PLC

The Product Life Cycle (PLC) is a vital component of the marketing plan. Monitoring products and services as they flow through this process helps marketing managers adjust their marketing strategies to keep products and services thriving for as long as possible. Monitoring this cycle helps companies and organizations continue to maximize the value of their products and services with their target over time. The purpose of this assignment is to give students the opportunity to understand how each stage in the PLC creates a need for adjustment to marketing strategies and allows students to assess what action(s) need to be taken.

Assignment Steps

Resources: Marketing: Ch. 1: pg. 4-10; Ch. 2: pg.40-46, 54-69; Ch. 11: pg. 292-309

Scenario: You currently work as the marketing manager of your favorite company/organization and manage the success of one of its products or services. Your responsibility is to monitor the stages of the Product Life Cycle (PLC) and adjust the marketing strategies as needed for your product to thrive for as long as possible. At each stage, you assess changes you need to make to the product, price strategy, as well as competition and profit.

Create a 10 slide (not counting cover slide or reference slide) Microsoft® PowerPoint®presentation with speaker’s notes covering the following criteria:

Develop a slide setting the theme and goals of the presentation.
Define and discuss the PLC concept and its importance to marketing managers.
Define and discuss what role pricing strategy has in marketing and how marketing mangers decide what strategy to use.
Describewhat company/organization and product/service you are using.
Create one slide for each of the four stages of the PLC describing the stage and analyzes the implications each stage may have on price strategy, product, competition, and profit for your selected product/service. Use the product/service you selected to illustrate each stage as it is discussed with original examples.
Discuss the reasoning behind why the PLC is important to marketing managers and share examples of possible implications if it is not monitored.

Cite a minimum of two peer-reviewed sources with one coming from the textbook or the University Library. Use in-text citations in the presentation slides and speaker’s notes to demonstrate your research.

Format your presentation consistent with APA guidelines.

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Managing
Successful
Products,
Services, and
Brands

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LEARNING OBJECTIVES

After reading this chapter you should be able to:

LO 11-
1 Explain the product life-cycle concept.

LO 11-
2 Identify ways that marketing executives manage a product’s life

cycle.

LO 11-
3 Recognize the importance of branding and alternative branding

strategies.

LO 11-
4 Describe the role of packaging, labeling, and warranties in the

marketing of a product.

Gatorade: Bringing Science to Sweat for 50 Years

Why is the thirst for Gatorade unquenchable? Look no further than constant
product improvement and masterful brand management.

Like Kleenex in the tissue market, Jell-O among gelatin desserts, and Scotch for
cellophane tape, Gatorade is synonymous with sports drinks. Concocted in

65 at
the University of Florida as a rehydration beverage for the school’s football team,
the drink was coined “Gatorade” by an opposing team’s coach after watching his
team lose to the Florida Gators in the Orange Bowl. The name stuck, and a new
beverage product class was born. Stokely-Van Camp, Inc. bought the Gatorade
formula in 1967 and commercialized the product.

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***

Creating the Gatorade Brand

***
The Quaker Oats Company acquired Stokely-Van Camp in 1983 and quickly
increased Gatorade sales through a variety of means. More flavors were added.
Multiple package sizes were offered using different containers. Distribution
expanded from convenience stores and supermarkets to mass merchandisers such
as Walmart. Consistent advertising and promotion effectively conveyed the
product’s unique performance benefits and links to athletic competition.
International opportunities were vigorously pursued.

Today, Gatorade is a global brand and is sold in more than 80 countries. It is also
the official sports drink of NASCAR, the National Football League, Major League
Baseball, the National Basketball Association, the National Hockey League, Major
League Soccer, and the Women’s National Basketball Association.

Masterful brand management spurred Gatorade’s success. Gatorade Frost was
introduced in 1997 and aimed at expanding the brand’s reach beyond organized
sports to other usage occasions. Gatorade Fierce appeared in 1999. In the same
year, Gatorade entered the bottled-water category with Propel Fitness Water, a
lightly flavored water fortified with vitamins. The Gatorade Performance Series
was introduced in 2001, featuring a Gatorade Energy Bar, Gatorade Energy Drink,
and Gatorade Nutritional Shake.

***

Building the Gatorade Brand

***
Brand development accelerated after PepsiCo, Inc. purchased Quaker Oats and the
Gatorade brand in 2001. Gatorade Xtremo, developed with a bilingual label for
Latino consumers, was launched in 2002. Gatorade X-Factor followed in 2003. In
2005, Gatorade Endurance Formula was created for serious runners, construction

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may be reproduced or transmitted without publisher’s prior permission. Violators will be prosecuted.

workers, and other people doing long, sweaty workouts. Gatorade Rain,
a lighter-tasting version of regular Gatorade, arrived in 2006. A low-
calorie Gatorade called G2 appeared in 2008.

In 2009, Gatorade executives unleashed a bevy of enhanced beverages in bold
new packaging. “Just like any good athlete, Gatorade is taking it to the next level,”
said Gatorade’s chief marketing officer. “Whether you’re in it for the win, for the
thrill or for better health, if your body is moving, Gatorade sees you as an athlete,
and we’re inviting you into the brand.” According to a company announcement,
“The new Gatorade attitude would be most visible through a total packaging
redesign.” For example, Gatorade Thirst Quencher now displays the letter G front
and center along with the brand’s iconic bolt. “For Gatorade, G represents the
heart, hustle, and soul of athleticism and will become a badge of pride for anyone

Source: PepsiCo

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who sweats, no matter where they’re active.”

To differentiate the range of Gatorade
offerings from the traditional Gatorade
Thirst Quencher, newly enhanced
beverages convey the attitude of a
tough-love coach or personal trainer
through in-your-face names on the
label and nutrition benefits inside. For
example, Gatorade Fierce is now Bring
It and Gatorade X-Factor is now Be
Tough. Continuing product

development efforts guided the creation of the G Series of products in 2010 and
2011.

Gatorade’s marketing performance is a direct result
of continuous product improvement and masterful
brand management as defined by the “Gatorade
bath.”
© J. Meric/Getty Images

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Page 292

LO 11-1

Explain the product life-cycle
concept.

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may be reproduced or transmitted without publisher’s prior permission. Violators will be prosecuted.

Beginning in 2011, Gatorade underwent a brand repositioning during
which it developed different lines of Gatorade products targeted at
different types of athletes. These lines included the traditional G Series for
athletes and the G Series Endurance for extreme sports athletes. Product
development within these lines continues today as evidenced by the launch of
Gatorade Endurance Carb Energy chews.

Gatorade Ad
kerin.tv/13e/v11-1

The marketing of Gatorade illustrates continuous product development and
masterful brand management in a dynamic marketplace. Not surprisingly,
Gatorade remains a vibrant multibillion-dollar brand 50 years after its creation.
This chapter shows how the actions taken by Gatorade executives exemplify those
made by successful marketers.

CHARTING THE PRODUCT LIFE CYCLE
Products, like people, are viewed as having a
life cycle. The concept of the product life cycl
e describes the stages a new product goes
through in the marketplace: introduction,
growth, maturity, and decline (Figure 11–1).
The two curves shown in this figure, total
industry sales revenue and total industry profit,
represent the sum of sales revenue and profit of
all firms producing the product. The reasons

for the changes in each curve and the marketing decisions involved are detailed next.

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Figure 11–1 How stages of the product life cycle relate to a firm’s marketing objectives and marketing mix actions.

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Introduction Stage

The introduction stage of the product life cycle occurs when a product is introduced to its intended
target market. During this period, sales grow slowly, and profit is minimal. The lack of profit is often
the result of large investment costs in product development, such as the millions of dollars spent by
Gillette to develop the Gillette Fusion razor shaving system. The marketing objective for the company
at this stage is to create consumer awareness and stimulate trial—the initial purchase of a product by
a consumer.

Companies often spend heavily on advertising and other promotion tools to build awareness and
stimulate product trial among consumers in the introduction stage. For example, Gillette budgeted
$200 million in advertising to introduce the Fusion shaving system to male shavers. The result? Over
60 percent of male shavers became aware of the new razor within six months and 26 percent tried the
product.

Advertising and promotion expenditures in the
introduction stage are often made to stimulate
primary demand, the desire for the product
class rather than for a specific brand, since
there are few competitors with the same
product. As more competitors launch their own
products and the product progresses along its
life cycle, company attention is focused on
creating selective demand, the preference for a
specific brand.

Other marketing mix variables also are
important at this stage. Gaining distribution can be a challenge because channel intermediaries may
be hesitant to carry a new product. Also, a company often restricts the number of variations of the
product to ensure control of product quality. As an example, the original Gatorade came in only one
flavor—lemon-lime.

During introduction, pricing can be either high or low. A high initial price may be used as part of a
skimming strategy to help the company recover the costs of development as well as capitalize on the
price insensitivity of early buyers. A master of this strategy is 3M. According to a 3M manager, “We
hit fast, price high, and get the heck out when the me-too products pour in.” High prices tend to

The success of the Gillette Fusion shaving system can
be understood using product life-cycle concepts as
discussed in the text.

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attract competitors eager to enter the market because they see the opportunity for profit. To
discourage competitive entry, a company can price low, referred to as penetration pricing. This
pricing strategy helps build unit volume, but a company must closely monitor costs. These and other
pricing techniques are covered in Chapter

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Figure 11–2 charts the stand-alone fax machine product life cycle for business use in the
United States from the early 1970s to 20

. Sales grew slowly in the 1970s and early 1980s
after Xerox pioneered the first portable fax machine. Fax machines were first sold direct to businesses
by company salespeople and were premium priced. The average price for a fax machine in 1980 was a
hefty $12,700, or almost $35,000 in today’s dollars! Those fax machines were primitive by today’s
standards. They contained mechanical parts, not electronic circuitry, and offered few features seen in
today’s models.

Several product classes are in the introductory stage of the product life cycle today. These include
smart TVs and all-electric-powered automobiles.

Figure 11–2 Product life cycle for the stand-alone fax machine for business use: 1970–2016. All four product life-
cycle stages appear: introduction, growth, maturity, and decline.
© Getty Images

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Growth Stage

The growth stage of the product life cycle is characterized by rapid increases in sales. It is in this stage
that competitors appear. For example, Figure 11–2 shows the dramatic increase in sales of fax
machines from 1986 to 1998. The number of companies selling fax machines also increased, from 1 in
the early 1970s to 4 in the late 1970s to 7 manufacturers in 1983, which sold 9 brands. By 1998 there
were some 25 manufacturers and 60 brands from which to choose.

The result of more competitors and more aggressive pricing is that profit usually peaks during the
growth stage. For instance, the average price for a fax machine plummeted from $3,300 in 1985 to
$500 in 1995. At this stage, advertising shifts emphasis to stimulating selective demand; product
benefits are compared with those of competitors’ offerings for the purpose of gaining market share.

Product sales in the growth stage grow at an increasing rate because of new people trying or using the
product and a growing proportion of repeat purchasers—people who tried the product, were
satisfied, and bought again. For the Gillette Fusion razor, over 60 percent of men who tried the razor
adopted the product permanently. For successful products, the ratio of repeat to trial purchases
grows as the product moves through the life cycle. Durable fax machines meant that replacement
purchases were rare. However, it became common for more than one machine to populate a business
as the machine’s use became more widespread.

Changes appear in the product in the growth stage. To help differentiate a company’s brand from
competitors, an improved version or new features are added to the original design, and product
proliferation occurs. Changes in fax machines included (1) models with built-in telephones; (2)
models that used plain, rather than thermal, paper for copies; and (3) models that integrated
electronic mail.

In the growth stage, it is important to broaden distribution for the product. In the retail store, for
example, this often means that competing companies fight for display and shelf space. Expanded
distribution in the fax industry is an example. Early in the growth stage, just 11 percent of office
machine dealers carried this equipment. By the mid-1990s, over 70 percent of these dealers sold fax
equipment, and distribution was expanded to other stores selling electronic equipment, such as Best
Buy and Office Depot.

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Numerous product classes or industries are in the growth stage of the product life cycle today.
Examples include smartphones, e-book readers, and other tablet devices such as the iPad.

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Maturity Stage

The maturity stage is characterized by a slowing of total industry sales or product class revenue. Also,
marginal competitors begin to leave the market. Most consumers who would buy the product are
either repeat purchasers of the item or have tried and abandoned it. Sales increase at a decreasing
rate in the maturity stage as fewer new buyers enter the market. Profit declines due to fierce price
competition among many sellers, and the cost of gaining new buyers at this stage rises.

Marketing attention in the maturity stage is often directed toward holding market share through
further product differentiation and finding new buyers and uses. For example, Gillette modified its
Fusion shaving system with the addition of ProGlide, a five-blade shaver with an additional blade on
the back for trimming. Fax machine manufacturers developed Internet-enabled multifunctional
models with new features such as scanning, copying, and color reproduction. They also designed fax

Electric automobiles like the Chevrolet Spark made by General Motors are in the introductory stage of the product
life cycle. By comparison, smartphones such as the Apple iPhone 6 are in the growth stage of the product life cycle.
Each product faces unique challenges based on its product life-cycle stage.
Left: © Kevork Djansezian/Getty Image; Right: Source: Apple

General Motors Company
www.gm.com

Apple
www.apple.com

http://www.gm.com/

http://www.apple.com/

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machines suitable for small and home businesses, which today represent a substantial portion of
sales. Still, a major consideration in a company’s strategy in this stage is to control overall marketing
cost by improving promotional and distribution efficiency.

Fax machines entered the maturity stage in the late 1990s. At the time, about 90 percent of industry
sales were captured by five producers (Hewlett-Packard, Brother, Sharp, Lexmark, and Samsung),
reflecting the departure of marginal competitors. By 2004, 200 million stand-alone fax machines
were installed throughout the world, sending more than 120 billion faxes annually.

Numerous product classes and industries are in the maturity stage of their product life cycle. These
include carbonated soft drinks and presweetened breakfast cereals.

Decline Stage

The decline stage occurs when sales drop. Fax machines for business use moved to this stage in early
2005. By then, the average price for a fax machine had sunk below $100. Frequently, a product enters
this stage not because of any wrong strategy on the part of companies, but because of environmental
changes. For example, digital music pushed compact discs into decline in the recorded music
industry. Will Internet technology and e-mail make fax machines extinct any time soon? The
Marketing Matters box offers one perspective on this question that may surprise you.

Marketing Matters

Will E-mail Spell Extinction for Fax Machines?

Technological substitution that creates value for customers often causes the decline stage in the
product life cycle. Will e-mail replace fax machines?

This question has been debated for years. Even though e-mail continues to grow with broadening
Internet access, millions of fax machines are still sold each year. Industry analysts estimated that
the number of e-mail mailboxes worldwide would be 5.2 billion in 2018. However, the phenomenal
popularity of e-mail has not brought fax machines to extinction. Why? The two technologies do not
directly compete for the same messaging applications.

E-mail is used for text messages. Faxing is predominately used for communicating formatted

customer
value

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documents by business users, notably doctors, concerned about Internet security. Fax usage is
expected to increase through 2018, even though unit sales of fax machines have declined on a
worldwide basis. Internet technology and e-mail may eventually replace facsimile technology and
paper and make fax machines extinct, but not in the immediate future.

Numerous product classes or industries are in the decline stage of their product life cycle. Two
prominent examples include analog TVs and desktop personal computers.

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Products in the decline stage tend to consume a disproportionate share of management and financial
resources relative to their future worth. A company will follow one of two strategies to handle a
declining product: deletion or harvesting.

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Deletion

Product deletion, or dropping the product from the company’s product line, is the most drastic
strategy. Because a residual core of consumers still consume or use a product even in the decline
stage, product elimination decisions are not taken lightly. For example, Sanford Corporation
continues to sell its Liquid Paper correction fluid for use with typewriters in the era of word-
processing equipment.

Harvesting

A second strategy, harvesting, is when a company retains the product but reduces marketing costs.
The product continues to be offered, but salespeople do not allocate time in selling nor are advertising
dollars spent. The purpose of harvesting is to maintain the ability to meet customer requests. Coca-
Cola, for instance, still sells Tab, its first diet cola, to a small group of die-hard fans. According to
Coke’s CEO, “It shows you care. We want to make sure those who want Tab, get Tab.”

Three Aspects of the Product Life Cycle

Some important aspects of product life cycles are (1) their length, (2) the shape of their sales curves,
and (3) the rate at which consumers adopt products.

Length of the Product Life Cycle

There is no set time that it takes a product to move through its life cycle. As a rule, consumer products
have shorter life cycles than business products. For example, many new consumer food products such
as Frito-Lay’s Baked Lay’s potato chips move from the introduction stage to maturity in 18 months.
The availability of mass communication vehicles informs consumers quickly and shortens life cycles.
Technological change shortens product life cycles as new-product innovation replaces existing
products. For instance, smartphones have largely replaced digital cameras in the amateur
photography market.

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Shape of the Life-Cycle Curve

The product life-cycle sales curve shown in Figure 11–1 is the generalized life cycle, but not all
products have the same shape to their curve. In fact, there are several life-cycle curves, each type
suggesting different marketing strategies. Figure 11–3 shows the shape of life-cycle sales curves for
four different types of products: high-learning, low-learning, fashion, and fad products.

Figure 11–3 Alternative product life-cycle curves based on product types. Note the long introduction stage for a
high-learning product compared with a low-learning product. Read the text for an explanation of the different
product life-cycle curves.

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A high-learning product is one for which significant customer education is required and there is an
extended introductory period (Figure 11–3A). It may surprise you, but personal computers had this
life-cycle curve. Consumers in the 1980s had to learn the benefits of owning the product or be
educated in a new way of performing familiar tasks. Convection ovens for home use required
consumers to learn a new way of cooking and alter familiar recipes used with conventional ovens. As
a result, these ovens spent years in the introductory period.

In contrast, sales for a low-learning product begin immediately because little learning is required by
the consumer and the benefits of purchase are readily understood (Figure 11–3B). This product
often can be easily imitated by competitors, so the marketing strategy is to broaden distribution
quickly. In this way, as competitors rapidly enter, most retail outlets already have the innovator’s
product. It is also important to have the manufacturing capacity to meet demand. A successful low-
learning product is Gillette’s Fusion razor. This product achieved $1 billion in worldwide sales in less
than three years.

A fashion product (Figure 11–3C) is a style of the times. Life cycles for fashion products frequently
appear in women’s and men’s apparel. Fashion products are introduced, decline, and then seem to
return. The length of the cycles may be months, years, or decades. Consider women’s hosiery. Product
sales have been declining for years. Women consider it more fashionable to not wear hosiery—bad
news for Hanes brands, the leading marketer of women’s sheer hosiery. According to an authority on
fashion, “Companies might as well let the fashion cycle take its course and wait for the inevitable
return of pantyhose.”

A fad product experiences rapid sales on introduction and then an equally rapid decline (Figure 11–
3D). These products are typically novelties and have a short life cycle. They include car tattoos, sold
in Southern California and described as the first removable and reusable graphics for automobiles,
and vinyl dresses and fleece bikinis made by a Minnesota clothing company.

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The Product Level: Class and Form

The product life cycle shown in Figure 11–1 is a total industry or generalized product class sales
curve. Yet, in managing a product it is often important to distinguish among the multiple life cycles
(class and form) that may exist.

Product class refers to the entire product category or industry, such as prerecorded music. Produc
t form pertains to variations of a product within the product class. For prerecorded music, product
form exists in the technology used to provide the music such as cassette tapes, compact discs, and
digital music downloading and streaming. Figure 11–4 shows the life cycles for these three product
forms and demonstrates the impact of technological innovation on sales.10

Figure 11–4 Prerecorded music product life cycles by product form illustrate the effect of technological innovation
on sales. Compact discs replaced cassette tapes, and digital music replaced compact discs in 2015. Do you even
remember the cassette tape?

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The Product Life Cycle and Consumer Behavior

The life cycle of a product depends on sales to consumers. Not all consumers rush to buy a product in
the introductory stage, and the shapes of the life-cycle curves indicate that most sales occur after the
product has been on the market for some time. In essence, a product diffuses, or spreads, through the
population, a concept called the diffusion of innovation.

Some people are attracted to a product early. Others buy it only after they see their friends or opinion
leaders with the item. Figure 11–5 shows the consumer population divided into five categories of
product adopters based on when they adopt a new product. Brief profiles accompany each category.
For any product to be successful, it must be purchased by innovators and early adopters. This is why
manufacturers of new pharmaceuticals try to gain adoption by respected hospitals, clinics, and
physicians. Once accepted by innovators and early adopters, successful new products move on to the
early majority, late majority, and laggard categories.

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Several factors affect whether a consumer will adopt a new product or not. Common reasons for
resisting a product in the introduction stage are usage barriers (the product is not compatible with
existing habits), value barriers (the product provides no incentive to change), risk barriers (physical,
economic, or social), and psychological barriers (cultural differences or image).

These factors help to explain the slow adoption of all-electric-powered automobiles in the United
States. About one-third of 1 percent of cars sold in 2015

Figure 11–5 Five categories and profiles of product adopters. For a product to be successful, it must be purchased
by innovators and early adopters.

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Page 299

were all-electric-powered vehicles. Industry analysts cite the usage barrier for
disappointing sales. They note that prospective buyers believe these cars are not compatible
with existing driving habits. Analysts also mention a value barrier. Consumers have not recognized
the superiority of all-electric cars over vehicles with internal combustion engines. Third, a risk barrier
exists in large measure to buyer uncertainty about the actual cost of all-electric-powered car
ownership. According to one auto industry analyst, “The innovators and early adopters have
purchased all-electric vehicles, but mainstream consumers have not followed.” Not surprisingly, all-
electric-powered automobiles remain in the introductory stage of the product life cycle.

Companies attempt to overcome these barriers in numerous ways. For example, manufacturers of all-
electric-powered automobiles provide low-cost leasing options to overcome usage, value, and risk
barriers. Other companies provide warranties, money-back guarantees, extensive usage instructions,
demonstrations, and free samples to stimulate initial trial of new products. For example, software
developers offer demonstrations downloaded from the Internet. Cosmetics consumers can browse
through the Embrace Your Face site at www.covergirl.com to find out how certain makeup
products will look. Free samples are one of the most popular means to gain consumer trial. In fact, 71
percent of consumers consider a sample to be the best way to evaluate a new product.

learning review

11-
1.

Advertising plays a major role in the _______________ stage of the
product life cycle, and ______________ plays a major role in maturity.

11-
2.

How do high-learning and low-learning products differ?

11-
3.

What are the five categories of product adopters in the diffusion of
innovations?

13
14

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LO 11-2

Identify ways that marketing
executives manage a product’s life
cycle.

MANAGING THE PRODUCT LIFE CYCLE
An important task for a firm is to manage its
products through the successive stages of their
life cycles. This section describes the role of the
product manager, who is usually responsible
for this, and presents three ways to manage a
product through its life cycle: modifying the
product, modifying the market, and
repositioning the product.

Role of a Product Manager

The product manager, sometimes called a brand manager, manages the marketing efforts for a close-
knit family of products or brands. The product manager style of marketing organization is used by
consumer goods firms, including General Mills and PepsiCo, and by industrial firms such as Intel and
Hewlett-Packard.

All product managers are responsible for managing existing products through the stages of the life
cycle. Some are also responsible for developing new products. Product managers’ marketing
responsibilities include developing and executing a marketing program for the product line described
in an annual marketing plan and approving ad copy, media selection, and package design.

Product managers also engage in extensive data analysis related to their products and brands. Sales,
market share, and profit trends are closely monitored. Managers often supplement these data with
two measures: (1) a category development index (CDI) and (2) a brand development index (BDI).
These indexes help to identify strong and weak market segments (usually demographic or geographic
segments) for specific consumer products and brands and provide direction for marketing efforts.
The calculation, visual display, and interpretation of these two indexes for Hawaiian Punch are
described in the

Applying Marketing Metrics

box.

Applying Marketing Metrics

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Knowing Your CDI and BDI

Where are sales for my product category and brand strongest and weakest? Data related to this
question are displayed in a marketing dashboard using two indexes: (1) a category development
index and (2) a brand development index.

Your Challenge

You have joined the marketing team for Hawaiian Punch, the top fruit punch drink sold in the
United States. The brand has been marketed to mothers with children under 13 years old. The
majority of Hawaiian Punch sales are in gallon and 2-liter bottles. Your assignment is to examine
the brand’s performance and identify growth opportunities for the Hawaiian Punch brand among
households that consume prepared fruit drinks (the product category).

Your marketing dashboard displays a category development index and a brand development index
provided by a syndicated marketing research firm. Each index is based on the calculations below:

Category Development Index (CDI) = × 100

Percent of a product category’s total
U.S. sales in a market segment

Percent of the total U.S. population in
a market segment

Percent of a brand’s total U.S. sales in

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A CDI over 100 indicates above-average product category purchases by a market segment. A
number under 100 indicates below-average purchases. A BDI over 100 indicates a strong brand
position in a segment; a number under 100 indicates a weak brand position.

You are interested in CDI and BDI displays for four household segments that consume prepared
fruit drinks: (1) households without children; (2) households with children 6 years old or under;
(3) households with children aged 7 to 12; and (4) households with children aged 13 to 18.

Your Findings

The BDI and CDI metrics displayed below show that Hawaiian Punch is consumed by households
with children, and particularly households with children under age 12. The Hawaiian Punch BDI is
over 100 for both segments—not surprising since the brand is marketed to these segments.
Households with children 13 to 18 years old evidence high fruit drink consumption with a CDI over
100. But Hawaiian Punch is relatively weak in this segment with a BDI under 100.

Your Action

An opportunity for Hawaiian Punch exists among households with children 13 to 18 years old—
teenagers. You might propose that Hawaiian Punch be repositioned for teens. In addition, you
might recommend that Hawaiian Punch be packaged in single-serve cans or bottles to attract this
segment, much like soft drinks. Teens might also be targeted for advertising and promotions.

Brand Development Index (BDI) = × 100

Percent of a brand’s total U.S. sales in
a market segment

Percent of the total U.S. population in
a market segment

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Modifying the Product

Product modification involves altering one or more of a product’s characteristics, such as its
quality, performance, or appearance, to increase the product’s value to customers and increase sales.
Wrinkle-free and stain-resistant clothing made possible by nanotechnology revolutionized the men’s
and women’s apparel business and stimulated industry sales of casual pants, shirts, and blouses. A
common approach to product modification to increase a product’s value to consumers is called
product bundling—the sale of two or more separate products in one package. For example, Microsoft
Office is sold as a bundle of computer software, including Word, Excel, and PowerPoint.

New features, packages, or scents can be used to change a product’s characteristics and give the sense
of a revised product. Procter & Gamble revamped Pantene shampoo and conditioner with a new
vitamin formula and relaunched the brand with a multi-million-dollar advertising and promotion
campaign. The result? Pantene, a brand first introduced in the 1940s, is now a top-selling shampoo
and conditioner in the United States in an industry with more than 1,000 competitors.

Modifying the Market

With market modification strategies, a company tries to find new customers, increase a product’s
use among existing customers, or create new use situations.

Finding New Customers

As part of its market modification strategy, LEGO Group is offering a new line of products to attract
consumers outside of its traditional market. Known for its popular line of construction toys for young
boys, LEGO Group has introduced a product line for young girls called LEGO Friends. Harley-
Davidson

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Harley-Davidson redesigned some
of its motorcycle models to feature
smaller hand grips, a lower seat,
and an easier-to-pull clutch lever to
create a more comfortable ride for
women. According to Genevieve
Schmitt, founding editor of Wome
nRidersNow.com, “They realize
that women are an up-and-coming
segment and that they need to
accommodate them.”
© Gary Gardiner/Bloomberg via Getty
Images

Harley-Davidson, Inc.
www.harley-davidson.com

Home

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has tailored a marketing program to encourage women to take up biking, thus doubling the
number of potential customers for its motorcycles.

Increasing a Product’s Use

Promoting more frequent usage has been a strategy of Campbell Soup Company. Because soup
consumption rises in the winter and declines during the summer, the company now advertises more
heavily in warm months to encourage consumers to think of soup as more than a cold-weather food.
Similarly, the Florida Orange Growers Association advocates drinking orange juice throughout the
day rather than for breakfast only.

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Creating a New Use Situation

Gillette Ad
kerin.tv/13e/v11-2

Finding new uses for an existing product has
been the strategy behind Gillette, the world
leader for men’s shaving products. The
company now markets its Gillette Body line of
razors, blades, and shaving gels for
“manscaping”—the art of shaving body hair in
areas below the neckline—that represents a
new use situation.

Repositioning the Product

Often a company decides to reposition its product or product line in an attempt to bolster sales.
Product repositioning changes the place a product occupies in a consumer’s mind relative to
competitive products. A firm can reposition a product by changing one or more of the four marketing
mix elements. Four factors that trigger the need for a repositioning action are discussed next.

Reacting to a Competitor’s Position

VIDEO 11-2

Gillette razors, blades, and gels have been adapted for
shaving men’s body hair in areas below the neckline.
This new use situation for its shaving products is called
“manscaping.”
Source: Procter & Gamble

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One reason to reposition a product is because a competitor’s entrenched position is adversely
affecting sales and market share. New Balance, Inc. successfully repositioned its athletic shoes to
focus on fit, durability, and comfort rather than competing head-on against Nike and Adidas on
fashion and professional sports. The company offers an expansive range of shoes and networks with
podiatrists, not sports celebrities.

Reaching a New Market

When Unilever introduced iced tea in Britain, sales were disappointing. British consumers viewed it
as leftover hot tea, not suitable for drinking. The company made its tea carbonated and repositioned
it as a cold soft drink to compete as a carbonated beverage and sales improved. Johnson & Johnson
effectively repositioned its St. Joseph aspirin from a product for infants to an adult low-strength
aspirin to reduce the risk of heart problems or strokes.

Catching a Rising Trend

Changing consumer trends can also lead to product repositioning. Growing consumer interest in
foods that offer health and dietary benefits is an example. Many products have been repositioned to
capitalize on this trend. Quaker Oats makes the FDA-approved claim that oatmeal, as part of a low-
saturated-fat, low-cholesterol diet, may reduce the risk of heart disease. Calcium-enriched products,
such as Kraft American cheese and Uncle Ben’s Calcium Plus rice, emphasize healthy bone structure
for children and adults. Weight-conscious consumers have embraced low-fat and low-calorie diets in
growing numbers. Today, most food and beverage companies offer reduced-fat and low-calorie
versions of their products.

Changing the Value Offered

In repositioning a product, a company can decide to change the value it offers buyers and trade up or
down. Trading up involves adding value to the product (or line) through additional features or
higher-quality materials. Michelin, Bridgestone, and Goodyear have done this with a “run-flat” tire
that can travel up to 50 miles at 55 miles per hour after suffering total air loss. Dog food
manufacturers, such as Ralston Purina, also have traded up by offering super-premium foods based
on “life-stage nutrition.” Mass merchandisers, such as Target and Walmart, can trade up by adding a
designer clothes section to their stores.

Trading down involves reducing a product’s number of features, quality, or price. For example,

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airlines have added more seats, thus reducing legroom, and limited meal service by offering snacks
only on most domestic flights. Trading down also exists when companies engage in downsizing—
reducing the package content without changing package size and maintaining or increasing the
package price. Companies are criticized for this practice, as described in the Making Responsible
Decisions box.15

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Making Responsible Decisions

Consumer Economics of Downsizing—Get Less, Pay More

For more than 30 years, Starkist put 6.5 ounces of tuna into its regular-sized can. Today, Starkist
puts 6.125 ounces of tuna into its can but charges the same price. Frito-Lay (Doritos and Lay’s
snack chips), PepsiCo (Tropicana orange juice), and Häagen-Dazs (ice cream) have whittled away
at package contents 5 to 10 percent while maintaining their products’ package size, dimensions,
and prices.

Procter & Gamble recently kept its retail price on its jumbo pack of Pampers and Luvs diapers, but
reduced the number of diapers per pack from 140 to 132. Similarly, Unilever reduced the number
of Popsicles in each package from 24 to 20 without changing the package price. Georgia-Pacific
reduced the content of its Brawny paper towel six-roll pack by 20 percent without lowering the
price.

***

***
Consumer advocates charge that downsizing the content of packages while maintaining prices is a
subtle and unannounced way of taking advantage of consumer buying habits. They also say
downsizing is a price increase in disguise and a deceptive, but legal, practice. Some manufacturers
argue that this practice is a way of keeping prices from rising beyond psychological barriers for
their products. Other manufacturers say prices are set by individual stores, not by them.

Ethics

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LO 11-3

Recognize the importance of
branding and alternative branding
strategies.

Is downsizing an unethical practice if manufacturers do not inform consumers that the package
contents are less than they were previously?

learning review

11-
4.

How does a product manager manage a product’s life cycle?

11-
5.

What does “creating a new use situation” mean in managing a product’s
life cycle?

11-
6.

Explain the difference between trading up and trading down in product
repositioning.

BRANDING AND BRAND MANAGEMENT
A basic decision in marketing products is bran
ding , in which an organization uses a name,
phrase, design, symbols, or combination of
these to identify its products and distinguish
them from those of competitors. A brand nam
e is any word, device (design, sound, shape, or
color), or combination of these used to
distinguish a seller’s products or services. Some
brand names can be spoken, such as a
Gatorade. Other brand names cannot be

spoken, such as the white apple (the logotype or logo) that Apple puts on its machines and in its ads.
A trade name is a commercial, legal name under which a company does business. The Coca-Cola
Company is the trade name of that firm.

A trademark identifies that a firm has legally registered its brand name or trade name so the firm
has its exclusive use, thereby preventing others from using it. In the United States, trademarks are
registered with the U.S. Patent and Trademark Office and protected under the Lanham Act. A well-

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known trademark can help a company advertise its offerings to customers and develop their brand
loyalty. For example, Kylie and Kendall Jenner, cast members of Keeping Up with the Kardashians
reality television show, have filed to have their first names trademarked for use in “entertainment,
fashion, and pop culture.”

Because a good trademark can help sell a product, product counterfeiting, which involves low-cost
copies of popular brands not manufactured by the original producer, is a serious problem. Counterfeit
products can steal sales from the original manufacturer

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or harm the company’s reputation. U.S. companies lose about $250 billion each year to
counterfeit products. The five most counterfeited branded products are, in order, handbags
and wallets, watches and jewelry, clothing and accessories, consumer electronics, and shoes. To
counteract counterfeiting, the U.S. government passed the Stop Counterfeiting in Manufactured
Goods Act (2006), which makes counterfeiters subject to 20-year prison sentences and $15 million in
fines.

Consumers may benefit most from branding. Recognizing competing products by distinct trademarks
allows them to be more efficient shoppers. Consumers can recognize and avoid products with which
they are dissatisfied, while becoming loyal to other, more satisfying brands. As discussed in Chapter
5, brand loyalty often eases consumers’ decision making by eliminating the need for an external
search.

Are you interested in creating a business using your name? If you are, you might first check to see if
your name has been registered with the U.S. Patent and Trademark Office by visiting its website. See
the Marketing Insights About Me box for details.

Marketing Insights About Me

Do You Want to Start a Business Using Your Own Name? Better Check First!

More than a million brand names or trade names are registered with the U.S. Patent and
Trademark Office. Thousands more are registered each year.

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An important step in choosing a brand or trade name is to determine whether the name has been
registered already. The U.S. Patent and Trademark Office (www.uspto.gov) offers a valuable
service by allowing individuals and companies to quickly check to see if a name has been
registered.

Do you have an idea for a business that features your name? Check to see if your name has been
registered by clicking “Trademarks,” then “Trademark Search.” Enter your name to find out if
someone has registered it. You may already be a trademark!

http://www.uspto.gov/

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Brand Personality and Brand Equity

Product managers recognize that brands offer more than product identification and a means to
distinguish their products from those of competitors. Successful and established brands take on a b
rand personality , a set of human characteristics associated with a brand name. Research shows
that consumers assign personality traits to products—traditional, romantic, rugged, sophisticated,
rebellious—and choose brands that are consistent with their own or desired self-image.

The strong brand equity for the Louis Vuitton brand name permits the company to charge premium prices for its
products.
The Advertising Archives

Louis Vuitton
www.louisvuitton.com

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Dr Pepper Ad
kerin.tv/13e/v11-3

Marketers can and do imbue a brand with a personality through advertising that depicts a certain
user or usage situation and conveys emotions or feelings to be associated with the brand. For
example, personality traits linked with Coca-Cola are all-American and real; with Pepsi, young and
exciting; and with Dr Pepper, nonconforming and unique. The traits often linked to Harley-Davidson
are masculinity, defiance, and rugged individualism.

Brand name importance to a company has led to a concept called brand equity , the added value a
brand name gives to a product beyond the functional benefits provided. This added value has two
distinct advantages. First, brand equity provides a competitive advantage. The Sunkist brand implies
quality fruit. The Disney name defines children’s entertainment. A second advantage is that
consumers are often willing to pay a higher price for a product with brand equity. Brand equity, in
this instance, is represented by the premium a

VIDEO 11-3

http://www.mhhe.com/kerin.tv/13e/v11-3

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consumer will pay for one brand over another when the functional benefits provided are
identical. Gillette razors and blades, Bose audio systems, Duracell batteries, Cartier jewelry,
and Louis Vuitton luggage all enjoy a price premium arising from brand equity.

Creating Brand Equity

Brand equity doesn’t just happen. It is carefully crafted and nurtured by marketing programs that
forge strong, favorable, and unique customer associations and experiences with a brand. Brand equity
resides in the minds of consumers and results from what they have learned, felt, seen, and heard
about a brand over time. Marketers recognize that brand equity is not easily or quickly achieved.
Rather, it arises from a sequential building process consisting of four steps (see Figure 11–6).18

The first step is to develop positive brand awareness and an association of the brand
in consumers’ minds with a product class or need to give the brand an identity.
Gatorade and Kleenex have achieved this in the sports drink and facial tissue
product classes, respectively.

Next, a marketer must establish a brand’s meaning in the minds of consumers.
Meaning arises from what a brand stands for and has two dimensions—a functional,
performance-related dimension and an abstract, imagery-related dimension. Nike
has done this through continuous product development and improvement and its
links to peak athletic performance in its integrated marketing communications
program.
The third step is to elicit the proper consumer responses to a brand’s identity and
meaning. Here attention is placed on how consumers think and feel about a brand.
Thinking focuses on a brand’s perceived quality, credibility, and superiority relative
to other brands. Feeling relates to the consumer’s emotional reaction to a brand.
Michelin elicits both responses for its tires. Not only is Michelin thought of as a
credible and superior-quality brand, but consumers also acknowledge a warm and
secure feeling of safety, comfort, and self-assurance without worry or concern about
the brand.

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The final, and most difficult, step is to create a consumer–brand
connection evident in an intense, active loyalty relationship between
consumers and the brand. A deep psychological bond characterizes a consumer–
brand connection and the personal identification customers have with the brand.
Brands that have achieved this status include Harley-Davidson, Apple, and eBay.

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Valuing Brand Equity

Brand equity also provides a financial advantage for the brand owner. Successful, established brand
names, such as Gillette, Louis Vuitton, Nike, Gatorade, and Apple, have an economic value in the
sense that they are intangible assets. The recognition that brands are assets is apparent in the

Figure 11–6 The customer-based brand equity pyramid shows the four-step building process that forges strong,
favorable, and unique customer associations with a brand.

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decision to buy and sell brands. For example, Triarc Companies bought the Snapple brand from
Quaker Oats for $300 million and sold it three years later to Cadbury Schweppes for $900 million.
This example illustrates that brands, unlike physical assets that depreciate with time and use, can
appreciate in value when effectively marketed. However, brands can lose value when they are not
managed properly. Consider the purchase and sale of Lender’s Bagels. Kellogg bought the brand for
$466 million only to sell it to Aurora Foods for $275 million three years later following deteriorating
sales and profits.

Financially lucrative brand licensing opportunities arise from brand equity. Brand licensing is a
contractual agreement whereby one company (licensor) allows its brand name(s) or trademark(s) to
be used with products or services offered by another company (licensee) for a royalty or fee. For
example, Playboy earns more than $62 million licensing its name and logo for merchandise. Disney
makes billions of dollars each year licensing its characters for children’s toys, apparel, and games.
Licensing fees for Winnie the Pooh alone exceed $3 billion annually.

Successful brand licensing requires careful marketing analysis to ensure a proper fit between the
licensor’s brand and the licensee’s products. World-renowned designer Ralph Lauren earns over $140
million each year by licensing his Ralph Lauren, Polo, and Chaps brands for dozens of products,
including paint by Glidden, furniture by Henredon, footwear by Rockport, eyewear by Luxottica, and
fragrances by L’Oréal. Kleenex diapers, Bic perfume, and Domino’s fruit-flavored bubble gum are a
few examples of poor matches and licensing failures.

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Picking a Good Brand Name

We take brand names such as Red Bull, iPad, Android, and Axe for granted, but it is often a difficult
and expensive process to pick a good name. Companies will spend

Ralph Lauren has a long-term licensing agreement with Luxottica Group, S.p.A. of Milan for the design, production,
and worldwide distribution of prescription frames and sunglasses under the Ralph Lauren brand. The agreement is
an ideal fit for both companies. Ralph Lauren is a leader in the design, marketing, and distribution of premium
lifestyle products. Luxottica is the global leader in the premium and luxury eyewear sector.
© Rebecca Sapp/WireImage for Mediaplacement/Getty Images

Luxottica Group, S.p.A.
www.luxottica.com

Ralph Lauren Corporation
www.ralphlauren.com

http://www.luxottica.com/

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between $25,000 and $100,000 to identify and test a new brand name. Six criteria are
mentioned most often when selecting a good brand name.22

The name should suggest the product benefits. For example, Accutron (watches),
Easy Off (oven cleaner), Glass Plus (glass cleaner), Cling-Free (antistatic cloth for
drying clothes), Chevrolet Spark (electric car), and Tidy Bowl (toilet bowl cleaner)
all clearly describe the benefits of purchasing the product.

The name should be memorable, distinctive, and positive. In the auto industry,
when a competitor has a memorable name, others quickly imitate. When Ford
named a car the Mustang, Pinto and Bronco soon followed. The Thunderbird name
led to the Phoenix, Eagle, Sunbird, and Firebird from other car companies.
The name should fit the company or product image. Sharp is a name that can apply
to audio and video equipment. Bufferin, Excedrin, Anacin, and Nuprin are
scientific-sounding names, good for analgesics. Eveready, Duracell, and DieHard
suggest reliability and longevity—two qualities consumers want in a battery.

The name should have no legal or regulatory restrictions. Legal restrictions
produce trademark infringement suits, and regulatory restrictions arise through the
improper use of words. For example, the U.S. Food and Drug Administration
discourages the use of the word heart in food brand names. This restriction led to
changing the name of Kellogg’s Heartwise cereal to Fiberwise, and Clorox’s Hidden
Valley Ranch Take Heart Salad Dressing had to be modified to Hidden Valley Ranch
Low-Fat Salad Dressing. Increasingly, brand names need a corresponding website
address on the Internet. This further complicates name selection because over 250
million domain names are already registered globally.
The name should be simple (such as Bold laundry detergent, Axe deodorant and
body spray, and Bic pens) and should be emotional (such as Joy and Obsession
perfumes and Caress soap, shower gel, and lotion).

The name should have favorable phonetic and semantic associations in other

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Branding Strategies

Companies can choose from among several different branding strategies, including multiproduct
branding, multibranding, private branding, and mixed branding (see Figure 11–7).

languages. In the development of names for international use, having a
nonmeaningful brand name has been considered a benefit. A name such as Exxon
does not have any prior impressions or undesirable images among a diverse world
population of different languages and cultures. The 7UP name is another matter. In
Shanghai, China, the phrase means “death through drinking” in the local dialect.
Sales have suffered as a result.

Figure 11–7 Alternative branding strategies present both advantages and disadvantages to marketers. See the text
for details.

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Multiproduct Branding Strategy

With multiproduct branding , a company uses one name for all its products in a product class.
This approach is sometimes called family branding or corporate branding when the company’s trade
name is used. For example, Microsoft, General Electric, Samsung, Gerber, and Sony engage in
corporate branding—the company’s trade name and brand name are identical. Church & Dwight uses
the Arm & Hammer family brand name for all its products featuring baking soda as the primary
ingredient.

There are several advantages to multiproduct branding. Capitalizing again on brand equity,
consumers who have a good experience with the product will transfer this favorable attitude to other
items in the product class with the same name. Therefore, this brand strategy makes possible product
line extensions, the practice of using a current brand name to enter a new market segment in its
product class.

Campbell Soup Company employs a
multiproduct branding strategy with soup line
extensions. It offers regular Campbell’s soup,
home-cooking style, and chunky varieties and
more than 100 soup flavors. This strategy can
result in lower advertising and promotion costs
because the same name is used on all products,
thus raising the level of brand awareness. A risk

with line extension is that sales of an extension may come at the expense of other items in the
company’s product line. Line extensions work best when they provide incremental company revenue
by taking sales away from competing brands or attracting new buyers.

Some multiproduct branding companies employ subbranding, which combines a corporate or family
brand with a new brand, to distinguish a part of its product line from others. Consider American
Express. It has applied subbranding with its American Express Green, Gold, Platinum, Optima Blue,
and Centurion charge cards, with unique service offerings for each. Similarly, Porsche successfully
markets its higher-end Porsche Carrera and its lower-end Porsche Boxster.

A strong brand equity also allows for brand extension: the practice of using a current brand name to

What branding concept is American Express using with
its multicolored cards?
© Peter Jobst/Alamy

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enter a different product class. For instance, equity in the Huggies family brand name has allowed
Kimberly-Clark to successfully extend its name to a full line of baby and toddler toiletries. This brand
extension strategy generates $500 million in annual sales globally for the company. Honda’s
established name for motor vehicles has extended easily to snowblowers, lawn mowers, marine
engines, and snowmobiles.

However, there is a risk with brand extensions.
Too many uses for one brand name can dilute
the meaning of a brand for consumers. Some
marketing experts claim this has happened to
the Arm & Hammer brand given its use for
toothpaste, laundry detergent, gum, cat litter,
air freshener, carpet deodorizer, and
antiperspirant.

Multibranding Strategy

Alternatively, a company can engage in multibranding , which involves giving each product a
distinct name. Multibranding is a useful strategy when each brand is intended for a different market
segment. Procter & Gamble makes Camay soap for those concerned with soft skin and Safeguard for
those who want deodorant protection. Black & Decker markets its line of tools for the household do-
it-yourselfer segment with the Black & Decker name but uses the DeWalt name for its professional
tool line.

Multibranding is applied in a variety of ways. Some companies array their brands on the basis of
price-quality segments. Marriott International offers 18 hotel and resort brands, each suited for a
particular traveler experience and budget. To illustrate, Marriott

For how Kimberly-Clark has used a brand extension
strategy to leverage its Huggies brand equity among
mothers, see the text.

Kimberly-Clark Corporation

www.kimberly-clark.com

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EDITION hotels and Vacation Clubs offer luxury amenities at a premium price. Marriott
and Renaissance hotels offer medium- to high-priced accommodations. Courtyard hotels
and TownePlace Suites appeal to economy-minded travelers, whereas the Fairfield Inn is for those on
a very low travel budget.

Other multibrand companies introduce new product brands as defensive moves to counteract
competition. Called fighting brands, their chief purpose is to confront competitor brands. For
instance, Frito-Lay introduced Santitas brand tortilla chips to go head-to-head against regional
tortilla chip brands that were biting into sales of its flagship Doritos and Tostitos brand tortilla chips.
Ford launched its Fusion brand to halt the defection of Ford owners who were buying competitors’
midsize cars. According to Ford’s car group marketing manager, “Every year we were losing around
50,000 people from our products to competitors’ midsize cars. We were losing Mustang, Focus, and
Taurus owners. Fusion is our interceptor.”

Compared with the multiproduct strategy, advertising and promotion costs tend to be higher with
multibranding. The company must generate awareness among consumers and retailers for each new
brand name without the benefit of any previous impressions. The advantages of this strategy are that
each brand is unique to each market segment and there is no risk that a product failure will affect
other products in the line. Still, some large multibrand firms have found that the complexity and
expense of implementing this strategy can outweigh the benefits. For example, Procter & Gamble
recently announced that it would prune 100 of its brands through product deletion and sales to other
companies.

Private Branding Strategy

A company uses private branding , often called private labeling or reseller branding, when it
manufactures products but sells them under the brand name of a wholesaler or retailer. Rayovac,
Paragon Trade Brands, and ConAgra Foods are major suppliers of private-label alkaline batteries,
diapers, and grocery products, respectively. Costco, Sears, Walmart, and Kroger are large retailers
that have their own brand names. Private branding is popular because it typically produces high
profits for manufacturers and resellers. Consumers also buy them. It is estimated that one of every
five items purchased at U.S. supermarkets, drugstores, and mass merchandisers bears a private
brand.

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Black & Decker uses a multibranding strategy to reach different market segments. Black & Decker markets its tool
line for the do-it-yourselfers with the Black & Decker name, but uses the DeWalt name for professionals.
Left: Source: The Black & Decker Corporation; Right: Source: DEWALT

Black & Decker www.blackanddecker.com

http://www.blackanddecker.com/

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LO 11-4

Describe the role of packaging,
labeling, and warranties in the
marketing of a product.

Mixed Branding Strategy

A fourth branding strategy is mixed branding , where a firm markets products under its own
name(s) and that of a reseller because the segment attracted to the reseller is different from its own
market. Companies such as Del Monte, Whirlpool, and Dial produce private brands of pet foods,
home appliances, and soap, respectively.

PACKAGING AND LABELING PRODUCTS
The packaging component of a product refers
to any container in which it is offered for sale
and on which label information is conveyed. A l
abel is an integral part of the package and
typically identifies the product or brand, who
made it, where and when it was made, how it is
to be used, and package contents and
ingredients. To a great extent, the customer’s
first exposure to a product is the package and
label, and both are an expensive and important

part of marketing strategy. For Pez Candy, Inc., the central element of its marketing strategy is the
character-head-on-a-stick plastic container that dispenses a miniature candy tablet. For more on how
packaging creates customer value for Pez Candy, see the Marketing Matters box.

Marketing Matters

Creating Customer Value through Packaging—Pez Heads Dispense More Than
Candy

Customer value can assume numerous forms. For Pez Candy, Inc. (www.pez.com), customer
value manifests itself in some 450 Pez character candy dispensers. Each refillable dispenser ejects
tasty candy tablets in a variety of flavors that delight preteens and teens alike in more than 60
countries.

customer
value

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Pez was formulated in 1927 by Austrian food mogul Edward Haas III and successfully sold in
Europe as an adult breath mint. Pez, which comes from the German word for peppermint,
pfefferminz, was originally packaged in a hygienic, headless plastic dispenser. Pez first appeared in
the United States in 1953 with a headless dispenser, marketed to adults. After conducting extensive
marketing research, Pez was repositioned with fruit flavors, repackaged with licensed character
heads on top of the dispenser, and remarketed as a children’s product in the mid-1950s. Since
then, most top-level licensed characters and hundreds of other characters have become Pez heads.
Consumers buy about 80 million Pez dispensers and 3 billion Pez tablets a year in the U.S. alone,
and company sales growth exceeds that of the candy industry as a whole.

The unique Pez package dispenses a “use experience” for its customers beyond the candy itself,
namely, fun. And fun translates into a 98 percent awareness level for Pez among teenagers and an
89 percent awareness level among mothers with children. Pez has not advertised its product for
years. With that kind of awareness, who needs advertising?

Creating Customer Value and Competitive Advantage through
Packaging and Labeling

Packaging and labeling cost U.S. companies about 15 cents of every dollar spent by consumers for
products. Despite their cost, packaging and labeling are essential because both provide important
benefits for the manufacturer, retailer, and ultimate consumer. Packaging and labeling also can
provide a competitive advantage.

Communication Benefits

A major benefit of packaging is the label information it conveys to the consumer, such as directions
on how, where, and when to use the product and the source and composition of the product, which is

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needed to satisfy legal requirements of product disclosure. For example, the labeling system for
packaged and processed foods in the United States provides a uniform format for nutritional and
dietary information. Many packaged foods contain informative recipes to promote usage of the
product. Campbell Soup estimates that the green bean casserole recipe on its cream of mushroom
soup can accounts for $20 million in soup sales each year! Other information consists of seals and
symbols, either government-required or commercial seals of approval (such as the Good
Housekeeping Seal).

Functional Benefits

Packaging often plays a functional role—providing storage,
convenience, or protection or ensuring product quality.
Stackable food containers are one example of how packaging can
provide functional benefits. For example, beverage companies
have developed lighter and easier ways to stack products on
shelves and in refrigerators. Examples include Coca-Cola
beverage packs designed to fit neatly onto refrigerator shelves

and Ocean Spray Cranberries’s rectangular juice bottles that allow 10 units per package versus 8 of its
former round bottles.

The convenience dimension of packaging is increasingly important. Kraft Miracle Whip salad
dressing, Heinz ketchup, and Skippy Squeez’It peanut butter are sold in squeeze bottles; microwave
popcorn has been a major market success; and Chicken of the Sea tuna and Folgers coffee are
packaged in single-serving portions. Nabisco offers portion-control package sizes for the convenience
of weight-conscious consumers. It offers 100-calorie packs of Oreos, Cheese Nips, and other products
in individual pouches.

For the functional benefits provided
by Pringles’ cylindrical packaging,
see the text.
© Mike Hruby

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Consumer protection is another important function of packaging, including the
development of tamper-resistant containers. Today, companies commonly use safety seals
or pop-tops that reveal previous opening. Consumer protection through labeling exists in “open
dating,” which states the expected shelf life of the product.

Functional features of packaging also can affect product quality. Pringles, with its cylindrical
packaging, offers uniform chips, minimal breakage, and for some consumers, better value for the
money than chips packaged in flex-bags.

Perceptual Benefits

A third component of packaging and labeling is the perception created in the consumer’s mind.
Package and label shape, color, and graphics distinguish one brand from another, convey a brand’s
positioning, and build brand equity. According to the director of marketing for L’eggs hosiery,
“Packaging is important to the positioning and equity of the L’eggs brand.” Why? Packaging and
labeling have been shown to enhance brand recognition and facilitate the formation of strong,
favorable, and unique brand associations.

Successful marketers recognize that changes in packages and
labels can update and uphold a brand’s image in the customer’s
mind. Pepsi-Cola embarked on a packaging change to uphold its
image among teens and young adults. Beginning in 2013, Pepsi-
Cola introduced new package graphics that change every few
weeks to reflect different themes, such as sports, music, fashion,
and cars.

Because labels list a product’s source, brands competing in the
global marketplace can benefit from “country of origin or

manufacture” perceptions as described in Chapter 7. Consumers tend to hold stereotypes about
country-product pairings that they judge “best”—English tea, French perfume, Italian leather, and
Japanese electronics—which can affect a brand’s image. Increasingly, Chinese firms are adopting

Packaging has been a major
element of L’eggs hosiery
positioning since its launch in 1969.
© Mike Hruby

Hanes Brands, Inc.
www.leggs.com

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Creating Customer
Relationships and
Value through
Marketing

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LEARNING OBJECTIVES

After reading this chapter you should be able to:

LO 1-1 Define marketing and identify the diverse factors that influence
marketing actions.

LO 1-2 Explain how marketing discovers and satisfies consumer needs.

LO 1-3 Distinguish between marketing mix factors and environmental
forces.

LO 1-

Explain how organizations build strong customer relationships
and customer value through marketing.

LO 1-5 Describe how today’s customer relationship era differs from
prior eras.

At Chobani, Marketing Is “Nothing but Good”!

If you are like many consumers today, your food tastes have been changing.
Interest in healthful, nutritious, organic products is growing dramatically, and
companies like Chobani are creating new offerings to provide customer value!

It was Hamdi Ulukaya’s marketing saavy that first helped him create Chobani. As
an immigrant from Turkey, he observed that American-style yogurt “was full of
sugar and preservatives,” unlike the typical Greek-style yogurt he experienced
growing up. The Greek yogurt was strained to remove the liquid whey and had
more protein than the unstrained American yogurts marketed by Yoplait and
Dannon. To meet the changing tastes of American consumers, Ulukaya bought a
recently closed dairy in a small town in New York with a Small Business
Administration loan and began developing a new yogurt recipe.1

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Understanding Consumers’ Food Values

“I was very picky. It took us 18 months to get the recipe right. I knew I had only
one shot, and it had to be perfect,” says Ulukaya. The result was Chobani Greek
Yogurt, a product that is higher in protein, lower in sugar, and thicker and
creamier than typical American yogurt. The timing fit perfectly with the shift in
demand for healthier and simpler products. Food purchases by young adults,
particularly millennials, were increasingly influenced by concern for wellness.
Chobani’s yogurt and its message “Nothing But Good” fit consumers’ new values.

Reaching Customers

Chobani had little money for traditional advertising, so the new company relied on
positive word of mouth, with one happy customer telling another about the new
style of yogurt. In 2010, Chobani’s “CHOmobile” started to tour the country,
handing out free samples to encourage consumers to try Chobani’s Greek Yogurt
for the first time. In addition, one of Chobani’s biggest breakthroughs in gaining
public awareness was its sponsorship of the 2012 U.S. Olympic and Paralympic
Teams.

The company also created a YouTube channel that featured “Just Add Good”
recipes to show customers how to use yogurt in meals and desserts. It also
interacted with consumers through other social media sites such as Twitter and
Instagram, and in just five years had 800,000 Facebook fans.

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Chobani 2014 Super Bowl Ad
kerin.tv/13e/v1-1

Chobani also pushed for distribution in major grocery chains rather than smaller
niche stores, and encouraged placement of the product in the main dairy cases of
the stores, not the specialty or health food sections. Ulukaya was convinced that
Americans would really like Greek yogurt if they tried it, and that they

Chobani LLC

VIDEO 1-1

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Page 3

PRINTED BY: marquez007@email.phoenix.edu. Printing is for personal, private use only. No part of this book
may be reproduced or transmitted without publisher’s prior permission. Violators will be prosecuted.

would try it if they had heard about it and could find it easily in their
grocery store. By 2013 Chobani Greek Yogurt was sold nationwide in the
United States, the United Kingdom, and Australia.

Chobani Today

Chobani continues to monitor
changing consumer tastes and offers
new products to accommodate them.
For example, the company recently
introduced Chobani Kids and Chobani
Tots Greek yogurt pouches, Chobani
Greek Yogurt Oats—Ancient Grain
Blend, and Chobani Flip Creations. The
products are designed for new and
existing consumers and for new eating

occasions.

One way Chobani stays in touch with consumer interests is through its yogurt café
in New York’s SoHo neighborhood. New ideas are continually tested on the menu
and the feedback has been so useful that Chobani plans to open similar outlets in
Los Angeles, San Francisco, Chicago, and other U.S. cities. Chobani also recently
announced a plan to open the Chobani Food Incubator, which is designed to invest
in and cultivate ideas from emerging food entrepreneurs.

Today, Chobani boasts a 40 percent market share of the Greek Yogurt segment,
which makes up almost half of the $8 billion yogurt market. The company’s
success has even led to a Super Bowl ad featuring a 1,400-pound bear in search
of a healthy snack!

Chobani, Marketing, and You

Will Hamdi Ulukaya and his Chobani Greek Yogurt continue this fantastic success
story—especially with the recent appearance of competing Greek yogurts from

Located in New York City, Chobani SoHo is the
brand’s first-of-its-kind retail concept, serving
yogurt creations with innovative toppings.
© Diane Bondareff/Invision for Chobani/AP Images

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Yoplait, Dannon, and PepsiCo? For Ulukaya, one key factor will be how well
Chobani understands and uses marketing—the subject of this book.

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WHAT IS MARKETING?
The good news is that you are already a
marketing expert! You perform many
marketing activities and make marketing-
related decisions every day. For example,
would you sell more LG 77-inch 4K UltraHD
OLED TVs at $24,999 or $2,499? You
answered $2,499, right? So your experience in
shopping gives you some expertise in
marketing. As a consumer, you’ve been
involved in thousands of marketing decisions,
but mostly on the buying and not the selling
side. But to test your expertise, answer the
“marketing expert” questions posed in Figure
1–1. You’ll find the answers within the next
several pages.

The bad news is that good marketing isn’t always easy. That’s why every year thousands of new
products fail in the marketplace and then quietly slide into oblivion.

Are you a marketing expert? If so, what would you pay
for this cutting-edge TV?
Source: LG Electronics

Figure 1–1 The see-if-you’re-really-a-marketing-expert test.

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Marketing and Your Career

Marketing affects all individuals, all organizations, all industries, and all countries. This book seeks to
teach you marketing concepts, often by having you actually “do marketing”—by putting you in the
shoes of a marketing manager facing actual marketing decisions. The book also shows marketing’s
many applications and how it affects our lives. This knowledge should make you a better consumer
and enable you to be a more informed citizen, and it may even help you in your career planning.

Perhaps your future will involve doing sales
and marketing for a large organization.
Working for a well-known company—Apple,
Ford, Facebook, or General Mills—can be
personally satisfying and financially rewarding,
and you may gain special respect from your
friends.

Small businesses also offer marketing careers.
Small businesses are the source of the majority
of new U.S. jobs. So you might become your

own boss by being an entrepreneur and starting your own business.

In February 2004, a 19-year-old college sophomore from Harvard University started his own small
web service business from his dorm room. He billed it as “an online directory that connects people
through social networks at colleges.” That student, of course, was Mark Zuckerberg. The success of
the Facebook launch defies comprehension. Zuckerberg’s Thefacebook.com website signed up 900
Harvard students in the four days after it appeared in early 2004. By the second week there were
almost 5,000 members, and today there are more than 1.4 billion members throughout the world.
Perhaps your interest in marketing will lead to the next sensational new business success!

MARKETING: DELIVERING VALUE TO CUSTOMERS

The chief executive officer of the world’s largest social
media company started it as a 19-year-old college
sophomore.
© David Paul Morris/Bloomberg via Getty Images

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LO 1-1

Define marketing and identify the
diverse factors that influence
marketing actions.

The American Marketing Association
represents individuals and
organizations involved in the development and
practice of marketing worldwide. It defines ma
rketing as the activity, set of institutions, and
processes for creating, communicating,
delivering, and exchanging offerings that have
value for customers, clients, partners, and
society at large. This definition shows that
marketing is far more than simply advertising

or personal selling. It stresses the need to deliver genuine value in the offerings of goods, services,
and ideas marketed to customers. Also, notice that an organization’s marketing activities should also
create value for its partners and for society.

To serve both buyers and sellers, marketing seeks (1) to discover the needs and wants of prospective
customers and (2) to satisfy them. These prospective customers include both individuals, buying for
themselves and their households, and organizations, buying for their own use (such as
manufacturers) or for resale (such as wholesalers and retailers). The key to achieving these two
objectives is the idea of exchange , which is the trade of things of value between a buyer and a seller
so that each is better off after the trade.

The Diverse Elements Influencing Marketing Actions

Although an organization’s marketing activity focuses on assessing and satisfying consumer needs,
countless other people, groups, and forces interact to shape the nature of its actions (see Figure 1–
2). Foremost is the organization itself, whose mission and objectives determine what business it is in
and what goals it seeks. Within the organization, management is responsible for establishing these
goals. The marketing department works closely with a network of other departments and employees
to help provide the customer-satisfying products required for the organization to survive and prosper.

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Figure 1–2 also shows the key people, groups, and forces outside the organization that influence its
marketing activities. The marketing department is responsible for facilitating relationships,
partnerships, and alliances with the organization’s customers, its shareholders (or often
representatives of nonprofit organizations), its suppliers, and other organizations. Environmental
forces involving social, economic, technological, competitive, and regulatory considerations also
shape an organization’s marketing

Figure 1–2 A marketing department relates to many people, organizations, and forces. Note that the marketing
department both shapes and is shaped by its relationship with these internal and external groups.

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actions. Finally, an organization’s marketing decisions are affected by and, in turn, often have
an important impact on society as a whole.

The organization must strike a balance among the sometimes differing interests of these groups. For
example, it is not possible to simultaneously provide the lowest-priced and highest-quality products
to customers and pay the highest prices to suppliers, the highest wages to employees, and the
maximum dividends to shareholders.

What Is Needed for Marketing to Occur

For marketing to occur, at least four factors are required: (1) two or more parties (individuals or
organizations) with unsatisfied needs, (2) a desire and ability on their part to have their needs
satisfied, (3) a way for the parties to communicate, and (4) something to exchange.

Two or More Parties with Unsatisfied Needs

Suppose you’ve developed an unmet need—a desire for a late-night dinner after studying for an exam
—but you don’t yet know that Domino’s Pizza has a location in your area. Also unknown to you is that
Domino’s has a special offer for its tasty Handmade Pan Pizza, just waiting to be ordered, handmade,
and delivered. This is an example of two parties with unmet needs: you, desiring a meal, and your
local Domino’s Pizza owner, needing someone to buy a Handmade Pan Pizza.

Desire and Ability to Satisfy These
Needs

Both you and the Domino’s Pizza owner want to satisfy these
unmet needs. Furthermore, you have the money to buy the
Domino’s Handmade Pan Pizza and the time to order it online or
over the telephone. The Domino’s owner has not only the desire
to sell its Handmade Pan Pizza but also the ability to do so since
the pizza is easily made and delivered to (or picked up by) you.

A Way for the Parties to Communicate

Marketing doesn’t happen in a
vacuum. The text describes the four
factors needed to buy a product like
a Domino’s Handmade Pan Pizza.
Source: © Domino’s Pizza

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The marketing transaction of purchasing a Domino’s Handmade Pan Pizza will never occur unless
you know the product exists and its location (street/web address and/or phone number). Similarly,
the Domino’s Pizza owner won’t sell the Handmade Pan Pizza unless there’s a market of potential
buyers nearby. When you receive a coupon on your phone or drive by the Domino’s store location,
this communication barrier between you (the buyer) and the Domino’s Pizza owner (the seller) is
overcome.

Something to Exchange

Marketing occurs when the transaction takes place and both the buyer and seller exchange something
of value. In this case, you exchange your money ($8.99) for the Domino’s Handmade Pan Pizza. Both
you and the Domino’s Pizza owner have gained and also given up something, but you are both better
off because each of you has satisfied the other’s unmet needs. You have the opportunity to eat a
Domino’s Handmade Pan Pizza to satisfy your hunger, but you gave up some money to do so; the
Domino’s Pizza owner gave up the Handmade Pan Pizza but received money, which will help the
owner remain in business. The ethical and legal foundations of this exchange process are central to
marketing and are discussed in Chapter 4.

learning review

1-1. What is marketing?
1-2. Marketing focuses on __________ and __________ consumer needs.
1-3. What four factors are needed for marketing to occur?

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LO 1-2

Explain how marketing discovers
and satisfies consumer needs.

HOW MARKETING DISCOVERS AND SATISFIES CONSUMER
NEEDS

The importance of discovering and satisfying
consumer needs in order to develop and offer
successful products is so critical to
understanding marketing that we look at each
of these two steps in detail next. Let’s start by
asking you to analyze the three products below.

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A message pad with handwriting recognition software.
© SSPL/Getty Images

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An e-commerce site with financial benefits for users.
Courtesy of StuffDOT, Inc.

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Discovering Consumer Needs

The first objective in marketing is discovering the needs of prospective customers. Marketers often
use customers surveys, concept tests, and other forms of marketing research (discussed in detail in C
hapter 8) to better understand customer ideas. Many firms also use “crowdsourcing” websites to
solicit and evaluate ideas from customers. At LEGO Group, for example, ideas that receive 10,000
votes from site visitors are considered for possible addition to the product line. LEGO Group products
that were discovered through the website include its Ghostbuster ambulance, its Mars rover
Curiosity, and a set based on the Minecraft video game! Sometimes, however, customers may not
know or be able to describe what they need and want. Personal computers, smartphones, and electric
cars are all examples of this, in which case an accurate long-term prediction of consumer needs is
essential.

For these three products, identify (1) what benefits the product provides buyers and (2) what factors or
“showstoppers” might doom the product in the marketplace. Answers are discussed in the text.

A mid-calorie cola.
© Consumer Trends/Alamy

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The Challenge: Meeting Consumer Needs with New Products

While marketers are improving the ways they can generate new product ideas, experts estimate that it
takes 3,000 raw ideas to generate one commercial success. Market intelligence agency Mintel
estimates that 33,000 new products are introduced worldwide each month. In addition, studies of
new-product launches indicates that about 40 percent of the products fail. Robert M. McMath, who
has studied more than 110,000 of these new-product launches, has two key suggestions: (1) focus on
what the customer benefit is, and (2) learn from past mistakes.

The solution to preventing product failures seems embarrassingly obvious. First, find out what
consumers need and want. Second, produce what they need and want, and don’t produce what they
don’t need and want. The three products shown above illustrate just how difficult it is to achieve new-
product success, a topic covered in more detail in Chapter 10.

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Without reading further, think about the potential benefits to customers and possible
“showstoppers”—factors that might doom the product—for each of the three products
pictured. Some of the products may come out of your past, and others may be on your horizon. Here’s
a quick analysis of the three products:

Apple Newton. In the 1990s Apple launched its Newton MessagePad, the first
handheld device in a category that came to be known as personal digital assistants.
Apple invested more than $1.5 billion in today’s dollars but sold just a few hundred
thousand units before Steve Jobs took the product off the market. In many ways the
showstopper for this product was that it was before its time. It launched before the
World Wide Web, before cellphones, and before the broad use of e-mail. As a result,
while the product was revolutionary, the uses for consumers were limited!10

StuffDOT Strategies
kerin.tv/13e/v1-2

StuffDOT . This recent start-up is a social e-commerce site that seeks to reward
consumers for their online shopping and sharing activity. This is possible because
Internet retailers like Amazon and Target.com make small payments to the owners
of websites that refer shoppers to their products. These payments are a big and
growing business, generating a projected $4.5 billion in 2016. StuffDOT’s founders
believe that consumers deserve to share in those payments, so they have developed a
platform that enables users to earn a portion of the revenue that they generate by
sharing links and shopping online. A potential showstopper: Will consumers
understand the benefits of StuffDOT well enough to change their shopping habits to
take advantage of the opportunity?

VIDEO 1-2

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Firms spend billions of dollars annually on marketing and technical research that significantly
reduces, but doesn’t eliminate, new-product failure. So meeting the changing needs of consumers is a
continuing challenge for firms around the world.

Consumer Needs and Consumer Wants

Should marketing try to satisfy consumer needs or consumer wants? Marketing tries to do both.
Heated debates rage over this question, fueled by the definitions of needs and wants and the amount
of freedom given to prospective customers to make their own buying decisions.

A need occurs when a person feels deprived of basic necessities such as food, clothing, and shelter. A

Pepsi True Ad
kerin.tv/13e/v1-3

Pepsi True. At the 2014 Clinton Global Initiative, PepsiCo and Coca-Cola announced
an agreement to reduce the calorie content of their products by 20 percent before
2025. As part of this agreement PepsiCo launched a new product—Pepsi True. The
new cola is sweetened with a combination of sugar and stevia leaf extract, resulting
in a soft drink with the same flavor of Pepsi-Cola but only 60 calories. Pepsi True is
offered in the U.S. through Amazon.com and in grocery stores, and will be
introduced in Great Britain where it will compete with Coca-Cola’s Coca-Cola Life. A
potential showstopper: In the past, mid-calorie soft drinks such as Pepsi Next
(2012), Pepsi Edge (2004), and Pepsi XL (1995) have not been successful as
“transition” sodas from regular to diet. Will Pepsi True be next? As always, as a
consumer, you will be the judge!

VIDEO 1-3

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want is a need that is shaped by a person’s knowledge, culture, and personality. So if you feel hungry,
you have developed a basic need and desire to
eat something. Let’s say you then want to eat a
Cool Mint Chocolate Clif Bar because, based on
your past experience, you know it will satisfy
your hunger need. Effective marketing, in the
form of creating an awareness of good products
at fair prices and convenient locations, can
clearly shape a person’s wants.

Certainly, marketing tries to influence what we
buy. A question then arises: At what point do
we want government and society to step in to
protect consumers? Most consumers

Studying late at night for an exam and being hungry,
you decide to eat a Cool Mint Chocolate Clif Bar. Is this
a need or want? The text discusses the role of
marketing in influencing decisions like this.
© McGraw-Hill Education/Editorial Image, LLC, photographer

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would say they want government to protect us from harmful drugs and unsafe cars but not
from candy bars and soft drinks. To protect college students, should government restrict their
use of credit cards? Such questions have no clear-cut answers, which is why legal and ethical issues
are central to marketing. Because even psychologists and economists still debate the exact meanings
of need and want, we shall use the terms interchangeably throughout the book.

As shown in the left side of Figure 1–3, discovering needs involves looking carefully at prospective
customers, whether they are children buying M&M’s candy, college students buying Chobani Greek
Yogurt, or firms buying Xerox color copiers. A principal activity of a firm’s marketing department is
to scrutinize its consumers to understand what they need and want and the forces that shape those
needs and wants.

Figure 1–3 Marketing seeks first to discover consumer needs through extensive research. It then seeks to satisfy
those needs by successfully implementing a marketing program possessing the right combination of the marketing
mix—the four Ps.

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LO 1-3

Distinguish between marketing mix
factors and environmental forces.

What a Market Is

Potential consumers make up a market , which is people with both the desire and the ability to buy a
specific offering. All markets ultimately are people. Even when we say a firm bought a Xerox copier,
we mean one or several people in the firm decided to buy it. People who are aware of their unmet
needs may have the desire to buy the product, but that alone isn’t sufficient. People must also have
the ability to buy, such as the authority, time, and money. People may even “buy” an idea that results
in an action, such as having their blood pressure checked annually or turning down their thermostat
to save energy.

Satisfying Consumer Needs

Marketing doesn’t stop with the discovery of consumer needs. Because the organization obviously
can’t satisfy all consumer needs, it must concentrate its efforts on certain needs of a specific group of
potential consumers. This is the target market —one or more specific groups of potential
consumers toward which an organization directs its marketing program.

The Four Ps: Controllable
Marketing Mix Factors

Having selected its target market consumers,
the firm must take steps to satisfy their needs,
as shown in the right side of Figure 1–3.
Someone in the organization’s marketing
department, often the marketing manager,
must develop a complete marketing program to

reach consumers

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by using a combination of four elements, often called “the four Ps”—a useful shorthand
reference to them first published by Professor E. Jerome McCarthy:

We’ll define each of the four Ps more carefully later in the book, but for now it’s important to
remember that they are the elements of the marketing mix . 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. For example, when a company puts a product on sale, it is
changing one element of the marketing mix—namely, the price. The marketing mix elements are
called controllable factors because they are under the control of the marketing department in an
organization.

Designing an effective marketing mix also conveys to potential buyers a clear customer value prop
osition , which is a cluster of benefits that an organization promises customers to satisfy their needs.
For example, Walmart’s customer value proposition can be described as “help people around the
world save money and live better—anytime and anywhere.” Michelin’s customer value proposition
can be summed up as “providing safety-conscious parents greater security in tires at a premium
price.”

The Uncontrollable, Environmental Forces

While marketers can control their marketing mix factors, there are forces that are mostly beyond
their control (see Figure 1–2). These are the environmental forces that affect a marketing
decision, which consist of social, economic, technological, competitive, and regulatory forces.
Examples are what consumers themselves want and need, changing technology, the state of the
economy in terms of whether it is expanding or contracting, actions that competitors take, and
government restrictions. Covered in detail in Chapter 3, these five forces may serve as accelerators
or brakes on marketing, sometimes expanding an organization’s marketing opportunities and at other

Product. A good, service, or idea to satisfy the consumer’s needs.

Price. What is exchanged for the product.
Promotion. A means of communication between the seller and buyer.

Place. A means of getting the product to the consumer.

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LO 1-4

Explain how organizations build
strong customer relationships and
customer value through marketing.

times restricting them.

Traditionally, many marketing executives have
treated these environmental forces as rigid,
absolute constraints that are entirely outside
their influence. However, recent studies and
marketing successes have shown that a
forward-looking, action-oriented firm can often
affect some environmental forces by achieving

technological or competitive breakthroughs, such as Apple’s new Apple Watch.

THE MARKETING PROGRAM: HOW CUSTOMER
RELATIONSHIPS ARE BUILT

An organization’s marketing program connects
it with its customers. To clarify this link, we will
first discuss the critically important concepts of
customer value, customer relationships, and
relationship marketing. Then we will illustrate
these concepts using 3M’s marketing program
for its Post-it Flag Highlighter products.

Relationship Marketing: Easy to Understand, Hard to Do

Intense competition in today’s fast-paced global markets has prompted many successful U.S. firms to
focus on “customer value.” Gaining loyal customers by providing unique value is the essence of
successful marketing. What is new is a more careful attempt at

Firms can affect some environmental forces with
breakthrough products such as the Apple Watch.
© Chesnot/Getty Images

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understanding how a firm’s customers perceive value and then actually creating and
delivering that value to them. Customer value is 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. Firms now actually try to place a dollar value on the
purchases of loyal, satisfied customers during their lifetimes. For example, loyal Kleenex customers
average 6.7 boxes a year, about $994 over 60 years in today’s dollars (see question 2, Figure 1–1).

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Research suggests that firms cannot succeed by being all things to all people. Instead, firms seek to
build long-term relationships with customers by providing unique value to them. Many successful
firms deliver outstanding customer value with one of three value strategies: best price, best product,
or best service.

With the intense competition among U.S. businesses, being seen as “best” is admittedly difficult. Still,
the three firms shown in the ads on the previous page have achieved great success as reflected in the

Target, Starbucks, and Nordstrom provide customer value using three very different approaches. For their
strategies, see the text.
Sources: Left: Target; Center: Starbucks; Right: © Studio Works/Alamy

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mission, vision, and values statements they stress and live by:

Remaining among the “best” is a continuing challenge for today’s businesses.

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.

The hallmark of developing and maintaining effective customer relationships is today called relation
ship marketing , which links the organization to its individual customers, employees, suppliers, and
other partners for their mutual long-term benefit. Relationship marketing involves a personal,
ongoing relationship between the organization and its individual customers that begins before and
continues after the sale.

Information technology, along with cutting-edge manufacturing
and marketing processes, better enables companies to form
relationships with customers today. Smart, connected products,
now elements of “the Internet of everything,” help create
detailed databases about product usage. Then, using data
analytics, or the examination of data to discover relevant
patterns, companies can gain insights into how products create
value for customers. For example, BMW receives data
transmitted by each new vehicle it sells and General Electric

collects information sent in by the jet engines it builds to help them understand how customers use

Best price: Target. It uses the Target brand promise of “Expect More, Pay Less®” to
“make Target the preferred shopping destination for our guests by delivering
outstanding value.”

Best product: Starbucks. Starbucks seeks “to inspire and nurture the human spirit—
one person, one cup and one neighborhood at a time,” stressing “The best coffee for
the best YOU,” in the process.
Best service: Nordstrom. As a leading fashion specialty retailer, Nordstrom works to
“deliver the best possible shopping experience, helping customer possess style—not
just buy fashion.” Nordstrom is “committed to providing our customers with the
best possible service—and improving it every day.”

Zappos uses relationship marketing
concepts—tailoring the purchase
experience to each individual—to
“deliver happiness” and create
lifelong customers.
Source: Zappos

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their products and when service may be needed.

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Online shoe retailer Zappos observes and tracks its customers’ purchases to provide personal
connections and create customers for life.

The Marketing Program and Market Segments

Effective relationship marketing strategies help marketing managers discover what prospective
customers need and convert these ideas into marketable products (see Figure 1–3). These concepts
must then be converted into a tangible marketing program —a plan that integrates the marketing
mix to provide a good, service, or idea to prospective buyers. Ideally, they can be formed into market
segments , which are relatively homogeneous groups of prospective buyers that (1) have common
needs and (2) will respond similarly to a marketing action. This action might be a product feature, a
promotion, or a price. 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.

learning review

1-
4.

An organization can’t satisfy the needs of all consumers, so it must focus on
one or more subgroups, which are its __________.

1-
5.

What are the four marketing mix elements that make up the organization’s
marketing program?

1-
6.

What are environmental forces?

3M’s Strategy and Marketing Program to Help Students Study

“How do college students really study?” asked David Windorski, a 3M inventor of Post-it brand
products, when thinking about adding a new item to the Post-it line.

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3M Post-it® Flag Highlighters Ad
kerin.tv/13e/v1-4

To answer this question, Windorski worked with a team of four college students. Their task was to
observe and question dozens of students about their study behavior, such as how they used their
textbooks, took notes, wrote term papers, and reviewed for exams. Often, they watched students
highlight a passage and then mark the page with a Post-it Note or the smaller Post-it Flag.
Windorski realized there was an opportunity to merge the functions of two products into one to help
students study!

Moving from Ideas to a Marketable Highlighter Product

After working on 15 or 20 models, Windorski concluded he had to build a highlighter product that

VIDEO 1-4

® ®

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would dispense Post-it Flags because the Post-it Notes were simply too large to put inside
the barrel of a highlighter.

Hundreds of the initial highlighter prototypes with Post-it
Flags inside were produced and given to students—and also
office workers—to get their reactions. This research showed
users wanted a convenient, reliable cover to protect the Post-it
Flags in the highlighter. So the Post-it Flag Highlighter with a
rotating cover was born.

Adding the Post-it Flag Pen

Most of David Windorski’s initial design energies had gone into
his Post-it Flag Highlighter research and development. But Windorski also considered other related
products. Many people in offices need immediate access to Post-it Flags while writing with pens.
Students are a potential market for this product, too, but probably a smaller market segment than
office workers.

A Marketing Program for the Post-it Flag Highlighter and Pen

After several years of research, development, and production engineering, 3M introduced its new
products. Figure 1–4 outlines the strategies for each of the four marketing mix elements in 3M’s
program to market its Post-it Flag Highlighters and Post-it Flag Pens. Although similar, we can
compare the marketing program for each of the two products:

® ®

3M’s initial product line of Post-it
Flag Highlighters and Post-it Flag
Pens includes variations in color
and line widths.
© Mike Hruby

®
®
®
®

®
®
®
®
® ®

Post-it Flag Highlighter. The target market shown in the orange column in Figur
e 1–4 is mainly college students, so 3M’s initial challenge was to build student
awareness of a product that they didn’t know existed. The company used a mix of
print ads in college newspapers and a TV ad and then relied on word-of-mouth
advertising—students telling their friends about how great the product is. Gaining
distribution in college bookstores was also critical. Plus, 3M charged a price to
distributors that it hoped would give a reasonable bookstore price to students and

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an acceptable profit to distributors and 3M.

Post-it Flag Pen.®

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Developing Successful
Organizational and Marketing
Strategies

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LEARNING OBJECTIVES

After reading this chapter you should be able to:

LO 2-1 Describe three kinds of organizations and the three levels of strategy in them.

LO 2-2 Describe core values, mission, organizational culture, business, and goals.

LO 2-3 Explain why managers use marketing dashboards and marketing metrics.

LO 2-4 Discuss how an organization assesses where it is now and where it seeks to be.

LO 2-5 Explain the three steps of the planning phase of the strategic marketing process.

LO 2-6 Describe the four components of the implementation phase of the strategic marketing process.

LO 2-7 Discuss how managers identify and act on deviations from plans.

Making the World a Better Place, One Scoop at a Time!

Ben & Jerry’s started in

78 when longtime friends Ben Cohen and Jerry Greenfield headed north to Vermont to
open an ice cream parlor in a renovated gas station. Buoyed with enthusiasm, $12,000 in borrowed and saved
money, and ideas from a $5 correspondence course in ice cream making, Ben and Jerry were off and scooping. Their
first flavor? Vanilla—because it’s a universal best seller. Other flavors such as Chunky Monkey, Cherry Garcia, Peanut
Butter Cup, and many others soon followed.

The ice cream flavors weren’t the only extraordinary thing about the company though. Ben and Jerry embraced a
concept they called “linked prosperity,” which encouraged the success of all constituents including employees,
suppliers, customers, and neighbors. They set out to achieve linked prosperity with a three-part mission statement:

The mission statement guided the entrepreneurs’ decisions related to many aspects of the business including
purchasing practices, ingredient sourcing, manufacturing, and involvement in the community.

Ben and Jerry’s mission-driven approach led them to successfully implement many highly creative organizational and
marketing strategies. Some examples include:

Product Mission: To make, distribute and sell the finest quality all-natural ice cream.

Economic Mission: To operate the company for sustainable financial growth.

Social Mission: To operate the company in ways that make the world a better place.

Fairtrade. Ben & Jerry’s believes that farmers who grow ingredients for their ice cream products (such as cocoa,
coffee, and vanilla) should receive a fair price for their harvest. In return Fairtrade farmers agree to use
sustainable farming practices, implement fair working standards, and invest in local communities.

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B-Corp Certification. Ben & Jerry’s was one of the first companies involved in the Benefit Corporation
movement, which has developed a rigorous set of principles and standards on which to evaluate companies in
terms of social and environmental performance, accountability, and transparency. The certification, provided
by the nonprofit organization B-Lab, indicates that Ben & Jerry’s is using the power of business to solve social
and environmental problems.

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As you can see, Ben & Jerry’s has a strong link between its mission and its strategies. CEO Jostein Solheim explains
that their purpose at Ben & Jerry’s is “to be part of a global movement that makes changing the world seem fun and
achievable.”

Today, Ben & Jerry’s is owned by Unilever, which is the market leader in the global ice cream industry—one that is
expected to reach $74 billion by 2018. While customers love Ben & Jerry’s rich premium ice cream, many buy its
products to support its social mission. As a testament to its success, Ben & Jerry’s has over 7.5 million fans on
Facebook—the most of any premium ice cream marketer!

Chapter 2 describes how organizations set goals to provide an overall direction to their organizational and
marketing strategies. The marketing department of an organization converts these strategies into plans that must be
implemented and then evaluated so deviations can be exploited or corrected based on the marketing environment.

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PartnerShop Program. PartnerShops are Ben & Jerry scoop shops that are independently owned and
operated by community-based nonprofit organizations. The shops employ youth and young adults who
may face barriers to employment to help them build better lives.

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LO 2-1

Describe three kinds of organizations and the three
levels of strategy in them.

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TODAY’S ORGANIZATIONS
In studying today’s organizations, it is important to recognize (1)
the kinds of organizations that exist, (2) what strategy is, and (3)
how this strategy relates to the three levels of structure found in
many large organizations.

Kinds of Organizations

An organization is a legal entity that consists of people who share a common mission.
This motivates them to develop offerings (goods, services, or ideas) that create value for
both the organization and its customers by satisfying their needs and wants. Today’s
organizations are of three types: (1) for-profit organizations, (2) nonprofit organizations,
and (3) government agencies.

A for-profit organization, often called a business firm, is a privately owned organization
such as Target, Nike, or Cree that serves its customers to earn a profit so that it can
survive. Profit is the money left after a for-profit organization subtracts its total expenses
from its total revenues and is the reward for the risk it undertakes in marketing its

offerings.

Cree® LED Bulb Ad
kerin.tv/13e/v2-1

In contrast, 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. Regardless, it also must receive sufficient funds
above its expenses to continue operations. Organizations like SIRUM and Teach For America, described in the Making Responsible Decis
ions box, seek to solve the practical needs of society and are often structured as nonprofit organizations. For simplicity in the rest of the
book, the terms firm, company, and organization are used interchangeably to cover both for-profit and nonprofit organizations.

Last, a government agency is a federal, state, county, or city unit that provides a specific service to its constituents. For example, the Census
Bureau, a unit of the U.S. Department of Commerce, is a federal government agency that provides population and economic data.

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. Much of an organization’s marketing strategy is having
a clear understanding of the industry within which it competes.

Cree is an example of a for-profit organization. Its
Cree LED light bulb replaces traditional
incandescent bulbs, consumes 85 percent less
energy, and lasts 25,000 hours.
© H.S. Photos/Alam

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Making Responsible Decisions

Social Entrepreneurs Are Creating New Types of Organizations to Pursue Social

Goals

Each year a growing number of “social entrepreneurs” start new ventures that address important social needs and issues. These new
enterprises are often organized as nonprofit organizations that combine traditional approaches for generating revenue with the pursuit of
social goals. The issues they have focused on range from health care delivery, to increasing access to education, to improving agricultural
efficiency. Some experts predict that these types of social ventures represent the new way of doing business.

One indication of the influence of these new types of organizations is Forbes magazine’s annual list of 30 Under 30 Social Entrepreneurs.
Each year 30 of the most innovative new social ventures are featured in the article. For example, Kiah Willams left the Clinton Foundation
to start SIRUM (Supporting Initiatives to Redistribute Unused Medicine). The organization works with health care systems to distribute
unused prescription drugs (that would otherwise be destroyed) to patients who can’t afford to pay for the drugs. “We’re like the
Match.com for unused drugs,” explains Williams.

Teach For America is another example of a creative nonprofit organization. Launched by college senior Wendy Kopp, Teach For America
is the national corps of outstanding recent college graduates who commit to teach for two years in urban and rural public schools and
become lifelong leaders in expanding educational opportunity. Each year more than

,000 corps members teach 750,000 students.

These examples illustrate how organizations are changing to create value for a broad range of constituents by addressing the needs and
challenges of society.

What Is Strategy?

An organization has limited human, financial, technological, and other resources available to produce and market its offerings—it can’t be all
things to all people! Every organization must develop strategies to help focus and direct its efforts to accomplish its goals. However, the
definition of strategy has been the subject of debate among management and marketing theorists. For our purpose, strategy is an
organization’s long-term course of action designed to deliver a unique customer experience while achieving its goals. All organizations set a

Social
Responsibilit

Source: Forbes

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strategic direction. And marketing helps to both set this direction and move the organization there.

The Structure of Today’s Organizations

Large organizations are extremely complex. They usually consist of three organizational levels whose strategies are linked to marketing, as
shown in Figure 2–1.

Corporate Level

The corporate level is 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 the
organization’s overall strategy.

The president or chief executive officer (CEO) is the highest ranking officer in the organization and is usually a member of its board of
directors. This person must possess leadership skills ranging from overseeing the organization’s daily operations to spearheading strategy
planning efforts that may determine its very survival.

Figure 2–1 The board of directors oversees the three levels of strategy in organizations: corporate,
strategic business unit, and functional.

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LO 2-2

Describe core values, mission, organizational culture,
business, and goals.

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In recent years, many large firms have changed the title of the head of marketing
from vice president of marketing to chief marketing officer (CMO). These CMOs
have an increasingly important role in top management because of their ability to think
strategically. Most bring multi-industry backgrounds, cross-functional management
expertise, analytical skills, and intuitive marketing insights to their job. These CMOs are
increasingly called upon to be their organizations’ “visionaries for the future” by staying in
touch with consumers’ needs and wants.

Strategic Business Unit Level

Some multimarket, multiproduct firms, such as Prada and Johnson & Johnson, manage a portfolio or group of businesses. Each group is a
strategic business unit (SBU), which is a subsidiary, division, or unit of an organization that markets a set of related offerings to a clearly
defined target market. 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.

Functional Level

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 and finance (see Figure 2–1). 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 by listening to customers, developing offerings, implementing marketing program
actions, and then evaluating whether those actions are achieving the organization’s goals. When developing marketing programs for new or
improved offerings, 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.

learning review

2-1. What is the difference between a for-profit and a nonprofit organization?
2-2. What are examples of a functional level in an organization?

STRATEGY IN VISIONARY ORGANIZATIONS
To be successful, today’s organizations must be forward-looking.
They must anticipate future events and then respond quickly and
effectively to those events. In addition, they must thrive in today’s
uncertain, chaotic, rapidly changing environment. A visionary
organization must specify its foundation (why does it exist?), set a
direction (what will it do?), and formulate strategies (how will it
do it?), as shown in Figure 2–2.

Prada manages a portfolio or group of
businesses—including perfume, leather
goods, and luggage—each of which may be
viewed as a strategic business unit (SBU).
© Imaginechina via AP Images

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Organizational Foundation: Why Does It Exist?

An organization’s foundation is its philosophical reason for being—why it exists. Successful visionary organizations use this foundation to
guide and inspire their employees through three elements: core values, mission, and organizational culture.

Core Values

Figure 2–2 Today’s visionary organizations use key elements to (1) establish a foundation and (2) set
a direction using (3) strategies that enable them to develop and market their products successfully.

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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 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.

Mission

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.

Southwest Airlines
kerin.tv/13e/v2-2

Inspiration and focus appear in the mission statement of for-profit organizations, as well as nonprofit organizations and government
agencies. For example:

Each statement exhibits the qualities of a good mission: a clear, challenging, and compelling picture of an envisioned future.

Recently, many organizations have added a social element to their mission statements to reflect an ideal that is morally right and worthwhile.
This is what Ben & Jerry’s social mission statement shows in the chapter opener. Stakeholders, particularly customers, employees, and now
society, are asking organizations to be exceptional citizens by providing long-term value while solving society’s problems.

Organizational Culture

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. These activities send clear messages to employees and other stakeholders about organizational culture —the
set of values, ideas, attitudes, and norms of behavior that is learned and shared among the members of an organization.

VIDEO 2-2

Southwest Airlines: “To be dedicated to the highest quality of Customer Service delivered with a sense of warmth,
friendliness, individual pride, and Company Spirit.”13

American Red Cross: “To prevent and alleviate human suffering in the face of emergencies by mobilizing the power of
volunteers and the generosity of donors.”14

Federal Trade Commission: “To prevent business practices that are anticompetitive or deceptive or unfair to
consumers; to enhance informed consumer choice and public understanding of the competitive process; and to
accomplish this without unduly burdening legitimate business activity.”

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Organizational Direction: What Will It Do?

Providing a warm, friendly experience is part of Southwest Airlines’
organizational strategy.
Source: © Southwest

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As shown in Figure 2–2, the organization’s foundation
enables it to set a direction in terms of (1) the “business”
it is in and (2) its specific goals.

Business

A business 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?”

Professor Theodore Levitt saw that 20th-century American railroads defined their business too narrowly, proclaiming, “We are in the
railroad business!” This myopic focus caused them to lose sight of who their customers were and what they needed. So railroads failed to
develop strategies to compete with airlines, barges, pipelines, and trucks. As a result, many railroads merged or went bankrupt. Railroads
should have realized they were in “the transportation business.”

With today’s increased global competition, many organizations are rethinking their business model, the strategies an organization develops
to provide value to the customers it serves. Technological innovation is often the trigger for this business model change. American
newspapers are looking for a new business model as former subscribers now get their news online. Bookstore retailer Barnes & Noble, too,
is rethinking its business model as e-book readers like Amazon’s Kindle and Apple’s iPad have gained widespread popularity.

UPS Ad
kerin.tv/13e/v2-3

United Parcel Service (UPS), the company known for its brown delivery trucks, is redefining its business. The company recently launched a
new campaign with the tagline “United Problem Solvers,” which replaced its previous “We Love Logistics” campaign. Some of the language
from the campaign explains the new perspective: “Bring us your problems. Your challenges. Your daydreams. Your scribbles. Your just about
anything. Because we’re not just in the shipping business. We’re in the problem solving business.” Taking a lesson from Theodore Levitt, UPS
now sees itself as a service that can solve important and complicated problems for its customers, rather than a package delivery business.

Goals

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. Goals convert an organization’s mission and business into long- and short-term performance targets. Business firms can
pursue several different types of goals:

In the first half of the 20th century, what “business” did railroad executives
believe they were in? The text reveals their disastrous error.
© Digital Vision

Why is UPS changing the definition of its business? See the text for the
answer.
Source: UPS

VIDEO 2-3

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Profit. 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.
Market share. Market share is the ratio of sales revenue of the firm to the total sales revenue of all firms in the
industry, including the firm itself.

Quality. A firm may seek to offer a level of quality that meets or exceeds the cost and performance expectations of its
customers.
Customer satisfaction. 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.

Employee welfare. A firm may recognize the critical importance of its employees by stating its goal of providing them
with good employment opportunities and working conditions.
Social responsibility. Firms may seek to balance the conflicting goals of stakeholders to promote their overall welfare,
even at the expense of profits.

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Page

LO 2-3

Explain why managers use marketing dashboards
and marketing metrics.

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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.

Organizational Strategies: How Will It Do It?

As shown in Figure 2–2, the organizational foundation sets the “why” of organizations and the organizational direction sets the “what.” To
convert these into actual results, the organizational strategies are concerned with the “how.” These 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 the levels in an organization involves creating increasingly specific, detailed strategies and plans. So, at the corporate level, top
managers may struggle with writing a meaningful mission statement; while at the functional level, the issue is who makes tomorrow’s sales
call.

Variation by Product

Organizational strategies also vary by the organization’s products. The strategy will be far different when marketing a very tangible physical
good (Ben & Jerry’s ice cream), a service (a Southwest Airlines flight), or an idea (a donation to the American Red Cross).

Most organizations develop a marketing plan as a part of their strategic marketing planning efforts. A marketing plan is a road map for
the marketing actions 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) usually results in a marketing plan that directs the marketing actions of an organization. Appendix A at
the end of this chapter provides guidelines for writing a marketing plan.

learning review

2-3. What is the meaning of an organization’s mission?
2-4. What is the difference between an organization’s business and its goals?

Tracking Strategic Performance with Marketing Analytics

Although marketing managers can set strategic direction for their
organizations, how do they know if they are making progress in
getting there? As several industry experts have observed, “You
can’t manage what you don’t measure.” One answer to this
problem is the growing field of data analytics, or big data, which
enables data-driven decisions by collecting data and presenting
them in a visual format such as a marketing dashboard.

Car Dashboards and Marketing
Dashboards

A marketing dashboard is the visual 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

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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.

Dashboards, Metrics, and Plans

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The marketing dashboard of Sonatica, a hypothetical hardware and software firm, appears in Figure 2–3. It shows graphic
displays of key performance indicators linked to its product lines. Each display in a marketing dashboard shows a marketing m
etric , which is a measure of the quantitative value or trend of a marketing action or result. Choosing which marketing metrics to display is
critical for a busy 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 during the evaluation phase and (2) take corrective actions. This book uses data visualization in
many figures to highlight in color key points described in the text. The Sonatica marketing dashboard in Figure 2–3 uses data visualization
tools like a pie chart, a line or bar chart, and a map to show how parts of its business are performing as of December 2015:

Figure 2–3 An effective marketing dashboard, like this one from Sonatica, a hypothetical hardware
and software firm, helps managers assess a business situation at a glance.
Dundas Data Visualization, Inc.

Website Traffic Sources. The color-coded perimeter of the pie chart shows the three main sources of website traffic
(referral sites at 47 percent, search engines at 37 percent, and direct traffic at 16 percent). These three colors link to
those of the circles in the column of website traffic sources. Of the 47 percent of traffic coming from referral sites, the
horizontal bullet graphs to the right show that Sonatica’s Facebook visits comprise 15 percent of total website traffic,
up from a month ago (as shown by the vertical line).

Sales Performance by SBU. The spark lines (the wavy lines in the far left column) show the 13-month trends of
Sonatica’s strategic business units (SBUs). For example, the trends in electronics and peripherals are generally up,
causing their sales to exceed their YTD (year to date) targets. Conversely, both software and hardware sales failed to
meet YTD targets, a problem quickly noted by a marketing manager seeing the red “warning” circles in their rows at
the far right. This suggests that immediate corrective actions are needed for the software and hardware SBUs.
Website Visits by State. The U.S. map shows that the darker the state, the greater the number of website visits for the
current month. For example, Texas has close to 20,000 visits per month, while Illinois has none.

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Applying Marketing Metrics

How Well Is Ben & Jerry’s Doing?

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As the marketing manager for Ben & Jerry’s, you need to assess how it is doing within the United States in the super-premium ice
cream market in which it competes. For this, you choose two marketing metrics: dollar sales and dollar market share.

Your Challenge

Scanner data from checkout counters in supermarkets and other retailers show the total industry sales of super-premium ice cream were
$1.25 billion in 2015. Internal company data show you that Ben & Jerry’s sold 50 million units at an average price of $5.00 per unit in
2015. A “unit” in super-premium ice cream is one pint.

Your Findings

Dollar sales and dollar market share can be calculated for 2015 using simple formulas and displayed on the Ben & Jerry’s marketing
dashboard as follows:

Dollar sales ($) = Average price × Quantity sold
= $5.00 × 50 million units
= $250 million

Dollar market share (%)

= 0.20 or 20%

Ben & Jerry’s sales ($)

Total industry sales ($)

$250 million
$1.25 billion

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LO 2-4

Discuss how an organization assesses where it is
now and where it seeks to be.

Your dashboard displays show that from 2014 to 2015 dollar sales increased from $240 million to $250 million and that dollar market
share grew from 18.4 to 20.0 percent.

Your Action

The results need to be compared with the goals established for these metrics. In addition, they should be compared with previous years’
results to see if the trends are increasing, flat, or decreasing. This will lead to marketing actions.

The Ben & Jerry’s dashboard in the Applying Marketing Metrics box shows how the two widely used marketing metrics of dollar sales and
dollar market share can help the company assess its growth performance from 2014 to 2015. The Applying Marketing Metrics boxes in later
chapters highlight other key marketing metrics and how they can lead to marketing actions.

SETTING STRATEGIC DIRECTIONS
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?

A Look Around: Where Are We Now?

Asking an organization where it is at the present time involves identifying its competencies, customers, and competitors.

Competencies

Senior managers must ask the question: What do we do best? The answer involves an assessment of the organization’s core competencies,
which are its special capabilities—the skills, technologies,

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and resources—that distinguish it from other organizations and provide customer value. Exploiting these competencies can lead to
success. 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.

Customers

Ben & Jerry’s customers are ice cream and frozen yogurt eaters
who have different preferences (form, flavor, health, and
convenience). Medtronic’s pacemaker customers include
cardiologists and heart surgeons who serve patients that need this
type of device. Lands’ End communicates a remarkable
commitment to its customers and its product quality with these
unconditional words:

Guaranteed. Period.

The Lands’ End website points out that this guarantee has always been an unconditional one. It reads: “If you’re not satisfied with any item,
simply return it to us at any time for an exchange or refund of its purchase price.” But to get the message across more clearly to its customers,
it created the two-word guarantee. The point is that Lands’ End’s strategy must provide genuine value to customers to ensure that they have
a satisfying experience.

Competitors

In today’s global marketplace, the distinctions among competitors are increasingly blurred. Lands’ End started as a catalog retailer. But
today, Lands’ End competes with not only other clothing catalog retailers but also traditional department stores, mass merchandisers, and
specialty shops. Even well-known clothing brands such as Liz Claiborne now have their own chain stores. Although only some of the clothing
in any of these stores directly competes with Lands’ End offerings, all of these retailers have websites to sell their offerings over the Internet.
This means there’s a lot of competition out there.

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

Successful organizations have a portfolio or range of offerings (products and services) that possess different growth rates and market shares
within the industry in which they operate. The Boston Consulting Group (BCG), an internationally 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’ SBUs as though they were a collection of separate investments. The purpose of this tool is to determine which SBU or
offering generates cash and which one requires cash to fund the organization’s growth opportunities.

Marketing Matters

Filling the Shoes of Apple CEO Tim Cook: Where Will Apple’s Projected Future Growth for Its Major SBUs
Come From?

30
31

Technology

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Every CEO of a for-profit organization faces one problem in common: trying to find ways to increase future sales and profits to
keep it growing!

Put yourself in Tim Cook’s shoes. One of his jobs is to search for new growth opportunities. Using your knowledge about Apple products,
do a quick analysis of four SBUs shown below to determine where Apple should allocate its time and resources. Rate these growth
opportunities from highest to lowest in terms of percentage growth in unit sales from 2015 to 2018:

We’ll walk you through possible answers. You then can evaluate your performance over the next two pages and decide whether you’re
really ready for Mr. Cook’s job!

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iPod

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iPhone

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iPad/iPad mini

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All product photos: Source: Apple Inc.

As described in the Marketing Matters box, let’s assume you are filling the shoes of Apple CEO Tim Cook. Based on your knowledge of Apple

Apple Watch

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products, you are currently conducting a quick analysis of four major Apple SBUs through 2018. Try to rank them from highest to lowest in
terms of percentage growth in expected unit sales. We will introduce you to business portfolio analysis as we look at the possible future of the
four Apple SBUs.

The BCG business portfolio analysis requires an organization to locate the position of each of its SBUs on a growth-share matrix (see Figure
2–4). The vertical axis is the market growth rate, which is the annual rate of growth of the SBU’s industry. The horizontal axis is the 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× (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× (at the right end of the
scale) means it has only 10 percent of the share of its largest competitor.

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:

Figure 2–4 Boston Consulting Group (BCG) business portfolio analysis for four of Apple’s consumer-
related SBUs. The red arrow indicates typical movement of a product through the matrix.
All product photos: Source: Apple Inc.

1. Question marks are 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.

2. Stars are 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.

3. Cash cows are SBUs that generate large amounts of cash, far more than they can use. They have dominant shares of
slow-growth markets and provide cash to cover the organization’s overhead and to invest in other SBUs.

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4. Dogs are SBUs with low shares of slow-growth markets. Although they may generate enough cash to sustain
themselves, they may no longer be or may not become real winners for the organization. Dropping SBUs that are dogs
may be required if they consume more cash than they generate, except when relationships with other SBUs,
competitive considerations, or potential strategic alliances exist.32

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An organization’s SBUs often start as question marks and go counterclockwise around Figure 2–4 to become stars, then cash cows,
and finally dogs. Because an organization has limited influence on the market growth rate, its main objective is to try to change its
relative dollar or unit market share. To do this, management decides what strategic role each SBU should have in the future and either injects
cash into or removes cash from it.

According to Interbrand, a leading brand management consulting firm, Apple has been consistently cited as one of
the top global brands over the past decade in its annual Best Global Brands survey. What has made Apple so iconic
is not only its revolutionary products but also its commitment to infusing the “human touch” with its technology
such that its customers connect with the brand on both a cognitive and an emotional level. The late Steve Jobs was
instrumental in creating Apple’s organizational culture and core values that will continue to guide its future.

Using the BCG business portfolio analysis framework, Figure 2–4 shows that the Apple picture might look this way
from 2015 to 2018 for four of its SBUs:

What can Apple
expect in future
growth of sales
revenues from its
iPhone products…
Source: Apple Inc.

33
34

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So, how did you—as Tim Cook—rank the growth opportunity for each of the four SBUs? The Apple Watch represents the highest unit growth
rate at more than 100 percent. The iphone SBU is likely to continue growing at almost 10 percent, while the iPad SBU is experiencing a
declining growth rate. Despite the difference in growth rates, the iPhone and iPad product lines together accounted for 72 percent of Apple’s
revenues in 2014. These revenues are used to pursue growth opportunities such as the Apple Watch, a next generation phone, and a huge 13-
inch iPad. Finally, no growth and the discontinuation of the iPod classic may signal the beginning of the end for Apple’s iPod.

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.

Diversification Analysis

Diversification analysis is 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). As Ben & Jerry’s seeks to increase sales revenues, it considers all four market-product strategies shown in Figure 2–5:

1. Apple Watch (wearable technology). Apple entered the wearable technology market in April 2015 with its
version of a smart watch, the Apple Watch. The watch competes with Samsung, Pebble, and Motorola watches
and a wide range of other wearable technologies such as Fitbit and Jawbone fitness trackers. The market grew at a
rate of more than 100 percent in 2015, and Apple Watch sales were substantial despite a relatively high price and
short battery life. The Apple watch enters the market as a question mark and awaits consumers’ response.35

2. iPhone (smartphones). Apple launched its revolutionary iPhone smartphone in 2007. iPhone
unit sales skyrocketed and Apple’s U.S. market share has grown to 47.7 percent, exceeding the
market share of its largest competitor, Samsung. The smartphone market is expected to grow at
an annual rate of 9.8 percent through 2018 due to growth in China and falling prices. High
market share and high growth suggest that Apple’s iPhone is a star.

…or its iPod
devices?
Source: Apple Inc.

3. iPad/iPad mini (tablets). Launched in 2010, iPad unit sales reached 40 percent market share by
2013—leading both Samsung’s Galaxy (18 percent) and Amazon’s Kindle (4 percent). Tablet

sales are increasing although the rate of growth is plummeting as consumers are substituting big-screen
smartphones, or “phablets,” for tablets. For Apple, its iPad SBU is a cash cow (high market share in a low-growth
market).37

4. iPod (music players). Apple entered the music player market with its iPod device in 2001. The product became a
cultural icon, selling more that 50 million units annually until 2010 when the iPhone integrated a music player. Since
2010 sales have been declining dramatically and in October 2014 Apple announced that it was discontinuing the iPod
classic. Today Apple still sells three iPod product lines—the nano, the shuffle, and the touch—although declining sales
and discontinued products suggest that this SBU is entering the dog category.38

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B&J’s Bonnaroo Buzz Ad
kerin.tv/13e/v2-4

Market penetration is 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.

VIDEO 2-4

Market development is 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.
Product development is a marketing strategy of selling new products to current markets. Ben & Jerry’s could leverage
its brand by selling children’s clothing in

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LO 2-5

Explain the three steps of the planning phase of the
strategic marketing process.

learning review

2-5. What is the difference between a marketing dashboard and a marketing metric?
2-6. What is business portfolio analysis?
2-7. Explain the four market-product strategies in diversification analysis.

THE STRATEGIC MARKETING PROCESS
After an organization assesses where it is and where it wants to
go, other questions emerge, such as:

To answer these questions, an organization uses the strategic marketing process , whereby an organization allocates its marketing mix

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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.

Diversification is 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 from which to draw in marketing
clothing to Brazilian consumers.

Figure 2–5 Four market-product strategies: alternative ways to expand sales revenues for Ben &
Jerry’s using diversification analysis.

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?

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resources to reach its target markets. This process is divided into three phases: planning, implementation, and evaluation, as shown in Figur
e 2–6.

The Planning Phase of the Strategic Marketing Process

Figure 2–6 shows the 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

Figure 2–6 The strategic marketing process has three vital phases: planning, implementation, and
evaluation. The figure also indicates the chapters in which these phases are discussed in the text.

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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:

Assume you are responsible for doing the SWOT analysis for Ben & Jerry’s shown in Figure 2–7. Note that the SWOT table has four cells
formed by the combination of internal versus external factors (the rows) and favorable versus unfavorable factors (the columns) that identify
Ben & Jerry’s strengths, weaknesses, opportunities, and threats.

The task is to translate the results of the SWOT analysis into specific marketing 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.

The Ben & Jerry’s SWOT analysis in Figure 2–7 can be the basis for these kinds of specific marketing actions. An action in each of the four
cells might be:

Identify trends in the organization’s industry.

Analyze the organization’s competitors.
Assess the organization itself.

Research the organization’s present and prospective customers.

Figure 2–7 Ben & Jerry’s: A SWOT analysis to keep it growing. The picture painted in this SWOT
analysis is the basis for management actions.

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Step 2: Market-Product Focus and Goal Setting

How can Ben & Jerry’s develop new products and
social responsibility programs that contribute to
its mission? The text describes how the strategic
marketing process and its SWOT analysis can
help.
© Mike Hruby

Build on a strength. Find specific efficiencies in distribution with parent-
company Unilever’s existing ice cream brands.

Correct a weakness. Recruit experienced managers from other consumer
product firms to help stimulate growth.
Exploit an opportunity. Develop new product lines of low-fat, low-carb
frozen Greek-style yogurt flavors to respond to changes in consumer tastes.

Avoid a disaster-laden threat. Focus on less risky international markets,
such as Brazil and Argentina.

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Determining which products will be directed toward which customers (step 2 of the planning phase in Figure 2–6) is essential for
developing an effective marketing program (step 3). This decision is often based on market segmentation , which 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 focus specific marketing programs on its target market segments. The match between products and segments
is often related to points of difference , or those characteristics of a product that make it superior to competitive substitutes. Goal setting
involves specifying measurable marketing objectives to be achieved.

So step 2 in the planning phase of the strategic marketing process—deciding which products will be directed toward which customers—is the
foundation for step 3, developing the marketing program.

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) and its budget. Figure 2–8 shows that each marketing mix element is combined to provide a
cohesive marketing program.

Putting a marketing program into effect requires that the firm commit time and money to it in the form of a sales forecast (see Chapter 8)
and budget that must be approved by top management.

Figure 2–8 The four Ps elements of the marketing mix must be blended to produce a cohesive
marketing program.

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learning review

2-8. What are the three steps of the planning phase of the strategic marketing process?
2-9. What are points of difference and why are they important?

The Implementation Phase of the Strategic Marketing Process

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LO 2-6

Describe the four components of the implementation
phase of the strategic marketing process.

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As shown in Figure 2–6, the result of the 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 execute the marketing plan—in the implementation phase
—the planning phase wasted time and resources.

There are four components of the implementation phase: (1)
obtaining resources, (2) designing the marketing organization, (3) defining precise tasks, responsibilities, and deadlines, and (4) actually
executing the marketing program designed in the planning phase.

Obtaining Resources

A key task in the implementation phase of the strategic marketing process is finding adequate human and financial resources to execute the
marketing program successfully. Small business owners often obtain funds from savings, family, friends, and bank loans. Marketing
managers in existing organizations obtain these resources by getting top management to divert profits from BCG stars or cash cows.

Designing the Marketing Organization

A marketing program needs a marketing organization to implement it. Figure 2–9 shows the organization chart of a typical manufacturing
firm, giving some details of the marketing department’s structure. Four managers of marketing activities are shown to report to the vice
president of marketing or CMO. 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 realistic marketing actions.

Defining Precise Tasks, Responsibilities, and Deadlines

Figure 2–9 Organization of a typical manufacturing firm, showing a breakdown of the marketing
department.

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Successful implementation requires that team members know the tasks for which they are responsible and the deadlines for completing
them. To implement the thousands of tasks on a new aircraft design, Lockheed Martin typically holds weekly program meetings. The

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outcome of each of these meetings is an action item list, an aid to implementing a marketing plan consisting of four columns: (1) the
task, (2) the person responsible for completing that task, (3) the date to finish the task, and (4) what is to be delivered. Within hours
of completing a program meeting, the action item list is circulated to those attending. This then serves as the starting agenda for the next
meeting. Meeting minutes are viewed as secondary and backward-looking. Action item lists are forward-looking, clarify the targets, and put
strong pressure on people to achieve their designated tasks by the deadline.

Suppose, for example, that you and two friends undertake a term project on the problem, “How can the college increase attendance at its
performing arts concerts?” The instructor says the term project must involve a mail survey of a sample of students, and the written report
with the survey results must be submitted by the end of the 11-week quarter. To begin, you identify all the project tasks and then estimate the
time required to complete each one. To complete it in 11 weeks, your team must plan which activities can be done concurrently (at the same
time) to save time.

Scheduling activities can be done efficiently with a Gantt chart, which is a graph of a program schedule. Figure 2–10 shows a Gantt chart—
invented by Henry L. Gantt—used to schedule the class project, demonstrating how the concurrent work on several tasks enables the
students to finish the project on time. Software applications such as Microsoft Project simplify the task of developing a program schedule or
Gantt chart.

The key to all scheduling techniques is to distinguish tasks that must be done sequentially from those that can be done concurrently. For
example, Tasks 1 and 2 that are shaded yellow in Figure 2–10 must be done sequentially. This is because in order to type and copy the final
questionnaire before mailing (Task 2), the student must have a final draft of the questionnaire (Task 1). In contrast, Tasks 6 and 7 that are
shaded blue can be done concurrently. So writing the final report (Task 7) can be started before tabulating the questions (Task 6) is
completed. This overlap speeds up project completion.

Executing the Marketing Program

Marketing plans are meaningless without effective execution of those plans. This requires attention to detail for both marketing strategies
and marketing tactics. A marketing strategy is the means by which a marketing goal

Figure 2–10 This Gantt chart shows how three students (A, B, and C) can schedule tasks to complete
a term project on time. Software applications, such as Microsoft Project, simplify the task of developing
a program schedule or Gantt chart.

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LO 2-7

Discuss how managers identify and act on deviations
from plans.

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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 or actions to achieve it (marketing program).

To implement a marketing program successfully, hundreds of detailed decisions are often required to develop the actions that comprise a
marketing program for an offering. These actions, called marketing tactics , are detailed day-to-day operational marketing actions for each
element of the marketing mix that contribute to the overall success of marketing strategies. Writing ads and setting prices for new product
lines are examples of marketing tactics.

The Evaluation Phase of the Strategic Marketing Process

The evaluation phase of the strategic marketing process seeks to
keep the marketing program moving in the direction set for it (see
Figure 2–6). 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—exploiting positive deviations and correcting
negative ones.

Comparing Results with Plans to Identify
Deviations

At the end of its fiscal year, which is September 30, Apple begins the evaluation phase of its strategic marketing process. Suppose you are on
an Apple task force in late 2005 that is responsible for making plans through 2014. You observe that extending the 2000–2005 trend of
Apple’s recent sales revenues (line AB in Figure 2–11) to 2014 along line BC shows an annual growth in sales revenue unacceptable to
Apple’s management.

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Looking at potential new products in the Apple pipeline, your task force set an aggressive annual sales growth target of 25 percent per year—
the line BD in Figure 2–11. This would give sales revenues of $42 billion in 2010 and $104 billion in 2014.

This reveals a gray wedge-shaped gap DBC in the figure. Planners call this the planning gap, the difference between the projection of the
path to reach a new sales revenue goal (line BD) and the projection of the path of a plan already in place (line BC). The ultimate purpose of
the firm’s marketing program is to “fill in” this planning gap—in the case of your Apple task force, to move its future sales revenue line from
the slow-growth line BC up to the more challenging target of line BD.

This is the essence of evaluation: comparing actual results with goals set. To reach aggressive growth targets in sales revenues, firms like
Apple must continuously look for a new BCG SBU or product cash cow or star.

Acting on Deviations

Figure 2–11 The evaluation phase of the strategic marketing process requires that the organization
compare actual results with goals to identify and act on deviations to fill in its “planning gap.” The text
describes how Apple is working to fill in its planning gap.
Apple logos: Left: © Mickey Pfleger/LIFE Images/Getty Images; Right: © Jerome Favre/Bloomberg via Getty Images; Computer:
Source: Apple Inc.

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When evaluation shows that actual performance differs from expectations, managers need to take immediate marketing actions—
exploiting positive deviations and correcting negative ones. Comparing the explosion in Apple’s actual sales revenues from 2006 to
2014 (line BE in Figure 2–11) to its target sales revenues (line BD) shows Apple’s rare, world-class ability to both generate and anticipate
consumer demand and commercialize new technologies for its revolutionary offerings. Let’s consider some of its marketing actions:

As we saw earlier in the BCG business portfolio analysis of the four Apple product lines, the firm has several stars and cash cows to fill in its
planning gap. We shall explore Apple’s market-product strategies in more detail later in Chapters 9 and 10.

learning review

2-
10.

What is the implementation phase of the strategic marketing process?

2-
11.

How do the goals set for a marketing program in the planning phase relate to the evaluation phase of the
strategic marketing process?

Exploiting a positive deviation. Favorable customer reactions to Apple’s iPhone (2007) and its iPad (2010) enable it
to sell the products globally and to introduce improved versions and models, such as the iPad mini (2012) and the
Apple Watch (2015).

Correcting a negative deviation. As Apple’s desktop PCs became dated, it moved aggressively to replace them with
new iMacs and MacBooks. Also, Apple refreshed its MacBook Air and MacBook Pro lines of laptops (2013).

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LEARNING OBJECTIVES REVIEW

LO 2-1 Describe three kinds of organizations and the three levels of strategy in them.

An organization is a legal entity that consists of people who share a common mission. It develops offerings (goods, services, or ideas) that
create value for both the organization and its customers by satisfying their needs and wants. Today’s organizations are of three types: for-
profit organizations, nonprofit organizations, and government agencies. A for-profit organization serves its customers to earn a profit so
that it can survive. Profit is the money left after a for-profit organization subtracts its expenses from its total revenues and is the reward
for the risk it undertakes in marketing its offerings. 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. A government
agency is a federal, state, county, or city unit that provides a specific service to its constituents. Most large for-profit and nonprofit
organizations are divided into three levels of strategy: (a) the corporate level, where top management directs overall strategy for the entire
organization; (b) the strategic business unit level, where managers set a more specific strategic direction for their businesses to exploit
value-creating opportunities; and (c) the functional level, where groups of specialists actually create value for the organization.

LO 2-2 Describe core values, mission, organizational culture, business, and goals.

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. 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.

LO 2-3 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.

LO 2-4 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

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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).

LO 2-5 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 and 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 actions (marketing strategies and tactics)
for each marketing mix element.

LO 2-6 Describe the four components of the implementation phase 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 components: (a) obtaining resources; (b)

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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—often with an action item list and Gantt chart; 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 marketing actions for each element of the marketing mix that contribute 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.

LO 2-7 Discuss how managers identify and act on deviations from plans.

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.

LEARNING REVIEW ANSWERS

2-1 What is the difference between a for-profit and a nonprofit organization?
Answer: A for-profit organization 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.

2-2 What are examples of a functional level in an organization?
Answer: The functional level in an organization is where groups of specialists from the marketing, finance,
manufacturing/operations, accounting, information systems, research and development, and/or human
resources departments focus on a specific strategic direction to create value for the organization.

2-3 What is the meaning of an organization’s mission?
Answer: A mission is a clear, concise, meaningful, inspirational, and long-term statement of the
organization’s function in society, often identifying its customers, markets, products, and technologies. It
is often used interchangeably with vision.

2-4 What is the difference between an organization’s business and its goals?
Answer: 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.

2-5 What is the difference between a marketing dashboard and a marketing metric?
Answer: A marketing dashboard is the visual computer display of the essential information related to
achieving a marketing objective. Each variable displayed in a marketing dashboard is a marketing metric,
which is a measure of the quantitative value or trend of a marketing action or result.

2-6 What is business portfolio analysis?
Answer: Business portfolio analysis is a technique that managers use to quantify performance measures
and growth targets to analyze their firms’ SBUs as though they were a collection of separate investments.
The purpose of this tool is to determine which SBU or offering generates cash and which one requires cash

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to fund the organization’s growth opportunities.
2-7 Explain the four market-product strategies in diversification analysis.

Answer: 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 marketing strategy of developing new
products and selling them in new markets. This is a potentially high-risk strategy because the firm has
neither previous production nor marketing experience on which to draw in marketing a new product to a
new market.

2-8 What are the three steps of the planning phase of the strategic marketing process?
Answer: The three steps of the planning phase of the strategic marketing process are: (1) Situation
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 determine 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, which is where an organization develops the marketing mix elements and budget for each
offering.

2-9 What are points of difference and why are they important?
Answer: Points of difference are those characteristics of a product that make it superior to competitive
substitutes—offerings the organization faces in the marketplace. They are important factors in the success
or failure of a new product.

2-10 What is the implementation phase of the strategic marketing process?
Answer: 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) defining precise
tasks, responsibilities, and deadlines; and (4) executing the marketing program designed in the planning
phase.

2-11 How do the goals set for a marketing program in the planning phase relate to the evaluation
phase of the strategic marketing process?
Answer: The planning phase goals or 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 exploit positive ones or correct negative ones.

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FOCUSING ON KEY TERMS

APPLYING MARKETING KNOWLEDGE

business , 32
business portfolio analysis , 36
core values , 31
diversification analysis , 39
goals (objectives) , 32
market segmentation , 42
market share , 32
marketing dashboard , 33
marketing metric , 34
marketing plan , 33
marketing strategy , 44
marketing tactics , 45
mission , 31
objectives (goals) , 32
organizational culture , 31
points of difference , 42
profit , 28
situation analysis , 40
strategic marketing process , 40
strategy , 29
SWOT analysis , 41

1. (a) Using Medtronic as an example, explain how a mission statement gives it a strategic direction. (b) Create a
mission statement for your own career.

2. What competencies best describe (a) your college or university and (b) your favorite restaurant?
3. Compare the advantages and disadvantages of Ben & Jerry’s attempting to expand sales revenues by using (a) a

product development strategy or (b) a market development strategy.

4. Select one strength, one weakness, one opportunity, and one threat from the Ben & Jerry’s SWOT analysis shown
in Figure 2–7. Suggest an action that a B&J marketing manager might take to address each factor.

5. What is the main result of each of the three phases of the strategic marketing process? (a) planning, (b)
implementation, and (c) evaluation.