Marketing Management PHILIP KOTLER KEVIN LANE KELLER. Northwestern University. Dartmouth College

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2 Marketing Management 14 PHILIP KOTLER Northwestern University KEVIN LANE KELLER Dartmouth College Prentice Hall Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo

3 Editorial Director: Sally Yagan Editor in Chief: Eric Svendsen Executive Editor: Melissa Sabella Development Editor: Elisa Adams Director of Editorial Services: Ashley Santora Editorial Project Manager: Kierra Bloom Editorial Assistant: Elizabeth Scarpa Director of Marketing: Patrice Lumuba Jones Senior Marketing Manager: Anne Fahlgren Senior Managing Editor: Judy Leale Production Project Manager: Ann Pulido Senior Operations Supervisor: Arnold Vila Creative Director: John Christiano Senior Art Director: Blair Brown Text and Cover Designer: Blair Brown Lead Media Project Manager: Lisa Rinaldi Editorial Media Project Manager: Denise Vaughn Full-Service Project Management: Sharon Anderson/BookMasters, Inc. Composition: Integra Printer/Binder: Courier/Kendallville Cover Printer: Lehigh-Phoenix Color/Hagerstown Text Font: 9.5/11.5, Minion Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on appropriate page within text. Copyright 2012, 2009, 2006, 2003, 2000 Pearson Education, Inc., publishing as Prentice Hall, One Lake Street, Upper Saddle River, New Jersey All rights reserved. Manufactured in the United States of America. This publication is protected by Copyright, and permission should be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. To obtain permission(s) to use material from this work, please submit a written request to Pearson Education, Inc., Permissions Department, One Lake Street, Upper Saddle River, New Jersey Many of the designations by manufacturers and seller to distinguish their products are claimed as trademarks. Where those designations appear in this book, and the publisher was aware of a trademark claim, the designations have been printed in initial caps or all caps. Library of Congress Cataloging-in-Publication Data Kotler, Philip. Marketing management/philip Kotler, Kevin Lane Keller. 14th ed. p. cm. Includes bibliographical references and index. ISBN Marketing Management. I. Keller, Kevin Lane, II. Title. HF K dc ISBN 13: ISBN 10:

4 This book is dedicated to my wife and best friend, Nancy, with love. PK This book is dedicated to my wife, Punam, and my two daughters, Carolyn and Allison, with much love and thanks. KLK

5 About the Authors Authors iv Philip Kotler Philip Kotler is one of the world s leading authorities on marketing. He is the S. C. Johnson & Son Distinguished Professor of International Marketing at the Kellogg School of Management, Northwestern University. He received his master s degree at the University of Chicago and his Ph.D. at MIT, both in economics. He did postdoctoral work in mathematics at Harvard University and in behavioral science at the University of Chicago. Dr. Kotler is the coauthor of Principles of Marketing and Marketing: An Introduction. His Strategic Marketing for Nonprofit Organizations, now in its seventh edition, is the best seller in that specialized area. Dr. Kotler s other books include Marketing Models; The New Competition; Marketing Professional Services; Strategic Marketing for Educational Institutions; Marketing for Health Care Organizations; Marketing Congregations; High Visibility; Social Marketing; Marketing Places; The Marketing of Nations; Marketing for Hospitality and Tourism; Standing Room Only Strategies for Marketing the Performing Arts; Museum Strategy and Marketing; Marketing Moves; Kotler on Marketing; Lateral Marketing: Ten Deadly Marketing Sins; and Corporate Social Responsibility. In addition, he has published more than one hundred articles in leading journals, including the Harvard Business Review, Sloan Management Review, Business Horizons, California Management Review, the Journal of Marketing, the Journal of Marketing Research, Management Science, the Journal of Business Strategy, and Futurist. He is the only three-time winner of the coveted Alpha Kappa Psi award for the best annual article published in the Journal of Marketing. Professor Kotler was the first recipient of the American Marketing Association s (AMA) Distinguished Marketing Educator Award (1985). The European Association of Marketing Consultants and Sales Trainers awarded him their Prize for Marketing Excellence. He was chosen as the Leader in Marketing Thought by the Academic Members of the AMA in a 1975 survey. He also received the 1978 Paul Converse Award of the AMA, honoring his original contribution to marketing. In 1995, the Sales and Marketing Executives International (SMEI) named him Marketer of the Year. In 2002, Professor Kotler received the Distinguished Educator Award from the Academy of Marketing Science. He has received honorary doctoral degrees from Stockholm University, the University of Zurich, Athens University of Economics and Business, DePaul University, the Cracow School of Business and Economics, Groupe H.E.C. in Paris, the Budapest School of Economic Science and Public Administration, and the University of Economics and Business Administration in Vienna. Professor Kotler has been a consultant to many major U.S. and foreign companies, including IBM, General Electric, AT&T, Honeywell, Bank of America, Merck, SAS Airlines, Michelin, and others in the areas of marketing strategy and planning, marketing organization, and international marketing. He has been Chairman of the College of Marketing of the Institute of Management Sciences, a Director of the American Marketing Association, a Trustee of the Marketing Science Institute, a Director of the MAC Group, a member of the Yankelovich Advisory Board, and a member of the Copernicus Advisory Board. He was a member of the Board of Governors of the School of the Art Institute of Chicago and a member of the Advisory Board of the Drucker Foundation. He has traveled extensively throughout Europe, Asia, and South America, advising and lecturing to many companies about global marketing opportunities.

6 Kevin Lane Keller is widely recognized as one of the top marketing academics of the last 25 years. He is the E. B. Osborn Professor of Marketing at the Tuck School of Business at Dartmouth College. Professor Keller has degrees from Cornell, Carnegie-Mellon, and Duke universities. At Dartmouth, he teaches MBA courses on marketing management and strategic brand management and lectures in executive programs on those topics. Previously, Professor Keller was on the faculty of the Graduate School of Business at Stanford University, where he also served as the head of the marketing group. Additionally, he has been on the marketing faculty at the University of California at Berkeley and the University of North Carolina at Chapel Hill, been a visiting professor at Duke University and the Australian Graduate School of Management, and has two years of industry experience as Marketing Consultant for Bank of America. Professor Keller s general area of expertise lies in marketing strategy and planning, and branding. His specific research interest is in how understanding theories and concepts related to consumer behavior can improve marketing strategies. His research has been published in three of the major marketing journals the Journal of Marketing, the Journal of Marketing Research, and the Journal of Consumer Research. He also has served on the Editorial Review Boards of those journals. With over ninety published papers, his research has been extensively cited and has received numerous awards. Professor Keller is acknowledged as one of the international leaders in the study of brands and branding. His textbook on those subjects, Strategic Brand Management, has been adopted at top business schools and leading firms around the world and has been heralded as the bible of branding. Actively involved with industry, he has worked on a host of different types of marketing projects. He has served as a consultant and advisor to marketers for some of the world s most successful brands, including Accenture, American Express, Disney, Ford, Intel, Levi Strauss, Procter & Gamble, and Samsung. Additional brand consulting activities have been with other top companies such as Allstate, Beiersdorf (Nivea), BlueCross BlueShield, Campbell s, Colgate, Eli Lilly, ExxonMobil, General Mills, GfK, Goodyear, Intuit, Johnson & Johnson, Kodak, L.L.Bean, Mayo Clinic, Nordstrom, Ocean Spray, Red Hat, SAB Miller, Shell Oil, Starbucks, Unilever, and Young & Rubicam. He has also served as an academic trustee for the Marketing Science Institute. A popular and highly sought-after speaker, he has made speeches and conducted marketing seminars to top executives in a variety of forums. Some of his senior management and marketing training clients have included such diverse business organizations as Cisco, Coca-Cola, Deutsche Telekom, GE, Google, IBM, Macy s, Microsoft, Nestle, Novartis, and Wyeth. He has lectured all over the world, from Seoul to Johannesburg, from Sydney to Stockholm, and from Sao Paulo to Mumbai. He has served as keynote speaker at conferences with hundreds to thousands of participants. An avid sports, music, and film enthusiast, in his so-called spare time, he has helped to manage and market, as well as serve as executive producer for, one of Australia s great rock and roll treasures, The Church, as well as American power-pop legends Dwight Twilley and Tommy Keene. Additionally, he is the Principal Investor and Marketing Advisor for Second Motion Records. He is also on the Board of Directors for The Doug Flutie, Jr. Foundation for Autism and the Montshire Museum of Science. Professor Keller lives in Etna, NH, with his wife, Punam (also a Tuck marketing professor), and his two daughters, Carolyn and Allison. Kevin Lane Keller v

7 Brief Contents Preface xvi PART 1 Understanding Marketing Management 2 Chapter 1 Defining Marketing for the 21st Century 2 Chapter 2 Developing Marketing Strategies and Plans 32 PART 2 Capturing Marketing Insights 66 Chapter 3 Collecting Information and Forecasting Demand 66 Chapter 4 Conducting Marketing Research 96 PART 3 Connecting with Customers 122 Chapter 5 Creating Long-term Loyalty Relationships 122 Chapter 6 Analyzing Consumer Markets 150 Chapter 7 Analyzing Business Markets 182 Chapter 8 Identifying Market Segments and Targets 212 PART 4 Building Strong Brands 240 Chapter 9 Creating Brand Equity 240 Chapter 10 Crafting the Brand Positioning 274 Chapter 11 Competitive Dynamics 298 PART 5 Shaping the Market Offerings 324 Chapter 12 Setting Product Strategy 324 Chapter 13 Designing and Managing Services 354 Chapter 14 Developing Pricing Strategies and Programs 382 PART 6 Delivering Value 414 Chapter 15 Designing and Managing Integrated Marketing Channels 414 Chapter 16 Managing Retailing, Wholesaling, and Logistics 446 PART 7 Communicating Value 474 Chapter 17 Chapter 18 Chapter 19 Designing and Managing Integrated Marketing Communications 474 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 502 Managing Personal Communications: Direct and Interactive Marketing, Word of Mouth, and Personal Selling 534 PART 8 Creating Successful Long-term Growth 566 Chapter 20 Introducing New Market Offerings 566 Chapter 21 Tapping into Global Markets 594 Chapter 22 Managing a Holistic Marketing Organization for the Long Run 620 Appendix: Sonic Marketing Plan A1 Endnotes E1 Glossary G1 Image Credits C1 Name Index I1 Company, Brand, and Organization Index Subject Index I14 I4 vi

8 Contents Preface PART 1 CHAPTER 1 xvi Understanding Marketing Management 2 Defining Marketing for the 21st Century 2 The Importance of Marketing 3 The Scope of Marketing 5 What Is Marketing? 5 What Is Marketed? 5 Who Markets? 7 Core Marketing Concepts 9 Needs, Wants, and Demands 9 Target Markets, Positioning, and Segmentation 10 Offerings and Brands 10 Value and Satisfaction 10 Marketing Channels 11 Supply Chain 11 Competition 11 Marketing Environment 11 The New Marketing Realities 12 Major Societal Forces 12 New Company Capabilities 14 Marketing in Practice 15 MARKETING INSIGHT Marketing in an Age of Turbulence 16 Company Orientation toward the Marketplace 17 The Production Concept 18 The Product Concept 18 The Selling Concept 18 The Marketing Concept 18 The Holistic Marketing Concept 18 MARKETING MEMO Marketing Right and Wrong 19 Relationship Marketing 20 Integrated Marketing 20 Internal Marketing 21 Performance Marketing 22 The New Four Ps 25 Marketing Management Tasks 26 Developing Marketing Strategies and Plans 26 Capturing Marketing Insights 26 MARKETING MEMO Marketers Frequently Asked Questions 26 Connecting with Customers 27 Building Strong Brands 27 Shaping the Market Offerings 27 Delivering Value 27 Communicating Value 27 Creating Successful Long-Term Growth 27 Summary 28 Applications 28 CHAPTER 2 Developing Marketing Strategies and Plans 32 Marketing and Customer Value 33 The Value Delivery Process 33 The Value Chain 34 Core Competencies 35 A Holistic Marketing Orientation and Customer Value 36 The Central Role of Strategic Planning 36 Corporate and Division Strategic Planning 37 Defining the Corporate Mission 38 Establishing Strategic Business Units 39 Assigning Resources to Each SBU 42 Assessing Growth Opportunities 42 Organization and Organizational Culture 45 Marketing Innovation 45 MARKETING INSIGHT Creating Innovative Marketing 46 Business Unit Strategic Planning 47 The Business Mission 48 SWOT Analysis 48 Goal Formulation 50 Strategic Formulation 50 MARKETING MEMO Checklist for Performing Strengths/Weaknesses Analysis 52 Program Formulation and Implementation 53 Feedback and Control 53 Product Planning: The Nature and Contents of a Marketing Plan 54 MARKETING MEMO Marketing Plan Criteria 55 The Role of Research 55 The Role of Relationships 55 From Marketing Plan to Marketing Action 55 Summary 56 Applications 56 Sample Marketing Plan: Pegasus Sports International 60 vii

9 PART 2 CHAPTER 3 Capturing Marketing Insights 66 Collecting Information and Forecasting Demand 66 Components of a Modern Marketing Information System 67 Internal Records 70 The Order-to-Payment Cycle 70 Sales Information Systems 70 Databases, Data Warehousing, and Data Mining 71 Marketing Intelligence 71 The Marketing Intelligence System 71 Collecting Marketing Intelligence on the Internet 72 Communicating and Acting on Marketing Intelligence 73 Analyzing the Macroenvironment 74 Needs and Trends 74 Identifying the Major Forces 74 The Demographic Environment 75 MARKETING INSIGHT Finding Gold at the Bottom of the Pyramid 76 The Economic Environment 77 The Sociocultural Environment 78 The Natural Environment 80 The Technological Environment 81 MARKETING INSIGHT The Green Marketing Revolution 82 The Political-Legal Environment 84 Forecasting and Demand Measurement 85 The Measures of Market Demand 85 A Vocabulary for Demand Measurement 86 Estimating Current Demand 88 Estimating Future Demand 90 Summary 92 Applications 92 CHAPTER 4 Conducting Marketing Research 96 The Marketing Research System 97 The Marketing Research Process 99 Step 1: Define the Problem, the Decision Alternatives, and the Research Objectives 99 Step 2: Develop the Research Plan 100 MARKETING MEMO Conducting Informative Focus Groups 102 MARKETING MEMO Questionnaire Dos and Don ts 104 MARKETING INSIGHT Getting into the Heads of Consumers 106 MARKETING INSIGHT Understanding Brain Science 108 Step 3: Collect the Information 110 Step 4: Analyze the Information 111 Step 5: Present the Findings 111 Step 6: Make the Decision 111 MARKETING INSIGHT Bringing Marketing Research to Life with Personas 112 Overcoming Barriers to the Use of Marketing Research 112 Measuring Marketing Productivity 114 Marketing Metrics 114 Marketing-Mix Modeling 116 Marketing Dashboards 116 MARKETING INSIGHT Marketing Dashboards to Improve Effectiveness and Efficiency 117 PART 3 Summary 118 Applications 119 CHAPTER 5 Connecting with Customers 122 Creating Long-term Loyalty Relationships 122 Building Customer Value, Satisfaction, and Loyalty 123 Customer Perceived Value 124 Total Customer Satisfaction 128 Monitoring Satisfaction 128 MARKETING INSIGHT Net Promoter and Customer Satisfaction 129 Product and Service Quality 131 viii

10 Maximizing Customer Lifetime Value 132 MARKETING MEMO Marketing and Total Quality 132 Customer Profitability 133 Measuring Customer Lifetime Value 134 Cultivating Customer Relationships 134 MARKETING MEMO Calculating Customer Lifetime Value 134 Customer Relationship Management 135 Attracting and Retaining Customers 139 Building Loyalty 141 Win-Backs 143 Customer Databases and Database Marketing 143 Customer Databases 143 Data Warehouses and Data Mining 143 The Downside of Database Marketing and CRM 145 MARKETING INSIGHT The Behavioral Targeting Controversy 146 Summary 147 Applications 147 CHAPTER 6 Analyzing Consumer Markets 150 What Influences Consumer Behavior? 151 Cultural Factors 151 Social Factors 153 MARKETING MEMO The Average U.S. Consumer Quiz 155 Personal Factors 155 Key Psychological Processes 160 Motivation: Freud, Maslow, Herzberg 160 Perception 161 Learning 163 Emotions 163 Memory 163 MARKETING INSIGHT Made to Stick 165 The Buying Decision Process: The Five-Stage Model 166 Problem Recognition 167 Evaluation of Alternatives 168 Purchase Decision 170 Postpurchase Behavior 172 Moderating Effects on Consumer Decision Making 173 Behavioral Decision Theory and Behavioral Economics 174 Decision Heuristics 174 MARKETING INSIGHT Predictably Irrational 176 Framing 177 Summary 177 Applications 178 CHAPTER 7 Analyzing Business Markets 182 What Is Organizational Buying? 183 The Business Market versus the Consumer Market 183 Buying Situations 185 Systems Buying and Selling 187 Participants in the Business Buying Process 188 The Buying Center 188 Buying Center Influences 189 Targeting Firms and Buying Centers 190 MARKETING INSIGHT Big Sales to Small Businesses 191 The Purchasing/Procurement Process 193 Stages in the Buying Process 195 Problem Recognition 196 General Need Description and Product Specification 196 Supplier Search 196 Proposal Solicitation 198 Supplier Selection 198 MARKETING MEMO Developing Compelling Customer Value Propositions 199 Order-Routine Specification 201 Performance Review 201 Managing Business-to-Business Customer Relationships 201 The Benefits of Vertical Coordination 202 MARKETING INSIGHT Establishing Corporate Trust, Credibility, and Reputation 203 Business Relationships: Risks and Opportunism 203 ix

11 New Technology and Business Customers 204 Institutional and Government Markets 205 Summary 207 Applications 208 CHAPTER 8 Identifying Market Segments and Targets 212 Bases for Segmenting Consumer Markets 214 Geographic Segmentation 214 Demographic Segmentation 216 MARKETING INSIGHT Trading Up, Down, and Over 218 Psychographic Segmentation 225 Behavioral Segmentation 227 Bases for Segmenting Business Markets 230 Market Targeting 231 Effective Segmentation Criteria 231 Evaluating and Selecting the Market Segments 232 MARKETING INSIGHT Chasing the Long Tail 235 PART 4 Summary 236 Applications 237 Building Strong Brands 240 CHAPTER 9 Creating Brand Equity 240 What Is Brand Equity? 241 The Role of Brands 242 The Scope of Branding 243 Defining Brand Equity 243 Brand Equity Models 245 MARKETING INSIGHT Brand Bubble Trouble 248 Building Brand Equity 249 Choosing Brand Elements 250 Designing Holistic Marketing Activities 251 Leveraging Secondary Associations 252 Internal Branding 253 Brand Communities 253 Measuring Brand Equity 255 MARKETING INSIGHT The Brand Value Chain 255 MARKETING INSIGHT What Is a Brand Worth? 257 Managing Brand Equity 258 Brand Reinforcement 258 Brand Revitalization 259 Devising a Branding Strategy 260 Branding Decisions 261 Brand Portfolios 262 Brand Extensions 263 Customer Equity 267 MARKETING MEMO Twenty-First-Century Branding 267 Summary 268 Applications 269 CHAPTER 10 Crafting the Brand Positioning 274 Developing and Establishing a Brand Positioning 275 Determining a Competitive Frame of Reference 276 MARKETING INSIGHT High Growth Through Value Innovation 278 Identifying Optimal Points-of-Difference and Points-of-Parity 280 Choosing POPs and PODs 283 Brand Mantras 284 Establishing Brand Positioning 286 MARKETING MEMO Constructing a Brand Positioning Bull s-eye 287 Differentiation Strategies 289 Alternative Approaches to Positioning 291 Positioning and Branding a Small Business 293 Summary 294 Applications 294 CHAPTER 11 Competitive Dynamics 298 Competitive Strategies for Market Leaders 299 MARKETING INSIGHT When Your Competitor Delivers More for Less 300 x

12 Expanding Total Market Demand 301 Protecting Market Share 302 Increasing Market Share 304 Other Competitive Strategies 305 Market-Challenger Strategies 305 Market-Follower Strategies 307 Market-Nicher Strategies 308 MARKETING MEMO Niche Specialist Roles 309 Product Life-Cycle Marketing Strategies 310 Product Life Cycles 310 Style, Fashion, and Fad Life Cycles 311 Marketing Strategies: Introduction Stage and the Pioneer Advantage 312 Marketing Strategies: Growth Stage 313 Marketing Strategies: Maturity Stage 313 Marketing Strategies: Decline Stage 315 MARKETING INSIGHT Managing a Brand Crisis 316 Evidence for the Product Life-Cycle Concept 316 Critique of the Product Life-Cycle Concept 317 Market Evolution 317 Marketing in an Economic Downturn 318 Explore the Upside of Increasing Investment 318 Get Closer to Customers 318 Review Budget Allocations 319 Put Forth the Most Compelling Value Proposition 319 Fine-tune Brand and Product Offerings 320 Summary 320 Applications 321 PART 5 Shaping the Market Offerings 324 CHAPTER 12 Setting Product Strategy 324 Product Characteristics and Classifications 325 Product Levels: The Customer-Value Hierarchy 326 Product Classifications 327 Product and Services Differentiation 328 Product Differentiation 329 Services Differentiation 330 Design 332 Product and Brand Relationships 333 MARKETING INSIGHT Marketing Luxury Brands 334 The Product Hierarchy 336 Product Systems and Mixes 336 Product Line Analysis 337 Product Line Length 337 MARKETING INSIGHT When Less Is More 339 Product Mix Pricing 342 Co-Branding and Ingredient Branding 344 MARKETING MEMO Product-Bundle Pricing Considerations 344 Packaging, Labeling, Warranties, and Guarantees 346 Packaging 346 Labeling 348 Warranties and Guarantees 349 Summary 349 Applications 350 CHAPTER 13 Designing and Managing Services 354 The Nature of Services 355 Service Industries Are Everywhere 356 Categories of Service Mix 356 Distinctive Characteristics of Services 358 The New Services Realities 361 A Shifting Customer Relationship 362 Achieving Excellence in Services Marketing 365 Marketing Excellence 365 Best Practices of Top Service Companies 366 Differentiating Services 368 MARKETING INSIGHT Improving Company Call Centers 369 Managing Service Quality 370 MARKETING MEMO Recommendations for Improving Service Quality 372 xi

13 Managing Customer Expectations 373 Incorporating Self-Service Technologies (SSTs) 375 Managing Product-Support Services 375 Identifying and Satisfying Customer Needs 376 MARKETING MEMO Assessing E-Service Quality 376 Postsale Service Strategy 377 Summary 378 Applications 378 CHAPTER 14 Developing Pricing Strategies and Programs 382 Understanding Pricing 383 A Changing Pricing Environment 384 MARKETING INSIGHT Giving It All Away 384 How Companies Price 386 Consumer Psychology and Pricing 386 Setting the Price 389 Step 1: Selecting the Pricing Objective 389 Step 2: Determining Demand 390 Step 3: Estimating Costs 392 Step 4: Analyzing Competitors Costs, Prices, and Offers 395 Step 5: Selecting a Pricing Method 395 Step 6: Selecting the Final Price 402 MARKETING INSIGHT Stealth Price Increases 403 Adapting the Price 403 Geographical Pricing (Cash, Countertrade, Barter) 404 Price Discounts and Allowances 404 Promotional Pricing 405 Differentiated Pricing 406 Initiating and Responding to Price Changes 407 Initiating Price Cuts 407 Initiating Price Increases 408 Responding to Competitors Price Changes 409 Summary 410 Applications 410 PART 6 Delivering Value 414 CHAPTER 15 Designing and Managing Integrated Marketing Channels 414 Marketing Channels and Value Networks 415 The Importance of Channels 416 Hybrid Channels and Multichannel Marketing 416 Value Networks 417 The Role of Marketing Channels 418 Channel Functions and Flows 418 Channel Levels 420 Service Sector Channels 421 Channel-Design Decisions 422 Analyzing Customer Needs and Wants 422 Establishing Objectives and Constraints 423 Identifying Major Channel Alternatives 424 Evaluating Major Channel Alternatives 426 Channel-Management Decisions 427 Selecting Channel Members 427 Training and Motivating Channel Members 428 Evaluating Channel Members 429 Modifying Channel Design and Arrangements 429 Channel Modification Decisions 429 Global Channel Considerations 430 Channel Integration and Systems 431 Vertical Marketing Systems 431 MARKETING INSIGHT Channel Stewards Take Charge 432 Horizontal Marketing Systems 433 Integrating Multichannel Marketing Systems 433 Conflict, Cooperation, and Competition 435 Types of Conflict and Competition 435 Causes of Channel Conflict 436 Managing Channel Conflict 436 Dilution and Cannibalization 438 Legal and Ethical Issues in Channel Relations 438 E-Commerce Marketing Practices 438 Pure-Click Companies 439 Brick-and-Click Companies 440 M-Commerce Marketing Practices 441 Summary 442 Applications 442 xii

14 CHAPTER 16 Managing Retailing, Wholesaling, and Logistics 446 Retailing 447 Types of Retailers 448 The New Retail Environment 451 Marketing Decisions 453 Channels 454 MARKETING MEMO Helping Stores to Sell 458 Private Labels 459 Role of Private Labels 460 Private-Label Success Factors 460 MARKETING INSIGHT Manufacturer s Response to the Private Label Threat 461 Wholesaling 461 Trends in Wholesaling 463 Market Logistics 464 Integrated Logistics Systems 464 Market-Logistics Objectives 465 Market-Logistics Decisions 466 Organizational Lessons 469 Summary 469 Applications 470 PART 7 Communicating Value 474 CHAPTER 17 Designing and Managing Integrated Marketing Communications 474 The Role of Marketing Communications 476 The Changing Marketing Communications Environment 476 MARKETING INSIGHT Don t Touch That Remote 476 Marketing Communications, Brand Equity, and Sales 478 The Communications Process Models 480 Developing Effective Communications 482 Identify the Target Audience 482 Determine the Communications Objectives 482 Design the Communications 484 MARKETING INSIGHT Celebrity Endorsements as a Strategy 486 Select the Communications Channels 486 Establish the Total Marketing Communications Budget 488 Deciding on the Marketing Communications Mix 490 Characteristics of the Marketing Communications Mix 490 Factors in Setting the Marketing Communications Mix 492 Measuring Communication Results 494 Managing the Integrated Marketing Communications Process 494 Coordinating Media 495 Implementing IMC 496 MARKETING MEMO How Integrated Is Your IMC Program? 496 Summary 497 Applications 497 CHAPTER 18 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 502 Developing and Managing an Advertising Program 504 Setting the Objectives 504 Deciding on the Advertising Budget 505 Developing the Advertising Campaign 506 MARKETING MEMO Print Ad Evaluation Criteria 509 Deciding on Media and Measuring Effectiveness 510 Deciding on Reach, Frequency, and Impact 511 Choosing among Major Media Types 512 Alternate Advertising Options 512 MARKETING INSIGHT Playing Games with Brands 516 Selecting Specific Media Vehicles 516 Deciding on Media Timing and Allocation 517 Evaluating Advertising Effectiveness 518 Sales Promotion 519 Objectives 519 Advertising versus Promotion 519 Major Decisions 520 Events and Experiences 524 xiii

15 Events Objectives 524 Major Sponsorship Decisions 525 Creating Experiences 526 MARKETING MEMO Measuring High Performance Sponsorship Programs 526 Public Relations 527 Marketing Public Relations 527 Major Decisions in Marketing PR 528 Summary 530 Applications 530 CHAPTER 19 Managing Personal Communications: Direct and Interactive Marketing, Word of Mouth, and Personal Selling 534 xiv Direct Marketing 535 The Benefits of Direct Marketing 536 Direct Mail 538 Catalog Marketing 539 Telemarketing 539 Other Media for Direct-Response Marketing 539 Public and Ethical Issues in Direct Marketing 540 Interactive Marketing 540 Advantages and Disadvantages of Interactive Marketing 540 Interactive Marketing Communication Options 541 MARKETING MEMO How to Maximize the Marketing Value of s 543 MARKETING MEMO Segmenting Tech Users 545 Word of Mouth 546 Social Media 546 Buzz and Viral Marketing 549 Opinion Leaders 551 MARKETING MEMO How to Start a Buzz Fire 552 Measuring the Effects of Word of Mouth 552 Designing the Sales Force 553 Sales Force Objectives and Strategy 554 Sales Force Structure 555 MARKETING INSIGHT Major Account Management 555 PART 8 Sales Force Size 556 Sales Force Compensation 556 Managing the Sales Force 556 Recruiting and Selecting Representatives 556 Training and Supervising Sales Representatives 557 Sales Rep Productivity 557 Motivating Sales Representatives 558 Evaluating Sales Representatives 559 Principles of Personal Selling 560 The Six Steps 561 Relationship Marketing 562 Summary 562 Applications 563 Creating Successful Longterm Growth 566 CHAPTER 20 Introducing New Market Offerings 566 New-Product Options 567 Make or Buy 567 Types of New Products 568 Challenges in New-Product Development 568 The Innovation Imperative 568 New-Product Success 569 New-Product Failure 570 Organizational Arrangements 570 Budgeting for New-Product Development 571 Organizing New-Product Development 572 Managing the Development Process: Ideas 573 Generating Ideas 573 MARKETING MEMO Ten Ways to Find Great New-Product Ideas 574 MARKETING INSIGHT P&G s New Connect Develop Approach to Innovation 574 MARKETING MEMO Seven Ways to Draw New Ideas from Your Customers 576 MARKETING MEMO How to Run a Successful Brainstorming Session 577 Using Idea Screening 578

16 Managing the Development Process: Concept to Strategy 579 Concept Development and Testing 579 Marketing Strategy Development 582 Business Analysis 583 Managing the Development Process: Development to Commercialization 585 Product Development 585 Market Testing 585 Commercialization 588 The Consumer-Adoption Process 589 Stages in the Adoption Process 589 Factors Influencing the Adoption Process 589 Summary 590 Applications 591 CHAPTER 21 Tapping into Global Markets 594 Competing on a Global Basis 595 Deciding Whether to Go Abroad 597 Deciding Which Markets to Enter 597 How Many Markets to Enter 598 Developed versus Developing Markets 598 MARKETING INSIGHT Spotlight on Key Developing Markets 600 Evaluating Potential Markets 602 Deciding How to Enter the Market 603 Indirect and Direct Export 603 Licensing 604 Joint Ventures 605 Direct Investment 605 Deciding on the Marketing Program 606 Global Similarities and Differences 606 Marketing Adaptation 607 MARKETING MEMO The Ten Commandments of Global Branding 608 Global Product Strategies 608 Global Communication Strategies 610 Global Pricing Strategies 611 Global Distribution Strategies 613 Country-of-Origin Effects 614 Building Country Images 614 Consumer Perceptions of Country of Origin 614 Deciding on the Marketing Organization 616 Export Department 616 International Division 616 Global Organization 616 Summary 617 Applications 617 CHAPTER 22 Managing a Holistic Marketing Organization for the Long Run 620 Trends in Marketing Practices 621 Internal Marketing 623 Organizing the Marketing Department 623 MARKETING MEMO Characteristics of Company Departments That Are Truly Customer Driven 624 Relationships with Other Departments 627 Building a Creative Marketing Organization 628 MARKETING INSIGHT The Marketing CEO 628 Socially Responsible Marketing 629 Corporate Social Responsibility 630 MARKETING INSIGHT The Rise of Organic 633 Socially Responsible Business Models 634 Cause-Related Marketing 634 MARKETING MEMO Making a Difference: Top 10 Tips for Cause Branding 637 Social Marketing 638 Marketing Implementation and Control 640 Marketing Implementation 640 Marketing Control 641 Annual-Plan Control 641 Profitability Control 642 Efficiency Control 642 Strategic Control 643 The Future of Marketing 643 MARKETING MEMO Major Marketing Weaknesses 647 Summary 648 Applications 648 Appendix Tools for Marketing Control 650 Appendix Sonic Marketing Plan A1 Endnotes E1 Glossary G1 Image Credits C1 Name Index I1 Company, Brand, and Organization Index Subject Index I14 I4 xv

17 Preface What s New in the 14th Edition The overriding goal of the revision for the 14th edition of Marketing Management was to create as comprehensive, current, and engaging MBA marketing textbook as possible. Where appropriate, new material was added, old material was updated, and no longer relevant or necessary material was deleted. Marketing Management, 14th edition, allows those instructors who have used the 13th edition to build on what they have learned and done while at the same time offering a text that is unsurpassed in breadth, depth, and relevance for students experiencing Marketing Management for the first time. The successful across-chapter reorganization into eight parts that began with the 12th edition of Marketing Management has been preserved, as well as many of the favorably received within-chapter features that have been introduced through the years, such as topical chapter openers, in-text boxes highlighting noteworthy companies or issues, and the Marketing Insight and Marketing Memo boxes that provide in-depth conceptual and practical commentary. Significant changes to the 14th edition include: Brand new opening vignettes for each chapter set the stage for the chapter material to follow. By covering topical brands or companies, the vignettes are great classroom discussion starters. Almost half of the in-text boxes are new. These boxes provide vivid illustrations of chapter concepts using actual companies and situations. The boxes cover a variety of products, services, and markets, and many have accompanying illustrations in the form of ads or product shots. The end-of-chapter section now includes two Marketing in Action mini-cases highlighting innovative, insightful marketing accomplishments by leading organizations. Each case includes questions that promote classroom discussion and analysis. Dramatic changes in the marketing environment have occurred in recent years in particular, the economic, natural, and technological environments. Throughout the new edition, these three areas are addressed, sometimes via new subsections in chapters, with emphasis on marketing during economic downturns and recessions, the rise of sustainability and green marketing, and the increased development of computing power, the Internet, and mobile phones. These new marketing realities make it more important than ever for marketers to be holistic in what they do, the overriding theme of this text. Chapter 19, on personal communications, received a significant update with much new material to reflect the changing social media landscape and communications environment. Forecasting has been moved to Chapter 3 where it fits well with the material on the marketing environment. Chapter 5 was re-titled as Creating Long-Term Loyalty Relationships to better reflect its stronger area of emphasis. Chapters 10 and 11 were reorganized and material swapped. Chapter 11 was also re-titled as Competitive Dynamics to acknowledge the significant material added on marketing in an economic downturn. What Is Marketing Management All About? Marketing Management is the leading marketing text because its content and organization consistently reflect changes in marketing theory and practice. The very first edition of Marketing Management, published in 1967, introduced the concept that companies must be customer-and-market driven. But there was little mention of what have now become fundamental topics such as segmentation, targeting, and positioning. Concepts such as brand equity, customer value analysis, database marketing, e-commerce, value networks, hybrid channels, supply chain management, and integrated marketing communications were not xvi

18 even part of the marketing vocabulary then. Marketing Management continues to reflect the changes in the marketing discipline over the past 40 years. Firms now sell goods and services through a variety of direct and indirect channels. Mass advertising is not nearly as effective as it was, so marketers are exploring new forms of communication, such as experiential, entertainment, and viral marketing. Customers are telling companies what types of product or services they want and when, where, and how they want to buy them. They are increasingly reporting to other consumers what they think of specific companies and products using , blogs, podcasts, and other digital media to do so. Company messages are becoming a smaller fraction of the total conversation about products and services. In response, companies have shifted gears from managing product portfolios to managing customer portfolios, compiling databases on individual customers so they can understand them better and construct individualized offerings and messages. They are doing less product and service standardization and more niching and customization. They are replacing monologues with customer dialogues. They are improving their methods of measuring customer profitability and customer lifetime value. They are intent on measuring the return on their marketing investment and its impact on shareholder value. They are also concerned with the ethical and social implications of their marketing decisions. As companies change, so does their marketing organization. Marketing is no longer a company department charged with a limited number of tasks it is a company-wide undertaking. It drives the company s vision, mission, and strategic planning. Marketing includes decisions like who the company wants as its customers, which of their needs to satisfy, what products and services to offer, what prices to set, what communications to send and receive, what channels of distribution to use, and what partnerships to develop. Marketing succeeds only when all departments work together to achieve goals: when engineering designs the right products; finance furnishes the required funds; purchasing buys high-quality materials; production makes high-quality products on time; and accounting measures the profitability of different customers, products, and areas. To address all these different shifts, good marketers are practicing holistic marketing. Holistic marketing is the development, design, and implementation of marketing programs, processes, and activities that recognize the breadth and interdependencies of today s marketing environment. Four key dimensions of holistic marketing are: 1. Internal marketing ensuring everyone in the organization embraces appropriate marketing principles, especially senior management. 2. Integrated marketing ensuring that multiple means of creating, delivering, and communicating value are employed and combined in the best way. 3. Relationship marketing having rich, multifaceted relationships with customers, channel members, and other marketing partners. 4. Performance marketing understanding returns to the business from marketing activities and programs, as well as addressing broader concerns and their legal, ethical, social, and environmental effects. These four dimensions are woven throughout the book and at times spelled out explicitly. The text specifically addresses the following tasks that constitute modern marketing management in the 21st century: 1. Developing marketing strategies and plans 2. Capturing marketing insights and performance 3. Connecting with customers 4. Building strong brands 5. Shaping the market offerings 6. Delivering and communicating value 7. Creating successful long-term growth xvii

19 What Makes Marketing Management the Marketing Leader? Marketing is of interest to everyone, whether they are marketing goods, services, properties, persons, places, events, information, ideas, or organizations. As it has maintained its respected position among students, educators, and businesspeople, Marketing Management has kept upto-date and contemporary. Students (and instructors) feel that the book is talking directly to them in terms of both content and delivery. Marketing Management owes its marketplace success to its ability to maximize three dimensions that characterize the best marketing texts depth, breadth, and relevance as measured by the following criteria: Depth. Does the book have solid academic grounding? Does it contain important theoretical concepts, models, and frameworks? Does it provide conceptual guidance to solve practical problems? Breadth. Does the book cover all the right topics? Does it provide the proper amount of emphasis on those topics? Relevance. Does the book engage the reader? Is it interesting to read? Does it have lots of compelling examples? The 14th edition builds on the fundamental strengths of past editions that collectively distinguish it from all other marketing management texts: Managerial Orientation. The book focuses on the major decisions that marketing managers and top management face in their efforts to harmonize the organization s objectives, capabilities, and resources with marketplace needs and opportunities. Analytical Approach. Marketing Management presents conceptual tools and frameworks for analyzing recurring problems in marketing management. Cases and examples illustrate effective marketing principles, strategies, and practices. Multidisciplinary Perspective. The book draws on the rich findings of various scientific disciplines economics, behavioral science, management theory, and mathematics for fundamental concepts and tools directly applicable to marketing challenges. Universal Applications. The book applies strategic thinking to the complete spectrum of marketing: products, services, persons, places, information, ideas and causes; consumer and business markets; profit and nonprofit organizations; domestic and foreign companies; small and large firms; manufacturing and intermediary businesses; and low- and high-tech industries. Comprehensive and Balanced Coverage. Marketing Management covers all the topics an informed marketing manager needs to understand to execute strategic, tactical, and administrative marketing. Student Supplements mymarketinglab Mymarketinglab gives you the opportunity to test yourself on key concepts and skills, track your progress through the course and use the personalized study plan activities all to help you achieve success in the classroom. Features include: Personalized Study Plans Pre- and post-tests with remediation activities directed to help you understand and apply the concepts where you need the most help. xviii

20 Interactive Elements A wealth of hands-on activities and exercises let you experience and learn actively. Current Events Articles Concise, highly relevant articles about the latest marketing related news with thought provoking short essay questions. Critical Thinking Challenge Question These questions measure core critical-thinking skills through the context of marketing applications. To answer these questions, you will need to recognize assumptions, evaluate arguments, identify relevant issues, draw inferences, spot logical flaws, and recognize similarities between arguments. Knowledge of marketing content picked up through the text and the class will help you zero in on the correct issues, but you will still need to exercise critical judgment in order to get the correct answer. Marketing Management Cases Prentice Hall Custom Business Resources can provide instructors and students with all the cases and articles needed to enhance and maximize learning in a marketing course. Instructors can create Custom CoursePacks or Custom CaseBooks. Resources include top-tier cases from Darden, Harvard, Ivey, NACRA, and Thunderbird, plus full access to a database of articles. For details on how to order these value-priced packages, contact your local representative or visit the Prentice Hall Custom Business Resources Web site at Marketing Management Video Gallery Make your classroom newsworthy. PH has updated the Marketing Management video library for the 14th edition. A full library of video segments accompany this edition featuring issue-focused footage such as interviews with top executives, objective reporting by real news anchors, industry research analysts, and marketing and advertising campaign experts. A full video guide, including synopses, discussion questions, and teaching suggestions, is available on the IRC (online and on CD-ROM) to accompany the video library. The Marketing Plan Handbook, 4th edition, with Marketing Plan Pro Marketing Plan Pro is a highly rated commercial software program that guides you through the entire marketing plan process. The software is totally interactive and features 10 sample marketing plans, step-by-step guides, and customizable charts. Customize your marketing plan to fit your marketing needs by following easy-to-use plan wizards. Follow the clearly outlined steps from strategy to implementation. Click to print, and your text, spreadsheet, and charts come together to create a powerful marketing plan. The new The Marketing Plan Handbook, by Marian Burk Wood, supplements the in-text marketing plan material with an in-depth guide to what student marketers really need to know. A structured learning process leads to a complete and actionable marketing plan. Also included are timely, real-world examples that illustrate key points, sample marketing plans, and Internet resources. xix