What is the difference between a business firm and a nonprofit organization?
A business firm is a privately owned organization that serves its customers to earn a profit so that it can survive. A nonprofit organization is a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction.
What are examples of a functional level in an organization?
The functional level in an organization is where groups of specialists from the marketing, finance, manufacturing/operations, accounting, information systems, research & development, and/or human resources departments focus on a specific strategic direction to create value for the organization.
What is the meaning of an organization’s mission?
A mission is a statement of the organization’s function in society, often identifying its customers, markets, products, and technologies. It is often used interchangeably with vision.
What is the difference between an organization’s business and its goals?
An organization’s business describes the clear, broad, underlying industry or market sector of an organization’s offering. An organization’s goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time. Goals convert an organization’s mission and business into long- and short-term performance targets to measure how well it is doing.
What is the difference between a marketing dashboard and a marketing metric?
A marketing dashboard is the visual computer display of the essential information related to achieving a marketing objective. Each variable in a marketing dashboard is a marketing metric, which is a measure of the quantitative value or trend of a marketing activity or result.
What is business portfolio analysis?
Business portfolio analysis is a technique that managers use to quantify performance measures and growth targets to analyze its clients’ strategic business units (SBUs) as though they were a collection of separate investments.
Explain the four market-product strategies in diversification analysis.
The four market-product strategies in diversification analysis are (1) Market penetration, which is a marketing strategy to increase sales of current products in current markets. There is no change in either the basic product line or the markets served. Rather, selling more of the product or selling the product at a higher price generates increased sales (2) Market development, which is a marketing strategy to sell current products to new markets. (3) Product development, which is a marketing strategy of selling new products to current markets. (4) Diversification, which is a potentially high-risk marketing strategy of developing new products and selling them in new markets.
What are the three steps of the planning phase of the strategic marketing process?
The three steps of the planning phase of the strategic marketing process are (1) Situation (SWOT) analysis, which involves taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it. To do this, an organization uses a SWOT analysis, an acronym that describes an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats. (2) Market-product focus and goal setting,
which determines what products an organization will offer to which customers. This is often based on market segmentation—aggregating prospective buyers into groups or segments that have common needs and will respond similarly to a marketing action. (3) Marketing program, in which an organization develops the marketing mix elements
and budget for each offering.
What are points of difference and why are they important?
Points of difference are those characteristics of a product that make it superior to competitive substitutes—offerings it faces in the marketplace. They are the single most important factor in the success or failure of a new product.
What is the implementation phase of the strategic marketing process?
The implementation phase carries out the marketing plan that emerges from the planning phase and consists of (1) obtaining resources; (2) designing the marketing organization; (3) developing planning schedules; and (4) executing the marketing program designed in the planning phase.
How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the strategic marketing process?
The planning phase objectives are used as the benchmarks with which the actual performance results are compared in the evaluation phase to identify deviations from the written marketing plans and then correct negative ones or exploit positive ones.
a legal entity that consists of people who share a common mission. Today’s organizations can be divided into business firms and nonprofit organizations.
(products, services, or ideas) that create value for both the organization and its customers by satisfying their needs and wants.
a privately owned organization such as Target, Nike, or Volkswagen that serves its customers to earn a profit so that it can survive.
the money left after a business firm’s total expenses are subtracted from its total revenues and is the reward for the risk it undertakes in marketing its offerings.
a nongovernmental organization that serves its customers but does not have profit as an organizational goal. Instead, its goals may be operational efficiency or client satisfaction. Regardless, it also must receive sufficient funds above its expenses to continue operations. Social entrepreneurs, like Teach For America, SightLife, and Hand in Hand International described in the Making Responsible Decisions box, seek to solve the practical needs of society and are usually structured as nonprofit organizations.
Organizations that develop similar offerings create an industry, such as the computer industry or the automobile industry. As a result, organizations make strategic decisions that reflect the dynamics of the industry to create a compelling and sustainable advantage for their offerings relative to those of competitors to achieve a superior level of performance. The foundation of much of an organization’s marketing strategy is having a clear understanding of the industry within which it competes.
strategy (vs tactics)
an organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals. All organizations set a strategic direction. And marketing helps to both set this direction and move the organization there.
Tactics — short term plans and courses of action, often “corrective”
where top management directs overall strategy for the entire organization. “Top management” usually means the board of directors and senior management officers with a variety of skills and experiences that are invaluable in establishing overall strategy. The board of directors oversees the three levels of strategy in organizations: corporate, strategic business unit, and functional.
strategic business unit (SBU)
a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly defined group of customers. ex: Some multimarket, multiproduct firms, such as General Electric and Johnson & Johnson, manage a portfolio or group of businesses and each is a SBU.
strategic business unit level
at the strategic business unit level, managers set a more specific strategic direction for their businesses to exploit value-creating opportunities. For less complex firms with a single business focus, such as Ben & Jerry’s, the corporate and business unit levels may merge.
Each strategic business unit has a functional level, where groups of specialists actually create value for the organization. The term department generally refers to these specialized functions such as marketing, finance, information systems, research & development, manufacturing, human resources. At the functional level, the organization’s strategic direction becomes its most specific and focused. Just as there is a hierarchy of levels within an organization, there is a hierarchy of strategic directions set by managers at each level.
A key role of the marketing department is to look outward, keeping the organization focused on creating value both for it and for customers. This is accomplished by listening to customers, developing and producing offerings, and implementing marketing program activities.
When developing marketing programs for new offerings or for improving existing ones, an organization’s senior management may form cross-functional teams. These consist of a small number of people from different departments who are mutually accountable to accomplish a task or a common set of performance goals. Sometimes these teams will have representatives from outside the organization, such as suppliers or customers, to assist them.
Today’s visionary organization uses key elements to?
(1 ) establish a foundation and (2) set a direction using (3) strategies that enable it to develop and market its offerings successfully.
Organizational foundation (why)
• Core values
• Mission (vision)
• Organizational culture
Organizational direction (what)
• Goals (objectives)
Organizational strategies (how)
• By level: Corporate, SBU, Functional
• By offering: Product, Service, Idea
An organization’s core values are the fundamental, passionate, and enduring principles that guide its conduct over time. A firm’s founders or senior management develop these core values, which are consistent with their essential beliefs and character. They capture the firm’s heart and soul and serve to inspire and motivate its stakeholders—employees, shareholders, board of directors, suppliers, distributors, creditors, unions, government, local communities, and customers. Core values also are timeless and should not change due to short-term financial, operational, or marketing concerns. Finally, core values guide the organization’s conduct. To be effective, an organization’s core values must be communicated to and supported by its top management and employees; if not, they are just hollow words.
By understanding its core values, an organization can take steps to define its mission, a statement of the organization’s function in society that often identifies its customers, markets, products, and technologies. Often used interchangeably with vision, a mission statement should be clear, concise, meaningful, inspirational, and long-term.
the set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization. An organization must connect with all of its stakeholders. Thus, an important corporate-level marketing function is communicating its core values and mission to them
Organizational Direction: What Will It Do?
the organization’s foundation enables it to set a direction in terms of (1) the “business” it is in and (2) its specific goals.
describes the clear, broad, underlying industry or market sector of an organization’s offering. To help define its business, an organization looks at the set of organizations that sell similar offerings—those that are in direct competition with each other—such as “the ice cream business.” The organization can then begin to answer the questions, “What do we do?” or “What business are we in?”
the strategies an organization develops to provide value to the customers it serves. Technological innovation is often the trigger for this business model change. With today’s increased global competition, many organizations are rethinking their business model.
Key question: Whether by us or a competitor, how else can the same or greater value be provided to our customers? Consider textbook authors
Goals or objectives
Goals or objectives (terms used interchangeably in this book) are statements of an accomplishment of a task to be achieved, often by a specific time. For example, Netflix might set a goal of being the top provider of online movies by 2012. Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can pursue several different types of goals: profit, sales, market share, quality, customer satisfaction, employee welfare, social responsibility
S.M.A.R.T. Specific, Measurable, Attainable, Relevant, Time-Based
Nonprofit organizations (such as museums and hospitals) also have goals, such as to serve consumers as efficiently as possible. Similarly, government agencies set goals that seek to serve the public good.
Most firms seek to maximize profits—to get as high a financial return on their investments (ROI) as possible.
Sales (dollars or units)
If profits are acceptable, a firm may elect to maintain or increase its sales even though profits may not be maximized.
the ratio of sales revenue of the firm to the total sales revenue of all firms in the industry, including the firm itself.
A firm may offer the highest quality, as Medtronic does with its implantable medical devices.
Customers are the reason the organization exists, so their perceptions and actions are of vital importance. Satisfaction can be measured with surveys or by the number of customer complaints an organization receives.
A firm may recognize the critical importance of its employees by stating its goal of providing them with good employment opportunities and working conditions.
Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare, even at the expense of profits.
organizational strategies vary in at least two ways:
depending on (1) a strategy’s level in the organization and (2) the offerings an organization provides to its customers.
Variation by Level
Moving down an organization involves creating increasingly specific, detailed strategies and plans. For example, at the corporate level, top managers may struggle with writing a meaningful mission statement; while at the functional level, the issue is whether Joan or Adam makes tomorrow’s sales call.
Variation by Offering
Organizational strategies also vary by the organization’s offering. The strategy will be far different when marketing a very tangible physical product (a Medtronic heart pacemaker), a service (a Southwest Airlines flight), or an idea (a donation to the American Red Cross).
Although marketing managers can set strategic directions for their organizations, how do they know if they are making progress in getting there?
One answer is to measure performance by using marketing dashboards.
the visual computer display of the essential information related to achieving a marketing objective. Often, active hyperlinks provide further detail. An example is when a chief marketing officer (CMO) wants to see daily what the effect of a new TV advertising campaign is on a product’s sales. The idea of a marketing dashboard really comes from the display of information found on a car’s dashboard. On a car’s dashboard we glance at the fuel gauge and take action when our gas is getting low. With a marketing dashboard, a marketing manager glances at a graph or table and makes a decision whether to take action or to analyze the problem further. An effective marketing dashboard helps managers assess a business situation at a glance.
Each display in a marketing dashboard shows a marketing metric, which is a measure of the quantitative value or trend of a marketing activity or result. 2 8 The choice of which marketing metrics to display is critical for a busy marketing manager, who can be overwhelmed with irrelevant data.
Today’s marketers use data visualization, which presents information about an organization’s marketing metrics graphically so marketers can quickly (1) spot deviations from plans and (2) take corrective actions. ex: The Sonatica marketing dashboard in Figure 2-3 uses data visualization tools like graphs and a map to provide a snapshot of how parts of its business are performing as of December 2011
Most organizations tie the marketing metrics they track in their marketing dashboards to the quantitative objectives established in their marketing plan, which is a road map for the marketing activities of an organization for a specified future time period, such as one year or five years. The planning phase of the strategic marketing process (discussed later in this chapter) usually results in a marketing plan that sets the direction for the marketing activities of an organization.
To set a strategic direction, an organization needs to answer two difficult questions:
(1) Where are we now? and (2) Where do we want to go?
What do we do best? The answer involves an assessment of the organization’s core competencies, which are its special capabilities—the skills, technologies, and resources—that distinguish it from other organizations and provide customer value. Exploiting these competencies can lead to success.
What do we do better than others? Competencies should be distinctive enough to provide a competitive advantage, a unique strength relative to competitors that provides superior returns, often based on quality, time, cost, or innovation.
In today’s global marketplace, the distinctions among competitors are increasingly blurred.
Growth Strategies: Where Do We Want to Go?
Knowing where the organization is at the present time enables managers to set a direction for the firm and allocate resources to move in that direction. Two techniques to aid managers with these decisions are (1) business portfolio analysis and (2) diversification analysis.
business portfolio analysis
The Boston Consulting Group (BCG), a nationally known management consulting firm, has developed business portfolio analysis. It is a technique that managers use to quantify performance measures and growth targets to analyze their firms’ strategic business units (SBUs) as though they were a collection of separate investments. The purpose of the tool is to determine the appeal of each SBU or offering and then determine the amount of cash each should receive. More than 75 percent of the largest U.S. firms have used this analytical tool. More than 75 percent of the largest U.S. firms have used this analytical tool.
The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix. The vertical axis is the market growth rate, The horizontal axis is the relative market share
The BCG has given specific names and descriptions to the four resulting quadrants in its growth-share matrix based on the amount of cash they generate for or require from the organization: Cash cows, stars, question marks, dogs.
An organization’s SBUs often start as question marks and go counterclockwise around to become stars, then cash cows, and finally dogs.
Because an organization has limited influence on the market growth rate, its main alternative is to try to change its relative market share. To do this, management decides what future role each SBU should have and either injects or removes cash from it.
market growth rate
the annual rate of growth of the SBU’s industry.
relative market share
defined as the sales of the SBU divided by the sales of the largest firm in the industry. A relative market share of 10 X (at the left end of the scale) means that the SBU has 10 times the share of its largest competitor, whereas a share of 0.1 X (at the right end of the scale) means it has only 10 percent of the share of its largest competitor.
SBUs that generate large amounts of cash, far more than they can invest profitably in themselves. They have dominant shares of slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs.
SBUs with a high share of high-growth markets that may need extra cash to finance their own rapid future growth. When their growth slows, they are likely to become cash cows.
SBUs with a low share of high-growth markets. They require large injections of cash just to maintain their market share, much less increase it. The name implies management’s dilemma for these SBUs: choosing the right ones to invest in and phasing out the rest.
SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain themselves, they do not hold the promise of ever becoming real winners for the organization. Dropping SBUs that are dogs may be required, except when relationships with other SBUs, competitive considerations, or potential strategic alliances exist
strengths and weaknesses of portfolio analysis?
The primary strength of business portfolio analysis lies in forcing a firm to place each of its SBUs in the growth-share matrix, which in turn suggests which SBUs will be cash producers and cash users in the future. Weaknesses of this analysis arise from the difficulty in (1) getting the needed information and (2) incorporating competitive data into business portfolio analysis.
a technique that helps a firm search for growth opportunities from among current and new markets as well as current and new products. For any market, there is both a current product (what the firm now sells) and a new product (what the firm might sell in the future). And for any product there is both a current market (the firm’s existing customers) and a new market (the firm’s potential customers).
a marketing strategy to increase sales of current products in current markets, such as selling more Ben & Jerry’s Bonnaroo Buzz Fair Trade-sourced ice cream to U.S. consumers. There is no change in either the basic product line or the markets served. Increased sales are generated by selling either more ice cream (through better promotion or distribution) or the same amount of ice cream at a higher price to its current customers.
a marketing strategy to sell current products to new markets. For Ben & Jerry’s, Brazil is an attractive new market. There is good news and bad news for this strategy: As household incomes of Brazilians increase, consumers can buy more ice cream; however, the Ben & Jerry’s brand may be unknown to Brazilian consumers.
a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage its brand by selling children’s clothing in the United States. This strategy is risky because Americans may not see the company’s expertise in ice cream as extending to children’s clothing.
a marketing strategy of developing new products and selling them in new markets. This is a potentially high-risk strategy for Ben & Jerry’s if it decides to try to sell Ben & Jerry’s branded clothing in Brazil. Why? Because the firm has neither previous production nor marketing experience on which to draw in marketing clothing to Brazilian consumers.
strategic marketing process
organization uses strategic marketing process, whereby an organization allocates its marketing mix resources to reach its target markets (This process is divided into three phases: planning, implementation, and evaluation), to answer 3 questions: 1. How do we allocate our resources to get where we want to go? 2. How do we convert our plans into actions? 3. How do our results compare with our plans, and do deviations require new plans?
three steps in the planning phase of the strategic marketing process:
(1) situation (SWOT) analysis, (2) market-product focus and goal setting, and (3) the marketing program.
Step 1: Situation (SWOT) Analysis:
The essence of situation analysis is taking stock of where the firm or product has been recently, where it is now, and where it is headed in terms of the organization’s marketing plans and the external forces and trends affecting it. An effective summary of a situation analysis is a SWOT analysis, an acronym describing an organization’s appraisal of its internal Strengths and Weaknesses and its external Opportunities and Threats.
The SWOT analysis is based on an exhaustive study of four areas that form the foundation upon which the firm builds its marketing program:
● Identify trends in the organization’s industry.
● Analyze the organization’s competitors.
● Assess the organization itself.
● Research the organization’s present and prospective customers.
goal of SWOT analysis
The task is to translate the results of the SWOT analysis into specific actions that will help the firm grow. The ultimate goal is to identify the critical strategy-related factors that impact the firm and then build on vital strengths, correct glaring weaknesses, exploit significant opportunities, and avoid disaster-laden threats.
Step 2: Market-Product Focus and Goal Setting:
Determining which products will be directed toward which customers (step 2 of the planning phase) is essential for developing an effective marketing program (step 3). This decision is often based on market segmentation, Points of Difference
Example: Medtronic’s Pacemaker-Set Marketing & Product Goals, Select Target Markets,Find Points of Difference, Position the Product
involves aggregating prospective buyers into groups, or segments, that (1) have common needs and (2) will respond similarly to a marketing action. This enables an organization to identify the segments on which it will focus its efforts—its target market segments—and develop specific marketing programs to reach them.
Step 3: Marketing Program:
Activities in step 2 tell the marketing manager which customers to target and which customer needs the firm’s product offerings can satisfy—the who and what aspects of the strategic marketing process. The how aspect—step 3 in the planning phase—involves developing the program’s marketing mix (the four Ps: Product strategy, price strategy, promotion strategy, Place (distribution) strategy) and its budget. Each marketing mix element is combined to provide a cohesive marketing program.
Putting this marketing program into effect requires that the firm commit time and money to it in the form of a sales forecast and budget that must be approved by top management.
The Implementation Phase of the Strategic Marketing Process:
the result of the tens or hundreds of hours spent in the planning phase of the strategic marketing process is the firm’s marketing plan. Implementation, the second phase of the strategic marketing process, involves carrying out the marketing plan that emerges from the planning phase. If the firm cannot put the marketing plan into effect—in the implementation phase—the planning phase was a waste of time. There are four components of the implementation phase: (1) obtaining resources, (2) designing the marketing organization, (3) developing planning schedules, and (4) actually executing the marketing program designed in the planning phase.
Designing the Marketing Organization:
A marketing program needs a marketing organization to implement it.
typical manufacturing firm marketing department’s structure. Four managers of marketing activities are shown to report to the vice president of marketing or chief marketing officer. Several regional sales managers and an international sales manager may report to the manager of sales. The product or brand managers and their subordinates help plan, implement, and evaluate the marketing plans for their offerings. However, the entire marketing organization is responsible for converting these marketing plans into reality.
Executing the Marketing Program:
Marketing plans are meaningless pieces of paper without effective execution of those plans. Effective execution requires attention to detail for both marketing strategies and marketing tactics.
the means by which a marketing goal is to be achieved, usually characterized by a specified target market and a marketing program to reach it. The term implies both the end sought (target market) and the means to achieve it (marketing program).
To implement a marketing program successfully, hundreds of detailed decisions are often required. These decisions, called marketing tactics, are detailed day-to-day operational decisions essential to the overall success of marketing strategies.
The evaluation phase of the strategic marketing process
seeks to keep the marketing program moving in the direction set for it. Accomplishing this requires the marketing manager to (1) compare the results of the marketing program with the goals in the written plans to identify deviations and (2) act on these deviations—correcting negative deviations and exploiting positive ones.
Planners call this the planning gap: (a wedge-shaped shaded gap in the figure) the difference between the projection of the path to reach a new goal (line BD) and the projection of the path of the results of a plan already in place (line BC). The ultimate purpose of the firm’s marketing program is to “fill in” this planning gap
Acting on Deviations:
When evaluation shows that actual performance has failed to meet expectations, managers need to take corrective actions. In response to the negative and positive deviations from targets, task force might consider the following:
● Exploiting a positive deviation.
● Correcting a negative deviation.
Describe how core values, mission, organizational culture, business, and goals are important to organizations.
Organizations exist to accomplish something for someone. To give organizations direction and focus, they continuously assess their core values, mission, organizational culture, business, and goals. Today’s organizations specify their foundation, set a direction, and formulate strategies—the “why,” “what,” and “how” factors, respectively. Core values are the organization’s fundamental, passionate, and enduring principles that guide its conduct over time—what Enron forgot when it lost sight of its responsibilities to its stakeholders. The organization’s mission is a statement of its function in society, often identifying its customers, markets, products, and technologies. Organizational culture is a set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization. To answer the question, “What business are we in?” an organization defines its “business”—the clear, broad, underlying industry category or market sector of its offering. Finally, the organization’s goals (or objectives) are statements of an accomplishment of a task to be achieved, often by a specific time.
Explain why managers use marketing dashboards and marketing metrics.
Marketing managers use marketing dashboards to visually display on a single computer screen the essential information required to make a decision to take an action or further analyze a problem. This information consists of key performance measures of a product category, such as sales or market share, and is known as a marketing metric, which is a measure of the quantitative value or trend of a marketing activity or result. Most organizations tie their marketing metrics to the quantitative objectives established in their marketing plan, which is a road map for the marketing activities of an organization for a specified future time period, such as one year or five years.
Discuss how an organization assesses where it is now and where it seeks to be.
Managers of an organization ask two key questions to set a strategic direction. The first question, “Where are we now?” requires an organization to (a) reevaluate its competencies to ensure that its special capabilities still provide a competitive advantage; (b) assess its present and prospective customers to ensure they have a satisfying customer experience—the central goal of marketing today; and (c) analyze its current and potential competitors from a global perspective to determine whether it needs to redefine its business.
The second question, “Where do we want to go?” requires an organization to set a specific direction and allocate resources to move it in that direction. Business portfolio and diversification analyses help an organization do this. Managers use business portfolio analysis to assess the organization’s strategic business units (SBUs), product lines, or individual products as though they were a collection of separate investments (cash cows, stars, question marks, and dogs) to determine the amount of cash each should receive. Diversification analysis is a tool that helps managers use one or a combination of four strategies to increase revenues: market penetration (selling more of an existing product to existing markets); market development (selling an existing product to new markets); product development (selling a new product to existing markets); and diversification (selling new products to new markets).
Explain the three steps of the planning phase of the strategic marketing process.
An organization uses the strategic marketing process to allocate its marketing mix resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation. The planning phase consists of (a) a situation (SWOT) analysis, which involves taking stock of where the firm or product has been recently, where it is now, and where it is headed. This assessment focuses on the organization’s internal factors (strengths and weaknesses) and the external forces and trends affecting it (opportunities and threats); (b) a market-product focus through market segmentation—grouping buyers into segments with common needs and similar responses to marketing programs—and goal setting, which in part requires creating points of difference—those characteristics of a product that make it superior to competitive substitutes; and (c) a marketing program that specifies the budget and activities (marketing strategies and tactics) for each marketing mix element.
Describe the elements of the implementation and evaluation phases of the strategic marketing process.
The implementation phase of the strategic marketing process carries out the marketing plan that emerges from the planning phase. It has four key elements: (a) obtaining resources; (b) designing the marketing organization to perform product management, marketing research, sales, and advertising and promotion activities; (c) developing schedules to identify the tasks that need to be done, the time that is allocated to each one, the people responsible for each task, and the deadlines for each task’s accomplishment; and (d) executing the marketing strategies, which are the means by which marketing goals are to be achieved, and their associated marketing tactics, which are the detailed day-to-day operational decisions essential to the overall success of a firm’s marketing strategies. These are the marketing program actions a firm takes to achieve the goals set forth in its marketing plan. The evaluation phase of the strategic marketing process seeks to keep the marketing program moving in the direction that was established in the marketing plan. This requires the marketing manager to compare the results from the marketing program with the marketing plan’s goals to (a) identify deviations or “planning gaps” and (b) take corrective actions to exploit positive deviations or correct negative ones.
What are the two main themes of Chapter 2?
1. The structure of business organizations and marketing’s place in the organization
2.The Strategic Marketing Process
Most organizations think strategically. If they don’t…
It’s better to do so using formal planning
Define marketing and identify the diverse factors influencing marketing activities.
Marketing is an organizational function and a set of processes for creating, communicating, and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. This definition relates to two primary goals of marketing: (a) discovering the needs of prospective customers and (b) satisfying them. Achieving these two goals also involves the four marketing mix factors largely controlled by the organization and the five environmental forces that are generally outside its control.
Explain how marketing discovers and satisfies consumer needs.
The first objective in marketing is discovering the needs and wants of consumers who are prospective buyers and customers. This is not easy because consumers may not always know or be able to describe what they need and want. A need occurs when a person feels deprived of basic necessities such as food, clothing, and shelter. A want is a need that is shaped by a person’s knowledge, culture, and personality. Effective marketing can clearly shape a person’s wants and tries to influence what he or she buys. The second objective in marketing is satisfying the needs of targeted consumers. Because an organization obviously can’t satisfy all consumer needs, it must concentrate its efforts on certain needs of a specific group of potential consumers or target market—one or more specific groups of potential consumers toward which an organization directs its marketing program. Having selected its target market consumers, the organization then takes action to satisfy their needs by developing a unique marketing program to reach them.
Distinguish between marketing mix factors and environmental forces.
Four elements in a marketing program designed to satisfy customer needs are product, price, promotion, and place. Theseelements are called the marketing mix, the four Ps, or the controllable variables because they are under the general control of the marketing department. Environmental forces, also called uncontrollable variables, are largely beyond the organization’s control. These include social, economic, technological, competitive, and regulatory forces.
Explain how organizations build strong customer relationships and customer value through marketing.
The essence of successful marketing is to provide sufficient value to gain loyal, long-term customers. Customer value is the unique combination of benefits received by targeted buyers that usually includes quality, price, convenience, on-time delivery, and both before-sale and after-sale service. Marketers do this by using one of three value strategies: best price, best product, or best service.
Describe how today’s customer relationship era differs from prior eras.
U.S. business history is divided into four overlapping periods: the production era, the sales era, the marketing concept era, and the current customer relationship era. The production era covers the period up until the 1920s, when buyers were willing to accept virtually any goods that were available. The central notion was that products would sell themselves. The sales era lasted from the 1920s to the 1960s. Manufacturers found they could produce more goods than buyers could consume, and competition grew, so the solution was to hire more salespeople to find new buyers. In the late 1950s, the marketing concept era dawned when organizations adopted a strong market orientation and integrated marketing into each phase of their business. In today’s customer relationship era that started in the 1980s, organizations seek continuously to satisfy the high expectations of customers—an aggressive extension of the marketing concept era.
What is marketing?
Marketing is the activity for creating, communicating, delivering, and exchanging offerings that benefit the organization, its stakeholders, and society at large .
Marketing focuses on _________ and_________ consumer needs.
What four factors are needed for marketing to occur?
The four factors are (1) two or more parties (individuals or organizations) with unsatisfied needs; (2) a desire and ability to have their needs satisfied; (3) a way for the parties to communicate; and (4) something to exchange.
An organization can’t satisfy the needs of all consumers, so it must focus on one or more subgroups, which are its _________________.
What are the four marketing mix elements that make up the organization’s marketing program?
product, price, promotion, place
What are environmental forces?
Environmental forces are those that the organization’s marketing department can’t control. These include social, economic, technological, competitive, and regulatory forces.
What are the two key characteristics of the marketing concept?
An organization should (1) strive to satisfy the needs of consumers (2) while also trying to achieve the organization’s goals.
What is the difference between ultimate consumers and organizational buyers?
Ultimate consumers are the people who use the goods and services purchased for a household. Organizational buyers are those manufacturers, wholesalers, retailers, and government agencies that
buy goods and services for their own use or for resale.
the trade of things of value between buyer and seller so that each is better off after the trade.
people with both the desire and the ability to buy a specific offering (potential consumers)
one or more specific groups of potential consumers toward which an organization directs its marketing program.
good, service, or idea to satisfy the consumer’s needs
what is exchanged for the product.
A means of communication between the seller and buyer
A means of getting the product to the consumer
These four elements are the controllable factors—product, price, promotion, and place—that can be used by the marketing manager to solve a marketing problem. marketing mix elements are called controllable factors because they are under the control of the marketing department in an organization.
customer value proposition
a cluster of benefits that an organization promises customers to satisfy their needs. For example, Walmart’s customer value proposition can be described as “everyday low prices for a broad range of products that are always in stock in convenient locations.”
the unique combination of benefits received by targeted buyers that includes quality, convenience, on-time delivery, and both before-sale and after-sale service at a specific price. Loyal, satisfied customers are likely to repurchase more over time.
That firms gain loyal customers by providing unique value is the essence of successful marketing. What is new, however, is a more careful attempt at understanding how a firm’s customers perceive value and then actually creating and delivering that value.
How does a firm achieve meaningful customer relationships?
A firm achieves meaningful customer relationships by creating connections with its customers through careful coordination of the product, its price, the way it’s promoted, and how it’s placed.
links the organization to its individual customers, employees, suppliers, and other partners for their mutual long-term benefit. In terms of selling a product, relationship marketing involves a personal, ongoing relationship between the organization and its individual customers that begins before and continues after the sale.
The hallmark of developing and maintaining effective customer relationships today
a plan that integrates the marketing mix to provide a good, service, or idea to prospective buyers. These prospects then react to the offering favorably (by buying) or unfavorably (by not buying), and the
process is repeated. As shown in Figure 1-3, in an effective organization this process is continuous: Consumer needs trigger product concepts that are translated into actual products that stimulate further discovery of consumer needs.
the idea that an organization should (1) strive to satisfy the needs of consumers (2) while also trying to achieve the organization’s goals. General Electric probably launched the marketing concept and its focus on consumers when its 1952 annual report stated: “The concept introduces . . . marketing . . . at the beginning rather than the end of the production cycle and integrates marketing into each phase of the business.
Starting in the late 1950s, marketing became the motivating force among many American firms and the marketing concept era dawned
An organization that has a market orientation focuses its efforts on (1) continuously collecting information about customers’ needs, (2) sharing this information across departments, and (3) using it to create customer value. The result shown in Figure 1-5 on the next page is today’s customer relationship era that started in the 1980s, in which firms seek continuously to satisfy the high expectations of customers.
customer relationship management (CRM)
the process of identifying prospective buyers, understanding them intimately, and developing favorable long-term perceptions of the organization and its offerings so that buyers will choose them in the marketplace. This process requires the involvement and commitment of managers and employees throughout the organization and a growing application of information, communication, and Internet technology, as will be described throughout this book. Unfortunately, many expensive CRM computer systems have not provided the expected benefits because they failed to identify exactly which customer segments the company wanted to reach.
the internal response that customers have to all aspects of an organization and its offering. This internal response includes both the direct and indirect contacts of the customer with the company. Direct contacts include the customer’s contacts with the seller through buying, using, and obtaining service. Indirect contacts most often involve unplanned “touches” with the company through word-of-mouth comments from other customers, reviewers, and news reports.
The foundation of customer relationship management
The disconnect between what companies think they are providing versus what customers say they are receiving shows how important customer experience
the idea that organizations are accountable to a larger society.
societal marketing concept
the view that organizations should satisfy the needs of consumers in a way that provides for society’s well-being.
Every organization markets. It’s obvious that business firms involved in manufacturing (Heinz), retailing (Target), and providing services (Marriott) market their offerings. And nonprofit organizations such as your local hospital, your college, places (cities, states, countries), and even special causes (Race for the Cure) also engage in marketing. Finally, individuals such as political candidates often use marketing to gain voter attention and preference.
What Is Marketed?
Goods, services, and ideas are marketed. Goods are physical objects, such as toothpaste, cameras, or computers, that satisfy consumer needs. Services are intangible items such as airline trips, financial advice, or art museums. Ideas are thoughts about concepts, actions, or causes.
a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers’ needs and is received in exchange for money or something else of value.
Who Buys and Uses What Is Marketed?
Both individuals and organizations buy and use goods and services that are marketed.
the people—whether 80 years or eight months old—who use the products and services purchased for a household.
manufacturers, wholesalers, retailers, and government agencies that buy products and services for their own use or for resale
In our free-enterprise society there are three specific groups that benefit from effective marketing: consumers who buy, organizations that sell, and society as a whole. True competition between products and services in the marketplace ensures that consumers can find value from the best products, the lowest prices, or exceptional service. Providing choices leads to the consumer satisfaction and quality of life that we have come to expect from our economic system.
Organizations that provide need-satisfying products with effective marketing programs—for example, Target, IBM, and Avon—have blossomed. But competition creates problems for ineffective competitors, such as eToys and hundreds of other dot-com businesses that failed a decade ago.
Finally, effective marketing benefits society. It enhances competition, which both improves the quality of products and services and lowers their prices. This makes countries more competitive in world markets and provides jobs and a higher standard of living for their citizens.
How Do Consumers Benefit?
Marketing creates utility
the benefits or customer value received by users of the product. This utility is the result of the marketing exchange process and the way society benefits from marketing. There are four different utilities: form, place, time, and possession. The production of the
product or service constitutes form utility. Place utility means having the offering available where consumers need it, whereas time utility means having it available when needed. Possession utility is the value of making an item easy to purchase through the provision of credit cards or financial arrangements. Marketing creates its utilities by bridging space (place utility) and hours (time utility) to provide products (form utility) for consumers to own and use (possession utility).
Does a firm have the right to “create” wants and try to persuade consumers to buy goods and services they didn’t know about earlier?
Yes, a firm has the right to create wants in an attempt to persuade consumers to buy products they didn’t know about in the past; new medicines to treat those having high blood pressure or heart attacks are good examples.
What are examples of “good” and “bad” want creation?
In a free society where we value free choice by the individual, it is difficult to condemn “bad” candy bars and soft drinks over “good” apples and orange juice if the individual’s choice only affects him or her.
Who should decide what is good and bad want creation?
Our society says what is “good” and “bad” is up to the individual unless there are major costs to society as a whole in letting the individual have free choice. Thus, in the case of products like firearms and drugs, society determines what is “good” and “bad” and sets rules or laws controlling their use.
Where is this heading? We already have “sin taxes” Cigarettes; alcoholic beverages.Taxing bad food and beverage products that cause ill health later in life, where the costs for care are borne by society’s taxpayers.
What is a need?
Occurs when a person feels physiologically deprived of basic necessities, such as food, clothing and shelter.Physiological basis. Needs are generic
What is a want?
A need shaped by a person’s knowledge, culture and personality. Learned basis. Marketing does not create need; it shapes wants. Wants are specific
As used in the marketing context, what’s another synonym for needs and wants?
Is the target market the market of actual purchasers?
Why devote efforts to the target market?
efficient, creates brand image, largest portion of all consumers of product
Can different organization’s have the same target market?
If so, what are the implications?
yes, implications: allies or competitors, what differentiates them in a positive way from their competitors? ex. beer
companies, suppliers, investors, customers. with profit pays taxes
Describe three generational cohorts.
(1) Baby boomers are those among the U.S. population born between 1946 and 1964. These Americans are growing older and are the wealthiest generation in U.S. history. (2) Generation X are those among the 15 percent of the U.S. population born between 1965 and 1976. These well-educated Americans, also known as the baby bust cohort because of declining birth rates, have a collective net worth that is less than the baby boomer generation. (3) Generation Y are the 72 million Americans among the U.S. population born between 1977 and 1994.
The rising birth rate of this “baby boomlet” cohort is the result of baby boomers having children. A subset of this generational cohort are millennials, who are younger Americans born since 1994. Because each generational cohort has its distinct attitudes and behaviors, marketers have developed generational marketing programs for each of them
Why are many companies developing multicultural marketing programs?
Multicultural marketing programs consist of combinations of the marketing mix that reflect the unique attitudes, ancestry, communication preferences, and lifestyles of different races. The reasons for developing these programs are (1) The racial and ethnic diversity of the United States is changing rapidly due to the increases in the African American, Asian, and Hispanic populations, which increases their economic impact. (2) An accurate understanding of the culture of each group is essential if marketing efforts are to be successful. (3) Based on an analysis of population demographic data, racial and ethnic groups tend to be concentrated in specific geographic regions.
How are important values such as sustainability reflected in the marketplace today?
Many Americans desire and practice sustainability to preserve the environment. Specifically, these consumers buy hybrid cars and energy-efficient light bulbs. Consumers also prefer brands that have a strong link to social action (like Ben & Jerry’s—see Chapter 2). Companies are responding to this consumer trend by using renewable energy in producing and reducing packaging of their products.
What is the difference between a consumer’s disposable and discretionary income?
Disposable income is the money a consumer has left after paying taxes to use for necessities such as food, housing, clothing, and transportation. Discretionary income is the money that remains after paying for taxes and necessities and is used for luxury items.
How does technology impact customer value? (3 ways)
(1) Consumers can now assess value on the basis of other dimensions, such as quality, service, and relationships, due to the decline in the cost of technology. (2) Technology provides value through the development of new products. (3) Technology has changed the way existing products are produced through recycling and precycling.
In pure competition there are a ___________ number of sellers.
The ___________ Act was punitive toward monopolies, whereas the ___________ Act was preventive.
Sherman Antitrust; Clayton
Describe some of the recent changes in trademark law.
The Trademark Law Revision Act (1988) allows companies to secure rights to a name before its actual use by declaring an intent to use the name. In 2003, the United States agreed to participate in the Madrid Protocol, which is a treaty that facilitates the protection of U.S. trademark rights. Also, the U.S. Supreme Court recently ruled that a company may obtain trademarks for colors associated with their products. Finally, the Federal Dilution Act of 1995 prevents someone from using a trademark on a noncompeting product (such as the “Cadillac” of brushes).
How does the Better Business Bureau encourage companies to follow its standards for commerce?
The Better Business Bureau (BBB) uses moral suasion to get members to comply with its standards. Companies, which join the BBB voluntarily, must agree to follow these standards before they are
allowed to display the BBB logo.
The process of continually acquiring information on events occurring outside the organization to identify and interpret potential trends. Changes in the marketing environment are a source of opportunities and threats to be managed. Environmental scanning also involves explaining trends.
Environmental trends typically arise from five sources:
social, economic, technological, competitive, and regulatory forces C-PEST. These forces affect the marketing activities of a firm in numerous ways. Environmental forces affect the organization, as well as its suppliers and customers.
• Changing technology
• Technology’s impact on customer value
• Electronic business technologies
• Alternative forms of competition
• Small businesses
• Laws protecting competition
• Laws affecting marketing mix actions
social forces of the environment
include the demographic characteristics of the population and its values. Changes in these forces can have a dramatic impact on marketing strategy.
Describing a population according to selected characteristics such as age, gender, ethnicity, income, and occupation. Several organizations such as the Population Reference Bureau and the United Nations monitor the
world population profile, while many other organizations such as the U.S. Census Bureau provide information about the American population.
population (World and US), generational cohorts, ethnic and racial diversity, american household, population shifts
The most recent estimates indicate there are 6.9 billion people in the world today, and the population is likely to grow to 9.4 billion by 2050. While this growth has led to the term population explosion, the increases have not occurred worldwide; they are primarily in the developing countries of Africa, Asia, and Latin America.
shifting age structure of the world population
important global trend is the shifting age structure of the world population. Worldwide, the number of people 60 years and older is expected to more than triple in the coming decades and reach 2 billion by 2050. Again, the magnitude of this trend varies by
region, and developed countries such as the United States are expected to face the highest growth rates of the elderly age group.
Generational Cohorts A major reason for the graying of America is that the 76 million baby boomers—the generation of children born between 1946 and 1964—are growing older. Baby boomers are retiring at a rate of 10,000 every 24 hours, and they will all be 65 or older by 2030. Their participation in the workforce has made them the wealthiest generation in U.S. history, accounting for an estimated 50 percent of all consumer spending.
The baby boom cohort is followed by Generation X, which includes the 15 percent of the population born between 1965 and 1976. This period is also known as the baby bust, because the number of children born each year was declining. This is a generation of consumers who are self-reliant, supportive of racial and ethnic diversity, and better educated than any previous generation. They are not prone to extravagance and are likely to pursue lifestyles that are a blend of caution, pragmatism, and traditionalism. In addition, they are collaborative decision makers. In terms of net worth, Generation X is the first generation to have less than the previous generation. As baby boomers move toward retirement, however, Generation X is becoming a dominant force in many markets. Generation X, for example, is replacing baby boomers as the largest segment of business travelers. In response, hotel companies are creating new concepts that appeal to the younger market. Surveys of Generation X travelers indicate they want casual, tech-friendly lodging with 24-hour access to food and drinks, so Hyatt Corporation is building 400 new Hyatt Place all-suite hotels featuring free wireless Internet, flat-panel high-definition televisions, a 24-hour guest kitchen, a fitness center, and remote printing
The generational cohort labeled Generation Y includes the 72 million Americans born between 1977 and 1994. This was a period of increasing births, which resulted from baby boomers having children, and it is often referred to as the echo-boom or baby boomlet. Generation Y exerts influence on music, sports, computers, video games, and all forms of communication and networking. Generation Y members are interested in distinctive, memorable, and personal experiences and are very adept at managing their lives to create a work-life balance. They are strong-willed, passionate about the environment, and optimistic. This is also a group that is attracted to purposeful work where they have control. The Making Responsible Decisions box
describes how millennials’ interest in sustainability is influencing colleges, graduate schools, and employers. The term millennials is used, with inconsistent definitions, to refer to younger members of Generation Y and sometimes to Americans born since 1994.
generational marketing programs
Because the members of each generation are distinctive in their attitudes and consumer behavior, marketers have been studying the many groups or cohorts that make up the marketplace and have developed generational marketing programs for them.
divorce among baby boomers, appears to be increasing.
The majority of divorced people eventually remarry, which has created the blended family, one formed by merging two previously separated units into a single household. Today, one of every three Americans is a stepparent, stepchild, stepsibling, or some other member of a blended family. Hallmark Cards, Inc., now has specially designed cards and verses for blended families.
multicultural marketing programs
To adapt to this new marketplace, many companies are developing multicultural marketing programs, which are combinations of the marketing mix that reflect the unique attitudes, ancestry, communication preferences, and lifestyles of different races. Because businesses must now market their products to a consumer base with many racial and ethnic identities, in-depth marketing research that allows an accurate understanding of each culture is essential. U.S. is becoming more diverse, the minority racial and ethnic groups tend to be
concentrated in geographic regions. This information allows companies to combine their multicultural marketing efforts with regional marketing activities.
incorporates the set of values, ideas, and attitudes that are learned and shared among the members of a group, social force. Because many of the elements of culture influence consumer buying patterns, monitoring national and global cultural trends is important for marketing.
The Changing Attitudes and Roles of Men and Women
One of the most notable cultural changes in the United States in the past 30 years has been in the attitudes and roles of men and women in the marketplace. Some experts predict that as this trend continues, the buying patterns of men and women will eventually be very similar.Several factors have contributed to the shift in attitudes. First, many young women had career mothers who provided a reference point for lifestyle choices. Second, increased participation in organized sports eliminated one of the most visible inequalities in opportunities for women. And finally, the Internet has provided exposure to the marketplace through a mechanism that makes gender, race, and ethnicity invisible. Recent surveys, however, suggest that many of the 35 million Generation Y women believe that there is still a need for equal opportunities and treatment in the workplace and in politics
Culture also includes values that may differ over time and between countries. During the 1970s, a list of values in the United States included achievement, work, efficiency, and material comfort. Today, commonly held values include personal control, continuous change, equality, individualism, self-help, competition, future orientation, and action. These values are useful in understanding most current behaviors of U.S. consumers, particularly when they are compared to values in other countries. Contrasting values outside the United States, for example, include belief in fate, the importance of tradition, a focus on group welfare, and acceptance of birthright.
the concern for obtaining the best quality, features, and performance of a product or service for a given price—is driving consumption behavior for many products at all price levels. The recession led consumers to cut back on brand-name products such as toothpaste and shampoo so that they could still afford discretionary products such as flat-screen televisions and smartphones. A change in consumption orientation.
pertains to the income, expenditures, and resources that affect the cost of running a business and household. The second component of the environmental scan. two aspects of these economic forces: a macroeconomic view of the marketplace and a microeconomic perspective of consumer income.
Of particular concern at the macroeconomic level is the performance of the economy based on indicators such as GDP (gross domestic product), unemployment, and price changes (inflation or deflation). In an inflationary economy, the cost to produce and buy products and services escalates as prices increase. From a marketing standpoint, if prices rise faster than consumer incomes, the number of items consumers can buy decreases. Periods of declining economic activity are referred to as recessions. During recessions, businesses decrease production, unemployment rises, and many consumers have less money to spend. Consumer expectations about the economy are an important element of environmental scanning. Consumer spending, which accounts for two-thirds of U.S. economic activity, is affected by expectations of the future.
The microeconomic trends in terms of consumer income are also important issues for marketers. Having a product that meets the needs of consumers may be of little value if they are unable to purchase it. A consumer’s ability to buy is related to income, which consists of gross, disposable, and discretionary components.
The total amount of money made in one year by a person, house-hold, or family unit. (or “money income” at the Census Bureau)
(the second income component) the money a consumer has left after paying taxes to use for necessities such as food, housing, clothing, and transportation. Thus, if taxes rise or fall faster than income, consumers are likely to have more or less disposable income. Similarly, dramatic changes in prices of products can require spending adjustments. In recent years, for example, as the price of gasoline increased, consumers found themselves adjusting their spending in other categories. In addition, the decline in home prices has had a psychological impact on consumers, who tend to spend more when they feel their net worth is rising and postpone purchases when it declines. During a recessionary period, spending, debt, and use of credit all decline. The recent downturn has led many consumers to switch from premium brands to lower-priced brands.
(the third component of income) the money that remains after paying for taxes and necessities. Discretionary income is used for luxury items such as a Cunard cruise. An obvious problem in defining discretionary versus disposable income is determining what is a luxury and what is a necessity.
the third environmental force, refers to inventions or innovations from applied science or engineering research. Each new wave of technological innovation can replace existing products and companies.
Technology of Tomorrow
Technological change is the result of research, so it is difficult to predict. Some of the most dramatic technological changes occurring now, however, include the following:
● Social networks will become social platforms that provide functionality, community, and identity well beyond the value provided by traditional corporate websites.
● “Natural user interfaces” will utilize gesture, touch, and voice to change the way we interact with and control computers and complicated machines.
● Green technologies such as SmartGrid infrastructure, online energy management, and consumer-generated energy (e.g., home wind turbines) will gain widespread acceptance among American consumers.
● Biotechnology will be used to develop genetically modified crops to create enough food for a growing world population.
Technology’s Impact on Customer Value
Advances in technology have important effects on marketing. First, the cost of technology is plummeting, causing the customer value assessment of technology-based products to focus on other dimensions such as quality, service, and relationships. Technology also provides value through the development of new products. Technology can also change existing products and the ways they are produced. Many companies are using technological developments to recycle products through the manufacturing cycle several times.
an information- and communication-based electronic exchange environment mostly occupied by sophisticated computer and telecommunication technologies and digitized offerings.
Any activity that uses some form of electronic communication in the inventory, exchange, advertisement, distribution, and payment of goods and services. Network technologies are now used for everything from filing expense reports, to monitoring daily sales, to sharing information with employees, to communicating instantly with suppliers.
Many companies have adapted Internet-based technology internally to support their electronic business strategies. An intranet, for example, is an Internet-based network used within the boundaries of an organization. It is a private network that may or may not be connected to the public Internet. Extranets, which use Internet-based technologies, permit communication between a company and its supplier, distributors, and other partners (such as advertising agencies).
(the fourth component of the environmental scan) refers to the alternative firms that could provide a product to satisfy a specific market’s needs. There are various forms of competition, and each company must consider its present and potential competitors in designing its marketing strategy.
Alternative Forms of Competition:
Four basic forms of competition form a continuum from pure competition to monopolistic competition to oligopoly to pure monopoly.
in which there are many sellers and they each have a similar product. Companies that deal in commodities common to agribusiness (for example, wheat, rice, and grain) often are in a pure competition position in which distribution (in the sense of shipping products) is important but other elements of marketing have little impact.
many sellers compete with substitutable products within a price range. For example, if the price of coffee rises too much, consumers may switch to tea. Coupons or sales are frequently used marketing tactics.
a common industry structure, occurs when a few companies control the majority of industry sales. The wireless telephone industry, for example, is dominated by AT&T, Verizon, and Sprint-Nextel, which have 123, 92, and 48 million subscribers, respectively. Similarly, the entertainment industry in the United States is dominated by Viacom, Disney, and Time Warner, and the major firms in the U.S. defense contractor industry are Boeing, Northrup Grumman, and Lockheed Martin.
Critics of oligopolies suggest that because there are few sellers, price competition among firms is not desirable because it leads to reduced profits for all producers.
occurs when only one firm sells the product. Monopolies are common for producers of goods considered essential to a community: water, electricity, and cable service. Typically, marketing plays a small role in a monopolistic setting because it is regulated by the state or federal government. Government control usually seeks to ensure price protection for the buyer, although deregulation in recent years has encouraged price competition in the electricity market. Concern that Microsoft’s 86 percent share of the PC operating system market was a monopoly led to lawsuits and consent decrees from the U.S. Justice Department and investigations and fines from the European Union. Because Google’s market share of the online search market exceeds 65 percent, the CEO of Google recently asked for guidelines to avoid similar investigations.
Components of Competition
In developing a marketing program, companies must consider the factors that drive competition: entry, the bargaining power of buyers and suppliers, existing rivalries, and substitution possibilities. Scanning the environment requires a look at all of them. These factors relate to a firm’s marketing mix decisions and may be used to create a barrier to entry, increase brand awareness, or intensify a fight for market share.
In considering the competition, a firm must assess the likelihood of new entrants. Additional producers increase industry capacity and tend to lower prices.
barriers to entry
business practices or conditions that make it difficult for new firms to enter the market. A company scanning its environment must consider the possible barriers to entry for other firms. Barriers to entry can be in the form of capital requirements, advertising expenditures, product identity, distribution access, or the cost to customers of switching suppliers. The higher the expense of the barrier, the more likely it will deter new entrants. For example, Western Union and Moneygram dominate the $7 billion money transfer market because of their huge distribution networks of branch offices and global pickup locations. Potential competitors find it difficult to enter the market because lack of distribution limits consumer access.
Power of Buyers and Suppliers
A competitive analysis must consider the power of buyers and suppliers. Powerful buyers exist when they are few in number, there are low switching costs, or the product represents a significant share of the buyer’s total costs. This last factor leads the buyer to exert significant pressure for price competition. A supplier gains power when the product is critical to the buyer and when it has built up the switching costs.
Existing Competitors and Substitutes
Competitive pressures among existing firms depend on the rate of industry growth. In slow-growth settings, competition is more heated for any possible gains in market share. High fixed costs also create competitive pressures for firms to fill production capacity. For example, airlines offer discounts for making early reservations and charge penalties for changes or cancellations in an effort to fill seats, which represent a high fixed cost.
Small Businesses as Competitors
While large companies provide familiar examples of the forms and components of competition, small businesses make up the majority of the competitive landscape for most businesses. Consider that there are approximately 27.5 million small businesses in the United States, which employ half of all private sector employees. In addition, small businesses generate 65 percent of all new jobs annually and 50 percent of the gross domestic product (GDP). Research has shown a strong correlation between national economic growth and the level of new small business activity in previous years.
consists of restrictions state and federal laws place on business with regard to the conduct of its activities. For any organization, the marketing and broader business decisions are constrained, directed, and influenced by regulatory forces. Regulation exists to protect companies as well as consumers. Much of the regulation from the federal and state levels is the result of an active political process and has been passed to ensure competition and fair business practices. For consumers, the focus of legislation is to protect them from unfair trade practices and ensure their safety.
Sherman Antitrust Act (1890)
Protecting Competition, Major federal legislation has been passed to encourage competition, which is deemed desirable because it permits the consumer to determine which competitor will succeed and which will fail. The first such law was the Sherman Antitrust Act (1890).
Lobbying by farmers in the Midwest against fixed railroad shipping prices led to the passage of this act, which forbids (1) contracts, combinations, or conspiracies in restraint of trade and (2) actual monopolies or attempts to monopolize any part of trade or commerce. Because of vague wording and government inactivity, however, there was only one successful case against a company in the nine years after the act became law, and the Sherman Act was supplemented with the Clayton Act (1914).
Clayton Act (1914)
This act forbids certain actions that are likely to lessen competition, although no actual harm has yet occurred.
Robinson-Patman Act (1936)
In the 1930s, the federal government had to act again to ensure fair competition. During that time, large chain stores appeared, such as the Great Atlantic & Pacific Tea Company (A&P). Small businesses were threatened, and they lobbied for the Robinson-Patman Act (1936). This act makes it unlawful to discriminate in prices charged to different purchasers of the same product, where the effect may substantially lessen competition or help to create a monopoly.
Various federal laws in existence specifically address the product component of the marketing mix. Some are aimed at protecting the company, some at protecting the
consumer, and at least one at protecting both.
A company can protect its competitive position in new and novel products under the patent law, which gives inventors the right to exclude others from making, using, or selling products that infringe the patented invention.
federal copyright law
The federal copyright law is another way for a company to protect its competitive position in a product. The copyright law gives the author of a literary, dramatic, musical, or artistic work the exclusive right to print, perform, or otherwise copy that work. Copyright is secured automatically when the work is created. However, the published work should bear an appropriate copyright notice, including the copyright symbol, the first year of publication, and the name of the copyright owner, and it must be registered under the federal copyright law.
Digital Millennium Copyright Act (1998)
Digital technology has necessitated additional copyright legislation, called the Digital Millennium Copyright Act (1998), to improve protection of copyrighted digital products. In addition, producers of DVD movies, music recordings, and software want protection from devices designed to circumvent anti-piracy elements of their products.
consumer-oriented federal laws
There are many consumer-oriented federal laws regarding products. The various laws include more than 30 amendments and separate laws relating to food, drugs, and cosmetics, such as the Infant Formula Act (1980), the Nutritional Labeling and
Education Act (1990), new labeling requirements for dietary supplements (1997), and proposed labeling guidelines for trans fats (2006). broader scope, such as the Fair Packaging and Labeling Act (1966), the Child Protection Act (1966), and the Consumer Product Safety Act (1972), which established the Consumer Product Safety Commission to monitor product safety and establish uniform product safety standards.
Many of these laws came about because of consumerism, a grassroots movement started in the 1960s to increase the influence, power, and rights of consumers in dealing with institutions. This movement continues and is reflected in growing consumer demands for ecologically safe products and ethical and socially responsible business practices. One hotly debated issue concerns liability for environmental abuse.
intended to protect both the firm selling a trademarked product and the consumer buying it.
Lanham Act (1946)
product-related law, which provides for registration of a company’s trademarks. Historically, the first user of a trademark in commerce had the exclusive right to use that particular word, name, or symbol in its business. Registration under the Lanham Act provides important advantages to a trademark owner that has used the trademark in interstate or foreign commerce, but it does not confer ownership.
A company can lose its trademark if it becomes generic, which means that it has primarily come to be merely a common descriptive word for the product. Coca-Cola, Whopper, and Xerox are registered trademarks, and competitors cannot use these names. Aspirin and escalator are former trademarks that are now generic terms in the United States and can be used by anyone.
Trademark Law Revision Act
In 1988, the Trademark Law Revision Act resulted in a major change to the Lanham Act, allowing a company to secure rights to a name before actual use by declaring an intent to use the name.
In 2003, the United States agreed to participate in the Madrid Protocol, which is a treaty that facilitates the protection of U.S. trademark rights throughout the world. Image and video editing software and the Internet have made distribution of unauthorized changes to trademarks—sometimes called doppelgangers—a growing source of concern for many companies.
companies may obtain trademarks for colors associated with their products
One of the most recent changes in trademark law is the U.S. Supreme Court’s ruling that companies may obtain trademarks for colors associated with their products. Over time, consumers may begin to associate a particular color with a specific brand.
Examples of products that may benefit from the new law include NutraSweet’s sugar substitute in pastel blue packages and Owens-Corning Fiberglas Corporation’s pink insulation.
Federal Dilution Act (1995)
used to prevent someone from using a trademark on a noncompeting product (e.g., “Cadillac” brushes).
The pricing component of the marketing mix is the focus of regulation from two perspectives: price fixing and price discounting. Although the Sherman Act did not outlaw price fixing, the courts view this behavior as per se illegal (per se means “through or of itself “), which means the courts see price fixing itself as illegal. Certain forms of price discounting are allowed. Quantity discounts are acceptable; that is, buyers can be charged different prices for a product provided there are differences in manufacturing or delivery costs. Promotional allowances or services may be given to buyers on an equal basis proportionate to volume purchased. Also, a firm can meet a competitor’s price “in good faith.”
The government has four concerns with regard to distribution—earlier referred to as “place” actions in the marketing mix—and the maintenance of competition. exclusive dealing, requirement contracts, Exclusive territorial distributorships, typing arrangement
an arrangement a manufacturer makes with a reseller to handle only its products and not those of competitors. This practice is illegal under the Clayton Act only when it substantially lessens competition.
require a buyer to purchase all or part of its needs for a product from one seller for a time period. These contracts are not always illegal but depend on the court’s interpretation of their impact on distribution.
Exclusive territorial distributorships
a third distribution issue often under regulatory scrutiny. In this situation, a manufacturer grants a distributor the sole rights to sell a product in a specific geographical area. The courts have found few violations with these arrangements.
The fourth distribution strategy whereby a seller requires the purchaser of one product to also buy another item in the line. These contracts may be illegal when the seller has such economic power in the tying product that the seller can restrain trade in the tied product.
Federal Trade Commission (FTC)
Promotion and advertising are aspects of marketing closely monitored by the Federal Trade Commission (FTC), which was established by the FTC Act of 1914. The FTC has been concerned with deceptive or misleading advertising and unfair business
practices and has the power to (1) issue cease and desist orders and (2) order corrective advertising.
cease and desist order
the FTC orders a company to stop practices the commission considers unfair.
the FTC can require a company to spend money on advertising to correct previous misleading ads. The enforcement powers of the FTC are so significant that often just an indication of concern from the commission can cause companies to revise their promotion.
Other laws have been introduced to regulate promotion practices.
The Deceptive Mail Prevention and Enforcement Act (1999), for example, provides specifications for direct-mail sweepstakes, such as the requirement that the statement “No purchase is necessary to enter” is displayed in the mailing, in the rules, and on the entry form. Similarly, the Telephone Consumer Protection Act (1991) provides requirements for telemarketing promotions, including fax promotions. Telemarketing is also subject to a law that created the National Do Not Call Registry, which is a list of consumer phone numbers of people who do not want to receive unsolicited telemarketing calls.
new laws designed to restrict information collection and unsolicited e-mail promotions and specify simple opt-out procedures on the Internet
Finally, new laws such as the Children’s Online Privacy Protection Act (1998), the European Union Data Protection Act (1998), and the Controlling the Assault of Non-Solicited Pornography and Marketing (CAN-SPAM) Act (2004) are designed to restrict information collection and unsolicited e-mail promotions and specify simple opt-out procedures on the Internet. Federal Trade Commission’s effort to create a “Do Not Track” system to ensure online privacy. A related Internet issue, taxation, has generated an ongoing debate and temporary laws such as the Internet Tax Freedom Act (2007).
An alternative to government control, where an industry attempts to police itself. The major television networks, for example, have used self-regulation to set their own guidelines for TV ads for children’s toys. These guidelines have generally worked well. There are two problems with self-regulation, however: noncompliance by members and enforcement. In addition, if attempts at self-regulation are too strong, they may violate the Robinson-Patman Act.
Better Business Bureau (BBB)
The best-known self-regulatory group. agency is a voluntary alliance of companies whose goal is to help maintain fair practices. Although the BBB has no legal power, it does try to use “moral suasion” to get members to comply with its standards. The BBB recently developed a reliability assurance program, called BBB Online, to provide objective consumer protection for Internet shoppers. Before they display the BBB Online logo on their website, participating companies must be members of their local Better Business Bureau, have been in business for at least one year, agree to participate in BBB’s advertising self-regulation program, abide by the BBB Code of Business Practices, and work with the BBB to resolve consumer disputes that arise over goods or services promoted or advertised on their site.
Explain how environmental scanning provides information about social, economic, technological, competitive, and regulatory forces.
Many businesses operate in environments where important forces change. Environmental scanning is the process of acquiring information about these changes to allow marketers to identify and interpret trends. There are five environmental forces
businesses must monitor: social, economic, technological, competitive, and regulatory. By identifying trends related to each of these forces, businesses can develop and maintain successful
marketing programs. Several trends that most businesses are monitoring include the growth of social networks, the increasing economic impact of Asia and Latin America, and the growth of online privacy advocacy and regulation.
Describe how social forces such as demographics and culture can have an impact on marketing strategy.
Demographic information describes the world population; the U.S. population; the generational cohorts such as baby boomers, Generation X, and Generation Y; the structure of the American household; the geographic shifts of the population; and the racial and ethnic diversity of the population, which has led to multicultural marketing programs. Cultural factors include the trend toward fewer differences in male and female consumer
behavior and the impact of values such as sustainability on consumer preferences.
Discuss how economic forces such as macroeconomic conditions and consumer income affect marketing.
Economic forces include the strong relationship between consumers’ expectations about the economy and their spending. Gross income has remained stable for more than 40 years although the rate of saving has fluctuated, declining to zero before rising to 6 percent recently.
Describe how technological changes can affect marketing.
Technological innovations can replace existing products and services. Changes in technology can also have an impact on customer value by reducing the cost of products, improving the quality of products, and providing new products that were not previously feasible. Electronic commerce is transforming how companies do business.
Discuss the forms of competition that exist in a market and the key components of competition.
There are four forms of competition: pure competition, monopolistic competition, oligopoly, and monopoly. The key components of competition include the likelihood of new competitors, the power of buyers and suppliers, and the presence of competitors and possible substitutes. While large companies are often used as examples of marketplace competitors, there are 27.5 million small businesses in the United States, which have a significant impact on the economy.
Explain the major legislation that ensures competition and regulates the elements of the marketing mix.
Regulation exists to protect companies and consumers. Legislation that ensures a competitive marketplace includes the Sherman Antitrust Act. Product-related legislation includes copyright and trademark laws that protect companies and packaging and labeling laws that protect consumers. Pricing- and distribution-related laws are designed to create a competitive marketplace with fair prices and availability. Regulation related to promotion and advertising reduces deceptive practices and provides enforcement through the Federal Trade Commission. Self-regulation through organizations such as the Better Business Bureau provides an alternative to federal and state regulation.
What are ethics?
Ethics are the moral principles and values that govern the actions and decisions of an individual or group. They serve as guidelines on how to act rightly and justly when faced with moral dilemmas.
What are four possible reasons for the present state of ethical conduct in the United States?
(1) Pressure on businesspeople to make decisions in a society with diverse value systems. (2) Business decisions being judged publicly by groups with different values and interests. (3) The public’s expectations of ethical business behavior have increased. (4) Ethical business conduct may have declined.
What rights are included in the Consumer Bill of Rights?
The rights to safety, to be informed, to choose, and to be heard.
Economic espionage includes what kinds of activities?
Economic espionage is the clandestine collection of trade secrets or proprietary information about a company’s competitors. This practice includes trespassing, theft, fraud, misrepresentation, wiretapping, searching competitors’ trash, and violations of written and implicit employment agreements with noncompete clauses.
What is meant by moral idealism?
Moral idealism is a personal moral philosophy that considers certain individual rights or duties as universal, regardless of the outcome.
What is meant by social responsibility?
Social responsibility means that organizations are part of a larger society and are accountable to that society for their actions. It comprises three concepts: (1) profit responsibility—maximizing profits for the organization’s shareholders; (2) stakeholder responsibility—the obligations an organization has to those who can effect the achievement of its objectives; and (3) societal responsibility—the obligations an organization has to preserve the ecological environment and to the general public.
Marketing efforts to produce, promote, and reclaim environmentally sensitive products are called ___________.
What is a social audit?
A social audit is a systematic assessment of a firm’s objectives, strategies, and performance in terms of social responsibility.
recognition of the need for organizations to improve the state of people, the planet, and profit
simultaneously if they are to achieve sustainable, long-term growth
marketing efforts to produce, promote, and reclaim environmentally sensitive products—takes many forms
A formal practice which occurs when the charitable contributions of a firm are tied directly to the customer revenues produced through the promotion of one of its products. This definition distinguishes
cause marketing from a firm’s standard charitable contributions, which are outright donations. Socially responsible efforts on behalf of the general public are becoming more common.
the moral principles and values that govern the actions and decisions of an individual or group. They serve as guidelines on how to act rightly and justly
when faced with moral dilemmas.
society’s values and standards that are enforceable in the courts.
let the buyer beware, Before the 1960s, was pervasive in the American business culture.
Consumer Bill of Rights
In 1962, President John F. Kennedy outlined a Consumer Bill of Rights that codified the ethics of
exchange between buyers and sellers. These were the right (1) to safety, (2) to be informed, (3) to choose, and (4) to be heard. Consumers expect and often demand that these rights be protected, as have American businesses.
the clandestine collection of trade secrets or proprietary information about a company’s competitors. This practice is illegal and unethical and carries serious criminal penalties for the offending individual or business. Espionage activities include illegal trespassing, theft, fraud, misrepresentation, wiretapping, the search of a competitor’s trash, and violations of written and implicit employment
agreements with noncompete clauses.
code of ethics
a formal statement of ethical principles and rules of conduct. It is estimated that 86 percent of U.S. companies have some sort of ethics code and one of every four large companies has corporate ethics
officers. Ethics codes typically address contributions to government officials and political parties, customer and supplier relations, conflicts of interest, and accurate recordkeeping.
numerous states have laws protecting whistle-blowers, employees who report unethical or illegal actions of their employers.
a personal moral philosophy that considers certain individual rights or duties as universal, regardless of the outcome. This philosophy exists in the Consumer Bill of Rights and is favored by moral philosophers and consumer interest groups.
a personal moral philosophy that focuses on “the greatest good for the greatest number” by assessing the costs and benefits of the consequences of ethical
behavior. If the benefits exceed the costs, then the behavior is ethical. If not, then the behavior is unethical. This philosophy underlies the economic tenets of capitalism and, not surprisingly, is embraced by many business executives and students.
means that organizations are part of a larger society and are accountable to that society for their actions. Like ethics, agreement on the nature and scope of social responsibility is often difficult to come by, given the diversity of values present in different societal, business, and corporate cultures.
holds that companies have a simple duty: to maximize profits for their owners or stockholders.
focuses on the obligations an organization has to those who can affect achievement of its objectives. These constituencies include consumers, employees, suppliers, and distributors.
refers to obligations that organizations have (1) to the preservation of the ecological environment and (2) to the general public.
a systematic assessment of a firm’s objectives, strategies, and performance in terms of social responsibility.
involves conducting business in a way that protects
the natural environment while making economic progress. Ecologically responsible initiatives such as green marketing represent one such initiative.
Explain the differences between legal and ethical
behavior in marketing.
A good starting point for understanding the nature and significance of ethics is the distinction between the legality and the ethicality of marketing decisions. Whereas ethics deal with personal moral principles and values, laws are society’s values and standards that are enforceable in the courts. This distinction can lead to the rationalization that if a behavior is within reasonable ethical and legal limits, then it is not really illegal or unethical. Judgment plays a large role in defining ethical and legal boundaries in marketing. Ethical dilemmas arise when acts or situations are not clearly ethical and legal or unethical and illegal.
Identify factors that influence ethical and unethical marketing decisions.
Four factors influence ethical marketing behavior. First, societal culture and norms serve as socializing forces that dictate what is morally right and just. Second, business culture and industry practices affect ethical conduct in both the exchange relationships between buyers and sellers and the competitive behavior among sellers. Third, corporate culture and expectations are often defined by corporate ethics codes and the ethical behavior of top management and co-workers. Finally, an individual’s personal moral philosophy, such as moral idealism or utilitarianism, will dictate ethical choices. Ultimately, ethical behavior rests with the individual, but the consequences affect many.
Describe the different concepts of social responsibility.
Social responsibility means that organizations are part of a larger society and are accountable to that society for their actions. There are three concepts of social responsibility. First, profit responsibility holds that companies have a simple duty: to maximize profits for their owners or stockholders. Second,
stakeholder responsibility focuses on the obligations an organization has to those who can affect achievement of its objectives. Those constituencies include consumers, employees, suppliers, and distributors. Finally, societal responsibility focuses on obligations that organizations have to the preservation of the ecological environment and the general public. Companies are placing greater emphasis on societal responsibility today and are reaping the rewards of positive word of mouth from their consumers and favorable financial performance.
Recognize unethical and socially irresponsible consumer behavior.
Consumers, like marketers, have an obligation to act ethically and responsibly in the exchange process and in the use and disposition of products. Unfortunately, consumer behavior is spotty on both counts. Unethical consumer behavior includes
filing warranty claims after the claim period; misredeeming coupons; pirating music, movies, and software from the Internet; and submitting phony insurance claims, among other behaviors. Unethical behavior is rarely motivated by economic need. Rather, research indicates that this behavior is influenced by (a) a belief that a consumer can get away with the act and it is worth doing and (b) the rationalization that such acts are justified or driven by forces outside the individual—”everybody does it.” Consumer purchase, use, and disposition of environ-
mentally sensitive products relate to consumer social responsibility. Even though consumers are sensitive to ecological issues they (a) may be unwilling to sacrifice convenience and pay potentially higher prices to protect the environment and (b) lack the knowledge to make informed decisions dealing with the purchase, use, and disposition of products.
What’s the essential difference between “false advertising or packaging” on the one hand, and “deceptive/misleading advertising or packaging” on the other?
outright lie vs miscomprehension