MarketingSecond Edition
DhruvGrewal, PhDBabson College
Michael Levy, PhDBabson College
McGraw-HillIrwin
Boston Burr Ridge, IL Dubuque, IA New York San Francisco St. LouisBangkok Bogota Caracas Kuala Lumpur Lisbon London Madrid Mexico City,Milan Montreal New Delhi Santiago Seoul Singapore Sydney Taipei Toronto'
SECTION ONE Assessing the Marketplace i1 Overview of Marketing 3
What Is Marketing? 4
Marketing Is about Satisfying Customer Needs and Wants 4
Marketing Entails an Exchange 5
Marketing Requires Product, Price, Place, and Promotion Decisions 6
Superior Service 1.1: Ritz-Carlton Hotel Makes Customer Service an Art 9Power of the Internet 1.1: Zappos Delivers Shoes 10
Marketing Can Be Performed by Both Individuals and Organizations 11
Marketing Impacts Various Stakeholders 12
Marketing Helps Create Value 13
What Is Value-Based Marketing? 14
Adding Value i.i: My M&M's 15
How Firms Compete on the Basis of Value 16
How Do Firms Become Value Driven? 16 s
Why Is Marketing Important? 18
Marketing Expands Firms'Global Presence 19
Marketing Is Pervasive across the Organization 20
Marketing Is Pervasive across the Supply Chain 21
Marketing Makes Life Easier and Provides Employment Opportunities 22
Marketing Enriches Society 22
Ethical and Societal Dilemma 1.1: Marketing Fast Food to Children 24
Marketing Can Be Entrepreneurial 24
Summing Up 26
Key Terms 26
Marketing Applications 27
Quiz Yourself 2j
Net Savvy 27
Chapter Case Study: Google and the YouTube Acquisition 28
Developing Marketing Strategies and a Marketing Plan 31
What Is a Marketing Strategy? 32
Building a Sustainable Competitive Advantage 33
Customer Excellence 33
Superior Service 2.1: Customer Service at Virgin Atlantic 35
Operational Excellence 36
Human Resource Management 36
Product Excellence 37
Locational Excellence 37
Multiple Sources of Advantage 38
The Marketing Plan 38 / .'
Step i: Define the Business Mission 40
Step 2: Conduct a Situation Analysis Using SWOT 41 <r !xxiii
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Step 3: Identifying and Evaluating Opportunities Using STP(Segmentation,Targeting, and Positioning) 42
Power of the Internet 2.1: Dove Evolutions 44
Step 4: Implement Marketing Mix and Allocate Resources 45
Step 5: Evaluate Performance Using Marketing Metrics 47Ethical and Societal Dilemma 2.1: Starbucks Working to
Make the Earth a Better Place 50
Strategic Planning Is Not Sequential 52
Growth Strategies 52
Market Penetration 53
Market Development and the Case for Global Expansion 53
Product Development 54
Diversification 55
Adding Value 2.1: FedEx Acquires Kinko's: Diversification or What? 55
Scenario Planning 56
Step i: Assess Strengths and Weaknesses 56
Step 2: Assess Opportunities and Threats 58
Step 3: Identify Different Scenarios 58
Step 4: Apply the Marketing Mix to the Different Scenarios 58
Step 5: Assess the Profitability of Each Scenario 59
Summing Up 59
Key Terms 61
Marketing Applications 61
Quiz Yourself 61
Toolkit 62
Net Savvy 62
Chapter Case Study: The iPhone: The Great Consumer Hope 62
Appendix 2A: Writing a Marketing Plan 65
3 Marketing Ethics 85
The Scope of Marketing Ethics 87
Ethical Issues Associated with Marketing Decisions 87
Creating an Ethical Climate in the Workplace 87
The Influence of Personal Ethics 88
Power of the Internet 3.1: Unethical Internet Behavior 92
Ethics and Corporate Social Responsibility 92
A Framework for Ethical Decision Making 93
Superior Service 3.1: Coca-Cola Fights HIV/AIDS in Africa 94
Integrating Ethics into Marketing Strategy 96
Ethical and Societal Dilemma 3.1: A Questionable Promotion 97
Planning Phase 99
Adding Value 3.1: Newman's Own: Making a Difference 100
Implementation Phase 100
Control Phase 102
Understanding Ethics Using Scenarios 102
Scenario i: R.J. Reynolds: Promotions to the Youth Market 103
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Scenario 2: Victoria's Dirty Secret 104
Scenario 3: Pregnant Teen TV Star 104
Scenario 4: Who Is on the Line? 104
Scenario 5: West Virginia T-Shirts 105
Scenario 6: Giving Credit Where Credit Isn't Due 105
Scenario 7: The Jeweler's Tarnished Image 105
Scenario 8: No Wonder It's So Good 106
Scenario 9: Bright Baby's Bright Idea 106
Scenario 10: Money from Mailing Lists 107
Scenario n: The Blogging CEO 107
Summing Up 108
Key Terms 108
Marketing Applications log
Quiz Yourself 109
Net Savvy 109
Chapter Case Study: Whose Side Are You On? no
4 Analyzing the Marketing Environment 113
A Marketing Environment Analysis Framework 114
The Immediate Environment 115
Successfully Leveraging Company Capabilities 115
Competitors and Competitive Intelligence 115
Corporate Partners 117
Macroenvironmental Factors 118 _/ Imoglne wealing fresh wi
Culture 118 —SSfliDemographics 120
Ethical and Societal Dilemma 4.1: PredatoryLenders Target Seniors 122
Social Trends 128
Adding Value 4.1: Cereal Manufacturers Reformulating 129
Technological Advances 130
Superior Service 4.1: Grocery Retailers Help Time-Poor Customers 131
Power of the Internet 4.1: Blogging:
The Next Relationship Frontier 132
Economic Situation 132
Political/Regulatory Environment 133
Corporate Social Responsibility 134
Inputs 136
Adding Value 4.2: GE's Ecomagination 137
Output 140
Summing Up 141
Key Terms 142
Marketing Applications 142
Quiz Yourself 143
Net Savvy 143Chapter Case Study: Stony field Farm: Changing the Environment
of Business 143
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SECTION TWO Understanding the Marketplace 1475 Consumer Behavior 149
The Consumer Decision Process 151
Need Recognition 151
Adding Value 5.1: H.O.G. Heaven 152
Search for Information 153
Evaluation of Alternatives 155
Purchase and Consumption 158
Postpurchase 158
Power of the Internet 5.1: Evaluating Travel
Alternatives with Expedia 159
Factors Influencing the Consumer Decision Process 162
Psychological Factors 162
Attitude 164
Social Factors 167
Adding Value 5.2: OXO: Grating on Customers' Nerves—in a Good Way 169
Situational Factors 169
Superior Service 5.1: Retailers Sell with Service 170
Ethical and Societal Dilemma 5.1: Is a "Free Gift" Really Free? 171
Involvement and Consumer Buying Decisions 172
Extended Problem Solving 173
Limited Problem Solving 174
Summing Up 174
Key Terms 775
Marketing Applications 176 t
Quiz Yourself 176
Toolkit 177
Net Savvy 177
Chapter Case Study: The Smart Car Prepares to Enter the U.S. Market 177
6 Business-to-Business Marketing 181
B2B Markets 183
Manufacturers or Producers 184
Resellers 184
Institutions 184
Government 184
Adding Value 6.1: Paris Runways to Retail Stores 185
B2B Classification System 186
The Business-to-Business Buying Process 187
Stage i: Need Recognition 188
Stage 2: Product Specification 189
Stage 3: RFP Process 189
Stage 4: Proposal Analysis, Vendor Negotiation, and Selection 189
Stage 5: Order Specification 190
Stage 6: Vendor Performance Assessment Using Metrics 190
Factors Affecting the Buying Process 191
The Buying Center 191
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Ethical and Societal Dilemma 6.1: How Does the Doctor Know Best? 193
Organizational Culture 194
Power of the Internet 6.1: Putting a Volkswagen Together 195
Buying Situations 195
Role of the Internet in Business-to-Business Marketing 198
Superior Service 6.1: Virtual Hiring Saves Small Business Big Money 199
Summing Up 200
Key Terms 201
Marketing Applications 201
Quiz Yourself 202
Toolkit 202
Net Savvy 202
Chapter Case Study: Weyerhaeuser: Serving the Home Building Industry 202
7 Global Marketing 207
Growth of the Global Economy: Globalization of Marketing and Production 209
Ethical and Societal Dilemma 7.1: What's Wrong with Globalization? 211
Assessing Global Markets 211
Economic Analysis Using Metrics 212
Ethical and Societal Dilemma 7.2: Is Global Retail Expansion Good for India? 216
Analyzing Infrastructure and Technological Capabilities 217
Analyzing Government Actions 218
Analyzing Sociocultural Factors 222
Choosing a Global Entry Strategy 224
Choosing a Global Marketing Strategy 2-27
Target Market: Segmentation,Targeting, and Positioning 227
The Global Marketing Mix 228 .
Adding Value 7.1: Whole Foods Woos London 230
Superior Service 7.1: Buy Your Ticket for China Online 231
Power of the Internet 7.1: Pepsi Engages the Chinese over the Web 232
Ethical Issues in Global Marketing 234
Environmental Concerns 234
Global Labor Issues 234
Impact on Host Country Culture 235
Summing Up 235
Key Terms 236
Marketing Applications 237
Quiz Yourself 237
Net Savvy 237
Chapter Case Study: P&G Takes on the World, One Smile at a Time 238
SECTION THREE Targeting the Marketplace 241
8 Segmentation, Targeting, and Positioning 243
The Segmentation,Targeting, Positioning Process 245
Step i: Establish Overall Strategy or Objectives 246
Step 2: Describe Segments 249
Adding Value 8.1: MTV Uses Lifestyle Segmentation to Targetthe Think Community 252
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Step 3: Evaluate Segment Attractiveness 256
Adding Value 8.2: CVS Identifies Its Target Market by Lifestyle and Demographics 257
Superior Service 8.1: Serving the Underserved 259
Step 4: Select Target Market 261
Power of the Internet 8.1: Easy Does It with Internet-Based Segmentation 262
Ethical and Societal Dilemma 8.1: Designer Labels Target Teens 263
Step 5: Identify and Develop Positioning Strategy 263
Positioning Steps 265
Repositioning 267
Summing Up 268
Key Terms 269
Marketing Applications 269
Quiz Yourself 270
Toolkit 270
Net Savvy 270
Chapter Case Study. China Mobile Growsthrough Segmentation 271
9 Marketing Research and Information Systems 275
Using Marketing Information Systems to Create Better Value 277
The Ethics of Using Customer Information 278
The Marketing Research Process 279
Step i: Defining the Objectives and Research Needs 280
Step 2: Designing the Research Project 281
Adding Value 9.1: IRI and the Value of Information 283
Step 3: Data Collection Process 284
Ethical and Societal Dilemma 9.1: Watching Consumers 286
Power of the Internet 9.1: Virtual Worlds Yield Real Marketing Research 289
Step 4: Analyzing Data 294
Adding Value 9.2: Marketing Research on a Shoestring Budget 295
Superior Service 9.1: Harrah's Knows Its Customers
Appreciate Superior Service 296
Step 5: Presenting Results 297
Summing Up 297
Key Terms 298
Marketing Applications 298
Quiz Yourself 299
Net Savvy 300
Chapter Case Study. Hollywood: Researching a Blockbuster 300
Appendix 9A: Using Secondary Data to Assess Customer Lifetime Value (CIV) 303
SECTION FOUR Value Creation 307
10 Product, Branding, and Packaging Decisions 309
Product Assortment and Product Line Decisions 311
Change Product Mix Breadth 312
Change Product Assortment Depth 313
Product Line Decisions for Services 313
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Branding 314
Value of Branding for the Customer and the Marketer 315
Power of the Internet 10.1: Luxury Designers Build Loyalty
through Web Site Branding 316
Brand Equity 317
Adding Value 10.1: The Brands Singles Choose to Find Them a Friend 321
Branding Strategies 321
Brand Ownership 321
Naming Brands and Product Lines 324
Brand Extension 325
Cobranding 327
Brand Licensing 327
Brand Repositioning 329
Packaging 330
Product Labeling 331
Ethical and Societal Dilemma 10.1: What's in the Food?
Is It on the Label? 332
Summing Up 332
Key Terms 333
Marketing Applications 333
Quiz Yourself 334
Net Savvy 334Chapter Case Study: Band-Aid® Brand Products: Building
on the Value of the Brand 33s
11 Developing New Products 339
Innovation and Value 341
Diffusion of Innovation 343
Innovators 344
Early Adopters 344 '
Early Majority 345
Late Majority 345
Laggards 345
Using the Diffusion of Innovation Theory 345
How Firms Develop New Products 346
Idea Generation 346
Concept Testing 350
Product Development 350
Superior Service 11.1: Airlines Can Improve Luggage Efficiency through RFID 351
Market Testing 351
Ethical and Societal Dilemma 11.1: Should Firms Test on Animals? 352
Product Launch 354
Adding Value 11.1: Marilyn Monroe Would Love It: Diamonds for Hair Care 356
Evaluation of Results 356
The Product Life Cycle 357
Introduction Stage 358
Growth Stage 358
Adding Value 11.2: The TiVo® Experience and the Consumer 359
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Maturity Stage 360
Decline Stage 361
The Shape of the Product Life Cycle Curve 361
Strategies Based on Product Life Cycle: Some Caveats 362
Summing Up 362
Key Terms 363
Marketing Applications 363
Quiz Yourself 364
Net Savvy 364
Chapter Case Study A Quick Bite, a Quick Snooze: The Launch ofMetroNaps 364
12 Services: The Intangible Product 367
Services Marketing Differs from Product Marketing 369
Intangible 370
Inseparable Production and Consumption 371
Ethical and Societal Dilemma 12.1: Whom Are You Going to Call? 372
Variable 373
Adding Value 12.1: Adding Convenience through Self-Checkout Machines 374
Perishable 375
Providing Great Service: The Gaps Model 376
The Knowledge Gap: Knowing What Customers Want 377
The Standards Gap: Setting Service Standards 381
The Delivery Gap: Delivering Service Quality 382
Power of the Internet 12.1: Employees and Customers: Service on All Sides 384
The Communications Gap: Communicating the Service Promise 386
Service Recovery 387
Listening to the Customer 388
Finding a Fair Solution 388
Resolving Problems Quickly 389
The CREST Method of Resolving Service Failures 390
Summing Up 390
Key Terms 3gi
Marketing Applications 3gi
Quiz Yourself 3g2
Toolkit 3g2
Net Savvy 3g2
Chapter Case Study. Puttin'on the Ritz 3g2
SECTION FIVE Value Capture 395
13 Pricing Concepts for Establishing Value 397
The Five Cs of Pricing 400
Company Objectives 400
Customers 403
Adding Value 13.1: Pay What You Want—Really 404
Superior Service 13.1: Great Service Lowers Price Elasticity 409
Costs 409
Break-Even Analysis and Decision Making 411
Competition 413
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Ethical and Societal Dilemma 13.1: The Battle: Retailers versusManufacturers. The Winner: Consumers? 415
Channel Members 415
Macro Influences on Pricing 416
The Internet 417
Economic Factors 417
Power of the Internet 13.1: Pricing on eBay 418
Summing Up 4ig
Key Terms 420
Marketing Applications 420
Quiz Yourself 421
Toolkit 421
Net Savvy 422
Chapter Case Study. Finding the Best Price: Bizrate versus eBay 422
14 Strategic Pricing Methods 425
Pricing Strategies 426
Cost-Based Methods 427
Competitor-Based Methods 427
Value-Based Methods 428
Power of the Internet 14.1: Do We Have to Pay Twice as
Much to See Miley or Hannah? 430
Psychological Factors Affecting Value-Based Pricing Strategies 431
Consumers' Use of Reference Prices 431
Everyday Low Pricing (EDLP) versus High/Low Pricing 432
Odd Prices 433
The Price-Quality Relationship 433 r
New Product Pricing 434
Price Skimming 434
Market Penetration Pricing 436
Adding Value 14.1: Price Skimming versus Market
Penetration in the World of High Fashion 436
Pricing Tactics 437
Business-to-Business Pricing Tactics and Discounts 437
Pricing Tactics Aimed at Consumers 439
Consumer Price Reductions 440
Superior Service 14.1: Oh, This Old Porsche? I'm Just Leasing It This Month . . . 444
Legal and Ethical Aspects of Pricing 444
Deceptive or Illegal Price Advertising 445
Predatory Pricing 446
Price Discrimination 446
Ethical and Societal Dilemma 14.1: Oh Yes, It's Ladies Night...
No More 447
Price Fixing 448
Summing Up 448
Key Terms 449
Marketing Applications 450
Quiz Yourself 451
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Net Savvy 457
Chapter Case Study: Battle Royal: Apple versus Amazon 451
SECTION SIX Value Delivery: Designing the Channeland Supply Chain 453
15 Supply Chain Management 455
Supply Chain, Marketing Channels, and Logistics Are Related 458
Supply Chains Add Value 458
Supply Chain Management Streamlines Distribution 460
Supply Chain Management Affects Marketing 460
Adding Value 15.1: Move It Fast 461
Making Information Flow 462
Power of the Internet 15.1: Neiman Marcus Expedites
Shipments through Customs 463
Data Warehouse 463
Electronic Data Interchange 464
Vendor-Managed Inventory 466
Collaborative Planning, Forecasting, and Replenishment 466
Pull and Push Supply Chains 466
Superior Service 15.1: The CPFR Promise: Make Everybody Happy 467
Making Merchandise Flow 468
Distribution Centers versus Direct Store Delivery 468
The Distribution Center 470
Adding Value 15.2: American Apparel: Now with RFID Chips 471
Inventory Management through Just-In-Time Systems 472
Managing the Supply Chain 475
Managing Supply Chains through Vertical Marketing Systems 476
Managing Supply Chains through Strategic Relationships 478
Ethical and Societal Dilemma 15.1: What Does Your Tag
Know about You? 479
Summing Up 481
Key Terms 482
Marketing Applications 482
Quiz Yourself 483
Net Savvy 483
Chapter Case Study: Wal-Mart: Pioneer in Supply Chain Management 483
16 Retailing and Multichannel Marketing 487
Choosing Retailing Partners 490
Channel Structure 490
Customer Expectations 491
Channel Member Characteristics 492
Distribution Intensity 492
Identify Types of Retailer 493
Food Retailers 493
Superior Service 16.1: Wegmans Services Its Employees—and Its Customers Too 495
General Merchandise Retailers 496
Adding Value 16.1: Trader Joe's Offers the Unexpected 497
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Facilitating Retail Strategy Using the Four Ps 502
Product 502
Price 503
Promotion 503
Place 505
Exploring Multiple Channel Options 505
Channels for Selling to Consumers 505
Store Channel 506
Catalog Channel 507
Internet Channel 507
Power of the Internet 16.1: How Much Is an Amazon.com Customer Worth? 512
Using the Internet to Improve Multichannel Shopping Experience 512
Perceived Risks in Electronic Shopping 513
Evolution toward Multichannel Marketing 513
Overcoming the Limitations of an Existing Format 513
Ethical and Societal Dilemma 16.1: Protecting Customer Privacy 514
Expanding Market Presence 515
Increasing Share of Wallet 515
Gaining Insights into Customers' Shopping Behaviors 515
Will Manufacturers Bypass Retailers and Sell Directly to Consumers? 515
Summing Up 516
Key Terms 577
Marketing Applications 577
Quiz Yourself 518 ,
Net Savvy 518
Chapter Case Study: Staples, Inc. 518
SECTION SEVEN Value Communication 521
17 Integrated Marketing Communications 523
Communicating with Consumers 526
The Communication Process 526
How Consumers Perceive Communication 528
The AlDA Model 528
Elements of an Integrated Marketing Communication Strategy 531
Advertising 532
Personal Selling 533
Sales Promotions 533
Direct Marketing 533
Ethical and Societal Dilemma 17.1: Identifying Web Users 535
Public Relations (PR) 535
Electronic Media 535
Planning for and Measuring IMC Success 539
Goals 539
Setting and Allocating the IMC Budget 540
Measuring Success Using Marketing Metrics 541
Planning, Implementing, and Evaluating IMC Programs—
An Illustration of Google Advertising 542
Legal and Ethical Issues in IMC 545
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What Is Commercial Speech? 545
Summing Up 545
Key Terms 546
Marketing Applications 546
Quiz Yourself 547
Toolkit 547
Net Savvy 548
Chapter Case Study: Jigsaw: A Menace to Your Phone 548
18 Advertising, Public Relations, and Sales Promotions 551
1. Identify Target Audience 554
2. Set Advertising Objectives 554
Adding Value 18.1: A New Image to Appeal to the Wealthy 555
Informative Advertising 555
Persuasive Advertising 556
Reminder Advertising 556
Focus of Advertisements 557
Ethical and Societal Dilemma 18.1: Getting to the Truth® 559
3. Determine the Advertising Budget 560
4. Convey the Message 560
The Message 560
The Appeal 561
5. Evaluate and Select Media 563
Mass and Niche Media 564
Choosing the Right Medium 564
Determining the Advertising Schedule 565
6. Create Advertisements 566
7. Assess Impact Using Marketing Metrics 568
Regulatory and Ethical Issues in Advertising, 569
Public Relations 571
Sales Promotion 572
Types of Sales Promotion 573
Using Sales Promotion Tools 577
Evaluating Sales Promotions Using Marketing Metrics 578
Summing Up 578
Key Terms 579
Marketing Applications 580
Quiz Yourself 580
Toolkit 581
Net Savvy 581
Chapter Case Study: What Is Popularity Anyway? 581
19 Personal Selling and Sales Management 585
The Scope and Nature of Personal Selling 586
Personal Selling and Marketing Strategy 587
The Value Added by Personal Selling 588
The Personal Selling Process 589
^ 0DESI(RED)
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Step i : Generate and Qualify Leads 590
Step 2: Preapproach 591
Step 3: Sales Presentation and Overcoming Reservations 592
Step 4: Closing the Sale 594
Step 5: Follow-Up 594
Superior Service 19.1: The Fancy Chinese Camry 595
The Impact of Technology and the Internet on Personal Selling 596
Power of the Internet 19.1: Technology-Facilitated Textbook Selling 597
Ethical and Legal Issues in Personal Selling 598
The Sales Manager and the Sales Force 598
The Sales Force and Corporate Policy 598
Ethical and Societal Dilemma 19.1:
Pharmaceutical Sales Ethics 599
The Salesperson and the Customer 599
Managing the Sales Force 599
Sales Force Structure 600
Recruiting and Selecting Sales People 601
Sales Training 602
Motivating and Compensating Sales People 602
Summing Up 604
Key Terms 60s
Marketing Applications 605
Quiz Yourself 606
Net Savvy 606
Chapter Case Study: Tel-Soft Solutions: Making the Sale 606
Glossary 609
Quiz Yourself Answer Key 623
Endnotes 625
Credits 657
Name Index 661
Company Index 669
Subject Index 675