PHILIP KOTLER Northwestern University KEVIN LANE KELLER Dartmouth College. Prentice Hall PEARSON. Pearson Education International

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1 PHILIP KOTLER Northwestern University KEVIN LANE KELLER Dartmouth College PEARSON Prentice Hall Pearson Education International

2 Preface 29 PART 1 Understanding Marketing Management 42 Chapter 1 Defining Marketing for the 21st Century 42 The Importance of Marketing 44 The Scope of Marketing 45 What Is Marketing? 45 What Is Marketed? 46 Who Markets? 47 Marketing in Practice 50 Core Marketing Concepts 52 Needs, Wants, and Demands 52 Target Markets, Positioning, and Segmentation 53 Offerings and Brands 53 Value and Satisfaction 53 Marketing Channels 54 Supply Chain 54 Competition 54 Marketing Environment 54 The New Marketing Realities 55 Major Societal Forces 55 New Consumer Capabilities 56 New Company Capabilities 57 Company Orientation toward the Marketplace 58 The Production Concept 58 The Product Concept 58 The Selling Concept 59 The Marketing Concept 59 The Holistic Marketing Concept 59 MARKETING MEMO Marketing Right and Wrong 60 Relationship Marketing 60 BREAKTHROUGH MARKETING Nike 61 Integrated Marketing 62 Internal Marketing 64 Performance Marketing 66 Marketing Management Tasks 68 Developing Marketing Strategies and Plans 68 Capturing Marketing Insights 68 MARKETING MEMO Marketers'Frequently Asked Questions 69 Connecting with Customers 69 Building Strong Brands 69

3 CONTENTS Shaping the Market Offerings 69 Delivering Value 69 Communicating Value 70 Creating Long-Term Growth 70 Summary 70 Applications 71 Chapter 2 Developing Marketing Strategies and Plans 72 Marketing and Customer Value 74 The Value Delivery Process 74 The Value Chain 75 Core Competencies 76 A Holistic Marketing Orientation and Customer Value 78 The Central Role of Strategic Planning 79 BREAKTHROUGH MARKETING Intel 80 Corporate and Division Strategic Planning 81 Defining the Corporate Mission 81 Establishing Strategic Business Units 83 Assigning Resources to Each SBU Assessing Growth Opportunities 84 Organization and Organizational Culture 87 Marketing Innovation 87 Business Unit Strategic Planning 88 The Business Mission 88 SWOT Analysis 89 Creating Innovative Marketing 89 Goal Formulation 92 MARKETING MEMO Checklist for Performing Strengths/Weaknesses Analysis 93 Strategic Formulation 93 Program Formulation and Implementation 95 Marketing's Contribution to Shareholder Value 96 Feedback and Control 96 Product Planning: The Nature and Contents of a Marketing Plan 96 MARKETING MEMO Marketing Plan Criteria 97 Summary 103 Applications

4 Conducting Informative Focus Groups 135 MARKETING MEMO Questionnaire Dos and Don'ts 136 Getting into Consumers' Heads with Qualitative Research 138 Understanding Brain Science 139 Step 3: Collect the Information 141 MARKETING MEMO Pros and Cons of Online Research 142 Step 4: Analyze the Information 142 Step 5: Present the Findings 143 Step 6: Make the Decision 143 Overcoming Barriers to the Use of Marketing Research 143 BREAKTHROUGH MARKETING IDEO 145 Measuring Marketing Productivity 146 Marketing Metrics 146 Marketing-Mix Modeling 146 Marketing Dashboards 147 Marketing Dashboards to Improve Effectiveness and Efficiency 148 Forecasting and Demand Measurement 149 The Measures of Market Demand 150 A Vocabulary for Demand Measurement 151 Estimating Current Demand 153 Estimating Future Demand 155 Summary 157 Applications 157 PART 3 Connecting with Customers 158 Chapter 5 Creating Customer Value, Satisfaction, and Loyalty 158 Building Customer Value, Satisfaction, and Loyalty 160 Customer Perceived Value 161 Total Customer Satisfaction 164 Monitoring Satisfaction 165 Net Promoter and Customer Satisfaction 167 Product and Service Quality

5 Maximizing Customer Lifetime Value 170 Customer Profitability 170 Measuring Customer Lifetime Value 172 MARKETING MEMO Calculating Customer Lifetime Value 172 Cultivating Customer Relationships 173 Customer Relationship Management 173 MARKiTIWO INSIGHT Company Response to Customer Empowerment 174 Attracting and Retaining Customers 176 Building Loyalty 178 MARKETING MEMO Creating Customer Evangelists 179 Win-Backs 182 Customer Databases and Database Marketing 182 Customer Databases 183 Data Warehouses and Datamining 183 BREAKTHROUGH MARKETING Tesco 184 The Downside of Database Marketing and CRM 185 Summary 187 Applications 187 Chapter 6 Analyzing Consumer Markets 188 What Influences Consumer Behavior? 190 Cultural Factors 190 MARKETING 1NSI6HT The Future of American Hyperconsumption 192 MARKETING SWSIGHT Marketing to Cultural Market Segments 193 Social Factors 194 Personal Factors 196 MARKETING MEMO The Average U.S. Consumer Quiz 197 Key Psychological Processes 200 BREAKTHROUGH MARKETING Ikea 201 Motivation: Freud, Maslow, Herzberg 201 Perception 203 Learning 204 Memory 205 The Buying Decision Process: The Five-Stage Model 207 Problem Recognition 208 Information Search

6 CONTENTS Evaluation of Alternatives 209 Purchase Decision 212 Postpurchase Behavior 213 Other Theories of Consumer Decision Making Level of Consumer Involvement 214 Decision Heuristics and Biases How Consumers Really Make Decisions 216 MARKETING MEMO Decision Traps 217 Mental Accounting 217 Profiling the Customer Buying-Decision Process 218 Summary 218 Applications 219 Chapter 7 Analyzing Business Markets What Is Organizational Buying? 222 The Business Market versus the Consumer Market 222 Big Sales to Small Business 224 Buying Situations 225 Systems Buying and Selling 226 MARKETING MEMO Maximizing Customer References 227 Participants in the Business Buying Process 228 The Buying Center 228 Buying Center Influences 228 Buying Center Targeting 230 The Purchasing/Procurement Process 231 Purchasing Department Perceptions 231 Purchasing Organization and Administration 232 Stages in the Buying Process 232 Problem Recognition 233 General Need Description and Product Specification 233 Supplier Search 233 Proposal Solicitation 234 Supplier Selection 234 MARKETING MEMO Developing Compelling Customer Value Propositions 236 Order-Routine Specification 237 Performance Review 238 Managing Business-to-Business Customer Relationships 238 The Benefits of Vertical Coordination 238 BREAKTHROUGH MARKETING General Electric 239

7 MARKETING iwsight Establishing Corporate Trust and Credibility 240 Business Relationships: Risks and Opportunism 241 Institutional and Government Markets 242 MARKETING MEMO Selling Tech to the U.S. Government 244 Summary 245 Applications 245 Chapter 8 Identifying Market Segments and Targets Levels of Market Segmentation Segment Marketing 248 Niche Marketing 249 Local Marketing 250 Individual Marketing Chasing the Long Tail 251 BREAKTHROUGH MARKETING HSBC Bases for Segmenting Consumer Markets Geographic Segmentation 253 Demographic Segmentation Trading Up (and Down): The New U.S. Consumer 259 Marketing to Generation Y 260 MARKETING MEMO Cheat Sheet for U.S. 20-Somethings 261 Psychographic Segmentation 261 Behavioral Segmentation 263 Bases for Segmenting Business Markets 266 Market Targeting 267 Effective Segmentation Criteria 267 Evaluating and Selecting the Market Segments 268 Additional Considerations 270 Summary 272 Applications 273 PART 4 Building Strong Brands 274 Chapter 9 Creating Brand Equity 274 What Is Brand Equity? 276 The Role of Brands 277 The Scope of Branding 278 Defining Brand Equity

8 BREAKTHROUGH MARKETING Procter & Gamble 279 Brand Cooking with Jamie Oliver 280 Brand Equity as a Bridge 282 Brand Equity Models 283 Building Brand Equity 285 Choosing Brand Elements 286 Designing Holistic Marketing Activities 287 Leveraging Secondary Associations 290 Measuring Brand Equity 291 The Brand Value Chain 292 Brand Valuation 293 Managing Brand Equity 293 Brand Reinforcement 293 What Is a Brand Worth? 294 Brand Revitalization 295 Devising a Branding Strategy 296 Branding Decisions 297 Brand Extensions 298 Brand Portfolios 301 Customer Equity 303 MARKETING MEMO Twenty-First-Century Branding 303 Summary 304 Applications 305 Chapter 10 Crafting the Brand Positioning 306 Developing and Communicating a Positioning Strategy 308 Competitive Frame of Reference 309 Points-of-Difference and Points-of-Parity 309 BREAKTHROUGH MARKETING UPS 310 Establishing Category Membership 311 Choosing POPs and PODs 314 Creating POPs and PODs 314 i MARKETING MEMO Writing a Positioning Statement 315 Differentiation Strategies 316 MARKETING MEMO How to Derive Fresh Consumer Insights to Differentiate Products and Services

9 CONTENTS Product Life-Cycle Marketing Strategies 318 Product Life Cycles 318 Style, Fashion, and Fad Life Cycles 319 Marketing Strategies: Introduction Stage and the Pioneer Advantage 320 Marketing Strategies: Growth Stage 322 Marketing Strategies: Maturity Stage 323 Competitive Category Dynamics 324 Marketing Strategies: Decline Stage 326 Evidence on the Product Life-Cycle Concept 327 Critique of the Product Life-Cycle Concept 327 Market Evolution 328 MARKETING MEMO How to Build a Breakaway Brand 329 Summary 330 Applications 331 Chapter 11 Dealing with Competition 332 Competitive Forces 334 Identifying Competitors 335 Analyzing Competitors 336 Strategies 336 High Growth Through Value Innovation 337 Objectives 337 Strengths and Weaknesses 339 Selecting Competitors 339 MARKETING MEMO Benchmarking to Improve Competitive Performance 340 Selecting Customers 340 Competitive Strategies for Market Leaders 341 BREAKTHROUGH MARKETING Accenture 342 When your Competitor Delivers More for Less 343 Expanding the Total Market 343 Defending Market Share 345 Expanding Market Share 347 Other Competitive Strategies 348 Market-Challenger Strategies 348 Market-Follower Strategies

10 MARKETING MEMO Making Smaller Better 351 Market-Nicher Strategies 352 MARKETING MEMO Niche Specialist Roles 353 Balancing Customer and Competitor Orientations 354 Competitor-Centered Companies 354 Customer-Centered Companies 354 Summary 355 Applications 355 PART 5 Shaping the Market Offerings 356 Chapter 12 Setting Product Strategy 356 Product Characteristics and Classifications 358 Product Levels: The Customer-Value Hierarchy 358 Product Classifications 359 Differentiation 361 Product Differentiation 361 WSSGHT Metamarkets and Metamediaries 359 BREAKTHROUGH MARKETING Toyota Design 365 Services Differentiation 366 Product and Brand Relationships 368 The Product Hierarchy 368 Product Systems and Mixes 368 Product-Line Analysis 369 Product-Line Length 371 When Less Is More Product-Mix Pricing 375 Co-Branding and Ingredient Branding MARKETING MEMO Making Ingredient Branding Work 379 Packaging, Labeling, Warranties, and Guarantees 379 Packaging 379 Labeling 380 Warranties and Guarantees 381 Summary 382 Applications

11 CONTENTS Chapter 13 Designing and Managing Services 384 The Nature of Services 386 Service Industries Are Everywhere 386 Categories of Service Mix 387 Distinctive Characteristics of Services 389 Marketing Strategies for Service Firms 392 A Shifting Customer Relationship 392 MARKETING MEMO Recommendations for Improving Service Quality 393 BREAKTHROUGH MARKETING Southwest Airlines 395 Holistic Marketing for Services 396 Managing Service Quality 399 Customer Expectations 399 The Role of Expectations in Service- Quality Perceptions 401 MARKETING MEMO Assessing E-Service Quality 402 Best Practices of Service-Quality Management 402 Developing Customer Interface Systems 404 Managing Service Brands 407 Differentiating Services 407 Developing Brand Strategies for Services 408 Managing Product-Support Services 410 Identifying and Satisfying Customer Needs 410 Postsale Service Strategy 411 Summary 413 Applications 413 Chapter 14 Developing Pricing Strategies and Programs 414 Understanding Pricing 416 A Changing Pricing Environment 416 How Companies Price 417 Giving It All Away 418 Consumer Psychology and Pricing 419 Setting the Price 423 Step 1: Selecting the Pricing Objective 423 Step 2: Determining Demand

12 CONTENTS Step 3: Estimating Costs 428 Step 4: Analyzing Competitors' Costs, Prices, and Offers 429 Step 5: Selecting a Pricing Method 430 BREAKTHROUGH MARKETING Ebay 434 Step 6: Selecting the Final Price 435 Stealth Price Increases 436 Adapting the Price 437 Geographical Pricing (Cash, Countertrade, Barter) 437 Price Discounts and Allowances 438 Promotional Pricing 439 Differentiated Pricing 440 Initiating and Responding to Price Changes 442 Initiating Price Cuts 442 Initiating Price Increases 443 Responding to Competitors' Price Changes 444 MARKETING MEMO How to Fight Low-Cost Rivals 445 Summary 446 Applications 447 PART 6 Delivering Value 448 Chapter 15 Designing and Managing Integrated Marketing Channels 448 Marketing Channels and Value Networks 450 The Importance of Channels 450 Channel Development 451 Hybrid Channels 452 Understanding Customer Needs 453 Value Networks 454 The Role of Marketing Channels 454 Channel Functions and Flows 455 Channel Levels 456 Service Sector Channels 457 Channel-Design Decisions 457 Analyzing Customers' Desired Service Output Levels 457 Establishing Objectives and Constraints 458 Identifying and Evaluating Major Channel Alternatives 458 Evaluating the Major Alternatives 461 How CarMax Is Transforming the Auto Business

13 CONTENTS Channel-Management Decisions 463 Selecting Channel Members 463 Training and Motivating Channel Members 463 Evaluating Channel Members 464 Modifying Channel Design and Arrangements 465 Channel Integration and Systems 466 Vertical Marketing Systems 466 The Importance of Channel Stewards 467 Horizontal Marketing Systems 468 Integrating Multichannel Marketing Systems 468 MARKETING MEMO Multichannel Shopping Checklist 469 Conflict, Cooperation, and Competition 470 Types of Conflict and Competition 471 Causes of Channel Conflict 471 Managing Channel Conflict 471 Dilution and Cannibalization 473 Legal and Ethical Issues in Channel Relations 473 E-Commerce Marketing Practices 474 Pure-Click Companies 474 BREAKTHROUGH MARKETING Amazon.com 475 Brick-and-Click Companies 477 M-Commerce 477 Summary 478 Applications 479 Chapter 16 Managing Retailing, Wholesaling, and Logistics 480 Retailing 482 Types of Retailers 482 The New Retail Environment 486 Marketing Decisions 488 Making Labels Smarter 491 BREAKTHROUGH MARKETING Target 493 MARKETING MEMO Helping Stores to Sell 494 Private Labels 496 Role of Private Labels 496 The Private-Label Threat 497 MARKETING MEMO How to Compete Against Store Brands

14 CONTENTS Wholesaling 498 Trends in Wholesaling 499 Market Logistics 501 Integrated Logistics Systems 502 Market-Logistics Objectives 502 Market-Logistics Decisions 504 Organizational Lessons 506 Summary 507 Applications 507 PART 7 Communicating Value 508 Chapter 17 Designing and Managing Integrated Marketing Communications 508 The Role of Marketing Communications 510 The Changing Marketing Communication Environment 510 Marketing Communications, Brand Equity, and Sales 511 The Communications Process Models 514 Developing Effective Communications 516 Identify the Target Audience 516 Determine the Communications Objectives 517 Design the Communications 517 Celebrity Endorsements as a Strategy 520 Select the Communications Channels 521 Establish the Total Marketing Communications Budget 524 Deciding on the Marketing Communications Mix 526 Characteristics of the Marketing Communications Mix 526 BREAKTHROUGH MARKETING Ocean Spray 526 Factors in Setting the Marketing Communications Mix 529 Measuring Communication Results 531 Managing the Integrated Marketing Communications Process 531 Coordinating Media 532 Implementing IMC 533 MARKETING MEMO How Integrated Is Your IMC Program? 534 Summary 534 Applications

15 Chapter 18 Managing Mass Communications: Advertising, Sales Promotions, Events and Experiences, and Public Relations 536 Developing and Managing an Advertising Program 538 Setting the Objectives 539 Deciding on the Advertising Budget 539 Developing the Advertising Campaign 540 MARKETING MEMO Print Ad Evaluation Criteria 544 Deciding on Media and Measuring Effectiveness 545 Deciding on Reach, Frequency, and Impact 545 Choosing among Major Media Types 546 Alternative Advertising Options 548 Selecting Specific Media Vehicles 550 MAKSCiTING INSIGHT Playing Games with Brands 551 Deciding on Media Timing and Allocation 552 Evaluating Advertising Effectiveness 553 Sales Promotion 554 Objectives 554 Advertising versus Promotion 555 Major Decisions 556 Events and Experiences 560 Events Objectives 561 Major Sponsorship Decisions 561 Creating Experiences 563 Public Relations 563 INSIGHT Experiential Marketing 564 ETING INSIGHT Managing a Brand Crisis 565 Marketing Public Relations 565 BREAKTHROUGH MARKETING Virgin Group 566 Major Decisions in Marketing PR 567 Summary 569 Applications 569 Chapter 19 Managing Personal Communications: Direct and Interactive Marketing, Word of Mouth, and Personal Selling 570 Direct Marketing 572 The Benefits of Direct Marketing 572 Direct Mail 574 Catalog Marketing

16 Telemarketing 577 Other Media for Direct-Response Marketing 578 Public and Ethical Issues in Direct Marketing 578 Interactive Marketing 578 Advantages and Disadvantages of Interactive Marketing 578 BREAKTHROUGH MARKETING Yahoo! 579 Placing Ads and Promotions Online 580 MARKETING MEMO Segmenting Tech Users 582 Word of Mouth 585 Buzz and Viral Marketing 586 Opinion Leaders 588 MARKETING MEMO How to Start a Buzz Fire 588 Blogs 590 Measuring the Effects of Word of Mouth 591 Designing the Sales Force 591 Sales-Force Objectives and Strategy 592 Sales-Force Structure 593 Sales-Force Size 594 Major Account Management 595 Sales-Force Compensation 595 Managing the Sales Force 596 Recruiting and Selecting Representatives 596 Training and Supervising Sales Representatives 597 Sales Rep Productivity 597 Motivating Sales Representatives 598 Evaluating Sales Representatives 599 Principles of Personal Selling 601 The Six Steps 601 Relationship Marketing 602 Summary 603 Applications 603 PART 8 Creating Successful Long-Term Growth 604 Chapter 20 Introducing New Market Offerings New-Product Options 606 Make or Buy 606 Types of New Products 606 Challenges in New-Product Development 607 The Innovation Imperative 607 New-Product Success 609 New-Product Failure 610

17 Organizational Arrangements 611 Budgeting for New-Product Development 612 Organizing New-Product Development 613 Managing the Development Process: Ideas 614 Idea Generation 614 MARKETING MEMO Ten Ways to Find Great New-Product Ideas 615 P&G'S New Connect-and-Develop Approach to Innovation 616 MARKETING MEMO Seven Ways to Draw New Ideas from Your Customers 617 MARKETING MEMO How to Run a Successful Brainstorming Session 618 Idea Screening 619 Managing the Development Process: Concept to Strategy 621 Concept Development and Testing 621 Marketing Strategy Development 624 Business Analysis 624 Managing the Development Process: Development to Commercialization 626 Product Development 626 Market Testing 627 Commercialization 630 BREAKTHROUGH MARKETING Apple ipod 631 The Consumer-Adoption Process 632 Stages in the Adoption Process 632 Factors Influencing the Adoption Process 633 Summary 635 Applications 635 Chapter 21 Tapping into Global Markets 636 Competing on a Global Basis 638 BREAKTHROUGH MARKETING Samsung 639 Deciding Whether to Go Abroad 640 Deciding Which Markets to Enter 640 How Many Markets to Enter 640 Developed versus Developing Markets 641 Evaluating Potential Markets 645 Spotlight on Key Developing Markets

18 CONTENTS Deciding How to Enter the Market 646 Indirect and Direct Export 646 Using a Global Web Strategy 647 Licensing 647 Joint Ventures 648 Direct Investment 649 Deciding on the Marketing Program 649 Product 651 MARKETING MEMO The Ten Commandments of Global Branding 652 Communications 653 Price 655 Unauthorized Sales Dealing with the Gray Market and Counterfeit Products 657 Distribution Channels 658 Country-of-Origin Effects 659 Building Country Images 659 Consumer Perceptions of Country of Origin 660 The Ups and Downs of Brand America 661 Deciding on the Marketing Organization 661 Export Department 662 International Division 662 Global Organization 662 Summary 663 Applications 663 Chapter 22 Managing a Holistic Marketing Organization for the Long Run 664 Trends in Marketing Practices 666 Internal Marketing 667 Organizing the Marketing Department 667 MARKETING MEMO Characteristics of Company Departments That Are Truly Customer Driven 668 Relations with Other Departments 672 Building a Creative Marketing Organization 673 The Marketing CEO 673 MARKETING MEMO Fueling Strategic Innovation 674 Socially Responsible Marketing

19 CONTENTS BREAKTHROUGH MARKETING Starbucks 677 Corporate Social Responsibility 678 Socially Responsible Business Models 680 Cause-Related Marketing 680 New Views on Corporate Social Social Marketing 684 Responsibility 681 MARKETING MEMO Making a Difference 685 Marketing Implementation 688 Evaluation and Control 689 Annual-Plan Control 689 Profitability Control 692 Efficiency Control 696 Strategic Control 696 The Future of Marketing 697 MARKETING MEMO Major Marketing Weaknesses 700 Summary 701 Applications 702 Appendix 703 Endnotes 717 Glossary 783 Image Credits 791 Name Index 793 Company, Brand, and Organization Index 795 Subject Index

Contents. Understanding Marketing Management 24. Preface 16

Contents. Understanding Marketing Management 24. Preface 16 Contents Preface 16 PART 1 CHAPTER 1 Understanding Marketing Management 24 Defining Marketing for the 21st Century 24 The Importance of Marketing 25 The Scope of Marketing 27 What Is Marketing? 27 What