Second Edition Michael Levy, PhD - GBV · Michael Levy, PhD Babson College McGraw-Hill ... Psychological Factors 162 Attitude 164 ... Pepsi Engages the Chinese over the Web 232

MarketingSecond Edition

DhruvGrewal, PhDBabson College

Michael Levy, PhDBabson College

McGraw-HillIrwin

Boston Burr Ridge, IL Dubuque, IA New York San Francisco St. LouisBangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City,Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto'

SECTION ONE Assessing the Marketplace i1 Overview of Marketing 3

What Is Marketing? 4

Marketing Is about Satisfying Customer Needs and Wants 4

Marketing Entails an Exchange 5

Marketing Requires Product, Price, Place, and Promotion Decisions 6

Superior Service 1.1: Ritz-Carlton Hotel Makes Customer Service an Art 9Power of the Internet 1.1: Zappos Delivers Shoes 10

Marketing Can Be Performed by Both Individuals and Organizations 11

Marketing Impacts Various Stakeholders 12

Marketing Helps Create Value 13

What Is Value-Based Marketing? 14

Adding Value i.i: My M&M's 15

How Firms Compete on the Basis of Value 16

How Do Firms Become Value Driven? 16 s

Why Is Marketing Important? 18

Marketing Expands Firms'Global Presence 19

Marketing Is Pervasive across the Organization 20

Marketing Is Pervasive across the Supply Chain 21

Marketing Makes Life Easier and Provides Employment Opportunities 22

Marketing Enriches Society 22

Ethical and Societal Dilemma 1.1: Marketing Fast Food to Children 24

Marketing Can Be Entrepreneurial 24

Summing Up 26

Key Terms 26

Marketing Applications 27

Quiz Yourself 2j

Net Savvy 27

Chapter Case Study: Google and the YouTube Acquisition 28

Developing Marketing Strategies and a Marketing Plan 31

What Is a Marketing Strategy? 32

Building a Sustainable Competitive Advantage 33

Customer Excellence 33

Superior Service 2.1: Customer Service at Virgin Atlantic 35

Operational Excellence 36

Human Resource Management 36

Product Excellence 37

Locational Excellence 37

Multiple Sources of Advantage 38

The Marketing Plan 38 / .'

Step i: Define the Business Mission 40

Step 2: Conduct a Situation Analysis Using SWOT 41 <r !xxiii

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Step 3: Identifying and Evaluating Opportunities Using STP(Segmentation,Targeting, and Positioning) 42

Power of the Internet 2.1: Dove Evolutions 44

Step 4: Implement Marketing Mix and Allocate Resources 45

Step 5: Evaluate Performance Using Marketing Metrics 47Ethical and Societal Dilemma 2.1: Starbucks Working to

Make the Earth a Better Place 50

Strategic Planning Is Not Sequential 52

Growth Strategies 52

Market Penetration 53

Market Development and the Case for Global Expansion 53

Product Development 54

Diversification 55

Adding Value 2.1: FedEx Acquires Kinko's: Diversification or What? 55

Scenario Planning 56

Step i: Assess Strengths and Weaknesses 56

Step 2: Assess Opportunities and Threats 58

Step 3: Identify Different Scenarios 58

Step 4: Apply the Marketing Mix to the Different Scenarios 58

Step 5: Assess the Profitability of Each Scenario 59

Summing Up 59

Key Terms 61

Marketing Applications 61

Quiz Yourself 61

Toolkit 62

Net Savvy 62

Chapter Case Study: The iPhone: The Great Consumer Hope 62

Appendix 2A: Writing a Marketing Plan 65

3 Marketing Ethics 85

The Scope of Marketing Ethics 87

Ethical Issues Associated with Marketing Decisions 87

Creating an Ethical Climate in the Workplace 87

The Influence of Personal Ethics 88

Power of the Internet 3.1: Unethical Internet Behavior 92

Ethics and Corporate Social Responsibility 92

A Framework for Ethical Decision Making 93

Superior Service 3.1: Coca-Cola Fights HIV/AIDS in Africa 94

Integrating Ethics into Marketing Strategy 96

Ethical and Societal Dilemma 3.1: A Questionable Promotion 97

Planning Phase 99

Adding Value 3.1: Newman's Own: Making a Difference 100

Implementation Phase 100

Control Phase 102

Understanding Ethics Using Scenarios 102

Scenario i: R.J. Reynolds: Promotions to the Youth Market 103

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Scenario 2: Victoria's Dirty Secret 104

Scenario 3: Pregnant Teen TV Star 104

Scenario 4: Who Is on the Line? 104

Scenario 5: West Virginia T-Shirts 105

Scenario 6: Giving Credit Where Credit Isn't Due 105

Scenario 7: The Jeweler's Tarnished Image 105

Scenario 8: No Wonder It's So Good 106

Scenario 9: Bright Baby's Bright Idea 106

Scenario 10: Money from Mailing Lists 107

Scenario n: The Blogging CEO 107

Summing Up 108

Key Terms 108

Marketing Applications log

Quiz Yourself 109

Net Savvy 109

Chapter Case Study: Whose Side Are You On? no

4 Analyzing the Marketing Environment 113

A Marketing Environment Analysis Framework 114

The Immediate Environment 115

Successfully Leveraging Company Capabilities 115

Competitors and Competitive Intelligence 115

Corporate Partners 117

Macroenvironmental Factors 118 _/ Imoglne wealing fresh wi

Culture 118 —SSfliDemographics 120

Ethical and Societal Dilemma 4.1: PredatoryLenders Target Seniors 122

Social Trends 128

Adding Value 4.1: Cereal Manufacturers Reformulating 129

Technological Advances 130

Superior Service 4.1: Grocery Retailers Help Time-Poor Customers 131

Power of the Internet 4.1: Blogging:

The Next Relationship Frontier 132

Economic Situation 132

Political/Regulatory Environment 133

Corporate Social Responsibility 134

Inputs 136

Adding Value 4.2: GE's Ecomagination 137

Output 140

Summing Up 141

Key Terms 142

Marketing Applications 142

Quiz Yourself 143

Net Savvy 143Chapter Case Study: Stony field Farm: Changing the Environment

of Business 143

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SECTION TWO Understanding the Marketplace 1475 Consumer Behavior 149

The Consumer Decision Process 151

Need Recognition 151

Adding Value 5.1: H.O.G. Heaven 152

Search for Information 153

Evaluation of Alternatives 155

Purchase and Consumption 158

Postpurchase 158

Power of the Internet 5.1: Evaluating Travel

Alternatives with Expedia 159

Factors Influencing the Consumer Decision Process 162

Psychological Factors 162

Attitude 164

Social Factors 167

Adding Value 5.2: OXO: Grating on Customers' Nerves—in a Good Way 169

Situational Factors 169

Superior Service 5.1: Retailers Sell with Service 170

Ethical and Societal Dilemma 5.1: Is a "Free Gift" Really Free? 171

Involvement and Consumer Buying Decisions 172

Extended Problem Solving 173

Limited Problem Solving 174

Summing Up 174

Key Terms 775

Marketing Applications 176 t

Quiz Yourself 176

Toolkit 177

Net Savvy 177

Chapter Case Study: The Smart Car Prepares to Enter the U.S. Market 177

6 Business-to-Business Marketing 181

B2B Markets 183

Manufacturers or Producers 184

Resellers 184

Institutions 184

Government 184

Adding Value 6.1: Paris Runways to Retail Stores 185

B2B Classification System 186

The Business-to-Business Buying Process 187

Stage i: Need Recognition 188

Stage 2: Product Specification 189

Stage 3: RFP Process 189

Stage 4: Proposal Analysis, Vendor Negotiation, and Selection 189

Stage 5: Order Specification 190

Stage 6: Vendor Performance Assessment Using Metrics 190

Factors Affecting the Buying Process 191

The Buying Center 191

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Ethical and Societal Dilemma 6.1: How Does the Doctor Know Best? 193

Organizational Culture 194

Power of the Internet 6.1: Putting a Volkswagen Together 195

Buying Situations 195

Role of the Internet in Business-to-Business Marketing 198

Superior Service 6.1: Virtual Hiring Saves Small Business Big Money 199

Summing Up 200

Key Terms 201

Marketing Applications 201

Quiz Yourself 202

Toolkit 202

Net Savvy 202

Chapter Case Study: Weyerhaeuser: Serving the Home Building Industry 202

7 Global Marketing 207

Growth of the Global Economy: Globalization of Marketing and Production 209

Ethical and Societal Dilemma 7.1: What's Wrong with Globalization? 211

Assessing Global Markets 211

Economic Analysis Using Metrics 212

Ethical and Societal Dilemma 7.2: Is Global Retail Expansion Good for India? 216

Analyzing Infrastructure and Technological Capabilities 217

Analyzing Government Actions 218

Analyzing Sociocultural Factors 222

Choosing a Global Entry Strategy 224

Choosing a Global Marketing Strategy 2-27

Target Market: Segmentation,Targeting, and Positioning 227

The Global Marketing Mix 228 .

Adding Value 7.1: Whole Foods Woos London 230

Superior Service 7.1: Buy Your Ticket for China Online 231

Power of the Internet 7.1: Pepsi Engages the Chinese over the Web 232

Ethical Issues in Global Marketing 234

Environmental Concerns 234

Global Labor Issues 234

Impact on Host Country Culture 235

Summing Up 235

Key Terms 236

Marketing Applications 237

Quiz Yourself 237

Net Savvy 237

Chapter Case Study: P&G Takes on the World, One Smile at a Time 238

SECTION THREE Targeting the Marketplace 241

8 Segmentation, Targeting, and Positioning 243

The Segmentation,Targeting, Positioning Process 245

Step i: Establish Overall Strategy or Objectives 246

Step 2: Describe Segments 249

Adding Value 8.1: MTV Uses Lifestyle Segmentation to Targetthe Think Community 252

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Step 3: Evaluate Segment Attractiveness 256

Adding Value 8.2: CVS Identifies Its Target Market by Lifestyle and Demographics 257

Superior Service 8.1: Serving the Underserved 259

Step 4: Select Target Market 261

Power of the Internet 8.1: Easy Does It with Internet-Based Segmentation 262

Ethical and Societal Dilemma 8.1: Designer Labels Target Teens 263

Step 5: Identify and Develop Positioning Strategy 263

Positioning Steps 265

Repositioning 267

Summing Up 268

Key Terms 269

Marketing Applications 269

Quiz Yourself 270

Toolkit 270

Net Savvy 270

Chapter Case Study. China Mobile Growsthrough Segmentation 271

9 Marketing Research and Information Systems 275

Using Marketing Information Systems to Create Better Value 277

The Ethics of Using Customer Information 278

The Marketing Research Process 279

Step i: Defining the Objectives and Research Needs 280

Step 2: Designing the Research Project 281

Adding Value 9.1: IRI and the Value of Information 283

Step 3: Data Collection Process 284

Ethical and Societal Dilemma 9.1: Watching Consumers 286

Power of the Internet 9.1: Virtual Worlds Yield Real Marketing Research 289

Step 4: Analyzing Data 294

Adding Value 9.2: Marketing Research on a Shoestring Budget 295

Superior Service 9.1: Harrah's Knows Its Customers

Appreciate Superior Service 296

Step 5: Presenting Results 297

Summing Up 297

Key Terms 298

Marketing Applications 298

Quiz Yourself 299

Net Savvy 300

Chapter Case Study. Hollywood: Researching a Blockbuster 300

Appendix 9A: Using Secondary Data to Assess Customer Lifetime Value (CIV) 303

SECTION FOUR Value Creation 307

10 Product, Branding, and Packaging Decisions 309

Product Assortment and Product Line Decisions 311

Change Product Mix Breadth 312

Change Product Assortment Depth 313

Product Line Decisions for Services 313

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Branding 314

Value of Branding for the Customer and the Marketer 315

Power of the Internet 10.1: Luxury Designers Build Loyalty

through Web Site Branding 316

Brand Equity 317

Adding Value 10.1: The Brands Singles Choose to Find Them a Friend 321

Branding Strategies 321

Brand Ownership 321

Naming Brands and Product Lines 324

Brand Extension 325

Cobranding 327

Brand Licensing 327

Brand Repositioning 329

Packaging 330

Product Labeling 331

Ethical and Societal Dilemma 10.1: What's in the Food?

Is It on the Label? 332

Summing Up 332

Key Terms 333

Marketing Applications 333

Quiz Yourself 334

Net Savvy 334Chapter Case Study: Band-Aid® Brand Products: Building

on the Value of the Brand 33s

11 Developing New Products 339

Innovation and Value 341

Diffusion of Innovation 343

Innovators 344

Early Adopters 344 '

Early Majority 345

Late Majority 345

Laggards 345

Using the Diffusion of Innovation Theory 345

How Firms Develop New Products 346

Idea Generation 346

Concept Testing 350

Product Development 350

Superior Service 11.1: Airlines Can Improve Luggage Efficiency through RFID 351

Market Testing 351

Ethical and Societal Dilemma 11.1: Should Firms Test on Animals? 352

Product Launch 354

Adding Value 11.1: Marilyn Monroe Would Love It: Diamonds for Hair Care 356

Evaluation of Results 356

The Product Life Cycle 357

Introduction Stage 358

Growth Stage 358

Adding Value 11.2: The TiVo® Experience and the Consumer 359

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Maturity Stage 360

Decline Stage 361

The Shape of the Product Life Cycle Curve 361

Strategies Based on Product Life Cycle: Some Caveats 362

Summing Up 362

Key Terms 363

Marketing Applications 363

Quiz Yourself 364

Net Savvy 364

Chapter Case Study A Quick Bite, a Quick Snooze: The Launch ofMetroNaps 364

12 Services: The Intangible Product 367

Services Marketing Differs from Product Marketing 369

Intangible 370

Inseparable Production and Consumption 371

Ethical and Societal Dilemma 12.1: Whom Are You Going to Call? 372

Variable 373

Adding Value 12.1: Adding Convenience through Self-Checkout Machines 374

Perishable 375

Providing Great Service: The Gaps Model 376

The Knowledge Gap: Knowing What Customers Want 377

The Standards Gap: Setting Service Standards 381

The Delivery Gap: Delivering Service Quality 382

Power of the Internet 12.1: Employees and Customers: Service on All Sides 384

The Communications Gap: Communicating the Service Promise 386

Service Recovery 387

Listening to the Customer 388

Finding a Fair Solution 388

Resolving Problems Quickly 389

The CREST Method of Resolving Service Failures 390

Summing Up 390

Key Terms 3gi

Marketing Applications 3gi

Quiz Yourself 3g2

Toolkit 3g2

Net Savvy 3g2

Chapter Case Study. Puttin'on the Ritz 3g2

SECTION FIVE Value Capture 395

13 Pricing Concepts for Establishing Value 397

The Five Cs of Pricing 400

Company Objectives 400

Customers 403

Adding Value 13.1: Pay What You Want—Really 404

Superior Service 13.1: Great Service Lowers Price Elasticity 409

Costs 409

Break-Even Analysis and Decision Making 411

Competition 413

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Ethical and Societal Dilemma 13.1: The Battle: Retailers versusManufacturers. The Winner: Consumers? 415

Channel Members 415

Macro Influences on Pricing 416

The Internet 417

Economic Factors 417

Power of the Internet 13.1: Pricing on eBay 418

Summing Up 4ig

Key Terms 420

Marketing Applications 420

Quiz Yourself 421

Toolkit 421

Net Savvy 422

Chapter Case Study. Finding the Best Price: Bizrate versus eBay 422

14 Strategic Pricing Methods 425

Pricing Strategies 426

Cost-Based Methods 427

Competitor-Based Methods 427

Value-Based Methods 428

Power of the Internet 14.1: Do We Have to Pay Twice as

Much to See Miley or Hannah? 430

Psychological Factors Affecting Value-Based Pricing Strategies 431

Consumers' Use of Reference Prices 431

Everyday Low Pricing (EDLP) versus High/Low Pricing 432

Odd Prices 433

The Price-Quality Relationship 433 r

New Product Pricing 434

Price Skimming 434

Market Penetration Pricing 436

Adding Value 14.1: Price Skimming versus Market

Penetration in the World of High Fashion 436

Pricing Tactics 437

Business-to-Business Pricing Tactics and Discounts 437

Pricing Tactics Aimed at Consumers 439

Consumer Price Reductions 440

Superior Service 14.1: Oh, This Old Porsche? I'm Just Leasing It This Month . . . 444

Legal and Ethical Aspects of Pricing 444

Deceptive or Illegal Price Advertising 445

Predatory Pricing 446

Price Discrimination 446

Ethical and Societal Dilemma 14.1: Oh Yes, It's Ladies Night...

No More 447

Price Fixing 448

Summing Up 448

Key Terms 449

Marketing Applications 450

Quiz Yourself 451

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Net Savvy 457

Chapter Case Study: Battle Royal: Apple versus Amazon 451

SECTION SIX Value Delivery: Designing the Channeland Supply Chain 453

15 Supply Chain Management 455

Supply Chain, Marketing Channels, and Logistics Are Related 458

Supply Chains Add Value 458

Supply Chain Management Streamlines Distribution 460

Supply Chain Management Affects Marketing 460

Adding Value 15.1: Move It Fast 461

Making Information Flow 462

Power of the Internet 15.1: Neiman Marcus Expedites

Shipments through Customs 463

Data Warehouse 463

Electronic Data Interchange 464

Vendor-Managed Inventory 466

Collaborative Planning, Forecasting, and Replenishment 466

Pull and Push Supply Chains 466

Superior Service 15.1: The CPFR Promise: Make Everybody Happy 467

Making Merchandise Flow 468

Distribution Centers versus Direct Store Delivery 468

The Distribution Center 470

Adding Value 15.2: American Apparel: Now with RFID Chips 471

Inventory Management through Just-In-Time Systems 472

Managing the Supply Chain 475

Managing Supply Chains through Vertical Marketing Systems 476

Managing Supply Chains through Strategic Relationships 478

Ethical and Societal Dilemma 15.1: What Does Your Tag

Know about You? 479

Summing Up 481

Key Terms 482

Marketing Applications 482

Quiz Yourself 483

Net Savvy 483

Chapter Case Study: Wal-Mart: Pioneer in Supply Chain Management 483

16 Retailing and Multichannel Marketing 487

Choosing Retailing Partners 490

Channel Structure 490

Customer Expectations 491

Channel Member Characteristics 492

Distribution Intensity 492

Identify Types of Retailer 493

Food Retailers 493

Superior Service 16.1: Wegmans Services Its Employees—and Its Customers Too 495

General Merchandise Retailers 496

Adding Value 16.1: Trader Joe's Offers the Unexpected 497

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Facilitating Retail Strategy Using the Four Ps 502

Product 502

Price 503

Promotion 503

Place 505

Exploring Multiple Channel Options 505

Channels for Selling to Consumers 505

Store Channel 506

Catalog Channel 507

Internet Channel 507

Power of the Internet 16.1: How Much Is an Amazon.com Customer Worth? 512

Using the Internet to Improve Multichannel Shopping Experience 512

Perceived Risks in Electronic Shopping 513

Evolution toward Multichannel Marketing 513

Overcoming the Limitations of an Existing Format 513

Ethical and Societal Dilemma 16.1: Protecting Customer Privacy 514

Expanding Market Presence 515

Increasing Share of Wallet 515

Gaining Insights into Customers' Shopping Behaviors 515

Will Manufacturers Bypass Retailers and Sell Directly to Consumers? 515

Summing Up 516

Key Terms 577

Marketing Applications 577

Quiz Yourself 518 ,

Net Savvy 518

Chapter Case Study: Staples, Inc. 518

SECTION SEVEN Value Communication 521

17 Integrated Marketing Communications 523

Communicating with Consumers 526

The Communication Process 526

How Consumers Perceive Communication 528

The AlDA Model 528

Elements of an Integrated Marketing Communication Strategy 531

Advertising 532

Personal Selling 533

Sales Promotions 533

Direct Marketing 533

Ethical and Societal Dilemma 17.1: Identifying Web Users 535

Public Relations (PR) 535

Electronic Media 535

Planning for and Measuring IMC Success 539

Goals 539

Setting and Allocating the IMC Budget 540

Measuring Success Using Marketing Metrics 541

Planning, Implementing, and Evaluating IMC Programs—

An Illustration of Google Advertising 542

Legal and Ethical Issues in IMC 545

xxxiv table of contents

What Is Commercial Speech? 545

Summing Up 545

Key Terms 546

Marketing Applications 546

Quiz Yourself 547

Toolkit 547

Net Savvy 548

Chapter Case Study: Jigsaw: A Menace to Your Phone 548

18 Advertising, Public Relations, and Sales Promotions 551

1. Identify Target Audience 554

2. Set Advertising Objectives 554

Adding Value 18.1: A New Image to Appeal to the Wealthy 555

Informative Advertising 555

Persuasive Advertising 556

Reminder Advertising 556

Focus of Advertisements 557

Ethical and Societal Dilemma 18.1: Getting to the Truth® 559

3. Determine the Advertising Budget 560

4. Convey the Message 560

The Message 560

The Appeal 561

5. Evaluate and Select Media 563

Mass and Niche Media 564

Choosing the Right Medium 564

Determining the Advertising Schedule 565

6. Create Advertisements 566

7. Assess Impact Using Marketing Metrics 568

Regulatory and Ethical Issues in Advertising, 569

Public Relations 571

Sales Promotion 572

Types of Sales Promotion 573

Using Sales Promotion Tools 577

Evaluating Sales Promotions Using Marketing Metrics 578

Summing Up 578

Key Terms 579

Marketing Applications 580

Quiz Yourself 580

Toolkit 581

Net Savvy 581

Chapter Case Study: What Is Popularity Anyway? 581

19 Personal Selling and Sales Management 585

The Scope and Nature of Personal Selling 586

Personal Selling and Marketing Strategy 587

The Value Added by Personal Selling 588

The Personal Selling Process 589

^ 0DESI(RED)

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Step i : Generate and Qualify Leads 590

Step 2: Preapproach 591

Step 3: Sales Presentation and Overcoming Reservations 592

Step 4: Closing the Sale 594

Step 5: Follow-Up 594

Superior Service 19.1: The Fancy Chinese Camry 595

The Impact of Technology and the Internet on Personal Selling 596

Power of the Internet 19.1: Technology-Facilitated Textbook Selling 597

Ethical and Legal Issues in Personal Selling 598

The Sales Manager and the Sales Force 598

The Sales Force and Corporate Policy 598

Ethical and Societal Dilemma 19.1:

Pharmaceutical Sales Ethics 599

The Salesperson and the Customer 599

Managing the Sales Force 599

Sales Force Structure 600

Recruiting and Selecting Sales People 601

Sales Training 602

Motivating and Compensating Sales People 602

Summing Up 604

Key Terms 60s

Marketing Applications 605

Quiz Yourself 606

Net Savvy 606

Chapter Case Study: Tel-Soft Solutions: Making the Sale 606

Glossary 609

Quiz Yourself Answer Key 623

Endnotes 625

Credits 657

Name Index 661

Company Index 669

Subject Index 675