Marketing, Because Everyone is a Marketer 4th Edition by Shane Hunt, John INSTRUCTOR'S MANUAL by ACADEMIAMILL

Instructor‘s Manual - Chapter 1

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Chapter 1: Why Marketing Matters to You

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Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 1 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-1 Describe a marketer‘s role in creating, communicating, and delivering value. LO 1-2 Differentiate among the various eras in the history of marketing. LO 1-3 Distinguish between consumer needs and consumer wants. LO 1-4 Explain the four elements in the marketing mix. LO 1-5 Discuss the importance of globalization in the field of marketing. LO 1-6 Explain the role of analytics in marketing. LO 1-7 Demonstrate the relationship between ethical business practices and marketplace success. LO 1-8 Analyze the functions of marketing beyond the for-profit firm. KEY TERMS brand customer value ethics exchange global marketing logistics marketing marketing analytics

marketing concept marketing mix needs place (distribution) price product production orientation promotion

relationship marketing sales orientation social media supply chain wants

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current findings into class and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What are the three marketing philosophies/orientations? Provide one example of a product or service in each. Set 2: What are the four Ps? Provide an example for each. CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES and TABLES as a visual to elaborate on key areas, KEY TERMS learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT activities can be used, as well as tying in SOCIAL MEDIA IN ACTION to realworld applications of marketing products. This is created so that you can facilitate in-class or online discussion effectively. Executive Perspective

Jaime Gaudet Market Director, Aflac Finding a company that shared her value system, Jamie Gaudet now has an opportunity to strengthen people‘s benefits packages across four states. She uses her expertise in leadership and sales to provide insight in answering the following questions:

Photo provided by Jaime Gaudet

1. What has been the most important thing in making you successful at your job? 2. What advice would you give soon-to-be graduates? 3. How is marketing relevant to your role at Aflac? 4. What do you consider your personal brand to be? Woven in the chapter, you see how Jamie later elaborates on:  How promotion has impacted her role at Aflac. Review with students:  What does it mean to make an impact in your career?

Instructor‘s Manual - Chapter 1   LO 1-1 Describe a marketer‘s role in creating, communicating, and delivering value.  The Value of Marketing

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How she uses her personal brand to communicate value to customers. What do you consider your personal brand to be?

Key Terms:  Marketing  Customer value  Supply chain  Logistics

o Creating Value o Communicating Value o Delivering Value PowerPoint Slides Lecture Notes: THINK LIKE A MARKETER How do organizations create value for their customers? THINK LIKE A MARKETER Once value is created, how do you communicate it? THINK LIKE A MARKETER Why is it important to communicate value? The Value of Marketing  Marketing is 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  Marketers manage customer relationships in ways that benefit the organization and its employees, its customers, its investors, and society as a whole Creating Value  Organizations are constantly looking for new ways to create value for customers  If the benefit of the product or service equals or exceeds its cost, the organization has created value  Apple can charge higher prices than its competitors without fear of losing sales because of the value customers place on Apple products  The key ingredient for creating value is providing consumers with benefits that meet their needs and wants  Over 80 percent of all new products fail, a percentage that remains consistent in good and bad economic conditions Communicating Value  A firm must communicate not only what its product is but what value that product brings to potential customers Delivering Value 3

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The supply chain encompasses multiple companies that are directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer  Members of the supply chain can include manufacturers, wholesalers, retailers, transportation companies, and other groups, depending on the specific industry  The part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin and the final customer is called logistics  Many of the most successful firms in the world, including Coca-Cola, Walmart, and UPS, excel at managing their supply chains efficiently and have made delivering value a competitive advantage in their industries LO 1-2 Differentiate among the Key Terms: various eras in the history of  Production orientation marketing.  Sales orientation  History of Marketing  Marketing concept o Production  Relationship marketing Orientation o Sales Orientation o Marketing Concept o The Future of Marketing PowerPoint Slides Lecture Notes: Production Orientation  Prior to the 1920s, most firms throughout the United States and the rest of the developed world focused on production  Firms had a production orientation in which they focused on efficient processes and production to create quality products and reduce unit costs Sales Orientation  As the size and impact of sales forces grew, many firms shifted to a sales orientation, in which personal selling and advertising were used to persuade consumers to buy new products and more of existing products  Henry Ford‘s production line innovation and success manufacturing the Model A automobile represents the production orientation era, during which firms believed that quality products would sell themselves Marketing Concept  After two decades of economic depression and world war, the United States entered an era of expansion beginning in the early 1950s  Demand for goods and services increased significantly, as did the reliance on personal selling and advertising 4

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Products that had been in limited supply during the war flooded the market, forcing firms to develop new strategies to compete As a result, a strategy focused on the consumer, called the marketing concept, began to emerge The marketing concept reflects the idea that a firm‘s long-term success must include a company-wide effort to satisfy customer needs The marketing concept is characterized by a customer orientation, which stresses the idea that everyone in a firm, from salespeople to accountants to human resource managers to administrative assistants, should assess, then satisfy, a consumer‘s needs

The Future of Marketing  As technology and other changes impact the business world, firms will need to explore new models that address what customers want and how they prefer to receive information  The basic goal of marketing—to create, communicate, and deliver value—doesn‘t change, and marketers must use all the tools and strategies at their disposal to satisfy the needs and wants of customers Figure 1.1 Insight Questions: 1. Why do you think Twitter is the top-ranking social networking site for receiving news? (Answer: Open ended; it appeals to multiple demographics and has been around the longest of the most used social platforms.) 2. Do you think these percentages will change in the next 3 years? How so? (Answer: Open ended; social media is constantly evolving so as long as the platform also evolves and consumers use it a go-to source, an increase/decrease or new platform is possible.) 3. How do these figures compare to how and where you Figure Information: Social Media as receive news? (Answer: Open ended; simply liking a a Pathway to News: Twitter Leads the local, national, or global news page can add it in the Way social feed which makes information more easily The percentage of U.S. adults who use available. Sharing ―fake news‖ may be something to each social networking site and consider as an ethical dilemma, and sharing violent percentage of U.S. adults who get news videos or posts may be detrimental to your social from each social networking site is media profile as viewed by potential conveyed. In the coming years, employers/colleagues.) marketers will no longer automatically think of television, newspaper, or magazine advertising as the first choice for reaching customers. LO 1-3 Distinguish between Key Terms: consumer needs and  Exchange consumer wants.  Needs  Needs Versus Wants  Wants 5

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o Distinguishing Needs from Wants o The Ethical Implications of Needs versus Wants PowerPoint Slides Lecture Notes: Needs versus Wants  Marketers create value for customers when they develop products that allow consumers to satisfy their needs and wants through exchange relationships  Exchange happens when a buyer and seller trade things of value so that each is better off as a result  Needs are states of felt deprivation  Consumers feel deprived when they lack something useful or desirable like food, clothing, shelter, transportation, and safety  Marketers do not create needs; they are a basic part of our human makeup  Wants are the form that human needs take as they are shaped by personality, culture, and buying situation  Wants are influenced by numerous things, including a consumer‘s family, job, and background Distinguishing Needs from Wants  Distinguishing between needs and wants affects the way firms market their products to customers THINK LIKE A MARKETER What do marketers do with value? THINK LIKE A MARKETER How do marketers communicate value to consumers?  

The Ethical Implications of Needs versus Wants  Evaluating customer needs and wants must be done through an ethical framework to avoid potential problems for the firm and society as a whole  Most people need transportation of one kind or another; it‘s 6

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marketing‘s job to satisfy that need in a way that also meets the customer‘s wants, perhaps for a luxury car LO 1-4 Explain the four elements in Key Terms: the marketing mix.  Marketing mix  The Marketing Mix: The  Product Four Ps  Price o Product  Place o Price  Promotion o Place  Social media o Promotion PowerPoint Slides Lecture Notes: The Marketing Mix: The Four Ps  The marketing mix (product, price, place, promotion) represents everything that a firm can do to influence demand for its good, service, or idea  The four Ps of the marketing mix provide marketers with the tools to increase customer awareness, sales, and profitability  The marketing mix typically begins with the product because, without it, a firm has few, if any, decisions to make when it comes to price, place, or promotion Product  Product is a specific combination of goods, services, or ideas that a firm offers to consumers  Products can also take the form of services, such as those provided by an attorney or electrician, or ideas, like those offered by a consultant Price  Price is the amount of something—money, time, or effort—that a buyer exchanges with a seller to obtain a product  Setting a price is one of the most important strategic decisions a firm faces because it relates to the value consumers place on the product  Pricing‘s power is a result of the signal it can send about product quality  Pricing is typically the easiest marketing-mix element to change, making it a powerful tool for firms looking to quickly adjust their market share or revenue  Revenue is the amount earned from selling products to customers, and it is a function of the price of a product multiplied by the number of units sold  If the firm sets the price too high, it will sell fewer units, thus reducing revenue  If the firm sets the price too low, it may sell more units, but could still see a reduction in overall revenue if the money earned from the 7

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additional units sold isn‘t enough to offset the lower price Place  Place includes the activities a firm undertakes to make its product available to potential consumers  Companies must be able to distribute products to customers where they can buy and consume them without difficulty  Even if you have the right product at the right price, if customers cannot easily purchase the product, they will likely find a substitute  Place decisions relate to locations, transportation, logistics, and supply chain management Promotion  Promotion is all the activities that communicate the value of a product and persuade customers to buy it  Promotion includes advertising, sales promotion, personal selling, and public relations  A successful firm‘s whole promotional strategy is better than the sum of its parts; it effectively integrates the value of advertising, sales promotion, personal selling, and public relations to communicate a product‘s value to potential customers  An integrated approach will always be important to the success of a promotional strategy, but in recent years, the way a firm executes its promotional activities has evolved  The term social media refers to a group of Internet-based applications that enable users to create their own content and share it with others who access the sites  Social media communication is driven by word of mouth, meaning it results in free media rather than paid media Figure 1.2 Insight Questions: 1. Why must the marketing mix begin with decisions made relating to the product? (Answer: All other components of the marketing mix cannot be determined until the product is determined.) 2. What are the key areas of consideration for determining the product? (Answer: what the product is, its features, how it fits the needs and wants of the market, and whether or not it is new or revamped.) 3. What are the key areas of consideration for determining Figure Information: The Marketing the price? (Answer: what price should be charged Mix and Decisions that Affect It domestically and internationally, potential discounts, and how quickly a consumer needs it.) The combination of activities that 4. What are the key areas of consideration for determining comprise the marketing mix, or four Ps, the place? (Answer: suppliers, delivery, inventory, and highlight some of the strategic distribution to where a consumer is willing to purchase decisions that can affect each of the it) 8

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marketing-mix elements. Beginning 5. What are the key areas of consideration for determining with the product, the marketing mix the promotion? (Answer: where/when to advertise, use flows clockwise to uncover of sales promotion, hiring salespeople, and how the communication made to consumers. public perceives the product) Topic: Social Media Connect Assignment 1-1 The role of social media in marketing entered a new phase as organizations across the world responded to the COVID-19 pandemic. Global ad spending across Facebook and Instagram soared 43 percent in 2021 in the wake of the pandemic, while TikTok came out on top for global app Social Media in downloads in the first quarter of 2021. As many consumers remained under Action full or partial lockdown restrictions across the world, it was clear that people of all ages were continuing to flock to social media for entertainment and a bit of escapism. They were also increasingly going to social media to shop. In the United Kingdom, for example, one in four online purchases in 2020 were made as a result of interacting with a social media platform. Furthermore, close to one-fifth of consumers specifically went to social apps for shopping. Of those that do, 35 percent cited convenience as a key purchase driver, while 26 percent also said they liked how quick it is to check out. While these increases helped brands navigate sales during the pandemic, there are warning signs for marketers. For example, 58 percent of respondents claimed they were dissatisfied with their social media purchases and 38 percent were in the process of trying to process a refund or return of such items. Even more concerning, from a customer service standpoint, is that just 20 percent of the consumers who attempted to return an item said they have received a full refund via the method with which they first paid and 88 percent said they have been left out of pocket for at least one purchase. As social media becomes increasingly more important for consumer purchases across the world, marketers will have to constantly assess how best to balance potential sales with meeting the demands of buyer expectations. Source: See eConsultancy, ―Stats Roundup: How Social Media Marketing Has Changed after COVID-19‖ December 6, 2021 https://econsultancy.com/stats-roundup-how-social-media-marketing-haschanged-after-covid-19/ CONNECT BACK Insight Questions: 1. How does social media use convenience and promptness to reach consumers? (Answer: Social media is used by many organizations to reach consumers to place and complete an order. However, there are concerns over sharing data and using channels to receive information or refund orders.) 2. Does social media give retail organizations a competitive advantage? (Answer: Open ended; innovation is always an opportunity for 9

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competitive advantage, but it must be handled properly when challenges arise.)

LO 1-5 Discuss the importance of Key Terms: globalization in the field of  Global marketing marketing.  Brand  Trends Affecting Marketing o Global Marketing o The Interconnected World o Marketing on a Global Scale PowerPoint Slides Lecture Notes: Trends Affecting Marketing  Marketers face new challenges resulting from global competition  Consumers seek out firms that emphasize social responsibility and ethical practices Global Marketing  Global forces impact everything thing we do in marketing, from pricing to product development to supply chain management  Much of the growth in U.S. firms, ranging from Walmart to General Motors, comes from their expansion into international markets  When the United States entered a significant recession starting in December 2007, manufacturing at Chinese plants of products targeted to American consumers declined significantly, increasing unemployment and slowing growth in China  As the European Union dealt with a continent-wide banking crisis, U.S. firms saw their stock prices drop as investors feared possible exposure to the problems in Europe  Nearly 39 million jobs in the United States are supported by exports  In 2020, total U.S. exports were worth more than $2.1 trillion even with the impact of the COVID-19 pandemic  The United States is the world‘s leading exporter of services  Exports account for over 12 percent of the total U.S. economy The Interconnected World  The idea of globalization, the increasingly interconnected nature of the world economy, evokes different reactions from different people 10

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International trade agreements, such as the North American Free Trade Agreement (NAFTA) that relaxed trade restrictions between the United States, Canada, and Mexico, can be viewed both positively and negatively depending on an individual‘s circumstances

Marketing on a Global Scale  Less than 5 percent of the world‘s population lives in the United States, which leads marketers to seek ways to promote and sell their products to the billions of potential consumers living outside the United States  Global marketing is a marketing strategy that consciously addresses customers, markets, and competition throughout the world  Brand refers to the name, term, symbol, design, or any combination of these that identifies and differentiates a firm‘s products  Coca-Cola has demonstrated a commitment to using each of the four Ps—product, price, place, and promotion—to drive global success  Coca-Cola is at the cutting edge of delivering its products to places where global customers can buy them, whether that means moving bottling operations to Turkey or coordinating deliveries to remote places in Africa LO 1-6 Explain the role of analytics Key Terms: in marketing.  Marketing analytics  Marketing Analytics Marketing Analytics Insight Questions: 1. Firms that want to market on a global scale must pay close attention to whether the benefits exceed the costs. How can marketers use analytics do this? (Answer: Open-ended; marketers can use analytics to quantify and measure whether the benefits can generate a consumer following, create interest, generate revenue, etc.) 2. What kinds of things should a firm look at in analytical data? (Answer: Open-ended; sales over time periods, marketing return on investment, spikes in unusual areas, correlating factors, anomalies, etc.) PowerPoint Slides Lecture Notes: Marketing Analytics  Marketing analytics is the practice of measuring, managing, and analyzing market performance  It is the processes and technologies that enable marketers to evaluate the success of marketing initiatives by measuring performance using business metrics  Marketing analytics can be used for issues ranging from justifying how advertising dollars get spent to what to do with large amounts of consumer data that are now available  During 2016 presidential campaign, candidates sought a marketing advantage using analytics  It is anticipated that marketing budgets will almost double in the next 3 11

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years for marketing analytics LO 1-7 Demonstrate the relationship Key Terms: between ethical business  Ethics practices and marketplace success.  Ethics in Marketing o The Impact of Ethics on Business o Ethical DecisionMaking Framework PowerPoint Slides Lecture Notes: Ethics in Marketing  Ethical decision making should be a key component of a successful marketing approach  Ethics are moral standards expected by a society  Marketers should clearly understand the norms and values expected of them and act in a way that reflects their company, their profession, and themselves in a positive, ethical light  The American Marketing Association has published a thorough Code of Ethics, which marketers should read and adhere to The Impact of Ethics on Business  The consequences of not adhering to an ethical code can be serious  Ignoring ethical considerations has destroyed some of the largest companies in the world over the past 20 years, including Enron, telecommunications giant WorldCom, Arthur Andersen, and AIG  Making ethical decisions not only makes good business sense, it can also generate profits, even during a recession

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Insight Questions: 1. Justly balancing the needs of the buyer with the interests of the seller relates to which ethical value? (Answer: fairness) 2. What does it mean to be transparent? (Answer: to create a spirit of openness in marketing operations) 3. Contributing to the overall betterment of marketing and its reputation is part of which ethical value? (Answer: citizenship)

Figure Information: American Marketing Association Code of Ethics The AMA addresses six key areas of ethical values (honesty, responsibility, fairness, respect, transparency, and citizenship). Use this information as a guide as you develop your marketing knowledge throughout this text and beyond the course. Figure 1.4

Figure Information: Performance Comparison of the 2021 World’s Most Ethical Companies and the U.S. Large-Cap Index

Insight Questions: 1. Were the world‘s most ethical firms still profitable with positive and negative economic circumstances? (Answer: yes) 2. What, specifically, do think are the contributing factors to the most ethical firms making positive returns even in times of a recession? (Answer: Open ended; being an organization that consumers can depend on creates value and practices good judgment in their mindset.)

Ethical decisions can also lead to profits. This graph illustrates the relationship between ethical business practices and marketplace success. The WME Index measures the stock 13

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returns of all publicly traded World‘s Most Ethical Company honorees (portrayed here are years 2016–2021). Compare the WME Index to the U.S. Large-Cap Index above, which offers a comprehensive view of equity returns in the United States. As you can see, firms that were identified as ethical outperformed the mix of companies included in the U.S. Large-Cap Index through different political, regulatory, and economic circumstances. PowerPoint Slides

Lecture Notes: Ethical Decision-Making Framework  Despite the positive impact ethical decision making can have on a firm, the ethical choice is not always clear  You can apply this systematic, decision-making framework to ethical problems  The steps are as follows:  Step 1: Determine the facts in an unbiased manner  Step 2: Identify the ethical issue at hand  Step 3: Identify the stakeholders affected by the decision  Step 4: Consider all available alternatives  Step 5: Consider how the decision will affect the stakeholders  Step 6: Discuss the pending decision with the stakeholders  Step 7: Make the decision  Step 8: Monitor and assess the quality of the decision THINK LIKE A MARKETER What ethical decisions will you face as a marketing professional in your organization where this framework can applied?     

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Place Should jobs be outsourced to other members of the supply chain? Are the relationships between wholesalers and retailers inappropriate? What opportunities for personal gain might tempt a firm‘s suppliers? Price Should the firm charge customers different prices based on their ability to pay? Should the firm increase prices due to a lack of local competition? Should the firm lower prices on soft drinks and fast food to attract a greater customer following, even if those products present potential health risks? Promotion Does the advertising message represent the product‘s benefits honestly? Does the promotion strategy incorporate violence, sex, or profanity that may be inappropriate for some members of society? Does the advertising message attack competing products rather than highlight the benefits of the firm‘s product?

THINK LIKE A MARKETER Think of the ethical questions you will encounter in your job. What are they? Insight Questions: 1. Despite the positive impact ethical decision making can have on a firm, is the ethical choice always clear? (Answer: No, and there may be many personal and professional factors to consider.) 2. Which step do you think is most important? (Answer: open-ended)

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Figure Information: Ethical Decision-Making Framework Illustrating an ethical decision-making framework that you can use in your future career and in almost any marketing challenge you will encounter, the eight-step process of ethical decision making is made clear. Topic: Ethics Connect Assignment 1-2 Applying the ethical decision-making framework to an actual scenario will provide insight into how to evaluate ethical challenges and the potential risks involved when an ethical approach is not selected. CONNECT BACK Insight Questions: 1. Which area did you have the hardest time relating to an actual scenario? (Answer: Open-ended) 2. What are the potential risks of not selecting an ethical approach to business and marketing decisions? (Answer: open ended; in addition to your personal beliefs that can be challenged, consumer buy-in and support can be negatively affected and, in return, sales and profits are affected.) LO 1-8 Analyze the functions of Key Terms: marketing beyond the for(none) 16

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profit firm.  Marketing for Nonprofit Organizations  Marketing Yourself PowerPoint Slides Lecture Notes: Marketing for Nonprofit Organizations  Nonprofit organizations are a big part of the U.S. economy and include hospitals, charities, universities, zoos, and churches  Nonprofit organizations employ about nearly 11 million American workers and have increased employment more than private-sector firms during the past decade  As with for-profit firms, marketing efforts are an essential part of the success of nonprofit organizations  Successful marketing helps nonprofit organizations attract membership and much-needed funds  The marketing principles that apply to for-profit firms also impact nonprofit firms  Pictured is the St. Jude Children‘s Research Hospital®; cafeteria, named ―Kay Kafe‖ in honor of Kay® Jewelers‘ support of the hospital. By participating in St. Jude Children‘s Research Hospital® Thanks and Giving® campaign, Kay® Jewelers has raised over $70 million in donations from employees and customers since 1999 Today’s Professional

Photo provided by Austin Sandy

Austin Sandy Brand Manager, KLTV 7, Tyler, TX Austin Sandy manages multiple brands and several projects at a time. His career stems from an internship at an advertising agency working part time and, to his surprise, was recognized at an awards ceremony for his hard work. Austin‘s career was underway when offered a full-time position on the spot! He provides insight in answering the following questions: 1. Describe your job. 2. How did you get your job? 3. What has been the most important thing in making you successful at your job? 4. What advice would you give soon-to-be graduates? 5. What do you consider your personal brand to be? Review with students:  What hats does a marketer wear?  How did Austin learn to be outspoken among business professionals?  How will you develop your personal brand?

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Lecture Notes: Marketing Yourself  Your ability to market yourself will be critical to your success after you leave college  Don‘t consider the information in this book as a collection of random concepts that you can forget about once you take your final exam  Instead, think about how it will help you position yourself relative to others competing for the same job  Think about how to communicate your value so that you get an interview over hundreds of other candidates, and be able to successful respond to, ―Why should I hire you?‖  Ultimately, wherever your career leads you, you will need to market yourself effectively to reach the professional goals you have set Topic: Careers in Marketing Match personal and job characteristics to specific marketing careers to better understand how your passion may be best served through a career in marketing. CONNECT BACK Insight Questions: 1. How can you find what your passion is in order to find a career in marketing? (Answer: Open-ended; consider talking to an advisor or career counselor, job shadowing, joining LinkedIn networks, attending job fairs, following CMOs of leading organizations, etc.) 2. What are the various types of marketing careers that stand out to you? (Answer: Open ended; consider advertising, sales, social or digital marketing, public relations, strategy, research, etc.)

MARKETING PLAN EXERCISE Your Marketing Plan. As a professional in any field, it is important to have a comprehensive understanding of what a marketing plan is and why it is there. A marketing plan is an actionoriented document or playbook that guides the analysis, implementation, and control of all marketing activities. Throughout this book, you will develop a professional marketing plan. The twist is that your marketing plan will focus on how to market yourself to achieve your career goals. Many businesses fail to execute on their marketing plans because they did not spend adequate time clearly identifying what they wanted or expected to do. As a first step in developing your personal marketing plan, you will need to identify the specific objectives that you want to achieve. In developing these objectives, you should ask yourself several questions, such as:

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Do I want to attend graduate school? If so, where and what program? Where do I want to work? Where do I want to live? What kind of life do I want to have? How much will I need to earn to have that life?

Such questions will help you focus on what specific things you need to do to achieve your goals. The more clearly you define your objectives, the more likely you are to realize them. Student Task: Clearly state three to five specific objectives for your future, and include a brief one- to two-sentence description of each objective. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 1. Identify a firm that you think effectively markets its goods, services, or ideas, and describe how the firm creates, communicates, and delivers value. (Answer: For example, Smoothie King is an international franchise that competes in a health-driven society while also being challenged to increase revenue, innovate, and build its brand. Smoothie King continues to grow and now has over 1,300 locations in three continents. A focus on value allows Smoothie King to expand and grow its customer base and communicate its value through marketing plans that relate specifically to the demographics.) 2. Reflect on the evolution of marketing over the past century. Then describe three major changes that you think will affect the field of marketing over the next decade. (Answer: open ended; social media, digital marketing, customer service needs, artificial intelligence, globalization, and e-commerce) 3. Ask five people you know to list their needs and wants. Are their lists accurate reflections of the definition of each? Are there any differences due to age or gender? (Answer: open ended; take note of what people classify as needs (states of felt deprivation) and wants (the form that human needs take as they are shaped by personality, culture, and buying situation) compared to the definition of each and ask them to reflect on why they classified them accordingly) 4. Illustrate each step of the ethical decision-making framework by examining whether the state you live in should use a lottery to help pay for part of your college tuition. What are the ethical issues? Who are the relevant stakeholders? How are those stakeholders affected by potential outcomes? What decision would you make? (Answer: For example, gambling may be considered a sin for some religions, and there are some that abuse gambling. Enabling 19

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gambling when there are known issues can cause new issues in the population though it can be a quick method to getting access to cash quickly. Stakeholders include the student and their families, communities who may greatly benefit from the financial support so money can be spent on other items, and the institutions who will receive the tuition.) 5. Describe three examples of promotion that caught your attention in your hometown. Why do you think each worked so well? (Answer: open ended; think about the purpose of each promotion, its target market, and whether or not the channel choice served its intended purpose, e.g., billboard, transit advertisement, magazine ad) SOCIAL MEDIA APPLICATION Choose three products that you currently use—for example, clothes that you wear, restaurants where you eat, or the car that you drive. Analyze the social media presence of these products using the following questions and activities as a guide: 1. What is being done to market each product on social media? 2. What are people saying about each product on social media? 3. Give each of the three products a grade (A–F) based on how effective you feel its social media presence is. 4. Describe why you gave each the grade that you did, and make recommendations for how the product‘s firm could improve its social media marketing activities (e.g., modifying content or utilizing a different social media platform). This activity is located in an additional worksheet that can be used with group interaction, and can be found in the student learning resource section of the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise in Chapter 1 that introduces the topic of marketing analytics. The exercise gives you a basic overview of an Excel model used in marketing analytics activities. ETHICAL CHALLENGE Marketing decisions are driven increasingly by analytics produced from massive amounts of consumer data. Every time you shop online or post something on a social media platform like 20

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Instagram, marketers capture lots of information about you that can be helpful, but also can create potential problems. Facebook faced significant backlash from consumers and legislators in 2021, but ethical questions had been raised much earlier. For example, a Facebook study in 2012 sparked criticism from consumers when researchers from Facebook and Cornell University manipulated the news feeds of nearly 700,000 Facebook users for a week to gauge whether emotions spread on social media. The research found that users who saw more positive posts tended to write more positive posts themselves. The results were interesting for marketers who are increasingly trying to engage with and persuade consumers through social media. However, Facebook admitted that the study may have included users younger than 18. Facebook said it had changed its guidelines since the research was conducted, and new studies now are vetted through three internal reviews, including one focused on privacy for user data. The incident highlights how marketers can utilize the massive amount of data created online. A variety of companies, including Facebook and Google, routinely test adjustments to their sites to examine different effects. These changes include prompts to users to click on more links, or view more advertisements, which are the companies‘ main source of revenue. The trade-offs between marketing information and consumer privacy are likely to be a strongly debated issue in the decade ahead. Use the ethical decision-making framework to answer the following questions: 1. What are the major ethical issues surrounding Facebook‘s study? Who are the affected stakeholders? How will those stakeholders be affected? (Answer: While the Facebook study provides lots of consumer insight on a ―free‖ platform, consumers should be made aware of what their actions on social media are providing insight into. Firms, in turn, can use this information to target consumers who may not appreciate their data being shared.) 2. Reviewing this case years later, monitor and assess the quality of Facebook‘s decision. (Answer: Open ended; it may become an expectation that marketers receive data and consumers willingly share it, or the opposite: consumers may feel that technology has impeded on personal privacy too much.) 3. As a consumer, how do you personally feel about the information that is captured about you and used to market products to you? Do your feelings affect your online buying behavior? (Answer: Open ended; consider credit card, bank, and hospital data. Ask yourself if you would stop using social media platforms or purchasing online if data breaches became too frequent.) Source: See Reed Albergotti and Elizabeth Dwoskin, ―Facebook Study Sparks Soul-Searching and Ethical Questions,‖ The Wall Street Journal, June 30, 2014, http://www.wsj.com/articles/facebook-study-sparks-ethical-questions-1404172292. VIDEO CASE Have students go to Connect to access the video case featuring April Slayton from the National Park Service that accompanies this chapter. 21

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PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about how to market themselves and develop their own personal brand, follow these tips. Career Tips

Steve DeVore, President at Twin Oaks Integrated Marketing, provides 10 marketing tips for landing the job of your dreams by successfully marketing yourself. Realize what your résumé is and isn‘t. Break all the rules…in a smart way. Customize your approach. Be concise, but be meaningful. Make your resume visually appealing. (For example, consider adding color.) 6. Know what you want. 7. Go beyond Google. 8. Understand as much as you can about the people interviewing you. 9. Be prepared with unobvious answers. 10. Know what message you want to leave behind. 1. 2. 3. 4. 5.

Photo provided by Steve DeVore

Review with students:  How will you customize your interview materials?  What will your elevator pitch be?  What sources will you consult to do research on an organization prior to an interview?  What questions will you practice beforehand?  What kinds of questions will you ask the interviewers?  What lasting impression do you want to leave?

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Chapter 1: Why Marketing Matters to You

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-9 Describe a marketer‘s role in creating, communicating, and delivering value. LO 1-10 Differentiate among the various eras in the history of marketing. LO 1-11 Distinguish between consumer needs and consumer wants. LO 1-12 Explain the four elements in the marketing mix. LO 1-13 Discuss the importance of globalization in the field of marketing. LO 1-14 Explain the role of analytics in marketing. LO 1-15 Demonstrate the relationship between ethical business practices and marketplace success. LO 1-16 Analyze the functions of marketing beyond the for-profit firm. KEY TERMS brand customer value ethics exchange global marketing logistics marketing

marketing analytics marketing concept marketing mix needs place (distribution) price product

production orientation promotion relationship marketing sales orientation social media supply chain wants

THOUGHT-PROVOKING ACTIVITY Set 1: What are the three marketing philosophies/orientations? Provide one example of a product or service in each.

Set 2: What are the four Ps? Provide an example for each. 23

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THINK LIKE A MARKETER How do organizations create value for their customers?

THINK LIKE A MARKETER Once value is created, how do you communicate it?

THINK LIKE A MARKETER Why is it important to communicate value?

LO-1 Describe a marketer’s role in creating, communicating, and delivering value. The Value of Marketing  Marketing is 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  Marketers manage customer relationships in ways that benefit the organization and its employees, its customers, its investors, and society as a whole Creating Value 25

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Organizations are constantly looking for new ways to create value for customers If the benefit of the product or service equals or exceeds its cost, the organization has created value Apple can charge higher prices than its competitors without fear of losing sales because of the value customers place on Apple products The key ingredient for creating value is providing consumers with benefits that meet their needs and wants Over 80 percent of all new products fail, a percentage that remains consistent in good and bad economic conditions

Communicating Value  A firm must communicate not only what its product is but what value that product brings to potential customers Delivering Value  The supply chain encompasses multiple companies that are directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer  Members of the supply chain can include manufacturers, wholesalers, retailers, transportation companies, and other groups, depending on the specific industry  The part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin and the final customer is called logistics  Many of the most successful firms in the world, including Coca-Cola, Walmart, and UPS, excel at managing their supply chains efficiently and have made delivering value a competitive advantage in their industries LO-2 Differentiate among the various eras in the history of marketing. Production Orientation  Prior to the 1920s, most firms throughout the United States and the rest of the developed world focused on production  Firms had a production orientation in which they focused on efficient processes and production to create quality products and reduce unit costs Sales Orientation  As the size and impact of sales forces grew, many firms shifted to a sales orientation, in which personal selling and advertising were used to persuade consumers to buy new products and more of existing products  Henry Ford‘s production line innovation and success manufacturing the Model A automobile represent the production-orientation era, during which firms believed that quality products would sell themselves

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Marketing Concept  After two decades of economic depression and world war, the United States entered an era of expansion beginning in the early 1950s  Demand for goods and services increased significantly, as did the reliance on personal selling and advertising  Products that had been in limited supply during the war flooded the market, forcing firms to develop new strategies to compete  As a result, a strategy focused on the consumer, called the marketing concept, began to emerge  The marketing concept reflects the idea that a firm‘s long-term success must include a company-wide effort to satisfy customer needs  The marketing concept is characterized by a customer orientation, which stresses the idea that everyone in a firm, from salespeople to accountants to human resource managers to administrative assistants, should assess, then satisfy, a consumer‘s needs The Future of Marketing  As technology and other changes impact the business world, firms will need to explore new models that address what customers want and how they prefer to receive information  The basic goal of marketing—to create, communicate, and deliver value—doesn‘t change, and marketers must use all the tools and strategies at their disposal to satisfy the needs and wants of customers Figure 1.1. Social Media as a Pathway to News: Twitter Leads the Way INSIGHT QUESTIONS Why do you think Twitter is the top-ranking social networking site for receiving news? (Answer: Open ended; it appeals to multiple demographics and has been around the longest of the most used social platforms) Do you think these percentages will change in the next 3 years? How so? (Answer: Open ended; social media is constantly evolving so as long as the platform also evolves and consumers use it as a go-to source, an increase/decrease or new platform is possible) How do these figures compare to how and where you receive news? (Answer: Open ended; simply liking a local, national, or global news page can add it in the social feed which makes information more easily available. Sharing ―fake news‖ may be something to consider as an ethical dilemma, and sharing violent videos or posts may be detrimental to your social media profile as viewed by potential employers/colleagues) LO-3 Distinguish between consumer needs and consumer wants. Needs versus Wants  Marketers create value for customers when they develop products that allow consumers to satisfy their needs and wants through exchange relationships 27

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Exchange happens when a buyer and seller trade things of value so that each is better off as a result  Needs are states of felt deprivation  Consumers feel deprived when they lack something useful or desirable like food, clothing, shelter, transportation, and safety  Marketers do not create needs; they are a basic part of our human makeup  Wants are the form that human needs take as they are shaped by personality, culture, and buying situations  Wants are influenced by numerous things, including a consumer‘s family, job, and background Distinguishing Needs from Wants  Distinguishing between needs and wants affects the way firms market their products to customers. THINK LIKE A MARKETER What do marketers do with value?

THINK LIKE A MARKETER How do marketers communicate value to consumers?

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The distinction between needs and wants is important and not always clear The better a firm understands the difference between customers‘ needs and wants, the more effectively it can target its message and convince customers to buy its good or service, for the simple reason that the firm‘s offering will meet its customers‘ needs and wants better than any competing good or service The Ethical Implications of Needs versus Wants  Evaluating customer needs and wants must be done through an ethical framework to avoid potential problems for the firm and society as a whole  Most people need transportation of one kind or another; it‘s marketing‘s job to satisfy that need in a way that also meets the customer‘s wants, perhaps for a luxury car LO-4 Explain the four elements in the marketing mix. The Marketing Mix: The Four Ps  The marketing mix (product, price, place, and promotion) represents everything that a firm can do to influence demand for its good, service, or idea 28

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The four Ps of the marketing mix provide marketers with the tools to increase customer awareness, sales, and profitability  The marketing mix typically begins with the product because, without it, a firm has few, if any, decisions to make when it comes to price, place, or promotion Product  Product is a specific combination of goods, services, or ideas that a firm offers to consumers  Products can also take the form of services, such as those provided by an attorney or electrician, or ideas, like those offered by a consultant Price  Price is the amount of something—money, time, or effort—that a buyer exchanges with a seller to obtain a product  Setting a price is one of the most important strategic decisions a firm faces because it relates to the value consumers place on the product  Pricing‘s power is a result of the signal it can send about product quality  Pricing is typically the easiest marketing mix element to change, making it a powerful tool for firms looking to quickly adjust their market share or revenue  Revenue is the amount earned from selling products to customers, and it is a function of the price of a product multiplied by the number of units sold  If the firm sets the price too high, it will sell fewer units, thus reducing revenue  If the firm sets the price too low, it may sell more units but could still see a reduction in overall revenue if the money earned from the additional units sold isn‘t enough to offset the lower price Place  Place includes the activities a firm undertakes to make its product available to potential consumers  Companies must be able to distribute products to customers where they can buy and consume them without difficulty  Even if you have the right product at the right price, if customers cannot easily purchase the product, they will likely find a substitute  Place decisions relate to locations, transportation, logistics, and supply chain management Promotion  Promotion is all the activities that communicate the value of a product and persuade customers to buy it  Promotion includes advertising, sales promotion, personal selling, and public relations  A successful firm‘s whole promotional strategy is better than the sum of its parts; it effectively integrates the value of advertising, sales promotion, personal selling, and public relations to communicate a product‘s value to potential customers  An integrated approach will always be important to the success of a promotional strategy, but in recent years, the way a firm executes its promotional activities has evolved 29

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The term social media refers to a group of Internet-based applications that enable users to create their own content and share it with others who access the sites Social media communication is driven by word of mouth, meaning it results in free media rather than paid media

Figure 1.2 The Marketing Mix and Decisions That Affect It INSIGHT QUESTIONS Why must the marketing mix begin with decisions made relating to the product? (Answer: All other components of the marketing mix cannot be determined until the product is determined.) What are the key areas of consideration for determining the product? (Answer: What the product is, its features, how it fits the needs and wants of the market, and whether or not it is new or revamped.) What are the key areas of consideration for determining the price? (Answer: What price should be charged domestically and internationally, potential discounts, and how quickly a consumer needs it.) What are the key areas of consideration for determining the place? (Answer: Suppliers, delivery, inventory, and distribution to where a consumer is willing to purchase it.) What are the key areas of consideration for determining the promotion? (Answer: Where/when to advertise, use of sales promotion, hiring salespeople, and how the public perceives the product.) CONNECT BACK: Reference Connect Assignment 1-1 How does social media use convenience and promptness to reach consumers? (Answer: Social media is used by many organizations to reach consumers to place and complete an order. However, there are concerns over sharing data and using channels to receive information or refund orders.) Does social media give retail organizations a competitive advantage? (Answer: Open ended; innovation is always an opportunity for competitive advantage, but it must be handled properly when challenges arise.) LO-5 Discuss the importance of globalization in the field of marketing. Trends Affecting Marketing  Marketers face new challenges resulting from global competition 30

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Consumers seek out firms that emphasize social responsibility and ethical practices

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Global Marketing  Global forces impact everything thing we do in marketing, from pricing to product development to supply chain management  Much of the growth in U.S. firms, ranging from Walmart to General Motors, comes from their expansion into international markets  When the United States entered a significant recession starting in December 2007, manufacturing at Chinese plants of products targeted to American consumers declined significantly, increasing unemployment and slowing growth in China  As the European Union dealt with a continent-wide banking crisis, U.S. firms saw their stock prices drop as investors feared possible exposure to the problems in Europe  Nearly 39 million jobs in the United States are supported by exports  In 2020, total U.S. exports were worth more than $2.1 trillion even with the impact of the COVID-19 pandemic  The United States is the world‘s leading exporter of services  Exports account for over 12 percent of the total U.S. economy The Interconnected World  The idea of globalization, the increasingly interconnected nature of the world economy, evokes different reactions from different people  International trade agreements, such as the North American Free Trade Agreement (NAFTA) that relaxed trade restrictions between the United States, Canada, and Mexico, can be viewed both positively and negatively depending on an individual‘s circumstances Marketing on a Global Scale  Less than 5 percent of the world‘s population lives in the United States, which leads marketers to seek ways to promote and sell their products to the billions of potential consumers living outside the United States  Global marketing is a marketing strategy that consciously addresses customers, markets, and competition throughout the world  Brand refers to the name, term, symbol, design, or any combination of these that identifies and differentiates a firm‘s products  Coca-Cola has demonstrated a commitment to using each of the four Ps—product, price, place, and promotion—to drive global success  Coca-Cola is at the cutting edge of delivering its products to places where global customers can buy them, whether that means moving bottling operations to Turkey or coordinating deliveries to remote places in Africa

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LO-6 Explain the role of analytics in marketing. Marketing Analytics INSIGHT QUESTIONS Firms that want to market on a global scale must pay close attention to whether the benefits exceed the costs. How can marketers use analytics do this? (Answer: Open-ended; marketers can use analytics to quantify and measure whether the benefits can generate a consumer following, create interest, generate revenue, etc.) What kinds of things should a firm look at in analytical data? (Answer: Open-ended; sales over time periods, marketing return on investment, spikes in unusual areas, correlating factors, anomalies, etc.) Marketing Analytics  Marketing analytics is the practice of measuring, managing, and analyzing market performance  It is the processes and technologies that enable marketers to evaluate the success of marketing initiatives by measuring performance using business metrics  Marketing analytics can be used for issues ranging from justifying how advertising dollars get spent to what to do with large amounts of consumer data that are now available  During 2016 presidential campaign, candidates sought a marketing advantage using analytics  It is anticipated that marketing budgets will almost double in the next three years for marketing analytics LO-7 Demonstrate the relationship between ethical business practices and marketplace success. Ethics in Marketing  Ethical decision making should be a key component of a successful marketing approach.  Ethics are moral standards expected by a society  Marketers should clearly understand the norms and values expected of them and act in a way that reflects their company, their profession, and themselves in a positive, ethical light  The American Marketing Association has published a thorough Code of Ethics, which marketers should read and adhere to The Impact of Ethics on Business  The consequences of not adhering to an ethical code can be serious  Ignoring ethical considerations has destroyed some of the largest companies in the world over the past 20 years, including Enron, telecommunications giant WorldCom, Arthur Andersen, and AIG  Making ethical decisions not only makes good business sense, it can also generate profits, even during a recession

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Figure 1.3 American Marketing Association Code of Ethics INSIGHT QUESTIONS Justly balancing the needs of the buyer with the interests of the seller relates to which ethical value? (Answer: Fairness) What does it mean to be transparent? (Answer: To create a spirit of openness in marketing operations) Contributing to the overall betterment of marketing and its reputation is part of which ethical value? (Answer: Citizenship) Figure 1.4 Performance Comparison of the 2021 World’s Most Ethical Companies and the MSCI All Country World Index INSIGHT QUESTIONS Were the world‘s most ethical firms still profitable with positive and negative economic circumstances? (Answer: Yes) What, specifically, do think are the contributing factors to the most ethical firms making positive returns even in times of a recession? (Answer: Open ended; Being an organization that consumers can depend on creates value and practices good judgment in their mindset) Ethical Decision-Making Framework  Despite the positive impact ethical decision making can have on a firm, the ethical choice is not always clear  You can apply this systematic, decision-making framework to ethical problems  The steps are as follows:  Step 1: Determine the facts in an unbiased manner  Step 2: Identify the ethical issue at hand  Step 3: Identify the stakeholders affected by the decision  Step 4: Consider all available alternatives  Step 5: Consider how the decision will affect the stakeholders  Step 6: Discuss the pending decision with the stakeholders  Step 7: Make the decision  Step 8: Monitor and assess the quality of the decision 34

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THINK LIKE A MARKETER What ethical decisions will you face as a marketing professional in your organization where this framework can be applied?

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Some common ethical questions that marketers may face with each element of the marketing mix in a career include: Product What default privacy settings should be built into a website? What safety risks, especially for children and the elderly, might a product pose? Should environmentally friendly packaging be used even if it costs more? Place Should jobs be outsourced to other members of the supply chain? Are the relationships between wholesalers and retailers inappropriate? What opportunities for personal gain might tempt a firm‘s suppliers? Price Should the firm charge customers different prices based on their ability to pay? Should the firm increase prices due to a lack of local competition? Should the firm lower prices on soft drinks and fast food to attract a greater customer following, even if those products present potential health risks? Promotion Does the advertising message represent the product‘s benefits honestly? Does the promotion strategy incorporate violence, sex, or profanity that may be inappropriate for some members of society? Does the advertising message attack competing products rather than highlight the benefits of the firm‘s product?

THINK LIKE A MARKETER Think of the ethical questions you will encounter in your job. What are they?

Figure 1.5 Ethical Decision-Making Framework INSIGHT QUESTIONS Despite the positive impact ethical decision making can have on a firm, is the ethical choice always clear? 35

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(Answer: No, and there may be many personal and professional factors to consider) Which step do you think is most important? (Answer: Open-ended)

CONNECT BACK: Reference Connect Assignment 1-2 Which area did you have the hardest time relating to an actual scenario? (Answer: Open-ended) What are the potential risks of not selecting an ethical approach to business and marketing decisions? (Answer: Open ended; in addition to your personal beliefs that can be challenged, consumer buy-in and support can be negatively affected and, in return, sales and profits are affected.) LO-8 Analyze the functions of marketing beyond the for-profit firm. Marketing for Nonprofit Organizations  Nonprofit organizations are a big part of the U.S. economy, and include hospitals, charities, universities, zoos, and churches  Nonprofit organizations employ about nearly 11 million American workers and have increased employment more than private-sector firms during the past decade  As with for-profit firms, marketing efforts are an essential part of the success of nonprofit organizations  Successful marketing helps nonprofit organizations attract membership and much needed funds  The marketing principles that apply to for-profit firms also impact nonprofit firms  Pictured is the St. Jude Children‘s Research Hospital®; cafeteria, named ―Kay Kafe‖ in honor of Kay® Jewelers‘ support of the hospital. By participating in St. Jude Children‘s Research Hospital® Thanks and Giving® campaign, Kay® Jewelers has raised over $70 million in donations from employees and customers since 1999 TODAY’S PROFESSIONAL NOTES Austin Sandy, Brand Manager, KLTV 7, Tyler, TX What hats does a marketer wear? How did Austin learn to be outspoken among business professionals? 36

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How will you develop your personal brand? Marketing Yourself  Your ability to market yourself will be critical to your success after you leave college  Don‘t consider the information in this book as a collection of random concepts that you can forget about once you take your final exam

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Instead, think about how it will help you position yourself relative to others competing for the same job Think about how to communicate your value so that you get an interview over hundreds of other candidates, and be able to successful respond to, ―Why should I hire you?‖ Ultimately, wherever your career leads you, you will need to market yourself effectively to reach the professional goals you have set

CONNECT BACK: Reference Connect Assignment 1-3 How can you find what your passion is in order to find a career in marketing? (Answer: Open-ended; consider talking to an advisor or career counselor, job shadowing, joining LinkedIn networks, attending job fairs, following CMOs of leading organizations, etc.) What are the various types of marketing careers that stand out to you? (Answer: Open ended; consider advertising, sales, social or digital marketing, public relations, strategy, research, etc.) MARKETING PLAN EXERCISE As a professional in any field, it is important to have a comprehensive understanding of what a marketing plan is and why it is there. A marketing plan is an action-oriented document or playbook that guides the analysis, implementation, and control of all marketing activities. Throughout this book, you will develop a professional marketing plan. The twist is that your marketing plan will focus on how to market yourself to achieve your career goals. Many businesses fail to execute on their marketing plans because they did not spend adequate time clearly identifying what they wanted or expected to do. As a first step in developing your personal marketing plan, you will need to identify the specific objectives that you want to achieve. In developing these objectives, you should ask yourself several questions, such as:  Do I want to attend graduate school? If so, where and what program?  Where do I want to work?  Where do I want to live?  What kind of life do I want to have?  How much will I need to earn to have that life? Such questions will help you focus on what specific things you need to do to achieve your goals. The more clearly you define your objectives, the more likely you are to realize them. Student Task: Clearly state three to five specific objectives for your future, and include a brief one- to two-sentence description of each objective. Insert your responses to the above in Chapter 1’s section of the Personal Marketing Plan. 38

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Respond to the question: Tell me about yourself. Chapter 1

MARKETING STRATEGY Future Objectives 11. 12. 13. 14. 15.

Chapter 1: Why Marketing Matters to You

Rafael Henrique/SOPA Images/LightRocket/Getty Images

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-17 Describe a marketer‘s role in creating, communicating, and delivering value. LO 1-18 Differentiate among the various eras in the history of marketing. LO 1-19 Distinguish between consumer needs and consumer wants. LO 1-20 Explain the four elements in the marketing mix. LO 1-21 Discuss the importance of globalization in the field of marketing. LO 1-22 Explain the role of analytics in marketing. LO 1-23 Demonstrate the relationship between ethical business practices and marketplace success. LO 1-24 Analyze the functions of marketing beyond the for-profit firm.

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KEY TERMS brand customer value ethics exchange global marketing logistics marketing

marketing analytics marketing concept marketing mix needs place (distribution) price product

Hunt/Mello/Deitz: Marketing 4e

production orientation promotion relationship marketing sales orientation social media supply chain wants

THOUGHT-PROVOKING ACTIVITY Set 1: What are the three marketing philosophies/orientations? Provide one example of a product or service in each.

Set 2: What are the four Ps? Provide an example for each.

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What does it mean to make an impact in your career?

How does she use her personal brand to communicate value to customers?

What do you consider your personal brand to be?

THINK LIKE A MARKETER How do organizations create value for their customers?

THINK LIKE A MARKETER Once value is created, how do you communicate it?

THINK LIKE A MARKETER Why is it important to communicate value?

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LO-1 Describe a marketer’s role in creating, communicating, and delivering value. The Value of Marketing 

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_ is 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 Marketers manage _ in ways that benefit the organization and its employees, its customers, its investors, and society as a whole

Creating Value     

Organizations are constantly looking for new ways to create _ for customers If the benefit of the product or service equals or exceeds its _ , the organization has created value Apple can charge higher prices than its competitors without fear of losing sales because of the value customers place on Apple products The key ingredient for creating value is providing consumers with benefits that meet their _ Over _ percent of all new products fail, a percentage that remains consistent in good and bad economic conditions

Communicating Value A firm must communicate not only what its product is but what value that product _ Delivering Value 

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The supply chain encompasses multiple companies that are directly linked by one or more of the _ of products, services, finances, and information from a source to a customer Members of the _ can include manufacturers, wholesalers, retailers, transportation companies, and other groups, depending on the specific industry The part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin and the final customer is called _ Many of the most successful firms in the world, including Coca-Cola, Walmart, and UPS, excel at managing their supply chains efficiently and have made delivering value a _ in their industries

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LO-2 Differentiate among the various eras in the history of marketing. Production Orientation  Prior to the 1920s, most firms throughout the United States and the rest of the developed world focused on _  Firms had a _ in which they focused on efficient processes and production to create quality products and reduce unit costs Sales Orientation  As the size and impact of sales forces grew, many firms shifted to a _ , in which _ and _ were used to persuade consumers to buy new products and more of existing products  Henry Ford‘s production line innovation and success manufacturing the Model A automobile represents the production–orientation era, during which firms believed that _ would sell themselves Marketing Concept  After two decades of economic depression and world war, the U.S. entered an era of _ beginning in the early 1950s  Demand for goods and services increased significantly, as did the reliance on personal selling and advertising  Products that had been in limited supply during the war flooded the market, forcing firms to develop new strategies to _  As a result, a strategy focused on the consumer, called the _ , began to emerge  The marketing concept reflects the idea that a firm‘s long-term success must include a _ to satisfy customer needs  The marketing concept is characterized by a _ , which stresses the idea that everyone in a firm, from salespeople to accountants to human resource managers to administrative assistants, should assess, then satisfy, a consumer‘s needs The Future of Marketing  As technology and other changes impact the business world, firms will need to explore new models that address what customers want and how they prefer to _  The basic goal of marketing—to create, communicate, and deliver value—doesn‘t change, and marketers must use all the tools and strategies at their disposal to satisfy the needs and wants of customers Figure 1.1 Social Media as a Pathway to News: Twitter Leads the Way INSIGHT 44 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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QUESTIONS Why do you think Twitter is the top-ranking social networking site for receiving news?

Do you think these percentages will change in the next 3 years? How so?

How do these figures compare to how and where you receive news?

LO-3 Distinguish between consumer needs and consumer wants. Needs versus Wants  Marketers create value for customers when they develop products that allow consumers to satisfy their needs and wants through _  _ happens when a buyer and seller trade things of value so that each is better off as a result  Needs are _  Consumers feel deprived when they lack something _ or _ like food, clothing, shelter, transportation, and safety  Marketers do not create needs; they are a basic part of our _  _ are the form that human needs take as they are shaped by personality, culture, and buying situation 45 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Wants are influenced by numerous things, including a consumer‘s _ _

Distinguishing Needs from Wants  Distinguishing between needs and wants affects the way firms market their _ to customers THINK LIKE A MARKETER What do marketers do with value?

THINK LIKE A MARKETER How do marketers communicate value to consumers?



The distinction between needs and wants is important and not _

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The better a firm understands the difference between customers‘ needs and wants, the more effectively it can _ and convince customers to buy its good or service, for the simple reason that the firm‘s offering will meet its customers‘ needs and wants better than any competing good or service

The Ethical Implications of Needs versus Wants  Evaluating customer needs and wants must be done through an _ to avoid potential problems for the firm and society as a whole  Most people need transportation of one kind or another; it‘s marketing‘s job to satisfy that need in a way that also meets the customer‘s _ , perhaps for a luxury car LO-4 Explain the four elements in the marketing mix. The Marketing Mix: The Four Ps  The _ (product, price, place, promotion) represents everything that a firm can do to influence demand for its good, service, or idea  The four Ps of the marketing mix provide marketers with the tools to increase customer _  The marketing mix typically begins with the _ because, without it, a firm has few, if any, decisions to make when it comes to price, place, or promotion Product  is a specific combination of goods, services, or ideas that a firm offers to consumers  Products can also take the form of _ , such as those provided by an attorney or electrician, or ideas, like those offered by a consultant Price  _ is the amount of something—money, time, or effort—that a buyer exchanges with a seller to obtain a product  Setting a price is one of the most important strategic decisions a firm faces because it relates to the _ consumers place on the product  Pricing‘s power is a result of the signal it can send about product _  _ is typically the easiest marketing mix element to change, making it a powerful tool for firms looking to quickly adjust their _ or _  _ is the amount earned from selling products to customers, and it is a function of the price of a product multiplied by the number of units sold  If the firm sets the price too high, it will sell fewer units, thus _ revenue 47 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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If the firm sets the price too low, it may sell more units but could still see a reduction in overall revenue if the money earned from the additional units sold isn‘t enough to offset the lower price

Place  _ includes the activities a firm undertakes to make its product available to potential consumers  Companies must be able to distribute products to customers where they can buy and consume them without difficulty  Even if you have the right product at the right price, if customers cannot easily purchase the product, they will likely find a _  Place decisions relate to locations, _ , logistics, and supply chain management Promotion  _ is all the activities that communicate the value of a product and persuade customers to buy it  Promotion includes advertising, sales promotion, _ , and public relations  A successful firm‘s whole promotional strategy is better than the _ of its parts; it effectively integrates the value of advertising, sales promotion, personal selling, and public relations to communicate a product‘s _ to potential customers  An _ approach will always be important to the success of a promotional strategy, but in recent years, the way a firm executes its promotional activities has evolved  The term refers to a group of Internet-based applications that enable users to create their own content and share it with others who access the sites  Social media communication is driven by , meaning it results in free media rather than paid media Figure 1.2 The Marketing Mix and Decisions That Affect It INSIGHT QUESTIONS Why must the marketing mix begin with decisions made relating to the product?

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What are the key areas of consideration for determining the product?

What are the key areas of consideration for determining the price?

What are the key areas of consideration for determining the place?

What are the key areas of consideration for determining the promotion?

CONNECT BACK: Reference Connect Assignment 1-1 How does social media use convenience and promptness to reach consumers?

Does social media give retail organizations a competitive advantage?

LO-5 Discuss the importance of globalization in the field of marketing. Trends Affecting Marketing  Marketers face new challenges resulting from _  Consumers seek out firms that emphasize _

and ethical practices

Global Marketing  _ impact everything thing we do in marketing, from pricing to product development to supply chain management  Much of the growth in U.S. firms, ranging from Walmart to General Motors, comes from their _ into international markets

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When the United States entered a significant recession starting in December 2007, manufacturing at Chinese plants of products targeted to American consumers declined significantly, increasing _ and slowing _ in China As the European Union dealt with a continent-wide banking crisis, U.S. firms saw their stock prices drop as investors feared possible _ to the problems in Europe Nearly 39 million jobs in the United States are supported by exports In 2020, total U.S. exports were worth more than $_ even with the impact of the COVID-19 pandemic The United States is the world‘s leading _ of services Exports account for over _ percent of the total U.S. economy

The Interconnected World  The idea of _ , the increasingly interconnected nature of the world economy, evokes different reactions from different people  International trade agreements, such as the _  _ (NAFTA) that relaxed trade restrictions between the United States, Canada, and _ , can be viewed both positively and negatively depending on an individual‘s circumstances Marketing on a Global Scale  Less than 5 percent of the world‘s population lives in the _ , which leads marketers to seek ways to promote and sell their products to the billions of potential consumers living outside the United States.  _ is a marketing strategy that consciously addresses customers, markets, and competition throughout the world  _ refers to the name, term, symbol, design, or any combination of these that identifies and differentiates a firm‘s products  Coca-Cola has demonstrated a commitment to using each of the four Ps—product, price, place, and promotion—to drive _  Coca-Cola is at the cutting edge of delivering its products to places where global customers can buy them, whether that means moving bottling operations to Turkey or coordinating deliveries to remote places in Africa LO-6 Explain the role of analytics in marketing. Marketing Analytics INSIGHT QUESTIONS Firms that want to market on a global scale must pay close attention to whether the benefits exceed the costs. How can marketers use analytics do this? 50 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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What kinds of things should a firm look at in analytical data?

Marketing Analytics  _ is the practice of measuring, managing, and analyzing market performance  It is the processes and technologies that enable marketers to evaluate the success of marketing initiatives by measuring performance using business metrics  Marketing analytics can be used for issues ranging from justifying how _  _ get spent to what to do with large amounts of consumer _ that are now available  During 2016 presidential campaign, candidates sought a marketing advantage using _  It is anticipated that marketing budgets will almost _ in the next 3 years for marketing analytics LO-7 Demonstrate the relationship between ethical business practices and marketplace success. Ethics in Marketing  Ethical decision making should be a key component of a successful marketing approach  _ are moral standards expected by a society  Marketers should clearly understand the _ and _ expected of them and act in a way that reflects their company, their profession, and themselves in a positive, ethical light  The American Marketing Association has published a thorough _ , which marketers should read and adhere to The Impact of Ethics on Business 51 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The consequences of not adhering to an _ can be serious _ ethical considerations has destroyed some of the largest companies in the world over the past 20 years, including Enron, telecommunications giant WorldCom, Arthur Andersen, and AIG  Making ethical decisions not only makes good business sense, it can also _ _ , even during a recession Figure 1.3 American Marketing Association Code of Ethics INSIGHT QUESTIONS Justly balancing the needs of the buyer with the interests of the seller relates to which ethical value?

What does it mean to be transparent?

Contributing to the overall betterment of marketing and its reputation is part of which ethical value?

Figure 1.4 Performance Comparison of the 2021 World’s Most Ethical Companies and the MSCI All Country World Index INSIGHT QUESTIONS Were the world‘s most ethical firms still profitable with positive and negative economic circumstances?

What, specifically, do think are the contributing factors to the most ethical firms making positive returns even in times of a recession?

Ethical Decision-Making Framework  Despite the positive impact ethical decision making can have on a firm, the ethical choice is not always clear  You can apply this systematic, decision-making framework to ethical problems 52 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The steps are as follows: Step 1: _ . Step 2: Identify the ethical issue at hand. Step 3: Identify the stakeholders affected by the _ . Step 4: Consider all available _ . Step 5: Consider how the decision will affect the stakeholders. Step 6: Discuss the _ with the stakeholders. Step 7: Make the decision. Step 8: Monitor and assess the _ of the decision.

THINK LIKE A MARKETER What ethical decisions will you face as a marketing professional in your organization where this framework can applied?

                

Some common ethical questions that marketers may face with each element of the marketing mix in a career include: _ What default privacy settings should be built into a website? What safety risks, especially for children and the older adults, might a product pose? Should environmentally friendly packaging be used even if it costs more? _ Should jobs be outsourced to other members of the supply chain? Are the relationships between wholesalers and retailers inappropriate? What opportunities for personal gain might tempt a firm‘s suppliers? _ Should the firm charge customers different prices based on their ability to pay? Should the firm increase prices due to a lack of local competition? Should the firm lower prices on soft drinks and fast food to attract a greater customer following, even if those products present potential health risks? _ Does the advertising message represent the product‘s benefits honestly? Does the promotion strategy incorporate violence, sex, or profanity that may be inappropriate for some members of society? Does the advertising message attack competing products rather than highlight the benefits of the firm‘s product?

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THINK LIKE A MARKETER Think of the ethical questions you will encounter in your job. What are they?

Figure 1.5 Ethical Decision-Making Framework INSIGHT QUESTIONS Despite the positive impact ethical decision making can have on a firm, is the ethical choice always clear?

Which step do you think is most important?

CONNECT BACK: Reference Connect Assignment 1-2 Which area did you have the hardest time relating to an actual scenario? 54 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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What are the potential risks of not selecting an ethical approach to business and marketing decisions?

LO-8 Analyze the functions of marketing beyond the for-profit firm. Marketing for Nonprofit Organizations  _ are a big part of the U.S. economy, and include hospitals, charities, universities, zoos, and churches  Nonprofit organizations employ about nearly _ American workers and have increased employment more than private-sector firms during the past decade  As with for-profit firms, _ efforts are an essential part of the success of nonprofit organizations  Successful marketing helps nonprofit organizations _ and much-needed funds  The marketing principles that apply to for-profit firms also impact nonprofit firms  Pictured is the St. Jude Children‘s Research Hospital®; cafeteria, named ―Kay Kafe‖ in honor of Kay® Jewelers‘ support of the hospital. By participating in St. Jude Children‘s Research Hospital® Thanks and Giving® campaign, Kay® Jewelers has raised over $70 million in donations from employees and customers since 1999

TODAY’S PROFESSIONAL NOTES Austin Sandy, Brand Manager, KLTV 7, Tyler, TX

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What hats does a marketer wear?

How did Austin learn to be outspoken among business professionals?

How will you develop your personal brand?

Marketing Yourself  Your ability to _ will be critical to your success after you leave college  Don‘t consider the information in this book as a collection of random concepts that you can forget about once you take your final exam  Instead, think about how it will help you position yourself relative to others competing for the same job  Think about how to _ so that you get an interview over hundreds of other candidates, and be able to successful respond to, ―Why should I hire you?‖  Ultimately, wherever your career leads you, you will need to market yourself effectively to reach the professional goals you have set CONNECT BACK: Reference Connect Assignment 1-3 How can you find what your passion is in order to find a career in marketing?

What are the various types of marketing careers that stand out to you?

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MARKETING PLAN EXERCISE As a professional in any field, it is important to have a comprehensive understanding of what a marketing plan is and why it is there. A marketing plan is an action-oriented document or playbook that guides the analysis, implementation, and control of all marketing activities. Throughout this book, you will develop a professional marketing plan. The twist is that your marketing plan will focus on how to market yourself to achieve your career goals. Many businesses fail to execute on their marketing plans because they did not spend adequate time clearly identifying what they wanted or expected to do. As a first step in developing your personal marketing plan, you will need to identify the specific objectives that you want to achieve. In developing these objectives, you should ask yourself several questions, such as:     

Chapter 1

MARKETING STRATEGY Future Objectives

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16.

17.

18.

19.

20.

Chapter 2: Strategic Planning

Tinnaporn Sathapornnanont/Shutterstock

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LEARNING OBJECTIVES LO 1-25 Discuss the importance of strategic planning for marketing. LO 1-26 Analyze the characteristics of an effective mission statement. LO 1-27 Outline the five main components of the marketing plan. LO 1-28 Explain three tools and techniques for the situation analysis: market summary, S WOT analysis, and competition analysis. LO 1-29 Explain the basic tools and techniques of marketing strategy: segmentation, strategic direction, and the marketing mix. LO 1-30 Discuss the strategic decisions involved in reaching international consumers. LO 1-31 Describe the use of four key marketing analytics: return on marketing investment (ROM I), revenue analysis, market share analysis, and profitability analysis. KEY TERMS competitive advantage market share analysis revenue analysis direct ownership market summary situation analysis diversification marketing analytics strategic plan exporting marketing plan strategic planning financial projections mission statement strategy franchising opportunities (in SWOT strengths (in SWOT joint venture analysis) analysis) licensing positioning SWOT analysis market development product development target market market penetration profitability analysis threats (in SWOT analysis) market segmentation return on marketing weaknesses (in SWOT market segments investment (ROM I) analysis) THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What is a mission statement? Provide an example of a mission statement in a franchise. Set 2: What is the BCG matrix? With each of the four sections, provide an example.

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CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES and TABLES as visuals to elaborate on key areas, KEY TERMS learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT activities can be used, as well as tying in SOCIAL MEDIA IN ACTION to real-world applications of marketing products. This is created so that you can facilitate in-class or online discussion effectively. Executive Perspective

Melissa Lowry Chief Marketing Officer, Zelle

Photo provided by Melissa Lowry

Melissa Lowry, a finance major in college, attributes her success to listening. She explains how being open to learning from each opportunity has taught her something, which is helpful in her current role. She describes herself as curious, supportive, and empathetic and addresses the following questions: 21. What has been the most important thing in making you successful at your job? 22. What advice would you give soon-to-be graduates? 23. How is marketing relevant to your role at Zelle? 24. What do you consider your personal brand to be? Woven in the chapter, you see how Melissa later elaborates on:  A ―customer-first‖ mindset being foundational to marketing.

LO 2-1 Discuss the importance of strategic planning for marketing.  The Importance of Strategic Planning PowerPoint Slides Lecture Notes:

Review with students:  How do marketers connect consumers‘ needs and wants to their role?  How is strategic planning necessary for the customer‘s end-to-end experience? Key Terms:  Strategic planning  Strategic plan

The Importance of Strategic Planning  Strategic planning is essential to meeting both professional and personal objectives. In the same way that a strategic plan will help you 60

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 Figure 2.1

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accomplish your goal of earning a college degree, a firm‘s strategic plan helps guide it to success Whether you are marketing yourself or some other product, strategic planning can greatly increase the likelihood of success Strategic planning is the process of thoughtfully defining a firm‘s objectives and developing a method for achieving those objectives A strategic plan typically includes an organization‘s plans for key functional areas, such as marketing, human resources, finance, and risk management Firms must continually modify their strategies as conditions shift Strategic planning helps ensure that the organization will have the needed resources—financial, human, and operational—to succeed, select, and execute the right marketing-mix strategies to maximize success The strategic plan is shaped by the organization‘s mission Insight Questions:

Figure Information: Elements of a Strategic Plan The four components of a strategic plan are interlinked and connected. Each of the components should be grounded in the firm‘s overall mission.

25. How often should firms go through strategic planning? (Answer: Firms must continually modify their strategies as conditions shift.) 26. How is the marketing mix affected by strategic planning? (Answer: It helps marketers select and execute the right marketing mix strategies to maximize success.) 27. How formal should the strategic planning process be, and who should be included? (Answer: Open ended; it should well documented, and a representative from each department should be included in decision making)

LO 2-2 Analyze the characteristics Key Terms: of an effective mission  Mission statement statement.  Mission Statement PowerPoint Slides Lecture Notes: Mission Statement  The first step in creating a quality strategic plan is to develop an effective mission statement  A mission statement is a concise affirmation of the firm‘s long-term purpose and provides employees with a shared sense of ambition, direction, and opportunity  A firm should begin the process of developing a mission statement by 61

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considering the following questions:  What is our business?  Who is our customer?  What is our value to the customer?  What should our business be?  The mission statement provides a standard to ensure that the business never strays too far from its core goals and values through changing times  A sound mission statement provides a basis for developing the marketing plan  The three primary characteristics of a good mission statement include the following:  (1) Be focused on a limited number of goals  (2) Be customer-oriented and focused on satisfying basic customer needs and wants  (3) Capture a shared purpose and provide motivation for the employees of the firm  The mission statement provides a standard to ensure that the business never strays too far from its core goals and values through changing times THINK LIKE A MARKETER Find an example of a ―bad‖ mission statement. What makes it ―bad‖? How could it be better? THINK LIKE A MARKETER What do you think of a company not having a mission statement? LO 2-3 Outline the five main Key Terms: components of the marketing  Marketing plan plan.  Situation analysis  The Marketing Plan  Market summary o Executive  Strategy Summary  Financial projections o Situation Analysis o Marketing Strategy o Financials o Controls PowerPoint Slides Lecture Notes: The Marketing Plan  The marketing plan is an action-oriented document or playbook that guides the firm‘s marketing strategy, and is grounded in the firm‘s mission statement  Creating a marketing plan requires the input, guidance, and review of employees throughout the various departments of a firm, not just the 62

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marketing department The specific format of the marketing plan differs from organization to organization Most plans include five components: an executive summary, situation analysis, marketing strategy, financials section, and controls section

Executive Summary  The executive summary is a one- to two-page synopsis of the marketing plan‘s main points  It should convey the most valuable information of the marketing plan  Although the executive summary comes first in the marketing plan, most firms complete this part of the plan last Situation Analysis  A situation analysis is a systematic collection of data to identify market trends, conditions, and competitive forces  Its purpose is to identify factors that have the potential to influence the firm‘s performance and the choice of appropriate strategies  A situation analysis has three subsections:  (1) The market summary describes the current state of the market  A market is the group of consumers or organizations that is interested in and able to buy a particular product  (2) A SWOT analysis is an evaluation of a firm‘s strengths (S), weaknesses (W), opportunities (O), and threats (T)  (3) The competition analysis subsection lists the firm‘s direct competitors  This list should include both direct and indirect competitors  Indirect competitors are those that can take market share as macro trends or consumer preferences change Marketing Strategy  A strategy is the set of actions taken to accomplish organizational objectives  The marketing strategy component lists the actions the firm must take to accomplish the marketing objectives it established in its mission statement and strategic planning  A successful marketing strategy can lead to higher profits, stronger brands, and larger market share Financials  The financials section details the overall profitability of both the firm and its individual units  Financial projections provide those reading the plan with a bottom-line numerical estimate of the organization‘s profitability  A sales forecast projects how many units of a product the company expects to sell during a specific time period 63

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The expense forecast is an estimate of the costs the company will incur to create, communicate, and deliver the product Break-even analysis combines the data from the sales and expense forecasts

Controls  The final section in most marketing plans outlines the controls the firm will put in place to monitor performance and adjust the plan over time  Controls provide a link between the organization and its environment  The implementation section provides a detailed account of how the specific actions of the marketing plan will be carried out and who will be responsible for doing so  An outline of the organizational structure assigns specific responsibility for the parts of the marketing plan  Contingency planning defines the actions the company will take if the initial marketing strategy falls short of expected results THINK LIKE A MARKETER What‘s your elevator pitch? (Recall your work from Chapter 1‘s Personal Marketing Plan exercise.) Figure 2.2

Insight Questions: 28. Who is involved in developing the marketing plan? (Answer: most departments in a firm, not just the marketing department.)

Figure Information: Key Components of the Marketing Plan The five components of the marketing plan are interlinked and connected. Each of the components should be grounded in the firm‘s overall mission, which is ideally defined in a clear and succinct mission statement. LO 2-4 Explain three tools and techniques for the situation analysis: market summary, SWOT analysis, and competition analysis.  Tools and Techniques for the Situation Analysis o Market Summary  BCG Matrix 64

29. What types of objectives should be considered in the marketing strategy? (Answer: specific, measurable and realistic objectives) 30. Should a marketing plan have a short term or long-term vision? (Answer: Both, and it should tie into the organization‘s mission for long-term sustainability. The marketing plan should state the timeframe for which it addresses, e.g., fiscal year 2023 or Quarter 3 of 2023.)

Key Terms:  SWOT analysis  Strengths (in SWOT analysis)  Weaknesses (in SWOT analysis)  Opportunities (in SWOT analysis)  Threats (in SWOT analysis)

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o SWOT Analysis  Internal Considerations  External Considerations o Competition Analysis PowerPoint Slides Lecture Notes: Tools and Techniques for the Situation Analysis  The situation analysis in the marketing plan includes a market summary, a SWOT analysis, and an analysis of the competition Market Summary  The market summary sets the stage for the situation analysis section by focusing on the current state of the market to which the firm will sell its products  A quality market summary should provide a perspective on important marketplace trends

Figure 2.3

BCG Matrix  One of the most popular analysis tools to describe the current market is The Boston Consulting Group (BCG) matrix  The vertical axis measures market growth; the horizontal axis measures relative market share  Relative market share is defined as the sales volume of a product divided by the sales volume of the largest competitor  The BCG matrix combines those two elements—market growth and relative market share—to produce four unique product categories  Each of those four product categories—stars, cash cows, question marks, and dogs—requires a different marketing strategy  Star products combine large market share in an industry with a high growth rate  Cash cows are products that have a large market share in an industry with low growth rates  Question marks have small market share in a high-growth industry, and products in this quadrant are typically new to the market  Dogs are products that have small market share in industries with low growth rates Insight Questions: 31. What does the BCG Matrix determine? (Answer: where its product will fall in the marketplace, and it serves as a starting point for developing marketing strategies to address market position)

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32. What quadrant would represent the Apple iPod, and why? (Answer: cash cow, because it represents large market share and a low growth rate) 33. What quadrant would represent a new iPhone app, and why? (Answer: question mark, because it represents small market share and a high growth rate)

Figure Information: The Boston Consulting Group Matrix The BCG matrix (1970) combines the two elements of market growth and relative market share to produce four unique product categories—stars, cash cows, question marks, and dogs—each of which requires a different marketing strategy. PowerPoint Slides

SWOT Analysis   

A S WOT analysis is an evaluation of a firm‘s strengths, weaknesses, opportunities, and threats The strengths and the weaknesses aspects of the analysis focus on internal characteristics of the firm The opportunities and threats aspects of the SWOT analysis focus on the external environment

Internal Considerations  The internal considerations in a S WOT analysis are the firm‘s strengths and weaknesses  Strengths are internal capabilities that help the company achieve its objectives  Weaknesses are internal limitations that may prevent or disrupt the firm‘s ability to meet its stated objectives External Considerations  The external considerations in a SWOT analysis are the opportunities and threats the firm faces  Opportunities are external factors that the firm may be able to capitalize on to meet or exceed its stated objectives  Threats are current or potential external factors that may challenge the firm‘s short- and long-term performance  Companies like McDonald‘s often complete a SW OT analysis to identify and evaluate their strengths, weaknesses, opportunities, and threats 66

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For example, the firm can ask questions like: How can the firm use its strengths to take advantage of opportunities? How can the firm overcome weaknesses that keep it from taking advantage of opportunities? How can the firm use its strengths to reduce the impact of threats? How can the firm overcome weaknesses that will make threats a reality? Insight Questions:

Table Information: Example S WOT Analysis for McDonald’s Companies like McDonald‘s often complete a SWOT analysis to identify and evaluate their strengths, weaknesses, opportunities, and threats. Evaluating internal and external considerations are extremely important in determining a firm‘s position and competitive advantage. Connect Assignment 2-1

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34. Which elements of a SWOT analysis are internal considerations? (Answer: strengths and weaknesses) 35. Which elements of a SWOT analysis are external considerations? (Answer: opportunities and threats) 36. What key words or action-oriented words do you see in the example? (Answer: strong, difficulty, longer, weak, expansion, increasing, etc.) 37. What qualitative and quantitative measures exist in the example SWOT analysis? (Answer: Open ended; brand recognition, number of international locations and sales numbers in international markets, operating and production costs, employee satisfaction and turnover rates, perception of the brand and its products, etc.)

Topic: SWOT Analysis By identifying which elements of a fictional company‘s situation analysis fall into each category, you will understand the key differences among each of the four SWOT components. CONNECT BACK Insight Questions: 38. In a real SWOT analysis, what resources will you use to compose your personal SWOT analysis? (Answer: Open ended; friends and family members, professors, and current/past employers) 39. For measurement and analysis, figure out which elements are quantitative, and which ones are qualitative. (Answer: Open-ended; figuring out how each element of the SWOT analysis is measured is just as important as the content itself) 40. When should a SWOT analysis be conducted? Think in

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terms of frequency, product development and strategic planning. (Answer: Open ended; no less than once a year) PowerPoint Slides

Lecture Notes: Competition Analysis  The competition analysis section should begin by clearly stating the organization‘s direct competitors  Indirect competitors, though, typically receive far less attention or are overlooked entirely  When completing a situation analysis, it‘s just as important for a firm like McDonald‘s to analyze indirect competitors, such as Panera Bread, as it is to analyze direct competitors, such as Burger King

LO 2-5 Explain the basic tools and techniques of marketing strategy: segmentation, strategic direction, and the marketing mix. 

Basic Tools and Techniques of Marketing Strategy  Segmentation, Target Markets, and Positioning  Segmentation  Target Markets  Positioning  Strategic Direction  Market Penetration  Product Development  Market Development  Diversification  Marketing Mix  Product  Promotion  Ditribution  Pricing

Key Terms:  Market segmentation  Market segments  Target market  Positioning  Market penetration  Product development   

Market development Diversification Competitive advantage

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Lecture Notes: Basic Tools and Techniques of Marketing Strategy  The marketing strategy lists the specific actions the firm must take to accomplish the marketing objectives it has established  The basic tools and techniques of marketing strategy include decisions about (1) segmentation, target markets, and positioning; (2) strategic directions; and (3) the marketing mix  Quality marketing objectives have three basic characteristics:  (1) Specific  (2) Measurable  (3) Realistic Segmentation, Target Markets, and Positioning  Marketers must identify who their intended customers are  That knowledge enables them to segment the market, identify a target market, and correctly position their product for that market Segmentation  Market segmentation is the process of dividing a large market into smaller groups  Those smaller groups are market segments, the groups of consumers who have shared characteristics and similar product needs Target Markets  A target market is the group of customers toward which an organization directs its marketing efforts  Small firms may have only one target market  Large organizations might enter multiple target markets Positioning  Success within the target market depends, to some degree, on how the firm positions its product  Positioning refers to the activities a firm undertakes to create a certain perception of its product in the eyes of the target market  The firm has total control over this element of its marketing efforts, and the concept is critical to how it develops the rest of its marketing strategy  To position its product, the firm must take into consideration the competition, the needs and wants of the target market, and the element of mystique or drama that the good or service naturally has Strategic Direction  A company‘s marketing strategy can follow various paths, which depend on the product and industry

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Market penetration is selling more of existing goods and services to existing customers Product development is creating new goods and services for existing markets Market development is selling existing goods and services to new customers Diversification is offering new goods and services to attract new customers

Market Penetration  Market penetration strategies emphasize selling more of the firm‘s existing goods and services to existing customers  This growth strategy often involves encouraging current customers to buy more each time they patronize a store or to buy from the store on a more frequent basis Product Development  Product development strategies involve creating new goods and services for existing markets Market Development  Market development strategies focus on selling existing goods and services to new customers 

Figure 2.4

The targeted new customers could be of a different gender, age-group, or education level

Diversification  Diversification strategies seek to attract new customers by offering new products that are unrelated to the firm‘s existing products Insight Questions:

Figure Information: The Four Basic Categories of Market Growth Strategies

41. Which strategy involves encouraging current customers to buy more each time they patronize a store or to buy from the store on a more frequent basis? (Answer: market penetration) 42. Which strategy did Dr Pepper Ten use in their campaign launch of, ―It‘s not for women?‖ (Answer: product development) 43. Which strategy focuses on selling existing goods and services to new customers? (Answer: market development) 44. List three examples of companies that have used the diversification strategy. (Answer: Disney; open ended)

A company‘s marketing strategy can follow various paths based on the product and industry, but most seek to 70

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move the product in one of the four directions: market penetration, product development, market development, and diversification. Each of these categories represents the intersection of a strategy related to products and another related to markets. Topic: Strategic Directions

Connect Assignment 2-2

By matching particular strategies with companies that used those strategies, you will better understand how different marketing strategies may affect your future employer. CONNECT BACK Insight Questions: 45. Which strategies can be used to enter into international markets? (Answer: Open ended; all have an effect.) 46. List two examples of organizations that have implemented each one of the four strategies. Which strategy is easiest to identify? (Answer: Open ended; for example, think of Apple and Starbucks) PowerPoint Slides

Lecture Notes: Marketing Mix  The marketing mix is the combination of activities that a firm can do to influence demand for its good or service  It is often referred to as the four Ps of marketing: product, price, place, and promotion Product  The product section of the marketing plan consists of a detailed description of the product being offered, and any related services like warranties and guarantees that accompany the good or service  The product description should clearly state what value the product holds for the customer  A product possesses a competitive advantage when customers perceive that it has more value than other products in its category Promotion   

The promotion section of the marketing plan details how the firm will communicate the value of its product This section builds on the strengths of the product section It references the specific promotional tools—advertising, sales promotion, personal selling, or public relations—the firm will use to reach its target market

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Distribution  Distribution strategies fall within the place marketing-mix element  The distribution section of the marketing plan describes where and when the firm will deliver value to its customers  The distribution section should outline all the different companies, people, and technologies that will be involved in the process of delivering the product to customers Pricing 

Connect Assignment 2-3

Social Media in Action

The pricing section of the marketing plan specifies how much money customers must pay for the product and explains why the firm selected that price Topic: Social Media Strategies In 2021, several social media influencers found out how they would look with some extra stuffing thanks to a unique activation strategy that embraces the fun nature of Little Caesars marketing. As part of the company‘s Extra Stuffed pizza launch, Little Caesars delivered ―stuffed people‖—life-sized dolls with nine feet of cheese and pepperoni stuffed inside of them. Little Caesars based several of these ―stuffed people‖ off of popular TikTokers, including Spencer X, Adam Waheed, The McFarlands, and Brooke Averick. The TikTok stars then shared a series of videos on their accounts featuring their stuffed versions doing a variety of mundane tasks. Little Caesars marketers are focused on their brand voice and how they connect to consumers. Little Caesars marketers identified TikTok as a platform where they could get in early and express this fun personality in a new way to young, highly engaged audiences. TikTok users have embraced Little Caesars, which is now the mostfollowed pizza brand. Source: Larissa Faw, “Little Caesars Drops Mini Dopplegangers,” Adweek.com, July 22, 2021.

CONNECT BACK Insight Questions: 47. Should social media strategies always be included in a company‘s marketing plan since it is a popular medium? (Answer: not necessarily, and only if the demographics of the platform align) 48. How would you determine the social media platform a company should use (i.e., Facebook, Twitter, LinkedIn, 72

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LO 2-6 Discuss the strategic decisions involved in reaching international consumers.  Marketing Strategy in a Global Context  Exporting  Licensing  Franchising  Joint Venture  Direct Ownership PowerPoint Slides Lecture Notes:

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YouTube, Pinterest, etc.)? Should all of them be used? (Answer: Open ended; check out the competitors and what platforms they are on. Start with one platform and slowly add on others that are aligned in sociocultural ways.) Key Terms:  Exporting  Licensing  Franchising  Joint venture  Direct ownership

Marketing Strategy in a Global Context  The new reality of globalization means a firm‘s strategic planning process must include a discussion about what, if any, international presence the firm wants to pursue

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One of the most critical strategic decisions involves how to enter foreign markets The firm must choose from among the five major strategic options for entering the international marketplace: exporting, licensing, franchising, joint venture, or direct ownership Each offers a unique mix of risk and reward

Exporting  Exporting is selling domestically produced products to foreign markets  Typically, the least risky option for entering international markets is exporting  Increasingly, firms of all sizes export their products to other countries  Social media tools enable small businesses to engage global customers in a way that was not possible a decade ago  Logistics firms like FedEx and UPS also help increase export opportunities by providing small businesses with a quick, efficient way to deliver products almost anywhere in the world Licensing  Licensing is a legal process in which one firm pays to use or distribute another firm‘s resources, including products, trademarks, patents, 73

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intellectual property, or other proprietary knowledge The use of licensing to enter international markets has increased significantly in recent years due to several factors, including more regulation, rising research and development (R&D) costs, and shortened product life cycles Despite its growing popularity, licensing is typically a riskier option than exporting Major risks include: The licensor may be inadvertently creating a future competitor in the form of the licensee The licensor shares information and the right to use its proprietary technology with the licensee, who might use that knowledge in the future The licensee could potentially misuse trademarks

Franchising  Franchising is a contractual arrangement in which the franchisor provides a franchisee (local owner operator) the right to use its name and marketing and operational support in exchange for a fee and, typically, a share of the profits  Franchising is an attractive method of entering foreign markets because the franchisee assumes the majority of the capital costs and human resource issues  

The franchisor provides knowledge and information about running the business, and that division of responsibility increases the likelihood of success The disadvantages of franchising include the risks of granting your name to a franchisee in a faraway place where direct oversight is difficult

Joint Venture  A riskier option than exporting, licensing, or franchising is a joint venture  In a joint venture, a domestic firm partners with a foreign company to create a new entity, thus allowing the domestic firm to enter the foreign company‘s market  Joint ventures work best when the partners‘ strategic goals align, their competitive goals diverge, and they are able to learn from one another without infringing on each other‘s proprietary skills  Joint ventures can result in mistrust over proprietary knowledge, conflict over new investments, and disagreements about how to share revenue and profits Direct Ownership  The riskiest method of entering an international market is direct ownership  In direct ownership, a domestic firm actively manages a foreign company or overseas facilities 74

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Direct ownership is a good strategic option when the firm sees substantial sales potential in the international market, very little political risk (the risk of local government unrest), and similarities between the foreign and domestic cultures  Direct ownership requires far more resources and commitment than any of the other options as it can be difficult to manage local resources from afar THINK LIKE A MARKETER How do firms enter foreign markets? Figure 2.5

Figure Information: International Market Entry Strategies As part of developing a marketing plan that involves global marketing, firms must choose from among the following five major strategic options for entering the international marketplace: exporting, licensing, franchising, joint venture, or direct investment. Each offers a unique mix of risk and reward.

Connect Assignment 2-4

Insight Questions: 49. What is the least risky option for entering international markets? (Answer: exporting) 50. Which strategy offers marketers the advantages of expanding the reach of their products quickly in a low cost way? (Answer: licensing) 51. Which strategy is an attractive method of entering foreign markets because its licensees assume the majority of the capital costs and human resource issues? (Answer: franchising) 52. Which strategy works best when the partners‘ strategic goals align, their competitive goals diverge, and they are able to learn from one another without infringing on each other‘s proprietary skills? (Answer: joint venture) 53. What is the riskiest method of entering an international market? (Answer: direct ownership) Topic: International Market Approaches By identifying an example of each strategy and its risk level, you will understand the potential risks and rewards of marketing your products globally.

LO 2-7 Describe the use of four key 75

CONNECT BACK Insight Questions: 54. What key factors determine the market strategy? (Answer: Open ended; risk level desired, opportunity and resource availability; consumer research can also dictate the strategy chosen.) 55. Do the same risks exist for small companies and large companies? (Answer: Open ended; no, smaller companies may incur larger risk because resources are limited.) 56. How do rewards differ for small and large companies? (Answer: Open ended; larger companies may have more resources and expertise available.) Key Terms:

Instructor‘s Manual - Chapter 1 marketing analytics: return on  marketing investment  (ROM I), revenue analysis,  market share analysis, and  profitability analysis.   Marketing Analytics  Return on Marketing Investment  Revenue Analysis  Market Share Analysis  Profitability Analysis PowerPoint Slides Lecture Notes:

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Marketing analytics Return on marketing investment (ROMI) Revenue analysis Market share analysis Profitability analysis

Marketing Analytics  Marketing analytics is the practice of measuring, managing, and analyzing marketing performance. Its goal is to maximize marketing effectiveness and optimize return on investment  Use of marketing analytics enables organizations to measure and evaluate marketing outcomes  Marketing strategy becomes more accountable when organizations base decisions on analytics Return on Marketing Investment  Return on marketing investment (R OMI) is a measure of the firm‘s effectiveness in using the resources allocated to its marketing effort  In the calculation, sales include all of the revenue generated by core and noncore business activities  Gross margin equals the difference between price (the amount paid by the customer) and cost (the amount required to produce the good or service), which is expressed as a percentage  Gross margin is calculated by subtracting the cost of goods sold per unit from the selling price of the item, divided by the selling price  Marketing expenditures is the amount of money spent on all marketing activities during a specified period of time Revenue Analysis  Revenue analysis measures and evaluates revenue from specific products or regions  Its goal is to pinpoint what is working and what is not, relative to the objectives of the organization  Revenue analysis pinpoints the specific sources of revenue Market Share Analysis  Market share analysis indicates market share, which is the percentage of the total market sales captured by a brand, product, or firm 76

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Market share provides marketers with a quick look at how they are performing relative to their competitors It does measure the firm‘s sales as a percentage of total market sales, but it does not indicate the size of the market sales

Profitability Analysis  Profits are the positive gain from a business operation after subtracting all expenses  Profitability analysis measures how much profit the firm generates. It can also be broken down to measure the profit contribution of regions, channels, or customer segments  Customer acquisition measures how much the firm spent to gain new customers  Customer-acquisition costs typically include spending on marketing advertising, public relations, and sales  Marketers also measure individual customer profitability, which is the profit a firm makes from a customer over a specified period of time THINK LIKE A MARKETER What types of marketing data should firms analyze? (Hint: Think of the marketing mix.) Figure 2.6

Insight Questions: 57. What does market share measure? (Answer: the firm‘s sales as a percentage of total market sales) 58. What does it not measure? (Answer: The size of market sales) 59. What impacts market share? (Answer: Open ended; technology, ability to innovate, consumer interest, etc.)

Figure Information: Auto Manufacturer Market Share in the United States, 2009 and 2017 Market share is typically depicted using a pie graph, and auto manufacturers were facing a shrinking pie in 2009. As the economy began to recover, the pie grew again: By 2017, vehicle sales were up to over 17.2 million. You can see that though percentages for the various manufacturers are similar, each represents more vehicles sold in 2017 than in 2009.

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Kylle Scott Marketing Director, Greenway Equipment Kylle Scott draws on her perspective toward networking and developing connections. She shares her perspective on interviewing with humble confidence and provides insight in answering the following questions:

Photo provided by Kylle Scott

1. Describe your job. 2. How did you get your job? 3. What has been the most important thing in making you successful at your job? 4. What advice would you give soon-to-be graduates? 5. What do you consider your person brand to be? Review with students:  What ―story‖ about yourself will you tell in your interview process?  What key words would you use to describe yourself?

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MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the elements and importance of the situation analysis. The next step in developing a full marketing plan for yourself is to conduct a SWOT analysis on yourself. It should tie back to the objectives you developed at the end of Chapter 1. Be sure to think through each element and honestly assess where you are today. This will help you focus on what you need to accomplish over the rest of your college career. This activity is located at the end of the Learning Worksheet. 

Strengths. Most people have some notion of their strengths—maybe you‘re an effective public speaker, pay a great deal of attention to detail, or work well with others, for example. It's likely that you've had those strengths reinforced by those around you over the course of your life. To effectively complete the strengths part of your personal S WOT analysis, list three to five strengths that you possess that will most affect your ability to achieve the objectives you identified in Chapter 1.

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Weaknesses. Most people are very honest about their strengths but are typically far less likely to be aware of, or to acknowledge, their weaknesses. Corporate recruiters often tell humorous stories about the responses they receive when asking new college graduates about their biggest weaknesses. Answers range from ―I care too much‖ or ―I am too smart for my group members‖ to ―I am too attractive to have many friends.‖ (Any of these responses might produce a negative impression in a job interview, by the way.) Give serious consideration to your personal weaknesses, and then list three to five weaknesses that will affect your ability to achieve your objectives. By properly identifying your weaknesses, you can begin to plan strategically how to overcome them or, at the very least, minimize their influence on your career objectives.

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Opportunities. As the global economy changes, you will enter a job market very different from the one faced by previous generations. It is important to honestly assess your opportunities. Ask yourself questions like: What jobs in my major are most in demand? What internship openings are there, and how might those put me in a better position to find my dream job? If your goal is to attend graduate school, what kinds of scholarships, assistantships, or enrollment opportunities are out there for you? For this part of the SWOT analysis, identify three to five external opportunities that could potentially benefit you in your professional development.

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Threats. Assessing threats is an essential part of developing a strategic plan for your professional future. If the economy goes into a recession at the same time you graduate, for example, your earnings growth could be reduced for years to come. By examining what potential threats could affect your professional development and creating contingency plans, you will be in a better position to succeed in your pursuit of a job. Describe three to five threats that could affect your ability to achieve your objectives. 79

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Student Task: You've now listed three to five strengths, weaknesses, opportunities, and threats that could affect your professional development. For each weakness and threat you identify, include a brief one- to two-sentence description of how you might overcome the challenge associated with it. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 60. Find mission statements from five Fortune 500 companies, then rank them from best (1) to worst (5). Discuss why you ranked them in that order. Which mission statement(s) did you like best, and why? How would you modify the mission statement you ranked last to make it better? (Answer: Open ended; as one example, Amazon's mission statement says: It's our goal to be Earth's most customer-centric company, where customers can find and discover anything at Amazon.com. While the mission is broad, it is concise and consumers relate to it. Amazon is a popular and respected brand, so students may select it because they are familiar with the brand and think positively of its service. To improve, the mission statement could include something about its competitive advantage with its fast turnaround with shipping.) 61. Conduct a SWOT analysis for your college or university. List three to five strengths, weaknesses, opportunities, and threats for your school. (Answer: Open ended; some factors to consider include accreditation, athletics, community support, alumni membership and involvement, increasing tuition, online education, value of degree, and career potential/requirements.) 62. Select a marketing strategy implemented by a large firm or nonprofit organization that you think was effective. Describe why you liked the strategy. Identify which of the strategic directions discussed in this chapter best reflects the strategy you chose. (Answer: Open ended; Walk-On‘s is a growing sports bar brand that has recently begun franchising (licensing) with the backing and celebrity endorsement of NFL quarterback Drew Brees. The brand first maximized its product by delivering quality food and can now offer a business opportunity to others around the country.) 63. Select two businesses you frequent (e.g., restaurants, clothing stores, grocery stores). Who is their target market? Then identify at least two competitors (either direct or indirect) for each business. Describe how the two businesses you selected position themselves in the market relative to their competitors. Which one of the two businesses does a better job positioning its products to its target market? Explain your answer. (Answer: Open ended; Target and Wal-Mart compete in relatively the same product categories, but Target tends to be slightly more expensive in both the brands they carry and manufacture.) 80

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64. Is marketing your products globally always a good decision? Discuss your answer and provide examples of firms that have both succeeded and failed in international markets. (Answer: Open ended; not always, and it depends on the consumers‘ needs and interests of the marketplace. However, accessing consumers outside domestic boundaries may be a source of revenue and growth. Home Depot did not succeed in China as consumers did not like DIY projects like Americans, in spite of the housing market influx, and Wal-Mart did not succeed in Germany because they did not take into account cultural nuances. Devon, a mid-size U.S. oil and gas producer, acquired PenzEnergy and Santa Fe Snyder, which gave it access to operations in Azerbaijan, West Africa, and Brazil.) 65. Select a company from which you have made a purchase in the past month. Search online to conduct a market share analysis and a profitability analysis about that company. Based on that analysis, give the organization a marketing grade based on performance. Explain your grade. (Answer: Open ended; items to consider are profit margin, tax rates, return on assets, return on capital and return on equity, and marketing expenses; most of this information can be provided in an income statement—and is available online for publicly traded companies.) SOCIAL MEDIA APPLICATION Review your entire social media profile and consider how each of the social media platforms you use personally can affect your career positively or negatively as you move forward. Analyze your efforts to build your brand via social media using the following questions and activities as a guide: 1. List the social media platforms on which you have any type of presence. How many of those platforms do you check or use at least once per week? 2. Is the content you provide across the platforms consistent? Do you have the same image across platforms? What grade would you give your overall social media profile? Explain your answer. 3. In the chapter we discussed some traditional marketing analytics (also called metrics) used to measure marketing effectiveness. People use all sorts of metrics for all sorts of things. Here, use metrics to justify the overall social media grade you gave yourself. You can use any type of analytical tools (e.g., number of friends, followers, likes, interactivity level) to support your overall grade. This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and 81

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outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise in Chapter 2 that focuses on a key marketing analytics measure: return on marketing investment (R OM I). ETHICAL CHALLENGE Sports marketers in the United States have wondered for years if legalized gambling would lead to more people watching games, leading to increasing numbers of consumers seeing ads and engaging with brands in a variety of different ways. Betting on sports is legal in many parts of the world including Australia and western Europe but flourishes globally even when it‘s outlawed. Annual illegal sports wagers are estimated at $50 billion to $150 billion compared with Nevada‘s record $4.8 billion of legal sports bets in 2017. In May 2018, the Supreme Court struck down the 1992 law that made sports gambling legal only in Nevada, freeing New Jersey to legalize sports gambling and other states to follow. Professional U.S. sports leagues, which had been traditionally concerned how betting would encourage corruption, have now become increasingly supportive. The National Basketball Association and Major League Baseball are seeking a 1 percent fee on all bets placed on their games. One case for legalization is that sports betting goes on regardless of whether the law permits it, so why not generate taxes that benefit communities? Legalization also gives bettors greater assurance their wagers will be honored and raises government funding that otherwise went into the pockets of illegal bookmakers. Some marketers highlight data that suggest higher television ratings and increased social media activity occur for heavily wagered games. However, those who oppose the issue say that the benefits don‘t justify the costs of gambling, including potential indebtedness of a larger number of citizens. Some stakeholders want marketers to have similar limits on ads promoting gambling to younger people that currently exist for tobacco and alcohol. Athletes and academics also warn of a growing gambling culture around sports, in which the point spread becomes the focus of fans rather than cheering for a favorite team and simply following the action. This loss of fan identification with a favorite team might also reduce the ability of sports marketers to develop lifelong fans that might buy jerseys, tickets, and merchandise for generations to come. Student Task: 66. Analyze the reasons for the success of legalized sports gambling from a marketing perspective. Explain how legalized sports gambling may benefit a company in your home state? (Answer: Open ended; by tapping into the widely popular sports industry, value is created by associating gambling to managing one‘s own sports team and financial gain is a possibility. However, many are addicted to gambling and this provides an additional channel for those who are affected.) 67. Use the ethical decision-making framework to analyze Major League Baseball‘s decision to support legalized gambling and its request to receive a 1 percent fee on all bets made on the sport. (Answer: Open ended; a decision maker would have to consider the cultural 82

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effects on offering gambling services knowing there are consumers who have gambling problems. Here is an example where knowing the laws in the industry is required and careful consideration of risk management should be considered.) 68. If you were a marketer for the National Collegiate Athletic Association, would you look to develop strategic partnerships to profit off of legalized gambling on collegiate sports? Explain your answer. (Answer: Open ended; to consider: market potential, impact on revenue, regulation and administration, legal situations, ethical conduct of participants, and requirements) Source: Ira Boudway and Grant Clark, “Sports Betting,” Bloomberg.com, May 17, 2018, https://www.bloomberg.com/quicktake/sports-betting.

VIDEO CASE Have students go to Connect to access the video cases featuring Potbelly Sandwich Shop that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about how to market themselves and develop their social skills, follow this insight. Career Tips

Michael Friloux, Senior vice president and chief technology officer at Uniti, encourages you to spend time considering two things that many college graduates don‘t fully appreciate: the power of questions and the importance of people skills. 1. The Power of Questions: When in doubt, develop the habit to always ask questions. 2. The Importance of People Skills: It‘s important to cultivate positive and productive interactions with everyone you work with.

Photo provided by Michael Friloux.

Review with students:  What resources can be used to find the types of questions asked?  What activities can you do in the next 3 months to develop people skills?

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Chapter 2: Strategic Planning

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-32 Discuss the importance of strategic planning for marketing. LO 1-33 Analyze the characteristics of an effective mission statement. LO 1-34 Outline the five main components of the marketing plan. LO 1-35 Explain three tools and techniques for the situation analysis: market summary, S WOT analysis, and competition analysis. LO 1-36 Explain the basic tools and techniques of marketing strategy: segmentation, strategic direction, and the marketing mix. LO 1-37 Discuss the strategic decisions involved in reaching international consumers. LO 1-38 Describe the use of four key marketing analytics: return on marketing investment (ROM I), revenue analysis, market share analysis, and profitability analysis. KEY TERMS competitive advantage direct ownership diversification exporting financial projections franchising joint venture licensing market development market penetration market segmentation market segments

market share analysis market summary marketing analytics marketing plan mission statement opportunities (in SWOT analysis) positioning product development profitability analysis return on marketing investment (ROM I)

revenue analysis situation analysis strategic plan strategic planning strategy strengths (in SWOT analysis) SWOT analysis target market threats (in SWOT analysis) weaknesses (in SWOT analysis)

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THOUGHT-PROVOKING ACTIVITY Set 1: What is a mission statement? Provide an example of a mission statement in a franchise.

Set 2: What is the BCG matrix? With each of the four sections, provide an example.

How is strategic planning necessary for the customer‘s end-to-end experience?

LO2-1: Discuss the importance of strategic planning for marketing. The Importance of Strategic Planning  Strategic planning is essential to meeting both professional and personal objectives. In the same way that a strategic plan will help you accomplish your goal of earning a college degree, a firm‘s strategic plan helps guide it to success  Whether you are marketing yourself or some other product, strategic planning can greatly increase the likelihood of success  Strategic planning is the process of thoughtfully defining a firm‘s objectives and developing a method for achieving those objectives  A strategic plan typically includes an organization‘s plans for key functional areas, such as marketing, human resources, finance, and risk management  Firms must continually modify their strategies as conditions shift  Strategic planning helps ensure that the organization will have the needed resources— financial, human, and operational—to succeed, select, and execute the right marketing-mix strategies to maximize success 85

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The strategic plan is shaped by the organization‘s mission

Figure 2.1 Elements of a Strategic Plan INSIGHT QUESTIONS How often should firms go through strategic planning? (Answer: Firms must continually modify their strategies as conditions shift.) How is the marketing mix affected by strategic planning? (Answer: It helps marketers select and execute the right marketing mix strategies to maximize success.) How formal should the strategic planning process be, and who should be included? (Answer: Open ended; It should be well documented, and a representative from each department should be included in decision making) LO2-2: Analyze the characteristics of an effective mission statement. Mission Statement  The first step in creating a quality strategic plan is to develop an effective mission statement  A mission statement is a concise affirmation of the firm‘s long-term purpose and provides employees with a shared sense of ambition, direction, and opportunity  A firm should begin the process of developing a mission statement by considering the following questions:  What is our business?  Who is our customer?  What is our value to the customer?  What should our business be?  The mission statement provides a standard to ensure that the business never strays too far from its core goals and values through changing times  A sound mission statement provides a basis for developing the marketing plan  The three primary characteristics of a good mission statement include the following:  (1) Be focused on a limited number of goals  (2) Be customer-oriented and focused on satisfying basic customer needs and wants  (3) Capture a shared purpose and provide motivation for the employees of the firm  The mission statement provides a standard to ensure that the business never strays too far from its core goals and values through changing times THINK LIKE A MARKETER Find an example of a ―bad‖ mission statement. What makes it ―bad‖? How could it be better?

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THINK LIKE A MARKETER What do you think of a company not having a mission statement?

LO2-3: Outline the five main components of the marketing plan.

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The Marketing Plan  The marketing plan is an action-oriented document or playbook that guides the firm‘s marketing strategy and is grounded in the firm‘s mission statement  Creating a marketing plan requires the input, guidance, and review of employees throughout the various departments of a firm, not just the marketing department  The specific format of the marketing plan differs from organization to organization  Most plans include five components: an executive summary, situation analysis, marketing strategy, financials section, and controls section Executive Summary  The executive summary is a one to two page synopsis of the marketing plan‘s main points  It should convey the most valuable information of the marketing plan  Although the executive summary comes first in the marketing plan, most firms complete this part of the plan last Situation Analysis  A situation analysis is a systematic collection of data to identify market trends, conditions, and competitive forces  Its purpose is to identify factors that have the potential to influence the firm‘s performance and the choice of appropriate strategies  A situation analysis has three subsections:  (1) The market summary describes the current state of the market  A market is the group of consumers or organizations that is interested in and able to buy a particular product  (2) A S WOT analysis is an evaluation of a firm‘s strengths (S), weaknesses (W), opportunities (O), and threats (T)  (3) The competition analysis subsection lists the firm‘s direct competitors  This list should include both direct and indirect competitors  Indirect competitors are those that can take market share as macro trends or consumer preferences change Marketing Strategy  A strategy is the set of actions taken to accomplish organizational objectives  The marketing strategy component lists the actions the firm must take to accomplish the marketing objectives established in its mission statement and strategic planning  A successful marketing strategy can lead to higher profits, stronger brands, and larger market share Financials  The financials section details the overall profitability of both the firm and its individual units  Financial projections provide those reading the plan with a bottom-line numerical estimate of the organization‘s profitability  A sales forecast projects how many units of a product the company expects to sell during a specific time period 88

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The expense forecast is an estimate of the costs the company will incur to create, communicate, and deliver the product  Break-even analysis combines the data from the sales and expense forecasts Controls  The final section in most marketing plans outlines the controls the firm will put in place to monitor performance and adjust the plan over time  Controls provide a link between the organization and its environment  The implementation section provides a detailed account of how the specific actions of the marketing plan will be carried out and who will be responsible for doing so  An outline of the organizational structure assigns specific responsibility for the parts of the marketing plan  Contingency planning defines the actions the company will take if the initial marketing strategy falls short of expected results THINK LIKE A MARKETER What‘s your elevator pitch? (Recall your work from Chapter 1s Personal Marketing Plan exercise.)

Figure 2.2 Key Components of the Marketing Plan INSIGHT QUESTIONS Who is involved in developing the marketing plan? (Answer: Most departments in a firm, not just the marketing department.) What types of objectives should be considered in the marketing strategy? (Answer: Specific, measurable, and realistic objectives) Should a marketing plan have a short-term or long-term vision? (Answer: Both, and it should tie into the organization‘s mission for long term sustainability. The marketing plan should state the timeframe for which it addresses, e.g., fiscal year 2023 or Quarter 3 of 2023.) LO2-4: Explain three tools and techniques for the situation analysis: market summary, SWOT analysis, and competition analysis.

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Tools and Techniques for the Situation Analysis  The situation analysis in the marketing plan includes a market summary, a SWOT analysis, and an analysis of the competition Market Summary  The market summary sets the stage for the situation analysis section by focusing on the current state of the market to which the firm will sell its products  A quality market summary should provide a perspective on important marketplace trends BCG Matrix  One of the most popular analysis tools to describe the current market is The Boston Consulting Group (BCG) matrix  The vertical axis measures market growth; the horizontal axis measures relative market share  Relative market share is defined as the sales volume of a product divided by the sales volume of the largest competitor  The BCG matrix combines those two elements—market growth and relative market share— to produce four unique product categories  Each of those four product categories—stars, cash cows, question marks, and dogs—requires a different marketing strategy  Star products combine large market share in an industry with a high growth rate  Cash cows are products that have a large market share in an industry with low growth rates  Question marks have small market share in a high-growth industry and products in this quadrant are typically new to the market  Dogs are products that have small market share in industries with low growth rates Figure 2.3 The Boston Consulting Group Matrix INSIGHT QUESTIONS What does the BCG Matrix determine? (Answer: Where its product will fall in the marketplace, and it serves as a starting point for developing marketing strategies to address market position) What quadrant would represent the Apple iPad? (Answer: Cash cow, because it represents large market share and a low growth rate) What quadrant would represent a new iPhone application? (Answer: Question mark, because it represents small market share and a high growth rate) SWOT Analysis  A SWOT analysis is an evaluation of a firm‘s strengths, weaknesses, opportunities, and threats

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The strengths and the weaknesses aspects of the analysis focus on internal characteristics of the firm  The opportunities and threats aspects of the SWOT analysis focus on the external environment Internal Considerations  The internal considerations in a SWOT analysis are the firm‘s strengths and weaknesses  Strengths are internal capabilities that help the company achieve its objectives  Weaknesses are internal limitations that may prevent or disrupt the firm‘s ability to meet its stated objectives External Considerations  The external considerations in a SWOT analysis are the opportunities and threats the firm faces  Opportunities are external factors that the firm may be able to capitalize on to meet or exceed its stated objectives  Threats are current or potential external factors that may challenge the firm‘s short- and longterm performance  Companies like McDonald‘s often complete a SW OT analysis to identify and evaluate their strengths, weaknesses, opportunities, and threats  For example, the firm can ask questions like:  How can the firm use its strengths to take advantage of opportunities?  How can the firm overcome weaknesses that keep it from taking advantage of opportunities?  How can the firm use its strengths to reduce the impact of threats?  How can the firm overcome weaknesses that will make threats a reality? Table 2.1 Example SWOT Analysis for McDonald’s INSIGHT QUESTIONS Which elements of a SWOT analysis are internal considerations? (Answer: Strengths and weaknesses) Which elements of a SWOT analysis are external considerations? (Answer: Opportunities and threats) What key words or action oriented words do you see in the example? (Answer: Strong, difficulty, longer, weak, expansion, increasing, etc.) What qualitative and quantitative measures exist in the example SWOT analysis? (Answer: Open ended; brand recognition, number of international locations and sales numbers in international markets, operating and production costs, employee satisfaction and turnover rates, 91

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perception of the brand and its products, etc.)

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CONNECT BACK: Reference Connect Assignment 2-1 In a real SWOT analysis, what resources will you use to compose your SWOT analysis? (Answer: Open ended; friends and family members, professors, and current/past employers) For measurement and analysis, figure out which elements are quantitative, and which ones are qualitative. (Answer: Open-ended; figuring out how each element of the SWOT analysis is measured is just as important as the content itself) When should a SWOT analysis be conducted? Think in terms of frequency, product development, and strategic planning. (Answer: Open ended; no less than once a year) Competition Analysis  The competition analysis section should begin by clearly stating the organization‘s direct competitors  Indirect competitors, though, typically receive far less attention or are overlooked entirely  When completing a situation analysis, it‘s just as important for a firm like McDonald‘s to analyze indirect competitors, such as Panera Bread, as it is to analyze direct competitors, such as Burger King LO2-5: Explain the basic tools and techniques of marketing strategy: segmentation, strategic direction, and the marketing mix. Basic Tools and Techniques of Marketing Strategy  The marketing strategy lists the specific actions the firm must take to accomplish the marketing objectives it has established  The basic tools and techniques of marketing strategy include decisions about (1) segmentation, target markets, and positioning; (2) strategic directions; and (3) the marketing mix  Quality marketing objectives have three basic characteristics:  (1) Specific  (2) Measurable  (3) Realistic Segmentation, Target Markets, and Positioning  Marketers must identify who their intended customers are  That knowledge enables them to segment the market, identify a target market, and correctly position their product for that market Segmentation  Market segmentation is the process of dividing a large market into smaller groups 93

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Those smaller groups are market segments, the groups of consumers who have shared characteristics and similar product needs Target Markets  A target market is the group of customers toward which an organization directs its marketing efforts  Small firms may have only one target market  Large organizations might enter multiple target markets Positioning  Success within the target market depends, to some degree, on how the firm positions its product  Positioning refers to the activities a firm undertakes to create a certain perception of its product in the eyes of the target market  The firm has total control over this element of its marketing efforts, and the concept is critical to how it develops the rest of its marketing strategy  To position its product, the firm must take into consideration the competition, the needs and wants of the target market, and the element of mystique or drama that the good or service naturally has Strategic Direction  A company‘s marketing strategy can follow various paths, which depend on the product and industry  Market penetration is selling more of existing goods and services to existing customers  Product development is creating new goods and services for existing markets  Market development is selling existing goods and services to new customers  Diversification is offering new goods and services to attract new customers Market Penetration  Market penetration strategies emphasize selling more of the firm‘s existing goods and services to existing customers.  This growth strategy often involves encouraging current customers to buy more each time they patronize a store or to buy from the store on a more frequent basis. Product Development  Product development strategies involve creating new goods and services for existing markets Market Development  Market development strategies focus on selling existing goods and services to new customers  The targeted new customers could be of a different gender, age group, or education level

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Diversification  Diversification strategies seek to attract new customers by offering new products that are unrelated to the firm‘s existing products Figure 2.4 The Four Basic Categories of Market Growth Strategies INSIGHT QUESTIONS Which strategy involves encouraging current customers to buy more each time they patronize a store or to buy from the store on a more frequent basis? (Answer: Market penetration) Which strategy did Dr Pepper Ten use in their campaign launch of, ―It‘s not for women?‖ (Answer: Product development) Which strategy focuses on selling existing goods and services to new customers? (Answer: Market development) List three examples of companies that have used the diversification strategy. (Answer: Disney; open ended)

CONNECT BACK: Reference Connect Assignment 2-2 Which strategies can be used to enter into international markets? (Answer: Open-ended; all have an effect) List two examples of organizations that have implemented each one of the four strategies. Which strategy is easiest to identify? (Answer: Open ended; for example, think of Apple and Starbucks) Marketing Mix  The marketing mix is the combination of activities that a firm can do to influence demand for its good or service  It is often referred to as the four Ps of marketing: product, price, place, and promotion Product  The product section of the marketing plan consists of a detailed description of the product being offered, and any related services like warranties and guarantees that accompany the good or service  The product description should clearly state what value the product holds for the customer 95

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A product possesses a competitive advantage when customers perceive that it has more value than other products in its category

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Promotion  The promotion section of the marketing plan details how the firm will communicate the value of its product  This section builds on the strengths of the product section.  It references the specific promotional tools—advertising, sales promotion, personal selling, or public relations—the firm will use to reach its target market. Distribution  Distribution strategies fall within the place marketing-mix element  The distribution section of the marketing plan describes where and when the firm will deliver value to its customers  The distribution section should outline all the different companies, people, and technologies that will be involved in the process of delivering the product to customers Pricing  The pricing section of the marketing plan specifies how much money customers must pay for the product and explains why the firm selected that price CONNECT BACK: Reference Connect Assignment 2-3 Should social media strategies always be included in a company‘s marketing plan since it is a popular medium? (Answer: Not necessarily and only if the demographics of the platform align) How would you determine the social media platform a company should use (i.e., Facebook, Twitter, LinkedIn, YouTube, Pinterest, etc.)? Should all of them be used? (Answer: Open ended; check out the competitors and what platforms they are on. Start with one platform and slowly add on others that are aligned in sociocultural ways) LO2-6: Discuss the strategic decisions involved in reaching international consumers. Marketing Strategy in a Global Context  The new reality of globalization means a firm‘s strategic planning process must include a discussion about what, if any, international presence the firm wants to pursue  One of the most critical strategic decisions involves how to enter foreign markets  The firm must choose from among the five major strategic options for entering the international marketplace: exporting, licensing, franchising, joint venture, or direct ownership  Each offers a unique mix of risk and reward Exporting  Exporting is selling domestically produced products to foreign markets  Typically, the least risky option for entering international markets is exporting  Increasingly, firms of all sizes export their products to other countries 97

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Social media tools enable small businesses to engage global customers in a way that was not possible a decade ago  Logistics firms like FedEx and UPS also help increase export opportunities by providing small businesses with a quick, efficient way to deliver products almost anywhere in the world Licensing  Licensing is a legal process in which one firm pays to use or distribute another firm‘s resources, including products, trademarks, patents, intellectual property, or other proprietary knowledge  The use of licensing to enter international markets has increased significantly in recent years due to several factors, including more regulation, rising research and development (R&D) costs, and shortened product life cycles  Despite its growing popularity, licensing is typically a riskier option than exporting  Major risks include:  The licensor may be inadvertently creating a future competitor in the form of the licensee  The licensor shares information and the right to use its proprietary technology with the licensee, who might use that knowledge in the future  The licensee could potentially misuse trademarks Franchising  Franchising is a contractual arrangement in which the franchisor provides a franchisee (local owner operator) the right to use its name and marketing and operational support in exchange for a fee and, typically, a share of the profits  Franchising is an attractive method of entering foreign markets because the franchisee assumes the majority of the capital costs and human resource issues  The franchisor provides knowledge and information about running the business, and that division of responsibility increases the likelihood of success  The disadvantages of franchising include the risks of granting your name to a franchisee in a faraway place where direct oversight is difficult Joint Venture  A riskier option than exporting, licensing, or franchising is a joint venture  In a joint venture, a domestic firm partners with a foreign company to create a new entity, thus allowing the domestic firm to enter the foreign company‘s market  Joint ventures work best when the partners‘ strategic goals align, their competitive goals diverge, and they are able to learn from one another without infringing on each other‘s proprietary skills  Joint ventures can result in mistrust over proprietary knowledge, conflict over new investments, and disagreements about how to share revenue and profits

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Direct Ownership  The riskiest method of entering an international market is direct ownership  In direct ownership, a domestic firm actively manages a foreign company or overseas facilities  Direct ownership is a good strategic option when the firm sees substantial sales potential in the international market, very little political risk (the risk of local government unrest), and similarities between the foreign and domestic cultures  Direct ownership requires far more resources and commitment than any of the other options as it can be difficult to manage local resources from afar THINK LIKE A MARKETER How do firms enter foreign markets?

Figure 2.5 International Market Entry Strategies INSIGHT QUESTIONS What is the least risky option for entering international markets? (Answer: Exporting) Which strategy offers marketers the advantages of expanding the reach of their products quickly in a low cost way? (Answer: Licensing) Which strategy is an attractive method of entering foreign markets because its licensees assume the majority of the capital costs and human resource issues? (Answer: Franchising) Which strategy works best when the partners‘ strategic goals align, their competitive goals diverge, and they are able to learn from one another without infringing on each other‘s proprietary skills? (Answer: Joint venture) What is the riskiest method of entering an international market? (Answer: Direct ownership)

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What key factors determine the market strategy? (Answer: Open ended; risk level desired, opportunity and resource availability; consumer research can also dictate the strategy chosen) Do the same risks exist for small companies and large companies? (Answer: Open ended; no, smaller companies may incur larger risk because resources are limited) How do rewards differ for small and large companies? (Answer: Open ended; larger companies may have more resources and expertise available) LO2-7: Describe the use of four key marketing analytics: return on marketing investment (ROMI), revenue analysis, market share analysis, and profitability analysis. Marketing Analytics  Marketing analytics is the practice of measuring, managing, and analyzing marketing performance. Its goal is to maximize marketing effectiveness and optimize return on investment  Use of marketing analytics enables organizations to measure and evaluate marketing outcomes  Marketing strategy becomes more accountable when organizations base decisions on analytics Return on Marketing Investment  Return on marketing investment (R OMI) is a measure of the firm‘s effectiveness in using the resources allocated to its marketing effort  In the calculation, sales include all of the revenue generated by core and noncore business activities  Gross margin equals the difference between price (the amount paid by the customer) and cost (the amount required to produce the good or service), which is expressed as a percentage  Gross margin is calculated by subtracting the cost of goods sold per unit from the selling price of the item, divided by the selling price  Marketing expenditures is the amount of money spent on all marketing activities during a specified period of time Revenue Analysis  Revenue analysis measures and evaluates revenue from specific products or regions  Its goal is to pinpoint what is working and what is not, relative to the objectives of the organization  Revenue analysis pinpoints the specific sources of revenue Market Share Analysis

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Market share analysis indicates market share, which is the percentage of the total market sales captured by a brand, product, or firm Market share provides marketers with a quick look at how they are performing relative to their competitors

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It does measure the firm‘s sales as a percentage of total market sales, but it does not indicate the size of the market sales Profitability Analysis  Profits are the positive gain from a business operation after subtracting all expenses  Profitability analysis measures how much profit the firm generates. It can also be broken down to measure the profit contribution of regions, channels, or customer segments  Customer acquisition measures how much the firm spent to gain new customers  Customer-acquisition costs typically include spending on marketing advertising, public relations, and sales  Marketers also measure individual customer profitability, which is the profit a firm makes from a customer over a specified period of time THINK LIKE A MARKETER What types of marketing data should firms analyze? (Hint: Think of the marketing mix.)

Figure 2.6 Auto Manufacturer Market Share in the United States, 2009 and 2015 INSIGHT QUESTIONS What does market share measure? (Answer: The firm‘s sales as a percentage of total market sales) What does it not measure? (Answer: The size of market sales) What impacts market share? (Answer: Open ended; technology, ability to innovate, consumer interest, etc.) TODAY’S PROFESSIONAL NOTES Kylle Scott, Marketing Director, Greenway Equipment What ―story‖ about yourself will you tell in your interview process? What keywords would you use to describe yourself?

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Strengths. Most people have some notion of their strengths—maybe you‘re an effective public speaker, pay a great deal of attention to detail, or work well with others, for example. It‘s likely that you‘ve had those strengths reinforced by those around you over the course of your life. To effectively complete the strengths part of your personal SWOT analysis, list three to five strengths that you possess that will most affect your ability to achieve the objectives you identified in Chapter 1.

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Weaknesses. Most people are very honest about their strengths but are typically far less likely to be aware of, or to acknowledge, their weaknesses. Corporate recruiters often tell humorous stories about the responses they receive when asking new college graduates about their biggest weaknesses. Answers range from ―I care too much,‖ or ―I am too smart for my group members,‖ to ―I am too attractive to have many friends.‖ (Any of these responses might produce a negative impression in a job interview, by the way.) Give serious consideration to your personal weaknesses, and then list three to five weaknesses that will affect your ability to achieve your objectives. By properly identifying your weaknesses, you can begin to plan strategically how to overcome them or, at the very least, minimize their influence on your career objectives.

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Your Task: You‘ve now listed three to five strengths, weaknesses, opportunities, and threats that could affect your professional development. For each weakness and threat you identify, include a brief one to two sentences description of how you might overcome the challenge associated with it. Chapter 2

SITUATION ANALYSIS SWOT Analysis Strengths (Internal)     Weaknesses (Internal)     Opportunities (External)     Threats (External)    

Chapter 2: Strategic Planning Use this Learning Worksheet to prepare for class discussion and take notes.

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LEARNING OBJECTIVES LO 1-39 Discuss the importance of strategic planning for marketing. LO 1-40 Analyze the characteristics of an effective mission statement. LO 1-41 Outline the five main components of the marketing plan. LO 1-42 Explain three tools and techniques for the situation analysis: market summary, S WOT analysis, and competition analysis. LO 1-43 Explain the basic tools and techniques of marketing strategy: segmentation, strategic direction, and the marketing mix. LO 1-44 Discuss the strategic decisions involved in reaching international consumers. LO 1-45 Describe the use of four key marketing analytics: return on marketing investment (ROM I), revenue analysis, market share analysis, and profitability analysis. KEY TERMS competitive advantage direct ownership diversification exporting financial projections franchising joint venture licensing market development market penetration market segmentation market segments

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revenue analysis situation analysis strategic plan strategic planning strategy strengths (in SWOT analysis) SWOT analysis target market threats (in SWOT analysis) weaknesses (in SWOT analysis)

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THOUGHT-PROVOKING ACTIVITY Set 1: What is a mission statement? Provide an example of a mission statement in a franchise.

Set 2: What is the BCG matrix? With each of the four sections, provide an example.

LO2-1: Discuss the importance of strategic planning for marketing. The Importance of Strategic Planning  _ is essential to meeting both professional and personal objectives. In the same way that a strategic plan will help you accomplish your goal of earning a college degree, a firm‘s strategic plan helps guide it to success  Whether you are marketing yourself or some other product, strategic planning can greatly increase the likelihood of success  Strategic planning is the process of thoughtfully defining a firm‘s objectives and developing a_ for achieving those objectives  A_ typically includes an organization‘s plans for key functional areas such as marketing, human resources, finance, and risk management  Firms must continually modify their _ as conditions shift  _ helps ensure that the organization will have the needed resources—financial, human, and operational—to succeed, select, and execute the right marketing-mix strategies to maximize success 106 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The strategic plan is shaped by the organization‘s _

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Figure 2.1 Elements of a Strategic Plan INSIGHT QUESTIONS How often should firms go through strategic planning?

How is the marketing mix affected by strategic planning?

How formal should the strategic planning process be, and who should be included?

LO2-2: Analyze the characteristics of an effective mission statement. Mission Statement  The first step in creating a quality strategic plan is to develop an effective _ _  A mission statement is a concise affirmation of the firm‘s long-term _ and provides employees with a shared sense of ambition, _ , and opportunity  A firm should begin the process of developing a mission statement by considering the following questions:  What is our _ ?  Who is our _ ?  What is our _ to the customer?  What _ our business be?  The mission statement provides a standard to ensure that the business never strays too far from its core _ and _ through changing times  A sound mission statement provides a basis for developing the _  The three primary characteristics of a good mission statement include the following:  (1) Be focused on a _ number of goals  (2) Be customer-oriented and focused on satisfying basic customer _ and _  (3) Capture a shared purpose and provide _ for the employees of the firm 108 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The mission statement provides a standard to ensure that the business never strays too far from its core goals and values through changing times

THINK LIKE A MARKETER Find an example of a ―bad‖ mission statement. What makes it ―bad‖? How could it be better?

THINK LIKE A MARKETER What do you think of a company not having a mission statement?

LO2-3: Outline the five main components of the marketing plan. The Marketing Plan  The marketing plan is an _ document or playbook that guides the firm‘s marketing strategy and is grounded in the firm‘s mission statement  Creating a marketing plan requires the input, guidance, and review of employees throughout the various departments of a firm, not just the _  The specific _ of the marketing plan differs from organization to organization  Most plans include five components: _

Executive Summary  The executive summary is one-to two-page synopsis of the marketing plan‘s _  It should convey the _ of the marketing plan  Although the executive summary comes _ in the marketing plan, most firms complete this part of the plan _ Situation Analysis  A_ is a systematic collection of data to identify market trends, conditions, and competitive forces 109 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Its purpose is to identify factors that have the potential to influence the firm‘s performance and the choice of _ A situation analysis has three subsections:

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(1) The _ describes the current state of the market A_ is the group of consumers or organizations that is interested in and able to buy a particular product (2) A _ is an evaluation of a firm‘s strengths (S), weaknesses (W), opportunities (O), and threats (T) (3) The _ subsection lists the firm‘s direct competitors This list should include both direct and indirect competitors _ are those that can take market share as macro trends or consumer preferences change

Marketing Strategy  A_ is the set of actions taken to accomplish organizational objectives  The _ component lists the actions the firm must take to accomplish the marketing objectives established in its mission statement and strategic planning  A successful marketing strategy can lead to _ , stronger brands, and larger _ Financials  The _ section details the overall profitability of both the firm and its individual units  _ provide those reading the plan with a bottomline numerical estimate of the organization‘s profitability  A_ projects how many units of a product the company expects to sell during a specific time period  The _ is an estimate of the costs the company will incur to create, communicate, and deliver the product  _ combines the data from the sales and expense forecasts Controls  The final section in most marketing plans outlines the _ the firm will put in place to monitor performance and adjust the plan over time  Controls provide a link between the organization and its _  The _ section provides a detailed account of how the specific actions of the marketing plan will be carried out and who will be responsible for doing so

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An outline of the organizational structure assigns specific _ for the parts of the marketing plan _ defines the actions the company will take if the initial marketing strategy falls short of expected results

THINK LIKE A MARKETER What‘s your elevator pitch? (Recall your work from Chapter 1s Personal Marketing Plan exercise.)

Figure 2.2 Key Components of the Marketing Plan INSIGHT QUESTIONS Who is involved in developing the marketing plan

What types of objectives should be considered in the marketing strategy?

Should a marketing plan have a short-term or long-term vision?

LO2-4: Explain three tools and techniques for the situation analysis: market summary, SWOT analysis, and competition analysis. Tools and Techniques for the Situation Analysis  The situation analysis in the marketing plan includes a market summary, a SWOT analysis, and an _ Market Summary  The _ sets the stage for the situation analysis section by focusing on the current state of the market to which the firm will sell its products 112 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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A quality market summary should provide a perspective on important _

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BCG Matrix  One of the most popular analysis tools to describe the current market is _ (BCG) matrix  The vertical axis measures _ ; the horizontal axis measures _  _ is defined as the sales volume of a product divided by the sales volume of the largest competitor  The BCG matrix combines those two elements—market growth and relative market share— to produce four unique product categories  Each of those four product categories—stars, cash cows, question marks, and dogs—requires a different _  _ products combine large market share in an industry with a high growth rate  _ are products that have a large market share in an industry with low growth rates  _ have small market share in a high-growth industry, and products in this quadrant are typically new to the market  _ are products that have small market share in industries with low growth rates Figure 2.3 The Boston Consulting Group Matrix INSIGHT QUESTIONS What does the BCG Matrix determine?

What quadrant would represent the Apple iPad?

What quadrant would represent a new iPhone application?

SWOT Analysis  A_ is an evaluation of a firm‘s strengths, weaknesses, opportunities, and threats  The strengths and the weaknesses aspects of the analysis focus on _ characteristics of the firm 114 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The opportunities and threats aspects of the SWOT analysis focus on the _ environment

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Internal Considerations  The internal considerations in a SWOT analysis are the firm‘s _ and _  _ are internal capabilities that help the company achieve its objectives  _ are internal limitations that may prevent or disrupt the firm‘s ability to meet its stated objectives External Considerations  The external considerations in a SWOT analysis are the _ and _ the firm faces  _ are external factors that the firm may be able to capitalize on to meet or exceed its stated objectives  _ are current or potential external factors that may challenge the firm‘s short- and long-term performance  Companies like McDonald‘s often complete a SW OT analysis to identify and evaluate their strengths, weaknesses, opportunities, and threats  For example, the firm can ask questions like:  How can the firm use its strengths to take advantage of _ ?  How can the firm overcome weaknesses that keep it from taking advantage of opportunities?  How can the firm use its strengths to reduce the _ ?  How can the firm overcome _ that will make threats a reality? Table 2.1 Example SWOT Analysis for McDonald’s INSIGHT QUESTIONS Which elements of a SWOT analysis are internal considerations?

Which elements of a SWOT analysis are external considerations?

What key words or action oriented words do you see in the example?

What qualitative and quantitative measures exist in the example SWOT analysis?

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Instructor‘s Manual - Chapter 1

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CONNECT BACK: Reference Connect Assignment 2-1 In a real SWOT analysis, what resources will you use to compose your SWOT analysis?

For measurement and analysis, figure out which elements are quantitative, and which ones are qualitative.

When should a SWOT analysis be conducted? Think in terms of frequency, product development, and strategic planning.

Competition Analysis  The competition analysis section should begin by clearly stating the organization‘s _  _ , though, typically receive far less attention or are overlooked entirely  When completing a situation analysis, it‘s just as important for a firm like McDonald‘s to analyze _ competitors, such as Panera Bread, as it is to analyze _ competitors such as Burger King LO2-5: Explain the basic tools and techniques of marketing strategy: segmentation, strategic direction, and the marketing mix. Basic Tools and Techniques of Marketing Strategy  The _ lists the specific actions the firm must take to accomplish the marketing objectives it has established  The basic tools and techniques of marketing strategy include decisions about (1) _ , target markets, and positioning; (2) strategic directions; and (3) the _  Quality marketing objectives have three basic characteristics:  (1) Specific  (2) _  (3) _ Segmentation, Target Markets, and Positioning  Marketers must identify who their intended _

are

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Instructor‘s Manual - Chapter 1 

That knowledge enables them to segment the market, identify a _ , and correctly _ that market

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their product for

Segmentation  _ is the process of dividing a large market into smaller groups  Those smaller groups are _ , the groups of consumers who have shared characteristics and similar product needs Target Markets  A_ is the group of customers toward which an organization directs its marketing efforts  _ firms may have only one target market  _ organizations might enter multiple target markets Positioning  Success within the target market depends, to some degree, on how the firm _ its product  _ refers to the activities a firm undertakes to create a certain perception of its product in the eyes of the target market  The firm has total control over this element of its marketing efforts, and the concept is critical to how it develops the rest of its marketing strategy  To position its product, the firm must take into consideration the _ , the needs and wants of the _ , and the element of mystique or drama that the good or service naturally has Strategic Direction  A company‘s marketing strategy can follow various paths, which depend on the product and _  _ is selling more of existing goods and services to existing customers  _ is creating new goods and services for existing markets  _ is selling existing goods and services to new customers  _ is offering new goods and services to attract new customers Market Penetration  _ strategies emphasize selling more of the firm‘s existing goods and services to existing customers  This growth strategy often involves encouraging current customers to buy more each time they patronize a store or to buy from the store on a more frequent basis 120 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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strategies involve creating new goods and services for existing

Market Development  _ strategies focus on selling existing goods and services to new customers  The targeted new customers could be of a different gender, age-group, or education level Diversification  _ strategies seek to attract new customers by offering new products that are unrelated to the firm‘s existing products Figure 2.4 The Four Basic Categories of Market Growth Strategies INSIGHT QUESTIONS Which strategy involves encouraging current customers to buy more each time they patronize a store or to buy from the store on a more frequent basis?

Which strategy did Dr Pepper Ten use in their campaign launch of, ―It‘s not for women?‖

Which strategy focuses on selling existing goods and services to new customers?

List three examples of companies that have used the diversification strategy.

CONNECT BACK: Reference Connect Assignment 2-2 Which strategies can be used to enter into international markets?

List two examples of organizations that have implemented each one of the four strategies. Which strategy is easiest to identify? 121 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Instructor‘s Manual - Chapter 1

Hunt/Mello/Deitz: Marketing 4e

Marketing Mix  The _ is the combination of activities that a firm can do to influence demand for its good or service  It is often referred to as the _ : product, price, place, and promotion Product  The _ section of the marketing plan consists of a detailed description of the product being offered, and any related services like warranties and guarantees that accompany the good or service  The product description should clearly state what _ the product holds for the customer  A product possesses a _ when customers perceive that it has more value than other products in its category Promotion  The _ section of the marketing plan details how the firm will communicate the value of its product  This section builds on the _ of the product section  It references the specific promotional tools—_ — the firm will use to reach its target market Distribution  Distribution strategies fall within the _ marketing-mix element  The distribution section of the marketing plan describes where and when the firm will _  The distribution section should outline all the different companies, _ , and _ that will be involved in the process of delivering the product to customers Pricing  The _ section of the marketing plan specifies how much money customers must pay for the product and explains why the firm selected that price CONNECT BACK: Reference Connect Assignment 2-3 Should social media strategies always be included in a company‘s marketing plan since it is a popular medium?

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How would you determine the social media platform a company should use (i.e., Facebook, Twitter, LinkedIn, YouTube, Pinterest, etc.)? Should all of them be used?

LO2-6: Discuss the strategic decisions involved in reaching international consumers. Marketing Strategy in a Global Context  The new reality of globalization means a firm‘s strategic planning process must include a discussion about what, if any, _ the firm wants to pursue  One of the most critical strategic decisions involves how to _  The firm must choose from among the five major strategic options for entering the international marketplace: _  Each offers a unique mix of risk and reward Exporting  _ is selling domestically produced products to foreign markets  Typically, the least risky option for entering international markets is _  Increasingly, firms of all sizes export their products to other countries  _ tools enable small businesses to engage global customers in a way that was not possible a decade ago  _ firms like FedEx and UPS also help increase export opportunities by providing small businesses with a quick, efficient way to deliver products almost anywhere in the world Licensing  _ is a legal process in which one firm pays to use or distribute another firm‘s resources, including products, trademarks, patents, intellectual property, or other proprietary knowledge  The use of licensing to enter international markets has increased significantly in recent years due to several factors, including more regulation, rising research and development (R&D) costs, and shortened _  Despite its growing popularity, licensing is typically a riskier option than _  Major risks include:

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The licensor may be inadvertently creating a future _ in the form of the licensee The licensor shares information and the right to use its _ with the licensee, who might use that knowledge in the future The licensee could potentially misuse _

Franchising  _ is a contractual arrangement in which the franchisor provides a franchisee (local owner operator) the right to use its name and marketing and operational support in exchange for a fee and, typically, a share of the _  Franchising is an attractive method of entering foreign markets because the franchisee assumes the majority of the capital costs and _  The franchisor provides knowledge and information about _ , and that division of responsibility increases the likelihood of success  The disadvantages of franchising include the risks of _ to a franchisee in a faraway place where direct oversight is difficult Joint Venture  A riskier option than exporting, licensing, or franchising is a _  In a joint venture, a domestic firm partners with a foreign company to create a _ , thus allowing the domestic firm to enter the foreign company‘s market  Joint ventures work best when the partners‘ strategic goals align, their competitive goals _ , and they are able to learn from one another without _ on each other‘s proprietary skills  Joint ventures can result in mistrust over proprietary knowledge, conflict over new investments, and disagreements about how to share _ and _ Direct Ownership  The riskiest method of entering an international market is _  In direct ownership, a domestic firm actively manages a foreign company or _

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Direct ownership is a good strategic option when the firm sees substantial sales potential in the international market, very little political risk (the risk of local government unrest), and similarities between the foreign and domestic cultures Direct ownership requires far more _ and _ than any of the other options as it can be difficult to manage local resources from afar

THINK LIKE A MARKETER How do firms enter foreign markets?

Figure 2.5 International Market Entry Strategies INSIGHT QUESTIONS What is the least risky option for entering international markets?

Which strategy offers marketers the advantages of expanding the reach of their products quickly in a low cost way?

Which strategy is an attractive method of entering foreign markets because its licensees assume the majority of the capital costs and human resource issues?

Which strategy works best when the partners‘ strategic goals align, their competitive goals diverge, and they are able to learn from one another without infringing on each other‘s proprietary skills?

What is the riskiest method of entering an international market?

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CONNECT BACK: Reference Connect Assignment 2-4 What key factors determine the market strategy?

Do the same risks exist for small companies and large companies?

How do rewards differ for small and large companies?

LO2-7: Describe the use of four key marketing analytics: return on marketing investment (ROMI), revenue analysis, market share analysis, and profitability analysis. Marketing Analytics  _ is the practice of measuring, managing, and analyzing marketing performance. Its goal is to maximize marketing effectiveness and optimize return on investment  Use of marketing analytics enables organizations to measure and evaluate _  _ becomes more accountable when organizations base decisions on analytics Return on Marketing Investment  _ is a measure of the firm‘s effectiveness in using the resources allocated to its marketing effort  In the calculation, _ include all of the revenue generated by core and noncore business activities  _ equals the difference between price (the amount paid by the customer) and cost (the amount required to produce the good or service), which is expressed as a percentage  Gross margin is calculated by subtracting the _ per unit from the selling price of the item, divided by the selling price  _ is the amount of money spent on all marketing activities during a specified period of time Revenue Analysis 127 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ measures and evaluates revenue from specific products or regions Its goal is to pinpoint what is working and what is not, relative to the _ of the organization Revenue analysis pinpoints the _ of revenue

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Hunt/Mello/Deitz: Marketing 4e

Market Share Analysis  _ indicates market share, which is the percentage of the total market sales captured by a brand, product, or firm  Market share provides marketers with a quick look at how they are performing relative to their competitors  It does measure the firm‘s sales as a _ of total market sales, but it does not indicate the size of the market sales Profitability Analysis  _ are the positive gain from a business operation after subtracting all expenses  _ measures how much profit the firm generates. It can also be broken down to measure the profit contribution of regions, channels, or customer segments  _ measures how much the firm spent to gain new customers  Customer-acquisition costs typically include spending on marketing advertising, public relations, and sales  Marketers also measure _ , which is the profit a firm makes from a customer over a specified period of time THINK LIKE A MARKETER What types of marketing data should firms analyze? (Hint: Think of the marketing mix.)

Figure 2.6 Auto Manufacturer Market Share in the U.S., 2009 and 2015 INSIGHT QUESTIONS What does market share measure?

What does it not measure?

What impacts market share?

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TODAY’S PROFESSIONAL NOTES Kylle Scott, Marketing Director, Greenway Equipment What ―story‖ about yourself will you tell in your interview process? What keywords would you use to describe yourself?

Strengths. Most people have some notion of their strengths—maybe you‘re an effective public speaker, pay a great deal of attention to detail, or work well with others, for example. It‘s likely that you‘ve had those strengths reinforced by those around you over the course of your life. To effectively complete the strengths part of your personal SWOT analysis, list three to five strengths that you possess that will most affect your ability to achieve the objectives you identified in Chapter 1.

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Weaknesses. Most people are very honest about their strengths but are typically far less likely to be aware of, or to acknowledge, their weaknesses. Corporate recruiters often tell humorous stories about the responses they receive when asking new college graduates about their biggest weaknesses. Answers range from ―I care too much‖, or ―I am too smart for my group members‖, to ―I am too attractive to have many friends.‖ (Any of these responses might produce a negative impression in a job interview, by the way.) Give serious consideration to your personal weaknesses, and then list three to five weaknesses that will affect your ability to achieve your objectives. By properly identifying your weaknesses, you can begin to plan strategically how to overcome them or, at the very least, minimize their influence on your career objectives.

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internship openings are there, and how might those put me in a better position to find my dream job? If your goal is to attend graduate school, what kinds of scholarships, assistantships, or enrollment opportunities are out there for you? For this part of the SWOT analysis, identify three to five external opportunities that could potentially benefit you in your professional development. 

Your Task: You‘ve now listed three to five strengths, weaknesses, opportunities, and threats that could affect your professional development. For each weakness and threat you identify, include a brief one- to two-sentence description of how you might overcome the challenge associated with it. Chapter 2

SITUATION ANALYSIS SWOT Analysis Strengths (Internal)     Weaknesses (Internal)     Opportunities (External)     Threats (External)  

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Chapter 3: The Global Environment

Fly View Productions/Getty Images

Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 3 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-46 Differentiate between direct and indirect competition. LO 1-47 Summarize the major external factors that influence the marketing environment. LO 1-48 Extend the analysis of the marketing environment beyond the borders of the United States. LO 1-49 Identify the major trade agreements, monetary unions, and organizations that affect the international marketing environment. LO 1-50 Describe the emerging factors that influence the nonprofit marketing environment. KEY TERMS Baby Boomers consumer confidence consumer ethnocentrism currency exchange rate

demographics direct competition disposable income

Dominican Republic– Central America Free Trade Agreement (DR-CAFTA)

Instructor‘s Manual - Chapter 1 environmental scanning European Union (EU) Federal Trade Commission (FTC) gross domestic product (GDP) indirect competition inflation

International Monetary Fund (IMF) marketing environment Millennials North American Free Trade Agreement (NAFTA) purchasing power

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recession sociocultural substitute products tariffs World Trade Organization (WTO)

Matt Slick Senior Principal, Global Pricing and Price to Win, DXC Technology Taking on a role working with big ticket contracts, Matt Slick quickly realized the ―Value Story‖ in refining the client‘s value proposition. He ensures the pricing structure

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supports the value story and elaborates on the following questions: 69. What has been the most important thing in making you successful at your job? 70. What advice would you give soon-to-be graduates? 71. How is marketing relevant to your role at DXC? 72. What do you consider your personal brand to be? Later in the chapter you see how Matt elaborates on: Photo provided by Shannon Kaye Portrait Design

 How marketing impacts profitability each day. Review with students:  How is marketing relevant in his role?  What does the role of ―utility player‖ mean in an organization? Key Terms:  Marketing environment  Direct competition  Substitute products  Indirect competition

LO 3-1 Differentiate between direct and indirect competition.  Competitive Environment o Direct Competition o Indirect Competition PowerPoint Lecture Notes: Slides Competitive Environment  The marketing environment refers to the outside factors that might affect a company‘s ability to meet its marketing goals  Those forces include political, economic, demographic, sociocultural, technological, and legal factors  Marketers must understand the marketing environment, including both the competition and the domestic and international factors that affect the company  The competitive environment includes both direct and indirect competitors seeking to acquire market share Direct Competition  The most obvious form of competition is direct competition (also called category competition or brand competition), in which products that perform the same function compete against one another  Substitute products are goods and services that perform very similar functions and can be used in place of one another Indirect Competition  Indirect competition occurs when products provide alternative solutions to the same market 134

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THINK LIKE A MARKETER If you know your competition, how does this provide a strategic advantage? HINT: Consider your marketing mix. THINK LIKE A MARKETER Can you take advantage of opportunities without doing a S WOT analysis or environmental scanning? THINK LIKE A MARKETER Considering whether to change your product, or any part of your marketing mix, is an important decision. What would influence your decision? LO 3-2 Summarize the major external Key Terms: factors that influence the  Environmental scanning marketing environment.  Gross domestic product (GDP)  External Marketing  Recession Environment  Inflation  Economic Factors  Purchasing power  Gross Domestic  Consumer confidence Product  Demographics  Income  Baby Boomers Distribution  Disposable income  Inflation  Millennials  Consumer  Sociocultural Confidence  Federal Trade Commission (FTC)  Demographic Factors  Age  Gender  Education  Ethnicity  Sociocultural Factors  Political Factors  Legal Factors  Technology Factors PowerPoint Lecture Notes: Slides External Marketing Environment  Environmental scanning involves monitoring developments outside the firm‘s control  The goal is to detect and respond to threats and opportunities that might affect the firm  There are six major external factors that influence the firm‘s marketing environment—economic, demographic, sociocultural, political, legal, and technological

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Figure 3.1

Figure Information: The External Factors Affecting the Marketing Environment The six major external factors that influence the firm‘s marketing environment—economic, demographic, sociocultural, political, legal, and technological—are shown. All of these factors occur on both a domestic and global scale and affect an organization. PowerPoint Slides

Hunt/Mello/Deitz: Marketing 4e

Insight Questions: 73. How do each of these factors affect the marketing decisions in a firm? (Answer: Open ended; the product, price, place, and promotion are all affected.) 74. Which factors have the greatest domestic impact, and which factors have the greatest international impact? (Answer: Open ended; domestic—economic, technological, legal, political and international— sociocultural, technological, legal, and demographic) 75. How are these factors connected to each other? (Answer: Open ended; address each factor dependently and independently, e.g., the sociocultural changes in a geographic region may affect the political nature and stance of its population, local businesses, and decision making.)

Lecture Notes: Economic Factors  Economic factors influence almost every marketing decision a firm makes  Economic conditions impact consumers‘ willingness and ability to buy products  Firms must create, communicate, and deliver value in a way that‘s appropriate for the current economic climate  Four economic elements influence marketers: gross domestic product (GDP), income distribution, inflation, and consumer confidence Gross Domestic Product  Gross domestic product (GDP) refers to the market value of all officially recognized final goods and services produced within a country in a given period  A country‘s GDP is a function of both the quantity of goods and services produced and their market values  GDP measures the overall size and health of an economy

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Figure 3.2

The United States has the largest gross domestic product in the world for a single country, with almost $21 trillion in 2020 In recent years, China, India, and other developing nations have seen the highest GDP growth rates GDP per capita is often considered an indicator of a country‘s standard of living, and it is calculated by dividing a country‘s overall GDP by its population Overall GDP is the most common gauge of the overall expansion or contraction of an economy A recession occurs when overall GDP declines for two or more consecutive quarters Recessions can have a powerful negative effect on marketing because of layoffs, increased unemployment, and reduced consumer confidence

Income Distribution  Distribution of income across the U.S. population has shifted over the past several decades, forcing marketers to develop new strategies to satisfy consumers at different ends of the spectrum  Shifting income distribution offers marketers new opportunities to satisfy consumer needs and wants at various income levels Insight Questions:

Figure Information: Change in Average U.S. Household Income The change in mean household income in the United States for various household segments over the past few decades in current dollar values is shown. Though income for all household segments increased, income for the highest wage earners grew at a much quicker pace than it did for households in the bottom quintile.

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76. What factors are attributed to the increase in the mean household income over the years? (Answer: Open ended; number of income earners in the household, number of adults and children in the household, earning increases over time) 77. What does a shift in income mean for consumers? For the economy? For organizations? (Answer: Open ended; purchasing power and consumer confidence is affected; organizations must compete for consumerism; and corporate social responsibility is affected.) 78. What other factors are affected when household income increases or decreases? (Answer: Open ended; competition between organizations, education level of the population, and consumer preferences can shift).

Instructor‘s Manual - Chapter 1 PowerPoint Slides

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Lecture Notes: Inflation  Inflation is an increase in the general level of prices of products in an economy over a period of time  When the general price level rises, each unit of currency (e.g., each U.S. dollar) buys fewer goods and services  Consequently, inflation also reflects erosion in the purchasing power of money  Purchasing power is the amount of goods and services that can be purchased for a specific amount of money  Inflation can affect marketing significantly if prices rise faster than consumer incomes

Figure 3.3

Consumer Confidence  Consumer spending accounts for more than two-thirds of U.S. economic activity  The amount consumers are willing and able to spend is often based on their confidence in the stability of their future income  Consumer confidence measures how optimistic consumers are about the overall state of the economy and their own personal finances  Consumers purchase more when consumer confidence is high  Marketers who can find strategic ways to help consumers feel confident about their purchases can improve performance during challenging times  Marketers cannot dictate the state of the economic environment; instead, they must develop marketing strategies to position their firm for success, regardless of economic factors Insight Questions:

Figure Information: Relationship between Consumer Confidence and Real Consumer Spending

79. Why do you suspect consumer confidence and true consumer spending trend together, though an exact correlation is not made? (Answer: Open ended; the more confident a consumer feels, the more they spend versus saving or investing.) 80. In products and services that you purchase, what factors do you evaluate as criteria in deciding to make a purchase? (Answer: Open ended; quality, value, cost, amount of effort or time needed to go through the purchasing process, ease of doing business, customer support during and after a purchase, competition, and need for the product or service)

The changes in consumer confidence over the past several decades and the subsequent change in real consumer spending are shown. The green line 138

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reflects consumer confidence while the red line illustrates the change in real consumer spending over the same time period. As you can see, these measures often trend together, though there isn‘t an exact correlation between the two. PowerPoint Slides

Lecture Notes: Demographic Factors  Economic factors provide a macro framework for understanding consumer purchase patterns  Demographics are the characteristics of human populations that can be used to identify consumer markets, which include things such as age, gender, ethnicity, and education level, all of which influence the products consumers buy Age  Age plays an important role in how consumers process information  This in turn affects what marketing strategy firms should use to reach them  Baby Boomers—the generation of children born between 1946 and 1964  Members of this generation typically possess two things that marketing professionals seek: disposable income and free time  Disposable income is the amount of spending money available to households after paying taxes  Baby Boomers represent the wealthiest generation in U.S. history; when they retire, they have free time to spend some of their wealth  Rapidly retiring Baby Boomers make up only a quarter of the U.S. population but account for 50 percent of all domestic consumer spending  Millennials are the generation of children born between 1981 and the late twentieth century  Also known as Generation Y, Millennials comprise over 75 million members in the United States  Millennials generally have the greatest familiarity with and most use for digital communication, social media, and other forms of technology  Marketers trying to reach this large consumer group increasingly deliver their messages using channels, like the Internet, that are most likely to be used by this market THINK LIKE A MARKETER How are firms making changes to encourage older Americans to shop at their store? THINK LIKE A MARKETER What trends do you see with the population aged 65+? THINK LIKE A MARKETER

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How important are nondigital experiences in today‘s digital age?

Figure 3.4

Figure Information: Projected Number of Children and Older Adults

Insight Questions: 1. Why do you think the average age of the U.S. population is increasing? (Answer: Open ended; the increase is likely correlated to technology and advancements in health care.) 2. Why do marketers need to pay attention to the increased average age of the U.S. population? (Answer: Open ended; the way we consume and process information changes with age, and therefore, the strategy we use to reach these audiences should reflect this.)

Each year, the average age of the population of the United States rises. By the year 2035, the older adults will outnumber children in the United States for the first time in history. Connect Assignment 3-1

Social Media in Action

Topic: Social Media Complete the Connect exercise to develop different social media marketing strategies for a small business. By understanding how social media can help small businesses, you will be able to apply these strategies in the service of a small business you might work for or own in the years ahead. CONNECT BACK Insight Questions: 81. What social media platforms do you think are the most effective? What factors do you consider in your response? (Answer: Open ended; Facebook for news stories and longer news-related information; Instagram for visual appeal or information; LinkedIn for professional networking and business referrals) 82. List the advantages and disadvantages of using each social media platform. Be sure to include Facebook, Twitter, LinkedIn, Pinterest, and Instagram, and any

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others you feel are necessary. (Answer: Open ended; Facebook is a well-rounded platform because of the demographic of its users; LinkedIn has professional profiles and resume-like qualities though is limited in socialization, etc.) 83. Should all companies, large and small, employ social media tools to assist in their marketing efforts? (Answer: Open ended; yes, because consumers expect firms to be on social media channels, and it is a resource for information today) 84. Consider adding on a marketing plan to attract users to your social media platforms, in addition to establishing the tools for your organization itself. (Answer: Open ended; posting at certain times of the day to align with higher activity of like-users, and with content that is equally appealing) 85. How would you explain the strategy of each social media platform if, for example, you were a firm‘s marketing manager educating your firm on initiating social media for the first time? (Answer: Open ended; begin with the purpose and specific requirements for each platform, including value-added, interactively charged posts) PowerPoint Slides

Lecture Notes: Gender  One of the most important changes in the United States in recent decades has been the roles, attitudes, and buying habits of people in the marketplace  Female consumers now account for 85 percent of all consumer purchase decisions in the United States, including everything from cars to groceries to health care  Their control over the majority of consumer spending makes women a target market across products Education  Historically, highly educated consumers are more likely to be employed than are those with less education  The United States has been pushing over the past decade to lead the world in college graduation rates  Educated consumers are likely to earn significantly more money throughout the course of their lifetimes and also may more readily comprehend an advertiser‘s message  These factors make highly educated consumers prime targets for marketing strategies THINK LIKE A MARKETER If you worked in marketing for a univeristy, would you be ethically challenegd to

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taregt consumers with high tuition rates despite the recent trends?

Figure 3.5

Insight Questions: 86. What significant influences in the United States have affected the unemployment rate since 2008? (Answer: the most recent recession; open ended)

Figure Information: U.S. Unemployment Rate by Educational Attainment

87. Does looking at this graph personally motivate you to continue your education? (Answer: Open ended; consider the earning potential over time and rising cost of education)

Historically, highly educated consumers are more likely to be employed. Though the trend in the unemployment rate for collegeeducated consumers mirrors the trend for the rest of the population, their overall unemployment numbers remain low in comparison. PowerPoint Slides

Lecture Notes: Ethnicity  The ethnic composition of the U.S. population is changing rapidly  Projections indicate that by 2050, the Hispanic population in the United States will almost double to more than 127 million, representing over 30 percent of the entire U.S. population  The African American population in the United States grew at rate that outpaced the 12 percent population growth for the country as a whole  Asian Americans now represent the highest income, best educated, and fastest growing racial group in the United States, thereby increasing their purchasing power and importance to marketers  The United States is moving rapidly toward greater multiculturalism  Ethnic minorities‘ purchasing power was $3.8 trillion in 2018 and expected to grow significantly over the next decade  Marketers already have taken basic steps to reach out to different ethnic

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groups; advertising in multiple languages is one such step

Figure 3.6

Insight Questions:

Figure Information: Changing Ethnic Breakdown in the United States The ethnic breakdown of the United States has changed over the past two decades. Future changes are also projected through 2050. The United States is moving rapidly toward greater multiculturalism. PowerPoint Slides

88. What affect does the rapidly changing ethnic composition have on consumer spending? (Answer: Ethnic minorities‘ purchasing power was $3.8 trillion in 2018 and it is expected to grow significantly over the next decade.) 89. How do the changes in the U.S. population affect the marketing mix? (Answer: Open ended; knowing the intricacies of each market will be more important as it grows more diverse. Marketers will need to know how this affects consumer interests in the types of products they develop, the price they sell them at, where and how consumers can reach them, and how organizations will strategically plan to accommodate or innovate based on these criteria.)

Lecture Notes: Sociocultural Factors  Society and culture help shape our beliefs, values, and norms, which, in turn, define our tastes and purchasing habits  Sociocultural factors are the combination of social and cultural factors that affect individual development  One of the biggest sociocultural changes in the United States over the past half century has been the shift from a nation of primarily one-income families, in which one spouse stayed home to raise children  Today, two-income families and single-parent households predominate  The new sociocultural reality of busy families has created opportunities for firms to offer new kinds of value  Other sociocultural changes are taking place in the United States—an increasing number of single adults, rising concerns about protecting consumer privacy, and the growth in environmentally conscious consumers  Such changes provide firms with many reasons to market products in new and better ways  Cultural differences can also influence how consumers respond to advertisements and other marketing messages

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THINK LIKE A MARKETER Why must we be conscious of sociocultural factors in marketing? Political Factors  The political climate in the United States can change the direction of government policy quickly; such change also can affect how marketers position their products  Firms need not be completely passive when it comes to the political decisions that affect their businesses  It‘s becoming increasingly possible for firms to affect politics THINK LIKE A MARKETER What is an example of a political impact influenced by a firm? Legal Factors  Marketing professionals need to know and work within the laws that affect marketing  Federal, state, and local governments enact regulations for two main purposes:  (1) To ensure businesses compete fairly with each other  The Sherman Antitrust Act (1890) was passed to eliminate monopolies and guarantee competition  The Robinson–Patman Act (1936) refined prohibitions on selling the same product at different prices  The Wheeler–Lea Act (1938) made deceptive and misleading advertising illegal  The Federal Trade Commission (FTC) collects complaints about organizations that violate regulations; those complaints lead to investigations and possible prosecutions  (2) To ensure businesses don’t take advantage of consumers  The Fair Packaging and Labeling Act (1966) guarantees that product packages are labeled correctly  The Telephone Consumer Protection Act of 1991 has reduced the use of telemarketing, or selling products directly to consumers over the telephone  The act allows consumers to limit the number of telemarketing calls they receive and opt out of being called by some companies  Banks and other financial institutions were required to change how they dealt with consumers following passage of the Credit Card Accountability, Responsibility, and Disclosure (C ARD) Act of 2009

Table 3.1

Technology Factors  Technology influences how consumers satisfy their needs and wants, the basic concept underlying all marketing activities  Technology also changes how firms promote their products Insight Questions: 90. What laws were you previously familiar with?

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(Answer: Open ended) 91. How do these laws impact a firm‘s marketing initiatives? (Answer: Open ended; knowing which laws directly and indirectly affect an organization, its products and services is necessary)

Table Information: U.S. Laws That Affect Marketers These are some of the U.S. laws that are most important to understanding the marketing environment. Connect Assignment 3-2

Topic: External Makreting Environment Complete the Connect exercise in Chapter 3 that focuses on the external factors that affect marketers. By identifying how external factors impact large organizations, you will better understand how forces outside the marketing department‘s control can influence decisions the firm must make.

LO 3-3 Extend the analysis of the marketing environment beyond the borders of the United States.  International Marketing Environment 145

CONNECT BACK Insight Questions: 92. Which external factors influence a firm? (Answer: Sociocultural, political, legal, sociocultural, technology, and demographic factors all influence a firm at varying degrees) 93. How should the marketing mix be adjusted from these external factors? (Answer: Open ended; a firm‘s marketing mix should change depending on changes due to external influences; constantly monitoring these factors influences how rapid changes should be made.) Key Terms:  Currency exchange rate

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PowerPoint Slides

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Currency Fluctuation Income Distribution Using Metrics to Analyze International Markets Lecture Notes: International Marketing Environment  Recent estimates put the world‘s population at almost 8 billion people  Experts predict that it will grow to almost 10 billion people by the year 2050  The process of environmental scanning must take into account the international marketing environment as well Currency Fluctuation  Currency fluctuation refers to how the value of one country‘s currency changes in relation to the value of other currencies  Currency fluctuation can affect either positively or negatively how firms market products internationally  The currency exchange rate is the price of one country‘s currency in terms of another country‘s currency  The world‘s largest country in terms of population, China, has been criticized for undervaluing its currency, that is, pricing the yuan lower than it is actually worth  Whether a currency is appreciating or depreciating, currency fluctuations can provide marketing opportunities  It‘s important for marketers working in the international environment to understand the effect of currency fluctuations on product value

Figure 3.7

Income Distribution  A country‘s income distribution often provides the most reliable picture of its purchasing power  Marketers are particularly attracted to countries with a growing middle class because a nation‘s purchasing capability tends to increase as the proportion of middle-income households increases Insight Questions: 94. In which developing countries do you see the greatest changes in middle class consumption over the next 35 years? (Answer: European Union and India) 95. How will the global economic environment affect business in international markets? (Answer: Open ended; trade agreements may be altered depending on need, shortage or a surplus of a product or service may dictate negotiations, globalization can generate or cause declines in input and output of resources.)

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Figure Information: Projected Changes in Global Middle-Class Consumption The percentage of middle-class consumption in key Asian countries is projected to change in comparison to the United States over the next few decades. As you can see, the percentage of middleclass consumption in India may outstrip that of the United States by the year 2050. Marketing Analytics

Insight Questions: Evaluating the international marketing environment is a complex process. It requires marketers to interpret a significant amount of information in order to make the best decisions. Marketers have a variety of tools that can help them analyze the international marketing environment.

96. If you were able to see the countries your website visitors were from, the webpages they visit, and the time spent on your website, how would your marketing mix change? (Answer: Open ended; more emphasis or changes to an element in the marketing mix may be needed, and the messaging to those specific audiences should be considered.) 97. How much time should be dedicated to monitoring these efforts? (Answer: Open ended; depending on the size of the organization, the website should be monitored daily.) LO 3-4 Identify the major trade Key Terms: agreements, monetary unions,  North American Free Trade Agreement and organizations that affect (NAFTA) the global marketing  Tariffs environment.  United States–Mexico–Canada Agreement  Major Trade Agreements (USMCA) and Organizations  Dominican Republic–Central America Free  North American Free Trade Agreement (DR-CAFTA) Trade Agreement  European Union (EU)  Dominican Republic–  World Trade Organization (WTO) Central America Free  International Monetary Fund (IMF) Trade Agreement  Consumer ethnocentrism  European Union 147

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World Trade Organization  International Monetary Fund  Technology  Cultural Fit PowerPoint Slides Lecture Notes: Major Trade Agreement and Organizations  Marketing professionals must possess a working knowledge of the major trade agreements and organizations that could govern their firm‘s interaction with those markets  International trade agreements, monetary unions, and organizations can have substantial impact on the environment in which a firm operates  Trade agreements and monetary unions facilitate the exchange of money and products across borders  International organizations provide regulatory oversight to economic activity North American Free Trade Agreement  The most familiar U.S. trade agreement is the North American Free Trade Agreement (NAFTA)  The North American Free Trade Agreement (NAFTA) established a freetrade zone among the United States, Canada, and Mexico. Its goal was to eliminate barriers to trade and investment among the three countries  In 2018, the three countries reached a new deal to replace NAFTA which will be known as the United States–Mexico–Canada Agreement (USMCA) Dominican Republic–Central America Free Trade Agreement  A decade after NAFTA was implemented, the United States entered discussions about a new agreement with the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua  This agreement was called the Central America Free Trade Agreement (CAFTA)  In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed Dominican Republic–Central America Free Trade Agreement  The Dominican Republic–Central America Free Trade Agreement (DR-CA FTA) focuses on eliminating tariffs, reducing nontariff barriers, and facilitating investment among the member states European Union  The European Union (EU) is an economic, political, and monetary union of 27 European nations as of 2022  It was formed to create a single European market by reducing barriers to the free trade of goods, services, and finances among member countries  In 2021, the EU generated approximately 15 percent of the global gross 148

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domestic product, making it one of the largest economies in the world In 2016, the United Kingdom voted to leave the European Union, which set the stage for years of negotiations between the UK and the other 27 EU nations The decision was made that Great Britain would leave the EU in 2019, which will continue to impact marketers across the globe in the years ahead

World Trade Organization  The World Trade Organization was officially formed on January 1, 1995, under the Marrakech Agreement  The World Trade Organization (WTO) regulates trade among participating countries and helps importers and exporters conduct their business  It is the only international organization dealing with the rules of trade between nations

Figure 3.8

International Monetary Fund  Soon after the end of World War II, 29 countries signed an agreement to form the International Monetary Fund  Headquartered in Washington, D.C., the International Monetary Fund (IMF) ―works to foster international monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world‖  One of the IMF‘s important activities is to make resources available to member countries to help them manage their debts Insight Questions: 98. What countries lead in dollar volume of exports from the United States? (Answer: Canada and Mexico) 99. Why do Canada and Mexico lead in dollar volume of exports from the United States? (Answer: NAFTA has made exchange among the three countries so easy.)

Figure Information: Top 15 Buyers of U.S. Exports The U.S. exports more products to Canada and Mexico than to any other individual country. The total exports (year-to-date) in billions of dollars 149

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across 15 countries is shown. Connect Assignment 3-3

Topic: International Trade Agreeemnts Complete the Connect exercise for Chapter 3 that focuses on international trade agreements. By identifying the major aspects of critical trade agreements, you will understand the international marketing environment and be prepared to develop effective global marketing strategies.

PowerPoint Slides

CONNECT BACK Insight Questions: 100. Why must international trade agreements be in place? (Answer: to foster economic growth between countries) 101. How will these trade agreements evolve as more organizations are welcoming a global presence? (Answer: Open ended; tariffs may be reduced; intelligences and technology can be positively affected; and organizations can become more competitive.) Lecture Notes: Technology  Technology enables even small businesses to reach consumers around the globe  Websites act as a front door to billions of potential consumers  Social media help companies develop relationships with customers anywhere, for very little cost  Tools such as Google Translate allow customers to view websites in their own language, making it easier to promote products in different countries  Global shipping firms like FedEx and UPS enable small manufacturers to ship their products to customers around the world  Understanding how technology affects the international marketing environment benefits marketers as they attempt to meet the needs and wants of consumers in global markets

Connect Assignment 3-4

Cultural Fit  One of the biggest mistakes domestic firms make when they attempt to take their business global is to believe that what works ―at home‖ will work abroad  Consumer ethnocentrism refers to a belief by residents of a country that it is inappropriate or immoral to purchase foreign-made goods and services  Analyzing cultural fit and overcoming consumer ethnocentrism are essential aspects of environmental scanning on a global scale that help firms create value for international consumers Topic: Cultural Fit Complete the Connect exercise in Chapter 3 that focuses on how cultural

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fit affects the international marketing environment. By understanding which domestic firms and products are more likely to fit with the culture in specific foreign countries, you will be able to develop a more effective global marketing strategy.

Today’s Professional

CONNECT BACK Insight Questions: 102. How can a firm ensure they are a good cultural fit for a country they are doing business with? (Answer: Open ended; looking for alignment in cultural values is critical, and a firm‘s efforts toward this are imperative.) 103. How much should a firm be willing to change to become a good cultural fit if it does not presently exist? (Answer: Open ended; minimally because the long-term effects of not fitting can detriment an organization) Obinna Okechukwu Senior Product Consultant, Docusign Obinna Okechukwu partners with enterprises and nonprofit organizations. He was contacted by a recruiter on LinkedIn to get the job, and his willingness to learn got him through the seven-step interview process. Additional insight is provided in the following questions:

Photo provided by Obinna Okechukwu

104. Describe your job. 105. How did you get your job? 106. What has been the most important thing in making you successful at your job? 107. What advice would you give soon-to-be graduates? 108. What do you consider your person brand to be?

Review with students:  How early should you start your job search?  What opportunities can you capitalize on now to learn and grow?  What learning opportunities can you foresee in your future based on your professional goals? LO 3-5 Describe the emerging factors Key Terms: that influence the nonprofit (none) marketing environment.  Nonprofit Marketing Environment  Economic Factors  Political Factors  Legal Factors  Technology Factors

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Marketing Insights Podcast

Insight Questions:

Marketing Analytics

109. What is the role of marketing in the three sources of funding for nonprofits? (Answer: Open ended; grants, special events, and individual donations can increase in value if marketing is used to promote these initiatives; tracking he firm‘s best sources of information is critical to understanding where time, money, and effort is best spent; marketers must make the garnered support tangible) 110. How much time should be dedicated to monitoring these marketing efforts? (Answer: Open ended; depending on the size of the organization, the website and social media platforms should be monitored daily; when there is an upcoming event or initiative, these efforts become a major focus)

PowerPoint Slides

Lecture Notes: Nonprofit Marketing Environment  Environmental scanning for a nonprofit organization presents challenges that for profit businesses do not face  Those who donate money to a nonprofit do not walk away with a tangible product or benefit directly from any service  Nonprofit marketers must convince donors to support the mission of the organization without receiving any direct benefit  The competitive environment for nonprofit funding has increased dramatically in recent years  In 1995, there were only 600,000 nonprofits in the United States  Today, that number is over 1.8 million and growing rapidly

Figure 3.9

Insight Questions: 111. What external factors affect nonprofit marketing? (Answer: economic, political, legal, technology—many of the same factors that affect for profit organizations) 112. How has the number of nonprofit organizations changed in the last 18 years? (Answer: In 1995, there were only 600,000 nonprofits in the U.S. Today, that number is over 1.8 million and growing rapidly—a 300 percent increase.)

Figure Information: Total Giving to Nonprofit Organizations in the United States 152

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Total giving to nonprofit organizations changed during the height of the recession. PowerPoint Slides

Lecture Notes: Economic Factors  During the recession that began in December of 2007, Americans reduced their overall charitable giving by over 20 percent from levels prior to the recession  The decline was far sharper than in previous economic recessions  One strategy nonprofit marketers are using to combat that change is to develop new ways to recognize existing donors for their contributions Political Factors  The recession led to political pressure to reduce federal, state, and municipal budgets  This, in turn, has forced many nonprofit organizations to fund basic programs in innovative ways  Public universities, which receive a substantial portion of their funding from their respective state legislatures, have been hit especially hard Legal Factors  The benefit that nonprofit marketers offer to potential donors typically includes some combination of information about how the donation will be used, how the donor will be recognized, and the tax incentives (e.g., the tax deductibility of charitable gifts) that will accompany the donation  Legal changes to the tax-incentive element can alter the way marketing professionals communicate the organization‘s value to potential donors

Figure 3.10

Technology Factors  Many nonprofit organizations utilize new technology to increase awareness and enhance relationships with donors  The rise of social media has changed the nonprofit landscape in important ways  When it comes to organizing activists, conducting charity campaigns, or simply influencing communities and stakeholders, social media offer nonprofit organizations substantial advantages Insight Questions: 113. How have public universities adjusted and accommodated to the changes in state funding assistance? (Answer: increased tuition, layoffs, early retirement, employee paid benefits, hiring changes, fundraising and alumni support, passing on expenses to

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students) 114. What do you think about the flip flop in state and self-funding of public institutions? (Answer: Open ended) 115. What factors have contributed to the flip flop in state and self-funding of public institutions? (Answer: Open ended; state budget deficits, constitutional allowances to affect all areas of the budget outside health care and education)

Figure Information: The Decline in State Funding for Temple University The decrease in state funding as a percentage of total projected revenues at Temple University is shown. This trend is consistent across many public universities throughout the United States.

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of analyzing the marketing environment. In the next section of the marketing plan exercise, you will analyze the environment you will be entering upon graduation. Your assignment is to prepare a market summary for the job or graduate school program you discussed as your objective in Chapter 1. If your objective is a specific job or career, you need to answer questions like:     

What is the average salary? What are the companies that are best positioned to offer the kind of job you want? Are there jobs in this field located where you want to live? What is the total size and growth rate of the industry you are planning to enter? What is the current unemployment rate in that field, and what percentage of jobs are filled by new college graduates?

If your objective is graduate school, you need to answer questions like:    

What schools offer this program? What are those schools‘ admission statistics (percentage accepted, tuition and fees, financial aid available, etc.)? What are the average Grade Point Average (GPA) and entrance exam (LSAT, GMAT, MCAT, etc.) scores? What is the average starting salary for graduates of these programs?

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It is important to conduct an honest environmental assessment. Students sometimes have unrealistic expectations of what their first job out of school or a graduate program may be like. The better you understand the environment you are entering, the better you will be able to market yourself and your skills to succeed in it. Student Task: Write at least a two-paragraph marketing summary describing the environment you will face after graduation. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 116. With your current university or college in mind, develop a list of the direct and indirect competitors it will face in the next decade. (Answer: Open ended; direct competitors include those institutions within a similar region that are also public/private. Indirect competition includes institutions outside the state with similar programs and accreditation. Online educational programs serve as an extra layer of both direct and indirect competition depending on the types of programs offered.) 117. Assume you are going to open a new pizza restaurant in the town in which you live. What external factors will affect your business decisions? What types of technology would you use to market your pizza business and how would you use them? (Answer: Open ended; the economy, competition, local and state regulations in the food/restaurant industry, sociocultural considerations toward pizza as a preferential food item, and technology to service customers are all considerations. Social media to selected demographics, mobile marketing, e-mail marketing, and a CMS to store customer information and preferences should be marketing resources.) 118. Assume you work in marketing for Dr Pepper, and you are looking to expand the brand internationally. You narrow the international target market to three choices: Mexico, Australia, and India. Using the global environmental factors discussed in this chapter—currency fluctuations, income distribution, cultural fit, and technology—rank the countries based on which would provide the best opportunity for Dr Pepper‘s expansion. Explain your ranking for each country. (Answer: Open ended; first, based on the cultural preferences of product acceptance, mixture of 23 flavors in Dr Pepper, and advancement of the country, India would be a primary choice. Next would be Mexico for the geographical proximity to the United States, and last would be Australia for distribution considerations.) 119. Choose a firm that you are familiar with that is located in the same state as your university. Next, decide if the North American Free Trade Agreement (N AFTA) and the United States–Mexico–Canada Agreement (USM CA) has been good or bad for that 155

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business. Explain your answer. Has NAFTA and/or USMCA been good or bad for all of that firm‘s stakeholders (investors, employees, communities, etc.), or has it been good for some and bad for others? Explain your answers. (Answer: Open ended; Factors to consider are the U.S. trade deficit, inflation, trade among NAFTA and USMCA partners, U.S. manufacturing output, NAFTA and USMC A‘s overall financial impact to all involved, expectations of NAFTA and USMCA proponents, investors of affiliated companies, living standards of citizens in affected countries, and collective bargaining.) 120. Choose a nonprofit organization that you think markets itself effectively. Why did you pick that organization? What external factors do you think the organization should be most concerned about? (Answer: Open ended; Dress for Success markets its opportunities on social media for both consumers—those looking to donate resources of time, money and clothing, as well as consumers who could benefit from its programs and donations.) SOCIAL MEDIA APPLICATION Choose a charity that you support. It could be anything from Make-A-Wish to the United Way to your local faith-based institution. Analyze the charity‘s efforts to market itself through social media, using the following questions and activities as a guide: 121. What is the charity doing to market itself through social media? 122. What grade would you give the organization on its social media efforts and why? 123. Provide at least two recommendations for how the charity could improve its social media marketing activities. In addition, provide an example of a charity that you think is doing a great job marketing itself using social media and describe what they do. This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 3 that focuses on analyzing website traffic from international shoppers. 156

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ETHICAL CHALLENGE The economic environment has changed in the past decade due to stock market losses, rising health-care costs, and declining property values. As a result, many older adults were forced to look for new ways to generate income after their working careers ended. One of the primary beneficiaries of this shift was firms marketing reverse mortgages. Reverse mortgages allow older homeowners to tap into the equity of their home and receive payments against its value. Typically, when the homeowners die, their heirs must repay the loan, including interest and fees. These repayments often come from the heirs‘ sale of the home. For the past two decades, the vast majority of reverse mortgages have been offered under the federally insured Home Equity Conversion Mortgages program, which applies to people aged 62 and older. Market factors, including the rising number of seniors in the United States, have led to an increase in advertisements promoting the benefits of these programs. As traditional real estate sales struggled since the collapse of the housing market in 2007, reverse-mortgage loans have become more attractive to lenders. Like many other industries, the reverse-mortgage business contains two sides of an ethical dilemma. On one side are those marketers who are increasing profits by helping older people access the equity in their home. On the other are those who are potentially taking advantage of desperate seniors who may not fully understand what a reverse mortgage is. Use the ethical decision-making framework to answer the following questions: 124. Which parties are affected by reverse-mortgage marketing strategies? (Answer: Open ended; everyone is affected by this: consumers who buy into this program and cannot pay rising interest notes, investors of the programs and, from the government/real estate bailout, taxpayers will incur the long-term deficit these types of programs sanction.) 125. If you are a bank hoping to increase profits, would you try to expand your marketing of reverse mortgages to older adults? (Answer: Open ended; it depends on the strategy, goals, and ethical practices of decision makers in the organization.) 126. If you are a marketing manager at a bank that has made the strategic decision to grow its reverse-mortgage business, how would you go about promoting the product? (Answer: Open ended; Place magazine ads in AARP and other matching demographic magazines, run geo-targeted commercials on demographic-specific networks, and develop partnerships with banks in those same areas. Geo-targeted and demographic specific ads on social media could also be beneficial. With any advertising done, however, the campaign must be layered across multiple channels.) VIDEO CASE Have students go to Connect to access the video case featuring Task Rabbit that accompanies this chapter.

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CAREER TIPS To help students think about how to market their future, a young professional shares some career Career Tips

Erin Brewer, Managing Partner at RedPin Bowling Lounge and The Basement Modern Diner, shares some tips for securing a nonprofit position.   

Photo provided by Erin Brewer tips.

Gain experience Craft an effective résumé Put your intangibles to work

Review with students:  What items should be included on a résumé ?  Are cover letters necessary?  What should you include on your cover letter to stand out to a nonprofit hiring agent?  How can students gain experience while in school?

Chapter 3: The Global Environment

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-51 Differentiate between direct and indirect competition. LO 1-52 Summarize the major external factors that influence the marketing environment. LO 1-53 Extend the analysis of the marketing environment beyond the borders of the United States. LO 1-54 Identify the major trade agreements, monetary unions, and organizations that affect the international marketing environment. LO 1-55 Describe the emerging factors that influence the nonprofit marketing environment. KEY TERMS Baby Boomers consumer confidence 158

consumer ethnocentrism currency exchange rate

demographics direct competition

Instructor‘s Manual - Chapter 1 disposable income Dominican Republic– Central America Free Trade Agreement (DR-CAFTA) environmental scanning European Union (EU) Federal Trade Commission (FTC)

gross domestic product (GDP) indirect competition inflation International Monetary Fund (IMF) marketing environment Millennials North American Free Trade

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Agreement (NAFTA) purchasing power recession sociocultural substitute products tariffs World Trade Organization (WTO)

THOUGHT-PROVOKING ACTIVITY Set 1: Tell me about environmental scanning. Choose a company and apply.

Set 2: What is nonprofit marketing? How is it different than traditional marketing (review the four major areas)?

LO3-1: Differentiate between direct and indirect competition. Competitive Environment  The marketing environment refers to the outside factors that might affect a company‘s ability to meet its marketing goals 159

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Those forces include political, economic, demographic, sociocultural, technological, and legal factors  Marketers must understand the marketing environment, including both the competition and the domestic and international factors that affect the company  The competitive environment includes both direct and indirect competitors seeking to acquire market share Direct Competition  The most obvious form of competition is direct competition (also called category competition or brand competition), in which products that perform the same function compete against one another  Substitute products are goods and services that perform very similar functions and can be used in place of one another Indirect Competition  Indirect competition occurs when products provide alternative solutions to the same market THINK LIKE A MARKETER If you know your competition, how does this provide a strategic advantage? HINT: Consider your marketing mix. (Answer: Open ended)

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THINK LIKE A MARKETER Can you take advantage of opportunities without doing a S WOT analysis or environmental scanning? (Answer: Open ended)

THINK LIKE A MARKETER Considering whether to change your product, or any part of your marketing mix, is an important decision. What would influence your decision? (Answer: Open ended) LO3-2: Summarize the major external factors that influence the marketing environment. External Marketing Environment  Environmental scanning involves monitoring developments outside the firm‘s control  The goal is to detect and respond to threats and opportunities that might affect the firm  There are six major external factors that influence the firm‘s marketing environment— economic, demographic, sociocultural, political, legal, and technological Figure 3.1 The External Factors Affecting the Marketing Environment INSIGHT QUESTIONS How do each of these factors affect the marketing decisions in a firm? (Answer: Open ended; the product, price, place, and promotion are all affected) Which factors have the greatest domestic impact, and which factors have the greatest international impact? (Answer: Open ended; domestic—economic, technological, legal, political and international— sociocultural, technological, legal, and demographic) How are these factors connected to each other? (Answer: Open ended; address each factor dependently and independently, e.g., the sociocultural changes in a geographic region may affect the political nature and stance of its population, local businesses, and decision making) Economic Factors  Economic factors influence almost every marketing decision a firm makes  Economic conditions impact consumers‘ willingness and ability to buy products  Firms must create, communicate, and deliver value in a way that‘s appropriate for the current economic climate 161

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Four economic elements influence marketers: gross domestic product (GDP), income distribution, inflation, and consumer confidence

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Gross Domestic Product  Gross domestic product (GDP) refers to the market value of all officially recognized final goods and services produced within a country in a given period  A country‘s GDP is a function of both the quantity of goods and services produced and their market values  GDP measures the overall size and health of an economy  The United States has the largest gross domestic product in the world for a single country, with almost $21 trillion in 2020  In recent years, China, India, and other developing nations have seen the highest GDP growth rates  GDP per capita is often considered an indicator of a country‘s standard of living and it is calculated by dividing a country‘s overall GDP by its population  Overall GDP is the most common gauge of the overall expansion or contraction of an economy  A recession occurs when overall GDP declines for two or more consecutive quarters  Recessions can have a powerful negative effect on marketing because of layoffs, increased unemployment, and reduced consumer confidence Income Distribution  Distribution of income across the U.S. population has shifted over the past several decades, forcing marketers to develop new strategies to satisfy consumers at different ends of the spectrum  Shifting income distribution offers marketers new opportunities to satisfy consumer needs and wants at various income levels Figure 3.2 Change in Average U.S. Household Income INSIGHT QUESTIONS What factors are attributed to the increase in the mean household income over the years? (Answer: Open ended; number of income earners in the household, number of adults and children in the household, earning increases over time) What does a shift in income mean for consumers? For the economy? For organizations? (Answer: Open ended; purchasing power and consumer confidence is affected, organizations must compete for consumerism, and corporate social responsibility is affected) What other factors are affected when household income increases or decreases? (Answer: Open ended; competition between organizations, education level of the population, and consumer preferences can shift) Inflation  Inflation is an increase in the general level of prices of products in an economy over a period of time

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When the general price level rises, each unit of currency (e.g., each U.S. dollar) buys fewer goods and services

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Consequently, inflation also reflects erosion in the purchasing power of money Purchasing power is the amount of goods and services that can be purchased for a specific amount of money  Inflation can affect marketing significantly if prices rise faster than consumer incomes Consumer Confidence  Consumer spending accounts for more than two-thirds of U.S. economic activity  The amount consumers are willing and able to spend is often based on their confidence in the stability of their future income  Consumer confidence measures how optimistic consumers are about the overall state of the economy and their own personal finances  Consumers purchase more when consumer confidence is high  Marketers who can find strategic ways to help consumers feel confident about their purchases can improve performance during challenging times  Marketers cannot dictate the state of the economic environment; instead, they must develop marketing strategies to position their firm for success, regardless of economic factors Figure 3.3 Relationship between Consumer Confidence and Real Consumer Spending INSIGHT QUESTIONS Why do you suspect consumer confidence and true consumer spending trend together, though an exact correlation is not made? (Answer: Open ended; the more confident a consumer feels the more they spend versus saving or investing) In products and services that you purchase, what factors do you evaluate as criteria in deciding to make a purchase? (Answer: Open ended; quality, value, cost, amount of effort or time needed to go through the purchasing process, ease of doing business, customer support during and after a purchase, competition, and need for the product or service) Demographic Factors  Economic factors provide a macro framework for understanding consumer purchase patterns  Demographics are the characteristics of human populations that can be used to identify consumer markets, which include things such as age, gender, ethnicity, and education level, all of which influence the products consumers buy Age  Age plays an important role in how consumers process information  This in turn affects what marketing strategy firms should use to reach them  Baby Boomers—the generation of children born between 1946 and 1964  Members of this generation typically possess two things that marketing professionals seek: disposable income and free time 165

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Disposable income is the amount of spending money available to households after paying taxes Baby Boomers represent the wealthiest generation in U.S. history; when they retire, they have free time to spend some of their wealth Rapidly retiring Baby Boomers make up only a quarter of the U.S. population but account for 50 percent of all domestic consumer spending Millennials are the generation of children born between 1981 and the late twentieth century Also known as Generation Y, Millennials comprise over 75 million members in the United States Millennials generally have the greatest familiarity with and most use for digital communication, social media, and other forms of technology Marketers trying to reach this large consumer group increasingly deliver their messages using channels, like the Internet, that are most likely to be used by this market

THINK LIKE A MARKETER How are firms making changes to encourage older Americans to shop at their store? (Answer: Open ended) THINK LIKE A MARKETER What trends do you see with the population aged 65+? (Answer: Open ended) THINK LIKE A MARKETER How important are nondigital experiences in today‘s digital age? (Answer: Open ended)

Figure 3.4 Projected Number of Children and Older Adults INSIGHT QUESTIONS Why do you think the average age of the U.S. population is increasing? (Answer: Open ended; the increase is likely correlated to technology and advancements in healthcare) Why do marketers need to pay attention to the increased average age of the U.S. population? (Answer: Open ended; the way we consume and process information changes with age, and therefore the strategy we use to reach these audiences should reflect this)

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CONNECT BACK: Reference Connect Assignment 3-1 What social media platforms do you think are the most effective? What factors do you consider in your response? (Answer: Open ended; Facebook for news stories and longer news-related information; Instagram for visual appeal or information; LinkedIn for professional networking and business referrals) List the advantages and disadvantages of using each social media platform. Be sure to include Facebook, Twitter, LinkedIn, Pinterest, and Instagram, and any others you feel are necessary. (Answer: Open ended; Facebook is a well-rounded platform because of the demographic of its users; LinkedIn has professional profiles and resume-like qualities though is limited in socialization, etc.) Should all companies, large and small, employ social media tools to assist in their marketing efforts? (Answer: Open ended; Yes, because consumers expect firms to be on social media channels, and it is a resource for information today) Consider adding on a marketing plan to attract users to your social media platforms, in addition to establishing the tools for your organization itself. (Answer: Open ended; posting at certain times of the day to align with higher activity of likeusers, and with content that is equally appealing) How would you explain the strategy of each social media platform if, for example, you were a firm‘s marketing manager educating your firm on initiating social media for the first time? (Answer: Open ended; begin with the purpose and specific requirements for each platform, including value-added, and interactively-charged posts) Gender  One of the most important changes in the United States in recent decades has been the roles, attitudes, and buying habits of people in the marketplace  Female consumers now account for 85 percent of all consumer purchase decisions in the United States, including everything from cars to groceries to health care  Their control over the majority of consumer spending makes women a target market across products Education  Historically, highly educated consumers are more likely to be employed than are those with less education  The United States has been pushing over the past decade to lead the world in college graduation rates 167

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Educated consumers are likely to earn significantly more money throughout the course of their lifetimes and also may more readily comprehend an advertiser‘s message These factors make highly educated consumers prime targets for marketing strategies

THINK LIKE A MARKETER If you worked in marketing for a univeristy, would you be ethically challenegd to taregt consumers with high tuition rates despite the recent trends? (Answer: Open ended)

Figure 3.5 U.S. Unemployment Rate by Educational Attainment INSIGHT QUESTIONS What significant influences in the United States have impacted the unemployment rate since 2008? (Answer: The most recent recession; Open ended)

Does looking at this graph personally motivate you to continue your education? (Answer: Open ended; consider the earning potential over time and rising cost of education) Ethnicity  The ethnic composition of the U.S. population is changing rapidly  Projections indicate that by 2050 the Hispanic population in the United States will almost double to more than 127 million, representing over 30 percent of the entire U.S. population  The African American population in the United States grew at rate that outpaced the 12 percent population growth for the country as a whole  Asian Americans now represent the highest income, best educated, and fastest growing racial group in the United States, thereby increasing their purchasing power and importance to marketers  The United States is moving rapidly toward greater multiculturalism  Ethnic minorities‘ purchasing power was $3.8 trillion in 2018 and expected to grow significantly over the next decade  Marketers already have taken basic steps to reach out to different ethnic groups; advertising in multiple languages is one such step Figure 3.6 Changing Ethnic Breakdown in the U.S. INSIGHT QUESTIONS What affect does the rapidly changing ethnic composition have on consumer spending? (Answer: Ethnic minorities‘ purchasing power was $3.8 trillion in 2018 and it is expected to 168

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grow significantly over the next decade.) How do the changes in the U.S. population affect the marketing mix? (Answer: Open ended; knowing the intricacies of each market will be more important as it grows more diverse. Marketers will need to know how this affects consumer interests in the types of products they develop, the price they sell them at, where and how consumers can reach them, and how organizations will strategically plan to accommodate or innovate based on these criteria.) Sociocultural Factors  Society and culture help shape our beliefs, values, and norms, which, in turn, define our tastes and purchasing habits  Sociocultural factors are the combination of social and cultural factors that affect individual development  One of the biggest sociocultural changes in the United States over the past half century has been the shift from a nation of primarily one-income families, in which one spouse stayed home to raise children  Today, two-income families and single-parent households predominate

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The new sociocultural reality of busy families has created opportunities for firms to offer new kinds of value Other sociocultural changes are taking place in the United States—an increasing number of single adults, rising concerns about protecting consumer privacy, and the growth in environmentally conscious consumers Such changes provide firms with many reasons to market products in new and better ways Cultural differences can also influence how consumers respond to advertisements and other marketing messages

THINK LIKE A MARKETER Why must we be conscious of sociocultural factors in marketing? (Answer: Open ended) Political Factors  The political climate in the United States can change the direction of government policy quickly; such change also can affect how marketers position their products  Firms need not be completely passive when it comes to the political decisions that affect their businesses  It‘s becoming increasingly possible for firms to affect politics THINK LIKE A MARKETER What is an example of a political impact influenced by a firm? (Answer: Open ended) Legal Factors  Marketing professionals need to know and work within the laws that affect marketing  Federal, state, and local governments enact regulations for two main purposes:  (1) To ensure businesses compete fairly with each other  The Sherman Antitrust Act (1890) was passed to eliminate monopolies and guarantee competition  The Robinson–Patman Act (1936) refined prohibitions on selling the same product at different prices  The Wheeler–Lea Act (1938) made deceptive and misleading advertising illegal  The Federal Trade Commission (FTC) collects complaints about organizations that violate regulations; those complaints lead to investigations and possible prosecutions  (2) To ensure businesses don’t take advantage of consumers  The Fair Packaging and Labeling Act (1966) guarantees that product packages are labeled correctly 170

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The Telephone Consumer Protection Act of 1991 has reduced the use of telemarketing, or selling products directly to consumers over the telephone The act allows consumers to limit the number of telemarketing calls they receive and opt out of being called by some companies Banks and other financial institutions were required to change how they dealt with consumers following passage of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009

Technology Factors  Technology influences how consumers satisfy their needs and wants, the basic concept underlying all marketing activities  Technology also changes how firms promote their products U.S. Laws That Affect Marketers Legislation Sherman Antitrust Act (1890) -

Eliminate monopolies and guarantee competition.

Robinson-Patman Act (1936) -

Refined prohibitions on selling the same product at different prices

Wheeler-Lea Amendment (1938) -

Made deceptive and misleading advertising illegal.

Fair Packaging and Labeling Act (1966) -

Guarantees that product packages are labeled correctly.

Telephone Consumer Protection Act (1991) -

Reduced use of telemarketing, limits the amount you receive and opting out. Credit Card Accountability, Responsibility, 171

Importance to Marketing Combats anticompetitive practices, reduces market domination by individual corporation, and preserves unfettered competition as the rule of trade. Prohibits firms from selling the same product at different prices in interstate commerce unless based on a cost difference or if the goods are not of similar quantity. Authorizes the Federal Trade Commission to restrict unfair or deceptive acts; also called the Advertising Act. Broadened the Federal Trade Commission‘s powers to include protection of consumers from false advertising practices. Applies to labels on many consumer products. It requires the label to state the identity of the product; the name and place of business of the manufacturer, packer, or distributor; and the net quality of contents. Limits commercial solicitation calls to between 8 a.m. and 9 p.m., and forces telemarketers to maintain a do-not-call list and honor any request to not be called again. Protects consumer rights and abolishes

Instructor‘s Manual - Chapter 1 Legislation and Disclosure Act (2009) -

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Importance to Marketing deceptive lending practices.

Banned unfair rate increases, and required disclosures about minimum payments and interest rates.

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Table 3.1 U.S. Laws That Affect Marketers INSIGHT QUESTIONS What laws were you previously familiar with? (Answer: Open ended) How do these laws impact a firm‘s marketing initiatives? (Answer: Open ended; knowing which laws directly and indirectly affect an organization, its products and services is necessary) CONNECT BACK: Reference Connect Assignment 3-2 Which external factors influence a firm? (Answer: Sociocultural, political, legal, sociocultural, technology, and demographic factors all influence a firm at varying degrees) How should the marketing mix be adjusted from these external factors? (Answer: Open ended; a firm‘s marketing mix should change depending on changes due to external influences; constantly monitoring these factors influences how rapid changes should be made) LO3-3: Extend the analysis of the marketing environment beyond the borders of the United States. International Marketing Environment  Recent estimates put the world‘s population at almost 8 billion people  Experts predict that it will grow to almost 10 billion people by the year 2050  The process of environmental scanning must take into account the international marketing environment as well Currency Fluctuation  Currency fluctuation refers to how the value of one country‘s currency changes in relation to the value of other currencies  Currency fluctuation can affect either positively or negatively how firms market products internationally  The currency exchange rate is the price of one country‘s currency in terms of another country‘s currency  The world‘s largest country in terms of population, China, has been criticized for undervaluing its currency, that is, pricing the yuan lower than it is actually worth  Whether a currency is appreciating or depreciating, currency fluctuations can provide marketing opportunities  It‘s important for marketers working in the international environment to understand the effect of currency fluctuations on product value Income Distribution 173

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A country‘s income distribution often provides the most reliable picture of its purchasing power Marketers are particularly attracted to countries with a growing middle class because a nation‘s purchasing capability tends to increase as the proportion of middle-income households increases

Figure 3.7 Projected Changes in Global Middle-Class Consumption INSIGHT QUESTIONS In which developing countries do you see the greatest changes in middle class consumption over the next 35 years? (Answer: European Union and India) How will the global economic environment affect business in international markets? (Answer: Open ended; trade agreements may be altered depending on need, shortage or a surplus of a product or service may dictate negotiations, globalization can generate or cause declines in input and output of resources)

Marketing Analytics INSIGHT QUESTIONS How would your marketing mix change if you were able to quickly see what countries visitors to your website are from, how many pages they visit, and how long they stayed on the site? (Answer: Open ended; more emphasis or changes to an element in the marketing mix may be needed, and the messaging to those specific audiences should be considered) How much time should be dedicated to monitoring these efforts? (Answer: Open ended; depending on the size of the organization, the website should be monitored daily) LO3-4: Identify the major trade agreements, monetary unions, and organizations that affect the global marketing environment. Major Trade Agreement and Organizations  Marketing professionals must possess a working knowledge of the major trade agreements and organizations that could govern their firm‘s interaction with those markets  International trade agreements, monetary unions, and organizations can have substantial impact on the environment in which a firm operates  Trade agreements and monetary unions facilitate the exchange of money and products across borders  International organizations provide regulatory oversight to economic activity North American Free Trade Agreement 174

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The most familiar U.S. trade agreement is the North American Free Trade Agreement (NAFTA)  The North American Free Trade Agreement (NAFTA) established a free-trade zone among the United States, Canada, and Mexico. Its goal was to eliminate barriers to trade and investment among the three countries  In 2018, the three countries reached a new deal to replace NAFTA which will be known as the United States–Mexico–Canada Agreement (USMCA) Dominican Republic-Central America Free Trade Agreement  A decade after NAFT A was implemented, the United States entered discussions about a new agreement with the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua  This agreement was called the Central America Free Trade Agreement (CA FTA)  In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed Dominican Republic–Central America Free Trade Agreement  The Dominican Republic–Central America Free Trade Agreement (DR-CAFTA) focuses on eliminating tariffs, reducing nontariff barriers, and facilitating investment among the member states European Union  The European Union (EU) is an economic, political, and monetary union of 27 European nations as of 2022  It was formed to create a single European market by reducing barriers to the free trade of goods, services, and finances among member countries  In 2021, the EU generated approximately 15 percent of the global gross domestic product, making it one of the largest economies in the world  In 2016, the United Kingdom voted to leave the European Union, which set the stage for years of negotiations between the UK and the other 27 EU nations  The decision was made that Great Britain would leave the EU in 2019, which will continue to impact marketers across the globe in the years ahead World Trade Organization  The World Trade Organization was officially formed on January 1, 1995, under the Marrakech Agreement  The World Trade Organization (WTO) regulates trade among participating countries and helps importers and exporters conduct their business  It is the only international organization dealing with the rules of trade between nations International Monetary Fund  Soon after the end of World War II, 29 countries signed an agreement to form the International Monetary Fund  Headquartered in Washington, D.C., the International Monetary Fund (IMF) ―works to foster international monetary cooperation, secure financial stability, facilitate international 175

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trade, promote high employment and sustainable economic growth, and reduce poverty around the world‖ One of the IMF‘s important activities is to make resources available to member countries to help them manage their debts

Figure 3.8 Top 15 Buyers of U.S. Exports INSIGHT QUESTIONS What countries lead in dollar volume of exports from the United States? (Answer: Canada and Mexico) Why do Canada and Mexico lead in dollar volume of exports from the United States? (Answer: NAFTA has made exchange among the three countries so easy)

CONNECT BACK: Reference Connect Assignment 3-3 Why must international trade agreements be in place? (Answer: To foster economic growth between countries) How will these trade agreements evolve as more organizations are welcoming a global presence? (Answer: Open ended; tariffs may be reduced, intelligences and technology can be positively affected, and organizations can become more competitive) Technology  Technology enables even small businesses to reach consumers around the globe.  Websites act as a front door to billions of potential consumers  Social media help companies develop relationships with customers anywhere, for very little cost  Tools such as Google Translate allow customers to view websites in their own language, making it easier to promote products in different countries  Global shipping firms like FedEx and UPS enable small manufacturers to ship their products to customers around the world  Understanding how technology affects the international marketing environment benefits marketers as they attempt to meet the needs and wants of consumers in global markets Cultural Fit  One of the biggest mistakes domestic firms make when they attempt to take their business global is to believe that what works ―at home‖ will work abroad  Consumer ethnocentrism refers to a belief by residents of a country that it is inappropriate or immoral to purchase foreign-made goods and services 176

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Analyzing cultural fit and overcoming consumer ethnocentrism are essential aspects of environmental scanning on a global scale that help firms create value for international consumers

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CONNECT BACK: Reference Connect Assignment 3-4 How can a firm ensure they are a good cultural fit for a country they are doing business with? (Answer: Open ended; looking for alignment in cultural values is critical, and a firm‘s efforts toward this are imperative) How much should a firm be willing to change to become a good cultural fit if it does not presently exist? (Answer: Open ended; minimally because the long-term effects of not fitting can detriment an organization) TODAY’S PROFESSIONAL NOTES Obinna Okechukwu, Senior Product Consultant, Docusign How early should you start your job search? What opportunities can you capitalize on now to learn and grow? What learning opportunities can you foresee in your future based on your professional goals? LO3-5: Describe the emerging factors that influence the nonprofit marketing environment. Marketing Insights Podcast Marketing Analytics INSIGHT QUESTIONS What is the role of marketing in the three sources of funding for nonprofits? (Answer: Open ended; grants, special events, and individual donations can increase in value if marketing is used to promote these initiatives; tracking he firm‘s best sources of information is critical to understanding where time, money, and effort is best spent; marketers must make the garnered support tangible) How much time should be dedicated to monitoring these marketing efforts? (Answer: Open ended; depending on the size of the organization, the website and social media platforms should be monitored daily; when there is an upcoming event or initiative, these efforts become a major focus) Nonprofit Marketing Environment  Environmental scanning for a nonprofit organization presents challenges that for profit businesses do not face  Those who donate money to a nonprofit do not walk away with a tangible product or benefit directly from any service 178

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Nonprofit marketers must convince donors to support the mission of the organization without receiving any direct benefit The competitive environment for nonprofit funding has increased dramatically in recent years In 1995, there were only 600,000 nonprofits in the United States Today, that number is over 1.8 million and growing rapidly

Figure 3.9 Total Giving to Nonprofit Organizations in the U.S. INSIGHT QUESTIONS What external factors affect nonprofit marketing? (Answer: Economic, political, legal, and technology— many of the same factors that affect for profit organizations) How has the number of nonprofit organizations changed in the last 18 years? (Answer: In 1995, there were only 600,000 nonprofits in the United States. Today, that number is over 1.8 million and growing rapidly— a 300 percent increase.) Economic Factors  During the recession that began in December of 2007, Americans reduced their overall charitable giving by over 20 percent from levels prior to the recession  The decline was far sharper than in previous economic recessions  One strategy nonprofit marketers are using to combat that change is to develop new ways to recognize existing donors for their contributions Political Factors  The recession led to political pressure to reduce federal, state, and municipal budgets  This, in turn, has forced many nonprofit organizations to fund basic programs in innovative ways  Public universities, which receive a substantial portion of their funding from their respective state legislatures, have been hit especially hard Legal Factors  The benefit that nonprofit marketers offer to potential donors typically includes some combination of information about how the donation will be used, how the donor will be recognized, and the tax incentives (e.g., the tax deductibility of charitable gifts) that will accompany the donation  Legal changes to the tax-incentive element can alter the way marketing professionals communicate the organization‘s value to potential donors Technology Factors  Many nonprofit organizations utilize new technology to increase awareness and enhance relationships with donors  The rise of social media has changed the nonprofit landscape in important ways

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When it comes to organizing activists, conducting charity campaigns, or simply influencing communities and stakeholders, social media offer nonprofit organizations substantial advantages

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Figure 3.10 The Decline in State Funding for Temple University INSIGHT QUESTIONS How have public universities adjusted and accommodated to the changes in state funding assistance? (Answer: Increased tuition, layoffs, early retirement, employee paid benefits, hiring changes, fundraising and alumni support, and passing on expenses to students) What do you think about the flip flop in state and self-funding of public institutions? (Answer: Open ended) What factors have contributed to the flip flop in state and self-funding of public institutions? (Answer: Open ended; state budget deficits, constitutional allowances to affect all areas of the budget outside healthcare and education) MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of analyzing the marketing environment. In the next section of the marketing plan exercise, you will analyze the environment you will be entering upon graduation. Your assignment is to prepare a market summary for the job or graduate school program you discussed as your objective in Chapter 1. If your objective is a specific job or career, you need to answer questions like:     

What schools offer this program? What are those schools‘ admission statistics (percentage accepted, tuition and fees, financial aid available, etc.)?  What are the average Grade Point Average (GPA) and entrance exam (LSAT, GMAT, MCAT, etc.) scores?  What is the average starting salary for graduates of these programs? It is important to conduct an honest environmental assessment. Students sometimes have unrealistic expectations of what their first job out of school or a graduate program may be like. The better you understand the environment you are entering, the better you will be able to market yourself and your skills to succeed in it. Student Task: Write at least a two-paragraph marketing summary describing the environment you will face after graduation. 181

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Instruct students to insert their responses to the above in Chapter 3’s section of the Personal Marketing Plan. Chapter 3

MARKET SUMMARY

Chapter 3: The Global Environment

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-56 Differentiate between direct and indirect competition. LO 1-57 Summarize the major external factors that influence the marketing environment. LO 1-58 Extend the analysis of the marketing environment beyond the borders of the United States. LO 1-59 Identify the major trade agreements, monetary unions, and organizations that affect the international marketing environment. LO 1-60 Describe the emerging factors that influence the nonprofit marketing environment. KEY TERMS Baby Boomers consumer confidence consumer ethnocentrism currency exchange rate demographics direct competition disposable income 182

Dominican Republic– Central America Free Trade Agreement (DR-CAFTA) environmental scanning European Union (EU) Federal Trade Commission (FTC)

gross domestic product (GDP) indirect competition inflation International Monetary Fund (IMF) marketing environment Millennials

Instructor‘s Manual - Chapter 1 North American Free Trade Agreement (NAFTA) purchasing power

recession sociocultural substitute products tariffs

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World Trade Organization (WTO)

THOUGHT-PROVOKING ACTIVITY Set 1: Tell me about environmental scanning. Choose a company and apply.

Set 2: What is nonprofit marketing? How is it different than traditional marketing (review the four major areas)?

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The most obvious form of competition is _ (also called category competition or _ ), in which products that perform the same function compete against one another.  _ are goods and services that perform very similar functions and can be used in place of one another. Indirect Competition  _ occurs when products provide alternative solutions to the same market.

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THINK LIKE A MARKETER If you know your competition, how does this provide a strategic advantage? HINT: Consider your marketing mix.

THINK LIKE A MARKETER Can you take advantage of opportunities without doing a S WOT analysis or environmental scanning?

THINK LIKE A MARKETER Considering whether to change your product or any part of your marketing mix is an important decision. What would influence your decision?

LO3-2: Summarize the major external factors that influence the marketing environment. External Marketing Environment  _ involves monitoring developments outside the firm‘s control.  The goal is to detect and respond to threats and opportunities that might affect the firm.  There are six major external factors that influence the firm‘s marketing environment— economic, _ , sociocultural, political, _ , and technological. Figure 3.1 The External Factors Affecting the Marketing Environment INSIGHT QUESTIONS How do each of these factors affect the marketing decisions in a firm?

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Which factors have the greatest domestic impact, and which factors have the greatest international impact?

How are these factors connected to each other?

Economic Factors  _ influence almost every marketing decision a firm makes  Economic conditions impact consumers‘ _ and _ to buy products  Firms must create, _ , and deliver value in a way that‘s appropriate for the current economic climate  Four economic elements influence marketers: gross domestic product (GDP), _ , inflation, and _ Gross Domestic Product  _ (GDP) refers to the market value of all officially recognized final goods and services produced within a country in a given period  A country‘s GDP is a function of both the _ of goods and services produced and their market _  GDP measures the overall size and _  The United States has the largest gross domestic product in the world for a single country, with almost $_ trillion in 2020  In recent years, China, India, and other developing nations have seen the _ GDP growth rates  _ is often considered an indicator of a country‘s standard of living, and it is calculated by dividing a country‘s overall GDP by its population  _ is the most common gauge of the overall expansion or contraction of an economy  A_ occurs when overall GDP declines for two or more consecutive quarters  Recessions can have a powerful negative effect on marketing because of layoffs, increased unemployment, and _ Income Distribution 186 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Distribution of income across the U.S. population has shifted over the past several decades, forcing marketers to develop new strategies to satisfy consumers at different ends of the spectrum Shifting income distribution offers marketers new opportunities to satisfy consumer needs and wants at various income levels

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Figure 3.2 Change in Average U.S. Household Income INSIGHT QUESTIONS What factors are attributed to the increase in the mean household income over the years?

What does a shift in income mean for consumers? For the economy? For organizations?

What other factors are affected when household income increases or decreases?

Inflation  _ is an increase in the general level of prices of products in an economy over a period of time  When the general price level rises, each unit of currency (e.g., each U.S. dollar) buys fewer goods and services  Consequently, inflation also reflects _ in the purchasing power of money  _ is the amount of goods and services that can be purchased for a specific amount of money  Inflation can affect marketing significantly if prices rise faster than consumer incomes Consumer Confidence  Consumer spending accounts for more than _ of U.S. economic activity  The amount consumers are willing and able to spend is often based on their confidence in the stability of their future income  _ measures how optimistic consumers are about the overall state of the economy and their own personal finances  Consumers purchase more when consumer confidence is _  Marketers who can find strategic ways to help consumers feel confident about their purchases can improve performance during challenging times  Marketers cannot dictate the state of the economic environment; instead, they must develop marketing strategies to position their firm for success, regardless of _ 188 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Figure 3.3 Relationship between Consumer Confidence and Real Consumer Spending INSIGHT QUESTIONS Why do you suspect consumer confidence and true consumer spending trend together, though an exact correlation is not made?

In products and services that you purchase, what factors do you evaluate as criteria in deciding to make a purchase?

Demographic Factors  Economic factors provide a macro framework for understanding consumer purchase patterns.  _ are the characteristics of human populations that can be used to identify consumer markets, which include things such as age, gender, ethnicity, and education level, all of which influence the products consumers buy Age  _ plays an important role in how consumers process information  This in turn affects what marketing strategy firms should use to reach them  _ —the generation of children born between 1946 and 1964  Members of this generation typically possess two things that marketing professionals seek: disposable income and free time  _ is the amount of spending money available to households after paying taxes  Baby Boomers represent the wealthiest generation in U.S. history; when they retire, they have free time to spend some of their wealth  Rapidly retiring Baby Boomers make up only a quarter of the U.S. population but account for 50 percent of all domestic consumer spending  _ are the generation of children born between 1981 and the late twentieth century  Also known as _ , Millennials comprise over 75 million members in the United States  Millennials generally have the greatest familiarity with and most use for digital communication, social media, and other forms of technology  Marketers trying to reach this large consumer group increasingly deliver their messages using channels, like the Internet, that are most likely to be used by this market 190 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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THINK LIKE A MARKETER How are firms making changes to encourage older Americans to shop at their store?

THINK LIKE A MARKETER What trends do you see with the population aged 65+?

THINK LIKE A MARKETER How important are nondigital experiences in today‘s digital age?

Figure 3.4 Projected Number of Children and Older Adults INSIGHT QUESTIONS Why do you think the average age of the U.S. population is increasing?

Why do marketers need to pay attention to the increased average age of the U.S. population?

CONNECT BACK: Reference Connect Assignment 3-1 What social media platforms do you think are the most effective? What factors do you consider in your response?

List the advantages and disadvantages of using each social media platform. Be sure to include 191 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Facebook, Twitter, LinkedIn, Pinterest, Instagram, and others you feel are necessary.

Should all companies, large and small, employ social media tools to assist in their marketing efforts?

Consider adding on a marketing plan to attract users to your social media platforms, in addition to establishing the tools for your organization itself.

How would you explain the strategy of each social media platform if, for example, you were a firm‘s marketing manager educating your firm on initiating social media for the first time?

Gender  One of the most important changes in the United States in recent decades has been the roles, attitudes, and _ of people in the marketplace  _ consumers now account for 85 percent of all consumer purchase decisions in the United States, including everything from cars to groceries to health care  Their control over the majority of consumer spending makes women a target market across products Education  Historically, _ consumers are more likely to be employed than are those with less education  The United States has been pushing over the past decade to lead the world in college graduation rates  Educated consumers are likely to earn significantly more money throughout the course of their lifetimes and also may more readily comprehend _  These factors make highly educated consumers prime targets for marketing strategies THINK LIKE A MARKETER If you worked in marketing for a univeristy, would you be ethically challenegd to taregt 192 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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consumers with high tuition rates despite the recent trends?

Figure 3.5 U.S. Unemployment Rate by Educational Attainment INSIGHT QUESTIONS What significant influences in the United States have impacted the unemployment rate since 2008?

Does looking at this graph personally motivate you to continue your education?

Ethnicity  The ethnic composition of the U.S. population is changing rapidly  Projections indicate that by 2050, the Hispanic population in the United States will almost double to more than _ million, representing over 30 percent of the entire U.S. population  The African American population in the United States grew at rate that outpaced the _ percent population growth for the country as a whole  Asian Americans now represent the highest-income, best-educated, and fastest-growing racial group in the United States, thereby increasing their _ and importance to marketers  The United States is moving rapidly toward greater multiculturalism  Ethnic minorities‘ purchasing power was $3.8 trillion in 2018 and expected to grow significantly over the next decade  Marketers already have taken basic steps to reach out to different ethnic groups; advertising in multiple languages is one such step Figure 3.6 Changing Ethnic Breakdown in the U.S. INSIGHT QUESTIONS What affect does the rapidly changing ethnic composition have on consumer spending?

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How do the changes in the U.S. population affect the marketing mix?

Sociocultural Factors  Society and _ help shape our beliefs, values, and norms, which, in turn, define our tastes and purchasing habits  _ factors are the combination of social and cultural factors that affect individual development  One of the biggest sociocultural changes in the United States over the past half century has been the shift from a nation of primarily _ , in which one spouse stayed home to raise children

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Today, two-income families and single-parent households predominate The new sociocultural reality of busy families has created opportunities for firms to offer new kinds of value Other sociocultural changes are taking place in the United States—an increasing number of single adults, rising concerns about _ , and the growth in environmentally conscious consumers Such changes provide firms with many reasons to market products in new and better ways Cultural differences can also influence how consumers respond to advertisements and other marketing messages

THINK LIKE A MARKETER Why must we be conscious of sociocultural factors in marketing?

Political Factors  The political climate in the United States can change the direction of government policy quickly; such change also can affect how marketers position their products.  Firms need not be completely passive when it comes to the political decisions that affect their businesses.  It‘s becoming increasingly possible for firms to affect _ THINK LIKE A MARKETER What is an example of a political impact influenced by a firm?

Legal Factors  Marketing professionals need to know and work within the laws that affect marketing  Federal, state, and local governments enact regulations for two main purposes:  (1) To ensure businesses compete fairly with each other:  The _ (1890) was passed to eliminate monopolies and guarantee competition  The Robinson–Patman Act (1936) refined prohibitions on selling the same product at different prices  The _ (1938) made deceptive and misleading advertising illegal  The Federal Trade Commission (FTC) collects complaints about organizations that violate regulations; those complaints lead to investigations and possible prosecutions 195 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(2) To ensure businesses don’t take advantage of consumers: _ (1966) guarantees that product packages are labeled correctly  The Telephone Consumer Protection Act of 1991 has reduced the use of telemarketing, or selling products directly to consumers over the telephone  The act allows consumers to limit the number of telemarketing calls they receive and opt out of being called by some companies  Banks and other financial institutions were required to change how they dealt with consumers following passage of the Credit Card Accountability, _ , and Disclosure (CARD) Act of 2009 Technology Factors  _ influences how consumers satisfy their needs and wants, the basic concept underlying all marketing activities  Technology also changes how firms promote their products U.S. Laws That Affect Marketers Legislation _ -

(1890)

Eliminate monopolies and guarantee competition.

Robinson-Patman Act (1936) -

Refined prohibitions on selling the same product at different prices

Wheeler-Lea Amendment (1938) -

Made deceptive and misleading advertising illegal

(1966) -

Guarantees that product packages are labeled correctly

Telephone Consumer Protection Act (1991) -

Reduced use of telemarketing, limits the amount you receive and opting out

Importance to Marketing Combats anticompetitive practices, reduces market domination by individual corporation, and preserves unfettered competition as the rule of trade. Prohibits firms from selling the same product at different prices in interstate commerce unless based on a cost difference or if the goods are not of similar quantity Authorizes the Federal Trade Commission to restrict unfair or deceptive acts; also called the Advertising Act. Broadened the Federal Trade Commission‘s powers to include protection of consumers from false advertising practices. Applies to labels on many consumer products. It requires the label to state the identity of the product; the name and place of business of the manufacturer, packer, or distributor; and the net quality of contents. Limits commercial solicitation calls to between 8 a.m. and 9 p.m. and forces telemarketers to maintain a do-not-call list and honor any request to not be called again.

Instructor‘s Manual - Chapter 1 Legislation Credit Card Accountability, Responsibility, and Disclosure Act (2009) -

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Importance to Marketing Protects consumer rights and abolishes deceptive lending practices.

Banned unfair rate increases, and required disclosures about minimum payments and interest rates

Table 3.1 U.S. Laws That Affect Marketers INSIGHT QUESTIONS What laws were you previously familiar with?

How do these laws impact a firm‘s marketing initiatives?

CONNECT BACK: Reference Connect Assignment 3-2 Which external factors influence a firm?

How should the marketing mix be adjusted from these external factors?

LO3-3: Extend the analysis of the marketing environment beyond the borders of the United States. International Marketing Environment  Recent estimates put the world‘s population at almost _ billion people  Experts predict that it will grow to almost _ billion people by the year 2050  The process of _ must take into account the international marketing environment as well Currency Fluctuation  _ refers to how the value of one country‘s currency changes in relation to the value of other currencies  Currency fluctuation can affect either positively or negatively how firms market products internationally 197 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The _ is the price of one country‘s currency in terms of another country‘s currency  The world‘s largest country in terms of population, China, has been criticized for _ its currency, that is, pricing the Yuan lower than it is actually worth  Whether a currency is appreciating or depreciating, currency fluctuations can provide marketing opportunities  It‘s important for marketers working in the international environment to understand the effect of currency fluctuations on _ Income Distribution  A country‘s _ often provides the most reliable picture of its purchasing power  Marketers are particularly attracted to countries with a growing middle class because a nation‘s purchasing capability tends to increase as the proportion of middle-income households increases Figure 3.7 Projected Changes in Global Middle-Class Consumption INSIGHT QUESTIONS In which developing countries do you see the greatest changes in middle-class consumption over the next 35 years?

How will the global economic environment affect business in international markets?

How much time should be dedicated to monitoring these efforts?

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LO3-4: Identify the major trade agreements, monetary unions, and organizations that affect the global marketing environment. Major Trade Agreement and Organizations  Marketing professionals must possess a working knowledge of the major trade agreements and organizations that could govern their firm‘s interaction with those markets  International trade agreements, _ , and organizations can have substantial impact on the environment in which a firm operates  Trade agreements and monetary unions facilitate the exchange of money and products across _  International organizations provide regulatory oversight to economic activity North American Free Trade Agreement  The most familiar U.S. trade agreement is the _ (NAFTA)  The North American Free Trade Agreement (NAFTA) established a free-trade zone among the United States, Canada, and Mexico. Its goal was to eliminate barriers to trade and investment among the three countries  In 2018, the three countries reached a new deal to replace NAFTA which will be known as the United States–_ –Canada Agreement (USMCA) Dominican Republic–Central America Free Trade Agreement  A decade after NAFT A was implemented, the U.S. entered discussions about a new agreement with the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua  This agreement was called the _ (CAFTA)  In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed Dominican Republic–Central America Free Trade Agreement  The _ (DR-CAFTA) focuses on eliminating tariffs, reducing nontariff barriers, and facilitating investment among the member states European Union  The _ (EU) is an economic, political, and monetary union of 27 European nations as of 2022  It was formed to create a single European market by reducing barriers to the free trade of goods, services, and finances among member countries  In 2021, the EU generated approximately 15 percent of the global gross domestic product, making it one of the largest economies in the world  In 2016, the United Kingdom voted to leave the European Union, which set the stage for years of negotiations between the UK and the other 27 EU nations  The decision was made that _ would leave the EU in 2019, which will continue to impact marketers across the globe in the years ahead World Trade Organization 199 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The World Trade Organization was officially formed on January 1, 1995, under the _  The _ (WTO) regulates trade among participating countries and helps importers and exporters conduct their business  It is the only international organization dealing with the rules of trade between nations International Monetary Fund  Soon after the end of World War II, _ countries signed an agreement to form the International Monetary Fund  Headquartered in _ , the International Monetary Fund (IMF) ―works to foster international monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world‖  One of the IMF‘s important activities is to make resources available to member countries to help them manage their _ Figure 3.8 Top 15 Buyers of U.S. Exports INSIGHT QUESTIONS What countries lead in dollar volume of exports from the United States?

Why do Canada and Mexico lead in dollar volume of exports from the United States ?

CONNECT BACK: Reference Connect Assignment 3-3 Why must international trade agreements be in place?

How will these trade agreements evolve as more organizations are welcoming a global presence?

Technology  Technology enables even small businesses to reach consumers around the globe 200 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Websites act as a _ to billions of potential consumers Social media help companies develop relationships with customers anywhere, for very little cost  Tools such as _ allow customers to view websites in their own language, making it easier to promote products in different countries  Global shipping firms like FedEx and UPS enable small manufacturers to ship their products to customers around the world  Understanding how technology affects the international marketing environment benefits marketers as they attempt to meet the needs and wants of consumers in global markets Cultural Fit  One of the biggest mistakes domestic firms make when they attempt to take their business global is to believe that what works ―at home‖ will work abroad  _ refers to a belief by residents of a country that it is inappropriate or immoral to purchase foreign-made goods and services  Analyzing cultural fit and overcoming consumer ethnocentrism are essential aspects of environmental scanning on a global scale that help firms create value for international consumers CONNECT BACK: Reference Connect Assignment 3-4 How can a firm ensure they are a good cultural fit for a country they are doing business with?

How much should a firm be willing to change to become a good cultural fit if it does not presently exist?

TODAY’S PROFESSIONAL NOTES Obinna Okechukwu, Senior Product Consultant, DocuSign How early should you start your job search? What opportunities can you capitalize on now to learn and grow? What learning opportunities can you foresee in your future based on your professional goals?

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LO3-5: Describe the emerging factors that influence the nonprofit marketing environment. Marketing Insights Podcast Marketing Analytics INSIGHT QUESTIONS What is the role of marketing in the three sources of funding for nonprofits?

How much time should be dedicated to monitoring these marketing efforts?

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Nonprofit Marketing Environment  Environmental scanning for a nonprofit organization presents challenges that for profit businesses do not face  Those who donate money to a nonprofit do not walk away with a tangible product or benefit directly from any service  Nonprofit marketers must convince _ to support the mission of the organization without receiving any direct benefit  The competitive environment for nonprofit funding has increased dramatically in recent years  In 1995, there were only _ nonprofits in the United States  Today, that number is over _ million and growing rapidly Figure 3.9 Total Giving to Nonprofit Organizations in the U.S. INSIGHT QUESTIONS What external factors affect nonprofit marketing?

How has the number of nonprofit organizations changed in the last 18 years?

Economic Factors  During the recession that began in December of 2007, Americans reduced their overall charitable giving by over _ percent from levels prior to the recession  The decline was far sharper than in previous economic recessions  One strategy nonprofit marketers are using to combat that change is to develop new ways to recognize existing donors for their contributions Political Factors  The _ led to political pressure to reduce federal, state, and municipal budgets  This, in turn, has forced many nonprofit organizations to fund basic programs in innovative ways  Public universities, which receive a substantial portion of their funding from their respective state legislatures, have been hit especially hard Legal Factors  The benefit that nonprofit marketers offer to potential donors typically includes some combination of information about how the donation will be used, how the donor 203 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ , and the tax incentives (e.g., the tax deductibility of charitable gifts) that will accompany the donation  Legal changes to the tax-incentive element can alter the way marketing professionals communicate the organization‘s _ to potential donors Technology Factors  Many nonprofit organizations utilize new technology to _ and enhance relationships with donors  The rise of social media has changed the nonprofit landscape in important ways  When it comes to organizing activists, conducting charity campaigns, or simply influencing communities and stakeholders, _ offer nonprofit organizations substantial advantages Figure 3.10 The Decline in State Funding for Temple University INSIGHT QUESTIONS How have public universities adjusted and accommodated to the changes in state funding assistance?

What do you think about the flip flop in state and self-funding of public institutions?

What factors have contributed to the flip flop in state and self-funding of public institutions?

What is the average salary? What are the companies that are best positioned to offer the kind of job you want? Are there jobs in this field located where you want to live?

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What is the total size and growth rate of the industry you are planning to enter? What is the current unemployment rate in that field, and what percentage of jobs are filled by new college graduates? If your objective is graduate school, you need to answer questions like:  

MARKET SUMMARY

Chapter 4: Consumer Behavior

Jeff Gilbert/Alamy Stock Photo

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Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 4 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-61 Discuss traditional and emerging perspectives on consumer decision-making processes. LO 1-62 Explain consumer decision-making processes. LO 1-63 Describe the cultural and social influences on consumer behavior. LO 1-64 Describe the individual differences that influence consumer behavior. LO 1-65 Describe the psychological processes that influence consumer behavior. LO 1-66 Summarize how situational factors influence consumer decisions. LO 1-67 Compare business-to-business marketing to business-to-consumer marketing. LO 1-68 Discuss the different types of B2B customers. LO 1-69 Compare the different buying situations in business-to-business marketing. KEY TERMS affective choice aspirational reference group attitude attitude-based choice attribute-based choice belief brand community business-to-business (B2B) marketing buying center business-to-consumer (B2C) marketing cognitive dissonance consumer behavior consumer tribe country-of-origin effects culture derived demand dissociative reference groups esteem evaluative criteria

evoked set extended problem solving external information search habitual decision making high-involvement products impulse purchases internal information search involvement lifestyle limited problem solving low-involvement products membership reference group mobile payment modified rebuy motivation new buy norms North American Industry Classification System (NAICS) opinion leaders original equipment

manufacturer (OEM) perception personality problem recognition reference group reminder purchases request for proposal (RFP) resellers search marketing self-actualization sensation sensory marketing situational influences social network stimulus straight rebuy subculture unplanned purchases values wholesaler wholesaling

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THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the student learning resource section of the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What is consumer behavior and why do we need to understand this concept? Apply the consumer decision-making process to a purchase you‘ve made; walk us through the steps. Set 2: What situational influences affect the consumer decision-making process? Provide two examples of how this has personally affected you.

MaKinzie Foos Director of Business Operations, Memphis Hustle

Photo provided by MaKinzie Foos

With a track record of understanding her customers‘ needs, MaKinzie Foos is largely responsible for the overall business strategy of the Memphis Hustle. She uses her experience to provide insight in answering the following questions: 127. What has been the most important thing in making you successful at your job? 128. What advice would you give soon-to-be graduates? 129. How is marketing relevant to your role at the Memphis Hustle?

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What do you consider your personal brand to be?

Woven in the chapter, you see how MaKinzie later elaborates on:  

Being open to new opportunities and stepping out of your comfort zone. Building a career in B2C marketing.

Review with students:

Discuss traditional and emerging perspectives on consumer decision-making processes.  Understanding Consumer Behavior o Traditional Perspectives on Consumer Decision Making o Inside Buyers‘ Brains Thinking, Fast and Slow PowerPoint Slides Lecture Notes: LO 4-1

 How is marketing relevant in her role?  What it means to expand your skill set. Key Terms:  Consumer behavior  Business-to-consumer (B2C) marketing  Business-to-business (B2B) marketing

Understanding Consumer Behavior 

Researchers have drawn from areas such as psychology, sociology, anthropology, economics, cognitive neuroscience, and marketing to gain knowledge of the mechanisms underlying consumption  The field of consumer behavior involves the study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs  Consumer behavior also entails study of how these processes impact individuals and society  Business-to-consumer (B2C) marketing involves selling goods and services to end-user customers  Business-to-business (B2B) marketing involves marketing to organizations that acquire goods and services in the production of other goods and services that are then sold or supplied to others Traditional Perspectives on Consumer Decision Making

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The buying decision is the focal point of all marketing efforts Traditional views of decision making portray a fully informed consumer following a logical, step-by-step sequence 1. Identify an unmet need 2. Carefully collect information about competing products 3. Consciously weigh the relative importance of key product attributes 4. Create a choice set 5. Compute the optimal purchase decision, taking into account relative price and performance on each attribute 6. After purchase, compare product performance to expectations and hold those data in memory to guide future action It is unrealistic to expect people to perform such exhaustive mental analyses for each buying decision

Inside Buyers’ Brains    

The mind of the modern consumer diverges in important ways from earlier models of how people make decisions Dominant perspectives within psychology and economics have largely ignored the impact of nonconscious forces, such as emotion, on decision making Today it is widely accepted that roughly 90 percent of mental activity occurs below the level of conscious awareness George Loewenstein suggests that rather than guiding or controlling behavior, consciousness seems mainly to make sense of behavior after it has been executed

Thinking, Fast and Slow        

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In his book Thinking, Fast and Slow, Nobel Prize winner Daniel Kahneman metaphorically describes the emotional and cognitive modes of thought as System 1 and System 2 System 1 is an automatic and nonconscious way of thinking System 1 is capable of making quick decisions based on very little information, good at recognizing patterns, and able to answer many questions based on resemblances and associations System 2 is an effortful, slow, and controlled way of thinking System 2 allocates attention to the effortful mental activities that demand it, including complex computations System 2 has the task of monitoring, and if necessary, overriding decisions made by System 1 Though System 1 requires little energy to operate, it is also prone to biases and systematic errors in judgment On the other hand, though reason dominates System 2, its heavy-footed, analytical style makes its use impractical in many social settings

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Research has shown that consumers‘ use of Systems 1 and 2 in decision making, as well as the quality of their decisions, may be greatly affected by external factors L O 4-2 Explain consumer decision- Key Terms: making processes.  Habitual decision making  Consumer Decision Limited problem solving Making Processes  Extended problem solving o Problem  Problem recognition Recognition  Evoked set o Information Search  Internal information search Sources of  External information search Information  Search marketing The Internet, Social  Evaluative criteria Media  Attribute-based choice Marketing, and  Affective choice Information  Attitude-based choice Search  Unplanned purchases o Evaluating  Reminder purchases Alternatives  Impulse purchases Marketing Tactics  Mobile payment for Influencing Buyer  Cognitive dissonance Evaluations o Outlet Selection and Purchase Unplanned Purchases Credit Cards and Mobile Payment Systems o Post-Purchase Evaluation PowerPoint Slides Lecture Notes: Consumer Decision-Making Processes    

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Modern marketing thought recognizes consumers may employ a variety of decision styles Approaches range from sudden impulse purchases to deliberations, and consumers may pass slowly or quickly through each phase of the decision process For more complex or newer purchases, consumers tend to increase the corresponding level of effort they are willing to put into making a good decision Habitual decision making refers to consumer decisions made out of ―habit,‖ without much deliberation or product comparison

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Limited problem solving refers to situations in which the consumer has established basic criteria for evaluating the product category, but is unfamiliar with suppliers, product options, prices, and so on Extended problem solving refers to consumer decisions requiring considerable cognitive activity, thought, and effort. An example is deciding to purchase a new automobile

Figure 4.1

Insight Questions:

Figure Information: The Consumer Decision-Making Process The consumer decision-making process has five stages, consisting of: (1) problem recognition, (2) information search, (3) evaluating alternatives, (4) making the purchase, and (5) post-purchase evaluation. Whether consumers are deciding where to eat or what cell phone plan to purchase, most consumers targeted by B2C marketers go through a common decision-making process. PowerPoint Slides

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131. Walk through the decision to purchase a new vehicle using the consumer decision-making process. What insight did you gain from exploring the process? (Answer: Open ended; a car breaks down, and a new one is needed. Searching for a possible car make and models in the region is next. Based on needs, availability, and cost, a selection is made. Immediately, and for months after, the vehicle purchase is evaluated. Insight gained might include taking more/less time in the process, parts of the process or resources that can assist in decision making, and an appreciation for marketing‘s role to encourage the process.) 132. Have you ever experienced cognitive dissonance (buyer‘s remorse)? If so, what contributed to this? (Answer: Open ended; consider what friends say about the purchase, what is said in blogs and on social media, and websites containing reviews about the product) 133. As a marketer, what are some initiatives you can take to guide consumers through the stages of the consumer decision-making process efficiently and with reduced levels of cognitive dissonance? (Answer: Open ended; offering extended warranties and free features for a limited time, post-purchase, and keep communication open between buyer and seller)

Lecture Notes: Problem Recognition    

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Consumers ―hire‖ goods and services to help them solve problems Problem recognition occurs when consumers identify a gap between their current status and a desired end state. The recognized gap must be sufficient to arouse action on the part of the individual A consumer‘s desire to address this imbalance depends on: 1. The relative importance or urgency of the problem

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2. The magnitude of the discrepancy between their actual and desired states Promotional activities like advertisements, product placements, billboards, and social media serve as external triggers that heighten awareness of a problem and differences between actual and desired states To better understand consumers problem recognition, companies often conduct market research Social media and online forums are also increasingly used as sources to track customer trends and views of current solutions to various problems

Information Search        

Once consumers recognize a problem, they seek out information that will help them identify and sort available alternatives Consumers try and find answers to the following questions: 1. What alternative solutions exist? 2. What are the appropriate criteria for evaluating solutions? 3. How well does each solution perform on each evaluative criteria? On the basis of information identified in your information search process, narrow down the choices That shorter list of brands or products evaluated as potential solutions to a recognized consumer problem is known as an evoked set (also called a consideration set) The amount of effort spent by a consumer during the informationsearch phase can vary based on several factors

Sources of Information    

Information searches fall into two broad categories: internal and external search With internal information search, consumers draw from prior searches or past experiences with the same brand or product class When consumers seek information beyond their personal knowledge and experience to support a buying decision, they engage in external information search An external search may include personal sources, independent sources, experiential sources, or company-originated sources

The Internet, Social Media Marketing, and Information Search  

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The Internet has changed how they decide what to buy Using smartphones, tablets, and other connected devices, consumers have easy and cheap access to product information, virtually anytime and anywhere

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More than 80 percent of shoppers research products online before purchasing  60 percent begin their research on a search engine before going to a specific e-commerce website  Search marketing is a form of Internet marketing that promotes websites by increasing their visibility in search engine results pages  Search engine marketing (SEM) broadly involves buying website traffic via paid search listings  Search engine optimization (SEO) improves search engine page rankings ―organically‖ by continuously updating site content and making it easier to navigate  Social media feeds the discovery of new content, helping brands build links that in turn elevate search page rankings  Mainstream brands make wide use of tools like Facebook, Twitter, YouTube, and Instagram to strengthen brand awareness and interest THINK LIKE A MARKETER What sites have you evaluated before making a purchase, and how did it influence your purchase decision? Connect Assignment 4-1

Topic: Social Media Strategies and Engagement Today, more brands are aiming to grow brand advocates authentically, by adding real people—not bots—who love the brand and are seeking to engage. Marketers have discovered that growing social media engagement can have a snowball effect on customer loyalty and sales. Building a core group of highly engaged fans can be more valuable than being able to claim millions of disengaged followers. Consistent interactions on social media help to create a human voice for the brand and make its audience feel valued. As social media become important influences on consumer behavior, it‘s important to consider ways to maximize their full potential. CONNECT BACK Insight Questions: 134. What types of ads on social media do you find effective as a consumer? (Answer: Open ended; consider the presence or absence of images and videos that appeal to your interests, social listening efforts that target your personal interests, personal online shopping habits, apps used, and linked articles that contain tracking cookies) 135. To monetize social media ads, what types of measurements would you track for a firm? (Answer: Open ended; click thrus, purchases from click thrus,

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number of likes/followers, cost per acquisition (CPA), time of the visit on each web page, engagement and interaction on the social platform, and target audience accuracy and alignment) 136. What does it take to be considered a brand champion? (Answer: Open ended; those who mobilize a brand in ways that ―get‖ me, my needs as a consumer, and I identify with) 137. If you are the marketing manager for a firm, would you use social media mobilizers to access your target market? Explain your answer. (Answer: Open ended; if the target market demographic for the product is aligned with the demographics on the social media platform this would be a good consideration to increase engagement) 138. How often does a firm need to monitor social media engagement across platforms? (Answer: daily so that increased activity or changes can be implemented immediately) PowerPoint Slides

Lecture Notes: Evaluating Alternatives           

Once consumers have obtained information, they can more closely evaluate alternatives within their evoked set Consumers use a set of evaluative criteria: the attributes they consider most important The type of evaluative criteria a consumer uses in a decision varies from tangible features, like cost and performance, to intangible factors such as style, feelings generated, and brand image Evaluative criteria can differ from consumer to consumer Consumers make choices among their evoked-set alternatives in various ways Using attribute-based choice, consumers select a product via attributeby-attribute brand comparisons Attribute-based choice relies heavily on System 2 mental processing Using affective choice, consumers make a decision based on their feelings about owning the product Affective choice relies on the immediate emotional response to the offering, based on a ―How do I feel about it?‖ decision rule Attitude-based choice is a selection process that involves the use of general attitudes and summary impressions These processes are not necessarily used in isolation

Marketing Tactics for Influencing Buyer Evaluations

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To influence buyer evaluations of alternatives, marketers emphasize key benefits of their offering They use strategies to ensure potential buyers view those benefits as the most relevant in resolving the problem the purchase is intended to satisfy The same is used by employers to evaluate you in their decision making

Outlet Selection and Purchase 

After selecting the brand, the consumer must next choose a retail outlet (referring to the B2C market)  Selecting a retail outlet involves comparing options based on a consumer‘s evaluative criteria  Commonly considered factors include store location or convenience, price, merchandise quality and selection, service levels, attractiveness of physical facilities (or website), shopping atmosphere, return policies, marketing promotions, and retailer reputation  Once the consumer has selected a specific brand of product and a retail outlet, it is time to complete the transaction  To the extent possible, smart retailers simplify this final phase  If transactions aren‘t crisp or if the checkout process is not clear at a glance, shoppers may feel frustrated and walk away  Brick-and-mortar retailers try to use technology to speed up checkout as much as possible: Some invest in self-service kiosks  Since the pandemic, many are now offering curbside pickup and home delivery for items purchased online  Streamlining checkout and payment is perhaps even more essential for online retailers  Three-quarters of all e-commerce shopping carts are abandoned before the purchase is complete, which translates to over $4.6 trillion in lost retail sales each year THINK LIKE A MARKETER Have apps influenced your purchase decisions? If so, how? Unplanned Purchases      215

Unplanned purchases are purchases made in a retail outlet that are different from those the consumer planned prior to entering the store Reminder purchases are those that occur due to retailers‘ prompts to consumers while consumers are in the store Impulse purchases occur when a consumer sees an item in-store and purchases it, with little or no deliberation, as the result of a sudden, powerful urge to have it People who consider themselves very ―fast and efficient‖ shoppers are far less likely to make impulse buys; they buy 82 percent less than the average Young, unmarried adult households with higher incomes do 45 percent

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more unplanned buying If a shopping trip includes stops at multiple stores, 9 percent less unplanned buying occurs at the second or third store The amount of unplanned buying goes up with the total number of categories Even if shoppers have a list of items when they walk into a store, they often leave room in their mental budget for additional nonlist items (sometimes called ―in-store slack‖) With consumers increasingly able to tune out or avoid advertising in traditional media, the impact of shopper marketing on in-store decision making is a growing area of interest

Credit Cards and Mobile Payment Systems      

Mainstream economic theory suggests that the decision to purchase is independent of how the transaction is paid Studies have shown the ability to pay electronically rather than with cash increases both the amount consumers are willing to pay and the number of items they purchase Brain scans show that having to shell out cash for something actually activates centers within the brain associated with physical pain, and the use of credit cards effectively anesthetizes the ―pain of paying‖ Mobile payment, also referred to as digital wallets, refers broadly to payment services performed from or via a mobile device, and operated under financial regulation The advent of mobile payment technologies has also lowered competitive barriers for small retailers It is estimated that around 2 billion people worldwide, including more than 9 million American households, are ―unbanked‖—that is, they don‘t have bank accounts or access to financial institutions

Post-Purchase Evaluation       216

Consumers‘ thoughts and feelings about the purchase will likely affect whether they become repeat buyers of a good or service Post-purchase evaluation is even more important today because of the power of online customer reviews Marketers seeking to influence consumers‘ post-purchase evaluation often focus on reducing buyers‘ feelings of unease or remorse associated with the purchase Cognitive dissonance refers to the mental conflict that people undergo when they acquire new information that contradicts their beliefs or assumptions (also known as buyer‘s remorse) Feelings of cognitive dissonance following a purchase can arise for numerous reasons Marketers can use various tactics to reduce buyer‘s remorse

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THINK LIKE A MARKETER How can social media work to reduce consumers‘ cognitive dissonance?

Connect Assignment 4-2

Topic: Consumer Decision-Making Process Complete the Connect exercise for Chapter 4 that focuses on the consumer decision-making process. By understanding the dynamics of each stage, you should gain insight into how marketers can impact consumer decisions and help their organizations succeed. CONNECT BACK Insight Questions:

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139. What kinds of external influences can affect the consumer decision-making process? (Answer: personal sources like family and friends, independent sources— reviews from websites, experiential sources—product trials, marketing-originated sources—websites, sales personnel, advertisements) 140. What encourages consumers to take the next step in the consumer decision-making process? (Answer: Open ended; the level of need for the product, cost for the product, budget, accessibility, availability, sociocultural demand, and willingness to do business with the other party) Describe the cultural and Key Terms: social influences on  Culture consumer behavior.  Norms  Cultural and Social  Subculture Influences on  Brand community Consumer Behavior  Consumer tribes o Culture  Country-of-origin effects Differences in  Social network National Cultures  Reference group Subcultures of  Membership reference group Consumption,  Aspirational reference group Brand  Dissociative reference groups Communities,  Opinion leaders and Consumer Tribes Country-of-Origin Effects o Social Factors Family Influences © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Children‘s Influences on Family Purchases o Reference Groups o Opinion Leaders PowerPoint Slides Lecture Notes: Cultural and Social Influences on Consumer Behavior 

Group-based differences and influence can affect the consumer decisionmaking process; an effective marketing strategy takes these factors into account

Culture 

Culture is the broad set of knowledge, beliefs, laws, morals, customs, and any other capabilities or habits acquired by humans as members of society  Culture supplies boundaries within which most individuals think and act  Norms are formal or informal societal rules that specify or prohibit certain behaviors in specific situations  Violations of cultural norms can result in sanctions, or penalties, by other members of society THINK LIKE A MARKETER Has culture influenced any of your purchase decisions? How so? Differences in National Cultures       

Cultural differences can present a significant challenge to firms and marketers seeking a global presence Marketers must understand existing and emerging cultural values within the markets that they serve Individualism (emphasizing and rewarding individual initiative) is a defining characteristic of many Western cultures such as the United States, Australia, the United Kingdom, Canada, and Sweden People in countries such as China, Korea, Mexico, India, and Russia tend to be more collective (valuing cooperation and group conformity) in their orientation Culture is multifaceted and dynamic, and it typically evolves slowly Current events and global changes can lead to more rapid changes among key subpopulations The behavior of young U.S. consumers is often driven by a desire to make a social statement

Subcultures of Consumption, Brand Communities, and Consumer Tribes

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A subculture is a segment of a larger culture whose members share distinguishing values and patterns of behavior Ethnic subcultures, which are based on shared race, language, or national background, are the most commonly described subcultures In the United States, religions, geographic regions, and generations are also bases for strong subcultures It is possible to be part of several different subcultures at once, each one influencing a different aspect of your lifestyle A subculture of consumption is a distinctive subgroup of society that selfselects on the basis of a shared commitment to a particular product class, brand, or consumption activity A brand community is a specialized, nongeographically bound community that is based on a structured set of social relations among admirers of a brand Consumer tribes exist when consumers identify with one another and share experiences through a variety of brands, products, activities, and services

Country-of-Origin Effects   

Country-of-origin effects are the beliefs and associations people in one country have about goods and services produced in another country They can reflect an overall positive or negative feeling about that country or be specific to certain products Germany, for example, has a reputation for excellence in engineering

Social Factors    

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Sociologists have shown that we are subtly, and often unconsciously, influenced by the people around us—by social networks A social network is a set of social actors (such as individuals or organizations) along with the set of ties between each pair of actors By studying the properties of the social networks within which each of us interacts, scientists—and marketers—are gaining new understanding of the social roots underlying our behavior The main idea of the six-degrees-of-separation concept (sometimes referred to as the Kevin Bacon game) is that the average number of interpersonal connections separating any random pair of individuals— such as Hollywood actors—is around six The power of our influence within a network extends out by three degrees (our friends‘ friends‘ friends) As a result, the behaviors of the people near us tend to influence our own actions, much like a flock of geese has no leader but flies in formation in a common direction

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Family Influences      

Family members are one of the greatest influences on consumer behavior The level of influence varies across families It also evolves as a family ages and as new members join the family through marriage or birth Family influences are particularly important in some cultures The composition of families has changed greatly in recent decades to include more single parents and same-sex households which can affect consumer decisions in different ways important to marketers The power of family as personal external information sources highlights why marketers must establish good relationships with all customers

Children’s Influence on Family Purchases  

Children often influence family purchases during the middles stages of the family life cycle, particularly in food-related sectors Marketing food to children has become a controversial topic for firms

Reference Groups       

A reference group is the collection of people to whom a consumer compares themselves Marketers recognize that the more public the purchase decision, the more impact reference groups are likely to have A membership reference group is the group to which a consumer actually belongs Membership groups could include school clubs, fraternities and sororities, and the workplace An aspirational reference group refers to the individuals a consumer would like to emulate Dissociative reference groups include people that the individual would not like to be like Teenagers and young adults provide perhaps the most notable example of dissociative reference groups—they actively seek to dissociate themselves from groups they view as ―uncool‖ or as something their parents might be interested in

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Individuals who exert an unequal amount of influence on the decisions of others because they are considered knowledgeable about particular products are opinion leaders Building affinity through cause-related marketing and community sponsorship is a more effective strategy to reach opinion leaders than

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traditional one-way marketing communications  Social media have fueled the opinion-leader trend, enabling everyday people and celebrities alike to become powerful sources of influence  A social media influencer is an individual who has gained popularity and trust among a growing audience of online followers by becoming an early adopter, innovator, or niche expert in a specific area of interest such as fashion, health, or technology THINK LIKE A MARKETER If you worked as a marketing director for a firm, how would you know how much to pay an influencer to advertise your product? Describe the individual Key Terms: differences that influence  Personality consumer behavior.  Lifestyle  Individual Influences  Values on Consumer Behavior o Personality o Lifestyle o Values PowerPoint Slides Lecture Notes: L O 4-4

Individual Influences on Consumer Behavior 

A consumer‘s personality might include traits that make them confident, personable, deferential, adaptable, or dominant

Personality    

Figure 4.2

A consumer‘s personality might include traits that make them confident, personable, deferential, adaptable, or dominant Personality is the set of distinctive characteristics in thinking, feeling, and behaving that lead an individual to respond in a consistent way to certain situations Called the ―Big 5‖ model, the factors—openness, conscientiousness, extraversion, agreeableness, and neuroticism—form an easy to remember acronym OCEAN Understanding dominant consumer personality profiles can help brands better engage consumers with personalized messages, ads, and content in ways that are more likely to resonate Insight Questions: 141. Why do marketers need to understand personality profiles? (Answer: Open ended; understanding dominant consumer personality profiles can help brands better engage consumers with personalized messages, ads, and content in ways that are more likely to

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resonate. It also helps brands develop a marketing mix that aligns with consumers‘ needs and interests.) 142. What is the effect of using personality-based marketing? (Answer: Open ended; beyond increased sales, for example, studies of health communications have shown personalized messaging positively impacts patient compliance. We know that matching reminder advertising to individuals‘ personality profiles helps promote cancer-prevention behaviors, including smoking cessation, dieting, exercising, and regular cancer screenings.)

Figure Information: O-C-E-A-N Personality Framework Twenty-five years ago, psychologists converged on an accepted view of personality, which simplified dozens of personality traits into five core factors. Called the "Big 5" model, the factors— openness, conscientiousness, extraversion, agreeableness, and neuroticism—form an easy to remember acronym OCEAN. An individual can be mapped on a sliding scale of high to low on each factor, shown here. PowerPoint Slides

Lecture Notes: Lifestyle  

Lifestyle characteristics are often easier for a firm to understand and measure than personality traits Lifestyle is a person‘s typical way of life as expressed by their activities, interests, and opinions

Values 

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Values reflect a consumer‘s belief that a specific behavior is socially or personally preferable to another behavior

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Personal values include everything from a consumer‘s religious beliefs to a belief in self-responsibility. It is likely that your value system also corresponds to your buying behavior for many goods and services  By demonstrating the firm‘s alignment with a customer‘s values and ethics, values-based branding shifts marketing from a product-centric approach to a customer-centric one  Many consumers look for goods and services that embrace sustainability, that is, products produced in a way that meets the needs of the present without compromising future generations L O 4-5 Describe the psychological Key Terms: processes that influence  Sensation consumer behavior.  Perception  Psychological  Stimulus Influences on  Sensory marketing Consumer Behavior  Motivation o Perception  Esteem Sensory Marketing  Self-actualization o Motivation  Attitude o Physiological Needs  Belief o Safety Needs o Need for Love and Belonging o Esteem o SelfActualization  Attitudes o Affective Dimension of Attitudes o Behaviorial Dimension of Attitudes o Cognititve Dimension of Attitudes PowerPoint Slides Lecture Notes: Psychological Influences on Consumer Behavior  

When making a purchase decision, consumers engage in certain psychological processes that can prompt or influence consumer behavior These include perception, motivation, attitudes, and learning

Perception  223

Sensation is the physical process during which our sensory organs—those

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involved with hearing, vision, touch, smell, and taste—respond to external stimuli Perception is the psychological process by which people select, organize, and interpret sensory information to form a meaningful picture of the world; it is the way we see the world around us The perception process begins when a consumer is exposed to either an internal or external stimulus, which is any input affecting one of the five senses: sight, sound, smell, touch, or taste Consumer action arises in response to internal or external stimuli Internal stimuli can be thought of those that originate within an individual External stimuli arise from an outside source, such as a distinctive ringtone or the innovative package design of the tablet you have been eyeing It is practically impossible for consumers to process each and every input received from their environment so they use selective attention to decide which stimuli to notice and which ones to ignore Two concepts closely related to selective exposure are selective distortion and selective retention Selective distortion is the tendency to interpret information in a way that fits our preconceptions Selective retention relates to the tendency for people to more easily recall information that is consistent with their feeling and beliefs

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Sensory marketing is marketing that engages consumers‘ senses and affects their behaviors Through use of sensory marketing, brands can create subconscious triggers which define consumer perceptions of the product (e.g., its sophistication, quality, innovativeness) as well as its unique attributes (e.g., color, taste, smell, shape) Two-thirds of our sensory input is received through our eyes In 2021, it was estimated that the average American adult is exposed to between 6,000 and 10,000 ads each day By appealing to senses other than sight, marketers seek to garner attention and build stronger connections with consumers

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Motivation is our inward drive to get what we need or want Abraham Maslow, in the mid-1900s, theorized that humans have various types of needs; these range from simple needs like water, food, and sleep to more complex needs like love and self-esteem Maslow‘s theory is that people seek to meet their basic needs (those at the bottom of the pyramid) before fulfilling higher level needs

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Insight Questions:

Figure Information: Maslow’s Hierarchy of Needs Abraham Maslow theorized that humans have various types of needs, from simple needs like water and sleep to complex needs like love and self-esteem. In Maslow‘s hierarchy of needs model, it is theorized that people seek to meet their basic needs before fulfilling higher level needs. PowerPoint Slides

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143. List examples of each of the five needs. (Answer: Open ended; physiological—it‘s hard to study when you‘re hungry, safety—earning a college degree to secure a job may come before starting a family, love/belonging—having a close group of friends, esteem—confidence to do a project and earn the respect of a supervisor, self-actualization—after years in a job being able to solve problems in a creative way) 144. Maslow theorized that one must satisfy the lower level basic needs before progressing on to meet higher level growth needs. How does this theory affect marketers? (Answer: Open ended; knowing where consumers are in the hierarchy indicates the message type that should be used. For example, eHarmony.com has a different message than OkCupid, FarmersOnly.com, or BlackPeopleMeet.)

Lecture Notes: Physiological Needs    

Physiological needs are the simple requirements for human survival and form the base of Maslow‘s hierarchy A consumer who lacks food, safety, love, and esteem would consider food their greatest need and would seek to fulfill that need before any of the others Due to COVID-19-related conditions, many people experienced strong motivations to ensure their physiological needs were met, such as the fear of lack of food and other basic necessities Public policy responses to COVID-19 have also elevated concerns over meeting physiological needs

Safety Needs    225

Safety needs take precedence and begin to dominate behavior Safety can take different forms, including physical safety, health, and economic safety The absence of physical safety—due to natural disaster, family

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violence, or war, for example—can lead people to experience posttraumatic stress disorder or other emotional conditions A sudden concern over health safety, for instance owing to a troubling doctor‘s visit, can likewise be emotionally or physically disabling The absence of economic safety—due to economic crisis or lack of job opportunities—leads consumers to seek out greater job security, reduce discretionary spending, and, increase savings Depending on the infection and mortality rates and trends in their cities, individuals have placed greater emphasis on meeting physical, health, and economic safety needs during the COVID-19 pandemic

Need for Love and Belonging    

Love and belonging needs involve feelings of intimacy, family, friendships, and the strength of those relationships Smart marketers recognize that the need to connect with others is a basic human motivation and proactively incorporate it into their products, customer experiences, and brand messaging During the COVID-19 pandemic, observers have warned about the potential adverse effects of social distancing and mandatory masking on loneliness and mental health The pandemic in some ways has changed the nature of dating itself

Esteem       

Esteem is the need all humans have to be respected by others and by themselves Maslow described two kinds of esteem needs: lower and higher Lower esteem needs include the need for the respect of others, status, recognition, fame, prestige, and attention Higher esteem needs include the need for self-respect, strength, competence, mastery, self-confidence, independence, and freedom The pandemic has led individuals to place relatively greater focus on lower order needs compared to higher order esteem and selfactualization needs Microsoft researchers examined over 35 billion Bing web searches over 14 months, finding that the expression of basic needs increased ―exponentially‖ during this time while higher level aspirations declined Gourmet coffee was another popular choice for lockdown consumers working from home; sales of Starbucks at-home products grew at a double digit rate in 2021

Self-Actualization 

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The top tier of Maslow‘s hierarchy is the aspiration to become everything that one is capable of becoming

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Self-actualization pertains to a person‘s full potential and the need to realize that potential When applied to individual consumers, the need for self-actualization is specific A recent survey of homeowners found that 89 percent made some type of improvement to their home during the pandemic, on average spending more than $3,500 Others sought to make improvements to their own bodies by investing in home fitness equipment Exercise bike maker Peloton experienced a 172 percent surge in sales in 2020, with more than 1 million people subscribing to its streaming classes

Attitudes  

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An attitude is a relatively enduring organization of beliefs, feelings, and behavioral tendencies toward socially significant objects, groups, events, or symbols Of the various ways psychologists think about attitudes and attitude change, the most influential is the ABC model which suggests that the structure of the way we feel about something (i.e., an attitude object), is comprised of three dimensions The affective component of attitudes refers to feelings or emotions linked to an attitude object, such as ―I am afraid of snakes‖ The behavioral component of attitudes refers to past experiences and future intentions regarding an attitude object, such as ―If I see a snake, I will try to avoid it‖ The cognitive component of attitudes relates to beliefs and thoughts we associate with an object, such as ―Snakes are dangerous and gross‖

Affective Dimension of Attitudes    

The affective component is made up of feelings or emotional reactions to the attitude object It is a classic System 1–type response; it often exists as nothing more than a vague, general feeling Studies have shown affective attitudes more strongly influence health intentions and behaviors than do cognitive attitudes Firms increasingly attempt to influence consumers‘ liking of their brands with little thought toward influencing beliefs or behaviors; marketers adopting this approach presume that liking will influence brand awareness

Behaviorial Dimension of Attitudes  227

The behavioral component of an attitude relates to someone‘s tendencies to respond in a certain manner toward an attitude object

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based on past experiences or future intentions Marketers seeking to influence consumer behaviors should be on the lookout for factors that may keep someone from acting on favorable attitudes

Cognititve Dimension of Attitudes      

 Connect Assignment 4-3

The cognitive component of consumer attitudes rests largely upon a person‘s beliefs about a product, brand, or other attitude object A belief is an organized pattern of knowledge that an individual holds to be true about their world Influencing the cognitive component of someone‘s attitude depends on altering these underlying beliefs When multiple beliefs are held about a brand, some are likely to be more strongly held than others Beliefs that are weakly held are more susceptible to persuasion attempts Strengthening the cognitive component of consumer attitudes often involves providing consumers with facts or statements about functional capabilities; those facts or statement are intended to change existing beliefs or provide the basis for new beliefs While attitudes tend to be consistent across the three components, this is not always the case Topic:Maslow‘s Hierarchy of Needs Complete the Connect exercise for Chapter 4 that focuses on Maslow‘s hierarchy of needs. By understanding the dynamics of each stage, you should gain insight into how marketers can affect consumer decisions and help their organizations be more successful. CONNECT BACK Insight Questions: 145. If a firm‘s product falls in the safety needs category, what types of marketing communication would you use in promoting your product and brand to consumers? (Answer: Open ended; economic safety is a concern during a recession or a pandemic, and home safety is a concern for families or those living alone. Emphasizing a greater sense of safety can increase revenue when applied to the appropriate demographic.) 146. How does marketing safety needs differ from marketing, for example, esteem needs? (Answer: Open ended; esteem needs can only be met after safety needs are met. For example, advertising the security of an apartment complex before communicating its

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prestigious location may be more appealing.)

Summarize how situational Key Terms: factors influence consumer  Situational influences decisions.  Involvement  Situational Influences  Low-involvement products and Involvement  High-involvement products o Situational Influences Physical Surroundings Social Surroundings Time Task Definition o Involvement Low-Involvement Buying Decisions High-Involvement Buying Decisions PowerPoint Slides Lecture Notes: L O 4-6

Situational Influences  

Situational influences describe factors particular to a time and place that have a demonstrable and systematic effect on buyer behaviors These factors can temporarily alter customers‘ preferences, attitudes, or intentions, leading them to replace their typical perspective with one that is situational

Physical Surroundings     

The physical environment is the most readily apparent feature of a situation While traditional views have focused on aspects of in-store environments, more recent work has extended consideration of the physical environment to include online consumer experiences Design of the physical setting pertain to visual elements, which might include the particular layout and style of a retail store or website Aesthetic features relate to ambient background conditions such as lighting, scent, and music or other sounds Research indicates that it is the overall configuration of these cues that combine to influence consumer response

Social Surroundings

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The presence of others, their apparent roles within the environment, and the occurrence and nature of interpersonal interactions are all potentially relevant features Research in cognitive neuroscience has shown feelings of crowdedness induce stress and lead to avoidance behavior

Time       

People today feel more pressure on their time today than they did a generation or two ago Companies throughout the world understand consumers‘ time pressures, and they design goods and services to alleviate those pressures Perceptions of time available affect consumer decision making and behaviors in two key ways Time limitations restrict the extent to which consumers are willing or able to process information relevant to their purchases Time pressures increase stress, which in turn interferes with memory retrieval Consumers are often willing to pay more for products if the placement of those products saves them time By placing products in a more convenient location, marketers can often increase their profits on individual items while still providing great value to their customers

Task Definition   

Customer perceptions, attitudes, and behaviors may also be situationally influenced by the nature of the task they are seeking to fulfill and the intended use of the item Task definition may also reflect differences in buyer and user roles Research in this area has shown that the nature of the defined task can greatly impact customers‘ variety-seeking behaviors, choice of retailer, and product selection

Involvement    

How consumers make choices is influenced by their level of involvement in the decision process Involvement is the personal, financial, and social significance of the decision being made The study of involvement focuses on how consumers choose which alternative to purchase Involvement may be high or low

Low-Involvement Buying Decisions

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Impulse buying occurs when a consumer purchases a product with no planning or forethought Impulse purchases usually occur with low-involvement products Low-involvement products are inexpensive products that can be purchased without much forethought and that are purchased with some frequency Consumers often do not recognize their desire for a low-involvement product until they are in the store

High-Involvement Buying Decisions    

Figure 4.4

High-involvement products are significant purchases that carry a greater risk to consumers if they fail The two most common examples of high-involvement purchases are a car and a house Companies that market high-involvement products must provide potential consumers with extensive and helpful information as they go through the decision-making process The difference between low-involvement and high-involvement products is not always absolute; it depends on the priorities of the individual making the purchase Insight Questions:

147. What are some examples of low-involvement and high-involvement purchase decisions you have made? (Answer: Open ended; low-involvement purchases— popcorn at the movies, up-sizing French fries with a combo; high-involvement purchases—television, taking Figure Information: Characteristics a vacation, taking out student loans) of Low- and High-Involvement Buying 148. Consider the decision to purchase a vehicle after Decisions graduating college. Explore the characteristics of the The characteristics of high-involvement purchase; what makes this a high-involvement buying decisions with those of lowpurchase? (Answer: it is expensive, seldom purchased, involvement buying decisions are requires research, and is risky) compared using examples of toiletries 149. How do marketers capitalize on low-involvement and houses to illustrate the spectrum. The purchase decisions, which are usually made in the store? study of high and low involvement (Answer: Unique packaging or special displays help to focuses on how consumers choose which capture the consumer‘s attention and quickly explain the alternative to purchase and is important product‘s purpose and benefits.) for firms to understand as they develop strategies to sell their products.

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Compare business-toKey Terms: business marketing to  Business-to-business (B2B) marketing business-to-consumer  Request for proposal (RFP) marketing.  Derived demand  Business-to-Business Marketing o Professional Purchasing o Derived Demand o Fewer Buyer, Larger Purchases PowerPoint Slides Lecture Notes: L O 4-7

Business-to-Business Marketing     Table 4.1

Business-to-business (B2B) marketing consists of marketing to organizations that acquire goods and services in the production of other goods and services that are then sold or supplied to others More dollars change hands in sales to business buyers than in sales to end consumers B2B purchasers and purchasing processes can be subject to some of the same types of cultural, social, individual, psychological, and situational influences as B2C buying Several factors are certainly unique to business markets Insight Questions:

150. What do you think the biggest differences are? (Answer: Open ended; number of buyers, length of the buying process, number of people involved in the purchase decision, dollar amount of the purchase being considered, relationship considerations with several parties, location of product being purchased, etc.) 151. What do you think about a committee making Table Information: Comparison of purchasing decisions? What are the advantages and Consumer and Organizational Buying disadvantages? (Answer: Open ended; Pros and cons can be weighed with input being exchanged throughout Illustrated here are key differences the process, various backgrounds and experiences can between B2C and B2B marketing. add value to the process, and product requirements can Several factors are unique to business be more thoroughly examined from each committee markets. member communicating what is needed from their perspective.) PowerPoint Slides Lecture Notes: Professional Purchasing  232

The procurement of B2B products often impacts many functions and

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individuals across the enterprise In some instances, the purchases involve technologically complex products that require extensive customization or retrofitting prior to implementation As a result, organizational purchasing processes are typically more formalized Prior to most major purchases, business organizations publish a request for proposal (RFP) document The RFP specifies what the customer is looking for and describes each evaluation criterion on which a vendor‘s proposal will be assessed which helps business buyers weed out unqualified suppliers and simplifies evaluation of competing bids In many organizations, purchases will involve professionally trained purchasing agents, managers who are experienced in the policies and procedures necessary to make a large deal In addition to a college degree, many professional purchasing agents will complete a rigorous certification program to earn the designation of Certified Purchasing Manager (CPM) In some large organizations, purchasing managers may spend a large portion of their careers purchasing a limited number of items and even become known as industry experts on these items

Derived Demand    

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The need for business goods is derived from demand for consumer goods Derived demand refers to demand for one product that occurs because of demand for a related product To stimulate derived demand, many B2B suppliers seek to actively manage relationships with not only their direct customers but also with indirect customers—that is, their customer‘s customers Such efforts can provide marketers with valuable information on downstream market characteristics and preferences, helping them create improved value propositions for their own buyers which, in turn, strengthens trust and commitment toward the supplier firm The presence of derived demand can make it more difficult for corporate leaders and policy makers to accurately gauge the social and environmental costs of products and service

Fewer Buyer, Larger Purchases   

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Business marketers typically deal with far fewer buyers than consumer marketers Business buyers usually buy in much larger order quantities As a result, each individual customer tends to be more essential to a B2B firm‘s success

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B2B marketers feel pressure to offer high-quality products to their business customers and maintain good relationships with customers

Discuss the different types Key Terms: of B2B customers.  Original equipment manufacturer (OEM)  Types of Business  North American Industry Classification System Customers (NAICS) o Producers  Resellers North American  Wholesaling Industry  Wholesaler Classification System o Reseller Markets o Government Markets o Institutional Markets PowerPoint Slides Lecture Notes: L O 4-8

Types of Business Customers 

Business-to-business marketing professionals focus on several major categories of business customers, including producers, resellers, government markets, and institutional markets

Producers     

Producers are profit-oriented individuals and organizations that use purchased goods and services to produce other products or to facilitate their daily operations They include both manufacturers and service providers, totaling more than 13 million U.S. firms Producers range in size from large, multinational companies down to your locally owned practices An OEM is a producer whose products are used as components or subsystems in another firm‘s products An OEM will typically work very closely with the company that sells the finished product to customize designs based on that company‘s needs

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Producers in the United States, Canada, and Mexico are categorized according to the North American Industry Classification System (NAICS) This industry-classification system was introduced with the passage of the North American Free Trade Agreement (NAFTA) in 1993

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NAICS is used to generate comparable statistics for businesses and industries across the three countries and divides industrial activity into 20 sectors, from construction and retail to education services While the NAFTA agreement was replaced by the USMCA in 2020, the new trade agreement maintains the NAICS industry classification schema Since each member country uses a common criteria in categorizing businesses, NAICS is a valued tool that helps marketers assess business markets and select attractive target market segments Each category is fairly similar in terms of its needs and market served The first two numbers in the code represent the two-digit sector designation—manufacturing The third digit reflects the subsector, the fourth digit reflects the industry group, and the fifth digit represents the industry The first five digits of the NAICS codes are fixed for each country The sixth digit can vary among USMCA countries Insight Questions:

Figure Information: NA ICS Code Designation for a Canadian Mechanical Pulp Mill The NAICS code for a mechanical pulp mill in Canada is shown. In this example, the sixth digit reflects specific data from Canada. PowerPoint Slides

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152. Explain the number of digits in the NAICS classification system. (Answer: The first two numbers in the code represent the two-digit sector designation. The third digit reflects the subsector, the fourth digit reflects the industry group, and the fifth digit represents the industry. The first five digits of the NAICS codes are fixed among the members of NAFTA. The sixth digit can vary among NAFTA countries.) 153. Why is it important for marketers to understand the NAICS classification list? (Answer: A working knowledge of the type of information governments need to make decisions about what to purchase can ease the process for marketers.) 154. How is the six digit code assigned? (Answer: Organizations in the NAFTA member countries are each given a six-digit code that can help marketers identify whether or not the business fits within their target market.) 155. Who assigns NAICS codes? (Answer: Individual establishments are assigned NAICS codes by various agencies for various purposes using a variety of methods. (www.census.gov)

Lecture Notes: Reseller Markets 

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Resellers include retailers and wholesalers that buy finished goods and

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resell them for a profit. A retailer is any organization that sells directly to end-user consumers, like you There are over 1 million different retailers in the United States Wholesaling is the sale of goods to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers A wholesaler is a company that buys large quantities of products from manufacturers and then sells those products to retailers Traditionally, wholesalers were physically closer to the markets they supplied than the source from which they got the products Technology advances in developing nations have increased the number of wholesalers located near manufacturing bases in China, Taiwan, Southeast Asia, and others

Government Markets      

Government markets include thousands of federal, state, and local entities The federal government is one of the world‘s largest customers, spending hundreds of billions of dollars a year In addition to the federal government, there are 50 state governments and approximately 90,000 local governments, all of which must purchase goods and services Because the public holds the government accountable for its expenditures, the buying procedures are often complex The complex process involved in selling to governments has made some marketers, especially in small businesses, reluctant to bid on government business Of the 20 million small businesses in the United States, only about 500,000 have completed the documentation necessary to be eligible to sell to the federal government

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Institutional markets represent organizations such as hospitals, schools, and faith-based and secular nonprofit organizations  Diverse buying situations pose unique challenges for institutional marketers  Educating institutional customers about how specific goods and services can make their organizations more efficient or effective is a firm‘s best tool for selling products in this type of B2B market Compare the different Key Terms: buying situations in  New buy business-to-business  Straight rebuy marketing.  Modified rebuy  Business Buying  Buying center © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Behavior o B2B Buying Situations New Buy Straight Rebuy Modified Rebuy o Buying Centers PowerPoint Slides Lecture Notes: Business Buying Behavior    

Modern B2B buyers expect their enterprise buying experiences to match the ease and comfort of their consumer buying experiences As a result, B2B purchases may be influenced by many of the same factors described in discussing B2C Decision making can differ greatly based on the type of B2B buying decision Many significant B2B purchase decisions entail the use of a committee, often referred to as the buying center

B2B Buying Situations  

While the types of B2B customers can vary, the buying situations for each are often quite similar Marketers can classify business-to-business buying situations into three general categories—new buy, straight rebuy, and modified rebuy

New Buy 

A new buy involves a business customer purchasing a product for the very first time

Straight Rebuy     

A straight rebuy occurs when a business customer signals its satisfaction by agreeing to purchase the same product at the same price B2B marketers prefer the straight rebuy outcome to any other Straight rebuys normally do not require any additional design modifications or contract negotiations Another major advantage of a straight rebuy is that the customer typically does not look for competing bids from other companies Marketers who make it as easy as possible for customers to do business with their firm increase the likelihood that the customers will perceive value and develop loyalty

Modified Rebuy 237

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A modified rebuy occurs when the customer‘s needs change slightly or the customer is not completely satisfied with the product it purchased Modified rebuys provide marketers with both positive and negative feedback The ability of a supplier to walk away from a modified rebuy provides marketers with an important negotiation tactic Lowering prices to attract new customers also has the potential to negatively affect the level of a company‘s customer satisfaction and retention, as well as the profits derived from its existing client base Lowering prices to attract new customers also has the potential to negatively affect the level of a company‘s customer satisfaction and retention, as well as the profits derived from its existing client base

Buying Centers              

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A buying center is the group of people within an organization who are involved in a purchase decision In most instances, the buying center will consist of individuals from various areas of the firm, such as accounting, engineering, operations, and marketing The size and makeup of the buying center will depend on the magnitude, complexity, and importance of the purchase decision Within the buying center, individuals perform one or more informally prescribed roles The initiator is the individual who first suggests making the purchase Influencers are people who influence the decision They often define technical specifications and provide information for evaluating options Gatekeepers regulate the flow of information and access to other members of the buying center Purchasing agents derive much of their power within the buying center through the gatekeeping role The decider is the person who has the formal or informal power to approve selection of the supplier or brand The purchaser is the person who actually negotiates the terms of the purchase Users are members of the organization who will actually end up using the product B2B marketers and salespeople should identify the roles of the buying center‘s members With that information, marketers can determine each member‘s relative influence and be able to craft more effective marketing strategies

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Insight Questions: 156. What data would be considered in classifying new buys, straight rebuys, and modified rebuys? (Answer: Open ended; recency and frequency of purchases, customer identification codes, quantity of items purchased, availability of product at time of purchase, and marketing dollars spent on existing versus new customers) Katie Chikonde Director of Capital Markets, Go Mortgage Katie Chikonde takes action with the executive and leadership teams she is part of. She provides insight in answering the following questions:

Photo provided by Jay Cupcake Photography

157. Describe your job. 158. How did you get your job? 159. What has been the most important thing in making you successful at your job? 160. What advice would you give soon-to-be graduates? 161. What do you consider your person brand to be? Review with students:  

What does it mean to take action that is met with intention? What does it mean to be authentic?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the differences between consumer and business markets. In the next section of the marketing plan exercise, you will evaluate the characteristics of each and decide which may be better for you as a career choice. Your assignment for this chapter is to decide whether you would prefer to have a career in a B2B or a B2C organization. Think through each type of organization carefully, and assess which better fits your personality. Finding a good fit will affect your ability to excel at and enjoy your career after college. Also, this knowledge will help you focus your job search, whether you want to work in marketing, finance, human resources, or any other area of the organization. Many professionals end up working in both B2B and B2C organizations over the course of their careers. You too will likely have many opportunities to move from one to the other in the future. However, the additional focus will help you build a career that can put you ahead of your fellow graduates. Student Task: Write a one-paragraph summary explaining whether you would prefer to work in a B2C or B2B organization. Discuss what organizational characteristics affected your decision. 239

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Conclude your paragraph with the names of three potential employers in the area where you would most want to live that focus on your chosen market. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 162. Think of a recent purchase you have made and describe the actions you took at each stage of the consumer decision-making process. Did you skip any of the stages? Which stage do you think should be most important to marketers? Does it depend on what type of product is being marketed? (Answer: Open ended; beginning a new semester requires new textbook purchases. A search on Amazon, the campus bookstore, and talking with friends who have previously taken the same course can reveal what books are available for purchase, and depending on the cost and availability, determining which textbook will satisfy the need can be done. A few weeks into the course and/or after purchasing the textbook, satisfaction levels on the textbook purchase are determined. Think about the steps in the consumer decision-making process were most relevant with each textbook purchase; for example, were there options of renting versus buying, was long-term use of the textbook relevant to the decision, and was your budget sufficient? How long did you have to make the decision?) 163. Which of the situational influences described in this chapter influence your buying decisions most? Explain your answer. (Answer: Open ended; some influences to consider are culture, social factors, family life cycle, reference groups, and opinion leaders. Think about your buying behaviors involving food, clothing, entertainment, and necessity items.) 164. List two high-involvement purchases you have made in the past year. What made them high involvement to you? (Answer: Open ended; choosing a college to attend and purchasing a car may be of consideration. Both are considered high involvement because they were expensive, seldom purchased, requires research, and are risky decisions.) 165. Describe how derived demand might affect a college campus bookstore. (Answer: Open ended; Connect is a resource that may be required with a marketing principles course such as this one. The campus bookstore may have to stock access codes for Connect, which is derived from the demand from the quantity of students taking a marketing principles course.) 166. Pick a company that you or someone in your family has worked for. Then go to the NAICS website at www.census.gov/eos/www/naics/ and figure out the full six-figure NAICS code for that company. What are two other companies with the same code? How can this information be valuable to a small business marketer? (Answer: Open ended; reference information 240

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about the NAICS codes: The first two numbers in the code represent the two-digit sector designation and can reveal the depth of the industry. The third digit reflects the subsector, the fourth digit reflects the industry group, and the fifth digit represents the industry. The first five digits of the NAICS codes are fixed among the members of NAFTA. The sixth digit can vary among NAFTA countries. In owning a small business, this information may help you navigate through competition and unique selling opportunities within a market.)

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SOCIAL MEDIA APPLICATION Pick a company that you would like to work for after graduation and assume that you have been asked to interview with them for a job next month. Analyze how social media can help you prepare for your interview using the following questions and activities as a guide: 167. Go onto the firm‘s social media platforms and find at least two helpful pieces of information that you can use in your interview that cannot be found on the organization‘s general website. 168. In addition to the organization‘s social media platforms, do the executives or managers of the firm actively engage through social media? If so, are there useful pieces of information (such as Facebook posts or tweets) that can help give you an advantage over others competing for the same job? 169. What are two things you can do with your own social media presence to better position yourself for the interview? This activity is located in an additional worksheet that can be used with group interaction, and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 4 that focuses on using marketing analytics to calculate profits of different B2B buying situations. ETHICAL CHALLENGE For parents trying to promote healthy eating habits, online sales pitches are potentially leading to problems for their families, according to a study by the Center for Digital Democracy and American University. The center released a report detailing how companies market low-nutrient foods online to young consumers. These campaigns market to kids using everything from avatars in virtual worlds to web sweepstakes and interactive games. The report‘s authors suggest that marketing to kids that are spending larger chunks of time online encourages them to make poor food choices, contributing to childhood obesity and diet-related health problems.

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Thanks to advertisements, many kids and their friends see fast-food restaurants as a fantastic place. They know about the toys and the characters associated with each, making it difficult to explain why parents won‘t let the family eat there more than once a month. Food advertising is a central part of many of the free, ad-supported online services offered to kids. Part of the reason is that advertisers know that food, like toys, is an area where kids have both purchasing power and sway over their parents‘ decisions. Kids between ages 4 and 12 spend over $30 billion annually, according to Juliet Schor, coauthor of Born to Buy: The Commercialized Child and the New Consumer Culture. Brands are also implanting their logos where kids spend most of their time, such as with items in virtual worlds. Companies are drawing kids to their heavily branded sites in a variety of ways from interactive games to music competitions. The report cites Kellogg‘s promotion of its PopTarts pastries on Habbo Hotel, an online virtual community aimed at kids and teens. In exchange for answering a poll asking kids 13 and over to pick the Pop-Tart flavor most like them, respondents were entered to receive virtual furniture for their avatars. There is a law, the Children‘s Online Privacy Protection Act, that prevents companies from collecting information on kids in order to target ads more directly to them. Many companies cite additional internal practices they have adopted in order to address concerns about marketing to kids. Kraft includes logos on web pages to encourage kids to go offline and do something active. Both McDonald‘s and Kellogg‘s say they are working on industry selfregulation initiatives. The General Mills Foundation has provided $7.5 million in Champions for Healthy Kids grants to 650 nonprofit organizations across the United States to support grassroots projects promoting healthy eating and active lifestyles for children and their families. The FTC could decide that more brands have to promote vegetables and other healthy foods on their sites, regardless of whether they sell them or not. Or it could leave the industry to regulate itself, in the hope that brands, wary of angering parents, will limit ads for less-healthy alternatives. Catherine Holahan, ―Is Online Marketing Making Kids Obese?‖ Bloomberg Businessweek, May 17, 2007, http://www.businessweek.com/stories/2007-05-17/is-online-marketing-making-kidsobese-businessweek-business-news-stock-market-and-financial-advice. Please use the ethical decision-making framework to complete the following activities: 170. Analyze McDonald‘s efforts to market Happy Meals that contain free toys to children. (Answer: Open ended; the central problem is the commercialization of unhealthy or bad food for children and the use of [popular] toys as a premium to lure children to the food product. Contemplate the ethics behind big movies and/or characters to promote their likeness via Happy Meals. Also consider the same for McDonald‘s new adult Happy Meals which also contain a toy.) 171. Find a company or organization that you think is using online marketing tools to reduce the trend in childhood obesity. List the website and describe what the company is doing to lessen childhood obesity in the United States. (Answer: Open ended; Five Guys is a fast casual dining restaurant. Five Guys uses marketing to show that they try to 243

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reduce the trend in childhood obesity, particularly on their website, which focuses on the ingredients they use. One of their slogans is ―a simple focus on quality food‖ and another is ―quality ingredients and attention to detail are Five Guys‘ secrets‖. They also have a substitute for vegetarians.) 172. Can online marketers promote healthy choices and still be profitable? Explain your reasoning and provide examples for why or why not. (Answer: Open ended; Yes, if it is part of the organization‘s mission and business operations. Some factors to consider are the company‘s values, years in business, competition in the marketplace, and message choice in marketing communication.) VIDEO CASE Have students go to Connect to access the video case that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about a career in marketing media, they can follow these tips. Career Tips

Tracey Rogers, Vice President and General Manager, WKRN-TV, offers five tips that have helped her achieve success in the field of media marketing.     

Love what you do. Know your audience. Learn every aspect of media marketing. Pay your dues. Be a cheerleader for those around you.

Review with students:

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How do you find out what you love to do? What does it mean to pay your dues? How can students learn about an aspect of marketing while still in college? In what ways can you be a cheerleader for those around you?

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Chapter 4: Consumer Behavior

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-70 Discuss traditional and emerging perspectives on consumer decision-making processes. LO 1-71 Explain consumer decision-making processes. LO 1-72 Describe the cultural and social influences on consumer behavior. LO 1-73 Describe the individual differences that influence consumer behavior. LO 1-74 Describe the psychological processes that influence consumer behavior. LO 1-75 Summarize how situational factors influence consumer decisions. LO 1-76 Compare business-to-business marketing to business-to-consumer marketing LO 1-77 Discuss the different types of B2B customers. LO 1-78 Compare the different buying situations in business-to-business marketing. KEY TERMS affective choice aspirational reference group attitude attitude-based choice attribute-based choice belief brand community business-to-business (B2B) marketing buying center business-to-consumer (B2C) marketing cognitive dissonance consumer behavior consumer tribe country-of-origin effects culture derived demand dissociative reference groups 245

esteem evaluative criteria evoked set extended problem solving external information search habitual decision making high-involvement products impulse purchases internal information search involvement lifestyle limited problem solving low-involvement products membership reference group mobile payment modified rebuy motivation new buy norms

North American Industry Classification System (NAICS) opinion leaders original equipment manufacturer (OEM) perception personality problem recognition reference group reminder purchases request for proposal (RFP) resellers search marketing self-actualization sensation sensory marketing situational influences social network stimulus straight rebuy

Instructor‘s Manual - Chapter 1 subculture values unplanned purchases wholesaler THOUGHT-PROVOKING ACTIVITY

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wholesaling

Set 1: What is consumer behavior and why do we need to understand this concept? Apply the consumer decision-making process to a purchase you‘ve made; walk us through the steps.

Set 2: What situational influences affect the consumer decision-making process? Provide two examples of how this has personally affected you.

What it means to expand your skill set.

LO4-1: Discuss traditional and emerging perspectives on consumer decision-making processes. Understanding Consumer Behavior  Researchers have drawn from areas such as psychology, sociology, anthropology, economics, cognitive neuroscience, and marketing to gain knowledge of the mechanisms underlying consumption  The field of consumer behavior involves the study of individuals, groups, or organizations and the processes they use to select, secure, use, and dispose of products, services, experiences, or ideas to satisfy needs  Consumer behavior also entails study of how these processes impact individuals and society 246

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Business-to-consumer (B2C) marketing involves selling goods and services to end user customers  Business-to-business (B2B) marketing involves marketing to organizations that acquire goods and services in the production of other goods and services that are then sold or supplied to others Traditional Perspectives on Consumer Decision Making  The buying decision is the focal point of all marketing efforts  Traditional views of decision making portray a fully informed consumer following a logical, step-by-step sequence  1. Identify an unmet need  2. Carefully collect information about competing products  3. Consciously weigh the relative importance of key product attributes  4. Create a choice set  5. Compute the optimal purchase decision, taking into account relative price and performance on each attribute  6. After purchase, compare product performance to expectations and hold those data in memory to guide future action  It is unrealistic to expect people to perform such exhaustive mental analyses for each buying decision Inside Buyers’ Brains  The mind of the modern consumer diverges in important ways from earlier models of how people make decisions  Dominant perspectives within psychology and economics have largely ignored the impact of nonconscious forces, such as emotion, on decision making  Today it is widely accepted that roughly 90 percent of mental activity occurs below the level of conscious awareness  George Loewenstein suggests that rather than guiding or controlling behavior, consciousness seems mainly to make sense of behavior after it has been executed Thinking, Fast and Slow  In his book Thinking, Fast and Slow, Nobel Prize winner Daniel Kahneman metaphorically describes the emotional and cognitive modes of thought as System 1 and System 2  System 1 is an automatic and nonconscious way of thinking  System 1 is capable of making quick decisions based on very little information, good at recognizing patterns, and able to answer many questions based on resemblances and associations  System 2 is an effortful, slow, and controlled way of thinking  System 2 allocates attention to the effortful mental activities that demand it, including complex computations  System 2 has the task of monitoring, and if necessary, overriding decisions-made by System 1 247

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Though System 1 requires little energy to operate, it is also prone to biases and systematic errors in judgment  On the other hand, though reason dominates System 2, its heavy-footed, analytical style makes its use impractical in many social settings  Research has shown that consumers‘ use of Systems 1 and 2 in decision making, as well as the quality of their decisions, may be greatly affected by external factors LO4-2 Explain consumer decision-making processes. Consumer Decision-Making Processes  Modern marketing thought recognizes that consumers may employ a variety of decision styles  Approaches range from sudden impulse purchases to deliberations, and consumers may pass slowly or quickly through each phase of the decision process  For more complex or newer purchases, consumers tend to increase the corresponding level of effort they are willing to put into making a good decision  Habitual decision making refers to consumer decisions made out of ―habit,‖ without much deliberation or product comparison  Limited problem solving refers to situations in which the consumer has established basic criteria for evaluating the product category, but is unfamiliar with suppliers, product options, prices, and so on  Extended problem solving refers to consumer decisions requiring considerable cognitive activity, thought, and effort. An example is deciding to purchase a new automobile Figure 4.1 The Consumer Decision-Making Process INSIGHT QUESTIONS Walk through the decision to purchase a new vehicle using the consumer decision-making process. What insight did you gain from exploring the process? (Answer: Open ended; a car breaks down, and a new one is needed. Searching for a possible car make and models in the region is next. Based on needs, availability and cost, a selection is made. Immediately, and for months after, the vehicle purchase is evaluated. Insight gained might include taking more/less time in the process, parts of the process or resources that can assist in decision making, and an appreciation for marketing‘s role to encourage the process) Have you ever experienced cognitive dissonance (buyer‘s remorse)? If so, what contributed to this? (Answer: Open ended; consider what friends say about the purchase, what is said in blogs and on social media, and websites containing reviews about the product) As a marketer, what are some initiatives you can do to guide consumers through the stages of the consumer decision-making process efficiently and with reduced levels of cognitive dissonance? (Answer: Open ended; offering extended warranties and free features for a limited time, post248

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purchase, and keep communication open between buyer and seller) Problem Recognition  Consumers ―hire‖ goods and services to help them solve problems  Problem recognition occurs when consumers identify a gap between their current status and a desired end state. The recognized gap must be sufficient to arouse action on the part of the individual  A consumer‘s desire to address this imbalance depends on:  1. The relative importance or urgency of the problem  2. The magnitude of the discrepancy between their actual and desired states  Promotional activities like advertisements, product placements, billboards, and social media serve as external triggers that heighten awareness of a problem and differences between actual and desired states  To better understand consumers problem recognition, companies often conduct market research  Social media and online forums are also increasingly used as sources to track customer trends and views of current solutions to various problems Information Search  Once consumers recognize a problem, they seek out information that will help them identify and sort available alternatives.  Consumers try and find answers to the following questions:  1. What alternative solutions exist?  2. What are the appropriate criteria for evaluating solutions?  3. How well does each solution perform on each evaluative criteria?  On the basis of information identified in your information search process, narrow down the choices  That shorter list of brands or products evaluated as potential solutions to a recognized consumer problem is known as an evoked set (also called a consideration set)  The amount of effort spent by a consumer during the information search phase can vary based on several factors Sources of Information  Information searches fall into two broad categories: internal and external search  With internal information search, consumers draw from prior searches or past experiences with the same brand or product class  When consumers seek information beyond their personal knowledge and experience to support a buying decision, they engage in external information search  An external search may include personal sources, independent sources, experiential sources, or company-originated sources

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The Internet, Social Media Marketing, and Information Search  The Internet has changed how they decide what to buy  Using smartphones, tablets, and other connected devices, consumers have easy and cheap access to product information, virtually anytime and anywhere  More than 80 percent of shoppers research products online before purchasing  60 percent begin their research on a search engine before going to a specific e-commerce website  Search marketing is a form of Internet marketing that promotes websites by increasing their visibility in search engine results pages  Search engine marketing (SEM) broadly involves buying website traffic via paid search listings  Search engine optimization (SEO) improves search engine page rankings ―organically‖ by continuously updating site content and making it easier to navigate  Social media feeds the discovery of new content, helping brands build links that in turn elevate search page rankings  Mainstream brands make wide use of tools like Facebook, Twitter, YouTube, and Instagram to strengthen brand awareness and interest THINK LIKE A MARKETER What sites have you evaluated before making a purchase, and how did it influence your purchase decision? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 4-1 What types of ads on social media do you find effective as a consumer? (Answer: Open ended; consider the presence or absence of images and videos that appeal to your interests, social listening efforts that target your personal interests, personal online shopping habits, apps used, and linked articles that contain tracking cookies) To monetize social media ads, what types of measurements would you track for a firm? (Answer: Open ended; click thrus, purchases from click thrus, number of likes/followers, cost per acquisition (CPA), time of the visit on each web page, engagement and interaction on the social platform, target audience accuracy and alignment) What does it take to be considered a brand champion? (Answer: Open ended; those who mobilize a brand in ways that ―get‖ me, my needs as a

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consumer, and I identify with) How often does a firm need to monitor social media engagement across platforms? (Answer: Daily so that increased activity or changes can be implemented immediately) Evaluating Alternatives  Once consumers have obtained information, they can more closely evaluate alternatives within their evoked set  Consumers use a set of evaluative criteria: the attributes they consider most important  The type of evaluative criteria a consumer uses in a decision varies from tangible features, like cost and performance, to intangible factors such as style, feelings generated, and brand image  Evaluative criteria can differ from consumer to consumer  Consumers make choices among their evoked-set alternatives in various ways  Using attribute-based choice, consumers select a product via attribute-by-attribute brand comparisons  Attribute-based choice relies heavily on System 2 mental processing  Using affective choice, consumers make a decision based on their feelings about owning the product  Affective choice relies on the immediate emotional response to the offering, based on a ―How do I feel about it?‖ decision rule  Attitude-based choice is a selection process that involves the use of general attitudes and summary impressions  These processes are not necessarily used in isolation Marketing Tactics for Influencing Buyer Evaluations  To influence buyer evaluations of alternatives, marketers emphasize key benefits of their offering  They use strategies to ensure potential buyers view those benefits as the most relevant in resolving the problem the purchase is intended to satisfy  The same is used by employers to evaluate you in their decision making Outlet Selection and Purchase  After selecting the brand, the consumer must next choose a retail outlet (referring to the B2C market)  Selecting a retail outlet involves comparing options based on a consumer‘s evaluative criteria  Commonly considered factors include store location or convenience, price, merchandise quality and selection, service levels, attractiveness of physical facilities (or website), shopping atmosphere, return policies, marketing promotions, and retailer reputation  Once the consumer has selected a specific brand of product and a retail outlet, it is time to complete the transaction 251

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To the extent possible, smart retailers simplify this final phase

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If transactions aren‘t crisp or if the checkout process is not clear at a glance, shoppers may feel frustrated and walk away Brick-and-mortar retailers try to use technology to speed up checkout as much as possible: Some invest in self-service kiosks Since the pandemic, many are now offering curbside pickup and home delivery for items purchased online Streamlining checkout and payment is perhaps even more essential for online retailers Three-quarters of all e-commerce shopping carts are abandoned before the purchase is complete, which translates to over $4.6 trillion in lost retail sales each year

THINK LIKE A MARKETER Have apps influenced your purchase decisions? If so, how? (Answer: Open ended) Unplanned Purchases  Unplanned purchases are purchases made in a retail outlet that are different from those the consumer planned prior to entering the store  Reminder purchases are those that occur due to retailers‘ prompts to consumers while consumers are in the store  Impulse purchases occur when a consumer sees an item in-store and purchases it, with little or no deliberation, as the result of a sudden, powerful urge to have it  People who consider themselves very ―fast and efficient‖ shoppers are far less likely to make impulse buys; they buy 82 percent less than the average  Young, unmarried adult households with higher incomes do 45 percent more unplanned buying  If a shopping trip includes stops at multiple stores, 9 percent less unplanned buying occurs at the second or third store  The amount of unplanned buying goes up with the total number of categories  Even if shoppers have a list of items when they walk into a store, they often leave room in their mental budget for additional non-list items (sometimes called ―in-store slack‖)  With consumers increasingly able to tune out or avoid advertising in traditional media, the impact of shopper marketing on in-store decision making is a growing area of interest Credit Cards and Mobile Payment Systems  Mainstream economic theory suggests that the decision to purchase is independent of how the transaction is paid  Studies have shown the ability to pay electronically rather than with cash increases both the amount consumers are willing to pay and the number of items they purchase

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Brain scans show that having to shell out cash for something actually activates centers within the brain associated with physical pain, and the use of credit cards effectively anesthetizes the ―pain of paying‖  Mobile payment, also referred to as digital wallets, refers broadly to payment services performed from or via a mobile device, and operated under financial regulation  The advent of mobile payment technologies has also lowered competitive barriers for small retailers  It is estimated that around 2 billion people worldwide, including more than 9 million American households, are ―unbanked‖—that is, they don‘t have bank accounts or access to financial institutions Post-Purchase Evaluation  Consumers' thoughts and feelings about the purchase will likely affect whether they become repeat buyers of a good or service  Post-purchase evaluation is even more important today because of the power of online customer reviews  Marketers seeking to influence consumers‘ post-purchase evaluation often focus on reducing buyers‘ feelings of unease or remorse associated with the purchase  Cognitive dissonance refers to the mental conflict that people undergo when they acquire new information that contradicts their beliefs or assumptions (also known as buyer‘s remorse)  Feelings of cognitive dissonance following a purchase can arise for numerous reasons  Marketers can use various tactics to reduce buyer‘s remorse THINK LIKE A MARKETER How can social media work to reduce consumers‘ cognitive dissonance? (Answer: Open ended)

Figure 4.2 Consumer Decision-Making Process INSIGHT QUESTIONS What kinds of external influences can affect the consumer decision-making process? (Answer: personal sources like family and friends, independent sources—reviews from websites, experiential sources— product trials, marketing-originated sources— websites, sales personnel, advertisements) What encourages consumers to take the next step in the consumer decision-making process? (Answer: Open ended; the level of need for the product, cost for the product, budget, accessibility, availability, sociocultural demand, and willingness to do business with the other 254

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LO4-3: Describe the cultural and social influences on consumer behavior. Cultural and Social Influences on Consumer Behavior  Group-based differences and influence can affect the consumer decision-making process; an effective marketing strategy takes these factors into account Culture  Culture is the broad set of knowledge, beliefs, laws, morals, customs, and any other capabilities or habits acquired by humans as members of society  Culture supplies boundaries within which most individuals think and act  Norms are formal or informal societal rules that specify or prohibit certain behaviors in specific situations  Violations of cultural norms can result in sanctions or penalties, by other members of society THINK LIKE A MARKETER Has culture influenced any of your purchase decisions? How so? (Answer: Open ended) Differences in National Cultures  Cultural differences can present a significant challenge to firms and marketers seeking a global presence  Marketers must understand existing and emerging cultural values within the markets that they serve  Individualism (emphasizing and rewarding individual initiative) is a defining characteristic of many Western cultures such as the United States, Australia, the United Kingdom, Canada, and Sweden  People in countries such as China, Korea, Mexico, India, and Russia tend to be more collective (valuing cooperation and group conformity) in their orientation  Culture is multifaceted and dynamic, and it typically evolves slowly  Current events and global changes can lead to more rapid changes among key subpopulations  The behavior of young U.S. consumers is often driven by a desire to make a social statement Subcultures of Consumption, Brand Communities, and Consumer Tribes  A subculture is a segment of a larger culture whose members share distinguishing values and patterns of behavior  Ethnic subcultures which are based on shared race, language, or national background, are the most commonly described subcultures  In the United States, religions, geographic regions, and generations are also bases for strong subcultures  It is possible to be part of several different subcultures at once, each one influencing a different aspect of your lifestyle 256

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A subculture of consumption is a distinctive subgroup of society that self-selects on the basis of a shared commitment to a particular product class, brand, or consumption activity  A brand community is a specialized, non-geographically bound community that is based on a structured set of social relations among admirers of a brand  Consumer tribes exist when consumers identify with one another and share experiences through a variety of brands, products, activities, and services Country-of-Origin Effects  Country-of-origin effects are the beliefs and associations people in one country have about goods and services produced in another country  They can reflect an overall positive or negative feeling about that country or be specific to certain products  Germany, for example, has a reputation for excellence in engineering Social Factors  Sociologists have shown that we are subtly, and often unconsciously, influenced by the people around us—by social networks  A social network is a set of social actors (such as individuals or organizations) along with the set of ties between each pair of actors  By studying the properties of the social networks within which each of us interacts, scientists—and marketers—are gaining new understanding of the social roots underlying our behavior  The main idea of the six-degrees-of-separation concept (sometimes referred to as the Kevin Bacon game) is that the average number of interpersonal connections separating any random pair of individuals—such as Hollywood actors—is around six  The power of our influence within a network extends out by three degrees (our friends‘ friends‘ friends)  As a result, the behaviors of the people near us tend to influence our own actions, much like a flock of geese has no leader but flies in formation in a common direction Family Influences  Family members are one of the greatest influences on consumer behavior  The level of influence varies across families  It also evolves as a family ages and as new members join the family through marriage or birth  Family influences are particularly important in some cultures  The composition of families has changed greatly in recent decades to include more single parents and same-sex households which can affect consumer decisions in different ways important to marketers  The power of family as personal external information sources highlights why marketers must establish good relationships with all customers Children’s Influence on Family Purchases 257

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Children often influence family purchases during the middles stages of the family life cycle, particularly in food-related sectors  Marketing food to children has become a controversial topic for firms Reference Groups  A reference group is the collection of people to whom a consumer compares themselves  Marketers recognize that the more public the purchase decision, the more impact reference groups are likely to have  A membership reference group is the group to which a consumer actually belongs  Membership groups could include school clubs, fraternities and sororities, and the workplace  An aspirational reference group refers to the individuals a consumer would like to emulate  Dissociative reference groups include people that the individual would not like to be like  Teenagers and young adults provide perhaps the most notable example of dissociative reference groups—they actively seek to dissociate themselves from groups they view as ―uncool‖ or as something their parents might be interested in Opinion Leaders  Individuals who exert an unequal amount of influence on the decisions of others because they are considered knowledgeable about particular products are opinion leaders  Building affinity through cause-related marketing and community sponsorship is a more effective strategy to reach opinion leaders than traditional one-way marketing communications  Social media have fueled the opinion-leader trend, enabling everyday people and celebrities alike to become powerful sources of influence  A social media influencer is an individual who has gained popularity and trust among a growing audience of online followers by becoming an early adopter, innovator, or niche expert in a specific area of interest such as fashion, health, or technology THINK LIKE A MARKETER If you worked as a marketing director for a firm, how would you know how much to pay an influencer to advertise your product? (Answer: Open ended) LO4-4: Describe the individual differences that influence consumer behavior. Individual Influences on Consumer Behavior  A consumer's personality might include traits that make them confident, personable, deferential, adaptable, or dominant Personality  A consumer‘s personality might include traits that make them confident, personable, deferential, adaptable, or dominant 258

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Personality is the set of distinctive characteristics in thinking, feeling, and behaving that lead an individual to respond in a consistent way to certain situations Called the ―Big 5‖ model, the factors—openness, conscientiousness, extraversion, agreeableness, and neuroticism—form an easy to remember acronym OCEAN Understanding dominant consumer personality profiles can help brands better engage consumers with personalized messages, ads, and content in ways that are more likely to resonate

Figure 4.2 O-C-E-A-N Personality Framework INSIGHT QUESTIONS Why do marketers need to understand personality profiles? (Answer: Open ended; understanding dominant consumer personality profiles can help brands better engage consumers with personalized messages, ads, and content in ways that are more likely to resonate. It also helps brands develop a marketing mix that aligns with consumers‘ needs and interests.) What is the effect of using personality-based marketing? (Answer: Open ended; beyond increased sales, for example, studies of health communications have shown personalized messaging positively impacts patient compliance. We know that matching reminder advertising to individuals' personality profiles helps promote cancer prevention behaviors, including smoking cessation, dieting, exercising, and regular cancer screenings.) Lifestyle  Lifestyle characteristics are often easier for a firm to understand and measure than personality traits  Lifestyle is a person‘s typical way of life as expressed by their activities, interests, and opinions Values  Values reflect a consumer‘s belief that a specific behavior is socially or personally preferable to another behavior  Personal values include everything from a consumer‘s religious beliefs to a belief in selfresponsibility. It is likely that your value system also corresponds to your buying behavior for many goods and services  By demonstrating the firm‘s alignment with a customer‘s values and ethics, values-based branding shifts marketing from a product-centric approach to a customer-centric one  Many consumers look for goods and services that embrace sustainability, that is, products produced in a way that meets the needs of the present without compromising future generations LO4-5 Describe the psychological processes that influence consumer behavior.

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Psychological Influences on Consumer Behavior  When making a purchase decision, consumers engage in certain psychological processes that can prompt or influence consumer behavior  These include perception, motivation, attitudes, and learning Perception  Sensation is the physical process during which our sensory organs—those involved with hearing, vision, touch, smell, and taste—respond to external stimuli  Perception is the psychological process by which people select, organize, and interpret sensory information to form a meaningful picture of the world; it is the way we see the world around us  The perception process begins when a consumer is exposed to either an internal or external stimulus, which is any input affecting one of the five senses: sight, sound, smell, touch, or taste  Consumer action arises in response to internal or external stimuli  Internal stimuli can be thought of those that originate within an individual  External stimuli arise from an outside source, such as a distinctive ringtone or the innovative package design of the tablet you have been eyeing  It is practically impossible for consumers to process each and every input received from their environment so they use selective attention to decide which stimuli to notice and which ones to ignore  Two concepts closely related to selective exposure are selective distortion and selective retention  Selective distortion is the tendency to interpret information in a way that fits our preconceptions  Selective retention relates to the tendency for people to more easily recall information that is consistent with their feeling and beliefs

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Sensory Marketing  Sensory marketing is marketing that engages consumers‘ senses and affects their behaviors  Through use of sensory marketing, brands can create subconscious triggers which define consumer perceptions of the product (e.g., its sophistication, quality, innovativeness) as well as its unique attributes (e.g., color, taste, smell, shape)  Two-thirds of our sensory input is received through our eyes.  In 2021, it was estimated that the average American adult is exposed to between 6,000 and 10,000 ads each day  By appealing to senses other than sight, marketers seek to garner attention and build stronger connections with consumers Motivation  Motivation is our inward drive to get what we need or want  Abraham Maslow, in the mid-1900s, theorized that humans have various types of needs; these range from simple needs like water, food, and sleep to more complex needs like love and self-esteem  Maslow‘s theory is that people seek to meet their basic needs (those at the bottom of the pyramid) before fulfilling higher level needs Figure 4.3 Maslow’s Hierarchy of Needs INSIGHT QUESTIONS List examples of each of the five needs. (Answer: Open ended; physiological—it‘s hard to study when you‘re hungry, safety—earning a college degree to secure a job may come before starting a family, love/belonging—having a close group of friends, esteem—confidence to do a project and earn the respect of a supervisor, self-actualization—after years in a job being able to solve problems in a creative way) Maslow theorized that one must satisfy the lower level basic needs before progressing on to meet higher level growth needs. How does this theory affect marketers? (Answer: Open ended; Knowing where consumers are in the hierarchy indicates the message type that should be used. For example, eHarmony.com has a different message than OkCupid, FarmersOnly.com, or BlackPeopleMeet.) Physiological Needs  Physiological needs are the simple requirements for human survival and form the base of Maslow‘s hierarchy  A consumer who lacks food, safety, love, and esteem would consider food their greatest need and would seek to fulfill that need before any of the others

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Due to COVID-19-related conditions, many people experienced strong motivations to ensure their physiological needs were met, such as the fear of lack of food and other basic necessities  Public policy responses to COVID-19 have also elevated concerns over meeting physiological needs Safety Needs  Safety needs take precedence and begin to dominate behavior  Safety can take different forms, including physical safety, health, and economic safety  The absence of physical safety—due to natural disaster, family violence, or war, for example—can lead people to experience post-traumatic stress disorder or other emotional conditions  A sudden concern over health safety, for instance owing to a troubling doctor‘s visit, can likewise be emotionally or physically disabling  The absence of economic safety—due to economic crisis or lack of job opportunities—leads consumers to seek out greater job security, reduce discretionary spending, and, increase savings  Depending on the infection and mortality rates and trends in their cities, individuals have placed greater emphasis on meeting physical, health, and economic safety needs during the COVID-19 pandemic Need for Love and Belonging  Love and belonging needs involve feelings of intimacy, family, friendships, and the strength of those relationships  Smart marketers recognize that the need to connect with others is a basic human motivation and proactively incorporate it into their products, customer experiences, and brand messaging  During the COVID-19 pandemic, observers have warned about the potential adverse effects of social distancing and mandatory masking on loneliness and mental health  The pandemic in some ways has changed the nature of dating itself Esteem  Esteem is the need all humans have to be respected by others and by themselves  Maslow described two kinds of esteem needs: lower and higher  Lower esteem needs include the need for the respect of others, status, recognition, fame, prestige, and attention  Higher esteem needs include the need for self-respect, strength, competence, mastery, selfconfidence, independence, and freedom  The pandemic has led individuals to place relatively greater focus on lower order needs compared to higher order esteem and self-actualization needs  Microsoft researchers examined over 35 billion Bing web searches over 14 months, finding that the expression of basic needs increased ―exponentially‖ during this time while higher level aspirations declined 262

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Gourmet coffee was another popular choice for lockdown consumers working from home; sales of Starbucks at-home products grew at a double digit rate in 2021 Self-Actualization  The top tier of Maslow‘s hierarchy is the aspiration to become everything that one is capable of becoming  Self-actualization pertains to a person‘s full potential and the need to realize that potential  When applied to individual consumers, the need for self-actualization is specific  A recent survey of homeowners found that 89 percent made some type of improvement to their home during the pandemic, on average spending more than $3,500  Others sought to make improvements to their own bodies by investing in home-fitness equipment  Exercise bike maker Peloton experienced a 172 percent surge in sales in 2020, with more than 1 million people subscribing to its streaming classes Attitudes  An attitude is a relatively enduring organization of beliefs, feelings, and behavioral tendencies toward socially significant objects, groups, events, or symbols  Of the various ways psychologists think about attitudes and attitude change, the most influential is the ABC model which suggests that the structure of the way we feel about something (i.e., an attitude object), is comprised of three dimensions  The affective component of attitudes refers to feelings or emotions linked to an attitude object, such as, ―I am afraid of snakes‖  The behavioral component of attitudes refers to past experiences and future intentions regarding an attitude object, such as, ―If I see a snake, I will try to avoid it‖  The cognitive component of attitudes relates to beliefs and thoughts we associate with an object, such as, ―Snakes are dangerous and gross‖ Affective Dimension of Attitudes  The affective component is made up of feelings or emotional reactions to the attitude object  It is a classic System 1–type response; it often exists as nothing more than a vague, general feeling  Studies have shown affective attitudes more strongly influence health intentions and behaviors than do cognitive attitudes  Firms increasingly attempt to influence consumers‘ liking of their brands with little thought toward influencing beliefs or behaviors; marketers adopting this approach presume that liking will influence brand awareness Behaviorial Dimension of Attitudes  The behavioral component of an attitude relates to someone‘s tendencies to respond in a certain manner toward an attitude object based on past experiences or future intentions  Marketers seeking to influence consumer behaviors should be on the lookout for factors that may keep someone from acting on favorable attitudes Cognititve Dimension of Attitudes 263

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CONNECT BACK: Reference Connect Assignment 4-3 If a firm‘s product falls in the safety needs category, what types of marketing communication would you use in promoting your product and brand to consumers? (Answer: Open ended; economic safety is a concern during a recession or a pandemic, and home safety is a concern for families or those living alone. Emphasizing a greater sense of safety can increase revenue when applied to the appropriate demographic.) How does marketing safety needs differ from marketing, for example, esteem needs? (Answer: Open ended; esteem needs can only be met after safety needs are met. For example, advertising the security of an apartment complex before communicating its prestigious location may be more appealing.) LO4-6 Summarize how situational factors influence consumer decisions. Situational Influences  Situational influences describe factors particular to a time and place that have a demonstrable and systematic effect on buyer behaviors

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These factors can temporarily alter customers' preferences, attitudes, or intentions, leading them to replace their typical perspective with one that is situational Physical Surroundings  The physical environment is the most readily apparent feature of a situation  While traditional views have focused on aspects of in-store environments, more recent work has extended consideration of the physical environment to include online consumer experiences  Design of the physical setting pertain to visual elements, which might include the particular layout and style of a retail store or website  Aesthetic features relate to ambient background conditions such as lighting, scent, and music or other sounds  Research indicates that it is the overall configuration of these cues that combine to influence consumer response Social Surroundings  The presence of others, their apparent roles within the environment, and the occurrence and nature of interpersonal interactions are all potentially relevant features  Research in cognitive neuroscience has shown feelings of crowdedness induce stress and lead to avoidance behavior Time  People today feel more pressure on their time today than they did a generation or two ago  Companies throughout the world understand consumers‘ time pressures, and they design goods and services to alleviate those pressures  Perceptions of time available affect consumer decision making and behaviors in two key ways  Time limitations restrict the extent to which consumers are willing or able to process information relevant to their purchases  Time pressures increase stress, which in turn interferes with memory retrieval  Consumers are often willing to pay more for products if the placement of those products saves them time  By placing products in a more convenient location, marketers can often increase their profits on individual items while still providing great value to their customers Task Definition  Customer perceptions, attitudes, and behaviors may also be situationally influenced by the nature of the task they are seeking to fulfill and the intended use of the item  Task definition may also reflect differences in buyer and user roles  Research in this area has shown that the nature of the defined task can greatly impact customers‘ variety-seeking behaviors, choice of retailer, and product selection Involvement

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How consumers make choices is influenced by their level of involvement in the decision process  Involvement is the personal, financial, and social significance of the decision being made  The study of involvement focuses on how consumers choose which alternative to purchase  Involvement may be high or low Low-Involvement Buying Decisions  Impulse buying occurs when a consumer purchases a product with no planning or forethought  Impulse purchases usually occur with low-involvement products  Low-involvement products are inexpensive products that can be purchased without much forethought and that are purchased with some frequency  Consumers often do not recognize their desire for a low-involvement product until they are in the store High-Involvement Buying Decisions  High-involvement products are significant purchases that carry a greater risk to consumers if they fail  The two most common examples of high-involvement purchases are a car and a house  Companies that market high-involvement products must provide potential consumers with extensive and helpful information as they go through the decision-making process  The difference between low-involvement and high-involvement products is not always absolute; it depends on the priorities of the individual making the purchase Figure 4.4 Characteristics of High- and Low-Involvement Buying Decisions INSIGHT QUESTIONS What are some examples of low-involvement and high-involvement purchase decisions you have made? (Answer: Open ended; low involvement purchases—popcorn at the movies, up-sizing French fries with a combo; high-involvement purchases—television, taking a vacation, taking out student loans). Consider the decision to purchase a vehicle after graduating college. Explore the characteristics of the purchase; what makes this a high-involvement purchase? (Answer: It is expensive, seldom purchased, requires research, and is risky). How do marketers capitalize on low-involvement purchase decisions, which are usually made in the store? (Answer: Unique packaging or special displays help to capture the consumer‘s attention and quickly explain the product‘s purpose and benefits). LO4-7 Compare business-to-business marketing to business-to-consumer marketing. 266

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Business-to-Business Marketing  Business-to-business (B2B) marketing consists of marketing to organizations that acquire goods and services in the production of other goods and services that are then sold or supplied to others  More dollars change hands in sales to business buyers than in sales to end consumers  B2B purchasers and purchasing processes can be subject to some of the same types of cultural, social, individual, psychological, and situational influences as B2C buying  Several factors are certainly unique to business markets Table 4.1 Comparison of Consumer and Organizational Buying INSIGHT QUESTIONS What do you think the biggest differences are? (Answer: Open ended; number of buyers, length of the buying process, and number of people involved in the purchase decision, dollar amount of the purchase being considered, relationship considerations with several parties, location of product being purchased, etc.) What do you think about a committee making purchasing decisions? What are the advantages and disadvantages (Answer: Open ended; pros and cons can be weighed with input being exchanged throughout the process, various backgrounds and experiences can add value to the process, and product requirements can be more thoroughly examined from each committee member communicating what is needed from their perspective.) Professional Purchasing  The procurement of B2B products often impacts many functions and individuals across the enterprise  In some instances, the purchases involve technologically complex products that require extensive customization or retrofitting prior to implementation  As a result, organizational purchasing processes are typically more formalized  Prior to most major purchases, business organizations publish a request for proposal (RFP) document  The RFP specifies what the customer is looking for and describes each evaluation criterion on which a vendor‘s proposal will be assessed which helps business buyers weed out unqualified suppliers and simplifies evaluation of competing bids

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In many organizations, purchases will involve professionally trained purchasing agents, managers who are experienced in the policies and procedures necessary to make a large deal  In addition to a college degree, many professional purchasing agents will complete a rigorous certification program to earn the designation of Certified Purchasing Manager (CPM)  In some large organizations, purchasing managers may spend a large portion of their careers purchasing a limited number of items and even become known as industry experts on these items Derived Demand  The need for business goods is derived from demand for consumer goods  Derived demand refers to demand for one product that occurs because of demand for a related product  To stimulate derived demand, many B2B suppliers seek to actively manage relationships with not only their direct customers but also with indirect customers—that is, their customer‘s customers  Such efforts can provide marketers with valuable information on downstream market characteristics and preferences, helping them create improved value propositions for their own buyers which, in turn, strengthens trust and commitment toward the supplier firm  The presence of derived demand can make it more difficult for corporate leaders and policy makers to accurately gauge the social and environmental costs of products and service Fewer Buyer, Larger Purchases  Business marketers typically deal with far fewer buyers than consumer marketers  Business buyers usually buy in much larger order quantities  As a result, each individual customer tends to be more essential to a B2B firm‘s success  B2B marketers feel pressure to offer high-quality products to their business customers and maintain good relationships with customers LO4-8 Discuss the different types of B2B customers. Types of Business Customers  Business-to-business marketing professionals focus on several major categories of business customers, including producers, resellers, government markets, and institutional markets Producers  Producers are profit-oriented individuals and organizations that use purchased goods and services to produce other products or to facilitate their daily operations  They include both manufacturers and service providers, totaling more than 13 million U.S. firms  Producers range in size from large, multinational companies down to your locally owned practices  An OEM is a producer whose products are used as components or subsystems in another firm's products

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An OEM will typically work very closely with the company that sells the finished product to customize designs based on that company‘s needs North American Industry Classification System  Producers in the United States, Canada, and Mexico are categorized according to the North American Industry Classification System (NAICS)  This industry classification system was introduced with the passage of the North American Free Trade Agreement (NAFTA) in 1993  NAICS is used to generate comparable statistics for businesses and industries across the three countries and divides industrial activity into 20 sectors, from construction and retail to education services  While the NAFTA agreement was replaced by the USMCA in 2020, the new trade agreement maintains the NAICS industry classification schema  Since each member country uses a common criteria in categorizing businesses, NAICS is a valued tool that helps marketers assess business markets and select attractive target market segments  Each category is fairly similar in terms of its needs and market served  The first two numbers in the code represent the two-digit sector designation—manufacturing  The third digit reflects the subsector, the fourth digit reflects the industry group, and the fifth digit represents the industry  The first five digits of the NAICS codes are fixed for each country  The sixth digit can vary among USMCA countries Figure 4.6 NAICS Code Designation for a Canadian Mechanical Pulp Mill INSIGHT QUESTIONS Explain the number of digits in the NAICS classification system. (Answer: The first two numbers in the code represent the two-digit sector designation. The third digit reflects the subsector, the fourth digit reflects the industry group, and the fifth digit represents the industry. The first five digits of the NAICS codes are fixed among the members of NAFTA. The sixth digit can vary among NAF TA countries.) Why is it important for marketers to understand the NAICS classification list? (Answer: A working knowledge of the type of information governments need to make decisions about what to purchase can ease the process for marketers.) How is the six-digit code assigned? (Answer: Organizations in the NAFTA member countries are each given a six-digit code that can help marketers identify whether or not the business fits within their target market.)

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Who assigns NAICS codes? (Answer: Individual establishments are assigned NAICS codes by various agencies for various purposes using a variety of methods. (www.census.gov) Reseller Markets  Resellers include retailers and wholesalers that buy finished goods and resell them for a profit. A retailer is any organization that sells directly to end user consumers, like you.  There are over 1 million different retailers in the United States  Wholesaling is the sale of goods to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers  A wholesaler is a company that buys large quantities of products from manufacturers and then sells those products to retailers  Traditionally, wholesalers were physically closer to the markets they supplied than the source from which they got the products  Technology advances in developing nations have increased the number of wholesalers located near manufacturing bases in China, Taiwan, Southeast Asia, and others Government Markets  Government markets include thousands of federal, state, and local entities  The federal government is one of the world‘s largest customers, spending hundreds of billions of dollars a year  In addition to the federal government, there are 50 state governments and approximately 90,000 local governments, all of which must purchase goods and services  Because the public holds the government accountable for its expenditures, the buying procedures are often complex  The complex process involved in selling to governments has made some marketers, especially in small businesses, reluctant to bid on government business  Of the 20 million small businesses in the United States, only about 500,000 have completed the documentation necessary to be eligible to sell to the federal government Institutional Markets  Institutional markets represent organizations such as hospitals, schools, and faith-based and secular nonprofit organizations  Diverse buying situations pose unique challenges for institutional marketers

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Educating institutional customers about how specific goods and services can make their organizations more efficient or effective is a firm‘s best tool for selling products in this type of B2B market LO4-9: Compare the different buying situations in business-to-business marketing. Business Buying Behavior  Modern B2B buyers expect their enterprise buying experiences to match the ease and comfort of their consumer buying experiences  As a result, B2B purchases may be influenced by many of the same factors described in discussing B2C  Decision making can differ greatly based on the type of B2B buying decision  Many significant B2B purchase decisions entail the use of a committee, often referred to as the buying center B2B Buying Situations  While the types of B2B customers can vary, the buying situations for each are often quite similar  Marketers can classify business-to-business buying situations into three general categories— new buy, straight rebuy, and modified rebuy New Buy  A new buy involves a business customer purchasing a product for the very first time Straight Rebuy  A straight rebuy occurs when a business customer signals its satisfaction by agreeing to purchase the same product at the same price  B2B marketers prefer the straight rebuy outcome to any other  Straight rebuys normally do not require any additional design modifications or contract negotiations  Another major advantage of a straight rebuy is that the customer typically does not look for competing bids from other companies  Marketers who make it as easy as possible for customers to do business with their firm increase the likelihood that the customers will perceive value and develop loyalty Modified Rebuy  A modified rebuy occurs when the customer‘s needs change slightly or the customer is not completely satisfied with the product it purchased  Modified rebuys provide marketers with both positive and negative feedback

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The ability of a supplier to walk away from a modified rebuy provides marketers with an important negotiation tactic  Lowering prices to attract new customers also has the potential to negatively affect the level of a company‘s customer satisfaction and retention, as well as the profits derived from its existing client base  Lowering prices to attract new customers also has the potential to negatively affect the level of a company‘s customer satisfaction and retention, as well as the profits derived from its existing client base Buying Centers  A buying center is the group of people within an organization who are involved in a purchase decision  In most instances, the buying center will consist of individuals from various areas of the firm, such as accounting, engineering, operations, and marketing  The size and makeup of the buying center will depend on the magnitude, complexity, and importance of the purchase decision  Within the buying center, individuals perform one or more informally prescribed roles.  The initiator is the individual who first suggests making the purchase  Influencers are people who influence the decision  They often define technical specifications and provide information for evaluating options  Gatekeepers regulate the flow of information and access to other members of the buying center  Purchasing agents derive much of their power within the buying center through the gatekeeping role  The decider is the person who has the formal or informal power to approve selection of the supplier or brand  The purchaser is the person who actually negotiates the terms of the purchase  Users are members of the organization who will actually end up using the product  B2B marketers and salespeople should identify the roles of the buying center‘s members  With that information, marketers can determine each member‘s relative influence and be able to craft more effective marketing strategies Marketing Analytics INSIGHT QUESTION What data would be considered in classifying new buys, straight rebuys, and modified rebuys? (Answer: Open ended; recency and frequency of purchases, customer identification codes, quantity of items purchased, availability of product at time of purchase, and marketing dollars spent on existing versus new customers)

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TODAY’S PROFESSIONAL NOTES Katie Chikonde, Director of Capital Markets, Go Mortgage Will What does it mean to take action that is met with intention?

What does it mean to be authentic?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the differences between consumer and business markets. In the next section of the marketing plan exercise, you will evaluate the characteristics of each and decide which may be better for you as a career choice. Your assignment for this chapter is to decide whether you would prefer to have a career in a B2B or a B2C organization. Think through each type of organization carefully, and assess which better fits your personality. Finding a good fit will affect your ability to excel at and enjoy your career after college. Also, this knowledge will help you focus your job search, whether you want to work in marketing, finance, human resources, or any other area of the organization. Many professionals end up working in both B2B and B2C organizations over the course of their careers. You too will likely have many opportunities to move from one to the other in the future. However, the additional focus will help you build a career that can put you ahead of your fellow graduates. Student Task: Write a one-paragraph summary explaining whether you would prefer to work in a B2C or B2B organization. Discuss which organizational characteristics affected your decision. Conclude your paragraph with the names of three potential employers in the area where you would most want to live that focus on your chosen market. Chapter 4

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Chapter 4: Consumer Behavior

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-79 Discuss traditional and emerging perspectives on consumer decision-making processes. LO 1-80 Explain consumer decision-making processes. LO 1-81 Describe the cultural and social influences on consumer behavior. LO 1-82 Describe the individual differences that influence consumer behavior. LO 1-83 Describe the psychological processes that influence consumer behavior. LO 1-84 Summarize how situational factors influence consumer decisions. LO 1-85 Compare business-to-business marketing to business-to-consumer marketing LO 1-86 Discuss the different types of B2B customers. LO 1-87 Compare the different buying situations in business-to-business marketing. KEY TERMS affective choice aspirational reference group attitude attitude-based choice attribute-based choice belief brand community business-to-business (B2B) marketing buying center business-to-consumer (B2C) marketing cognitive dissonance consumer behavior consumer tribe country-of-origin effects 274

culture derived demand dissociative reference groups esteem evaluative criteria evoked set extended problem solving external information search habitual decision making high-involvement products impulse purchases internal information search involvement lifestyle limited problem solving low-involvement products

membership reference group mobile payment modified rebuy motivation new buy norms North American Industry Classification System (NAICS) opinion leaders original equipment manufacturer (OEM) perception personality problem recognition reference group

Instructor‘s Manual - Chapter 1 reminder purchases request for proposal (RFP) resellers search marketing self-actualization sensation

sensory marketing situational influences social network stimulus straight rebuy subculture

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unplanned purchases values wholesaler wholesaling

THOUGHT-PROVOKING ACTIVITY Set 1: What is consumer behavior and why do we need to understand this concept? Apply the consumer decision-making process to a purchase you‘ve made; walk us through the steps.

Set 2: What situational influences affect the consumer decision-making process? Provide two examples of how this has personally affected you.

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Consumer behavior also entails study of how these processes impact individuals and _ _ (B2C) marketing involves selling goods and services to end-user customers

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Business-to-business (B2B) marketing involves marketing to _ that acquire goods and services in the production of other goods and services that are then sold or supplied to others Traditional Perspectives on Consumer Decision Making  The _ is the focal point of all marketing efforts  Traditional views of decision making portray a fully informed consumer following a logical, step-by-step sequence  1. Identify an unmet _  2. Carefully collect information about _  3. Consciously weigh the relative importance of key product _  4. Create a _  5. Compute the optimal purchase decision, taking into account relative _ , and _ on each attribute  6. After purchase, compare product performance to _ and hold those data in memory to guide future action  It is unrealistic to expect people to perform such exhaustive mental analyses for each buying decision Inside Buyers’ Brains  The mind of the modern consumer diverges in important ways from earlier models of how people make decisions  Dominant perspectives within psychology and economics have largely ignored the impact of nonconscious forces, such as _ , on decision making  Today it is widely accepted that roughly _ percent of mental activity occurs below the level of conscious awareness  George Loewenstein suggests that rather than _ or _ behavior, consciousness seems mainly to make sense of behavior after it has been executed Thinking, Fast and Slow  In his book Thinking, Fast and Slow, Nobel Prize winner Daniel Kahneman metaphorically describes the emotional and cognitive modes of thought as _ and _  System 1 is an automatic and _ way of thinking  System 1 is capable of making quick decisions based on very little information, good at recognizing _ , and able to answer many questions based on _ and associations  System 2 is an _ , slow, and controlled way of thinking  System 2 allocates _ to the effortful mental activities that demand it, including _  System 2 has the task of _ , and if necessary, overriding decisions made by System 1 277 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Though System 1 requires little energy to operate, it is also prone to biases and _ in judgment  On the other hand, though reason dominates System 2, its heavy-footed, _ style makes its use impractical in many social settings  Research has shown that consumers‘ use of Systems 1 and 2 in decision making, as well as the quality of their decisions, may be greatly affected by _ LO4-2 Explain consumer decision-making processes. Consumer Decision-Making Processes  Modern marketing thought recognizes consumers may employ a variety of _  Approaches range from _ purchases to deliberations, and consumers may pass slowly or quickly through each phase of the _  For more complex or newer purchases, consumers tend to increase the corresponding level of _ they are willing to put into making a good decision  _ refers to consumer decisions made out of ―habit,‖ without much deliberation or product comparison  _ refers to situations in which the consumer has established basic criteria for evaluating the product category but is unfamiliar with suppliers, product options, prices, and so on  _ refers to consumer decisions requiring considerable cognitive activity, thought, and effort. An example is deciding to purchase a new automobile Figure 4.1 The Consumer Decision-Making Process INSIGHT QUESTIONS Walk through the decision to purchase a new vehicle using the consumer decision-making process. What insight did you gain from exploring the process?

Have you ever experienced cognitive dissonance (buyer‘s remorse)? If so, what contributed to this?

As a marketer, what are some initiatives you can do to guide consumers through the stages of the consumer decision-making process efficiently and with reduced levels of cognitive dissonance?

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Problem Recognition  Consumers ―hire‖ goods and services to help them _  _ occurs when consumers identify a gap between their current status and a desired end state. The recognized gap must be sufficient to arouse action on the part of the individual  A consumer‘s desire to address this imbalance depends on:  1. The relative importance or _ of the problem  2. The magnitude of the discrepancy between their actual and _  _ like advertisements, product placements, billboards, and social media serve as external triggers that heighten awareness of a problem and differences between actual and desired states  To better understand consumers problem recognition, companies often conduct _  _ and online forums are also increasingly used as sources to track customer _ and views of current solutions to various problems Information Search  Once consumers recognize a problem, they _ that will help them identify and sort available alternatives  Consumers try and find answers to the following questions:  1. What _ exist?  2. What are the appropriate _ for evaluating solutions?  3. How well does each _ perform on each evaluative criteria?  On the basis of information identified in your information search process, narrow down the choices  That shorter list of brands or products evaluated as potential solutions to a recognized consumer problem is known as an evoked set (also called a _ )  The amount of _ spent by a consumer during the informationsearch phase can vary based on several factors

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Sources of Information  Information searches fall into two broad categories: _ and external search  With _ , consumers draw from prior searches or past experiences with the same brand or product class  When consumers seek information beyond their personal knowledge and experience to support a buying decision, they engage in _  An external search may include personal sources, independent sources, experiential sources, or _ sources The Internet, Social Media Marketing, and Information Search  The Internet has changed how they decide _  Using smartphones, tablets, and other connected devices, consumers have easy and _ to product information, virtually anytime and anywhere  More than _ percent of shoppers research products online before purchasing.  _ percent begin their research on a search engine before going to a specific ecommerce website  _ is a form of Internet marketing that promotes websites by increasing their visibility in search engine results pages  _ (SEM) broadly involves buying website traffic via paid search listings  _ (SEO) improves search engine page rankings ―organically‖ by continuously updating site content and making it easier to navigate  _ feeds the discovery of new content, helping brands build links that in turn elevate search page rankings  Mainstream brands make wide use of tools like Facebook, Twitter, YouTube, and Instagram to strengthen _ and interest THINK LIKE A MARKETER What sites have you evaluated before making a purchase, and how did it influence your purchase decision?

CONNECT BACK: Reference Connect Assignment 4-1 What types of ads on social media do you find effective as a consumer?

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To monetize social media ads, what types of measurements would you track for a firm?

What does it take to be considered a brand champion?

How often does a firm need to monitor social media engagement across platforms?

Evaluating Alternatives  Once consumers have obtained information, they can more closely evaluate alternatives within their _  Consumers use a set of _ : the attributes they consider most important  The type of evaluative criteria a consumer uses in a decision varies from tangible features, like cost and performance, to _ factors such as style, feelings generated, and brand image  _ criteria can differ from consumer to consumer  Consumers make choices among their evoked-set alternatives in various ways  Using _ , consumers select a product via attributeby-attribute brand comparisons  Attribute-based choice relies heavily on System _ mental processing  Using _ , consumers make a decision based on their feelings about owning the product  Affective choice relies on the immediate emotional response to the offering, based on a ―_ ‖ decision rule  _ is a selection process that involves the use of general attitudes and summary impressions  These processes are not necessarily used in isolation Marketing Tactics for Influencing Buyer Evaluations  To influence buyer evaluations of alternatives, marketers emphasize _ of their offering  They use strategies to ensure potential buyers view those benefits as the most _ in resolving the problem the purchase is intended to satisfy 281 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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to evaluate you in their decision making

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Outlet Selection and Purchase  After selecting the brand, the consumer must next choose a _ (referring to the B2C market)  Selecting a retail outlet involves comparing options based on a consumer‘s _  Commonly considered factors include store location or _ , price, merchandise quality and selection, _ levels, attractiveness of physical facilities (or website), shopping atmosphere, return policies, marketing promotions, and retailer _  Once the consumer has selected a specific brand of product and a retail outlet, it is time to complete the _  To the extent possible, smart retailers simplify this final phase  If transactions aren‘t _ or if the checkout process is not clear at a glance, shoppers may feel frustrated and walk away  Brick-and-mortar retailers try to use _ to speed up checkout as much as possible: Some invest in self-service kiosks  Since the pandemic, many are now offering curbside pickup and home delivery for items purchased online  Streamlining _ and _ is perhaps even more essential for online retailers  _ of all e-commerce shopping carts are abandoned before the purchase is complete, which translates to over $4.6 trillion in lost retail sales each year THINK LIKE A MARKETER Have apps influenced your purchase decisions? If so, how?

Unplanned Purchases  _ are purchases made in a retail outlet that are different from those the consumer planned prior to entering the store.  _ are those that occur due to retailers‘ prompts to consumers while consumers are in the store.  _ occur when a consumer sees an item in-store and purchases it, with little or no deliberation, as the result of a sudden, powerful urge to have it.  People who consider themselves very ―fast and efficient‖ shoppers are far less likely to make impulse buys; they buy _ percent less than the average.

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Young, unmarried adult households with higher incomes do _ percent more unplanned buying  If a shopping trip includes stops at multiple stores, _ percent less unplanned buying occurs at the second or third store  The amount of unplanned buying goes up with the total number of categories  Even if shoppers have a list of items when they walk into a store, they often leave room in their _ budget for additional non-list items (sometimes called ―in-store slack‖)  With consumers increasingly able to tune out or avoid advertising in _ , the impact of shopper marketing on in-store decision making is a growing area of interest Credit Cards and Mobile Payment Systems  _ suggests that the decision to purchase is independent of how the transaction is paid  Studies have shown the ability to pay electronically rather than with cash increases both the amount consumers are willing to pay and the _ they purchase  Brain scans show that having to shell out cash for something actually activates centers within the brain associated with physical _ , and the use of credit cards effectively anesthetizes the ―pain of paying‖  _ , also referred to as digital wallets, refers broadly to payment services performed from or via a mobile device, and operated under financial regulation  The advent of mobile payment technologies has also lowered _ for small retailers  It is estimated that around 2 billion people worldwide, including more than 9 million American households, are ―_ ‖—that is, they don‘t have bank accounts or access to financial institutions Post-Purchase Evaluation  Consumers‘ thoughts and feelings about the purchase will likely affect whether they become _ buyers of a good or service  _ evaluation is even more important today because of the power of online customer reviews  Marketers seeking to influence consumers‘ post-purchase evaluation often focus on reducing buyers‘ feelings of _ or remorse associated with the purchase

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_ refers to the mental conflict that people undergo when they acquire new information that contradicts their beliefs or assumptions (also known as buyer‘s remorse) Feelings of cognitive dissonance following a purchase can arise for numerous reasons Marketers can use various tactics to reduce _

THINK LIKE A MARKETER How can social media work to reduce consumers‘ cognitive dissonance?

Figure 4.2 Consumer Decision-Making Process INSIGHT QUESTIONS What kinds of external influences can affect the consumer decision-making process?

What encourages consumers to take the next step in the consumer decision-making process?

LO4-3: Describe the cultural and social influences on consumer behavior. Cultural and Social Influences on Consumer Behavior  Group-based differences and _ can affect the consumer decisionmaking process; an effective _ takes these factors into account Culture  _ is the broad set of knowledge, beliefs, laws, morals, customs, and any other capabilities or habits acquired by humans as members of society  Culture supplies _ within which most individuals think and act  _ are formal or informal societal rules that specify or prohibit certain behaviors in specific situations  Violations of cultural norms can result in _ , or penalties, by other members of society

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THINK LIKE A MARKETER Has culture influenced any of your purchase decisions? How so?

Differences in National Cultures  Cultural differences can present a significant challenge to firms and marketers seeking a _  Marketers must understand existing and emerging _ within the markets that they serve  _ (emphasizing and rewarding individual initiative) is a defining characteristic of many Western cultures, such as the United States, Australia, the United Kingdom, Canada, and Sweden  People in countries such as China, Korea, Mexico, India, and Russia tend to be more _ (valuing cooperation and group conformity) in their orientation  Culture is multifaceted and dynamic, and it typically evolves _  Current events and _ can lead to more rapid changes among key subpopulations  The behavior of young U.S. consumers is often driven by a desire to make a _ Subcultures of Consumption, Brand Communities, and Consumer Tribes  A_ is a segment of a larger culture whose members share distinguishing values and patterns of behavior  _ , which are based on shared race, language, or national background, are the most commonly described subcultures  In the United States, religions, geographic regions, and _ are also bases for strong subcultures  It is possible to be part of several different subcultures at once, each one influencing a different aspect of your _  A subculture of consumption is a distinctive subgroup of society that self-selects on the basis of a _ to a particular product class, brand, or consumption activity  A_ is a specialized, nongeographically bound community that is based on a structured set of social relations among admirers of a brand  _ exist when consumers identify with one another and share experiences through a variety of brands, products, activities, and services

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Country-of-Origin Effects  _ are the beliefs and associations people in one country have about goods and services produced in another country  They can reflect an overall positive or negative _ about that country or be specific to certain products  Germany, for example, has a reputation for _ Social Factors  Sociologists have shown that we are subtly, and often unconsciously, influenced by the people around us—by _  A_ is a set of social actors (such as individuals or organizations) along with the set of ties between each pair of actors  By studying the properties of the social networks within which each of us interacts, scientists—and marketers—are gaining new understanding of the _ underlying our behavior  The main idea of the _ (sometimes referred to as the Kevin Bacon game) is that the average number of interpersonal connections separating any random pair of individuals—such as Hollywood actors—is around six  The power of our influence within a network extends out by _ degrees (our friends‘ friends‘ friends)  As a result, the _ of the people near us tend to influence our own actions, much like a flock of geese has no leader but flies in formation in a common direction Family Influences  _ are one of the greatest influences on consumer behavior  The level of _ varies across families  It also evolves as a family _ and as new members join the family through marriage or birth  Family influences are particularly important in some cultures  The composition of families has changed greatly in recent decades to include more _ and same-sex households which can affect consumer decisions in different ways important to marketers  The power of family as personal external information sources highlights why marketers must establish _ with all customers

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Children’s Influence on Family Purchases  _ often influence family purchases during the middles stages of the family life cycle, particularly in food-related sectors  Marketing _ to children has become a controversial topic for firms Reference Groups  A_ is the collection of people to whom a consumer compares themselves  Marketers recognize that the more public the purchase decision, the more impact reference groups are likely to have  A_ is the group to which a consumer actually belongs  Membership groups could include school clubs, fraternities and sororities, and the _  An _ refers to the individuals a consumer would like to emulate  _ include people that the individual would not like to be like  _ and _ provide perhaps the most notable example of dissociative reference groups—they actively seek to dissociate themselves from groups they view as ―uncool‖ or as something their parents might be interested in Opinion Leaders  Individuals who exert an unequal amount of influence on the decisions of others because they are considered knowledgeable about particular products are _  Building _ through cause-related marketing and community sponsorship is a more effective strategy to reach opinion leaders than traditional one-way marketing communications  _ have fueled the opinion-leader trend, enabling everyday people and celebrities alike to become powerful sources of influence  A_ is an individual who has gained popularity and trust among a growing audience of online followers by becoming an early adopter, innovator, or _ in a specific area of interest such as fashion, health, or technology

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THINK LIKE A MARKETER If you worked as a marketing director for a firm, how would you know how much to pay an influencer to advertise your product?

LO4-4: Describe the individual differences that influence consumer behavior. Individual Influences on Consumer Behavior  A consumer‘s _ might include traits that make them confident, personable, deferential, adaptable, or dominant Personality  A consumer‘s personality might include traits that make them _ , personable, deferential, adaptable, or dominant  Personality is the set of distinctive characteristics in thinking, feeling, and _ that lead an individual to respond in a _ way to certain situations  Called the ―Big 5‖ model, the factors—openness, _ , extraversion, agreeableness, and _ —form an easy to remember acronym _  Understanding dominant consumer personality profiles can help brands better engage consumers with _ , ads, and content in ways that are more likely to _ Figure 4.2 O-C-E-A-N Personality Framework INSIGHT QUESTIONS Why do marketers need to understand personality profiles?

What is the effect of using personality-based marketing?

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Lifestyle characteristics are often easier for a firm to understand and measure than _ .

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_ interests, and opinions.

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is a person‘s typical way of life as expressed by their activities,

Values  _ reflect a consumer‘s belief that a specific behavior is socially or personally preferable to another behavior  _ include everything from a consumer‘s religious beliefs to a belief in self-responsibility. It is likely that your value system also corresponds to your buying behavior for many goods and services  By demonstrating the firm‘s alignment with a customer‘s values and _ , values-based branding shifts marketing from a _ -centric approach to a _ -centric one  Many consumers look for goods and services that embrace _ , that is, products produced in a way that meets the needs of the present without compromising future generations LO4-5 Describe the psychological processes that influence consumer behavior. Psychological Influences on Consumer Behavior  When making a purchase decision, consumers engage in certain _ that can prompt or influence consumer behavior  These include _ , motivation, attitudes, and _ Perception  _ is the physical process during which our sensory organs— those involved with hearing, vision, touch, smell, and taste—respond to external stimuli  _ is the psychological process by which people select, organize, and interpret sensory information to form a meaningful picture of the world; it is the way we see the world around us  The perception process begins when a consumer is exposed to either an internal or external _ , which is any input affecting one of the five senses: sight, sound, smell, touch, or taste  _ arises in response to internal or external stimuli  _ can be thought of those that originate within an individual  _ arise from an outside source, such as a distinctive ringtone or the innovative package design of the tablet you have been eyeing

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It is practically impossible for consumers to process each and every input received from their environment so they use _ to decide which stimuli to notice and which ones to ignore  Two concepts closely related to selective exposure are _ and _  _ is the tendency to interpret information in a way that fits our preconceptions  _ relates to the tendency for people to more easily recall information that is consistent with their feeling and beliefs Sensory Marketing  _ is marketing that engages consumers‘ senses and affects their behaviors  Through use of sensory marketing, brands can create subconscious triggers which define consumer perceptions of the product (e.g., its _ , quality, innovativeness) as well as its unique _ (e.g., color, taste, smell, and shape)  Two-thirds of our sensory input is received through our _  In 2021, it was estimated that the average American adult is exposed to between _ and _ ads each day  By appealing to senses other than sight, marketers seek to garner attention and build stronger _ with consumers Motivation  _ is our inward drive to get what we need or want  Abraham Maslow, in the mid-1900s, theorized that humans have various types of needs; these range from simple needs like water, _ , and sleep to more complex needs like love and _  Maslow‘s theory is that people seek to meet their _ (those at the bottom of the pyramid) before fulfilling higher level needs Figure 4.3 Maslow’s Hierarchy of Needs INSIGHT QUESTIONS List examples of each of the five needs.

Maslow theorized that one must satisfy the lower level basic needs before progressing on to meet higher level growth needs. How does this theory affect marketers?

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Physiological Needs  _ are the simple requirements for human survival and form the base of Maslow‘s hierarchy  A consumer who lacks food, safety, love, and esteem would consider _ their greatest need and would seek to fulfill that need before any of the others  Due to COVID-19-related conditions, many people experienced strong motivations to ensure their _ needs were met, such as the fear of lack of food and other basic necessities  Public policy responses to COVID-19 have also elevated concerns over meeting physiological needs Safety Needs  _ take precedence and begin to dominate behavior  Safety can take different forms, including physical safety, health, and _ safety  The absence of _ safety—due to natural disaster, family violence, or war, for example—can lead people to experience post-traumatic stress disorder or other emotional conditions  A sudden concern over _ safety, for instance owing to a troubling doctor‘s visit, can likewise be emotionally or physically disabling  The absence of _ safety—due to economic crisis or lack of job opportunities—leads consumers to seek out greater job security, reduce discretionary spending, and, _  Depending on the _ and _ rates and trends in their cities, individuals have placed greater emphasis on meeting physical, health, and economic safety needs during the COVID-19 pandemic Need for Love and Belonging  Love and belonging needs involve feelings of _ , family, friendships, and the strength of those relationships  Smart marketers recognize that the need to connect with others is a basic human motivation and proactively incorporate it into their products, _ , and _  During the COVID-19 pandemic, observers have warned about the potential adverse effects of social distancing and mandatory masking on _ and _  The pandemic in some ways has changed the nature of _ itself

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Esteem  _ is the need all humans have to be respected by others and by themselves  Maslow described two kinds of esteem needs: _ and _  _ include the need for the respect of others, status, recognition, fame, prestige, and attention  _ include the need for self-respect, strength, competence, mastery, self-confidence, independence, and freedom  The pandemic has led individuals to place relatively greater focus on _ order needs compared to _ -order esteem and self-actualization needs  Microsoft researchers examined over 35 billion Bing web searches over 14 months, finding that the expression of _ needs increased ―exponentially‖ during this time while _ -level aspirations declined  _ was another popular choice for lockdown consumers working from home; sales of _ at-home products grew at a double digit rate in 2021 Self-Actualization  The top tier of Maslow‘s hierarchy is the _ to become everything that one is capable of becoming  _ pertains to a person‘s full potential and the need to realize that potential  When applied to _ , the need for self-actualization is specific  A recent survey of homeowners found that _ percent made some type of improvement to their home during the pandemic, on average spending more than $_  Others sought to make improvements to their own bodies by investing in _  Exercise bike maker Peloton experienced a _ percent surge in sales in 2020, with more than 1 million people subscribing to its streaming classes Attitudes  An _ is a relatively enduring organization of beliefs, feelings, and behavioral tendencies toward socially significant objects, groups, events, or symbols  Of the various ways psychologists think about attitudes and attitude change, the most influential is the _ which suggests that the structure of the way we feel about something (i.e., an attitude object), is comprised of three dimensions  The _ component of attitudes refers to _ or _ linked to an attitude object, such as, ―I am afraid of snakes‖ 294 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The _ component of attitudes refers to _ and _ regarding an attitude object, such as, ―If I see a snake, I will try to avoid it‖  The _ component of attitudes relates to _ and _ we associate with an object, such as, ―Snakes are dangerous and gross‖ Affective Dimension of Attitudes  The _ is made up of feelings or emotional reactions to the attitude object  It is a classic _ –type response; it often exists as nothing more than a vague, general feeling  Studies have shown _ attitudes more strongly influence health intentions and behaviors than do _ attitudes  Firms increasingly attempt to influence consumers‘ liking of their brands with little thought toward influencing _ or _ ; marketers adopting this approach presume that liking will influence _ Behaviorial Dimension of Attitudes  The _ of an attitude relates to someone‘s tendencies to respond in a certain manner toward an attitude object based on past experiences or future intentions  Marketers seeking to influence consumer behaviors should be on the lookout for factors that may keep someone from acting on _ Cognititve Dimension of Attitudes  The _ of consumer attitudes rests largely upon a person‘s beliefs about a product, brand, or other attitude object  A_ is an organized pattern of knowledge that an individual holds to be true about their world  Influencing the cognitive component of someone‘s attitude depends on altering these _  When _ are held about a brand, some are likely to be more strongly held than others

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Beliefs that are weakly held are more susceptible to _ Strengthening the _ component of consumer attitudes often involves providing consumers with _ or _ about functional capabilities; those facts or statement are intended to change existing beliefs or provide the basis for new beliefs While _ tend to be consistent across the three components, this is not always the case

How does marketing safety needs differ from marketing, for example, esteem needs?

LO4-6 Summarize how situational factors influence consumer decisions. Situational Influences  _ describe factors particular to a time and place that have a demonstrable and systematic effect on buyer behaviors  These factors can temporarily alter customers‘ _ , _ or _ , leading them to replace their typical perspective with one that is situational Physical Surroundings  The _ environment is the most readily apparent feature of a situation  While traditional views have focused on aspects of in-store environments, more recent work has extended consideration of the physical environment to include _  Design of the _ pertain to visual elements, which might include the particular layout and style of a retail store or website  _ features relate to ambient background conditions, such as lighting, scent, and music or other sounds  Research indicates that it is the overall configuration of these cues that combine to influence _ 296 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Social Surroundings  The presence of others, their apparent roles within the _ , and the occurrence and nature of _ are all potentially relevant features  Research in cognitive neuroscience has shown feelings of _ induce stress and lead to _ Time  People today feel more pressure on their _ today than they did a generation or two ago  Companies throughout the world understand consumers‘ _ , and they design goods and services to alleviate those pressures  Perceptions of time available affect _ and behaviors in two key ways  Time limitations restrict the extent to which consumers are willing or able to _ relevant to their purchases  Time pressures increase stress, which in turn interferes with _  Consumers are often willing to _ for products if the placement of those products saves them time  By placing products in a more _ , marketers can often increase their profits on individual items while still providing great value to their customers Task Definition  Customer perceptions, attitudes, and behaviors may also be situationally influenced by the nature of the _ they are seeking to fulfill and the _ of the item  _ may also reflect differences in buyer and user roles  Research in this area has shown that the nature of the defined task can greatly impact customers‘ _ behaviors, choice of _ , and product selection Involvement  How consumers make choices is influenced by their level of involvement in the _

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_ is the personal, financial, and social significance of the decision being made The study of involvement focuses on how consumers choose _ Involvement may be _ or _

Low-Involvement Buying Decisions  _ occurs when a consumer purchases a product with no planning or forethought  _ usually occur with low-involvement products  _ are inexpensive products that can be purchased without much forethought and that are purchased with some frequency  Consumers often do not recognize their desire for a low-involvement product until they are _ High-Involvement Buying Decisions  _ are significant purchases that carry a greater risk to consumers if they fail  The two most common examples of high-involvement purchases are a _ and a _  Companies that market high-involvement products must provide potential consumers with _ and _ as they go through the decision-making process  The difference between low-involvement and high-involvement products is not always absolute; it depends on the _ of the individual making the purchase Figure 4.4 Characteristics of High- and Low-Involvement Buying Decisions INSIGHT QUESTIONS What are some examples of low-involvement and high-involvement purchase decisions you have made?

Consider the decision to purchase a vehicle after graduating college. Explore the characteristics of the purchase; what makes this a high-involvement purchase?

How do marketers capitalize on low-involvement purchase decisions, which are usually made 298 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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in the store?

LO4-7 Compare business-to-business marketing to business-to-consumer marketing. Business-to-Business Marketing  _ (B2B) marketing consists of marketing to organizations that acquire goods and services in the production of other goods and services that are then sold or supplied to others  More _ change hands in sales to business buyers than in sales to end consumers  B2B purchasers and purchasing processes can be subject to some of the same types of cultural, _ , individual, _ , and situational influences as B2C buying  Several factors are certainly unique to _ markets Table 4.1 Comparison of Consumer and Organizational Buying INSIGHT QUESTIONS What do you think the biggest differences are?

What do you think about a committee making purchasing decisions? What are the advantages and disadvantages

Professional Purchasing  The _ of B2B products often impacts many functions and individuals across the enterprise  In some instances, the purchases involve technologically complex products that require extensive _ or _ prior to implementation  As a result, organizational purchasing processes are typically more _  Prior to most major purchases, business organizations publish a _ (RFP) document

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The RFP specifies what the customer is looking for and describes each evaluation criterion on which a vendor‘s proposal will be assessed which helps business buyers weed out _ and simplifies evaluation of

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In many organizations, purchases will involve professionally trained purchasing agents, managers who are experienced in the policies and _ necessary to make a large deal  In addition to a college degree, many professional purchasing agents will complete a rigorous certification program to earn the designation of _ (CPM)  In some large organizations, purchasing managers may spend a large portion of their careers purchasing a limited number of items and even become known as _ on these items Derived Demand  The need for business goods is _ from demand for consumer goods  _ refers to demand for one product that occurs because of demand for a related product  To stimulate derived demand, many B2B suppliers seek to actively manage relationships with not only their direct customers but also with _ —that is, their customer‘s customers  Such efforts can provide marketers with valuable information on downstream market characteristics and preferences, helping them create improved value propositions for their own buyers which, in turn, strengthens _ and _ toward the supplier firm  The presence of derived demand can make it more difficult for corporate leaders and policy makers to accurately gauge the _ and _ costs of products and service Fewer Buyer, Larger Purchases  Business marketers typically deal with far _ buyers than consumer marketers  Business buyers usually buy in much _ order quantities  As a result, each individual customer tends to be _ to a B2B firm‘s success  B2B marketers feel pressure to offer _ products to their business customers and maintain good relationships with customers LO4-8 Discuss the different types of B2B customers. Types of Business Customers

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Business-to-business marketing professionals focus on several major categories of business customers, including _ , resellers, _ , and institutional markets Producers  _ are profit-oriented individuals and organizations that use purchased goods and services to produce other products or to facilitate their daily operations.  They include both _ and _ , totaling more than 13 million U.S. firms  _ range in size from large, multinational companies down to your locally owned practices  An _ is a producer whose products are used as components or subsystems in another firm‘s products  An OEM will typically work very closely with the company that sells the _ to customize designs based on that company‘s _ North American Industry Classification System  Producers in the United States, Canada, and Mexico are categorized according to the _ (NAICS)  This industry-classification system was introduced with the passage of the _

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(NAFTA) in _ NAICS is used to generate comparable _ for businesses and industries across the three countries and divides industrial activity into _ sectors, from construction and retail to education services While the NAFTA agreement was replaced by the _ in 2020, the new trade agreement maintains the _ schema Since each member country uses a _ in categorizing businesses, NAICS is a valued tool that helps marketers assess business markets and select attractive target market segments Each category is fairly similar in terms of its _ and _ The first two numbers in the code represent the two-digit sector designation— _ The third digit reflects the _ , the fourth digit reflects the _ , and the fifth digit represents the _ The first five digits of the NAICS codes are _ for each country The sixth digit can vary among _ countries 301 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Figure 4.6 NAICS Code Designation for a Canadian Mechanical Pulp Mill INSIGHT QUESTIONS Explain the number of digits in the NAICS classification system.

Why is it important for marketers to understand the NAICS classification list?

How is the six-digit code assigned?

Who assigns NAICS codes?

Reseller Markets  _ include retailers and wholesalers that buy finished goods and resell them for a profit. A retailer is any organization that sells directly to end user consumers, like you  There are over _ different retailers in the United States  _ is the sale of goods to retailers, to industrial, commercial, institutional, or other professional business users, or to other wholesalers  A_ is a company that buys large quantities of products from manufacturers and then sells those products to retailers  Traditionally, wholesalers were _ to the markets they supplied than the source from which they got the products  _ in developing nations have increased the number of wholesalers located near manufacturing bases in China, Taiwan, Southeast Asia, and others Government Markets  _ include thousands of federal, state, and local entities

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The _ is one of the world‘s largest customers, spending hundreds of billions of dollars a year

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In addition to the federal government, there are 50 _ and approximately _ local governments, all of which must purchase goods and services  Because the public holds the government accountable for its expenditures, the _ are often complex  The complex process involved in selling to governments has made some marketers, especially in small businesses, _ to bid on government business  Of the 20 million small businesses in the United States, only about _ have completed the documentation necessary to be eligible to sell to the federal government Institutional Markets  _ represent organizations such as hospitals, schools, and faith-based and secular nonprofit organizations  _ pose unique challenges for institutional marketers  Educating institutional customers about how specific goods and services can make their organizations more _ or _ is a firm‘s best tool for selling products in this type of B2B market LO4-9: Compare the different buying situations in business-to-business marketing. Business Buying Behavior  Modern B2B buyers expect their enterprise buying experiences to match the ease and comfort of their consumer _  As a result, B2B purchases may be influenced by many of the same factors described in discussing B2C  Decision making can differ greatly based on the type of B2B _  Many significant B2B purchase decisions entail the use of a _ , often referred to as the buying center B2B Buying Situations  While the types of B2B customers can vary, the buying situations for each are often quite similar  Marketers can classify business-to-business buying situations into three general categories— _ ,_ , and _

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New Buy  A_ involves a business customer purchasing a product for the very first time Straight Rebuy  A straight rebuy occurs when a business customer signals its satisfaction by agreeing to purchase the _ product at the _ price  B2B marketers prefer the _ outcome to any other  Straight rebuys normally do not require any additional _ or _  Another major advantage of a straight rebuy is that the customer typically does not look for _ from other companies  Marketers who make it as easy as possible for customers to do business with their firm increase the likelihood that the customers will perceive _ and develop _ Modified Rebuy  A_ occurs when the customer‘s needs change slightly or the customer is not completely satisfied with the product it purchased  Modified rebuys provide marketers with both _ and _  The ability of a supplier to walk away from a modified rebuy provides marketers with an important _  _ to attract new customers also has the potential to negatively affect the level of a company‘s customer satisfaction and retention, as well as the profits derived from its _  Lowering prices to attract new customers also has the potential to negatively affect the level of a company‘s _ and _ , as well as the profits derived from its existing client base Buying Centers  A_ is the group of people within an organization who are involved in a purchase decision  In most instances, the buying center will consist of individuals from various areas of the firm, such as _ , engineering, _ , and marketing  The size and makeup of the buying center will depend on the _ , complexity, and _ of the purchase decision  Within the _ , individuals perform one or more informally prescribed roles  The _ is the individual who first suggests making the purchase 305 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ are people who influence the decision They often define technical specifications and provide information for _ _ regulate the flow of information and access to other members of the buying center Purchasing agents derive much of their _ within the buying center through the gatekeeping role The _ is the person who has the formal or informal power to approve selection of the supplier or brand The _ is the person who actually negotiates the terms of the purchase _ are members of the organization who will actually end up using the product B2B marketers and salespeople should identify the _ of the buying center‘s members With that information, marketers can determine each member‘s _ and be able to craft more effective _

Marketing Analytics INSIGHT QUESTION What data would be considered in classifying new buys, straight rebuys, and modified rebuys?

TODAY’S PROFESSIONAL NOTES Katie Chikonde, Director of Capital Markets, Go Mortgage Will What does it mean to take action that is met with intention?

What does it mean to be authentic?

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Your Marketing Plan. In this chapter, we discussed the differences between consumer and business markets. In the next section of the marketing plan exercise, you will evaluate the characteristics of each and decide which may be better for you as a career choice. Your assignment for this chapter is to decide whether you would prefer to have a career in a B2B or a B2C organization. Think through each type of organization carefully and assess which better fits your personality. Finding a good fit will affect your ability to excel at and enjoy your career after college. Also, this knowledge will help you focus your job search, whether you want to work in marketing, finance, human resources, or any other area of the organization. Many professionals end up working in both B2B and B2C organizations over the course of their careers. You too will likely have many opportunities to move from one to the other in the future. However, the additional focus will help you build a career that can put you ahead of your fellow graduates. Your Task: Write a one-paragraph summary explaining whether you would prefer to work in a B2C or B2B organization. Discuss what organizational characteristics affected your decision. Conclude your paragraph with the names of three potential employers in the area where you would most want to live that focus on your chosen market. Chapter 4

TARGET MARKET

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Chapter 5: Marketing Research

Marmaduke St. John/Alamy Stock Photo

Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 5 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-88 Explain the importance of marketing research and explain the marketing research process. LO 1-89 Describe the various types of secondary data sources and explain the importance of predictive analytics. LO 1-90 Discuss the need for primary research and describe qualitative and quantitative research approaches. LO 1-91 Explain the importance of research to firms marketing products globally. LO 1-92 Understand several of the latest trends in marketing research, including customer journey mapping, mobile marketing research, and neuromarketing. LO 1-93 Discuss the main ethical issues in conducting marketing research. KEY TERMS A/B testing advertising effectiveness studies behavioral targeting Big Data blog mining causal research competitive intelligence convenience sample cross-tabulation customer journey map data visualization decision support system (DSS) demand analysis depth interview

descriptive research ethnographic research exploratory research facial coding field experiment focus group heat map marketing information systems (M IS) marketing research mobile marketing research microexpression mobile marketing research moment of truth mystery shoppers neuromarketing

nonprobability sampling observation research panel data persona predictive analytics primary data probability sampling qualitative research reliability (of research) sales forecasting sampling scanner data secondary data semi-structured interview simple random sampling survey

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validity THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What is marketing research? How can it aid us in understanding a market? Provide five examples of the kind of information marketing research can provide. Set 2: What is the difference between primary and secondary data/research? List three examples of each. Which is typically done first?

A.J. Fernandez Owner and Executive Director, Phocus A.J. tackles brand potential through neuroscience and choice architecture. He uses his experience to provide insight in answering the following questions:

Photo provided by Alejandro Fernandez

173. What has been the most important thing in making you successful at your job? 174. What advice would you give soon-to-be graduates? 175. How is marketing relevant to your role at Phocus?

Instructor‘s Manual - Chapter 1 176.

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What do you consider your personal brand to be?

Woven in the chapter, you see how A.J. later elaborates on:  

When conducting marketing research, it is important to use multiple research methods. Collective strategies for gathering competitive intelligence.

Review with students:   LO5-1

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Explain the importance of marketing research and explain the marketing research process.  Market Research Process  What is Marketing Research?  Marketing Research Process  Step 1: Define the Problem  Step 2: Develop a Research Plan  Types of Research  Sampling  Step 3: Collect Data  The Marketing Information System  Decision Support Systems  Step 4: Analyze the Data  Step 5: Present Results and Take Action  Data Visualization  Marketing Research

How is marketing relevant in his role? List some of the nuances in conducting cross-cultural marketing research. Key Terms:  Marketing research  Demand analysis  Sales forecasting  Advertising effectiveness studies  Exploratory research  Descriptive research  Causal research  Sampling  Probability sampling  Simple random sampling  Nonprobability sampling  Convenience sample  Secondary data  Primary data  Marketing information system  Decision support system (DSS)  Cross-tabulation  Data visualization

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and You PowerPoint Slides

Lecture Notes: Market Research Process  

Consumers and business buyers‘ preferences and behaviors can change over time and are constantly reshaped by purchase contexts and social influences By employing modern marketing research processes and tools, managers are equipped to help their organizations improve marketing outcomes and financial performance

What Is Marketing Research?  

       

Marketing research is an organizational activity that links the consumer, customer, and public to the marketer through information The organization uses that information to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process Market research can inform almost every aspect of a company‘s business and impact clearly in terms of the four Ps Products should be developed based on real customer needs and wants, not just the whims of engineers or marketing executives Pricing decisions are often shaped by demand analysis, which estimates the level of demand for a particular product as well as how changes in price and other factors influence customer purchases Decisions regarding the place or distribution function often rely on sales forecasts Sales forecasting predicts the number of units sold in a market over a given time period Promotional activities, such as advertising, must be evaluated based on their effectiveness Advertising effectiveness studies measure how well an advertising campaign meets marketing objectives (such as increasing brand awareness or market share When done properly, marketing research activities help companies better understand and satisfy the needs and wants of customers

Marketing Research Process 

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A systematic approach to marketing research follows a five-step process: (1) define the problem, (2) develop a research plan, (3) collect data, (4) analyze the data, and (5) present results and take action

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Insight Questions: 177. Do marketers always go through each step of the marketing research process? (Answer: Sometimes marketers skip steps if they get an early solution to the problem or go back to an earlier step to gather additional information or reanalyze data, as needed.) 178. When is marketing research needed? (Answer: When sales decrease, when there is a new or revamped product, when there are changes in macroenvironmental factors, or as scheduled in the organization, etc.)

Figure Information: The Marketing Research Process The five step marketing research process for a hypothetical product sold by beverage Company, Fuze, which produces several popular tea and juice drinks, is shown. This shows the process as a linear progression. PowerPoint Slides

Lecture Notes: Step 1: Define the Problem  

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By clarifying the exact nature of the problem, the firm avoids wasting time, money, and human resources chasing the wrong data—and coming up with the wrong solutions Defining the problem has three components:

Instructor‘s Manual - Chapter 1     

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(1) Specify the research objectives: What questions will the research aim to answer? (2) Define the population of interest: Who do we wish to study or learn more about? (3) Identify relevant environmental factors: What aspects of the organization‘s internal or external environment are relevant to answering the research questions? The firm should set research objectives that are specific and measurable Next, the marketer will determine a set of procedures for addressing these research needs

Step 2: Develop a Research Plan    

In this step, the firm identifies the best approach to acquiring the information needed. Research plan development, sometimes called research design, involves: e-sign, e-firm identifies the be Determining what type of research techniques may be used to acquire it Presenting this research plan to management The research plan outlines sources of relevant existing data and details the research approach, sampling plans, materials, and instruments the research team will need to gather new data

Types of Research      

Figure 5.2

Managers can choose from among the following three types of research (1) Exploratory research seeks to discover new insights that help the firm better understand and define the research problem and suggest testable hypotheses Exploratory research usually involves some type of face-to-face interaction, such as a focus group (2) Descriptive research seeks to describe consumer behavior by answering the questions who, what, when, where, and how (3) Causal research is used to test hypotheses in order to understand the cause-and-effect relationships among variables Causal research often involves manipulating independent variables (the cause or source) to see how they affect a particular dependent variable (the effect or outcome) Insight Questions: 179. Provide examples of exploratory research. (Answer: Exploratory research usually involves some type of face-to-face interaction, such as a focus group) 180. Provide examples of descriptive research. (Answer: Examples of descriptive information include estimating market potential for a good or service; evaluating consumers‘ attitudes toward a product or company;

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identifying individual steps in customers‘ journey toward purchase; uncovering ways that consumers behave (do they prefer to shop online or in person); and gathering demographic information) 181. Provide examples of causal research. (Answer: For example, Fuze could conduct an experiment that manipulates the packaging of its beverages [the independent variable] to see how different package styles affect sales [the dependent variable])

Figure Information: The Relationships Among Research Objectives and Collection Options The relationships among research objectives, collection methods and types of collection methods are shown. The research objective will determine the typical research method and preferred data source. PowerPoint Slides

Lecture Notes: Sampling       

Sampling is the process of selecting a subset of the population that is representative of the population as a whole Sampling can be broken down into two basic types: probability and nonprobability Probability sampling ensures every person in the target population has a chance of being selected, and the probability of each person being selected is known The most common example of probability sampling is simple random sampling, in which everyone in the target population has an equal chance of being selected Nonprobability sampling, on the other hand, does not attempt to ensure that every member of the target population has a chance of being selected The most common nonprobability sampling approach is a convenience sample, in which the researcher invites responses from people who are easily accessible Which sampling approach to use depends upon the research objective

Step 3: Collect Data  314

Data collection begins with the firm‘s decision to use secondary or

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   Table 5.1

primary data Secondary data are information collected for alternative purposes prior to the study, typically by another entity or person Primary data are collected specifically for the research problem at hand Primary data collection methods may either be qualitative or quantitative Insight Questions:

Table Information: Differences Between Primary and Secondary Data The differences between primary and secondary data are outlined by showing collection method examples, advantages, disadvantages, and examples of use of each type of data. PowerPoint Slides

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182. Why must we collect primary and secondary data? (Answer: to test the hypotheses, find out information specific to the research problem while also exploring what has been previously discovered, to address a specific research objective) 183. A franchised restaurant is thinking of adding grilled chicken to its long list of (only) friend chicken options. Using Table 5.1‘s collection method examples, how would you uncover primary and secondary data sources? (Answer: Open ended; secondary—research other organizations who have tried this and their success/failure stories, from Chamber websites look up the number of businesses competing directly with the new food options, research organizations who offer similar products; primary—test marketing with a flagship store and several others in various regions, run a survey on Facebook to gauge market potential, a focus group can be done the same way, etc.)

Lecture Notes: The Marketing Information System    

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Primary and secondary data are acquired, processed, and stored by the firm‘s marketing information system A marketing information system consists of the people, technologies, and procedures aimed at supplying an organization‘s marketing information needs It assesses those needs, develops the needed information, and helps managers use information to create, validate, and apply actionable customer insights The process begins with an assessment of the information needs of key users aligned with the firm‘s interests: marketing managers, strategic partners, suppliers, compliance officers, public relations, senior decision makers, and others Based on these criteria, the marketing information system acts as a filter

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Figure 5.3

Insight Questions:

Figure Information: Marketing Information System

184. How do decision support systems connect marketing research data to decision makers? (Answer: A DSS can process internal information that the company collects [e.g., sales data] as well as external information that‘s entered into the database [e.g., competitor information]) 185. Though a M IS can give a firm an advantage over its competitors, there is a potential downside to collecting and storing information about customers. What do you think is the biggest potential downside? (Answer: Open ended; data can be stolen by hackers and competitors)

The process begins with an assessment of the information needs of key information users aligned with the firm's interests: marketing managers, strategic partners, suppliers, compliance officers, public relations, senior decision makers, and others. Based upon these criteria, the M IS then acts as a filter. It systematically screens out the desired information from the various streams of data that flow through the organization. PowerPoint Slides

Lecture Notes: Decision Support Systems    

A decision support system (DSS) is software that enables timely access and use of the information the company collects Information for the DSS can come from internal records (e.g., sales data, customer satisfaction studies) It also can include external information that‘s entered or imported into the database (e.g., competitor information) Many companies today have augmented their DSS with analytics tools, graphics, and real-time performance dashboards

Step 4: Analyze the Data    316

The purpose of data analysis is to convert the data collected in Step 3 into information Data can be defined as raw numbers, statistics, or text that on its own has very limited value to marketing The raw data become usable information that the firm can use to solve a

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    Figure 5.4

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marketing problem only after it has been organized, analyzed, and interpreted It is important that researchers apply the appropriate analytic techniques for the data and research questions at hand A cross-tabulation enables the analyst to examine responses to one question in relation to responses from one or more other questions For causal research, more powerful and sophisticated statistical techniques are typically required, such as measures of association, analysis of variance (ANOVA), and regression analysis The information obtained from the research process will enable marketers to address the research objective Insight Questions: 186. When is cross tabulation analysis used? (Answer: A cross tabulation is most often used to analyze categorical data from nominal measurement scales. They are data that present the results of the entire group of respondents as well as subgroups of the data.) 187. What are the benefits of cross tabulation analysis? (Answer: It quantitatively analyzes the relationship between multiple variables, allows researchers to investigate data at a granular level, and creates actionable insights from the data.)

Figure Information: Cross Tabulation Example—Differences in Satisfaction Level by Sex A visual depiction of cross-tabulated output from a satisfaction study can statistically depict survey responses from a Likert scale, for example. PowerPoint Slides

Lecture Notes: Step 5: Present Results and Take Action    

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The culmination of the marketing research process is a formal, written report to decision makers The report typically includes a summary of the findings and a set of recommendations Research findings should be presented in a clear, concise, and understandable language and include appropriate visual data, such as figures and tables, to support conclusions The research report should provide sufficient information to support managerial action

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Data Visualization   

Data visualization is the presentation of data and research results in pictorial or graphical format By presenting data and analytics visually, decision makers can more easily uncover new patterns in data and grasp difficult-to-understand concepts Infographics are graphic visual representations of information, data, or knowledge intended to present information quickly and clearly

Marketing Research and You 

Interviewing individuals who are currently working in a field or industry you are considering is a great approach to learning whether it is right for you  By thoughtfully developing a sequence of questions (an interview guide), before the meeting, you can gain insights into what skills and experiences to focus on developing prior to graduation  You also may apply many of the online and social media research techniques in identifying career opportunities THINK LIKE A MARKETER How can a marketing team use TikTok to inform the marketing research process? THINK LIKE A MARKETER Are LinkedIn polls an effective use of data collection for a firm‘s marketing research initiatives? Connect Assignment 5-1

Topic: Marketing Research Process Complete the Connect exercise for Chapter 5 that focuses on the steps of the marketing research process. By understanding the decisions at each step, you will be able to conduct better marketing research and thus improve the quality of your marketing strategy going forward. CONNECT BACK Insight Questions: 188. What part of the marketing research process takes the most time? (Answer: Open ended; data collection can take a long time if the sample size is large or if the rigor of the primary research is high. Also, the research problem may evolve as the data are being collected) 189. Do marketers go through each stage of the process? (Answer: Some marketers skip steps if they get an early solution to the problem. Or they may go back to an

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Describe the various types of secondary data sources and explain the importance of predictive analytics.  Secondary Data and Predictive Analytics  Use of Secondary Data for Business Research  Customer and Market Trends Data  Competitive Inetlligence  Environmenal Scanning  Advantages and Disadvantages of Secondary Data  Secondary Data Sources  Internal Company Data  External Secondary Data Sources  Government Sources  Trade Associations  Media Sources  Commercial Sources  Big Data and Predictive Analytics  Predictive Analytics  Limitations of Predictive Analytics Models PowerPoint Slides Lecture Notes: LO5-2

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earlier step to gather additional information or reanalyze data, as needed.) Key Terms:  Panel data  Competitive intelligence  U.S. Bureau of Transportation Statistics  American Hospital Association  Food Marketing Institute  National Retail Federation  Scanner data  Euromonitor International  ISR Reports  Big Data  Predicative Analytics

Secondary Data and Predictive Analytics 319

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Research investigating such topics often begin with a review of secondary data Secondary data are particularly useful at the problem identification stage

Use of Secondary Data for Business Research   

Marketers need data that provide deeper understanding of customer differences and market trends ranks very high Maintaining a close watch on the actions on rival firms, a process known as competitive intelligence, is a focal area Environmental scanning research involves monitoring the firm‘s macroenvironment for the emergence of new technologies, changes in supply markets, and shifts in the political and economic landscape

Customer and Market Trends Data    

Business researchers are constantly on the lookout for research on changes in consumption patterns and market trends Information on emerging consumer trends and behaviors is often available from panel data providers, which is gathered from a group (or panel) of consumers over a period of time The NPD Group‘s National Eating Trends (NET) study monitors the eating and drinking habits of thousands of families Market tracking research is the observation of industry trends and sales volume over time

Competitive Intelligence         320

Competitive intelligence is the systematic gathering of data about strategies that direct and indirect competitors are pursuing This information can provide a firm with advance knowledge of a competitor‘s upcoming promotions or new products that the firm can respond in a way that blunts the effects of the competitor‘s actions A company can obtain information about another company‘s activities and plans in a number of ways Government agencies, such as the U.S. Patent and Trademark Office (USPTO) offer important information regarding competitors innovation activities and upcoming new products Regular attendance at conferences and trade shows provide opportunities to network and converse with customers about industry developments By monitoring rivals‘ websites and social media accounts, researchers can identify subtle changes in a competitor‘s market positioning and value propositions It should be noted that there are unethical ways of obtaining competitive intelligence Bribing competitors‘ employees or customers for information is an

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unethical and illegal way of getting competitive information Environmenal Scanning 

Environmental scanning research refers to the collection and utilization of information regarding events, relationships, and trends that impact an organization‘s industry

Advantages and Disadvantages of Secondary Data      

With the rise of internal ERP and CRM information systems, managers are able to easily access customer records and make ad hoc queries using internal information systems Many external secondary databases are available for immediate download from government sources and other data aggregators Websites and social media likewise offer managers and researchers with readily available data Since it does not require access to human respondents or subjects, secondary data are almost always less expensive than acquiring primary data Secondary sources sometimes provides data that are not readily available via primary data sources The most significant disadvantage to working with secondary data are that because the data were acquired by someone else for other purposes, it often fails to meet the researcher‘s specific needs

Secondary Data Sources 

The most fundamental is whether it is housed within the organization‘s information systems or if it resides with an external party

Internal Company Data     

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The largest source of useful data flowing through any organization is that which it generates, or co-generates, itself in the course of its daily operations Internal company data would include a company’s sales records, Customer support records, Accounting and finance information, sales force reports, and operation and supply chain management information Valuable information can reside in separate functional areas or even different strategic business units, and some have conflicting protocols for access rights, distribution, and usage For large organizations with multiple lines of business, making sure that all useful data are accessible to information users across the organization may involve as much political skill as technological expertise Some data, like purchase transactions, may be collected in real time; other data, such as sales call reports and expense records, are more likely

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to be generated on a weekly or even monthly basis External Secondary Data Sources 

Companies utilize secondary data to help improve their marketing decision making

Government Sources    

U.S. government agencies are prolific producers of data, much of it available to the public for free or at very low cost The U.S. Census of Population (www.census.gov) provides a wealth of information on a wide variety of demographic and socioeconomic trends across major cities, counties, and states Builders and contractors use information published in the American Housing Survey and American Community Survey published by the Department of Housing and Urban Development (HUD) Detailed information about the operations of a publicly held competitor can be found in the company‘s financial reports on the U.S. Securities and Exchange Commission website (www.sec.gov)

Trade Associations  

By virtue of their participation in these trade associations, organizations often receive exclusive access premium data and research reports Examples include the American Hospital Association (hospitals) and Food Marketing Institute (grocery stores)

Media Sources   

Broadcast, print, and online media sources regularly collect and distribute data on a wide variety of subjects Fortune magazine commissions research and publishes company ratings, including corporate reputation (Most Admired Companies) and workplace quality (100 Best Companies to Work For) Marketers in the nonprofit sector may refer to The Chronicle of Philanthropy, which offers subscribers access to research and data on the U.S. charitable organizations and large donors

Commercial Sources   

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Companies known as syndicated market research providers compile secondary data and provide access to other businesses on a paid basis Some providers may specialize in distributing specific types of data, such as scanner data, surveys, or product launch analysis Companies like Nielsen Corporation and Information Resources, Inc. (IRI) acquire point-of-sale (POS) retail data from grocery and pharmacy

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chains, which they in turn offer to researchers on a subscription basis Scanner data are obtained from scanner readings of UPC codes at checkout counters Nielsen Corporation (formerly ACNielsen) is also well known for using consumer panels to provide advertisers with audience ratings for television and radio programming Euromonitor International is the world‘s leading provider of global business intelligence, market analysis, and consumer insights Passport, its award-winning syndicated market research database provides detailed data and analysis on industries and consumers, across 1,200 cities and 210 countries ISR Reports offers research products and services that are exclusively focused on the needs of the pharmaceutical industry

Big Data and Predictive Analytics      Marketing Analytics

Big Data is a term that describes both the growth in information that inundates businesses each day and the complex tools used to analyze the data and derive meaningful insights Predictive analytics is a an umbrella term for a set of statistical techniques and algorithms that enable organizations to recognize patterns within data By analyzing patterns of past behaviors, these statistical models can be used to help companies predict future events, such as buying behavior or customer switching The volume, velocity, and variety of structured and unstructured information available to marketers and business managers continues to grow at an exponential basis It‘s what the organization does with the data that truly matter Insight Questions: 190. Each day, humans create 2.5 quintillion bytes of data. Where does this data come from? (Answer: Everywhere: sensors used to gather climate information, posts to social media sites, digital pictures and videos, purchase–transaction records, cell phone GPS signals, etc.) 191. How much time should be dedicated to monitoring these efforts? (Answer: Open ended; Because this is becoming more of a focus, firms should dedicate their resources to monitoring data, if possible.)

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Lecture Notes: Predictive Analytics     

Figure 5.5

Many marketers are leveraging Big Data sources by applying predictive analytics tools to help create more relevant, personalized brand experiences and better anticipate changing customer preferences Predictive analytic applications can be broadly grouped into two general classes of models Unsupervised learning (or clustering) models involves teaching an algorithm to look for hidden patterns in data and group things together without being taught what to look for Supervised learning (or propensity) models involve teaching an algorithm to come to a specific conclusion based on historical data Insights generated from predictive analytics models offer a means of improving the quality, speed, and precision of decision making in ways that can help firms gain strategic advantage Insight Questions:

Figure Information: Emergence of Predictive Analytics

192. Why have marketers incorporated predictive analytics into their practices? (Answer: Many marketers are leveraging Big Data sources by applying predictive analytics tools to help create more relevant, personalized brand experiences and better anticipate changing customer preferences.) 193. What are the two classes of predictive analytic models? (Answer: Unsupervised learning [or clustering] and Supervised learning [or propensity] models)

The evolution of predictive analytics illustrates the past 40 years of reporting, analytics, and how predictive analytics has emerged since the 1980s. Table 5.2

Insight Questions: 194. How can predictive models help with identifying which customer segments generate the most lifetime value? (Answer: Predictive models can enable marketers to more accurately predict CLV for individual customers and segments. Managers can then direct marketing investments toward attracting and retaining the company‘s most valuable customers.) 195. How can predictive models help with identifying which prospects are most likely to buy? (Answer:

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Predictive models can help managers better forecast which customers are most likely to purchase as well as what channels are most likely to reach those customers.)

Table Information: Marketing Applications of Predictive Modeling Marketers use predictive models to help improve performance. They crunch large amounts of structured and unstructured data, to identify messaging and offers that are more likely to be well received. PowerPoint Slides

Lecture Notes:

(none)

Limitations of Predictive Analytics Models       

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Predictive models require a specific set of conditions to work well If these criteria are unmet, the value of these tools for decision makers may be greatly diminished Predictive analytics models typically require large-scale training data sets in order to perform well The characteristics of the population used for the training data must be representative of the targeted population in the test data set The current (or future) market conditions that the model is being applied to must be similar to the conditions under which the training data were collected The algorithms used in both unsupervised and supervised learning models are heavily dependent upon the quality of input data Data is ultimately a human creation

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

When secondary data sources are not able to satisfy the desired research objectives, managers will seek to address these questions through primary marketing research studies LO5-3 Discuss the need for primary Key Terms: research and describe  Qualitative research qualitative and quantitative  Focus group research approaches.  Depth interview  Primary Data Research  Semi-structured interviews Methods  Ethnographic research  Qualitative Methods  Survey for Business Research  Reliability  Focus Group  Validity Interviews  Field experiment  Depth and Semi A/B testing Structured  Observation research Interviews  Mystery shoppers  Ethnographic  Behavioral targeting Research  Blog mining  Pros and Cons of Qualitative Research Methods  Quantitative Methods for Primary Business Research  Survey Research  Design of the Research Instrument  Experiments  Observation Studies  Customer Insights from Social Media Data  Pros and Cons of Quantitative Research PowerPoint Slides Lecture Notes: Primary Data Research Methods  

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When secondary data are insufficient for addressing identified research objectives, firms collect primary data to address their more specific research needs Depending on the aims of the research (exploratory, descriptive, or causal), the company may select from a variety of primary data-collection

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methods Qualitative research includes techniques like focus groups, depth interviews, semi-structured interviews, and ethnographic research Quantitative research methods include surveys, experiments, and observational studies

Qualitative Methods for Business Research    

Qualitative research seeks to address business questions through techniques that permit the research team to offer detailed interpretations of market phenomena without depending on numerical measurement These methods may be employed in studying consumers, executives, or organizations Its focus is on discovery, rather than testing preconceived hypotheses The goal of the research team is to extract meaning from unstructured data generated from the study

Focus Group Interviews     

A focus group is an unstructured interview typically conducted with a small group of between 6 and 10 participants who interact with each other in a spontaneous way as they discuss a particular topic or concept Focus group sessions are led by trained moderators and tend to follow a flexible outline that encourages participant dialogue Successful focus group studies rely heavily on the skill and experience of the moderator who must be able to quickly build rapport with the group in order to promote discussion Organizations conducting focus groups must also closely consider the size and composition of their focus groups If the group is too small, one or two individuals with a strong personality may intimidate the others and dominate the conversation

Depth and Semi-Structured Interviews      

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In a depth interview, a trained researcher, working with one participant at a time, asks open-ended questions about how the individual perceives and uses various products or brands The interviewer may follow up answers by asking probing questions that require deeper elaboration Similar to the focus group, a trained interviewer is critical to obtaining useful insights from depth interview research projects Semi-structured interviews usually ask respondents for a short essay response to specific open-ended questions Respondents are free to write as little or as much as they would like Similar to the depth interview process, the questioning begins with an opening question followed by a series of probing questions

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Focus groups, depth interviews, and semi-structured interviews can all be conducted online; there may even be advantages for doing so in certain contexts Even if the online approach effectively replicates many of the same features of the traditional face-to-face method, there are always trade-offs that should be thought about in advance

Ethnographic Research   



Drawing techniques from the field of anthropology, ethnographic research sends trained participant-observers to watch and interact with a subject population in their natural environment The participant-observer becomes immersed with the culture or subculture they are studying and draws data via their direct observations Many companies and marketing research firms have adapted ethnographic research approaches to the study of online consumer groups, referred to as netnography, which involves observing the behavior of online communities that have been organized around a particular consumer interest Often the members of such communities are first movers, that is, consumers who take the lead in adopting new products and often are dedicated to the product

Pros and Cons of Qualitative Research Methods   



One limitation is that interpretations of qualitative data are inherently subjective, even when using trained experts It is very effective for uncovering topic areas and research questions that merit additional investigation Qualitative research commonly requires professional research personnel to collect and (especially) analyze the unstructured data, findings from the analysis often provides much richer detail than what would be feasible using quantitative methods Even though qualitative studies can be time-consuming and expensive to conduct, they often allow the researcher greater flexibility to probe emerging topics during the course of the study

Quantitative Methods for Primary Business Research 

When companies are more interested in gathering descriptive statistical information or testing hypothesized causal relationships, they often engage in quantitative primary research studies

Survey Research 

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Survey research is among the most common approaches to obtaining primary data in applied business settings

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A survey is defined as a method of collecting primary data based on communication with a representative sample of individuals, who provide responses to a sequence of questions Surveys are used to collect a wide variety of data and are often used to help determine consumer attitudes, intended behavior, and the motivations behind those behavior An online survey is a questionnaire accessed via a web browser Companies like Qualtrics and SurveyMonkey offer platforms that help organizations to create, distribute, and record responses to online surveys Mobile-optimized surveys are online surveys that have been adapted to fit smaller mobile device screens They take advantage of touchscreens and other smartphone features, like cameras and microphones There has been corresponding growth in the use of paid online panels Researchers provide the panel company with a link to the survey and sample specifications, things like the desired number of respondents, demographic characteristics, education, and professional profile

Design of the Research Instrument    

The research team is responsible for creating the research instrument, a generic term used to describe a measurement device such as a survey, test, or questionnaire In designing studies, marketing researchers try to ensure that the selected measures exhibit adequate reliability and validity A measurement instrument exhibits reliability if it produces almost identical results over repeated trials Validity broadly references the extent to which an instrument measures what it is supposed to measure, and not something else

Experiments      

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Experiments are a type of quantitative research study in which the researcher systematically manipulates one or more variables to determine which variables most affect a given outcome By randomizing subjects into treatment and control groups, experimental researchers can tightly control for the effects of confounding external factors, particularly in laboratory settings Experimental research is a powerful tool in demonstrating causality The most significant distinction between laboratory and fields tests is the environment in which the research is conducted A field experiment is a study that examines the impact of an intervention in the real world One popular form of field experiment, known as A/B testing (sometimes called split testing), involves directly comparing two versions of a product or advertisement—a control and test version—to see which generates

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stronger customer response Observation Studies      Table 5.3

Observation research is a systematic process that involves watching how people behave and recording anything about that behavior that might be relevant to the research objective While observation allows researchers to see how people behave, it is not useful in determining why they behave that way Mystery shoppers are trained researchers hired to pose as customers in order to gather information about the physical appearance or customer service attributes of a store Using behavioral targeting, companies utilize a variety of technologies to anonymously track and compile individual consumer behaviors Behavioral targeting is not an online-only activity: Retailers also track shopping behaviors in brick-and-mortar stores Insight Questions: 196. Which customer service attribute had the highest count? (Answer: ―thank-you‖) 197. How can studying this help an organization? (Answer: Open ended; knowing the areas of success and weakness can change the marketing mix and entice a focus on customer service and marketing communication strategies)

Table Information: QSR Magazine Results of Drive-through Image QSR magazine publishes an annual study that rates the speed and quality of various customer service attributes of national fast-food chains; these data come from responses of dozens of mystery shoppers for each chain. PowerPoint Slides

Lecture Notes: Customer Insights from Social Media Data 

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Many brands today actively engage consumers on social media and use it to gain deeper insights on their customers wants and needs, gauge product and service quality through online reviews, and track response to brands‘ advertising and promotions Brand managers track a variety of social media metrics on a weekly or even daily basis, including: number of brand mentions, sentiment (e.g.,

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ratio of positive to negative, and engagement [number of likes, dislikes, and comments])  Blog mining involves using automated tools to find and extract information found on the web about a brand and then using specialized software to analyze and make sense of these large amounts of text-based data THINK LIKE A MARKETER Do marketers always go through each step of the process? Connect Assignment 5-2

Topic: Social Media Dr Pepper uses marketing insights from over 8 million Facebook fans to figure out which marketing messages might work best. Dr Pepper sends out multiple messages each day and then tracks and monitors fan reactions. Social media allow Dr Pepper to measure how many times a message is viewed, how many it times it is shared with other users, and what people are saying about it. Complete the Connect exercise in Chapter 5 will let you decide how to utilize social media to improve marketing research and then how to develop strategies from those findings. By understanding the role social media can play in helping your organization gain insights from consumers, you will be able to apply these strategies to successfully target current and potential customers. CONNECT BACK Insight Questions: 198. How have social media assisted companies in targeting current and potential customers? (Answer: Open ended; Facebook, for example, tracks consumer preferences and offers firms the ability to specifically target them based on demographic, geodemographic, and psychographic preferences.) 199. How do other social media platforms, such as LinkedIn, Twitter and Instagram, connect with its fans and consumers? (Answer: Open ended; through interactive posts containing text, images, and video relating to the demographics of each platform) 200. What measurements are currently in place for each of these social media platforms? What measurements can you recommend be added? (Answer: Open ended; software like Hootsuite is a third party software that for a small fee can monitor the effectiveness of all popular social media platforms; some platforms have internal

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analytics, too) 201. In what ways do you use social media to connect with companies and their products and services? (Answer: Open ended; follow their page, interact with the brand and other consumers of the brand, post pictures and videos of the products and services in use, etc.) PowerPoint Slides

Lecture Notes: Pros and Cons of Quantitative Research 

Quantitative methods for collecting and analyzing data can often be done quickly, at low cost, and may help better researchers understand causeand-effect patterns in consumer behaviors  The degree to which statistical results are generalizable beyond the sample data may be questioned absent evidence that the individuals studied are truly representative of that broader population THINK LIKE A MARKETER Can both quantitative and qualitative research be used to address a research problem? Table 5.4

Insight Questions:

Table Information: Advantages and Disadvantages of Qualitative and Quantitative Research Some of the advantages and disadvantages of qualitative and quantitative research methods are shown. Marketing professionals must understand the potential pitfalls of a research project and work together with the researcher to avoid as many as possible.

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202. Why is it important to understand the advantages and disadvantages of qualitative and quantitative research? (Answer: Open ended; since both are needed in an organization to make marketing decisions, knowing the advantages and disadvantages of each can enable marketers to know which methods can be used according to the available resources; also, it allows the researchers to find the type of data needed) 203. A marketing manager is thinking of conducting marketing research to reposition its service to its same target market, but they are unsure of which type of research she should conduct. Explore the advantages and disadvantages of qualitative and quantitative research to decide which is more cost effective and will show potential market opportunities not yet explored. (Answer: Open ended; some factors to consider are behavioral motivation, sample population size, how costly the research is, available time to do research, response rates, convenience; an additional advantage of qualitative data is that it can be used to generate marketing ideas)

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Explain the importance of Key Terms: research to firms marketing (none) products globally.  Global Marketing Research  Challenges Unique to International Marketing Research  Language  Culture  Technology  Social, Legal, and Political Environment PowerPoint Slides Lecture Notes: LO5-4

Global Marketing Research 

Global marketing research is the systematic design, collection, recording, analysis, interpretation, and reporting of information pertinent to a particular marketing decision facing a company operating internationally

Challenges Unique to International Marketing Research  

In many foreign markets, primary data are vital due to the questionable validity and comparability of secondary data sources A range of factors including language; culture; technology; and social, legal, and political environments can complicate the collection and analysis of primary data

Language     

Many idioms and phrases hold different meanings across languages; some words simply don‘t exist Questionnaires or interview guides must be translated into the language of each country being studied Materials should be back-translated into the original language by a second translator Qualitative responses from study subjects must be translated back into the original language prior to analysis Each of these steps increase costs and potential errors

Culture 

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The culture of the region being studied will impact how the study is conducted, what is asked, and the length and form of information

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received in response Technology 

When designing an international marketing research study, it‘s important that you select the right technology solution to reach your target audience  In many developing economies, for instance, the mobile phone has become the most frequently used computing device for consumers and businesspeople alike THINK LIKE A MARKETER How have social media evolved marketing research? Social, Legal, and Political Environment 

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High levels of crime as well as laws pertaining to marketing and marketing research can also differ by country  Whether a company conducts its own research or hires an international research firm to do it, the research tasks remain the same  Analyze the global market to understand the following: the fastest growing markets overall, the largest markets for the firm‘s products, trends in the various global markets that relate to the firm‘s products, and any restrictions on the importing of the firm‘s products such as quotas or tariffs  Acquire specific information about the products the firm wants to sell globally  Estimate the potential market share and sales of products at particular price points to ensure that the venture will be a profitable one Understand several of the Key Terms: latest trends in marketing  Customer journey map research, including customer  Persona journey mapping, mobile  Moment of truth marketing research, and  Mobile marketing research neuromarketing.  Neuromarketing  Marketing Research  Heat maps Trends  Microexpression  Customer Journey  Facial coding Maps  Mobile Marketing Research  Neuromarketing  Brain-Imaging Techniques  Functional Magnetic Resonance Imaging (fMR I) © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Electroencephalog raphy (EEG)  Eye-Tracking  Automated Facial Coding PowerPoint Slides Lecture Notes: Marketing Research Trends  

Several key innovations and technological advances are altering the face of marketing research These are occurring in areas such as mobile communications, the rise of social media, and methods from the field of neuroscience

Customer Journey Maps        

Figure 5.6

A customer journey map is a visual depiction of the steps customers go through when engaging with a company in order to achieve a particular goal Outlining a full customer journey map in such detail requires extensive market research, often involving multiple data sources and research methods A persona is a semi-fictional customer profile that represents the key traits of a large segment of a company‘s audience Development of the customer profile is informed by primary market research, social media monitoring, web analytics, customer service interactions, and identifiable buyer behaviors Customers go through multiple steps as they interact with the brand Locating a product in the store or reaching out to support with a technical issue, and each of these steps constitute a distinct touchpoint A touchpoint refers to any moment in their journey when a customer comes into contact with a brand (website, social media, online review, advertisements, purchase, customer service) In order to develop personas, establish customer touchpoints for achieving various goals, and identify moments of truth, researchers will utilize a variety of research methods Insight Questions: 204. Provide examples of questions a persona profile may address? (Answer: Open ended; what does a typical customer do? What does their typical day look like? What are their frustrations and pain points? What are they seeking to accomplish via their brand engagements? What mental images come to mind when you think about them?) 205. How is a customer profile developed? (Answer:

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Development of the customer profile is informed by primary market research, social media monitoring, web analytics, customer service interactions, and identifiable buyer behaviors.)

Figure Information: Example of a Customer Persona Profile A persona commonly consists of demographic data along with other behavioral and psychographic details like the customer‘s goals, time frame, interests, lifestyle, and challenges. Table 5.5

Insight Questions: 206. Which methodology uses one-on-one or group conversations with customers to uncover first-hand stories, frustrations, and needs? (Answer: customer depth interviews or focus groups) 207. Which methodology provides competitive evaluations that allow managers to benchmark their customer‘ experiences with their competitors to identify strengths and areas for potential improvement? (Answer: competitive analysis)

Table Information: Research Methods used to Create Customer Journey Maps Data from various primary research approaches may be used to support customer journey mapping exercises. PowerPoint Slides

Lecture Notes: Mobile Marketing Research   

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Nearly 85 percent of the world‘s population today owns a smartphone, with more than 6.63 billion unique mobile subscribers The term mobile marketing research refers to participants taking part in marketing research via mobile devices Mobile marketing research can take a variety of forms, including

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qualitative and quantitative Mobile marketing research offers several key advantages It enables researchers to reach audiences through the channel that they are most comfortable The advent of mobile market research has introduced respondent location to the market research process Almost all mobile devices come standard with a keyboard, camera, and microphone GPS receivers and other instrumentation in smartphones and tablets enable researchers to gather information about what people actually do, without even asking survey questions

Neuromarketing    

Neuromarketing techniques are useful in addressing such ―can‘t say‖ or ―won‘t say‖ limitations Neuromarketing is the use of neuroscientific methods to better understand consumer decision making and responses to different kinds of marketing stimuli It contains a variety of methods for measuring behavioral and physiological responses to marketing stimuli These methods include fMR I, EEG, eye-tracking, facial expression coding, and core biometrics (e.g., heart rate, respiration, skin conductance)

Brain-Imaging Techniques  

A number of brain-imaging techniques have been developed by medical researchers The two most widely used by marketing researchers today are functional magnetic resonance imaging (fMRI) and electroencephalography (EEG)

Functional Magnetic Resonance Imaging (fMRI)  

fMR I machines emit an electromagnetic pulse that measures the amount of oxygenated blood flow and can pinpoint activation in even the deepest parts of the brain down to the nearest millimeter fMR I is used to monitor brain activity when individuals are exposed to marketing stimuli or make choices, and researchers can draw inferences with respect to subjects‘ implicit attitudes and desires

Electroencephalography (EEG)  

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EEG measures patterns of electrical activity emanating from the cortex, the outermost part of the brain The cortex is responsible for ―higher‖ brain functions, such as decoding sensory information, memories, and planning

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In comparison to fMR I, EEG is a much less expensive technology While EEG lacks the spatial resolution of fMR I testing, there is no temporal delay in EEG response Combining data from multiple systems can be powerful, allowing researchers to track not only where an individual was looking but also how they were reacting while looking there

Eye-Tracking     

Eye-tracking technologies use infrared light and specialized cameras to non-intrusively track individual‘s visual attention Results from eye-tracking studies provide researchers with direct measures of how consumers allocate their attention to marketing and nonmarketing stimuli in their environment Eye-tracking studies are particularly useful for answering questions in marketing situations Heat maps are colored regions overlaid on an image; they are the most frequently offered eye-tracking output The maps are usually color-coded so that the warmer the color, the higher the levels of attention to that area

Automated Facial Coding  

The face is the best indicator of a person‘s emotions Understanding how to read and interpret microexpressions is an essential part of understanding nonverbal behavior and reading people  A microexpression is a brief, involuntary facial expression that appears on a person‘s face according to the emotions being experienced  Unlike regular, prolonged facial expressions, it is difficult to fake a microexpression  Facial coding is the categorization of facial microexpressions to reveal the emotional response of an individual while processing content  It was not until the 1970s that psychologist Dr. Paul Ekman demonstrated that certain facial muscle movements are consistently associated with discrete affective states across human cultures  Reliance on human expert coders makes it costly and difficult to scale this methodology for use in larger research projects THINK LIKE A MARKETER How costly is neuromarketing research? Figure 5.7

Insight Questions: 208. In a heat map, what color indicates the highest attention? (Answer: red) 209. What are the advantages of eye tracking? (Answer: It is relatively inexpensive; it is rather easy to set up

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studies; and it requires little complex knowledge to generate useful output.)

Figure Information: Example of a heat map for a print advertisement Heat maps are the most frequently offered eye-tracking output. The maps are usually color-coded so that the warmer the color, the higher the levels of attention to that area. Connect Assignment 5-3

Topic: Neuromarketing Complete the Connect exercise for Chapter 5 that focuses on how marketers can utilize neuromarketing tools to better understand consumer responses to different kinds of marketing stimuli. By understanding the insights that neuromarketing can provide, you will be able to choose the most effective tactics to successfully execute your organization‘s marketing strategy. CONNECT BACK Insight Questions:

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Discuss the main ethical issues in conducting marketing research.  Marketing Research

210. What is included in the neuromarketing ―toolbox‖? (Answer: The term covers a variety of alternative methods for measuring behavioral and physiological responses to marketing stimuli. These other methods include: eye tracking, facial expression coding, core biometrics [e.g., heart rate, respiration, skin conductance], and implicit response testing.) 211. Are there ethical concerns about study the brain activity of consumer? (Answer: Open ended; it can be argued that we are becoming too invasive in an attempt to gain marketing information from consumers even though participation is voluntary or compensated) Key Terms: (none)

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Ethics  Respecting Customer Data Privacy  Standards for Ethical Marketing Research PowerPoint Slides Lecture Notes: Marketing Research Ethics 

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High-profile scandals involving questionable research practices and the misuse of customer data have placed ethical concerns over marketing research squarely in the public spotlight although each insisted their action were legally permittable as part of their user terms of service agreements Amazon was fined $887 million by EU regulators for making it difficult for users to reject web-tracking cookies that enable the company to collect and share customers‘ personal data The online dating site OkCupid admitted it conducted experiments in which it skewed couples‘ compatibility percentiles to manipulate users into thinking they were a better match than they really were—and vice versa Facebook conducted a secret study in which it sought to manipulate the emotions of nearly 700,000 unwitting users by showing them either more positive or negative posts on their news feeds Google settled with the DOJ and paid a $500 million criminal penalty for knowingly abetting the illegal importation of prescription drugs into the United States with geo-targeted advertising facilitated by misuse of users‘ private data Ethics experts question whether the research and use of customer data represented ethical research practices

Respecting Customer Data Privacy  

Increasingly powerful computer capabilities allow for the collection, storage, and analysis of data from millions of consumers In many instances, passive data are gathered automatically, without the end user‘s explicit knowledge as they navigate the Internet or peruse a social media platform

Standards for Ethical Marketing Research  

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Marketing research professionals must guard against potential abuses and conflicts of interest, particularly in sponsored research If findings from a study are made public, the research should be published with a statement disclosing any interest by sponsors funding the research, so that the results can be understood in context

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Marketing researchers must also be aware of their obligations to participants and prospective participants of their studies In certain instances, however, deception may be acceptable provided it serves a legitimate purpose and does not encourage participation from people who would otherwise not participate Organizations like the American Marketing Association, the Marketing Research Association (MRA), the International Chamber of Commerce (ICC), and ESOMAR, have established ethical standards for conducting research Consumer distrust of how companies use information will have negative consequences: Consumers may refuse to participate in research studies or may be unwilling to provide personal information either online or face-to-face Insight Questions: 212. Why is it important for ethical standards like these to be published? (Answer: They help gain the trust of consumers; without trust, individuals will be less likely to participate in marketing research.) 213. These ethical standards are updated on a regular basis. With the continued use of the internet and social media, how can this code be adjusted to trends in marketing research? (Answer: Open ended; marketing professionals should ensure this is updated to reflect current and possible trends in marketing)

Table Information: Key Fundamentals of the ICC/ESOMAR International Code on Market and Social Research The key components of the ICC/ESOMAR standards are shown. Such standards are important to the industry because they help gain the trust of consumers. Without that trust, individuals will be less likely to 341

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participate in marketing research. Today’s Professional

Amie Larum Client Success Manager, iMotions Through an opportunity provided by her undergraduate advisor, Amie Larum took the initiative to pursue an opportunity at iMotions. In addition to suggesting that soon-to-be graduates keep their options open, Amie provides insight in answering the following questions:

Photo provided by Amie Larum

214. Describe your job. 215. Describe how you got the job that you have. 216. What has been the most important thing in making you successful at your job? 217. What advice would you give soon-to-be graduates? 218. What do you consider your person brand to be? Review with students:  

What makes you unique? What benefits could an informational interview bring to you?

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Student Task: Prepare a one- to two-paragraph research report that summarizes your findings and describes the actions you will take based on your research. Your report should include the following information: 219. If focusing on a specific job, list the average number of applicants, the starting pay, and where these types of job openings are most commonly found. 220. If your focus is on graduate school, list what the average GPA and entrance exam score is for the program as well as the acceptance rate for that program. 221. Make an honest assessment of the likelihood that you will get your desired job or be accepted to the graduate program. Based on this assessment, what is the one area that you need to improve upon to increase your chances of achieving your goal? How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 222. What are the ways that marketing research enables companies to meet their objectives? Explain the reasoning behind your answer. (Answer: Open ended; investing in market research is necessary for a company to understand consumers and the market they are doing business in, their motivation behind purchases, competition in the marketplace and abroad, brand and product image, and can enable a company to align marketing mix elements. In turn, analyzing these efforts as part of the marketing research process can indicate how well the organization‘s objectives are met.) 223. Your company is considering relaunching its most profitable line of products: shampoo and conditioner. The manager wants to ensure that the new package will be one that consumers are drawn to. What research method do you think would be best for determining how to design the new package? Explain why you selected that method. (Answer: Open ended; exploratory research could be beneficial in understanding new insights about how packaging influences consumer purchases of shampoo and conditioner. Asking people, face-to-face, their thoughts may reveal insights not yet realized on current product considerations and consumer needs. Using social media for marketing research is an option, and the firm can post online polls for voting on favorites, or one-question surveys to receive feedback. Semi-structured interviews can reveal indepth thoughts on the same. Neuromarketing can reveal how the brain reacts to packaging, and heat maps can reveal the key parts of packaging consumers are drawn to.) 224. Go to your Facebook page or that of a friend. What information is available on the page that might be useful to marketing researchers? Do you feel that using that information for marketing research purposes would be an invasion of privacy? Explain your answer. (Answer: Open ended; consider demographic information like age, marital status, hometown, schools attended, employment information, and profile/cover pictures, 343

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which can be telling; while a person may feel their page is personal, information is posted to the world wide web.) 225. You are the head of marketing research at a major retailer. You have been asked to conduct research about your competitors‘ products, including prices and features. What are some of the ways you could access that type of information? (Answer: Open ended; consider social media platforms and polls, third party review sites, blogs, YouTube.com, company websites, trade journals, and mystery shopping.) 226. List at least six types of information a company would need to know about an international market before the company can successfully sell its products in that market. How might an organization get the type of information? From where would it be obtained? (Answer: Open ended; demographic information including age, household income, education level; psychographic information such as purchasing patterns and behaviors in the product industry; competition; cultural innuendos; some information can be found by census bureaus if available, but it‘s best to do primary research to obtain the most up-to-date, specific information needed on the target audience) SOCIAL MEDIA APPLICATION Pick an organization that you are familiar with and then go out and visit that organization‘s social media presence. Analyze the organization‘s efforts to market itself through social media using the following questions and activities as a guide. Be sure to support each of your answers with specific quotes, pictures, or comments from social media users. 227. Based on what you read on the organization‘s various social media platforms, what information about the company can you find? 228. Who are the most frequent types of customers for the organization? 229. Which of the organization‘s products are well received and which ones have a more negative perception? 230. Should you visit a competitor‘s social media sites and, if so, what should you be looking for? This activity is located in an additional worksheet that can be used with group interaction, and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this.

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MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 5 that focuses on making marketing investment decisions using Big Data. ETHICAL CHALLENGE Social media are increasingly used as a source of data for marketing research. Marketing researchers can find comments about goods and services as well as personal information. Imagine that you are the vice president of marketing for a large consumer electronics company. The head of your marketing research department has just given a presentation on how to mine data on the Internet by electronically searching social network sites for key words and phrases. The manager of the video games division was at the presentation and is very keen to gather data on preteen boys between 10 and 12 years old, concerning their use of violent video games. She wants to have the research department gather data on as many preteen boys as possible to determine who they are, where they live, who else is in their family, who their friends are, and what types of games they are interested in playing. She is asking for your permission and funding to undertake this type of research. Please use the ethical decision-making framework to answer the following questions: 231. First, research the ICC/ESOMAR Standards for Marketing Research by going on its website (www.esomar.com), downloading its ―Notes on How to Apply ICC/ESOMA R Code,‖ and reading the code. Next, using the notes, identify at least three potential ethical problems with the manager's proposal. Explain why you think they may be an issue. (Answer: Open ended; consider: Article 8—―at present there is no common international definition of ‗child‘ or ‗young person‘‖ and suggest a ―straightforward, practical approach to the issue‖; Article 3 on professional responsibility, where ―professionalism‖ may be culturally different from one country to another; Article 4 on transparency whereby a firm may not be forthcoming with all the details necessary) 232. What might your company do to work around any ethical issues you identified? (Answer: Open ended; still minding the law, a firm may find loopholes in the ethical standards to get the data needed, or it might take a more precautious course of action) 233. Would you approve this proposal or not? Explain your answer. (Answer: Open ended; consider the ramifications for yourself, your future, those involved in the decision, and consumers) VIDEO CASE Have students go to Connect to access the video cases featuring (1) Experian and (2) iMotion that accompany this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS 345

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To help students think about a career in marketing research and develop a potential career path, follow these tips.

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A.J. Fernandez, Owner and Executive Director at Phocus, highlights some things that can help you get a job and build a career in marketing research. 234. While you are in college, challenge yourself with statistics classes, database information, and possibly some computer programming. 235. Read to keep up with trends in your industry. 236. Before your job interview, learn all you can about the company and its competitors. 237. The most valuable employees keep everyone up-to-date with new happenings in the industries in which we work. 238. To keep up your knowledge, subscribe to the best daily print and digital information sources from your industry and skim them in the morning or in the evening after work. Review with students:   

What classes can you take now that will challenge you? Do you currently subscribe to a news site or other information source that will allow you to keep up with industry-based knowledge? How will you prepare for your job interviews?

Chapter 5: Marketing Research

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-94 Explain the importance of marketing research and explain the marketing research process. LO 1-95 Describe the various types of secondary data sources and explain the importance of predictive analytics. LO 1-96 Discuss the need for primary research and describe qualitative and quantitative research approaches. 347

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LO 1-97 Explain the importance of research to firms marketing products globally. LO 1-98 Understand several of the latest trends in marketing research, including customer journey mapping, mobile marketing research, and neuromarketing. LO 1-99 Discuss the main ethical issues in conducting marketing research. KEY TERMS A/B testing advertising effectiveness studies behavioral targeting Big Data blog mining causal research competitive intelligence convenience sample cross-tabulation customer journey map data visualization decision support system (DSS) demand analysis depth interview descriptive research

ethnographic research exploratory research facial coding field experiment focus group heat map marketing information systems (M IS) marketing research mobile marketing research microexpression mobile marketing research moment of truth mystery shoppers neuromarketing nonprobability sampling observation research

panel data persona predictive analytics primary data probability sampling qualitative research reliability (of research) sales forecasting sampling scanner data secondary data semi-structured interview simple random sampling survey validity

THOUGHT-PROVOKING ACTIVITY Set 1: What is marketing research? How can it aid us in understanding a market? Provide five examples of the kind of information marketing research can provide.

Set 2: What is the difference between primary and secondary data/research? List three examples of each. Which is typically done first?

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A.J. Fernandez, Owner and Executive Director, Phocus How is marketing relevant in his role? List some of nuances in conducting cross-cultural marketing research. LO5-1: Explain the importance of marketing research and explain the marketing research process. Market Research Process  Consumers and business buyers‘ preferences and behaviors can change over time and are constantly reshaped by purchase contexts and social influences  By employing modern marketing research processes and tools, managers are equipped to help their organizations improve marketing outcomes and financial performance What Is Marketing Research?  Marketing research is an organizational activity that links the consumer, customer, and public to the marketer through information  The organization uses that information to identify and define marketing opportunities and problems; generate, refine, and evaluate marketing actions; monitor marketing performance; and improve understanding of marketing as a process  Market research can inform almost every aspect of a company‘s business and impact clearly in terms of the four Ps  Products should be developed based on real customer needs and wants, not just the whims of engineers or marketing executives  Pricing decisions are often shaped by demand analysis, which estimates the level of demand for a particular product as well as how changes in price and other factors influence customer purchases  Decisions regarding the place or distribution function often rely on sales forecasts  Sales forecasting predicts the number of units sold in a market over a given time period  Promotional activities, such as advertising, must be evaluated based on their effectiveness  Advertising effectiveness studies measure how well an advertising campaign meets marketing objectives (such as increasing brand awareness or market share)  When done properly, marketing research activities help companies better understand and satisfy the needs and wants of customers Marketing Research Process  A systematic approach to marketing research follows a five-step process: (1) define the problem, (2) develop a research plan, (3) collect data, (4) analyze the data, and (5) present results and take action Figure 5.1 The Marketing Research Process INSIGHT QUESTIONS

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Do marketers always go through each step of the marketing research process? (Answer: Sometimes, marketers skip steps if they get an early solution to the problem or go back to an earlier step to gather additional information or reanalyze data, as needed.) When is marketing research needed? (Answer: when sales decrease, when there is a new or revamped product, when there are changes in macroenvironmental factors, or as scheduled in the organization, etc.) Step 1: Define the Problem  By clarifying the exact nature of the problem, the firm avoids wasting time, money, and human resources chasing the wrong data—and coming up with the wrong solutions  Defining the problem has three components:  (1) Specify the research objectives: What questions will the research aim to answer?  (2) Define the population of interest: Who do we wish to study or learn more about?  (3) Identify relevant environmental factors: What aspects of the organization‘s internal or external environment are relevant to answering the research questions?  The firm should set research objectives that are specific and measurable  Next, the marketer will determine a set of procedures for addressing these research needs Step 2: Develop a Research Plan  In this step, the firm identifies the best approach to acquiring the information needed. Research plan development, sometimes called research design, involves the following:  Specifying what information is needed  Determining what type of research techniques may be used to acquire it  Presenting this research plan to management  The research plan outlines sources of relevant existing data and details the research approach, sampling plans, materials, and instruments the research team will need to gather new data Types of Research  Managers can choose from among the following three types of research:  (1) Exploratory research seeks to discover new insights that help the firm better understand and define the research problem and suggest testable hypotheses  Exploratory research usually involves some type of face-to-face interaction, such as a focus group  (2) Descriptive research seeks to describe consumer behavior by answering the questions who, what, when, where, and how  (3) Causal research is used to test hypotheses in order to understand the cause-and-effect relationships among variables  Causal research often involves manipulating independent variables (the cause or source) to see how they affect a particular dependent variable (the effect or outcome) Figure 5.2 The Relationships among Research Objectives and Collection Options INSIGHT 350

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QUESTIONS Provide examples of exploratory research. (Answer: Exploratory research usually involves some type of face-to-face interaction, such as a focus group.) Provide examples of descriptive research. (Answer: Examples of descriptive information include estimating market potential for a good or service; evaluating consumers‘ attitudes toward a product or company; identifying individual steps in customers‘ journey toward purchase; uncovering ways that consumers behave [do they prefer to shop online or in person]; and gathering demographic information.) Provide examples of causal research. (Answer: For example, Fuze could conduct an experiment that manipulates the packaging of its beverages [the independent variable] to see how different package styles affect sales [the dependent variable].) Sampling  Sampling is the process of selecting a subset of the population that is representative of the population as a whole  Sampling can be broken down into two basic types: probability and nonprobability  Probability sampling ensures every person in the target population has a chance of being selected, and the probability of each person being selected is known  The most common example of probability sampling is simple random sampling, in which everyone in the target population has an equal chance of being selected  Nonprobability sampling, on the other hand, does not attempt to ensure that every member of the target population has a chance of being selected  The most common nonprobability sampling approach is a convenience sample, in which the researcher invites responses from people who are easily accessible  Which sampling approach to use depends upon the research objective Step 3: Collect Data  Data collection begins with the firm‘s decision to use secondary or primary data  Secondary data are information collected for alternative purposes prior to the study, typically by another entity or person  Primary data are collected specifically for the research problem at hand  Primary data collection methods may either be qualitative or quantitative Table 5.1 Differences between Primary and Secondary Data INSIGHT QUESTIONS Why must we collect primary and secondary data?

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(Answer: To test the hypotheses, find out information specific to the research problem while also exploring what has been previously discovered, to address a specific research objective.) A franchised restaurant is thinking of adding grilled chicken to its long list of [only] friend chicken options. Using Table 5.1‘s collection method examples, how would you uncover primary and secondary data sources? (Answer: Open ended; secondary—research other organizations who have tried this and their success/failure stories, from Chamber websites look up the number of businesses competing directly with the new food options, research organizations who offer similar products; primary— test marketing with a flagship store and several others in various regions, run a survey on Facebook to gauge market potential, a focus group can be done the same way, etc.) The Marketing Information System  Primary and secondary data are acquired, processed, and stored by the firm‘s marketing information system  A marketing information system consists of the people, technologies, and procedures aimed at supplying an organization‘s marketing information needs  It assesses those needs, develops the needed information, and helps managers use information to create, validate, and apply actionable customer insights  The process begins with an assessment of the information needs of key users aligned with the firm‘s interests: marketing managers, strategic partners, suppliers, compliance officers, public relations, senior decision makers, and others  Based on these criteria, the marketing information system acts as a filter

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Figure 5.3 Marketing Information System INSIGHT QUESTIONS How do decision support systems connect marketing research data to decision makers? (Answer: A DSS can process internal information that the company collects (e.g., sales data) as well as external information that‘s entered into the database [e.g., competitor information].) Although an M IS can give a firm an advantage over its competitors, there is a potential downside to collecting and storing information about customers. What do you think is the biggest potential downside? (Answer: Open ended; data can be stolen by hackers and competitors.) Decision Support Systems  A decision support system (DSS) is software that enables timely access and use of the information the company collects  Information for the DSS can come from internal records (e.g., sales data and customer satisfaction studies)  It also can include external information that‘s entered or imported into the database (e.g., competitor information)  Many companies today have augmented their DSS with analytics tools, graphics, and realtime performance dashboards Step 4: Analyze the Data  The purpose of data analysis is to convert the data collected in Step 3 into information  Data can be defined as raw numbers, statistics, or text that on its own has very limited value to marketing  The raw data become usable information that the firm can use to solve a marketing problem only after it has been organized, analyzed, and interpreted  It is important that researchers apply the appropriate analytic techniques for the data and research questions at hand  A cross-tabulation enables the analyst to examine responses to one question in relation to responses from one or more other questions  For causal research, more powerful and sophisticated statistical techniques are typically required, such as measures of association, analysis of variance (ANOVA), and regression analysis  The information obtained from the research will enable marketers to address the research objective

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Figure 5.4 Cross-Tabulation Example—Differences in Satisfaction Level by Sex INSIGHT QUESTIONS When is cross-tabulation analysis used? (Answer: A cross-tabulation is most often used to analyze categorical data from nominal measurement scales. They are data that present the results of the entire group of respondents as well as subgroups of the data.) What are the benefits of cross-tabulation analysis? (Answer: It quantitatively analyzes the relationship between multiple variables, allows researchers to investigate data at a granular level, and creates actional insights from the data.) Step 5: Present Results and Take Action  The culmination of the marketing research process is a formal, written report to decision makers  The report typically includes a summary of the findings and a set of recommendations  Research findings should be presented in a clear, concise, and understandable language and include appropriate visual data, such as figures and tables, to support conclusions  The research report should provide sufficient information to support managerial action Data Visualization  Data visualization is the presentation of data and research results in pictorial or graphical format  By presenting data and analytics visually, decision makers can more easily uncover new patterns in data and grasp difficult-to-understand concepts  Infographics are graphic visual representations of information, data, or knowledge intended to present information quickly and clearly Marketing Research and You  

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Interviewing individuals who are currently working in a field or industry you are considering is a great approach to learning whether it is right for you By thoughtfully developing a sequence of questions (an interview guide), before the meeting, you can gain insights into what skills and experiences to focus on developing prior to graduation You also may apply many of the online and social media research techniques in identifying career opportunities

THINK LIKE A MARKETER How can a marketing team use TikTok to inform the marketing research process?

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(Answer: Open ended)

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THINK LIKE A MARKETER Are LinkedIn polls an effective use of data collection for a firm‘s marketing research initiatives? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 5-1 What part of the marketing research process takes the most time? (Answer: Open ended; data collection can take a long time if the sample size is large or if the rigor of the primary research is high. Also, the research problem may evolve as the data are being collected.) Do marketers go through each stage of the process? (Answer: Some marketers skip steps if they get an early solution to the problem. Or they may go back to an earlier step to gather additional information or reanalyze data, as needed.) LO5-2: Describe the various types of secondary data sources and explain the importance of predictive analytics. Secondary Data and Predictive Analytics  Research investigating such topics often begins with a review of secondary data  Secondary data are particularly useful at the problem identification stage Use of Secondary Data for Business Research  Marketers need data that provide deeper understanding of customer differences and market trends ranks very high  Maintaining a close watch on the actions on rival firms, a process known as competitive intelligence, is a focal area  Environmental scanning research involves monitoring the firm‘s macroenvironment for the emergence of new technologies, changes in supply markets, and shifts in the political and economic landscape Customer and Market Trends Data  Business researchers are constantly on the lookout for research on changes in consumption patterns and market trends  Information on emerging consumer trends and behaviors is often available from panel data providers, which is gathered from a group (or panel) of consumers over a period of time  The NPD Group‘s National Eating Trends (NET) study monitors the eating and drinking habits of thousands of families  Market tracking research is the observation of industry trends and sales volume over time

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Competitive Intelligence  Competitive intelligence is the systematic gathering of data about strategies that direct and indirect competitors are pursuing  This information can provide a firm with advance knowledge of a competitor‘s upcoming promotions or new products that the firm can respond in a way that blunts the effects of the competitor‘s actions  A company can obtain information about another company‘s activities and plans in a number of ways  Government agencies, such as the U.S. Patent and Trademark Office (USPTO), offer important information regarding competitors‘ innovation activities and upcoming new products  Regular attendance at conferences and trade shows provides opportunities to network and converse with customers about industry developments  By monitoring rivals‘ websites and social media accounts, researchers can identify subtle changes in a competitor‘s market positioning and value propositions  It should be noted that there are unethical ways of obtaining competitive intelligence  Bribing competitors‘ employees or customers for information is an unethical and illegal way of getting competitive information Environmenal Scanning  Environmental scanning research refers to the collection and utilization of information regarding events, relationships, and trends that impact an organization‘s industry Advantages and Disadvantages of Secondary Data  With the rise of internal ERP and CRM information systems, managers are able to easily access customer records and make ad hoc queries using internal information systems  Many external secondary databases are available for immediate download from government sources and other data aggregators  Websites and social media likewise offer managers and researchers with readily available data  Since it does not require access to human respondents or subjects, secondary data are almost always less expensive than acquiring primary data  Secondary sources sometimes provide data that are not readily available via primary data sources  The most significant disadvantage to working with secondary data is that because the data were acquired by someone else for other purposes, it often fails to meet the researcher‘s specific needs

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Secondary Data Sources  The most fundamental is whether it is housed within the organization‘s information systems or whether it resides with an external party Internal Company Data  The largest source of useful data flowing through any organization is that which it generates, or co-generates, itself in the course of its daily operations  Internal company data would include a company’s sales records, customer support records, Accounting and finance information, sales force reports, and operation and supply chain management information  Valuable information can reside in separate functional areas or even different strategic business units, and some have conflicting protocols for access rights, distribution, and usage  For large organizations with multiple lines of business, making sure that all useful data are accessible to information users across the organization may involve as much political skill as technological expertise  Some data, like purchase transactions, may be collected in real time; other data, such as sales call reports and expense records, are more likely to be generated on a weekly or even monthly basis External Secondary Data Sources  Companies utilize secondary data to help improve their marketing decision making Government Sources  U.S. government agencies are prolific producers of data, much of it available to the public for free or at very low cost  The U.S. Census of Population (www.census.gov) provides a wealth of information on a wide variety of demographic and socioeconomic trends across major cities, counties, and states  Builders and contractors use information published in the American Housing Survey and American Community Survey published by the Department of Housing and Urban Development (HUD)  Detailed information about the operations of a publicly held competitor can be found in the company‘s financial reports on the U.S. Securities and Exchange Commission website (www.sec.gov) Trade Associations  By virtue of their participation in these trade associations, organizations often receive exclusive access premium data and research reports  Examples include the American Hospital Association (hospitals) and Food Marketing Institute (grocery stores) Media Sources  Broadcast, print, and online media sources regularly collect and distribute data on a wide variety of subjects

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Fortune magazine commissions research and publishes company ratings, including corporate reputation (Most Admired Companies) and workplace quality (100 Best Companies to Work For)  Marketers in the nonprofit sector may refer to The Chronicle of Philanthropy, which offers subscribers access to research and data on the U.S. charitable organizations and large donors Commercial Sources  Companies known as syndicated market research providers compile secondary data and provide access to other businesses on a paid basis  Some providers may specialize in distributing specific types of data, such as scanner data, surveys, or product launch analysis  Companies like Nielsen Corporation and Information Resources, Inc. (IR I) acquire point-ofsale (POS) retail data from grocery and pharmacy chains, which they in turn offer to researchers on a subscription basis  Scanner data are obtained from scanner readings of UPC codes at checkout counters  Nielsen Corporation (formerly ACNielsen) is also well known for using consumer panels to provide advertisers with audience ratings for television and radio programming  Euromonitor International is the world‘s leading provider of global business intelligence, market analysis, and consumer insights  Passport, its award-winning syndicated market research database, provides detailed data and analysis on industries and consumers across 1,200 cities and 210 countries  ISR Reports offers research products and services that are exclusively focused on the needs of the pharmaceutical industry Big Data and Predictive Analytics  Big Data is a term that describes both the growth in information that inundates businesses each day and the complex tools used to analyze the data and derive meaningful insights  Predictive analytics is an umbrella term for a set of statistical techniques and algorithms that enable organizations to recognize patterns within data  By analyzing patterns of past behaviors, these statistical models can be used to help companies predict future events, such as buying behavior or customer switching  The volume, velocity, and variety of structured and unstructured information available to marketers and business managers continues to grow at an exponential basis  It‘s what the organization does with the data that truly matters

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Marketing Analytics INSIGHT QUESTIONS Each day, humans create 2.5 quintillion bytes of data. Where do these data come from? (Answer: Everywhere: Sensors used to gather climate information, posts to social media sites, digital pictures and videos, purchase-transaction records, cell phone GPS signals, etc.) How much time should be dedicated to monitoring these efforts? (Answer: Open ended; because this is becoming more of a focus, firms should dedicate their resources to monitoring data, if possible.) Predictive Analytics  Many marketers are leveraging Big Data sources by applying predictive analytics tools to help create more relevant, personalized brand experiences and better anticipate changing customer preferences  Predictive analytic applications can be broadly grouped into two general classes of models  Unsupervised learning (or clustering) models involves teaching an algorithm to look for hidden patterns in data and group things together without being taught what to look for  Supervised learning (or propensity) models involve teaching an algorithm to come to a specific conclusion based on historical data  Insights generated from predictive analytics models offer a means of improving the quality, speed, and precision of decision making in ways that can help firms gain strategic advantage

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Figure 5.5 Emergence of Predictive Analytics INSIGHT QUESTIONS Why have marketers incorporated predictive analytics into their practices? (Answer: Many marketers are leveraging Big Data sources by applying predictive analytics tools to help create more relevant, personalized brand experiences and better anticipate changing customer preferences.) What are the two classes of predictive analytic models? (Answer: unsupervised learning [or clustering] and supervised learning [or propensity] models)

Table 5.2 Marketing Applications of Predictive Modeling INSIGHT QUESTIONS How can predictive models help with identifying which customer segments generate the most lifetime value? (Answer: Predictive models can enable marketers to more accurately predict CLV for individual customers and segments. Managers can then direct marketing investments toward attracting and retaining the company‘s most valuable customers.) How can predictive models help with identifying which prospects are most likely to buy? (Answer: Predictive models can help managers better forecast which customers are most likely to purchase as well as what channels are most likely to reach those customers.) Limitations of Predictive Analytics Models  Predictive models require a specific set of conditions to work well  If these criteria are unmet, the value of these tools for decision makers may be greatly diminished  Predictive analytics models typically require large-scale training data sets in order to perform well  The characteristics of the population used for the training data must be representative of the targeted population in the test data set  The current (or future) market conditions that the model is being applied to must be similar to the conditions under which the training data were collected  The algorithms used in both unsupervised and supervised learning models are heavily dependent upon the quality of the input data  Data are ultimately a human creation  When secondary data sources are not able to satisfy the desired research objectives, managers will seek to address these questions through primary marketing research studies

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LO5-3: Discuss the need for primary research and describe qualitative and quantitative research approaches.

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Primary Data Research Methods  When secondary data are insufficient for addressing identified research objectives, firms collect primary data to address their more specific research needs  Depending on the aims of the research (exploratory, descriptive, or causal), the company may select from a variety of primary data-collection methods  Qualitative research includes techniques like focus groups, depth interviews, semi-structured interviews, and ethnographic research  Quantitative research methods include surveys, experiments, and observational studies Qualitative Methods for Business Research  Qualitative research seeks to address business questions through techniques that permit the research team to offer detailed interpretations of market phenomena without depending on numerical measurement  These methods may be employed in studying consumers, executives, or organizations  Its focus is on discovery rather than testing preconceived hypotheses  The goal of the research team is to extract meaning from unstructured data generated from the study Focus Group Interviews  A focus group is an unstructured interview typically conducted with a small group of between 6 and 10 participants who interact with each other in a spontaneous way as they discuss a particular topic or concept  Focus group sessions are led by trained moderators and tend to follow a flexible outline that encourages participant dialogue  Successful focus group studies rely heavily on the skill and experience of the moderator who must be able to quickly build rapport with the group in order to promote discussion  Organizations conducting focus groups must also closely consider the size and composition of their focus groups  If the group is too small, one or two individuals with a strong personality may intimidate the others and dominate the conversation Depth and Semi-Structured Interviews  In a depth interview, a trained researcher, working with one participant at a time, asks openended questions about how the individual perceives and uses various products or brands  The interviewer may follow up answers by asking probing questions that require deeper elaboration  Similar to the focus group, a trained interviewer is critical to obtaining useful insights from depth interview research projects

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Semi-structured interviews usually ask respondents for a short essay response to specific open-ended questions  Respondents are free to write as little or as much as they would like  Similar to the depth interview process, the questioning begins with an opening question followed by a series of probing questions  Focus groups, depth interviews, and semi-structured interviews can all be conducted online; there may even be advantages for doing so in certain contexts  Even if the online approach effectively replicates many of the same features of the traditional face-to-face method, there are always trade-offs that should be thought about in advance Ethnographic Research  Drawing techniques from the field of anthropology, ethnographic research sends trained participant-observers to watch and interact with a subject population in their natural environment  The participant-observer becomes immersed with the culture or subculture they are studying and draws data via their direct observations  Many companies and marketing research firms have adapted ethnographic research approaches to the study of online consumer groups, referred to as netnography, which involves observing the behavior of online communities that have been organized around a particular consumer interest  Often, the members of such communities are first movers, that is, consumers who take the lead in adopting new products and often are dedicated to the product Pros and Cons of Qualitative Research Methods  One limitation is that interpretations of qualitative data are inherently subjective, even when using trained experts  It is very effective for uncovering topic areas and research questions that merit additional investigation  Qualitative research commonly requires professional research personnel to collect and (especially) analyze the unstructured data; findings from the analysis often provide much richer detail than what would be feasible using quantitative methods  Even though qualitative studies can be time-consuming and expensive to conduct, they often allow the researcher greater flexibility to probe emerging topics during the course of the study Quantitative Methods for Primary Business Research  When companies are more interested in gathering descriptive statistical information or testing hypothesized causal relationships, they often engage in quantitative primary research studies

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Survey Research  Survey research is among the most common approaches to obtaining primary data in applied business settings  A survey is defined as a method of collecting primary data based on communication with a representative sample of individuals who provide responses to a sequence of questions  Surveys are used to collect a wide variety of data and are often used to help determine consumer attitudes, intended behavior, and the motivations behind those behavior  An online survey is a questionnaire accessed via a web browser  Companies like Qualtrics and SurveyMonkey offer platforms that help organizations to create, distribute, and record responses to online surveys  Mobile-optimized surveys are online surveys that have been adapted to fit smaller mobile device screens  They take advantage of touch screens and other smartphone features, like cameras and microphones  There has been corresponding growth in the use of paid online panels  Researchers provide the panel company with a link to the survey and sample specifications, things like the desired number of respondents, demographic characteristics, education, and professional profile Design of the Research Instrument  The research team is responsible for creating the research instrument, a generic term used to describe a measurement device such as a survey, test, or questionnaire  In designing studies, marketing researchers try to ensure that the selected measures exhibit adequate reliability and validity  A measurement instrument exhibits reliability if it produces almost identical results over repeated trials  Validity broadly references the extent to which an instrument measures what it is supposed to measure, and not something else Experiments  Experiments are a type of quantitative research study in which the researcher systematically manipulates one or more variables to determine which variables most affect a given outcome  By randomizing subjects into treatment and control groups, experimental researchers can tightly control for the effects of confounding external factors, particularly in laboratory settings  Experimental research is a powerful tool in demonstrating causality  The most significant distinction between laboratory and field tests is the environment in which the research is conducted  A field experiment is a study that examines the impact of an intervention in the real world

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One popular form of field experiment, known as A/B testing (sometimes called split testing), involves directly comparing two versions of a product or advertisement—a control and test version—to see which generates stronger customer response Observation Studies  Observation research is a systematic process that involves watching how people behave and recording anything about that behavior that might be relevant to the research objective  While observation allows researchers to see how people behave, it is not useful in determining why they behave that way  Mystery shoppers are trained researchers hired to pose as customers in order to gather information about the physical appearance or customer service attributes of a store  Using behavioral targeting, companies utilize a variety of technologies to anonymously track and compile individual consumer behaviors  Behavioral targeting is not an online-only activity: Retailers also track shopping behaviors in brick-and-mortar stores Table 5.3 QSR Magazine Results of Drive-through Image INSIGHT QUESTIONS Which customer service attribute had the highest count? (Answer: ―thank you‖) How can studying this help an organization? Answer: Open ended; knowing the areas of success and weakness can change the marketing mix and entice a focus on customer service and marketing communication strategies.) Customer Insights from Social Media Data  Many brands today actively engage consumers on social media and use it to gain deeper insights on their customers‘ wants and needs, gauge product and service quality through online reviews, and track response to brands‘ advertising and promotions  Brand managers track a variety of social media metrics on a weekly or even daily basis, including number of brand mentions, sentiment (e.g., ratio of positive to negative), and engagement (number of likes, dislikes, and comments)  Blog mining involves using automated tools to find and extract information found on the web about a brand and then using specialized software to analyze and make sense of these large amounts of text-based data THINK LIKE A MARKETER Do marketers always go through each step of the process? (Answer: Open ended)

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CONNECT BACK: Reference Connect Assignment 5-2 How have social media assisted companies in targeting current and potential customers? (Answer: Open ended; Facebook, for example, tracks consumer preferences and offers firms the ability to specifically target them based on demographic, geodemographic, and psychographic preferences.) How do other social media platforms, such as LinkedIn, Twitter, and Instagram, connect with its fans and consumers? (Answer: Open ended; through interactive posts containing text, images, and video relating to the demographic of each platform) What measurements are currently in place for each of these social media platforms? What measurements can you recommend be added? (Answer: Open ended; software like Hootsuite is a third-party software that for a small fee can monitor the effectiveness of all popular social media platforms; some platforms have internal analytics, too.) In what ways do you use social media to connect with companies and their products and services? (Answer: Open ended; follow their page, interact with the brand and other consumers of the brand, post pictures and videos of the products and services in use, etc.) Pros and Cons of Quantitative Research  Quantitative methods for collecting and analyzing data can often be done quickly, at low cost, and may help better researchers understand cause-and-effect patterns in consumer behaviors  The degree to which statistical results are generalizable beyond the sample data may be questioned absent evidence that the individuals studied are truly representative of that broader population THINK LIKE A MARKETER Can both quantitative and qualitative research be used to address a research problem? (Answer: Open ended) Advantages and Disadvantages of Qualitative and Quantitative Research Research Method Type Qualitative

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motivations behind behaviors Is not limited to a predetermined set of responses Can be very flexible in approach Can be used to generate marketing ideas Results may be generalizable to a larger population Some methods can be conducted quickly and inexpensively Analysis of data can be faster than in qualitative research Can conduct causal studies that indicate why behaviors occur Can be cost-effective Often convenient for respondent

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Research can take longer than quantitative methods Potential for researcher bias Individual participants may not represent general target market Small sample size May be limited by researcher‘s questions Response rates can be very low Difficult to determine nonresponse bias Possible respondent self-selection bias Participant resistance to giving sensitive information

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Table 5.4 Advantages and Disadvantages of Qualitative and Quantitative Research INSIGHT QUESTIONS Why is it important to understand the advantages and disadvantages of qualitative and quantitative research? (Answer: Open ended; since both are needed in an organization to make marketing decisions, knowing the advantages and disadvantages of each can enable marketers to know which methods can be used according to the available resources; also, it allows the researchers to find the type of data needed.) A marketing manager is thinking of conducting marketing research to reposition its service to its same target market, but they are unsure of which type of research they should conduct. Explore the advantages and disadvantages of qualitative and quantitative research to decide which is more cost-effective and will show potential market opportunities not yet explored. (Answer: Open ended; some factors to consider are behavioral motivation, sample population size, how costly the research is, available time to do research, response rates, and convenience; an additional advantage of qualitative data is that they can be used to generate marketing ideas.)

LO5-4: Explain the importance of research to firms marketing products globally. Global Marketing Research  Global marketing research is the systematic design, collection, recording, analysis, interpretation, and reporting of information pertinent to a particular marketing decision facing a company operating internationally Challenges Unique to International Marketing Research  In many foreign markets, primary data are vital due to the questionable validity and comparability of secondary data sources  A range of factors including language; culture; technology; and social, legal, and political environments can complicate the collection and analysis of primary data Language  Many idioms and phrases hold different meanings across languages; some words simply don‘t exist  Questionnaires or interview guides must be translated into the language of each country being studied  Materials should be back-translated into the original language by a second translator  Qualitative responses from study subjects must be translated back into the original language prior to analysis  Each of these steps increases costs and potential errors

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Culture  The culture of the region being studied will impact how the study is conducted, what is asked, and the length and form of information received in response Technology  When designing an international marketing research study, it‘s important that you select the right technology solution to reach your target audience  In many developing economies, for instance, the mobile phone has become the most frequently used computing device for consumers and businesspeople alike THINK LIKE A MARKETER How have social media evolved marketing research? (Answer: Open ended) Social, Legal, and Political Environment  High levels of crime as well as laws pertaining to marketing and marketing research can also differ by country  Whether a company conducts its own research or hires an international research firm to do it, the research tasks remain the same  Analyze the global market to understand the following: the fastest growing markets overall, the largest markets for the firm‘s products, trends in the various global markets that relate to the firm‘s products, and any restrictions on the importing of the firm‘s products such as quotas or tariffs  Acquire specific information about the products the firm wants to sell globally  Estimate the potential market share and sales of products at particular price points to ensure that the venture will be a profitable one LO5-5: Understand several of the latest trends in marketing research, including customer journey mapping, mobile marketing research, and neuromarketing. Marketing Research Trends  Several key innovations and technological advances are altering the face of marketing research  These are occurring in areas such as mobile communications, the rise of social media, and methods from the field of neuroscience Customer Journey Maps  A customer journey map is a visual depiction of the steps customers go through when engaging with a company in order to achieve a particular goal  Outlining a full customer journey map in such detail requires extensive market research, often involving multiple data sources and research methods  A persona is a semi-fictional customer profile that represents the key traits of a large segment of a company‘s audience 371

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Development of the customer profile is informed by primary market research, social media monitoring, web analytics, customer service interactions, and identifiable buyer behaviors Customers go through multiple steps as they interact with the brand Locating a product in the store or reaching out to support with a technical issue, and each of these steps constitute a distinct touch point A touch point refers to any moment in their journey when a customer comes into contact with a brand (website, social media, online review, advertisements, purchase, customer service) In order to develop personas, establish customer touch points for achieving various goals, and identify moments of truth, researchers will utilize a variety of research methods

Figure 5.6 Example of a Customer Persona Profile INSIGHT QUESTIONS Provide examples of questions a persona profile may address? (Answer: Open ended; what does a typical customer do? What does their typical day look like? What are their frustrations and pain points? What are they seeking to accomplish via their brand engagements? What mental images come to mind when you think about them?) How is a customer profile developed? (Answer: Development of the customer profile is informed by primary market research, social media monitoring, web analytics, customer service interactions, and identifiable buyer behaviors.)

Table 5.5 Research Methods Used to Create Customer Journey Maps INSIGHT QUESTIONS Which methodology uses one-on-one or group conversations with customers to uncover firsthand stories, frustrations, and needs? (Answer: customer depth interviews or focus groups) Which methodology provides competitive evaluations that allow managers to benchmark their customers‘ experiences with their competitors to identify strengths and areas for potential improvement? (Answer: competitive analysis) Mobile Marketing Research  Nearly 85 percent of the world‘s population today own a smartphone, with more than 6.63 billion unique mobile subscribers  The term mobile marketing research refers to participants taking part in marketing research via mobile devices  Mobile marketing research can take a variety of forms, including qualitative and quantitative 372

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Mobile marketing research offers several key advantages It enables researchers to reach audiences through the channel that they are most comfortable The advent of mobile market research has introduced respondent location to the market research process  Almost all mobile devices come standard with a keyboard, camera, and microphone  GPS receivers and other instrumentation in smartphones and tablets enable researchers to gather information about what people actually do, without even asking survey questions Neuromarketing  Neuromarketing techniques are useful in addressing such ―can‘t say‖ or ―won‘t say‖ limitations  Neuromarketing is the use of neuroscientific methods to better understand consumer decision making and responses to different kinds of marketing stimuli  It contains a variety of methods for measuring behavioral and physiological responses to marketing stimuli  These methods include fMR I, EEG, eye-tracking, facial expression coding, and core biometrics (e.g., heart rate, respiration, skin conductance) Brain-Imaging Techniques  A number of brain-imaging techniques have been developed by medical researchers  The two most widely used by marketing researchers today are functional magnetic resonance imaging (fMRI) and electroencephalography (EE G) Functional Magnetic Resonance Imaging (fMRI)  fMR I machines emit an electromagnetic pulse that measures the amount of oxygenated blood flow and can pinpoint activation in even the deepest parts of the brain down to the nearest millimeter  fMR I is used to monitor brain activity when individuals are exposed to marketing stimuli or make choices, and researchers can draw inferences with respect to subjects‘ implicit attitudes and desires Electroencephalography (EEG)  EEG measures patterns of electrical activity emanating from the cortex, the outermost part of the brain  The cortex is responsible for ―higher‖ brain functions such as decoding sensory information, memories, and planning  In comparison to fMR I, EEG is a much less expensive technology  While EEG lacks the spatial resolution of fMR I testing, there is no temporal delay in EEG response  Combining data from multiple systems can be powerful, allowing researchers to track not only where an individual was looking but also how they were reacting while looking there Eye-Tracking

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Eye-tracking technologies use infrared light and specialized cameras to nonintrusively track individuals‘ visual attention  Results from eye-tracking studies provide researchers with direct measures of how consumers allocate their attention to marketing and nonmarketing stimuli in their environment  Eye-tracking studies are particularly useful for answering questions in marketing situations  Heat maps are colored regions overlaid on an image; they are the most frequently offered eye-tracking output  The maps are usually color-coded so that the warmer the color, the higher the levels of attention to that area Automated Facial Coding  The face is the best indicator of a person‘s emotions  Understanding how to read and interpret microexpressions is an essential part of understanding nonverbal behavior and reading people  A microexpression is a brief, involuntary facial expression that appears on a person‘s face according to the emotions being experienced  Unlike regular, prolonged facial expressions, it is difficult to fake a microexpression  Facial coding is the categorization of facial microexpressions to reveal the emotional response of an individual while processing content  It was not until the 1970s that psychologist Dr. Paul Ekman demonstrated that certain facial muscle movements are consistently associated with discrete affective states across human cultures  Reliance on human expert coders makes it costly and difficult to scale this methodology for use in larger research projects Figure 5.7 Example of a Heat Map for a Print Advertisement INSIGHT QUESTIONS In a heat map, what color indicates the highest attention? (Answer: red) What are the advantages of eye-tracking? (Answer: It is relatively inexpensive; it is rather easy to set up studies; and it requires little complex knowledge to generate useful output.)

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CONNECT BACK: Reference Connect Assignment 5-3 What is included in the neuromarketing ―toolbox‖? (Answer: The term covers a variety of alternative methods for measuring behavioral and physiological responses to marketing stimuli. These other methods include eye-tracking, facial expression coding, core biometrics (e.g., heart rate, respiration, skin conductance), and implicit response testing.) Are there ethical concerns about studying the brain activity of consumer? (Answer: Open ended; it can be argued that we are becoming too invasive in an attempt to gain marketing information from consumers even though participation is voluntary or compensated.) LO5-6: Discuss the main ethical issues in conducting marketing research. Marketing Research Ethics  High-profile scandals involving questionable research practices and the misuse of customer data have placed ethical concerns over marketing research squarely in the public spotlight, although each insisted their action were legally permittable as part of their user terms of service agreements  Amazon was fined $887 million by EU regulators for making it difficult for users to reject web-tracking cookies that enable the company to collect and share customers‘ personal data  The online dating site OkCupid admitted it conducted experiments in which it skewed couples‘ compatibility percentiles to manipulate users into thinking they were a better match than they really were—and vice versa  Facebook conducted a secret study in which it sought to manipulate the emotions of nearly 700,000 unwitting users by showing them either more positive or negative posts on their news feeds  Google settled with the DOJ and paid a $500 million criminal penalty for knowingly abetting the illegal importation of prescription drugs into the United States with geo-targeted advertising facilitated by misuse of users‘ private data  Ethics experts question whether the research and use of customer data represented ethical research practices Respecting Customer Data Privacy  Increasingly powerful computer capabilities allow for the collection, storage, and analysis of data from millions of consumers  In many instances, passive data are gathered automatically, without the end user‘s explicit knowledge as they navigate the Internet or peruse a social media platform

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Standards for Ethical Marketing Research  Marketing research professionals must guard against potential abuses and conflicts of interest, particularly in sponsored research  If findings from a study are made public, the research should be published with a statement disclosing any interest by sponsors funding the research, so that the results can be understood in context  Marketing researchers must also be aware of their obligations to participants and prospective participants of their studies  In certain instances, however, deception may be acceptable, provided it serves a legitimate purpose and does not encourage participation from people who would otherwise not participate  Organizations like the American Marketing Association, the Marketing Research Association (MRA), the International Chamber of Commerce (ICC), and ESOMAR have established ethical standards for conducting research  Consumer distrust of how companies use information will have negative consequences: Consumers may refuse to participate in research studies or may be unwilling to provide personal information either online or face-to-face Table 5.6 Key Fundamentals of the ICC/ESOMAR International Code on Market and Social Research INSIGHT QUESTIONS Why is it important for ethical standards like these to be published? (Answer: They help gain the trust of consumers; without trust, individuals will be less likely to participate in marketing research.) These ethical standards are updated on a regular basis. With the continued use of the Internet and social media, how can this code be adjusted to trends in marketing research? (Answer: Open ended; marketing professionals should ensure this is updated to reflect current and possible trends in marketing.) TODAY’S PROFESSIONAL NOTES Amie Larum, Client Success Manager, iMotions What makes you unique? What benefits could an informational interview bring to you?

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MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we focused on the importance of marketing research. The next step in developing your personal marketing plan is to conduct some research of your own to better understand the competition you will face for your dream job or graduate school program. Your assignment is to research online the job or graduate school program you discussed as your objective in Chapter 1. Try to figure out how competitive the applicant pool is. Check with someone at the firm‘s human resource department or contact the graduate school‘s admissions office to find out the average number of applicants for each open slot. Often, you can find summary statistics on the average work experience or GPA that is common among newcomers. That information will give you an idea of where you stand relative to your competition. For those of you targeting graduate school, you should conduct extensive research on the GPA and entrance exam (GMAT, LSAT, GRE) requirements for the programs you are targeting. The Internet and web publications such as U.S. News and World Report provide a wealth of data on all types of graduate school programs. You should see how your GPA and entrance exam scores compare to the averages at targeted schools. In the same way that firms want to know what their competition is doing to better understand their potential for success, so should you. Student Task: Prepare a one- to two-paragraph research report that summarizes your findings and describes the actions you will take based on your research. Your report should include the following information: 239. If focusing on a specific job, list the average number of applicants, the starting pay, and where these types of job openings are most commonly found. 240. If your focus is on graduate school, list what the average GPA and entrance exam score is for the program as well as the acceptance rate for that program. 241. Make an honest assessment of the likelihood that you will get your desired job or be accepted to the graduate program. Based on this assessment, what is the one area that you need to improve upon to increase your chances of achieving your goal?

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MARKETING RESEARCH

Chapter 5: Marketing Research

Marmaduke St. John/Alamy Stock Photo

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-100 Explain the importance of marketing research and explain the marketing research process. LO 1-101 Describe the various types of secondary data sources and explain the importance of predictive analytics. LO 1-102 Discuss the need for primary research and describe qualitative and quantitative research approaches. LO 1-103 Explain the importance of research to firms marketing products globally. LO 1-104 Understand several of the latest trends in marketing research, including customer journey mapping, mobile marketing research, and neuromarketing. LO 1-105 Discuss the main ethical issues in conducting marketing research. KEY TERMS A/B testing 378

Instructor‘s Manual - Chapter 1 advertising effectiveness studies behavioral targeting Big Data blog mining causal research competitive intelligence convenience sample cross-tabulation customer journey map data visualization decision support system (DSS) demand analysis depth interview descriptive research

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observation research panel data persona predictive analytics primary data probability sampling qualitative research reliability (of research) sales forecasting sampling scanner data secondary data semi-structured interview simple random sampling survey validity

THOUGHT-PROVOKING ACTIVITY Set 1: What is marketing research? How can it aid us in understanding a market? Provide five examples of the kind of information marketing research can provide.

Set 2: What is the difference between primary and secondary data/research? List three examples of each. Which is typically done first?

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LO5-1: Explain the importance of marketing research and explain the marketing research process. Market Research Process  Consumers and business buyers‘ preferences and behaviors can change _ and are constantly reshaped by purchase contexts and _  By employing modern marketing research processes and tools, managers are equipped to help their organizations improve marketing outcomes and _ performance What Is Marketing Research?  _ is an organizational activity that links the consumer, customer, and public to the marketer through information  The organization uses that information to identify and define marketing _ and problems; generate, refine, and evaluate marketing actions; monitor _ ; and improve understanding of marketing as a _  Market research can inform almost every aspect of a company‘s business and impact clearly in terms of the four Ps  _ should be developed based on real customer needs and wants, not just the whims of engineers or marketing executives  _ decisions are often shaped by demand analysis, which estimates the level of demand for a particular product as well as how changes in _ and other factors influence customer purchases  Decisions regarding the _ or distribution function often rely on sales forecasts  _ predicts the number of units sold in a market over a given time period  _ , such as advertising, must be evaluated based on their effectiveness  _ measure how well an advertising campaign meets marketing objectives (such as increasing brand awareness or market share)  When done properly, marketing research activities help companies better understand and satisfy the _ and _ of customers Marketing Research Process  A systematic approach to marketing research follows a five-step process: (1) _ , (2) develop a research plan, (3) collect data, (4) _ , and (5) present results and _ Figure 5.1 The Marketing Research Process INSIGHT QUESTIONS 380 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Do marketers always go through each step of the marketing research process?

When is marketing research needed?

Step 1: Define the Problem  By clarifying the exact nature of the problem, the firm avoids wasting time, money, and human resources chasing the wrong data—and coming up with the wrong _  Defining the problem has three components:  (1) _ : What questions will the research aim to answer?  (2) _ : Who do we wish to study or learn more about?  (3) _ : What aspects of the organization‘s internal or external environment are relevant to answering the research questions?  The firm should set research objectives that are specific and _

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 Next, the marketer will determine a set of procedures for addressing these research needs Step 2: Develop a Research Plan  In this step, the firm identifies the best approach to acquiring the information needed. Research plan development, sometimes called _ , involves:  Specifying what information is needed  Determining what type of research techniques may be used to acquire it  Presenting this research plan to _  The _ outlines sources of relevant existing data and details the research approach, sampling plans, materials, and _ the research team will need to gather new data Types of Research  Managers can choose from among the following three types of research:  (1) _ seeks to discover new insights that help the firm better understand and define the research problem and suggest testable hypotheses  Exploratory research usually involves some type of face-to-face interaction, such as a focus group  (2) _ seeks to describe consumer behavior by answering the questions who, what, when, where, and how  (3) _ is used to test hypotheses in order to understand the cause-and-effect relationships among variables  Causal research often involves manipulating _ (the cause or source) to see how they affect a particular _ (the effect or outcome)

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Figure 5.2 The Relationships Among Research Objectives and Collection Options INSIGHT QUESTIONS Provide examples of exploratory research.

Provide examples of descriptive research.

Provide examples of causal research.

Sampling  _ is the process of selecting a subset of the population that is representative of the population as a whole  Sampling can be broken down into two basic types: _ and _  _ ensures every person in the target population has a chance of being selected, and the probability of each person being selected is known  The most common example of probability sampling is _ , in which everyone in the target population has an _ chance of being selected  _ , on the other hand, does not attempt to ensure that every member of the target population has a chance of being selected  The most common nonprobability sampling approach is a _ , in which the researcher invites responses from people who are easily accessible  Which sampling approach to use depends upon the _ Step 3: Collect Data  Data collection begins with the firm‘s decision to use secondary or primary data  _ are information collected for alternative purposes prior to the study, typically by another entity or person  _ are collected _ for the research problem at hand  Primary data collection methods may either be _ or _

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Table 5.1 Differences Between Primary and Secondary Data INSIGHT QUESTIONS Why must we collect primary and secondary data?

A franchised restaurant is thinking of adding grilled chicken to its long list of [only] fried chicken options. Using Table 5.1‘s collection method examples, how would you uncover primary and secondary data sources?

The Marketing Information System  Primary and secondary data are acquired, processed, and stored by the firm‘s marketing _  A_ consists of the people, technologies, and procedures aimed at supplying an organization‘s marketing information needs  It assesses those needs, develops the needed information, and helps managers use information to create, validate, and apply actionable _  The process begins with an assessment of the information needs of key users aligned with the firm‘s interests: marketing managers, _ , suppliers, compliance officers, _ , senior decision makers, and others  Based on these criteria, the marketing information system acts as a _ Figure 5.3 Marketing Information System INSIGHT QUESTIONS How do decision support systems connect marketing research data to decision makers?

Although an M IS can give a firm an advantage over its competitors, there is a potential downside to collecting and storing information about customers. What do you think is the biggest potential downside?

Decision Support Systems  A_ (DSS) is a software that enables timely access and use of the information the company collects 384 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Information for the DSS can come from _ customer satisfaction studies)

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(e.g., sales data,

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It also can include _ that‘s entered or imported into the database (e.g., competitor information)  Many companies today have augmented their DSS with analytics tools, graphics, and realtime _ Step 4: Analyze the Data  The purpose of data analysis is to _ in Step 3 into information  _ can be defined as raw numbers, statistics, or text that on its own has very limited value to marketing  The raw data becomes usable information that the firm can use to solve a marketing problem only after it has been organized, analyzed, and _  It is important that researchers apply the appropriate analytic techniques for the data and research questions at hand  A_ enables the analyst to examine responses to one question in relation to responses from one or more other questions  For causal research, more powerful and sophisticated statistical techniques are typically required, such as measures of association, _ (ANOVA), and regression analysis  The information obtained from the research will enable marketers to address the research objective Figure 5.4 Cross-Tabulation Example—Differences in Satisfaction Level by Sex INSIGHT QUESTIONS When is cross-tabulation analysis used?

What are the benefits of cross-tabulation analysis?

Step 5: Present Results and Take Action  The culmination of the marketing research process is a formal, _ to decision makers  The report typically includes a _ of the findings and a set of recommendations

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Research findings should be presented in a clear, concise, and understandable language and include appropriate _ , such as figures and tables, to support conclusions  The research report should provide sufficient information to support _ Data Visualization  _ is the presentation of data and research results in pictorial or graphical format  By presenting data and analytics visually, decision makers can more easily uncover new _ in data and grasp difficult-to-understand concepts  _ are graphic visual representations of information, data, or knowledge intended to present information quickly and clearly Marketing Research and You  _ who are currently working in a field or industry you are considering is a great approach to learning whether it is right for you  By thoughtfully developing a sequence of questions (an _ ), before the meeting, you can gain insights into what skills and experiences to focus on developing prior to graduation  You also may apply many of the online and social media research techniques in identifying career opportunities THINK LIKE A MARKETER How can a marketing team use TikTok to inform the marketing research process?

THINK LIKE A MARKETER Are LinkedIn polls an effective use of data collection for a firm‘s marketing research initiatives?

CONNECT BACK: Reference Connect Assignment 5-1 What part of the marketing research process takes the most time?

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Do marketers go through each stage of the process?

LO5-2: Describe the various types of secondary data sources and explain the importance of predictive analytics. Secondary Data and Predictive Analytics  Research investigating such topics often begin with a review of _  Secondary data are particularly useful at the _ stage Use of Secondary Data for Business Research  Marketers need data that provide deeper understanding of customer differences and _ ranks very high  Maintaining a close watch on the actions on rival firms, a process known as _ , is a focal area  _ research involves monitoring the firm‘s macroenvironment for the emergence of new technologies, changes in supply markets, and shifts in the political and economic landscape Customer and Market Trends Data  Business researchers are constantly on the lookout for research on changes in _ and market trends  Information on emerging consumer trends and behaviors is often available from _ providers, which is gathered from a group (or panel) of consumers over a period of time  The NPD Group‘s _ (NET) study monitors the eating and drinking habits of thousands of families  _ research is the observation of industry trends and sales volume over time Competitive Inetlligence  _ is the systematic gathering of data about strategies that direct and indirect competitors are pursuing 388 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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This information can provide a firm with advance knowledge of a competitor‘s upcoming promotions or new products that the firm can respond in a way that blunts the effects of the competitor‘s actions A company can obtain information about another company‘s activities and plans in a number of ways _ , such as the U.S. Patent and Trademark Office (USPTO), offer important information regarding competitors‘ innovation activities and upcoming new products Regular attendance at conferences and _ provides opportunities to network and converse with customers about industry developments By monitoring rivals‘ _ and social media accounts, researchers can identify subtle changes in a competitor‘s market positioning and value propositions It should be noted that there are _ ways of obtaining competitive intelligence _ competitors‘ employees or customers for information is an unethical and illegal way of getting competitive information

Environmenal Scanning  Environmental scanning research refers to the collection and utilization of information regarding _ , relationships, and _ that impact an organization‘s industry Advantages and Disadvantages of Secondary Data  With the rise of internal _ and _ information systems, managers are able to easily access customer records and make ad hoc queries using internal information systems  Many external secondary databases are available for immediate download from government sources and other _  Websites and _ likewise offer managers and researchers with readily available data  Since it does not require access to human respondents or subjects, secondary data are almost always _ expensive than acquiring primary data  Secondary sources sometimes provide data that are not readily available via primary data sources  The most significant disadvantage to working with secondary data is that because the data were acquired by someone else for _ , it often fails to meet the researcher‘s specific needs Secondary Data Sources  The most fundamental is whether it is housed within the organization‘s information systems or whether it resides with an _ 389 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Internal Company Data  The largest source of useful data flowing through any organization is that which it generates, or co-generates, itself in the course of its daily operations  _ would include a company’s sales records, Customer support records, Accounting and finance information, sales force reports, and operation and supply chain management information  Valuable information can reside in separate functional areas or even different _ , and some have conflicting protocols for access rights, distribution, and usage  For large organizations with multiple lines of business, making sure that all useful data are accessible to information users across the organization may involve as much _ skill as technological expertise  Some data, like purchase transactions, may be collected in real time; other data, such as sales call reports and expense records, are more likely to be generated on a _ or even _ basis External Secondary Data Sources  Companies utilize secondary data to help improve their marketing _ Government Sources  U.S. government agencies are prolific producers of data, much of it available to the public for free or at a very low cost  The U.S. _ (www.census.gov) provides a wealth of information on a wide variety of demographic and socioeconomic trends across major cities, counties, and states  Builders and contractors use information published in the _ published by the Department of Housing and Urban Development (HUD)  Detailed information about the operations of a publicly held competitor can be found in the company‘s financial reports on the U.S. _ website (www.sec.gov) Trade Associations  By virtue of their participation in these trade associations, organizations often receive _ access premium data and research reports  Examples include the _ (hospitals) and _ (grocery stores)

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Media Sources  Broadcast, print, and online media sources regularly collect and distribute data on a wide variety of subjects  Fortune magazine commissions research and publishes company ratings, including corporate _ (Most Admired Companies) and workplace quality (100 Best Companies to Work For)  Marketers in the nonprofit sector may refer to The Chronicle of Philanthropy, which offers subscribers access to research and data on the U.S. charitable organizations and large donors Commercial Sources  Companies known as _ compile secondary data and provide access to other businesses on a paid basis  Some providers may specialize in distributing specific types of data, such as scanner data, surveys, or _  Companies like Nielsen Corporation and Information Resources, Inc. (IR I) acquire _ (POS) retail data from grocery and pharmacy chains, which they in turn offer to researchers on a subscription basis  _ are obtained from scanner readings of UPC codes at checkout counters  _ (formerly ACNielsen) is also well known for using consumer panels to provide advertisers with audience ratings for television and radio programming  _ is the world‘s leading provider of global business intelligence, market analysis, and consumer insights  Passport, its award-winning syndicated market research database, provides detailed data and analysis on industries and consumers, across _ cities and _ countries  ISR Reports offers research products and services that are exclusively focused on the needs of the _ industry Big Data and Predictive Analytics  _ is a term that describes both the growth in information that inundates businesses each day and the complex tools used to analyze the data and derive meaningful insights  _ is an umbrella term for a set of statistical techniques and algorithms that enable organizations to recognize patterns within data  By analyzing patterns of past behaviors, these statistical models can be used to help companies predict _ , such as buying behavior or customer switching  The volume, _ , and _ of structured and unstructured information available to marketers and business managers continue to grow at an exponential basis 391 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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It‘s what the organization _

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that truly matters

Marketing Analytics INSIGHT QUESTIONS Each day, humans create 2.5 quintillion bytes of data. Where do these data come from?

How much time should be dedicated to monitoring these efforts?

Predictive Analytics  Many marketers are leveraging Big Data sources by applying predictive analytics tools to help create more relevant, personalized _ and better anticipate changing customer preferences  _ applications can be broadly grouped into two general classes of models  Unsupervised learning (or _ ) models involves teaching an algorithm to look for hidden patterns in data and group things together without being taught what to look for  _ (or propensity) models involve teaching an algorithm to come to a specific conclusion based on historical data  Insights generated from predictive analytics models offer a means of improving the quality, speed, and precision of decision making in ways that can help firms gain _

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Figure 5.5 Emergence of Predictive Analytics INSIGHT QUESTIONS Why have marketers incorporated predictive analytics into their practices?

What are the two classes of predictive analytic models?

Table 5.2 Marketing Applications of Predictive Modeling INSIGHT QUESTIONS How can predictive models help with identifying which customer segments generate the most lifetime value?

How can predictive models help with identifying which prospects are most likely to buy?

Limitations of Predictive Analytics Models  Predictive models require a specific set of conditions to work well  If these criteria are unmet, the _ of these tools for decision makers may be greatly diminished  Predictive analytics models typically require large-scale training data sets in order to perform well  The characteristics of the population used for the training data must be representative of the _ in the test data set  The current (or future) _ conditions that the model is being applied to must be similar to the conditions under which the training data were collected  The algorithms used in both unsupervised and supervised learning models are heavily dependent upon the _ of input data  _ is ultimately a human creation  When secondary data sources are not able to satisfy the desired _ , managers will seek to address these questions through primary marketing research studies

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LO5-3: Discuss the need for primary research and describe qualitative and quantitative research approaches. Primary Data Research Methods  When secondary data are insufficient for addressing identified research objectives, firms collect _ to address their more specific research needs  Depending on the _ of the research (exploratory, descriptive, or _ ), the company may select from a variety of primary datacollection methods  _ research includes techniques like focus groups, depth interviews, semi-structured interviews, and ethnographic research  _ research methods include surveys, experiments, and observational studies Qualitative Methods for Business Research  _ seeks to address business questions through techniques that permit the research team to offer detailed interpretations of market phenomena without depending on numerical measurement  These methods may be employed in studying consumers, _ , or organizations  Its focus is on discovery rather than testing _  The goal of the research team is to extract meaning from _ data generated from the study Focus Group Interviews  A_ is an unstructured interview typically conducted with a small group of between _ and _ participants who interact with each other in a spontaneous way as they discuss a particular topic or concept  Focus group sessions are led by trained _ and tend to follow a flexible outline that encourages participant dialogue  Successful focus group studies rely heavily on the _ and _ of the moderator who must be able to quickly build rapport with the group in order to promote discussion  Organizations conducting focus groups must also closely consider the size and _ of their focus groups  If the group is too small, one or two individuals with a strong _ may intimidate the others and _ the conversation Depth and Semi-Structured Interviews 394 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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In a _ , a trained researcher, working with one participant at a time, asks open-ended questions about how the individual perceives and uses various products or brands  The interviewer may follow up answers by asking probing questions that require deeper elaboration  Similar to the focus group, a trained interviewer is critical to obtaining useful insights from depth interview research projects  Semi-structured interviews usually ask respondents for a short essay response to specific _ questions  Respondents are free to write as little or as much as they would like  Similar to the depth interview process, the questioning begins with an _ followed by a series of _ questions  Focus groups, depth interviews, and semi-structured interviews can all be conducted _ ; there may even be advantages for doing so in certain contexts  Even if the online approach effectively replicates many of the same features of the traditional face-to-face method, there are always trade-offs that should be thought about in advance Ethnographic Research  Drawing techniques from the field of anthropology, _ sends trained participant-observers to watch and interact with a subject population in their natural environment  The _ becomes immersed with the culture or subculture they are studying and draws data via their direct observations  Many companies and marketing research firms have adapted ethnographic research approaches to the study of online consumer groups, referred to as _ , which involves observing the behavior of online communities that have been organized around a particular consumer interest  Often, the members of such communities are _ , that is, consumers who take the lead in adopting new products and often are dedicated to the product Pros and Cons of Qualitative Research Methods  One limitation is that _ of qualitative data are inherently subjective, even when using trained experts  It is very effective for uncovering topic areas and _ that merit additional investigation  Qualitative research commonly requires professional research personnel to collect and (especially) analyze the _ data; findings from the analysis often provide much richer detail than what would be feasible using quantitative methods 395 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Even though qualitative studies can be time-consuming and _ to conduct, they often allow the researcher greater flexibility to probe emerging topics during the course of the study Quantitative Methods for Primary Business Research  When companies are more interested in gathering descriptive statistical information or testing hypothesized causal relationships, they often engage in quantitative primary research studies Survey Research  Survey research is among the most common approaches to obtaining primary data in applied business settings  A_ is defined as a method of collecting primary data based on communication with a representative sample of individuals, who provide responses to a sequence of questions  Surveys are used to collect a wide variety of data and are often used to help determine consumer attitudes, intended behavior, and the motivations behind those behavior  An _ is a questionnaire accessed via a web browser  Companies like _ and _ offer platforms that help organizations to create, distribute, and record responses to online surveys  _ are online surveys that have been adapted to fit smaller mobile device screens  They take advantage of touch screens and other smartphone features like cameras and microphones  There has been corresponding growth in the use of paid _  Researchers provide the panel company with a link to the survey and sample specifications, things like the desired number of respondents, demographic characteristics, education, and professional profile Design of the Research Instrument  The research team is responsible for creating the _ , a generic term used to describe a measurement device such as a survey, test, or questionnaire  In designing studies, marketing researchers try to ensure that the selected measures exhibit adequate _ and _  A measurement instrument exhibits _ if it produces almost identical results over repeated trials  _ broadly references the extent to which an instrument measures what it is supposed to measure, and not something else Experiments 396 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ are a type of quantitative research study in which the researcher systematically manipulates one or more variables to determine which variables most affect a given outcome  By randomizing subjects into treatment and _ groups, experimental researchers can tightly control for the effects of confounding external factors, particularly in laboratory settings  Experimental research is a powerful tool in demonstrating _  The most significant distinction between laboratory and field tests is the environment in which the research is conducted  A_ is a study that examines the impact of an intervention in the real world  One popular form of field experiment, known as _ (sometimes called split testing), involves directly comparing two versions of a product or advertisement—a control and test version—to see which generates stronger customer response Observation Studies  _ is a systematic process that involves watching how people behave and recording anything about that behavior that might be relevant to the research objective  While observation allows researchers to see _ people behave, it is not useful in determining _ they behave that way  _ are trained researchers hired to pose as customers in order to gather information about the physical appearance or customer service attributes of a store  Using _ , companies utilize a variety of technologies to anonymously track and compile individual consumer behaviors  Behavioral targeting is not an online-only activity: Retailers also track _ in brick-and-mortar stores

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Table 5.3 QSR Magazine Results of Drive-Through Image INSIGHT QUESTIONS Which customer service attribute had the highest count?

How can studying this help an organization?

Customer Insights from Social Media Data  Many brands today actively engage consumers on social media and use it to gain deeper insights on their customers‘ wants and needs, gauge product and _ through online reviews, and track response to brands‘ advertising and promotions  Brand managers track a variety of social media metrics on a weekly or even daily basis, including number of brand _ , _ (e.g., ratio of positive to negative), and engagement (number of likes, dislikes, and comments)  _ involves using automated tools to find and extract information found on the web about a brand and then using specialized software to analyze and make sense of these large amounts of text-based data THINK LIKE A MARKETER Do marketers always go through each step of the process?

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CONNECT BACK: Reference Connect Assignment 5-2 How have social media assisted companies in targeting current and potential customers?

How do other social media platforms, such as LinkedIn, Twitter, and Instagram, connect with its fans and consumers?

What measurements are currently in place for each of these social media platforms? What measurements can you recommend be added?

In what ways do you use social media to connect with companies and their products and services?

Pros and Cons of Quantitative Research  Quantitative methods for collecting and analyzing data can often be done quickly, at low cost, and may help better researchers understand cause-and-effect patterns in consumer behaviors  The degree to which statistical results are generalizable beyond the sample data may be questioned absent evidence that the individuals studied are truly representative of that broader population THINK LIKE A MARKETER Can both quantitative and qualitative research be used to address a research problem?

Advantages and Disadvantages of Qualitative and Quantitative Research Research Method Type Advantages Disadvantages Qualitative  Uncovers details  Results may be concerning the difficult to measure 399 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Instructor‘s Manual - Chapter 1 Research Method Type

Advantages motivations behind behaviors  Is not limited to a predetermined set of responses  Can be very flexible in approach  Can be used to generate marketing ideas

Quantitative

     

Results may be generalizable to a larger population Some methods can be conducted quickly and inexpensively Analysis of data can be faster than in qualitative research Can conduct causal studies that indicate why behaviors occur Can be cost-effective Often convenient for respondent

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Disadvantages objectively         

A marketing manager is thinking of conducting marketing research to reposition its service to its same target market, but they are unsure of which type of research they should conduct. Explore the advantages and disadvantages of qualitative and quantitative research to decide which is more cost-effective and will show potential market opportunities not yet explored.

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Instructor‘s Manual - Chapter 1

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LO5-4: Explain the importance of research to firms marketing products globally. Global Marketing Research  _ is the systematic design, collection, recording, analysis, interpretation, and reporting of information pertinent to a particular marketing decision facing a company operating internationally Challenges Unique to International Marketing Research  In many foreign markets, primary data are vital due to the questionable validity and _ of secondary data sources  A range of factors including language; _ ; technology; and social, legal, and political environments can complicate the collection and analysis of primary data Language  Many _ and phrases hold different meanings across languages; some words simply don‘t exist  Questionnaires or _ must be translated into the language of each country being studied  Materials should be _ into the original language by a second translator  _ responses from study subjects must be translated back into the original language prior to analysis  Each of these steps increases _ and _ Culture  The _ of the region being studied will impact how the study is conducted, what is asked, and the length and form of information received in response Technology  When designing an international marketing research study, it‘s important that you select the right _ solution to reach your target audience  In many developing economies, for instance, the _ has become the most frequently used computing device for consumers and businesspeople alike THINK LIKE A MARKETER How have social media evolved marketing research?

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Social, Legal, and Political Environment  High levels of crime as well as laws pertaining to marketing and marketing research can also differ by country  Whether a company conducts its own research or _ firm to do it, the research tasks remain the same  Analyze the global market to understand the following: the fastest growing markets overall, the largest markets for the firm‘s products, trends in the various global markets that relate to the firm‘s products, and any restrictions on the importing of the firm‘s products such as _ or _  Acquire specific information about the _ the firm wants to sell globally  Estimate the potential _ and _ of products at particular price points to ensure that the venture will be a profitable one LO5-5: Understand several of the latest trends in marketing research, including customer journey mapping, mobile marketing research, and neuromarketing. Marketing Research Trends  Several key innovations and technological advances are altering the face of marketing research  These are occurring in areas such as _ , the rise of social media, and methods from the field of neuroscience Customer Journey Maps  A_ is a visual depiction of the steps customers go through when engaging with a company in order to achieve a particular goal  Outlining a full customer journey map in such detail requires extensive market research, often involving multiple data sources and research methods  A_ is a semi-fictional customer profile that represents the key traits of a large segment of a company‘s audience  Development of the customer profile is informed by _ research, social media monitoring, web analytics, customer service interactions, and identifiable buyer behaviors  Customers go through multiple steps as they interact with the brand  Locating a product in the store or reaching out to support with a technical issue, and each of these steps constitute a distinct _

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A touch point refers to any _ in their journey when a customer comes into contact with a brand (website, social media, online review, advertisements, purchase, customer service) In order to develop personas, establish customer touch points for achieving various goals, and identify moments of truth, researchers will utilize a variety of research methods

Figure 5.6 Example of a Customer Persona Profile INSIGHT QUESTIONS Provide examples of questions a persona profile may address?

How is a customer profile developed?

Which methodology provides competitive evaluations that allow managers to benchmark their customers‘ experiences with their competitors to identify strengths and areas for potential improvement?

Mobile Marketing Research  Nearly 85 percent of the world‘s population today own a smartphone, with more than 6.63 billion unique mobile subscribers  The term _ refers to participants taking part in marketing research via mobile devices  Mobile marketing research can take a variety of forms, including qualitative and quantitative  Mobile marketing research offers several key advantages  It enables researchers to reach audiences through the channel that they are most comfortable  The advent of mobile market research has introduced respondent location to the market research process 404 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Almost all mobile devices come standard with a keyboard, camera, and microphone

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GPS receivers and other instrumentation in smartphones and tablets enable researchers to gather information about what people actually do, without even asking survey questions Neuromarketing  Neuromarketing techniques are useful in addressing such ―can‘t say‖ or ―won‘t say‖ limitations  _ is the use of neuroscientific methods to better understand consumer decision making and responses to different kinds of marketing stimuli  It contains a variety of methods for measuring behavioral and physiological responses to marketing stimuli  These methods include fMR I, EEG, _ , facial expression coding, and core biometrics (e.g., heart rate, respiration, skin _ ) Brain-Imaging Techniques  A number of brain-imaging techniques have been developed by medical researchers  The two most widely used by marketing researchers today are _ (fMRI) and _ (EEG) Functional Magnetic Resonance Imaging (fMRI)  fMR I machines emit an _ that measures the amount of oxygenated blood flow and can pinpoint activation in even the deepest parts of the brain down to the nearest millimeter  fMR I is used to monitor _ when individuals are exposed to marketing stimuli or make choices, and researchers can draw inferences with respect to subjects‘ implicit attitudes and desires Electroencephalography (EEG)  EEG measures patterns of electrical activity emanating from the _ , the outermost part of the brain  The cortex is responsible for ―higher‖ brain functions, such as _ ,_ , memories, and planning  In comparison to fMR I, EEG is a much _ expensive technology  While EEG lacks the _ of fMR I testing, there is no temporal delay in EEG response

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Combining data from multiple systems can be powerful, allowing researchers to track not only where an individual was looking but also how they were _ while looking there Eye-Tracking  Eye-tracking technologies use _ and specialized cameras to nonintrusively track individuals‘ visual attention  Results from eye-tracking studies provide researchers with direct measures of how consumers allocate their _ to marketing and nonmarketing stimuli in their environment  Eye-tracking studies are particularly useful for answering questions in marketing situations  _ are colored regions overlaid on an image; they are the most frequently offered eye-tracking output  The maps are usually color-coded so that the _ the color, the higher the levels of attention to that area Automated Facial Coding  The _ is the best indicator of a person‘s emotions  Understanding how to read and interpret _ is an essential part of understanding nonverbal behavior and reading people  A microexpression is a brief, involuntary facial expression that appears on a person‘s face according to the _ being experienced  Unlike regular, prolonged facial expressions, it is difficult to fake a microexpression  _ is the categorization of facial microexpressions to reveal the emotional response of an individual while processing content  It was not until the 1970s that psychologist Dr. Paul Ekman demonstrated that certain facial muscle movements are consistently associated with _ across human cultures  Reliance on human expert coders makes it costly and difficult to scale this methodology for use in larger research projects

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Figure 5.7 Example of a Heat Map for a Print Advertisement INSIGHT QUESTIONS In a heat map, what color indicates the highest attention?

What are the advantages of eye-tracking?

CONNECT BACK: Reference Connect Assignment 5-3 What is included in the neuromarketing ―toolbox‖?

Are there ethical concerns about studying the brain activity of consumer?

LO5-6: Discuss the main ethical issues in conducting marketing research. Marketing Research Ethics  High-profile scandals involving questionable research practices and the misuse of customer data have placed ethical concerns over marketing research squarely in the public spotlight, although each insisted their action were legally permittable as part of their user terms of _  Amazon was fined $887 million by EU regulators for making it difficult for users to _ that enable the company to collect and share customers‘ personal data  The online dating site OkCupid admitted it conducted experiments in which it skewed couples‘ compatibility percentiles to manipulate users into thinking they were a better match than they really were—and vice versa  Facebook conducted a secret study in which it sought to manipulate the _ of nearly 700,000 unwitting users by showing them either more positive or negative posts on their news feeds  Google settled with the DOJ and paid a $500 million criminal penalty for knowingly abetting the illegal importation of prescription drugs into the United States with geo-targeted advertising facilitated by misuse of users‘ private data 408 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Ethics experts question whether the research and use of customer data represented ethical research practices

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Respecting Customer Data Privacy  Increasingly powerful computer capabilities allow for the collection, storage, and analysis of data from millions of consumers  In many instances, _ is gathered automatically, without the end user‘s explicit knowledge as they navigate the Internet or peruse a social media platform Standards for Ethical Marketing Research  Marketing research professionals must guard against potential abuses and conflicts of interest, particularly in _  If findings from a study are made public, the research should be published with a _ disclosing any interest by sponsors funding the research, so that the results can be understood in context  Marketing researchers must also be aware of their obligations to participants and prospective participants of their studies  In certain instances, however, deception may be acceptable provided it serves a legitimate purpose and does not encourage participation from people who would otherwise not participate  Organizations like the _ , the _ (MRA), the International Chamber of Commerce (ICC), and E SOMAR have established ethical standards for conducting research  Consumer distrust of how companies use information will have negative consequences: Consumers may refuse to participate in research studies or may be unwilling to provide personal information either online or face-to-face

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Table 5.6 Key Fundamentals of the ICC/ESOMAR International Code on Market and Social Research INSIGHT QUESTIONS Why is it important for ethical standards like these to be published?

These ethical standards are updated on a regular basis. With the continued use of the Internet and social media, how can this code be adjusted to trends in marketing research?

TODAY’S PROFESSIONAL NOTES Amie Larum, Client Success Manager, iMotions What makes you unique?

What benefits could an informational interview bring to you?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we focused on the importance of marketing research. The next step in developing your personal marketing plan is to conduct some research of your own to better understand the competition you will face for your dream job or graduate school program. Your assignment is to research online the job or graduate school program you discussed as your objective in Chapter 1. Try to figure out how competitive the applicant pool is. Check with someone at the firm‘s human resource department or contact the graduate school‘s admissions office to find out the average number of applicants for each open slot. Often, you can find summary statistics on the average work experience or GPA that is common among newcomers. That information will give you an idea of where you stand relative to your competition. For those of you targeting graduate school, you should conduct extensive research on the GPA and entrance exam (GMAT, LSAT, GRE) requirements for the programs you are targeting. The Internet and web publications such as U.S. News and World Report provide a wealth of data on all types of graduate school programs. You should see how your GPA and entrance exam scores compare to the averages at targeted schools. In the same way that firms want to know what their competition is doing to better understand their potential for success, so should you. 411 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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MARKETING RESEARCH

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Hunt/Mello/Deitz: Marketing 4e

Chapter 6: Product Development

Richard Newstead/Flickr/Getty Images

Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 6 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-106 Understand the different types of new products, their advantages, and their risks. LO 1-107 Describe the various stages of new-product development. LO 1-108 Discuss the major risks in new-product development and how to reduce those risks. LO 1-109 Describe the categories of new-product adopters and the implications of adoption to marketers. LO 1-110 Describe the stages and aspects of the product life cycle and how they affect the marketing mix. KEY TERMS business analysis cannibalization competitive advantage concept test consumer-adoption process crowdsourcing decline stage design thinking diffusion disruptive technology early adopters early majority fad product fashion product growth stage high-learning products

idea generation idea screening innovators introduction stage laggards late majority low-learning products maturity stage new-category entries new-product development (NPD) new-product strategy development new-to-the-market products offshore

open innovation outsource product product development stage product launch product life cycle (PLC) product line product-line extensions product mix prototype revamped product simulated test markets test marketing time to market trialability

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Tom Payne Vice President of Carrier Relations, Uniti Fiber With a career in product management and development, Tom Payne discusses the relevance of marketing and flexibility. He uses his experience to provide insight in answering the following questions:

Photo provided by Tom Payne 414

245. What has been the most important thing in making you successful at your job? 246. What advice would you give soon-to-be graduates? 247. How is marketing relevant to your role at Uniti Fiber? 248. What do you consider your personal brand to be?

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Later in the chapter you see how Tom elaborates on:  

The step in the product development process companies get wrong more than any other. The impact of reducing test-market expenses within an organization.

Review with students:  

How is marketing relevant in his role? How do you develop traits that translate into a personal brand? LO 6-1 Understand the different Key Terms: types of new products, their  Product advantages, and their risks.  New-to-the-market products  What is a New Product?  Disruptive technology  New-to-the-Market  New-category entries Products  Product line  Service Innovation  Product line extensions  New-Category Entries  Cannibalization  Product-Line  Revamped product Extensions  Revamped Products PowerPoint Slides Lecture Notes: What Is a New Product?            415

Goods are tangible products with physical dimensions, like a car A product is the specific combination of goods, services, or ideas that a firm offers to consumers Services are intangible products; they cannot be touched, weighed, or measured Ideas are also intangible and represent formulated thoughts or opinions An experience is a product with characteristics that are difficult to observe in advance, but that are realized after consumption For thousands of years people lived their entire lives and only rarely saw a new product In modern times it seems we hear about a new product every day Several factors led to this change, including faster and more economical transportation, mass production, and the advent of electronic communication Many companies have fallen by the wayside because they failed to innovate A new product is one that is new to a company in any way It may be functionally different from existing products in the market, or it

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may be considered new because the company has not marketed it in its current form or manner New products are categorized in four ways: (1) new-to-the-market products, (2) new-category entries, (3) product-line extensions, and (4) revamped products A company‘s core competencies and strengths influence its strategy toward developing new products

New-to-the-Market Products  

   



Inventions that have never before been seen and create a new market are considered new-to-the-market products New-to-the-market products often are examples of a disruptive technology: one that displaces an established technology and shakes up the industry, or a groundbreaking product that creates a completely new industry New-to-the-market products can be so disruptive and offer so much value to customers that they often render existing products obsolete Product offerings that once were state-of-the-art are now starting to look more mature Companies whose strategy is to develop new-to-the-market products must have strong R&D and marketing departments Getting to the market before competitors often means increased sales, profits, customer loyalty, produce a sustained leadership position, and can enable a company to capture international customers before the competition does, which results in opening up a whole new set of customers However, new-to-the-market products can be time-consuming and expensive to develop and often create significant risk for a firm

Service Innovation   

Services as well as products can be ―new-to-the-market‖ Service innovation involves a new or considerably changed service concept Types of service innovation include new types of service and changes to the way a service is processed or delivered

New-Category Entries    416

New-category entries are products that are new to a company but not new to the marketplace Entering new markets is very important to businesses because it opens up a whole new set of customers and potentially a great deal more revenue and profits New-category entries are less risky than new-to-the-market products

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Because other companies have sold similar products, the company introducing the new-category entry can access information on sales trends, competitor products and prices, and location of markets

Product-Line Extensions    

   

A product line is a group of related products marketed by the same firm Product-line extensions are products that extend and supplement a company‘s established product line Product-line extensions add new functions, flavors, or other attributes to an existing product line Product-line extensions have various advantages, including: (1) the company and brand may be easily recognized; (2) customers may already feel loyal to the product line; (3) for goods, manufacturing may be easier and more efficient because the firm already produces similar goods; and (4) the new product can be advertised alongside existing products Product-line extensions are common, especially among companies hoping to offset reduced sales on other products due to seasonality or trends Product-line extensions carry some risk due to uncertainty about how well the new products will be accepted by the market Product cannibalization refers to a reduction in sales volume or market share of a company‘s existing product due to the introduction of a new product made by the same company Product-line extensions are a major source of cannibalization of a company‘s products because the extensions often are simply substituted for already existing products in the product line

Revamped Products     

A new product can sometimes take the form of a revamped product, which has new packaging, different features, and updated designs and functions Legally, according to the Federal Trade Commission (FTC), a company can label a product new only if the product has been changed in a ―functionally significant or substantial respect‖ The company can advertise a product as new and improved for only 6 months after it hits store shelves Reformulations of current products are a common type of revamped product Because firms base revamped products on existing brands, the new products carry much less risk than new-to-the-market products or newcategory entries

THINK LIKE A MARKETER Should a company always be developing new products? What should be considered? 417

Instructor‘s Manual - Chapter 1 Connect Assignment 6-1

Hunt/Mello/Deitz: Marketing 4e

Topic: New Product Categories Complete the Connect exercise for Chapter 6 that focuses on identifying new product categories. By better understanding the different types of new products, you will be able to successfully develop strategies for marketing different goods and services. CONNECT BACK Insight Questions:

What factors must a marketing manager consider, aside from the new product category, in developing a successful marketing strategy? (Answer: Who and where the customer is, what they want, how customer loyalty can be built, and the lifeline of each product; open ended as students‘ responses will vary) 249. Should a firm limit the number of new products they develop? Why or why not? What factors should be considered? (Answer: As long as the product identifies with the organization‘s mission and business objectives, and the macroenvironmental factors are considered, limitations are not always necessary; open ended as students‘ responses will vary) LO 6-2 Describe the various stages of Key Terms: new-product development.  New-product development (NPD)  The Stages of New New-product strategy development Product Development  Idea generation  Stage 1: New-Product  Design thinking Strategy Development  Crowdsourcing  Stage 2: Idea  Outsource Generation  Open innovation  Internal Idea  Idea-screening Generation  Concept test  External Idea  Business analysis Generation  Offshore  Stage 3: Idea  Product development stage Screening  Prototype  Idea Screening  Test marketing Questions  Simulated test markets  The Role of Social  Product launch Media in Idea  Time to market Screening  Stage 4: Business Analysis  Stage 5: Product Development 418

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Stage 6: Test Marketing  Risks of Test Marketing  Economical TestMarketing Options  Stage 7: Product Launch PowerPoint Slides Lecture Notes: The Stages of New-Product Development  

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Figure 6.1

Whatever new-product type a firm plans to develop, it will likely follow a formal new-product development (NPD) process This process consists of seven stages: (1) new-product strategy development, (2) idea generation, (3) idea screening, (4) business analysis, (5) product development, (6) test marketing, and (7) product launch Although this process is shown as linear, in practice companies may need to backtrack to earlier stages when issues arise

Insight Questions: Pick a product and walk through the new-product development process to gain insight on each phase of the process. What insights does this provide? (Answer: Open ended as students‘ responses will vary; by following the seven stages, the time, effort and financial resources that new product development requires is more clear; companies that dedicate resources to a thorough process are more likely to engage in a customer relationship) 250. Each phase of the new-product development process has unique features yet work together. List two ways each phase assists in the outcome of new product development. (Answer: Open ended as students‘ responses will vary; e.g., with idea generation weaker ideas may contribute to stronger ideas or can be useful for future product development)

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Figure Information: Stages of the New-Product Development Process The new product development process consists of seven stages: (1) newproduct strategy development, (2) idea generation, (3) idea screening, (4) business analysis, (5) product development, (6) test marketing, and (7) product launch. PowerPoint Slides

Lecture Notes: Stage 1: New-Product Strategy Development

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In the first stage of the NPD process, the firm establishes a new-product strategy to align its product development with its overall marketing strategy New-product strategy development involves determining the direction a company will take when (not if) it develops a new product A new-product strategy (1) provides general guidelines for the NPD process, (2) specifies how new products will fit into the company‘s marketing plan, (3) outlines the general characteristics of the types of products the firm will develop, and (4) specifies the target markets to be served by new products Some companies use a S WOT analysis and environmental scanning to determine where new products might help strengthen the firm‘s marketing position Using marketing research companies seek to discover what customers want and what goods and services are already serving those customers A new-product strategy also should include financial estimates; these detail when the firm can expect the product to be profitable and the profit the company hopes to make from the product The same methods for new-product strategy development should be used for goods and services alike A new-product strategy also should consider the potential benefits and risks of bringing new products into international markets Some new products are standardized for global distribution, and others are individualized for specific markets

Stage 2: Idea Generation  

Idea generation involves generating a set of product concepts from which to identify potentially viable new products Few of these ideas ever become marketed products

Internal Idea Generation   

Ideas for new products can come from a variety of sources, including company employees or research and development departments An innovative technique for internally generating new-product ideas is design thinking, which is a process that encourages organizations to focus on the people they‘re creating products for There are two steps to the idea generation part of the process: (1) gain an empathic understanding of the customer‘s needs and (2) define the problem in a human-centric way

External Idea Generation   421

Customers, too, can be excellent sources of ideas Salespeople talk on a regular basis to individual customers as well as

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business customers like resellers; if salespeople ask the right questions, they can gather ideas about what their customers need and want Crowdsourcing involves the process of getting ideas by asking for input from a large group of people, especially online communities, rather than getting them employees Competitors‘ products also provide an important idea source Firms can also outsource their R&D to independent laboratories that provide new-product ideas Outsourcing occurs when a firm procures goods, services, or ideas from a third-party supplier rather than from an internal source Many companies use open innovation, a way of generating new-product ideas by gathering both external ideas and internal ideas Companies with cultures that value all new-product ideas, whatever the source, tend to develop more blockbuster products than companies that are unwilling to search far and wide for new ideas Some company cultures slow down innovation, requiring lengthy analysis and meetings before deciding on a new-product idea Sometimes ideas that start out in one direction can be pivoted to another, better direction

Stage 3: Idea Screening     

During the idea-screening stage, the firm evaluates ideas to determine their fit within the new-product strategy At this stage, the company often ends up rejecting, for one reason or another, most ideas for new goods and services Potential issues with product safety may cause a firm to reject an idea for regulatory compliance, liability, and ethical reasons Companies often have a minimum R OI ―hurdle‖ that a new product must clear to be considered for further development A company that makes a decision based on the ―gut-feeling‖ of a highlevel executive, without knowing all of the facts, can lose money on a new-product idea

Idea Screening Questions 

Beyond RO I requirements, firms should ask (and answer) key questions during the idea-screening stage, including the following: (1) will the product sell? (2) can the product be developed and marketed within the time and budget constraints of the company? and (3) is the proposed product within the company‘s ability to produce?

The Role of Social Media in Idea Screening  422

Organizations increasingly use social media to evaluate potential new products

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Social media are especially valuable for small businesses and nonprofit organizations, which typically have less money to spend on the NPD process Through social media, consumers can help screen ideas to ensure only those new products that will be best received in the market move ahead in the process

Stage 4: Business Analysis 

Even if a product passes the idea-screening step, the firm cannot guarantee that it will be profitable  The first step in determining profitability is the ROI hurdle  However, ROI calculations don‘t take into account the changing value of money over time (due to compounding of interest)  Profitability is measured by subtracting costs (all the costs to produce and sell the good or service) from revenue (the price of the good or service multiplied by the number of units sold)  That calculation can be difficult to determine: for new products, costs and revenues are projected (estimated) amounts; those projections are that much harder to get right if the product is new-to-the-market  To determine profitability, a company must undertake a business analysis, which includes: (1) estimating costs, (2) identifying at what price the product will likely be sold, and (3) estimating demand for the product  An offshore organization is one that is located or based in a foreign country THINK LIKE A MARKETER How does dealing with offshore business operations affect the new product development process? Marketing Analytics

Insight Questions: The first step in determining profitability is figuring out R OI. How would you consider the time it takes to develop new products into the RO I? (Answer: Quantifying time by team members spent on new product development activities, recording it and reporting it frequently; open ended as students‘ responses will vary.) 251. For new products, how would you measure their marketability on social media? (Answer: First, gauge the level of interest by doing a competitive analysis or focus groups online, then at product launch be sure resources are dedicated to managing social media marketing and include interactivity in the strategy; open ended as students‘ responses will vary.)

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Lecture Notes: Stage 5: Product Development          

In the product development stage, the firm determines that the good can be produced or the service can be offered in a way that meets customer needs and generates profits The marketing department should also begin developing a marketing strategy during this stage Packaging design is an important part of product development Primary packaging is the packaging the consumer sees in an ad or on a store shelf Secondary packaging needs to be designed to protect the product in transit and while being stored For a good, the company may create a prototype based on previous concept testing A prototype is a mock-up of the good, often created individually with the materials the firm expects to use in the final product 3D printing is one method used to develop visual models and functional prototypes because it can automate the process, saving time and labor Regardless of whether the product is a good or service, the product development stage of the NPD process can be long and costly Only a small number of ideas make it through this process

Stage 6: Test Marketing   

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The company selects test markets based on how well they mirror the overall target market in terms of demographics, income levels, and lifestyles The selection of test markets is critical to ensuring that the results of the test will be representative of the sales the company can expect Some cities are regularly selected for test sites because they reflect the demographics of the nation or region, which include the following U.S. cities: Nashville, Tennessee; Cincinnati, Ohio; Indianapolis, Indiana; Charleston, South Carolina; Jacksonville, Florida; Greenville, South Carolina; Oklahoma City, Oklahoma; Phoenix, Arizona; Albuquerque, New Mexico; and Winston, North Carolina During the test-marketing stage, the firm tests not only the product itself but also the marketing strategy related to it The marketing department may simultaneously try different approaches in different test markets, to see which marketing-mix approach works best

Risks of Test Marketing  424

Although test marketing can be valuable, there are downsides, including: (1) the process is expensive, (2) it can be time-consuming, and (3) firms

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show their ideas and open themselves up to imitation from competitors, which can diminish the advantages of being first to market Economical Test-Marketing Options   

New products can be introduced through simulated test markets, in which the firm builds a mock shopping experience for participants, to observe their response to marketing stimuli Simulated test markets often show potential consumers advertisements for the new product and its competitors; they ask consumers to choose between the firm‘s product and competing products In an online test market, firms use their website to sell to consumers sample products that are unavailable in stores which allows the firm to keep costs down while still obtaining valuable information

Stage 7: Product Launch  

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The product launch involves completing all the final preparations for making the fully tested product available to the market At this stage, the firm (1) may purchase the materials to make and package the good, (2) hire employees, such as bank tellers, to provide the service, (3) manufacture enough of a good to fill the distribution pipelines and to store as inventory for continuing distribution, (4) build enough capacity to provide a service for the expected level of sales, (5) strategically place the good in warehouses in preparation for customer orders, (6) prepare internal systems for taking service orders, (7) train new employees on how best to deliver the service Firms must carefully plan the product launch to ensure that the product hits the market according to schedule Numerous product launches have been delayed because suppliers could not deliver on time, consumer demand was unexpectedly high, or goods couldn‘t be released due to quality problems The launch stage of the NPD process is usually the most expensive stage for new products To minimize the cost implications and smooth out production levels and marketing activities, some companies release new products to geographic areas in a gradual manner Firms take a risk by proceeding slowly with product launches The speed with which a company launches a product (its time to market) can be extremely important, especially for high-tech products Being the first company to market, a new product can mean the difference between success and failure

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Example: Unilever‘s Clear Shampoo Social media are becoming increasingly powerful tools for new product launches. In just a couple of months, Unilever‘s Clear shampoo and conditioner went from anonymity to a product line that had consumers across the United States talking largely because of social media. Clear‘s social media heavy product launch drew hundreds of thousands of consumers into conversation about the new product. Consumers were encouraged to go the brand‘s Facebook page and order a free sample of the product. Marketers created a celebrity-driven web mini-series called ―Best Night Ever‖ that featured people using the new product. Twitter hashtags specifically for the product launch helped bridge the conversation across multiple social media platforms and spread positive opinion more quickly. The Social Media in Action Connect exercise in Chapter 6 asks you to develop social media strategies to enhance a new-product launch. Product launches occur at practically every company, making it important for you to consider ways to utilize all of the available social media tools to make each product launch as successful as possible. CONNECT BACK Insight Questions:

How has Unilever‘s Clear shampoo maintained its social media presence after the product has launched? (Answer: Since its launch, users of Clear have taken to social media to address customer service concerns; they haven‘t updated the cover photo in almost a year, yet are consistent with well branded photos of the product and intended results; open ended as students‘ responses will vary.) 252. Would you recommend the use of social media as part of an advertising initiative for all product launches? Why or why not? (Answer: It would depend on the type of and target customer, platform choice, and level of competition in the market; open ended as students‘ responses will vary.) LO 6-3 Discuss the major risks in new- Key Terms: product development and how (none) to reduce those risks.  Risks in New-Product Development 426

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Categorizing Risks in New-Product Development  Reducing Risks in New-Product Development PowerPoint Slides Lecture Notes: Risks in New-Product Development   

Firms that want to maintain or improve their competitive position in the marketplace generally must develop new products Failure to do so carries tremendous risk; that risk is greatest for companies that develop products that quickly become obsolete Companies need to understand both the types and severity of risks and how to mitigate those risks in order to succeed in introducing new products to the marketplace

Table 6.1

Insight Questions:

Table Information: New-Product

Why is concurrent new-product development difficult to control? (Answer: Multiple decisions are being made simultaneously and one change can affect the process and outcome; open ended as students‘ responses will vary). 253. List examples of companies that will encounter these risks if they fail to development new products over the next 5 years. (Answer: Tesla, Samsung Galaxy phones, Burger King; open ended as students‘ responses will vary.) 254. What factors contribute to making the risks very high versus moderate? (Answer: Macroenvironmental factors like the economy, sociocultural issues, technology, legal, and political factors; open ended as

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students‘ responses will vary.)

Failure to maintain or improve competitive position by developing new products carries tremendous risk, particularly for companies that develop products that quickly become obsolete. However, NPD does not come without its own risk to a company. Some of these risks are identified, including where they fall in terms of severity, and what the consequences of the risks are to firms. PowerPoint Slides

Lecture Notes: Categorizing Risks in New-Product Development      

The highest level of risk occurs when products fail to generate sales or prove to be dangerous, defective, or deceptive These risks can be devastating to a company if they permanently damage the firm‘s image or create legal liabilities Beyond legal issues, new products can fail to capture the public‘s imagination or prove to be poor sales performers Such problems are costly because of significant amounts spent in development, production, advertising, and distribution Marketing new products internationally comes with significant risk Issues with product quality, supply, or marketing mix can lead to missed launch dates, dissatisfied customers, excessive returns, and lost profits

Reducing Risks 

Companies can reduce the risk of new-product failures by: (1) listening to the customer carefully, (2) making a commitment to the NPD process, (3) understanding current market trends and anticipating changes in the market, (4) asking the right questions, (5) being willing to fail on occasion  Firms that take steps to reduce risk in new-product development, particularly by analyzing and learning from mistakes, are well positioned to see their new products adopted by consumers THINK LIKE A MARKETER What‘s at risk when a company fails to create new products? LO 6-4 Describe the categories of new-product adopters and the implications of adoption to 428

Key Terms:  Diffusion  Consumer-adoption process

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marketers.  Product Adoption  Types of Adopters  Innovators  Early Adopters  Early Majority  Late Majority  Laggards  Product Characteristics  International ProductAdoption Considerations PowerPoint Slides Lecture Notes:

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Innovators Early adopters Early majority Late majority Laggards Competitive advantage Trialability

Product Adoption     

A product has been adopted when a consumer purchases and uses it The process by which a product is adopted and spreads across various types of adopters is called diffusion The consumer-adoption process is the process by which customers formally accept and purchase products It includes the following five stages: (1) awareness, (2) interest, (3) evaluation, (4) trial, and (5) adoption Adoption happens at different times depending on the type of adopter

Types of Adopters    

Figure 6.2

Following product launch, customers buy new goods or services at different rates; this is true for both individual and business customers When a firm launches a new product, only a few people buy it; as word spreads, consumers purchase the product at an increasing rate for a period of time We can group consumers into categories of adopters, based on how quickly they adopt new products There are five categories: innovators, early adopters, early majority, late majority, and laggards

Insight Questions: What type of adopter are you? What factors are you considering? (Answer: Open ended as students‘ responses will vary; with recent purchases made in the last year, how quickly did I inquire about the item, was it available, who did I know that had it, and where can I

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buy it; overall, how long had the product been on the market before I decided to purchase it.) 255. Take a class poll and determine if the show of votes for each category aligns with this graph. Ask the students for their feedback on this real life poll. (Answer: Open ended as students‘ responses will vary.) 256. Are there certain types of products that will induce a person to not adopt a product as they traditionally have? (Answer: High-involvement and first-to-market products [vaccines, electronics]; open ended as students‘ responses will vary) Figure Information: Percentage of Each Type of Adopter Various types of adopters purchase products. The types of adopters are grouped into five categories: innovators, early adopters, early majority, late majority, and laggards. The approximate percentage of the population that falls into each adopter category is shown. PowerPoint Slides

Lecture Notes: Innovators     

Approximately 2.5 percent of those who adopt a product do so almost immediately after the product is launched; these people are innovators Innovators tend to be younger and more mobile than those who adopt a product later in the diffusion process They are often obsessed with the idea of newness and unafraid to take risks when it comes to trying new products They tend to be very knowledgeable, have higher-than-average incomes, possess self-confidence, and choose not to follow conventional norms Innovators are important to companies introducing new-to-the-world goods and services, particularly those based on transformative innovation

Early Adopters  

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Early adopters comprise roughly another 13.5 percent of adopters Early adopters purchase a product soon after it has been introduced but not as quickly as innovators

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They tend to conform to group norms and values more closely than innovators and have closer ties to social groups and their communities They wait for product reviews and further information concerning new products before purchasing them Early adopters are typically well respected by their peers and tend to be opinion leaders

Early Majority   

Adopters in the early majority gather more information and spend more time deciding to make a purchase than innovators and early adopters and represent 34 percent of the adopters of a new product Members of the early majority generally are not opinion leaders themselves, but they often are associated with such leaders By the time the early majority buys a product, more competitors have entered the market; this group will have some choice as to which product to buy

Late Majority   

The late majority also comprises about 34 percent of adopters Members of the late majority rely on others for information, buying a good or service because others have already done so They tend to be cautious about new things and ideas

Laggards    

Laggards make up about 16 percent of the market Laggards do not like change and may remain loyal to a product until it is no longer available for sale Laggards are typically older and less educated than members of the other four categories Marketers may never convince laggards to buy their good or service

Product Characteristics 

New-product characteristics also affect the adoption rate, including: (1) competitive advantage, (2) compatibility, (3) observability, (4) complexity, and (5) trialability

International Product-Adoption Considerations 

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At the international level, several factors can affect the adoption of a product or service, including: (1) cosmopolitanism—the extent to which a country is connected to other cultures, (2) modernity—the extent to which a culture values ―progress,‖ (3) homiphily—the extent to which consumers in a society are relatively similar to each

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other, and (4) physical distance—if consumers are not in close proximity to each other, they are less likely to interact with other users of a product  The rate at which product diffusion occurs influences the length of the product‘s life cycle THINK LIKE A MARKETER What factors aid in product adoption? THINK LIKE A MARKETER How have social media affected the product adoption process? LO 6-5 Describe the stages and aspects of the product life cycle and how they affect the marketing mix.  The Product Life Cycle  Stages of the Product Life Cycle  New-Product Development  Introduction  Growth  Maturity  Decline  Estimating the Length of a Product‘s Life  Projecting the Shape of the PLC Curve  Strategic Implications for the Marketing Mix

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Key Terms:  Product life cycle (PLC)  Introduction stage  Growth stage  Maturity stage  Decline stage  Product mix  High-learning products  Low-learning products  Fad product  Fashion product

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Lecture Notes: The Product Life Cycle 

Products go through various stages that mark their lifespan

Stages of the Product Life Cycle       

There are five stages of the PLC which shows the general trends of sales and profits during the life of a product During the new-product development stage, the product actually costs the company money in development costs During the introduction stage, sales increase slowly, as the firm‘s marketing activities begin to raise awareness of the product The firm may not yet be making a profit on the product because of the costs of advertising, manufacturing, and distribution The growth stage brings a spike in sales and profits as consumers recognize the product‘s ability to satisfy their needs and wants Sales and profits begin to drop in the maturity stage, as competition increases and customers begin to look for the next big thing Sales and profits then fall off completely during the decline stage

Figure 6.3

Insight Questions: Why must companies plan for the decline stage? (Answer: Better allocating resources may be an option; open ended as students‘ responses will vary.) 257. What is the trend with sales and profits during each of the phases? (Answer: Sales begin to increase during the introduction stage and decline as the product declines in it life cycle. Profits are negatively affected until the growth stage and also decline during the decline stage.)

Figure Information: Stages of the Product Life Cycle Products go through five stages that mark their lifespan, the product life cycle (PLC): new-product development, introduction, growth, maturity, and decline. The implications of the various stages on sales and profits during the life of a product are shown. 433

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Lecture Notes: New-Product Development 

The ability of companies to have a full pipeline of new ideas that result in market-winning products is the difference between success and failure in the marketplace

Introduction    

Today’s Professional

Once the firm launches the product into the marketplace and innovators begin to buy it, it has entered the introduction stage of the PLC This stage is characterized by few or no competitors if the product is new to the market Sales are typically slow because customers are not yet accustomed to the product Several factors influence how long the introduction stage lasts, including the product‘s relative advantage, the amount of resources the company puts into promoting the product, and the effort required to educate the market about the product‘s attributes Julian Jackson Network Implementation Specialist, Laderal Medical Staying competitive, generating income, and enhancing the customer experience is what Lauren Johnson is tasked with in her role at Bank OZK. She provides further insight by answering the following questions: Describe your job. 258. How did you get your job? 259. What has been the most important thing in making you successful at your job? 260. What advice would you give soon-to-be graduates? 261. What do you consider your person brand to be?

Photo provided by Julian Jackson

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What does learnability mean to you? Is it important for your work to have an equal impact on your community/society and professional development?

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Growth    

Early adopters, followed by the early majority, begin to buy the product during the growth stage. when sales, profits, and competition increase At this stage, companies begin to take advantage of economies of scale in purchasing, manufacturing, and distribution The firm also must concentrate on building the distribution of the product to increase market share If the product satisfies the market, repeat purchases help make the product profitable, and brand loyalty begins to develop

Maturity       

In the maturity stage, late majority and repeat buyers make up an increasing percentage of the customer base The main focuses of the maturity stage are profitability and maintaining the firm‘s market share for as long as possible As the market becomes saturated, sales level off, competition becomes fierce, and companies not doing well will drop out of the market To prolong the product‘s life, the company may begin to offer more versions in different styles and with different features Companies may use price reductions, more effective advertising, and trade promotions to generate demand in the maturity stage Promotion to resellers often increases during this stage, to entice them to continue to buy the company‘s product rather than a competitor‘s Customer service and repairs begin to take on significance and can serve as a source of differentiation from competing products

Decline        

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The decline stage of the PLC is characterized by decreases in sales and profits Depending on the product, the decline in sales during this stage may be rapid or could occur over a long period of time Competitors drop out of the market as the product becomes unprofitable The firm will likely cut prices to generate sales At this point the firm must decide whether to discontinue the product If the product or service is deemed obsolete, the firm may be able to sell it off to discount retailers If the firm keeps the product active, it may put little effort into selling or advertising it, happy just to have any sales it produces Or the firm may attempt to find a niche market for the product that may be small but profitable

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Topic: Product Life Cycle

Connect Assignment 6-3

Complete the Connect exercise for Chapter 6 that focuses on the product life cycle. By matching various products or product types to their proper category, you will sharpen your understanding of the product life cycle. CONNECT BACK Insight Questions:

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Is it easy for a firm to identify which product types are needed in certain categories? (Answer: No, and the ones that do so more quickly and thoroughly have competitive advantage; open ended as students‘ responses will vary.) 262. How is the longevity of a product affected? (Answer: If it is a trendy product the PLC may be shorter, but for other products, the marketing strategy should align with resource allocation in the PLC; open ended as students‘ responses will vary.) Estimating the Length of a Product’s Life    

Product life cycles can be of varying lengths, depending on the type of product Technology-driven products like computers tend to have a short PLC because of rapid changes in computing power and features; other products may remain viable in the marketplace for decades A firm‘s product mix comprises all of the products that it sells Although consumers like choice, having too much choice can hurt sales, because consumers often rebel against having too many options from which to choose

Projecting the Shape of the PLC Curve      Figure 6.4

Firms should project the shape of the PLC curve for their product Products that take longer for consumers to see the benefits of or that do not have a good infrastructure in place to support them are called highlearning products Products with benefits customers can easily see are called low-learning products A fad product is one that is very popular for a relatively short amount of time A fashion product is one that comes in and out of favor with consumers Insight Questions: Why is the product life cycle different for products in different industries? (Answer: Each industry requires

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Figure Information: Different Types of Product Life Cycle Curves

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knowledge of its own consumer base and market; open ended as students‘ responses will vary.) 263. Choose a product that represents each graph and discuss the product life cycles‘ stages. (Answer: Low learning—laundry detergent has a steep curve through the maturity phase; fad—Beanie Babies had a steep upand-down curve; high learning—personal computers have a long, flat shaped introductory and growth phase; fashion—men‘s hats have a roller coaster like curve that goes up and down over time; open ended as students‘ responses will vary.)

Firms should project the shape of the PLC curve for their product. The four common PLC curves are shown: showcasing a low learning product, high learning product, fad product, and fashion product. PowerPoint Slides

Lecture Notes: Strategic Implications for the Marketing Mix           

Table 6.2 437

Firms can modify their marketing-mix (four Ps) strategies in response to what stage of life a product is in Product strategies—the number of products a firm offers will change over a product‘s life cycle Place (distribution) strategies—distribution is generally limited in the introductory phase Distribution channels increase during the growth stage and become extensive in the maturity stage Promotional strategies in the introductory stage usually involve making customers aware of the product and its attributes Intensive advertising that stresses how the product differs from the competition appears in the growth stage In the maturity stage, advertising typically reminds consumers about the product and its value to them Minimal promotion, or none at all, takes place in the decline stage Price is usually higher in the introductory phase due to lack of competition and high launch costs It then starts to fall in the growth stage as competition becomes more intense Price continues to fall through the maturity stage, when a firm must defend its market share; it then levels out in the decline stage Insight Questions:

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Review the marketing mix for the latest Apple iPhone entering the introduction stage. (Answer: Small number of models; limited distribution; attract channel partners; promote to develop customer awareness; priced high, etc.) 264. When that same iPhone goes through the decline stage, what can we expect to see in the marketing mix? (Answer: Reduced number of products based on profitability; phase out unprofitable outlets; reduced promotion to a minimum or eliminate; price to maintain small profit; can increase if product appeals, etc.) Table Information: Typical Marketing Mix Strategies during a Product’s Life Cycle Depending on where a product is in its life cycle the marketing strategy a firm undertakes for each part of the marketing mix will differ.

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we talked about developing successful products. The next step in developing your personal marketing plan is to provide a concise description of the product you are offering the company or graduate school program you seek—you. Think through the SWOT analysis you completed in Chapter 2 and think about your personal product offering. Focus on the specific value you would bring to the firm or graduate school. Think of the description as your elevator pitch, a 30- to 60-second description of the value you would bring to an organization. Formalizing this in your personal marketing plan will also help you identify specific jobs that match the skill sets that you offer. Your pitch might include answers to the following questions:  What makes you different from other potential employees?  Why is the company or graduate program better with you than without you?  How do your skills and background fit into what the organization wants to do? Student Task: Write a two-paragraph product description of yourself that you can read or present in less than 60 seconds. The description should highlight your value to a potential organization or graduate school. You have only a limited amount of time, so choose your words carefully to ensure they create the maximum impact.

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How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS Assume that you are the vice president of marketing for a consumer packaged goods company (like Procter & Gamble) that produces everyday items at a low price. Your marketing team has expressed a desire to revamp one of its brands to appeal to younger buyers. Develop a list of questions to determine the risks and rewards this revamping strategy poses for the company. (Answer: Open ended as students‘ responses will vary; what would happen if the company did not revamp its product, and how would the competition react? How does the product fill a need for younger consumers? Does the product look different in packaging to appeal to a younger audience? What label will attract the younger target market? What marketing messages will need to change to communicate to younger consumers? What will the product be priced at? Where can the demographic find the product? Will the product size also need to be adjusted since the demographic is younger and therefore smaller?) 265. Select a product, either a good or service, that you consider to be in the decline phase of the PLC. Discuss some of the options the company has for dealing with this product. What do you think is the best option, and why do you think so? (Answer: Open ended as students‘ responses will vary; with technology and modern advancements in viewing television and DVR capabilities, DVD players are in the decline stage and have been for a while. While the decline stage allows for cheaper production and cheaper markets, falling sales and profits have led producers of these products to withdraw from the market. Accordingly, a company can either continue to phase the product out, or it can adapt by adding new product lines to the product mix that are more modern and upto-date. The latter option is the most viable if the company wishes to stay in business within its current industry but must also capitalize on a competitive advantage that influences consumer purchases.) 266. Which product characteristics influence the length and shape of a product‘s PLC? What changes might a company make in its product design to lengthen its life cycle? (Answer: The diffusion of new products affects the PLC, as well as competitive advantage, compatibility, observability, complexity, and trialability. While monitoring all of these, it is also important to understand consumer behavior and the interests of the target markets to properly manage a product‘s life cycle. Consider altering the marketing mix in terms of distribution and price as well.) 267. Assume you are in charge of the business analysis stage of a company‘s NPD process. What data will you need to collect to make an informed decision about whether product development should continue? What elements of bias might exist from the data 439

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you receive from the marketing department? (Answer: To make an informed decision on the development of a new product, ROI calculations are needed, including data on profitability, costs and revenues over time. Additionally, demand analysis data, possible pricing information, and costs of supporting the products through customer service would be required. A marketing plan should also be presented so that advertising costs can be accounted for.) SOCIAL MEDIA APPLICATION Pick a new product that has been launched in the past 3 months. This could be any type of new product, from a new menu item at a fast-food restaurant to a new video game. Analyze how the organization has used social media to launch its new product, using the following questions and activities as a guide: How has the company used social media to make customers aware of the new product? 268. Explain what you like or dislike about how the company is using social media to promote the product. 269. If you worked in marketing at the company, what two specific suggestions would you have about how the company could use social media more effectively? This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 6 that focuses on making new-product decisions using estimated cost and demand. VIDEO CASE Have students complete the Connect video case featuring EA Sports that accompanies this chapter.

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PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS As students consider their future, they can follow these tips on intangible characteristics good product managers share. Career Tips

Tom Payne, Vice President of Carrier Relations, Uniti Fiber, describes some of the intangible characteristics that good product managers share. A Positive Attitude. 270. Responsibility. 271. Financial Understanding. 272. Aptitude for Learning. 273. Understand Software is a Tool, not a Solution. Review with students:

Photo provided by Tom Payne

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What does it mean for a manager to have a good attitude? What types of learning will you encounter in your career, and how do you think you will approach it? What do you believe your aptitude for learning will be like after graduation?

Chapter 6: Developing Your Product

Richard Newstead/Flickr/Getty Images

Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-111 Understand the different types of new products, their advantages, and their risks. LO 1-112 Describe the various stages of new-product development. LO 1-113 Discuss the major risks in new-product development and how to reduce those risks. 441

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LO 1-114 Describe the categories of new-product adopters and the implications of adoption to marketers. LO 1-115 Describe the stages and aspects of the product life cycle and how they affect the marketing mix. KEY TERMS business analysis cannibalization competitive advantage concept test consumer-adoption process crowdsourcing decline stage design thinking diffusion disruptive technology early adopters early majority fad product fashion product growth stage high-learning products

THOUGHT-PROVOKING ACTIVITY Set 1: Provide an example of each of the four new product categories.

Set 2: What are the seven stages of the new-product development process? Do all products follow this exact process?

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How is marketing relevant in his role?

How do you develop traits that translate into a personal brand? LO6-1: Understand the different types of new products, their advantages, and their risks. What is a New Product?  Goods are tangible products with physical dimensions, like a car  A product is the specific combination of goods, services, or ideas that a firm offers to consumers  Services are intangible products; they cannot be touched, weighed, or measured  Ideas are also intangible and represent formulated thoughts or opinions  An experience is a product with characteristics that are difficult to observe in advance but that are realized after consumption  For thousands of years, people lived their entire lives and only rarely saw a new product  In modern times, it seems we hear about a new product every day  Several factors led to this change, including faster and more economical transportation, mass production, and the advent of electronic communication  Many companies have fallen by the wayside because they failed to innovate  A new product is one that is new to a company in any way  It may be functionally different from existing products in the market, or it may be considered new because the company has not marketed it in its current form or manner  New products are categorized in four ways: (1) new-to-the-market products, (2) newcategory entries, (3) product-line extensions, and (4) revamped products

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A company‘s core competencies and strengths influence its strategy toward developing new products New-to-the-Market Products  Inventions that have never before been seen and create a new market are considered new-tothe-market products  New-to-the-market products often are examples of a disruptive technology: one that displaces an established technology and shakes up the industry or a groundbreaking product that creates a completely new industry  New-to-the-market products can be so disruptive and offer so much value to customers that they often render existing products obsolete  Product offerings that once were state-of-the-art are now starting to look more mature  Companies whose strategy is to develop new-to-the-market products must have strong R&D and marketing departments  Getting to the market before competitors often means increased sales, profits, customer loyalty, produce a sustained leadership position, and can enable a company to capture international customers before the competition does, which results in opening up a whole new set of customers  However, new-to-the-market products can be time-consuming and expensive to develop and often create significant risk for a firm Service Innovation  Services as well as products can be ―new-to-the-market‖  Service innovation involves a new or considerably changed service concept  Types of service innovation include new types of service and changes to the way a service is processed or delivered New-Category Entries  New-category entries are products that are new to a company but not new to the marketplace  Entering new markets is very important to businesses because it opens up a whole new set of customers and potentially a great deal more revenue and profits  New-category entries are less risky than new-to-the-market products  Because other companies have sold similar products, the company introducing the newcategory entry can access information on sales trends, competitor products and prices, and location of markets Product-Line Extensions  A product line is a group of related products marketed by the same firm  Product-line extensions are products that extend and supplement a company‘s established product line  Product-line extensions add new functions, flavors, or other attributes to an existing product line  Product-line extensions have various advantages, including the following: (1) The company and brand may be easily recognized; (2) customers may already feel loyal to the product line; 444

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(3) for goods, manufacturing may be easier and more efficient because the firm already produces similar goods; and (4) the new product can be advertised alongside existing products  Product-line extensions are common, especially among companies hoping to offset reduced sales on other products due to seasonality or trends  Product-line extensions carry some risk due to uncertainty about how well the new products will be accepted by the market  Product cannibalization refers to a reduction in sales volume or market share of a company‘s existing product due to the introduction of a new product made by the same company  Product-line extensions are a major source of cannibalization of a company‘s products because the extensions often are simply substituted for already existing products in the product line Revamped Products  A new product can sometimes take the form of a revamped product, which has new packaging, different features, and updated designs and functions  Legally, according to the Federal Trade Commission (FTC), a company can label a product new only if the product has been changed in a ―functionally significant or substantial respect‖  The company can advertise a product as new and improved for only 6 months after it hits store shelves  Reformulations of current products are a common type of revamped product  Because firms base revamped products on existing brands, the new products carry much less risk than new-to-the-market products or new-category entries THINK LIKE A MARKETER Should a company always be developing new products? What should be considered? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 6-1 What factors must a marketing manager consider, aside from the new product category, in developing a successful marketing strategy? (Answer: who and where the customer is, what they want, how customer loyalty can be built, and the lifeline of each product; open ended as students‘ responses will vary) Should a firm limit the number of new products they develop? Why or why not? What factors should be considered? (Answer: As long as the product identifies with the organization‘s mission and business objectives, and the macroenvironmental factors are considered, limitations are not always necessary; open ended as students‘ responses will vary.) 445

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LO6-2: Describe the various stages of new-product development. The Stages of New-Product Development  Whatever new-product type a firm plans to develop, it will likely follow a formal newproduct development (NPD) process  This process consists of seven stages: (1) new-product strategy development, (2) idea generation, (3) idea screening, (4) business analysis, (5) product development, (6) test marketing, and (7) product launch  Although this process is shown as linear, in practice, companies may need to backtrack to earlier stages when issues arise Figure 6.1 Stages of the New-Product Development Process INSIGHT QUESTIONS Pick a product and walk through the new-product development process to gain insight on each phase of the process. What insights does this provide? (Answer: Open ended as students‘ responses will vary; by following the seven stages, the time, effort, and financial resources that new product development requires is more clear; companies that dedicate resources to a thorough process are more likely to engage in a customer relationship.) Each phase of the new-product development process has unique features yet work together. List two ways each phase assists in the outcome of a new product. (Answer: Open ended as students‘ responses will vary; e.g.: With idea generation, weaker ideas may contribute to stronger ideas or can be useful for future product development.) Stage 1: New-Product Strategy Development  In the first stage of the NPD process, the firm establishes a new-product strategy to align its product development with its overall marketing strategy  New-product strategy development involves determining the direction a company will take when (not if) it develops a new product  A new-product strategy (1) provides general guidelines for the NPD process, (2) specifies how new products will fit into the company‘s marketing plan, (3) outlines the general characteristics of the types of products the firm will develop, and (4) specifies the target markets to be served by new products  Some companies use a S WOT analysis and environmental scanning to determine where new products might help strengthen the firm‘s marketing position  Using marketing research, companies seek to discover what customers want and what goods and services are already serving those customers

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A new-product strategy also should include financial estimates; these detail when the firm can expect the product to be profitable and the profit the company hopes to make from the product  The same methods for new-product strategy development should be used for goods and services alike  A new-product strategy also should consider the potential benefits and risks of bringing new products into international markets  Some new products are standardized for global distribution, and others are individualized for specific markets Stage 2: Idea Generation  Idea generation involves generating a set of product concepts from which to identify potentially viable new products  Few of these ideas ever become marketed products Internal Idea Generation  Ideas for new products can come from a variety of sources, including company employees or research and development departments  An innovative technique for internally generating new-product ideas is design thinking, which is a process that encourages organizations to focus on the people they‘re creating products for  There are two steps to the idea generation part of the process: (1) gain an empathic understanding of the customer‘s needs, and (2) define the problem in a human-centric way External Idea Generation  Customers, too, can be excellent sources of ideas  Salespeople talk on a regular basis to individual customers as well as business customers like resellers; if salespeople ask the right questions, they can gather ideas about what their customers need and want  Crowdsourcing involves the process of getting ideas by asking for input from a large group of people, especially online communities, rather than getting them employees  Competitors‘ products also provide an important idea source  Firms can also outsource their R&D to independent laboratories that provide new-product ideas  Outsourcing occurs when a firm procures goods, services, or ideas from a third-party supplier rather than from an internal source  Many companies use open innovation, a way of generating new-product ideas by gathering both external ideas and internal ideas

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Companies with cultures that value all new-product ideas, whatever the source, tend to develop more blockbuster products than companies that are unwilling to search far and wide for new ideas  Some company cultures slow down innovation, requiring lengthy analysis and meetings before deciding on a new-product idea  Sometimes, ideas that start out in one direction can be pivoted to another, better direction Stage 3: Idea Screening  During the idea-screening stage, the firm evaluates ideas to determine their fit within the new-product strategy  At this stage, the company often ends up rejecting, for one reason or another, most ideas for new goods and services  Potential issues with product safety may cause a firm to reject an idea for regulatory compliance, liability, and ethical reasons  Companies often have a minimum R OI ―hurdle‖ that a new product must clear to be considered for further development  A company that makes a decision based on the ―gut-feeling‖ of a high-level executive, without knowing all of the facts, can lose money on a new-product idea Idea Screening Questions  Beyond RO I requirements, firms should ask (and answer) key questions during the ideascreening stage, including the following: (1) Will the product sell? (2) Can the product be developed and marketed within the time and budget constraints of the company? and (3) Is the proposed product within the company‘s ability to produce? The Role of Social Media in Idea Screening  Organizations increasingly use social media to evaluate potential new products  Social media are especially valuable for small businesses and nonprofit organizations, which typically have less money to spend on the NPD process  Through social media, consumers can help screen ideas to ensure only those new products that will be best received in the market move ahead in the process Stage 4: Business Analysis  Even if a product passes the idea-screening step, the firm cannot guarantee that it will be profitable  The first step in determining profitability is the ROI hurdle  However, ROI calculations don‘t take into account the changing value of money over time (due to compounding of interest)

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Profitability is measured by subtracting costs (all the costs to produce and sell the good or service) from revenue (the price of the good or service multiplied by the number of units sold) That calculation can be difficult to determine: For new products, costs and revenues are projected (estimated) amounts; those projections are that much harder to get right if the product is new to the market To determine profitability, a company must undertake a business analysis, which includes (1) estimating costs, (2) identifying at what price the product will likely be sold, and (3) estimating demand for the product An offshore organization is one that is located or based in a foreign country

THINK LIKE A MARKETER How does dealing with offshore business operations affect the new product development process? (Answer: Open ended)

Marketing Analytics INSIGHT QUESTIONS The first step in determining profitability is figuring out R OI. How would you consider the time it takes to develop new products into the ROI? (Answer: quantifying time by team members spent on new product development activities, recording it, and reporting it frequently; open ended as students‘ responses will vary) For new products, how would you measure their marketability on social media? (Answer: First, gauge the level of interest by doing a competitive analysis or focus groups online, then at product launch, be sure resources are dedicated to managing social media marketing and include interactivity in the strategy; open ended as students‘ responses will vary.) Stage 5: Product Development  In the product development stage, the firm determines that the good can be produced or the service can be offered in a way that meets customer needs and generates profits  The marketing department should also begin developing a marketing strategy during this stage  Packaging design is an important part of product development  Primary packaging is the packaging the consumer sees in an ad or on a store shelf  Secondary packaging needs to be designed to protect the product in transit and while being stored  For a good, the company may create a prototype based on previous concept testing

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A prototype is a mock-up of the good, often created individually with the materials the firm expects to use in the final product

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3D printing is one method used to develop visual models and functional prototypes because it can automate the process, saving time and labor  Regardless of whether the product is a good or service, the product development stage of the NPD process can be long and costly  Only a small number of ideas make it through this process Stage 6: Test Marketing  The company selects test markets based on how well they mirror the overall target market in terms of demographics, income levels, and lifestyles  The selection of test markets is critical to ensuring that the results of the test will be representative of the sales the company can expect  Some cities are regularly selected for test sites because they reflect the demographics of the nation or region, which include the following U.S. cities: Nashville, TN; Cincinnati, OH; Indianapolis, IN; Charleston, SC; Jacksonville, FL; Greenville, SC; Oklahoma City, OK; Phoenix, AZ; Albuquerque, NM; and Winston, NC  During the test-marketing stage, the firm tests not only the product itself but also the marketing strategy related to it  The marketing department may simultaneously try different approaches in different test markets to see which marketing-mix approach works best Risks of Test Marketing  Although test marketing can be valuable, there are downsides, including the following: (1) The process is expensive, (2) it can be time-consuming, and (3) firms show their ideas and open themselves up to imitation from competitors, which can diminish the advantages of being first to market Economical Test-Marketing Options  New products can be introduced through simulated test markets, in which the firm builds a mock shopping experience for participants, to observe their response to marketing stimuli  Simulated test markets often show potential consumers advertisements for the new product and its competitors; they ask consumers to choose between the firm‘s product and competing products  In an online test market, firms use their website to sell to consumers sample products that are unavailable in stores, which allows the firm to keep costs down while still obtaining valuable information Stage 7: Product Launch  The product launch involves completing all the final preparations for making the fully tested product available to the market

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At this stage, the firm (1) may purchase the materials to make and package the good, (2) hire employees, such as bank tellers, to provide the service, (3) manufacture enough of a good to fill the distribution pipelines and to store as inventory for continuing distribution, (4) build enough capacity to provide a service for the expected level of sales, (5) strategically place the good in warehouses in preparation for customer orders, (6) prepare internal systems for taking service orders, and (7) train new employees on how best to deliver the service Firms must carefully plan the product launch to ensure that the product hits the market according to schedule Numerous product launches have been delayed because suppliers could not deliver on time, consumer demand was unexpectedly high, or goods couldn‘t be released due to quality problems The launch stage of the NPD process is usually the most expensive stage for new products To minimize the cost implications and smooth out production levels and marketing activities, some companies release new products to geographic areas in a gradual manner Firms take a risk by proceeding slowly with product launches The speed with which a company launches a product (its time to market) can be extremely important, especially for high-tech products Being the first company to market, a new product can mean the difference between success and failure

CONNECT BACK: Reference Connect Assignment 6-2 How has Unilever‘s Clear shampoo maintained its social media presence after the product has launched? (Answer: Since its launch, users of Clear have taken to social media to address customer service concerns; they haven‘t updated the cover photo in almost a year, yet are consistent with well branded photos of the product and intended results; open ended as students‘ responses will vary.) Would you recommend the use of social media for all product launches? Why or why not? (Answer: It would depend on the type of target customer, platform choice, and level of competition in the market; open ended as students‘ responses will vary.) LO6-3: Discuss the major risks in new-product development and how to reduce those risks. Risks in New-Product Development  Firms that want to maintain or improve their competitive position in the marketplace generally must develop new products  Failure to do so carries tremendous risk; that risk is greatest for companies that develop products that quickly become obsolete

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Companies need to understand both the types and severity of risks and how to mitigate those risks in order to succeed in introducing new products to the marketplace TABLE 6.1: New-Product Development Risks and Related Outcomes Severity of Risk Very high

High

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Outcomes  Costs are not recouped; company loses money  Company suffers legal liabilities and product recalls

Quality is not up to customer standards Supply of product is inadequate to meet demand New product is not accepted well in the marketplace Inadequate supply of materials delays production Target price is not accepted by the market

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Supplier cost savings are not achieved Product takes sales from existing products Competitors copy products and sell them at a lower price

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Customers are dissatisfied, and there are excessive returns Company loses orders, sales, and customers Company loses revenue and profits and is stuck with obsolete goods Product launch is delayed; first-tomarket advantage is lost Company reduces price, meaning lost revenue and profits Profitability is reduced Total company revenue and profits are less than expected Company loses market share and profits

Table 6.1 New-Product Development Risks and Related Outcomes INSIGHT QUESTIONS Why is concurrent new-product development difficult to control? (Answer: Multiple decisions are being made simultaneously, and one change can affect the process and outcome; open ended as students‘ responses will vary.)

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List examples of companies that will encounter these risks if they fail to develop new products over the next 5 years. (Answer: Tesla, Samsung Galaxy phones, Burger King; open ended as students‘ responses will vary) What factors contribute to making the risks very high versus moderate? (Answer: macroenvironmental factors like the economy, sociocultural issues, technology, legal, and political factors; open ended as students‘ responses will vary) Categorizing Risks in New-Product Development  The highest level of risk occurs when products fail to generate sales or prove to be dangerous, defective, or deceptive  These risks can be devastating to a company if they permanently damage the firm‘s image or create legal liabilities  Beyond legal issues, new products can fail to capture the public‘s imagination or prove to be poor sales performers  Such problems are costly because of significant amounts spent in development, production, advertising, and distribution  Marketing new products internationally comes with significant risk  Issues with product quality, supply, or marketing mix can lead to missed launch dates, dissatisfied customers, excessive returns, and lost profits Reducing Risks  Companies can reduce the risk of new-product failures by (1) listening to the customer carefully, (2) making a commitment to the NPD process, (3) understanding current market trends and anticipating changes in the market, (4) asking the right questions, and (5) being willing to fail on occasion  Firms that take steps to reduce risk in new-product development, particularly by analyzing and learning from mistakes, are well positioned to see their new products adopted by consumers THINK LIKE A MARKETER What‘s at risk when a company fails to create new products? (Answer: Open ended) LO6-4: Describe the categories of new-product adopters and the implications of adoption to marketers.

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A product has been adopted when a consumer purchases and uses it The process by which a product is adopted and spreads across various types of adopters is called diffusion  The consumer-adoption process is the process by which customers formally accept and purchase products  It includes the following five stages: (1) awareness, (2) interest, (3) evaluation, (4) trial, and (5) adoption  Adoption happens at different times depending on the type of adopter Types of Adopters  Following a product launch, customers buy new goods or services at different rates; this is true for both individual and business customers  When a firm launches a new product, only a few people buy it; as word spreads, consumers purchase the product at an increasing rate for a period of time  We can group consumers into categories of adopters, based on how quickly they adopt new products  There are five categories: innovators, early adopters, early majority, late majority, and laggards Figure 6.2 Percentage of Each Type of Adopter INSIGHT QUESTIONS What type of adopter are you? What factors are you considering? (Answer: Open ended as students‘ responses will vary; with recent purchases made in the last year, how quickly did I inquire about the item, was it available, who did I know that had it, and where can I buy it; overall, how long had the product been on the market before I decided to purchase it.) Take a class poll and determine whether the show of votes for each category aligns with this graph. Ask the students for their feedback on this real-life poll. (Answer: Open ended as students‘ responses will vary) Are there certain types of products that will induce a person to not adopt a product as they traditionally have? (Answer: high-involvement and first-to-market products (vaccines, electronics); open ended as students‘ responses will vary) Innovators  Approximately 2.5 percent of those who adopt a product do so almost immediately after the product is launched; these people are innovators

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Innovators tend to be younger and more mobile than those who adopt a product later in the diffusion process  They are often obsessed with the idea of newness and unafraid to take risks when it comes to trying new products  They tend to be very knowledgeable, have higher-than-average incomes, possess selfconfidence, and choose not to follow conventional norms  Innovators are important to companies introducing new-to-the-world goods and services, particularly those based on transformative innovation Early Adopters  Early adopters comprise roughly another 13.5 percent of adopters  Early adopters purchase a product soon after it has been introduced but not as quickly as innovators  They tend to conform to group norms and values more closely than innovators and have closer ties to social groups and their communities  They wait for product reviews and further information concerning new products before purchasing them  Early adopters are typically well respected by their peers and tend to be opinion leaders Early Majority  Adopters in the early majority gather more information and spend more time deciding to make a purchase than innovators and early adopters and represent 34 percent of the adopters of a new product  Members of the early majority generally are not opinion leaders themselves, but they often are associated with such leaders  By the time the early majority buys a product, more competitors have entered the market; this group will have some choice as to which product to buy Late Majority  The late majority also comprises about 34 percent of adopters  Members of the late majority rely on others for information, buying a good or service because others have already done so  They tend to be cautious about new things and ideas Laggards  Laggards make up about 16 percent of the market  Laggards do not like change and may remain loyal to a product until it is no longer available for sale  Laggards are typically older and less-educated than members of the other four categories  Marketers may never convince laggards to buy their good or service

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Product Characteristics  New-product characteristics also affect the adoption rate, including (1) competitive advantage, (2) compatibility, (3) observability, (4) complexity, and (5) trialability International Product-Adoption Considerations  At the international level, several factors can affect the adoption of a product or service, including the following: (1) cosmopolitanism—the extent to which a country is connected to other cultures, (2) modernity—the extent to which a culture values ―progress,‖ (3) homiphily—the extent to which consumers in a society are relatively similar to each other, and (4) physical distance—if consumers are not in close proximity to each other, they are less likely to interact with other users of a product  The rate at which product diffusion occurs influences the length of the product‘s life cycle THINK LIKE A MARKETER What factors aid in product adoption? (Answer: Open ended) How have social media affected the product adoption process? (Answer: Open ended) LO6-5: Describe the stages and aspects of the product life cycle and how they affect the marketing mix. The Product Life Cycle  Products go through various stages that mark their life span Stages of the Product Life Cycle  There are five stages of the PLC which show the general trends of sales and profits during the life of a product  During the new-product development stage, the product actually costs the company money in development costs  During the introduction stage, sales increase slowly, as the firm‘s marketing activities begin to raise awareness of the product  The firm may not yet be making a profit on the product because of the costs of advertising, manufacturing, and distribution  The growth stage brings a spike in sales and profits as consumers recognize the product‘s ability to satisfy their needs and wants  Sales and profits begin to drop in the maturity stage, as competition increases and customers begin to look for the next big thing  Sales and profits then fall off completely during the decline stage

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Figure 6.3 Stages of the Product Life Cycle INSIGHT QUESTIONS Why must companies plan for the decline stage? (Answer: Better allocating resources may be an option; open ended.) What is the trend with sales and profits during each of the phases? (Answer: Sales begin to increase during the introduction stage and decline as the product declines in its life cycle. Profits are negatively affected until the growth stage and also decline during the decline stage.) New-Product Development  The ability of companies to have a full pipeline of new ideas that result in market-winning products is the difference between success and failure in the marketplace Introduction  Once the firm launches the product into the marketplace and innovators begin to buy it, it has entered the introduction stage of the PLC  This stage is characterized by few or no competitors if the product is new to the market  Sales are typically slow because customers are not yet accustomed to the product  Several factors influence how long the introduction stage lasts, including the product‘s relative advantage, the amount of resources the company puts into promoting the product, and the effort required to educate the market about the product‘s attributes TODAY’S PROFESSIONAL NOTES Julian Jackson, Network Implementation Specialist, Laderal Medical What does learnability mean to you?

Is it important for your work to have an equal impact on your community/society and professional development?

Growth  Early adopters, followed by the early majority, begin to buy the product during the growth stage when sales, profits, and competition increase  At this stage, companies begin to take advantage of economies of scale in purchasing, manufacturing, and distribution

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The firm also must concentrate on building the distribution of the product to increase market share If the product satisfies the market, repeat purchases help make the product profitable, and brand loyalty begins to develop

Maturity  In the maturity stage, late majority and repeat buyers make up an increasing percentage of the customer base  The main focuses of the maturity stage are profitability and maintaining the firm‘s market share for as long as possible  As the market becomes saturated, sales level off, competition becomes fierce, and companies not doing well will drop out of the market  To prolong the product‘s life, the company may begin to offer more versions in different styles and with different features  Companies may use price reductions, more effective advertising, and trade promotions to generate demand in the maturity stage  Promotion to resellers often increases during this stage to entice them to continue to buy the company‘s product rather than a competitor‘s  Customer service and repairs begin to take on significance and can serve as a source of differentiation from competing products Decline  The decline stage of the PLC is characterized by decreases in sales and profits  Depending on the product, the decline in sales during this stage may be rapid or could occur over a long period of time  Competitors drop out of the market as the product becomes unprofitable  The firm will likely cut prices to generate sales  At this point, the firm must decide whether to discontinue the product  If the product or service is deemed obsolete, the firm may be able to sell it off to discount retailers  If the firm keeps the product active, it may put little effort into selling or advertising it, happy just to have any sales it produces  Or the firm may attempt to find a niche market for the product that may be small but profitable CONNECT BACK: Reference Connect Assignment 6-3 Is it easy for a firm to identify which product types are needed in certain categories? (Answer: No, and the ones that do so more quickly and thoroughly have competitive advantage; open ended as students‘ responses will vary.) 459

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How is the longevity of a product affected? (Answer: If it is a trendy product, the PLC may be shorter, but for other products, the marketing strategy should align with resource allocation in the PLC; open ended as students‘ responses will vary.) Estimating the Length of a Product’s Life  Product life cycles can be of varying lengths, depending on the type of product  Technology-driven products like computers tend to have a short PLC because of rapid changes in computing power and features; other products may remain viable in the marketplace for decades  A firm‘s product mix comprises all of the products that it sells  Although consumers like choice, having too much choice can hurt sales because consumers often rebel against having too many options from which to choose Projecting the Shape of the PLC Curve  Firms should project the shape of the PLC curve for their product  Products that take longer for consumers to see the benefits of or that do not have a good infrastructure in place to support them are called high-learning products  Products with benefits customers can easily see are called low-learning products  A fad product is one that is very popular for a relatively short amount of time  A fashion product is one that comes in and out of favor with consumers Figure 6.4 Different Types of Product Life Cycle Curves INSIGHT QUESTIONS Why is the product life cycle different for products in different industries? (Answer: Each industry requires knowledge of its own consumer base and market; open ended as students‘ responses will vary.) Choose a product that represents each graph and discuss the product life cycle‘s stages. (Answer: low learning—laundry detergent has a steep curve through the maturity phase; fad— Beanie Babies had a steep up-and-down curve; high learning—personal computers have a long, flat-shaped introductory and growth phase; fashion—men‘s hats have a roller coaster like curve that goes up and down over time; open ended as students‘ responses will vary) Strategic Implications for the Marketing Mix  Firms can modify their marketing-mix (four Ps) strategies in response to what stage of life a product is in  Product strategies—the number of products a firm offers will change over a product‘s life cycle  Place (distribution) strategies—distribution is generally limited in the introductory phase 460

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Distribution channels increase during the growth stage and become extensive in the maturity stage  Promotional strategies in the introductory stage usually involve making customers aware of the product and its attributes  Intensive advertising that stresses how the product differs from the competition appears in the growth stage  In the maturity stage, advertising typically reminds consumers about the product and its value to them  Minimal promotion, or none at all, takes place in the decline stage  Price is usually higher in the introductory phase due to the lack of competition and high launch costs  It then starts to fall in the growth stage as the competition becomes more intense  The price continues to fall through the maturity stage, when a firm must defend its market share; it then levels out in the decline stage TABLE 6.2: Typical Marketing-Mix Strategies during a Product’s Life Cycle Stage

Product Strategies Small number of models

Place Strategies

Growth

Variety of models; many modifications

Maturity

Decline

Introduction

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Promotion Strategies Promote to develop customer awareness

Price Strategies

Intensive effort to expand distribution

Promote to build awareness; increase personal selling

Price begins to fall as competition arrives

Full line of products

Intensive effort to maintain distribution

Promote to point out brand attributes and differentiating features

Price equal or below competitors

Reduce number of products based on profitability

Phase out unprofitable outlets

Reduce promotion to a minimum or eliminate

Price to maintain small profit; can increase if product appeals to niche market

Limit distribution; attract channel partners

Price high

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Table 6.2 Typical Marketing-Mix Strategies during a Product’s Life Cycle INSIGHT QUESTIONS Review the marketing mix for the latest Apple iPhone entering the introduction stage. (Answer: small number of models, limited distribution, attract channel partners, promote to develop customer awareness, priced high, etc.) When that same iPhone goes through the decline stage, what can we expect to see in the marketing mix? (Answer: reduced number of products based on profitability, phase out unprofitable outlets, reduced promotion to a minimum or eliminate, price to maintain small profit, can increase if product appeals, etc.)

MARKETING PLAN EXERCISE Your Marketing Plan. Think through the SWOT analysis you completed in Chapter 2 and think about your personal product offering. Focus on the specific value you would bring to the firm or graduate school. Think of the description as your elevator pitch, a 30- to 60-second description of the value you would bring to an organization. Formalizing this in your personal marketing plan will also help you identify specific jobs that match the skill sets that you offer. Your pitch might include answers to the following questions:  What makes you different from other potential employees?  Why is the company or graduate program better with you than without you?  How do your skills and background fit into what the organization wants to do? Student Task: Write a two-paragraph product description of yourself that you can read or present in less than 60 seconds. The description should highlight your value to a potential organization or graduate school. You only have a limited amount of time, so choose your words carefully to ensure they create the maximum impact. Chapter 6

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PRODUCT DESCRIPTION

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Chapter 6: Product Development

Richard Newstead/Flickr/Getty Images

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-116 Understand the different types of new products, their advantages, and their risks. LO 1-117 Describe the various stages of new-product development. LO 1-118 Discuss the major risks in new-product development and how to reduce those risks. LO 1-119 Describe the categories of new-product adopters and the implications of adoption to marketers. LO 1-120 Describe the stages and aspects of the product life cycle and how they affect the marketing mix. KEY TERMS business analysis cannibalization competitive advantage concept test consumer-adoption process crowdsourcing decline stage design thinking diffusion disruptive technology early adopters early majority fad product fashion product growth stage high-learning products

THOUGHT-PROVOKING ACTIVITY Set 1: Provide an example of each of the four new product categories.

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Set 2: What are the seven stages of the new product development process? Do all products follow this exact process?

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, and KEY TERMS learners will need to take away from the course, and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Tom Payne, Vice President of Carrier Relations, Uniti Fiber How is marketing relevant in his role? How do you develop traits that translate into a personal brand? LO6-1: Understand the different types of new products, their advantages, and their risks. What Is a New Product?  Goods are tangible products with physical dimensions, like a car  A_ is the specific combination of goods, services, or ideas that a firm offers to consumers  _ are intangible products; they cannot be touched, weighed, or measured  Ideas are also intangible and represent formulated thoughts or opinions  An _ is a product with characteristics that are difficult to observe in advance but that are realized after consumption  For thousands of years, people lived their entire lives and only rarely saw a new product  In modern times, it seems we hear about a new product _  Several factors led to this change, including faster and more economical transportation, _ , and the advent of _  Many companies have fallen by the wayside because they failed to innovate  A_ is one that is new to a company in any way

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It may be _ different from existing products in the market or it may be considered new because the company has not marketed it in its current form or manner

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New products are categorized in four ways: (1) new-to-the-market products, (2) newcategory entries, (3) _ , and (4) revamped products  A company‘s _ and strengths influence its strategy toward developing new products New-to-the-Market Products  Inventions that have never before been seen and create a new market are considered _  New-to-the-market products often are examples of a _ : one that displaces an established technology and shakes up the industry, or a groundbreaking product that creates a completely new industry  New-to-the-market products can be so disruptive and offer so much value to customers that they often render existing products _  Product offerings that once were state-of-the-art are now starting to look more mature  Companies whose strategy is to develop new-to-the-market products must have strong _ and marketing departments  Getting to the market before competitors often means increased sales, profits, _ , produce a sustained leadership position, and can enable a company to capture international customers before the competition does, which results in opening up a whole new set of customers  However, new-to-the-market products can be time-consuming and _ to develop and often create significant _ for a firm Service Innovation  Services as well as products can be ―new-to-the-market‖  _ involves a new or considerably changed service concept  Types of service innovation include new types of service and changes to the way a service is _ or delivered New-Category Entries  _ are products that are new to a company but not new to the marketplace  Entering new markets is very important to businesses because it opens up a whole new set of customers and potentially a great deal more _ and _  New-category entries are less risky than new-to-the-market products  Because other companies have sold similar products, the company introducing the newcategory entry can access information on _ , competitor products and prices, and location of markets Product-Line Extensions  A_ is a group of related products marketed by the same firm

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_ are products that extend and supplement a company‘s established product line  Product-line extensions add new _ , flavors, or other attributes to an existing product line  Product-line extensions have various advantages, including the following: (1) The company and brand may be easily recognized; (2) _ ; (3) for goods, manufacturing may be easier and more efficient because the firm already produces similar goods; and (4) _  Product-line extensions are common, especially among companies hoping to offset reduced sales on other products due to seasonality or _  Product-line extensions carry some risk due to uncertainty about how well the new products will be accepted by the market  Product _ refers to a reduction in sales volume or market share of a company‘s existing product due to the introduction of a new product made by the same company  Product-line extensions are a major source of cannibalization of a company‘s products because the extensions often are simply substituted for already existing products in the _ Revamped Products  A new product can sometimes take the form of a _ , which has new packaging, different features, and updated designs and functions  Legally, according to the _ (FTC), a company can label a product new only if the product has been changed in a ―functionally significant or substantial respect‖  The company can advertise a product as new and improved for only _ months after it hits store shelves  _ of current products are a common type of revamped product  Because firms base revamped products on existing brands, the new products carry much less _ than new-to-the-market products or new-category entries THINK LIKE A MARKETER Should a company always be developing new products? What should be considered?

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CONNECT BACK: Reference Connect Assignment 6-1 What factors must a marketing manager consider, aside from the new product category, in developing a successful marketing strategy?

Should a firm limit the number of new products they develop? Why or why not? What factors should be considered?

Each phase of the new-product development process has unique features yet work together. List two ways each phase assists in the outcome of a new product.

Stage 1: New-Product Strategy Development  In the first stage of the NPD process, the firm establishes a new-product strategy to align its product development with its overall marketing strategy  _ involves determining the direction a company will take when (not if) it develops a new product 469 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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A new-product strategy (1) provides general guidelines for the NPD process, (2) specifies how new products will fit into the company‘s marketing plan, (3) outlines the general characteristics of the types of products the firm will develop, and (4) _ Some companies use a _ analysis and environmental scanning to determine where new products might help strengthen the firm‘s marketing position Using _ , companies seek to discover what customers want and what goods and services are already serving those customers A new-product strategy also should include _ ; these detail when the firm can expect the product to be profitable and the profit the company hopes to make from the product The same methods for new-product strategy development should be used for goods and services alike A new-product strategy also should consider the potential benefits and risks of bringing new products into _ markets Some new products are _ for global distribution, and others are individualized for specific markets

Stage 2: Idea Generation  _ involves generating a set of product concepts from which to identify potentially viable new products  Few of these ideas ever become marketed products Internal Idea Generation  Ideas for new products can come from a variety of sources, including company _ or research and development departments  An innovative technique for internally generating new-product ideas is _ , which is a process that encourages organizations to focus on the people they‘re creating products for  There are two steps to the idea generation part of the process: (1) gain an empathic understanding of the customer‘s needs and (2) _ External Idea Generation  _ , too, can be excellent sources of ideas  _ talk on a regular basis to individual customers as well as business customers like resellers; if salespeople ask the right questions, they can gather ideas about what their customers need and want

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_ involves the process of getting ideas by asking for input from a large group of people, especially online communities, rather than getting them employees

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Competitors‘ products also provide an important idea source Firms can also _ their R&D to independent laboratories that provide new-product ideas  _ occurs when a firm procures goods, services, or ideas from a third-party supplier rather than from an internal source  Many companies use _ , a way of generating new-product ideas by gathering both external and internal ideas  Companies with _ that value all new-product ideas, whatever the source, tend to develop more blockbuster products than companies that are unwilling to search far and wide for new ideas  Some company cultures slow down innovation, requiring lengthy _ and meetings b  Sometimes, ideas that start out in one direction can be _ to another, better direction Stage 3: Idea Screening  During the _ stage, the firm evaluates ideas to determine their fit within the new-product strategy  At this stage, the company often ends up rejecting, for one reason or another, most ideas for new goods and services  Potential issues with product safety may cause a firm to reject an idea for _ , liability, and ethical reasons  Companies often have a minimum R OI ―hurdle‖ that a new product must clear to be considered for further development  A company that makes a decision based on the ―_ ‖ of a high-level executive, without knowing all of the facts, can lose money on a new-product idea Idea Screening Questions  Beyond RO I requirements, firms should ask (and answer) key questions during the ideascreening stage, including the following: (1) _ , (2) Can the product be developed and marketed within the time and budget constraints of the company? and (3) Is the proposed product within the company‘s ability to produce? The Role of Social Media in Idea Screening  Organizations increasingly use _ to evaluate potential new products  Social media are especially valuable for small businesses and nonprofit organizations, which typically have _ to spend on the NPD process

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Through social media, consumers can help screen ideas to ensure only those new products that will be best received in the market move ahead in the process Stage 4: Business Analysis  Even if a product passes the idea-screening step, the firm cannot guarantee that it will be profitable  The first step in determining profitability is the _  However, ROI calculations don‘t take into account the changing _ of money over time (due to compounding of interest)  _ is measured by subtracting costs (all the costs to produce and sell the good or service) from revenue (the price of the good or service multiplied by the number of units sold)  That calculation can be difficult to determine: For new products, costs and revenues are projected (estimated) amounts; those projections are that much harder to get right if the product is _  To determine profitability, a company must undertake a _ , which includes the following: (1) estimating costs, (2) identifying at what price the product will likely be sold, and (3) estimating demand for the product  An _ organization is one that is located or based in a foreign country THINK LIKE A MARKETER How does dealing with offshore business operations affect the new product development process?

Marketing Analytics INSIGHT QUESTIONS The first step in determining profitability is figuring out ROI. How would you consider the time it takes to develop new products into the ROI?

For new products, how would you measure their marketability on social media?

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Stage 5: Product Development  In the product development stage, the firm determines that the good can be produced or the service can be offered in a way that meets customer needs and _  The marketing department should also begin developing a _ during this stage  _ is an important part of product development  Primary packaging is the packaging the consumer _ in an ad or on a store shelf  Secondary packaging needs to be designed to protect the product in _ and while being stored  For a good, the company may create a prototype based on previous _  A_ is a mock-up of the good, often created individually with the materials the firm expects to use in the final product  _ is one method used to develop visual models and functional prototypes because it can automate the process, saving time and labor  Regardless of whether the product is a good or service, the product development stage of the NPD process can be _ and costly  Only a small number of ideas make it through this process Stage 6: Test Marketing  The company selects test markets based on how well they _ the overall target market in terms of demographics, _ , and lifestyles  The selection of _ is critical to ensuring that the results of the test will be representative of the sales the company can expect  Some cities are regularly selected for test sites because they reflect the demographics of the nation or region, which include the following U.S. cities: Nashville, TN; _ ; Indianapolis, IN; _ ; Jacksonville, FL; Greenville, SC; Oklahoma City, OK; Phoenix, AZ; _ ; and Winston, NC  During the test-marketing stage, the firm tests not only the product itself but also the _ related to it  The marketing department may simultaneously try different approaches in different test markets to see which _ approach works best Risks of Test Marketing  Although test marketing can be valuable, there are downsides, including the following: (1) The process is expensive, (2) it can be _ , and (3) firms show their ideas and open themselves up to _ from competitors, which can diminish the advantages of being first to market 474 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Economical Test-Marketing Options  New products can be introduced through _ , in which the firm builds a mock shopping experience for participants, to observe their response to marketing stimuli  Simulated test markets often show potential consumers advertisements for the new product and its competitors; they ask consumers to choose between the firm‘s product and competing products  In an _ , firms use their website to sell to consumers sample products that are unavailable in stores, which allows the firm to keep costs down while still obtaining valuable information Stage 7: Product Launch  The _ involves completing all the final preparations for making the fully tested product available to the market  At this stage, the firm (1) _ ; (2) hire employees, such as bank tellers, to provide the service; (3) manufacture enough of a good to fill the distribution pipelines and to store as inventory for continuing distribution; (4) build enough capacity to provide a service for the expected level of sales; (5) _ ; (6) prepare internal systems for taking service orders; and (7) _  Firms must _ the product launch to ensure that the product hits the market according to schedule  Numerous product launches have been delayed because _ could not deliver on time, consumer demand was unexpectedly high, or goods couldn‘t be released due to quality problems  The _ stage of the NPD process is usually the most expensive stage for new products  To minimize the cost implications and smooth out production levels and marketing activities, some companies release new products to geographic areas in a _ manner  Firms take a risk by proceeding _ with product launches  The speed with which a company launches a product (its _ ) can be extremely important, especially for high-tech products  Being the _ company to market, a new product can mean the difference between success and failure

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CONNECT BACK: Reference Connect Assignment 6-2 How has Unilever‘s Clear shampoo maintained its social media presence after the product has launched?

Would you recommend the use of social media for all product launches? Why or why not?

LO6-3: Discuss the major risks in new-product development and how to reduce those risks. Risks in New-Product Development  Firms that want to _ or improve their competitive position in the marketplace generally must develop new products  Failure to do so carries tremendous risk; that risk is greatest for companies that develop products that quickly become _  Companies need to understand both the types and severity of risks and how to mitigate those risks in order to succeed in introducing new products to the marketplace TABLE 6.1: New-Product Development Risks and Related Outcomes Severity of Risk Very high

High

Types of Risk  Product fails to meet needs and wants of customers  Product proves to be dangerous or defective  Quality is not up to customer standards  Supply of product is inadequate to meet demand  New product is not accepted well in the marketplace  Inadequate supply of materials delays production  Target price is not accepted by the market

Outcomes  Costs are not recouped; company loses money  Company suffers legal liabilities and product recalls  Customers are dissatisfied and there are excessive returns  Company loses orders, sales, and customers  Company loses revenue and profits and is stuck with obsolete goods  Product launch is delayed; first-tomarket advantage is lost

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Types of Risk

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Moderate

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Outcomes  Company reduces price, meaning lost revenue and profits Supplier cost savings  Profitability is are not achieved reduced Product takes sales  Total company from existing products revenue and profits are less than expected Competitors copy products and sell them  Company loses at a lower price market share and profits

Table 6.1 New-Product Development Risks and Related Outcomes INSIGHT QUESTIONS Why is concurrent new-product development difficult to control?

List examples of companies that will encounter these risks if they fail to develop new products over the next 5 years.

What factors contribute to making the risks very high versus moderate?

Categorizing Risks in New-Product Development  The highest level of risk occurs when products fail to _ or prove to be dangerous, defective, or deceptive  These risks can be devastating to a company if they permanently damage the firm‘s image or create legal liabilities  Beyond _ , new products can fail to capture the public‘s imagination or prove to be poor sales performers  Such problems are costly because of significant amounts spent in _ , production, _ , and distribution  Marketing new products internationally comes with _  Issues with product quality, _ , or marketing mix can lead to missed launch dates, dissatisfied customers, _ , and lost profits 477 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Reducing Risks  Companies can reduce the risk of new-product failures by (1) listening to the customer carefully, (2) making a commitment to the NPD process, (3) understanding current market trends and anticipating changes in the market, (4) _ , (5) being willing to _ on occasion  Firms that take steps to reduce risk in new-product development, particularly by analyzing and _ , are well positioned to see their new products adopted by consumers THINK LIKE A MARKETER What‘s at risk when a company fails to create new products?

LO6-4: Describe the categories of new-product adopters and the implications of adoption to marketers. Product Adoption  A product has been _ when a consumer purchases and uses it  The process by which a product is adopted and spreads across various types of adopters is called _  The _ is the process by which customers formally accept and purchase products  It includes the following five stages: (1) awareness, (2) interest, (3) _ , (4) _ , and (5) adoption  Adoption happens at different times depending on the _ of the adopter Types of Adopters  Following product launch, customers buy new goods or services at different _ ; this is true for both individual and business customers  When a firm launches a new product, only a few people buy it; as _ , consumers purchase the product at an increasing rate for a period of time  We can group consumers into categories of _ , based on how quickly they adopt new products  There are five categories: _ , early adopters, early majority, late majority, and _

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Figure 6.2 Percentage of Each Type of Adopter INSIGHT QUESTIONS What type of adopter are you? What factors are you considering?

Take a class poll and determine whether the show of votes for each category aligns with this graph. Ask the students for their feedback on this real-life poll.

Are there certain types of products that will induce a person to not adopt a product as they traditionally have?

Innovators  Approximately _ percent of those who adopt a product do so almost immediately after the product is launched; these people are innovators  Innovators tend to be _ and more _ than those who adopt a product later in the diffusion process  They are often _ with the idea of newness and unafraid to take risks when it comes to trying new products  They tend to be very knowledgeable, have higher-than-average _ , possess _ , and choose not to follow conventional norms  Innovators are important to companies introducing new-to-the-world goods and services, particularly those based on _ innovation Early Adopters  Early adopters comprise roughly another _ percent of adopters  _ purchase a product soon after it has been introduced but not as quickly as innovators  They tend to conform to group norms and values more closely than innovators and have closer ties to _ and their communities  They wait for product reviews and further information concerning new products before purchasing them  Early adopters are typically well respected by their peers and tend to be _

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Early Majority  Adopters in the _ gather more information and spend more time deciding to make a purchase than innovators and early adopters and represent 34 percent of the adopters of a new product  Members of the early majority generally are not _ themselves, but they often are associated with such leaders  By the time the early majority buys a product, more _ have entered the market; this group will have some choice as to which product to buy Late Majority  The late majority also comprises about _ percent of adopters  Members of the _ rely on others for information, buying a good or service because others have already done so  They tend to be _ about new things and ideas Laggards  Laggards make up about _ percent of the market  _ do not like change and may remain loyal to a product until it is no longer available for sale  Laggards are typically older and _ than members of the other four categories  Marketers may never convince laggards to buy their good or service Product Characteristics  New-product characteristics also affect the adoption rate, including the following: (1) competitive advantage, (2) compatibility, (3) _ , (4) complexity, and (5) _ International Product-Adoption Considerations  At the international level, several factors can affect the adoption of a product or service, including the following: (1) _ —the extent to which a country is connected to other cultures, (2) _ —the extent to which a culture values ―progress,‖ (3) _ —the extent to which consumers in a society are relatively similar to each other, and (4) _ —if consumers are not in close proximity to each other, they are less likely to interact with other users of a product  The rate at which product _ occurs influences the length of the product‘s life cycle

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THINK LIKE A MARKETER What factors aid in product adoption?

How have social media affected the product adoption process?

LO6-5: Describe the stages and aspects of the product life cycle and how they affect the marketing mix. The Product Life Cycle  Products go through various stages that mark their _ Stages of the Product Life Cycle  There are _ stages of the PLC which show the general trends of sales and profits during the life of a product  During the _ , the product actually costs the company money in development costs  During the _ , sales increase slowly, as the firm‘s marketing activities begin to raise _ of the product  The firm may not yet be making a profit on the product because of the costs of advertising, _ , and distribution  The _ brings a spike in sales and profits as consumers recognize the product‘s ability to satisfy their needs and wants  Sales and profits begin to drop in the _ , as competition increases and customers begin to look for the next big thing  Sales and profits then fall off completely during the _ Figure 6.3 Stages of the Product Life Cycle INSIGHT QUESTIONS Why must companies plan for the decline stage?

What is the trend with sales and profits during each of the phases?

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New-Product Development  The ability of companies to have a full _ of new ideas that result in market-winning products is the difference between success and failure in the marketplace Introduction  Once the firm launches the product into the marketplace and innovators begin to buy it, it has entered the _ of the PLC  This stage is characterized by few or no _ if the product is new to the market  Sales are typically slow because customers are not yet accustomed to the product  Several factors influence how long the introduction stage lasts, including the product‘s _ , the amount of resources the company puts into promoting the product, and the effort required to educate the market about the product‘s attributes TODAY’S PROFESSIONAL NOTES Julian Jackson, Network Implementation Specialist, Laderal Medical What does learnability mean to you?

Is it important for your work to have an equal impact on your community/society and professional development?

Growth  _ , followed by the early majority, begin to buy the product during the growth stage when sales, profits, and competition increase  At this stage, companies begin to take advantage of _ in purchasing, manufacturing, and distribution  The firm also must concentrate on building the distribution of the product to increase _  If the product satisfies the market, repeat purchases help make the product profitable, and brand _ begins to develop Maturity  In the _ stage, late majority and repeat buyers make up an increasing percentage of the customer base

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

The main focuses of the maturity stage are _ and maintaining the firm‘s market share for as long as possible  As the market becomes saturated, sales _ , competition becomes fierce, and companies not doing well will _ of the market  To prolong the product‘s life, the company may begin to offer more versions in different styles and with different features  Companies may use _ , more effective advertising, and _ to generate demand in the maturity stage  Promotion to _ often increases during this stage to entice them to continue to buy the company‘s product rather than a competitor‘s  _ and repairs begin to take on significance and can serve as a source of differentiation from competing products Decline  The _ of the PLC is characterized by decreases in sales and profits  Depending on the product, the decline in sales during this stage may be rapid or could occur over a long period of time  Competitors drop out of the market as the product becomes _  The firm will likely cut prices to generate sales  At this point, the firm must decide whether to _ the product  If the product or service is deemed _ , the firm may be able to sell it off to discount retailers  If the firm keeps the product active, it may put little effort into selling or advertising it, happy just to have any sales it produces  Or the firm may attempt to find a _ market for the product that may be small but profitable CONNECT BACK: Reference Connect Assignment 6-3 Is it easy for a firm to identify which product types are needed in certain categories?

How is the longevity of a product affected?

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Instructor‘s Manual - Chapter 1

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Estimating the Length of a Product’s Life  Product life cycles can be of varying lengths, depending on the _ of the product  _ products like computers tend to have a short PLC because of rapid changes in computing power and features; other products may remain viable in the marketplace for decades  A firm‘s _ comprises all of the products that it sells  Although consumers like choice, having too much choice can hurt sales because consumers often rebel against having too many options from which to choose Projecting the Shape of the PLC Curve  Firms should project the shape of the PLC curve for their product  Products that take longer for consumers to see the benefits of or that do not have a good infrastructure in place to support them are called _  Products with benefits customers can easily see are called _  A_ is one that is very popular for a relatively short amount of time  A_ is one that comes in and out of favor with consumers Figure 6.4 Different Types of Product Life Cycle Curves INSIGHT QUESTIONS Why is the product life cycle different for products in different industries?

Choose a product that represents each graph and discuss the product life cycle‘s stages.

Strategic Implications for the Marketing Mix  Firms can modify their marketing-mix (four Ps) strategies in response to what stage of life a product is in  Product strategies—the number of products a firm offers will change over a product‘s _  Place (distribution) strategies—distribution is generally limited in the _ phase

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Distribution channels increase during the growth stage and become extensive in the maturity stage _ strategies in the introductory stage usually involve making customers aware of the product and its attributes Intensive advertising that stresses how the product differs from the competition appears in the _ stage In the _ stage, advertising typically reminds consumers about the product and its value to them Minimal promotion, or none at all, takes place in the _ stage Price is usually higher in the _ phase due to lack of competition and high launch costs It then starts to fall in the growth stage as competition becomes more _ Price continues to fall through the maturity stage, when a firm must _ its market share; it then levels out in the decline stage

TABLE 6.2: Typical Marketing Mix Strategies during a Product’s Life Cycle Stage

Product Strategies Small number of models

Place Strategies

Growth

Variety of models; many _

Maturity

Decline

Introduction

Promotion Strategies Promote to develop customer awareness

Price Strategies

Intensive effort to expand distribution

Promote to build awareness; increase personal selling

Price begins to fall as _ _ arrives

Full line of products

Intensive effort to maintain _

Promote to point out brand attributes and differentiating features

Price _ below competitors

Reduce number of products based on profitability

Phase out unprofitable outlets

Reduce promotion to a minimum or _

Price to maintain small profit; can increase if product appeals to _ market

Limit distribution; attract channel partners

Price _

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Instructor‘s Manual - Chapter 1

Hunt/Mello/Deitz: Marketing 4e

Table 6.2 Typical Marketing Mix Strategies during a Product’s Life Cycle INSIGHT QUESTIONS Review the marketing mix for the latest Apple iPhone entering the introduction stage.

When that same iPhone goes through the decline stage, what can we expect to see in the marketing mix?

PRODUCT DESCRIPTION

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Chapter 7: Segmentation, Targeting, and Positioning

Steve Schaack

Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 7 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-121 Explain the importance of and criteria for effective market segmentation. LO 1-122 Describe the bases for segmenting both B2C and B2B markets. LO 1-123 Discuss international segmentation bases and the effect of international market segments on the marketing mix. LO 1-124 Describe the factors and analytics involved in selecting target markets. LO 1-125 Compare the most common target marketing strategies. LO 1-126 Summarize the ethical issues in target marketing. LO 1-127 Explain the three steps of effective market positioning and why firms may choose to use repositioning strategies. KEY TERMS behavioral segmentation demographic segmentation differentiated targeting 80/20 rule geographic segmentation global segmentation lifestyle segmentation market segmentation

market segments niche marketing perceptual map positioning positioning statement psychographic segmentation regional segmentation

repositioning target market targeting undifferentiated targeting unique segmentation

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How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: How do market segments help us better understand a market? Relate this to an example of a business you know that could use or already uses market segmentation. Set 2: What are the five criteria for effective market segmentation? Provide an example (beyond a concept/definition) for each.

Pauline Thiros Athletics Director, Idaho State University Pauline Thiros believes showing up and performing at her best (with passion) has directed her career. She uses her unique role to encourage others to commit themselves to a common goal. She also addresses the following questions:

Photo provided by Pauline Thiros

274. What has been the most important thing in making you successful at your job? 275. What advice would you give soon-to-be graduates? 276. How is marketing relevant to your role at Idaho State University? 277. What do you consider your personal brand to be? Later in the chapter you see how Pauline elaborates on: 

491

Working in college athletics is a combination of sales, philanthropy, operations, and more.

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Review with students:   Explain the importance of and criteria for effective market segmentation. Market Segmentation  The Importance of Market Segmentation  Criteria for Effective Market Segmentation PowerPoint Slides Lecture Notes: LO 7-1

What does leadership look like for you? What three words represent you, and how will you market yourself with those words? Key Terms: Market segmentation Market segments

Market Segmentation    

Marketers who try to be all things to all people typically end up serving no one well Market segmentation is the process of dividing a larger market into smaller groups, or market segments, based on meaningfully shared characteristics Market segments are the relatively homogeneous groups of consumers that result from the segmentation process There are 7.8 billion people in the world with different needs and wants that are impossible to attract with a single marketing mix

The Importance of Market Segmentation     

Market segmentation helps organizations navigate the various needs and wants in three major ways (1) Market segmentation helps firms define the needs and wants of the customers who are most interested in buying the firm’s products (2) Market segmentation helps firms design specific marketing strategies for the characteristics of specific segments Using specific marketing strategies for specific segments, firms are able to gain a much larger share of the market segments they target (3) Market segmentation helps firms decide how to allocate their marketing resources in a way that maximizes profit

Criteria for Effective Market Segmentation 

492

Simply dividing a larger group of consumers or businesses into smaller ones serves no purpose, unless doing so improves how the firm markets its goods and services

Instructor‘s Manual - Chapter 1        

LO 7-2

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To be effective, segmentation should create market segments that rate favorably on the following five criteria: (1) Substantial—the segments must be large enough for the firm to make a profit by serving them. (2) Measurable—the size and purchasing power of the segment should be measurable and clearly identified (3) Differentiable—dividing the market into segments does no good if all the segments respond the same to different marketing strategies (4) Accessible—marketers must be able to reach and serve the segment If the firm lacks the size, financial capital, expertise, or government permits to serve a certain market segment, all of the other criteria are irrelevant (5) Actionable—marketers should be able to develop strategies that can attract certain market segments to their firms‘ goods and services A firm should be reasonably certain that its marketing mix can inform consumers about the product, how it adds value to the consumer, and ultimately how to purchase it

Describe the bases for Key Terms: segmenting both B2C and Demographic segmentation B2B markets. Geographic segmentation Segmentation Bases Psychographic segmentation Demographic Segmentation Lifestyle segmentation Behavioral segmentation  Age 80/20 rule  Gender  Income  Marital Status and Family Size Geographic Segmentation  Market Size  Customer Convenience  Population Shifts Psychographic Segmentation  Lifestyle  VALS Network Behavioral Segmentation Business-to-Business Segmentation Bases B2B Demographic Segmentation B2B Geographic Segmentation B2B Behavioral Segmentation © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.Hunt/Mello/Deitz: Marketing 3e © 2021 by McGraw Hill Companies

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The Role of Social Media in Market Segmentation PowerPoint Slides Lecture Notes: Segmentation Bases    

Marketers divide markets into segments using segmentation bases, which are characteristics of consumers that influence their buying behavior These bases help firms develop customer profiles that highlight the similarities within segments and the dissimilarities across segments There are different segmentation bases for B2C and B2B markets There are four bases of segmentation: demographic, geographic, psychographic, and behavioral

Figure 7.1

Insight Questions:

Figure Information: Four Bases of Segmentation The four bases of segmentation help firms develop customer profiles that highlight the similarities within segments and the dissimilarities across segments. The four broad bases of segmentation are demographic, geographic, psychographic, and behavioral. Specific variables within each segmentation base can be used to segment the market. PowerPoint Slides

278. How do marketers use segmentation bases? (Answer: Marketers divide the market into segments based on buying behaviors. These bases help firms develop customer profiles that highlight the similarities within segments and the dissimilarities across segments.) 279. Why is segmentation necessary? (Answer: Marketers who try to be all things to all people typically end up serving no one well. By identifying homogenous groups of people, marketers can target and position their products.)

Lecture Notes: Demographic Segmentation  

494

Companies divide markets using characteristics such as age, gender, income, education, and family size to achieve demographic segmentation Age and gender are the most commonly used demographic variables because they are often given freely through short surveys

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

www.census.gov provides marketers with information such as the net worth and asset ownership of households segmented by race, education, age, and occupation Age       

Age is an especially valuable segmentation tool in areas such as food, housing, and health care Older Americans spend significantly more in these areas than younger consumers The median age for residents of the United States is the highest in the history of the country Older consumers typically have two things that most of their younger counterparts do not: time and money Older consumers today want to stay active in retirement and seek out ways to look and feel younger Research has found that Millennials perceive themselves as particularly in tune with what they consider to be authentic and real Segmenting by age also enables companies to target multiple age segments with the same product

Gender  

Marketers are expanding beyond traditional gender segmentation as new trends shift marketing dollars away from male- or female-oriented marketing, to try to appeal to multiple genders Gender segmentation is evolving for younger consumers as well

Income  

Income provides marketers with a valuable segmentation tool because it affects consumers‘ ability to buy goods and services Marketers can successfully define the needs and wants of customers at all income levels and design appropriate marketing strategies

Marital Status and Family Size   

495

A company might discover that married individuals will pay higher prices than single individuals and promote certain products to that market It might find that single customers purchase a certain product more frequently than married customers do and market that product to singles In recent years, the size of families living under one roof has increased: more young adults and students are moving back home, and more adults are taking care of their older parents

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Geographic Segmentation   

The value consumers place on a product can vary greatly by region Geographic segmentation divides markets into groups such as nations, regions, states, and neighborhoods Marketers pay special attention to local variations in the types of goods and services offered in different geographic regions

Market Size 

This type of geographic segmentation requires information about the entire market, beyond just a city or county  The U.S. Census Bureau divides cities and urbanized areas into Metropolitan Statistical Areas (MSAs), which are freestanding areas with a core urban population of at least 50,000 THINK LIKE A MARKETER How does age affect marketing? THINK LIKE A MARKETER Provide an example of how information on income helps us in marketing. THINK LIKE A MARKETER What things can family size and marital status can tell us in marketing? Table 7.1

Insight Questions: 280. Which region reports the most MSAs? (Answer: south) 281. Which cities does the New York City MSA include? (Answer: New York, Newark, and Jersey City) 282. How can marketers use MSAs? (Answer: The size of a market is an important geographic segmentation tool. Marketers can target their locations to the size of the MSAs in attempt to reach the volume of consumers they desire.)

Figure Information: Ten Largest Metropolitan Statistical Areas in the United States 496

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The U.S. Census Bureau divides cities and urbanized areas into Metropolitan Statistical Areas (MSA), which are free-standing areas with a core urban population of at least 50,000. The 10 largest MSAs in the United States and all of the cities from 2018 are listed. PowerPoint Slides

Lecture Notes: Customer Convenience 

Segmenting by geography also allows marketers to capitalize on convenience to the customer based on geography, consumer behavior, and habits

Population Shifts      

Figure 7.2

In the United States, the population is calculated by census every 10 years The number of members each state has in the U.S. House of Representatives is determined by population, following the census The 2020 census illustrated a shifting U.S. population: Southern states like Texas and Florida grew substantially Many northern states, including Ohio, Michigan, and New York, grew at a slower rate, or not at all Population shifts occur for various reasons: economic conditions, retirement, and even natural disasters can cause people to move It is important for marketers to research patterns of consumer movement, to understand where and why consumers are moving because it provides marketers an opportunity to deliver products that meet growing demands Insight Questions: 283. Which is the only the only southern state that lost seats in the House of Representatives in 2010, and why? (Answer: Louisiana—because Louisiana‘s largest city, New Orleans, lost 29 percent of its residents in the years following Hurricane Katrina) 284. Why is it important for marketers to research patterns of consumer movement? (Answer: to understand why and where the population shifts are occurring, whether it is related to economic conditions, retirement, or natural disasters)

Figure Information: Number of U.S. House Representative in Each State, 497

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Showing States That Gained or Lost Seats Due to Population Shifts in the 2010 Census The population shifts between 2010 and 2020 are highlighted by illustrating which states have grown the most (and gained seats in the House of Representatives) and which states have seen the biggest population declines (and lost seats in the House). PowerPoint Slides

Lecture Notes: Psychographic Segmentation   

Segmentation that divides markets using demographics, psychology, and personality traits is called psychographic segmentation Psychographic segmentation allows marketing professionals to create a more meaningful profile of market segments by focusing on psychological and personality traits When marketers segment based on psychographics, they divide a market into groups according to the reason the consumer made the purchase

Lifestyle 

Lifestyle segmentation divides people into groups based on their opinions and the interests and activities they pursue

VALS Network         498

The most commonly used psychographic segmentation tool is the VALS framework It classifies U.S. and Canadian adults (aged 18 years and older) into eight psychographic groups, on the basis of responses to 34 attitudinal and four demographic questions The groups are Innovators, Thinkers, Believers, Achievers, Strivers, Experiencers, Makers, and Survivors VALS measures two dimensions: primary motivation and resources VALS identifies three primary motivations: ideals, achievement, and self-expression The availability of resources affects each group‘s ability to act on its primary motivation Resources determine how the motivation manifests itself High-resource, achievement-motivated Achievers emulate the groups to which they aspire to belong

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Low-resource, achievement-motivated Strivers seek identification with others like them Marketers use VALS to determine whether, for example, Achievers or Strivers are more likely to buy their product; they then tailor the marketing mix accordingly



Topic: VALS

Connect Assignment 7-1

Complete the Connect exercise for Chapter 7 that focuses on the eight VALS segments. By identifying which goods and services are most attractive to specific segments, you will better understand how segmentation provides useful insights that can impact marketing strategy. CONNECT BACK Insight Questions: 285. Why do different countries require different VALS frameworks? (Answer: Different countries require different frameworks because of language and cultural differences.) 286. As a marketer for an international company how would you use the VALS framework to best position your product? (Answer: Open ended as students‘ responses will vary; consider other available resources with an international market‘s cultural considerations.) PowerPoint Slides

Lecture Notes: Behavioral Segmentation        

499

Behavioral segmentation categorizes consumers according to how they behave with or act toward products Behavioral segmentation variables include occasions (e.g., a wedding or business trip), loyalty, and usage rate Many firms subscribe to the 80/20 rule, which suggests that 20 percent of heavy users account for 80 percent of the total demand for a product If firms can identify its heavy users, it is in a better position to create an effective marketing strategy to reach those consumers who contribute most to the firm‘s success When done well, behavioral segmentation helps marketers clearly understand the benefits sought by different consumer segments Understanding how changes to marketing-mix strategies affect different types of users enables the firm to evaluate the impact of such changes on sales and revenue Behavioral segmentation is often the most difficult of the four bases to use The marketing research required to track and understand how

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consumers behave with a certain product is very expensive and timeconsuming Business-to-Business Segmentation Bases 

The three types of B2B segmentation bases are demographic, geographic, and behavioral

B2B Demographic Segmentation    

The main B2B demographic variables include industry, size of the organization, and ownership structure The size of the organization is a critical variable because organizations of different sizes often have different needs and wants Large organizations might have more complex buying processes that might require more salespeople compared to a small business Ownership structure can influence marketing decisions—a privately held firm might have fewer layers of management and be able to make decisions more quickly

B2B Geographic Segmentation  

B2B geographic variables are similar to consumer variables and include things like country, region, state, and climate Allows marketers to group B2B customers by geography-related needs or headquarters location; it can help B2B marketers allocate resources to the parts of the country or the world with the highest concentration of economic- or climate-driven need

B2B Behavioral Segmentation   

Might be the most beneficial variable to B2B marketers: it enables them to segment based on purchasing patterns, supplier requirements, and technological orientation Purchasing patterns, such as the time of year contracts come up for bid, can be helpful in the segmentation process Supplier requirements, which include things like whether the supplier has e-commerce functionality, can help marketers determine which segments‘ capabilities and technological orientation make them attractive

The Role of Social in Market Segmentation   500

Social media can be especially effective in market segmentation strategies If they can segment the market by those who are active on social media, companies can, at minimal expense, expand their outreach

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Individualized social media platforms such as Facebook, Instagram, and TikTok enable companies to engage and interact personally with a larger and more diverse consumer base  Social media are, by their very nature, all about sharing personal behaviors, tastes, activities, desires, and connections  Questions remain as to exactly how to engage consumers on social networking sites and, more importantly, whom to engage  LinkedIn allows firms to segment by industry, company size, and function  As social media develop and new platforms emerge, both B2C and B2B marketers will have increasing opportunities to use these powerful tools in market segmentation THINK LIKE A MARKETER What types of content do you see organizations posting on social media? Do you find it engaging? Connect Assignment 7-2

Social Media in Action

Example: Segmentation Advocate Health Care, based in the midwestern United States, launched a GoPro giveaway and integrated marketing campaign to promote local health and wellness. Grounded in a hashtag to display user-generated content, #HealthiestLife aggregated more than 3,000 pieces of user-generated content. Advocate Health Care was able to collect opt-in permissions and segment potential consumers based on their social media activity. The improved segmentation strategy worked: Advocate saw a 26 percent increase in physician appointments, and a 126 percent jump in traffic to the user-generated content gallery on its website. The Social Media in Action Connect exercise in Chapter 7 will let you develop social media strategies to segment markets based on readily available social media information. Segmentation and targeting are at the heart of successful marketing, and social media provide marketers from organizations of all sizes powerful tools to better understand consumers. CONNECT BACK Insight Questions: 287. What are ways a marketer can segment a market? (Answer: age, gender, geographic location, etc.) 288. How can social media reach consumers more effectively and efficiently? (Answer: Open ended as students‘ responses will vary; by understanding

501

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Discuss international segmentation bases and the effect of international market segments on the marketing mix. International Market Segmentation  International Segmentation Bases  International Market Segments and the Marketing Mix PowerPoint Slides Lecture Notes: LO 7-3

Hunt/Mello/Deitz: Marketing 4e

customers‘ behaviors and preferences, marketers can segment customers in order to customize messages that will appeal to them.) 289. In what specific ways can social media target different consumers? (Answer: Open ended as students‘ responses will vary; by using targeted hashtags, creating a conversation with a comment or picture posted, etc.) Key Terms: Global segmentation Regional segmentation Unique segmentation

International Market Segmentation       

International market segmentation is a costly exercise, and often a very difficult one Accessing demographic, geographic, psychographic, and behavioral information for international markets can be challenging Even demographic information, which is typically the easiest to acquire, may be slow in coming or completely unavailable Not all countries collect or classify their data in the same way Data differences make it all but impossible to compare characteristics across nations Even if marketing professionals obtain the information they seek, each nation and region has its own unique features that make establishing quality market segments problematic By identifying such segments, marketers can apply marketing research findings from one market to the rest of the segment

International Segmentation Bases    502

Firms typically segment international markets using three general bases: global, regional, and unique Global segmentation identifies a group of consumers with common needs and wants that spans the entire globe Regional segmentation divides consumers into groups whose needs and

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wants extend across the region or several countries Unique segmentation identifies a group of consumers with similar needs and wants only within one country All three types of segments offer potential profits depending on how consumers within the segment respond to the marketing mix

International Market Segments and the Marketing Mix       

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Companies can use international market segments to group together countries with market conditions that are materially the same in relation to the company‘s product A marketing-mix strategy that works well in one market may be successful for other markets in the same segment and is able to standardize the marketing mix across segments Marketers must also be mindful of the limits of international segmentation Some countries place a higher tariff on goods sold by foreign companies Those tariffs may make product pricing in those markets less competitive than in other markets In response, the firm may need to revise its marketing strategy and marketing mix in those countries advertising regulations and preferences vary substantially Marketers in the United States and throughout the world can use a single segmentation base to divide the marketplace, or they can use multiple segmentation bases to provide a more complete picture of the consumers within each segment Segmentation should meet the five important effectiveness criteria discussed earlier to produce market segments that are: substantial (large enough for the firm to make a profit), measurable, differentiable (responsive to different marketing strategies), accessible, and actionable (able to be clearly accomplished)

Describe the factors and analytics involved in selecting target markets. Selecting Target Markets  Factors in Selecting Target Markets  Growth Potential  Level of Competition  Strategic Fit  Target Marketing Analytics

Key Terms: Targeting Target market

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Lecture Notes: Selecting Target Markets   

Targeting occurs when marketers evaluate each market segment and determine which segments present the most attractive opportunity to maximize sales The segments selected are the firm‘s target markets A target market is the group of customers toward which an organization has decided to direct its marketing efforts

Factors in Selecting Target Markets 

Firms should consider three important factors during the targeting process: growth potential, level of competition, and strategic fit

Growth Potential  

Typically, the higher the future growth rate, the more attractive the segment is The COVID-19 pandemic accelerated the trend of consumers spending on their pets and led to a boom in the pet business—marketers have increasing opportunities in this market for growth

Level of Competition    

The more intense the competition within a segment, the less attractive it is to marketers Competitors will fight extremely hard to prevent market share loss, and the potential for price wars can negatively impact success Generally, more competitors means a firm has to work harder and invest more in promotion to earn business and increase market share When considering two market segments in which other factors, such as size and growth potential, are constant, the one with a less-competitive environment is more attractive

Strategic Fit   

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Marketers should work to ensure that the target markets selected fit with what the organization is and wants to be, as defined in its mission statement The SWOT analysis provides an excellent framework to determine if a firm will be successful targeting a specific segment Regardless of how clever and innovative a firm‘s marketing mix may be, if the strategic fit is wrong, the product will fail

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Target Marketing Analytics        Marketing Analytics

The more marketers understand the targeted market segment, the better able they will be to make those decisions Marketing analytics can provide detailed data, such as gender, age, and lifestyle interests, of target markets Tools such as Google Analytics help marketers identify the demographics of valuable and potentially valuable customers For an e-commerce site, Google Analytics can help identify segments with the highest e-commerce revenue For a content-focused site, analytics tools help identify market segments with the highest engagement The age, gender, and lifestyle interest reports in Google Analytics all include engagement and conversion metrics Marketers can start from any of these reports to build a picture of highvalue customers to target in B2C, B2B, or nonprofit organizations Insight Questions:

Compare the most common target marketing strategies. Target Marketing Strategies  Undifferentiated Targeting  Differentiated Targeting  Niche Marketing PowerPoint Slides Lecture Notes: LO 7-5

290. The more marketers understand the targeted market segment, the better able they will be to make decisions on what kinds of products to develop. Explain this. (Answer: Open ended as students‘ responses will vary; detailed data, such as gender, age, and lifestyle, interests of target markets can be analyzed to create products consumers are more likely willing and able to buy.) 291. What tools are available to help marketers identify the demographics of valuable and potentially valuable customers? (Answer: Open ended as students‘ responses will vary; Google Analytics, social media dashboards, software like Hootsuite that produce analytical reports) Key Terms: Undifferentiated targeting Differentiated targeting Niche marketing

Target Marketing Strategies  505

The marketing department spends a great deal of time deciding which

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market segments are best to target Once it has made that decision, the firm must develop a strategy for reaching those segments The three basic strategies for targeting markets include undifferentiated targeting, differentiated targeting, and niche marketing

Undifferentiated Targeting 

An undifferentiated targeting strategy approaches the marketplace as one large segment  The major advantage of this type of mass-marketing strategy is the potential savings in developing and marketing the product  Because the firm doesn‘t segment the market further, it can approach all consumers with the same product offering and marketing mix  Undifferentiated targeting works best with uniform products for which the firm can develop a single marketing mix that satisfies the needs and wants of all customers  Only a limited number of products fall into this category Differentiated Targeting    

Differentiated targeting occurs when an organization simultaneously pursues several different market segments, usually with a different customized strategy for each Firms that market a core product to multiple regions with different preferences often use differentiated target marketing In such cases, the firm may adjust the product to ensure that it meets a need unique to each segment A firm marketing to a region outside the United States may also need to use differentiated targeting

Niche Marketing 

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Regardless of what target marketing strategy firms use, they must keep in mind ethical concerns about targeting certain market segments  Segments of particular concern are children and older adults  The tween segment accounts for over $51 billion in direct consumer purchases; it significantly influences another $170 billion spent by parents and family members  With those sales dollars as the incentive, firms began to adjust the target age for their products downward, marketing to tweens products like makeup and trendy clothing that had always been considered more appropriate for teenagers  An analysis of popular online children‘s retailers showed that almost 30 percent of children‘s clothes have sexualized characteristics; the highest proportion of sexualized clothing came from stores aimed at tweens  A product called a reverse mortgage allows older homeowners to tap into the equity of their home and receive payments against its value  As traditional real estate sales have struggled since the collapse of the housing market in 2007, reverse mortgage loans have become more widely used  Marketing of reverse mortgages has helped older adults access the equity in their home and ―age in place‖ and avoid retirement housing  It also has raised ethical questions from legislators and other stakeholders; they worry that this type of target marketing is potentially taking advantage of desperate older adults who may not fully understand what a reverse mortgage is or the associated upfront fees and costs  Marketers should consider the ethical implications of any target marketing strategies they implement and give particular consideration to whether certain segments might need extra protection THINK LIKE A MARKETER Is it ethical to specifically target these groups: children, nonnative language speakers, and older people? (Consider yourself the marketing director for a brand charged with this as the target market.) Today’s Professional

Darrious Duffin Sales Operations Analyst, Ritter Communications

Photo provided by Darrious Duffin

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Darrious Duffin supports the sales team by helping them make data-driven decisions that increase sales and improve efficiency. Darrious advocates that landing a job with a company that will allow you to test your abilities, expose you to all parts of the business, and make mistakes is crucial. He provides insight in answering the following questions:

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292. Describe your job. 293. How did you get your job? 294. What has been the most important thing in making you successful at your job? 295. What advice would you give soon-to-be graduates? 296. What do you consider your person brand to be? Review with students:

Explain the three steps of effective market positioning and why firms may choose to use repositioning strategies. Market Positioning  Steps in Market Positioning  Step 1: Analyze Competitors‘ Positions  Step 2: Clearly Define Your Competitive Advantage  Step 3: Evaluate Feedback  Positioning Statement  Repositioning  Repositioning and the Marketing Mix  Repositioning the Competition PowerPoint Slides Lecture Notes: LO 7-7

 What kinds of internships would you like to look into?  What sets you apart from others? Key Terms: Positioning Perceptual map Positioning statement Repositioning

Market Positioning    508

Positioning consists of the activities a firm undertakes to create a certain perception of its product in the eyes of the target market Positioning often takes into account the identity of the organization and where it fits relative to the competition Successful positioning involves all of the marketing mix elements (price, product, place, and promotion)

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Steps in Market Positioning 

Marketers should follow three major steps to decide how to best position their product: (1) analyze competitors‘ positions, (2) clearly define your competitive advantage, and (3) evaluate feedback

Step 1: Analyze Competitors’ Positions      Figure 7.3

Competitive analysis becomes even more important when competitors appear to offer a similar good or service A perceptual map provides a valuable tool for understanding competitors‘ positions in the marketplace A perceptual map creates a visual picture of product locations in consumers‘ minds It uses horizontal and vertical axes that reflect key elements of competitors‘ offerings Marketers can develop a perceptual map based on marketing research or from their knowledge about a specific market Insight Questions:

Figure Information: Sample Perceptual Map for Cell Phone Carriers

297. How do marketers use perceptual maps? (Answer: Perceptual maps provide guidance on potential market positions to better understand the competition within a marketplace. They visually depict an underserved market, direct/indirect competition, gaps, and opportunities—all of which can be based on market research or a firm‘s knowledge about a specific market.) 298. What does the perceptual map for cell phone carriers show? (Answer: Open ended as students‘ responses will vary; one of the reasons wireless provider T-Mobile decided to promote new service plans that did not require an annual contract in 2013. In doing so, T-Mobile became the only major wireless provider occupying the position of offering nationwide coverage to consumers purchasing an iPhone or Android device with no contract required.)

This figure illustrates one of the reasons wireless provider T-Mobile decided in 2013 to promote new service plans that did not require an annual contract. In doing so, T-Mobile became the only major wireless provider occupying the position of offering nationwide coverage to consumers 509

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purchasing an iPhone or Android device with no contract required. PowerPoint Slides

Lecture Notes: Step 2: Clearly Define Your Competitive Advantage        

Great marketers know that consumers must have a clear answer to the question, ―Why should I buy this product?‖ A number of positioning strategies are available to highlight a firm‘s competitive advantage: (1) Price–quality relationship—Customers are often attracted to firms that offer them the same product quality as other stores, but at a more affordable price (2) Attributes—Often, a product will have multiple attributes that create a unique position in the market Marketers should evaluate those attributes that put its product in a special category of value to the customer Successful attributes might include leadership, heritage, product manufacturing process, or the coolness factor (3) Application—A product can have success because of the competitive advantage it has when it comes to the application and use of the product Firms can choose to promote one or multiple competitive advantages, as long as they can clearly articulate those advantages to their target market

Step 3: Evaluate Feedback   Connect Assignment 7-3

The third step in market positioning is constantly evaluating consumer feedback Just as fashion styles change, consumer tastes for almost everything, including cars, food, and even educational learning formats, change Topic: Market Positioning Process Complete the Connect exercise for Chapter 7 that focuses on the steps in the market-positioning process. By understanding the decisions at each step of the process, you will better understand how to develop an effective market position. CONNECT BACK Insight Questions: 299. Identify the steps in the market positioning process. Which steps are the most critical? (Answer: Step 1— analyze the competitors‘ positions, Step 2—clearly

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define your competitive advantage, Step 3—evaluate feedback; all three are necessary and critical, though emphasis may be placed on one relative to the present competitive marketplace) 300. What decisions are made at each step in the market positioning process? (Answer: Step 1—realistically considering how customers perceive your brand/product to other may require revisiting the marketing mix in more competitive ways; Step 2— establishing a USP with why consumers should buy a product; Step 3—accommodating environmental factors that change the marketing mix) Lecture Notes: Positioning Statement 

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Once a firm has completed the steps to decide how best to position its product, the hard part begins: the firm must determine how to succinctly communicate the market position it has chosen, first to its own organization and then to the world A positioning statement consists of a succinct description of the core target market to which a product is directed and a compelling picture of how the firm wants that core market to view the product A successful positioning statement should clearly reflect the steps of the positioning process, including the competitive advantages of the product A succinct statement enhances the likelihood that stakeholders and consumers will understand the desired message A firm‘s positioning statement can be used as part of an external marketing strategy Smart marketers realize that positioning doesn‘t occur just when launching new products; it is an ongoing process

Repositioning  

Marketers have to change and adapt their strategies if they want to continue to reach their target market Repositioning involves reestablishing a product‘s position in response to changes in the marketplace

Repositioning and the Marketing Mix 

Repositioning typically involves changing one or more marketing-mix elements, often product or promotion

Repositioning the Competition 511

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Sometimes marketers choose to reposition the competition rather than change their own position This type of repositioning strategy is also common in political marketing: strategists look to define their opponent negatively without changing their own candidate‘s positions

MARKETING PLAN EXERCISE In this chapter, you read about the importance of targeting specific segments and developing a positioning strategy that appeals to those segments. Your assignment for this chapter is to apply these critical concepts to your marketing plan. First, refer back to the career objectives (what company you want to work for or what graduate school you want to attend) that you have already developed. Next, think about and clearly articulate how you will position yourself for your target market. There are a limited number of openings for good jobs and quality graduate schools. To maximize your chances of success, you must plan ahead and use the marketing strategies you have learned to position yourself properly in a very competitive environment. You should ask yourself questions such as:  

How can I best position myself for a job with one of these organizations? What classes have I taken or what experiences have I had that position me for the graduate school I want to attend? Student Task: Write a one-paragraph personal positioning statement that includes succinct answers to these questions. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 301. Choose a company you have worked for or would like to work for and discuss how it could benefit from market segmentation. Does that company do a good job segmenting today? Why or why not? (Answer: Open-ended as students‘ responses will vary; consider how the current market mix targets consumers based on gender, age, ethnicity, country of origin, presence of children, lifestyle, or behavioral segmentation; also consider how a specific targeting approach could help identify consumer interests in these targets, whether or not there is benefit to the brand, and whether segmentation is profitable considering the marketing expenses needed.) 512

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302. Select a market segment for fast food. First, describe the segment. Then explain how the segment meets all five of the criteria to be considered an effective market segment. (Answer: Open-ended; the market segment should be described with specific details that include demographic, geographic, and psychographic descriptors, where possible; the criteria students are identifying should be substantial, measurable, differentiable, accessible, and actionable.) 303. Select a product that you use almost every day and explain how each of the major segmentation bases can be applied to you as a consumer of that product. What insights can each segmentation base provide to firms to help them develop a marketing mix that would win your business? (For example, you might say that geographic segmentation would help a firm market heavy coats to you because you live in a cold climate.) (Answer: Open-ended as students‘ responses will vary; consider demographic segmentation—McDonald‘s selling Mighty Happy Meals to older children; geographic segmentation—Wal-Mart in Pensacola, FL, selling beach toys to meet local demand; psychographic segmentation—buying a Mercedes because of the luxury it provides; heavy winter coats can have different pricing strategies depending on the consumer age, as well as a distribution strategy that aligns with the pricing strategy) 304. Assume that your university is looking to increase enrollment. Choose the best targeting strategy (undifferentiated, differentiated, or niche) for achieving this goal. Describe how that strategy will be effective in bringing more students to your campus. (Answer: Open-ended as students‘ responses will vary; e.g., a niche marketing strategy involves targeting a large share of the tri-county region surrounding the university that would otherwise have to travel 45 minutes to another competing university.) 305. Select a company that you think has successfully positioned its products, and describe why it has been successful. Next, select a company that you think has done a poor job positioning its products, and explain why it hasn‘t been successful. (Answer: Open-ended as students‘ responses will vary; successful—Apple had exclusive services only offered through its products like FaceTime and iCloud and capitalized the market for a period of time before others mimicked them; unsuccessful—Burger King‘s hot dogs because the brand is known for the Whopper, a beef product) 306. Select one firm that you think needs to reposition itself. Describe what you think isn‘t working about its current position. Then provide three specific recommendations for how it could reposition itself for a successful future. (Answer: Open-ended as students‘ responses will vary; consider video chat technology organizations, fast-food restaurants, and educational institutions as examples.) SOCIAL MEDIA APPLICATION Select a product that you like and that you would enjoy marketing. This could be a type of car, cell phone, restaurant, or other product. Segment the market for this product using the following questions and activities as a guide: 307. Select 20 friends, followers, or connections that you have on any social media platform and segment them as if they are potential customers of the product you have chosen to market. You need to identify at least three different segments. 308. What variables did you use to segment the potential customers? 513

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309. How were social media helpful to you in assigning each person to a specific segment? 310. Decide which segment of the three you are going to target your marketing efforts to. Why did you make that decision? 311. How can social media help you reach the targeted consumers with your marketing message? This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 7 that focuses on using demographic data to select target markets. ETHICAL CHALLENGE Currently, users under the age of 13 are not permitted to create profiles on Facebook. Although many tweens lie about their age and create profiles, because Facebook can‘t identify users under 13, advertisers can‘t use Facebook to reach this demographic. Allowing tweens to create profiles could reinvigorate Facebook‘s slowing growth. But Facebook has already come under fire for privacy issues, and it may want to avoid exposing itself to potential allegations about exploiting or failing to protect children. In addition, the Children‘s Online Page 246Privacy Protection Act (COPPA) would require Facebook to allow parents to elect not to have their children‘s online activities tracked. If parents took advantage of this option, Facebook would have limited data and access to offer advertisers, compromising its ability to profit from the preteen demographic. Facebook must weigh many risks and potential benefits in deciding whether to open up to tweens. Please use the ethical decision-making framework to answer the following questions: 312. Why do some people feel that Facebook shouldn‘t target children under 13? Do you agree? (Answer: Open-ended as students‘ responses will vary; there are several ethical considerations: Because Facebook is available for everyone, there may be child predators on Facebook that a 13-year-old does not know how to avoid or respond to. 514

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Some of the comments on social media contain inappropriate language, graphics, and videos that an audience under 13 should not be exposed to. Also, brands and politics are using Facebook to share their messages not suited for children under the age of 13.) 313. Despite the current policy, surveys suggest that millions of children under the age of 13 lie about their age and use Facebook. How should Facebook, parents, and children share the responsibility for any adverse consequences the children might experience? Would the risk of such consequences be lessened if Facebook allowed children to have profiles? (Answer: Open-ended as students‘ responses will vary; monitoring devices that are used to access social media should be implemented by parents or guardians, app blockers can be used, and open communication about a family‘s social media policies should be encouraged. The risks may be increased, not lessened, because with permission more kids 13 and under will be on the platform.) 314. What risks, costs, and benefits should Facebook consider in deciding whether to allow preteen users? To what extent should Internet companies be held accountable for children‘s online safety? (Answer: Open-ended as students‘ responses will vary; the biggest risk is the safety and protection of children, followed by legal consequences and the effects of cyberbullying.) Source: See Jordan Roberston, ―Will Facebook Friend Pre-Teens?‖ Bloomberg Businessweek, June 14, 2012, http://www.businessweek.com/articles/2012-06-14/will-facebook-friend-preteens. VIDEO CASE Have students go to Connect to access the video case featuring Marriott that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students position themselves for career success, they can follow these tips. Dr Shane Hunt, Co-Author and Dean in the College of Business Administration at Idaho State University shares three major stages of your life at which successfully positioning yourself will help you have the career you desire. 315. 316. 317.

Positioning yourself during college Positioning yourself as a problem solver Don‘t be afraid to reposition yourself

Review with students: Photo provided by Dr Shane Hunt 515

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How are you positioning yourself as a problem solver? If asked on an interview how you‘ve solved problems, what will you say?

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What things can you do now to best position yourself for a job?

Chapter 7: Segmentation, Targeting, and Positioning

Steve Schaack

Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-128 Explain the importance of and criteria for effective market segmentation. LO 1-129 Describe the bases for segmenting both B2C and B2B markets. LO 1-130 Discuss international segmentation bases and the effect of international market segments on the marketing mix. LO 1-131 Describe the factors and analytics involved in selecting target markets. LO 1-132 Compare the most common target marketing strategies. LO 1-133 Summarize the ethical issues in target marketing. LO 1-134 Explain the three steps of effective market positioning and why firms may choose to use repositioning strategies. KEY TERMS behavioral segmentation demographic segmentation differentiated targeting 80/20 rule geographic segmentation global segmentation 516

lifestyle segmentation market segmentation market segments niche marketing perceptual map positioning

positioning statement psychographic segmentation regional segmentation repositioning target market

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unique segmentation

THOUGHT-PROVOKING ACTIVITY Set 1: How do market segments help us better understand a market? Relate this to an example of a business you know that could use or already uses market segmentation.

Set 2: What are the five criteria for effective market segmentation? Provide an example (beyond a concept/definition) for each.

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The Importance of Market Segmentation  Market segmentation helps organizations navigate the various needs and wants in three major ways  (1) Market segmentation helps firms define the needs and wants of the customers who are most interested in buying the firm’s products  (2) Market segmentation helps firms design specific marketing strategies for the characteristics of specific segments  Using specific marketing strategies for specific segments, firms are able to gain a much larger share of the market segments they target  (3) Market segmentation helps firms decide how to allocate their marketing resources in a way that maximizes profit Criteria for Effective Market Segmentation  Simply dividing a larger group of consumers or businesses into smaller ones serves no purpose, unless doing so improves how the firm markets its goods and services  To be effective, segmentation should create market segments that rate favorably on the following five criteria:  (1) Substantial—the segments must be large enough for the firm to make a profit by serving them  (2) Measurable—the size and purchasing power of the segment should be measurable and clearly identified  (3) Differentiable—dividing the market into segments does no good if all the segments respond the same to different marketing strategies  (4) Accessible—marketers must be able to reach and serve the segment  If the firm lacks the size, financial capital, expertise, or government permits to serve a certain market segment, all of the other criteria are irrelevant  (5) Actionable—marketers should be able to develop strategies that can attract certain market segments to their firm‘s goods and services  A firm should be reasonably certain that its marketing mix can inform consumers about the product, how it adds value to the consumer, and ultimately how to purchase it LO7-2: Describe the bases for segmenting both B2C and B2B markets. Segmentation Bases  Marketers divide markets into segments using segmentation bases, which are characteristics of consumers that influence their buying behavior  These bases help firms develop customer profiles that highlight the similarities within segments and the dissimilarities across segments  There are different segmentation bases for B2C and B2B markets  There are four bases of segmentation: demographic, geographic, psychographic, and behavioral 518

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Figure 7.1 Four Bases of Segmentation INSIGHT QUESTIONS How do marketers use segmentation bases? (Answer: Marketers divide the market into segments based on buying behaviors. These bases help firms develop customer profiles that highlight the similarities within segments and the dissimilarities across segments.) Why is segmentation necessary? (Answer: Marketers who try to be all things to all people typically end up serving no one well. By identifying homogenous groups of people, marketers can target and position their products.) Demographic Segmentation  Companies divide markets using characteristics such as age, gender, income, education, and family size to achieve demographic segmentation  Age and gender are the most commonly used demographic variables because they are often given freely through short surveys  www.census.gov provides marketers with information such as the net worth and asset ownership of households segmented by race, education, age, and occupation Age  Age is an especially valuable segmentation tool in areas such as food, housing, and health care  Older Americans spend significantly more in these areas than younger consumers  The median age for residents of the United States is the highest in the history of the country  Older consumers typically have two things that most of their younger counterparts do not: time and money  Older consumers today want to stay active in retirement and seek out ways to look and feel younger  Research has found that Millennials perceive themselves as particularly in tune with what they consider to be authentic and real  Segmenting by age also enables companies to target multiple age segments with the same product Gender  Marketers are expanding beyond traditional gender segmentation as new trends shift marketing dollars away from male- or female-oriented marketing to try to appeal to multiple genders  Gender segmentation is evolving for younger consumers as well Income  Income provides marketers with a valuable segmentation tool because it affects consumers‘ ability to buy goods and services 519

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Marketers can successfully define the needs and wants of customers at all income levels and design appropriate marketing strategies Marital Status and Family Size  A company might discover that married individuals will pay higher prices than single individuals and promote certain products to that market  It might find that single customers purchase a certain product more frequently than married customers do and market that product to singles  In recent years, the size of families living under one roof has increased: More young adults and students are moving back home, and more adults are taking care of their older parents Geographic Segmentation  The value consumers place on a product can vary greatly by region  Geographic segmentation divides markets into groups such as nations, regions, states, and neighborhoods  Marketers pay special attention to local variations in the types of goods and services offered in different geographic regions Market Size  This type of geographic segmentation requires information about the entire market, beyond just a city or county  The U.S. Census Bureau divides cities and urbanized areas into Metropolitan Statistical Areas (MSAs), which are freestanding areas with a core urban population of at least 50,000 THINK LIKE A MARKETER How does age affect marketing? (Answer: Open ended)

THINK LIKE A MARKETER Provide an example of how information on income helps us in marketing. (Answer: Open ended)

THINK LIKE A MARKETER What things can family size and marital status tell us in marketing? (Answer: Open ended)

Table 7.1 Ten Largest Metropolitan Statistical Areas in the United States INSIGHT 520

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QUESTIONS Which region reports the most MSAs? (Answer: south) What cities does the New York City MSA include? (Answer: New York, Newark, and Jersey City) How can marketers use MSAs? (Answer: The size of a market is an important geographic segmentation tool. Marketers can target their locations to the size of the MSAs in an attempt to reach the volume of consumers they desire.) Customer Convenience  Segmenting by geography also allows marketers to capitalize on convenience to the customer based on geography, consumer behavior, and habits Population Shifts  In the United States, the population is calculated by census every 10 years  The number of members each state has in the U.S. House of Representatives is determined by population, following the census  The 2020 census illustrated a shifting U.S. population: Southern states like Texas and Florida grew substantially  Many northern states, including Ohio, Michigan, and New York, grew at a slower rate, or not at all  Population shifts occur for various reasons: Economic conditions, retirement, and even natural disasters can cause people to move  It is important for marketers to research patterns of consumer movement, to understand where and why consumers are moving because it provides marketers an opportunity to deliver products that meet growing demands Figure 7.2 Number of U.S. House Representative in Each State, Showing States That Gained or Lost Seats Due to Population Shifts in the 2010 Census INSIGHT QUESTIONS Which is the only southern state that lost seats in the House of Representatives? (Answer: Louisiana—because Louisiana‘s largest city, New Orleans, lost 29 percent of its residents in the years following Hurricane Katrina) Why is it important for marketers to research patterns of consumer movement? (Answer: to understand why and where the population shifts are occurring, whether it is 521

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related to economic conditions, retirement, or natural disasters) Psychographic Segmentation  Segmentation that divides markets using demographics, psychology, and personality traits is called psychographic segmentation  Psychographic segmentation allows marketing professionals to create a more meaningful profile of market segments by focusing on psychological and personality traits  When marketers segment based on psychographics, they divide a market into groups according to the reason the consumer made the purchase Lifestyle  Lifestyle segmentation divides people into groups based on their opinions and the interests and activities they pursue

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VALS Network  The most commonly used psychographic segmentation tool is the VALS framework  It classifies U.S. and Canadian adults (aged 18 years and older) into eight psychographic groups on the basis of responses to 34 attitudinal and four demographic questions  The groups are Innovators, Thinkers, Believers, Achievers, Strivers, Experiencers, Makers, and Survivors  VALS measures two dimensions: primary motivation and resources  VALS identifies three primary motivations: ideals, achievement, and self-expression  The availability of resources affects each group‘s ability to act on its primary motivation  Resources determine how the motivation manifests itself  High-resource, achievement-motivated Achievers emulate the groups to which they aspire to belong  Low-resource, achievement-motivated Strivers seek identification with others like them  Marketers use VALS to determine whether, for example, Achievers or Strivers are more likely to buy their product; they then tailor the marketing mix accordingly CONNECT BACK: Reference Connect Assignment 7-1 Why do different countries require different VALS frameworks? (Answer: Different countries require different frameworks because of language and cultural differences.) As a marketer for an international company, how would you use the VALS framework to best position your product? (Answer: Open ended as students‘ responses will vary; consider other available resources with an international market‘s cultural considerations) Behavioral Segmentation  Behavioral segmentation categorizes consumers according to how they behave with or act toward products  Behavioral segmentation variables include occasions (e.g., a wedding or business trip), loyalty, and usage rate  Many firms subscribe to the 80/20 rule, which suggests that 20 percent of heavy users account for 80 percent of the total demand for a product  If firms can identify their heavy users, they are in a better position to create an effective marketing strategy to reach those consumers who contribute most to the firm‘s success  When done well, behavioral segmentation helps marketers clearly understand the benefits sought by different consumer segments  Understanding how changes to marketing-mix strategies affect different types of users enables the firm to evaluate the impact of such changes on sales and revenue  Behavioral segmentation is often the most difficult of the four bases to use 523

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The marketing research required to track and understand how consumers behave with a certain product is very expensive and time-consuming Business-to-Business Segmentation Bases  The three types of B2B segmentation bases are demographic, geographic, and behavioral B2B Demographic Segmentation  The main B2B demographic variables include industry, size of the organization, and ownership structure  The size of the organization is a critical variable because organizations of different sizes often have different needs and wants  Large organizations might have more complex buying processes that might require more salespeople compared to a small business  Ownership structure can influence marketing decisions—a privately held firm might have fewer layers of management and be able to make decisions more quickly B2B Geographic Segmentation  B2B geographic variables are similar to consumer variables and include things like country, region, state, and climate  Allows marketers to group B2B customers by geography-related needs or headquarters location; it can help B2B marketers allocate resources to the parts of the country or the world with the highest concentration of economic- or climate-driven need B2B Behavioral Segmentation  Might be the most beneficial variable to B2B marketers: It enables them to segment based on purchasing patterns, supplier requirements, and technological orientation  Purchasing patterns, such as the time of year contracts come up for bid, can be helpful in the segmentation process  Supplier requirements, which include things like whether the supplier has e-commerce functionality, can help marketers determine which segments‘ capabilities and technological orientation make them attractive The Role of Social in Market Segmentation  Social media can be especially effective in market segmentation strategies  If they can segment the market by those who are active on social media, companies can, at minimal expense, expand their outreach  Individualized social media platforms such as Facebook, Instagram, and TikTok enable companies to engage and interact personally with a larger and more diverse consumer base  Social media are, by their very nature, all about sharing personal behaviors, tastes, activities, desires, and connections  Questions remain as to exactly how to engage consumers on social networking sites and, more importantly, whom to engage  LinkedIn allows firms to segment by industry, company size, and function 524

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As social media develop and new platforms emerge, both B2C and B2B marketers will have increasing opportunities to use these powerful tools in market segmentation

THINK LIKE A MARKETER What types of content do you see organizations posting on social media? Do you find it engaging? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 7-2 What are ways a marketer can segment a market? (Answer: age, gender, geographic location, etc.) How can social media reach consumers more effectively and efficiently? (Answer: Open ended as students‘ responses will vary; by understanding customers‘ behaviors and preferences, marketers can segment customers in order to customize messages that will appeal to them.) In what specific ways can social media target different consumers? (Answer: Open ended as students‘ responses will vary; by using targeted hashtags, creating a conversation with a comment or picture posted, etc.) LO7-3: Discuss international segmentation bases and the effect of international market segments on the marketing mix. International Market Segmentation  International market segmentation is a costly exercise, and often a very difficult one  Accessing demographic, geographic, psychographic, and behavioral information for international markets can be challenging  Even demographic information, which is typically the easiest to acquire, may be slow in coming or completely unavailable  Not all countries collect or classify their data in the same way  Data differences make it all but impossible to compare characteristics across nations  Even if marketing professionals obtain the information they seek, each nation and region has its own unique features that make establishing quality market segments problematic  By identifying such segments, marketers can apply marketing research findings from one market to the rest of the segment

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International Segmentation Bases  Firms typically segment international markets using three general bases: global, regional, and unique  Global segmentation identifies a group of consumers with common needs and wants that spans the entire globe  Regional segmentation divides consumers into groups whose needs and wants extend across the region or several countries  Unique segmentation identifies a group of consumers with similar needs and wants only within one country  All three types of segments offer potential profits depending on how consumers within the segment respond to the marketing mix International Market Segments and the Marketing Mix  Companies can use international market segments to group together countries with market conditions that are materially the same in relation to the company‘s product  A marketing-mix strategy that works well in one market may be successful for other markets in the same segment and is able to standardize the marketing mix across segments  Marketers must also be mindful of the limits of international segmentation  Some countries place a higher tariff on goods sold by foreign companies  Those tariffs may make product pricing in those markets less competitive than in other markets  In response, the firm may need to revise its marketing strategy and marketing mix in those countries advertising regulations and preferences vary substantially  Marketers in the United States and throughout the world can use a single segmentation base to divide the marketplace, or they can use multiple segmentation bases to provide a more complete picture of the consumers within each segment  Segmentation should meet the five important effectiveness criteria discussed earlier to produce market segments that are substantial (large enough for the firm to make a profit), measurable, differentiable (responsive to different marketing strategies), accessible, and actionable (able to be clearly accomplished) LO7-4: Describe the factors and analytics involved in selecting target markets. Selecting Target Markets  Targeting occurs when marketers evaluate each market segment and determine which segments present the most attractive opportunity to maximize sales  The segments selected are the firm‘s target markets  A target market is the group of customers toward which an organization has decided to direct its marketing efforts

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Factors in Selecting Target Markets  Firms should consider three important factors during the targeting process: growth potential, level of competition, and strategic fit Growth Potential  Typically, the higher the future growth rate, the more attractive the segment is  The COVID-19 pandemic accelerated the trend of consumers spending on their pets and led to a boom in the pet business—marketers have increasing opportunities in this market for growth Level of Competition  The more intense the competition within a segment, the less attractive it is to marketers  Competitors will fight extremely hard to prevent market share loss, and the potential for price wars can negatively impact success  Generally, more competitors means a firm has to work harder and invest more in promotion to earn business and increase market share  When considering two market segments in which other factors, such as size and growth potential, are constant, the one with a less-competitive environment is more attractive Strategic Fit  Marketers should work to ensure that the target markets selected fit with what the organization is and wants to be, as defined in its mission statement  The SWOT analysis provides an excellent framework to determine whether a firm will be successful targeting a specific segment  Regardless of how clever and innovative a firm‘s marketing mix may be, if the strategic fit is wrong, the product will fail Target Marketing Analytics  The more marketers understand the targeted market segment, the better able they will be to make those decisions  Marketing analytics can provide detailed data, such as gender, age, and lifestyle interests, of target markets  Tools such as Google Analytics help marketers identify the demographics of valuable and potentially valuable customers  For an e-commerce site, Google Analytics can help identify segments with the highest ecommerce revenue  For a content-focused site, analytics tools help identify market segments with the highest engagement  The age, gender, and lifestyle interest reports in Google Analytics all include engagement and conversion metrics  Marketers can start from any of these reports to build a picture of high-value customers to target in B2C, B2B, or nonprofit organizations

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Marketing Analytics INSIGHT QUESTIONS The more marketers understand the targeted market segment, the better able they will be to make decisions on what kinds of products to develop. Explain this. (Answer: Open ended as students‘ responses will vary; detailed data, such as gender, age, and lifestyle interests of target markets, can be analyzed to create products consumers are more likely willing and able to buy.) What tools are available to help marketers identify the demographics of valuable and potentially valuable customers? (Answer: Open ended as students‘ responses will vary; Google Analytics, social media dashboards, software like Hootsuite that produce analytical reports) LO7-5: Compare the most common target marketing strategies. Target Marketing Strategies  The marketing department spends a great deal of time deciding which market segments are best to target  Once it has made that decision, the firm must develop a strategy for reaching those segments  The three basic strategies for targeting markets include undifferentiated targeting, differentiated targeting, and niche marketing Undifferentiated Targeting  An undifferentiated targeting strategy approaches the marketplace as one large segment  The major advantage of this type of mass-marketing strategy is the potential savings in developing and marketing the product  Because the firm doesn‘t segment the market further, it can approach all consumers with the same product offering and marketing mix  Undifferentiated targeting works best with uniform products for which the firm can develop a single marketing mix that satisfies the needs and wants of all customers  Only a limited number of products fall into this category Differentiated Targeting  Differentiated targeting occurs when an organization simultaneously pursues several different market segments, usually with a different customized strategy for each  Firms that market a core product to multiple regions with different preferences often use differentiated target marketing  In such cases, the firm may adjust the product to ensure that it meets a need unique to each segment  A firm marketing to a region outside the United States may also need to use differentiated targeting Niche Marketing 528

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Niche marketing involves targeting a large share of a small market segment. Firms that do niche marketing offer a unique product or specialization that is desirable to their targeted customers  Consumers of niche marketing products typically have very specialized needs and will pay higher prices to meet those needs  There can be multiple niche markets within the same product category LO7-6: Summarize the ethical issues in target marketing. Ethical Issues in Target Marketing  Regardless of what target marketing strategy firms use, they must keep in mind ethical concerns about targeting certain market segments  Segments of particular concern are children and older adults  The tween segment accounts for over $51 billion in direct consumer purchases; it significantly influences another $170 billion spent by parents and family members  With those sales dollars as the incentive, firms began to adjust the target age for their products downward, marketing to tweens products like makeup and trendy clothing that had always been considered more appropriate for teenagers  An analysis of popular online children‘s retailers showed that almost 30 percent of children‘s clothes have sexualized characteristics; the highest proportion of sexualized clothing came from stores aimed at tweens  A product called a reverse mortgage allows older homeowners to tap into the equity of their home and receive payments against its value  As traditional real estate sales have struggled since the collapse of the housing market in 2007, reverse mortgage loans have become more widely used  Marketing of reverse mortgages has helped older adults access the equity in their home and ―age in place‖ and avoid retirement housing  It also has raised ethical questions from legislators and other stakeholders; they worry that this type of target marketing is potentially taking advantage of desperate older adults who may not fully understand what a reverse mortgage is or the associated upfront fees and costs  Marketers should consider the ethical implications of any target marketing strategies they implement and give particular consideration to whether certain segments might need extra protection

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THINK LIKE A MARKETER Is it ethical to specifically target these groups: children, nonnative language speakers, and older adults? (Consider yourself the marketing director for a brand charged with this as the target market.) (Answer: Open ended) TODAY’S PROFESSIONAL NOTES Darrious Duffin, Sales Operations Analyst, Ritter Communications What kinds of internships would you like to look into? What sets you apart from others? LO7-7: Explain the three steps of effective market positioning and why firms may choose to use repositioning strategies. Market Positioning  Positioning consists of the activities a firm undertakes to create a certain perception of its product in the eyes of the target market  Positioning often takes into account the identity of the organization and where it fits relative to the competition  Successful positioning involves all of the marketing mix elements (price, product, place, and promotion) Steps in Market Positioning  Marketers should follow three major steps to decide how to best position their product: (1) analyze competitors‘ positions, (2) clearly define your competitive advantage, and (3) evaluate feedback Step 1: Analyze Competitors’ Positions  Competitive analysis becomes even more important when competitors appear to offer a similar good or service  A perceptual map provides a valuable tool for understanding competitors‘ positions in the marketplace  A perceptual map creates a visual picture of product locations in consumers‘ minds  It uses horizontal and vertical axes that reflect key elements of competitors‘ offerings  Marketers can develop a perceptual map based on marketing research or from their knowledge about a specific market

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Figure 7.3 Sample Perceptual Map for Cell Phone Carriers INSIGHT QUESTIONS How do marketers use perceptual maps? (Answer: Perceptual maps provide guidance on potential market positions to better understand the competition within a marketplace. They visually depict an underserved market, direct/indirect competition, gaps, and opportunities—all of which can be based on market research or a firm‘s knowledge about a specific market.) What does the perceptual map for cell phone carriers show? (Answer: Open ended as students‘ responses will vary; one of the reasons wireless provider TMobile decided to promote new service plans that did not require an annual contract in 2013. In doing so, T-Mobile became the only major wireless provider occupying the position of offering nationwide coverage to consumers purchasing an iPhone or Android device with no contract required.) Step 2: Clearly Define Your Competitive Advantage  Great marketers know that consumers must have a clear answer to the question, ―Why should I buy this product?‖  A number of positioning strategies are available to highlight a firm‘s competitive advantage:  Price–quality relationship—Customers are often attracted to firms that offer them the same product quality as other stores, but at a more affordable price  Attributes—Often, a product will have multiple attributes that create a unique position in the market  Marketers should evaluate those attributes that put its product in a special category of value to the customer  Successful attributes might include leadership, heritage, product manufacturing process, or the coolness factor  Application—A product can have success because of the competitive advantage it has when it comes to the application and use of the product  Firms can choose to promote one or multiple competitive advantages, as long as they can clearly articulate those advantages to their target market Step 3: Evaluate Feedback  The third step in market positioning is constantly evaluating consumer feedback  Just as fashion styles change, consumer tastes for almost everything, including cars, food, and even educational learning formats, change CONNECT BACK: Reference Connect Assignment 7-3 Identify the steps in the market positioning process. Which steps are the most critical? (Answer: Step 1—analyze the competitors‘ positions, Step 2—clearly define your competitive 531

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advantage, Step 3—evaluate feedback; all three are necessary and critical, though emphasis may be placed on one relative to the present competitive marketplace.) What decisions are made at each step in the market positioning process? (Answer: Step 1—realistically considering how customers perceive your brand/product to other may require revisiting the marketing mix in more competitive ways, Step 2— establishing a USP with why consumers should buy a product, Step 3—accommodating environmental factors that change the marketing mix) Positioning Statement  Once a firm has completed the steps to decide how best to position its product, the hard part begins: The firm must determine how to succinctly communicate the market position it has chosen, first to its own organization and then to the world  A positioning statement consists of a succinct description of the core target market to which a product is directed and a compelling picture of how the firm wants that core market to view the product  A successful positioning statement should clearly reflect the steps of the positioning process, including the competitive advantages of the product  A succinct statement enhances the likelihood that stakeholders and consumers will understand the desired message  A firm‘s positioning statement can be used as part of an external marketing strategy  Smart marketers realize that positioning doesn‘t occur just when launching new products; it is an ongoing process Repositioning  Marketers have to change and adapt their strategies if they want to continue to reach their target market  Repositioning involves reestablishing a product‘s position in response to changes in the marketplace Repositioning and the Marketing Mix  Repositioning typically involves changing one or more marketing-mix elements, often product or promotion Repositioning the Competition  Sometimes, marketers choose to reposition the competition rather than change their own position  This type of repositioning strategy is also common in political marketing: Strategists look to define their opponent negatively without changing their own candidate‘s positions MARKETING PLAN EXERCISE

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In this chapter, you read about the importance of targeting specific segments and developing a positioning strategy that appeals to those segments. Your assignment for this chapter is to apply these critical concepts to your marketing plan. First, refer back to the career objectives (what company you want to work for or what graduate school you want to attend) that you have already developed. Next, think about and clearly articulate how you will position yourself for your target market. There are a limited number of openings for good jobs and quality graduate schools. To maximize your chances of success, you must plan ahead and use the marketing strategies you have learned to position yourself properly in a very competitive environment. You should ask yourself questions such as:  

POSITIONING MYSELF

Chapter 7: Segmentation, Targeting, and Positioning

Steve Schaack

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-135 Explain the importance of and criteria for effective market segmentation. 533

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LO 1-136 Describe the bases for segmenting both B2C and B2B markets. LO 1-137 Discuss international segmentation bases and the effect of international market segments on the marketing mix. LO 1-138 Describe the factors and analytics involved in selecting target markets. LO 1-139 Compare the most common target marketing strategies. LO 1-140 Summarize the ethical issues in target marketing. LO 1-141 Explain the three steps of effective market positioning and why firms may choose to use repositioning strategies. KEY TERMS behavioral segmentation demographic segmentation differentiated targeting 80/20 rule geographic segmentation global segmentation lifestyle segmentation market segmentation

market segments niche marketing perceptual map positioning positioning statement psychographic segmentation regional segmentation

repositioning target market targeting undifferentiated targeting unique segmentation

THOUGHT-PROVOKING ACTIVITY Set 1: How do market segments help us better understand a market? Relate this to an example of a business you know that could use or already uses market segmentation.

Set 2: What are the five criteria for effective market segmentation? Provide an example (beyond a concept/definition) for each.

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What does leadership look like for you? What three words represent you, and how will you market yourself with those words? LO7-1: Explain the importance of and criteria for effective market segmentation. Market Segmentation  Marketers who try to be all things to all people typically end up serving no one well  _ is the process of dividing a larger market into smaller groups, or market segments, based on meaningfully shared characteristics  _ are the relatively homogeneous groups of consumers that result from the segmentation process  There are 7.8 billion people in the world with different needs and wants who are impossible to attract with a single _ The Importance of Market Segmentation  Market segmentation helps organizations navigate the various needs and wants in three major ways:  (1) Market segmentation helps firms define the _ and _ of the customers who are most interested in buying the firm’s products  (2) Market segmentation helps firms design _ for the characteristics of specific segments  Using _ marketing strategies for specific segments, firms are able to gain a much larger share of the market segments they target  (3) Market segmentation helps firms decide how to allocate their _ in a way that maximizes profit Criteria for Effective Market Segmentation  Simply dividing a larger group of consumers or businesses into smaller ones serves no purpose, unless doing so improves how the firm markets its _ and _  To be effective, segmentation should create market segments that rate favorably on the following five criteria:  (1) _ —the segments must be large enough for the firm to make a profit by serving them  (2) _ —the size and purchasing power of the segment should be measurable and clearly identified  (3) _ —dividing the market into segments does no good if all the segments respond the same to different marketing strategies  (4) _ —marketers must be able to reach and serve the segment 535 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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If the firm lacks the size, financial capital, expertise, or government permits to serve a certain market segment, all of the other criteria are irrelevant  (5) _ —marketers should be able to develop strategies that can attract certain market segments to their firm‘s goods and services  A firm should be reasonably certain that its _ can inform consumers about the product, how it adds value to the consumer, and ultimately how to purchase it LO7-2: Describe the bases for segmenting both B2C and B2B markets. Segmentation Bases  Marketers divide markets into segments using _ which are characteristics of consumers that influence their buying behavior  These bases help firms develop customer _ that highlight the similarities within segments and the dissimilarities across segments  There are different segmentation bases for B2C and B2B markets  There are four bases of segmentation: demographic, _ , psychographic, and _ Figure 7.1 Four Bases of Segmentation INSIGHT QUESTIONS How do marketers use segmentation bases?

Why is segmentation necessary?

Demographic Segmentation  Companies divide markets using characteristics such as age, gender, income, education, and family size to achieve _  Age and _ are the most commonly used demographic variables because they are often given freely through short surveys  www.census.gov provides marketers with information such as the net worth and asset ownership of households segmented by _ , education, age, and _ Age  Age is an especially valuable segmentation tool in areas such as food, _ , and _  Older Americans spend significantly _ in these areas than younger consumers 536 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The median age for residents of the United States is the highest in the history of the country Older consumers typically have two things that most of their younger counterparts do not: _ and _  Older consumers today want to stay _ and seek out ways to look and feel younger  Research has found that _ perceive themselves as particularly in tune with what they consider to be authentic and _  Segmenting by _ also enables companies to target multiple age segments with the same product Gender  Marketers are expanding beyond traditional gender segmentation as new trends shift marketing dollars away from male- or female-oriented marketing, to try to appeal to _  Gender segmentation is evolving for _ consumers as well Income  _ provides marketers with a valuable segmentation tool because it affects consumers‘ ability to buy goods and services  Marketers can successfully define the needs and wants of customers at all income levels and design appropriate _

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Marital Status and Family Size  A company might discover that _ individuals will pay higher prices than single individuals and promote certain products to that market  It might find that _ customers purchase a certain product more frequently than married customers do and market that product to singles  In recent years, the size of families living under one roof has increased: More young adults and students are moving back home, and more adults are _ Geographic Segmentation  The value consumers place on a product can vary greatly by _  _ divides markets into groups such as nations, regions, states, and neighborhoods  Marketers pay special attention to _ in the types of goods and services offered in different geographic regions Market Size  This type of geographic segmentation requires information about the entire market, beyond just a _ or _  The U.S. Census Bureau divides cities and urbanized areas into _ (MSAs), which are freestanding areas with a core urban population of at least 50,000 THINK LIKE A MARKETER How does age affect marketing?

THINK LIKE A MARKETER Provide an example of how information on income helps us in marketing.

THINK LIKE A MARKETER What things can family size and marital status tell us in marketing?

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Instructor‘s Manual - Chapter 1

Hunt/Mello/Deitz: Marketing 4e

Table 7.1 Ten Largest Metropolitan Statistical Areas in the United States INSIGHT QUESTIONS Which region reports the most MSAs?

What cities does the New York City MSA include?

How can marketers use MSAs?

Customer Convenience  Segmenting by _ also allows marketers to capitalize on convenience to the customer based on geography, consumer behavior, and habits Population Shifts  In the United States, the population is calculated by census every _ years  The number of members each state has in the U.S. House of Representatives is determined by _ , following the _  The 2020 census illustrated a shifting U.S. population: Southern states like _ and _ grew substantially  Many northern states, including Ohio, Michigan, and New York, grew at a _ rate, or not at all  Population shifts occur for various reasons: _ , retirement, and even natural disasters can cause people to move  It is important for marketers to research patterns of _ , to understand where and why consumers are moving because it provides marketers an opportunity to deliver products that meet growing demands Figure 7.2 Number of U.S. House Representative in Each State, Showing States That Gained or Lost Seats Due to Population Shifts in the 2010 Census INSIGHT QUESTIONS Which is the only southern state that lost seats in the House of Representatives?

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Why is it important for marketers to research patterns of consumer movement?

Psychographic Segmentation  Segmentation that divides markets using demographics, psychology, and personality traits is called _  Psychographic segmentation allows marketing professionals to create a more meaningful profile of market segments by focusing on _ and _  When marketers segment based on psychographics, they divide a market into groups according to the reason the _ Lifestyle  _ divides people into groups based on their opinions and the interests and activities they pursue VALS Network  The most commonly used psychographic segmentation tool is the _  It classifies U.S. and Canadian adults (aged 18 years and older) into eight _ , on the basis of responses to 34 _ and four _  The groups are Innovators, _ , Believers, Achievers, _ , Experiencers, _ , and _  VALS measures two dimensions: _ and _  VALS identifies three primary motivations: _ , achievement, and _  The availability of resources affects each group‘s ability to act on its _  Resources determine how the motivation _  _ , achievement-motivated Achievers emulate the groups to which they aspire to belong  _ , achievement-motivated Strivers seek identification with others like them  Marketers use VALS to determine whether, for example, Achievers or Strivers are more likely to _ ; they then tailor the marketing mix accordingly 541 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Instructor‘s Manual - Chapter 1

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CONNECT BACK: Reference Connect Assignment 7-1 Why do different countries require different VALS frameworks?

As a marketer for an international company, how would you use the VALS framework to best position your product?

Behavioral Segmentation  _ categorizes consumers according to how they behave with or act toward products  Behavioral segmentation variables include _ (e.g., a wedding or business trip), loyalty, and _  Many firms subscribe to the _ , which suggests that 20 percent of heavy users account for 80 percent of the total demand for a product  If firms can identify its _ , they are in a better position to create an effective marketing strategy to reach those consumers who contribute most to the firm‘s success  When done well, behavioral segmentation helps marketers clearly understand the _ sought by different consumer segments  Understanding how changes to marketing-mix strategies affect different types of users enables the firm to evaluate the impact of such changes on _ and _  _ is often the most difficult of the four bases to use  The marketing research required to track and understand how consumers behave with a certain product is very expensive and _ Business-to-Business Segmentation Bases  The three types of B2B segmentation bases are demographic, geographic, and _ B2B Demographic Segmentation  The main B2B demographic variables include industry, _ , and ownership structure  The size of the organization is a critical variable because organizations of different sizes often have different _ and _

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Large organizations might have more complex _ that might require more salespeople compared to a small business  _ can influence marketing decisions—a privately held firm might have fewer layers of management and be able to make decisions more quickly B2B Geographic Segmentation  B2B geographic variables are similar to consumer variables and include things like country, region, state, and _  Allows marketers to group B2B customers by geography-related needs or headquarters location; it can help B2B marketers allocate resources to the parts of the country or the world with the highest concentration of _ - or climate-driven need B2B Behavioral Segmentation  Might be the most beneficial variable to B2B marketers: It enables them to segment based on purchasing patterns, supplier requirements, and _  _ , such as the time of year contracts come up for bid, can be helpful in the segmentation process  _ , which include things like whether the supplier has e-commerce functionality, can help marketers determine which segments‘ capabilities and technological orientation make them attractive The Role of Social in Market Segmentation  _ can be especially effective in market segmentation strategies  If they can segment the market by those who are active on social media, companies can, at minimal expense, _  Individualized social media platforms such as Facebook, Instagram, and TikTok enable companies to engage and interact personally with a larger and more diverse _  Social media are, by their very nature, all about sharing personal behaviors, _ , activities, desires, and _  Questions remain as to exactly how to engage consumers on social networking sites and, more importantly, _  LinkedIn allows firms to segment by industry, company size, and _  As social media develop and new platforms emerge, both B2C and B2B marketers will have increasing opportunities to use these powerful tools in market segmentation

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THINK LIKE A MARKETER What types of content do you see organizations posting on social media? Do you find it engaging?

CONNECT BACK: Reference Connect Assignment 7-2 What are ways a marketer can segment a market?

How can social media reach consumers more effectively and efficiently?

In what specific ways can social media target different consumers?

LO7-3: Discuss international segmentation bases and the effect of international market segments on the marketing mix. International Market Segmentation  International market segmentation is a _ exercise, and often a very difficult one  Accessing demographic, geographic, psychographic, and behavioral information for international markets can be challenging  Even demographic information, which is typically the easiest to acquire, may be slow in coming or completely unavailable  Not all countries _ or _ their data in the same way  _ make it all but impossible to compare characteristics across nations  Even if marketing professionals obtain the information they seek, each nation and region has its own unique features that make establishing quality market segments problematic  By identifying such segments, marketers can apply marketing research findings from _ to the rest of the segment 545 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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International Segmentation Bases  Firms typically segment international markets using three general bases: global, regional, and unique  _ identifies a group of consumers with common needs and wants that spans the entire globe  _ divides consumers into groups whose needs and wants extend across the region or several countries  _ identifies a group of consumers with similar needs and wants only within one country  All three types of segments offer potential profits depending on how consumers within the segment respond to the marketing mix International Market Segments and the Marketing Mix  Companies can use international market segments to group together countries with market conditions that are materially the same in relation to the company‘s _  A_ that works well in one market may be successful for other markets in the same segment and is able to standardize the marketing mix across segments  Marketers must also be mindful of the _ of international segmentation  Some countries place a higher _ on goods sold by foreign companies  Those tariffs may make product pricing in those markets less competitive than in other markets  In response, the firm may need to revise its marketing strategy and marketing mix in those countries _ and _ vary substantially  Marketers in the United States and throughout the world can use a _ to divide the marketplace, or they can use multiple segmentation bases to provide a more complete picture of the consumers within each segment  Segmentation should meet the five important effectiveness criteria discussed earlier to produce market segments that are _ (large enough for the firm to make a profit), measurable, differentiable (responsive to different marketing strategies), _ , and _ (able to be clearly accomplished) LO7-4: Describe the factors and analytics involved in selecting target markets. Selecting Target Markets  _ occurs when marketers evaluate each market segment and determine which segments present the most attractive opportunity to maximize sales  The segments selected are the firm‘s target markets

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A_ is the group of customers toward which an organization has decided to direct its marketing efforts Factors in Selecting Target Markets  Firms should consider three important factors during the targeting process: _ , level of competition, and _ Growth Potential  Typically, the _ , the more attractive the segment is  The COVID-19 pandemic accelerated the trend of consumers spending on their pets and led to a boom in the pet business—marketers have increasing opportunities in this market for _ Level of Competition  The _ intense the competition within a segment, the _ attractive it is to marketers  Competitors will fight extremely hard to prevent _ , and the potential for price wars can negatively impact success  Generally, more competitors means a firm has to _ and invest more in promotion to earn business and increase market share  When considering two market segments in which other factors, such as _ and growth potential, are constant, the one with a less-competitive environment is more attractive Strategic Fit  Marketers should work to ensure that the target markets selected fit with what the organization is and wants to be, as defined in its _  The _ provides an excellent framework to determine whether a firm will be successful targeting a specific segment  Regardless of how clever and innovative a firm‘s marketing mix may be, if the _ is wrong, the product will fail Target Marketing Analytics  The more marketers understand the _ , the better able they will be to make those decisions  _ can provide detailed data, such as gender, age, and lifestyle interests, of target markets  Tools such as _ help marketers identify the demographics of valuable and potentially valuable customers  For an _ site, Google Analytics can help identify segments with the highest e-commerce revenue 547 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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For a _ site, analytics tools help identify market segments with the highest engagement The age, gender, and lifestyle interest reports in Google Analytics all include engagement and _ Marketers can start from any of these reports to build a picture of _ customers to target in B2C, B2B, or nonprofit organizations

Marketing Analytics INSIGHT QUESTIONS The more marketers understand the targeted market segment, the better able they will be to make decisions on what kinds of products to develop. Explain this.

What tools are available to help marketers identify the demographics of valuable and potentially valuable customers?

LO7-5: Compare the most common target marketing strategies. Target Marketing Strategies  The marketing department spends a great deal of time deciding which market segments are best to _  Once it has made that decision, the firm must develop a _ for reaching those segments  The three basic strategies for targeting markets include _ , differentiated targeting, and _ Undifferentiated Targeting  An _ strategy approaches the marketplace as one large segment  The major advantage of this type of _ strategy is the potential savings in developing and marketing the product  Because the firm doesn‘t segment the market further, it can approach all consumers with the same product offering and marketing mix  _ works best with uniform products for which the firm can develop a single marketing mix that satisfies the needs and wants of all customers  Only a limited number of products fall into this category Differentiated Targeting 548 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ occurs when an organization simultaneously pursues several different market segments, usually with a different customized strategy for each  Firms that market a core product to multiple regions with different preferences often use differentiated target marketing  In such cases, the firm may adjust the _ to ensure that it meets a need unique to each segment  A firm marketing to a region outside the United States may also need to use _ Niche Marketing  _ involves targeting a large share of a small market segment. Firms that do niche marketing offer a unique product or specialization that is desirable to their targeted customers  Consumers of niche marketing products typically have very specialized needs and will pay _ to meet those needs  There can be multiple niche markets within the same product category LO7-6: Summarize the ethical issues in target marketing. Ethical Issues in Target Marketing  Regardless of what target marketing strategy firms use, they must keep in mind _ about targeting certain market segments  Segments of particular concern are _ and older adults  The tween segment accounts for over $_ billion in direct consumer purchases; it significantly influences another $_ billion spent by parents and family members  With those sales dollars as the incentive, firms began to adjust the target age for their products downward, marketing to tweens products like makeup and trendy clothing that had always been considered more appropriate for _  An analysis of popular online children‘s retailers showed that almost _ percent of children‘s clothes have sexualized characteristics; the highest proportion of sexualized clothing came from stores aimed at _  A product called a _ allows older homeowners to tap into the equity of their home and receive payments against its value  As traditional real estate sales have struggled since the _ in 2007, reverse mortgage loans have become more widely used  Marketing of reverse mortgages has helped older adults access the equity in their home and ―age in place‖ and avoid _  It also has raised ethical questions from legislators and other stakeholders; they worry that this type of target marketing is potentially taking advantage of desperate older adults who may not fully understand what a reverse mortgage is or the associated up-front fees and costs 549 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Marketers should consider the ethical implications of any target marketing strategies they implement and give particular consideration to whether certain segments might need _

TODAY’S PROFESSIONAL NOTES Darrious Duffin, Sales Operations Analyst, Ritter Communications What kinds of internships would you like to look into? What sets you apart from others?

LO7-7: Explain the three steps of effective market positioning and why firms may choose to use repositioning strategies. Market Positioning  _ consists of the activities a firm undertakes to create a certain perception of its product in the eyes of the target market  Positioning often takes into account the identity of the organization and where it fits relative to the competition  Successful positioning involves all of the _ elements (price, product, place, and promotion)

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Steps in Market Positioning  Marketers should follow three major steps to decide how to best position their product: (1) analyze competitors‘ positions, (2) clearly define your competitive advantage, and (3) _ Step 1: Analyze Competitors’ Positions  _ becomes even more important when competitors appear to offer a similar good or service  A_ provides a valuable tool for understanding competitors‘ positions in the marketplace  A perceptual map creates a visual picture of _ in consumers‘ minds  It uses horizontal and vertical axes that reflect key elements of competitors‘ _  Marketers can develop a perceptual map based on _ or from their knowledge about a specific market Figure 7.3 Sample Perceptual Map for Cell Phone Carriers INSIGHT QUESTIONS How do marketers use perceptual maps?

What does the perceptual map for cell phone carriers show?

Step 2: Clearly Define Your Competitive Advantage  Great marketers know that consumers must have a clear answer to the question, ―_ ?‖  A number of positioning strategies are available to highlight a firm‘s _ :  _ —customers are often attracted to firms that offer them the same product quality as other stores, but at a more affordable price  _ —often, a product will have multiple attributes that create a unique position in the market  Marketers should evaluate those attributes that put its product in a special category of value to the customer

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Successful attributes might include leadership, heritage, product manufacturing process, or the coolness factor  _ —a product can have success because of the competitive advantage it has when it comes to the application and use of the product  Firms can choose to promote one or multiple competitive advantages, as long as they can clearly articulate those advantages to their _ Step 3: Evaluate Feedback  The third step in market positioning is constantly evaluating _  Just as fashion styles change, consumer tastes for almost everything, including cars, food, and even educational learning formats, change CONNECT BACK: Reference Connect Assignment 7-3 Identify the steps in the market positioning process. Which steps are the most critical?

What decisions are made at each step in the market positioning process?

Positioning Statement  Once a firm has completed the steps to decide how best to position its product, the hard part begins: The firm must determine how to succinctly communicate the _ it has chosen, first to its own organization and then to the world  A_ consists of a succinct description of the core target market to which a product is directed and a compelling picture of how the firm wants that core market to view the product  A successful positioning statement should clearly reflect the steps of the positioning process, including the _ of the product  A succinct statement enhances the likelihood that stakeholders and consumers will understand the desired message  A firm‘s positioning statement can be used as part of an external _  Smart marketers realize that positioning doesn‘t occur just when _ new products; it is an ongoing process

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Repositioning  Marketers have to change and adapt their strategies if they want to continue to reach their target market  _ involves reestablishing a product‘s position in response to changes in the marketplace Repositioning and the Marketing Mix  Repositioning typically involves changing one or more marketing-mix elements, often product or _ Repositioning the Competition  Sometimes, marketers choose to _ the competition rather than change their own position  This type of repositioning strategy is also common in _ marketing: Strategists look to define their opponent negatively without changing their own candidate‘s positions MARKETING PLAN EXERCISE In this chapter, you read about the importance of targeting specific segments and developing a positioning strategy that appeals to those segments. Your assignment for this chapter is to apply these critical concepts to your marketing plan. First, refer back to the career objectives (what company you want to work for or what graduate school you want to attend) that you have already developed. Next, think about and clearly articulate how you will position yourself for your target market. There are a limited number of openings for good jobs and quality graduate schools. To maximize your chances of success, you must plan ahead and use the marketing strategies you have learned to position yourself properly in a very competitive environment. You should ask yourself questions such as:  

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POSITIONING MYSELF

Chapter 8: Promotional Strategies

Erik Isakson/Blend Images

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LO 1-147 Describe metrics that measure the effectiveness of an organization's promotional strategy. LO 1-148 Summarize the promotion-mix budgeting strategies. KEY TERMS advertising mobile advertising public relations advertising campaign narrowcasting publicity affordable method objective-and-task method reach aided recall tests percentage-of-sales rebates allowances method recognition test contests personal selling relationship selling coupons persuasive advertising reminder advertising direct marketing posttest revenue per ad dollar frequency premium sales promotion informative advertising pretest sweepstakes integrated marketing product placement trade sales promotions communications (IMC) promotion unaided recall test loyalty programs promotion mix THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What are the four major areas of the promotional mix? Using your phone, tablet, or computer, pull up a recent example of one of these initiatives. Be able to discuss the details. Set 2: In an advertising campaign, the message or strategy is either to inform/educate, persuade, or remind. Provide an example of a campaign that does one of each.

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES and TABLES as visuals to elaborate on key areas, KEY TERMS learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT 555 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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activities can be used, as well as tying in SOCIAL MEDIA IN ACTION to real-world applications of marketing products. This is created so that you can facilitate in-class or online discussion effectively. Executive Perspective

Anderson Childress Treasury Manager, PayPal Personal selling is something Anderson Childress is passionate about. He attributes his success to hard work and taking advantage of learning opportunities. Anderson provides insight in answering the following questions: 318. What has been the most important thing in making you successful at your job? 319. What advice would you give soon-to-be graduates? 320. How is marketing relevant to your role at PayPal? 321. What do you consider your personal brand to be?

Photo provided by Anderson Childress

Woven in the chapter, you see how Anderson later elaborates on:  What is most important to communicate to customers? Review with students:  

How is marketing relevant in his role? What skills have you developed or mastered in preparation for graduation? LO 8-1 Describe the elements of the Key Terms: promotion mix and how they  Promotion relate to an integrated  Promotion mix marketing communications  Integrated marketing communications (IMC) strategy.  Promotion Mix  Elements of the Promotion Mix  Integrated Marketing Communications  Finding the Optimal Promotion Mix PowerPoint Slides Lecture Notes: Promotion Mix   556

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The promotion mix consists of four main elements of marketing communication: advertising, sales promotion, personal selling, and public relations

Figure 8.1

Insight Questions:

Figure Information: Elements of the Promotion Mix

322. How do the promotion mix elements work together? (Answer: Open ended as students‘ responses will vary; an integrated communications solution involving multiple elements of the promotion mix allows a firm to effectively create and develop relationships with customers. Profitability results in each component executed successfully.) 323. For the promotion mix elements to work together, which departments must work together? Why is this necessary? (Answer: Open ended as students‘ responses will vary; all departments must work together for the organization to be consistent in executing all components of the marketing mix. The whole promotion mix exceeds the sum of the individual elements— referencing the Gestalt theory.)

Each element of the promotion mix represents a different way for the organization to communicate with its customers. The promotion mix is comprised of four elements: advertising, sales promotion, personal selling, and public relations. Each element has its own promotional tools. PowerPoint Slides

Lecture Notes: Elements of the Promotion Mix   

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Each element represents a different way for the organization to communicate with its customers Advertising—nonpersonal communication about goods, services, or ideas that is paid for by the firm identified in the message Sales promotion—a set of nonpersonal communication tools designed to

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stimulate quicker and more frequent purchases of a product Personal selling—the two-way flow of personal communication between a salesperson and a customer that is paid for by the firm and seeks to influence the customer‘s purchase decision Public relations—communication focused on promoting positive relations between a firm and its stakeholders Today, firms work to integrate the elements, so that the contribution from the whole promotion mix exceeds the sum of the individual elements

Integrated Marketing Communications     

An integrated communications solution involving multiple elements of the promotion mix allows a firm to effectively create and develop relationships with customers An integrated marketing communications (IMC) strategy involves coordinating the various promotion-mix elements to provide consumers with a clear and consistent message about a firm‘s products Each of the promotion-mix elements can influence different segments of the target market, and marketers should try to understand the impact of each element within the IMC strategy Firms should use marketing research techniques to assess which promotion-mix elements have the most influence on different market segments at different points in the product life cycle The marketing department can allocate more of its promotion budget to the elements that are most effective, increase sales, build brand equity, and improve customer relationships

Finding the Optimal Promotion 

The optimal mix might include additional advertising for new products or high levels of sales promotion for mature products or adding additional salespeople  Regardless of where a product is in its life cycle, public relations often requires significantly more marketing resources in the months following a crisis  The mix of promotional tools and how marketers integrate them can also change from year to year, or even from week to week, as environmental factors and consumer demands change  Marketers should thoughtfully consider what mix of promotional elements will be most effective for their target market  Marketers should utilize marketing research to measure how successful each element of the promotion mix is, making adjustments as necessary to maximize the value of each promotional dollar spent LO 8-2 Compare the advantages and Key Terms: disadvantages of different  Advertising 558

Instructor‘s Manual - Chapter 1 types of advertising.  Advertising  Television Advertising  Advantages of Television Advertising  Disadvantages of Television Advertising  Product Placement  Internet Advertising  Print Advertising  Advantages of Print Advertising  Disadvantages of Print Advertising  Radio Advertising  Advantages of Radio Advertising  Disadvantages of Radio Advertising  Outdoor Advertising  Advantages of Outdoor Advertising  Disadvantages of Outdoor Advertising  Nontraditional Advertising PowerPoint Slides Lecture Notes:

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Advertising campaigns Informative advertising Persuasive advertising Reminder advertising Narrowcasting Product placement Direct marketing Mobile advertising

Advertising      559

Advertising is nonpersonal communication about goods, services, or ideas that is paid for by an identified sponsor The nonpersonal component refers to the fact that advertising uses media (e.g., Internet, television, radio, or print) to transmit a message to large numbers of individuals, rather than marketing to consumers face-to-face The paid aspect of the definition indicates that the time or space for an advertising message is purchased Because it is paid for, advertising has the advantage of control: the purchaser decides how to present the message to the public An advertising campaign is a collection of coordinated advertisements

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that share a single theme Marketers use advertising campaigns to achieve three primary objectives: to inform, to persuade, and to remind Informative advertising attempts to develop initial demand for a product and it‘s especially important in the introductory stage of the product life cycle Persuasive advertising attempts to increase demand for an existing product, and is common during the growth stage of the product life cycle Reminder advertising seeks to keep the product before the public in an effort to reinforce previous promotional activity, and is most common in the maturity and decline stages of the product life cycle Choice of media depends on the firm‘s objective—whether it seeks to inform, persuade, or remind—and where the audience it wants to reach is Insight Questions: 324. Which medium has the most significant change in advertising expenditure from 2016 to 2019? (Answer: Mobile internet) 325. Do you think mobile internet advertising will continue to increase in years to come? Why or why not? (Answer: Open ended as students‘ responses will vary; consider online shopping, social media marketing, and brand-based apps)

Figure Information: Percentage Share of Global Advertising Expenditure by Medium Depending on the firm‘s objective, marketers must also decide on the media to use to convey their message. The percentage of global advertising delivered via each major medium (Internet, television, radio, magazines, newspapers, and outdoor) is broken down. Newspaper advertising declined while mobile Internet advertising almost doubled. PowerPoint Slides

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Television Advertising     

Today, the most popular shows on television often average fewer than 12 million viewers per week Running ads during such shows comes at an increasingly high cost to firms as the price of television commercials has gone up dramatically in recent years One reason for the decreased viewership of top-rated television programs is the greater number of channels available to consumers In the early 1980s, the average American home had access to fewer than 20 channels Today, the average American household can choose from over 189 channels, plus a variety of streaming and on-demand options

Advantages of Television Advertising     

A major advantage of television advertising is the ability to combine sight, sound, and motion to appeal to consumer senses Television ads can develop messages that entertain or emotionally appeal to consumers in ways that radio and print media cannot Television ads can demonstrate a product in use A more recent advantage of television advertising comes from the increased number of television channels, which provides marketers an opportunity to target specific markets through narrowcasting Narrowcasting is the dissemination of information to a fairly small, select audience that is defined by its shared values, preferences, or demographic attributes

Disadvantages of Television Advertising         561

Perhaps the biggest disadvantage of television advertising is cost The cost to air a single 30-second ad on a major broadcast network (NBC, ABC, CBS, or Fox) during prime time averages well over $100,000 and can be much higher for popular shows A 30-second ad on the popular NBC series This Is U.S. cost over $400,000 in 2018 In recent years, a 30-second television ad during the Super Bowl cost between $3 and $5 million A majority of all American households that subscribe to cable or satellite television services now have some type of DVR for recording and watching their favorite programs Its ad-skipping ability leaves marketers paying for television ads that viewers aren‘t watching Firms are implementing new strategies to put their ads directly into the program content using product placement In 2021, millions of cord-cutters in the United States—consumers who

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have ever canceled traditional pay-television service and do not resubscribe—had reduced the percentage of consumers with cable or satellite subscriptions to 60 percent Consumers are increasingly using streaming services such as Netflix and Peacock to watch programs on demand across any device they choose

Product Placement 

Product placement is an advertising technique in which a company promotes its products through appearances in movies or on television shows or other media Internet Advertising 

Internet advertising—combining desktop and mobile advertising—is now the second-largest global advertising medium and is growing every year. Internet advertising takes many forms  Paid search advertising typically involves offering consumers advertising links to brand content based on what they‘re searching for  Paid display advertising typically consists of banner advertising—a graphic display that appears on a website in an effort to get you to click on the content  Social media platforms like Facebook offer new strategies for online advertising, and so are an ever-more-popular choice for Internet advertisers  Direct marketing is advertising that communicates directly with consumers and organizations in an effort to provoke a response  Banner ads have become so common that many consumers simply ignore them as they find their desired content  Online ads that prevent or delay a customer from finding desired content can lead to a negative impression from the very consumers marketers are trying to reach Topic: Social Media Tools and Terminology Connect Assignment 8-1

Social Media in Action

The Social Media in Action Connect exercise in Chapter 8 will let you develop potential advertisements utilizing Instagram to reach targeted consumers. By understanding strategies that can integrate social media tools and terminology, you will be prepared to develop effective advertising for consumers of various demographic groups and interests. CONNECT BACK Insight Questions: 326. Develop a chart that outlines content for each social media platform. How do each vary in content? (Answer: Open ended as students‘ responses will vary;

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consider interactivity, message type, message length, audience, image use, and platform purpose) 327. How can the various social media platforms appeal to a variety of demographic groups? (Answer: There is a natural following to each of the platforms based on message type and length, audience, and feed. For example, Facebook has a higher age demographic than Twitter, Instagram, or SnapChat.)

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Lecture Notes: Print Advertising      

Print advertising media typically consist of newspapers and magazines Advertising in print media requires a greater degree of involvement on the part of the consumer than in broadcast media Readers choose what they want to read and then can spend as much time as they want reading it, which makes print advertising especially appealing for high-involvement (significant) consumer products Marketers spent over $8 billion in 2021 on newspaper advertising, although that number is less than a quarter of what it was in 2005 There are thousands of special-interest magazines in the United States and throughout the world, covering almost every possible subject or interest Approximately half of all U.S. adults look through at least one magazine on a regular basis

Advantages of Print Advertising    

It is an effective way for small businesses to advertise their goods or services to the local community Firms can run their ads in a particular section of the newspaper if their business or product is specific to that section Magazine advertising enables marketers to target very specific audiences Magazine advertisements also have a longer shelf life than daily newspapers

Disadvantages of Print Advertising       

The major disadvantage of print advertising is that fewer and fewer Americans use print as their primary information source Younger consumers often receive news, entertainment, and employment information via computers and portable electronic devices Newspaper ads compete with other ads and editorial content for the consumer‘s attention The timeframe for designing a magazine forces marketers to plan and prepare advertisements months in advance of publication As a result, the target audience might not see the ad until after the firm has committed the time and resources to the advertisement Marketers typically do not control where their advertisements are placed in relation to the features and stories contained in the publication Effective placement of an ad is essential to its success or failure

Radio Advertising  564

Radio advertising remains a powerful promotional tool because

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consumers can listen to the radio in their cars, online, and virtually anywhere else through their smartphones Marketers spend approximately $27 billion per year on radio advertising

Advantages of Radio Advertising       

Radio advertising is often the most cost-effective medium available Buying radio ad time is far cheaper than buying television ad time The production costs of radio advertising are comparatively low, or even nonexistent if the ad is read live during a broadcast Radio allows marketers to segment effectively based on the geographic location and format of a radio station The narrow transmission of terrestrial radio stations provides a great way to market to small geographic regions Marketers can also segment consumers by what they listen to: country, pop, gospel, hip-hop, heavy metal, sports talk, politics, and numerous other formats Advertising on stations that cater to these different audiences is a form of narrowcasting that allows firms to target more effectively

Disadvantages of Radio Advertising    

The biggest disadvantage of radio advertising has been that radio ads are audio-only Most cars today have digital presets that allow listeners to switch stations when a commercial comes on simply by touching a button The popularity of satellite radio represents an emerging challenge Over 50 percent of Americans listen to content on digital devices in their car; that number is expected to increase in the years ahead, making it harder for traditional radio advertising to reach these customers

Outdoor Advertising 

Outdoor advertising includes billboards, signs in sports arenas, skywriting, and ads on the sides of buildings, buses, and cars

Advantages of Outdoor Advertising   

Outdoor advertising provides flexibility and reduced costs, that are very appealing to marketers Outdoor ads can be located where they will most likely be seen Outdoor advertisements are also one of the most cost-efficient ways to reach potential customers and clients and are generally cheaper than television, print, or radio advertisements

Disadvantages of Outdoor Advertising 565

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Because of the speed people travel in cars, the exposure time for outdoor ads is generally very short  This limits the number of words or images that firms can use effectively  While outdoor advertising allows companies to target specific areas, it is unlikely that everyone driving past an outdoor ad is part of the target market Nontraditional Advertising 

Business spending on traditional advertising like television, newspapers, and radio has been declining over the past decade  Nontraditional advertising encompasses some of the newest forms of advertising  A growing type of nontraditional advertising is mobile advertising, advertising that is communicated to the consumer via a handheld device  Over 75 percent of U.S. adults use smartphones, and most keep their devices within arm‘s reach for the majority of the day  Marketers spend over $70 billion each year on mobile advertising and new methods are emerging constantly as technology evolves  The market for ads in video games globally is expected to grow from $4.0 billion in 2020 to almost $5.0 billion in 2024 THINK LIKE A MARKETER When should a marketer use an informative advertising strategy? THINK LIKE A MARKETER When should a marketer use a persuasive advertising strategy? THINK LIKE A MARKETER When should a marketer use a reminder advertising strategy? Connect Assignment 8-2

Topic: Advertising Media Complete the Connect exercise for Chapter 8 that focuses on the advantages and disadvantages of different advertising media. By understanding the benefits and challenges of each form of advertising, you will be able to choose the appropriate advertising media to successfully execute your organization‘s marketing strategy. CONNECT BACK Insight Questions: 328. Should all advertising media be used for every advertising campaign? (Answer: No, because different advertising media reach different audiences. Choice of media depends on the firm‘s objective—whether it seeks to inform, persuade, or remind—and where the audience it wants to reach is.)

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329. How should organizations choose which advertising media should be used in the marketing strategy? (Answer: Marketers must decide on the media to convey their message to the appropriate target audience, where and when they‘ll receive the information best to entice action or make a purchase.) Key Terms:  Sales promotion  Coupons  Rebates  Contests  Sweepstakes  Premium  Loyalty programs  Trade sales promotions  Allowances

LO 8-3 Summarize the various types of sales promotion.  Sales Promotion  Coupons  Rebates  Samples  Contests and Sweepstakes  Premiums  Loyalty Programs  Trade Sales Promotions PowerPoint Slides Lecture Notes:

Sales Promotion    

Sales promotion activities account for the bulk of most firms‘ promotion budgets Sales promotion is a set of nonpersonal communication tools designed to stimulate quicker and more frequent purchases of a product Firms often use sales promotion to support the other elements of their promotion mix Successful sales promotions have the potential to build short-term excitement and long-term customer relationships simultaneously

Coupons      

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Coupons remain the most common type of sales promotion Coupons are documents that entitle the customers who carry them to a discount on a product or service Traditionally, coupons have come in the form of printed vouchers that customers present to claim their discount The expansion of mobile advertising is changing the form and use of coupons Coupons provide firms with an effective method for stimulating sales and encouraging customers to make additional or repeat purchases A firm can control the timing and distribution of coupons in a way that does not dilute potential revenue from a customer who is happy paying full price

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Coupon fraud is a serious problem in the form of misredemption practices, and all misredemptions have the effect of reducing the firm‘s profitability

Rebates      

Rebates allow consumers to recoup a specified amount of money after making a single purchase Most rebates require customers to mail their receipt and proof of purchase to manufacturers Marketing professionals offer over 400 million rebates each year Statistics show, though, that between 40 percent and 60 percent of all rebates are not redeemed Rebates provide the incentive of a price decrease, but because customers often fail to redeem them, the firm typically earns greater profits than it would by issuing coupons Rebates work most effectively when offered in conjunction with a high-involvement purchase in which the perceived value of the rebate is magnified

Samples   

Samples offer potential consumers the chance to actually try the product Samples can be expensive because marketers are giving away products in many cases They can also be a powerful tool for getting customers to actually buy the product

Contests and Sweepstakes           568

Firms spend approximately $2 billion per year on contests and sweeps The terms contest and sweepstakes are often used interchangeably, but there is a distinct difference between the two Contests are sales promotions in which consumers compete against one another and must demonstrate skill to win Contests provide marketers with a way to engage consumers and empower them to promote an organization‘s products and brand Sweepstakes are sales promotions based on chance The only requirement to win is that you enter Every entry has an equal chance of being drawn as the winner Contests can be expensive to administer Because each entry must be judged, firms can‘t rely on random selection A potential disadvantage of sweepstakes is the legal and regulatory issues that can arise

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Multiple federal and state government agencies monitor contests and sweepstakes to make sure they are fair and properly represented to the public

Premiums 

A premium is a promotional item that is given as an incentive for performing a particular act, typically buying a product

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Premiums can come in a variety of forms including toys, collectibles, and souvenirs Examples of premiums include receiving a prize in a children‘s meal or a free garden tool for visiting the grand opening of a hardware store

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Loyalty Programs   

Designed to strengthen customer relationships, loyalty programs allow consumers to accumulate points or other benefits for doing business with the same company Loyalty programs are especially popular in the airline and hotel businesses Loyalty programs have grown in importance as natural loyalty to products has decreased in many industries

Trade Sales Promotions 

Trade sales promotions are promotion tools directed to B2B firms, including wholesalers and retailers, rather than to individual consumers  Trade sales promotions often include the same tools discussed earlier (coupons, rebates, contests and sweepstakes, and loyalty programs), plus three other major approaches  (1) A trade show is an event at which organizations in a specific industry promote their offerings to firms they hope will buy them  Marketers use trade shows to identify potential customers, inform current customers about new and existing products, and demonstrate products and materials  (2) Allowances typically involve paying retailers for financial losses associated with consumer sales promotions or reimbursing a retailer for an in-store or local expense to promote a specific product  (3) Training activities such as brochures or on-site demonstrations help retail and wholesale personnel understand the product‘s benefits  Training also helps ensure that employees at every level understand the features, advantages, and benefits of the products they are trying to sell LO 8-4 Explain the importance of Key Terms: personal selling.  Personal selling  Personal Selling  Relationship selling 569

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Lecture Notes: Personal Selling 

Personal selling is the two-way flow of communication between a buyer and a seller that is paid for by the seller and seeks to influence the buyer‘s purchase decision  Personal selling differs from the other tools of the promotion mix because messages flow directly from the salesperson to the customer, often face-to-face  Despite economic and technological changes, the role of personal selling is more important today than ever before  Salespeople often serve as the critical link between the firm and the customer—they are the eyes and ears of the organization and help marketers understand what customers like and dislike and what changes are happening within an industry  A major challenge of personal selling is the cost involved, and almost always averages several hundred dollars per visit  The other challenge for personal selling has been ensuring that each salesperson communicates a message that is consistent with other salespeople as well as the full integrated marketing communications strategy  Personal selling offers two unique advantages over the other promotional elements  (1) Personal selling results in immediate feedback from the customer  (2) Personal selling allows the firm to develop a personal relationship with the customer  Relationship selling is a sales approach that involves building and maintaining customer trust over a long period of time THINK LIKE A MARKETER What are some examples of relationship selling? THINK LIKE A MARKETER Which industries would relationship selling be more applicable? LO 8-5 Describe the role of public relations within the promotion mix.  Public Relations  Public Relations Tools  The Impact of Social Media on Public Relations  Crisis Management  The Changing Face 570

Key Terms:  Public relations  Publicity

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of Public Relations

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Lecture Notes: Public Relations  

Public relations strategies provide information and build a firm‘s image with the public, including customers, employees, stockholders, and communities Public relations is nonpersonal communication focused on promoting positive relations between a firm and its stakeholders

Public Relations Tools            

Organizations use a variety of tools for public relations, including: Annual reports provide a forum for the organization to share with its stakeholders what it has achieved over the past year Speeches provide an avenue for members of an organization to market their message directly to a group in a longer form speech Blogs are an emerging social media tool through which individuals can share their thoughts and knowledge with the public Brochures typically are intended to inform and/or engage the public. A modern public relations brochure can be on paper or online Media kits are typically a package of information provided to reporters and the general press Sponsorships involve an organization paying to have its name associated with projects, programs, or facilities Event marketing involves developing a themed exhibit, display, or presentation to promote an organization to its target market Publicity involves disseminating unpaid news items through some form of media (e.g., a television story or on Instagram) to gain attention or support The major advantage of publicity is that, when done well, it allows marketers to communicate with consumers at an extremely low cost The major disadvantage of publicity is that organizations have less control over how the information is presented because they don‘t pay for it Bad publicity and negative news can harm an organization‘s reputation and image

The Impact of Social Media on Public Relations  

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Social media have increased the speed at which marketers, politicians, athletes, and virtually anyone can get direct contact with their target audience very quickly Social media platforms ranging from Facebook to Twitter to Instagram allow marketers and organizations to tell their story and promote positive relationships with their stakeholders

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Case studies are a powerful PR tool that marketers can maximize using social media Organizations can quickly and cost-efficiently provide engaging content about the impact of their goods and services on customers to the people who are most engaged in the brand Since marketers face the challenge of dealing with positive as well as negative publicity, monitoring social media is essential

Crisis Management   

Public relations can be especially important when an organization faces a crisis It is essential that marketers communicate to their stakeholders via social media as quickly as possible when a crisis occurs Organizations that try to cover up or delay informing stakeholders about the crisis are generally criticized afterward on social media more for their delay than for the incident itself

The Changing Face of Public Relations 

Public relations today is a 24-hours-a-day, 7-days-a-week job for marketers across for-profit industries, government entities, and nonprofit organizations  Advances in technology cause information to spread faster than ever before and amplify the influence of that information on potential customers  Marketers should use all of the tools discussed, including social media, to make sure the public perceives the company in the most positive way possible  A simple truth in marketing is that people want to do business with organizations they like and respect LO 8-6 Describe metrics that Key Terms: measure the effectiveness of  Pretest an organization‘s  Posttest promotional strategy.  Recognition test  Promotional Metrics  Unaided recall tests  Measuring  Aided recall tests Advertising  Reach Effectiveness  Frequency  Measuring Social  Revenue per ad dollar Media Effectiveness PowerPoint Slides Lecture Notes: Promotional Metrics  573

Because promotion is such a big part of an organization‘s budget, it is

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essential that marketers measure the effectiveness of the promotional strategy Almost every organization, ranging from large for-profit businesses to small, local nonprofits, uses some form of advertising and social media

Measuring Advertising Effectiveness               

Marketers typically conduct a pretest in which a sample of targeted consumers evaluates advertisements before an ad campaign begins Pretests help set a baseline measure for marketers, against which to evaluate the subsequent campaign After the ad campaign, marketers conduct a posttest, an evaluation after the campaign of the ads by the same targeted segment of consumers Companies often measure print and digital advertising based on whether consumers see the ads and how well they recognize and remember them A recognition test involves showing consumers the print advertisement and asking if they recognize the ad Unaided recall tests require consumers to recall ads from memory, without any clues In aided recall tests, respondents receive clues to help stimulate their memory If consumers don‘t recognize or recall the firm‘s print advertisements, marketers may change the size or message of the ad or deliver it through an alternative medium Marketers also measure how many consumers have been exposed to their various promotional efforts Reach is the percentage of the target market that has been exposed to a promotional message at least once during a specific time period Unfortunately, no matter how effective a single advertisement might be, it generally takes multiple exposures to move a consumer to make a purchase or change their buying habits in some way Frequency measures how often the audience is exposed to a promotional message during a specific time period A person has to hear something multiple times to remember it This strategy of cultivating high-frequency advertising at a low cost can improve revenue per ad dollar, which is calculated by comparing total revenue to the amount of money spent on advertising Companies should also explore the use of qualitative research tools (like focus groups and consumer interviews) as a way of understanding the effectiveness of their advertising, public relations, and other promotional programs

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Marketers use a variety of tools to evaluate the success of their social

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media marketing strategies and guide their decisions going forward Key tools for measuring the effectiveness of social media include: (1) Google has a comprehensive analytics service that helps track user activity on an organization‘s website in real time called Google Analytics (2) Kred measures both social influence and outreach, providing a score for each on a user‘s profile (3) Buzzsumo is an excellent way to analyze and monitor Facebook pages Along with metrics around each individual post, users have the ability to see what content performs best Insight Questions: 330. What gets measured in the pretest and posttest? (Answer: Companies often measure print and digital advertising based on whether consumers see the ads and how well they recognize and remember them.) 331. An advertising goal may be to cultivate advertising at a low cost. How can measuring your marketing demonstrate this? (Answer: Revenue per ad dollar is calculated by comparing total revenue to the amount of money spent on advertising.) Key Terms:  Affordable method  Percentage-of-sales method  Objective-and-task method

LO 8-7 Summarize the promotionmix budgeting strategies.  Promotion-Mix Budgeting Strategies  Affordable Method  Percentage-of-Sales Method  Objective-and-Task Method PowerPoint Slides Lecture Notes:

Promotion-Mix Budgeting Strategies 

Determining the appropriate promotion budget is an important decision within any marketing strategy  Firms that set the budget too low risk blending into the competition and are often ineffective in communicating value to potential customers  Firms that set the budget too high open themselves up to waste and lower profits  Promotion-budget decisions should consider a variety of factors, such as the types of products sold by the firm, the geographic location of the firm‘s customers, and the level of competition in the industry Affordable Method 575

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Firms that use the affordable method set their promotion budget based on what they believe they can afford The affordable method is a top-down approach that is particularly common in small businesses The affordable method is simple and fiscally conservative but offers no other benefits for the organization A major disadvantage of the affordable method is that it is not tied to specific organizational objectives

Percentage-of-Sales Method    

One of the most widely used budgeting approaches is the percentageof-sales method Companies that use the percentage-of-sales method allocate a specific percentage of a previous period‘s sales or an upcoming period‘s forecasted sales to the promotion budget for that period The method has the advantage of being simple because the promotion budget increases at the same rate that firm sales increase The primary disadvantage of the percentage-of-sales method arises when a firm‘s sales decline

Objective-and-Task Method   

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The objective-and-task approach is typically considered the best of the budgeting methods It incorporates many of the strengths of the other budgeting methods without having their weaknesses The objective-and-task method takes a bottom-up approach to promotional budgeting: it defines specific objectives, determines the tasks required to achieve those objectives, and then estimates how much each task will cost The only major disadvantage of this method is the time and judgment required to decide on the required tasks

Today’s Professional

Hope Sparks VIP Owner Concierge, Vistana Signature Experiences Dedicated to customer service success, Hope Sparks goes above and beyond for her VIP guests. With a positive mindset, she shares how people are her passion. Claire provides insight in answering the following questions:

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332. Describe your job 333. How did you get your job? 334. What has been the most important thing in making you successful at your job?

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335. What advice would you give soon-to-be graduates? 336. What do you consider your person brand to be? Review with students:

Connect Assignment 8-3

 How much of your job will be performance-based?  Where does your ―spark‖ come from? Topic: Promotion Mix Budgeting Strategies Complete the Connect exercise for Chapter 8 that focuses on the different promotion-mix budgeting strategies. By identifying the rationale and benefit of each, you will understand which one is an appropriate budgeting strategy for your organization and how each will affect the success of your promotional strategy. CONNECT BACK Insight Questions: 337. What should be considered in choosing an appropriate budgeting strategy for an organization? (Answer: A firm should consider the types of products sold by the firm, the geographic location of the firm‘s customers, and the level of competition in the industry.) 338. After exploring the rationale of each budgeting strategy, do you think one strategy has an advantage over another? (Answer: Open ended as students‘ responses will vary; some methods are simpler than others. Ultimately the budget strategy will likely be chosen based on resources available and the objectives of the organization.)

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Next, consider using a sales promotion tool such as sampling. Unpaid internships give firms an opportunity to sample your work, increasing the likelihood that you could be hired there on a permanent and paid basis. Do the companies you want to work for offer unpaid internships? If so, how do you go about applying for them? How can you adjust your personal financial situation to take an unpaid internship if it helps advance your career? Next, consider your ability to personally sell yourself. What will you say in an interview that will convince a prospective employer that he or she is better off with you than without you? The same strategies salespeople use to make a good first impression, such as appearance, grooming, professional dress, and a firm handshake, are all things you want to fine-tune as you get ready for the job market. Finally, public relations are essential as you start to develop your career. What do your colleagues think about you? Would your professors or classmates recommend you? Think about what you can do to improve or enhance others‘ perceptions of you. Student Task: Create an outline of the specific advertising, sales promotion, personal selling, and public relations strategies you plan to use as you begin your career. For each type of promotion, answer the questions posed in the Marketing Plan Exercise and summarize how each can help you market yourself. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 339. What advertising medium is most effective for reaching you as a consumer? Has that changed in the past 5years? What do you think the most effective medium for advertising to you will be 5 years from now? (Answer: Open-ended as students‘ responses will vary; consider: age, geographical location, technology, social media, buying behaviors, the increase of online retailers, expedited shipping timeframes, retail outlet closures, and globalization.) 340. If you had to advertise a new product to your marketing classmates, what media would you choose and why? (Answer: Because most students in an introductory marketing class are likely between 19 and 22 years old, social media, banner advertisements on the Internet and Netflix/Hulu, promotions on podcasts, and video game advertising would work best. The channel would depend on the product being promoted.) 341. Describe a company that you think does a poor job advertising. Why is its advertising ineffective? Anyone can criticize something that is not working, but those who offer creative solutions to fix advertising strategies that are broken have a very 578

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bright future ahead. With this in mind, make two specific suggestions about how the company could improve its advertising. (Answer: Open-ended as students‘ responses will vary; For example, question whether Burger King has capitalized on its core product in advertising. Contemplate its diversified product mix to include hamburger burritos and hot dogs, and advertising them at discounted prices. Burger King could do market research on its Whopper‘s target market and use advertising to communicate value to this audience, especially with the influx of fast casual and other chains‘ focus on one-only products. If the target market is older, narrowcasting on television and radio would work well. For a younger audience, sponsored social media and mobile ads would work best.) 342. Imagine you are in charge of getting students at your school to attend a lecture on campus. Would you choose a contest or a sweepstakes as a tool for promoting the event and increasing attendance? Explain your answer. (Answer: Open-ended as students‘ responses will vary; a contest could be used if the goal is to engage students and empower them to promote the school, a professor, or another agenda, etc. A sweepstake could be used in conjunction to contests to award a bigger prize to one person.) 343. List two organizations that you think do a good job handling public relations and explain why you think this. List two organizations that you think do a poor job handling public relations and make specific suggestions as to how they might improve. (Answer: Open-ended as students‘ responses will vary; Consider whether it would be a person, brand or initiative; image of the brand; timeliness in responding to positive and negative situations; the use of social media platforms; internet presence; blogs; and use of brochures or other printed materials.) 344. Based on your understanding of reach and frequency, would you recommend a company advertise during the Super Bowl? Why or why not? Would your answer vary depending on the type of business running the ad? (Answer: Open-ended as students‘ responses will vary; consider: advertising budget as Super Bowl ads run between 3 and 7 million dollars for 30 seconds, and target audience. Unless the message is consistently advertised in other mediums for a span of time, thereby integrating it, monies may be considered ill-spent and for entertainment purposes.) SOCIAL MEDIA APPLICATION Select two firms that offer sales promotions through social media. These could include any of the strategies discussed in this chapter—coupons, rebates, contests, or sweepstakes. Describe which sales promotions each firm offers through which social media platforms. Then analyze those promotions using the following questions and activities as a guide: 345. In your opinion, which firm is doing a better job using social media to enhance its sales promotions? Explain your answer. 346. Who are the target markets for these social media sales promotions? Are the sales promotions an effective way to generate additional sales and profits from these target markets? Explain your answer.

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347. Provide at least two specific recommendations for sales promotion strategies that each of these firms can implement through social media. Be sure to discuss why you think your recommendations would succeed in generating additional sales and profits from the firm‘s target markets. This activity is located in an additional worksheet that can be used with group interaction, and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 8 that focuses on using metrics to measure advertising effectiveness (reach and frequency) and to calculate revenue per ad dollar. ETHICAL CHALLENGE There is an increasing public backlash over marketers who make false or misleading statements about their products. In recent years, numerous consumer lawsuits have resulted in multimilliondollar settlements for several major companies. Dannon made claims that its yogurt products prevent sickness. Kellogg claimed that Rice Krispies help immunity. Ferrero USA made false claims about the healthiness and sugar content of Nutella. These claims have led to financial losses for the firms involved and also have the potential of eroding consumer trust. The U.S. Food and Drug Administration (FDA) is responsible for enforcing truthful labeling for food products, and some believe that these lawsuits are an effective way to improve the truth and transparency of food labeling and advertising. However, some marketers have fought back, suggesting that many of these cases are ―silly.‖ They contend that consumers don‘t care that Quaker Oats calls its granola products ―wholesome‖ even though they contain some trans fats. This debate leaves food marketers with an ethical dilemma: On the one hand, they want to promote their product in the best, most persuasive way possible. On the other hand, they must weigh the risks of saying something on the label that might potentially open up the firm to a consumer lawsuit. Please use the ethical decision-making framework to complete the following: 580

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348. Consider the various claims being made in consumer lawsuits against food companies. Do you consider the claims legitimate or ―silly‖? (Answer: Open ended as students‘ responses will vary; consider: who is affected—kids or adults, what the claims are, and long-term effects) 349. What might be motivating the growing number of consumer lawsuits against food companies? (Answer: Open ended as students‘ responses will vary; Consider: lack of nutritional education, poorly sourced and curated food sources, an insurgence of fast-food restaurants, direct and indirect competition, lack of morals, and a desire to ―get rich‖) 350. Many of the lawsuits against food companies described involve foods consumed by children. Do food companies have more responsibility for the truth and transparency of their advertising and labeling when their products are consumed by children? (Answer: Open ended as students‘ responses will vary; as adults, we have a responsibility to protect our children from harm. Beyond what the FDA and FTC mandate, adults should be cognizant of the nutritional value of any food that children consume.) Source: See Katherine Campbell, Education Resource Center, ―Mom and Dad vs. Snap, Crackle, and Pop,‖ Bloomberg Businessweek, June 25, 2012, http://resourcecenter.businessweek.com/reviews/mom-and-dad-vs-snap-crackle-and-pop. VIDEO CASE Have students go to Connect to access the video case featuring the Minor League Baseball team, the Cleburne Railroaders, that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about how to promote themselves to prospective employers, follow these tips. Debbie Pilgrim, Executive Vice President at PeopleSource, provides insight on crafting a resume as a personal promotional tool.  Your resume shows your personality and speaks to your capabilities.  Your resume is the first impression given to a potential employer.  Make your resume stand out. Paper choice can matter.  Resume templates can give you ideas.  State the facts.  Be creative. Review with students:  How will you get organizations to notice your resume in a stack of others?  Using your resume, how will you promote yourself to potential employers?

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Chapter 8: Promotional Strategies

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-149 Describe the elements of the promotion mix and how they relate to an integrated marketing communications strategy. LO 1-150 Compare the advantages and disadvantages of different types of advertising. LO 1-151 Summarize the various types of sales promotion. LO 1-152 Explain the importance of personal selling. LO 1-153 Describe the role of public relations within the promotion mix. LO 1-154 Describe metrics that measure the effectiveness of an organization‘s promotional strategy. LO 1-155 Summarize the promotion-mix budgeting strategies. KEY TERMS advertising advertising campaign affordable method aided recall tests allowances contests coupons direct marketing frequency informative advertising integrated marketing communications (IMC) loyalty programs

mobile advertising narrowcasting objective-and-task method percentage-of-sales method personal selling persuasive advertising posttest premium pretest product placement promotion promotion mix

public relations publicity reach rebates recognition test relationship selling reminder advertising revenue per ad dollar sales promotion sweepstakes trade sales promotions unaided recall test

THOUGHT-PROVOKING ACTIVITY Set 1: What are the four major areas of the promotional mix? Using your phone, tablet, or computer, pull up a recent example of one of these initiatives. Be able to discuss the details.

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Set 2: In an advertising campaign, the message or strategy is either to inform/educate, persuade, or remind. Provide an example of a campaign that does one of each.

What skills have you developed or mastered in preparation for graduation?

LO8-1: Describe the elements of the promotion mix and how they relate to an integrated marketing communications strategy. Promotion Mix

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Promotion, one of the four marketing-mix elements, is where most of an organization‘s communications with the marketplace occur Promotion consists of all the activities that communicate the value of a product and persuade customers to choose it over other options The promotion mix consists of four main elements of marketing communication: advertising, sales promotion, personal selling, and public relations

Figure 8.1 Elements of the Promotion Mix INSIGHT QUESTIONS How do the promotion-mix elements work together? (Answer: Open ended as students‘ responses will vary; an integrated communications solution involving multiple elements of the promotion mix allows a firm to effectively create and develop relationships with customers. Profitability results in each component executed successfully.) For the promotion-mix elements to work together, which departments must work together? Why is this necessary? (Answer: Open ended as students‘ responses will vary; all departments must work together for the organization to be consistent in executing all components of the marketing mix. The whole promotion mix exceeds the sum of the individual elements—referencing the Gestalt theory.) Elements of the Promotion Mix  Each element represents a different way for the organization to communicate with its customers  Advertising—nonpersonal communication about goods, services, or ideas that is paid for by the firm identified in the message  Sales promotion—a set of nonpersonal communication tools designed to stimulate quicker and more frequent purchases of a product  Personal selling—the two-way flow of personal communication between a salesperson and a customer that is paid for by the firm and seeks to influence the customer‘s purchase decision  Public relations—communication focused on promoting positive relations between a firm and its stakeholders  Today, firms work to integrate the elements, so that the contribution from the whole promotion mix exceeds the sum of the individual elements Integrated Marketing Communications  An integrated communications solution involving multiple elements of the promotion mix allows a firm to effectively create and develop relationships with customers  An integrated marketing communications (IMC) strategy involves coordinating the various promotion-mix elements to provide consumers with a clear and consistent message about a firm‘s products 584

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Each of the promotion-mix elements can influence different segments of the target market, and marketers should try to understand the impact of each element within the IMC strategy  Firms should use marketing research techniques to assess which promotion-mix elements have the most influence on different market segments at different points in the product life cycle  The marketing department can allocate more of its promotion budget to the elements that are most effective, increase sales, build brand equity, and improve customer relationships Finding the Optimal Promotion  The optimal mix might include additional advertising for new products or high levels of sales promotion for mature products or adding additional salespeople  Regardless of where a product is in its life cycle, public relations often requires significantly more marketing resources in the months following a crisis  The mix of promotional tools and how marketers integrate them can also change from year to year, or even from week to week, as environmental factors and consumer demands change  Marketers should thoughtfully consider what mix of promotional elements will be most effective for their target market  Marketers should utilize marketing research to measure how successful each element of the promotion mix is, making adjustments as necessary to maximize the value of each promotional dollar spent Elements of the Promotion Mix Promotion Mix Promotional Tools Elements Advertising → Internet, television, radio, print, social media Sales promotion → Coupons, rebates, contests, sweepstakes Promotion Mix → Personal selling → Prospecting, presentation, closing, follow-up Public Relations → Annual reports, speeches, blogs, brochures LO8-2: Compare the advantages and disadvantages of different types of advertising. Advertising  Advertising is nonpersonal communication about goods, services, or ideas that is paid for by an identified sponsor  The nonpersonal component refers to the fact that advertising uses media (e.g., Internet, television, radio, or print) to transmit a message to large numbers of individuals rather than marketing to consumers face-to-face  The paid aspect of the definition indicates that the time or space for an advertising message is purchased  Because it is paid for, advertising has the advantage of control: The purchaser decides how to present the message to the public  An advertising campaign is a collection of coordinated advertisements that share a single theme 585

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Marketers use advertising campaigns to achieve three primary objectives: to inform, to persuade, and to remind Informative advertising attempts to develop initial demand for a product, and it‘s especially important in the introductory stage of the product life cycle Persuasive advertising attempts to increase demand for an existing product and is common during the growth stage of the product life cycle Reminder advertising seeks to keep the product before the public in an effort to reinforce previous promotional activity and is most common in the maturity and decline stages of the product life cycle Choice of media depends on the firm‘s objective—whether it seeks to inform, persuade, or remind—and where the audience it wants to reach is

Figure 8.2 Percentage Share of Global Advertising Expenditure by Medium INSIGHT QUESTIONS Which medium has the most significant change in advertising expenditure from 2016 to 2018? (Answer: mobile Internet) Do you think mobile Internet advertising will continue to increase in the years to come? Why or why not? (Answer: Open ended as students‘ responses will vary; consider online shopping, social media marketing, and brand-based apps.) Television Advertising 351. Today, the most popular shows on television often average fewer than 12 million viewers per week  Running ads during such shows comes at an increasingly high cost to firms as the price of television commercials has gone up dramatically in recent years  One reason for the decreased viewership of top-rated television programs is the greater number of channels available to consumers  In the early 1980s, the average American home had access to fewer than 20 channels  Today, the average American household can choose from over 189 channels, plus a variety of streaming and on-demand options Advantages of Television Advertising  A major advantage of television advertising is the ability to combine sight, sound, and motion to appeal to consumer senses  Television ads can develop messages that entertain or emotionally appeal to consumers in ways that radio and print media cannot 586

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Television ads can demonstrate a product in use A more recent advantage of television advertising comes from the increased number of television channels, which provides marketers an opportunity to target specific markets through narrowcasting  Narrowcasting is the dissemination of information to a fairly small, select audience that is defined by its shared values, preferences, or demographic attributes Disadvantages of Television Advertising  Perhaps the biggest disadvantage of television advertising is cost  The cost to air a single 30-second ad on a major broadcast network (NBC, ABC, CBS, or Fox) during prime time averages well over $100,000 and can be much higher for popular shows  A 30-second ad on the popular NBC series This Is Us costs over $400,000 in 2018  In recent years, a 30-second television ad during the Super Bowl cost between $3 and $5 million  A majority of all American households that subscribe to cable or satellite television services now have some type of DVR for recording and watching their favorite programs  Its ad-skipping ability leaves marketers paying for television ads that viewers aren‘t watching  Firms are implementing new strategies to put their ads directly into the program content using product placement  In 2021, millions of cord-cutters in the United States—consumers who have ever canceled traditional pay-television service and do not resubscribe—had reduced the percentage of consumers with cable or satellite subscriptions to 60 percent  Consumers are increasingly using streaming services such as Netflix and Peacock to watch programs on demand across any device they choose

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Product Placement  Product placement is an advertising technique in which a company promotes its products through appearances in movies or on television shows or other media Internet Advertising  Internet advertising—combining desktop and mobile advertising—is now the second-largest global advertising medium and is growing every year. Internet advertising takes many forms  Paid search advertising typically involves offering consumers advertising links to brand content based on what they‘re searching for  Paid display advertising typically consists of banner advertising—a graphic display that appears on a website in an effort to get you to click on the content  Social media platforms like Facebook offer new strategies for online advertising and so are an ever-more-popular choice for Internet advertisers  Direct marketing is advertising that communicates directly with consumers and organizations in an effort to provoke a response  Banner ads have become so common that many consumers simply ignore them as they find their desired content  Online ads that prevent or delay a customer from finding desired content can lead to a negative impression from the very consumers marketers are trying to reach CONNECT BACK: Reference Connect Assignment 8-1 Develop a chart that details the terminology for each social media platform. Do any platforms share terminology or functionality? (Answer: Open ended as students‘ responses will vary; consider interactivity, message type, message length, audience, likes and followers, and platform purpose.) How can the various social media platforms appeal to a variety of demographic groups? (Answer: There is a natural following to each of the platforms based on message type and length, audience, and feed. For example, Facebook has a higher age demographic than Twitter, Instagram, or SnapChat.) Print Advertising  Print advertising media typically consist of newspapers and magazines  Advertising in print media requires a greater degree of involvement on the part of the consumer than in broadcast media  Readers choose what they want to read and then can spend as much time as they want reading it, which makes print advertising especially appealing for high-involvement (significant) consumer products 588

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Marketers spent over $8 billion in 2021 on newspaper advertising, although that number is less than a quarter of what it was in 2005 There are thousands of special-interest magazines in the United States and throughout the world, covering almost every possible subject or interest Approximately half of all U.S. adults look through at least one magazine on a regular basis

Advantages of Print Advertising  It is an effective way for small businesses to advertise their goods or services to the local community  Firms can run their ads in a particular section of the newspaper if their business or product is specific to that section  Magazine advertising enables marketers to target very specific audiences  Magazine advertisements also have a longer shelf life than daily newspapers Disadvantages of Print Advertising  The major disadvantage of print advertising is that fewer and fewer Americans use print as their primary information source  Younger consumers often receive news, entertainment, and employment information via computers and portable electronic devices  Newspaper ads compete with other ads and editorial content for the consumer‘s attention  The time frame for designing a magazine forces marketers to plan and prepare advertisements months in advance of publication  As a result, the target audience might not see the ad until after the firm has committed the time and resources to the advertisement  Marketers typically do not control where their advertisements are placed in relation to the features and stories contained in the publication  Effective placement of an ad is essential to its success or failure Radio Advertising  Radio advertising remains a powerful promotional tool because consumers can listen to the radio in their cars, online, and virtually anywhere else through their smartphones  Marketers spend approximately $27 billion per year on radio advertising Advantages of Radio Advertising  Radio advertising is often the most cost-effective medium available

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Buying radio ad time is far cheaper than buying television ad time The production costs of radio advertising are comparatively low or even nonexistent if the ad is read live during a broadcast  Radio allows marketers to segment effectively based on the geographic location and format of a radio station  The narrow transmission of terrestrial radio stations provides a great way to market to small geographic regions  Marketers can also segment consumers by what they listen to: country, pop, gospel, hip-hop, heavy metal, sports talk, politics, and numerous other formats  Advertising on stations that cater to these different audiences is a form of narrowcasting that allows firms to target more effectively Disadvantages of Radio Advertising  The biggest disadvantage of radio advertising has been that radio ads are audio-only  Most cars today have digital presets that allow listeners to switch stations when a commercial comes on simply by touching a button  The popularity of satellite radio represents an emerging challenge  Over 50 percent of Americans listen to content on digital devices in their car; that number is expected to increase in the years ahead, making it harder for traditional radio advertising to reach these customers Outdoor Advertising  Outdoor advertising includes billboards, signs in sports arenas, skywriting, and ads on the sides of buildings, buses, and cars Advantages of Outdoor Advertising  Outdoor advertising provides flexibility and reduced costs that are very appealing to marketers  Outdoor ads can be located where they will most likely be seen  Outdoor advertisements are also one of the most cost-efficient ways to reach potential customers and clients and are generally cheaper than television, print, or radio advertisements Disadvantages of Outdoor Advertising  Because of the speed people travel in cars, the exposure time for outdoor ads is generally very short  This limits the number of words or images that firms can use effectively  While outdoor advertising allows companies to target specific areas, it is unlikely that everyone driving past an outdoor ad is part of the target market

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Nontraditional Advertising  Business spending on traditional advertising like television, newspapers, and radio has been declining over the past decade  Nontraditional advertising encompasses some of the newest forms of advertising  A growing type of nontraditional advertising is mobile advertising, advertising that is communicated to the consumer via a handheld device  Over 75 percent of U.S. adults use smartphones, and most keep their devices within arm‘s reach for the majority of the day  Marketers spend over $70 billion each year on mobile advertising, and new methods are emerging constantly as technology evolves  The market for ads in video games globally is expected to grow from $4.0 billion in 2020 to almost $5.0 billion in 2024 THINK LIKE A MARKETER When should a marketer use an informative advertising strategy? (Answer: Open ended)

THINK LIKE A MARKETER When should a marketer use a persuasive advertising strategy? (Answer: Open ended)

THINK LIKE A MARKETER When should a marketer use a reminder advertising strategy? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 8-2 Should all advertising media be used for every advertising campaign? (Answer: No, because different advertising media reach different audiences. Choice of media depends on the firm‘s objective—whether it seeks to inform, persuade, or remind—and where the audience it wants to reach is.) How should organizations choose which advertising media should be used in the marketing 591

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strategy? (Answer: Marketers must decide on the media to convey their message to the appropriate target audience, where and when they‘ll receive the information best to entice action or make a purchase.)

LO8-3: Summarize the various types of sales promotion. Sales Promotion  Sales promotion activities account for the bulk of most firms‘ promotion budgets  Sales promotion is a set of nonpersonal communication tools designed to stimulate quicker and more frequent purchases of a product  Firms often use sales promotion to support the other elements of their promotion mix  Successful sales promotions have the potential to build short-term excitement and long-term customer relationships simultaneously Coupons  Coupons remain the most common type of sales promotion  Coupons are documents that entitle the customers who carry them to a discount on a product or service  Traditionally, coupons have come in the form of printed vouchers that customers present to claim their discount  The expansion of mobile advertising is changing the form and use of coupons  Coupons provide firms with an effective method for stimulating sales and encouraging customers to make additional or repeat purchases  A firm can control the timing and distribution of coupons in a way that does not dilute potential revenue from a customer who is happy paying the full price  Coupon fraud is a serious problem in the form of misredemption practices, and all misredemptions have the effect of reducing the firm‘s profitability Rebates  Rebates allow consumers to recoup a specified amount of money after making a single purchase  Most rebates require customers to mail their receipt and proof of purchase to manufacturers

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Marketing professionals offer over 400 million rebates each year Statistics show, though, that between 40 and 60 percent of all rebates are not redeemed Rebates provide the incentive of a price decrease, but because customers often fail to redeem them, the firm typically earns greater profits than it would by issuing coupons Rebates work most effectively when offered in conjunction with a high-involvement purchase in which the perceived value of the rebate is magnified

Samples  Samples offer potential consumers the chance to actually try the product  Samples can be expensive because marketers are giving away products in many cases  They can also be a powerful tool for getting customers to actually buy the product Contests and Sweepstakes  Firms spend approximately $2 billion per year on contests and sweepstakes  The terms contest and sweepstakes are often used interchangeably, but there is a distinct difference between the two  Contests are sales promotions in which consumers compete against one another and must demonstrate skill to win  Contests provide marketers with a way to engage consumers and empower them to promote an organization‘s products and brand  Sweepstakes are sales promotions based on chance  The only requirement to win is that you enter  Every entry has an equal chance of being drawn as the winner  Contests can be expensive to administer  Because each entry must be judged, firms can‘t rely on random selection  A potential disadvantage of sweepstakes is the legal and regulatory issues that can arise  Multiple federal and state government agencies monitor contests and sweepstakes to make sure they are fair and properly represented to the public Premiums  A premium is a promotional item that is given as an incentive for performing a particular act, typically buying a product  Premiums can come in a variety of forms including toys, collectibles, and souvenirs  Examples of premiums include receiving a prize in a child‘s meal or a free garden tool for visiting the grand opening of a hardware store Loyalty Programs  Designed to strengthen customer relationships, loyalty programs allow consumers to accumulate points or other benefits for doing business with the same company  Loyalty programs are especially popular in the airline and hotel businesses 593

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Loyalty programs have grown in importance as natural loyalty to products has decreased in many industries Trade Sales Promotions  Trade sales promotions are promotion tools directed to B2B firms, including wholesalers and retailers, rather than to individual consumers  Trade sales promotions often include the same tools discussed earlier (coupons, rebates, contests and sweepstakes, and loyalty programs), plus three other major approaches  (1) A trade show is an event at which organizations in a specific industry promote their offerings to firms they hope will buy them  Marketers use trade shows to identify potential customers, inform current customers about new and existing products, and demonstrate products and materials  (2) Allowances typically involve paying retailers for financial losses associated with consumer sales promotions or reimbursing a retailer for an in-store or local expense to promote a specific product  (3) Training activities such as brochures or on-site demonstrations help retail and wholesale personnel understand the product‘s benefits  Training also helps ensure that employees at every level understand the features, advantages, and benefits of the products they are trying to sell LO8-4: Explain the importance of personal selling. Personal Selling  Personal selling is the two-way flow of communication between a buyer and a seller that is paid for by the seller and seeks to influence the buyer‘s purchase decision  Personal selling differs from the other tools of the promotion mix because messages flow directly from the salesperson to the customer, often face-to-face  Despite economic and technological changes, the role of personal selling is more important today than ever before  Salespeople often serve as the critical link between the firm and the customer—they are the eyes and ears of the organization and help marketers understand what customers like and dislike and what changes are happening within an industry  A major challenge of personal selling is the cost involved and almost always averages several hundred dollars per visit  The other challenge for personal selling has been ensuring that each salesperson communicates a message that is consistent with other salespeople as well as the full integrated marketing communications strategy  Personal selling offers two unique advantages over the other promotional elements  Personal selling results in immediate feedback from the customer  Personal selling allows the firm to develop a personal relationship with the customer  Relationship selling is a sales approach that involves building and maintaining customer trust over a long period of time 594

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THINK LIKE A MARKETER What are some examples of relationship selling? (Answer: open ended)

THINK LIKE A MARKETER Which industries would relationship selling be more applicable? (Answer: Open ended)

LO8-5: Describe the role of public relations within the promotion mix. Public Relations  Public relations strategies provide information and build a firm‘s image with the public, including customers, employees, stockholders, and communities  Public relations is nonpersonal communication focused on promoting positive relations between a firm and its stakeholders Public Relations Tools  Organizations use a variety of tools for public relations, including the following:  Annual reports provide a forum for the organization to share with its stakeholders what it has achieved over the past year  Speeches provide an avenue for members of an organization to market their message directly to a group in a longer form speech  Blogs are an emerging social media tool through which individuals can share their thoughts and knowledge with the public  Brochures typically are intended to inform and/or engage the public. A modern public relations brochure can be on paper or online  Media kits are typically a package of information provided to reporters and the general press  Sponsorships involve an organization paying to have its name associated with projects, programs, or facilities  Event marketing involves developing a themed exhibit, display, or presentation to promote an organization to its target market  Publicity involves disseminating unpaid news items through some form of media (e.g., a television story or on Instagram) to gain attention or support  The major advantage of publicity is that, when done well, it allows marketers to communicate with consumers at an extremely low cost  The major disadvantage of publicity is that organizations have less control over how the information is presented because they don‘t pay for it 595

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 Bad publicity and negative news can harm an organization‘s reputation and image The Impact of Social Media on Public Relations  Social media have increased the speed at which marketers, politicians, athletes, and virtually anyone can get direct contact with their target audience very quickly  Social media platforms ranging from Facebook to Twitter to Instagram allow marketers and organizations to tell their story and promote positive relationships with their stakeholders  Case studies are a powerful PR tool that marketers can maximize using social media  Organizations can quickly and cost-efficiently provide engaging content about the impact of their goods and services on customers to the people who are most engaged in the brand  Since marketers face the challenge of dealing with positive as well as negative publicity, monitoring social media is essential Crisis Management  Public relations can be especially important when an organization faces a crisis  It is essential that marketers communicate to their stakeholders via social media as quickly as possible when a crisis occurs  Organizations that try to cover up or delay informing stakeholders about the crisis are generally criticized afterward on social media more for their delay than for the incident itself The Changing Face of Public Relations  Public relations today is a 24-hours-a-day, 7-days-a-week job for marketers across for-profit industries, government entities, and nonprofit organizations  Advances in technology cause information to spread faster than ever before and amplify the influence of that information on potential customers  Marketers should use all of the tools discussed, including social media, to make sure the public perceives the company in the most positive way possible  A simple truth in marketing is that people want to do business with organizations they like and respect LO8-6: Describe metrics that measure the effectiveness of an organization’s promotional strategy. Promotional Metrics  Because promotion is such a big part of an organization‘s budget, it is essential that marketers measure the effectiveness of the promotional strategy  Almost every organization, ranging from large for-profit businesses to small, local nonprofits, uses some form of advertising and social media Measuring Advertising Effectiveness  Marketers typically conduct a pretest in which a sample of targeted consumers evaluates advertisements before an ad campaign begins  Pretests help set a baseline measure for marketers, against which to evaluate the subsequent campaign 596

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After the ad campaign, marketers conduct a posttest, an evaluation after the campaign of the ads by the same targeted segment of consumers  Companies often measure print and digital advertising based on whether consumers see the ads and how well they recognize and remember them  A recognition test involves showing consumers the print advertisement and asking whether they recognize the ad  Unaided recall tests require consumers to recall ads from memory, without any clues  In aided recall tests, respondents receive clues to help stimulate their memory  If consumers don‘t recognize or recall the firm‘s print advertisements, marketers may change the size or message of the ad or deliver it through an alternative medium  Marketers also measure how many consumers have been exposed to their various promotional efforts  Reach is the percentage of the target market that has been exposed to a promotional message at least once during a specific time period  Unfortunately, no matter how effective a single advertisement might be, it generally takes multiple exposures to move a consumer to make a purchase or change their buying habits in some way  Frequency measures how often the audience is exposed to a promotional message during a specific time period  A person has to hear something multiple times to remember it  This strategy of cultivating high-frequency advertising at a low cost can improve revenue per ad dollar, which is calculated by comparing total revenue to the amount of money spent on advertising  Companies should also explore the use of qualitative research tools (like focus groups and consumer interviews) as a way of understanding the effectiveness of their advertising, public relations, and other promotional programs Measuring Social Media  Marketers use a variety of tools to evaluate the success of their social media marketing strategies and guide their decisions going forward  Key tools for measuring the effectiveness of social media include:  Google has a comprehensive analytics service that helps track user activity on an organization‘s website in real time called Google Analytics  Kred measures both social influence and outreach, providing a score for each on a user‘s profile  Buzzsumo is an excellent way to analyze and monitor Facebook pages  Along with metrics around each individual post, users have the ability to see what content performs best Marketing Analytics INSIGHT QUESTIONS What gets measured in the pretest and posttest? 597

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(Answer: Companies often measure print and digital advertising based on whether consumers see the ads and how well they recognize and remember them.) An advertising goal may be to cultivate advertising at a low cost. How can measuring your marketing demonstrate this? (Answer: Revenue per ad dollar is calculated by comparing total revenue to the amount of money spent on advertising.) LO8-7: Summarize the promotion-mix budgeting strategies. Promotion-Mix Budgeting Strategies  Determining the appropriate promotion budget is an important decision within any marketing strategy  Firms that set the budget too low risk blending into the competition and are often ineffective in communicating value to potential customers  Firms that set the budget too high open themselves up to waste and lower profits  Promotion-budget decisions should consider a variety of factors, such as the types of products sold by the firm, the geographic location of the firm‘s customers, and the level of competition in the industry Affordable Method  Firms that use the affordable method set their promotion budget based on what they believe they can afford  The affordable method is a top-down approach that is particularly common in small businesses  The affordable method is simple and fiscally conservative but offers no other benefits for the organization  A major disadvantage of the affordable method is that it is not tied to specific organizational objectives Percentage-of-Sales Method  One of the most widely used budgeting approaches is the percentage-of-sales method  Companies that use the percentage-of-sales method allocate a specific percentage of a previous period‘s sales or an upcoming period‘s forecasted sales to the promotion budget for that period  The method has the advantage of being simple because the promotion budget increases at the same rate that firm sales increase  The primary disadvantage of the percentage-of-sales method arises when a firm‘s sales decline Objective-and-Task Method  The objective-and-task approach is typically considered the best of the budgeting methods 598

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It incorporates many of the strengths of the other budgeting methods without having their weaknesses The objective-and-task method takes a bottom-up approach to promotional budgeting: It defines specific objectives, determines the tasks required to achieve those objectives, and then estimates how much each task will cost The only major disadvantage of this method is the time and judgment required to decide on the required tasks

TODAY’S PROFESSIONAL NOTES Hope Sparks, VIP Owner Concierge, Vistana Signature Experiences How much of your job will be performance-based?

Where does your ―spark‖ come from?

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CONNECT BACK: Reference Connect Assignment 8-3 What should be considered in choosing an appropriate budgeting strategy for an organization? (Answer: A firm should consider the types of products sold by the firm, the geographic location of the firm‘s customers, and the level of competition in the industry.) After exploring the rationale of each budgeting strategy, do you think one strategy has an advantage over another? (Answer: Open ended as students‘ responses will vary; some methods are simpler than others. Ultimately, the budget strategy will likely be chosen based on resources available and the objectives of the organization.) MARKETING PLAN EXERCISE Your Marketing Plan. The marketing plan exercise for this chapter focuses on developing your own promotional strategy. You can think about this using the same four promotion-mix elements discussed in this chapter: advertising, sales promotion, personal selling, and public relations. First, how are you advertising yourself? For example, what does your resume look like? What does it say about you? If your resume is the same basic template that looks just like everyone else‘s, how will you stand out from others competing for the same job? Please read the Career Tips at the end of this chapter for suggestions. Also, consider what your social media profile says about you. If prospective employers were to look at your Facebook, LinkedIn, or Twitter profile, would they like what they saw? Would it reflect the image of a thoughtful, driven professional? Next, consider using a sales promotion tool such as sampling. Unpaid internships give firms an opportunity to sample your work, increasing the likelihood that you could be hired there on a permanent and paid basis. Do the companies you want to work for offer unpaid internships? If so, how do you go about applying for them? How can you adjust your personal financial situation to take an unpaid internship if it helps advance your career? Next, consider your ability to personally sell yourself. What will you say in an interview that will convince a prospective employer that they are better off with you than without you? The same strategies salespeople use to make a good first impression, such as appearance, grooming, professional dress, and a firm handshake, are all things you want to fine-tune as you get ready for the job market. Finally, public relations are essential as you start to develop your career. What do your colleagues think about you? Would your professors or classmates recommend you? Think about what you can do to improve or enhance others‘ perceptions of you. Student Task: Create an outline of the specific advertising, sales promotion, personal selling, and public relations strategies you plan to use as you begin your career. For each type of 600

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promotion, answer the questions posed in the Marketing Plan Exercise and summarize how each can help you market yourself. Chapter 8 PROMOTING MYSELF

Advertising

Sales promotion

Personal selling

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Public relations

Chapter 8: Promotional Strategies

Erik Isakson/Blend Images

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-156 Describe the elements of the promotion mix and how they relate to an integrated marketing communications strategy. LO 1-157 Compare the advantages and disadvantages of different types of advertising. LO 1-158 Summarize the various types of sales promotion. LO 1-159 Explain the importance of personal selling. LO 1-160 Describe the role of public relations within the promotion mix. LO 1-161 Describe metrics that measure the effectiveness of an organization‘s promotional strategy. LO 1-162 Summarize the promotion-mix budgeting strategies. KEY TERMS advertising advertising campaign affordable method aided recall tests allowances contests 602

coupons direct marketing frequency informative advertising integrated marketing communications (IMC)

loyalty programs mobile advertising narrowcasting objective-and-task method percentage-of-sales method

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reminder advertising revenue per ad dollar sales promotion sweepstakes trade sales promotions unaided recall test

Set 2: In an advertising campaign, the message or strategy is either to inform/educate, persuade, or remind. Provide an example of a campaign that does one of each.

LO8-1: Describe the elements of the promotion mix and how they relate to an integrated marketing communications strategy. Promotion Mix  Promotion, one of the four marketing-mix elements, is where most of an organization‘s _ with the marketplace occur 603

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_ consists of all the activities that communicate the value of a product and persuade customers to choose it over other options The _ consists of four main elements of marketing communication: advertising, sales promotion, personal selling, and public relations

Figure 8.1 Elements of the Promotion Mix INSIGHT QUESTIONS How do the promotion-mix elements work together?

For the promotion-mix elements to work together, which departments must work together? Why is this necessary?

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Elements of the Promotion Mix  Each element represents a different way for the organization to _ with its customers  _ —nonpersonal communication about goods, services, or ideas that is paid for by the firm identified in the message  _ —a set of nonpersonal communication tools designed to stimulate quicker and more frequent purchases of a product  _ —the two-way flow of personal communication between a salesperson and a customer that is paid for by the firm and seeks to influence the customer‘s purchase decision  _ —communication focused on promoting positive relations between a firm and its stakeholders  Today, firms work to integrate the elements, so that the contribution from the whole promotion mix exceeds the sum of the _ Integrated Marketing Communications  An integrated communications solution involving multiple elements of the promotion mix allows a firm to effectively create and develop _ with customers  An _ (IMC) strategy involves coordinating the various promotion-mix elements to provide consumers with a clear and consistent message about a firm‘s products  Each of the promotion-mix elements can influence different segments of the _ , and marketers should try to understand the _ of each element within the IMC strategy  Firms should use _ techniques to assess which promotion-mix elements have the most influence on different market segments at different points in the product life cycle  The marketing department can allocate more of its promotion budget to the elements that are most effective, increase _ , build _ , and improve customer relationships Finding the Optimal Promotion  The optimal mix might include additional advertising for new products or high levels of sales promotion for mature products or adding _  Regardless of where a product is in its life cycle, _ often requires significantly more marketing resources in the months following a crisis  The mix of promotional tools and how marketers integrate them can also change from year to year, or even from week to week, as _ and _ change  Marketers should thoughtfully consider what mix of promotional elements will be most effective for their target market 605 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Marketers should utilize _ to measure how successful each element of the promotion mix is, making adjustments as necessary to maximize the value of each promotional dollar spent

Elements of the Promotion Mix Promotion Mix Elements Advertising → Promotion Mix →

Promotional Tools Internet, television, radio, print, social media

Sales promotion →

Coupons, rebates, contests, sweepstakes

Personal selling →

Prospecting, presentation, closing, follow-up

Public Relations →

Annual reports, speeches, blogs, brochures

LO8-2: Compare the advantages and disadvantages of different types of advertising. Advertising  _ is nonpersonal communication about goods, services, or ideas that is paid for by an identified sponsor  The _ component refers to the fact that advertising uses media (e.g., Internet, television, radio, or print) to transmit a message to large numbers of individuals rather than marketing to consumers face-to-face  The _ aspect of the definition indicates that the time or space for an advertising message is purchased  Because it is paid for, advertising has the advantage of control: The _ decides how to present the message to the public  An _ is a collection of coordinated advertisements that share a single theme  Marketers use advertising campaigns to achieve three primary objectives: to inform, to persuade, and to _  _ attempts to develop initial demand for a product, and it‘s especially important in the introductory stage of the product life cycle  _ attempts to increase demand for an existing product and is common during the growth stage of the product life cycle  _ seeks to keep the product before the public in an effort to reinforce previous promotional activity and is most common in the maturity and decline stages of the product life cycle  Choice of media depends on the firm‘s _ —whether it seeks to inform, persuade, or remind—and where the audience it wants to reach is 606 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Figure 8.2 Percentage Share of Global Advertising Expenditure by Medium INSIGHT QUESTIONS Which medium has the most significant change in advertising expenditure from 2016 to 2018?

Do you think mobile Internet advertising will continue to increase in the years to come? Why or why not?

Television Advertising  Today, the most popular shows on television often average fewer than _ million viewers per week  Running ads during such shows comes at an increasingly high cost to firms as the price of television commercials has gone up dramatically in recent years  One reason for the decreased viewership of top-rated television programs is the greater number of _ available to consumers  In the early 1980s, the average American home had access to fewer than _ channels  Today, the average American household can choose from over 189 channels, plus a variety of streaming and on-demand options Advantages of Television Advertising  A major advantage of television advertising is the ability to combine sight, _ , and _ to appeal to consumer senses  Television ads can develop messages that entertain or _ to consumers in ways that radio and print media cannot  Television ads can demonstrate _  A more recent advantage of television advertising comes from the increased number of television channels, which provides marketers an opportunity to target _ through narrowcasting  _ is the dissemination of information to a fairly small, select audience that is defined by its shared values, preferences, or demographic attributes

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Disadvantages of Television Advertising  Perhaps the biggest disadvantage of television advertising is _  The cost to air a single 30-second ad on a major broadcast network (NBC, ABC, CBS, or Fox) during _ averages well over $100,000 and can be much higher for popular shows  A 30-second ad on the popular NBC series This Is Us cost over $_ in 2018  In recent years, a 30-second television ad during the Super Bowl cost between $_ and $_ million  A majority of all American households that subscribe to cable or satellite television services now have some type of DVR for recording and watching their favorite programs  Its ad-skipping ability leaves marketers paying for television ads that viewers aren‘t watching  Firms are implementing new strategies to put their ads directly into the program content using _  In 2021, millions of cord-cutters in the United States—consumers who have ever canceled traditional pay-television service and do not resubscribe—had reduced the percentage of consumers with cable or satellite subscriptions to 60 percent  Consumers are increasingly using _ services such as Netflix and Peacock to watch programs on demand across any device they choose Product Placement  _ is an advertising technique in which a company promotes its products through appearances in movies or on television shows or other media Internet Advertising  _ —combining desktop and mobile advertising—is now the second-largest global advertising medium and is growing every year. Internet advertising takes many forms  Paid _ typically involves offering consumers advertising links to brand content based on what they‘re searching for  Paid _ typically consists of banner advertising—a graphic display that appears on a website in an effort to get you to click on the content  Social media platforms like Facebook offer new strategies for online advertising and so are an ever-more-popular choice for Internet advertisers  _ is advertising that communicates directly with consumers and organizations in an effort to provoke a response  _ have become so common that many consumers simply ignore them as they find their desired content  _ that prevent or delay a customer from finding desired content can lead to a negative impression from the very consumers marketers are trying to reach 608 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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CONNECT BACK: Reference Connect Assignment 8-1 Develop a chart that details the terminology for each social media platform. Do any platforms share terminology or functionality?

How can the various social media platforms appeal to a variety of demographic groups?

Print Advertising  Print advertising media typically consist of newspapers and _  Advertising in print media requires a greater degree of involvement on the part of the consumer than in _  Readers choose what they want to read and then can spend as much time as they want reading it, which makes print advertising especially appealing for _ (significant) consumer products  Marketers spent over $_ billion in 2021 on newspaper advertising, although that number is less than a quarter of what it was in 2005  There are thousands of special-interest magazines in the United States and throughout the world, covering almost every possible subject or interest  Approximately _ of all U.S. adults look through at least one magazine on a regular basis Advantages of Print Advertising  It is an effective way for small businesses to advertise their goods or services to the local community  Firms can run their ads in a particular section of the newspaper if their business or product is specific to that section  Magazine advertising enables marketers to target very specific audiences  Magazine advertisements also have a _ shelf life than daily newspapers

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Disadvantages of Print Advertising  The major disadvantage of print advertising is that fewer and fewer Americans use print as their primary information source  _ consumers often receive news, entertainment, and employment information via computers and portable electronic devices  _ ads compete with other ads and editorial content for the consumer‘s attention  The time frame for designing a _ forces marketers to plan and prepare advertisements months in advance of publication  As a result, the target audience might not see the ad until after the firm has committed the time and _ to the advertisement  Marketers typically do not control where their advertisements are placed in relation to the features and stories contained in the publication  _ of an ad is essential to its success or failure Radio Advertising  Radio advertising remains a powerful promotional tool because consumers can listen to the radio in their cars, online, and virtually anywhere else through their _  Marketers spend approximately $_ billion per year on radio advertising Advantages of Radio Advertising  _ is often the most cost-effective medium available  Buying radio ad time is far cheaper than buying _ ad time  The production costs of radio advertising are comparatively low, or even nonexistent if the ad is read live during a broadcast  Radio allows marketers to segment effectively based on the _ and format of a radio station  The narrow transmission of terrestrial radio stations provides a great way to market to small geographic regions  Marketers can also segment consumers by what they _ : country, pop, gospel, hip-hop, heavy metal, sports talk, politics, and numerous other formats  Advertising on stations that cater to these different audiences is a form of _ that allows firms to target more effectively Disadvantages of Radio Advertising  The biggest disadvantage of radio advertising has been that radio ads are _  Most cars today have digital presets that allow listeners to _ when a commercial comes on simply by touching a button 610 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The popularity of satellite radio represents an emerging challenge Over _ percent of Americans listen to content on digital devices in their car; that number is expected to increase in the years ahead, making it harder for traditional radio advertising to reach these customers Outdoor Advertising  Outdoor advertising includes _ , signs in sports arenas, _ , and ads on the sides of buildings, buses, and cars Advantages of Outdoor Advertising  Outdoor advertising provides _ and _ , that are very appealing to marketers  Outdoor ads can be located where they will most likely be seen  Outdoor advertisements are also one of the most cost-efficient ways to reach potential customers and clients and are generally _ than television, print, or radio advertisements Disadvantages of Outdoor Advertising  Because of the speed people travel in cars, the _ for outdoor ads is generally very short  This limits the number of _ or _ that firms can use effectively  While outdoor advertising allows companies to target specific areas, it is unlikely that everyone driving past an outdoor ad is part of the _ Nontraditional Advertising  Business spending on traditional advertising like television, newspapers, and radio has been declining over the past decade  Nontraditional advertising encompasses some of the newest forms of advertising  A growing type of _ is mobile advertising, advertising that is communicated to the consumer via a handheld device  Over _ percent of U.S. adults use smartphones, and most keep their devices within arm‘s reach for the majority of the day  Marketers spend over $_ billion each year on mobile advertising, and new methods are emerging constantly as technology evolves  The market for ads in _ globally is expected to grow from $4.0 billion in 2020 to almost $5.0 billion in 2024 THINK LIKE A MARKETER When should a marketer use an informative advertising strategy?

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THINK LIKE A MARKETER When should a marketer use a persuasive advertising strategy?

THINK LIKE A MARKETER When should a marketer use a reminder advertising strategy?

CONNECT BACK: Reference Connect Assignment 8-2 Should all advertising media be used for every advertising campaign?

How should organizations choose which advertising media should be used in the marketing strategy?

LO8-3: Summarize the various types of sales promotion. Sales Promotion  Sales promotion activities account for the bulk of most firms‘ promotion budgets  _ is a set of nonpersonal communication tools designed to stimulate quicker and more frequent purchases of a product  Firms often use sales promotion to support the other elements of their promotion mix  Successful sales promotions have the potential to build short-term excitement and long-term _ simultaneously

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Coupons  _ remain the most common type of sales promotion  _ are documents that entitle the customers who carry them to a discount on a product or service  Traditionally, coupons have come in the form of printed vouchers that customers present to claim their discount  The expansion of _ is changing the form and use of coupons  _ provide firms with an effective method for stimulating sales and encouraging customers to make additional or repeat purchases  A firm can control the timing and distribution of coupons in a way that does not dilute potential revenue from a customer who is happy paying the full price  Coupon fraud is a serious problem in the form of _ practices, and all misredemptions have the effect of reducing the firm‘s profitability Rebates  _ allow consumers to recoup a specified amount of money after making a single purchase  Most rebates require customers to mail their receipt and proof of purchase to manufacturers  Marketing professionals offer over _ million rebates each year  Statistics show, though, that between _ and _ percent of all rebates are not redeemed  Rebates provide the incentive of a _ , but because customers often fail to redeem them, the firm typically earns greater profits than it would by issuing coupons  Rebates work most effectively when offered in conjunction with a high-involvement purchase in which the perceived _ of the rebate is magnified Samples  _ offer potential consumers the chance to actually try the product  Samples can be expensive because marketers are giving away _ in many cases  They can also be a powerful tool for getting customers to actually _ the product Contests and Sweepstakes  Firms spend approximately $_ billion per year on contests and sweepstakes  The terms _ and _ are often used interchangeably, but there is a distinct difference between the two

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_ are sales promotions in which consumers compete against one another and must demonstrate skill to win  Contests provide marketers with a way to _ consumers and _ them to promote an organization‘s products and brand  _ are sales promotions based on chance  The only requirement to win is that you _  Every entry has an _ chance of being drawn as the winner  Contests can be expensive to administer  Because each entry must be judged, firms can‘t rely on _  A potential disadvantage of sweepstakes is the legal and _ issues that can arise  Multiple federal and state government agencies monitor contests and sweepstakes to make sure they are fair and properly represented to the public Premiums  A_ is a promotional item that is given as an incentive for performing a particular act, typically buying a product  Premiums can come in a variety of forms including toys, _ , and souvenirs  Examples of _ include receiving a prize in a child‘s meal or a free garden tool for visiting the grand opening of a hardware store Loyalty Programs  Designed to strengthen customer relationships, _ allow consumers to accumulate points or other benefits for doing business with the same company  Loyalty programs are especially popular in the airline and hotel businesses  Loyalty programs have grown in importance as natural loyalty to products has decreased in many industries Trade Sales Promotions  _ are promotion tools directed to B2B firms, including wholesalers and retailers, rather than to individual consumers  Trade sales promotions often include the same tools discussed earlier (coupons, rebates, contests and sweepstakes, and loyalty programs), plus three other major approaches  (1) A _ is an event at which organizations in a specific industry promote their offerings to firms they hope will buy them  Marketers use trade shows to identify potential customers, inform current customers about new and existing products, and demonstrate products and materials 614 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(2) _ typically involve paying retailers for financial losses associated with consumer sales promotions or reimbursing a retailer for an in-store or local expense to promote a specific product  (3) _ activities such as brochures or on-site demonstrations help retail and wholesale personnel understand the product‘s benefits  Training also helps ensure that employees at every level understand the _ , advantages, and _ of the products they are trying to sell LO8-4: Explain the importance of personal selling. Personal Selling  Personal selling is the _ flow of communication between a buyer and a seller that is paid for by the seller and seeks to influence the buyer‘s purchase decision  Personal selling differs from the other tools of the promotion mix because messages flow directly from the salesperson to the customer, often _  Despite economic and technological changes, the role of personal selling is more important today than ever before  Salespeople often serve as the _ between the firm and the customer—they are the eyes and ears of the organization and help marketers understand what customers like and dislike and what changes are happening within an industry  A major challenge of personal selling is the _ involved and almost always averages several hundred dollars per visit  The other challenge for personal selling has been ensuring that each salesperson communicates a message that is _ with other salespeople as well as the full integrated marketing communications strategy  _ offers two unique advantages over the other promotional elements  Personal selling results in _ feedback from the customer

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Personal selling allows the firm to develop a personal relationship with the customer Relationship selling is a sales approach that involves building and maintaining customer _ over a long period of time

THINK LIKE A MARKETER What are some examples of relationship selling?

THINK LIKE A MARKETER Which industries would relationship selling be more applicable?

LO8-5: Describe the role of public relations within the promotion mix. Public Relations  Public relations strategies provide information and build a firm‘s image with the public, including customers, employees, stockholders, and _  _ is nonpersonal communication focused on promoting positive relations between a firm and its stakeholders Public Relations Tools  Organizations use a variety of tools for public relations, including the following:  _ provide a forum for the organization to share with its stakeholders what it has achieved over the past year  _ provide an avenue for members of an organization to market their message directly to a group in a longer form speech  _ are an emerging social media tool through which individuals can share their thoughts and knowledge with the public  _ typically are intended to inform and/or engage the public. A modern public relations brochure can be on paper or online  Media kits are typically a package of information provided to reporters and the general press  _ involve an organization paying to have its name associated with projects, programs, or facilities  _ involves developing a themed exhibit, display, or presentation to promote an organization to its target market 616 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ involves disseminating unpaid news items through some form of media (e.g., a television story or on Instagram) to gain attention or support The major advantage of publicity is that, when done well, it allows marketers to communicate with consumers at an extremely _ The major disadvantage of publicity is that organizations have _ control over how the information is presented because they don‘t pay for it Bad publicity and negative news can harm an organization‘s _ and _

The Impact of Social Media on Public Relations  _ have increased the speed at which marketers, politicians, athletes, and virtually anyone can get direct contact with their target audience very quickly  Social media platforms ranging from Facebook to Twitter to Instagram allow marketers and organizations to tell their story and promote positive relationships with their _  _ are a powerful PR tool that marketers can maximize using social media  Organizations can quickly and cost-efficiently provide engaging content about the impact of their goods and services on customers to the people who are most _ in the brand  Since marketers face the challenge of dealing with positive as well as negative _ , monitoring social media is essential Crisis Management  Public relations can be especially important when an organization faces a _  It is essential that marketers communicate to their stakeholders via social media as _ as possible when a crisis occurs  Organizations that try to _ or _ about the crisis are generally criticized afterward on social media more for their delay than for the incident itself The Changing Face of Public Relations  _ today is a 24-hours-a-day, 7-days-a-week job for marketers across for-profit industries, government entities, and nonprofit organizations  Advances in _ cause information to spread faster than ever before and amplify the influence of that information on potential customers  Marketers should use all of the tools discussed, including social media, to make sure the _ perceives the company in the most _ way possible 617 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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A simple truth in marketing is that people _ organizations they like and respect LO8-6: Describe metrics that measure the effectiveness of an organization’s promotional strategy. Promotional Metrics  Because promotion is such a big part of an organization‘s budget, it is essential that marketers measure the _ of the promotional strategy  Almost every organization, ranging from large for-profit businesses to small, local nonprofits, uses some form of advertising and social media Measuring Advertising Effectiveness  Marketers typically conduct a _ in which a sample of targeted consumers evaluates advertisements before an ad campaign begins  Pretests help set a _ measure for marketers, against which to evaluate the subsequent campaign  After the ad campaign, marketers conduct a _ , an evaluation after the campaign of the ads by the same targeted segment of consumers  Companies often measure print and digital advertising based on whether consumers see the ads and how well they _ and _ them  A_ involves showing consumers the print advertisement and asking whether they recognize the ad  _ require consumers to recall ads from memory, without any clues  In _ , respondents receive clues to help stimulate their memory  If consumers don‘t recognize or recall the firm‘s print advertisements, marketers may change the _ or _ of the ad or deliver it through an alternative medium  Marketers also measure how many consumers have been exposed to their various promotional efforts  _ is the percentage of the target market that has been exposed to a promotional message at least once during a specific time period  Unfortunately, no matter how effective a single advertisement might be, it generally takes multiple _ to move a consumer to make a purchase or change their buying habits in some way  _ measures how often the audience is exposed to a promotional message during a specific time period  A person has to hear something multiple times to remember it

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This strategy of cultivating high-frequency advertising at a low cost can improve _ , which is calculated by comparing total revenue to the amount of money spent on advertising  Companies should also explore the use of _ research tools (like focus groups and consumer interviews) as a way of understanding the effectiveness of their advertising, public relations, and other promotional programs Measuring Social Media  Marketers use a variety of tools to evaluate the success of their social media marketing strategies and guide their decisions going forward  Key tools for measuring the effectiveness of social media include the following:  Google has a comprehensive analytics service that helps track user activity on an organization‘s website in real time called Google Analytics  Kred measures both social influence and outreach, providing a score for each on a user‘s profile  Buzzsumo is an excellent way to analyze and monitor Facebook pages  Along with metrics around each individual post, users have the ability to see what content performs best Marketing Analytics INSIGHT QUESTIONS What gets measured in the pretest and posttest?

An advertising goal may be to cultivate advertising at a low cost. How can measuring your marketing demonstrate this?

LO8-7: Summarize the promotion-mix budgeting strategies. Promotion-Mix Budgeting Strategies  Determining the appropriate _ decision within any marketing strategy  Firms that set the budget too _ are often ineffective in communicating _ customers  Firms that set the budget too _ _

is an important risk blending into the competition and to potential open themselves up to waste and

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Promotion-budget decisions should consider a variety of factors such as the _ , the geographic location of the firm‘s customers, and the level of competition in the industry Affordable Method 

Firms that use the _ set their promotion budget based on what they believe they can afford  The affordable method is a _ approach that is particularly common in small businesses  The affordable method is simple and _ but offers no other benefits for the organization  A major disadvantage of the affordable method is that it is not tied to specific _ Percentage-of-Sales Method 

One of the most widely used budgeting approaches is the _  Companies that use the percentage-of-sales method allocate a specific percentage of a _ or an upcoming period‘s _ to the promotion budget for that period  The method has the advantage of being simple because the promotion budget _ at the same rate that firm sales increase  The primary disadvantage of the percentage-of-sales method arises when a firm‘s sales _ Objective-and-Task Method   



The _ approach is typically considered the best of the budgeting methods It incorporates many of the strengths of the other budgeting methods without having their weaknesses The objective-and-task method takes a _ approach to promotional budgeting: It defines specific objectives, determines the tasks required to achieve those objectives, and then estimates _ The only major disadvantage of this method is the _ and _ required to decide on the required tasks

TODAY’S PROFESSIONAL NOTES Hope Sparks, VIP Owner Concierge, Vistana Signature Experiences How much of your job will be performance-based?

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Where does your ―spark‖ come from?

CONNECT BACK: Reference Connect Assignment 8-3 What should be considered in choosing an appropriate budgeting strategy for an organization?

After exploring the rationale of each budgeting strategy, do you think one strategy has an advantage over another?

MARKETING PLAN EXERCISE Your Marketing Plan. The marketing plan exercise for this chapter focuses on developing your own promotional strategy. You can think about this using the same four promotion-mix elements discussed in this chapter: advertising, sales promotion, personal selling, and public relations. First, how are you advertising yourself? For example, what does your resume look like? What does it say about you? If your resume is the same basic template that looks just like everyone else‘s, how will you stand out from others competing for the same job? Please read the Career Tips at the end of this chapter for suggestions. Also, consider what your social media profile says about you. If prospective employers were to look at your Facebook, LinkedIn, or Twitter profile, would they like what they saw? Would it reflect the image of a thoughtful, driven professional? Next, consider using a sales promotion tool such as sampling. Unpaid internships give firms an opportunity to sample your work, increasing the likelihood that you could be hired there on a permanent and paid basis. Do the companies you want to work for offer unpaid internships? If so, how do you go about applying for them? How can you adjust your personal financial situation to take an unpaid internship if it helps advance your career? Next, consider your ability to personally sell yourself. What will you say in an interview that will convince a prospective employer that they are better off with you than without you? The same strategies salespeople use to make a good first impression, such as appearance, grooming, professional dress, and a firm handshake, are all the things you want to fine-tune as you get ready for the job market. Finally, public relations are essential as you start to develop your career. What do your colleagues think about you? Would your professors or classmates recommend you? Think about what you can do to improve or enhance others‘ perceptions of you. 621 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Student Task: Create an outline of the specific advertising, sales promotion, personal selling, and public relations strategies you plan to use as you begin your career. For each type of promotion, answer the questions posed in the Marketing Plan Exercise and summarize how each can help you market yourself. Chapter 8 PROMOTING MYSELF Advertising

Sales promotion

Personal selling

Public relations

Chapter 9: Personal Selling

ER Productions/Blend Images/Getty Images

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Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 9 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-163 Describe the strategic role of the sales force and the factors that influence the use of personal selling. LO 1-164 Understand the different types of sales positions. LO 1-165 Explain the steps in the personal selling process. LO 1-166 Describe the foundational elements necessary for sales success. LO 1-167 Describe the use of sales technologies and social network platforms in professional selling. LO 1-168 Discuss ethical issues in personal selling and sales management. KEY TERMS adaptive selling advantages (in FAB approach) approach benefits (in FAB approach) channel sales representatives consultative sellers CRM system customer advocacy customer lifetime value (CLV) customer-oriented selling

customer relationship order-taker salespeople management (CRM) personal selling customer success manager personal selling process delivery salespeople pre-approach feature-advantage-benefit prospect (FAB) approach prospecting features (in FAB approach) qualifying gaining commitment relationship selling key-account sellers sales enablement lead scoring sales engineers market-related knowledge sales force management missionary salespeople selling-related knowledge new-business salespeople social selling objections virtual selling THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. 624 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What is personal selling? List three examples of personal selling activities (be sure to include yourself in one of the examples). Set 2: What makes sales force management a complex and demanding job?

Tyler Cornwell Assistant Vice President, Palmetto Philanthropy Focusing on making small improvements every day is what Tyler Cornwell advises. He adds that integrity and determination define him and addresses the following questions:

Joe and Robin Harbison

352. What has been the most important thing in making you successful at your job? 353. What advice would you give soon-to-be graduates? 354. How is marketing relevant to your role at Palmetto Philanthropy? 355. What do you consider your personal brand to be? 356. How have the B2B selling environment and sales process changed over the course of your career? Later in the chapter you see how Tyler elaborates on: 

How he adds to his market-related knowledge as a salesperson.

Review with students:  

625

How is marketing relevant in his role? How does nonverbal communication help you be a good listener?

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LO 9-1 Describe the strategic role of Key Terms: the sales force and the factors  Personal selling that influence the use of  Customer lifetime value personal selling.  Relationship selling  Importance of Personal Selling  The Strategic Role of the Sales Force  Factors that Influence Use of Personal Selling  B2B versus B2C Sales  Personal Selling in the Digital Age  Career Opportunities in Sales  Great Salespeople Are Made, Not Born PowerPoint Lecture Notes: Slides Importance of Personal Selling 

Personal selling consists of the two-way flow of communication between a buyer and a seller, one that is paid for by the seller and seeks to influence the buyer‘s purchase decision  The interpersonal aspect of personal selling helps companies create and maintain strong customer relationships  In contrast to advertising and sales promotion, personal selling is a much more effective tool in complex purchase situations  Personal selling activities play a crucial role in driving firms‘ competitive advantage and superior financial performance  Salespeople are a critical link that connects the business with its customer  Virtually everything we do in the course of the day—from the trivial to the truly miraculous—is a direct result of someone selling something to someone else The Strategic Role of the Sales Force     626

Today‘s buyer has much greater access to information about products and services Customers‘ use of the Internet and social networking technologies has brought greater transparency with respect to price, product quality, and customer service The selling environment has also grown increasingly complex Globalization has brought greater competition to many markets

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The changing selling environment has led to a fundamental rethinking of the strategic nature of the sales force  Customer lifetime value (CLV) focuses on the net present value of a customer‘s business over the span of their relationship with an organization  Relationship selling involves building and maintaining customer trust over a long period of time—not just doing whatever it takes to meet periodic sales quotas THINK LIKE A MARKETER How much of selling, today, is relationship selling? Factors that Influence Use of Personal Selling    

According to the Marketing Science Institute, firms on average gain a $31 increase in sales revenue for every $100 in increased sales expenditures Personal selling is more effective in promoting some products more than others When launching and establishing new products, companies may be better off investing more in their direct sales forces Personal selling is more effective when a good or service is (1) new-to-theworld, (2) infrequently purchased, (3) highly technical or complex, (4) viewed as risky, and (5) customizable

Figure 9.1

Insight Questions:

Figure Information: Factors that Influence Emphasis on Personal Selling

357. Why might a firm use personal selling if the product is viewed as risky? (Answer: Purchases of high-priced or high-involvement items typically elevate buyers‘ risk perceptions. In such cases, salespeople often play a critical role in helping to build customers‘ trust in the firm and its products [e.g., investing in an emerging market‘s mutual fund].) 358. Why might a firm use personal selling if the product is customizable? (Answer: Such products may require the assistance of sales personnel to properly configure the offering to match customer needs [e.g., a university medical center buying and implementing a new information system].)

Here are six major factors that influence the degree to which a firm would use personal selling. PowerPoint Slides

Lecture Notes: B2B versus B2C Sales 

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Selling products to consumers and to businesses center on helping customers

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resolve problems, and both follow a similar sequence of steps B2B sales are often much larger financially and take longer to complete, and there are often multiple decision makers B2B buyers possess extensive information about the product and are experienced, professional negotiators Whether the context is B2B or B2C, effective sales professionals are able to guide these buyers through complex decision processes

Personal Selling in the Digital Age    

Sales remains the second largest occupational category (behind office and administrative workers) in the U.S. workforce—as it has been for decades According to the U.S. Bureau of Labor Statistics (BLS), each day more than 15 million people earn their living trying to convince someone else to make a purchase People spend roughly 40 percent of their work time—24 minutes out of every hour—persuading, influencing, and convincing others in ways that don‘t involve making a purchase Today‘s trained sales professional is much more likely to adopt an approach that fosters a long-term, consultative relationship with customers

Career Opportunities in Sales      

Job listings for entry-level sales representatives are among the most plentiful Sales courses are designed to give students a head start in developing the basic skills, knowledge, and experience for entry-level sales positions According to research from the Baylor University Center for Professional Selling, students in sales programs, nationally, average 2.8 job offers before graduation Professional selling and sales management can be among the most financially rewarding careers According to Glassdoor.com, the national average salary for an entry-level sales position in 2016 was $46,000 per year Sales positions offer qualities that appeal to Millennials: autonomy, rewards linked to personal effort, and the opportunity to interact with a variety of people

Great Salespeople Are Made, Not Born   

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It is true that individuals with certain personality characteristics, such as extroversion, seem more drawn to selling careers Yet a comprehensive analysis of research has shown the relationship between personality and sales performance is negligible Differences in other individual characteristics—like a positive self-concept, high motivation, and an optimistic outlook—can have a tremendous impact on long-term sales success

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Regardless of your major, in a few short years you will be ―selling‖ employers on how your unique talents and experiences will contribute to the success of their organization THINK LIKE A MARKETER How will you ―sell‖ yourself to a potential employer? Table 9.1

Insight Questions:

Table Information: Sales Salaries by Job This table provides details of national average sales salaries by job title. Highperforming salespeople earn incomes far above these national averages. They also enjoy great visibility within the organization.

359. Professional selling and sales management can be among the most financially rewarding careers. What salary range does Glassdoor indicate? (Answer: According to Glassdoor.com, the national average salary for an entry-level sales position in 2016 was $46,000 per year, with the lowest figure being $36,500 and the highest at $158,811.) 360. Which job titles provide a six-figure salary, according to Glassdoor.com? (Answer: Regional Sales Manager and Vice President of Sales)

LO 9-2 Understand the different Key Terms: types of sales positions.  New-business salespeople  Types of Sales Positions  Channel sales representatives  New-Business  Order-taker salespeople Salespeople  Delivery salespeople  Order-Takers  Consultative sellers  Consultative Sellers  Missionary salespeople  Missionary  Key-account sellers Salespeople  Sales force management  Key-Account Sellers  Sales engineers  Sales Management  Customer success manager and Support  Sales Support Roles PowerPoint Lecture Notes: Slides Types of Sales Positions    629

Not all sales positions are the same Field sales representatives often work out of their homes and often travel substantial distances to meet with customers at their places of business Many new salespeople today start out with ―inside-sales‖ positions

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The duties and compensation associated with different types of sales jobs can widely differ

New-Business Salespeople     

New-business salespeople are responsible primarily for finding new customers and securing their business Typically, the sales prospect is likely to be a client of a competing firm Given the highly competitive nature of this type of selling, new-business salespeople must exhibit high levels of credibility, creativity, and professionalism; as a result, they are often very highly paid for their efforts Channel sales representatives look to win, maintain, and expand relationships with channel partners Whether they sell directly to customers or seek to secure new distribution intermediaries, all new-business salespeople may be accurately described as order-getters

Order-Takers     

Order-taker salespeople are sales representatives who primarily process orders that a customer initiates They are most commonly found within retail and inbound call-center settings Delivery salespeople are sometimes known as a route salespeople and their chief role is product delivery Responsibilities such as checking inventories, stocking shelves, and writing up new orders also may be part of the job Compared with the other categories, delivery salesperson positions tend to attract younger, less-well-educated candidates and offer lower pay

Consultative Sellers    

Many new-business and delivery salespeople focus on short-term outcomes; as a result, they often use transactional sales approaches Consultative sellers, instead, focus on developing long-term relationships This type of sales job is found across many sectors and is particularly concentrated within traditional industrial settings such as machinery, electronic, and metal products A consultative seller must develop a deep knowledge of the customer‘s industry, business issues, and needs

Missionary Salespeople  

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Missionary salespeople generate sales by promoting the firm and encouraging demand for its goods and services Unlike other types of sellers, missionary salespeople do not actually get or take orders from customers

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Key-Account Sellers     

The cost of acquiring a new customer is up to five times more than retaining an existing one; for the largest, most-strategic customer accounts, this ratio may be even higher Many B2B organizations have sought a more systematic approach to growing and protecting the business of their most strategically important customers They have augmented their traditional sales force structure with key-account sellers These sales reps typically focus on establishing and maintaining partnership relationships with a small set of three to five named accounts This highly specialized role tends to require higher levels of education and prior sales experience

Sales Management and Support     

Sales force management involves the planning, direction, and control of personal selling activities Sales managers have oversight of selling efforts at varying levels of the organizational hierarchy Great sales managers are more than just supervisors—they are leaders who inspire their employees and help them achieve their personal and career goals In the past, this type of mentoring took place on a face-to-face basis; now, much of it is digitally mediated Research shows that a salesperson‘s interpersonal identification with their sales manager contributes to superior customer satisfaction ratings for the representative and stronger sales performance

Sales Support Roles    

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In many complex sales settings, sales engineers interact with counterparts within the customer‘s buying center to address technical questions and issues that arise over the course of the entire sales process In high-tech sectors like aerospace and enterprise software, these technical specialists typically have educational backgrounds in fields like engineering, computer science, and physics More companies are shifting responsibility for onboarding new customers, identifying account growth opportunities, and long-term client retention to a customer success manager Rather than reacting to customer problems to ensure the product meets expectations, customer success managers proactively look out for their customers‘ business, suggesting new and innovative ways to keep them succeeding with the company‘s products and services Sales operations refers to the unit, role, activities, and processes within a

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sales organization that support, enable, and drive frontline sales teams to sell better, faster, and more efficiently Topic: Types of Sales Positions Connect Assignment 9-1 Complete the Connect exercise in Chapter 9 that focuses on the types of sales positions. By understanding what is involved in each, you will better understand the strategy in hiring different types of salespeople as well as which roles might fit you best in your career. CONNECT BACK Insight Questions:

LO 9-3 Explain the steps in the personal selling process.  The Personal Selling Process  Prospecting and Qualifying  Pre-approach  Approach  The Presentation  Handling Objections  Gaining Commitment  Follow-Up  Applying the Personal Selling Process to Your Future Job Search 632

361. Many new-business and delivery salespeople focus on short-term outcomes, but consultative sellers focus on developing long-term relationships. Why so? (Answer: Consultative sellers strive to become trusted advisors to customers. In order to effectively create customized solutions, a consultative seller must develop a deep knowledge of the customer‘s industry, business issues, and needs, and this is best done via building a relationship with the customer over a long period.) 362. Many B2B organizations have sought a more systematic approach to growing and protecting the business of their most strategically important customers. What is this called? (Answer: Key-account sellers, who focus on establishing and maintaining partnership relationships with a small set of three to five named accounts.) Key Terms:  Personal selling process  Prospect  Prospecting  Qualifying  Pre-approach  Approach  Feature-advantage-benefit (FAB) approach  Features  Advantages  Benefits  Objections  Gaining commitment

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Lecture Notes: The Personal Selling Process 

   Figure 9.2

The personal selling process consists of a sequence of seven steps that salespeople follow to acquire new customers and obtain orders: prospecting and qualifying, pre-approach, approach, presentation, handling objections, gaining commitment, and follow-up In order to allow salespeople more face-to-face time with customers, some organizations hire specialists to do activities such as prospecting and lead qualification Not every sale goes through all of the stages Note that the amount of time allocated to each activity varies from one sales representative to the next Insight Questions:

Figure Information: Personal Selling Process

363. What steps are completed before the sales call actually takes place? (Answer: prospecting and the preapproach) 364. When does Step 7 occur? (Answer: after the sales call)

This figure presents a graphical depiction of the personal selling process. The steps numbered as 1 and 2 take place in advance of the sales call. The steps numbered 4 through 6 occur during the sales call itself. Step 7 happens after the sales call. PowerPoint Slides

Lecture Notes: Prospecting and Qualifying      

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A sales prospect is an individual (or group) capable of making the decision on a good or service a salesperson is selling Identifying and qualifying such individuals and organizations in search of new business opportunities is the lifeblood of most businesses Prospecting involves the search for potential customers—those who need or want a product and fit into a firm‘s target market Potential customers can be found in a variety of ways: customer referrals, trade shows, industry directories, websites, and networking The main goal of this step is to find qualified prospects The activity of qualifying prospects involves identifying potential customers within the firm‘s target market who have a desire for the product, the

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authority to purchase it, the resources to pay for it, and time frame for purchase The most obvious approach in qualifying prospects is simply talking with the target customer Qualifying also involves doing market research to better understand the target customer‘s needs, wants, and ability to pay Once a prospect has been qualified, the salesperson can adjust the amount of effort directed toward securing a sale

Pre-approach    

In the pre-approach stage of the personal selling process, the salesperson does research and preparation before contacting the customer They should identify key decision makers, review account histories, ascertain customer needs, and prepare sales presentations The entire personal selling process can result in failure if the salesperson doesn‘t know as much as possible about the prospect before approaching them about the sale In today‘s world, plenty of information about companies, industries, and individuals is available online with just a few clicks; there is zero excuse for not tailoring your approach and need assessment questions

Approach        

In the approach stage, the sales rep meets the customer for the first time A key element of the approach is gaining a sufficient level of customer interest in order to schedule an appointment Setting the first appointment is arguably the most important, and most difficult, step in the sales process The McKinsey Global Institute estimates that the typical American hears or reads more than 100,000 words every day—e-mails, texts, tweets, meetings, webcasts, commercials, blog posts, videos, and more Carefully plan your approach to ensure that you present a strong value proposition that speaks to a valid buyer need Whenever possible, use the name of a trusted resource and reference him or her in the introductory e-mail or phone call The follow-up should help establish credibility and position the rep as a useful resource Once the salesperson has succeeded in obtaining a meeting, the next goal is to build rapport—a friendly relationship—with the decision maker or key influencers

The Presentation   634

After the approach, the salesperson prepares the sales presentation Ideally, the sales presentation will: (1) accurately convey the product‘s major

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features, (2) describe its advantages in comparison with alternatives, (3) detail how it will provide benefits for the potential customer In the feature-advantage-benefit (FAB) approach, features are attributes or facts relating to the product being sold or demonstrated ―Feature dumping‖—listing features without tying them to benefits—is one of the worst mistakes a salesperson can make Advantages are general statements about what the features do; they may or may not be connected to an expressed or actual customer need Benefits are the individual values attached to the advantages offered by various features of the product; they are the bridges that connect the advantages of the various features to the specific needs of a customer Prepare presentations with an understanding of the value of the customer‘s time Spend time thinking about what you want the customer to remember about the presentation Customers want to do business with organizations they like and trust The more a salesperson knows about the prospect‘s needs, the better position they are in to meet those needs

Handling Objections        

Objections are the concerns or reasons customers offer for not buying a product Objections actually are useful: when a customer raises an objection, the salesperson has an opportunity to clarify and reassure the customer about pricing, features, and other potential issues Handling objections requires professionalism, strong communication skills, and a sincere respect for the prospect‘s concerns Common techniques of overcoming objections include: (1) acknowledging the objection, (2) postponing, and (3) denial In B2B contexts, the most common sales objections fall into four buckets: budget, authority, need, and time (known as BANT) New salespeople often try to go through an entire presentation without any objections from the prospective customer—which is often a mistake The ability to draw out specific objections and remove obstacles to purchase is one of the major advantages of personal selling Salespeople should make sure to validate the customer‘s objection, no matter how trivial it might seem, because the customer finds it important

Gaining Commitment   635

Gaining commitment occurs at the point when the salesperson asks the prospect for agreement to move forward with the sales process, ultimately leading to a purchase This is often the most difficult part of the personal selling process; it requires the salesperson to overcome the basic human fear of being rejected

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Sales reps ask questions throughout the sales presentation that test the buyer‘s readiness to commit—this is referred to as trial closes These questions enable the salesperson to ascertain (1) where the buyer is in the process and (2) the right time to ask for the sale After having tested the waters and gained agreement on key points using trial-close questions, asking for the buyer‘s business becomes a natural conclusion to the sales meeting Several common closing approaches are (1) summary close, (2) alternative close, and (3) assumptive close No salesperson can rely on just one closing strategy; the most effective close depends on the customer and the specific situation Closing can be different in more complex sales These situations typically have longer buying cycles, involve multiple decision makers, and often entail a sequence of sales meetings

Follow-Up      

The follow-up stage is a critical step in creating customer satisfaction and building long-term relationships with customers A sound follow-up strategy includes, at a minimum, checking in after the sale to ensure that the customer is satisfied Important by-products of the follow-up stage are positive word of mouth, customer testimonials, and direct referrals Diligent follow-up can also lead to uncovering new customer needs and wants, securing additional purchases, or obtaining customer testimonials and referrals that can be used to open the door for new accounts According to Salesforce.com, 84 percent of prospects respond to a salesperson referred by someone else within their organization Follow-up should never end

Applying the Personal Selling Process to Your Future Job Search   

Many of these same guidelines apply when you begin the process of interviewing for an internship or new job Develop several questions in advance of an interview Asking great questions will help you demonstrate your knowledge and preparation; the answers will enable you to learn about the business and whether it is a proper fit for you

Connect Assignment 9-2

Topic: Types of Sales Positions Complete the Connect exercise in Chapter 9 that focuses on the personal selling process. By identifying the necessary actions and decisions at each step, you will understand how to navigate successfully the process and increase sales for your organization.

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CONNECT BACK Insight Questions:

LO 9-4 Describe the foundational elements necessary for sales success.  Foundations of Sales Success  Maintaining a Positive Self-Concept  Steps to Strengthening Grit  Market-Related Knowledge  Selling-Related Knowledge  SPIN Selling PowerPoint Slides Lecture Notes:

365. At what stage does the elevator pitch take place? (Answer: During the approach. The idea was that if you found yourself in an elevator with a key decision maker, you would be able to explain who you are and what your business has to offer between the time the elevator doors closed shut and opened back up again.) 366. How are objections useful in the sales process? (Answer: When a customer raises an objection, the salesperson has an opportunity to clarify and reassure the customer about pricing, features, and other potential issues.) Key Terms:  Customer-oriented selling  Market-related knowledge  Selling-related knowledge  Adaptive selling

Foundations of Sales Success   

―You can have anything you want in life if you help enough other people get what they want‖ (Zig Ziglar) The achievement of long-term success in professional sales must be centered on serving the interests of the customer Customer-oriented selling can be viewed as the adoption of the marketing concept at the level of the individual salesperson and customer

Maintaining a Positive Self-Concept  

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Research suggests nearly 85 percent of all salespeople, regardless of experience or age, regularly experience some degree of reluctance before they contact a potential customer Customer-oriented sales approaches are most effective when the salesperson has certain traits, knowledge, and abilities: a positive self-concept, market knowledge, and sales-related knowledge

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Grit emphasizes having the strength of mind to maintain realistic optimism while not letting failures slow you down THINK LIKE A MARKETER How do salespeople actively work on positive self-concept? Steps to Strengthening Grit 

Research suggests that in many fields, a person‘s grittiness may have a bigger impact on success than IQ or talent do  It is important for salespeople to monitor how they approach failure  Improving grit requires practice, practice, and more practice  Passionate individuals are more likely to keep going, even when things get tough THINK LIKE A MARKETER How will you strengthen your grit as you approach graduation? Market-Related Knowledge    

In order to gain trust and effectively cocreate value with customers, sales professionals must continuously improve their market-related knowledge; sometimes this is referred to as domain knowledge This includes strong understanding of (1) the goods, services, and processes within their own firm and (2) the key business issues that affect their customer‘s success High-performing reps attract profitable customers who are less priceconscious and exhibit greater loyalty Successful salespeople with high domain-area expertise can discuss in some detail how their products and services can bring value to the customers‘ business

Selling-Related Knowledge        638

Selling-related knowledge includes sales abilities and an understanding of selling techniques Salespeople encounter different selling situations over a wide range of needs, buying motives, personalities, and social styles Adaptive selling refers to the altering of sales behavior during a customer interaction or across customer interactions based on perceived information about the selling situation Rather than relying on a canned presentation, adaptive sellers use information gathered about prospects before an interaction In order to successfully increase their repertoire of sales approaches, salespeople must be able to do two things: (1) Quickly and accurately categorize prospective customers based on implicit buyer needs (2) Use this information to craft a sales message that conveys an appropriate

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value proposition in a persuasive manner SPIN Selling          

As the complexity and size of the sales opportunity grows, salespeople who asked smart questions in a particular sequence were most likely to achieve sales success This research ultimately led to the development of the SPIN selling framework SPIN is an acronym that refers to the questions that feature most prominently in successful sales calls: Situation questions are designed to obtain background facts about the buyer‘s current circumstances Problem questions ask about buyers‘ problems, difficulties, or dissatisfactions with an existing situation Implication questions ask about the consequences or effects of the buyer‘s situation Need-payoff questions are designed to get the buyer thinking about the value of finding a solution to the problem There is no one right method for every buyer or seller Customers respond to sincere interest, intelligence, and authenticity, not tricks Sales success depends on building trust and creating value for customers

Table 9.2

Insight Questions: 367. What advice can you provide about problemoriented questions? (Answer: Open ended as students‘ responses will vary; think of your firm‘s offerings in terms of the problems they solve for buyers—not in terms of attributes and features.) 368. Which questions are the hardest to create? (Answer: Implication questions because they relate to the consequences of effects of a buyer‘s problems, difficulties, or dissatisfactions that require an understanding of the client‘s situation and problems.)

Table Information: SPIN Questions This table summarizes the SPIN approach, including impact of and advice about each type of question. LO 9-5 Describe the use of sales technologies and social network platforms in 639

Key Terms:  Customer relationship management (CRM)  CRM system

Instructor‘s Manual - Chapter 1 professional selling.   Sales Technology and  Social Selling  Customer Relationship Management (CRM) Systems  Mobile CRM  Artificial Intelligence (AI) and CRM  Virtual Selling  Emphasis on Video-Based Communications  Virtual Selling as a Prospecting Tool  Virtual Sales Meetings  Video for Meeting Follow-Up and Closing  Video Production Guidelines  What Is Social Selling?  Why Are Companies Adopting Social Selling?  How Companies Are Using Social Selling  Social Selling Tactics for Sales Professionals  Crafting a Professional Brand on Social Platforms  Use Social Tools to Focus Attention on 640

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Lead scoring Social selling

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the Right Prospects  Engage Prospects and Customers with Relevant Insights  Using Social Selling to Build TrustBased Relationships Lecture Notes: Sales Technology and Social Selling 

Sales organizations today are using innovative technologies to dramatically reinvent selling processes, elevate productivity, and increase customer satisfaction

Customer Relationship Management (CRM) Systems     

Customer relationship management (CRM) is a strategy and set of processes used for better managing an organization‘s relationships and interactions with customers and potential customers A CRM system, a set of software tools used for contact management, sales management, productivity, and more, supports implementation of CRMbased strategies CRM software is the biggest enterprise software category in the world by sales and its growth isn‘t slowing down CRM systems gather and store information about prospects and customers from various business touch points, including sales records, contact forms, email and social media marketing, search engines, and more CRM systems share many key features, some of the most important capabilities for sales and marketing include: (1) contact management, (2) robust reporting and analytics, (3) powerful marketing and customer support automation, and (4) inventory tracking and forecast demand

Mobile CRM  

641

Firms have increasingly adopted mobile CRM apps that allow their sales teams to manage customer relationships, contacts, deals, events, and tasks on the go Users are able to call and create e-mails with a single tap, add notes, log calls, update to-do lists, and access real-time CRM data from their smartphone

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Artificial Intelligence (AI) and CRM 

The use of AI can help take a lot of the guesswork out of the sales process and eliminate mundane administrative tasks  This allows sales professionals to devote more time, energy, and resources into educating prospects and nurturing relationships with their most profitable customers  There are several examples of ways in which AI-empowered CRM can help improve sales force performance, including (1) price optimization, (2) lead scoring, and (3) upselling and cross-selling Virtual Selling   

The 2020 COVID-19 pandemic drove a radical shift to virtual selling for both B2B and B2C sellers Virtual selling is the collection of processes and technologies by which salespeople engage with their customers remotely using a mix of synchronous and asynchronous communications Virtual selling involves the strategic blending of communication channels (asynchronous and synchronous) in the sales process to increase the probability of engaging a prospect, scheduling an appointment, advancing the sale to the next phase, closing sales, and retaining customers

Table 9.3

Insight Questions: 369. What is the difference between synchronous and asynchronous communication? (Answer: Synchronous channels require you to talk with people live whereas asynchronous channels allow you to talk at people not in real time.) 370. As a salesperson, which channel would you be more prone to using? (Answer: Open ended as students‘ responses will vary; consider the prospect‘s preferences, standing out in the marketplace, personal preferences, and tools provided by the employer to execute effectively.)

Table Information: Examples of Synchronous and Asynchronous Communication Channels This table provides examples of synchronous and asynchronous communication channels. In determining the appropriate mix of sales communication channels and messaging, sales professionals must carefully consider questions such as 642

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―Which communication channels are most cost-effective at each step in the sales process? When does communication need to be face-to-face? When should salespeople use video instead of e-mail or phone?‖

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Lecture Notes: Emphasis on Video-Based Communications 



Virtual selling includes conducting sales meetings and presentations through video calls, communicating with prospects through video messages, or making e-mails and follow-up text messages more engaging through use of video Virtual selling uses video throughout all phases of the selling process

Virtual Selling as a Prospecting Tool   

By creating a brief, personalized video and attaching it to an e-mail, sellers can stand apart from the noise Such videos need not be something that is overly produced or rehearsed It should appear natural and unplanned, a video that speaks specifically to the prospect, taking what is usually said in e-mail copy but providing deeper context and value

Virtual Sales Meetings   

Virtual sales meetings and presentation have fast replaced in-person meetings and phone calls, especially during the earlier stages of the sales process Video is not as effective as face-to-face meetings in terms of developing rapport with buyers and reading nonverbal cues Assuming the prospect‘s camera is on, a well-trained salesperson should then be able to detect when a prospect is confused, disinterested, or is responding positively, based on body language and expressions

Video for Meeting Follow-Up and Closing  

Video is also useful for following up on virtual sales meetings, moving the sales process forward, and closing deals Inclusion of a professional video in a follow-up e-mail or proposal submission can help the seller stand out

Video Production Guidelines   

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Given heavy use of video-based channels in virtual selling, companies and salespeople should take steps to apply best practices from photography and film in their home or office studio setups Camera angle: The camera should be directly in front, at eye level Quality lighting: Proper lighting makes it easier to see facial features and expressions, leading to increased engagement, attention, and trust

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Backdrop: The backdrop is a direct reflection of your personal and professional brand Color contrast: Make sure your clothes contrast well against the background Audio: Proper audio is the most important element of an effective video call

What Is Social Selling?     

Social selling is the practice of using social networking platforms to find, connect with, understand, and nurture relationships with sales prospects It is a purposeful activity aimed specifically at bolstering seller credibility, facilitating insightful conversations with prospects, and establishing longterm customer relationships LinkedIn is recognized as a leading proponent of social selling LinkedIn provides users with an SSI (social selling index) score, which tells salespeople and marketers how effectively they are using the platform The four pillars of social selling on LinkedIn are as follows: (1) developing your brand, (2) connecting with the right people, (3) engaging with insights, and (4) establishing relationships

Why Are Companies Adopting Social Selling?  

Prospective customers today routinely share information online about the most significant business or personal challenges they are facing A recent study indicated that 83 percent of B2B executives use social media in their information searches; 92 percent of the executives report that the information found through their social media engagements had influenced buying decisions

How Companies Are Using Social Selling  

Figure 9.3

Hubspot uses insights from social media to develop original content that triggers interest in its services It has an active social listening campaign to identify questions of interest from small business owners and managers that match the profiles of its ideal buyers Insight Questions:

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371. How are sales professionals using social selling? (Answer: Open ended; prospects today are sharing incredibly valuable information on their social channels. Using information about customer needs, wants, and pain points detailed on public profiles, even a salesperson‘s initial contacts with a sales lead can be personalized, relevant, and helpful. Also, building a strong personal brand and network through social media channels allows salespeople to seek out

Instructor‘s Manual - Chapter 1 Professionals Use Social Selling Tools (percentage of respondents) Salespeople and businesses who are not actively engaged in social selling are less likely to show up in buyers‘ social purchase research, leading to missed opportunities. This figure illustrates the ways in which B2B sales forces are using social selling techniques. Connect Assignment 9-3

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introductions to new prospects through existing mutual connections. Moreover, buyers are already using social media to learn about potential solutions and research vendors.) 372. Which social media platforms are appropriate for social selling purposes? (Answer: LinkedIn and possibly Facebook)

Topic: Social Technologies Complete the Connect exercise in Chapter 9 that will let you choose social media tools to develop more profitable relationships with potential customers. By understanding the strategies associated with social selling, you will be prepared to use these tools to their maximum benefit in helping your organization succeed.

Social Media in Action

CONNECT BACK Insight Questions: 373. Should social media be used to manage relationships with potential customers? (Answer: Open ended as students‘ responses will vary; new technologies provide sales and marketing an alternative means to build credibility and interpersonal trust. Consider how customers may use the platform, as well as your own social media presence.) 374. How does the modern sales professional ―double as an information concierge,‖ according to Jill Rowley? (Answer: ―They provide the right information to the right person at the right time in the right channel.‖) PowerPoint Slides

Lecture Notes: Social Selling Tactics for Sales Professionals 

Sellers must be thoughtful and systematic in their efforts to: establish a professional brand, identify and focus their energies on the most valuable prospects, bolster credibility by engaging customers with timely and insightful information, and build and maintain trust-based relationships

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Social media tools can increase a salesperson‘s visibility within an industry and enable them to define a distinct professional brand Through commenting, liking, or sharing content with prospects, salespeople

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can boost their own credibility by showing an active interest in what their buyers are posting and talking about In creating their professional brand, salespeople should thoughtfully optimize their social media profiles to showcase the value they bring to customers

Use Social Tools to Focus Attention on the Right Prospects   

Social media tools can also make it easier to determine whether the prospect has a personal connection with a friend or professional colleague Social sellers can set up alerts about customers, prospects, and target companies using Twitter, Google, or other social listening tools Another approach is to set up a search that identifies buyers who have recently left a key account that has been successfully serviced by the seller‘s organization

Engage Prospects and Customers with Relevant Insights      

Sales is all about influence without authority According to a recent study by LinkedIn, over 62 percent of B2B buyers respond to salespersons that connect with relevant insights and opportunities Engaging customers with meaningful information via social selling entails a thoughtful approach to being the first to share industry news, surveys, reports, case studies, and ideas By adding their own voice to carefully selected content, social sellers can further bolster prospects‘ perceptions of their thought leadership Content curation is the process of continually finding, grouping, and sharing the most relevant content across social networks Many sales organizations have augmented their CRM systems to include sales enablement tools, making it easier for salespeople to find and share internal content based on the prospect‘s needs and stage of the sales process

Using Social Selling to Build Trust-Based Relationships    

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Buyers and sellers typically connect based on some shared interest or desire for positive change from the status quo Buyers aim to establish long-term relationships with vendors who consistently provide economic value and demonstrate high levels of trustworthiness Social selling simply offers salespeople new ways to initiate and maintain trust-based relationships with buyers By providing relevant information and sharing their own unique perspectives—focusing on helping, not selling—salespeople gain a reputation for industry expertise and establish buyer trust

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LO 9-6 Discuss ethical issues in Key Terms: personal selling and sales (none) management.  Ethical Issues in Personal Selling and Sales Management  Causes and Implications of Unethical Sales Behaviors  Standards of Sales Professional Conduct PowerPoint Slides Lecture Notes: Ethical Issues in Personal Selling and Sales Management  

Sales ethics refers to a set of behaviors that ensure that every lead, prospect, and customer is treated with respect, fairness, honesty, and integrity To put it simply, it means salespeople should always place the customer first

Causes and Implications of Unethical Sales Behaviors    

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If a salesperson‘s aim is to establish a long-term, mutually beneficial relationships with their customers, it is logical for them to make sure that each step of the sales process is guided by ethical considerations Conflicts can originate from social or financial demands in a salesperson‘s personal life Sales employees can also suffer psychologically when they are caught in a struggle between their internal values and pressure from their company or manager to meet sales quotas With rising use of social media networks among consumers and business buyers, sellers‘ ethical infractions can become highly visible to external stakeholders—including prospective customers, employers, investors, and competitors If a salesperson takes a shortcut—if there is even the appearance of impropriety—it can sidetrack more than a single deal resulting in significant damage to corporate reputation and can cause irreversible damage to a sales career Research has shown that maintaining high ethical standards on the part of sales personnel is a critical driver of sales force performance: It affects the firm‘s capacity to (1) build relationships with customers and (2) develop a positive work environment for employees

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Standards of Sales Professional Conduct      

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One study of sales and marketing executives revealed that more than 50 percent of respondents believed that their salespeople have lied on a sales call Nearly 75 percent agreed that the pressure to meet sales goals encourages salespeople to lose focus on customers‘ needs A salesperson may be tempted to say exactly what they think the prospect wants to hear in order to close the sale; salespeople are well advised to always adopt the high road when discussing competitors Another common area of ethical concern involves salespeople‘s behaviors toward their own firm Many companies invest in training programs to better prepare employees to make good decisions when confronted with a potentially unethical situation Trade organizations such as Sales and Marketing Executives International (SMEI) and the Canadian Professional Sales Association (CPSA) have incorporated ethical codes of conduct into their sales and marketing certification programs The SMEI code of conduct begins with three pledges that serve as excellent guides for all sales professionals Today‘s business environment calls for transparency and customeroriented behaviors without deviation

Today’s Professional

Tyler Garnett State Farm Agent Tyler Garnett believes in working hard and putting his customers‘ needs first. He refers to his work ethic when competing in the job market. Additional insight is provided in the following questions: 375. Describe your job. 376. How did you get your job? 377. What has been the most important thing in making you successful at your job? 378. What advice would you give soon-to-be graduates? 379. What do you consider your person brand to be?

Photo provided by Tyler Garnett

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What kinds of questions will you ask in your job interview?

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What do you want to be known for in your job?

MARKETING PLAN EXERCISE Your Marketing Plan: In this chapter, we discussed the importance of selling and also of asking good questions. Discovering the right information from decision makers and prospective future employees is a very important skill on your personal journey. In the next section of the marketing plan exercise, your assignment is to create specific questions to obtain the information you will need to decide whether a job in an organization or graduate school will be a good fit for your career goals. New graduates consistently struggle at the part of interviewing or networking where prospective employers or graduate school admissions officers ask, ―Do you have any questions for us?‖ The SPIN selling technique in this chapter provides a good framework as you work to develop the most relevant and efficient questions at this stage: 

Situation questions are designed to obtain background facts about the buyer‘s current circumstances. (In this example, the ―buyer‖ is the potential employer or the committee making the decision to admit you to a graduate school program.)  Problem questions ask about buyer‘s problems, difficulties, or dissatisfactions with an existing situation. Knowing this helps you understand how your skills might help improve the organization or add value to a university‘s graduate school program.  Implication questions help transform problems into explicit needs in the mind of the buyer and expand the perceived value of finding a solution. This type of question can help the decision makers think more closely about how hiring you or accepting you into their program will make their organization better.  Need-payoff questions are designed to get the buyer thinking about your value, importance, or usefulness in finding a solution to the problem. The SPIN framework questions will help you sell yourself to potential employers or schools. They also will help you better understand how the organizations you are interested in fit into your personal marketing plan. Student Task: Write one question for each component of the SPIN selling framework. Your answer should include a situation question, problem question, implication question, and needpayoff question focused on either your targeted job or graduate school program. Please also include a sentence or two for each on what you hope to find out from each specific question and how that information might benefit you. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The 650

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worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 380. Imagine that a company was looking to sell to you. How could social selling help that company sell its products to you? Please provide at least two specific recommendations. (Answer: Open ended as students‘ responses will vary; social selling involves the use of online, mobile, and social media to engage customers, build strong customer relationships, and increase sales. With extremely targeted capabilities, social selling can direct specific messages to each group.) 381. Based on your personal strengths and weaknesses, which type of sales position do you think would be best for you? Explain your answer and also share which type of sales position you would least like to hold. (Answer: Open ended as students‘ responses will vary; consider the training, duties, selling landscape [virtual versus in-person], required travel, and compensation associated with each different type of sales job, as well as how each differs in key responsibilities.) 382. Think about a product you would like to sell. If you were going to sell that product to your class, what would you do to make sure that you included each of the four characteristics of a great sales presentation? (Answer: Open ended as students‘ responses will vary; the four key points are to be conscious of the customer‘s time, spend time thinking about what the customer should remember about the presentation, if the presentation reinforced trust and likeability, and create opportunities for the audience to ask questions while listening.) 383. Remember a time when you had objections about buying a product from a salesperson. Based on those objections, what would you recommend the salesperson do in order to handle those objections and to increase the likelihood that you would buy that product? Explain your answer. (Answer: Open ended as students‘ responses will vary; consider that objections are the concerns or reasons customers offer for not buying a product. Objections are useful: When a customer raises an objection, the salesperson has an opportunity to clarify and reassure the customer about pricing, features, and other potential issues. Handling objections requires professionalism, strong communication skills, and a sincere respect for the prospect‘s concerns.) 384. Based on what you have read about compensating salespeople, do you think salespeople should be compensated using only fixed salary, only commission, or a combination of the two? Please explain your answer. If you choose the combined approach, what would you consider the optimal ratio of fixed salary to commission? (Answer: Open ended as students‘ responses will vary; there is no one-size-fits-all approach, but the sales compensation plan will likely include fixed and incentive-based components.) SOCIAL MEDIA APPLICATION Find a salesperson whom you know of and visit their LinkedIn profile. Analyze that profile using the following questions and activities as a guide:

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385. What skills has the salesperson been ―recommended‖ or ―endorsed‖ for? Do you think these are the most valuable skills for a successful salesperson? 386. Has the salesperson you are analyzing joined any relevant groups on LinkedIn? Based on the salesperson‘s job, are there any groups that you suggest they join? 387. Provide at least two recommendations as to how this salesperson could better highlight his or her market or sales-related knowledge to current and potential clients. This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real-world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 9 that focuses on using analytics to compare prospects in a lead scoring system. ETHICAL CHALLENGE How much investing terminology do you need to master while saving for your retirement? For example, do you know what the word fiduciary means? A Financial Engines survey found that only 18 percent of Americans are sure what the word means. U.S. financial advisers are divided between fiduciaries, who are required to put your interests first (like a doctor or lawyer), and nonfiduciaries, similar to salespeople, who push ―suitable‖ products that may profit them more than you. Nonfiduciary advisers, typically called brokers, are free to recommend only the products that earn them the highest commissions, which can come from both load fees and annual fees. These advisers typically get paid in a variety of complicated ways, so it can be hard to tell how much they‘re making off a client and what their incentives are. Fiduciary advisers tend to get paid in more transparent ways, often by charging an annual fee based on the assets they manage. Despite years of resistance from Wall Street, the U.S. Department of Labor announced in 2016 the final version of a rule that may force financial advisers to abandon the way they‘ve done business for decades. For the first time, all advisers may need to act as fiduciaries, putting their clients‘ interests first when handling retirement accounts.

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Many on Wall Street counter that a strong fiduciary rule will make it less profitable to offer advice to lower- and middle-income Americans. They argue that the proposal will limit the ability of consumers to continue to receive personalized investment guidance for retirement plan accounts, which would result in a less secure retirement for many Americans. Advocates of the new rule say it may generate new insurance and investment business models that cost less and aren‘t as likely to exploit the unsophisticated. It is not clear how the final rule would be enforced, though it might leave noncomplying firms open to penalties or lawsuits. Please use the ethical decision-making framework to answer the following questions: 388. Do you think that all financial advisors should act as fiduciaries? (Answer: Open ended as students‘ responses will vary; acting in the clients‘ best interest, while it may detract from profits, may prove to be more equitable in the long run.) 389. Identify the stakeholders that will be affected by this decision. Be sure to think through all of the potential internal and external stakeholders. (Answer: Open ended as students‘ responses will vary; consider the clients, salespeople, brands, communities, etc.) 390. How will this decision affect each of the financial advisers‘ stakeholders? (Answer: Open ended as students‘ responses will vary; this group is better positioned than others to receive reward in this scenario.) Source: Ben Steverman, ―At Last, Brokers Must Put Your Retirement Needs First,‖ Bloomberg Businessweek, March 31, 2016, http://www.bloomberg.com/news/articles/2016-03-31/new-lawmay-force-brokers-to-put-your-retirement-investment-first. VIDEO CASE Have students go to Connect to access the video case featuring the real estate brokerage Marcus & Millichap that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about how to market their future, author George Deitz shares some career tips. George Deitz, Co-Author, offers some advice for finding yourself through a sales slump. He provides further insight about the following:   

Personal selling is mentally demanding and highly competitive field. Being insightful toward oneself (lifestyle, work habits, and belief systems) is important. Making a habit of discipline in the aspects of qualifying prospects and preparing for sales calls. Review with students: 653

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Who are the successful people you hang around? When should you be introspective about your work habits? Setting activity goals. List five things you could do to work harder and smarter to achieve your goals.

Chapter 9: Personal Selling

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-169 Describe the strategic role of the sales force and the factors that influence the use of personal selling. LO 1-170 Understand the different types of sales positions. LO 1-171 Explain the steps in the personal selling process. LO 1-172 Describe the foundational elements necessary for sales success. LO 1-173 Describe the use of sales technologies and social network platforms in professional selling. LO 1-174 Discuss ethical issues in personal selling and sales management. KEY TERMS adaptive selling advantages (in FAB approach) approach benefits (in FAB approach) channel sales representatives consultative sellers CRM system customer advocacy customer lifetime value (CLV) customer-oriented selling

customer relationship management (CRM) customer success manager delivery salespeople feature-advantage-benefit (FAB) approach features (in FAB approach) gaining commitment key-account sellers lead scoring market-related knowledge missionary salespeople new-business salespeople objections THOUGHT-PROVOKING ACTIVITY 654

order-taker salespeople personal selling personal selling process pre-approach prospect prospecting qualifying relationship selling sales enablement sales engineers sales force management selling-related knowledge social selling virtual selling

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Set 1: What is personal selling? List three examples of personal selling activities (be sure to include yourself in one of the examples).

Set 2: What makes sales management a complex and demanding job?

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Tyler Cornwell, Assistant Vice President, Palmetto Philanthropy How is marketing relevant in his role? How does nonverbal communication help you be a good listener? LO9-1: Describe the strategic role of the sales force and the factors that influence the use of personal selling. Importance of Personal Selling  Personal selling consists of the two-way flow of communication between a buyer and a seller, one that is paid for by the seller and seeks to influence the buyer‘s purchase decision  The interpersonal aspect of personal selling helps companies create and maintain strong customer relationships  In contrast to advertising and sales promotion, personal selling is a much more effective tool in complex purchase situations  Personal selling activities play a crucial role in driving firms‘ competitive advantage and superior financial performance  Salespeople are a critical link that connects the business with its customer  Virtually everything we do in the course of the day—from the trivial to the truly miraculous—is a direct result of someone selling something to someone else

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The Strategic Role of the Sales Force  Today‘s buyer has much greater access to information about products and services  Customers‘ use of the Internet and social networking technologies has brought greater transparency with respect to price, product quality, and customer service  The selling environment has also grown increasingly complex  Globalization has brought greater competition to many markets  The changing selling environment has led to a fundamental rethinking of the strategic nature of the sales force  Customer lifetime value (CLV) focuses on the net present value of a customer‘s business over the span of their relationship with an organization  Relationship selling involves building and maintaining customer trust over a long period of time—not just doing whatever it takes to meet periodic sales quotas THINK LIKE A MARKETER How much of selling, today, is relationship selling? (Answer: Open ended) Factors that Influence Use of Personal Selling  According to the Marketing Science Institute, firms on average gain a $31 increase in sales revenue for every $100 in increased sales expenditures  Personal selling is more effective in promoting some products more than others  When launching and establishing new products, companies may be better off investing more in their direct sales forces  Personal selling is more effective when a good or service is: (1) new-to-the-world, (2) infrequently purchased, (3) highly technical or complex, (4) viewed as risky, and (5) customizable Figure 9.1 Factors That Influence Emphasis on Personal Selling INSIGHT QUESTIONS Why might a firm use personal selling if the product is viewed as risky? (Answer: Purchases of high-priced or high-involvement items typically elevate buyers‘ risk perceptions. In such cases, salespeople often play a critical role in helping to build customers‘ trust in the firm and its products (e.g., investing in an emerging market‘s mutual fund). Why might a firm use personal selling if the product is customizable? (Answer: Such products may require the assistance of sales personnel to properly configure the offering to match customer needs (e.g., a university medical center buying and implementing a new information system). B2B versus B2C Sales 656 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Selling products to consumers and to businesses center on helping customers resolve problems, and both follow a similar sequence of steps  B2B sales are often much larger financially and take longer to complete, and there are often multiple decision makers  B2B buyers possess extensive information about the product and are experienced, professional negotiators  Whether the context is B2B or B2C, effective sales professionals are able to guide these buyers through complex decision processes Personal Selling in the Digital Age  Sales remains the second-largest occupational category (behind office and administrative workers) in the U.S. workforce—as it has been for decades  According to the U.S. Bureau of Labor Statistics (BLS), each day more than 15 million people earn their living trying to convince someone else to make a purchase  People spend roughly 40 percent of their work time—24 minutes out of every hour— persuading, influencing, and convincing others in ways that don‘t involve making a purchase  Today‘s trained sales professional is much more likely to adopt an approach that fosters a long term, consultative relationship with customers Career Opportunities in Sales  Job listings for entry-level sales representatives are among the most plentiful  Sales courses are designed to give students a head start in developing the basic skills, knowledge, and experience for entry-level sales positions  According to research from the Baylor University Center for Professional Selling, students in sales programs, nationally, average 2.8 job offers before graduation  Professional selling and sales management can be among the most financially rewarding careers  According to Glassdoor.com, the national average salary for an entry-level sales position in 2016 was $46,000 per year  Sales positions offer qualities that appeal to Millennials: autonomy, rewards linked to personal effort, and the opportunity to interact with a variety of people Great Sales People are Made, Not Born  It is true that individuals with certain personality characteristics, such as extroversion, seem more drawn to selling careers  Yet a comprehensive analysis of research has shown the relationship between personality and sales performance is negligible  Differences in other individual characteristics—like a positive self-concept, high motivation, and an optimistic outlook—can have a tremendous impact on long-term sales success  Regardless of your major, in a few short years you will be ―selling‖ employers on how your unique talents and experiences will contribute to the success of their organization

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THINK LIKE A MARKETER How will you ―sell‖ yourself to a potential employer? (Answer: Open ended) Table 9.1 Sales Salaries by Job Title INSIGHT QUESTIONS Professional selling and sales management can be among the most financially rewarding careers. What salary range does Glassdoor indicate? (Answer: According to Glassdoor.com, the national average salary for an entry-level sales position in 2016 was $46,000 per year, with the lowest figure being $36,500 and the highest at $158,811.) Which job titles provide a six figure salary, according to Glassdoor.com? (Answer: Regional Sales Manager and Vice President of Sales) LO9-2: Understand the different types of sales positions. Types of Sales Positions  Not all sales positions are the same  Field sales representatives often work out of their homes and often travel substantial distances to meet with customers at their places of business  Many new salespeople today start out with ―inside-sales‖ positions  The duties and compensation associated with different types of sales jobs can widely differ New-Business Salespeople  New-business salespeople are responsible primarily for finding new customers and securing their business  Typically, the sales prospect is likely to be a client of a competing firm  Given the highly competitive nature of this type of selling, new-business salespeople must exhibit high levels of credibility, creativity, and professionalism; as a result, they are often very highly paid for their efforts  Channel sales representatives look to win, maintain, and expand relationships with channel partners  Whether they sell directly to customers or seek to secure new distribution intermediaries, all new-business salespeople may be accurately described as order-getters Order-Takers  Order-taker salespeople are sales representatives who primarily process orders that a customer initiates  They are most commonly found within retail and inbound call-center settings

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Delivery salespeople are sometimes known as a route salespeople and their chief role is product delivery  Responsibilities such as checking inventories, stocking shelves, and writing up new orders also may be part of the job  Compared with the other categories, delivery salesperson positions tend to attract younger, less-well-educated candidates and offer lower pay Consultative Sellers  Many new-business and delivery salespeople focus on short-term outcomes; as a result, they often use transactional sales approaches  Consultative sellers, instead, focus on developing long-term relationships  This type of sales job is found across many sectors, and is particularly concentrated within traditional industrial settings, such as machinery, electronic, and metal products  A consultative seller must develop a deep knowledge of the customer‘s industry, business issues, and needs Missionary Salespeople  Missionary salespeople generate sales by promoting the firm and encouraging demand for its goods and services  Unlike other types of sellers, missionary salespeople do not actually get or take orders from customers Key-Account Sellers  The cost of acquiring a new customer is up to five times more than retaining an existing one; for the largest, most strategic customer accounts, this ratio may be even higher  Many B2B organizations have sought a more systematic approach to growing and protecting the business of their most strategically important customers  They have augmented their traditional sales force structure with key-account sellers  These sales reps typically focus on establishing and maintaining partnership relationships with a small set of three to five named accounts  This highly specialized role tends to require higher levels of education and prior sales experience Sales Management and Support  Sales force management involves the planning, direction, and control of personal selling activities  Sales managers have oversight of selling efforts at varying levels of the organizational hierarchy

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Great sales managers are more than just supervisors—they are leaders who inspire their employees and help them achieve their personal and career goals  In the past, this type of mentoring took place on a face-to-face basis; now, much of it is digitally mediated  Research shows that a salesperson‘s interpersonal identification with their sales manager contributes to superior customer satisfaction ratings for the representative and stronger sales performance Sales Support Roles  In many complex sales settings, sales engineers interact with counterparts within the customer‘s buying center to address technical questions and issues that arise over the course of the entire sales process  In high-tech sectors like aerospace and enterprise software, these technical specialists typically have educational backgrounds in fields like engineering, computer science, and physics  More companies are shifting responsibility for onboarding new customers, identifying account growth opportunities, and long-term client retention to a customer success manager  Rather than reacting to customer problems to ensure the product meets expectations, customer success managers proactively look out for their customers‘ business, suggesting new and innovative ways to keep them succeeding with the company‘s products and services  Sales operations refers to the unit, role, activities, and processes within a sales organization that support, enable, and drive frontline sales teams to sell better, faster, and more efficiently CONNECT BACK: Reference Connect Assignment 9-1 Many new-business and delivery salespeople focus on short-term outcomes but consultative sellers focus on developing long-term relationships. Why so? (Answer: Consultative sellers strive to become trusted advisors to customers. In order to effectively create customized solutions, a consultative seller must develop a deep knowledge of the customer‘s industry, business issues, and needs, and this is best done via building a relationship with the customer over a long period.) Many B2B organizations have sought a more systematic approach to growing and protecting the business of their most strategically important customers. What is this called? (Answer: Key-account sellers, who focus on establishing and maintaining partnership relationships with a small set of three to five named accounts.)

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LO9-3: Explain the steps in the personal selling process. The Personal Selling Process  The personal selling process consists of a sequence of seven steps that salespeople follow to acquire new customers and obtain orders: prospecting and qualifying, pre-approach, approach, presentation, handling objections, gaining commitment, and follow-up  In order to allow salespeople more face-to-face time with customers, some organizations hire specialists to do activities such as prospecting and lead qualification  Not every sale goes through all of the stages  Note that the amount of time allocated to each activity varies from one sales representative to the next Figure 9.2 Personal Selling Process INSIGHT QUESTIONS What steps are completed before the sales call actually takes place? (Answer: Prospecting and the pre-approach.) When does step 7 occur? (Answer: After the sales call.) Prospecting and Qualifying  A sales prospect is an individual (or group) capable of making the decision on a good or service a salesperson is selling  Identifying and qualifying such individuals and organizations in search of new business opportunities is the lifeblood of most businesses  Prospecting involves the search for potential customers—those who need or want a product and fit into a firm‘s target market  Potential customers can be found in a variety of ways: customer referrals, trade shows, industry directories, websites, and networking  The main goal of this step is to find qualified prospects  The activity of qualifying prospects involves identifying potential customers within the firm‘s target market who have a desire for the product, the authority to purchase it, the resources to pay for it, and timeframe for purchase  The most obvious approach in qualifying prospects is simply talking with the target customer  Qualifying also involves doing market research to better understand the target customer‘s needs, wants, and ability to pay  Once a prospect has been qualified, the salesperson can adjust the amount of effort directed toward securing a sale Pre-approach 661 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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In the pre-approach stage of the personal selling process, the salesperson does research and preparation before contacting the customer  They should identify key decision makers, review account histories, ascertain customer needs, and prepare sales presentations  The entire personal selling process can result in failure if the salesperson doesn‘t know as much as possible about the prospect before approaching them about the sale  In today‘s world, plenty of information about companies, industries, and individuals is available online with just a few clicks; there is zero excuse for not tailoring your approach and need assessment questions Approach  In the approach stage, the sales rep meets the customer for the first time  A key element of the approach is gaining a sufficient level of customer interest in order to schedule an appointment  Setting the first appointment is arguably the most important, and most difficult, step in the sales process  The McKinsey Global Institute estimates that the typical American hears or reads more than 100,000 words every day—e-mails, texts, tweets, meetings, webcasts, commercials, blog posts, videos, and more  Carefully plan your approach to ensure that you present a strong value proposition that speaks to a valid buyer need  Whenever possible, use the name of a trusted resource and reference them in the introductory e-mail or phone call  The follow-up should help establish credibility and position the rep as a useful resource  Once the salesperson has succeeded in obtaining a meeting, the next goal is to build rapport—a friendly relationship—with the decision maker or key influencers The Presentation  

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After the approach, the salesperson prepares the sales presentation Ideally, the sales presentation will: (1) accurately convey the product‘s major features, (2) describe its advantages in comparison with alternatives, and (3) detail how it will provide benefits for the potential customer In the feature-advantage-benefit (FAB) approach, features are attributes or facts relating to the product being sold or demonstrated ―Feature dumping‖—listing features without tying them to benefits—is one of the worst mistakes a salesperson can make Advantages are general statements about what the features do; they may or may not be connected to an expressed or actual customer need Benefits are the individual values attached to the advantages offered by various features of the product; they are the bridges that connect the advantages of the various features to the specific needs of a customer Prepare presentations with an understanding of the value of the customer‘s time 662 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Spend time thinking about what you want the customer to remember about the presentation Customers want to do business with organizations they like and trust The more a salesperson knows about the prospect‘s needs, the better position they are in to meet those needs Handling Objections  Objections are the concerns or reasons customers offer for not buying a product  Objections actually are useful: when a customer raises an objection, the salesperson has an opportunity to clarify and reassure the customer about pricing, features, and other potential issues  Handling objections requires professionalism, strong communication skills, and a sincere respect for the prospect‘s concerns  Common techniques of overcoming objections include: (1) acknowledging the objection, (2) postponing, and (3) denial  In B2B contexts, the most common sales objections fall into four buckets: budget, authority, need, and time (known as BANT)  New salespeople often try to go through an entire presentation without any objections from the prospective customer—which is often a mistake  The ability to draw out specific objections and remove obstacles to purchase is one of the major advantages of personal selling  Salespeople should make sure to validate the customer‘s objection, no matter how trivial it might seem, because the customer finds it important Gaining Commitment  Gaining commitment occurs at the point when the salesperson asks the prospect for agreement to move forward with the sales process, ultimately leading to a purchase  This is often the most difficult part of the personal selling process; it requires the salesperson to overcome the basic human fear of being rejected  Sales reps ask questions throughout the sales presentation that test the buyer‘s readiness to commit—this is referred to as trial closes  These questions enable the salesperson to ascertain (1) where the buyer is in the process and (2) the right time to ask for the sale  After having tested the waters and gained agreement on key points using trial-close questions, asking for the buyer‘s business becomes a natural conclusion to the sales meeting  Several common closing approaches are: (1) summary close, (2) alternative close, and (3) assumptive close  No salesperson can rely on just one closing strategy; the most effective close depends on the customer and the specific situation  Closing can be different in more-complex sales  These situations typically have longer buying cycles, involve multiple decision makers, and often entail a sequence of sales meetings 663 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Follow-Up  The follow-up stage is a critical step in creating customer satisfaction and building long-term relationships with customers  A sound follow-up strategy includes, at a minimum, checking in after the sale to ensure that the customer is satisfied  Important by-products of the follow-up stage are positive word of mouth, customer testimonials, and direct referrals  Diligent follow-up can also lead to uncovering new customer needs and wants, securing additional purchases, or obtaining customer testimonials and referrals that can be used to open the door for new accounts  According to Salesforce.com, 84 percent of prospects respond to a salesperson referred by someone else within their organization  Follow-up should never end Applying the Personal Selling Process to Your Future Job Search  Many of these same guidelines apply when you begin the process of interviewing for an internship or new job  Develop several questions in advance of an interview  Asking great questions will help you demonstrate your knowledge and preparation; the answers will enable you to learn about the business and whether it is a proper fit for you CONNECT BACK: Reference Connect Assignment 9-2 At what stage does the elevator pitch take place? (Answer: During the approach. The idea was that if you found yourself in an elevator with a key decision maker, you would be able to explain who you are and what your business has to offer between the time the elevator doors closed shut and opened backup again.) How are objections in the sales process useful? (Answer: When a customer raises an objection, the salesperson has an opportunity to clarify and reassure the customer about pricing, features, and other potential issues.) LO9-4: Describe the foundational elements necessary for sales success. Foundations of Sales Success  ―You can have anything you want in life if you help enough other people get what they want‖ (Zig Ziglar)

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The achievement of long-term success in professional sales must be centered on serving the interests of the customer  Customer-oriented selling can be viewed as the adoption of the marketing concept at the level of the individual salesperson and customer Maintaining a Positive Self-Concept  Research suggests nearly 85 percent of all salespeople, regardless of experience or age, regularly experience some degree of reluctance before they contact a potential customer  Customer-oriented sales approaches are most effective when the salesperson has certain traits, knowledge, and abilities: a positive self-concept, market knowledge, and sales-related knowledge  Grit emphasizes having the strength of mind to maintain realistic optimism while not letting failures slow you down THINK LIKE A MARKETER How do salespeople actively work on positive self-concept? (Answer: Open ended) Steps to Strengthening Grit  Research suggests that in many fields, a person‘s grittiness may have a bigger impact on success than IQ or talent do  It is important for salespeople to monitor how they approach failure  Improving grit requires practice, practice, and more practice  Passionate individuals are more likely to keep going, even when things get tough THINK LIKE A MARKETER How will you strengthen your grit as you approach graduation? (Answer: Open ended) Market-Related Knowledge  In order to gain trust and effectively cocreate value with customers, sales professionals must continuously improve their market-related knowledge; sometimes this is referred to as domain knowledge  This includes strong understanding of (1) the goods, services, and processes within their own firm and (2) the key business issues that affect their customer‘s success  High-performing reps attract profitable customers who are less price-conscious and exhibit greater loyalty  Successful salespeople with high domain-area expertise can discuss in some detail how their products and services can bring value to the customers‘ business 665 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Selling-Related Knowledge  Selling-related knowledge includes sales abilities and an understanding of selling techniques  Salespeople encounter different selling situations over a wide range of needs, buying motives, personalities, and social styles  Adaptive selling refers to the altering of sales behavior during a customer interaction or across customer interactions based on perceived information about the selling situation  Rather than relying on a canned presentation, adaptive sellers use information gathered about prospects before an interaction  In order to successfully increase their repertoire of sales approaches, salespeople must be able to do two things:  (1) Quickly and accurately categorize prospective customers based on implicit buyer needs  (2) Use this information to craft a sales message that conveys an appropriate value proposition in a persuasive manner SPIN Selling  As the complexity and size of the sales opportunity grows, salespeople who asked smart questions in a particular sequence were most likely to achieve sales success  This research ultimately led to the development of the SPIN selling framework  SPIN is an acronym that refers to the questions that feature most prominently in successful sales calls:  Situation questions are designed to obtain background facts about the buyer‘s current circumstances  Problem questions ask about buyers‘ problems, difficulties, or dissatisfactions with an existing situation  Implication questions ask about the consequences or effects of the buyer‘s situation  Need-payoff questions are designed to get the buyer thinking about the value of finding a solution to the problem  There is no one right method for every buyer or seller  Customers respond to sincere interest, intelligence, and authenticity, not tricks  Sales success depends on building trust and creating value for customers

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Table 9.2 SPIN Questions INSIGHT QUESTIONS What advice can you provide about problem-oriented questions? (Answer: Open ended as students‘ responses will vary; think of your firm‘s offerings in terms of the problems they solve for buyers—not in terms of attributes and features.) Which questions are the hardest to create? (Answer: Implication questions because they relate to the consequences of effects of a buyer‘s problems, difficulties, or dissatisfactions that require an understanding of the client‘s situation and problems.)

LO9-5: Describe the use of sales technologies and social network platforms in professional selling. Sales Technology and Social Selling  Sales organizations today are using innovative technologies to dramatically reinvent selling processes, elevate productivity, and increase customer satisfaction Customer Relationship Management (CRM) Systems  Customer relationship management (CRM) is a strategy and set of processes used for better managing an organization‘s relationships and interactions with customers and potential customers  A CRM system, a set of software tools used for contact management, sales management, productivity, and more, supports implementation of CRM-based strategies  CRM software is the biggest enterprise software category in the world by sales and its growth isn‘t slowing down  CRM systems gather and store information about prospects and customers from various business touchpoints, including sales records, contact forms, e-mail and social media marketing, search engines, and more  CRM systems share many key features, some of the most important capabilities for sales and marketing include: (1) contact management, (2) robust reporting and analytics, (3) powerful marketing and customer support automation, and (4) inventory tracking and forecast demand Mobile CRM  Firms have increasingly adopted mobile CRM apps that allow their sales teams to manage customer relationships, contacts, deals, events, and tasks on the go  Users are able to call and create e-mails with a single tap, add notes, log calls, update to-do lists, and access real-time CRM data from their smartphone

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Artificial Intelligence (AI) and CRM  The use of AI can help take a lot of the guesswork out of the sales process and eliminate mundane administrative tasks  This allows sales professionals to devote more time, energy, and resources into educating prospects and nurturing relationships with their most profitable customers  There are several examples of ways in which AI-empowered CRM can help improve sales force performance, including; (1) price optimization, (2) lead scoring, and (3) upselling and cross-selling Virtual Selling  The 2020 COVID-19 pandemic drove a radical shift to virtual selling for both B2B and B2C sellers  Virtual selling is the collection of processes and technologies by which salespeople engage with their customers remotely using a mix of synchronous and asynchronous communications  Virtual selling involves the strategic blending of communication channels (asynchronous and synchronous) in the sales process to increase the probability of engaging a prospect, scheduling an appointment, advancing the sale to the next phase, closing sales, and retaining customers Table 9.3 Examples of Synchronous and Asynchronous Communication Channels INSIGHT QUESTIONS What is the difference between synchronous and asynchronous communication? (Answer: Synchronous channels require you to talk with people live whereas asynchronous channels allow you to talk at people not in real time.) As a salesperson, which channel would you be more prone to using? (Answer: Open ended as students‘ responses will vary; consider the prospect‘s preferences, standing out in the marketplace, personal preferences, and tools provided by the employer to execute effectively) Emphasis on Video-Based Communications  Virtual selling includes conducting sales meetings and presentations through video calls, communicating with prospects through video messages, or making e-mails and follow-up text messages more engaging through use of video  Virtual selling uses video throughout all phases of the selling process Virtual Selling as a Prospecting Tool  By creating a brief, personalized video and attaching it to an e-mail, sellers can stand apart from the noise  Such videos need not be something that is overly produced or rehearsed 669 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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It should appear natural and unplanned, a video that speaks specifically to the prospect, taking what is usually said in e-mail copy but providing deeper context and value Virtual Sales Meetings  Virtual sales meetings and presentation have fast replaced in-person meetings and phone calls, especially during the earlier stages of the sales process  Video is not as effective as face-to-face meetings in terms of developing rapport with buyers and reading nonverbal cues  Assuming the prospect‘s camera is on, a well-trained salesperson should then be able to detect when a prospect is confused, disinterested, or is responding positively, based on body language and expressions Video for Meeting Follow-Up and Closing  Video is also useful for following up on virtual sales meetings, moving the sales process forward, and closing deals  Inclusion of a professional video in a follow-up e-mail or proposal submission can help the seller stand out Video Production Guidelines  Given heavy use of video-based channels in virtual selling, companies and salespeople should take steps to apply best practices from photography and film in their home or office studio setups  Camera angle: The camera should be directly in front, at eye level  Quality lighting: Proper lighting makes it easier to see facial features and expressions, leading to increased engagement, attention, and trust  Backdrop: The backdrop is a direct reflection of your personal and professional brand  Color contrast: Make sure your clothes contrast well against the background  Audio: Proper audio is the most important element of an effective video call What Is Social Selling?  Social selling is the practice of using social networking platforms to find, connect with, understand, and nurture relationships with sales prospects  It is a purposeful activity aimed specifically at bolstering seller credibility, facilitating insightful conversations with prospects, and establishing long-term customer relationships  LinkedIn is recognized as a leading proponent of social selling  LinkedIn provides users with an SSI (social selling index) score, which tells salespeople and marketers how effectively they are using the platform  The four pillars of social selling on LinkedIn are: (1) Developing your brand, (2) Connecting with the right people, (3) Engaging with insights, and (4) Establishing relationships

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Why Are Companies Adopting Social Selling?  Prospective customers today routinely share information online about the most significant business or personal challenges they are facing  A recent study indicated that 83 percent of B2B executives use social media in their information searches; 92 percent of the executives report that the information found through their social media engagements had influenced buying decisions How Companies Are Using Social Selling  Hubspot uses insights from social media to develop original content that triggers interest in its services  It has an active social listening campaign to identify questions of interest from small business owners and managers that match the profiles of its ideal buyers Figure 9.3 How B2B Sales Professionals Use Social Selling Tools (Percentage of respondents) INSIGHT QUESTIONS How are sales professionals using social selling? (Answer: Open ended; prospects today are sharing incredibly valuable information on their social channels. Using information about customer needs, wants, and pain points detailed on public profiles, even a salesperson's initial contacts with a sales lead can be personalized, relevant, and helpful. Also, building a strong personal brand and network through social media channels allows salespeople to seek out introductions to new prospects through existing mutual connections. Moreover, buyers are already using social media to learn about potential solutions and research vendors.) Which social media platforms are appropriate for social selling purposes? (Answer: LinkedIn and possibly Facebook)

CONNECT BACK: Reference Connect Assignment 9-3 Should social media be used to manage relationships with potential customers? (Answer: Open ended as students‘ responses will vary; new technologies provide sales and marketing an alternative means to build credibility and interpersonal trust. Consider how customers may use the platform as well as your own social media presence.) How does the modern sales professional ―double as an information concierge,‖ according to Jill Rowley? (Answer: ―They provide the right information to the right person at the right time in the right channel.‖) Social Selling Tactics for Sales Professionals 671 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Sellers must be thoughtful and systematic in their efforts to: establish a professional brand; identify and focus their energies on the most valuable prospects; bolster credibility by engaging customers with timely and insightful information; and build and maintain trustbased relationships

Crafting a Professional Brand on Social Platforms  Social media tools can increase a salesperson‘s visibility within an industry and enable them to define a distinct professional brand  Through commenting, liking, or sharing content with prospects, salespeople can boost their own credibility by showing an active interest in what their buyers are posting and talking about  In creating their professional brand, salespeople should thoughtfully optimize their social media profiles to showcase the value they bring to customers Use Social Tools to Focus Attention on the Right Prospects  Social media tools can also make it easier to determine whether the prospect has a personal connection with a friend or professional colleague  Social sellers can set up alerts about customers, prospects, and target companies using Twitter, Google, or other social listening tools  Another approach is to set up a search that identifies buyers who have recently left a key account that has been successfully serviced by the seller‘s organization Engage Prospects and Customers with Relevant Insights  Sales is all about influence without authority  According to a recent study by LinkedIn, over 62 percent of B2B buyers respond to salespersons that connect with relevant insights and opportunities  Engaging customers with meaningful information via social selling entails a thoughtful approach to being the first to share industry news, surveys, reports, case studies, and ideas  By adding their own voice to carefully selected content, social sellers can further bolster prospects‘ perceptions of their thought leadership  Content curation is the process of continually finding, grouping, and sharing the most relevant content across social networks  Many sales organizations have augmented their CRM systems to include sales enablement tools, making it easier for salespeople to find and share internal content based on the prospect‘s needs and stage of the sales process Using Social Selling to Build Trust-Based Relationships  Buyers and sellers typically connect based on some shared interest or desire for positive change from the status quo  Buyers aim to establish long-term relationships with vendors who consistently provide economic value and demonstrate high levels of trustworthiness 672 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Social selling simply offers salespeople new ways to initiate and maintain trust-based relationships with buyers  By providing relevant information and sharing their own unique perspectives—focusing on helping, not selling—salespeople gain a reputation for industry expertise and establish buyer trust LO9-6: Discuss ethical issues in personal selling and sales management. Ethical Issues in Personal Selling and Sales Management  Sales ethics refers to a set of behaviors that ensure that every lead, prospect, and customer is treated with respect, fairness, honesty, and integrity  To put it simply, it means salespeople should always place the customer first Causes and Implications of Unethical Sales Behaviors  If a salesperson‘s aim is to establish long-term, mutually beneficial relationships with their customers, it is logical for them to make sure that each step of the sales process is guided by ethical considerations  Conflicts can originate from social or financial demands in a salesperson‘s personal life  Sales employees can also suffer psychologically when they are caught in a struggle between their internal values and pressure from their company or manager to meet sales quotas  With rising use of social media networks among consumers and business buyers, sellers‘ ethical infractions can become highly visible to external stakeholders—including prospective customers, employers, investors, and competitors  If a salesperson takes a shortcut—if there is even the appearance of impropriety—it can sidetrack more than a single deal resulting in significant damage to corporate reputation and can cause irreversible damage to a sales career  Research has shown that maintaining high ethical standards on the part of sales personnel is a critical driver of sales force performance: It affects the firm‘s capacity to (1) build relationships with customers and (2) develop a positive work environment for employees Standards of Sales Professional Conduct  One study of sales and marketing executives revealed that more than 50 percent of respondents believed that their salespeople have lied on a sales call  Nearly 75 percent agreed that the pressure to meet sales goals encourages salespeople to lose focus on customers‘ needs  A salesperson may be tempted to say exactly what they think the prospect wants to hear in order to close the sale; salespeople are well advised to always adopt the high road when discussing competitors  Another common area of ethical concern involves salespeople‘s behaviors toward their own firm

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Many companies invest in training programs to better prepare employees to make good decisions when confronted with a potentially unethical situation Trade organizations such as Sales and Marketing Executives International (SMEI) and the Canadian Professional Sales Association (CPSA) have incorporated ethical codes of conduct into their sales and marketing certification programs The SMEI code of conduct begins with three pledges that serve as excellent guides for all sales professionals Today‘s business environment calls for transparency and customer-oriented behaviors without deviation

TODAY’S PROFESSIONAL NOTES Tyler Garnett, State Farm Agent What kinds of questions will you ask in your job interview? What do you want to be known for in your job?

MARKETING PLAN EXERCISE Your Marketing Plan In this chapter, we discussed the importance of selling and also of asking good questions. Discovering the right information from decision makers and prospective future employees is a very important skill on your personal journey. In the next section of the marketing plan exercise, your assignment is to create specific questions to obtain the information you will need to decide whether a job in an organization or graduate school will be a good fit for your career goals. New graduates consistently struggle at the part of interviewing or networking where prospective employers or graduate school admissions officers ask, ―Do you have any questions for us?‖ The SPIN selling technique in this chapter provides a good framework as you work to develop the most relevant and efficient questions at this stage: 

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decision makers think more closely about how hiring you or accepting you into their program will make their organization better.  Need-payoff questions are designed to get the buyer thinking about your value, importance, or usefulness in finding a solution to the problem. The SPIN framework questions will help you sell yourself to potential employers or schools. They also will help you better understand how the organizations you are interested in fit into your personal marketing plan. Student Task: Write one question for each component of the SPIN selling framework. Your answer should include a situation question, problem question, implication question, and needpayoff question focused on either your targeted job or graduate school program. Please also include a sentence or two for each on what you hope to find out from each specific question and how that information might benefit you. Instruct students to insert their responses to the above in Chapter 9’s section of the Personal Marketing Plan. Chapter 9

SPIN™ SELLING QUESTIONS (S)

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(I)

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Chapter 9: Personal Selling

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-175 Describe the strategic role of the sales force and the factors that influence the use of personal selling. LO 1-176 Understand the different types of sales positions. LO 1-177 Explain the steps in the personal selling process. LO 1-178 Describe the foundational elements necessary for sales success. LO 1-179 Describe the use of sales technologies and social network platforms in professional selling. LO 1-180 Discuss ethical issues in personal selling and sales management. KEY TERMS adaptive selling advantages (in FAB approach) approach benefits (in FAB approach) channel sales representatives consultative sellers CRM system customer advocacy customer lifetime value (CLV) customer-oriented selling

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Set 1: What is personal selling? List three examples of personal selling activities (be sure to include yourself in one of the examples).

Set 2: What makes sales management a complex and demanding job?

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, and KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Tyler Cornwell, Assistant Vice President, Palmetto Philanthropy How is marketing relevant in his role? How does nonverbal communication help you be a good listener? LO9-1: Describe the strategic role of the sales force and the factors that influence the use of personal selling. Importance of Personal Selling  Personal selling consists of the _ flow of communication between a buyer and a seller, one that is paid for by the seller and seeks to influence the buyer‘s purchase decision  The interpersonal aspect of personal selling helps companies create and maintain strong customer _  In contrast to advertising and sales promotion, personal selling is a much more effective tool in _ purchase situations  Personal selling activities play a crucial role in driving firms‘ _ and superior financial performance  _ are a critical link that connects the business with its customer  Virtually, everything we do in the course of the day—from the trivial to the truly miraculous—is a direct result of someone _ something to someone else 677 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The Strategic Role of the Sales Force  Today‘s buyer has much greater access to _ about products and services  Customers‘ use of the Internet and social networking technologies has brought greater _ with respect to price, product quality, and customer service  The selling environment has also grown increasingly complex  _ has brought greater competition to many markets  The changing selling environment has led to a fundamental rethinking of the _ of the sales force  _ (CLV) focuses on the net present value of a customer‘s business over the span of their relationship with an organization  _ involves building and maintaining customer trust over a long period of time—not just doing whatever it takes to meet periodic sales quotas THINK LIKE A MARKETER How much of selling, today, is relationship selling?

Factors that Influence the Use of Personal Selling  According to the Marketing Science Institute, firms on average gain a $31 increase in sales revenue for every $100 in increased sales _  _ is more effective in promoting some products more than others  When launching and establishing new products, companies may be better off investing more in their _  Personal selling is more effective when a good or service is (1) _ , (2) infrequently purchased, (3) highly technical or complex, (4) viewed as _ , and (5) _

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Figure 9.1 Factors that Influence Emphasis on Personal Selling INSIGHT QUESTIONS Why might a firm use personal selling if the product is viewed as risky?

Why might a firm use personal selling if the product is customizable?

B2B versus B2C Sales  Selling products to consumers and to businesses center on helping customers _ , and both follow a similar sequence of steps  B2B sales are often much larger _ and take longer to complete, and there are often multiple decision makers  B2B buyers possess extensive information about the product and are experienced, professional _  Whether the context is, B2B or B2C, effective sales professionals are able to guide these buyers through complex _ Personal Selling in the Digital Age  _ remains the second largest occupational category (behind office and administrative workers) in the U.S. workforce—as it has been for decades  According to the U.S. Bureau of Labor Statistics (BLS), each day, more than 15 million people earn their living trying to convince someone else to make a purchase  People spend roughly _ percent of their work time—24 minutes out of every hour— persuading, influencing, and convincing others in ways that don‘t involve making a purchase  Today‘s trained sales professional is much more likely to adopt an approach that fosters a long-term, _ relationship with customers Career Opportunities in Sales  Job listings for entry-level sales representatives are among the most plentiful  Sales courses are designed to give students a head start in developing the basic skills, knowledge, and _ for entry-level sales positions  According to research from the Baylor University Center for Professional Selling, students in sales programs, nationally, average _ job offers before graduation  Professional selling and sales management can be among the most _ careers  According to Glassdoor.com, the national average salary for an entry-level sales position in 2016 was $_ per year 679 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Sales positions offer qualities that appeal to Millennials: _ , rewards linked to personal effort, and the opportunity to interact with a variety of people Great Sales People Are Made, Not Born  It is true that individuals with certain personality characteristics, such as _ , seem more drawn to selling careers  Yet, a comprehensive analysis of research has shown that the relationship between personality and _ is negligible  Differences in other individual characteristics—like a positive self-concept, _ , and an optimistic outlook—can have a tremendous impact on long-term sales success  Regardless of your major, in a few short years, you will be ―selling‖ employers on how your unique talents and experiences will contribute to the success of their organization THINK LIKE A MARKETER How will you ―sell‖ yourself to a potential employer?

Table 9.1 Sales Salaries by Job Title INSIGHT QUESTIONS Professional selling and sales management can be among the most financially rewarding careers. What salary range does Glassdoor indicate?

Which job titles provide a six figure salary, according to Glassdoor.com?

LO9-2: Understand the different types of sales positions. Types of Sales Positions  Not all sales positions are the same  _ often work out of their homes and often travel substantial distances to meet with customers at their places of business  Many new salespeople today start out with ―_ ‖ positions  The duties and compensation associated with different types of sales jobs can widely differ

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New-Business Salespeople  _ are responsible primarily for finding new customers and securing their business  Typically, the sales prospect is likely to be a client of a competing firm  Given the highly competitive nature of this type of selling, new-business salespeople must exhibit high levels of credibility, creativity, and professionalism; as a result, they are often very highly paid for their efforts  _ look to win, maintain, and expand relationships with channel partners  Whether they sell directly to customers or seek to secure new distribution intermediaries, all new-business salespeople may be accurately described as _ Order-Takers  _ are sales representatives who primarily process orders that a customer initiates  They are most commonly found within retail and inbound call-center settings  _ are sometimes known as a route salespeople and their chief role is product delivery  Responsibilities such as checking inventories, _ , and writing up new orders also may be part of the job  Compared with the other categories, delivery salesperson positions tend to attract younger, less-well-educated candidates and offer _ Consultative Sellers  Many new-business and delivery salespeople focus on short-term outcomes; as a result, they often use _ -sales approaches  _ , instead, focus on developing long-term relationships  This type of sales job is found across many sectors and is particularly concentrated within traditional industrial settings, such as machinery, _ , and metal products  A consultative seller must develop a deep knowledge of the customer‘s industry, _ , and needs Missionary Salespeople  _ generate sales by promoting the firm and encouraging demand for its goods and services

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Unlike other types of sellers, missionary salespeople do not actually get or take orders from customers Key-Account Sellers  The cost of acquiring a new customer is up to _ times more than retaining an existing one; for the largest, most-strategic customer accounts, this ratio may be even higher  Many B2B organizations have sought a more systematic approach to growing and protecting the business of their most strategically important customers  They have augmented their traditional sales force structure with _  These sales reps typically focus on establishing and maintaining partnership relationships with a small set of _ to _ named accounts  This highly specialized role tends to require higher levels of education and _ Sales Management and Support  _ involves the planning, direction, and control of personal selling activities  Sales managers have oversight of selling efforts at varying levels of the organizational hierarchy  Great sales managers are more than just supervisors—they are _ who inspire their employees and help them achieve their personal and career goals  In the past, this type of mentoring took place on a face-to-face basis; now, much of it is digitally mediated  Research shows that a salesperson‘s interpersonal identification with their sales manager contributes to superior customer satisfaction ratings for the representative and stronger _ Sales Support Roles  In many complex sales settings, sales engineers interact with counterparts within the customer‘s buying center to address _ and issues that arise over the course of the entire sales process  In high-tech sectors like aerospace and enterprise software, these technical specialists typically have educational backgrounds in fields like engineering, computer science, and physics  More companies are shifting responsibility for onboarding new customers, identifying account growth opportunities, and long-term client retention to a _

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Rather than reacting to customer problems to ensure the product meets expectations, customer success managers proactively look out for their customers‘ business, suggesting _ to keep them succeeding with the company‘s products and services _ refers to the unit, role, activities, and processes within a sales organization that support, enable, and drive frontline sales teams to sell better, faster, and more efficiently

CONNECT BACK: Reference Connect Assignment 9-1 Many new-business and delivery salespeople focus on short-term outcomes, but consultative sellers focus on developing long-term relationships. Why so?

Many B2B organizations have sought a more systematic approach to growing and protecting the business of their most strategically important customers. What is this called?

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Figure 9.2 Personal Selling Process INSIGHT QUESTIONS What steps are completed before the sales call actually takes place?

When does Step 7 occur?

Prospecting and Qualifying  A sales _ is an individual (or group) capable of making the decision on a good or service a salesperson is selling  Identifying and _ such individuals and organizations in search of new business opportunities is the lifeblood of most businesses  _ involves the search for potential customers—those who need or want a product and fit into a firm‘s target market  Potential customers can be found in a variety of ways: customer referrals, trade shows, industry directories, websites, and _  The main goal of this step is to find _ prospects  The activity of _ prospects involves identifying potential customers within the firm‘s target market who have a desire for the product, the authority to purchase it, the resources to pay for it, and time frame for purchase  The most obvious approach in qualifying prospects is simply _ with the target customer  Qualifying also involves doing _ to better understand the target customer‘s needs, wants, and ability to pay  Once a prospect has been qualified, the salesperson can adjust the amount of effort directed toward _ Pre-approach  In the _ stage of the personal selling process, the salesperson does research and preparation before contacting the customer  They should identify key decision makers, review account histories, ascertain customer needs, and prepare sales presentations  The entire personal selling process can result in failure if the salesperson doesn‘t know as much as possible about the prospect before approaching them about the sale  In today‘s world, plenty of information about companies, industries, and individuals is available online with just a few clicks; there is zero excuse for not tailoring your approach and _ 684 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Approach  In the _ stage, the sales rep meets the customer for the first time  A key element of the approach is gaining a sufficient level of customer _ in order to schedule an appointment  _ is arguably the most important, and most difficult, step in the sales process  The McKinsey Global Institute estimates that the typical American hears or reads more than _ words every day—e-mails, texts, tweets, meetings, webcasts, commercials, blog posts, videos, and more  Carefully plan your approach to ensure that you present a strong _ that speaks to a valid buyer need  Whenever possible, use the name of a _ and reference them in the introductory e-mail or phone call  The follow-up should help establish credibility and position the rep as a useful resource  Once the salesperson has succeeded in obtaining a meeting, the next goal is to build _ —a friendly relationship—with the decision maker or key influencers The Presentation  After the approach, the salesperson prepares the _  Ideally, the sales presentation will (1) accurately convey the product‘s major _ , (2) describe its advantages in comparison with alternatives, and (3) detail how it will provide _ for the potential customer  In the _ (FAB) approach, features are attributes or facts relating to the product being sold or demonstrated  ―_ ‖—listing features without tying them to benefits—is one of the worst mistakes a salesperson can make  Advantages are general statements about what the features do; they may or may not be connected to an expressed or actual customer need  _ are the individual values attached to the advantages offered by various features of the product; they are the bridges that connect the advantages of the various features to the specific needs of a customer  Prepare presentations with an understanding of the value of the customer‘s _  Spend time thinking about what you want the customer to _ about the presentation  Customers want to do business with organizations they _ and trust

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The more a salesperson knows about the prospect‘s needs, the better position they are in to meet those needs

Handling Objections  _ are the concerns or reasons customers offer for not buying a product  Objections actually are useful: When a customer raises an objection, the salesperson has an opportunity to clarify and reassure the customer about pricing, features, and other potential issues  Handling objections requires professionalism, strong communication skills, and a _ for the prospect‘s concerns  Common techniques of overcoming objections include (1) acknowledging the objection, (2) _ , and (3) denial  In B2B contexts, the most common sales objections fall into four buckets: budget, authority, need, and time (known as _ )  New salespeople often try to go through an entire presentation without any _ from the prospective customer—which is often a mistake  The ability to draw out specific objections and remove _ to purchase is one of the major advantages of personal selling  Salespeople should make sure to validate the customer‘s objection, no matter how trivial it might seem, because the customer finds it important Gaining Commitment  _ occurs at the point when the salesperson asks the prospect for agreement to move forward with the sales process, ultimately leading to a purchase  This is often the most difficult part of the personal selling process; it requires the salesperson to overcome the basic human fear of being _  Sales reps ask questions throughout the sales presentation that test the buyer‘s readiness to commit—this is referred to as _  These questions enable the salesperson to ascertain (1) _ and (2) the right time to ask for the sale  After having tested the waters and gained agreement on key points using trial close questions, asking for the buyer‘s business becomes a natural _ to the sales meeting  Several common closing approaches are (1) summary close, (2) _ , and (3) assumptive close 687 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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No salesperson can rely on just one closing strategy; the most effective close depends on the customer and the _  Closing can be different in more complex sales  These situations typically have longer _ , involve multiple decision makers, and often entail a sequence of sales meetings Follow-Up  The _ is a critical step in creating customer satisfaction and building long-term relationships with customers  A sound _ includes, at a minimum, checking in after the sale to ensure that the customer is satisfied  Important by-products of the follow-up stage are positive word of mouth, customer testimonials, and _  Diligent follow-up can also lead to uncovering new customer needs and wants, securing additional purchases, or obtaining customer testimonials and referrals that can be used to open the door for new accounts  According to Salesforce.com, 84 percent of prospects respond to a salesperson referred by someone else within their organization  Follow-up should _ Applying the Personal Selling Process to Your Future Job Search  Many of these same guidelines apply when you begin the process of interviewing for an internship or a new job  Develop _ in advance of an interview  Asking great questions will help you demonstrate your _ and preparation; the answers will enable you to learn about the business and whether it is a proper fit for you

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CONNECT BACK: Reference Connect Assignment 9-2 At what stage does the elevator pitch take place?

How are objections in the sales process useful?

LO9-4: Describe the foundational elements necessary for sales success. Foundations of Sales Success  ―You can have anything you want in life if you help enough other people _ ‖ (Zig Ziglar)  The achievement of long-term success in professional sales must be centered on serving the _ of the customer  _ can be viewed as the adoption of the marketing concept at the level of the individual salesperson and customer Maintaining a Positive Self-Concept  Research suggests nearly 85 percent of all salespeople, regardless of experience or age, regularly experience some degree of _ before they contact a potential customer  Customer-oriented sales approaches are most effective when the salesperson has certain traits, knowledge, and abilities: a positive _ , market knowledge, and sales-related knowledge  _ emphasizes having the strength of mind to maintain realistic optimism while not letting failures slow you down THINK LIKE A MARKETER How do salespeople actively work on positive self-concept?

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Steps to Strengthening Grit  Research suggests that in many fields, a person‘s grittiness may have a bigger impact on success than _ or _ do  It is important for salespeople to monitor how they approach _  Improving grit requires practice, practice, and _  _ individuals are more likely to keep going, even when things get tough THINK LIKE A MARKETER How will you strengthen your grit as you approach graduation?

Market-Related Knowledge  In order to gain trust and effectively cocreate value with customers, sales professionals must continuously improve their market-related knowledge; sometimes, this is referred to as _  This includes strong understanding of (1) the goods, services, and processes within their own firm and (2) _  High-performing reps attract profitable customers who are less _ and exhibit greater _  Successful salespeople with high domain–area expertise can discuss in some detail how their products and services can bring value to the customers‘ business Selling-Related Knowledge  _ includes sales abilities and an understanding of selling techniques  Salespeople encounter different selling situations over a wide range of needs, buying motives, personalities, and social styles  _ refers to the altering of sales behavior during a customer interaction or across customer interactions based on perceived information about the selling situation  Rather than relying on a canned presentation, adaptive sellers use information gathered about prospects before an _  In order to successfully increase their repertoire of sales approaches, salespeople must be able to do two things: 690 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(1) Quickly and accurately categorize prospective customers based on _  (2) Use this information to craft a sales message that conveys an appropriate _ in a persuasive manner SPIN Selling  As the complexity and size of the sales opportunity grows, salespeople who asked smart questions in a particular sequence were most likely to achieve _  This research ultimately led to the development of the _ selling framework  SPIN is an acronym that refers to the questions that feature most prominently in successful sales calls:  _ are designed to obtain background facts about the buyer‘s current circumstances  _ ask about buyers‘ problems, difficulties, or dissatisfactions with an existing situation  _ ask about the consequences or effects of the buyer‘s situation  _ questions are designed to get the buyer thinking about the value of finding a solution to the problem  There is no one right _ for every buyer or seller  Customers respond to sincere interest, intelligence, and _ , not tricks  Sales success depends on building trust and creating _ for customers Table 9.2 SPIN Questions INSIGHT QUESTIONS What advice can you provide about problem-oriented questions?

Which questions are the hardest to create?

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LO9-5: Describe the use of sales technologies and social network platforms in professional selling. Sales Technology and Social Selling  Sales organizations today are using innovative technologies to dramatically reinvent selling processes, elevate _ , and increase customer satisfaction Customer Relationship Management (CRM) Systems  _ (CRM) is a strategy and set of processes used for better managing an organization‘s relationships and interactions with customers and potential customers  A CRM system, a set of _ used for contact management, sales management, productivity, and more, supports implementation of CRMbased strategies  CRM software is the biggest _ software category in the world by sales, and its growth isn‘t slowing down  CRM systems gather and store information about prospects and customers from various business _ , including sales records, contact forms, e-mail and social media marketing, search engines, and more  CRM systems share many key features; some of the most important capabilities for sales and marketing include (1) contact management, (2) _ , (3) powerful marketing and customer support automation, and (4) _ Mobile CRM  Firms have increasingly adopted _ that allow their sales teams to manage customer relationships, contacts, deals, events, and tasks on the go  Users are able to call and create e-mails with a single tap, add notes, log calls, update to-do lists, and access _ CRM data from their smartphone Artificial Intelligence (AI) and CRM  The use of AI can help take a lot of the guesswork out of the sales process and eliminate mundane _  This allows sales professionals to devote more time, energy, and resources into educating prospects and nurturing relationships with their most _ 692 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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There are several examples of ways in which AI-empowered CRM can help improve sales force performance, including (1) _ , (2) lead scoring, and (3) upselling and cross-selling Virtual Selling  The 2020 COVID-19 pandemic drove a radical shift to virtual selling for both B2B and B2C sellers  _ is the collection of processes and technologies by which salespeople engage with their customers remotely using a mix of synchronous and asynchronous communications  Virtual selling involves the strategic blending of communication channels (asynchronous and _ ) in the sales process to increase the probability of engaging a prospect, scheduling an appointment, advancing the sale to the next phase, _ , and retaining customers Table 9.3 Examples of Synchronous and Asynchronous Communication Channels INSIGHT QUESTIONS What is the difference between synchronous and asynchronous communication?

As a salesperson, which channel would you be more prone to using?

Emphasis on Video-Based Communications  Virtual selling includes conducting sales meetings and presentations through video calls, communicating with prospects through video messages, or making e-mails and _ more engaging through the use of video  Virtual selling uses video throughout all phases of the selling process Virtual Selling as a Prospecting Tool  By creating a brief, _ and attaching it to an email, sellers can stand apart from the noise  Such videos need not be something that is overly produced or rehearsed  It should appear natural and unplanned, a video that speaks specifically to the _ , taking what is usually said in an e-mail copy but providing deeper _ and value Virtual Sales Meetings 693 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Virtual sales meetings and presentation have fast replaced in-person meetings and phone calls, especially during the earlier stages of the sales process  Video is not as effective as face-to-face meetings in terms of developing _ with buyers and reading nonverbal cues  Assuming the prospect‘s camera is on, a well-trained salesperson should then be able to detect when a prospect is confused, _ , or is responding positively based on _ and expressions Video for Meeting Follow-Up and Closing  _ is also useful for following up on virtual sales meetings, moving the sales process forward, and closing deals  Inclusion of a professional video in a follow-up e-mail or proposal submission can help the seller stand out Video Production Guidelines  Given the heavy use of video-based channels in virtual selling, companies and salespeople should take steps to apply best practices from _ and _ in their home or office studio setups  _ : The camera should be directly in front, at eye level  _ : Proper lighting makes it easier to see facial features and expressions, leading to increased engagement, attention, and trust  _ : The backdrop is a direct reflection of your personal and professional brand  _ : Make sure your clothes contrast well against the background  _ : Proper audio is the most important element of an effective video call What Is Social Selling?  _ is the practice of using social networking platforms to find, connect with, understand, and nurture relationships with sales prospects  It is a purposeful activity aimed specifically at bolstering seller _ , facilitating insightful conversations with prospects, and establishing long-term customer relationships  _ is recognized as a leading proponent of social selling  LinkedIn provides users with an _ (social selling index) score, which tells salespeople and marketers how effectively they are using the platform  The four pillars of social selling on LinkedIn are (1) developing your brand, (2) _ , (3) engaging with insights, and (4) establishing relationships Why Are Companies Adopting Social Selling? 694 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Prospective customers today routinely share information online about the most significant business or personal _ they are facing  A recent study indicated that 83 percent of B2B executives use social media in their information searches; 92 percent of the executives report that the information found through their social media engagements had influenced _ How Companies Are Using Social Selling  Hubspot uses insights from social media to develop original content that triggers interest in its services  It has an active _ to identify questions of interest from small business owners and managers that match the profiles of its ideal buyers Figure 9.3 How B2B Sales Professionals Use Social Selling Tools (% of Respondents) INSIGHT QUESTIONS How are sales professionals using social selling?

Which social media platforms are appropriate for social selling purposes?

CONNECT BACK: Reference Connect Assignment 9-3 Should social media be used to manage relationships with potential customers?

How does the modern sales professional ―double as an information concierge,‖ according to Jill Rowley?

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Social Selling Tactics for Sales Professionals  Sellers must be thoughtful and systematic in their efforts to establish a _ , identify and focus their energies on the most valuable _ , bolster credibility by engaging customers with timely and insightful information, and build and maintain trust-based relationships Crafting a Professional Brand on Social Platforms  Social media tools can increase a salesperson‘s _ within an industry and enable them to define a distinct professional brand  Through commenting, liking, or sharing content with prospects, salespeople can boost their own credibility by showing an _ in what their buyers are posting and talking about  In creating their professional brand, salespeople should thoughtfully _ their social media profiles to showcase the value they bring to customers Use Social Tools to Focus Attention on the Right Prospects  Social media tools can also make it easier to determine whether the prospect has a _ with a friend or professional colleague  Social sellers can set up alerts about customers, prospects, and _ using Twitter, Google, or other social listening tools  Another approach is to set up a search that identifies _ who have recently left a key account that has been successfully serviced by the seller‘s organization Engage Prospects and Customers with Relevant Insights  Sales is all about influence without _  According to a recent study by LinkedIn, over 62 percent of B2B buyers respond to salespersons who connect with relevant _ and opportunities  Engaging customers with meaningful information via social selling entails a thoughtful approach to being the first to share industry news, surveys, reports, _ , and ideas  By adding their own voice to carefully selected content, social sellers can further bolster prospects‘ perceptions of their _  _ is the process of continually finding, grouping, and sharing the most relevant content across social networks  Many sales organizations have augmented their CRM systems to include _ tools, making it easier for salespeople to find and share internal content based on the prospect‘s needs and stage of the sales process

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Using Social Selling to Build Trust-Based Relationships  Buyers and sellers typically connect based on some shared interest or desire for positive change from the _  Buyers aim to establish long-term relationships with vendors who consistently provide economic value and demonstrate high levels of _  Social selling simply offers salespeople new ways to initiate and maintain _ relationships with buyers  By providing relevant information and sharing their own unique perspectives—focusing on helping, not selling—salespeople gain a reputation for industry expertise and establish buyer trust LO9-6: Discuss ethical issues in personal selling and sales management. Ethical Issues in Personal Selling and Sales Management  _ refers to a set of behaviors that ensure that every lead, prospect, and customer is treated with respect, fairness, honesty, and integrity  To put it simply, it means salespeople should always place the _ first Causes and Implications of Unethical Sales Behaviors  If a salesperson‘s aim is to establish long-term, mutually beneficial relationships with their customers, it is logical for them to make sure that each step of the sales process is guided by _  Conflicts can originate from social or _ demands in a salesperson‘s personal life  Sales employees can also suffer psychologically when they are caught in a struggle between their internal _ and _ from their company or manager to meet sales quotas  With the rising use of social media networks among consumers and business buyers, sellers‘ ethical infractions can become highly visible to external stakeholders—including prospective customers, employers, _ , and competitors  If a salesperson takes a shortcut—if there is even the appearance of _ —it can sidetrack more than a single deal, resulting in significant damage to corporate reputation and can cause irreversible damage to a sales career

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Research has shown that maintaining high ethical standards on the part of sales personnel is a critical driver of sales force performance: It affects the firm‘s capacity to (1) build relationships with customers and (2) _ Standards of Sales Professional Conduct  One study of sales and marketing executives revealed that more than _ percent of respondents believed that their salespeople have lied on a sales call  Nearly _ percent agreed that the pressure to meet sales goals encourages salespeople to lose focus on customers‘ needs  A salesperson may be tempted to say exactly what they think the prospect wants to hear in order to close the sale; salespeople are well advised to always adopt the _ when discussing competitors  Another common area of ethical concern involves salespeople‘s behaviors toward _  Many companies invest in _ to better prepare employees to make good decisions when confronted with a potentially unethical situation  Trade organizations such as _ (SMEI) and the Canadian Professional Sales Association (CPSA) have incorporated ethical codes of conduct into their sales and marketing certification programs  The SMEI code of conduct begins with three _ that serve as excellent guides for all sales professionals  Today‘s business environment calls for _ and customer-oriented behaviors without deviation TODAY’S PROFESSIONAL NOTES Tyler Garnett, State Farm Agent What kinds of questions will you ask in your job interview?

What do you want to be known for in your job?

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MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of selling and also of asking good questions. Discovering the right information from decision makers and prospective future employees is a very important skill on your personal journey. In the next section of the marketing plan exercise, your assignment is to create specific questions to obtain the information you will need to decide whether a job in an organization or graduate school will be a good fit for your career goals. New graduates consistently struggle at the part of interviewing or networking where prospective employers or graduate school admissions officers ask, ―Do you have any questions for us?‖ The SPIN selling technique in this chapter provides a good framework as you work to develop the most relevant and efficient questions at this stage: 

Situation questions are designed to obtain background facts about the buyer‘s current circumstances. (In this example, the buyer is the potential employer or the committee making the decision to admit you to a graduate school program.)  Problem questions ask about the buyer‘s problems, difficulties, or dissatisfactions with an existing situation. Knowing this helps you understand how your skills might help improve the organization or add value to a university‘s graduate school program.  Implication questions help transform problems into explicit needs in the mind of the buyer and expand the perceived value of finding a solution. This type of question can help the decision makers think more closely about how hiring you or accepting you into their program will make their organization better.  Need-payoff questions are designed to get the buyer thinking about your value, importance, or usefulness in finding a solution to the problem. The SPIN framework questions will help you sell yourself to potential employers or schools. They also will help you better understand how the organizations you are interested in fit into your personal marketing plan. Student Task: Write one question for each component of the SPIN selling framework. Your answer should include a situation question, problem question, implication question, and needpayoff question focused on either your targeted job or graduate school program. Please also include a sentence or two for each on what you hope to find out from each specific question and how that information might benefit you. Instruct students to insert their responses to the above in Chapter 9’s section of the Personal Marketing Plan. Chapter 9

SPIN™ SELLING QUESTIONS (S)

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(P)

(I)

(N)

Chapter 10: Supply Chain and Logistics Management

Wesley Hitt/Photolibrary/Getty Images

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LO 1-184 Describe how the primary logistics functions support a firm‘s supply chain strategy. LO 1-185 Describe the various logistics functions and their importance to marketing. KEY TERMS accessibility (of transportation) distribution center (DC) hybrid (push–pull) strategy intermodal transport inventory carrying costs logistics logistics operations

materials management omnichannel picking pull strategy purchase order push strategy put-away resilience

stockout supply chain management supply chain orientation supply chain process integration

THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: Why must we acknowledge the supply chain as a marketing concept? How is marketing affected by this? Set 2: Transportation plays a critical role in the logistics function of supply chain management. What are the six modes of transportation? What factors are evaluated in choosing the mode of transportation a company uses?

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES and TABLES as visuals to elaborate on key areas, KEY TERMS learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT activities can be used, as well as tying in SOCIAL MEDIA IN ACTION to real-world 701 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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applications of marketing products. This is created so that you can facilitate in-class or online discussion effectively. Executive Perspective

Sankha Basu Senior Manager, Agile Transformation, CVS Health Sankha Basu found love for many roles throughout his career. Having a relentless pursuit of delivering value within the teams he‘s worked, Sankha considers himself to be customer-centric. He uses his experience to provide insight in answering the following questions:

Photo provided by Sankha Basu

391. What has been the most important thing in making you successful at your job? 392. What advice would you give soon-to-be graduates? 393. How is marketing relevant to your role at CVS Health? 394. What do you consider your personal brand to be? Later in the chapter you see how Bobby elaborates on: 

How technology influences his role with CVS.

Review with students:  

Describe the various flows within a supply chain. Supply Chains  Supply Chain Flows through Marketing Channels PowerPoint Slides Lecture Notes: LO 10-1

How is marketing relevant in his role? How can you prepare for change throughout your career? Key Terms: (none)

Supply Chains  

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The world is an interconnected place in which the actions of people in one part can affect everyone Due to the COVID-19 crisis, severe transportation delays occurred causing 61 percent of container ships to arrive late, the cost to ship a container to rise 333 percent, U.S. trucking rates to increase 15 percent from a year earlier, and customer service to plummet A supply chain is the linked set of companies that perform or support the delivery of a company‘s products or services to customers

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A supply chain delivers value to the end user of products and services by leveraging the core competencies of its company members to cut costs, provide innovation, ensure quality, and deliver products and services to the right place at the right time at the right price

Supply Chain Flows through Marketing Channels          

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Figure 10.1

A supply chain consists of flows of products and services, financial resources, and information among the companies in the chain The flow of products and the services involved in getting the products to customers is said to move downstream The flow of financial resources that move from the customer to the companies that were part of the supply chain is said to move upstream On their way downstream, products pass through distribution channels Distribution channels or marketing channels are intermediaries, such as wholesalers, distributors, and retailers, through which the flow of products travels A wholesaler is a company that sells to other businesses such as retailers and other industrial companies Wholesalers buy products in large quantities, typically directly from producers of the products The main difference between a wholesaler and distributor is that a distributor will have exclusive rights to selling products from a producer to customers within a certain geographic territory A retailer sells goods to consumers for their own use, rather than for resale to others. Individual sales are in much smaller quantities for retailers than for wholesalers and distributors Containers have been a driving factor in the globalization of supply chains because they allow a large amount of goods to be shipped inexpensively and can be quickly and easily loaded onto and removed from ships The concept of a supply chain is actually a simplified version of what is actually a network of companies made up of many suppliers, selling to many intermediate customers Insight Questions:

Figure Information: Example of a Supply Chain for a T-Shirt A supply chain is a set of three or more companies directly linked by one or more of the upstream and 703

395. Describe the supply chain for a T-shirt. Be sure to acknowledge the downstream flow of products and related services, two-way flow of information, and upstream flow of finances. (Answer: From a cotton grower who harvests the cotton, a manufacturer will process the cotton, spin it into yarn, dye it, and ship it to a T-shirt manufacturer. The T-shirt manufacturer cuts the cloth, assembles it, and ships it to a factory. Via several modes of transportation, the T-shirts are sent to a port where they will be sold from. A distribution center

Instructor‘s Manual - Chapter 1 downstream flows of products, services, finances, and information from a source to a customer. The flow of a supply chain in a downstream, upstream, and two-way flow of products and related services is illustrated to help you visualize the flows.

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stores the jeans until ordered by retailers and sold by individual stores to consumers.) 396. Where would a consumer like you most likely buy the T-shirt? (Answer: at a retailer) 397. Why does the flow of information affect all members of a supply chain? (Answer: Because without accurate timely information, companies cannot make good decisions.)

Describe the push, pull, and Key Terms: hybrid supply chain Push strategy strategies and their Pull strategy relationship to a company‘s Hybrid (push–pull) strategy competitive strategies. Supply Chain Strategy  Push Strategy  Pull Strategy  Hybrid (Push–Pull) Strategy  Selecting the Appropriate Strategy PowerPoint Slides Lecture Notes: LO 10-2

Supply Chain Strategy  

Effective supply chain management requires a strategy that helps the firm establish a network of suppliers and customers to meet its supply chain objectives Supply chain objectives should be based on the firm‘s marketing objectives; they can include things such as (1) types and locations of markets to be served, (2) market share and customer service desired (3) speed with which new products should be developed, and (4) cost reduction and profitability goals

Push Strategy   

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A push strategy is one in which a company builds goods based on a sales forecast, puts those goods into storage, and waits for a customer to order the product A supply chain push strategy is also sometimes called a speculation strategy because the company speculates on the type and amount of products that the market will want Firms can achieve economies of scale—purchasing can buy in larger lots which lowers purchase prices, transportation can move full vehicles which lowers the per-unit transportation costs, and manufacturing can make long production runs which are more efficient

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than short runs Push strategies often positively affect customer service because the goods are already in stock, awaiting the customer‘s order If sales forecasts are not accurate, the company will have too much of a product no one wants or not enough of a product consumers do want Production facilities set up to manufacture one good over a period of time will respond slowly to changing demand patterns Inventory carrying costs are expensive—they typically can be 25–30 percent of the cost to produce and deliver the goods

Pull Strategy          

A pull strategy is one in which customer orders drive manufacturing and distribution operations It is also sometimes known as a responsive supply chain The supply chain pull strategy and the promotion pull strategy both rely on customer orders However, the supply chain version depends on an initial level of customer demand to even initiate manufacturing This method eliminates the risks associated with producing unwanted products because the good is not made until a customer order is received Firms can customize products specifically to customer requirements Inventory carrying costs are minimized The firm can respond rapidly to changing market conditions A pull strategy doesn‘t often allow firms to take advantage of economies of scale To effectively implement a supply chain pull strategy, a firm needs flexible production and distribution facilities; production must be able to change rapidly to produce different products

Hybrid (Push–Pull) Strategy       705

In a hybrid (push–pull) strategy, the initial stages of the supply chain operate on a push system, but completion of the product is based on a pull system As it would in a push strategy, a company might forecast sales, build an inventory of components based on the forecast, and hold those components in inventory until a customer order is received As in a pull strategy, the company would finalize the product based on the customer order It combines the economies of scale of the push strategy with the flexibility of the pull strategy It produces more accurate sales forecasts because firms tend to be more accurate at an aggregate level than at a specific product level It may not be as cost competitive as a push system because the firm

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cannot take advantage of manufacturing and transportation economies of scale The firm will still incur costs to store components in inventory As in a pure pull system, the company will need to develop a distribution system that can deliver products quickly to avoid customer service complaints

Figure 10.2

Insight Questions:

Figure Information: Comparing Supply Chain Strategies Effective supply chain management and integration require a thoughtful supply chain strategy that helps the firm establish the right network of suppliers and customers to meet its objectives. Three different types of supply chain strategies exist: push, pull, and hybrid (push–pull). Each has their own series of steps, which is indicated.

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398. What dictates which supply chain strategy a firm should pursue? (Answer: a firm‘s overall marketing strategy) 399. Whichever supply chain strategy a firm chooses, effective implementation is impacted by what? (Answer: logistics operations) 400. A pull strategy is driven by what? (Answer: customer orders) 401. What extra step does a push strategy involve? (Answer: putting products in storage)

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Lecture Notes: Selecting the Appropriate Strategy 

Stability of demand: If a firm can‘t predict demand for its product, it can‘t create an accurate sales forecast that would allow it to enjoy the benefits of a pure push strategy  Demand uncertainty often occurs when products are in the introductory and growth stages of the product life cycle  Degree of cost competitiveness: A push strategy will allow a firm to achieve cost savings through economies of scale in purchasing, manufacturing, and transportation  Degree of customization: A pull or hybrid strategy would be a good choice for a company that competes on either (a) its ability to deliver customized products or (b) a high level of customer service built on manufacturing and distribution flexibility  The speed at which customers need the product: Lead time is the time it takes from placement of an order to delivery of the goods  If customers want a short lead time, the company will need to have products already made and ready to deliver THINK LIKE A MARKETER Is there a company that is 100% self-sustainable? Connect Assignment 10-1

Topic: Supply Chain Strategies Complete the Connect exercise in Chapter 10 that focuses on supply chain strategies. By identifying the appropriate strategy, you will be able to establish the right network of suppliers and customers necessary to meet your objectives. CONNECT BACK Insight Questions: 402. Which strategy would be considered most effective for a new mobile technology firm? What factors would you consider? (Answer: A push–pull supply chain strategy uses a sales forecast to build up the expected inventory of base products then waits for customer demand before customizing them.) 403. How would the supply chain strategy differ if providing a service versus a tangible product? (Answer: The intangibility factor prevents products from being put on a shelf and stored, and therefore the marketing mix for services more critically focuses on managing the people, process, and physical location to ensure timely consumption of services.)

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Summarize the importance Key Terms: of collaboration and Supply chain orientation resilience to effective supply Supply chain management chains. Inventory carrying costs Supply Chain Management  What Is Supply Chain Management?  Important Concepts in Supply Chain Management  Supply Chain Process Integration Types of Supply Chain Collaboration  External CollaborationVen dor-Managed Inventory  Collaborative Planning, Forecasting, and Replenishment (CPFR) Efficient Consumer Response (ECR)  Other External Collaboration Processes  Store Replenishment Collaboration  Summary  Supply Chain Resilience PowerPoint Slides Lecture Notes: LO 10-3

Supply Chain Management 

Supply chain management refers to the actions the firm takes to coordinate the various flows within a supply chain

What is Supply Chain Management?  708

By viewing the total system of interrelated companies that make up the supply chain as something they can manage, companies have greater

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control over the customer value they provide This greater control, in turn, generates higher revenue for the company The key idea behind supply chain management is that no company is an island; all companies rely on related companies whose activities add value to the final product Supply chain management decisions often involve trade-offs Decisions made about one area of the supply chain will affect other areas, sometimes negatively When there is not enough inventory to satisfy customer demand, the firm may lose sales Inventory carrying costs are the costs required to make or buy a product These costs include risk of obsolescence, taxes, insurance, and warehousing space used to store the goods It is important to compare the cost of carrying inventory to the potential cost of lost orders and possibly lost customers due to lack of inventory to fill orders

Important Concepts in Supply Chain Management     

Three concepts are important to understand concerning the management of supply chains: supply chain process integration, supply chain resiliency, and logistics operations Supply chain process integration: The ultimate objective of supply chains is to deliver goods and services in a timely manner to the place where they will be consumed by the final user This requires that companies work collaboratively both internally (between functions) and externally (between companies) to provide value to the final consumer Resilience: the ability to anticipate, prepare for, and effectively respond to supply chain disruptions Logistics operations: These are the functional areas of a supply chain that sources materials and finished goods, warehouses and manages inventories of those products, moves those products within stages of a supply chain, and handles the distribution of products to business customers or consumers

Supply Chain Process Integration   

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A firm that recognizes and responds to the impact supply chain flows have on its business possesses a supply chain orientation A supply chain orientation is a management philosophy that guides the actions of a company toward actively managing the supply chain With this philosophy, a company would consider upstream and downstream flows of goods, services, finances, and information across the supply chain as activities it would be involved in, even though they

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may be performed by other companies They are willing to help coordinate supply chain activities that add value to the end customer The objective of a company practicing supply chain management is to coordinate processes across the supply chain, including within its own firm, with the goal being to improve the entire chain‘s performance in delivering goods and services to customers This requires firms in the chain to take actions that are aligned with other firms‘ actions and consider the impact of its actions on other firms in the chain For an integrated supply chain to work, companies must be willing to embrace close, long-term collaboration for mutual benefit

Types of Supply Chain Collaboration Internal Collaboration       

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Internal collaboration involves departments or functions within a company working together to achieve a common goal Interdepartmental/functional collaboration is not always the norm in companies due to conflicting goals, methods of operation, and behavioral norms A major objective is balancing supply and demand, which is accomplished by procuring the right number of materials and producing the right amount of product to meet market demand When communication and cooperation between departments is low, it is extremely difficult to achieve a good supply/demand balance The most common way that companies deal with this problem is to implement a sales and operations planning process (S&OP) S&OP is based on a sales forecast developed by the demand side of the business (marketing and sales) and a capacity forecast developed by the supply side of the business (sourcing and production planning) S&OP has three basic purposes: (1) balancing the supply of product to meet demand; (2) planning volumes to guide detailed production plans; and (3) integrating financial, new-product development, and operational plans S&OP not only results in higher customer service and lower overall inventories, it also can create spillover benefits that permeate the entire company The collaboration needed in S&OP can lead to inter-functional collaboration in other processes as well: It can increase awareness of the problems faced by other parts of the organization and promote trust between departments The process can change the company‘s operational culture from one that is internally focused to one that better understands the potential benefits of working with other companies in the supply chain

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External Collaboration  

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The trust that develops from internally collaborative processes can become the foundation upon which external collaborative programs are built These programs include vendor-managed inventory (VM I); collaborative forecasting, planning, and replenishment (CPFR); efficient consumer response (ECR); retail–event collaboration; and various stock replenishment methods currently in use by major manufacturers and retailers These processes require sharing information between companies, joint agreement on the responsibilities of the individual companies, and a good deal of trust among all parties, since the responsibility for integrating supply and demand is often delegated to the supplier

Vendor-Managed Inventory      

In VM I, the supplier is given the responsibility of replenishing a customer‘s inventory, but the process is based upon rules agreed to by both parties The supplier, not the customer, then decides how much inventory to produce and when to have it delivered In the case of a manufacturer and its supplier, the supplier‘s responsibility is to replenish component, raw material, and/or work-inprocess inventories in a factory For retailers, the supplier‘s scope of responsibilities can include stock replenishment into a retailer‘s distribution center or even all the way into the retailer‘s store shelves Underpinning the VM I process is a computer-guided system that determines at what point inventory should be replenished and how much inventory should be delivered The customer establishes a replenishment point and inventory level, and when the customer‘s inventory hits that reorder point a set quantity is ordered

Collaborative Planning, Forecasting, and Replenishment (CPFR) Efficient  

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CPFR is a process through which suppliers and customers jointly plan demand fulfillment The companies share information about promotions, sales forecasts, manufacturing plans, inventory levels, and planned orders; this information is then used to develop a plan of expected sales and inventory replenishment The process is implemented via a joint calendar of events in which demand and supply plans are shared, discussed, and agreed upon

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CPFR results in a consensus on sales forecasts, production schedules, and shipments

Consumer Response (ECR)     

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ECR involves direct links, via a paperless flow of information, between members of the supply chain to accurately match production with consumer demands ECR normally has four elements (1) Implementation of electronic data interchange (E DI) among all tiers of the supply chain to speed the flow of demand-and-supply data among exchange partners (2) Use of POS data to give suppliers more accurate and up-to-date demand information concerning their products (3) Fostering of cooperative rather than adversarial relationships between supply chain members, which is critical to creating the trust essential to processes where proprietary data are transmitted between companies (4) Continuous replenishment of inventory based on demand data ECR can lead to both cost savings and service improvements because the right amount of inventory is flowing through the supply chain at all times

Other External Collaboration Processes   

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Collaborative stock replenishment is designed to help match demand and supply revolve around Retail–event collaboration is one such intercompany program; it is designed to help businesses match supply with demand following a promotional event The retail–event collaboration process requires agreement between supplier and customer on which SKUs will be included in the collaboration, as well as the development of a sales forecast specific to the promotion and the formulation of manufacturing and shipment plans A technique commonly used in the drugstore, hardware, and grocery industries is distribution center (DC) replenishment collaboration In DC replenishment, the supplier and customer collaborate on forecasting withdrawals from the customer‘s DC to replenish store inventories This stream of orders assists the manufacturer in planning its purchasing, production, and logistics activities in a proactive manner, leading in turn to reduced manufacturing and logistics costs, inventory carrying costs, and customer service failures

Store Replenishment Collaboration 712

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Store replenishment collaboration (SRC) involves direct store or retail DC-to-store deliveries based on collaborative store-level sales forecasts These forecasts are used to create replenishment orders over a specified time This type of collaboration can be very useful to manufacturers that are launching new products or are running product promotions at the retail level

Summary 

A combination of internal and external collaboration can become a competitive advantage for a company by reducing costs, improving customer service, and developing closer and more trusting relationships with important customers and suppliers

Supply Chain Resilience   

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Supply chain disruptions happen at both small and large scales Some of these types of disruptions last a few days or at most a few months The COVID-19 pandemic prevented supply chains from delivering goods and services throughout the world, and its effects pointed out too many companies that they were unprepared for a disruption of such magnitude Supply chains intricately join together factories, distributors, retailers, and consumers, and a breakdown anywhere along the chain can mean a breakdown of the entire system If companies want to survive long term, they must be prepared for changes that can negatively affect their chance of remaining viable A powerful approach that companies can use is to make their supply chains as resilient as possible to supply chain disruptions Holding inventories of components, raw materials, work-in-process, and finished goods can tide a company over a short-to-medium term supply disruption Safety stock, which is used to buffer short-term variations in demand and order lead times, is used by most companies because demand and supply vary over time, though they are inadequate to buffer longer term disruptions Anticipatory stock differs from safety stock in that it only needs to be held during times of potential supply risk or periods of possible extraordinary consumer demand Sourcing is the set of business processes required to purchase goods and services Companies can use a sourcing strategy that takes advantage of multiple suppliers of components, raw materials, work-in-process, or finished

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goods in different parts of the world, so that if a disruptive event occurs in one region they can be obtained from a different region  The objective is to have multiple sources for all goods and services needed, which requires a combination of in-shore and off-shore suppliers to provide multiple ways to obtain what is needed to meet customer demand  Manufacturing capacity flexibility involves such tactics as gaining time flexibility from employees, adding production shifts and/or lines, use of subcontracting, and the use of multiple facilities to produce the same product  These tactics allow a company to be more resilient to increases in demand, such as occurred for paper products during the COVID-19 pandemic  Time flexibility involves asking employees to work more hours in a shift or to work weekend hours, which enables a company to use trained workers to make the products but can be detrimental to the health and safety of employees if used to excess  Another tactic is to add additional work shifts; for example, going from two to three shifts in a day, which requires hiring new employees and training them, which can be expensive  A third tactic is to go to a third party, called a subcontractor, to make the product(s) along with your own production facilities, which can be very effective because many subcontractors are quite capable of making quality products in high volumes  Transportation disruptions such as port strikes and slowdowns, ships getting stuck in the Suez Canal, and lack of truck drivers can have devastating effects on supply chains for many months  This issue is especially acute due to the high-level offshore sourcing in today‘s supply chains  Companies have several options to become more resilient to transportation problems—one way is to change the mode of transportation  Vertical integration is when a company controls two or more stages of production or distribution normally operated by separate companies  Companies vertically integrate to gain more control over their supply chains, thus gaining more resiliency  Companies that anticipate problems and have alternative plans in place will likely fare much better than those that do not when a disruption in the supply chain occurs THINK LIKE A MARKETER Does choosing a supply chain strategy provide competitive advantage?

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Describe how the primary logistics functions support a firm‘s supply chain strategy. What Is Logistics?  The Impact of Logistics  Aligning Logistics with Supply Chain Strategies

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Key Terms: Logistics

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Lecture Notes: What Is Logistics? 

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Logistics is that part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin (such as the mine in which silicone is extracted for use in making computer chips) and the final customer (the user of a personal computer) Logisticians are people who specialize in the area of logistics Logistics comprises some specific functions that enable a supply chain to operate smoothly and effectively These functions include managing inventories; purchasing; and materials management, warehousing, and distribution (including transportation) The goal is to achieve ―the seven Rs of logistics‖—delivering the right product, to the right place, to the right customer, at the right time, in the right quantity, in the right condition, and at the right price How well companies provide value by performing the seven Rs of logistics will determine how satisfied are their customers

The Impact of Logistics            716

Managers from all areas of business should be aware of the impact logistics operations and personnel have on their own functional areas Arguably the biggest impact is on the four Ps of marketing The most obvious relationship is with the place element: delivering goods and services to the correct location and in a timely manner Satisfying customers through logistics activities is a prerequisite for maintaining and increasing market share Having products at the right place and at the right time is critically important to marketers because, if the product is not available for purchase, all of the company‘s other marketing efforts will be wasted Logistics affects price through efficient purchasing, inventory warehousing, and transportation processes that help keep costs down for the consumer The product element is influenced by input from logistics managers about packaging needs for safe and efficient storage of goods and shipment of those goods to customers Marketing promotions are expected to result in increased sales volume Logistics personnel support manufacturing operations by receiving, storing, and retrieving materials needed in production Coordination between the two operations is critical to ensure a smoothly running manufacturing facility The amount of inventory a company holds and the costs of warehousing and transportation affect return on investment (R OI)

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How well the logistics managers perform affects customer service, which ultimately can affect revenue positively or negatively Logistics also applies to services and nonprofits

Aligning Logistics with Supply Chain Strategies  

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Logistics operations have to be properly configured to meet the different challenges presented by each type of supply chain strategy Companies pursuing the economies of scale that come with a push strategy will have to set up logistics operations that can handle large volumes of product, including modes of transportation (container ships and railroads) and large warehouses equipped to efficiently store, retrieve, and load goods onto vehicles at a fast pace Companies that employ a pull or hybrid strategy typically establish logistics operations based on service quality, innovation, and flexibility These efforts include suppliers that produce and deliver quickly, transportation that ensures on-time delivery, and the use of advanced technology to increase the responsiveness and flexibility of logistics operations Enterprise resource planning (ERP) systems are data management systems that integrate information across all the departments of an organization ERP systems can communicate with the IT systems of other companies through electronic data interchange (EDI) EDI enables an almost instantaneous transfer of information from one company‘s computer to another, enabling firms to react quickly to customer demand

Describe the various logistics Key Terms: functions and their Stockout importance to marketing. Purchase order Logistics Functions Materials management Put-away  Managing Inventories Picking  Inventory Costs Distribution center (DC)  Purchasing Omnichannels  Purchasing Intermodal transport Activities Accessibility Materials Management, Warehousing, and Distribution  Materials Management  Warehouse Functions  Storage  Movement  Production © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Distribution Transportation Management  Rail  Motor  Air  Water  Pipeline  Cyberspace PowerPoint Slides Lecture Notes: Logistics Functions   

U.S. corporate spending on logistics and related business functions is approximately 8 percent of gross domestic product, which indicates the impact logistics has on the economy Logistics operations have a large impact on consumers as well as business A breakdown in any logistics function will result in back orders, empty shelves, and customer dissatisfaction

Managing Inventories    

Marketing relies on inventory management for several reasons Unless the right amount of inventory is available at the right location, customer service will suffer If companies stock too much inventory, they pay more in inventory carrying costs than they need to which could have been used for things like new-product development or advertising The challenge of inventory management is to manage inventories in a way that balances supply and demand in a cost-effective manner

Inventory Costs       718

To manage inventory effectively, firms try to balance product availability with the costs of carrying inventory To determine the level of inventory to keep in stock, a firm must track three types of costs (1) Purchasing costs include the costs to place and process orders of materials and finished goods The more often a company places orders for an item, the higher the annual purchasing costs (2) Inventory carrying costs are important to companies because they negatively impact profits Inventory carrying costs differ somewhat between companies, so companies calculate their carrying costs based on their own actual cost

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for each individual part of the overall costs of a product (3) A stockout occurs when a company does not have enough inventory available to fill an order; accordingly, a customer can either place a back order or cancel the order A canceled order, of course, means lost revenue, and if the customer places a back order, the company incurs out-of-stock costs

Table 10.1

Insight Questions: 404. Are there items on the inventory carrying cost table that surprise you? (Answer: Open ended as students‘ responses will vary; obsolescence may be shocking because it shows the company is already planning for it, and the consumer is paying for it) 405. Why are inventory carrying costs important to measure? (Answer: They negatively affect profits. Any amount of carrying costs that the company could save would improve the profit margin.)

Table Information: Calculating Inventory-Carrying Cost Percentage for a Smartphone A sample calculation of inventorycarrying costs for a smartphone is illustrated. Any amount of carrying costs that the company could save would improve the profit margin the firm earns on the phone. Figure 10.3

Insight Questions: 406. Describe the relationship among purchasing costs, inventory carrying costs, and out-of-stock costs. (Answer: As inventory carrying costs increase, purchasing costs decrease. Costs associated with stockouts decrease because the average inventory will be larger, making a stockout less likely.) 407. Apply this chart to an example using a familiar product. (Answer: Open ended as students‘ responses will vary.)

Figure Information: Relationships among Purchasing Costs, Inventory Carrying Costs, and Out-of-Stock Costs 719

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The relationships among the three inventory costs are shown. As order quantities increase, inventory carrying costs increase because the larger the order the more average inventory a firm will have on hand. Meanwhile, purchasing costs decrease because the firm will need to place fewer orders, and costs associated with stockouts decrease because the average inventory will be larger, making a stockout less likely. Marketing Analytics

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Insight Questions: 408. Which two metrics help companies evaluate inventory management? (Answer: inventory turns and days of supply) 409. What else does a company need to look at when considering measuring inventory turns? (Answer: A company with high inventory turns, for example, may suffer poor customer service because inventory is not always available to ship to customers when ordered. However good the inventory metrics look, the impact of inventory investment on customer service should be the firm‘s paramount consideration.) Lecture Notes: Purchasing     

Purchasing involves the sourcing and procurement of raw materials, component parts, finished goods, and services Materials purchased for manufacturing typically account for 40–60 percent of product costs Purchasing is a major factor in the quality of both goods and services By involving appropriate suppliers early in the product design process, purchasing can help improve product design and time-to-market for new products Sourcing materials and products from reliable suppliers ensures that the flow of goods in a firm‘s supply chain meets demand, leading to superior customer service

Purchasing Activities 

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To carry out the purchasing strategy of a company, purchasing managers perform a variety of activities

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A company selects suitable suppliers based on criteria (such as cost or service capability) established by the purchasing manager Purchasing managers negotiate with a supplier about contract terms and conditions Based on the terms of the negotiations, the purchasing manager writes a purchase order, which is a legal obligation to buy from a supplier a certain amount of product, at a certain price, to be delivered at a specified date Purchasing managers establish performance expectations for suppliers and develop ways to measure their performance Expectations often relate to quality, on-time delivery, rapid response to problems, and accuracy of invoices If performance does not meet expectations, purchasing managers may reduce the business awarded to the supplier, levy monetary fines, or refuse to do business with the supplier in the future Purchasing managers may visit the supplier‘s operations to better understand issues Many companies rely on global sourcing which gives companies access to the highest quality materials, goods, and services at the lowest possible price The cost of labor from international sources has begun to rise and, as a result, some companies are looking at reshoring, that is, sourcing goods and services domestically that were once purchased internationally

Materials Management, Warehousing, and Distribution    

Materials management involves managing materials for manufacturing Warehousing involves holding inventories of both intermediate materials and finished goods Distribution involves distributing (transporting) goods from a warehouse to stores or directly to customers Transportation management is part of the distribution activities

Materials Management  

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Materials management involves the inbound movement and storage of materials in preparation for those materials to enter and flow through the manufacturing process Effective materials management benefits the company in the following four ways: (1) reduces procurement, transportation, and production costs through economies of scale; (2) coordinates supply and demand for materials; (3) supports manufacturing activities; and (5) supports marketing objectives by making sure that goods are available to ship to customers in an efficient and effective manner

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Warehouse Functions 

Warehousing activities can be organized into three basic functions: storage, movement, and production Storage  

Storage involves holding inventories until they are needed Proper storage procedures are important to marketing: the product must be warehoused properly to ensure there is no damage

Movement       

The movement functions of a warehouse include receiving, put-away, picking, and shipping Receiving involves unloading goods from a carrier, updating inventory records, and quality inspection, if required Put-away refers to moving goods to their temporary or semi-permanent storage location and updating inventory records Picking involves retrieving packaging and raw materials from storage and moving them to manufacturing to fulfill needs for those materials in production For finished goods, picking involves retrieving items from storage and preparing them for shipment to fulfill a customer order Shipping involves loading picked items onto transportation vehicles, updating inventory records, and preparing the necessary documents to transport the items Movement is greatly affected by technology, such as robots, carousels, and motorized conveyors

Production 

Production includes such activities as light assembly of products, customizing products for customers, and refurbishing returned goods

Distribution     722

Distribution occurs when a company ships its goods from a warehouse to its stores or customers The way a company establishes its distribution network should be aligned with its objectives for servicing its customers, and with the costs involved in meeting customer needs A distribution center (DC) is a type of warehouse used specifically to store and ship finished goods to customers Thus, stores can be restocked by the retailer‘s own distribution centers, or by the manufacturer

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Shipments from manufacturing DCs can take advantage of full vehicle load shipping rates, adding value to the customer by reducing costs When the manufacturer ships to stores, it is called direct store delivery; this method helps reduce inventory in the retailer‘s distribution centers Omnichannels offer consumers the ability to purchase goods at a retail store (brick-and-mortar) or through a website (click-and-mortar) Both the store and the Internet consumer can be serviced from the same DC A rapidly growing way to better service consumers, especially in the grocery business, is to offer in-store pickup of orders placed on the company‘s website It is important that companies design their distribution network around adding value to the consumer Such considerations as total cost to service the consumer, value added services that make the company more attractive to do business, and availability of products to consumers are among the issues that companies must consider in setting up or changing their methods of distribution

Transportation Management     

Transportation creates place and time utilities that are essential to keeping customers satisfied Cost-effective transportation can enable companies to market goods to greater distances while maintaining competitive pricing Transportation management is particularly important for companies that compete globally—it enables them to build global supply chains and compete in new markets The availability and reliability of transportation also affect the number and location of suppliers, production facilities, and distribution centers There are six transportation modes: rail, motor, air, water, pipeline, and cyberspace

Rail      723

Historically, railroads have carried bulk products such as chemicals, coal, produce, and automobiles Today, intermodal transport uses multiple types of transportation for the same shipment Companies can load products into containers that are carried part of the way by rail and part of the way by truck Rail transport provides the advantage of carrying a wide variety of goods in large quantities at a low cost Disadvantages include damages, inconsistent service, and lack of

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accessibility Accessibility in this context refers to a carrier‘s ability to provide service from the source of the shipment to its destination

Motor    

Motor carriers, primarily trucks, account for 64 percent of the value, 58 percent of the tonnage, and 32 percent of the ton-miles of the nation‘s total commercial freight The primary role of this mode is to move small to midsize shipments Advantages of motor freight are accessibility, reliability, and fast service Disadvantages include a fairly high cost per ton-mile and limited vehicle capacity

Air     

Air transportation accounts for less than 1 percent of the intercity tonmiles in the United States, yet it plays an important role in supply chains The main advantage of airfreight is speed The main reason why airfreight is used sparingly is its cost: Air is far and away the most expensive way to move goods Another issue is accessibility; with very few exceptions the last mile will need to be covered by truck Airfreight makes sense only for goods that are so expensive that they can bear the high cost of transportation or for those that ―absolutely, positively have to be there overnight‖

Water    

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Water transportation has taken on great significance due to offshoring of production to low-cost producers in Asia and other parts of the world The use of containers to move goods has significantly changed the way finished goods are shipped because containers can be loaded and unloaded from ships quickly and efficiently Water transport‘s advantages are low cost and high capacity; however, it is slow: For international shipments, water transport is slower than air Water transport must be considered of prime importance for international shipments but is of much less importance for domestic ones

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Pipeline   

Pipelines play an important role in providing fuel for industrial, personal, and utility use Pipelines have a huge impact on national economies in North America, Europe, and the Middle East This mode is very efficient and low cost, but it is slow and very limited in the products it can carry

Cyberspace   



Anything that can be digitized can be sent through the Internet and delivered to businesses and home Once a firm sets up the technology to transmit data over the Internet, the shipment costs very little and arrives at its destination almost instantaneously In order to get the most advantage from their logistics operations, firms must match the modes of transportation they choose to use with (1) the types of products they are selling and (2) the competitive strategies they are basing their marketing efforts on Factors companies must consider in choosing transportation modes include transit times, mode accessibility, ability of the mode to handle necessary volumes (capacity), ability of the mode to consistently meet lead time requirements (reliability), and cost

Table 10.2

Insight Questions:

Figure Information: Comparing the Six Modes of Transportation

410. List the key factors that influence transportation mode selection. (Answer: accessibility, speed, capacity, cost, service, reliability, and international capabilities) 411. How will globalization affect transportation modes? (Answer: Global operations add complexity to transportation choices; the supply chain of a global company covers vast distances and will require several modes of transportation.)

Companies must consider many key factors when choosing transportation modes, including transit times, mode accessibility, the ability of the mode to handle necessary volumes (capacity), and the ability of the mode to consistently service customers.

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Social Media in Action

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Example: Social Media and Online Shopping Sites As consumers shift their shopping experience from brickand-mortar to online stores, retailers must increasingly embrace social media sites as a tool for reaching their target market. Firms have invited customers to spend money through company fan pages on social media platforms, shop directly from their social media platforms and offer customers the added bonus of being able to share items they like instantaneously with their social media community. Retailers want to go where their customers are and, increasingly, those places are social media platforms. The average consumer now spends more time each month on social media than on the top 500 online shopping sites combined. The popularity of social commerce also provides the added benefit of generating marketing research that helps retailers and their entire supply chain track trends and manage inventories. CONNECT BACK Insight Questions:

Today’s Professional

412. What is the driving factor for why consumers are using social media versus online shopping sites? What types of content is on social media sites that may not be present on online shopping sites? (Answer: Open ended as students‘ responses will vary; comments from trusted sources, seeing others‘ likes and interactions with the brand, ease of use/apps, inner channel convenience, etc.) 413. How do companies connect their social media sites to their online shopping sites? Provide three examples of companies that balance the integration well, and three examples of companies that do not. (Answer: Open ended as students‘ responses will vary; consider: featuring social media icons on their web page and apps, linking social media pages to text on the website, featuring the feed from social media pages to the website, linking shopping apps and product pages between channels) C. Bryant Estes Customer Logistics Specialist, Danone C. Bryant Estes believes in cultivating customer relationships while balancing the needs of his company. Perseverance and growing your network helped C. Bryant in his career. He provides further insight in answering the

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following questions: 414. Describe your job. 415. How did you get your job? 416. What has been the most important thing in making you successful at your job? 417. What advice would you give soon-to-be graduates? 418. What do you consider your person brand to be? Review with students: Photo provided by C. Bryant Estes

  

What kind of mindset will you have when you approach the job market? How will you present the knowledge and skills gained from both education and experience to potential employers? What do you consider your personal brand to be?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of distribution. Getting your name, skills, and profile in front of decision makers is critical for you to achieve career success. In this next section of the marketing plan exercise, your assignment is to create a specific plan for how you will distribute your information and qualifications to reach your career objectives. Job seekers upload and share millions of resumes every day on the Internet, even though the success rate of finding a job online is less than 20 percent in the United States. What do you plan to do to increase your success rate using this distribution channel? A growing number of professionals use online services like LinkedIn. If you are thinking about LinkedIn or other social media distribution methods, which sites are best for your specific career path? What strategies should you employ on each site to maximize your efforts? Are there specific keywords you should use? Are there resume formats that work better on specific job sites? If your career goals focus on graduate school, this process is equally important. Many graduate school entrance exams allow you to send your scores to a limited number of schools. Which schools will you choose? If you plan to seek a job or graduate school opportunity using e-mail, what is the best strategy for designing that e-mail? Hiring managers and admissions personnel will pay attention to the e-mail text, the subject line, and even the time of day that you sent the e-mail. (What would a manager think if your resume arrives at 2:30 a.m.?) Spending time now planning a personal distribution strategy will help as you prepare for your job or graduate school search. 727

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Student Task: Write a one- to two-paragraph explanation of how you will distribute your information and qualifications. Your answer should include the websites or companies to which you plan to distribute your resume or the five schools to which you will send your graduate entrance exam scores. Also include any social media platforms you plan to use as part of your distribution strategy and how you plan to use them. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course.

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DISCUSSION QUESTIONS 419. Acme Manufacturing buys raw materials from Apex Unlimited. Acme gives Apex a monthly forecast of what it thinks it will buy and pays for the goods within 30 days of receipt. Better Retailing, Inc. is one of Acme‘s customers. It provides Acme with data that record the sales of Acme‘s products at Better Retailing‘s checkout counters. Better Retailing pays for the goods it receives from Acme within 30 days of when the products sell. Do Acme, Apex, and Better Retailing constitute a supply chain? Explain your answer. (Answer: Yes. A supply chain is the linked set of three of more companies that perform or support the delivery of a company‘s products or services to customers.) 420. Mumbai Grocery in India buys produce directly from farmers. It provides the farmers with information regarding the amount it would like the farmers to harvest each day to avoid having too little, thus losing sales, or too much, causing some of the produce to spoil and become unsellable. Does Mumbai Grocery have a supply chain orientation? Are they practicing supply chain management? Defend your answers. (Answer: Yes, to both. Supply chain orientation guides the actions of a company toward actively managing the supply chain, whereby a company would consider upstream and downstream flows of goods, services, finances, and information across the supply chain as activities it would be involved in, even though other companies may perform them. Managing the supply chain refers to the action the firm takes to coordinate the various flows within the supply chain.) 421. Shanghai Computers uses a sales forecast to purchase components for desktop and laptop computers. The firm also uses the sales forecast to schedule the production of partially assembled computers that are missing random-access memory (R AM), hard drives, and other components. Shanghai Computers waits until it receives a customer order, then finishes assembling the computers to the configuration ordered by the customer. What supply chain strategy is Shanghai Computers using? Explain why you chose that answer. (Answer: They are using a hybrid (push–pull) strategy. The initial stages of the supply chain operate on a push system, but completion of the product is based on a pull system. As it would in a push strategy, a company might forecast sales, build an inventory of components based on the forecast, and hold those components in inventory until a customer order is received.) 422. How do the various types of utilities provided by logistics operations help companies achieve their marketing objectives? (Answer: Logistics activities relate to all four Ps of the marketing mix. Delivering products to the correct location in a timely manner is met with maintaining and increasing market share. Logistics managers provide input on the product, its packaging and efficient storage and shipment of goods. Logistics affects price, purchases, and costs of warehousing and shipment that is ultimately passed down to the consumer. Logistics managers must be part of promotions planning to ensure sufficient materials, inventory, storage, and transportation are available to handle when sales volume increases.) 423. Explain the various types of inventories and how each type is used by companies to meet their marketing objectives. (Answer: Cyclical inventory is inventory a firm carries in inventory to meet average demand. Pipeline inventory is inventory that is in transit between suppliers and customers. Anticipative stock is inventory that is produced or purchased when a company expects some event that will negatively affect stock availability. Seasonal stock refers to goods a firm sells only at certain times of the year or 729

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during certain seasons. Obsolete inventory is inventory that can no longer be sold. The product may have expired, been redesigned, or over-ordered, or is at the end of the product life cycle. Companies need most of these inventory types to support their marketing and supply chain strategies.) 424. Just-a-Buck is a low-cost retailer that sources its goods from factories in Asia. Just-a-Buck built its competitive strategy around providing products for exactly one dollar. Just-a-Buck has a distribution center located in Los Angeles that services the western half of the United States, and another distribution center in Atlanta that services the eastern half of the United States. What modes of transportation would Just-a-Buck logically want to use to transport the goods it purchases from Asia to the United States? What modes would it use to get the goods to its distribution centers? What modes would it use to get the goods to its stores? Explain your answers. (Answer: To transport from Asia to the United States, water transportation provides a low sot and high capacity. To get the goods to its distribution centers in Los Angeles and Atlanta, rail transport can carry a wide variety of goods in large quantities at a low cost. To get the goods to its stores, motor transportation can move small to mid-size shipments to the ultimate consumer or where they will purchase it.) SOCIAL MEDIA APPLICATION Assume that you are hired by the purchasing department at your university and your first task is to decide what type of PCs, laptops, or tablet computers the university is going to buy for its students. Analyze the social media presence of potential suppliers using the following questions and activities as a guide: 425. Decide on a list of three to five potential suppliers. What criteria, such as cost or service capability, did you use to determine the list? 426. Carefully read through the social media platforms used by each of the potential suppliers that the university might purchase from. Based only on what you read across the social media platforms, how would you rank the potential suppliers in terms of which you would most like to purchase from? Explain your answer. 427. Is there anything that you have found on your preferred suppliers‘ social media presence that can help you in negotiating with those firms? For example, do any of them appear to be having any customer service issues that you might be able to use as leverage to negotiate a lower price? This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and 730

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outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise in Chapter 10 that focuses on using marketing analytics in inventory management—specifically, calculating the cost of holding inventory. ETHICAL CHALLENGE Tony Dauginas is a purchasing agent for a consumer packaged goods company based in the United States. His company manufactures various goods in the health and beauty industry, such as cosmetics, skin lotions, toothpaste, and shampoo. Tony‘s company has come under assault from another, much larger company. The larger company can use its large purchasing volume as leverage to buy components for its products much less expensively than Tony‘s company can. This has put a lot of pressure on Tony‘s purchasing group to get the best price possible on the components it buys for manufacturing. One of the types of materials that Tony buys is corrugated boxes. The boxes are used as secondary packaging for all of the company‘s goods. The price of wood pulp used to make the boxes has been steadily rising, causing prices of corrugated boxes to rise along with it. Tony has been very concerned about this price trend because the company spends a large percentage of its product-related costs on boxes. Tony just got back from a trade show, at which he received some interesting insider information about one of his suppliers. While talking to a fellow purchasing manager at a noncompeting company, he found out that the other purchasing manager‘s company was terminating its contract with one of Tony‘s corrugated box suppliers, Amalgamated Boxes Inc. The company Tony‘s friend works for is Amalgamated‘s biggest customer, constituting about 50 percent of its business. The loss of this business will likely be a damaging, if not fatal, blow to Amalgamated. Tony is considering calling on Amalgamated‘s sales office to chat with the vice president of sales. He figures that Amalgamated will be desperate for business and will be willing to do just about anything to secure Tony‘s company as a customer. Tony is thinking that he might be able to negotiate a long-term contract that locks in prices over several years. While in effect, that contract would prevent Amalgamated from passing on rising wood pulp prices to his company. He is also thinking about making a deep reduction in Amalgamated‘s prices, a condition of the contract.

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Please use the ethical decision-making framework to answer the following questions related to this scenario: 428. What are the ethical implications of Tony‘s plan to negotiate a long-term contract under the conditions presented in the scenario? Explain your answer. (Answer: While there isn‘t anything wrong with negotiating the best prices from Amalgamated in a longterm contract, using their desperate position to approach them may be considered unethical. Proceeding would potentially produce implications such as losing his job, financial, and legal repercussions for the firm and Tony, and lost trust from the customer.) 429. What other approaches could Tony take with Amalgamated? (Answer: Ultimately, Tony should decide if the market position he is choosing of being a low-cost versus a high-quality materials provider is one that he is positioning himself as. The supply chain should then reflect this market position to provide competitive advantage.) 430. If you were in Tony‘s shoes, what would you do, and why? (Answer: An option would be to consider the demographics and psychographics of his business versus the larger company. Perhaps there is a niche opportunity, he can capitalize on (in an ethical manner) while maximizing profits and branding efforts.) VIDEO CASE Have students go to Connect to access the video case featuring (1) FedEx and (2) Mary Kay that accompany this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help you think about a career path in supply chain management and logistics, follow these tips. Dr. John Mello, Author and Associate Professor in Marketing at Arkansas State University provides four important tips to consider if you choose to pursue a career in this field. 431. 432. 433. 434. Photo provided by Dr. John Mello

Review with students:  

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Be flexible. Be collaborative. Be honest. Keep learning.

What can you do while in college to better prepare you to be collaborative? How will you continue learning post-graduation?

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Chapter 10: Supply Chain and Logistics Management

Wesley Hitt/Photolibrary/Getty Images Plus/Getty Images

Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-186 Describe the various flows within a supply chain. LO 1-187 Describe the push, pull, and hybrid supply chain strategies and their relationship to a company‘s competitive strategies. LO 1-188 Summarize the importance of collaboration and resilience to effective supply chains. LO 1-189 Describe how the primary logistics functions support a firm‘s supply chain strategy. LO 1-190 Describe the various logistics functions and their importance to marketing. KEY TERMS accessibility (of transportation) distribution center (DC) hybrid (push–pull) strategy intermodal transport inventory carrying costs logistics logistics operations

materials management omnichannel picking pull strategy purchase order push strategy put-away resilience

stockout supply chain management supply chain orientation supply chain process integration

THOUGHT-PROVOKING ACTIVITY Set 1: Why must we acknowledge the supply chain as a marketing concept? How is marketing affected by this?

Set 2: Transportation plays a critical role in the logistics function of supply chain management. What are the six modes of transportation? What factors are evaluated in choosing the mode of 733

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transportation a company uses?

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Sankha Basu, Senior Manager, Agile Transformation—CVS Health How is marketing relevant in his role? How can you prepare for change throughout your career? LO10-1: Describe the various flows within a supply chain. Supply Chains  The world is an interconnected place in which the actions of people in one part can affect everyone  Due to the COVID-19 crisis, severe transportation delays occurred causing 61 percent of container ships to arrive late, the cost to ship a container to rise 333 percent, U.S. trucking rates to increase 15 percent from a year earlier, and customer service to plummet  A supply chain is the linked set of companies that perform or support the delivery of a company‘s products or services to customers  A supply chain delivers value to the end-user of products and services by leveraging the core competencies of its company members to cut costs, provide innovation, ensure quality, and deliver products and services to the right place at the right time at the right price Supply Chain Flows through Marketing Channels  A supply chain consists of flows of products and services, financial resources, and information among the companies in the chain  The flow of products and the services involved in getting the products to customers is said to move downstream  The flow of financial resources that move from the customer to the companies that were part of the supply chain is said to move upstream  On their way downstream, products pass through distribution channels

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Distribution channels or marketing channels are intermediaries, such as wholesalers, distributors, and retailers, through which the flow of products travels A wholesaler is a company that sells to other businesses such as retailers and other industrial companies

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Wholesalers buy products in large quantities, typically directly from producers of the products The main difference between a wholesaler and distributor is that a distributor will have exclusive rights to selling products from a producer to customers within a certain geographic territory A retailer sells goods to consumers for their own use, rather than for resale to others. Individual sales are in much smaller quantities for retailers than for wholesalers and distributors Containers have been a driving factor in the globalization of supply chains because they allow a large amount of goods to be shipped inexpensively and can be quickly and easily loaded onto and removed from ships The concept of a supply chain is actually a simplified version of what is actually a network of companies made up of many suppliers, selling to many intermediate customers

Figure 10.1 Example of a Supply Chain for a T-Shirt INSIGHT QUESTIONS Describe the supply chain for a T-shirt. Be sure to acknowledge the downstream flow of products and related services, two-way flow of information and upstream flow of finances. (Answer: From a cotton grower who harvests the cotton, a manufacturer will process the cotton, spin it into yarn, dye it, and ship it to a T-shirt manufacturer. The T-shirt manufacturer cuts the cloth, assembles it, and ships it to a factory. Via several modes of transportation, the T-shirts are sent to a port where they will be sold from. A distribution center stores the jeans until ordered by retailers and sold by individual stores to consumers.) Where would a consumer like you most likely buy the T-shirt? (Answer: At a retailer) Why does the flow of information impact all members of a supply chain? (Answer: Because without accurate, timely information companies cannot make good decisions) LO10-2: Describe the push, pull, and hybrid supply chain strategies and their relationship to a company’s competitive strategies. Supply Chain Strategy  Effective supply chain management requires a strategy that helps the firm establish a network of suppliers and customers to meet its supply chain objectives  Supply chain objectives should be based on the firm‘s marketing objectives; they can include things such as: (1) types and locations of markets to be served, (2) market share and customer service desired, (3) speed with which new products should be developed, and (4) cost reduction and profitability goals 736 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Push Strategy  A push strategy is one in which a company builds goods based on a sales forecast, puts those goods into storage, and waits for a customer to order the product  A supply chain push strategy is also sometimes called a speculation strategy because the company speculates on the type and amount of products that the market will want  Firms can achieve economies of scale—purchasing can buy in larger lots which lowers purchase prices, transportation can move full vehicles which lowers the per-unit transportation costs, and manufacturing can make long production runs which are more efficient than short runs  Push strategies often positively affect customer service because the goods are already in stock, awaiting the customer‘s order  If sales forecasts are not accurate, the company will have too much of a product no one wants or not enough of a product consumers do want  Production facilities set up to manufacture one good over a period of time will respond slowly to changing demand patterns  Inventory carrying costs are expensive—they typically can be 25–30 percent of the cost to produce and deliver the goods Pull Strategy  A pull strategy is one in which customer orders drive manufacturing and distribution operations  It is also sometimes known as a responsive supply chain  The supply chain pull strategy and the promotion pull strategy both rely on customer orders  However, the supply chain version depends on an initial level of customer demand to even initiate manufacturing  This method eliminates the risks associated with producing unwanted products because the good is not made until a customer order is received  Firms can customize products specifically to customer requirements  Inventory carrying costs are minimized  The firm can respond rapidly to changing market conditions  A pull strategy doesn‘t often allow firms to take advantage of economies of scale  To effectively implement a supply chain pull strategy, a firm needs flexible production and distribution facilities; production must be able to change rapidly to produce different products Hybrid (Push–Pull) Strategy  In a hybrid (push–pull) strategy, the initial stages of the supply chain operate on a push system, but completion of the product is based on a pull system  As it would in a push strategy, a company might forecast sales, build an inventory of components based on the forecast, and hold those components in inventory until a customer order is received  As in a pull strategy, the company would finalize the product based on the customer order 738 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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It combines the economies of scale of the push strategy with the flexibility of the pull strategy  It produces more accurate sales forecasts because firms tend to be more accurate at an aggregate level than at a specific product level  It may not be as cost competitive as a push system because the firm cannot take advantage of manufacturing and transportation economies of scale  The firm will still incur costs to store components in inventory  As in a pure pull system, the company will need to develop a distribution system that can deliver products quickly to avoid customer service complaints Comparing Supply Chain Strategies STEP 1

Push Strategy Forecast sales

Pull Strategy Customer orders

Push–Pull Strategy Forecast sales

STEP 2

Plan production

STEP 3

Order materials

STEP 4

Make product

Customer orders

STEP 5

Put in storage

Ship product

Make product

STEP 6

Customer orders

STEP 7

Ship product

Figure 10.2 Comparing Supply Chain Strategies INSIGHT QUESTIONS What dictates which supply chain strategy a firm should pursue? (Answer: A firm‘s overall marketing strategy) Whichever supply chain strategy a firm chooses, effective implementation is impacted by what? (Answer: Logistics operations) A pull strategy is driven by what? (Answer: Customer orders) What extra step does a push strategy involve? (Answer: Putting products in storage) 739 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Selecting the Appropriate Strategy  Stability of demand: If a firm can‘t predict demand for its product, it can‘t create an accurate sales forecast that would allow it to enjoy the benefits of a pure push strategy  Demand uncertainty often occurs when products are in the introductory and growth stages of the product life cycle  Degree of cost competitiveness: A push strategy will allow a firm to achieve cost savings through economies of scale in purchasing, manufacturing, and transportation  Degree of customization: A pull or hybrid strategy would be a good choice for a company that competes on either (a) its ability to deliver customized products or (b) a high level of customer service built on manufacturing and distribution flexibility  The speed at which customers need the product: Lead time is the time it takes from placement of an order to delivery of the goods  If customers want a short lead time, the company will need to have products already made and ready to deliver THINK LIKE A MARKETER Is there a company that is 100 percent self-sustainable? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 10-1 Which strategy would be considered most effective for a new mobile technology firm? What factors would you consider? (Answer: A push–pull supply chain strategy uses a sales forecast to build up the expected inventory of base products then waits for customer demand before customizing them.) How would the supply chain strategy differ if providing a service versus a tangible product? (Answer: The intangibility factor prevents products from being put on a shelf and stored, and therefore, the marketing mix for services more critically focuses on managing the people, process and physical location to ensure timely consumption of services.) LO10-3: Summarize the importance of collaboration and resilience to effective supply chains. Supply Chain Management  Supply chain management refers to the actions the firm takes to coordinate the various flows within a supply chain What Is Supply Chain Management? 741 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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By viewing the total system of interrelated companies that make up the supply chain as something they can manage, companies have greater control over the customer value they provide  This greater control, in turn, generates higher revenue for the company  The key idea behind supply chain management is that no company is an island; all companies rely on related companies whose activities add value to the final product  Supply chain management decisions often involve trade-offs  Decisions made about one area of the supply chain will affect other areas, sometimes negatively  When there is not enough inventory to satisfy customer demand, the firm may lose sales  Inventory carrying costs are the costs required to make or buy a product  These costs include risk of obsolescence, taxes, insurance, and warehousing space used to store the goods  It is important to compare the cost of carrying inventory to the potential cost of lost orders and possibly lost customers due to lack of inventory to fill orders Important Concepts in Supply Chain Management  Three concepts are important to understand concerning the management of supply chains: supply chain process integration, supply chain resiliency, and logistics operations  Supply chain process integration: The ultimate objective of supply chains is to deliver goods and services in a timely manner to the place where they will be consumed by the final user  This requires that companies work collaboratively both internally (between functions) and externally (between companies) to provide value to the final consumer  Resilience: the ability to anticipate, prepare for, and effectively respond to supply chain disruptions  Logistics operations: These are the functional areas of a supply chain that sources materials and finished goods, warehouses and manages inventories of those products, moves those products within stages of a supply chain, and handles the distribution of products to business customers or consumers Supply Chain Process Integration  A firm that recognizes and responds to the impact supply chain flows have on its business possesses a supply chain orientation  A supply chain orientation is a management philosophy that guides the actions of a company toward actively managing the supply chain  With this philosophy, a company would consider upstream and downstream flows of goods, services, finances, and information across the supply chain as activities it would be involved in, even though they may be performed by other companies  They are willing to help coordinate supply chain activities that add value to the end-customer  The objective of a company practicing supply chain management is to coordinate processes across the supply chain, including within its own firm, with the goal being to improve the entire chain‘s performance in delivering goods and services to customers 742 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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This requires firms in the chain to take actions that are aligned with other firms‘ actions and consider the impact of its actions on other firms in the chain  For an integrated supply chain to work, companies must be willing to embrace close, longterm collaboration for mutual benefit Types of Supply Chain Collaboration Internal Collaboration  Internal collaboration involves departments or functions within a company working together to achieve a common goal  Interdepartmental/functional collaboration is not always the norm in companies due to conflicting goals, methods of operation, and behavioral norms  A major objective is balancing supply and demand, which is accomplished by procuring the right number of materials and producing the right amount of product to meet market demand  When communication and cooperation between departments is low, it is extremely difficult to achieve a good supply/demand balance  The most common way that companies deal with this problem is to implement a sales and operations planning process (S&OP)  S&OP is based on a sales forecast developed by the demand side of the business (marketing and sales) and a capacity forecast developed by the supply side of the business (sourcing and production planning)  S&OP has three basic purposes: (1) balancing the supply of product to meet demand, (2) planning volumes to guide detailed production plans, and (3) integrating financial, newproduct development, and operational plans  S&OP not only results in higher customer service and lower overall inventories, it also can create spillover benefits that permeate the entire company  The collaboration needed in S&OP can lead to inter-functional collaboration in other processes as well: It can increase awareness of the problems faced by other parts of the organization and promote trust between departments  The process can change the company‘s operational culture from one that is internally focused to one that better understands the potential benefits of working with other companies in the supply chain External Collaboration  The trust that develops from internally collaborative processes can become the foundation upon which external collaborative programs are built  These programs include vendor-managed inventory (VM I); collaborative forecasting, planning, and replenishment (CPFR); efficient consumer response (ECR); retail–event collaboration; and various stock–replenishment methods currently in use by major manufacturers and retailers

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These processes require sharing information between companies, joint agreement on the responsibilities of the individual companies, and a good deal of trust among all parties, since the responsibility for integrating supply and demand is often delegated to the supplier Vendor-Managed Inventory  In VM I, the supplier is given the responsibility of replenishing a customer‘s inventory, but the process is based upon rules agreed to by both parties  The supplier, not the customer, then decides how much inventory to produce and when to have it delivered  In the case of a manufacturer and its supplier, the supplier‘s responsibility is to replenish component, raw material, and/or work-in-process inventories in a factory  For retailers, the supplier‘s scope of responsibilities can include stock replenishment into a retailer‘s distribution center, or even all the way into the retailer‘s store shelves  Underpinning the VM I process is a computer-guided system that determines at what point inventory should be replenished and how much inventory should be delivered  The customer establishes a replenishment point and inventory level, and when the customer‘s inventory hits that reorder point a set quantity is ordered Collaborative Planning, Forecasting, and Replenishment (CPFR) Efficient  CPFR is a process through which suppliers and customers jointly plan demand fulfillment  The companies share information about promotions, sales forecasts, manufacturing plans, inventory levels, and planned orders; this information is then used to develop a plan of expected sales and inventory replenishment  The process is implemented via a joint calendar of events in which demand and supply plans are shared, discussed, and agreed upon  CPFR results in a consensus on sales forecasts, production schedules, and shipments Consumer Response (ECR)  ECR involves direct links, via a paperless flow of information, between members of the supply chain to accurately match production with consumer demands  ECR normally has four elements  (1) Implementation of electronic data interchange (EDI) among all tiers of the supply chain to speed the flow of demand-and-supply data among exchange partners  (2) Use of POS data to give suppliers more accurate and up-to-date demand information concerning their products  (3) Fostering of cooperative rather than adversarial relationships between supply chain members, which is critical to creating the trust essential to processes where proprietary data are transmitted between companies  (4) Continuous replenishment of inventory based on demand data  ECR can lead to both cost savings and service improvements because the right amount of inventory is flowing through the supply chain at all times

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Other External Collaboration Processes  Collaborative stock replenishment is designed to help match demand and supply revolve around  Retail–event collaboration is one such intercompany program; it is designed to help businesses match supply with demand following a promotional event  The retail–event collaboration process requires agreement between supplier and customer on which SKUs will be included in the collaboration as well as the development of a sales forecast specific to the promotion and the formulation of manufacturing and shipment plans  A technique commonly used in the drugstore, hardware, and grocery industries is distribution center (DC) replenishment collaboration  In DC replenishment, the supplier and customer collaborate on forecasting withdrawals from the customer‘s DC to replenish store inventories  This stream of orders assists the manufacturer in planning its purchasing, production, and logistics activities in a proactive manner, leading in turn to reduced manufacturing and logistics costs, inventory carrying costs, and customer service failures Store Replenishment Collaboration  Store replenishment collaboration (SRC) involves direct store or retail DC-to-store deliveries based on collaborative store-level sales forecasts  These forecasts are used to create replenishment orders over a specified time  This type of collaboration can be very useful to manufacturers that are launching new products or are running product promotions at the retail level Summary  A combination of internal and external collaboration can become a competitive advantage for a company by reducing costs, improving customer service, and developing closer and more trusting relationships with important customers and suppliers Supply Chain Resilience  Supply chain disruptions happen at both small and large scales  Some of these types of disruptions last a few days or at most a few months  The COVID-19 pandemic prevented supply chains from delivering goods and services throughout the world, and its effects pointed out too many companies that they were unprepared for a disruption of such magnitude  Supply chains intricately join together factories, distributors, retailers, and consumers, and a breakdown anywhere along the chain can mean a breakdown of the entire system

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If companies want to survive long term, they must be prepared for changes that can negatively affect their chance of remaining viable A powerful approach that companies can use is to make their supply chains as resilient as possible to supply chain disruptions Holding inventories of components, raw materials, work-in-process, and finished goods can tide a company over a short-to-medium term supply disruption Safety stock, which is used to buffer short-term variations in demand and order lead times, is used by most companies because demand and supply vary over time, though they are inadequate to buffer longer term disruptions Anticipatory stock differs from safety stock in that it only needs to be held during times of potential supply risk or periods of possible extraordinary consumer demand Sourcing is the set of business processes required to purchase goods and services Companies can use a sourcing strategy that takes advantage of multiple suppliers of components, raw materials, work-in-process, or finished goods in different parts of the world, so that if a disruptive event occurs in one region they can be obtained from a different region The objective is to have multiple sources for all goods and services needed, which requires a combination of in-shore and off-shore suppliers to provide multiple ways to obtain what is needed to meet customer demand Manufacturing capacity flexibility involves such tactics as gaining time flexibility from employees, adding production shifts and/or lines, use of subcontracting, and the use of multiple facilities to produce the same product These tactics allow a company to be more resilient to increases in demand, such as occurred for paper products during the COVID-19 pandemic Time flexibility involves asking employees to work more hours in a shift or to work weekend hours, which enables a company to use trained workers to make the products but can be detrimental to the health and safety of employees if used in excess Another tactic is to add additional work shifts; for example, going from two to three shifts in a day, which requires hiring new employees and training them, which can be expensive A third tactic is to go to a third party, called a subcontractor, to make the product(s) along with your own production facilities, which can be very effective because many subcontractors are quite capable of making quality products in high volumes Transportation disruptions such as port strikes and slowdowns, ships getting stuck in the Suez Canal, and lack of truck drivers can have devastating effects on supply chains for many months This issue is especially acute due to the high-level offshore sourcing in today‘s supply chains Companies have several options to become more resilient to transportation problems—one way is to change the mode of transportation Vertical integration is when a company controls two or more stages of production or distribution normally operated by separate companies 746 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Companies vertically integrate to gain more control over their supply chains, thus gaining more resiliency Companies that anticipate problems and have alternative plans in place will likely fare much better than those that do not when a disruption in the supply chain occurs

THINK LIKE A MARKETER Does supply chain strategy provide competitive advantage? (Answer: Open ended) LO10-4: Describe how the primary logistics functions support a firm’s supply chain strategy. What Is Logistics?  Logistics is that part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin (such as the mine in which silicone is extracted for use in making computer chips) and the final customer (the user of a personal computer)  Logisticians are people who specialize in the area of logistics  Logistics comprises some specific functions that enable a supply chain to operate smoothly and effectively  These functions include managing inventories; purchasing; and materials management, warehousing, and distribution (including transportation)  The goal is to achieve ―the seven Rs of logistics‖—delivering the right product, to the right place, to the right customer, at the right time, in the right quantity, in the right condition, and at the right price  How well companies provide value by performing the seven Rs of logistics will determine how satisfied are their customers The Impact of Logistics  Managers from all areas of business should be aware of the impact logistics operations and personnel have on their own functional areas  Arguably the biggest impact is on the four Ps of marketing  The most obvious relationship is with the place element: delivering goods and services to the correct location and in a timely manner  Satisfying customers through logistics activities is a prerequisite for maintaining and increasing market share  Having products at the right place and at the right time is critically important to marketers because, if the product is not available for purchase, all of the company‘s other marketing efforts will be wasted

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Logistics affects price through efficient purchasing, inventory warehousing, and transportation processes that help keep costs down for the consumer  The product element is influenced by input from logistics managers about packaging needs for safe and efficient storage of goods and shipment of those goods to customers  Marketing promotions are expected to result in increased sales volume  Logistics personnel support manufacturing operations by receiving, storing, and retrieving materials needed in production  Coordination between the two operations is critical to ensure a smoothly running manufacturing facility  The amount of inventory a company holds and the costs of warehousing and transportation affect return on investment (ROI)  How well the logistics managers perform affects customer service, which ultimately can affect revenue positively or negatively  Logistics also applies to services and nonprofits Aligning Logistics with Supply Chain Strategies  Logistics operations have to be properly configured to meet the different challenges presented by each type of supply chain strategy  Companies pursuing the economies of scale that come with a push strategy will have to set up logistics operations that can handle large volumes of product, including modes of transportation (container ships and railroads) and large warehouses equipped to efficiently store, retrieve, and load goods onto vehicles at a fast pace  Companies that employ a pull or hybrid strategy typically establish logistics operations based on service quality, innovation, and flexibility  These efforts include suppliers that produce and deliver quickly, transportation that ensures on-time delivery, and the use of advanced technology to increase the responsiveness and flexibility of logistics operations  Enterprise resource planning (ERP) systems are data management systems that integrate information across all the departments of an organization  ERP systems can communicate with the IT systems of other companies through electronic data interchange (ED I)  EDI enables an almost instantaneous transfer of information from one company‘s computer to another, enabling firms to react quickly to customer demand LO10-5: Describe the various logistics functions and their importance to marketing. Logistics Functions  U.S. corporate spending on logistics and related business functions is approximately 8 percent of gross domestic product, which indicates the impact logistics has on the economy  Logistics operations have a large impact on consumers as well as business  A breakdown in any logistics function will result in back orders, empty shelves, and customer dissatisfaction 748 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Managing Inventories  Marketing relies on inventory management for several reasons  Unless the right amount of inventory is available at the right location, customer service will suffer  If companies stock too much inventory, they pay more in inventory carrying costs than they need to which could have been used for things like new-product development or advertising  The challenge of inventory management is to manage inventories in a way that balances supply and demand in a cost-effective manner Inventory Costs  To manage inventory effectively, firms try to balance product availability with the costs of carrying inventory  To determine the level of inventory to keep in stock, a firm must track three types of costs  (1) Purchasing costs include the costs to place and process orders of materials and finished goods  The more often a company places orders for an item, the higher the annual purchasing costs  (2) Inventory carrying costs are important to companies because they negatively impact profits  Inventory carrying costs differ somewhat between companies, so companies calculate their carrying costs based on their own actual cost for each individual part of the overall costs of a product  (3) A stockout occurs when a company does not have enough inventory available to fill an order; accordingly, a customer can either place a back order or cancel the order  A canceled order, of course, means lost revenue, and if the customer places a back order, the company incurs out-of-stock costs Table 10.1 Calculating Inventory Carrying Cost Percentage, for a Smartphone INSIGHT QUESTIONS Are there items on the inventory carrying cost table that surprise you? (Answer: Open ended as students‘ responses will vary; obsolescence may be shocking because it shows the company is already planning for it, and the consumer is paying for it) Why are inventory carrying costs important to measure? (Answer: They negatively affect profits. Any amount of carrying costs that the company could save would improve the profit margin.)

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Figure 10.3 Relationships among Purchasing Costs, Inventory Carrying Costs, and Out-ofStock Costs INSIGHT QUESTIONS Describe the relationship among the three costs. (Answer: As inventory carrying costs increase, purchasing costs decrease. Costs associated with stockouts decrease because the average inventory will be larger, making a stockout less likely.) Apply this chart to an example using a familiar product. (Answer: Open ended as students‘ responses will vary)

Marketing Analytics INSIGHT QUESTIONS Which two metrics help companies evaluate inventory management? (Answer: Inventory turns and days of supply) What else does a company need to look at when considering measuring inventory turns? (Answer: A company with high inventory turns, for example, may suffer poor customer service because inventory is not always available to ship to customers when ordered. However, good the inventory metrics look, the impact of inventory investment on customer service should be the firm's paramount consideration.) Purchasing  Purchasing involves the sourcing and procurement of raw materials, component parts, finished goods, and services  Materials purchased for manufacturing typically account for 40–60 percent of product costs  Purchasing is a major factor in the quality of both goods and services  By involving appropriate suppliers early in the product design process, purchasing can help improve product design and time-to-market for new products  Sourcing materials and products from reliable suppliers ensures that the flow of goods in a firm‘s supply chain meets demand, leading to superior customer service Purchasing Activities  To carry out the purchasing strategy of a company, purchasing managers perform a variety of activities  A company selects suitable suppliers based on criteria (such as cost or service capability) established by the purchasing manager  Purchasing managers negotiate with a supplier about contract terms and conditions

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Based on the terms of the negotiations, the purchasing manager writes a purchase order, which is a legal obligation to buy from a supplier a certain amount of product, at a certain price, to be delivered at a specified date  Purchasing managers establish performance expectations for suppliers and develop ways to measure their performance  Expectations often relate to quality, on-time delivery, rapid response to problems, and accuracy of invoices  If performance does not meet expectations, purchasing managers may reduce the business awarded to the supplier, levy monetary fines, or refuse to do business with the supplier in the future  Purchasing managers may visit the supplier‘s operations to better understand issues  Many companies rely on global sourcing which gives companies access to the highest quality materials, goods, and services at the lowest possible price  The cost of labor from international sources has begun to rise and, as a result, some companies are looking at reshoring, that is, sourcing goods and services domestically that were once purchased internationally Materials Management, Warehousing, and Distribution  Materials management involves managing materials for manufacturing  Warehousing involves holding inventories of both intermediate materials and finished goods  Distribution involves distributing (transporting) goods from a warehouse to stores or directly to customers  Transportation management is part of the distribution activities Materials Management  Materials management involves the inbound movement and storage of materials in preparation for those materials to enter and flow through the manufacturing process  Effective materials management benefits the company in the following four ways: (1) reduces procurement, transportation, and production costs through economies of scale, (2) coordinates supply and demand for materials, (3) supports manufacturing activities, and (4) supports marketing objectives by making sure that goods are available to ship to customers in an efficient and effective manner Warehouse Functions  Warehousing activities can be organized into three basic functions: storage, movement, and production Storage  Storage involves holding inventories until they are needed  Proper storage procedures are important to marketing: The product must be warehoused properly to ensure there is no damage

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Movement  The movement functions of a warehouse include receiving, put-away, picking, and shipping  Receiving involves unloading goods from a carrier, updating inventory records, and quality inspection, if required  Put-away refers to moving goods to their temporary or semi-permanent storage location and updating inventory records  Picking involves retrieving packaging and raw materials from storage and moving them to manufacturing to fulfill needs for those materials in production  For finished goods, picking involves retrieving items from storage and preparing them for shipment to fulfill a customer order  Shipping involves loading picked items onto transportation vehicles, updating inventory records, and preparing the necessary documents to transport the items  Movement is greatly affected by technology, such as robots, carousels, and motorized conveyors Production  Production includes such activities as light assembly of products, customizing products for customers, and refurbishing returned goods Distribution  Distribution occurs when a company ships its goods from a warehouse to its stores or customers  The way a company establishes its distribution network should be aligned with its objectives for servicing its customers, and with the costs involved in meeting customer needs  A distribution center (DC) is a type of warehouse used specifically to store and ship finished goods to customers  Thus, stores can be restocked by the retailer‘s own distribution centers, or by the manufacturer  Shipments from manufacturing DCs can take advantage of full vehicle load shipping rates, adding value to the customer by reducing costs  When the manufacturer ships to stores it is called direct store delivery; this method helps reduce inventory in the retailer‘s distribution centers  Omnichannels offer consumers the ability to purchase goods at a retail store (brick-andmortar) or through a website (click-and-mortar)  Both the store and the Internet consumer can be serviced from the same DC  A rapidly growing way to better service consumers, especially in the grocery business, is to offer in-store pickup of orders placed on the company‘s website  It is important that companies design their distribution network around adding value to the consumer  Such considerations as total cost to service the consumer, value added services that make the company more attractive to do business, and availability of products to consumers are among 752 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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the issues that companies must consider in setting up or changing their methods of distribution Transportation Management  Transportation creates place and time utilities that are essential to keeping customers satisfied  Cost-effective transportation can enable companies to market goods to greater distances while maintaining competitive pricing  Transportation management is particularly important for companies that compete globally— it enables them to build global supply chains and compete in new markets  The availability and reliability of transportation also affect the number and location of suppliers, production facilities, and distribution centers  There are six transportation modes: rail, motor, air, water, pipeline, and cyberspace Rail  Historically, railroads have carried bulk products such as chemicals, coal, produce, and automobiles  Today, intermodal transport uses multiple types of transportation for the same shipment  Companies can load products into containers that are carried part of the way by rail and part of the way by truck  Rail transport provides the advantage of carrying a wide variety of goods in large quantities at a low cost  Disadvantages include damages, inconsistent service, and lack of accessibility  Accessibility in this context refers to a carrier‘s ability to provide service from the source of the shipment to its destination Motor  Motor carriers, primarily trucks, account for 64 percent of the value, 58 percent of the tonnage, and 32 percent of the ton-miles of the nation‘s total commercial freight  The primary role of this mode is to move small to midsize shipments  Advantages of motor freight are accessibility, reliability, and fast service  Disadvantages include a fairly high cost per ton-mile and limited vehicle capacity Air  Air transportation accounts for less than 1 percent of the intercity ton-miles in the United States, yet it plays an important role in supply chains  The main advantage of airfreight is speed  The main reason why airfreight is used sparingly is its cost: Air is far and away the most expensive way to move goods  Another issue is accessibility; with very few exceptions the last mile will need to be covered by truck  Airfreight makes sense only for goods that are so expensive that they can bear the high cost of transportation or for those that ―absolutely, positively have to be there overnight‖ Water 753 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Water transportation has taken on great significance due to offshoring of production to lowcost producers in Asia and other parts of the world  The use of containers to move goods has significantly changed the way finished goods are shipped because containers can be loaded and unloaded from ships quickly and efficiently  Water transport‘s advantages are low cost and high capacity; however, it is slow—for international shipments, water transport is slower than air  Water transport must be considered of prime importance for international shipments but is of much less importance for domestic ones Pipeline  Pipelines play an important role in providing fuel for industrial, personal, and utility use  Pipelines have a huge impact on national economies in North America, Europe, and the Middle East  This mode is very efficient and low cost, but it is slow and very limited in the products it can carry Cyberspace  Anything that can be digitized can be sent through the Internet and delivered to businesses and home  Once a firm sets up the technology to transmit data over the Internet, the shipment costs very little and arrives at its destination almost instantaneously  In order to get the most advantage from their logistics operations, firms must match the modes of transportation they choose to use with (1) the types of products they are selling and (2) the competitive strategies they are basing their marketing efforts on  Factors companies must consider in choosing transportation modes include transit times, mode accessibility, ability of the mode to handle necessary volumes (capacity), ability of the mode to consistently meet lead time requirements (reliability), and cost Table 10.2 Comparing the Six Modes of Transportation INSIGHT QUESTIONS List the key factors that influence transportation mode selection. (Answer: Accessibility, speed, capacity, cost, service, reliability, and international capabilities) How will globalization affect transportation modes? (Answer: Global operations add complexity to transportation choices; the supply chain of a global company covers vast distances and will require several modes of transportation.) CONNECT BACK: Reference Connect Assignment 10-2 What is the driving factor for why consumers are using social media versus online shopping sites? What types of content is on social media sites that may not be present on online shopping sites? 754 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(Answer: Open ended as students‘ responses will vary; comments from trusted sources, seeing others‘ likes and interactions with the brand, ease of use/apps, inner channel convenience, etc.) How do companies connect their social media sites to their online shopping sites? Provide three examples of companies that balance the integration well, and three examples of companies that do not. (Answer: Open ended as students‘ responses will vary; consider: featuring social media icons on their web page and apps, linking social media pages to text on the website, featuring the feed from social media pages to the website, linking shopping apps and product pages between channels) TODAY’S PROFESSIONAL NOTES C. Bryant Estes, Logistics Specialist, Danone What kind of mindset will you have when you approach the job market?

How will you present the knowledge and skills gained from both education and experience to potential employers?

What do you consider your personal brand to be?

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If you plan to seek a job or graduate school opportunity using e-mail, what is the best strategy for designing that e-mail? Hiring managers and admissions personnel will pay attention to the e-mail text, the subject line, and even the time of day that you sent the e-mail. (What would a manager think if your resume arrives at 2:30 a.m.?) Spending time now planning a personal distribution strategy will help as you prepare for your job or graduate school search. Student Task: Write a one- to two-paragraph explanation of how you will distribute your information and qualifications. Your answer should include the websites or companies to which you plan to distribute your resume or the five schools to which you will send your graduate entrance exam scores. Also, include any social media platforms you plan to use as part of your distribution strategy and how you plan to use them. Chapter 10

DISTRIBUTION I plan to distribute my information through

Chapter 10: Supply Chain and Logistics Management

Wesley Hitt/Photolibrary/Getty Images Plus/Getty Images

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-191 Describe the various flows within a supply chain. LO 1-192 Describe the push, pull, and hybrid supply chain strategies and their relationship to a company‘s competitive strategies. 756 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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LO 1-193 Summarize the importance of collaboration and resilience to effective supply chains. LO 1-194 Describe how the primary logistics functions support a firm‘s supply chain strategy. LO 1-195 Describe the various logistics functions and their importance to marketing. KEY TERMS accessibility (of transportation) distribution center (DC) hybrid (push–pull) strategy intermodal transport inventory carrying costs logistics

logistics operations materials management omnichannel picking pull strategy purchase order push strategy

put-away resilience stockout supply chain management supply chain orientation supply chain process integration

THOUGHT-PROVOKING ACTIVITY Set 1: Why must we acknowledge the supply chain as a marketing concept? How is marketing affected by this?

Set 2: Transportation plays a critical role in the logistics function of supply chain management. What are the six modes of transportation? What factors are evaluated in choosing the mode of transportation a company uses?

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LO10-1: Describe the various flows within a supply chain. Supply Chains  The world is an interconnected place in which the _ of people in one part can affect everyone  Due to the COVID-19 crisis, severe transportation delays occurred, causing 61 percent of container ships to arrive late, the cost to ship a container to rise _ percent, U.S. trucking rates to increase 15 percent from a year earlier, and _ to plummet  A_ is the linked set of companies that perform or support the delivery of a company‘s products or services to customers  A supply chain delivers value to the end user of products and services by leveraging the _  _ of its company members to cut costs, provide innovation, ensure quality, and deliver products and services to the right place at the right _ at the right _ Supply Chain Flows through Marketing Channels  A supply chain consists of flows of products and services, _ , and _ among the companies in the chain  The flow of products and the services involved in getting the products to customers is said to move _  The flow of financial resources that move from the customer to the companies that were part of the supply chain is said to move _  On their way downstream, products pass through _  Distribution channels or _ are intermediaries, such as wholesalers, distributors, and retailers, through which the flow of products travels  A_ is a company that sells to other businesses, such as retailers and other industrial companies  Wholesalers buy products in large quantities, typically directly from _ of the products  The main difference between a wholesaler and a distributor is that a distributor will have _ to selling products from a producer to customers within a certain geographic territory  A_ sells goods to consumers for their own use, rather than for resale to others. Individual sales are in much smaller quantities for retailers than for wholesalers and distributors 758 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ have been a driving factor in the globalization of supply chains because they allow a large amount of goods to be shipped inexpensively and can be quickly and easily loaded onto and removed from ships The concept of a supply chain is actually a simplified version of what is actually a _ of companies made up of many suppliers, selling to many _ customers

Where would a consumer like you most likely buy the T-shirt?

Why does the flow of information impact all members of a supply chain?

LO10-2: Describe the push, pull, and hybrid supply chain strategies and their relationship to a company’s competitive strategies.

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Supply Chain Strategy  Effective supply chain management requires a strategy that helps the firm establish a network of suppliers and customers to meet its _  Supply chain objectives should be based on the firm‘s marketing objectives; they can include things such as (1) _ , (2) market share and customer service desired, (3) speed with which new products should be developed, and (4) cost reduction and _ Push Strategy  A_ is one in which a company builds goods based on a sales forecast, puts those goods into storage, and waits for a customer to order the product  A supply chain push strategy is also sometimes called a _ because the company speculates on the type and amount of products that the market will want  Firms can achieve _ —purchasing can buy in larger lots which lowers purchase prices; transportation can move full vehicles which lowers the per-unit transportation costs; and manufacturing can make long production runs which are more efficient than short runs  Push strategies often positively affect _ because the goods are already in stock, awaiting the customer‘s order  If _ are not accurate, the company will have too much of a product no one wants or not enough of a product consumers do want  Production facilities set up to manufacture one good over a period of time will respond _ to changing demand patterns  Inventory carrying costs are expensive—they typically can be _ percent of the cost to produce and deliver the goods Pull Strategy  A_ is one in which customer orders drive manufacturing and distribution operations  It is also sometimes known as a _  The supply chain pull strategy and the promotion pull strategy both rely on _  However, the supply chain version depends on an initial level of customer _ to even initiate manufacturing  This method eliminates the risks associated with producing unwanted products because the good is not made until a _ is received

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Firms can customize products specifically to _  Inventory carrying costs are minimized  The firm can respond rapidly to changing _  A pull strategy doesn‘t often allow firms to take advantage of _  To effectively implement a supply chain pull strategy, a firm needs flexible _ ; production must be able to change rapidly to produce different products Hybrid (Push–Pull) Strategy  In a _ , the initial stages of the supply chain operate on a push system, but the completion of the product is based on a pull system  As it would in a push strategy, a company might _ , build an inventory of components based on the forecast, and hold those components in inventory until a customer order is received  As in a pull strategy, the company would finalize the product based on the _  It combines the _ of the push strategy with the flexibility of the pull strategy  It produces more accurate sales forecasts because firms tend to be more accurate at an aggregate level than at a specific product level  It may not be as cost competitive as a push system because the firm cannot take advantage of _ and transportation economies of scale  The firm will still incur costs to store components in _  As in a pure pull system, the company will need to develop a _ that can deliver products quickly to avoid customer service complaints Comparing Supply Chain Strategies Push Strategy Pull Strategy Push–Pull Strategy Forecast sales Customer orders Forecast sales STEP 1 STEP 2

Plan production

_ _

Plan production

STEP 3

Order materials

STEP 4

Make product

Customer orders

STEP 5

Put in storage

Ship product

_ _

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STEP 6 STEP 7

Pull Strategy

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Push–Pull Strategy Ship product

_ _

Figure 10.2 Comparing Supply Chain Strategies INSIGHT QUESTIONS What dictates which supply chain strategy a firm should pursue?

Whichever supply chain strategy a firm chooses, effective implementation is impacted by what?

A pull strategy is driven by what?

What extra step does a push strategy involve?

Selecting the Appropriate Strategy  _ : If a firm can‘t predict demand for its product, it can‘t create an accurate sales forecast that would allow it to enjoy the benefits of a pure push strategy  Demand uncertainty often occurs when products are in the introductory and growth stages of the product life cycle  _ : A push strategy will allow a firm to achieve cost savings through economies of scale in purchasing, manufacturing, and transportation  _ : A pull or hybrid strategy would be a good choice for a company that competes on either (a) its ability to deliver customized products or (b) a high level of customer service built on manufacturing and distribution flexibility 762 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The speed at which customers need the product: _ is the time it takes from the placement of an order to the delivery of the goods If customers want a short lead time, the company will need to have products already made and ready to deliver

THINK LIKE A MARKETER Is there a company that is 100% self-sustainable?

CONNECT BACK: Reference Connect Assignment 10-1 Which strategy would be considered most effective for a new mobile technology firm? What factors would you consider?

How would the supply chain strategy differ if providing a service versus a tangible product?

LO10-3: Summarize the importance of collaboration and resilience to effective supply chains. Supply Chain Management  _ refers to the actions the firm takes to coordinate the various flows within a supply chain What Is Supply Chain Management?  By viewing the total system of interrelated companies that make up the supply chain as something they can manage, companies have greater control over the customer value they provide  This greater control, in turn, generates _ for the company 763 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The key idea behind supply chain management is that _ ; all companies rely on related companies whose activities add value to the final product  Supply chain management decisions often involve _  Decisions made about one area of the supply chain will affect other areas, sometimes negatively  When there is not enough inventory to satisfy customer demand, the firm may lose sales  _ are the costs required to make or buy a product  These costs include risk of _ , taxes, insurance, and warehousing space used to store the goods  It is important to compare the cost of carrying inventory to the potential cost of lost orders and possibly lost customers due to _ to fill orders Important Concepts in Supply Chain Management  Three concepts are important to understand concerning the management of supply chains: supply chain process integration, _ , and logistics operations  _ : The ultimate objective of supply chains is to deliver goods and services in a timely manner to the place where they will be consumed by the final user  This requires that companies work _ both internally (between functions) and externally (between companies) to provide value to the final consumer  _ : the ability to anticipate, prepare for, and effectively respond to supply chain disruptions  _ : These are the functional areas of a supply chain that sources materials and finished goods, warehouses and manages inventories of those products, moves those products within stages of a supply chain, and handles the distribution of products to business customers or consumers Supply Chain Process Integration  A firm that recognizes and responds to the impact supply chain flows have on its business possesses a supply chain orientation  A_ is a management philosophy that guides the actions of a company toward actively managing the supply chain  With this philosophy, a company would consider upstream and downstream flows of goods, services, _ , and information across the supply chain as activities it would be involved in, even though they may be performed by other companies 764 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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They are willing to help coordinate supply chain activities that add _ to the end-customer  The objective of a company practicing supply chain management is to _ , including within its own firm, with the goal being to improve the entire chain‘s performance in delivering goods and services to customers  This requires firms in the chain to take actions that are aligned with other firms‘ actions and consider the _ of its actions on other firms in the chain  For an integrated supply chain to work, companies must be willing to embrace close, longterm _ for mutual benefit Types of Supply Chain Collaboration Internal Collaboration  _ involves departments or functions within a company working together to achieve a common goal  Interdepartmental/functional collaboration is not always the norm in companies due to conflicting goals, methods of operation, and _  A major objective is balancing supply and demand, which is accomplished by procuring the right number of materials and producing the right amount of product to meet market demand  When _ and cooperation between departments is low, it is extremely difficult to achieve a good supply/demand balance  The most common way that companies deal with this problem is to implement a _ (S&OP)  S&OP is based on a sales forecast developed by the demand side of the business (marketing and sales) and a _ developed by the supply side of the business (sourcing and production planning)  S&OP has three basic purposes: (1) _ , (2) planning volumes to guide detailed production plans, and (3) integrating financial, new-product development, and operational plans  S&OP not only results in higher customer service and lower overall inventories, it also can create _ benefits that permeate the entire company  The collaboration needed in S&OP can lead to inter-functional collaboration in other processes as well: It can increase awareness of the problems faced by other parts of the organization and promote _ between departments  The process can change the company‘s operational culture from one that is _ focused to one that better understands the potential benefits of working with other companies in the supply chain 765 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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External Collaboration  The trust that develops from internally collaborative processes can become the foundation upon which _ are built  These programs include _ (VM I); collaborative forecasting, planning, and replenishment (CPFR); _ (ECR); retail–event collaboration; and various stock replenishment methods currently in use by major manufacturers and retailers  These processes require sharing information between companies, _ on the responsibilities of the individual companies, and a good deal of trust among all parties, since the responsibility for integrating supply and demand is often _ to the supplier Vendor-Managed Inventory  In VM I, the supplier is given the responsibility of replenishing a customer‘s _ , but the process is based upon rules agreed to by both parties  The _ , not the customer, then decides how much inventory to produce and when to have it delivered  In the case of a manufacturer and its supplier, the supplier‘s responsibility is to replenish component, raw material, and/or _ inventories in a factory  For retailers, the supplier‘s scope of responsibilities can include _ into a retailer‘s distribution center, or even all the way into the retailer‘s store shelves  Underpinning the VM I process is a _ system that determines at what point inventory should be replenished and how much inventory should be delivered  The customer establishes a replenishment point and inventory level, and when the customer‘s inventory hits that reorder point, a _ is ordered Collaborative Planning, Forecasting, and Replenishment (CPFR) Efficient  CPFR is a process through which suppliers and customers jointly plan _  The companies share information about promotions, sales forecasts, manufacturing plans, inventory levels, and _ ; this information is then used to develop a plan of expected sales and _  The process is implemented via a joint calendar of events in which demand and supply plans are shared, discussed, and agreed upon  CPFR results in a _ on sales forecasts, production schedules, and shipments Consumer Response (ECR) 766 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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ECR involves _ , via a paperless flow of information, between members of the supply chain to accurately match production with consumer demands  ECR normally has four elements  (1) Implementation of _ (EDI) among all tiers of the supply chain to speed the flow of demand-and-supply data among exchange partners  (2) Use of POS data to give suppliers more accurate and up-to-date demand information concerning their products  (3) Fostering of cooperative rather than adversarial relationships between supply chain members, which is critical to creating the _ essential to processes where proprietary data are transmitted between companies  (4) Continuous replenishment of inventory based on _  ECR can lead to both _ and _ because the right amount of inventory is flowing through the supply chain at all times Other External Collaboration Processes  _ is designed to help match demand and supply revolve around  Retail–event collaboration is one such intercompany program; it is designed to help businesses match supply with demand following a promotional event  The retail–event collaboration process requires agreement between supplier and customer on which SKUs will be included in the collaboration, as well as the development of a sales forecast specific to the promotion and the formulation of manufacturing and _  A technique commonly used in the drugstore, hardware, and grocery industries is _ collaboration  In DC replenishment, the supplier and customer collaborate on forecasting withdrawals from the customer‘s DC to replenish store inventories  This stream of orders assists the manufacturer in planning its purchasing, production, and logistics activities in a proactive manner, leading in turn to reduced manufacturing and logistics costs, inventory carrying costs, and _ Store Replenishment Collaboration  _ (SRC) involves direct store or retail DCto-store deliveries based on collaborative store-level sales forecasts  These forecasts are used to create _ over a specified time 767 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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This type of collaboration can be very useful to manufacturers that are launching new products or are running product promotions at the _ Summary  A combination of _ and _ collaboration can become a competitive advantage for a company by reducing costs, improving customer service, and developing closer and more trusting relationships with important customers and suppliers Supply Chain Resilience  Supply chain disruptions happen at both small and large scales  Some of these types of disruptions last a few days or at most a few months  The COVID-19 pandemic prevented supply chains from delivering goods and services throughout the world, and its effects pointed out too many companies that they were unprepared for a _ of such magnitude  Supply chains intricately _ factories, distributors, retailers, and consumers, and a breakdown anywhere along the chain can mean a breakdown of the entire system  If companies want to survive long term, they must be prepared for _ that can negatively affect their chance of remaining viable  A powerful approach that companies can use is to make their supply chains as _ as possible to supply chain disruptions  Holding inventories of components, raw materials, work-in-process, and _ can tide a company over a short-tomedium term supply disruption  _ , which is used to buffer short-term variations in demand and order lead times, is used by most companies because demand and supply vary over time, though they are inadequate to buffer long-term disruptions  _ differs from safety stock in that it only needs to be held during times of potential supply risk or periods of possible extraordinary consumer demand  _ is the set of business processes required to purchase goods and services  Companies can use a sourcing strategy that takes advantage of multiple suppliers of components, raw materials, work-in-process, or finished goods in different parts of the world, so that if a disruptive event occurs in one region they can be obtained from a _  The objective is to have multiple sources for all goods and services needed, which requires a combination of _ and _ suppliers to provide multiple ways to obtain what is needed to meet customer demand 768 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ involves such tactics as gaining time flexibility from employees, adding production shifts and/or lines, use of subcontracting, and the use of multiple facilities to produce the same product These tactics allow a company to be more resilient to increases in _ , such as occurred for paper products during the COVID-19 pandemic _ involves asking employees to work more hours in a shift or to work weekend hours, which enables a company to use trained workers to make the products but can be detrimental to the health and safety of employees if used in excess Another tactic is to add additional _ , for example, going from two to three shifts in a day, which requires hiring new employees and training them, which can be expensive A third tactic is to go to a third party, called a _ , to make the product(s) along with your own production facilities, which can be very effective because many subcontractors are quite capable of making quality products in high volumes Transportation disruptions such as port strikes and slowdowns, ships getting stuck in the _ , and lack of truck drivers can have devastating effects on supply chains for many months This issue is especially acute due to the high-level _ in today‘s supply chains Companies have several options to become more resilient to transportation problems—one way is to change the mode of transportation _ is when a company controls two or more stages of production or distribution normally operated by separate companies Companies vertically integrate to gain more _ over their supply chains, thus gaining more resiliency Companies that anticipate _ and have alternative plans in place will likely fare much better than those that do not when a disruption in the supply chain occurs

THINK LIKE A MARKETER Does supply chain strategy provide competitive advantage?

LO10-4: Describe how the primary logistics functions support a firm’s supply chain strategy. 769 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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What Is Logistics?  _ is that part of supply chain management that plans, implements, and controls the flow of goods, services, and information between the point of origin (such as the mine in which silicone is extracted for use in making computer chips) and the final customer (the user of a personal computer)  _ are people who specialize in the area of logistics  Logistics comprises some specific functions that enable a supply chain to operate smoothly and effectively  These functions include managing inventories; purchasing; and materials management, warehousing, and _ (including transportation)  The goal is to achieve ―the seven Rs of logistics‖—delivering the _ product, to the _ place, to the right _ , at the right _ , in the _ quantity, in the right _ , and at the right price  How well companies provide value by performing the seven Rs of logistics will determine _ The Impact of Logistics  Managers from all areas of business should be aware of the impact _ and personnel have on their own functional areas  Arguably the biggest impact is on the _  The most obvious relationship is with the _ element: delivering goods and services to the correct location and in a timely manner  Satisfying customers through logistics activities is a prerequisite for maintaining and increasing _  Having products at the right place and _ is critically important to marketers because, if the product is not available for purchase, all of the company‘s other marketing efforts will be wasted  Logistics affects _ through efficient purchasing, inventory warehousing, and transportation processes that help keep costs down for the consumer  The _ element is influenced by input from logistics managers about packaging needs for safe and efficient storage of goods and shipment of those goods to customers  Marketing promotions are expected to result in increased _  Logistics personnel support manufacturing operations by receiving, _ , and retrieving materials needed in production 770 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Coordination between the two operations is critical to ensure a smoothly running manufacturing facility  The amount of inventory a company holds and the costs of warehousing and transportation affect _ (ROI)  How well the logistics managers perform affects _ , which ultimately can affect revenue positively or negatively  Logistics also applies to services and _ Aligning Logistics with Supply Chain Strategies  Logistics operations have to be properly configured to meet the different challenges presented by each type of supply chain strategy  Companies pursuing the economies of scale that come with a _ will have to set up logistics operations that can handle large volumes of product, including modes of transportation (container ships and railroads) and large warehouses equipped to efficiently store, retrieve, and load goods onto vehicles at a fast pace  Companies that employ a _ or hybrid strategy typically establish logistics operations based on service quality, innovation, and _  These efforts include suppliers that produce and deliver quickly, transportation that ensures on-time delivery, and the use of advanced technology to increase the responsiveness and flexibility of logistics operations  _ (ERP) systems are data management systems that integrate information across all the departments of an organization  ERP systems can communicate with the IT systems of other companies through _ (EDI)  EDI enables an almost-instantaneous transfer of information from one company‘s computer to another, enabling firms to react quickly to _ LO10-5: Describe the various logistics functions and their importance to marketing. Logistics Functions  U.S. corporate spending on logistics and related business functions is approximately _ percent of gross domestic product, which indicates the impact logistics has on the economy  Logistics operations have a large impact on consumers as well as business  A breakdown in any logistics function will result in _ , empty shelves, and customer _ Managing Inventories  Marketing relies on _ for several reasons 771 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Unless the right amount of inventory is available at the right location, _ will suffer  If companies stock too much inventory, they pay more in inventory carrying costs than they need to which could have been used for things like new-product development or _  The challenge of inventory management is to manage inventories in a way that balances _ in a cost-effective manner Inventory Costs  To manage inventory effectively, firms try to balance _ with the costs of carrying inventory  To determine the level of inventory to keep in stock, a firm must track three types of costs  (1) Purchasing costs include the costs to place and process orders of materials and finished goods  The more often a company places orders for an item, the _ the annual purchasing costs  (2) Inventory carrying costs are important to companies because they negatively impact profits  Inventory carrying costs differ somewhat between companies, so companies calculate their carrying costs based on their own _ for each individual part of the overall costs of a product  (3) A _ occurs when a company does not have enough inventory available to fill an order; accordingly, a customer can either place a back order or cancel the order  A canceled order, of course, means _ , and if the customer places a back order, the company incurs out-of-stock costs Table 10.1 Calculating Inventory Carrying Cost Percentage for a Smartphone INSIGHT QUESTIONS Are there items on the inventory carrying cost table that surprise you?

Why are inventory carrying costs important to measure?

Figure 10.3 Relationships among Purchasing Costs, Inventory Carrying Costs, and Out-of772 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Stock Costs INSIGHT QUESTIONS Describe the relationship among the three costs.

Apply this chart to an example using a familiar product.

Marketing Analytics INSIGHT QUESTIONS Which two metrics help companies evaluate inventory management?

What else does a company need to look at when considering measuring inventory turns?

Purchasing  _ involves the sourcing and procurement of raw materials, component parts, finished goods, and services  Materials purchased for manufacturing typically account for 40–60 percent of _  Purchasing is a major factor in the quality of both goods and _  By involving appropriate suppliers early in the product design process, purchasing can help improve _ and time-to-market for new products  Sourcing materials and products from reliable suppliers ensures that the _ in a firm‘s supply chain meets demand, leading to superior customer service Purchasing Activities  To carry out the purchasing strategy of a company, purchasing managers perform a variety of activities  A company selects suitable suppliers based on criteria (such as cost or _ ) established by the purchasing manager 773 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Purchasing managers negotiate with a supplier about _ and conditions  Based on the terms of the negotiations, the purchasing manager writes a purchase order, which is a legal obligation to buy from a supplier a certain amount of product, at a certain price, to be delivered at a specified date  Purchasing managers establish performance expectations for suppliers and develop ways to measure their _  Expectations often relate to quality, on-time delivery, _ , and accuracy of invoices  If performance does not meet expectations, purchasing managers may reduce the business awarded to the supplier, levy _ , or refuse to do business with the supplier in the future  Purchasing managers may visit the supplier‘s operations to better understand issues  Many companies rely on _ which gives companies access to the highest quality materials, goods, and services at the lowest possible price  The cost of labor from international sources has begun to rise and, as a result, some companies are looking at _ , that is, sourcing goods and services domestically that were once purchased internationally Materials Management, Warehousing, and Distribution  _ involves managing materials for manufacturing  _ involves holding inventories of both intermediate materials and finished goods  _ involves distributing (transporting) goods from a warehouse to stores or directly to customers  _ is part of the distribution activities Materials Management  _ involves the inbound movement and storage of materials in preparation for those materials to enter and flow through the manufacturing process  Effective materials management benefits the company in the following four ways: (1) reduces procurement, transportation, and production costs through economies of scale, (2) coordinates supply and demand for materials, (3) _ , and (5) supports marketing objectives by making sure that goods are available to ship to customers in an efficient and effective manner Warehouse Functions  Warehousing activities can be organized into three basic functions: storage, _ , and production Storage  _ involves holding inventories until they are needed 774 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Proper storage procedures are important to marketing: The product must be _ to ensure there is no damage Movement  The movement functions of a warehouse include receiving, put-away, picking, and shipping  _ involves unloading goods from a carrier, updating inventory records, and quality inspection, if required  _ refers to moving goods to their temporary or semipermanent storage location and updating inventory records  _ involves retrieving packaging and raw materials from storage and moving them to manufacturing to fulfill needs for those materials in production  For finished goods, picking involves _ and preparing them for shipment to fulfill a customer order  _ involves loading picked items onto transportation vehicles, updating inventory records, and preparing the necessary documents to transport the items  _ is greatly affected by technology such as robots, carousels, and motorized conveyors Production  Production includes activities such as light _ , customizing products for customers, and refurbishing returned goods Distribution  _ occurs when a company ships its goods from a warehouse to its stores or customers  The way a company establishes its distribution network should be aligned with its _ for servicing its customers and with the costs involved in meeting customer needs  A_ (DC) is a type of warehouse used specifically to store and ship finished goods to customers  Thus, stores can be restocked by the retailer‘s own distribution centers or by the manufacturer  Shipments from manufacturing DCs can take advantage of full vehicle load shipping rates, adding value to the customer by reducing costs  When the manufacturer ships to stores it is called _ ; this method helps reduce inventory in the retailer‘s distribution centers  _ offer consumers the ability to purchase goods at a retail store (brick-and-mortar) or through a website (click-and-mortar)  Both the store and the Internet consumer can be serviced from the same _

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A rapidly growing way to better service consumers, especially in the grocery business, is to offer in-store pickup of orders placed on the company‘s website  It is important that companies design their distribution network around adding _ to the consumer  Considerations such as total cost to service the consumer, value-added services that make the company more attractive to do business, and availability of products to consumers are among the issues that companies must consider in setting up or changing their methods of distribution Transportation Management  Transportation creates _ and _ utilities that are essential to keeping customers satisfied  Cost-effective transportation can enable companies to market goods to greater distances while maintaining _  Transportation management is particularly important for companies that compete globally— it enables them to build global supply chains and _  The availability and reliability of transportation also affect the number and location of suppliers, _ , and distribution centers  There are six transportation modes: rail, motor, air, water, pipeline, and cyberspace Rail  Historically, railroads have carried _ such as chemicals, coal, produce, and automobiles  Today, _ uses multiple types of transportation for the same shipment  Companies can load products into containers that are carried part of the way by rail and part of the way by truck  Rail transport provides the advantage of carrying a wide variety of goods in large quantities at a low cost  Disadvantages include damages, _ , and lack of accessibility  _ in this context refers to a carrier‘s ability to provide service from the source of the shipment to its destination Motor  Motor carriers, primarily trucks, account for _ percent of the value, 58 percent of the tonnage, and 32 percent of the ton-miles of the nation‘s total commercial freight  The primary role of this mode is to _  Advantages of motor freight are accessibility, reliability, and _

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Disadvantages include a fairly high cost per ton-mile and _

Air  _ accounts for less than 1 percent of the intercity tonmiles in the United States, yet it plays an important role in supply chains  The main advantage of airfreight is _  The main reason why airfreight is used sparingly is its cost: Air is far and away the _ way to move goods  Another issue is _ ; with very few exceptions, the last mile will need to be covered by truck  Airfreight makes sense only for goods that are so expensive that they can bear the high cost of transportation, or for those that ―absolutely, positively have to be there overnight‖ Water  Water transportation has taken on great significance due to _ of production to low-cost producers in Asia and other parts of the world  The use of _ to move goods has significantly changed the way finished goods are shipped because containers can be loaded and unloaded from ships quickly and efficiently  Water transport‘s advantages are low cost and _ ; however, it is slow: For international shipments, water transport is slower than air  Water transport must be considered of prime importance for international shipments, but is of much less importance for domestic ones Pipeline  Pipelines play an important role in providing fuel for industrial, personal, and _ use  Pipelines have a huge impact on national economies in North America, Europe, and the _  This mode is very efficient and low cost, but it is _ and very limited in the products it can carry Cyberspace  Anything that can be digitized can be sent through the _ and delivered to businesses and home  Once a firm sets up the technology to transmit data over the Internet, the shipment costs very little and arrives at its destination almost _  In order to get the most advantage from their logistics operations, firms must match the modes of transportation they choose to use with (1) _ and (2) the competitive strategies they are basing their marketing efforts on 777 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Factors companies must consider in choosing transportation modes include transit times, mode accessibility, ability of the mode to handle necessary volumes (_ ), ability of the mode to consistently meet lead time requirements (_ ), and cost

Table 10.2 Comparing the Six Modes of Transportation INSIGHT QUESTIONS List the key factors that influence transportation mode selection.

How will globalization affect transportation modes?

CONNECT BACK: Reference Connect Assignment 10-2 What is the driving factor for why consumers are using social media versus online shopping sites? What types of content is on social media sites that may not be present on online shopping sites?

How do companies connect their social media sites to their online shopping sites? Provide three examples of companies that balance the integration well, and three examples of companies that do not.

TODAY’S PROFESSIONAL NOTES C. Bryant Estes, Logistics Specialist, Danone What kind of mindset will you have when you approach the job market?

How will you present the knowledge and skills gained from both education and experience to 778 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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potential employers?

What do you consider your personal brand to be?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of distribution. Getting your name, skills, and profile in front of decision makers is critical for you to achieve career success. In this next section of the marketing plan exercise, your assignment is to create a specific plan for how you will distribute your information and qualifications to reach your career objectives. Job seekers upload and share millions of resumes every day on the Internet, even though the success rate of finding a job online is less than 20 percent in the United States. What do you plan to do to increase your success rate using this distribution channel? A growing number of professionals use online services like LinkedIn. If you are thinking about LinkedIn or other social media distribution methods, which sites are best for your specific career path? What strategies should you employ on each site to maximize your efforts? Are there specific keywords you should use? Are there résumé formats that work better on specific job sites? If your career goals focus on graduate school, this process is equally important. Many graduate school entrance exams allow you to send your scores to a limited number of schools. Which schools will you choose? If you plan to seek a job or graduate school opportunity using e-mail, what is the best strategy for designing that e-mail? Hiring managers and admissions personnel will pay attention to the e-mail text, the subject line, and even the time of day that you sent the e-mail. (What would a manager think if your resume arrives at 2:30 a.m.?) Spending time now planning a personal distribution strategy will help as you prepare for your job or graduate school search. Student Task: Write a one- to two-paragraph explanation of how you will distribute your information and qualifications. Your answer should include the websites or companies to which you plan to distribute your resume or the five schools to which you will send your graduate entrance exam scores. Also include any social media platforms you plan to use as part of your distribution strategy and how you plan to use them. Chapter 10

DISTRIBUTION

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I plan to distribute my information through

Chapter 11: Pricing

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dynamic pricing elastic demand escalator clause even pricing

Federal Trade Commission Act (FTCA) fixed costs gray market

Instructor‘s Manual - Chapter 1 inelastic demand loss-leader pricing marginal cost marginal revenue markup pricing name-your-own-price (NYOP) auction odd pricing predatory pricing prestige pricing price price bundling

price discrimination price elasticity of demand price fixing price sensitivity profit margin profit maximization profits reference prices revenue Robinson–Patman Act seasonal discounts Sherman Antitrust Act

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shrinkflation survival pricing tariffs unbundling underpricing variable costs volume maximization (penetration pricing) Wheeler–Lea Act yield management

THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: Though it isn‘t easy, what is the easiest part of the marketing mix to change? With this P, what happens when it is used incorrectly? Set 2: What are the five pricing tactics? How has technology affected pricing? CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES and TABLES as visuals to elaborate on key areas, KEY TERMS learners will need to take away from the course and a notation of when to use POWERPOINT SLIDES with LECTURE NOTES to drive home teaching points. There is also a reminder on when CONNECT activities can be used, as well as tying in SOCIAL MEDIA IN ACTION to real-world applications of marketing products. This is created so that you can facilitate in-class or online discussion effectively. Executive Perspective

Tina Cassidy Chief Marketing Officer, GBH Storytelling is a common thread in Tina Cassidy‘s career which

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spanned roles as a journalist, author, and agency executive. She uses her experience to provide insight in answering the following questions: 435. What has been the most important thing in making you successful at your job? 436. What advice would you give soon-to-be graduates? 437. How is marketing relevant to your role at GBH? 438. What do you consider your personal brand to be? Later in the chapter you see how Tina later elaborates on: Photo provided by Tina Cassidy

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The impact of technology on marketing decisions.

Review with students:  

How is marketing relevant in her role? What kinds of decisions are small scale versus big picture in an executive marketing role? Explain the importance of LO Key Terms: pricing strategy to every 11-1 Price organization. Revenue The Importance of Pricing Profits PowerPoint Lecture Notes: Slides The Importance of Pricing            3

The other three elements of the marketing mix—product, promotion, and place—come together to determine how marketers capture value through pricing Price is the amount of something—money, time, or effort—that a buyer exchanges with a seller to obtain a product Pricing is one of the most important strategic decisions a firm faces: it reflects the value the product delivers to consumers as well as the value the product captures for the firm When used correctly, pricing strategies can maximize profits and help the firm take a commanding market position When used incorrectly, pricing strategies can limit revenue, profits, and brand perceptions Pricing is the essential element for capturing revenue and profits Revenue is the result of the price charged to customers multiplied by the number of units sold Profits are the firm‘s ―bottom line‖: revenue minus total costs The objective of strategic pricing is profitability Ultimately, marketers want to charge as much as they possibly can, as long as the consumer still perceives value in the product at that price Integrating the pricing strategy with other marketing-mix elements ensures that the firm‘s products include only those features that add value to

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customers Outline the objectives, steps Key Terms: and decisions in setting a price. Profit maximization The Price-Setting Process Volume maximization Survival pricing  Step 1: Define the Marginal revenue Pricing Objectives Marginal cost  Profit Price sensitivity Maximization Price elasticity of demand  Volume Inelastic demand Maximization Elastic demand  Survival Pricing Fixed costs  Step 2: Evaluate Variable costs Demand Break-even analysis  Step 3: Determine the Break-even point Costs Reference prices  Fixed Costs versus Underpricing Variable Costs Unbundling  Break-Even Escalator clause Analysis Shrinkflation  Step 4: Analyze the Competitive Price Environment  Step 5: Choose a Price  Reference Prices  Underpricing  Step 6: Monitor and Evaluate the Effectiveness of the Price  Unbundling  Escalator Clauses  Shrinkflation PowerPoint Lecture Notes: Slides The Price-Setting Process LO 11-2

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Many factors influence how a firm sets prices A firm‘s various stakeholders may voice a preference for higher or lower prices, depending on their point of view: marketing executives in search of substantial profits typically want high prices across the products they sell Salespeople often want lower prices, to increase the perceived customer value and ultimately the number of units sold Customers, too, want low prices to maximize their purchasing power

Instructor‘s Manual - Chapter 1 Figure 11.1

Insight Questions:

Figure Information: The Price-Setting Process Thoughtful consideration of the impact on all stakeholders at each step in the price-setting process increases the likelihood that the final price captures value for the firm and delivers value to the customer. Marketers use a six step, systematic process to evaluate relevant factors when setting a price. PowerPoint Slides

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439. What increases the likelihood that the final price of a product captures value for the firm and delivers value to the customer? (Answer: Thoughtful consideration of the impact on all stakeholders at each step in the price-setting process) 440. Outline the steps in setting a price for a familiar product and service. Does the process differ? (Answer: Open ended as students‘ responses will vary; students should elaborate on: defining the pricing objectives, evaluating demand, determining the costs, analyzing the competitive price environment, choosing a price, and monitoring and evaluating the effectiveness of the price.)

Lecture Notes: Step 1: Define the Pricing Objectives   

Pricing objectives should be an extension of the firm‘s marketing objectives They should describe what a firm hopes to achieve through pricing Similar to the firm‘s marketing objectives, pricing objectives should be specific, measurable, and reflect the market realities the firm faces

Profit Maximization    

Profit maximization is designed to maximize profits on each unit sold Profit maximization involves setting a relatively high price for a period of time after the product launches Profit maximization assumes that customers value a product‘s differentiating attributes; as a result, they are willing to pay a higher price to take advantage of those attributes, especially early in a product‘s life cycle For profit maximization to work, firms must use the other marketing-mix elements to ensure the product is produced, delivered, and promoted in a way that clearly differentiates it from competing alternatives

Volume Maximization     5

Volume maximization is designed to maximize volume and revenue for a firm Volume maximization is the process of setting prices low to encourage a greater volume of purchases Because the goal is to gain a large market share due to the low price, the strategy associated with volume maximization is often referred to as penetration pricing For a volume maximization strategy to work over the long term, the firm must have a significant cost or resource advantage over competitors

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Survival Pricing   

Survival pricing involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure (survive) during a difficult time The survival objective is designed to maximize cash flow over the short term and is typically implemented by a struggling firm It should not be a permanent pricing objective, though it can be useful as a temporary means of staying in business

Step 2: Evaluate Demand        

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Setting prices is as simple as finding the point at which the quantity demanded of a good or service at a particular price equals the quantity supplied by producers at that price Determining the quantity that producers are willing and able to supply involves looking at costs Marginal revenue is the change in total revenue that results from selling one additional unit of product Marginal cost is the change in total cost that results from producing one additional unit of product External environmental forces can significantly affect market demand Marketers need to project not only the overall market demand but also the specific product demand at various price points This requires an understanding of consumers‘ price sensitivity, which is the degree to which the price of a product affects consumers‘ purchasing behavior Marketers consider each of the price-sensitivity factors during the pricesetting process to understand their impact, then they can use this measure to calculate how changes in price will affect demand for a product and thus the amount of product the firm can sell at various price levels Price elasticity of demand is a measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income). Inelastic demand is a demand for which a given percentage change in price results in a smaller percentage change in quantity demanded Marketers should also be aware of how the external environment affects price elasticity Insight Questions: 441. Setting prices today isn‘t as easy as applying economic theory. How so? (Answer: External environmental forces can significantly affect market demand, such as technology, demand, legal and political factors. Firms also have to be conscientious

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of the competition when setting prices.) 442. Determining the quantity that producers are willing and able to supply involves looking at what? (Answer: Determining the quantity that producers are willing and able to supply involves looking at costs. No company can afford, for very long, to sell its goods or services at prices that do not cover costs.) Insight Questions:

Table 11.1

443. What factors influence price sensitivity? (Answer: size of expenditure, shared costs, switching costs, perceived risk, importance of end-benefit, pricequality perceptions, reference prices, perceived fairness, and price framing) 444. List an example of a product for each factor of price sensitivity. (Answer: Open ended as students‘ responses will vary; consider the impact each one has. Once marketers understand the price sensitivity exhibited by members of their target market, they can use this measure to calculate how changes in price will affect demand for a product and thus the amount of product the firm can sell at various price levels.) 445. Why is it important for marketers to understand price sensitivity? (Answer: Marketers have to project not only the overall product demand but also the specific demand at various price points.) Table Information: Factors Influencing Price Sensitivity The degree of price sensitivity varies from product to product and from consumer to consumer. A number of factors influence price sensitivity, including size of expenditure, shared costs, switching costs, perceived risk, importance of end-benefit, price-quality perceptions, reference prices, perceived fairness, and price framing. Marketing Analytics

Insight Questions: 446. How does accurately determining the costs affect marketers? (Answer: accurately determining the cost sets a lower price limit for marketers) 447. Is a firm in a disposition if the costs are higher than the competitors? (Answer: Not necessarily, and this depends on the position the firm takes in the

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marketplace [i.e., high quality, prestige, brand image, etc.].) PowerPoint Slides

Lecture Notes: Step 3: Determine the Costs   

A marketer should understand all of the costs associated with its product offering, whether the product is a good, service, idea, or some combination of these Accurately determining the costs sets a lower price limit for marketers It also ensures that the company will not lose money by pricing its products too low

Fixed Costs versus Variable Costs     

Costs that remain constant and do not vary based on the number of units produced or sold are called fixed costs Examples of fixed costs include salaries, rent, insurance, and advertising costs Because these costs will be incurred regardless of the level of production or sales activity, they must be recovered during the course of doing business Costs that vary depending on the number of units produced or sold are called variable costs Variable costs include things such as raw material, sales commissions, and delivery costs

Break-Even Analysis         8

Break-even analysis is the process of calculating the break-even point, which equals the sales volume needed to achieve a profit of zero Specifically, the break-even point is the point at which the costs of producing a product equal the revenue made from selling the product Once the firm has established the break-even point, it can determine how much it would need to sell to earn a profit on the product To calculate the break-even point, we divide total fixed costs by the unit contribution margin The unit contribution margin is the amount of revenue a product contributes per unit; it is calculated as the selling price per unit minus the variable costs per unit Another way to determine the break-even point is by using a graph (often called a cost-volume-profit, CVP, graph) It plots lines representing a product‘s estimated revenues and costs; the point at which the two lines intersect is the break-even point Note an important point: Break-even analysis analyzes only the costs of the sales; it does not reflect how demand may be affected at different price

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levels; in other words, it doesn‘t measure price sensitivity Costs should never totally dictate price

Figure 11.2

Insight Questions:

Figure Information: Break-Even Analysis

448. Explain how break-even analysis only analyzes the costs of the sales. (Answer: It does not reflect how demand may be affected at different price levels, and does not measure price sensitivity. It does, however, indicate the break-even point, which is the point at which the costs of producing a product equal the revenue made from selling the product.) 449. Should costs dictate price? (Answer: No. Strategic pricing requires firms to integrate costs into other aspects of the marketing mix, including what value the customer places on the product and the price environment in the industry.)

The break-even point is the point at which the costs of producing a product equal the revenue made from selling the product. Once the firm has established the break-even point, it has a starting point for estimating how much revenue it must generate to earn a profit. To calculate the break-even point, we divide total fixed costs by the unit contribution margin, which is determined by subtracting the variable cost per unit from the selling price per unit with fixed and variable costs considered. Notice that fixed costs remain flat while variable costs increase as the amount of sales increases. Once unit sales pass the break-even point, the firm begins to generate a profit. PowerPoint Slides

Lecture Notes: Step 4: Analyze the Competitive Price Environment  

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price higher because the firm offers a superior product This decision should be consistent with the overall marketing objectives of the firm and the other three marketing-mix elements Industry structure plays an important role in analyzing the competitive price environment Marketers also should consider how competitors might respond to their pricing How a firm reacts to a change in a competitor‘s prices depends on whether the competitor is a stronger or weaker rival and whether the price reduction is cost-justified Marketers must also take online competitors into account

Step 5: Choose a Price  

The pricing decision should be made with the goal of maximizing long-term, sustainable profits There are two often-overlooked factors that influence price: reference prices and underpricing

Reference Prices       

Marketers can capitalize on this tendency by identifying the reference prices of their targeted consumers when setting their own prices Reference prices are the prices that consumers consider reasonable and fair for a product Reference prices matter to marketers because consumers are typically more price-sensitive the higher a product‘s price is relative to expectations Salespeople have the most direct contact with customers and thus a good sense of what customers are willing to pay Salespeople who have developed relationships with customers often understand the most attractive price points; they can leverage the quality of that relationship to obtain higher profits Marketers should work closely with the sales force to understand how high they can price a product before customers stop considering the product a good value Instead of just seeking to identify reference prices, marketers can also seek to establish reference prices for consumers

Underpricing   

One of the most common mistakes in modern pricing is charging someone less than they are willing to pay, or underpricing Customers place different values on the goods and services they buy Because revenue is simply the number of units sold multiplied by the price per item, marketers too often make the mistake of setting prices too low in an effort to increase the units-sold side of the equation

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Instead, they need to consider all of the other factors that contribute to the value a customer places on a product

Step 6: Monitor and Evaluate the Effectiveness of the Price    

Choosing a price is not a one-time decision Pricing strategy evolves throughout the product life cycle; it needs repeated monitoring and evaluation, to determine how effectively the strategy meets the pricing objectives One of the most challenging aspects of pricing is initiating price increases This challenge was especially relevant as organizations across industries managed the highest inflation level in decades throughout 2021 and 2022

Unbundling  

Unbundling involves separating out the individual goods, services, or ideas that make up a product and pricing each one individually Such a strategy allows marketers to maintain a similar price on the core product but recover costs in other ways on related goods and services

Escalator Clauses 

An escalator clause in an agreement provides for price increases if certain, specified conditions occur  The escalator clause ensures that providers of goods and services do not encounter unreasonable financial hardship as a result of uncontrollable factors relating to the product  Those factors could involve either increases in the costs of materials or decreases in the availability of something required to deliver products to customers  Firms that decide to use escalator clauses should make them as transparent as possible THINK LIKE A MARKETER Why are so many organizations using escalator clauses considering the amount of competition in the marketplace? Shrinkflation 

Shrinkflation is the process of items shrinking in size or quantity while their prices remain the same or increase  In recent years, numerous companies have shrunk the size of products to keep prices stable and to retain customers  Sometimes the tactic is even considered a product innovation THINK LIKE A MARKETER As the marketing director, how would you handle communications regarding your firm‘s need to induce shrinkflation in a domestic market? 11

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Topic: Price-Setting Process Complete the Connect exercise for Chapter 11 that focuses on the price-setting process. By understanding the dynamics of each step of the process, you will gain insight into how marketers set prices that maximize both profits and customer value. Insight Questions:

Compare the pricing tactics marketers can use. Pricing Tactics  Markup Pricing  Odd/Even Pricing  Prestige Pricing  Loss-Leader Pricing  Seasonal Discounts  Price Bundling PowerPoint Lecture Notes: Slides Pricing Tactics LO 11-3

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450. What factors should be considered for setting prices in each step of the price-setting process? (Answer: Open ended as students‘ responses will vary; the six steps include the following: (1) select the pricing objective, (2) evaluate demand, (3) determine the costs, (4) analyze the competitive price environment, (5) choose a price, and (6) monitor and evaluate the effectiveness of the price.) 451. How does the price-setting process seek to add value for customers? (Answer: Marketers use a systematic six-step process to evaluate relevant factors when setting a price and should thoughtfully consider the decisions at each step in the price-setting process to increase the likelihood that the final price captures value for the firm and simultaneously delivers value to the customer.) Key Terms: Markup pricing Profit margin Odd pricing Even pricing Prestige pricing Loss-leader pricing Seasonal discounts Price bundling

Once marketers have completed their analysis of demand, costs, and the competitive environment, they can use a number of different tactics to choose a final price Pricing tactics are short- or long-term attempts to adjust the pricing of a product to achieve a particular pricing objective Which tactic to use depends on the value customers perceive the product to have, their ability to pay, and how they intend to use the product

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Markup Pricing     Table 11.2

Markup pricing (also known as cost-plus pricing) is one of the most commonly used pricing tactics, largely because it is easy In markup pricing, marketers add a certain amount, usually a percentage, to the cost of the product, to set the final price It‘s not very effective at maximizing profits, which is the ultimate objective of a good pricing strategy Profit margin is the amount a product sells for above the total cost of the product itself Insight Questions:

Table Information: The Profit Implications of Using a Markup Pricing Strategy Though markup pricing has the advantage of being easy, it‘s not very effective at maximizing profits, which is the ultimate objective of a good pricing strategy. Shown is an example of how markup pricing does not capture value for a lawn chair. The example shows four target customers who personally value the lawn chair at $10, $14, $15, and $20, respectively. The profit margin the firm can expect to earn on each lawn chair using a markup pricing strategy is shown. Table 11.3

Insight Questions:

Table Information: The Profit Implications of Using a Research-Based Pricing Strategy Using an alternative pricing strategy, a 13

452. How does perceived value elicit customer purchases? (Answer: Open ended as students‘ responses will vary; deciding which tactic to use depends on the value customers perceive the product to have, their ability to pay, and how they intend to use the product.) 453. Why is markup pricing one of the most commonly used pricing tactics? (Answer: A pricing analyst can implement a markup pricing strategy easily by reviewing a spreadsheet and adding a percentage to the cost of each item.) 454. In what situation does the customer decide not to purchase the lawn chair? (Answer: when the perceived value is lower than the markup price of the chair.)

455. How can marketing research assist marketers with the pricing strategy? (Answer: Marketing research can tell a company what competitors charge for the same or similar product.) 456. Compared to the markup pricing strategy, how does a research-based pricing strategy result in a higher profit margin? (Answer: Even though the firm ends up with one less sale because customer #2 perceives the price to be too high, the total profit of

Instructor‘s Manual - Chapter 1 researched-based pricing strategy, the firm has improved outcomes. Even though the firm ends up with one less sale because customer #2 perceives the price to be too high, the total profit of $10 is close to 50 percent higher than the $6 total profit the firm earned using a simple markup strategy. PowerPoint Slides

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$10 is close to 50 percent higher than the $6 total profit the firm earned using a simple markup strategy.)

Lecture Notes: Odd/Even Pricing        

Odd pricing is a tactic in which a firm prices products a few cents below the next dollar amount For the strategy to succeed, customers must perceive a product priced at $19.95 as offering more value than a product priced at $20.00, for example If customers feel they received a deal, they are more likely to share that feeling with others, which can lead to additional sales Firms that use odd pricing still need to consider the impact of price elasticity of demand at odd-pricing points Even pricing sets prices at even dollar amounts Prices that end with zero are often easier for customers to process and retrieve from memory Luxury product marketers often use even pricing; odd pricing, often ending in 9, can sometimes convey a message of discount or sale that is not consistent with a luxury pricing objective Research has even suggested that prices ending in 00 increased the likelihood of consumers rating the quality of the items advertised as ―above average‖

Prestige Pricing    

Prestige pricing is a pricing tactic that involves pricing a product higher than competitors to signal that it is of higher quality Luxury brands such as Louis Vuitton, Cartier, Rolex, and Mercedes-Benz are perfect examples of this strategy Such companies use high prices to suggest their products are high quality and stylish Simply improving the look, packaging, delivery, or promise of a product can justify a higher price and support prestige pricing

Loss-Leader Pricing   14

Loss-leader pricing involves selling a product at a price that causes the firm a financial loss Although the firm may lose money selling the product at that price, it might

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attract customers who will also buy other, more profitable products in the future  This worked better at a time when consumers would do most of their shopping on-site; their additional purchases at the store would make up for the loss-leader item Seasonal Discounts  

This worked better at a time when consumers would do most of their shopping on-site; their additional purchases at the store would make up for the loss-leader item Seasonal discounts can keep attendance, for example, high throughout the year

Price Bundling 

Price bundling is a pricing tactic in which two or more products are packaged together and sold at a single price  Marketers often use bundling as a tool because they can charge higher prices for the bundle than they could for the elements individually  Price bundling simplifies things for marketers  Companies across sectors are going from a product-based to a subscriptionbased business model  A strategy often used by marketers is called biphasic subscription monetization, in which businesses roll out novel services as standalone offerings and quickly monetize them by targeting enthusiastic consumers THINK LIKE A MARKETER What does it take for a brand to use prestige pricing? Connect Assignment 11-2

Topic: Pricing Tactics Complete the Connect exercise for Chapter 11 that focuses on pricing tactics. By understanding the dynamics of different tactics and being able to perform the necessary pricing calculations, you should gain insight into how marketers choose specific prices and when those tactics will be most effective. Insight Questions: 457. Is there is a particular pricing strategy that is always more effective than the other? (Answer: No, and they can vary. Pricing tactics are short- or longterm attempts to adjust the pricing of a product to achieve a particular pricing objective.) 458. What factors make one pricing strategy more effective than another? (Answer: the competition,

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legal or political issues, economic situation, brand, and consumer interest) 459. When competition is inferior in a marketplace, is there one pricing strategy that makes most sense? (Answer: If a product is new to the marketplace, prestige pricing may work best. Over time, this strategy may change as more competitors enter the marketplace.) Key Terms: Dynamic pricing Yield management Name-your-own-price (NYO P) auction

Explain the influence of technology on pricing. Technology and Pricing  Mobile Applications  Dynamic Pricing  Name-Your-Own-Price PowerPoint Lecture Notes: Slides Technology and Pricing LO 11-4

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Technology has helped shift the balance of power from companies to customers, who are better informed about prices than ever before The Internet has made it possible for customers to comparison shop for products literally around the world In addition to the power of the Internet, mobile applications and dynamic pricing are rapidly changing the nature of pricing

Mobile Applications    

Smartphone and tablet technology have unleashed a new era of pricing transparency Consumers now use wireless apps and search engines on their mobile devices in stores to compare prices In response, marketers at traditional brick-and-mortar stores more aggressively review the prices of online stores when setting the initial price of an item as part of their analysis of the competitive price environment Recent research suggests that over 40 percent of consumers search for and purchase a low-priced product using an in-store shopping app or online search engine

Dynamic Pricing  

Dynamic pricing is a pricing tactic that involves constantly updating prices to reflect changes in supply, demand, or market conditions Digital sales environments can provide marketers with an abundance of sales data which may contain important insights on consumer behavior, in particular, on how consumers respond to different selling prices

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Dynamic pricing helps marketers emphasize yield management, which is a strategy for maximizing revenue even when a firm has a fixed amount of something (goods, services, or capacity)

Name-Your-Own-Price 

In a name-your-own-price (NY OP) auction, the consumer submits a bid at the price they are willing to pay for a product or service, and the auction site conducts a search to find matches with prices set by participating suppliers  The auction site looks to see whether the bid price matches or exceeds any unrevealed threshold prices set by participating suppliers THINK LIKE A MARKETER If you were a marketer for an organization, how far would you decrease prices to entice people using social media or mobile devices to purchase your product? Summarize the major challenges of pricing for international markets. Global Pricing  Gray Market  Tariffs  Dumping PowerPoint Lecture Notes: Slides Global Pricing LO 11-5

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Key Terms: Gray market Tariffs Dumping

Pricing is a critical component of a successful global marketing strategy Historically, companies have set prices for products sold internationally higher than the same products sold domestically Technological advancements and Internet access throughout the world have made global pricing more transparent and, in many cases, more competitive Challenging economic conditions over the past decade have affected pricing in a global context

Gray Market      17

The gray market involves the sale of branded products through legal but unauthorized distribution channels Gray-market goods can be a boon for consumers, allowing them to obtain legally produced items for less than they could normally However, gray-market goods cut into a firm‘s revenue and profits, leaving marketers looking for ways to control and repress such activity If marketers price their products significantly lower in foreign countries than in the domestic market, they may open the door to gray-market buyers Using modern technology, those buyers will buy the products internationally and then sell them in the United States at a price that undercuts the standard

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rate paid by U.S. consumers Tariffs     

Tariffs are taxes on imports and exports between countries Fruits and vegetables are popular goods on which to place tariffs, in some countries reaching to over 25 percent The goal of tariffs is usually to protect domestic industries from lower-priced foreign competition Marketers typically prefer targeting international markets that have low (or no) tariffs Countries with which the United States has international trading agreements also offer lower-tariff markets. For example, the North American Free Trade Agreement (NAFTA) enabled companies and consumers in those countries to trade without tariffs

Dumping   

The removal of tariffs due to international agreements has caused some countries to switch to nontariff barriers, such as anti-dumping laws, to protect their local industries Dumping occurs when a company sells its exports to another country at a lower price than it sells the same product in its domestic market The World Trade Organization (WTO) is the forum that regulates trade among participating companies; the WTO hasn‘t classified dumping as illegal so many countries enact their own laws to curb the strategy

Today’s Professional

Amber Rahman Pricing Manager, J.B. Hunt Transport Services, Inc. Taking stepping stones to carve the career she now has, Amber shares insight in answering the following questions:

Photo provided by Amber Rahman

460. Describe your job. 461. Describe how you got the job you have. 462. What has been the most important thing in making you successful at your job? 463. What advice would you give soon-to-be graduates? 464. What do you consider your person brand to be? Review with students:

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Explain the major legal and ethical issues associated with pricing. Legal and Ethical Issues in Pricing  Price Discrimination  Price Fixing  Predatory Pricing  Deceptive Pricing  U.S. Laws Affecting Pricing  Robinson–Patman Act  Federal Trade Commission Act  Wheeler–Lea Act  Sherman Antitrust Act

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How does knowing the operations of a company help with pricing strategies?  How does price relate to being an industry leader? Key Terms: Price discrimination Price fixing Predatory pricing Deceptive pricing Robinson–Patman Act Federal Trade Commission Act (FTCA) Wheeler-Lea Act Sherman Antitrust Act

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Lecture Notes: Legal and Ethical Issues in Pricing  

Pricing is one of the most watched and regulated marketing activities because it directly affects the financial viability of both organizations and individuals These issues include price discrimination, price fixing, predatory pricing, and deceptive pricing

Price Discrimination    

Price discrimination is the practice of charging different customers different prices for the same product Price discrimination sounds negative, but it is illegal only if it injures competition It is perfectly legal for organizations to charge customers different amounts for legitimate reasons This is especially common in B2B settings, in which different customers might be charged different rates due to the quantities they buy, the strategic value of the company, or simply because one firm did a better job negotiating the contract

Connect Assignment 11-3

Social Media in Action

Topic: Social Media and Mobile Devices Influencing Prices Social media are influencing the prices consumers see when buying products online, even varying the prices for some of its products and the product bundles offered depending on whether or not a consumer comes to its site through a social media link. However, marketers should be careful as studies suggest that over 75 percent of consumers say they would be bothered if they knew that someone paid a lower price for the same product. Some organizations also offer different online prices based on what type of mobile device consumers use to access the site and where consumers are located. Office supply company Staples discounted the price of its online products for consumers who lived within a 20-mile range of major competitors. Some firms, such as travel website Orbitz, modified the prices consumers saw depending on whether the customer was using a specific type of mobile device. Consumers using an iPhone or Android phone saw discounts of up to 50 percent compared to what a person searching the site on a traditional computer saw. The Social Media in Action Connect exercise in Chapter

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11 will let you make decisions about setting consumer prices based on the social media profiles of consumers. By understanding the insights that social media can provide, you will be able to develop pricing strategies that maximize profits from each individual consumer. Insight Questions: 465. What information from social media consumer profiles can assist organizations in setting consumer prices? (Answer: Open ended as students‘ responses will vary; consider discount websites, sharing coupon codes, loyalty programs through being a follower, reviews, etc.) 466. Have you ever been witness to purchasing a product and receiving a discount when purchasing it via a social media link or a mobile device? (Answer: Open ended as students‘ responses will vary; consider various apps that enable this functionality and how social media may be linked to these apps to entice a sale.) 467. Do you consider researching consumer profiles on social media outlets for the sake of setting prices an invasion of privacy? Why or why not? (Answer: Open ended as students‘ responses will vary; consider that the profile is posted on the World Wide Web.) 468. How can consumers use social media to share their thoughts and opinions on prices set by organizations? (Answer: Open ended as students‘ responses will vary; opinions can easily be posted or shared to social media within seconds. Using hashtags, Twitter handles, or tagging, the functionality of social media platforms enables consumers to share their thoughts and opinions quite easily.) Lecture Notes: Price Fixing  

When two or more companies collude to set a product‘s price, they are engaging in price fixing Price fixing is illegal under the Sherman Antitrust Act of 1890 and the Federal Trade Commission Act

Predatory Pricing  21

This type of long-term aggressive pricing strategy could be considered an

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attempt to create a monopoly; it is therefore illegal under U.S. law However, predatory pricing is difficult to prove The Supreme Court has ruled that the victim must prove that the company being accused of predatory pricing (the chain supermarket, in our example) would be able to recoup its initial losses by charging higher prices later on, once it has driven others out of business

Deceptive Pricing    

Deceptive pricing is an illegal practice that involves intentionally misleading customers with price promotions Deceptive pricing practices can lead to price confusion, with consumers finding it difficult to discern what they are actually paying In the United States, deceptive pricing is regulated by the Federal Trade Commission (FTC) Cases may be prosecuted by a state attorney general or by a district attorney at the state or local level

U.S. Laws Affecting Pricing 

The U.S. government and other major economies, such as Japan and the European Union, are committed to stopping and punishing anticompetitive and harmful pricing behavior through a variety of laws and regulations

Robinson–Patman Act      

To combat price discrimination that injures competition, in 1936, the U.S. government passed the Robinson–Patman Act as an amendment to the Clayton Antitrust Act of 1914 The Robinson–Patman Act (also called the Anti-Price Discrimination Act) requires sellers to charge everyone the same price Though the purpose of the act was to reduce injurious price discrimination, it did provide for three scenarios in which price discrimination may be allowed A firm can charge different prices if it is part of a quantity or manufacturing discount program A firm can lower prices for certain customers if a competitor undercuts the originally quoted price Market conditions such as going-out-of-business sales or situations in which the quality of products has changed give firms the opportunity to charge different prices for the same product

Federal Trade Commission Act  22

The Federal Trade Commission Act (FTCA) was passed in 1914

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It established the Federal Trade Commission (FTC), which had the authority to enforce laws aimed at prohibiting unfair methods of competition The FTCA was later broadened to prevent practices such as price fixing and deceptive pricing that: (1) may cause injury to customers, (2) cannot be reasonably avoided by customers, and (3) cannot be justified by other outcomes that may benefit the consumer or the idea of free competition

Wheeler–Lea Act   

The Wheeler–Lea Act of 1938 (also called the Advertising Act) is an amendment to the FTCA Its passage removed the burden of proving that unfair and deceptive practices had to injure competition as well as customers It also broadened the FTC‘s powers to include protecting consumers from false advertising practices

Sherman Antitrust Act   

The Sherman Antitrust Act was passed in 1890 to eliminate monopolies and guarantee competition It combats anticompetitive practices, reduces market domination by individual corporations, and preserves unfettered competition as the rule of trade The Sherman Antitrust Act makes price fixing illegal

Connect Assignment 11-4

Topic: Important Laws that Impact Pricing Complete the Connect exercise for Chapter 11 that focuses on important laws that affect pricing. By recognizing the specific requirements of each law, you will understand the legal requirements of pricing decisions and be able to help your firm avoid violating pricing rules and regulations. Insight Questions: 469. Whose responsibility is it to be aware of the laws that affect pricing? (Answer: Open ended as students‘ responses will vary; consumers should be aware of how and what they spend their money on and the laws that enable this. However, each company has an ethical responsibility to not only follow the laws but also to respond accordingly should a law be broken.) 470. How are the pricing rules and regulations influenced because of globalization and the internet? (Answer: Open ended as students‘ responses will vary;

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the internet provides access to and transparency of pricing; some laws are not transferrable or applicable past domestic borders; however, there are some laws that are specifically in place to regulate pricing.) MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, you learned about setting prices based on costs and market conditions. For the next part of your marketing plan exercise, you will conduct a pricing analysis of your own future career plans. First, you should consider the costs you expect to have in the next decade, including things like repaying your student loans, paying your rent, saving for a house, or starting a family. Take time to consider the potential costs of these things on a monthly and annual basis. Then compare these costs with the career information you put together in an earlier chapter. How do they match up? Next, consider your market value within your company or industry, either now or after graduate school. The price elasticity you inspire in future employers will be an important consideration as you develop in your career. For example, if you possess a unique combination of experience, education, personality, and work ethic, demand for your services might well be inelastic. In this scenario, you might be able to negotiate a higher salary because the demand for your services is high. Conversely, if demand for your brand is elastic, you should understand your lessened bargaining power and work to develop unique skills or take on difficult assignments within your company to increase the value others place on your brand. Knowing whether demand for your personal brand is inelastic or elastic is essential. Too many employees undervalue their brand and work for less than what market prices would dictate, leaving money on the table over a significant period of their career. Student Task: Develop a detailed list of the costs necessary to have the career you desire 10 years from now (e.g., student loans, training seminars, graduate school costs, or any fixed or variable costs). Next, compare these costs with the prices that organizations are paying for people with your skill set. Finally, determine your own personal break-even point for your salary level. Also, identify when you expect to reach the salary that you desire.

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How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 471. Why is it difficult to determine reference prices? Consider a new pizza restaurant opening near your campus. What challenges would the restaurant‘s marketers encounter as they attempt to determine their customers‘ reference prices? How could they find this information? (Answer: Reference prices are the prices that consumers consider reasonable and fair for a product. Customer surveys, focus groups, and other forms of marketing research are needed to understand how consumers view a certain product and how much they are willing to pay for it. This process is timely and expensive, though necessary to capitalize on how consumers will see how your firm is competing with price.) 472. What is the problem with standard markup pricing? How do buyers and sellers lose from this type of pricing strategy? (Answer: Though markup pricing has the advantage of being easy, it is not very effective at maximizing profits, which is the ultimate objective of a good pricing strategy.) 473. Name a product that you think is underpriced. What price do you think should be charged and what would be the benefits of that higher price for the company that produces the product? (Answer: Open ended as students‘ responses will vary; consider McDonald‘s $1 beverages when other fast food restaurants were still pricing theirs above $2; also, beverages at dine-in restaurants are, oftentimes, over $2 even though they come from the same brand, e.g., Coca Cola or Pepsi.) 474. Name one product for which your demand is elastic and one product for which your demand is inelastic. For example, if Subway raised their prices by 10 percent, would you reduce the number of times you eat there by 10 percent, by more than 10 percent, or would the price increase not change your purchases at Subway at all? Do you think most other consumers of these two products feel the same way? How should this information affect the pricing of those products? (Answer: Open ended as students‘ responses will vary; consider the initial price of the product/service, consider the demand, competition, alternative options, consumer budget, state of the economy, etc.) 475. Go to the Stubhub website (www.stubhub.com) and find an event for which you might be interested in buying tickets. Are prices higher or lower than you could buy directly from the venue? Why do you think that is? Why is Stubhub not violating price discrimination laws? (Answer: Open ended as students‘ responses will vary; price discrimination is the practice of charging different customers different prices for the same product. Price discrimination sounds negative, but it is illegal only if it injures competition. StubHub‘s position in the marketplace is that it is a resource to purchase 25

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tickets after they‘re no longer available through traditional venues, and therefore can charge a premium for its service to accommodate the third parties involved.) 476. Think of your favorite brand of potato chip and then discuss what considerations would affect how you would price that product in a neighboring country such as Mexico or Canada. (Answer: Open ended as students‘ responses will vary; consider transportation costs, product demand, brand image in Mexico and Canada, annual household income, cultural considerations, recovering expansion and/or market research costs, etc.) SOCIAL MEDIA APPLICATION Pick two companies whose products you currently buy, and look at all of the social media platforms the company employs (e.g., Instagram, Twitter, and YouTube). Analyze what is being said about pricing either by the company or customers on these platforms, using the following questions and activities as a guide: 477. How much is pricing discussed? Provide specific examples. 478. Is pricing mentioned by the company, social media users, or both? 479. Is pricing discussed on social media by one company more than the other? If so, why do you think this is? 480. If you worked in marketing for either firm, is there anything you have read on social media that would make you consider changing the price of that company‘s products? Explain your answer. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 11 that focuses on using analytics in break-even analysis. ETHICAL CHALLENGE National Basketball Association (NBA) teams play an exhausting 82-game regular season before they reach the playoffs, if they‘re lucky enough to do so. The playoffs are a reward not just for the organization but also for its fans. Playoff tickets are generally in far more demand than regular season tickets, and marketers for a number of teams attempt to use pricing strategies to improve their yield management. For 26

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example, many teams require that fans make a deposit to secure season tickets for the following year before they can buy playoff tickets at face value. Or teams might offer single-game playoff tickets to those who don‘t hold season tickets, but at a price that runs from between 200 percent and 400 percent more than what season ticket holders would pay. While such tactics can generate additional revenue and increase a team‘s season ticket holder base, the team also risks alienating nonseason ticket holders who may be able to attend only a few games a year but who follow the team faithfully on television and the Internet. Please use the ethical decision-making framework to answer the following questions: 481. Is an NBA team charging nonseason ticket holders more than season ticket holders an example of price discrimination? Explain your answer. (Answer: Open ended as students‘ responses will vary; price discrimination is the practice of charging different customers different prices for the same product. Price discrimination sounds negative, but it is illegal only if it injures competition. The NBA does not have direct competition.) 482. Do you agree with the idea of NBA teams requiring fans to place deposits for season tickets for the following year? What about the NBA charging higher single game prices to nonseason ticket holders? Explain your answers. (Answer: Open ended as students‘ responses will vary; generating demand is a marketing function, and perhaps a creative strategy to forecast sales for the following year. Price bundling is a pricing tactic in which two or more products are packaged together and sold at a single price. Marketers often use bundling as a tool because they can charge higher prices for the bundle than they could for the elements individually.) 483. Since season ticket holders probably represent a team‘s most devoted fans, would it make sense to charge them the higher playoff ticket prices on the assumption that, because their demand is inelastic, they will pay almost any price? (Answer: Open ended as students‘ responses will vary; it can be assumed that season ticket holders are not as price-sensitive and with a lack of competing alternatives, a team is maximizing its profit potential.) VIDEO CASE Have students go to Connect to access the video case featuring Amy‘s Candy Bar that accompanies this chapter. PODCAST Have students go to Connect to access the podcast accompanies this chapter. CAREER TIPS To help you think about a job in pricing, follow these tips.

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Dr. Shane Hunt, Author and College of Business Administration Dean at Idaho State University, provides three tips if you are considering a job in pricing. 484. Supply and demand works in your favor. 485. Pricing is a great way to combine marketing with other disciplines. 486. Develop your skills using Excel. Review with students:  How pricing-type jobs can lead to career paths in marketing or finance.  Uses of Excel in your day-to-day job responsibilities.

Chapter 11: Pricing

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-202 Explain the importance of pricing strategy to every organization. LO 1-203 Outline the objectives, steps, and decisions involved in setting a price. LO 1-204 Compare the pricing tactics marketers can use. LO 1-205 Explain the influence of technology on pricing. LO 1-206 Summarize the major challenges of pricing for international markets. LO 1-207 Explain the major legal and ethical issues associated with pricing. KEY TERMS break-even analysis break-even point deceptive pricing dumping dynamic pricing elastic demand escalator clause even pricing Federal Trade Commission Act (FTCA) fixed costs gray market 28

inelastic demand loss-leader pricing marginal cost marginal revenue markup pricing name-your-own-price (NY OP) auction odd pricing predatory pricing prestige pricing price price bundling

Instructor‘s Manual - Chapter 1 shrinkflation survival pricing tariffs unbundling

underpricing variable costs volume maximization (penetration pricing)

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Wheeler–Lea Act yield management

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THOUGHT-PROVOKING ACTIVITY Set 1: Though it isn‘t easy, what is the easiest part of the marketing mix to change? With this P, what happens when it is used incorrectly?

Set 2: What are the five pricing tactics? How has technology affected pricing?

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Tina Cassidy, Chief Marketing Officer, GBH How is marketing relevant in her role? What kinds of decisions are small scale versus big picture in an executive marketing role? LO11-1: Explain the importance of pricing strategy to every organization. The Importance of Pricing  The other three elements of the marketing mix—product, promotion, and place—come together to determine how marketers capture value through pricing  Price is the amount of something—money, time, or effort—that a buyer exchanges with a seller to obtain a product  Pricing is one of the most important strategic decisions a firm faces: it reflects the value the product delivers to consumers as well as the value the product captures for the firm  When used correctly, pricing strategies can maximize profits and help the firm take a commanding market position  When used incorrectly, pricing strategies can limit revenue, profits, and brand perceptions  Pricing is the essential element for capturing revenue and profits  Revenue is the result of the price charged to customers multiplied by the number of units sold  Profits are the firm‘s ―bottom line‖: revenue minus total costs  The objective of strategic pricing is profitability 3

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Ultimately, marketers want to charge as much as they possibly can, as long as the consumer still perceives value in the product at that price  Integrating the pricing strategy with other marketing-mix elements ensures that the firm‘s products include only those features that add value to customers LO11-2: Outline the objectives, steps, and decisions involved in setting a price. The Price-Setting Process  Many factors influence how a firm sets prices  A firm‘s various stakeholders may voice a preference for higher or lower prices, depending on their point of view: marketing executives in search of substantial profits typically want high prices across the products they sell  Salespeople often want lower prices, to increase the perceived customer value and ultimately the number of units sold  Customers, too, want low prices, to maximize their purchasing power Figure 11.1 The Price-Setting Process INSIGHT QUESTIONS What increases the likelihood that the final price of a product captures value for the firm and delivers value to the customer? (Answer: Thoughtful consideration of the impact on all stakeholders at each step in the pricesetting process) Outline the steps in setting a price for a familiar product and service. Does the process differ? (Answer: Open ended as students‘ responses will vary; students should elaborate on: defining the pricing objectives, evaluating demand, determining the costs, analyzing the competitive price environment, choosing a price, and monitoring and evaluating the effectiveness of the price.) Step 1: Define the Pricing Objectives  Pricing objectives should be an extension of the firm‘s marketing objectives  They should describe what a firm hopes to achieve through pricing  Similar to the firm‘s marketing objectives, pricing objectives should be specific, measurable, and reflect the market realities the firm faces Profit Maximization  Profit maximization is designed to maximize profits on each unit sold  Profit maximization involves setting a relatively high price for a period of time after the product launches

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Profit maximization assumes that customers value a product‘s differentiating attributes; as a result, they are willing to pay a higher price to take advantage of those attributes, especially early in a product‘s life cycle For profit maximization to work, firms must use the other marketing-mix elements to ensure the product is produced, delivered, and promoted in a way that clearly differentiates it from competing alternatives

Volume Maximization  Volume maximization is designed to maximize volume and revenue for a firm  Volume maximization is the process of setting prices low to encourage a greater volume of purchases  Because the goal is to gain a large market share due to the low price, the strategy associated with volume maximization is often referred to as penetration pricing  For a volume maximization strategy to work over the long term, the firm must have a significant cost or resource advantage over competitors Survival Pricing  Survival pricing involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure (survive) during a difficult time  The survival objective is designed to maximize cash flow over the short term and is typically implemented by a struggling firm  It should not be a permanent pricing objective, though it can be useful as a temporary means of staying in business Step 2: Evaluate Demand  Setting prices is as simple as finding the point at which the quantity demanded of a good or service at a particular price equals the quantity supplied by producers at that price  Determining the quantity that producers are willing and able to supply involves looking at costs  Marginal revenue is the change in total revenue that results from selling one additional unit of product  Marginal cost is the change in total cost that results from producing one additional unit of product  External environmental forces can significantly affect market demand  Marketers need to project not only the overall market demand but also the specific product demand at various price points  This requires an understanding of consumers‘ price sensitivity, which is the degree to which the price of a product affects consumers‘ purchasing behavior  Marketers consider each of the price-sensitivity factors during the price-setting process to understand their impact, then they can use this measure to calculate how changes in price will 6

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affect demand for a product and thus the amount of product the firm can sell at various price levels Price elasticity of demand is a measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income). Inelastic demand is demand for which a given percentage change in price results in a smaller percentage change in quantity demanded Marketers should also be aware of how the external environment affects price elasticity

Marketing Analytics INSIGHT QUESTIONS Setting prices today isn‘t as easy as applying economic theory. How so? (Answer: External environmental forces can significantly affect market demand, such as technology, demand, legal, and political factors. Firms also have to be conscientious of the competition when setting prices.) Determining the quantity that producers are willing and able to supply involves looking at what? (Answer: Determining the quantity that producers are willing and able to supply involves looking at costs. No company can afford, for very long, to sell its goods or services at prices that do not cover costs.) Table 11.1 Factors Influencing Price Sensitivity INSIGHT QUESTIONS What factors influence price sensitivity? (Answer: Size of expenditure, shared costs, switching costs, perceived risk, importance of endbenefit, price-quality perceptions, reference prices, perceived fairness, and price framing) List an example of a product for each factor of price sensitivity (Answer: Open ended as students‘ responses will vary; Consider the impact each one has. Once marketers understand the price sensitivity exhibited by members of their target market, they can use this measure to calculate how changes in price will affect demand for a product and thus the amount of product the firm can sell at various price levels.) Why is it important for marketers to understand price sensitivity? (Answer: Marketers have to project not only the overall product demand but also the specific demand at various price points)

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Marketing Analytics INSIGHT QUESTIONS How does accurately determining the costs affect marketers? (Answer: Accurately determining the cost sets a lower price limit for marketers.) Is a firm in a disposition if the costs are higher than the competitors? (Answer: Not necessarily, and this depends on the position the firm takes in the marketplace i.e., high quality, prestige, brand image, etc.) Step 3: Determine the Costs  A marketer should understand all of the costs associated with its product offering, whether the product is a good, service, idea, or some combination of these  Accurately determining the costs sets a lower price limit for marketers  It also ensures that the company will not lose money by pricing its products too low Fixed Costs versus Variable Costs  Costs that remain constant and do not vary based on the number of units produced or sold are called fixed costs  Examples of fixed costs include salaries, rent, insurance, and advertising costs  Because these costs will be incurred regardless of the level of production or sales activity, they must be recovered during the course of doing business  Costs that vary depending on the number of units produced or sold are called variable costs  Variable costs include things such as raw materials, sales commissions, and delivery costs Break-Even Analysis  Break-even analysis is the process of calculating the break-even point, which equals the sales volume needed to achieve a profit of zero  Specifically, the break-even point is the point at which the costs of producing a product equal the revenue made from selling the product  Once the firm has established the break-even point, it can determine how much it would need to sell to earn a profit on the product  To calculate the break-even point, we divide total fixed costs by the unit contribution margin  The unit contribution margin is the amount of revenue a product contributes per unit; it is calculated as the selling price per unit minus the variable costs per unit  Another way to determine the break-even point is by using a graph (often called a costvolume-profit, CVP, graph)  It plots lines representing a product‘s estimated revenues and costs; the point at which the two lines intersect is the break-even point  Note an important point: break-even analysis analyzes only the costs of the sales; it does not reflect how demand may be affected at different price levels; in other words, it doesn‘t measure price sensitivity 8

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Costs should never totally dictate price

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Figure 11.2 Break-Even Analysis INSIGHT QUESTIONS Explain how break-even analysis only analyzes the costs of the sales. (Answer: It does not reflect how demand may be affected at different price levels, and does not measure price sensitivity. It does, however, indicate the break-even point, which is the point at which the costs of producing a product equal the revenue made from selling the product) Should costs dictate price? (Answer: No. Strategic pricing requires firms to integrate costs into other aspects of the marketing mix, including what value the customer places on the product and the price environment in the industry.) Step 4: Analyze the Competitive Price Environment  Marketers must consider what competitors charge for their products  Setting prices to compete against other firms is challenging and complex, with various possible strategies, including: (1) match competitor prices, (2) price lower than competitors, thus offering customers greater value, or (3) price higher because the firm offers a superior product  This decision should be consistent with the overall marketing objectives of the firm and the other three marketing-mix elements  Industry structure plays an important role in analyzing the competitive price environment  Marketers also should consider how competitors might respond to their pricing  How a firm reacts to a change in a competitor‘s prices depends on whether the competitor is a stronger or weaker rival and whether the price reduction is cost-justified  Marketers must also take online competitors into account Step 5: Choose a Price  The pricing decision should be made with the goal of maximizing long-term, sustainable profits  There are two often-overlooked factors that influence price: reference prices and underpricing Reference Prices  Marketers can capitalize on this tendency by identifying the reference prices of their targeted consumers when setting their own prices  Reference prices are the prices that consumers consider reasonable and fair for a product  Reference prices matter to marketers because consumers are typically more price-sensitive the higher a product‘s price is relative to expectations  Salespeople have the most direct contact with customers and thus a good sense of what customers are willing to pay 10

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Salespeople who have developed relationships with customers often understand the most attractive price points; they can leverage the quality of that relationship to obtain higher profits Marketers should work closely with the sales force to understand how high they can price a product before customers stop considering the product a good value Instead of just seeking to identify reference prices, marketers can also seek to establish reference prices for consumers

Underpricing  One of the most common mistakes in modern pricing is charging someone less than they are willing to pay or underpricing  Customers place different values on the goods and services they buy  Because revenue is simply the number of units sold multiplied by the price per item, marketers too often make the mistake of setting prices too low in an effort to increase the units-sold side of the equation  Instead, they need to consider all of the other factors that contribute to the value a customer places on a product Step 6: Monitor and Evaluate the Effectiveness of the Price  Choosing a price is not a one-time decision  Pricing strategy evolves throughout the product life cycle; it needs repeated monitoring and evaluation, to determine how effectively the strategy meets the pricing objectives  One of the most challenging aspects of pricing is initiating price increases  This challenge was especially relevant as organizations across industries managed the highest inflation level in decades throughout 2021 and 2022 Unbundling  Unbundling involves separating out the individual goods, services, or ideas that make up a product and pricing each one individually  Such a strategy allows marketers to maintain a similar price on the core product but recover costs in other ways on related goods and services Escalator Clauses  An escalator clause in an agreement provides for price increases if certain, specified conditions occur  The escalator clause ensures that providers of goods and services do not encounter unreasonable financial hardship as a result of uncontrollable factors relating to the product

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Those factors could involve either increases in the costs of materials or decreases in the availability of something required to deliver products to customers Firms that decide to use escalator clauses should make them as transparent as possible

THINK LIKE A MARKETER Why are so many organizations using escalator clauses considering the amount of competition in the marketplace? (Answer: Open ended) Shrinkflation  Shrinkflation is the process of items shrinking in size or quantity while their prices remain the same or increase  In recent years, numerous companies have shrunk the size of products to keep prices stable and to retain customers  Sometimes the tactic is even considered a product innovation THINK LIKE A MARKETER As the marketing director, how would you handle communications regarding your firm‘s need to induce shrinkflation in a domestic market? (Answer: Open ended) CONNECT BACK: Reference Connect Assignment 11-1 What factors should be considered for setting prices in each step of the price-setting process? (Answer: Open ended as students‘ responses will vary; The six steps include the following: (1) select the pricing objective, (2) evaluate demand, (3) determine the costs, (4) analyze the competitive price environment, (5) choose a price, and (6) monitor and evaluate the effectiveness of the price.) How does the price-setting process seek to add value for customers? (Answer: Marketers use a systematic six-step process to evaluate relevant factors when setting a price and should thoughtfully consider the decisions at each step in the price-setting process to increase the likelihood that the final price captures value for the firm and delivers value to the customer.)

LO11-3: Compare the pricing tactics marketers can use. Pricing Tactics 12

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Once marketers have completed their analysis of demand, costs, and the competitive environment, they can use a number of different tactics to choose a final price

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Pricing tactics are short- or long-term attempts to adjust the pricing of a product to achieve a particular pricing objective  Which tactic to use depends on the value customers perceive the product to have, their ability to pay, and how they intend to use the product Markup Pricing  Markup pricing (also known as cost-plus pricing) is one of the most commonly used pricing tactics, largely because it is easy  In markup pricing, marketers add a certain amount, usually a percentage, to the cost of the product, to set the final price  It‘s not very effective at maximizing profits, which is the ultimate objective of a good pricing strategy  Profit margin is the amount a product sells for above the total cost of the product itself Table 11.2 The Profit Implications of Using a Markup Pricing Strategy INSIGHT QUESTIONS How does perceived value elicit customer purchases? (Answer: Open ended as students‘ responses will vary; deciding which tactic to use depends on the value customers perceive the product to have, their ability to pay, and how they intend to use the product.) Why is markup pricing one of the most commonly used pricing tactics? (Answer: A pricing analyst can implement a markup pricing strategy easily by reviewing a spreadsheet and adding a percentage to the cost of each item.) In what situation does the customer decide not to purchase the lawn chair? (Answer: When the perceived value is lower than the lower than the markup price of the chair.) Table 11.3 The Profit Implications of Using a Research-Based Pricing Strategy INSIGHT QUESTIONS How can marketing research assist the pricing strategy? (Answer: Marketing research can tell a company what competitors charge for the same or similar product) Compared to the markup pricing strategy, how does a research-based pricing strategy result in a higher profit margin? (Answer: Even though the firm ends up with one less sale because customer #2 perceives the price to be too high, the total profit of $10 is close to 50 percent higher than the $6 total profit 14

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the firm earned using a simple markup strategy.)

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Odd/Even Pricing  Odd pricing is a tactic in which a firm prices products a few cents below the next dollar amount  For the strategy to succeed, customers must perceive a product priced at $19.95 as offering more value than a product priced at $20.00, for example  If customers feel they received a deal, they are more likely to share that feeling with others, which can lead to additional sales  Firms that use odd pricing still need to consider the impact of price elasticity of demand at odd-pricing points  Even pricing sets prices at even dollar amounts  Prices that end with zero are often easier for customers to process and retrieve from memory  Luxury product marketers often use even pricing; odd pricing, often ending in 9, can sometimes convey a message of discount or sale that is not consistent with a luxury pricing objective  Research has even suggested that prices ending in 00 increased the likelihood of consumers rating the quality of the items advertised as ―above average‖ Prestige Pricing  Prestige pricing is a pricing tactic that involves pricing a product higher than competitors to signal that it is of higher quality  Luxury brands such as Louis Vuitton, Cartier, Rolex, and Mercedes-Benz are perfect examples of this strategy  Such companies use high prices to suggest their products are high quality and stylish  Simply improving the look, packaging, delivery, or promise of a product can justify a higher price and support prestige pricing Loss-Leader Pricing  Loss-leader pricing involves selling a product at a price that causes the firm a financial loss  Although the firm may lose money selling the product at that price, it might attract customers who will also buy other, more profitable products in the future  This worked better at a time when consumers would do most of their shopping on-site; their additional purchases at the store would make up for the loss-leader item Seasonal Discounts  This worked better at a time when consumers would do most of their shopping on-site; their additional purchases at the store would make up for the loss-leader item  Seasonal discounts can keep attendance, for example, high throughout the year Price Bundling  Price bundling is a pricing tactic in which two or more products are packaged together and sold at a single price  Marketers often use bundling as a tool because they can charge higher prices for the bundle than they could for the elements individually  Price bundling simplifies things for marketers 16

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Companies across sectors are going from a product-based to a subscription-based business model A strategy often used by marketers is called biphasic subscription monetization, in which, businesses roll out novel services as standalone offerings and quickly monetize them by targeting enthusiastic consumers

THINK LIKE A MARKETER What does it take for a brand to use prestige pricing? (Answer: Open ended)

CONNECT BACK: Reference Connect Assignment 11-2 Is there is a particular pricing strategy that is always more effective than the other? (Answer: No, and they can vary. Pricing tactics are short- or long-term attempts to adjust the pricing of a product to achieve a particular pricing objective.) What factors make one pricing strategy more effective than another? (Answer: The competition, legal or political issues, economic situation, brand, and consumer interest.) When competition is inferior in a marketplace, is there one pricing strategy that makes most sense? (Answer: If a product is new to the marketplace, prestige pricing may work best. Over time, this strategy may change as more competitors enter the marketplace.) LO11-4: Explain the influence of technology on pricing. Technology and Pricing  Technology has helped shift the balance of power from companies to customers, who are better informed about prices than ever before  The Internet has made it possible for customers to comparison shop for products literally around the world  In addition to the power of the Internet, mobile applications and dynamic pricing are rapidly changing the nature of pricing Mobile Applications  Smartphone and tablet technology have unleashed a new era of pricing transparency  Consumers now use wireless apps and search engines on their mobile devices in stores to compare prices 17

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In response, marketers at traditional brick-and-mortar stores more aggressively review the prices of online stores when setting the initial price of an item as part of their analysis of the competitive price environment  Recent research suggests that over 40 percent of consumers search for and purchase a lowpriced product using an in-store shopping app or online search engine Dynamic Pricing  Dynamic pricing is a pricing tactic that involves constantly updating prices to reflect changes in supply, demand, or market conditions  Digital sales environments can provide marketers with an abundance of sales data which may contain important insights on consumer behavior, in particular, on how consumers respond to different selling prices  Dynamic pricing helps marketers emphasize yield management, which is a strategy for maximizing revenue even when a firm has a fixed amount of something (goods, services, or capacity) Name-Your-Own-Price  In a name-your-own-price (NY OP) auction, the consumer submits a bid at the price he or she is willing to pay for a product or service, and the auction site conducts a search to find matches with prices set by participating suppliers  The auction site looks to see whether the bid price matches or exceeds any unrevealed threshold prices set by participating suppliers THINK LIKE A MARKETER If you were a marketer for an organization, how far would you decrease prices to entice people using social media or mobile devices to purchase your product? (Answer: Open ended) LO11-5: Summarize the major challenges of pricing for international markets. Global Pricing  Pricing is a critical component of a successful global marketing strategy  Historically, companies have set prices for products sold internationally higher than the same products sold domestically  Technological advancements and Internet access throughout the world have made global pricing more transparent and, in many cases, more competitive  Challenging economic conditions over the past decade have affected pricing in a global context

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Gray Market  The gray market involves the sale of branded products through legal but unauthorized distribution channels  Gray-market goods can be a boon for consumers, allowing them to obtain legally produced items for less than they could normally  However, gray-market goods cut into a firm‘s revenue and profits, leaving marketers looking for ways to control and repress such activity  If marketers price their products significantly lower in foreign countries than in the domestic market, they may open the door to gray-market buyers  Using modern technology, those buyers will buy the products internationally and then sell them in the United States at a price that undercuts the standard rate paid by U.S. consumers Tariffs  Tariffs are taxes on imports and exports between countries  Fruits and vegetables are popular goods on which to place tariffs, in some countries reaching to over 25 percent  The goal of tariffs is usually to protect domestic industries from lower priced foreign competition  Marketers typically prefer targeting international markets that have low (or no) tariffs  Countries with which the United States has international trading agreements also offer lowertariff markets. For example, the North American Free Trade Agreement (NAFTA) enabled companies and consumers in those countries to trade without tariffs Dumping  The removal of tariffs due to international agreements has caused some countries to switch to nontariff barriers, such as anti-dumping laws, to protect their local industries  Dumping occurs when a company sells its exports to another country at a lower price than it sells the same product in its domestic market  The World Trade Organization (WTO) is the forum that regulates trade among participating companies; the WTO hasn‘t classified dumping as illegal so many countries enact their own laws to curb the strategy TODAY’S PROFESSIONAL NOTES Amber Rahman, Pricing Manager, J.B. Hunt Transport Services, Inc. How does knowing the operations of a company help with pricing strategies? How does price relate to being an industry leader?

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LO11-6: Explain the major legal and ethical issues associated with pricing. Legal and Ethical Issues in Pricing  Pricing is one of the most watched and regulated marketing activities because it directly affects the financial viability of both organizations and individuals  These issues include price discrimination, price fixing, predatory pricing, and deceptive pricing Price Discrimination  Price discrimination is the practice of charging different customers different prices for the same product  Price discrimination sounds negative, but it is illegal only if it injures competition  It is perfectly legal for organizations to charge customers different amounts for legitimate reasons  This is especially common in B2B settings, in which different customers might be charged different rates due to the quantities they buy, the strategic value of the company, or simply because one firm did a better job negotiating the contract CONNECT BACK: Reference Connect Assignment 11-3 What information from social media consumer profiles can assist organizations in setting consumer prices? (Answer: Open ended as students‘ responses will vary; consider discount websites, sharing coupon codes, loyalty programs through being a follower, etc.) Have you ever been witness to purchasing a product and receiving a discount when purchasing via a social media link or a mobile device? (Answer: Open ended as students‘ responses will vary; consider various apps that enable this functionality and how social media may be linked to these apps to entice a sale.) Do you consider researching consumer profiles on social media outlets for the sake of setting prices an invasion of privacy? Why or why not? (Answer: Open ended as students‘ responses will vary; consider that the profile is posted on the world wide web.) How can consumers use social media to share their thoughts and opinions on prices set by organizations? (Answer: Open ended as students‘ responses will vary; opinions can easily be posted or shared to social media within seconds. Using hashtags, Twitter handles, or tagging, the functionality of social media platforms enables consumers to share their thoughts and opinions quite easily.)

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Price Fixing  When two or more companies collude to set a product‘s price, they are engaging in price fixing  Price fixing is illegal under the Sherman Antitrust Act of 1890 and the Federal Trade Commission Act Predatory Pricing  This type of long-term aggressive pricing strategy could be considered an attempt to create a monopoly; it is therefore illegal under U.S. law  However, predatory pricing is difficult to prove  The Supreme Court has ruled that the victim must prove that the company being accused of predatory pricing (the chain supermarket, in our example) would be able to recoup its initial losses by charging higher prices later on, once it has driven others out of business Deceptive Pricing  Deceptive pricing is an illegal practice that involves intentionally misleading customers with price promotions  Deceptive pricing practices can lead to price confusion, with consumers finding it difficult to discern what they are actually paying  In the United States, deceptive pricing is regulated by the Federal Trade Commission (FTC)  Cases may be prosecuted by a state attorney general or by a district attorney at the state or local level U.S. Laws Affecting Pricing  The U.S. government and other major economies, such as Japan and the European Union, are committed to stopping and punishing anticompetitive and harmful pricing behavior through a variety of laws and regulations Robinson–Patman Act  To combat price discrimination that injures competition, in 1936 the U.S. government passed the Robinson–Patman Act as an amendment to the Clayton Antitrust Act of 1914  The Robinson–Patman Act (also called the Anti-Price Discrimination Act) requires sellers to charge everyone the same price  Though the purpose of the act was to reduce injurious price discrimination, it did provide for three scenarios in which price discrimination may be allowed  A firm can charge different prices if it is part of a quantity or manufacturing discount program  A firm can lower prices for certain customers if a competitor undercuts the originally quoted price  Market conditions such as going-out-of-business sales or situations in which the quality of products has changed give firms the opportunity to charge different prices for the same product 21

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Federal Trade Commission Act  The Federal Trade Commission Act (FTCA) was passed in 1914  It established the Federal Trade Commission (FTC), which had the authority to enforce laws aimed at prohibiting unfair methods of competition  The FTCA was later broadened to prevent practices such as price fixing and deceptive pricing that: (1) may cause injury to customers, (2) cannot be reasonably avoided by customers, and (3) cannot be justified by other outcomes that may benefit the consumer or the idea of free competition Wheeler–Lea Act  The Wheeler–Lea Act of 1938 (also called the Advertising Act) is an amendment to the FTCA  Its passage removed the burden of proving that unfair and deceptive practices had to injure competition as well as customers  It also broadened the FTC‘s powers to include protecting consumers from false advertising practices Sherman Antitrust Act  The Sherman Antitrust Act was passed in 1890 to eliminate monopolies and guarantee competition  It combats anticompetitive practices, reduces market domination by individual corporations, and preserves unfettered competition as the rule of trade  The Sherman Antitrust Act makes price fixing illegal CONNECT BACK: Reference Connect Assignment 11-4 Whose responsibility is it to be aware of the laws that impact pricing? (Answer: Open ended as students‘ responses will vary; consumers should be aware of how and what they spend their money on and the laws that enable this. However, each company has an ethical responsibility to not only follow the laws but also to respond accordingly should a law be broken.) How are the pricing rules and regulations influenced because of globalization and the Internet? (Answer: Open ended as students‘ responses will vary; the Internet provides access to and transparency of pricing; some laws are not transferrable or applicable past domestic borders; however, there are some laws that are specifically in place to regulate pricing.)

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First, you should consider the costs you expect to have in the next decade, including things like repaying your student loans, paying your rent, saving for a house, or starting a family. Take time to consider the potential costs of these things on a monthly and annual basis. Then compare these costs with the career information you put together in an earlier chapter. How do they match up? Next, consider your market value within your company or industry, either now or after graduate school. The price elasticity you inspire in future employers will be an important consideration as you develop in your career. For example, if you possess a unique combination of experience, education, personality, and work ethic, demand for your services might well be inelastic. In this scenario, you might be able to negotiate a higher salary because the demand for your services is high. Conversely, if demand for your brand is elastic, you should understand your lessened bargaining power and work to develop unique skills or take on difficult assignments within your company to increase the value others place on your brand. Knowing whether demand for your personal brand is inelastic or elastic is essential. Too many employees undervalue their brand and work for less than what market prices would dictate, leaving money on the table over a significant period of their career. Student Task: Develop a detailed list of the costs necessary to have the career you desire 10 years from now (e.g., student loans, training seminars, graduate school costs, or any fixed or variable costs). Next, compare these costs with the prices that organizations are paying for people with your skill set. Finally, determine your own personal break-even point for your salary level. Also, identify when you expect to reach the salary that you desire. Instruct students to insert their responses to the above in Chapter 11’s section of the Personal Marketing Plan. Chapter 11

PRICING My goal is to make

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Chapter 11: Pricing

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-208 Explain the importance of pricing strategy to every organization. LO 1-209 Outline the objectives, steps, and decisions involved in setting a price. LO 1-210 Compare the pricing tactics marketers can use. LO 1-211 Explain the influence of technology on pricing. LO 1-212 Summarize the major challenges of pricing for international markets. LO 1-213 Explain the major legal and ethical issues associated with pricing. KEY TERMS break-even analysis break-even point deceptive pricing dumping dynamic pricing elastic demand escalator clause even pricing Federal Trade Commission Act (FTCA) fixed costs gray market inelastic demand loss-leader pricing marginal cost marginal revenue

markup pricing name-your-own-price (NYOP) auction odd pricing predatory pricing prestige pricing price price bundling price discrimination price elasticity of demand price fixing price sensitivity profit margin profit maximization profits reference prices

revenue Robinson–Patman Act seasonal discounts Sherman Antitrust Act shrinkflation survival pricing tariffs unbundling underpricing variable costs volume maximization (penetration pricing) Wheeler–Lea Act yield management

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THOUGHT-PROVOKING ACTIVITY Set 1: Though it isn‘t easy, what is the easiest part of the marketing mix to change? With this P, what happens when it is used incorrectly?

Set 2: What are the five pricing tactics? How has technology affected pricing?

What kinds of decisions are small scale versus big picture in an executive marketing role?

LO11-1: Explain the importance of pricing strategy to every organization. The Importance of Pricing  The other three elements of the marketing mix—product, promotion, and place—come together to determine how marketers capture _ through pricing  Price is the amount of something—money, time, or _ —that a buyer exchanges with a seller to obtain a product  Pricing is one of the most important strategic decisions a firm faces: it reflects the _ to consumers as well as the _ for the firm  When used correctly, pricing strategies can maximize profits and help the firm take a _  When used incorrectly, pricing strategies can limit revenue, profits, and _  Pricing is the essential element for capturing revenue and profits 2 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ number of units sold

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is the result of the price charged to customers multiplied by the

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_ are the firm‘s ―bottom line‖: revenue minus total costs The objective of strategic pricing is _ Ultimately, marketers want to charge as much as they possibly can, as long as the consumer still perceives value in the product at that price  Integrating the _ with other marketing-mix elements ensures that the firm‘s products include only those features that add value to customers LO11-2: Outline the objectives, steps, and decisions involved in setting a price. The Price-Setting Process  Many factors influence how a firm sets prices  A firm‘s various _ may voice a preference for higher or lower prices, depending on their point of view: marketing executives in search of substantial profits typically want high prices across the products they sell  Salespeople often want _ , to increase the perceived customer value and ultimately the number of units sold  Customers, too, want low prices, to maximize their _ Figure 11.1 The Price-Setting Process INSIGHT QUESTIONS What increases the likelihood that the final price of a product captures value for the firm and delivers value to the customer?

Outline the steps in setting a price for a familiar product and service. Does the process differ?

Step 1: Define the Pricing Objectives  Pricing objectives should be an extension of the firm‘s _  They should describe what a firm hopes to achieve through pricing  Similar to the firm‘s marketing objectives, pricing objectives should be _ , measurable, and reflect the market _ the firm faces Profit Maximization  Profit maximization is designed to maximize profits on each _ 4 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ involves setting a relatively high price for a period of time after the product launches  Profit maximization assumes that customers value a product‘s differentiating attributes; as a result, they are willing to pay a _ price to take advantage of those attributes, especially early in a product‘s life cycle  For profit maximization to work, firms must use the other marketing-mix elements to ensure the product is produced, delivered, and _ in a way that clearly differentiates it from competing alternatives Volume Maximization  Volume maximization is designed to maximize volume and revenue for a firm  _ is the process of setting prices low to encourage a greater volume of purchases  Because the goal is to gain a large market share due to the low price, the strategy associated with volume maximization is often referred to as _  For a volume maximization strategy to work over the long term, the firm must have a significant cost or _ over competitors Survival Pricing  _ involves lowering prices to the point at which revenue just covers costs, allowing the firm to endure (survive) during a difficult time  The survival objective is designed to _ over the short term and is typically implemented by a struggling firm  It should not be a permanent pricing objective, though it can be useful as a temporary means of _ Step 2: Evaluate Demand  Setting prices is as simple as finding the point at which the quantity demanded of a good or service at a particular price _ the quantity supplied by producers at that price  Determining the quantity that producers are willing and able to supply involves looking at _  _ is the change in total revenue that results from selling one additional unit of product  _ is the change in total cost that results from producing one additional unit of product  External environmental forces can significantly affect _

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Marketers need to project not only the overall market demand but also the specific product demand at various _ This requires an understanding of consumers‘ _ , which is the degree to which the price of a product affects consumers‘ purchasing behavior Marketers consider each of the price-sensitivity factors during the price-setting process to understand their impact, then they can use this measure to calculate how changes in price will affect _ for a product and thus the amount of product the firm can sell at various price levels _ is a measure of price sensitivity that gives the percentage change in quantity demanded in response to a percentage change in price (holding constant all the other determinants of demand, such as income). _ is demand for which a given percentage change in price results in a smaller percentage change in quantity demanded Marketers should also be aware of how the _ affects price el

Marketing Analytics INSIGHT QUESTIONS Setting prices today isn‘t as easy as applying economic theory. How so?

Determining the quantity that producers are willing and able to supply involves looking at what?

Table 11.1 Factors Influencing Price Sensitivity INSIGHT QUESTIONS What factors influence price sensitivity?

List an example of a product for each factor of price sensitivity

Why is it important for marketers to understand price sensitivity?

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Marketing Analytics INSIGHT QUESTIONS How does accurately determining the costs affect marketers?

Is a firm in a disposition if the costs are higher than the competitors?

Step 3: Determine the Costs  A marketer should understand all of the _ associated with its product offering, whether the product is a good, service, idea, or some combination of these  Accurately determining the costs sets a lower _ for marketers  It also ensures that the company will not lose money by pricing its products too low Fixed Costs versus Variable Costs  Costs that remain constant and do not vary based on the number of units produced or sold are called _  Examples of fixed costs include salaries, _ , insurance, and advertising costs  Because these costs will be incurred regardless of the level of production or sales activity, they must be recovered _  Costs that vary depending on the number of units produced or sold are called _  Variable costs include things such as raw material, _ , and delivery costs Break-Even Analysis  _ is the process of calculating the breakeven point, which equals the sales volume needed to achieve a profit of zero  Specifically, the _ is the point at which the costs of producing a product equal the revenue made from selling the product  Once the firm has established the break-even point, it can determine how much it would need to sell to earn a _ on the product  To calculate the break-even point, we divide total fixed costs by the unit contribution margin

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The _ is the amount of revenue a product contributes per unit; it is calculated as the selling price per unit minus the variable costs per unit Another way to determine the break-even point is by using a graph (often called a _ ) It plots lines representing a product‘s estimated revenues and costs; the point at which the two lines intersect is the _ Note an important point: break-even analysis analyzes only the _ ; it does not reflect how demand may be affected at different price levels; in other words, it doesn‘t measure price sensitivity Costs should _ totally dictate price

Figure 11.2 Break-Even Analysis INSIGHT QUESTIONS Explain how break-even analysis only analyzes the costs of the sales.

Should costs dictate price?

Step 4: Analyze the Competitive Price Environment  

Marketers must consider what competitors charge for their products Setting prices to compete against other firms is challenging and complex, with various possible strategies, including: (1) _ , (2) price lower than competitors, thus offering customers greater value, or (3) price higher because the firm offers a superior product  This decision should be consistent with the overall _ of the firm and the other three marketingmix elements  _ plays an important role in analyzing the competitive price environment  Marketers also should consider how competitors might respond to their pricing  How a firm reacts to a change in a competitor‘s prices depends on whether the competitor is a stronger or weaker rival and whether the price reduction is _  Marketers must also take _ into account Step 5: Choose a Price 8 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The pricing decision should be made with the goal of maximizing long-term, _  There are two often-overlooked factors that influence price: _ and underpricing Reference Prices  Marketers can capitalize on this tendency by identifying the reference prices of their targeted consumers when setting their own prices  _ are the prices that consumers consider reasonable and fair for a product  Reference prices matter to marketers because consumers are typically more _ the higher a product‘s price is relative to expectations  _ have the most direct contact with customers and thus a good sense of what customers are willing to pay  Salespeople who have developed relationships with customers often understand the most attractive price points; they can leverage the quality of that relationship to obtain _  Marketers should work closely with the sales force to understand how high they can price a product before customers stop considering the product a _  Instead of just seeking to identify reference prices, marketers can also seek to establish reference prices for consumers Underpricing  One of the most common mistakes in modern pricing is charging someone less than they are willing to pay or _  Customers place different values on the goods and services they buy  Because revenue is simply the number of units sold multiplied by the _ , marketers too often make the mistake of setting prices too low in an effort to increase the units-sold side of the equation  Instead, they need to consider all of the other factors that contribute to the value a customer places on a product Step 6: Monitor and Evaluate the Effectiveness of the Price  Choosing a price is not a one-time decision  Pricing strategy evolves throughout the _ ; it needs repeated monitoring and evaluation, to determine how effectively the strategy meets the pricing objectives  One of the most challenging aspects of pricing is initiating _  This challenge was especially relevant as organizations across industries managed the highest inflation level in decades throughout 2021 and 2022 9 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Unbundling  _ involves separating out the individual goods, services, or ideas that make up a product and pricing each one individually  Such a strategy allows marketers to maintain a similar price on the core product but _ in other ways on related goods and services Escalator Clauses  An _ in an agreement provides for price increases if certain, specified conditions occur  The escalator clause ensures that providers of goods and services do not encounter unreasonable _ as a result of uncontrollable factors relating to the product  Those factors could involve either increases in the costs of materials or decreases in the availability of something required to deliver products to customers  Firms that decide to use escalator clauses should make them as transparent as possible THINK LIKE A MARKETER Why are so many organizations using escalator clauses considering the amount of competition in the marketplace?

Shrinkflation  _ is the process of items shrinking in size or quantity while their prices remain the same or increase  In recent years, numerous companies have shrunk the size of products to keep prices stable and to _  Sometimes the tactic is even considered a _ THINK LIKE A MARKETER As the marketing director, how would you handle communications regarding your firm‘s need to induce shrinkflation in a domestic market?

CONNECT BACK: Reference Connect Assignment 11-1 What factors should be considered for setting prices in each step of the price-setting process?

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How does the price-setting process seek to add value for customers?

LO11-3: Compare the pricing tactics marketers can use. Pricing Tactics  Once marketers have completed their analysis of demand, costs, and the _ , they can use a number of different tactics to choose a final price  Pricing tactics are short- or long-term attempts to adjust the pricing of a product to achieve a particular _  Which tactic to use depends on the value customers perceive the product to have, their ability to pay, and how they _ Markup Pricing  Markup pricing (also known as _ ) is one of the most commonly used pricing tactics, largely because it is easy  In _ , marketers add a certain amount, usually a percentage, to the cost of the product, to set the final price  It‘s not very effective at _ , which is the ultimate objective of a good pricing strategy  _ is the amount a product sells for above the total cost of the product itself Table 11.2 The Profit Implications of Using a Markup Pricing Strategy INSIGHT QUESTIONS How does perceived value elicit customer purchases?

Why is markup pricing one of the most commonly used pricing tactics?

In what situation does the customer decide not to purchase the lawn chair?

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Table 11.3 The Profit Implications of Using a Research-Based Pricing Strategy INSIGHT QUESTIONS How can marketing research assist the pricing strategy?

Compared to the markup pricing strategy, how does a research-based pricing strategy result in a higher profit margin?

Odd/Even Pricing  _ is a tactic in which a firm prices products a few cents below the next dollar amount  For the strategy to succeed, customers must perceive a product priced at $_ as offering more value than a product priced at $20.00, for example  If customers feel they received a deal, they are more likely to share that feeling with others, which can lead to _  Firms that use odd pricing still need to consider the impact of price elasticity of demand at odd-pricing points  _ sets prices at even dollar amounts  Prices that end with zero are often easier for customers to process and retrieve from memory  Luxury product marketers often use even pricing; odd pricing, often ending in _ , can sometimes convey a message of discount or sale that is not consistent with a luxury pricing objective  Research has even suggested that prices ending in _ increased the likelihood of consumers rating the quality of the items advertised as ―above average‖ Prestige Pricing  _ is a pricing tactic that involves pricing a product higher than competitors to signal that it is of higher quality  Luxury brands such as Louis Vuitton, Cartier, Rolex, and Mercedes-Benz are perfect examples of this strategy  Such companies use high prices to suggest their products are _ and stylish  Simply improving the look, _ , delivery, or promise of a product can justify a higher price and support prestige pricing Loss-Leader Pricing 13 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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

_ involves selling a product at a price that causes the firm a financial loss  Although the firm may lose money selling the product at that price, it might attract customers who will also buy other, more profitable products in the future  This worked better at a time when consumers would do most of their shopping on-site; their additional purchases at the store would make up for the loss-leader item Seasonal Discounts  This worked better at a time when consumers would do most of their shopping _ ; their additional purchases at the store would make up for the loss-leader item  Seasonal discounts can keep attendance, for example, high throughout the year Price Bundling  _ is a pricing tactic in which two or more products are packaged together and sold at a single price  Marketers often use bundling as a tool because they can charge higher prices for the bundle than they could for the elements _  Price bundling simplifies things for marketers  Companies across sectors are going from a product-based to a subscription-based business model  A strategy often used by marketers is called _ , in which businesses roll out novel services as standalone offerings and quickly monetize them by targeting enthusiastic consumers THINK LIKE A MARKETER What does it take for a brand to use prestige pricing?

CONNECT BACK: Reference Connect Assignment 11-2 Is there is a particular pricing strategy that is always more effective than the other?

What factors make one pricing strategy more effective than another?

When competition is inferior in a marketplace, is there one pricing strategy that makes most 14 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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sense?

LO11-4: Explain the influence of technology on pricing. Technology and Pricing  Technology has helped shift the balance of power from companies to _ , who are better informed about prices than ever before  The _ has made it possible for customers to comparison shop for products literally around the world  In addition to the power of the Internet, mobile applications and _ are rapidly changing the nature of pricing Mobile Applications  Smartphone and tablet technology have unleashed a new era of _  Consumers now use wireless apps and search engines on their mobile devices in stores to _  In response, marketers at traditional brick-and-mortar stores more aggressively review the prices of online stores when setting the initial price of an item as part of their analysis of the competitive price environment  Recent research suggests that over _ percent of consumers search for and purchase a low-priced product using an in-store shopping app or online search engine Dynamic Pricing  _ is a pricing tactic that involves constantly updating prices to reflect changes in supply, demand, or market conditions  _ can provide marketers with an abundance of sales data which may contain important insights on consumer behavior, in particular, on how consumers respond to different selling prices  Dynamic pricing helps marketers emphasize _ , which is a strategy for maximizing revenue even when a firm has a fixed amount of something (goods, services, or capacity) Name-Your-Own-Price  In a _ (NY OP) auction, the consumer submits a bid at the price they are willing to pay for a product or service, and the auction site conducts a search to find matches with prices set by participating suppliers  The auction site looks to see whether the bid price matches or exceeds any unrevealed threshold prices set by _

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THINK LIKE A MARKETER If you were a marketer for an organization, how far would you decrease prices to entice people using social media or mobile devices to purchase your product?

LO11-5: Summarize the major challenges of pricing for international markets. Global Pricing  Pricing is a critical component of a successful _  Historically, companies have set prices for products sold internationally higher than the same products sold domestically  _ and Internet access throughout the world have made global pricing more transparent and, in many cases, more competitive  Challenging _ over the past decade have affected pricing in a global context Gray Market  The _ involves the sale of branded products through legal but unauthorized distribution channels  Gray-market goods can be a boon for consumers, allowing them to obtain legally produced items for less than they could normally  However, gray-market goods cut into a firm‘s revenue and profits, leaving marketers looking for ways to control and repress such activity  If marketers price their products significantly lower in foreign countries than in the domestic market, they may open the door to _  Using modern technology, those buyers will buy the products internationally and then sell them in the United States at a price that _ the standard rate paid by U.S. consumers Tariffs  _ are taxes on imports and exports between countries  Fruits and vegetables are popular goods on which to place tariffs, in some countries reaching to over 25 percent  The goal of tariffs is usually to protect domestic industries from _  Marketers typically prefer targeting international markets that have low (or no) tariffs  Countries with which the United States has international trading agreements also offer lowertariff markets. For example, the _ (NAFTA) enabled companies and consumers in those countries to trade without tariffs 16 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Dumping  The removal of tariffs due to international agreements has caused some countries to switch to _ , such as anti-dumping laws, to protect their local industries  _ occurs when a company sells its exports to another country at a lower price than it sells the same product in its domestic market  The _ (WTO) is the forum that regulates trade among participating companies; the WTO hasn‘t classified dumping as illegal so many countries enact their own laws to curb the strategy TODAY’S PROFESSIONAL NOTES Amber Rahman, Pricing Manager, J.B. Hunt Transport Services, Inc. How does knowing the operations of a company help with pricing strategies? How does price relate to being an industry leader? LO11-6: Explain the major legal and ethical issues associated with pricing. Legal and Ethical Issues in Pricing  Pricing is one of the most watched and regulated marketing activities because it directly affects the _ of both organizations and individuals  These issues include price discrimination, price fixing, _ , and deceptive pricing Price Discrimination  Price discrimination is the practice of charging _ different prices for the same product  Price discrimination sounds negative, but it is illegal only if it _  It is perfectly legal for organizations to charge customers different amounts for _  This is especially common in B2B settings, in which different customers might be charged different rates due to the quantities they buy, the strategic value of the company, or simply because one firm did a better job _ CONNECT BACK: Reference Connect Assignment 11-3 What information from social media consumer profiles can assist organizations in setting consumer prices? 17 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Have you ever been witness to purchasing a product and receiving a discount when purchasing via a social media link or a mobile device?

Do you consider researching consumer profiles on social media outlets for the sake of setting prices an invasion of privacy? Why or why not?

How can consumers use social media to share their thoughts and opinions on prices set by organizations?

Price Fixing  When two or more companies collude to set a product‘s price, they are engaging in _  Price fixing is illegal under the Sherman Antitrust Act of 1890 and the _ Predatory Pricing  This type of long-term aggressive pricing strategy could be considered an attempt to create a _ ; it is therefore illegal under U.S. law  However, predatory pricing is difficult to _  The Supreme Court has ruled that the victim must prove that the company being accused of predatory pricing (the chain supermarket, in our example) would be able to recoup its _ by charging higher prices later on, once it has driven others out of business Deceptive Pricing  _ is an illegal practice that involves intentionally misleading customers with price promotions  Deceptive pricing practices can lead to price confusion, with consumers finding it difficult to discern what they are actually paying  In the United States, deceptive pricing is regulated by the _ (FTC)  Cases may be prosecuted by a _ or by a district attorney at the state or local level 18 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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U.S. Laws Affecting Pricing  The U.S. government and other major economies, such as Japan and the _ , are committed to stopping and punishing anticompetitive and harmful pricing behavior through a variety of laws and regulations Robinson–Patman Act  To combat price discrimination that injures competition, in 1936 the U.S. government passed the _ as an amendment to the Clayton Antitrust Act of 1914  The Robinson–Patman Act (also called the Anti-Price Discrimination Act) requires sellers to charge everyone the _  Though the purpose of the act was to reduce _ , it did provide for three scenarios in which price discrimination may be allowed  A firm can charge different prices if it is part of a quantity or _  A firm can lower prices for certain customers if a competitor undercuts the _  Market conditions such as going-out-of-business sales or situations in which the quality of products has changed give firms the opportunity to charge _ for the same product Federal Trade Commission Act  The _ (FTCA) was passed in 1914  It established the Federal Trade Commission (FTC), which had the authority to enforce laws aimed at prohibiting _  The FTCA was later broadened to prevent practices such as price fixing and deceptive pricing that: (1) _ , (2) cannot be reasonably avoided by customers, and (3) cannot be justified by other outcomes that may benefit the consumer or the idea of free competition Wheeler–Lea Act  The Wheeler–Lea Act of 1938 (also called the _ is an amendment to the FTCA  Its passage removed the burden of proving that unfair and deceptive practices had to _ as well as customers  It also broadened the FTC‘s powers to include protecting consumers from false advertising practices Sherman Antitrust Act  The Sherman Antitrust Act was passed in 1890 to eliminate monopolies and _ 19 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Instructor‘s Manual - Chapter 1  

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It combats anticompetitive practices, reduces market domination by individual corporations, and preserves _ as the rule of trade The Sherman Antitrust Act makes _ illegal

CONNECT BACK: Reference Connect Assignment 11-4 Whose responsibility is it to be aware of the laws that impact pricing?

How are the pricing rules and regulations influenced because of globalization and the Internet?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, you learned about setting prices based on costs and market conditions. For the next part of your marketing plan exercise, you will conduct a pricing analysis of your own future career plans. First, you should consider the costs you expect to have in the next decade, including things like repaying your student loans, paying your rent, saving for a house, or starting a family. Take time to consider the potential costs of these things on a monthly and annual basis. Then compare these costs with the career information you put together in an earlier chapter. How do they match up? Next, consider your market value within your company or industry, either now or after graduate school. The price elasticity you inspire in future employers will be an important consideration as you develop in your career. For example, if you possess a unique combination of experience, education, personality, and work ethic, demand for your services might well be inelastic. In this scenario, you might be able to negotiate a higher salary because the demand for your services is high. Conversely, if demand for your brand is elastic, you should understand your lessened bargaining power and work to develop unique skills or take on difficult assignments within your company to increase the value others place on your brand. Knowing whether demand for your personal brand is inelastic or elastic is essential. Too many employees undervalue their brand and work for less than what market prices would dictate, leaving money on the table over a significant period of their career.

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Student Task: Develop a detailed list of the costs necessary to have the career you desire 10 years from now (e.g., student loans, training seminars, graduate school costs, or any fixed or variable costs). Next, compare these costs with the prices that organizations are paying for people with your skill set. Finally, determine your own personal break-even point for your salary level. Also, identify when you expect to reach the salary that you desire. Instruct students to insert their responses to the above in Chapter 11’s section of the Personal Marketing Plan. Chapter 11

PRICING My goal is to make

Chapter 12: Retailing

TY Lim/Shutterstock

Instructor‘s Manual - Chapter 1

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LO 1-215 Describe the major types of physical store retailers. LO 1-216 Describe the major types of nonstore retailing, including online retailing. LO 1-217 Discuss key strategic issues in retailing. LO 1-218 Discuss emerging practices, trends, and technologies that are reshaping the face of retailing. KEY TERMS artificial intelligence (A I) extreme-value retailers retailer assortment fast fashion retailer cooperative atmospherics full-line discount stores retailing augmented reality (AR) gamification scrambled merchandising breadth of assortment geofencing shop-at-home television business format franchise isolated store networks buyers leased department slotting allowances catalog marketing merchandise planners specialty discount stores category killers merchandising specialty store category management micro-merchandising stock-keeping unit (SKU) convenience stores mobile commerce supercenter format corporate chains off-price retail stores supermarkets cross-merchandising omnichannel retailing unplanned business district department stores online retailing virtual reality (VR) depth of assortment planned shopping center visual merchandisers direct selling product distribution warehouse clubs discount stores franchise THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: Retailers are the last stage in the distribution channel. As such, what are the four key channel functions of retailers? Set 2: Amazon became the fastest retailer in history to surpass $100 billion in sales. What three factors contributed to this success? How are other retailers competing with this?

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Julie Acosta Web Analytics Manager, Autozone Julie Acosta believes that success metrics should be very clear so a unified vision is established. She creates a transformative and adaptable omnichannel vision for her clients. She elaborates on this by answering the following questions:

Photo provided by Julie Acosta. Photography by Antwoine J. McClellan, AJM Images

487. What has been the most important thing in making you successful at your job? 488. What advice would you give soon-to-be graduates? 489. How is marketing relevant to your role at Autozone? 490. What do you consider your personal brand to be? Later in the chapter you see how Julie elaborates on:  Issues that will be important to the future of retailing. Review with students:  

How is marketing relevant in her role? How does customer lifetime value (CLTV) determine what an organization can gain from each customer? Discuss the importance of Key Terms: retailing, differences in retail  Retailing organizations, and career  Retailer opportunities in retail.  Corporate chains  What Is Retailing?  Retailer cooperative  Importance of Retailing  Business format franchise to the Global Economy  Assortment  Impact of the  Breadth of assortment Pandemic on the  Death of assortment Retail Industry  Scrambled merchandising  How Do Retailers  Merchandise planners Differ?  Buyers  Level of Service

LO 12-1

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 PowerPoint Slides

Ownership and Organization  Breadth and Depth of Assortment  Scrambled Merchandising  Merchandise Pricing Careers in Retailing Lecture Notes:

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Visual merchandisers

What Is Retailing?    

The practice of retailing encompasses all business activities involved in the sales of goods and services to the ultimate consumer for their personal, family, or household use A retailer is any organization that sells directly to end-user consumers The scope of retail includes the sale of items ranging from luxury automobiles to apparel to the movie tickets and popcorn you bought at the theater last weekend While retailing often takes place in physical stores or service locations, the concept also includes nonstore-based retailers, such as online shopping sites, as well as services retailers

Importance of Retailing to the Global Economy     Figure 12.1

Given the close link between consumer spending and economic growth, retailing is an important economic activity that affects nearly everyone, either directly or indirectly The retail industry directly employs 32 million Americans, making it the largest private sector employer in the economy Total retail sales in the United States amounted to 5.57 trillion U.S. dollars in 2020 Nearly nine out of 10 retail companies employ fewer than 20 employees; over 95 percent of retailers operate just one store Insight Questions:

Figure Information: U.S. Retail Sales, 24

491. Why is there a lull in retail sales between 2008 and 2010? (Answer: This is due to the U.S. economic recession that began in 2008. Both consumer confidence and unemployment were likely a result of consumers not spending as much on retail until 2011.) 492. Why do you think the retail sales numbers are much higher in 2020 than in 1992? (Answer: Open ended as students‘ responses will vary; consider the population size, consumer confidence, number of retail

Instructor‘s Manual - Chapter 1 1992‒2020 (in trillions of dollars)

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outlets, online shopping [accessibility], and socioeconomic factors.)

Total retail sales in the United States amounted to 5.57 trillion U.S. dollars in 2020. Shown above is the annual impact of retail sales in the United States spanning 18 years. Figure 12.2

Insight Questions: 493. Which categories had the highest number of sales? (Answer: sporting goods/hobby, followed by nonstore retail, grocery, and general merchandise) 494. Which categories had the lowest number of sales? (Answer: electronics, home furnishings, and ―other‖)

Figure Information: Retail Spending by Category, 2020 (excluding auto sales) Shown above is the annual retail spending by product category. According to the U.S. Census Bureau, sporting goods/hobby is the largest retail spending category, followed by nonstore retail, grocery, and general merchandise. PowerPoint Slides

Lecture Notes: Impact of the Pandemic on the Retail Industry       

Many large retailers were already struggling when COVID-19 hit Debt from store overexpansion and the residual effects of the Great Recession on consumer spending habits had led several iconic retailers to fall into bankruptcy Industry experts even coined this phenomenon as a retail apocalypse In 2020 alone, major retailers closed a record 12,000 stores amid pandemicinduced stay-at-home orders, social distancing measures, and increased online shopping Just one year later, however, physical store retailers seemed poised for a comeback, registering more openings than closings in 2021 Consumer spending on groceries actually grew during the pandemic, even as restaurant spending declined Major retailers like Walmart and Home Depot weathered the pandemic and were back to beating profit expectations by the fourth quarter of 2021

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How Do Retailers Differ? 

Marketers commonly classify retailers along four key dimensions: level of service, ownership and organization, breadth and depth of merchandise assortment, and merchandise pricing

Level of Service 

Level of service refers to the amount of individual attention the retailer provides the consumer  Service levels can vary considerably depending on customer segments or the complexity of the products sold  Self-service requires customers to perform certain tasks on their own in order to save time or money  Full-service retailers assist customers through every step of the shopping process  Limited service falls between the two extremes; this category would include most retailers THINK LIKE A MARKETER How do you brand self-service stations? THINK LIKE A MARKETER Is there a place for customer service in self-service retail? Ownership and Organization    

  

The majority of retail operations are independent retailers, owned and operated by a single person or group Corporate chains are two or more retail outlets that are commonly owned and controlled By virtue of their size, chains are often able to buy merchandise and supplies in greater quantities at much lower prices As corporate chains grow in size, these scale-related advantages also enable them to hire more specialized managers in areas such as e-commerce, merchandising, promotions, inventory control, pricing, and predictive analytics A retailer cooperative is a group of independent retailers that band together to create a mutually owned, central wholesale operation that also conducts joint merchandising and promotion Another common form of retail organization is franchising, which is an arrangement in which a supplier (or franchisor) grants a dealer (or franchisee) the right to sell products in exchange for financial considerations In a typical franchise system, the franchisee agrees to pay a lump sum plus a royalty on future sales in return for the right to operate a business in a specific location

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Franchising has been particularly prominent in areas such as the quickservice restaurant industry, automotive services, real estate, and tax preparation services In a business format franchise, the franchisor provides not just its trade name, products, and services but an entire system for operating the business Franchisee support often includes financing, site selection and development, operating manuals, training, quality control, marketing, and business advisory services In a product distribution franchise arrangement, the focus is not on a system of doing business, but is instead based on the franchisee gaining preferred or exclusive access to products supplied by the franchisor

Breadth and Depth of Assortment   

An assortment is the selection of merchandise a retailer carries Breadth of assortment refers to the number of distinct goods or service product lines that a retailer carries Depth of assortment refers to the number of individual items offered within any single product category

Scrambled Merchandising  

Retailers seek to increase their breadth of assortment via scrambled merchandising, adding goods and services that may be unrelated to each other or the firm‘s original business One implication of the spread of scrambled merchandising is increased competition across different types of retailers

Instructor‘s Manual - Chapter 1 Connect Assignment 12-1

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Topic: Forms of Retail Organization Complete the Connect exercise that focuses on the forms of retail organizations. By understanding what is involved with different forms of retailers, you will better understand the potential marketing strategies to be successful in each. CONNECT BACK Insight Questions: 495. What are voluntary chains, and how are they different than retail cooperatives? (Answer: Volunteer chains are groups of independent retailers who band together for increased buying power but are wholesalersponsored and have greater consistency across stores in merchandising and promotions.) 496. Which format of franchising is less common, but accounts for a larger percentage of franchise-based sales? (Answer: product distribution franchising)

PowerPoint Slides

Lecture Notes: Merchandise Pricing   

The distribution of retailers along a price continuum follows a bell curve: most retailers offer standard pricing, accompanied by moderate levels of service On the low-price end, extreme-value retailers and discount retailers tend to offer extremely limited service in exchange for a broader selection of low-tomoderate-quality merchandise On the high-price end are specialty store boutiques and upscale department stores

Careers in Retailing   



 28

The retail industry offers graduates flexible, collaborative careers in supply chain, data science, marketing, human resources, technology, finance, engineering and design—to name just a few Retail store managers and assistant store managers oversee the day-to-day operations of a retail store location In larger store settings, they work with department managers to ensure floor sales staff, service representatives, cashiers, and other frontline employees perform their duties to a high standard and that customers are satisfied with their shopping experiences Some common store management tasks include hiring, scheduling, and motivating employees; developing and executing sales promotions; monitoring sales figures and forecasting future sales volume; and addressing questions and complaints from customers Supply chain and logistics managers play a vital role in the retail industry,

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     

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ensuring the effective storage, distribution, and tracking of store merchandise Sourcing managers develop global and domestic sourcing strategies for their assigned product categories; this role requires understanding of global market conditions that impact the supply chains for their assigned categories, such as raw material costs, tariffs, social compliance issues, and freight challenges Distribution center managers oversee all inbound and outbound activities involving the retailer‘s warehouses and distribution facilities Inventory specialists are responsible for executing, monitoring, and benchmarking inventory best practices and standard operating procedures for the entire store chain, including both front end and distribution warehousing Merchandise planners are responsible for planning, controlling, and monitoring the purchase, intake, and distribution of merchandise to stores Planners must work across seasons and countries to maximize sales and profit margin within the assigned departments or categories Merchandise planners work closely with retail buyers, who are responsible for purchasing wholesale merchandise to sell in store and online In the course of their duties, buyers will typically evaluate vendors, negotiate prices, order merchandise, arrange delivery schedules, and track inventories and sales trends in order to adjust purchase levels and stay on top of consumer demand for new products Visual merchandisers often work closely with buyers to develop layout plans and displays that improve sales by highlighting select items in a way that grabs shoppers‘ attention and boosts purchase interest

Describe the major types of Key Terms: physical sore retailers.  Discount stores  Identify Retail Store  Full-line discount stores Formats  Supercenter format  Discount Stores  Specialty discount stores  Full-Line Discount  Category killers Stores  Supermarkets  Specialty Discount  Warehouse clubs Stores  Stock-keeping units (SKUs)  Supermarkets and  Convenience stores Grocery Stores  Department stores  Impact of COVID Leased department 19 on Food  Specialty store Retailers  Fast fashion  Warehouse Clubs  Off-price retail stores  Convenience Stores  Extreme-value retailers  Drugstores  Department Stores  Specialty Stores  Fast-Fashion Retail  Off-Price and

LO 12-2

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Extreme-Value Retailers  Off-Price Retail Stores  Extreme-Value Retailers Services Retailers Lecture Notes: Identify Retail Store Formats

(none)

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Table 12.1

Retail organizations face unique opportunities and challenges Insight Questions:

Table Information: Aspects of Retail Strategy by Selected Store Type There are unique opportunities and challenges currently facing retail organizations. This table summarizes information about the different aspects of retail strategy by selected store type. PowerPoint Slides

497. What are some of the trade-offs with full-line discount stores? (Answer: While full-line discount stores, like Walmart and Target, provide an extensive breadth and depth of assortment, the quality of products is average to good quality, the service level is slightly below average to average, and the pricing is competitive.) 498. Which retail strategy offers the highest levels of customer service? (Answer: Specialty stores, and they carry a very specific product mix geared toward a specific market segment.)

Lecture Notes: Discount Stores     

Discount stores are general merchandise outlets that offer brand-name and private-label products at low prices Discount retailers accept lower margins on their merchandise in exchange for high customer traffic and transaction volume To maintain high inventory turnover, discount stores choose merchandise breadth over depth: they carefully select fast moving items across select categories Poor-selling products are quickly discontinued Discount retailers are broadly grouped into two groups: full-line discount stores and specialty discount stores

Full-Line Discount Stores   30

Full-line discount stores carry a wide assortment of merchandise across popular categories Full-line discount stores like Walmart and Target sell apparel, cosmetics, sporting goods, toys, electronics, kitchenware, home furnishings, garden

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accessories, and automotive items Over the past 30 years, full-line discount stores have created massive economies of scale by opening thousands of stores around the globe Some full-line discount stores have expanded facilities to a supercenter format, adding grocery, pharmacy, and other services

Specialty Discount Stores    

Specialty discount stores offer a wide selection of merchandise within a single category Specialty discount stores compete on the basis of low prices, wide selection, and product availability These stores are sometimes referred to as category killers because they are able to gain high market share within their chosen category Higher-margin rivals and discounters find it difficult to compete effectively within that space

Supermarkets and Grocery Stores 

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Supermarkets are large, departmentalized retailers that carry a wide and complex line of groceries, meat, dairy, produce, and baked goods plus a limited array of nonfood products like beauty aids, personal care, and general merchandise Large supermarkets often carry additional goods and services, such as pharmacists, florists, dine-in options, and salad bars U.S. consumers make 1.5 grocery trips per week, making supermarkets and other types of grocery stores the most frequently visited retail category The average supermarket generates more than $585,000 in sales each week Growth in Asian, Latin American, and Indian immigrant populations in various parts of the United States has led to a rising number of ethnic grocery stores

Impact of COVID-19 on Food Retailers     

Grocery was one of just a few retail sectors that grew in 2020 With remote working, social distancing, and restrictions on restaurant dining, grocery store‘s share of food spending increased by around 10 percent While this pace of growth is not sustainable, new consumer habits underlying the trend—like working from home and cooking more often—seem likely to stick The pandemic also resulted in consumers showing greater interest in nutrition and healthy lifestyles As a result, spending on organic, sustainable, and local food products increased

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Warehouse Clubs     

Warehouse clubs (also known as wholesale clubs or membership warehouses) operate in warehouse-like facilities that offer merchandise in bulk quantities, at ultra-low prices, to shoppers who pay an annual fee to join While these stores offer few frills, members enjoy surprise deals on select branded and private-label merchandise The recipe underlying Costco‘s success is based on two key ingredients: (1) A culture that emphasizes simplicity, sustainability, and frugality (2) An impressive understanding of consumer psychology

Convenience Stores     

Convenience stores are small, self-service stores that are open long hours and carry a limited number of frequently purchased items Usually located along highly trafficked roads, they aim to capture sales from those who are willing to pay premium prices in exchange for an easy, in-andout shopping experience Convenience stores account for more than one-third of all retail outlets in the United States To increases profits, convenience stores also sell food products, snacks, beverages, and newspapers In recent years, some convenience store operators have sought to shed their gritty, gas station image in order to attract more females and business travelers

Drugstores  

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Drugstores are specialty retailers that concentrate on selling over-the-counter (OTC) and prescription pharmaceuticals as well as health products, personal grooming items, and general merchandise As insurers and government agencies seek to streamline health-care costs, some drugstore chains have started offering additional health maintenance services, such as blood pressure tests, diabetes monitoring, and immunizations Prescription pharmaceuticals still represent almost 70 percent of drugstore sales

Department Stores    32

Department stores carry a wide variety of product lines, with each line operated as a separate department and managed by specialist merchandisers and buyers Common departments include: clothing, shoes, home furnishings, household goods, tools, and hardware Industry experts generally cluster department stores into three tiers: upper,

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mid, and lower The golden age of the department store began in the 1920s Department stores‘ share of retail sales has shrunk from 5.54 percent in 1998 to 2.01 percent in 2020 Overall sales at department stores plunged more than 40 percent at the beginning of the pandemic as Americans conducted more of their shopping online and gravitated toward off-price and discount chains It is questioned if the department store revival will persist Insight Questions:

Figure Information: Department Store Sales Declines Figure 12.3 shows that department store retail sales have been on the decline since the start of the century. Figure 12.4

499. What are some of the causes of the decline in department store sales? (Answer: Since 2000, broadband Internet access has given consumers convenient, fingertip access to dozens of retail outlets for virtually any good or service they desire.) 500. How has value and weak economic growth affected consumers‘ decisions to shop at department stores? (Answer: The weak economic growth has conditioned many consumers to seek out value. Rather than choosing superior service at higher priced department stores, they are pursuing low prices on high-demand items at full-line discounter and big-box specialty stores.)

Insight Questions:

Figure Information: Decline in Department Store Locations (2016– 2021)

501. Why did department store sales plunge? (Answer: Americans conducted more of their shopping online and gravitated toward off-price and discount chains.) 502. How have department stores evolved since the COVID pandemic? (Answer: The COVID pandemic forced the department store sector to innovate, invest in digital, and diversify product offerings to reach new customers.)

Figure 12.4 shows the massive changes in department store locations over a 5year span. PowerPoint Slides

Lecture Notes: Specialty Stores 

A specialty store competes by concentrating on one line of goods or services,

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such as jewelry, tea, batteries, tools, young women‘s apparel, or hair salons It usually carries a narrow but deep merchandise assortment and tailors its strategy to a specific market segment Because they do not have aisles of unrelated products, specialty stores can also offer a more intimate and intuitive shopping experience Among the most popular categories of specialty stores are apparel, jewelry, home furnishings, electronics, books, pet supplies, and athletic wear

Fast-Fashion Retail     

Fast fashion refers to the rapid translation of high-fashion design trends by lower-cost manufacturer-retailers Shopping for inexpensive clothing provides customers with a source of cheap, endlessly available entertainment Consumers also appreciate the ability to frequently update their wardrobe with fresh, new, affordable clothing items Despite its popularity with customers, fast fashion has been criticized for encouraging a ―throw-away‖ attitude that is ultimately harmful to the environment The trend has also been critiqued on intellectual property grounds: some designers allege their designs have been illegally mass-produced by fastfashion retailers

Off-Price and Extreme-Value Retailers 

The global economic downturn in the late 2000s helped create a generation of price-conscious shoppers

Off-Price Retail Stores    

Off-price retail stores feature brand-name (sometimes designer) merchandise bought at less-than-regular wholesale prices and sold at less-than-retail prices They offer a broad and inconsistent array of merchandise—everything from shoes to shirts to picture frames—at major discounts from department store prices Since the stores maintain little inventory, TJ Maxx is able to introduce new merchandise, brands, styles, and fashion each week; this sense of scarcity compels consumers to visit the store more often to hunt for what‘s new Financial uncertainty resulting from the pandemic helped off-price retailers attract new value-conscious buyers away from department and specialty stores

Extreme-Value Retailers   34

Extreme-value retailers are heirs to the traditional ―five-and-dime‖ variety stores from decades past These stores carry an assortment of inexpensive merchandise, such as

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apparel, costume jewelry, toys, small wares, candy, and party supplies Dollar discount stores offer a wide range of merchandise, both off-brand goods and closeouts of name-brand items, at very low prices Closeout chains, such as Big Lots, sell similar types of merchandise as dollar stores, but feature closeouts and production overruns According to retail research firm Nielsen, about 11,000 more of these stores have opened across the United States between 2007 and 2017 Insight Questions:

Figure Information: Changes in U.S. Retail Open Store Counts by Category, 2007–2017

503. Why do you think dollar-discount stores have been growing in sales and square footage over the last decade? (Answer: Open ended as students‘ responses will vary; dollar stores have proven to be formidable competitors for discount stores like Walmart.) 504. Do you think the dollar-discount store model will be long-lasting? (Answer: Open ended as students‘ responses will vary; factors to consider are the sociocultural trends, economic status, perceived value, and marketing-mix elements.)

Figure 12.5 shows that dollar store dollar store retailers have demonstrated the strongest growth in terms of new stores opening over the past decade. PowerPoint Slides

Lecture Notes: Services Retailers 

The primary products sold by services retailers are intangible, typically involving the sale of mechanical or human knowledge and effort rather than merchandise  There are a wide variety of services retailers, such as movie theaters and quick-service restaurants, airlines, and premium hotel chains  Due to the inherent characteristics of services (i.e., their intangibility, perishability, inseparability, and variability), services retailers also differ in terms of distribution and service delivery strategies  Service retailers were especially hard-hit during the COVID-19 pandemic Topic: Physical-Store Retailers Connect Assignment 12-2 Complete the Connect exercise that focuses on the types of physical store retailers. By identifying different characteristics of each, you will better understand which might offer you the best opportunities in your future career. CONNECT BACK Insight Questions: 35

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505. How are the two types of extreme value retailers different? (Answer: While dollar discount stores and closeout chains offer a wide range of merchandise at low prices, closeout chains feature closeouts and production overruns.) 506. What are the advantages of manufacturers opening factory outlet stores? (Answer: Manufacturers can control where their discounted merchandised is sold, outlets can be very profitable, and they enable the manufacturer to better protect their brand image.) Key Terms:  Online retailing  Mobile commerce  Catalog marketing  Shop-at-home television networks  Direct selling

Describe the major types of nonstore retailing, including online retailing.  Online Retailing and Other Nonstore Retail Formats  Online Retailing  Rise of Amazon  Catalog Marketing and Video Commerce  Catalog Marketing  Shop-at-Home Video Commerce  Automated Vending  Direct Selling PowerPoint Lecture Notes: Slides Online Retailing and Other Nonstore Retail Formats LO 12-3

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Retailing also includes various forms of nonstore retailing where customers shop for products without visiting a retail store Nonstore retailing includes online retailing as well as automated vending and direct selling

Online Retailing    

Online retailing, also known as e-commerce, is B2C electronic commerce in which individual consumers directly buy goods or services over the Internet Online retailing may be conducted via a desktop computer, laptop, smartphone, or tablet Mobile commerce (or m-commerce) refers more narrowly to online business or purchases conducted over mobile devices like smartphones or tablets The rapid growth of mobile commerce has been driven by several factors, including increased wireless handheld device computing power, a proliferation of mobile shopping apps, and the broad resolution of security issues

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As lockdowns became the new normal during COVID-19, businesses and consumers increasingly ―went digital,‖ providing and purchasing more goods and services online, raising e-commerce‘s share of global retail trade from 14 percent in 2019 to about 17 percent in 2020 For many consumers, shopping in a physical store is an inexpensive and pleasurable form of entertainment Online shopping does not provide the sensory elements of shopping that many customers enjoy, such as the hustle and bustle of a mall or the feel and smell of a new garment Many retail goods and services actually require the physical presence of a consumer Online sales comprise around 10 percent of global consumer spending Insight Questions:

Table Information: U.S. Retail eCommerce Sales Share by Product Category, 2015–2020

507. What is the highest category of retail e-commerce sales share in the United States? (Answer: Apparel and accessories, but computer and consumer electronics are not far behind.) 508. Which categories have the least retail e-commerce sales share in the United States? (Answer: Two categories are neck-and-neck: food and beverage and office equipment and supplies)

The rise of the commercial Internet and development of business-to-consumer (B2C) commerce have changed the face of modern retailing. These same technologies have also enabled the rise of consumer-to-consumer (C2C) commerce. Online sales make up a growing proportion of global consumer spending, around 10 percent of total purchases. As seen here this percentage is much higher for certain product categories, like apparel, computers, and consumer electronics. PowerPoint Slides

Lecture Notes: Rise of Amazon  

Amazon.com (www.amazon.com) is probably the most famous online retailer in the world today Amazon started out quite modestly: every time someone made a purchase, a bell would ring on Amazon‘s computers, and everyone in the office would

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gather around to see if anyone knew the customer Over the years, Amazon has implemented its own complex distribution network, and the company has expanded into selling just about everything In 2015, its 20th year of operation, Amazon achieved $107 billion in sales, becoming the fastest retailer in history to surpass $100 billion in sales Two of Bezos‘s guiding principles for the firm are (1) thinking for the long term and (2) always putting the customer first Putting customers first, the company has successfully introduced a long string of retail innovations that have reduced obstacles to purchase and build incredible loyalty among Amazon‘s customer base, including: 1-Click ordering, Kindle, Amazon Echo, Amazon Prime Amazon also has positioned itself as a cutting-edge technology business, selling basic computer infrastructure like storage, databases, and raw computing power Insight Questions:

Table Information: Amazon Share of U.S. e-commerce Sales, by Product Category, 2020 millions and percentage of total

509. Where does Amazon rank as a retailer? (Answer: Amazon started out modestly. In the last 20 years, Amazon has expanded into selling just about everything. It is now the Internet‘s top retailer and a leading platform for third-party sellers. In 2015, its 20th year of operation, Amazon achieved $107 billion in sales.) 510. What is Amazon‘s top selling product category? (Answer: From 2015–2020, computer and consumer electronics have led all e-commerce sales for Amazon; food and beverage is the lowest selling category.)

The table above details Amazon‘s ecommerce sales share for several major consumer product categories. PowerPoint Slides

Lecture Notes: Catalog Marketing and Video Commerce Catalog Marketing    

Garden and seed catalogs were in circulation in the United States before the Revolutionary War Catalog marketing is a retail sales technique used to group many items together in a printed piece or an online store Consumers use information in the catalog to buy directly from the catalog sender by phone, mail, or online The sales effect of a commercial or print campaign can be difficult to determine

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But catalogs—with their definitive mail dates and customer identifiers—are easier to track

Shop-at-Home Video Commerce   

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Shop-at-home television networks have become a very popular form of nonstore-based retailing Regardless of the day or hour you tune in, these networks are always selling something Qurate Retail Group—owner of retail channels QVC and Home Shopping Network (HSN)—is the leader in video commerce, reaching approximately 370 million homes worldwide via 16 television networks and an array of ecommerce and social media sites The company is the third largest e-commerce provider in North America, with 2020 revenues just over $14 billion QVC has centered its strategy on the ―second screen,‖ the tendency to watch TV while also swiping and tapping on a smartphone or tablet Over half of its sales come from customers using mobile devices to order from its website, making it one of the largest mobile commerce retailers in the United States

Automated Vending 

Most people use automated vending systems regularly to acquire valuable services as well  Automated vending includes kiosks at the airport that enable travelers to purchase or upgrade tickets, pay baggage-check fees, and print their boarding passes  Automated teller machines (ATMs) are another common form of service vending machines; they provide bank customers with time-saving capabilities, such as account balance information, check deposits, and cash withdrawals  Automated vending is the most impersonal form of retailing  The small space requirements and 24/7 availability make automated vending a cost-efficient alternative for certain products, particularly in high-traffic areas THINK LIKE A MARKETER Are there limitations on automated vending? (e.g., Are there products that cannot be delivered this way?) Direct Selling 

In direct selling (or direct retailing), an independent representative of a company conducts retail and sales-related activities away from a fixed retail location, most often at consumers‘ homes or place of business

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According to the World Federation of Direct Selling Associations (WFDSA), direct selling organizations accounted for 2017 global sales of $189.6 billion through the activities of more than 117 million independent sales representatives  Nearly 90 percent of direct sellers elect to work part time, offering busy parents, caregivers, military spouses, veterans, and others flexible schedules and work–life balance  Direct selling attracts large numbers of Millennial, female, and minority entrepreneurs Topic: Shopping via Social Media Connect Assignment 12-3

Social Media in Action

Complete the Connect exercise in Chapter 12 will let you use different social media platforms and products to allow different organizations to sell directly to their target markets. By understanding how different social media platforms can best allow your customers to shop directly, you will be prepared to develop and utilize these strategies to benefit your future organization. CONNECT BACK Insight Questions:

511. What direct selling business opportunities use social media to grow their business model? (Answer: Open ended as students‘ responses will vary; consider Mary Kay, Avon, Herbalife, Thirty-One, Arbonne International, Scentsy, AdvoCare, and Tupperware) 512. What do you think about social media posts in your news feed or being added to networking groups on social media that encourage you to get involved in direct selling? (Answer: Open ended as students‘ responses will vary.) Discuss key strategic issues in Key Terms: retailing.  Omnichannel retailing  Retail Marketing Strategy  Isolated store  Omnichannel  Unplanned business district Retailing  Planned shopping center  Buy Online,  Atmospherics Pickup In-Store  Merchandising  Retailer Operational  Category management Efficiency  Micro-merchandising  Store Location and  Cross-merchandising Site Selection  Store Image and Retailer Positioning  Store Atmospherics

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Store Layout and Product Display  Merchandise Management Lecture Notes: Retail Marketing Strategy        

Retail strategy development is distinctly characterized by hard-to-predict shifts in consumer preferences and changes in the external factors that make up the competitive landscape The dynamic pace of retail industry change was further accelerated during the 2020 pandemic Direct interaction with shoppers, once the foundation of retail customer service, was replaced by virtual or contactless touch points Returns processing took on increasing importance as online sales increased Physical stores turned into mini-fulfillment centers and pickup points Retailers were required to constantly modify safety standards in order to safely meet employee and customer expectations Supply chains were restructured to fulfill specific orders to households rather than shipments to large-format stores Forward-looking retail executives today recognize the need to continuously restructure store operations, integrate emerging technologies, and modify their marketing strategies in response to shopper preference shifts and market conditions

Omnichannel Retailing 

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Recognizing the macro-environmental trends that have reshaped consumer preferences and expectations, retailers have sought to more closely integrate customer experiences across physical and online channels, a practice known as omnichannel retailing The aim of omnichannel retailing is to deliver a seamless, cohesive, and personalized shopping experience, no matter whether the customer is shopping using a smartphone, a laptop, a voice-activated digital assistant, a wearable device, or are actually present within a brick-and-mortar store By embracing an omnichannel strategy, retailers are able to effectively differentiate themselves from rivals, better enabling them to sustain or even build market share during market downturns Gen Z and Millennial shoppers expect much more from the products they buy and the brands they support These 80 million consumers have been raised online, have had smartphones since childhood, and have low tolerance for obsolete processes getting in the way of their shopping pleasure It seems clear that digitally integrating physical stores with added customer

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touch points can provide omnichannel retailers with a distinct competitive edge Buy Online, Pickup In-Store   

Home delivery options may be preferable if there is no urgency to an order, but consumers can get orders faster by reserving a product online and picking it up the same day at their closest store In addition, customers can avoid the costly shipping and delivery charges that often cause hesitation at checkout Curbside delivery technology was integrated within the retail mobile app; once arriving to the store, the consumer simply needs to indicate a parking space number within the designated curbside delivery area and their order is brought out

Retailer Operational Efficiency 

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Because of the smaller per-transaction revenue (under $100 per visit), retailers must emphasize being cost-conscious, driving traffic to their stores and e-commerce sites, and converting visitors into satisfied, long-term customers Even the best in-store pickup functionality will fail, however, if a retailer‘s underlying supply chain, inventory, and sales systems are not able to ―talk‖ to each other Best in practice retailers constantly evaluate warehouse layout, making sure to place bestselling items near the packing station to ensure rapid and accurate order fulfillment Items frequently sold together should be located close together in the warehouse Stores should closely monitor product inventories and set rules for automated merchandise allocation and replenishment Point-of-sale systems should capture customer and product data needed to market to customers better While it is good to know which items are best sellers, understanding which items aren’t flying off the shelves is also valuable information

Store Location and Site Selection       42

Retail managers have to take into account a variety of factors: The distance to major housing communities, employers, and business districts and parking availability Traffic congestion and other transportation infrastructure issues Whether to lease and remodel existing retail space or build a new store How compatible are other nearby retailers in terms of store image and clientele Whether to build a freestanding structure or acquire space in a business

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district, strip mall, or shopping center There are three different location types: An isolated store is a freestanding retail outlet located on either a highway or major road An unplanned business district is a type of retail location where two or more stores are situated together or in close proximity A planned shopping center is a group of architecturally unique business establishments on a site that is centrally owned or managed

Store Image and Retailer Positioning        

Store image refers to how consumers perceive a retailer To succeed, a retailer must communicate a clear, distinctive, and consistent image Numerous factors combine to shape a retailer‘s image, including: Quality of a store‘s customer service Merchandise attributes Brand communications (including social media) Characteristics of the retailer‘s physical facilities or website Crafting and maintain a distinct, favorably received store image does not happen by accident; it involves a thoughtfully managed, ongoing process

Store Atmospherics   

Atmospherics refers to sensory-based stimuli within the retailer‘s environment—the sights, sounds, smells, and other attributes—that project an image and draw customers to the store Retail atmospherics have been shown to contribute greatly to people‘s shopping enjoyment They also influence consumer behaviors such as time spent in the store, willingness to engage with store personnel, likelihood of purchase, purchase size, and future patronage

Store Layout and Product Display        43

Stores must consider the following in their layouts: Total amount of floor space allocated to selling (e.g., display areas, counters, checkout areas) Merchandise storage Customer space (e.g., aisle width, fitting rooms, lounge area, public restrooms) Personnel space (e.g., break rooms, employee restrooms) Many supermarkets, drugstores, and convenience stores employ a gridiron traffic flow pattern, in which display and aisles are laid out in a rectangular grid Department stores often encourage more of a curving traffic flow, placing

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aisles and display in more of a free-flowing pattern  Some retailers utilize a combination of these approaches in their designs  Whichever approach is used, the goal is to optimize shopper convenience while creating an enjoyable environment and encouraging browsing behavior  Ideally, the most profitable products appear in the best locations: End-ofaisle, eye-level, and checkout counter positions are the most likely to increase sales for individual products  For online retailers, the layout of product pages and links that enable the user to move intuitively from page to page are critical to customer conversion and a positive online store experience  Product arrangement is so critical in some retail environments that manufacturers are often willing to pay slotting allowances to the retailer, which are payments that manufacturers make to retailers, to ensure products are preferentially displayed by the retailer Merchandise Management 

Merchandising consists of the activities involved in acquiring particular goods and services and making them available at the places, times, prices, and quantities that enable a retailer to achieve its goals  A retailer should align its merchandising approach with the needs of its target-market consumers, its marketplace positioning, its internal capabilities, and the strengths of its supplier network  Category management is a merchandising technique that focuses on the performance of a product category rather than individual brands where each category is run like a ―mini-business.‖  With micro-merchandising, a retailer adjusts its shelf-space allocations in response to overall consumer demand as well as differences in local markets  In cross-merchandising, a retailer carries complementary goods and services to encourage shoppers to buy more Today’s Professional Robert Morris Associate Director of Donor Experience, UAMS Robert challenged himself to step out of his comfort zone and aligned philanthropy with health care. He capitalizes on relationships in his role and prides himself on his radical authenticity. Further insight is provided in the following questions:

Photo by Evan Lewis

513. Describe your job. 514. How did you get your job? 515. What has been the most important thing in making you successful at your job? 516. What advice would you give soon-to-be graduates? 517. What do you consider your person brand to be?

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Review with students: Robert hopes he can bring a positive influence to people in their daily lives. Does this resonate with you and your career aspirations? Discuss emerging practices, Key Terms: trends, and technologies that  Geofencing are reshaping the face of  Augmented reality (AR) retailing.  Virtual reality (VR)  Twenty-First-Century  Artificial intelligence (AI) Retailing  Big Data and Retail Analytics  Competing on Customer Experience  Experience Retail  Retail Technology  Geofencing  Augmented Reality (AR) and Virtual Reality (VR)  Artificial Intelligence and Voice-Activation Technology PowerPoint Lecture Notes: Slides Twenty-First-Century Retailing LO 12-5

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With e-commerce garnering more and more business, many traditional brickand-mortar retailers are struggling to stay relevant Retailer debt from store overexpansion and the residual effects of the Great Recession on consumer spending habits have contributed to the decline of some retailers What has changed is consumer expectations of retail businesses; they expect stores to provide a convenient, safe, personalized, and engaging shopping experience, whether they are online or in-store Retail companies that are thriving today have several things in common: Utilization of Big Data and analytics in managerial decision making Focus on creating engaging customer experiences Effective integration of emerging retail technologies

Big Data and Retail Analytics  45

Data science and analysis allow retailers to collect and fuse data from multiple customer touch points such as web, store, social media, and call

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centers Studying analytics is vital to understanding your customer Information, like demographics and customer traffic, allows businesses to make smarter decisions based on customer details, as well as to personalize the customer experience Big Data analytics is now being applied at every stage of the retail process: Working out what the popular products will be by predicting trends Forecasting where the demand will be for those products Optimizing pricing for a competitive edge Identifying the customers likely to be interested in the products and working out the best way to approach them Figuring out what to sell next The opportunity to achieve competitive advantage from retail analytics is enormous Another leading application for Big Data and retail analytics is sales forecasting

Competing on Customer Experience    

Figure 12.6

Leading retailers often use ―journey mapping‖ to trace the end-to-end experiences of their consumers A customer journey map is a visual representation of the process a customer or prospect goes through to achieve a goal with a company This technique helps retail managers identify points in their customers‘ journey where that process breaks down Using this information, retailers are better able to design customer experiences that move the consumer from awareness and discovery to purchase, use, and advocacy of a good or service Insight Questions:

Figure Information: This fictitious customer journey map shows an indepth customer journey map of a customer interacting with a fictitious restaurant

518. Why are consumer expectations on retail experiences changing so quickly? (Answer: Open ended as students‘ responses will vary; consider the changes in technology, the increase in online retailers, and socioeconomic factors are factors to consider.) 519. What is pirch? (Answer: Pirch is shaking up the home space with stores that offer guided, interactive tours of working kitchens and bathrooms, letting consumers experience high-end equipment from manufacturers around the globe.)

This technique helps retail managers identify points in their customers‘ journey where that process breaks down. Using this information, retailers 46

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are better able to design customer experiences that move the consumer from awareness and discovery to purchase, use, and advocacy of a good or service. PowerPoint Slides

Lecture Notes: Experience Retail 

By creating immersive retail experiences, retailers can drive consumers back to their stores, ensuring they not only leave with their products, but also with memories and an emotional connection to the brand  Consumers are increasingly seeking unique and exciting experiences both offline and in brick-and-mortar store environments  Pirch is shaking up the home space with stores that offer guided, interactive tours of working kitchens and bathrooms, letting consumers experience highend equipment from manufacturers around the globe Retail Technology 

So many retailers are failing (with technology) because there‘s still a disconnect with who the consumer is, and what they shop, and why they shop, and how they shop,‖ states Brian Solis, a principal analyst at Altimeter Group

Geofencing            47

Geofencing refers to the use of GPS or RFID (radio-frequency identification) technology to create a virtual boundary around a particular location, which can trigger a response when a mobile device enters or leaves a certain area The most popular vessel of sensor data is RFID beacons Major retailers strategically place small beacon sensors throughout their stores, which connect to customers‘ phones if Bluetooth is enabled and the retail app is installed Geofencing is also commonly used to offer consumers rewards to encourage purchases Retail gamification gives customers rewards to incentivize try-ons Shoppers become more likely to try on additional items in order to see what they might receive in return This behavior leads customers to seriously consider items they might have otherwise left on the rack, increasing purchase likelihood A geofence does not have to be in close proximity to your store A geofence is not just a place on a map, it is also a place in time When you take action on a trigger and when you notify a customer to do something is just as important as where Geofencing also offers great opportunities to gather data on customers‘

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shopping habits, such as when they are in proximity to your store, and whether they always come in or pass by Augmented Reality (A R) and Virtual Reality (VR)     

Augmented reality (A R) is an interactive experience of a real-world environment where the objects that reside in the real world are ―augmented‖ by computer-generated perceptual information AR-enabled apps allow customers to experience certain products and services right from their homes Brick-and-mortar retailers and manufacturers are also using AR to enhance customers‘ in-store experiences Retailers are also incorporating virtual reality into their store operations and marketing Virtual reality (VR) is an interactive, computer-generated experience that takes place within an immersive simulated environment, typically incorporating multisensory feedback.

Artificial Intelligence and Voice-Activation    

Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans One interesting application of A I in retail is toward the improvement of shelf intelligence Amazon introduced its first Amazon Go store, a fully automated grocery store in Seattle, that employs A I along with advanced imaging technology to eliminate checkout lines and cashiers Whether it‘s instructing your Google Home to buy you things or asking Siri to search for an item online, voice control has gained popularity in the retail space

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the rapidly changing retail environment. Emerging issues that range from technology to operational efficiency to organizations competing on the basis of customer experience will likely be a major part of your career, regardless of industry. In the next section of the marketing plan exercise, your assignment is to consider how the changing retail landscape in your targeted profession will potentially be affected by emerging strategic issues. For example: 

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If you are planning to be an attorney or an accountant, how is your targeted firm positioned to compete on customer experience or in a virtual world where customers can get legal or financial advice online, often for a very small investment? Student Task: Write one paragraph on how the changing retail landscape might potentially affect your career plans. Your answer should include at least two specific retail changes that could alter the way your targeted employer or industry functions in the future. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 520. Discuss whether you think the average amount of a retail transaction will be higher or lower a decade from now and explain why you think so. Based on your answer, identify at least two companies that you think will benefit from this shift and explain your answer. (Answer: Open ended, student answers will vary; U.S. retail sales each year seemingly increase in spite of the transaction price and economy, and in 10 years, this trend may continue. It is possible that competition will drive organizations to be cost-conscious while the price of goods also increases. Providing extra outlets to shop from, including online and in-app purchase, make it convenient for shoppers.) 521. Describe your preference for retailer‘s level of service. What do you think the majority of your class would answer to this question? Identify two retailers that do a great job at providing you the level of service you prefer. (Answer: Open ended, student answers will vary; consider the type of purchase, product, or convenience of the purchase. What does customer service mean to you, and what is its value, short and long term?) 522. Which type of physical store retailer do you think has the brightest future? Which type do you think faces the most challenging future? Explain your answer to both. (Answer: Open ended, student answers will vary; for example, consider Walmart‘s product variety and 2-day shipping offering to compete with Amazon or Target‘s product offering.) 523. For the community where you live, provide an example of a quality retail store location and an example of a less effective retail store location. Describe why you categorize each location as you do. (Answer: Open ended, student answers will vary; consider the size of the organization and geographical location of the organization. Further considerations include accessibility, parking, payment options, store hours, product availability, and price.) 524. Assume you are in charge of a retail bookstore on your campus. What would you recommend the bookstore do in terms of store atmospherics, product display, and retail positioning? (Answer: Open ended, student answers will vary; Consider student preferences to purchase online, rent, or use e-books. A coffee or snack shop might entice more visits and duration of stay. Selling other products, in addition to books, could add revenue during textbook sales lulls.) 49

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SOCIAL MEDIA APPLICATION Select two firms that allow you to purchase their products directly through social media. These could include any products that you can ―buy‖ on Facebook, in-tweet purchases, or any organization from which you can purchase something directly through a social media platform without having to visit the physical store or company website. Discuss this type of retailing experience using the following questions as a guide: 525. How easy is it to make the purchase? What could the company do to make it easier and more likely that you would make purchases directly from social media platforms? 526. Who do you think are the main target markets for the two firms you identified? How does allowing their customers to buy directly from social media help them reach their targeted customers? 527. Provide two specific recommendations to a company in your community that should introduce or increase their ability to allow customers to buy directly from a social media platform. How will this benefit the local company? This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 12 that focuses on using analytics in retail store site selection. ETHICAL CHALLENGE As traditional retailing struggles, online merchants are reaping the rewards. People like the convenience of e-commerce and the feeling that they are getting a deal. The perception of a bargain is fostered by online retailers‘ use of something variously labeled list price, suggested price, reference price, or manufacturer’s suggested retail price. Whatever its name, the implication is that people are paying more somewhere else. But with many products online, you could not pay the list price even if you wanted to. That is because hardly anyone actually charges it. Citing a list price for selling at a lower price is a sales 50

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tactic that is drawing legal scrutiny, as well as prompting ethical questions about the integrity of e-commerce. The use of list prices online was at the heart of a case in a California Court of Appeal. Overstock.com, a popular online merchant, was found liable in a lower court for using misleading reference prices to exaggerate potential customer savings. The company was fined $6.8 million for false advertising in California. In its appeal, Overstock said it followed ―standard industry practices‖ to come up with its reference prices. Internet retailers including Walmart, Crate & Barrel, and Williams-Sonoma employ list prices to varying degrees. Amazon, the biggest e-commerce player, uses them extensively and prominently. Amazon has a section on its website where it says the list price can have many origins: It can be the price on the product itself; it can be the price suggested by the manufacturer or supplier; or it can be Amazon‘s guess as to what the list price should be. The retailer also said its list prices ―may or may not‖ represent the prevailing price ―in every area on any particular day.‖ Retailers, as Amazon indicates, often are supplied with list prices by the manufacturer or the brand. The Overstock case went to trial in late 2013. In one example cited by the district attorneys, a man bought a patio set from the retailer. It cost him $450, a discount of 55 percent from the list price of $999. The buyer was somewhat alarmed to find a Walmart price tag on his purchase for $247, a price he confirmed was the going retail price. In an earlier era, list prices were intended to prevent retailers from gouging customers. If $40 was printed on the box, a customer might flee if charged $60. Manufacturers also wanted to signal quality by discouraging deep discounting. They hoped retailers would stick to the printed price. List or reference prices are still used as selling tactics in the physical world, and companies routinely are sued for abusing them. JCPenney, for example, set aside millions of dollars in 2015 to settle a class-action suit in which it was accused of tricking customers into thinking they were getting big discounts. Use the ethical decision-making framework to answer the following questions: 528. What is the major ethical issue at hand in the Overstock example? (Answer: Open ended, student answers will vary; it is unethical to deceive customers about the price of products when the organization is purposefully using the list price, for example, in falsely advertising a product.) 529. Who are the stakeholders affected when a company uses misleading reference prices to exaggerate potential customer savings? (Answer: Open ended, student answers will vary; Consider the current and potential customers, those who work for the branded organizations, the communities in which these brands operate, and investors [if publically traded].) 530. If you are an executive for a retail store, what would be your policy on this topic? Explain why your decision will be best for the long-term success of the retailer you are working for. (Answer: Open ended, student answers will vary; consider being cost competitive in ethical ways that challenge employees to constantly compare their organization‘s prices to others.) Source: David Streitfeld, ―It‘s Discounted, But Is It a Deal? How List Prices Lost Their Meaning,‖ The New York Times, March 6, 2016, http://www.nytimes.com/2016/03/06/technology/its-discounted-but-is-it-a-deal-how-list-priceslost-their-meaning.html. 51

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VIDEO CASE Have students go to Connect to access the video case featuring Gearhead Outfitters that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about how to choose a career they are passionate about, a quote from John Wooden suggests thinking about a career as a journey.

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John Wooden, former UCLA college basketball coach, advises, ―Be quick. Don‘t hurry.‖ His advice suggests:  Gain experience.  Craft an effective résumé.  Put your intangibles to work. Review with students:  Be quick to find something you are passionate about.  Don‘t miss out on the skills, relationships, and experiences that will give you the best memories and highest quality career.

Chapter 12: Retailing

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-219 Discuss the importance of retailing, differences in retail organizations, and career opportunities in retail. LO 1-220 Describe the major types of physical store retailers. LO 1-221 Describe the major types of nonstore retailing, including online retailing. LO 1-222 Discuss key strategic issues in retailing. LO 1-223 Discuss emerging practices, trends, and technologies that are reshaping the face of retailing. KEY TERMS artificial intelligence (AI) assortment atmospherics augmented reality (AR) breadth of assortment business format franchise buyers catalog marketing category killers category management convenience stores corporate chains cross-merchandising 53

department stores depth of assortment direct selling discount stores extreme-value retailers fast fashion full-line discount stores gamification geofencing isolated store leased department merchandise planners merchandising

micro-merchandising mobile commerce off-price retail stores omnichannel retailing online retailing planned shopping center product distribution franchise retailer retailer cooperative retailing scrambled merchandising

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specialty store stock-keeping unit (SKU) supercenter format supermarkets

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unplanned business district virtual reality (VR) visual merchandisers warehouse clubs

THOUGHT-PROVOKING ACTIVITY Set 1: Retailers are the last stage in the distribution channel. As such, what are the four key channel functions of retailers?

Set 2: Amazon became the fastest retailer in history to surpass $100 billion in sales. What three factors contributed to this success? How are other retailers competing with this?

LO12-1: Discuss the importance of retailing, differences in retail organizations, and career opportunities in retail. What Is Retailing?  The practice of retailing encompasses all business activities involved in the sales of goods and services to the ultimate consumer for their personal, family, or household use  A retailer is any organization that sells directly to end-user consumers  The scope of retail includes the sale of items ranging from luxury automobiles to apparel to the movie tickets and popcorn you bought at the theater last weekend 54

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While retailing often takes place in physical stores or service locations, the concept also includes nonstore-based retailers, such as online shopping sites, as well as service retailers Importance of Retailing to the Global Economy  Given the close link between consumer spending and economic growth, retailing is an important economic activity that affects nearly everyone, either directly or indirectly  The retail industry directly employs 32 million Americans, making it the largest private sector employer in the economy  Total retail sales in the United States amounted to 5.57 trillion U.S. dollars in 2020  Nearly nine out of 10 retail companies employ fewer than 20 employees; over 95 percent of retailers operate just one store

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Figure 12.1 U.S. Retail Sales, 1992‒2020 (in trillions of dollars) INSIGHT QUESTIONS Why is there a lull in retail sales in 2008–2010? (Answer: This is due to the U.S. economic recession that began in 2008. Both consumer confidence and unemployment were likely a result of consumers not spending as much on retail until 2011.) Why do you think the retail sales numbers are much higher in 2020 than in 1992? (Answer: Open ended as students‘ responses will vary; consider the population size, consumer confidence, number of retail outlets, online shopping [accessibility], and socioeconomic factors.) Figure 12.2 Retail Spending by Category, 2020 (excluding auto sales) INSIGHT QUESTIONS Which categories had the highest number of sales? (Answer: sporting goods/hobby, followed by nonstore retail, grocery, and general merchandise) Which categories had the lowest number of sales? (Answer: electronics, home furnishings, and ―other‖) Impact of the Pandemic on the Retail Industry  Many large retailers were already struggling when COVID-19 hit  Debt from store overexpansion and the residual effects of the Great Recession on consumer spending habits had led several iconic retailers to fall into bankruptcy  Industry experts even coined this phenomenon as a retail apocalypse  In 2020 alone, major retailers closed a record 12,000 stores amid pandemic-induced stay-athome orders, social distancing measures, and increased online shopping  Just one year later, however, physical store retailers seemed poised for a comeback, registering more openings than closings in 2021  Consumer spending on groceries actually grew during the pandemic, even as restaurant spending declined  Major retailers like Walmart and Home Depot weathered the pandemic and were back to beating profit expectations by the fourth quarter of 2021 How Do Retailers Differ?  Marketers commonly classify retailers along four key dimensions: level of service, ownership and organization, breadth and depth of merchandise assortment, and merchandise pricing

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Level of Service  Level of service refers to the amount of individual attention the retailer provides the consumer  Service levels can vary considerably depending on customer segments or the complexity of the products sold  Self-service requires customers to perform certain tasks on their own in order to save time or money  Full-service retailers assist customers through every step of the shopping process  Limited service falls between the two extremes; this category would include most retailers THINK LIKE A MARKETER How do you brand self-service stations? (Answer: Open ended) THINK LIKE A MARKETER Is there a place for customer service in self-service retail? (Answer: Open ended) Ownership and Organization  The majority of retail operations are independent retailers, owned and operated by a single person or group  Corporate chains are two or more retail outlets that are commonly owned and controlled  By virtue of their size, chains are often able to buy merchandise and supplies in greater quantities at much lower prices  As corporate chains grow in size, these scale-related advantages also enable them to hire more specialized managers in areas such as e-commerce, merchandising, promotions, inventory control, pricing, and predictive analytics  A retailer cooperative is a group of independent retailers that band together to create a mutually owned, central wholesale operation that also conducts joint merchandising and promotion  Another common form of retail organization is franchising, which is an arrangement in which a supplier (or franchisor) grants a dealer (or franchisee) the right to sell products in exchange for financial considerations  In a typical franchise system, the franchisee agrees to pay a lump sum plus a royalty on future sales in return for the right to operate a business in a specific location  Franchising has been particularly prominent in areas such as the quick-service restaurant industry, automotive services, real estate, and tax preparation services 57

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In a business format franchise, the franchisor provides not just its trade name, products, and services but an entire system for operating the business  Franchisee support often includes financing, site selection and development, operating manuals, training, quality control, marketing, and business advisory services  In a product distribution franchise arrangement, the focus is not on a system of doing business but is instead based on the franchisee gaining preferred or exclusive access to products supplied by the franchisor Breadth and Depth of Assortment  An assortment is the selection of merchandise a retailer carries  Breadth of assortment refers to the number of distinct goods or service product lines that a retailer carries  Depth of assortment refers to the number of individual items offered within any single product category Scrambled Merchandising  Retailers seek to increase their breadth of assortment via scrambled merchandising, adding goods and services that may be unrelated to each other or the firm‘s original business  One implication of the spread of scrambled merchandising is increased competition across different types of retailers CONNECT BACK: Reference Connect Assignment 12-1 What are voluntary chains and how are they different than retail cooperatives? (Answer: Volunteer chains are groups of independent retailers who band together for increased buying power, but are wholesaler-sponsored and have greater consistency across stores in merchandising and promotions.) Which format of franchising is less common but accounts for a larger percentage of franchisebased sales? (Answer: Product distribution franchising) Merchandise Pricing  The distribution of retailers along a price continuum follows a bell curve: most retailers offer standard pricing, accompanied by moderate levels of service  On the low-price end, extreme-value retailers and discount retailers tend to offer extremely limited service in exchange for a broader selection of low-to-moderate quality merchandise  On the high-price end are specialty store boutiques and upscale department stores Careers in Retailing  The retail industry offers graduates flexible, collaborative careers in supply chain, data science, marketing, human resources, technology, finance, engineering, and design—to name just a few  Retail store managers and assistant store managers oversee the day-to-day operations of a retail store location 58

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In larger store settings, they work with department managers to ensure floor sales staff, service representatives, cashiers, and other frontline employees perform their duties to a high standard and that customers are satisfied with their shopping experiences  Some common store management tasks include hiring, scheduling, and motivating employees; developing and executing sales promotions; monitoring sales figures and forecasting future sales volume; and addressing questions and complaints from customers  Supply chain and logistics managers play a vital role in the retail industry, ensuring the effective storage, distribution, and tracking of store merchandise  Sourcing managers develop global and domestic sourcing strategies for their assigned product categories; this role requires understanding of global market conditions that impact the supply chains for their assigned categories such as raw material costs, tariffs, social compliance issues, and freight challenges  Distribution center managers oversee all inbound and outbound activities involving the retailer‘s warehouses and distribution facilities  Inventory specialists are responsible for executing, monitoring, and benchmarking inventory best practices and standard operating procedures for the entire store chain, including both the front end and distribution warehousing  Merchandise planners are responsible for planning, controlling, and monitoring the purchase, intake, and distribution of merchandise to stores  Planners must work across seasons and countries to maximize sales and profit margins within the assigned departments or categories  Merchandise planners work closely with retail buyers, who are responsible for purchasing wholesale merchandise to sell in stores and online  In the course of their duties, buyers will typically evaluate vendors, negotiate prices, order merchandise, arrange delivery schedules, and track inventories and sales trends in order to adjust purchase levels and stay on top of consumer demand for new products  Visual merchandisers often work closely with buyers to develop layout plans and displays that improve sales by highlighting select items in a way that grabs shoppers‘ attention and boosts purchase interest LO12-2: Describe the major types of physical store retailers. Identify Retail Store Formats  Retail organizations face unique opportunities and challenges. Table 12.1 Aspects of Retail Strategy by Selected Store Type INSIGHT QUESTIONS What are some of the trade-offs with full-line discount stores? (Answer: While full-line discount stores, like Walmart and Target, provide an extensive breadth and depth of assortment, the quality of products is average to good quality, the service level is slightly below average to average, and the pricing is competitive.) 59

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Which retail strategy offers the highest levels of customer service? (Answer: Specialty stores, and they carry a very specific product mix geared toward a specific market segment.) Discount Stores  Discount stores are general merchandise outlets that offer brand-name and private-label products at low prices  Discount retailers accept lower margins on their merchandise in exchange for high customer traffic and transaction volume  To maintain high inventory turnover, discount stores choose merchandise breadth over depth: they carefully select fast moving items across select categories  Poor-selling products are quickly discontinued  Discount retailers are broadly grouped into two groups: full-line discount stores and specialty discount stores Full-Line Discount Stores  Full-line discount stores carry a wide assortment of merchandise across popular categories  Full-line discount stores like Walmart and Target sell apparel, cosmetics, sporting goods, toys, electronics, kitchenware, home furnishings, garden accessories, and automotive items  Over the past 30 years, full-line discount stores have created massive economies of scale by opening thousands of stores around the globe  Some full-line discount stores have expanded their facilities to a supercenter format, adding grocery, pharmacy, and other services Specialty Discount Stores  Specialty discount stores offer a wide selection of merchandise within a single category  Specialty discount stores compete on the basis of low prices, a wide selection, and product availability  These stores are sometimes referred to as category killers because they are able to gain high market share within their chosen category  Higher-margin rivals and discounters find it difficult to compete effectively within that space

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Supermarkets and Grocery Stores  Supermarkets are large, departmentalized retailers that carry a wide and complex line of groceries, meat, dairy, produce, and baked goods plus a limited array of nonfood products like beauty aids, personal care products, and general merchandise  Large supermarkets often carry additional goods and services, such as pharmacists, florists, dine-in options, and salad bars  U.S. consumers make 1.5 grocery trips per week, making supermarkets and other types of grocery stores the most frequently visited retail category  The average supermarket generates more than $585,000 in sales each week  Growth in Asian, Latin American, and Indian immigrant populations in various parts of the United States has led to a rising number of ethnic grocery stores Impact of COVID-19 on Food Retailers  Grocery was one of just a few retail sectors that grew in 2020  With remote working, social distancing, and restrictions on restaurant dining, grocery store‘s share of food spending increased by around 10 percent  While this pace of growth is not sustainable, the new consumer habits underlying the trend— like working from home and cooking more often—seem likely to stick  The pandemic also resulted in consumers showing greater interest in nutrition and healthy lifestyles  As a result, spending on organic, sustainable, and local food products increased Warehouse Clubs  Warehouse clubs (also known as wholesale clubs or membership warehouses) operate in warehouse-like facilities that offer merchandise in bulk quantities at ultra-low prices to shoppers who pay an annual fee to join  While these stores offer few frills, members enjoy surprise deals on select branded and private-label merchandise  The recipe underlying Costco‘s success is based on two key ingredients:  (1) A culture that emphasizes simplicity, sustainability, and frugality  (2) An impressive understanding of consumer psychology Convenience Stores  Convenience stores are small, self-service stores that are open long hours and carry a limited number of frequently purchased items  Usually located along highly trafficked roads, they aim to capture sales from those who are willing to pay premium prices in exchange for an easy, in-and-out shopping experience  Convenience stores account for more than one-third of all retail outlets in the United States 61

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To increase profits, convenience stores also sell food products, snacks, beverages, and newspapers  In recent years, some convenience store operators have sought to shed their gritty, gas station image in order to attract more females and business travelers Drugstores  Drugstores are specialty retailers that concentrate on selling over-the-counter (OTC) and prescription pharmaceuticals as well as health products, personal grooming items, and general merchandise  As insurers and government agencies seek to streamline health-care costs, some drugstore chains have started offering additional health-maintenance services, such as blood pressure tests, diabetes monitoring, and immunizations  Prescription pharmaceuticals still represent almost 70 percent of drugstore sales Department Stores  Department stores carry a wide variety of product lines, with each line operated as a separate department and managed by specialist merchandisers and buyers  Common departments include: clothing, shoes, home furnishings, household goods, tools, and hardware  Industry experts generally cluster department stores into three tiers: upper, mid, and lower.  The golden age of the department store began in the 1920s  Department stores‘ share of retail sales has shrunk from 5.54 percent in 1998 to 2.01 percent in 2020  Overall sales at department stores plunged more than 40 percent at the beginning of the pandemic as Americans conducted more of their shopping online and gravitated toward offprice and discount chains  It is questioned if the department store revival will persist Figure 12.3 Department Store Sales Declines INSIGHT QUESTIONS What are some of the causes of the decline in department store sales? (Answer: Since 2000, broadband Internet access has given consumers convenient, fingertip access to dozens of retail outlets for virtually any good or service they desire.) How has value and weak economic growth affected consumers‘ decisions to shop at department stores? (Answer: The weak economic growth has conditioned many consumers to seek out value. Rather than choosing superior service at higher-priced department stores, they are pursuing low prices on high-demand items at full-line discounter and big-box specialty stores.)

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Figure 12.4 Decline in Department Store Locations (2016–2021) INSIGHT QUESTIONS Why did department store sales plunge? (Answer: Americans conducted more of their shopping online and gravitated toward off-price and discount chains.) How have department stores evolved since the COVID pandemic? (Answer: The COVID pandemic forced the department store sector to innovate, invest in digital, and diversify product offerings to reach new customers.) Specialty Stores  A specialty store competes by concentrating on one line of goods or services, such as jewelry, tea, batteries, tools, young women‘s apparel, or hair salons  It usually carries a narrow but deep merchandise assortment and tailors its strategy to a specific market segment  Because they do not have aisles of unrelated products, specialty stores can also offer a more intimate and intuitive shopping experience  Among the most popular categories of specialty stores are apparel, jewelry, home furnishings, electronics, books, pet supplies, and athletic wear Fast-Fashion Retail  Fast fashion refers to the rapid translation of high-fashion design trends by lower-cost manufacturer-retailers  Shopping for inexpensive clothing provides customers with a source of cheap, endlessly available entertainment  Consumers also appreciate the ability to frequently update their wardrobe with fresh, new, affordable clothing items  Despite its popularity with customers, fast fashion has been criticized for encouraging a ―throw-away‖ attitude that is ultimately harmful to the environment  The trend has also been critiqued on grounds of intellectual property: some designers allege their designs have been illegally mass produced by fast-fashion retailers Off-Price and Extreme-Value Retailers  The global economic downturn in the late 2000s helped create a generation of priceconscious shoppers Off-Price Retail Stores  Off-price retail stores feature brand-name (sometimes designer) merchandise bought at lessthan-regular wholesale prices and sold at less-than-retail prices  They offer a broad and inconsistent array of merchandise—everything from shoes to shirts to picture frames—at major discounts from department store prices  Since the stores maintain little inventory, TJ Maxx is able to introduce new merchandise, brands, styles, and fashion each week; this sense of scarcity compels consumers to visit the store more often to hunt for what‘s new 63

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Financial uncertainty resulting from the pandemic helped off-price retailers attract new valueconscious buyers away from department and specialty stores

Extreme Value Retailers  Extreme value retailers are heirs to the traditional ―five-and-dime‖ variety stores from decades past  These stores carry an assortment of inexpensive merchandise, such as apparel, costume jewelry, toys, small wares, candy, and party supplies  Dollar discount stores offer a wide range of merchandise, both off-brand goods and closeouts of name-brand items, at very low prices  Closeout chains, such as Big Lots, sell similar types of merchandise as dollar stores, but feature closeouts and production overruns  According to retail research firm Nielsen, about 11,000 more of these stores have opened across the United States between 2007 and 2017 Figure 12.5 Changes in U.S. Retail Open Store Counts by Category, 2007–2017 INSIGHT QUESTIONS Why do you think dollar-discount stores have been growing in sales and square footage over the last decade? (Answer: Open ended as students‘ responses will vary; dollar stores have proven to be formidable competitors for discount stores like Walmart.) Do you think the dollar discount store model will be long lasting? (Answer: Open ended as students‘ responses will vary; factors to consider are the sociocultural trends, economic status, perceived value, and marketing-mix elements.) Services Retailers  The primary products sold by service retailers are intangible, typically involving the sale of mechanical or human knowledge and effort rather than merchandise  There are a wide variety of service retailers such as movie theaters and quick-service restaurants, airlines, and premium hotel chains  Due to the inherent characteristics of services (i.e., their intangibility, perishability, inseparability, and variability), service retailers also differ in terms of distribution and service delivery strategies  Service retailers were especially hard-hit during the COVID-19 pandemic

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CONNECT BACK: Reference Connect Assignment 12-2 How are the two types of extreme value retailers different? (Answer: While dollar discount stores and closeout chains offer a wide range of merchandise at low prices, closeout chains feature closeouts, and production overruns.) What are the advantages of manufacturers opening factory outlet stores? (Answer: Manufacturers can control where their discounted merchandised is sold, outlets can be very profitable, and they enable the manufacturer to better protect their brand image.) LO12-3: Describe the major types of nonstore retailing, including online retailing. Online Retailing and Other Nonstore Retail Formats  Retailing also includes various forms of nonstore retailing where customers shop for products without visiting a retail store  Nonstore retailing includes online retailing as well as automated vending and direct selling Online Retailing  Online retailing, also known as e-commerce, is B2C electronic commerce in which individual consumers directly buy goods or services over the Internet  Online retailing may be conducted via a desktop computer, laptop, smartphone, or tablet  Mobile commerce (or m-commerce) refers more narrowly to online business or purchases conducted over mobile devices like smartphones or tablets  The rapid growth of mobile commerce has been driven by several factors, including increased wireless handheld device computing power, a proliferation of mobile shopping apps, and the broad resolution of security issues  As lockdowns became the new normal during COVID-19, businesses and consumers increasingly ―went digital,‖ providing and purchasing more goods and services online, raising e-commerce‘s share of global retail trade from 14 percent in 2019 to about 17 percent in 2020  For many consumers, shopping in a physical store is an inexpensive and pleasurable form of entertainment  Online shopping does not provide the sensory elements of shopping that many customers enjoy, such as the hustle and bustle of a mall or the feel and smell of a new garment  Many retail goods and services actually require the physical presence of a consumer  Online sales comprise around 10 percent of global consumer spending

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Table 12.2 U.S. Retail E-Commerce Sales Share by Product Category, 2015–2020 INSIGHT QUESTIONS What is the highest category of retail e-commerce sales share in the United States? (Answer: Apparel and accessories but computer and consumer electronics are not far behind) Which categories have the least retail e-commerce sales share in the United States? (Answer: Two categories are neck-and-neck: food and beverage, and office equipment and supplies) Rise of Amazon  Amazon.com (www.amazon.com) is probably the most famous online retailer in the world today  Amazon started out quite modestly: every time someone made a purchase, a bell would ring on Amazon‘s computers, and everyone in the office would gather around to see if anyone knew the customer  Over the years, Amazon has implemented its own complex distribution network, and the company has expanded into selling just about everything  In 2015, its 20th year of operation, Amazon achieved $107 billion in sales, becoming the fastest retailer in history to surpass $100 billion in sales  Two of Bezos‘s guiding principles for the firm are (1) thinking for the long term and (2) always putting the customer first  Putting customers first, the company has successfully introduced a long string of retail innovations that have reduced obstacles to purchase and build incredible loyalty among Amazon‘s customer base, including: 1-Click ordering, Kindle, Amazon Echo, Amazon Prime  Amazon also has positioned itself as a cutting-edge technology business, selling basic computer infrastructure like storage, databases, and raw computing power Table 12.3 U.S. Amazon Retail E-Commerce Sales Share by Product Category, 2016–2018 (% total and billions of U.S. dollars) INSIGHT QUESTIONS Where does Amazon rank as a retailer? (Answer: Amazon started out modestly. In the last twenty years, Amazon has expanded into selling just about everything. It is now the Internet‘s top retailer and a leading platform for thirdparty sellers. In 2015, its 20th year of operation, Amazon achieved $107 billion in sales.) What is Amazon‘s top selling product category? (Answer: From 2015 to 2020, computer and consumer electronics have led all e-commerce sales for Amazon; food and beverage is the lowest selling category.)

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Catalog Marketing and Video Commerce Catalog Marketing  Garden and seed catalogs were in circulation in the United States before the Revolutionary War  Catalog marketing is a retail sales technique used to group many items together in a printed piece or an online store  Consumers use the information in the catalog to buy directly from the catalog sender by phone, mail, or online  The sales effect of a commercial or print campaign can be difficult to determine  But catalogs—with their definitive mailing dates and customer identifiers—are easier to track Shop-at-Home Video Commerce  Shop-at-home television networks have become a very popular form of nonstore-based retailing  Regardless of the day or hour you tune in, these networks are always selling something  Qurate Retail Group—owner of retail channels QVC and Home Shopping Network (HSN)— is the leader in video commerce, reaching approximately 370 million homes worldwide via 16 television networks and an array of e-commerce and social media sites  The company is the third-largest e-commerce provider in North America, with 2020 revenues just over $14 billion  QVC has centered its strategy on the ―second screen,‖ the tendency to watch TV while also swiping and tapping on a smartphone or tablet  Over half of its sales come from customers using mobile devices to order from its website, making it one of the largest mobile commerce retailers in the United States Automated Vending  Most people use automated vending systems regularly to acquire valuable services as well  Automated vending includes kiosks at the airport that enable travelers to purchase or upgrade tickets, pay baggage-check fees, and print their boarding passes  Automated teller machines (ATMs) are another common form of service vending machines; they provide bank customers with time-saving capabilities, such as account balance information, check deposits, and cash withdrawals  Automated vending is the most impersonal form of retailing  The small space requirements and 24/7 availability make automated vending a cost-efficient alternative for certain products, particularly in high-traffic areas

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THINK LIKE A MARKETER Are there limitations on automated vending? (e.g., Are there products that cannot be delivered this way?) (Answer: Open ended) Direct Selling  In direct selling (or direct retailing), an independent representative of a company conducts retail and sales-related activities away from a fixed retail location, most often at consumers‘ homes or place of business  According to the World Federation of Direct Selling Associations (WFDSA), direct selling organizations accounted for 2017 global sales of $189.6 billion through the activities of more than 117 million independent sales representatives  Nearly 90 percent of direct sellers elect to work part time, offering busy parents, caregivers, military spouses, veterans, and others flexible schedules and work–life balance  Direct selling attracts large numbers of millennial, female, and minority entrepreneurs CONNECT BACK: Reference Connect Assignment 12-3 What direct selling business opportunities use social media to grow their business model? (Answer: Open ended as students‘ responses will vary; consider Mary Kay, Avon, Herbalife, Thirty-One, Arbonne International, Scentsy, AdvoCare, and Tupperware) What do you think about social media posts in your news feed or being added to networking groups on social media that encourage you to get involved in direct selling? (Answer: Open ended as students‘ responses will vary.) LO12-4: Discuss key strategic issues in retailing. Retail Marketing Strategy  Retail strategy development is distinctly characterized by hard-to-predict shifts in consumer preferences and changes in the external factors that make up the competitive landscape  The dynamic pace of retail industry change was further accelerated during the 2020 pandemic  Direct interaction with shoppers, once the foundation of retail customer service, was replaced by virtual or contactless touchpoints  Returns processing took on increasing importance as online sales increased  Physical stores turned into mini-fulfillment centers and pickup points  Retailers were required to constantly modify safety standards in order to safely meet employee and customer expectations  Supply chains were restructured to fulfill specific orders to households rather than shipments to large-format stores 68

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Forward-looking retail executives today recognize the need to continuously restructure store operations, integrate emerging technologies, and modify their marketing strategies in response to shopper preference shifts and market conditions Omnichannel Retailing  Recognizing the macro-environmental trends that have reshaped consumer preferences and expectations, retailers have sought to more closely integrate customer experiences across physical and online channels, a practice known as omnichannel retailing  The aim of omnichannel retailing is to deliver a seamless, cohesive, and personalized shopping experience, no matter whether the customer is shopping using a smartphone, a laptop, a voice-activated digital assistant, a wearable device, or is actually present within a brick-and-mortar store  By embracing an omnichannel strategy, retailers are able to effectively differentiate themselves from rivals, better enabling them to sustain or even build market share during market downturns  Gen Z and Millennial shoppers expect much more from the products they buy and the brands they support  These 80 million consumers have been raised online, have had smartphones since childhood, and have a low tolerance for obsolete processes getting in the way of their shopping pleasure  It seems clear that digitally integrating physical stores with added customer touchpoints can provide omnichannel retailers with a distinct competitive edge Buy Online, Pickup In-Store  Home delivery options may be preferable if there is no urgency to an order, but consumers can get orders faster by reserving a product online and picking it up the same day at their closest store  In addition, customers can avoid the costly shipping and delivery charges that often cause hesitation at checkout  Curbside delivery technology was integrated within the retail mobile app; once arriving at the store, the consumer simply needs to indicate a parking space number within the designated curbside delivery area, and their order is brought out Retailer Operational Efficiency  Because of the smaller per-transaction revenue (under $100 per visit), retailers must emphasize being cost-conscious, driving traffic to their stores and e-commerce sites, and converting visitors into satisfied, long-term customers  Even the best in-store pickup functionality will fail, however, if a retailer‘s underlying supply chain, inventory, and sales systems are not able to ―talk‖ to each other  Best in practice retailers constantly evaluate warehouse layout, making sure to place bestselling items near the packing station to ensure rapid and accurate order fulfillment  Items frequently sold together should be located close together in the warehouse  Stores should closely monitor product inventories and set rules for automated merchandise allocation and replenishment 69

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Point-of-sale systems should capture customer and product data needed to market to customers better  While it is good to know which items are best sellers, understanding which items aren’t flying off the shelves is also valuable information Store Location and Site Selection  Retail managers have to take into account a variety of factors:  The distance to major housing communities, employers, and business districts and parking availability  Traffic congestion and other transportation infrastructure issues  Whether to lease and remodel existing retail space or build a new store  How compatible are other nearby retailers in terms of store image and clientele?  Whether to build a freestanding structure or acquire space in a business district, strip mall, or shopping center  There are three different location types:  An isolated store is a freestanding retail outlet located on either a highway or major road  An unplanned business district is a type of retail location where two or more stores are situated together or in close proximity  A planned shopping center is a group of architecturally unique business establishments on a site that is centrally owned or managed Store Image and Retailer Positioning  Store image refers to how consumers perceive a retailer  To succeed, a retailer must communicate a clear, distinctive, and consistent image  Numerous factors combine to shape a retailer‘s image, including:  Quality of a store‘s customer service  Merchandise attributes  Brand communications (including social media)  Characteristics of the retailer‘s physical facilities or website  Crafting and maintaining a distinct, favorably received store image does not happen by accident; it involves a thoughtfully managed, ongoing process Store Atmospherics  Atmospherics refers to sensory-based stimuli within the retailer‘s environment—the sights, sounds, smells, and other attributes—that project an image and draw customers to the store  Retail atmospheres have been shown to contribute greatly to people‘s shopping enjoyment  They also influence consumer behaviors such as time spent in the store, willingness to engage with store personnel, likelihood of purchase, purchase size, and future patronage Store Layout and Product Display  Stores must consider the following in their layouts:  Total amount of floor space allocated to selling (e.g., display areas, counters, and checkout areas) 70

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Merchandise storage. Customer space (e.g., aisle width, fitting rooms, lounge area, and public restrooms). Personnel space (e.g., break rooms and employee restrooms) Many supermarkets, drugstores, and convenience stores employ a gridiron traffic flow pattern, in which display and aisles are laid out in a rectangular grid  Department stores often encourage more of a curving traffic flow, placing aisles and display in more of a free flowing pattern  Some retailers utilize a combination of these approaches in their designs  Whichever approach is used, the goal is to optimize shopper convenience while creating an enjoyable environment and encouraging browsing behavior  Ideally, the most profitable products appear in the best locations: end-of-aisle, eye-level, and checkout counter positions are the most likely to increase sales for individual products  For online retailers, the layout of product pages and links that enable the user to move intuitively from page to page are critical to customer conversion and a positive online store experience  Product arrangement is so critical in some retail environments that manufacturers are often willing to pay slotting allowances to the retailer, which are payments that manufacturers make to retailers, to ensure products are preferentially displayed by the retailer Merchandise Management  Merchandising consists of the activities involved in acquiring particular goods and services and making them available at the places, times, prices, and quantities that enable a retailer to achieve its goals  A retailer should align its merchandising approach with the needs of its target-market consumers, its marketplace positioning, its internal capabilities, and the strengths of its supplier network  Category management is a merchandising technique that focuses on the performance of a product category rather than individual brands where each category is run like a ―minibusiness‖  With micro-merchandising, a retailer adjusts its shelf-space allocations in response to overall consumer demand as well as differences in local markets  In cross-merchandising, a retailer carries complementary goods and services to encourage shoppers to buy more TODAY’S PROFESSIONAL NOTES Robert Morris, Associate Director of Donor Experience, UAMS Robert hopes he can bring a positive influence to people in their daily lives. Does this resonate with you and your career aspirations?

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LO12-5: Discuss emerging practices, trends, and technologies that are reshaping the face of retailing. Twenty-First-Century Retailing  With e-commerce garnering more and more business, many traditional brick-and-mortar retailers are struggling to stay relevant  Retailer debt from store overexpansion and the residual effects of the great recession on consumer spending habits have contributed to the decline of some retailers  What has changed are consumer expectations of retail businesses; they expect stores to provide a convenient, safe, personalized, and engaging shopping experience, whether they are online or in-store  Retail companies that are thriving today have several things in common:  Utilization of big data and analytics in managerial decision making  Focus on creating engaging customer experiences  Effective integration of emerging retail technologies Big Data and Retail Analytics  Data science and analysis allow retailers to collect and fuse data from multiple customer touch points, such as the web, stores, social media, and call centers  Studying analytics is vital to understanding your customer  Information, like demographics and customer traffic, allows businesses to make smarter decisions based on customer details, as well as to personalize the customer experience  Big Data analytics is now being applied at every stage of the retail process:  Working out what the popular products will be by predicting trends  Forecasting where the demand will be for those products  Optimizing pricing for a competitive edge  Identifying the customers likely to be interested in the products and working out the best way to approach them  Figuring out what to sell next  The opportunity to achieve competitive advantage from retail analytics is enormous  Another leading application for Big Data and retail analytics is sales forecasting

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Competing on Customer Experience  Leading retailers often use ―journey mapping‖ to trace the end-to-end experiences of their consumers  A customer journey map is a visual representation of the process a customer or prospect goes through to achieve a goal with a company  This technique helps retail managers identify points in their customers‘ journey where that process breaks down  Using this information, retailers are better able to design customer experiences that move the consumer from awareness and discovery to purchase, use, and advocacy of a good or service Figure 12.6 This fictitious customer journey map shows an in-depth customer journey map of a customer interacting with a fictitious restaurant INSIGHT QUESTIONS Why are consumer expectations on retail experiences changing so quickly? (Answer: Open ended as students‘ responses will vary; consider the changes in technology, the increase in online retailers, and socioeconomic factors are factors to consider.) What is pirch? (Answer: Pirch is shaking up the home space with stores that offer guided, interactive tours of working kitchens and bathrooms, letting consumers experience high-end equipment from manufacturers around the globe.) Experience Retail  By creating immersive retail experiences, retailers can drive consumers back to their stores, ensuring they not only leave with their products but also with memories and an emotional connection to the brand  Consumers are increasingly seeking unique and exciting experiences both offline and in brick-and-mortar store environments  Pirch is shaking up the home space with stores that offer guided, interactive tours of working kitchens and bathrooms, letting consumers experience high-end equipment from manufacturers around the globe Retail Technology  So many retailers are failing (with technology) because there‘s still a disconnect with who the consumer is, and what they shop, and why they shop, and how they shop,‖ states Brian Solis, a principal analyst at Altimeter Group Geofencing  Geofencing refers to the use of GPS or RFID (radio-frequency identification) technology to create a virtual boundary around a particular location, which can trigger a response when a mobile device enters or leaves a certain area  The most popular vessel of sensor data is RFID beacons  Major retailers strategically place small beacon sensors throughout their stores, which connect to customers‘ phones if Bluetooth is enabled and the retail app is installed 73

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Geofencing is also commonly used to offer consumers rewards to encourage purchases Retail gamification gives customers rewards to incentivize try-ons Shoppers become more likely to try on additional items in order to see what they might receive in return  This behavior leads customers to seriously consider items they might have otherwise left on the rack, increasing purchase likelihood  A geofence does not have to be in close proximity to your store  A geofence is not just a place on a map, it is also a place in time  When you take action on a trigger and when you notify a customer to do something is just as important as where  Geofencing also offers great opportunities to gather data on customers‘ shopping habits, such as when they are in proximity to your store, and whether they always come in or pass by Augmented Reality (A R) and Virtual Reality (VR)  Augmented reality (AR) is an interactive experience of a real-world environment where the objects that reside in the real world are ―augmented‖ by computer-generated perceptual information  AR-enabled apps allow customers to experience certain products and services right from their homes  Brick-and-mortar retailers and manufacturers are also using AR to enhance customers‘ instore experiences  Retailers are also incorporating virtual reality into their store operations and marketing  Virtual reality (VR) is an interactive, computer-generated experience that takes place within an immersive simulated environment, typically incorporating multisensory feedback Artificial Intelligence and Voice-Activation  Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans  One interesting application of AI in retail is toward the improvement of shelf intelligence  Amazon introduced its first Amazon Go store, a fully automated grocery store in Seattle that employs AI along with advanced imaging technology to eliminate checkout lines and cashiers  Whether it‘s instructing your Google Home to buy you things or asking Siri to search for an item online, voice control has gained popularity in the retail space

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If you are targeting a B2C company for employment after graduation, how will retailing changes affect that organization? You need to consider things like the shift to online buying, increased usage of factory outlets, and automated vending changing your organization. If you are planning to be an attorney or an accountant, how is your targeted firm positioned to compete on customer experience or in a virtual world where customers can get legal or financial advice online, often for a very small investment?

Student Task: Write one paragraph on how the changing retail landscape might potentially affect your career plans. Your answer should include at least two specific retail changes that could alter the way your targeted employer or industry functions in the future. Instruct students to insert their responses to the above in Chapter 12’s section of the Personal Marketing Plan. Chapter 12 THE RETAIL ENVIRONMENT

Chapter 12: Retailing

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Use this Learning Worksheet to prepare for class discussion and take notes. 75

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LEARNING OBJECTIVES LO 1-224 Discuss the importance of retailing, differences in retail organizations, and career opportunities in retail. LO 1-225 Describe the major types of physical-store retailers. LO 1-226 Describe the major types of nonstore retailing, including online retailing. LO 1-227 Discuss key strategic issues in retailing. LO 1-228 Discuss emerging practices, trends, and technologies that are reshaping the face of retailing. KEY TERMS artificial intelligence (AI) assortment atmospherics augmented reality (AR) breadth of assortment business format franchise buyers catalog marketing category killers category management convenience stores corporate chains cross-merchandising department stores depth of assortment direct selling discount stores

extreme-value retailers fast fashion full-line discount stores gamification geofencing isolated store leased department merchandise planners merchandising micro-merchandising mobile commerce off-price retail stores omnichannel retailing online retailing planned shopping center product distribution franchise

retailer retailer cooperative retailing scrambled merchandising shop-at-home television networks slotting allowances specialty discount stores specialty store stock-keeping unit (SKU) supercenter format supermarkets unplanned business district virtual reality (VR) visual merchandisers warehouse clubs

THOUGHT-PROVOKING ACTIVITY Set 1: Retailers are the last stage in the distribution channel. As such, what are the four key channel functions of retailers?

Set 2: Amazon became the fastest retailer in history to surpass $100 billion in sales. What three factors contributed to this success? How are other retailers competing with this?

CONTENT OUTLINE 76

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The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, and KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Julie Acosta, Web Analytics Manager, Autozone How is marketing relevant in her role? How does customer lifetime value (CLTV) determine what an organization can gain from each customer? LO12-1: Discuss the importance of retailing, differences in retail organizations, and career opportunities in retail. What Is Retailing?  The practice of _ encompasses all business activities involved in the sales of goods and services to the ultimate consumer for their personal, family, or household use  A retailer is any organization that sells directly to _  The scope of retail includes the sale of items ranging from luxury automobiles to apparel to the movie tickets and popcorn you bought at the theater last weekend  While retailing often takes place in physical stores or service locations, the concept also includes _ , such as online shopping sites, as well as services retailers Importance of Retailing to the Global Economy  Given the close link between consumer spending and _ , retailing is an important economic activity that affects nearly everyone, either directly or indirectly  The retail industry directly employs _ million Americans, making it the largest private sector employer in the economy  Total retail sales in the United States amounted to _ U.S. dollars in 2020  Nearly 9 out of 10 retail companies employ fewer than 20 employees; over 95 percent of retailers operate just one store Figure 12.1 U.S. Retail Sales, 1992‒2020 (in trillions of dollars) INSIGHT QUESTIONS Why is there a lull in retail sales in 2008–2010?

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Why do you think the retail sales numbers are much higher in 2020 than in 1992?

Figure 12.2 Retail Spending by Category, 2020 (excluding auto sales) INSIGHT QUESTIONS Which categories had the highest number of sales?

Which categories had the lowest number of sales?

Impact of the Pandemic on the Retail Industry  Many large retailers were already struggling when COVID-19 hit  Debt from store _ and the residual effects of the Great Recession on consumer spending habits had led several iconic retailers to fall into bankruptcy  Industry experts even coined this phenomenon as a _  In 2020 alone, major retailers closed a record _ stores amid pandemic-induced stay-at-home orders, social distancing measures, and increased online shopping  Just 1 year later, however, physical store retailers seemed poised for a comeback, registering more openings than closings in 2021  Consumer spending on groceries actually grew during the pandemic, even as restaurant spending declined  Major retailers like Walmart and Home Depot weathered the pandemic and were back to beating profit expectations by the fourth quarter of 2021

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How Do Retailers Differ?  Marketers commonly classify retailers along four key dimensions: _ , ownership and organization, breadth and depth of merchandise assortment, and merchandise pricing Level of Service  Level of service refers to the amount of _ the retailer provides the consumer  Service levels can vary considerably depending on customer segments or the complexity of the products sold  _ requires customers to perform certain tasks on their own in order to save time or money  _ assist customers through every step of the shopping process  _ falls between the two extremes; this category would include most retailers THINK LIKE A MARKETER How do you brand self-service stations?

THINK LIKE A MARKETER Is there a place for customer service in self-service retail?

Ownership and Organization  The majority of retail operations are _ , owned and operated by a single person or group  _ are two or more retail outlets that are commonly owned and controlled  By virtue of their size, chains are often able to buy merchandise and supplies in _ at much lower prices  As corporate chains grow in size, these scale-related advantages also enable them to hire more specialized managers in areas such as e-commerce, merchandising, promotions, inventory control, pricing, and _ 79 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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A_ is a group of independent retailers that band together to create a mutually owned, central wholesale operation that also conducts joint merchandising and promotion  Another common form of retail organization is _ , which is an arrangement in which a supplier (or franchisor) grants a dealer (or franchisee) the right to sell products in exchange for financial considerations  In a typical franchise system, the franchisee agrees to pay a lump sum plus a _ on future sales in return for the right to operate a business in a specific location  Franchising has been particularly prominent in areas such as the quick-service restaurant industry, _ , real estate, and tax preparation services  In a _ , the franchisor provides not just its trade name, products, and services but an entire system for operating the business  Franchisee support often includes financing, site selection and development, _ , training, quality control, marketing, and business advisory services  In a _ arrangement, the focus is not on a system of doing business, but is instead based on the franchisee gaining preferred or exclusive access to products supplied by the franchisor Breadth and Depth of Assortment  An _ is the selection of merchandise a retailer carries  _ refers to the number of distinct goods or service product lines that a retailer carries  _ refers to the number of individual items offered within any single product category Scrambled Merchandising  Retailers seek to increase their breadth of assortment via _ , adding goods and services that may be unrelated to each other or the firm‘s original business  One implication of the spread of scrambled merchandising is _ across different types of retailers

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CONNECT BACK: Reference Connect Assignment 12-1 What are voluntary chains, and how are they different than retail cooperatives?

Which format of franchising is less common but accounts for a larger percentage of franchisebased sales?

Merchandise Pricing  The distribution of retailers along a price continuum follows a bell curve: most retailers offer _ , accompanied by moderate levels of service  On the _ end, extreme-value retailers and discount retailers tend to offer extremely limited service in exchange for a broader selection of low-to-moderate-quality merchandise  On the _ end are specialty store boutiques and upscale department stores Careers in Retailing  The retail industry offers graduates flexible, collaborative careers in supply chain, data science, marketing, _ , technology, finance, engineering, and design—to name just a few  _ and assistant store managers oversee the dayto-day operations of a retail store location  In larger store settings, they work with _ to ensure floor sales staff, service representatives, cashiers, and other frontline employees perform their duties to a high standard and that customers are satisfied with their shopping experiences  Some common store management tasks include hiring, scheduling, and motivating employees; developing and executing sales promotions; monitoring sales figures and forecasting future sales volume; and addressing questions and complaints from customers  _ play a vital role in the retail industry, ensuring the effective storage, distribution, and tracking of store merchandise  _ develop global and domestic sourcing strategies for their assigned product categories; this role requires understanding of global market conditions that impact the supply chains for their assigned categories such as raw material costs, tariffs, social compliance issues, and freight challenges 81 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ oversee all inbound and outbound activities involving the retailer‘s warehouses and distribution facilities  _ are responsible for executing, monitoring, and benchmarking inventory best practices and standard operating procedures for the entire store chain, including both front end and distribution warehousing  _ are responsible for planning, controlling, and monitoring the purchase, intake, and distribution of merchandise to stores  Planners must work across seasons and countries to maximize sales and _ within the assigned departments or categories  Merchandise planners work closely with _ , who are responsible for purchasing wholesale merchandise to sell in store and online  In the course of their duties, buyers will typically evaluate vendors, negotiate prices, order merchandise, _ , and track inventories and sales trends in order to adjust purchase levels and stay on top of consumer demand for new products  _ often work closely with buyers to develop layout plans and displays that improve sales by highlighting select items in a way that grabs shoppers‘ attention and boosts purchase interest LO12-2: Describe the major types of physical-store retailers. Identify Retail Store Formats  Retail organizations face unique opportunities and challenges Table 12.1 Aspects of Retail Strategy by Selected Store Type INSIGHT QUESTIONS What are some of the trade-offs with full-line discount stores?

Which retail strategy offers the highest levels of customer service?

Discount Stores  _ are general merchandise outlets that offer brand-name and private-label products at low prices  Discount retailers accept lower margins on their merchandise in exchange for high customer traffic and transaction volume  To maintain high inventory turnover, discount stores choose merchandise _ over depth: they carefully select fast-moving items across select categories 83 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Poor-selling products are quickly discontinued Discount retailers are broadly grouped into two groups: _ and specialty discount stores

Full-Line Discount Stores  _ carry a wide assortment of merchandise across popular categories  Full-line discount stores like Walmart and Target sell apparel, cosmetics, sporting goods, toys, electronics, kitchenware, home furnishings, garden accessories, and automotive items  Over the past 30 years, full-line discount stores have created massive _ by opening thousands of stores around the globe  Some full-line discount stores have expanded facilities to a _ , adding grocery, pharmacy, and other services Specialty Discount Stores  _ offer a wide selection of merchandise within a single category  Specialty discount stores compete on the basis of low prices, wide selection, and product availability  These stores are sometimes referred to as _ because they are able to gain high market share within their chosen category  Higher margin rivals and discounters find it difficult to compete effectively within that space Supermarkets and Grocery Stores  _ are large, departmentalized retailers that carry a wide and complex line of groceries, meat, dairy, produce, and baked goods plus a limited array of nonfood products like beauty aids, personal care, and general merchandise  Large supermarkets often carry additional goods and services, such as pharmacists, florists, dine-in options, and salad bars  U.S. consumers make 1.5 grocery trips per week, making supermarkets and other types of grocery stores the most frequently visited retail category  The average supermarket generates more than $_ in sales each week  Growth in Asian, Latin American, and Indian immigrant populations in various parts of the United States has led to a rising number of _

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Impact of COVID-19 on Food Retailers  Grocery was one of just a few retail sectors that grew in 2020  With remote working, social distancing, and restrictions on restaurant dining, grocery store‘s share of food spending increased by around _ percent  While this pace of growth is not sustainable, new consumer habits underlying the trend—like working from home and cooking more often—seem likely to stick  The pandemic also resulted in consumers showing greater interest in _ and healthy lifestyles  As a result, spending on organic, sustainable, and local food products increased Warehouse Clubs  _ (also known as wholesale clubs or membership warehouses) operate in warehouse-like facilities that offer merchandise in bulk quantities, at ultra-low prices, to shoppers who pay an annual fee to join  While these stores offer few frills, members enjoy surprise deals on select branded and private-label merchandise  The recipe underlying Costco‘s success is based on two key ingredients:  (1) A culture that emphasizes simplicity, sustainability, and frugality  (2) An impressive understanding of _ Convenience Stores  _ are small, self-service stores that are open long hours and carry a limited number of frequently purchased items  Usually located along highly trafficked roads, they aim to capture sales from those who are willing to pay premium prices in exchange for an easy, in-and-out shopping experience  Convenience stores account for more than one-third of all retail outlets in the United States  To increases profits, convenience stores also sell food products, snacks, beverages, and _  In recent years, some convenience store operators have sought to shed their gritty, gas station image in order to attract more females and _ Drugstores  _ are specialty retailers that concentrate on selling over-the-counter (OTC) and prescription pharmaceuticals as well as health products, personal grooming items, and general merchandise  As insurers and government agencies seek to streamline health-care costs, some drugstore chains have started offering additional health-maintenance services such as blood pressure tests, diabetes monitoring, and _  Prescription pharmaceuticals still represent almost _ percent of drugstore sales

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Department Stores  _ carry a wide variety of product lines, with each line operated as a separate department and managed by specialist merchandisers and buyers  Common departments include: clothing, shoes, home furnishings, household goods, tools, and hardware  Industry experts generally cluster department stores into three tiers: upper, mid, and _  The golden age of the department store began in the 1920s  Department stores‘ share of retail sales has shrunk from 5.54 percent in 1998 to _ percent in 2020  Overall sales at department stores plunged more than _ percent at the beginning of the pandemic as Americans conducted more of their shopping online and gravitated toward offprice and discount chains  It is questioned if the department store revival will persist Figure 12.3 Department Store Sales Declines INSIGHT QUESTIONS What are some of the causes of the decline in department store sales?

How has value and weak economic growth affected consumers‘ decisions to shop at department stores?

Figure 12.4 Decline in Department Store Locations (2016–2021) INSIGHT QUESTIONS Why did department store sales plunge?

How have department stores evolved since the COVID pandemic?

Specialty Stores  A_ competes by concentrating on one line of goods or services, such as jewelry, tea, batteries, tools, young women‘s apparel, or hair salons 86 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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It usually carries a narrow but deep merchandise assortment and tailors its strategy to a specific market segment  Because they do not have aisles of unrelated products, specialty stores can also offer a more _ and intuitive shopping experience  Among the most popular categories of specialty stores are apparel, jewelry, home furnishings, electronics, books, _ , and athletic wear Fast-Fashion Retail  _ refers to the rapid translation of high-fashion design trends by lower cost manufacturer–retailers  Shopping for inexpensive clothing provides customers with a source of cheap, endlessly available entertainment  Consumers also appreciate the ability to frequently update their wardrobe with fresh, new, affordable clothing items  Despite its popularity with customers, fast fashion has been criticized for encouraging a ―_ ‖ attitude that is ultimately harmful to the environment  The trend has also been critiqued on intellectual property grounds: some designers allege their designs have been illegally _ by fastfashion retailers Off-Price and Extreme-Value Retailers  The global economic downturn in the late 2000s helped create a generation of _ shoppers Off-Price Retail Stores  _ feature brand-name (sometimes designer) merchandise bought at less-than-regular wholesale prices and sold at less-than-retail prices  They offer a broad and inconsistent array of merchandise—everything from shoes to shirts to picture frames—at major discounts from department store prices  Since the stores maintain little inventory, TJ Maxx is able to introduce new merchandise, brands, styles, and fashion each week; this sense of _ compels consumers to visit the store more often to hunt for what‘s new  Financial uncertainty resulting from the pandemic helped off-price retailers attract new _ buyers away from department and specialty stores Extreme-Value Retailers  _ are heirs to the traditional ―five-and-dime‖ variety stores from decades past  These stores carry an assortment of inexpensive merchandise, such as apparel, costume jewelry, toys, small wares, candy, and party supplies 87 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Instructor‘s Manual - Chapter 1   

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_ offer a wide range of merchandise, both offbrand goods and closeouts of name-brand items, at very low prices _ , such as Big Lots, sell similar types of merchandise as dollar stores, but feature closeouts and production overruns According to retail research firm Nielsen, about _ more of these stores have opened across the United States between 2007 and 2017

Figure 12.5 Changes in U.S. Retail Open Store Counts by Category, 2007–2017 INSIGHT QUESTIONS Why do you think dollar-discount stores have been growing in sales and square footage over the last decade?

Do you think the dollar-discount store model will be long-lasting?

Services Retailers  The primary products sold by services retailers are intangible, typically involving the sale of mechanical or _ and effort rather than merchandise  There are a wide variety of _ retailers, such as movie theaters and quick-service restaurants, airlines, and premium hotel chains  Due to the inherent characteristics of services (i.e., their intangibility, perishability, inseparability, and variability), services retailers also differ in terms of _ and service delivery strategies  Service retailers were especially hard-hit during the COVID-19 pandemic CONNECT BACK: Reference Connect Assignment 12-2 How are the two types of extreme value retailers different?

What are the advantages of manufacturers opening factory outlet stores?

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LO12-3: Describe the major types of nonstore retailing, including online retailing. Online Retailing and Other Nonstore Retail Formats  Retailing also includes various forms of _ where customers shop for products without visiting a retail store  Nonstore retailing includes online retailing as well as _ and direct selling Online Retailing  _ , also known as e-commerce, is B2C electronic commerce in which individual consumers directly buy goods or services over the Internet  Online retailing may be conducted via a desktop computer, laptop, smartphone, or tablet  _ (or m-commerce) refers more narrowly to online business or purchases conducted over mobile devices like smartphones or tablets  The rapid growth of mobile commerce has been driven by several factors, including increased wireless handheld device computing power, a proliferation of mobile shopping apps, and the broad resolution of _  As lockdowns became the new normal during COVID-19, businesses and consumers increasingly ―went digital,‖ providing and purchasing more goods and services online, raising e-commerce‘s share of global retail trade from 14 percent in 2019 to about _ percent in 2020  For many consumers, shopping in a physical store is an inexpensive and pleasurable form of _  Online shopping does not provide the sensory elements of shopping that many customers enjoy, such as the hustle and bustle of a mall or the feel and smell of a new garment  Many retail goods and services actually require the _ of a consumer  Online sales comprise around _ percent of global consumer spending Table 12.2 U.S. Retail E-Commerce Sales Share by Product Category, 2015–2020 INSIGHT QUESTIONS What is the highest category of retail e-commerce sales share in the United States?

Which categories have the least retail e-commerce sales share in the United States?

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Rise of Amazon  Amazon.com (www.amazon.com) is probably the most famous online retailer in the world today  Amazon started out quite modestly: every time someone made a purchase, a bell would ring on Amazon‘s computers, and everyone in the office would gather around to see _  Over the years, Amazon has implemented its own complex _ , and the company has expanded into selling just about everything  In 2015, its 20th year of operation, Amazon achieved $_ billion in sales, becoming the fastest retailer in history to surpass $100 billion in sales  Two of Bezos‘s guiding principles for the firm are (1) thinking for the long term and (2) always _  Putting customers first, the company has successfully introduced a long string of _ that have reduced obstacles to purchase and build incredible loyalty among Amazon‘s customer base, including: 1-Click ordering, Kindle, Amazon Echo, and Amazon Prime  Amazon also has positioned itself as a cutting-edge technology business, selling basic computer infrastructure like _ , databases, and raw computing power Table 12.3 U.S. Amazon Retail E-Commerce Sales Share by Product Category, 2016–2018 (Percentage total and billions of U.S. dollars) INSIGHT QUESTIONS Where does Amazon rank as a retailer?

What is Amazon‘s top selling product category?

Catalog Marketing and Video Commerce Catalog Marketing  Garden and seed catalogs were in circulation in the United States before the Revolutionary War  _ is a retail sales technique used to group many items together in a printed piece or an online store 90 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Consumers use information in the catalog to buy directly from the catalog sender by phone, mail, or online  The sales effect of a commercial or print campaign can be difficult to determine  But catalogs—with their definitive mail dates and _ —are easier to track Shop-at-Home Video Commerce  _ have become a very popular form of nonstore-based retailing  Regardless of the day or hour you tune in, these networks are always selling something  Qurate Retail Group—owner of retail channels QVC and Home Shopping Network (HSN)— is the leader in video commerce, reaching approximately 370 million homes worldwide via 16 television networks and an array of e-commerce and social media sites  The company is the third-largest e-commerce provider in North America, with 2020 revenues just over $14 billion  QVC has centered its strategy on the ―_ ,‖ the tendency to watch television while also swiping and tapping on a smartphone or tablet  Over half of its sales come from customers using mobile devices to order from its website, making it one of the largest mobile commerce retailers in the United States Automated Vending  Most people use _ regularly to acquire valuable services as well  Automated vending includes kiosks at the airport that enable travelers to purchase or upgrade tickets, pay baggage-check fees, and print their boarding passes  Automated teller machines (ATMs) are another common form of service vending machines; they provide bank customers with time-saving capabilities, such as account balance information, check deposits, and cash withdrawals  Automated vending is the most _ form of retailing  The small space requirements and 24/7 availability make automated vending a cost-efficient alternative for certain products, particularly in _ areas THINK LIKE A MARKETER Are there limitations on automated vending? (e.g., Are there products that cannot be delivered this way?)

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Direct Selling  In _ (or direct retailing), an independent representative of a company conducts retail and sales-related activities away from a fixed retail location, most often at consumers‘ homes or place of business  According to the World Federation of Direct Selling Associations (WFDSA), direct selling organizations accounted for 2017 global sales of $_ billion through the activities of more than 117 million independent sales representatives  Nearly _ percent of direct sellers elect to work part time, offering busy parents, caregivers, military spouses, veterans, and others flexible schedules and work–life balance  Direct selling attracts large numbers of _ , female, and minority entrepreneurs CONNECT BACK: Reference Connect Assignment 12-3 What direct selling business opportunities use social media to grow their business model?

What do you think about social media posts in your news feed or being added to networking groups on social media that encourage you to get involved in direct selling?

LO12-4: Discuss key strategic issues in retailing. Retail Marketing Strategy  Retail strategy development is distinctly characterized by hard-to-predict shifts in consumer preferences and changes in the _ that make up the competitive landscape  The dynamic pace of retail industry change was further accelerated during the 2020 pandemic  Direct interaction with shoppers, once the foundation of retail customer service, was replaced by virtual or _  Returns processing took on increasing importance as online sales increased  Physical stores turned into _ and pickup points  Retailers were required to constantly modify safety standards in order to safely meet employee and customer expectations  Supply chains were restructured to fulfill specific orders to households rather than _ to large-format stores

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Forward-looking retail executives today recognize the need to continuously restructure store operations, integrate _ , and modify their marketing strategies in response to shopper preference shifts and market conditions Omnichannel Retailing  Recognizing the macro-environmental trends that have reshaped consumer preferences and expectations, retailers have sought to more closely integrate customer experiences across physical and online channels, a practice known as _  The aim of omnichannel retailing is to deliver a seamless, cohesive, and _ shopping experience, no matter whether the customer is shopping using a smartphone, a laptop, a voice-activated digital assistant, a wearable device, or are actually present within a brick-and-mortar store  By embracing an _ strategy, retailers are able to effectively differentiate themselves from rivals, better enabling them to sustain or even build market share during market downturns  Gen Z and Millennial shoppers expect much more from the products they buy and the brands they support  These _ million consumers have been raised online, have had smartphones since childhood, and have low tolerance for obsolete processes getting in the way of their shopping pleasure  It seems clear that digitally integrating physical stores with added _ can provide omnichannel retailers with a distinct competitive edge Buy Online, Pickup In-Store  _ options may be preferable if there is no urgency to an order, but consumers can get orders faster by reserving a product online and picking it up the same day at their closest store  In addition, customers can avoid the costly shipping and delivery charges that often cause hesitation at checkout  _ technology was integrated within the retail mobile app; once arriving to the store, the consumer simply needs to indicate a parking space number within the designated curbside delivery area and their order is brought out Retailer Operational Efficiency  Because of the smaller per-transaction revenue (under $100 per visit), retailers must emphasize being cost-conscious, driving traffic to their stores and e-commerce sites, and converting visitors into satisfied, _  Even the best in-store pickup functionality will fail, however, if a retailer‘s underlying _ , inventory, and sales systems are not able to ―talk‖ to each other 93 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Best in practice retailers constantly evaluate warehouse layout, making sure to place bestselling items near the packing station to ensure rapid and accurate _  Items frequently sold together should be located close together in the warehouse  Stores should closely monitor product inventories and set rules for automated merchandise allocation and _  _ systems should capture customer and product data needed to market to customers better  While it is good to know which items are best sellers, understanding _ is also valuable information Store Location and Site Selection  Retail managers have to take into account a variety of factors:  The _ to major housing communities, employers, and business districts and parking availability  _ and other transportation infrastructure issues  Whether to lease and remodel existing retail space or build a new store  How compatible are other nearby retailers in terms of _ and clientele  Whether to build a freestanding structure or acquire space in a business district, strip mall, or shopping center  There are three different location types:  An _ is a freestanding retail outlet located on either a highway or major road  An _ district is a type of retail location where two or more stores are situated together or in close proximity  A_ is a group of architecturally unique business establishments on a site that is centrally owned or managed Store Image and Retailer Positioning  _ refers to how consumers perceive a retailer  To succeed, a retailer must communicate a clear, distinctive, and consistent _  Numerous factors combine to shape a retailer‘s image, including:  Quality of a store‘s customer service  _ attributes  Brand communications (including _ )  Characteristics of the retailer‘s physical facilities or website  Crafting and maintain a distinct, favorably received store image does not happen by accident; it involves a thoughtfully managed, _ 94 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Store Atmospherics  _ refers to sensory-based stimuli within the retailer‘s environment—the sights, sounds, smells, and other attributes—that project an image and draw customers to the store  Retail atmospherics have been shown to contribute greatly to people‘s _  They also influence consumer behaviors such as time spent in the store, willingness to engage with store personnel, likelihood of _ , purchase _ , and future patronage Store Layout and Product Display  Stores must consider the following in their layouts:  Total amount of _ allocated to selling (e.g., display areas, counters, checkout areas)  Merchandise storage  _ (e.g., aisle width, fitting rooms, lounge area, and public restrooms)  Personnel space (e.g., break rooms, employee restrooms)  Many supermarkets, drugstores, and convenience stores employ a _ traffic flow pattern, in which display and aisles are laid out in a rectangular grid  Department stores often encourage more of a _ traffic flow, placing aisles and display in more of a free-flowing pattern  Some retailers utilize a combination of these approaches in their designs  Whichever approach is used, the goal is to optimize shopper convenience while creating an enjoyable environment and encouraging browsing behavior  Ideally, the most profitable products appear in the best locations: end-of-aisle, eye-level, and checkout counter positions are the most likely to increase sales for individual products  For online retailers, the layout of _ and links that enable the user to move intuitively from page to page are critical to customer conversion and a positive online store experience  Product arrangement is so critical in some retail environments that manufacturers are often willing to pay _ to the retailer, which are payments that manufacturers make to retailers, to ensure products are preferentially displayed by the retailer

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Merchandise Management  _ consists of the activities involved in acquiring particular goods and services and making them available at the places, times, prices, and quantities that enable a retailer to achieve its goals  A retailer should align its merchandising approach with the needs of its target-market consumers, its _ , its internal capabilities, and the strengths of its supplier network  _ is a merchandising technique that focuses on the performance of a product category rather than individual brands where each category is run like a ―mini-business.‖  With _ , a retailer adjusts its shelf-space allocations in response to overall consumer demand as well as differences in local markets  In _ , a retailer carries complementary goods and services to encourage shoppers to buy more TODAY’S PROFESSIONAL NOTES Robert Morris, Associate Director of Donor Experience, UAMS Robert hopes he can bring a positive influence to people in their daily lives. Does this resonate with you and your career aspirations? LO12-5: Discuss emerging practices, trends, and technologies that are reshaping the face of retailing. Twenty-First-Century Retailing  With e-commerce garnering more and more business, many traditional brick-and-mortar retailers are struggling to stay _  Retailer debt from store overexpansion and the residual effects of the _ on consumer spending habits have contributed to the decline of some retailers  What has changed is consumer expectations of retail businesses; they expect stores to provide a convenient, safe, personalized, and _ shopping experience, whether they are online or in-store  Retail companies that are thriving today have several things in common:  Utilization of Big Data and analytics in managerial decision making  Focus on creating engaging customer experiences  Effective _ of emerging retail technologies

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Big Data and Retail Analytics  _ and analysis allow retailers to collect and fuse data from multiple customer touch points such as web, store, social media, and call centers  Studying analytics is vital to understanding your _  Information, like demographics and customer traffic, allows businesses to make smarter decisions based on customer details, as well as to personalize the _  Big Data analytics is now being applied at every stage of the retail process:  Working out what the popular products will be by predicting _  _ where the demand will be for those products  Optimizing _ for a competitive edge  Identifying the customers likely to be interested in the products and working out the best way to approach them  Figuring out what to _ next  The opportunity to achieve competitive advantage from retail analytics is enormous  Another leading application for Big Data and retail analytics is _ Competing on Customer Experience  Leading retailers often use ―_ ‖ to trace the end-to-end experiences of their consumers  A_ is a visual representation of the process a customer or prospect goes through to achieve a goal with a company  This technique helps retail managers identify points in their customers‘ journey where that process breaks down  Using this information, retailers are better able to design customer experiences that move the consumer from _ and discovery to purchase, use, and advocacy of a good or service Figure 12.6 This fictitious customer journey map shows an in-depth customer journey map of a customer interacting with a fictitious restaurant INSIGHT QUESTIONS Why are consumer expectations on retail experiences changing so quickly?

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What is pirch?

Experience Retail  By creating immersive retail experiences, retailers can drive consumers back to their stores, ensuring they not only leave with their products, but also with memories and an _ to the brand  Consumers are increasingly seeking unique and exciting experiences both offline and in brick-and-mortar store environments  _ is shaking up the home space with stores that offer guided, interactive tours of working kitchens and bathrooms, letting consumers experience high-end equipment from manufacturers around the globe Retail Technology  So many retailers are failing (with technology) because there‘s still a disconnect with _ , and what they shop, and why they shop, and how they shop,‖ states Brian Solis, a principal analyst at Altimeter Group Geofencing  _ refers to the use of GPS or RFID (radiofrequency identification) technology to create a virtual boundary around a particular location, which can trigger a response when a mobile device enters or leaves a certain area  The most popular vessel of sensor data is _  Major retailers strategically place small beacon sensors throughout their stores, which connect to customers‘ phones if Bluetooth is enabled and the retail app is installed  Geofencing is also commonly used to offer consumers rewards to _  _ gives customers rewards to incentivize tryons  Shoppers become more likely to try on additional items in order to see what they might receive in return  This behavior leads customers to seriously consider items they might have otherwise left on the rack, increasing _  A geofence does not have to be in _ to your store  A geofence is not just a place on a map, it is also a place in _  When you take action on a trigger and when you notify a customer to do something is just as important as _  Geofencing also offers great opportunities to gather data on customers‘ _ , such as when they are in proximity to your store, and whether they always come in or pass by 98 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Augmented Reality (AR) and Virtual Reality (VR)  _ (AR) is an interactive experience of a realworld environment where the objects that reside in the real world are ―augmented‖ by computer-generated perceptual information  AR-enabled apps allow customers to experience certain products and services right from their homes  Brick-and-mortar retailers and manufacturers are also using AR to enhance customers‘ instore _  Retailers are also incorporating virtual reality into their store operations and marketing  _ (VR) is an interactive, computer-generated experience that takes place within an immersive simulated environment, typically incorporating multisensory feedback. Artificial Intelligence and Voice-Activation  _ (AI) is an area of computer science that emphasizes the creation of intelligent machines that work and react like humans  One interesting application of AI in retail is toward the improvement of _  Amazon introduced its first _ store, a fully automated grocery store in Seattle, that employs AI along with advanced imaging technology to eliminate checkout lines and cashiers  Whether it‘s instructing your Google Home to buy you things or asking Siri to search for an item online, _ has gained popularity in the retail space MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the rapidly changing retail environment. Emerging issues that range from technology to operational efficiency to organizations competing on the basis of customer experience will likely be a major part of your career, regardless of industry. In the next section of the marketing plan exercise, your assignment is to consider how the changing retail landscape in your targeted profession will potentially be affected by emerging strategic issues. For example: 



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THE RETAIL ENVIRONMENT

Chapter 13: Digital and Social Media Marketing

Anatolii Babii/Alamy Stock Photo

Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 13 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-229 Understand the impact of mobile and social digital technologies on consumers and marketing practices. LO 1-230 Explain how search marketing contributes to digital marketing strategy. LO 1-231 Discuss how companies are employing social media marketing to strengthen customer relationships and achieve business objectives. LO 1-232 Explain the importance of content marketing in driving digital marketing strategies. LO 1-233 Discuss key performance indicators commonly utilized in managing digital and social media marketing campaigns. LO 1-234 Identify potential moral hazards arising from digital and social media marketing and offer best practices for ethical application of these tools. 100 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Instructor‘s Manual - Chapter 1 KEY TERMS blog content marketing content marketing dashboards digital marketing e-mail marketing fear of missing out (FOM O) informed consent

location-based marketing (LBM) paid listings search engine marketing (SEM) search engine optimization (SEO) search marketing sentiment analysis (opinion mining)

Hunt/Mello/Deitz: Marketing 4e

social media influencer social media marketing social media monitoring (social listening) user-generated content video marketing white paper zero moment of truth (ZM OT)

Donielle Xu

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Data Center Solution Principal, Dell EMC

Photo provided by Donielle Xu

Merging her research talents and expertise with her approach to viewing jobs with a management perspective, Donielle believes every relationship is a networking opportunity. She believes that an organization‘s information is an asset and answers the following questions: 531. What has been the most important thing in making you successful at your job? 532. What advice would you give soon-to-be graduates? 533. How is marketing relevant to your role at Dell? 534. What do you consider your personal brand to be? Later in the chapter you see how Donielle elaborates on: 

New strategies for gathering competitive intelligence.

Review with students:  

Understand the impact of mobile and social technologies on consumers and marketing practices.  The Digital Marketing Revolution  Marketing to the ―Always-Connected‖ Consumer  Impact of Social Media on Individuals and Society  Impact of the Digital Revolution on Marketing Practice  Greater Emphasis on Owned and Earned Media

LO 13-1

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How is marketing relevant in her role? How does social media influence market share when designing products, creating promotions, and strategizing pricing? Key Terms:  Digital marketing  Social media marketing  Fear of missing out (FO MO)

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PowerPoint Slides

Brand Democratization  Relevant Messaging— Breaking through the Noise Lecture Notes: The Digital Marketing Revolution    

The ability to make one-to-one connections, be responsive to consumers, and inspire positive word-of-mouth have reemerged as the most important business considerations These changes have led to the rapid emergence of digital and social media marketing Digital marketing is an umbrella term that refers to the marketing of goods or services using digital media, such as search engines, websites, e-mail, and social media Social media marketing involves a company‘s use of social media and social networking platforms to establish relationships with customers and market their products and services

Marketing to the ―Always-Connected‖ Consumer 

In 2022, it is estimated the average American will spend nearly a month and a half on their phones  In one survey, over one-third of American users indicated in a recent survey that they would rather give up their pets than do without their smartphones  As of early 2022, there are 2.91 billion monthly active Facebook users (MAUs) worldwide  Approximately 1.84 billion users visit Facebook on a daily basis (D AUs)  The average American spends just over 2 hours per day on social media  There are 500 hours of video uploaded to YouTube every minute  Roughly 500 million tweets are sent per day on Twitter  There are more than 200 million business accounts on Instagram  In order to reach today‘s always-on consumers, marketers must understand and engage in this digital revolution THINK LIKE A MARKETER Why was the diffusion process much shorter for Facebook? Impact of Social Media on Individuals and Society 

103

Sociologists and organizational scientists have expressed growing concern that use of smartphones and social media to verify information and virtual connections makes people less social in face-to-face settings

Instructor‘s Manual - Chapter 1       

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The effect of this phenomena can be very damaging to real-world personal and business relationships One widely cited report suggests that the mere presence of a nearby mobile device (not even in use) can divert individuals from face-to-face exchanges and weaken interpersonal connections Humans are strongly motivated—even biologically driven—to seek out social connections and establish a sense of belonging An always-on digital lifestyle can take a mental toll Research has shown that when people shut off their attention to social networks, many begin to feel isolated and grow concerned over missing out on what is occurring in the world around them People have termed this feeling fear of missing out (FOMO) As more members of society increase social media usage, observers caution individuals‘ perceptions of reality can become skewed and affect their life satisfaction

Impact of the Digital Revolution on Marketing Practice   

The many ways organizations employ digital tools can enhance their value propositions and deepen customer relationships Digital technologies have also changed customers‘ expectations of the brands they interact with, whether they are businesses, nonprofit organizations, or governmental institutions Digital and social technologies are forcing all marketers to reassess, alter, and even, in some cases, forgo many tried-and-true ways of thinking about and doing marketing

Greater Emphasis on Owned and Earned Media   

Paid media—publicity gained through advertising, such as buying a 30second Super Bowl commercial, taking out a billboard along a busy stretch of road, or sponsoring a local golf tournament Owned media—publicity gained via a brand-controlled source, such as a website, blog, or Facebook page Earned media—publicity gained through editorial influence or by grassroots actions, such as product reviews on Consumer Reports, online reviews via an online social source such as Yelp, unsolicited brand conversations on Twitter, or a viral YouTube video featuring a company‘s product or service

Brand Democratization    104

Brands don‘t belong to companies any more—they belong to the people who choose to buy them The process of defining, building, and maintaining a brand is now a collaborative one Customers are sharing their experiences on platforms where audiences can

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readily find what others are saying about the brand—both positive and negative Relevant Messaging—Breaking through the Noise 

The power of digital communications has lowered barriers to market entry in many market sectors  This shift has enabled many smaller, more nimble competitors to compete head-to-head with established brands  Consumers hold the power to tune in or tune out what messages they receive and where and when they want to receive them  To become the signal that consumers hear through the noise, marketers must thoughtfully produce messaging that is relevant to each individual consumer  Marketers must:  Understand customers and provide them with content that is valuable—that is useful, informative, engaging, and entertaining  Make content visible in places where customers spend their time  Make sure that the message is delivered or accessible to the customer at the point in time when the consumer needs it most to make a purchase decision THINK LIKE A MARKETER Does social media influence your confidence in brands? Connect Assignment 13-1

Topic: Digital Marketing Media Investment Complete the Connect exercise for Chapter 13 that focuses on digital marketing media investment categories. By exploring these categories, you should gain insight into the impact of digital technologies on consumers and marketing practices. CONNECT BACK Insight Questions: 535. Why do organizations seek to coordinate their digital marketing strategies across several different media? (Answer: Organizations do this in order to elevate online consumer engagement levels, layer their marketing efforts, and tap into each consumer base the platform allows.) 536. What are the three categories of media investments? (Answer: paid, owned, and earned media) 537. How are these three media investment categories integrated? (Answer: Facebook and Instagram, for example, have sponsored ads [paid for], and simultaneously a brand can make organic posts about a product or service while the sponsored ad promotes it. This might entice someone to interact with the post, and therefore all three [owned, earned, and paid] are

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combined in this way. The nature of social media is that consumers share and comment on this platform and so it earns, or gains, unsolicited conversations with each other.) Explain how search marketing Key Terms: LO contributes to digital 13-2  Zero moment of truth (ZMOT) marketing strategy.  Search marketing  Search Marketing  Search engine optimization (SEO)  Search Marketing  Search engine marketing (SEM) Techniques  Paid listings  Search Engine Optimization (SEO)  Search Engine Marketing (SEM)  Search Marketing Performance Is Key to Online Success  How Does Online Search Work?  The Golden Triangle of a Search Results Page  Search Marketing Trends PowerPoint Lecture Notes: Slides Search Marketing    

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The first moment of truth (FMOT) is the short three-to-five second window after a shopper first encounters a product on a store shelf In these few moments, marketers must appeal to shoppers‘ senses, values, and emotions The second moment of truth (SMOT) is the actual experience a customer has with a product once they buy it and return home The zero moment of truth (ZMOT) is ―that moment when you grab your laptop, mobile phone, or some other wired device and start learning about a product or service (or potential boyfriend) you‘re thinking about trying or buying Consumers‘ newfound abilities to search for virtually anything at any time via the Internet has created new moments of decision before the consumer even gets to a store display case What makes a zero moment of truth? It happens online—typically starting with a search on Google, Bing, Yahoo!, YouTube, or any other search engine

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It happens in real time, any time of the day More and more often, it happens on the go—even in the store itself—as consumers search from their smartphones The consumer is in charge, pulling information they want rather than having it pushed at them by others It is emotional; the consumer has a need they want to satisfy and an emotional investment in finding the best solution

Figure 13.1

Insight Questions: 538. What has triggered the ZMOT? (Answer: Consumers‘ newfound ability to search for virtually anything at any time has created new moments of decision before the consumer even gets to the store display case, for example.) 539. Where does the first and second moment of truths occur? (Answer: The first moment of truth is when consumers see the product on the shelf, and the second is the experience.)

Figure Information: Zero Moment of Truth (ZMOT), a Term Coined by Google to Describe Today’s Shopper’s Journey The zero moment of truth (ZM OT) is the moment when a customer uses a digital device to begin learning about a potential purchase. In Lecinksi‘s own words, it is ―that moment when you grab your laptop, mobile phone, or some other wired device and start learning about a product or service (or potential boyfriend) you‘re thinking about trying or buying.‖ PowerPoint Slides

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Search marketing involves techniques for generating greater online customer traffic from online search engines using both unpaid and paid efforts It encompasses two closely related practices: search engine optimization and search engine marketing

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Search Engine Optimization (SEO)    

Search engine optimization (SEO) is the process of getting more traffic based on higher rankings of free or ―organic‖ search results on search engines SEO targets various kinds of search, including image search, local search, video search, academic search, news search, and industry-specific search engines SEO tactics influence organic page rankings by influencing the relevance and popularity of web content SEO also takes into account whether a company‘s website is structured in a way that search engines understand

Search Engine Marketing (SEM) 

Search engine marketing (SE M) is the process of generating website traffic by purchasing advertisements on search engines  SEM uses paid listings—these are the purchased links that typically appear either at the very top or upper right of a search results page  Paid search spending in the United States is set to exceed $95 billion in 2022, accounting for roughly for 35 percent of spending for online advertisements  With Google AdWords, the price-per-click for these search terms will vary based on demand where the marketer specifies a daily budget for the paid ad, and the ad is then ready to go live Search Marketing Performance Is Key to Online Success        

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Ninety-three percent of online customer experiences begin with a search engine Click-through rates depend heavily on the link‘s position on the first page Links from the first page of a Google results page obtain over 90 percent of clicks Studies have consistently shown that the first organic search result receives at least 30 percent of clicks The first three organic search results get between 50 and 60 percent of clicks, so the difference between being the first and the second listing is much greater than that between the second and third listing, and so on Google dominates the search market In 2018, Amazon surpassed Google in terms of total product searches Successful search marketing specialists possess a rare blend of abilities including the following: (1) the position requires strong technical and analytical skills, and (2) success in the position also requires ―soft‖ people skills as well as strong communication ability (strong oral presentation and writing skills are often useful to translate these findings into actionable managerial recommendations)

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Successful search marketing management requires, at minimum, a rudimentary understanding of (1) how search engines work and (2) why search engine performance is closely related to digital marketing success

How Does Online Search Work?     

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Search engines have two major functions: (1) to build an index of all content on the web and (2) to provide users with a ranked list of websites that are most relevant to their search query Search engine companies use automated software programs, called web crawlers, to visit each page on the Internet very quickly Sites and links that contain a larger amount of updated content are crawled more frequently than others and to a greater depth All of the data are stored in vast data centers with thousands of petabytes‘ worth of drives The second step is the part that you see as a user: when you perform an online search, your chosen search engine scours billions of pages, using specialized algorithms to determine the results most relevant websites and pages in relation to the entered search terms Regularly updating websites with new, engaging content is critical to search engine marketing success

The Golden Triangle of a Search Results Page    

Experts refer to the top left part of the page as ―the golden triangle‖ It is the area of the page where users read the title and the description of each search result, which eventually results in higher click-through rates Getting a website listed within the golden triangle of any search result page is critical to increasing traffic to a site Using search marketing techniques, brands can increase the likelihood of appearing in the golden triangle

Figure 13.2

Insight Questions: 540. What do the colors represent on a heat map? (Answer: The areas looked at most are shown in ―hot‖ colors [red, orange, yellow], and the areas looked at the least are shown in ―cold‖ colors [blue and gray].) 541. Are there any other important areas of the heat map? (Answer: Experts refer to the top left part of the page as ―the golden triangle.‖ It is the area of the page where users read the title and the description of each search result, which eventually results in higher clickthrough rates. For digital marketing purposes, getting a website into the golden triangle of any search result page is the key to increasing traffic to a site.)

Figure Information: Heat Map of a 109

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Google Search Results Page, Graphically Representing Data as Colors On display here is a heat map that shows the relative amount of visual attention devoted to search listings aggregated across dozens of study participants. PowerPoint Slides

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Connect Assignment 13-2

Roughly two-thirds of organic online search activity is derived from a mobile device Mobile search is a search engine querying technique that uses a wireless/mobile platform or handheld device with an Internet connection, such as a smartphone or tablet Mobile search is typically location-specific with simplified data results, such as sports scores, versus a standard web search A growing proportion of mobile search—roughly 40 percent—is a voicebased search Topic: SEO and SEM Complete the Connect exercise for Chapter 13 that focuses on search engine optimization and search engine marketing. By understanding the dynamics of both, you should gain insight into how to generate traffic to your organization‘s website and content. CONNECT BACK Insight Questions: 542. What kinds of search does SEO target? (Answer: SEO targets various kinds of search, including image search, local search, video search, academic search, news search, and industry-specific vertical search engines.) 543. How can marketers ensure content doesn‘t get stagnant? (Answer: It is critical that online marketers continuously update their sites with new, interesting, and relevant content.) 544. In SEM, what is the price-per-click based on? (Answer: With Google AdWords, the price-per-click for the search terms used in SE M will vary based upon demand, competition, the market, sociocultural, and economic conditions.)

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Discuss how companies are Key Terms: employing social media  Social media influencer marketing to strengthen  Social media monitoring customer relationships and achieve business objectives.  Social Media Marketing  Social Media Marketing Channels  Rising Use of Niche Social Platforms  Social Media Marketing Strategy  Using Social Media to Increase Brand Visibility  Blenders Eyewear-Using Social Mediato Biuild a Brand ―from the Sand Up‖  Growing Cusfomer Engagement via Social Media Marketing  LEGO IdeasUsing Social Media to Strengthen Fan Engagement  Social Listening and Customer Care  Netflix-Growing Customer Retention through Social Listening PowerPoint Slides Lecture Notes: LO 13-3

Social Media Marketing   111

Social networks plays an increasingly important role in how consumers discover, research, and share information about brands As a result, marketing organizations are devoting greater percentages of

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their resources to their social media marketing efforts Social Media Marketing Channels 

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In a 2021 industry study that identified key social media marketing trends some 96 percent of B2C marketing executives said their business uses Facebook as a marketing tool; about 89 percent of B2B respondents say the same YouTube, Instagram, and Pinterest are more popular with B2C marketers LinkedIn, Twitter, Google+, and SlideShare are more popular with B2B marketers

Figure 13.3

Insight Questions: 545. Which social media platforms are more popular according to this data? (Answer: YouTube, Instagram, and Pinterest are more popular with B2C marketers. LinkedIn, Twitter, Google+, and SlideShare are more popular with B2B marketers.) 546. Why do you think there is such a difference in the types of platforms B2C and B2B consumers are using? (Answer: Open ended as students‘ responses will vary; consider the purpose of each platform, target users, and types of messaging [pictures versus text or video].)

Figure Information: Top Social Media Platforms for B2C and B2B Marketers Data from a 2021 industry study that identified key social media marketing trends is featured. Some 96 percent of B2C respondents say their business uses Facebook as a marketing tool; about 89 percent of B2B respondents say the same. PowerPoint Slides

Lecture Notes: Rising Use of Niche Social Platforms    

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Emerging channels such as TikTok, Twitch, and Houseparty provide brands with opportunities to tap into fresh segments in creative new ways Successfully diversifying across these ―SoMe‖ channels requires brands to take the time to understand differences between the platforms and their respective audiences, then tailoring brand tone and tactics to match Advertising on these emerging platforms is typically much less expensive than the more established social media sites Early research on TikTok indicates that its users have more positive

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attitudes toward ads compared to other platforms Social Media Marketing Strategy 

Nearly all social media marketing strategies and tactics can be grouped according to one of three main purposes: (1) increase brand visibility, (2) grow customer engagement and brand advocacy, and (3) improve customer responsiveness and retention

Using Social Media to Increase Brand Visibility     

All social media platforms come with features that enable brands and users to create engaging content and build strong brand communities Traditional methods for building brand awareness, like advertising, come with comparatively much higher costs and lower ROI A social media influencer is someone who has built a loyal following through their online content creation Influencer marketing involves collaborating (typically on a paid basis) with the content creator to promote the brand. Ideally, the influencer has a base of followers that is representative of one of the brand‘s key target markets Because influencers already have a built-in audience that considers them experts within their niche area, influencer campaigns create awareness and lend credibility to the sponsor brand

Blenders Eyewear-Using Social Mediato Biuild a Brand ―from the Sand Up‖ 

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Social media marketing has been instrumental in helping Blenders Eyewear transform from being just a couple of guys selling sunglasses out of their backpacks to a seven-figure business with hundreds of thousands of followers A huge part of Blenders growth is due to Instagram From its early days, Blenders focused on building relationships with professional photographers It frequented InstaMeets, which are events where photographers and creators from Instagram meet up and take photos and network Blenders builds relationships with photographers by sponsoring InstaMeets and offering free products

Growing Cusfomer Engagement via Social Media Marketing    113

Social interaction begins with establishing and maintaining a strong social presence Inbound marketing firm HubSpot asked nearly 600 consumers what kind of social media presence they expect of any brand Consumers reported that they expect brands to be active on at least three to

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Figure 13.4

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four social channels If consumers expect a brand to be active on Facebook and possibly two or three other social channels, the next question is, ―What do they want from companies there?‖ A good way to determine this is to examine which companies have the most loyal social media following Marketing professionals from these organizations understand the impact of social media in establishing a unique brand identity and building social connections with consumers Customers don‘t go to social media to buy Social media can help build a successful brand by: (1) allowing the firm or brand to develop deeper relationships with customers, and (2) generating positive word-of-mouth communication about the brand Insight Questions: 547. How many platforms should an organization use? (Answer: Consumers reported that they expect brands to be active on at least three to four social channels.) 548. Which is the most preferred platform? (Answer: There was some generational variation in social media usage found in the study, but the research almost universally suggests that a Facebook presence remains a must. Consumer expectations for Twitter presence were about 10 points lower.)

Figure Information: Social Media Expectations for Brands, by Age-Group Results from a study with Inbound marketing firm HubSpot asked nearly 600 consumers what kind social media presence they expect of any brand with respect to preferred social channels. The results are featured here.

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LEGO Ideas-Using Social Media to Strengthen Fan Engagement   

LEGO has been recognized as one of the world‘s most powerful brands, and social media marketing is a key element to the brand‘s success Perhaps the greatest testament to the brand‘s social commitment is its embrace of user-generated content The key social media channel for LEGO is YouTube, where it reaches more than 30 million unique users monthly

Social Listening and Customer Care     

With the social web, brands have the opportunity to ―listen in‖ and even participate in those discussions Social media monitoring, also known as social listening, is the process of identifying and assessing what is being said about a company, individual, product, or brand on the Internet Many firms today are investing customer-support resources into programs that monitor social media who seek to respond before complaints damage online reputations For many customers, social media has become the preferred channel to engage with brands on customer service issues Social media has also raised customer expectations about how quickly their problems should be resolved

Netflix-Growing Customer Retention through Social Listening 

As an entertainment company, its social customer care team is trained to deliver great service while maintaining the company‘s friendly, casual tone  Businesses who invest resources into providing more responsive social customer care can reap higher brand loyalty, reduced customer churn, stronger word of mouth, and greater profits THINK LIKE A MARKETER What would you consider a strong presence on social media? Connect Assignment 13-3

Social Media in Action

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Topic: Social Media Strategy In designing their loyalty program, the L‘Oréal-owned brand carefully analyzed seven years of customer data to determine the long-term financial value of interactions at every customer touch point. According to Alessio Rossi, vice president of Lancôme digital marketing, the program‘s aims are to increase new customer acquisition and improve retention: ―We didn‘t want to just throw another promotion or discount. Instead, it‘s a bidirectional communications channel with consumers to understand them better, collect information about how they go through the decision-making journey, providing more insights so ultimately we can provide an even

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more personalized experience.‖ Complete the Social Media in Action Connect Exercise in Chapter 13 that will let you develop a social media strategy to improve the effectiveness and engagement of an organization’s loyalty program. By understanding how social media marketing can increase acquisition and improve retention, you will be able to use these tools to maximize the benefits of loyalty programs. CONNECT BACK Insight Questions: 549. How do social media increase loyalty participation? (Answer: By adding the exponential power of human connections. With just the push of a button, members can share with their network of friends and family members‘ information about the benefits of their participation. In addition, social media–based loyalty programs create an easy and visible mechanism for identifying and rewarding social brand advocacy.) 550. What are some tips in integrating social media into loyalty rewards program? (Answer: Give your customers a specific hashtag and CTA so you can easily monitor and reward mentions, assign a social currency or value to the social actions your consumers take, and be prepared to surprise and delight someone for his or her actions on social media as they happen.) Explain the importance of Key Terms: content in driving digital  Content marketing marketing strategies.  User-generated content  Content Marketing  Blog  Content Marketing  White paper Source and  E-mail marketing Techniques  Video marketing  Types of Branded  Location-based marketing (LBM) Content  Blog  White Paper  e-Mail Marketing  Webinars  Virtual Trade Shows  Video Marketing  Trends in Content Marketing  Live Streaming  Ephemeral Content  Emoji Marketing

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Location-Based Marketing: Adding Relevance to Content PowerPoint Slides Lecture Notes: Content Marketing     

The success of any website, search marketing, or social media marketing campaign depends on the creation and management of useful and interesting digital content Content marketing is a marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearly defined and profitable audience The essence of content marketing is the belief that if businesses deliver valuable information to buyers, customers will reward them with their business and loyalty Search engines reward businesses that consistently publish quality content; search results pages are typically more relevant and popular with search users By coupling useful content with a social media strategy, organizations and individuals are able to establish a reputation of expertise within their industries

Content Marketing Source and Techniques  

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Content marketing categories can generally be broken into three types: (1) User-generated content: Content created by a brand‘s fans and followers; it is earned content that communicates a brand‘s value in users‘ words rather than the company‘s or those of a neutral party (like a journalist) (2) Branded content: Any content developed and owned by the brand which includes blog posts, white papers, research reports, infographics, or any other content that a brand produces for itself. (3) Expert content: Credible, third-party articles and reviews from unbiased journalists; this is the earned media that is often the result of PR efforts Data shows there is an optimal order to follow in content marketing A baseline of trust is critical to your brand‘s success with consumers The quickest route to building a solid foundation of trust is to lead with credible expert content Once trust is established, you need to maintain that trust while also empowering consumers with additional information which comes via user-generated and branded content

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Types of Branded Content Blog    

A blog (short for web log) is an online journal in which people or companies post their thoughts and other content Blogs are usually related to narrowly defined topics There are more than 31 million blogs in the United States today Many bloggers use social networks like Twitter and Facebook to promote their content

White Paper  

A white paper is a concise yet authoritative report or guide that seeks to inform readers about a complex issue It is meant to help readers understand an issue, solve a problem, or make a decision

E-Mail Marketing  

E-mail marketing lets marketers send highly targeted, personalized, relationship-building e-mail messages To address concerns relating to unsolicited spam e-mail messages, most legitimate marketers now practice permission-based e-mail marketing

Webinars   

Webinars are especially effective for B2B companies because 66 percent of B2B buyers prefer to watch a webinar before buying a product Great content is the backbone of webinar success As long as the content remains relevant, companies can continue to attract prospects by offering the recorded content on an on-demand basis

Virtual Trade Shows       118

Many B2B organizations today have started hosting and participating in virtual trade shows and conferences Virtual trade shows offer several unique advantages over traditional, in-person events, including: Access to larger audiences Less expensive for vendors and customers Improved ability to educate your prospective customers Software tools that help vendors monitor contacts and content

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engagement Video Marketing       

Video has become an integral piece to content marketing strategies at many B2B and B2C organizations Video marketing involves posting digital video content on brand websites or social media sites such as YouTube, Facebook, Rumble, and others Shoppers find visual content particularly helpful for informing decisions To wit, research has found videos are up to 50 times more likely to receive an organic first-page ranking than traditional text pages Many marketers utilize both pre-recorded video as well as live streaming video content Rather than post dry content about their products and services in their newsfeeds, many brands have popularized the use of stories as a more authentic way to resonate with audiences While the stories do not necessarily require high production value, they do place a premium on creativity and innovation in storytelling

Trends in Content Marketing  

Infographics have become a trendy way to share information about goods and services Infographics are highly sharable, catchy to the eye, and more fun to read than a generic blog post

Live Streaming 

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One new branded content approach that is catching on with content creators and audiences is live streaming—broadcasting real-time, live video footage or video feed to an audience accessing the video stream over the Internet Live streaming does not require a huge investment in video production capabilities A live video strategy engages viewers in an authentic way that is difficult to match using other social media formats It allows viewers to be involved, enabling users to participate and share with the tap of a tweet

Ephemeral Content 

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The ephemeral (or disappearing) content format, which went mainstream with the Snapchat app, has become a fixture across multiple platforms

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Ephemeral content is fast-paced and fleeting, offering more opportunities to interact with followers The content often tends to be scrappier and more down-to-earth, which enhances perceptions of brand authenticity and contributes to FOMO (fear of missing out)

Emoji Marketing   

Four out of every 10 Millennials would rather engage with pictures than read Most prominent among this shift to pictorial communication is the emoji, a small digital image or icon used to express an idea or emotion in digital communication Domino‘s Pizza co-opted the pizza emoji, turning it into a foodordering mechanism for registered customers

Location-Based Marketing: Adding Relevance to Content  

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Marketers can create targeted ads that are accurate to within a few feet in places such as the aisle of a grocery store or the shoe section of a department store Brands, retailers, and advertising agencies use location-based marketing (LBM) to adapt content, messaging, or service delivery to a target‘s location, using GPS data transmitted from an individual‘s mobile device A location-based service is a social, entertainment, or information service that allows a company to reach and engage with its audience using tools and platforms that capture the geographic location of the audience The delivery mechanisms used for location-based services include mobile applications, short message service (SMS) text messaging, and even in-store digital signage

Discuss key performance indicators commonly utilized in managing digital and social media marketing campaigns.  Digital and Social Media Marketing Metrics  Digital Marketing Metrics  Search Performance  Website Analytics  Content Performance  Social Media

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Key Terms:  Dashboards  Sentiment analysis

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Marketing Metrics PowerPoint Slides

Lecture Notes: Digital and Social Media Marketing Metrics 

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Many traditional marketing objectives and the corresponding key performance indicators (KPIs) used to track marketing performance, such as customer satisfaction and brand attitudes, are considered ―soft‖—they are either not directly observable and easily measured or aren‘t clearly linked to financial performance outcomes As a result, chief marketing officers have often struggled to demonstrate the return on marketing investments Marketing managers today are able to use web and social media analytics tools to create marketing dashboards that track consumer response to their campaigns By integrating these tools with data from advanced CRM systems, marketers are better positioned to quantify the financial impact of their strategies

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Consistently tracking SEO and SEM performance over time enables digital marketing managers to adapt their key word strategies and make meaningful modifications to website design Search engine rankings: The higher your site ranks on search engines, the better, which ties in directly with the digital marketing team‘s SEO efforts Organic traffic is the number of visits to your website by someone who has found your site using a search engine; it reflects the effectiveness of the company‘s content and SEO efforts Cost-per-click (CPC): for paid search campaigns, it is important to track how much it costs for each click; this cost will depend on how much your competitors are bidding for a particular key word or audience In addition to search and social media traffic, many e-commerce brands also engage in affiliate marketing, whereby partners receive a portion of revenue that is generated from redirected traffic referred from their site

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Identifying which sources attract the most traffic can help the digital marketing team improve overall performance and optimize digital marketing budgets

Website Analytics    

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Website analytics is the analysis, collection, measurement, and reporting of Internet-generated user data for the purpose of understanding and optimizing web content and usage Slow performance in the digital world places the brand at risk of losing customers, so test the website speed of your favorite (or least favorite) sites yourself for free using webpagetest.org Mobile app performance can likewise be tested using resources like speedtest.net Bounce rate is the percentage of website visitors that exit a site after viewing just a single page; this helps digital marketers determine whether the website design makes it easy for users to find the information they are looking for Engagement is typically assessed based on average time on site or pages per visit Once a threshold value has been defined (e.g., visited more than three pages), new visitors can be categorized as engaged or not engaged By assessing engagement levels and other behaviors (including purchases) across traffic sources, marketers can understand which traffic sources are driving the most valuable traffic Lead conversion rate tells you how many of your website visitors convert to sales leads By tracking how many visitors turn into actual sales leads, digital marketers can more meaningfully quantify the impact of their efforts By using web cookies, marketers can track return visitors which allows digital marketers to determine the effectiveness of the website design and content with respect to establishing and growing an online audience

Content Performance     122

Successful content marketing campaigns quite often depend on an iterative A/B testing approach, comparing various strategies against each other across a variety of performance indicators Open rate calculates the percentage of individual recipients who will open an e-mail message Click-through rate (CTR) determines how well an e-mail marketing campaign is performing by measuring how many recipients have clicked on the links within your email CTRs are typically lower than open rates, with an average CTR just

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above 2 percent Most e-mail marketing platforms will tell you how many list members have unsubscribed (i.e., opted out) from your list upon receiving your e-mail Users should be given the option to opt out of e-mails completely or update their e-mail preferences in relation to frequency and the content they are happy to receive Keeping track of the number of times a piece of content is downloaded from a website or social media platform offers insights into the topics your audiences find most relevant Downloads are also a great tool to collect prospect‘s information, which can be used for subsequent outbound marketing efforts

Social Media Marketing Metrics  

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Marketers track social media activity to help improve their marketing efforts Tracking the brand reach (i.e., the number of social media followers) across each channel can help digital marketers better understand the number and types of people who are viewing and interacting with social content and assess how well brand messaging is resonating with users The volume of brand mentions is a great initial indicator of interest and tracking the number of people talking about your brand over time and matching that to marketing actions can provide useful insights to managers Google Alerts allows managers to set up notifications for instances in which a brand is mentioned online Facebook Insights offers a useful KPI called ―People Talking about This‖ which assesses how many unique people have posted something to their walls about a given brand page Determining share of voice helps marketers evaluate how conversations about their brand compare with conversations about its competitors Brand engagement is one of the most important areas to measure in social media Engagement data can be contextualized and compared against internal benchmarks by taking into account the brand‘s social reach Digital and social marketing managers often seek to assess the underlying sentiment toward a brand by examining the language customers use when speaking about it Sentiment analysis, also known as opinion mining, examines the positivity or negativity of the feelings (attitudes, emotions, and

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opinions) behind the words, using natural language processing tools

Marketing Analytics

Insight Questions:

Table 13.1

551. Why do marketers track social media activity? (Answer: To help improve their marketing efforts, show accountability to clients/brands, to see which activities to spend future marketing dollars on, and to analyze a return on investment.) 552. Which metric is a great indication of interest? (Answer: People tend to talk about things they either love or hate, but rarely do they talk about things they simply don‘t care about at all. Therefore, volume is a great initial indicator of interest, though tone and verbiage should be noted.) Insight Questions:

Table Information: Key Social Media Marketing Metrics

553. What are the five categories of metrics? (Answer: reach, engagement, acquisition, conversion, and retention metrics) 554. What is the most common metric? Explain. (Answer: The most common metric—and the easiest to measure—is the volume of mentions, which is a reach metric. People tend to talk about things they either love or hate but rarely do they talk about things they simply don‘t care about at all. So, volume is a great initial indicator of interest.)

A list of metrics commonly found on the dashboards of digital marketing analysts and managers is combined here in one table.

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Ross Hornish SEO Manager, ServiceMaster Ross Hornish started making his own websites and learned firsthand that even the best websites have to be visible. Additional insight is provided in the following questions: 555. Describe your job. 556. How did you get your job? 557. What has been the most important thing in making you successful at your job? 558. What advice would you give soon-to-be graduates? 559. What do you consider your person brand to be?

Photo provided by Ross Hornish

Review with students: 

Identify potential moral hazards arising from digital and social media marketing and offer best practices for ethical application of these tools.  Ethical Issues in Digital and Social Media Marketing  Online Privacy and Information Security  Privacy Data Breaches and Information Security  Unethical Targeting of Digital Customers  Vulnerable Consumer Populations  Ethical Best Practices in Social Media Marketing

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What does it take to be considered a specialist in something?  Why should we continue to learn in our discipline? Key Terms:  Informed consent

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Lecture Notes: Ethical Issues in Digital and Social Media Marketing 

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In a digital world, organizations must not only be aware of ethical values such as trust, honesty, fairness, and confidentiality, they must actively use them to make sure they are doing the ―right‖ thing by their customers The rise of digital and social media marketing has raised the level of attention placed on three distinct areas: (1) online privacy and information security, (2) unethical targeting of digital customers, and (3) ethical best practices in use of social media for marketing purposes

Online Privacy and Information Security   

Being transparent and honest means that organizations must state their intentions regarding data usage and allow their customers to provide their consent The concept of informed consent is a key principle within marketing ethics, referring to permission granted in the full knowledge of the likely consequences However, potential uses of the data may not even be known at the time data are collected

Privacy Data Breaches and Information Security    

Over the past several years, there have been several well-publicized information security events involving the loss of tens and even hundreds of millions of consumer records The occurrence of large-scale privacy breaches has been shown to negatively impact brand trust, customer retention, and purchasing behaviors Firms that fail to invest sufficiently in safeguarding their customer data and establishing policies to deal with cybercrimes may also run into problems with consumer protection agencies In 2018, Uber was forced to pay $148 million to settle a nationwide investigation of a data breach event

Unethical Targeting of Digital Customers  

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Our every action in the digital world leaves a data trail Use of digital technologies enables marketers to gather information from social media networks, e-mail accounts, purchase histories, ad tracking data, online reviews, and other sources to build sophisticated consumer profiles This is a huge benefit to marketers—it allows firms to target customers with more personalized and attractive offers and messaging

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The ability to target customers with advertising is largely why social media platforms are able to offer their services for free to their users

Vulnerable Consumer Populations   

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Marketers should be cautious when targeting populations that may be considered vulnerable While children and teens are often heavy Internet users, they may lack the sophistication to understand that they are being targeted with marketing messaging To ensure the safety of children and ultimately avoid consumer backlash from children‘s parents, companies should not attempt to hard sell online to these children, should do their best to involve the parents (e.g., ensure that information from children comes with express knowledge of the parents), and should think of their website as a service rather than an advertisement Unethical targeting practices can also be exclusionary in nature In 2016 ad agency ProPublica bought a Facebook ad for real estate that blocked users with an ―affinity‖ for African Americans, Asian Americans, or Hispanics which violated the federal Fair Housing Act and prohibits discriminatory marketing tactics in the sales or rental of real estate In February 2017, Facebook was forced to bow to mounting pressure from activist groups who demanded that the company disable all ad targeting on the basis of race, gender, and sexual orientation

Ethical Best Practices in Social Media Marketing      

Like all marketing efforts, social media marketing should be ethical When there is full transparency in a brand‘s social media communication, its motivations are perceived as more sincere This can engender a greater sense of trust and connection to that brand Even though social media use in many cases entails voluntary sharing of personal information, privacy remains an important concern Crediting, and asking permission, is the least you can do when using someone else‘s content though many content creators are actually happy to share their content, images, links, ideas, and even data Whether working with social influencers on Instagram or participating yourself on a B2B topic board discussion on LinkedIn, it is unethical (and possibly illegal) for individuals to promote products or brands while being paid by that company without disclosing that information

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LinkedIn to be intimidating. But remember, it is perfectly normal to feel discomfort when writing about yourself. Don‘t be discouraged by the polished profiles of other students or industry executives. Millions of people in the workforce use LinkedIn to make professional connections and advance their career. Why wait to join them? Here are 10 tips for creating an attention-grabbing LinkedIn profile. 560. Include a profile photo. Visuals are very important. Having a photo makes your profile 21 times more likely to be viewed, according to Ada Yu, director of product management at LinkedIn. For maximum impact, obtain a professional headshot. Do not use a photo of you with your friends during your recent spring break trip to the beach. 561. Highlight soft skills. Skills like time management and communication are increasingly important to employers. You can overcome limited work experience in a relevant field by emphasizing soft skills and your passion for learning. 562. Use key words. Words that appear below your name and elsewhere in your profile are indexed in the platform‘s search as well as external search engines such as Google if your profile is public. Ms. Yu suggests students read job descriptions and mention sought-after skills they see listed—provided they actually have them. 563. Write an elevator pitch. Think for a minute about what you‘d want someone you‘d never met to know about you. Next, thoughtfully craft five to seven sentences that inform potential employers about you as a person. Avoid jargon. Alan Katzman, CEO of personal digital portfolio consulting firm Social Assurity, suggests, ―Rather than using résumé talk, I want them [students] to talk about what they‘ve learned about themselves,‖ he said. ―It could be volunteering, sports or family care.‖ 564. Turn on ―Open to Work.‖ LinkedIn created a feature during the pandemic that allows people actively seeking jobs to indicate that by turning on a profile photo frame with the label Open to Work. People who use it are 40 percent more likely to receive messages from recruiters, Ms. Yu said. 565. Make meaningful connections. Quality is better than quantity. There are numerous LinkedIn Groups organized around interest areas like independent filmmaking, economics, and marketing. Students can join them to network with people who share similar interests. Students can also make use of LinkedIn‘s university alumni network to find potentially helpful professionals. 566. Be personal. When sending messages to alumni or to people who work at companies you‘re interested in, take the time to write a personal note. Be specific about your reason for writing. The same goes for commenting on a post. If you don‘t know what to say, ask a question. 567. Include your contact information. Teens and 20-somethings are used to communicating via direct message, but not all employers are. Rather than relying solely on LinkedIn‘s internal messaging system, add alternate ways to contact you, such as an email address. 568. Don’t try to be funny. What‘s acceptable on other social media platforms with friends may not fly on LinkedIn. Without context or direct interaction, it can be hard to convey humor in text. 128

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569. Get a second opinion. Before your LinkedIn profile goes live, ask a parent, professor, or trusted professional to proofread and provide other feedback. The same goes for comments on posts. Student Task #1: Search through several entry-level job listings in your field using a free online job board like Indeed or Glassdoor.com. Which skills and attributes that you possess seem to be commonly sought-after by employers? Make a list of five potential keywords. Student Task #2: Go to LinkedIn.com and search for Groups that correspond to personal or professional interest areas, companies that you might like to work for, or your university. Read through a few articles and posts. From a networking perspective, which three groups do you think would be most beneficial for you to join? Why? How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 570. What organization provides you with the most consistently relevant content? How does this affect your purchasing habits? Name an organization that does not provide consistently relevant marketing content through social media. What would you recommend it do differently? (Answer: Open ended as students‘ responses will vary; consider that the bigger ―box‖ stores tend to keep their websites and social media feed up-to-date, likely because they have people and resources to support their online activity. What types of interactions do they have? How do they encourage or entice consumers to discuss their shopping experience or merchandise? Does this personally affect your purchasing behavior? How are crises handled and how quickly does the brand respond?) 571. What are the two main reasons you go online? If a company were trying to reach you through digital and social marketing, what recommendations would you give it? (Answer: Open ended as students‘ responses will vary; many businesses and friends have a website or platform—shopping for goods and services, social media for relationship building or connectivity, or news/information—these are all reasons to consider. The time of day, app access, and ease of doing business should be considered for reaching consumers. Follow-up texting and mobile marketing are also considerations.) 572. Do you think the abundance of social media platforms used by organizations makes it easier or harder to reach customers in a meaningful way? Explain your answer. (Answer: Open ended as students‘ responses will vary; Different consumers prefer different social media platforms and use them according to these differences. For example, younger consumers may prefer Instagram or Twitter, whereas older consumers may prefer Facebook. Professionals use LinkedIn. If an organization has multiple target markets that vary in age, it 129

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may be a good strategy to be on several social media platforms. It is also expected by consumers that organizations are where their customers are.) 573. What is a call to action (CTA) that led you to some action? What made that specific CTA effective in influencing your behavior? (Answer: Open ended as students‘ responses will vary; a CTA is an image or line of text that prompts visitors, leads, and customers to perform a desired action. A CTA can be placed anywhere within a marketing communication—on your website, in a tweet, a Facebook post, an e-book, or an e-mail, or at the end of a blog post.) 574. Think of a company in the town where you live and develop a strategy of how it could use geofencing to effectively promote products to its target market. (Answer: Open ended as students‘ responses will vary; consider the ability to ―check in‖ or tag a location via social media, or beacon sources within mobile/wireless devices.) SOCIAL MEDIA APPLICATION The use of social and mobile technologies provides marketers with new tools that can simultaneously serve to (1) deepen customers‘ brand engagement and (2) provide marketers with real-time feedback about what tactics are resonating. Pick a company that is located in the state where you live. Analyze that organization‘s social media platforms using the following questions as a guide. 575. What is the company doing to deepen brand engagement with customers using social media? 576. Looking at the last month, what feedback have customers provided on the firm‘s marketing efforts? 577. Based on the social media feedback customers have provided, what marketing recommendations would you make to this company? This activity is located in an additional worksheet that can be used with group interaction, and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real-world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Please complete the Connect exercise for Chapter 13 that focuses on analyzing the success of social media campaigns using different platforms. 130

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ETHICAL CHALLENGE The National Football League (NFL) generates the most television revenue of any major North American professional sport. Network deals with broadcast partners Fox, NBC, CBS, and ESPN generate $6 billion annually in rights fees for the NFL. In addition, the League decided to run 13 Thursday night games on its own NFL Network cable channel. Thursday Night Football on the NFL Network, which is available in over 70 million U.S. homes, averaged millions of viewers a night during the fall of 2015. While some of the Thursday night games are simulcast on CBS and NBC, there are multiple games each year that can be seen only by watching the NFL network. Its success negatively affected the ratings of the prime-time comedy and drama shows that air on NBC, CBS, and the NFL‘s other broadcast partners on Thursday evenings. While Thursday Night Football is bringing more viewers to the NFL‘s cable channel, marketers at the League‘s broadcast partners might be wondering why they are paying $6 billion a year to an organization that is stealing television viewers on what had been traditionally one of the broadcast networks‘ best nights. Please use the ethical decision-making framework to complete the following related to this scenario: 578. Analyze the NFL‘s decision to play more Thursday night games on the NFL Network. What are the ethical implications of this decision? (Answer: Open ended as students‘ responses will vary; asking consumers to pay a premium for a non-monopolized service may not be a bad idea, but promising exclusivity through one network while delivering something different than what has been contractually agreed upon is unethical.) 579. If you were a marketer at a broadcast network partner of the NFL, what action might you take in response to the fact that Thursday night games have hurt the television ratings and advertising revenue of your Thursday night programming? (Answer: Open ended as students‘ responses will vary; proposing a solution that works for viewership and consumer preferences may be beneficial. While it may not make sense to overspend, the co-branding benefits the consumers see may also have an impact on revenue.) 580. If you were a marketer for the NFL, why would you not put televised games on every night of the week? Are there any advertising or marketing concerns about showing football games on Tuesday, Wednesday, or Friday nights? (Answer: Open ended as students‘ responses will vary; While football presently generates a large source of revenue for the network, putting football on every night may reduce the demand on Monday, Thursday, or Sunday (generally ―football designated days‖), and networks need to balance consumer preferences for other programs.) Source: See Andy Fixmer, ―Thursday Night Football Scores Big for the NFL,‖ Bloomberg Businessweek, November 29, 2012, http://www.businessweek.com/articles/2012-11-29/thursdaynight-football-scores-big-for-the-nfl. VIDEO CASE Have students go to Connect to access the video case featuring Dell that accompanies this chapter. 132

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PODCAST Have students go to Connect to access the podcast that accompanies this chapter. CAREER TIPS To help students think about how to break into search engine marketing, a young professional shares some career tips. Clay Crazier, VP of Search Strategy at PM Digital, shares some tips on how students can get a leg up on the competition for SEO positions.  Develop your own website or blog.  Keep up with changes in the discipline.  Have a willingness to learn.  Self-directed research has value.  Have an opinion on what you know. Review with students:  What does it mean to be a self-starter?  What things can you do to augment your coursework in an effort to differentiate your resume?  What free courses in your discipline are available, and what‘s your plan to learn the extra information?

Chapter 13: Digital and Social Media Marketing

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-235 Understand the impact of mobile and social digital technologies on consumers and marketing practices. LO 1-236 Explain how search marketing contributes to digital marketing strategy. LO 1-237 Discuss how companies are employing social media marketing to strengthen customer relationships and achieve business objectives. LO 1-238 Explain the importance of content marketing in driving digital marketing strategies. LO 1-239 Discuss the key performance indicators commonly utilized in managing digital and social media marketing campaigns. 133

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LO 1-240 Identify the potential moral hazards arising from digital and social media marketing and offer best practices for ethical application of these tools. KEY TERMS blog content marketing content marketing dashboards digital marketing e-mail marketing fear of missing out (FOMO) informed consent

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location-based marketing (LBM) paid listings search engine marketing (SEM) search engine optimization (SEO) search marketing sentiment analysis (opinion mining)

social media influencer social media marketing social media monitoring (social listening) user-generated content video marketing white paper zero moment of truth (ZMOT)

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THOUGHT-PROVOKING ACTIVITY Set 1: Define social media. One significant feature of social media is how quickly it diffused. How long did it take with other mediums? Why is this important?

Set 2: What is a call to action? What are the three ideas for improving CTA conversion rates? Be specific.

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Donielle Xu, Data Center Solution Principal, Dell EMC How is marketing relevant in her role? How does social media influence market share when designing products, creating promotions, and strategizing pricing? LO13-1: Understand the impact of mobile and social digital technologies on consumers and marketing practices. The Digital Marketing Revolution  The ability to make one-to-one connections, be responsive to consumers, and inspire positive word-of-mouth have reemerged as the most important business considerations  These changes have led to the rapid emergence of digital and social media marketing  Digital marketing is an umbrella term that refers to the marketing of goods or services using digital media, such as search engines, websites, e-mail, and social media  Social media marketing involves a company‘s use of social media and social networking platforms to establish relationships with customers and market their products and services Marketing to the ―Always-Connected‖ Consumer  In 2022, it is estimated that the average American will spend nearly a month and a half on their phones 135

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In one survey, over one-third of American users indicated in a recent survey that they would rather give up their pets than do without their smartphones As of early 2022, there were 2.91 billion monthly active Facebook users (MAUs) worldwide Approximately 1.84 billion users visit Facebook on a daily basis (D AUs) The average American spends just over two hours per day on social media There are 500 hours of video uploaded to YouTube every minute Roughly 500 million tweets are sent per day on Twitter There are more than 200 million business accounts on Instagram In order to reach today‘s always-on consumers, marketers must understand and engage in this digital revolution

THINK LIKE A MARKETER Why was the diffusion process much shorter for Facebook? (Answer: Open ended) Impact of Social Media on Individuals and Society  Sociologists and organizational scientists have expressed growing concern that the use of smartphones and social media to verify information and virtual connections makes people less social in face-to-face settings  The effects of this phenomena can be very damaging to real-world personal and business relationships  One widely cited report suggests that the mere presence of a nearby mobile device (not even in use) can divert individuals from face-to-face exchanges and weaken interpersonal connections  Humans are strongly motivated—even biologically driven—to seek out social connections and establish a sense of belonging  An always-on digital lifestyle can take a mental toll  Research has shown that when people shut off their attention to social networks, many begin to feel isolated and grow concerned over missing out on what is occurring in the world around them  People have termed this feeling fear of missing out (FOMO)  As more members of society increase their social media usage, observers caution that individuals‘ perceptions of reality can become skewed and affect their life satisfaction Impact of the Digital Revolution on Marketing Practice  The many ways organizations employ digital tools can enhance their value propositions and deepen customer relationships  Digital technologies have also changed customers‘ expectations of the brands they interact with, whether they are businesses, nonprofit organizations, or governmental institutions 137

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Digital and social technologies are forcing all marketers to reassess, alter, and even, in some cases, forgo many tried-and-true ways of thinking about and doing marketing Greater Emphasis on Owned and Earned Media  Paid media—publicity gained through advertising, such as buying a 30-second Super Bowl commercial, taking out a billboard along a busy stretch of road, or sponsoring a local golf tournament  Owned media—publicity gained via a brand-controlled source, such as a website, blog, or Facebook page  Earned media—publicity gained through editorial influence or by grassroots actions, such as product reviews on Consumer Reports, online reviews via an online social source such as Yelp, unsolicited brand conversations on Twitter or a viral YouTube video featuring a company‘s product or service Brand Democratization  Brands don‘t belong to companies any more—they belong to the people who choose to buy them  The process of defining, building, and maintaining a brand is now a collaborative one  Customers are sharing their experiences on platforms where audiences can readily find what others are saying about the brand—both positive and negative Relevant Messaging—Breaking through the Noise  The power of digital communications has lowered barriers to market entry in many market sectors  This shift has enabled many smaller, more nimble competitors to compete head-to-head with established brands  Consumers hold the power to tune in or tune out what messages they receive and where and when they want to receive them  To become the signal that consumers hear through the noise, marketers must thoughtfully produce messaging that is relevant to each individual consumer  Marketers must:  Understand customers and provide them with content that is valuable—that is useful, informative, engaging, and entertaining  Make content visible in places where customers spend their time  Make sure that the message is delivered or accessible to the customer at the point in time when the consumer needs it most to make a purchase decision THINK LIKE A MARKETER Does social media influence your confidence in brands? (Answer: Open ended)

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CONNECT BACK: Reference Connect Assignment 13-1 Why do organizations seek to coordinate their digital marketing strategies across several different media? (Answer: Organizations do this in order to elevate online consumer engagement levels, layer their marketing efforts, and tap into each consumer base the platform allows.) What are the three categories of media investments? (Answer: paid, owned, and earned media) How are these three media investment categories integrated? (Answer: Facebook and Instagram, for example, have sponsored ads (paid for), and simultaneously a brand can make organic posts about a product or service while the sponsored ad promotes it. This might entice someone to interact with the post, and therefore all three (owned, earned, and paid) are combined in this way. The nature of social media is that consumers share and comment on this platform and so it earns, or gains, unsolicited conversations with each other.) LO13-2: Explain how search marketing contributes to digital marketing strategy. Search Marketing  The first moment of truth (FMOT) is the short 3- to 5-second window after a shopper first encounters a product on a store shelf  In these few moments, marketers must appeal to shoppers‘ senses, values, and emotions  The second moment of truth (SMOT) is the actual experience a customer has with a product once he or she buys it and returns home  The zero moment of truth (ZMOT) is ―that moment when you grab your laptop, mobile phone, or some other wired device and start learning about a product or service (or potential boyfriend) you‘re thinking about trying or buying  Consumers‘ newfound abilities to search for virtually anything at any time via the Internet has created new moments of decision before the consumer even gets to a store display case.  What makes a zero moment of truth?  It happens online—typically starting with a search on Google, Bing, Yahoo!, YouTube, or any other search engine  It happens in real time, any time of the day  More and more often, it happens on the go—even in the store itself—as consumers search on their smartphones  The consumer is in charge, pulling the information they want rather than having it pushed at them by others  It is emotional; the consumer has a need they want to satisfy and an emotional investment in finding the best solution 139

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Figure 13.1 Zero Moment of Truth (ZMOT), a Term Coined by Google to Describe Today’s Shopper’s Journey INSIGHT QUESTIONS What has triggered the ZMOT? (Answer: Consumers‘ newfound ability to search for virtually anything at any time has created new moments of decision before the consumer even gets to the store display case, for example.) Where does the first and second moment of truths occur? (Answer: The first moment of truth is when consumers see the product on the shelf, and the second is the experience.) Search Marketing Techniques  Search marketing involves techniques for generating greater online customer traffic from online search engines using both unpaid and paid efforts  It encompasses two closely related practices: search engine optimization and search engine marketing Search Engine Optimization (SEO)  Search engine optimization (SEO) is the process of getting more traffic based on higher rankings of free or ―organic‖ search results on search engines  SEO targets various kinds of search, including image search, local search, video search, academic search, news search, and industry-specific search engines  SEO tactics influence organic page rankings by influencing the relevance and popularity of web content  SEO also takes into account whether a company‘s website is structured in a way that search engines understand Search Engine Marketing (SEM)  Search engine marketing (SEM) is the process of generating website traffic by purchasing advertisements on search engines  SEM uses paid listings—these are the purchased links that typically appear either at the very top or upper right of a search results page  Paid search spending in the United States is set to exceed $95 billion in 2022, accounting for roughly 35 percent of spending for online advertisements  With Google AdWords, the price per click for these search terms will vary based on demand where the marketer specifies a daily budget for the paid ad, and the ad is then ready to go live Search Marketing Performance Is Key to Online Success  Ninety three percent of online customer experiences begin with a search engine  Click through rates depend heavily on the link‘s position on the first page.  Links from the first page of a Google results page obtain over 90 percent of clicks  Studies have consistently shown that the first organic search result receives at least 30 percent of clicks 141

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The first three organic search results get between 50 and 60 percent of clicks, so the difference between being the first and the second listing is much greater than that between the second and third listing, and so on  Google dominates the search market  In 2018, Amazon surpassed Google in terms of total product searches  Successful search marketing specialists possess a rare blend of abilities, including: (1) the position requires strong technical and analytical skills, and (2) success in the position also requires ―soft‖ people skills as well as strong communication ability (strong oral presentation and writing skills are often useful to translate these findings into actionable managerial recommendations)  Successful search marketing management requires, at minimum, a rudimentary understanding of (1) how search engines work and (2) why search engine performance is closely related to digital marketing success How Does Online Search Work?  Search engines have two major functions: (1) to build an index of all content on the web, and (2) to provide users with a ranked list of websites that are most relevant to their search query  Search engine companies use automated software programs, called web crawlers, to visit each page on the Internet very quickly  Sites and links that contain a larger amount of updated content are crawled more frequently than others and to a greater depth  All of the data are stored in vast data centers with thousands of petabytes‘ worth of drives  The second step is the part that you see as a user: when you perform an online search, your chosen search engine scours billions of pages, using specialized algorithms to determine the results most relevant websites and pages in relation to the entered search terms  Regularly updating websites with new, engaging content is critical to search engine marketing success The Golden Triangle of a Search Results Page  Experts refer to the top left part of the page as ―the golden triangle‖  It is the area of the page where users read the title and description of each search result, which eventually results in higher click through rates  Getting a website listed within the golden triangle of any search result page is critical to increasing traffic to a site  Using search marketing techniques, brands can increase the likelihood of appearing in the golden triangle

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Figure 13.2 Heat Map of a Google Search Results Page, Graphically Representing Data as Colors INSIGHT QUESTIONS What do the colors represent on a heat map? (Answer: The areas looked at most are shown in ―hot‖ colors [red, orange, yellow], and the areas looked at the least are shown in ―cold‖ colors [blue and gray].) Are there any other important areas of the heat map? (Answer: Experts refer to the top left part of the page as ―the golden triangle.‖ It is the area of the page where users read the title and the description of each search result, which eventually results in higher click through rates. For digital marketing purposes, getting a website into the golden triangle of any search result page is the key to increasing traffic to a site.) Search Marketing Trends  Roughly two-thirds of organic online search activity is derived from a mobile device  Mobile search is a search engine querying technique that uses a wireless/mobile platform or handheld device with an Internet connection, such as a smartphone or tablet  Mobile search is typically location-specific with simplified data results, such as sports scores, versus a standard web search  A growing proportion of mobile search—roughly 40 percent—is voice-based search CONNECT BACK: Reference Connect Assignment 13-2 What kinds of search does SEO target? (Answer: SEO targets various kinds of search, including image search, local search, video search, academic search, news search, and industry-specific vertical search engines.) How can marketers ensure content doesn‘t get stagnant? (Answer: It is critical that online marketers continuously update their sites with new, interesting, and relevant content.) In SEM, what is the price per click based on? (Answer: With Google AdWords, the price per click for the search terms used in SEM will vary based upon demand, competition, the market, sociocultural, and economic conditions.) LO13-3: Discuss how companies are employing social media marketing to strengthen customer relationships and achieve business objectives. Social Media Marketing  Social networks play an increasingly important role in how consumers discover, research, and share information about brands 143

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As a result, marketing organizations are devoting greater percentages of their resources to their social media marketing efforts

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Social Media Marketing Channels  In a 2021 industry study that identified key social media marketing trends, some 96 percent of B2C marketing executives said their business uses Facebook as a marketing tool; about 89 percent of B2B respondents say the same  YouTube, Instagram, and Pinterest are more popular with B2C marketers  LinkedIn, Twitter, Google+, and SlideShare are more popular with B2B marketers Figure 13.3 Top Social Media Platforms for B2C and B2B Marketers INSIGHT QUESTIONS Which social media platforms are more popular according to this data? (Answer: YouTube, Instagram, and Pinterest are more popular with B2C marketers. LinkedIn, Twitter, Google+, and SlideShare are more popular with B2B marketers.) Why do you think there is such a difference in the types of platforms B2C and B2B consumers are using? (Answer: Open ended as students‘ responses will vary; Consider the purpose of each platform, target users, and types of messaging [pictures versus text or video].) Rising Use of Niche Social Platforms  Emerging channels such as TikTok, Twitch, and Houseparty provide brands with opportunities to tap into fresh segments in creative new ways  Successfully diversifying across these ―SoMe‖ channels requires brands to take the time to understand differences between the platforms and their respective audiences, then tailoring brand tone and tactics to match  Advertising on these emerging platforms is typically much less expensive than the more established social media sites  Early research on TikTok indicates that its users have more positive attitudes toward ads compared to other platforms Social Media Marketing Strategy  Nearly all social media marketing strategies and tactics can be grouped according to one of three main purposes: (1) increase brand visibility, (2) grow customer engagement and brand advocacy, and (3) improve customer responsiveness and retention Using Social Media to Increase Brand Visibility  All social media platforms come with features that enable brands and users to create engaging content and build strong brand communities  Traditional methods for building brand awareness, like advertising, come with comparatively much higher costs and lower ROI

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A social media influencer is someone who has built a loyal following through their online content creation  Influencer marketing involves collaborating (typically on a paid basis) with the content creator to promote the brand. Ideally, the influencer has a base of followers that is representative of one of the brand‘s key target markets  Because influencers already have a built-in audience that considers them experts within their niche area, influencer campaigns create awareness and lend credibility to the sponsor brand Blenders Eyewear-Using Social Mediato Biuild a Brand ―from the Sand Up‖  Social media marketing has been instrumental in helping Blenders Eyewear transform from being just a couple of guys selling sunglasses out of their backpacks to a seven-figure business with hundreds of thousands of followers  A huge part of Blenders growth is due to Instagram  From its early days, Blenders focused on building relationships with professional photographers  It frequented InstaMeets, which are events where photographers and creators from Instagram meet up and take photos and network  Blenders builds relationships with photographers by sponsoring InstaMeets and offering free products Growing Cusfomer Engagement via Social Media Marketing  Social interaction begins with establishing and maintaining a strong social presence  Inbound marketing firm HubSpot asked nearly 600 consumers what kind of social media presence they expect of any brand  Consumers reported that they expect brands to be active on at least three to four social channels  If consumers expect a brand to be active on Facebook and possibly two or three other social channels, the next question is, ―What do they want from companies there?‖  A good way to determine this is to examine which companies have the most loyal social media following  Marketing professionals from these organizations understand the impact of social media in establishing a unique brand identity and building social connections with consumers  Customers don‘t go to social media to buy  Social media can help build a successful brand by: (1) allowing the firm or brand to develop deeper relationships with customers and (2) generating positive word-of-mouth communication about the brand

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Figure 13.4 Social Media Expectations for Brands, by Age Group INSIGHT QUESTIONS How many platforms should an organization use? (Answer: Consumers reported that they expect brands to be active on at least three to four social channels.) Which is the most preferred platform? (Answer: There was some generational variation in social media usage found in the study, but the research almost universally suggests that a Facebook presence remains a must. Consumer expectations for Twitter presence were about 10 points lower.) LEGO Ideas-Using Social Media to Strengthen Fan Engagement  LEGO has been recognized as one of the world‘s most powerful brands, and social media marketing is a key element to the brand‘s success  Perhaps the greatest testament to the brand‘s social commitment is its embrace of usergenerated content  The key social media channel for LEGO is YouTube, where it reaches more than 30 million unique users monthly Social Listening and Customer Care  With the social web, brands have the opportunity to ―listen in‖ and even participate in those discussions  Social media monitoring, also known as social listening, is the process of identifying and assessing what is being said about a company, individual, product, or brand on the Internet  Many firms today are investing customer support resources into programs that monitor social media and seek to respond before complaints damage their online reputations  For many customers, social media has become the preferred channel to engage with brands on customer service issues  Social media has also raised customer expectations about how quickly their problems should be resolved Netflix-Growing Customer Retention through Social Listening  As an entertainment company, its social customer care team is trained to deliver great service while maintaining the company‘s friendly, casual tone  Businesses that invest resources into providing more responsive social customer care can reap higher brand loyalty, reduced customer churn, stronger word of mouth, and greater profits THINK LIKE A MARKETER What would you consider a strong presence on social media?

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(Answer: Open ended)

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CONNECT BACK: Reference Connect Assignment 13-3 How do social media increase loyalty participation? (Answer: By adding the exponential power of human connections. With just the push of a button, members can share with their network of friends and family members‘ information about the benefits of their participation. In addition, social media-based loyalty programs create an easy and visible mechanism for identifying and rewarding social brand advocacy.) What are some tips in integrating social media into loyalty rewards program? (Answer: Give your customers a specific hashtag and CTA so you can easily monitor and reward mentions, assign a social currency or value to the social actions your consumers take, and be prepared to surprise and delight someone for their actions on social media as they happen.) LO13-4: Explain the importance of content creation in driving digital marketing strategies. Content Marketing  The success of any website, search marketing, or social media marketing campaign depends on the creation and management of useful and interesting digital content  Content marketing is a marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearly defined and profitable audience  The essence of content marketing is the belief that if businesses deliver valuable information to buyers, customers will reward them with their business and loyalty  Search engines reward businesses that consistently publish quality content; search results pages are typically more relevant and popular with search users  By coupling useful content with a social media strategy, organizations and individuals are able to establish a reputation of expertise within their industries Content Marketing Source and Techniques  Content marketing categories can generally be broken into three types:  (1) User-generated content: Content created by a brand‘s fans and followers; it is earned content that communicates a brand‘s value in users‘ words rather than the company‘s or those of a neutral party (like a journalist)  (2) Branded content: Any content developed and owned by the brand which includes blog posts, white papers, research reports, infographics, or any other content that a brand produces for itself  (3) Expert content: Credible, third-party articles and reviews from unbiased journalists; this is the earned media that is often the result of PR efforts  Data show there is an optimal order to follow in content marketing  A baseline of trust is critical to your brand‘s success with consumers

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The quickest route to building a solid foundation of trust is to lead with credible expert content  Once trust is established, you need to maintain that trust while also empowering consumers with additional information which comes via user-generated and branded content Types of Branded Content Blog  A blog (short for web log) is an online journal in which people or companies post their thoughts and other content  Blogs are usually related to narrowly defined topics  There are more than 31 million blogs in the United States today  Many bloggers use social networks like Twitter and Facebook to promote their content White Paper  A white paper is a concise yet authoritative report or guide that seeks to inform readers about a complex issue  It is meant to help readers understand an issue, solve a problem, or make a decision E-mail Marketing  E-mail marketing lets marketers send highly targeted, personalized, relationship-building email messages  To address concerns relating to unsolicited spam e-mail messages, most legitimate marketers now practice permission-based e-mail marketing Webinars  Webinars are especially effective for B2B companies because 66 percent of B2B buyers prefer to watch a webinar before buying a product  Great content is the backbone of webinar success  As long as the content remains relevant, companies can continue to attract prospects by offering the recorded content on an on-demand basis Virtual Trade Shows  Many B2B organizations today have started hosting and participating in virtual trade shows and conferences  Virtual trade shows offer several unique advantages over traditional, in-person events, including:  Access to larger audiences  Less expensive for vendors and customers  Improved ability to educate your prospective customers  Software tools that help vendors monitor contacts and content engagement

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Video Marketing  Video has become an integral part of content marketing strategies at many B2B and B2C organizations  Video marketing involves posting digital video content on brand websites or social media sites such as YouTube, Facebook, Rumble, and others  Shoppers find visual content particularly helpful for informing decisions  To wit, research has found videos are up to 50 times more likely to receive an organic firstpage ranking than traditional text pages  Many marketers utilize both pre-recorded video as well as live streaming video content  Rather than post dry content about their products and services in their newsfeeds, many brands have popularized the use of stories as a more authentic way to resonate with audiences  While the stories do not necessarily require high production value, they do place a premium on creativity and innovation in storytelling Trends in Content Marketing  Infographics have become a trendy way to share information about goods and services  Infographics are highly sharable, catchy to the eye, and more fun to read than a generic blog post Live Streaming  One new branded content approach that is catching on with content creators and audiences is live streaming—broadcasting real-time, live video footage, or video feed to an audience accessing the video stream over the Internet  Live streaming does not require a huge investment in video production capabilities  A live video strategy engages viewers in an authentic way that is difficult to match using other social media formats  It allows viewers to be involved, enabling users to participate and share with the tap of a tweet Ephemeral Content  The ephemeral (or disappearing) content format, which went mainstream with the Snapchat app, has become a fixture across multiple platforms  Ephemeral content is fast-paced and fleeting, offering more opportunities to interact with followers  The content often tends to be scrappier and more down-to-earth, which enhances perceptions of brand authenticity and contributes to FOMO (fear of missing out) Emoji Marketing  Four out of every 10 Millennials would rather engage with pictures than read  Most prominent among this shift to pictorial communication is the emoji, a small digital image or icon used to express an idea or emotion in digital communication  Domino‘s Pizza co-opted the pizza emoji, turning it into a food-ordering mechanism for registered customers 151

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Location-Based Marketing: Adding Relevance to Content  Marketers can create targeted ads that are accurate to within a few feet in places such as the aisle of a grocery store or the shoe section of a department store  Brands, retailers, and advertising agencies use location-based marketing (LBM) to adapt content, messaging, or service delivery to a target‘s location using GPS data transmitted from an individual‘s mobile device  A location-based service is a social, entertainment, or information service that allows a company to reach and engage with its audience using tools and platforms that capture the geographic location of the audience  The delivery mechanisms used for location-based services include mobile applications, short message service (SMS) text messaging, and even in-store digital signage LO13-5: Discuss key performance indicators commonly utilized in managing digital and social media marketing campaigns. Digital and Social Media Marketing Metrics  Many traditional marketing objectives and the corresponding key performance indicators (KPIs) used to track marketing performance, such as customer satisfaction and brand attitudes, are considered ―soft‖—they are either not directly observable and easily measured or aren‘t clearly linked to financial performance outcomes  As a result, chief marketing officers have often struggled to demonstrate the return on marketing investments  Marketing managers today are able to use web and social media analytics tools to create marketing dashboards that track consumer response to their campaigns  By integrating these tools with data from advanced CRM systems, marketers are better positioned to quantify the financial impact of their strategies Digital Marketing Metrics  Digital marketing metrics are measurable values that marketing managers can use to track the performance of their digital marketing efforts  These KPIs are broken into three groups: search performance, website analytics, and content performance

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Search Performance  Consistently tracking SEO and SEM performance over time enables digital marketing managers to adapt their keyword strategies and make meaningful modifications to website design  Search engine rankings: The higher your site ranks on search engines, the better, which ties in directly with the digital marketing team‘s SEO efforts  Organic traffic is the number of visits to your website by someone who found it using a search engine; it reflects the effectiveness of the company‘s content and SEO efforts  Cost per click (CPC): For paid search campaigns, it is important to track how much it costs for each click; this cost will depend on how much your competitors are bidding for a particular keyword or audience  In addition to search and social media traffic, many e-commerce brands also engage in affiliate marketing, whereby partners receive a portion of revenue that is generated from redirected traffic referred from their site  Identifying which sources attract the most traffic can help the digital marketing team improve overall performance and optimize digital marketing budgets Website Analytics  Website analytics is the analysis, collection, measurement, and reporting of Internetgenerated user data for the purpose of understanding and optimizing web content and usage  Slow performance in the digital world places the brand at risk of losing customers, so test the website speed of your favorite (or least favorite) sites yourself for free using webpagetest.org  Mobile app performance can likewise be tested using resources like speedtest.net  Bounce rate is the percentage of website visitors that exit a site after viewing just a single page; this helps digital marketers determine whether the website design makes it easy for users to find the information they are looking for  Engagement is typically assessed based on average time on site or pages per visit  Once a threshold value has been defined (e.g., visited more than three pages), new visitors can be categorized as engaged or not engaged  By assessing engagement levels and other behaviors (including purchases) across traffic sources, marketers can understand which traffic sources are driving the most valuable traffic  Lead conversion rate tells you how many of your website visitors convert into sales leads  By tracking how many visitors turn into actual sales leads, digital marketers can more meaningfully quantify the impact of their efforts  By using web cookies, marketers can track return visitors, which allows digital marketers to determine the effectiveness of the website design and content with respect to establishing and growing an online audience

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Content Performance  Successful content marketing campaigns quite often depend on an iterative A/B testing approach, comparing various strategies against each other across a variety of performance indicators  Open rate calculates the percentage of individual recipients who will open an e-mail message  Click through rate (CTR) determines how well an e-mail marketing campaign is performing by measuring how many recipients have clicked on the links within your e-mail  CTRs are typically lower than open rates, with an average CTR just above 2 percent  Most e-mail marketing platforms will tell you how many list members have unsubscribed (i.e., opted out) from your list upon receiving your e-mail  Users should be given the option to opt out of e-mails completely or update their e-mail preferences in relation to frequency and the content they are happy to receive  Keeping track of the number of times a piece of content is downloaded from a website or social media platform offers insights into the topics your audiences find most relevant  Downloads are also a great tool to collect prospect‘s information, which can be used for subsequent outbound marketing efforts Social Media Marketing Metrics  Marketers track social media activity to help improve their marketing efforts  Tracking the brand reach (i.e., the number of social media followers) across each channel can help digital marketers better understand the number and types of people who are viewing and interacting with social content and assess how well brand messaging is resonating with users  The volume of brand mentions is a great initial indicator of interest and tracking the number of people talking about your brand over time and matching that to marketing actions can provide useful insights to managers  Google Alerts allows managers to set up notifications for instances in which a brand is mentioned online  Facebook Insights offers a useful KPI called ―People Talking about This‖ which assesses how many unique people have posted something to their walls about a given brand page  Determining share of voice helps marketers evaluate how conversations about their brand compare with conversations about its competitors  Brand engagement is one of the most important areas to measure in social media  Engagement data can be contextualized and compared against internal benchmarks by taking into account the brand‘s social reach  Digital and social marketing managers often seek to assess the underlying sentiment toward a brand by examining the language customers use when speaking about it  Sentiment analysis, also known as opinion mining, examines the positivity or negativity of the feelings (attitudes, emotions, and opinions) behind the words, using natural language processing tools

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Marketing Analytics INSIGHT QUESTIONS Why do marketers track social media activity? (Answer: To help improve their marketing efforts, show accountability to clients/brands, to see which activities to spend future marketing dollars on, and to analyze a return on investment.) Which metric is a great indication of interest? (Answer: People tend to talk about things they either love or hate, but rarely do they talk about things they simply don‘t care about at all. Therefore, volume is a great initial indicator of interest, though tone and verbiage should be noted.)

Table 13.1 Key Social Media Marketing Metrics INSIGHT QUESTIONS What are the five categories of metrics? (Answer: reach, engagement, acquisition, conversion, and retention metrics) What is the most common metric? Explain. (Answer: The most common metric—and the easiest to measure—is the volume of mentions, which is a reach metric. People tend to talk about things they either love or hate, but rarely do they talk about things they simply don‘t care about at all. So, volume is a great initial indicator of interest.) TODAY’S PROFESSIONAL NOTES Ross Hornish, SEO Manager, Service Master What does it take to be considered a specialist in something? Why should we continue to learn in our discipline? LO13-6: Identify potential moral hazards arising from digital and social media marketing and offer best practices for ethical application of these tools. Ethical Issues in Digital and Social Media Marketing  In a digital world, organizations must not only be aware of ethical values such as trust, honesty, fairness, and confidentiality, they must actively use them to make sure they are doing the ―right‖ thing by their customers

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The rise of digital and social media marketing has raised the level of attention placed on three distinct areas: (1) online privacy and information security, (2) unethical targeting of digital customers, and (3) ethical best practices in the use of social media for marketing purposes Online Privacy and Information Security  Being transparent and honest means that organizations must state their intentions regarding data usage and allow their customers to provide their consent  The concept of informed consent is a key principle within marketing ethics, referring to permission granted in full knowledge of the likely consequences  However, potential uses of the data may not even be known at the time they are collected Privacy Data Breaches and Information Security  Over the past several years, there have been several well-publicized information security events involving the loss of tens and even hundreds of millions of consumer records  The occurrence of large-scale privacy breaches has been shown to negatively impact brand trust, customer retention, and purchasing behaviors  Firms that fail to invest sufficiently in safeguarding their customer data and establishing policies to deal with cybercrimes may also run into problems with consumer protection agencies  In 2018, Uber was forced to pay $148 million to settle a nationwide investigation of a data breach event Unethical Targeting of Digital Customers  Our every action in the digital world leaves a data trail  Use of digital technologies enables marketers to gather information from social media networks, e-mail accounts, purchase histories, ad tracking data, online reviews, and other sources to build sophisticated consumer profiles  This is a huge benefit to marketers—it allows firms to target customers with more personalized and attractive offers and messaging  The ability to target customers with advertising is largely why social media platforms are able to offer their services for free to their users Vulnerable Consumer Populations  Marketers should be cautious when targeting populations that may be considered vulnerable  While children and teens are often heavy Internet users, they may lack the sophistication to understand that they are being targeted with marketing messages  To ensure the safety of children and ultimately avoid consumer backlash from the children‘s parents, companies should not attempt to hard sell online to these children, should do their best to involve the parents (e.g., ensure that information from children comes with express the knowledge of the parents), and should think of their website as a service rather than an advertisement  Unethical targeting practices can also be exclusionary in nature  In 2016, ad agency ProPublica bought a Facebook ad for real estate that blocked users with an ―affinity‖ for African Americans, Asian Americans, or Hispanics which violated the 156

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federal Fair Housing Act and prohibited discriminatory marketing tactics in the sales or rental of real estate  In February 2017, Facebook was forced to bow to mounting pressure from activist groups that demanded that the company disable all ad targeting on the basis of race, gender, and sexual orientation Ethical Best Practices in Social Media Marketing  Like all marketing efforts, social media marketing should be ethical  When there is full transparency in a brand‘s social media communication, its motivations are perceived as more sincere  This can engender a greater sense of trust and connection to that brand  Even though social media use in many cases entails the voluntary sharing of personal information, privacy remains an important concern  Crediting and asking permission is the least you can do when using someone else‘s content, though many content creators are actually happy to share their content, images, links, ideas, and even data  Whether working with social influencers on Instagram or participating yourself in a B2B topic board discussion on LinkedIn, it is unethical (and possibly illegal) for individuals to promote products or brands while being paid by that company without disclosing that information MARKETING PLAN EXERCISE Your Marketing Plan. While many college students use social media applications like Twitter and Instagram on a daily basis, they find the prospect of creating a professional profile in LinkedIn to be intimidating. But remember, it is perfectly normal to feel discomfort when writing about yourself. Don‘t be discouraged by the polished profiles of other students or industry executives. Millions of people in the workforce use LinkedIn to make professional connections and advance their career. Why wait to join them? Here are 10 tips for creating an attention-grabbing LinkedIn profile. 581. Include a profile photo. Visuals are very important. Having a photo makes your profile 21 times more likely to be viewed, according to Ada Yu, director of product management at LinkedIn. For maximum impact, obtain a professional headshot. Do not use a photo of you with your friends during your recent spring break trip to the beach. 582. Highlight soft skills. Skills like time management and communication are increasingly important to employers. You can overcome limited work experience in a relevant field by emphasizing soft skills and your passion for learning. 583. Use keywords. Words that appear below your name and elsewhere in your profile are indexed in the platform‘s search as well as external search engines such as Google if your profile is public. Ms. Yu suggests students read job descriptions and mention sought-after skills they see listed—provided they actually have them. 157

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584. Write an elevator pitch. Think for a minute about what you‘d want someone you‘ve never met to know about you. Next, thoughtfully craft five to seven sentences that inform potential employers about you as a person. Avoid jargon. Alan Katzman, CEO of personal digital portfolio consulting firm Social Assurity, suggests, ―Rather than using résumé talk, I want them [students] to talk about what they‘ve learned about themselves,‖ he said. ―It could be volunteering, sports or family care.‖ 585. Turn on ―Open to Work.‖ LinkedIn created a feature during the pandemic that allows people actively seeking jobs to indicate that by turning on a profile-photo frame with the label Open to Work. People who use it are 40 percent more likely to receive messages from recruiters, Ms. Yu said. 586. Make meaningful connections. Quality is better than quantity. There are numerous LinkedIn groups organized around interest areas like independent filmmaking, economics, and marketing. Students can join them to network with people who share similar interests. Students can also make use of LinkedIn‘s university alumni network to find potentially helpful professionals. 587. Be personal. When sending messages to alumni or to people who work at companies you‘re interested in, take the time to write a personal note. Be specific about your reason for writing. The same goes for commenting on a post. If you don‘t know what to say, ask a question. 588. Include your contact information. Teens and 20-somethings are used to communicating via direct message, but not all employers are. Rather than relying solely on LinkedIn‘s internal messaging system, add alternate ways to contact you, such as an email address. 589. Don’t try to be funny. What‘s acceptable on other social media platforms with friends may not fly on LinkedIn. Without context or direct interaction, it can be hard to convey humor in text. 590. Get a second opinion. Before your LinkedIn profile goes live, ask a parent, professor, or trusted professional to proofread and provide other feedback. The same goes for comments on posts. Student Task #1: Search through several entry-level job listings in your field using a free online job board like Indeed or Glassdoor.com. Which skills and attributes that you possess seem to be commonly sought-after by employers? Make a list of five potential keywords. Student Task #2: Go to LinkedIn.com and search for Groups that correspond to personal or professional interest areas, companies that you might like to work for, or your university. Read through a few articles and posts. From a networking perspective, which three groups do you think would be most beneficial for you to join? Why?

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Instruct students to insert their responses to the above in Chapter 13’s section of the Personal Marketing Plan. Chapter 13

SKILLS, ATTRIBUTES, and NETWORKING Five keywords that I identify with and align with what employers are seeking in my field include: 591. 592. 593. 594. Three groups that would be beneficial for me to join, and why I should join them, include: 595. 596.

Chapter 13: Digital and Social Media Marketing

Anatolii Babii/Alamy Stock Photo

Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-241 Understand the impact of mobile and social technologies on consumers and marketing practices. LO 1-242 Explain how search marketing contributes to digital marketing strategy. LO 1-243 Analyze the role of social media in modern marketing. LO 1-244 Explain the importance of content creation and management in driving digital marketing strategies. LO 1-245 Demonstrate how social media monitoring can improve customer service and marketing decision making. 159

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LO 1-246 Illustrate potential ethical issues arising directly from digital and social media marketing and provide best practices for ethical application of these tools. KEY TERMS blog branded content content marketing content marketing digital marketing e-mail marketing expert content (earned media) fear of missing out (FOMO) informed consent

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location-based marketing (LBM) location-based service mobile computing paid listings search engine search engine marketing (SEM) search engine optimization (SEO) search marketing (opinion mining)

sentiment analysis social media social media marketing social media monitoring (social listening) user-generated content video marketing white paper zero moment of truth (ZMOT)

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THOUGHT-PROVOKING ACTIVITY Set 1: Define social media. One significant feature of social media is how quickly it diffused. How long did it take other mediums? Why is this important?

Set 2: What is a call to action? What are three ideas for improving CTA conversion rates? Be specific.

How does social media influence market share when designing products, creating promotions, and strategizing pricing? LO13-1: Understand the impact of mobile and social digital technologies on consumers and marketing practices. The Digital Marketing Revolution  The ability to make _ , be responsive to consumers, and inspire positive word-of-mouth have reemerged as the most important business considerations  These changes have led to the rapid emergence of digital and social media marketing  _ is an umbrella term that refers to the marketing of goods or services using digital media, such as search engines, websites, e-mail, and social media

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_ involves a company‘s use of social media and social networking platforms to establish relationships with customers and market their products and services

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Marketing to the ―Always-Connected‖ Consumer  In 2022, it is estimated the average American will spend nearly _ on their phones  In one survey, over one-third of American users indicated in a recent survey that they would rather _ than do without their smartphones  As of early 2022, there are _ billion monthly active Facebook users (M AUs) worldwide  Approximately _ billion users visit Facebook on a daily basis (DA Us)  The average American spends just over _ hours per day on social media  There are _ hours of video uploaded to YouTube every minute  Roughly _ million tweets are sent per day on Twitter  There are more than _ million business accounts on Instagram  In order to reach today‘s always-on consumers, marketers must understand and engage in this digital revolution THINK LIKE A MARKETER Why was the diffusion process much shorter for Facebook?

Impact of Social Media on Individuals and Society  Sociologists and organizational scientists have expressed growing concern that use of smartphones and social media to verify information and virtual connections makes people _ in face-to-face settings  The effect of this phenomena can be very damaging to real-world personal and business relationships  One widely cited report suggests that the mere presence of a nearby mobile device (not even in use) can divert individuals from face-to-face exchanges and _  Humans are strongly motivated—even biologically driven—to seek out social connections and establish a sense of _  An _ digital lifestyle can take a mental toll  Research has shown that when people shut off their attention to social networks, many begin to feel isolated and grow concerned over missing out on what is occurring in the world around them  People have termed this feeling _ (FOMO)

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As more members of society increase social media usage, observers caution individuals‘ perceptions of reality can become skewed and affect their _ Impact of the Digital Revolution on Marketing Practice  The many ways organizations employ digital tools can enhance their _ and deepen customer relationships  _ have also changed customers‘ expectations of the brands they interact with, whether they are businesses, nonprofit organizations, or governmental institutions  Digital and social technologies are forcing all marketers to reassess, _ , and even, in some cases, forgo many tried-and-true ways of thinking about and doing marketing Greater Emphasis on Owned and Earned Media  _ —publicity gained through advertising, such as buying a 30-second Super Bowl commercial, taking out a billboard along a busy stretch of road, or sponsoring a local golf tournament  _ —publicity gained via a brand-controlled source, such as a website, blog, or Facebook page  _ —publicity gained through editorial influence or by grassroots actions, such as product reviews on Consumer Reports, online reviews via an online social source such as Yelp, unsolicited brand conversations on Twitter, or a viral YouTube video featuring a company‘s product or service Brand Democratization  Brands don‘t belong to companies any more—they belong to _  The process of defining, _ , and maintaining a brand is now a collaborative one  Customers are sharing their experiences on platforms where audiences can readily find what others are saying about the brand—both positive and negative Relevant Messaging—Breaking through the Noise  The power of digital communications has _ to market entry in many market sectors  This shift has enabled many smaller, more nimble competitors to compete head-to-head with established brands  _ hold the power to tune in or tune out what messages they receive and where and when they want to receive them  To become the signal that consumers hear through the noise, marketers must thoughtfully produce messaging that is _ to each individual consumer  Marketers must: 164 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Understand customers and provide them with content that is valuable—that is useful, _ , engaging, and entertaining Make content visible in places where customers spend their _ Make sure that the message is delivered or accessible to the customer at the point in time when the consumer needs it most to make a _

THINK LIKE A MARKETER Does social media influence your confidence in brands?

CONNECT BACK: Reference Connect Assignment 13-1 Why do organizations seek to coordinate their digital marketing strategies across several different media?

What are the three categories of media investments?

How are these three media investment categories integrated?

LO13-2: Explain how search marketing contributes to digital marketing strategy. Search Marketing  The _ (FMOT) is the short 3–5 seconds window after a shopper first encounters a product on a store shelf  In these few moments, marketers must appeal to shoppers‘ senses, values, and _  The _ (SMOT) is the actual experience a customer has with a product once they buy it and return home 165 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The _ (ZMOT) is ―that moment when you grab your laptop, mobile phone, or some other wired device and start learning about a product or service (or potential boyfriend) you‘re thinking about trying or buying Consumers‘ newfound abilities to search for virtually anything at any time via the Internet has created new moments of decision before the consumer even gets to a store display case What makes a zero moment of truth? It happens _ —typically starting with a search on Google, Bing, Yahoo!, YouTube, or any other search engine It happens in _ , any time of the day More and more often, it happens _ —even in the store itself—as consumers search from their smartphones The consumer is in charge, pulling information they want rather than having it pushed at them by others It is _ ; the consumer has a need they want to satisfy and an emotional investment in finding the best solution

Figure 13.1 Zero Moment of Truth (ZMOT), a Term Coined by Google to Describe Today’s Shopper’s Journey INSIGHT QUESTIONS What has triggered the Z MOT?

Where does the first and second moment of truths occur?

Search Marketing Techniques  _ involves techniques for generating greater online customer traffic from online search engines using both unpaid and paid efforts  It encompasses two closely related practices: _ and search engine marketing Search Engine Optimization (SEO)  _ (SEO) is the process of getting more traffic based on higher rankings of free or ―organic‖ search results on search engines  SEO targets various kinds of search, including image search, local search, _ , academic search, news search, and industry-specific search engines  SEO tactics influence _ by influencing the relevance and popularity of web content 166 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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SEO also takes into account whether a company‘s website is structured in a way that search engines understand Search Engine Marketing (SEM)  _ (SEM) is the process of generating website traffic by purchasing advertisements on search engines  SEM uses _ —these are the purchased links that typically appear either at the very top or upper right of a search results page  Paid search spending in the United States is set to exceed $_ billion in 2022, accounting for roughly for 35 percent of spending for online advertisements  With _ , the price-per-click for these search terms will vary based on demand where the marketer specifies a daily budget for the paid ad, and the ad is then ready to go live Search Marketing Performance Is the Key to Online Success  Ninety-three percent of online customer experiences begin with a _  _ depend heavily on the link‘s position on the first page  Links from the first page of a Google results page obtain over _ percent of clicks  Studies have consistently shown that the first organic search result receives at least _ percent of clicks  The first three organic search results get between 50 and 60 percent of clicks, so the difference between being the first and the second listing is much greater than that between the second and third listing, and so on  Google dominates the search market  In 2018, Amazon surpassed Google in terms of _  Successful search marketing specialists possess a rare blend of abilities, including: (1) the position requires strong technical and analytical skills and (2) success in the position also requires ―soft‖ people skills as well as strong _ (strong oral presentation and writing skills are often useful to translate these findings into actionable managerial recommendations)  Successful search marketing management requires, at minimum, a rudimentary understanding of (1) _ and (2) why search engine performance is closely related to digital marketing success

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How Does Online Search Work?  Search engines have two major functions: (1) _ , and (2) to provide users with a ranked list of websites that are most relevant to their search query  Search engine companies use automated software programs, called _ , to visit each page on the Internet very quickly  Sites and links that contain a _ are crawled more frequently than others and to a greater depth  All of the data are stored in vast data centers with thousands of petabytes‘ worth of drives  The second step is the part that you see as a user: when you perform an online search, your chosen search engine scours billions of pages, using specialized _ to determine the results most relevant websites and pages in relation to the entered search terms  Regularly updating websites with new, _ is critical to search engine marketing success The Golden Triangle of a Search Results Page  Experts refer to the top left part of the page as ―_ ‖  It is the area of the page where users read the title and the description of each search result, which eventually results in _  Getting a website listed within the golden triangle of any search result page is critical to _  Using search marketing techniques, brands can increase the likelihood of appearing in the golden triangle Figure 13.2 Heat Map of a Google Search Results Page, Graphically Representing Data as Colors INSIGHT QUESTIONS What do the colors represent on a heat map?

Are there any other important areas of the heat map

Search Marketing Trends  Roughly two-thirds of organic online search activity is derived from a _ 168 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ is a search engine querying technique that uses a wireless/mobile platform or handheld device with an Internet connection, such as a smartphone or tablet Mobile search is typically _ with simplified data results, such as sports scores, versus a standard web search A growing proportion of mobile search—roughly 40 percent—is _

CONNECT BACK: Reference Connect Assignment 13-2 What kinds of search does SEO target?

How can marketers ensure content doesn‘t get stagnant?

In SEM, what is the price-per-click based on?

LO13-3: Discuss how companies are employing social media marketing to strengthen customer relationships and achieve business objectives. Social Media Marketing  _ plays an increasingly important role in how consumers discover, research, and share information about brands  As a result, marketing organizations are devoting greater percentages of their resources to their social media marketing efforts Social Media Marketing Channels  In a 2021 industry study that identified key social media marketing trends, some 96 percent of B2C marketing executives said their business uses _ as a marketing tool; about 89 percent of B2B respondents say the same  YouTube, _ , and Pinterest are more popular with B2C marketers  _ , Twitter, Google+, and SlideShare are more popular with B2B marketers

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Figure 13.3 Top Social Media Platforms for B2C and B2B Marketers INSIGHT QUESTIONS Which social media platforms are more popular according to this data?

Why do you think there is such a difference in the types of platforms B2C and B2B consumers are using?

Rising Use of Niche Social Platforms  Emerging channels such as _ , Twitch, and Houseparty provide brands with opportunities to tap into fresh segments in creative new ways  Successfully diversifying across these ―SoMe‖ channels requires brands to take the time to understand differences between the platforms and their respective audiences, then tailoring brand _ and _ to match  Advertising on these emerging platforms is typically much less expensive than the more established social media sites  Early research on TikTok indicates that its users have more _ toward ads compared to other platforms Social Media Marketing Strategy  Nearly all social media marketing strategies and tactics can be grouped according to one of three main purposes: (1) _ , (2) grow customer engagement and brand advocacy, and (3) improve customer responsiveness and retention Using Social Media to Increase Brand Visibility  All social media platforms come with features that enable brands and users to create engaging content and build _  Traditional methods for building brand awareness, like advertising, come with comparatively much higher costs and _  A_ is someone who has built a loyal following through their online content creation  Influencer marketing involves collaborating (typically on a paid basis) with the content creator to promote the brand. Ideally, the influencer has a base of followers that is representative of one of the brand‘s key _

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Because influencers already have a built-in audience that considers them experts within their niche area, influencer campaigns create awareness and _ to the sponsor brand Blenders Eyewear-Using Social Mediato Biuild a Brand ―from the Sand Up‖  Social media marketing has been instrumental in helping Blenders Eyewear transform from being just a couple of guys selling sunglasses out of their backpacks to a seven-figure business with hundreds of thousands of followers  A huge part of Blenders growth is due to _  From its early days, Blenders focused on building relationships with professional photographers  It frequented _ , which are events where photographers and creators from Instagram meet up and take photos and network  Blenders builds relationships with photographers by sponsoring InstaMeets and offering free products Growing Cusfomer Engagement via Social Media Marketing  _ begins with establishing and maintaining a strong social presence  Inbound marketing firm HubSpot asked nearly 600 consumers what kind of social media presence they expect of any brand  Consumers reported that they expect brands to be active on at least three to four social channels  If consumers expect a brand to be active on Facebook and possibly two or three other social channels, the next question is, ―_ ?‖  A good way to determine this is to examine which companies have the most _ social media following  Marketing professionals from these organizations understand the impact of social media in establishing a unique brand identity and building social connections with consumers  Customers don‘t go to social media to _  Social media can help build a successful brand by: (1) Allowing the firm or brand to develop deeper relationships with customers, and (2) generating _ about the brand Figure 13.4 Social Media Expectations for Brands, by Age-Group INSIGHT QUESTIONS How many platforms should an organization use?

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Which is the most preferred platform?

LEGO Ideas-Using Social Media to Strengthen Fan Engagement  LEGO has been recognized as one of the world‘s most powerful brands, and social media marketing is a key element to the brand‘s success  Perhaps the greatest testament to the brand‘s social commitment is its embrace of _  The key social media channel for LEGO is YouTube, where it reaches more than 30 million unique users monthly Social Listening and Customer Care  With the social web, brands have the opportunity to ―listen in‖ and even participate in those discussions  _ , also known as social listening, is the process of identifying and assessing what is being said about a company, individual, product, or brand on the Internet  Many firms today are investing _ into programs that monitor social media who seek to respond before complaints damage online reputations  For many customers, social media has become the _ to engage with brands on customer service issues  Social media has also raised customer expectations about how quickly their problems should be resolved Netflix-Growing Customer Retention through Social Listening  As an entertainment company, its social customer care team is trained to deliver _ while maintaining the company‘s friendly, casual tone  Businesses who invest resources into providing more responsive social customer care can reap higher brand loyalty, reduced customer churn, stronger word of mouth, and _ THINK LIKE A MARKETER What would you consider a strong presence on social media?

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CONNECT BACK: Reference Connect Assignment 13-3 How do social media increase loyalty participation?

What are some tips in integrating social media into loyalty rewards program?

LO13-4: Explain the importance of content creation in driving digital marketing strategies. Content Marketing  The success of any website, search marketing, or social media marketing campaign depends on the creation and management of useful and interesting _  _ is a marketing approach focused on creating and distributing valuable, relevant, and consistent content to attract and retain a clearly defined and profitable audience  The essence of content marketing is the belief that if businesses deliver valuable information to buyers, customers will reward them with their business and loyalty  Search engines reward businesses that consistently publish quality content; search results pages are typically more _ and popular with search users  By coupling useful content with a social media strategy, organizations and individuals are able to establish a reputation of _ within their industries Content Marketing Source and Techniques  Content marketing categories can generally be broken into three types:  (1) _ : Content created by a brand‘s fans and followers; it is earned content that communicates a brand‘s value in users‘ words rather than the company‘s or those of a neutral party (like a journalist)  (2) _ : Any content developed and owned by the brand which includes blog posts, white papers, research reports, infographics, or any other content that a brand produces for itself.  (3) _ : Credible, third-party articles and reviews from unbiased journalists; this is the earned media that is often the result of PR efforts  Data show there is an optimal order to follow in content marketing  A baseline of trust is critical to your brand‘s success with consumers 173 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The quickest route to building a solid foundation of trust is to _ Once trust is established, you need to maintain that trust while also empowering consumers with additional information which comes via _ and branded content

Types of Branded Content Blog  A_ (short for web log) is an online journal in which people or companies post their thoughts and other content  Blogs are usually related to _  There are more than 31 million blogs in the United States today  Many bloggers use social networks like Twitter and Facebook to _ their content White Paper  A_ is a concise yet authoritative report or guide that seeks to inform readers about a complex issue  It is meant to help readers understand an issue, solve a problem, or _ E-mail Marketing  _ lets marketers send highly targeted, personalized, relationship-building e-mail messages  To address concerns relating to unsolicited spam e-mail messages, most legitimate marketers now practice _ e-mail marketing Webinars  Webinars are especially effective for B2B companies because 66 percent of B2B buyers prefer to watch a webinar _ buying a product  _ is the backbone of webinar success  As long as the content remains _ , companies can continue to attract prospects by offering the recorded content on an on-demand basis Virtual Trade Shows  Many B2B organizations today have started hosting and participating in _ trade shows and conferences  Virtual trade shows offer several unique advantages over traditional, in-person events, including:  Access to _  Less expensive for _ and customers  Improved ability to _ your prospective customers 174 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ that help vendors monitor contacts and content engagement Video Marketing  _ has become an integral piece to content marketing strategies at many B2B and B2C organizations  _ involves posting digital video content on brand websites or social media sites such as YouTube, Facebook, Rumble, and others  Shoppers find visual content particularly helpful for informing decisions  To wit, research has found videos are up to _ times more likely to receive an organic first-page ranking than traditional text pages  Many marketers utilize both _ video as well as _ video content  Rather than post dry content about their products and services in their newsfeeds, many brands have popularized the use of stories as a more authentic way to _ with audiences  While the stories do not necessarily require high production value, they do place a premium on creativity and innovation in _ Trends in Content Marketing  Infographics have become a trendy way to share information about goods and services  _ are highly sharable, catchy to the eye, and more fun to read than a generic blog post Live Streaming  One new branded content approach that is catching on with content creators and audiences is _ —broadcasting real-time, live video footage or video feed to an audience accessing the video stream over the Internet  Live streaming _ require a huge investment in video production capabilities  A live video strategy engages viewers in an authentic way that is difficult to match using other social media formats  It allows viewers to be involved, enabling users to participate and share with the tap of a tweet Ephemeral Content  The _ (or disappearing) content format, which went mainstream with the Snapchat app, has become a fixture across multiple platforms  Ephemeral content is fast-paced and _ , offering more opportunities to interact with followers  The content often tends to be scrappier and more down-to-earth, which enhances perceptions of brand authenticity and contributes to FOMO (fear of missing out) Emoji Marketing 175 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Four out of every 10 Millennials would rather engage with _ than read  Most prominent among this shift to pictorial communication is the _ , a small digital image or icon used to express an idea or emotion in digital communication  Domino‘s Pizza coopted the pizza emoji, turning it into a food-ordering mechanism for registered customers Location-Based Marketing: Adding Relevance to Content  Marketers can create _ ads that are accurate to within a few feet in places such as the aisle of a grocery store or the shoe section of a department store  Brands, retailers, and advertising agencies use _ (LBM) to adapt content, messaging, or service delivery to a target‘s location, using GPS data transmitted from an individual‘s mobile device  A_ is a social, entertainment, or information service that allows a company to reach and engage with its audience using tools and platforms that capture the geographic location of the audience  The delivery mechanisms used for location-based services include mobile applications, short message service (SMS) text messaging, and even in-store _ LO13-5: Discuss key performance indicators commonly utilized in managing digital and social media marketing campaigns. Digital and Social Media Marketing Metrics  Many traditional marketing objectives and the corresponding _ (KPIs) used to track marketing performance, such as customer satisfaction and brand attitudes, are considered ―soft‖—they are either not directly observable and easily measured or aren‘t clearly linked to financial performance outcomes  As a result, chief marketing officers have often struggled to demonstrate the return on marketing investments  Marketing managers today are able to use web and social media analytics tools to create marketing _ that track consumer response to their campaigns  By integrating these tools with data from advanced _ , marketers are better positioned to quantify the financial impact of their strategies Digital Marketing Metrics

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Digital marketing metrics are measurable values that marketing managers can use to track the performance of their digital marketing efforts  These KPIs are broken into three groups: search performance, _ , and content performance Search Performance  Consistently tracking SEO and SEM performance over time enables digital marketing managers to adapt their _ and make meaningful modifications to website design  _ : The higher your site ranks on search engines, the better which ties in directly with the digital marketing team‘s S EO efforts  _ is the number of visits to your website by someone who has found your site using a search engine; it reflects the effectiveness of the company‘s content and S EO efforts  _ (CPC): For paid search campaigns, it is important to track how much it costs for each click; this cost will depend on how much your competitors are bidding for a particular key word or audience  In addition to search and social media traffic, many e-commerce brands also engage in _ , whereby partners receive a portion of revenue that is generated from redirected traffic referred from their site  Identifying which sources attract the most traffic can help the digital marketing team improve overall performance and optimize _ Website Analytics  Website analytics is the analysis, collection, measurement, and _ of Internet-generated user data for the purpose of understanding and optimizing web content and usage  Slow performance in the digital world places the brand at risk of losing customers, so test the website speed of your favorite (or least favorite) sites yourself for free using webpagetest.org  Mobile app performance can likewise be tested using resources like speedtest.net  _ is the percentage of website visitors that exit a site after viewing just a single page; this helps digital marketers determine if the website design makes it easy for users to find the information they are looking for  _ is typically assessed based on average time on site or pages per visit  Once a _ has been defined (e.g., visited more than three pages), new visitors can be categorized as engaged or not engaged  By assessing engagement levels and other behaviors (including purchases) across traffic sources, marketers can understand which traffic sources are driving the most valuable traffic  _ tells you how many of your website visitors convert to sales leads 177 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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By tracking how many visitors turn into actual _ , digital marketers can more meaningfully quantify the impact of their efforts  By using _ , marketers can track return visitors which allows digital marketers to determine the effectiveness of the website design and content with respect to establishing and growing an online audience Content Performance  Successful content marketing campaigns quite often depend on an iterative _ , comparing various strategies against each other across a variety of performance indicators  _ calculates the percentage of individual recipients who will open an e-mail message  _ (CTR) determines how well an e-mail marketing campaign is performing by measuring how many recipients have clicked on the links within your email  CTRs are typically lower than open rates, with an average CTR just above 2 percent  Most e-mail marketing platforms will tell you how many list members have _ (i.e., opted out) from your list upon receiving your e-mail  Users should be given the option to opt out of e-mails completely or update their e-mail preferences in relation to frequency and the content they are happy to receive  Keeping track of the number of times a piece of content is _ from a website or social media platform offers insights into the topics your audiences find most relevant  _ are also a great tool to collect prospect‘s information, which can be used for subsequent outbound marketing efforts

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Social Media Marketing Metrics  Marketers track social media activity to help improve their marketing efforts  Tracking the _ (i.e., the number of social media followers) across each channel can help digital marketers better understand the number and types of people who are viewing and interacting with social content and assess how well brand messaging is resonating with users  The volume of _ is a great initial indicator of interest and tracking the number of people talking about your brand over time and matching that to marketing actions can provide useful insights to managers  _ allows managers to set up notifications for instances in which a brand is mentioned online  Facebook Insights offers a useful KPI called ―_ ‖ which assesses how many unique people have posted something to their walls about a given brand page  Determining _ helps marketers evaluate how conversations about their brand compare with conversations about its competitors  _ is one of the most important areas to measure in social media  Engagement data can be contextualized and compared against internal benchmarks by taking into account the brand‘s _  Digital and social marketing managers often seek to assess the underlying _ toward a brand by examining the language customers use when speaking about it  _ , also known as opinion mining, examines the positivity or negativity of the feelings (attitudes, emotions, and opinions) behind the words, using natural language processing tools Marketing Analytics INSIGHT QUESTIONS Why do marketers track social media activity?

Which metric is a great indication of interest?

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What are the five categories of metrics?

What is the most common metric? Explain.

TODAY’S PROFESSIONAL NOTES Ross Hornish, SEO Manager, Service Master What does it take to be considered a specialist in something?

Why should we continue to learn in our discipline?

LO13-6: Identify potential moral hazards arising from digital and social media marketing and offer best practices for ethical application of these tools. Ethical Issues in Digital and Social Media Marketing  In a digital world, organizations must not only be aware of ethical values such as trust, honesty, fairness, and _ , they must actively use them to make sure they are doing the ―right‖ thing by their customers  The rise of digital and social media marketing has raised the level of attention placed on three distinct areas: (1) _ , (2) unethical targeting of digital customers, and (3) ethical best practices in use of social media for marketing purposes Online Privacy and Information Security  Being transparent and honest means that organizations must state their intentions regarding data usage and allow their customers to provide their consent  The concept of _ is a key principle within marketing ethics, referring to permission granted in the full knowledge of the likely consequences  However, potential uses of the data may not even be known at the time data are collected Privacy Data Breaches and Information Security  Over the past several years, there have been several well-publicized information security events involving the loss of tens and even hundreds of millions of consumer records 180 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The occurrence of large-scale privacy breaches has been shown to negatively impact brand trust, _ , and purchasing behaviors  Firms that fail to invest sufficiently in safeguarding their customer data and establishing policies to deal with cybercrimes may also run into problems with consumer protection agencies  In 2018, Uber was forced to pay $_ million to settle a nationwide investigation of a data breach event Unethical Targeting of Digital Customers  Our every action in the digital world leaves a data trail  Use of digital technologies enables marketers to gather information from social media networks, e-mail accounts, purchase histories, ad tracking data, online reviews, and other sources to build sophisticated consumer profiles  This is a huge benefit to marketers—it allows firms to target customers with more _ and attractive offers and messaging  The ability to target customers with advertising is largely why social media platforms are able to offer their services for free to their users Vulnerable Consumer Populations  Marketers should be cautious when targeting populations that may be considered vulnerable  While children and teens are often heavy Internet users, they may lack the _ to understand that they are being targeted with marketing messaging  To ensure the safety of children and ultimately avoid consumer backlash from children‘s parents, companies should not attempt to hard sell online to these children, should do their best to involve the parents (e.g., ensure that information from children comes with express knowledge of the parents), and should think of their website as a service rather than an advertisement  Unethical targeting practices can also be _ in nature  In 2016, ad agency ProPublica bought a Facebook ad for real estate that blocked users with an ―affinity‖ for African Americans, Asian Americans, or Hispanics which violated the federal _ and prohibits discriminatory marketing tactics in the sales or rental of real estate  In February 2017, Facebook was forced to bow to mounting pressure from activist groups who demanded that the company disable all ad targeting on the basis of race, gender, and sexual orientation Ethical Best Practices in Social Media Marketing  Like all marketing efforts, social media marketing should be ethical  When there is full transparency in a brand‘s social media communication, its motivations are perceived as more sincere 181 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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This can engender a greater sense of trust and _ to that brand Even though social media use in many cases entails voluntary sharing of personal information, _ remains an important concern _ , and asking permission, is the least you can do when using someone else‘s content though many content creators are actually happy to share their content, images, links, ideas, and even data Whether working with social influencers on Instagram or participating yourself on a B2B topic board discussion on LinkedIn, it is unethical (and possibly illegal) for individuals to promote products or brands while _ without disclosing that information

MARKETING PLAN EXERCISE Your Marketing Plan. While many college students use social media applications like Twitter and Instagram on a daily basis, they find the prospect of creating a professional profile in LinkedIn to be intimidating. But remember, it is perfectly normal to feel discomfort when writing about yourself. Don‘t be discouraged by the polished profiles of other students or industry executives. Millions of people in the workforce use LinkedIn to make professional connections and advance their career. Why wait to join them? Here are 10 tips for creating an attention-grabbing LinkedIn profile. 597. Include a profile photo. Visuals are very important. Having a photo makes your profile 21 times more likely to be viewed, according to Ada Yu, director of product management at LinkedIn. For maximum impact, obtain a professional headshot. Do not use a photo of you with your friends during your recent spring break trip to the beach. 598. Highlight soft skills. Skills like time management and communication are increasingly important to employers. You can overcome limited work experience in a relevant field by emphasizing soft skills and your passion for learning. 599. Use key words. Words that appear below your name and elsewhere in your profile are indexed in the platform‘s search as well as external search engines such as Google if your profile is public. Ms. Yu suggests students read job descriptions and mention sought-after skills they see listed—provided they actually have them. 600. Write an elevator pitch. Think for a minute about what you‘d want someone you‘d never met to know about you. Next, thoughtfully craft five to seven sentences that inform potential employers about you as a person. Avoid jargon. Alan Katzman, CEO of personal digital portfolio consulting firm Social Assurity, suggests, ―Rather than using résumé talk, I want them [students] to talk about what they‘ve learned about themselves,‖ he said. ―It could be volunteering, sports or family care.‖

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601. Turn on ―Open to Work.‖ LinkedIn created a feature during the pandemic that allows people actively seeking jobs to indicate that by turning on a profile-photo frame with the label Open to Work. People who use it are 40 percent more likely to receive messages from recruiters, Ms. Yu said. 602. Make meaningful connections. Quality is better than quantity. There are numerous LinkedIn Groups organized around interest areas like independent filmmaking, economics, and marketing. Students can join them to network with people who share similar interests. Students can also make use of LinkedIn‘s university alumni network to find potentially helpful professionals. 603. Be personal. When sending messages to alumni or to people who work at companies you‘re interested in, take the time to write a personal note. Be specific about your reason for writing. The same goes for commenting on a post. If you don‘t know what to say, ask a question. 604. Include your contact information. Teens and 20-somethings are used to communicating via direct message, but not all employers are. Rather than relying solely on LinkedIn‘s internal messaging system, add alternate ways to contact you, such as an email address. 605. Don’t try to be funny. What‘s acceptable on other social media platforms with friends may not fly on LinkedIn. Without context or direct interaction, it can be hard to convey humor in text. 606. Get a second opinion. Before your LinkedIn profile goes live, ask a parent, professor, or trusted professional to proofread and provide other feedback. The same goes for comments on posts. Student Task #1: Search through several entry-level job listings in your field using a free online job board like Indeed or Glassdoor.com. Which skills and attributes that you possess seem to be commonly sought-after by employers? Make a list of five potential keywords. Student Task #2: Go to LinkedIn.com and search for Groups that correspond to personal or professional interest areas, companies that you might like to work for, or your university. Read through a few articles and posts. From a networking perspective, which three groups do you think would be most beneficial for you to join? Why? Instruct students to insert their responses to the above in Chapter 13’s section of the Personal Marketing Plan. Chapter 13

SKILLS, ATTRIBUTES, AND NETWORKING Five key words that I identify with and align with what employers are seeking in my field include: 607. 608. 609. 610. Three groups that would be beneficial for me to join, and why I should join

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them, include: 611. 612.

Chapter 14: Branding

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brand recognition brand revitalization (rebranding) cannibalization co-branding

customer lifetime value (CLV) global brand manufacturer brands packaging private-label brands

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T.J. Thompson Brand Manager, Valley View Agri-Systems T.J. Thompson learned that building a brand for his organization would be critical to its success. T.J. uses his experience to provide insight in answering the following questions:

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613. What has been the most important thing in making you successful at your job? 614. What advice would you give soon-to-be graduates? 615. How is marketing relevant to your role at Valley View Agri-Systems?

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What do you consider your personal brand to be?

Later in the chapter you see how Andrew elaborates on: 

The most important components of building a personal brand.

Review with students:  How is marketing relevant in his role?  What does it take to build and manage a brand? Key Terms: Brand Brand loyalty Brand recognition Brand marks Brand image

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Explain the importance of building a successful brand. Branding  Developing Your Personal Brand  Components of a Successful Brand PowerPoint Slides Lecture Notes: Branding         

For former, current, and potential customers, a brand represents everything that a good, service, or idea means to them A brand is the name, term, symbol, design, or any combination of these that identifies and differentiates a firm‘s products Brand loyalty is a consumer‘s steadfast allegiance to a brand, evidenced by repeated purchases Brand loyalty typically develops because of a customer‘s satisfaction with an organization‘s products Brand-loyal customers typically exhibit less sensitivity to price Brand recognition is the degree to which customers can identify the brand under a variety of circumstances Firms like Nike and McDonald‘s employ brand marks, which are the elements of a brand, not expressed in words, that a consumer instantly recognizes, such as a symbol, color, or design The importance of brand recognition can perhaps best be seen when a company changes or updates its symbol or logo Consumers often grow attached to certain brand logos or symbols and changes can cause a backlash

Developing Your Personal Brand   186

The most important brand you will ever manage is your personal brand Responsibility for building and managing the brand image that bears

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your name is a 24-hours-a-day, 7-days-a-week, 365-days-a-year job Brand image is the unique set of associations that target customers or stakeholders make with a brand It signifies what the brand presently stands for in the minds of others

Components of a Successful Brand 

Whether you are building the brand for your firm‘s product or your personal brand, the process involves the following four essential components:  (1) Deliver a product that provides value  (2) Create a consistent brand image  (3) Create consistent brand messaging  (4) Capture feedback  Internally, a strong brand drives cohesion and helps an organization build the capacity and skills to implement its mission  Externally, a strong brand results in trust among the firm‘s many constituents, be they customers, donors to a nonprofit organization, suppliers, or communities  If a firm successfully executes on these four components and develops a successful brand, it can begin to benefit from the brand equity it creates THINK LIKE A MARKETER Does your employer consider you a hard worker, team leader, or thoughtful employee? Or quite the opposite? THINK LIKE A MARKETER What do your managers and coworkers think when they hear your name? Connect Assignment 14-1

Topic: Building a Successful Brand Complete the Connect exercise for Chapter 14 that focuses on the steps to building a successful brand. By understanding different strategies and the importance of each step, you will gain insight into how to effectively build a brand, whether it is a firm‘s, a nonprofit‘s, or your personal brand. CONNECT BACK Insight Questions: 617. Why is it important for a firm to build a successful brand? (Answer: Internally, a strong brand drives cohesion and helps an organization build the capacity and skills to implement its mission. Externally, a strong brand results in trust among the firm‘s many constituents, be they customers, donors to a nonprofit organization, suppliers, or communities. If a firm successfully executes on these four components and develops a successful brand, it can begin to benefit from the brand equity it creates.)

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618. How long does it take to build a successful brand? (Answer: While there is no time limit, each opportunity to create brand value should be maximized to grow a brand.) 619. When is it necessary to reassess the effectiveness of your branding efforts after time has passed? (Answer: Open ended as students‘ responses will vary; when there is a change in the marketing mix, customer, market, or competition.) LO Describe the relevance of Key Terms: 14-2 brand equity for marketers. Brand equity Brand Equity Customer lifetime value (CLV)  Benefits of Brand Equity  Measuring Brand Equity  Qualitative Methods to Measure Brand Equity  Quantitative Methods to Measure Brand Equity PowerPoint Slides Lecture Notes: Brand Equity   

Figure 14.1

Brand equity is the value the firm derives from consumers‘ positive perception of its products Brand equity increases the likelihood that the consumer will purchase the firm‘s brand rather than a competing brand Young and Rubicam, a global advertising agency, developed the BrandAsset Valuator, which suggests that brand equity is based on four dimensions: differentiation, relevance, esteem, and knowledge

Insight Questions: 620. How do Apple and Disney reflect the four dimensions of the BrandAsset Valuator? (Answer: Apple and Disney rate highly in these dimensions: They clearly stand apart from competitors [differentiation]; are relevant to a large segment of consumers [relevance]; are well known (knowledge); and are positively thought of by the majority of their target markets [esteem].)

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Figure Information: The Four Dimensions of the BrandAsset Valuator Young and Rubicam, a global advertising agency, developed the BrandAsset Valuator, which suggests that brand equity is based on four dimensions: differentiation, relevance, esteem, and knowledge. Firms with high brand equity like Apple and Disney reflect these dimensions. PowerPoint Slides

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621. What types of advantages do organizations with high brand equity enjoy over other firms? (Answer: Brand equity increases a firm‘s ability to succeed in a difficult competitive environment, facilitates a brand‘s expansion into new markets, and can contribute to positive perceptions of product quality.)

Lecture Notes: Benefits of Brand Equity     

High brand equity is an asset to an organization; it provides three major benefits to marketers (1) Brand equity increases a firm‘s ability to succeed in a difficult competitive environment (2) Brand equity facilitates a brand‘s expansion into new markets (3) Brand equity can contribute to positive perceptions of product quality Each of the benefits of brand equity discussed also applies to your personal brand

Measuring Brand Equity   Marketing Analytics

Measuring brand equity is fundamental to understanding how to build and manage a brand over time Companies use several qualitative and quantitative research methods to measure brand equity Insight Questions: 622. Measuring brand equity is fundamental to understanding how to build and manage a brand over time. Respond to the following qualitative questions: If your university were a car, what make and model would it be (compared to other in your region)? If your university were an animal, what would it be (compared to others in the region)? (Answer: Open ended as students‘ responses will vary.) 623. What measurements would indicate that a brand needs to modify their branding strategy? (Answer: Open

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ended as students‘ responses will vary; decreased LCV, inability to score well in brand recognition and brand recall exercises, sustained losses in market share and/or sales.) PowerPoint Slides

Lecture Notes: Qualitative Methods to Measure Brand Equity     

Qualitative research is particularly helpful in identifying the sources of brand equity and its role in consumer decisions Two important qualitative research methods are free association and projective techniques Free association involves asking consumers what comes to mind when they think about the brand Projective techniques are tools used to uncover the true opinions and feelings of consumers when they are unwilling or otherwise unable to express themselves A common projective strategy involves asking a consumer to compare a brand to a person, animal, car, or country

Quantitative Methods to Measure Brand Equity 

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Qualitative techniques can provide interesting, in-depth consumer insights but they typically involve very small samples of consumers, whose perceptions may not be generalizable to those of the larger population Two common quantitative research techniques focus on measuring consumers‘ recognition and recall of specific brands Brand recognition research helps marketers understand two things: (1) which brands stand out in a consumer‘s memory and (2) the strength of their association with the brand One basic type of brand recognition measure presents a list of single product names, images, or slogans in a survey and asks consumers to identify which items they‘ve previously seen or heard of Brand recall refers to consumers‘ ability to identify the brand under a variety of circumstances Researchers often use cues to understand brand recall, such as, ―When you think of great pizza, what brands come to mind?‖ Brand recall measures can be used to determine whether consumers consider the firm‘s brand when they are planning to make a purchase, and if so, whether they think of the firm‘s brand before they think of competing brands Customer lifetime value (CLV) is the total amount a customer will spend from acquisition through the end of a relationship with a brand

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Lecture Notes: Brand Strategies   

When choosing a brand strategy, marketers seek to maximize their brand equity without diluting profits or damaging the attractiveness of the brand The brand strategy should align with the overall marketing strategy the firm established in its marketing plan It should be implemented with the goal of helping the firm accomplish its marketing objectives

Brand Extension        

Companies that already possess a strong brand and high brand equity may pursue a brand-extension strategy Brand extension is the process of broadening the use of an organization‘s current brand to include new products Brand extensions, in contrast, typically involve taking a brand name into a different product category A brand-extension strategy enables new products to profit from the recognition and acceptance the brand already enjoys As a company implements a brand-extension strategy, it must remain mindful of the following two potential concerns (1) The extension must live up to the quality consumers expect from the brand (2) Brand extensions must be implemented with an eye toward avoiding cannibalization Cannibalization is the erosion of sales that occurs when new products eat into sales of a firm‘s existing products, rather than generate additional revenues or profits

Brand Revitilization      192

Brands do not typically die natural deaths; they can be killed through mismanagement Some firms mismanage brands into a position from which they cannot recover Brand revitalization, or rebranding, is a strategy to recapture lost sources of brand equity and identify and establish new sources of brand equity Revitalization begins with a determination to rebuild trust with consumers That desire is often accompanied by an investment that shows the

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company‘s resolve

Co-Branding    

Another alternative is to leverage the equity of another firm‘s brand to increase one‘s own brand equity Co-branding is a strategy in which two or more companies issue a single product in an effort to capitalize on the equity of each company‘s brand Negative publicity for one of the brands could affect the co-branding partner in a negative way To avoid such pitfalls, marketers should develop processes to select appropriate co-branding partners

Private-Label Brands          Table 14.1

Private-label brands, sometimes referred to as store brands, are products developed by a retailer and sold only by that specific retailer Private-label goods and services are available in a wide range of industries, from food to cosmetics to web hosting They are often positioned as lower cost alternatives to well-known manufacturer brands that are managed and owned by the manufacturer Over the past decade, annual sales of private-label products have increased by 40 percent in U.S. supermarkets In addition, over 40 percent of U.S. shoppers now say that at least half of the groceries they buy are private-label brands Private-label brands are often more profitable to national stores like Walgreens and Target, leading more retailers to develop private-label offerings Millennials often are ideal candidates for private-label purchases One of the ways that Walmart promotes its private-label Great Value brand is through packaging Whatever brand image a firm is trying to establish, it should understand the powerful tool that packaging can be in building a successful brand Insight Questions: 624. Why are private-label brands successful? (Answer: They are often positioned as lower cost alternatives to well-known manufacturer brands.) 625. Why would a company create a private-label brand? (Answer: As a lower-cost alternative, private-label brands offer competitive positioning across a wide range of industries.) 626. Over the past decade, annual sales of private-label

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products have increased by 40 percent in U.S. supermarkets. What types of private-label branded products do you use? (Answer: Open ended as students‘ responses will vary; consider private-label products produced by Walmart, Walgreens, and Target.)

Figure Information: Examples of Private-Label-Branded Grocery Products Private-label goods and services are available in a wide range of industries, from food to cosmetics to web hosting. They are often positioned as lower cost alternatives to well-known manufacturer brands, which are managed and owned by the manufacturer. Examples of privatelabel brands across several different types of products are shown. LO 14-4

Summarize the impact of Key Terms: packaging on brand building. Packaging Packaging  Promoting Brand Image  Reinforcing Brand Image PowerPoint Slides Lecture Notes: Packaging      194

Packaging is all of the activities of designing and producing the container for a product It is one of the most underappreciated tools in marketing Packaging gives the product a chance to stand out among the other 30,000 items that are stocked by an average American retailer Companies use words, symbols, colors, pictures, and other brand marks on their packages to help communicate the brand attributes to consumers In addition, packaging promotes and reinforces brand image

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Promoting Brand Image    

Many organizations consider packaging only in the basic terms of containing, protecting, and shipping packages Packaging provides marketers with an opportunity to promote the image they want others to associate with the brand Packaging is one of the few points of customer contact that upscale firms can directly control As a result, they cannot afford to miss the chance to extend the luxury experience and promote brand image beyond the store‘s walls

Reinforcing Brand Image 

Marketers also can utilize packaging to reinforce their brand image with consumers  Research suggests that a growing number of consumers are green motivated, or driven to make decisions based on concern about the environment  The quality of the brand has to be communicated by good packaging, and not just by promises of quality made in the text on the packaging  Effective packaging results in an engaging and persuasive marketing tool in which the product and its packaging form a coherent whole, and the consumer forms their image of the brand based on this consistency  The same relationship between packaging and brand quality holds true when branding yourself  From a self-branding perspective, the way you package your ideas, thoughts, and accomplishments influences others to listen to what you have to say  Consider the way you package yourself for an interview: your resume and clothing project your brand image  Ineffective packaging of your personal brand could include typographical errors on your resume, grammatical mistakes in your emails, or unprofessional attire for an interview  Your ideas and potential may be phenomenal, but no one will listen to you if you package yourself the wrong way THINK LIKE A MARKETER How do you package yourself, from resume and dress style to email tone and social media? Connect Assignment 14-2

Topic: Packaging Complete the Connect exercise for Chapter 14 that focuses on packaging. By analyzing different packaging strategies, you should gain insights into which strategies work and don‘t work and how packaging can play an

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important role in building a strong brand. CONNECT BACK Insight Questions: 627. How do packaging strategies differ for private-label brands and manufacturer brands? (Answer: In both cases, the packaging should promote the brand and cut through the clutter on the shelf. The package is the first thing a consumer sees and should communicate the value and quality of the product accordingly.) 628. How can packaging play an important role in building a strong brand? (Answer: Companies use words, symbols, colors, pictures, and other brand marks on their packages to help communicate the brand attributes to consumers. In addition, packaging promotes and reinforces brand image. The quality of the brand must be communicated by good packaging, and not just by promises of quality made in the text on the packaging.) 629. How often should a brand change its packaging? (Answer: It depends on how the product changes relative to the market and competition.) LO Summarize the impact of Key Terms: 14-5 social media on brand (none) management. The Role of Social Media in Branding  Customer Engagement through Social Media  Consumers Seeking Discounts  Posts that Showcase New Products and Services  Posts that Teach Something  Branding through Customer Service  Social Media Branding Goals  Monitoring a Social Brand PowerPoint Slides Lecture Notes: The Role of Social Media in Branding 196

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The idea that firms can manage their brands by simply crafting messages into print and digital materials and then handing them down from the corporate office is becoming more outdated every day Consumers spend more time than ever using social media, trading opinions and feedback on everything they come into contact with On Instagram alone, over 80 percent of users follow at least one business

Customer Engagement through Social Media 

Customers engage with brands via social media for various reasons

Figure 14.2

Figure Information: Primary Reasons Consumers Connect with Brands via Social Media

Insight Questions: 630. What are the primary reasons consumers are connecting with brands via social media? (Answer: The top three reasons include discounts or sales, posts that showcase new products or services, and posts that announce what is happening at a company.) 631. Starbucks also engages with customers and builds its brand through competitions. What other companies do you personally know of that use social media to connect with consumers? (Answer: Open ended as students‘ responses will vary; consider organizations like the NBA, Nike, airlines, and clothing boutiques.)

Figure 14.2 indicates that consumers increasingly express their brand loyalty via social media in the hope of reaping benefits from firms. Among those who connect with brands through social media, 72 percent say they do so to receive discounts.

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Lecture Notes: Consumers Seeking Discounts      

Among those who connect with brands through social media, 72 percent say they do so to receive discounts Offering special discounts can increase positive feedback, but marketers should be aware of the potential risks of such promotional activities Continually offering discounts or specials has the potential to devalue the brand and the company‘s relationship with customers It can also have the effect of underpricing the product, thereby reducing profits Marketers must balance the desire to have a significantly positive social media presence with the brand equity measures If consumers‘ free association responses when asked to describe a brand include ―constant discounts‖ or ―wait for special promotions,‖ such responses should be consistent with the firm‘s desired brand image

Posts that Showcase New Products and Services  

Sixty percent of Instagram users say they discover new products on the platform Social media also provides brands an opportunity to showcase different aspects of their product

Posts that Teach Something  

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Social media play an important role in how consumers discover, research, and learn information about brands and products Data from the Nielsen research firm provide striking evidence of the growing role of social media in brand building: 60 percent of consumers researching products through online sources learned about a specific brand or retailer through social networking sites Active social media users are more likely to read product reviews online, and three out of five create their own reviews of products When researching products, social media users tend to trust the recommendations of their friends and family most Firms like Starbucks are well aware of the influence these personal recommendations can have and make a concerted effort to reach super influencers, adults typically between 18 and 49 years old who reach a large number of potential consumers through social media

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Many customers use social media to engage with brands on a customer service level Questions from customers on social media sites allow companies to provide direct feedback and potentially resolve a specific problem faster than they could have otherwise While social media can spread complaints like wildfire, responding in a timely fashion can showcase the company‘s commitment to excellence Though social media facilitate the speed and efficiency with which firms can respond to customer service issues, they also raise the expectations customers have for how quickly their problems should be resolved According to Nielsen, 42 percent of 18- to 34-year-olds say they expect customer support within 12 hours of a question or complaint People expect brands to be available on social media and seek out their social accounts for customer service

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Research shows that brands that don‘t meet those expectations damage their bottom line THINK LIKE A MARKETER Where do you go for brand information? Figure 14.3

Figure Information: Example of Customer Service via Social Media While social media can spread complaints like wildfire, responding in a timely fashion can showcase the company‘s commitment to excellence. For example, as shown with the exchange between American Express and a customer on Twitter. Notice the dates of the question and feedback and how timely American Express was in responding to the customer and resolving the situation.

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Insight Questions: 632. What are the preferred sources for customer service? (Answer: Open ended as students‘ responses will vary; a company‘s website, chatbot, call center, e-mail, and social media are viable options. Considerations likely include timely and adequate responses toward the issue(s).) 633. If a firm uses social media for customer service issues, what is considered a timely response? (Answer: Open ended as students‘ responses will vary; variations in hours to days depending on the nature of the request.) 634. Consumers can openly and frequently post thoughts, both positive and negative, to a company‘s Facebook or Twitter. How important is it to have a designated person within an organization to respond frequently in an effort to manage their customer service efforts? (Answer: Open ended as students‘ responses will vary; it depends on the extent to which social media is a focus of the organization. If it is important, the organization will have resources in place because this could lead to missed or lost revenue of not handled properly.) 635. Should a firm delete negative posts to social media, even if it may have a negative effect on its brand? (Answer: No, because it allows for transparency. It is

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okay to take a conversation offline to DM though; open ended as students‘ responses will vary.) PowerPoint Slides

Lecture Notes: Social Media Branding Goals 

Social media can support the goal of building a successful brand in two main ways:  (1) By allowing the firm to develop deeper relationships with customers  (2) By generating positive word-of-mouth communication about the brand across social networks  Marketers should consistently evaluate their social media presence to determine if these two key goals—deeper customer relationships and positive word-of-mouth communication—are being achieved Monitoring a Social Brand        

Regardless of what prompts consumers to follow and engage with a brand, marketers should closely monitor what is being said about their brands on social media Whether a Fortune 500 firm, a small business, or a local nonprofit organization, all companies can use a number of tools to monitor their social media presence Some of the most commonly used tools include the following: Google Alerts, Social Mention, UTM Parameters, Hootsuite Impact Marketers who use these tools to monitor their brands are able to recognize potential threats to their brand equity quickly, and develop solutions if needed They are also better prepared to facilitate an ongoing dialogue with customers to strengthen brand loyalty over time Firms that monitor the social profiles they build and integrate the various ways they communicate with customers online can successfully leverage social media to help build a successful brand Since the beginning of the COVID-19 pandemic in 2020, 75 percent of U.S. consumers say they‘ve tried new shopping behaviors for both economic reasons and shifts in personal priorities Consumers are increasingly quick to adapt to changing circumstances making social media monitoring indispensable for marketers trying to keep their brands ahead of the curve

Connect Assignment 14-3

Topic: Feedback on Branding

Social Media in Action

The Social Media in Action Connect exercise in Chapter 14 will let you develop strategies by choosing which messages and platforms should be part of building your brand through social media. Brands can be built or destroyed faster than

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ever before due to the power of social media, and it will be important for you to consider how to use a variety of social media tools to best position your brand for success. CONNECT BACK Insight Questions:

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636. What types of marketing messages can be captured using social media? (Answer: Customer experiences, product/service thoughts and recommendations, pictures, and videos of the product/service in use) 637. How can consumer input build or destroy a brand quickly? (Answer: When customers share information about a brand, the goal is to enlist positive word-ofmouth communication. When negative things happen, the chance of negative word-of-mouth communication is increased.) 638. As a brand manager responsible for managing a company‘s social media profiles, what types of negative posts could potentially cause harm? (Answer: Open ended as students‘ responses will vary; posts that suggest negative experiences or calling out the brand when something wrong or bad happens, a negative post unaddressed, and more negative posts than positive ones could cause harm.) 639. What would be your strategy to overcome the frequency of negative posts? How could you elicit or encourage positive posts by patrons? (Answer: Facilitating an ongoing dialogue with customers to strengthen brand loyalty can be done through social media but should be taken offline at times. Firms that monitor the social profiles they build and integrate the various ways they communicate with customers online can successfully leverage social media to help build a successful brand.) Key Terms: Global brand

Discuss the major branding challenges facing global marketers. Global Branding  The Global Strength of U.S. Brands  Adapting Brands to the Global Market PowerPoint Slides Lecture Notes:

Global Branding 201

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Building a strong brand is a complicated task, and the challenge is even greater when the branding becomes global A global brand is a brand that is marketed under the same name in multiple countries

Table 14.2

Insight Questions: 640. Is it a surprise that many of the top 10 global brands are frequently repeaters on this list? If so, why? (Answer: Open ended as students‘ responses will vary.)

Table Information: The Top-10 Most Valuable Global Brands A global brand is a brand that is marketed under the same name in multiple countries. Listed are the most valuable global brands in 2021 based on three criteria: (1) the financial performance of the branded product, (2) the role the brand plays in influencing consumers, and (3) the ability of the brand to draw a premium price or significantly impact the company‘s profits. PowerPoint Slides

641. Of the three qualifying criteria to be considered a valuable global brand, the role a brand plays in influencing consumers is not easily quantified. How would you, as a marketing manager, measure influential factors of your brand? (Answer: Open ended as students‘ responses will vary; consider an increase in sales after specific promotions to increase buy-in, increased sales over previous years, measuring distribution processes, and social media traction.)

Lecture Notes: The Global Strength of U.S. Brands    

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The American economy rebounded from the financial crisis that began in December 2007 at a slightly faster pace than did the economies of many European countries That rebound enhanced the marketing value of U.S. brands in the global marketplace Social networking sites such as Facebook and Twitter have been important tools in promoting U.S. brands internationally Research indicates that emerging middle-class consumers in developing countries desire American-sounding brand names

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These socioeconomic groups in China, India, Brazil, Russia, and other developing countries associate status with U.S. brands

Adapting Brands to the Global Market  

      Today‘s Professional

Global branding is mainly about finding the right balance between being global and being local With the abundance of digital platforms, many companies are deciding they will no longer follow different brand strategies in different countries; instead, they are adopting a more unified branding approach Although the brand image remains the same from country to country, the ways to communicate it and make it relevant to local consumers should adapt to each specific context The biggest challenge in global branding is to remain easily recognizable at any location and, at the same time, be compatible with the local culture and traditions Marketing professionals often appeal to local culture through packaging Cultural differences can greatly affect product packaging A common mistake marketers in the United States make is to group together nations It will become increasingly necessary for marketers to establish truly global brands that help them attract and retain customers Justin Shaw Marketing Manager, FedEx Services Justin Shaw embraced challenge working on his Master‘s degree and excelling to the role of manager through five different departments. He is ignited through passion for his job and the brand he works for. Justin provides further insight in answering the following questions: 642. Describe your job. 643. How did you get your job? 644. What has been the most important thing in making you successful at your job? 645. What advice would you give soon-to-be graduates? 646. What do you consider your person brand to be?

Photo provided by Justin Shaw

Review with students:  203

What does it mean to be a passionate champion for

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customers?  In which areas will you demonstrate passion in your post-graduation job? Topic: Localizing a Global Brand Complete the Connect exercise for Chapter 14 that focuses on strategies for localizing a global brand to maximize success in different international markets. By understanding the branding decisions required to best appeal to a particular country and culture, you should gain insights into how to market your brand in different regions of the world. CONNECT BACK Insight Questions: 647. What are some branding considerations a company must consider when entering an international market? (Answer: How the brand will be perceived in foreign markets, what marketing mix elements will be required to change, the branding identity elements, and perceptions of the brand) 648. In preparation to localize a brand in an international marketplace, how much preparation beforehand is considered sufficient? (Answer: There is no perfect timeline, but the brand must be tested against the audience it is targeting to measure their efforts.) 649. How can a marketing or branding manager overcome the challenges that exist in localizing a global brand? (Answer: Doing the proper research, test marketing, and adapting to the culture with the product/service as needed can provide great leverage when localizing a brand.) Key Terms: (none)

LO 14-7

Explain the role of branding in nonprofit organizations. Branding for Nonprofit Organizations  Nonprofit Brand Equity  Measuring Nonprofit Brand Equity PowerPoint Slides Lecture Notes:

Branding for Nonprofit Organizations   204

The complexity of both the goals and the audiences that nonprofit marketers have to address makes branding even more critical for them The organization‘s brand has to help motivate donors, staff, volunteers,

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beneficiaries, and partners An effective nonprofit brand should be unique, aesthetically pleasing, easy to remember, and, perhaps most importantly, reflective of the work the organization does The World Wildlife Fund (WWF) provides an example of successful branding by a nonprofit organization; it has a portfolio of activities and partners, with programs spanning advocacy, market transformation, community-based conservation, and climate change

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Like a for-profit firm, once a nonprofit organization creates a brand image that matches its mission, it should seek to establish and increase its brand equity A nonprofit with high brand equity can use the value stakeholders associate with the organization to raise the funds and support it needs to accomplish its mission The Autism Society of America and the National Wildlife Federation are examples of nonprofit organizations that command high brand equity

Measuring Nonprofit Brand Equity     

Table 14.3

Similar to for-profit firms, nonprofit marketers should regularly measure their brand equity using the tools described Social media tools are particularly important for nonprofit marketers because of their low cost relative to other traditional brand-building media, such as television advertising Nonprofit organizations often do not have the resources to enhance their brand image through expensive ad campaigns or sponsorships Social media help level the playing field by offering nonprofit marketers low-cost (and often free) tools to communicate with followers and potential donors about their work A nonprofit organization that can develop a strong brand image is far more likely to align supporters with the organization‘s mission and deepen their commitment as donors, volunteers, and advocates Insight Questions: 650. What makes a nonprofit brand valuable? What factors are considered? (Answer: A nonprofit brand that can develop a strong brand image is far more likely to align supporters with the organization‘s mission and deepen their commitment as donors, volunteers, and advocates.) 651. If you were a marketing manager for one of the nonprofits listed here, how could you use this to position

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Table Information: The Most Valuable Nonprofit Brands The marketing firm Harris Interactive used surveys to determine how well the public knows a brand, how positively they think of the brand, and whether they would do business with or donate to the brand. The analysis resulted in a list of the most valuable nonprofit brands in 2015 across several categories, including youth interest, animal welfare, health, social service, disability, international aid, and environmental.

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your brand and organization for a marketing opportunity using the results in this list? (Answer: Open ended as students‘ responses will vary; a press release could be shared with media outlets on the recent recognition, social media posts could feature highlights from the selection process (and more), sell sheets with the ranking could be provided to top performing locations to hang inside, being part of related podcast conversations, and promotions could surround a celebration of the ranking.) 652. Is it harder to brand a nonprofit organization versus a for-profit organization? Explain your response. (Answer: The complexity of both the goals and the audiences that nonprofit marketers have to address makes branding even more critical for them.)

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of building a strong personal brand. The next step in developing your personal marketing plan is to establish a strategy for building your personal brand that will help you achieve the objectives you identified in Chapter 1. First, think about what your personal brand is now: What do people think of when they hear your name? Are you happy with the answer to that question? Remember that not having a brand at all can negatively influence your success, too. It prevents you from standing out from your classmates and others who will be applying for the same job or graduate school opening. Next, develop specific brand-building action items for the next year that will help build, strengthen, or revitalize your personal brand. You might include things like running for office in a club or organization on campus or targeting a specific type of internship. You could also include things like going to your professors during their office hours to make yourself more than a face in the crowd, which can be very beneficial when it is time to list references or ask for letters of recommendation. Give this exercise careful thought. Being aware of your current brand and planning specific actions to develop that brand will be one of the most important career steps you can take over the next year. Student Task: Develop three to five specific brand-building action items for the next year. For each, clearly define the action you plan to take and set a deadline for taking that action. Finally, provide a description of what the expected outcomes will be for each brand-building action.  206

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List your actions in a SMART way: be specific, make sure your goals are measurable, attainable, realistic, and time-based.  What smaller actions are needed to take bigger actions? How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 653. Think of a brand to which you, as a consumer, are loyal. Why are you loyal to that brand? Does your brand loyalty extend to paying more if the price increases? Next, think of a type of product for which you feel no loyalty to any one brand. How does not being loyal to any brand change your buying patterns for that type of product? (Answer: Open ended as students‘ responses will vary; Tide laundry detergent, in an example, smells nice and cleans well. Being familiar with the product and what can be expected from the brand, an increase in price will not likely change preference. On the other hand, no loyalty can be expressed toward bottled water means that one can purchase it from anywhere for a range of prices and are willing to do so.) 654. Name a specific brand that you think needs to be revitalized. Why do you think this? What specific advice and suggestions would you give the company as it embarks on the brand revitalization process? (Answer: Open ended as students‘ responses will vary; Burger King, because it has not successfully competed in the marketplace with the ―healthy for you‖ options. A new market position is needed. Also consider the brand‘s product offering, locations, competition, and brand loyalty.) 655. How high would you consider your personal brand equity to be? If you used the tools discussed in this chapter to measure brand equity, how might others in your life respond? For example, ask a friend, family member, or professor what they think of when they hear your name or, if you were a car, what kind of car you would be and why. Based on these responses, are you satisfied with your current level of brand equity? If not, what are you planning to do in the next 12 months to build more equity? (Answer: Open ended as students‘ responses will vary; also consider how you are portraying your brand on social media platforms such as LinkedIn where professionals can view your information.) 656. Look at your home or at a grocery store and identify two brands that you think use packaging in an effective way. Explain specifically why you think the packaging is effective. Then, reverse this and identify two brands that you think do not use packaging to help their brand. Again, explain specifically why you feel this way. (Answer: Open ended as students‘ responses will vary; consider: the bottle‘s shape and color, color and size of label, information provided on the label, competition, reason for purchase, etc. An example might include a new cell phone. The box is sleek, well made of nice materials, and gives the impression that an expensive product is inside.) 207

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657. Consider a nonprofit organization in your life (this could be your church, a charity, an organization on campus, etc.) and analyze whether they do a good job of building their brand. Do they have high brand equity? If you chose to measure the organization‘s equity, how do you think people in your community would answer the qualitative and quantitative questions referenced in this chapter? Give two recommendations to help the nonprofit build its brand (or further enhance it if you feel it already has a strong brand). (Answer: Open ended as students‘ responses will vary; consider the strength of the brand compared to others, consider its reach on social media, consider its cause and relatability, consider its presence on social media and how interested constituents are to share information related to the brand, etc.) 658. Think of a global brand headquartered outside of your home country that you are loyal to (e.g., Honda if you live in the United States or Coca-Cola if you live in South Africa). Why are you loyal to that brand? Why do you choose that brand over domestic brands? (Answer: Open ended as students‘ responses will vary; consider competition, availability, flavor, style, brand personality, brand awareness, and be able to discuss consumption frequency, and distribution frequency, etc.) SOCIAL MEDIA APPLICATION Select a public figure (celebrity, politician, professional athlete, etc.) that you are familiar with who effectively leverages social media to build his or her personal brand. Analyze the person‘s efforts to build brand equity via social media using the following questions and activities as a guide: 659. What specific activities does the person engage in via social media to build their brand? 660. Give two potential strategies for how you can use social media to build your personal brand. 661. Briefly summarize how social media can potentially harm the public figure discussed earlier or your own personal brand. This activity is located in an additional worksheet that can be used with group interaction and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real-world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this.

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MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 14 that focuses on measuring customer lifetime value (CLV). ETHICAL CHALLENGE A university‘s brand is critical to how it is perceived by students, alumni, faculty, and staff. In 2013, marketers at Florida Atlantic University (F AU) were looking for new revenue to support its athletic teams and agreed to a deal with GEO Group. In this deal, the school would receive $6 million in exchange for allowing GEO to put its name on the FAU football stadium. The practice of putting a brand name on athletic facilities has become commonplace in recent years. However, the difference in this case is that GEO‘s business is running for-profit prisons. Within months of the announcement, the deal was terminated. The termination quelled the negative backlash FAU had begun to receive on campus and from the community and media for agreeing to the deal. However, without the deal, FAU lost a substantial revenue source, making it more difficult for the school to compete on the field. The dilemma presented an ethical challenge to the FAU brand: Which is more damaging: a stadium named for a prison or a losing football team? Please use the ethical decision-making framework to answer the following questions: 662. Do you think FAU made a mistake in agreeing to a naming-rights deal with a company that runs prisons? Explain your answer. (Answer: Open ended as students‘ responses will vary; consider the relationship of the two brands involved in co-branding, consider the alumni contributions that come from businesses not wanting to be affiliated with a prison, consider the division the football team is in, etc.) 663. What value would putting its name on the stadium hold for GEO Group‘s brand? (Answer: Open ended as students‘ responses will vary; value indicates both parties receive benefit from the exchange and while it may not be equal the needs by both parties should be met. When a brand is possibly damaged in the exchange, value is not likely achieved.) 664. What types of companies would you not want associated with your university, even if those companies were willing to give money to your school? (Answer: Open ended as students‘ responses will vary; consider politicians, ―damaged‖ brands, brands that do not share the same vision or mission, etc.) VIDEO CASE Have students go to Connect to access the video case featuring the Idaho Central Credit Union that accompanies this chapter. PODCAST Have students go to Connect to access the podcast that accompanies this chapter. 209

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CAREER TIPS To help students think about how to market themselves and develop their own personal brand, follow these tips. Dr. Shane Hunt, Dean of the College of Business Administration at Idaho State University, urges you to focus on the following two key elements for building a strong personal brand.

Photo provided by Dr. Shane Hunt

665. What do you want your brand to be? 666. How do you build your brand image? Review with students:  What are your personal strengths and weaknesses? What about your strengths provides a potential employer with an opportunity to their organization? Also, mention what you are doing to overcome the weaknesses.  How do you build and protect your brand?

Chapter 14: Branding

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-254 Explain the importance of building a successful brand. LO 1-255 Describe the relevance of brand equity for marketers. LO 1-256 Compare some common strategies for developing brands. LO 1-257 Summarize the impact of packaging on brand building. LO 1-258 Summarize the impact of social media on brand management. LO 1-259 Discuss the major branding challenges facing global marketers. LO 1-260 Explain the role of branding in nonprofit organizations. KEY TERMS brand 210

brand equity

brand extension

Instructor‘s Manual - Chapter 1 brand image brand loyalty brand marks brand recognition brand revitalization (rebranding)

cannibalization co-branding customer lifetime value (CLV) global brand manufacturer brands

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packaging private-label brands

THOUGHT-PROVOKING ACTIVITY Set 1: Brand recognition is pretty powerful. What is it? List 10 brands and their brand identity elements you know.

Set 2: What is co-branding, and how is it used today? (Provide three examples.)

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What does it take to build and manage a brand? LO14-1: Explain the importance of building a successful brand. Branding  For former, current, and potential customers, a brand represents everything that a good, service, or idea means to them  A brand is the name, term, symbol, design, or any combination of these that identifies and differentiates a firm‘s products  Brand loyalty is a consumer‘s steadfast allegiance to a brand, evidenced by repeated purchases  Brand loyalty typically develops because of a customer‘s satisfaction with an organization‘s products  Brand-loyal customers typically exhibit less sensitivity to price  Brand recognition is the degree to which customers can identify the brand under a variety of circumstances  Firms like Nike and McDonald‘s employ brand marks, which are the elements of a brand, not expressed in words, that a consumer instantly recognizes, such as a symbol, color, or design  The importance of brand recognition can perhaps best be seen when a company changes or updates its symbol or logo  Consumers often grow attached to certain brand logos or symbols and changes can cause a backlash Developing Your Personal Brand  The most important brand you will ever manage is your personal brand  Responsibility for building and managing the brand image that bears your name is a 24hours-a-day, 7-days-a-week, 365-days-a-year job

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Brand image is the unique set of associations that target customers or stakeholders make with a brand  It signifies what the brand presently stands for in the minds of others Components of a Successful Brand  Whether you are building the brand for your firm‘s product or your personal brand, the process involves the following four essential components:  (1) Deliver a product that provides value  (2) Create a consistent brand image  (3) Create consistent brand messaging  (4) Capture feedback  Internally, a strong brand drives cohesion and helps an organization build the capacity and skills to implement its mission  Externally, a strong brand results in trust among the firm‘s many constituents, be they customers, donors to a nonprofit organization, suppliers, or communities  If a firm successfully executes on these four components and develops a successful brand, it can begin to benefit from the brand equity it creates THINK LIKE A MARKETER Does your employer consider you a hard worker, team leader, or thoughtful employee? Or quite the opposite?

THINK LIKE A MARKETER What do managers and coworkers think when they hear your name?

CONNECT BACK: Reference Connect Assignment 14-1 Why is it important for a firm to build a successful brand? (Answer: Internally, a strong brand drives cohesion and helps an organization build the capacity and skills to implement its mission. Externally, a strong brand results in trust among the firm‘s many constituents, be they customers, donors to a nonprofit organization, suppliers, or communities. If a firm successfully executes on these four components and develops a successful brand, it can begin to benefit from the brand equity it creates.)

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How long does it take to build a successful brand? (Answer: While there is no time limit, each opportunity to create brand value should be maximized to grow a brand.) When is it necessary to reassess the effectiveness of your branding efforts after time has passed? (Answer: Open ended as students‘ responses will vary; when there is a change in the marketing mix, customer, market, or competition.) LO14-2: Describe the relevance of brand equity for marketers. Brand Equity  Brand equity is the value the firm derives from consumers‘ positive perception of its products  Brand equity increases the likelihood that the consumer will purchase the firm‘s brand rather than a competing brand  Young and Rubicam, a global advertising agency, developed the BrandAsset Valuator, which suggests that brand equity is based on four dimensions: differentiation, relevance, esteem, and knowledge Figure 14.1 The Four Dimensions of the BrandAsset Valuator INSIGHT QUESTIONS How do Apple and Disney reflect the four dimensions of the BrandAsset Valuator? (Answer: Apple and Disney rate highly in these dimensions: They clearly stand apart from competitors [differentiation]; are relevant to a large segment of consumers [relevance]; are well known [knowledge]; and are positively thought of by the majority of their target markets [esteem].) What types of advantages do organizations with high brand equity enjoy over other firms? (Answer: Brand equity increases a firm‘s ability to succeed in a difficult competitive environment, facilitates a brand‘s expansion into new markets, and can contribute to positive perceptions of product quality.) Benefits of Brand Equity  High brand equity is an asset to an organization; it provides three major benefits to marketers  (1) Brand equity increases a firm‘s ability to succeed in a difficult competitive environment  (2) Brand equity facilitates a brand‘s expansion into new markets  (3) Brand equity can contribute to positive perceptions of product quality  Each of the benefits of brand equity discussed also applies to your personal brand Measuring Brand Equity  Measuring brand equity is fundamental to understanding how to build and manage a brand over time  Companies use several qualitative and quantitative research methods to measure brand equity

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Marketing Analytics INSIGHT QUESTIONS Measuring brand equity is fundamental to understanding how to build and manage a brand over time. Respond to the following qualitative questions: If your university were a car, what make and model would it be (compared to others in your region)? If your university were an animal, what would it be (compared to others in the region)? (Answer: Open ended as students‘ responses will vary.) What measurements would indicate that a brand needs to modify their branding strategy? (Answer: Open ended as students‘ responses will vary; decreased LCV, inability to score well in brand recognition and brand recall exercises, sustained losses in market share and/or sales.) Qualitative Methods to Measure Brand Equity  Qualitative research is particularly helpful in identifying the sources of brand equity and its role in consumer decisions  Two important qualitative research methods are free association and projective techniques  Free association involves asking consumers what comes to mind when they think about the brand  Projective techniques are tools used to uncover the true opinions and feelings of consumers when they are unwilling or otherwise unable to express themselves  A common projective strategy involves asking a consumer to compare a brand to a person, animal, car, or country Quantitative Methods to Measure Brand Equity  Qualitative techniques can provide interesting, in-depth consumer insights but they typically involve very small samples of consumers, whose perceptions may not be generalizable to those of the larger population  Two common quantitative research techniques focus on measuring consumers‘ recognition and recall of specific brands  Brand recognition research helps marketers understand two things: (1) which brands stand out in a consumer‘s memory and (2) the strength of their association with the brand  One basic type of brand recognition measure presents a list of single product names, images, or slogans in a survey and asks consumers to identify which items they‘ve previously seen or heard of  Brand recall refers to consumers‘ ability to identify the brand under a variety of circumstances  Researchers often use cues to understand brand recall, such as, ―When you think of great pizza, what brands come to mind?‖  Brand recall measures can be used to determine whether consumers consider the firm‘s brand when they are planning to make a purchase, and if so, whether they think of the firm‘s brand before they think of competing brands  Customer lifetime value (CLV) is the total amount a customer will spend from acquisition through the end of a relationship with a brand 215

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Research has shown that brand equity has a predictable and meaningful impact on customer lifetime value and that marketing activities that built brand equity exerted both direct and indirect impacts on CLV  Marketers can use analytics to measure how effective different marketing tools, such as promotional strategies or pricing changes, are in building brand equity  Which method a company chooses depends on the costs of pursuing the research relative to the benefits from any insights uncovered  Firms use these insights to gauge the current strength of the brand  The insights also may reveal how firms may need to modify their brand strategy to be more successful in the future LO14-3: Compare some common strategies for developing brands. Brand Strategies  When choosing a brand strategy, marketers seek to maximize their brand equity without diluting profits or damaging the attractiveness of the brand  The brand strategy should align with the overall marketing strategy the firm has established in its marketing plan  It should be implemented with the goal of helping the firm accomplish its marketing objectives Brand Extension  Companies that already possess a strong brand and high brand equity may pursue a brandextension strategy  Brand extension is the process of broadening the use of an organization‘s current brand to include new products  Brand extensions, in contrast, typically involve taking a brand name into a different product category  A brand extension strategy enables new products to profit from the recognition and acceptance the brand already enjoys  As a company implements a brand-extension strategy, it must remain mindful of the following two potential concerns  (1) The extension must live up to the quality consumers expect from the brand  (2) Brand extensions must be implemented with an eye toward avoiding cannibalization  Cannibalization is the erosion of sales that occurs when new products eat into sales of a firm‘s existing products, rather than generate additional revenues or profits

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Brand Revitalization  Brands do not typically die natural deaths; they can be killed through mismanagement  Some firms mismanage brands into a position from which they cannot recover  Brand revitalization, or rebranding, is a strategy to recapture lost sources of brand equity and identify and establish new sources of brand equity  Revitalization begins with a determination to rebuild trust with consumers  That desire is often accompanied by an investment that shows the company‘s resolve Co-Branding  Another alternative is to leverage the equity of another firm‘s brand to increase one‘s own brand equity  Co-branding is a strategy in which two or more companies issue a single product in an effort to capitalize on the equity of each company‘s brand  Negative publicity for one of the brands could affect the co-branding partner in a negative way  To avoid such pitfalls, marketers should develop processes to select appropriate co-branding partners Private-Label Brands  Private-label brands, sometimes referred to as store brands, are products developed by a retailer and sold only by that specific retailer  Private-label goods and services are available in a wide range of industries, from food to cosmetics to web hosting  They are often positioned as lower cost alternatives to well-known manufacturer brands, brands that are managed and owned by the manufacturer  Over the past decade, annual sales of private-label products have increased by 40 percent in U.S. supermarkets  In addition, over 40 percent of U.S. shoppers now say that at least half of the groceries they buy are private-label brands  Private-label brands are often more profitable for national stores like Walgreens and Target, leading more retailers to develop private-label offerings  Millennials are often ideal candidates for private-label purchases  One of the ways that Walmart promotes its private-label Great Value brand is through packaging  Whatever brand image a firm is trying to establish, it should understand the powerful tool that packaging can be in building a successful brand

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Table 14.1 Examples of Private-Label-Branded Grocery Products INSIGHT QUESTIONS Why are private-label brands successful? (Answer: They are often positioned as lower cost alternatives to well-known manufacturer brands.) Why would a company create a private-label brand? (Answer: As a lower cost alternative, private-label brands offer competitive positioning across a wide range of industries.) Over the past decade, annual sales of private-label products have increased by 40 percent in U.S. supermarkets. What types of private-label-branded products do you use? (Answer: Open ended as students‘ responses will vary; consider private-label products produced by Walmart, Walgreens, and Target.) LO14-4: Summarize the impact of packaging on brand building. Packaging  Packaging is all of the activities involved in designing and producing the container for a product  It is one of the most underappreciated tools in marketing  Packaging gives the product a chance to stand out among the other 30,000 items that are stocked by an average American retailer  Companies use words, symbols, colors, pictures, and other brand marks on their packages to help communicate the brand attributes to consumers  In addition, packaging promotes and reinforces brand image Promoting Brand Image  Many organizations consider packaging only in the basic terms of containing, protecting, and shipping packages  Packaging provides marketers with an opportunity to promote the image they want others to associate with the brand  Packaging is one of the few points of customer contact that upscale firms can directly control  As a result, they cannot afford to miss the chance to extend the luxury experience and promote brand image beyond the store‘s walls Reinforcing Brand Image  Marketers also can utilize packaging to reinforce their brand image with consumers  Research suggests that a growing number of consumers are green motivated or driven to make decisions based on concern about the environment  The quality of the brand has to be communicated by good packaging, not just by promises of quality made in the text on the packaging

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Effective packaging results in an engaging and persuasive marketing tool in which the product and its packaging form a coherent whole, and the consumer forms their image of the brand based on this consistency The same relationship between packaging and brand quality holds true when branding yourself From a self-branding perspective, the way you package your ideas, thoughts, and accomplishments influences others to listen to what you have to say Consider the way you package yourself for an interview: your resume and clothing project your brand image Ineffective packaging of your personal brand could include typographical errors on your resume, grammatical mistakes in your e-mails, or unprofessional attire for an interview Your ideas and potential may be phenomenal, but no one will listen to you if you package yourself the wrong way

THINK LIKE A MARKETER How do you package yourself, from resume and dress style to e-mail tone and social media?

CONNECT BACK: Reference Connect Assignment 14-2 How do packaging strategies differ for private-label brands and manufacturer brands? (Answer: In both cases, the packaging should promote the brand and cut through the clutter on the shelf. The package is the first thing a consumer sees and should communicate the value and quality of the product accordingly.) How can packaging play an important role in building a strong brand? (Answer: Companies use words, symbols, colors, pictures, and other brand marks on their packages to help communicate the brand attributes to consumers. In addition, packaging promotes and reinforces brand image. The quality of the brand must be communicated by good packaging, not just by promises of quality made in the text on the packaging.) How often should a brand change its packaging? (Answer: It depends on how the product changes relative to the market and competition.) LO14-5: Summarize the impact of social media on brand management. The Role of Social Media in Branding  The idea that firms can manage their brands by simply crafting messages into print and digital materials and then handing them down from the corporate office is becoming more outdated every day 219

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Consumers spend more time than ever using social media, trading opinions and feedback on everything they come into contact with  On Instagram alone, over 80 percent of users follow at least one business Customer Engagement through Social Media  Customers engage with brands via social media for various reasons Figure 14.2 Primary Reasons Consumers Connect with Brands via Social Media INSIGHT QUESTIONS What are the primary reasons consumers are connecting with brands via social media? (Answer: The top three reasons include discounts or sales, posts that showcase new products or services, and posts that announce what is happening at a company.) Starbucks also engages with customers and builds its brand through competitions. What other companies do you personally know of that use social media to connect with consumers? (Answer: Open ended as students‘ responses will vary; consider organizations like the NBA, Nike, airlines, and clothing boutiques.) Consumers Seeking Discounts  Among those who connect with brands through social media, 72 percent say they do so to receive discounts  Offering special discounts can increase positive feedback, but marketers should be aware of the potential risks of such promotional activities  Continually offering discounts or specials has the potential to devalue the brand and the company‘s relationship with customers  It can also have the effect of underpricing the product, thereby reducing profits  Marketers must balance the desire to have a significantly positive social media presence with the brand equity measures  If consumers‘ free association responses when asked to describe a brand include ―constant discounts‖ or ―wait for special promotions,‖ such responses should be consistent with the firm‘s desired brand image Posts that Showcase New Products and Services  Sixty percent of Instagram users say they discover new products on the platform  Social media also provides brands with an opportunity to showcase different aspects of their product Posts that Teach Something  Social media play an important role in how consumers discover, research, and learn information about brands and products  Data from the Nielsen research firm provide striking evidence of the growing role of social media in brand building: 60 percent of consumers researching products through online sources learned about a specific brand or retailer through social networking sites 221

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Active social media users are more likely to read product reviews online, and three out of five create their own reviews of products  When researching products, social media users tend to trust the recommendations of their friends and family the most  Firms like Starbucks are well aware of the influence these personal recommendations can have and make a concerted effort to reach super influencers, adults typically between 18 and 49 years old who reach a large number of potential consumers through social media Branding through Customer Service  Many customers use social media to engage with brands on a customer service level  Questions from customers on social media sites allow companies to provide direct feedback and potentially resolve a specific problem faster than they could have otherwise  While social media can spread complaints like wildfire, responding in a timely fashion can showcase the company‘s commitment to excellence  Though social media facilitates the speed and efficiency with which firms can respond to customer service issues, they also raise the expectations customers have for how quickly their problems should be resolved  According to Nielsen, 42 percent of 18- to 34-year-olds say they expect customer support within 12 hours of a question or complaint  People expect brands to be available on social media and seek out their social accounts for customer service  Research shows that brands that don‘t meet those expectations damage their bottom line THINK LIKE A MARKETER Where do you go for brand information?

Figure 14.3 Example of Customer Service via Social Media INSIGHT QUESTIONS What are the preferred sources for customer service? (Answer: Open ended as students‘ responses will vary; a company‘s website, chatbot, call center, e-mail, and social media are viable options. Considerations likely include timely and adequate responses toward the issues].) If a firm uses social media for customer service issues, what is considered a timely response? (Answer: Open ended as students‘ responses will vary; variations in hours to days depending on the nature of the request.)

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Consumers can openly and frequently post thoughts, both positive and negative, to a company‘s Facebook or Twitter. How important is it to have a designated person within an organization to respond frequently in an effort to manage their customer service efforts? (Answer: Open ended as students‘ responses will vary; it depends on the extent to which social media is a focus of the organization. If it is important, the organization will have resources in place because this could lead to missed or lost revenue if not handled properly.) Should a firm delete negative posts to social media, even if it may have a negative effect on its brand? (Answer: No, because it allows for transparency. It is okay to take a conversation offline to DM though; open ended as students‘ responses will vary.) Social Media Branding Goals  Social media can support the goal of building a successful brand in two main ways:  (1) By allowing the firm to develop deeper relationships with customers  (2) By generating positive word-of-mouth communication about the brand across social networks  Marketers should consistently evaluate their social media presence to determine if these two key goals—deeper customer relationships and positive word-of-mouth communication—are being achieved Monitoring a Social Brand  Regardless of what prompts consumers to follow and engage with a brand, marketers should closely monitor what is being said about their brands on social media  Whether a Fortune 500 firm, a small business, or a local nonprofit organization, all companies can use a number of tools to monitor their social media presence  Some of the most commonly used tools include the following: Google Alerts, Social Mention, UTM Parameters, and Hootsuite Impact  Marketers who use these tools to monitor their brands are able to recognize potential threats to their brand equity quickly, and develop solutions if needed  They are also better prepared to facilitate an ongoing dialogue with customers to strengthen brand loyalty over time  Firms that monitor the social profiles they build and integrate the various ways they communicate with customers online can successfully leverage social media to help build a successful brand  Since the beginning of the COVID-19 pandemic in 2020, 75 percent of U.S. consumers say they‘ve tried new shopping behaviors for both economic reasons and shifts in personal priorities  Consumers are increasingly quick to adapt to changing circumstances making social media monitoring indispensable for marketers trying to keep their brands ahead of the curve

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CONNECT BACK: Reference Connect Assignment 14-3 What types of marketing messages can be captured using social media? (Answer: Customer experiences, product/service thoughts and recommendations, pictures, and videos of the product/service in use.) How can consumer input build or destroy a brand quickly? (Answer: When customers share information about a brand, the goal is to enlist positive wordof-mouth communication. When negative things happen, the chance of negative word-ofmouth communication is increased.) As a brand manager responsible for managing a company‘s social media profiles, what types of negative posts could potentially cause harm? (Answer: Open ended as students‘ responses will vary; posts that suggest negative experiences or calling out the brand when something wrong or bad happens, a negative post unaddressed, and more negative posts than positive ones could cause harm.) What would be your strategy to overcome the frequency of negative posts? How could you elicit or encourage positive posts by patrons? (Answer: Facilitating an ongoing dialogue with customers to strengthen brand loyalty can be done through social media but should be taken offline at times. Firms that monitor the social profiles they build and integrate the various ways they communicate with customers online can successfully leverage social media to help build a successful brand.) LO14-6: Discuss the major branding challenges facing global marketers. Global Branding  Building a strong brand is a complicated task, and the challenge is even greater when the branding becomes global  A global brand is a brand that is marketed under the same name in multiple countries Table 14.2 The Top 10 Most Valuable Global Brands INSIGHT QUESTIONS Is it a surprise that many of the top ten global brands are frequently repeaters on this list? If so, why? (Answer: Open ended as students‘ responses will vary.) Of the three qualifying criteria to be considered a valuable global brand, the role a brand plays in influencing consumers is not easily quantified. How would you, as a marketing manager, measure this? (Answer: Open ended as students‘ responses will vary; consider: an increase in sales after specific promotions to increase buy-in, increased sales over previous years, measuring distribution processes, and social media traction.)

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The Global Strength of U.S. Brands  The American economy rebounded from the financial crisis that began in December 2007 at a slightly faster pace than did the economies of many European countries  That rebound enhanced the marketing value of U.S. brands in the global marketplace  Social networking sites such as Facebook and Twitter have been important tools in promoting U.S. brands internationally  Research indicates that emerging middle-class consumers in developing countries desire American-sounding brand names  These socioeconomic groups in China, India, Brazil, Russia, and other developing countries associate status with U.S. brands Adapting Brands to the Global Market  Global branding is mainly about finding the right balance between being global and being local  With the abundance of digital platforms, many companies are deciding they will no longer follow different brand strategies in different countries; instead, they are adopting a more unified branding approach  Although the brand image remains the same from country to country, the ways to communicate it and make it relevant to local consumers should adapt to each specific context  The biggest challenge in global branding is to remain easily recognizable at any location and, at the same time, be compatible with the local culture and traditions  Marketing professionals often appeal to local culture through packaging  Cultural differences can greatly affect product packaging  A common mistake marketers in the United States make is to group together nations  It will become increasingly necessary for marketers to establish truly global brands that help them attract and retain customers TODAY’S PROFESSIONAL NOTES Justin Shaw, Marketing Manager, FedEx Services What does it mean to be a passionate champion for customers? In what areas will you demonstrate passion in your post-graduation job?

CONNECT BACK: Reference Connect Assignment 14-4 What are some branding considerations a company must consider when entering an international market? (Answer: How the brand will be perceived in foreign markets, what marketing mix elements 225

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will be required to change, the branding identity elements, and perceptions of the brand) In preparation to localize a brand in an international marketplace, how much preparation beforehand is considered sufficient? (Answer: There is no perfect timeline but the brand must be tested against the audience it is targeting to measure their efforts.) How can a marketing or branding manager overcome the challenges that exist in localizing a global brand? (Answer: Doing the proper research, test marketing, and adapting to the culture with the product/service as needed can provide great leverage when localizing a brand.) LO14-7: Explain the role of branding in nonprofit organizations. Branding for Nonprofit Organizations  The complexity of both the goals and the audiences that nonprofit marketers have to address makes branding even more critical for them  The organization‘s brand has to help motivate donors, staff, volunteers, beneficiaries, and partners  An effective nonprofit brand should be unique, aesthetically pleasing, easy to remember, and, perhaps most importantly, reflective of the work the organization does  The World Wildlife Fund (WWF) provides an example of successful branding by a nonprofit organization; it has a portfolio of activities and partners, with programs spanning advocacy, market transformation, community-based conservation, and climate change Nonprofit Brand Equity  Like a for-profit firm, once a nonprofit organization creates a brand image that matches its mission, it should seek to establish and increase its brand equity  A nonprofit with high brand equity can use the value stakeholders associate with the organization to raise the funds and support it needs to accomplish its mission  The Autism Society of America and the National Wildlife Federation are examples of nonprofit organizations that command high brand equity Measuring Nonprofit Brand Equity  Similar to for-profit firms, nonprofit marketers should regularly measure their brand equity using the tools described  Social media tools are particularly important for nonprofit marketers because of their low cost relative to other traditional brand-building media, such as television advertising  Nonprofit organizations often do not have the resources to enhance their brand image through expensive ad campaigns or sponsorships  Social media helps level the playing field by offering nonprofit marketers low-cost (and often free) tools to communicate with followers and potential donors about their work  A nonprofit organization that can develop a strong brand image is far more likely to align supporters with the organization‘s mission and deepen their commitment as donors, volunteers, and advocates 226

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Table 14.3 The Most Valuable Nonprofit Brands INSIGHT QUESTIONS What makes a nonprofit brand valuable? What factors are considered? (Answer: A nonprofit brand that can develop a strong brand image is far more likely to align supporters with the organization‘s mission and deepen their commitment as donors, volunteers, and advocates.) If you were a marketing manager for one of the nonprofits listed here, how could you use this to position your brand and organization for a marketing opportunity using the results in this list? (Answer: Open ended as students‘ responses will vary; a press release could be shared with media outlets on the recent recognition, social media posts could feature highlights from the selection process [and more], sell sheets with the ranking could be provided to top performing locations to hang inside, being part of related podcast conversations, and promotions could surround a celebration of the ranking.) Is it harder to brand a nonprofit organization versus a for-profit organization? Explain your response. (Answer: The complexity of both the goals and the audiences that nonprofit marketers have to address makes branding even more critical for them.) MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of building a strong personal brand. The next step in developing your personal marketing plan is to establish a strategy for building your personal brand that will help you achieve the objectives you identified in Chapter 1. First, think about what your personal brand is now: What do people think of when they hear your name? Are you happy with the answer to that question? Remember that not having a brand at all can negatively influence your success, too. It prevents you from standing out from your classmates and others who will be applying for the same job or graduate school opening. Next, develop specific brand-building action items for the next year that will help build, strengthen, or revitalize your personal brand. You might include things like running for office in a club or organization on campus or targeting a specific type of internship. You could also include things like going to your professors during their office hours to make yourself more than a face in the crowd, which can be very beneficial when it is time to list references or ask for letters of recommendation. Give this exercise careful thought. Being aware of your current brand and planning specific actions to develop that brand will be one of the most important career steps you can take over the next year. Student Task: Develop three to five specific brand-building action items for the next year. For each, clearly define the action you plan to take and set a deadline for taking that action. Finally, provide a description of what the expected outcomes will be for each brand-building action. 227

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What actions can you take now and over the next year to build your brand? List your actions in a SMART way: be specific, make sure your goals are measurable, attainable, realistic, and time-based. What smaller actions are needed to take bigger actions?

Chapter 14

BRANDING In the next 12 months, I plan to do the following things to build my brand: 667. 668. 669.

Chapter 14: Branding

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-261 Explain the importance of building a successful brand. LO 1-262 Describe the relevance of brand equity for marketers. LO 1-263 Compare some common strategies for developing brands. LO 1-264 Summarize the impact of packaging on brand building. LO 1-265 Summarize the impact of social media on brand management. LO 1-266 Discuss the major branding challenges facing global marketers. LO 1-267 Explain the role of branding in nonprofit organizations. KEY TERMS brand brand equity brand extension 228

brand image brand loyalty brand marks

brand recognition brand revitalization (rebranding)

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customer lifetime value (CLV) global brand

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manufacturer brands packaging private-label brands

THOUGHT-PROVOKING ACTIVITY Set 1: Brand recognition is pretty powerful. What is it? List 10 brands and their brand identity elements you know.

Set 2: What is co-branding, and how is it used today? (Provide three examples.)

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CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, and KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES T.J. Thompson, Brand Manager, Valley View Agri-Systems How is marketing relevant in his role? What does it take to build and manage a brand? LO14-1: Explain the importance of building a successful brand. Branding  For former, current, and potential customers, a _ represents everything that a good, service, or idea means to them  A brand is the name, term, _ , _ , or any combination of these that identifies and differentiates a firm‘s products  _ is a consumer‘s steadfast allegiance to a brand, evidenced by repeated purchases  Brand loyalty typically develops because of a customer‘s _ with an organization‘s products  Brand-loyal customers typically exhibit less sensitivity to _  _ is the degree to which customers can identify the brand under a variety of circumstances  Firms like Nike and McDonald‘s employ _ , which are the elements of a brand, not expressed in words, that a consumer instantly recognizes, such as a symbol, color, or design  The importance of brand recognition can perhaps best be seen when a company changes or updates its symbol or _  Consumers often grow attached to certain brand logos or symbols and changes can cause a _ Developing Your Personal Brand  The most important brand you will ever manage is _  Responsibility for building and managing the brand image that bears your name is a 24hours-a-day, 7-days-a-week, 365-days-a-year job

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_ is the unique set of associations that target customers or stakeholders make with a brand  It signifies what the brand presently stands for _ Components of a Successful Brand  Whether you are building the brand for your firm‘s product or your personal brand, the process involves the following four essential components:  (1) Deliver a product that provides value  (2) _  (3) Create consistent brand messaging  (4) Capture feedback  Internally, a strong brand drives _ and helps an organization build the capacity and skills to implement its mission  Externally, a strong brand results in _ among the firm‘s many constituents, be they customers, donors to a nonprofit organization, suppliers, or communities  If a firm successfully executes on these four components and develops a successful brand, it can begin to benefit from the _ it creates THINK LIKE A MARKETER Does your employer consider you a hard worker, team leader, or thoughtful employee? Or quite the opposite?

THINK LIKE A MARKETER What do managers and coworkers think when they hear your name?

CONNECT BACK: Reference Connect Assignment 14-1 Why is it important for a firm to build a successful brand?

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How long does it take to build a successful brand?

When is it necessary to reassess the effectiveness of your branding efforts after time has passed?

LO14-2: Describe the relevance of brand equity for marketers. Brand Equity  _ is the value the firm derives from consumers‘ positive perception of its products  Brand equity increases the likelihood that the consumer will purchase the firm‘s brand rather than a _  Young and Rubicam, a global advertising agency, developed the BrandAsset Valuator, which suggests that brand equity is based on four dimensions: differentiation, relevance, _ , and knowledge Figure 14.1 The Four Dimensions of the BrandAsset Valuator INSIGHT QUESTIONS How do Apple and Disney reflect the four dimensions of the BrandAsset Valuator?

What types of advantages do organizations with high brand equity enjoy over other firms?

Benefits of Brand Equity  High brand equity is an asset to an organization; it provides three major benefits to marketers  (1) Brand equity increases a firm‘s ability to succeed in a difficult _  (2) Brand equity facilitates a brand‘s expansion into _  (3) Brand equity can contribute to _ of product quality  Each of the benefits of brand equity discussed also applies to your personal brand Measuring Brand Equity 232 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Measuring brand equity is fundamental to understanding how to build and manage a brand over time  Companies use several _ and _ research methods to measure brand equity Marketing Analytics INSIGHT QUESTIONS Measuring brand equity is fundamental to understanding how to build and manage a brand over time. Respond to the following qualitative questions: If your university were a car, what make and model would it be (compared to other in your region)? If your university were an animal, what would it be (compared to others in the region)?

What measurements would indicate that a brand needs to modify their branding strategy?

Qualitative Methods to Measure Brand Equity  Qualitative research is particularly helpful in identifying the sources of brand equity and its role in consumer decisions  Two important qualitative research methods are _ and projective techniques  _ involves asking consumers what comes to mind when they think about the brand  _ are tools used to uncover the true opinions and feelings of consumers when they are unwilling or otherwise unable to express themselves  A common projective strategy involves asking a consumer to compare a brand to a person, _ , car, or country Quantitative Methods to Measure Brand Equity  Qualitative techniques can provide interesting, in-depth consumer insights but they typically involve very small samples of consumers, whose perceptions may not be _ to those of the larger population  Two common quantitative research techniques focus on measuring consumers‘ recognition and _ of specific brands  Brand recognition research helps marketers understand two things: (1) which brands stand out in a consumer‘s memory and (2) _ 233 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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One basic type of brand recognition measure presents a list of single product names, images, or slogans in a survey and asks consumers to identify which items they‘ve previously seen or heard of  Brand recall refers to consumers‘ ability to identify the brand under a variety of circumstances  Researchers often use _ to understand brand recall, such as, ―When you think of great pizza, what brands come to mind?‖  _ measures can be used to determine whether consumers consider the firm‘s brand when they are planning to make a purchase, and if so, whether they think of the firm‘s brand before they think of competing brands  _ (CLV) is the total amount a customer will spend from acquisition through the end of a relationship with a brand  Research has shown that _ has a predictable and meaningful impact on customer lifetime value and that marketing activities that built brand equity exerted both direct and indirect impacts on CLV  Marketers can use _ to measure how effective different marketing tools, such as promotional strategies or pricing changes, are in building brand equity  Which method a company chooses depends on the _ of pursuing the research relative to the benefits from any insights uncovered  Firms use these insights to gauge the current _ of the brand  The insights also may reveal how firms may need to _ their brand strategy to be more successful in the future LO14-3: Compare some common strategies for developing brands. Brand Strategies  When choosing a brand strategy, marketers seek to maximize their brand equity without diluting profits or damaging the _  The brand strategy should align with the overall _ the firm established in its marketing plan  It should be implemented with the goal of helping the firm accomplish its marketing objectives Brand Extension  Companies that already possess a strong brand and high brand equity may pursue a _ 234 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ is the process of broadening the use of an organization‘s current brand to include new products  Brand extensions, in contrast, typically involve taking a brand name into a _  A brand-extension strategy enables new products to profit from the recognition and _ the brand already enjoys  As a company implements a brand-extension strategy, it must remain mindful of the following two potential concerns  (1) The extension must live up to the _ consumers expect from the brand  (2) Brand extensions must be implemented with an eye toward avoiding _  _ is the erosion of sales that occurs when new products eat into sales of a firm‘s existing products, rather than generate additional revenues or profits Brand Revitalization  Brands do not typically die natural deaths; they can be killed through _  Some firms mismanage brands into a position from which they cannot recover  _ , or rebranding, is a strategy to recapture lost sources of brand equity and identify and establish new sources of brand equity  Revitalization begins with a determination to rebuild _ with consumers  That desire is often accompanied by an investment that shows the company‘s resolve Co-Branding  Another alternative is to leverage the _ of another firm‘s brand to increase one‘s own brand equity  _ is a strategy in which two or more companies issue a single product in an effort to capitalize on the equity of each company‘s brand  _ for one of the brands could affect the co-branding partner in a negative way  To avoid such pitfalls, marketers should develop processes to select appropriate _ Private-Label Brands  _ , sometimes referred to as store brands, are products developed by a retailer and sold only by that specific retailer  Private-label goods and services are available in a wide range of industries, from food to cosmetics to web hosting 235 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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They are often positioned as lower-cost alternatives to well-known _ , brands that are managed and owned by the manufacturer Over the past decade, annual sales of private-label products have increased by _ percent in U.S. supermarkets In addition, over 40 percent of U.S. shoppers now say that at least half of the groceries they buy are _ Private-label brands are often more profitable to national stores like Walgreens and Target, leading more retailers to develop private-label offerings _ often are ideal candidates for privatelabel purchases One of the ways that Walmart promotes its private-label Great Value brand is through _ Whatever brand image a firm is trying to establish, it should understand the powerful tool that packaging can be in building a successful brand

Table 14.1 Examples of Private-Label-Branded Grocery Products INSIGHT QUESTIONS Why are private-label brands successful?

Why would a company create a private label brand?

Over the past decade, annual sales of private label products have increased by 40 percent in U.S. supermarkets. What types of private-label branded products do you use?

LO14-4: Summarize the impact of packaging on brand building. Packaging  _ is all of the activities of designing and producing the container for a product  It is one of the most underappreciated tools in marketing  _ gives the product a chance to stand out among the other 30,000 items that are stocked by an average American retailer  Companies use words, symbols, colors, pictures, and other brand marks on their packages to help communicate the _ to consumers 236 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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In addition, packaging promotes and reinforces _ Promoting Brand Image  Many organizations consider packaging only in the basic terms of containing, _ , and shipping packages  Packaging provides marketers with an opportunity to promote the _ they want others to associate with the brand  Packaging is one of the few points of customer contact that upscale firms can directly control  As a result, they cannot afford to miss the chance to extend the luxury experience and promote _ beyond the store‘s walls Reinforcing Brand Image  Marketers also can utilize packaging to reinforce their brand image with consumers  Research suggests that a growing number of consumers are _ or driven to make decisions based on concern about the environment  The quality of the brand has to be communicated by good packaging, and not just by promises of quality made in the _ on the packaging  Effective packaging results in an engaging and persuasive marketing tool in which the product and its packaging form a _ , and the consumer forms their image of the brand based on this consistency  The same relationship between packaging and brand quality holds true when branding yourself  From a _ perspective, the way you package your ideas, thoughts, and accomplishments influences others to listen to what you have to say  Consider the way you package yourself for an interview: your resume and clothing project your brand image  Ineffective packaging of your personal brand could include typographical errors on your resume, grammatical mistakes in your e-mails, or _ for an interview  Your ideas and potential may be phenomenal, but no one will listen to you if you package yourself the wrong way THINK LIKE A MARKETER How do you package yourself, from resume and dress style to email tone and social media?

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CONNECT BACK: Reference Connect Assignment 14-2 How do packaging strategies differ for private label brands and manufacturer brands?

How can packaging play an important role in building a strong brand?

How often should a brand change its packaging?

LO14-5: Summarize the impact of social media on brand management. The Role of Social Media in Branding  The idea that firms can manage their brands by simply crafting messages into print and digital materials and then handing them down from the corporate office is becoming more outdated every day  Consumers spend more time than ever using social media, trading _ and feedback on everything they come into contact with  On Instagram alone, over 80 percent of users follow at least one business Customer Engagement through Social Media  Customers engage with brands via _ for various reasons Figure 14.2 Primary Reasons Consumers Connect with Brands via Social Media INSIGHT QUESTIONS What are the primary reasons consumers are connecting with brands via social media?

Starbucks also engages with customers and builds its brand through competitions. What other companies do you personally know of that use social media to connect with consumers?

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Among those who connect with brands through social media, 72 percent say they do so to receive _  Offering special discounts can increase positive feedback, but marketers should be aware of the potential risks of such promotional activities  Continually offering discounts or specials has the potential to _ the brand and the company‘s relationship with customers  It can also have the effect of underpricing the product, thereby _  Marketers must balance the desire to have a significantly positive social media presence with the _ measures  If consumers‘ _ responses when asked to describe a brand include ―constant discounts‖ or ―wait for special promotions,‖ such responses should be consistent with the firm‘s desired brand image Posts that Showcase New Products and Services  _ percent of Instagram users say they discover new products on the platform  Social media also provides brands an opportunity to showcase different aspects of their product Posts that Teach Something  Social media play an important role in how consumers discover, research, and _ information about brands and products  Data from the Nielsen research firm provide striking evidence of the growing role of social media in brand building: _ percent of consumers researching products through online sources learned about a specific brand or retailer through social networking sites  Active social media users are more likely to read product reviews online, and three out of five create their own _ of products  When researching products, social media users tend to trust the recommendations of their friends and family most  Firms like Starbucks are well aware of the influence these personal recommendations can have and make a concerted effort to reach _ , adults typically between 18 and 49 years old who reach a large number of potential consumers through social media Branding through Customer Service  Many customers use social media to engage with brands on a customer service level  Questions from customers on social media sites allow companies to provide _ and potentially resolve a specific problem faster than they could have otherwise

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While social media can spread complaints like wildfire, responding in a timely fashion can showcase the company‘s commitment to _ Though social media facilitate the speed and _ with which firms can respond to customer service issues, they also raise the expectations customers have for how quickly their problems should be resolved According to Nielsen, _ percent of 18- to 34-year-olds say they expect customer support within 12 hours of a question or complaint People expect brands to be available on social media and seek out their social accounts for _ Research shows that brands that don‘t meet those expectations damage their _

THINK LIKE A MARKETER Where do you go for brand information?

Figure 14.3 Example of Customer Service via Social Media INSIGHT QUESTIONS What are the preferred sources for customer service?

If a firm uses social media for customer service issues, what is considered a timely response?

Should a firm delete negative posts to social media, even if it may have a negative effect on its brand?

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Social media can support the goal of building a successful brand in two main ways: (1) By allowing the firm to develop _ with customers  (2) By generating positive _ about the brand across social networks  Marketers should consistently evaluate their social media presence to determine whether these two key goals—deeper _ and positive word-of-mouth communication—are being achieved Monitoring a Social Brand  Regardless of what prompts consumers to follow and engage with a brand, marketers should closely monitor what is being said about their brands on social media  Whether a Fortune 500 firm, a small business, or a local nonprofit organization, all companies can use a number of tools to monitor their social media presence  Some of the most commonly used tools include the following: Google Alerts, _ , UTM Parameters, _  Marketers who use these tools to monitor their brands are able to recognize _ to their brand equity quickly, and develop solutions if needed  They are also better prepared to facilitate an _ with customers to strengthen brand loyalty over time  Firms that monitor the social profiles they build and integrate the various ways they communicate with customers online can successfully leverage social media to help build a successful brand  Since the beginning of the COVID-19 pandemic in 2020, _ percent of U.S. consumers say they‘ve tried new shopping behaviors for both economic reasons and shifts in personal priorities  Consumers are increasingly quick to adapt to changing circumstances making social media monitoring indispensable for marketers trying to keep their brands ahead of the curve CONNECT BACK: Reference Connect Assignment 14-3 What types of marketing messages can be captured using social media?

How can consumer input build or destroy a brand quickly?

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As a brand manager responsible for managing a company‘s social media profiles, what types of negative posts could potentially cause harm?

What would be your strategy to overcome the frequency of negative posts? How could you elicit or encourage positive posts by patrons?

LO14-6: Discuss the major branding challenges facing global marketers. Global Branding  Building a strong brand is a complicated task, and the challenge is even greater when the branding becomes global  A_ is a brand that is marketed under the same name in multiple countries Table 14.2 The Top 10 Most Valuable Global Brands INSIGHT QUESTIONS Is it a surprise that many of the top 10 global brands are frequently repeaters on this list? If so, why?

Of the three qualifying criteria to be considered a valuable global brand, the role a brand plays in influencing consumers is not easily quantified. How would you, as a marketing manager, measure this?

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These socioeconomic groups in China, India, Brazil, Russia, and other developing countries associate _ with U.S. brands

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Adapting Brands to the Global Market  Global branding is mainly about finding the right balance between being global and _  With the abundance of digital platforms, many companies are deciding they will no longer follow different brand strategies in different countries; instead, they are adopting a more _ approach  Although the brand image remains the same from country to country, the ways to _ it and make it relevant to local consumers should adapt to each specific context  The biggest challenge in global branding is to remain easily _ at any location and, at the same time, be compatible with the local culture and traditions  Marketing professionals often appeal to local culture through _  Cultural differences can greatly affect _  A common mistake marketers in the United States make is to _  It will become increasingly necessary for marketers to establish truly global brands that help them attract and retain _ TODAY’S PROFESSIONAL NOTES Justin Shaw, Marketing Manager, FedEx Services What does it mean to be a passionate champion for customers?

In what areas will you demonstrate passion in your post-graduation job?

CONNECT BACK: Reference Connect Assignment 14-4 What are some branding considerations a company must consider when entering an international market?

In preparation to localize a brand in an international marketplace, how much preparation beforehand is considered sufficient?

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How can a marketing or branding manager overcome the challenges that exist in localizing a global brand?

LO14-7: Explain the role of branding in nonprofit organizations. Branding for Nonprofit Organizations  The complexity of both the goals and the _ that nonprofit marketers have to address makes branding even more critical for them  The organization‘s brand has to help motivate donors, staff, volunteers, beneficiaries, and partners  An effective _ should be unique, aesthetically pleasing, easy to remember, and, perhaps most importantly, reflective of the work the organization does  The World Wildlife Fund (WWF) provides an example of _ by a nonprofit organization; it has a portfolio of activities and partners, with programs spanning advocacy, market transformation, community-based conservation, and climate change Nonprofit Brand Equity  Like a for-profit firm, once a nonprofit organization creates a brand image that matches its mission, it should seek to establish and increase its _  A nonprofit with high brand equity can use the value _ associate with the organization to raise the funds and support it needs to accomplish its mission  The Autism Society of America and the National Wildlife Federation are examples of nonprofit organizations that command high _ Measuring Nonprofit Brand Equity  Similar to for-profit firms, nonprofit marketers should regularly measure their brand equity using the tools described  Social media tools are particularly important for nonprofit marketers because of their _ relative to other traditional brandbuilding media, such as television advertising  Nonprofit organizations often do not have the resources to enhance their brand image through expensive ad campaigns or sponsorships 246 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Social media help level the playing field by offering nonprofit marketers low-cost (and often free) tools to communicate with followers and potential donors about their work A nonprofit organization that can develop a strong _ is far more likely to align supporters with the organization‘s mission and deepen their commitment as donors, volunteers, and advocates

Table 14.3 The Most Valuable Nonprofit Brands INSIGHT QUESTIONS What makes a nonprofit brand valuable? What factors are considered?

If you were a marketing manager for one of the nonprofits listed here, how could you use this to position your brand and organization for a marketing opportunity using the results in this list?

Is it harder to brand a nonprofit organization versus a for-profit organization? Explain your response.

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we discussed the importance of building a strong personal brand. The next step in developing your personal marketing plan is to establish a strategy for building your personal brand that will help you achieve the objectives you identified in Chapter 1. First, think about what your personal brand is now: What do people think of when they hear your name? Are you happy with the answer to that question? Remember that not having a brand at all can negatively influence your success, too. It prevents you from standing out from your classmates and others who will be applying for the same job or graduate school opening. Next, develop specific brand-building action items for the next year that will help build, strengthen, or revitalize your personal brand. You might include things like running for office in a club or organization on campus or targeting a specific type of internship. You could also include things like going to your professors during their office hours to make yourself more than a face in the crowd, which can be very beneficial when it is time to list references or ask for letters of recommendation. 247 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Give this exercise careful thought. Being aware of your current brand and planning specific actions to develop that brand will be one of the most important career steps you can take over the next year. Student Task: Develop three to five specific brand-building action items for the next year. For each, clearly define the action you plan to take and set a deadline for taking that action. Finally, provide a description of what the expected outcomes will be for each brand-building action.   

What actions can you take now and over the next year to build your brand? List your actions in a SMART way: be specific, make sure your goals are measurable, attainable, realistic and time-based. What smaller actions are needed to take bigger actions?

Chapter 14

BRANDING In the next 12 months, I plan to do the following things to build my brand: 670. 671. 672.

Chapter 15: Customer Relationship Management

Rob Wilson/Shutterstock

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(Moodle, Blackboard, etc.). The worksheet key for Chapter 15 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-268 Explain the importance of effective customer service and customer satisfaction to companies. LO 1-269 Describe methods companies use to develop good customer relationships. LO 1-270 Discuss how companies can improve relationships with B2B and B2C customers. LO 1-271 Describe how customer relationship management uses customer information to improve relations between businesses and customers. LO 1-272 Discuss the security and ethical issues involved in using customer relationship management systems. LO 1-273 Describe how companies can judge the effectiveness of their customer relationship management efforts. KEY TERMS clientelling data mining perfect order rate collaborative filtering dollar fill rate predictive modeling customer communication ease of doing business recency-frequencycustomer communication empowerment monetary metrics fill rate analysis customer equity geofencing relationship marketing customer focus item fill rate reliability customer relationship lifetime value responsiveness management lifetime value (LTV) share of customer (CRM) analysis social media platforms customer satisfaction line fill rate timeliness customer segmentation marketing concept touch point analysis on-time delivery transparency customer service order cycle customer value order cycle time THOUGHT-PROVOKING ACTIVITY (This activity is included in the PowerPoint for this chapter.) With each chapter, begin class with a thought-provoking activity (TPA) for 10 minutes. TPAs allow students to pull in real-world, current findings into class, and better enable students to partake in class discussion with relation to the chapter‘s material in an icebreaker format. How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. 249 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Set 1: What is customer service? Provide a practical definition. How has social media impacted customer service? Set 2: How does empowering employees enable us to deliver value in an organization? What happens when an employee is not empowered? Use your experience as a reference.

Edward Craner Vice President, Strategy and Marketing, Holt Cat Companies A nonlinear career path taught Edward Craner the importance of customer satisfaction and effectively managing customer relationships. He uses his experience to provide insight in answering the following questions:

Photo provided by Edward Craner

673. What has been the most important thing in making you successful at your job? 674. What advice would you give soon-to-be graduates? 675. How is marketing relevant to your role at Holt Cat Companies? 676. What do you consider your personal brand to be? Later in the chapter you see how Edward elaborates on: 

The most important aspect of providing great customer service.

Review with students:

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Explain the importance of effective customer service and customer satisfaction to companies. What is Customer Service?

 How is marketing relevant in his role?  What does great customer service mean to you? Key Terms: Customer service Timeliness Order cycle Reliability

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Defining Customer Service  Establishing Customer Service Policies  Timeliness  Reliability  Customer Communication  Ease of Doing Business  The Role of Social Media in Customer Service  Tracking Performance through Customer Service Metrics PowerPoint Slides Lecture Notes:

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Customer communication Ease of doing business Social media platforms Fill rate Item fill rate Dollar fill rate Line fill rate Perfect order rate On-time delivery Order cycle time Customer communication metrics Responsiveness

What is Customer Service?          

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Companies need to know how well they are doing in keeping customers happy Research studies have quantified reasons to be concerned about customer service About 78 percent of consumers have changed their minds about buying a good or service because of a poor service experience On average, over time, loyal customers bring in up to 10 times as much revenue as the value of their first purchase It takes up to 12 positive experiences with a customer to make up for one unresolved negative experience a customer has News of bad customer service reaches more than twice as many people as comments about a good service experience a person or business has It is six to seven times more expensive to get a new customer than it is to keep an existing customer Poor customer service is almost guaranteed to frustrate customers, but good customer service alone doesn‘t make customers happy Even if a company offers good customer service, it still can lose customers if its service is not significantly better than that of a competitor To maintain current customers, as well as gain new ones, firms must provide customer service that makes them stand out among competitors

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Insight Questions:

Table Information: Companies with the Best Customer Experience Ratings Firms like the Temkin Group and J.D. Power provide customer service rankings for a variety of companies according to Forbes. Listed are the top- and bottom-rated organizations according to them. PowerPoint Slides

677. How can a positive ranking influence which companies consumers purchase goods and services from? How can a negative ranking influence consumers? (Answer: Consumers may use these ratings to select whom to buy goods and services from. Therefore, it is important for companies to maintain a good reputation for customer service.) 678. Do you pay attention to consumer rankings when purchasing goods and services? If so, where do you go to access this information? (Answer: Open ended; websites, blogs, social media, friends, and family may also provide insight on customer experiences with these brands.) 679. What factors would be considered in compiling a customer service ranking list such as this? (Answer: Open ended; ability to address concerns, communication, good working conditions, ease of doing business, knowledgeable customer service team, tenure, social media presence, etc.)

Lecture Notes: Defining Customer Service         

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Customer service involves all of the activities a firm engages in to satisfy the needs and wants of its customers These activities consist of both human methods and mechanical methods for direct customer interaction When companies commit to providing outstanding customer service, they elevate customer service to the highest priority level A company‘s customer service strategy guides the establishment of customer service policies and procedures Firms that want to improve their customer service strategy put measurements in place to track how well they are satisfying customers Companies that understand the importance of customer service will develop such measures with input from customers What might seem like good service to the company may seem like poor service to important customers The ultimate goal of delivering superior customer service is to increase brand loyalty Customers will usually remain loyal to a company or brand if they feel they receive more value from that company‘s goods and services than they do from its competitors

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Establishing Customer Service Policies 

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A firm builds an effective customer service strategy around a set of common objectives for all company employees, whether a company sells to other businesses (B2B) or directly to consumers (B2C), including: (1) Deliver the good or service completely and in a timely manner (2) Ensure that the process for taking and fulfilling customer orders is reliable (3) Establish convenient customer communication channels (4) Encourage ease of doing business, so that the customer finds it convenient and pleasant to deal with the firm These four factors are critical to delivering customer service and, ultimately, maintaining brand loyalty

Timeliness 

Unfortunately, in B2B markets only about 75 percent of orders from large suppliers arrive on time and complete  Timeliness concerns the ability of a company to deliver a good or service by the time a customer expects to have it available for sale or consumption  The process companies use to take a customer order and deliver goods to a customer is referred to as the order cycle  The order cycle is the total amount of time that elapses from the time a customer places an order until the time the product is delivered to the customer  Two major trends drive the desire for shortened order cycles: inventory reduction due to lean manufacturing principles and good inventory management practices  Distribution systems that can quickly and efficiently get the product to a customer help firms satisfy this desire  Firms must put in place efficient order-processing systems, which take in the order and check for stock availability; they then print pick tickets that help workers select products from warehouse locations and load orders onto transportation vehicles  Order processing plays an integral role in timely delivery THINK LIKE A MARKETER Organizations can have a competitive advantage by maximizing their order cycle functionality. What are some examples of this? Figure 15.1

Insight Questions: 680. What are some of the major trends in business that work to shorten order cycles? (Answer: inventory

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Figure Information: Order Cycle Functions The order cycle is the total amount of time that elapses from the time a customer places an order until the time the product is delivered to the customer. The order cycle involves a number of activities, including placing the order, processing the order, filing the order, and delivering the order. PowerPoint Slides

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reduction due to lean manufacturing principles and good inventory management) 681. Why is it important for firms to put efficient order processing systems in place? (Answer: These systems take in the order, check for stock availability, and print pick tickets for warehouse workers to reference as they select products from warehouse locations and load orders onto transportation vehicles. Additionally, order processing plays an integral role in timely delivery.) 682. What are companies doing to be competitive at creating an efficient order cycle? (Answer: pen ended; paying attention to the competition, maximizing their supply chain efficiencies, managing a push–pull strategy, etc.)

Lecture Notes: Reliability 

Reliability involves ensuring that customers can depend on receiving a good or service within a stated lead time and that there will be no problems with the order  When business customers can depend on the delivery of products, they can hold less inventory; this reduces their inventory carrying costs  Whether selling in B2B or B2C situations, firms develop a reputation for reliability by:  (1) Establishing effective inventory management policies  (2) Performing accurate sales forecasts  (3) Maintaining effective transportation and distribution operations (or hiring reliable third parties to perform those functions) Customer Communication   

Customer communication involves a two-way information flow between the firm and its customer Order-status communication provides the customer with information about the completeness of the order, when it will ship, and when it will arrive Communication may be done by computer-to-computer links (e.g., via an EDI that automatically sends data about an order), by e-mail, or by telephone

Ease of Doing Business 254

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Ease of doing business is the amount of effort required on the part of a customer when dealing with a firm Websites also offer consumers convenience—they supply information about the product, the ability to compare products and prices quickly, and a simple checkout process In B2B markets, offering favorable payment terms and discounts for quick payment can differentiate a firm from competitors that are less flexible

The Role of Social Media in Customer Service            

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In today‘s world of instant communication and social media, customers expect help immediately, at any hour of the day, on any day of the week Customers also expect to be able to communicate using the method of their choice, which increasingly involves social media tools Many of the world‘s companies use social media for activities that include some form of customer service: (1) Responding to customer comments about a good or service (2) Resolving problems customers encounter with products (3) Answering requests for information (4) Addressing complaints (5) Gathering competitive information and new product ideas (6) Quantifying the number of people who like or show interest in the firm‘s products Top social media platforms with over 1 billion users include such websites as Facebook, YouTube, Instagram, Tumblr, Twitter, Snapchat, WhatsApp, and Pinterest These platforms enable companies to build relationships with customers in ways that were not available until fairly recently Sites such as complaints.com, my3cents.com, complaintsboard.com, measuredup.com, pissedconsumer.com, consumeraffairs.com, and ripoffreport.com monitor what consumers are saying about products that are making them unhappy Many large companies have adopted social media as a way to enhance their customer service capabilities FedEx, for example, has a dedicated team responsible for handling requests for customer care; the team follows up with customers to help solve problems or answer questions—its goal is to respond to customers in a matter of minutes The team also tracks online conversations to follow what customers say about the company and its products Nonprofit organizations typically have smaller budgets for marketing than for-profit corporations Social media are a cost-effective way for a nonprofit to stay connected

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with donors and volunteers on whom they rely and want to keep satisfied THINK LIKE A MARKETER Have you ever taken to social media for customer service? What has your experience been? THINK LIKE A MARKETER What information do you seek when tracking a package? Connect Assignment 15-1

Social Media in Action

Example: Customer Service via Social Media Citibank, one of the five largest banks in the United States, has spent several years working to improve how it provides customer service using social media. The owner of a California-based small business who had been on hold for 40 minutes waiting for help from the bank decided to tweet her displeasure to the firm‘s @AskCiti Twitter account. She received a tweet back almost immediately asking for her phone number so a service representative could call her directly. Her problem was quickly resolved, and the small business owner now goes directly to Twitter when she has a problem. As a result of Citigroup‘s efforts, it has resolved the highest percentage of customer complaints through social media of any of the large U.S. banks. Large banks have a history of scoring poorly on customer service, with nearly one out of five customers having a problem with their bank, according to J.D. Power. To combat this reality, other major banks, such as Wells Fargo, Chase, and Bank of America, have joined Citibank in dedicating teams to quickly respond to both complaints and praise from customers on social media sites. While regulations and privacy issues restrict the ease with which banks can resolve customer issues via social media, marketers at large banks continue to search for ways to balance such concerns with the positive impact of social media on customer service. CONNECT BACK Insight Questions: 683. Choose three of your favorite companies and pull up their social media profiles. How do they use social media to service their customers? What similarities do you find, and what differences do you note? (Answer: Open ended; addressing customer service issues in a timely manner, creating interactive posts that address concerns proactively, posting frequently, notably

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responding to posts with a personable and branded tone, etc.) 684. What experiences have you encountered with accessing customer service via social media? Are you limited in what business you will conduct with social media versus in person, on the phone or via e-mail? (Answer: Open ended; in some cases, social media may be an open forum for communication and timelier.) Lecture Notes: Tracking Performance through Customer Service Metrics               

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Commonly used metrics for tracking B2B and B2C customer service performance include the following: Fill rate is the percentage of an order shipped on time and complete Item fill rate measures the percentage of the total number of items on the order that the firm shipped on time Dollar fill rate measures the value of goods shipped on time versus the total value of the order Line fill rate measures the percentage of item-stocking types, known as stock-keeping units (SKUs), on the order shipped on time and complete Perfect order rate judges the reliability of the order system; the metric measures how many orders have been filled perfectly On-time delivery recognizes that it is not enough just to ship the goods on time; they must arrive on time as well The only date that matters is the due date for the order to arrive at the customer‘s location The order cycle time metric measures the length of the order cycle, or the ability of the order system to react to customer orders Customer communication metrics involve review of communication at three stages (1) At the pre-transaction point, the firm measures the accuracy and timeliness of the information fed back to a customer concerning product availability and delivery date (2) The second communication point occurs at the transaction; it measures the ability of the firm to accurately provide shipment status and order tracking (3) The third stage is post-transaction; it measures the ability of the firm to answer questions concerning the use of the product or to process returned goods in a timely manner The responsiveness metric measures the firm‘s flexibility, which can involve the firm‘s ability and willingness to provide fast service, answer customer inquiries, and resolve problems Other methods for determining the effectiveness of customer service include: post-incident surveys, customer service website experience, relationship surveys, customer loyalty, hold time, and abandonment

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   Marketing Analytics

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rates Hold time is the time a customer has to wait to talk to or receive a text back from a CSR; the longer the hold time, the less satisfied the customer is likely to be The abandonment rate is the percentage of customers who hang up the phone or stop an e-mail conversation before reaching a customer service agent Some organizations use third parties to monitor their customer service Insight Questions: 685. How do companies know if they are doing a good job serving their customer? (Answer: Companies establish performance metrics tied to four objectives of customer service, including timeliness, reliability, customer communication, and ease of doing business. You can also gauge the tone from others interacting with the brand on each platform.) 686. On-time delivery recognizes that goods arrive on time. What is the impact of an early or late delivery to this metric? (Answer: Both of these conditions, early or late delivery, constitute a failure for this metric. At stake is customer satisfaction and subsequent purchases.) Topic: Analyzing Customer Service Matrics Complete the Connect exercise for Chapter 15 that focuses on analyzing customer service metrics. By being able to calculate various fill and perfect order rates, you will be prepared to evaluate and manage customer service at your organization. CONNECT BACK Insight Questions: 687. After calculating the various fill and perfect order rates, what customer service practices would you put into place to ensure order processing efficiency? (Answer: Open ended; delivery needs to be on time and as promised, and if the process goes awry, the customer should be communicated with on the phone and in writing.) 688. If you were a customer service manager, would you recommend that your entire team is familiar with these metrics? Why or why not? (Answer: Open ended; yes, because it is important for each person to know how their role impacts the customer relationship and the company‘s performance. These metrics can serve as KP Is if measured over time.)

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Describe methods companies Key Terms: use to develop good Customer satisfaction customer relationships. Marketing concept Gaining and Keeping Loyal Collaborative filtering Customers Geofencing  The Bases of Customer Satisfaction  The GAP Model  Limitations on Customer Satisfaction PowerPoint Slides Lecture Notes: LO 15-2

Gaining and Keeping Loyal Customers    

Companies achieve customer satisfaction when they meet the needs and expectations their customers have for their goods or services In today‘s business climate, customer satisfaction is merely a first step to ensuring that customers will remain loyal to the company or brand In response to this reality, customer-driven companies strive to delight, rather than simply satisfy, their customers Delighted customers obtain more value than they had expected from their purchase

The Bases of Customer Satisfaction          259

A company‘s emphasis on customer satisfaction develops as a consequence of a customer orientation Firms with a customer orientation set an expectation that all employees should seek to provide value to the customer in a way that meets, or exceeds, the customer‘s expectations A customer orientation makes up a part of the marketing concept, the idea that a firm‘s long-term success must include a companywide effort to satisfy customer needs and wants The marketing concept is based on the following principles, actively applied by managers companywide: (1) Awareness and appreciation of the consumer‘s role in the firm‘s existence, growth, and stability (2) Awareness of and concern with the interdepartmental implication of decisions and actions of an individual department with regard to the customer (3) Concern with innovation of goods and services designed to solve select customer problems (4) Understanding of the effect of the introduction of new goods and services for the firm‘s profit position, both present and future (5) Appreciation of the role of marketing intelligence in determining the needs and wants of customers

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(6) Effort in determining corporate and departmental objectives based on customer satisfaction Companies that base their business on the marketing concept maintain a focus on delivering value to the customer in any profitable way they can—they put the customer in the center of the firm‘s thinking in terms of both strategy and operations In such a company, all areas of the firm, not just sales and marketing, should be customer-oriented: purchasing, finance, engineering, manufacturing, and logistics focus on promoting customer satisfaction, not just on meeting their own individual department objectives

The GAP Model       

Using the GAP Model companies can identify and address gaps between what they provide customers and what customers actually want The model identifies the following five gaps: Gap 1 is the distance between what customers expect and what a company thinks they expect Gap 2 is between management perception of customer needs and the actual specification of how those needs are to be met Gap 3 is from the specification of customer service to how well it is actually delivered Gap 4 is the gap between the delivery of the customer service and what is told it will be to customers Gap 5 is the gap between a customer‘s actual experience with customer service and the customer‘s expectations

Limitations on Customer Satisfaction     

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Part of adopting a customer orientation also involves recognizing the things that limit satisfaction Customer satisfaction ties into customer perceptions; if a gap exists between the company‘s capabilities and the customer‘s true needs or wants, other firms can exploit that gap A one-size-fits-all customer service policy isn‘t likely to lead to a great many loyal customers if customer perceptions of value differ widely One-to-one marketing individualizes the relationship between the firm and customer by gathering and using specific customer information to understand what will delight each customer Amazon uses an algorithm that performs a process called collaborative filtering to predict consumer preferences; when a consumer searches the Amazon site for a sporty clip watch, the algorithm filters large amounts of information about many consumers‘ previous purchases that may be related in some way Geofencing is a location-based technology that uses small sensors to

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send marketing messages to smartphone users who enter a nearby, defined geographic area, such as a store Discuss how companies can Key Terms: improve relationships with Relationship marketing B2B and B2C customers. Customer value Improving Customer Transparency Relationships Clientelling Empowerment  Relationship Marketing o Establishing Customer Value o Delivering Value  Empowering Service Employees  Service Recovery PowerPoint Slides Lecture Notes: LO 15-3

Improving Customer Relationships    

Companies need to balance customer satisfaction with profitability Providing too much value in terms of low prices, extra features, or custom services can lead to an unprofitable situation that actually costs the company money Companies want to capture and retain customers that will be both loyal and profitable After screening out potentially unprofitable customers, the firm can focus its efforts on the specific customers with which it most wants to develop good relationships

Relationship Marketing 

After screening out potentially unprofitable customers, the firm can focus its efforts on the specific customers with which it most wants to develop good relationships

Establishing Customer Value   

261

Customer value refers to the perceived benefits, both monetary and nonmonetary, that a customer receives from a product compared with the cost of obtaining it Thus, the firm must establish the ways in which it will provide more value in its exchange with the customer than its competitors do Attention to customer value often leads to commitment between the two parties, which can result in a long-term mutually beneficial relationship

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Personal selling is another way to build relationships between companies Salespeople are able to learn what their regular business customers want (and do not want) from their company; they can advise other departments of their company, such as marketing and R&D, about products and services tailored to important customers As part of relationship marketing, some companies adapt business processes specifically to the needs of their customers A company also can differentiate its customer service by making a customer service representative (CSR) the first option on an automated service menu Another customer service consideration is to make sure that the representative can be easily understood by the customer Transparency involves opening up the company to the outside world by making its practices, policies, and future plans available to customers Technology such as websites, chat rooms, and customer relationship modules allow a company to disseminate information about itself and receive feedback from current or potential customers about how it is currently doing business and its plans for the future

Delivering Value 

       

262

The firm must deliver its goods or services in ways that meet or exceed the expectations of the customer—the firm must know what the customer wants and also know what it can consistently deliver in terms of value It is not enough to merely understand what the customer perceives as value; it is just as important to understand the capabilities of the company in delivering that value One measure of customer satisfaction used by a number of companies is Net Promoter Score Based on a single question: ―On a scale of 0 to 10, how likely are you to recommend this company‘s product or service to a friend or a colleague?‖ Customers are placed in three categories: detractors, passives, and promoters Detractors give a score lower or equal to 6, and through social media detract from the image of the product Passives give a score of 7 or 8 and are satisfied but not thrilled; they are unlikely to spread the word, either good or bad, about the product Promoters answer 9 or 10 and are likely to recommend the company‘s products Higher Net Promoter Scores tend to indicate desirable levels of customer satisfaction, while lower Net Promoter Scores are a warning to investigate causes of poor customer satisfaction and brand loyalty

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issues Personalizing service is another way to help exceed a customer‘s expectations Clientelling tailors product information for individual customers, in order to provide an exceptional and personalized shopping experience

Empowering Service Employees           

Despite a company‘s best efforts to deliver value, customers may still have problems with a company‘s products Negative experiences can damage the customer relationship and future business opportunities Negative experiences carry more weight than positive ones when a customer is deciding whether to do business with a company again Word-of-mouth criticisms to a customer‘s friends and relatives can also damage future sales Effectively resolving a customer‘s problem is critical to repairing a customer relationship damaged by a negative experience Service employees are those like salespeople, retail employees, and others who have direct contact with customers and the public Empowerment means giving employees permission to make decisions and take action on their own to help customers Companies typically set boundaries beyond which the employee will need to ask permission from a supervisor to address a customer‘s issue If the job is routine or the issue is minor, the company can develop a set of rules to guide the employee on the appropriate response Empowered employees have a sense of ownership for how well they do their jobs Customers who deal with empowered employees experience high rates of satisfaction because their issues are resolved quickly and with little to no hassle

Service Recovery        263

What a company does to resolve poor service can set it apart from its competition and help build customer loyalty Customers who have had a service problem that is resolved quickly and to their satisfaction are significantly more loyal to a company than are customers who have never had a service failure Maintaining and enhancing good customer relationships begins with a company culture that places customer service as a high priority Such a culture puts in place procedures for recovering from service errors that can leave customers angry Some commonsense steps can be used to recover from a service failure (1) Apologize and ask the customer to forgive (2) Review the complaint with the customer

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(3) Fix the problem, then check back with the customer to make sure that they are satisfied with your solution  (4) Document the problem and find its root cause  Not all customers will be satisfied with how a company handles their complaints, but a good process, backed up by a sincere effort to correct the problem, goes a long way to successful service recovery that maintains good customer relationships THINK LIKE A MARKETER What does having a relationship with an organization mean to you? LO 15-4

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Describe how customer Key Terms: relationship management Customer relationship management (CRM) uses customer information to Touch point improve relations between Data mining businesses and customers. Customer segmentation analysis Customer Relationship Recency-frequency-monetary analysis Management Lifetime value Lifetime value (LTV) analysis  Objectives of Predictive modeling Customer Relationship Management  The CRM Process o Step 1: Identify Current Customers o Step 2: Understand How Customers Interact with the Firm o Step 3: Gather Specific Customer Information o Step 4: Store and Analyze Information o Step 5: Use Data to Build Customer Relationships  Leveraging Customer Information o Tailor Customer Promotions o Combat Buyer‘s Remorse o Improve Business© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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to-Business Relationships PowerPoint Slides Lecture Notes: Customer Relationship Management 

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Customer relationship management (CRM) is the process by which companies get new customers, keep the customers they already have, and grow the business by increasing their share of customers‘ purchases It is an overall strategy that unifies all of a company‘s activities under the overarching goal of achieving customer satisfaction through the right actions, attitudes, and systems Companies that adopt CRM use data to understand customer needs and wants Companies use CRM software to capture, store, and analyze consumer data With that information, they create and maintain customer profiles, including buying habits and purchasing patterns The company can then leverage the information to help marketers design individualized fulfillment strategies for their customers Companies with both a physical and an Internet presence (click-andmortar companies) have the ability to track customers through various means: capturing point-of-sale data, cataloging direct interaction with salespeople, and monitoring traffic on the firm‘s website; each of these opportunities represents a touch point A touch point is any point at which a customer and the company come into contact

Objectives of Customer Relationship Management 

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CRM entails gathering data from all touch points (e.g., face-to-face, telephone, and Internet) and using those data to understand the customer‘s needs and wants; the firm can then develop tactics for building a long-term, mutually beneficial relationship with the customer CRM technologies allow marketers to do the following: (1) Track consumer behavior over time (2) Capture data that allow the firm to identify customers who are likely to be profitable (3) Interact with customers to learn what they need and want (4) Use the information gathered to tailor goods and services accordingly The Internet is an invaluable tool in CRM: it enables companies to collect individualized data and to send personalized marketing messages directly to individual consumers

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CRM provides a structure for a company to establish and maintain valuable relationships with customers Using CRM, companies can readily develop a customer orientation: they can gather data that help them understand the needs of individual customers, rather than an entire market segment as in a traditional marketing approach

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The CRM Process  

The CRM process revolves around a cycle of activities CRM is an iterative rather than a linear process; the firm repeats the sequence of steps, as necessary, to reach the desired result Insight Questions:

Figure 15.2

Figure Information: The Customer Relationship Management Process The CRM process revolves around a cycle of activities. CRM is an iterative rather than a linear process, the firm repeats the sequence of steps as necessary to reach the desired result. PowerPoint Slides

689. What channels of interaction should a brick-andmortar company versus an Internet company provide customers with? (Answer: Open ended; the customer relationship begins the moment the customer approaches the business, whether it is online or in person.) 690. What types of specific customer information could assist in customer relationship management? (Answer: Open ended; personal contact information, product preferences, customer inquiry and communication tracking, feedback, promotions used, and purchase history.) 691. As a customer service manager, how would you utilize an analysis of customer information to build customer relationships? (Answer: Open ended; with the recorded information, specific customers can be targeted with the promotional mix based on preferences and purchase behavior.)

Lecture Notes: Step 1: Identify Current Customers  

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The company initiates the CRM process by identifying its current customers Similar to Dell, a company that has both business customers and individual customers would identify its customers by finding out their locations, breaking down computer purchases by customer type, quantifying the frequency of both individual and business purchases, and determining how many computers each type of customer typically purchases

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Step 2: Understand How Customers Interact with the Firm   

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The firm wants to know how customers purchase (what percentages purchase via the Internet, in brick-and-mortar stores, and through a salesperson) It also wants to know how customers, in general, communicate with the firm Interactions can take many forms: phone calls and e-mails to customer service, conversations with salespeople, purchases, questionnaire responses, coupon redemption, requests for information, and repair or product return requests Up to this point, the information gathered in the CRM system is general customer information

Step 3: Gather Specific Customer Information 

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In step 3, the company gathers specific information on each individual customer‘s touch points with the company, which include any time the customer has had contact with the company in any way, such as website visits, purchase history, use of coupons or promotional codes, warranty card submissions, point-of-sale data, or customer inquiries Salespeople can record information in the CRM system, including the customer‘s contact information and preferences for particular goods or services An increasingly popular way for companies to gather information is Internet interactions: a customer going to a company‘s website for information, purchasing goods or services, or providing feedback on a good or service

Step 4: Store and Analyze Information       267

After the company has gathered the appropriate data, it must store the data so that CRM data analysis applications can access them The information input into the CRM database must be accurate; if it is not, the company will not be able to use it effectively to create and maintain satisfied, profitable long-term customers Data mining is a process that involves the computerized search for meaningful trends in a large amount of data Data mining analysis can include one or more of the following techniques: Customer segmentation analysis involves creating customer profiles based on demographic characteristics, purchase patterns, and other criteria and placing them into various categories Recency-frequency-monetary analysis involves categorizing

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customers by their buying patterns Lifetime value is the total profit a customer brings to a company during the time the individual or firm is a customer Lifetime value (LTV) analysis compares the costs of retaining customers with the costs of acquiring new customers, to determine how much money each type of customer requires Predictive modeling uses sophisticated algorithms based on patterns of previous buying behavior to predict the future buying behavior of customers

Step 5: Use Data to Build Customer Relationships   Connect Assignment 15-3

The CRM system sends information to functional areas within the company, like sales and marketing Those functional areas use the information to customize their activities to target specific customers Topic: Stages of the Customer Relationship Management Process Complete the Connect exercise for Chapter 15 that focuses on the steps of the customer relationship management process. By understanding this process, you can improve customer relationships with your organization and increase the likelihood of maintaining long-term relationships with loyal and profitable customers. CONNECT BACK Insight Questions: 692. Why is the goal of the customer relationship management process to maintain a long-term relationship with customers? (Answer: Open ended; beyond targeting specific customers with promotions, a firm can use CRM to combat buyer‘s remorse and improve their relationships with the customer.) 693. How often should the customer relationship management process be evaluated to ensure the company is being as proactive in managing the relationship with its customers? (Answer: Open ended; frequently, as business need dictates. It is also important to measure efficiency.)

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Lecture Notes: Leveraging Customer Information 

Firms can increase the power of customer information obtained from CRM systems in a number of ways

Tailor Customer Promotions    

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Perhaps the most obvious use of CRM data is to tailor promotions to match customer profiles Firms can also leverage CRM data by targeting specific customers for direct mail advertising Mail-order companies that track customers‘ purchases and inquiries can use that information to predict how customers would react to a particular catalog sent to their home CRM systems can cross-reference promotions to specific categories of customers; with that information, companies can monitor the success of tailored promotional efforts and make adjustments as necessary By gaining efficiencies in promotional efforts, companies maximize the ratio of promotional spending to profitability

Combat Buyer’s Remorse 

Firms also can use CRM information to combat cognitive dissonance (buyer‘s remorse) by congratulating the buyer on their choice and reinforcing the best aspects of the good or service

Improve Business-to-Business Relationships 

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B2B companies can: (1) cross-sell their products, promoting other products they sell that might be purchased by an existing business customer, (2) track customer service complaints and returned goods, or (3) tailor promotional programs to specific business customers based on classification  Beyond this, CRM systems offer several unique advantages to B2B firms: suppliers can generate sales forecasts from information in CRM systems, such as past and current orders  The systems also can provide product availability information to manufacturers as they establish production runs or to retailers as they plan sales Discuss the security and Key Terms: ethical issues involved in (none) using customer relationship management systems. Security and Ethical Issues in © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Customer Relationship Management PowerPoint Slides

Lecture Notes: Security and Ethical Issues in Customer Relationship Management 

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The issue of privacy is becoming increasingly acute; customers now realize that any computer security system that stores birth dates, credit card numbers, addresses, and other personal information can be breached Leaving aside cybertheft, a general discomfort with invasion of privacy has become widespread Since good customer relationships are built in part on trust, any doubt about the security of personal data can lead the customer to take their business elsewhere The United States and other countries are considering limiting the type and amount of information that companies can collect about customers Some companies already restrict their data-gathering activities: some offer a ―do-not-track‖ button at their websites; it enables customers to request that the company not collect information about their Internet activity To guard against security breaches, CRM systems must have robust firewalls to protect customers‘ privacy Companies using cloud-computing CRM applications should understand the increased risks involved in entrusting data to a third party Safeguarding the privacy and trust of a company‘s customers requires constant vigilance and regular upgrading of security systems Clever hackers can often breach firewalls, and new methods for hacking are being developed every day Marketers should be sensitive to the desires of customers for privacy and make accommodations for customers to opt-out of data collection when possible to avoid backlash on this sensitive topic The U.S. government has put in place laws for protecting the financial, health, telephone, and e-mail information of citizens Companies should supplement these laws with company policies that govern various aspects of customer information Companies interested in protecting the privacy of customer information must make a concerted effort not only to develop such policies but also to make sure they are followed every day; firms also must fully train employees in their application, monitor, and enforce the policies Another ethical issue involves a tactic some companies use to

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determine how far they can push their customers before they reach a ―breakpoint‖ and stop doing business with them  In the long run, customer service is not just about handling customer questions or product returns; it is about gaining the trust of customers and building relationships with them, so that they will continue to do business with your company Describe how companies can Key Terms: LO judge the effectiveness of 15-6 Share of customer their customer relationship Customer equity management efforts. Customer focus Determining the Effectiveness of Customer Relationship Management Marketing Analytics Insight Questions:

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694. How can a company determine whether the CRM strategy is working? (Answer: Open ended; by frequently measuring the share of customer, customer equity, customer focus, lifetime value) 695. How much time should be dedicated to monitoring these efforts? (Answer: Open ended; as much as needed to support the overall marketing efforts of the firm) Lecture Notes: Determining the Effectiveness of Customer Relationship Management        

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Companies can use any of four basic metrics to judge the effectiveness of a CRM program (1) Share of customer differs from market share in that it measures the quantity of purchase dollars each customer spends on the company‘s products, rather than the number of customers (2) Customer equity is a ratio that compares the financial investments a company puts into gaining and keeping customers to the financial return on those investments A company can determine the value of its CRM program from this ratio (3) Customer focus measures the extent to which a company puts effort into servicing its customers‘ needs, based on an understanding of each customer‘s profitability With that information, the company can direct its personal selling efforts, which are expensive, to those customers who are most profitable (4) Lifetime value is the total profit a customer brings to a company while a customer The CRM efforts of a company, if done right, should be able to maximize the lifetime value of customers, large and small

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Companies that can predict lifetime value can aim customer service efforts accordingly: They can reduce or eliminate services to customers with low LTV; by cutting back on customer service costs for those customers, the firm improves the customer equity of those customers Unless a firm knows the extent to which any aspect of its business is succeeding, it cannot identify and address problems that may affect its profitability

Table 15.2

Insight Questions: 696. How does the 80/20 rule apply to ABC analysis? (Answer: This principle would mean that 80 percent of profits come from 20 percent of the customers.) 697. How is an ABC analysis used by firms? (Answer: ABC analysis can help identify which customers are most profitable.) 698. Which metric is better: profitability or revenue? (Answer: Profitability is a better metric than revenue— although some customers may spend more money than others, they may be more expensive to service.)

Table Information: ABC Analysis Example Customers that deliver 80 percent of the profits are placed in the "A" category; customers that deliver the next 15 percent of profits are placed in the "B" category; customers that deliver the final 5 percent of profits are placed in the "C" category. Today’s Professional

Leanna Fino Retail Sales Representative, The Hershey Company Leanna Fino believes that having a positive attitude and bubbly personality are bespoke to her role. Planning and scheduling with detail are ways she stays organized. Leanna provides further insight in answering the following questions:

Photo provided by Leanna Fino

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699. Describe your job. 700. How did you get your job? 701. What has been the most important thing in making you successful at your job? 702. What advice would you give soon-to-be graduates?

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703. What do you consider your person brand to be? Review with students:  

What is the value in having an internship? How will you differentiate yourself in the interview process?

MARKETING PLAN EXERCISE Your Marketing Plan. This chapter focused on customer service and developing customer relationships. As you develop your personal marketing plan, ask yourself how good you are at developing relationships. We live in an age in which we text or tweet more than we write notes or have conversations. Some might think they are great at developing relationships because they have 2,000 friends on Facebook. But are those really relationships? Consider your Facebook friends: What would those people say about you and your brand if you asked them? How well do they even know you? For the marketing plan exercise in this chapter, your assignment is to plan a strategy to improve the most important relationships in your life. Even if they are good, there are always things you can do better. Think about how you can improve your relationship with your current boss, professors, classmates, and group members. These people are likely to be important as you seek a job or apply to graduate school. (Relationship development with professors is especially important when it comes time to request letters of recommendation for graduate school.) Next, consider how you can improve your personal customer service. Are you an ideal group member, or do you look for excuses to miss team meetings? Do you thank people who help you? Do you try to help others solve problems in a positive way? Providing great service to the people in your life, both personally and professionally, will help you build the type of relationships that will provide a rich future in every way possible. Student Task: Select three to five professional relationships in your life, such as a manager, professor, classmate, or group member, and then identify one or two specific actions you can take in the next 3 months to strengthen each of those relationships. Next, explain in one paragraph how you have delivered excellent customer service sometime in your life, whether it was on the job, in school, or in your personal life. This will help you articulate your customer service skills in an interview. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is 273

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recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 704. Discuss an experience you had as a customer in which you were either very satisfied or very dissatisfied with the customer service of a company. What were the circumstances that made this particular incident stand out to you as memorable? How did this experience affect your future purchases with this company? What did you learn about customer service from this experience that you could apply to your current or future career? (Answer: Open ended; consider if you had been a customer for the brand for a long time or if you were a new customer, customer expectations in comparison to the price and its availability, prior experiences and/or interactions with competing brands, word-of-mouth communication from others, what made you try the brand, and how the experience shapes future perception and consumption.) 705. Imagine you work as a buyer for a large consumer electronics retail company that purchases its goods mainly from Asia. Of the four factors critical to delivering customer service discussed in this chapter, select the two most important for your type of business. Why did you select those two before the others? Would your choices change if you were purchasing fresh fruit for a grocery store chain? Explain your answer. (Answer: Open ended; consider how timely goods will arrive in a reliable manner, communication that will be needed through the buying process and after, and also if doing business can be done in a convenient and pleasant way.) 706. Assume you are about to purchase a new television. What attributes of this particular product contribute to your perception of customer value, and why? What attributes do not contribute to your perception of customer value, and why? In your responses, consider both the attributes of the good itself and the accompanying services the manufacturer offers in your analysis. (Answer: Open ended; consider the brand, price, perception of quality, what others say about the brand or product, availability, warranties or guarantees available, previous experiences with the brand, etc.) 707. In this chapter you learned about employee empowerment as it relates to customer service. Assume that you are the director of customer service for a cell phone service provider. What types of decisions concerning customer service issues would you allow your employees to make on their own without having to check with their supervisor? What decisions would you not allow your service representatives to make on their own? Explain your answers. (Answer: Open ended; with training, customer service representatives could be empowered to troubleshoot technical issues or providing a credit to a customer‘s bill for loss of service charges up to a certain value. When employees are empowered both they and the customer are satisfied.) 708. How does the concept share of customer differ from the concept of market share? What types of things does a company have to do differently to increase its share of customer versus increasing its market share? (Answer: Share of customer differs from market share in that it measures the quantity of purchase dollars each customer spends on the company‘s products, rather than the number of customers. If a company‘s CRM efforts lead to an increase in the number of goods or services purchased by a consumer, then it has been successful in increasing its share of customer.) 274

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SOCIAL MEDIA APPLICATION Analyze how social media impact the way that your university provides customer service to its students using the following questions and activities as a guide: 709. If you have an issue with some part of your educational experience, such as housing, financial aid, or career services, can you get help and answers through some social media platform? If so, which platform(s) does your school use? How convenient and timely are the responses? If your school does not use a social media platform for these issues, what platform would you suggest it use? Why? 710. Discuss two ways that your college or university can improve its efforts to communicate and respond to students via social media. Explain your answer. 711. If you were put in charge of increasing student satisfaction at your school, how would you specifically use social media to help achieve your goal? This activity is located in an additional worksheet that can be used with group interaction, and can be found in the Instructor‘s online resources. A sample grading rubric for this activity is also provided. How It Works: Host a series of Social Media Application classes preceding course exams. This serves as a review for exams and emphasizes social media as a major marketing focus in today‘s environment. Put students in learning groups, and have them complete the worksheets together. After 20–30 minutes of facilitated learning, call on students to respond to the questions and discuss responses as a class. Supporting Materials: Social Media Application Worksheets and a sample grading rubric is provided in the Instructor‘s online resources. The worksheets recap the chapter‘s content and outline the supporting topics for reference. It is important for students to be able to connect social media to real world examples as it is conveyed in the chapter; therefore, the grading rubric focuses on this. MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 15 that focuses on identifying a firm's most profitable customers. ETHICAL CHALLENGE Imagine that you work for a company that has had only brick-and-mortar stores but is just starting a website for customers who wish to shop online. Your CEO is concerned about some of the bad press she has seen concerning consumer privacy. She wants to make sure that the company is not unduly intruding on the privacy of its customers through its website. The CEO has asked you, as the chief information officer (CIO) of the company, to ensure that the firm is operating in an ethical manner. As CIO, it is your responsibility to devise a set of policies for the company to follow. Please use the ethical decision-making framework to complete the following:

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712. Write a set of rules (a minimum of five) that all company employees who deal directly with customers must follow that protect the privacy of your online customers. (Answer: Open ended; consider the type of information that is collected, where it is stored and protected, copying and sharing information, and discussion of the information. What happens to the information with employee turnover? How will you notify consumers of the protection of their data? What security policies need to be implemented and consistently evaluated?) 713. Next, write a set of rules (a minimum of five) that the information technology employees must follow for obtaining information and describe how that information should be handled once it is obtained. (Answer: Open ended; consider how sensitive the information is, how customers desire privacy, and the necessary steps to secure and protect the customer information. What happens to the information with employee turnover? How will you notify consumers of the protection of their data? What security policies need to be implemented and consistently evaluated?) 714. Finally, explain why you selected those particular rules. (Answer: Open ended; consider each person and their information.) VIDEO CASE Have students go to Connect to access the video case featuring Holt Cat that accompanies this chapter. CAREER TIPS To help students position themselves for a career that may take them in many different directions, suggest these tips. Edward Craner, Vice President, Strategy and Marketing at Holt Cat Companies, discusses a set of well-developed skills a firm would get by hiring you.

Photo provided by Edward Craner

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 Writing expertise.  Oral communication.  Creative design.  Microsoft Office competency.  Organizational skills.  Results-oriented outlook. Review with students:  What unique transferrable skills will you bring to a position?  How do you plan to leverage these skills?

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Chapter 15: Customer Relationship Management

Rob Wilson/Shutterstock

Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-274 Explain the importance of effective customer service and customer satisfaction to companies. LO 1-275 Describe the methods companies use to develop good customer relationships. LO 1-276 Discuss how companies can improve relationships with B2B and B2C customers. LO 1-277 Describe how customer relationship management uses customer information to improve relations between businesses and customers. LO 1-278 Discuss the security and ethical issues involved in using customer relationship management systems. LO 1-279 Describe how companies can judge the effectiveness of their customer relationship management efforts. KEY TERMS clientelling collaborative filtering customer communication customer communication metrics customer equity customer focus customer relationship management (CRM) customer satisfaction customer segmentation analysis customer service customer value

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data mining dollar fill rate ease of doing business empowerment fill rate geofencing item fill rate lifetime value lifetime value (LTV) analysis line fill rate marketing concept on-time delivery order cycle

order cycle time perfect order rate predictive modeling recency-frequencymonetary analysis relationship marketing reliability responsiveness share of customer social media platforms timeliness touch point transparency

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THOUGHT-PROVOKING ACTIVITY Set 1: What is customer service? Provide a practical definition. How has social media impacted customer service?

Set 2: How does empowering employees enable us to deliver value in an organization? What happens when an employee is not empowered? Use your experience as a reference.

CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Edward Craner, Vice President, Strategy and Marketing, Holt Cat Companies How is marketing relevant in his role? What does great customer service mean to you? LO15-1: Explain the importance of effective customer service and customer satisfaction to companies. What Is Customer Service?  Companies need to know how well they are doing in keeping customers happy  Research studies have quantified reasons to be concerned about customer service  About 78 percent of consumers have changed their minds about buying goods or services because of a poor service experience  On average, over time, loyal customers bring in up to 10 times as much revenue as the value of their first purchase  It takes up to 12 positive experiences with a customer to make up for one unresolved negative experience a customer has  News of bad customer service reaches more than twice as many people as comments about a good customer service experience a person or business has  It is six to seven times more expensive to get a new customer than it is to keep an existing one 278 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Poor customer service is almost guaranteed to frustrate customers, but good customer service alone doesn‘t make customers happy Even if a company offers good customer service, it can still lose customers if its service is not significantly better than that of a competitor To maintain current customers, as well as gain new ones, firms must provide customer service that makes them stand out among competitors

Table 15.1 Companies with the Best Customer Experience Ratings INSIGHT QUESTIONS How can a positive ranking influence which companies consumers purchase goods and services from? How can a negative ranking influence consumers? (Answer: Consumers may use these ratings to select whom to buy goods and services from. Therefore, it is important for companies to maintain a good reputation for customer service.) Do you pay attention to consumer rankings when purchasing goods and services? If so, where do you go to access this information? (Answer: Open ended; websites, blogs, social media, friends, and family may also provide insight on customer experiences with these brands.) What factors would be considered in compiling a customer service ranking list such as this? (Answer: Open ended; ability to address concerns, communication, good working conditions, ease of doing business, knowledgeable customer service team, tenure, social media presence, etc.) Defining Customer Service  Customer service involves all of the activities a firm engages in to satisfy the needs and wants of its customers  These activities consist of both human and mechanical methods for direct customer interaction  When companies commit to providing outstanding customer service, they elevate customer service to the highest priority level  A company‘s customer service strategy guides the establishment of customer service policies and procedures  Firms that want to improve their customer service strategy put measurements in place to track how well they are satisfying customers  Companies that understand the importance of customer service will develop such measures with input from customers  What might seem like good service to the company may seem like poor service to important customers  The ultimate goal of delivering superior customer service is to increase brand loyalty  Customers will usually remain loyal to a company or brand if they feel they receive more value from that company‘s goods and services than they do from its competitors 280 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Establishing Customer Service Policies  A firm builds an effective customer service strategy around a set of common objectives for all company employees, whether a company sells to other businesses (B2B) or directly to consumers (B2C), including:  Deliver the good or service completely and in a timely manner  Ensure that the process for taking and fulfilling customer orders is reliable  Establish convenient customer communication channels  Encourage ease of doing business, so that the customer finds it convenient and pleasant to deal with the firm  These four factors are critical to delivering customer service and, ultimately, maintaining brand loyalty Timeliness  Unfortunately, in B2B markets only about 75 percent of orders from large suppliers arrive on time and complete  Timeliness concerns the ability of a company to deliver goods or services by the time a customer expects to have it available for sale or consumption  The process companies use to take a customer order and deliver goods to a customer is referred to as the order cycle  The order cycle is the total amount of time that elapses from the time a customer places an order until the time the product is delivered to the customer  Two major trends drive the desire for shortened order cycles: inventory reduction due to lean manufacturing principles and good inventory management practices  Distribution systems that can quickly and efficiently get the product to a customer help firms satisfy this desire  Firms must put in place efficient order-processing systems that take in the order and check for stock availability; they then print pick tickets that help workers select products from warehouse locations and load orders onto transportation vehicles  Order processing plays an integral role in timely delivery THINK LIKE A MARKETER Organizations can have a competitive advantage by maximizing their order cycle functionality. What are some examples of this?

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Figure 15.1 Order Cycle Functions INSIGHT QUESTIONS What are some of the major trends in businesses to shorten order cycles? (Answer: Inventory reduction due to lean manufacturing principles and good inventory management.) Why is it important for firms to put efficient order processing systems in place? (Answer: These systems take in the order, check for stock availability, and print pick tickets for warehouse workers to reference as they select products from warehouse locations and load orders onto transportation vehicles. Additionally, order processing plays an integral role in timely delivery.) What are companies doing to be competitive at creating an efficient order cycle? (Answer: Open ended; paying attention to the competition, maximizing their supply chain efficiencies, managing a push–pull strategy, etc.) Reliability  Reliability involves ensuring that customers can depend on receiving goods or services within a stated lead time and that there will be no problems with the order  When business customers can depend on the delivery of products, they can hold less inventory; this reduces their inventory carrying costs  Whether selling in B2B or B2C situations, firms develop a reputation for reliability by:  (1) Establishing effective inventory management policies  (2) Performing accurate sales forecasts  (3) Maintaining effective transportation and distribution operations (or hiring reliable third parties to perform those functions) Customer Communication  Customer communication involves a two-way information flow between the firm and its customer  Order-status communication provides the customer with information about the completeness of the order, when it will ship, and when it will arrive  Communication may be done by computer-to-computer links (e.g., via an EDI that automatically sends data about an order), by e-mail, or by telephone Ease of Doing Business  Ease of doing business is the amount of effort required on the part of a customer when dealing with a firm  Websites also offer consumers convenience—they supply information about the product, the ability to compare products and prices quickly, and a simple checkout process  In B2B markets, offering favorable payment terms and discounts for quick payments can differentiate a firm from competitors that are less flexible The Role of Social Media in Customer Service  In today‘s world of instant communication and social media, customers expect help immediately, at any hour of the day, on any day of the week 282 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Customers also expect to be able to communicate using the method of their choice, which increasingly involves social media tools Many of the world‘s companies use social media for activities that include some form of customer service: (1) Responding to customer comments about a good or service (2) Resolving problems customers encounter with products (3) Answering requests for information (4) Addressing complaints (5) Gathering competitive information and new product ideas (6) Quantifying the number of people who like or show interest in the firm‘s products Top social media platforms with over 1 billion users include such websites as Facebook, YouTube, Instagram, Tumblr, Twitter, Snapchat, WhatsApp, and Pinterest These platforms enable companies to build relationships with customers in ways that were not available until fairly recently Sites such as complaints.com, my3cents.com, complaintsboard.com, measuredup.com, pissedconsumer.com, consumeraffairs.com, and ripoffreport.com monitor what consumers are saying about products that are making them unhappy Many large companies have adopted social media as a way to enhance their customer service capabilities FedEx, for example, has a dedicated team responsible for handling requests for customer care; the team follows up with customers to help solve problems or answer questions—its goal is to respond to customers in a matter of minutes The team also tracks online conversations to see what customers are saying about the company and its products Nonprofit organizations typically have smaller budgets for marketing than for-profit corporations Social media are a cost-effective way for a nonprofit to stay connected with donors and volunteers on whom they rely and want to keep satisfied

THINK LIKE A MARKETER Have you ever taken to social media for customer service? What has your experience been?

Instructor‘s Manual - Chapter 1

Hunt/Mello/Deitz: Marketing 4e

THINK LIKE A MARKETER What information do you seek when tracking a package?

CONNECT BACK: Reference Connect Assignment 15-1 Choose three of your favorite companies and pull up their social media profiles. How do they use social media to service their customers? What similarities do you find and what differences do you note? (Answer: Open ended; addressing customer service issues in a timely manner, creating interactive posts that address concerns proactively, posting frequently, notably responding to posts with a personable and branded tone, etc.) What experiences have you encountered with accessing customer service via social media? Are you limited in what business you will conduct with social media versus in person, on the phone or via e-mail? (Answer: Open ended; in some cases, social media may be an open forum for communication, and timelier.) Tracking Performance through Customer Service Metrics  Commonly used metrics for tracking B2B and B2C customer service performance include the following:  Fill rate is the percentage of an order shipped on time and complete  Item fill rate measures the percentage of the total number of items on the order that the firm shipped on time  Dollar fill rate measures the value of goods shipped on time versus the total value of the order  Line fill rate measures the percentage of item-stocking types, known as stock-keeping units (SKUs), on the order shipped on time and complete  Perfect order rate judges the reliability of the order system; the metric measures how many orders have been filled perfectly  On-time delivery recognizes that it is not enough just to ship the goods on time; they must arrive on time as well  The only date that matters is the due date for the order to arrive at the customer‘s location  The order cycle time metric measures the length of the order cycle, or the ability of the order system to react to customer orders  Customer communication metrics involve review of communication at three stages  (1) At the pre-transaction point, the firm measures the accuracy and timeliness of the information fed back to a customer concerning product availability and delivery date  (2) The second communication point occurs at the transaction; it measures the ability of the firm to accurately provide shipment status and order tracking 284 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(3) The third stage is post-transaction; it measures the ability of the firm to answer questions concerning the use of the product or to process returned goods in a timely manner The responsiveness metric measures the firm‘s flexibility, which can involve the firm‘s ability and willingness to provide fast service, answer customer inquiries, and resolve problems Other methods for determining the effectiveness of customer service include: post-incident surveys, customer service website experiences, relationship surveys, customer loyalty, hold time, and abandonment rates Hold time is the time a customer has to wait to talk to or receive a text back from a CSR; the longer the hold time, the less satisfied the customer is likely to be The abandonment rate is the percentage of customers who hang up the phone or stop an email conversation before reaching a customer service agent Some organizations use third parties to monitor their customer service

Marketing Analytics INSIGHT QUESTIONS How do companies know if they are doing a good job serving their customers? (Answer: Companies establish performance metrics tied to four objectives of customer service, including timeliness, reliability, customer communication, and ease of doing business. You can also gauge the tone from others interacting with the brand on each platform.) On-time delivery recognizes that goods arrive on time. What is the impact of an early or late delivery on this metric? (Answer: Both of these conditions, early or late delivery, constitute a failure for this metric. At stake is customer satisfaction and subsequent purchases.) CONNECT BACK: Reference Connect Assignment 15-2 After calculating the various fill and perfect order rates, what customer service practices would you put in place to ensure order processing efficiency? (Answer: Open ended; delivery needs to be on time and as promised, and if the process goes awry, the customer should be communicated with on the phone and in writing.) If you were a customer service manager, would you recommend that your entire team is familiar with these metrics? Why or why not? (Answer: Open ended; yes, because it is important for each person to know how their role impacts the customer relationship and the company‘s performance. These metrics can serve as KPIs if measured over time.)

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LO15-2: Describe methods companies use to develop good customer relationships. Gaining and Keeping Loyal Customers  Companies achieve customer satisfaction when they meet the needs and expectations their customers have for their goods or services  In today‘s business climate, customer satisfaction is merely a first step to ensuring that customers will remain loyal to the company or brand  In response to this reality, customer-driven companies strive to delight rather than simply satisfy their customers  Delighted customers obtain more value than they had expected from their purchase The Bases of Customer Satisfaction  A company‘s emphasis on customer satisfaction develops as a consequence of its customer orientation  Firms with a customer orientation set the expectation that all employees should seek to provide value to the customer in a way that meets or exceeds the customer‘s expectations  The customer orientation makes up a part of the marketing concept, the idea that a firm‘s long-term success must include a companywide effort to satisfy customer needs and wants  The marketing concept is based on the following principles, actively applied by managers companywide:  (1) Awareness and appreciation of the consumer‘s role in the firm‘s existence, growth, and stability  (2) Awareness of and concern with the interdepartmental implication of decisions and actions of an individual department with regard to the customer  (3) Concern with the innovation of goods and services designed to solve select customer problems  (4) Understanding of the effect of the introduction of new goods and services on the firm‘s profit position, both present and future  (5) Appreciation of the role of marketing intelligence in determining the needs and wants of customers  (6) Effort in determining corporate and departmental objectives based on customer satisfaction  Companies that base their business on the marketing concept maintain a focus on delivering value to the customer in any profitable way they can—they put the customer in the center of the firm‘s thinking in terms of both strategy and operations  In such a company, all areas of the firm, not just sales and marketing, should be customeroriented: purchasing, finance, engineering, manufacturing, and logistics focus on promoting customer satisfaction, not just on meeting their own individual department objectives The GAP Model  Using the GAP model, companies can identify and address gaps between what they provide customers and what customers actually want 286 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The model identifies the following five gaps: Gap 1 is the distance between what customers expect and what a company thinks they expect Gap 2 is between management‘s perception of customer needs and the actual specification of how those needs are to be met  Gap 3 is from the specification of customer service to how well it is actually delivered  Gap 4 is the gap between the delivery of the customer service and what is told it will be to customers  Gap 5 is the gap between a customer‘s actual experience with customer service and their expectations Limitations on Customer Satisfaction  Part of adopting a customer orientation also involves recognizing the things that limit satisfaction  Customer satisfaction ties into customer perceptions; if a gap exists between the company‘s capabilities and the customer‘s true needs or wants, other firms can exploit that gap  A one-size-fits-all customer service policy isn‘t likely to lead to a great many loyal customers if customer perceptions of value differ widely  One-to-one marketing individualizes the relationship between the firm and the customer by gathering and using specific customer information to understand what will delight each customer  Amazon uses an algorithm that performs a process called collaborative filtering to predict consumer preferences; when a consumer searches the Amazon site for a sporty clip watch, the algorithm filters large amounts of information about many consumers‘ previous purchases that may be related in some way  Geofencing is a location-based technology that uses small sensors to send marketing messages to smartphone users who enter a nearby, defined geographic area, such as a store LO15-3: Discuss how companies can improve relationships with B2B and B2C customers. Improving Customer Relationships  Companies need to balance customer satisfaction with profitability  Providing too much value in terms of low prices, extra features, or custom services can lead to an unprofitable situation that actually costs the company money  Companies want to capture and retain customers that will be both loyal and profitable  After screening out potentially unprofitable customers, the firm can focus its efforts on the specific customers with whom it most wants to develop good relationships Relationship Marketing  After screening out potentially unprofitable customers, the firm can focus its efforts on the specific customers with whom it most wants to develop good relationships

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Hunt/Mello/Deitz: Marketing 4e

Establishing Customer Value  Customer value refers to the perceived benefits, both monetary and nonmonetary, that a customer receives from a product compared with the cost of obtaining it  Thus, the firm must establish the ways in which it will provide more value in its exchange with the customer than its competitors do  Attention to customer value often leads to commitment between the two parties, which can result in a long-term mutually beneficial relationship  Personal selling is another way to build relationships between companies  Salespeople are able to learn what their regular business customers want (and do not want) from their company; they can advise other departments of their company, such as marketing and R&D, about products and services tailored to important customers  As part of relationship marketing, some companies adapt their business processes specifically to the needs of their customers  A company can also differentiate its customer service by making a customer service representative (CSR) the first option on an automated service menu  Another customer service consideration is to make sure that the representative can be easily understood by the customer  Transparency involves opening up the company to the outside world by making its practices, policies, and future plans available to customers  Technology such as websites, chat rooms, and customer relationship modules allow a company to disseminate information about itself and receive feedback from current or potential customers about how it is currently doing business and its plans for the future Delivering Value  The firm must deliver its goods or services in ways that meet or exceed the expectations of the customer—the firm must know what the customer wants and also know what it can consistently deliver in terms of value  It is not enough to merely understand what the customer perceives as value; it is just as important to understand the capabilities of the company in delivering that value  One measure of customer satisfaction used by a number of companies is the Net Promoter Score  Based on a single question: ―On a scale of 0 to 10, how likely are you to recommend this company‘s product or service to a friend or a colleague?‖  Customers are placed in three categories: detractors, passives, and promoters  Detractors give a score lower or equal to 6 and through social media detract from the image of the product  Passives give a score of 7 or 8, and are satisfied but not thrilled; they are unlikely to spread the word, either good or bad, about the product  Promoters answer 9 or 10 and are likely to recommend the company‘s products

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Higher Net Promoter Scores tend to indicate desirable levels of customer satisfaction, while lower Net Promoter Scores are a warning to investigate the causes of poor customer satisfaction and brand loyalty issues  Personalizing service is another way to help exceed a customer‘s expectations  Clientelling tailors product information for individual customers, in order to provide an exceptional and personalized shopping experience Empowering Service Employees  Despite a company‘s best efforts to deliver value, customers may still have problems with a company‘s products  Negative experiences can damage the customer relationship and future business opportunities  Negative experiences carry more weight than positive ones when a customer is deciding whether to do business with a company again  Word-of-mouth criticisms from a customer‘s friends and relatives can also damage future sales  Effectively resolving a customer‘s problem is critical to repairing a customer relationship damaged by a negative experience  Service employees are those like salespeople, retail employees, and others who have direct contact with customers and the public  Empowerment means giving employees permission to make decisions and take action on their own to help customers  Companies typically set boundaries beyond which the employee will need to ask permission from a supervisor to address a customer‘s issue  If the job is routine or the issue is minor, the company can develop a set of rules to guide the employee on the appropriate response  Empowered employees have a sense of ownership over how well they do their jobs  Customers who deal with empowered employees experience high rates of satisfaction because their issues are resolved quickly and with little to no hassle Service Recovery  What a company does to resolve poor service can set it apart from its competition and help build customer loyalty  Customers who have had a service problem that is resolved quickly and to their satisfaction are significantly more loyal to a company than are customers who have never had a service failure  Maintaining and enhancing good customer relationships begins with a company culture that places customer service as a high priority  Such a culture puts in place procedures for recovering from service errors that can leave customers angry  Some commonsense steps can be used to recover from a service failure  (1) Apologize and ask the customer to forgive  (2) Review the complaint with the customer 289 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(3) Fix the problem, then check back with the customer to make sure that they are satisfied with your solution (4) Document the problem and find its root cause Not all customers will be satisfied with how a company handles their complaints, but a good process, backed up by a sincere effort to correct the problem, goes a long way to successful service recovery that maintains good customer relationships

THINK LIKE A MARKETER What does having a relationship with an organization mean to you?

LO15-4: Describe how customer relationship management uses customer information to improve relations between businesses and customers. Customer Relationship Management  Customer relationship management (CRM) is the process by which companies get new customers, keep the customers they already have, and grow the business by increasing their share of customers‘ purchases  It is an overall strategy that unifies all of a company‘s activities under the overarching goal of achieving customer satisfaction through the right actions, attitudes, and systems  Companies that adopt CRM use data to understand customer needs and wants  Companies use CRM software to capture, store, and analyze consumer data  With that information, they create and maintain customer profiles, including buying habits and purchasing patterns  The company can then leverage the information to help marketers design individualized fulfillment strategies for their customers  Companies with both a physical and an Internet presence (click-and-mortar companies) have the ability to track customers through various means: capturing point-of-sale data, cataloging direct interaction with salespeople, and monitoring traffic on the firm‘s website; each of these opportunities represents a touch point  A touch point is any point at which a customer and the company come into contact Objectives of Customer Relationship Management  CRM entails gathering data from all touch points (e.g., face-to-face, telephone, and Internet) and using those data to understand the customer‘s needs and wants; the firm can then develop tactics for building a long-term, mutually beneficial relationship with the customer  CRM technologies allow marketers to do the following:  (1) Track consumer behavior over time

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(2) Capture data that allow the firm to identify customers who are likely to be profitable (3) Interact with customers to learn what they need and want (4) Use the information gathered to tailor goods and services accordingly The Internet is an invaluable tool in CRM: It enables companies to collect individualized data and to send personalized marketing messages directly to individual consumers  CRM provides a structure for a company to establish and maintain valuable relationships with customers  Using CRM, companies can readily develop a customer orientation: They can gather data that help them understand the needs of individual customers, rather than an entire market segment as in a traditional marketing approach The CRM Process  The CRM process revolves around a cycle of activities  CRM is an iterative rather than a linear process; the firm repeats the sequence of steps, as necessary, to reach the desired result Figure 15.2 The Customer Relationship Management Process INSIGHT QUESTIONS What channels of interaction should a brick-and-mortar company versus an Internet company provide customers with? (Answer: Open ended; the customer relationship begins the moment the customer approaches the business, whether it is online or in-person.) What types of specific customer information could assist in customer relationship management? (Answer: Open ended; personal contact information, product preferences, customer inquiry and communication tracking, feedback, promotions used, and purchase history.) As a customer service manager, how would you utilize an analysis of customer information to build customer relationships? (Answer: Open ended; with the recorded information, specific customers can be targeted with the promotional mix based on preferences and purchase behavior.) Step 1: Identify Current Customers  The company initiates the CRM process by identifying its current customers  Similar to Dell, a company that has both business and individual customers would identify its customers by finding out their locations, breaking down computer purchases by customer type, quantifying the frequency of both individual and business purchases, and determining how many computers each type of customer typically purchases Step 2: Understand How Customers Interact with the Firm  The firm wants to know how customers purchase (what percentages purchase via the Internet, in brick-and-mortar stores, and through a salesperson)  It also wants to know how customers, in general, communicate with the firm

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Interactions can take many forms: phone calls and e-mails to customer service, conversations with salespeople, purchases, questionnaire responses, coupon redemption, requests for information, and repair or product return requests  Up to this point, the information gathered in the CRM system is general customer information Step 3: Gather Specific Customer Information  In step 3, the company gathers specific information on each individual customer‘s touch points with the company, which include any time the customer has had contact with the company in any way, such as website visits, purchase history, use of coupons or promotional codes, warranty card submissions, point-of-sale data, or customer inquiries  Salespeople can record information in the CRM system, including the customer‘s contact information and preferences for particular goods or services  An increasingly popular way for companies to gather information is Internet interactions: a customer going to a company‘s website for information, purchasing goods or services, or providing feedback on goods or services Step 4: Store and Analyze Information  After the company has gathered the appropriate data, it must store the data so that CRM data analysis applications can access them  The information input into the CRM database must be accurate; if it is not, the company will not be able to use it effectively to create and maintain satisfied, profitable long-term customers  Data mining is a process that involves the computerized search for meaningful trends in a large amount of data  Data mining analysis can include one or more of the following techniques:  Customer segmentation analysis involves creating customer profiles based on demographic characteristics, purchase patterns, and other criteria and placing them into various categories  Recency-frequency-monetary analysis involves categorizing customers by their buying patterns  Lifetime value is the total profit a customer brings to a company during the time the individual or firm is a customer  Lifetime value (LTV) analysis compares the costs of retaining customers with the costs of acquiring new customers, to determine how much money each type of customer requires  Predictive modeling uses sophisticated algorithms based on patterns of previous buying behavior to predict the future buying behavior of customers

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Step 5: Use Data to Build Customer Relationships  The CRM system sends information to functional areas within the company, like sales and marketing  Those functional areas use the information to customize their activities to target specific customers CONNECT BACK: Reference Connect Assignment 15-3 Why is the goal of the customer relationship management process to maintain a long-term relationship with customers? (Answer: Open ended; beyond targeting specific customers with promotions, a firm can use CRM to combat buyer‘s remorse and improve their relationships with the customer.) How often should the customer relationship management process be evaluated to ensure the company is being as proactive in managing the relationship with its customers? (Answer: Open ended; frequently, as business need dictates. It is also important to measure efficiency.) Leveraging Customer Information  Firms can increase the power of customer information obtained from CRM systems in a number of ways Tailor Customer Promotions  Perhaps the most obvious use of CRM data is to tailor promotions to match customer profiles  Firms can also leverage CRM data by targeting specific customers for direct mail advertising  Mail order companies that track customers‘ purchases and inquiries can use that information to predict how customers would react to a particular catalog sent to their home  CRM systems can cross-reference promotions with specific categories of customers; with that information, companies can monitor the success of tailored promotional efforts and make adjustments as necessary  By gaining efficiencies in promotional efforts, companies maximize the ratio of promotional spending to profitability Combat Buyer’s Remorse  Firms also can use CRM information to combat cognitive dissonance (buyer‘s remorse) by congratulating the buyer on their choice and reinforcing the best aspects of the good or service Improve Business-to-Business Relationships  B2B companies can: (1) cross-sell their products, promoting other products they sell that might be purchased by an existing business customer, (2) track customer service complaints and returned goods, or (3) tailor promotional programs to specific business customers based on classification  Beyond this, CRM systems offer several unique advantages to B2B firms: suppliers can generate sales forecasts from information in CRM systems such as past and current orders 293 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The systems also can provide product availability information to manufacturers as they establish production runs or to retailers as they plan sales

LO15-5: Discuss the security and ethical issues involved in using customer relationship management systems. Security and Ethical Issues in Customer Relationship Management  The issue of privacy is becoming increasingly acute; customers now realize that any computer security system that stores birth dates, credit card numbers, addresses, and other personal information can be breached  Leaving aside cybertheft, a general discomfort with invasion of privacy has become widespread  Since good customer relationships are built in part on trust, any doubt about the security of personal data can lead the customer to take their business elsewhere  The United States and other countries are considering limiting the type and amount of information that companies can collect about customers  Some companies already restrict their data-gathering activities: some offer a ―do-not-track‖ button on their websites, which enables customers to request that the company not collect information about their Internet activity  To guard against security breaches, CRM systems must have robust firewalls to protect customers‘ privacy  Companies using cloud-computing CRM applications should understand the increased risks involved in entrusting data to a third party  Safeguarding the privacy and trust of a company‘s customers requires constant vigilance and regular upgrading of security systems  Clever hackers can often breach firewalls, and new methods for hacking are being developed every day  Marketers should be sensitive to the desires of customers for privacy and make accommodations for customers to opt out of data collection when possible to avoid backlash on this sensitive topic  The U.S. government has put in place laws for protecting the financial, health, telephone, and e-mail information of citizens  Companies should supplement these laws with company policies that govern various aspects of customer information  Companies interested in protecting the privacy of customer information must make a concerted effort not only to develop such policies but also to make sure they are followed every day; firms also must fully train employees in their application, monitor, and enforce the policies  Another ethical issue involves a tactic some companies use to determine how far they can push their customers before they reach a ―breakpoint‖ and stop doing business with them 294 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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In the long run, customer service is not just about handling customer questions or product returns; it is about gaining the trust of customers and building relationships with them, so that they will continue to do business with your company LO15-6: Describe how companies can judge the effectiveness of their customer relationship management efforts. Marketing Analytics INSIGHT QUESTIONS How can a company determine whether the CRM strategy is working? (Answer: Open ended; by frequently measuring the share of customer, customer equity, customer focus, and lifetime value.) How much time should be dedicated to monitoring these efforts? (Answer: Open ended; as much as needed to support the overall marketing efforts of the firm.) Determining the Effectiveness of Customer Relationship Management  Companies can use any of four basic metrics to judge the effectiveness of a CRM program.  (1) Share of customer differs from market share in that it measures the quantity of purchase dollars each customer spends on the company‘s products, rather than the number of customers  (2) Customer equity is a ratio that compares the financial investments a company puts into gaining and keeping customers to the financial return on those investments  A company can determine the value of its CRM program from this ratio  (3) Customer focus measures the extent to which a company puts effort into servicing its customers‘ needs, based on an understanding of each customer‘s profitability  With that information, the company can direct its personal selling efforts, which are expensive, to those customers who are most profitable  (4) Lifetime value is the total profit a customer brings to a company while a customer  The CRM efforts of a company, if done right, should be able to maximize the lifetime value of customers, large and small  Companies that can predict lifetime value can aim customer service efforts accordingly: they can reduce or eliminate services to customers with low LTV; by cutting back on customer service costs for those customers, the firm improves the customer equity of those customers  Unless a firm knows the extent to which any aspect of its business is succeeding, it cannot identify and address problems that may affect its profitability

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Table 15.2 ABC Analysis Example INSIGHT QUESTIONS How does the 80/20 rule apply to ABC analysis? (Answer: This principle would mean that 80 percent of profits come from 20 percent of the customers.) How is an ABC analysis used by firms? (Answer: ABC analysis can help identify which customers are most profitable.) Which metric is better: profitability or revenue? (Answer: Profitability is a better metric than revenue—although some customers may spend more money than others, they may be more expensive to service.) TODAY’S PROFESSIONAL NOTES Leanna Fino, Retail Sales Representative, The Hershey Company What is the value in having an internship?

How will you differentiate yourself in the interview process?

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Student Task: Select three to five professional relationships in your life, such as a manager, professor, classmate, or group member, and then identify one or two specific actions you can take in the next three months to strengthen each of those relationships. Next, explain in one paragraph how you have delivered excellent customer service sometime in your life, whether it was on the job, in school, or in your personal life. This will help you articulate your customer service skills in an interview. Chapter 15

RELATIONSHIP DEVELOPMENT

In the next 12 months, I plan to strengthen the relationship with the following people:

Chapter 15: Customer Relationship Management

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-280 Explain the importance of effective customer service and customer satisfaction to companies. LO 1-281 Describe methods companies use to develop good customer relationships. LO 1-282 Discuss how companies can improve relationships with B2B and B2C customers. LO 1-283 Describe how customer relationship management uses customer information to improve relations between businesses and customers. LO 1-284 Discuss the security and ethical issues involved in using customer relationship management systems. LO 1-285 Describe how companies can judge the effectiveness of their customer relationship management efforts. 297 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

Instructor‘s Manual - Chapter 1 KEY TERMS clientelling collaborative filtering customer communication customer communication metrics customer equity customer focus customer relationship management (CRM) customer satisfaction customer segmentation analysis customer service customer value

Hunt/Mello/Deitz: Marketing 4e

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THOUGHT-PROVOKING ACTIVITY Set 1: What is customer service? Provide a practical definition. How have social media impacted customer service?

Set 2: How does empowering employees enable us to deliver value in an organization? What happens when an employee is not empowered? Use your experience as a reference.

What does great customer service mean to you? LO15-1: Explain the importance of effective customer service and customer satisfaction to companies. What Is Customer Service?  Companies need to know how well they are doing in keeping customers happy  Research studies have quantified reasons to be concerned about _  About 78 percent of consumers have changed their minds about buying a good or service because of a _  On average, over time, loyal customers bring in up to _ times as much revenue as the value of their first purchase  It takes up to _ positive experiences with a customer to make up for one unresolved negative experience a customer has  News of bad customer service reaches more than _ as many people as comments about a good service experience a person or business has 299 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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It is six to seven times more expensive to get a new customer than it is to _ Poor customer service is almost guaranteed to _ , but good customer service alone doesn‘t make customers happy Even if a company offers good customer service, it still can lose customers if its service is not significantly better than that of a _ To maintain current customers, as well as gain new ones, firms must provide customer service that makes them _

Do you pay attention to consumer rankings when purchasing goods and services? If so, where do you go to access this information?

What factors would be considered in compiling a customer service ranking list such as this?

Defining Customer Service  _ involves all of the activities a firm engages in to satisfy the needs and wants of its customers  These activities consist of both _ methods and _ methods for direct customer interaction  When companies commit to providing outstanding customer service, they elevate customer service to the highest priority level  A company‘s customer service strategy guides the establishment of customer service policies and procedures  Firms that want to improve their customer service strategy put measurements in place to track how well they are satisfying customers  Companies that understand the importance of customer service will develop such measures with input from _ 300 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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What might seem like good service to the company may seem like poor service to important customers  The ultimate goal of delivering superior customer service is to _  Customers will usually remain loyal to a company or brand if they feel they receive more _ from that company‘s goods and services than they do from its competitors Establishing Customer Service Policies  A firm builds an effective _ around a set of common objectives for all company employees, whether a company sells to other businesses (B2B) or directly to consumers (B2C), including the following:  Deliver the good or service completely and in a _  Ensure that the process for taking and fulfilling customer orders is _  Establish convenient customer _  Encourage ease of doing business, so that the customer finds it convenient and _ to deal with the firm  These four factors are critical to delivering customer service and, ultimately, maintaining _ Timeliness  Unfortunately, in B2B markets, only about _ percent of orders from large suppliers arrive on time and complete  _ concerns the ability of a company to deliver a good or service by the time a customer expects to have it available for sale or consumption  The process companies use to take a customer order and deliver goods to a customer is referred to as the _  The _ is the total amount of time that elapses from the time a customer places an order until the time the product is delivered to the customer  Two major trends drive the desire for shortened order cycles: inventory reduction due to lean manufacturing principles and _  _ that can quickly and efficiently get the product to a customer help firms satisfy this desire  Firms must put in place efficient order-processing systems, which take in the order and check for _ ; they then print pick tickets that help workers select products from warehouse locations and load orders onto transportation vehicles 301 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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plays an integral role in timely

THINK LIKE A MARKETER Organizations can have a competitive advantage by maximizing their order cycle functionality. What are some examples of this?

Figure 15.1 Order Cycle Functions INSIGHT QUESTIONS What are some of the major trends in businesses to shorten order cycles?

Why is it important for firms to put efficient order processing systems in place?

What are companies doing to be competitive at creating an efficient order cycle?

Reliability  _ involves ensuring that customers can depend on receiving a good or service within a stated lead time and that there will be no problems with the order  When business customers can depend on the delivery of products, they can hold _ ; this reduces their inventory carrying costs  Whether selling in B2B or B2C situations, firms develop a reputation for reliability by:  (1) Establishing effective inventory management policies  (2) Performing accurate _  (3) Maintaining effective _ and _ operations (or hiring reliable third parties to perform those functions) Customer Communication  _ involves a two-way information flow between the firm and its customer

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Order–status communication provides the customer with information about the _ of the order, when it will ship, and when it will _ Communication may be done by computer-to-computer links (e.g., via an EDI that automatically sends data about an order), by _ , or by telephone

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Ease of Doing Business  _ is the amount of effort required on the part of a customer when dealing with a firm  Websites also offer consumers convenience—they supply information about the product, the ability to compare products and prices quickly, and a simple _  In B2B markets, offering favorable payment terms and discounts for quick payment can _ a firm from competitors that are less flexible The Role of Social Media in Customer Service  In today‘s world of instant communication and social media, customers expect help _ , at any hour of the day, on any day of the week  Customers also expect to be able to communicate using the method of their choice, which increasingly involves _  Many of the world‘s companies use social media for activities that include some form of customer service:  (1) Responding to _ about a good or service  (2) Resolving problems customers encounter with products  (3) Answering _  (4) Addressing _  (5) Gathering competitive information and _  (6) Quantifying the number of people who like or _ in the firm‘s products  Top social media platforms with over 1 billion users include websites such as Facebook, YouTube, Instagram, Tumblr, Twitter, Snapchat, _ , and Pinterest  These platforms enable companies to build relationships with customers in ways that were not available until fairly recently  Sites such as complaints.com, my3cents.com, complaintsboard.com, measuredup.com, pissedconsumer.com, consumeraffairs.com, and ripoffreport.com monitor what consumers are saying about products that are making them unhappy  Many large companies have adopted social media as a way to enhance their _ capabilities  FedEx, for example, has a dedicated team responsible for handling requests for _ ; the team follows up with customers to help solve problems or answer questions—its goal is to respond to customers in a matter of minutes 304 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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The team also tracks _ to follow what customers say about the company and its products Nonprofit organizations typically have smaller _ for marketing than for-profit corporations _ are a cost-effective way for a nonprofit to stay connected with donors and volunteers on whom they rely and want to keep satisfied

THINK LIKE A MARKETER Have you ever taken to social media for customer service? What has your experience been?

THINK LIKE A MARKETER What information do you seek when tracking a package?

What experiences have you encountered with accessing customer service via social media? Are you limited in what business you will conduct with social media versus in person, on the phone or via email?

Tracking Performance through Customer Service Metrics  Commonly used metrics for tracking B2B and B2C customer service performance include the following:  _ is the percentage of an order shipped on time and complete  _ measures the percentage of the total number of items on the order that the firm shipped on time 305 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ measures the value of goods shipped on time versus the total value of the order _ measures the percentage of itemstocking types, known as stock-keeping units (SKUs), on the order shipped on time and complete _ judges the reliability of the order system; the metric measures how many orders have been filled perfectly _ recognizes that it is not enough just to ship the goods on time; they must arrive on time as well The only date that matters is the due date for the order to arrive at the customer‘s location The _ metric measures the length of the order cycle or the ability of the order system to react to customer orders _ involve review of communication at three stages: (1) At the _ , the firm measures the accuracy and timeliness of the information fed back to a customer concerning product availability and delivery date (2) The second communication point occurs _ ; it measures the ability of the firm to accurately provide shipment status and order tracking (3) The third stage is _ ; it measures the ability of the firm to answer questions concerning the use of the product or to process returned goods in a timely manner The _ metric measures the firm‘s flexibility, which can involve the firm‘s ability and willingness to provide fast service, answer customer inquiries, and resolve problems Other methods for determining the effectiveness of customer service include post-incident surveys, customer service website experience, relationship surveys, customer loyalty, hold time, and _ _ is the time a customer has to wait to talk to or receive a text back from a CSR; the longer the hold time, the less satisfied the customer is likely to be The _ is the percentage of customers who hang up the phone or stop an e-mail conversation before reaching a customer service agent Some organizations use third parties to monitor their _

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Marketing Analytics INSIGHT QUESTIONS How do companies know whether they are doing a good job serving their customer?

On-time delivery recognizes that goods arrive on time. What is the impact of an early or late delivery to this metric?

CONNECT BACK: Reference Connect Assignment 15-2 After calculating the various fill and perfect order rates, what customer service practices would you put into place to ensure order processing efficiency?

If you were a customer service manager, would you recommend that your entire team is familiar with these metrics? Why or why not?

LO15-2: Describe methods companies use to develop good customer relationships. Gaining and Keeping Loyal Customers  Companies achieve _ when they meet the needs and expectations their customers have for their goods or services  In today‘s business climate, customer satisfaction is merely a first step to ensuring that customers will remain _ to the company or brand  In response to this reality, customer-driven companies strive to _ , rather than simply _ , their customers  _ obtain more value than they had expected from their purchase The Bases of Customer Satisfaction 307 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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A company‘s emphasis on customer satisfaction develops as a consequence of a _  Firms with a customer orientation set an expectation that all employees should seek to provide value to the customer in a way that meets, or exceeds, the customer‘s expectations  A customer orientation makes up a part of the _ , the idea that a firm‘s long-term success must include a companywide effort to satisfy customer needs and wants  The marketing concept is based on the following principles, actively applied by managers companywide:  (1) Awareness and appreciation of the consumer‘s role in the firm‘s existence, growth, and _  (2) Awareness of and concern with the interdepartmental implication of decisions and actions of an individual department with regard to the customer  (3) Concern with _ and services designed to solve select customer problems  (4) Understanding of the effect of the _ and services for the firm‘s profit position, both present and future  (5) Appreciation of the role of _ in determining the needs and wants of customers  (6) Effort in determining corporate and departmental objectives based on customer satisfaction  Companies that base their business on the marketing concept maintain a focus on _ to the customer in any profitable way they can—they put the customer in the center of the firm‘s thinking in terms of both strategy and operations  In such a company, all areas of the firm, not just sales and marketing, should be customeroriented: Purchasing, finance, engineering, manufacturing, and logistics focus on promoting customer satisfaction, not just on meeting their own individual department objectives The GAP Model  Using the _ , companies can identify and address gaps between what they provide customers and what customers actually want  The model identifies the following five gaps:  Gap 1 is the distance between what customers expect and what a company _  Gap 2 is between management perception of _ and the actual specification of how those needs are to be met

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Gap 3 is from the specification of customer service to how well it is _  Gap 4 is the gap between the delivery of the customer service and _ to customers  Gap 5 is the gap between a customer‘s _ with customer service and the customer‘s expectations Limitations on Customer Satisfaction  Part of adopting a customer orientation also involves recognizing the things that _  Customer satisfaction ties into _ ; if a gap exists between the company‘s capabilities and the customer‘s true needs or wants, other firms can exploit that gap  A_ customer service policy isn‘t likely to lead to a great many loyal customers if customer perceptions of value differ widely  _ individualizes the relationship between the firm and customer by gathering and using specific customer information to understand what will delight each customer  Amazon uses an algorithm that performs a process called _ to predict consumer preferences; when a consumer searches the Amazon site for a sporty clip watch, the algorithm filters large amounts of information about many consumers‘ previous purchases that may be related in some way  _ is a location-based technology that uses small sensors to send marketing messages to smartphone users who enter a nearby, defined geographic area such as a store LO15-3: Discuss how companies can improve relationships with B2B and B2C customers. Improving Customer Relationships  Companies need to balance customer satisfaction with _  Providing _ value in terms of low prices, extra features, or custom services can lead to an unprofitable situation that actually costs the company money  Companies want to capture and retain customers who will be both loyal and profitable  After screening out potentially unprofitable customers, the firm can focus its efforts on the specific customers with which it most wants to develop _

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Relationship Marketing  After screening out potentially _ , the firm can focus its efforts on the specific customers with which it most wants to develop good relationships Establishing Customer Value  _ refers to the perceived benefits, both monetary and nonmonetary, that a customer receives from a product compared with the cost of obtaining it  Thus, the firm must establish the ways in which it will provide more value in its exchange with the customer than its competitors do  Attention to customer value often leads to _ between the two parties, which can result in a long-term mutually beneficial relationship  _ is another way to build relationships between companies  _ are able to learn what their regular business customers want (and do not want) from their company; they can advise other departments of their company, such as marketing and R&D, about products and services tailored to important customers  As part of relationship marketing, some companies adapt business processes specifically to the needs of their customers  A company also can differentiate its customer service by making a _ (CSR) the first option on an automated service menu  Another customer service consideration is to make sure that the representative can be easily _ by the customer  _ involves opening up the company to the outside world by making its practices, policies, and future plans available to customers  Technology such as websites, chat rooms, and customer relationship modules allow a company to _ about itself and receive feedback from current or potential customers about how it is currently doing business and its plans for the future Delivering Value  The firm must deliver its goods or services in ways that _ or _ the expectations of the customer—the firm must know what the customer wants and also know what it can consistently deliver in terms of value  It is not enough to merely understand what the customer perceives as value; it is just as important to understand the capabilities of the company in delivering that _

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One measure of customer satisfaction used by a number of companies is _  Based on a single question: ―On a scale of 0–10, how likely are you to recommend this company‘s product or service to a friend or a colleague?‖  Customers are placed in three categories: detractors, _ , and promoters  _ give a score lower or equal to 6 and through social media detract from the image of the product  _ give a score of 7 or 8 and are satisfied but not thrilled; they are unlikely to spread the word, either good or bad, about the product  _ answer 9 or 10 and are likely to recommend the company‘s products  Higher Net Promoter Scores tend to indicate desirable levels of _ , while lower Net Promoter Scores are a warning to investigate causes of poor customer satisfaction and _  Personalizing service is another way to help exceed a customer‘s expectations  _ tailors product information for individual customers in order to provide an exceptional and personalized shopping experience Empowering Service Employees  Despite a company‘s best efforts to deliver value, customers may still have problems with a company‘s products  _ experiences can damage the customer relationship and future business opportunities  _ experiences carry more weight than _ ones when a customer is deciding whether to do business with a company again  _ criticisms to a customer‘s friends and relatives can also damage future sales  _ is critical to repairing a customer relationship damaged by a negative experience  _ are those like salespeople, retail employees, and others who have direct contact with customers and the public  _ means giving employees permission to make decisions and take action on their own to help customers  Companies typically set boundaries beyond which the employee will need to _ from a supervisor to address a customer‘s issue

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If the job is routine or the issue is minor, the company can develop a _ to guide the employee on the appropriate response  Empowered employees have a sense of _ for how well they do their jobs  Customers who deal with empowered employees experience high rates of _ because their issues are resolved quickly and with little to no hassle Service Recovery  What a company does to resolve poor service can set it apart from its competition and help build _  Customers who have had a service problem that is resolved quickly and to their satisfaction are significantly more _ to a company than are customers who have never had a service failure  Maintaining and enhancing good customer relationships begins with a _ that places customer service as a high priority  Such a culture puts in place procedures for recovering from service errors that can leave customers angry  Some commonsense steps can be used to recover from a service failure  (1) _ and ask the customer to forgive  (2) Review the complaint with the customer  (3) _ , then check back with the customer to make sure that they are satisfied with your solution  (4) Document the problem and find its _  Not all customers will be satisfied with how a company handles their complaints, but a good process, backed up by a _ to correct the problem, goes a long way to successful service recovery that maintains good customer relationships THINK LIKE A MARKETER What does having a relationship with an organization mean to you?

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LO15-4: Describe how customer relationship management uses customer information to improve relations between businesses and customers. Customer Relationship Management  _ (CRM) is the process by which companies get new customers, keep the customers they already have, and grow the business by increasing their share of customers‘ purchases  It is an overall strategy that unifies all of a company‘s activities under the overarching goal of achieving customer satisfaction through the right actions, attitudes, and systems  Companies that adopt CRM use _ to understand customer needs and wants  Companies use _ to capture, store, and analyze consumer data  With that information, they create and maintain _ , including buying habits and purchasing patterns  The company can then leverage the information to help marketers design _ for their customers  Companies with both a physical and an _ (click-and-mortar companies) have the ability to track customers through various means: capturing point-of-sale data, cataloging direct interaction with salespeople, and monitoring traffic on the firm‘s website; each of these opportunities represents a _  A_ is any point at which a customer and the company come into contact Objectives of Customer Relationship Management  CRM entails gathering data from all _ (e.g., face-to-face, telephone, and Internet) and using those data to understand the customer‘s needs and wants; the firm can then develop tactics for building a long-term, mutually beneficial relationship with the customer  CRM technologies allow marketers to do the following:  (1) Track consumer behavior _  (2) Capture data that allow the firm to identify customers who are likely to be _  (3) Interact with customers to learn what they need and want  (4) Use the information gathered to tailor goods and services accordingly  The Internet is an invaluable tool in CRM: It enables companies to collect individualized data and to send personalized _ directly to individual consumers 313 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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CRM provides a structure for a company to establish and maintain _ with customers  Using CRM, companies can readily develop a _ : They can gather data that help them understand the needs of individual customers rather than an entire market segment as in a traditional marketing approach The CRM Process  The CRM process revolves around a cycle of activities  CRM is an _ rather than a linear process; the firm repeats the sequence of steps, as necessary, to reach the desired result Figure 15.2 The Customer Relationship Management Process INSIGHT QUESTIONS What channels of interaction should a brick-and-mortar company versus an Internet company provide customers with?

What types of specific customer information could assist in customer relationship management?

As a customer service manager, how would you utilize an analysis of customer information to build customer relationships?

Step 1: Identify Current Customers  The company initiates the CRM process by _  Similar to Dell, a company that has both business customers and individual customers would identify its customers by finding out their locations, breaking down computer purchases by customer type, quantifying the frequency of both individual and business purchases, and determining how many computers each type of customer typically purchases Step 2: Understand How Customers Interact with the Firm  The firm wants to know how customers _ (what percentages purchase via the Internet, in brick-and-mortar stores, and through a salesperson)  It also wants to know how customers, in general, _ with the firm 314 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Interactions can take many forms: phone calls and e-mails to customer service, conversations with _ , purchases, questionnaire responses, _ , requests for information, and repair or product return requests Up to this point, the information gathered in the CRM system is general customer information

Step 3: Gather Specific Customer Information  In Step 3, the company gathers specific information on each individual customer‘s touch points with the company, which include any time the customer has had contact with the company in any way, such as _ , purchase history, use of coupons or promotional codes, warranty card submissions, _ data, or customer inquiries  Salespeople can record information in the CRM system, including the customer‘s contact information and preferences for particular goods or services  An increasingly popular way for companies to gather information is Internet interactions: a customer going to a company‘s website for information, purchasing goods or services, or providing _ on a good or service Step 4: Store and Analyze Information  After the company has gathered the appropriate data, it must _ , so that CRM data analysis applications can access them  The information input into the CRM database must be accurate; if it is not, the company will not be able to use it effectively to create and maintain satisfied, profitable long-term customers  _ is a process that involves the computerized search for meaningful trends in a large amount of data  Data mining analysis can include one or more of the following techniques:  _ involves creating customer profiles based on demographic characteristics, purchase patterns, and other criteria and placing them into various categories  _ involves categorizing customers by their buying patterns  _ is the total profit a customer brings to a company during the time the individual or firm is a customer  _ (LTV) analysis compares the costs of retaining customers with the costs of acquiring new customers to determine how much money each type of customer requires 315 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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_ uses sophisticated algorithms based on patterns of previous buying behavior to predict the future buying behavior of customers Step 5: Use Data to Build Customer Relationships  The CRM system sends information to functional areas within the company, like sales and marketing  Those functional areas use the information to customize their activities to target _ CONNECT BACK: Reference Connect Assignment 15-3 Why is the goal of the customer relationship management process to maintain a long-term relationship with customers?

How often should the customer relationship management process be evaluated to ensure the company is being as proactive in managing the relationship with its customers?

Leveraging Customer Information  Firms can increase the power of customer information obtained from CRM systems in a number of ways Tailor Customer Promotions  Perhaps the most obvious use of CRM data is to tailor promotions to match _  Firms can also leverage CRM data by targeting specific customers for _  _ that track customers‘ purchases and inquiries can use that information to predict how customers would react to a particular catalog sent to their home  CRM systems can cross-reference _ to specific categories of customers; with that information, companies can monitor the success of tailored promotional efforts and make adjustments as necessary  By gaining efficiencies in promotional efforts, companies maximize the ratio of promotional spending to _ Combat Buyer’s Remorse  Firms also can use CRM information to combat cognitive dissonance (_ ) by congratulating the buyer on their choice and reinforcing the best aspects of the good or service Improve Business-to-Business Relationships 316 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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B2B companies can (1) _ , promoting other products they sell that might be purchased by an existing business customer, (2) track customer service complaints and returned goods, or (3) tailor promotional programs to specific business customers based on classification  Beyond this, CRM systems offer several unique advantages to B2B firms: Suppliers can generate _ from information in CRM systems such as past and current orders  The systems also can provide product availability information to manufacturers as they establish production runs or to retailers as they plan sales LO15-5: Discuss the security and ethical issues involved in using customer relationship management systems. Security and Ethical Issues in Customer Relationship Management  The issue of _ is becoming increasingly acute; customers now realize that any computer security system that stores birth dates, credit card numbers, addresses, and other personal information can be breached  Leaving aside _ , a general discomfort with invasion of privacy has become widespread  Since good customer relationships are built in part on trust, any doubt about the security of personal data can lead the customer to _  The United States and other countries are considering limiting the type and amount of information that companies can collect about customers  Some companies already restrict their data-gathering activities: Some offer a ―do-not-track‖ button at their websites; it enables customers to request that the company _ about their Internet activity  To guard against security breaches, CRM systems must have robust _ to protect customers‘ privacy  Companies using cloud-computing CRM applications should understand the increased risks involved in entrusting data to a _  Safeguarding the privacy and trust of a company‘s customers requires _ and regular upgrading of security systems  Clever hackers can often breach firewalls, and new methods for hacking are being developed every day  Marketers should be sensitive to the desires of customers for privacy and make accommodations for customers to opt out of data collection when possible to avoid backlash on this sensitive topic  The U.S. government has put in place laws for protecting the financial, health, telephone, and e-mail information of citizens 317 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Companies should supplement these laws with _ that govern various aspects of customer information  Companies interested in protecting the privacy of customer information must make a concerted effort not only to develop such policies but also to make sure they are followed every day; firms also must fully _ in their application, monitor, and enforce the policies  Another ethical issue involves a tactic some companies use to determine how far they can _ before they reach a ―break point‖ and stop doing business with them  In the long run, customer service is not just about handling customer questions or product returns; it is about _ of customers and _ with them, so that they will continue to do business with your company LO15-6: Describe how companies can judge the effectiveness of their customer relationship management efforts. Marketing Analytics INSIGHT QUESTIONS How can a company determine whether the CRM strategy is working?

How much time should be dedicated to monitoring these efforts?

Determining the Effectiveness of Customer Relationship Management  Companies can use any of four basic metrics to judge the effectiveness of a CRM program  (1) _ differs from market share in that it measures the quantity of purchase dollars each customer spends on the company‘s products rather than the number of customers  (2) _ is a ratio that compares the financial investments a company puts into gaining and keeping customers to the financial return on those investments  A company can determine the value of its CRM program from this ratio  (3) _ measures the extent to which a company puts effort into servicing its customers‘ needs based on an understanding of each customer‘s profitability  With that information, the company can direct its personal selling efforts, which are expensive, to those customers who are most profitable 318 © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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(4) _ is the total profit a customer brings to a company while a customer The CRM efforts of a company, if done right, should be able to maximize the _ of customers, large and small Companies that can predict lifetime value can aim customer service efforts accordingly: They can reduce or eliminate services to customers with low LTV; by cutting back on customer service costs for those customers, the firm improves the _ of those customers Unless a firm knows the extent to which any aspect of its business is succeeding, it cannot identify and address problems that may affect its _

Table 15.2 ABC Analysis Example INSIGHT QUESTIONS How does the 80/20 rule apply to ABC analysis?

How is an ABC analysis used by firms?

Which metric is better: profitability or revenue?

TODAY’S PROFESSIONAL NOTES Leanna Fino, Retail Sales Representative, The Hershey Company What is the value in having an internship?

How will you differentiate yourself in the interview process?

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MARKETING PLAN EXERCISE Your Marketing Plan. This chapter focused on customer service and developing customer relationships. As you develop your personal marketing plan, ask yourself how good you are at developing relationships. We live in an age in which we text or tweet more than we write notes or have conversations. Some might think they are great at developing relationships because they have 2,000 friends on Facebook. But are those really relationships? Consider your Facebook friends: What would those people say about you and your brand if you asked them? How well do they even know you? For the marketing plan exercise in this chapter, your assignment is to plan a strategy to improve the most important relationships in your life. Even if they are good, there are always things you can do better. Think about how you can improve your relationship with your current boss, professors, classmates, and group members. These people are likely to be important as you seek a job or apply to graduate school. (Relationship development with professors is especially important when it is time to request letters of recommendation for graduate school.) Next, consider how you can improve your personal customer service. Are you an ideal group member, or do you look for excuses to miss team meetings? Do you thank people who help you? Do you try to help others solve problems in a positive way? Providing great service to the people in your life, both personally and professionally, will help you build the type of relationships that will provide a rich future in every way possible. Student Task: Select three to five professional relationships in your life, such as a manager, professor, classmate, or group member, and then identify one or two specific actions you can take in the next 3 months to strengthen each of those relationships. Next, explain in one paragraph how you have delivered excellent customer service sometime in your life, whether it was on the job, in school, or in your personal life. This will help you articulate your customer service skills in an interview. Chapter 15

RELATIONSHIP DEVELOPMENT

In the next 12 months, I plan to strengthen the relationship with the following people:

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Chapter 16: Social Responsibility and Sustainability

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Use this Instructor‘s Manual to facilitate class discussion and incorporate the unique features of the text. Encourage students to follow along using their LEARNING WORKSHEET, which is located in the Instructor‘s online resources. Students should attempt to complete the Learning Worksheet before class begins, allowing class lecture and discussion to be a review of the material. Students should be able to access these Learning Worksheets via their learning platform (Moodle, Blackboard, etc.). The worksheet key for Chapter 16 is provided in the Instructor‘s online resources. LEARNING OBJECTIVES LO 1-286 Describe the features of a successful corporate social responsibility program. LO 1-287 Explain how sustainable marketing contributes to a firm‘s corporate social responsibility efforts. LO 1-288 Explain the impact of environmentalism on marketing success. LO 1-289 Describe how companies can meet the challenges of environmental and sustainable marketing on a global scale. LO 1-290 Analyze how firms use social media to support their corporate social responsibility efforts. KEY TERMS closed-loop supply chain consumerism corporate philanthropy corporate social responsibility (CSR) corporate volunteerism disintermediation environmentalism

environmental regulations ethics green market near-shoring on-shoring quasi-strategic greening stakeholder responsibility strategic greening

sustainability sustainable design sustainable marketing sustainable sourcing sustainable tourism triple bottom line (TBL) tactical greening

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How It Works: When class begins, two to three students are called on via random assignment to provide their responses a minimum of one time in the semester. Two sets of activities are provided for either (1) teaching one chapter over two class sessions or (2) allowing more students to partake in the activity. Instructors can either collect the worksheets for a grade or asses a point value when students respond aloud. Supporting Materials: A sample grading rubric is provided in the Instructor‘s online resources. The Learning Worksheet also references the TPA. Set 1: What does it mean for a company to be socially responsible? Provide an example of a company you know that is strong, or weak, in this area. How does this affect consumers? Set 2: Environmental marketing can be divided into three categories. What are they? Provide an example of each.

Gina Gomez Executive Director, Hispanic Community Services, Inc. Studying psychology taught Gina Gomez how much she enjoyed working with people and understanding their behavior. She uses her experience in developing relationships with socially responsible firms to provide insight in answering the following questions:

Photo provided by Gina Gomez

715. What has been the most important thing in making you successful at your job? 716. What advice would you give soon-to-be graduates? 717. How is marketing relevant to your role at Hispanic Community Services, Inc.? 718. What do you consider your personal brand to be? Later in the chapter you see how Gina elaborates on: 

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The impact corporate volunteerism has on a nonprofit organization.

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Review with students:  

How is marketing relevant in her role? How does passion for her job translate into building sustainable relationships with clients? Key Terms: Corporate social responsibility (CSR) Stakeholder responsibility Ethics Corporate philanthropy Corporate volunteerism

Describe the features of a successful corporate social responsibility program. Corporate Social Responsibility  Economic Dimension  Legal Dimension  Ethical Dimension  Philanthropic Dimension  Developing a Successful Corporate Social Responsibility Program  Analytics for Auditing a Corporate Social Responsibility Program  Volunteerism PowerPoint Lecture Notes: Slides Corporate Social Responsibility LO 16-1

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Organizations today are forced to confront a new economic reality: It is no longer acceptable to experience economic prosperity in isolation from those stakeholders (customers, communities, and employees) who are affected by the organization‘s decisions Companies have a number of reasons for taking environmental and social issues seriously, including attracting employees who want to work for a company that is concerned with environmental sustainability and pleasing investors and funds that buy stock in such companies Consumers increasingly choose to buy from firms that value and support the same causes they do As a result, firms have begun to accept responsibility for balancing profitability with social well-being when determining their success Success begins with the quality of the relationships that a company develops with its customers and other stakeholders Corporate social responsibility (CSR) refers to an organization‘s obligation to maximize its positive impact and minimize its negative impact on society CSR has been shown to benefit companies in many ways, including

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improving employee retention and enhancing the company‘s brand image  Within many organizations, the marketing department is primarily responsible for the ideas and strategies that comprise a CSR program, making this topic an important part of your marketing education  CSR includes economic, legal, and ethical accountability to stakeholders and society in general  Stakeholder responsibility focuses on the obligations an organization has to its stakeholders, those who can affect or are affected by a firm‘s actions  Stakeholder responsibility is the driving consideration across the four dimensions of corporate social responsibility: economic, legal, ethical, and philanthropic THINK LIKE A MARKETER As a consumer, do you prefer to do business with an organization that works toward their CSR efforts? Figure 16.1

Insight Questions:

Figure Information: Dimensions of Corporate Social Responsibility

719. What is the foundation of corporate social responsibility? (Answer: Economic responsibility—to be profitable. Every organization, whether for or nonprofit, has a responsibility to be economically sustainable.) 720. How does corporate social responsibility benefit a company? (Answer: It assists in improving employee retention as well as the company‘s brand image. Employees may feel it provides purpose for the community and its stakeholders.)

Stakeholder responsibility is the driving consideration across the four dimensions of corporate social responsibility: economic, legal, ethical, and philanthropic. As you can see, the economic and legal considerations form the foundation of CSR. The ethical and philanthropic aspects go further to encompass actions that, while not required of the firm, meet stakeholders‘ expectations for how the firm should act. PowerPoint Slides

Lecture Notes: Economic Dimension  

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For-profit firms have a responsibility to their stakeholders to be profitable Without profits, a business cannot survive

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A failed business hurts employees, investors, and communities In addition, it can no longer engage in any type of philanthropy, which has economic consequences for the causes the company supported Publicly traded firms have a unique responsibility to investors These shareholders have invested in the firm with the expectation that they‘ll receive high share prices and dividends in return Over 50 percent of Americans invest in the stock market in the United States alone, many through the 401(k) retirement savings plans offered by their employers

Legal Dimension      

Marketers have a responsibility to understand and obey the laws and regulations of the communities in which they do business They must follow local, state, and federal laws Beyond this, U.S. companies are also subject to the laws and regulations of the foreign countries in which they do business CSR programs often begin as a way of reducing the likelihood of legal problems and public relations disasters, either at home or abroad The past two decades are littered with examples of firms—Enron, Arthur Andersen, and WorldCom, to name a few—whose failure to obey laws and regulations led to their demise Marketers must take a broad view of the legal dimension and its relationship to ethics

Ethical Dimension           325

Warren Buffett said, ―It takes 20 years to build a reputation and 5 minutes to ruin it‖ One way to ruin a reputation is to do unethical things Ethics are the moral standards expected by a society Marketers are responsible for a number of choices with an ethical dimension and will be held accountable for making the right decision Marketers who take the time to identify the ethical issue at hand and consider how their decision will affect each of the firm‘s stakeholders are far more likely to make the right decision and successfully resolve the problem The primary ethical consideration is the duty of a company to provide a product that lives up to the expectations of its customers The goal should be to design and produce a new product that is safe, has a reasonable service life, can be expected to perform in a reliable manner, and can be maintained without excessive costs Most important, companies have an implied obligation to provide safe products This obligation requires that companies: (1) Design and produce a new product with due care, to ensure that the

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product will not injure a customer because it is defective in some way (2) Test prototypes of the product before production begins (3) Regularly test samples of the finished products for possible defects, once production starts (4) Quickly notify the public and recall the product if there is a possibility of injury or death from a product Ethical issues can also arise if a company chooses not to develop important new products until an existing product has become obsolete or its patent has expired Planned obsolescence occurs when companies frequently launch new models of a product that make existing models obsolete The speed of technology change forces companies to constantly upgrade the functionality of their products, to keep up with competitors The most common ethical issue involves the Federal Trade Commission‘s definition of the term new The FTC‘s position is that the product in question must be entirely new or be ―changed in a functionally significant and substantial respect‖

Philanthropic Dimension  Connect Assignment 16-1

Corporate philanthropy is the act of organizations voluntarily donating some of their profits or resources to charitable causes Topic: Dimensions of Corporate Social Responsibility Complete the Connect exercise for Chapter 16 that focuses on the different dimensions of corporate social responsibility. By understanding the dynamics of each dimension, you should gain insight into how marketers can make strategic decisions to benefit the largest group of organizational stakeholders. CONNECT BACK Insight Questions:

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721. How can marketers focus on all four dimensions of corporate social responsibility simultaneously? (Answer: This focus is often expressed through a formal corporate social responsibility statement. It should be followed through with a broad CSR focus which requires good stakeholder management, good corporate leadership, and integration of CSR into corporate policy at all levels.) 722. Why is stakeholder responsibility the driving consideration across the four dimensions of corporate social responsibility? (Answer: Stakeholders influence the decisions and behavior of the company.) Lecture Notes: Developing a Successful Corporate Social Responsibility Program 

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The marketing department is typically responsible for developing an

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organization‘s corporate social responsibility program The process begins when a firm incorporates into its marketing strategy a focus on fulfilling economic, legal, ethical, and philanthropic dimensions The task of implementing a broad CSR focus through specific action is often difficult, but firms can use the following key elements to guide them through the process: (1) Good stakeholder management—marketers should seek significant interaction with the stakeholders who influence the decisions and behavior of the company (2) Good corporate leadership—the firm‘s leaders play a vital role in guiding their organization‘s business practices toward social responsibility (3) Integration of CSR into corporate policy at all levels and in all divisions of the firm CSR policies and procedures are most useful when they are written down, well understood, and endorsed by affected employees Small businesses, too, can embrace sustainability and corporate social responsibility, while also growing and strengthening the bottom line

Table 16.1

Insight Questions:

Table Information: Toyota’s Corporate Social Responsibility Statement

723. Who is typically responsible for developing an organization‘s corporate social responsibility program? (Answer: the marketing department) 724. How does the process of developing a corporate social responsibility statement begin? (Answer: It begins when a firm incorporates a focus on fulfilling the economic, legal, ethical, and philanthropic dimensions into its marketing strategy.) 725. Why is it important to have a corporate social responsibility statement written out for stakeholders to view? (Answer: The more transparent an organization is to its stakeholders, the easier it is to understand and support its mission.)

The focus for developing an organization‘s corporate social responsibility program is often expressed through a formal corporate 327

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social responsibility statement. The CSR statement for Toyota provides an example. Figure 16.2

Insight Questions: 726. What is the purpose of a CSR-informed policy? (Answer: The purpose is to guide decisions across the firm and throughout the world.) 727. How is creating a global vision for Toyota beneficial for their corporate social responsibility initiatives? (Answer: It enables Toyota to build strong connections with its stakeholders.)

Figure Information: The Framework for CSR-Informed Policy at Toyota The CSR policy at Toyota guides decisions across the firm and throughout the world. CSR policies and procedures are most useful when they are written down, well understood, and endorsed by affected employees. PowerPoint Slides

Lecture Notes: Analytics for Auditing a Corporate Social Responsibility Program 

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Once an organization has developed a corporate social responsibility program, the focus shifts to how well it is working

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This can be done by means of an audit that uses analytics to measure the success of the program Those who are responsible for a company‘s CSR program should consider the following crucial points as they measure the program‘s effectiveness (1) Include all significant stakeholder groups in the auditing process (2) Use both quantitative and qualitative measurements Such measures include return on investment (ROI) and any changes in employee turnover and brand image associated with the CSR program

Volunteerism  

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The Civic 50 is a scorecard of America‘s community-minded companies, produced by Bloomberg LP in partnership with the National Conference on Citizenship and Points of Light Corporate volunteerism is the policy or practice of employees volunteering their time or talents for charitable, educational, or other worthwhile activities, especially in the community Insight Questions: 728. How can a CSR audit lead to positive changes in the organization? (Answer: For example, UPS enlists an independent auditing firm to evaluate its progress on energy use and carbon emissions reductions; the auditing firm reports both the cost savings and the resource savings. Its sustainability report includes its total CO2 emissions, the carbon emissions per mile driven by its fleet, the ground packages delivered per gallon of fuel used, and the number of miles driven by its alternative fuel delivery vehicles. With such data, UPS can monitor its performance from year to year and also can benchmark its performance to that of other firms.) 729. Does a CSR audit allow an organization to better focus on its organizational resources? (Answer: For example, following an audit, PNC bank unified behind a single cause the multiple philanthropic and community service projects that had been spread across numerous business units. Regional managers had allocated their share of the budget within their own territories. PNC saw increased excitement from employees and pride in the program‘s alignment with the bank‘s community-development-oriented brand. By better focusing its organizational resources, PNC has built a well-funded CSR program that correlates better with its employees‘ motivations and is likely to produce more significant benefits to the communities

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the bank serves.) Explain how sustainable Key Terms: marketing contributes to a Sustainability firm‘s corporate social Sustainable marketing responsibility efforts. Consumerism Sustainable Marketing  Sustainability Vision  Sustainability Vision Statement  The Benefits of a Sustainability Vision  Consumerism PowerPoint Lecture Notes: Slides Sustainable Marketing LO 162

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Expanding the idea of social responsibility beyond moral and ethical dimensions to sustainability contributes to long-term competitive advantage The concept of sustainability first came to international attention in the 1987 United Nations report ―Our Common Future‖ The report laid the groundwork for a modern understanding of sustainability as a commitment to a lifestyle that meets the needs of the present without compromising the ability of future generations to meet their own needs Marketers looking to enhance the sustainability of their firm‘s goods and services need to form a partnership with customers, suppliers, and communities to increase the likelihood that the firm makes socially responsible marketing decisions Sustainable marketing is the process of creating, communicating, and delivering value to customers in a way that recognizes and incorporates the concept of sustainability One of the easiest ways for marketers to engage in sustainable marketing is to seek ways to cut costs, using sustainable practices as a guideline

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To get stakeholders to agree to sustainability initiatives, marketers must communicate a sustainability vision That vision should highlight the importance of the organization‘s sustainability efforts and the potential benefits for each stakeholder A sustainability vision begins by communicating how the company‘s industry and specific organization work within the larger social and natural world. It should answer important questions (1) How is the world enriched or diminished by our goods or services?

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(2) What is our major impact on society? (3) How does our overall business strategy reflect that impact?

Sustainability Vision Statement  

Many organizations find it useful to articulate the answers to these questions through a sustainability vision statement Firms who do so are often leaders in sustainable marketing throughout the world

The Benefits of a Sustainability Vision   

A sustainability vision can drive innovation within an organization Without a goal of sustainable marketing, the company‘s research and development efforts may not have led to the product, which has been well received by consumers and helped improve the firm‘s profit A commitment to sustainability also benefits employees; they tend to be engaged when they work for a company that expresses sustainability goals and holds itself accountable to its stakeholders

Consumerism             331

A new generation of consumers concerned with sustainability has begun to demand more from companies and marketers than just low prices These consumers also seek a higher meaning in the products they purchase Consumerism is a movement, made up of citizens and government entities, that focuses on protecting consumers and promoting their interests Consumerism also includes an effort on the part of consumers to avoid purchasing goods and services that have been produced in a way that is inconsistent with sustainable business practices Consumerism efforts increasingly occur both domestically and in international markets Marketers face the following five barriers to encouraging sustainable consumer behavior (1) Lack of awareness and knowledge—marketers can play an important role in overcoming this barrier (2) Negative perceptions—to combat this barrier, firms must design and produce sustainable products of high quality (3) Distrust—a firm caught misleading consumers over sustainability claims could damage its reputation for years to come, reducing profit and hurting the firm‘s long-term viability (4) High prices—if the firm can communicate the additional value the product offers, customers will be more willing to pay a high price for it (5) Low availability—marketing professionals must find ways to deliver products to the sustainability-minded customers who want to buy them A critical component of overcoming all of these barriers is communication

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Marketers must effectively communicate that sustainable consumer behavior doesn‘t always require sacrificing current needs and wants for some distant benefit

Connect Assignment 16- Topic: Marketing Strategies that Promote Sustainable Consumer Behavior 2 Complete the Connect exercise for Chapter 16 that focuses on marketing strategies that promote sustainable consumer behavior. By understanding the major barriers to sustainable consumer behavior and how to overcome them, you should gain insight into how marketers can most effectively influence consumer decisions and support sustainable behaviors. CONNECT BACK Insight Questions:

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730. Why is it important for marketers to create and influence strategies that promote sustainable consumer behavior? (Answer: Highlighting the importance of an organization‘s sustainability efforts and the potential benefits for each stakeholder can lead to financial success for the organization and, ultimately, satisfied consumers.) 731. How can marketers create sustainable consumer behaviors with the marketing mix? (Answer: A new generation of consumers concerned with sustainability has begun to demand more from companies and marketers than just low prices. These consumers also seek a higher meaning in the products they purchase. By communicating and delivering goods and services that add value to consumers‘ lives, marketers can address the product, place, and promotional elements of the marketing mix.) Explain the impact of Key Terms: environmentalism on Green market marketing success. Environmentalism Environmental Marketing Tactical greening Qual-strategic greening  Environmental Strategic greening Marketing Strategies Environmental regulations  Strategy 1: EcoEfficiency  Strategy 2: Beyond Compliance Leadership  Strategy 3: EcoBranding  Strategy 4: Environmental Cost Leadership  Strategy 5: © McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.

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Sustainable Value Innovation Benefits of Environmental Marketing Environmental Regulation Lecture Notes: Environmental Marketing      

Today, customers also care about a product‘s origins and how it is manufactured, packaged, and disposed of Firms sometimes mistake these emerging concerns as the domain of younger generations In reality, over half of all Baby Boomers consider themselves environmentally conscious shoppers The green market is a group of sustainability-oriented customers and the businesses that serve them Environmentalism is a movement of citizens, government agencies, and the business community that advocates the preservation, restoration, and improvement of the natural environment The green market doesn‘t seek only environmentally friendly goods; its members also want environmentally friendly services

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Environmental marketing (also called green marketing) activities can be divided into three levels: tactical greening, quasi-strategic greening, and strategic greening Tactical greening involves implementing limited change within a single area of the organization, such as purchasing or advertising; it represents relatively small actions aimed at instituting environmentally friendly practices within an organization Quasi-strategic greening usually involves more substantive changes in marketing actions as well as broad-based coordination among nonmarketing activities Strategic greening requires a holistic approach that integrates and coordinates all of the firm‘s activities on environmental issues across every functional area. It represents a fundamental shift in the way the firm markets its products The categories are governed by the overall environmental strategy a company chooses to implement

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Figure 16.3

Insight Questions:

Figure Information: Environmental Marketing Strategies

732. What are the two strategies that firms use when they want to lower costs? (Answer: eco-efficiency and environmental cost leadership) 733. What are the two strategies firms use when they want differentiation? (Answer: beyond compliance leadership and eco-branding) 734. What strategy aims to outperform the competition in an existing industry and create a new market space? (Answer: sustainable value innovation)

There are various degrees to which a firm can adopt an environmental focus. The categories are governed by the overall environmental strategy a company chooses to implement, depending on their competitive advantage and the overall marketing strategy they have adopted. PowerPoint Slides

Lecture Notes: Strategy 1: Eco-Efficiency 

An eco-efficiency strategy involves identifying environmentally friendly practices that also create cost savings and drive efficiencies throughout the organization.

Strategy 2: Beyond Compliance Leadership   

Most marketers who adopt a beyond-compliance leadership strategy focus on communicating to stakeholders the company‘s attempts to go beyond others in adopting environmentally friendly practices Marketers who select this strategy want to show customers that the company does more than the competition to implement an environmental strategy Unlike an eco-efficiency strategy, companies that employ a beyondcompliance leadership strategy typically care more about differentiating themselves from competitors than about keeping costs low

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An eco-branding strategy focuses on creating a credible green brand For this strategy to be effective, consumers must recognize a noticeable benefit from their purchase

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Strategy 4: Environmental Cost Leadership   

Firms seeking a price premium for their environmentally friendly products often adopt an environmental cost leadership strategy Green products sometimes cost more to produce than traditional products Thus, a leadership strategy that also seeks to lower costs may be the only way for a company to pay for its ecological investments and generate a profit for its other stakeholders

Strategy 5: Sustainable Value Innovation    Connect Assignment 16-3

Sustainable value innovation entails reshaping the industry through the creation of differential value for consumers It involves making contributions to society in the form of both reduced costs and reduced environmental impact Firms that engage in this strategy do not aim to outperform the competition in an existing industry; they seek to create a new market space Topic: Environmental Marketing Strategies Complete the Connect exercise for Chapter 16 that focuses on environmental marketing strategies. By understanding the types of strategies that might fit best with different products and market segments, you should be able to make better marketing strategy decisions for your organization. CONNECT BACK Insight Questions:

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735. What are some of the benefits of environmental marketing strategies? (Answer: Walmart‘s employees, for example, initiated a lifestyle and environmental improvement campaign that influenced learners to realize the importance of environmental sustainability, reduced carbon emissions, and consuming healthy and environmentally friendly, green food.) 736. What regulations are in place that marketers must consider when developing products? (Answer: Regulations range from the 1972 Clean Water Act, which was designed to reduce industrial pollution in U.S. waters, to the Clean Air Act, which places limits on the emission of greenhouse gases.) Lecture Notes: Benefits of Environmental Marketing 

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The benefits of an environmental marketing strategy extend to virtually all of a firm‘s stakeholders when the strategy is effectively integrated with the firm‘s general marketing plan

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With many consumers committed to ―going green,‖ environmentally focused organizations often benefit from favorable public opinion and loyal customers

Environmental Regulation 

Environmental regulations are the laws designed to protect the natural environment against undue harm by individuals and organizations  Thanks to the Paris Climate Agreement, signed by nearly all countries, countries aim to substantially reduce global greenhouse gas emissions to limit the global temperature increase in this century to 2 °C above preindustrial levels, with the further aim to limit it to 1.5 °C LO 16- Describe how companies can Key Terms: meet the challenges of 4 Sustainable design environmental and sustainable Triple bottom line (TBL) marketing on a global scale. Disintermediation Global Environmentalism and Sustainable sourcing Sustainability Near-shoring  Global Challenges and On-shoring Closed-loop supply chain Opportunities  Rationalizing Global Sustainability  Ethical and Sustainability Issues in New-Product Development and Supply Chain Management  New-Product Development  Supply Chain Design and Management  Facility Location  Sourcing  Transportation  Closed-Loop Supply Chains PowerPoint Lecture Notes: Slides Global Environmentalism and Sustainability   336

As globalization brings the world closer together, marketers must develop strategies that fit with expectations in both domestic and international markets, as well as investors in the company The strategic choice to become environmentally conscious and sustainable has proven to be profitable; it also is a good public relations decision, not just

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in the United States but across the globe Global Challenges and Opportunities       

Management consulting firm McKinsey surveyed nearly 2,000 executives from around the world for their opinions about sustainability Half of the executives considered sustainability very or extremely important in new product development, reputation building, and overall corporate strategy Political barriers in some countries can limit the availability of or increase prices on sustainable goods for consumers One political barrier, for example, is a lack of political will on the part of leaders to enact sustainability-focused legislation Marketers who actively scan the global environment can find foreign governments and policies that provide new opportunities for marketing sustainable products to global customers A majority of global business executives believe that sustainability is of significant importance to their business Marketers should be aware of how the location of those executives affects their opinions: almost two-thirds of decision makers in emerging markets, such as India and South Africa, consider sustainability critical to business

Rationalizing Global Sustainability   

The way marketers justify sustainable marketing varies in different parts of the world Sustainable and environmental strategies tend to work best when firms can maximize the benefits for all stakeholders concerned Two areas in which companies can make significant contributions to global environmentalism and sustainability are new product development and supply chain management

Ethical and Sustainability Issues in New-Product Development and Supply Chain Management New-Product Development        337

Sustainable product development is built upon the concept of sustainable design, which is the philosophy of building products and services in a way that eliminates negative environmental impacts Sustainable design can take various forms; a new product might (1) Use less energy to operate (or for a service, use less energy to perform) (2) Have less packaging that must be discarded when opened (3) Be able to be recycled when the consumer is finished using the product (4) Be able to be reused or refurbished When companies want to develop and market new products in an

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environmentally friendly way, they need to understand the impact that such products may have on the environment The triple bottom line (TBL) is one way of analyzing the sustainability of a new product The TBL includes economic, social, and environmental impacts to a company and to the world When companies comply with these three pillars they get such benefits as enhanced brand image, competitive advantage, and increased financial performance

Supply Chain Design and Management  

Organizations have choices when it comes to how they design their supply chains. These choices affect their sustainability profile Sourcing of materials and goods, transportation mode selection, facility locations, and the extent of its supply chain as a closed-loop system are examples of choices that affect sustainability

Facility Location            

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Where an organization locates its facilities can have a significant impact on its goal to operate a more sustainable supply chain Near-shoring or on-shoring can be strategies for locating production facilities Another strategy is to locate manufacturing facilities close to main suppliers or ask suppliers to set up operations close to the organization‘s facilities An ideal setup is to have suppliers colocate on the same grounds or share facilities with the manufacturing plant Companies can reduce transportation and material handling by eliminating a distribution center and, instead, shipping directly from a producer to a consumer This tactic, which cuts out the intermediary in a supply chain, is called disintermediation The key to the environmental effectiveness of such a design is the use of full vehicles to transport the products If products must be shipped in less-than-full-vehicle quantities, more shipments will be required The more distribution facilities a company has, the more likely it will be that full vehicle loads will not always be possible Another environmentally friendly facility-location tactic is to locate facilities near renewable-energy power sources, such as wind and solar Facilities can also be placed as near as possible to major highways and railroads which reduce the amount of travel for incoming and outgoing shipments Companies can use commercially available software or consulting companies to help in selecting areas for new facilities that can help them provide a more sustainable supply chain

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Sourcing          

In order to overcome the natural desire to purchase goods from the lowest cost producer, an organization must make a conscious commitment to sustainable sourcing Sustainable sourcing is a process of purchasing goods and services that takes into account the long-term impact on people, profits, and planet Sustainable sourcing balances costs with other considerations; it recognizes the trade-off between purchase and transportation costs and other costs to society Organizations involved in sustainable sourcing look not only at their own bottom line but also at the damage their way of sourcing is doing to society as a whole Purchasing managers are trained to identify and select suppliers that have a commitment to sustainability The use of ethical and environmental certifications for suppliers is increasing Sustainable sourcing also seeks to procure goods from locations as close as possible to where they will be consumed Near-shoring involves sourcing materials and finished products from countries that are close to, but not in, an organization‘s own country Organizations doing near-shoring select suppliers that are closer than previous suppliers On-shoring involves sourcing materials and finished products from suppliers in an organization‘s own country

Transportation   

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Some transportation modes and carriers result in reduced fuel consumption, which leads to lower emissions and less environmental impact For international shipments, moving goods in containers on large container ships is much more efficient and environmentally friendly than air-shipping products Container ships use the most polluting form of diesel fuel (called ―bunker fuel‖) due to volume: A large container ship can move a large amount of material at one time, whereas many aircraft would be needed to move the same amount of goods Container shipping is thus more environmentally friendly per unit of shipped product Domestic shipments generally involve railroads and trucking companies Railroads can move large amounts of goods over long distances with greater fuel efficiency and emissions compared to trucks The ―last mile‖ of the supply chain involves getting the product to the customer‘s location With the increase in online orders that are delivered directly to consumers‘ homes, there is further complication to delivering the ―last mile‖

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This part of the supply chain almost always involves a truck, usually a small pickup-and-delivery (PUD) unit such as UPS and FedEx use A few companies are trying to find better ways of delivering products that are also more environmentally friendly

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A closed-loop supply chain is a supply chain that maximizes value creation by recovering value from product or material returns The main idea behind a closed-loop supply chain is that fewer products or product components end up in a landfill or are improperly disposed of Products that are unwanted, damaged, defective, obsolete, or in need of recycling need to be handled in an environmentally friendly way These products show up back at the manufacturer or distribution center as returned goods The amount of returned goods is increasing due to e-commerce For a variety of reasons, products are finding their way back to manufacturers. Consumers return goods ordered online that did not meet their expectations Companies can do a number of things to establish a more sustainable supply chain through a closed-loop system (1) Repair returned goods and return them to the customer or sell them to another customer (2) Break down the returned goods and reuse component parts in new products or in the repair of other returned goods (3) Find new buyers for products that are unwanted by retailers or consumers but are otherwise perfectly usable (4) Use raw materials recovered from returned goods to generate power (5) Set up a method for consumers to return unwanted or depleted products or packaging that can then be refurbished or recycled A supply chain is designed so that when a product has to be returned it can be recycled, reused, sold, or broken down into component parts for use in other products

Instructor‘s Manual - Chapter 1 Today’s Professional

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Julianne Watt Director of Research and Strategy Development, RedRover Sales and Marketing Strategy Julianne Watt uses her authenticity to deliver her best work. As part of the leadership team, her decisions are formidable for the organization. She provides further insight in answering the following questions: 737. Describe your job. 738. How did you get your job? 739. What has been the most important thing in making you successful at your job? 740. What advice would you give soon-to-be graduates? 741. What do you consider your person brand to be?

Photo provided by Julianne Watt

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What personal skill sets will make you successful at your job? Do you think it is advantageous to keep a journal of feedback from your supervisors? Analyze how firms use social LO Key Terms: media to support their 16-5 Sustainable tourism corporate social responsibility efforts. The Impact of Social Media on Corporate Social Responsibility  Social Media-Based Corporate Social Responsibility Initiatives  Social Media and Global Sustainability PowerPoint Lecture Notes: Slides The Impact of Social Media on Corporate Social Responsibility    

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Marketing professionals need to listen, consider what they hear, and respond appropriately to the widest group of stakeholders possible Social media provide an effective means for communicating with an enthusiastic group of consumers Social media allow people to organize, collaborate, and accomplish shared goals in ways that would have been unimaginable several decades ago In response, companies have evolved from a reactive state, in which they responded to customer feedback about their CSR-related strategies, to a proactive approach

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Social media play an increasingly important role in how companies shape their CSR policies and present themselves as good corporate citizens to consumers and other stakeholders

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Marketers must be consistent in their social media presence Marketers should try to make each digital communication (tweet, Facebook post, etc.) something of value to their digital community

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Whether focused on the domestic or the global marketplace, the central tenets of social media—transparency, authenticity, and engagement with the community to build a strong and profitable organization—reflect the same strengths that make corporate social responsibility and sustainability such compelling business philosophies  Marketing professionals at all types of firms, from Fortune 500 companies to local small businesses, recognize that social media can serve as valuable tools in the effort to create, communicate, and deliver sustainable products and solutions to their stakeholders THINK LIKE A MARKETER How might CSR efforts vary because an organization has international relationships?

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Topic: Social Media Strategies to Promote Corporate Social Responsibility More and more firms turn to social media to convince potential customers that the organization operates in a socially responsible manner. This marketing action is in direct response to the growing number of consumers who say that what a company stands for affects what they buy. Panera Bread, a national restaurant chain, used social media platforms to promote its marketing campaign ―Live consciously. Eat deliciously.‖ Panera allowed some of its fans to preview the campaign several days before the general public. By interacting with consumers and spreading its message through social media, Panera‘s marketers advanced their goal of being an important part of the communities in which they operate. Well-established companies that have been in business for decades increasingly use social media to promote their CSR initiatives. For example, Bumble Bee Foods (founded in 1899) replaced much of its traditional promotional tools (e.g., television, radio, print advertising) with social media to promote its CSR theme ―BeeWell for Life®.‖ Bumble Bee Foods marketers used social media tools such as Facebook and blogs to engage consumers in their CSR activities in a more meaningful way. The Social Media in Action Connect exercise in Chapter 16 will let you develop specific social media strategies to promote the corporate social responsibility initiatives of an organization. By understanding the benefits and tools of different social media platforms, you will be able to spread the CSR activities of your organization and connect to consumers who pay attention to what a company stands for. CONNECT BACK Insight Questions: 742. Why is it important for firms to incorporate social media into their CSR initiatives? (Answer: Using social media is a proactive approach to respond to customer feedback because it capitalizes on an opportunity to communicate something of value to their digital community.) 743. What other organizations are using social media to engage consumers in their CSR activities? (Answer: One example is M&M‘s. M&M‘s parent company Mars Inc. uses Facebook to promote the firm‘s initiatives around sustainable cocoa production by telling the stories through the same M&M‘s characters it uses to promote the brand.) 744. Facebook, Twitter and Instagram, though integrated, function quite differently in how consumers use their platform. What kinds of social media activities can be integrated across all platforms? (Answer: Some examples include follower submission of ideas on

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developing green marketing ideas, weekly tips on improving life, educating, and promoting the brand to consumers. It is important to know how to best use each of the platforms.) 745. How can you elicit consumer participation on your social media platforms to increase the likelihood that a connection is made between the consumer, company, and CSR initiative? (Answer: The goal is to create interaction between the brand and consumer and social media therefore should be seen as two-way communication between the two parties that also allows a level of interaction between consumers. Asking questions and soliciting feedback are two ways to do this.) MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we have explored the impact corporate social responsibility has on organizations and marketing decisions. As part of developing your personal marketing plan, you will consider and develop a vision of your own social responsibilities. First you must understand whom you‘re responsible to. Who are the stakeholders in your career success? Your list might include those who are affected by your career path, including a current or future spouse, children, parents, or even the U.S. government that wants you to make enough money to pay back your student loans. Also think about places of worship, charitable causes, communities, and other entities your choices affect. Next, consider whether a firm or school‘s corporate social responsibility policies matter to you when choosing where to work or study. If they do, you should think about how you can best market yourself as the type of socially responsible professional who would be of interest to a company or school committed to corporate social responsibility. Being able to connect your socially responsible activities to those of a potential employer or graduate school program can be a subtle way to differentiate yourself from those competing against you for a position. Student Task: List the stakeholders in your career success. Next, list three to five social responsibilities that you consider part of your professional career. Explain each, and discuss the specific actions you would like to take relative to each over the next 5–10 years. How It Works: Host a series of Personal Marketing Plan classes succeeding course exams. Each student should build a Personal Marketing Plan and realize that everyone is a marketer. Supporting Materials: At the end of each chapter‘s Learning Worksheet is a place for students to immediately relate the course content to their Personal Marketing Plan. Additionally, a Personal Marketing Plan Worksheet is provided in the Instructor‘s online resources. The worksheet recaps the chapter‘s content and outlines the supporting topics for reference. It is recommended that the Personal Marketing Plan be a semester-long, graded project and outcome for the course. DISCUSSION QUESTIONS 344

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746. Identify a Fortune 500 company that you think is socially responsible. Why do you think this way about the company? Does your opinion influence your decision to purchase from the company? Are you willing to pay more to buy from a socially responsible firm? Why or why not? (Answer: To succeed, a CSR focus must be adopted and enacted by all of the functional areas within a firm, and General Electric (GE) is a good example of a firm that does this. In 2012, they launched a CSR portal to focus on three specific items: people, planet, and the economy. Their efforts to incorporate social responsibility are seen in their television advertisements, branding, and annual reports. With a holistic approach to social responsibility, it is easy to see how internal and external consumers are willing to pay a higher premium for a company so focused on finding solutions that make the world a better place.) 747. Imagine that you were put in charge of marketing at a small business in your hometown. What CSR or sustainability strategies would you consider for that business? Why did you select these strategies? (Answer: Because small businesses have a close relationship with the communities in which they exist, social responsibility efforts are seen in protecting jobs, skill development, infrastructure improvement, and choosing suppliers that also have similar visions of CSR. No matter the size, firms who engage in CSR efforts are more likely to succeed.) 748. What is the social responsibility of colleges and universities in the United States? Using the ethical decision-making framework, analyze a hypothetical decision your college or university made to raise tuition 10 percent next year. Use each of elements of the framework in your analysis. How would you, as a marketer for your university, present the reasons for the tuition increase to your stakeholders (students, legislators, communities, etc.)? (Answer: Universities have a societal commitment to sustain itself through a balance of state and self-generated funding. The public benefit of promoting education and knowledge to all, irrespective to race or religion, is done by ethically and sustainably being a good employer, and a tenant to the community who considers their environmental and ecological aspects and impacts. As time goes on, the costs to sustain these efforts increases and a therefore a tuition increase may be necessary.) 749. Which of the five barriers to sustainable consumer behavior discussed in this chapter most prevents you from engaging in more sustainable consumer behavior? Do you think your answer will be different in 25 years? (Answer: Open ended as students‘ responses will vary; with an increased use of social media, transparency in negative perceptions and distrust are more easily available to consumers. It is possible this could change as social media evolves.) 750. Describe how companies can approach environmental sustainability in the areas of new-product development and supply chain management. (Answer: Open ended as students‘ responses will vary; with new-product development, a product can be designed with sustainable design. Sustainable product development is built upon the concept of sustainable design, which is the philosophy of building products and services in a way that eliminates negative environmental impacts. Sustainable design can take various forms, including using less energy to operate, having less packaging that requires discarding, being able to recycle the product when finished, and being able to be reused or refurbished. A more sustainable supply chain includes options of near-shoring and onshoring for locating production facilities.) 345

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751. Provide two examples of organizations that use social media as part of their corporate social responsibility actions. What do they do well through social media? What would you suggest they improve? Based on your experience as a consumer, what social media outlet is most effective for communicating a firm's CSR efforts (e.g., Twitter, Facebook, YouTube, etc.)? Why? (Answer: Open ended as students‘ responses will vary; For example, GE used YouTube to share a video featuring a catchy techno soundtrack for its Brilliant Machines campaign. With more than 300,000 views, GE‘s marketing message of industrial transportation with reduced environmental impact reached a wide audience. M&M‘s parent company Mars Inc. uses Facebook to promote the firm‘s initiatives around sustainable cocoa production by telling the stories through the same M&M‘s characters it uses to promote the brand.) SOCIAL MEDIA APPLICATION Pick (a) a for-profit firm from which you have bought something in the past month and (b) a nonprofit organization to which you might consider donating money (a charity, church, hospital, etc.). Analyze the social media presence of both organizations across all of the platforms that they employ, using the following questions and activities as a guide: 752. What does the for-profit company do on social media to promote its corporate social responsibility activities? Is it enough to influence you to become a customer of the firm? Explain your answer. (Answer: Open ended as students‘ responses will vary; to evaluate both organizations‘ CSR efforts on social media, students should consider who in the organization is posting to their social media profiles to promote CSR, the frequency of CSR related posts, if interaction is enticed with the posts, and how other consumers are responding by viewing the comments.) 753. What does the nonprofit organization do across its social media platforms to inform potential donors about its cause? Is it enough to influence your decision to donate to the organization? Explain your answer. (Answer: Open ended as students‘ responses will vary; students should consider the consistency in messaging between platforms, the interactiveness in posts to entice influence, and the followership of each platform.) 754. If you were the marketing manager for both organizations, what two specific things would you recommend each do to improve their social media efforts? (Answer: Open ended as students‘ responses will vary; consider the frequency of posts, creating interactive posts that ask questions and feature participants celebrating the cause in photos and videos, and social media campaigns that are ongoing despite their other marketing efforts.) MARKETING ANALYTICS EXERCISE Have students complete the Connect exercise for Chapter 16 that focuses on measuring the success of an organization‘s corporate social responsibility (CSR) program. ETHICAL CHALLENGE

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One of the most complex ethical challenges facing for-profit organizations today is balancing their goal of being socially responsible with their obligation to shareholders to earn a profit. Firms generally hire executives to increase profits. No matter how much good a firm does in its community, if it doesn‘t have a healthy bottom line, the executive may not be seen as a success. This is not unlike a college football coach who makes sure his players graduate every year, but consistently has a losing record. Odds are he won‘t remain the coach very long, even though he does a number of socially responsible things. Executives at privately held companies have the right to make socially responsible decisions that might sacrifice revenue. Executives at publicly held companies have to answer to their shareholders, who expect profits and share prices to grow. Marketing executives at public companies frequently face situations that force them to choose between responsible action and the bottom line. Please use the ethical decision-making framework to answer the following questions: 755. Assume you are a shareholder in a publicly traded retail firm. Would you want that firm to raise pay rates for its employees to stay on pace with the inflation rate even if doing so would drive product prices up and profit margins down? Explain your answer. (Answer: Open ended as students‘ responses will vary; part of being socially responsible is taking care of employees‘ needs, which is often necessary. Are there other options the company can entertain that provide similar fulfillment to employees?) 756. Assume you are a shareholder for a manufacturing company in a small town far from your home. Would you be willing to trade polluting the environment in that one town for an increase in firm profits? Explain your answer. If the CEO of the company decided not to pollute the environment and profits decreased as a result, how should the firm market that decision to you and other stakeholders? (Answer: Open ended as students‘ responses will vary; making money at the sake of a community‘s health may not be worth the investment. As a stakeholder, perhaps you should question why the company thinks this is a viable option.) 757. Assume you are a shareholder in a publicly traded beverage company. Would you support the company's plan to advertise to children even if its beverage is unhealthy for children? Explain your answer. (Answer: Open ended as students‘ responses will vary; making money at the sake of a child‘s health may not be worth the investment. As a stakeholder, perhaps you should question why the company thinks this is a viable option.) VIDEO CASE Please go to Connect to access the video cases featuring Williams, a Fortune 500 energy company, and the Hershey Company, a Fortune 500 chocolate manufacturer, that accompany this chapter. PODCAST Please go to Connect to access the podcast that accompanies this chapter. CAREER TIPS 347

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To shed thought on choosing a career based on potential for career growth and success, follow these tips. Dr. Shane Hunt, Dean of the College of Business Administration at Idaho State University, offers the following four career tips to help you choose the right company to work for after graduation. 758. Research the best companies to work for. 759. Talk to employees of the organization. 760. Ask good questions. 761. Understand the different benefit packages. Review with students:  What makes a company a good employer?  What benefits do you hope to receive or need from your employer?

Chapter 16: Social Responsibility and Sustainability

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Students should use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-291 Describe the features of a successful corporate social responsibility program. LO 1-292 Explain how sustainable marketing contributes to a firm‘s corporate social responsibility efforts. LO 1-293 Explain the impact of environmentalism on marketing success. LO 1-294 Describe how companies can meet the challenges of environmental and sustainable marketing on a global scale. LO 1-295 Analyze how firms use social media to support their corporate social responsibility efforts. KEY TERMS closed-loop supply chain consumerism corporate philanthropy 348

corporate social responsibility (CSR) corporate volunteerism

disintermediation environmentalism environmental regulations

Instructor‘s Manual - Chapter 1 ethics green market near-shoring on-shoring quasi-strategic greening

stakeholder responsibility strategic greening sustainability sustainable design sustainable marketing

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sustainable sourcing sustainable tourism triple bottom line (TBL) tactical greening

THOUGHT-PROVOKING ACTIVITY Set 1: What does it mean for a company to be socially responsible? Provide an example of a company you know that is strong or weak in this area. How does this affect consumers?

Set 2: Environmental marketing can be divided into three categories. What are they? Provide an example of each.

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environmental sustainability and pleasing investors and funds that buy stock in such companies Consumers increasingly choose to buy from firms that value and support the same causes they do As a result, firms have begun to accept responsibility for balancing profitability with social well-being when determining their success Success begins with the quality of the relationships that a company develops with its customers and other stakeholders Corporate social responsibility (CSR) refers to an organization‘s obligation to maximize its positive impact and minimize its negative impact on society CSR has been shown to benefit companies in many ways, including improving employee retention and enhancing the company‘s brand image Within many organizations, the marketing department is primarily responsible for the ideas and strategies that comprise a CSR program, making this topic an important part of your marketing education CSR includes economic, legal, and ethical accountability to stakeholders and society in general Stakeholder responsibility focuses on the obligations an organization has to its stakeholders, those who can affect or are affected by a firm‘s actions Stakeholder responsibility is the driving consideration across the four dimensions of corporate social responsibility: economic, legal, ethical, and philanthropic

THINK LIKE A MARKETER As a consumer, do you prefer to do business with an organization that works toward their CSR efforts? (Answer: Open ended) Figure 16.1 Dimensions of Corporate Social Responsibility INSIGHT QUESTIONS What is the foundation of corporate social responsibility? (Answer: Economic responsibility—to be profitable. Every organization, whether for or nonprofit, has a responsibility to be economically sustainable.) How does corporate social responsibility benefit a company? (Answer: It assists in improving employee retention as well as the company‘s brand image. Employees may feel it provides purpose for the community and its stakeholders.) Economic Dimension  For-profit firms have a responsibility to their stakeholders to be profitable  Without profits, a business cannot survive 350

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A failed business hurts employees, investors, and communities In addition, it can no longer engage in any type of philanthropy, which has economic consequences for the causes the company supported  Publicly traded firms have a unique responsibility to investors  These shareholders have invested in the firm with the expectation that they‘ll receive high share prices and dividends in return  Over 50 percent of Americans invest in the stock market in the United States alone, many through the 401(k) retirement savings plans offered by their employers Legal Dimension  Marketers have a responsibility to understand and obey the laws and regulations of the communities in which they do business

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They must follow local, state, and federal laws Beyond this, U.S. companies are also subject to the laws and regulations of the foreign countries in which they do business  CSR programs often begin as a way of reducing the likelihood of legal problems and public relations disasters, either at home or abroad  The past two decades are littered with examples of firms—Enron, Arthur Andersen, and WorldCom, to name a few—whose failure to obey laws and regulations led to their demise  Marketers must take a broad view of the legal dimension and its relationship to ethics Ethical Dimension  Warren Buffett said, ―It takes 20 years to build a reputation and five minutes to ruin it‖  One way to ruin a reputation is to do unethical things  Ethics are the moral standards expected by a society  Marketers are responsible for a number of choices with an ethical dimension and will be held accountable for making the right decision  Marketers who take the time to identify the ethical issue at hand and consider how their decision will affect each of the firm‘s stakeholders are far more likely to make the right decision and successfully resolve the problem  The primary ethical consideration is the duty of a company to provide a product that lives up to the expectations of its customers  The goal should be to design and produce a new product that is safe, has a reasonable service life, can be expected to perform in a reliable manner, and can be maintained without excessive costs  Most importantly, companies have an implied obligation to provide safe products  This obligation requires that companies:  (1) Design and produce a new product with due care, to ensure that the product will not injure a customer because it is defective in some way  (2) Test prototypes of the product before production begins  (3) Regularly test samples of the finished products for possible defects, once production starts  (4) Quickly notify the public and recall the product if there is a possibility of injury or death from a product  Ethical issues can also arise if a company chooses not to develop important new products until an existing product has become obsolete or its patent has expired  Planned obsolescence occurs when companies frequently launch new models of a product that make existing models obsolete  The speed of technology change forces companies to constantly upgrade the functionality of their products, to keep up with competitors

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The most common ethical issue involves the Federal Trade Commission‘s definition of the term new  The FTC‘s position is that the product in question must be entirely new or be ―changed in a functionally significant and substantial respect‖ Philanthropic Dimension  Corporate philanthropy is the act of organizations voluntarily donating some of their profits or resources to charitable causes CONNECT BACK: Reference Connect Assignment 16-1 How can marketers focus on all four dimensions of corporate social responsibility simultaneously? (Answer: This focus is often expressed through a formal corporate social responsibility statement. It should be followed through with a broad CSR focus, which requires good stakeholder management, good corporate leadership, and integration of CSR into corporate policy at all levels.) Why is stakeholder responsibility the driving consideration across the four dimensions of corporate social responsibility? (Answer: Stakeholders influence the decisions and behavior of the company.) Developing a Successful Corporate Social Responsibility Program  The marketing department is typically responsible for developing an organization‘s corporate social responsibility program  The process begins when a firm incorporates into its marketing strategy a focus on fulfilling economic, legal, ethical, and philanthropic dimensions  The task of implementing a broad CSR focus through specific action is often difficult, but firms can use the following key elements to guide them through the process:  (1) Good stakeholder management—marketers should seek significant interaction with the stakeholders who influence the decisions and behavior of the company  (2) Good corporate leadership—the firm‘s leaders play a vital role in guiding their organization‘s business practices toward social responsibility  (3) Integration of CSR into corporate policy at all levels and in all divisions of the firm.  CSR policies and procedures are most useful when they are written down, well understood, and endorsed by affected employees  Small businesses, too, can embrace sustainability and corporate social responsibility, while also growing and strengthening the bottom line

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Table 16.1 Toyota’s Corporate Social Responsibility Statement INSIGHT QUESTIONS Who is typically responsible for developing an organization‘s corporate social responsibility program? (Answer: the marketing department) How does the process of developing a corporate social responsibility statement begin? (Answer: It begins when a firm incorporates a focus on fulfilling the economic, legal, ethical, and philanthropic dimensions into its marketing strategy.) Why is it important to have a corporate social responsibility statement written out for stakeholders to view? (Answer: The more transparent an organization is to its stakeholders, the easier it is to understand and support its mission.) Figure 16.2 The Framework for CSR-Informed Policy at Toyota INSIGHT QUESTIONS What is the purpose of a CSR-informed policy? (Answer: The purpose is to guide decisions across the firm and throughout the world.) How is creating a global vision for Toyota beneficial for their corporate social responsibility initiatives? (Answer: It enables Toyota to build strong connections with its stakeholders.) Analytics for Auditing a Corporate Social Responsibility Program  Once an organization has developed a corporate social responsibility program, the focus shifts to how well it is working  This can be done by means of an audit that uses analytics to measure the success of the program  Those who are responsible for a company‘s CSR program should consider the following crucial points as they measure the program‘s effectiveness:  (1) Include all significant stakeholder groups in the auditing process  (2) Use both quantitative and qualitative measurements  Such measures include return on investment (ROI) and any changes in employee turnover and brand image associated with the CSR program Volunteerism  The Civic 50 is a scorecard of America‘s community-minded companies, produced by Bloomberg LP in partnership with the National Conference on Citizenship and Points of Light

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Corporate volunteerism is the policy or practice of employees volunteering their time or talents for charitable, educational, or other worthwhile activities, especially in the community

Marketing Analytics INSIGHT QUESTIONS How can a CSR audit lead to positive changes in the organization? (Answer: For example, UPS enlists an independent auditing firm to evaluate its progress on energy use and carbon emissions reductions; the auditing firm reports both the cost savings and the resource savings. Its sustainability report includes its total CO2 emissions, the carbon emissions per mile driven by its fleet, the ground packages delivered per gallon of fuel used, and the number of miles driven by its alternative fuel delivery vehicles. With such data, UPS can monitor its performance from year to year and also benchmark its performance against that of other firms.) Does a CSR audit allow an organization to better focus on its organizational resources? (Answer: For example, following an audit, PNC Bank unified behind a single cause the multiple philanthropic and community service projects that had been spread across numerous business units. Regional managers had allocated their share of the budget within their own territories. PNC saw increased excitement from employees and pride in the program‘s alignment with the bank‘s community-development-oriented brand. By better focusing its organizational resources, PNC has built a well-funded CSR program that correlates better with its employees‘ motivations and is likely to produce more significant benefits to the communities the bank serves.) LO16-2: Explain how sustainable marketing contributes to a firm’s corporate social responsibility efforts. Sustainable Marketing  Expanding the idea of social responsibility beyond moral and ethical dimensions to sustainability contributes to long-term competitive advantage  The concept of sustainability first came to international attention in the 1987 United Nations report ―Our Common Future‖  The report laid the groundwork for a modern understanding of sustainability as a commitment to a lifestyle that meets the needs of the present without compromising the ability of future generations to meet their own needs  Marketers looking to enhance the sustainability of their firm‘s goods and services need to form a partnership with customers, suppliers, and communities to increase the likelihood that the firm makes socially responsible marketing decisions  Sustainable marketing is the process of creating, communicating, and delivering value to customers in a way that recognizes and incorporates the concept of sustainability  One of the easiest ways for marketers to engage in sustainable marketing is to seek ways to cut costs, using sustainable practices as a guideline

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Sustainability Vision  To get stakeholders to agree to sustainability initiatives, marketers must communicate a sustainability vision.  That vision should highlight the importance of the organization‘s sustainability efforts and the potential benefits for each stakeholder  A sustainability vision begins by communicating how the company‘s industry and specific organization work within the larger social and natural world. It should answer important questions:  (1) How is the world enriched or diminished by our goods or services?  (2) What is our major impact on society?  (3) How does our overall business strategy reflect that impact? Sustainability Vision Statement  Many organizations find it useful to articulate the answers to these questions through a sustainability vision statement  Firms who do so are often leaders in sustainable marketing throughout the world The Benefits of a Sustainability Vision  A sustainability vision can drive innovation within an organization  Without a goal of sustainable marketing, the company‘s research and development efforts may not have led to the product, which has been well received by consumers and helped improve the firm‘s profit  A commitment to sustainability also benefits employees; they tend to be engaged when they work for a company that expresses sustainability goals and holds itself accountable to its stakeholders Consumerism  A new generation of consumers concerned with sustainability has begun to demand more from companies and marketers than just low prices  These consumers also seek a higher meaning in the products they purchase  Consumerism is a movement, made up of citizens and government entities, that focuses on protecting consumers and promoting their interests  Consumerism also includes an effort on the part of consumers to avoid purchasing goods and services that have been produced in a way that is inconsistent with sustainable business practices  Consumerism efforts increasingly occur both domestically and in international markets  Marketers face the following five barriers to encouraging sustainable consumer behavior:  (1) Lack of awareness and knowledge—marketers can play an important role in overcoming this barrier  (2) Negative perceptions—to combat this barrier, firms must design and produce sustainable products of high quality

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(3) Distrust—a firm caught misleading consumers over sustainability claims could damage its reputation for years to come, reducing profit and hurting the firm‘s long-term viability (4) High prices—if the firm can communicate the additional value the product offers, customers will be more willing to pay a high price for it (5) Low availability—marketing professionals must find ways to deliver products to the sustainability-minded customers who want to buy them A critical component of overcoming all of these barriers is communication Marketers must effectively communicate that sustainable consumer behavior doesn‘t always require sacrificing current needs and wants for some distant benefit

CONNECT BACK: Reference Connect Assignment 16-2 Why is it important for marketers to create and influence strategies that promote sustainable consumer behavior? (Answer: Highlighting the importance of an organization‘s sustainability efforts and the potential benefits for each stakeholder can lead to financial success for the organization and, ultimately, satisfied consumers.) How can marketers create sustainable consumer behaviors with the marketing mix? (Answer: A new generation of consumers concerned with sustainability has begun to demand more from companies and marketers than just low prices. These consumers also seek a higher meaning in the products they purchase. By communicating and delivering goods and services that add value to consumers‘ lives, marketers can address the product, place, and promotional elements of the marketing mix.) LO16-3: Explain the impact of environmentalism on marketing success. Environmental Marketing  Today, customers also care about a product‘s origins and how it is manufactured, packaged, and disposed of  Firms sometimes mistake these emerging concerns as the domain of younger generations  In reality, over half of all Baby Boomers consider themselves environmentally conscious shoppers  The green market is a group of sustainability-oriented customers and the businesses that serve them  Environmentalism is a movement of citizens, government agencies, and the business community that advocates the preservation, restoration, and improvement of the natural environment

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The green market doesn‘t seek only environmentally friendly goods; its members also want environmentally friendly services Environmental Marketing Strategies  Environmental marketing (also called green marketing) activities can be divided into three levels: tactical greening, quasi-strategic greening, and strategic greening  Tactical greening involves implementing limited change within a single area of the organization, such as purchasing or advertising; it represents relatively small actions aimed at instituting environmentally friendly practices within an organization  Quasi-strategic greening usually involves more substantive changes in marketing actions as well as broad-based coordination among nonmarketing activities  Strategic greening requires a holistic approach that integrates and coordinates all of the firm‘s activities on environmental issues across every functional area. It represents a fundamental shift in the way the firm markets its products  The categories are governed by the overall environmental strategy a company chooses to implement Figure 16.3 Environmental Marketing Strategies INSIGHT QUESTIONS What are the two strategies that firms use when they want to lower costs? (Answer: eco-efficiency and environmental cost leadership) What are the two strategies firms use when they want differentiation? (Answer: beyond compliance leadership and eco-branding) What strategy aims to outperform the competition in an existing industry and create a new market space? (Answer: sustainable value innovation) Strategy 1: Eco-Efficiency  An eco-efficiency strategy involves identifying environmentally friendly practices that also create cost savings and drive efficiencies throughout the organization. Strategy 2: Beyond Compliance Leadership  Most marketers who adopt a beyond-compliance leadership strategy focus on communicating to stakeholders the company‘s attempts to go beyond others in adopting environmentally friendly practices  Marketers who select this strategy want to show customers that the company does more than the competition to implement an environmental strategy

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Unlike an eco-efficiency strategy, companies that employ a beyond-compliance leadership strategy typically care more about differentiating themselves from competitors than about keeping costs low Strategy 3: Eco-Branding  An eco-branding strategy focuses on creating a credible green brand  For this strategy to be effective, consumers must recognize a noticeable benefit from their purchase Strategy 4: Environmental Cost Leadership  Firms seeking a price premium for their environmentally friendly products often adopt an environmental cost leadership strategy  Green products sometimes cost more to produce than traditional products  Thus, a leadership strategy that also seeks to lower costs may be the only way for a company to pay for its ecological investments and generate a profit for its other stakeholders Strategy 5: Sustainable Value Innovation  Sustainable value innovation entails reshaping the industry through the creation of differential value for consumers  It involves making contributions to society in the form of both reduced costs and reduced environmental impact  Firms that engage in this strategy do not aim to outperform the competition in an existing industry; they seek to create a new market space CONNECT BACK: Reference Connect Assignment 16-3 What are some of the benefits of environmental marketing strategies? (Answer: Walmart‘s employees, for example, initiated a lifestyle and environmental improvement campaign that influenced learners to realize the importance of environmental sustainability, reduced carbon emissions, and consuming healthy and environmentally friendly, green food.) What regulations are in place that marketers must consider when developing products? (Answer: Regulations range from the 1972 Clean Water Act, which was designed to reduce industrial pollution in U.S. waters, to the Clean Air Act, which places limits on the emission of greenhouse gases.) Benefits of Environmental Marketing  The benefits of an environmental marketing strategy extend to virtually all of a firm‘s stakeholders when the strategy is effectively integrated with the firm‘s general marketing plan

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With many consumers committed to ―going green,‖ environmentally focused organizations often benefit from favorable public opinion and loyal customers Environmental Regulation  Environmental regulations are the laws designed to protect the natural environment against undue harm by individuals and organizations  Thanks to the Paris Climate Agreement, signed by nearly all countries, countries aim to substantially reduce global greenhouse gas emissions to limit the global temperature increase in this century to 2 °C above preindustrial levels, with the further aim to limit it to 1.5 °C LO16-4: Describe how companies can meet the challenges of environmental and sustainable marketing on a global scale. Global Environmentalism and Sustainability  As globalization brings the world closer together, marketers must develop strategies that fit with expectations in both domestic and international markets, as well as investors in the company  The strategic choice to become environmentally conscious and sustainable has proven to be profitable; it also is a good public relations decision, not just in the United States but across the globe Global Challenges and Opportunities  Management consulting firm McKinsey surveyed nearly 2,000 executives from around the world for their opinions about sustainability  Half of the executives considered sustainability very or extremely important in new product development, reputation building, and overall corporate strategy  Political barriers in some countries can limit the availability of or increase the price of sustainable goods for consumers  One political barrier, for example, is a lack of political will on the part of leaders to enact sustainability-focused legislation  Marketers who actively scan the global environment can find foreign governments and policies that provide new opportunities for marketing sustainable products to global customers  A majority of global business executives believe that sustainability is of significant importance to their business  Marketers should be aware of how the location of those executives affects their opinions: almost two-thirds of decision makers in emerging markets, such as India and South Africa, consider sustainability critical to business

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Rationalizing Global Sustainability  The way marketers justify sustainable marketing varies in different parts of the world  Sustainable and environmental strategies tend to work best when firms can maximize the benefits for all stakeholders concerned  Two areas in which companies can make significant contributions to global environmentalism and sustainability are new product development and supply chain management Ethical and Sustainability Issues in New Product Development and Supply Chain Management New Product Development  Sustainable product development is built upon the concept of sustainable design, which is the philosophy of building products and services in a way that eliminates negative environmental impacts  Sustainable design can take various forms; a new product might  (1) Use less energy to operate (or for a service, use less energy to perform)  (2) Have less packaging that must be discarded when opened  (3) Be able to be recycled when the consumer is finished using the product  (4) Be able to be reused or refurbished  When companies want to develop and market new products in an environmentally friendly way, they need to understand the impact that such products may have on the environment.  The triple bottom line (TBL) is one way of analyzing the sustainability of a new product.  The TBL includes economic, social, and environmental impacts to a company and to the world.  When companies comply with these three pillars, they get such benefits as enhanced brand image, competitive advantage, and increased financial performance Supply Chain Design and Management  Organizations have choices when it comes to how they design their supply chains. These choices affect their sustainability profile  Sourcing of materials and goods, transportation mode selection, facility locations, and the extent of its supply chain as a closed-loop system are examples of choices that affect sustainability Facility Location  Where an organization locates its facilities can have a significant impact on its goal to operate a more sustainable supply chain  Near-shoring or on-shoring can be strategies for locating production facilities  Another strategy is to locate manufacturing facilities close to main suppliers or ask suppliers to set up operations close to the organization‘s facilities 361

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An ideal setup is to have suppliers co-locate on the same grounds or share facilities with the manufacturing plant  Companies can reduce transportation and material handling by eliminating a distribution center and instead shipping directly from a producer to a consumer  This tactic, which cuts out the intermediary in a supply chain, is called disintermediation.  The key to the environmental effectiveness of such a design is the use of full vehicles to transport the products  If products must be shipped in less-than-full-vehicle quantities, more shipments will be required  The more distribution facilities a company has, the more likely it will be that full vehicle loads will not always be possible  Another environmentally friendly facility-location tactic is to locate facilities near renewableenergy power sources, such as wind and solar  Facilities can also be placed as near as possible to major highways and railroads which reduce the amount of travel for incoming and outgoing shipments  Companies can use commercially available software or consulting companies to help in selecting areas for new facilities that can help them provide a more sustainable supply chain Sourcing  In order to overcome the natural desire to purchase goods from the lowest-cost producer, an organization must make a conscious commitment to sustainable sourcing  Sustainable sourcing is a process of purchasing goods and services that takes into account the long-term impact on people, profits, and planet  Sustainable sourcing balances costs with other considerations; it recognizes the trade-off between purchase and transportation costs and other costs to society  Organizations involved in sustainable sourcing look not only at their own bottom line but also at the damage their way of sourcing is doing to society as a whole  Purchasing managers are trained to identify and select suppliers that have a commitment to sustainability  The use of ethical and environmental certifications for suppliers is increasing  Sustainable sourcing also seeks to procure goods from locations as close as possible to where they will be consumed  Near-shoring involves sourcing materials and finished products from countries that are close to, but not in, an organization‘s own country  Organizations doing near-shoring select suppliers that are closer than previous suppliers  On-shoring involves sourcing materials and finished products from suppliers in an organization‘s own country

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Transportation  Some transportation modes and carriers result in reduced fuel consumption, which leads to lower emissions and less environmental impact  For international shipments, moving goods in containers on large container ships is much more efficient and environmentally friendly than air-shipping products  Container ships use the most polluting form of diesel fuel (called ―bunker fuel‖) due to volume: a large container ship can move a large amount of material at one time, whereas many aircraft would be needed to move the same amount of goods  Container shipping is thus more environmentally friendly per unit of shipped product  Domestic shipments generally involve railroads and trucking companies  Railroads can move large amounts of goods over long distances with greater fuel efficiency and emissions compared to trucks  The ―last mile‖ of the supply chain involves getting the product to the customer‘s location.  With the increase in online orders that are delivered directly to consumers‘ homes, there is further complication to delivering the ―last mile‖  This part of the supply chain almost always involves a truck, usually a small pickup-anddelivery (PUD) unit such as UPS and FedEx use  A few companies are trying to find better ways of delivering products that are also more environmentally friendly Closed-Loop Supply Chains  A closed-loop supply chain is a supply chain that maximizes value creation by recovering value from product or material returns  The main idea behind a closed-loop supply chain is that fewer products or product components end up in a landfill or are improperly disposed of  Products that are unwanted, damaged, defective, obsolete, or in need of recycling need to be handled in an environmentally friendly way  These products show up back at the manufacturer or distribution center as returned goods  The amount of returned goods is increasing due to e-commerce  For a variety of reasons, products are finding their way back to manufacturers. Consumers return goods ordered online that did not meet their expectations  Companies can do a number of things to establish a more sustainable supply chain through a closed-loop system  (1) Repair the returned goods and return them to the customer or sell them to another customer  (2) Break down the returned goods and reuse component parts in new products or in the repair of other returned goods  (3) Find new buyers for products that are unwanted by retailers or consumers but are otherwise perfectly usable  (4) Use raw materials recovered from returned goods to generate power 363

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(5) Set up a method for consumers to return unwanted or depleted products or packaging that can then be refurbished or recycled A supply chain is designed so that when a product has to be returned, it can be recycled, reused, sold, or broken down into component parts for use in other products

TODAY’S PROFESSIONAL NOTES Julianne Watt, Director of Research and Strategy Development, RedRover Sales and Marketing Strategy What personal skill sets will make you successful at your job? Do you think it is advantageous to keep a journal of feedback from your supervisors? LO16-5: Analyze how firms use social media to support their corporate social responsibility efforts. The Impact of Social Media on Corporate Social Responsibility  Marketing professionals need to listen, consider what they hear, and respond appropriately to the widest group of stakeholders possible  Social media provide an effective means for communicating with an enthusiastic group of consumers  Social media allow people to organize, collaborate, and accomplish shared goals in ways that would have been unimaginable several decades ago  In response, companies have evolved from a reactive state, in which they responded to customer feedback about their CSR-related strategies, to a proactive approach  Social media play an increasingly important role in how companies shape their CSR policies and present themselves as good corporate citizens to consumers and other stakeholders Social Media-Based Corporate Social Responsibility Initiatives  Marketers must be consistent in their social media presence  Marketers should try to make each digital communication (tweet, Facebook post, etc.) something of value to their digital community Social Media and Global Sustainability  Whether focused on the domestic or global marketplace, the central tenets of social media— transparency, authenticity, and engagement with the community to build a strong and profitable organization—reflect the same strengths that make corporate social responsibility and sustainability such compelling business philosophies  Marketing professionals at all types of firms, from Fortune 500 companies to local small businesses, recognize that social media can serve as valuable tools in the effort to create, communicate, and deliver sustainable products and solutions to their stakeholders 364

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THINK LIKE A MARKETER How might CSR efforts vary because an organization has international relationships? (Answer: Open ended) CONNECT BACK: Reference Connect Assignment 16-4 Why is it important for firms to incorporate social media into their CSR initiatives? (Answer: Using social media is a proactive approach to respond to customer feedback because it capitalizes on an opportunity to communicate something of value to their digital community.) What other organizations are using social media to engage consumers in their CSR activities? (Answer: One example is M&M‘s. M&M‘s parent company Mars Inc. uses Facebook to promote the firm‘s initiatives around sustainable cocoa production by telling the stories through the same M&M‘s characters it uses to promote the brand.) Facebook, Twitter, and Instagram, though integrated, function quite differently in how consumers use their platform. What kinds of social media activities can be integrated across all platforms? (Answer: Some examples include follower submission of ideas on developing green marketing ideas, weekly tips on improving life, educating, and promoting the brand to consumers. It is important to know how to best use each of the platforms.) How can you elicit consumer participation on your social media platforms to increase the likelihood that a connection is made between the consumer, company, and CSR initiative? (Answer: The goal is to create interaction between the brand and the consumer and social media should therefore be seen as two-way communication between the two parties that also allows a level of interaction between consumers. Asking questions and soliciting feedback are two ways to do this.)

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MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we have explored the impact corporate social responsibility has on organizations and marketing decisions. As part of developing your personal marketing plan, you will consider and develop a vision of your own social responsibilities. First, you must understand whom you‘re responsible to. Who are the stakeholders in your career success? Your list might include those who are affected by your career path, including a current or future spouse, children, parents, or even the U.S. government that wants you to make enough money to pay back your student loans. Also think about places of worship, charitable causes, communities, and other entities your choices affect. Next, consider whether a firm or school‘s corporate social responsibility policies matter to you when choosing where to work or study. If they do, you should think about how you can best market yourself as the type of socially responsible professional who would be of interest to a company or school committed to corporate social responsibility. Being able to connect your socially responsible activities to those of a potential employer or graduate school program can be a subtle way to differentiate yourself from those competing against you for a position. Student Task: List the stakeholders in your career success. Next, list three to five social responsibilities that you consider part of your professional career. Explain each, and discuss the specific actions you would like to take relative to each over the next 5–10 years. Chapter 16

SOCIAL RESPONSIBILITY The main stakeholders in my professional success are the following:

The main social responsibilities I feel will be part of my career and life going forward are:

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Chapter 16: Social Responsibility and Sustainability

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Use this Learning Worksheet to prepare for class discussion and take notes. LEARNING OBJECTIVES LO 1-296 Describe the features of a successful corporate social responsibility program. LO 1-297 Explain how sustainable marketing contributes to a firm‘s corporate social responsibility efforts. LO 1-298 Explain the impact of environmentalism on marketing success. LO 1-299 Describe how companies can meet the challenges of environmental and sustainable marketing on a global scale. LO 1-300 Analyze how firms use social media to support their corporate social responsibility efforts. KEY TERMS closed-loop supply chain consumerism corporate philanthropy corporate social responsibility (CSR) corporate volunteerism disintermediation environmentalism

environmental regulations ethics green market near-shoring on-shoring quasi-strategic greening stakeholder responsibility strategic greening

sustainability sustainable design sustainable marketing sustainable sourcing sustainable tourism triple bottom line (TBL) tactical greening

THOUGHT-PROVOKING ACTIVITY Set 1: What does it mean for a company to be socially responsible? Provide an example of a company you know that is strong, or weak, in this area. How does this affect consumers?

Set 2: Environmental marketing can be divided into three categories. What are they? Provide an example of each.

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CONTENT OUTLINE The following section provides the flow of information using the LEARNING OBJECTIVES as a guide, FIGURES as a visual to elaborate on key areas, and KEY TERMS learners will need to take away from the course and creates an opportunity for you to take LECTURE NOTES. EXECUTIVE PERSPECTIVE NOTES Gina Gomez, Executive Director, Hispanic Community Services, Inc. How is marketing relevant in her role? How does passion for her job translate into building sustainable relationships with clients? LO16-1: Describe the features of a successful corporate social responsibility program. Corporate Social Responsibility  Organizations today are forced to confront a new economic reality: It is no longer acceptable to experience economic prosperity in isolation from those _ (customers, communities, and employees) who are affected by the organization‘s decisions  Companies have a number of reasons for taking environmental and social issues seriously, including _ who want to work for a company that is concerned with environmental sustainability and pleasing investors and funds that buy stock in such companies  Consumers increasingly choose to buy from firms that value and support the same causes they do  As a result, firms have begun to accept responsibility for balancing profitability with _ when determining their success  Success begins with the _ that a company develops with its customers and other stakeholders  _ (CSR) refers to an organization‘s obligation to maximize its positive impact and minimize its negative impact on society  CSR has been shown to benefit companies in many ways, including improving _ and enhancing the company‘s brand image 368

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Within many organizations, the marketing department is primarily responsible for the ideas and strategies that comprise a CSR program, making this topic an important part of your marketing education CSR includes _ , legal, and ethical accountability to stakeholders and society in general

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_ focuses on the obligations an organization has to its stakeholders, those who can affect or are affected by a firm‘s actions Stakeholder responsibility is the driving consideration across the four dimensions of corporate social responsibility: economic, legal, ethical, and _

THINK LIKE A MARKETER As a consumer, do you prefer to do business with an organization that works toward their CSR efforts?

Figure 16.1 Dimensions of Corporate Social Responsibility INSIGHT QUESTIONS What is the foundation of corporate social responsibility?

How does corporate social responsibility benefit a company?

Economic Dimension  For-profit firms have a responsibility to their stakeholders to be _  Without profits, a business cannot survive  A failed business hurts employees, investors, and communities  In addition, it can no longer engage in any type of philanthropy, which has _ for the causes the company supported  Publicly traded firms have a unique responsibility to investors  These shareholders have invested in the firm with the expectation that they‘ll receive high share prices and _ in return  Over 50 percent of Americans invest in the stock market in the United States alone, many through the _ retirement savings plans offered by their employers Legal Dimension  Marketers have a responsibility to understand and obey the _ and 370

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They must follow local, state, and federal laws Beyond this, U.S. companies are also subject to the laws and regulations of the _ in which they do business  CSR programs often begin as a way of reducing the likelihood of legal problems and public relations disasters, either at home or abroad  The past two decades are littered with examples of firms—Enron, Arthur Andersen, and WorldCom, to name a few—whose failure to obey laws and regulations _  Marketers must take a broad view of the legal dimension and its relationship to ethics Ethical Dimension  Warren Buffett said, ―It takes 20 years to build a reputation and 5 minutes to ruin it‖  One way to ruin a reputation is to do _  _ are the moral standards expected by a society  Marketers are responsible for a number of choices with an ethical dimension and will be held accountable for making the _  Marketers who take the time to identify the ethical issue at hand and consider how their decision will affect each of the firm‘s stakeholders are far more likely to make the right decision and successfully _  The primary ethical consideration is the duty of a company to provide a product that lives up to the _ of its customers  The goal should be to design and produce a new product that is safe, has a reasonable service life, can be expected to perform in a reliable manner, and can be maintained without excessive costs  Most important, companies have an implied obligation to provide safe products  This obligation requires that companies:  (1) Design and produce a new product with due care, to ensure that the product will not injure a customer because it is defective in some way  (2) _  (3) Regularly test samples of the finished products for possible defects, once production starts.  (4) Quickly notify the public and recall the product if there is a possibility of injury or death from a product  Ethical issues can also arise if a company chooses not to develop important new products until an existing product has become obsolete or its patent has expired  _ occurs when companies frequently launch new models of a product that make existing models obsolete

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The speed of technology change forces companies to constantly upgrade the functionality of their products, to keep up with competitors  The most common ethical issue involves the Federal Trade Commission‘s definition of the term _  The FTC‘s position is that the product in question must be entirely new or be ―changed in a _ ‖ Philanthropic Dimension  _ is the act of organizations voluntarily donating some of their profits or resources to charitable causes CONNECT BACK: Reference Connect Assignment 16-1 How can marketers focus on all four dimensions of corporate social responsibility simultaneously?

Why is stakeholder responsibility the driving consideration across the four dimensions of corporate social responsibility?

Developing a Successful Corporate Social Responsibility Program  The _ department is typically responsible for developing an organization‘s corporate social responsibility program  The process begins when a firm incorporates into its _ a focus on fulfilling economic, legal, ethical, and philanthropic dimensions  The task of implementing a broad CSR focus through specific action is often difficult, but firms can use the following key elements to guide them through the process:  (1) _ —marketers should seek significant interaction with the stakeholders who influence the decisions and behavior of the company  (2) _ —the firm‘s leaders play a vital role in guiding their organization‘s business practices toward social responsibility  (3) Integration of CSR into _ at all levels and in all divisions of the firm  CSR policies and procedures are most useful when they are written down, well understood, and endorsed by affected employees  Small businesses, too, can embrace sustainability and corporate social responsibility, while also growing and strengthening the bottom line 373

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Table 16.1 Toyota’s Corporate Social Responsibility Statement INSIGHT QUESTIONS Who is typically responsible for developing an organization‘s corporate social responsibility program?

How does the process of developing a corporate social responsibility statement begin?

Why is it important to have a corporate social responsibility statement written out for stakeholders to view?

Figure 16.2 The Framework for CSR-Informed Policy at Toyota INSIGHT QUESTIONS What is the purpose of a CSR-informed policy?

How is creating a global vision for Toyota beneficial for their corporate social responsibility initiatives?

Analytics for Auditing a Corporate Social Responsibility Program  Once an organization has developed a corporate social responsibility program, the focus shifts to _  This can be done by means of an audit that uses analytics to measure the success of the program  Those who are responsible for a company‘s CSR program should consider the following crucial points as they measure the program‘s effectiveness  (1) Include all _ in the auditing process  (2) Use both quantitative and qualitative measurements 375

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Such measures include _ (ROI) and any changes in employee turnover and brand image associated with the CSR program

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Volunteerism  The _ is a scorecard of America‘s community-minded companies, produced by Bloomberg LP in partnership with the National Conference on Citizenship and Points of Light  _ is the policy or practice of employees volunteering their time or talents for charitable, educational, or other worthwhile activities, especially in the community Marketing Analytics INSIGHT QUESTIONS How can a CSR audit lead to positive changes in the organization?

Does a CSR audit allow an organization to better focus on its organizational resources?

LO16-2: Explain how sustainable marketing contributes to a firm’s corporate social responsibility efforts. Sustainable Marketing  Expanding the idea of social responsibility beyond moral and ethical dimensions to sustainability contributes to long-term _  The concept of sustainability first came to international attention in the 1987 United Nations report ―Our Common Future‖  The report laid the groundwork for a modern understanding of _ as a commitment to a lifestyle that meets the needs of the present without compromising the ability of future generations to meet their own needs  Marketers looking to enhance the sustainability of their firm‘s goods and services need to form a _ with customers, suppliers, and communities to increase the likelihood that the firm makes socially responsible marketing decisions  _ is the process of creating, communicating, and delivering value to customers in a way that recognizes and incorporates the concept of sustainability  One of the easiest ways for marketers to engage in sustainable marketing is to _ , using sustainable practices as a guideline 377

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Sustainability Vision  To get stakeholders to agree to sustainability initiatives, marketers must communicate a _  That vision should highlight the importance of the organization‘s sustainability efforts and the potential benefits for each stakeholder  A_ begins by communicating how the company‘s industry and specific organization work within the larger social and natural world. It should answer important questions  (1) How is the world enriched or diminished by our goods or services?  (2) _ ?  (3) How does our overall business strategy reflect that impact? Sustainability Vision Statement  Many organizations find it useful to articulate the answers to these questions through a _  Firms that do so are often leaders in sustainable marketing throughout the world The Benefits of a Sustainability Vision  A sustainability vision can drive innovation within an organization  Without a goal of sustainable marketing, the company‘s research and development efforts may not have led to the product, which has been well received by consumers and helped improve the firm‘s profit  A commitment to sustainability also benefits _ ; they tend to be engaged when they work for a company that expresses sustainability goals and holds itself accountable to its stakeholders Consumerism  A new generation of consumers concerned with sustainability has begun to demand more from companies and marketers than just low prices  These consumers also seek a higher meaning in the products they purchase  _ is a movement, made up of citizens and government entities, that focuses on protecting consumers and promoting their interests  Consumerism also includes an effort on the part of consumers to _ and services that have been produced in a way that is inconsistent with sustainable business practices  Consumerism efforts increasingly occur both domestically and in international markets.  Marketers face the following five barriers to encouraging sustainable consumer behavior  (1) _ —marketers can play an important role in overcoming this barrier  (2) _ —to combat this barrier, firms must design and produce sustainable products of high quality 378

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(3) _ —a firm caught misleading consumers over sustainability claims could damage its reputation for years to come, reducing profit and hurting the firm‘s long-term viability (4) _ —if the firm can communicate the additional value the product offers, customers will be more willing to pay a high price for it (5) _ —marketing professionals must find ways to deliver products to the sustainability-minded customers who want to buy them A critical component of overcoming all of these barriers is _ Marketers must effectively communicate that sustainable consumer behavior doesn‘t always require sacrificing current needs and wants for some distant benefit

CONNECT BACK: Reference Connect Assignment 16-2 Why is it important for marketers to create and influence strategies that promote sustainable consumer behavior?

How can marketers create sustainable consumer behaviors with the marketing mix?

LO16-3: Explain the impact of environmentalism on marketing success. Environmental Marketing  Today, customers also care about a product‘s origins and how it is manufactured, _ , and disposed of  Firms sometimes mistake these emerging concerns as the domain of younger generations.  In reality, over half of all Baby Boomers consider themselves _  The _ is a group of sustainability-oriented customers and the businesses that serve them  _ is a movement of citizens, government agencies, and the business community that advocates the preservation, restoration, and improvement of the natural environment

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The green market doesn‘t seek only environmentally friendly goods; its members also want environmentally friendly _ Environmental Marketing Strategies  Environmental marketing (also called _ ) activities can be divided into three levels: tactical greening, quasi-strategic greening, and strategic greening  _ involves implementing limited change within a single area of the organization, such as purchasing or advertising; it represents relatively small actions aimed at instituting environmentally friendly practices within an organization  _ usually involves more substantive changes in marketing actions as well as broad-based coordination among nonmarketing activities  _ requires a holistic approach that integrates and coordinates all of the firm‘s activities on environmental issues across every functional area. It represents a fundamental shift in the way the firm markets its products  The categories are governed by the overall environmental strategy a company chooses to implement Figure 16.3 Environmental Marketing Strategies INSIGHT QUESTIONS What are the two strategies that firms use when they want to lower costs?

What are the two strategies firms use when they want differentiation?

What strategy aims to outperform the competition in an existing industry and create a new market space?

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Strategy 2: Beyond Compliance Leadership  Most marketers who adopt a _ focus on communicating to stakeholders the company‘s attempts to go beyond others in adopting environmentally friendly practices  Marketers who select this strategy want to show customers that the company does more than the competition to implement an environmental strategy  Unlike an eco-efficiency strategy, companies that employ a beyond-compliance leadership strategy typically care more about _ from competitors than about keeping costs low Strategy 3: Eco-Branding  An _ focuses on creating a credible green brand  For this strategy to be effective, consumers must recognize a noticeable benefit from their purchase Strategy 4: Environmental Cost Leadership  Firms seeking a price premium for their environmentally friendly products often adopt an _  Green products sometimes cost more to produce than traditional products  Thus, a leadership strategy that also seeks to lower costs may be the only way for a company to pay for its ecological investments and generate a profit for its other stakeholders Strategy 5: Sustainable Value Innovation  _ entails reshaping the industry through the creation of differential value for consumers  It involves making contributions to society in the form of both reduced costs and reduced _  Firms that engage in this strategy do not aim to outperform the competition in an existing industry; they seek to create a new _ CONNECT BACK: Reference Connect Assignment 16-3 What are some of the benefits of environmental marketing strategies?

What regulations are in place that marketers must consider when developing products?

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Benefits of Environmental Marketing  The benefits of an environmental marketing strategy extend to virtually all of a firm‘s stakeholders when the strategy is effectively integrated with the firm‘s general _  With many consumers committed to ―going green,‖ environmentally focused organizations often benefit from favorable public opinion and _ Environmental Regulation  _ are the laws designed to protect the natural environment against undue harm by individuals and organizations  Thanks to the Paris Climate Agreement, signed by nearly all countries, countries aim to substantially reduce global greenhouse gas emissions to limit the global temperature increase in this century to 2 °C above preindustrial levels, with the further aim to limit it to 1.5 °C LO16-4: Describe how companies can meet the challenges of environmental and sustainable marketing on a global scale. Global Environmentalism and Sustainability  As globalization brings the world closer together, marketers must develop strategies that fit with expectations in both domestic and international markets, as well as _ in the company  The strategic choice to become environmentally conscious and sustainable has proven to be _ ; it also is a good public relations decision, not just in the United States but across the globe Global Challenges and Opportunities  Management consulting firm McKinsey surveyed nearly 2,000 executives from around the world for their opinions about sustainability  Half of the executives considered sustainability very or extremely important in new product development, reputation building, and overall corporate strategy  _ in some countries can limit the availability of or increase prices on sustainable goods for consumers  One political barrier, for example, is a lack of political will on the part of leaders to enact _  Marketers who actively scan the global environment can find foreign governments and policies that provide new opportunities for marketing sustainable products to global customers  A majority of global business executives believe that _ is of significant importance to their business

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Marketers should be aware of how the location of those executives affects their opinions: almost two-thirds of decision makers in emerging markets, such as India and South Africa, consider sustainability critical to business Rationalizing Global Sustainability  The way marketers justify sustainable marketing varies in different parts of the world  Sustainable and environmental strategies tend to work best when firms can _ for all stakeholders concerned  Two areas in which companies can make significant contributions to global environmentalism and sustainability are new product development and _ Ethical and Sustainability Issues in New-Product Development and Supply Chain Management New Product Development  Sustainable product development is built upon the concept of _ , which is the philosophy of building products and services in a way that eliminates negative environmental impacts  Sustainable design can take various forms; a new product might:  (1) _ (or for a service, use less energy to perform)  (2) Have less packaging that must be discarded when opened  (3) Be able to be recycled when the consumer is finished using the product  (4) _  When companies want to develop and market new products in an environmentally friendly way, they need to understand the impact that such products may have on the environment  The _ (TBL) is one way of analyzing the sustainability of a new product  The TBL includes economic, social, and environmental impacts to a company and to the world  When companies comply with these three pillars they get such benefits as enhanced brand image, competitive advantage, and increased _ Supply Chain Design and Management  Organizations have choices when it comes to how they design their supply chains. These choices affect their sustainability profile  Sourcing of materials and goods, transportation mode selection, facility locations, and the extent of its supply chain as a _ are examples of choices that affect sustainability Facility Location 384

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Where an organization locates its facilities can have a significant impact on its goal to operate a more sustainable supply chain  _ or on-shoring can be strategies for locating production facilities  Another strategy is to locate manufacturing facilities close to main suppliers or ask suppliers to set up operations close to the organization‘s facilities  An ideal setup is to have suppliers colocate on the same grounds or share facilities with the manufacturing plant  Companies can reduce transportation and material handling by eliminating a distribution center and, instead, shipping directly from a producer to a consumer  This tactic, which cuts out the intermediary in a supply chain, is called _  The key to the environmental effectiveness of such a design is the use of full vehicles to transport the products  If products must be shipped in less-than-full vehicle quantities, more shipments will be required  The more distribution facilities a company has, the more likely it will be that full vehicle loads will not always be possible  Another environmentally friendly facility location tactic is to locate facilities near _ , such as wind and solar  Facilities can also be placed as near as possible to major highways and railroads, which reduces the amount of travel for incoming and outgoing shipments  Companies can use commercially available software or consulting companies to help in selecting areas for new facilities that can help them provide a more sustainable supply chain Sourcing  In order to overcome the natural desire to purchase goods from the lowest cost producer, an organization must make a conscious commitment to _  _ is a process of purchasing goods and services that takes into account the long-term impact on people, profits, and planet  Sustainable sourcing balances _ with other considerations; it recognizes the trade-off between purchase and transportation costs and other costs to _  Organizations involved in sustainable sourcing look not only at their own bottom line but also at the damage their way of sourcing is doing to society as a whole

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Purchasing managers are trained to identify and select suppliers that have a commitment to sustainability  The use of ethical and environmental certifications for suppliers is increasing  Sustainable sourcing also seeks to procure goods from locations as close as possible to where they will be consumed  _ involves sourcing materials and finished products from countries that are close to, but not in, an organization‘s own country  Organizations doing near-shoring select suppliers that are closer than previous suppliers  _ involves sourcing materials and finished products from suppliers in an organization‘s own country Transportation  Some transportation modes and carriers result in reduced fuel consumption, which leads to lower emissions and less _  For international shipments, moving goods in containers on large container ships is much more efficient and environmentally friendly than air-shipping products  Container ships use the most polluting form of diesel fuel (called ―bunker fuel‖) due to volume: a large container ship can move a large amount of material at one time, whereas many aircraft would be needed to move the same amount of goods  Container shipping is thus more environmentally friendly per unit of shipped product  Domestic shipments generally involve railroads and trucking companies  Railroads can move large amounts of goods over long distances with greater fuel efficiency and emissions compared to trucks  The ―_ ‖ of the supply chain involves getting the product to the customer‘s location  With the increase in online orders that are delivered directly to _ , there is further complication to delivering the ―last mile‖  This part of the supply chain almost always involves a truck, usually a small _ (PUD) unit such as UPS and FedEx use  A few companies are trying to find better ways of delivering products that are also more environmentally friendly Closed-Loop Supply Chains  A_ is a supply chain that maximizes value creation by recovering value from product or material returns  The main idea behind a closed-loop supply chain is that fewer products or product components end up in a landfill or are improperly disposed of

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Products that are unwanted, damaged, _ , obsolete, or in need of recycling need to be handled in an environmentally friendly way These products show up back at the manufacturer or distribution center as _ The amount of returned goods is increasing due to _ For a variety of reasons, products are finding their way back to manufacturers. Consumers return goods ordered online that did not meet their expectations Companies can do a number of things to establish a more sustainable supply chain through a closed-loop system (1) Repair returned goods and return them to the customer or _ (2) Break down the returned goods and reuse _ in new products or in the repair of other returned goods (3) Find new buyers for products that are unwanted by retailers or consumers but are otherwise perfectly usable (4) Use raw materials recovered from returned goods to _ (5) Set up a method for consumers to return unwanted or depleted products or packaging that can then be refurbished or _ A supply chain is designed so that when a product has to be returned it can be recycled, reused, sold, or broken down into component parts for use in other products

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_ allow people to organize, collaborate, and accomplish shared goals in ways that would have been unimaginable several decades ago  In response, companies have evolved from a reactive state, in which they responded to customer feedback about their CSR-related strategies, to a proactive approach  Social media play an increasingly important role in how companies shape their CSR policies and present themselves as _ to consumers and other stakeholders Social Media-Based Corporate Social Responsibility Initiatives  Marketers must be consistent in their social media presence  Marketers should try to make each _ (tweet, Facebook post, etc.) something of value to their digital community Social Media and Global Sustainability  Whether focused on the domestic or the global marketplace, the central tenets of social media—transparency, _ , and engagement with the community to build a strong and profitable organization—reflect the same strengths that make corporate social responsibility and sustainability such compelling business philosophies  Marketing professionals at all types of firms, from Fortune 500 companies to local small businesses, recognize that social media can serve as valuable tools in the effort to create, communicate, and deliver sustainable products and solutions to their _ THINK LIKE A MARKETER How might CSR efforts vary because an organization has international relationships?

CONNECT BACK: Reference Connect Assignment 16-4 Why is it important for firms to incorporate social media into their CSR initiatives?

What other organizations are using social media to engage consumers in their CSR activities?

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Facebook, Twitter, and Instagram, though integrated, function quite differently in how consumers use their platform. What kinds of social media activities can be integrated across all platforms?

How can you elicit consumer participation on your social media platforms to increase the likelihood that a connection is made between the consumer, company, and CSR initiative?

MARKETING PLAN EXERCISE Your Marketing Plan. In this chapter, we have explored the impact corporate social responsibility has on organizations and marketing decisions. As part of developing your personal marketing plan, you will consider and develop a vision of your own social responsibilities. First, you must understand whom you‘re responsible to. Who are the stakeholders in your career success? Your list might include those who are affected by your career path, including a current or future spouse, children, parents, or even the U.S. government that wants you to make enough money to pay back your student loans. Also think about places of worship, charitable causes, communities, and other entities your choices affect. Next, consider whether a firm‘s or school‘s corporate social responsibility policies matter to you when choosing where to work or study. If they do, you should think about how you can best market yourself as the type of socially responsible professional who would be of interest to a company or school committed to corporate social responsibility. Being able to connect your socially responsible activities to those of a potential employer or graduate school program can be a subtle way to differentiate yourself from those competing against you for a position. Student Task: List the stakeholders in your career success. Next, list three to five social responsibilities that you consider part of your professional career. Explain each and discuss the specific actions you would like to take relative to each over the next 5–10 years.

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SOCIAL RESPONSIBILITY The main stakeholders in my professional success are the following:

The main social responsibilities I feel will be part of my career and life going forward are:

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