Chapter 14 Developing Pricing Strategies and Programs 431. Understanding Pricing 432

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1 Managing Service Brands 421 Differentiating Services 422 Developing Brand Strategies for Services 423 Managing Product Support Services 424 Identifying and Satisfying Customer Needs 425 Postsale Service Strategy 425 Summary 426 Applications 426 Notes 427 Chapter 14 Developing Pricing Strategies and Programs 431 Understanding Pricing 432 The Internet and Pricing Effects on Sellers and Buyers 433 How Companies Price 433 Consumer Psychology and Pricing 434 Setting the Price 436 Step 1: Selecting the Pricing Objective 437 MARKETING MEMO When to Use Price Cues 437 Step 2: Determining Demand 439 Step 3: Estimating Costs 441 MARKETING MEMO Three Myths about Pricing Strategy 441 Step 4: Analyzing Competitors' Costs, Prices, and Offers 443 Step 5: Selecting a Pricing Method 444 Step 6: Selecting the Final Price 448 Stealth Price Increases 449 Adapting the Price 450 Geographical Pricing (Cash, Countertrade, Barter) 450 Price Discounts and Allowances 451 Promotional Pricing 452 Differentiated Pricing 453 Initiating and Responding to Price Changes 455 Initiating Price Cuts 455 Initiating Price Increases 455 Smart Pricing Takes Off 456 MARKETING MEMO Marketing Strategies to Avoid Raising Prices 458 Reactions to Price Changes 458 Responding to Competitors' Price Changes 460 Summary 461 Applications 461 Notes 463

2 PART 6 Delivering Value 466 Chapter 15 Designing and Managing Value Networks and Channels 467 Marketing Channels and Value Networks 468 The Importance of Channels 468 Channel Development 469 MARKETING MEMO Multichannel Shopping Checklist 470 Value Networks 470 The Role of Marketing Channels 472 Channel Functions and Flows 472 Channel Levels 474 M-Commerce Opens Up New Opportunities for Marketers 475 Service Sector Channels 476 Channel-Design Decisions 476 Analyzing Customers' Desired Service Output Levels 476 Establishing Objectives and Constraints 477 Identifying Major Channel Alternatives 477 How Carmax is Transforming the Auto Business 479 Evaluating the Major Alternatives 481 Channel-Management Decisions 483 Selecting Channel Members 483 Training Channel Members 483 Motivating Channel Members 483 Evaluating Channel Members 485 Modifying Channel Arrangements 485 Channel Integration and Systems 486 Vertical Marketing Systems 486 MARKETING MEMO Designing a Customer-Driven Distribution System 487 Horizontal Marketing Systems 488 Multichannel Marketing Systems 489 Conflict, Cooperation, and Competition 491 Types of Conflict and Competition 491 Causes of Channel Conflict 491 Managing Channel Conflict 492 Legal and Ethical Issues in Channel Relations 493 E-Commerce Marketing Practices 493 Pure-Click Companies 494 Burst of the Dot-Com Bubble 495 Brick-and-Click Companies 495 xxii

3 Summary 497 Applications 498 Notes 499 Chapter 16 Managing Retailing, Wholesaling, and Logistics 503 Retailing 504 Types of Retailers 504 New Models for Success 506 Franchise Fever 508 MARKETING MEMO Helping Stores to Sell 509 Marketing Decisions 509 Making Labels Smarter 513 MARKETING MEMO What Women Want from Customer Service 514 Trends in Retailing 517 Private Labels 518 House Brands 518 The Private Label Threat 519 Wholesaling 520 The Growth and Types of Wholesaling 521 Wholesaler Marketing Decisions 521 Trends in Wholesaling 522 Market Logistics 523 MARKETING MEMO Strategies for High-Performance Wholesaler-Distributors 524 Integrated Logistics Systems 524 Market-Logistics Objectives 525 Market-Logistics Decisions 526 Organizational Lessons 529 Summary 530 Applications 530 Notes 532 PART 7 Communicating Value 534 Chapter 17 Designing and Managing Integrated Marketing Communications 535 The Role of Marketing Communications 536 Marketing Communications and Brand Equity 536 The Communications Process Models 539 Developing Effective Communications 541 Identify the Target Audience 541 Determine the Communications Objectives 542 Design the Communications 544

4 Celebrity Endorsements as a Strategy 547 Select the Communications Channels 548 Buzz Marketing 549 Establish the Total Marketing Communications Budget 552 Hitting the Bull's Eye in a Post- Mass-Market World 553 Deciding on the Marketing Communications Mix 554 Characteristics of the Marketing Communications Mix 555 Factors in Setting the Marketing Communications Mix 556 Measuring Communication Results 557 Managing the Integrated Marketing Communications Process 558 Coordinating Media 558 Implementing IMC 560 Coordinating Media to Build Brand Equity 560 MARKETING MEMO How Integrated Is Your IMC Program? 562 Summary 562 Applications 563 Notes 564 Chapter 18 Managing Mass Communications: Advertising, Sales Promotions, Events, and Public Relations 567 Developing and Managing an Advertising Program 568 Setting the Objectives 568 Deciding on the Advertising Budget 569 Developing the Advertising Campaign 570 MARKETING MEMO Print AD Evaluation Criteria 573 Deciding on Media and Measuring Effectiveness 574 Deciding on Reach, Frequency, and Impact 574 Choosing Among Major Media Types 575 Alternative Advertising Options 576 Selecting Specific Vehicles 579 Playing Games with Brands 581 Deciding on Media Timing and Allocation 581 Evaluating Advertising Effectiveness 583 How to Sell in Hard Times 584 xxiv Understanding the Effects of Advertising and Promotion 585

5 Sales Promotion 585 Objectives 585 Advertising versus Promotion 586 Major Decisions 587 Events and Experiences 591 Events Objectives 591 Major Decisions 592 Public Relations 593 Marketing Public Relations 594 Major Decisions in Marketing PR 595 Summary 596 Applications 597 Notes 598 Chapter 19 Managing Personal Communications: Direct Marketing and Personal Selling 603 Direct Marketing 604 The Benefits of Direct Marketing 604 Direct Mail 606 MARKETING MEMO The Public and Ethical Issues in Direct Marketing 606 MARKETING MEMO When Your Customer Is a Committee 608 Catalog Marketing 609 Telemarketing 611 Other Media for Direct-Response Marketing 611 Interactive Marketing 612 The Benefits of Interactive Marketing 613 Designing an Attractive Web Site 613 MARKETING MEMO Just Your Type 614 Placing Ads and Promotion Online 614 E-Marketing Guidelines 615 Designing the Sales Force 616 Sales Force Objectives and Strategy 617 Sales Force Structure 618 Sales Force Size 618 Major Account Management 619 Sales Force Compensation 619 Managing the Sales Force 620 Recruiting and Selecting Representatives 620 Training and Supervising Sales Representatives 620 Sales Rep Productivity 621 Motivating Sales Representatives 623 Evaluating Sales Representatives 624

6 Principles of Personal Selling 625 The Six Steps 626 Principles of Customer-Oriented Selling 627 Negotiation 627 Relationship Marketing 628 Summary 628 Applications 629 Notes 630 PART 8 Creating Successful Long-Term Growth 632 Chapter 20 Introducing New Market Offerings 633 Challenges in New-Product Development 634 Iridium Disconnects with Global Customers 637 Organizational Arrangements 637 MARKETING MEMO Lessons for New-Product Success 638 Budgeting for New-Product Development 638 Organizing New-Product Development 639 Managing the Development Process: Ideas 640 Idea Generation 640 MARKETING MEMO Ten Ways to Great New-Product Ideas 642 Idea Screening 643 Developing Successful High-Tech Products 644 Managing the Development Process: Concept to Strategy 645 Concept Development and Testing 645 Marketing Strategy 648 Business Analysis 649 Managing the Development Process: Development to Commercialization 651 Product Development 651 Market Testing 653 Commercialization 655 The Consumer-Adoption Process 658 Stages in the Adoption Process 659 Factors Influencing the Adoption Process 659 Summary 661 Applications 661 Notes 663 vi

7 Chapter 21 Tapping into Global Markets 667 Competing on a Global Basis 668 Deciding Whether to Go Abroad 669 Deciding Which Markets to Enter 670 How Many Markets to Enter 670 Developed versus Developing Markets 671 Regional Free Trade Zones 673 Evaluating Potential Markets 673 Deciding How to Enter the Market 674 Indirect and Direct Export 674 Using a Global Web Strategy 675 Licensing 676 Joint Ventures 676 Direct Investment 677 Deciding on the Marketing Program 677 Product 678 Global Standardization or Adaptation? 679 MARKETING MEMO The Ten Commandments of Global Branding 680 Establishing Global Service Brands 681 Communications 682 Price 684 Distribution Channels 685 Country-of-Origin Effects 686 Building Country Images 686 Consumer Perceptions of Country of Origin 686 The Ups and Downs of Brand America 688 Deciding on the Marketing Organization 688 Export Department 689 International Division 689 Global Organization 689 Summary 690 Applications 690 Notes 691 Chapter 22 Managing a Holistic Marketing Organization 695 Trends in Marketing Practices 696 Internal Marketing 697 Organizing the Marketing Department 697 xxvii

8 MARKETING MEMO Characteristics of Company Departments That Are Truly Customer-Driven 698 Relations with Other Departments 703 Building a Creative Marketing Organization 704 The Marketing CEO 705 Socially Responsible Marketing 706 Fueling Strategic Innovation 706 Corporate Social Responsibility 707 Socially Responsible Business Models 709 Cause-Related Marketing 709 Social Marketing 712 MARKETING MEMO Making a Difference 713 Marketing Implementation 715 Evaluation and Control 716 Efficiency Control 717 Strategic Control 719 MARKETING MEMO Marketing Effectiveness Review Instrument 720 The Future of Marketing 721 MARKETING MEMO Major Marketing Weaknesses 725 Summary 726 Applications 726 Notes 727 Appendix A1 Glossary G1 Image Credits C1 Name Index 11 Company, Brand, and Organization index 14 Subject Index 112

9 M arketing 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 even part of the marketing vocabulary then. Firms now sell goods and services through a variety of direct and indirect channels. Mass advertising is not nearly as effective as it was. Companies are exploring new forms of communication, such as experiential, entertainment, and viral marketing. Customers are increasingly telling companies what types of product or services they want and when, where, and how they want to buy them. 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 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 quality materials, production makes quality products on time, and accounting measures the profitability of different customers, products, and areas. And as marketing techniques and organization have changed, so has this text. The biggest change is the addition of a co-author. Kevin Lane Keller is one of the top marketing academics of his generation. He has conducted ground-breaking research and written a highly successful text, Strategic Brand Management. He has also worked with marketing executives from companies around the globe to help them become better marketers. He brings fresh thinking and new perspectives to Marketing Management. The twelfth edition reflects a collaborative effort between the two authors with a goal of creating the best edition of Marketing Management ever. Extensive focus groups were conducted to fully understand the course and classroom needs of the instructor. Based on this input, the twelfth edition is designed to preserve the strengths of previous editions while introducing new material and organization to further enhance learning. It is dedicated to helping companies, groups, and individuals adapt their marketing strategies and management to the marketplace realities of the twenty-first century. Ill Revision Strategy for the Twelfth Edition Marketing is of interest to everyone, whether they are marketing goods, services, properties, persons, places, events, information, ideas, or organizations. As the "ultimate authority" for students and educators, Marketing Management must be kept up-to-date and contemporary. Students (and instructors) should feel that the book is talking directly to them in terms of both content and delivery. XXIX

10 The success of Marketing Management can be attributed to its ability to maximize three dimensions that characterize the best marketing texts depth, breadth, and relevance as reflected by the following questions. n 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? i" Relevance. Does the book engage the reader? Is the book interesting to read? Does it have lots of compelling examples? The twelfth edition builds on the fundamental strengths of past editions: n 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. I Analytical Approach. This book presents conceptual tools and frameworks for analyzing recurrent problems in marketing management. Cases and examples illustrate effective marketing principles, strategies, and practices. n Multidisciplinary Perspective. This book draws on the rich findings of various scientific disciplines economics, behavioral science, management theory, and mathematics for fundamental concepts and tools. n Universal Applications. This book applies strategic thinking to the complete spectrum of marketing: products and services, 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. I Comprehensive and Balanced Coverage. This book covers all the topics an informed marketing manager needs to understand to execute strategic, tactical, and administrative marketing. New Themes: Holistic Marketing One major new theme in this edition is holistic marketing. Holistic marketing can be seen as the development, design, and implementation of marketing programs, processes, and activities that recognize the breadth and interdependencies involved today's marketing environment. Holistic marketing recognizes that "everything matters" with marketing and that a broad, integrated perspective is often necessary. Holistic marketing has four key dimensions: 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 optimal manner. 3. Relationship marketing-having rich, multi-faceted relationships with customers, channel members and other marketing partners. 4. Socially responsible marketing-understanding the ethical, environmental, legal, and social effects of marketing. These four dimensions are woven throughout the book and at times spelled out explicitly. Two additional themes of this text are marketing personalization and marketing accountability. The former reflects all the attempts to make marketing more individually relevant; the latter reflects the need to understand and justify the return on marketing investments within organizations.