When we talk about promotional mix what exactly do we mean and how does this help us in our marketing process? After reviewing this week’s resources and your research, in your own words how would you explain promotional mix and how it helps in the marketing process? Share one of the elements and apply it to a product you personally use

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When we talk about promotional mix what exactly do we mean and how does this help us in our marketing process? After reviewing this week’s resources and your research, in your own words how would you explain promotional mix and how it helps in the marketing process? Share one of the elements and apply it to a product you personally use. How would use the element to promote the product for a new market segment and why?

A Preface to Marketing Management Fifteenth Edition J. Paul Peter University of Wisconsin–Madison James H. Donnelly Jr. Gatton College of Business and Economics University of Kentucky A PREFACE TO MARKETING MANAGEMENT, FIFTEENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2019 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2013, and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 LWI 21 20 19 18 ISBN 978-1-260-15161-9 MHID 1-260-15161-1 Executive Portfolio Manager: Meredith Fossel Lead Product Developer: Laura Hurst Spell Content Project Manager: Melissa M. Leick, Karen Jozefowicz Buyer: Laura Fuller Design: Melissa M. Leick Content Licensing Specialist: Ann Marie Jannette Cover Image: Shutterstock / Rawpixel.com Compositor: SPi Global All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. Library of Congress Cataloging-in-Publication Data Names: Peter, J. Paul, author. | Donnelly, James H., author. Title: A preface to marketing management / J. Paul Peter, University of Wisconsin-Madison, James H. Donnelly, Jr., Gatton College of Business and Economics, University of Kentucky. Description: Fifteenth edition. | New York, NY : McGraw-Hill Education, [2019] Identifiers: LCCN 2017034403 | ISBN 9781260151619 (alk. paper) Subjects: LCSH: Marketing--Management. Classification: LCC HF5415.13.P388 2019 | DDC 658.8—dc23 LC record available at https://lccn.loc. gov/2017034403 The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. mheducation.com/highered To Rose, Angie, and my BFF, Chelsea J. Paul Peter To Gayla Jim Donnelly About the Authors J. Paul Peter is Professor Emeritas at the University of Wisconsin. He was a member of the faculty at Indiana State, Ohio State, and Washington University before joining the Wisconsin faculty. While at Ohio State, he was named Outstanding Marketing Professor by the students and has won the John R. Larson Teaching Award at Wisconsin. He has taught a variety of courses ­including Marketing Management, Marketing Strategy, Consumer Behavior, Marketing Research, and Marketing Theory, among others. Professor Peter’s research has appeared in the Journal of Marketing, the Journal of ­Marketing Research, the Journal of Consumer Research, the Journal of R ­ etailing, and the Academy of Management Journal, among others. His article on construct validity won the prestigious William O’Dell Award from the Journal of Marketing ­Research, and he was a ­finalist for this award on two other occasions. He was the recipient of the Churchill Award for Lifetime Achievement in Marketing Research, given by the American Marketing Association and the Gaumnitz Distinguished Faculty Award from the School of Business, University of Wisconsin–Madison. He is an author or editor of 30 books, including A Preface to Marketing Management, Fifteenth edition; Marketing Management: Knowledge and Skills; Consumer Behavior and Marketing Strategy; Strategic Management: Concepts and Applications; and Marketing: Creating Value for Customers. He is one of the most cited authors in the marketing literature. Professor Peter has served on the review boards of the Journal of Marketing, Journal of Marketing Research, Journal of Consumer Research, and Journal of Business Research and was measurement editor for JMR and professional publications editor for the American Marketing Association. He has taught in a variety of executive programs and consulted for several corporations as well as the Federal Trade Commission. James H. Donnelly Jr. has spent his academic career in the Gatton College of Business and Economics at the University of Kentucky. He received the first Chancellor’s Award for Outstanding Teaching given at the university. Previously, he had twice received the UK Alumni Association’s Great Teacher Award, an award one can only be eligible to receive every 10 years. He has also received two Outstanding Teacher awards from Beta Gamma Sigma, national business honorary. He received an Acorn Award recognizing “those who shape the future” from the Kentucky Advocates for Higher Education. He was selected as “Best University of Kentucky Professor.” He was one of six charter members elected to the American Bankers Association’s Bank Marketing Hall of Fame. During his career he has published in the Journal of Marketing Research, Journal of Marketing, Journal of Retailing, Administrative Science Quarterly, Academy of Management Journal, Journal of Applied Psychology, Personnel Psychology, Journal of Business Research, and Operations Research among others. He has served on the editorial review board of the Journal of Marketing. He is the ­author of more than a dozen books, which include widely adopted academic texts as well as professional books. Professor Donnelly is very active in the banking industry where he has served on the board of directors of the Institute of Certified Bankers and the ABA’s Marketing Network. He has also served as academic dean of the ABA’s School of Bank Marketing and Management. iv Preface We have always enjoyed writing and revising this book because we believe marketing management is a fascinating field. Not only does it include elements of economics, psychology, sociology, and anthropology, but also marketing, finance, and strategic management, among other disciplines. Our goal has always been to blend these into a clear and concise presentation of the basic principles of marketing management so that the core concepts and ideas are covered sufficiently to ensure an in-depth understanding. Throughout this book’s history, feedback from both students and instructors supports our goal. Our book has been used in a wide variety of settings and is the best-selling book of its kind. We are proud to introduce the fifteenth edition knowing that our book and its eight foreign translations have been used around the world whenever courses require a concise overview of the critical aspects of marketing management. In this edition, we have maintained the format and features of the book that make it a teachable text. We have also updated existing content and added new content to better reflect the changes in marketing management and its environment. We present quality content and examples and avoid excessive verbiage, pictures, and descriptions. Each time we revise this book, there is a strong emphasis on responding to the feedback of students and instructors. We tailored the book to their expressed needs and wants. We believe a major reason the book has reached its fifteenth edition is that the marketing concept works. TEXT FORMAT AND FEATURES In addition to providing a clear and concise overview of the basic principles of marketing management, we have designed this book to assist students in analyzing marketing problems and cases and developing and writing marketing plans. The text consists of four sections. Section I of the book consists of 13 chapters that cover the essentials of marketing management. Each chapter has a set of “Marketing Insights” to provide a deeper understanding of the chapter material. Each chapter also has a set of key terms and concepts at its conclusion to provide students a quick reference and to facilitate learning. This section is divided into four parts that include (1) strategic planning and marketing management, (2) ­understanding target markets, (3) the marketing mix, and (4) marketing in special fields. These 13 chapters are designed to provide students with a clear understanding of the concepts, techniques, tools, and strategies for effective marketing management and marketing strategy development. Section II of the book provides an approach to solving marketing problems and cases. While cases differ in many ways, this approach provides a starting point in understanding the current situation in the case, finding problems, and making recommendations to improve the organization’s situation. Section III of the book provides an overview of financial analysis for marketing. It includes breakeven analysis, net present value analysis, and ratio analysis. These tools are useful for evaluating strategic alternatives and the overall financial condition of an organization. Section IV of the book provides a framework for developing marketing plans. It offers students an approach to setting up a marketing plan and insights into key issues to consider at each stage of the development process. v vi Preface Taken collectively, we think these four sections provide a sound foundation for students to develop and improve their strategic marketing skills. In addition to the text material, we also offer students a section of the Online Learning Center (OLC) at www.mhhe.com/ peterdonnelly15e that contains a number of useful aids for facilitating learning. UPDATES AND CHANGES IN THIS EDITION The following is a summary of updates and changes to this edition. While some of them were designed to improve existing content, others were needed to reflect the dynamic nature of marketing management Section I Essentials of Marketing Management Chapter 1 Strategic Planning and the Marketing Management Process ? Revised discussion of the marketing concept ? New comparison of market and production orientations Chapter 2 Marketing Research: Process and Systems for Decision Making ? ? ? ? Expanded discussion of primary and secondary data New comparison of quantitative and qualitative data New discussion of some uses of the Internet for marketing Revised discussion of marketing information systems Chapter 3 Consumer Behavior ? New comparison of American cultural values ? New listing of online buying advantages and disadvantages from the consumer’s point of view ? New discussion of tracking consumer behavior on social media Chapter 4 Business, Government, and Institutional Buying ? New discussion of online organizational buying ? New discussion of social media for organizational buyers and sellers Chapter 5 Market Segmentation ? Additional discussion of product positioning ? Additional discussion of segmentation bases, including a segmentation of online shoppers Chapter 6 Product and Brand Strategy ? Updated listing of the 20 best global brands ? Revised discussion of qualities of a good brand name Chapter 7 New Product Planning and Development ? New discussion of screening new product ideas ? Updated discussion of factors associated with new product success ? New discussion of new product failures and their causes Chapter 8 Integrated Marketing Communication ? New listing of the largest global and U.S. advertisers ? New discussion of online media for integrated marketing communication ? Updated discussion of advantages and disadvantages of major advertising media Preface vii Chapter 9 Personal Selling, Relationship Building, and Sales Management ? New listing of factors influencing greater emphasis on personal selling ? Expanded discussion of traits of successful salespeople ? Expanded list of measures to evaluate salespeople Chapter 10 Distribution Strategy ? Additional discussion of direct sales ? New discussion of successful multichannel marketing strategies Chapter 11 Pricing Strategy ? Updated discussion of EDLP and high/low pricing strategies ? New discussion of deceptive pricing practices Chapter 12 The Marketing of Services ? New discussion of customer judgments of service quality dimensions ? New discussion of the Internet as a service Chapter 13 Global Marketing ? New listing of the top U.S. companies and their international sales ? New discussion of tips for entering emerging markets Section II Analyzing Marketing Problems and Cases ? Updated and expanded discussion of the objectives of case analysis ? Updated discussion of SWOT analysis Section III Financial Analysis for Marketing Decisions ? New listing of financial and strategic objectives Section IV Developing Marketing Plans ? Updated figures INSTRUCTOR SUPPORT The Preface has been used as a resource in college courses and professional development programs that require an overview of the critical “need-to-know” aspects of marketing management and marketing strategy development. It has been used: ? As the primary introductory text at the undergraduate level. ? At both the undergraduate and MBA level, where several AACSB core curriculum courses are team-taught as one multidisciplinary 9- to 12-hour course. ? At the advanced undergraduate and MBA level where it is used as the content founda­ tion in courses that utilize marketing cases. ? In short courses and executive development programs. The instructor section of www.mhhe.com/peterdonnellyl5e includes an ­instructor’s manual and other support material. It includes two expanded supplements. They were developed in response to instructors’ requests. We offer a test bank of nearly 1,300 ­multiple-choice, true-false, and brief essay questions. We also offer PowerPoint slides that highlight key text material. Your McGraw-Hill representative can also assist in the delivery of any additional instructor support material. Acknowledgments Our book is based on the works of many academic researchers and marketing practitioners. We want to thank those individuals who contributed their ideas to develop the ?eld of marketing throughout the years. Indeed, our book would not be possible without their contributions. We would also like to thank our teachers, colleagues, and students for their many contributions to our education. We would also like to publicly acknowledge those individuals who served as reviewers of this and previous editions. We appreciate their advice and counsel and have done our best to re?ect their insightful comments. Roger D. Absmire Sam Houston State University Anna Andriasova University of Maryland University College Catherine Axinn Syracuse University Mike Ballif University of Utah Andrew Bergstein Pennsylvania State University Edward Bond Bradley University Donald Brady Millersville University Tim Carlson Judson University Petr G. Chadraba DePaul University Glenn Chappell Meridith College Pavan Rao Chennamaneni University of Wisconsin–Whitewater Newell Chiesl Indiana State University Irina Chukhlomina SUNY Empire State College Reid P. Claxton East Carolina University Larry Crowson University of Central Florida Mike Dailey University of Texas, Arlington viii Linda M. Delene Western Michigan University Gerard DiBartolo Salisbury University Casey Donoho Northern Arizona University James A. Eckert Western Michigan University Matthew Elbeck Troy University Dothan Karen A. Evans Herkimer County Community College R. E. Evans University of Oklahoma Lawrence Feick University of Pittsburgh Robert Finney California State University, Hayward Stephen Goldberg Fordham University David Good Grand Valley State University David Griffith University of Oklahoma Perry Haan Tiffin University Lawrence Hamer DePaul University Harry Harmon Central Missouri Jack Healey Golden State University Acknowledgments ix Betty Jean Hebel Madonna University Catherine Holderness University of North Carolina–Greensboro JoAnne S. Hooper Western Carolina University David Horne Wayne State University Nasim Z. Hosein Northwood University Nicole Howatt UCF Fred Hughes Faulkner University Anupam Jaju GMU Chris Joiner George Mason University Benoy Joseph Cleveland State University Sol Klein Northeastern University Robert Brock Lawes Chaminade University of Honolulu Eunkyu Lee Syracuse University Tina Lowrey University of Texas at San Antonio Franklyn Manu Morgan State University Edward J. Mayo Western Michigan University Edward M. Mazze University of Rhode Island Donald J. Messmer College of William & Mary Albert Milhomme Texas State University Chip Miller Drake University David L. Moore LeMoyne College Johannah Jones Nolan University of Alabama, Birmingham R. Stephen Parker Southwest Missouri State University Joan Phillips University of Notre Dame Thomas Powers University of Alabama at Birmingham Debu Purohit Duke University John Rayburn University of Tennessee Martha Reeves Duke Gary K. Rhoads Brigham Young University Lee Richardson University of Baltimore Henry Rodkin DePaul University Ritesh Saini George Mason University Matthew H. Sauber Eastern Michigan University Alan Sawyer University of Florida Ronald L. Schill Brigham Young University Mark Spriggs University of St. Thomas Vernon R. Stauble California State Polytechnic University David X. Swenson College of St. Scholastica Ann Marie Thompson Northern Illinois University John R. Thompson Memphis State University Gordon Urquhart Cornell College Sean Valentine University of Wyoming Ana Valenzuela Baruch College, CUNY Stacy Vollmers University of St. Thomas x Acknowledgments Jacquelyn Warwick Andrews University Kevin Webb Drexel University Kathleen R. Whitney Central Michigan University J. B. Wilkinson University of Akron Dale Wilson Michigan State University Jason Q. Zhang Loyola University Maryland It is always easy to work with professionals. That is why working with the professionals at McGraw-Hill is always enjoyable for us. Laura Hurst Spell, Senior Product Developer, and Melissa M. Leick, Senior Content Project Manager, support what we do and we are very grateful. Thank you Marla Sussman, development editor, and welcome to our team. J. Paul Peter James H. Donnelly, Jr. Contents SECTION I ESSENTIALS OF MARKETING MANAGEMENT  1 PART A INTRODUCTION  3 Chapter 1 Strategic Planning and the Marketing ­Management Process  4 The Marketing Concept   4 What Is Marketing?   5 What Is Strategic Planning?   6 Strategic Planning and Marketing Management   6 The Strategic Planning Process   7 The Complete Strategic Plan   16 The Marketing Management Process   16 Situation Analysis  16 Marketing Planning  19 Implementation and Control of the Marketing Plan   20 Marketing Information Systems and Marketing Research  21 The Strategic Plan, the Marketing Plan, and Other Functional Area Plans   21 Marketing’s Role in Cross-Functional Strategic Planning  21 Summary  22 Appendix Portfolio Models  25 PART B Performance of the Research   35 Processing of Research Data   35 Preparation of the Research Report   37 Limitations of the Research Process   40 Marketing Information Systems   40 Summary  41 Chapter 3 Consumer Behavior  43 Social Influences on Consumer Decision Making   44 Culture and Subculture   44 Social Class  45 Reference Groups and Families   46 Marketing Influences on Consumer Decision Making  46 Product Influences  46 Price Influences  46 Promotion Influences  47 Place Influences  47 Situational Influences on Consumer Decision Making  48 Psychological Influences on Consumer Decision Making  49 Product Knowledge  49 Product Involvement  49 Consumer Decision Making   50 Need Recognition  51 Alternative Search  51 Alternative Evaluation  53 Purchase Decision  54 Postpurchase Evaluation  54 Summary  56 MARKETING INFORMATION, RESEARCH, AND UNDERSTANDING THE TARGET MARKET   29 Chapter 4 Business, Government, and Institutional Buying  59 Chapter 2 Marketing Research: Process and Systems for Decision Making   30 Categories of Organizational Buyers   59 The Role of Marketing Research   30 The Marketing Research Process   31 Purpose of the Research   31 Plan of the Research   32 Producers  59 Intermediaries  60 Government Agencies  60 Other Institutions  60 The Organizational Buying Process   60 Purchase-Type Influences on Organizational Buying  61 xi xii Contents Straight Rebuy  61 Modified Rebuy  61 New Task Purchase   61 Structural Influences on Organizational Buying   62 Purchasing Roles  62 Organization-Specific Factors  63 Purchasing Policies and Procedures   64 Behavioral Influences on Organizational Buying   64 Personal Motivations  64 Role Perceptions  65 Stages in the Organizational Buying Process  67 Organizational Need  68 Vendor Analysis  69 Purchase Activities  69 Postpurchase Evaluation  69 Summary  70 Chapter 5 Market Segmentation  71 Delineate the Firm’s Current Situation  71 Determine Consumer Needs and Wants  72 Divide Markets on Relevant Dimensions   72 A Priori versus Post Hoc Segmentation   73 Relevance of Segmentation Dimensions   74 Bases for Segmentation   74 Develop Product Positioning   79 Decide Segmentation Strategy   81 Design Marketing Mix Strategy   82 Summary  83 PART C THE MARKETING MIX   85 Chapter 6 Product and Brand Strategy   86 Basic Issues in Product Management   86 Product Definition  86 Product Classification  87 Product Quality and Value   88 Product Mix and Product Line   89 Branding and Brand Equity   90 Packaging  97 Product Life Cycle   97 Product Adoption and Diffusion   99 The Product Audit   100 Deletions  100 Product Improvement  101 Organizing for Product Management   101 Summary  103 Chapter 7 New Product Planning and Development  105 New Product Strategy   106 New Product Planning and Development Process  108 Idea Generation  109 Idea Screening  110 Project Planning  111 Product Development  111 Test Marketing  111 Commercialization  112 The Importance of Time   112 Some Important New Product Decisions   113 Quality Level  113 Product Features  114 Product Design  115 Product Safety  115 Causes of New Product Failure   117 Need for Research   117 Summary  118 Chapter 8 Integrated Marketing Communications   120 Strategic Goals of Marketing Communication  120 Create Awareness  120 Build Positive Images   120 Identify Prospects  120 Build Channel Relationships   122 Retain Customers  122 The Promotion Mix   122 Integrated Marketing Communications   123 Advertising: Planning and Strategy   124 Objectives of Advertising   124 Advertising Decisions  126 The Expenditure Question   127 The Allocation Question   128 Sales Promotion  132 Push versus Pull Marketing   132 Trade Sales Promotions   134 Consumer Promotions  135 What Sales Promotion Can and Can’t Do  135 Public Relations  136 Direct Marketing  136 Summary  137 Contents xiii Appendix Major Federal Agencies Involved in Control of Advertising  139 Chapter 9 Personal Selling, Relationship Building, and Sales Management   140 Importance of Personal Selling   140 The Sales Process   141 Objectives of the Sales Force   142 The Sales Relationship-Building Process   143 People Who Support the Sales Force   147 Managing the Sales and Relationship-Building Process  148 The Sales Management Task   148 Controlling the Sales Force   149 Motivating and Compensating Performance  153 Summary  155 Chapter 10 Distribution Strategy  157 The Need for Marketing Intermediaries   157 Classification of Marketing Intermediaries and Functions  157 Channels of Distribution   159 Selecting Channels of Distribution   160 Specific Considerations  160 Managing a Channel of Distribution   163 Relationship Marketing in Channels   163 Vertical Marketing Systems   163 Wholesaling  165 Store and Nonstore Retailing   166 Store Retailing  167 Nonstore Retailing  168 Summary  172 Chapter 11 Pricing Strategy  174 Demand Influences on Pricing Decisions   174 Demographic Factors  174 Psychological Factors  174 Price Elasticity  176 Supply Influences on Pricing Decisions   176 Pricing Objectives  176 Cost Considerations in Pricing   176 Product Considerations in Pricing   178 Environmental Influences on Pricing Decisions  179 The Internet  179 Competition  179 Government Regulations  180 A General Pricing Model   181 Set Pricing Objectives   181 Evaluate Product–Price Relationships   181 Estimate Costs and Other Price Limitations   182 Analyze Profit Potential   183 Set Initial Price Structure   183 Change Price as Needed   183 Summary  184 PART D MARKETING IN SPECIAL FIELDS   187 Chapter 12 The Marketing of Services   188 Important Characteristics of Services   190 Intangibility  190 Inseparability  191 Perishability and Fluctuating Demand   192 Client Relationship  192 Customer Effort  193 Uniformity  193 Providing Quality Services   194 Customer Satisfaction Measurement   195 The Importance of Internal Marketing   196 Overcoming the Obstacles in Service Marketing  197 Limited View of Marketing   197 Limited Competition  198 Noncreative Management  198 No Obsolescence  199 Implications for Service Marketers   200 Summary  200 Chapter 13 Global Marketing  202 The Competitive Advantage of Nations   203 Organizing for Global Marketing   204 Problems with Entering Foreign Markets   204 Organizing the Multinational Company   207 Programming for Global Marketing   209 Global Marketing Research   209 Global Product Strategy   211 Global Distribution Strategy   211 Global Pricing Strategy   212 Global Advertising and Sales Promotion Strategy  213 Entry and Growth Strategies for Global Marketing   214 Summary  217 xiv Contents SECTION II ANALYZING MARKETING PROBLEMS AND CASES  219 A Case Analysis Framework   221 1. Analyze and Record the Current Situation   221 2. Analyze and Record Problems and Their Core Elements  226 3. Formulate, Evaluate, and Record Alternative Courses of Action  227 4. Select and Record the Chosen Alternative and ­Implementation Details  227 Pitfalls to Avoid in Case Analysis   229 Communicating Case Analyses   230 The Written Report   230 The Oral Presentation   232 Summary  232 SECTION III FINANCIAL ANALYSIS FOR ­MARKETING DECISIONS  233 Financial Analysis  234 Breakeven Analysis  234 Net Present Value Analysis   236 Ratio Analysis  238 Summary  242 SECTION IV DEVELOPING MARKETING PLANS   243 A Marketing Plan Framework   244 Title Page  245 Executive Summary  245 Table of Contents   246 Introduction  246 Situational Analysis  246 Marketing Planning  246 Implementation and Control of the Marketing Plan   248 Summary  250 Appendix—Financial Analysis  250 References  253 Summary  253 Chapter Notes  254 Index  259 Final PDF to printer Section I Section I Essentials of Marketing Management Essentials of Marketing Management pet51611_sec01_001-002.indd 1 11/17/17 12:58 PM Final PDF to printer A Part Introduction Strategic Planning and the Marketing Management Process Section I Essentials of Marketing Management 1 pet51611_ch01_003-028.indd 3 11/17/17 01:02 PM 1 Chapter Strategic Planning and the Marketing Management Process The purpose of this introductory chapter is to present the marketing management process and outline what marketing managers must manage if they are to be effective. In doing so, it will also present a framework around which the remaining chapters are organized. Our first task is to review the organizational philosophy known as the marketing concept, because it underlies much of the thinking presented in this book. The remainder of this chapter will focus on the process of strategic planning and its relationship to the process of marketing planning. THE MARKETING CONCEPT Part A Introduction Simply stated, the marketing concept means that an organization should seek to achieve its goals by serving its customers. For a business organization, this means that it should focus its efforts on determining what customers need and want and then creating and offering products and services that satisfy these needs and wants. By doing so, the business will achieve its goal of making profits. The purpose of the marketing concept is to rivet the attention of organizations on serving customer needs and wants. This is called a market orientation, and it differs dramatically from a production orientation that focuses on making products and then trying to sell them to customers. Thus, effective marketing starts with the recognition of customer needs and wants and then works backward to create products and services to satisfy them. In this way, organizations can satisfy customers more efficiently in the present and more accurately forecast changes in customers needs and wants in the future. This means that organizations should focus on building long-term customer relationships in which an initial sale is only an early step in the relationship, not an end goal. Long-term relationships between organizations and customers lead to higher levels of profits and higher levels of customer satisfaction. The principal task of an organization with a market orientation is not to manipulate customers to do what suits its interests but rather to find effective and efficient means to satisfy the interests of customers. This is not to say that all organizations do so. Clearly many are still production oriented. However, effective marketing, as defined in this text, requires that customers come first in organizational decision making. 4 MARKETING INSIGHT   Some Differences between Organizations with a Market versus Product Orientation 1–1 Topic Marketing Orientation Production Orientation Attitudes toward customers Customer needs determine company plans They should be glad we exist, trying to cut costs and bringing out better products Product offering Company makes what it can sell Company sells what it can make Role of marketing research To determine customer needs and how well company is ­satisfying them To determine customer reaction, if used at all Interest in innovation Focus is on locating new opportunities Focus is on technology and cost cutting Customer service Satisfy customers after the sale and they’ll come back again An activity required to reduce consumer complaints Focus of advertising Need-satisfying benefits of goods and services Product features and how products are made Relationship with customer Customer satisfaction before and after sale leads to a profitable long-run relationship Relationship ends when a sale is made Costs Eliminate costs that do not give value to customer Keep costs as low as possible William D. Perrault Jr., Joseph P. Cannon, and E. Jerome McCarthy, Essentials of Marketing. 15th ed. (New York: McGraw-Hill, 2017), p. 19. Reprinted with permission of McGraw-Hill Education. One qualification to this statement deals with the question of a conflict between consumer wants and societal needs and wants. For example, if society deems clean air and ­water as necessary for survival, this need may well take precedence over a consumer’s want for goods and services that pollute the environment. WHAT IS MARKETING? Everyone reading this book has been a customer for most of his or her life. Last evening you stopped at a local supermarket to graze at the salad bar, pick up some bottled water and a bag of Fritos corn chips. While you were there, you snapped a $1.00 coupon for a new flavor salad dressing out of a dispenser and tasted some new breakfast potatoes being cooked in the back of the store. As you sat down at home to eat your salad, you answered the phone and someone suggested that you need to have your carpets cleaned. Later on in the evening you saw TV commercials for tires, soft drinks, athletic shoes, and the dangers of smoking and drinking during pregnancy. Today when you enrolled in a marketing course, you found that the instructor has decided that you must purchase this book. A friend has a­ lready purchased the book on the Internet. All of these activities involve marketing. And each of us knows something about marketing because it has been a part of our life since we had our first dollar to spend. Since we are all involved in marketing, it may seem strange that one of the persistent problems in the field has been its definition. The American Marketing Association defines marketing as “the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large.”1 This definition takes into account all parties involved in the marketing effort: members of the producing organization, resellers of goods and services, and 5 6 Part A Introduction FIGURE 1.1 Major Types of Marketing Type Description Product Marketing designed to create exchange for tangible products. Service Marketing designed to create exchanges for intangible products. Person Marketing designed to create favorable actions toward persons. Place Marketing designed to attract people to places. Cause Marketing designed to create support for ideas, causes, or issues or to get people to change undesirable behaviors. Organization Marketing designed to attract donors, members, participants, or volunteers. Example Strategies to sell Gateway computers. Strategies by Allstate to sell insurance. Strategies to elect a political candidate. Strategies to get people to vacation in national or state parks. Strategies to get pregnant women not to drink alcohol. Strategies designed to attract blood donors. customers or clients. While the broadness of the definition ­allows the inclusion of nonbusiness exchange processes, the primary emphasis in this text is on marketing in the business environment. However, this emphasis is not meant to imply that marketing concepts, principles, and techniques cannot be fruitfully employed in other areas of exchange as is clearly illustrated in Figure 1.1. WHAT IS STRATEGIC PLANNING? Before a production manager, marketing manager, and personnel manager can develop plans for their individual departments, some larger plan or blueprint for the entire ­or­ganization should exist. Otherwise, on what would the individual departmental plans be based? In other words, there is a larger context for planning activities. Let us assume that we are dealing with a large business organization that has several business divisions and several product lines within each division (e.g., General Electric, Altria). Before individual divisions or departments can implement any marketing planning, a plan has to be developed for the entire organization.2 This means that senior managers must look toward the future and evaluate their ability to shape their organization’s destiny in the years and decades to come. The output of this process is objectives and strategies designed to give the organization a chance to compete effectively in the future. The objectives and strategies established at the top level provide the context for planning in each of the divisions and departments by divisional and departmental managers. Strategic Planning and Marketing Management Some of the most successful business organizations are here today because many years ago they offered the right product at the right time to a rapidly growing market. The same can also be said for nonprofit and governmental organizations. Many of the critical decisions of the past were made without the benefit of strategic thinking or planning. Whether these decisions were based on wisdom or were just luck is not important; they worked for these organizations. However, a worse fate befell countless other organizations. More than ­three-quarters of the 100 largest U.S. corporations of 70 years ago have fallen from the list. These corporations at one time dominated their markets, controlled vast resources, and had the best-trained workers. In the end, they all made the same critical mistake. Their managements failed to recognize that business strategies need to reflect changing MARKETING INSIGHT   T he Long-Term Value of Loyal Customers 1. 2. 3. 4. 5. 6. 1–2 It costs a great deal more to acquire a new customer than to keep an old one. Loyal customers buy more from your firm over time. The longer you keep a customer, the more profitable they become over time. It costs less to service loyal customers than new customers. Loyal customers are often excellent referrals for new business. Loyal customers are often willing to pay more for the quality and value they desire. Source: One of the earliest works on the value of the loyal customer was Frederick F. Reichheld, The Loy- alty Effect. (Boston: HBS Press, 1996). Also see Roland T. Rust, Katherine N. Lemon, and Valerie A. Zeithaml, “Return on Marketing: Using Customer Equity to Focus Marketing Strategies,“ Journal of Marketing, January 2004, pp. 76–89; and W. D. Perreault Jr., J. P. Cannon, and E. Jerome McCarthy, Essentials of Marketing, 15th ed. (New York: McGraw-Hill, 2017), pp. 42–43. environments and emphasis must be placed on developing business systems that allow for continuous ­improvement. Instead, they attempted to carry on business as usual. Present-day managers are increasingly recognizing that wisdom and innovation alone are no longer sufficient to guide the destinies of organizations, both large and small. These same managers also realize that the true mission of the organization is to provide value for three key constituencies: customers, employees, and investors. Without this type of outlook, no one, including shareholders, will profit in the long run. Strategic planning includes all the activities that lead to the development of a clear ­organizational mission, organizational objectives, and appropriate strategies to achieve the objectives for the entire organization. The form of the process itself has come under criticism in some quarters for being too structured; however, strategic planning, if performed successfully, plays a key role in achieving an equilibrium between the short and the long term by balancing acceptable financial performance with preparation for inevitable changes in markets, technology, and competition, as well as in economic and political ­arenas. Managing principally for current cash flows, market share gains, and earnings trends can mortgage the firm’s future. An intense focus on the near term can produce an aversion to risk that dooms a business to stagnation. Conversely, an overemphasis on the long run is just as inappropriate. Companies that overextend themselves betting on the future may penalize short-term profitability and other operating results to such an extent that the ­company is vulnerable to takeover and other threatening actions. The strategic planning process is depicted in Figure 1.2. In the strategic planning process, the organization gathers information about the changing elements of its environment. Managers from all functional areas in the organization assist in this information-gathering process. This information is useful in aiding the organization to adapt better to these changes through the process of strategic planning. The strategic plan(s)3 and supporting plan are then implemented in the environment. The end results of this implementation are fed back as new information so that continuous adaptation and improvement can take place. The Strategic Planning Process The output of the strategic planning process is the development of a strategic plan. Figure 1.2 indicates four components of a strategic plan: mission, objectives, strategies, and portfolio plan. Let us carefully examine each one. Organizational Mission The organization’s environment provides the resources that sustain the organization, whether it is a business, a college or university, or a government agency. In exchange for these resources, the organization must supply the environment with quality goods 7 8 Part A Introduction FIGURE 1.2   The Strategic Planning Process The environment Cooperative Competitive Economic Social Political Legal The organization’s strategic plan Information Organizational mission Organizational objectives Organizational strategies Organizational portfolio plan Implementation and ­services at an acceptable price. In other words, every organization exists to accomplish something in the larger environment and that purpose, vision, or mission usually is clear at the organization’s inception. As time passes, however, the organization expands, and the environment and ­managerial personnel change. As a result, one or more things are likely to occur. First, the organization’s original purpose may become irrelevant as the ­organization expands into new products, new markets, and even new industries. For ­example, Levi Strauss began as a manufacturer of work clothes. Second, the original ­mission may remain relevant, but managers begin to lose interest in it. Finally, changes in the ­environment may make the original mission inappropriate, as occurred with the March of Dimes when a cure was found for polio. The result of any or all three of these conditions is a “drifting” organization, without a clear mission, vision, or purpose to guide ­critical decisions. When this occurs, management must search for a purpose or emphatically ­restate and reinforce the original purpose. The mission statement, or purpose, of an organization is the description of its reason for existence. It is the long-run vision of what the organization strives to be, the unique aim that differentiates the organization from similar ones and the means by which this ­differentiation will take place. In essence, the mission statement defines the direction in which the organization is heading and how it will succeed in reaching its desired goal. While some argue that vision and mission statements differ in their purpose, the perspective we will take is that both reflect the organization’s attempt to guide behavior, create a culture, and inspire commitment. However, it is more important that the mission ­statement comes from the heart and is practical, easy to identify with, and easy to ­remember so that it will provide direction and significance to all members of the organization regardless of their organizational level. The basic questions that must be answered when an organization decides to examine and restate its mission are, What is our business? Who are our customers? What do customers value? and What is our business? The answers are, in a sense, the assumptions on which the organization is being run and from which future decisions will evolve. While such questions MARKETING INSIGHT   S ome Actual Mission Statements Organization 1–3 Mission Large pharmaceutical firm We will become the world’s most valued company to patients, customers, colleagues, investors, business partners, and the communities where we work and live. Community bank To help citizens successfully achieve and celebrate important life events with education, information, ­products, and services. Skin care products We will provide luxury skin-care products with therapeutic qualities that make them worth their premium price. Hotel chain Grow a worldwide lodging business using total-quality-management (TQM) principles to continuously ­improve preference and profitability. Our commitment is that every guest leaves satisfied. Mid-size bank We will become the best bank in the state for medium-size businesses by 2024. may seem simplistic, they are such difficult and critical ones that the major responsibility for answering them must lie with top management. In fact, the mission ­statement remains the most widely used management tool in business today. In developing a statement of mission, management must take into account three key elements: the organization’s history, its distinctive competencies, and its environment.4 1. The organization’s history. Every organization—large or small, profit or nonprofit— has a history of objectives, accomplishments, mistakes, and policies. In formulating a ­mission, the critical characteristics and events of the past must be considered. 2. The organization’s distinctive competencies. While there are many things an o­ rganization may be able to do, it should seek to do what it can do best. Distinctive ­competencies are things that an organization does well—so well in fact that they give it an advantage over similar organizations. For Honeywell, its ability to design, manufacture, and distribute a superior line of thermostats. Similarly, Procter & Gamble’s distinctive competency is its knowledge of the market for low-priced, repetitively purchased consumer products. No matter how appealing an opportunity may be, to gain advantage over competitors, the ­organization must formulate strategy based on distinctive competencies. 3. The organization’s environment. The organization’s environment dictates the ­oppo­rtunities, constraints, and threats that must be identified before a mission statement is ­developed. For example, managers in any industry that is affected by Internet technology breakthroughs should continually be asking, How will the changes in technology a­ ffect my customers’ behavior and the means by which we need to conduct our business? However, it is extremely difficult to write a useful and effective mission statement. It is not uncommon for an organization to spend one or two years developing a useful mission statement. When completed, an effective mission statement will be focused on markets rather than products, achievable, motivating, and specific.5 Focused on Markets Rather Than Products The customers or clients of an organization are critical in determining its mission. Traditionally, many organizations defined their business in terms of what they made (“our business is glass”), and in many cases they named the organiza­tion for the product or service (e.g., American Tobacco, Hormel Meats, ­National Cash Register, Harbor View Savings and Loan Association). Many of these ­organizations have found that, when products and technologies become obsolete, their mission is no longer relevant and the name of the organization may no longer describe what it does. Thus, a more enduring way of defining the mission is needed. In recent years, 9 MARKETING INSIGHT   C ommon Shortcomings in Mission Statements 1–4 1. Incomplete—not specific as to where the company is headed and what kind of company management is trying to create. 2. Vague—does not provide direction to decision makers when faced with product/market choices. 3. Not motivational—does not provide a sense of purpose or commitment to something bigger than the numbers. 4. Not distinctive—not specific to our company. 5. Too reliant on superlatives—too many superlatives such as #1, recognized leader, most successful. 6. Too generic—does not specify the business or industry to which it applies. 7. Too broad—does not rule out any opportunity management might wish to pursue. Source: Adapted from Arthur A. Thompson Jr. Margaret A. Peteraf, John E. Gamble, and A. J. Strickland III, Crafting and Executing Strategy, 21st ed. (New York: McGraw-Hill, 2018), p. 22. Examine the mission statements in Marketing Insight 1–3. Do any of these shortcomings apply to them? t­herefore, a key feature of mission statements has been an external rather than internal ­focus. In other words, the ­mission statement should focus on the broad class of needs that the organization is seeking to satisfy (external focus), not on the physical product or service that the organization is o­ ffering at present (internal focus). These market-driven firms stand out in their ability to continuously anticipate market opportunities and respond before their competitors. Peter Drucker has clearly stated this principle: A business is not defined by the company’s name, statutes, or articles of incorporation. It is defined by the want the customer satisfies when he buys a product or service. To satisfy the customer is the mission and purpose of every business. The question “What is our business?” can, therefore, be answered only by looking at the business from the outside, from the point of view of customer and market.6 While Drucker was referring to business organizations, the same necessity exists for both nonprofit and governmental organizations. That necessity is to state the mission in terms of serving a particular group of clients or customers and meeting a particular class of need. Achievable While the mission statement should stretch the organization toward more ­effective performance, it should, at the same time, be realistic and achievable. In other words, it should open a vision of new opportunities but should not lead the organization into unrealistic ventures far beyond its competencies. Motivational One of the side (but very important) benefits of a well-defined mission is the guidance it provides employees and managers working in geographically ­dispersed units and on independent tasks. It provides a shared sense of purpose outside the various activities taking place within the organization. Therefore, such end results as sales, patients cared for, students graduated, and reduction in violent crimes can then be viewed as the ­result of careful pursuit and accomplishment of the mission and not as the mission itself. Specific As we mentioned earlier, public relations should not be the primary purpose of a statement of mission. It must be specific to provide direction and guidelines to management when they are choosing between alternative courses of action. In other words, “to produce the highest-quality products at the lowest possible cost” sounds very good, but it does not provide direction for management. 10 MARKETING INSIGHT   P otential Sources of Cross-Functional 1–5 ­C onflict for Marketers Functions Research and development Production/operations Finance Accounting Human resources What They May Want to Deliver What Marketers May Want Them to Deliver Basic research projects Product features Few projects Long production runs Standardized products No model changes Long lead times Standard orders No new products Rigid budgets Budgets based on return on investment Low sales commissions Standardized billing Strict payment terms Strict credit standards Trainable employees Low salaries Products that deliver customer value Customer benefits Many new products Short production runs Customized products Frequent model changes Short lead times Customer orders Many new products Flexible budgets Budgets based on need to increase sales High sales commissions Custom billing Flexible payment terms Flexible credit standards Skilled employees High salaries Organizational Objectives Organizational objectives are the end points of an organization’s mission and are what it seeks through the ongoing, long-run operations of the organization. The organizational mission is distilled into a finer set of specific and achievable organizational objectives. These objectives must be specific, measurable, action commitments by which the mission of the organization is to be achieved. As with the statement of mission, organizational objectives are more than good intentions. In fact, if formulated properly, they can accomplish the following: 1. They can be converted into specific action. 2. They will provide direction. That is, they can serve as a starting point for more specific and detailed objectives at lower levels in the organization. Each manager will then know how his or her objectives relate to those at higher levels. 3. They can establish long-run priorities for the organization. 4. They can facilitate management control because they serve as standards against which overall organizational performance can be evaluated. Organizational objectives are necessary in all areas that may influence the performance and long-run survival of the organization. As shown in Figure 1.3, objectives can be established in and across many areas of the organization. The list provided in Figure 1.3 is by no means ­exhaustive. For example, some organizations are specifying the primary objective as the ­attainment of a specific level of quality, either in the marketing of a product or the ­providing of a service. These organizations believe that objectives should reflect an orga­ nization’s comm­itment to the customer rather than its own finances. Obviously, during the strategic planning process conflicts are likely to occur between various functional departments in the organization. The important point is that management must translate the 11 12 Part A Introduction FIGURE 1.3 Sample Organizational Objectives (manufacturing firm) Area of Performance Possible Objective 1. Market standing To make our brands number one in their field in terms of market share. 2. Innovations To be a leader in introducing new products by spending no less than 7 percent of sales for research and development. 3. Productivity To manufacture all products efficiently as measured by the productivity of the workforce. 4. Physical and financial resources To protect and maintain all resources—equipment, buildings, inventory, and funds. 5. Profitability To achieve an annual rate of return on investment of at least 15 percent. 6. Manager performance To identify critical areas of management depth and and responsibility succession. 7. Worker performance and attitude To maintain levels of employee satisfaction consistent with our own and similar industries. 8. Social responsibility To respond appropriately whenever possible to societal expectations and environmental needs. organizational mission into specific objectives that support the realization of the mission. The objectives may flow directly from the mission or be considered subordinate necessities for carrying out the mission. As discussed earlier, the objectives are specific, measurable, action commitments on the part of the organization. Organizational Strategies Hopefully, when an organization has formulated its mission and developed its objectives, it knows where it wants to go. The next managerial task is to develop a “grand design” to get there. This grand design constitutes the organizational strategies. Strategy involves the choice of major directions the organization will take in pursuing its objectives. Toward this end, it is critical that strategies are consistent with goals and objectives and that top management ensures strategies are implemented effectively. As many as 70 p­ ercent of strategic plans fail because the strategies in them are not well-defined and, thus, cannot be implemented effectively. What follows is a discussion of ­various strategies organizations can pursue. We discuss three approaches: (1) strategies based on products and markets, (2) strategies based on competitive advantage, and (3) strategies based on value. Organizational Strategies Based on Products and Markets One means to developing ­ organizational strategies is to focus on the directions the organization can take in order to grow. Figure 1.4, which presents the available strategic choices, is a product–­market ­matrix.7 It indicates that an organization can grow by better managing FIGURE 1.4 Organizational Growth Strategies Products Present Products New Products Present customers Market penetration Product development New customers Market development Diversification Markets MARKETING INSIGHT  Three Tests for Organizational Strategies 1–6 1. The Fit Test: How well does the strategy fit the company’s situation? A strategy must have good external fit, which means it will be well matched to industry and competitive conditions, the company’s best market opportunities, and other relevant aspects of its business environment. It also must have a good internal fit, which means it is tailored to the company’s resources and distinctive competencies and be supported by a complementary set of functional capabilities (sales and marketing, production, etc.). 2. The Competitive Advantage Test: Can the strategy help the company achieve a sustainable competitive advantage? Strategies that fail this test are unlikely to produce superior performance for more than a brief period of time. A good strategy should enable the organization to achieve a long-term competitive advantage. 3. The Performance Test: Is the strategy producing good company performance? Critical performance indicators are (a) profitability and financial strength and (b) competitive strength and market standing. Above average performance in these two areas is an indicator of a winning strategy. Source: Adapted from Arthur A. Thompson Jr. Margaret A. Peteraf, John E. Gamble, and A. J. Strickland III, Crafting and Executing Strategy, 21st ed. (New York: McGraw-Hill, 2018), p. 12. what it is presently doing or by finding new things to do. In choosing one or both of these paths, it must also decide whether to concentrate on present customers or to seek new ones. Thus, according to Figure 1.4, there are only four paths an organization can take in order to grow. Market Penetration Strategies These strategies focus primarily on increasing the sale of present products to present customers. For example: ? Encouraging present customers to use more of the product: “Orange Juice Isn’t Just for Breakfast Anymore.” ? Encouraging present customers to purchase more of the product: multiple packages of Pringles, instant winner sweepstakes at a fast-food restaurant. ? Directing programs at current participants: A university directs a fund-raising program at those graduates who already give the most money. Tactics used to implement a market penetration strategy might include price reductions, advertising that stresses the many benefits of the product (e.g., “Milk Is a Natural”), packaging the product in different-sized packages, or making it available at more locations. Other functional areas of the business could also be involved in implementing the strategy in addition to marketing. A production plan might be developed to produce the product more efficiently. This plan might include increased production runs, the substitution of preassembled components for individual product parts, or the automation of a process that p­ reviously was performed manually. Market Development Strategies Pursuing growth through market development, an organization would seek to find new customers for its present products. For example: ? Arm & Hammer continues to seek new uses for its baking soda. ? McDonald’s continually seeks expansion into overseas markets. ? As the consumption of salt declined, the book 101 Things You Can Do with Salt Besides Eat It appeared. 13 14 Part A Introduction Market development strategies involve much, much more than simply getting the product to a new market. Before deciding on marketing techniques such as advertising and packaging, companies often find they must establish a clear position in the market, sometimes spending large sums of money simply to educate consumers as to why they should consider buying the product. Product Development Strategies Selecting one of the remaining two strategies means the organization will seek new things to do. With this particular strategy, the new products ­developed would be directed primarily to present customers. For example: ? Offering a different version of an existing product: mini-Oreos, Ritz with cheese. ? Offering a new and improved version of its product: Gillette’s latest improvement in shaving technology. ? Offering a new way to use an existing product: Vaseline’s Lip Therapy. Diversification This strategy can lead the organization into entirely new and even unrelated businesses. It involves seeking new products (often through acquisitions) for customers not currently being served. For example: ? Altria, originally a manufacturer of cigarettes, is widely diversified in financial services, Post cereals, Sealtest dairy, and Kraft cheese, among others. ? Brown Foreman Distillers acquired Hartmann Luggage, and Sara Lee acquired Coach Leather Products. ? Some universities are establishing corporations to find commercial uses for faculty r­ esearch. Organizational Strategies Based on Competitive Advantage Michael Porter developed a model for formulating organizational strategy that is applicable across a wide variety of ­industries.8 The focus of the model is on devising means to gain competitive advantage. Competitive advantage is an ability to outperform competitors in providing something that the market values. Porter suggests that firms should first analyze their industry and then ­develop either a cost leadership strategy or a strategy based on differentiation. These general strategies can be used on marketwide bases or in a niche (segment) within the total market. Using a cost leadership strategy, a firm would focus on being the low-cost company in its industry. They would stress efficiency and offer a standard, no-frills product. They could achieve this through efficiencies in production, product design, manufacturing, ­distribution, technology, or some other means. The important point is that to succeed, the organization must continually strive to be the cost leader in the industry or market segment it competes in. It must also offer products or services that are acceptable to customers when compared to the competition. Walmart, Southwest Airlines, and Timex Group Ltd. are companies that have succeeded in using a cost leadership strategy. Using a strategy based on differentiation, a firm seeks to be unique in its industry or ­market segment along particular dimensions that the customers value. These dimensions might pertain to design, quality, service, variety of offerings, brand name, or some other ­factor. The important point is that because of uniqueness of the product or service along one or more of these dimensions, the firm can charge a premium price. L.L.Bean, Rolex, Coca- Cola, and Microsoft are companies that have succeeded using a differentiation strategy. Organizational Strategies Based on Value As competition increases, the concept of ­“customer value” has become critical for marketers as well as customers. It can be thought of as an extension of the marketing concept philosophy that focuses on developing and ­delivering superior value to customers as a way to achieve organizational objectives. Thus, it ­focuses not only on customer needs, but also on the question, How can we create value for them and still achieve our objectives? Chapter One Strategic Planning and the Marketing Management Process 15 It has become pretty clear that in today’s competitive environment it is unlikely that a firm will succeed by trying to be all things to all people.9 Thus, to succeed firms must seek to build long-term relationships with their customers by offering a unique value that only they can offer. It seems that many firms have succeeded by choosing to deliver superior ­customer value using one of three value strategies—best price, best product, or best service. Dell Inc., Costco, and Southwest Airlines are among the success stories in offering customers the best price. Rubbermaid, Nike, Starbucks, and Microsoft believe they offer the best products on the market. Airborne Express, Roadway, Cott Corporation, and Lands’ End provide superior customer value by providing outstanding service. Choosing an Appropriate Strategy On what basis does an organization choose one (or all) of its strategies? Of extreme ­importance are the directions set by the mission statement. Management should select those strategies consistent with its mission and capitalize on the organization’s distinctive competencies that will lead to a sustainable competitive advantage. A sustainable competitive advantage can be based on either the assets or skills of the organization. Technical superiority, low-cost production, customer service/product support, location, financial resources, continuing product innovation, and overall marketing skills are all examples of distinctive competencies that can lead to a sustainable competitive advantage. For example, Honda is known for providing quality automobiles at a reasonable price. Each succeeding generation of Honda automobiles has shown marked quality improvements over previous generations. Similarly, VF Corporation, manufacturer of Wrangler and Lee jeans, has formed “quick response” partnerships with both discounters and department stores to ensure the efficiency of product flow. The key to sustaining a competitive advantage is to continually focus and build on the assets and skills that will lead to long-term performance gains. Organizational Portfolio Plan The final phase of the strategic planning process is the formulation of the organizational portfolio plan. In reality, most organizations at a particular time are a portfolio of businesses, that is, product lines, divisions, and schools. To illustrate, an appliance manufacturer may have several product lines (e.g., televisions, washers and dryers, refrigerators, stereos) as well as two divisions, consumer appliances and industrial appliances. A college or university will have numerous schools (e.g., education, business, law, architecture) and several programs within each school. Some widely diversified organizations such as Altria are in numerous unrelated businesses, such as cigarettes, food products, land development, and industrial paper products. Managing such groups of businesses is made a little easier if resources are plentiful, cash is plentiful, and each is experiencing growth and profits. Unfortunately, providing larger and larger budgets each year to all businesses is seldom feasible. Many are not experiencing growth, and profits and resources (financial and nonfinancial) are becoming more and more scarce. In such a situation, choices must be made, and some method is necessary to help management make the choices. Management must decide which businesses to build, maintain, or eliminate, or which new businesses to add. Indeed, much of the recent activity in corporate restructuring has centered on decisions relating to which groups of businesses management should focus on. Obviously, the first step in this approach is to identify the various divisions, product lines, and so on that can be considered a “business.” When identified, these are referred to as strategic business units (SBUs) and have the following characteristics: ? They have a distinct mission. ? They have their own competitors. 16 Part A Introduction ? They are a single business or collection of related businesses. ? They can be planned independently of the other businesses of the total organization. Thus, depending on the type of organization, an SBU could be a single product, product line, or division; a college of business administration; or a state mental health agency. Once the organization has identified and classified all of its SBUs, some method must be ­established to determine how resources should be allocated among the various SBUs. These methods are known as portfolio models. For those readers interested, the appendix of this chapter presents two of the most popular portfolio models, the Boston Consulting Group model and the General Electric model. The Complete Strategic Plan Figure 1.2 indicates that at this point the strategic planning process is complete, and the ­organization has a time-phased blueprint that outlines its mission, objectives, and strategies. Completion of the strategic plan facilitates the development of marketing plans for each product, product line, or division of the organization. The marketing plan serves as a subset of the strategic plan in that it allows for detailed planning at a target market level. This important relationship between strategic planning and marketing planning is the ­subject of the final section of this chapter. THE MARKETING MANAGEMENT PROCESS Marketing management can be defined as “the process of planning and executing the ­conception, pricing, promotion, and distribution of goods, services, and ideas to create ­exchanges with target groups that satisfy customer and organizational objectives.”10 It should be noted that this definition is entirely consistent with the marketing concept, since it emphasizes serving target market needs as the key to achieving organizational ­objectives. The remainder of this section will be devoted to a discussion of the marketing management process according to the model in Figure 1.5. Situation Analysis With a clear understanding of organizational objectives and mission, the marketing ­manager must then analyze and monitor the position of the firm and, specifically, the ­marketing department, in terms of its past, present, and future situation. Of course, the f­ uture situation is of primary concern. However, analyses of past trends and the current ­situation are most useful for predicting the future situation. The situation analysis can be divided into six major areas of concern: (1) the cooperative environment, (2) the competitive environment, (3) the economic environment, (4) the social environment, (5) the political environment, and (6) the legal environment. In analyzing each of these environments, the marketing executive must search both for opportunities and for constraints or threats to achieving objectives. Opportunities for profitable marketing often arise from changes in these environments that bring about new sets of needs to be satisfied. Constraints on marketing activities, such as limited supplies of scarce resources, also arise from these environments. The Cooperative Environment The cooperative environment includes all firms and individuals who have a vested interest in the firm’s accomplishing its objectives. Parties of primary interest to the marketing executive in this environment are (1) suppliers, (2) resellers, (3) other departments in the firm, and (4) subdepartments and employees of the marketing department. Opportunities in this environment are primarily related to methods of increasing efficiency. For example, a company might decide to switch from a competitive bid process of obtaining materials to a single source that is located near the company’s plant. Chapter One Strategic Planning and the Marketing Management Process 17 FIGURE 1.5 Strategic Planning and Marketing Planning The strategic plan Organizational mission Organizational objectives Organizational strategies Organizational portfolio plan Marketing information system and marketing research The marketing plan Situation analysis Marketing objectives Target market selection Marketing mix Product strategy Promotion strategy Pricing strategy Distribution strategy Implementation and control Similarly, members of the marketing, engineering, and manufacturing functions may use a teamwork approach to developing new products versus a sequential approach. Constraints consist of such things as unresolved conflicts and shortages of materials. For example, a company manager may believe that a distributor is doing an insufficient job of promoting and selling the product, or a marketing manager may feel that manufacturing is not taking the steps needed to produce a quality product. The Competitive Environment The competitive environment includes primarily other firms in the industry that rival the organization for both resources and sales. Opportunities in this environment include such things as (1) acquiring competing firms; (2) offering demonstrably better value to consumers and attracting them away from competitors; and (3) in some cases, driving competitors out of the industry. For example, one airline purchases another airline, a bank offers depositors a free checking account with no minimum balance requirements, or a grocery chain engages in an everyday low-price strategy that competitors can’t meet. The primary constraints in these environments are the demand stimulation activities of competing firms and the number of consumers who cannot be lured away from competition. The Economic Environment The state of the macroeconomy and changes in it also bring about marketing opportunities and constraints. For example, such factors as high ­inflation and unemployment levels can limit the size of the market that can afford to ­purchase a firm’s top-of-the-line product. At the same time, these factors may offer a ­profitable ­opportunity to develop rental services for such products or to develop less-­expensive models of the product. In addition, changes in technology can provide significant threats and opportunities. For example, in the communications industry, when technology was developed to a level where it was possible to provide cable television ­using phone lines, such a system posed a severe threat to the cable ­industry. MARKETING INSIGHT   Key Issues in the ­Marketing Planning ­Process That Need to Be Addressed 1–7 Speed of the Process. There is the problem of either being so slow that the process seems to go on forever or so fast that there is an extreme burst of activity to rush out a plan. Amount of Data Collected. Sufficient data are needed to properly estimate customer needs and competitive trends. However, the law of diminishing returns quickly sets in on the data-collection process. Responsibility for Developing the Plan. If planning is delegated to professional planners, valuable line management input may be ignored. If the process is left to line managers, planning may be relegated to secondary status. Structure. Many executives believe the most important part of planning is not the plan ­itself but the structure of thought about the strategic issues facing the business. However, the structure should not take precedence over the content so that planning becomes merely filling out forms or crunching numbers. Length of the Plan. The length of a marketing plan must be balanced between being so long that both staff and line managers ignore it and so brief that it ignores key details. Frequency of Planning. Too frequent reevaluation of strategies can lead to erratic firm behavior. However, when plans are not revised frequently enough, the business may not adapt quickly enough to environmental changes and thus suffer a deterioration in its competitive position. Number of Alternative Strategies Considered. Discussing too few alternatives raises the likelihood of failure, whereas discussing too many increases the time and cost of the planning effort. Cross-Functional Acceptance. A common mistake is to view the plan as the proprietary possession of marketing. Successful implementation requires a broad consensus, including other functional areas. Using the Plan as a Sales Document. A major but often overlooked purpose of a plan and its presentation is to generate funds from either internal or external sources. ­Therefore, the better the plan, the better the chance of gaining desired funding. Senior Management Leadership. Commitment from senior management is essential to the success of a marketing planning effort. Tying Compensation to Successful Planning Efforts. Management compensation should be oriented toward the achievement of objectives stated in the plan. Donald R. Lehmann and Russell S. Winer, Analysis for Marketing Planning, 7th ed. (Burr Ridge, IL: McGrawHill/Irwin, 2008), Chapter 1. Reprinted with permission of McGraw-Hill Education. 18 The Social Environment This environment includes general cultural and social traditions, norms, and attitudes. While these values change slowly, such changes often bring about the need for new products and services. For example, a change in values concerning the desirability of large families brought about an opportunity to market better methods of birth control. On the other hand, cultural and social values also place constraints on ­marketing activities. As a rule, business practices that are contrary to social values become political issues, which are often resolved by legal constraints. For example, public demand for a cleaner environment has caused the government to require that automobile ­manu­facturers’ products meet certain average gas mileage and emission standards. The Political Environment The political environment includes the attitudes and reactions of the general public, social and business critics, and other organizations, such as the Better Business Bureau. Dissatisfaction with such business and marketing practices as unsafe products, products that waste resources, and unethical sales procedures can have adverse effects on corporation image and customer loyalty. However, adapting business Chapter One Strategic Planning and the Marketing Management Process 19 and marketing practices to these attitudes can be an opportunity. For example, these attitudes have brought about markets for such products as unbreakable children’s toys, high-efficiency air conditioners, and more economical automobiles. The Legal Environment This environment includes a host of federal, state, and local ­legislation directed at protecting both business competition and consumer rights. In past years, legislation reflected social and political attitudes and has been primarily directed at constraining business practices. Such legislation usually acts as a constraint on business behavior, but again can be viewed as providing opportunities for marketing safer and more efficient ­products. In recent years, there has been less emphasis on creating new laws for constraining ­business practices. As an example, deregulation has become more common, as evidenced by events in the airlines, financial services, and telecommunications ­industries. Marketing Planning The previous sections emphasized that (1) marketing activities must be aligned with ­organizational objectives and (2) marketing opportunities are often found by ­systematically analyzing situational environments. Once an opportunity is recognized, the marketing executive must then plan an appropriate strategy for taking advantage of the opportunity. This process can be viewed in terms of three interrelated tasks: (1) establishing marketing objectives, (2) selecting the target market, and (3) developing the marketing mix. Establishing Objectives Marketing objectives usually are derived from organizational ­objectives; in some cases where the firm is totally marketing oriented, the two are identical. In either case, objectives must be specified and performance in achieving them should be measurable. Marketing objectives are usually stated as standards of performance (e.g., a certain percentage of market share or sales volume) or as tasks to be achieved by given dates. While such objectives are useful, the marketing concept emphasizes that profits rather than sales should be the overriding objective of the firm and marketing department. In any case, these objectives provide the framework for the marketing plan. Selecting the Target Market The success of any marketing plan hinges on how well it can identify customer needs and organize its resources to satisfy them profitably. Thus, a ­crucial ­element of the marketing plan is selecting the groups or segments of potential ­customers the firm is going to serve with each of its products. Four important questions must be answered: 1. 2. 3. 4. What do customers want or need? What must be done to satisfy these wants or needs? What is the size of the market? What is its growth profile? Present target markets and potential target markets are then ranked according to (1) profitability; (2) present and future sales volume; and (3) the match between what it takes to ­appeal successfully to the segment and the organization’s capabilities. Those that appear to offer the greatest potential are selected. One cautionary note on this process involves the importance of not neglecting present customers when developing market share and sales strategies. Chapters 3, 4, and 5 are devoted to discussing consumer behavior, industrial buyers, and market segmentation. Developing the Marketing Mix The marketing mix is the set of controllable variables that must be managed to satisfy the target market and achieve organizational objectives. These ­controllable variables are usually classified according to four major decision areas: product, price, promotion, and place (or channels of distribution). The importance of MARKETING INSIGHT   E xamples of Marketing Objectives Poorly Stated Objectives Our objective is to be a leader in the industry in terms of new product development. Our objective is to maximize profits. Our objective is to better serve customers. Our objective is to be the best that we can be. 1–8 Well-Stated Objectives Our objective is to spend 12 percent-of-sales revenue between 2020 and 2022 on research and development in an effort to introduce at least five new products in 2022. Our objective is to achieve a 10 percent return on investment during 2022, with a payback on new investments of no longer than four years. Our objective is to obtain customer satisfaction ratings of at least 90 percent on the 2020 annual customer satisfaction survey, and to retain at least 85 percent of our 2020 customers as repeat purchasers in 2021. Our objective is to increase market share from 30 percent to 40 percent in 2020 by increasing promotional expenditures by 14 percent. Source: Adapted from Donald R. Lehmann and Russell S. Winer, Analysis for Marketing Planning, 7th ed. (Burr Ridge, IL: McGraw-Hill/Irwin, 2008), Chapter 1. these decision ­areas ­cannot be overstated, and in fact, the major portion of this text is devoted to analyzing them. Chapters 6 and 7 are devoted to product and new product strategies, Chapters 8 and 9 to promotion strategies in terms of both nonpersonal and personal selling, Chapter 10 to ­distribution strategies, and Chapter 11 to pricing strategies. In addition, marketing mix ­variables are the focus of analysis in two chapters on marketing in special fields, that is, the marketing of services (Chapter 12) and global marketing (Chapter 13). Thus, it should be clear that the marketing mix is the core of the marketing management process. The output of the foregoing process is the marketing plan. It is a formal statement of ­decisions that have been made on marketing activities; it is a blueprint of the objectives, strategies, and tasks to be performed. Implementation and Control of the Marketing Plan 20 Implementing the marketing plan involves putting the plan into action and performing ­marketing tasks according to the predefined schedule. Even the most carefully developed plans often cannot be executed with perfect timing. Thus, the marketing executive must closely monitor and coordinate implementation of the plan. In some cases, adjustments may have to be made in the basic plan because of changes in any of the situational ­environments. For example, competitors may introduce a new product. In this event, it may be desirable to speed up or delay implementation of the plan. In almost all cases, some ­minor adjustments or fine tuning will be necessary in implementation. Controlling the marketing plan involves three basic steps. First, the results of the ­implemented marketing plan are measured. Second, these results are compared with ­objectives. Third, decisions are made on whether the plan is achieving objectives. If ­serious deviations exist between actual and planned results, adjustments may have to be made to redirect the plan toward achieving objectives. Chapter One Strategic Planning and the Marketing Management Process 21 Marketing Information Systems and Marketing Research Throughout the marketing management process, current, reliable, and valid information is needed to make effective marketing decisions. Providing this information is the task of the marketing information system and marketing research. These topics are discussed in detail in Chapter 2. THE STRATEGIC PLAN, THE MARKETING PLAN, AND OTHER FUNCTIONAL AREA PLANS Strategic planning is clearly a top-management responsibility. In recent years, however, there has been an increasing shift toward more active participation by marketing managers in strategic analysis and planning. This is because, in reality, nearly all strategic planning ­questions have marketing implications. In fact, the two major strategic planning q­ uestions— What products should we make? and What markets should we serve?—are clearly marketing questions. Thus, marketing executives are involved in the strategic planning process in at least two important ways: (1) They influence the process by providing important inputs in the form of information and suggestions relating to customers, products, and middlemen; and (2) they must always be aware of what the process of stategic planning involves as well as the results because everything they do—the marketing objectives and strategies they ­develop—must be derived from the strategic plan. In fact, the planning done in all functional areas of the organization should be derived from the strategic plan. Marketing’s Role in Cross-Functional Strategic Planning More and more organizations are rethinking the traditional role of marketing. Rather than dividing work according to function (e.g., production, finance, technology, human resources), they are bringing managers and employees together to participate in cross-functional teams. These teams might have responsibility for a particular product, line of products, or group of customers. Because team members are responsible for all activities involving their products and/or customers, they are responsible for strategic planning. This means that all personnel working in a cross-functional team will participate in creating a strategic plan to serve c­ ustomers. Rather than making decisions independently, marketing managers work closely with team members from production, finance, human resources, and other areas to devise plans that address all concerns. Thus, if a team member from production says, “That p­ roduct will be too difficult to produce,” or if a team member from finance says, “We’ll never make a profit at that price,” the team members from marketing must help resolve the problems. This approach requires a high degree of skill at problem solving and gaining ­cooperation. Clearly the greatest advantage of strategic planning with a cross-functional team is the ability of team members to consider a situation from a number of viewpoints. The resulting insights can help the team avoid costly mistakes and poor solutions. Japanese ­manufacturers are noted for using cross-functional teams to figure out ways to make desirable products at given target costs. In contrast, U.S. manufacturers traditionally have developed products by having one group decide what to make, another calculate production costs, and yet another predict whether enough of the product will sell at a high enough price. Thus, in well-managed organizations, a direct relationship exists between strategic ­planning and the planning done by managers at all levels. The focus and time perspectives will, of course, differ. Figure 1.6 illustrates the cross-functional perspective of strategic ­planning. It indicates very clearly that all functional area plans should be derived from the strategic plan while at the same time contributing to the achievement of it. 22 Part A Introduction FIGURE 1.6   The Cross-Functional Perspective in Planning The strategic plan Mission Objectives Strategies Portfolio plan Functional area plans derived from strategic plan Production plan Marketing plan Human resource plan Finance plan Technology plan Objectives Forecast Budgets Strategies and programs Policies Objectives Forecast Budgets Strategies and programs Policies Objectives Forecast Budgets Strategies and programs Policies Objectives Forecast Budgets Strategies and programs Policies Objectives Forecast Budgets Strategies and programs Policies If done properly, strategic planning results in a clearly defined blueprint for management action in all functional areas of the organization. Figure 1.7 clearly illustrates this blueprint ­using only one organizational objective and two strategies from the strategic plan (above the dotted line) and illustrating how these are translated into elements of the marketing department plan and the production department plan (below the dotted line). Note that in ­Figure 1.7, all ­objectives and strategies are related to other objectives and strategies at higher and lower ­levels in the organization: That is, a hierarchy of objectives and strategies exists. We have illustrated only two possible marketing objectives and two possible production objectives. Obviously, many others could be developed, but our purpose is to illustrate the cross-functional nature of strategic planning and how objectives and strategies from the strategic plan must be translated into objectives and strategies for all functional areas including marketing. SUMMARY This chapter has described the marketing management process in the context of the organization’s overall strategic plan. Clearly, marketers must understand their cross-functional role in joining the marketing vision for the organization with the financial goals and manufacturing capabilities of the organization. The greater this ability, the better the likelihood is that the organization will be able to achieve and sustain a competitive advantage, the ultimate purpose of the strategic planning process. At this point it would be useful to review Figures 1.5, 1.6, and 1.7 as well as the book’s table of contents. This review will enable you to better relate the content and progression of the material to follow to the marketing management process. Chapter One Strategic Planning and the Marketing Management Process 23 FIGURE 1.7  A Blueprint for Management Action: Relating the Marketing Plan to the Strategic Plan and the Production Plan One organizational objective (the profitability objective) from Figure 1.3 Two possible organizational strategies from the product-market matrix, Figure 1.4 Two possible marketing objectives and two possible production objectives derived from the strategic plan Achieve an annual rate of return on investment of at least 15 percent 1. Market penetration Improve position of present products with present customers 2. Market development Find new customers for present products 1. Marketing department objective 2. Production department objective 3. Marketing department objective 4. Production department objective Increase rate of purchase by existing customers by 10 percent by year-end Design additional features into product that will induce new uses by existing buyers Increase market share by 5 percent by attracting new market segments for existing use by year-end Design additional features into product that will open additional markets with new uses Marketing strategies and programs Production strategies and programs Specific course of action of the marketing and production departments designed to achieve the objective Marketing strategies and programs Key Terms and Concepts Production strategies and programs Distinctive competencies: Distinctive competencies are things that an organization does so well that they give it an advantage over similar organizations. No matter how appealing an opportunity may be, to gain advantage over competitors, the organization must formulate strategy based on distinctive competencies. Diversification: An organizational strategy that seeks growth through new products (often through acquisitions) for customers not currently being served. Market development: An organizational strategy that seeks growth through seeking new customers for present products. Market penetration: An organizational strategy that seeks growth through increasing the sale of present products to present customers. Marketing: The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large. Marketing concept: The marketing concept means that an organization should seek to make a profit by serving the needs of customer groups. Its purpose is to rivet the attention of marketing 24 Part A Introduction managers on serving broad classes of customer needs (customer orientation), rather than on the firm’s products (production orientation) or on devising methods to attract customers to current products (selling orientation). Marketing information system: Throughout the marketing management process, current, reliable, and valid information is needed to make effective marketing decisions. Providing this information is the task of the marketing information system and marketing research. Marketing management: Marketing management is the process of planning and executing the conception, pricing, promotion, and distribution of goods, services, and ideas to create exchanges with target groups that satisfy customer and organizational objectives. Marketing mix: The marketing mix is the set of controllable variables that must be managed to satisfy the target market and achieve organizational objectives. The controllable variables are usually classified according to four major decision areas: product, price, promotion, and place (or channels of distribution). Marketing planning: The marketing planning process produces three outputs: (1) establishing marketing objectives, (2) selecting the target market, and (3) developing the marketing mix. Organizational mission: The mission statement, or purpose, of an organization is the description of its reason for existence. It is the long-run vision of what the organization strives to be, the unique aim that differentiates the organization from similar ones and the means by which this differentiation will take place. An effective mission statement will be focused on markets rather than products, achievable, motivating, and specific. Organizational objectives: Organizational objectives are the end points of an organization’s mission and are what it seeks through the ongoing, long-run operation of the organization. The organizational mission is distilled into a finer set of specific, measurable, action commitments by which the mission of the organization is to be achieved. Organizational portfolio plan: This stage of the strategic plan involves the allocation of resources across the organization’s product lines, divisions, or businesses. It involves deciding which ones to build, maintain, or eliminate, or which to add. Organizational strategies: Organizational strategies are the choice of the major directions the organization will take in pursuing its objectives. There are three major approaches: (1) strategies based on products and markets, (2) strategies based on competitive advantage, and (3) strategies based on value. Organizational strategies based on competitive advantage: This approach to developing organizational strategy would develop either a cost leadership strategy which focuses on being the lower cost company in the industry or a differentiation strategy which focuses on being unique in the industry or market segment along dimensions that customers value. Organizational strategies based on products and markets: An approach to developing organizational strategies that focuses on the four paths an organization can grow: market penetration strategies, market development strategies, product development strategies, and diversification strategies. Organizational strategies based on value: This approach to developing organizational strategy seeks to succeed by choosing to deliver superior customer value using one of three value strategies— best price, best product, or best service. Product development: An organizational strategy that seeks growth through developing new products primarily for present customers. Situation analysis: This stage of the marketing planning process involves the analysis of the past, present, and likely future in six major areas of concern: (1) the cooperative environment, (2) the competitive environment, (3) the economic environment, (4) the social environment, (5) the political environment, and (6) the legal environment. Opportunities for and constraints on marketing activities arise from these environments. Strategic business units (SBUs): Strategic business units (SBUs) are product lines and divisions that can be considered a “business” for the purpose of the organizational portfolio plan. An SBU must have a distinct mission, have its own competitors, be a single business or collection of related businesses, and be able to be planned independently of the other SBUs. Strategic planning: Strategic planning provides a blueprint for management actions for the entire organization. It includes all the activities that lead to the development of a clear organizational mission, organizational objectives, and appropriate strategies to achieve the objectives for the entire organization. Appendix Portfolio Models A REVIEW OF PORTFOLIO THEORY The interest in developing aids for managers in the selection of strategy was spurred by an organization known as the Boston Consulting Group (BCG) more than 25 years ago. Its ideas, which will be discussed shortly, and many of those that ­followed were based on the concept of experience curves. Experience curves are similar in concept to learning curves. Learning curves were developed to express the idea that the number of labor hours it takes to produce one unit of a particular product declines in a predictable manner as the number of units produced increases. Hence, an accurate ­estimation of how long it takes to produce the 100th unit is possible if the production times for the 1st and 10th units are known. The concept of experience curves was based on this model. Experience curves were first widely discussed in the Strategic Planning Institute’s ongoing Profit Impact of Marketing Strategies (PIMS) study. The PIMS project studies 150 firms with more than 1,000 individual business units. Its major focus is on determining which environmental and internal firm variables ­influence the firm’s return on investment (ROI) and cash flow. The researchers have concluded that seven categories of variables appear to influence the return on investment: (1) competitive position, (2) industry/market environment, (3) budget allocation, (4) capital structure, (5)...