke�ng mix plans, and financial projec�ons.

marke�ng strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A statement of how a brand or product line will coordinate the marke�ng mix to achieve its objec�ves.

place (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

One of four variables in the marke�ng mix; relates primarily to distribu�on and loca�on decisions.

pricing (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

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3/26/2019 Print

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One of four variables in the marke�ng mix; relates to both economic and psychological dimensions of price se�ng.

product (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

One of four variables in the marke�ng mix; relates to both tangible and intangible dimensions of physical products and services.

product differen�a�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The process of dis�nguishing one product or brand from another.

product differen�a�on strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Dis�nguishing your product from compe�tors' products in a way that makes prospec�ve buyers prefer your brand. The basis of differen�a�on can be tangible or intangible a�ributes of the product.

product posi�oning (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The strategy and tac�cs involved in crea�ng and shaping the brand's image in the mind of prospec�ve buyers. Product posi�oning is also referred to as brand posi�oning.

promo�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

One of four variables in the marke�ng mix; relates to the firm's overall communica�ons program.

ques�on mark (problem child) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An SBU that holds a rela�vely small market share in a high-growth market.

rela�ve market share (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The ra�o of one SBU's market share to the market share of its largest compe�tor.

stars (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

SBUs that exhibit rela�vely high market share in high-growth markets.

strategic business unit (SBU) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Any product or service line within a company that is small enough to be flexible in its response to external market forces and big enough to exercise direct control over the internal decision factors affec�ng its performance.

strategy (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A long-term plan of ac�on designed to achieve specific objec�ves.

tac�cs (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The short-term means required to execute strategy and achieve specific objec�ves.

target market (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A group of poten�al buyers that the firm seeks to sa�sfy with its marke�ng mix. It is the segment of the market at which the firm directs its product and marke�ng efforts.

Web Resources

This website provides free access to hundreds of contemporary ar�cles on all phases of marke�ng and marke�ng management. This expansive range of thought- provoking readings should be of interest to both students and marke�ng professionals. This can be a valuable to reference as you read each successive chapter of this text. www.chapmanrg.com/IMR/ (h�p://www.chapmanrg.com/IMR/)

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3/26/2019 Print

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This is the home of the U.S. Small Business Administra�on on the Web. The site provides a wide array of resources for small businesses, small-business owners, and prospec�ve business owners. It includes informa�on on company forma�on, marke�ng a business, legal tools, and expert advice from professionals. It has a great deal of prac�cal informa�on on developing business plans. www.sba.gov (h�p://www.sba.gov)

This site provides informa�on specific to the prepara�on and presenta�on of marke�ng plans. Features include a marke�ng plan outline, conduc�ng market research, iden�fying your best poten�al customers, and understanding your compe��on. www.mplans.com (h�p://www.mplans.com)

This is the homepage for Sales & Marke�ng Management, one of the leading publica�ons in the sales and marke�ng field. The website provides free access to ar�cles and expert opinion on all phases of the marke�ng management process. www.salesandmarke�ng.com (h�p://www.salesandmarke�ng.com)

This link provides direct access to the Occupa�onal Outlook Handbook at the U.S. Bureau of Labor Sta�s�cs. This source profiles several hundred occupa�ons describing the nature of the work involved, typical pay ranges, and employment projec�ons for the coming decade. h�p://bls.gov/ooh/ (h�p://bls.gov/ooh/)

3/26/2019 Print

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Chapter 2

Value Creation and Customer Satisfaction

istockphoto/Thinkstock

Learning Outcomes

By the end of this chapter, you should:

Understand the founda�ons of customers’ percep�ons of product quality and value and their rela�onship to customer sa�sfac�on. Appreciate how total quality management and con�nuous quality improvement processes can be applied to enhance customer sa�sfac�on. Compare and contrast the product supply system with the value delivery system. Know the elements of the value chain and the general principles of applying value chain analysis. Understand how customer rela�onship management and customer profitability analysis can be used to build customer loyalty. Recognize the role of customer life�me value in shaping the development of marke�ng strategy and plans.

3/26/2019 Print

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Ch. 2 Introduction This chapter examines how the marke�ng management process creates value for customers and explores the interrela�onship between different concep�ons of value and customer sa�sfac�on. We begin by developing an understanding of value that is focused on the buyer, not the product being sold. It is a customer-driven measure that is derived from percep�ons of product quality and price. Essen�al to understanding this perspec�ve is the importance of maintaining a marke�ng orienta�on with the organiza�on. We then move on to develop our concep�on of how customer sa�sfac�on is rooted in buyers’ prior expecta�ons of product value. The principles of total quality management, con�nuous quality improvement, and value chain analysis are introduced as poten�ally important drivers in crea�ng and delivering consistently high levels of customer sa�sfac�on. The concluding sec�ons of Chapter 2 examine how the tools of customer rela�onship management and customer profitability analysis can be applied to maximize the financial value of customer loyalty.

* * *

We typically associate outstanding customer service with small, local retail businesses . . . places where we recognize faces and o�en know the names of service providers. Heroic plumbers coming out at 2 a.m. to stop the basement from flooding. A den�st coming in to his office on a Sunday to a�end to an abscessed incisor. The auto mechanic who loaned an out-of-town family his car so that they could con�nue on their vaca�on while he rebuilt the failing transmission on their 1997 Dodge Caravan.

Stories of great customer sa�sfac�on experiences are less o�en told about large, seemingly impersonal or distant businesses such as Internet service providers, wireless carriers, and airlines. When you do hear these stories, however, they are o�en about individual employees who have gone out of their way to help a customer, o�en in ways indirectly related to their company’s core business. Consider the case of a lost toy—a raggedy, but much loved, stuffed hedgehog. "Hiram" was accidently le� behind by a Texas family on vaca�on at a 4,000-room hotel complex in Las Vegas. More specifically, le� ensnared in a tangle of bed sheets by 4½-year-old Tinya.

When Tinya’s mom called the hotel a�er returning to Houston, they assured her they would try to find Hiram . . . and they did. Though now thoroughly clean, Hiram had not survived the rigors of ins�tu�onal laundering unscathed. However, when he arrived home via FedEx three days later, only the mom no�ced or cared about the careful repairs that someone had made.

We don’t know how many people were involved in the search, rescue, and repair of Hiram.

We don’t know, but we’re pre�y sure that Tinya was delighted by the reunion with her favorite hedgehog. And we definitely know that her mom was a sa�sfied customer, even though her vaca�on was over and she had to return to work. Incidentally, we also know . . . though the hotel didn’t .  . . that mom owns one of the largest independent conference and conven�on planning firms in Texas.

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This adver�sement from the "Fair Trade" Just Coffee Coopera�ve illustrates that consumers are concerned with the social implica�ons of their purchases as well as the product-specific a�ributes.

Just Coffee Coopera�ve

2.1 Marketing Orientation and Customer Value As noted in the previous chapter, the marke�ng concept is a customer-oriented business philosophy that stresses customer sa�sfac�on as the key to achieving organiza�onal goals. The transla�on of the marke�ng concept from philosophy to actual business prac�ces requires the establishment of a marke�ng orienta�on within the firm. Crea�ng and maintaining a marke�ng orienta�on requires sustained focus on the elements of that external environment that make the greatest impact on the company’s ability to sa�sfy its customers. First and foremost are the customers themselves. Successful firms understand their customers’ preferences and are able to effec�vely adapt to market shi�s. In fact, a thorough understanding of the target market will enable the business to an�cipate some changes in buyer preference.

The second dimension of the external environment that needs to be studied and monitored is the compe��on. The marke�ng mix offered by compe�tors seldom remains sta�c. They are also in the process of refining and reshaping their marke�ng efforts, exploring new opportuni�es, and trying to find be�er ways to sa�sfy their prospec�ve buyers. They are in business to sa�sfy some of the same target markets that your firm is pursuing, and they are not likely to be any less earnest in their efforts. As obvious as this may seem, far too many marke�ng managers develop elaborate plans without any considera�on for how their compe�tors’ strategies are evolving and how they will respond to your price change, new adver�sing campaign, or shi� in distribu�on strategy. In the same way that marke�ng managers some�mes become myopic by focusing on the product rather than the customer, they can also develop blinders—failing to pay a�en�on to shi�s in marketplace dynamics and compe��ve behavior.

In addi�on to being focused on the customer and the compe�tors, the development of a compe��vely successful marke�ng orienta�on also requires organiza�onal discipline. It requires that all of the func�ons and resources of the organiza�on be aligned and integrated with the primary corporate objec�ve of customer sa�sfac�on. This is not always readily accepted within organiza�ons. The percep�on that the objec�ves of other func�onal areas within the firm should be subordinated to marke�ng is frequently met with resistance. For example, produc�on managers may feel that they have been hired to improve the efficiency of the produc�on processes first and foremost. Improvements in the quality of the product, if any, will have to be a consequence of those goals. However, be�er-built products that don’t reflect the preferences of the target market simply won’t sell, no ma�er how well they have been designed.

Crea�ng a Marke�ng Orienta�on

Consider the example of a Dave Ingraham, a young entrepreneur who has just graduated from an MBA program and wants to open a small café in the northeastern college town where he lives. He is a�racted to the college market because he believes he understands the prospec�ve customers and senses an unmet market opportunity near campus. Star�ng from a marke�ng orienta�on rather than a product focus, he will need to analyze those characteris�cs of the environment that will impact his ability to sa�sfy this target market. Before thinking about interior designs, promo�onal schemes and loca�on decisions, Dave needs to be sure that he understands the preferences, behavioral tendencies, and key trends in this compe��ve market.

One emerging trend in this age segment of the market is the resurgence of interest in making coffee at home. Specifically, there has been very significant growth in the popularity and sales of single-serve pod brewing systems. These single-pod brewers offer college students an easy-to-use, cost-effec�ve alterna�ve to running out to the local coffee shop. This may work against Dave’s ini�al marke�ng plan and require changes to the basis on which the café environment appeals to college students.

Another trend in the market that warrants Dave’s a�en�on is college students’ growing concern over safe environmental and ethical prac�ces. Though evident in many markets, every coffee-related business needs to be par�cularly sensi�ve to these issues due to the growth of the "fair-trade" movement in coffee-producing countries.

What types of changes would you make to the typical café to overcome or even capitalize on these two specific trends in coffee consump�on and sales?

A working marke�ng orienta�on requires more than simply tracking trends in the product markets where you compete. For example, Dave read an ar�cle in a business magazine that said sales of premium-priced, high-quality coffee by fast- food chains has experienced very high rates of growth in recent years. Should this be considered good news? Not necessarily. Na�onal trends are not indica�ve of local condi�ons. College students may be substan�ally more price- sensi�ve than the average coffee buyer. Fast-food chains are prospec�ve compe�tors with business models that are vastly different from what Dave has ini�ally planned to do.

All efforts to understand the compe��ve environment need to be viewed within the specific context of your target market. In this instance, the age, income levels, family status, and other demographic characteris�cs of the target market make these consumers atypical coffee buyers in some ways. For a retail business, the unique quali�es of the local market also limit the value of making comparisons to na�onal trends. The number, loca�on, and business model of compe�tors within the market boundaries of this proposed café define the compe��ve landscape. Na�onal pa�erns of compe��on may be meaningless. Fostering a working, useful marke�ng orienta�on always requires a narrow focus on those factors within the specific environment that directly impact the firm’s ability to sa�sfy its customers.

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Consumers try to maximize the value of their purchase by iden�fying the best quality at the lowest price rela�ve to their product-specific needs.

Associated Press

Local consumer trends o�en fail to keep pace with changes at the regional or na�onal level. In fact, local cultures can some�mes push consump�on pa�erns in the opposite direc�on of that observed at the na�onal level. Can you think of any examples of this phenomenon in your town or city?

Building Customer Value and Satisfaction

Value is a term that can carry very different connota�ons depending on the circumstances. In marke�ng, it is important to recognize that it is not synonymous with product quality. The be�er-built product may be of very high quality, but it provides li�le value to consumers if they derive no sa�sfac�on from its ownership or use. Value is, first and foremost, always specific to the buyer—not the seller and not the product.

This point can be reinforced by looking at the difference between a product- and a market-oriented view of value crea�on. A product orienta�on will emphasize excellence in engineering and manufacturing to produce a product that is superior to the available alterna�ves on the market based on the designer’s understanding of how product quality should be assessed. Incremental "improvements" to the product are subject to financial analysis with rela�vely li�le regard for buyers’ preferences. The underlying mentality is that we are compe�ng in an economic market where people are pre�y much all the same and products are undifferen�ated commodi�es. Although there may be product markets where one or both of these assump�ons are valid, they are quite rare. The role of marke�ng in this scheme is simply to sell whatever the company produces. Marke�ng managers are tasked with finding the best market for the product that has been produced and making the sale.

The market-oriented model to crea�ng value begins with the focus on the target customer. The prospec�ve buyers’ wants and needs provide the ini�al blueprint for the design of the product. Ul�mately, it will be the buyers’ percep�ons of product quality that determine value and their experience with the product that determines customer sa�sfac�on. Marke�ng is involved in the overall process far earlier than in the alterna�ve product-driven model. Through the market research func�on, marke�ng managers are tasked with iden�fying the target market and determining what these customers want from the products they buy. Similarly, the job of understanding how consumers perceive the array of compe��ve brands in this category also resides in the marke�ng department.

Based on this analysis of the two alterna�ves, it is apparent that value is not simply product quality, though it has something to do with quality. It is also evident that its meaning resides with the buyer more than the seller—that is, the true value of a product is based on the buyer’s subjec�ve evalua�on, not the seller’s es�ma�on. From a marketer’s perspec�ve, value is understood as a measure of the bundle of benefits a buyer gets from the product rela�ve to the perceived costs of acquiring the product. Insofar as product quality can be defined by the purchaser’s percep�on of the sum of the benefits he or she receives from the product, value can be expressed as a conceptual equa�on of the form:

Value = {Sum of Benefits / Perceived Cost to Acquire}

Or alterna�vely as:

Value = {Product Quality / Price}

In each formula�on, value is subjec�vely defined as a func�on of the buyer’s es�ma�on of the bundle of benefits received from the product rela�ve to the price paid to acquire them. Consider, for example, how consumers assign value when shopping for a laptop computer. Different benefits are conveyed by specific a�ributes of the product. These include processor performance characteris�cs, viewing screen size and resolu�on, memory (RAM), graphics, hard drive capacity, modem speed, ba�ery life, warranty, and other features. A buyer’s evalua�on of the sum total of benefits he or she will derive from this bundle of a�ributes, rela�ve to the cost to purchase, is the perceived value of the product. Consequently, marke�ng managers can enhance the outcome of the value equa�on either by decreasing the price or increasing the aggregate quality of the product offering.

Like value, customer sa�sfac�on is based on a subjec�ve appraisal on the part of the consumer. It is an experience-based assessment of whether a product or service meets or surpasses his or her expecta�ons. By defini�on, a customer is sa�sfied only when the benefits derived from a purchase meet or exceed his or her prior expecta�ons of product value. How customers perceive the value of a brand depends on their appraisal of the whole bundle of benefits derived from purchasing and using the product.

Think About It

"Value is, first and foremost, always specific to the buyer—not the seller and not the product." Although this statement can be verified by closely examining any product market, it is more readily evident in some markets than others. Consider the markets for an�que toy trains, imported brands of beer, and streak-free varie�es of glass cleaner.

Which provides the best evidence to support the proposi�on that value is specific to the buyer?

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A customer’s sense of sa�sfac�on from the purchase will depend on his or her pre-sale expecta�ons and post-sale percep�ons of product value.

Corbis News/Corbis

In general, what types of product markets most clearly illustrate the truth of this proposi�on? Why?

Perceived Value as the Expected Bundle of Benefits

Since both value and sa�sfac�on are rooted in subjec�ve percep�ons, they can be significantly influenced by a number of non-product factors. Ul�mately, however, the importance of each of these factors rests on the buyer’s expecta�ons. Posi�ve indica�ons of customer sa�sfac�on and perceived product value are signs that the purchase has met or exceeded prepurchase expecta�ons.

At this point it is essen�al to recall that consumers are responding to the bundle of benefits that products provide—not simply to the tangible characteris�cs of goods being sold. Consider snowboards. Do buyers really value owning composite metal bindings a�ached to highly polished ver�cal strips of wood that have been laminated together? Or do they value the fun and excitement that can be derived from the product’s use? No one wants lumbar spinal surgery or term life insurance or 5 mm drill bits. But many consumers want relief from chronic back pain, peace of mind that their children will be cared for in the event of their death, or a 5 mm hole somewhere.

When evalua�ng goods and services, consumers consider those features that are of greatest importance and assign the greatest significance or weight to them. A product as simple as toothpaste may be perceived very differently by different groups or segments of the market. Each market segment may recognize that the poten�al benefits from using toothpaste include figh�ng cavi�es, whitening teeth, and freshening breath. However, young, unmarried consumers may place a higher weight on the aesthe�c benefits, while the parent of five children may assign greater importance to figh�ng cavi�es. Both groups may value all three of these benefits, but not in the same way. These differences form the basis for crea�ng benefit segments within product categories. Understanding which product benefits your target market values most is an essen�al first step to differen�a�ng your brand from compe�tors’ brands in ways that will provide differen�al compe��ve advantages. Superior quality and performance on key product benefits defines one class of factors that directly impact customer sa�sfac�on. These factors are some�mes called value drivers because they enhance the value of a product or service in the eyes of the consumer. These can be tangible characteris�cs, readily discernable from our five senses, such as color, size, weight, and taste. However, they can also be rooted in very subjec�ve impressions related to brand image, product performance, or other intangible characteris�cs that are separate and dis�nct from the physical proper�es of the product. Abstract quali�es such as luxury, reliability, beauty, style, and strength cannot be directly observed but are o�en pivotal in buyers’ decision making.

Product Pricing as a Value Driver

A second class of factors that directly impact customer sa�sfac�on can be deduced easily from the two conceptual equa�ons introduced previously. Price is a fundamental element to buyers’ assessment of value and central to the determina�on of their sa�sfac�on with the products they purchase. There is a wide range of price-related value drivers to be considered when developing marke�ng plans. The three general categories of pricing considera�ons that directly impact buyers’ percep�ons of value are reference prices, psychological pricing, and performance value.

Making comparisons across alterna�ves is a basic and essen�al skill. Shoppers o�en compare one brand’s price to a reference price that they maintain in their minds for that product category. This is the approximate price or price level that people expect to pay for a given product. This price level provides an important internal basis for shaping expecta�ons of value. Marke�ng managers can adapt pricing strategy to suit their target market’s prevailing reference price for their product. However, the marke�ng mix can also be used to influence buyers’ percep�ons of an appropriate or acceptable price.

Psychological pricing prac�ces are centered on understanding the ways in which products create innate or intrinsic sa�sfac�on for the buyer. Strategies that stress the mental and emo�onal value of the bundle of benefits realized from buying a product are commonly used throughout all sectors of the economy—not simply retail consumer markets. Many of these techniques and applica�ons are specifically aimed at shaping prospec�ve buyers’ reference prices. Sellers o�en a�empt to alter buyers’ frames of reference by promo�ng discounts from manufacturers’ suggested retail prices. In this instance, the manufacturer’s suggested retail price (MSRP) serves as an anchor-point for consumers’ percep�ons of brand quality, and the discounted price elevates their subsequent percep�on of overall value.

Alterna�vely, marketers may establish pricing strategies that are exclusive to specific distributors or channels of distribu�on, thereby establishing different reference prices in parallel markets. Or the seller may try to improve consumers’ percep�ons of value with promo�onal messages encouraging them to compare their own brand only to more expensive, premium-priced alterna�ves. The way in which prices are communicated and the order in which they are encountered are among the many other ways that sellers can shape buyers’ percep�ons of value.

Consider the way in which new cars are typically sold. The MSRP is o�en displayed in an invoice format on the car’s window. This "s�cker price" may be the first price informa�on shoppers encounter. It provides a reference price for the sake of comparison. Subsequent conversa�ons and nego�a�ons with a salesperson typically start from this s�cker price and move downward. However, a good salesperson will work to keep the MSRP in the buyer’s mind because it is intended to anchor his or her percep�ons of product quality. Consequently, a car with a $24,950 list price becomes a be�er value as the cost is nego�ated downward, but the percep�on of the vehicle’s quality remains �ed to the higher price. An essen�al psychological element of this process is the price–quality correla�on.

The price–quality correla�on is at the heart of a long list of psychological pricing techniques that work independent of the category’s reference price. These include introductory price dealing, bundling, price lining, and pres�ge pricing. In the absence of reliable

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informa�on to the contrary, consumers tend to believe that higher-priced products provide a higher level of quality. Since value is a func�on of product quality and price (Value = {Product Quality / Price}), the implica�ons of a posi�ve price-quality correla�on for customer sa�sfac�on are substan�al. The detailed inves�ga�on of this and other pricing topics is provided in chapter 10.

In contrast to psychological value, performance value refers to the func�onal ability of the product to deliver tangible benefits to the buyer. From the buyer’s perspec�ve, it is an assessment of how well a product does what the product has promised to do. Within the context of industrial product sales, this is some�mes referred to as the monetary value of the product because it represents either cost savings or revenue improvements resul�ng from the purchase. In both consumer and industrial markets, the performance of a product can have mul�ple dimensions. If a customer is purchasing so�ware to track inventory at his retail shop, the product probably has rela�vely li�le pres�ge or psychological value associated with its use. However, dimensions such as accuracy, flexibility, ease-of-use, reliability, capability, and speed are likely to be important considera�ons.

The impact of performance value pricing on customer sa�sfac�on is readily evident in most transac�ons between buyers and sellers. When buyers are inclined to be more ra�onal than emo�onal in their evalua�on of alterna�ve brands, it is the performance value of the alterna�ves that determines brand choice. In this case, the buyer’s percep�on of a brand’s performance rela�ve to a compe�tor’s brand is typically a primary determinant of perceived product quality and therefore value for money. Strong, consistent, and reliable product performance over �me is an essen�al ingredient in building customer sa�sfac�on and brand loyalty in most markets.

Think About It

The price of a product is intended to communicate much more informa�on than simply the cost of making a purchase.

Thinking back on some of the larger purchases you have made, how might the seller’s pricing strategy have impacted your percep�on of the product and its value?

What elements of pricing strategy can make something seem like a good deal?

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2.2 Total Quality Management and Total Customer Satisfaction Total customer sa�sfac�on (TCS) is an integral part of a broader set of management prac�ces called total quality management (TQM). The essence of TQM is that quality is every employee’s responsibility. Every level of opera�ons and all processes should be designed to ensure that uncompromising quality is the norm at every stage from product incep�on through the final sale. By defini�on, every job within the firm provides added value to the processes and products of the organiza�on.

Within the TQM paradigm, managers have several types of responsibili�es. As supervisors of other employees, management is tasked with ensuring that everyone’s work is making a posi�ve contribu�on to the quality of the final product. Managers at all levels are responsible for aligning company resources and processes to maintain and enhance product quality. And managers also have unique responsibility for the pursuit of con�nuous quality improvement.

Con�nuous quality improvement (CQI) requires that managers within the organiza�on remain vigilant, constantly searching for new ways to improve opera�ons and processes. One way to systema�cally seek opportuni�es for quality improvements is through benchmarking. Benchmarking is the process of evalua�ng your organiza�on’s processes and performance against the best standards within your own or other industries. CQI metrics or standards of measurement are usually related to a combina�on of product/service quality, �me, and costs. The objec�ve of benchmarking is to improve your firm’s opera�ons by modeling your own prac�ces a�er the best exemplars throughout the world.

TCS is a strategic, integrated management philosophy based on the concept of achieving ever higher levels of customer sa�sfac�on. It is, essen�ally, a special case of the larger set of principles defined by TQM. It is also wholly consistent with the tenets of the marke�ng concept insofar as the objec�ve is to sa�sfy the consumer be�er than the compe��on. Obviously, total customer sa�sfac�on (or 100 percent) would provide a substan�al compe��ve advantage.

These are the eight principles of TCS for marke�ng managers:

1. Be customer focused. 2. Involve and empower all employees. 3. Focus on process-oriented thinking. 4. View processes within an integrated system. 5. Think strategically and systema�cally. 6. Pursue CQI. 7. Make decisions based on evidence. 8. Maintain communica�on throughout all levels of the organiza�on.

As with all applica�ons of TQM, TCS programs in large organiza�ons rely on a team approach to achieving goals. Many teams are formed temporarily to solve specific problems or complete customer sa�sfac�on improvement projects. Other teams are a permanent part of the organiza�onal structure. Many of these are cross-func�onal groups, working to align the TCS efforts of the firm by integra�ng, coordina�ng, and improving processes of the whole organiza�on. Cross- func�onal teams are preferred as a means of improving decision making, par�cipa�on, and communica�on across levels of the corpora�on.

The ul�mate aim of the TCS philosophy is to foster environments, opera�ons, and management processes that will maximize customer sa�sfac�on. The essen�al feature of the TCS model is the reliable delivery of the highest possible product value to the customer within the constraints established by costs and pricing. To sustain the highest possible levels of customer sa�sfac�on and enhance the firm’s differen�al advantage in the marketplace, the pursuit of CQI opportuni�es is impera�ve.

There are several alterna�ve models for iden�fying new ways to improve exis�ng customer sa�sfac�on levels. Although each u�lizes slightly different metrics of customer sa�sfac�on and data analysis procedures, the CQI steps used to improve customer sa�sfac�on within specific processes generally conform to the following sequence:

1. Develop a thorough understanding of the contribu�ons of the specific process to TCS. Iden�fy poten�al opportuni�es for process improvements. 2. Evaluate the alterna�ves by tracing the poten�al value added from process improvements for each. Select the op�on based on the greatest poten�al for

addressing an area of company performance that is not currently mee�ng customers’ expecta�ons. 3. Analyze the selected alterna�ve. Inves�gate the underlying causes of subop�mal performance for this process. Clearly define and delineate the root

causes of the underlying problem. 4. Brainstorm and engage in preliminary research to generate alterna�ves to improve the target process. 5. Conduct a more thorough inves�ga�on of the feasibility of this op�on before selec�ng it as the best alterna�ve. 6. Evaluate the level of projected improvement in the TCS model rela�ve to the incremental costs and revenue implica�ons of implementa�on. 7. If viable, develop a detailed plan of implementa�on and seek formal approval. 8. Ini�ate the process improvement. Measure actual performance metrics against customer sa�sfac�on expecta�ons and cost projec�ons.

Processes such as these are designed to improve customer sa�sfac�on by enhancing the value of the goods and services provided. The sec�on that follows examines alterna�ve perspec�ves on the process of conveying value from sellers to buyers.

Pu�ng It All Together

TCS has applica�ons in contexts ranging from the largest and most complex manufacturing organiza�ons to the smallest and simplest service providers. Consider a business as ordinary as your local supermarket. The highly compe��ve nature of the retail grocery trade in large urban markets makes it difficult to clearly

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Blend Images/SuperStock

differen�ate one store from another in terms of pricing, product selec�on, or even atmosphere. However, the shopper’s experience in the checkout line is o�en quite different from one retailer to the next, and this difference can contribute either posi�vely or nega�vely to brand differen�a�on. How might the principles of TCS and CQI be applied to this process?

Start by examining the contribu�ons of this specific process to TCS and iden�fy opportuni�es for process improvements. The checkout line is o�en both the first and last point of contact with customers. If shoppers confront long, noisy lines when first entering the store, it will adversely impact their psychological disposi�on toward shopping for the balance of their visit. Specific improvements in the process aimed at reducing average line length and wait �mes would improve the shopper’s ini�al impression of the store and definitely enhance customer sa�sfac�on at the end of the process.

The next steps require genera�ng alterna�ve improvements to the process and conduc�ng an evalua�on of the alterna�ves on costs, revenues, and customer sa�sfac�on levels. There are many different types of supermarket shoppers, different order sizes, and different service requirements. One of the challenges facing management is to iden�fy cost-effec�ve opportuni�es to improve service for different segments of the market. As a manager, you might consider several alterna�ves to changing the checkout process, including the addi�on of more cashiers, baggers, and checkout lines for large-order customers; providing curbside carryout service for seniors; or installing automated self-checkout lines for convenience- and �me-sensi�ve shoppers. Keep in mind that not all customers are equally profitable for the store and not all shoppers derive their sa�sfac�on from the same elements of the process. For example, some thrive on personal, social interac�on, while others view the experience simply as comple�ng a necessary func�on and want to get out of the store as quickly as possible.

So, evalua�ng each of the process alterna�ves on costs, revenues, and enhancements to customer sa�sfac�on is not a simple task—not even for something as ordinary as the local supermarket.

In reality, the applica�on of the TCS paradigm to this specific problem would be a complex undertaking. The ini�al step of understanding how the checkout process contributes to customer sa�sfac�on levels for different segments of the target market is challenging. Transla�ng this knowledge into discrete, segment- specific, process-driven alterna�ves focused on delivering measurable results at specific cost rates is also a formidable task. However, this type of analysis is absolutely essen�al in an industry noted for razor-thin profit margins. There will always be new opportuni�es for process improvements. The challenge for marke�ng managers is to find cost-effec�ve and efficient process enhancements to improve customer sa�sfac�on within the most profitable segments of the market.

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The product supply system is focused on the development, crea�on, and distribu�on of manufactured goods.

The value delivery system needs to choose, provide, and communicate its value proposi�on to customers.

2.3 The Value Delivery Process As we established in the preceding chapter, marke�ng management is composed of processes for crea�ng, communica�ng, and delivering value to customers. In this sec�on, we’ll contrast the two compe�ng views on how best to deliver value. The tradi�onal view of the product supply system rests on a sequence that begins when the firm creates something of value and ends when it is sold to the customer. A more contemporary understanding of delivering value starts with the development of a value proposi�on and emphasizes the need to create value based on customers’ preferences before engaging the delivery processes.

Product Supply System

Tradi�onal views on delivering value to customers have focused primarily on the crea�on and distribu�on of manufactured goods. Some�mes referred to as the product supply system, an implicit assump�on of this model, as illustrated in Figure 2.1, is that the firm will find markets for what it produces.

Figure 2.1: The product supply system

Lanning, 2000

This approach is, in effect, the embodiment of marke�ng myopia. It is the consequence of first focusing on the product and its manufacture rather than on the wants and needs of the customer. The strategy is to sell what you can make rather than making what you can sell. This is some�mes referred to as the ready-fire- aim firing squad mentality.

Value Delivery System

Businesses began to recognize the high costs of this fallacy in the 1980s as globaliza�on and the accelera�ng growth of interna�onal trade introduced many new compe�tors to domes�c product markets. With increasing brand alterna�ves available in many markets, buyers gravitated toward those op�ons that best suited their preferences. To protect market share and systema�cally develop new concepts for exis�ng markets, managers realized the need to begin the product development process by examining customer needs first.

Consistent with this new perspec�ve, Michael J. Lanning first introduced the value delivery system model, as shown in Figure 2.2, in the late 1980s. In contrast to the way that previous views suffered from marke�ng myopia, this new alterna�ve was the embodiment of the marke�ng concept. The emphasis on providing greater customer sa�sfac�on as a compe��ve strategy was captured by the idea of superior value proposi�ons.

A value proposi�on can best be understood as the promise that the seller is making to the buyer. It consists of the bundle of product benefits that the marketer promises the consumer will receive for the price paid. As a strategy planning tool, a formal statement of the value proposi�on will specify the reasons that a target customer should buy one brand over another, and it should explicitly iden�fy how this brand delivers greater value for a given target market than others.

Figure 2.2: The value delivery system

Lanning, 2000

The three-stage value delivery system model provides the means to build customer sa�sfac�on and brand loyalty by focusing first on understanding the needs of the target market. The ac�ons involved at each stage of the model are:

Stage 1: Choose a value proposi�on by iden�fying the target market and determining how the brand will be posi�oned rela�ve to compe�tors.

Stage 2: Provide this value proposi�on by crea�ng the bundle of benefits (goods and services) that fulfills the promise you are making to prospec�ve buyers. Pricing and distribu�on are usually significant parts of keeping this promise.

Step 3: Communicate this value proposi�on through targeted promo�onal ac�vi�es, including adver�sing and personal selling. The concept of a unique selling proposi�on (USP) communicates the promise that if you buy this brand, you can expect these benefits. It is truly a unique proposi�on only if no other brand can validly make this claim.

The value delivery process modeled above can be very effec�ve in crea�ng sa�sfied, loyal customers. However, it is important to note that firms can lose sales and customer loyalty very rapidly if they fail to deliver on the promises of the value proposi�on. And, it is a ma�er of human nature that buyers will almost always remember disappoin�ng experiences far longer and more vividly than posi�ve ones.

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Think About It

The product delivery system and value delivery system require very different views of what marke�ng management is intended to accomplish.

How would a book publisher’s final products differ under one process model rather than the other? In what ways might they be similar?

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From fashion design to distribu�on, the crea�on and the value of a product are constantly measured with the customers' needs and what the customers think it is fiscally worth. How would a company adver�se a specific product for a par�cular target customer? What does the company have to know about their customer?

A value chain involves five primary func�ons that must be coordinated to create product value and to sa�sfy customers.

Maintaining sufficient inventory is essen�al to mee�ng customers’ demands.

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2.4 The Value Chain and Core Competencies The same compe��ve forces that led Lanning to develop the value delivery system model in the 1980s spurred Michael Porter to introduce value chain analysis during that same period. As illustrated in Figure 2.3, a value chain is defined as a succession of ac�vi�es and processes, usually defined for specific SBUs, that converts inputs into outputs of greater value. Porter’s value chain model iden�fies five primary strategic ac�vi�es: inbound logis�cs, opera�ons, outbound logis�cs, marke�ng and sales, and services. The purpose behind dissec�ng the workings of an SBU into a set of discrete ac�vi�es in this way is to seek opportuni�es to improve product quality, buyer sa�sfac�on, and, consequently, compe��ve advantages.

Concept of the Value Chain

Figure 2.3: Value chain

Five primary strategic ac�vi�es provide the components in the value chain that directly impact customer sa�sfac�on. Inbound logis�cs is the term used to describe all of the processes involved in bringing raw materials and unfinished goods into the company for conversion into final products. This includes receiving, warehousing, and inventory control processes. Raw materials include all forms of inputs into the firm’s opera�ons, including human resources and various forms of intellectual property.

Opera�ons encompasses all of the ac�vi�es within the SBU that transform and convert the inputs delivered by the inbound logis�cs systems into final products. These, in turn, are shipped out and distributed via the outbound logis�cs systems. Marke�ng’s role in outbound logis�cs is usually limited to elements of the place variable within the marke�ng mix, including warehousing and transporta�on.

Marke�ng and sales includes many of the elements related to the pricing and promo�on components of the marke�ng mix, such as adver�sing, personal selling, and sales promo�on. The fi�h ac�vity, services, are typically used to describe the ways in which the organiza�on a�ends to customers’ needs a�er the ini�al product sale has been completed, such as repair services and customer support.

In addi�on to the five primary ac�vi�es, Porter’s value chain model also specifies four essen�al support ac�vi�es: procurement, technology development, human resource management, and firm infrastructure. The infrastructure refers to a range of suppor�ng management ac�vi�es that are

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typically housed in specialized departments. These include finance, accoun�ng, legal services, and quality control.

To create product value and customer sa�sfac�on, organiza�ons must manage their value chain and value delivery system for each SBU in a customer-centered way. This is essen�al to a�rac�ng new buyers and retaining current customers as well. As we will see in sec�on 2.6, the financial gains realized over the life�me of an established, loyal customer far exceed the projected average life�me value of a newly acquired customer.

As goods and/or services move through each stage of the chain, they increase in value. Of par�cular importance to understanding the significance of this sequence is that there are both summa�ve and synergis�c effects at work. The synergy is reflected in the fact the total value added across the whole span of ac�vi�es and processes is greater than the sum of all ac�vi�es and processes. Nonetheless, each individual ac�vity in the chain must create value for the customer in excess of the associated costs of execu�ng that ac�vity.

Value Chain Analysis

To maximize customer sa�sfac�on in accordance with the prescrip�ons of TQM and TCS, organiza�ons need to be engaged in the process of CQI. The value chain provides a conceptual model to aid managers in organizing the search for new ways to improve opera�ons and processes. This requires breaking down the system into its component parts to look for opportuni�es and examining the value chain as a whole, integrated system of value delivery.

The ini�al task in value chain analysis is to evaluate how each of the processes and ac�vi�es differen�ally contributes added value to the customer’s experience with the product and the organiza�on. In most cases, the five general ac�vi�es iden�fied by the model are broken down into the underlying component processes. When isolated as unique processes, they can be evaluated with respect to both effec�veness and cost. At this level of analysis, compe�tors’ performance and costs can be es�mated to provide specific targets or benchmarks in accord with CQI principles.

The func�onal interrela�onships between ac�vi�es also make contribu�ons to the value chain and, consequently, to customer sa�sfac�on. To assess the value contributed by the effec�ve coordina�on across ac�vi�es, the same type of analysis can be extended to the inves�ga�on of linkages between ac�vi�es. Simply maximizing the efficiency and performance of units in isola�on seldom maximizes the performance of the whole. Improvements in the costs or performance of how the overall system is managed and coordinated can yield substan�al differen�al advantages for the firm.

Core Competencies

Within a few years a�er the publica�on of Lanning’s work on value delivery systems and Porter’s development of value chain analysis, Prahalad and Hamel introduced the concept of core competencies (1990). A core competency can be described as "a narrowly defined field or task at which a company excels. A firm’s core competencies are difficult for its compe�tors to mimic, allowing the company to differen�ate itself. Most core competencies will be applicable to a wide range of business ac�vi�es, transcending product and market borders" (Investopedia Financial Dic�onary, 2011). It represents the unique set of acquired skills and knowledge behind the firm’s product lines. It is, in simplest terms, what a given organiza�on does best.

It is essen�al to note that although core competencies are not products, they lead to the development of successful products. They are processes and ac�vi�es— ways of doing things—that provide the organiza�on with differen�al advantages rela�ve to its compe�tors. According to Prahalad and Hamel (1990), there are three qualifying tests for iden�fying a core competence:

It should not be easy for compe�tors to imitate. It should have applica�ons to many products and markets. It should make a significant, posi�ve contribu�on to the consumer’s experience of the product’s benefits.

Core competencies are typically developed within those ac�vi�es that are most essen�al to the organiza�on’s success. Consequently, they are invariably related to those processes that directly enhance the value consumers receive from the products being sold. It is important to recognize that the specific skill sets that cons�tute core competencies within an organiza�on are constantly evolving. They are forever in a state of flux, changing and adap�ng in response to changes in the market environment.

Think About It

Core competencies are those value-crea�ng capabili�es within your organiza�on that promote growth and long-term profitability. They are the important things that you do be�er than your compe�tors. Iden�fy the core competencies of the following companies: Hewle�-Packard, Coca-Cola, and Holiday Inn.

Think of other successful firms across a range of industries. Can you iden�fy their core competencies?

The ul�mate u�lity of TQM, TCS, value chain management, and the development of unique core competencies lies in sa�sfying the customers’ needs. The value chain needs to be understood and managed as a whole, integrated system of related ac�vi�es. Only by op�mizing the value chain and leveraging core competencies can an organiza�on reliably provide sustainable compe��ve advantages in accord with the primary precept of the marke�ng concept: customer sa�sfac�on as the key to achieving organiza�onal goals. Consistently and reliably providing superior customer sa�sfac�on is at the core of retaining current customers and winning new ones.

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2.5 Attracting, Retaining, and Growing Customers Our ini�al defini�on of marke�ng management iden�fied two sets of ac�vi�es. First, it referred to a set of processes that create, communicate, and provide value to customers. So far, this chapter has inves�gated those ac�vi�es within the broader context of delivering superior customer sa�sfac�on. The second half of the defini�on specifies that marke�ng management is the means by which the company manages customer rela�onships for the benefit of the organiza�on and its stakeholders. The end objec�ve of marke�ng management, therefore, is to a�ract, acquire, and retain customers for the ongoing financial benefit of the firm by providing greater value to buyers than compe�tors and crea�ng sa�sfied customers.

Business organiza�ons devote substan�al resources to the process of a�rac�ng new customers because it is typically essen�al to the growth and survival of the organiza�on. Companies that are primarily dependent on business-to-business (B2B) sales rely on fewer and larger customers than those in retail markets. B2B firms rely on genera�ng, qualifying, and pursuing new leads from a rela�vely limited pool of poten�al buyers. Their primary emphasis is o�en on personal selling more than impersonal media promo�ons. Business-to-consumer (B2C) companies are usually in pursuit of larger numbers of prospec�ve buyers, each of whom individually represents a smaller part of the customer base for the business. Consequently, mass media promo�ons are frequently a key element of the firm’s efforts to a�ract new buyers.

Customer Relationship Management

Despite the substan�al differences in marke�ng approaches for B2B and B2C companies, both face the same types of challenges in compe��ve markets. Marke�ng managers need to focus on three primary tasks to a�ract new customers: accurately iden�fying customer needs, crea�ng high-value products to meet those needs, and delivering corresponding product value messages to the target market. The detailed inves�ga�on of each of these processes supplies the core content for the remaining chapters of this text. At this point, however, it is worthwhile to note one fundamental principle related to acquiring new customers: Not all customers are equally valuable. In fact, there are usually some prospec�ve buyers that companies should prefer to avoid. One approach to understanding this counterintui�ve concept is customer rela�onship management (CRM).

CRM is a comprehensive strategy and process for acquiring, retaining, and partnering with selec�ve customers to create superior value for the company and the customer. It involves the integra�on of marke�ng, sales, customer service, and the supply chain func�ons of the organiza�on to achieve greater efficiencies and effec�veness in delivering customer value (Parva�yar and Sheth, 2001).

CRM emerged in the 1990s as companies recognized the growing poten�al for integra�ng customer knowledge and informa�on into readily accessible and usable databases. As desktop so�ware applica�ons have grown increasingly powerful, the integra�on of marke�ng, sales, and customer service opera�ons within organiza�ons has improved. With the exponen�al growth of e-commerce and electronic social media, the importance of these new ways to reach target audiences has also increased the focus on CRM as a marke�ng management tool.

The primary objec�ve behind any CRM system is the crea�on of a robust knowledge base about customer behavior that provides reliable informa�on for the development and execu�on of strategies that benefit both the company and its customers. In short, the aim is to improve the efficiency and produc�vity of marke�ng processes.

In prac�ce, the term customer rela�onship management is subject to several interpreta�ons. In its simplest form, it can refer to using marke�ng databases to improve the efficiency of promo�onal tac�cs such as direct marke�ng, mass media adver�sing, and sales promo�ons. In strategic terms, it is o�en used to refer to all marke�ng efforts to establish, maintain, and enhance rela�onships with customers and other supply chain partners. In its broadest sense, it can refer to "all marke�ng ac�vi�es directed toward establishing, developing, and maintaining successful rela�onships" (Dwyer and Oh, 1987).

Profitable and successful applica�ons of CRM in industry share two cri�cal features. They emphasize the value of taking a long-term view of rela�onships, and they recognize that not all customers are equally profitable for an organiza�on. This property is rou�nely referred to as customer selec�vity.

The fact that not all customers or prospec�ve customers are equally profitable for a company is simply an empirical truth, not a ma�er of strategy or planning. The cri�cal issue for managers is understanding the most profitable way to respond to this reality. Companies must manage their limited resources selec�vely by targe�ng their marke�ng efforts to reach the most profitable segments of the market. The a�rac�veness of one customer or market segment may hinge on any number factors. These include loca�on, market accessibility, price sensi�vity, demographics, or other factors that may be directly or indirectly related to the prospec�ve value of the buyer to the company.

Customer Retention and Loyalty

Customer reten�on can refer to both the ac�vi�es that an organiza�on undertakes to reduce the loss of customers and the rate at which an organiza�on is successful at keeping its customers over a period of �me. There are substan�al benefits to keeping loyal customers and maintaining high customer reten�on rates.

The value of loyal customers within most business contexts is substan�al. Loyal buyers represent a reliable stream of revenue that was established from the ini�al investment of marke�ng resources. The loss of a loyal customer represents both the loss of income and forfeiture of the investment. In addi�on, the establishment of an enduring, mutually beneficial rela�onship with a customer deprives compe�tors of that same opportunity.

Consistent with the principle of customer selec�vity, it is important to recognize that selec�ng the right target customers in the first place will have a posi�ve impact on customer sa�sfac�on. This, in turn, improves reten�on, the prospect of building loyalty and hence profitability.

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Rela�vely expensive purchases typically require the evalua�on and approval of more than one decision maker. Marketers must be aware of this when crea�ng their marke�ng plans and address it accordingly.

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Loyalty = f (customer sa�sfac�on + market selec�on)

Buyers who are hard to please or who constantly switch will come and go independently of how hard a firm works to win their loyalty. However, this inevitable loss of some difficult customers is in sharp contrast to the prac�ce of customer churning.

The rate at which businesses lose customers is referred to as the customer a�ri�on, turnover, or churn rate. For most companies, it is clearly understood that the objec�ve is to minimize a�ri�on for the reasons cited above. However, some companies inten�onally engage in customer churning—a prac�ce designed to maximize profitability from the ini�al customer sale without regard to building long-term loyalty. In some instances, this is a legi�mate business strategy based on the nature of the product or service being sold. In other cases, however, it reflects the weakness of an organiza�on that is simply unable to sa�sfy consumers be�er than alterna�ve providers can. Unable to remedy the problem, these firms will try to offset poor product value by aggressively marke�ng to replace the �de of lost first-�me customers with new ones each quarter. This is some�mes referred to as the "leaky-bucket model," since the company is fran�cally trying to add new buyers to the top of the pail faster than it is losing them through the hole at the bo�om.

The new investments and expenditures required to find and win new customers guarantees that they will ini�ally be less profitable to the firm than the exis�ng, loyal base of consumers. As a general rule of thumb, it is considered five �mes more to costly to a�ract new customers than to retain current ones. In fact, a 5 percent improvement in customer reten�on rates can yield as much as a 25 to 85 percent increase in profitability (Dwyer and Oh, 1987).

The specifics of systema�c models for retaining customers differ substan�ally from one context to the next. Just as efforts to improve customer sa�sfac�on must be uniquely tailored to the target market, reten�on programs must be suited to the characteris�cs of the loyal customer. The planning of most reten�on programs, however, follows four basic steps:

1. Create specific profiles of loyal buyer segments. 2. Determine the financial value of each loyal customer type. 3. Determine the root causes for defec�on within and between segments. 4. Develop and implement correc�ve ac�on plans.

Some proac�ve reten�on plans are designed to reduce an�cipated a�ri�on rates by providing incen�ves to loyal customers. These might include customer reward or membership programs (awarding air miles or cash-back bonuses), special prices on the bundling of goods and services, or cross-promo�ons with other related products.

Efforts to be�er understand the true financial value of loyal customers have led to the use of metrics that measure the profitability associated with each customer over the life�me of his or her associa�on with a specific brand or company. F. Robert Dwyer introduced some of the earliest applica�ons of customer life�me value calcula�ons to the marke�ng literature in the late 1980s. Though extensively developed in studies of catalog marke�ng, it has become commonly used to support marke�ng decision making in a wide range of contexts.

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2.6 Maximizing Customer Lifetime Value Knowing the financial value of each loyal customer type has several poten�al uses. It may determine how much should be spent to retain loyal customers. It also enables managers to determine how much can reasonably be invested to acquire different types of new customers based on the past behavior of different loyal- buyer segments. Similarly, it can direct strategy choices in terms of targe�ng specific segments. And knowing the value of different groups of buyers enables marke�ng managers to apply a return on investment (ROI) standard to the evalua�on of targeted marke�ng programs and campaigns.

Two techniques to calculate the financial value of customer rela�onships are used extensively in both B2B and B2C markets: customer profitability analysis and customer life�me value.

Customer Profitability Analysis

Customer profitability analysis (CPA) is a methodology for analyzing the profitability of a company’s current customers. This is most commonly done using internal data from ac�vity-based accoun�ng records. The procedure ini�ally es�mates all revenue coming from the customer, less associated costs. The costs should be developed to include not only the primary costs of producing and distribu�ng the product, but also secondary marke�ng costs such as traveling to meet with the customer. Most CPA models assign each buyer to one of several levels or customer �ers based on net profitability.

One predictable result of customer profitability analysis is that it will reveal that a small number of customers account for most of the company’s profits. This is consistent with the Pareto principle or 80–20 rule. This common rule of thumb states that 80 percent of your profits will come from 20 percent of your clients. The significance of the Pareto Principle is that it should remind marke�ng managers to focus the bulk of their �me and energy on the 20 percent of customers who ma�er most.

Customer Lifetime Value

In contrast to customer profitability analysis, which provides a snapshot of the current situa�on, customer life�me value (CLV) analysis evaluates the future profitability of a customer. Though the determina�on of net profit relies on the same assessment of revenue and costs, the technique requires forecasts of future cash flows and profitability. The CLV for a specific customer is defined as the net present value of projected profits over the expected customer life�me. Although a powerful financial technique, its value is necessarily limited by the accuracy of the forecasts.

In prac�ce, many companies place a great deal of emphasis on CLV calcula�ons because they require managers to explicitly recognize the importance of building customer loyalty by offering superior value and reliably delivering customer sa�sfac�on over the long term. The reliance on net present value calcula�ons also reinforces the concept that rela�onships with customers are vital long-term assets of the firm.

Once an organiza�on has acquired experience using CLV analysis over an extended period of �me, several other advantages to using this technique may become evident. Close examina�on of the factors contribu�ng to loyal buyers’ net present value (NPV) will provide a be�er understanding of how various purchase-specific factors make differen�al contribu�ons to profitability over �me. For a given segment or class of buyers, these factors would include purchase size, frequency, and recency of purchase. Sensi�vity analysis can provide addi�onal insights into how changes in pricing strategy or other elements of the marke�ng mix may impact long-term profitability. CLV analysis on a segment-by-segment basis will also enable managers to make decisions about the rela�ve a�rac�veness and importance of appealing to some groups of buyers over others. The development of sophis�cated customer databases has been instrumental in enabling marketers to analyze vast quan��es of informa�on about the rela�onships between marke�ng ac�vi�es and buyers’ behavior.

Customer Databases and Database Marketing

Customer databases are organized collec�ons of qualita�ve and quan�ta�ve customer-related informa�on that have been compiled to improve marke�ng performance. Informa�on about both customers and prospec�ve buyers is rou�nely collected and submi�ed to databases for a number of sales-related purposes.

Database marke�ng is the general term that has been used to describe any systema�c approach to the collec�on and processing of consumer and company data. Increasingly, however, marke�ng-oriented organiza�ons are also integra�ng other types of informa�on with customer databases, including marke�ng mix informa�on, general environmental observa�ons, compe�tor data, and informa�on about partners in the company’s value chain. At the strategic level, marke�ng managers use these data to evaluate target market strategies, and sales data can be used to analyze the efficiency and effec�veness of alterna�ve configura�ons of the marke�ng mix. Historical data pa�erns can be analyzed to examine the impact of alterna�ve pricing policies, different promo�onal mixes, changes in product design, and the like. Sta�s�cal modeling can be used to examine how sales and profits are impacted by simultaneous changes in mul�ple variables.

Compe�tor, product, supplier, and a range of other marke�ng-related databases are also cri�cally important to the effec�ve management of marke�ng efforts. The informa�on in these types of databases can be accessed to support customer service ac�vi�es, generate sales leads, or iden�fy opportuni�es for cross-selling addi�onal products to exis�ng customers. Increasingly, the availability of more customer-specific data has also enabled companies to provide more specialized offerings to individual customers. In fact, virtually all facets of customer rela�onship management can be facilitated and enhanced by the ready availability of informa�on that well-designed database systems can provide.

Database marke�ng has demonstrated the poten�al to increase the cost effec�veness of marke�ng strategies by improving managers’ understanding of markets and specific market segments. The opportunity to develop ini�a�ves targeted at the individual consumer level has been facilitated by amassing huge databases describing personal purchase histories and detailed demographic informa�on. Marketers have also leveraged access to large commercially available databases to be�er understand the preferences of current and prospec�ve consumers. However, the ready availability of so much individual, person-specific informa�on has raised ethical and legal concerns related to personal privacy rights.

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The Coke bo�le has evolved throughout the years. This image offers a visual of the successful and unsuccessful product designs. Which bo�le shape seems to have withstood the test of �me?

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Ch. 2 Conclusion This chapter has presented several perspec�ves on value crea�on and customer sa�sfac�on. Marke�ng managers must remember that crea�ng product value that sa�sfies the needs of customers is both a primary goal of the firm and the principal means of achieving the organiza�on’s growth and profitability objec�ves. This marke�ng concept perspec�ve can some�mes be lost in the process of iden�fying and implemen�ng the strategies and methodologies required to enhance the compe��veness of the company. It’s important to remember that customer sa�sfac�on is not simply compa�ble with the goals of the firm; it is essen�al to achieving them.

The short vigne�e at the start of this chapter illustrates several important truths about customer service. Excellent customer service should be consistent. Although it’s a cliché, it is true that you should treat every customer as your most important customer. Strategies geared toward alloca�ng the best levels of service to the most important customers are risky at best. This is par�cularly true in the age of social media, where the influence wielded by a buyer may be wildly out of propor�on to his or her poten�al value as an individual customer. In a digital/mobile age, you can’t be sure whether a given customer is one of those important ones.

Great customer service is personal. It is o�en about doing small things well and building posi�ve rela�onships. Your customers want to know that you care enough to treat them as individuals. It can be a powerful marke�ng tool when done well and a huge disincen�ve to future sales when done poorly. A good customer service experience might be the one thing that keeps actual customers (e.g., Tinya’s mom) coming back, but it is o�en the thing that turns a prospec�ve customer (e.g., Tinya) into an actual customer at some point down the road.

Finally, great customer service is everyone’s job—another truism, but worth remembering nonetheless. Every individual within the company that has any direct or indirect interac�on with a customer is responsible for maintaining the highest possible levels of customer service. It means going the extra mile for your customers. This is what makes a posi�ve, long-las�ng impression, and there is no subs�tute for it. It can’t be faked; it has to reflect the company’s genuine concern for its customers.

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Ch. 2 Learning Resources

Key Ideas

Cri�cal Thinking Ques�ons

1. Is a marke�ng orienta�on absolutely essen�al to the success of every type of business? If you feel there are some excep�ons, explain when this customer-focused perspec�ve is not necessary to succeed.

2. Knowing that value is about the rela�onship between product quality and price has implica�ons for understanding how to improve buyers’ percep�ons of value. Using office furniture as an example, explain how a manufacturer could shape customers’ percep�ons of value by altering the terms of the product quality/price rela�onship.

3. Products and services are best understood within the context of marke�ng management as bundles of benefits. Why? Explain how your family den�st and the services that he or she provides can be understood in this way.

4. The value drivers for products and services include both tangible and intangible characteris�cs. Which types of characteris�cs are predominant in the provision of services? If you hire a CPA to prepare your taxes, what are the tangible and intangible a�ributes of the service you have purchased? Which kinds of products are easier to differen�ate based on tangible features rather intangible ones?

5. Some companies are well known for specific core competencies. In fact, they are o�en cited as examples of excellence in specific marke�ng func�ons and used to develop TQM/TCS benchmarks. For example, Lands’ End and L.L.Bean are recognized as leaders in direct marke�ng prac�ces. Coca-Cola and Procter & Gamble are regarded as experts in adver�sing consumer packaged goods. FedEx is a leader in transporta�on innova�ons. Can you think of any companies that exhibit outstanding performance in one or more core competencies? What are the unique strengths of Disney? Ne�lix? Walmart? AT&T? Apple? Maytag?

6. Review the eight basic CQI steps for improving customer sa�sfac�on. Apply these to a process that you are familiar with from where you work, shop, or go to school. What benefits do you see in following an organized, systema�c path of analysis? What problems, if any, do you encounter in applying the model?

7. Value chain analysis includes two types of processes: breaking down the value delivery system into its component parts and examining the whole chain as an integrated delivery system. What types of opportuni�es to enhance customer sa�sfac�on are you likely to miss if you rely on only one rather than both?

8. Customer loyalty can be lost as a consequence of one bad interac�on with a company. Can you give examples (hypothe�cal or actual) to illustrate the types of customer experiences that may result in the loss of a loyal customer? Are there examples of how a buyer might become loyal to a seller a�er only one posi�ve interac�on? Which type of experience is probably more likely? Why?

9. Each year the Na�onal Ins�tute of Standards and Technology (NIST) recognizes both private- and public-sector organiza�ons that exhibit performance excellence with the Malcolm Baldrige Na�onal Quality Award (h�p://www.nist.gov/baldrige (h�p://www.nist.gov/baldrige) ). The stated objec�ve of the program is to improve the compe��veness and performance of U.S. organiza�ons. Review the Baldrige Program’s website with par�cular a�en�on to the success stories behind each of the recipients. How do the criteria used to determine award winners correspond to the value related concepts presented in this chapter?

10. The brand manager for Widgets, Inc., is frustrated by the failure of prospec�ve customers to understand just how good his widgets really are. Which models and techniques from this chapter would be useful in helping him isolate the source of the problem?

Key Terms

Click on each key term to see the defini�on.

added value (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Refers to the addi�on of product features and benefits that exceed the typical buyer’s expecta�ons.

benchmarking (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The procedures for evalua�ng an organiza�on’s processes and performance against the best standards within the same or different industries. Sta�s�cal tools are used extensively to objec�vely measure performance.

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3/26/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=ch02,ch02introduction,sec2.1,sec2.2,sec2.3,sec2.4,sec2.5,sec2.6,ch02conclusion,ch02… 18/20

business-to-business (B2B) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Sales and related transac�ons between businesses (e.g., manufacturer-to-wholesaler or wholesaler-to-retailer sales).

business-to-consumer (B2C) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Sales and related transac�ons between business and consumers (e.g., retailer-to-consumer sales).

con�nuous quality improvement (CQI): (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A system or set or processes intended to improve the quality of goods and services provided to consumers.

core competencies (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Specific ac�vi�es or skill sets at which a firm excels.

customer churning (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

This term can describe the loss of customers over �me for any reason. It is o�en used specifically to refer to tac�cs intended to maximize profitability from an ini�al sale without the inten�on to build a long-term rela�onship or customer loyalty.

customer databases (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Organized collec�ons of qualita�ve and quan�ta�ve customer-related informa�on that have been compiled for the purpose of improving marke�ng performance.

customer life�me value (CLV) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A methodology for evalua�ng the future, long-term profitability of a customer from projec�ons of future cash flows and customer-specific forecasts of profitability.

customer profitability analysis (CPA) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A methodology for analyzing the profitability of a company’s current customers from the analysis of internal accoun�ng data.

customer rela�onship management (CRM) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A systema�c strategy that addresses both the ini�al acquisi�on and the reten�on of customers. It requires the coordina�on and integra�on of all business ac�vi�es and processes to provide superior value to customers. It also emphasizes the role of marke�ng in communica�ng with consumers to build long-term rela�onships and maintain customer loyalty.

customer reten�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A term that can refer to both the ac�vi�es that a company uses to reduce the loss of customers and the rate at which an organiza�on is successful at keeping its customers.

customer sa�sfac�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A buyer’s subjec�ve, experience-based assessment of whether a product meets his or her expecta�ons.

customer selec�vity (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The ability of an organiza�on to recognize that not all customers are equally profitable and the capacity to profitably use this knowledge to manage resources to reach the most profitable segments.

database marke�ng (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A general term used to describe any systema�c approach to the collec�on, processing, and use of consumer and company data.

expecta�ons (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

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3/26/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=ch02,ch02introduction,sec2.1,sec2.2,sec2.3,sec2.4,sec2.5,sec2.6,ch02conclusion,ch02… 19/20

The customer’s subjec�ve feelings, an�cipa�ng the bundle of benefits that a product will deliver.

inbound logis�cs (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

All of the processes involved in bringing raw materials and unfinished goods into the company for conversion into final products.

loyal customers (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Buyers whose purchase history demonstrates a commitment to one brand through a series of repeated purchases over �me. Customer loyalty is typically rooted in sustaining high levels of customer sa�sfac�on.

marke�ng and sales (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The fourth element of the value chain, which includes product pricing and promo�on ac�vi�es (e.g., adver�sing, personal selling, and sales promo�on).

marke�ng orienta�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An emphasis on sa�sfying customer wants and needs as the basis for making business decisions. This is in contrast to a product orienta�on, which develops goods and services based on the company’s resources and skills rather than customer preferences.

monetary value (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A term used in industrial product sales to indicate either cost savings or revenue improvements resul�ng from the purchase of a product.

opera�ons (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

All of the ac�vi�es that transform the inputs delivered by the inbound logis�cs systems into final products.

outbound logis�cs (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The ac�vi�es involved in shipping out and distribu�ng final products (e.g., warehousing and transporta�on).

Pareto principle (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A common rule of thumb that states that 80 percent of your profits or sales will come from 20 percent of your clients.

performance value (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A subjec�ve assessment of how well a product does what the buyer expects it to do.

price–quality correla�on (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The tendency for buyers to associate be�er product quality with higher prices.

product quality (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The buyer’s percep�on of the sum of the benefits he or she receives from the product.

product supply system (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

An orienta�on to delivering products to the market that emphasizes manufacturing and distribu�on with less regard for consumer product preferences. This product-focused approach to marke�ng can be simply defined as selling what you can make rather than making what you can sell.

psychological pricing: (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A class of price-se�ng tac�cs that are based on understanding how products create intrinsic sa�sfac�on for the buyer.

reference price (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

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3/26/2019 Print

https://content.ashford.edu/print/AUBUS620.12.1?sections=ch02,ch02introduction,sec2.1,sec2.2,sec2.3,sec2.4,sec2.5,sec2.6,ch02conclusion,ch02… 20/20

The approximate price or price level that buyers expect to pay for a given product.

sensi�vity analysis (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A collec�on of analy�cal techniques that tests target variables (e.g., profitability) to assess how sensi�ve or responsive they are to changes in other variables (e.g., prices.)

service (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The fi�h element of the value chain, this comprises the ac�ons undertaken by the organiza�on to sa�sfy customers’ needs a�er the ini�al product sale has been completed (e.g., repair services and customer support).

total customer sa�sfac�on (TCS) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A management philosophy based on the principles of TQM. The focus of TCS is the crea�on of processes for achieving the highest possible levels of customer sa�sfac�on.

total quality management (TQM) (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A comprehensive management philosophy centered on crea�ng processes for con�nuous improvement of product quality.

value (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The total package or bundle of benefits that a customer receives from the purchase and use of a product rela�ve to the perceived costs of buying it.

value chain analysis (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

A systema�c approach to understanding the sequence or chain of business ac�vi�es that converts inputs into outputs of greater value. The end goal of this analysis is to iden�fy opportuni�es to enhance the compe��ve posi�on of the firm.

value delivery system (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

In contrast to the product supply system, the means of providing value to the market is rooted in first understanding the needs of consumers. This consumer- focused approach to marke�ng emphasizes customer sa�sfac�on as its primary goal.

value drivers (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

The benefits most valued by the target; tangible or intangible characteris�cs that enhance the value of a product or service.

value proposi�ons (h�p://content.thuzelearning.com/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12.1/sec�ons/front_ma�er/books/AUBUS620.12

Overt commitments or promises made by the seller to provide the buyer with a specific level of value or bundle of product benefits.

Web Resources

This ar�cle from the Database Marke�ng Ins�tute provides step-by-step direc�ons and illustra�ons for calcula�ng customer life�me value. h�p://www.dbmarke�ng.com/ar�cles/Art251a.htm (h�p://www.dbmarke�ng.com/ar�cles/Art251a.htm)

The Penn State University Agricultural Extension Service provides several interes�ng ar�cle in its Value-Added Marke�ng Series. Though most of the ar�cles specifically relate to agricultural markets, the principles demonstrated are applicable across a wide range of business enterprises. h�p://extension.psu.edu/farm-business/value-added-marke�ng-series (h�p://extension.psu.edu/farm-business/value-added-marke�ng-series)

This ar�cle produced by the Chally Group provides a prac�cal illustra�on of how the principles of TQM can be applied to a firm’s sales management func�ons to increase produc�vity and profitability. h�p://www.psycheselling.com/TQSM-ExecBrief_email.pdf (h�p://www.psycheselling.com/TQSM-ExecBrief_email.pdf)

This site provides informa�on on a wide range of CRM topics from the informa�on industry’s perspec�ve. The sec�on specific to marke�ng includes advice on effec�ve sales management, campaign strategy, email marke�ng, Internet marke�ng, and customer life cycle management. h�p://searchcrm.techtarget.com/defini�on/CRM (h�p://searchcrm.techtarget.com/defini�on/CRM)

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https://content.ashford.edu/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter/books/AUBUS620.12.1/sections/front_matter#
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Week 1 - Assignment

AmazonFresh

Read the article: AmazonFresh is Jeff Bezos’ Last Mile Quest for Total Retail Domination (Links to an external site.)Links to an external site..

Amazon has created three elements with how they are approaching the consumer market: fulfillment centers, Amazon Prime, and Amazon Fresh. Analyze how Amazon has captured its consumer’s desire for not only less expensive prices, but faster delivery, and how it has created programs that will satisfy these consumer demands. Determine if Amazon will succeed in its quest for same-day deliver and justify your response.

The paper

· Must be minimum of three to four double-spaced pages in length (not including title and references pages) and formatted according to APA style as outlined in the Ashford Writing Center (Links to an external site.)Links to an external site..

· Must include a separate title page with the following:

· Title of paper

· Student’s name

· Course name and number

· Instructor’s name

· Date submitted

· You must use at least three scholarly sources from the Ashford University Library, one of which must be peer reviewed, in addition to the textbook.

· Must document all sources in APA style as outlined in the Ashford Writing Center.

Must include a separate references page that is formatted according to APA style as outlined in the Ashford Writing Center

Carefully review the Grading Rubric  (Links to an external site.)Links to an external site.for the criteria that will be used to evaluate your assignment.

Required Resources 

Text

Read the following chapters in  Managerial marketing :

· Chapter 1: Strategic Planning and the Marketing Management Process

· Chapter 2: Value Creation and Customer Satisfaction

Finch, J. (2012).  Managerial marketing  [Electronic version]. Retrieved from https://ashford.content.edu

Article

McCorvey, J. J. (2013, August 5). Amazonfresh is Jeff Bezos’ last mile quest for total retail domination. (Links to an external site.)Links to an external site. Fast Company. Retrieved from http://www.fastcompany.com/3014817/amazon-jeff-bezos

 

Recommended Resources

Article

Day, G.S. (1994). The capabilities of market-driven organizations. The Journal of Marketing, 58(4), 38 Retrieved from EBSCOHost

Ailawadi, K. L. (2013, Jul 21). How companies can get smart about raising prices; marketers too often do precisely the wrong things, alienating customers and getting little return. Here's how they can do it right. Wall Street Journal (Online). Retrieved from the ProQuest database.

Carr, A. (2013, April). What you don’t know about Apple. Fast Company, (174), 35-38. Retrieved from the EBSCOhost database.

Clifford, S. (2012, Jul 13). Conservative Nordstrom to sell trendy Topshop fashions. International Herald Tribune, 15. Retreived from Proquest.

Geron, T. (2013, January 23). Airbnb and the unstoppable rise of the share economy. (Links to an external site.)Links to an external site. Forbes. Retrieved from http://www.forbes.com/sites/tomiogeron/2013/01/23/airbnb-and-the-unstoppable-rise-of-the-share-economy/.

McCorvey, J. J. (2013, August 5). Amazonfresh is Jeff Bezos’ last mile quest for total retail domination. (Links to an external site.)Links to an external site. Fast Company. Retrieved from http://www.fastcompany.com/3014817/amazon-jeff-bezos

Mohammed, R. (2012, Jan 31). J.C. Penney’s risky new pricing strategy. Harvard Business Review. Retrieved from the ProQuest database.

Craven, R. (n.d.). The truth about marketing to women. (Links to an external site.)Links to an external site. Retrieved from http://www.marketingdonut.co.uk/marketing/marketing-strategy/the-truth-about-marketing-to-women

· The authors explore female buying power and how well male-dominated businesses can understand what women really want.

Ziethammer, R. (2006). Forward-looking bidding in online auctions. Journal of Marketing Research, 43, 462-476. Retrieved from EBSCOHost.

Multimedia

Marketing in Action: Marketing Mix. (Links to an external site.)Links to an external site. (https://secure.films.com/OnDemandEmbed.aspx?token=41113&aid=18596&loid=88026&plt=FOD&w=420&h=315&fWidth=440&fHeight=365)

· Basic strategies of marketing include the marketing mix, namely products, pricing, placement, and promotion. Principles can be applied to businesses big or small.

Importance of Market Research Strategy. (Links to an external site.)Links to an external site. (http://searchcenter.intelecomonline.net/playClipDirect.aspx?id=4870EEC7664070BB9D6744FDA7325EE44F626D5471CFAC29F5AE837853B8A15DD5EEB7BB9150D0D13BBD68F50C0036C5)

· This clip explores the importance of marketing and market research for any business. It explains that the most useful market research will assess whether or not there's a need for the product or service in the marketplace, as well as who might be the chief competition.

Week One Lecture

Marketing Management – An Overview

As stated in your text, marketing management uses the four functions of management to strategically implement the four “P’s” of marketing (Mullins & Walker, 2010). In other words, organizations attempt to gain a competitive advantage by using planning, organizing, leading, and controlling efforts to develop products, promotion, pricing, and distribution (place) strategies. These strategies become “a set of integrated decisions and actions by which a business expects to achieve its marketing objectives and meet the value requirements of its customers” (Slater & Olson, 2001, p. 1056).

It is important to remember that the “product” can be many things. Kotler (2000) suggested ten different items that can be marketed: “goods, services, experiences, events, persons, places, properties, organizations, information, and ideas” (p. 3). In addition, also remember that the end-users (or customers) of these products may have varying demand levels. Marketing managers need to develop strategies to address how the company will handle the challenges of marketing products with “negative demand, no demand, latent demand, declining demand, irregular demand, full demand, overfull demand, and unwholesome demand” (p. 6). Think about this for a minute – what products or services come to mind that fit each of these demand levels?

In today’s dynamic business environment, marketing managers must consider the changes resulting from globalization, technological advances, and governmental regulations as they develop integrated marketing and business strategies. Processes must be flexible and efficient. Successful companies are those that can analyze and predict changes and then, proactively meet customer needs better than the competition.

In the coming weeks, there will be an exploration consumer markets and buyer behavior and analyze how this information is used in forecasting and measuring market demand. We will look at identifying market segments and selecting target markets, as well as positioning the market offering through the product life cycle. We will delve deeper into each of the four P’s of the marketing mix. In addition, there will be an evaluation of the opportunities in the changing markets and the role of strategic planning. Finally, all of this information together to analyze how to measure performance. This is a lot of complex information to digest, but I think you will find our learning journey interesting and relevant.

References

Kotler, P. (2000). Marketing management (Millennium ed.). Upper Saddle River, NJ: Prentice Hall.

Mullins, J. W., Walker, Jr., O. C. (2010). Marketing management: A strategic decision-making approach (7th ed.). Boston, MA: McGraw-Hill Irwin.

Perreault, Jr., W. D., & McCarthy, E. J. (1999). Basic marketing: A global-managerial approach (13th ed.). New York, NY: Irwin McGraw-Hill.

Slater, S. F., & Olson, E. M. (2001, November). Marketing’s contribution to the implementation of business strategy: An empirical analysis. Strategic Management Journal, 22(11), 1055-1067. DOI: 10.1002/smj.198

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